2019 (3) TMI 1806 - AT - Income Tax

Tribunal Supports Deletion of Additions by AO Due to Insufficient Evidence, Affirms No Nexus in Disallowed Expenses.

The Tribunal upheld the CIT(A)'s decision to delete additions made by the AO under Section 68 of the IT Act, citing insufficient evidence and lack of ... Addition u/s 68 - unexplained loans as well as unexplained share application money received from five companies - assessee is a group concern of Kota Dall Mill (KDM) group and subjected to the search and seizure action U/s 132 - CIT(A) has deleted the major part of the addition for which the A.O. was not having any material in his possession but confirmed the addition in respect of which the statement of the alleged entry provider was with the A.O - HELD THAT:- Finding of the CIT (A) are based on the facts as well as the documentary evidence produced by the assessee whereas the AO has not brought on record any contrary evidence except the allegation made in the report of the Investigation Wing Kolkata - documentary evidences brought by the assessee cannot be negated merely on the basis or allegation made in the report which is nothing but narration of the statements recorded of certain persons. The report of the DDIT Investigation cannot substitute the documentary evidence. No error or illegality in the order of the ld. CIT (A) qua this issue. The finding of the ld. CIT(A) for the year under consideration is based on the identical grounds as in the case of M/s Kota Dall Mill while deleting the addition made by the A.O. in respect of all these five companies. Thus having regard to the facts and circumstances of the case as well as the documentary evidence produced by the assessee in respect of the claim, the addition made by the A.O. based on merely allegations in the report of DDIT (Inv.), Kolkata without any supporting cogent material or documentary evidence is not sustainable. Therefore, in view of the earlier order as well as evidence produced by the assessee, we do not find any error or illegality in the order of the ld. CIT(A) in deleting the addition. Hence, we uphold the same. - Decided in favour of assessee. Disallowance u/s 14A - as per AO expenditure directly incurred in respect of investment in shares and income from such investment does not form part of the total income - CIT(A) has deleted the addition on the ground that the A.O. has even not recorded any satisfaction that the alleged expenditure has any direct nexus with the investment when the assessee was having sufficient interest free funds - HELD THAT:- The assessee is in the business of finance and therefore, the interest expenditure is essentially connected with the business of the assessee if except the borrowed fund is directly used by the assessee for the purpose of investment in shares. There is no fresh investment made by the assessee during the year but all these investments were old investments, therefore, in absence of any finding that the assessee has used the borrowed fund at the time of making the investment, the disallowance on the ground of interest expenditure is not warranted. As regards the indirect expenditure, CIT(A) correctly noted that the A.O. has applied amended provisions of Rule 8D(2)(ii) of the Rules, however, that the amendment is w.e.f. 02/6/2016 and not applicable for the year under consideration even otherwise when these investments are old investments and the A.O. has not identified which of the indirect expenditure for any direct or proxy nexus for earning the exempt income. Disallowance by invoking the provisions of Rule 8D of the Rules is not automatic, there may be case when the assessee does not claim any expenditure or the expenditure claimed by the assessee is less than the amount of disallowance computed under Rule 8D of the Rules then the disallowance if any cannot be more than the actual claim of expenditure. - Decided against revenue. Addition on account of retention charges - allowable business expenditure u/s 37(1) or not ? - Whether this amount was paid as fee to the RIICO for not supporting the commercial activity at the industrial site allotted by the RIICO to the assessee? - HELD THAT:- We find that this amount was paid by the assessee being the fee for not commencing the commercial activity at the industrial site allotted by the RIICO, therefore, to be retained the right over the commercial site. The assessee to pay the fee as per the rules of the allotment. Thus, the expenditure was incurred by the assessee to retain its right over the site allotted by the RIICO and to protect the interest of the assessee. Once the charges are paid for extending the time period to start the commercial activity at the site allotted by the RIICO then the same is an allowable business expenditure U/s 37(1) - Decided in favour of assessee. Validity of order passed U/s 153A read with Section 143(3) - assessee has raised issue regarding the addition made by the A.O. without any incriminating material as well as the order of the A.O. is not sustainable when the assessee was not given the opportunity of cross examination - HELD THAT:- As decided in case of M/s Multimetals Limited [2019 (1) TMI 1591 - ITAT JAIPUR] either in the assessment order, the Assessing Officer has referred or relied upon any incriminating material found during the course of search and seizure action in the case of assessee nor the CIT(A) has disputed this fact that the AO was not having any incriminating material in his possession found and seized during the course of search and seizure action in the case of the assessee which has disclosed any unaccounted or undisclosed income of the assessee. Information received from the Investigation Wing, Kolkata as well as the statement of Shri Anand Sharma and Shri Ankit Bagri cannot be regarded as incriminating material unearthed during the course of search and seizure U/s 132 in the case of the assessee. As regards the order passed by the A.O. without giving the opportunity of cross examination, we find that the facts on this issue are identical as in the case of other group concerns of Kota Dall Mill. In the case of M/s Multimetals Limited Vs DCIT (supra), the Tribunal has again considered this issue and followed the decision of the Tribunal in the case of Kota Dall Mill [2019 (1) TMI 344 - ITAT JAIPUR]. The relevant findings of the Tribunal are reproduced in the foregoing paras of this order. Hence, following the earlier orders of this Tribunal, we decide this issue in favour of the assessee and against the revenue. Issues Involved:1. Deletion of additions under Section 68 of the IT Act on account of unexplained unsecured loans and share application money.2. Justification of treating investor companies as non-shell companies without considering financial statements.3. Deletion of additions due to lack of evidence from entry operators.4. Non-production of directors or principal officers of the companies before the AO.5. Deletion of additions based on the assessee's cooperation during assessment.6. Burden of producing lenders before the AO.7. Deletion of disallowance under Section 14A of the IT Act.8. Deletion of disallowance on account of retention charges.Detailed Analysis:1. Deletion of Additions under Section 68:The AO made additions of Rs. 18.72 crores as unexplained cash credits under Section 68, based on the report from the Investigation Wing, Kolkata, which suggested that the loans and share capital received were accommodation entries provided by entry operators. The CIT(A) deleted the additions, noting that the AO had no documentary evidence or statements of the entry operators to substantiate the claim. The assessee provided comprehensive documentary evidence, including income tax returns, financial statements, bank statements, and affidavits of the directors, establishing the identity, creditworthiness, and genuineness of the transactions.2. Treating Investor Companies as Non-Shell:The CIT(A) found no adverse findings or eloquent evidence in the reports from the Investigation Directorate, Kolkata, to treat the investor companies as shell companies. The AO did not conduct independent inquiries and relied solely on the investigation report. The assessee provided substantial evidence, including confirmations, bank statements, and affidavits, proving the genuineness of the transactions.3. Lack of Evidence from Entry Operators:The AO's additions were based on the report from the Investigation Wing, Kolkata, without any supporting documentary evidence or statements from entry operators. The CIT(A) noted that the AO did not have any material to substantiate the addition, and the assessee had provided all necessary documentary evidence.4. Non-Production of Directors or Principal Officers:The AO's claim that the directors or principal officers were not produced for examination was dismissed by the CIT(A), who noted that the assessee had shown willingness to produce the directors and some were indeed produced. The AO failed to establish the genuineness of the transactions despite the directors' presence.5. Assessee's Cooperation During Assessment:The CIT(A) observed that the assessee cooperated during the assessment by producing directors and providing necessary documents. The AO's reliance on the investigation report without further inquiry was insufficient to substantiate the addition.6. Burden of Producing Lenders:The CIT(A) held that the burden of producing lenders before the AO could not be fastened upon the assessee, especially when the AO had sufficient material from the Investigation Wing to prove the transactions. The assessee had discharged its onus by providing comprehensive documentary evidence.7. Deletion of Disallowance under Section 14A:The AO disallowed Rs. 52,43,029 under Section 14A, attributing it to interest expenditure related to investments in shares. The CIT(A) deleted the disallowance, noting that the AO did not record any satisfaction regarding the nexus between the expenditure and the investment. The investments were old, and the assessee had sufficient interest-free funds.8. Deletion of Disallowance on Retention Charges:The AO disallowed Rs. 7,50,385 claimed as retention charges without providing reasons. The CIT(A) allowed the claim, noting that the amount was paid to RIICO as a fee for not commencing commercial activity at the industrial site allotted to the assessee, making it a legitimate business expenditure.Separate Judgments:The Tribunal upheld the CIT(A)'s findings, emphasizing the lack of incriminating material found during the search and the necessity of providing the assessee with the opportunity to cross-examine witnesses. The Tribunal also noted that the AO's reliance on the investigation report without additional evidence was insufficient to substantiate the additions. The Tribunal's decision was consistent with previous judgments, including those in the cases of M/s Kota Dall Mill and M/s Multimetals Limited.