Revenue's appeal dismissed on MAT computation under section 115JB and unexplained cash credit under section 68

ITAT Mumbai dismissed Revenue's appeal on two issues. First, regarding MAT computation under section 115JB, the Tribunal upheld CIT(A)'s decision allowing deduction of Debenture Redemption Reserve from book profits, following precedent in JSW Energy case and assessee's own prior case. Second, on addition under section 68 for unexplained cash credit, the Tribunal affirmed CIT(A)'s deletion of Rs.25 lakhs addition after remand proceedings established loan genuineness through section 133(6) notices and replies, noting the same loan was accepted in earlier reassessment proceedings for 2010-11.

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Issues involved:
1. Interpretation of debentures redemption reserve under section 115JB of the Act.
2. Addition under section 68 for unexplained loans and genuineness of transactions.
3. Allowability of interest expenditure on loans under section 36(1)(iii) of the Act.

Issue 1: Interpretation of debentures redemption reserve under section 115JB of the Act

The appeal by the Revenue challenged the order of the CIT(A) regarding the debentures redemption reserve (DRR) of Rs. 30,00,00,000 set apart by the assessee, contending that it should be considered a reserve within the meaning of Explanation 1(b) to section 115JB of the Act. The AO added back this amount to the income of the assessee, stating it was not a specified reserve. The CIT(A) allowed the appeal based on the decision of the Bombay High Court in CIT vs. Raymond Ltd, holding that the reserve was permissible. The Tribunal upheld this decision, citing precedents and affirming the allowance of the debentures redemption reserve in computing book profits under section 115JB of the Act.

Issue 2: Addition under section 68 for unexplained loans and genuineness of transactions

The second ground of appeal raised by the Revenue concerned the deletion of an addition of Rs. 25,00,000 under section 68 of the Act due to the failure of the assessee to establish the identity, creditworthiness of the lender, and genuineness of the transaction. The AO added this amount to the income of the assessee as unproved and unexplained. However, the CIT(A) called for a remand report, where it was revealed that the loan parties provided necessary evidence, and the genuineness of the loan from one party had been accepted in previous proceedings. Consequently, the CIT(A) deleted the addition and allowed the interest expenditure of Rs. 24,29,082 under section 36(1)(iii) of the Act. The Tribunal concurred with the CIT(A)'s decision, finding no anomalies, and dismissed the grounds raised by the Revenue.

In conclusion, the Tribunal upheld the decisions of the CIT(A) on both issues, emphasizing the legal precedents and the evidence provided in the remand report. The appeal by the Revenue was dismissed, and the orders were pronounced in open court on 31.05.2019.

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