2018 (1) TMI 332 - AT - Income Tax

Tribunal Upholds CIT(A) Decision on Share Application Money Case

The ACIT, Central Circle-17, New Delhi Versus M/s. Garuda Imaging & Diagnostics Pvt. Ltd. Vice-Versa And The ACIT, Central Circle-17, New Delhi Versus M/s. Sindhu Holdings Ltd. Vice-Versa

The Tribunal upheld the Ld. CIT(A)'s decision in the case involving unexplained share application money under Section 68, finding the A.O.'s addition ... Addition u/s 68 - Held that:- A.O. did not bring any evidence on record that the investments made by the investor companies were actually emanated from the coffers of the assessee company so as to enable it to be treated as undisclosed income of the assessee. The A.O. cannot ask the assessee to prove source of the source. Therefore, the facts and circumstances clearly proved that assessee discharged initial onus to prove identity of the investor companies, their creditworthiness and genuineness of the transaction in the matter. The Ld. CIT(A) on proper appreciation of evidence before him, correctly deleted the addition. No interference is called for in the matter. The Ld. CIT(A) correctly deleted the addition of ₹ 3.35 crores under section 68 of the I.T. Act. The decisions relied upon by the Ld. D.R. would not support the case of the Revenue in view of the fact that no enquiry have been taken by A.O. in this case to dispute the documentary evidences filed by the assessee. The departmental appeal has no merit and is accordingly dismissed. Assessment u/s 143(3)/153A - Held that:- Delhi High Court in the case of BDR Builders & Developers Pvt. Ltd. [2017 (8) TMI 42 - DELHI HIGH COURT] held that when assessee company ceases to exist from appointed date, was not liable for assessment under section 153A of the I.T. Act. The assessment under section 153A is void abinitio. The Hon’ble Delhi High Court similarly in the case of Maruti Suzuki Ltd. [2017 (9) TMI 387 - DELHI HIGH COURT] held that assessment order in the name of amalgamating company is not a procedural irregularity. Assessment order in the name of non- existing amalgamating company untenable. Considering the facts and circumstances of the case and in the light of judgment of the Hon’ble Delhi High Court dated 19th January, 2011, we are of the view that assessment framed against the assessee under section 143(3)/153A is bad in law and void abinitio. Resultantly, we set aside the orders of the authorities below and quash the assessment order. In the result, ground No.1 of cross objection of assessee is allowed. Disallowance under section 14A read with Rule 8D - Held that:- The working given by the assessee has not been disputed and further no satisfaction as required under section 14A have been recorded by the A.O. that assessee did incur any expenditure to earn exempt income. The Hon’ble Punjab & Haryana High Court in the case of Metalman Auto Ltd. [2011 (2) TMI 330 - PUNJAB AND HARYANA HIGH COURT] held that no expenses incurred for earning exempt income Section 14A do not apply. Onus is on the A.O. to record satisfaction that interest bearing funds used for investment to earn tax free income. In the present case, the A.O. did not deal with contention of assessee in assessment order and did not record any satisfaction that assessee did not incur any expenditure to earn exempt income. The Ld. CIT(A), therefore, correctly allowed part relief of assessee on this ground. Deemed dividend under section 2(22)(e) - Held that:- No interference is called for in the matter. The A.O. in the assessment order itself has recorded that in the original assessment completed under section 143(3), addition of ₹ 2.70 crore under section 2(22)(e) have been made but assessee did not provide any information, therefore, same addition was repeated in assessment year under appeal. Since, this similar addition has been deleted by the Ld. CIT(A) against the original assessment order, therefore, there were no justification to make addition in proceeding under section 153A of the I.T. Act against the assessee. The departmental appeal has no merit and the same is dismissed. Issues Involved:1. Addition of unexplained share application money under Section 68 of the I.T. Act.2. Validity of assessment on a merged entity.3. Disallowance under Section 14A read with Rule 8D of the I.T. Act.4. Addition based on fictitious profit/loss from client code modification.Issue-wise Detailed Analysis:1. Addition of Unexplained Share Application Money under Section 68:- The A.O. added Rs. 3.35 crores as unexplained share application money for A.Y. 2007-2008, citing insufficient evidence like non-submission of audited accounts.- The assessee provided names, addresses, PANs, bank statements, and confirmations from investors, arguing that the initial burden of proof was discharged.- The Ld. CIT(A) found the identity, creditworthiness, and genuineness of the investors proven, noting that non-submission of audited accounts alone was insufficient for addition.- The Tribunal upheld the Ld. CIT(A)'s decision, referencing multiple judicial precedents, including Supreme Court and High Court rulings, emphasizing that the A.O. did not conduct further inquiries or prove that the investments were from the assessee's own funds.2. Validity of Assessment on a Merged Entity:- The assessee argued that the assessment was void as it was conducted on a non-existent entity due to a merger effective from 1st April 2009.- The Tribunal agreed, citing the Delhi High Court judgment confirming the merger and ruling that assessments on a non-existent entity are void ab initio.- The Tribunal quashed the assessment orders for being issued to a non-existent entity, referencing relevant case laws supporting this position.3. Disallowance under Section 14A read with Rule 8D:- For A.Y. 2009-2010, the A.O. disallowed Rs. 7,85,336 under Section 14A, which the Ld. CIT(A) reduced to Rs. 86,792, based on the assessee's claim of no expenditure incurred for earning exempt income.- The Tribunal upheld the Ld. CIT(A)'s decision, noting the absence of satisfaction recorded by the A.O. and referencing judicial precedents that require such satisfaction before applying Rule 8D.- The Tribunal emphasized that disallowance under Section 14A is not warranted without evidence of expenditure incurred to earn exempt income.4. Addition Based on Fictitious Profit/Loss from Client Code Modification:- The assessee contested an addition of Rs. 98,38,651 based on alleged fictitious profit/loss due to client code modification.- The Tribunal noted that the Ld. CIT(A) did not provide a detailed finding on this issue.- However, since the assessment was quashed on the grounds of being conducted on a merged entity and lack of incriminating material, this addition was also deleted without further independent findings.Conclusion:- All departmental appeals were dismissed, and all cross objections by the assessee were allowed.- The Tribunal consistently emphasized the need for the A.O. to conduct thorough inquiries and provide substantial evidence when making additions, especially under Section 68 and Section 14A.- The assessments conducted on the merged entity were declared void ab initio, reinforcing the legal principle that assessments on non-existent entities are invalid.