2018 (3) TMI 304 - AT - Income Tax

Tribunal decision: Share capital addition deleted, interest-free advances disallowed. Assessee's appeal partially successful.

The Tribunal partially allowed the appeal by deleting the addition of Rs. 35 lakhs under Section 68 of the Income Tax Act, as the assessee had ... Addition u/s 68 - share capital introduced by the assessee afresh during the year - Held that:- If the assessee has discharged primary onus by submitting confirmation, bank statements, copies of income-tax returns, PAN data then it would be construed that the assessee has discharged primary onus put upon it by virtue of section 68. It is the AO who has to carry out investigation and demonstrate that these materials are not sufficient for discharging the onus cast upon assessee by section 68. No such steps have been taken by the AO. He simply assumed that since the assessee was directed to produce applicants and it failed to produce, therefore, everything is to be construed as manipulated. AO failed to carry out any inquiry for falsifying evidence submitted by the assessee in support of its explanation. Thus delete the addition - Decided in favour of assessee. Addition of interest - AO found that the assessee given interest free advances - Held that:- The assessee failed to give justification as to how these advances were given for the purpose of business. The ld.CIT(A) has rightly confirmed the disallowance. - Decided against assessee. Issues Involved:1. Addition of Rs. 35 lakhs to the assessee's income under Section 68 of the Income Tax Act.2. Disallowance of Rs. 1,51,697/- on account of interest-free advances.Issue-wise Detailed Analysis:1. Addition of Rs. 35 lakhs under Section 68 of the Income Tax Act:The primary grievance of the assessee was the confirmation of an addition of Rs. 35 lakhs by the CIT(A), which was treated as unexplained cash credit under Section 68 of the Income Tax Act. The assessee, a company engaged in manufacturing iron and steel rolls, had filed its return of income electronically, declaring a total income of Rs. 3,46,00,080/-. During scrutiny, it was revealed that the assessee had introduced new share capital of Rs. 50 lakhs, with shares offered at a premium of Rs. 190/-. The assessee provided details of six applicants who had invested amounts ranging from Rs. 3,60,000/- to Rs. 8,00,000/- through account payee cheques. Despite submitting confirmations, bank statements, PAN details, and income tax returns of the applicants, the AO made an addition of Rs. 35 lakhs due to the assessee's failure to produce the applicants in person.On appeal, the assessee argued that it had fulfilled all the requirements of Section 68 by providing necessary details to prove the identity, genuineness, and creditworthiness of the share applicants. The CIT(A) dismissed this contention, stating that the assessee failed to prove the identity, genuineness, and creditworthiness of the investors, thus justifying the addition.The Tribunal examined the principles laid down by various High Courts and the Supreme Court regarding the application of Section 68. It noted that the assessee had discharged its primary onus by submitting confirmations, bank statements, copies of income tax returns, and PAN data. The Tribunal emphasized that the AO should have conducted further investigations to disprove the evidence submitted by the assessee rather than solely relying on the non-production of the share applicants. The Tribunal referred to several judgments, including those from the Delhi High Court, which held that if the assessee provides sufficient documentation, the onus shifts to the AO to prove otherwise. Consequently, the Tribunal concluded that the AO failed to carry out any inquiry to falsify the evidence submitted by the assessee and allowed the appeal, deleting the addition of Rs. 35 lakhs.2. Disallowance of Rs. 1,51,697/- on account of interest-free advances:The second issue involved the disallowance of Rs. 1,51,697/- on account of interest-free advances. The AO noted that the assessee had availed a loan of Rs. 12,64,144/- and made interest-free advances, leading to the disallowance of interest at the rate of 12%. The assessee contended that these were trade advances and should not attract disallowance of interest. However, the CIT(A) found that advances to specific individuals, namely Ruchir Joshi, Dipak Patel, and Shanjukta Sen, totaling Rs. 9,79,300/-, were given out of interest-bearing funds and upheld the disallowance for these amounts.The Tribunal agreed with the CIT(A)'s findings, noting that the assessee failed to justify how these advances were for business purposes. Consequently, the Tribunal upheld the disallowance of Rs. 1,51,697/- and rejected the assessee's appeal on this ground.Conclusion:The Tribunal partly allowed the appeal, deleting the addition of Rs. 35 lakhs under Section 68 but upheld the disallowance of Rs. 1,51,697/- on account of interest-free advances. The order was pronounced in the Court on 1st March 2018 at Ahmedabad.