Tribunal affirms CIT(A)'s deletions under Income Tax Act, emphasizing genuineness & compliance. Revenue appeal dismissed.

The Income Tax Officer-6 (2) (1), MUMBAI Versus M/s. Chiripal Poly Films Ltd.

The Income Tax Officer-6 (2) (1), MUMBAI Versus M/s. Chiripal Poly Films Ltd. - TMI Issues Involved:
1. Deletion of addition on account of share application money treated as unexplained credit under Section 68 of the Income Tax Act.
2. Deletion of addition on account of share premium treated as unexplained credit under Section 68 of the Income Tax Act.
3. Deletion of addition under Section 56(2)(viia) of the Income Tax Act.
4. Deletion of addition of interest on bank fixed deposit netted off in the Capital Work in Progress (CWIP) account.
5. Deletion of addition of expenses relatable to exempt income while computing book profit under Section 115JB of the Income Tax Act.

Detailed Analysis:

1. Deletion of Addition on Account of Share Application Money:
The assessee received share application money of Rs. 4,47,10,385 from Orange Mauritius Investments Ltd. The AO added this amount as unexplained credit under Section 68 of the Act, citing inadequate authorized share capital. The CIT(A) deleted the addition, noting that the assessee had provided comprehensive documentary evidence to establish the nature, genuineness, and source of the transaction. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee had met the requirements of Section 68 by proving the identity, creditworthiness, and genuineness of the transaction.

2. Deletion of Addition on Account of Share Premium:
The AO added Rs. 23,47,38,900 as unexplained credit under Section 68, questioning the justification of the share premium charged. The CIT(A) deleted the addition, stating that the assessee had established the identity, financial capacity, and genuineness of the transaction. The Tribunal agreed, noting that the share premium cannot be added under Section 68 and that the provisions of Section 56(2)(viib) were not applicable for the relevant assessment year. The Tribunal cited the decision of the Hon'ble Bombay High Court in the case of CIT vs. Gagandeep Infrastructure (P) Ltd., which held that the amount received on issue of share capital along with the premium is a capital receipt and not in the revenue field.

3. Deletion of Addition under Section 56(2)(viia):
The AO added Rs. 1,18,67,508 under Section 56(2)(viia), alleging that the shares acquired by the assessee were at a value less than the fair market value. The CIT(A) deleted the addition, noting that the reserves and surplus were due to grants from the Government of India and not business profits. The Tribunal upheld the CIT(A)'s decision, agreeing that the shares were acquired at a fair market value and there was no basis for the addition.

4. Deletion of Addition of Interest on Bank Fixed Deposit:
The AO added Rs. 48,30,629 as income from other sources, which the assessee had netted off in the CWIP account. The CIT(A) deleted the addition, stating that the interest income was inextricably linked to the setting up of the project and should be treated as a capital receipt. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's decisions in CIT vs. Bokaro Steel Ltd. and CIT vs. Karnal Co-operative Sugar Mills Ltd., which support the capitalization of such interest income.

5. Deletion of Addition of Expenses Relatable to Exempt Income:
The AO computed a disallowance of Rs. 1,36,671 under Rule 8D while computing book profit under Section 115JB. The CIT(A) deleted the addition, and the Tribunal upheld this decision, referencing the Special Bench decision in ACIT vs. Vireet Investments (P.) Ltd., which held that the computation under clause (f) of Explanation 1 to Section 115JB(2) should be made without resorting to the computation under Section 14A read with Rule 8D.

Conclusion:
The Tribunal upheld the CIT(A)'s deletions of the additions made by the AO on various accounts, emphasizing the genuineness, identity, and creditworthiness of the transactions, and aligning with judicial precedents that support the assessee's position. The appeal by the Revenue was dismissed.