Tribunal rules in favor of assessee, allows deduction of expenditure and accepts genuineness of cash credits

The tribunal upheld the decision of the Ld. CIT(A) in favor of the assessee on both issues. It allowed the deduction of expenditure debited to the profit and loss account, considering the business had commenced operations. Additionally, it accepted the genuineness of cash credits received as share application money, directing the deletion of the additions made by the revenue. The tribunal dismissed the revenue's appeal and allowed the assessee's cross-objection, affirming the Ld. CIT(A)'s decisions.

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Issues Involved:
1. Disallowance of expenditure debited to the profit and loss account.
2. Addition towards unexplained cash credits being share application money.

Issue-wise Detailed Analysis:

1. Disallowance of Expenditure Debited to the Profit and Loss Account:

The revenue challenged the Ld. CIT(A)'s decision to allow the disallowance of Rs. 1,92,86,737/- debited to the profit and loss account, arguing that the assessee's business had not yet commenced, thus the expenditure should be treated as pre-operative as per section 35D of the I.T. Act, 1961. The Ld. DR contended that the business needed to generate revenue to justify the expenditure as deductible.

The assessee countered by demonstrating that the business had commenced operations, evidenced by the setup of plant and machinery, purchase of raw materials, and the production of finished goods. The assessee also installed machinery at a client's site and earned revenue, substantiated by agreements and bills.

The tribunal noted that the terms "business set-up" and "commencement of business" are distinct. It concluded that the assessee's business had been set up and commenced during the relevant year, allowing the deduction of necessary expenditures. The tribunal upheld the Ld. CIT(A)'s findings, emphasizing that the revenue failed to disprove the assessee's evidence of business commencement.

2. Addition Towards Unexplained Cash Credits Being Share Application Money:

The revenue disputed the deletion of Rs. 1,30,21,000/- received from Shri Foram Dattani Kapoor, arguing that the assessee failed to provide a signed confirmation during scrutiny. The assessee provided comprehensive documentation, including names, addresses, PAN numbers, bank statements, and financial statements to establish the genuineness and creditworthiness of the transactions.

The tribunal found that the Ld. CIT(A) rightly accepted the genuineness of the transaction with Shri Foram Dattani Kapoor, as the assessee provided sufficient evidence to meet the criteria under section 68 of the I.T. Act, 1961. The revenue did not provide contrary evidence.

Regarding the Rs. 17,54,000/- received from Global Emission Management Pvt. Ltd., the tribunal noted that although the initial notice was returned unserved, the assessee later provided signed confirmation and other relevant documents. The tribunal concluded that the assessee had adequately discharged its onus, proving the creditworthiness and genuineness of the transaction. The tribunal directed the Ld. AO to delete the addition made towards share application money received from Global Emission Management Pvt. Ltd.

Conclusion:

The tribunal dismissed the revenue's appeal and allowed the assessee's cross-objection, affirming the Ld. CIT(A)'s decisions on both issues. The order was pronounced in open court on 20/05/2020.

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