2022 (2) TMI 772 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on unexplained cash credits & tech transfer expenditure.

The Tribunal upheld the CIT(A)'s decision to delete additions made by the AO concerning unexplained cash credits under Section 68 of the Income Tax Act ... Addition of cash credits u/s 68 - HELD THAT:- In the present case on hand, the assessee has discharged his onus by providing details relating to the loan amount availed from the three creditors by producing their bank accounts, Income-Tax Returns, confirmation letters, etc. The AO has doubted source of the creditors thereby the AO is inquiring source of source which is not permitted as held in various judgments cited (supra). Wherever explanation has been provided by the assessee, CIT(A) has deleted such credits, and also confirmed the amount of loans which were not explained by the assessee. Therefore, this findings of the Ld.CIT(A) does not require any interference. Arguments of the ld.DR that as per the new proviso to section 68 of the Act introduced w.e.f. 1-4-2003 is related to the investment made on share application money, share capital, share premium or any such amount by whatever name called - Here in this case, the AO has doubted about the loans received by the assessee from three creditors who are not the ‘investors’. When the assessee has established with necessary documents, bank statements, IT return, confirmation letters, bank entries, etc. the AO ought not to have invoked proviso to section 68 which is not applicable to loan transactions. Thus, the grounds raised by the Revenue is rejected Nature of expenditure - disallowance of capital expenditure incurred for purchase of machinery, which is capital in nature, the same cannot be treated as revenue expenditure as per the Accounting Standard. Hence, addition made by the AO is unsustainable in law and liable to be deleted. Issues Involved:1. Deletion of addition on account of cash credits under Section 68 of the Income Tax Act.2. Deletion of disallowance of expenditure on technology transfer.Detailed Analysis:1. Deletion of Addition on Account of Cash Credits under Section 68 of the ActThe Revenue challenged the deletion of an addition of Rs. 1,31,26,457/- made by the Assessing Officer (AO) on account of unexplained cash credits under Section 68 of the Income Tax Act. The AO had questioned the creditworthiness of the lenders, who were directors of the company, due to their meager income as shown in their individual returns. The AO relied on a newly inserted proviso to Section 68, which was argued to be applicable to share application money and not to unsecured loans.The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, finding that the assessee had provided sufficient evidence, including bank statements, income tax returns, and confirmation letters from the lenders. The CIT(A) noted that the AO had failed to verify these details and had mechanically added the amount without proper inquiry. The CIT(A) relied on the judgment in DCIT vs. Rohini Builders, which held that once the assessee discloses the sources of the loans, the burden shifts to the AO to disprove it.The Appellate Tribunal upheld the CIT(A)’s decision, emphasizing that the AO cannot inquire into the source of the source and that the new proviso to Section 68 is not applicable to unsecured loans. The Tribunal cited several Supreme Court judgments, including Daulat Ram Rawatmull and CIT v. Orissa Corpn. (P.) Ltd., to support the principle that the burden of proof lies on the department to prove that the apparent is not real. The Tribunal concluded that the assessee had discharged its onus, and the AO’s addition was not justified.2. Deletion of Disallowance of Expenditure on Technology TransferThe Revenue also contested the deletion of a disallowance of Rs. 87,54,000/- made by the AO for payments related to technology transfer. The AO had disallowed the expenditure, arguing that there was no agreement or material evidence to substantiate the technology transfer.The CIT(A) deleted the disallowance, finding that the assessee had provided sufficient evidence, including customs documents and TDS payments, to substantiate the transaction. The CIT(A) noted that the AO had relied more on conjectures than facts and that the overwhelming evidence provided by the assessee could not be overlooked. The CIT(A) held that no rational person would pay more than 20% tax to incur bogus expenditure.The Appellate Tribunal agreed with the CIT(A), noting that the expenditure was capital in nature and should be treated as such according to accounting standards. The Tribunal found that the AO’s disallowance was unsustainable in law and upheld the CIT(A)’s decision to delete the addition.ConclusionThe Tribunal dismissed the Revenue’s appeal on both issues, affirming the CIT(A)’s deletions of the additions made by the AO. The Tribunal concluded that the assessee had provided sufficient evidence to discharge its burden of proof, and the AO’s reliance on conjectures and improper application of the law was not justified. The appeal was dismissed in its entirety.