2022 (4) TMI 280 - AT - Income Tax

Tribunal upholds CIT(A) decisions on various sections including Section 68 & disallows interest - assessee wins

The Tribunal upheld the CIT(A)'s decisions to delete additions under various sections, including the deletion of share application money under Section 68, ... Addition under section 68 of the Income tax Act, 1961 - onus to prove identity, genuineness and credit worthiness of creditors/investors - capital receipt - share capital and share premium not taxable in pre amendment year - proviso regarding examination of source of funds not applicable for assessment years before A.Y.2013 14 - diversion of interest for non business purpose and capitalization to Work in ProgressAddition under section 68 of the Income tax Act, 1961 - capital receipt - share capital and share premium not taxable in pre amendment year - proviso regarding examination of source of funds not applicable for assessment years before A.Y.2013 14 - Deletion of addition of share application money of Rs. 2,35,00,000/- made by AO under section 68 in Assessment Year 2012 13 - HELD THAT: - The Tribunal upheld the CIT(A)'s finding that the disputed share application monies were received in an earlier year (A.Y.2010 11) as evidenced by ledger entries, bank statements and audited balance sheet of the earlier year. Once the amount was not received in the impugned year (A.Y.2012 13), addition under section 68 could not be made in that year. The CIT(A) also independently found that, even on merits, share capital and premium are capital receipts and the post 2012 amendment permitting examination of source of funds is not applicable to the impugned year; the Tribunal found no infirmity in these conclusions and followed relevant authorities relied upon by CIT(A). [Paras 4, 5, 8, 27, 28]Addition of Rs. 2,35,00,000/- under section 68 is deleted.Addition under section 68 of the Income tax Act, 1961 - onus to prove identity, genuineness and credit worthiness of creditors/investors - Deletion of addition of unsecured loans of Rs. 5,95,00,000/- received from parties linked to Bhanwarlal Jain group and consequential deletion of interest disallowance - HELD THAT: - The Tribunal affirmed the CIT(A)'s conclusion that the assessee had furnished PAN, bank statements showing receipt and repayment through account payee cheques/RTGS, confirmations, ITRs, balance sheets of lenders and TDS certificates, thereby satisfactorily discharging the onus to establish identity, genuineness and creditworthiness of the lenders. The AO had not conducted independent verification (no notices to bankers under section 133(6)), had relied on statements recorded in another investigation which were subsequently retracted and were not placed before the assessee for rebuttal; such reliance diminished evidentiary value. The Tribunal noted that an ITAT decision in the assessee's group for other assessment years supported deletion and found no material to dislodge CIT(A)'s findings. [Paras 9, 10, 12, 30, 32]Addition of Rs. 5,95,00,000/- under section 68 and the disallowance of interest relating thereto are deleted.Diversion of interest for non business purpose and capitalization to Work in Progress - Treatment of disallowance of interest of Rs. 8,88,000/- alleged to arise from diversion of interest bearing funds for non business purpose - HELD THAT: - The CIT(A) agreed with the AO's finding that interest bearing funds had been utilised to provide interest free loans to associate concerns, warranting a disallowance in principle. However, since the assessee had capitalised the entire finance cost to Capital Work in Progress (WIP) and had not claimed the interest as a revenue deduction, the CIT(A) directed that the WIP be reduced by the disallowed interest amount (Rs. 8,88,000/-), resulting in consequential addition in subsequent years rather than immediate disallowance from profit and loss. The Tribunal found this approach correct and without infirmity. [Paras 14, 15, 33]AO's finding of diversion is sustained in principle; relief is effected by reducing Work in Progress by the disallowed interest (as directed by CIT(A)).Addition under section 68 of the Income tax Act, 1961 - onus to prove identity, genuineness and credit worthiness of creditors/investors - proviso regarding examination of source of funds not applicable for assessment years before A.Y.2013 14 - Deletion of addition of Rs. 26,17,60,000/- treated by AO as unexplained investments received under Joint Venture agreements - HELD THAT: - The Tribunal upheld the CIT(A)'s detailed assessment of documentary evidence furnished by the 17 joint venture contributors - PAN/CIN, confirmations, joint venture agreement, bank statements showing receipt and repayment through account payee cheques/RTGS, ITR acknowledgements and balance sheets - and the examination of net worth which demonstrated ability to invest. The AO's general observations (common bankers, cross holdings, newly registered companies, alleged circularity) were not supported by specific adverse findings or independent verification (e.g., notices to bankers), and he had not pointed to defects in the documents. The Tribunal also observed that the proviso enabling examination of 'source of source' was not applicable to the impugned year. On these bases and relevant precedents, the CIT(A)'s deletion was upheld. [Paras 17, 21, 23, 34, 35]Addition of Rs. 26,17,60,000/- under section 68 is deleted.Final Conclusion: The Tribunal dismissed the Revenue's appeal. It upheld the CIT(A)'s deletions of additions under section 68 relating to share application money, unsecured loans from specified parties, and joint venture investments, and affirmed the CIT(A)'s treatment of the interest diversion by directing reduction of Work in Progress as explained above. Issues Involved:1. Deletion of addition under Section 68 of share application money of Rs. 2,35,00,000.2. Deletion of addition of Rs. 2,35,00,000 holding that it is a capital receipt.3. Deletion of addition of Rs. 5,95,00,000 received as unsecured loan.4. Deletion of disallowance of interest paid of Rs. 8,88,000.5. Deletion of addition of Rs. 26,17,60,000 received as investment from bogus parties under Joint Venture agreement.Detailed Analysis:1. Deletion of Addition under Section 68 of Share Application Money of Rs. 2,35,00,000:The Appellate Tribunal noted that the share application money of Rs. 2,35,00,000 was received in the previous assessment year (A.Y. 2010-11) and not in the current assessment year (A.Y. 2012-13). The Tribunal cited several case laws, including PCIT v Real Value Realtors Pvt. Ltd. and Ivan Singh vs. ACIT, which established that share application money received in a previous year cannot be added under Section 68 in the current year. The Tribunal upheld the CIT(A)'s deletion of the addition, confirming that such investments could only be considered in the year of receipt.2. Deletion of Addition of Rs. 2,35,00,000 Holding that it is a Capital Receipt:The Tribunal agreed with the CIT(A) that share capital and premium are capital receipts and cannot be added under Section 68 as they are not of revenue nature. The amendment to Section 68, which requires examination of the source of the source, was applicable from A.Y. 2013-14 onwards and not relevant to the current assessment year. The Tribunal cited various case laws, including M/s. Apeak Infotech and Orchid Industries Pvt. Ltd., supporting the view that share premium is a capital receipt.3. Deletion of Addition of Rs. 5,95,00,000 Received as Unsecured Loan:The Tribunal upheld the CIT(A)'s deletion of the addition, noting that the assessee had provided all necessary documents to prove the identity, creditworthiness, and genuineness of the loan transactions. The CIT(A) observed that the AO had not conducted any independent verification and had solely relied on statements from the Bhanwarlal Jain group, which were subsequently retracted. The Tribunal emphasized that the assessee is not required to prove the source of the lender's funds and referenced several case laws, including Pr.CIT v. Veedhata Tower Pvt. Ltd. and Nemichand Kothari v CIT.4. Deletion of Disallowance of Interest Paid of Rs. 8,88,000:The Tribunal noted that while the AO had found a diversion of interest-bearing funds for non-business purposes, the CIT(A) observed that the assessee had not claimed the interest as a deductible expense but had capitalized it to the Capital Work in Progress (WIP) account. Therefore, the CIT(A) directed the AO to reduce the WIP by Rs. 8,88,000, which would result in an addition in subsequent years. The Tribunal found no infirmity in this approach and upheld the CIT(A)'s decision.5. Deletion of Addition of Rs. 26,17,60,000 Received as Investment from Bogus Parties under Joint Venture Agreement:The Tribunal upheld the CIT(A)'s deletion of the addition, noting that the assessee had provided comprehensive documentation to prove the identity, creditworthiness, and genuineness of the joint venture investors. The CIT(A) found that the AO had not issued fresh notices after the assessee's name change and had not conducted due verification. The Tribunal cited various case laws, including Pr.CIT vs. Vaishnodevi Refoils & Solvex and CIT vs. Orchid Industries (P) Ltd., supporting the deletion of the addition. The Tribunal concluded that the AO's observations were based on surmise and conjecture, and the assessee had adequately discharged its onus.Conclusion:The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s deletions of the additions and disallowances under various sections, finding that the assessee had provided sufficient evidence to prove the genuineness of the transactions and that the AO had not conducted proper verification.