2024 (1) TMI 148 - AT - Income Tax

ITAT upholds deletion of section 68 addition for share application money and expense disallowance for suspended airline operations

The ITAT Delhi dismissed the revenue's appeal on two grounds. First, regarding addition under section 68 for share application money, the tribunal upheld ... Share application money treated as unexplained credit under section 68 - admissibility of investor's bank evidence - Acceptance of investor's claims in separate assessment as evidentiary weight for assessee - Allowability of business expenditure despite suspension of operations - 'purpose' test - Rule of consistency in allowing recurring claims across assessment yearsShare application money treated as unexplained credit under section 68 - admissibility of investor's bank evidence - Acceptance of investor's claims in separate assessment as evidentiary weight for assessee - Deletion of addition of share application money of Rs. 4,30,78,000/- made by the Assessing Officer under section 68 - HELD THAT: - The Tribunal found on the record that the Assessing Officer common to both the assessee and the investor had before him the bank statements, confirmation and other relevant documents relating to the investment and had, in fact, accepted the investor's return by completing the investor's assessment prior to completing the assessee's assessment. The sole basis for the AO's addition was non-furnishing of the investor's bank statement, but the paper book and submissions (duly acknowledged by the AO) showed that the evidences had been placed before the AO. Given that the investor's claims were verified and accepted in the investor's assessment, and that similar transactions were reflected in preceding and succeeding years, the Tribunal upheld the CIT(A)'s deletion of the addition, drawing support from the cited High Court authority on the weight to be given where investor-assessments stand accepted. [Paras 7]Addition deleted; revenue ground dismissed.Allowability of business expenditure despite suspension of operations - 'purpose' test - Rule of consistency in allowing recurring claims across assessment years - Deletion of disallowance of expenses of Rs. 3,99,18,595/- which the AO disallowed on the ground that airline operations were suspended - HELD THAT: - The Tribunal accepted that although the assessee's airline operations were suspended since 2009, the company continued as a corporate entity incurring statutory, regulatory and other recurring expenses necessary to maintain the business (e.g., statutory fees, approvals, insurance, professional charges). There was no material to show permanent abandonment or liquidation of the business. Applying the legal principle that deduction is governed by the 'purpose' test and not a requirement to show actual profit or earning of income, and noting that identical expenses had been allowed in preceding and subsequent years, the Tribunal endorsed the CIT(A)'s reliance on consistency and the settled precedents to hold the expenditures deductible. The AO's narrow approach equating lack of operations in a year with cessation was found to be incorrect. [Paras 8, 9]Disallowance deleted; revenue grounds dismissed.Final Conclusion: Both additions made by the Assessing Officer - the addition under section 68 in respect of share application money and the disallowance of business expenditures on account of suspended operations - were rightly deleted by the CIT(A); the revenue's appeal is dismissed. Issues Involved:1. Addition of Rs. 4,30,78,000/- on account of share application money under Section 68 of the Income-tax Act.2. Addition of Rs. 3,99,18,595/- on account of disallowance of expenditure due to suspension of business operations.Summary:Issue 1: Addition of Rs. 4,30,78,000/- on Account of Share Application MoneyThe revenue challenged the deletion of an addition of Rs. 4,30,78,000/- made by the Assessing Officer (AO) under Section 68 of the Income-tax Act. The AO added the amount due to the assessee's failure to furnish the bank statement of the investor, Shree Gopal Kumar Goyal. However, the assessee provided various submissions and details, including bank statements and a confirmation letter from the investor, which were acknowledged by the AO's office. The investor was assessed by the same AO for the same assessment year, and his income was accepted. The Tribunal found that all necessary evidence was provided and accepted by the AO in the investor's assessment. The Tribunal upheld the CIT(A)'s decision to delete the addition, referencing the Delhi High Court's decision in PCIT Vs. Satkar Infrastructure Pvt. Ltd., and dismissed the revenue's ground on this issue.Issue 2: Addition of Rs. 3,99,18,595/- on Account of Disallowance of ExpenditureThe AO disallowed the assessee's claim of Rs. 3,99,18,595/- in expenses, arguing that no business operations were carried out since 2009 and there was no intention to revive them. The assessee contended that the expenses were incurred on the principle of 'going concern' and were mandatory for statutory and legal compliances. The Tribunal noted that the expenses included statutory charges, professional fees, and other necessary costs for maintaining the company's existence. The Tribunal found that similar expenses were allowed in preceding and succeeding years, and the principle of consistency should apply. Citing the Supreme Court's decisions in CIT Vs. Rajendra Prasad Mody and S. A. Builders Ltd. Vs. CIT, the Tribunal concluded that the AO's disallowance was erroneous. The Tribunal upheld the CIT(A)'s decision to delete the disallowance and dismissed the revenue's grounds on this issue.Conclusion:The Tribunal dismissed the revenue's appeal on both issues, upholding the CIT(A)'s order to delete the additions made by the AO. The decision was pronounced in the open court on 19.10.2023.