2024 (3) TMI 513 - AT - Income Tax

Revenue fails to prove unexplained credits under section 68 as assessee demonstrates transaction genuineness through documentation

The ITAT Delhi upheld CIT(A)'s decision deleting additions under section 68 for unexplained credits, finding the assessee successfully proved identity, ... Addition u/s 68 - unexplained sum credited to the books of account of the assessee - Onus to prove - genuineness of the transaction as well as immediate sources of funds was not proved with cogent evidence - CIT(A) deleted the Addition - HELD THAT:- In so far as identity of Jayant Nanda is concerned there should not be any doubt after considering the passport. The creditworthiness can be gathered from the bank account of Jayant Nanda in HDFC bank wherein the impugned transaction is reflected. The payments have been made out of clear credit balances and there is no evidence whatsoever to show that the Jayant Nanda deposited cash before issuing cheque to the assessee. In our considered opinion the assessee successfully discharged the onus cast upon it by the provisions of section 68 of the Act and, therefore, the findings of the CIT(A) cannot be faulted. Ground No. 1 is dismissed. Disallowance u/s 14A - as per CIT(A) since the assessee has suo-moto disallowed sum u/s 14A the CIT(A) directed to restricted the disallowance of that amount - HELD THAT:- The Hon’ble High Court of Delhi in the case of Cargo Motors Private Limited [2022 (10) TMI 571 - DELHI HIGH COURT] has held that only those investments were to be considered for computing average value of investments which yielded exempt income during assessment year. The same view was followed in the case of Caraf Builders and Constructions Private Limited [2018 (12) TMI 410 - DELHI HIGH COURT] and also in the case of ACB India Limited [2015 (4) TMI 224 - DELHI HIGH COURT] Respectfully following all we do not find any reason to interfere with the findings of the CIT(A). This ground is also dismissed. Disallowance of expenses - absence of direct nexus between income earned and expenses incurred - CIT(A) deleted the Addition - HELD THAT:- The undisputed fact is that the expenses have been incurred for normal business purposes and the books of account were audited both under the companies Act and also under the income tax Act and no defect has been pointed out in the books of account and no such disallowances have been made in earlier assessment years. We decline to interfere ground No. 3 is also dismissed. Disallowance of long term capital loss - transaction of sale of shares was not genuine and the same was done only to claim set off against long term capital gain arising from sale of property - CIT(A) deleted the Addition - HELD THAT:-here is no dispute that the assessee has sold 2 lacs equity shares @ 1 per share to Virender Kumar Chanana at a price resolved by the BOD of the assessee. It is equally true that trading in shares of Kingfisher Airlines Ltd. was suspended since 22.06.2015 when the last traded price was low Rs. 1.26 and high Rs. 1.38. Therefore, the determination of the share price at Rs. 1 per share cannot be doubted. Since the assessee had purchased the shares @ 70.17 per share, the loss of the sale of share is a genuine loss and rightly allowed the CIT(A). No interference is called for. Ground No. 4 is allowed. Issues involved:The issues involved in the judgment are:1. Addition of unexplained sum credited to the books of account.2. Disallowance under section 14A of the IT Act.3. Disallowance of expenses without direct nexus between income earned and expenses incurred.4. Disallowance of long term capital loss.Issue 1: Addition of unexplained sum credited to the books of account:The revenue challenged the deletion of the addition of Rs. 10,00,00,000 made by the AO, arguing that the genuineness of the transaction and immediate sources of funds were not proven with cogent evidence. The CIT(A) found that the funds were transferred from a non-resident's NRE account, and after considering all documents, including passport and bank statements, the addition was deleted. The ITAT upheld the CIT(A)'s decision, stating that the assessee had successfully proven the genuineness and creditworthiness of the transaction.Issue 2: Disallowance under section 14A of the IT Act:The AO made an addition under section 14A r.w.r. 8D, which was challenged before the CIT(A) by the assessee. The CIT(A) restricted the disallowance after considering the investments from which dividend income was earned. The ITAT, following the decisions of the Hon'ble High Court, upheld the CIT(A)'s decision, stating that only investments yielding exempt income should be considered for computing the disallowance under section 14A.Issue 3: Disallowance of expenses without direct nexus between income earned and expenses incurred:The AO disallowed expenses of Rs. 1,75,83,247, claiming that a portion of it was not attributable to income earned. The CIT(A, considering the consistency in previous years and the thorough documentation of expenses, deleted the disallowance. The ITAT upheld the CIT(A)'s decision, emphasizing that the expenses were for normal business purposes and were supported by proper documentation.Issue 4: Disallowance of long term capital loss:The AO disallowed long term capital loss of Rs. 2,90,32,823, citing lack of details of buyers of shares sold. The CIT(A) allowed the loss after verifying the details provided by the assessee. The ITAT upheld the CIT(A)'s decision, noting that the sale was genuine, supported by complete details, and the price per share was reasonable. Therefore, the long term capital loss was considered genuine and allowed.In conclusion, the ITAT dismissed the revenue's appeal, upholding the decisions of the CIT(A) on all issues involved in the case.