Unexplained cash credit and related-party payment disallowances fail where transaction evidence is unrebutted and no market-value excess is proved.
Share application money supported by application forms, confirmations, corporate resolutions, tax records, financial statements and bank records cannot be treated as unexplained cash credit where that evidence remains unrebutted. A third-party statement does not establish accommodation entries when it does not concern the relevant taxpayer, assessment year or subscribing entities. Related-party expenditure is disallowable only when shown excessive or unreasonable against fair market value, legitimate business needs or benefit derived. Service records, invoices, supervisory reports and recipient records supported the payments; without discrepancies or comparable market evidence, risk-management, supervision and consultancy charges remained allowable.
Issues: (i) Whether share application money of Rs. 90 lakh was assessable as unexplained cash credit under Section 68 of the Income-tax Act, 1961; (ii) Whether the disallowance of risk management and supervision charges paid to a related concern, and other consultancy payments, was sustainable under Section 40A(2)(b) of the Income-tax Act, 1961.
Issue (i): Whether share application money of Rs. 90 lakh was assessable as unexplained cash credit under Section 68 of the Income-tax Act, 1961.
Analysis: The assessee produced share application forms, confirmations, board resolutions, income-tax acknowledgements, audited financial statements and bank statements of the subscribing entities. This evidence establishing the investors and the transactions remained unrebutted. The third-party statement relied upon for treating the subscriptions as accommodation entries did not concern the assessee or the relevant assessment year, and the concerned person was not shown to be connected with the investor entities.
Conclusion: The share application money was not liable to be added under Section 68 of the Income-tax Act, 1961, in favour of the assessee.
Issue (ii): Whether the disallowance of risk management and supervision charges paid to a related concern, and other consultancy payments, was sustainable under Section 40A(2)(b) of the Income-tax Act, 1961.
Analysis: Section 40A(2)(b) permits disallowance only where payments to specified persons are shown to be excessive or unreasonable having regard to fair market value, legitimate business needs or benefit derived. The assessee furnished records of the services, invoices, ledgers, supervisory reports and the recipient's tax and financial records. No discrepancy was identified, no comparable material established that the payments exceeded market value, and the recipient was itself taxed at the highest rate. Similar expenditure had also been accepted in the succeeding assessment year.
Conclusion: Section 40A(2)(b) was not attracted; the risk management and supervision charges and the specified consultancy payments were allowable, in favour of the assessee.
Final Conclusion: The impugned cash-credit addition and the disallowance of business expenditure were unsustainable on the evidentiary record.