TaxTMI 
TaxTMI 
2026 (1) TMI 463
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....r scrutiny to verify 'A' investments/ advances/ loans and 'B' business loss. Statutory notice u/s 143(2) of the IT Act was issued followed by notices u/s 142(1) alongwith questionnaire. In response, assessee furnished the requisite details and assessment order was passed at a total income of Rs. 43,72,80,000/- against the returned loss of Rs. 1,99,79,324/- by making additions of Rs. 43,72,80,000/- as unexplained cash credit u/s68 of the IT Act. Further disallowance of expenses of Rs. 2,99,000/- towards increase in share capital was made besides making disallowance of Rs. 1,78,50,000/- by holding the same as incurred for non-business purposes. 3. Against the said order, the assessee preferred appeal before Ld. CIT(A), who partly allowed the appeal of the assessee wherein the addition made u/s 68 was deleted coupled with the disallowance of expenses of Rs. 2,99,000/- and confirmed the disallowance of Rs. 1,78,50,000/- made by the AO. 4. Aggrieved by the said order, assessee and the Revenue both are in appeal before the Tribunal. The revenue has taken following grounds of appeal:- "1. Whether, on the facts and circumstances of the case and in law the Ld. CIT(А) ha....
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....hat the assessee has spent Rs. 1,200/- for Roc fees for Increase in authorized share capital, on 26/12/2017; Rs. 2,95,000/- for Purchase of Stamp duty for CCDs, on 22/03/2018; & Rs. 2800/- for Roc fee payment for CCD allotment." AS per ld. AR the AO invoked the provision of section 35D and disallowed the expenses which are not applicable to the facts of the present case as the assessee has issued CCD. Ld. AR submits that ld. CIT(A) has relied upon the judgement of hon'ble Delhi High Court in the case of CIT Vs. Havels India Ltd. reported in 352 ITR 376 (Delhi) which is squarely applicable to the present case and therefore he prayed for the confirmation of the order of ld. CIT(A) in this regard. 10. Heard the contentions of both the parties and perused the material available on record. It is seen that assessee has claimed only Rs. 1,200/- on the increase in share capital and remaining amount was spent on the issue of CCD which is loan and not thus the provisions of section 35D of the Act are to applicable to the facts of the present case. The hon'ble jurisdictional high court in the case of Havels India Ltd. (supra) under identical circumstances has held the expenses on the issue....
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....as per which Godrej Properties has given refundable deposit of Rs. 45 crores to the family of Shri Manoharan Govindaswamy. Ld. CIT DR submits since Shri Manoharan Govindaswamy has failed to substantiate the source of the fund in his hands and ld. CIT(A) has admitted the additional evidences without any cogent reason as to why the same were not filed before the AO therefore, he requested for the restoration of the addition made by the AO. 14. On the other hand, ld.AR vehemently supported the order of ld. CIT(A) and submits that assessee has discharged the burden casted upon it of establishing all the three ingredients required u/s 68 of the Act as the CCD allotted are in the nature of borrowing. Ld. AR submits that the source of source was also established by filing the copy of agreement through which the family member of the director Shri Manoharan Govindaswamy received the funds which were given to him for subscribing the CCD issued by the assessee company. He further submits that the ld. CIT(A) has obtained remand report from the AO which is reproduced at pages 4 to 8 of the appellate order. Ld. AR submits that from the perusal of the remand report it could be seen that the as....
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....uring the remand proceedings had made direct inquiries not only from Shri Manoharan Govindaswamy but also from Smt. M. Saraswathi w/o Shri Manoharan Govindaswamy, Shri M. Naveen Kumar s/o Shri Manoharan Govindaswamy and Shri M. Chandru Kumar s/o Shri Manoharan Govindaswamy; (iii) In compliance to the inquiries made by the learned AO, Shri Manoharan Govindaswamy had uploaded his documents [PB:04-14], Smt. M. Saraswathi had uploaded her documents [PB:15-21], ShriM. Naveen Kumar had uploaded his documents [PB:22-28] and ShriM. Chandru Kumar had uploaded his documents [PB:29-35]; (iv) the learned AO had submitted his Remand Report dt.05.03.2025 [PB:93-98]; (v) the learned CIT(A) had provided copy of the learned AO's Remand Report to the assessee and asked for its comments on the learned AO's Remand Report [PB:99]; and (vi) the assessee had uploaded its letter dt.19.03.2025-cum- rejoinder/rebuttal to the learned CIT (A) [PB:100-106]. 7. The learned CIT(A) had reproduced (i) the learned AO's Remand Report in para 4 of the appeal order; and (ii) recorded his/her Finding and Decision in para 6. The learned CIT(A) had recorded his obs....
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.... the CCD namely Shri Manoharan Govindaswamy and also from his family members Smt. M. Saraswathi (spouse), Shri M. Naveen Kumar and Shri M. Chandru Kumar (Both sons) by issue summons u/s 133(6) of the Act who in response field al the plausible evidence in support of the funds available in their hands which were provided to Shri Manoharan Govindaswamy for making investment in the CCD issued by the assessee company. In the remand report submitted by the AO, these details are discussed by the AO and merely doubted their creditworthiness for the sole reason that ITR's file by them had lower income. However, the most important fact which is ignored by the AO is that the family members of the assessee had received funds from M/ Godrej Irismark LLP in terms of Development Agreement executed between them dt 24.01.2018 placed at pages 36-92 of the paper book. The ld. CIT(A) after appreciating these facts and considering the details filed by the family members of the director Shri Manoharan Govindaswamy in support of the sources of funds transferred to him which were invested in the CCD's issued by the assessee company has deleted the additions made by the AO u/s 68 of the Act. The relevant o....
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....o question the authenticity and legitimacy of the transaction in question. In my view, the assessee company has sufficiently proved the source of the funds which are from Sh. Manoharan Govindswamy. Thus the first source has been provided. Now Sh. Govindswamy has also proved the source of his funds. Thus even the source of source is proved. Additionally, even the family members who have lent the money to Sh. Govindswamy, have also proved their source of money, which came from Godrej. As such even the source of source of the source is explained. Thus I see no rationale in turning the CCDs into unexplained credits under Sec 68. As per the proviso to Sec 68, the entries have to be explained upto the second layer. In the present case even the third layer has been explained. As such there is no occasion to invoke Sec 68. AO has not commented adversely on the entries except raising a general remark that the transaction lacks authenticity and legitimacy, but has raised objections against accepting the additional evidence. For any evidence to be admitted under Rule 46A, certain conditions are prescribed in the Act. Assessee has contended that the Show Cause Notice was not ....
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....ained in the hands of the creditor or subscriber. This amendment has taken effect from 1st April, 2023 and accordingly applies in relation to the assessment year 2023-24 and all subsequent assessment years. The year before us is AY 2018-19 thus this amendment is not applicable in the present case. 17. The coordinate Bench of Delhi bench of Tribunal in the case of ACIT v Smt. Prem Anand in ITA No. 3514/Del/2014 vide order dated 13.04.2017 held that amendment made in section 68 of the Act w.e.f. 01.04.2013 empowers the A.O. to examine source of source in case of share application money / share capital / share premium and thus this amendment does not give power to the A.O. to examine source of source of non-share capital cases. 18. The Hon'ble Delhi High Court in the case of CIT vs Vrindavan Farms Pvt. Ltd. in ITA No.71 of 2015 dated 12.08.2015 has held as under:- "The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their return of income. lt was observed by the ITAT that the Assessing Officer had not undertaken any investigation of the veracity of the documents submitted by the assessee, the departmental appeal was dismisse....
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....e I.T. Act only sets up a presumption against the Assessee whenever unexplained credits are found in the books of accounts of the Assessee. It cannot but be gainsaid that the presumption is rebuttable. In refuting the presumption raised, the initial burden is on the Assessee. This burden, which is placed on the Assessee, shifts as soon as the Assessee establishes the authenticity of transactions as executed between the Assessee and its creditors. It is no part of the Assessee's burden to prove either the genuineness of the transactions executed between the creditors and the sub-creditors nor is it the burden of the Assessee to prove the creditworthiness of the sub-creditors. 20.1 It was further observed by the hon'ble court as under: 14. With this material on record in our view as far as the Assessee was concerned, it had discharged initial onus placed on it. In the event the revenue still had a doubt with regard to the genuineness of the transactions in issue, or as regards the creditworthiness of the creditors, it would have had to discharge the onus which had shifted on to it. A bald assertion by the Assessing Officer that the credits were a circular route adopte....
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....s project and in this process has taken consultancy to examine the viability of the project. Since the expenses were incurred wholly and exclusively for the purpose of business therefore, the same deserves to be allowed as claimed. Ld. AR placed reliance on the judgement of House of Lords in the case of Hughes (Inspector of Taxes) Vs. Bank of New Zealand reported in 6 ITR 636. Ld. AR also filed detailed written submission which is reproduced as under: "1. The assessee company was Incorporated to carry on the business of real estate consultancy. The assessee has been maintaining books of account & other connected records, and getting the same audited by a firm of Chartered Accountants. 2. A company named West One Electronic City Pvt. Ltd. was owing/holding a land in Bangalore (area admeasuring 7 acres), for which substantial payments were already made to Bangalore Development Authority. With a view to enter into some arrangement with West One Electronic City Pvt. Ltd., the assessee had taken a conscious call to take professional consultancy services in advance and in this process the assessee had incurred expenses to the tune of Rs. 17850000/-. Details reg....
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....For this proposition, the reliance is hereby placed on the judgment in Hughes (inspector of taxes) vs Bank of New Zealand (6 ITR 636) wherein Lord Thankerton held "Expenditure in the course of the trade which is unremunerative is none the less a proper deduction, if wholly and exclusively made for the purposes of the trade. It does require the presence of a receipt on the credit to justify the deduction of an expense". 9. It is worth clarifying that it is not the case of the lower authorities that (i) such expenses were personal or capital expenses; (ii) such expenses were paid for activities which are offenses or prohibited by law; (iii) such expenses were not paid or accrued in the previous year relevant to AY 2018-19." 26. On the other hand, ld. CIT DR supported the orders of lower authority and submits that the expenses incurred by the assessee are related to the project of other company and therefore, the expenses has rightly disallowed by the AO and thus requested for the confirmation of the same. 27. Heard the parties and perused the material available on record. The assessee is engaged in the business of real estate and developing real estate projects. Assess....