2012 (1) TMI 263 - AT - Income Tax

Summary

Issues Involved:
1. Addition made u/s 68 of the Act.
2. Treatment of business loss as speculation loss by invoking the provisions of Explanation to section 73 of the Act.
3. Charging of interest u/s 234B of the Act.

Summary:

1. Addition made u/s 68 of the Act:
The primary issue in both appeals is the addition made u/s 68 of the Act. The AO observed that the assessee had repaid a loan of Rs. 1.85 crore by receiving share application money for 3,700 cumulative redeemable preference shares. The AO found that the amount was received from several private corporate bodies, which upon investigation, were found to have issued cheques against cash received from the assessee. The directors of these companies admitted to this in their statements recorded u/s 131. However, the assessee's director denied giving any cash and sought to cross-examine the directors, which did not take place. The AO treated the amount as unexplained money and added it u/s 69A, which the CIT(A) corrected to u/s 68, upholding the addition. The Tribunal, however, found that the AO did not provide an opportunity for cross-examination, violating principles of natural justice. The Tribunal noted that the share application money was received through account-payee cheques and no cash transactions were found in the bank accounts of the investing companies. The Tribunal relied on previous decisions in similar cases (Chat Computers Ltd. and Netscape Software Ltd.) and held that the addition u/s 68 was not justified, directing its deletion.

2. Treatment of business loss as speculation loss:
For AY 2006-07, the assessee raised an issue regarding the treatment of business loss as speculation loss by invoking the provisions of Explanation to section 73 of the Act. However, this ground was not pressed by the learned counsel for the assessee at the time of hearing, and thus, it was dismissed as not pressed.

3. Charging of interest u/s 234B of the Act:
The assessee also raised issues regarding the charging of interest u/s 234B of the Act in both assessment years. The Tribunal noted that the levy of interest u/s 234B is consequential in nature and directed the AO to give consequential relief.

Conclusion:
The Tribunal allowed the appeal for AY 2005-06, deleting the addition made u/s 68, and partly allowed the appeal for AY 2006-07 by addressing the interest u/s 234B consequentially and dismissing the unpressed ground regarding speculation loss.