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Issues involved:
The judgment involves challenges to the deletion of addition of unexplained cash credit u/s. 68 of the Income-tax Act, 1961 and deletion of addition of pre-operative expenses. Issue 1: Unexplained Cash Credit u/s. 68 of the Act The Assessing Officer added &8377; 1,08,50,000 as unexplained cash credit u/s. 68 of the Act due to doubts about the creditworthiness of the shareholders. However, the CIT(A) deleted the addition, stating that necessary evidences were provided by the assessee. The CIT(A) found that the Assessing Officer's doubts were unfounded and lacked concrete evidence. The CIT(A) directed the Assessing Officer to delete the addition, emphasizing that the source of the share application money was duly exhibited by the assessee company. The Revenue appealed against this decision. Issue 2: Pre-operative Expenses The Assessing Officer disallowed &8377; 13,446 as pre-operative expenses, claiming that the expenditure was incurred before earning any income. The CIT(A) overturned this disallowance, stating that the expenses were revenue in nature and necessary for running the business. The CIT(A) found that the Assessing Officer had not provided sufficient reasoning for disallowing the expenses. The Revenue challenged the deletion of this addition. Judgment Summary: The ITAT Mumbai upheld the CIT(A)'s decision in both issues. Regarding the unexplained cash credit, the ITAT found that the Assessing Officer's doubts were not substantiated and that the source of the funds was adequately explained by the assessee. The ITAT cited the decision in Lovely Exports Pvt. Ltd. to support its conclusion that the share application money cannot be treated as undisclosed income of the assessee company. As for the pre-operative expenses, the ITAT agreed with the CIT(A) that the expenses were revenue in nature and necessary for business operations. The Revenue's appeal was dismissed in both matters.
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