2010 (9) TMI 1211 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 43,49,920/- made by the Assessing Officer on account of unexplained share application money u/s 68 of the I.T. Act, 1961.
2. Deletion of addition of Rs. 93,672/- made by the Assessing Officer on account of disallowance of interest.

Summary:

Issue 1: Deletion of Addition of Rs. 43,49,920/- on Account of Unexplained Share Application Money u/s 68 of the I.T. Act, 1961

The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 43,49,920/- made by the Assessing Officer on account of unexplained share application money u/s 68 of the I.T. Act, 1961, arguing that the assessee failed to prove the genuineness and creditworthiness of the deposits made by the subscribers. The assessee received share application money totaling Rs. 10.77 Crores from different persons. The Assessing Officer issued summons u/s 131 of the Income Tax Act for verification, some of which were returned unserved. The Assessing Officer, through ADIT (Inv), New Delhi, conducted a commission u/s 131(1)(d) and reported that responses were received from only five parties, leading to an addition of Rs. 43,49,920/- u/s 68.

In appeal, the assessee contended that the shareholders were income tax assessees who had filed confirmations with addresses, PAN numbers, bank details, and copies of income tax returns. The CIT(A) verified the assessment records and found that the documents were as per the assessment records. The CIT(A) held that the Assessing Officer's objection for non-production of evidence was overruled as the applicants had complied with the summons issued by the ADIT (Inv), Delhi. The CIT(A) relied on the Supreme Court's decision in CIT Vs. Lovely Exports Pvt Ltd 216 CTR 195 (SC) and concluded that the addition made by the Assessing Officer was unwarranted as the assessee had discharged its onus both on facts and in law.

The Tribunal upheld the CIT(A)'s decision, noting that the identity, capacity of the subscribers, and genuineness of the transactions were established. The Tribunal found no merit in invoking the provisions of Section 68 of the Act and confirmed the order of CIT(A) in this regard. The Tribunal also referenced the Delhi High Court's decision in CIT Vs. Winstral Petrochemicals Pvt Ltd, which supported the view that where the identity, creditworthiness, and genuineness of the transactions are established, no addition is warranted.

Issue 2: Deletion of Addition of Rs. 93,672/- on Account of Disallowance of Interest

The CIT(A) deleted the addition of Rs. 93,672/- made by the Assessing Officer on account of disallowance of interest, holding that the FDRs were for the intervening period only. The Assessing Officer had argued that huge interest had been paid on borrowed funds, which had been diverted to funds yielding a lower rate of interest without any commercial expediency. The Tribunal upheld the CIT(A)'s decision, finding no merit in the Assessing Officer's argument.

Conclusion:

In the result, the appeal of the Revenue was dismissed, and the order of CIT(A) was upheld.

Order Pronounced in the Open Court on this 15th day of September, 2010.