2016 (6) TMI 1295 - AT - Income Tax

Addition of loan taken from 12 companies - disallowance of interest paid on these loans - Held that - The addition made by the AO u/s 68 in respect of credits received by the assessee from the twelve Kolkata based companies deleted by the Ld. CIT(A) holding that their identity and creditworthiness and the genuineness of the transactions was established. - Decided against revenue Reopening of assessment - Held that - Where transaction itself, on the basis of subsequent information, is found to be bogus transaction, mere disclosure of that transaction at the time of original assessment proceedings cannot be said to be a disclosure of the true and full facts in the case and ITO would have jurisdiction to reopen even concluded assessment in such a case. The case of the assessee is still weaker as no assessment has been made in his case. The contention of the assessee that the AO had no definite material or information before invoking provisions of sect ion 147 is not tenable. It is an admit ted fact that the original return of the assessee was processed u/s 143(1)(a) only at ministerial staff level and no finding had be en o r e v en can be recorded, by the AO during such processing, about the genuineness of loan transactions constituting the reasons for issue of notice u/s 148. The AO was therefore, fully justified in invoking provisions of section 147, as has been held by the Apex Court in ACIT v Rajesh Jhaveri Stock Brokers P Ltd.(2007 (5) TMI 197 - SUPREME Court) . There is thus absolutely no merit in the assessee s contention challenging the reopening of assessment u/s 147 and issue of notice u/s 148 and the same are found to be validly initiated and in accordance with law. - Decided against assessee Disallowance of interest - Held that - The stand alone disallowance of interest without establishing such loans to be unexplained and in-genuine in assessee own case, does not have sanctity and approval of law. - Decided against revenue Disallowance u/s 14A - Held that - Interest receipts in this case were much higher than interest paid and since the interest was mainly received on FDR which are required to be made for obtaining overdraft facility, the interest receipts are inextricably linked to interest payments and therefore interest received should be netted off against interest payments. The CIT(A) has given a finding that the investments made by the assessee were made out of own funds and not out of interest bearing borrowed funds. Thus in the peculiar facts of the case, the CIT(A) deleted the disallowance u/s 14A of ₹ 2,59,473/- made in respect of interest paid and restricted the disallowance in respect of expenses to ₹ 19,970/- @ .5% of the average investments. The above findings of the CIT(A) remained uncontroverted - Decided against revenue Addition of general and RTO expenses and commission and brokerage expenses - Held that - Assessee has submitted the details of expenses and copy of RTO expenses and general expenses before the CIT(A). The ld. CIT(A) has deleted this disallowance on the ground that when defects are not pointed out in these expenses and when the assessee is a Public Limited Company, there is no reason to disallow the same expenses. Therefore, the ld. CIT(A) has deleted this disallowance. During the course of hearing, the ld. Authorized Representative for the assessee did not point out any contrary evidence against the finding of the CIT(A).- Decided against revenue Deduction on account of bad debts actually written off in its books of accounts - Held that - On similar claim of bad debts made by filing the revised return for immediately succeeding year i.e. AY 2011-2012 has been accepted in the assessment proceedings for that year and also considering the legal position, we hold that the CIT(A) has rightly allowed the said claim Addition on account of conveyance expenses and repair and maintenance expenses - Held that - AO has not given any specific instance where the expenses are not supported by vouchers or bills, but at the same time, the assessee has also not produced any complete vouchers/bills to prove that the same are completely and properly maintained. The assessee maintained regular books of accounts and are subjected to audit, but personal element in incurring these expenditure have to be ruled out. Therefore, the ld. CIT(A) has restricted to ₹ 25,000/- each for conveyance and repairs & maintenance expenditure. The CIT(A) has partly allowed the appeal. Therefore, our interference is not required.

Summary

Issues Involved:
1. Addition of loans and disallowance of interest under Section 68.
2. Deletion of addition of share capital.
3. Disallowance of interest on loans from companies.
4. Disallowance under Section 14A.
5. Disallowance of colliery and general expenses.
6. Validity of reopening assessment under Section 147.
7. Disallowance of interest on loans in subsequent years.
8. Bad debts claim during assessment proceedings.
9. Ad-hoc disallowance of conveyance and repair expenses.

Issue-wise Detailed Analysis:

1. Addition of Loans and Disallowance of Interest under Section 68:
The AO added ?6,69,00,000/- as unexplained loans and disallowed ?1,03,20,567/- interest on these loans from 12 Kolkata-based companies. The AO's conclusion was based on the non-existence and lack of creditworthiness of these companies. The CIT(A) deleted the addition, stating the assessee provided sufficient evidence such as confirmations, PAN details, audited accounts, and bank statements, establishing the identity, creditworthiness, and genuineness of the transactions. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO failed to disprove the documentary evidence provided by the assessee.

2. Deletion of Addition of Share Capital:
The AO added ?1,55,00,000/- received as share capital from three companies, alleging them to be accommodation entries from the Lunkad group. The CIT(A) deleted the addition, noting that the identity and creditworthiness of these companies were established and they were not part of the Lunkad group. The Tribunal upheld the CIT(A)'s decision, highlighting the lack of adverse findings against these companies in their respective assessments.

3. Disallowance of Interest on Loans from Companies:
The AO disallowed ?22,64,000/- interest paid on loans from companies, citing their non-genuineness. The CIT(A) deleted the disallowance, stating that the AO did not establish these loans as unexplained in the assessee's own case. The Tribunal upheld the CIT(A)'s decision, noting that the AO's action lacked legal sanctity.

4. Disallowance under Section 14A:
The AO disallowed ?4,95,273/- under Section 14A, attributing interest expenditure to investments yielding exempt income. The CIT(A) deleted the interest disallowance, stating the assessee had sufficient interest-free funds and net interest receipts, and directed re-computation of administrative expenses. The Tribunal upheld the CIT(A)'s decision, emphasizing the factual correctness of the assessee's claims.

5. Disallowance of Colliery and General Expenses:
The AO made ad-hoc disallowances of ?6,50,000/- and ?2,00,000/- out of colliery and general expenses, respectively, citing unverifiable vouchers. The CIT(A) deleted the disallowances, noting the significant increase in the assessee's taxable income and the absence of specific defects pointed out by the AO. The Tribunal upheld the CIT(A)'s decision, emphasizing the unjustified nature of the ad-hoc disallowances.

6. Validity of Reopening Assessment under Section 147:
The assessee challenged the reopening of assessment under Section 147, arguing the lack of tangible material and incorrect factual premise. The Tribunal upheld the AO's action, citing the Supreme Court's decision in Rajesh Jhaveri Stock Brokers Pvt. Ltd., which allows reopening based on prima facie belief of escapement of income, even if no assessment was made previously.

7. Disallowance of Interest on Loans in Subsequent Years:
The AO disallowed interest in subsequent years based on the disallowance in AY 2008-09. The CIT(A) deleted these disallowances, and the Tribunal upheld the decision, noting the deletion of the primary addition in AY 2008-09.

8. Bad Debts Claim During Assessment Proceedings:
The AO rejected the assessee's claim of ?11,90,575/- bad debts, stating it was not made through a revised return. The CIT(A) allowed the claim, emphasizing the AO's duty to assess correct income and the legitimacy of the claim. The Tribunal upheld the CIT(A)'s decision, citing legal precedents allowing such claims during assessment proceedings.

9. Ad-hoc Disallowance of Conveyance and Repair Expenses:
The AO made lump sum disallowances of ?1,00,000/- each under conveyance and repair expenses. The CIT(A) restricted these disallowances to ?25,000/- each, noting the lack of specific defects pointed out by the AO. The Tribunal upheld the CIT(A)'s decision, emphasizing the excessive and unreasonable nature of the AO's disallowances.