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2012 (7) TMI 436 - AT - Income TaxAddition u/s. 68 - Issue of share capital - AO has specifically asked the assessee to provide the detailed calculation of the method of valuation of the premium per share in respect of the share premium calculated @ Rs. 400/- per equity share. However, the assessee company has not given any cogent reply in this regard - no cogent explanation on the records, as to why assessee should charge premium of Rs. 400/- on shares of Rs. 100/- per share Matter remanded to AO Estimation of income rejection of books of accounts - held that - all the necessary books of accounts were produced by the assessee and the relevant details of expenditure was also provided. - AO can not reject the books of accounts. Cash payment of repair - held that - instead of disallowance of Rs. 1,00,000/-, disallowance of Rs. 5,00,000/- to be made.
Issues Involved:
1. Addition under Section 68 of the IT Act for share capital. 2. Estimation of income and rejection of books of accounts. Issue-wise Detailed Analysis: 1. Addition under Section 68 of the IT Act for Share Capital: The Revenue raised the issue that the Ld. CIT(A) erred in deleting the addition of Rs. 14,14,000/- made by the AO under Section 68 of the IT Act. The assessee company, engaged in transport services, raised Rs. 40,00,000/- as share capital during the financial year 2005-06. The AO questioned the valuation method of the premium per share but did not receive a satisfactory reply. Confirmatory letters and bank statements were provided by the assessee, but letters sent to several share applicants were returned unserved. Statements recorded from Sh. Mahesh Garg and Sh. Rajan Jaisal indicated that some companies were involved in providing accommodation entries, leading the AO to add Rs. 14,14,000/- under Section 68. Upon appeal, the Ld. CIT(A) noted that two companies (Kesri Industrial Lab (P) Ltd. and Monisha Granites Ltd.) were not mentioned in the statements of Mahesh Garg and Rajan Jaisal, thus the addition for these companies (amounting to Rs. 5 lakh) was not justified. For the remaining shareholders, the Ld. CIT(A) found that the assessee had discharged the initial onus by providing necessary documents. The Ld. CIT(A) directed the deletion of the addition. The Revenue appealed, citing the Hon'ble Delhi High Court's decision in the case of C.I.T. vs. Nova Promoters & Finlease (P) Ltd. The Tribunal observed that the assessee did not provide a cogent explanation for the share premium valuation and remitted the issue back to the AO for further examination, ensuring the assessee is given adequate opportunity to be heard. 2. Estimation of Income and Rejection of Books of Accounts: The AO rejected the books of accounts under Section 145(3) of the IT Act, estimating the net profit at 10% of the gross receipts due to the assessee's failure to provide detailed information and supporting bills for various expenses. The AO found it absurd that the assessee spent Rs. 45,03,281/- on truck repairs when the Written Down Value of the trucks was Rs. 47,72,116/-. Before the Ld. CIT(A), the assessee argued that the net profit rate adopted by the AO was arbitrary and unsupported by facts. The Ld. CIT(A) noted that the assessee had provided adequate records and that the AO's reasons for rejecting the books were not cogent. The Ld. CIT(A) found that the assessee maintained proper records for truck repairs and other expenses and held that the rejection of books was not justified. However, to meet the ends of justice, the Ld. CIT(A) upheld a disallowance of Rs. 1,00,000/- for cash payments on repairs. The Revenue appealed, and the Tribunal found that the Ld. CIT(A) correctly held that the AO was not justified in rejecting the books of accounts. However, the Tribunal increased the disallowance for truck repairs to Rs. 5,00,000/- instead of Rs. 1,00,000/-. Assessee's Cross Objection: The assessee's cross objection argued against the Ld. CIT(A)'s addition of Rs. 1,00,000/- for truck repairs. The Tribunal, having already increased the disallowance to Rs. 5,00,000/-, dismissed the assessee's cross objection. Conclusion: The Tribunal allowed the Revenue's appeal for statistical purposes by remitting the share capital issue back to the AO and increasing the disallowance for truck repairs to Rs. 5,00,000/-. The assessee's cross objection was dismissed. The order was pronounced in the open court on 15/6/2012.
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