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2014 (8) TMI 313 - AT - Income TaxNature of Expenses towards ROC fees and stamp duty incurred for increasing authorized share capital - Held that - CIT(A) confirmed the view taken by the AO relying upon Punjab State Industrial Development Corporation Ltd. V/s. CIT 1996 (12) TMI 6 - SUPREME Court - expenditure incurred for enhancement of capital was held to be of capital nature - CIT(A) upheld the disallowance made by the AO thus, the matter is remitted back to the AO for determination of the the eligibility and quantum of admissible deduction u/s 35D of the Act Decided in favour of assessee. Addition u/s 68 Unsecured loan and share application money is disbelieved Held that - Assessee has not only established the identity of the share-holders who have made the investments, but also filed confirmation letters from them, who have explained sources for the investments made assessee is a corporate entity and has discharged the onus on it, having identified the source from which it has received the share application money, and also attempted to explain their sources as well - there is no justification for any addition in that behalf in the assessment of the assessee-company. CIT(A) has accepted the evidences for accepting the sources for the share application money from two individuals, namely, GVK Raju and G.Uma, but has sustained the addition made by the AO, with respect to unsecured loans under S.68 of the Act - CIT(A) have accepted the genuineness of the transactions, identity of the parties and credit-worthiness of the three parties, while deciding issue of contribution to share capital, is not justified in arriving at contrary conclusions, by proceeding to examine the source of the source - the additions confirmed by the CIT(A) u/s 68 towards unsecured loans from these two individuals is deleted Decided partly in favour of Assessee.
Issues Involved:
1. Disallowance of expenditure claimed by the assessee. 2. Addition under Section 68 of the Income Tax Act for unsecured loans and share application money. Detailed Analysis: 1. Disallowance of Expenditure Claimed by the Assessee: The first issue pertains to the disallowance of Rs. 1,95,000 claimed by the assessee for ROC fee and stamp duty incurred for increasing its Authorised Share Capital from Rs. 1 lakh to Rs. 2,81,02,500. The Assessing Officer disallowed this expenditure, considering it of capital nature, and this view was upheld by the CIT(A). The CIT(A) referred to the Apex Court decision in Punjab State Industrial Development Corporation Ltd. V/s. CIT (225 ITR 792) and the Delhi High Court in CIT V/s. Hindustan Insecticides Ltd. (250 ITR 338), which held that such expenditure is capital in nature and not admissible even on a staggered basis under Section 35D. The Tribunal set aside the issue to the Assessing Officer to determine the eligibility and quantum of admissible deduction under Section 35D, after giving reasonable opportunity of hearing to the assessee. 2. Addition Under Section 68 of the Income Tax Act: The second issue involves the addition made by the Assessing Officer under Section 68, disbelieving the unsecured loans and share application money received by the assessee. a. Share Application Money: The assessee received share application money and unsecured loans from three individuals. The Assessing Officer required the assessee to furnish details, confirmatory letters, and evidence of creditworthiness. For GRK Raju, the assessee provided confirmation and details of sources amounting to Rs. 1,44,60,000. However, the Assessing Officer found the details insufficient and added the amount as unexplained credits. For Smt. G. Uma, the assessee provided a confirmation letter explaining the source of Rs. 80,94,200, but the Assessing Officer noted discrepancies and added the amount as unexplained credit. For Smt. P. Girija, the assessee failed to provide sufficient details, leading to an addition of Rs. 41,26,000 as unexplained credit. On appeal, the CIT(A) deleted the additions related to share application money from GRK Raju and Smt. Uma, citing the Apex Court's decision in CIT V/s. Lovely Exports (216 ITR 195), which held that if the share application money is received from identified persons, it cannot be regarded as undisclosed income of the assessee. However, the CIT(A) upheld the addition of unsecured loans from these individuals, stating that the assessee failed to discharge the onus of proving the genuineness of the transactions and the creditworthiness of the creditors. b. Unsecured Loans: The Tribunal considered the rival submissions and perused the records. It found that the assessee had established the identity of the shareholders and provided confirmation letters explaining the sources of investments. The Tribunal upheld the CIT(A)'s decision regarding share application money, stating that the assessee had discharged its onus by identifying the source and providing confirmations. The Tribunal rejected the Revenue's appeal on this issue. Regarding the unsecured loans, the Tribunal noted that the CIT(A) had accepted the same set of evidence for share application money but sustained the addition for unsecured loans. The Tribunal found it inconsistent and deleted the additions under Section 68 for unsecured loans from GRK Raju and Smt. Uma. For the unsecured loans from Smt. P. Girija, the Tribunal observed that the Assessing Officer had not examined the matter thoroughly and set aside the issue for fresh examination by the Assessing Officer, directing to re-examine the genuineness of the loans in accordance with the law. Conclusion: The appeal of the Revenue was dismissed, and the assessee's appeal was partly allowed for statistical purposes. The Tribunal directed the Assessing Officer to re-examine the issue of unsecured loans from Smt. P. Girija, while the disallowance of expenditure and additions related to share application money were decided in favor of the assessee.
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