2015 (1) TMI 960 - AT - Income Tax

Unexplained unsecured loan - CIT(A) deleted the addition - Held that - CIT(A) has observed that he did not find that any evidence was unearthed during the search conducted on the assessee to indicate that these amounts were not genuine. Having searched the assessee and failed to get any evidence, it is not legally tenable for the Revenue to allege that the assessee has failed to prove the transactions. Ld. CIT(A) has further observed that once assessee gives some details the burden shifts on the Revenue to disprove the claim made. Else, the claim has to be accepted. When loans / advances taken through the banking channel and returned through the banking channel it cannot be doubted in the absence of evidence to the contrary. We find force in the conclusion drawn by the Ld. CIT(A) that as there is no evidence to the contrary, the additions made are not legally sustainable and are rightly deleted. In view of the above, we do not find any infirmity in the order of the Ld. CIT(A), hence, we uphold the same. - Decided in fvaour of assessee. Disallowance of interest on loan - CIT(A) deleted the addition - Held that - Ld. CIT(A) has concluded that this ground of appeal is consequential to the fourth ground of appeal dealt while deleting the addition of ₹ 12,20,000/- above. Since relief has been allowed in the main ground, the consequential ground as to allowed. The disallowance of interest paid he deleted. - Decided in favour of assessee. Fee paid to ROC - Revenue v/s Capital - Held that - The expenditure on issue of shares and the fees paid to the Registrar of the Company is capital in nature. Expenditure incurred by a company in connection with issue of share with a view to increase its share capital, is directly related to the expansion of the capital base of the company, and is capital expenditure, even though it may incidentally help in the business of the company and in the profit making. Hence, the same cannot be allowed as revenue expense. See PSIDC vs. CIT 1996 (12) TMI 6 - SUPREME Court Brooke Bond vs. CIT 1997 (2) TMI 11 - SUPREME Court and CIT vs. Kodak India Ltd. 2001 (10) TMI 7 - SUPREME Court . - Decided in favour of revenue.

Summary

Issues Involved:
1. Deletion of addition on account of unexplained unsecured loan.
2. Deletion of addition on account of unexplained share capital.
3. Deletion of addition on account of unexplained unsecured loan.
4. Deletion of addition on account of disallowance of interest on loan.
5. Treatment of fee paid to ROC as capital expenditure.

Issue-wise Detailed Analysis:

1. Deletion of addition on account of unexplained unsecured loan:
The Revenue's appeal for AY 2004-05 challenged the deletion of Rs. 10,50,000/- added by the AO on account of unexplained unsecured loan. The AO contended that the assessee failed to prove the creditworthiness of the lender, M/s Ahura Exports Pvt. Ltd. However, the CIT(A) deleted the addition, noting that the assessee provided sufficient details, including the loan being taken through DD and repaid by cheque, with interest duly paid and TDS deposited. The Tribunal upheld the CIT(A)'s decision, stating no further evidence was required to establish the transaction's genuineness.

2. Deletion of addition on account of unexplained share capital:
For AY 2008-09, the Revenue contested the deletion of Rs. 2,18,74,410/- added by the AO as unexplained share capital. The AO argued that the assessee failed to prove the investors' creditworthiness. However, the CIT(A) referred to an earlier ITAT decision in the assessee's favor, which established that the primary burden of proving identity and creditworthiness was met through various documents like balance sheets, FIRC, and FIPB approval. The Tribunal agreed with the CIT(A), emphasizing that remittances from non-residents through banking channels are capital receipts not subject to tax under sections 68 or 69.

3. Deletion of addition on account of unexplained unsecured loan:
The Revenue also appealed against the deletion of Rs. 12,20,000/- added by the AO as unexplained unsecured loan. The AO noted that the assessee only provided a confirmation letter from Sh. S. Sreekanth without further details. The CIT(A) observed that no evidence was found during the search to indicate these amounts were not genuine and concluded that the burden shifted to the Revenue to disprove the claim. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the deletion of the addition.

4. Deletion of addition on account of disallowance of interest on loan:
The AO disallowed Rs. 30,511/- as interest on loans from parties whose loans were treated as unexplained. Since the CIT(A) deleted the addition of Rs. 12,20,000/- as unexplained unsecured loan, the disallowance of interest was also deleted. The Tribunal upheld this decision, noting it was consequential to the main ground.

5. Treatment of fee paid to ROC as capital expenditure:
The assessee's appeal for AY 2008-09 contested the treatment of Rs. 1,26,556/- paid to ROC as capital expenditure. The AO and CIT(A) treated the fee as capital expenditure, citing judicial precedents from the Supreme Court. The Tribunal upheld the CIT(A)'s decision, agreeing that the expenditure related to expanding the capital base and was capital in nature.

Conclusion:
All appeals filed by the Revenue and the Assessee were dismissed. The Tribunal upheld the CIT(A)'s decisions, finding no infirmities in the deletion of additions related to unexplained unsecured loans, share capital, and interest disallowance, and confirming the treatment of ROC fees as capital expenditure.