2016 (8) TMI 1484 - AT - Income Tax

Addition u/s 68 - assessee failure to discharge its onus to establish identity genuineness and creditworthiness of companies - HELD THAT - After receiving report from the Investigation Wing Kolkata dated 18.03.2013 Assessing Officer has drawn his own conclusion which was not based on any facts and figures as Assessing Officer has not mentioned anything in the order on what basis the conclusion was arrived on and what were the facts and materials available with him. Therefore the addition made by him u/s.68 of the Act on account of share application money received without considering the various facts brought to the knowledge of Assessing Officer which is not justified. Assessee has already proved the identity of the share applicant by furnishing their PAN copy of IT return filed for asst. year 2010-11.Regarding the genuineness of the transaction assessee has already filed the copy of the bank account of these three share applicants from which the share application money was paid and the copy of account of the assessee in which the said amount was deposited which was received by RTGS. Regarding credit-worthiness of the party it has been proved from the bank account of these three companies that they had the funds to make payment for share application money and copy of resolution passed in the meeting of their Board of Directors. Regarding source of the source Assessing Officer has already made enquiries through the DDI (Investigation) Kolkata and collected all the materials required which proved the source of the source though as per settled legal position on this issue assessee need not to prove the source of the source. Assessing Officer has not brought any cogent material or evidence on record to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represent company s own income from undisclosed sources. Accordingly no addition can be made u/s.68 of the Act. In view of above reasoned factual finding of CIT(A) needs no interference from our side - Decided in favour of assessee. Disallowance of 80% of the expenses claimed as interest repayment by treating same as pre-operative expenses of capital nature - HELD THAT - These expenses were neither of personal nature nor of capital nature or of pre-operative nature. These were all of revenue nature which were incurred for the purpose of carrying on the business and therefore same are obviously allowable as revenue expenses during the year. Assessing Officer has neither given any finding as to why any part of these expenses were to be disallowed nor he has issued any show cause notice why he intends to disallow part of these expenses. In view of above CIT(A) was justified in granting relief to the assessee as discussed above. We are not inclined to interfere with the finding of CIT(A) on this issue. Same is upheld. Addition u/s 14A r.w.Rule 8D - HELD THAT - As decided in M/s. Daga Global Chemicals Pvt. Ltd 2015 (1) TMI 1204 - ITAT MUMBAI any disallowance can be made that can be restricted to the exempt income claimed by assessee so disallowance u/s.14A r.w. Rule 8D is restricted to that extent. Assessing Officer is directed accordingly.

Summary

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act.
2. Disallowance of 80% of expenses claimed as interest repayment, professional fees, and administrative expenses.
3. Disallowance under Section 14A of the Income Tax Act read with Rule 8D.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made Under Section 68 of the Income Tax Act:
The Revenue challenged the deletion of an addition of ?34 crores made under Section 68 by the CIT(A), arguing that the assessee failed to establish the identity, genuineness, and creditworthiness of the companies that invested in share application money. The Tribunal noted that the assessee provided substantial documentation, including PAN numbers, income tax returns, confirmation letters, and bank statements of the investing companies. The Assessing Officer (AO) had referred the matter to the Investigation Wing in Kolkata, which confirmed the genuineness of the transactions. Despite this, the AO treated the share application money as unexplained cash credit. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee had fulfilled the requirements under Section 68 by proving the identity, genuineness, and creditworthiness of the investors. The AO's addition was found to be unjustified and not based on any cogent material evidence.

2. Disallowance of 80% of Expenses Claimed as Interest Repayment, Professional Fees, and Administrative Expenses:
The AO disallowed 80% of the expenses claimed by the assessee, treating them as pre-operative expenses of a capital nature. The CIT(A) granted relief to the assessee, observing that the AO had allowed 1/5th of the expenses and disallowed the remaining 4/5th without any specific reasons or material evidence. The CIT(A) noted that the expenses were recorded as revenue in nature in the books of accounts and were related to the ongoing business of the assessee. The Tribunal agreed with the CIT(A), stating that the AO had not provided any justification for disallowing the expenses. The Tribunal found that the expenses were incurred for the purpose of business and were not of a capital or personal nature, thus allowable as revenue expenses.

3. Disallowance Under Section 14A of the Income Tax Act Read with Rule 8D:
The assessee challenged the disallowance of ?12,69,980 under Section 14A read with Rule 8D, arguing that the disallowance should be restricted to the extent of the dividend income earned during the year, which was ?1,88,900. The Tribunal referred to the case of M/s. Daga Global Chemicals Pvt. Ltd. vs. ACIT, where it was held that disallowance under Section 14A read with Rule 8D cannot exceed the exempt income. Following this reasoning, the Tribunal restricted the disallowance to the amount of exempt income claimed by the assessee and directed the AO accordingly.

Conclusion:
The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's appeal. The decisions of the CIT(A) were upheld, and the disallowance under Section 14A was restricted to the exempt income claimed by the assessee.