2016 (12) TMI 1541 - AT - Income Tax

Addition invoking section 68 - accretion in share capital - as per AO foreign inward remittance certificates furnished by the assessee did not correspond to the previous year relevant to the assessment year under consideration and he held that the assessee company had failed to establish the identity or creditworthiness of the shareholder and the genuineness of the transaction of receipt of share capital - Held that - Evidently, the appellant company had furnished Foreign Inward Remittance Certificates (FIRC) issued by the bank and it is also not disputed that contribution to the shareholder s capital is in terms of RBI regulations. It is also clear from the copies of the documents submitted by the assessee company to the RBI in connection with receipt of share capital monies from Becrux Trade & Invest Ltd. that the nature of such receipts are of share capital. In fact the observation of the Assessing Officer that the FIRCs issued by the HDFC Bank do not pertain to the year under consideration is contrary to the fact-situation. In the Paper Book filed before us, assessee has placed copies of the three FIRCs issued by HDFC Bank, which clearly evidence that a sum of ₹ 3,25,13,110/- has been received during the previous year relevant to the assessment year under consideration. In the Paper Book assessee has also placed copies of the share certificates issued to the holding company M/s. Becrux Trade & Invest Ltd., Cyprus and also other documents filed with the Registrar of Companies in connection with the issue of share capital. In fact, assessee company has also placed on record the financial statements of holding company Becrux Trade & Invest Ltd., Cyprus at pages 46 to 81 of the Paper Book, which clearly depicts investment made in the assessee company. Thus we find no reason for the Assessing Officer to invoke the provisions of section 68 - Decided in favour of assessee Disallowance under section 40(a)(ia) - non deduction of tds - non issue of show cause notice - Held that - The order of the CIT(A), clearly reveal that no show casue notice was issued to the assessee for disallowing a sum of ₹ 1,04,36,195/- by invoking the provisions of section 40(a)(ia) of the Act. Quite clearly, the issue relating to invoking of section 40(a)(ia) was not before the Assessing Officer at all and in this background, it was imperative for the CIT(A) to have issued an appropriate notice to the assessee . In fact the provisions of section 251(2) of the act clearly militate against the aforesaid approach of the CIT(A). Moreover, even on facts, the assessee has pointed out that the impugned amount is a part of a suo-motu disallowance made in the return of income itself. Thus the impugned addition is unwarranted and is hereby directed to be deleted. - Decided in favour of assessee

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act.
2. Disallowance under Section 40(a)(ia) of the Income Tax Act.
3. Disallowance under Section 14A of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act:
The first issue concerns the addition of ?3,25,13,110/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act. The AO found that the assessee had issued 74,915 equity shares at a premium, totaling ?3,25,13,110/-. The assessee claimed that these shares were issued to its 100% holding company, Becrux Trade & Invest Ltd., Cyprus, and provided supporting documents, including Foreign Inward Remittance Certificates (FIRC) and share certificates. However, the AO was not satisfied with the explanation, citing discrepancies in the FIRCs and questioning the identity, creditworthiness, and genuineness of the transaction. The CIT(A) upheld the AO's decision, but the Tribunal found that the assessee had sufficiently demonstrated the nature and source of the credits with relevant documents, including FIRCs, RBI compliance documents, and financial statements of the holding company. Therefore, the Tribunal directed the AO to delete the addition, allowing Grounds of appeal Nos. 1 to 3.

2. Disallowance under Section 40(a)(ia) of the Income Tax Act:
The second issue pertains to a disallowance of ?1,04,36,195/- made by the CIT(A) under Section 40(a)(ia). During the assessment, the AO made an ad-hoc disallowance of 5% of certain expenses and disallowed an additional ?66,67,771/- under 'information technology cost'. The CIT(A), referring to an earlier order, disallowed ?1,04,36,195/- for non-deduction of tax at source. The assessee contended that it had already made a suo-motu disallowance of ?1,05,47,651/- in its return of income and that the CIT(A) did not issue a show-cause notice before making the disallowance. The Tribunal found that the CIT(A) had not followed due process and noted that the amount was already disallowed by the assessee. Consequently, the Tribunal directed the deletion of the disallowance, allowing Grounds of appeal Nos. 4 to 6.

3. Disallowance under Section 14A of the Income Tax Act:
The third issue involves a disallowance of ?1,741/- under Section 14A. The Tribunal reviewed the arguments and found no reason to interfere with the orders of the lower authorities. Therefore, the disallowance was upheld, and the assessee's appeal on this ground was dismissed.

Conclusion:
The Tribunal partly allowed the appeal, directing the deletion of additions under Sections 68 and 40(a)(ia) while upholding the disallowance under Section 14A. The order was pronounced in the open court on 13 July 2016.