2017 (11) TMI 965 - AT - Income Tax

Loss on sale of shares - addition u/s. 68 on account of bogus sale of shares - Held that - AO observed that it is clear that the assessee company debited the sum of ₹ 1580705/- to the P&L account with an intention to adjust the income accrued to it from the Service Receipts during the year. AO after examination of all the facts held that the loss amounting to ₹ 15,80,705/- on the alleged sale of the shares to such farmers was booked and cash amounting to ₹ 5,60,000/- was introduced in the guise of sale consideration of the alleged shares and rightly relied decision in the case of Sumati Dayal vs. CIT (1995 (3) TMI 3 - SUPREME Court ). We further find that CIT(A) has rightly observed that the identity and creditworthiness of buyers and genuineness of the transactions were never established. The loss of ₹ 15.80 lacs claimed is not admissible also on account of provisions of Explanation to section 73. The receipts shown on sale of shares, the amount of ₹ 5,60,000/- falsely shown as sale consideration has been rightly treated as unexplained cash credit, hence, Ld. CIT(A) has rightly upheld the addition made by the AO, which does not need any interference on our part, therefore, we uphold the same and reject the ground no. 1 to 3 raised by the assessee. Addition on account of share application money - Non genuineness of transaction - Held that - Although, the assessee has been able to indicate that M/s Silverline Appliance Ltd. had entered the transactions in its books of account, it is clear that this was a cash transaction and as indicated by the AO in his letter dated 29.10.2004, the said company had received cash to the tune of RS.6 lacs on account of share application money on different dates in September of the relevant year. The mere fact that M/s Silverline Appliance Ltd. is an income- tax assessee does not prove that this is a genuine transaction. The voucher dated 28.3.2001 through which the alleged cash of the share application money was claimed to have been returned to the appellant company does not appear to be a reliable document. There are no signatures of any person and the acknowledgment part is totally blank. The AO s conclusion that there was never a transaction and this was only a squared up cash account of unexplained cash introduced sounds totally feasible. Hence, Ld. CIT(A) felt that the genuineness of the transaction was proved and the AO has rightly treated it as unexplained cash credit and confirmed the same, which does not need any interference on our part - Decided against assessee. Disallowance u/s. 14A - method of computation of disallowance - Held that - We note that Section 14A envisages disallowance of expenses relating to exempted income. In such a situation, a prescribed method for working out this expenditure is already on the anvil. In the absence of a specified parameter of apportionment of expenditure in such a situation, the responsibility, (fiscal and moral) of determining corresponding expenditure lies with the assessee. In the absence of any such execution of responsibility, the AO left with no choice but to apportion the expenditure on estimate basis. Therefore, in this case the AO has very reasonably and scientifically worked out the proportion of the business receipts vis- -vis, the exempted income and then applied that ratio to the expenditure, hence, he rightly affirmed the addition, which does not need any interference on our part - Decided against assessee.

Issues Involved:
1. Disallowance of loss on sale of shares amounting to ?15,80,705.
2. Addition of ?5,60,000 under Section 68 of the Income Tax Act as unexplained cash credit.
3. Addition of ?75,000 as unexplained cash credit for share application money.
4. Disallowance of ?28,938 under Section 14A of the Income Tax Act for establishment expenses related to exempt income.

Detailed Analysis:

1. Disallowance of Loss on Sale of Shares:
The assessee claimed a loss of ?15,80,705 on the sale of shares, which was adjusted against service receipts of ?17,29,000. The Assessing Officer (AO) scrutinized the transactions and found that the sale consideration was received in cash from individuals who were agriculturists and not income tax assessees. Affidavits provided by these individuals were of similar pattern and language, raising doubts about their authenticity. The AO conducted an enquiry and found discrepancies in the statements of the individuals, who were unaware of the details of the shares they allegedly purchased. The AO concluded that the loss was fictitious and aimed at reducing the taxable income. The CIT(A) upheld the AO's decision, stating that the identity and creditworthiness of the buyers and the genuineness of the transactions were not established. The Tribunal agreed with the findings of the AO and CIT(A), and upheld the disallowance of the loss.

2. Addition under Section 68:
The AO added ?5,60,000 as unexplained cash credit under Section 68 of the Income Tax Act, stating that the assessee introduced unaccounted money in the guise of sale consideration of shares. The CIT(A) upheld this addition, noting that the assessee failed to establish the identity, creditworthiness of the buyers, and the genuineness of the transactions. The Tribunal concurred with the lower authorities, affirming the addition under Section 68.

3. Addition of ?75,000 for Share Application Money:
The assessee received ?75,000 from M/s Silverline Appliances Ltd. for share application money. The AO found discrepancies in the transaction and treated it as unexplained cash credit. The CIT(A) upheld the AO's decision, noting that the transaction was in cash and there were no signatures on the voucher acknowledging the receipt. The Tribunal agreed with the findings of the AO and CIT(A), confirming the addition of ?75,000 as unexplained cash credit.

4. Disallowance under Section 14A:
The assessee earned dividend income of ?4,51,337, which was exempt under Section 10(33) of the Income Tax Act. The AO noted that the assessee did not disallow any expenses related to this exempt income. The AO calculated the proportionate expenses at 20.67% of the total receipts and disallowed ?28,938 under Section 14A. The CIT(A) upheld this disallowance, stating that the AO reasonably apportioned the expenses. The Tribunal affirmed the CIT(A)'s decision, agreeing that the disallowance was justified.

Conclusion:
The Tribunal dismissed the appeal of the assessee, upholding the decisions of the AO and CIT(A) on all grounds. The disallowance of the loss on the sale of shares, the additions under Section 68, and the disallowance under Section 14A were all confirmed. The Tribunal found that the assessee failed to establish the genuineness of the transactions and the identity and creditworthiness of the parties involved.

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