2019 (3) TMI 689 - AT - Income Tax

Unexplained cash credit u/s 68 - Genuineness of claim - Held that - Assessee has discharged its onus by adequately disclosing the transaction in its books of accounts, filing statutory forms as regards allotment of shares, providing name, address and PAN of the shareholders, etc. the assessee has sufficiently discharged the onus cast upon it for the purpose of section 68 and no addition can be made on this account. Hence, we are of the view that the CIT(A) has rightly deleted the addition and we confirm the same - Considering the principles laid down by Hon ble Supreme Court in the case of Lovely Exports Pvt. Ltd. 2008 (1) TMI 575 - SUPREME COURT OF INDIA and moreover, no new facts have been brought on record before us in order to controvert or rebut the findings so recorded by Ld CIT (A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT (A). - Decided in favour of assessee Disallowance of interest u/s 36(1)(iii) - interest fee loans or advances given by the assessee - HELD THAT - the assessee had filed the details of loans and advances given and from the said details, the contention of the assessee was found to be in order to the effect that interest fee loans or advances given by the assessee is at ₹ 22,10,18,973/- only as against the amount of ₹ 30,05,18,9737- considered by the A.O. Therefore, after considering the balance sheet. The own fund (i.e. share capital and surplus) of the assessee was ₹ 27,43,62,742/- against which the interest free advances given by the assessee was Rs, 22,10,18,973/-. Thus. this establishes that the interest free funds have been given by the assessee out of its own funds. As relying on RELIANCE UTILITIES & POWER LTD. 2009 (1) TMI 4 - BOMBAY HIGH COURT CIT-A rightly allowed this ground. - Decided against revenue

Issues Involved:

1. Deletion of addition on account of unexplained cash credit under Section 68 of the IT Act.
2. Disallowance of interest under Section 36(1)(iii) of the IT Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Cash Credit under Section 68 of the IT Act:

The revenue challenged the deletion of an addition of ?2,74,45,000 on account of unexplained cash credit under Section 68 of the IT Act. The assessee had issued non-cumulative, non-convertible preference shares at a premium of ?49,900 per share. The AO found the premium unreasonable and the transactions non-genuine, thus making the addition. However, the assessee argued that the identity, creditworthiness of the investor, and genuineness of the transactions were proven through various documents, including the investor's PAN, bank statements, and minutes of meetings.

The CIT(A) evaluated the evidence and found that the assessee had discharged its onus under Section 68 by proving the identity and creditworthiness of the investor and the genuineness of the transaction. The CIT(A) relied on judicial precedents, including the cases of Green Infra Ltd. and Gagandeep Infrastructure Pvt. Ltd., which held that the issue of shares at a premium is a commercial decision and does not require justification. The CIT(A) also noted that the investor had made similar investments in previous years, which were accepted by the AO.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's addition was based on the presumption of unjustified premium rather than any failure on the assessee's part to explain the nature and source of the funds. The Tribunal reiterated that the identity, creditworthiness, and genuineness of the transaction were adequately proven, and the AO's concerns about the premium did not justify the addition under Section 68.

2. Disallowance of Interest under Section 36(1)(iii) of the IT Act:

The revenue also challenged the CIT(A)'s decision to delete the disallowance of interest amounting to ?2,90,96,145 under Section 36(1)(iii) of the IT Act. The AO had disallowed the interest, assuming that the assessee had given interest-free loans amounting to ?30,05,18,973, whereas the assessee clarified that the actual interest-free loans were ?22,10,18,973.

The CIT(A) found that the assessee's own funds (share capital and surplus) amounted to ?27,43,62,742, which were sufficient to cover the interest-free advances. The CIT(A) relied on the judgment of the Bombay High Court in CIT vs. Reliance Utilities & Power Ltd., which held that if the assessee's own funds are sufficient to cover the interest-free advances, no disallowance of interest is warranted.

The Tribunal upheld the CIT(A)'s decision, noting that the assessee had sufficient own funds to cover the interest-free advances and that the revenue had not provided any contrary judgments or new facts to rebut the CIT(A)'s findings. The Tribunal found the CIT(A)'s order to be judicious and well-reasoned, thereby dismissing the revenue's ground on this issue.

Grounds No. 3 & 4:

These grounds were general in nature and did not require specific adjudication. The Tribunal dismissed the appeal filed by the revenue with no order as to cost.

Conclusion:

The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on both issues. The deletion of the addition on account of unexplained cash credit and the disallowance of interest were found to be justified based on the evidence and judicial precedents. The Tribunal emphasized the importance of proving the identity, creditworthiness, and genuineness of transactions under Section 68 and the sufficiency of own funds to cover interest-free advances under Section 36(1)(iii).

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