2019 (5) TMI 746 - AT - Income Tax

Addition u/s 68 - creditworthiness of the investors and genuineness of the transaction - HELD THAT - It is difficult to believe that the assessee company being a loss making company, any investor would make investment in them, particularly, when Shri Surendra Singh Yadav has no source to make any investment in assessee company and that M/s. Wianxx Impex P. Ltd., (Investor Company) itself was running into losses, therefore, there is no question of proving creditworthiness of both the investors and genuineness of the transaction in the matter. We, therefore, do not find any merit in these grounds of appeal of assessee and the same are accordingly dismissed. Addition on account of repair of plant and machinery - assets leased-out to its sister concern - HELD THAT - A.O. has specifically noted in the assessment order that during the assessment year under appeal, assessee did not make any sales and purchases and no business activities or commercial activities were carried out. The assessee did not establish as to how repairs to plant and machinery and expenses claimed were genuine. Even the loss income declared by the assessee was not accepted by the A.O. and it was treated as NIL income. CIT(A) specifically noted that when plant and machinery were leased-out to the sister concern and assessee did not carry out any manufacturing activity, how the amount was spent on repair of machines. In the absence of any evidence on record to rebut the finding of fact recorded by the authorities below, no interference is required in the matter. Ground of the appeal are dismissed.

Summary

Issues:

1. Addition of ?35 lacs under section 68 of the Income Tax Act 1961.
2. Disallowance of ?3,46,000 on account of repair of plant and machinery.

Issue 1: Addition of ?35 lacs under section 68 of the Income Tax Act 1961:

The assessee challenged the addition of ?35 lacs under section 68 of the Income Tax Act 1961, related to share application money received from two parties. The assessee failed to prove the identity, creditworthiness, and genuineness of the transactions adequately. The assessing officer made the additions as the required documents were not provided by the assessee. However, at the appellate stage, the assessee produced additional documents to support the transactions. The CIT(A) confirmed the addition, stating that the assessee failed to prove the creditworthiness of the share applicants and the genuineness of the transactions. The tribunal analyzed the submissions and documents provided by both parties. It was observed that the investors' financial positions and the nature of transactions raised doubts about the genuineness of the investments. The tribunal dismissed the appeal, concluding that the assessee failed to establish the legitimacy of the transactions.

Issue 2: Disallowance of ?3,46,000 on account of repair of plant and machinery:

The assessing officer disallowed ?3,46,000 claimed as expenses for the repair of plant and machinery. The officer noted discrepancies in the assessee's business activities, indicating no sales or purchases during the relevant period. The CIT(A) upheld the disallowance, stating that the assessee failed to justify the repair expenses when all assets, including plant and machinery, were leased out, and no manufacturing activities were conducted. The tribunal agreed with the lower authorities, emphasizing the lack of evidence supporting the repair expenses claimed. The tribunal found no reason to interfere with the decision, as the assessee could not substantiate the legitimacy of the repair expenses. Consequently, the appeal on this ground was dismissed.

This judgment highlights the importance of substantiating financial transactions and expenses to avoid additions and disallowances under the Income Tax Act. The burden of proof lies with the assessee to demonstrate the genuineness of transactions and expenses, failing which such amounts may be added back to the income.