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2019 (12) TMI 675 - AT - Income TaxAddition u/s 68 - Unexplained cash credit - HELD THAT - We find that the assessee had placed on record sufficient documentary evidences to discharge the primary onus casted upon him and it was obligatory on the part of the revenue to controvert the same. However, no such material has been placed by revenue which would lead to a conclusion that assessee s unaccounted money was routed in the accounts by way of Share Application Money. The summons issued by AO u/s 131 were duly responded to by the investor entities and ledger confirmations were also filed in support of the transactions. There are no allegations of immediate cash deposits in the bank accounts of investor entities and nothing on record would suggest any cash got exchanged between the assessee and the investor entities. Therefore, on the basis of stated factual matrix, it could safely be concluded that the assessee was successful in proving the identity of the investors, creditworthiness of the entities and genuineness of the transactions. Hence the conclusions drawn by learned first appellate authority could not be faulted with and we find no reason to interfere with the same. Characterization of income - interest income - income has been held to be business income as against Income from other sources - HELD THAT - We would concur with the submissions of Ld. AO that the same was assessable as Income from other Sources since undisputedly, the said investments were out of surplus funds and the assessee was not engaged in the business of finance and investment.Therefore, we hold that the said income was rightly brought to tax by Ld. AO as Income from other sources. Allowable business expenditure - since they were stated to be incurred for maintaining the corporate status and for the purpose of statutory compliances. The revenue has not agitated the same before us and therefore, the said conclusion would require no adjudication from our side. The Ld. AO is directed to recompute the income of the assessee in terms of this order.
Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act, 1961. 2. Classification of interest income as business income versus income from other sources. Issue-wise Detailed Analysis: 1. Deletion of Addition under Section 68 of the Income Tax Act, 1961: As per Section 68 of the Income Tax Act, 1961, any sum found credited in the assessee’s books for which no satisfactory explanation is provided by the assessee may be charged to income tax as the income of the assessee. The proviso added by Finance Act, 2012, applicable from AY 2013-14, specifies that for companies, the explanation must also be provided by the person in whose name such credit is recorded. It is established law that to avoid the rigors of Section 68, the assessee must prove the identity, creditworthiness of the lenders/investors, and the genuineness of the transactions. Once these three criteria are fulfilled, the onus shifts to the revenue to disprove the assessee’s claim. This principle was upheld by the Hon’ble Supreme Court in the case of Lovely Exports P. Ltd. [319 ITR 5]. The revenue appealed against the deletion of ?3,50,00,000/- added under Section 68 by the Ld. Commissioner of Income-Tax (Appeals)-16, Mumbai (CIT(A)). The assessee, a resident corporate entity engaged in construction, had issued 437,500 equity shares at a premium of ?70 per share to 12 corporate entities. The assessee provided various documents to prove the identity, creditworthiness, and genuineness of the transactions. However, notices issued under Section 133(6) to the investor entities remained unserved in most cases. The Ld. AO formed a belief that the concerns were used to channelize unaccounted money of the assessee, leading to the addition of ?350 Lacs under Section 68. The Ld. AO also added ?20.35 Lacs as interest income under the head income from other sources. Upon appeal, the CIT(A) called for a report from the Ld. AO and conducted further inquiries. Summons issued under Section 131 were duly served, and confirmations were received from all 12 entities. The CIT(A) found that the entities were regularly assessed to tax and had sufficient net worth to make the investments. The CIT(A) concluded that the assessee had successfully established the identity of the investors, their creditworthiness, and the genuineness of the transactions, thus deleting the addition under Section 68. The Tribunal upheld the CIT(A)’s decision, noting that the assessee had discharged the primary onus of proving the identity, creditworthiness, and genuineness of the transactions. The Tribunal found no adverse material on record to doubt the genuineness of the transactions and concluded that the revenue had not placed any material to suggest that the assessee’s unaccounted money was routed through the accounts by way of share application money. The Tribunal also distinguished the facts of the present case from the judgment of the Hon’ble Apex Court in PCIT Vs. NRA Iron & Steel Pvt. Ltd. [412 ITR 161]. Therefore, the Tribunal dismissed the revenue’s appeal on this ground. 2. Classification of Interest Income as Business Income versus Income from Other Sources:The revenue contested the classification of interest income amounting to ?20,35,599/- as business income. The CIT(A) held that the interest income earned by parking surplus funds in treasury operations was rightly offered as business income. The CIT(A) also allowed the business expenses of ?2.55 Lacs incurred for maintaining corporate status and statutory compliances. The Tribunal, however, concurred with the Ld. AO that the interest income should be assessed as income from other sources since the investments were made out of surplus funds, and the assessee was not engaged in the business of finance and investment. Therefore, the Tribunal allowed the revenue’s appeal on this ground. The Tribunal directed the Ld. AO to recompute the income of the assessee in terms of this order. Conclusion:The appeal was partly allowed, with the deletion of addition under Section 68 upheld, and the classification of interest income as income from other sources confirmed. Order pronounced in the open court on 05th December, 2019.
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