2020 (8) TMI 593 - AT - Income Tax

Addition u/s 68 - unexplained Share Capital/Share Application money - assessee failed to prove creditworthiness of the shareholders / share applicants and the genuineness of the transactions - HELD THAT - In this case, on perusal of facts available on record, including the finding of the CIT(A), it is abundantly clear that there is no reference to any incriminating material found as a result of search to additions made towards share capital. In fact, the assessee has proved that share capital raised during block period was accounted in regular books of accounts and same has been scrutinized by the AO in the scrutiny assessment proceedings passed u/s 143(3) - Therefore there is no error in the findings recorded by the CIT(A), while deleting additions made towards share capital u/s 68 - even otherwise the assessee has filed various evidences to prove identity, genuineness of transactions and creditworthiness of the shareholders. Therefore, on this count also, the additions made by the Ld. AO cannot survive. Hence, we are of the considered view that the Ld.CIT(A) was right in deleting the additions made towards share capital and hence, we are inclined to uphold the finding of Ld.CIT(A) and reject ground taken by the revenue. Disallowances of bogus depreciation and bogus expenses - HELD THAT - As regards, claim of depreciation, CIT(A) had recorded categorical finding that claim of depreciation was made on office equipments, furniture and fixtures etc., which were evidently put to use, but not on plant and machinery as claimed by the AO. Accordingly, he has directed the Ld. AO to verify the claim of the assessee, in light of various evidences and allow the depreciation, if the claim of the assessee is correct. Therefore when the issue has been set aside to the Ld. AO for verification of facts, there is no grievance for revenue to agitate such findings and hence, we are inclined to uphold the findings of the Ld.CIT(A) and reject arguments of the revenue. Disallowances of expenditure - CIT(A) has recorded categorical finding to the effect that major part of expenses for different assessment years were incurred through cheque and no adverse findings is borne from the records that the expenses were otherwise bogus, non genuine or inflated. Primary details having been furnished and no discrepancy was noticed or pointed out by the ld. AO. Noted that all expenses were recorded in regular books of accounts and were subject to verification from the Ld. AO during regular assessment proceedings. Assessee itself has disallowed major part of cash expenses as unaccounted. There would be no justification for making further addition, which evidently would lead to double taxation. Revenue has failed to controvert the findings recorded by the CIT(A) with any evidences. We, therefore are of the considered opinion that there is no error in the findings recorded by the CIT(A) to interfere by us at this stage. Hence, we are inclined to uphold the findings of Ld.CIT(A) and reject ground taken by the revenue.

Summary

Issues Involved:
1. Deletion of addition of unexplained Share Capital/Share Application money.
2. Admission of additional evidence and deletion of disallowances of bogus depreciation and bogus expenses.

Detailed Analysis:

1. Deletion of Addition of Unexplained Share Capital/Share Application Money:
The Revenue challenged the deletion of the addition of ?5,53,46,000 towards unexplained share capital/share application money, arguing that the assessee failed to prove the creditworthiness of shareholders and the genuineness of transactions. The assessee company, incorporated in FY 1994-95, had increased its share capital significantly in FY 1995-96 and received additional share application money in subsequent years. During a search and seizure operation, it was alleged that the group utilized unaccounted income to introduce funds into the company through public issue of shares. The Assessing Officer (AO) made additions based on the lack of evidence regarding the identity, creditworthiness, and genuineness of shareholders, supported by a special audit report indicating insufficient documentation.

The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the additions, noting that no incriminating evidence was found during the search to support the addition, and the assessee had provided sufficient evidence to prove the identity, genuineness, and creditworthiness of shareholders. The CIT(A) relied on judicial precedents, including the decision in CIT vs. Balaji Wire Pvt. Ltd., which emphasized that undisclosed income in block assessments must be based on evidence gathered during the search. The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, agreeing that the AO's additions were not linked to any incriminating material found during the search and that the assessee had substantiated its claims with adequate evidence.

2. Admission of Additional Evidence and Deletion of Disallowances of Bogus Depreciation and Bogus Expenses:
The Revenue also contested the CIT(A)'s decision to admit additional evidence and delete disallowances of ?5,38,417 towards bogus depreciation and ?58,00,077 towards bogus expenses. The AO had disallowed these amounts, arguing that the assessee had not commenced manufacturing activities and had claimed expenses without supporting evidence. The special audit report supported this view, indicating that the assessee did not produce necessary bills, vouchers, or books of accounts.

The CIT(A) found that the business activities were ongoing, and the depreciation claimed on office equipment, furniture, and fixtures was justified. The CIT(A) directed the AO to verify the claims and allow the depreciation if substantiated. Regarding the disallowance of expenses, the CIT(A) noted that most expenses were incurred through cheques and no adverse findings were recorded. The CIT(A) emphasized that the expenses were recorded in regular books of accounts and subjected to verification during regular assessments. The ITAT upheld the CIT(A)'s decision, noting that the AO's disallowances were not supported by any incriminating material found during the search and that the assessee had provided sufficient evidence to justify the expenses.

Conclusion:
The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decisions to delete the additions towards unexplained share capital and disallowances of depreciation and expenses. The cross-objection filed by the assessee was dismissed as infructuous due to a significant delay without proper explanation. The judgment underscores the necessity of linking additions in block assessments to incriminating evidence found during searches and the importance of substantiating claims with adequate documentation.