2021 (3) TMI 52 - AT - Income Tax

Bogus LTCG - addition u/s 68 - share application money treated as unexplained in the hands of the assessee - HELD THAT - Assessee proved identity of the Investors and also furnished sufficient documentary evidences to prove creditworthiness of the Investors, genuineness of the transaction in the matter. Therefore, initial onus upon the assessee to prove ingredients of Section 68 of the I.T. Act, 1961 stands discharged. The decisions relied upon by the Ld. D.R. have also been considered in the Group cases as above and did not find in favour of the Revenue because the assessee has been able to prove creditworthiness of the creditors and genuineness of the transaction. Therefore, the decisions relied upon by the Ld. D.R. would not support the case of the Revenue. Considering the totality of the facts and circumstances of the case and above discussion, we are of the view that entire addition made by the authorities below of ₹ 6.7 crores is wholly unjustified and is liable to be set aside. In view of the above, we set aside the Orders of the authorities below and delete the entire addition. All the grounds raised by the assessee are allowed. Deemed dividend u/s 2(22)(e) - HELD THAT - Since the assessee is NBFC Company registered with RBI and as per assessment order itself the nature of business of assessee is financing and investment and the details submitted by Learned Counsel for the Assessee clearly show that assessee is mainly engaged in finance business for giving loans and advances and earn interest thereon, would clearly prove that assessee is mainly in the business of lending of money to others, therefore, business transaction would not attract the provisions of Section 2(22)(e) of the I.T. Act and as such the case of the assessee would fall to the exception provided in sub-clause-(ii) of Section 2(22)(e) of the I.T. Act, 1961. In view of the above, we set aside the Orders of the authorities below and delete the addition - Ground of the appeal of the Assessee is allowed.

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act, 1961 on account of unexplained share capital/premium.
2. Application of Section 2(22)(e) of the Income Tax Act, 1961 regarding deemed dividend.

Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act, 1961 on account of unexplained share capital/premium:

Facts and Proceedings:
- The assessee filed returns declaring income of ?13,46,170/- for the assessment years 2009-2010 and 2010-2011.
- A search and seizure operation was conducted, leading to the discovery of various documents.
- The assessee raised share capital of ?6.70 crores and ?9.60 crores respectively from Kolkata-Howrah based companies.
- The Assessing Officer (AO) issued a questionnaire and confronted the assessee with the results of the investigation, which indicated that the companies did not exist at the given addresses and were not engaged in regular business activities.
- The AO treated the entire share application money as unexplained under Section 68 and made additions accordingly.
- The CIT(A) confirmed the AO's order.

Assessee’s Arguments:
- The assessee argued that all investor companies were identifiable corporate entities, assessed to tax, and the share capital was received through banking channels.
- The assessee provided confirmations, bank statements, copies of ITRs, balance sheets, and other documents to prove the genuineness of the transactions.
- The assessee cited previous ITAT decisions in similar group cases where such additions were deleted.

Tribunal’s Findings:
- The Tribunal noted that the assessee had provided sufficient documentary evidence to prove the identity, creditworthiness, and genuineness of the transactions.
- The Tribunal referred to previous ITAT decisions in similar cases within the same group where similar additions were deleted.
- The Tribunal held that the assessee had discharged the initial onus under Section 68 and that the AO did not provide sufficient evidence to disprove the assessee’s claims.
- The Tribunal also noted that no incriminating material was found during the search to justify the additions.

Conclusion:
- The Tribunal set aside the orders of the authorities below and deleted the entire additions of ?6.70 crores and ?9.60 crores for the assessment years 2009-2010 and 2010-2011, respectively.

2. Application of Section 2(22)(e) of the Income Tax Act, 1961 regarding deemed dividend:

Facts and Proceedings:
- During the search, documents indicating an investment of ?20 lakhs in immovable property by a director of the assessee company were found.
- The AO treated this amount as deemed dividend under Section 2(22)(e) and made an addition of ?20 lakhs.
- The CIT(A) confirmed the AO's order.

Assessee’s Arguments:
- The assessee argued that it is a Non-Banking Financial Company (NBFC) registered with RBI, and lending money is a substantial part of its business.
- The assessee cited the exception under Section 2(22)(e)(ii), which states that loans made in the ordinary course of business by a company engaged in money lending are not treated as deemed dividends.
- The assessee provided details of its business activities and financial statements to support its claim.

Tribunal’s Findings:
- The Tribunal noted that the assessee is primarily engaged in the business of lending money and earning interest, as evidenced by its financial statements.
- The Tribunal referred to judicial precedents, including decisions from the Delhi and Bombay High Courts, which support the assessee’s position that loans made in the ordinary course of business by an NBFC are not treated as deemed dividends.
- The Tribunal concluded that the assessee’s case falls within the exception provided in Section 2(22)(e)(ii).

Conclusion:
- The Tribunal set aside the orders of the authorities below and deleted the addition of ?20 lakhs.

Summary:
The Tribunal allowed the appeals of the assessee for both assessment years 2009-2010 and 2010-2011, deleting the additions made under Section 68 for unexplained share capital/premium and under Section 2(22)(e) for deemed dividend. The Tribunal found that the assessee had provided sufficient evidence to discharge its burden of proof and that the AO had not adequately disproved the assessee’s claims.