2021 (4) TMI 162 - AT - Income Tax

Addition u/s 68 - credits in the form of share capital/share premium and/ or loan and advances appearing in the books of assessee companies - core contention of the assessee is that the funds have been channeled from the regular books of account of Bhushan Energy Ltd. which is a subsidiary of Bhushan Steel Ltd. into a maze of group companies in the form of share capital and/or loan and advances - AO treated the share capital/ share premium and or loan and advances appearing in the balance sheet of aforesaid assessee companies as alleged introduction of unaccounted funds of the assessee companies into the regular books of account which has been added u/s.68 - HELD THAT - Assessees herein filed detailed documentary evidences in the form of duly signed confirmation of investors/lenders (parties), details of PAN, copies of ITR, duly establishing the identity of the parties and genuineness of the transactions. Assessee also filed bank statements of the parties duly establishing the creditworthiness of the parties to invest in the share capital of or advance loans to the Assessee Companies. What has been disputed is the creditworthiness and this is because, they do not have much revenue from operations and were showing marginal income. However, nowhere the Assessing Officer has disputed the funds available in their balances sheets, duly accounted for and the source from such funds have come. All the Subscribers/ Lenders are corporate entities having separate legal identity who are regularly assessed to tax and complying with all statutory requirements. One very important fact here in this case are that in all the cases Subscribers/ Lenders Companies for the relevant assessment year scrutiny assessments have been done u/s 143(3) or the cases have been reopened u/s.147 and thereafter assessments have been completed wherein in some cases exactly on the same amount additions have been made. Thus, in many instances there are double additions on the same amount. Ergo in view of these facts and evidences, the identity of the investors stands established. In so far as genuineness of the transaction is concerned, the funds have been received through banking channels and bank statement of all the investors/lenders company have been filed which prove conclusively that the assessee companies had received the funds from the said investors, who in turn have received money from the same group companies; and they have not only corroborated this fact in their confirmation along with copies of income tax return but also from their audited balance sheets filed alongwith their Income Tax Returns. Again, in so far as the creditworthiness these companies have made investments through banking channels duly reflected in the bank statement and have also filed balance sheets and detailed explanation thereafter showing their availability of funds for making the investments.the entire details of share applicants were made available to the Assessing Officer, including PAN, confirmations, bank statements, their balance sheets and profit loss accounts and certificates of incorporation, etc. Assessing Officer had not undertaken any inquiry or investigation of the veracity of above documents. Hence Tribunal has rightly held that without doubting the document, the Assessing Officer cannot make the addition only on presumption that low return of income is sufficient to doubt the creditworthiness of the share holders. Assessee by producing the above documents has discharged its initial onus of showing the genuineness and creditworthiness of the share holders. Same ratio will apply here also. Further, even for the sake of repetition, one very peculiar fact as incorporated above is that, in most of the cases of the investor company s assessments have been made u/s.143(3) or u/s 147, wherein either their source of fund have been accepted or certain additions have been made based on scrutiny examination. It is not a case where there is any cogent finding in those cases that it is unaccounted money of the assessee companies which has been routed through them or it is their unaccounted money which has been invested in the assessee company. In absence of any such finding or material, no adverse inference can be drawn in the case of the assessee companies. Thus, the identity and the creditworthiness of the investor/subscriber company stands fully established and so also the genuineness of the transaction. No reason or justification for sustaining such an addition of share capital or share premium under the deeming provision of Section 68. We are in tandem with the arguments raised by the ld. counsel and the explanation given by him in view of supporting documents as dealt and incorporated above and are accepted. In the result additions as made by the AO on this score are directed to be deleted. Fresh addition made by the CIT (A) by making enhancement on account of alleged commission income - addition of new source of income is beyond the scope of enhancement by the CIT (A) - HELD THAT - Such an addition made by the ld. CIT (A) is definitely beyond the scope of jurisdiction conferred upon the ld. CIT(A) on u/s.251 by introducing new source of income and that without giving any reasonable cause against enhancement. Even otherwise also, since all the assessee are essentially group companies and the common management under one control, the question of any hypothetical charge of any commission income for providing facility to route the funds of any group company does not arise. The entire addition is based on surmises and presumption, because, CIT (A) s reasoning is based practice prevalent in the market sans any tangible material or inquiry or evidence on record. Thus, the addition made on basis of estimation of 2% of commission income in the case of these three assessees, i.e., Jawahar Credit and Holdings Pvt. Ltd., Jingle Bells Alluminium Pvt. Ltd. and Kasper Information Technology Pvt. Ltd. is directed to be deleted. Disallowance u/s 14A r.w.r. 8D - CIT(A) restricted the additions made by the A.O holding that the amount of disallowance u/s 14A cannot in any case exceed the exempt income, i.e., the dividend income in the instant case - HELD THAT - Assessee company had made suo-moto disallowance which can be said to be expenses attributable for earning of exempt income. This was computed by the assessee by aggregating the total direct expenses debited in its profit and loss account as per the figures given in the earlier part of the order. The dividend income received by the assessee is only ₹ 9,94,717/- and therefore such an attribution for providing man power services, etc. can be said to be reasonable basis. AO without recording any subjective satisfaction having regard to the accounts of the assessee or the nature of expenses debited has mechanically applied Rule 8D which is not the mandate of the law in view of Section 14A(2). Thus, there was no reason for making any addition over and above the suo moto disallowance made by the assessee. CIT (A) has found it reasonable to restrict the disallowance u/s.14A to ₹ 5 lacs, which in our opinion is fully justified and therefore, we hold that the balance addition of ₹ 18,32,813/- has rightly been deleted by the ld. CIT(A). In the case of Angel Cement Pvt. Ltd for Assessment Year 2012-13; in the case of Delight Resorts Pvt. Ltd. for Assessment Year 2012-13; and Stylish Construction Pvt. Ltd. for Assessment Year 2012-13, the Department has challenged the alleged admission of additional evidence by the ld. CIT (A) without giving opportunity to the Assessing Officer in violation of Rule 46A. First of all, it has been clarified that no additional evidences were submitted except for assessment orders passed by the Income Tax Department which is part of the income tax records cannot be construed as additional evidences and therefore such ground is devoid of any merits and same is dismissed.

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act.
2. Addition on account of alleged commission income.
3. Restriction of addition under Section 14A read with Rule 8D.
4. Admission of additional evidence under Rule 46A.

Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act:
The core issue in these appeals is the addition made under Section 68 of the Income Tax Act, which pertains to unexplained cash credits in the form of share capital/share premium and loans/advances. The Assessing Officer (AO) alleged that the assessees introduced their unaccounted/undisclosed funds into their books of account. The AO raised several points, including the non-compliance of notices under Sections 133(6) and 131, failure to produce directors of investor companies, and insufficient balance in bank accounts of investors, among others.

The CIT(A) deleted the additions in most cases, stating that the assessees had prima facie established the identity, creditworthiness, and genuineness of the transactions. The CIT(A) noted that the assessees had provided relevant documents, including confirmations, bank statements, income tax returns, and assessment orders of the investors/lenders. The CIT(A) also highlighted that the funds were routed through Bhushan Energy Ltd. and its group companies, and there was no evidence of unaccounted funds being introduced.

The Tribunal upheld the CIT(A)'s findings, emphasizing that the primary onus of proving the nature and source of credits was discharged by the assessees. The Tribunal noted that the identity and creditworthiness of the investor companies were established through various documents, and the transactions were genuine as the funds were received through banking channels. The Tribunal also pointed out that in many cases, the same amounts were added in the hands of the investor companies, leading to double additions.

2. Addition on account of alleged commission income:
In three cases, the CIT(A) made an enhancement by adding alleged commission income for providing a facility to route funds. The CIT(A) estimated a commission income of 2% for providing such entries. The assessees challenged this addition, arguing that the CIT(A) acted beyond jurisdiction by introducing a new source of income without issuing a prior show-cause notice.

The Tribunal agreed with the assessees, stating that the CIT(A) exceeded his jurisdiction by introducing a new source of income that was neither disclosed by the assessees nor considered by the AO. The Tribunal emphasized that the CIT(A) cannot make an addition in respect of a new source of income outside the subject matter of assessment appealed against. The Tribunal also noted that the addition was based on mere surmises and conjectures without any tangible evidence.

3. Restriction of addition under Section 14A read with Rule 8D:
In the case of Stylish Construction Pvt. Ltd., the AO made an additional disallowance under Section 14A read with Rule 8D. The CIT(A) restricted the disallowance to ?5 lakhs, holding that the disallowance cannot exceed the exempt income earned by the assessee.

The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to record any satisfaction regarding the correctness of the assessee's claim. The Tribunal observed that the disallowance made by the AO was mechanical and without proper justification.

4. Admission of additional evidence under Rule 46A:
The Revenue challenged the CIT(A)'s acceptance of additional evidence without giving the AO an opportunity to comment, alleging a violation of Rule 46A. The assessees clarified that the documents in question were assessment orders passed by the Income Tax Department, which are part of the departmental records and not additional evidence.

The Tribunal dismissed the Revenue's ground, stating that the documents were not additional evidence and were part of the departmental records.

Conclusion:
The Tribunal dismissed the Revenue's appeals and allowed the assessees' appeals, holding that the additions under Section 68 were not justified, the enhancement by the CIT(A) on account of alleged commission income was beyond jurisdiction, and the restriction of disallowance under Section 14A by the CIT(A) was appropriate. The Tribunal also found no merit in the Revenue's challenge regarding the admission of additional evidence.