2021 (6) TMI 486 - AT - Income Tax

Addition u/s 68 - whether the assessee has been able to discharge the primary onus on it to prove the nature and source of the credit found in the books of the assessee by proving the identity, creditworthiness and genuineness of the parties and the share transaction? - HELD THAT - According to assessee from a perusal of the bank statements filed it is discernible that the transactions i.e. share capital and premium were transferred through proper banking channel and according to assessee it was not the case of the A.O that there was any cash deposit prior to the issue of cheques to the assessee company. Thus the assessee claims that the genuineness of the transaction cannot be disputed. And in order to prove the creditworthiness of the share subscribers, the Ld. A.R drew our attention to audited balance sheet of the share subscribing companies and contended that shareholders possess sufficient capital and reserves out of which share subscription amounts were paid through account payee cheques. So according to assessee, it has discharged the burden of proof casted by section 68 of the Act in respect of share capital premium it collected. And according to assessee, without finding any infirmity in the documents produced by the assessee in respect of identity, creditworthiness and genuineness of the transaction, no addition u/s 68 of the Act was warranted and the Ld CIT(A) after considering and appreciating inter-alia these facts have deleted the addition. - Decided in favour of assessee. Disallowance u/s. 56(2) (viib) - difference of the book value and issue value - HELD THAT - We note that the difference of the book value and issue value is meagre/negligible, therefore, we do not find any infirmity in the action of the Ld. CIT(A) in deleting the addition, so we confirm the same. Disallowance of excess depreciation of electrical installation - HELD THAT - We note that the assessee has claimed depreciation on electrical installation @15% applicable for plant and machinery whereas the A.O has considered the rate of depreciation of electrical installation at 10% each and disallowed 5% on depreciation claimed by the assessee. We note from the items mentioned in the Ld. CIT(A) s order which goes on to show that these are electrical installations which are integral part of the plant and machinery, without which the plant and machinery cannot operate.And since the assessee is engaged in manufacturing of cotton yarn and the electrical installation for which the assessee has claimed depreciation @ 15% are integral part of plant and machinery without which plant and machinery in the unit cannot operate, therefore the depreciation is allowable for the items claimed by the assessee @ 15% by treating the same as electrical installations which forms part of the plant and machinery. Therefore the order of the Ld. CIT(A) is confirmed. Addition under the head employee s contribution to Provident fund and ESIC by invoking section 36(1)(va) r.w.s 2(24)(x) of the Act - A.O disallowed the deduction claimed by the assessee in respect of employee s contribution to Provident Fund and ESIC on the ground that the same was not remitted within the due date prescribed in the PF ESI Act - HELD THAT - We find that the assessee has deposited the PF ESIC amount within the time allowed for filing Income Tax return under section 139(1) of the Act,therefore the Ld. CIT(A) has followed the order of the Hon ble jurisdictional High Court in the case of Vijayashree Ltd. 2011 (9) TMI 30 - CALCUTTA HIGH COURT therefore, no infirmity can be attributed to his impugned action and so we confirm the order and dismiss these grounds of appeal of the Revenue. Addition u/s 68 - HELD THAT - Addition was made for the loan taken by assessee from eight (8) parties which was admittedly the carry forwarded loans/opening loans of this assessment year, which means they were not pertaining to this assessment year. We note that the opening balance of unsecured loan as on 01.04.2014 was ₹ 5.5 crores and since ₹ 1,00,00,000/- was paid by the assessee in this assessment year through banking channel on 03.04.2014 the Assessing Officer has added the balance amount of ₹ 4.5 crores, which is un-disputably loan of the previous year, which means this loan of Rs.5.5 crores itself has been accepted by the Assessing Officer in A.Y. 2014-15 as genuine. Therefore, the addition of ₹ 4.5 crores which is admittedly loan taken by the assessee in the earlier year cannot be taxed, in this assessment year. So the action of the Assessing Officer is per-se bad in law and therefore, we confirm the decision of the Ld. CIT(Appeals) in deleting the addition Interest expense claimed by assessee as paid to the lender parties which consists of parties from which loan as obtained, as well as from parties to whose opening/closing balance of loan was added back - HELD THAT - As these loans were brought forward loans as on 01.04.2014 and which has been squared up /repaid by the assessee in this assessment year itself, which fact is evident by perusal of pages 178 to 188 of the paper book and it is noted that there was no fresh loan from these three parties and we note that the opening loan with interest due to them were repaid in this year through banking channel after duly deducting TDS. So the question of disallowing the interest given by the assessee to these three (3) parties also cannot be accepted and we are of the opinion that the Ld. CIT(Appeals) rightly deleted the same. Unexplained cash credit - HELD THAT - Assessee has discharged its onus casted upon it to prima facie prove the identity, creditworthiness and genuineness of the share-subscribers and the share capital and premium collected by it. And the additional requirement of source of source of the share capital and premium has also been brought to the notice of lower authorities, including the confirmation is there on record. Therefore, the addition u/s 68 of the Act was not warranted and therefore we direct deletion of addition Disallowance of interest - HELD THAT - Since the assessee had paid interest to each loan creditor after duly deducting taxes u/s 194A in respect of such interest and the loan creditors had disclosed interest income in their respective tax returns,thereforein the facts and circumstances the Ld CIT(A) rightly deleted the addition and we confirm the same. The Revenue appeal on this issue fails. TDS u/s 195 - Addition u/s 40a(i) on account of payment of sales commission - HELD THAT -We note that the foreign agents were residing outside India and have earned income for their work outside India, therefore they need not pay any tax in India. In such a scenario there was no legal necessity for the assessee to deduct tax u/s 195 of the Act. We note that the Revenue other than raising this ground of appeal has not provided any material to show that services were rendered by these agents in India or even a part of the services were rendered in India, so as to attract any tax liability in their hands in India; and since the amount paid to non-residents were not legally chargeable to tax in India, then the assessee has no liability to deduct tax on the payment and consequently therefore no disallowance u/s 40(a)(i) was called for and for this proposition we rely on the decision of Hon ble Supreme Court in GE India Technology Centre Private Ltd. 2010 (9) TMI 7 - SUPREME COURT therefore we confirm the order of Ld. CIT(A) and dismiss the grounds of appeal of the Revenue.

Summary

Issues Involved:
1. Deletion of addition under section 68 of the Income Tax Act, 1961.
2. Disallowance under section 56(2)(viib) of the Income Tax Act, 1961.
3. Disallowance of excess depreciation on electrical installation.
4. Disallowance of employee’s contribution to Provident Fund and ESIC under section 36(1)(va) read with section 2(24)(x) of the Income Tax Act, 1961.
5. Deletion of addition of loan liability and interest disallowance under section 68 of the Income Tax Act, 1961.
6. Deletion of addition of sales commission under section 40(a)(i) of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Deletion of Addition under Section 68 of the Income Tax Act, 1961:
- The Assessing Officer (AO) made an addition of ?7,69,71,990/- under section 68 for AY 2014-15, treating the share premium received from six companies as unexplained cash credits. The AO based his decision on non-service of notices and field inquiries that did not yield results. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, noting that the AO did not conduct a proper field inquiry and that the identity, creditworthiness, and genuineness of the transactions were established through documents such as income tax returns, audited accounts, and bank statements. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's adverse inference was not justified based on the evidence provided.
- For AY 2015-16, the AO made a similar addition of ?8,94,96,000/- under section 68, questioning the genuineness of share capital received from fourteen companies. The CIT(A) upheld the AO's decision, but the Tribunal found that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the share subscribers, including bank statements showing transactions through banking channels. The Tribunal directed the deletion of the addition.
- For AY 2016-17, the AO added ?11,40,00,000/- under section 68, alleging that loans received from eight companies were not genuine. The CIT(A) deleted the addition, noting that the AO did not provide sufficient opportunity for the assessee to produce evidence and that the loan creditors had substantial assets and were regularly assessed to tax. The Tribunal upheld the CIT(A)'s decision, finding that the AO's reliance on statements of entry operators was not justified.

2. Disallowance under Section 56(2)(viib) of the Income Tax Act, 1961:
- For AY 2015-16, the AO disallowed ?5,65,461/- under section 56(2)(viib), alleging that the share premium received exceeded the fair market value. The CIT(A) deleted the addition, noting that the difference between the book value and issue value was negligible and that the shares were issued at a round figure. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the deletion of the addition.

3. Disallowance of Excess Depreciation on Electrical Installation:
- For AY 2015-16, the AO disallowed ?68,87,393/- on the ground that the assessee claimed excess depreciation on electrical installations at 15% instead of the prescribed 10%. The CIT(A) deleted the addition, noting that the electrical installations were integral to the plant and machinery and qualified for a 15% depreciation rate. The Tribunal upheld the CIT(A)'s decision.

4. Disallowance of Employee’s Contribution to Provident Fund and ESIC under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act, 1961:
- For AY 2015-16, the AO disallowed ?8,99,406/- for late payment of employee’s contribution to Provident Fund and ESIC. The CIT(A) deleted the addition, following the jurisdictional High Court's decision in Vijayashree Ltd., which held that no disallowance should be made if the payment is made within the time allowed for filing the income tax return under section 139(1). The Tribunal upheld the CIT(A)'s decision.

5. Deletion of Addition of Loan Liability and Interest Disallowance under Section 68 of the Income Tax Act, 1961:
- For AY 2015-16, the AO added ?12.95 crores and ?4.5 crores as unexplained cash credits under section 68 and disallowed interest of ?1,10,22,382/-. The CIT(A) deleted the additions, noting that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the loan creditors, including bank statements, income tax returns, and audited financial statements. The Tribunal upheld the CIT(A)'s decision, finding that the AO's adverse inference was not justified.

6. Deletion of Addition of Sales Commission under Section 40(a)(i) of the Income Tax Act, 1961:
- For AY 2016-17, the AO disallowed ?2,57,56,247/- for non-deduction of TDS on sales commission paid to foreign agents. The CIT(A) deleted the addition, noting that the commission was paid for services rendered outside India and was not chargeable to tax in India. The Tribunal upheld the CIT(A)'s decision, citing relevant judicial precedents and finding that the AO did not provide any material to show that the services were rendered in India.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions in most cases, finding that the AO's adverse inferences were not justified based on the evidence provided. The Tribunal emphasized the importance of proper inquiry and evidence in making additions under sections 68 and 56(2)(viib) and disallowances under sections 36(1)(va) and 40(a)(i) of the Income Tax Act, 1961.