2021 (7) TMI 15 - AT - Income Tax

Bogus LTCG on share application money received - Addition u/s 68 - correct assessment year - HELD THAT - A perusal of the facts of the case reveals that the amount was received during the AY 2011-12. During the year under consideration, the share application money received in the previous year was transferred to the share capital a/c and share premium a/c. Therefore, the amount cannot be added in the 2012- 13. Moreover, it is also supported by the documents on record. In the circumstances, the addition cannot be made during this assessment year but should have been examined in the previous year. It is also pertinent to note that all details relating to the source of funds have been submitted by the assessee. In view of the above, delete the said addition. This ground of appeal is allowed. Expenditure of staff salary, payment of rental, professional expenses etc - Disallowance on the ground that these expenses are liable to be capitalized u/s 57(iii) - HELD THAT - No doubt, there was no order received by the assessee from customer creating lull in the business but assessee remained into manufacturing activities during the year under assessment. In these circumstances necessary expenditure of staff salary, payment of rental, professional expenses etc. are required to be incurred to keep the business alive. Their machines remained in operative posture. CIT(A) has rightly and legally deleted the addition by following the decision rendered in the case of CIT vs. Nahar Exports Ltd. 2007 (5) TMI 171 - PUNJAB AND HARYANA HIGH COURT has allowed and in the case of CIT vs. Chennai Petroleum Corporation 2013 (8) TMI 525 - MADRAS HIGH COURT wherein it has been held that machinery could not be put to use due to raw material paucity, assessee s claim for depreciation could not be rejected. Consequently Ground No. 2 is also determined against revenue.

Summary

Issues Involved:
1. Addition of Rs. 2,00,00,000/- as unexplained share premium/share capital under section 68 of the Income Tax Act.
2. Deletion of the addition of Rs. 26,33,675/- made under section 57 of the Income Tax Act.

Analysis:

Issue 1: Addition of Rs. 2,00,00,000/- as unexplained share premium/share capital under section 68 of the Income Tax Act:
The Deputy Commissioner of Income Tax sought to set aside the order passed by the Commissioner of Income-tax (Appeals) regarding the addition of Rs. 2,00,00,000/- as unexplained share premium/share capital. The Assessing Officer treated this amount as income from unexplained sources under section 68 of the Act due to the failure of the assessee to explain the receipt of share premium. The Commissioner of Income-tax (Appeals) deleted this addition based on the argument that the amount was received in the previous year and had been duly documented. The Tribunal upheld this decision, stating that the addition cannot be made in the current assessment year as it should have been examined in the previous year. The Tribunal found no illegality in the Commissioner's decision and ruled against the revenue on this ground.

Issue 2: Deletion of the addition of Rs. 26,33,675/- made under section 57 of the Income Tax Act:
The Assessing Officer disallowed the deduction of Rs. 26,33,675/- claimed by the assessee under section 57(iii) on the grounds that the expenses should be capitalized. However, the Commissioner of Income-tax (Appeals) overturned this decision, citing precedents from the Punjab & Haryana High Court and the Madras High Court. These precedents highlighted that necessary expenditures to keep the business operational, even in the absence of orders from customers, should be allowed. The Tribunal agreed with the Commissioner's decision, emphasizing that the machines were operational, and the expenses were essential to maintain business activities. Consequently, the Tribunal dismissed the revenue's appeal, finding no illegality or perversity in the Commissioner's order.

In conclusion, the Tribunal upheld the Commissioner's decision to delete both additions, emphasizing the importance of considering the circumstances and legal precedents in such matters. The appeal filed by the revenue was dismissed, and the order was pronounced on June 29, 2021.