2021 (11) TMI 78 - AT - Income Tax

Disallowance of travel expenditure - addition estimated at 5% of the total expenditure claimed by assessee - HELD THAT - As on the submissions advanced by Ld.AR now before us, it is justifiable to restrict the disallowance only to the extent of travel expenses. Whereas other expenses stands explained as most of the payments are statutory payments. Considering the fact that assessee sumo to disallowed a portion of it in the computation of income, further 5% of the travel expenses incurred would cover the leakage. We therefore direct the Ld.AO to restrict the disallowance only to the extent of 5% of the travel expenses. Addition u/s 68 - unexplained share application money and share premium money invested - HELD THAT - As assessee filed its own audited accounts for assessment year under consideration, the share subscription and shareholders agreement, bank statement of current account held by assessee showing the receipt of the funds and a letter from the bank held by one of the promoter who is having the NRE account of having debited in amount of ₹ 140 lakhs in favour of assessee. As rightly observed by authorities below assessee has not discharge the primary onus of establishing the creditworthiness of all the directors. The right measure is to file the bank statements of the creditors/subscribers, copy of returns filed by them to establish that the promoters/share subscribers had sufficient funds to make such huge payments to assessee towards share capital/share premium. In the interest of justice we deem it proper to remand this issue to the Ld.AO. Assessee is directed to file all documents/statutory forms to establish the creditworthiness of the all the promoters/share subscribers. Merely by showing that the funds have received in the hands of assessee through banking channels, would not establish the creditworthiness of such creditors. Ld.AO is directed to verify all the details filed by the assessee and consider the claim in accordance with law

Summary

Issues Involved:
1. Disallowance of 5% of total expenditure claimed by the assessee.
2. Addition of ?4,20,10,670/- as securities premium reserve.
3. Addition of ?48,00,799/- as share application money.

Detailed Analysis:

1. Disallowance of 5% of Total Expenditure:
The assessee challenged the disallowance of ?41,04,847/-, which was 5% of the total expenditure claimed. The Ld.AO had made this disallowance due to the self-made nature of cash vouchers and lack of supporting documents. The Ld.CIT(A) observed that the total expenditure claimed was ?8,21,18,595/-, and the assessee had already disallowed ?34,86,684/- in the computation of income. The Ld.CIT(A) restricted the disallowance to ?39,31,596/- considering the already disallowed amount. Before the Tribunal, the assessee argued that the disallowance should be limited to travel expenses of ?17,83,153/-, which lacked proper bills. The Tribunal agreed and directed the Ld.AO to restrict the disallowance to 5% of the travel expenses, considering other expenses were statutory payments. This ground was partly allowed.

2. Addition of ?4,20,10,670/- as Securities Premium Reserve:
The Ld.AO added ?4,20,10,670/- as securities premium reserve due to the assessee's failure to prove the creditworthiness of the investors. Despite additional evidence submitted during appellate proceedings, the assessee could not produce necessary documents like bank statements, income tax returns, or balance sheets of the investors. The Ld.CIT(A) upheld the addition, noting that the assessee failed to discharge its onus of proving the creditworthiness of the investors. The Tribunal remanded the issue back to the Ld.AO, directing the assessee to provide all necessary documents to establish the creditworthiness of the investors. The Ld.AO was instructed to verify the details and consider the claim in accordance with the law. This ground was allowed for statistical purposes.

3. Addition of ?48,00,799/- as Share Application Money:
Similar to the securities premium reserve, the Ld.AO added ?48,00,799/- as share application money due to the assessee's inability to prove the creditworthiness of the investors. The Ld.CIT(A) upheld the addition for the same reasons. The Tribunal, considering the same principles and evidence required for proving creditworthiness, remanded this issue back to the Ld.AO. The assessee was directed to file all necessary documents to establish the creditworthiness of the share subscribers. The Ld.AO was instructed to verify the details and consider the claim in accordance with the law. This ground was also allowed for statistical purposes.

Conclusion:
The appeal was partly allowed. The disallowance of 5% of total expenditure was restricted to travel expenses. The issues regarding the addition of securities premium reserve and share application money were remanded back to the Ld.AO for fresh consideration, with directions for the assessee to provide necessary documents to establish the creditworthiness of the investors. The Tribunal emphasized the need for proper verification and adherence to legal standards in assessing the genuineness of transactions and creditworthiness of investors.