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2022 (1) TMI 641 - AT - Income TaxAddition u/s 68 - unexplained share subscription from various parties - onus to proof - assessee did not respond to the several notices issued calling for information - income-tax assessment orders passed u/s 143 - HELD THAT - All the entities were assessed to tax and additions were made on substantive basis with respect to certain entities. It is also apparent that all the entities had sufficient funds within their means to make investment in the assessee company. All the entities have filed their returns of income. It is also apparent that all the entities had sufficient funds within their means to make investment in the assessee company. All the entities have filed their returns of income. The accounts of all the entities were also audited. It is also not in dispute that the entire money were infused into the assessee company towards share application money through banking channels. Therefore, from the factual matrix of the issue it is crystal clear that identity, creditworthiness and genuineness of the entities who had infused money into the assessee company are established and the evidence of the same filed by the assessee company which were also before the Ld. Revenue Authorities. The submission of the ld. AR that the above five entities had also infused funds in the assessee company during the preceding assessment year 2009-10 could not be controverted by the Ld. DR. Further, the Ld. AO in his remand report dated 8/11/2006 had stated that the concerned Directors of the group were in judicial custody and for such reason the summons and notices issued upon them were returned unserved itself justifies the reason that the entities could not cooperate during the assessment proceedings. It also establishes the fact that the relevant individuals managing the affairs of the assessee company were not in receipt of the notices sent by the Revenue Authorities during the course of assessment proceedings. Further, before us the Ld. DR could not state any reason as to why the first remand report of the Ld. AO was rejected. Assessee has established the genuineness of the transaction with cogent evidence which are forming part of the paper book. The Ld. Revenue Authorities could not draw any adverse inference from the documents filed by the assessee company in its paper book. Hence the assessee has satisfied the initial onus cast upon it to establish the identity of the investors, the creditworthiness of the investors and the genuineness of the transactions. All the transactions are also duly reflected in the balance sheets of the share applicants, so creditworthiness is proved. Now if still the Ld.AO had any doubt regarding the creditworthiness of the shareholders, then the only course available with the Ld.AO was to have proceeded against the shareholders as held in the several judgments cited above, but no adverse view could have been drawn against the assessee. The third ingredient is genuineness of the transactions, for which we note that all the shares were allotted within the group entities/ promoter-individuals. It is therefore not a case that the shares privately placed by the assessee were to unknown or complete strangers. The assessee has demonstrated that it was in need of funds for its business and accordingly it had sought equity investment from its group entities/holding company/promoter-individuals. From the above facts it is obvious that the Ld.AO of the shareholders have examined the sources of income of these shareholders U/S 143(3) of the Act and have not drawn any adverse inferences. The income-tax assessment orders passed U/S 143 (3) of the Act in the matters of these shareholders show that the Ld.AOs of the shareholders did not doubt their bona fide existence or the genuineness of their transaction with the assessee. Hence, in our considered view, all the three ingredients set out in Section 68 of the Act had been met by the assessee. - Decided in favour of assessee. Addition on the notional gain arising out of the foreign exchange fluctuation - HELD THAT - As per the provisions of the Act, notional gain or profit cannot be tax unless it has crystalized. Further, fluctuation in foreign exchange will vary from year to year and if there is a loss as per the accounting standards, it has to be casted in the statement of affairs of the entity by providing due provision for the loss. This aspect in case of loss arising out of foreign exchange fluctuation has been upheld by M/S WOODWARD GOVERNOR INDIA P. LTD. M/S HONDA SIEL POWER PRODUCTS LTD. 2009 (4) TMI 4 - SUPREME COURT and the same ratio cannot be applied when there is a notional gain. Therefore, the addition made and sustained by the Ld. Revenue Authorities is erroneous. Hence, we direct the Ld. AO to delete the addition made on this count. Accordingly, concise Ground No.2 mentioned herein above in the assessee s appeal is decided in favour of the assessee. Levy of interest U/s. 234A, B C of the Act are mandatory.
Issues Involved:
1. Addition of ?311,88,97,970/- under Section 68 of the Act. 2. Addition of ?15,99,60,041/- on account of notional gain from foreign exchange fluctuation. 3. Addition of ?61,95,95,194/- by capitalizing expenses as the business was not operational. 4. Additions towards interest charged under Section 234A, B, and C of the Act. 5. Condonation of delay in filing the appeal under Section 249(3) of the Act. Detailed Analysis: 1. Addition of ?311,88,97,970/- under Section 68 of the Act: The Assessing Officer (AO) added ?311,88,97,970/- to the assessee's income under Section 68, citing failure to prove the identity and creditworthiness of the parties and the genuineness of the transactions. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition based on a second remand report dated 08/11/2016, disregarding the first remand report dated 17/03/2015, which had accepted the genuineness of the transactions. The Tribunal examined the paper book filed by the assessee, containing details such as PAN, balance sheets, income tax returns, and assessment orders of the share applicants. It found that the share applicants were assessed to tax and had sufficient funds to invest in the assessee company. The Tribunal noted that the AO had not provided any substantial material to dispute the documentary evidence provided by the assessee. It concluded that the assessee had established the identity, creditworthiness, and genuineness of the transactions, thus satisfying the initial onus under Section 68. The Tribunal directed the deletion of the addition of ?311,88,97,970/-. 2. Addition of ?15,99,60,041/- on account of notional gain from foreign exchange fluctuation: The AO made an addition for notional gain from foreign exchange fluctuation, relying on the Supreme Court's decision in CIT vs. Woodward Governor India Pvt Ltd. The CIT(A) upheld this addition. The Tribunal found that notional gains cannot be taxed unless they have crystallized. It noted that the provisions of the Act allow for the recognition of losses from foreign exchange fluctuation but not notional gains. Therefore, the Tribunal directed the deletion of the addition of ?15,99,60,041/-. 3. Addition of ?61,95,95,194/- by capitalizing expenses as the business was not operational: This ground was not pressed by the assessee during the hearing, and thus, the Tribunal did not adjudicate on this issue. 4. Additions towards interest charged under Section 234A, B, and C of the Act: The Tribunal found that the interest charges under Sections 234A, B, and C are consequential and mandatory. Therefore, it upheld the additions towards interest. 5. Condonation of delay in filing the appeal under Section 249(3) of the Act: The CIT(A) had denied condonation of a 125-day delay in filing the appeal, which led to the appeal being treated as non-est. The Tribunal found that the delay was due to reasonable cause, as the assessment order was served to a guard at the factory premises, which was closed at the time. The Tribunal held that the CIT(A) should have considered the delay and adjudicated the appeal on merits. It condoned the delay and proceeded to adjudicate the grounds raised by the assessee on merits. Conclusion: The Tribunal allowed the assessee's appeal partly by deleting the additions under Sections 68 and for notional gain from foreign exchange fluctuation, while upholding the additions towards interest under Sections 234A, B, and C. The appeal of the Revenue was dismissed.
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