2022 (4) TMI 19 - AT - Income Tax

Addition u/s 68 - bogus accommodation entry in the guise of share capital and premium - HELD THAT - Facts on record show that the assessee received investment from M/s Blue Bay Hospitality Pvt. Ltd through banking channel and the fair value of the shares have been determined as per the guidelines of the RBI. The undisputed fact is that on a reference made by the competent authority to FT TR,I CBDT, the Mauritius authorities have confirmed the transaction. Mauritius Taxing Authority have also confirmed that Shri Joseph Thomas is the ultimate beneficial owner of M/s Blue Bay Hospitality Pvt. Ltd and has given unsecured loan to the company. The Mauritius Taxing authority have also confirmed that the entire transaction has been done through banking channel and have also forwarded the bank statement of M/s Blue Bay Hospitality Pvt. Ltd. The funds were received with the permission from the RBI. Source of the source of the investment received by the assessee from M/s Blue Bay Hospitality Pvt. Ltd has been conclusively explained by the assessee and such source of source have been confirmed by the Manutius Revenue authority vide letter dated 04.05.2015 to the FT TR division. Addition stands deleted. Ground No. 1 is dismissed. Capitalization of travelling expenses - HELD THAT - AO has made a general observation that these expenses were incurred by the directors for personal purposes whereas we find that after verifying the documentary evidence brought on record, the ld. CIT(A) was convinced that the travelling expenses were incurred by the directors for business purposes of the appellant for putting up hotel in Goa. There is no evidence brought on record by the Assessing Officer to prove that these expenses were of personal in nature. Therefore, we do not find any reason to interfere with the findings of the ld. CIT(A). Ground No. 2 also stands dismissed.

Summary

Issues involved:
1. Deletion of addition made under section 68 of the Income-tax Act for alleged bogus accommodation entry in the guise of share capital and premium.
2. Allowance of capitalization of travelling expenses incurred for business purposes.

Analysis:
1. The Revenue challenged the deletion of addition of ?16,67,89,253 made under section 68 of the Income-tax Act, alleging a bogus accommodation entry in the form of share capital and premium. The Assessing Officer observed discrepancies regarding the equity shares issued to M/s Blue Bay Hospitality Pvt Ltd, Mauritius, and raised concerns about the company's financial activities. The Assessing Officer also questioned the fair value determination of the shares and alleged commission payments. The CIT(A) reviewed the case, noting that the shares were issued in compliance with RBI guidelines and valued using the Discounted Cash Flow Method. The CIT(A) found conclusive evidence supporting the transaction, including confirmation from the Mauritius Taxing Authority, and subsequently deleted the addition.

2. The Revenue also contested the capitalization of ?8,30,746 in travelling expenses, claiming they were personal in nature. The Assessing Officer believed these expenses were for personal trips of the directors and de-capitalized a portion. However, the CIT(A) examined the evidence provided by the assessee, confirming that the expenses were incurred for business purposes related to establishing a hotel in Goa. The CIT(A) found no proof of personal nature in the expenses and directed the Assessing Officer to delete the de-capitalization. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal in its entirety.

In conclusion, the Tribunal upheld the CIT(A)'s decision to delete the addition under section 68 and allow the capitalization of travelling expenses, as the assessee provided sufficient evidence to support their claims, including compliance with regulatory guidelines and confirmation from relevant authorities.