2022 (4) TMI 280 - AT - Income Tax

Addition u/s 68 - Bogus share application money - outstanding sundry credit balance found in account books of the assessee - HELD THAT - The fact that the amount involved was received in the previous year has not been disputed by the revenue. CIT(A) has given a finding that the said amount was received in AY 2010-11. He has found that the copies of ledger account and bank statement have been examined and the same duly fortified the fact that these share application money were received in the earlier period. Once, it is clear that share application money has not been received in the current assessment year and the same have been received in preceding assessment year, the addition of the same u/s. 68 in the current assessment year is not permissible. The Hon ble Bombay High court in the case of PCIT vs Real Value Realtors Pvt.Ltd. 2019 (11) TMI 590 - BOMBAY HIGH COURT has held that when the share application was money received in earlier assessment year, it could not be added in the impugned assessment year. Similarly, Hon ble Bombay High Court in the case of Ivan Singh 2020 (2) TMI 850 - BOMBAY HIGH COURT has held that provision of section 68 cannot be invoked for outstanding sundry credit balance found in account books of the assessee for FY 2006-07 to income of assessee for AY 2009-10.Once, it is clear that the amount involved has not been received during the year, the same cannot be added u/s. 68. Undisclosed unsecured loan - disallowance of interest on these loans - The facts of the case clearly indicate that AO has not made any investigation of his own. He solely relied upon the examination by the investigation wing in the Bhanwaralal Jain case. Further, ld.CIT(A) has correctly observed that by not giving assessee the statements for rebuttal and an opportunity to cross examine coupled with the retraction by the party, the evidentiary value of the said statement is diminished. The AO has not even issued notice u/s. 133(6) to the parties. Once, it is undisputed that no independent verification was done by the AO and the assessee has provided all the basic documents, the onus upon the assessee stands discharged. Hence, we do not find any infirmity in the order of ld.CIT(A). Hence, we uphold the same. On the same reasoning, the disallowance of interest on these loans have been deleted by ld.CIT(A). We also uphold the said order. Disallowance of interest for diversion for non-business purpose - This issue has been addressed by the ld.CIT(A) by observing that assessee has actually not debited the amount in profit and loss account. Rather the entire interest has been debited to work in progress. Hence, ld.CIT(A) has agreed with the AO that there is diversion of interest, but he has directed that since the interest has been debited to work in progress, the said amount be reduced from work in progress. Hence, ld.CIT(A) has correctly appreciated the issue. We do not find any infirmity in the same. Thus, the revenue s appeal being misplaced is dismissed on this account. Addition u/s. 68 for investment in joint venture - Assessee has duly discharged the onus and given all the necessary documents for the identity, genuineness and creditworthiness of the parties. Ld.CIT(A) has duly examined the same and found the same to be correct. AO s order is only based upon surmise and conjecture. He has not dislodge any of the documents filed by the assessee. The assessment year before us is AY 2012-13. The source of source provision has been inserted by amendment u/s.68 of the Act w.e.f. 01.04.2013 effective from AY 2013-14 onwards. That is also for share capital, even in that case Hon ble Bombay High court has held that it is the pre-amendment provision of section 68 in respect of which the assessee has to discharge its onus. Though in the present case, the issue is not all share capital, even then we note that there is no provision of examination of source of source in section 68 for the impugned assessment year. Still as noted above, the assessee has discharged its onus. The adverse inference drawn by the AO regarding some of the parties not appearing before him or that the summons could not be served at the address or that before the issuance of cheque amounts were deposited are all without specific detail and are also in the realm of surmise and conjuncture. Such issue has been duly adjudicated by Hon ble Bombay High court in the case of CIT vs. Orchid Industries 2017 (7) TMI 613 - BOMBAY HIGH COURT - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition under Section 68 of share application money of ?2,35,00,000.
2. Deletion of addition of ?2,35,00,000 holding that it is a capital receipt.
3. Deletion of addition of ?5,95,00,000 received as unsecured loan.
4. Deletion of disallowance of interest paid of ?8,88,000.
5. Deletion of addition of ?26,17,60,000 received as investment from bogus parties under Joint Venture agreement.

Detailed Analysis:

1. Deletion of Addition under Section 68 of Share Application Money of ?2,35,00,000:
The Appellate Tribunal noted that the share application money of ?2,35,00,000 was received in the previous assessment year (A.Y. 2010-11) and not in the current assessment year (A.Y. 2012-13). The Tribunal cited several case laws, including PCIT v Real Value Realtors Pvt. Ltd. and Ivan Singh vs. ACIT, which established that share application money received in a previous year cannot be added under Section 68 in the current year. The Tribunal upheld the CIT(A)'s deletion of the addition, confirming that such investments could only be considered in the year of receipt.

2. Deletion of Addition of ?2,35,00,000 Holding that it is a Capital Receipt:
The Tribunal agreed with the CIT(A) that share capital and premium are capital receipts and cannot be added under Section 68 as they are not of revenue nature. The amendment to Section 68, which requires examination of the source of the source, was applicable from A.Y. 2013-14 onwards and not relevant to the current assessment year. The Tribunal cited various case laws, including M/s. Apeak Infotech and Orchid Industries Pvt. Ltd., supporting the view that share premium is a capital receipt.

3. Deletion of Addition of ?5,95,00,000 Received as Unsecured Loan:
The Tribunal upheld the CIT(A)'s deletion of the addition, noting that the assessee had provided all necessary documents to prove the identity, creditworthiness, and genuineness of the loan transactions. The CIT(A) observed that the AO had not conducted any independent verification and had solely relied on statements from the Bhanwarlal Jain group, which were subsequently retracted. The Tribunal emphasized that the assessee is not required to prove the source of the lender's funds and referenced several case laws, including Pr.CIT v. Veedhata Tower Pvt. Ltd. and Nemichand Kothari v CIT.

4. Deletion of Disallowance of Interest Paid of ?8,88,000:
The Tribunal noted that while the AO had found a diversion of interest-bearing funds for non-business purposes, the CIT(A) observed that the assessee had not claimed the interest as a deductible expense but had capitalized it to the Capital Work in Progress (WIP) account. Therefore, the CIT(A) directed the AO to reduce the WIP by ?8,88,000, which would result in an addition in subsequent years. The Tribunal found no infirmity in this approach and upheld the CIT(A)'s decision.

5. Deletion of Addition of ?26,17,60,000 Received as Investment from Bogus Parties under Joint Venture Agreement:
The Tribunal upheld the CIT(A)'s deletion of the addition, noting that the assessee had provided comprehensive documentation to prove the identity, creditworthiness, and genuineness of the joint venture investors. The CIT(A) found that the AO had not issued fresh notices after the assessee's name change and had not conducted due verification. The Tribunal cited various case laws, including Pr.CIT vs. Vaishnodevi Refoils & Solvex and CIT vs. Orchid Industries (P) Ltd., supporting the deletion of the addition. The Tribunal concluded that the AO's observations were based on surmise and conjecture, and the assessee had adequately discharged its onus.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s deletions of the additions and disallowances under various sections, finding that the assessee had provided sufficient evidence to prove the genuineness of the transactions and that the AO had not conducted proper verification.