2022 (9) TMI 817 - AT - Income Tax

Addition u/s. 68 r.w.s 115BBE - disallowance of investments in the form of share capital and share premium received - HELD THAT - As gone through the assessment order in the name of company granting investment to assessee passed U/s. 143(3) rws 147 of the Act wherein the fact that the company received funds by issuing equity shares at a premium was recorded in the assessment order. We therefore find merit in the argument of the Ld. AR that these funds were utilized by the investor company in the assessee company in the form of investment as share capital. We also see from the ledger accounts and bank statements submitted by the Ld. AR that the amounts were received through banking channels. CIT(A) has rightly observed that an amount of Rs. 1,95,25,000/- being the opening balance in the ledger account of M/s. Express Dealers Private Limited and the balance amount of Rs. 1,60,27,000/- was received into the bank account of the assessee during the current AY, and hence if the AO wished to tax the income u/s. 68 he should have added only on Rs. 1,60,27,000/- being the receipts during the current financial year and not the opening balance. We also observe from the ledger accounts submitted by the Ld. AR of M/s. Charansheela Consultants Private Limited the amounts were received through banking channels from 2011-12 onwards. AO has erred in treating the investments in the assessee company as unexplained cash credits u/s. 68 r.w.s 115BBE of the Act is not valid in law and we therefore find no infirmity in the order of the Ld. CIT(A) and hence no interference is required. - Decided against revenue.

Summary

Issues:
Appeal against order of Ld. CIT(A) for AY 2014-15 - Addition u/s 68 r.w.s 115BBE - Share premium received from two companies - Validity of additions challenged by Revenue - Proper banking channels used for investments - Admissions and submissions by both parties - Assessment order of investing company considered - Ledger accounts and bank statements reviewed - Correctness of Ld. CIT(A)'s order in deleting additions disputed - Appeal dismissal by ITAT Visakhapatnam.

Analysis:
The judgment pertains to an appeal filed by the Revenue against the order of the Ld. CIT(A) for the assessment year 2014-15, concerning the addition made under section 68 read with section 115BBE of the Income Tax Act. The assessee, engaged in hotel business, had filed a return declaring NIL income, which was later scrutinized by the Ld. AO resulting in an addition of Rs. 3,67,88,800. The Ld. CIT(A) partially allowed the appeal by deleting the said additions, leading to the Revenue's appeal before the ITAT Visakhapatnam.

The Revenue raised grounds challenging the Ld. CIT(A)'s order, specifically disputing the deletion of additions amounting to Rs. 3,55,22,000 and Rs. 12,36,800 received as share premium from two companies. The Revenue argued that the investing companies were "paper companies," and the Ld. AO rightly disallowed the premiums. Conversely, the Ld. Authorized Representative contended that the investments were received through proper banking channels, supported by ledger accounts and submissions.

After considering the arguments and evidence presented by both parties, the ITAT Visakhapatnam noted that the investing companies had received funds through equity shares at a premium, as recorded in their assessment orders. The ITAT observed that the funds were utilized by the investing companies in the assessee company as investments in the form of share capital. Ledger accounts and bank statements confirmed the transactions through banking channels. The ITAT upheld the Ld. CIT(A)'s order, emphasizing that the additions made by the Ld. AO were not valid in law, as the investments were not unexplained cash credits under section 68 r.w.s 115BBE.

Consequently, the ITAT Visakhapatnam dismissed the Revenue's appeal, affirming the correctness of the Ld. CIT(A)'s decision in deleting the additions. The judgment was pronounced on 22nd August 2022.