2022 (11) TMI 967 - AT - Income Tax

Addition on account of underwriting charges - allowable business expenditure - As per AO underwriting commission incurred by the assessee is not related to the business of the assessee in its normal course -CIT(A) had granted relief to the assessee by following the order of his predecessor for the very same issue in A.Y.2015-16 - HELD THAT - There is neither any factual change nor any legal change with regard to the facts prevailing in A.Y.2015-16 and the facts prevailing during the year under consideration. It is pertinent to note that against the order passed by the predecessor the ld. CIT(A) for A.Y.2015-16, no appeal has been preferred by the Revenue before this Tribunal. Hence, that order of the ld. CIT(A) had attained finality. Addition u/s.68 - unexplained gifts received - assessee was asked to explain and furnish the occasion for which the gift was received creditworthiness of the donor, bank statement of the donor etc. - HELD THAT - AO in the remand report had agreed that the creditworthiness of the donor is established in addition to identity and genuineness of the transaction. CIT(A) had categorically stated that there is nothing on record brought by the ld. AO to show that the transaction of gifts are of doubtful nature. In any case, this is nothing but gift received by the assessee from his own brother which would be exempt u/s.56(2) of the Act. On this count also no addition could be made in the hands of the assessee in respect of the gift. It is also a fact on record that gift has been duly confirmed by the brother that the money is payable to him by the proprietary concern is being converted into gift out of natural love and affection. When the provisions of Section 68 of the Act per se could not be made applicable, as no receipt of money was available during the year under consideration and in view of the fact that gift has been received only from assessee‟s own blood brother (which would be exempt from tax), the decision relied upon by the Revenue on case of CIT vs.Durga Prasad More 1971 (8) TMI 17 - SUPREME COURT and Sumati Dayal 1995 (3) TMI 3 - SUPREME COURT does not come to the rescue of the Revenue. The gift confirmation also says that the same is irrevocable. In view of these documents which remained uncontroverted before us and in view of the aforesaid observations, we have no hesitation in confirming the order of the ld. CIT(A) granting relief to the assessee in this regard. Accordingly, the ground No. (ii) raised by the Revenue is dismissed. Addition on account of advance received towards sale of shares - shares in FCPL were held in the form of investments of the assessee and not as stock in trade - HELD THAT - We find that the Revenue had sought to apply provisions of Section 51 of the Act to treat the said advance as monies forfeited and thereby liable to tax in the hands of the assessee. In this regard, we find that this aspect has already been addressed by the ld.CIT(A) in para 11.2 of his order, wherein, it was held that there is no provision to treat the forfeited amount as income of the assessee and that even the amendment brought in by the Finance Act (No.2), 2014 effective from 01/04/2015 in Section 51 by way of insertion of proviso which is prospective in nature provided that the forfeited amount shall be deemed of income of the year in which forfeiture has been made. The shares of FCPL, as stated earlier is continued to be shown as investment in the balance sheet of the assessee and the same were not transferred at all. Hence, by no stretch of imagination, this advance receipt could be brought to tax under any provisions of the Act applicable to the year under consideration, Hence, we find no infirmity in the order of the ld. CIT(A) granting relief to the assessee in this regard. - Decided against revenue.

Issues Involved:
1. Deletion of disallowance of Rs. 12,00,000/- on account of underwriting charges.
2. Deletion of addition of Rs. 1,67,10,442/- made under Section 68 of the Income Tax Act.
3. Deletion of addition of Rs. 27,00,000/- made on account of advance received towards the sale of shares.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Rs. 12,00,000/- on Account of Underwriting Charges:
The primary issue was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the disallowance of Rs. 12,00,000/- made on account of underwriting charges. The assessee, engaged in the manufacturing of optical and lenses, had debited this amount as underwriting charges. The Assessing Officer (AO) disallowed this expense, arguing it was not related to the assessee's regular business activities and was incurred for a new business venture. The CIT(A) granted relief by following the order of his predecessor for the same issue in the assessment year 2015-16, which had attained finality as no appeal was preferred by the Revenue. Consequently, the tribunal found no infirmity in the CIT(A)'s decision and dismissed the Revenue's ground.

2. Deletion of Addition of Rs. 1,67,10,442/- Made Under Section 68 of the Income Tax Act:
The second issue concerned the addition of Rs. 1,67,10,442/- under Section 68, which pertains to unexplained cash credits. The AO added this amount, which was credited as gifts received from the assessee's brother, as unexplained cash credit. The assessee contended that the gifts were from his non-resident brother and provided additional evidence, including bank statements and confirmation from the donor, which the CIT(A) admitted and forwarded to the AO for a remand report. The AO confirmed the identity and creditworthiness of the donor, but still considered the transaction a colorable device. The CIT(A) concluded that the assessee had discharged its onus under Section 68, noting that no fresh money was received during the year, and the gift from the brother was exempt under Section 56(2). The tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground.

3. Deletion of Addition of Rs. 27,00,000/- Made on Account of Advance Received Towards Sale of Shares:
The third issue involved the addition of Rs. 27,00,000/- received as an advance for the sale of shares of Fusion Cuisines Pvt. Ltd. (FCPL). The AO treated this advance as income, questioning why the amount was not refunded if the sale did not materialize. The CIT(A) found that the shares were still held by the assessee and shown as investments, and the advance was not forfeited. The tribunal noted that the shares were not transferred and the advance could not be taxed under any provision applicable to the year under consideration. The tribunal agreed with the CIT(A) that the amendment to Section 51 regarding forfeited amounts being deemed income was prospective and not applicable to the case. Therefore, the tribunal dismissed the Revenue's appeal on this ground.

General Grounds:
The fourth and fifth grounds raised by the Revenue were general in nature and did not require specific adjudication.

Conclusion:
The tribunal dismissed the Revenue's appeal on all grounds, upholding the CIT(A)'s decisions to delete the disallowances and additions made by the AO. The order was pronounced on 28/09/2022.

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