2022 (12) TMI 685 - AT - Income Tax

Addition u/s 68 - unexplained investment - Addition on protective basis - assessee company invested in the shares / given loans and advances to companies of JP Minda group and in respect of amount so invested addition have been made in the hands of companies of JP Minda group u/s 68 of the Income Tax Act on substantive basis and the addition in the hands of appellant have been made on protective basis - HELD THAT - For AY 2011-12 and 2012-13 we observe that the Ld. CIT(A) has recorded finding of fact and came to the conclusion that all the investments made by the assessee are genuine. DR could not controvert the above finding recorded by CIT(A) in both the years. We, therefore, decline to interfere with the order of the CIT(A) for both the years and reject the appeals of the Revenue for AY 2011-12 and 2012-13. AY 2013-14 perusal of the appellate order would reveal that it was contended by the assessee that the substantive addition is the amount credited to the bank account which have been realised by liquidation of investment/loans and advance. The amount so realised by liquidation of investment/loans and advance have been invested in the companies in respect of which addition have been made on protective basis. CIT(A) agreed with the above contention of the assessee and recorded the finding that the addition to the extent of Rs. 1,35,10,464/- cannot be made as it amounts to double taxation and the assessee deserved to be allowed the benefit of telescoping. Accordingly, the Ld. CIT(A) directed deletion of this addition. We agree with the approach of the Ld. CIT(A). Addition on account of equity on protective basis, the Ld. CIT(A) examined the issue in the light of the proviso to section 68 inserted by the Finance Act, 2012 w.e.f. 1.4.2013. He observed that the onus which lay upon the assessee has not been discharged as the assessee has neither produced the investors nor arranged to provide the requisite information and documents directly from it. He, therefore, sustained the addition of Rs. 1,44,00,000/- (made by the Ld. AO on protective basis) on substantive basis. CIT(A) looked into the matter from the angle of the provision of section 56(2)(viib) brought on the statute book by the Finance Act, 2012 w.e.f. 01.04.2013. He observed that the premium charged by the assessee has to be subjected to the provisions of section 56(2)(viib) read with Rule 11UA(1)(c)(b) and it is for the assessee to furnish reliable valuation determining such share premium from a qualified valuer. The same premium are to be brought to tax. The Ld. CIT(A) gave necessary direction to the Ld. AO in this regard. Nothing has been brought on record by the Revenue to enable us to take a different view.

Summary

Issues Involved:
1. Legitimacy of additions made under section 68 of the Income Tax Act for Assessment Years (AYs) 2011-12, 2012-13, and 2013-14.
2. Validity of protective and substantive additions made by the Assessing Officer (AO).
3. Application of section 56(2)(viib) of the Income Tax Act for AY 2013-14.
4. Allowance of telescoping benefit for the assessee.

Analysis of Judgment:

1. Legitimacy of Additions under Section 68:
The AO made additions under section 68 of the Income Tax Act for AYs 2011-12, 2012-13, and 2013-14, based on investments made by the assessee in JP Minda Group companies. The AO questioned the genuineness of these investments, leading to substantive and protective additions.

For AY 2011-12, the CIT(A) observed that the assessee provided comprehensive details and documentary evidence to prove the genuineness of the investments. The AO failed to rebut these submissions and did not find any discrepancies in the documents provided. The CIT(A) concluded that the investments were genuine and deleted the additions.

For AY 2012-13, identical observations were made by the CIT(A), leading to the deletion of the protective addition of Rs. 6,60,00,000.

For AY 2013-14, the CIT(A) noted that the addition of Rs. 1,35,10,464 was a result of liquidation of investments/loans and advances, which were then invested in JP Minda Group companies. The CIT(A) allowed the benefit of telescoping and deleted this addition.

2. Validity of Protective and Substantive Additions:
The AO made protective and substantive additions for different AYs. For AY 2011-12, the CIT(A) deleted both the substantive addition of Rs. 33,77,29,500 and the protective addition of Rs. 1,05,00,000, finding no evidence of non-genuine transactions.

For AY 2013-14, the CIT(A) sustained the addition of Rs. 1,44,00,000 on a substantive basis instead of a protective basis, citing the failure of the assessee to discharge the onus of proving the genuineness of the transactions as required under the amended section 68.

3. Application of Section 56(2)(viib):
For AY 2013-14, the CIT(A) examined the applicability of section 56(2)(viib), which deals with the taxation of share premium exceeding the fair market value. The CIT(A) noted that the assessee did not provide a reliable valuation of the share premium from a qualified valuer, thus falling within the mischief of section 56(2)(viib). The CIT(A) directed that the share premium be brought to tax under this provision.

4. Allowance of Telescoping Benefit:
The CIT(A) allowed the benefit of telescoping for the assessee for AY 2013-14. It was noted that the amount credited to the bank account (Rs. 1,35,10,464) was realized by liquidating investments/loans and advances, which were then invested in JP Minda Group companies. This amount was part of the protective addition of Rs. 1,44,00,000. The CIT(A) deleted the substantive addition of Rs. 1,35,10,464 to avoid double taxation.

Conclusion:
The Tribunal upheld the CIT(A)'s findings for all three AYs. The Tribunal agreed that the investments made by the assessee were genuine and that the AO's additions under section 68 were not justified. The Tribunal also supported the CIT(A)'s application of section 56(2)(viib) for AY 2013-14 and the allowance of telescoping benefit. Consequently, the appeals of the Revenue for AYs 2011-12, 2012-13, and 2013-14 were dismissed.