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2023 (1) TMI 770 - AT - Income TaxAddition u/s.40A(3) - expenditure incurred in cash - CIT(A) rejected the claim of the assessee that such expenditure was incurred in cash for purchase of Furnace oil in absence of any satisfactory evidence as to why the payments were made in cash which are not falling under the exceptional circumstances - HELD THAT - As mentioned earlier, the assessee could not substantiate as to how the payments made in violation of provisions of section 40A(3) fall under exceptional circumstances allowing payment of cash in excess of Rs.20,000/- as specified in Rule 6DD of the I.T.Act. Since the assessee has failed before the AO as well as the ld.CIT(A) to substantiate the same and there is nothing before us to take a contrary view then the view taken by the AO and ld.CIT(A) on this issue, therefore, the ground raised by the assessee is dismissed. Addition not allowing 1/5th of subscription fee for increasing share capital which is capital in nature u/s. 35D - CIT(A) rejected the claim of the assessee to allow the same u/s.35D - HELD THAT - We do not find any infirmity in the order of the ld.CIT(A) on this issue in absence of furnishing of any details or evidence in support of the claim that the expenditure falls under any of the categories mentioned in provisions of section 35D(2) of the I.T.Act. We, therefore, do not find any infirmity in the order of the ld.CIT(A) on this issue and accordingly, the same is upheld. The grounds raised by the assessee is accordingly dismissed. Addition u/s. 68 - assessee could not substantiate with evidence to his satisfaction regarding the identity and creditworthiness of the 13 investors who have invested in the share capital of the assessee company and the genuineness of the transaction - HELD THAT - We find during the remand proceeding, the assessee had given the list of the 13 shareholders with their source. However, it is seen from the source of investment that the investors themselves received loan from others to invest in the shares of the assessee company. It is also important to note that none of the shareholders are assessed to tax and all of them have borrowed money from others, who are again agriculturists and the agriculturists are again not assessed to tax. Further, none of the agriculturists from whom the so called investors have borrowed money are maintaining any bank account. While some of the agriculturists have put their thumb impression, however, the confirmations are in English. Under these circumstances and in view of the detailed reasoning given by the ld.CIT(A) while sustaining the addition made by the AO u/s. 68, we do not find any infirmity in the same. Accordingly, the order of the ld.CIT(A) on this issue is upheld and the grounds raised by the assessee on this issue are dismissed. Addition as unexplained share capital u/s. 68 - CIT-A deleted the addition - HELD THAT - We find in the case of CIT vs. Titan Securities Pvt.Ltd. 2013 (5) TMI 329 - DELHI HIGH COURT , after considering the decision of M/s. Lovely Exports Pvt.Ltd. 2008 (1) TMI 575 - SC ORDER has held that where the company, which has subscribed to share capital is found to be hawala company providing accommodation entries, mere furnishing of income tax returns, balance sheet, statement of affairs and bank statement without any explanation for deposits in accounts may not meet the requirements of section 68 - it is necessary to note the business activities of share subscribers in order to ascertain whether they are financially sound and are able to purchase the shares for substantial amount. However, in the instant case, as mentioned earlier, none of the investors has filed his/her return of income which would have alerted the ld.CIT(A) before taking the decision by deleting the addition made by the AO u/s. 68. We are unable to uphold the order of the ld.CIT(A) deleting the addition made by the AO u/s. 68. Grounds raised by the revenue allowed.
Issues Involved:
1. Non-appearance of the assessee. 2. Addition under Section 40A(3) for cash payments exceeding Rs. 20,000. 3. Disallowance of capital expenditure claimed under Section 35D. 4. Addition under Section 68 for unexplained share capital. 5. Validity of reopening assessment under Section 148. Issue-wise Detailed Analysis: 1. Non-appearance of the Assessee: The tribunal noted that no one appeared on behalf of the assessee despite multiple notices over two years. Consequently, the tribunal decided to adjudicate the appeals based on the available records and the submissions of the Departmental Representative (DR). 2. Addition under Section 40A(3) for Cash Payments Exceeding Rs. 20,000: The Assessing Officer (AO) added Rs. 3,78,642/- under Section 40A(3) due to payments made in cash exceeding Rs. 20,000/-. The assessee failed to provide satisfactory evidence justifying these cash payments. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition, and the tribunal found no reason to overturn this decision, dismissing the assessee's ground on this issue. 3. Disallowance of Capital Expenditure Claimed under Section 35D: The AO disallowed Rs. 2,75,000/- claimed as capital expenditure for subscription fees towards increasing share capital, considering it a capital expenditure. The CIT(A) upheld this disallowance, noting the absence of evidence supporting the claim under Section 35D. The tribunal agreed with this view, dismissing the assessee's ground on this issue. 4. Addition under Section 68 for Unexplained Share Capital: For AY 2009-10: The AO added Rs. 3,21,50,000/- under Section 68 as unexplained share capital, citing the assessee's failure to prove the identity, creditworthiness, and genuineness of the investors. The CIT(A) upheld this addition, observing inconsistencies and lack of evidence regarding the investors' sources of funds, many of whom were agriculturists not assessed to tax. The tribunal found no infirmity in the CIT(A)'s decision and dismissed the assessee's grounds on this issue. For AY 2010-11: The AO added Rs. 4,00,00,000/- under Section 68 for unexplained share capital. The CIT(A) deleted this addition, accepting the assessee's additional evidence and holding that the identity and genuineness of the transactions were proved. However, the tribunal reversed this decision, noting that the assessee failed to prove the creditworthiness of the investors, some of whom denied any investment in the assessee company. The tribunal restored the AO's addition, allowing the revenue's appeal. 5. Validity of Reopening Assessment under Section 148: The assessee raised additional grounds challenging the reopening of the assessment under Section 148, arguing that the reasons recorded did not indicate any income escaping assessment. However, in the absence of any representation from the assessee, the tribunal dismissed these additional grounds. Conclusion: The tribunal dismissed the assessee's appeal for AY 2009-10, upholding the additions made by the AO and sustained by the CIT(A). For AY 2010-11, the tribunal allowed the revenue's appeal, restoring the addition of Rs. 4,00,00,000/- under Section 68, which was earlier deleted by the CIT(A).
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