2023 (6) TMI 180 - AT - Income Tax

Addition u/s.68 - unexplained share capital - CIT(A) deleted the addition by accepting the assessee s contention that the credit to share capital was only through journal entries - HELD THAT - Assessee transferred Rs.6.00 crore to share application money account from various accounts and all the transfers were made out of respective opening balances. Once the position is such, we fail to understand the logic of the addition u/s.68 just on the passing of transfer entries. Present AO of the assessee, appeared before the ld. CIT(A) on 29-07-2019, who affirmed that share capital of Rs.6,00,00,000/- was not received in the current year and unsecured loans/sundry creditors were converted in the share capital . Thus, it is abundantly clear that the transfer to share capital account was only by means of transfer entries, which, obviously, cannot lead to addition u/s.68 - Decided in favour of assessee. Addition u/s 41(1) - HELD THAT - This section gets triggered on cession of trading liability. If the amount is still payable and the assessee admits the liability to pay, no addition can be made under this provision. Here is a case in which the assessee categorically admitted before the ld. CIT(A) that the accounts with these suppliers/creditors were running and continuous. Nothing has been brought on record to controvert this submission of the assessee. If the accounts are running and continuous and the assessee admits the amounts still to be payable, obviously section 41(1) cannot be invoked. - Decided in favour of assessee. Addition of advances received during the year - as per AO since the assessee was not carrying on any business operations held that, in the absence of any confirmation about the genuineness of the creditors, the amount was liable to be added - CIT noticed that there were opening balances in these accounts, thus directed to delete the addition to this extent and upheld the remaining addition - HELD THAT - There can be no case of the Revenue for confirming the addition because the opening balances cannot be added in the assessment of the current year. Once the ld. CIT(A) has recorded that there were opening balances to the extent of Rs.6.06 crore, which finding has remained uncontroverted on behalf of the Revenue, we find no reason to disturb the same. The impugned order is, therefore, upheld on this score as well.

Summary

Issues involved:
The judgment involves the deletion of addition of Rs.6.00 crore under section 68 of the Act towards unexplained share capital, the deletion of addition of Rs.1,46,07,860 under section 41(1) of the Act, and the deletion of addition of Rs.6,06,14,962.

Deletion of addition of Rs.6.00 crore under section 68 of the Act:
The first issue raised in the Departmental appeal was against the deletion of addition of Rs.6.00 crore made by the Assessing Officer towards unexplained share capital under section 68 of the Act. The Assessing Officer observed that the assessee received fresh share capital amounting to Rs.6.00 crore, leading to the addition. However, the ld. CIT(A) deleted the addition based on the assessee's contention that the credit to share capital was only through journal entries. The Tribunal noted that the assessee had converted unsecured loans into Equity share capital worth Rs.6.00 crore, as evidenced by the annual report and various account entries. The Tribunal found that the transfer to share capital account was only through transfer entries and upheld the deletion of the addition under section 68 of the Act.

Deletion of addition of Rs.1,46,07,860 under section 41(1) of the Act:
The next issue was against the deletion of addition of Rs.1,46,07,860 under section 41(1) of the Act. The Assessing Officer had added this amount by invoking section 41(1) on the grounds that no business was being carried on during the year and the amounts ceased to be payable. However, the ld. CIT(A) overturned the assessment order, noting that the accounts with the suppliers/creditors were running and continuous, and the assessee admitted the liability to pay. The Tribunal agreed with the ld. CIT(A) that if the accounts are running and continuous, and the liability is admitted, section 41(1) cannot be invoked, thus upholding the deletion of the addition.

Deletion of addition of Rs.6,06,14,962:
The final issue was against the deletion of addition of Rs.6,06,14,962. The Assessing Officer had observed advances from customers amounting to Rs.6,24,39,962, and made an addition as the assessee was not carrying on any business operations. The ld. CIT(A) examined the details and found opening balances in these accounts to the tune of Rs.6,06,99,131, directing to delete the addition to that extent. The Tribunal upheld the deletion of the addition to the extent of opening balances, as opening balances cannot be added in the assessment of the current year, thus dismissing the appeal of the Revenue.

Conclusion:
The Tribunal dismissed the appeal of the Revenue and the Cross Objection by the assessee, upholding the deletions of the additions made under various sections of the Act.