2023 (7) TMI 379 - AT - Income Tax

Addition u/s 68 - unexplained cash credits - introduction of Share Capital, Share Application money and unsecured loans - onus to prove - HELD THAT - We find that the assessee has simply filed documents but has not given any explanation to the adverse observations in respect of the bank statements. Even the CIT(A) has ignored the specific findings of the AO that cash were deposited immediately before issuing the cheque. Merely because the lenders / applicants are promoters / directors of the company would not discharge the assessee from initial onus of proving the credit entries in his books of account. Assessee has grossly failed in discharging the initial burden and the CIT(A) erred in accepting the submissions of the assessee without verifying the same. All the additions made u/s. 68 confirmed. Decided against assessee. Addition u/s 36(1) - disallowance of interest expenses - interest on borrowed capital but has also given interest free loans and advances as per AO all the advances are on account of capital expenditure and the assessee has used its interest bearing funds for the purpose of creating capital assets, therefore, the interest expenditure is of capital nature and made the addition disallowing the proportionate interest charged to P L account - HELD THAT - We find that the assets were put to use prior to the claim of interest. It is also an undisputed fact that the borrowed capital were utilized for giving advances to the suppliers of the milk which cannot be on capital account. No error or infirmity in the findings of the CIT(A). The ground dismissed. Undisclosed investment in land - assessee had failed to substantiate the reason of difference between circle rate of the land in question and price actually paid to the seller as contended that section 50C is not applicable to the assessee as there is no sale of capital asset - HELD THAT - CIT(A) was convinced that the relevant provisions applied by the AO are not applicable on the facts of the case and no other evidences have been brought on record to show that the assessee has paid consideration over and above the registered value the additions were accordingly deleted. Appeal of the revenue is partly allowed.

Summary

Issues involved:
The issues involved in this legal judgment include the deletion of additions under section 68 of the Income Tax Act, 1961, disallowance of interest expenses under section 36(1)(iii) of the Act, and addition of undisclosed investment in land.

Deletion of Additions under Section 68 of the Income Tax Act:
The revenue challenged the deletion of additions totaling Rs. 3,00,000, Rs. 1,92,58,000, and 23,59,600 on account of Share Capital, Share Application money, and unsecured loans respectively under section 68 of the Act. The Assessing Officer (AO) had raised concerns regarding the failure of the assessee to prove the identity, creditworthiness of investors, and genuineness of transactions. The CIT(A) deleted the additions based on the submission of documents by the investors. However, the Appellate Tribunal found that the initial burden of proof was not discharged by the assessee, and therefore, confirmed the additions under section 68 of the Act.

Disallowance of Interest Expenses under Section 36(1)(iii) of the Act:
The AO disallowed interest expenses of Rs. 6,18,650 under section 36(1)(iii) of the Act, as the assessee had given interest-free loans and advances out of borrowed funds. The CIT(A) deleted this addition, stating that the borrowed capital was utilized for business purposes, including the purchase of raw material and plant & machinery. The Appellate Tribunal upheld the CIT(A)'s decision, noting that the assets were put to use before the claim of interest, and the borrowed capital was also used for business activities.

Addition of Undisclosed Investment in Land:
The AO made an addition of Rs. 12,26,410 on account of undisclosed investment in land, as the circle rate was higher than the transaction rate. The assessee contended that section 50C and 43CA were not applicable in this case. The CIT(A) agreed with the assessee and deleted the additions, stating that the relevant provisions applied by the AO were not applicable. The Appellate Tribunal found no error in the CIT(A)'s decision and dismissed the ground related to the addition of undisclosed investment in land.

Conclusion:
In conclusion, the Appellate Tribunal partly allowed the revenue's appeal, confirming the additions under section 68 of the Act while dismissing the grounds related to the disallowance of interest expenses and undisclosed investment in land.