2023 (9) TMI 247 - AT - Income Tax

Addition u/s 68 - bogus share capital and share premium - CIT(A) arrived at a conclusion that assessee could not establish the genuineness of the transaction of raising of share capital along with share premium as assessee has failed to satisfactorily discharge its onus in establishing the genuineness of the transaction since copies of bank statements were not produced during the assessment as well as first appellate proceeding despite specific requisition by AO. HELD THAT - From the perusal of detailed proceedings undertaken before the Ld. CIT(A), we are not inclined to interfere with the finding given by the CIT(A) in this respect. Accordingly, grounds taken by the assessee in this respect are dismissed. Bogus purchase - AO added the entire amount of bogus purpose instead of GP ratio - CIT(A) deleted the additions - HELD THAT - From the survey conducted u/s. 133A in the case of Shri Abhishek Sharma who is alleged to be a provider of bogus bills, it is observed that what is under dispute is the purchase from the parties from whom bills have been taken and cheques have been issued to them. There is nothing on record which substantiates that quantitative detail of stock with respect to purchase and sales have been furnished and analysed by the authorities below to demonstrate that there is actual dealing of the goods. There are no detailed investigations made by the authorities below on the stock records. In such a situation, where issue relating to purchase is under dispute, what is important is to take into consideration the movement of stock with their quantitative details to justify the claim. Another scenario relating to purchase is worth considering where purchase itself need not be in dispute but the parties from whom purchases are shown to be made are disputed and suspicious, in which case, only the profit element is taken as unexplained income for the purpose of addition. In the present case before us, there is nothing on record which demonstrates the quantitative movement of the stock against the alleged purchases, except for existence of bills, their accounting entries and payment through banking channel, we are inclined to set aside the order of Ld. CIT(A) and uphold the addition made by the AO. Accordingly, grounds taken by the revenue in this respect are allowed. Disallowance u/s. 14A - AO has noted that assessee has made considerable investment in equity but no expenditure is disallowed u/s. 14A in computing the total income, thus, made an addition by applying Rule 8D(2)(ii) and 8D(2)(iii) i.e. % of average investment - HELD THAT - As decided in Era Infrastructure (India) Ltd. 2022 (7) TMI 1093 - DELHI HIGH COURT no disallowance is required to be made in the case of the assessee because it has not earned any tax-free income and allowed the appeal of the assessee by deleting the addition so made. Considering this, the disallowance made in this respect is deleted and finding given by the Ld. CIT(A) is upheld. Accordingly, grounds taken by the revenue in this respect are dismissed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal by the department.
2. Adjudication of the appeal ex parte due to the absence of the assessee.
3. Corporate Insolvency Resolution Process (CIRP) and its effect on the proceedings.
4. Addition of share application/allotment money as undisclosed income under section 68.
5. Addition towards bogus purchases.
6. Disallowance under section 14A of the Income-tax Act, 1961.

Summary:

Condonation of Delay:
The department's appeal had a brief delay of three days due to administrative procedures. The delay was condoned, and the appeal was taken up for adjudication.

Ex Parte Adjudication:
The appeal was called for hearing, but no one represented the assessee, and no adjournment application was filed. The Tribunal proceeded to dispose of the appeal ex parte after hearing the Department's representative and considering the available material.

Corporate Insolvency Resolution Process (CIRP):
The assessee had entered CIRP under the Insolvency & Bankruptcy Code, 2016, and a moratorium was in effect from 07.03.2019. Despite this, there was no update on the Resolution Plan or liquidation order. The Tribunal noted the unprofessional approach of the Resolution Professional and decided to adjudicate the matter based on the available record.

Addition under Section 68:
The assessee's appeal contested the addition of Rs. 19,10,96,000/- as undisclosed income under section 68. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] found that the assessee failed to establish the genuineness of the share capital transactions and the creditworthiness of the investors. The Tribunal upheld the CIT(A)'s findings and dismissed the assessee's appeal.

Addition towards Bogus Purchases:
The revenue's appeal challenged the deletion of the addition towards bogus purchases amounting to Rs. 198,01,40,620/-. The AO had added the amount based on information from a survey indicating bogus transactions. The CIT(A) had given relief to the assessee based on documentary evidence, audited books, and banking transactions. However, the Tribunal noted the lack of detailed investigations and quantitative analysis of stock records and upheld the AO's addition, setting aside the CIT(A)'s order.

Disallowance under Section 14A:
The revenue's appeal also contested the deletion of Rs. 20,18,578/- disallowed under section 14A. The AO had made the addition based on Rule 8D, but the CIT(A) deleted it, noting that the assessee had not earned any exempt income. The Tribunal upheld the CIT(A)'s finding, relying on judicial precedents that no disallowance is required in the absence of exempt income.

Conclusion:
The appeal of the assessee was dismissed, and the revenue's appeal was partly allowed. The order was pronounced in the open court on 20th June 2023.