2023 (10) TMI 328 - HC - Income Tax

Addition u/s 68 - assessee had failed to demonstrate the creditworthiness of the source of source - ITAT Confirmed order of deletion as done by CIT(A) - HELD THAT - As the identity of the investor, which is BBHL, is not in dispute. As a matter of fact, the source of source was also identified, which in this case, is one Mr Joseph Thomas, a permanent resident of UAE. The creditworthiness of the investor, i.e., BBHL, is demonstrated by the fact that the amount invested in India was sourced from a personal loan given by Mr Joseph Thomas. BBHL is an investment company and therefore, its creditworthiness can only be ascertained from the availability of funds and not by having regard to the period for which it has been in existence and earned its revenue. As far as the genuineness of the transaction is concerned, the respondent/assessee has adverted to the relevant material which was placed before the concerned statutory authorities, which included permission accorded by RBI and the methodology used for calculating the premium. Assessee has correctly argued before us, that insofar as the foreign investor is concerned, i.e., BBHL, the respondent/assessee could not have allotted shares below the floor price, which was Rs. 95.07 per share. This, to our mind, explains the difference between the price per share collected by the respondent/assessee from BBHL as against domestic investors. It is also relevant to note that the domestic investors, i.e., the two individuals, are promotor directors of the respondent/assessee, which is why perhaps, they were allotted shares at face value. The third domestic investor, i.e., Blue Ocean Resorts Pvt. Ltd. is controlled by Rishal Sawhney and Rohini Sawhney. As noticed hereinabove, both persons hold 50% shares in the said company. The argument advanced by revenue that the onus was on the respondent/company to further demonstrate credit worthiness of the source of source, i.e., Mr Joseph Thomas, is flawed as the amendment in law with regard to the identifying source of source was inserted by way of a proviso to Section 68 of the Act with effect from 01.04.2013. Therefore, this obligation in law could not be cast on the respondent/assessee, although it did identify the source of source and Mr Joseph Thomas furnished a personal loan to BBHL. Therefore, insofar as BBHL was concerned, the fund flow was disclosed to the statutory authority. Beyond that, in the AY in issue, nothing further was required to be shown. Mr Joseph Thomas is concerned, the CIT(A) found that he furnished a personal loan to BBHL. Therefore, insofar as BBHL was concerned, the fund flow was disclosed to the statutory authority. Beyond that, in the AY in issue, nothing further was required to be shown. Therefore, the deletion ordered by the CIT(A) which was confirmed by the Tribunal, was, in our view, the correct call, in the facts and circumstances obtaining in the case. Disallowance of 70% of the expenses incurred by the respondent/assessee for arranging hotel accommodation, air passage and vehicles for its directors - CIT(A) records in his order, that he examined the invoices and other material and thereafter concluded, that the expenses claimed by the respondent/assessee indeed had a nexus with its business interest. The CIT(A) records in the order that the AO had called for an explanation with regard to the purpose of the visits which had led to the directors incurring the expenses towards accommodation and travel. The CIT(A) also records that the appellant/revenue brought nothing on record to show that the expenses given were false/incorrect. The expenditure was disallowed, as it appears on the ground that it was expended for personal use as against business use, and not on the ground that it was expensed on accommodation or travel. We are of the view that the CIT(A) and the Tribunal came to the correct conclusion that the expenses incurred had a nexus with the business interest of the respondent/assessee. Revenue appeal dismissed.

Summary

Issues Involved:
1. Condonation of delay in filing and re-filing the appeal.
2. Additions under Section 68 of the Income Tax Act, 1961.
3. Disallowance of travelling expenses.

Condonation of Delay:

1. The appellant/revenue sought condonation of a delay of 5 days in filing and 347 days in re-filing the appeal.

2. The delay in filing was short, but the delay in re-filing was substantial.

3. The respondent/assessee contested the reasons for the delay in re-filing, stating they were inaccurate and no administrative approval was required.

4. Despite the discrepancies, the court condoned the delay to address the appeal on its merits.

5. Consequently, the delay in filing and re-filing the appeal was condoned, and the applications were disposed of.

Additions under Section 68:

7. The appeal concerned the Assessment Year (AY) 2012-13, where the AO made additions of Rs. 16,67,89,253/- under Section 68 of the Act and disallowed Rs. 8,30,748/- of travelling expenses.

9. The CIT(A) deleted these additions, and the Tribunal upheld this decision, leading to the current appeal under Section 260A of the Act.

10. The main addition involved an investment by Blue Bay Hospitality Pvt. Ltd. (BBHL), a Mauritius-based company, which was issued shares at a premium.

11. The appellant/revenue argued that BBHL's investment was not genuine, questioning the creditworthiness of the source of the source, Mr. Joseph Thomas, a UAE resident.

15. The court noted that BBHL's investment was in line with RBI guidelines, and the creditworthiness was demonstrated by the funds sourced from Mr. Joseph Thomas.

18. The respondent/assessee provided relevant material, including RBI permission and the methodology for calculating the premium.

20. The court found that the domestic investors were promotor directors, explaining the difference in share prices.

20.1 The court rejected the appellant/revenue's argument about further demonstrating the creditworthiness of the source of the source, as the law requiring this was effective from 01.04.2013, post the relevant AY.

21. The court concluded that the appellant/revenue failed to provide material indicating round-tripping, validating the deletion of the addition by CIT(A) and the Tribunal.

Disallowance of Travelling Expenses:

22. The AO disallowed 70% of the travelling expenses amounting to Rs. 8,30,748/-, deeming them personal.

23. The CIT(A) examined the invoices and material, concluding that the expenses were business-related, and the AO had no evidence to prove otherwise.

24. The court agreed with the CIT(A) and the Tribunal that the expenses had a business nexus.

25. The appellant/revenue did not propose any question of law suggesting the findings were perverse.

26. The court found no substantial question of law for consideration and upheld the Tribunal's order.

27. The appeal was accordingly closed.