2023 (12) TMI 1223 - AT - Income Tax

Addition of share premium - AO has treated the amount received by the assessee from its holding company as unexplained cash credit u/s 68 on the ground that source of funds has not been explained - CIT(A) deleted addition admitting of additional evidence as provided in sub-rule (2) of Rule 46A of the Income Tax Rule 1962 - HELD THAT - We find that assessee has explained before the ld. CIT(A) that it has submitted the relevant details as sought by the assessing officer during the course of assessment proceedings and no further any notice was received for calling any other details. Therefore, the assessee has further submitted the following details before the ld. CIT(A) as additional evidences under Rule 46A of the Income Tax Rule. Under the aforesaid circumstances the ld. CIT(A) has rightly admitted the same as additional evidences. We find that the assessing officer has not contrary disproved the genuineness of the various documents as discussed in the finding of the ld. CIT(A). CIT(A) has elaborated in his finding the relevant supporting document furnished by the assessee which categorically established the identity, genuineness and creditworthiness of the transactions. CIT(A) has also referred the CBDT instruction 2/2015 dated 29.01.2015 that premium on share issue was on account of capital account transaction and does not give rise to income and, hence not liable to transfer pricing adjustment as held in the case of M/s Vodaphone Services Pvt. Ltd. Vs. Union of India Others 2014 (10) TMI 278 - BOMBAY HIGH COURT During the course of appellate proceedings the ld. Counsel has also referred the decision of ITAT in the case of ITO 6(2)(4) Vs. Chiripal Poly Films Ltd. 2019 (4) TMI 1422 - ITAT MUMBAI wherein held that the assessee complied with the requirements of RBI guidelines by filing FIRC with RBI and also filed Unique Identification number received from RBI. Further it had also filed FCGPR with RBI that the assessee was having sufficient authorised share capital to issue shares to investor then no addition could be made u/s 68 of the Act. In view of the above facts and finding we don t find any error in the decision of ld. CIT(A). Therefore, these ground of appeal of the revenue stand dismissed. Disallowance of 20% of advertisement and Sales promotion expenses and 25% of travelling expenses - CIT(A) deleted the addition - HELD THAT - AO has disallowed the expenditure on estimated basis without considering the aforesaid details furnished by the assessee. The assessee explained that advertisement and sale promotion expenditure were related to the marketing of Carlisle Brand of products which had global presence and this expenditure incurred on year to year basis and such expenditure constitutes only of small proportion of the revenue of the assessee. Travelling expenses the assessee submitted that it has reimbursed the claim of its employee for incurring expenses for business travel and such expenses comprised incidental expenses towards meals refreshment and travel expenses for which it is not feasible to furnish invoices and vouchers for all such expenses CIT(A) has elaborated in his finding that assessing officer has not brought on record any cogent basis for disallowing such expenditure without considering the percentage of expenditure compared to the revenue generated by the assessee company. During the course of appellate proceedings before us the ld. Counsel has also referred decision of R.G. Buildwell Engineers Ltd. 2018 (10) TMI 252 - SC ORDER wherein the decision of Hon ble High Court was upheld for not making adhoc disallowance of expenses without rejecting the books of account. No infirmity in the decision of ld. CIT(A), therefore all these grounds of appeal of the revenue are dismissed.

Summary

Issues Involved:
1. Admission of additional evidence by CIT(A).
2. Deletion of addition on share premium treated as unexplained cash credits.
3. Deletion of disallowance of advertisement and sales promotion expenses.
4. Deletion of disallowance of traveling expenses.

Summary:

1. Admission of Additional Evidence by CIT(A):
The revenue contended that the CIT(A) erred in admitting additional evidence submitted by the assessee without fulfilling the conditions of Rule 46A of the Income-tax Rules, 1962. The Tribunal found that the CIT(A) had called for a remand report from the assessing officer and considered the additional evidence, thus justifying its admission.

2. Deletion of Addition on Share Premium:
The assessing officer had treated the share premium received by the assessee from its Netherland entity as unexplained cash credit under Section 68 of the Act, citing failure to prove the identity, creditworthiness, and genuineness of the transaction. The CIT(A) deleted this addition, noting that the assessee had provided comprehensive documentation, including board resolutions, valuation reports, certificates from Company Secretary and Chartered Accountant, FIRC, KYC, and RBI permissions. The CIT(A) concluded that the identity and creditworthiness of the investor and the genuineness of the transaction were established. The Tribunal upheld this deletion, referencing the CBDT Instruction No. 2/2015 and the Bombay High Court's decision in Vodafone Services Pvt. Ltd. vs. Union of India, which stated that share premium on capital account transactions does not give rise to income.

3. Deletion of Disallowance of Advertisement and Sales Promotion Expenses:
The assessing officer disallowed 20% of the advertisement and sales promotion expenses due to lack of details for a portion of the expenses and the global nature of the brand. The CIT(A) deleted this disallowance, finding that the expenses were bona fide and supported by adequate documentation. The Tribunal upheld this decision, noting that the assessing officer had not provided a cogent basis for the disallowance and had not rejected the books of accounts.

4. Deletion of Disallowance of Traveling Expenses:
The assessing officer disallowed 25% of the traveling expenses due to insufficient details provided by the assessee. The CIT(A) deleted this disallowance, stating that the expenses were substantiated with sample invoices and TDS deductions, and the disallowance was based on presumptions. The Tribunal agreed, emphasizing that the assessing officer had not demonstrated any shortcomings in the documentation provided.

Conclusion:
The Tribunal dismissed all the appeals of the revenue, affirming the CIT(A)'s decisions on all issues. The order was pronounced in the open court on 29.11.2023.