2024 (1) TMI 63 - AT - Income Tax

Addition u/s 68 - amount of preference share capital as unexplained cash credit - AO found that allotment of preference shares were utilized for making investment in or extending loans to subsidiary group companies and the investing company was showing very meager income in the last three assessment years and the profit declared was also very low as compared to gross revenue declared - as amount credited from the investor company was immediately debited to other companies, AO was of the view that the genuineness of transaction was also not established HELD THAT - AO in assessment order has nowhere referred to any independent inquiry whatsoever made to disprove the primary evidence provided by the assessee and not pointed out any infirmity in the evidence produced before him. As such, the AO merely after referring that the investor company has declared low net taxable income and the fund received were immediately transferred to other parties held that the assessee failed to properly explain the nature and sources of credit of share capital. In our considered opinion, the approach taken by the AO is not justified. AO failed to appreciate the facts/ materials provided by the assessee company. It is pertinent to mentioned that the assessee company is mainly engaged in making strategic investment in subsidiary or group companies and this fact was also explained that the amount collected from allotment of preference share has been utilized for making investment in/extending loans to subsidiary or group companies. Thus, in our considered opinion the assessee has provided necessary detail and the onus shifted on the revenue to carry out independent inquiry/investigation and bring contrary material, but the AO failed to do so. DR before us has contended that transaction of preference share capital is circular in nature - If we see the transaction on a particular day i.e. 22-09-2017 then it seems like the transaction is circular in nature. But if we look at the transaction as whole from the beginning of the year to the end, then we find that there were regular transactions of loans advances between CLPL and TSPL. As such the CLPL had extended loans advances to the TSPL on earlier occasion out of which it received back amount of Rs. 14 crores for the purpose of investment in the preference share of assessee company and thereafter further extend fresh loans to the TSPL. Therefore, in our considered opinion, no inference can be drawn against the assessee in the given facts and circumstances. Decided against revenue. Addition u/s 115BBE - As addition made by the AO under section 68 of the Act has been deleted, the question of calculating the tax under section 115BBE of the Act does not arise.

Summary

Issues Involved:
1. Deletion of addition made under section 68 of the Income Tax Act on account of unexplained cash credits.
2. Taxation of addition under section 68 at 60% under section 115BBE.
3. Interest charged under section 234B.

Summary:

Issue 1: Deletion of Addition under Section 68
The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 14 crores made under section 68 of the Income Tax Act, 1961, on account of unexplained cash credits. The Assessing Officer (AO) had treated the amount as unexplained cash credit, citing the investor company's low income and immediate transfer of funds to other companies. However, the CIT(A) found that the assessee provided sufficient documentary evidence, including audited financial statements, ITRs, bank statements, board resolutions, and share certificates, to establish the identity, genuineness, and creditworthiness of the investor company, M/s Capaxo Logistics Pvt Ltd (CLPL). The CIT(A) observed that the AO failed to appreciate these documents and did not conduct further inquiries as required under sections 131 and 133(6) of the Act. The Tribunal upheld the CIT(A)'s decision, noting that the primary onus to explain the source of credit was discharged by the assessee, and the AO did not bring any contrary material to disprove the evidence provided.

Issue 2: Taxation under Section 115BBE
The assessee's cross objection (CO) argued that the CIT(A) failed to adjudicate the ground related to taxation of the addition under section 68 at 60% under section 115BBE. The Tribunal noted that once the addition under section 68 was deleted, the question of calculating tax under section 115BBE did not arise.

Issue 3: Interest under Section 234B
The CO also raised the issue of interest charged under section 234B. The Tribunal held that since the addition under section 68 was deleted, the issue of charging interest under section 234B did not require separate adjudication. The Tribunal dismissed the CO as infructuous.

Conclusion:
The appeal of the Revenue was dismissed, and the CO of the assessee was also dismissed as infructuous. The Tribunal confirmed the CIT(A)'s decision to delete the addition of Rs. 14 crores made under section 68 of the Income Tax Act.