2025 (2) TMI 393 - AT - Income Tax

Addition u/s 68 - bogus share capital and share premium - Identity genuineness and creditworthiness of the shareholders not proved - CIT(A) deleted addition - HELD THAT - Assessing Officer made the addition u/s 68 of the Act even though the assessee has submitted the relevant details and claims in respect of identity of the shareholder confirmation from the shareholder bank statement and statement of affairs as well as ITR from the shareholder. CIT(A) correctly deleted the addition by observing that the AO has failed in his duty since neither it had done any further enquiry nor he had asked the assessee to substantiate its claim by submitting documents such as bank statement of Saroj Devi and Tilak Raj and other relevant details of these persons. He deleted the addition by observing that as far as assessee is concerned assessee has submitted all the relevant documents and also proved the source of source of the amount invested in the assessee s company as share capital as required by the amended provisions of section 68 of the Act. After considering the facts on record we do not see any reason to disturb the abovesaid findings. Accordingly ground no.i raised by the Revenue is dismissed. Assessee has taken unsecured loan from 9 parties - CIT (A) came to the conclusion that assessee has proved the conditions imposed u/s 68 that assessee has found identity creditworthiness and genuineness of the transactions. Further he observed that the Assessing Officer has merely rejected the submissions of the assessee on the basis of doubt without bringing any material to discredit the document or information on record. Further he observed that the provisions of section 68 of the Act as existed at that point out time there is no requirement of proving the source of source in the case of loan transactions. Accordingly he deleted the addition made by the Assessing Officer. We are not inclined to disturb the findings of the ld. CIT (A). Accordingly ground no.ii(a) is dismissed. Addition of interest expenses on unsecured loan u/s 68 - Since we have already deleted the addition made by the Assessing Officer on unsecured loan we are not inclined to allow the same. Accordingly ground no.ii(b) raised by the Revenue is dismissed. Disallowance of interest made by way of reduction in WIP it is also relating to disallowance of interest expenditure - Since we have already deleted the addition on unsecured loan this interest expenditure also allowed. Addition u/s 14A read with Rule 8D based on the investment which has yielded the exempt income during the year - CIT (A) partly allowed the ground raised by the assessee on the basis of exempt income i.e. dividend received by the assessee from the investment which has actually yielded exempt income. He came to the conclusion on the basis of decision of JSW Energy Limited 2015 (5) TMI 823 - BOMBAY HIGH COURT and Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI After considering the factual matrix in this case we observed that ld. CIT (A) has rightly applied the provisions of section 14A read with Rule 8D by relying on the settled position of law. Accordingly ground no.iii is dismissed. Admission of additional evidences by the CIT (A) without seeking remand report from the AO - we observed that u/s 250(4) of the Act the Commissioner (Appeals) has power to dispose off any appeal after making such an enquiry as he thinks fit or he was given reference option in case he thinks proper to remand the issue back to the Assessing Officer. Therefore Commissioner (Appeals) has power to make such call. Further we observed that Rule 46A(4) gives right to the Commissioner (Appeals) to direct the production of any document or examination any witness to enable him to dispose off the appeal and also having power to enhancement of the assessment or penalty. Therefore the above provisions and rule gives ample power to CIT (A) to make the call and it is not necessary that he has to remand the matter back to the Assessing Officer it is only an additional power of reference given to him. Therefore we are inclined to dismiss ground no.iv raised by the Revenue.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the addition of Rs. 39,36,000/- on account of unexplained credit in the form of share capital/share premium under Section 68 of the Income Tax Act, 1961, was justified.
• Whether the addition of Rs. 23,71,70,947/- on account of unexplained unsecured loans under Section 68 was warranted.
• Whether the disallowance of Rs. 27,02,664/- on account of interest expenses on unsecured loans was correct.
• Whether the disallowance of interest of Rs. 16,36,678/- by way of reduction in WIP was appropriate.
• Whether the addition under Section 14A read with Rule 8D should be restricted to Rs. 29,94,832/-, considering only those investments that yielded exempt income during the year.
• Whether the CIT(A) erred in admitting additional evidence without seeking a remand report from the Assessing Officer.

2. ISSUE-WISE DETAILED ANALYSIS

Share Capital/Share Premium Addition:

• Relevant legal framework: Section 68 of the Income Tax Act requires the assessee to explain the nature and source of any sum credited in its books. The explanation must be satisfactory to the Assessing Officer.
• Court's interpretation: The Tribunal observed that the assessee provided sufficient evidence to establish the identity, creditworthiness, and genuineness of the transactions related to the share capital. The CIT(A) found that the Assessing Officer failed to conduct further inquiries and that the assessee had discharged its burden by providing necessary documentation.
• Key evidence: The assessee submitted confirmations, bank statements, and ITR acknowledgments of the shareholder, along with explanations for the source of funds.
• Application of law to facts: The Tribunal upheld the CIT(A)'s decision to delete the addition, emphasizing that the assessee had met the requirements under Section 68.
• Treatment of competing arguments: The Revenue's argument that the investor's low income was a basis for addition was rejected, as the source of funds was adequately explained.
• Conclusion: The addition of Rs. 39,36,000/- was unjustified and was rightly deleted by the CIT(A).

Unsecured Loans Addition:

• Relevant legal framework: Section 68 applies to sums credited as unsecured loans, requiring proof of identity, creditworthiness, and genuineness of transactions.
• Court's interpretation: The Tribunal noted that the assessee provided comprehensive documentation, including confirmations and bank statements, to substantiate the loans. The CIT(A) found no discrepancies in these documents and criticized the Assessing Officer for not conducting further inquiries.
• Key evidence: Documentation included confirmations, ITR acknowledgments, and balance sheets of the lending companies.
• Application of law to facts: The Tribunal agreed with the CIT(A) that the assessee had established the necessary criteria under Section 68 and that the loans were genuine.
• Treatment of competing arguments: The Revenue's reliance on the lenders' low declared income was dismissed, as the lenders had sufficient net worth to justify the loans.
• Conclusion: The addition of Rs. 23,71,70,947/- was unwarranted and was correctly deleted by the CIT(A).

Interest Disallowance on Unsecured Loans:

• The interest disallowance was consequential to the addition of unsecured loans. Since the principal addition was deleted, the interest disallowance was also deemed incorrect.

Section 14A Disallowance:

• Relevant legal framework: Section 14A and Rule 8D address the disallowance of expenditure incurred in relation to earning exempt income.
• Court's interpretation: The Tribunal supported the CIT(A)'s decision to restrict the disallowance to investments that actually yielded exempt income, in line with judicial precedents.
• Key evidence: The assessee's investments and the exempt income earned were considered.
• Application of law to facts: The Tribunal found that the CIT(A) correctly applied the law by considering only relevant investments for disallowance.
• Conclusion: The disallowance was appropriately limited to Rs. 29,94,832/-.

Admission of Additional Evidence:

• The Tribunal found no violation of procedural rules, as the CIT(A) exercised his statutory powers to admit additional evidence under Section 250(4) and Rule 46A(4).
• Conclusion: The CIT(A) acted within his authority, and the admission of additional evidence was justified.

3. SIGNIFICANT HOLDINGS

• The Tribunal upheld the CIT(A)'s decisions on all contested issues, emphasizing the importance of thorough inquiry and the sufficiency of evidence provided by the assessee.
• Core principles established include the necessity of proving identity, creditworthiness, and genuineness under Section 68, and the correct application of Section 14A disallowance principles.
• Final determinations: The appeal filed by the Revenue was dismissed in its entirety, affirming the CIT(A)'s order.