2025 (2) TMI 442 - AT - Income Tax

Unexplained credit u/s. 68 - amount credited to capital a/c as bogus - whether or not the assessee s claim that the addition in his capital a/c (during the subject year) was made by transfers/adjustments through passing of entries in the relevant books of account of the proprietary concerns/divisions of the assessee and not through adjustments made in the Schedule/financial statement/on the face of balance sheet would require verification? - HELD THAT - We are of a firm conviction that considering the fact that the explanation of the assessee as regards the source of the addition of Rs. 2 crores in his capital a/c during the subject year in the backdrop of viz. the documents/material placed on our record; the remand report of the A.O; the rejoinder filed by the assessee had rendered the adjudication of the said issue as contentious therefore the CIT(Appeals) ought to have acceded to the request of the assessee for allowing an opportunity to him to explain the same based on the evidences by personally putting up an appearance before the A.O. We thus in terms of our aforesaid observations restore the matter to the file of the A.O with a direction to re-adjudicate the same. A.O shall in the course of the set-aside proceedings afford a reasonable opportunity of being heard to the assessee who shall remain at a liberty to substantiate his claim on the basis of fresh documentary evidence if any. Thus the Ground of appeal No.1 raised by the assessee is allowed for statistical purposes in terms of our aforesaid observations. Addition u/s. 2(22)(e) on deemed dividend - HELD THAT - As the company viz. M/s. Atmastco Pvt. Ltd had advanced a loan aggregating not during the year under consideration but in the preceding year therefore in absence of any payment by the company during the subject year there was no justification for the A.O to have held the amount so received by the assessee in the preceding year as deemed dividend in his hand during the subject year. Accordingly the addition made by the A.O u/s. 2(22)(e) of the Act made/sustained by the lower authorities is vacated. Disallowance u/s. 14A r.w.Rule 8D - assessee had though during the subject year made investments in equity share capital of various companies and agricultural assets but had not offered on a suo-motto basis any disallowance of any expenditure incurred for earning of exempt income - HELD THAT - We are principally in agreement with the Ld. AR that in absence of any exempt income having been earned by the assessee during the subject year the A.O as per the pre-amended Section 14A of the Act as was applicable to the subject year could not have worked out any disallowance in his hands. Our aforesaid view is fortified by the judgment of Chettinad Logistics Pvt. Ltd. 2018 (7) TMI 567 - SC ORDER and also Cheminvest Limited 2015 (9) TMI 238 - DELHI HIGH COURT When the assessee had not received any exempt dividend income during the year under consideration therefore no disallowance u/s. 14A of the Act was warranted in his case - aforesaid claim that the assessee was not in receipt of any exempt income during the subject year cannot be summarily accepted on the very face of it and would require verification therefore the matter in all fairness is restored to the file of the A.O for the limited purpose to verify the factual position. Additional Ground of appeal raised by the assessee is allowed for statistical purposes. Addition towards deemed sales tax disclosed by the assessee under the head loan advances (asset) in his balance sheet for the subject year - HELD THAT - Addition requires to be looked into in the backdrop of the documents that have been placed on our record viz. (i) copy of sales tax payable A/c. for F.Y.2011-12 and 2012-13; (ii) copy of bank statement evidencing making of the payment; and (iii) copy of the bank receipts evidencing payment by the assessee on 14.04.2012. Accordingly we herein restore the matter to the file of the A.O for re-adjudication. Unexplained cash credit u/s. 68 - no explanation as regards the nature and source of the credits in his books of account (compiled in the form of statement of affairs that was filed before the A.O) HELD THAT - As in the absence of any explanation of the assessee as regards the nature and source of the subject credits the same in our view had rightly been held by the A.O as unexplained cash credit u/s. 68 of the Act.

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily addresses the following issues:

Whether the addition of Rs. 2 crore to the capital account as unexplained cash credit under Section 68 of the Income-tax Act, 1961, was justified.
Whether the addition of Rs. 68,62,394 as unexplained credits was warranted.
Whether the addition of Rs. 6,12,607 as deemed sales tax as a revenue receipt was appropriate.
Whether the disallowance under Section 14A read with Rule 8D amounting to Rs. 55,06,957 was correct.
Whether the addition of Rs. 1,45,75,000 as deemed dividend under Section 2(22)(e) was justified.
Whether the disallowance of Rs. 15,000 on account of donation was appropriate.

2. ISSUE-WISE DETAILED ANALYSIS

Addition of Rs. 2 crore as unexplained cash credit under Section 68

Relevant legal framework and precedents: Section 68 of the Income-tax Act deals with unexplained cash credits. The assessee is required to explain the nature and source of any sum credited in the books.
Court's interpretation and reasoning: The Tribunal noted that the assessee claimed the addition was due to internal transfers from sundry creditors to the capital account without fresh infusion of funds. However, the Tribunal found that the explanation was not adequately substantiated with evidence.
Key evidence and findings: The assessee provided ledger accounts and claimed adjustments were made in financial statements, not through book entries. The Tribunal found discrepancies in the explanations and the method of accounting.
Application of law to facts: The Tribunal emphasized the need for proper entries in the books to substantiate claims of capital introduction.
Treatment of competing arguments: The Tribunal considered the assessee's argument about internal adjustments but found the lack of book entries problematic.
Conclusions: The Tribunal remanded the matter to the Assessing Officer for re-examination with a directive to allow the assessee to present further evidence.

Addition of Rs. 68,62,394 as unexplained credits

Relevant legal framework and precedents: Section 68 requires the assessee to explain the nature and source of credits in the books.
Court's interpretation and reasoning: The Tribunal observed that the assessee had initially offered this amount for taxation without adequate explanation, which justified the addition.
Key evidence and findings: The assessee's claim of agricultural income and other credits was not supported by evidence, leading to the addition.
Application of law to facts: The Tribunal upheld the addition due to the lack of substantiation of the credits.
Treatment of competing arguments: The Tribunal dismissed the argument that the addition was a double count, as the assessee failed to substantiate the credits.
Conclusions: The Tribunal upheld the addition as unexplained credits.

Addition of Rs. 6,12,607 as deemed sales tax

Relevant legal framework and precedents: The nature of sales tax as a revenue receipt was considered based on a Supreme Court judgment.
Court's interpretation and reasoning: The Tribunal noted the lack of explanation from the assessee regarding this addition.
Key evidence and findings: The Tribunal found that the assessee did not provide evidence to counter the addition.
Application of law to facts: The Tribunal agreed with the lower authorities that the amount was a revenue receipt.
Treatment of competing arguments: The Tribunal noted the absence of any counter-argument from the assessee.
Conclusions: The Tribunal remanded the issue for reconsideration by the Assessing Officer.

Disallowance under Section 14A read with Rule 8D

Relevant legal framework and precedents: Section 14A and Rule 8D deal with disallowance of expenditure related to exempt income.
Court's interpretation and reasoning: The Tribunal noted the assessee's claim of no exempt income during the year, which could negate the disallowance.
Key evidence and findings: The Tribunal found discrepancies in the calculation of disallowance by the Assessing Officer.
Application of law to facts: The Tribunal remanded the issue to verify the claim of no exempt income.
Treatment of competing arguments: The Tribunal considered the assessee's reliance on Supreme Court judgments supporting no disallowance without exempt income.
Conclusions: The Tribunal remanded the issue for verification of exempt income status.

Addition of Rs. 1,45,75,000 as deemed dividend

Relevant legal framework and precedents: Section 2(22)(e) defines deemed dividends for loans to shareholders.
Court's interpretation and reasoning: The Tribunal found that the loans were not received during the assessment year but were carried forward from previous years.
Key evidence and findings: The Tribunal noted ledger entries supporting the claim that loans were from earlier years.
Application of law to facts: The Tribunal concluded that the addition was unjustified as no loans were received during the year.
Treatment of competing arguments: The Tribunal considered the assessee's evidence and found it credible.
Conclusions: The Tribunal vacated the addition as deemed dividend.

Disallowance of Rs. 15,000 on account of donation

Relevant legal framework and precedents: The disallowance was based on the assessee's failure to offer the full amount of donation to tax.
Court's interpretation and reasoning: The Tribunal noted the lack of explanation from the assessee.
Key evidence and findings: The Tribunal found no evidence to counter the disallowance.
Application of law to facts: The Tribunal upheld the disallowance due to the absence of explanation.
Treatment of competing arguments: The Tribunal noted the assessee's lack of response.
Conclusions: The Tribunal upheld the disallowance.

3. SIGNIFICANT HOLDINGS

The Tribunal vacated the addition of Rs. 1,45,75,000 as deemed dividend, emphasizing that no loans were received during the assessment year.
The Tribunal remanded the issue of disallowance under Section 14A for verification of the claim of no exempt income.
The Tribunal remanded the addition of Rs. 2 crore as unexplained cash credit for re-examination, allowing the assessee to provide further evidence.
The Tribunal upheld the addition of Rs. 68,62,394 as unexplained credits due to the lack of substantiation.
The Tribunal remanded the addition of Rs. 6,12,607 as deemed sales tax for reconsideration by the Assessing Officer.
The Tribunal upheld the disallowance of Rs. 15,000 on account of donation due to the lack of explanation.

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