2025 (3) TMI 1084 - AT - Income Tax

Late deposit of employees contribution to PF - HELD THAT - We observed that the issue under consideration is against the assessee based on the decision of Checkmate Services Pvt. Ltd. 2022 (10) TMI 617 - SUPREME COURT . Accordingly first ground of appeal raised by the Department is allowed. Disallowance of interest on unneeded loans - HELD THAT - Just because assessee has not earned any income during the year the AO proceeded to disallow the proportionate interest relating to the above said investment. After careful consideration we are of the view that assessee has invested for exploration of Potash Project in Ethiopia. The assessee has invested 32.43% stake which in turn has invested 12.5 million USD in M/s. Ethiopotash B.V. company. The controlling of the raw material supply is key to any organization and assessee has invested to control the supply of raw material from Ethiopia. Therefore the investment made by the assessee is directly linked to the business of the assessee. Therefore we do not see any reason to disturb the findings of the ld. CIT (A) and accordingly ground no.2 raised by the Revenue is dismissed. Rejection of books of account u/s 145(3) - AO relying on the variation in the GP recorded by the assessee in the past three years and in remand proceedings the AO has accepted the various details submitted by the assessee and has not made any negative observations on the details furnished by the assessee - HELD THAT -CIT (A) has elaborately discussed that AO has not made preliminary verification of the information submitted by the assessee and rejected the books of account and proceeded to estimate the income. After careful consideration of the findings of the CIT (A) and also remand proceedings submitted by the AO we are inclined to agree with the findings of the ld. CIT (A). Accordingly ground no.3 raised by the Revenue is dismissed. Disallowance of depreciation - Since the assessee has carried out the business only for seven months accordingly he disallowed the depreciation for the proportionate period in which the plant was not functional and treated the claim of the depreciation as excess claim - HELD THAT - We observed that the assessee has claimed depreciation for the whole year based on the concept of wear and tear and in the similar situation assessee has given lay off for the plant in the AY 2000-01 and the coordinate Bench has decided the issue in favour of the assessee. Respectfully following the above decision we are inclined to allow the claim of the assessee in the year under consideration also. Accordingly ground no.4 raised by the Revenue is dismissed. Addition u/s 68 - bogus share application money - HELD THAT - As assessee represented the case of the sister concern and filed the relevant information as called for. CIT (A) has appreciated the fact that both these companies are sister concerns of assessee company wherein common promoters were promoted these companies and the summons issued by the AO were complied through authorized representative. CIT (A) appreciated the relevant documents submitted by the assessee during the assessment proceedings as well as during appellate proceedings and has found that the documents submitted by the assessee are proper and accordingly gave relief to the assessee. Considering the facts on record we are inclined to dismiss the ground raised by the Revenue and we are inclined to agree with the findings of the ld. CIT (A). Accordingly ground no.5 raised by the Revenue is dismissed. Addition on account of unsecured loan - HELD THAT - We observed that the assessee has submitted the details of taking unsecured loan - As submitted before the ld. CIT (A) that M/s. Maneesha Finlease Limited is a sister concern of the assessee company and being a sister concern assessee has already proved identity and established creditworthiness. With regard to genuineness of the transaction assessee has submitted relevant confirmation and actual transactions of receiving unsecured loan. We observed that AO has added the outstanding balance at the end of the year without properly verifying actual transactions during the year. - Ld. CIT (A) has appreciated the complete facts on record and found that the genuineness of the transaction was already proved by the assessee. - Ground no.6 raised by the Revenue dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

Whether the late deposit of employees' contributions to the Provident Fund (PF) should be disallowed based on the Supreme Court's decision in Checkmate Services Pvt. Ltd. vs. CIT.
Whether the disallowance of interest on loans taken by the assessee for investments in a subsidiary company was justified.
Whether the rejection of the assessee's books of account and the estimation of gross profit by the Assessing Officer (AO) was appropriate.
Whether the depreciation claimed by the assessee should be disallowed for the period the business was not operational.
Whether the addition of share application money under Section 68 of the Income Tax Act was justified.
Whether the addition of unsecured loans under Section 68 was appropriate.

2. ISSUE-WISE DETAILED ANALYSIS

Late Deposit of Employees' Contribution to PF

Legal Framework and Precedents: The Supreme Court's decision in Checkmate Services Pvt. Ltd. vs. CIT was referenced, which disallowed late deposits of employees' contributions to PF.
Court's Interpretation and Reasoning: The Tribunal followed the Supreme Court's ruling, allowing the Department's appeal on this ground.
Conclusion: The Tribunal allowed the Department's appeal, disallowing the late deposit of PF contributions.

Disallowance of Interest on Loans

Relevant Legal Framework and Precedents: Section 36(1)(iii) of the Income Tax Act was considered, alongside precedents like S. A. Builders Ltd. v CIT and Madhav Prasad Jatia vs. CIT.
Court's Interpretation and Reasoning: The Tribunal agreed with the CIT(A) that the investment in the subsidiary was for a business purpose and commercially expedient.
Key Evidence and Findings: The investment was part of a joint venture for securing raw materials necessary for the assessee's business.
Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow the interest deduction.

Rejection of Books of Account

Legal Framework and Precedents: Section 145(3) of the Income Tax Act, which allows for the rejection of books if they are not complete or correct.
Court's Interpretation and Reasoning: The Tribunal found that the AO's rejection was based on assumptions without concrete evidence.
Key Evidence and Findings: The assessee provided detailed records and explanations for the discrepancies in gross profit.
Conclusion: The Tribunal upheld the CIT(A)'s decision to reject the AO's findings and dismissed the Revenue's appeal.

Disallowance of Depreciation

Legal Framework and Precedents: Section 32 of the Income Tax Act, focusing on the use of assets for business purposes.
Court's Interpretation and Reasoning: The Tribunal followed previous ITAT decisions in similar cases involving the assessee.
Conclusion: The Tribunal dismissed the Revenue's appeal, allowing the depreciation claim.

Share Application Money under Section 68

Legal Framework and Precedents: Section 68 of the Income Tax Act, dealing with unexplained credits.
Court's Interpretation and Reasoning: The Tribunal agreed with the CIT(A) that the assessee had provided sufficient evidence to prove the genuineness and creditworthiness of the transactions.
Key Evidence and Findings: The assessee provided detailed documentation and confirmations from the entities involved.
Conclusion: The Tribunal dismissed the Revenue's appeal, supporting the CIT(A)'s decision to delete the addition.

Unsecured Loans under Section 68

Legal Framework and Precedents: Section 68 of the Income Tax Act.
Court's Interpretation and Reasoning: The Tribunal found that the assessee had sufficiently demonstrated the identity, creditworthiness, and genuineness of the transactions.
Key Evidence and Findings: The assessee provided confirmations and financial statements of the lender.
Conclusion: The Tribunal upheld the CIT(A)'s decision to delete the addition, dismissing the Revenue's appeal.

3. SIGNIFICANT HOLDINGS

Core Principles Established: The Tribunal emphasized the need for concrete evidence before rejecting books of account or making additions under Section 68. It also reinforced the principle of commercial expediency in business-related investments.
Final Determinations on Each Issue: The Tribunal allowed the Department's appeal on the PF deposit issue but dismissed the appeals on interest disallowance, rejection of books, depreciation, share application money, and unsecured loans.

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