2012 (6) TMI 154 - AT - Income Tax

Addition of Rs. 50,00,000 on account of share application money - Addition of Rs. 9,75,668, on account of interest earned on bank deposits - In the absence of confirmation and copy of application submitted for allotment of share, the nature of money received by the assessee cannot be held to be money received as share application money. In the present case there is complete absence of linkage of the amount credited by the assessee in its books of account and the amount having been paid by those creditors and, therefore, it cannot be said that the identity has been established vis-a-vis the deposits received by the assessee from those companies - The initial burden cannot be said to be discharged by simply placing on record the information of creditor which is obtained from the Registrar of Companies website - The amount has ultimately been credited by the assessee in its profit and loss account and it has neither returned to those parties nor is any share allotted to them - Held that the contention that the assessee has a strained relationship with the creditors is wholly unsupported and cannot be accepted Regarding business income or other sources - assessee in the present case was running a hotel which was temporarily closed for the renovation - Held that link between the amounts borrowed for purchase of capital asset and development of infrastructure before commencement of business and the amount invested in fixed deposit receipts is absent in the present case as no document whatsoever has been brought on record to show that whatever was invested in fixed deposit receipt was actually out of the amount received by the assessee for acquiring capital asset or for development of infrastructure - In the absence of such link, the amount has to be assessed separately as income from other sources - Decided against the assessee

Summary

Issues Involved:
1. Addition of Rs. 50,00,000 on account of share application money.
2. Addition of Rs. 9,75,668 on account of interest earned on bank deposits.

Issue-wise Detailed Analysis:

1. Addition of Rs. 50,00,000 on account of share application money:

The assessee received share application money of Rs. 4,78,00,000, which included Rs. 25 lakhs each from M/s. Orchid Leafin P. Ltd. (OLPL) and M/s. Unit Commercial P. Ltd. (UCPL). The Assessing Officer (AO) added Rs. 50 lakhs to the income of the assessee due to the failure to explain the genuineness of the transaction. The assessee provided details such as the identity of applicants, their permanent account numbers, and database printouts from the Registrar of Companies website. However, the Commissioner of Income-tax (Appeals) upheld the addition, stating the assessee failed to provide confirmations, bank statements, balance sheets, and income-tax returns to establish the genuineness and creditworthiness of the transactions.

The assessee argued that it had strained relationships with the share applicants and could not obtain confirmations. It submitted that the share application money was received through bank accounts, and the identity of the applicants was proven through Registrar of Companies records. The assessee also cited judicial precedents, including CIT v. Dwarkadhish Investment P. Ltd. [2011] 330 ITR 298 (Delhi) and CIT v. Lovely Exports P. Ltd. [2009] 319 ITR (St.) 5 (SC), to argue that once the identity of the share applicants is proven, the onus shifts to the Revenue.

The Tribunal noted that the assessee did not provide sufficient evidence to prove the identity, capacity, and genuineness of the transactions. The assessee failed to submit confirmations, copies of share applications, and other necessary documents. The Tribunal held that the assessee did not discharge the initial burden of proof and upheld the addition of Rs. 50 lakhs.

2. Addition of Rs. 9,75,668 on account of interest earned on bank deposits:

The assessee earned interest of Rs. 9,75,668 on bank deposits made as margin money for obtaining bank guarantees/letters of credit for importing capital goods for the renovation and upgradation of a hotel. The AO assessed this interest as income from other sources, while the assessee contended that it should be set off against the capital expenditure.

The assessee relied on the decision of the Delhi High Court in Indian Oil Panipat Power Consortium Ltd. v. ITO [2009] 315 ITR 255 (Delhi), which distinguished between income earned from surplus funds and funds inextricably linked to the setting up of a plant. The Commissioner of Income-tax (Appeals) applied the ratio of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC), holding that the interest income should be assessed as income from other sources.

The Tribunal noted that the facts of the present case did not match those in Indian Oil Panipat Power Consortium Ltd. v. ITO. The assessee was not setting up a new business but was renovating an existing hotel. There was no direct link between the borrowed funds and the fixed deposits. The Tribunal upheld the addition, stating the interest income should be assessed under the head "Income from other sources."

Conclusion:

The appeal filed by the assessee was dismissed, with the Tribunal upholding both additions made by the AO. The Tribunal found no infirmity in the orders of the Commissioner of Income-tax (Appeals) regarding the additions of Rs. 50,00,000 on account of share application money and Rs. 9,75,668 on account of interest earned on bank deposits.