2013 (4) TMI 173 - AT - Income Tax

Addition of 0.5% commission to the total income - whether a share premium account which resulted in capital reserve is related to share capital and so should not be added back? - Assessee submitted that the assessee being a legal entity was to hold shares when the capital reserve against investments already rendered to tax in the earlier years - Held that - The taxation of the amount over and above the amount returned by the assessee as income in pursuance to notice u/s.158BB was not to be adjudicated in the manner that the AO is trying to which process a regular return by analyzing it on the incorporated undisclosed income which the assessee has disclosed was not part of the search material. Thus the enhancement on account of commission rate against stipulated would be business norms part of commission on behalf of some body else will not incur any loss to the Revenue insofar as the assessee being in the nature of holding investment on behalf of some other persons cannot claim to earn more and pay more as was the opinion expressed by the AO and CIT(A). This addition therefore has no legs to stand on insofar as the assessee had rendered income on the basis of receipts and payments made which cannot be enhanced unilaterally. The same is directed to be deleted. Depreciation disallowed as a percentage of the total claim insofar as the assets were brought forward from earlier years for charge to the P L account by the assessee - Held that - Depreciation is a charge to the Profit Loss account to be allowed when there is no controversy in respect to its ownership and having been put to use cannot be disallowed arbitrarily. The CIT(A) just confirmed the action of the AO without bringing on record the prime facts as narrated by the assessee before him to controvert. No hesitation to delete the disallowance of depreciation as well.

Issues:
1) Treatment of capital reserve related to share premium account in relation to investments.
2) Disallowance of depreciation on fixed assets.
3) Imposition of penalty on the assessee.
4) Justification of demand for additional tax and penalty.

Analysis:

Issue 1: Treatment of capital reserve related to share premium account in relation to investments
The appellant contended that the capital reserve of Rs.48,000 representing share premium should not be linked with investments as it is related to share capital. The appellant argued that the capital reserve resulting from share premium should not be added back. The Tribunal found that the taxation of the amount over and above the disclosed income by the assessee was not justified. It was observed that the capital reserve against investments had already been taxed in earlier years. The Tribunal concluded that the amount remaining with the assessee on account of investment diluted by the assessee rendered as income was not subject to taxation again in the impugned Assessment Year. The Tribunal directed the deletion of the addition related to the capital reserve, as it was considered unjustified and not required to be taxed again.

Issue 2: Disallowance of depreciation on fixed assets
The appellant argued that detailed calculations of depreciation on fixed assets were provided, and the disallowance of Rs.1,28,000 was incorrect. The Tribunal noted that the assets held by the assessee were brought forward from earlier years and were utilized. It was held that depreciation is a charge to the Profit & Loss account and should be allowed when there is no controversy regarding ownership and usage. The Tribunal found that the disallowance of depreciation was arbitrary and without merit. Consequently, the Tribunal decided to delete the disallowance of depreciation, as it was not justified.

Issue 3: Imposition of penalty on the assessee
The appellant contended that no penalty should be imposed as there was no concealment of income or inaccurate furnishing of particulars. The Tribunal considered the arguments presented and found that the penalty proceedings were not justified as the basic addition on which the penalty was initiated did not withstand scrutiny. The Tribunal concluded that there was no concealment of income or inaccurate particulars furnished by the assessee. Therefore, the Tribunal held that the penalty imposition was not warranted and should not be imposed on the assessee.

Issue 4: Justification of demand for additional tax and penalty
The Tribunal examined the demand for additional tax and penalty of 100% of Rs. 58,898. It was found that the additions made by the Assessing Officer, such as commission enhancement and treatment of capital reserve, were not justified. The Tribunal ruled in favor of the assessee, stating that the additions were arbitrary and lacked a proper basis. Consequently, the demand for additional tax and penalty was deemed unjustified and not payable by the assessee.

In conclusion, the Tribunal allowed the appeal of the assessee, directing the deletion of the additions made by the Assessing Officer and confirming that the penalty imposition was not warranted.

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