2015 (5) TMI 761 - AT - Income Tax

Unexplained share capital - CIT(A)deleting the addition of ₹ 9 lacs out of the addition of ₹ 30 lacs made by the AO - Held that - Assessing Officer is not justified on the basis of this inspector report to hold that the identity of the shareholder company A.C. Steels & Holdings Pvt. Ltd, Grewal Steels & Holdings Pvt. Ltd. & Sumit Credit Co. Pvt. Ltd. has not been established. On the contrary, as rightly pointed out, the common surname Grewal is good enough to indicate that the office of these companies were at that premises. The inspector did not make any effort to make any further enquiry about these companies and also Assessing Officer did not make any effort to carry the investigation further. The sole basis for making addition about these companies is the inspector report. No doubts have been raised by the Assessing Officer about the documents filed by the assessee company. The inspector report as alleged above cannot be a basis for disbelieving the assessee s version. Further in the case of Sofed Comtrade Pvt. Ltd. we note that no enquiry whatsoever has been done by the AO. The observations made by him are only raising a doubt without carrying out any investigation. Surprisingly we note that the AO was having doubt in mind but he never issued any notice or summon to any of the directors. It is not a case where any confessional statement has been recorded by any entry provider of accommodation entry. It is a case of a doubt raised by the Assessing Officer but such doubt has not been converted into any evidence or material so as to substantiate the addition. We are of the view that the additions made by the AO in respect of share capital received from these four companies are not justified and accordingly the same is directed to be deleted. As regards the fifth company i.e. Prime Vyapar Pvt. Ltd. we note that the inspector has carried out the enquiry and in this report the inspector has pointed out that on local enquiry it is revealed that there is no company called this name at the address and there is only a residential place at the said premise. The Ld. AR during the course of the hearing could not rebut this finding of the inspector. In view of this specific finding of the inspector which remains unrebutted, we are of the view that addition of ₹ 5 lacs in respect of the share capital received from Prime Vyapar Pvt. Ltd. has been rightly been made by the Assessing Officer and accordingly this addition is confirmed. - Decided partly in favour of assessee and revenue. Disallowance u/s 14A read with Rule 8D - Held that - The assessment year under consideration is 2005-06 and Rule 8D is effective from assessment year 2008-09. Accordingly the Assessing Officer was not justified in invoking the provisions of Rule 8D for the assessment year under consideration. We further note that assessee s investment is mainly in group companies. Considering these facts we delete this addition - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition of Rs. 9,00,000/- made by AO on account of unexplained share capital.
2. Validity of proceedings initiated under Section 153A.
3. Addition of Rs. 21,00,000/- on account of share application money.
4. Disallowance of Rs. 18,645/- under Section 14A by invoking Rule 8D.
5. Disallowance of Rs. 14,382/- on account of deferred revenue expenses.

Issue-Wise Detailed Analysis:

1. Deletion of Addition of Rs. 9,00,000/- Made by AO on Account of Unexplained Share Capital:
The Revenue's appeal contested the deletion of Rs. 9,00,000/- out of Rs. 30,00,000/- added by the AO as unexplained share capital. The CIT(A) had allowed relief of Rs. 9,00,000/- based on the fact that family members of the directors purchased the shares at 30% of their value. The Tribunal noted that the AO's adverse inference was based on an inspector's report which failed to conclusively establish that the investor companies were non-existent. The Tribunal found that the AO was not justified in making the addition solely on the inspector's report without further investigation. Therefore, the deletion of Rs. 9,00,000/- was upheld.

2. Validity of Proceedings Initiated under Section 153A:
The assessee's cross-objections challenged the validity of proceedings under Section 153A, arguing no valid search was conducted. However, these grounds were not pressed during the hearing and were dismissed as not pressed.

3. Addition of Rs. 21,00,000/- on Account of Share Application Money:
The CIT(A) confirmed the addition of Rs. 21,00,000/- out of Rs. 30,00,000/- based on the non-genuineness of share capital. The Tribunal noted that the AO's suspicion was based on the fact that the investor companies were Kolkata-based and shared a common address. The Tribunal found that the AO's adverse inference was not justified as the inspector's report did not conclusively prove non-existence. However, for Prime Vyapar Pvt. Ltd., the inspector's local enquiry revealed no such company existed at the provided address, and this finding remained unrebutted. Thus, the addition of Rs. 5,00,000/- from Prime Vyapar Pvt. Ltd. was confirmed, while the remaining Rs. 25,00,000/- was deleted.

4. Disallowance of Rs. 18,645/- under Section 14A by Invoking Rule 8D:
The AO made an addition of Rs. 18,645/- under Section 14A by invoking Rule 8D. The Tribunal noted that Rule 8D is applicable from the assessment year 2008-09 onwards, and the assessment year in question was 2005-06. Therefore, the AO was not justified in invoking Rule 8D, and the disallowance was deleted.

5. Disallowance of Rs. 14,382/- on Account of Deferred Revenue Expenses:
The assessee's cross-objection regarding the disallowance of Rs. 14,382/- on account of deferred revenue expenses was not pressed during the hearing and was dismissed as not pressed.

Conclusion:
The Tribunal partly allowed the appeal of the Revenue and the cross-objection of the assessee. The addition of Rs. 5,00,000/- from Prime Vyapar Pvt. Ltd. was confirmed, while the remaining additions were deleted. The disallowance under Section 14A was also deleted. The Tribunal emphasized that adverse inferences must be supported by concrete evidence and thorough investigation.