2017 (11) TMI 1148 - AT - Income Tax

Addition towards share capital u/s 68 - addition solely on the basis of communication received from Mauritius Revenue Authorities which suggest that the Mauritius company did not have funds to make investment in assessee company - difference in two communications received from Mauritius Revenue Authorities which has not been properly explained by the assessee with necessary evidences - Held that - The second communication received from the Mauritius Revenue Authorities contains full details sought by the AO including the name, address and citizenship of directors, copy of share certificate issued by the assessee company, income-tax return filed by Mauritius company with Mauritius Revenue Authorities, bank statements of M/s Strand Developers Mauritius Ltd, the business customer information cum account opening form of HSBC Mauritius Ltd and financial statement of M/s Strand Developers Mauritius Ltd. The AO also not disputed the fact that the reasons for difference in two communications sent by the Mauritius Revenue Authorities has been clarified by the Director General of Mauritius Revenue Authorities in their communication dated 21-12-2011 which has been extracted by the CIT(A) in his order at para 3.4.1. The other documents sent by the Mauritius Revenue Authorities has also been listed by the CIT(A) in the same paragraph. By these documents, a clarification has been received from the Director General of Mauritius Revenue Authorities which was forwarded by the Under Secretary, FT & TR-II, CBDT directly to the AO. Therefore, we are of the view that there is no merit in the arguments of the Ld.DR that the CIT(A) has not considered the necessity of further enquiry with regard to the genuineness of transactions and creditworthiness of the parties. We further are of the opinion that once communication received from the designated authority through FT & TR which is the authorized agency for exchanging information between two countries u/s 90 of the Income-tax Act, 1961 and such information has been received through proper channel, then there is no scope for the AO as well as the CIT(A) to conduct further enquiries with regard to the creditworthiness of the parties. All details like share certificate issued by the assessee company and bank statement of M/s Strand Developers Mauritius Ltd clearly establishes receipt of money by the assessee company. The assessee also furnished copies of FCGPR and other compliances with respect to RBI and Foreign Inward Remitance Certificate which clearly proves the identity, genuineness of transactions of investment received from M/s Strand Developers Mauritius Ltd. The subsequent communication received from Mauritius Revenue Authorities alongwith the income-tax return further prove the fact of creditworthiness of the share and capacity to invest in assessee company. Therefore, we are of the considered view that the AO was incorrect in holding that the assessee has failed to discharge the genuineness of transactions and creditworthiness of the parties. - Decided in favour of assessee Disallowance of proportionate administrative and other sales and marketing expenses attributable to Income from house property - AO has disallowed expenses relatable to income under the head Income from house property on the ground that the assessee has claimed separate deductions as provided u/s 24(a) & 24(b) in the computation of income under the head Income from house property whereas failed to disallow corresponding expenditure debited in the P&L Account while computing income under the head Income from business - assessment year 2008-09 - Held that - We find force in the arguments of the Ld.Counsel for the assessee that the AO while calculating disallowance of expenditure relatable to income from house property has allowed deductions towards property maintenance expenses already disallowed by the assessee in its computation and failed to deduct rates and taxes, professional fees and donations without any reason. We further observe that the assessee has already disallowed on its own expenses directly relatable to the activity of income from house property. The other expenses debited in the P&L Account are purely in the nature of corporate / routine expenses allowable u/s 37. The AO has not given any reasons for not considering the expenses already disallowed by the assessee in its computation and also corporate and other routine expenses, which are allowable u/s 37. Therefore, we are of the considered view that the issue needs to be examined by the AO . For 2009-10 admittedly, the assessee has filed revised return during the course of assessment proceedings to make a claim of deduction towards property maintenance expenses against business income which has not been taken cognizance on account of limitation. Therefore, we are of the considered view that considering the facts and circumstances of the case and also relying upon the decision of Hon ble Supreme Court in the case of Goetze (India) Ltd 2006 (3) TMI 75 - SUPREME Court and CIT vs Prithvi Brokers & Shareholders Pvt Ltd (2012 (7) TMI 158 - BOMBAY HIGH COURT), the claim of the assessee with regard to the deduction towards property maintenance expenses against business income needs to be considered in the lights of the facts without going into the technicality of the issue of limitation of filing revised return. Therefore, we set aside the issue to the file of the AO and direct him to consider the issue afresh after affording reasonable opportunity of hearing to the assessee.

Summary

Issues Involved:

1. Addition towards share capital under Section 68 of the Income-tax Act, 1961.
2. Disallowance of proportionate administrative and other sales and marketing expenses attributable to income from house property.

Issue-wise Detailed Analysis:

1. Addition towards Share Capital under Section 68 of the Income-tax Act, 1961:

The revenue challenged the CIT(A)'s decision to conclude that the share capital contribution by M/s Strand Developers Mauritius Ltd. was explained by the communications dated 22-12-2011 from the Mauritius Revenue Authority. The revenue argued that the CIT(A) did not scrutinize the reasons for the difference between the initial communication dated 21-11-2011 and the later one dated 22-12-2011. The initial communication indicated that Strand Developers Mauritius Ltd. did not have the capacity to invest such a large amount in the assessee company. However, the subsequent communication, which was not received through proper channels, indicated the investment. The CIT(A) deleted the addition without further inquiry or giving the AO an opportunity to comment on the differences between the two communications.

The assessee supported the CIT(A)'s decision, arguing that the subsequent communication from the Mauritius Revenue Authority, received through the FT & TR Division of the Department of Revenue, Ministry of Finance, established the investment. The communication included detailed information such as the name, address, and citizenship of directors, share certificates, bank statements, and financial statements of Strand Developers Mauritius Ltd. The CIT(A) considered this evidence sufficient to prove the genuineness and creditworthiness of the transaction.

The Tribunal upheld the CIT(A)'s decision, noting that the AO did not dispute the identity of the shareholder and that the second communication from the Mauritius Revenue Authority provided comprehensive details about the investment. The Tribunal found no merit in the revenue's argument that the CIT(A) violated Rule 46A of the Income-tax Rules by not giving the AO an opportunity to comment on the difference between the two communications. The Tribunal concluded that the assessee had discharged its onus of proving the identity, genuineness, and creditworthiness of the investor, and the CIT(A) was correct in deleting the addition.

2. Disallowance of Proportionate Administrative and Other Sales and Marketing Expenses Attributable to Income from House Property:

For the assessment years 2008-09 and 2009-10, the AO disallowed proportionate administrative and other expenses attributable to income from house property. The AO observed that the assessee did not maintain separate accounts for its business activities and income from house property and claimed deductions under Section 24(a) and (b) of the Income-tax Act. The AO disallowed expenses on a proportionate basis, resulting in an addition to the assessee's income.

The assessee argued that it had already disallowed expenses directly attributable to income from house property and that the remaining expenses were general administrative and business-related expenses. The CIT(A) upheld the AO's disallowance, relying on the Supreme Court's decision in Goetze (India) Ltd., which held that deductions could only be claimed through a revised return filed within the time limit.

The Tribunal found merit in the assessee's argument that the AO did not consider expenses already disallowed by the assessee and included corporate and routine expenses allowable under Section 37 of the Income-tax Act. The Tribunal set aside the issue to the AO, directing him to re-examine the disallowance in light of the assessee's submissions and after giving the assessee an opportunity of hearing.

For the assessment year 2009-10, the assessee also challenged the disallowance of property maintenance expenses. The AO disallowed the claim on the ground that the revised return was filed beyond the time limit. The Tribunal, relying on the Bombay High Court's decision in CIT vs Prithvi Brokers & Shareholders Pvt Ltd, held that the AO should consider the claim on its merits without being constrained by the technicality of the revised return's timeliness. The Tribunal set aside the issue to the AO for fresh consideration.

Conclusion:

The Tribunal dismissed the revenue's appeal regarding the addition towards share capital and allowed the assessee's appeals for statistical purposes, setting aside the disallowance of proportionate administrative and other expenses to the AO for fresh consideration. The Tribunal emphasized the need for a fair and just assessment based on the merits of the case and the evidence provided.