2018 (5) TMI 1261 - AT - Income Tax

Disallowance of estimated expenditure - Held that - The revenue s case is not with regard to genuineness of expenditure. Business requirements and planning for future has to be decided by the assessee but not by the Department. It is the assessee who has to run the business. The revenue has not proved that the assessee has made any bogus claim or incurred personal expenditure in the guise of marketing godown and plant and maintenance expenses. In the absence of specific evidence to establish that the expenditure claimed by the assessee is bogus or unsubstantiated with relevant evidences we hold that the CIT(A) has rightly deleted the addition. Introduction of share capital - Unconfirmed identity of the shareholder address and sources of income of the contributor to the share capital - Held that - The assessee has furnished the confirmation letters explaining the identity of the shareholder address and sources of income of the contributor to the share capital along with the evidence for land holdings and copies of IT returns in 4 cases before the AO. The assessee has discharged its burden with regard to the identity genuineness of share capital and also explained the source of share capital. The AO did not make any enquiry to verify the correctness of the information furnished by the assessee and bring any evidence to establish that the contributors to share capital does not have sufficient source or the source explained by the share holders is bogus. The CIT(A) also observed that the shares were allotted in favour of the contributors. It is evident from the above that the revenue has not discharged it s burden to prove that the shareholders did not have credit worthiness. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of estimated expenditure.
2. Introduction of share capital.

Issue 1: Disallowance of estimated expenditure

The appeal was filed by the revenue against the order of the Commissioner of Income-Tax (Appeals) regarding the disallowance of estimated expenditure of ?13,68,796 in the assessment year 2011-12. The Assessing Officer disallowed 10% of the expenses of M/s Gowthami Chemicals & Pesticides (Pvt.) Ltd., Rajahmundry under marketing, godown, and plant maintenance expenses due to a sharp increase in expenses despite a significant increase in sales. The CIT(A) deleted the addition, stating that the expenditure was reasonable and justified. The Tribunal upheld the CIT(A)'s decision, emphasizing the substantial increase in sales and profit, justifying the marketing initiatives and business strategies undertaken by the assessee. The Tribunal ruled that the revenue failed to prove any bogus claims or unsubstantiated expenses, leading to the dismissal of the revenue's appeal on this ground.

Issue 2: Introduction of share capital

The second issue revolved around the introduction of share capital amounting to ?40,00,000 by various individuals. The Assessing Officer doubted the creditworthiness of the contributors and added the amount to the assessee's income. However, the CIT(A) deleted the addition, highlighting that the assessee had provided evidence supporting the creditworthiness of the investors and the genuineness of the investments. The Tribunal noted that the revenue could not establish that the shareholders lacked creditworthiness, and the assessee had fulfilled its burden by furnishing necessary details and confirmations. The Tribunal upheld the CIT(A)'s decision, citing earlier judgments and principles, and dismissed the revenue's appeal on this ground as well.

In conclusion, the Tribunal upheld the decisions of the CIT(A) in both issues, emphasizing the need for the revenue to prove any discrepancies or lack of creditworthiness. The orders were pronounced on 18th May 2018, with the appeals of the revenue being dismissed in both instances related to M/s Gowthami Chemicals & Pesticides (Pvt.) Ltd., Rajahmundry.