2019 (9) TMI 684 - AT - Income Tax

Unexplained cash credits in the matter share application money - as alleged assessee failed to satisfy the three relevant parameters of identity, genuineness and creditworthiness - HELD THAT - Form 20B with R.O.C details of share application sufficiently indicates that it had filed all the relevant details of the holding entity, which has nowhere been rebutted from the Assessing Officer s end. As emerges from all the foregoing details assessee had in fact received supplies of equipments to the tune of ₹ 6 crores from its heading entity M/s. Neon Healthcare Research Institute Limited and the said entity also carried out pathological tests amounting to ₹ 3,35,000/- on its behalf. Learned counsel invited our attention to the fact that assessee s foregoing detailed evidence(s) indicates that the amount of ₹ 68,50,000/- had been received by a/c payee cheque(s) as per the corresponding bank statements and that the said entity holds assessee s 47.73% stake. The Revenue fails to dispute the further clinching fact that assessee s depreciation claim(s) on medical equipments supplied forming subject matter of impugned addition averment also stood allowed during the course of assessment itself. This tribunal s decision in M/s. ABA Earthline Communications Ltd v/s. ITO., Ward 1(4), Kolkata 2018 (12) TMI 972 - ITAT KOLKATA holds that section 68 addition of unexplained cash credits in absence of actual cash credits/receipts is not sustainable - Decided in favour of assessee. Brought forward losses set off - HELD THAT - Assessee s shareholders to the extent of 51% of its stake i.e M/s. XL Enterprises and M/s. Neon Health Care had admittedly held 27.34% and 47.73% of its stake in preceding assessment year and 26.02% and 53.87% in the impugned assessment year; respectively. Coupled with this, the CIT(A) has also held that SHRI SUBHULAXMI MILLS LTD. 1995 (9) TMI 2 - SUPREME COURT settled the law long back that section 79 of the Act does not apply on brought forward losses on account of depreciation. We therefore affirm the CIT(A) s findings for this latter issue as well. - Decided in favour of assessee.

Summary

Issues Involved:

1. Correctness of CIT(A)'s findings reversing the Assessing Officer's addition of unexplained cash credits related to share application money of ?7.02 crores.
2. Allowance of assessee's brought forward losses set-off claim of ?5,36,66,368/-.

Detailed Analysis:

1. Correctness of CIT(A)'s findings reversing the Assessing Officer's addition of unexplained cash credits related to share application money of ?7.02 crores:

The Revenue challenged the CIT(A)'s decision to reverse the Assessing Officer's (AO) addition of ?7.02 crores as unexplained cash credits. The AO had added this amount, claiming it was unexplained share application money from M/s Neon Healthcare & Research Institute Ltd. The AO's decision was based on the non-compliance with a notice issued under section 131 and the non-availability of the company's name in the MCA database. The assessee provided explanations, including evidence of receiving ?68,50,000 by cheque, machinery purchases amounting to ?6 crores, and payments for pathological tests totaling ?33,35,000. The CIT(A) found that the AO did not raise the issue of the company's name change during the assessment and that the assessee had provided sufficient evidence, including bank statements, purchase bills, and tax registration details, proving the legitimacy of the transactions. The CIT(A) concluded that the assessee had discharged its onus to prove the creditworthiness of the shareholder company and directed the deletion of the addition.

The tribunal upheld the CIT(A)'s decision, noting that the assessee had provided comprehensive evidence, including the shareholder company's incorporation certificate, master data, ledger accounts, bank statements, purchase invoices, and audited financial statements. The tribunal also referenced a decision in M/s. ABA Earthline Communications Ltd v/s. ITO, which held that section 68 additions are not sustainable in the absence of actual cash receipts. The tribunal concluded that the CIT(A) had rightly deleted the addition of ?7.02 crores.

2. Allowance of assessee's brought forward losses set-off claim of ?5,36,66,368/-:

The Revenue's second grievance was against the CIT(A)'s decision to allow the assessee's claim for setting off brought forward losses of ?5,36,66,368/-. The AO had denied the set-off based on section 79 of the Act, which restricts the carry forward and set-off of losses if there is a change in shareholding of more than 51% of the voting power. The CIT(A) found that the major shareholders, M/s XL Enterprises and M/s Neon Healthcare, held more than 51% of the shares both in the year of loss (AY 2009-10) and the year of set-off (AY 2010-11). The CIT(A) also noted that the Supreme Court in the case of Shri Subhulaxmi Mills Ltd. had held that section 79 does not apply to brought forward depreciation losses. The CIT(A) directed the AO to allow the set-off after due verification.

The tribunal affirmed the CIT(A)'s findings, emphasizing that the shareholders' continuity of more than 51% stake was maintained and that section 79 does not apply to depreciation losses. The tribunal upheld the CIT(A)'s decision to allow the set-off of brought forward losses.

Conclusion:

The tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s decisions on both issues. The CIT(A) was found to have rightly reversed the AO's addition of ?7.02 crores as unexplained cash credits and correctly allowed the set-off of brought forward losses of ?5,36,66,368/-. The tribunal's order was pronounced on 13-09-2019.