2020 (6) TMI 170 - AT - Income Tax

Addition u/s.68 - Unexplained share capital - onus to prove - HELD THAT - Basic requirements of section 68 have been discharged by the assessee by furnishing the relevant evidences. The evidences which were furnished by the assessee were confirmation letters of the partners, copies of I.T.Returns, PAN Nos, and income declared. By furnishing the above, the preliminary onus was discharged by the assessee. There is no dispute to the fact that all the partners have owned the introduction of capital in assessee s firm. The AO has not challenged the correctness of the evidences filed by the assessee. We find that this is a case where the partners have introduced the capital, therefore, the issue is covered in the case of Metachem Industries 1999 (9) TMI 21 - MADHYA PRADESH HIGH COURT wherein held moment the firm gives satisfactory explanation and produces the person who has deposited the amount, then the burden of the firm is discharged and in that case that credit entry cannot be treated to be income of the firm for the purposes of income tax. It is open for the AO to take appropriate action under section 69 of the act against the person who has not been able to explain the investment. In the case at hand, the assessee has discharged its onus satisfactorily by furnishing all the relevant evidences. Therefore, when the firm is disclosing capital introduction by the partner providing names and PAN nos of contributing partners, then no addition can be made in the hands of the firm - Decided in favour of assessee. Disallowance under various heads of expenses - adhoc disallowance by disallowing 20% of the expenses - HELD THAT - The onus is on the assessee to prove the genuineness of expenses claimed by furnishing relevant bills and vouchers. When the assessee is unable to produce the bills and vouchers, the Assessing Officer can make reasonable addition, as he deems proper. In this case, the assessee has produced ledger copies in support of various expenses incurred by him. The assessee is in the business of hotel and textile business and is bound to incur the above expenditure for smooth running of the hotel and textile business but has to keep the bills and vouchers for claiming the deduction, which is lacking in this case. However, keeping in mind the nature of business and expenditure incurred, we are of the view that the disallowance @ 20% is on higher side. Therefore, we restrict the disallowance at 10% - Decided partly in favour of assessee. Disallowance of interest on loans - HELD THAT - onus was on the assessee to establish that no amount of interest-bearing loan was being used to extend interest free loan. Since the assessee was not properly show caused by the authorities below enabling him to explain his stand and to establish that no amount of interest bearing loan was used for advancing interest free loan, therefore, we deem it proper, as also candidly agreed by the ld D.R. to restore the issue to the file of the AO for afresh examination and verification after allowing due opportunity of hearing to the assessee. Hence, this ground is allowed for statistical purposes. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT - Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited 2020 (5) TMI 359 - ITAT MUMBAI

Issues Involved:
1. Addition of ?60,00,000/- under Section 68 of the Act.
2. Adhoc disallowance of ?18,46,646/-.
3. Disallowance of interest of ?3,50,935/-.

Issue-Wise Detailed Analysis:

1. Addition of ?60,00,000/- under Section 68 of the Act:

The primary issue in Ground No.1 of the appeal was whether the CIT(A) was justified in confirming the addition of ?60,00,000/- made under Section 68 by the Assessing Officer (AO). The AO had observed that the assessee received capital introduced from partners in both cheque and cash, with the cash component amounting to ?60,00,000/-. The AO accepted the capital introduced via cheque but disallowed the cash introduction. The assessee argued that all partners who introduced capital were assessed to income tax individually and provided their names, addresses, and PANs to the authorities. Additionally, the partners disclosed their investments in their income tax returns, thus fulfilling the requirements of Section 68. The Tribunal noted that the assessee had discharged the preliminary onus by providing confirmation letters, copies of I.T. returns, PAN Nos, and income declared by the partners. Since the AO did not challenge the correctness of these evidences, the Tribunal found that the addition could not be made in the hands of the firm. Relying on the decision in CIT vs. Metachem Industries, the Tribunal directed the deletion of the ?60,00,000/- addition, allowing this ground of the assessee.

2. Adhoc Disallowance of ?18,46,646/-:

Ground No.2 concerned the adhoc disallowance made by the AO of ?18,46,646/-. The assessee had incurred ?92,33,232/- under various heads like bed tea & breakfast, electrical maintenance, laundry expenses, referral charges, room service & restaurant, and mandap expenses. Although the AO did not doubt the expenses incurred, he made an adhoc disallowance of 20% due to the assessee's failure to furnish relevant bills and vouchers. The Tribunal observed that while the assessee produced ledger copies of expenses, it failed to produce the actual bills and vouchers. The Tribunal acknowledged the necessity of incurring such expenses in the hotel and textile business but emphasized the need for proper documentation. Considering the nature of the business, the Tribunal found the 20% disallowance excessive and reduced it to 10%, amounting to ?9,23,323/-. This ground was partly allowed.

3. Disallowance of Interest of ?3,50,935/-:

Ground No.3 related to the disallowance of interest of ?3,50,935/-. The Tribunal noted that there was no established nexus between the interest-bearing loans and the interest-free loans advanced by the assessee. The onus was on the assessee to prove that no interest-bearing loan was used to extend interest-free loans. Since the assessee was not properly show caused by the authorities below, the Tribunal deemed it appropriate to restore the issue to the AO for fresh examination and verification after allowing the assessee due opportunity of hearing. This ground was allowed for statistical purposes.

Procedural Issue:

The Tribunal addressed a procedural issue regarding the delay in pronouncing the order beyond the 90-day period due to the COVID-19 lockdown. Citing Rule 34(5) of the Income Tax Appellate Tribunal Rules, 1962, and relevant judicial pronouncements, the Tribunal justified the delay, considering the lockdown as an extraordinary circumstance that warranted the extension of the pronouncement period.

Conclusion:

The appeal of the assessee was partly allowed for statistical purposes, with specific directions for each issue involved. The Tribunal's order was pronounced on 5/06/2020.

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