2020 (9) TMI 452 - AT - Income Tax

Disallowance of expenditure debited into profit and loss account - HELD THAT - Business of the assessee has been setup and has commenced during the year under consideration and consequently, necessary expenditure incurred for the purpose of business needs to be allowed s deduction, whether or not any revenue is generated for the year under consideration. CIT(A) after considering relevant facts has recorded categorical findings that the assessee business has been set-up and has commenced its activities and accordingly, all expenditure incurred for the purpose of business needs to be allowed. Facts remains unchanged. The revenue has fails to bring on record any evidences to prove that the findings of facts recorded by the Ld.CIT(A) is incorrect. Assessee has filed necessary evidences to prove that it has commenced its business activity and has generated income from business operations. Therefore, we are of the considered view that the Ld.CIT(A) was right in deleting additions made towards disallowances of expenditure and hence, we are inclined to uphold the findings of Ld.CIT(A) and reject ground taken by the revenue. Addition towards share application money received u/s 68 - HELD THAT - Assessee has received share application money through proper banking channels. The creditor has filed its financial statements and ITR acknowledgment, which clearly suggest that the creditor has enough source of income to explain the capacity to advance share application money. The other facts brought out by the Ld. AO, as well as the Ld.CIT(A) regarding change of name and subsequent closer of the company is not material to decide the issue, because what is relevant to see is whether, three ingredients provided u/s 68 has been satisfactorily explained or not. In this case, on perusal of details filed by the assessee, we find that the assessee has discharged its onus and prove the credit being share application money received from Global Emission Management Pvt.Ltd with all possible evidences. AO, as well as the Ld.CIT(A) were erred in confirmed additions made towards share application money received from Global Emission Management Pvt.Ltd. Hence, we direct the Ld. AO to delete additions made towards share application money received from Global Emission Management Pvt.Ltd. Appeal filed by the revenue is dismissed

Summary

Issues Involved:
1. Disallowance of expenditure debited to the profit and loss account.
2. Addition towards unexplained cash credits being share application money.

Issue-wise Detailed Analysis:

1. Disallowance of Expenditure Debited to the Profit and Loss Account:

The revenue challenged the Ld. CIT(A)'s decision to allow the disallowance of ?1,92,86,737/- debited to the profit and loss account, arguing that the assessee's business had not yet commenced, thus the expenditure should be treated as pre-operative as per section 35D of the I.T. Act, 1961. The Ld. DR contended that the business needed to generate revenue to justify the expenditure as deductible.

The assessee countered by demonstrating that the business had commenced operations, evidenced by the setup of plant and machinery, purchase of raw materials, and the production of finished goods. The assessee also installed machinery at a client's site and earned revenue, substantiated by agreements and bills.

The tribunal noted that the terms "business set-up" and "commencement of business" are distinct. It concluded that the assessee's business had been set up and commenced during the relevant year, allowing the deduction of necessary expenditures. The tribunal upheld the Ld. CIT(A)'s findings, emphasizing that the revenue failed to disprove the assessee's evidence of business commencement.

2. Addition Towards Unexplained Cash Credits Being Share Application Money:

The revenue disputed the deletion of ?1,30,21,000/- received from Shri Foram Dattani Kapoor, arguing that the assessee failed to provide a signed confirmation during scrutiny. The assessee provided comprehensive documentation, including names, addresses, PAN numbers, bank statements, and financial statements to establish the genuineness and creditworthiness of the transactions.

The tribunal found that the Ld. CIT(A) rightly accepted the genuineness of the transaction with Shri Foram Dattani Kapoor, as the assessee provided sufficient evidence to meet the criteria under section 68 of the I.T. Act, 1961. The revenue did not provide contrary evidence.

Regarding the ?17,54,000/- received from Global Emission Management Pvt. Ltd., the tribunal noted that although the initial notice was returned unserved, the assessee later provided signed confirmation and other relevant documents. The tribunal concluded that the assessee had adequately discharged its onus, proving the creditworthiness and genuineness of the transaction. The tribunal directed the Ld. AO to delete the addition made towards share application money received from Global Emission Management Pvt. Ltd.

Conclusion:

The tribunal dismissed the revenue's appeal and allowed the assessee's cross-objection, affirming the Ld. CIT(A)'s decisions on both issues. The order was pronounced in open court on 20/05/2020.