2021 (4) TMI 161 - AT - Income Tax

Addition u/s 68 - share capital, share premium, share application money and unsecured loan received during the year - assessee failed to ensure the personal deposition of the directors of the aforesaid companies - AO noted that the companies, namely, M/s Global Merchandisers Pvt. Ltd., M/s Kabir Commodities Pvt. Ltd. appeared not to be genuine parties and the genuineness of the transactions entered with them is also doubtful - .CIT(A) deleted the addition - HELD THAT - No infirmity in the order of the CIT(A) in deleting the addition. Perusal of the details submitted in the paper book as well as in the submissions made before the CIT(A) reveals that in the case of M/s Global Merchandisers Pvt. Ltd., the receipts are to the extent of ₹ 175 lakhs whereas the repayments have been made to the extent of ₹ 1,53,30,400/-. Therefore, there is net receipt of ₹ 21,69,600/- only. From the various details furnished by the assessee, we find, the amount of ₹ 175 lakhs was received from M/s global Merchandisers Pvt. Ltd. through banking channels and the company, during the impugned assessment year has a balance sheet of the size of ₹ 151 crores. The total turnover of the said investor is ₹ 7,21,25,000/-. Similarly, in the case of M/s Kabir Commodities Pvt. Ltd., the amount has been received through banking channels and the company has a balance sheet of the size of ₹ 90 crores. From the various details furnished by the assessee, we further find an amount of ₹ 2,49,55,000/- was received from the same company and also the payment of ₹ 4,05,10,000/- made to the said company in the immediately succeeding assessment year, i.e., 2013-14 and the AO in the order passed u/s 143(3) has accepted such receipts and payments. The investing companies are group companies and have common directors or their family members. Both the investing companies have been assessed u/s 143(3) of the Act, a fact stated before the lower authorities and not controverted by the Revenue. There is no evidence whatsoever that the investing companies were controlled by any entry operator - there is no evidence or allegation that cash was deposited in the investing companies or even downstream of investing companies and source of investing companies is suspect. We find merit in the argument of the ld. Counsel that this is a case where the funds have moved within the group and there is no fresh inflow of funds from outside the group. Since the AO, in the orders passed u/s 143(3) of the Act in the immediately succeeding assessment year, which was reopened subsequent to the assessment for the impugned assessment year on the allegation that the assessee has received huge share capital and share premium, has accepted such share capital and share premium and the assessee has successfully demonstrated the identity and credit worthiness of the investor companies and genuineness of the transaction, therefore, we do not find any infirmity in the detailed and the reasoned order of the CIT(A) deleting the addition made by the AO u/s 68 of the Act. The order of the CIT(A) on this issue is accordingly upheld - Decided in favour of assessee. Disallowance on account of provision for site development expenses against sale of plots and the disallowance being premium on re-purchase - HELD THAT - So far as the premium of re-purchase is concerned, it is the submission of the ld. Counsel that three of the customers have cancelled their bookings and since the market price was higher during the relevant period, they were paid certain extra amount as premium and the assessee thereafter sold the plots at a higher price. There is no loss to the revenue since those plots were sold at higher price and taxing the amount again will amount to double addition, i.e., once in the hands of the assessee and again in the hands of the investors who had cancelled their bookings and obtained the premium. Lower authorities have not considered the various details furnished by the assessee in the paper book. Once the plots are sold at a higher price than the price at which these were sold earlier before cancellation along with the premium on cancellation, there should not be any addition since the assessee is paying tax on higher amount. Considering the totality of the facts and in the interest of justice, we deem it proper to restore the issue of premium on re-purchase of plots to the file of the AO with a direction to verify the details of sale of the above three plots and delete the addition once it is proved that the plots are sold at higher price than the price at which these were sold earlier along with premium on cancellation. Provision for site development expenses against sale of plots - Order of the CIT(A) is a cryptic one. He has not at all considered the various details furnished by the assessee before him including the notes to accounts in the audited balance sheet. Since the AO in the instant case has made the addition on account of non-furnishing of details and the ld.CIT(A) has not at all considered the various submissions made before him and has passed a cryptic order, therefore, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue of provision for site development expenses to the file of AO with a direction to give one more opportunity to the assessee to substantiate its case and decide the issue as per fact and law. The grounds of appeal No.1-3 are accordingly allowed for statistical purposes.

Summary

Issues Involved:
1. Addition of ?3,41,40,000/- under Section 68 of the Income Tax Act.
2. Disallowance of ?83,36,756/- on account of provision for site development expenses.
3. Disallowance of ?21,00,000/- on account of premium paid on re-purchase of plots.

Issue-wise Detailed Analysis:

1. Addition of ?3,41,40,000/- under Section 68 of the Income Tax Act:

The assessee, a company engaged in residential and commercial development, filed its return declaring a total income of ?8,68,130/-. During assessment, the AO noticed that the assessee had issued 2,59,460 shares at ?900 per share, raising ?23,35,14,000/- from three entities. The AO questioned the identity, creditworthiness, and genuineness of the transactions, particularly with M/s Global Merchandisers Pvt. Ltd. and M/s Kabir Commodities Pvt. Ltd., leading to an addition of ?3,41,40,000/- under Section 68.

The CIT(A) deleted the addition, noting that the assessee had provided sufficient evidence of the investor companies' creditworthiness and the genuineness of the transactions. The CIT(A) observed that the investor companies had substantial balance sheets and turnover, and the funds were generated from the sale of investments.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee had demonstrated the identity and creditworthiness of the investor companies and the genuineness of the transactions. The Tribunal noted that the investor companies were group companies with common directors and had been assessed under Section 143(3) of the Act. The Tribunal dismissed the Revenue's appeal, finding no infirmity in the CIT(A)'s order.

2. Disallowance of ?83,36,756/- on account of provision for site development expenses:

The AO disallowed ?83,36,756/- claimed as provision for site development expenses, stating that the assessee failed to justify the expenses with documentary evidence. The CIT(A) upheld the disallowance, noting that no specific justification or evidence was provided by the assessee.

The Tribunal found the CIT(A)'s order to be cryptic and noted that the assessee had provided various details and notes to accounts in the audited balance sheet. The Tribunal restored the issue to the AO, directing the AO to give the assessee another opportunity to substantiate its claim and decide the issue based on facts and law.

3. Disallowance of ?21,00,000/- on account of premium paid on re-purchase of plots:

The AO disallowed ?21,00,000/- claimed as premium paid on re-purchase of plots, stating that the assessee failed to provide details and justification. The CIT(A) upheld the disallowance, noting that no further evidence was provided by the assessee during the appellate proceedings.

The Tribunal noted that the premium became payable on account of re-purchase of plots already booked by three persons, who had requested cancellation due to higher market prices. The Tribunal found that taxing the amount again would result in double addition. The Tribunal restored the issue to the AO, directing the AO to verify the details of the sale of the plots and delete the addition if the plots were sold at a higher price.

Conclusion:

The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal for statistical purposes, directing the AO to re-examine the issues related to the provision for site development expenses and the premium paid on re-purchase of plots. The decision was pronounced in the open court on 17.03.2021.