2021 (8) TMI 998 - AT - Income Tax

Addition on account of unsecured loan and share capital - AO found that the person from whom the assessee has taken unsecured loan have shown Nil or meager income in the profit and loss account. - Nine different companies amalgamated in the assessee company - It is submitted that, assessee has not received any amount during the year but the same is on account of merger. HELD THAT - With respect to issue of share capital it is apparent that no share capital has been received during the year but only in exchange of the shares of the transferor companies the shares have been allotted to the share holders of the transferor companies. As there is no sum of money received during the year no addition u/s 68 on account of the share capital can be made. The assessee has also shown form No. 2 of the return of allotment filed with the Registrar of Companies which also clearly shows that the share capital is only on account of amalgamation approved by the Hon ble High Court. Similar is the fact with respect to the addition on account of unsecured loan - The assessee has also submitted the annual audited accounts as well as confirmation of the parties to show the above fact. Even the copies of the income tax returns of the parties shown as unsecured loans were also submitted. Thus, assessee has submitted all these evidence before the ld AO and before the ld CIT(A). The assessee has submitted the details of the transaction with the companies also submitting copies of the return of income as well as the balance sheet of the lenders - most of amount has resulted on account of amalgamation of 9 different companies with the assessee and no fresh sum was received during the year by the assessee with respect to all the loans and advances except as stated above in case of three incidents. Thus addition made by the AO and confirmed by the ld CIT (A) u/s 68 of the Act is despite the facts that no sum are received by the assessee during the year. - Additions deleted - Decided in favour of assessee. Approval of JCIT u/s 153D - Period of limitation - HELD THAT - We find that the issue is squarely covered in favour of the assessee as the ld JCIT has mentioned at the bottom of the approval that draft assessment order has been received late by him on 31.12.2016 beyond the time limit as per internal action plan and thus having a very little period for proper examination of the facts of the case and further inquiries. The ld JCIT, Central Range, Meerut has mentioned such a fact on the letter of approval sent by the ld AO. Further, he directed the ld AO to ensure that seized documents and papers have been taken in account. We find that this issue with respect to approval is covered in favour of the assessee by several judicial precedents relied upon by the ld about inappropriate approval granted by the approving authority. We agree with that. However, as we have already decided the issue in favour of the assessee deleting the addition made by the lower authorities, though, issue of approval is covered in favour of the assessee, does not need any further adjudication.

Issues Involved:

1. Validity of initiation of assessment proceedings and issuance of notices.
2. Addition of Share Capital/Share Premium as unexplained cash credits under Section 68 of the Income Tax Act.
3. Addition of unsecured loans as unexplained cash credits under Section 68 of the Income Tax Act.
4. Adverse inferences drawn by CIT(A).
5. Compliance with Section 153D of the Income Tax Act regarding the approval of the assessment order.

Issue-wise Detailed Analysis:

1. Validity of Initiation of Assessment Proceedings and Issuance of Notices:

The assessee argued that the initiation of assessment proceedings and issuance of notices were not in accordance with the law, specifically that no notice under Section 143(2) was issued within the stipulated statutory time. The CIT(A) did not accept this argument, and the Tribunal found no arguments were advanced by the assessee on this ground, thus dismissing it.

2. Addition of Share Capital/Share Premium as Unexplained Cash Credits:

The assessee contended that the addition of ?1,89,35,760/- as unexplained cash credits was unwarranted since the share capital arose from the amalgamation of nine companies, as approved by the Delhi High Court. The shares were allotted to the shareholders of the amalgamated companies, and no money was received during the year. The Tribunal found that the share capital was indeed issued in exchange for shares of the transferor companies, and no fresh sum was received during the year, thus reversing the addition made by the AO and confirmed by the CIT(A).

3. Addition of Unsecured Loans as Unexplained Cash Credits:

The assessee argued that the unsecured loans of ?1,36,30,27,066/- were also on account of the amalgamation and not fresh loans received during the year. The Tribunal noted that the majority of the unsecured loans were transferred due to the amalgamation, and the assessee provided confirmations, audited financial results, and income tax returns of the lenders. The Tribunal found that no fresh sums were received during the year, except in a few cases where the transactions were explained adequately. Consequently, the Tribunal reversed the addition made by the AO and confirmed by the CIT(A).

4. Adverse Inferences Drawn by CIT(A):

The assessee contended that the adverse inferences drawn by the CIT(A) were erroneous and not sustainable in law. The Tribunal, after reviewing the evidence and submissions, found that the assessee had discharged its onus under Section 68 by providing necessary confirmations and financial documents. Thus, the Tribunal did not uphold the adverse inferences drawn by the CIT(A).

5. Compliance with Section 153D of the Income Tax Act:

The assessee challenged the approval granted by the Joint Commissioner of Income Tax (JCIT) under Section 153D, arguing that it was without proper application of mind and merely a technical approval. The Tribunal reviewed the approval process and found that the JCIT had noted receiving the draft assessment orders late, leaving little time for proper examination. This indicated a lack of thorough review, making the approval invalid. However, since the Tribunal had already decided in favor of the assessee on other grounds, further adjudication on this point was deemed unnecessary.

Conclusion:

The Tribunal allowed the appeal of the assessee, reversing the additions made by the AO and confirmed by the CIT(A) regarding the share capital and unsecured loans. The Tribunal also found the approval under Section 153D to be invalid but did not need to adjudicate further on this issue due to the favorable decision on the primary grounds.

← Previous Next →