2021 (11) TMI 209 - AT - Income Tax

Addition u/s 68 - Unexplained share application money received - No proof regarding agricultural activities given - CIT-A deleted the addition - HELD THAT - Assessing Officer merely doubted the investment made by the share applicants for the reason that they did not submit any proof regarding agricultural activities done by them. It is therefore quite evident that the Assessing Officer himself accepted the identity of the share applicants and genuineness of the transactions as entered into with them. We are of the view that the assessee company satisfactorily discharged the primary onus as cast upon it under section 68 by establishing the identity and creditworthiness of the share applicants and genuineness of the transactions as entered into with them and therefore, addition made by the Assessing Officer on account of share application money received from remaining share applicants was neither legal nor proper and was rightly deleted by the Ld CIT(A). The action of the Ld CIT(A) is therefore, confirmed.- Decided in favour of assessee. Disallowance of interest - addition made as assessee has not charged interest on loan and advance but paid interest to others - proof of sufficiency of own funds - HELD THAT - CIT(A) was justified in deleting the addition because the interest bearing funds in possession of the assessee company were higher than the amount as advanced by it and most of the advances were carried forwards from the erstwhile firm where no interest bearing funds were used. See SA BUILDERS LTD. VERSUS COMMISSIONER OF INCOME-TAX 2006 (12) TMI 82 - SUPREME COURT , RELIANCE UTILITIES POWER LTD. 2009 (1) TMI 4 - BOMBAY HIGH COURT and HERO CYCLES (P.) LTD. 2015 (11) TMI 1314 - SUPREME COURT - Decided in favour of assessee.

Issues Involved:
1. Deletion of addition of ?3,17,39,640/- under Section 68 of the Income Tax Act.
2. Disallowance of interest of ?9,73,742/-.

Detailed Analysis:

1. Deletion of Addition of ?3,17,39,640/- under Section 68 of the Income Tax Act:

The appeal filed by the Revenue for Assessment Year 2012-13 contested the deletion of an addition of ?3,17,39,640/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, concerning the increase in share capital. The AO noted that the assessee company received share capital and share premium money amounting to ?3,35,39,640/- during the year. Summons were issued to the share applicants, and some denied having been allotted shares, leading to the addition of ?3,17,39,640/- to the assessee's total income.

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition. The CIT(A) observed that the assessee company issued shares worth ?30,39,640/- to Shri Surendra Soni in lieu of transferring his business to the company. Since the business assets were considered genuine, the AO was not justified in disbelieving the share capital issued to Shri Soni. Additionally, the assessee received ?2,87,00,000/- from 31 share applicants who personally appeared before the AO and confirmed their investments. The CIT(A) noted that the assessee proved the identity, creditworthiness, and genuineness of the transactions, which was supported by various judicial pronouncements, including the Supreme Court's decision in CIT Vs Lovely Exports (P.) Ltd.

The Tribunal upheld the CIT(A)'s findings, confirming that the assessee satisfactorily discharged the onus under Section 68 by establishing the identity and creditworthiness of the share applicants and the genuineness of the transactions. The Tribunal also noted that the AO's observations regarding the source of funds were outside the purview of Section 68 as applicable for the year under consideration.

2. Disallowance of Interest of ?9,73,742/-:

The AO disallowed interest of ?9,73,742/- on the grounds that the assessee did not charge interest on loans and advances amounting to ?81,14,522/- while paying interest to others. The CIT(A) deleted the addition, noting that most of the loans were transferred from the proprietorship concern of Shri Surendra Soni, and the assessee had sufficient interest-free funds to cover the advances. The CIT(A) relied on judicial precedents, including the Supreme Court's decision in M/s S.A Builders Vs CIT, which supports that if interest-free funds are available, the presumption is that investments are made from such funds.

The Tribunal confirmed the CIT(A)'s decision, agreeing that the assessee had sufficient interest-free funds and that the advances were carried forward from the erstwhile firm where no interest-bearing funds were used. The Tribunal found no reason to interfere with the CIT(A)'s findings and upheld the deletion of the interest disallowance.

Conclusion:

The Tribunal dismissed the departmental appeal, confirming the CIT(A)'s deletion of the addition of ?3,17,39,640/- under Section 68 and the disallowance of interest of ?9,73,742/-. The Tribunal's decision was based on the assessee's satisfactory discharge of the onus under Section 68 and the availability of sufficient interest-free funds to cover the advances.

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