2021 (12) TMI 1291 - AT - Income Tax

Addition u/s 68 - unexplained cash credit being the amount received from issuance of shares - HELD THAT - AO examined this issue at length and noticed that the assessee had shown investment in shares in the name of M/s. Nakshatra Electricals and Engineers Pvt. Ltd. at ₹ 25 lakhs. On perusal of the return of income of M/s. Nakshatra Electricals and Engineers Pvt. Ltd., it was noticed that the said company had shown investment of ₹ 25 lakhs as on 31.03.2011 and 31.03.2012. But, in fact, the payment received only on 03.05.2011. DR submits before the Bench that it is not certain whether share capital relates to assessment year 2011-12 or assessment year 2012-13? We find merit in the submissions of ld DR for the Revenue and therefore, we remit this issue back to the file of the assessing officer to examine the fact whether share capital was introduced in assessment year 2011-12 or in assessment year 2012-13, and after ascertain this basic facts the assessing officer should adjudicate the issue afresh in accordance with law. Therefore, statistical purposes, ground no.1 and 2 raised by the assessee are allowed. Disallowance of interest on account of interest free loan to the sister-concern - assessee has accepted interest bearing funds from bank and have been utilized for giving interest free loans and advances to P G Glass Pvt. Ltd. Moreover, M/s P G Glass Pvt. Ltd. is a related party covered u/s 40A(2)(b) - HELD THAT - As AR submits before the Bench that assessee-company has interest free own fund, out of that interest free advance have been given to assessee, therefore no disallowance should be made - As DR argues that interest free advance to the sister concern was given out of cash credit account bearing interest burden, therefore addition made by the assessing officer should be upheld. We find merit in the submissions of Revenue, therefore, we remit this issue back to the file of the assessing officer to examine whether interest free advance to the sister concern was given out of cash credit account bearing interest burden. Thus, ground no.3 raised by the assessee is allowed for statistical purposes. Disallowance of expenditure on repairs - Revenue or capital expenditure - HELD THAT - On perusal of the details available on record, learned CIT(A) observed that except for 2 items of expenditure being bills of Vijay engineering, Vadodara at ₹ 1,34,102/- and ₹ 1,69,298/-, other items pertained to so called road repairing. Looking to the quantum of expenditure, it emerges that the assessee had constructed the new roads in its business premises. Since, the construction of road has got enduring benefits, the cost incurred has to be capitalized. We note that ld CIT(A) allowed routine repair expenses to the tune of ₹ 1,34,102/- and ₹ 1,69,298/- respectively. Thus, ld CIT(A) has passed a reasoned and speaking order and we do not find any infirmity in the order of ld CIT(A). That being so, we decline to interfere in the order passed by ld CIT(A), therefore, we dismiss ground no. 4 raised by the assessee.

Summary

Issues Involved:
1. Addition of ?25,00,000 on account of share capital/share premium.
2. Disallowance of interest amounting to ?12,09,891 on account of interest-free loan to a sister concern.
3. Disallowance of expenditure on repairs amounting to ?27,38,798.

Issue-wise Detailed Analysis:

1. Addition of ?25,00,000 on Account of Share Capital/Share Premium:

The assessee issued 7500, 5% Convertible Non-Cumulative Redeemable Preference Shares at a premium to two entities. The AO required proof of the share subscribers' creditworthiness and the genuineness of the transactions. Discrepancies were noted, particularly with M/s Nakshtra Electricals & Engineers Pvt. Ltd., which showed nil income and administrative expenses, indicating a lack of creditworthiness. Additionally, the balance sheet inconsistencies and lack of documentary proof led the AO to treat ?25,00,000 as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The CIT(A) upheld this addition. However, the tribunal found merit in the Revenue's submission regarding the uncertainty of the assessment year and remitted the issue back to the AO for further examination and adjudication in accordance with the law.

2. Disallowance of Interest Amounting to ?12,09,891 on Account of Interest-Free Loan to a Sister Concern:

The AO observed that the assessee had utilized interest-bearing funds from a bank to provide interest-free loans to P G Glass Pvt. Ltd., a related party under Section 40A(2)(b) of the Act. The AO disallowed ?12,09,891 under Section 36(1)(iii) of the Act, as the funds were not used for the assessee's business purposes. The CIT(A) confirmed this disallowance, citing a direct nexus between the interest-bearing loans and the interest-free advances. The tribunal remitted the issue back to the AO to examine whether the interest-free advance was given from the cash credit account bearing interest or from the assessee's own funds. The AO was instructed to sustain the addition if the advance was from the cash credit account and to avoid any addition if it was from the assessee's own funds.

3. Disallowance of Expenditure on Repairs Amounting to ?27,38,798:

The AO noted that the assessee claimed ?63,43,875 for repairs and maintenance of buildings, including significant amounts for road repairs, which were deemed capital expenditures. The AO capitalized these expenses and allowed 10% depreciation, resulting in a net addition of ?27,37,982. The CIT(A) partly allowed the appeal, permitting routine repair expenses but upholding the capitalization of road construction costs due to their enduring benefits. The tribunal agreed with the CIT(A), noting that the construction of roads provided enduring benefits and should be capitalized. Consequently, the tribunal dismissed the assessee's ground on this issue.

Conclusion:

The appeal was allowed in part, with the tribunal remitting the issues related to the addition of ?25,00,000 and the disallowance of ?12,09,891 back to the AO for further examination. The tribunal upheld the disallowance of ?27,38,798 for repair expenditures.