2022 (2) TMI 1198 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - HELD THAT - The return for a negligible taxable income filed by the depositors which creates doubt about the genuineness of the transaction. CIT A noted a peculiar aspect that the above sum of ₹ 7.86 crores were invested in lot of ₹ 20 lakhs which clearly shows that the initially funds were received as an advance but a letter on treated as preferential capital. The terms and conditions of the preferential capital whether those are redeemable, rate of dividend, nature of cumulative or non-cumulative dividend was not at all forthcoming - uncontroverted findings of the lower authorities and absence of the assessee to produce any further evidence , despite repeated opportunities of hearing , we confirm the finding of the learned CIT- A wherein the addition made by the learned assessing officer under section 68 is made. In view of this, ground No. 1 of the appeal is dismissed. Set off of unabsorbed business losses and unabsorbed depreciation - HELD THAT - We fully agree with the findings of the CIT A that the provisions of section 72 speaks about setting off of brought forward business losses against business income only and as the above sum of ₹ 7.86 crores has been taxed u/s 68 of the act, same cannot be said to be a business income and therefore the brought forward business losses cannot be allowed to be set off against that addition stop similarly is the case for the set off of unabsorbed depreciation under section 32 - In view of this we do not find any infirmity in the order of the CIT- A in confirming the action of the learned assessing officer in not allowing set off of business losses carried forward and unabsorbed depreciation against the above addition. Accordingly ground No. 2 of the appeal is dismissed.

Summary

Issues Involved:
1. Addition of alleged unexplained cash credit under Section 68.
2. Set off of current year’s loss and brought forward unabsorbed depreciation.

Issue-wise Detailed Analysis:

1. Addition of Alleged Unexplained Cash Credit Under Section 68:

The assessee, a company engaged in the manufacture and trade of ceramics and vitrified tiles, filed its return of income showing a loss of ?22,208,015. During the scrutiny, it was noted that the assessee received share capital of ?78,600,000 from Pingle Suppliers Private Limited. The Assessing Officer (AO) issued a notice under Section 133(6) to verify the genuineness of the transaction, but the notice returned unserved. Further investigation revealed that the party did not exist at the given address. The assessee was unable to provide adequate evidence to prove the identity, creditworthiness, and genuineness of the transaction. Consequently, the AO made an addition of ?78,600,000 as unexplained cash credit under Section 68.

On appeal, the CIT(A) confirmed the addition, noting that the assessee failed to provide any explanation for the credit appearing in the books of account. The CIT(A) emphasized that the capital contribution was bogus and upheld the AO's action. The assessee's appeal to the ITAT was dismissed due to the continued absence of representation. The ITAT, relying on the decision of the Supreme Court in NRA Iron and Steel Co Ltd, confirmed the addition, stating that the assessee failed to discharge the initial onus of proving the transaction's genuineness.

2. Set Off of Current Year’s Loss and Brought Forward Unabsorbed Depreciation:

The assessee contended that the AO should have allowed the set off of current year’s loss and brought forward unabsorbed depreciation against the addition made under Section 68. The CIT(A) held that Section 72 allows setting off of brought forward business losses against business income only, and since the addition under Section 68 is a separate addition, set off of brought forward business losses is not permissible. Similarly, the set off of unabsorbed depreciation under Section 32 was disallowed.

The ITAT agreed with the CIT(A)’s findings, stating that the provisions of Section 72 pertain to business income, and the addition under Section 68 cannot be considered business income. Therefore, the set off of business losses and unabsorbed depreciation against the addition was not allowed.

Conclusion:

The ITAT dismissed the appeal filed by the assessee, confirming the addition of ?78,600,000 as unexplained cash credit under Section 68 and disallowing the set off of current year’s loss and brought forward unabsorbed depreciation. The judgment emphasized the necessity for the assessee to provide sufficient evidence to prove the genuineness of transactions and the applicability of specific provisions for setting off business losses and depreciation.