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Income Tax Appellate Tribunal, DEHRADUN CIRCUIT BENCH, DEHRADUN
Before: SHRI SAKTIJIT DEY, VICE- & SHRI M. BALAGANESH
a consolidated order dated 12.02.2019 of learned Commissioner of Income-tax (Appeals)-IV, Kanpur, pertaining to the assessment years 2012-13, 2013-14 and 2014-15.
(Revenue’s appeal for A.Y. 2012-13):
In ground Nos. 1, 2 & 3, Revenue has raised the issue of admission of additional evidences by learned first appellate authority in violation of Rule 46A of the Income-tax Rules, 1962.
Having considered rival submissions, we find, though, before the first appellate authority, the assessee did furnish certain additional evidences, however, before admitting them, learned first appellate authority has provided full opportunity to the Assessing Officer to examine those evidences and furnish his report. A reading of Rule 46A makes it clear that for effective disposal of the appeal, learned first appellate authority has power to admit additional evidences. However, he has to provide a fair opportunity to the to 23/DDN/2019 C.O. Nos. 20 & 21/DDN/2019 ITA No. 3077/Del/2019 Assessing Officer to examine the additional evidences. In the facts of the present appeal, learned first appellate authority has complied with the conditions of Rule 46A before admitting the additional evidences.
Therefore, in our considered opinion, grounds raised by the Revenue challenging violation of Rule 46A are unsustainable. Accordingly, we dismiss the grounds raised.
In ground Nos. 4 & 5, the Revenue has challenged the deletion of addition of Rs.2,33,08,000/- made under section 68 of the Income- tax Act, 1961.
Briefly, the facts are, the assessee is a resident corporate entity engaged in real estate business. Pursuant to a search and seizure operation conducted in case of the assessee and other group entities, proceedings u/s. 153A of the Act were initiated. In course of assessment proceedings, the Assessing Officer, while examining the balance sheet as on 31.03.2011 of the assessee, noticed that the share capital, which stood at the beginning of the year at Rs.5,00,000/-, has increased to Rs.8,46,000/-. Whereas, in the reserves and surplus, the assessee has shown receipt of share premium amounting to Rs.3,39,08,000/-. Noticing the above, the to 23/DDN/2019 C.O. Nos. 20 & 21/DDN/2019 ITA No. 3077/Del/2019 Assessing Officer called upon the assessee to furnish details of share application money and share premium received in the year. In this context, the Assessing Officer directed the assessee to furnish the names and complete addresses of the parties from whom share application money and share premium was received, purpose of transactions, income-tax particulars of the party and bank statements of the parties. As alleged by the Assessing Officer, the assessee did not furnish the details called for. Thus, the Assessing Officer proceeded to complete the assessment by adding back amount of Rs.3,44,08,000/-, being share premium, to the income of the assessee under section 68 of the Act.
The assessee contested the aforesaid addition before learned first appellate authority. In course of proceedings before first appellate authority, the assessee furnished additional evidences to prove the genuineness of share capital/share premium received. The additional evidences furnished are, confirmation letters from the investor, bank statements and Income-tax Return copies of the investor etc. Based on the additional evidences furnished and submissions made, learned Commissioner (Appeals) directed the to 23/DDN/2019 C.O. Nos. 20 & 21/DDN/2019 ITA No. 3077/Del/2019 Assessing Officer to examine the additional evidences and submit a report. After examining the additional evidences, the Assessing Officer furnished two reports to learned Commissioner (Appeals).
After considering the submissions of the assessee in the context of facts and materials on record as well as the remand reports furnished by the Assessing Officer, learned Commissioner (Appeals) concluded that the conditions of section 68 of the Act are not satisfied.
Accordingly, he deleted the additions made by the Assessing Officer.
However, in so far as the receipt of share premium is concerned, learned first appellate authority called upon the assessee to demonstrate as to how the share premium reflects the fair market value of the shares as per section 56(2)(viib) of the Act read with Rule 11UA of the Rules. After examining the submissions of the assessee, learned Commissioner disallowed amounts of Rs.42,74,9900/- and Rs.6,74,250/- for the assessment years 2013-14 and 2014-15 respectively by invoking the provisions of section 56(2)(viib) of the Act. Being aggrieved, the Revenue is before us.
We have considered rival submissions and perused materials on record. Undisputedly, in course of assessment proceedings, for to 23/DDN/2019 C.O. Nos. 20 & 21/DDN/2019 ITA No. 3077/Del/2019 whatever may be the reason, the assessee did not furnish the requisite details regarding share application money and share premium received by it. Therefore, in absence of any details, the Assessing Officer proceeded to treat the share application money and share premium received as unexplained cash credits under section 68 of the Act and added back to the income of the assessee.
However, before first appellate authority, assessee did furnish all the requisite details/supporting evidences in respect of share application money/share premium by way of additional evidences. From the details furnished, it is observed that the assessee had received share capital and share premium from its holding company, M/s. Srivaas Infrabuild Pvt. Ltd. (SIPL). The additional evidences were forwarded to the Assessing Officer for factual verification. In remand proceedings, the Assessing Officer made enquiries with the investing company, M/s. Srivaas Infrabuild Pvt. Ltd. and called for various details. In response to the query raised, the investing company furnished the details such as copies of share certificates allotted by the assessee company, bank statement copy, ledger account copy, Income-tax return copy etc. Additionally, the investing company also to 23/DDN/2019 C.O. Nos. 20 & 21/DDN/2019 ITA No. 3077/Del/2019 furnished a confirmation letter accepting the fact that it has advanced share capital and share premium to the assessee. After considering the evidences furnished by the assessee, learned Commissioner (Appeals), having found that the transaction relating to receipt of share capital and share premium is genuine, has deleted the addition observing as under :
6.6 The undersigned has carefully gone through the assessment order, written submission, inquiry report filed by AO, rejoinder as well as verbal arguments of the Id. A.R. of the appellant. It is seen that, appellant company has received credits in the form of share capital/share premium from only one creditor company i.e. M/s. Srivaas Infrabuild Pvt. Ltd. (SIPL), It is seen that, this creditor company is the holding company of the appellant company and management of both of them are members of one and same family. The AO of the creditor company and the appellant company is also the same i.e. DCIT - CC, Dehradun. It is also seen that, for A.Y. 2012-13 & A.Y. 2013-14, there was opening balance in the account of share capital/share premium amounting to Rs. 1,11,00,000/- and Rs. 3,46,000/- respectively out of addition made by the AO at Rs. 3,44,08,000/- and Rs. 5,42,50,000/- respectively. As, opening balance of Rs. 1,11,00,000/- and Rs. 3,46,000/- for A.Y. 2012-13 A A.Y. 2013-14 respectively undisputedly does not represent the credits for these relevant assessment years the same cannot be added. Therefore addition of Rs. 1,11,00,000/- and Rs. 3,46,000/- for A.Y. 2012-13 & A.Y. 2013-14 respectively stands deleted.
6.7 It is a settled law u/s 68 of the Act that, initial burden lies on the appellant to discharge its onus to prove identity, credit capacity of the creditor and genuineness of the transaction. Admittedly, appellant has not submitted any details, during the course of scrutiny proceedings. However, during these appeal proceedings, all the details in the form of confirmation of share capital/share premium the bank statements of the appellant as well as the creditor company, copies of the ITR and audited financial statements filed by the creditor company share allotment as disclosed to registrar of companies etc. were submitted by the Id. A.R. of to 23/DDN/2019 C.O. Nos. 20 & 21/DDN/2019 ITA No. 3077/Del/2019 the appellant. Further, it is an admitted fact that, AO of the appellant and AO of the creditor company is same. It is also, an undisputed fact that, creditor company is the holding company of the appellant company and management of both of them are members of one and same family. These credits in the form of share capital/share premium are through the banking channels and transactions of share allocation are reported by both these companies to the register of the company. Financial statement and accounts of both the creditor company and appellant company are audited in accordance with law. Further, during this appeal proceeding, Id. A.R. of the appellant was asked to substantiate to source of the credit in the hands of creditor company. Ld. A.R. of the appellant has filed the datewise details of the source of funds received by the SIPL for all these relevant assessment years. It is seen that, the parties, who advanced funds to SIPL are also the key persons of this appellant company and their sister concerns entities, who are assessed with the same AO i.e. DCIT-CC, Dehradun. The financial statements of the appellant and the creditor company are audited in accordance with the law and reflect the transactions of share capital/share premium. Therefore, considering the totality of the factual matrix of the case, it is concluded that, appellant company has discharged it initial onus to substantiate the identity, credit capacity of the creditor and the genuineness of the transaction. On the other hand, no cogent material is brought by the AO to controvert the additional evidences submitted by the Id. A.R. of the appellant to prove the credits in the form of share capital/share premium. It is not the case of the AO that the creditor company is the company engaged in providing the accommodation entries. In fact, creditor company is the holding company with same management and assessed by same AO. In view of the above discussion, the alleged credits in the form of share capital/share premium are treated as substantiated and explained. Therefore, addition made by the AO is deleted and grounds of appellant of the appellant are allowed for each assessment year i.e. A.Y. 2012-13 to A.Y. 2014-15, subjected to observation in para 6.8 of this order.”
On a reading of the aforesaid observations of learned first appellate authority, it is very much clear that not only it is a transaction between the holding company and subsidiary but both the companies are under the management of one and same family. to 23/DDN/2019 C.O. Nos. 20 & 21/DDN/2019 ITA No. 3077/Del/2019 Therefore, the identity of the investing company is established.
Further, as rightly observed by learned first appellate authority, the opening balances on 1st day of the financial year could not have been treated as the credit for the relevant year. Additionally, the investing company has not only furnished confirmation confirming the investment of money in share capital and share premium, but has also furnished its bank statements, income tax return copies, audited financial statements etc., which demonstrate the source from which the investment has been made. It is also a fact that the entire investment has been made through banking channel. It is also a fact that shares have subsequently been allotted against share application money and share premium. Thus, not only the identity and creditworthiness of the investing company has been established, but the genuineness of the transaction cannot be doubted.
In so far as payment of share premium is concerned, admittedly, it has been paid by the holding company to a subsidiary.
Therefore, if holding company intends to infuse additional fund in the subsidiary through share premium, there is nothing wrong in it. In any case of the matter, learned first appellate authority has made to 23/DDN/2019 C.O. Nos. 20 & 21/DDN/2019 ITA No. 3077/Del/2019 disallowance under section 56(2)(viib) of the Act, in so far as, the share premium paid is not as per the fair market value of the shares.
It is also a fact on record that the authenticity of the additional evidences brought on record has not been disputed by the Assessing Officer through any contrary evidence brought on record. In view of the aforesaid, we do not find any reason to interfere with the decision of learned first appellate authority. Accordingly, grounds are dismissed.
Ground Nos. 6 & 7, being general grounds, are dismissed. In the result, appeal is dismissed.
C.O. No. 20/DDN/2019 (By assessee for A.Y. 2012013):
In view of our decision in Revenue’s appeal in the cross objection has become infructuous, hence, dismissed. (Revenue’s appeal for A.Y. 2013-14):
Grounds Nos. 1, 2 & 3 are identical to grounds Nos. 1, 2 & 3 of decided by us in earlier part of the order.
Following our decision therein, we dismiss these grounds. to 23/DDN/2019 C.O. Nos. 20 & 21/DDN/2019 ITA No. 3077/Del/2019
The issue raised in ground Nos. 4 & 5 is identical to the issue raised in ground Nos. 4 & 5 of decided by us in earlier part of the order. Following our decision therein, we uphold the decision of learned Commissioner (Appeals) on the issue. Grounds are dismissed.
In view of our decision in ground No. 4 & 5 above, ground Nos.
6 & 7 have become infructuous and dismissed.
Ground No. 8 & 9, being general grounds, are dismissed.
In the result, appeal is dismissed.
C.O. No. 21/DDN/2019 (By assessee for A.Y. 2013-14):
At the time of hearing, learned counsel appearing for the assessee, on instructions, sought withdrawal of the cross objection.
Learned Departmental Representative did not express any objection.
In view of the aforesaid, cross objection is dismissed as withdrawn (Revenue’s appeal for A.Y. 2014-15): to 23/DDN/2019 C.O. Nos. 20 & 21/DDN/2019 ITA No. 3077/Del/2019
Ground Nos. 1, 2 & 3 are identical to ground Nos. 1, 2 & 3 of decided by us in earlier part of the order. Following our decision therein, grounds are dismissed.
In ground No. 4 & 5, Revenue has challenged deletion of addition of Rs.2,25,75,650/- made under section 68 of the Act. This issue is identical to the issue raised in ground No. 4 & 5 of decided by us in earlier part of the order. Facts, being identical, our decision in will apply mutatis mutandis. Accordingly, grounds are dismissed.
In view of our decision in ground No. 4 & 5, ground Nos. 6 & 7 have become infructuous and dismissed.
The issue raised in ground Nos. 8 & 9 since, corresponds to the issue raised in assessee’s appeal, being they will be taken up together while considering assesee’s appeal in ITA No. 3077/Del/2019 for the assessment year 2014-15.
Grounds Nos. 8 & 9, being general grounds, are dismissed. (Assessee’s appeal for A.Y. 2014-15):
The effective ground raised by the assessee reads as under : to 23/DDN/2019 C.O. Nos. 20 & 21/DDN/2019 ITA No. 3077/Del/2019
“On the facts and in the circumstances of the case and in law the Ld. (CIT(A) has erred in denying the set off of current year business loss of Rs.34,10,540/- against the surrendered business income of Rs.49,50,000/-. The action of authorities is wrong, illegal, misconceived, unjustified and bad at law therefore, it should be quashed.”
As can be seen from the ground raised, the short controversy is whether the current year’s business loss can be set off against the business income surrendered at the time of search and seizure operation.
Briefly, the facts relating to this issue are, a search and seizure operation in case of the assessee and other group entities was carried out on 21.11.2013. In course of search and seizure operation, certain incriminating document was found indicating advance made in cash against land amounting to Rs.49,50,000/-. The assessee offered the amount as additional income by crediting it to the profit & loss account as advance written off. However, against the said income, the assessee set off the current year’s business loss. Firstly, the Assessing Officer held that, while crediting the additional income to the profit and loss account, the assessee has claimed expenses, which is not allowable. Accordingly, he again made addition of to 23/DDN/2019 C.O. Nos. 20 & 21/DDN/2019 ITA No. 3077/Del/2019 Rs.49,50,000/-. Having held so, he also disallowed assessee’s claim of set off of current year’s loss against the surrendered business income. The assessee contested the addition before learned Commissioner (Appeals). After considering the submissions of the assessee, though, learned Commissioner (Appeals) held that since, the Assessing Officer has not found anything adverse in respect of the expenses claimed, he cannot again make addition of the surrendered income, however, in so far as assessee’s claim of set off of current year’s business loss against surrendered income, learned Commissioner (Appeals) held that since, the addition of surrendered business income has been made under section 69 of the Act, the provisions of section 115BBE of the Act will automatically come into play, which debars the assessee from claiming set off of expenses or loss against surrendered income. Accordingly, he disallowed the claim of the assessee.
We have considered rival submissions and perused materials on record. On a careful reading of section 115BBE, it is observed that prior to 01.04.2017, there was no restriction in section 115BBE in respect of set off of losses. Only through an amendment made to to 23/DDN/2019 C.O. Nos. 20 & 21/DDN/2019 ITA No. 3077/Del/2019 sub-section (2) of section 115BBE by the Finance Act, 2016 w.e.f.
01.04.2017, restriction in respect set off of losses was introduced.
Thus, the restriction imposed applies only on or after the assessment year 2017-18 and not prior to that. This has further been clarified by the Central Board of Direct Taxes in circular No. 11/2019 dated 19.06.2019, wherein, it has been clearly and categorically stated that the amendment to section 115BBE(2) would be applicable from 01.04.2017 and an assessee is entitled to claim set off of losses against income determined u/s. 115BBE of the Act till the assessment year 2016-17. The aforesaid proposition has been accepted in the following judicial precedents :
(i) Prashanti Surya Construction Co. P. Ltd. vs. DCIT (2017) 88 taxmann.com 804 (Chandigarh Tribunal) (ii) ACIT vs. Sri Balaji Forgings (P) Ltd. (2022) 144 tamann.com 126 (Delhi Tribunal) (iii) Rajendra Kumar Anand vs. ITO (2022) 140 taxmann.com 340 (Delhi Tribunal) (iv) Ace Infracity Developers (P) Ltd. vs. DCIT (2021) 127 taxmann.com 264 (Delhi Tribunal) (v) Bajaj Sons Ltd. vs. DCIT (2021) 128 taxmann.com 406(Chandigarh Tribunal) (vi) PCIT vs. Acharan Enterprises Pvt. Ltd. (2020) 117 taxmann.com 745 (Raj.) to 23/DDN/2019 C.O. Nos. 20 & 21/DDN/2019 ITA No. 3077/Del/2019
Thus, keeping in view the clear statutory mandate and the ratio laid down in the decisions cited before us, we are inclined to uphold assessee’s claim of set off of current year’s business loss against surrendered business income. Consequently, ground raised by the assessee in this appeal is allowed. Whereas, ground Nos. 8 & 9 raised by the Revenue in are dismissed.
To sum up, Revenue’s appeals and assessee’s cross objections are dismissed. Whereas, assessee’s appeal in is allowed.