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Facts
The Assessing Officer (AO) made two additions: Rs. 81,06,247/- as interest income from bank deposits, treating it as income from other sources on the belief that the assessee's business had not commenced; and Rs. 1,28,09,10,000/- under Section 68 for long-term borrowings from a 100% shareholder, questioning the identity, genuineness, and creditworthiness of the loan. The CIT(A) deleted both additions. The Revenue appealed against this deletion, while the assessee filed a cross-objection regarding the jurisdiction of the notice issued under section 143(2).
Held
The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, confirming that the assessee's business had indeed commenced in F.Y. 2012-13, thus rendering the AO's basis for adding interest income incorrect. Regarding the Section 68 addition, the ITAT found the identity, genuineness (remittance through proper banking channels with RBI approval), and creditworthiness (sufficient balance in lender's bank account) of the 100% shareholder to be established. Consequently, the Revenue's appeal was dismissed, and the assessee's cross-objection became otiose.
Key Issues
Whether the CIT(A) correctly deleted the addition of interest income by finding the business had commenced. Whether the CIT(A) correctly deleted the addition under Section 68 for long-term borrowings, given the establishment of identity, genuineness, and creditworthiness of the shareholder. Whether the notice issued under section 143(2) was without jurisdiction.
Sections Cited
section 68, section 143(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI ‘F’ BENCH,
Before: SHRI N.K. BILLAIYA, & SHRI YOGESH KUMAR U.S
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
The above captioned appeal by the Revenue and cross objection by the assessee are directed towards the very same order of the CIT(A)
- I, Noida dated 28.06.2018 pertaining to A.Y. 2015-16.
Since the appeal and cross objections were heard together, they are disposed of by this common order for the sake of convenience and brevity.
Grievances of the Revenue read as under:
“1. That the Ld.CIT(A) has erred in law and on facts by deleting the addition made by AO without appreciating the fact that the addition was made by the A.O. correctly treating the interest income as income from other sources as assessee has not recognized the revenue .during the year under consideration as per real estate Accounting Standard-s, (AS-g).
2. That the Ld. CIT(A) has erred in law and on facts by deleting the addition made by A.O. without appreciating the fact that the addition u/s 68 of the Act was made due to failure on part of assessee to submit the confirmation from the lender, proof of source of income outside India, proof of residential status or copy of passport of the lender for proving identity, genuineness and creditworthiness of the lender to pay the huge money.
3. The appellant craves to leave, add, alter and amend any of the grounds of appeal on or before hearing.
4. That the order of the Ld. CIT(A) deserves to be set-aside and the order of the AO be restored.”
Cross objections by the assessee are as under:
“BECAUSE the notice dated 08.04.2016 Rs.43,79,93,8411- issued under section 143(2) by the Income Tax Officer, Ward-II(2), Allahabad IS without jurisdiction, therefore assessment order dated 27.12.2017 passed by the Deputy Commissioner of Income Tax, Circle-2, Noida without assuming jurisdiction by issue of notice under section 143(2) got vitiated and liable to be annulled.”
Representatives of both the sides were heard at length. Case records carefully perused. Relevant documentary evidence brought on record duly considered in light of Rule 18(6) of the ITAT Rules.
The underlying facts in the first issue are that during the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has received Rs. 81,06,247/- as interest on bank deposits and the same was shown under the head “Business Income”, setting off the same against business expenses.
The Assessing Officer was of the firm belief that the assessee has not commenced its business. Therefore, interest earned on bank deposits was liable to be charged to Income tax as income from other sources. The Assessing Officer, accordingly, added Rs. 81,06,247/-.
Proceeding further, the Assessing Officer noticed that the assessee has received Rs. 1,69,48,50,000/- as long term borrowings from Shri Owais Usmani who happens to be a 100% share holder of the assessee company. Money was received against issue of compulsory convertible debentures of face value of Rs. 125/- each, at discounted price of Rs. 100/- each.
The assessee explained that Rs. 1,69,48,50,000/- is actually face value of debentures and the assessee has actually received Rs. 1,35,58,80,000/- out of which only Rs. 1,28,09,10,000/- has been received during the year under consideration.
The assessee was asked to submit evidences under the light of provisions of section 68 of the Act.
On receiving no plausible reply, the Assessing Officer made addition of Rs. 1,28,09,10,000/-.
The assessee challenged the addition before the ld. CIT(A).
In so far as commencement of business is concerned, it was explained that the said business was commenced in the earlier A.Y and, therefore, addition of Rs. 81,06,247/- is unwarranted.
The ld. CIT(A) verified the commencement of business and found that the business was already commenced and, therefore, allowed the appeal relating to the addition of Rs. 81,06,247/- and deleted the same.
In so far as addition u/s 68 of the Act is concerned, the ld. CIT(A) analyzed the documentary evidences furnished by the assessee and found the same were also furnished before the Assessing Officer. The ld. CIT(A) observed that the assessee has submitted the necessary details duly authenticated by the resident Embassy of India in UAE.
Being convinced, the ld. CIT(A) deleted the addition of Rs. 1,28,09,10,000/-.
Before us, the ld. DR strongly supported the findings of the Assessing Officer and read the operative part.
The ld. counsel for the assessee reiterated what has been stated before the lower authorities.
We have given thoughtful consideration to the orders of the authorities below and have also gone through the relevant documentary evidence brought on record in light of Rule 18(6) of ITAT Rules.
A perusal of the balance sheet show that the assessee was having inventories of Rs. 37.88 crores as on 31.03.2014 which was increased to Rs. 80.50 crores as on 31.03.2015. The assessee has purchased a land situated at GH-F 2, SDZ, Sector – 25, Jaypee Greens Sports City, Gautam Budh Nagar measuring 222.58 sq. yds. for construction of group housing duly approved by the Yamuna Expressway on 12.12.2012, which means that the business of the assessee commenced in F.Y.
2012-13. Therefore, the observation of the Assessing Officer that the assessee has not commenced its business is factually incorrect and on proper appreciation of facts, we decline to interfere with the findings of the ld. CIT(A). Ground No. 1 is dismissed.
In so far as deletion of addition u/s 68 is concerned, we have carefully perused the bank statement of Kotak Mahindra Bank belonging to Shri Owais Usmani and we find that Shri Owais Usmani is having more than sufficient balance in his bank account to make the impugned investment.
Since he is 100% share holder in the company, there is no question of doubting his identity. The entire money has been remitted through proper banking channel with the approval of RBI. Therefore, the same can be safely concluded to have established the genuineness of the transaction and bank statements are showing the capacity of Shri Owais Usmani.
Considering the facts in totality, we could not find any error or infirmity in the findings of the ld. CIT(A).
As a result, the appeal of the Revenue is dismissed.
Since we have dismissed the appeal of the Revenue, the cross objections become otiose.
In the result, the appeal of the Revenue in is dismissed and the Cross objection in CO No. 40/DEL/2023 is dismissed as having become otiose.
The order is pronounced in the open court on 17.01.2024.