Loading judgment…
Facts
The Revenue appealed against the deletion of an addition made under Section 68 of the Income Tax Act, 1961, concerning share capital/premium received by the assessee from M/s RAB Enterprises. The AO had disallowed the amount for lack of genuine loan and creditworthiness. Additionally, the AO made an addition regarding the disallowance of depreciation on furniture and fixtures.
Held
The Tribunal held that the investor company had provided sufficient evidence regarding the source of funds, and the AO failed to establish that the source of source was tainted. Regarding depreciation, the Tribunal noted the assessee's consistent claim and the CIT(A)'s finding that the items constituted part of the plant and machinery for providing work spaces.
Key Issues
1. Whether the deletion of addition under Section 68 for share capital/premium received was justified, considering the genuineness of the investor and the source of funds. 2. Whether the claim for depreciation on furniture and fixtures classified as plant and machinery was admissible.
Sections Cited
143(3), 68, 148
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, DELHI
Before: SHRI S. RIFAUR RAHMAN & SHRI ANUBHAV SHARMA
This appeal is preferred by the Revenue against the order dated 08.03.2023 of the Ld. National Faceless Appeal Centre (NFAC) (hereinafter Order No : ITBA/NFAC/S/250/2022-23/1050521828(1) arising out of the order dated 29.12.2019 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the ACIT, Circle 3(2), Delhi for AY:
2017-18.
Heard and perused the records. The case of the assessee was selected for scrutiny assessment and the AO examined the transaction of issue of 1,54,04,354 equity shares amounting to Rs.42,80,60,140/- to 4 shareholders and the submission and the documentary evidences filed by the assessee were not found sufficient and addition was made in regard to one of the shareholders namely one of these company, namely, M/s RAB Enterprises (India) Pvt. Ltd. under Section 68 of the Act. The Revenue has challenged the deletion of Rs.21,05,01,150/- made by the AO on account of share capital/share premium received by the assessee from issue of shares to M/s RAB Enterprises (India) Private Limited (investor company).
During the appellate proceedings assessee had submitted additional evidences substantiating the source of funds in the hands of this investor company establishing that this investor company had received funds from India Bulls Housing Finance Ltd. (IHFL), Reliance Capital Ltd. (RCL) and Bindu Kapoor. Remand report was called from the AO and admitting additional evidence and taking rejoinder to the remand report, Ld. CIT(A) had deleted the addition for which Revenue is in appeal.
AO has also made addition relating to disallowance of Rs. 64,44,038/- being difference in rate of deprecation as claimed by assessee @15% and as allowed by AO @10% as the assessee has made an addition of furniture and fixture on which depreciation is allowable @ 10%. Which is allowed by ld. CIT(A) @ 10%.
Now revenue has raised following grounds:
“1. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs.21,05,01,150/- made u/s 68 of the IT Act without appreciating the fact that during the assessment proceedings the AO has established that the loan received by the assessee is not a genuine loan and the main ingredient of section 68 i.e. creditworthiness of the parties from whom unsecured loan received and genuineness of transaction is not satisfied ?.
2. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 21,05,01,150/- without appreciating the fact stated in the remand report by the AO that the party from whom the loan was received is not a genuine party and, accordingly, it was not a genuine business loan but it was an accommodation entry received by the assessee ?.
3. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in not appreciating the ratio of judgment of Hon'ble Delhi High Court in the case of PCIT vs. M/s N R Portfolio Pvt. Ltd. in dated 21.12.2012 wherein the Hon'ble High Court has held that an assessee's duty to establish that the amount which the AO proposes to add back us 68 are proper sourced, does not cease by merely furnishing the name, address and PAN or relying of entries in a registrar of companies website ? 4. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in not appreciating the ratio orders/judgments of Hon'ble ITAT and various High Courts as discussed in the assessment order while allowing the appeal of the assessee ? 5. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition relating to disallowance of Rs. 64,44,038/-being difference in rate as claimed by assessee @15% and as allowed by AO @10% as the assessee has made an addition of furniture and fixture on which depreciation is allowable @ 10% and the AO has rightly made disallowance on this issue? The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”
The Ld. DR. has contended that AO had extensively examined the financial strength of the investor company and there was lack of evidence to support genuine investment. Ld. DR extensively relied the observation and findings of AO and relying the decision of Hon’ble Supreme Court in the case of PCIT (Central-1) Vs. NRA Iron and Steel(P) Ltd. [2019]1-3 taxmann.com 48 (SC) contended that merely because assessee company had filed all primary evidences about creditworthiness of the investor and documents about the transactions the same does not justify the creditworthiness which has to be examined independently.
After taking into consideration the findings of Ld. CIT(A) and the contentions of the Ld. DR it comes up that at the stage of First Appellate Authority assessee had filed following documents:
“A. Copy of documents in respect of loan availed from India Bulls Housing Finance Limited. (IHFL): i. Loan Agreements - PB Pg. 1067-1439 ii. Ledger account in the books of RAB Enterprises (India) Pvt. Ltd. - PB Pg. 1440 iii. Audited financials of IHFL for the year ended 31.03.2017 - PB Pg. 1441- 1486 iv. MCA Data - PB Pg. 1487-1509 B. Copy of documents in respect of loan availed from Reliance Corporation Ltd. (RCL): i. Loan Agreement dated 23.06.2016 of Rs. 60 crores - PB Pg. 1510-1554 ii. Ledger account in the books of RAB Enterprises (India) Pvt. Ltd. - PB Pg. 1555 iii. Audited financials of RCL for the year ended 31.03.2017 - PB Pg. 1556- 1627 iv. MCA Data - PB Pg. 1628-1632 C. Copy of documents in respect of share capital received from Bindu Kapoor: i. Confirmation from Bindu Kapoor - PB Pg. 1633 ii. Ledger account in the books of RAB Enterprises (India) Pvt. Ltd. - PB pg. 1634 iii. Return of allotment in Form PAS-3 filed with ROC - PB Pg. 1635-1639 iv. PAN Card - PB Pg. 1640 v. Complete ITR Form filed for the year under consideration - PB Pg. 1641- 1660 vi. Relevant extracts of bank statement of Bindu Kapoor - PB Pg. 1661-1662”
It further comes up that as remand report was called on the additional evidences the AO seems to have failed to make any further enquiry on the additional evidences or to point out any substantive reasons to discredit the additional evidences. no. 1838 – 1839 of the paper book and was heavily relied by the Ld. Counsel for the assessee, we find that the only contention of AO was that there are no substantial expenses relating to employees in the investor company. The remand report establishes that the flow of funds in the account of investor company have been duly mapped and the source of source has not been doubted by the AO with an iota of expression suggesting that the source of source was in any way tainted. The investor company was a pass through entity for investment from other investor whose may not be having much of manpower, however burden on AO was to question the source of source and establish that the same were tainted. However, the same seems to have not been done at all.
Further, Ld. Counsel has demonstrated that as per the financial statement of investor company it had long term funds of over Rs.700 crores while non current investment of investor company were around Rs.460 crores. It is also pointed out that investor company has invested Rs.21.05 crores in the assessee company out of loan received from India Bulls Housing share capital infused by shareholders and maturity of fixed deposit.
It is not a case where assessee has merely filed formal documents with regard to identity and creditworthiness of the investor company in the form of ITR, confirmation of account, bank statement, balance sheet but the source of source has been adequately explained for which the AO could not find any defect or discrepancy the decision which Ld. DR has relied of Hon’ble Supreme Court in the case of PCIT (Central)-1 Vs. NRA Iron & Steel Pvt. Ltd. (supra) and order of Hon’ble Delhi High Court in the case of CIT Vs. NR Portfolio [2014] 42 taxmann.com 339 (Del) are not applicable to the facts and circumstances as in the case of NRA Iron & Steel Pvt. Ltd. (supra) the reassessment related under Section 148 of the Act on the basis of investigation wing report and through substantial inquiries with regard to investor company, which are found to be non-existence on field inquiry, transaction was doubted. Similarly, in the case of NR Port Folio Pvt. Ld. (supra) the investor were not found to be doing any business however, the same is not the case here. required no interference on the basis of decision of Hon’ble Delhi High Court in the case of NR Portfolio Pvt. Ltd (supra). Ground no 1 to 4 have no substance.
Ground no. 5; It comes up that the assessee is engaged in the business of providing work space of rent and derives its major income from rentals, sale food items, interest income and other miscellaneous receipts.
During the year under consideration assessee has purchased fixed assets amounting to Rs.26 crores and has claimed depreciation of 15% on such assets by classifying them as plant and machinery. During the course of scrutiny assessment proceedings, AO did not disturb the purchase of fixed assets, their use and category of additions in the fixed assets. However, he found that fixed assets totaling to Rs.24 crores were on account of furniture and fixture on which depreciation of 10% is disallowable as against the depreciation of 15% claimed by the assessee by classifying such assets under the block of plant and machinery.
12.1 The Ld. CIT(A) has benefited the assessee on the basis that the claim of assessee has been accepted in the previous and subsequent years during the reproduced below;
“5.2 On perusal of the additions made to the assets which have been capitalized under the block Plant & machinery includes Chairs, Chrome Iron hooks and key holder, Deposit box, Door access installations, Door controller, Dust bins, Helmet stands, Ladder, Furniture, Magnetic lock, Metal rack, Sliding glass, Sofa Set, Slotted angle rack, Security Cabin, Plastic mat, Umbrella Stand, Work station top and others. These items are nothing but furniture and fixtures. However, the appellant claimed that these items are also part of the work space which have been let out and therefore they constitute Plant & Machinery of its business for which higher rate of depreciation would be applicable. There appears to be merit in the appellant's case as the work spaces have to be provided with these additions and therefore they have to be treated as part of its Plant & machinery. It is further seen that the appellant's contentions have been accepted in the previous and the subsequent years during the assessment proceedings itself. Further there is no purpose in hair splitting the issue as the effect of such addition evens out over the years. Therefore, the addition made on account of depreciation disallowance is deleted.”
Principle of consistency is essential in assessments and especially when the matter is of claim of depreciation. Then we are of the considered view that the nature of business activity of providing work spaces is not of earning premises as a whole which adds to the value of the premises for being used as work spaces by occupants who are not just tenants but enjoy the space for functional office, complete in all respect. The list of articles and lease hold expenses as illustrated in assessment order equipped the premises to enable the use of same as work space and let assessee earn business income. Ld. CIT(A) has also appreciated the same, thus, we do not find any reason to interfere in the findings of Ld. CIT(A). The ground no 5 as raised has no substance.
The grounds being decided against the revenue, the appeal of revenue is dismissed.
Order pronounced in the open court on 05.12.2025.