2016 (1) TMI 1233 - AT - Income Tax

Disallowance u/s.14A - ternate contention of the Ld. Counsel for the assessee that since the entire income of the assessee is eligible for deduction u/s.80IA(4) therefore even if any disallowance is made the business income of the assessee will go up and therefore there will be corresponding deduction of the said amount and therefore it is revenue neutral - Held that - Since the investments are made in shares of the holding company who in turn has invested the amount in the subsidiary company and special purpose vehicle companies for getting contracts from the PWD department of Government of Maharashtra therefore the investment was for commercial expediency and therefore no disallowance of interest is called for. As no dividend income has been received which is exempt from tax therefore no disallowance u/s.14A should be made. We also find merit in the alternate contention of the assessee that since assessee is entitled to deduction u/s.80IA(4) therefore the addition if any has to be allowed u/s.80IA(4) and therefore the same is revenue neutral. Admittedly the income of the assessee is eligible for deduction u/s.80IA which the AO himself has allowed in the body of the assessment order. The returned business income has been allowed by the AO as deduction u/s.80IA as per the claim. Therefore once a part of the interest expenditure is disallowed then the corresponding business income will go up. Therefore request of the assessee that the AO may be directed to increase the deduction u/s.80IA(4) to the extent of disallowance u/s.14A which increases the business profit to that extent is acceptable. In this view of the matter we set aside the order of the CIT(A) and direct the AO to delete the disallowance made u/sa.14A. Ground of appeal No.1 as well as the first issue in the additional ground raised by the assessee are accordingly allowed. Bogus share capital receipt - enhancing the income on account of alleged commission paid for obtaining bogus share capital - Held that - We admit the additional evidences filed by Ld. Counsel for the assessee and restore this issue to the file of the AO with a direction to verify the records from the AO of Amicitia Infrastructure Pvt. Ltd. In case the investment by Amicitia Infrastructure Pvt. Ltd. in the shares of Hari Infrastructure Pvt. Ltd. has been accepted by the AO of Amicitia Infrastructure Pvt. Ltd. then in that case no addition can be made in the hands of the assessee and the AO has to delete the addition to this extent. So far as the investment by the remaining 8 parties are concerned admittedly the assessee has provided the complete details including names and addresses PAN numbers details of the investors and the details of cheque Nos. etc. through which the amounts have been received. We also find force from the submission of the assessee that the statement recorded from different parties were not confronted to the assessee and he was not provided with an opportunity to rebut the same. Subsequent to the passing of the order of the CIT(A) various decisions have come according to which addition cannot be made in the hands of the assessee company where it has given the names and addresses PAN numbers and bank accounts details of the alleged bogus shareholders and the addition can be made only in the hands of the bogus share holders. Therefore in the interest of justice we restore this issue to the file of the AO with a direction to decide the issue afresh and in accordance with law after giving due opportunity of being heard to the assessee. Addition in the case of Shri Chandrakant Sonawane is concerned we find the confirmation letter filed by the assessee was not properly considered and adjudicated by the AO or the CIT(A). We therefore remit this issue also to the file of the AO for fresh adjudication. - Decided in favour of assessee for statistical purposes. Addition on account of rebate of interest and waiver of loan - Held that - In our opinion when any expenditure is neither debited to the profit and loss accounts nor claimed as a deduction cannot be disallowed by the AO. Since the Ld.CIT(A) after recording that the assessee has neither debited the interest in the profit and loss account which was waived by the bank nor claimed the same as deduction has deleted the addition made by the AO therefore in absence of any distinguishable feature brought to our notice by the Ld. Departmental Representative we find no infirmity in the order of CIT(A) on this issue. Accordingly grounds raised by the Revenue on this issue are dismissed. Addition being the principal amount waived by the bank - Held that - In the instant case we find the facts are not discernible from the order of the AO as well as the order of the CIT(A) as to whether the amount was utilised for capital asset or for trading purpose. We therefore restore the issue of remission of R.2.33 crores by the bank to the file of the AO with a direction to decide the issue afresh in the light of the decision of the Hon ble Bombay High Court Mahindra and Mahindra Ltd. (2003 (1) TMI 71 - BOMBAY High Court ) and in accordance with law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. Grounds raised by the Revenue are accordingly dismissed and the grounds raised by the assessee on this issue are allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Addition under Section 68 for treating labor charges as bogus.
3. Consideration of statements without granting an opportunity to comment.
4. Jurisdiction and authority of the JCIT report.
5. Addition under Section 68 for treating share capital and share premium as unexplained cash credit.
6. Enhancement of income by treating share capital as bogus.
7. Enhancement of income on account of commission paid on bogus share capital.
8. Addition on account of waiver of principal loan.
9. Waiver of interest amounting to Rs. 3.78 crores.

Detailed Analysis:

1. Disallowance under Section 14A:
The assessee challenged the disallowance of Rs. 1,08,81,171/- under Section 14A by the AO, which was confirmed by the CIT(A). The AO noted that the assessee had invested in shares of group companies using borrowed funds and paid interest on these funds. The AO applied Section 14A read with Rule 8D, disallowing the interest expenditure, despite the assessee's argument that no exempt income was received. The CIT(A) upheld this disallowance, stating that earning exempt income is not relevant for disallowance under Section 14A if interest-bearing borrowed funds are used for investment in shares. The Tribunal found merit in the assessee's argument that since the investments were made for commercial expediency and no exempt income was received, no disallowance under Section 14A should be made. The Tribunal also accepted the alternate contention that if disallowance is made, the deduction under Section 80IA should increase correspondingly, making it revenue neutral. The order of the CIT(A) was set aside, and the AO was directed to delete the disallowance.

2. Addition under Section 68 for treating labor charges as bogus:
The AO made an addition of Rs. 93,420/- under Section 68, treating labor charges as bogus due to non-furnishing of confirmation letters. The assessee provided a confirmation letter which was not properly considered. The Tribunal remitted this issue to the AO for fresh adjudication.

3. Consideration of statements without granting an opportunity to comment:
The assessee argued that the CIT(A) considered various statements without granting an opportunity to comment on them. The Tribunal found that the statements recorded from different parties were not confronted to the assessee, violating the principles of natural justice. The issue was restored to the AO for fresh adjudication.

4. Jurisdiction and authority of the JCIT report:
The assessee contended that the JCIT report was prepared without jurisdiction and authority. The Tribunal did not specifically address this issue separately but considered it within the broader context of procedural fairness and the need for proper opportunity to the assessee.

5. Addition under Section 68 for treating share capital and share premium as unexplained cash credit:
The AO made an addition of Rs. 16,84,24,300/- under Section 68, treating the share capital and share premium as unexplained cash credit. The CIT(A) enhanced the addition by Rs. 81,75,700/- and Rs. 35,32,000/- for commission paid for arranging bogus share capital. The Tribunal found that the AO of Amicitia Infrastructure Pvt. Ltd. accepted the investment in shares of the assessee company. The Tribunal restored the issue to the AO to verify the records and delete the addition if the investment was accepted. For other parties, the Tribunal noted that the assessee provided complete details, and the statements were not properly confronted. The issue was restored to the AO for fresh adjudication.

6. Enhancement of income by treating share capital as bogus:
The CIT(A) enhanced the income by treating the entire share capital of Rs. 17.66 crores as bogus. The Tribunal found procedural lapses and restored the issue to the AO for fresh adjudication.

7. Enhancement of income on account of commission paid on bogus share capital:
The CIT(A) enhanced the income by Rs. 35,32,000/- for commission paid on bogus share capital. The Tribunal restored this issue to the AO for fresh adjudication.

8. Addition on account of waiver of principal loan:
The AO added Rs. 2.33 crores on account of waiver of the principal loan. The CIT(A) confirmed this addition. The Tribunal restored the issue to the AO to decide afresh in light of the Bombay High Court decision in Mahindra and Mahindra Ltd. and after verifying whether the loan was for capital or trading purposes.

9. Waiver of interest amounting to Rs. 3.78 crores:
The AO added Rs. 3.78 crores for waiver of interest. The CIT(A) deleted this addition, noting that the interest was not debited in the profit and loss account. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the deletion of the addition.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal for statistical purposes, remitting several issues back to the AO for fresh adjudication.