2013 (8) TMI 662 - ITAT DELHI

Undisclosed income u/s 68 - Share application maoney - Onus of proving transaction - Held that:- Assessee's company is not carrying out any business activity. This company has shown investments with others in Schedule-V but details of investment are not available. Therefore, taking into consideration, facts and circumstances and failure of assessee to comply with requirement of Assessing Officer in producing Principal Officers/Directors of share applicant companies, it failed to prove identity as well as genuineness of transaction. They have shown very nominal income. It gives an inference that such returns were filed for creating evidence to be used in future - Following decision of A. Govindarajulu Mudaliar v CIT [1958 (9) TMI 3 - SUPREME Court], CIT vs. N.R. Portfolio (P.) Ltd. [2012 (12) TMI 762 - DELHI HIGH COURT] and CIT vs. M/s. Neelkanth Ispat Udhyog Pvt. Ltd [2012 (8) TMI 198 - DELHI HIGH COURT] - Decided against assessee.

Disallowance u/s 37 - Expenditure on employee's education (son of Directors) - Held that:- there is no policy formulated by assessee company vide which it had invited applications from all employees for sponsoring their higher education - Had Employee was not son of Directors, his education expenses would have not been met by company. assessee claimed that higher education of Employee would give benefit of more than R.50,000/- per month to assessee company but who has checked credentials of Employee and what salary he would claim in open market. Without there being any material on record, how assessee can say that decision to sponsor education of Employee was not influenced by parental love and affection of Directors - Following decision of CIT vs. R.K.K.R. Steels Pvt. Ltd. [2001 (11) TMI 20 - MADRAS High Court], M. Subramanium Brothers vs. CIT [2000 (12) TMI 67 - MADRAS High Court] and CIT vs. Hindustan Hosiery Ind. [1993 (9) TMI 42 - BOMBAY High Court] - Decided against assessee.

Disallowance u/s 14- Computation of disallowance on basis of Rule 8D - Held that:- It is only if Assessing Officer is not satisfied with correctness of claim of assessee, in both cases, that Assessing Officer gets jurisdiction to determine amount of expenditure incurred in relation to such income which does not form part of total income under said Act in accordance with prescribed method. prescribed method being method stipulated in Rule 8D of said Rules. While rejecting claim of assessee with regard to expenditure or no expenditure, as case may be, in relation to exempt income, Assessing Officer would have to indicate cogent reasons for same - Matter remitted back - Following decision of Maxopp Investment Ltd. vs. CIT [2011 (11) TMI 267 - Delhi High Court] - Decided in favour of assessee.

Speculative transaction - Purchase and sales of shares - Section 73 - Held that:- The Explanation exclude certain companies whose gross total income consist mainly of income which is chargeable under heads ‘Interests on securities’, ‘Income from house property’, ‘Capital gains’ and ‘Income from other sources’ or whose principal business is of banking or granting of loans. activities of assessee do not fall in ambit of nature of business provided in Explanation. main business of assessee includes sales of shares. It has shown losses on such activities. Thus, primfacie, Explanation appended to section 73 is clearly applicable on facts of assessee’s case. Under Act, every year is an independent year. If assessee has shown losses in share trading activities and its case falls within mischief of deeming fiction provided in section 73, then, on basis of principle of consistency, assessee cannot plead that requirement of law should not be followed.

Income from other sources u/s 56 - Cash credit u/s 68 - Held that:- unexplained cash credits have to be brought to tax under section 68 and not under section 56. Both aforesaid sections operate in fields reserved for them. It cannot therefore be said that what is assessable as income u/s 68 must be assessed as income from other sources u/s 56.

Set off of business loss from income u/s 68 - Held that:- Section 71 permits set off of loss from one head against income from another head of income as enumerated in section 14 - income assessable u/s 68 cannot be assessed under any particular head of income including income from other sources u/s 56 - Therefore, this addition cannot be set off against business losses computed in earlier years. However, as far as expenses disallowed on account of education expenses and on account of establishment expenses are concerned, they are to be set off.