TMI Blog2009 (12) TMI 720X X X X Extracts X X X X X X X X Extracts X X X X ..... peals) is correct in law and facts in concluding that interest paid by the assessee was wholly and exclusively for the purpose of business under section 37(1) when interest bearing funds have been diverted for certain loans, the business expediency of which was not satisfactorily explained by the assessee. (vi) Whether the Commissioner of Income-tax (Appeals) is correct in law and facts in deleting the addition of Rs. 92,60,000 towards share capital under section 68 of the Income-tax Act. (vii) Whether the Commissioner of Income-tax (Appeals) is correct in law and facts in holding that the addition under section 68 cannot be made in the hands of the assessee when the assessee has failed to establish the credit worthiness of the creditor. (viii) Whether the Commissioner of Income-tax (Appeals) is correct in law and facts in accepting that the identity of these creditor companies have been established when the facts on record proved that they were mere paper entities whose principal officers were either petty businessmen or low level employees working elsewhere and who admitted that these companies had no business activity and existed merely for giving accommodation entries." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Commissioner of Income-tax (Appeals) has erred in deleting the addition rightly made by the Assessing Officer ; that the assessee had remained unable to prove any nexus between the interest bearing funds with the higher rate of interest ; that the assessee-company being a financial company, it was not possible for the assessee to take the loans at higher rates and to give loans at lower rates. Learned counsel for the assessee, on the other hand, has strongly relied on the impugned order. It has been submitted that the assessee-company had declared income at Rs. 35.81 lakhs ; that the disallowance was merely on section 36(1)(iii), which is regarding allowance ; that it is section 40A(2)(b), which is regarding disallowance ; that the other concerns were not sister concerns of the assessee ; that then, the total loans taken were of Rs. 50 lakhs ; that the Assessing Officer failed to consider that an amount of Rs. 12.52 crores was the assessee's total share capital ; that then, the loans from the directors of the assessee-company amounted to Rs. 72.45 lakhs ; that these loans were not interest bearing loans ; that the assessee had reserves of Rs. 51.59 lakhs ; that it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation and they were thus not produced. The assessee submitted that all the 13 companies were having distinct entities and permanent account numbers and that they were filing income-tax returns. Their confirmations were filed. Details of all the payments received by cheque were also given. The Assessing Officer, however, did not agree with the assessee's stand. He observed that since the share subscribers were not traceable, their identities did not stand proved and their creditworthiness and the genuineness of the transactions could also as such not be proved. The Assessing Officer thus made addition of the entire fresh capital of Rs. 92,60,000 under section 68 of the Act. The learned Commissioner of Income-tax (Appeals), by virtue of the impugned order, deleted this addition and this is how ground Nos. 6 to 8 have been taken by the Department before us. Challenging the impugned order on this issue, the learned Departmental representative has argued that the learned Commissioner of Income-tax (Appeals) erred in deleting the addition correctly made by the Assessing Officer ; that the assessee failed to establish the creditworthiness of the creditor ; that the learned Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Beautix (supra) what was involved was share application money ; that in the present case, share capital was introduced ; that the payment was through cheque ; that the payers accepted the payment ; that the identity was duly established ; and that therefore, Beautix (supra) is not applicable. On this issue, having heard the parties and having perused the material on record, we are not convinced with the assertions on behalf of the Department. The learned Commissioner of Income-tax (Appeals) remanded the matter to the file of the Assessing Officer, finding that the principal officers of the 13 share subscribers had been asked by the Assessing Officer to be produced at a very short notice of one day on December 29, 2006, whereas the case was getting time barred on December 31, 2006. The Assessing Officer's remand report dated June 13, 2008, it is seen, proceeded on the basis that since the share subscribers were not traceable, their identities were not proved. The assessee, on its part, it is seen, had provided before the Assessing Officer, complete details of the share subscribers, including their income-tax returns confirmations and details of all the payments received by c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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