Brief of the Case
In the present case there were the three issues which were decided by the Hon’ble Tribunal where it was held that whenever the transactions have been made through proper banking channel, then invocation of section 68 will not be valid. Further, the Tribunal on second issue remitted the matter where there was a doubt between borrowed funds and investment made. Then, on the third and the last issue it was held that expenses made during the previous year will not be made taxable in the current year.
Facts of the Case
In the present case there are different issues and all the facts of different issues have been dealt seperately. The relevant facts of different issues are as follows:-
- Assessee is in a business of manufacturing of earth boring and drilling equipments. AO noticed that the assessee have introduced an amount of Rs.9,88,50,000 as share application money in its books of account in the names of 19 persons. It was explained that the share capital also consists of the contribution made by the Directors of the Company of Rs. 19,44,371 and Rs. 3,57,121 respectively. It was mentioned by the Aseessee that there were agreements with the persons concerned where both the Directors of the Company have given their undertaking to repay the particular amount taken. But AO observed that the assessee has neither produced any agreement nor they have produced any communication from the side of creditors which made AO to doubt the genuineness of the creditors. Therefore, the Ld. AO called Assessee to prove the identity of the creditors so that the genuineness of the Agreement could be proved. After going through the 7 confirmation letters the Ld. AO reached the conclusion that nobody have mentioned the source of money in their letters and doubted the genuineness of the money given to the assessee. The assessee was not able to produce the remaining 12 confirmation letters which created serious doubts in the mind of AO. As, a result the Assessee added the amount lend by 12 different individuals in the income of the assessee. [The amount received from the remaining 7 individuals were accepted by CIT(A)].
- The second issue was that during the assessment proceeding, the A.O. while verifying the balance sheet of the company along with the books of account noticed that during the year assessee has made the investments out of the borrowed funds and the A.O. called upon the assessee to explain that why proportionate amount out of the interest expenditure shall not be disallowed, as investments made with sister concerns/related parties were not for business purpose.
- The third issue was that during the assessment proceeding, the A.O. noticed that the assessee has debited an amount of Rs.25,46,846 as interest on other loans on which The A.O. was of the view that provisions of section 194A is applicable to such payments. Since the assessee has not deducted tax at source while making the payment, the A.O. disallowed an amount of Rs.21,67,937.
Held by the CIT(A)
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