Zhilmil Electronics Pvt. Ltd. Vs ITO (ITAT Delhi)
ITAT Delhi held that once the expenditure is allowable as business expenditure u/s 30 to 38 of the Income Tax Act there is no requirement of generation of income for claiming business expenditure.
Facts-
During the assessment proceedings, it is found that the assessee company has issued 2,35,000 equity shares to four different entities for Rs. 94,00,000/- including share premium of Rs. 70,50,000/-. The assessee has allotted equity shares at Rs. 10 per share at a premium of Rs. 30/- per share totaling to a value of Rs. 40 per share.
AO was of the opinion that the submissions made by the assessee are not acceptable in regard with the identity, creditworthiness and genuineness, therefore held that the investors are bogus and not genuine and their creditworthiness and identity are also fake beyond doubt. Accordingly, share capital and share premium amount collected/received by the assessee from the four parties amounting to Rs. 94,00,000/- are not genuine and the same has been treated as unexplained source of income of the assessee and brought to tax u/s. 68 of the Income Tax Act.
CIT(A) has partly allowed the appeal filed by the assessee, by confirming the addition of Rs. 49,00,000/- made under section 68 of the Act. Confirmed the income of the assessee of Rs. 25,14,500/- by invoking section 56(2)(viib) of the Act by rejecting the valuation method taken by the assessee and also confirmed the addition of Rs. 4,84,407/- on account of disallowance of business expenses, accordingly, the Ld. CIT(A) passed the order impugned on 29.03.2019.
Being aggrieved, assessee has preferred the present appeal.
Conclusion-
Hon’ble Supreme Court in the case of PCIT Vs. Rohtak Chain Co. (P) Ltd. has held that once the genuineness, creditworthiness and identity of investors are established, no addition could be made as cash credit on the ground that the shares are issued at excess price.
By respectfully following the ratio laid down in the case of PCIT Vs. Rohtak (Supra) and considering the facts and circumstances of the case, we find no merit in the argument of the Ld. DR to hold that the assessee has failed to establish the ingredients of Section 68 of the Act.
In our opinion, once the business of the assessee is set up and the expenditure incurred thereafter deserves to be allowed as business expenditure u/s 30 to 38 of the Act. There is no requirement of generation of income from such business activities. The business activity is a continuous process and it cannot be said that as soon as setting up of the business, the income will be generated and should yield income in all years.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal is filed by the assessee against the order dated 29/03/2019 of the ld. Commissioner of Income Tax (Appeals)- Faridabad [hereinafter referred to CIT (Appeals)] for Assessment Year 2015-16.
2. The grounds of appeal are as under:-
1. “The Ld. CIT(A) has erred in law as well as on facts in confirming the assessment framed by Ld. AO u/s 143(3) of the Income Tax Act’ 1961.
2. The Ld. CIT(A) has erred in law as well as on facts in confirming the addition of Rs. 49,00,000/- u/s 68 of the Act on account of alleged unexplained share premium and share capital.
3. The Ld. CIT(A) has erred in law as well as on facts in confirming the income of appellant assessee of Rs. 25,14,500/- by invoking section 56(2)(viib) of the Act wherein rejecting the valuation method taken by appellant assessee.
4. The Ld. CIT(A) has erred in law as well as on facts in enhancing the income of appellant assessee by not issuing valid show cause notice as mandated.
5. The Ld. CIT(A) has erred in law as well as on facts in confirming and enhancing the addition without giving cogent reasons and by recording incorrect facts and by disregarding the all the documentary evidences furnished by assesssee.
6. The Ld. CIT(A) has erred in law as well as on facts in confirming the addition of Rs. 4,84,407/- on account of disallowance of business expenses.
7. That, the appellant craves leave to add, alter, amend or withdraw all or any ground either before or during the hearing of these grounds.”
3. There is a delay of 49 days in filing the above appeal. The assessee has pleaded in the affidavit that the Chartered Accountant was unwell due to highly diabetic condition and was not able to look after the matter and prepare the appeal on time after receiving the copy of the order from Ld. CIT(A). Therefore, the assessee has engaged the service of another Counsel who has preferred the appeal on 22/07/2019 which caused delay of 49 days in filing the appeal. Thus, the delay caused in fling the appeal is unintentional and the same due to bona-fide a mistake, accordingly sought for condoning the delay. For the reasons stated in the application for condonation of delay, the delay of 49 days in filing the appeal is hereby condoned.
4. Brief facts of the case are that the assessee had filed return of income for assessment year 2015-16 declaring an income of Rs. 1,89,480/-, the case was selected for scrutiny, the assessment proceedings have been initiated against the assessee. The representative of the assessee appeared before the Assessing Officer and submitted written submissions along with audit report, balance sheet for the assessment year 2015-16, computation of income and bank statement and also filed written submissions regarding details of share premium received including party’s particulars.
5. During the assessment proceedings, it is found that the assessee company has issued 2,35,000 equity shares to four different entities for Rs. 94,00,000/- including share premium of Rs. 70,50,000/-. The assessee has allotted equity shares at Rs. 10 per share at a premium of Rs. 30/- per share totaling to a value of Rs. 40 per share. The details of the share allotted are reproduced hereunder:-
