The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) while granting relief to the assessee held that the incorrect accounting and wrong grouping of headings cannot be termed as a bogus investment.
The assessee is a private limited company and his main source of income is trading and investment. The assessee filed his return of income declaring a total income of Rs. 66,510/-. The case of the assessee was selected for scrutiny through Computer-Assisted Scrutiny Selection (CASS) followed by serving of notices under Sections 143(2) and 142(1) of the Income Tax Act.
The Assessing Officer noticed that a sum of Rs. 10.50 Lakh is appearing in the name of M/s. Kothari Containers Pvt. Ltd. on the asset side of the balance sheet. The Assessing Officer enquired about the correctness of the said sum from M/s. Kothari Containers Pvt. Ltd. stated that it has issued 35,000 equity shares for Rs. 15 Lakh. Based on this submission, the Assessing Officer came to the conclusion that the investment of Rs. 10.50 Lakh was a bogus investment and made the addition thereof.
The counsel submitted that investment was made in the equity shares of M/s. Kothari Containers Pvt. Ltd. in preceding years but it was wrongly shown under the head ‘loans & advances’. The assessee sold the equity shares at Rs. 4.50 Lakh and incurred a capital loss of Rs. 10.50 Lakh but failed to recognize the same as a capital loss in the books as a result of which Rs. 10.50 Lakh appeared in the balance sheet. He further, submitted that it is not a case of bogus investment. Therefore, no addition is called for.
The Two-member bench comprising of Sanjay Garg (Judicial member) and Manish Borad (Accountant member) held that it is not a case of bogus investment but it is a case where proper accounting under the correct group heading has not been done which has thus, giving rise to the issue in question before us.
Therefore, since the investment of Rs. 15 Lakh was made during FY 2011-12 and during FY 2014-15 (AY 2015-16) that investment has been sold and the remaining amount of capital loss of Rs. 10.50 Lakh not transferred to capital loss account, remained as a balance amount in the account of M/s. Kothari Containers Pvt. Ltd. brought forward from the preceding year has been wrongly considered as a bogus investment by both the lower authorities. Thus, the findings of the Commissioner of Income Tax Act (Appeal) [CIT(A)] were set aside and deleted the addition of Rs. 10.50 Lakh. The appeal of the assessee was allowed.
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