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Income Tax Appellate Tribunal, DELHI BENCHES “F”: DELHI
Before: SHRI ANIL CHATURVEDI & SHRI NARENDER KUMAR CHOUDHARY
ORDER PER ANIL CHATURVEDI, A.M. This appeal by assessee has been directed against the order of the Ld. CIT(A)-5, New Delhi, dated 27.04.2017, relating to the A.Y. 2012-13.
The relevant facts as culled out from the material on record are as under :
2 ITA.No. 4447/Del./2017 Jalco Financial Services (P). Ltd., 2.1. The assessee is a company stated to be engaged in the business of investment & trading in shares. The assessee electronically filed its return of income for A.Y. 2012-13 on 30.09.2012 declaring loss of Rs. 8,90,53,176/- The case of the assessee was selected for scrutiny assessment and thereafter assessment was framed u/s. 143(3) vide order dated 28.03.2015 and the total loss was determined at Rs. 8,16,32,580/-.
2.2. Aggrieved by the order of the A.O. the assessee carried the matter before the Ld. CIT(A), who vide order dated 27.04.2017 in Appeal No. Del/CIT(A)-5/0138/2015- 16, granted partial relief to the assessee.
Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal by raising the following grounds :
1. That the order of the Ld. CIT (A) is bad in law and is against the facts and circumstances of the case to the extent of confirming addition W/s 14A and 68 of the Income Tax Act,1961.
3 ITA.No. 4447/Del./2017 Jalco Financial Services (P). Ltd.,
2. That having regards to the fact that the assessee has suo-motto disallowed the entire dividend income w/s 14A, the Ld. CIT (A) has erred both on facts and law in confirming the addition of Rs.8,77,755/- made by the AO u/s 14A.
3. That having regard to the facts and circumstances of the case the Ld. CIT (A) has erred in confirming the addition made u/s 68 amounting to Rs.8,84,449/- being the amount credited in the name of Mr. Madan Mohan Sarda.
Ground no. 1 is with respect to the disallowance u/s. 14A.
During the course of assessment proceedings AO noticed that assessee had earned tax free dividend income. The assessee was therefore asked to explain the applicability of 14A to which assessee inter alia submitted that assessee has earned tax free dividend income of Rs. 65,932/- and assessee has suo motto disallowed the whole of the dividend income of Rs. 65,932/- u/s. 14A of the Act and therefore no further disallowance is called for. The 4 ITA.No. 4447/Del./2017 Jalco Financial Services (P). Ltd., submissions of assessee was not found acceptable to the AO. AO was of the view that the disallowance made u/s. 14A was incorrectly determined by the assessee. He thereafter, for the reasons stated in the assessment order worked out the disallowance u/s. 14A r.w.r. 8D at Rs. 9,43,687/- and after giving the credit of suo motto disallowance of Rs. 65,932/- disallowed the balance amount of Rs. 8,77,755/- u/s 14A of the Act.
Aggrieved by the order of AO, assessee carried the matter before CIT(A) who upheld the order of AO. Aggrieved by the order of CIT(A), assessee is now in appeal.
Before us, the learned AR reiterated the submissions made before AO and CIT(A) and further submitted that assessee had earned tax free dividend income to the tune of Rs. 65,932/- and had suo motto disallowed of Rs. 65,932/- u/s. 14A of the Act. He submitted that it is a settled law that the disallowance u/s. 14A cannot exceed the exempt income and in support of his aforesaid contention he placed reliance on the decision of 5 ITA.No. 4447/Del./2017 Jalco Financial Services (P). Ltd., Hon’ble Delhi High Court in the case of Joint Investment Pvt. Ltd. vs. CIT (2015) 372 ITR 694, PCIT vs. Era Infrastructure India Ltd. reported in (2022) 141 Taxmann.com 289 (Del) and other decisions. He therefore submitted that since the assessee has disallowed the expenses to the extent of exempt income earned, no further disallowance is warranted.
Learned DR on the other hand supported the order of lower authorities.
We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to the disallowance u/s. 14A of the Act. It is undisputed fact that the during the year under consideration assessee has earned tax free dividend income to the extent of Rs. 65,932/- and has also suo moto disallowed of Rs. 65,932/- u/s. 14A of the Act. Thus assessee had disallowed the expenses to the extent of dividend income earned. AO however computed the gross disallowance u/s. 14A at Rs. 9,43,687/- and after giving the credit of suo moto disallowance of Rs.65,932/- made by the 6 ITA.No. 4447/Del./2017 Jalco Financial Services (P). Ltd., assessee, disallowed the net amount of Rs. 8,77,755/-. We find that various Courts have held the disallowance u/s. 14A r.w.r 8D can never exceed exempt income earned by the assessee during particular assessment year. A reference can be made to the decision of Hon’ble Delhi High Court in the case of PCIT vs Caraf Builders & Construction (P) Ltd (2019) 414 ITR 122 (Del) and the decision of Hon’ble Madras High Court in the case of PCIT vs. Envestor Venture Pvt. Ltd. (2021) 123 Taxmann.com 378 (Mad). We therefore following the aforesaid decisions of Hon’ble High Court direct the AO to delete the disallowance in excess of the suo moto amount of Rs. 65,932/- disallowed by the assessee. Thus the ground of the assessee is allowed.
Ground no 2 is with respect to addition u/s. 68 of Rs. 8,84,449/-.
During the course of assessment proceedings, AO noticed that assessee had received unsecured loans of Rs. 8,84,449/- from Madan Mohan Sarda. The assessee was asked to filed the details of unsecured loan along with the 7 ITA.No. 4447/Del./2017 Jalco Financial Services (P). Ltd., confirmations and prove identity and genuineness of the transaction. AO noted that in the absence of any documentary evidence furnished by the assessee to prove identity, genuineness and creditworthiness of the transaction, the amount was considered to be unexplained and accordingly addition of Rs. 8,84,449/- was made u/s. 68 of the Act.
Aggrieved by the order of AO, assessee carried the matter before CIT(A). Before CIT(A) learned AR submitted that no proper opportunity was given by the AO to prove the genuineness of the loan. Assessee also filed additional evidence by way of confirmed ledger account, bank statement, copy of ITR of the lender. On the additional evidences submitted by the assessee, CIT(A) called for remand report from A.O. CIT(A) noted that the AO objected to the admission of additional evidences. CIT(A) however after considering the material placed on record by the assessee and for the reasons noted in the order upheld the order of AO.
8 ITA.No. 4447/Del./2017 Jalco Financial Services (P). Ltd.,
Aggrieved by the order of CIT(A), assessee is now before us.
Before us learned AR reiterated the submissions before AO and CIT(A) and further placed on record a copy of the ledger account of the assessee as appearing in books of the lender, the copy of the bank statement of the lender and the ITR acknowledgment of the lender. From the aforesaid documents he pointed to the fact that lender had advanced of Rs. 5,14,800/- in earlier years and during the year under consideration, Rs. 7,80,000/- was advanced to the assessee through banking channels on which the assessee has also paid interest and TDS was also deducted. He also pointed to the copy of acknowledgment of return of income filed for A.Y. 2012-13 of the lender which is placed in the paper book and from there he pointed that during the year under consideration the lender had Gross Total Income of Rs. 7,86,917/- which was much more than the amount advanced and therefore it cannot be said that the lender did not have the capacity to advance the loan. He further pointed to the copy of the bank statement of the lender
9 ITA.No. 4447/Del./2017 Jalco Financial Services (P). Ltd., placed in the paper book and from the statement he pointed out that out of the various transactions reflected in the bank statement, CIT(A) has only picked up one transaction of receipt of Rs. 25 lacs from Shri Himant Singka and advancing of the same amount to Shri Raja Ram Saraf to conclude that the genuineness and creditworthiness of the lender was not proved. Before us learned AR further stated that in view of the fact that the lender has gross taxable income of Rs. 7,86,000/-, in the year under consideration which was more than the amount advanced, the transactions having been entered through banking channels, the identity, creditworthiness and genuineness of the transaction was proved and therefore no addition u/s. 68 of the Act is called for.
Learned DR on the other hand strongly supported the order of lower authorities.
We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect addition of Rs. 8,84,449/- u/s. 68 of the Act.
10 ITA.No. 4447/Del./2017 Jalco Financial Services (P). Ltd., Section 68 of the Income Tax Act deals with cash credits. It stated that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about nature and source thereof or the explanation offered by him in the opinion of the AO is not found to be satisfactory, the sum so credited may be charged to Income Tax as the income of the assessee of that previous year. Thus the onus is on the assessee to establish the creditworthiness of the persons who have provided the credits. The assessee has to establish (a) the identity of the party, (b) his capacity and (c) the genuineness of the transaction. In order to discharge the burden which section 68 casts upon the assessee, the assessee has to not only establish the identity of the source but also atleast prima facie establish the capacity of such source and the genuineness of the transaction. To discharge the burden u/s. 68 the assessee is required to offer explanation which must be backed by some reliable evidence. In the light of the applicable provisions of S.68 of the Act when the facts of the present case are seen, it is evident that in the books of the 11 ITA.No. 4447/Del./2017 Jalco Financial Services (P). Ltd., lender, shows that the lender had advanced Rs. 5,14,800/- in earlier years and during the year under consideration, it had lent to assessee Rs. 7,80,000/- through banking channels. It is also a fact that on the amounts received as loan, assessee had paid interest and had also deducted TDS on the interest paid. The factum of lending the money through banking channels is not doubted by the Revenue. Further the identity and capacity of the lender is proved by the fact that the assessee has placed documents to show that lender is an Income Tax payer, is assessed to tax and for the year under consideration, the lender has disclosed gross total income of Rs. 7,86,917/- which is more than the amount advanced. In such a situation, we are of the view that assessee has discharged the initial onus cast upon the assessee u/s. 68 of the Act. In the absence of any material to the contrary assessee has discharged the onus of proving the identity, the creditworthiness and genuineness of the transaction. In such a situation we are of the view that the AO was not justified in invoking the provision of section 68 of the Act. We therefore the direct the deletion of addition
12 ITA.No. 4447/Del./2017 Jalco Financial Services (P). Ltd., made by AO and thus the ground of the assessee is allowed.
In the result, appeal of the assessee is allowed. 17.
Order pronounced in the open court on 16.01.2023.