ITO, WARD- 15(3), NEW DELHI vs. LIVEWIRE COMMERCIAL PVT. LTD., DELHI

The Ld.CIT(A) has erred in law and on facts by not appreciating that creditworthiness of the party remained unexplained as the party was not having funds to extend such huge share capital to the assessee.

On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the additions of Rs.6,35,930/- U/s 14A of the IT Act.

That the appellant are craves leaves to add, alter, amend or forgo any ground(s) of appeal raised above at the time of hearing.”

Briefly stated, the facts of the case are that the assessee filed its return of income on 29.09.2012 declaring income of Rs. 4,454/-. The case was selected for scrutiny through CASS. Accordingly, statutory notice u/s 143(2) of the Act was issued on 06.08.2013 and served upon the assessee. Subsequently, notice u/s 142(1) along with questionnaire was also issued.

The assessee company is engaged in making finance, advances, investment and trading. The company deals in purchase and sale of shares from the market and through direct investment. During the year the assessee made purchases of shares at Rs.25,01,50,000/- and sales of unquoted shares of small companies at Rs. 25,02,24,000/- Against the income of Rs.51, 775/- being interest and gain on investment the assessee has claimed expenditure of Rs 47,291/- and showed profit before tax of Rs 4,454/- only.

Ground Nos. 1 and 2 taken together pertain to deletion of addition of Rs. 25 crores u/s 68 of the Act.

Facts, in brief, pertaining to this addition are that shares of four companies were purchased from Zeal Consultancy Pvt Ltd. for a sum of Rs.25,01,75,000/-. Subsequently, in lieu of purchase of the above mentioned shares, the assessee company issued its 5,00,000 shares of face value of Rs.10/- and a premium of Rs.490/- for a total sum of Rs.25,00,00,000/- to M/s Zeal Consultancy Pvt Ltd on 30.03.2012. The P a g e | 4 M/s Livewise Commercial Pvt. Ltd.

The Assessing Officer observed that modus operandi adopted is that the assessee company bought the shares of some other three companies from M/s Zeal Consultancy Services Pvt Ltd priced at Rs.25 Crores but did not exchange any money and instead of consideration applies for shares of the assessee company at such high premium. The transaction of such a huge amount is completed by book entries. It also seems that it is an afterthought by back dating the book entries and paper formalities have been completed to give it the shape of genuine transaction." It was also observed by the Assessing Officer that the so called transaction of issue of shares at premium of Rs.490/- is nothing but sham and illusory and to bring the unaccounted money in the main financial stream through book entries because it would not have been possible to complete transactions by banking transactions and neither the assessee nor so called assessee M/s Zeal Consultancy Services Pvt Ltd had the liquidity to make investment of Rs. 25 Crores. He, therefore, treated the transaction as unexplained cash credit in the books of the assessee company and assessed the same as income from other sources u/s 68 of the Act.

Aggrieved, the assessee went in appeal before the ld. CIT(A) who deleted the addition.

The Revenue is aggrieved and is in appeal before us.

Before us, the ld. counsel for the assessee supported the order of the ld. CIT(A).

Per contra, the ld. DR relied upon the orders of the Assessing Officer.

We have heard the rival submissions and have perused the relevant material on record. It would be pertinent to extract the relevant findings of the ld. CIT(A) on this issue which reads as under:

6 In this case, it is noted that the amount of Rs.25,00,00,000/- has been credited to the books of the company by way of book entry only. The appellant has shown purchase of shares of different companies from Zeal Consultancy Services Pvt Ltd for an amount of Rs.25,01,75,000/- and in lieu of the purchase consideration, 5,00,000 shares of face value of Rs. 10/- at a premium of Rs.490/- of the appellant company itself were issued to Zeal Consultancy Services Pvt Ltd for a total sum of Rs.25,00,00,000/-. Therefore, the above transactions are in the nature of swap arrangement of shares only. The credit arose only because purchase of shares by the appellant from Zeal Consultancy Services Pvt Ltd. Had there been no purchase of shares by the appellant, there would not have been any credit. There was no money brought into the account books of the appellant by way of cash / cheque / draft. It is further noted that the appellant has discharged the onus in respect of the identity of the share holders as relevant documents were produced before the AO and there was compliance by the parties, involved in the transaction, to notice u/s 133(6) issued by the AO. The appellant also submitted copy of the return of income, Tax audit report and the copy of the assessment order in respect of the creditor M/s Zeal Consultancy Services Pvt. Ltd. The appellant has relied upon various judicial pronouncements in this regard and has submitted that there was no question of any addition in the hands of the appellant company.

Ground No. 2 pertains to disallowance u/s 14A of the Act.

During the course of scrutiny assessment proceedings, the Assessing Officer noticed from the balance-sheet that the assessee company has shown investment as on 01.0.42011 and 31.03.2012 at Rs 23,87,000/- and Rs 25,19,85,000/- respectively. The assessee was asked to give the working of disallowance u/s 14A of the Act, in response to which the assessee did not furnish any reply.

The Assessing Officer observed that the Central Board of Direct tax (CBDT) issued a Circular No. 5/2014 dated 11th February, 2014 (F. No. 225/182/2013-ITA.II) clarified that the disallowance of the expenditure u/s 14A of the Act incurred in relation to exempt income have been dealt with by various courts as to whether disallowance under Section 14A of the Act should be made even if no exempt income has been earned by a taxpayer during the financial year. It has been clarified that Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income.

In view thereof, the Assessing Officer observed that even though the assessee has not earned any exempt/tax free dividend income during the year, provisions of section 14A read with Rule 8D is applicable in the facts and circumstances of assessee's case, worked out a sum of Rs. 6,35,930/- and added the same to the income of the assessee.

Aggrieved, the assessee went in appeal before the ld. CIT(A) who allowed the ground of appeal.

Now the aggrieved Revenue is in appeal against the deletion of addition by the ld. CIT(A).

Before us, both the rival representatives reiterated what has been stated before the lower authorities and relied upon various case laws.

We have given thoughtful consideration to the orders of the authorities below. The undisputed fact is that the assessee did not earn any exempt income during the year under consideration. Since there is no exempt income earned by the assessee during the year, there cannot be any disallowance u/s 14A of the Act. This issue is by now well settled in favour of the assessee and against the revenue by the decision of the P a g e | 12 M/s Livewise Commercial Pvt. Ltd.

In the result, appeal of Revenue in ITA No. 7542/DEL/2018 is dismissed. The order is pronounced in the open court on 30.07.2025. [ANUBHAV SHARMA]