LAKSHYA TRADEVIN PVT. LTD. ,HOWRAH vs. ITO, WARD-13(2). , KOLKATA.

This captioned appeal filed by the assessee is against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi vide order No. ITBA/NFAC/S/250/2022-23/1049218689(1) dated 30.01.2023 against the order of ITO, Ward-13(2), Kolkata passed u/s. 144 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 16.12.2016 for AY 2014-15.

There are two issues involved in the present appeal for which seven grounds have been taken. First issue is in respect of addition of Rs.15,00,000/- u/s. 68 of the Act by treating it as unexplained cash credit which is claimed by the assessee as refund of the amount of share application made in the preceding year. Second issue is in respect of disallowance of Rs.35,000/- u/s. 14A of the Act in absence of any dividend income earned by the assessee.

Brief facts of the case are that assessee filed its return of income on 30.09.2014 reporting total income at Rs. 50,380/-. In the course of assessment, Ld. AO noted from the bank account statement of Bank of India in A/c. No. 403120110000302 that there are credit transaction of Rs.10,00,000/- deposited on 27.12.2013 and Rs.5,00,000/- deposited on 31.03.2014, totalling to Rs.15,00,000/- for which explanation was called for along with documentary evidence. Since no compliance was made in this respect, it was added to the total income of the assessee. Further, ld. AO noted that assessee has made investment in shares of Rs.70,00,000/- reported in the Balance Sheet as on 31.03.2014 which was also the balance in the Balance Sheet as on 31.03.2014 which was also the balance in the Balance sheet as on 31.03.2013. Ld. AO took ½% of the average investment amounting to Rs.35,000/- for making disallowance u/s. 14A read with Rule 8D. Ld. AO completed the assessment u/s. 144 of the Act at an assessed total income of Rs.15,85,380/-. Aggrieved, assessee went in appeal before the Ld. CIT(A).

Before the Ld. CIT(A), it was submitted that assessee had made an advance of Rs.23,00,000/- to Manish Pratisthan Pvt. Ltd. ( MPPL) in AY 2013-14 for making investment in the shares of the said company. This amount was duly reported in its audited financial statement for AY 2013-14 under the head ‘share application paid’. Copy of Balance Sheet for the same is placed in the paper book at page 11. In the year under consideration, an amount of Rs.15,00,000/- was returned by MPPL for which credits are Lakshya Tradevin Pvt. Ltd., AY 2014-15 appearing in the bank account of the assessee. Balance of Rs. 8,00,000/-, after the refund of Rs.15,00,000/- from initial payment of Rs.23,00,000/-, is duly reported in the audited Balance sheet of the assessee as on 31.03.2014 under the head ‘share application paid’, copy of the same is reproduced below:

It was submitted that no shares were issued and allotted for which assessee had made the payment and, therefore, this amount was returned back to the assessee. It was thus, contended that assessee has explained the nature and source of the amount of Rs.15,00,000/- which is the refund of the amount given in the earlier year by the assessee and, therefore, no addition is called for u/s. 68 of the Act made by the Ld. AO. In respect of disallowance made u/s. 14A of the Act, it was submitted that assessee had earned no exempt income during the year and, therefore, no disallowance is called for. Ld. CIT(A) did not find favour with the submissions made by the assessee and dismissed the appeal. Aggrieved, assessee is in appeal before the Tribunal.

Ld. Counsel for the assessee referred to the confirmation given by MPPL in respect of the transaction taken place between assessee and itself, corroborating it with the relevant bank statement which is placed in the paper book at pages 36 to 39. Ld. Counsel reiterated the submissions made before the Ld. CIT(A) which have been narrated above and are not repeated for the sake of brevity. On confrontation of these facts and material on record to the Ld. Sr. DR, nothing was brought on record to controvert the same. We find force in the submissions made by the Ld. Counsel that the assessee has duly disclosed and reported the transaction undertaken by it with MPPL which is corroborated by the confirmation letter along with relevant bank statement obtained by the assessee from MPPL

In respect of disallowance made u/s. 14A of the Act, assessee has not earned any exempt income during the year under consideration. However, Ld. AO has made a disallowance by applying Rule 8D(2)(iii) read with Sec. 14A of the Act by taking ½% of the average investment. It is a settled law that when there is no exempt income earned by the assessee during the year, no disallowance is called for u/s. 14A of the Act. In this respect, we note that Hon’ble High Court of Delhi in the case of PCIT Vs. Era Infrastructure (India) Ltd. in & C. M. Application No. 31445/2022 which has been followed by the Coordinate Bench of ITAT, Kolkata in the case of Babul Fiscal Services (P) Ltd v. ACIT in ITA No. 318/Kol/2022 dated 02.08.2022 held that no disallowance is required to be made because it has not earned any tax free income and allowed the appeal of the assessee by deleting the disallowance so made. Respectfully following the said decision, we delete the disallowance made by the Ld. AO and Lakshya Tradevin Pvt. Ltd., AY 2014-15 confirmed by the Ld. CIT(A)_. Grounds taken by the assessee in this respect are allowed.

In the result, appeal of the assessee is allowed.