ITO-6(2)(1), MUMBAI vs. CASA BUILDERS PVT LTD, MUMBAI

Brief facts of the case are that original return of income was filed on 30.09.2014, reporting total income at Nil and claiming loss of Rs. 15,29,701/- to be carried forward. Revised return was filed on 19.12.2014 reporting Nil total income and loss of Rs. 15,29,701/-. Case was selected for scrutiny and assessment was completed u/s 143(3) on 27.12.2016 by ld. AO determining total assessed income at Rs. 69,18,267/- after making addition of Rs. 81,84,724/- u/s 68 towards share application money and disallowance of Rs. 2,63,244/- u/s 14A r.w.r. 8D. Aggrieved, assessee went in appeal before ld. CIT(A) who deleted both the additions. Aggrieved, Revenue is appeal before the Tribunal. 4. Ground no. (a) and (b) relate to maintainability of appeal and deletion of addition of Rs. 81,84,724/- made u/s 68 in respect of share application money received from Shri Anil Deshpande. Ld. Counsel for assessee submitted that assessee received share application money of Rs. 81,84,724/- from Shri Anil Deshpande who is a non-resident Indian living in USA and promoter director holding majority shares of assessee company. He submitted that identity of investor, bank statements showing receipt through proper banking channels via NRE account, confirmation, income-tax returns filed in India and US tax returns for calendar year 2013 showing substantial income were duly furnished before authorities below. Ld. Counsel further pointed out that identical 2 issue on similar facts involving same NRI investor for assessment year 2010-11 was considered and decided in favor of assessee by Tribunal in ITA No. 2463/Mum/2015. 5. Ld. Sr. DR supported the order of ld. AO and argued that creditworthiness and source of funds of investor were not satisfactorily explained and case falls under exceptional clause of CBDT circular as assessee is a shell company.

We have heard rival submissions and perused material available on record. We note that assessee received share application money amounting to Rs. 81,84,724/- from Shri Anil Deshpande who is a non- resident Indian and director of assessee company. Assessee furnished complete details including name, address, PAN, bank statements through NRE account, copy of Indian income-tax return and US individual income tax return. As observed by ld. CIT(A) in his order, US tax return of investor disclosed gross income exceeding Rs. 1 crore, thereby fully establishing financial capacity and creditworthiness. Furthermore, authorities below failed to bring on record any adverse material to prove that transaction was an accommodation entry or that funds emanated from coffers of assessee.

Ground no. (c) relates to deletion of disallowance of Rs. 2,63,244/- made u/s 14A r.w.r. 8D. Ld. Counsel for assessee submitted that assessee did not earn any exempt income during year under consideration and therefore, no disallowance u/s 14A can be made.

We have heard rival submissions and perused record. There is no dispute about fact that assessee has not earned any exempt income during previous year relevant to assessment year under consideration. It is settled legal position that provisions of section 14A cannot be invoked in absence of any actual exempt income earned during relevant assessment year, as held by Hon'ble Supreme Court in CIT vs. Chettinad Logistics (P.) Ltd. [2018] 95 taxmann.com 250 (SC) and Pr. CIT vs. State Bank of Patiala [2018] 99 taxmann.com 286 (SC). Rule 8D is merely a machinery provision for quantification and cannot override substantive mandate of section 14A.

In view of the settled position governed by the above referred judicial precedents, respectfully following the same, we uphold order of ld. CIT(A) deleting disallowance of Rs. 2,63,244/- made u/s 14A. Accordingly, ground no. (c) raised by Revenue is dismissed.

In the result, appeal of the Revenue is dismissed.