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Facts
The assessee, Jagdamba Commotrade LLP, filed a return of income for AY 2012-13. The Assessing Officer (AO) made an addition of Rs. 1,62,20,000/- under Section 68 of the Act on account of share application money, treating it as unexplained cash credit. A further disallowance of Rs. 207415/- was made under Section 14A.
Held
The Tribunal held that the addition of Rs. 1,62,20,000/- under Section 68 is erroneous as the amount was received in preceding years and not in the AY 2012-13, and thus Section 68 is not applicable. The issue of disallowance under Section 14A was remanded back to the AO for fresh adjudication.
Key Issues
Whether the addition made under Section 68 for share application money received in prior years is sustainable? Whether the disallowance under Section 14A is valid when no exempt income was earned?
Sections Cited
68, 143(1), 143(2), 14A, 133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri Rajesh Kumar&Shri Pradip Kumar Choubey]
ORDER / आदेश Per Pradip Kumar Choubey, JM:
This is the appeal preferred by the assessee against order of Commissioner of Income Tax (Appeal)-NFAC, Delhi (hereinafter referred to as the Ld. CIT(A)] dated 23.09.2024 for AY 2012-13.
Assessment Year: 2012-13 Jagdamba Commotrade LLP 2. Brief facts of the case of the assessee is that the assessee filed return of income showing income of Rs. 4,138/-. The return was processed u/s 143(1) of the Act. The case was taken up for scrutiny. Notice u/s 143(2) was issued, in compliance to the notices, assessee filed various details required documents which was duly verified. The AO going over the balance sheet of the assessee found that the assessee had issued 4550 equity shares @ 10/- each and a premium of Rs.
The assessee had received total amount of Rs. 1,62,20,000/- against such shares during FY 2011-12 including premium of Rs. 158145000/-. The assessee was asked to furnish details /documents with regard to identity, genuineness and creditworthiness and as per the AO the assessee failed to do so, as a result of which, disallowance u/s 68 of the Act at Rs. 162,20,000/- has been added in the total income of the assessee and further disallowance u/s 14A an amount of Rs. 207415/- has also been added.
3. The said order has been challenged by the assessee before the Ld. CIT(A) wherein the appeal of the assessee has been dismissed thereby holding that the assessee could not furnish any satisfactory explanation with regard to the transaction involving share allotment at such share premium either before the AO during the assessment proceeding or during the remand proceedings. However, it is the fact that during the current FY 2012-13, the assessee has allotted shares although the amount was received during preceding years on account of share application money.
Being aggrieved and dissatisfied the assessee preferred the present appeal.
The Ld. Counsel of the assessee challenges the impugned order thereby submitting that the Ld. CIT(A) did wrong by confirming the order of the AO ignoring the fact that in the remand report issued by the AO reveals that the amount received by the assessee company is not in the FY 2011-12. Hence, the provision u/s 68 of the Act in the AY 2012-13 does not arise. The Ld. Counsel further submits that identity of the shares subscribers, creditworthiness and genuineness of the share subscription transaction has been duly proved and that has been established from the remand report that in response to the notices u/s 133(6) of the Act reply of the assessee has been Assessment Year: 2012-13 Jagdamba Commotrade LLP received. The Ld. Counsel further submits that the disallowance u/s 14A is also bad in law as the assessee did not earn any exempt income during FY 2011-12. The Ld. Counsel cited a decision of Hon’ble Calcutta High Court passed in the case of CIT vs. J J Development Pvt. Ltd. in of 2008 dated 16.06.2016.
Contrary to that the Ld. D.R supports the impugned order.
Upon hearing the submission of the Counsel for the respective parties. We have perused the order of Ld. CIT(A) and find that the Ld. CIT(A) in course of proceedings called remand report from the AO as the contentions of the assessee was that the he has furnished all the relevant documents and also tried to ensure the presence of the directors of subscribing companies but the AO deliberately refused to entertain. We have gone through the remand report which was received from the AO and it is essential to reproduce the same which is as follows:
“As the appellant had not furnished these submissions before the AO during assessment proceedings, remand report was requisitioned from the AO on these submissions filed during the appellate proceedings. The remand report was received from the AO on 23.08.2023 is as under: The assessee has raised the following additional ground before the Appellate Authority. For that on the facts and in the circumstances of the case, the Ld. AO erred in law as well as on facts in making an addition of Rs. 1,60,20,000/- by applying provisions of Section 68 in the AY 2012-13, when the alleged sum was received in earlier assessment year and therefore the provisions of Section 68 does not apply in the relevant assessment year. Details of share allottee: The shareholders of the assessee company who were allotted shares during the AY 2012-13 are as follows: Sl Name of PAN No. of Paid up Premium Total No. shareholders shares capital 1. Deepa Holding AAACD 9589 N 30650 3,06,500 1,19,53,500 1,22,60,000 Pvt. Ltd.
2. Maryan AACCM 0948 G 9400 94,000 36,66,000 37,60,000 Industries Pvt. Ltd.
The assessee has contended that 1. In the instant case, the assessee had accepted Rs. 1,62,200/- from three share subscribers as per following details: Assessment Year Amount received AY 2010-11 12,00,000/- AY 2011-12 1,50,20,000/- AY 2012-13 (Underlying AY) Nil That is in the preceding assessment years to the year in which the addition has been done by the Ld. AO.
1. The same was disclosed as liability in the Financial Statements as at 31.03.2011 under the head “share Application money Pending allotment” amounting to Rs. 1,60,20,000/- and “short term borrowings” amounting to Rs. 2,00,000/- as is evident from the Annexure B of the paper book under the heading “Audited financial Statement”
Further in support of its contentions the assessee has submitted the ledger confirmation along with bank statement showing receipt of payment in the preceding years from the share applicants i.e. Deepa Holding Pvt. Ltd., Maryn Industries Pvt. Ltd. and Sakthi Traders Pvt. Ltd. is Annexure E of the PB Thereafter to verify the assessee’s submission, notices u/s 133(6) were issued to all the share subscribers i.e. Deepa Holding Pvt. Ltd., Maryn Industries Pvt. Ltd. and Sakthi Traders Pvt. Ltd. vide DINITBA/COM/F- 17/2023- 24/1055102372(1)/ ITBA/COM/F/17/2023-24/1055102656 (1) and ITBA/COM/F/17/2023-24/1055103169(1) dated 14.08.2023 respectively. In response to the notices u/s 133(6) reply of the parties have been received and kept on record. The gist of the reply is as follows:
1.
Deepa Holdings Pvt. Ltd.: the party informed that the company had amalgamated with M/s Spring City Realtech Ventures (Pvt. ) Ltd. Compliance to notice u/s 133(6) has been received from M/s Spring City Realtech Ventures Pvt. Ltd. on behalf of M/s Deepa Holding Pvt. Ltd. The party had produced the copy of ledger confirmation and copy of bank statement showing payments made to the assessee in the preceding AY 2011-12 along with respective share application letter and share allotment advice.
2. Maryn Industries Pvt. Ltd: The erstwhile director of the company informed that the company has been wound up and produced MCA status of the same. Compliance to notice u/s 133(6) was done by him in capacity as an erstwhile director. The party had produced the copy of ledger confirmation and copy of bank statement showing payments made to the assessee in the Assessment Year: 2012-13 Jagdamba Commotrade LLP preceding AY 201-11 & 2011-12 along with respective share application letter and share allotment advice.
3. Shakti Treaders Pvt. Ltd.: Compliance to notice u/s 133(6) from M/s Shakti Traders pvt. Ltd. has been received. The party has produced the copy of ledger confirmation and copy of bank statement showing payments made to the assessee in the preceding AY 2011-12 along with respective share application letter and share allotment advice. Observation from compaliance to Notice U/s 133(6) The compliance made by the respective share subscribers have been perused and kept on record. On perusal of the reply of the assessee and materials gathered from third party verification u/s 133(6) along with other relevant documents, it is observed that the alleged amount as received by the assessee as per table below not related to relevant AY 2012-13.
1. Deepa Holding AAACD 9589 N 30650 3,06,500 1,19,53,500 1,22,60,000 Pvt. Ltd.
2. Maryan AACCM 0948 G 9400 94,000 36,66,000 37,60,000 Industries Pvt. Ltd.
Sakthi Traders AADCS 5600 A 500 5,000 1,95,000 2,00,000 Pvt. Ltd. Total 40550 4,55,000 1,58,14,500 1,62,20,000 On analysis of materials gathered u/s 133(6) from the above parties it is found that the amount received by the assessee company is not in the financial year 2011-12 hence provision u/s 68 in the AY 2012-13 does not arise. Also, the bank statement reveals that the transactions took place in earlier years i.e. prior to FY 2011-12. The contention of the assessee found to have been in order.”
Going over the remand report, there is no doubt the AO in sending the remand report has clearly stated that the amount received by the assessee company is not in FY 2011-12. Hence the provision of section 68 in AY 2012-13 does not arise. The remand report further reveals that bank statement reveals that the transaction took place in earlier years i.e. prior to financial year i.e. 2011-12. We have gone through the judgment of Hon’ble Calcutta High Court cited by the assessee and operative portion of the said judgment is reproduced as under:
“The court: The appeal is directed against a judgment and order dated November 16, 2007 passed by the learned Income Tax Appellate Tribunal, “C” Bench, Kolkata in and both pertaining to the assessment year 2003-04. ITA No. 2105/Kol/2006 was preferred by the assessee and ITA No. 126/Kol/2006 was preferred by the revenue. The assessee also filed a cross-objection which was numbered as C.O. No.
Assessment Year: 2012-13 Jagdamba Commotrade LLP 6/Kol/2007, connected with ITA No. 126/Kol/2006. The aggrieved revenue has come up in appeal. At the time of admission of the appeal, the following questions were formulated: (a) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that out of Rs.95,00,000/-, Rs.76,98,000/- constituted of old loans being converted in to share application money and since there was no fresh infusion of credit, Section 68 of the Income Tax Act, 1961 is not applicable? (b) Whether on the facts and in the circumstances of the case, then Income Tax Appellate Tribunal was justified in upholding the order of the Commissioner of Income Tax (Appeals) to the extent that the amount of Rs.76,98,000/- could not come under the purview of Section 68? (c) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal failed to consider that since the loan creditor has not given his consent to covert the unsecured loan to share application money treating the amount as cash credit under Section 68 was justified?" Insofar as question nos (a) and (b) are concerned, the views expressed by the learned Tribunal are as follows: “So far as the first limb of argument by the Ld. Sr. Counsel that conversion of unsecured loan into the share application money does not come under the purview of Section 68, we find substantial force in the argument advanced by the Ld. Counsel as in the present case, there is no fresh credit. So far as Rs. 76,38,002/- is concerned, apart from the opening balance of Rs. 60,000/-, since there are coming from the last year balance. Though M/s R. S. Malani has refused to give its consent to convert its unsecured loan into share application money in the name of four persons, but the fact remains same that the above credit is appearing in the books of the assessee since previous year and therefore cannot be a subject matter of section 68. We therefore, are of the opinion that the Ld. CIT(A) was justified in holding that the above amount to the extent of Rs. 76,98,000/- could not come under the purview of Section 68 and therefore, uphold his order to this extent. Ms. Quereshi, learned Advocate appearing for the revenue, was unable to point out any fault with the aforesaid fining recorded by the learned Tribunal. Section 68 of the Act, insofar as the same is material for our purpose, reads as follows: 68: Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. It is not the case of the revenue that any sum was found credited in the books of the assessee maintained for the previous aware. We are, in this case, concerned with the financial year ending on March 31,2003 which commenced on April 1, 2002. It is not the case of the revenue that during the period between April 1, 2002 and March 31, 2003, any sum was credited in the books of account of the assessee. The case of the revenue is that on April 1, 2002, the assessee owed a sum of Rs. 76,98,000/- to four several creditors. The debt owed by the assessee to those creditors was converted into share applications money. It is as such not a case where money was introduced to the till of the assessee during the relevant previous year. The money had already found its way into the till of the assessee since prior to April 1, 2002. Only the nature of deposit had changed during the previous year. The money which was owed by the Assessment Year: 2012-13 Jagdamba Commotrade LLP assessee by way of loan now became the capital of the assessee. We find that the view taken by the learned Tribunal are in conformity with section 68. Ms. Quereshi has also not been able to disclose any reason why any other view should be taken by us. In that view of the matter, questions (a) and (b) are answered in the affirmative and against the revenue.”
Going over the judgment as well as the facts of the case, we find substance in the argument of the ld. Counsel for the assessee that the addition of Rs. 1,62,20,000/- by the AO u/s 68 confirmed by the Ld. CIT(A) is erroneous. Hence the same is hereby directed to be deleted.
Now the second issue is with regard to the disallowance made u/s 14A of the Act. The Ld. Counsel for the assessee submits that the assessee had no exempt income during the FY 2011-12 relevant to AY 2012-13. Keeping in view, the submission of the ld. Counsel for the assessee, we are inclined to send this issue back before the AO to verify the same whether the assessee had earned any exempt income during FY 2011-12 relevant to AY 2012-13 and decide the case afresh.
In the result, the appeal filed by the assessee is allowed, A/O is directed to decide the issue of disallowance u/s14A after hearing and verifying the same as above.
Order is pronounced in the open court on 17th January, 2025