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Income Tax Appellate Tribunal, “D” BENCH: KOLKATA
Before: Shri S.S. Viswanethra Ravi, & Shri Dr. Arjun Lal Saini
ORDER Shri S.S.Viswanethra Ravi, JM:
This appeal and corresponding cross objection by the Revenue and Assessee are directed against the order of the Commissioner of Income Tax (Appeals), 2, Kolkata dt. 27-03-2017 for the A.Y 2012- 13.
Ground nos. 1 & 2 are involving the same issue of deletion of addition of Rs.45,00,000/- made u/s. 68 of the Act.
The facts relating to the issue are that during the course of assessment proceedings the AO found that the assessee company issued equity shares to its family members and two different private limited companies (M/s. Excel Suppliers Pvt. Ltd and M/s. Liberson Impex Pvt. Limited at higher premium. To verify the identity, creditworthiness of the share holders and genuineness of the transaction the AO issued notice u/s. 131 of the Act to the director. In his statement u/s. 131 stated that all the family members were given shares at equal rate and equity shares of 4500 were given/allotted to M/s.Excel Supplier Pvt. Ltd (2000 shares ) and M/s. Liberson Impex Pvt. Ltd (2500 shares). The AO was of the view that source of the fund of these two companies could not be verified and added an amount of Rs.45 lakhs u/s. 68 of the Act u/s. 68 of the Act as unexplained cash credit.
In challenge before the CIT-A the assessee contended that the AO issued notices u/s. 133(6) of the Act to both the said parties and replies from them given to the AO explaining the source of fund and source of sources of the parties. The assessee also contended that the AO appointed/deputed an IT Inspector to examine the said two companies, on which no adverse remark was entrusted to said companies. Beside this, the assessee also challenged the impugned addition u/s. 68 of the Act. For which, the assessee relied on many case laws.
Considering the above, the CIT-A held that all the share applicants/companies are registered with ROC [Registrar of Companies ] and transaction took place through regular bank accounts and the same were recorded in the bank accounts and also reflected in the audited financial statements and deleted the impugned addition made by the AO. For better understanding the reasons accorded by the CIT-A are reproduced herein below:-
“ I have considered the submissions of the authorized representative of the appellant as well as the assessment order framed in the light of the materials available on record before the assessing officer during the assessment proceedings. The facts of the case are that during the year, the appellant company had raised Rs.10,800,000/- by issuing share 10,800 Equity Shares of Rs.10/- at a premium of Rs.990/- each to the director’s, relative of director’s and corporate assessee. In course of the assessment proceedings, the appellant filed details, documents and evidences in compliance to the notices u/s. 14291) including name, address and PAN of share applicants along with details of amount received and shares allotted. The Assessing Officer in order to verify the identity and creditworthiness of the share applicants and genuineness of the 2 CO No. 86/K/17 transactions issued notices u/s. 131 of the income tax act, 1961 ( the Act) to the director of the assessee company requiring the personal presence. In response to the said summon the director of the assessee company were appeared before the Ld. AO and their statement were recorded on Oath. The director have submitted that during the assessee company had issued equity shares to directors, relative of directors and two other companies. In addition they also filed the necessary details/documents as asked in summon notice. Later on, as asked by AO to file details/documents related to source of source company, the assessee on 17.03.2015 filed the Summary of source to source along with a paper book containing (1) Documents relating to source of share applicants (a) Acknowledgement of Return of Income (b) Audited Financial Statements (c) List of Investment (d) Bank Statements (e) Source of Fund. The appellant further states that the appellant had paid interim dividend of Rs. 2.50 shares to all share applicants on 31.03.2012. Moreover, the shareholders as on 31.03.2012 are still the shareholders of the company. The AO assessed the share capital arid premium as unexplained cash credit of Rs 45 lacs out of 108 Lacs in the hand of the assessee stating that "The Source of the fund of M/s Excel Suppliers Pvt.Ltd. and M/s Liberson Impex Pvt. Ltd. could not be verified and therefore the share allotment of these two companies is added back as unexplained cash credit."
The AR has further has stated that the AO has not doubted the identities of the share applicants, their creditworthiness or the genuineness of the transactions. The addition has been made by the AO that the source of funds in the hands of the share applicants could not be verified. The AO in course of the assessment proceedings issued notices u/s 133(6) to the share applicant which were duly served. In the said notice the AO specifically required the share applicants to explain the source of fund s of such share application money. The copies of notices issued u/s 133(6) appears at Page No. 28-29 of the paper book. In compliance to the same, the share applicants filed all the details and documents as called for by the AO including the source of fund -and the nature of receipt. The replies of the share applicants appear at Page Nos. 30-33 of the paper book. The source of funds appears at Page No. 49 and 91 of the paper book. The documents relating to source of source parties appear at Page Nos. 76 to 86 and Page Nos. 118 to 147 of the paper book. As such the share applicants duly explained to the AO the source of their funds, nature of receipts and evidences of such parties. As such the allegation of the AO that the source of fund could not be examined is frivolous and contrary to the materials on record. The AR of the appellate further has submitted that all the share applicants are companies registered with ROC and files regular returns of income. The transactions have taken place through regular bank accounts and have duly been recorded in their books of account and reflected in the Audited Financial Statements. It is apparent from the records that the share applicants have sufficient funds in the form of share-capital and reserved to invest in the appellant company and that there is no cash- deposit in the account of any of the share applicants. All the notices issued to the share applicants have duly been served upon them. In response to the notices the share applicants have filed details, documents and explanations as called for and have confirmed the investments made by them in the appellant company. The share applicants in their replies have also explained the source of money for making investment in the appellant company. The AR of the appellate placed his reliance on various judgements in support of the identity and capacity of the share applicants and genuineness of the transactions.
The appellate has raised Rs 108 lacs as shares capital from family member. Relative and two corporate bodies and out of that only 45 lacs has been added by the AO stating that The source of the fund of these two Companies could not be verified and therefore the share allotment money of these two Companies amounting to Rs. 451akhs is added back to the total income as unexplained cash credit u/s.
As mentioned above, the investor companies filed their reply along with all the documents including source of fund and the appellate company also filed source of the source of the capital as raised during the year. The major part of the capital as raised by the appellate company has already been allowed by the AO. Keeping in view of above, the AO is directed to delete the addition. This ground of appeal is allowed.”
The ld.DR relied on the order of the AO and submitted that the assessee did not give full details in respect of said two companies to the AO and the AO issued notices u/s. 133(6) of the Act to both the said parties/companies. The said companies did not comply with the said notices as issued by the AO. The AO added the same as the identity, genuineness and creditworthiness of the transaction could not be verified. Therefore, he rightly added the impugned amount. He vehemently supported the order of the AO.
On the other hand, the ld.AR submitted that in response to notices issued u/s. 133(6) of the Act to the said two parties namely, M/s.Excel Supplier Pvt. Ltd and M/s. Liberson Impex Pvt. Ltd, the assessee filed all the details before the AO. Under Section 131 statement, the assessee was asked to file the details before the AO. But, without considering the same, the AO arbitrarily added the impugned amount u/s. 68 of the Act, which is not maintainable in the facts and circumstances of the case.
Heard the rival submissions and perused the material on record. It is noted that the impugned addition was made u/s. 68 of the Act only on the ground that source of funds of the said two companies could not be verified by the AO. From the impugned order of the CIT-A, it is noticed that in response to notice issued u/s. 133(6) of the Act the said two parties appeared and filed replies regarding source of fund and source of sources. The CIT-A examined all the details, which were placed before us at pages 30-33, 49-91, 76-86 and 118 – 147 of the paper book. We also note that the AO appointed an Income-tax Inspector to examine the said two companies, where there was no adverse remark in respect of the said two companies. From the impugned order of the CIT-A, it is noticed that the said two companies were registered with ROC[ Registrar of Companies ] and filed their respective returns and stated that the payment of transaction for share application money was through banking channel and the same was also reflected in the audited financial statements and books of account. We find that only the requirement u/s. 68 of the Act is as to whether the assessee offered proper explanation to the satisfaction of the AO or not. We find that under 131 statement, the director of the assessee explained in detail about the allotment of shares to its family members as well as to said two private companies. We also find that all the details as required by the AO were before the the AO in the assessment proceedings as also seen from the impugned order of the CIT-A. He also examined all the details filed before him. Therefore, the addition made u/s. 68 of the Act is not maintainable in the facts and circumstances of the case. We find no infirmity in the impugned order of the CIT-A and uphold the same. Therefore, Ground nos. 1 & 2 of the revenue are dismissed.
Ground no. 3 is relating to deletion of disallowance of expenses made u/s. 14A of the Act.
On perusal of record, it is clear that the assessee did not earn any exempt income, but, inspite of which, the AO disallowed an expenditure to an extent of Rs.31,280/- u/s. 14A r.w Rule 8D(2)(iii) of the IT Rules 1962. The CIT-A by relying on the decision of the Hon’ble Delhi High Court in the case of Chemnivest Vs. CIT deleted the impugned disallowance. Relevant portion of CIT-A order is reproduced herein below:-
“I have considered the submissions of the AR of the appellant. In present appeal, it is not in dispute that appellant company has not earned any dividend income during the year in respect of investments made. Facts of the appellant’s case are squarely covered by the judgement delivered by Hon’ble Delhi High Court in the case of CIT v. Holcim India Pvt. Ltd., in and others, on which Ld. AR has relied as well, wherein issue on similar facts has been decided against the Revenue. In CIT v Holcim India Pvt. Ltd ( supra) case, the Hon’ble Delhi High Court has referred to the judgements of Punjab^& Haryanana High Court in the case of CIT Faridabad vs. Lakhani Marketing Incl (ITA No. 970/2008 decided on 02.04.2014), CIT 1 vs. Corrtech Energy Pvt. Ltd (2014) 223 taxman 130 (Guj.) and case decided by Allahabad High Court in the case of CIT Kanpur V. Shivam Motor Pvt. Ltd in ITA No. 88 of 2014. In these judgements, the Hon’ble Courts have held that in the absence of any tax free income, the corresponding expenditure could not be worked out for making disallowance u/s. 14A of the Income Tax Act, 1961. In subsequent judgement of Cheminvest Ltd Vs. CIT in ITA No. 749 of 2014, the Hon’ble Delhi High Court vide order dated 02.09.2015 has reiterated that section 14A will not apply if no exempt income is received or receivable during the assessment year under consideration. Further the decision on which AO has placed reliance for making disallowance u/s. 14A has subsequently travelled to Delhi High Court and Hon’ble Court reversing the decision (Cheminvest vs Commissioner of Income Tax-VI, ITA 749/2014 order dated 02.09.2015) of Hon’ble ITAT has held that section 14A will not apply if no exempt income is received during the relevant previous year. The Chennai Bench of Tribunal in ACIT vs. M. Baskaran has held that Delhi Special Bench decision in case of Cheminvest Ltd and circular no 5/2014 dated 11.02.2014 does no more hold good in law. In view of above, the disallowance made u/s. 14A of the Act read with Rule 8D is not found to be sustainable and is accordingly deleted. In view of above, the AO is directed to delete the addition. This ground of appeal is allowed.”
11. In view of above, we find no infirmity in the impugned order of the CIT-A. We uphold the same. Therefore, ground no. 3 raised by the revenue is dismissed.
The appeal of the Revenue in A.Y 2012-13 is dismissed.
C.O No.86/Kol/2017 ( arising out of A.Y 2012-13) ( by the assessee).
It was submitted by the ld.AR that this C.O has been filed in support of the order of the CIT-A. Since we have already upheld the impugned order of the CIT-A by dismissing the appeal of Revenue, therefore, the C.O of the assessee needs no adjudication. The same is hereby dismissed.
In the result, the appeal of revenue and cross objection of the assessee both are dismissed. Order pronounced in the open court on 15-11-2017