ELEGANT DEALMARK PVT. LTD.,KOLKATA vs. ITO, WARD-5(3), KOLKATA

आयकर अपीलीय अधिकरण कोलकाता 'ए' पीठ, कोलकाता में IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘A’ BENCH, KOLKATA श्री राजपाल यादव, उपाध्यक्ष (कोलकाता क्षेत्र) एवं श्री संजय अवस्थी, लेखा सदस्य के समक्ष Before SRI RAJPAL YADAV, VICE-PRESIDENT & SRI SANJAY AWASTHI, ACCOUNTANT MEMBER I.T.A. No.: 51/KOL/2024 Assessment Year: 2012-13 Elegant Dealmark Pvt. Ltd......................................................Appellant [PAN: AACCE 7972 Q] Vs. ITO, Ward-5(3), Kolkata........................................................Respondent Appearances: Assessee represented by: None. Department represented by: B.K. Singh, Addl. CIT. Date of concluding the hearing : July 8th, 2024 Date of pronouncing the order : August 21st, 2024 ORDER Per Sanjay Awasthi, Accountant Member: In this case, the appellant company was incorporated in the FY 2011- 12 and filed its return of income on 23.12.2012 showing a total income of Rs. 289/-. The Assessing Officer (hereinafter referred to as ld. 'AO') focused on proving the genuineness of the share application money of Rs. 1,57,50,000/- , comprising of Rs. 17,825 shares of face value of Rs. 10/-, with a premium of Rs. 990/- each. Ld. AO also recorded the following finding with regard to the efforts made by him to establish the genuineness etc. of the impugned transaction as under:

I.T.A. No.: 51/KOL/2024 Assessment Year: 2012-13 Elegant Dealmark Pvt. Ltd. “To verify the genuineness of the said transactions and to verify the identity and creditworthiness of the shareholders of the assessee company, notice u/s 131 of I.T. Act was issued to directors of the shareholder companies of the assessee. They were asked to appear personally before the undersigned and to produce/ furnish details / documents in support of the justification for the investment made by them in the assessee company and other details as asked for. but, none of them appeared before the undersigned. Hence, genuineness of the said transaction and identity & creditworthiness of the shareholders of the assessee could not be verified. After that a letter was issued to the assessee on 18.02.2015 informing the said facts and was asked to produce the directors of the shareholder companies and to prove the genuineness of the said transaction and identity & creditworthiness of its shareholders. Vide this letter assessee was also asked to show cause as to why share application money received by it should not be treated as bogus and why the same should not be treated as its unaccounted money introduced in its books of accounts as share application money. Assessee was also asked vide this letter as to why the said share application money should not be treated as unaccounted cash credit in its books as per the provisions of section 68 of I.T. Act. But, assessee failed to put forward any explanation Lill the date of passing of this order. That means assessee failed to discharge its onus to prove the genuineness of the said transaction and identify & creditworthiness of its shareholders” 1.1. The ld. AO also added an amount of Rs. 9,647/- u/s 14A of the Income Tax Act, 1961 (in short the 'Act') read with Rule 8D of the Income Tax Rules, 1962. For this disallowance, he relied on Circular No. 5/2014 dated 11.02.2014 issued by CBDT to imply that even exempt income which may be earned in future could be hit by the provisions of Section U/s 14A of the Act read with Rule 8D of the Rules. 1.2. Aggrieved with these actions of the ld. AO the appellant approached the Commissioner of Income Tax (Appeals)-NFAC, Delhi [hereinafter referred to as ld. 'CIT(A)'] and averred before him that in spite of considerable documentation filed before the ld. AO to prove the genuineness of the impugned transaction, an adverse view was taken. It is seen that the ld. CIT(A) relied on a number of authorities and held that the onus cast upon the appellant to escape the rigours of Section u/s 68 of the Act was not discharged and thereafter, he proceeded to confirm the addition made by the ld. AO. Also, regarding the disallowance of Rs. 9,647/-, the ld. CIT(A) confirmed the action of ld. AO.

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I.T.A. No.: 51/KOL/2024 Assessment Year: 2012-13 Elegant Dealmark Pvt. Ltd. 1.3. Aggrieved with the action of the authorities below, the appellant has approached the ITAT through the following grounds of appeal:

“(1) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of Assessing Officer who considered share capital with premium aggregating to Rs. 1,57,50,000/- as unexplained cash credit u/s 68 of Income Tax Act, 1961. (2) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the disallowance u/s 14A of the IT Act read with Rule 8D of IT Rules amounting to Rs. 9,647/-. (3) That the appellant craves leave to add, alter, adduce or amend any ground or grounds on or before the date of hearing of the appeal.” 2. Before us, the appellant has filed written submissions dated 29.04.2024 along with a paper book comprising of 162 pages. This paper book would be referred extensively for dealing with this matter.

2.1. To appreciate the factual position, it would be necessary to capture the gist of arguments advanced by the appellant through the paper book. For this purpose, certain portions deserve to be extracted:

“4. To establish identity, creditworthiness and genuineness of share application from above parties, the appellant furnished the areas documents as specified against each which are shown below: Sl. Name List of documents furnished No. 1. ARATI DEALERS PVT.LTD. I.T. Acknowledgement, Audited Balance Sheet, Share Application (Form No. 2), Bank Statement. 2. BETTERCHOICE MERCHANTS PVT.LTD. — DO — 3. CHATURBHUJ SUPPLIERS PVT.LTD. — DO — 4. MATESHWARI AGROTECH PVT.LTD. — DO — 5. NAVNITA DEALCOMM PVT. LTD. — DO — 6. ODYSSEY TRADECOM PVT.LTD. — DO — 7. PEARLVINIMAY PVT.LTD. — DO — 8. YASHASWINI COMMOSALE PVT.LTD. — DO — 9. ZEUS VINIMAY PVT.LTD. — DO — 5. The appellant has furnished complete evidences in discharge of its own. All the shareholders are body corporate and duly incorporated under the Companies Act, 1956. It cannot be said that they have no identity of their onus. The share applicant companies are also independently assessed to Income Tax.

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I.T.A. No.: 51/KOL/2024 Assessment Year: 2012-13 Elegant Dealmark Pvt. Ltd. 6. Regarding the genuineness of the share transaction undertaken with the said applicants such subscriptions were received by account payee cheques through banking channel which is traceable from the origin to the destination of such payments. Further, the implement share application moneys were recorded in the balance sheets and duly reflected in their returns filed with the respective Assessing Officer of share applicants. Therefore the genuinity of the transactions cannot be called into question. ………………………………………………… ………………………………………………… 8. Ld. A.O. has disbelieved such genuine transactions with a pre-determined mindset. There was no case of the A.D. that there was any dearth of proof in support of share application money received by the Appellant from the share applicants. The copies of the Return Income along with audit report and financial statements, bank statements, and allotment advice etc. were filed with him. There were no cash transaction in their respective Bank accounts filed with the Ld. A.O. The entire gamut of transactions was undertaken in their respective Bank accounts filed with the Ld. A.O. The entire gamut of transactions was undertaken by way of Account Payee Cheque only. In respect of the share applicants there were more than enough funds to subscribe to the share of the appellant as furnished earlier. 9. Thus it may be submitted that the share applicants had sufficient balances to advance the share application moneys to the appellant during the financial years relevant to the Assessment Year under dispute. ………………………………………………… ………………………………………………… 21. The various documents including I.T. Return acknowledgement accounts with Balance Sheet, Bank Statement, etc. furnished on record have not been found to be false on enquiry. There is no adverse remark so far as various documentary evidences furnished on records are concerned. No independent enquiry was conducted by A.O. from the Assessing Officer of share applicant. The A.O. has not pointed as to how on the basis of evidences filed by the share applicant it can be concluded that ingredients of section 68 are not fulfilled. There is no finding that either the Assessee or the share applicant is Paper Company and not a genuine Investor. Hence the adverse comments are not maintainable. 22. It is submitted that there is not ground to draw adverse inference for non-appearance of Directors of allottee company since all possible evidences of the existence, creditworthiness and genuinity was furnished on record. There is nothing more for the Directors to state in this respect. Moreover the provisions of section 68, do not suggest any essential relation of the Director of share holder company.

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I.T.A. No.: 51/KOL/2024 Assessment Year: 2012-13 Elegant Dealmark Pvt. Ltd. ………………………………………………… ………………………………………………… 22. lt is submitted that there is not ground to draw adverse inference for non-appearance of Directors of allottee company since all possible evidences of the existence, creditworthiness and genuinity was furnished on record. There is nothing more for the Directors to state in this respect. Moreover the provisions of section 68, do not suggest any essential relation of the Director of share holder company. This A.O. error in disallowing the P/L of expenditure to the tax tune of Rs. 37,375/- notionally although all relevant papers and documents were produced by the assessee to prove the expenditure to be allowable as per provisions of sec 14A, of I.T. Act read with rule 8D of I.T. Rules.” 2.2. Regarding the addition of Rs. 1,57,50,000/- u/s 68 of the Act a combined reading of the ld. AO’s findings extracted (supra), the findings of ld. CIT(A) (which mainly relied on certain authorities) and a reading of the written submissions of the appellant extracted (supra) would reveal that the question whether the onus cast on the appellant to escape the rigours of Section 68 of the Act is primary one which needs to be deliberated upon. It is not in doubt that the appellant filed considerable number of documents to establish the creditworthiness and identity of the share capital subscribers and also attempted to prove the genuineness of the transaction through supplying of bank statements/documents etc. In a case of the Coordinate Bench of ITAT, Kolkata in M/s. Nexcare Agency Pvt. Ltd. vs. ITO in ITA No. 35/KOL/2023 order dated 26.07.2024 on somewhat similar facts it was found that the financial condition of the appellant in that case was not good enough to attract substantial premiums on the shares issued to certain subscribers. Relevant portions from the said case deserve to be extracted which are as follows: “5.1. The profit and loss account filed by the assessee paints a grim picture about the qualitative aspect of commercial activity which does not seem to justify a premium of Rs. 490/- on a share with face value of Rs. 10/-. Thus total revenues of Rs 1,26,350 for the year ending on 31.3.2012 and Rs. 96,020 for the year ending on 31.3.2011 are visible, which cannot be said to indicate a healthy bottom-line or even a robust business model. Considering this fact, it would be all the more prudent to examine the genuineness etc. of the 11 concerns which chose to repose considerable faith in the commercial future of the assessee to trust them with huge sums of money. It was on a somewhat similar situation when the Hon'ble Page 5 of 15

I.T.A. No.: 51/KOL/2024 Assessment Year: 2012-13 Elegant Dealmark Pvt. Ltd. Jurisdictional High Court upheld the doubtful nature of share premium monies being given to companies having doubtful commercial credentials in the case of PCIT vs. BST Infratech Ltd. reported in [2024] 161 taxmann.com 668 (Calcutta). Hon'ble Calcutta High Court had occasion to observe that in the said case investors had no reason to invest huge amounts in business of that assessee and the entire transaction was done to circumvent the provisions of the Act. It has been held that the action of the assessing officer in treating such share application money u/s 68 of the Act as undisclosed cash credit was justified. The relevant portion from this order deserves to be extracted as under: “36. In Swati Bajaj, the court held that based on the foundational facts the department has adopted the concept of "working backward" leading to the assessee. The department would be well justified in considering the surrounding circumstances, the normal human conduct of a prudent investor, the probabilities that may spill over and then arrive at a decision. 37. Thus the CIT(A) was right in adopting a logical process of reasoning considering the totality of the facts and circumstances surrounding the allegations made against the assessee taking note of the minimum and proximate facts and circumstances surrounding the events on which charges are founded so as to reach a reasonable conclusion and rightly applied the test that a reasonable/prudent man would apply to arrive at a conclusion. On facts we are convinced to hold that the assessee has not established the capacity of the investors to advance moneys for purchase of above shares at a high premium. The credit worthiness of those investors companies is questionable and the explanation offered by the assessee, at any stretch of imagination cannot be construed to be a satisfactory explanation of the nature of the source. The assessee has miserably failed to establish genuineness of the transaction by cogent and credible evidence and that the investments made in its share capital were genuine. As noted above merely proving the identity of the investors does not discharge the onus on the assessee if the capacity or the credit worthiness has not been established. 38. In the light of the above discussion, we hold that the assessee has failed to discharge legal obligation to prove the genuineness of the transaction and the credit worthiness of the investor which has shown to be so by a "round tripping" of funds. For all the above reasons, the revenue succeeds. 39. In the result the appeal is allowed, the order passed by the learned Tribunal is set aside and the order passed by the CIT(A) dated 28.11.2019 is restored and the substantial questions of law are answered in favour of the revenue.” 5.2. We also draw considerable strength from the case of PCIT vs. NRA Iron & Steel (P.) Ltd. reported in [2019] 412 ITR 161 (SC) in which share application money was approved for action u/s 68 of the Act even where

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I.T.A. No.: 51/KOL/2024 Assessment Year: 2012-13 Elegant Dealmark Pvt. Ltd. the share applicants had filed confirmations and attempted to show that the transactions have taken place through normal banking channels, etc. In this case, the Hon'ble Apex Court has dealt with the issue from a legal perspective and some of the passages deserve to be extracted for reference: “This Court in the land mark case of Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1 (SC) and, Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC) laid down that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and creditworthiness, then the Assessing Officer must conduct an inquiry, and call for more details before invoking section 68. If the assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source. [Para 8.2] With respect to the issue of genuineness of transaction, it is for the assessee to prove by cogent and credible evidence, that the investments made in share capital are genuine borrowings, since the facts are exclusively within the assessee's knowledge. Merely, proving the identity of the investors does not discharge the onus of the assessee, if the capacity or credit-worthiness has not been established. [Para 8.3] The Assessing Officer ought to conduct an independent enquiry to verify the genuineness of the credit entries. In the instant case, the Assessing Officer made an independent and detailed enquiry, including survey of the so- called investor companies from Mumbai, Kolkata and Guwahati to verify the credit-worthiness of the parties, the source of funds invested, and the genuineness of the transactions. The field reports revealed that the shareholders were either non-existent, or lacked creditworthiness. [Para 9] The principles which emerge where sums of money are credited as Share Capital/Premium are: i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and creditworthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the Assessing Officer, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the creditworthiness of the creditor/ subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name- lenders. iii. If the inquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. In such a case, the assessee Page 7 of 15

I.T.A. No.: 51/KOL/2024 Assessment Year: 2012-13 Elegant Dealmark Pvt. Ltd. would not have discharged the primary onus contemplated by section 68. [Para 11] In the instant case, the Assessing Officer had conducted detailed enquiry which revealed that: i. There was no material on record to prove, or even remotely suggest, that the share application money was received from independent legal entities. The survey revealed that some of the investor companies were non-existent, and had no office at the address mentioned by the assessee. The genuineness of the transaction was found to be completely doubtful. ii. The enquiries revealed that the investor companies had filed returns for a negligible taxable income, which would show that the investors did not have the financial capacity to invest funds ranging between Rs. 90 lakhs to Rs. 95 lakhs in the assessment year 2009-10, for purchase of shares at such a high premium. iii. There was no explanation whatsoever offered as to why the investor companies had applied for shares of the assessee company at a high premium of Rs. 190 per share, even though the face value of the share was Rs. 10 per share. iv. Furthermore, none of the so-called investor companies established the source of funds from which the high share premium was invested. v. The mere mention of the income tax file number of an investor was not sufficient to discharge the onus under section 68. [Para 12] The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the assessee since the information is within the personal knowledge of the assessee. The assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the Assessing Officer, failure of which, would justify addition of the said amount to the income of the assessee. [Para 14] On the facts of the present case, clearly the assessee company - respondent failed to discharge the onus required under section 68, the Assessing Officer was justified in adding back the amounts to the assessee's income. [Para 15]” 5.3. It is seen that in another case on somewhat similar facts, the Hon'ble Calcutta High Court in the case of BalGopal Merchants (P.) Ltd. vs. PCIT reported in [2024] 162taxmann.com465 (Calcutta) has held that action u/s 68 of the Act was justified. 6. A close reading of the case laws cited (supra) reveals that mere filing of confirmations and the income tax details etc. are not enough to justify Page 8 of 15

I.T.A. No.: 51/KOL/2024 Assessment Year: 2012-13 Elegant Dealmark Pvt. Ltd. payment of monies as share premium when the financial aspects of the recipient company would not merit such investments under any kind of prudent consideration. In the present case while 4 out of 11 share applicants were not traceable on given addresses and one more did not respond to the summons, it is evident that even those share applicants who did file certain documents, were not sufficient in the eyes of law to discharge the burden cast on the assessee regarding proving the genuineness of the transaction. The profit and loss account statement extracted (supra) would normally paint a grim picture to any prudent investor, however, in this case it seems to have encouraged 11 entities to transfer huge sums of money by way of share premium. 6.1. Considering the case laws cited (supra) the financial health of the assessee and the inadequate discharge of onus, we hold this case to be a fit case for application of Section 68 of the Act and thereby confirm the impugned addition.” 2.3. In this case the sub-par financial condition of the appellant is evident from the profit and loss account filed in the paper book as under:

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I.T.A. No.: 51/KOL/2024 Assessment Year: 2012-13 Elegant Dealmark Pvt. Ltd. 2.4. It is seen that the appellant has a very nominal income of Rs. 5,000/- during the year under consideration and expenses of Rs. 9,647.75 only. It is clear that such sub-par financials cannot justify premiums of Rs. 990/- per share to any prudent investor. Accordingly, the insistence by the ld. AO for ensuring the presence of the Directors of the appellant company for verification was justified. Merely the filing of financial statements, income tax details and bank statements will not be enough to prove the genuineness of the transaction in a closely held company, which is certainly distinct from a widely held company in which the general public is invited to invest and, needless to say, the public invests on a fair appraisal of the financials and future prospects of the company. In this case, the ld. AO was right in insisting on more verification than whatever the appellant was willing to submit before him. In this regard a recent case of the Hon'ble Calcutta High Court in PCIT vs. One Point Commercial (P.) Ltd. reported in [2024] 161 taxmann.com 737 (Calcutta) on similar facts has given an order which will help in deciding this case conclusively. Certain portions deserve to be extracted from the said order as under: “4. The Assessing Officer while completing the assessment under Section 143(3) of the Act by order dated 24th March, 2015 held that the assessee has failed to prove anyone of the three ingredients which are required to be proved under Section 68 of the Act. Several decisions were referred to and the Assessing Officer concludes that there was no documents produced by the assessee to substantiate their claim. This order was affirmed by the Commissioner of Income Tax (Appeals)-9 [CIT(A)] by order dated 21st January, 2019 holding that merely furnishing documents in a routine way does not explain the source of creditworthiness of the party. Further, it has been held that the basis on which premium has been charged for the shares has not been explained; no efforts have been made with the help of financial statements to justify the quantum of share premium charged. The CIT(A) placed reliance on the decision of Kolkata Bench of the Tribunal in the case of ITO v. Blessings Commercial (P.) Ltd. [2018] 91 taxmann.com 176 in ITA 271/Kol/2014, dated 28th June, 2017 and other judgments and ultimately the appeal was dismissed. On an appeal preferred by the assessee before the Tribunal, the concurrent findings recorded by the Assessing Officer and the CIT(A) have been set aside and the appeal has been allowed. The impugned order passed by the Tribunal runs to 14 pages and in paragraph 11 (emphasis added) of the impugned order, the learned Tribunal has recorded that from the bare perusal of the paper book and the documents

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I.T.A. No.: 51/KOL/2024 Assessment Year: 2012-13 Elegant Dealmark Pvt. Ltd. placed, it is revealed that all the share applicants are income tax assessees, they are filing their income tax returns, share application form and allotment letter is available on record which were filed in response to the notice under section 133(6), share application money was made by account payee cheques, details of the bank accounts belonging to the share applicants and their bank statements have been furnished and all the share applicants are having substantial creditworthiness represented by their capital and reserves. Though such is the findings recorded by the Tribunal, it is not supported by facts. The Assessing Officer has held that the assessee was a Private Limited company which cannot issue shares in the same manner in which Public Limited company does and in so far as creditworthiness of the share subscribers is concerned, there must be positive evidence to show the nature and source of resources of the share subscribers and if the assessee was serious enough to establish his case, it ought to have complied with the notices/letters issued by the Assessing Officer and ought to have produced the directors of the subscribing companies before the Assessing Officer so that they could explain the sources from which the share subscription was made. It is stated that there is no complaints either from the end of the assessee company or from the end of the alleged subscriber company. This finding recorded by the Assessing Officer as affirmed by the CIT(A), if required to be set aside by the learned Tribunal, reasons have to be assigned. Therefore, we find that the conclusion arrived at by the learned Tribunal in paragraph 11 is insufficient to support its ultimate conclusion in allowing the assessee's appeal. Therefore, we are of the view that the matter has to be remanded back to the Tribunal for fresh consideration.” 2.5. Interestingly, para 11 of the ITAT’s case [ITA No. 473/Kol/2019, AY 2012-13] which has specifically not been approved in this order also deserves to be extracted.

“11. From the perusal of the paper book and the documents placed therein, it is vivid that all the share applicants are (i) income tax assessees, (ii) they are filing their income tax returns, (iii) share application form and allotment letter is available on record which were filed in response to notice u/s 133(6), (iv) share application money was made by account payee cheques, (v) details of the bank accounts belonging to share applicants and their bank statements, (vi) all the share applicants are having substantial creditworthiness represented by their capital and reserves.” 2.6. It is clear that merely filing income tax details, share application form & allotment letter, bank details and details about the creditworthiness of the share applicants is not enough to prove a transaction from the point of view of Section 68 of the Act. In this case also, the appellant is seen to have filed

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I.T.A. No.: 51/KOL/2024 Assessment Year: 2012-13 Elegant Dealmark Pvt. Ltd. documents, by and large, as mentioned in para 11 of the ITAT’s order (supra), but following the extracted portions from the case of M/s. Nexcare Agency Pvt. Ltd. (supra) and the Hon'ble Calcutta High Court’s order in the case of One Point Commercial Pvt Ltd, as extracted (supra), it is held the onus cast on the appellant for escaping from the provisions of Section 68 of the Act have not been discharged and thus, the action of the authorities below is confirmed and the appeal on this point is dismissed. 3. Regarding the addition of Rs. 9,647/- made u/s 14A of the Act read with Rule 8D of the Rules, it is evident that the appellant has not earned any exempt income this year and thus, relying on the findings in the case of (i) Eveready Industries India Ltd. vs. PCIT reported in [2020] 114 taxmann.com 610 (Kolkata - Trib.), (ii) PCIT vs. Vardhman Chemtech (P.) Ltd. reported in [2020] 423 ITR 241 (Punjab & Haryana) and in the case of (iii) ERA Infrastructure (India) Ltd. reported in 448 ITR 674 (Delhi)[20-07-2022], the appellant deserves relief. The relevant extracts from the three authorities are as under: (i) Eveready Industries India Ltd.: “33. From the assessment order as also from the facts on record it appeared that during the relevant year the appellant did not earn any dividend from its investments made in shares of other bodies corporate. We also note that barring investment of about Rs.5 lacs, the investments held by the appellant were in foreign subsidiaries from which no exempt dividend could have been earned. We also note that in the course of assessment the AO had specifically required the assessee to explain why disallowance u/s 14A of the Act should not be made. The assessee vide its letter dated 14.12.2016 had explained before the AO that no disallowance u/s 14A was warranted since during the relevant year it did not earn any tax free dividend. The relevant letter is available at Page 23 of the paper book. After considering the submissions of the assessee, the assessment order was passed u/s 143(3) of the Act in which no disallowance u/s 14A was made. We thus find that it was not a case where the aspect of disallowance u/s 14A was not enquired into by the AO prior to completion of assessment. We also find that the view entertained by the AO for not making disallowance u/s 14Aof the Act, in absence of earning of tax free dividend, was in consonance with the judicial view expressed by the High Courts at Calcutta, Delhi, Gujarat, Madras& Allahabad. The relevant citations are as follows:

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I.T.A. No.: 51/KOL/2024 Assessment Year: 2012-13 Elegant Dealmark Pvt. Ltd. - CIT v. Ashika Global Securities Ltd. [GA No. 2122 of 2014, dated 11-6- 2018] - Cheminvest Ltd. v. CIT [2015] 61 taxmann.com 118/234 Taxman 761/378 ITR 33 (Delhi) - Pr. CIT v. IL & FS Energy Development Co. (P.) Ltd. [2017] 84 taxmann.com 186/250 Taxman 174/399 ITR 483 (Delhi) - CIT v. Corrtech Energy (P.) Ltd. [2014] 45 taxmann.com 116/223 Taxman 130/[2015] 372 ITR 97 (Guj.) - CIT v. Shivam Motors (P.) Ltd. [2015] 55 taxmann.com 262/230 Taxman 63 (All.) - Redington India Ltd. v. Addl. CIT [2017] 77 taxmann.com 257/392 ITR 633 (Mad.) 34. For the reasons set out above we therefore hold that the assessment order passed by the AO in which no disallowance u/s 14Aof the Act was made, could not said to be unsustainable in law because the course adopted by the AO while passing the order u/s 143(3) of the Act was not only permissible in law but the said course was in conformity with the view expressed by the jurisdictional high court. Accordingly the impugned order of the Ld. Pr. CIT with reference to the reasons set out in clause (c) of the SCN is held to be unsustainable and accordingly set aside. Ground Nos. 8 & 9 are therefore allowed.” (ii) Vardhman Chemtech (P.) Ltd.: “■ Section 14A provides for disallowance of expenditure in relation to income not 'includible' in total income. [Para 7] ■ The Tribunal while relying upon the judgment of this Court in CIT v. Lakhani Marketing Inc. [2014] 49 taxmann.com 257/226 Taxman 48 (Punj. & Har.) (Mag.) had held that section 14A cannot be restored to in the year in which no exempt income had been earned. However, the revenue relied upon the CBDT Circular dated 11-2-2014 to contend that section 14A can be invoked even in the year in which no exempt income had been earned. Accordingly, the Tribunal had dismissed the appeal of the revenue holding that unless and until there is receipt of exempted income for the concerned assessment year, section 14A is not attracted. [Para 11] ■ The Tribunal had, regarding the ground of deletion of disallowance amounting to Rs. 40.29 lakhs under section 14A, recorded that there was no infirmity in the order of the Commissioner (Appeals), who deleted the disallowance made following the decision of the jurisdictional High Court in the case of Lakhani Marketing Inc. (supra). The argument of the revenue that the CBDT Circular No. 5/2014, dated 11-2-2014 stating that even in the

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I.T.A. No.: 51/KOL/2024 Assessment Year: 2012-13 Elegant Dealmark Pvt. Ltd. absence of any exempt income disallowance under section 14A had to be made, is binding on the revenue authority, had no merit. [Para 12] ■ No illegality or perversity could be demonstrated by the Revenue in the aforesaid findings recorded by the Tribunal. [Para 13] ■ Thus, the substantial question of law as claimed is to be answered accordingly and the appeal is to be dismissed. [Para 15]” (iii) ERA Infrastructure (India) Ltd.: Section 14A of the Income-tax Act, 1961, read with rule 8D of the Income- tax Rules, 1962 - Expenditure incurred in relation to income not includible in total income (Computation of disallowance) - Assessment year 2013-14 - Whether in relevant assessment year, no disallowance could be made under section 14A if no exempt income was earned by assessee - Held, yes [Paras 9 and 10] [The Hon’ble High Court relied on the order in the case of IL & FS Energy Development Co. Ltd. and Cheminvest Ltd. v. CIT [2015] 378 ITR 33 (Delhi).] 3.1. Accordingly, the appellant gets relief on this point and the addition of Rs. 9,647/- is directed to be deleted. 4. In the result, the appeal filed by the assessee is partly allowed, with Ground No. 1 being decided against the Appellant and Ground No. 2 being decided in favour of the Appellant. Ground No. 3 being general, is not specifically being adjudicated. Order pronounced in the open Court on 21st August, 2024.

Sd/- Sd/- [Rajpal Yadav] [Sanjay Awasthi] Vice President Accountant Member Dated: 21.08.2024 Bidhan (P.S.)

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I.T.A. No.: 51/KOL/2024 Assessment Year: 2012-13 Elegant Dealmark Pvt. Ltd. Copy of the order forwarded to: 1. Elegant Dealmark Pvt. Ltd., 7, Red, Cross Place, 4th Floor, Kolkata, West Bengal, 700001. 2. ITO, Ward-5(3), Kolkata. 3. CIT(A)-NFAC, Delhi. 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. //True copy // By order

Assistant Registrar ITAT, Kolkata Benches Kolkata

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