ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE- 1(1), RAIPUR vs. MESERS VANDANA ISPAT LIMITED, RAIPUR

आयकर अपील�य अ�धकरण, रायपुर �यायपीठ, रायपुर IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR �ी र�वश सूद, �या�यक सद�य एवं �ी अ�ण खोड़�पया, लेखा सद�य के सम� । BEFORE SHRI RAVISH SOOD, JM & SHRI ARUN KHODPIA, AM आयकर अपील सं./ITA No.183/RPR/2019 (�नधा�रण वष� / Assessment Year :2013-2014) ACIT, Circle-1(1), Raipur Vs M/s Vandana Ispat Ltd., Vandana Building, M.G.Road, Raipur-492001 PAN No. : AABCV 1344 A (अपीलाथ� /Appellant) .. (��यथ� / Respondent) राज�व क� ओर से /Revenue by : Shri G.N.Singh, Sr. DR �नधा�रती क� ओर से /Assessee by : Shri R.B.Doshi, CA सुनवाई क� तार�ख / Date of Hearing : 28/07/2022 घोषणा क� तार�ख/Date of Pronouncement : 31/10/2022 आदेश / O R D E R Per Arun Khodpia, AM : This appeal is filed by the revenue against the order passed by the CIT(A)-I, Raipur, 21.04.2019 for the assessment year 2013-2014, on the following grounds :- 1. “Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs.2,59,00,000/- made by the AO u/s 68 of the Act?” 2. “Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs.2,59,00,000/- by ignoring the facts as brought on record by the AO that the assessee company failed to prove the identity, genuineness and creditworthiness of the investor company as per the parameters of the legal provisions u/s 68 of the Act?” 3. “Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs.2,59,00,000/- when the onus was on the assessee to prove the genuineness of the transactions which was questioned by the AO, and the assessee failed to produce the evidence on which the AO could make a proper assessment of the assessee’s income?” 4. “Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs.2,59,00,000/-, thereby not considering and not

2 ITA No.183/RPR/2019 distinguishing the findings of the AO which is well supported by the ratio of the judgment of Hon’ble Gujurat High Court in the case of Pavan kumar M Sanghvi Vs IT'"' (2018) 404 ITR 601 (Guj), wherein it is mentioned that ‘it is also settled legal position that the onus of the assessee, of explaining nature and source of credit, does not get discharged merely by filing confirmatory letters, or demonstrating that the transactions are done through the banking channels or even by filing the income tax assessment particulars’ ?” 5. “Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs.2,59,00,000/- which is contrary to the ratio of the decisions in CIT Vs Precision Finance Pvt Ltd 1994 2008 ITR 465, wherein it was held that it is for the assessee to prove the identity of the creditors, the creditworthiness and genuineness of the transaction and mere furnishing of particulars is not enough?” 6. “Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs.2,59,00,000/- which is contrary to the ratio of the decisions of Hon’ble Supreme Court in the case of A. Govindarajulu Mudaliar Vs CIT (1958) 34 ITR 807 (SC), CIT Vs M. Ganapathi Mudaliar (1964) 53 ITR 623 (SC), which clearly states that where the assessee failed to prove satisfactorily the source and nature of a credit entry in his books, and it is held that the relevant amount is the income of the assessee, it is not necessary for the Department to locate its exact source?” 7. “Whether on points of law and facts and circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs.2,59,00,000/-, as such a finding by the Id. CIT(A) is contrary to the ratio of the judgements in the cases of CIT Vs Kamdhenu Vyapar Co Ltd (2003) 263 ITR 692 (Cal), which held that simple disclosure of certain materials will not help the assessee to discharge the burden of proving the credits u/s 68 of the IT Act, until the onus is prima facie discharged by the assessee, it never shifts on the Department?” 8. “Whether on points of law and facts and circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs.2,59,00,000/-, as such a finding by the Id. CIT(A) is contrary to the ratio of the judgements in the cases of CIT Vs Korlay Trading Co Ltd (1998) ITR 820 (Cal), which held that mere filing of IT file number of the creditors is not enough to prove the genuineness of the cash credit?” 9. “Whether on points of law and facts and circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs.2,59,00,000/-, as such a finding by the Id. CIT(A) is

3 ITA No.183/RPR/2019 contrary to the ratio of the decision of the High Court at Calcutta in the case of J.J. Development Pvt. Ltd. v. CIT ITAT No. 329 of 2016, GA No. 2631 of 2016 with GA No. 1308 of 2018 dated 27.06.2018 which sustained the additions in absence of any plausible explanation justifying the cash credits?” 10. “Whether on the point of law and on the facts and circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs. 2,59,00,000/-, thereby ignoring the ratio of the decision of the Hon'ble Supreme Court in the case of Pr. CIT(Central)-l Vs NRA Iron & Steel Pvt Ltd in SLP (Civil) No. 29855 of 2018, wherein it is held that 'the assessee failed to discharge the onus required under section 68 of the Act, the Assessing Officer was justified in adding back the amounts to the Assessee's Income'?” 11. Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs.2,59,00,000/-, thereby without considering and distinguishing the ratio of the judgment of the cases such as Rameshwar Prasad Bagla 68 ITR 653(Allahabad) & Homi Vs CIT 41 ITR 135, 142 by (Supreme Court) wherein it is stated that the totality of circumstances must be considered in a case of circumstantial evidence & the totality of the circumstances has to be taken into consideration and the combined effect of all those circumstances is determinative of the question as to whether or not a particular act is proved ?” 12. “Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs.2,59,00,000/- and giving a decision in favour of the assessee and against the revenue, thereby giving a finding against the ratio of the settled law of the Hon'ble Bombay High Court in the case of Sanjay Bimalchand Jain, Nagpur (I.T.A. No. 18/2017 dated 10.04.2017, Bombay High Court, Nagpur Bench) wherein it is stated that since there is no economic or financial justification for the investment in the shares, the transaction has all the ingredients of attracting the rigors of Section 68 of the IT Act ?” 13. Whether on points of law and facts and circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs.2,59,00,000/- as the CIT(A) having concurrent powers of the AO u/s 250(4) of the Act, was not justified in deleting the addition made by the AO on the ground that the onus is on the assessee to prove the source of a sum of money found to have been received by him which the assessee actually evaded to discharge, as such a finding by the Id. CIT(A) is contrary to the ratio of the judgements of the Hon’ble Supreme Court in the cases of Roshan Di Hatti v. CIT[1977] 107 ITR 938 [SC], Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1 [SC] ?”

4 ITA No.183/RPR/2019 14. “Whether on points of law and on facts 8s circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs. 2,59,00,000/- which is contrary to the ratio of the decision of Hon’ble Supreme Court in the case of M/s Rajmandir Estates Pvt. Ltd. vs PCIT-III, Kolkata (SLP No. 22566-22567 dt. 09.01.2017?” 15. “Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs. 2,59,00,000/- which is contrary to the ratio of the decision of ITAT, Kolkata ‘B’ Bcnch in the case of M/s Subhlakshmi Vanijya (P) Ltd. Vs CIT-1, Kolkata in ITA No. 1104/Kol/2014 and other cases dated 30.07.2015?” 16. “Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs. 2,59,00,000/- which is contrary to the ratio of the decision of Hon’ble ITAT, Kolkata Bench in the case of M/s Bisakha Sales (P) Ltd. Vs CIT-II, Kolkata [ITA No. 1493/Kolkata/2013]?” 17. “Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs. 2,59,00,000/- which is contrary to the evidence on record, as the ITAT has accepted the identity, creditworthiness of the entities investing in the share capital and share premiums of the assessee company as genuine, a finding which is factually incorrect, thereby rendering the decision, which is perverse?” 18. “Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance of Rs. 19,40,967/- made by the AO u/s 14A of the Act r.w.r. 8D of the I.T.Rules?” 19. “Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in not considering the extent provisions of section 14A(3) of the I T Act while deleting the disallowance of Rs. 19,40,967/- made by the AO?”. 20. “Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made u/s 14A, when clause (3) of the Section 14A of the Act clearly prescribes that provision of section 14A(2) shall also apply in relation to case where any assessee claims that no expenditure has been incurred by him in relation to the income which does not part form part of the total income under this Act, as held in the case of Cheminvest Ltd. Vs ITO (ITAT, SB- Del) 121 ITD 318 and Pradeep Kar Vs ACIT(Kar) 319 ITR 416?” 21. “Whether on points of law and facts & circumstances of the case, the Ld. CIT(A) was justified by giving a finding that the exemption of income from taxability by claiming no

5 ITA No.183/RPR/2019 expenditure when assessee as an earner of exempt income did not discharge his onus to prove that it did not incur expenditure to earn exempt income? 22. “Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition by holding that the assessee has not earned any tax free income which is against the ratio of the decision of Hon’ble Chennai ITAT in the case of M. A. Alagappan Vs ACIT (ITA No 3280/Mds/2016) wherein it was held that it is not necessary to earn exempt income for making disallowance u/s 14A and the similar decision has also held in the cases of (i) Sira Industries & Holding Pvt. Ltd. (2012) 54 SOT 49(Chen), (ii) Technopark Advisory Pvt. Ltd (2012) 50 SOT 31(Del), (iii) Relaxo Footwear Ltd (2012) 50 SOT 102 (Del) and (iv) India Infrastructure Developers Ltd (2009) 121 ITD 315 (Del)? 23. “Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition by ignoring the; circular no. 05/2014 dated 11.02.2014 issued by CBDT wherein it has been clarified that the disallowance u/s 14A is applicable even where taxpayer in particular year has not earned any exempt income? 24. “Whether on points of law and on facts & circumstances of the case, the ld. CIT(A) was justified in deleting the additions made by the AO, thereby giving a decision in favour of the assessee and against the revenue though there is no nexus between the conclusion of fact and primary fact upon which conclusion is based?” 25. The order of the ld. CIT(A) is erroneous both in law and on facts. 26. Any other ground that may be adduced at the time of hearing. 2. Facts in brief are that the assessee derives income from manufacturing & trading of Iron and Steel and filed its revised return of income on 29.09.2013 declaring total income of Rs. Nil, which was duly processed and statutory notices were issued to the assessee, in response to which the assessee filed his written submissions along with books of accounts. On verification of the balance sheet, the AO during the course of assessment proceedings, found that there is non-current investment appearing in the balance sheet at Rs.40,40,17,380/- as against

6 ITA No.183/RPR/2019 Rs.37,23,69,480/- in the last year. Therefore, the AO disallowed Rs.19,40,967/- applying one half percent (0.5%) of average opening and closing balance of investments holding that the said investment is not directly related to the business of the assessee of the year under consideration. Further the AO on perusal of the Tax Audit Report filed by the assessee, the assessee failed to make payment of PF and ESI to the employees account in the relevant fund before the due date including the grace period. Accordingly, the AO disallowed Rs.1,34,450/- under the provisions of Section 36(1)(va) of the Act. Further the AO found that the assessee has received share capital from Lovely Suppliers Pvt. Ltd. of Rs.2,59,00,000/-, In this regard, the AO found that Lovely Suppliers Pvt. Ltd. did not have any source to make investments in assessee i.e. Vandana Ispat Ltd. Therefore, the AO noted that the assessee could not prove the genuineness and creditworthiness in the case of all the companies that have invested in Lovely Supplier Pvt. Ltd., who has invested in Assessee Company. The assessee also could not prove the genuineness and creditworthiness of share capital received. Therefore, the AO disallowed Rs.2,59,00,000/- u/s.68 of the Act on account of undisclosed amount received by the assessee. 3. Being aggrieved with the assessment order, the assessee preferred appeal before the CIT(A) and the CIT(A) partly allowed the appeal of the assessee. 4. Against the above order of CIT(A), the revenue is in appeal before the Tribunal. The revenue has taken 26 ground for the appeal, out of

7 ITA No.183/RPR/2019 which 24 grounds are created out of the two main issues involved and remaining 2 are general in nature, the same are summarised as under as under:- (1) The Ld CIT(A) was not justified in deleting the addition of Rs. 2,59,00,000/- u/s 68 of the Income Tax Act on account of investment in share capital and share premium of the assessee company. (ground no 1 to 17 of the appeal) (2) The Ld CIT(A) was not justified in deleting the addition of Rs. 19,40,967/- u/s 14A of the Income Tax Act r.w.r. 8D of the Income Tax rules. (ground no 18 to 24 of the appeal) (3) Ground no 25-26 are general in nature. 5. For adjudication of the main 2 issues, first we are taking the ground related to deleting the addition of Rs. 2,59,00,000/- u/s 68 of the Income Tax Act: 6. Ld Sr. DR has placed his vehement reliance on the order of the AO and requested to restore the order of AO. Ld DR further submitted tht the findings of the Ld CIT(A) were not justified when the assessee was unable to discharge onus cast upon it under the provisions of section 68 of the Act. The order of the Ld CIT(A) shall be set aside being against the ratio of the settled law. The factual position of the case was not appreciated correctly by the Ld CIT(A), thus the decision rendered was perverse and deserves to be quashed. 7. Ld AR on this ground has submitted that the addition of Rs. 2.59 Crore on account of receipt as Share Capital and Share premium money holding the same as unexplained by AO was rightly deleted by the Ld CIT(A). Basis of the deletion of addition by the Ld CIT(A) were that for proving genuineness of the receipt of share capital the assessee had

8 ITA No.183/RPR/2019 furnished all the necessary documents such as PAN registration with ROC, bank statement evidencing receipt of money, share application MOA, however the AO was not satisfied with these documents has reached the conclusion, without any further enquiry, that the assessee did not produced the necessary documents to prove genuineness and creditworthiness of the investor company. 8. Further, CIT(A) has observed that, Ld AO had treated the transaction of share capital as unexplained based on the fact that M/s Debdaru Promoters Pvt Ltd, a company, which as per information from the Investigation wing of Income Tax, Kolkata is one of the companies which are used to divert unaccounted money through banking channels through various layers of companies, had transferred a sum of Rs. 20 Lakh on 04/04/2013 in Oriental Bank of Commerce of the Lovely Suppliers (the subscriber), thus, Ld AO had acted on the basis of enquiry report of the Investigation wing of the Income Tax Department Kolkata on the back of the assessee, since, neither the said enquiry report of the Investigation wing nor the information used against the assessee was provided or confronted to the assessee for its rebuttal is bad in law. A report on the issue was sought from the AO by the CIT(A) but the said report was also not submitted. 9. Regarding identity, genuineness and creditworthiness of the investor company M/s Lovely Suppliers Ld CIT(A) has observed as under:- M/'s Lovely Suppliers Pvt Ltd is assessee's own company and the director Shri Subhash Agrawal is common in both the companies.

9 ITA No.183/RPR/2019 Assessee company runs steel plant manufacturing steel ingots. It has TO of Rs 27.31 cr during the year. Director Shri Subhash Agrawal is well known industrialist. Therefore identity of M/'s Lovely Suppliers cannot be doubted. It is not that money has come from elsewhere. Regarding source of money M/s Lovely Suppliers Pvt Ltd has sold shares and the produce of the shares sale have been transferred to assessee company. As per the details furnished payment of Rs. 34 lakhs on 08/04/2013, Rs. 4.8 lakhs on 09/04/2013, Rs. 25 lakhs on 19/03/2013, Rs. 44 lakhs on 30/03/2013 and 30 lakhs on 30/03/2013 were transferred to the assessee. Ms Lovely Suppliers Pvt Ltd have sold its investment to M/s Collate Infra Project Pvt Ltd and Ashiyana Infra Towers Pvt Ltd. Against the sale, investment Rs. 1.5 crores and Rs. 1 crores have been received from respective parties which were advanced to the assessee company. AO has noted that M/s Lovely Supplier has meagre income. In this respect copy of assessment order dated;2.8.2017 passed u/s 143(3) in case of M/s Lovely Supplier has been furnished. No adverse view has been taken in the said assessment. 10. Further Ld AR of the assessee drew out attention to the findings of the CIT(A) on this issue at page 14 of the order of CIT(A), wherein Ld CIT(A) had examined the matter at length, also distinguished the issue dealt with by the Apex court and various judicial forum. Pertinently, two judgments of the coordinate bench of ITAT Raipur were discussed, distinguished and applicability of the said decisions was checked on the facts and circumstances of the instant case. Other aspects which favours the explanation of the assessee are that the Subscriber is an in house company having common directors, investment is duly reflected in the balance sheet of the corporate investor, a premium of Rs. 15 charged cannot be termed as unusual or abnormal, moreover the Ld AO could not brought any cogent evidence as to prove that the assessee’s own money was brought back in the form of investment in share capital. 11. We have heard the rival contentions, perused the material available and analysed the judgments relied upon by both the parties. At the outset

10 ITA No.183/RPR/2019 the submission of the assessee and findings of the CIT(A) were found to be worth merit. 12. A transaction of investment could be covered as unexplained u/s 68 of the Act, if the identity and creditworthiness of the investor and genuineness of the transaction could not be established by the assessee. 13. For better analysis, relevant provisions of section 68 is reproduced: Where any sum is found credited in the books of an assessee maintained for any previous year, and 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. 14. Provided that where the assessee is a company, (not being a company in which the public are substantially interested) and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless — (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory : Thus, Section 68 operates on the following essential elements:

11 ITA No.183/RPR/2019 a. Any sum is found to be credited in the books of the assessee. b. The assessee offers no explanation about the nature and source of such credit c. In case the assessee offers explanation which is not satisfactory in the opinion of assessing officer Then, such sum credited in the books of the assessee may be treated as its income in the previous year. The initial onus is upon the assessee to establish above points necessary to obviate the mischief of Section 68. 15. In the instant case since the onus cast on the assessee was discharged by the assessee by providing documents and necessary explanation but the same was considered as unsatisfactory by the AO. However, before the assessing officer forms an opinion, he must consider the material explanation and evidence submitted by the assessee with respect to the alleged income. Also the AO should have collected the material corroborative evidence as an enquiry officer, weigh the explanation furnished by the assessee, to form an opinion as to whether explanation furnished by the assessee is satisfactory or not. The assessing officer does not apply his mind in examining the documents furnished by the assessee neither find any substantive error in them nor made collection of any material evidence by exercising powers under Income-Tax Act, 1961. The claim of the assessee has been straightway rejected, resulting in violation of principle of natural justice and provisions of section 68. Since the assessee had provide the primary documents and

12 ITA No.183/RPR/2019 explanation to the AO, if there was any doubt or further explanation was required the AO should have made further enquiry, just because the AO have an report from the investigation wing which also have no substantial mention about the investor M/s Lovely Suppliers Pvt Ltd, but have a linkage with the transaction by a party M/s Debdaru Promoters Pvt. Ltd. allegedly involved in sham transaction, cannot be a basis for unsatisfactory explanation on the part of the assessee when such report or information which was used against the assessee was not even shared or confronted with the assessee to provide an explanation on the same. Thus, not only there was a need to recognize the significance of the submission made by the assessee to the AO but also there must be a reasonably satisfactory explanation given by the assessing officer to the facts and circumstances of the case. Therefore, we are of the considered view that the act of the AO was against the principle of natural justice and thus cannot be considered as justified. 16. The assessee had submitted various documentary evidences before the AO as well before the CIT(A), which were duly considered by the CIT(A) and judicious decision was taken. Ld CIT(A) had also considered the order of the coordinate bench in ITA 225 to 231/RPR/2014 in the case of DCIT, Central Circle Raipur Vs. R.R .Energy Ltd. where in observations of the ITAT were referred to. Also, Ld CIT(A) had referred to a case decided by the jurisdictional bench of the ITAT Raipur against the assessee in ITA 190/RPR/2014 in the case of M/s Rishabh reality and

13 ITA No.183/RPR/2019 thus Ld AO had relied in his remand report. Observations of the CIT(A) and conclusion was as under:- In the remand report the Ld AO has relied on the decision of jurisdictional ITAT in the case of M/s Rishabh Realty ITA No. 190/Rpr/2014 that any genuine investor would not have invested huge amount without inquiring about the business activity . I have gone through the said decision of honourable ITAT and find that facts are entirely different. In the case of M/s Rishabh Reality the company issue share to directors at a premium of Rs 2.5 per share whereas the shares were issued to an investor company at Rs 240 per share. Looking to the business of the assessee the issue of shares at such a huge premium was not explainable particularly when the same shares were issued to the directors at a premium of Rs 2.5. When the AO issue notice u/s 133(6) to trie share holder, the notice was returned unserved. On the contrary the assessee is well established company having its business. During the year the assessee has income of Rs 2.32 cr. The source of funds of M/s Lovely Suppliers have been accepted by its AO in assessment made u/s 143(3). There are no adverse facts found in any inquiry. The shares were issue at a premium of Rs 15 per share which is not unusual in view of the scale of assessee's business. In fact issue of share at the same premium to another company M/s Galaxee Llasomng Pvt Ld has been accepted. In the backdrop of these facts and documentary evidences, in my considered opinion, the identity and creditworthiness of the subscriber has been established and cannot be doubted, it is not justified on the part of the AO to simply reject the documentary evidences on record and take an adverse view without causing any inquiry. The appellant has relied upon various judicial pronouncements and correlated the facts in those decision with facts in the case of the appellant. The honble* Supreme Court in CIT vs Lovely Export 216 ITR 195 and Delhi High Court in Divine Leasing and Finance Limited 299 ITR 268 have held that in the case of money received towards share capital only the identity of the share holders needs to be proved and once that is established and it is also shown that the money did in fact come from them, it is not for the assessee to prove as to how the share applicants came to be in possession of the money. In the light of the above discussion, I am inclined to agree with the documents and evidence provided by the appellant as discussed above that the share application money is genuine. In view of the above and respectfully following the ratio of the binding judgments of jurisdictional tribunal and Highcourt on similar facts, the addition of share capital money of Rs. 2,59,00,000/- as unexplained cash credits u/s 68 is uncalled for and hence deleted. The appeal is allowed.

14 ITA No.183/RPR/2019 17. The jurisdictional ITAT on the basis of similar facts in the case of ITA Nos.225 to 231/RPR/2014 DCIT, Central Circle Raipur Vs. R.R.Energy Ltd (Assessment Years : 2006-2007 to 2012-2013) has ruled as below :- 14. It is an undisputed fact that the names, addresses and assessment particulars of the investors, certificate of registration from the ROC and bank statement of the applicants had been furnished by the appellant before the AO. It is further observed that the share application/capital money has been received by way of account payee cheques from the investors most of whom are companies and is duly reflected in the bank account of the appellant. I have perused the bank statements of the investors, their audited financial statements and confirmation for making such investments, which clearly establishes the factum of making investments. These facts are clearly establishing the identity of the investors and the genuineness of the impugned transactions. 15. It is observed from the records and assessment order that for the purpose of making addition as unexplained cash credits, the AO has heavily relied upon the judicial pronouncements, however, the appellant has made elaborate submissions distinguishing the facts, I am convinced with the explanation of the appellant that the decisions relied upon by the A.0 are not applicable in the facts of the present case as there is nothing on record which can indicate that the receipt of share application money was by way of accommodation entries only. It is also not the case of the A.O that the investors have accepted by way of statement that the sums paid to the appellant was f in fact received from the appellant and investors merely routed the undisclosed income of the appellant through money laundering process in the form of share application money. On the contrary, the A.O himself has stated in the assessment order that the investors have sent confirmatory letters. In the backdrop of these facts and documentary evidences , in my considered opinion, the identity and creditworthiness of the subscribers has been established and cannot be doubted, it is not justified on the part of the A.O to simply reject the documentary evidences on record and take an adverse view and clothing the case of the appellant with the judicial pronouncements which have been rendered on absolutely different facts and circumstances. 16. The appellant has relied upon various judicial pronouncements and correlated the facts in those decisions with the facts in the case of the appellant. I am convinced that the decisions relied upon by the appellant are certainly applicable in the case of the appellant as the facts are not only similar but identical. The appellant has also relied upon the decision of the Hon'ble Supreme Court and jurisdictional High Court which cannot be ignored. The A.O has

15 ITA No.183/RPR/2019 referred to the notices issued under section 133(6) which have been returned un-served in some of the cases. I have carefully perused the explanation submitted by the appellant in respect of cases where the notices remained unserved, the submissions of the appellant are found to be convincing. It is further observed that no further enquiry or investigation has been conducted by the AO to corroborate or support the conclusions drawn in the assessment order so as to assess the share capital money as the undisclosed income of the appellant company. In my considered opinion, apart from drawing presumptions, the AO has not brought any clinching material or evidence on record to prove that the said share capital money belongs to the appellant since no nexus has been established that the money for augmenting the investment in the business has flown from appellant's own money which is an essential pre-requisite for making addition in such cases. I am convinced that the case of the appellant is squarely covered by the decisions rendered by the Hon'ble Apex Court in the case of the CIT vs. Lovely Exports (P) Ltd. reported in 216 CTR 195 and the jurisdictional High Court viz. the Chhattisgarh High Court in the case of the ACIT vs. Venkateshwar Ispat (P) Ltd. reported in 319 ITR 393 for the reason that the facts in such cases are entirely same, particularly, when no differentiation could be effectively demonstrated and brought on to the record by the A.O. The submissions of the AO that the decision of the Hon'ble Supreme Court in the case of Lovely Exports (P) Limited was rendered in the light of different facts inasmuch as the said judgement was rendered by the Hon'ble Supreme Court in the context of public issue, is devoid of merit because the decision was rendered by the Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd. which is a Private Limited Company and which cannot bring public issue of shares. I find that the investments made by the share applicants were duly reflected in the audited financial statements of the corporate investors. It is a settled principle of law that reason for suspicion, however grave it may be, cannot be a basis for holding adversity against appellant. 17. The Assessing Officer has disregarded the documentary evidences adduced by the appellant such as confirmation from the share applicants, their PAN, certificate of incorporation of subscriber companies. The subscription for the shares was received through cheques. The Investor-companies are duly registered with ROC. Those companies were also having their income tax PAN numbers and regularly filed returns of income. No material was brought on record by the A.O independently of the information received, if any, from the investigation wing of the Income Tax Department to show that the monies represented the appellant's undisclosed income. 18. The Hon'ble Supreme Court in CIT vs. Lovely Export, 216 ITR 198 SC and the Delhi High Court in Divine Leasing and Finance Limited, (2008) 299 ITR 268 have held that in the case of money received towards share capital only the identity of the share holders

16 ITA No.183/RPR/2019 needs to be proved and once that is established and it is also shown that the money did in fact come from them, it is not for the assessee to prove as to how the share applicants came to be in possession of the money. In the light of the above discussion, I am inclined to agree with the arguments and evidences provided by the appellant to substantiate that the transaction regarding Share Application Money received by it were genuine transactions and the same were not accommodation entries. I also do not find any evidence collected by the A.O which could prove otherwise. Accordingly, the AO was not justified in treating the amount of share application money received by the appellant as its undisclosed income. ........ I am convinced that the appellant has been able to establish the identity and creditworthiness of the subscribers as also the genuineness of the transactions. In my considered opinion, the ratio of the aforesaid judgements of the Hon'ble Supreme Court in Lovely Exports and that of jurisdictional High Court are certainly binding in nature on all the revenue authority and courts etc. and further, the judgement of the jurisdictional High Court as well as that of the Hon'ble Supreme Court in Lovely Exports has been rendered on identical facts. Hence it is impermissible to deviate from the ratio laid down therein and against the law of judicial precedents. In view of the above and respectfully following the ratio of the binding judgements, the addition of share application/capital money of Rs.12,71,00,000/- in A.Y 2006-07 and Rs.6,51,50,000/- in A.Y 2007-08 as unexplained cash credits under section 68 are uncalled for and hence, deleted. 18. We also find force in the contentions of the assessee, subscribed by the findings of the Hon’ble Apex Court and Jurisdictional High Court in the following cases, where in the issue under reference is duly interpreted. It would be relevant to produce the findings in the said decisions as under:- (i) CIT Vs, Orissa Corporation (P) Ltd. (1986) 159 ITR 78 (SC), wherein the Hon’ble Supreme Court in para 13 has held as under :- 13. In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were the income-tax assessees. Their index number was in the file of the revenue. The revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called

17 ITA No.183/RPR/2019 alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises. (ii) ACIT Vs, Venkateshwar Ispat (P) Ltd (2009) 319 ITR 393 (Chattisgarh), wherein the Hon’ble Jurisdictional High Court in para 9 & 10 has held as under :- 9. In the matter of Lovely Exports P. Ltd. [2009] 319ITR (St.) 5, the question before the hon'ble Supreme Court was—whether the amount of share money can be regarded as undisclosed income under section 68 of the Act ? Answering the above question, the hon'ble Supreme Court has held that if the share application money is received by the assessee-company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of the assessee-company. 10. Thus, in view of the binding judgment of the hon'ble Supreme Court as also the findings recorded by the Commissioner of Income-tax (Appeals), which have been subsequently confirmed in appeal by the Appellate Tribunal, we are of the opinion that there is no question of law, much less a substantial question of law, arising for adjudication of this appeal. The appeal is, accordingly, dismissed. 19. In sight of the above factual aspects, observations and as enlighten by the decisions of the Hon’ble judicial forums which are distinguishable from the judgments quoted by and relied upon by the revenue in its ground of appeal. We are of the considered view that the ld CIT(A) had very judiciously dealt with this issue regarding receipt of share capital money and share premium by the assessee company and the same cannot be terms as unexplained and brought within the ambit of provisions of section 68 of the IT Act. Thus we do not perceive any reason to interfere with the observation of the Ld CIT(A) qua the impugned

18 ITA No.183/RPR/2019 allegation of the revenue and thus upheld the order of the CIT and reject this ground of revenue. 20. Apropos, the second issue with respect to disallowance u/s 14A. 21. Ld DR had strongly relied upon the order of the AO. 22. Ld AR on the other hand has submitted that there was no exempted income earned by the assessee company during the relevant assesessment year, no disallowance u/s 14A could be made. Ld AR relied on the following case laws: i) Ind Synergy Ltd. Vs. DCIT, in ITA no.312/RPR/2016, dt.03.03.2022 ii) CIT Vs. Chettinad Logistics Pvt. Ltd. (2017) 98 CCH 448 (Chennai). It was held that Rule 8D only provides for a method to determine the amount of disallowable expenditure and Rule 8D cannot go beyond what is provided in Sec.14A. Since no exempt income was earned, disallowance u/s.14A could not be made. ii) Vinod Kumar Jain Vs. DCIT (2019) 56 CCH 415 (Raipur) para No.2.5 of the order 23. Ld AR further submitted that LD CIT(A) had rightly deleted the addition on this ground after examining the facts of the case and applicability of the law in the instant case. Concluding observation of the Ld CIT(A) were as under:- 2.3 From the above submission it comes out that the investment does not relate to the year under consideration but was made over several previous years. Investment was made out of own interest free fund. After perusing the assessment order and considering assessee's submission * it is seen that assessee had own funds to make investment in shares of subsidiary companies. AO has not made out the case that investment had been made out of loans. In case of Maruti Udyog Ltd 92 ITD 119 (ITAT Delhi) it has been held that nexus between borrowed funds and investment can be said to be established only where it is shown that interest free funds are not available with the assessee. In the case of ACIT Vs Dhampur

19 ITA No.183/RPR/2019 Sugar Mill PVt Ltd ITA 220 of 2014 Hon'ble Allahabad High Court has ruled that once it was duly established that no borrowed funds of which interest was paid had been invested for earning tax free income, no disallowance was permissible u/s 14A. In the case of CIT Vs HDFC Bank ITA No.330 of 2012 Hon'ble Bombay High Court has held that no disallowance u/s 14A can be made in respect of interest paid on borrowing if assessee's own funds and non interest bearing funds exceeds investment in tax free securities. Another point is that assessee has not received any dividend during the year. Thus when there is no income exempt under the Act, no related expenditure can be allowed. In view of these facts it is seen that the investment had been made out of own funds and no disallowance is warranted. Therefore, disallowance made by the AO is deleted and appellant grounds are allowed. 24. To understand the provisions of section 14A and its logical applicability in the instant case, it is necessary to analyse the following conditions, which have to be satisfied for the applicability of Section 14A. 1. Assessee must have exempted income which is not includable in his total income. 2. Assessee must have incurred expenditure in relation to earning of income which is exempted under Income Tax Act. 2.1 Definition of the term expenditure and incurred 2.2. A nexus between the income earned and the expense incurred. 3. Whether such income was earned in the specific year in question. 25. Regarding contention of the revenue that provisions of the section 14A(3) clearly prescribes that provisions of section 14A(2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income in relation to the income which does not form part of the total income under this Act, Supreme Court in April 2019 dismissed the Revenue’s Special Leave Petition (SLP) in case of Cheminvest Ltd. v. CIT [2015] 378 ITR 33 (Delhi HC), against the

20 ITA No.183/RPR/2019 decision of the Delhi High Court holding that no question of law arose from the order of the Income-tax Appellate Tribunal (Tribunal), thereby deleting the disallowance under section 14A of the Income-tax Act, 1961 (Act), absent any exempt income during the year. In 2018, SC had previously dismissed SLP in case of CIT v. Chettinad Logistics (P.) Ltd relied upon by the assessee, filed by the Revenue and thus, deleting the disallowance of expense under section 14A of the Act in the absence of exempt income. 26. On this aspect revenue has also placed some judicial principle laid down by Hon’ble Chennai High court and Delhi High court in the cases as referred to in ground no 22 in the case of (i) Sira Industries & Holding Pvt. Ltd. (2012) 54 SOT 49(Chen), (ii) Technopark Advisory Pvt. Ltd (2012) 50 SOT 31(Del), (iii) Relaxo Footwear Ltd (2012) 50 SOT 102 (Del) and (iv) India Infrastructure Developers Ltd (2009) 121 ITD 315 (Del) wherein it was held that “it is not necessary to earn exempted income for making disallowance u/s 14A”, and thus argued that it is not justified on the part of LD CIT(A) to delete the addition holding that that the assessee has not earned any tax free income during the previous year relevant to assessement year under reference. 27. In the backdrop of the above decisions as expounded by the Hon’ble High courts further fortified by the Hon’ble Apex Court by dismissing the SLP of the revenue in cases referred to supra, however, no specific independent finding have been granted by the Apex court in this respect. In such a circumstance even if we do not subscribe to the

21 ITA No.183/RPR/2019 dismissal of the SLP by the Apex Court, it is a settled legal principle that where two possible views are interpreted or offered by the Hon’ble Upper Judicial forums of equal authority, having equal binding effect in the case of the assessee, the view expressed in favour of the assessee will succeed, as held in a landmark judgment by Hon’ble Apex Court in the case of CIT vs M/S. Vegetables Products Ltd. (Supreme Court) 88 ITR 192. 28. Since, no judgment of the Jurisdictional High Court of the state Chhatisgarh have been brought to our knowledge by either side. Also the Apex courts judgment to dismiss the SLP of revenue in 2 cases referred to supra, without giving any independent finding on the issue, upholds the decisions of the High courts, thus have approved the findings of the Hon’ble High courts decided in favour of the assessee. No such reference to Hon’ble Apex court in the cases, where Hon’ble High courts have decided the issue against the assessee have been brought to our notice by the revenue. In such a state of affairs, we are inclined to hold that the provisions of Section 14A(3) r.w.r. 8D cannot be applied in the instant case where it is a undisputed fact that the assessee had not earned any exempted income and that no expenditure was incurred in relation to such income during the previous year relevant to the assessment year under consideration. Thus, we fully agreed and approve the view taken by the Ld CIT(A) on this issue and would refrain ourselves to interfere with the findings of the Ld CIT(A), accordingly upheld the same and dismiss this ground of appeal of the revenue.

22 ITA No.183/RPR/2019 29. Other grounds of the appeal which are general in nature needs no separate adjudication, thus dismissed. 30. In the result, the appeal of revenue is dismissed. Order pronounced in pursuance to Rule 34(4) of ITAT Rules, 1963 on 31/10/ 2022. Sd/- Sd/- (RAVISH SOOD) (ARUN KHODPIA) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER रायपुर/Raipur; �दनांक Dated 31/10/2022 Prakash Kumar Mishra, Sr.P.S. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant- 2. ��यथ� / The Respondent- 3. आयकर आयु�(अपील) / The CIT(A), आयकर आयु�त / CIT 4. 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, रायपुर/ DR, ITAT, Raipur गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//

(Assistant Registrar) आयकर अपील�य अ�धकरण, रायपुर/ITAT, Raipur