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2022 (9) TMI 1571 - AT - Income TaxAddition u/s 68 - unexplained cash credit - genuineness of the transaction not proved - source of source unexplained - HELD THAT - When the assessee had discharged the primary onus that was cast upon it by placing on record supporting documentary evidence to substantiate the genuineness and veracity of the transaction of having received share capital and premium from the aforesaid share subscriber i.e. M/s. Lovely Suppliers Pvt. Ltd., therefore, the onus was shifted upon the A.O to prove otherwise. It was further noticed that as the share subscriber company was duly registered with ROC and was having registered offices a/w. registration number, and the fact that the payment towards share capital and share premium was received through banking channels, therefore, the genuineness of the transaction could not be doubted in absence of any material placed on record which would prove to the contrary. Source of source - Source out of which the share subscriber company i.e. M/s. Lovely Suppliers Pvt. Ltd. (supra) had made the payment towards share capital and share premium to the assesee company, it was observed by the CIT(Appeals) that the aforesaid share subscriber had during the year under consideration sold its investments and in lieu thereof was in receipt of money from various other companies. As rightly concluded by the CIT(Appeals) that as the assessee by placing on record substantial documentary evidence had proved to the hilt the genuineness of the transaction, therefore, the A.O without carrying out any enquiry could not have justifiably drawn adverse inferences as regards the authenticity of the transaction in question. Accordingly, drawing support from the judgement of CIT Vs. Lovely Exports (P) Ltd. 2008 (1) TMI 575 - SC ORDER and Venkateshwar Ispat (P) Ltd. 2009 (5) TMI 290 - CHHATTISGARH HIGH COURT , it was observed by the CIT(Appeals) that now when the investment made by the share subscriber company, viz. M/s. Lovely Suppliers Pvt. Ltd. was duly reflected in the latter s audited financial statement for the year under consideration, therefore, there was no justification on the part of the A.O in dislodging the claim of the assessee of having raised genuine amount of share capital and share premium from the aforesaid party without placing on record any material which would prove otherwise -CIT(Appeals) had rightly vacated the addition made by the A.O u/s.68 - Decided in favour of assessee. Disallowance u/s.14A r.w.r. 8D(2)(iii) - no exempt income earned - HELD THAT - When the assessee company had not received any exempt dividend income during the year under consideration, therefore, no disallowance u/s.14A of the Act was warranted in its case. We, thus, finding no infirmity in the view taken by the CIT(Appeals) who had rightly vacated the addition - Decided in favour of assessee.
Issues Involved:
1. Deletion of addition under Section 68 of the Income-tax Act, 1961. 2. Genuineness and creditworthiness of the investor company. 3. Concurrent powers of CIT(A) under Section 250(4) of the Act. 4. Adherence to the Supreme Court and ITAT precedents. 5. Disallowance under Section 14A of the Act read with Rule 8D of the Income-tax Rules. 6. Assumption of investments being made out of own funds. 7. Exemption of income from taxability and related expenditure. 8. Nexus between borrowed funds and investment in shares. 9. General errors in law and facts. Detailed Analysis: 1. Deletion of Addition under Section 68: The primary issue was whether the CIT(A) was justified in deleting the addition of Rs.2,93,80,000/- made by the AO under Section 68 of the Act. The AO had found that the assessee received share capital from Lovely Suppliers Pvt. Ltd., which was suspected to be a shell company involved in laundering unaccounted money. The AO concluded that the transactions were not genuine, despite being conducted through banking channels and supported by PAN details. The CIT(A) disagreed, noting that the assessee provided substantial documentary evidence, including share application forms, bank statements, and audited accounts, to prove the genuineness of the transaction. The CIT(A) emphasized that the AO failed to carry out any enquiry or provide concrete reasons for treating the share capital as unexplained cash credit. The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee had discharged its onus of proving the transaction's authenticity. 2. Genuineness and Creditworthiness of the Investor Company: The AO questioned the genuineness and creditworthiness of Lovely Suppliers Pvt. Ltd., alleging it lacked business credentials and was part of a modus operandi to launder money. The CIT(A) found that the AO's conclusions were based on unsubstantiated observations and that the assessee had provided sufficient evidence to establish the investor company's identity and financial capacity. The Tribunal concurred, noting that the AO failed to present any material evidence to refute the assessee's claims. The Tribunal highlighted the importance of issuing notices under Sections 133(6) or 131 of the Act if the AO had doubts about the transaction's authenticity. 3. Concurrent Powers of CIT(A) under Section 250(4): The revenue contended that the CIT(A), having concurrent powers with the AO, should have further investigated the matter. However, the Tribunal found that the CIT(A) had appropriately exercised its powers by thoroughly examining the evidence presented by the assessee and concluding that the transaction was genuine. The Tribunal noted that the AO had the opportunity to conduct enquiries but chose not to do so. 4. Adherence to Supreme Court and ITAT Precedents: The revenue argued that the CIT(A)'s findings were contrary to the Supreme Court's decision in Rajmandir Estates Pvt. Ltd. and various ITAT decisions. The Tribunal, however, found that the CIT(A)'s decision was consistent with the principles laid down in these precedents. The Tribunal emphasized that the assessee had provided substantial evidence to prove the genuineness of the transaction, and the AO failed to present any material evidence to the contrary. 5. Disallowance under Section 14A read with Rule 8D: The AO disallowed Rs.2,52,049/- under Section 14A, arguing that the assessee, despite holding exempt income-yielding investments, did not offer any disallowance. The CIT(A) reversed this, noting that the assessee did not receive any exempt dividend income during the year. The Tribunal upheld the CIT(A)'s decision, citing the Supreme Court's judgment in Chettinad Logistics Pvt. Ltd. and the Delhi High Court's decision in Cheminvest Limited, which established that no disallowance under Section 14A could be made in the absence of exempt income. 6. Assumption of Investments Being Made Out of Own Funds: The revenue contended that the CIT(A) wrongly assumed that investments were made out of the assessee's own funds. The Tribunal found that the CIT(A)'s conclusion was based on the substantial documentary evidence provided by the assessee, which demonstrated the source of funds for the investments. 7. Exemption of Income from Taxability and Related Expenditure: The revenue argued that the CIT(A) erred in exempting the income from taxability without considering the expenditure incurred to earn exempt income. The Tribunal upheld the CIT(A)'s decision, reiterating that no disallowance under Section 14A could be made in the absence of exempt income. 8. Nexus between Borrowed Funds and Investment in Shares: The revenue claimed that the CIT(A) ignored the nexus between borrowed funds and investments in shares. The Tribunal found that the CIT(A) had thoroughly examined the evidence and concluded that there was no direct nexus between the borrowed funds and the investments. 9. General Errors in Law and Facts: The revenue raised general grounds of errors in law and facts. The Tribunal dismissed these grounds, finding no merit in the revenue's arguments and upholding the CIT(A)'s order. Conclusion: The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order in favor of the assessee, and confirmed that the assessee had provided substantial evidence to prove the genuineness of the transaction and that no disallowance under Section 14A was warranted in the absence of exempt income.
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