2023 (4) TMI 1052 - AT - Income Tax

Unexplained cash - HELD THAT - CIT(A) has recorded the cash balance as per cash books as on 17.12.2014 in both the companies were more the cash found which is against the cash balance as on 17.12.2014 which stood explained as per the books of accounts. Therefore the addition surely required to be deleted. When the Assessing Officer doubted the cash books of the assessee and its sister concern the addition made by the A.O. is not sustainable in law. revenue could not bring on record any contra statements as observed by the Ld. CIT(A). Decided against revenue. Disallowance made u/s. 14A r.w. Rule 8D - Suo moto disallowance made by assessee - CIT-A held that the disallowance u/s. 14A to the extent of exempt income received by the assessee by way of dividend income- HELD THAT - It is now settled principle of law the disallowance made u/s. 14A is restricted to the exempt (dividend) income received by the assessee - no hesitation in sustaining the order passed by the Ld. CIT(A), restricting the disallowance to the exempt income received by the assessee during the financial year. Thus the grounds raised by the Revenue is devoid of merits and liable to be dismissed. Losses booked under penny stocks on sale of shares - HELD THAT - A.O. made the disallowance without documentary proof whereas the assessee proved the genuineness of the transactions and established on online trading platforms and it had no control whatsoever on share prices and thus incurred losses in shares The assessee is a retaining Kappac Pharma shares as stock-in-trade and the closing stock is valued at the market rate. Since the market rate is lower it has incurred a business loss though the shares are not sold. The difference is only because of valuation of shares which is as per the Accounting Standard and the share of Kappac Pharma are still forming part of closing stock of the assessee company as on 31.03.2019. Thus, we have no hesitation in deleting the disallowance made by the A.O. which was correctly deleted by the Ld. CIT(A). Thus the grounds raised by the Revenue is without any basis and the same is liable to be rejected. Appeal filed by the Revenue is hereby dismissed.

Summary

Issues Involved:
1. Unexplained Cash
2. Losses Booked in Penny Stocks
3. Disallowance under Section 14A

Summary:

1. Unexplained Cash:
The Assessing Officer (AO) added Rs. 1,10,989/- as unexplained cash found during a search action under Section 132 of the Income Tax Act at the business premises of the assessee. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted this addition, noting that the cash balance as per the cash books of the assessee and its sister concern, M/s. Affluence Shares and Stock Brokers Pvt. Ltd., was Rs. 5,59,524/-, which explained the cash found of Rs. 3,93,090/-. The AO's approach was deemed untenable as no cogent material was provided to refute the assessee's explanation. The ITAT upheld the CIT(A)'s decision, dismissing the Revenue's ground.

2. Losses Booked in Penny Stocks:
The AO disallowed losses of Rs. 73,12,905/- on shares of Alang Industrial Gases Ltd. and Kappac Pharma, citing general information from SEBI and the Investigation Wing, Kolkata, without any documentary proof. The CIT(A) deleted this disallowance, noting the assessee had proven the genuineness of the transactions with contract notes and ledger accounts. The ITAT upheld this decision, referencing various judicial precedents, including those from the jurisdictional High Court, confirming that the AO had no evidence to question the genuineness of the transactions.

3. Disallowance under Section 14A:
The AO made a disallowance of Rs. 51,12,885/- under Section 14A read with Rule 8D. The CIT(A) restricted this disallowance to Rs. 10,56,851/-, the amount of exempt dividend income, and directed the AO to retain a further disallowance of Rs. 4,36,626/- after accounting for the assessee's self-disallowance of Rs. 6,20,225/-. The ITAT upheld this decision, following the jurisdictional High Court's precedent that disallowance under Section 14A cannot exceed the exempt income earned. Additionally, the CIT(A) ruled that the disallowance under Section 14A could not be added for computation of book profit under Section 115JB, referencing relevant case laws.

Conclusion:
The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The additions made by the AO were found unsustainable, and the disallowances under Section 14A were appropriately restricted to the exempt income. The appeal by the Revenue was thus dismissed in its entirety.