2024 (5) TMI 694 - AT - Income Tax

Disallowance u/s 14A - What material to establish the direct nexus between the expenditure incurred and the income not forming part of total income? - HELD THAT - As noticed that the assessee has not received any tax free income during this year. There are plethoras of decisions in which the addition cannot be made u/s 14A when there is no exempt income earned by the assessee. In this case also, the assessee has not earned any exempt income. Therefore, the issue raised by the revenue in this regard is dismissed. Addition u/s 68 - assessee has not been able to explain the source of source - as alleged assessee has received accommodation entry by way of share capital and share premium from the overseas entity - HELD THAT - Assessee has issued the shares with premium and submitted the relevant information before the AO to prove the onus on it towards the identity, capacity and genuineness of the transaction. There is no red flag raised by any other authorities including the RBI and all the approvals are obtained within the norms of FDI. Further at that point of time, there was no requirement for the assessee to prove the source of source, the relevant amendment was came into effect from AY 2013-14. Similarly the issue of restriction on issue of share premium also came into books on the insertion of section 56(2) of the Act effective from AY 2013-14. There was no such prohibition in the impugned assessment year under consideration. Therefore, after considering the findings of the Ld CIT(A), we do not see any reasons to disturb the same. The above views are supported by the decision of Apeak Infotech 2017 (9) TMI 1590 - BOMBAY HIGH COURT - Accordingly the grounds raised by the revenue in this regard are dismissed.

Summary

Issues Involved:
- Disallowance u/s 14A of expenditure
- Addition of share application money and share premium u/s 68

Disallowance u/s 14A of Expenditure:
The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2012-13. The Revenue contended that there was a direct nexus between the expenditure incurred and the income not forming part of the total income. The Departmental Representative highlighted that the Assessing Officer did not investigate the funds received by the assessee from foreign entities. The Appellate Tribunal observed that no exempt income was earned by the assessee during the year, hence disallowance u/s 14A was not applicable, and dismissed the Revenue's grounds.

Addition of Share Application Money and Share Premium u/s 68:
The Assessing Officer alleged that the assessee received accommodation entry by way of share capital and share premium from an overseas entity. The assessee provided relevant documents substantiating the identity, capacity, and genuineness of the transaction, including foreign remittance details and compliance with FDI and RBI guidelines. The Appellate Tribunal noted that the shares were issued with premium, and all necessary approvals were obtained within FDI norms. The Tribunal found no requirement for the assessee to prove the source of the source or any restriction on issue of share premium during the relevant assessment year. Relying on the decision of the Bombay High Court, the Tribunal upheld the order of the Commissioner of Income Tax (Appeals) in favor of the assessee. The addition of commission on the issue of shares was also dismissed in favor of the assessee. The appeal filed by the Revenue was subsequently dismissed.

Separate Judgement:
No separate judgment was delivered by the judges in this case.