2024 (12) TMI 642 - AT - Income Tax

Addition of share capital/share premium u/s 68 - unexplained cash credit - no compliance to summons issued u/s 131 - HELD THAT - All the subscribers have filed their replies before the AO confirming the investments along with source of fund with copies of ledger accounts, bank statements, ITRs and audited statement of accounts etc. However both the authorities below have failed to carry out any investigation and enquiry on the documents furnished by the assessee as well as by the subscribers and merely harped on the fact that compliance to the summons were not made. Addition cannot be made merely on the basis of the fact that there was no compliance to summons issued u/s 131 to the assessee as well as subscribers when all the corroborating evidences are furnished before the authorities. We find support from the following decisions of Orissa Corporation Pvt. Ltd. 1986 (3) TMI 3 - SUPREME COURT , Orchid Industries Ltd. 2017 (7) TMI 613 - BOMBAY HIGH COURT , Crystal Networks Pvt. Ltd. 2010 (7) TMI 841 - KOLKATA HIGH COURT , M/s. Cygnus Developers India Pvt. Ltd . 2016 (3) TMI 1073 - ITAT KOLKATA - Thus, direct the AO to delete the addition. Addition u/s 14A read with Rule 8D(2)(iii) - HELD THAT - We note that during the year the assessee has earned dividend income only Rs. 1540/-. Therefore, disallowance in the instant case cannot be exceeded the exempt income. In view of the decision of Joint Investments Pvt. Ltd. 2015 (3) TMI 155 - DELHI HIGH COURT We are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the addition. The ground is allowed.

Summary

Issues:
Confirmation of addition of Rs. 1,85,30,000/- as unexplained cash credit under section 68 of the Act.
Disallowance of Rs. 6,9410/- under section 14A read with Rule 8D(2)(iii).

Analysis:
The appeal pertained to the confirmation of an addition of Rs. 1,85,30,000/- by the Ld. CIT(A) as unexplained cash credit under section 68 of the Act. The assessee raised funds by issuing equity shares to four parties. The AO made the addition based on non-compliance with summons u/s 131, despite the submission of detailed evidence by the assessee. The AO questioned the high premium on equity shares, but the valuation report justified the premium. The assessee also argued that a portion of the share capital had been adjusted in the previous year. The appellate authority upheld the addition, citing non-compliance and lack of genuineness in the share capital. However, the ITAT found that all documentary evidence, including assessments of subscribers, was furnished. The ITAT criticized the authorities for not conducting a proper investigation and relying solely on non-compliance with summons. Citing relevant case laws, the ITAT set aside the CIT(A)'s order and directed the AO to delete the addition.

The second issue involved a disallowance of Rs. 6,9410/- under section 14A read with Rule 8D(2)(iii). The assessee had earned only Rs. 1540/- as dividend income during the year. The ITAT referred to a decision of the Hon'ble Delhi High Court and concluded that the disallowance cannot exceed the exempt income. Therefore, the ITAT set aside the CIT(A)'s order and directed the AO to delete the addition.

In conclusion, the ITAT allowed the appeal of the assessee, directing the AO to delete both the addition of Rs. 1,85,30,000/- under section 68 of the Act and the disallowance of Rs. 6,9410/- under section 14A read with Rule 8D(2)(iii).