9911796707
TMI Blog2025 (2) TMI 393X X X X Extracts X X X X X X X X Extracts X X X X ..... sment proceedings, AO observed that assessee has received share capital of Rs. 13,09,86,251/- (622,820 shares @ Rs. 210.31 per share) from various individuals. The details of shares issued with share premium are listed at page 2 of the assessment order. In order to verify the genuineness of the share capital, AO issued show-cause notice dated 08.12.2018 to the assessee to explain the identity, genuineness and creditworthiness of the shareholders. In response, the assessee submitted a copy of ITR, confirmation, bank account and computation of income and statement of affairs of the shareholders. The AO analyzed one of the shareholder, Shri Vikas Garg and analyzed the information submitted by the abovesaid shareholder and the AO observed that Vikas Garg has a salary income and other sources of income amounting to Rs. 7,20,600/- only. From the record, AO observed that assessee has obtained a loan of Rs. 35,00,000/- from Ms. Saroj Devi, however assessee has not furnished details of Saroj Devi. Further, he analyzed the bank statement and observed that assessee has received amount of Rs. 4,40,000/- and Rs. 35,00,000/- from Tilak Raj and Saroj Devi respectively. He observed that shareholde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Rules, 1962 (for short 'the Rules'). Accordingly, a show-cause notice was issued to the assessee and was asked to give details regarding disallowance of interest u/s 14A of the Act. In response, ld. AR of the assessee submitted reply vide letter dated 14.12.2018, the same are reproduced as under :- "...2. NOTE ON DISALLOWANCE u/s. 141A : During the year under consideration the assessee has received tax free dividend income of Rs. 5319531/-. All the dividend has been received on the investment in the shares of SMC Global Securities Ltd. The assessee has not incurred any expenses for earning of dividend income. However, sum of Rs. 1,20,000/- has been disallowed suo-mot u/s. 14A. There is no new investment made during the year in the shares of SMC Global Securities Ltd. from which dividend has been received. No efforts were required for earning of dividend income. The dividend income was credited to the bank account of the assessee directly through ECS. The expenses incurred and charges in the Profit and Loss A/c are normal business expenses and these expenses have no relation or nexus with earning of dividend income. Therefore, no further disallowance under section 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor can have many sources for making the investment viz loans, his owned accumulated funds, accumulated income etc. There is no dispute by the assessing officer with regard to identity and creditworthiness of the shareholder and the genuineness of the transaction. The assessing officer has made the addition on the ground that the assessee failed to explain the source of source of fund. 4.2.4 It is noticed that during the course of assessment proceedings the appellant company has explained to the A.O. that the shareholder Mr. Vikas Garg has received Rs. 3500000/- from his mother Saroj Devi and Rs. 440000/- from Mr. Tilak Raj,. In the assessment order, the assessing officer has himself mentioned that from perusal of bank statement of Mr. Vikas Garg, it is revealed that Mr. Vikas Garg received funds of Rs. 440000/- and Rs. 3500000/- from Mr. Tilak Raj and Saroj Devi respectively. 4.2.5 However the AO has failed in his duty since neither he had done any further enquiry nor he had asked the appellant to substantiate its claim by furnishing documents such as bank statement of Saroj Devi & Tilak Raj & other relevant details of these persons. Hence keeping in view this fact of lack of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the aforesaid documents. In this case the Appellant has raised a preliminary objection that sum total of the loan received from various companies comes to Rs. 23,12,56,456/- however the AO has made an addition of Rs. 23,71,70,947/-. This is an apparent mistake on record hence additions of Rs. 23,71,70,947/- made by the AO should -be read as additions of Rs. 23,12,56,456/-. 4.3.7 The AO has neither made any further enquiry on the basis of the details submitted by the Appellant company nor he has asked the Appellant company to explain further by submitting the missing documents. AO has simply rejected all the positive evidences submitted by the Appellant and made the impugned additions. 4.3.8 Keeping in view this fact of lack of enquiry on the part of the AO and in the interest of natural & substantial justice I, vide order sheet entry dt 13-8-2019 asked the Appellant to furnish further details in support of its claim such as Balance Sheets and ledger account of the lender companies and status of owned funds & total funds available with lender companies. On perusal of the details submitted by the Appellant during the Appellate proceedings I have observed that the status of own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly not the "be all end all". Let us take an example, if person is drawing salary of Rs. 10 lacs p.a. and purchases a residential fiat of Rs. 50 lacs. Can merely on the basis of his income addition be made as unexplained investment? The answer is evidently "No" because that person may have taken housing loan of Rs. 40 lacs to purchase the residential flat." 4.3.9 A similar issue has come up before the jurisdictional Delhi High Court in the case of Pr. CIT (Central)-l vs. Goodview Trading Pvt. Ltd. ITA No.3777/2016 dated 21.11.2016 wherein addition were made under section 68 on the ground that the creditor had little or no income. The Hon'ble High Court after tabulating the chart of the net worth of each of the creditor held that the creditor had substantial means and the AO was not justified in making the adverse inference on the ground that the creditor had paid minimal or insubstantial amounts as taxed. The Hon'ble High Court approved the inference drawn by the CIT(A) in favour of the assessee on the basis of the net worth of each of the creditor. The remarks of the A.O. that funds were transferred by the loan creditor to the appellant immediately after it was receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2018 without any adverse inferences about its sources. The provisions of section 68 are as under:- "68. Where any sum is found credited in the books-of an assessee maintained of any previous year, and the assessee offers no explanation-about the nature am 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: [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: Provided further that nothing contained in the first proviso shall apply if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h regard to section 14A disallowance, ld. CIT (A) partly allowed the grounds raised by the assessee by relying on the decision of ACB India Limited (formerly M/s. Aryan Coal vs. ACIT) (2015) 62 taxmann.com 71 (Delhi) as under :- "4.6.2 I have considered the facts of the case, remarks of the A.O. made in the assessment order and also the submission of the appellant. During the year under, consideration, the appellant company has received tax free dividend income of Rs. 5319531/-. The entire dividend has been received on the investment in the shares of SMC Global Securities Ltd. The investments in the shares of SMC Global Securities Ltd were made in the earlier years and no new investment was made during the year in the shares of SMC Global Securities Ltd. Against this dividend income, the appellant company has made suo-moto disallowance of Rs. 120000/-. The assessing officer has applied Rule 8D of Income Tax Rules and calculated the disallowance at Rs. 4561641/- and after reducing the suo-moto disallowance of Rs. 1,20,000/- made addition of difference amount of Rs. 44,41,641/-. 4.6.3 The Hon'ble jurisdiction Delhi High Court in the case of ACB INDIA LIMITED (FORMERLY M/S ARYAN C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome tax Act, 1961. (c) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of interest of Rs. 16,36,678/- made by Assessing Officer by way of reduction in WIP. iii. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in directing to restrict the addition u/s 14A r.w.r 8D to Rs. 29,94,832/- by holding that for calculation under this head only those investments are to be considered for computing average value of investment which yielded exempt income during the year. iv. Whether on the facts and circumstances of the case, the Ld. CIT(A) had erred in admitting additional evidences without seeking the remand report from the Assessing Officer. 14. At the time of hearing, ld. DR of the Revenue made the following submissions :- "In respect of above appeal, there is error in mentioning the figure of disallowance on account of interest expenses in Revised/Modified Ground of appeal No.2(b) filled by the Revenue. The correct figure of interest disallowed by the Ld. A.O is Rs 43,39,342/-.The AO has been requested to rectify the error and file^ revised Ground of Appeal No.2(b). Response ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred into its bank account from out of bank accounts of his brother-in-law and a close friend and, further, that said creditors confirmed to have made payment to assessee - On basis of above, Tribunal held that identity of source was thus established and requirement of section 68 was proved beyond any doubt by assessee and, therefore, addition made by Assessing Officer was not sustainable - High Court by impugned order held that since Tribunal ignored vital facts emanating from record that said creditors had not produced evidence to establish their capacity to raise such a huge amount and also that they were not clear about their precise role in transaction involving said amount, its order was to be set aside - It further held that creditors admitting that they had made payments to assessee was not sufficient to discharge burden placed on assessee by section 68 - Whether special leave petition filed against impugned order was to be dismissed - Held, yes [Para 1] [In favour of revenue] 3. Delhi High Court in the case of Commissioner Of Income Tax Delhi-V vs. M/S. N.R.Portfolio Pvt. Ltd. 22 November 2013 [ITA No 1018/20211] "23. The contention that the Revenue must have evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents - 8 - Passport of Vikas Garg - 284 - ITR and Computation of Income of Saroj Devi - 285 - 287 - Balance Sheet of Saroj Devi - 288 - Bank Statement of Saroj Devi - 289 - Bank Statement of Tilak Raj Jagdish Prashad (Proprietor Ashok Kumar) - 290 - ITR of Ashok Kumar - 291 1.1. The assessing officer has made addition of share capital / share premium of Rs. 39,36,000/- in respect of share capital issued to Sh. Vikas Garg. The addition made by the A.O. is erroneous. There was no reason or basis for the assessing officer to make the addition of u/s 68 of Income Tax Act 1961. The assessee company had furnished before the A.O. all the necessary details and documentary evidences to discharge its onus u/s 68 of Income Tax Act. The documents / details submitted before the A.O. proved not only the identity of the shareholder but also his creditworthiness and the genuineness of the transactions. The documentary evidences available with A.O. included :- - Complete name and address of shareholder - Confirmation of the shareholder - Copy of bank statement of the shareholder - Copy of statement of affairs of the shareholder - Copy of ITR acknowledgment of share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.] 1.5. From the perusal of aforesaid provision, it is evident that w.e.f. 01.04.2013, in respect of share capital / share application money / share premium there is requirement of offering explanation about the nature and source of amount received by the share applicant. The assessee company has fully complied with the provisions. It has been duly explained to the A.O. that the shareholder Mr. Vikas Garg has received Rs. 35,00,000/- from his mother Saroj Devi and Rs. 4,40,000/- from Mr. Tilak Raj Jagdish Prasad. In the assessment order, the assessing officer has himself mentioned that from perusal of bank statement of Mr. Vikas Garg, it is revealed that Mr. Vikas Garg received funds of Rs. 4,40,000/- and Rs. 35,00,000/- from Mr. Tilak Raj and Saroj Devi respectively. Therefore, the assessing officer has erred in stating that the assessee filled to give explanation of source of source. 1.6. Without prejudice to above, it is submitted that the CIT(A) by vir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is submitted that the entire addition made by the A.O. is erroneous. There was no reason or basis for the assessing officer to make the addition of u/s 68 of Income Tax Act 1961. The assessee company had furnished before the A.O. all the necessary details and documentary evidences to discharge its onus u/s 68 of Income Tax Act. The documents / details submitted before the A.O. proved not only the identity of the creditor but also there creditworthiness and the genuineness of the transactions. 2.2. As per Section 68 of Income Tax Act where any sum is found credited in the books of an assessee maintained for any previous year and the assessee offers no explanation about the nature and source therefore 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. In the assessee company's case, as explained above, complete detail and documentary evidences in respect of the amount of loans were available on record with the assessing officer during the course of assessment proceeding. Under section 68, the onus of the assessee is discharged if he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re giving loan to others. The assessee has, thus fully discharged the onus cast upon it under section 68 of Income Tax Act, 1961. The assessee has furnished the necessary evidences to prove the identity of the creditor, there creditworthiness and also the genuineness of the transactions. The assessee had explained the source of amount credited in its books by way of confirmation of creditors and other documentary evidences. 2.6. The Hon'ble Supreme Court in the case of CIT v. Orissa Corporation Pvt. Ltd. [1986] 159 ITR 78 (SC), has held as under: - 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 income-tax assessee's. Their index numbers were 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 creditworthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd other non share capital transactions. Requirement of explaining 'Source' of 'Source' in respect of loans is applicable from A.Y. 2023-24 and subsequent years Reliance in this regard is placed on Delhi ITAT decision dated 31/05/2022 in the case of M/s Mall Hotels Ltd. V. CIT (ITA No. 2688/DEL/2014) The Hon'ble Delhi Bench of ITAT in the case of ACIT v Smt. Prem Anand (ITA No. 3514/Del/2014) vide its decision dated 13.04.2017 has held that amendment made in section 68 of the Act w.e.f. 01.04.2013 empowers the A.O. to examine source of source in case of share application money / share capital / share premium from 01.04.2013 and this amendment does not give power to the A.O. to examine source of source of non-share capital cases. The Hon'ble Gauhati High Court in the case of Nemi Chand Kothari v CIT (2003) 264 ITR 254 (Gau) held as under :- "What, thus, transpires from the above discussion is that while Section 106 of the Evidence Act limits the onus of the Assessee to the extent of his proving the source from which he has received the cash credit, Section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s) of the creditor, but also of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "It will have to be kept in mind that Section 68 of the I.T. Act only sets up a presumption against the Assessee whenever unexplained credits are found in the books of accounts of the Assessee. It cannot but be gainsaid that the presumption is rebuttable. In refuting the presumption raised, the initial burden is on the Assessee. This burden, which is placed on the Assessee, shifts as soon as the Assessee establishes the authenticity of transactions as executed between the Assessee and its creditors. It is no part of the Assessee's burden to prove either the genuineness of the transactions executed between the creditors and the sub-creditors nor is it the burden of the Assessee to prove the credit worthiness of the sub-creditors." "14. With this material on record in our view as far as the Assessee was concerned, it had discharged initial onus placed on it. In the event the revenue still had a doubt with regard to the genuineness of the transactions in issue, or as regards the credit worthiness of the creditors, it would have had to discharge the onus which had shifted on to it. A bald assertion by the A.O. that the credits were a circular route adopted by the Assessee to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loans have been repaid back during the year itself and only small amount of interest payable was outstanding as on 31/03/2016. (Refer page no. 4.3.10 of the CIT(A) order). II. The loans were taken during the ordinary course of business for the genuine business needs and interest was duly paid and TDS was duly deducted and paid as per exchequer. III. There is no incriminatory/adverse information from the investigation wing or any other, source in respect of any of the loan creditors. IV. It is not a case where any of the loan creditor has not responded to any notice issued by the AO. V. In respect of Multiplex Fincap Ltd it is submitted that loans were received in the last year ( F.Y. 2014-15) and the same was duly accepted in the assessment order u/s 143(3). Copy of assessment for A.Y. 2015-16 is at page no. 295 - 299). VI. The loans received from Multiplex during the year under consideration were of Rs. 42,60,56,456/- out of which the assessing officer has accepted the loans of Rs. 26,26,00,000/- and made the addition of Rs. 16,34,56,456/-. There can be no logic/ratio for making addition of part amount of loans when the loan creditors have confirmed the entire loan. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of tax exempt investment, chose to factor in the total investment itself. Even though the CIT(Appeals) noticed the exact value of the investment which yielded taxable income, he did not correct the error but chose to apply his own equity. Given the record that had to be done so to substitute the figure of Rs. 38,61,09,287/- with the figure of Rs. 3,53,26,800/- and thereafter arrive at the exact disallowance of .05%. Reliance is also placed on the Bombay High Court judgements in the case of CIT v JSW Energy Ltd (2015) (5) TMI 823 (Order dated 30.04.2015 and CIT v Essar Teleholdings Ltd (2015) (5) TMI 810 (Order dated 07.08.2014). The special bench of Delhi Tribunal in the case of ACIT v Vireet Investment Pvt. Ltd. (2017) 82 taxmann.com 415 (Delhi-Trib) (SB) has held as under :- 11.16 Therefore, in our considered opinion, no contrary view can be taken under these circumstances. We, accordingly, hold that only those investments are to be considered for computing average value of investment which yielded exempt income during the year. Applying the aforesaid case laws, the disallowance u/s 14A comes to Rs. 29,94,832/- i.e. ½ % of average value of investment (which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )held as under: - 17.1 Firstly, that the CIT(A) had exercised his powers under Section 250(4) of the Act which was co-equal to that of the AO. It also took note of the fact that notice was issued to the concerned branch of Canara Bank under Section 133(6) of the Act and it was only after information was received from Canara Bank and material evidence furnished by the respondent/assessee, that the addition was deleted. The relevant observations made in this behalf by the Tribunal being apposite are set forth hereafter: "7. We have considered rival submissions and perused the materials on record. The basic grievance of the Revenue is, learned Commissioner (Appeals) should not have deleted the addition based on additional evidences furnished by the assessee without forwarding them to the Assessing Office for his examination and opinion. It is fairly well settled, powers of the first appellate authority is coterminus with the Assessing Officer. On a reading of section 250 and 251 of the Act, it is very much clear that learned Commissioner (Appeals) while deciding an appeal can consider and decide any matter arising out of proceedings in which the order appealed against was passed, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve factual error committed by the AO, in noting the figure with regard to the time deposits. 5.5. Reliance is also placed on the following case law: - - International Tractor v. CIT(LTU) & ANR - 2022(11) TMI 913 - (Delhi High Court) - International Tractor v. CIT(LTU) & ANR - 2021(4) TMI 1033 - (Delhi High Court) - DICT v. Converteam Group - 2022 (9) TMI 1447 - (ITAT Delhi) - DCIT v. Smt. Devi Tatiparti - 2021 (10) TMI 19 - (ITAT Visakhapatnam) - ITO v. Industrial Roadways - 2007 (3) TMI 292 - (ITAT Bombay - K) - DCIT v. MKU (Armours) - 2014 (11) TMI 847 - (ITAT Lucknow)" 16. Subsequently, ld. AR has submitted on the case laws relied on by the ld. DR as under:- "The case laws relied upon by the revenue are not applicable to the case of assessee company because the facts of the case of assessee are totally distinguished from the facts of the case laws relied upon by the revenue. - The case law of CIT v. Sadiq Sheik [2020] 122 taxmann.com 39 (Bombay) relied upon by revenue is not applicable to the case of the assessee as the facts are entirely different. In this case law relied upon by the revenue, there were huge amount of cash withdrawal and cash deposit in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his duty since neither it had done any further enquiry nor he had asked the assessee to substantiate its claim by submitting documents such as bank statement of Saroj Devi and Tilak Raj and other relevant details of these persons. He deleted the addition by observing that as far as assessee is concerned, assessee has submitted all the relevant documents and also proved the source of source of the amount invested in the assessee's company as share capital as required by the amended provisions of section 68 of the Act. After considering the facts on record, we do not see any reason to disturb the abovesaid findings. Accordingly, ground no.i raised by the Revenue is dismissed. 18. With regard to ground no.ii(a), we observed that the Assessing Officer observed that the assessee has taken unsecured loan from 9 parties and assessee has submitted copies of ITR acknowledgement, confirmation of the loan creditors and copy of bank statement of all the loan creditors and with regard to Basera Realtech Private Limited submitted a copy of the Hon'ble High Court order. The Assessing Officer has made the addition after analyzing loan creditors. He came to the conclusion based on the declaration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easing and Credit Co. Ltd. 11750000 NIL 19. Based on the above finding, ld. CIT (A) came to the conclusion that assessee has proved the conditions imposed u/s 68 of the Act that assessee has found identity, creditworthiness and genuineness of the transactions. Further, he observed that the Assessing Officer has merely rejected the submissions of the assessee on the basis of doubt without bringing any material to discredit the document or information on record. Further he observed that the provisions of section 68 of the Act as existed at that point out time there is no requirement of proving the source of source in the case of loan transactions. Accordingly, he deleted the addition made by the Assessing Officer. 20. At the time of hearing, ld. DR relied on several decisions in his arguments. We heard the same and we are of the opinion that those case laws are distinguishable to the facts in the present case. Therefore, we are not inclined to disturb the findings of the ld. CIT (A). Accordingly, ground no.ii(a) is dismissed. 21. With regard to ground no.ii(b), we observed that the Assessing Officer has disallowed the relevant interest expenses on unsecured loan u/s 68 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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