INCOME TAX OFFICER 10(2)(3), MUMBAI V. M/S.MANDVI SALTS & LOGISTICS PRIVATE LIMITED, MUMBAI

ITA 6231/MUM/2017

AI Insights

The case revolves around an appeal by the Income Tax Officer against the order of the CIT(A) which had deleted the additions made by the Assessing Officer on account of share application money and share premium received by Mandvi Salts & Logistics Pvt. Ltd. from Rehwa Corporation Ltd. and Lucas Meyer Industries Pvt Ltd. The primary legal issues were the validity of the additions under section 68 of the Income-tax Act, 1961, and the applicability of section 14A read with Rule 8D concerning disallowance of expenses related to exempt income. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee had provided sufficient documentary evidence to establish the legitimacy of the transactions and that the Assessing Officer's conclusions were based on surmises rather than solid evidence.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126122 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Other Referred Cases: Sumati Dayal vs. CIT, Durga Prasad More vs. CIT, PCIT vs. Era Infrastructure (India) Ltd., CIT vs Gagandeep Infrastructure Pvt Ltd, PCIT v. Paradise Inland Shipping Pvt. Ltd., CIT v. Orissa Corporation (P) Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHUPENDRA SHAH
• Assessee Lawyers: R.R. MAKWANA
• Keywords: Question of law; Accommodation entries; Earning of tax free income; Rule 8D; Bogus
• Section: 68; 131; 133(6); 14A; 20

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.6231/MUM/2017 Assessment Year: 2012-13 Income Tax Officer- 10(2)(3) R. No. 216-A, Aayakar Bhavan, M.K. Road, Mumbai 400020. vs Mandvi Salts & Logistics Pvt. Ltd. Flat No. 1404, Plot No. B-29, Silver Arch, Shashtri Nagar, Andheri (West), Mumbai 400053 PAN: AAFCM4923L Appellant Respondent Present for: Appellant by : Shri Bhupendra Shah, CA Respondent by : Shri R.R. Makwana, Addl. CIT Date of Hearing : 27.01.2025 Date of Pronouncement : 24.04.2025 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the revenue is against the order of Ld. CIT(A)-20, Mumbai vide appeal no. CIT(A)-20/DCIT-12(3)(2)/IT-190/2015-16, dated 03.07.2017, passed against the assessment order by ld. DCIT-12(3)(2), Mumbai u/s.143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 24.03.2015, for AY 2012-13. 2. Grounds taken by the revenue are reproduced as under: ITA No.6231/Mum/2017 Mandvi Salts & Logistics Pvt ltd. A.Y. 2012-13 2 “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 5,00,00,000/- made on account of share application money and Share premium received from Rehwa Corporation Ltd. and Lucas Meyer Industries Pvt Ltd.\" 2. \"On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating that mere filing of confirmation letter, PAN, bank statement will not discharge the assessee's onus in this case where AO has established non- existence of credit worthiness of the applicant companies.\" 3. \"On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the ratio laid down by Apex Court in the case of Sumati Dayal (1995 AIR 2109) and Durga Prasad More (82 ITR 540) even though the AO has mentioned the circular transaction details in the assessment order.\" 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance made u/s. 14A read with Rule 8D without appreciating that the fact that disallowance of expenditure can be made even when the tax payer in particular year has not earned any exempt income. 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance made u/s. 14A read with rule 8D without appreciating that the fact that in the assessment order, the AO has stated that income on the assets amounting to Rs. 11,71,95,236/- are exempt and therefore, the interest expenses and other expenses on these assets incurred during the year are to be disallowed u/s. 14A of the Act. 6. “The appellant prays that the order of the CIT(A) on the above grounds be set- aside and that of the AO be restored.” 7.The appellant craves leave to amend or alter grounds or add a new ground which may be necessary”. 3. Brief facts of the case are that assessee filed its return of income on 30.09.2012 reporting total income at NIL. Broadly, there are two issues involved in the present appeal filed by the revenue, viz., first relating to addition made towards share capital and share premium received from two share subscribers, totaling into Rs.5 crores and second, relating to disallowance of Rs.36,43,646/- u/s. 14A r.w. rule 8D. 3.1. On the issue relating to disallowance made u/s. 14A r.w. rule 8D, in the course of assessment proceedings, ld. AO noticed that assessee had ITA No.6231/Mum/2017 Mandvi Salts & Logistics Pvt ltd. A.Y. 2012-13 3 shown total income at ₹2,88,837/- which comprised income from commission of 2,83,200/- and interest on FDR at ₹5,637/-. Assessee had claimed interest ICT at 34,50,891/-. Total expenses were shown at 6,43,646/-. In the balance sheet, assessee had shown investment in non- current investment of ₹ 5 crores, other non-current assets at 37,97,710/- which comprised of miscellaneous expenditure, land purchased agreement expenses and rent deposit. Assessee also reported tangible assets at 6,33,97,526/-. Thus, total of all these assets was 11,71,95,236/-. According to ld. AO, income on all these assets was exempt. Therefore, he held that interest and other expenses relating to income from these assets are to be disallowed u/s 14A. The same was worked out by him at 37,63,044/-. However, he restricted the disallowance at ₹ 36,43,646/- and added it to the total income. 3.2. In this respect, assessee submitted that it did not earn any income exempt under the Act, during the year and therefore, there cannot be any disallowance u/s. 14A r.w. rule 8D. Assessee also contented that there is no satisfaction arrived at by the ld. AO as required u/s.14A for the purpose of invoking and making the disallowance. Assessee also demonstrated that it had sufficient own funds for the investments it had made and therefore, no amount of interest can be appropriated towards disallowance u/s. 14A. Having considered these submissions, ld. CIT(A) found that disallowance made by ld. AO by applying rule 8D is not correct since, assessee had not earned any exempt income during the year. 3.3. The issue in hand is no longer “res integra” as assessee did not earn any exempt income during the year and therefore, no disallowance can be made u/s. 14A r.w. rule 8D for the year under consideration i.e. AY 2012- ITA No.6231/Mum/2017 Mandvi Salts & Logistics Pvt ltd. A.Y. 2012-13 4 13. The amendment brought in Section 14A by way of explanation in this regard is effective from 01.04.2022 i.e. AY 2022-23, as held by the Hon’ble High Court of Delhi in the case of PCIT vs. Era Infrastructure (India) Ltd. [2022] 141 taxmann.com 289 (Del). Considering the facts on record and the said judicial precedent as well as the position of law, we do not find any reason to interfere with the findings arrived at by the ld. CIT(A) who deleted the disallowance made by the ld.AO u/s. 14A r.w. rule 8D. Accordingly, ground no. 1 raised by the revenue is dismissed. 4. On the second issue relating to addition of Rs.5 crores on account of unexplained income towards share capital and share premium u/s. 68, assessee submitted that it had received share application money of Rs. 20 lacs and share premium of Rs. 4.80 crores from two share subscribers who had invested Rs. 2.5 crores each in the equity share capital of the assessee. Details in this respect is tabulated as under: Sr. Name of company/person Share application money received @10/- per share Share premium received @240/- per share Total amount received (including premium) Equity shares allotted Remark 1 Rehwa Corporation Pvt. Ltd. 611, Tulsiani Chambers, Nariman Point, Mumbai 400021 10,00,000 2,40,00,000 2,50,00,000 1,00,000 NA 2 Lucas Meyer Industries Pvt. Ltd. 205-D, Veena Nagar, Malad(W) Mumbai 400064 10,00,000 2,40,00,000 2,50,00,000 1,00,000 NA ITA No.6231/Mum/2017 Mandvi Salts & Logistics Pvt ltd. A.Y. 2012-13 5 4.1. In the course of assessment, ld. AO called for details in respect of share application money received by the assessee. Ld. AO issued notices u/s.133(6) to both the share subscribers. In this regard, ld. AO noted in para 5.1 of his order that “both the partes have confirmed to have invested in the company and have furnished there copy of account, balance sheet etc.” Further, assessee submitted audited accounts and bank statements of the share subscribers to establish their creditworthiness and genuineness of the transaction. Assessee strongly submitted that identity of both the share subscribers is established since, both responded to the notices issue u/s. 133(6) have furnished all the required details and documents, facts of which has been recorded by the Ld. AO in the impugned assessment order itself. 4.2. Ld. AO despite the submissions made by the assessee concluded to take an adverse view of holding the impugned transaction as accommodation entry and treated the same as unexplained income u/s. 68 to make the addition. 4.3. Aggrieved, assessee went in appeal before the ld. CIT(A) who took note of the factual position in respect of various submissions made by the assessee. Ld. CIT(A) dealt with all the three essential ingredients relating to identity, creditworthiness of the share subscribers and genuineness of the transactions as requirement u/s. 68 of the Act. For the purpose of identity of share subscribers, he noted that since both had responded to the notices issued u/s. 133(6) and furnished all the required details and documents, the same is adequately established. For the purpose of creditworthiness, he took note of PAN card, bank statements, financial statements, share application forms, Board resolutions which were placed ITA No.6231/Mum/2017 Mandvi Salts & Logistics Pvt ltd. A.Y. 2012-13 6 on record. He noted that the share subscribers have duly recorded the investment made by them in the share capital of the assessee in their respective audited financial statement. For the purpose of establishing genuineness of the transactions, reference was made to bank account statements of the share subscribers. He also noted that there is no cash trail in respect of the impugned transactions so as to hold them as not genuine. Thus, assessee discharged its own as casted u/s. 68 of the Act. Ld. CIT(A) further, observed that while arrive at adverse conclusion, ld. AO did not consider it worthwhile to make further enquires on the details and documents placed on record but, proceeded merely, on the basis of surmises and suspicion. According to him, there is no finding to the effect as to how the alleged unaccounted cash/money of the assessee was routed through various layers to finally reach in the hands of the assessee. According, to him merely because the share subscriber could not be produced before the Ld. AO, it cannot be concluded that the assessee indulged in bogus/accommodation entries by arranging share capital through these two share subscribers. Ld. CIT(A) referred to various judicial precedents including that of Hon’ble Jurisdictional High Court of Bombay in the case of CIT vs Gagandeep Infrastructure Pvt Ltd. [2017-18] taxmann.com 272 (Bom) to note that when requisite documents such as PAN card, bank accounts, balance sheet etc. were available with the AO, to establish that no cash transactions were involved in the bank accounts of the investing company, then without further probe to prove contrary, the addition u/s. 68 in the hands of the assessee cannot be made. He thus, deleted the addition of Rs. 5 crores made u/s. 68 by the ld. AO. 5. Before us, Ld. Counsel for the assessee reiterated the submissions made before the authorities below and referred to plethora of documents ITA No.6231/Mum/2017 Mandvi Salts & Logistics Pvt ltd. A.Y. 2012-13 7 corroborating the three essential ingredients u/s. 68 complied by the assessee. We note that ld. AO without even going through and discussing the details submitted by the subscriber companies, insisted for personal appearance to prove the identity, creditworthiness of the subscribers and the genuineness of the transactions. To our mind, ld. AO could have taken an adverse view only if he could point out the discrepancies or insufficiency in the evidence and details furnished in his office and also as to what further investigation was needed by him by way of recording of statement of the directors of the subscriber companies. It is important to note that ld. AO himself has taken cognizance of submissions made by both the share subscribing companies in response to notices issued u/s. 133(6) along with furnishing of corroborative documentary evidences and nothing contrary has been found in this respect. 5.1. We draw our force from the decision of the Hon'ble Bombay High court in the case of PCIT v. Paradise Inland Shipping Pvt. Ltd. [2017] 84 taxmann.com 58 (Pan) wherein it was held that once the assessee has produced documentary evidence to establish the existence of the subscriber companies, the burden would shift on the revenue to establish their case. 5.2. Ld. AO has not bothered to discuss or point out any defect or deficiency in the documents furnished by the assessee of the share subscribing companies. These evidences furnished have been neither controverted by the ld. AO during the assessment proceedings nor anything substantive brought on record to justify the addition made by him. Ld. AO has simply added the amount of share capital and share premium on the ground that assessee has not produced the ITA No.6231/Mum/2017 Mandvi Salts & Logistics Pvt ltd. A.Y. 2012-13 8 directors/shareholders. Thus, going by the records placed by the assessee of both the share subscribing companies, it can be safely held that the assessee has discharged its initial burden and the burden shifted on the ld. AO to enquire further into the matter which he failed to do so. It is also noted from their audited financial statements that all the investing companies have sufficient own funds available with them to make investment in the assessee. 5.3. From the perusal of paper book and documents placed therein, it is vivid that both the share applicants are (i) income tax assessees, (ii) they are filing their income tax returns, (iii) share application form and allotment letter is available on record, (iv) share application money was made by account payee cheques, (v) details of the bank accounts belonging to share applicants and their bank statements, (vi) in none of the transactions there are any deposit of cash before issuing cheques to the assessee, (vii) all the share applicants having are substantial represented by their capital and reserves. 5.4. In the course of assessment proceeding. ld. AO directed the assessee to produce the subscriber companies along with relevant documentary evidences and details which was not complied with. Ld. Counsel submitted that mere non-appearance of directors is no basis for invoking provisions of section 68 of the Act for which he placed reliance on the decision of Hon'ble Supreme Court in the case of CIT v. Orissa Corporation (P) Ltd. [1986] 159 ITR 78 (SC) wherein it was 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 the income-tax assessees. Their index number was in the file of the revenue. The revenue, apart from issuing notices under section 131 at the instance of the ITA No.6231/Mum/2017 Mandvi Salts & Logistics Pvt ltd. A.Y. 2012-13 9 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 credit- worthy 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 not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such could arise. The High Court was, therefore, right in refusing to refer the questions sought for. Decision of the High Court affirmed. 6. Considering the facts and circumstances narrated and analyzed above, all the details and documents placed on record corroborating the claim of the assessee, the judicial precedents referred above and detailed and factual nothings made by the Ld. CIT(A), we uphold the order of Ld. CIT(A) without any interference. Thus, ground no. 02 taken by the revenue in this regard is dismissed. 7. In the result, appeal by the revenue is dismissed. Order pronounced in the open court on 24.04.2025. Sd/- Sd/- [Amit Shukla] [Girish Agrawal] Judicial Member Accountant Member Dated: 24.04.2025 Divya R. Nandgaonkar Stenographer Copy to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT BY ORDER, (Dy./Asstt.Registrar) ITAT, Mumbai "