ITO Vs Mandvi Salts & Logistics Pvt. Ltd. (ITAT Mumbai)
ITAT Mumbai held that mere non-appearance of directors is no basis for invoking provisions of section 68 of the Income Tax Act. Accordingly, addition towards share application money and share premium is liable to be deleted.
Facts- 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.
Notably, 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.
CIT(A) further held that when requisite documents 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.
Conclusion- Held that 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-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.
