TaxTMI 
TaxTMI 
2023 (10) TMI 258
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....provision of the Act and u/s 115JB of the Act. 3. That the order of the CIT (A) is perverse, erroneous and is not tenable on facts and in law. 4. That the grounds of appeal are without prejudice to each other. 5. That the appellant craves leave to add, amend, alter or forgo any ground(s) of appeal either before or at the time of hearing of the appeal." Cross Objection That in the absence of permission from the higher authority to convert limited scrutiny selected in CASS into full scrutiny, the Assessing Officer has no jurisdiction to frame assessment u/s 143(3) of IT Act under full scrutiny and accordingly the assessment so framed by AO u/s 143(3) of IT Act is invalid and bad in law. 2. The brief facts of the case are that the assessee filed its return declaring total income of Rs. 11,62,680/- and book profit u/s 115JB of the Act at Rs. 51,35,675/-. The assessment order came to be passed on 11/10/2017 u/s 143(3) of the Act by computing the income of the assessee as under:- Total income declared 11,62,675/- Add: Disallowance under Rule 8D(2)(iii) 5,85,304/- Add: Disallowance under Rule 8D(2)(ii) &....
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....source of funds in the hands of lender Companies. Relying on the findings and conclusion of the CIT(A), the Ld. Assessee's Representative submitted that the CIT(A) analyzed the credentials as well as the evidence available on record and having considering the source of sources of the loans provided which also came from the identified group Companies, rightly accepted the loans and deleted the addition made u/s 68 of the Act, therefore, submitted that the grounds of Appeal of the Revenue are devoid of merits. 7. We have heard both the parties and perused the material available on record. The assessee is a Non Banking Financial Corporation ('NBFC' for short) and one of the holding Companies of UFLEX Ltd. during the year under consideration, the assessee had received loans from following parties:- S. No. Name of the Party Cheque Details Amount (i) M/s Paramic Goods Pvt. Ltd., 8/1, Princip Street, 3rd Floor, Kolkata Cheque No. 145273 dated 17.7.2014 of HDFC Bank Rs. 4,90,00,000 (ii) M/s Jellotic Supply Pvt. Ltd. 10A, Hospital Road, Kolkata- 700072 Cheque No. 000131 dated 26.3.2015 of HDFC Bank Rs. 2,40,00,000 (iii) M/s Sankhuwala Commerc....
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....on examination of the bank account, she noticed that before issuing the cheque to the appellant of Rs. 4,90,00,000/- on 17.07.2014, the said company received credit of Rs. 5,00,00,000/- on 17.07.2014 from Sungrace Buildwell Pvt Ltd, which also happens to be a group company of the Uflex Group. Since the credits were received from the group companies, AO noted that merely by routing the money through bank account, the credit cannot be considered genuine even though the taxes are paid by the creditors. In the written submission before me, the Ld. AR has vehemently submitted that the identity of the creditor is duly proved by the Income Tax Assessment records & registration with the ROC and capacity is established by the net worth as on 31.03.2015 at Rs. 59,03,58,074/-. It was also stated that the income returned by the said creditor in A.Y. 2014-15, 2015-16 and 2016-17 was Rs. 3,91,15,840/-, Rs. 3,26,60,420/- and Rs. 3,08,27,300/-, respectively. and hence in view of the various decisions of Hon'ble Courts, identity and capacity of the creditor and genuineness of the transaction was clearly proved and thus no addition was called for. The evidences furnished before the AO a....
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....for A.Y. 2015-16 in appeal no. 277/19-20/17-18 before my predecessor and in this regard it has been held as follows in the said appellate order. "b) Paramie Goods Pvt Ltd. The appellant has shown unsecured loan of Rs. 5,54,00,000/- in the name of this company In this regard, the AO noticed that this company was also registered in Kolkata but later-on on 30.06.2017, it has been shifted to Delhi. The source of funds in the hands of this company is reserve and surplus of Rs. 53,60,06,074/- which included security premium of Rs. 48,91,50,000/- received from associates companies namely M/s Rubicon Mercantile Pvt Ltd and Meghmala Marketing Put Ltd, which have common directors. The return of income shows income of Rs. 3,90,35,711/- The AO also examined. bank statement of Paramic Goods Pvt. Ltd and noticed that the money received was transferred on the same date to the Uflex Group of companies. Information u/s 133(6) called for was complied with by the creditor. The Ld. ARs before the AO stated that loan taken was a genuine credit looking to the net worth of the creditor as well as profit of the current year at Rs. 3,90,35,711/ Although the AO received confirmation u/s 13....
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....loan of Rs. 4,50,00,000/- given to th appellant Modern Info Technology Pvt Ltd is also a group company and amount of Rs. 1,20,00,000/- was part refund of loan given by the appellant in earlier years. Genuineness of these companies has not been in dispute. There is also no allegation that these creditors are entry providers. On perusal of audited financial accounts and bank statement of Paramic Goods Put Ltd for A.Y. 2015-16, I find substantial net worth including fixed assets and a solar power plant through its subsidiary Le Samavist Energy Solutions Pvt Ltd worth Rs. 14.30 Crores. The profit and loss account and bank statement also reflect regular business activities. The creditor has disclosed huge profits in the return of income. The AO Le ACIT Circle-1(2), Kolkata has also completed scrutiny assessment u/s 143(3) on 02.11.2017 on the income of Rs. 3,36,98,680/- after making a disallowance u/s 14A at R 10,38,264/-in the case of creditor for A.Y. 2015-16. Under these circumstances, identity and capacity of Paramic Goods Pvt Ltd as well as genuineness of the loan transaction cannot be doubted. This view gets support from the various decisions relied upon by the Ld. AR and particul....
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....g loans and the related interest income is duly reflected in the ITR of the creditor companies. regarding the creditor company being a shell company on the basis of common Further, the AO's finding directors among group companies and rotation of funds among group companies, is unfounded since there is nothing unusual about common directors among group companies and also nothing unusual about funds flowing from one group concern to another without a gap since the companies in question are into the activity of financing where funds are not kept idle for long. In view of the above, I hold that appellant has duly discharged the onus cast on it within the meaning of section 68 in respect of loan received from Paramic Goods Pvt Ltd and accordingly the addition made on this account is directed to be deleted. b) Jellotic Supply Pvt Ltd. The appellant has shown unsecured loan of Rs. 2,40,00,000/- in the name of this company. In this regard, the AO noticed that this company was also registered in Kolkata and has vide order dated 07.04.2017 been amalgamated with 24 companies. The source of funds in the hands of this company is reserve and surplus of Rs. 55,35,62,007/- wh....
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....,00,000/- to the appellant on 28.03.2015. Genuineness of this company has not been in dispute, nor is there any allegation that this creditor is an entry provider or that cash was deposited at any time prior to advance of loan to the appellant. On perusal of audited financial accounts and bank statement of Jellotic Supply Pvt Ltd for A.Y. 2015-16, I find substantial net worth of Rs. 60.85 Crore. The profit and loss account and bank statement also reflect regular business activities. Further, the appellant has paid interest @ 10% on the loan amount to the creditor and has deducted TDS thereon. The said interest income is duly disclosed in the ITR of the creditor. The current company master data from the website of MCA shows the company status as "amalgamated". The creditor has disclosed huge profits in the return of income. Further, regarding the AO's observation of common directors among various companies, it is an admitted fact that all the companies under consideration, except Orbital Contractors and Financiers Pvt. Ltd are group companies of the Uflex Group and the said companies are mostly engaged in investment and financing operations. There is nothing unusual about the op....
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....vide order dated 07.04.2017 been amalgamated with 24 companies. The source of funds in the hands of this company is reserve and surplus of Rs. 55,65,91,371/- which included security premium of Rs. 49,23,00,000/- received from associate companies namely M/s Achinta Vincom Pvt. Ltd and Godhuli Merchants Pvt. Ltd both of which have common directors with the appellant. The return of income shows income of Rs. 4,60,11,704/-. The AO also examined bank statement of Sankhuwala Commercial Pvt. Ltd and noticed that the money received by it was transferred on the same date to the assessee. Information u/s 133(6) called for was complied with by the creditor. The Ld. ARS before the AO stated that loan taken was a genuine credit looking to the net worth of the creditor as well as profit of the current year at Rs. 4,60,11,704/-. Although the AO received confirmation u/s 133(6), but on examination of the bank account, she noticed that before issuing the loan cheques to the appellant, the said company received credit from Utech Developers Ltd and AKC Retailors Ltd which also happen to be group companies of the Uflex Group. Since the credits were received from the group companies, AO noted that mere....
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....creditor has disclosed huge profits in the return of income. Further, regarding the AO's observation of common directors among various companies, it is an admitted fact that all the companies under consideration, except Orbital Contractors and Financiers Pvt. Ltd are group companies of the Uflex Group and the said companies are mostly engaged in investment and financing operations. There is nothing unusual about the operations of these companies and also nothing unusual about common directors being there among various companies since these companies belong to the same group. The case laws cited by the AO have also been fully distinguished by the appellant, particularly the decision of the jurisdictional High Court in the case of Bikram Singh (Supra), in which case the loans were taken from various individuals whose identity/PAN/addresses/confirmations/sources (capacity) were not provided in most cases and also cash was deposited in the bank accounts of creditors before issuance of cheques for loans, whereas in the instant case of the appellant all necessary documentation, such as loan confirmations, certificate of incorporation, PAN number, copy of ITRS filed, balance sheet and....
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....e credit looking to the net worth of the creditor On examination of the bank account it is noticed that before issuing the cheque of Rs. 5,00,000/- to the appellant the said company received credit of Rs. 2,00,00,000/- on 30.04.2014 from Utech Developers Ltd, which happens to be a group company of the Uflex Group. Since the credits were indirectly received from the group companies by the appellant, AO noted that merely by routing the money through bank account, the credit cannot be considered genuine even though the taxes are paid by the creditors. In the written submission before me, the Ld. AR has vehemently submitted that the identity of the creditor is duly proved by the Income Tax Assessment records & registration with the ROC and capacity is established by the net worth as on 31.03.2015 at Rs. 34.05 Crore. It was also stated that the income returned in A.Y. 2014-15 and 2015-16 was Rs. 2,46,96,540/- and Rs. 37,845/- respectively, and hence in view of the various decisions of Hon'ble Courts, identity and capacity of the creditor and genuineness of the transaction was clearly proved and thus no addition was called for. The evidences furnished before the AO as well a....
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....l Contractors and Financiers Pvt. Ltd as well as genuineness of the loan transaction cannot be doubted. In view of the above, I hold that appellant has duly discharged the onus cast on it within the meaning of section 68 in respect of loan received from M/s Orbital Contractors and Financiers Pvt and accordingly the addition made on this account is directed to be deleted. 11.1. In view of the above, Ground No. 6 and 7 stand allowed." 9. It is found that the A.O. called for information u/s 136(6) of the Act from all 4 creditors and the A.O. received confirmation from M/s Paramic Good Pvt. Ltd., M/s Jellotic Supply Pvt. Ltd. and M/s Sankhuwala Commercial Pvt. Ltd. The Ld. A.O. also examined the bank statement of the Investor Companies and noticed that the money received by it was transferred on the same date to the assessee. Apart from the same, necessary documentation such as loan confirmation, certificate of incorporation, PAN Number, Copy of ITR, Balance Sheet and P & L Accounts, Bank statement of creditors etc. were also provided as evidence of identity, creditworthiness and genuineness of the creditor. There is no finding of any cash deposited in the bank account of t....
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....e. Clause (ii) of Sub-rule (2) of Rule 8D reads as follows:- (iii) An amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year." 5.2 It is an undisputed fact that at least a part of the income from investment cannot form part of total income Le. their income is exempt. Going by a plain reading of Rule SD(2)(iii) the investment made in promotee companies cannot be excluded while computing the disallowance. 5.3. The contention of the assessee that the purpose of investment is not to earn dividend income but to have controlling interest in the respective investee companies and the dividend income incidentally arising cannot be accepted because section 14A is applicable on all exempted income and in case of indirect expenses the method of calculation of disallowance has been provided in Rule 8D. Neither in section 14A nor in Rule 8D any such exclusion of investments in promotee companies has been provided. 5.4 The origin of Rule 8D lies in the history of ho....
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....93 1103906914 Average Investment 551953457 0.5% of Average Investments 2759767 Total expenditures as per P & L A/c 590554 Less: Expenses disallowed by assessee itself 18250 Add: Deduction u/s 35D 13000 Allowable expenses claimed by assessee 585304 Disallowable amount u/s 14A read with Rule 8D2 (iii) 585304 Opening balance of total assets 582505056 Closing balance of total assets 599606059 1182111115 Average assets 591055557 Interest expenses as per P & L A/ c. 8255986 Less: Interest on Advance Income Tax Disallowed by the assessee 1767 8254219 Proportionate interest disallowed under rule 8D2(ii) 7708149 6. Computation of Book Profit u/s 115JB 6.1 It is seen that the assessee has not added any disallowance u/s 14 though it has reduced exempt dividend income u/s 10 in the computation of book profit u/s 115JB. The Hon'ble Delhi High Court has held in case of CIT(C)-II Vs. Goetze (India) Ltd. (ITA No. 1179/2010)....
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....d the decisions relied upon, I am of the considered view that only the investments made in companies resulting into exempt income during the year under consideration should be considered for the purposes of disallowance u/s 14A r.w.r. 8D, relying upon the decision of Hon'ble Jurisdictional ITAT in the case of ACIT Vs Vireet Investment Put Ltd (2017) 58 ITR (Trib) 313 (Del) (SB) which is binding on me. This view is further supported by the decisions of the jurisdictional High Court in the case of ACB India Ltd Vs ACIT (2015) 62 taxmann.com 71 (Del) and PCIT Vs Caraf Builders and Constructions Pvt Ltd (2019) 101 taxmann.com 167 (Del), wherein it has been held that for computing disallowance under clause (u) of Rule 8D(2), numerical B in clause (ii) refers only to the value of investment which yielded exempt income during the year. Accordingly, the disallowance under Rule 8D(216) is worked out as follows:- Interest on Loan Rs. 82,54,219 Average Dividend Yielding Investments Opening Investments 172818371 Closing Investments 172818371 345636742 Average Dividend Yielding Investments Opening Assets 533951321 Closing Assets 569955593 ....