TaxTMI 
TaxTMI 
2024 (6) TMI 214
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....erest free funds. It should have shown the immediate source of the investment made, which it has failed to do. The CBDT's Circular No. 14 of 2001 also clearly states that the legislative intent is to allow only that expenditure which is relatable to earning of taxable income and it therefore follows that the expenses which are relatable to earning of exempt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the financial year or not. 2. Whether on the facts and circumstances of the case Ld. CIT(A) is justified in deleting the addition of Rs. 2,41,79,159/- made by the Assessing Officer, by observing that the AO has treated unsecured loan received from M/s. Hillview Agency Pvt. Ltd., Kolkata as assessee's own money and added to assessee's income. The amount was advanced by the creditor by account payee cheque from its bank account. It is noticed from the bank statement of said company that there is deposit and immediate withdrawal of identical amount and the balance remaining very low. It was also observed that there is no significant business operation of the lender company. Thus, the assessee h....
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....n the circumstances of the Case, the figures of Rs. 2,41,79,159/- mentioned in the First Appellate Order actually represent closing balance of the unsecured Loan from M/s Hillview Agencies Private Limited and not the Net Loan Raised by the Assessee during the year from the said lender. The said closing balance also includes Opening balance, etc. Actual Net Unsecured Loan Raised by the assessee from the said Lender is Rs. 1,06,40,000/-. Thus, tax impact on the disputed addition along with all other additions/ disallowance in other grounds is below Rs. 50.00 Lakhs which is the Monetary Ceiling vide Circular No. 17 of 2019 dated 08/08/2019 for the Departmental Appeal before Hon'ble ITAT. 4. That on the Facts and on the Circumstances of the Case, Ld. AO has accepted entire Interest expenses claimed by the assessee, hence disallowance/ addition of said Loan under Section 68 is contradictory and bad in law. Hence addition made u/s 68 by AO is bad in law." 3. It would be relevant to point out that the cross-objection filed by the assessee company was earlier disposed of by the Tribunal vide its order passed in CO No. 03/RPR/2022, dated 13.03.2023, which thereafter was reca....
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....its return of income for A.Y. 2013-14 on 28.04.2013, declaring an income of Rs. 18,64,620/-. Subsequently, the case of the assessee company was selected for scrutiny assessment u/s. 143(2) of the Act. 6. During the course of the assessment proceedings, it was observed by the A.O that though the assessee company had made an investment of Rs. 1,40,54,500/- in exempt income-yielding shares of other companies but had not offered for disallowance any part of expenditure incurred towards earning of the exempt income. On being queried, it was the claim of the assessee company that no part of the finance cost/expenditure was incurred for investing in the exempt income yielding shares. However, the aforesaid explanation of the assessee company did not find favor with the A.O. Although, it was the claim of the assessee company that no interest cost was attributable to the investment made in the exempt income yielding shares of other companies, the A.O was of the view that in absence of any documentary evidence which would prove that the investments were made by the assessee company from its self-owned fund and not from the interest bearing funds, the same did not merit acceptance. Accordi....
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....d deliberations vide his order passed u/s. 143(3) of the Act, dated 30.03.2016, determined the income of the assessee company at Rs. 2,64,94,280/-. 10. Aggrieved the assessee company carried the matter in appeal before the CIT(Appeals). Apropos the disallowance u/s. 14A of Rs. 4,00,502/- made by the A.O, the CIT(Appeals) observed that as the assessee company as per its "balance sheet" had sufficient interest-free funds, i.e, share capital/reserves of Rs. 16.49 crores which would sufficiently explain the investment in the exempt income yielding shares of Rs. 1.40 crore, therefore, no part of the interest expenditure was liable to be disallowed u/s. 14A of the Act. For the sake of clarity, the observations of the CIT(Appeals) are culled out as under: "2.3 On the above facts it is seen that AO has made apportioned expenses relatable to the exempt income of the assessee. However the AO has not correlated the interest payment on the loans with the investment made by the assessee. Out of the total funds available as per balance sheet Rs. 16.49 Crs. share capital plus reserve out of which investment of Rs. 1.40 Crs has been made. It has not been shown that investment has been ....
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....nder company, the CIT(Appeals) observed that the same could safely be gathered from its "balance sheet" and bank account statement. Elaborating on his observation, the CIT(Appeals) observed that the lender company had total funds of Rs. 43.05 crore as per its "balance sheet" as of 31.03.2009, which included share capital and reserves of Rs. 14.5 crore and balance liabilities. It was, thus, observed by the CIT(Appeals) that no adverse inferences as regards the creditworthiness of the lender company that had advanced Rs. 2.41 crore out of the aforesaid funds available with it were liable to be drawn. Apart from that, the CIT(Appeals) observed that there were regular transactions of the assessee company with the lender company and the loan transaction for the subject year was not a case of one-time transaction. The CIT(Appeals) further observed that on 31.03.2013 the assessee company had raised an amount of Rs. 5.13 crore, out of which, an amount of Rs. 2.71 crore was returned, which, thus, left an outstanding balance of Rs. 2.41 crore towards the lender company at the close of the subject year, i.e. on 31.03.2013. Also, the CIT(Appeals) observed that the lender company was very much ....
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.... low income cannot decide the identity of a person. Assessee has furnished all the documents required by the AO, a fact which has not been denied. AO has not indicated what more documents were required to establish genuineness of transactions. In case e creditors confirm having advanced money to the assessee and AO finds anything adverse in the finance of the creditor he is free to take action against the creditor, however no adverse view should be taken in case of the assessee, unless AO establishes any nexus between the assessee and the creditor. No enquiry has been caused to disprove the identity. Family members of the director of the assessee company are directors in creditor company. Thus the creditor is inhouse company and therefore the identity cannot be questioned. Therefore, existence of creditor cannot be denied. Regarding the creditworthiness the funds are explained by balance sheet and bank statement. The creditors has total funds of 43.05 crs as per balance as on 31/03/2013 which includes capital and reserves of Rs. 14.5 Crs and balance liabilities. Out of these funds the creditors has provided loan of Rs. 2.41 Crs to the assessee. The source of fund is self-evident fr....
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....on. The honourable HC held that the responsibility of firm is over and it was for the department to make further inquiry to prove that the credit was not genuine. There is no requirement on part of further show whether the amount invested has been properly taxed in creditor's is hands . In the case of Abhishek Agarwal, Lucknow vs Department of income Tax, the ITAT Lucknow Bench "A", has in ITA No. 835.LKW/2014, assessment year: 2010- 11 where the amount was paid channel and creditor was assessed to IT has held that capacity of and genuineness of transaction cannot be doubted when the AO has not brought any evidence to prove that money actually belonged to assessee. In view of these facts and legal position, the addition is hereby deleted and assessee's ground is allowed." 12. Apropos the ad-hoc disallowance of Rs. 50,000/- made by the A.O, for the reason that the same were not supported by proper bills and vouchers, the CIT(Appeals) observed that the same was based on an unsubstantiated observation. Observing, that the addition was made by the A.O. on an ad-hoc basis and without bringing any specific material on record, the CIT(Appeals) vacated the same. At the same time....
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....at as the investment in the exempt income-yielding shares was made by the assessee company out of its self-owned/ interest-free funds, therefore, no disallowance of any part of the expenditure claimed as deduction could have been made by attributing the same to earning of such exempt income. It was the claim of the Ld. AR that now when the assessee had sufficient interest-free funds to source the investment in the exempt income yielding shares, therefore, the disallowance made by the A.O u/s. 14A r.w.r 8D(2)(ii) could not be sustained and was liable to be struck down. 16. Per contra, the Ld. Departmental Representative (for short 'DR') had relied on the CBDT Circular No. 14/2001, wherein it is provided that the expenditure relatable to earning exempt income is to be disallowed irrespective of the fact that any exempt income had been included in the subject year's income. Also, the Ld. DR had relied on the CBDT Circular No. 05/2014, dated 11.02.2014 wherein it is clarified that disallowance u/s. 14A r.w.r 8D is to be worked out irrespective of the fact whether or not any exempt income was earned during the year under consideration. 17. We have thoughtfully consider....
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.... the Circular No. 18 of 2015 dated 02.11.2015, which had analyzed and then explained that all shares and securities held by a bank which are not bought to maintain Statutory Liquidity Ratio (SLR) are its stock-in- trade and not investments and income arising out of those is attributable, to business of banking. This Circular came to be issued in the aftermath of CIT Vs. Nawanshahar Central Cooperative Bank Ltd. [(2007) 15 SCC 611] wherein this Court had held that investments made by a banking concern is part of their banking business. Hence the income earned through such investments would fall under the head Profits & Gains of business. The Punjab and Haryana High Court, in the case of Pr. CIT, vs. State Bank of Patiala while adverting to the CBDT Circular, concluded correctly that shares and securities held by a bank are stock in trade, and all income received on such shares and securities must be considered to be business income. That is why Section 14A would not be attracted to such income. 26. Reverting back to the situation here, the Revenue does not contend that the Assessee Banks had held the securities for maintaining the Statutory Liquidity Ratio (SLR), as mention....
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....eads were incurred in cash and based on self-made vouchers, therefore, the same were not completely verifiable. We are afraid that there is no whisper of even a single instance of expenditure which is stated to have been incurred by the assessee in cash and was not verifiable for the reason that the same was based on self-made vouchers. 21. On appeal, the CIT(Appeals) had though sustained the disallowance of Rs. 10,000/- concerning the vehicle running expenses, for the reason that personal usage of vehicles could not be ruled out, but taking cognizance of the fact that the A.O had failed to bring any specific material on record which would justify the aforesaid disallowance, vacated the balance amount of addition/disallowance of Rs. 40,000/- (out of Rs. 50,000/-). 22. We have thoughtfully considered the aforesaid grievance of the department and are unable to concur with the same. As there is neither any justifiable reason given by the A.O for disallowing the assessee's claim for deduction of the aforementioned expenses u/s. 37 of the Act, therefore, finding no infirmity in the view taken by the CIT(Appeals), we uphold the same. Thus, the Ground of appeal No. 3 raised by t....
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....ii) a perusal of the bank statement of the lender company revealed that the amounts credited/received during the subject year were immediately invested with the assessee company. At the threshold, we may herein observe, that the A.O. to verify the authenticity of the claim of the assessee company of having raised a genuine loan from the aforementioned lender company, viz. M/s. Hillview Agencies Pvt. Ltd., Kolkata had directed it to place on record the copies of the return of income, balance sheet, bank statement, and confirmation of the lender company. As observed by the A.O., the assessee company in compliance with the aforesaid directions had filed the requisite documents that were called for by him, viz. copy of its return of income, balance sheet, bank statement, and confirmation of the lender company. We are of a firm conviction that as the assessee company had placed on record documentary evidence substantiating the authenticity of its claim of having raised a genuine loan from the aforementioned lender and, thus, had discharged the primary onus that was cast upon it, therefore, the A.O without dislodging the said documentary evidence and proving to the contrary could not hav....
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....es (India) P. Ltd. (2020) 424 ITR 219 (Bom.). In the case before the Hon'ble High Court, the A.O had observed, that though the share applicant company was in existence and had filed its income tax return for the year under consideration but had very meager income as disclosed in the return of income, thus, for the said reason, its creditworthiness was not proved. The observation of the A.O. was thereafter dislodged by the Hon'ble High Court. For the sake of clarity, the observations of the Hon'ble High Court are culled out as under: "20. Tribunal noted that Assessing Officer had referred the matter to the investigation wing of the department at Kolkata for making inquiries into the three creditors from whom share application money was received. Though report from the investigation wing was received, Tribunal noted that the same was not considered by the Assessing Officer despite mentioning of the same in the assessment order, besides not providing a copy of the same to the assessee. In the report by the investigation wing, it was mentioned that the companies were in existence and had filed income tax returns for the previous year under consideration but the Assessing....
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....s creditworthiness to advance the subject loan to the assessee company was established. Considering the funds available with the lender company, we are unable to persuade ourselves to subscribe to the view taken by the A.O that as the lender company had for the subject year returned a low income, therefore, it was to be inferred that no genuine loan was advanced by it to the assessee company. Apart from that, a perusal of the account of the lender company (in the books of account of the assessee company), Page 16 of APB reveals that the subject loan was not a one-time transaction, but in fact, could be traced in the immediately preceding year with an "opening balance" of Rs. 1,20,68,400/- (Cr.) on 01.04.2012. 28. At this stage, we may herein observe, that there is substance in the claim of the Ld. AR that both the lower authorities had erred in failing to appreciate that the actual amount of loan that was advanced (gross) by the aforementioned lender company, viz. M/s. Hillview Agencies Pvt. Ltd., Kolkata to the assessee company was Rs. 3,92,54,177/-. Out of the aforesaid amount of the fresh advance/loan of Rs. 3,92,54,177/- a/w. opening balance of Rs. 1,20,68,400/-, the assesse....
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....the loan to the assessee company, therefore, the claim of the assessee company of having raised a genuine loan from the lender company did not merit acceptance. 31. On a perusal of the bank account of the lender company, i.e. A/c. No. 0027- T02859/050 with IndusInd Bank, Branch: Raipur, Page 43 to 71 of APB, we find that though the lender company had received certain amounts in its bank account through transfer but, on no occasion, there were any cash deposits in the said account which, thereafter, had found its way as an investment with the assessee company. Also, we cannot remain oblivion of the fact that neither is it the case of the department nor discernible from the record that the amounts received/credited in the bank account of the lender company was the unaccounted money of the assessee company that was through circuitous transactions routed back to its coffers in the garb of the aforesaid loan transaction. There is no whisper of any doubt as regards the amounts credited/received in the aforementioned bank account of the lender company. Accordingly, the A.O's observation that the fact that the amounts credited/received in the bank account of the lender company were imme....
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....the A.O while framing the assessment of the assessee company, therefore, the same further lends credence to the fact that the assessee company had raised a genuine loan from the aforementioned lender. As regards the genuineness of the loan transaction in question, we are of the view that as the same has been carried out through banking channels, the authenticity of which had not been disproved based on any clinching material by the department, therefore, no adverse inferences could have been drawn as regards the same. 35. As the A.O had not placed any such material on record that would disprove the authenticity of the assessee's claim of having raised a genuine loan from the aforementioned lender, therefore, the A.O based on mere doubts and suspicion could not have summarily drawn adverse inferences as regards the authenticity of the subject loan transaction. We may herein observe that as it is a matter of fact borne from the record that the aforementioned lender company vide its letter dated 01.04.2013 (filed with the A.O) duly confirmed the subject loan transaction, therefore, there was no justification for the A.O to have brushed aside the same and drawn adverse inference....