TaxTMI 
TaxTMI 
2026 (5) TMI 737
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.... 3. The Ld. CIT(A) has erred in law and on facts in endorsing the order of the Ld.AO; 4. The Learned CIT(A) and AO have erred in law and on facts in passing the order against the principles of natural justice, 5. The Learned CIT(A) and AO have erred in law and on facts in reducing the Video Conferencing (opportunity of being heard orally) to empty formality. Addition of Rs. 120,00 00,000 under section 68 of the Act on account of NCD 6. The Learned CIT(A) and AO have erred in law and facts by making additions u/s 68 of the Act of Rs. 120,00,00,000/- on account of Redeemable Non convertible Debentures under section 68 of the Act. 7. The Learned CIT(A) and AO have erred in not considering the details of the source, which is available from the records. 8. The Learned CIT(A) and AO have erred in and on facts by not considering the submission made during the assessment/appellate proceedings. 9. The Learned CIT(A) and AO have erred in law and fact that the Appellant firm has discharged the primary onus cast upon it under the statute. 10. The Learned CIT(A) anti AO have failed to appreciate that the Appellant cannot be called upon ....
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.... disallowing u/s 37(1) of the Act an amount of Rs. 3,79,13,900 as marketing and business promotion expenses. 24. The Learned CIT(A) and AO have erred in law and on facts in disallowing u/s 37(1) of the Act an amount of 35,44,80,000 being 10% of the total claimed expenses of 354,48,00,000. 25. Though the appellant has filed supporting evidence in support of the claim of the above expenses, the Learned CIT(A) and AO have erred in perversely stating that the Appellant has not furnished documentary evidence. 26. Without prejudice to the above, the Appellant is not required to furnish all the documentary evidence in support of expenses, given the nature of activities, quantum of activities and the provisions of the Act. 27. In disallowing the above expenses, the Learned CIT(A) and AO have erred in law and on facts in not appreciating that the Appellant is subject to audit under the Companies Act as well as under the provisions of the Act. The Learned CIT(A) and AO have erred in law and on fact in not placing reliance on the above reports. 28. The Learned CIT(A) and AO have erred in law and on facts in engaging in fishing and roving enquiry. 29. Having....
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....any, filed its return for AY 2023-24 on 20.11.2013 declaring a loss of Rs. 1,24,27,32,700. The case was selected for scrutiny and notice u/s. 143(2) was issued on 19.6.2024. The assessment was completed on 24.3.2025, making (i) an addition of Rs. 120 crores u/s. 68 and (ii) a disallowance of Rs. 11,42,86,000 u/s. 40A(2)(b) towards interest (paid at the rate of 14% and considered allowable @ 6%). The AO also noted CWIP of Rs. 12,19,61,000, determined interest of Rs. 4,39,32,000 and disallowed 8% thereof (Rs.97,57,000). Business promotion expenses of Rs. 37,91,39,000 were subjected to disallowance, ultimately restricted to 10% (Rs.3,79,13,900). Further, 10% disallowances were made on rent, software, rates & taxes, legal & professional fees, recruitment, travelling & conveyance, integration fees, domain charges and resale commission expenses for want of requisite details. CSR expenses of Rs. 60,000 and 10% of miscellaneous expenses of Rs. 46,77,000 were also disallowed. Consequently, the returned loss of Rs. 1,24,27,32,700 was reduced to Rs. 1,02,62,38,800 and, after adding Rs. 120 crores u/s. 68, the assessed income was determined accordingly. 4. The assessee preferred appeal befo....
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.... AO to obtain the fund's balance sheet and related details by invoking section 133(6) of the Act, but this was not done. 10. In para 4.4.1, the ld. AO recorded that although the Assessee filed the ITR acknowledgment, the Profit & Loss account and Balance Sheet of Trifecta Venture Debt Fund II were not furnished. The ld. AO further noted that the AIF's return reflected NIL income and, on that basis, held that the lender lacked creditworthiness and made an addition of Rs. 120 crores under section 68 of the Act. 11. In support, the ld. AO relied on various judicial precedents, including the Hon'ble Supreme Court's decision in Sumati Dayal v. CIT, 125 ITR 124, and sustained the above addition. 12. Before the ld. CIT(A), the addition was confirmed (para 6.1.5) on the ground that the Assessee had not, in his view, established the lender's financial capacity. The ld. CIT(A) therefore upheld the addition under section 68 of the Act. 13. The assessee is aggrieved and has contested the above addition as per ground Nos.6 to 15 of the appeal. 14. The ld. AR described the Assessee's business and submitted that, to meet working-capital requirements, it entered into an agreement to....
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.... in 50+ startups since the first close (including Zepto, Rebel Foods, Udaan and Infra.Market). 16. He submits that as per information Trifecta Capital offers tailored financing solutions for startups across lifecycles, encompassing venture debt, growth equity, and financial solutions. The firm provides customized financing to emerging businesses across sectors, including B2B, consumer services, consumer brands, ecommerce, mobility, edtech, agritech, fintech, cleantech, software, and healthcare. Before extending debt to startups, it looks for several key factors, such as businesses with strong moats, favorable demand-supply dynamics, robust unit economics, high-calibre founders, and more. Trifecta has also developed a specialized technology and advisory platform with cumulative managed capital exceeding INR 11,000 Cr, to support the treasury and cash management needs of rapidly growing startups With the third fund's closure, Trifecta Capital has cumulatively raised nearly INR 5,000 Cr across its three venture debt funds and one growth equity fund, investing in over 150 startups. 17. Referring to the business of the assessee, he submitted that Cash free Payments is a leader in ....
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....unds and also the amount invested in the company (v) the source of funds, (vi) Debenture Trust Deed and (vii) Mortgage Deed, (viii) its own annual accounts, (ix) debenture application, (x) confirmation of the lender, (xi) ROI of the lender, (xii) explanation why the income of AIF is NIL showing the provisions of the Act (xiii) Statement of share capital of the assessee showing the US Company and State bank of India The largest banker of the company are investors, (xiv) Profile details of AIF (xv) sources of source of funds material on record show that Rs. 28 crores came from redemption of SBI Mutual Fund units and Rs. 92 crores was funded out of contributions received from the AIF's unitholders (xvi) to substantiate the identity, creditworthiness and genuineness of the transaction. 22. As regards NIL income, sections 115UA and 115UB treat such investment funds/business trusts as pass-through vehicles, with income generally taxable in the hands of unitholders (and any residual taxable at the maximum marginal rate). Therefore, the fund's NIL return cannot, by itself, be a ya....
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....irmed the same. 29. The ld. AR vehemently submitted that the provisions of section 40A(2)(b) can be applied in the case of assessee if payment made to the person referred to in clause (b) of sub-section (2). It was submitted that Trifecta Venture Debt Fund is not at all a person covered thereunder. 30. The ld. DR supported the order of the ld. lower authorities. 31. We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. We find that the assessee is a company and Trifecta Venture Debt Fund is merely a lender who does not have any association, except a borrower and lender with the assessee. It does not hold any interest in the equity or any beneficial interest in the profits of the assessee company. 32. The assessee is a 100% wholly owned subsidiary of Cash free Inc. USA and the equity investment of SBI. The details of shareholders is also available with the annual accounts of the assessee. The ld AO did not show under which clause and by which nexus the Trifecta is the concern falling u/s 40A 92) (b) of the Act so far as the interest payments of the assessee on the above Debenture is concerned. Thus, the provisions of sect....
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....ly, we direct the ld. AO to delete the disallowance of Rs. 95,75,000 being proportionate disallowance of interest on capital work-in-progress since there is no borrowing for the purpose of acquisition of any asset. Accordingly ground Nos. 20 to 22 of the appeal are allowed. 39. Ground Nos. 23 to 33 of the appeal are with respect to disallowance of 10% of the expenditure incurred by the assessee. The assessee has claimed an expenditure of Rs. 5,44,80,000. The ld. AO has disallowed 10% thereof. Further, in respect of marketing & business promotion expenditure of Rs. 3,79,00,000, the ld. AO has made the above disallowance holding that assessee did not furnish the complete details. It was the claim of the assessee before the ld. AO that all the expenses are complete in nature, however the assessee has expressed its inability to upload all the vouchers and relevant supporting bills due to the voluminous details. The ld. AO therefore held that 90% of such expenditure is allowable and confirmed disallowance @ 10%. 40. The ld. CIT(A) further held so that in the absence of details furnished it could not have been allowed. 41. The ld. AR submitted that all the details are provided b....