TaxTMI 
TaxTMI 
2025 (4) TMI 1831
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....roperty development and constructions of buildings, and power generation with the help of wind power turbines, thereby making strategic investments. The assessee had e-filed its return of income dated 28.09.2017, declaring a loss at Rs. 33,570/- and had filed revised return dated 20.03.2018, declaring loss of Rs. 75,25,056/-. The assessee's case was selected for scrutiny under CASS and notices u/s. 143(2) and 142(1) of the Act were duly issued and served upon the assessee. The learned Assessing Officer ('ld. A.O.' for short) observed that the assessee has borrowed funds at 14% to 15% per annum claiming the interest expenditure for the same. It is also observed that the assessee has given short term interest free advances amounting to Rs. 20,51,98,102/- to M/s. Pallai Developers Private Limited. The ld. AO disallowed the interest expenditure of Rs.2,87,27,734/- on the ground that the assessee has failed to prove that the interest bearing funds have been utilized exclusively for its business expediency and further the assessee has failed to establish the fact that the assessee had own interest free funds which were utilized for the purpose of advancing fund to M/s. Pallai Dev....
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....d why the same should not be added u/s. 68 of the Act. The assessee contended that during the year under consideration the unsecured loan of Rs. 25,00,000/- was taken from Sri Water Front Health Farms Pvt Ltd. The ld. AO made an addition on the said amount holding that the assessee has failed to prove the genuineness and creditworthiness of the parties and added the same u/s. 68 of the Act to the total income of the assessee. The first appellate authority upheld the addition on the ground that the amended provision of Section 68 which is applicable from A.Y. 2013-14 mandates that even the creditors should establish the nature and source of the loans given to the assessee. The ld. CIT(A) further held that the creditor has only earned a meager profit during the year under consideration and that its P & L account shows that there is not much of regular activities of the company, thereby the creditworthiness of the company has not been substantiated. 8. The learned Authorised Representative (ld. AR for short) during the appellate proceeding contended that the said loan was received through banking channel and that the assessee had filed confirmation from the lender along with other ....
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....n that the assessee has failed to prove the source of the source, herein in this case Sri Water Front Health Farms Pvt Ltd. which the lower authorities have alleged that it does not have sufficient creditworthiness to extend the loan of Rs. 25 lacs to the assessee. The ld. CIT(A) further held that the amended provision of Section 68 was applicable from A.Y. 2013-14 which requires that even the creditors' nature and source of the loan given by them to the assessee had to be established to the satisfaction of the ld. AO. It is also held that the P & L account of the said company shows that it only operates as a conduit for providing accommodation entries for beneficiaries and as the assessee has failed to prove the source of the source, the impugned addition was made by the ld. AO and upheld by the ld. CIT(A). The assessee on the other hand contended that it had discharged the primary onus casted upon it by furnishing the confirmation from the party, along with the audited balance sheet and P & L account. The assessee also contends that the said transaction was through banking channels and the same was recorded in the books of accounts of the assessee as well as the creditor. The ld.....
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....ssee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: ^51b [Provided further] that nothing contained in the first proviso ^51c[or second proviso] shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.] 11. From the above, it is evident that the Finance Act, 2012 which is w.e.f. 01.04.2013 requires that the source of source on any sum which is found credited either by way of share application money, share capital, share premium or any such amount has to be explained to the satisfa....
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....ent of Yashoda Nookaratnam. Thus, reasons have not been given for not accepting the defence of the petitioner. The reasons are held to be heartbeat of conclusions. In Kranthi Associates (P.) Ltd. v. Masood Ahmed Khan (2010) 9 SCC 496, the Supreme Court has emphasized the need of assigning reasons in administrative, quasi-judicial and judicial orders and held as under: "47. Summarising the above discussion, this Court holds: (a) In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially. (b) A quasi-judicial authority must record reasons in support of its conclusions. (c) Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well. (d) Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power. (e) Reasons reassure that discretion has been exercised by the decision-maker on relevant grounds and by disregarding extraneous considerations. (f) Reasons hav....
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....udgments play a vital role in setting up precedents for the future. Therefore, for development of law, requirement of giving reasons for the decision is of the essence and is virtually a part of "due process"." 12. In view of glaring illegality, we are not inclined to relegate the petitioner to avail alternative remedy. The assessment order is set aside. The competent authority shall rehear the petitioner and decide the matter afresh in accordance with law. It is made clear that this Court has not expressed any opinion on merits. 13. In the result, the Writ Petition is disposed of with the above direction. No order as to costs. As a sequel, miscellaneous applications pending in this petition, if any shall stand closed." 13. We would also place our reliance on the decision of the coordinate bench in the case of Deputy Commissioner of Income-tax vs. R.K.Shah Projects (P.) Ltd. [2023] 149 taxmann.com 101 (Surat-Trib.), dated 31.01.2023, where on identical facts the Tribunal had remanded the issue back to the file of the ld. AO to examine the source of cash deposit pertaining to unsecured loan. It is also observed that the even for A.Y. 2016-17, the assessee has av....
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....und that the assessee was having the surplus funds of Rs. 489.69 crores and Rs. 661.79 crores of interest free funds. The borrowed funds of the assessee was only Rs. 22 crores which is lesser than the total surplus and interest free funds of the assessee. The ld. CIT(A) placed reliance on the decision of the jurisdictional High Court in the case of Commissioner of Income-tax vs. Reliance Utilities & Power Ltd. [2009] 178 Taxman 135 (Bombay)/[2009] 313 ITR 340 (Bombay)/[2009] 221 CTR 435 (Bombay)[09-01-2009], where in case of mixed funds the presumption is that the assessee has given interest free loan out of the own funds. The ld. CIT(A) also relied on the decision of the Tribunal in assessee's own case for earlier years where on identical issue on disallowance of Section 36(1)(iii) of the Act was set aside. The ld. AR for the assessee relied on the decision of the Tribunal in assessee's own case and had also relied on the decision of the Hon'ble Jurisdictional High Court in the case of Reliance Utilities and Power Limited (supra) which was extensively relied upon by the ld. CIT(A). 18. The ld. DR on the other hand controverted the said fact and relied on the decision of the....
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.... or the same amounted to a loan given in the ordinary course of a banking or money lending business. The ld. AO further held that the investment in preference share of KCTNL cannot be allowed u/s. 37 for the reason that it amounts to loss of capital which cannot be allowed under the head 'business' neither as income from 'capital gain' as the same will not come under the purview of Section 44 of the Act as there has been no 'transfer' in such transaction. The ld. AO made an addition of Rs. 50 crores to the total income of the assessee. In an appeal preferred before the ld. CIT(A), the same was held to be a business loss by relying on the various decisions of the Hon'ble Jurisdictional High Court viz. in the case of CIT vs. Colgate Palmolive (India) Ltd. [2015] 370 ITR 728 (Bom) and Hon'ble Karnataka High Court decision in the case of ACE Designers Ltd. vs. Additional Commissioner of Income Tax [2020] 120 taxmann.com 321 (Karnataka). 21. Aggrieved the revenue is in appeal before us challenging the said ground. 22. The ld. DR for the revenue contended that the investment made by the assessee in M/s. KCTNL was not for business expediency and the same cannot be a business....
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....ble Jurisdictional High Court in the case of Colgate Palmolive (India) Ltd. (supra) which on identical facts has held that the loss on write off of investment made in subsidiary company is business loss which was for the purpose of the extension of business activity and does not entitle for creating capital asset by holding shares. It was also held that there was no acquisition of capital asset neither was the expenditure incurred for enduring benefits and further there is no relinquishment or transfer of capital asset to any third party. The relevant extract of the decision in the case of ACE Designers Ltd. (supra) which has dealt with the decision of the Hon'ble Jurisdictional High Court in the case of Colgate Palmolive (India) Ltd. (supra) is cited herein under for ease of reference: - "8. Thus, from perusal of the aforesaid facts, it is evident that the issue involved in this appeal is covered by decision of Bombay High Court in Colgate Palm Olive (India) Ltd. (supra), which has been upheld by the Supreme Court. The ratio of aforesaid decision is where the assessee makes investment in its 100% subsidiary for business purpose, loss or sale of investment has to be treate....
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.... It is observed that during the year under consideration, the assessee has received loan from the following three parties which are tabulated herein under: Party name Amount Goodhope software Pvt Ltd 5,23,00,000 Good view engineering pvt ltd 5,37,00,000 Sri water Front Health Farms Pvt Ltd 3,47,44,799 28. During the assessment proceeding, the assessee has furnished loan confirmation from these parties along with details of the ITR, balance sheet and bank statement of the said parties. The ld. AO observed that in the case of Good View Engineering Pvt. Ltd which is based in Kolkata, the total income was Nil and going through the balance sheet, it was observed that the said company had no assets and liabilities and the bank statement reflected transfer of money from other entities which was routed to the assessee subsequently. The ld. AO observed that these companies had very thin capital which were entities in Kolkata, having high debt equity inspite of not being into any business operation. Out of these three companies, notice u/s. 133(6) of the Act was replied along with details of P & L account, balance sheet and bank statement except in the case of Sri ....
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....g the disallowance vis-à-vis investments & interest expenses? 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance made by the AO u/s 144 r.w.r. 8D without appreciating that CBDT vide Circular No.5/2014 has clarified that rule 8D r.w.s. 14A of the Act provides for disallowance of the expenditure even where tax payer in a particular year has not earned any exempt income?" 3. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.3,70,93,456/- made u/s.14A r.w. Rule 8D of the LT. Act, 1961 by stating that no adjustment can be made by the AO to the Book Profit computed u/s 115/B of the Act" 4. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs 45,00,000/- regarding unrecognized sales from the Book Profit computed u/s 115JB of the Act without giving any reason to delete the addition made." 5. The Appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored." 35. Briefly stated, the assessee had e-filed its return of inc....
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.... c. Decision of ITAT Mumbai Bench in the case Piramal Enterprises Ltd. (97 taxmann.com 352) d. CITIAVs decision in the Assessee Company's own case 38. On hearing rival contentions, it is observed that the ld. CIT(A) had deleted the disallowance made u/s. 14A while computing book profit u/s. 115JB of the Act by relying on the decision of his predecessors in A.Y. 2011-12 who in turn had relied on the decision of the Hon'ble Delhi High Court in the case of CIT vs. Bhushan Steel Ltd. in ITA No.901/Del/2010, dated 22.09.2011, which has held that no adjustments can be made to the book profit u/s. 115JB with respect to the disallowance made u/s. 14A r.w.r. 8D of the Act. It is settled preposition of law that while computing book profit u/s. 115JB, disallowance made u/s. 14A of the Act cannot be included and the same does not come under the purview of Section 115JB of the Act. By respectfully following the same, we deem it fit to dismiss ground no. 3 raised by the revenue. 39. Ground no. 4 pertains to addition of Rs. 45 lacs pertaining to unrecognised sales from the book profit u/s. 115JB of the Act. It is observed that the assessee has not offered income of Rs. 45 lac....