TaxTMI 
TaxTMI 
2026 (8) TMI 1662
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....ous opportunities provided by the Assessing Officer (in short 'the AO'). The AO also imposed penalty u/s. 271(1)(b) of the Act for non-compliance and issued notices u/s. 142(1) of the Act on different dates. The assessment was completed ex-parte u/s. 144 of the Act on 19.12.2018 at total income of Rs. 41,87,11,820/- as per normal provision and book profit of Rs. 4,01,362/-, wherein the AO had made various additions. 3. Aggrieved with the order of the AO, the assessee filed appeal before the first appellate authority, which was decided by the learned CIT(A) vide the impugned order, whereby, the appeal of the assessee was partly allowed. 4. Now the Revenue is in appeal before us. The following grounds have been taken in this appeal: "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the business loss of Rs 59,45,650/- claimed in the return of income, without appreciating the fact that the assessee has not carried out any business relating to infrastructure, land and building and also ignoring that alleged advisory services availed for Rs. 75,00,00,000/- from the related group concern and rendered for Rs 1,00,00,000/- ....
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....o core business activity of the assessee. The Ld. CIT-DR submitted that this amount was received from a group concern and was merely in the nature of an arrangement to claim the business loss. No material evidence was brought on record by the assessee to establish that it had carried out any business activity during the year. Therefore, the AO had rightly disallowed the business loss of Rs.59,45,650/-. He submitted that the Ld. CIT(A) was not correct in allowing the business loss on the basis of advisory fee and Rs. 1 crore received from a group concern, which was only in the nature of an arrangement. 6. Per contra, Shri S. N. Soparkar, the Ld. Senior Counsel, appearing for the assessee submitted that the advisory fee of Rs. 1 crore received by the assessee during the year was a business receipt and the Ld. CIT(A) had rightly held that business of the assessee had commenced during the year. A service agreement for the receipt of advisory fee was duly brought on record by the assessee and even if the advisory service was an ancillary business activity, it was certainly covered within the scope of business activity as outlined in the Memorandum of Association and this fact was dul....
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....5,77,705/- and dividend income of Rs.15,634/-. The assessee has claimed that the advisory fee represented income from ancillary business activities. The assessee had also claimed advisory fee expense of Rs. 75,00,000/- in the P&L account. From the details of this receipt and expense brought on record, it is found that the advisory fee of Rs.1 crore was received from M/s Universal Mine Developers and Service Providers Pvt. Ltd. ("UMD"), which is a subsidiary company of the assessee. Simultaneously, the assessee claimed advisory service expenditure of Rs.75,00,000/- payable to Samalpatti Power Company Private Limited ("SPCPL"), another group concern. Thus, both the receipt and the corresponding expenditure arose entirely within the same group of companies. 9. A copy of service agreements for receipt and payment of advisory fee has been brought on record in the paper-book. A careful examination of the service agreements reveals that both the agreements were executed on the very same date i.e. on 09.06.2015, and covered the identical period of service from June 2015 to March 2016. The agreement between the assessee and UMD required the assessee to provide liaisoning and advisory ser....
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....s undertaken by the assessee. This is apparently a colourable device to show that the assessee has carried out some business activity during the year under consideration, whereas factually, it is not correct. 11. It is a settled principle that the allowability of a business loss presupposes the existence of a genuine business activity carried on by the assessee. Mere execution of agreements or passing of accounting entries between related parties cannot, by themselves, establish that the assessee had carried on business. The taxability of a transaction has to be determined on the basis of its real substance and not merely on its form. Where the surrounding circumstances demonstrate that the transaction between two group concerns were so devised to show that the amount was routed through assessee by way of passing general entries, and showing that the assessee merely acted as a conduit between related entities without itself rendering any services or undertaking any commercial activity, the arrangement cannot be accepted as constituting genuine business operation. In the present case, the following cumulative circumstances, lead to the irresistible conclusion that the advisory fe....
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....capital at the end of the year. Further, the funds received by the assessee were utilized for making investments in the wholly owned subsidiary company of the assessee. Thus, the funds received from wholly owned parent company were mostly invested in wholly owned subsidiary of the assessee; and the balance loan of Rs. 8.50 crores was utilized for giving loan to another group concern, on which interest income was duly received and offered to tax. The Ld. Senior Counsel explained that the assessee had paid interest of Rs.1,18,97,110/- to the parent company which was rightly claimed as deduction against the income earned. The Ld. Senior Counsel explained that the borrowed funds were advanced to sister concern by way of commercial expediency and, therefore, the interest on borrowed funds cannot be disallowed u/s. 36(1)(iii) of the Act. In this respect, he relied on the following decisions: i. Sharp Business System v. CIT [2025] [181 Taxmann 657 (SC)], ii. S.A Builders Ltd. [288 ITR 1 (SC)] iii. B. Nanji & Co. [124 taxmann.com 357 (Gujarat)] iv. Phil Corpn. Ltd. [14 taxmann.com 58 (Bombay)] 15. We have considered the rival submissions and gone thro....
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.... subsidiary company was for the purpose of commercial expediency. In the case of Sharp Business System v. CIT (supra), the assessee had invested Rs. 2,587.10 lakhs in the shares of subsidiary company M/s Ceylon Glass Compnay Ltd., Sri Lanka. The shares were acquired, not as an investment for earning income but to acquire controlling interest in the company. The Hon'ble Supreme Court had held in that case that the investment made for controlling the interest in the associate concern by purchase of shares was for commercial expediency and the interest on the funds invested in the sister concern for acquiring the controlling interest, was an allowable deduction. This judgment was delivered, considering the earlier judgment of the Hon'ble Apex Court in the case of S.A. Builders Ltd (supra). 18.1 In the present case, the investment made by the assessee in UMD is not found to be investment in an associate concern or a subsidiary company. As per the balance sheet, the assessee was having an investment of Rs. 10,000 only in the shares of UMD as on 31.03.2015. During the current year the assessee had acquired additional equity shares of Rs. 40.40 crores in UMD. Thus, the company UMD cann....
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....or how UMD was a subsidiary company and for what purpose the amount advanced by the assessee to UMD was utilized by the said company. 19. The facts of the other cases relied upon by the assessee are also found to be different. In the case of B. Nanji & Co.(supra), the assessee was engaged in business of real estate and the borrowed funds were utilized for acquiring a housing finance company in order to make funds readily available, when required, for the development of a housing project or to fund any acquisition of real estate. In view of these facts, investment in shares in that case was held to be on account of commercial expediency for expansion of real estate business of the assessee. In the case of Phil Corpn. Ltd. (supra), the investment was made in the shares of a subsidiary company in order to have control over the company which was an integral part of the business of the assessee. Thus, the facts of all the cases relied upon by the assessee are distinct & different and the ratio of those decisions can't be applied to the present case at this stage. Reliance in this respect can also be placed on the decision of the Co-ordinate Bench of the Tribunal in the case of "M/s. ....
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....fficient evidences and reasons for not making any disallowance in the ITR on this issue. He, therefore, observed that the addition on this issue was warranted. The Ld. CIT(A), however, held that the assessee has claimed total exempt income of Rs. 15,363/- only. He, therefore, restricted the disallowance u/s 14A of the Act to the extent of exempt income earned by the assessee. 22. We have heard the rival contentions of the Ld. Representative of the parties on this issue. The Ld. CIT(A) had restricted the disallowance u/s. 14A of the Act to the extent of exempt income earned by the assessee during the year. He, in this respect, has relied upon the decision of the Hon'ble Gujarat High Court has held in the case of CIT v. Corrtech Energy Pvt. Ltd, [2014] 45 taxmann.com 116/223 Taxman 130/[2015] holding that the disallowance u/s. 14A of the Act cannot exceed the amount of exempt income. 23. The Ld. DR, however, has relied upon the explanation inserted in Section 14A of the Act by the Finance Act, 2022 w.e.f. 01.04.2022, which for the sake of ready reference is reproduced as under: "[Explanation.-For the removal of doubts, it is hereby clarified that notwith- standing anyt....
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....ecord. The brief facts, relevant to the issue are that the assessee company, had during the year under consideration allotted 4,08,00,000 equity shares of the face value of Rs.10/- each to its holding company SPICCL, and received share capital of Rs.40,80,00,000/-. The AO called upon the assessee to furnish the details of subscribed and paid-up share capital along with confirmation in duplicate, copy of return of income and source of income and also to furnish the details of application of such new share capital raised for the year under consideration. In its submission dated 20.08.2018, the assessee furnished only the name of the shareholder company and the number and amount of the shareholding. The AO, thereafter, issued a further notice under section 142(1) dated 11.12.2018, in which he specifically recorded the particulars which remain to be furnished by the assessee viz. contra confirmation, copy of return of income and source of income of the subscriber and also application of such new share capital raised for the year under consideration, and called upon the assessee to show cause why the share capital of Rs.40,80,00,000/- should not be treated as cash credit under section 6....
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....sted in the assessee company as share capital. The AO relying upon the aforesaid information held that assessee had furnished the details regarding the source of the capital in the hands of SPICCPL and further requested the Ld. CIT(A) to decide the issue on merits accordingly. 27. The Ld. CIT(A), accordingly, observed that the source of the investment in the hands of the subscriber company was explained as out of the redemption proceeds of mutual fund investment and out of the funds borrowed from other group companies. He therefore, deleted the addition so made by the AO on this issue. 28. Before us, the Ld. DR submitted that the movement of funds amongst the group concerns was nothing but a rotation of the same funds and that the genuineness of the transaction was not established. The Ld. AR, on the other hand, submitted that the identity of the subscriber, being the holding company of the assessee and its creditworthiness stood established from its audited accounts, therefore, the Ld. CIT(A) rightly deleted the addition of the share capital made by the AO. 29. We have considered the rival contentions of both the Ld. Representatives of the parties and gone through the ....
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....L, whereupon SPICCPL, again on the same date, transferred Rs.17,50,00,000/- to the IDFC Mutual Fund collection account. (ii) On 24.02.2016, the bank account of SPICCPL records a receipt of Rs.19,00,00,000/- from M/s Shapoorji Pallonji Energy (Gujarat) Pvt. Ltd., bringing the balance in that account to Rs.20,27,54,518.45; on the same date SPICCPL transferred Rs.19,65,00,000/- to the assessee, reducing the balance to Rs.62,54,518.45; the assessee, on the same date, transferred the identical sum of Rs.19,65,00,000/- to UMDSPPL; and the said account of SPICCPL records, on that very date, a receipt of exactly Rs.19,65,00,000/- from UMDSPPL, whereupon the balance stood restored to the identical figure of Rs.20,27,54,518.45. 29.2 The above data shows that the almost equal/identical amount was transferred back to the subscriber on the very same dates on which they were received through circular transactions routed through Group Companies. The bank account of the assessee, it may be noticed, carried a closing balance of Rs.42,290/- as on 31.10.2015 and of Rs.38,413/- as on 31.03.2016, so that on no date did the assessee retain any part of the monies said to have been subscribed ....