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Income Tax Appellate Tribunal, H BENCH, MUMBAI
Date Conclusion of hearing : 03.04.2023 Pronouncement of order : 30.06.2023
O R D E R Per Rahul Chaudhary, Judicial Member: By way of the present appeal the Revenue has challenged the order, 1. dated 07/09/2021, passed by the Ld. Commissioner of Income Tax (Appeals)-51, Mumbai [hereinafter referred to as ‘the CIT(A)’] for the Assessment Year 2012-13, whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 07/03/2016, passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
(Assessment Year: 2012-13) The Revenue has raised following grounds of appeal: 2. “1 Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the disallowance made by the AO u/s 14A of the Act while he invoked rule 8D(2) which is mandatory?
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the addition of Rs. 100,25,00,000/- being unexplained cash credit even though assessee could not justify the capacity and creditworthiness of the lender?” The relevant facts in brief are that the Appellant filed its return of 3. income for the assessment year 2012 –13 on 13/09/2012 declaring ‘Nil’ income and disclosing current year loss of INR 5,40,42,440/- The case of the Assessee was selected for scrutiny. During the assessment proceedings the Assessing Officer noted that the Assessee had received dividend income of INR 6,43,60,157/- from its investments which were claimed to be exempt. Since the Appellant had not apportioned any expenditure attributable to earning the exempt income, the Assessing Officer invoked provisions contained in Rule 8D of the Income Tax Rules, 1962 (hereinafter referred to as ‘the Rules’) to compute the amount of disallowance under Section 14A of the Act at INR 78,98,89,138/-. Accordingly, the Assessing Officer made the disallowance of the aforesaid amount under Section 14A of the Act. Further, the Assessing Officer notice that the Assessee had taken interest free unsecured loan of INR 1,00,23,50,000/- from Crescent Trading Private Limited (hereinafter referred to as ‘the Lender’). The Assessee was asked to prove identity and creditworthiness of the Lender and genuineness of the transaction. In reply, the Appellant, vide letter dated 30/12/2014, submitted confirmation of loan, and audited accounts of the Lender. However, the Assessee failed to produce bank statements of the Lender. On perusal of the financial statements furnished by the (Assessment Year: 2012-13) Assessee the Assessing Officer noted that the net worth of the Lender was only INR 5,3,36,241/- and the company had made a loss of INR 67,19,095/- for the relevant Previous Year. In view of the aforesaid, the Assessing Officer concluded that the Lender did not have the capacity to grant interest free unsecured loans to the Assessing while at the same time paying interest of INR 36,71,234/- on borrowed funds by it. Therefore, the Assessee was asked to show cause vide notice, dated 9/03/2016, issued under section 142(1) of the Act as to why the loan amount of INR 1,00,25,000/- received from the Lender should not be treated as unexplained credit under Section 68 of the Act. In response to this, the Assessee submitted reply, vide letter dated 14/03/2016, when it was stated that the Lender was a company incorporated under the provisions of companies Act, 1956 and has been assessed to tax in regular basis. The Assessee had furnished the permanent account number of the Lender. The loan was taken through banking channel and the details furnished by the Appellant were sufficient to satisfy the requirements of Section 68 of the Act. However, the Assessing Officer was not convinced. Applying the test of human probabilities as per the judgment of Hon’ble Supreme Court in the case of CIT Vs. Durga Prasad More: 82 ITR 540, the Assessing Officer concluded that the Assessee has failed to discharge the onus cast upon the Assessee to prove identity and creditworthiness of the transaction and genuineness of the Lender and therefore, the loan amount of INR 1,00,25,000/- received by the Assessee was in the nature of explained cash credit taxable in the hands of the Assessee under Section 68 of the Act. Therefore, the Assessing Officer made disallowance of INR 1,00,25,000/- under section 68 of the Act.
Being aggrieved, the Assessee preferred appeal before the 4.
(Assessment Year: 2012-13) CIT(A) contending inter alia, that the assessment was barred by limitation. The aforesaid contention of the Assessee was accepted by the CIT(A) to quash the assessment order without deciding the appeal on merits. However, in appeal preferred by the Revenue before the Tribunal, the Tribunal set-aside the order passed by CIT(A), vide order dated 07/02/2020, passed in restoring the appeal back to the file of CIT(A) for adjudication on merits.
Pursuant to the directions issued by the Tribunal, the CIT(A) 5. examined the issues on merits and passed order dated 07/09/2021 partly allowing the appeal preferred by the Assessee deleting the addition of INR 1,02,50,000/- made under Section 68 of the Act and restricting the disallowance under Section 14A of the Act to INR 5,71,365/- and 17,60,300/- in terms of Rule 8D(2)(ii) and Rule 8D(2)(iii), respectively, read with Section 14A of the Act.
Being aggrieved, the Revenue has preferred the present appeal 6. challenging the relief granted by the CIT(A) vide order dated 07/09/2021 on the ground is reproduced in paragraph 2 above.
Ground No. 2 We would first take up Ground No. 2 raised by the Revenue 7. pertaining to the order of CIT(A) deleting the addition of INR 100.25 Crores made by the Assessing Officer under Section 68 of the Act.
Learned Departmental Representative, assailing the order passed by 8. the CIT(A), submitted that the CIT(A) had failed to appreciate that the Assessee had failed to prove creditworthiness of the Lender and genuineness of the loan transaction. The Lender did not have financial strength to make grant interest free loan of INR
(Assessment Year: 2012-13) 100.25 Crores to the Assessee. Referring to paragraph 6.5 of the Assessment Order, the Learned Departmental Representative submitted that the Assessing Officer has clearly established that the Lender did not have considerable net worth and had been suffering losses. After examining the financial statements of the Lender for the relevant previous year the Assessing Officer had concluded that the Lender had net worth of only INR 5,37,36,241/- and that the Lender had made a loss of INR 6,71,90,395/- for the relevant previous year Despite this, the Lender had on one hand paid interest cost of INR 3,66,71,234/- on interest bearing funds borrowed, while on the other hand the Lender granted interest free loan of INR 100.25 Crores to the Assessee. Learned Departmental Representative also pointed out that during the relevant previous year the Assessee had received Inter-Corporate Deposits (for short ‘ICDs’) of INR 50 Crore carrying interest rate of 10% per annum from Adani Enterprises Limited. During the assessment proceedings the Assessee had explained that loan of 100.25 Crores given by the Lender were sourced from ICDs INR 75 Crores given by Adani Enterprises Ltd. to the Lender. Thus, there was no reason why Adani Enterprises Ltd. would first grant ICDs to Lender who would then in turn grant interest free loans to the Assessee. Therefore, the genuineness of the loan given by the Lender to the Assessee was doubtful.
In response, the Learned Senior Counsel submitted that the 9. Assessing Officer had invoked the provisions of Section 68 of the Act. The Assessee had filed necessary documents and details to satisfy the requirements of Section 68 of the Act. The identity of the Lender was never in doubt. The Assessee had identified the source of loan which was the Lender. In addition the Assessee had also established the source of source by providing details of funds received by the (Assessment Year: 2012-13) Lender which were used for granting loan to the Assessee. During the assessment proceedings, the Assessing Officer was informed that the lender had received ICDs of INR 75 Crores from Adani Enterprises Ltd. Further, the Lender had received refund of the share application money of INR 25 Crores from International Synthfab Private Limited. It was also pointed out the loan of INR 100.25 Crores received by the Assessee was repaid to the Lender during the financial year 2012-13 and this was evident from the bank statements on the Assessee filed with the Assessing Officer and CIT(A) [placed at page 289 of the paper-book]. Thus, the Assessee had discharged the onus cast upon the Assessee under Section 68 of the Act to prove identity and creditworthiness of the Lender and the genuineness of the loan transaction. The onus shifted on the Assessing Officer who failed to carry our any inquiry to rebut the claim of the Assessee. This was appreciated by the CIT(A) who deleted the addition under Section 68 of the Act.
We have given thoughtful consideration to the rival submission and 10. perused the material on record. On perusal of the Assessing Officer we find that the identity of the Lender was never in doubt. The Assessing Officer was primarily not convinced about the creditworthiness of the Lender and therefore, he formed that the transaction was not genuine. On perusal of the order passed by the Assessing Officer and CIT(A) it emerges that the Assessee had disclosed the source of loan/credit in its books of accounts as interest free loan of INR 100.25 Crores received from the Lender as well as the source of funds of the Lender being ICDs INR 75 Crores received by Lender from Adani Enterprises Limited and refund of share application money INR 25 Crores received by the Lender from International Synthfab Private Limited. Further, the Assessee had (Assessment Year: 2012-13) also filed following documents before the Assessing Officer/CIT(A) in relation to the loan transaction to prove genuineness of the transaction: - summary of borrowings - confirmation of the lender with PAN and address - acknowledgement of return of income filed by the Lenderfor the Assessment Year 2012 – 13 - audited statement of account of the Lender with audit report for the year ended 31/03/2012 - copy of accounts of the Assessee in the books of accounts of the Lender and bank statement of the Lender for the Financial years 2011–12 and 2012–13 - copy of accounts of the Lender in the books of accounts of the Assessee and bank statement of the Assessee for the Financial years 2011–12 and 2012–13 - Copy of the Assessment Order for the Assessment Year 2012-13 passed in the case of Lender under Section 143(3) of the Act We note that in paragraph 7.7 of the order impugned, it has been 11. noted by the CIT(A) that the above documents were again filed by the Assessee in appellate proceedings before the CIT(A). Thus, in our view the Appellant had discharged the initial onus cast upon the Assessee in terms of Section 68 of the Act. The Assessee had disclosed the source of loan/credit in its books of accounts as interest free loan of INR 100.25 Crores received from the Lender as well as the source of funds of the Lender being interest bearing ICDs of INR 74 Crores received by Lender from Adani Enterprises Limited and refund of INR 25 Crores received by the Lender from International Synthfab Private Limited being refund of share application money. It was incumbent upon the Assessing Officer to carry out
(Assessment Year: 2012-13) inquiry/investigation into the source disclosed by the Assessee. However, no such inquiry/investigation was carried out by the Assessing Officer. The Assessing Officer concluded that the Lender did not have creditworthiness as it had low net worth. In this regard, it would be pertinent to note that in paragraph 7.13 of the order impugned, the CIT(A) has recorded as under:
“7.13 Although the AO had talked about paper companies being used by their operators to rule unaccounted money in garb of loans and share capital through multilayered transactions, it is not claimed that there is evidence of either Crescent or Adani Enterprises Ltd being in the nature of such company. The assessee itself is the holding company of various Wellspun Group Companies. Adani Enterprises Ltd is the holding company of the Adani Group. The annual report of both these entities have already been provided to the AO and it is not the case of AO that the companies are paper companies operated by fly- by-night operators.” The above findings of the CIT(A) have not been controverted in the appellate proceedings before us.
Further, in paragraph 7.16 of the order impugned, the CIT(A) has 12. recorded as under: “7.16. It is also not the case of the AO that both Crescent and Adani Enterprises are bogus companies untraceable at the registered office addresses and the confirmations provided cannot be verified. It is also not the case of the AO that the transactions mentioned in the audited accounts of these companies are found to be either incorrect or unverifiable and that the entries in the bank account represent mere routing of funds. As such……..…………. The transaction is merely a business transaction between companies having significant business presence and are borne out of source which are not proved to be false or unverifiable. In fact, after concluding that the lender is not capable of providing such loans, the AO has not proceeded to verify the genuineness of the stated source of these funds in the hands of the lender and has not even cast any doubt on the genuineness of such source. It is also noted that the case of the lender for the assessment year 2012 – 13 has been subjected to normal scrutiny under Section (Assessment Year: 2012-13) 143(3) of the Act and the credit in the books have been accepted by the AO. 7.17. In absence of such doubt about the source of funds in the hands of the lender and in light of clear evidence that the source of funds in the hands of the lender are genuine, the AO cannot hold that the genuineness of the transaction remains to be explained. It is noted that the assessee had provided sufficient material before the AO to discharge the initial burden cast on him under section 68 of the Act. In fact he has also been able to provide sufficient evidence with respect to the source of funds in the hands of the lender as well. In such a scenario, the assessee has indeed been able to discharge his onus with respect to the identity and creditworthiness of the lender as well as the genuineness of the transaction” Again, there is nothing on record to controvert the above findings of the CIT(A) and we are incomplete agreement with the same. In our view, the additions under Section 68 of the Act cannot be sustained in the hands of the Assessee merely on account of the alleged lack of commercial prudence on the part of Lender in taking interest bearing loans and granting interest free loan to the Assessee. We find that the CIT(A) has deleted the addition after correct appreciation of the facts and legal position. Therefore, we decline to interfere with the well reasoned order passed by the CIT(A) on this issue. Ground No. 2 raised by the Revenue is dismissed.
Ground No. 1 Ground No. 1 raised by the Revenue pertains to the order of CIT(A) 13. restricting the disallowance under Section 14A of the Act read with Rule 8D(2)(ii) & (iii) of the Rules to INR 5,71,365/- & INR 17,60,300/-, respectively.
We have heard the rival submissions and perused the metal on 14. record.
(Assessment Year: 2012-13) It emerges that the CIT(A) has restricted to disallowance under 15. Section Rule 8D(2)(ii) of the Rules read with Section 14A of the Act to INR.5,71,365/- by placing reliance upon the judgement of the Hon’ble Bombay High Court in the case of HDFC Bank Limited Vs. DCIT – 2(3), Mumbai: [2016] 383 ITR 529. While the CIT(A) has restricted to disallowance under Section Rule 8D(2)(iii) of the Rules read with Section 14A of the Act to INR 17,60,300/- being total administrative expense claimed in the Profit and Loss Account. Therefore, we do not find any infirmity in the order passed by the CIT(A). Ground No. 1 raised by the revenue is dismissed.
In result, the present appeal preferred by the Revenue is dismissed. 16.
Order pronounced on 30.06.2023.