DCIT CENTRAL CIRCLE 8 1 MUMBAI, MUMBAI vs. JARANDESHWAR SUGAR MILLS PVT LTD, PUNE

ORDER PER BENCH

These appeals, preferred by the Revenue, arise from separate orders, passed by the Learned Commissioner of Income-tax (Appeals)–50, Mumbai, [hereinafter referred to as “the Ld. CIT(A)”] pertaining to Assessment Years 2016-17 to 2022-23 respectively. As the controversy involved stands upon a substantially common

Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 2 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025 factual substratum and identical questions of law, the appeals were factual substratum and identical questions of law, the appeals were factual substratum and identical questions of law, the appeals were heard together and are being disposed of by this heard together and are being disposed of by this consolidated order consolidated order, for the sake of convenience and to avoid repetition of facts. for the sake of convenience and to avoid repetition of facts. for the sake of convenience and to avoid repetition of facts.

“1. Whether in the circumstances of the case and in law, the Ld “1. Whether in the circumstances of the case and in law, the Ld “1. Whether in the circumstances of the case and in law, the Ld CIT(A) had erred in not taking into consideration the findings of CIT(A) had erred in not taking into consideration the findings of CIT(A) had erred in not taking into consideration the findings of the Survey action conduct the Survey action conducted on the assessee; 2. Whether in the circumstances of the case and in law, the Ld Whether in the circumstances of the case and in law, the Ld Whether in the circumstances of the case and in law, the Ld CIT(A) had erred in deleting the disallowance made u/s 37(1) of CIT(A) had erred in deleting the disallowance made u/s 37(1) of CIT(A) had erred in deleting the disallowance made u/s 37(1) of the Act in respect of Rent expenses of Rs. 5,69,95,061/ the Act in respect of Rent expenses of Rs. 5,69,95,061/ the Act in respect of Rent expenses of Rs. 5,69,95,061/- made on the basis of the findings during Survey on the basis of the findings during Survey action.

3. Whether in the circumstances of the case and in law, the Ld Whether in the circumstances of the case and in law, the Ld Whether in the circumstances of the case and in law, the Ld CIT(A) had erred in not appreciating that on the basis of the CIT(A) had erred in not appreciating that on the basis of the CIT(A) had erred in not appreciating that on the basis of the Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 3 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025

statement on oath u/s 131 of the Act dated 07/10/2021 of Shri statement on oath u/s 131 of the Act dated 07/10/2021 of Shri statement on oath u/s 131 of the Act dated 07/10/2021 of Shri Vijay Jagdale, General Manager and Director of the assessee Vijay Jagdale, General Manager and Director of the assessee Vijay Jagdale, General Manager and Director of the assessee company it was revealed that the outstanding lease rent of ompany it was revealed that the outstanding lease rent of ompany it was revealed that the outstanding lease rent of Rs.26 crores payable to Guru Commodity Services Pvt Ltd, Rs.26 crores payable to Guru Commodity Services Pvt Ltd, Rs.26 crores payable to Guru Commodity Services Pvt Ltd, converted to Unsecured Loans was an accommodation entry; converted to Unsecured Loans was an accommodation entry; converted to Unsecured Loans was an accommodation entry; 4. Whether in the c Whether in the circumstances of the case and in law, law, the Ld CIT(A) had erred in not appreciating that the Power of Attorney erred in not appreciating that the Power of Attorney erred in not appreciating that the Power of Attorney executed by the directors of Guru Commodity Services Pvt Ltd, executed by the directors of Guru Commodity Services Pvt Ltd, executed by the directors of Guru Commodity Services Pvt Ltd, vide which power to mortgage the property and premises of vide which power to mortgage the property and premises of vide which power to mortgage the property and premises of Jarandeshwar Sahakari Sakhar Karkhana (JSSK) was handed Jarandeshwar Sahakari Sakhar Karkhana (JSSK) was handed Jarandeshwar Sahakari Sakhar Karkhana (JSSK) was handed over to the assessee compan over to the assessee company was an act which was against y was an act which was against business prudence and practice. On the basis of the said Power business prudence and practice. On the basis of the said Power business prudence and practice. On the basis of the said Power of Attorney the assessee company availed loans to the extent of of Attorney the assessee company availed loans to the extent of of Attorney the assessee company availed loans to the extent of Rs. 700 crores from DCCB, Pune; Rs. 700 crores from DCCB, Pune; 5. Whether in the circum Whether in the circumstances of the case and in law, stances of the case and in law, the Ld CIT(A) had erred in not appreciating that the assessee company, erred in not appreciating that the assessee company, erred in not appreciating that the assessee company, Guru Commodity Services Pvt Ltd and Jarandeshwar Sahakari Guru Commodity Services Pvt Ltd and Jarandeshwar Sahakari Guru Commodity Services Pvt Ltd and Jarandeshwar Sahakari Sakhar Karkhana were acting in connivance and hence the Sakhar Karkhana were acting in connivance and hence the Sakhar Karkhana were acting in connivance and hence the expenses claimed on account of Lease Rent disallowed by the expenses claimed on account of Lease Rent disallowed by the expenses claimed on account of Lease Rent disallowed by the Assessing Officer wer Assessing Officer were merely accommodation entries; e merely accommodation entries; 4. Briefly stated facts facts of the case are that the assessee assessee is engaged in manufacturing and sale of Sugar. The in manufacturing and sale of Sugar. The assessee filed its return of filed its return of income for the year under consideration on for the year under consideration on 14/10/2016 14/10/2016 declaring total income of Rs Nil Nil. Subsequently, a survey u/s 133A of income u/s 133A of income- tax Act,1961( in short the Act) tax Act,1961( in short the Act) was carried out at the was carried out at the premises of the assessee in connection with search action in connection with search action u/s 132 of the Act u/s 132 of the Act carried out at the premises of carried out at the premises of DB Realty group. Consequently Consequently, the Assessing Officer issued notice u/s 148A Assessing Officer issued notice u/s 148A and after taking into after taking into consideration submission of the assessee consideration submission of the assessee issued order u/s 148A(d) order u/s 148A(d) of the Act on 28/02/2023. N of the Act on 28/02/2023. Notice u/s 148 of the Act otice u/s 148 of the Act was also issued on 28/02/2023 issued on 28/02/2023. The reassessment was completed by the AO was completed by the AO

Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 4 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025 on 4/05/2023, wherein he disallowed the lease rent expenditure for wherein he disallowed the lease rent expenditure for wherein he disallowed the lease rent expenditure for taking the factory premises on lease. taking the factory premises on lease.

4.1 The relevant factual matrix, as culled out by the Ld. CIT(A), The relevant factual matrix, as culled out by the Ld. CIT(A), The relevant factual matrix, as culled out by the Ld. CIT(A), reveals that during survey proceedings conducted at the assessee’s reveals that during survey proceedings conducted at the assessee’s reveals that during survey proceedings conducted at the assessee’s factory premises—Ja Jarandeshwar Sugar Factory, Satara randeshwar Sugar Factory, Satara—it was noticed that the assessee had taken the sugar factory on lease from noticed that the assessee had taken the sugar factory on lease from noticed that the assessee had taken the sugar factory on lease from M/s. Guru Commodity Services Pvt. Ltd. (GCSPL), which had M/s. Guru Commodity Services Pvt. Ltd. (GCSPL) M/s. Guru Commodity Services Pvt. Ltd. (GCSPL) earlier acquired the assets of earlier acquired the assets of Jarandeshwar Sahakari Sakhar Jarandeshwar Sahakari Sakhar Karkhana (JSSK) in a public au in a public auction conducted by the Maharashtra ction conducted by the Maharashtra State Co-operative Bank (MSCB) in F.Y. 2010 operative Bank (MSCB) in F.Y. 2010- -11. It further appeared to the Assessing Officer Assessing Officer(AO) that:

(a) the factory was leased to the assessee immediately upon (a) the factory was leased to the assessee immediately upon (a) the factory was leased to the assessee immediately upon acquisition by GCSPL; GCSPL; (b) part of the purchase funds paid (b) part of the purchase funds paid by GCSPL had flowed from the by GCSPL had flowed from the assessee; (c) nominal rent was charged initially; (c) nominal rent was charged initially; (d) rent payable over several years was either unpaid or converted (d) rent payable over several years was either unpaid or converted (d) rent payable over several years was either unpaid or converted into unsecured loans; and into unsecured loans; and (e) GCSPL had executed a Power of Attorney enabling directors of (e) GCSPL had executed a Power of Attorney enabling directors of (e) GCSPL had executed a Power of Attorney enabling directors of the assessee to mor the assessee to mortgage the leased property for raising bank tgage the leased property for raising bank finance.

Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 5 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025 4.2 Basing on these circumstances, the AO construed the Basing on these circumstances, the AO construed the Basing on these circumstances, the AO construed the arrangement as a “pre arrangement as a “pre-designed” structure to benefit the assessee, designed” structure to benefit the assessee, branding GCSPL as a mere front and treating the rent expenditure branding GCSPL as a mere front and treating the rent expenditure branding GCSPL as a mere front and treating the rent expenditure as a sham. For ready reference, For ready reference, relevant part of part of factual matrix reproduced by ld CIT(A) is extracted by ld CIT(A) is extracted as under:

“35. The facts leading to the impugned addition, as recorded in The facts leading to the impugned addition, as recorded in The facts leading to the impugned addition, as recorded in the assessment order, are that during the course of the survey the assessment order, are that during the course of the survey the assessment order, are that during the course of the survey action at the factory premise action at the factory premises of the appellant company, i.e., s of the appellant company, i.e., Jarandeshar Sugar Factory, Koregaon, Bhatamwadi, Satara, Jarandeshar Sugar Factory, Koregaon, Bhatamwadi, Satara, Jarandeshar Sugar Factory, Koregaon, Bhatamwadi, Satara, Maharashtra, it was found that the appellant had taken the Maharashtra, it was found that the appellant had taken the Maharashtra, it was found that the appellant had taken the said premises on rent from M/s.Guru Commodity Services Pvt. said premises on rent from M/s.Guru Commodity Services Pvt. said premises on rent from M/s.Guru Commodity Services Pvt. Ltd. (GCSPL). It was further noticed that GCSP Ltd. (GCSPL). It was further noticed that GCSPL had acquired L had acquired the assets of Jarandeshwar Sahakari Sakhar Karkhana (JSSK) the assets of Jarandeshwar Sahakari Sakhar Karkhana (JSSK) the assets of Jarandeshwar Sahakari Sakhar Karkhana (JSSK) for Rs.65.75 Cr. in an auction conducted by Maharashtra State for Rs.65.75 Cr. in an auction conducted by Maharashtra State for Rs.65.75 Cr. in an auction conducted by Maharashtra State Co-operative Bank (MSCB) in F.Y. 2010 operative Bank (MSCB) in F.Y. 2010-11. GCSPL is a private 11. GCSPL is a private limited company incorporated on 30/11/2000 and it had limited company incorporated on 30/11/2000 and it had limited company incorporated on 30/11/2000 and it had substantial activities till the F.Y. 2009 antial activities till the F.Y. 2009-10. Thereafter, on 10. Thereafter, on 20/09/2010, the company was purchased by M/s. Omkar 20/09/2010, the company was purchased by M/s. Omkar 20/09/2010, the company was purchased by M/s. Omkar Realtors Pvt. Ltd. for participating in the auction of the assets of Realtors Pvt. Ltd. for participating in the auction of the assets of Realtors Pvt. Ltd. for participating in the auction of the assets of JSSK. Since then, GCSPL has not been JSSK. Since then, GCSPL has not been carrying on any carrying on any business and is receiving business and is receiving only rental income from the appellant only rental income from the appellant company, in respect of the factory premises given on lease. company, in respect of the factory premises given on lease. company, in respect of the factory premises given on lease. GCSPL had received funds for acquisition of the assets of JSSK GCSPL had received funds for acquisition of the assets of JSSK GCSPL had received funds for acquisition of the assets of JSSK from from from various various various entities, entities, entities, including including including the the the appellant appellant appellant company company company (Rs.20.25 Cr.). Further, immediately aft (Rs.20.25 Cr.). Further, immediately after acquisition of the er acquisition of the assets of JSSK by GCSPL in auction, the factory premises was assets of JSSK by GCSPL in auction, the factory premises was assets of JSSK by GCSPL in auction, the factory premises was given on lease to the appellant company on 25/11/2010 and given on lease to the appellant company on 25/11/2010 and given on lease to the appellant company on 25/11/2010 and only nominal annual charges of Rs.12 lakhs were charged for only nominal annual charges of Rs.12 lakhs were charged for only nominal annual charges of Rs.12 lakhs were charged for the initial five years from the appellant company, and the initial five years from the appellant company, and the initial five years from the appellant company, and the factory is still being operated by the appellant company on factory is still being operated by the appellant company on factory is still being operated by the appellant company on lease basis and the lease period is effective till 2044. Also, lease basis and the lease period is effective till 2044. Also, lease basis and the lease period is effective till 2044. Also, GCSPL had executed a Power of Attorney in favour of Shri GCSPL had executed a Power of Attorney in favour of Shri GCSPL had executed a Power of Attorney in favour of Shri Rajendra Ghadge (a relative of Shri Ajit Pawar) and Shri Sachin Rajendra Ghadge (a relative of Shri Ajit Pawar) and Shri Sachin Rajendra Ghadge (a relative of Shri Ajit Pawar) and Shri Sachin Sinagare, Directors of the appellant company, to execute and , Directors of the appellant company, to execute and , Directors of the appellant company, to execute and register the mortgage deed and any other necessary documents register the mortgage deed and any other necessary documents register the mortgage deed and any other necessary documents for mortgaging the assets of JSSK, and thereafter, the appellant for mortgaging the assets of JSSK, and thereafter, the appellant for mortgaging the assets of JSSK, and thereafter, the appellant company had availed huge loans from Pune DCCB by company had availed huge loans from Pune DCCB by company had availed huge loans from Pune DCCB by mortgaging the property of J mortgaging the property of JSSK, with the consent of GCSPL. SSK, with the consent of GCSPL. Moreover, from the details furnished by the appellant company Moreover, from the details furnished by the appellant company Moreover, from the details furnished by the appellant company during post-survey proceedings, it was noticed that the total survey proceedings, it was noticed that the total survey proceedings, it was noticed that the total

Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 6 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025 lease rent paid/payable to GCSPL by the appellant company lease rent paid/payable to GCSPL by the appellant company lease rent paid/payable to GCSPL by the appellant company from F.Y. 2014 from F.Y. 2014-15 to 2021-22 was approximately Rs.50.96 Cr., tely Rs.50.96 Cr., but till 31/03/2022, only Rs.21.04 Cr. had been paid by the but till 31/03/2022, only Rs.21.04 Cr. had been paid by the but till 31/03/2022, only Rs.21.04 Cr. had been paid by the appellant. Further, in F.Y. 2018 appellant. Further, in F.Y. 2018-19, the major part of the rent 19, the major part of the rent payable (Rs.26 Cr.) was converted into unsecured loan by the payable (Rs.26 Cr.) was converted into unsecured loan by the payable (Rs.26 Cr.) was converted into unsecured loan by the appellant in its books of accounts. From the above f appellant in its books of accounts. From the above facts noticed acts noticed during the course of the survey at the premises of the appellant during the course of the survey at the premises of the appellant during the course of the survey at the premises of the appellant company, it appeared that GCSPL was merely a front and the company, it appeared that GCSPL was merely a front and the company, it appeared that GCSPL was merely a front and the appellant is the de facto owner of the assets of JSSK after the appellant is the de facto owner of the assets of JSSK after the appellant is the de facto owner of the assets of JSSK after the same were acquired by GCSPL in the auction conducted by same were acquired by GCSPL in the auction conducted by same were acquired by GCSPL in the auction conducted by MSCB. The facts that M/s. Sparkling Soil Pvt. Ltd., which holds MSCB. The facts that M/s. Sparkling Soil Pvt. Ltd., which holds MSCB. The facts that M/s. Sparkling Soil Pvt. Ltd., which holds the shares of the appellant company and is a group company the shares of the appellant company and is a group company the shares of the appellant company and is a group company related to Shri Ajit Pawar, had paid the funds to the assessee related to Shri Ajit Pawar, had paid the funds to the assessee related to Shri Ajit Pawar, had paid the funds to the assessee for purchasing the assets of JSSK; that Shri Ajit Pawar was a for purchasing the assets of JSSK; that Shri Ajit Pawar was a for purchasing the assets of JSSK; that Shri Ajit Pawar was a prominent and influential member of the Board of Directors of nt and influential member of the Board of Directors of nt and influential member of the Board of Directors of MSCB at the relevant point of time and the auction of the assets MSCB at the relevant point of time and the auction of the assets MSCB at the relevant point of time and the auction of the assets of JSSK seems to have been conducted in such a manner that a of JSSK seems to have been conducted in such a manner that a of JSSK seems to have been conducted in such a manner that a dummy company (GCSPL) could purchase the assets at an dummy company (GCSPL) could purchase the assets at an dummy company (GCSPL) could purchase the assets at an undervalued price.; t undervalued price.; that ever since its acquisition by GCSPL in hat ever since its acquisition by GCSPL in the auction conducted by MSCB, the factory premises is being the auction conducted by MSCB, the factory premises is being the auction conducted by MSCB, the factory premises is being used by the appellant company for generating revenue and for used by the appellant company for generating revenue and for used by the appellant company for generating revenue and for availing loans from various banks; charging of nominal rent to availing loans from various banks; charging of nominal rent to availing loans from various banks; charging of nominal rent to the appellant company by GCS the appellant company by GCSPL and non-payment of the rent payment of the rent regularly by the appellant, also supported the above view. regularly by the appellant, also supported the above view. regularly by the appellant, also supported the above view.

Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 7 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025 merely on the ground of non merely on the ground of non-payment or delay in payment of payment or delay in payment of the liability.

Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 8 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025 the AO disallowed appellant’s claim of deduction of expenditure the AO disallowed appellant’s claim of deduction of expenditure the AO disallowed appellant’s claim of deduction of expenditure of Rs.5,69,95,061/ of Rs.5,69,95,061/- towards rent paid/payable to towards rent paid/payable to GCSPL during the year under consideration. during the year under consideration.” 4.3 The Ld. CIT(A), upon an exhaustive re The Ld. CIT(A), upon an exhaustive re-appraisal of the record, appraisal of the record, rejected the AO’s inferences and deleted the disallowance observing rejected the AO’s inferences and deleted the disallowance rejected the AO’s inferences and deleted the disallowance as under:

Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 9 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025 From the above, it can be seen that according to the AO, the From the above, it can be seen that according to the AO, the From the above, it can be seen that according to the AO, the transactions of acquisition of the sugar factory and leasing transactions of acquisition of the sugar factory and leasing transactions of acquisition of the sugar factory and leasing of the premises to the appellant company by GCSPL were part of a the premises to the appellant company by GCSPL were part of a the premises to the appellant company by GCSPL were part of a pre-determined and pre determined and pre-decided arrangement made for the decided arrangement made for the ultimate benefit of Shri Ajit Pawar, who controlled the affairs of ultimate benefit of Shri Ajit Pawar, who controlled the affairs of ultimate benefit of Shri Ajit Pawar, who controlled the affairs of GCSPL and also held interest in the appellant company. The AO GCSPL and also held interest in the appellant company. The AO GCSPL and also held interest in the appellant company. The AO has also made various observations regarding the transactions lso made various observations regarding the transactions lso made various observations regarding the transactions in this regard, in the assessment order. This issue is discussed in this regard, in the assessment order. This issue is discussed in this regard, in the assessment order. This issue is discussed and decided in the following paragraphs. and decided in the following paragraphs.

Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 10 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025

Sr. Agreement Agreement Period Agreement Period Fixed Rent Per Rent (Cane

No. Date Year (Rs.) Crushing Per MT)

The appellant has also been debiting the rent expenses to the The appellant has also been debiting the rent expenses to the The appellant has also been debiting the rent expenses to the Profit & Loss Account on regular basis since inception, i.e. from Profit & Loss Account on regular basis since inception, i.e. from Profit & Loss Account on regular basis since inception, i.e. from the day it has taken the factory premises on lease from GCSPL. the day it has taken the factory premises on lease from GCSPL. the day it has taken the factory premises on lease from GCSPL. Before me, the appellant has furnished the details of the rent Before me, the appellant has furnished the details of the rent Before me, the appellant has furnished the details of the rent expenses debited to the Profit & Loss Account, rent paid and penses debited to the Profit & Loss Account, rent paid and penses debited to the Profit & Loss Account, rent paid and closing balance at the end of each year for the period November, closing balance at the end of each year for the period November, closing balance at the end of each year for the period November, 2010 to September, 2024. The relevant details are as under: 2010 to September, 2024. The relevant details are as under: 2010 to September, 2024. The relevant details are as under:

Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 11 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025

The above facts show that the appellant has paid total amount The above facts show that the appellant has paid total amount The above facts show that the appellant has paid total amount of Rs 58.42 crores of rent. It is also not the case of the AO that 58.42 crores of rent. It is also not the case of the AO that 58.42 crores of rent. It is also not the case of the AO that the rent expenses debited by the appellant are not as per the the rent expenses debited by the appellant are not as per the the rent expenses debited by the appellant are not as per the Lease Agreement. Lease Agreement.

Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 12 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025

It can be seen from the above that the appellant company had It can be seen from the above that the appellant company had It can be seen from the above that the appellant company had paid only an amount of Rs.20.25 Cr. to GCSPL, whereas the paid only an amount of Rs.20.25 Cr. to GCSPL, whereas the paid only an amount of Rs.20.25 Cr. to GCSPL, whereas the total purchase consideration paid total purchase consideration paid by the said company was by the said company was Rs.65.75 Cr. The amount paid by the appellant company works Rs.65.75 Cr. The amount paid by the appellant company works Rs.65.75 Cr. The amount paid by the appellant company works out to only 30% (approximately) of the total purchase out to only 30% (approximately) of the total purchase out to only 30% (approximately) of the total purchase consideration and the remaining 70% of the funds had been consideration and the remaining 70% of the funds had been consideration and the remaining 70% of the funds had been received by GCSPL from various other entities. The AO has a received by GCSPL from various other entities. The AO has a received by GCSPL from various other entities. The AO has also not established that the remaining 70% of the funds were also not established that the remaining 70% of the funds were also not established that the remaining 70% of the funds were also appellant’s own funds routed through the above appellant’s own funds routed through the above-mentioned mentioned entities. This being the factual position, there was no entities. This being the factual position, there was no entities. This being the factual position, there was no justification on the part of the AO in holding that GCSPL had justification on the part of the AO in holding that GCSPL had justification on the part of the AO in holding that GCSPL had purchased the a purchased the assets of JSSK as a front company of the ssets of JSSK as a front company of the appellant and that the appellant was the de facto owner of the appellant and that the appellant was the de facto owner of the appellant and that the appellant was the de facto owner of the factory premises. Further, as regards the payment of Rs.20.25 factory premises. Further, as regards the payment of Rs.20.25 factory premises. Further, as regards the payment of Rs.20.25 Cr. made by the appellant company to GCSPL, it is not the case Cr. made by the appellant company to GCSPL, it is not the case Cr. made by the appellant company to GCSPL, it is not the case of the AO that the same is n of the AO that the same is not accounted for / recorded in the ot accounted for / recorded in the books of both the parties. Hence, in my view, no adverse books of both the parties. Hence, in my view, no adverse books of both the parties. Hence, in my view, no adverse inference can be drawn on this account. inference can be drawn on this account. 42 In the assessment order, the AO has also referred to the fact In the assessment order, the AO has also referred to the fact In the assessment order, the AO has also referred to the fact that the appellant company had not paid the rent regularly that the appellant company had not paid the rent regularly that the appellant company had not paid the rent regularly and rent payable amounting to Rs.26 Cr. had been converted by the rent payable amounting to Rs.26 Cr. had been converted by the rent payable amounting to Rs.26 Cr. had been converted by the company and shown in its books as unsecured loan from company and shown in its books as unsecured loan from company and shown in its books as unsecured loan from Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 13 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025

GCSPL. However, from the details tabulated in the preceding GCSPL. However, from the details tabulated in the preceding GCSPL. However, from the details tabulated in the preceding paragraph, it can be seen that the appellant has not only paragraph, it can be seen that the appellant has not only paragraph, it can be seen that the appellant has not only debited the rent e debited the rent expenses to the Profit & Loss Account but has xpenses to the Profit & Loss Account but has also paid substantial amount towards rent to GCSPL. It is true also paid substantial amount towards rent to GCSPL. It is true also paid substantial amount towards rent to GCSPL. It is true that the appellant company has converted rent payable that the appellant company has converted rent payable that the appellant company has converted rent payable amounting to Rs.26 Cr. into loan account. However, the amounting to Rs.26 Cr. into loan account. However, the amounting to Rs.26 Cr. into loan account. However, the appellant has submitted before me that appellant has submitted before me that this was done with this was done with mutual consent and an agreement was also entered into mutual consent and an agreement was also entered into mutual consent and an agreement was also entered into between both the companies in this regard, and the appellant between both the companies in this regard, and the appellant between both the companies in this regard, and the appellant has also been paying/debiting interest on has also been paying/debiting interest on the said amount. The he said amount. The appellant has furnished the details of the interest debited and appellant has furnished the details of the interest debited and appellant has furnished the details of the interest debited and paid/payable to GCSPL in various years on the said loan : paid/payable to GCSPL in various years on the said loan : paid/payable to GCSPL in various years on the said loan : (Amounts in Rs.) (Amounts in Rs.)

In my view, no adverse inference can be drawn merely because In my view, no adverse inference can be drawn merely because In my view, no adverse inference can be drawn merely because part of the rent remained payable part of the rent remained payable and/or part of the liability and/or part of the liability was converted into a loan, considering the facts and was converted into a loan, considering the facts and was converted into a loan, considering the facts and circumstances of the appellant’s case discussed above. circumstances of the appellant’s case discussed above. circumstances of the appellant’s case discussed above.

Attorney in favour of a third party. In fact, the action of GCSPL Attorney in favour of a third party. In fact, the action of GCSPL Attorney in favour of a third party. In fact, the action of GCSPL in executing a Power of Attorney in favour of the Directors of the ting a Power of Attorney in favour of the Directors of the ting a Power of Attorney in favour of the Directors of the appellant company only for mortgaging the leased appellant company only for mortgaging the leased assets is insignificant. What is to be considered is whether an inference insignificant. What is to be considered is whether an inference insignificant. What is to be considered is whether an inference can be drawn that the transactions in question are not genuine, can be drawn that the transactions in question are not genuine, can be drawn that the transactions in question are not genuine, on the basis of the fact that GCSPL had allowed the appellant is of the fact that GCSPL had allowed the appellant is of the fact that GCSPL had allowed the appellant company to obtain loans from banks by mortgaging the leased company to obtain loans from banks by mortgaging the leased company to obtain loans from banks by mortgaging the leased premises. In this regard, the appellant has submitted before me premises. In this regard, the appellant has submitted before me premises. In this regard, the appellant has submitted before me that the company has taken the loans for business expansion that the company has taken the loans for business expansion that the company has taken the loans for business expansion and the said loans w and the said loans were utilised for business purpose only. The ere utilised for business purpose only. The appellant company is a genuine company, engaged in the appellant company is a genuine company, engaged in the appellant company is a genuine company, engaged in the business of manufacturing, trading and distribution of sugar business of manufacturing, trading and distribution of sugar business of manufacturing, trading and distribution of sugar and other related products. The appellant has also furnished and other related products. The appellant has also furnished and other related products. The appellant has also furnished the details of the turnover of the the details of the turnover of the company and the profit earned company and the profit earned by it from such business in various years, as under: by it from such business in various years, as under: Asst. Year Turnover (Rs.) Profit before Tax as per Profit before Tax as per Books of Accounts (Rs.) Books of Accounts (Rs.) 2011-12 89,27,13,986 (7,62,422) 2012-13 154,45,00,424 3,48,62,615 2013-14 120,69,64,493 1,15,99,066 2014-15 196,59,68,073 (5,74,70,652) 2015-16 154,69,01,291 (1,84,16,696) 2016-17 112,39,06,820 5,78,08,966 2017-18 144,18,35,584 49,03,111 2018-19 314,99,97,360 1,25,01,192 2019-20 461,57,08,907 33,52,204 2020-21 423,33,99,791 17,37,73,135 2021-22 632,55,85,979 7,58,58,165 2022-23 809,65,32,000 39,84,63,000

From the above, it can be seen that the turnover of the appellant From the above, it can be seen that the turnover of the appellant From the above, it can be seen that the turnover of the appellant company had increased from Rs. 89,27,13,986/ company had increased from Rs. 89,27,13,986/- in A.Y. 2011 in A.Y. 2011- 12 to Rs. 809,65,32,000/ 12 to Rs. 809,65,32,000/- in A.Y. 2022-23. Thus, it is evident 23. Thus, it is evident from the financials of the appellant company that not only it is from the financials of the appellant company that not only it is from the financials of the appellant company that not only it is into genuine and regular business activities of manufacturing o genuine and regular business activities of manufacturing o genuine and regular business activities of manufacturing and trading of sugar and other products but there has also been and trading of sugar and other products but there has also been and trading of sugar and other products but there has also been substantial increase in the scale of operations of the company. substantial increase in the scale of operations of the company. substantial increase in the scale of operations of the company. Further, the appellant has submitted that the loans were also Further, the appellant has submitted that the loans were also Further, the appellant has submitted that the loans were also utilized for purchasing fixed assets and this is evident from the d for purchasing fixed assets and this is evident from the d for purchasing fixed assets and this is evident from the fact that the value of Gross Block of Assets in A.Y. 2011 fact that the value of Gross Block of Assets in A.Y. 2011 fact that the value of Gross Block of Assets in A.Y. 2011-12 was only only Rs.2,64,557/-, Rs.2,64,557/ , which which has has increased increased to to Rs. Rs. 469,65,93,000/ 469,65,93,000/- in A.Y. 2022-23. Thus, the appellant has 23. Thus, the appellant has established that the loans o established that the loans obtained by mortgaging the leased btained by mortgaging the leased assets of GCSPL have been utilised by it for the purpose of its assets of GCSPL have been utilised by it for the purpose of its assets of GCSPL have been utilised by it for the purpose of its Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 15 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025 business. There is also no contrary finding given by the AO in business. There is also no contrary finding given by the AO in business. There is also no contrary finding given by the AO in the assessment order. Under the circumstances, no adverse the assessment order. Under the circumstances, no adverse the assessment order. Under the circumstances, no adverse inference can be drawn in the case of inference can be drawn in the case of the appellant on the the appellant on the ground that GCSPL had allowed the appellant company to ground that GCSPL had allowed the appellant company to ground that GCSPL had allowed the appellant company to obtain loans from banks by mortgaging the leased obtain loans from banks by mortgaging the leased premises. premises.

Similarly, the details of current and past Directors of GCSPL are Similarly, the details of current and past Directors of GCSPL are Similarly, the details of current and past Directors of GCSPL are as follows: Name of Director Appointment Date Cessation Date Cessation Date Mukesh Javerilal Bagrecha Bagrecha 01 October 2010 - Jawaharlal Bhanvarlal Chhajed Jawaharlal Bhanvarlal Chhajed 03 November 2014 -

Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 17 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025

Ravindrakumar Bhansali Ravindrakumar Bhansali 30 November 2000 01 October 2010 01 October 2010 Rekha Padamchand Pokhrana Rekha Padamchand Pokhrana 07 September 2003 01 October 2010 01 October 2010 Kiran Jain 07 September 2003 22 October 2010 22 October 2010 Sunil Kumar Ramadhar Singh Ramadhar Singh 30 September 2011 04 November 2014 04 November 2014 Mukesh Javerilal Bagrecha Mukesh Javerilal Bagrecha 01 October 2010 30 September 2011 30 September 2011 Further, the details of the shareholders of the appellant Further, the details of the shareholders of the appellant Further, the details of the shareholders of the appellant company as on 31/03/2016 are as follows: company as on 31/03/2016 are as follows: Sr. No. Names of the Shareholders Names of the Shareholders No of Shares Held Shares Held 1 Sparkling Soil Pvt. Ltd. (Formerly known as Sparkling Soil Pvt. Ltd. (Formerly known as 1,00,00,000 1,00,00,000 Jay Agrotech Pvt. Ltd.) Jay Agrotech Pvt. Ltd.) 2 Aarya Agro Bio Herbal Pvt. Ltd. Aarya Agro Bio Herbal Pvt. Ltd. 20,000 3 Fire Power Marketing (I) Pvt. Ltd. Fire Power Marketing (I) Pvt. Ltd. 10,000 4 Non-Con Energies Pvt. Ltd. Con Energies Pvt. Ltd. 15,000 5 Mr. Rajendra Ghadge Mr. Rajendra Ghadge 4,990 6 Mrs. Suchitra Ghadge Suchitra Ghadge 10 Total 1,00,50,000 1,00,50,000

Similarly, the details of shareholders of GCSPL as on Similarly, the details of shareholders of GCSPL as on Similarly, the details of shareholders of GCSPL as on 31/03/2016 are as under: 31/03/2016 are as under: Sr. No. Name of Director Name of Director No of Shares Held No of Shares Held 1 Omkar Realtors Pvt Ltd Omkar Realtors Pvt Ltd 65,250 Total 65,250

It can be seen from the above that there is It can be seen from the above that there is no connection at all no connection at all between both the companies, since the shareholders and between both the companies, since the shareholders and between both the companies, since the shareholders and directors of both the companies are totally directors of both the companies are totally different, there is not different, there is not even a single common shareholder or director in GCSPL and the even a single common shareholder or director in GCSPL and the even a single common shareholder or director in GCSPL and the appellant company. Further, Shri Ajit Pawar has ne appellant company. Further, Shri Ajit Pawar has neither been a ither been a director nor a shareholder in any of these two companies. The director nor a shareholder in any of these two companies. The director nor a shareholder in any of these two companies. The AO has stated that relatives (sister and brother AO has stated that relatives (sister and brother-in-law) of Shri law) of Shri Ajit Pawar are the ultimate shareholders of the appellant Ajit Pawar are the ultimate shareholders of the appellant Ajit Pawar are the ultimate shareholders of the appellant company. He has also mentioned that Sparkling Soil Pvt. Lt company. He has also mentioned that Sparkling Soil Pvt. Lt company. He has also mentioned that Sparkling Soil Pvt. Ltd. is a group company related to Shri Ajit Pawar. Even if these a group company related to Shri Ajit Pawar. Even if these a group company related to Shri Ajit Pawar. Even if these contentions of the AO are assumed to be true, the transactions contentions of the AO are assumed to be true, the transactions contentions of the AO are assumed to be true, the transactions in question cannot be treated as bogus, as the AO has not been in question cannot be treated as bogus, as the AO has not been in question cannot be treated as bogus, as the AO has not been able to establish any relation between the Directors / able to establish any relation between the Directors / able to establish any relation between the Directors / shareholders of the appellant company and GCSPL. The AO has s of the appellant company and GCSPL. The AO has s of the appellant company and GCSPL. The AO has sought to establish such a relation merely by referring to the sought to establish such a relation merely by referring to the sought to establish such a relation merely by referring to the fact that GCSPL has allowed the appellant company to obtain fact that GCSPL has allowed the appellant company to obtain fact that GCSPL has allowed the appellant company to obtain loans from banks by mortgaging the leased premises, which, as loans from banks by mortgaging the leased premises, which, as loans from banks by mortgaging the leased premises, which, as Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 18 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025 already discussed here already discussed herein above, is not sufficient. It has already in above, is not sufficient. It has already been found that the loans obtained by the appellant by been found that the loans obtained by the appellant by been found that the loans obtained by the appellant by mortgaging the leased premises have been utilized for the mortgaging the leased premises have been utilized for the mortgaging the leased premises have been utilized for the purpose of the business of the company. In view of the same purpose of the business of the company. In view of the same purpose of the business of the company. In view of the same and in the absence of any relation betw and in the absence of any relation between the Directors / een the Directors / shareholders of the two companies having been established, shareholders of the two companies having been established, shareholders of the two companies having been established, this fact has no bearing on the issue of genuineness of the this fact has no bearing on the issue of genuineness of the this fact has no bearing on the issue of genuineness of the transactions in question. Accordingly, this allegation of the AO transactions in question. Accordingly, this allegation of the AO transactions in question. Accordingly, this allegation of the AO is found to be not supported by any material on reco is found to be not supported by any material on record. rd.

Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 19 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025 accounts and computation of income of the appellant and accounts and computation of income of the appellant and accounts and computation of income of the appellant and GCSPL. On perusal of the same it is observed that the appellant GCSPL. On perusal of the same it is observed that the appellant GCSPL. On perusal of the same it is observed that the appellant as well as the GCSPL has shown losses over the years. as well as the GCSPL has shown losses over the years. as well as the GCSPL has shown losses over the years. Therefore, it is not a case of suppression of income by Therefore, it is not a case of suppression of income by Therefore, it is not a case of suppression of income by inflating expenditure, as alleged by the A.O. expenditure, as alleged by the A.O.

Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 20 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025 the disallowance/addition of Rs disallowance/addition of Rs.5,69,95,061/-. Ground No. 4 . Ground No. 4 taken by the appellant for A.Y. 2016 taken by the appellant for A.Y. 2016-17 is ALLOWED.” ” 4.4 The conclusions conclusions of ld CIT(A), are summarised as under: as under:

(i) The acquisition of assets by GCSPL was in a The acquisition of assets by GCSPL was in a The acquisition of assets by GCSPL was in a public auction, and all three entities and all three entities—JSSK, GCSPL and the assessee JSSK, GCSPL and the assessee—are independent legal persons independent legal persons.

(ii) The lease was backed by a The lease was backed by a valid Leave and Licence valid Leave and Licence Agreement, periodically amended, and the assessee had periodically amended, and the assessee had periodically amended, and the assessee had regularly debited rent regularly debited rent in its books and paid rent aggregating t paid rent aggregating to ₹58.42 crores over the years. over the years.

(iii) Though the assessee contributed Though the assessee contributed ₹20.25 crores (approx. 20.25 crores (approx. 30%) to GCSPL’s purchase funds, the balance 70% emanated 30%) to GCSPL’s purchase funds, the balance 70% emanated 30%) to GCSPL’s purchase funds, the balance 70% emanated from independent third parties; hence, the AO’s conclusion from independent third parties; hence, the AO’s conclusion from independent third parties; hence, the AO’s conclusion factually untenable. that GCSPL was a “front” was that GCSPL was a “front” was factually untenabl

(iv) Conversion of unpaid rent into unsecured loans was Conversion of unpaid rent into unsecured loans was Conversion of unpaid rent into unsecured loans was supported by mutual agreements, the assessee paid interest supported by mutual agreements, the assessee paid interest supported by mutual agreements, the assessee paid interest thereon, and this commercial arrangement, thereon, and this commercial arrangement, per se per se, could not render the lease sham. render the lease sham.

(v) Execution of Power of Attorney merely enabled the a Execution of Power of Attorney merely enabled the assessee Execution of Power of Attorney merely enabled the a to mortgage leased assets for availing business loans to mortgage leased assets for availing business loans to mortgage leased assets for availing business loans—utilised for expansion, duly reflected in increased gross block and for expansion, duly reflected in increased gross block and for expansion, duly reflected in increased gross block and Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 21 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025 turnover—which did not, absent contrary evidence, undermine which did not, absent contrary evidence, undermine which did not, absent contrary evidence, undermine genuineness of the lease. the genuineness

(vi) The AO failed to demonstrate ho The AO failed to demonstrate how any alleged influence of w any alleged influence of Shri Ajit Pawar translated into actual benefit to him or Shri Ajit Pawar translated into actual benefit to him or Shri Ajit Pawar translated into actual benefit to him or detriment to the Revenue, nor was any material placed to detriment to the Revenue, nor was any material placed to detriment to the Revenue, nor was any material placed to prove collusion between the entities. prove collusion between the entities.

5.1 The facts as born The facts as borne out from the record are largely undisputed. e out from the record are largely undisputed. The sugar factory was originally owned by Jarandeshwar Sahakari The sugar factory was originally owned by Jarandeshwar Sahakari The sugar factory was originally owned by Jarandeshwar Sahakari Sakhar Karkhana (“JSSK”), which had defaulted in repayment of Sakhar Karkhana (“JSSK”), which had defaulted in repayment of Sakhar Karkhana (“JSSK”), which had defaulted in repayment of substantial borrowings from Maharashtra State Co substantial borrowings from Maharashtra State Co- -operative Bank (“MSCB”). Consequent (“MSCB”). Consequent upon such default, MSCB proceeded to upon such default, MSCB proceeded to auction the assets of JSSK for recovery of its dues. In the public auction the assets of JSSK for recovery of its dues. In the public auction the assets of JSSK for recovery of its dues. In the public auction so conducted, GCSPL emerged as the successful bidder and auction so conducted, GCSPL emerged as the successful bidder and auction so conducted, GCSPL emerged as the successful bidder and acquired the said factory. Immediately upon acquisition, GCSPL acquired the said factory. Immediately upon acquisition, GCSPL acquired the said factory. Immediately upon acquisition, GCSPL leased the premises to leased the premises to the assessee, who has since then carried on the assessee, who has since then carried on Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 22 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025 bona fide commercial operations, paying lease rent in accordance bona fide commercial operations, paying lease rent in accordance bona fide commercial operations, paying lease rent in accordance with the terms of the lease and claiming the same as a business with the terms of the lease and claiming the same as a business with the terms of the lease and claiming the same as a business expenditure.

5.2 The Assessing Officer (“AO”), however, proceeded on the The Assessing Officer (“AO”), however, proceeded on the The Assessing Officer (“AO”), however, proceeded on the premise that GCSPL was merely a façade or “front” of the assessee, at GCSPL was merely a façade or “front” of the assessee, at GCSPL was merely a façade or “front” of the assessee, and that the assessee was in substance the real owner of the and that the assessee was in substance the real owner of the and that the assessee was in substance the real owner of the factory. On this foundation, the AO concluded that the lease was a factory. On this foundation, the AO concluded that the lease was a factory. On this foundation, the AO concluded that the lease was a sham, the rent payments were merely a book device, and the sham, the rent payments were merely a book device, and the sham, the rent payments were merely a book device, and the expenditure claimed was not allowable. The learned CIT(A), in a claimed was not allowable. The learned CIT(A), in a claimed was not allowable. The learned CIT(A), in a detailed and reasoned discussion contained in paragraphs 38 to 51 detailed and reasoned discussion contained in paragraphs 38 to 51 detailed and reasoned discussion contained in paragraphs 38 to 51 of the impugned order, examined each allegation and found no of the impugned order, examined each allegation and found no of the impugned order, examined each allegation and found no merit therein. Before us, the learned Departmental Representative merit therein. Before us, the learned Departmental Representative merit therein. Before us, the learned Departmental Representative could not controvert, by reference to any cogent material, the ontrovert, by reference to any cogent material, the ontrovert, by reference to any cogent material, the findings so returned.

5.3 A careful reading of the assessment order reveals that the AO’s A careful reading of the assessment order reveals that the AO’s A careful reading of the assessment order reveals that the AO’s theory is essentially that GCSPL acted as a theory is essentially that GCSPL acted as a ‘benami’ of the assessee, albeit without using that precise expression without using that precise expression. If indeed such were the . If indeed such were the case, it was incumbent upon the Department to invoke the case, it was incumbent upon the Department to invoke the case, it was incumbent upon the Department to invoke the machinery of the Prohibition of Benami Property Transactions Act. machinery of the Prohibition of Benami Property Transactions Act. machinery of the Prohibition of Benami Property Transactions Act. We note, upon the assessee’s submission We note, upon the assessee’s submission—which remained which remained undisputed—that that proceedings proceedings under under the the Benami Benami Property Propert Transactions Act were in fact initiated but were ultimately were in fact initiated but were ultimately were in fact initiated but were ultimately dismissed by the competent Appellate Authority. Once proceedings dismissed by the competent Appellate Authority. Once proceedings dismissed by the competent Appellate Authority. Once proceedings

Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 23 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025 under that special legislation have been triggered, the Income-tax under that special legislation have been triggered, the Income under that special legislation have been triggered, the Income authorities are precluded from independently authorities are precluded from independently branding the asse branding the assessee as the de-facto owner of the asset in question. The AO could not, owner of the asset in question. The AO could not, owner of the asset in question. The AO could not, therefore, have proceeded on the assumption of benami ownership therefore, have proceeded on the assumption of benami ownership therefore, have proceeded on the assumption of benami ownership without any supporting findings from the designated authorities without any supporting findings from the designated authorities without any supporting findings from the designated authorities under the Benami Property Transactions Act Benami Property Transactions Act. . It must be emphasised that JSSK, GCSPL and the appellant company are phasised that JSSK, GCSPL and the appellant company are phasised that JSSK, GCSPL and the appellant company are distinct and independent juridical entities. distinct and independent juridical entities.

5.4 The allegation that the lease arrangement was a pre The allegation that the lease arrangement was a pre The allegation that the lease arrangement was a pre- determined and pre- -fabricated device is founded merely upon the fabricated device is founded merely upon the circumstance that GCSPL leased out circumstance that GCSPL leased out the premises to the assessee the premises to the assessee immediately upon acquisition. immediately upon acquisition. The AO places considerable reliance The AO places considerable reliance on the fact that the date of issuance of the sale certificate in favour on the fact that the date of issuance of the sale certificate in favour on the fact that the date of issuance of the sale certificate in favour of GCSPL coincides with the date of execution of the lease in favour of GCSPL coincides with the date of execution of the lease in favour of GCSPL coincides with the date of execution of the lease in favour of the appellant. In his view, such coincidence is his view, such coincidence is ipso facto ipso facto proof of a pre-conceived arrangement. This contention is wholly untenable. conceived arrangement. This contention is wholly untenable. conceived arrangement. This contention is wholly untenable. The proximity of dates, by itself, cannot give rise to an adverse The proximity of dates, by itself, cannot give rise to an adverse The proximity of dates, by itself, cannot give rise to an adverse presumption, particularly in the absence of any tangible material presumption, particularly in the absence of any tangible material presumption, particularly in the absence of any tangible material establishing that the transactions were colourable or unnatural. shing that the transactions were colourable or unnatural. shing that the transactions were colourable or unnatural. Commercial prudence often dictates that a purchaser who acquires Commercial prudence often dictates that a purchaser who acquires Commercial prudence often dictates that a purchaser who acquires a functioning industrial undertaking, such as a sugar factory, may a functioning industrial undertaking, such as a sugar factory, may a functioning industrial undertaking, such as a sugar factory, may simultaneously negotiate operational arrangements to ensure simultaneously negotiate operational arrangements to ensure simultaneously negotiate operational arrangements to ensure continuity of business. That circumstance cannot, without more, be uity of business. That circumstance cannot, without more, be uity of business. That circumstance cannot, without more, be Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 24 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025 treated as a badge of fraud. treated as a badge of fraud. The inference sought to be drawn by The inference sought to be drawn by the AO rests upon assumption and not evidence. the AO rests upon assumption and not evidence.

5.5 The lease deed dated 13.05.2011, evidencing lease with effect The lease deed dated 13.05.2011, evidencing lease with effect The lease deed dated 13.05.2011, evidencing lease with effect from 25.11.2010, sets out the rent payable, which has been sets out the rent payable, which has been sets out the rent payable, which has been periodically revised through duly executed addenda. The appellant periodically revised through duly executed addenda. The appellant periodically revised through duly executed addenda. The appellant has, year after year, debited lease rent in its Profit & Loss account, has, year after year, debited lease rent in its Profit & Loss account, has, year after year, debited lease rent in its Profit & Loss account, and has furnished complete particulars of rent paid, rent and has furnished complete particulars of rent paid, rent and has furnished complete particulars of rent paid, rent outstanding and ren outstanding and rent treated as loans. The cumulative rent paid t treated as loans. The cumulative rent paid aggregates to ₹58.42 crore 58.42 crores. Significantly, the AO has never . Significantly, the AO has never disputed that the rent so debited is in accordance with the terms of disputed that the rent so debited is in accordance with the terms of disputed that the rent so debited is in accordance with the terms of the subsisting lease. These facts fortify the genuineness of the the subsisting lease. These facts fortify the genuineness of the the subsisting lease. These facts fortify the genuineness of the transaction.

5.6 The AO further asserts that because the appellant contributed The AO further asserts that because the appellant contributed The AO further asserts that because the appellant contributed ₹20.25 crores towards the pool of funds used by GCSPL to purchase towards the pool of funds used by GCSPL to purchase towards the pool of funds used by GCSPL to purchase the factory, GCSPL must have acted merely as the appellant’s the factory, GCSPL must have acted merely as the appellant’s the factory, GCSPL must have acted merely as the appellant’s “front”, rendering the appellant the de facto owner of the premises. “front”, rendering the appellant the de facto owner of the premises. “front”, rendering the appellant the de facto owner of the premises. This reasoning is factually unsustainable. This reasoning is factually unsustainable.

5.7 The AO himself records tha The AO himself records that the total consideration of t the total consideration of ₹65.75 crores was funded predominantly by other independent entities, was funded predominantly by other independent entities, was funded predominantly by other independent entities, whose contributions constitute approximately 70% of the total cost. whose contributions constitute approximately 70% of the total cost. whose contributions constitute approximately 70% of the total cost. There is neither allegation nor evidence that contributions by those There is neither allegation nor evidence that contributions by those There is neither allegation nor evidence that contributions by those entities were routed from the appellant. In such circumstances, the from the appellant. In such circumstances, the from the appellant. In such circumstances, the Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 25 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025 payment of ₹20.25 crore 20.25 crores—duly accounted for in the books of both duly accounted for in the books of both entities—cannot be construed as evidence of benami ownership or a cannot be construed as evidence of benami ownership or a cannot be construed as evidence of benami ownership or a sham structure. Commercial transactions often involve earnest sham structure. Commercial transactions often involve earnest sham structure. Commercial transactions often involve earnest money, deposit contributions or financial participation by future contributions or financial participation by future contributions or financial participation by future lessees for legitimate business reasons. The AO’s inference is lessees for legitimate business reasons. The AO’s inference is lessees for legitimate business reasons. The AO’s inference is therefore baseless. If the AO believed that the lease rent was If the AO believed that the lease rent was If the AO believed that the lease rent was deflated, it was open to the Department to examine the annual deflated, it was open to the Department to examine the annual deflated, it was open to the Department to examine the annual letting value in the hands of GCSPL; but having accepted the rent the hands of GCSPL; but having accepted the rent the hands of GCSPL; but having accepted the rent in the assessee’s hands as a contractual payment, the AO could not in the assessee’s hands as a contractual payment, the AO could not in the assessee’s hands as a contractual payment, the AO could not question its quantum in the absence of any tangible evidence. question its quantum in the absence of any tangible evidence. question its quantum in the absence of any tangible evidence.

5.8 The AO also comments upon the fact that rent arrears of The AO also comments upon the fact that rent arrears of The AO also comments upon the fact that rent arrears of ₹26 crores were subsequently converted into an unsecured loan. The bsequently converted into an unsecured loan. The bsequently converted into an unsecured loan. The appellant has satisfactorily demonstrated that this was done by appellant has satisfactorily demonstrated that this was done by appellant has satisfactorily demonstrated that this was done by mutual agreement and that interest has been regularly debited and mutual agreement and that interest has been regularly debited and mutual agreement and that interest has been regularly debited and paid. Conversion of trade liability into loan is neither prohibited nor paid. Conversion of trade liability into loan is neither prohibited nor paid. Conversion of trade liability into loan is neither prohibited nor unusual in long-term commercial arrangements. The AO has not term commercial arrangements. The AO has not term commercial arrangements. The AO has not identified any legal infirmity in the accounting treatment adopted. identified any legal infirmity in the accounting treatment adopted. identified any legal infirmity in the accounting treatment adopted. No adverse inference can hence be drawn. No adverse inference can hence be drawn.

5.9 The next circumstance relied upon is the Power of Attorney The next circumstance relied upon is the Power of Attorney The next circumstance relied upon is the Power of Attorney granted by GCSPL to Director granted by GCSPL to Directors of the appellant company for the s of the appellant company for the limited purpose of creating a mortgage in favour of lending banks. limited purpose of creating a mortgage in favour of lending banks. limited purpose of creating a mortgage in favour of lending banks. This fact is wholly innocuous. The appellant has demonstrated, This fact is wholly innocuous. The appellant has demonstrated, This fact is wholly innocuous. The appellant has demonstrated, through audited accounts, that the loans so obtained have been through audited accounts, that the loans so obtained have been through audited accounts, that the loans so obtained have been Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 26 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025 utilised for expansion of ma utilised for expansion of manufacturing operations, reflected in the nufacturing operations, reflected in the exponential increase in turnover exponential increase in turnover—from ₹89 crores in AY 2011 in AY 2011-12 to ₹809 crores in AY 2022 in AY 2022-23—and the corresponding growth in fixed and the corresponding growth in fixed assets from ₹2.64 lakh 2.64 lakhs to ₹469 crores. The AO does not dispute . The AO does not dispute these facts. The mere these facts. The mere facilitation by a lessor to enable its lessee to facilitation by a lessor to enable its lessee to raise operational finance does not even remotely suggest that the raise operational finance does not even remotely suggest that the raise operational finance does not even remotely suggest that the lessor is controlled by the lessee or by any third party. lessor is controlled by the lessee or by any third party. lessor is controlled by the lessee or by any third party.

5.10 The AO further adverted to allegations that MSCB was The AO further adverted to allegations that MSCB was The AO further adverted to allegations that MSCB was controlled by an influen controlled by an influential political personality and that the tial political personality and that the auction process was stage auction process was stage-managed to favour GCSPL managed to favour GCSPL . The allegation that he was the “ultimate beneficiary” of these allegation that he was the “ultimate beneficiary” of these allegation that he was the “ultimate beneficiary” of these arrangements—rests wholly on conjecture and is unsupported by rests wholly on conjecture and is unsupported by rests wholly on conjecture and is unsupported by any substantive factual foundation. The any substantive factual foundation. The AO has not demonstrated: AO has not demonstrated: a) that he influenced the auction process;(b) that GCSPL is a) that he influenced the auction process;(b) that GCSPL is a) that he influenced the auction process;(b) that GCSPL is controlled by him;(c) that he has any beneficial, legal or indirect controlled by him;(c) that he has any beneficial, legal or indirect controlled by him;(c) that he has any beneficial, legal or indirect ownership in GCSPL; or (d) that he has any shareholding or ownership in GCSPL; or (d) that he has any shareholding or ownership in GCSPL; or (d) that he has any shareholding or directorial presence in the appellant compa directorial presence in the appellant company. Such allegations, Such allegations, unsupported by any material, are wholly extraneous to the unsupported by any material, are wholly extraneous to the unsupported by any material, are wholly extraneous to the determination of the issue before us. If any impropriety existed in determination of the issue before us. If any impropriety existed in determination of the issue before us. If any impropriety existed in the auction process, the matter would fall squarely within the remit the auction process, the matter would fall squarely within the remit the auction process, the matter would fall squarely within the remit of other regulatory or law of other regulatory or law-enforcement authorities; it has no bearing authorities; it has no bearing on the genuineness of the lease or the allowability of the on the genuineness of the lease or the allowability of the on the genuineness of the lease or the allowability of the expenditure under the Income expenditure under the Income-tax Act. The details of Directors and The details of Directors and Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 27 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025 shareholders of both companies, placed on record, show that there shareholders of both companies, placed on record, show that there shareholders of both companies, placed on record, show that there is not even a single common dire is not even a single common director or shareholder. It is not the ctor or shareholder. It is not the case of the Department that the Directors or shareholders of GCSPL case of the Department that the Directors or shareholders of GCSPL case of the Department that the Directors or shareholders of GCSPL are benamidars of the appellant company or of any alleged are benamidars of the appellant company or of any alleged are benamidars of the appellant company or of any alleged “ultimate beneficiary”. The mere fact that certain relatives of a “ultimate beneficiary”. The mere fact that certain relatives of a “ultimate beneficiary”. The mere fact that certain relatives of a public figure hold shares in t public figure hold shares in the appellant’s parent company cannot, he appellant’s parent company cannot, without further evidence, taint an otherwise lawful and transparent without further evidence, taint an otherwise lawful and transparent without further evidence, taint an otherwise lawful and transparent commercial transaction. commercial transaction. The allegation that MSCB manipulated the The allegation that MSCB manipulated the auction process is similarly unsupported by any evidence and auction process is similarly unsupported by any evidence and auction process is similarly unsupported by any evidence and cannot be sustained. cannot be sustained.

5.11 Upon an overall conspectus of the record, it is evident that the Upon an overall conspectus of the record, it is evident that the Upon an overall conspectus of the record, it is evident that the AO’s inference of collusion, pre AO’s inference of collusion, pre-determined arrangement, or indirect determined arrangement, or indirect benefit to third parties rests upon conjecture and suspicion and not benefit to third parties rests upon conjecture and suspicion and not benefit to third parties rests upon conjecture and suspicion and not upon legally admissible evidence. There is no material establishing upon legally admissible evidence. There is no mater upon legally admissible evidence. There is no mater any shareholding, managerial, financial or proximate nexus any shareholding, managerial, financial or proximate nexus any shareholding, managerial, financial or proximate nexus between the assessee and GCSPL. No attempt has been made to between the assessee and GCSPL. No attempt has been made to between the assessee and GCSPL. No attempt has been made to trace any flow of consideration, overt or covert, between them trace any flow of consideration, overt or covert, between them trace any flow of consideration, overt or covert, between them beyond the documented commercial transactions recorded in their beyond the documented commercial transactions recorded in beyond the documented commercial transactions recorded in respective books. The appellant’s operations at the leased factory respective books. The appellant’s operations at the leased factory respective books. The appellant’s operations at the leased factory are substantial, genuine and consistently reflected in audited are substantial, genuine and consistently reflected in audited are substantial, genuine and consistently reflected in audited financials.

5.12 The appellant has been in continuous occupation of the leased The appellant has been in continuous occupation of the leased The appellant has been in continuous occupation of the leased premises. Its business operations are u premises. Its business operations are undisputed. The lease ndisputed. The lease

Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 28 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025 arrangement is genuine, the rent has been paid or provided for, and arrangement is genuine, the rent has been paid or provided for, and arrangement is genuine, the rent has been paid or provided for, and all transactions are duly reflected in audited financial statements. all transactions are duly reflected in audited financial statements. all transactions are duly reflected in audited financial statements. No connection of de of de-facto ownership—direct or oblique direct or oblique—between the appellant and GCSPL has been the appellant and GCSPL has been established by the AO. In such established by the AO. In such circumstances, the AO’s conclusion that the lease is sham and the circumstances, the AO’s conclusion that the lease is sham and the circumstances, the AO’s conclusion that the lease is sham and the expenditure is fictitious is wholly unsustainable in law. expenditure is fictitious is wholly unsustainable in law. expenditure is fictitious is wholly unsustainable in law.

5.13 It is equally significant to note that the AO has not It is equally significant to note that the AO has not It is equally significant to note that the AO has not demonstrated that the arrangement has resu demonstrated that the arrangement has resulted in tax evasion or lted in tax evasion or loss of revenue. Both entities have declared losses in several years. loss of revenue. Both entities have declared losses in several years. loss of revenue. Both entities have declared losses in several years. There is not a whisper of evidence that the lease has been employed There is not a whisper of evidence that the lease has been employed There is not a whisper of evidence that the lease has been employed as a device to inflate deductions or to suppress taxable income. as a device to inflate deductions or to suppress taxable income. as a device to inflate deductions or to suppress taxable income. Suspicion, however strong, can Suspicion, however strong, cannot take the place of proof. not take the place of proof.

5.14 In these circumstances, the disallowance of lease rent cannot In these circumstances, the disallowance of lease rent cannot In these circumstances, the disallowance of lease rent cannot be sustained. Section 37(1) of the Act permits deduction of any be sustained. Section 37(1) of the Act permits deduction of any be sustained. Section 37(1) of the Act permits deduction of any expenditure laid out wholly and exclusively for the purpose of expenditure laid out wholly and exclusively for the purpose of expenditure laid out wholly and exclusively for the purpose of business. Lease rent for premise business. Lease rent for premises used in the course of s used in the course of manufacturing activity is a quintessential business outlay. The AO manufacturing activity is a quintessential business outlay. The AO manufacturing activity is a quintessential business outlay. The AO has neither shown the expenditure to be capital nor established any has neither shown the expenditure to be capital nor established any has neither shown the expenditure to be capital nor established any colourable purpose. Suspicion, however strong, cannot supplant colourable purpose. Suspicion, however strong, cannot supplant colourable purpose. Suspicion, however strong, cannot supplant proof, nor can unfounded conjectur proof, nor can unfounded conjectures displace the legal effect of es displace the legal effect of documented commercial transactions. documented commercial transactions.

Jarandeshwar Sugar Mills Pvt. Ltd. Jarandeshwar Sugar Mills Pvt. Ltd. 29 6925, 6929, 6927, 6925, 6929, 6927, 6928/MUM/2024 & 6928/MUM/2024 & ITA No. 228, 231/MUM/2025 5.15 In view of the complete failure of the Revenue to substantiate In view of the complete failure of the Revenue to substantiate In view of the complete failure of the Revenue to substantiate the allegations made in the assessment order, and in the absence of the allegations made in the assessment order, and in the absence of the allegations made in the assessment order, and in the absence of any infirmity in the well any infirmity in the well-reasoned order of the lear reasoned order of the learned CIT(A), we uphold the deletion of the disallowance of uphold the deletion of the disallowance of ₹5,69,95,061/ 5,69,95,061/-.

5.16 The grounds raised by the Revenue are accordingly dismissed. The grounds raised by the Revenue are accordingly dismissed. The grounds raised by the Revenue are accordingly dismissed.

In the result, all the appeals of the Revenue are dismissed. 7. In the result, all the appeals of the Revenue are dismissed. In the result, all the appeals of the Revenue are dismissed.