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

ITA 228/MUM/2025Status: DisposedITAT Mumbai24 November 2025AY 2021-2230 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the deletion of the disallowance of lease rent expenditure. Regarding the survey findings, the Tribunal noted that while a survey was conducted, the AO's inferences were based on conjecture and suspicion, not legally admissible evidence. The lease rent expenditure was found to be a legitimate business outlay under Section 37(1), as the assessee was in continuous occupation and its business operations were undisputed. The conversion of outstanding rent of Rs. 26 crores into an unsecured loan was deemed acceptable as it was by mutual agreement, and interest was paid. The Power of Attorney granted by GCSPL to the assessee's directors was considered innocuous, facilitating operational finance, and the subsequent loans were used for business expansion, as evidenced by increased turnover and fixed assets. The Tribunal found no evidence of collusion, pre-determined arrangement, or indirect benefit to third parties. It was noted that no shareholding, managerial, financial, or proximate nexus was established between the assessee and GCSPL. The AO failed to demonstrate tax evasion or loss of revenue. The Tribunal dismissed the grounds raised by the Revenue, upholding the Ld. CIT(A)'s order.

What were the facts?

The Revenue appealed against the orders of the Ld. CIT(A) for Assessment Years 2016-17 to 2022-23. The appeals were consolidated, with AY 2016-17 treated as the lead matter. The assessee, Jarandeshwar Sugar Mills Pvt. Ltd., is engaged in sugar manufacturing. A survey under Section 133A was conducted, leading to reassessment proceedings. The Assessing Officer (AO) disallowed lease rent expenditure of Rs. 5,69,95,061/-. The AO's reasoning was based on a survey at the assessee's factory, which was leased from M/s. Guru Commodity Services Pvt. Ltd. (GCSPL). GCSPL had acquired the assets of Jarandeshwar Sahakari Sakhar Karkhana (JSSK) in a public auction. The AO alleged that part of the purchase funds flowed from the assessee, nominal rent was charged initially, rent was unpaid or converted to unsecured loans, and a Power of Attorney was executed by GCSPL in favour of the assessee's directors, enabling the assessee to obtain loans. The AO considered GCSPL a front and the rent expenditure a sham.

What were the issues?

1. Whether the Ld. CIT(A) erred in not considering the findings of the survey action conducted on the assessee? 2. Whether the Ld. CIT(A) erred in deleting the disallowance of lease rent expenditure of Rs. 5,69,95,061/- made under Section 37(1) based on survey findings? 3. Whether the Ld. CIT(A) erred in not appreciating that outstanding lease rent of Rs. 26 crores, converted to unsecured loans, was an accommodation entry, based on the statement of the assessee's General Manager and Director under Section 131? 4. Whether the Ld. CIT(A) erred in not appreciating that the Power of Attorney executed by GCSPL directors in favour of the assessee's directors to mortgage JSSK property was against business prudence, leading to the assessee availing loans of Rs. 700 crores? 5. Whether the Ld. CIT(A) erred in not appreciating that the assessee, GCSPL, and JSSK were acting in connivance, making the lease rent expenses accommodation entries? Assessee's Contentions (as inferred from the Tribunal's findings): The lease arrangement was genuine and supported by audited financials. Rent paid or provided for was duly reflected. The conversion of trade liability into an unsecured loan was by mutual agreement and not prohibited. The Power of Attorney was for facilitating operational finance and did not imply control. Allegations of collusion and stage-managed auction were conjecture without factual basis. There was no demonstrable nexus between the assessee and GCSPL. The arrangement did not result in tax evasion. Revenue's Contentions: The Ld. CIT(A) failed to consider survey findings. The lease rent expenditure was a sham and accommodation entry. The conversion of rent to unsecured loans was suspicious. The Power of Attorney was imprudent and facilitated large loans. The entities acted in connivance.

Which sections of the Income-tax Act were involved?

Section 37(1),Section 133A,Section 131,Section 132,Section 148A,Section 148

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI

Before: SHRI OM PRAKASH KANT & MS. KAVITHA RAJAGOPAL

For Appellant: Mr. Gaurav Bansal, CA (Virtually appeared), Ms. Kavita Kaushik, Sr. DR
For Respondent: Mr. Gaurav Bansal, CA (Virtually appeared), Ms. Kavita Kaushik, Sr. DR
Pronounced: 26/09/2025

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 factual substratum and identical questions of law, the appeals were heard together and are being disposed of by this consolidated order, for the sake of convenience and to avoid repetit

The order continues below.

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