WSFX GLOBAL PAY LIMITED,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 13(3)(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G” MUMBAI

BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI PAWAN SINGH (JUDICIAL MEMBER)

ITA 7145/MUM/2025 Assessment Year: (2016-17) WSFX GLOBAL PAY LIMITED ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 13(3)(1) UNIT NO. 603, 6TH FLOOR, WING-C, CORPORATE AVENUE, CS NO. 432, AAYAKAR BHAVAN, MAHARISHI NEW AK LINK ROAD, CHAKALA, Vs. KARVE ROAD, MUMBAI ANDHERI(EAST), MUMBAI-400093, MUMBAI-400020, MAHARASHTRA. MAHARASHTRA. Appellant Respondent

PAN No. AAACW1258P

Shri Rakesh Gupta, Adv. a/w Appellant represented by: Ms. Harshita Srinivasan, Adv. (Virtually). Shri Rajgopal Parthasarathi - Respondent represented by: SR DR.

Date of conclusion of hearing: 27.07.2026 Date of pronouncement: 31.08.2026

ORDER PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against order dated 11th September 2023 passed by the learned National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as Ld. CIT(A)) for Assessment Year 2016-17.

“1. That on the facts and circumstances of the case and in law, the impugned order is based upon conjectures, surmises and assuming incorrect facts and therefore, is bad in law. 2. That on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in passing the impugned order in gross violation of predice at the impugned order has o been passed in complete ignorance of the Appellant's request for time to file a rejoinder to the remand report of the Ld. AO. 3. That on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in upholding the action of the Ld. AO in working out the disallowance of Rs. 28,48,103 u/s 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 and making an addition of Rs. 26,74,674 inter alia because - 3.1. The CIT(A) failed to appreciate that the amount of disallowance u/s 14A cannot exceed the amount of exempt income earned as per settled judicial precedents 3.2. The CIT(A) failed to appreciate the fact no nexus was established by the L.d. AO between borrowings and exempt investments

3.3. The CIT(A) failed to consider the workings for suo moto disallowance of Rs. 1,73,429 made by the Appellant. 4. That on the facts and circumstance of the case and in law, the Hon'ble CIT(A) has erred in upholding the addition of Rs. 3,35,00,000 as made by the Ld. AO u/s 68 of the Act on account of unexplained credits, inter alia because - 4.1. The identity and genuineness of the transaction had been proven by the Appellant before the AO as well as the CIT(A). 4.2. The Appellant was never asked to file an affidavit to prove the genuineness of its claim 4.3. The confirmation regarding the loan availment and repayment as filed by the Appellant as well as details available as a part of tax audit report have either been ignored or or not not appreciated appreciated 4.4. The CIT(A) failed to consider the additional evidences as filed by the Ld. AO further supporting the genuineness of the transaction.” 5. Ground Nos. 1 and 2 of the appeal are general in nature and therefore call for no specific adjudication on that basis, and same are dismissed as infructuous.

Disallowance under section 14A

6.1 Before us, the learned senior counsel pressed alternative ground and submitted that as per various settled judicial precedents, the disallowance under Section 14A cannot exceed the amount of exempt income. He submitted that assessee has already made suo-motu disallowance which is more than the exempt income and therefore no further disallowance is called for.

6.2 We have heard rival submissions of the parties and perused the relevant material on record. We find merit in the arguments of the learned senior counsel for the assessee. The Hon’ble Bombay High Court in the case of Principal CIT vs. HSBC Invest Direct (India) Ltd. [2020] 421 ITR 125 (Bom.) order dated 4th February, 2019 upheld the decision of the Tribunal and held as the disallowance of expenditure incurred to earn the exempt income could not exceed the exempt income earned. In view of the settled judicial principles, the disallowance under Section 14A cannot exceed the exempted income. Since the assessee has already disallowed suo-motu disallowance more than the exempted income, in our opinion, no further disallowance is called for. However, we restore the matter to the file of the Assessing Officer for verification and restrict the disallowance to the exempted income or the suo motu disallowance, whichever is higher. The Ground No. 3 of the appeal of the assessee is accordingly allowed for statistical purposes.

Addition under section 68

7.1 Before the learned CIT(A), the assessee furnished further documentary material. The learned CIT(A) called for a remand report from the Assessing Officer and thereafter afforded opportunity to the assessee to respond thereto. The assessee did not furnish a rejoinder despite such opportunity and the learned CIT(A), relying principally upon the deficiencies noted by the Assessing Officer and the assessee's failure to substantiate the transaction, sustained the addition.

7.2 Before us, the learned counsel has placed reliance upon substantial documentary material, including the loan agreement dated 11.12.2015, confirmation of the lender, the lender's ledger account, the lender's bank statement evidencing payment of Rs.3,35,00,000/- to the assessee, records relating to payment of interest after deduction of tax at source, and material evidencing repayment of the loan through banking channels on 04.12.2017. It was submitted that the assessee had also placed these materials before the learned CIT(A), but the same were not examined in their proper perspective. The assessee has further relied upon judicial decisions concerning the evidentiary significance of subsequent repayment of a loan through banking channels.

7.3 We have considered the rival submissions and perused the material available on record. The question under section 68 is whether the assessee has satisfactorily established the identity of the creditor, its creditworthiness and the genuineness of the transaction. The mere filing of a confirmation, by itself, may not discharge that burden. Equally, the mere fact that the lender did not respond to a notice under section 133(6) cannot, in isolation, conclude the matter where the assessee places other contemporaneous material capable of establishing the transaction.

7.4 In the present case, the material now relied upon by the assessee is not confined to a self-serving confirmation. The loan agreement, lender's ledger, banking records evidencing the advance, records relating to payment of interest with deduction of tax at source and evidence of subsequent repayment are circumstances which require examination in their entirety. At the same time, we make it clear that we are not holding that these documents, merely because they have been produced, conclusively establish the genuineness of the loan. Their evidentiary value, their inter se consistency and their correlation with the books and bank accounts of both parties require factual verification.

7.5 We are also conscious that the assessee did not furnish a rejoinder to the remand report before the learned CIT(A), despite opportunity. Nevertheless, considering the nature of the documentary material placed before us and the fact that the determination of the issue under section 68 requires examination of the transaction as a whole, we consider it appropriate, in the interest of substantial justice, that the matter be examined afresh rather than the addition being sustained solely on the basis of the deficiencies noticed at the earlier stage.

7.6 Accordingly, we set aside the findings of the learned CIT(A) on Ground No. 4 and restore the issue to the file of the Assessing Officer for fresh adjudication. The Assessing Officer shall examine the documentary material furnished by the assessee and verify, inter alia, the identity and financial capacity of M/s Avon Mercantile Ltd., the movement of funds through the respective bank accounts, the terms and accounting of the loan, payment and treatment of interest and TDS, and the subsequent repayment of the loan. The Assessing Officer shall thereafter determine, in accordance with law, whether the assessee has satisfactorily discharged the onus cast upon it under section 68. Needless to say, the assessee shall be afforded adequate opportunity of being heard.

7.7 We clarify that no opinion is expressed by us on the ultimate genuineness or taxability of the impugned credit. All contentions of both parties are left open for consideration by the Assessing Officer in the fresh proceedings. The ground no. 4 of the appeal is allowed for statistical purposes.

Order pronounced in the open Court on 31/08/2026.

Sd/- Sd/- (PAWAN SINGH) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated:31/08/2026 M. Ranganath Vittal , Sr. P.S.

Copy of the Order forwarded to :

BY ORDER, //True Copy// (Assistant Registrar) ITAT, Mumbai