GOAN HOTELS & REALTY PRIVATE LIMITED,MUMBAI vs. DCIT CC-8(1), MUMBAI, MUMBAI

The grounds of appeal are as under:- IT(SS)A /1311/MUM/2025 (A.Y. 2013-14)

On the facts and the circumstances of the appellant company's case and in law, the Learned Commissioner of Income Tax (Appeal) erred in upholding the addition of Rs 2,38,90,730/-on account of penal interest

On the facts and in the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in upholding the disallowance of Rs 2,38,90,730/- made by the Assessing Officer in the impugned Assessment Order on account of interest on term loan in absence of any incriminating material found during the course of search & seizure / survey action when the assessment for the year under consideration had attained finality.

On the facts and in the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in upholding the disallowance of Rs 40,00,223/- made by the then Assessing Officer in the assessment order passed u/s 143(3) of the Act which is also pending for adjudication. ADDITIONAL GROUNDS OF APPEAL

1 The assessee has raised following additional grounds of appeal with a request to admit the same, being legal in nature and not requiring any further investigation of facts. Reliance has been placed on the case of NTPC Ltd. i)In the facts and the circumstances of the case, the ld.CIT(A) erred in not quashing the assessment order u/s 143(3)/153C of the Act in absence of satisfaction recorded by the AO of the searched party and the in absence of a finding that the document seized pertained to the assessee and /or any information contained therein related to it and not the person searched. The notice u/s 153Cans the consequent order are bad in law. ii) On the facts and the circumstances of the case the ld.CIT(A) erred in not quashing the assessment order when the satisfaction recorded by the AO of the appellate as incorporated in the appellate order does not reveal compliance with requirement of section 153C as the satisfaction does not reveal application of mind by the AO and has been arrived at in a mechanical manner and does not show as to how documents seized have bearing on the P a g e | 4 determination of total income of the appellate for the relevant year. The notice and the consequent assessment order are bad in law and illegal or otherwise void for want of jurisdiction and it is prayed to be quashed.

2 In the case of Jute Corporation of India Ltd. vs CIT [1991] 187 ITR 688 (SC), it was held that the appellate authority has discretion to permit the raising of additional grounds. It was observed that there appeared to be no good reason to justify curtailment of the power of the AAC in entertaining an additional ground raised by the assessee in seeking modification of the assessment order passed by the ITO. In the case of NTPC Ltd vs CIT(1998) 229 ITR 383(SC), it was held that the purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee, in accordance with law. If a valid claim is made for the first time as long as the relevant facts are on record in respect of that item, there is no reason to restrict the powers of the tribunal. Accordingly, we admit the above additional grounds of appeal.

Facts of the case culled from the assessment orders reveal thatthe assessee filed original return of income u/s 139 of the Act on declaring total income at Rs. NIL and current year loss of Rs. 21,09,30,736/-. Thereafter the assessee filed revised return on 12.03.2018 declaring total income at Rs. NIL and current year loss of Rs.

In the subsequent appeal, the assessee contested the action of the AO inter alia on the ground that the Assessing Officer erred in issuing notice u/s. 153C of the Act despite the fact that no satisfaction was recorded by the AO of the searched party and/or the AO of the assessee and therefore, the said notice and the consequent order passed were bad-in-law, illegal or otherwise void for want of jurisdiction. The ld.CIT(A) observed that consequent to the search, in the case of one of the key person of the group namely Shri Vivek Bhatnagar, incriminating documents bearing identification mark VB/01 was found. Further during the course of search operation in the case one of the main concerns of the group namely M/s Viarra Entertainment Pvt Ltd, incriminating documents were found. In the impugned order the AO has simply stated the documents seized during the search were having certain bearing in determination of total income of the assessee. It was submitted before him that the AO had not provided any satisfaction note, which goes to prove that the AO has not independently examined

On merits of the addition, the assessee stated before the ld.CIT(A) that the AO erred in making addition/disallowance of Rs. 65,96,95,068/- on account of interest which was disallowed in the assessment order passed u/s 143(3) of the Act and pending in appeal before ld. CIT(A) and that the AO also erred in making disallowance of Rs. 6,63,28,732/- u/s 14A of the Act which was made in assessment order passed u/s 143(3) of the Act and pending in appeal before Ld. CIT(A).He observed that both the grounds mentioned by the assessee were dismissed in the Appeal proceedings against order u/s 143(3) of the Act disposed on 19.12.2024. 5.1 In the appeal, the assessee claimed that the AO erred in making addition/disallowance of Rs. 10,45,726/- on account of provision for doubtful debts despite the fact that the assessment for the year under consideration has attained finality as on the date of search and no incriminating material relating to provision for doubtful debts was found during the course of search and that the Assessing Officer erred in making disallowance of deduction claimed in respect of gratuity which was disallowed by assessee in previous years and claimed as deduction in the assessment year under consideration on payment basis despite the fact that the assessment for the year under consideration had P a g e | 12 attained finality as on the date of search and no incriminating material relating to gratuity was found during the course of search.

We take up ground no.1 and also the ground no.(ii) of the Additional grounds of appeal as the same challenge the very validity of the notice u/s 153C of the Act and the consequential assessment order passed.

Before the ld.CIT(A),it was also submitted that notice u/s 153C dated 17.02.2021 was issued on the appellant consequent to a search action carried out in the case of Sarju Sharma Group on 10.08.2018. During the assessment proceedings the AO vide notice u/s 142(1) dated 27.02.2021 the AO listed various IDs marks of books which were seized from the various premises of different assessee belonging to Sarju Sharman Group. Further, the AO listed down various cash/ jewellery/ other precious item which was found from different assessee‟s belonging to Sanju Sharma group and motor vehicles found at various residence cum office during the search operations. It was contended that the name of the assessee had not appeared in any of the seized materials listed by the AO. Further, the AO had not raised any contentions during the assessment proceedings that any incriminating material found during the course of search action belongs to the assessee company as P a g e | 13 none of the notices issued during the assessment proceedings made any reference to any incriminating material found during the assessment proceedings belonging to the appellant company. Further, the AO in the impugned order stated that certain documents were found and seized during the search action on Sarju Sharma Group which has a bearing on the determination of the total income in the case of the assessee. However, in the impugned order while making additions with regard to disallowance of provision for doubtful debts and disallowance u/s 43B in respect of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, the AO failed to prove that any incriminating material was found during the course of search and seizure warranting the alleged additions made by the AO. From perusal of para 8 and 9 of the impugned order, it could be interpreted that the additions made by the AO are on the basis of his findings as per the profit and loss account and the return of income. Nowhere in the assessment order or assessment proceedings the AO had proved that the said additions are on the basis of incriminating material found during the course of search.

1 It was further submitted that during the course of search and seizure on the third party, no material or evidence that could be called

The ld.CIT(A) however, dismissed the contentions of the asseessee stating that as per the decision in the case of SSP Aviation Ltd Vs DCIT SSP Aviation Ltd [2012] 20 taxmann.com 214 (Delhi)/[2012] 207 Taxman 260 (Delhi)/[2012] 346 ITR 177 (Delhi)/[2012] 252 CTR 291 (Delhi) in view of provisions of section 153C, satisfaction that is required to be reached by Assessing Officer having jurisdiction over searched person is that valuable article or books of account or documents seized during search belong to a person other than searched person and, it is not necessary that documents so seized must reflect any undisclosed income. It was concluded that the AO had rightly made those additions since the incriminating materials in respect to the assessee were already mentioned in the Satisfaction note recorded by the AO.

Before us, the ld.AR has reiterated the same contentions as made before the ld.CIT(A) claiming that the additions made by the AO have no nexus with any no incriminating material found during search and seizure operation. Rather, they were routine additions made on the basis of return, profit and loss account Balance Sheet and the Tax Audit

The ld.CIT(DR) on the other hand placed reliance on the orders of the lower authorities.

We have carefully considered all facts of the case, perused the records and have also gone through the provisions of law and the citations relied upon by both the sides. It is seen that a search and seizure action u/s 132 of the Act was conducted in Sarju Sharma group. During the search operation, certain documents/papers were seized and on the basis of such papers the AO reopened the assessment made earlier u/s 143(3) of the Act by resorting to section 153C of the Act in the impugned assessment year as also from AYs 2013-14 to 2018-19.On perusal of the assessment order, we find that notices u/s 153C of the Act have been issued in case of „Unabated assessment years‟ only. This fact has been affirmed by the ld.AR before us and also not controverted by the ld.CIT(DR). Moreover, the AO himself has admitted in no uncertain terms that the impugned sums on which additions were made, were already recorded in the regular books of account. It is apparent that no P a g e | 18 incriminating materials found during the search operation have been made the basis of the impugned additions.

1 It may be stated that various courts of law have considered the issue of incriminating materials found during search and seizure operation on the basis of which proceedings u/s 153A/153C of the Act could be taken or not. The Hon‟ble ITAT, Special Bench, Mumbai in the case of All Cargo Global Logistics Ltd. v. DCIT 137 ITD 287 (Mum) (SB) held that in respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search and undisclosed income or undisclosed property discovered in the course of search. It has thus been held that in case of completed assessments, the assessment u/s. 153A has to be made on the basis of incriminating material only, i.e., undisclosed income/ property/ books of accounts/documents. In other words, where nothing incriminating is found in the course of search relating to any of the assessment years covered u/s.153A of the Act, the assessment for such assessment years cannot be disturbed. It has also been held that in the absence of any incriminating materials, the completed assessment has P a g e | 19 only to be reiterated. Similar view has been taken in the case of Murli Agro Products Ltd.[2014] 49 taxmann.com 172 (Bom).

2 The Hon‟ble jurisdictional High Court in the case of Commissioner of Income-tax-II, Thane v. Continental Warehousing Corporation (Nhava Sheva) Ltd. [2015] 58 taxmann.com 78 (Bom) held that no addition can be made in respect of assessments which have become final, if no incriminating material is found during the search. It has been held that once the original assessment has attained finality, then the Assessing Officer while passing the independent assessment order u/s.153A r.w.s.143(3) cannot disturb the assessment/reassessment order which has attained finality, unless the materials gathered in the course of the proceedings u/s.153A establish that the reliefs granted under the finalized assessment/reassessment were contrary to the facts unearthed during the course of 153A proceedings. Relevant extracts of the order are reproduced as under for the sake of brevity: “A bare perusal of section 153A would indicate as to how a non-obstante clause has been inserted and with a defined intent. Where search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after 31-5- 2003, that the Assessing Officer is in a position to and mandated to issue notice within the meaning of sub- section (1) of section 153A. That is because, Chapter XIII within which the powers of search and seizure and powers to requisition books of account are spelt out enable the revenue to take care of cases where it effects a search and seizure. That search and seizure is effected and after the same at search and is P a g e | 20 effected, books of account, other documents, money, bullion, jewellery or other valuable article or thing is found as a result thereof that notwithstanding anything and within the meaning of the above provisions having been concluded, it is open for the revenue to make an assessment. It is also open to the revenue to make a reassessment in cases where it exercises the powers to requisition books of account etc. This is because it is of the view that the books of account are required to be summoned or taken into custody. It, therefore, issues a summons in that regard. It may also requisition the books of account or other documents for that might be useful and or any assets representing withholding or part income or property which has not been or would not have been disclosed for the purpose of the Indian Income-tax Act, 1922 or the Income-tax Act 1961 by any person from whose possession or control they have been taken into custody. This is when the authorities have reason to believe that such powers need to be exercised. Therefore, the fetters and which are to be found in other provisions are removed and a notice of assessment in such cases is then issued. That is mandated by sub-section (1) of section 153A. It is not only the issuance of the notice but assessment or reassessment of total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition has to be made. [Para 22] There is much substance in the contentions of the assessee that the provisions such as section 153A enabling assessment in case of search or requisition making specific reference to the provisions which enable carrying out of search or exercise of power of requisition that the assessment in furtherance thereof is contemplated.[Para 23] Assessee‟s reliance upon the Division Bench judgment of this Court rendered in CIT v. Murli Agro Products Ltd. [2014] 49 taxmann.com 172 in that context is, therefore, well placed.[Para 24] The Division Bench outlined the ambit and scope of the powers conferred by section 153A and observed that on a plain reading of section 153A, it becomes clear that on initiation of the proceedings under section 153A, it is only the assessment/reassessment proceedings that are pending on the date of conducting search under section 132 or making requisition under section 132A stand abated and not the assessments/reassessments already finalised for those assessment years covered under section 153A. By a Circular No. 8 of 2003, dated 18-9- 2003 (See 263 ITR (St) 61 at 107) the CBDT has clarified that on initiation of proceedings under section 153A, the proceedings pending in appeal, revision or rectification proceedings against finalised assessment/reassessment shall not abate. It is only because, the finalised assessments/reassessments do not abate, the appeal revision or rectification pending against finalised assessment/reassessments would not abate. Therefore, the argument of the revenue, that on initiation of proceedings under section 153A, the assessments/reassessments finalised for the assessment years covered

3 The hon‟ble Bombay High Court in yet another case of Gurinder Singh Bawa (2017)(79 taxmann.com 398)(Bom), held that the unabated assessments (finalized assessments) cannot be touched by resorting to the provisions of sec.153A of the Act unless some incriminating materials relating to the said assessments, which are contrary to and/or not disclosed during regular assessment proceedings, are found. Relevant parts are extracted below:

On further appeal before the Tribunal, the assessee interalia challenged the validity of the assessment made under Section 153A of the Act. This on account of the fact that no assessment in respect of the six assessment years were pending so as to have abated. The impugned order accepted the aforesaid submission of the respondent-assessee by interalia placing reliance upon the decision of the Special Bench of the Tribunal in Al-Cargo Global Logistics Ltd. rendered on 6 July 2012. The Tribunal in the impugned order further held that no incriminating material was found during the course of the P a g e | 23 search. Thus the entire proceedings under Section 153A of the Act were without jurisdiction and therefore the addition made had to be deleted on the aforesaid ground. The impugned order also thereafter considered the issues on merits and on it also held in favour of the respondent-assessee.

Mr. Kotangale, the learned Counsel for the revenue very fairly states that the decision of the Special Bench of the Tribunal in Al-Cargo Global Logistics Ltd. was a subject matter of challenge before this Court as a part of the group of appeals disposed of as CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd. [2015] 374 ITR 645/58 taxmann.com 78/232 Taxman 270 (Bom.) upholding the view of the Special Bench of the Tribunal in Al- Cargo Global Logistics Ltd. Consequently, once an assessment has attained finality for a particular year i.e. it is not pending then the same cannot be subject to tax in proceedings under Section 153A of the Act. This of course would not apply if incriminating materials are gathered in the course of search or during proceedings under Section 153A of the Act which are contrary to and/or not disclosed during regular assessment proceedings.

In view of the above, on issue of jurisdiction itself the issue stands concluded against the revenue by the decision of this Court in Continental Warehousing Corpn. (Nhava Sheva) Ltd. (supra). In the appeal before us, the revenue has made no grievance with regard to the impugned order of the Tribunal holding that in law the proceedings under Section 153A of the Act are without jurisdiction. This in view of the fact that no assessments were pending, so as to abate nor any incriminating evidence was found. The grievance of the revenue is only with regard to finding in the impugned order on the merits of the individual claim regarding gifts and deemed dividend. However once it is not disputed by the revenue that the decision of this Court in Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra) would apply to the present facts and also that there are no assessments pending on the time of the initiation of proceedings under Section 153A of the Act. The occasion to consider the issues raised on merits in the proposed questions becomes academic.

In the above view, the questions as framed in the present facts being academic in nature, do not give rise to any substantial question of law. Thus not be entertained."

4 Similar decision has been rendered by Hon’ble Delhi 573(Delhi). The Hon‟ble Court has summarized the legal position with regard to the provisions of sec.153A of the Act as under:-

On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the „total income‟ of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word „assess‟ in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word „reassess‟ to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment."

6 We may add here that the coordinate benches of various tribunals including Mumbai ITAT have taken similar stand. Reference

2 Considering all the facts and the circumstances of the case, rival submissions and the ratio of judicial decisions discussed, we are of the view that the order passed by the ld.CIT(A) is not in consonance with the provisions of law and the ratio laid down by the courts of law. Accordingly, he was not justified in upholding the additions which are not based on any incriminating materials unearthed during search and seizure operation. Thus, the notice u/s 153C of the Act as also the consequential assessment order are hereby quashed being ab initio invalid, thus allowing the ground no.1 and the additional ground no.ii) of the appeal. Other grounds pertaining to the matter involving merits of the additions do not require any adjudication and is left open.

In the result, the appeal of the assessee is allowed.

IT(SS)A /1313/MUM/2025 (A.Y. 2014-15) IT(SS)A /1314/MUM/2025 (A.Y. 2015-16) IT(SS)A /1316/MUM/2025(AYs 2016-17) IT(SS)A /1317/MUM/2025(AYs 2017-18) IT(SS)A /1318/MUM/2025(AYs 2018-19)

We have gone though the grounds of appeal for above assessment years and the orders passed by the lower authorities. It is quite evident that the additions/disallowances made therein mainly pertain to penal interest, 14A, Section 36(1)(iii) and 43B of the Act which are routine additions made based on the disclosed and regular books of account as in the appeal for AY 2013-14 (supra).Evidently, no incriminating materials have been referred by the AO which making the impugned additions. Accordingly, the assumption of jurisdiction as contented in the ground no.1 and additional ground no.(ii) in all these appeal have been incorrectly assumed by the ld.AO u/s 153C of the Act. The ld.CIT(A) was not justified in dismissing such grounds. We find that there is no dispute with regard to the facts that the assessments relating to AY 2014-15, 2015-16, 2016-17, 2017-18 and 2018-19 fall under the category of "unabated assessments". Therefore, applying the decision in AY 2013-14(supra), which applies mutatis mutandis to above captioned appeals. Thus, the notice u/s 153C of the Act as also the consequential

In the result, the appeals filed by the assessee for A.Y.2014- 15, 2015-16, 2016-17, 2017-18 and 2018-19 are allowed.

IT(SS)A/5553/MUM/2024(A.Y. 2019-20) Goan Hotels and Realty v/s. Assistant Commissioner of Private Limited बनाम Income Tax, Central Circle – 7th Floor, Resham Bhavan, 8(1), Aayakar Bhawan, Veer Nariman Road, Maharishi Karve Road Churchgate, Marine Lines Churchgate, Mumbai – S.O. Mumbai – 400 020, 400020, Maharashtra Maharashtra स्थायी लेखा सं./जीआइआर सं./ PAN/GIR No: AACCG4949F Appellant/अपीलाथी .. Respondent/प्रतिवादी

On the facts and the circumstances of the appellant's case and in law, the Learned Commissioner of Income Tax (Appeal) erred in upholding the addition of Rs 21,54,78,150/- on account of penal interest despite the fact that the said interest is compensatory in nature and allowable expenditure as per Income Tax Act, 1961. 4. On the facts and circumstances of the appellant's case and in law, the Learned Commissioner of Income Tax (Appeal) erred in upholding the addition of Rs 21,54,78,150/- on account of penal interest without rejecting or passing any adverse comment on the decision of the Hon'ble Supreme Court and the Hon'ble Income Tax Appellate Tribunal on which the appellant company has placed reliance.

On the facts and the circumstances of the appellant's case and in law, the Learned Commissioner of Income Tax (Appeal) erred in upholding the disallowance of Rs. 1,11,11,997/- on account of 'Allowances for credit losses' despite the fact that no show cause notice was issued to the appellant before making the said disallowance, thus, depriving the assessee of proper opportunity of being heard.

On the facts and the circumstances of the appellant's case and in law, the Learned Commissioner of Income Tax (Appeal) erred in upholding the disallowance of Rs. 1,11,11,997/-without verifying the computation of income as well as the return of income, wherein the appellant has suo- moto added back the 'Allowances for credit losses' as can be perused from serial number 23 of return of income 'Any other item or items of addition under section 28 to 44DA' breakup of which is as under: Particulars Amount Allowances for credit losses 1,11,11,997 Unwinding of discount in financial liabilities (1,08,64,562) Re-measurement gains of defined benefit plans 8,11,223 Net 10,58,656

On the facts and in the circumstances of the appellant's case and in law, the Learned Commissioner of Income Tax (Appeal) erred in failing to make any comment on Ground Number 1(ii) and 2(ii) which was part of the Altered Grounds of Appeal filed before the Learned Commissioner of Income Tax (Appeal), which is against the principles of natural justice.

On the facts and the circumstances of the appellant's case and in law, the Learned Commissioner of Income Tax (Appeal) erred in passing the impugned appellate order u/s 250 of the Act, dated 27.08.2024, without granting an opportunity of hearing through video conferencing before deciding on the matter even after requesting for the same, thereby depriving the appellant company of proper opportunity of being heard.

In ground no.1,it is claimed that the ld.CIT(A) erred in not quashing the assessment order passed by the Assessing Officer u/s 143(3) of the Act. However, no arguments were put forth in this regard to support the ground as we find no merit in the ground which lacks any substance and is therefore, dismissed.

In this ground nos.2 to 4, the assessee claimed that the AO erred in making disallowance of Rs. 21,54,78,150/- on account of penal interest despite the fact that the said interest is compensatory in nature and allowable expenditure as per the Act and that the Ld. Assessing Officer issued show cause notice for making disallowance on account of penal interest u/s 43B and finally made disallowance by holding the same as penal in nature thus, deprived assessee proper opportunity of being heard. It was seen that during the year under consideration the assessee had paid penal interest on Term Loan from Yes Bank amounting to Rs. 21,54,78,150/-. The assessee claimed the said expenses under the head 'Finance Cost of P&L A/c. The AO held that since the said expense was penal in nature, it was not allowable as per the provisions of the Act. Therefore, the same was disallowed back to the total income of the assessee for the year under consideration.

Before the ld.CIT(A),the assessee claimed that the AO made the addition without issuing any show cause notice and without seeking any reason from the assesse. It is submitted that the interest paid by the assessee is compensatory in nature and thus and allowable expense. "Penal Interest" is the nomenclature of the entry but actually it is of compensatory in nature as it has been paid in order to compensate the bank for delay in making repayment of loan and interest. It is submitted that there is nothing adverse in the assessment order stating that amounts borrowed was not used for business purpose. The said expenditure is wholly and exclusively incurred for the purpose of business and hence, the same is allowable and the disallowance made by the Assessing Officer is liable to be deleted. It was submitted that various judicial authorities have held that expenses incurred on account of irregularities committed by the assessee and those which were not on account of any infraction of law shall be allowable as business expenses.

1 Reliance was placed on the decision of Hon'ble Supreme Court in the matter of Mahalaxmi Sugar Mills Co. Ltd. v. Commissioner of income-tax, [1980] 3 Taxman 52 (SC), which clearly provided that payment of interest is compensatory in nature and cannot be equated with the character of penalty. The Hon'ble ITAT, Kolkata Bench in the P a g e | 34 matter of M/S Narayani Ispat Pvt. Ltd., Kolkata in ITA No.2127/Kol/2014,relying on the decision of the Hon'ble Supreme Court in the case of Lachmandas Mathura 254 ITR 799held that the interest expenses claimed by the assessee on account of delayed deposit of service tax as well as TDS liability were allowable expenses u/s 37(1) of the Act. The Hon'ble ITAT, Mumbai Bench, in the matter of J.P. Morgan India P.Ltd. in I.T.A. No. 2745/Mum/2015, held that the assessee incurred expenses in the regular course of business and that those expenses were compensatory in nature. Further, the hon‟ble Bombay

2 The ld.CIT(A) noted that the assessee had claimed expenses of Rs.21,54,78,150/- on account of penal interest on term loan from Yes Bank. According to him, as per section 37(1) of the Act, no expenditure could be allowable which is an offense or in contravention of any provisions of law i.e., penalty for any offence etc. In the present case, non-repayment of term loans in stipulated time is under RBI's loan

We find that both the lower authorities failed to examine the nature of expenses in proper perspective. Such interest in our considered opinion cannot be treated as penal in nature and is rather compensatory as the interest on bank loan was not deposited in time for which the assessee was liable to compensate the bank by way of additional interest.There appears to be no case of infraction of any law.Reliance could be placed on the decision of the Mumbai Bench in the case of Mangal Keshav Securities Ltd v. ACIT [46 ITR (trib) 458] in support of the above view. On a plain reading of the Explanation to Section 37(1) of the Act, it is clear that any expenditure incurred by the assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and such expenditure is not allowed as deduction. The delay in payment of interest in late payment of term loan cannot be said to be an offence or incurred for the purpose which is prohibited by P a g e | 36 law. In the circumstances, the appellate order is, therefore, set aside with the direction to the AO delete the addition. The ground is therefore, allowed.

In Ground No. 5 and 6, the assessee alleged that the Assessing Officer erred in disallowing Rs. 1.11,11,997/- on account of 'Allowances for credit losses. The assessee claimed that despite the fact that the appellant had suo-moto disallowed the same in computation of total income and had not claimed the same as deduction and that no notice was issued to the appellant before making disallowance of Allowances for credit losses. Aggrieved, the assessee company claimed that the A.O. had erred in making disallowance of Rs. 1,11,11,997/- as being a provision for unascertained liability despite the fact that the appellant had suo-moto disallowed the same in computation of total income as per normal provision of the Act and determination of taxable income as per provision of section 115JB of the Act. The same could be verified from the computation of total income for the year under consideration before the Assessing Officer vide letter dated 02.08.2021. 23. The ld.CIT(A) noted that during the year under consideration, the assessee had claimed expenses of Rs. 1,11,11,997/- under the head "Allowances for credit losses". It was observed that while computing the P a g e | 37 total income under normal provisions for the year under consideration, the assessee company had not disallowed the said amount while computing its total income. However, the assessee disallowed the said sum while determining the book profit as per provision of section 115JB of the Act. The disallowance of provisions under MAT Tax liability is different from disallowance of provisions under regular sections of the Act. The disallowances made u/s 115JB is only to arrive at the book profit. Therefore, if the assessee disallowed certain expenses u/s 115JB, it will not get sanctity for disallowance under normal provisions. Hence, the AO rightly disallowed the said expenses made by the AO in the hands of the appellant company is upheld.

We find that the assesses contentions are contrary to the findings and observation of the authorities below. Accordingly, we deem it fit to set-aside the issue to the file of the AO for factual verification of the records and arrive at a conclusion as per law.The ground is therefore, allowed for statistical purposes.

In the result, the appeal is partly allowed.

To sum up, appeals in ITA Nos. 1311, 1313, 1314, 1316, 1317 and 1318/Mum/2025 are allowed while ITA No.5553/Mum/2024 is partly allowed.