PHULCHAND EXPORTS PVT LTD ,MUMBAI vs. ASST. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 3(3), MUMBAI

IN THE INCOME-TAX APPELLATE TRIBUNAL“C” BENCH,
MUMBAI
BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER
&
SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER
8

Phulchand
Exports
Private
Limited
2nd Floor, West Wing, Electric
Mansion, Appasaheb Marathe
Marg,
Worli,
Prabhadevi
Mumbai
–400
025,
Maharashtra v/s.
बनाम
Assistant
Commissioner of Income Tax, Central Circle –
3(3), Kautilya Bhavan, Bandra
Kurla Complex, Bandra East,
Mumbai
–
400
051,
Maharashtra
स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAACP2529C
Appellant/अपीलार्थी
..
Respondent/प्रतिवादी
Deputy Commissioner of Income
Tax, Central Circle – 3(3),404,
4th
Floor,
Kautilya
Bhavan,
Bandra Kurla Complex, Bandra
East,
Mumbai
–
400
051,
Maharashtra v/s.
बनाम
Phulchand Exports Private
Limited
254B,
Nirlon
House,
Dr.
Annie Besant Road, Worli,
Mumbai–400030,
Maharashtra
स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAACP2529C
Appellant/अपीलार्थी
..
Respondent/प्रतिवादी

Appellant by :
Shri Shankarlal Jain & Shri Satish Kumar
Respondent by :
Shri R.A Dhyani, (CIT-DR)

Date of Hearing
15.07.2025
Date of Pronouncement
04.08.2025

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Phulchand Exports Private Limited, Mumbai

आदेश / O R D E R

PER BENCH :-

The above captioned appeals and cross appeals have been filed by the assessee and the Revenue respectively against the orders of even date passed by the Learned Commissioner of Income-tax (Appeal)
CIT(A) 51, Mumbai [hereinafter referred to as “CIT(A)”] pertaining to the order passed u/s. 153A r.w.s. 143(3)of the Income-tax Act, 1961
[hereinafter referred to as “Act”] for the Assessment Years [A.Y.] 2018-
19&2019-20. Since some of the issues are common and also the fact that appeals were heard together, they are being taken up together for adjudication vide this composite order for the sake of brevity. We take up Department appeals first.
ITA No. 3102/MUM/2025 (A.Y. 2018-19)(Revenue)

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Chettinad Logistics P. Ltd. (95 taxmann.com 250) wherein the Revenue SLP against the decision of the hon’ble Madras High Court (80
taxmann.com 221) has not been admitted. In this case, the hon’ble
Madras High Court held that Rule 8D cannot over-ride the provisions of sec. 14A and once they are not applicable, then there is no question of invoking Rule 8D and computing the disallowance. It was noted by the hon’ble Court that the language used in the provisions of sec. 14A makes it abundantly clear that the same is triggered only when there is an income which does not form part of the total income under the Act. The hon’ble
High Court granted relief to the said assessee on the disallowance made by the AO u/s. 14A on the ground that no exempt/dividend income was earned during the relevant year. The hon’ble Bombay High Court in the case of Nirved Traders Pvt. Ltd. (ITA No. 149 of 2017) approved the claim that the disallowance under section 14A was to be restricted to the tax-exempt income earned during the year.
5.1 He further observed that vide the Finance Act 2022 the following
Explanation was inserted in section 14A w.e.f 01.04.2022:
“Explanation.—For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under this Act, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total income.”

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Phulchand Exports Private Limited, Mumbai exempt income, the disallowance of Rs.77,87,780/- made by the AO was deleted.
6. Before us, the ld.AR has relied on the assessment order and the grounds of appeal while the ld.DR has reiterated the contentions as made before the ld.CIT(A) which has also been narrated in the preceding para.
7. We find that the issue involved is no more res integra that no disallowance can be made by the AO in excess of the exempt income earned. Since the assessee has not earned any exempt income, the disallowance made by the AO was rightly deleted by the ld.CIT(A).The amendment made is also not applicable to the relevant year as held in several judicial decisions. Accordingly, there being no infirmity in the appellate order,we uphold the same dismissing the ground of appeal.
8. Ground No. 2 pertains to the disallowance of Rs.
6,65,38,828/- u/s 36(1)(iii) of the Act. On verification of balance sheet, it was noticed by the AO that the assessee had shown Long Term
Borrowing of Rs.202,06,56,907/- and Short Term Borrowing of Rs.91,86,48,185/- .Further, the assessee had given interest free loans to various parties. During the year under consideration, the assessee had given loans to the tune of Rs. 100,81,83,358/- against the total borrowings amounting to Rs. 293,93,05,092/-. Thus, the interest free

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Phulchand Exports Private Limited, Mumbai loans advances are approximately 34.30% of the total borrowings. The interest debited to profit and loss account was Rs. 19,39,90,754/- During the course of assessment proceedings, assessee was asked to show cause why proportionate disallowance u/s 36(i)(iii) be not made as regards the above investments. In response, the assessee in his reply had submitted that the above loans were made from its own funds and no borrowed funds had been utilized for making investments. On the loans of Rs.
100,81,83,358/-, the assesse submitted that no interest is charged. The AO observed that the loans made above were clearly not for the purpose of business and profession. The assessee had not furnished any details as to why the advances of Rs. 100,81,83,358/- were given and what was business purpose. It merely submitted that it had given advances for business purpose from own funds and no borrowed fund has been utilized for the same. However, no details/evidences like fund flow statement to substantiate the claim had been filed. As regards the interest free loans of Rs. 100,81,83,358/-, no specific submissions had been made and only general explanation was filed. Therefore, proportionate interest amount of Rs.6,65,38,828/- was disallowed as it was difficult to identify which funds had been used where which meant the assessee had mix funds. The assessee was not having separate account for surplus funds or profit earned during the year and it is a case

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Phulchand Exports Private Limited, Mumbai of mixed funds. The AO noted that the theory of disallowance u/s 36(1)(iii) on proportionate basis itself is based on concept of mix funds.
Hon’ble Supreme Court judgment in the case of S. A. Builders Ltd. v. CIT
(Appeals) [2007] 288 ITR 1 (SC), in which the concept of “commercial expediency” was used. Accordingly, he disallowed u/s 36(1)(iii) of the Act.
9. In the subsequent appeal by the assessee, the ld.CIT(A) after taking note of the reasons stated by the AO before making the impugned disallowance and also the written submissions made in this regard by the assessee, observed that the entire addition was repetitive as on the same logic and observations, the AO made similar disallowance in the AY
2014-15.The appellant has made detailed written submission and has also submitted that this is a repeated addition and was already covered in its favour by the decision of ITAT for AY2014-15 wherein the ITAT ruled that no disallowance can be made if the surplus funds of the appellant is in excess of the interest free advances. It has been observed that in the instant year also, the surplus fund of the appellant was in excess of the interest free advances, and hence respectfully following the decision of ITAT in appellant's own case, it is held that no disallowance u/s 36(1)(iii) can be made. The ld.CIT(DR) did not controvert the contentions of the assessee in this regard. The addition of P a g e | 9

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Rs.6,65,38,828/- made by as well which was deleted by the ld.CIT(A) after detailed discussion.
10. During hearing before us, the ld.AR reiterated the same contentions as made before the authorities below. He further submitted that in the year of advance, capital and free reserves were much higher to interest free advances. No borrowed fund was used for advancing loans. It is further argued that now the above issue is finally concluded in Reliance Industries Ltd 307 CTR (SC) 121 has held:- “Insofar as the first question is concerned, the issue raises a pure question of fact.
The High Court has noted the finding of the Tribunal that the interest- free funds available to the assessee were sufficient to meets its investment. Hence, it could be presumed that the investments were made from the interest-free funds available with the assessee. Reliance was also placed on the juri ictional High Court in the case of Reliance
Utilities & Power Ltd. 313 ITR 340 (Bom), South Indian Bank
Ltd. v. CIT (2021) 438 ITR 1 (SC) as well.
11. We have carefully considered all the relevant facts of the case, rival submissions, provisions of the law and legal position emerging from the above cited decisions of various courts of law including those of hon’ble Supreme Court. We find that the Reserves etc. in the form surplus fund far exceeded the borrowings. Therefore, respectfully

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Phulchand Exports Private Limited, Mumbai following the decisions above, we find no infirmity in the action of the ld.CIT(A) which is therefore, upheld.
12. In the result, both the above grounds of the Revenue are dismissed.
13. (A.Y.
2019-
20)(Revenue)

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Phulchand Exports Private Limited, Mumbai take advantage of the ignorance of an assessee as to his rights and all reliefs due to assessee to be allowed.
18.1
It was further submitted before the ld.CIT(A) that the Digital
Electronics Ltd. 135 TTJ 419(MUM) decision being binding STCG arising on sale of depreciable asset u/s 50 is to be setoff against carry forward Business Loss. This decision is now approved in the case of Alcon
Developers(2021) 432 ITR 0277 (Bom) where the High Court held,
“26. In Hickson and Dadajee (P.) Ltd. (supra) the first substantial question of law was whether on the facts and in the circumstances of the case and law, the ITAT was justified in allowing set-off of brought forward business loss against deemed short-term capital gains arising from the sale of building and plant and machinery. The ITAT, in the said case, had allowed the appeal of the respondent-assessee on the issue of set-off of the brought forward losses against deemed short term capital gains arising on the sale of building, plant, and machinery following the decision of its coordinate bench in Digital Electronics Ltd. (supra). In Digital
Electronics Ltd. (supra) the ITAT had held that under Section 72 of the said Act, the loss under the head “profits and gains of business or profession”
can be carried forward and the same can be set off against profits of any business or profession. It was held that it was not the requirement of Section 72 of the said Act that such gain or profit must be taxable under the head “profits and gains of business or profession”.
27. In Hickson and Dadajee (P.) Ltd. (supra) the learned counsel appearing for the Revenue had very fairly stated that the decision of the ITAT in Digital Electronics Ltd. (supra) had been accepted by the Revenue. This Court, also observed that no distinguishing features in the facts before it had been demonstrated by the Revenue, which would warrant taking of a different view from that taken by the ITAT in Digital
Electronics Ltd. (supra) which was accepted by the Revenue.
Accordingly, the first substantial question of law was answered against the Revenue and in favour of the assessee.
28. Thus, it is quite clear that the view taken by the ITAT in its impugned order dated 15.09.2016, is entirely consistent with the view taken by the coordinate bench of the ITAT in Digital Electronics Ltd. (supra). As was noted by this Court in Hickson and Dadajee (P) Ltd (supra), the Revenue, has accepted the decision of the ITAT in Digital Electronics Ltd. (supra) Based thereon, this P a g e | 14

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Court has accepted the position that it is not the requirement of Section 72 of the said Act that such gain or profit must be taxable only under the head of “profits and gains of business or profession”. The carryforward business losses would therefore he set off against the short-term capital gains on the sale of building, plant, and machinery. This is yet another reason not to accept the submissions of Ms. Linhares and to answer the substantial questions of law against the Revenue and in favour of the assessee.”

Thus, it is concluded that carry forward business losses could be set off against the short-term capital gains on the sale of the building taxable u/s 50. 19. In ground no.2 it is submitted that balance capital gain on office Sale if any be taxable at 20%. The issue is covered in Assessee favour under decision ofSKF India in ITA NO 7544/MUM/2011
(MUM)(SB).
20. The ld.CIT(A) observed that it is an alternate plea for charging tax at rates as applicable to long term capital gain on capital gains computed as per section 50 of the Act as against rate as applicable to Short term capital gains. This alternate plea had been taken by the appellant in case the ground taken above with respect to adjusting the capital gain with brought forward business losses is not allowed. The assessee relied upon the decision of hon’ble Bombay High Court in the case of CIT Vs ACE Builders Pvt Ltd, 281ITR201. However, the ld.CIT(A) held without going into the merit of the claim and this claim being made for the first time during the course of assessment

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Phulchand Exports Private Limited, Mumbai proceedings other than by way of revised return, held that it was not admissible since the same is otherwise not allowable and not in the nature of an apparent mistake. Accordingly, this alternate plea of the appellant was also rejected.
21. Before us, it is submitted that the office premises being held for more than 3 years, the same has been considered as long term capital asset although the gain being taxable u/s 50 as Short Term capital gains.The appellant has relied upon the decision of CIT Vs ACE
Builders Pvt Ltd(supra)where the court allowed deduction of investment made u/s 54E against capital gains taxable u/s 50 on depreciable assets. Similarly in Cadbury India Ltd 229 Taxman
05(Bom),tribunal allowing exemption u/s 54E was upheld.
Similardecision was given in Perry(Estern) P.Ltd 384 ITR
264(Bom).In V.S.Dempo Co, Ltd 387 ITR 354,hon’ble Supreme
Court confirmed the view that deduction u/s 54E is allowable against gains assessable u/s 50 of the Act.
22. In respect of both the main ground no.1 and alternative ground no.2, we observe that the main reason for denial of deduction by the authorities below is that assessee has not filed revised return of income to make rightful claim. The ld. AR heavily relied on the judgment of hon’ble Bombay High Court in the case of CIT vs. Pruthvi

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Brokers and Shareholders (supra) wherein it has been categorically held that AO is bound to entertain rightful claim of deduction made otherwise than by filing revised return. We find it pertinent to observe the ratio of the above wherein following observation was made :-
"A long line of authorities establish clearly that an assessee is entitled toraise additional grounds not merely in terms of legal submissions, but also additional claims not made in the return filed by it. [Para 10] In Jute Corpn.
of India Ltd. [1991] 187 ITR 688 for the assessment year 1974-75 the appellant did not claim any deduction of its liability towards purchase tax under the provisions of the Bengal Raw Jute Taxation Act, 1941, as it entertained a belief that it was not liable to pay purchase tax under that Act.
Subsequently, the appellant was assessed to purchase tax and the order of assessment was received by it on 23rd November, 1973. The appellant challenged the same and obtained a stay order. The appellant also filed an appeal from the assessment order under the Income Tax Act. It was only during the hearing of the appeal that the assessee claimed an additional deduction in respect of its liability to purchase tax. The Appellate
Assistant Asst. Year 2010-11 Commissioner (AAC) permitted it to raise the claim and allowed the deduction. The Tribunal held that the AAC had no juri iction to entertain the additional ground or to grant relief on a ground which had not been raised before the Income Tax Officer. The Tribunal also refused the appellant's application for making a reference to the High Court.
The High Court upheld the decision of the Tribunal and refused to call for a statement of case. It is in these circumstances that the appellant filed the appeal before the Supreme Court. The Supreme Court held as under:-
"5. In CIT v. Kanpur Coal Syndicate, a three Judge bench of this Court discussed the scope of Section 31(3)(a) of the Income Tax Act, :1922 which is almost identical to Section 251(l)(a). The court held - asunder: (ITR p. 229)
"If an appeal lies, Section 31 of the Act describes the powers of the Appellate
Assistant Commissioner in such an appeal. Under Section 31(3)(a) in disposing of such an appeal the Appellate Assistant Commissioner may, in the case of an order of assessment, confirm, reduce, enhance or annul the assessment; under clause (b) thereof he may set aside the assessment and direct the Income Tax Officer to, make a fresh assessment. The Appellate
Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is co-terminus with that of the Income-tax

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Officer. He can do what the Income-tax Officer can do and also direct him to do what he has failed to do."
6. The above observations are squarely applicable to the interpretation of Section 251(l)(a) of the Act. The declaration of lawis clear that the power of the Appellate Assistant Commissioner is co-terminus with that of the Income Tax Officer, if that be so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income Tax Officer. No exception could be taken to this view as the Act does not place any restriction or limitation on the exercise of appellate power. Even otherwise an Appellate Authority while hearing appeal against the order of a subordinate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations if any prescribed by the statutory provisions. In the absence of any statutory provision the Appellate
Authority is vested with all the plenary powers which the subordinate authority may have in the matter. There appears to be no good reason and none was placed before us to justify curtailment of the power of the Appellate
Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of ' assessment passed by the Income Tax Officer." ' Asst. Year 2010-11 (B) It is clear, therefore, that an assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional claims before them. The appellate authorities have the discretion whether or not to permit such additional claims to be raised. It cannot, however, be said that they have no juri iction to consider the same. They have the juri iction to entertain the new claim. That they may choose not to exercise their juri iction in a given case is another matter. The exercise of discretion is entirely different from the existence of juri iction. [Para 11] Further the observation of the Supreme Court in the case of Jute Corpn. of India
Ltd. (supra) to the effect 'if the ground so raised could not have been raised at that particular stage when the return was filed or when the : assessment order was made....' or 'that the ground became available on account of change of circumstances or law,' does not curtail the ambit of the juri iction of the appellate authorities stipulated earlier. They do not restrict the new/additional grounds that may be taken by the assessee before the appellate authorities to those that were not available when the return was filed or even when the assessment order was made. The appellate authorities, therefore, have juri iction to deal not merely with additional grounds, which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed. The first part viz., 'if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order

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Phulchand Exports Private Limited, Mumbai was made....' clearly relate to cases where the ground was available when the return was filed and the assessment order was made but 'could not have been raised' at this stage. The words are 'could not have been raised' and not 'were not in existence'. Grounds which were not in existence when the return was filed or when the assessment order was made fall within the second category viz., where 'the ground became available on account of change of 'circumstances or law.'[Paras 12 and 13] :
It was then submitted by Mr. Gupta that the Supreme Court had taken a different view in Goetze (India) Ltd (supra). We are unable to agree. The decision was rendered by a Bench of two learned Judges and expressly refers to the judgment of the Bench of three learned Judges in National Thermal
Power Comp. Ltd. (supra). The question before the Court was whether the appellant-assessee could make a claim for deduction, other than by filing a revised return. After the return was filed, the appellant sought to claim a deduction by way of a letter before the Assessing Officer. The claim, therefore, was not before the appellate authorities. The deduction was disallowed by the Assessing Officer on the ground that there was no provision under the Act to make an amendment in the return of income by modifying an application at the assessment stage without revising the return. The Commissioner of Income-tax (Appeals) allowed the assessee's appeal. The Tribunal, however, allowed the department's appeal. In the Supreme Court, the assessee relied upon the judgment in National Thermal
Power Co. Ltd. (supra) contending that it was open to the assessee to raise the points of law even before the Tribunal. The Supreme Court held:-
Asst. Year 2010-11 "4. The decision in question is that the power of the Tribunal under section 254 of the Income-tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the Assessing Officer to entertain a > ; claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the : assessing authority and does not impinge on the power of the Income-tax Appellate Tribunal under section 254 of the Income-tax Act, 1961. There shall be no order as to costs." (Para 22) It is clear to us that the Supreme Court did not hold anything contrary to what was held in the previous judgments to the effect that even if a claim is not made before the assessing officer, it can be made before the appellate authorities. The juri iction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgment. (Para -: 23)"

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Place: म ुंबई/Mumbai
ददनाुंक /Date 04.08.2025
Lubhna Shaikh / Steno

आदेश की प्रयियलयि अग्रेयिि/Copy of the Order forwarded to :
1. अपीलार्थी / The Appellant

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सत्यावपि प्रवि ////
आदेशानुसार/ BY ORDER,

उि/सहायक िंजीकार (Dy./Asstt.