DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE- 3(3), MUMBAI, MUMBAI vs. PHULCHAND EXPORTS PRIVATE LIMITED, MUMBAI

ITA 3102/MUM/2025Status: DisposedITAT Mumbai04 August 2025AY 2018-1920 pages
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What did the Tribunal hold?

The Tribunal upheld the deletion of disallowance under Section 14A. It noted that the issue is no longer res integra, and no disallowance can be made in excess of exempt income earned. Since the assessee had not earned any exempt income, the deletion by the CIT(A) was correct. The amendment to Section 14A by the Finance Act, 2022, was held to be not applicable to the relevant assessment years, citing judicial decisions like Bajaj Capital Ventures (P) Ltd. and Era Infrastructure (India) Ltd. The Tribunal dismissed the Revenue's ground of appeal on this issue. Regarding the disallowance under Section 36(1)(iii), the Tribunal, respectfully following the jurisdictional High Court's decision in CIT vs. Pruthvi Brokers and Shareholders, held that the CIT(A) was not justified in rejecting the assessee's claim without going into its merits, merely on the ground that it should have been made by way of a revised return. Accordingly, the Tribunal set aside the CIT(A)'s order on this issue and remanded it back for deciding on merits after providing an adequate opportunity of hearing to the assessee. The Revenue's appeals were dismissed, and the assessee's appeal was allowed for statistical purposes.

What were the facts?

The assessee, Phulchand Exports Private Limited, is engaged in trading and export of iron ore, metals, and commodities. A search and seizure action under Section 132 of the Income Tax Act, 1961, was conducted on October 24, 2018. The Assessing Officer (AO) issued notice under Section 153A, and the assessee filed its return. The AO assessed the total income at Rs. 11,44,26,980/-, making disallowances under Section 14A read with Rule 8D amounting to Rs. 77,87,780/- and under Section 36(1)(iii) amounting to Rs. 6,65,38,828/-. The assessee appealed to the Commissioner of Income-tax (Appeals) [CIT(A)], who deleted the disallowance under Section 14A. The Revenue appealed against this deletion, and the assessee also filed an appeal. The appeals were heard together for Assessment Years 2018-19 and 2019-20.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the learned CIT(A) erred in restricting the disallowance made under Section 14A to the extent of tax-exempt income earned by the assessee during the year, by overlooking the clarification of legislative intent provided by the CBDT vide Circular No. 5/2014 and the amendment by way of insertion of Explanation to Section 14A by the Finance Act, 2022. - Assessee's contention: Not recorded. - Revenue's contention: The CIT(A) erred in restricting the disallowance under Section 14A, overlooking CBDT Circular No. 5/2014 and the Explanation to Section 14A inserted by the Finance Act, 2022. 2. Whether, on the facts and circumstances of the case and in law, the learned CIT(A) is justified in deleting the disallowance made under Section 36(1)(iii) of the Act, holding that no disallowance can be made if the surplus fund is in excess of interest-free advances, and ignoring the fact that the assessee failed to substantiate that interest-free advances were given out of own funds as no supporting documents like fund flow statement were furnished. - Assessee's contention: Not recorded. - Revenue's contention: The CIT(A) was not justified in deleting the disallowance under Section 36(1)(iii) as the assessee failed to substantiate the source of interest-free advances.

Which sections of the Income-tax Act were involved?

Section 14A,Section 143(3),Section 153A,Section 36(1)(iii),Section 132

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Cases cited in this judgment(12)Show list

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Heard together (3 matters)

ITA No. 2415/MUM/2025
ITA No. 3102/MUM/2025
ITA No. 3103/MUM/2025

Read from the judgment's own cause title. This page is filed under one of them.

IN THE INCOME-TAX APPELLATE TRIBUNAL“C” BENCH, MUMBAI BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER & SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER Phulchand Exports Private v/s. Assistant Commissioner Limited of 2nd Floor, West Wing, Electric बनाम Income Tax, Central Circle Mansion, Appasaheb Marathe 3(3), Kautilya Bhavan, Bandra Marg, Worli, Prabhadevi Kurla Complex, Bandra East, Mumbai -400 025, Mumbai 400 051, Maharashtra Maharashtra -400 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAACP2529C Appellant/अपीलार्थी ..

Respondent/प्रतिवादी ITA No. 3103/MUM/2025 (A.Y. 2019-20)

Deputy Commissioner of Income v/s.

Phulchand Exports Private Limited Tax, Central Circle 3(3),404, बनाम 4th Floor, Kautilya Bhavan, 254B, Nirlon House, Dr.

Bandra Kurla Complex, Bandra Annie Besant Road, Worli, East, Mumbai 400 051, Mumbai-400030, Maharashtra 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 ITA No. 2415, 3102, 31

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