DEPUTY COMMISSIONER OF INCOME TAX-1(3)(1), MUMBAI, MUMBAI vs. SPS FINQUEST LIMITED, MUMBAI
Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
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Per Rahul Chaudhary, Judicial Member:
The present appeal preferred by the Revenue is directed against the order, dated 29/04/2024, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as ‘the CIT(A)’] under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] whereby the Ld. CIT(A) had allowed the appeal against the Assessment Order, dated 16/12/2019, passed under Section 143(3) of the Act for the Assessment Year 2017-2018. 2. The Revenue has raised following grounds of appeal : “1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in law in not appreciating the fact that the assessee has been unable to justify as to why despite having surplus funds, the assessee borrowed funds and incurred Assessment Year 2017-2018
interest expenses and hence disallowance u/s.14A r.w.s.8D(2)(ii) was rightly made by the AO in respect of interest expenses.
On the facts and in the circumstances of the case in law, the Ld. CIT(A) erred in law in deleting the addition made of Rs.10,00,000/- u/s.68 of the Act without appreciating the facts that the assessee has failed to establish the source of funds utilized for giving loan to assessee company i.e. M/s.SPS Finquest Ltd. and also the fact that identity of loan creditor was not proved beyond doubt and there was a contravention of provisions of section 68 of the Act.”
The relevant facts in brief are that the Assessee, a resident company, filed return of income for the Assessment Year 2017-2018 on 29/09/2017 which was selected for regular scrutiny and assessment under Section 143(3) of the Act was framed by the Assessment Officer vide Assessment Order, dated 16/12/2019, at assessed income of INR.16,61,47,140/- after making (a) disallowance of INR.5,48,313/- under Section 14A of the Act and (b) addition of INR.10 Crore under Section 68 of the Act in respect of unsecured loan of INR.10 Crore taken by the Assessee from Shri Vighnaharta Realty Pvt. Ltd.
Being aggrieved, the Assessee preferred appeal before CIT(A) challenging the above addition/disallowance made by the Assessing Officer. The CIT(A) allowed the appeal preferred by the Assessee and deleted the disallowance of INR.5,48,313/- made under Section 14A of the Act as well as the addition of INR.10,00,00,000/- made under Section 68 of the Act.
Being aggrieved, the Revenue has preferred the present appeal before the Tribunal on the grounds reproduced at paragraph 2 above.
We have heard both the sides and have perused the material on record.
There was a delay of 54 days in filing the appeal. The Learned Assessment Year 2017-2018
Departmental Representative, after taking us through the application seeking condonation of delay, submitted that the delay be condoned.
The Learned Authorized Representative for the Assessee did not raised any serious objection. In view of the reasons stated in the application seeking condonation of delay, the delay in filing the present appeal is condoned. Accordingly, we proceed to adjudicate the grounds raised by the Revenue on merits.
Ground No.1
Ground No.1 raised by the Revenue is directed against the order of CIT(A) deleting the disallowance of INR.5,48,313/- made by the Assessing Officer under Section 14A of the Act invoking the provisions contained in Rule 8D(2) of the Income Tax Rules 1962 (for short ‘IT Rules’) in respect of interest expenses. The sole basis on which the order passed by CIT(A) has been challenged by the Revenue is that despite having sufficient owned funds, the Assessee borrowed funds and incurred interest expenses for which deduction was claimed by the Assessee. We do not find any merit in the aforesaid contention raised by the Revenue. The contention of the Revenue is premised upon the admission that the Assessee had sufficient own funds. On perusal of record we find that the Shareholders Funds available with the Assessee as on 31/03/2016 and 31/03/2017 stood at INR.29.82 Crores and INR.35.49 Crores, respectively. Whereas, the highest opening/closing investment for the relevant previous year (as noted by the Assessing Officer in Paragraph 3.4 of the Assessment Order) stood at 21.56 Crores. Therefore, the Assessee had sufficient interest free own funds to cover investments made. In the case of South Indian Bank Ltd. Vs. CIT [2021] 438 ITR 1 (SC) it has been held by the Hon’ble Supreme Court that where the interest-free owned funds available with the assessee are more than the investments made in the tax- free securities, the presumption would be that investments in tax- free securities have been made out of interest-free own funds and Assessment Year 2017-2018
proportionate disallowance of interest under Section 14A of the Act was not warranted on the ground that separate accounts were not maintained by assessee for making investments and for other expenditure incurred for earning tax-free income. Accordingly, we do not find any infirmity in the order passed by the CIT(A) in deleting the disallowance of INR.5,48,313/- made by the Assessing Officer under Section 14A of the Act. Accordingly, Ground No.1 raised by the Revenue is dismissed.
Ground No.2
Ground No.2 raised by the Revenue is directed against the order of CIT(A) deleting the addition of INR.10 Crores made by the Assessing Officer under Section 68 of the Act in respect of loan received from Shri Vighnaharta Realty Pvt. Ltd.
We have heard both the sides on this issue and have perused the material on record.
On perusal of the Assessment Order, we find that the Assessing Officer was not satisfied with the explanation furnished by the Assessee on account of discrepancy in the name of the lender as reflected in the Income Tax Returns of the lenders for different Assessment Years and in the response to notice issued under Section 133(6) of the Act sent by the Lender to the Assessing Officer during the Assessment proceedings.
On perusal of the order passed by the CIT(A) we note that while deleting the disallowance, the CIT(A) had taken note of the fact that the lender (i.e. Shri Vighnaharta Realty Pvt. Ltd.) had, in response to the notice issued under Section 133(6) of the Act, confirmed the loan transaction; disclosed the source of funds used to give loan to the Assessee and furnished supporting documents. The relevant extract of the aforesaid reply sent by the Lender to Assessing Officer Assessment Year 2017-2018
reads as under:
“In compliance with above referred notice, we would like to submit as under.
With respect to details of Loan given M/s SPS Finquest Limited during AY 2017-18, the assessee is herewith submitting following documents vide Annexure 1
a.
Copy of Ledger account of M/s SPS Finquest Limited for AY 2017-18 in the books of assessee b.
Copy of Bank Statement of assessee
With respect to source of funds utilised for giving loan to M/s SPS Finquest Limited, it is submitted that the source was amount received from M/s Intinium Natural Resources investments P Limited on account of advance received for sale of land. Copy of Ledger account of M/s Intinium Natural Resources investments Pvt Limited and Bank statement of assessee are enclosed herewith for your kind reference vide Annexure 2. 3. Copy of IT Retum filed along with copies of balance sheet, P&L account and annexures for AY 2016-17, 2017-18 and 2018-19 are enclosed herewith for your kind reference vide Annexure 3.”
Further, the Assessee had furnished relevant details and documents to establish genuineness of the transaction and the identity as well as creditworthiness of the Lender during the assessment proceedings which included the following: a. Bank Statement of Lender b. Copy of reply to notice u/s.133(6) by the Lender c. New certificate of Incorporation, dated 04/03/2005, issued by