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Facts
The revenue appealed against the CIT(A)'s order for AY 2017-18. The assessee, engaged in the hotel business, had repaid 'advance against equity' amounting to Rs. 13.40 crores, which the AO treated as loans/advances received. The AO sought details to establish the identity, genuineness, and creditworthiness of the creditors.
Held
The Tribunal noted that the Assessing Officer failed to submit a remand report despite reminders. Considering the CIT(A)'s detailed findings, the Tribunal held that the assessee had provided relevant information regarding the return of loans lent in earlier years. For Section 14A, the Tribunal upheld the CIT(A)'s view that disallowance cannot exceed the actual expenditure claimed.
Key Issues
Whether the CIT(A) erred in deleting the disallowance under Section 14A and in deleting the addition of Rs. 7,70,00,000/- by holding that the identity, genuineness, and creditworthiness of concerned persons were proved.
Sections Cited
143(2), 142(1), 68, 14A
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Income Tax Appellate Tribunal, DELHI BENCHES ‘A’: NEW DELHI.
Before: SHRI SATBEER SINGH GODARA & SHRI S. RIFAUR RAHMAN
PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :
The revenue has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT (A)”, for short] dated 30.10.2023 for the Assessment Year 2017-18.
None on behalf of the assessee. We proceeded to decide the issue with the assistance of Ld. DR.
Brief facts of the case are, assessee filed his return of income for A.Y. 2017-18 on 30.10.2017 declaring loss of Rs.2,89,30,557/-. The case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Income Tax Act 1961 (in short “Act”) through ITBA system. In response, assessee filed the relevant information as called for through e-filing portal from time to time.
Assessee is engaged in the business of running and managing hotels, resorts, motels, restaurants, cage, tavern, beer house, pub, refreshment room, guest house, banquets, discotheques, boarding and lodging house keepers, swimming pools, clubs, baths, dressing rooms, laundries, bakeries, floweriest, reading and other allied activities. Assessee also submitted its financial statements. During the assessment proceedings the Assessing Officer observed from financial statements submitted by the assessee as on 31.03.2017, he observed that assessee had repaid ‘advance against equity’ taken from various parties to the tune of Rs.13.40 crores. However, he observed that assessee in its submission dated 05.12.2019 has submitted Annexure ‘D’ in which it was shown as loans/advances received during the year. The assessee was asked to furnish the details of persons from whom advances recovered against equity, their confirmations and to establish the creditworthiness and prove the genuineness of the transaction.
In response assessee has submitted the details of persons from whom loans/advances have been received back during the year under consideration 1 Avisha Credit Capital Ltd. Rs.1,35,00,000/- 2 Brij Kishore Sabharwal Rs.75,00,000/- 3 Emergent Traders Pvt. Ltd. Rs.20,00,000/- 4 Woodcraft properties Pvt. Ltd. Rs.5,60,00,000/-
After considering the details submitted by the assessee and also gathered information from DDIT(Inv.), Unit 1(1) Kolkata details of loan transactions of the assessee Company. Based on the above he observed as under:- 3.3 Upon considering the submissions of the assessee company and information gathered from investigation done by this office, the following conclusion has been drawn.
(i). Brij Kishore Sabharwal : The assessee company has neither submitted the ITR of the said person, nor submitted his financials nor submitted his bank statements, hence, his identity, genuineness and creditworthiness has not been proved.
(ii). M/s Avisha Credit Capital Ltd. In order to confirm the identity, genuineness & creditworthiness of M/s Avisha Credit Capital Ltd., Inspector of this office, who was deputed to enquire into the matter submitted its report on 20/12/2019. The extract of the report is as under:
"...At the ground floor of Kailash Building, K.G. Marg, New Delhi, there were many companies listed on the display board but there was no company displayed in the name of Avisha Credit Capital Ltd.... When I visited at 6th Floor of Kailash Building, there was an office address as 606 without any signboard.... When I enquired inside the office of 606, From the Inspector's report it is clear that the said entity was not found at the given addresses. Further, as per submissions of the asseseee, it has returned NIL income(loss of Rs. 155315) Hence, the identity, genuineness and creditworthiness of M/s Avisha Credit Capital Ltd. has not been proved.
(iii). M/s Woodcraft Properties Pvt. Ltd.
Information was gathered from the office of the DDIT(Inv.), Unit-1(1), Kolkata regarding details of loan transactions of the assessee company with M/s Woodcraft Properties Pvt. Ltd. On perusal of the financial statements received from the office of the DDIT(Inv.), Unit 1(1), Kolkata, the following facts have emerged out It is revealed that huge amount is credited in the account of M/s Woodcraft Properties Pvt. Ltd. by Mr. Shiv Kumar Jatia, who is director in M/s Prudential Hotels Private Ltd. and the said amount is transferred almost on the same day to the account of the assessee by M/s Woodcraft Properties Pvt. Ltd. on the same day. For example Rs. 50,00,000/- was credited in the account of M/s Woodcraft Properties Pvt. Ltd. by Mr. Shiv Kumar Jatia on 08/06/2016 and the same was transferred to assessee's account by M/s Woodcraft Properties Pvt. Ltd. on the same day. Similarly, a sum of Rs. 2,50,00,000/- & Rs. 50,00,000/- was credited in the account of M/s Woodcraft Properties Pvt. Ltd. by Mr. Shiv Kumar Jatia on 28/06/2016 and a sum of Rs. 2,60,00,000/- was transferred to the assessee's account by M/s Woodcraft Properties Pvt. Ltd. on the same date. Further, a sum of Rs. 3,00,00,000/- was credited in the account of Mis Woodcraft Properties Pvt. Ltd. by Mr. Shiv Kumar Jatia on 29/06/2016 and a sum of Rs. 2,50,00,000/- was transferred to the assessee's account by M/s Woodcraft Properties Pvt. Ltd. on the same date.
Also on perusal of the ITR for A.Y. 2017-18 filed by M/s Woodcraft Properties Pvt. Ltd., it is observed that it has reported NIL income(Loss of Rs. 12,724/-) Further, as reported in the balance sheet as on Thus, it is clearly established that M/s Woodcraft Properties Pvt. Ltd. is not having creditworthiness to advance the amount of Rs. 5,60,00,000/- and it is the money of assessee only which is first deposited in the account of its director who in turn deposit the same money into the account of M/s Woodcraft Properties Pvt. Ltd. which is then transferred to assessee's account this money trail is evident from the examples discussed above.
Hence, the creditworthiness of M/s Woodcraft Properties Pvt. Ltd. has not been proved.
3.4 After receipt of information and on perusal of the same and considering the reply of the assessee, show cause notice dated 24/12/2019 was issued to the assessee asking for the reply/submissions by 26/12/2019 to provide the assessee an opportunity for natural justice. The extract of the show cause notice is reproduced as under.
“……On perusal of the submissions(esp. the bank statement of Indusind Bank) received from M/s Woodcraft Properties Pvt. Ltd., it is revealed that huge amount is credited in the account of M/s Woodcraft Properties Pvt. Ltd. by Mr. Shiv Kumar Jatia, who is director in M/s Prudential Hotels Private Ltd. and the said amount is transferred to your account(M/s Prudential Hotels Pvt. Ltd's account) by M/s Woodcraft Properties Pvt. Ltd. on the same day. For example Rs.50,00,000/- was credited in the account of M/s Woodcraft Properties Pvt. Ltd. by Mr. Shiv Kumar Jatia and the same was transferred to your account (M/s Prudential Hotels Pvt. Ltd.'s account) by M/s Woodcraft Properties Pvt. Ltd on the same day. Similarly, a sum of Rs. 2,50,00,000/- & Rs. 50,00,000/- was credited in the account of M/s Woodcraft Properties Pvt. Ltd. by Mr. Shiv Kumar Jatia and a sum of Rs. 2,60,00,000/- was transferred to your account (M/s Prudential Hotels Pvt. Ltd.'s account) by M/s Woodcraft Properties Pvt. Ltd on the same date. Further, a sum of Rs. 3,00,00,000/- was credited in the account of M/s Woodcraft Properties Pvt. Ltd. by Mr. Shiv Kumar Jatia and a sum of Rs. 2,50,00,000/- was transferred to your account (M/s Prudential Hotels But on perusal of the ITR for A.Y. 2017-18 filed by M/s Woodcraft Properties Pvt. Ltd., it is observed that it has reported NIL income(Loss of Rs. 12,724/-) Further, as reported in the balance sheet as on 31/03/2017, it has no fixed assets, its share capital is also of Rs. 1,00,000/-only.
In view of the above, you are requested to show cause why the sum of Rs. 5,60,00,000/-shown in the financial statements as received as repayment of loans from M/s Woodcraft Properties Pvt. Ltd during the year should not be treated as your own unaccounted income and added to your total income, as the creditworthiness of M/s Woodcraft Properties Pvt. Ltd. has not been proved in view of the aforementioned discussion supra.......”
3.5 In reply to the show cause notice dated 24/12/2019, the assessee filed reply/ submissions on 25/12/2019. The extract from the same are as under:
".....In order to assume so the sole criteria of your is that M/s Woodcraft Properties Pvt. Ltd. who had taken an advance of Rs. 5,60,00,000/- from the assessee in earlier years which amount has been repaid to the assessee by obtaining amounts from Shri Shiv Kumar Jatia who happens to be a director of this company and that although the source of repayment by the said company is not in dispute yet since the payee company le. M/s Woodcraft Properties Private Limited is reported to have no income during the year under consideration, but has incurred a loss of Rs 12,724/- and that the said company has no fixed assets and its share capital is also of Rs. 1,00,000/- only, the repayment made by the said company is assessee's own unaccounted money.
In this connection, your kind attention is drawn to the balance sheet of M/s Woodcraft Properties Pvt. Ltd. as at 31/03/2017 which also gives figures for the year ended on 31/03/2016. A perusal of the figures as at 31/03/2016 shows that the aggregate amount of creditors of the company were of Rs. 16,99,50,000/- Such liabilities have been reduced to Rs 3,50,00,000/- as on 31/03/2017.
From the perusal of the balance sheet you will further appreciate that aggregate assets of the said company on 31/03/2016 in the shape of loans and advances given are of Rs. 16,00,00,000/-whereas on 31/03/2017 such advances had also been reduced to Rs. 2,50,00,000/- Thus you will kindly appreciate that sources of repayment of loans and advances are duly explained from the balance sheet itself that the company had although no fixed assets or share capital but had received advances and such advances were not lying idle with it but had been paid to other persons as loans and advances. The repayments of their liabilities have been made by recoveries made by them on encashment of old advances given them. Therefore creditworthiness of the said company is evidently proved and is unquestionable. It is evident that the said company had recovered Rs. 13,50,00,000/- from past advances given but has reduced its liabilities by Rs. 13,49,50,000/- only. Balance amount of Rs. 50,000/- thus tends to increase their bank balances……”
3.6 The reply of the assessee is considered and not found tenable. As it is evident from the afore mentioned enquiries and material facts available on record, it is quite obvious that the assessee company has not been able prove the genuineness of the aforesaid amount of Rs. 7,70,00,000/-(1,35,00,000+75,00,000+5,60,00,000) shown as loans/advances received back by in its financial statements despite having been given ample opportunity to prove the identity, genuineness and creditworthiness of these entities. This proves that the identity of Mr. Brij Kishore Sabharwal & M/s Avisha Credit Capital Limited and creditworthiness of M/s Woodcraft Properties Pvt. Ltd. have not been proved.
3.7 Accordingly, the amount from the entities credited to the books of assessee. during the year to the extent of Rs. 7,70,00,000/- (as mentioned supra) whose creditworthiness have not been proved, is treated as undisclosed income of the assessee in view of the above mentioned facts and discussion and hence the same is added to the income of the assessee company u/s 68 of the Income Tax Act, 1961.
Further, I am satisfied that the assessee is liable for penalty u/s 271AAC of the Income Tax Act, 1961 as the income of the assessee determined Tax is to be charged u/s 115BBE of the Act in respect of the addition made u/s 68 of the Act.
Further, he observed that assessee has shown non-current investment of Rs.38,36,78,342/- during the year, but expenses debited to Profit and Loss account under the head ‘Finance Cost’ is of Rs.23,271/- only. And no disallowances u/s 14A was made by the assessee in its computation of income.
When the assessee was asked to substantiate, assessee failed to submit any submissions, accordingly, he proceeded to determine the disallowance at the rate of 1% of average of investment in non-current investment during the assessment year 2016-17 & 2017-18 and accordingly, determined the disallowance u/s 14A to the extent of Rs.41,75,274/-.
Aggrieved with the above order, assessee preferred an appeal before NFAC, Delhi and filed the detailed submissions and also additional evidences to substantiate the transactions with the four parties which is reproduced by the Ld. CIT(A) in the impugned order. Ld. CIT(A) remanded the matter to the Assessing Officer on 28.08.2023, also sent a reminder on 05.10.2023. Further issued a letter to a range head on 05.10.2023. However, there was no response from the Assessing Officer, hence, he proceeded to decide the issue based on the material available on record.
He observed that the amounts in dispute are not fresh loans and advances received by the assessee, but are loans and advances repaid by the parties. He further observed that amounts were already lent and it is with the parties, only being returned now. Any issue of the original transaction of lending itself being under question, it is to be remembered that the amounts were lent in previous years from cash credits of previous years. Therefore, the cash returned resulting in the said loans and advances is not of the current year.
After analyzing the details submitted by the assessee party wise, he deleted the addition with the observation that the assessee discharged its onus and provided the identity, genuineness and creditworthiness of the person returned the advances.
With regard to Section 14A disallowances, after considering the detailed submissions of the assessee Ld. CIT(A) observed that there was no exempt income earned during the year and the expenditure debited to the profits and loss account is only Rs.82,058/- . He observed that assessee has debited an amount of Rs.82,068/- as total expenditure for the year. The core part of the Section 14A is that “no deduction shall be allowed for expenditure incurred”. Therefore the issue is of not allowing deduction, when the deduction is not claimed, the question of disallowing the same does not arise. Accordingly he directed the Assessing Officer to limit the disallowance under Rule 8D to the extent of actual expenditure debited to the profit and loss account and accordingly he deleted the addition.
Aggrieved with the above order revenue is in appeal before us raising following grounds of appeal: (i) "Whether, on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the disallowance of Rs. 41,75,274/- made by the Assessing Officer under section 14A of I.T. Act, r.w.s 8D of Income Tax Rules without appreciating the facts that the CBDT vide Circular No. 05/2014 dated 11.02.2014 has clarified that disallowance of the expenditure under section 14A of I.T. Act, r.w.s 8D is applicable even if taxpayer has not earned any exempt income during the relevant year?"
(ii) "Whether, on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the disallowance of Rs. 7,70,00,000/- and in holding that the identity, genuineness and creditworthiness of the concerned persons were proved by the assessee without appreciating that assessee was not able to prove the genuineness of this transaction amounting to Rs. 7,70,00,000/- despite the detailed enquiry conducted by the assessing officer?"
(iii) "The appellant craves leave to add, alter, amend, append or delete any of the above grounds of appeal."
14. Considered the submission of Ld. DR and observed that Assessing Officer has made the addition however when the matter was remanded by the Ld. CIT(A) to report based on the evidences submitted by the assessee. It is fact on record that the Assessing Officer failed to submit the remand report even after reminder. That being the case relevant information submitted by the assessee relating to return of the loans lent by the assessee in the earlier years. Therefore the additions proposed by the Assessing Officer is not relating to the transactions of loans and advances carried on by the assessee during the year under consideration. After considering the detailed findings of the Ld. CIT(A) we do not see any reason to disturb the same.
15. With regard to Section 14A disallowances, we observed that assessee has not earned any exempt income and further assessee has claimed expenditure of Rs.82,068/- only. Therefore the Section 14A disallowance cannot be more than the expenditure incurred and actually claimed by the assessee. Therefore the findings of Ld. CIT(A) are proper and just.
16. In the result both the grounds raised by the revenue are dismissed.
17. Order pronounced in the open court on this day of 6th February, 2026.
Sd/- Sd/- (SATBEER SINGH GODARA) (S.RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 06.02.2026 *Mittali Sr. PS