DY CIT CC 6(4), MUMBAI vs. ARSHIYA LTD., MUMBAI

आदेश / O R D E R Per Amarjit Singh (AM): These 3 cross appeals pertaining to assessment year 2011-12 and 2013-14 are based on similar facts and related issue, therefore, for the sake of convenience all these appeals filed by the revenue and by the assessee are adjudicated together as follows: ITA No.3952/Mum/2015 “1. Whether On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in directing the assessing officer to delete the disallowance made u/s 14A r w Rule 8D. The Ld. CIT(A) ignored the investment made in subsidiary companies can't be ground for the a non- applicability of section 14A to the Act. 2. Whether On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in directing the assessing officer to delete the addition made on account of accommodation entry. The Ld. CIT(A) had ignored that the assesse had not been able to substantiate the transaction and the exact nature thereof and categorical admittance on the part of the office bearers of the assesse company which was purely non-genuine transaction, and the interest cost incurred by the assesse on the loans obtained from the Consortium Bank lenders and the same having been invested for the purpose of making such payment of Rs.7,00,00,000/- as and by the way of an accommodation entry. 3. Whether On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in directing the assessing officer to allow the expenses made on account of advertisement expenses while the assesse had not furnished the details/document and break up of the expenditure incurred on account of advertisement& business promotion" The appellant prays that the order of Commissioner of Income-tax (Appeal) on the above ground be set aside and that of the Assessing Officer be restored. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.”

P a g e | 3 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited 2. Fact in brief is that return of income declaring total income at Rs.17,23,85,320/- was filed on 30.11.2020. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 18.09.2012. The assessee company was engaged in the business of logistic operation and related services, Free Trade Warehousing Zone operations and related service etc. The assessment u/s 143(3) of the Act for the year under consideration was finalized on 28.03.2014 assessing the total income at Rs.33,70,03,081/- after making disallowance on account of addition u/s 14A, accommodation entries, advertisement expenses and excess claim of depreciation etc. Further fact of the case are discussed while adjudicating the ground of appeal filed by the revenue: Ground No.1: Deleting the disallowance made u/s 14A r.w.Rule 8D:

P a g e | 4 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited disallowance can be made even where no exempt income was earned. Accordingly, the assessing officer has computed the disallowance as prescribed under Rule 8D of the Income Tax Rule 1962 and made disallowance of Rs.4,89,11,149/- u/s 14A of the Act and added to the total income of the assessee. 4. Aggrieved the assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has deleted the disallowance made u/s 14A of the Act holding that assessee has not made any investment from the owned fund and no direct or indirect expenditure has been incurred for making such investment. The assessing officer also stated that the major investment was in subsidiary company for business expense and not for earning dividend income. 5. During the course of appellate proceedings before us the ld. D.R supported the order of lower authorities. 6. On the other hand, the ld. Counsel submitted that assessee has not debited any interest expenditure incurred on such investment made in the subsidiary company. However, if any disallowance is to be made under Rule 8D(2)(iii) then that can be made to the amount of Rs.9,308/- which was worked out at 0.50% of average investment on which the assessee has earned exempt income. 7. Heard both the sides and perused the material on record. Without reiterating the fact as elaborated above the assessee has explained before the lower authorities that the investment in the subsidiary company was made out of its own fund, therefore, no direct expenditure was incurred during the year for making any disallowance u/s 14A of the Act. After considering the submission of the assessee material placed on the record and finding of the ld. CIT(A) we find that AO has not brought any material on record to prove that assesse has made investment in the subsidiary companies out of the borrowed funds.

P a g e | 5 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited Further after taking into consideration the submission of the assessee and material placed on record we direct the AO to restrict the disallowance under Rule 8D(2)(iii) in respect of administrative expenditure to the extent of 0.50% of the investment on which the assessee has earned exempt income. Accordingly, this ground of appeal of the revenue is partly allowed. Ground No.2: Deleting addition made on account of accommodation entries: 8. During the course of assessment the assessing officer noticed that survey action u/s 133A of the Act was carried out in the case of the assessee company on 20.01.2014 wherein statement of Shri Ajay Mittal Group chairman and managing direction of Shri Shyam Sundar Rathi, CFO, was recorded wherein they admitted that transactions made with ICSA (India) Ltd. were not genuine transactions and same were merely accommodation entries. The assessing officer noticed that assessee had made transactions of Rs.7 crores during the year under consideration with ICSA (India) Ltd, therefore, the assessee was asked to furnish the copies of purchase order, purchase bill, delivery challan and other proof related to alleged purchases of Rs.7 crores made from ICSA (India) Ltd. In response the assessee has submitted various details as under: a. Copy of forwarding letter of ICSA (India) Limited dated 10.05.2010 towards completion of contract at FYWZ site; b. Copy of Statement of summary of payments made by assessee company to ICSA (India) Limited along with copy of verification sheet for completion of contract duly approved by the company's officials; c. Statement of summary of payments made by the assessee company to ICSA (India) Limited along with copy of verification sheet for completion of contract duly approved by the company's officials; d. Copy of invoice No. ICSA/AIL/03/05/04 dated 05.04.2010 of ICSA (India) Limited; and e. Copy of agreement dated 01.02.2010 entered into by and between the assessee company and ICSA (India) Limited.”

P a g e | 6 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited 9. Further the assessee was asked to submit various details of administrative and interest expenses pertaining to the payment made to ICSA(India) Ltd. In response the assesse has submitted the various details called by the assessing officer related to the payment made to ICSA (India) Ltd and also submitted that such payments has been capitalized under the head capital work in progress as a part of land cost on which no depreciation has been claimed. The assessee also explained that sources of fund for the payment made to ICSA (India) Ltd was out of secured loan of Rs.10 crores received on 05.05.2010 from Consortium Bank Lenders and interest of Rs.82,52,329/- was debited to pre-operating interest and same was not debited to the profit and loss account. However, the assessing officer has not agreed with the submission of the AO and referred the statement of Shri Ajay Mittal group chairman and managing director and statement of Shri Navneet Choudhary Vice Chairman (Commercial) of the assessee company wherein they have admitted that payment of Rs.7 crores made to ICSA (India) Ltd. was of the nature of accommodation entries without execution of work. Further the assessing officer stated that the ICSA(India) Ltd has not provided the information as asked by the notice issued u/s 133(6) of the Act on 24.03.2014 and the AO also mentioned that the case was getting time barred by 31.03.2014. The AO has also referred the bank statement of ICSA (India) Ltd. obtained by issuing of notice u/s 133(6) of the Act from the Axis Bank Ltd and from the copy of bank statement he observed that the said company (ICSA India Ltd.) has made several payment during the year to the 5 parties as under: 1. Speed Infracon Private Limited 2. Strong Infracon Private Limited 3. Solvent Real Estates Private Limited 4. Superior Infracon Private Limited 5. Allied Global Infrastructure Limited

P a g e | 7 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited The assessing officer has also obtained copies of bank statement of the aforesaid 5 companies from the Axis Bank and noticed that directors of the aforesaid 5 companies were also the directors in various other companies. Therefore, the AO was of the view that ICSA India Ltd. has diverted the amount of Rs.7 crores received from the assessee to the aforesaid 5 different companies. Therefore, the assessing officer has concluded that genuineness of the transactions of payments of Rs.7 crores made to ICSA (India) Ltd. has not been proved by the assessee and this payment was made without execution of any work. Therefore, the same was considered as bogus transactions and added to the income of the assessee company along with the interest cost of Rs.82,52,329/-. 10. Aggrieved, the assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee. The ld. CIT(A) held that during the course of survey no material or paper found which proves that the payment made to these parties by the assessee company were only accommodation entries and the company has received back cash against the said payment made to them. Further the ld. CIT(A) has also stated that statement recorded during survey were immediately retracted and there was no material to prove that the transactions were mere accommodation entries. The relevant extract of decision of ld. CIT(A) is reproduced as under: “3.3 Decision: I have perused the order of AO and the detailed submission given by the appellant and find that the appellant has challenged the addition on 3 grounds: 1. AO has relied on the statement of Mr. Ajay Mittal which was recorded during the survey proceedings on 21-01-2014 which was immediately retracted on 23-01-2014 by making an affidavit before the Notary Public. 1.1. It was pleaded that during the course of survey proceedings no paper or any document or any material were found to prove that the payment to these parties are only accommodation entries and company has received

P a g e | 8 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited back cash against the said payment made to them. Cash was found amounting to Rs. 1,85,520/-which is tallied with the cash book. 1.2. In the affidavit for retraction of statement it was stated that the admission that these transactions are mainly accommodation entries was on account of the following: (i) The admittance at that time was done purely because of continuous questioning for two days without adequate food and rest. (ii) Further, the admittance was done when they impressed upon me that these payments were made for land levelling development land taken for developing free trade and warehousing zone and same are capitalized to the land account which is not depreciable and these amounts are not claimed as revenue expenditure. (iii) The admittance was made when the officer pointed out that the other companies who had made payment to M/s AMR Infrastructure Ltd. had accepted during the course of search at their place that these are accommodation entries only. (iv) That the admittance was also made on account of the fact that the officers had threatened to convert the survey into search and will therefore create more problems for the company and for me as Chairman and Managing Director of the company alongtwith my entire family." 1.3 The AR relied on various judgments to the fact that Section 133A does not empower the AO to record the statement on the oath and any statement recorded u/s. 133A has no evidentiary value and admission during such statement cannot be basis for making any addition to the Total Income relying on Decision of the Hon. Supreme Court in the case of CIT vs. S. Khader Khan Son" [2012] 352 ITR 480 which affirmed the decision of Hon. Madras High Court reported as CIT vs. S. Khadar Khan Son[2008] 300 ITR 157 wherein it has been held as under: Section 133A does not empower any ITO to examine any person on oath, so statement recorded under section 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition. 1.3.1.1. Decision of the Hon. Kerala High Court in the case of Paul Mathews and Sons vs. CIT [2003] 263 ITR 101 1.3.1.2. Decision of the Hon. Apex Court in the case of Pulkngode Rubeer Produce Co. Ltd. vs. State of Kerala [1973] 91 ITR 18 1313 Decision of the Hon. Delhi High Court in the case of CIT vs. Dhingra Metal Works [2010] 328 ITR 384 1.3.1.4. Decision of the Hon. Madras High Court in the case of CTT vs. P. Balasubramanian" [2013] 354 ITR 116

P a g e | 9 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited

1.3.15 Decision of the Hon. Jaipur ITAT in the case of Unique Art Age vs. ACIT [2014] 29 TTR(T) 547 1.3.1.6. Decision of the Hon. Bombay High Court in the case of Dr. Dinesh Jain vs. ITO [2014] 363 ITR 210 1.4 The Hon. Bombay High Court in the case of Dr. Dinesh Jain v. ΙΤΟ [2014] 363 ITR 210 where it has been held that statement u/s 133A can be used only in the circumstances when material or papers are found to prove that payment is made out of books. 1.5. The statement of Ajay Mittal recorded by the Survey Party on 21-01-2014 and left the premises of the Assessee Company on 22-01-2014 at 3 a.m. and immediately Mr. Ajay Mittal has retracted the said statement & given the reasons why he has given such statement during the survey proceedings that the transactions with the specified parties are not genuine 1.6. During the course of survey no material or any paper found which proves that the payment made to these parties by the assessee company were only accommodation entries and the company has received back cash against the said payment made to them 1.7. In view of the above facts, I hold that the statement recorded during the course of survey proceedings on 21-01-2014 which was immediately retracted on 23-01-2014 is not be relied on particularly when no material was found to prove that these transactions are mere accommodation entries and the assessee has received cash against the said payment. 1.8. This view is supported by following decisions: (i) Decision of the Hon. Chattisgarh High court in the case of ITO vs. Vijay Kumar Kesar [2010] 327 ITR 497 (ii) Decision of the Hon. Pune Tribunal in the case of Hotel Kiran vs. ACIT [2002] 77 TIJ 87 2. The second contention of the appellant is that the AO has collected bank statement of ICSA (India) Ltd. from the Axis Bank Ltd. and from the said bank statement he has found that the said company has made payment to 5 different companies. Further, he has also called for the bank statement of these 5 companies from the Axis bank. Further he has collected the information from the MCA website that address of these 5 parties are same and the directors of these companies are also directors in other company. He has also downloaded Income Tax returns from the ITD System of the department and found that these companies shown meagre income for AY 2010-11 and on that basis he concluded that payment of Rs.7 crores by the appellant to the ICSA(India) Ltd. is mere accommodation entry and further interest cost incurred for payment of Rs. 7 cores amounting to Rs. 82,52,329 is also been added back to the Total Income of the appellant.

P a g e | 10 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited 2.1 The submission of the appellant that this information are collected by the AO behind the back of the assessee and not supplied to the assessee for any comment. It is established law that any information or statement collected from the third party behind the back of assessee cannot be used against assessee unless assessee has confronted on that and the AO allowed the assessee to cross examine the statement/documents given by the third party which was relied by the AO 2.2 I hold that the contention of the AR that these documents were collected behind assessee's back and the appellant was not confronted on same are true. For this proposition I rely on the following judgments: (i) Decision of Hon. Supreme Court in the case of Kalra Glue Factory vs. Sales Tax Tribunal [1987] 167 ITR 498 and 66 STC 292. (ii) The Full Bench of the Delhi High Court has observed in J. T. (India) Exports v. Union of India [2003] 262 ITR 269 (iii) The Patna High Court in the case of Motipur, Zamindari Co. (P.) Ltd. [1972] 83 ITR 778 3. The third contention of the appellant on merit that the payment of Rs. 7,00,00,000/- made to ICSA (India) Limited and the interest Rs. 82,52,329/- paid to banks were neither claimed as deduction in computing the total income in the profit and loss account/return of income nor depreciation was claimed under section 32 of the Act 3.1 The submission by the A/R that the taxable income is reduced if a non genuine expenditure is claimed as deduction in computing the total income or depreciation is claimed on non genuine capital asset. In the instant case the appellant has not claimed the payment of Rs. 7,00,00,000/- made to ICSA (India) Limited as a deduction u/s 37(1) or any other section of the Income Tax Act, 1961 in computing the total income for the AY 2011-2012 and the said amount of Rs.7,00,00,000/- has been debited under the head Land Development account and shown in the balance sheet as capital work in progress. Similarly interest paid to banks of Rs. 82,52,329/- has not been claimed as deduction u/s 36(1)(mm) or any other section of the Income Tax Act, 1961 for the AY 2011-12 or any subsequent year. Similarly, the appellant has not claimed any depreciation on these two amounts of Rs.7,00,00,000/- and 82,52.329/- for the AY 2011-2012 or any other subsequent assessment year. As the capital work in progress of the land subsequently on completion of the land development capitalized under the head land account and on that neither any depreciation provided in the books of accounts nor claimed in the income tax. Therefore, the question of reducing the taxable income for the year under consideration or any subsequent year does not arise. It is submitted that the A.O's action of making the addition of Rs. 7,82,52329/-is not only arbitrary but also illegal in view of the fact that the same has not been claimed as deduction in computing the total income. The question of making addition or disallowing expenditure arises only when an expenditure or allowance has been claimed in the return of income in computing the total income. In the instant case, the appellant has not claimed any deduction or allowance in respect of the amount of Rs. 7,82,52,329/ in the return of income or in the computation of total income

P a g e | 11 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited or in the profit and loss account and therefore, the addition made by the A.O is liable to be deleted. 3.2 I hold that on merit also no disallowance of Rs.7 crores paid to ICSA (India) Ltd. and interest of Rs. 82,52,329/- on the loan which was utilised the repay the loan can be made as both these amounts are capitalised by the appellant to the work in progress and after completion is capitalised to land account and no depreciation is claimed on said land in this year or in subsequent years. 3.3 In these circumstances, since no expenses is claimed on account of these two expenses, no disallowance is warranted and the same is deleted.”

P a g e | 12 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited not claimed any deduction or allowance in respect of the amount of Rs.782,52,329/- paid by the assessee to the ICSA India Ltd out of the loan amount obtained for the purpose of such payment from the Axis Bank as discussed supra in this order. Therefore, we don’t find any merit in this ground of appeal of the revenue and the same stand dismissed. 13. The appeal of the revenue is partly allowed. ITA No. 971/Mum/2020 (AY: 2013-14) i. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs.74,55,760/- being 13.91% of non- genuine transaction of Rs. 5,36,00,000/- with Orataman Realtors Limited". ii. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs. 1,37,02,337/- being 13.91% of non- genuine transaction of Rs.9,85,07,093/- with Murdeshwar Logistics Private Limited". iii. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs.1,49,83,876/- being 13.91% of non- genuine transaction of Rs.10,77,20,175/ with Kokkeshwar Trading Private Limited". iv. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs.9,85,070/- being unexplained expenditure added u/s.69C in respect of non-genuine transaction of Rs.9,85,07,093/- with Murdeshwar Logistics Private Limited". v. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs.10,77,201/- being unexplained expenditure added u/s.69C in respect of non-genuine transaction of Rs.10,77,20,175/- with Kokkeshwar Trading Private Limited". vi. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in restricting the disallowance u/s 14A to the extent of exempt income as against the disallowance computed by the Assessing Officer in accordance with the provisions of Rule 8D(2) of the Income-tax Rules, 1962 vii. without appreciating the Board's Circular No. 5/2014 dated 11.02.2014". "On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition u/s 14A of the Act by ignoring the provisions of CBDT Circular no. 5/2014 dated 11/02/2014

P a g e | 13 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited wherein, it has been clarified that the Rule 8D r.w.s. 14A provides for disallowance of expenditure even where the assessee in particular year has not earned any exempt income. viii. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the disallowance of interest expenditure of Rs. 2,14,52,533/- u/s.36(1)(iii) without appreciating the fact of the CIT(A)'s own order holding the transactions of Rs. 15,89,07,656/ with AMR Constructions Limited as non-genuine ones. The appellant craves leave to amend or alter any of the grounds or add new ground(s) which may be necessary. Last date for filing of second appeal is 07.02.2020.”

P a g e | 14 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited for verification. Therefore, assessing officer was of the view that assessee has taken accommodation entries of Rs.5.36 crores from the said parties only for the purpose of increasing its turnover and estimated gross profit of Rs.74,55,760/- @ 13.91% on the aforesaid transaction and added to the total income of the assessee. 16. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has allowed this ground of appeal of the assessee holding that assessee had already shown gross profit @ 18% on such transaction, therefore, there was no need for making any further addition on account of gross profit holding that when the sale was bogus the corresponding purchase would also be bogus. 17. Heard both the sides and perused the material on record. We find that the ld. CIT(A) has considered on the basis of gross profit working provided by the ld. Counsel of the assessee that assessee had already shown gross profit on the aforesaid transactions @ 18%. The relevant extract of the decision of the ld. CIT(A) is reproduced as under: “7.3. The submissions filed by the Ld. counsel have been carefully considered. It is a fact that ShriKishanLalKumhar has admitted that the transactions entered into with the appellant are only accommodation entries which he has done for commission of 1% of the transaction value. The assessee, on the other hand argued that they are genuine but did not make any effort to prove the genuineness except producing the ledger extract Even assuming that the transactions are bogus and accepting the AO's findings that they have been entered to jack up sales/turnover, a fact which cannot be ignored, is that the assessee has already shown a GP of 18%on these transactions. When the sale transaction itself is an accommodation entry meant to jack up the turnover, there cannot be any addition of the bogus sale transaction. When the sale is bogus, the corresponding purchase would also be bogus. In this case the AO had estimated the GP at 13.91% on the bogus sales. However, it is the assessee's argument that the GP had already shown on these transactions is 18% and there is no need for further GP addition. During the appellate proceedings, the Id. counsel was asked to furnish the working of GP on the alleged bogus transactions which has been furnished. A perusal of the same reveals that the assessee had already shown a GP of 18%. Therefore, there is no need for any further addition on account of GP. The AO is directed to delete the addition. This ground of appeal is ALLOWED.”

P a g e | 15 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited After considering these facts and material placed on record we find that assessing officer has not brought any material on record to justify further making addition of gross profit @ 13.91% therefore we do not find any reason to interfere in the decision of ld. CIT(A). Accordingly, this ground of appeal of revenue the same stand dismissed. Ground No. 2: Deleting addition of Rs.137,02,337/- with Murdeshwar Logistics Private Limited: 18. Since we have adjudicated the same issue on identical facts vide ground no. 1 as supra in this appeal therefore applying the finding as mutatis mutandis the aforesaid ground of appeal of the revenue is also dismissed. Ground No.3: (Deleting the addition of Rs.1,49,83,876/- with Kokkeshwar Trading Pvt. Ltd.: 19. Since we have adjudicated the similar issue on identical facts vide ground no. 1 as supra in this appeal therefore applying the finding as mutatis mutandis the aforesaid ground of appeal of the revenue is also dismissed. Ground No.4: Deleting the addition of Rs.9,85,07,0/- being unexplained expenditure u/s 69C of the Act: 20. The assessing officer was of the view that assessee has obtained accommodation entries from the M/s Murdeshwar Logistic Pvt. Ltd. of Rs.9,85,07,093/- only to jack-up the turnover and no actual trading was done by the assessee, therefore, assessing officer in addition to estimating gross profit @ 13.91% of Rs.137,02,337/- on this transaction has also estimated that on the said transaction assessee has paid commission @ 1% amounting to Rs.9,85,070/- to M/s Murdeshwar Logistic Pvt. Ltd. Therefore, the assessing officer has added the amount

P a g e | 16 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited of Rs.9,85,07,093/- u/s 69C of the Act to the total income of the assessee. 21. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has deleted the impugned addition holding that said transaction on which commission was estimated had already been held as genuine. 22. Heard both the sides and perused the material on record. The assessing officer has not brought any material on record to substantiate that assessee has paid any commission to M/s Murdeshwar Logistic Pvt. Ltd, therefore, we don’t find any reason to interfere in the decision of ld. CIT(A). Accordingly, this ground of appeal of the revenue stand dismissed. Ground No.5: Deleting the addition of Rs.10,77,201/- u/s 69C of the Act: 23. Since we have adjudicated the similar issue on identical facts vide ground no. 4 as supra in this appeal therefore applying the finding as mutatis mutandis the aforesaid ground of appeal of the revenue is also dismissed. Ground No. 6 & 7 restricting the disallowance u/s 14A to the extent of exempt income: 24. During the course of assessment the assessing officer computed the disallowance u/s 14A r.w.Rule 8D in respect of exempt income earned by the assessee to the amount of Rs.19,97,08,049/- as per Rule 8D of the Income Tax Rule 1962. 25. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has deleted the disallowance on the ground that the assessee has not earned any exempt income.

P a g e | 17 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited 26. Heard both the sides and perused the material on record. We find that it is undisputed fact that during the year under consideration the assessee has not earned any exempt income. After considering the decision of Hon’ble Delhi High Court in the case of Chem Investment Ltd. 378 ITR 33 we consider that no disallowance is to be made if no exempt income is received during the relevant previous year. On the similar proposition the ITAT Mumbai in various decision has also held that disallowance u/s 14A could not be made where the assessee has not earned any exempt income. Even the Hon’ble Delhi High court in the case of PCIT Vs. M/s Era Infrastructure (India) Ltd. vide ITA No. 204/2022 dated 20.07.2022 held that amendment brought in by the Finance Act 2022 in Sec. 14A is applicable prospectively w.e.f 2022-23. Following the above findings we don’t find any merit in both these ground of appeal filed by the revenue therefore the same stand dismissed. Ground No. 8: Deleting the disallowance of interest expenditure of Rs.214,52,533/- u/s 36(1)(iii) of the Act: 27. During the course of survey it was found that the assessee had entered into certain transactions with M/s AMR Construction Ltd. amounting to Rs.15,89,07,656/-. During the course of assessment proceeding proceedings the assessing officer asked the assessee to prove the genuineness of transactions entered with the aforesaid party. The assessee has filed the detail but the AO stated that Shri Ajay S. Mittal CMD of the company in his statement stated that bills pertaining to M/s AMR Construction Ltd. were bogus accommodation bill and no actual work was done with the said party. The assessee in its submission also stated that M/s AMR Construction Ltd. was paid through banking channel but the AO has not agreed with the submission of the assessee stating that assessee has failed to prove the

P a g e | 18 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited genuineness of transaction. The assessing officer has disallowed the amount of contract expenses of Rs.15,89,07,656/- and reduced the same from the capital work-in-progress by treating the same as non- genuine expenditure. The assessing officer has further stated that the assessee in his balance sheet has shown considerable borrowings which have been utilized for acquisition of non-genuine assets, therefore, the assessing officer has estimated interest of Rs.2,14,52,533/- @ 13.5% on the capital advance of Rs.15,89,07,656/- given to M/s AMR Construction Ltd. and added to the total income of the assessee. 28. Aggrieved the assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has deleted the disallowance made by the assessing officer holding that capital advances given were very small compared to the interest free funds available with the assessee and the interest borrowing funds have not been used for capital advances. The relevant part of the decision of ld. CIT(A) is reproduced as under: “8. We have heard learned counsel for both the parties in our opinion the very basis on which the revenue had sought to contend or argue their case that the shareholder funds to the tune of over Rs. 172 crores was utilised for the purpose of fixed assets in terms of the balance sheet as on 31st March, 1999, is fallacious Firstly, we are not concerned with the balance sheet as of 31-3-1999. What would be relevant would be balance sheet as on 31-3-2000. Apart from that, the learned counsel has been unable to point out to us from the balance sheet that the balance sheet as on 31-3-1999 showed that the shareholders funds were utilized for the purpose of fixed assets. To our mind the profit and loss account and the balance sheet would not show whether shareholders funds have been utilised for investments. The argument has to be rejected on this count also 9. Apart from that we have noted earlier that both in the order of the CIT (Appeals) as also the Appellate Tribunal, a clear finding is recorded that the assessee had interest-free funds of its own which had been generated in the course of the year commencing from 1-4-1999. Apart from that in terms of the balance sheet there was a further availability of Rs. 398. 19 crores including Rs. 180 crores of share capital. In this context, in our opinion, the finding of fact recorded by CIT (Appeals) and ITAT as to availability of interest-free funds really cannot be faulted. 10. If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a

P a g e | 19 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited loan it can be presumed that the investments were from the interest-free funds available. In our opinion the Supreme Court in East India Pharmaceutical Works Ltd.'s case (supra) had the occasion to consider the decision of the Calcutta High Court in Woolcombers of India Ltd.'s case (supra) where a similar issue had arisen. Before the Supreme Court it was argued that it should have been presumed that in essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business and in these circumstances the appellant was entitled to claim the deductions. The Supreme Court noted that the argument had considerable force, but considering the fact that the contention had not been advanced earlier it did not require to be answered. It then noted that in Woolcombers of India Ltd's case (supra) the Calcutta High Court had come to the conclusion that the profits were sufficient to meet the advance tax liability and the profits were deposited in the overdraft account of the assessee and in such a case it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. It noted that to raise the presumption, there was sufficient material and the assessee had urged the contention before the High Court. The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT (Appeals) and ITAT." The Hon'ble Bombay Court in the case of CIT vs. HDFC Bank Ltd. [2014] 49 taxmann.com 335 (Bombay) has held as under: “4. We do not agree in the case at hand, as recorded by the ITAT, undisputedly the Assessee's own funds and other non-interest bearing funds were more than the investment in the tax free securities. The ITAT therefore held that there was no basis for deeming that the Assessee had used the borrowed funds for investment in tax free securities. On this factual aspect, the ITAT did not find any merit in the contention raised by the Revenue and therefore, accordingly answered the question in favour of the Assessee. On going through the order of the CIT (Appeals) dated 28th March 2005 as well as the impugned order, we do not find that the CIT (Appeals) or the ITAT erred in holding in favour of the Assessee. In this regard, the submission of Mr. Mistry, the learned Senior Counsel appearing on behalf of the Assessee, that this issue is squarely covered by a judgment of this Court in the case of CIT v. Reliance Utilities & Power Ltd. [2009] 313 ITR 340/178 Taxman 135 (Bom)is well founded The facts of that case were that the Assessee viz. Mis Reliance Utilities and Power Ltd had invested certain amounts in Reliance Gas Ltd. and Reliance Strategic Investments Ltd. It was the case of the Assessee that they themselves were in the business of generation of power and they had eamed regular business income therefrom The investments made by the Assessee in Mis Reliance Gas Ltd And M/s Reliance Strategic Investments Ltd were done out of their own funds and were in the regular course of business and therefore no part of the interest could be disallowed. It was also pointed out that the Assessee had borrowed

P a g e | 20 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited Rs.43.62 crores by way of issue of debentures and the said amount was utilised as capital expenditure and inter-corporate deposit it was the Assessee's submission that no part of the interest bearing funds (viz Issue of debentures) had gone into making investments in the said two companies it was pointed out that the income from the operations of the Assessee was Rs.313.53 crores and with the availability of other interest free funds with the Assessee the amount available for investments out of its own funds were to the tune of Rs. 398 19 crores. In view thereof, it was submitted that from the analysis of the balance sheet, the Assessee had enough interest free funds at its disposal for making the investments. The CIT (Appeals) on examining the said material, agreed with the contention of the Assessee and accordingly deleted the addition made by the Assessing Officer and directed him to allow the same under the provisions of the Income Tax Act, 1961. The Revenue being aggrieved by the order preferred an Appeal before the ITAT who upheld the order of the CIT (Appeals) and dismissed the Appeal of the Revenue. From the order of the ITAT, the Revenue approached this Court by way of an Appeal. After examining the entire factual matrix of the matter and the law on the subject, this Court held as under :- "If there be interest-free funds available to an assessee sufficient to meet its Investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-free funds available. In our opinion, the Supreme Court in East India Pharmaceutical Works Ltd. v. CIT [1997] 224 ITR 627 had the occasion to consider the decision of the Calcutta High Court in Woolcombers of India Ltd. (1982) 134 ITR 219 where a similar issue had arisen. Before the Supreme Court it was argued that it should have been presumed that in essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business and in these circumstances the appellant was entitled to claim the deductions. The Supreme Court noted that the argument had considerable force, but considering the fact that the contention had not been advanced earlier it did not require to be answered. It then noted that in Woolcombers of India Ltd 's case (1982) 134 ITR 219 the Calcutta High Court had come to the conclusion that the profits were sufficient to meet the advance tax liability and the profits were deposited in the over draft account of the assessee and in such a case it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business It noted that to raise the presumption, there was sufficient material and the assessee had urged the contention before the High Court. The principle, therefore, would be that if there were funds available both interest-free and over draft and/or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the company if the interest-free funds were sufficient to meet the investment. In this case this presumption is established considering the finding of fact both by the Commissioner of Income-tax (Appeals) and the income-tax Appellate Tribunal (Emphasis supplied)

P a g e | 21 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited 5. We find that the facts of the present case are squarely covered by the judgment in the case of Reliance Utilities & Power Ltd. (supra) The finding of fact given by the ITAT in the present case is that the Assessee's own funds and other non-interest bearing funds were more than the investment in the tax-free securities This factual position is not one that is disputed in the present case, undisputedly the Assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in the tax-free securities. In view of this factual position, as per the judgment of this Court in the case of Reliance Utilities & Power Ltd. (supra), it would have to be presumed that the investment made by the Assessee would be out of the interest-free funds available with the Assessee. We therefore, are unable to agree with the submission of Mr Suresh Kumar that the Tribunal had erred in dismissing the Appeal of the Revenue on this ground. We do not find that question (A) gives rise to any substantial question of law and is therefore rejected.” 11.4. The facts of the instant case being identical, the above two judgements of the Hon'ble Bombay High Court are binding in nature. In this case too, the assessee's interest free funds/own funds are much more than the loans/advances advanced during the year and therefore, the presumption should arise that the advance would be out of the interest free funds generated or available with the company if the interest free funds are sufficient to make the advances. As the assessee had sufficient interest free funds, the interest disallowance made by the AO cannot be upheld; the same is directed to be deleted. Further, it is also seen from the records that the assessee itself had disallowed interest expenditure to the tune of Rs. 27,77,70,361/- in the computation of income as that interest amount was not paid to the bank. Therefore, even on this ground, the interest disallowance made by the AO cannot be sustained as it amounts to double disallowance. This ground of appeal is ALLOWED.”

P a g e | 22 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited compared to the advance amount of Rs.15,89,07,656/- given to M/s AMR Construction Ltd. It is evident from the above material fact that capital advance given were very small compared to the interest free funds available with the assessee company, therefore, we don’t find any infirmity in the decision of ld. CIT(A). Accordingly, this ground of appeal of the revenue is also dismissed. 30. The appeal of the revenue is dismissed. ITA No. 7900/Mum/2019 (AY: 2013-14) Ground No. 1: Upholding the addition u/s 69C of the Act @ 2% of capital advances given amounting to Rs.31,78,153/-: 31. During the course of assessment the assessing officer found that assessee had entered into certain transaction with M/s AMR Construction Ltd. amounting to Rs.15,89,07,656/-. After considering the submission of the assessee the AO noticed that assessee had not followed the standard procedure and on the last page of the agreement the name of the person signing the agreement on behalf of the respective parties were left blank. The notice issued u/s 133(6) of the Act to M/s AMR Construction Ltd. was returned unserved. The assessee also failed to produce the PF/ ESIC register maintained by the contractor to prove the genuineness of the transaction. Therefore, the assessing officer estimated commission @ 2% on the transaction and made disallowance of Rs.31,78,153/- u/s 69C of the Act. 32. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee. 33. Heard both the sides and perused the material on record. Without reiterating the fact as discussed above it is found that assessee has not brought any material on record to controvert the findings of the assessing officer that it had followed standard operating procedure. The

P a g e | 23 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited assessee could not controvert this fact that last pages of the agreement which contained the name of the person signing the agreement on behalf of the respective parties were left blank and the notice issued u/s 133(6) of the Act to M/s AMR Construction Limited was returned unserved and no record of PF/ESIC register maintained by the contractor was produced before the assessing officer. In this regard we have also considered the finding of ld. CIT(A) which ae reproduced as under: “6.3 The submissions filed by the ld. Counsel have been carefully considered. The main contentions of the assessee are that there is not standard operating procedure and that the admission made by the assessee during the survey has been retracted. The Ld. counsel for the appellant reiterated the genuineness of the transactions and argued that the assessee Is not in a position to produce the party and the AO himself failed to summon the party. The contract was executed around 7 years back and the assessee is not required to keep track and the office of Development Commissioner falls In the jurisdiction of Ministry of Commerce which is a legal entity established by Government of India which is authorised to accept and maintain the records related to business of FTWZ- SEZ entity. The assessee produced a copy of the contract agreement and bills raised by the contractor. However, these evidences furnished by the assessee do not conclusively prove the genuineness of the transactions for the following reasons: There was a survey on the assessee company on 20.01.2014 wherein the CFO of the company, Shri Shyam Sunder Rathi was examined under oath and he admitted to the bogus accommodation entries taken from M/s. AMR Constructions Ltd., M/s. Gremach Infrastructure Equipment and Project Ltd. and M/s. ICSA (India) Ltd: When the CMD of the company, Shri Ajay Mittal was confronted with the statement given by Shri Shyam Sunder Rathi, he had also confirmed that the transactions were in the nature of accommodation entries, though he had retracted the statement subsequently. Further to the survey in March, 2014, Shri Navnit Choudhary, Director of the company had given the statement before the AO stating that these entries were in the nature of accommodation. Three people taking the same stand cannot be a coincidence. When a statement has been given it cannot be simply retracted without any concrete evidence. The Hon'ble Supreme Court in the case of Pullangode Rubber& Produce Co. Ltd. vs State of Kerala 91 ITR 18 (SC) held that "an admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect. In this case, three persons have made the statements and only one has retracted. The statement of Shri Navnit Chaudhary given in March 2014, much after the survey has not been retracted till date and cannot be ignored. If the assessee is now stating that the statements given during the survey and subsequently are false, it is for them to prove that they are false. However, no such effort has been made by the assessee. Of course, the assessee is able to produce copy of the contract agreement, sales copies of the bills raised by the

P a g e | 24 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited contractor and the bank account statement reflecting the payments. But this is not going to prove the genuineness of the transactions as all these things would be present even in accommodation entries. It is not just that they will be present but it Is a pre-requisite to put up the façade of genuineness. Therefore, these evidences filed by the assessee have no value. Further, it has been proved that M/s. Gannon Dunkerly& Co. Ltd. had obtained accommodation entries from M/s. AMR Constructions Ltd., M/s. ICSA (India) Ltd. and also M/s. Gremach Infra Equipments& Projects Ltd. This shows that the assessee is in the habit of taking accommodation entries. Similarly entries to jackup turnover were taken from M/s. Columbus Freight Carriers also. As the assessee's conduct is suspect due to the background of the entry providing companies and the history even the transactions with M/s. AMR Constructions cannot be taken on face value in the light of overwhelming evidence against the assessee. In view of the facts and circumstances, it is held that the assessee has not conclusively proved the genuineness of the transactions and therefore the addition of Rs.31,78,153/- is confirmed. This ground of appeal is DISMISSED.” The assessee has not produced any material to controvert the above facts and finding of the ld. CIT(A) as reproduced above, therefore, we don’t find any merit in this ground of appeal of the assessee the same stand dismissed. Ground No.2: 34. Similar to the fact and issue as discussed supra in ground no. 1 of the appeal of the assessee in this ground also the assessee has not provided conclusive proof of the transaction except copy of ledger account as discussed in the finding of ld. CIT(A) in support of the addition made of Rs.5,36,000/- being commission @ 1% on the bogus accommodation entries obtained from Orataman Realtors Ltd. Similar to the reason discussed in the finding of the ld. CIT(A) while adjudicating ground of appeal no. 1 of the assessee we find that assessee has not brought any material on record to controvert the facts and findings of the lower authorities therefore we don’t find any reason to interfere in the decision of ld. CIT(A). Accordingly, this ground of appeal of the assessee stand dismissed. 35. In the result, the appeal of the revenue vide ITA No. 3952/Mum/2015 is partly allowed and ITA No. 971/Mum/2020 is

P a g e | 25 ITA No.3952/Mum/2015 & 971/Mum/2020, ITA No.7900/Mum/2019 ACIT, CC 6(4) Vs. M/s Arshiya Limited dismissed and the appeal of the assessee vide ITA No. 7900/Mum/2019 is also dismissed. Order pronounced in the open court on 08.04.2024 Sd/- Sd/- (Aby T Varkey) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 08.04.2024 Rohit: PS

आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant प्रत्यथी / The Respondent. 2. आयकर आयुक्त / CIT 3. 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण/ ITAT, Bench, Mumbai.