DEPUTY COMMISSIONER OF INCOME TAX-1(3)(1), MUMBAI, MUMBAI V. SPS FINQUEST LIMITED, MUMBAI

ITA 4367/MUM/2024

AI Insights

The case involves an appeal by the Deputy Commissioner of Income Tax against SPS Finquest Limited, concerning the assessment order for the year 2017-2018. The primary issues were the disallowance of interest expenses under Section 14A and the addition of INR 10 Crores as unexplained credit under Section 68, related to a loan from Shri Vighnaharta Realty Pvt. Ltd. The CIT(A) had earlier ruled in favor of the assessee, leading to the Revenue's appeal to the Tribunal. The Tribunal found no merit in the Revenue's arguments and dismissed the appeal, affirming the CIT(A)'s decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 33350 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2017-2018
• Other Referred Cases: South Indian Bank Ltd. Vs. CIT [2021] 438 ITR 1 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ASSESSEE
• Keywords: Onus to prove; Source of fund; Rule 8D
• Section: 143(3); 250; 68; 133(6); 14A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER SHRI OMKARESHWAR CHIDARA, ACCOUNTANT MEMBER ITA No.4367/MUM/2024 (Assessment Year: 2017-2018) Deputy Commissioner of Income Tax- 1(3)(1), Mumbai R. No.535, 5th Floor, Aayakar Bhavan, M. K. Road, Mumbai – 400020, Maharashtra. …………. Appellant SPS Finquest Limited R 514, 5th Floor, Rotunda Building, B. S. Marg, Fort, Mumbai – 400001, Maharashtra. [PAN:AAACC2671C] Vs …………. Respondent Appearance For the Appellant /Department For the Respondent /Assessee : : Shri Kishor Dhule Shri Devendra Jain Date Conclusion of hearing Pronouncement of order : : 24.12.2024 31.01.2025 O R D E R [ Per Rahul Chaudhary, Judicial Member: 1. 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 ITA No.4367/Mum/2024 Assessment Year 2017-2018 2 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. 2. 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.” 3. 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. 4. 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. 5. Being aggrieved, the Revenue has preferred the present appeal before the Tribunal on the grounds reproduced at paragraph 2 above. 6. We have heard both the sides and have perused the material on record. 7. There was a delay of 54 days in filing the appeal. The Learned ITA No.4367/Mum/2024 Assessment Year 2017-2018 3 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 8. 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 ITA No.4367/Mum/2024 Assessment Year 2017-2018 4 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 9. 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. 10. We have heard both the sides on this issue and have perused the material on record. 11. 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. 12. 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 ITA No.4367/Mum/2024 Assessment Year 2017-2018 5 reads as under: “In compliance with above referred notice, we would like to submit as under. 1. 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 2. 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.” 13. 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 Registrar of Companies for change of name d. Board Resolution passed on 11/04/2016 by board of M/s.Shri Vighnahrata Realty Pvt. Ltd. to provide loan to M/s.SPS Finquest Ltd. e. Letter, dated 12/04/2016, by M/s. Shri Vighnahrata Realty Pvt. Ltd. to the Assessee for specifying terms of loan f. Copy of confirmation letter in favour of the Assessee from M/s. Shri Vighnahrata Realty Pvt. Ltd. ITA No.4367/Mum/2024 Assessment Year 2017-2018 6 g. Copy of Ledger A/c. of the Assessee received from M/s. Shri Vighnahrata Realty Pvt. Ltd. h. Year wise ITR filing status of M/s.Shri Vighnahrata Realty Pvt. Ltd. along with copy of ITR-V from AY 2013-14 to AY 2018- 19. i. Balance Sheet and Profit and Loss Account of M/s. Shri Vighnahrata Realty Pvt. Ltd. for Assessment Year 2016-17 & 2017-18 j. Affidavit of Lender (Shri Vighnahrata Realty Pvt. Ltd.) explaining source of loan given k. Copy of PAN Card (PAN:AAACL7807P) of Shri Vighnahrata Realty Pvt. Ltd. (formerly known as Lewis Alpha Agrotech Ltd.) and Copy of PAN Card (PAN:AAKCS3531P) of Shri Vighnahrata Realty Pvt. Ltd. l. Memorandum of Understanding (MoU) dated 19/05/2016 between of Shri Vighnahrata Realty Pvt. Ltd. & Infinium Natural Resources Investments Pvt. Ltd. for purchase of non- agricultural land. 14. After examining the above documents, the CIT(A) noted that the Lender was originally incorporated in the year 1993 as Lewis Alfa Agrotech Private Limited and its name was changed to name Lewis Alfa Agrotech Private Limited and thereafter, to M/s. Shri Vighnahrata Realty Pvt. Ltd. Further, the CIT(A) came to a conclusion that the Assessee had discharged the onus cast upon the Assessee in terms of Section 68 of the Act to prove genuineness of the transaction and identity as well as creditworthiness of the Lender. The findings returned by the CIT(A) in this regard are as under: “6.2.18 From the details as aforesaid it is vivid that the loan creditor is (i) income tax assessee, (ii) It has filed return of income, (iii) the loan money was paid by RTGS, (iv) the details of the bank accounts belonging to the loan creditor and its bank statements are on record, (v) the loan creditor is having substantial creditworthiness. 6.2.19. As noted from the judicial precedents cited above, where any sum is found credited in the books of an assessee then there is a duty casted upon the assessee to explain ITA No.4367/Mum/2024 Assessment Year 2017-2018 7 the nature and source of credit found in his books. In the instant case, the credit is in the form of receipt of Unsecured Loan. The nature of receipt towards loan by the appellant is seen from the entries passed in the respective balance sheets of the loan creditor. In respect of source of credit, the appellant has to prove the three necessary ingredients i.e. identity of Loan creditor, genuineness of transactions and creditworthiness of loan creditor. For proving the identity of loan creditor, the appellant furnished the name, address, PAN of creditor together with the copies of balance sheets and Income Tax Returns. With regard to the creditworthiness of loan creditor, it is evident from copy of MOU between the loan creditor and one M/S Infinium Natural Resources Investments Pvt. Ltd,(filed by the loan creditor in reply to 133(6) notice), the loan creditor has received Rs. 25.00 Crores as advance against land sale. The credit of said advance of Rs. 25.00 Crore is reflecting in the bank statement of the loan creditor. The loan transactions is also duly reflected in the balance sheets of the loan creditor, so creditworthiness is proved. Even if there was any doubt if any regarding the creditworthiness of the loan creditor was still subsisting, then AO should have made enquiries from the AO of the loan creditor as held by Hon'ble Calcutta High Court in CIT vs DATAWARE (supra) which has not been done, so no adverse view could have been drawn. Third ingredient is genuineness of the transactions, for which it is noted that the monies have been directly paid to the appellant company by RTGS out of sufficient bank balances available in the bank account of the loan creditor. It is evident that the appellant has even demonstrated the source of money in the hands of loan creditor. Hence the source of source is proved by the appellant in the instant case. The Loan Creditor has confirmed the loan transaction with the appellant in response to the notice u/s 133(6) of the Act and have also confirmed the payments which are duly corroborated with his bank statements and all the payments are by RTGS/Banking Channel. 6.2.20. From the above facts, it is evident that all the three ingredients viz., identity, genuineness and creditworthiness have been proved beyond doubt. ITA No.4367/Mum/2024 Assessment Year 2017-2018 8 6.2.21. In this case on hand, the appellant had discharged its onus to prove the identity, creditworthiness and genuineness of the Loan Creditor, thereafter the onus shifted to AO to disprove the documents furnished by appellant. The documents submitted by the appellant and loan creditor cannot be brushed aside by the AO to draw adverse view. In the absence of any investigation, much less gathering of evidence by the Assessing Officer, I hold that an addition cannot be sustained merely based on inferences drawn by circumstance. Applying the propositions laid down in these case laws to the facts of this case, I am inclined to uphold the claim of the appellant.” 15. The above findings returned by the CIT(A) had gone uncontroverted during the appellate proceedings before the Tribunal. On perusal of material on record forming part of the paper book furnished by Assessee, we also concur with the above findings returned by the CIT(A) and hold that the Assessee had discharged its onus to prove the genuineness of the loan transactions as well as identity and creditworthiness of the lender. The Revenue has failed to bring on record any material to doubt the veracity of the documents/details furnished by the Assessee and/or to shift the onus back on to the Assessee. Accordingly, we declined to interfere with the order passed by the CIT(A) deleting the addition of INR.10 Crores made by the Assessing Officer under Section 68 of the Act. Thus, Ground No.2 raised by the Revenue is dismissed. Per Omkareshwar Chidara, Accountant Member (Concurring): 16. While concurring with the Order of Hon’ble Judicial Member (Shri Rahul Chaudhary), the following observations are made by the undersigned:- M/s. Lewis Alfa Agrotech Ltd. was issued a new Certificate of Incorporation (change of name) by ROC as Shri Vighnaharta Realty Pvt. Ltd. vide its order dated 4.3.2005. During the ITA No.4367/Mum/2024 Assessment Year 2017-2018 9 hearing proceedings before the ITAT, it is observed that they are using both PANs of Lewis Alfa Agrotech Ltd. and Shri Vighnaharta Realty Pvt. Ltd., while filing returns of income in subsequent years. This is brought to the notice of Income Tax authorities, as no assessee can use both PANs simultaneously and one PAN had to be deactivated in the process of deduplication of PANs. All the other observations of Hon’ble Judicial Member are concurred with pertaining to this case in the above captioned appeal Order. 17. In result, the present appeal preferred by the Revenue is dismissed. Order pronounced on 31.01.2025. Sd/- Sd/- (Omkareshwar Chidara) Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 31.01.2025 Milan,LDC ITA No.4367/Mum/2024 Assessment Year 2017-2018 10 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त/ The CIT 4. प्रध न आयकर आय क्त / Pr.CIT 5. दिभ गीय प्रदिदनदध ,आयकर अपीलीय अदधकरण ,म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदधकरण, म ुंबई / ITAT, Mumbai "