DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1(3), NAGPUR V. M/S. FUELCO COAL INDIA LTD., NAGPUR

ITA 90/NAG/2022

AI Insights

The case involves the Deputy Commissioner of Income Tax, Central Circle-1(2), Nagpur as the appellant and M/s Fuel Co. Coal India Ltd as the respondent. The dispute arose from the assessment year 2014-15, where the Assessing Officer made several additions to the income of the assessee under various sections of the Income Tax Act, 1961, including unexplained cash credit and disallowances related to non-deduction of TDS and interest on loans. The CIT(A) deleted these additions, which led to the Revenue's appeal to the Income Tax Appellate Tribunal, Nagpur. The Tribunal upheld the CIT(A)'s decision, finding no merit in the Revenue's arguments.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 24490 (ITAT-NAGPUR)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2014-2015
• Other Referred Cases: CIT vs P. Mohanakala, Sumati Dayal vs CIT, CIT vs Sun Engineering Works (P) Ltd, CIT vs Reliance Utilities & Power Ltd, HDFC Bank Ltd vs DCIT, CIT vs Orchid Industries Pvt Ltd, PCIT vs N.C. Cables Ltd, CIT vs Navodaya Castles Pvt. Ltd, CIT vs Lovely Exports (P) Ltd, CIT vs Value Capital Services (P) Ltd, CIT vs Bedi & Co. Pvt. Ltd, S.A. Builders Ltd vs CIT (Appeals) & Anr
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANDIPKUMAR SALUNKE
• Assessee Lawyers: KISHORE P. DEWANI; DECISION OF HONBLE
• Keywords: Set aside; Proportionate interest; Unexplained cash credit; Commercial expediency; Gift; Period of limitation; TDS; Accommodation entries; Time period of passing order; Revision of order; Liquidation
• Section: 143(3); 143(2); 154; 68; 22; 139; 14A; 40(a)(ia); 40a(ia)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI V. DURGARAO, JUDICIAL MEMBER AND SHRIK.M. ROY, ACCOUNTANT, MEMBER ITA no.90/Nag./2022 (Assessment Year : 2014–15) Dy. Commissioner of Income Tax Central Circle–1(2), Nagpur ……………. Appellant v/s M/s. Fuel Co. Coal India Ltd. 926–A, Fulwani Palace Central Avenue, Despande Layout Nagpur 440 008 PAN – AAACF8231B ……………. Respondent Assessee by : Shri Kishore P. Dewani Revenue by : Shri Sandipkumar Salunke Date of Hearing – 30/01/2025 Date of Order – 14/02/2025 O R D E R PER V. DURGA RAO, J.M. The appeal by the assessee is emanating from the impugned order dated 31/12/2021, passed by the learned Commissioner of Income Tax (Appeals)–3, Nagpur, [“learned CIT(A)”], for the assessment year 2014–15. 2. In its appeal, the assessee has raised following grounds:– “1. The additions made are illegal, invalid and bad in law. 2. The additions made are unjustified, unwarranted and in any case excessive. 3. The addition made in Para 4(1) at Rs. 4,54,98,000/- on account of unexplained cash credit u/s 68 on account of share capital and premium from M/s Saphire Marketing Pvt Ltd is unjustified, unwarranted and in any case excessive. 2 M/s. Fuel Co. Coal India Ltd. ITA no.90/Nag./2022 4. The disallowance made u/s 40(a)(ia) in Para 4(2) at Rs.1,50,000/- on account of Payment made to the advocate for non deduction of TDS is wrong as per amendments in provisions. 5. The disallowance made u/s 40(a)(ia) in para 4(2) at Rs. 1,86,63,861/-on account of payment made to M/s Bothra Shipping Services Pvt. Ltd. Fornon deduction of TDS os wrong as per amendments in provisions. 6. The disallowance of interest u/s 36(1)(iii) as per Para–4(3) at Rs. 15,86,284-/– for interest is unjustified, unwarranted and in any case excessive. 7. Any other grounds prayed at the time of hearing.” 3. There is a delay of 54 days in filing the present appeal by the Revenue. The learned Departmental Representative submitted that this delay occurred due to COVID–19 period and hence the delay be condoned. In this regard, it is to be mentioned here that the Hon’ble Supreme Court, vide judgment dated 10/01/2022, passed in M.A. no.21 of 2022, in M.A. no.665 of 2021, in Suo-Motu Writ Petition (Civil) no.3 of 2020, has held that the limitation period for filing the appeal was extended upto 29/05/2022. In view of this, since the delay being minor present appeal has been filed on 18/05/2022, which is within the extended time granted by the Hon’ble Supreme Court during the COVID period, we hold that there is no delay in filing the present appeal by the Revenue and hence we proceed to decide the matter on merits. 4. Facts in Brief:– The assessee is a company. For the year under consideration, the assessee filed its original return of income on 29/11/2014, declaring total income of ` 1,05,86,240, with MAT purpose book profit at ` 2,31,61,735. The return of income thus filed was selected for scrutiny assessment and notice under section 143(2) of the Income Tax Act, 1961 (\"the Act\") was served on 10/09/2015, on the assessee company. Scrutiny assessment under section 143(3) of the Act was completed vide order dated 3 M/s. Fuel Co. Coal India Ltd. ITA no.90/Nag./2022 29/12/2016, determining total income at ` 7,64,84,380, after making the following addition:– Sr. no. Description Amount (`) 1. Unexplained cash credit u/s 68 on account of share capital and premium received from M/s Saphire Marketing Pvt Ltd. 4,54,98,000 2. Disallowance u/s 40a(ia) on account of payment made to the Advocate Shri Rahul Bagade wilthout deducting TDS 1,50,000 3. Disallowance u/s 40a(ia) on account of failure to deposit in the Govt Account the TDS deducted on payment made to M/s Bothra Shipping Services Pvt Ltd. 1,86,63,861 4. Disallowance of 15% of finance cost claimed in the P&L account on account of loans and advances gives to related parties. 15,86,284 The assessee being aggrieved by the aforesaid assessment order so passed by the Assessing Officer, carried the matter before the first appellate authority. 5. The learned CIT(A) deleted all the above additions made by the Assessing Officer while observing as under:– “4. Discussion and decision Ground No. 1, 2 and 7 as submitted by the appellant are general in nature, therefore, not adjudicated. 4.1 In ground of appeal no. 3 the appellant has challenged the addition of Rs 4,54,98,000/- u/s 68 of the Act on account of share capital and premium received from M/s Saphire Marketing Pvt Ltd. This issue has been discussed in detail in para 4(1) of the assessment order. 4.1.1 During the relevant FY 2013-14, the appellant has issued 15,16,600 shares of Rs 10/- face value at the premium of Rs 20/-, thus at a total consideration of Rs 4,54,98,000/-, to M/s Saphire Marketing Pvt Ltd. During the assessment proceedings, the appellant was asked to file documentary evidence to establish the identity & creditworthiness of the investor and the genuineness of the transaction. The appellant's AR submitted copy of the minutes of the board meeting with regard to the issue & allotment of shares, copy of the return of income along with balance sheet and P&L A/c of Saphire Marketing Pvt. Ltd. The AO was not satisfied with the submissions of the AR 4 M/s. Fuel Co. Coal India Ltd. ITA no.90/Nag./2022 and concluded that the appellant has failed to establish the creditworthiness and genuineness. The reasons given by the AO are: 1. The investor M/s Saphire Marketing Pvt. Ltd has shown NIL income in its return of income for AY 2014-15. The P&L A/c of the Company for the same period shows that it is not doing any business. The Balance sheet as on 31.03.2014 shows that it has no funds except share capital & reserves of Rs 2.23 Crores. This shows that the Company is only a paper company giving only accommodation entries. 2. The AO has expressed doubts regarding the share capital and premium received by the Company M/s Saphire Marketing Pvt Ltd from various subscribers over the past number of years. The immediate source of payment of the share capital & premium by s Saphire Marketing Pvt Ltd is the sale of investment in shares held by it. Company had purchased shares of various companies in FY 2008-09 for 26.89 Crores and the same were sold in the FY 2013-14 at the same price for Rs 6.89 Crores. The AO has noted that the companies whose shares were purchased by M/s Saphire Marketing Pvt Ltd are registered in Kolkata. The AO notes that some of these companies' shares are used for providing accommodation entries. The AO also notes that in the bank account of the investor company' the exact same amount was received by cheque immediately before the payment made for purchase of shares. The AO has held that these are questionable transactions and therefore the creditworthiness of the investor M/s Saphire Marketing Pvt Ltd is not established. 4. The AO has relied on various judicial decisions, more prominent being decision of H'ble Supreme Court in the case of CIT vs P. Mohanakala [2007] [6 SCC 2] and Sumati Dayal [214 ITR 801] and held that facts and circumstances of the impugned case are similar to those covered by the above mentioned judicial decisions. The AO has invoked the proviso to section 68 of the Act and held that creditworthiness of the investor M/s Saphire Marketing Pvt Ltd and genuineness of the transaction are not established. 4.1.2 I have carefully perused the assessment order and also considered the submissions of the AR on this issue and I tend to disagree with the AO on various counts. Firstly, it is seen from record that the investor Company M/s Saphire Marketing Pvt Ltd is a sister concern of the appellant since Shri Naval Kishore Agrawal who holds majority shares in the appellant Company is a Director in M/s Saphire Marketing Pvt Ltd whereas another Director of the latter Company is Shri Anshul Agrawal who is son of Shri Naval Kishore Agrawal. Thus, the identity of the investor is not in doubt at all. Secondly, it is evident from record that the AO was factually incorrect in stating that the reserves and surplus as on 31.03.2014 of M/s Saphire Marketing Pvt Ltd were only Rs 2.23 Crores. Actually, the balance sheet as on 31.03.2014 of the Company shows that the reserves and surplus were Rs 22,30,13,466/- and not Rs 2.23 Crores as stated by the AO in the assessment order. Since the source of payment for the share capital & premium by M/s Saphire Marketing Pvt Ltd to the appellant can be its reserves and surplus, it is obvious that it had enough creditworthiness. 5 M/s. Fuel Co. Coal India Ltd. ITA no.90/Nag./2022 Thirdly, it is also evident from record that the investor M/s Saphire Marketing Pvt Ltd has made the payment to the appellant company for the share capital and premium through banking channel. The immediate source of these payments has been mentioned as the proceeds from the sale of shares held by M/s Saphire Marketing Pvt Ltd as investment. These investments were liquidated and the sale proceeds deposited in the bank account out of which payments were made to the appellant for the share capital and premium. Fourthly, it is important to mention here that it is the investments in shares held by M/s Saphire Marketing Pvt Ltd and the liquidation of the same in FY 2013-14 that has been adversely viewed by the AO. The AR has submitted a copy of the scrutiny assessment order of M/s Saphire Marketing Pvt Ltd, AY 2014-15, passed u/s 143(3) on 22.12.2016. In this assessment order the AO has disallowed Rs 11,30,384/- under section 14A of the Act. There is no adverse comment made by the AO in this scrutiny assessment order regarding the investments made by M/s Saphire Marketing Pvt Ltd in the shares of various companies. In fact, the sale of shares held as investment by M/s Saphire Marketing Pvt Ltd and its investment of the sale proceedings in the appellant company stands accepted in the assessment framed u/s 143(3) of the Act in the case of M/s Saphire Marketing Pvt Ltd. The AR has also submitted a copy of the scrutiny assessment of M/s Saphire Marketing Pvt Ltd, AY 2009-10, passed u/s 143(3) r.w.s 263 & 147 of the Act. For the AY 2009-10, the company M/s Saphire Marketing Pvt Ltd fled return of income showing loss of Rs 2,29,447/- which was reopened /s 147 of the Act and scrutiny assessment was completed vide order u/s 43/3) r.w.s 147 dated 22.12.2011 assessing the total income as Rs 2,78,115/-. The CIT, Kolkata-1, Kolkata, set aside the scrutiny assessment to be erroneous and prejudicial to the interests of revenue and directed the AO to conduct enquiries into the share capital and premium received by the Company from various subscribers. The AO of M/s Saphire Marketing Pvt Ltd, the ACIT, Central Circle-3(1), Kolkata, completed the scrutiny assessment vide order dated 30.03.2015 u/s 143(3) r.w.s. 263&147. The AO made detailed enquiries with respect to the share capital and premium received by the company M/s Saphire Marketing Pvt Ltd and did not find anything adverse. The AO states at para no. 7 of the order that, \"I have examined the submissions made by the assessee Company, statement recorded by the Directors of the subscriber companies and material on record. On perusal of the bank statements submitted by the above parties, it is found that no significant cash amount was deposited into the respective bank accounts up to two layers. It is placed on record that due to the paucity of time, restricted jurisdiction and permissible limit of enquiry under the Act, only up to two layers of transactions could be examined in this case. Further, as the assessing officer of the subscriber companies too, I have note down the transactions in detail and further information shared to assessing officer jurisdiction as and where applicable, as per direction of Ld. Commissioner of Income Tax u/s 263 of the Income Tax Act. In view of the above, no adverse inference is drawn so far as income of the assessee in the year under consideration. With the above in view the assessee income u/s 147/143(3) is being accepted and the same is being assessed u/s 263/147/143(3) of the IT Act, 1961.\" 6 M/s. Fuel Co. Coal India Ltd. ITA no.90/Nag./2022 Thus, the AO has stated in the assessment order that having examined upto two layers of the share capital and premium received by M/s Saphire Marketing Pvt Ltd, nothing adverse could be found. The return of income filed by M/s Saphire Marketing Pvt Ltd for AY 2017-18 was also subjected to by the AO. scrutiny assessment and the return income was accepted / It is evident from record that returns of income filed by M/s Saphire Marketing Pvt Ltd have been regularly selected for scrutiny assessment but nothing adverse has been found by the AO with respect to the share capital and premium received by it or the share investments made by it. 4.1.3 The AO has also raised questions on the liquidation of share investment by the Company M/s Saphire Marketing Pvt Ltd. The Company had invested Rs 6.89 Crores in the shares of 8 companies in the FY 2008-09. These shares were sold at the same price by M/s Saphire Marketing Pvt Ltd in FY 2013-14 and the amount of Rs 6.89 Crores was thus received by it. There was no profit or loss on these investments. The AO has stated that some of these scrips have been used for giving accommodation entries. However, that does not seem to be the case here since the share investments have been liquidated at the same price at which it was purchased. The comments of the AO are therefore not based on facts and are merely hypothetical and conjectural in nature. The genuineness of the transaction cannot be questioned merely on the basis of surmises and assumptions. Moreover, such transaction stand accepted in assessment framed u/s 143(3) for AY 2014-15 in the case of M/s Saphire Marketing Pvt Ltd vide assessment order dated 22.12.2016. 4.1.4 in the impugned case are distinctly different from those in the cited cases. In both these cases as well as in many other cases the H'ble Supreme Court has stated that it is not enough that money came through banking channels In the assessment order, the AO has relied on the decisions of the H'ble Supreme Court in the case of Sumati Dayal vs CIT [1995 AIR 2019, 1995 SCC Suppl.2 453] and the case of CIT vs P. Mohanakala [2007] [6 SCC 2 However, in my considered opinion the facts and circumstances involved and that assessee must offer proper, reasonable and acceptable explanation as regards the sums credited in the books maintained by the assessee. However, this does not imply that explanations offered by the assessee can be rejected based on hypothesis or conjectures. In Sumati Dayal case, the facts were that the assessee had claimed winning in horse races which were not eligible to tax for AY 1970-71. It was found in that case that the assessee had no knowledge of horse racing and on the days of racing or immediate preceding days there were no drawings in the books to explain purchase of jackpot tickets. In CIT vs Mohanakala case the assesssee had received gifts from non-resident. It is obvious that the facts involved in the cases cited by the AO are totally different from those involved in the impugned case. Here it is necessary to note that any judgment of a Court has to be read and understood in the context of the case before the Court. The Hon'ble Supreme Court in case of CIT vs. Sun Engineering Works (P) Ltd (1992) 198 ITR 0297 (SC) has held that \"The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the Courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to 7 M/s. Fuel Co. Coal India Ltd. ITA no.90/Nag./2022 pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasoning.\" 4.1.5 The AO has invoked the proviso to section 68 of the Act, which is reproduced as under. “68. Where any sum is found credited in the books of an assessee maintained for any previous kand the offers no explanation about the nature and source thereof or the planation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum credited may be charged to income-tax as the income of the assessee of that previous Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assexsee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.” The proviso to section 68 of the Act which was inserted by the Finance Act 2012, w.e.f. 01.04.2013 empowers the AO to examine the source of the source of the sum credited in the books of an assessee as share application money, share capital, share premium or any such amount. In the impugned case, the credit was recorded in the name of M/s Saphire Marketing Pvt Ltd who has filed explanation about the nature and source of the sum such credited. It was submitted before the AO during the assessment proceedings that M/s Saphire Marketing Pvt. Ltd has made the payment to the appellant Company out of the funds received from liquidation of its investments in shares. The AO has summarily rejected the explanation filed by the appellant based on the reason that some of the companies whose shares were sold by the appellant were used for providing accommodation entries to some other parties. But there is no evidence to show that M/s Saphire Marketing Pvt. Ltd itself has taken accommodation entries through investments in these scrips. Secondly, the shares were sold by M/s Saphire Marketing Pvt. Ltd at the same price at which they were purchased which does not indicate towards any accommodation entry thus taken. Therefore, the doubts raised by the AO regarding the sale of shares by M/s Saphire Marketing Pvt Ltd are not based on any credible evidence but only on conjectures and surmises. In my considered opinion the creditor M/s Saphire Marketing Pvt Ltd has satisfactorily explained the sum credited in its name in the books of the appellant and the proviso to section 68 of the Act cannot be invoked in the impugned case. 4.1.6 The facts and circumstances involved in the impugned case are similar to those involved in the case of PCIT vs Ami Industries (India) Pvt Ltd [ITA 8 M/s. Fuel Co. Coal India Ltd. ITA no.90/Nag./2022 Appeal no. 1231 of 2017] where the share application money of Rs 34 Crores received by the assessee from three companies registered in Kolkata was held as unexplained credit u/s 68 of the Act. The AO held that the identity & creditworthiness of the Kolkata companies was questionable and also doubted the genuineness of the transaction. The first appellate authority decided in favour of the assessee and the H'ble ITAT upheld that decision. Before the H'ble High Court of Bombay the Department counsel relied on decision of the H'ble Supreme Court in the case of NRA Iron & Steel Pvt Ltd and stated that the source of the source could not be satisfactorily explained by the assessee. The H'ble Court noted that first appellate authority held that assessee has submitted sufficient evidence in support of the identity & creditworthiness of the three Kolkata companies and also submitted confirmation of transactions by many documents such as share application form, copies of IT returns, confirmation letters etc. It was also noted that it is not necessary that the share application money should come only from taxable income and that it can also be paid out of borrowed funds. It was also noted that the AO had referred the matter to Department's Investigation wing of Kolkata and the latter had the companies were in existence and had filed returns of income for concerned assessment year. These facts were distinctly different from those involved in the case of NRA on & Steel Pvt Ltd where it was found that the creditors were non-existent or lacked creditworthiness. Therefore, the H'ble High Court of Bombay held that the ITAT was correct in upholding the decision of the first appellate authority and it decided in assessee's favour and against the Revenue. After carefully considering the facts & circumstances involved in the appellant's case, I am of the opinion that these are similar to the facts involved in the above discussed case. In the impugned case the AR has filed sufficient documentary evidence to establish the identity & creditworthiness of the investor and the genuineness of the transaction. In his written submission, the AR has relied on various judicial decisions where the facts involved are similar to that of the impugned case. Some of these are CIT vs Orchid Industries Pvt Ltd [(2017) 397 ITR 0136 (Bom)], PCIT vs M/s Paradise Inland Shipping Pvt Ltd [ITA no.66 of 2016], ACIT vs TRN Energy Pvt Ltd [ITA no. 453/Del/2016], and PCIT vs N.C. Cables Ltd [ITA no. 335/2015]. It is seen that in these cases the facts & circumstances involved were similar to those involved in the impugned case. Thus, in view of the above discussion and following the judicial principles discussed above, I am of the considered opinion that the AO was not justified in holding the share capital and premium of Rs 4,54,98,000/- received by the appellant from M/s Saphire Marketing Pvt Ltd as unexplained credit. Thus, the AO is directed to delete the addition of Rs 4,54,98,000/- made u/s 68 of the Act. Hence, this ground of appeal is 'allowed'. 4.2 The Ground of appeal no.4 is that the AO has made a mistake in making an addition of Rs 1,50,000/- for non-deduction of TDS on professional fee paid to Advocate Shri Rahul Bhangade. The AR has referred to the second proviso to section 40(a)(ia) wherein it is stated that if the payee has filed his return of income u/s 139 of the Act and has included the received sum in his computation of income in his return of income thus filed and has paid the tax due on the income declared in such return of income then it will be deemed that the assessee has deducted the tax and paid the tax on such sum on the 9 M/s. Fuel Co. Coal India Ltd. ITA no.90/Nag./2022 date of furnishing of the return by the payee. The AR has claimed that the payee, Advocate Shri Rahul Bhangade, has discharged his tax liability on the professional fee received from the appellant. However, the AR has not filed any documentary evidence to establish that the second proviso to section 40(a)(ia) is applicable in the appellant's case. The AO is directed to give an opportunity to the appellant to file necessary documentary evidence in support of the claim that the provisions of second provise to section 40(a)(ia) are applicable in appellant's case and therefore the addition made by the AO was not warranted. The addition of Rs 1,50,000/- made u/s 40(a)(ia) may be deleted only if the appellant's AR submits necessary documentary evidence in support of his contention. Hence, this ground of appeal is 'partly allowed'. 4.3 In ground of appeal no. 5, the appellant challenges the addition of Rs 1,86,63,861/– made on account of failure on the part of the appellant to deposit the TDS deducted by the appellant from payment to M/s Bothra Shipping Services Pvt Ltd to the government account before the due date for filing the return of income. This addition is discussed in para 4(2) of the assessment order. In his written submission the AR has stated that subsequent to filing this appeal the appellant filed a rectification petition u/s the Act and the AO has deleted this addition vide order u/s 154 dated 00017 The AR has written that since the issue is settled now there is no need to adjudicate on this matter. Hence this ground is not adjudicated. 4.4 The ground of appeal no. 6 is that the AO has made a mistake by making an addition of Rs 15,86,284/- u/s 36(1)(iii) of the Act which is the proportionate finance cost of interest free loans and advances given to related parties calculated by the AO at the rate of 15% of the such interest free loan and advances. The Al has held that the interest free loans were given to related parties out of interest bearing borrowed funds and this has increased the interest burden on the appellant and has resulted in lower net profit. The AO also held that since there was no commercial expediency for advancing these loans the proportionate interest calculated at the rate of 15% of the interest free loans given to the related parties was disallowed u/s 36(1)(iii) of the Act. During the appellate proceedings the AR has argued in his written submission that appellant has been maintaining regular books of account which have been duly audited by Chartered Accountant and that these books and audit reports have been accepted by the Department. It is also argued that the interest free loans were given out of the reserves and surplus of the appellant company which were Rs 24.94 Crores as on 31.03.2014 and not out of the interest bearing borrowed funds. Having carefully gone through the submissions of the AR, I am of the opinion that there is merit in the same. There is no evidence brought on record by the AO that the interest free loans and advances were given to the related parties out of interest bearing borrowed funds and not from reserves & surplus. The AR has correctly pointed out that the appellant has sufficient reserves and surplus; Rs 24.94 Crores as on 31.03.2014, and that interest free loans and advances to the related parties were given out of the same. 10 M/s. Fuel Co. Coal India Ltd. ITA no.90/Nag./2022 The AR has relied on decisions of the Hon'ble High Court of Bombay in the case of CIT vs Reliance Utilities & Power Ltd [(2009) 313 ITR 0340 (Bom)] and HDFC Bank Ltd vs DCIT [(2016) 383 ITR 0529 (Bom)]. In the case of CIT vs Reliance Utilities & Power Ltd mentioned supra, the H'ble High Court held that, \"If there be interest fee 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….. 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 meeet the investments.\" Similarly in the case of CIT vs Reliance Industries Ltd [(2019) 410 ITR 0466 (SC)], the H'ble Supreme Court has elucidated the same principle in the following words, \"In so far as the first question is concerned, the issue raises a pure question of fact. The High Court has noted the finding of the Tribunal that the interest free funds available to the assessee were sufficient to meet its investment. Hence, it could be presumed that the investments were made from the interest free funds available with the assessee. The Tribunal has also followed its own order for Assessment Year 2002-03.\" Thus, having considered the facts and circumstances of the case and the following the established judicial precedence on this issue, it is my considered opinion that the AO was not justified in making the addition of Rs 15,86,284/- made u/s 36(1)(iii) on account of proportionate disallowance of finance cost on interest-free loans & advances given to related parties. Hence this ground of appeal is allowed.” 5. Result:– In the result, the appeal of the appellant for A.Y. 2014–15, is treated as “partly allowed”.” 6. Insofar as grounds no.1, 2 and 3, are concerned, the learned Departmental Representative relied on assessment order whereas the learned Counsel for the assessee prayed that the order of the learned CIT(A) need not be disturbed. He has placed before the Bench, a gist of submissions which are reproduced below:– “Ground No. 1 to 5: Addition made by A.O. at Rs.454.98 lacs u/s 68 of I.T. Act 1961. 11 M/s. Fuel Co. Coal India Ltd. ITA no.90/Nag./2022 Α.Ο. Para 4.1 Page 2 to 5 CIT(A) Para 4.1 Page 22 to 31 A) Addition has been made in respect to share capital contribution at Rs.454.98 lacs of M/s Saphire Marketing Pvt. Ltd. It is associate company and has Common Directors with assessee company. B) At para 4.1 following documentary evidence in respect to M/s Saphire Marketing Pvt. Ltd. submitted by assessee on record is noted and considered: i) Copy of the Minutes of the Board Meeting; ii) Copy of Return of Income; iii) Copy of the Balance Sheet and P & L Account; (P-62-65) (65) iv) Copy of account of the assessee in the books of M/s Saphire Marketing Pvt. Ltd. v) Bank Book C) The corporate shareholder is assessed to Income Tax and share capital contribution received is through proper banking channel. It is reflected in financial statements of investor. Source of investment by corporate share holder is by liquidating its investment and details submitted before A.O. It is evident at page 3 of the assessment order. Information placed on record has not been found to be incorrect in any manner. No shred of adverse evidence is brought on record to discredit legal evidence adduced to explain share capital contribution. D) Scrutiny assessment proceedings of corporate shareholder M/s. Saphire Marketing Pvt. Ltd. is in progress on 16/12/2016. This fact was brought to knowledge of A.O. in written submission (P-79). A.O. made no verification with A.O. of corporate share holder and proceeded to make addition u/s 68 of I.T. Act 1961 at Rs.454.98 lacs even though assessment was framed in the case of corporate share holder on 22/12/2016 accepting investment made by such corporate share holder with assessee company. In the case of assessee assessment is framed 29/12/2016. on E) A.O. has drawn adverse view by noting at page 2 share capital and reserves & surplus of corporate share at Rs.2.23 crores to conclude that M/s Saphire Marketing Pvt. Ltd. is only paper company. Share capital and reserves & surplus of corporate shareholder as per evidence on record is Rs.22.30 crores (P-62). It is thus evident that conclusion of A.O. for corporate share holder to be paper company is on mistaken understanding of correct facts on record. F) Sale of share held by M/s Saphire Marketing Pvt. Ltd. and investment with assessee company has found acceptance by Assessing Officer of corporate share holder in assessment framed u/s 143(3) on 22/12/2016 (P-85 88). There remains no scope to make addition in respect to such amount u/s 68 of I.T. Act 1961 in the assessment framed on 29/12/2016. 12 M/s. Fuel Co. Coal India Ltd. ITA no.90/Nag./2022 G) In the case of corporate share holder assessment has been framed for Asstt. Year 2017-18 on 18/09/2019 by ITO, Ward-1(3), Kolkata u/s 143(3) of I.T. Act 1961 (P-89 90). This substantiates the genuineness and bonafides of corporate shareholder. H) In the case of corporate share holder for Asstt. Year 2009-10 assessment was framed u/s 143(3) r.w.s. 147 on 22/12/2011. The aforesaid assessment was set aside by order u/s 263 on 24/10/2013. Assessment has been framed u/s 143(3) r.w.s. 263 on 30/03/2015 wherein share capital contribution received by corporate share holder has been examined, verified and accepted by ACIT, Central Circle-3(1), Kolkata (P-102-106). Investment made out of such share capital cannot be doubted/disputed. Liquidation of investment accepted in the case of assessee in Asstt. Year 2009-10 cannot be faulted in any manner. Considering facts and evidence on record it cannot be alleged that share capital contribution to be in the nature of accommodation entry. I) In the assessment framed u/s 143(3) for Asstt. Year 2014-15 A.O. of M/s Saphire Marketing Pvt. Ltd. has made disallowance u/s 14A of I.T. Act 1961 by taking the investment value of shares as made in the case of assessee. Investment made in the assessee company having been considered for making disallowance u/s 14A in the case of corporate share cannot be disputed as unexplained credit at the hands of assessee. J) Reliance on: i) ITAT order in ITA No.453/Del/2016 in the case of M/s. TRN Energy Pvt. Ltd. vide order dated 01/01/2018 (P-1-21) (9, 10, 11, 19, 20) [Vol.- II] ii) (2017) 397 ITR 0136 (Bom.) CIT vs. Orchid Industries Pvt. Ltd. (P-22-23) (23) [Vol. - II] iii) ITAT order in ITA No.1867/Mum/2012 in the case of M/s. Orchid Industries Pvt. Ltd. vide order dated 07/02/2014 (P-24-39) [Vol. - II] iv) Hon'ble Bombay High Court order in Tax Appeal No.66 of 2016 in the case of M/s. Paradise Inland Shipping Pvt. Ltd. vide order dated 10/04/2017 (P-40-48) [Vol. - II] v) Hon'ble Supreme Court order in SLP (Civil) Diary Nos. 12644/2018 in the case of M/s Paradise Inland Shipping Pvt. Ltd. vide order dated 23/04/2018 (P-49) [Vol. II] vi) (2017) 98 CCH 0010 (Del.) Pr. CIT vs. N.C. Cables Ltd. (P-50-55) [Vol- II] vii) ITAT order in ITA No.4122/Del/2009 in the case of M/s. N.C. Cables Ltd. vide order dated 22/10/2014. (P-56-73) [Vol. - II] viii) (2016) 238 Taxman 0653 (Delhi) CIT-VIII vs. SVP Builders (India) Ltd. (P-74-83) [Vol. - II] ix) (2016) 380 ITR 0289 (Delhi) CIT & Ors. vs. Five Vision Promoters Pvt. Ltd. & Ors. P-84-96) [Vol. - II] 13 M/s. Fuel Co. Coal India Ltd. ITA no.90/Nag./2022 x) Supreme Court order No. Petition(s) for Special Leave to Appeal (C)... of 2015 CC No(s) 374/2015 in the case of Navodaya Castle (P) Ltd. (2014) (P–97) [Vol.-II] xi) (2014) 367 ITR 0306 (Delhi) CIT vs/ Navodaya Castles Pvt. Ltd. (P-98-108) [Vol. - II] Xii) ITAT order in ITA No.4613/Del/2010 in the case of M/s. Navodaya Castles Pvt. Ltd. vide order dated 24/08/2016 (P-109-122) [Vol. - II] xiii) (2008) 216 CTR 0195 (SC) CIT vs. Lovely Exports (P) Ltd. (P–123–124) [Vol.II] xiv) (2011) 333 ITR 0100 (Bom.) CIT vs. Creative World Telefilms Ltd. (P-125-126) [Vol. - II] xv) (2008) 307 ITR 0334 (Delhi) CIT vs. Value Capital Services (P) Ltd. (P-127-129) [Vol. - II] xvi) Hon'ble High Court of Bombay at Goa order in Tax Appeal No. 16 of 2012 in the case of Goa Sponge And Power Ltd. vide order dated 13/02/2012. (P-130-131) [Vol. - II] xvii) (2013) 356 ITR 0065 (MP) CIT vs. Peoples General Hospital Ltd. (P-132-138) [Vol. - II] xviii) Supreme Court order in Petition(s) for Special Leave to Appeal (Civil) ...../2014 CC 5997/2014 in the case of Peoples General Hospital P. Ltd. vide order dated 17/04/2014 (P–139) [Vol.II] xix) (1998) 230 ITR 0580 (SC) CIT vs. Bedi & Co. Pvt. Ltd. (P-140-143) [Vol. - II] xx) (2007) 288 ITR 0001 (SC) S.A. Builders Ltd. vs. CIT (Appeals) & Anr. (P-144-150) [Vol. - II] xxi) Hon'ble Bombay High Court order in ITA No. 1231 of 2017 in the case of M/s. Ami Industries vide order dated 29/01/2020. (P-151-165) [Vol. - II] Ground No.6: Addition of Rs. 15,86,284/- out of interest. Α.Ο. Para 4.3 Page 6 & 7 CIT(A) Para 4.4 Page 32 to 34 A) The A.O. has noted that sum of Rs. 105.75 lacs as interest free advance to compute estimated disallowance out of interest paid at Rs.15,86,284/-. Share Capital + Reserves Surplus of assessee company is Rs.24.94 crores (P-39). 14 M/s. Fuel Co. Coal India Ltd. ITA no.90/Nag./2022 B) CIT(A) has deleted the addition made by following the decision of Hon'ble Jurisdictional High Court in the case of Reliance Utilities & Power Ltd. reported at 313 ITR 340 (Bom) and HDFC Bank Ltd. reported at 383 ITR 529 (Bom) and Apex Court judgement in the case of Reliance Industries Ltd. as assessee was having share and reserves & surplus at Rs.24.94 crores. C) Issue in dispute is covered in favour of assessee by decision of Hon'ble Apex Court in the case of Reliance Industries Ltd. reported at 410 ITR 466 (SC).” 7. After carefully perusing the records and analysis meticulously the averments raised before us, as regards the issue of share capital, it is crystal clear that the Department had conducted the assessment for A.Y. 2014–15 under section 143(3) for A.Y. 2014–15 (Paper Book Page–87 to 87) under section 143(3) and only ` 10,475 was added under section 14A. Thus, when the financial affairs of the investor has been accepted without demur, it underscores the satisfaction of ingredients of section 68 was rightly deleted by the learned CIT(A). Hence, grounds no.1 to 3 of the Revenue is dismissed. 8. Insofar as grounds no.4 and 5, are concerned, the learned Departmental Representative placed reliance on the assessment order passed by the Assessing Officer and could not demonstrate as to how the impugned order passed by the learned CIT(A) is mistaken. Consequently, these grounds raised by the Revenue are dismissed by upholding the impugned order passed by the learned CIT(A). 9. As regards ground no.6, regarding diversion of interest bearing funds it is a matter of record that there was an infusion of shareholders funds of ` 4.5498 crore during the year. The loans and advances to relevant parties for ` 1.06 crore gets subsumed into the kitty of free funds available. Thus, it is 15 M/s. Fuel Co. Coal India Ltd. ITA no.90/Nag./2022 preposterous to assume that loan funds were diverted. Ground no.6, also fails. 10. Ground no.7, need not be adjudicated as it is general in nature. 11. As a result, appeal of the Revenue is dismissed. Order pronounced in the open Court on 14/02/2025 Sd/- K.M. ROY ACCOUNTANT MEMBER Sd/- V. DURGA RAO JUDICIAL MEMBER NAGPUR, DATED: 14/02/2025 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Nagpur; and (5) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Sr. Private Secretary ITAT, Nagpur "