DY. COMMISSIONER OF INCOME TAX- CC 3(4), MUMBAI V. PASHA FINANCE PVT LTD, MUMBAI

ITA 4316/MUM/2025

AI Insights

The case involves two appeals by the Revenue against Pasha Finance Pvt Ltd concerning disallowances made under section 14A read with Rule 8D and section 36(1)(iii) of the Income-tax Act for the assessment years 2013-14 and 2014-15. The primary issues revolved around the disallowance of expenses related to exempt income and the diversion of borrowed funds for non-business purposes. The CIT(A) had deleted the disallowances, which the Revenue challenged. The Tribunal examined the factual matrix, judicial precedents, and the financial details provided by the assessee, ultimately upholding the CIT(A)'s decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 782563 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 30-06-2025
• Other Referred Cases: CIT v. HDFC Bank Ltd. (366 ITR 505), Maxopp Investments Ltd. v. CIT, Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom), CIT vs. Reliance Industries Ltd. [2019] 410 ITR 466 (SC)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH MUMBAI BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA Nos. 4316 and 4317/MUM/2025 Assessment Years: 2013-14 and 2014-15 Dy. Commissioner of Income Tax- CC - 3(4) Vs. Pasha Finance Pvt Ltd 3-3A Churchgate House, 32 34, Veer Nariman, Fort, Mumbai - 400001 (PAN: AAACP8316P) (Appellant) (Respondent) Present for: Assessee : Shri Devendra Jain, Advocate Revenue : Shri Virabhadra Mahajan, Sr. DR Date of Hearing : 01.10.2025 Date of Pronouncement : 31.10.2025 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: These two appeals filed by Revenue are against the order of ld. CIT (A) 51, Mumbai vide order nos.- i) ITBA/APL/S/250/2025-26/1075771899(1) dated 23/04/2025 passed against the assessment order by ITO, Ward – 2(2)(4), Mumbai, u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 28.03.2016 for Assessment Year 2013-14 and ii) ITBA/APL/S/250/2025-26/1075772203(1), dated 23/04/2025 passed against the assessment order by ACIT, Circle-2(2)(2), Mumbai, u/s. 143(3) of Act, dated 30.12.2016 for Assessment Year 2014-15. Printed from counselvise.com 2 ITA Nos.4316 and 4317/MUM/2025 Pasha Finance Pvt. Ltd. AYs 2013-14 and 2014-15 2. Grounds taken by the Revenue are reproduced as under: ITA No. 4316/MUM/2025 A. Whether on the facts and the circumstances of the case and in law, the the Ld. CIT(A) was justified in deleting the disallowance of Rs.65,88,017/- made u/s 14A r.w. Rule 8D(ii) and restricting the disallowance made u/s 14A r .w. Rule 8D(iii) to Rs.83,708/-? B. Whether on the facts and the circumstances of the case and in law, the the Ld. CIT(A) was justified in deleting the disallowance u/s 14A read with Rule 8D(2)(ii) stating that the asses see' s own funds are far more than the investments made by the assessee yielding dividend income by relying on the decision of the Hon 'ble Bombay High Court in the case of CIT v. HDFC Bank Ltd. (366 ITR 505), whereas the Hon'ble Supreme Court in paras 42 & 43 of their decision in the case of Maxopp Investments Ltd. v. CIT in Civil Appeal No. 104-109 of 2005 dated 12/02/2018 have upheld the principle of apportionment in cases where the assessee has mixed funds and interest has been paid? C. Whether on the facts and the circumstances of the case and in law, the the Ld. CIT(A) was justified in deleting the disallowance u/s 36(1)(iii) of the I. T. Act of Rs. 5,71,88,880/- on account of diversion of borrowed funds for non- business purposes without appreciating the fact that the assessee failed to discharge the onus of establishing the nexus of own funds with interest free loan and advances made ? ITA No. 4317/MUM/2025 A. Whether on the facts and the circumstances of the case and in law, the the Ld. CIT(A) was justified in deleting the disallowance of Rs. 90,49,166/- made u/s 14A r.w. Rule 8D(ii) and restricting the disallowance made u/s 14A r .w. Rule 8D(iii) to Rs.48,742/-? B. Whether on the facts and the circumstances of the case and in law, the the Ld. CIT(A) was justified in deleting the disallowance u/s 14A read with Rule 8D(2)(ii) stating that the asses see' s own funds are far more than the investments made by the assessee yielding dividend income by relying on the decision of the Hon 'ble Bombay High Court in the case of CIT v. HDFC Bank Ltd. (366 ITR 505), whereas the Hon'ble Supreme Court in paras 42 & 43 of their decision in the case of Maxopp Investments Ltd. v. CIT in Civil Appeal No. 104-109 of 2005 dated 12/02/2018 have upheld the principle of apportionment in cases where the assessee has mixed funds and interest has been paid? C. Whether on the facts and the circumstances of the case and in law, the the Ld. CIT(A) was justified in deleting the disallowance u/s 36(1)(ii) of the I. T. Act of Rs. 6.73,83.986/- on account of diversion of borrowed funds for non- business purposes without appreciating the fact that the assessee Printed from counselvise.com 3 ITA Nos.4316 and 4317/MUM/2025 Pasha Finance Pvt. Ltd. AYs 2013-14 and 2014-15 failed to discharge the onus of establishing the nexus of own funds with interest free loan and advances made? 3. Common issues are involved in both the appeals except for variation in quantum of addition. Accordingly, both the appeals are taken up together for adjudication by passing this consolidated order. Facts are extracted from the appeal from Assessment Year 2013-14. 4. Assessee is engaged in the business of dealing in shares and securities. It filed its return of income on 01.10.2013 reporting the total income at Rs.23,19,774/-. Assessment was completed by making disallowance u/s.14A of Rs.69,50,988/- and u/s.36(1)(iii) of Rs.5,71,88,880/- amongst other additions, for which the assessee is in appeal before us. 5. We first take up issue relating to disallowance u/s.14A r.w.r. 8D(2)(ii) and (iii). During the year, assessee had received dividend income of Rs.74,77,421/-, claiming it exempt u/s.10(34). Assessee did not make any disallowance u/s.14A in respect of exempt income so received. Ld. Assessing Officer computed the disallowance u/r 8D as under: Printed from counselvise.com 4 ITA Nos.4316 and 4317/MUM/2025 Pasha Finance Pvt. Ltd. AYs 2013-14 and 2014-15 5.1. Claim of the assessee is that it had sufficient interest free funds available with it which exceeded the value of shares held by it. Details of net worth position vis-à-vis value of shares held is tabulated below: As at 31.03.2013 As at 31.03.2012 Rs. Rs. Share Capital 1,00,000 1,00,000 Reserves & Surplus 21,42,48,438 20,42,23,632 Share Application Money 85,00,000 85,00,000 Net Worth 22,28,48,438 21,28,23,632 Book value of shares held as 'Investments' 7,03,44,150 7,48,44,150 5.2. From the above table, it was contended that the interest free funds available was Rs.22,28,48,438/- whereas the value of shares held by it as investments is only Rs.7,48,44,150/- (opening). In respect of disallowance u/r. 8D(2)(iii), it was contended that no such expense was incurred for earning the said dividend income. Assessee had debited the following three expenditure to its profit and loss account, out of which amount of Rs.2 lakh towards donation was suo moto added back while computing the business income: i) Auditor's Remuneration Rs.28,090/- ii) Donation Rs.2,00,000/- iii) Professional Fees Paid Rs. 55,618/- ----------------- Rs.2,83,708/- ============ Printed from counselvise.com 5 ITA Nos.4316 and 4317/MUM/2025 Pasha Finance Pvt. Ltd. AYs 2013-14 and 2014-15 5.3. Assessee placed reliance on the decision of Hon'ble Jurisdictional High Court of Bombay in the case of CIT vs. HDFC Bank Ltd. [2014] 366 ITR 505 (Bom) which held that where an assessee possesses sufficient own funds to cover investments, no disallowance u/s.14A r.w.r. 8D(2)(ii) can be made. 6. Ld. CIT(A) after considering the factual position and submissions made by the assessee as well as the judicial precedents relied upon, deleted the disallowance made u/r. 8D(2)(ii) in respect of interest expenditure. For the disallowance u/r. 8D(2)(iii), by noting the principle that disallowance u/r. 8D(2)(iii) cannot exceed the actual expenses claimed, he restricted the said disallowance to the amount of actual expense debited to the profit and loss account, i.e., Rs.83,708/- since assessee had already suo moto made a disallowance of Rs. 2 lakhs on account of donation. Thus, partial relief was given by ld. CIT(A) in respect of disallowance u/s.14A r.w.r. 8D(2)(iii). 7. We have perused the material on record and gone through the order of the authorities below as well as paper book filed by the assessee along with synopsis. Admitted position of fact narrated above remains uncontroverted as nothing cogent is brought on record by the Revenue and the issue is covered by the judicial precedent relied upon. Accordingly, we do not find any reason to interfere with the findings arrived at by ld. CIT(A) on this issue. Ground raised by the Revenue in this respect is dismissed. 8. On the second issue relating to disallowance u/s. 36(1)(iii) towards interest expenditure claimed by the assessee, ld. Assessing Officer observed that interest income on loans and advances was not comparable to interest expenditure in terms of amount of borrowings Printed from counselvise.com 6 ITA Nos.4316 and 4317/MUM/2025 Pasha Finance Pvt. Ltd. AYs 2013-14 and 2014-15 and loans and advances given by the assessee. According to him, assessee had diverted higher rate of interest bearing funds to either interest free loans/advances or at lower interest to related parties. Negating the submissions made by the assessee, he made a disallowance of Rs.5,71,88,880/- towards interest expenditure for which assessee went in appeal before the ld. CIT(A). Claim of the assessee is that it had interest free funds amounting to Rs.22,51,39,838/- as on 31.03.2013, out of which Rs.15,47,95,688/- were available after accounting for non-current investments for Rs.7,03,44,150/- in shares, for making interest free advance of Rs.9,50,83,909/-. 8.1. Similar issue had come up before the Tribunal in assessee own case in Assessment Year 2009-10 in ITA No. 2851/M/2014, order dated 06.10.2016 wherein on similar set of facts, by applying the principles laid down by Hon'ble Jurisdictional High Court of Bombay in the case of Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom) and Hon'ble Supreme Court in the case of CIT vs. Reliance Industries Ltd. [2019] 410 ITR 466 (SC), relief was granted to the assessee. The law laid down in these judicial precedents is that there is legal presumption about interest free advances are made out of interest free funds available with the assessee. Ld. CIT(A) placed reliance on the decision of the Coordinate Bench in assessee’s own case for Assessment Year 2009-10 (supra) and took into account the factual position in respect of interest free funds available with the assessee and deleted the disallowance made by the ld. Assessing Officer. 9. We have perused the material in this respect placed before us along with orders of the authorities below. In addition to the factual Printed from counselvise.com 7 ITA Nos.4316 and 4317/MUM/2025 Pasha Finance Pvt. Ltd. AYs 2013-14 and 2014-15 position stated above, ld. Counsel for the assessee referred to the statement showing allocation of interest funds as on 31.03.2013 placed in the paper book in page-19 which is extracted below to demonstrate availability of interest free funds. 9.1. Having considered the factual position, law laid down by judicial precedents referred above and position of the Coordinate Bench in assessee’s own case (supra), we do not find any reason to interfere Printed from counselvise.com 8 ITA Nos.4316 and 4317/MUM/2025 Pasha Finance Pvt. Ltd. AYs 2013-14 and 2014-15 with the findings arrived at by ld. CIT(A) on this issue. Accordingly, ground raised by the Revenue in this respect is dismissed. 10. Identical fact pattern exists in the appeal for Assessment Year 2014-15 for which similar submissions are made and placed on record. Ld. CIT(A) has given similar findings, giving relief to the assessee on both the issues in similar manner. Accordingly, grounds raised by the Revenue on both the issues in appeal for Assessment Year 2014-15 are dismissed. 11. In the result, both the appeals by the Revenue are dismissed. Order is pronounced in the open court on 31st October, 2025 Sd/- Sd/- (Sandeep Gosain) (Girish Agrawal) Judicial Member Accountant Member Dated: 31st October, 2025 MP, Sr.P.S. Copy to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com "