DCIT - 7(1)(1), Mumbai, Aaykar Bhavan, Mumbai V. MORESHWAR TRADING COMPANY PRIVATE LIMITED, Mumbai

ITA 3933/MUM/2023

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 6769 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2024
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 26-05-2024
• Assessment Year: 2012-2013
• Appeal Filed On: 02-11-2023
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Additional evidence; Bad and doubtful debts; Capital expenditure; Set aside
• Section: 144; 14A; 37(1); 251; 143(2); 44AB; 13; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI SUNIL KUMAR SINGH, JM ITA No. 3933/Mu m/ 2023 (Assess me nt Year: 2012-13) DCI T-7(1) (1) Roo m No. 126, 1 st Floor, Aa ykar B havan M.K. Road, Mu mbai-400 020 Vs. Moreshwar Tradi ng Co mpa n y Private Li mited 53, Gr. Floor, Datta Bhava n, Gokhale Roa d, Dadar ( W), Mu mbai-400 028 (Appellant) (Respondent) PAN No. AAACM7515P CO No. 62/Mu m/ 2024 (Arising in ITA No. 3933/M u m/2023 for A.Y. 2012-13) Moreshwar Tra di ng C o mpan y Private Li mited 53, Gr. Floor, Datta Bhava n, Gokhale Roa d, Dadar ( W), Mu mbai-400 028 Vs. DCI T-7(1) (1) Roo m No. 126, 1 st Floor, Aa ykar B havan M.K. Road, Mu mbai-400 020 (Applicant) (Respondent) Assessee by : Shri Pra kash Jani, AR Revenue by : S mt. San yogita na gpal, CIT DR Dat e of hearing: 27. 05.2024 Date of pronouncement : 30. 05.2024 O R D E R PER PRASHANT MAHARISHI, AM: Page | 2 ITA No.3933/Mum/2023 & CO No.62/Mum/2024 Moreshwar Trading Company Private Limited; A.Y. 2012-13 01. ITA no. 3933/Mum/2023 is filed by the Dy. Commissioner of Income Tax, Circle 7(1)(1), Mumbai for A.Y. 2012-13 against the appellate order passed by the National Faceless Appeal Centre, Delhi [the learned CIT (A)] dated 9 th September, 2023 for A.Y. 2012-13 wherein the appeal filed by the assessee against the assessment order dated 27 th February, 2015, passed under Section 144 of the Income-tax Act, 1961 (the Act) by the Dy. Commissioner of income Tax, Circle 7(1)(1), Mumbai is upheld. 02. The assessee is also aggrieved with the same and has filed cross objections in CO No. 62/Mum/2024. 03. The learned Assessing Officer has raised following grounds of appeal:- “A. Whether on the facts and in the circumstances of the case and in law, the learned CIT (A) is justified in deleting the addition made on a/c of claim of forfeited amount of ₹1,25,00,000/- by not appreciating the fact that during the assessment proceedings the assessee had not made any submission in response to the statutory notices and show cause issued and assessment was completed under Section 144 of the Act as best judgment assessment? B. Whether on the facts and in the circumstances of the case and in law, the learned CIT (A) has justified in deleting the addition made on a/c of expenses claimed under the head, Miscellaneous Expenditure, Tour & Travel Expenditure, Sale Promotion, Labour Charges and Page | 3 ITA No.3933/Mum/2023 & CO No.62/Mum/2024 Moreshwar Trading Company Private Limited; A.Y. 2012-13 Vehicle Expenses @40% of total expenditure aggregating to ₹1,22,14,178/- on the ground that during appellate proceedings, the assessee submitted copy of Profit and Loss Account audited under Section 44AB of the Act without verifying the correctness and genuineness of expenditure claimed and without calling the remand report from the Assessing Officer? C. Whether on the facts and in the circumstances of the case and in law, the learned CIT (A) has justified in stating that, the relevant details submitted by the assessee were forwarded to Assessing Officer to submit his comments and the Assessing Officer did not submit the remand report without giving any communication details that the learned CIT (A) had shared the details with Assessing Officer and called remand report whereas as per the Appeal Module & Common Function Module of ITBA, there is no such communication sent by from the CIT (A), NFAC found in this regard and the claim of the learned CIT (A) that he has called remand report is incorrect and devoid of facts? D. Whether on the facts and in the circumstances of the case and in law, the learned CIT (A) is justified in restricting the disallowance made under Section 14A of the Act to the extent of exemption claimed du/s 10(34) of the Act at ₹60,000/- by accepting additional evidence without calling remand report from the Assessing Officer and also by not considering the assessee’s submission that the said claim of exempted income ₹60,000/- was offered Page | 4 ITA No.3933/Mum/2023 & CO No.62/Mum/2024 Moreshwar Trading Company Private Limited; A.Y. 2012-13 for taxation under the head income from other sources during the appellate proceedings before the CIT (A) and also not appreciating the CBDT’s Circular No.5/2014 which has also clarified that the disallowance under Section 14A is made irrespective of the fact whether any such income has been earned during the year or not? E. Whether on the facts and in the circumstances of the case and in law, the learned CIT (A) is justified in not sharing the additional evidence furnished before him and not calling remand report from the Assessing Officer required under Rule 46A of the IT Rules as there was new evidence produced during the appellate proceedings which was not furnished before the Assessing Officer while passing the order under Section 143() of the Act on 27/02/2015? F. Whether on the facts and in the circumstances of the case and in law, the learned CIT (A) is justified in admitting additional evidence furnished by the assessee during the appellate proceedings whereas provisions of Rule 46(1) has not been satisfied as under:- (a) There is no refusal of any admission of evidence by the Assessing Officer. (b) The assessee was not prevented from producing any evidence before the Assessing Officer which was called upon. Page | 5 ITA No.3933/Mum/2023 & CO No.62/Mum/2024 Moreshwar Trading Company Private Limited; A.Y. 2012-13 (c) There were no grounds of appeal made before the CIT (A) that the assessee was prevented from producing any evidence before the Assessing Officer. (d) There was no case that sufficient opportunity was not granted to the assessee to adduce evidence relevant to any ground of appeal. Whether the admission of any evidence by CIT (A) in violated the provision of Rule 46 A(1) of the IT Rules is admissible? G. Whether on the facts and in the circumstances of the case and in law, the learned CIT (A) is justified in not appreciating the decision of Delhi High Court in the case of CIT (Central-1) V/s Manish Build Well Pvt. Ltd., reported in 245 CTR 397 (Del) (2011), wherein the Hon'ble Delhi High Court has held that, where additional evidence was admitted and accepted as genuine at first appellate stage without Assessing Officer furnishing his comments and without verification, requirement of Rule 46(3) were not satisfied? In the instant case there was violation of Rule 46A(3) on the part of Learned CIT (A), NFAC as the evidence produced during the appellate proceeding which were not produced before the Assessing Officer, the learned CIT (A) failed to allow a reasonable opportunity to Assessing Officer. Page | 6 ITA No.3933/Mum/2023 & CO No.62/Mum/2024 Moreshwar Trading Company Private Limited; A.Y. 2012-13 (a) To examine the evidence or documents produced by the appellant. (b) To produce any evidence or documents, etc. in rebuttal of the additional evidence, produced by the appellant.” 04. The assessee has raised following grounds in cross objection:- “1. Addition under Exceptional item which appearing in Profit and Loss account ₹1,25,00,000/- 2. Addition on account of Other Expenses i.e. miscellaneous Expenses, Tour & Travel, Sales Promotion, Labour Expenses, Vehicle Expenses, under the Head Other Expenses-₹48,85,871/-.” 05. The brief fact of the case shows that Assessee Company is a dealer in automobile and automobile parts. It filed its return of income on 14 th February, 2013, at a total income of ₹75,17,820/-. The return of income was picked up for scrutiny. Notice under Section 143(2) of the Act was issued. As the assessee did not remain present during the course of assessment proceedings and ex-parte order under Section 144 of the Act was passed on 27 th February, 2015, determining the total income of ₹2,76,37,280/-. 06. The learned Assessing Officer found that assessee has debited ₹1,25,00,000/- as an exceptional item. The assessee was questioned to explain the same and as no explanation was submitted the above amount was disallowed. Further, the learned Assessing Officer found that assessee has debited other expenses in the Profit and Loss Account, hence, miscellaneous expenditure, Tour and Travels, Sales Promotion, Labour Charges, etc. In absence of any information he Page | 7 ITA No.3933/Mum/2023 & CO No.62/Mum/2024 Moreshwar Trading Company Private Limited; A.Y. 2012-13 disallowed 40% of the said expenditure amounting to ₹48,85,671/-. Further disallowance of ₹27,33,792/- was made under Section 14A of the Act, as has earned dividend income of ₹60,000/-. 07. Aggrieved, by the above assessment order assessee preferred an appeal before the learned CIT (A). The learned CIT (A) issued 7 notices to the assessee where several submissions were filed. During the course of appellate proceedings, the assessee submitted the additional evidences and application was made for its admission. The learned CIT (A) considered the same. With respect to the disallowance of ₹1.25 crores, the assessee explained that above amount is forfeiture of bank guarantee on 18 th September, 2006 by the Maharashtra State Road Development Corporation (MSRDC). It was stated that the total bank guarantee of ₹3.75 crores was verified. The assessee submitted letter of forfeiture dated 21 st February, 2008, of the above corporation. It was stated that assessee entered into an agreement dated 18 th September, 2006, with M/s Satyagiri Shipping Co. Ltd. for development of Passenger Water and coastal transport at seven locations at Mumbai. To bid for this project was called for MSRDC. M/s Satyagiri Shipping Co. Ltd. was short listed for implementation of this project. M/s Satyagiri Shipping Co. Ltd. was awarded the above work. 08. The learned CIT (A) considered the above explanation and held that the issue is squarely covered in favour of the assessee and held that the above forfeited amount is allowable to the assessee as deduction. 09. With respect to the disallowance of 40% of the expenditure, he also considered the explanation of the assessee and held that audited accounts submitted by the assessee are forwarded to the learned Page | 8 ITA No.3933/Mum/2023 & CO No.62/Mum/2024 Moreshwar Trading Company Private Limited; A.Y. 2012-13 Assessing Officer for his comments; however, the learned Assessing Officer did not submit the remand report. Therefore, he deleted the addition. 010. With respect to the third disallowance of ₹27,33,792/-under Section 14A of the Act, whereas the dividend earned is only ₹60,00,000/- , he following the decision of several High Courts, held that the disallowance under Section 14A of the Act should not exceed the exempt income. Thus, he restricted the disallowance to the same. He passed the appellate order on 8 th September, 2023, by which the learned Assessing Officer is aggrieved. 011. Grievance is as per ground no. A to C and E to G is that the learned CIT (A) accepted the additional evidences furnished by the assessee without complying with the Provisions of Rule 46A of the Income Tax Rules, on the issue of disallowance under Section 14A of the Act, it is the grievance of the learned Assessing Officer that there is no provision to restrict the disallowance to the extent of exempt income and it is contrary to the circular no.5 of 2014. 012. The learned Departmental Representative reiterated the grounds of appeal and submitted that the learned CIT (A) has violated the provisions of Rule 46A of the IT Rules, 1962 (the Rules) and further deleted the addition without calling for the remand report. It is the claim that before the learned Assessing Officer the assessee did not participate in the assessment proceedings and before the learned CIT (A) the assessee submitted that the additional evidences which were admitted without following the provisions of Rule 46A of the Rules, and therefore, the order of the learned CIT (A) is not sustainable and the disallowance deleted by the learned CIT (A). It was submitted Page | 9 ITA No.3933/Mum/2023 & CO No.62/Mum/2024 Moreshwar Trading Company Private Limited; A.Y. 2012-13 that the deletion of disallowance by the learned CIT (A) is contrary to Circular no.5 of 2024. 013. The assessee has also preferred the cross objection and submitted that in paragraph no.6 at page no.3, the learned CIT (A) has admitted the additional evidences. It was further stated that the above appeal should not be remanded back. This was also the contention of Authorized Representative Mr. Prakash Jani. 014. We have carefully considered the rival contentions and perused the orders of the lower authorities. The facts are clear that during the assessment proceedings, it is found that the learned Assessing Officer granted the several opportunity of hearing to the assessee on 29 th October, 2014, where none appeared. Further, the opportunity was granted for hearing on 20 th February, 2015. On that date also no compliance were made. The penalty proceedings, were also initiated under Section 271(1)(b) of the Act, giving hearing on 27 th February, 2015, but none attended. Thus, as the issue is getting time barred, the learned Assessing Officer was constrained to pass the assessment order as per information available on record. The assessee did not participate therefore, it resulted into an assessment order where the total income of the assessee was determined at ₹2,76,37,284/-. On appeal before the learned CIT (A), the assessee raised only three grounds of appeal regarding deletion of ₹1.25 crores, disallowance of expenses under Section 14A of the Act. In the statement of facts, the assessee wrote only one line that due to unavoidable circumstances beyond control, the representative of the assessee could not attend before the learned Assessing Officer. Before the learned CIT (A) seven hearings took place. In paragraph no.6, the learned CIT (A) has mentioned that the assessee furnished some Page | 10 ITA No.3933/Mum/2023 & CO No.62/Mum/2024 Moreshwar Trading Company Private Limited; A.Y. 2012-13 additional evidences. It is not known what are those additional evidences but he admitted the same holding as under:- “6. Before deciding upon the addition made by the AO, it is important to decide whether additional evidence submitted by the appellant should be accepted or not. In this regard, it needs to be emphasized here that, the provisions of Rule 46A have been framed for the purpose of ensuring that a fair and reasonable opportunity is provided to the appellant for submitting additional documents & evidences at the appellate stage, which due to some valid reasons, could not be submitted earlier, during the course of assessment proceedings. Thus, during the course of the appellate proceedings, the appellants are entitled to invoke the provisions of Rule 46A in appropriate cases, for ensuring that their taxable income is finally determined in a judicious manner. In this regard reliance is placed on following decisions: (a) In the case of Principal Commissioner of Income-tax Vs. Daljit Singh Sra, reported in [2017] 80 taxmann.com 271 (Punjab & Haryana), the Hon’ble Punjab & Haryana High Court has held that where evidences filed under rule 46A were deemed to be relevant for the calculation of real income of the assessee, the same needs to be admitted. In this regard, the relevant excerpts of the said judgment are as under:- "4. In view of the above facts and circumstances, we find that no doubt assessee did not cooperate with the Assessing Officer in completion of assessment proceedings but the fact remains that in the Page | 11 ITA No.3933/Mum/2023 & CO No.62/Mum/2024 Moreshwar Trading Company Private Limited; A.Y. 2012-13 delivery of justice the real income of assessee has to be assessed and that too after hearing the assessee. The learned CIT(A) has not commented upon the nature of evidence filed under Rule 46A of the Act. Such evidence might have been relevant for the calculation of real income of the assessee, therefore, in view of the substantial justice, we direct the learned CIT(A) to admit additional evidence and decide the case afresh after affording a reasonable opportunity to the assessee of being heard.” (b) In the case of Commissioner of Income-tax, Ahmedabad-III Vs. Kamlaben Sureshchandra Bhatti reported in [2014] 44 taxmann.com 459 (Gujarat), the Hon’ble Gujarat High Court has upheld the admission of additional evidence, in cases where the same has been provided to the A.O. for comments. The relevant Para 4 of the said judgment is reproduced hereunder:- “4. In our view, CIT(A) committed no error nor the admission of additional evidence can be stated to be in breach of the requirement of Rule 46A of the Rules. Particularly when the interest of the Revenue was safeguarded by calling for the remand report and permitting the Assessing Officer to comment on such additional evidence, we see no reason to interfere.” (c) The Hon’ble Delhi High Court in the case of CIT vs. Text Hundred India Pvt. Ltd.: 239 CTR 263, held that Rule 29 enables the Tribunal to admit any additional Page | 12 ITA No.3933/Mum/2023 & CO No.62/Mum/2024 Moreshwar Trading Company Private Limited; A.Y. 2012-13 evidence which would be necessary to do substantial justice in the matter. Their Lordships further observed that the various procedures, including that relating to filing of additional evidence, is handmade for justice and justice should not be allowed to be choked only because of some inadvertent error or omission on the part of one of the parties to lead evidence. (d) In the case of CIT v. Virgin Securities & Credits (P) Ltd.: 332 ITR 396 (Del), the Hon’ble Delhi High Court held that the CIT(A) may admit additional evidence, after obtaining a remand report from the assessing officer, if the evidence sought to be adduced by the applicant is crucial to the disposal of the appeal. The Hon'ble ITAT Delhi have also held in the case of Plectra (Jaipur) (P) Ltd. vs. IAC (26 ITD 236) that if the evidence is genuine, reliable, proves the assessee's case, then the assessee should not be denied the opportunity. 7. It is also seen that the additional evidence submitted by the appellant was never submitted during the assessment proceedings, the additional evidences comprises certain facts of the case of different Assessment Years of the appellant on the similar issue and other documents in support of addition relating to disallowance of bad debts which have been considered” Page | 13 ITA No.3933/Mum/2023 & CO No.62/Mum/2024 Moreshwar Trading Company Private Limited; A.Y. 2012-13 015. However there is no reference of Rule 46A of the Income tax Rules 1962 which gives powers to the ld CIT (A) for admission of additional evidence as under :- 6 [ 7 Production of additional evidence before the 8 [ 8a [Joint Commissioner] (Appeals)] 9 [and Commissioner (Appeals)]. "46A. (1) The appellant shall not be entitled to produce before the 8 [ 8a [Joint Commissioner] (Appeals)] 9 [or, as the case may be, the Commissioner (Appeals)], any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the 10 [Assessing Officer], except in the following circumstances, namely :— (a) where the 10 [Assessing Officer] has refused to admit evidence which ought to have been admitted ; or (b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the 10 [Assessing Officer] ; or (c) where the appellant was prevented by sufficient cause from producing before the 10 [Assessing Officer] any evidence which is relevant to any ground of appeal ; or (d) where the 10 [Assessing Officer] has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal. (2) No evidence shall be admitted under sub-rule (1) unless the 11 [ 11a [Joint Commissioner] (Appeals)] 12 [or, as the case may be, the Commissioner (Appeals)] records in writing the reasons for its admission. (3) The 14 [ 14a [Joint Commissioner] (Appeals)] 15 [or, as the case may be, the Commissioner (Appeals)] shall not take into account any evidence produced under sub-rule (1) unless the 16 [Assessing Officer] has been allowed a reasonable opportunity— Page | 14 ITA No.3933/Mum/2023 & CO No.62/Mum/2024 Moreshwar Trading Company Private Limited; A.Y. 2012-13 (a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant. (4) Nothing contained in this rule shall affect the power of the 17 [ 17a [Joint Commissioner] (Appeals)] 18 [or, as the case may be, the Commissioner (Appeals)] to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the 19 [Assessing Officer]) under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271.] 016. Admittedly, he did not follow the provisions of Rule 46A of the income tax Rules 1962. Therefore an order passed in violation of Rule 46A deserves to be set aside and more so for the reason that ld CIT (A) has not even cared to mention satisfaction of any of the conditions which entitles the assessee for admission of additional evidence. 017. With respect to the ground no.1, regarding deletion of disallowance of ₹1.25 crores, he considered the detailed explanation of the assessee which is reproduced in paragraph no.8.2 of his appellate order. Vide Para 8.3 to 8.7, he followed certain judicial precedents and deleted the disallowance. He deleted the disallowance as under :- "8.3 The facts of the case and submission made by the appellant has been gone through. During the year under appeal, the appellant Page | 15 ITA No.3933/Mum/2023 & CO No.62/Mum/2024 Moreshwar Trading Company Private Limited; A.Y. 2012-13 entered into an agreement with M/s. Satyagiri Shipping co. Ltd. (in short „SSCL) to complete the developmental project awarded to SSCL by MSRDC. SSCL was required to deposit a sum of Rs.5,00,00,000/- as bank guarantee for performance security as per bid agreement executed between SSCL and MSRDC. The appellant and M/s. Gammon India Ltd. arranged the bank guarantee of Rs.3,75,00,000/- and Rs.1,25,00,000/- respectively. As SSCL failed to perform its obligation as specified in agreement, MSRDC revoked and withdrew the letter of intent and letter of award given to SSCL and forfeited the bank guarantee provided by the appellant and M/s. Gammon India Ltd. The suit filed by the appellant was dismissed by Hon‟ble High court of Bombay resulted into loss of Rs.3,75,00,000/- . Considering the forfeited amount of Rs.3,75,00,000/- as revenue expenditure the appellant claimed this amount u/s. 36 r.w.s. 37(1) of the Act and decided to claim these loss equally in three financial years started from FY 2010-11 as Exceptional Items (Bad Debts) in the Profit and Loss Account. 8.4 Section 37(1) of the Act says that any expenditure expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head Profits and gains of business or profession. As the appellant entered into an agreement with SSCL for expansion of business, therefore, the bank guarantee provided to MSRDC on behalf of SSCL and as per agreement executed between the appellant and SSCL forfeited amount of Rs.3,75,00,000/- is liable to be allowed within the meaning of section 37(1) of the Act. 8.5 The issue in dispute is no longer res-integra. Hon‟ble Delhi High Court in the case of Pr. CIT-3 vs Frontier Land Development Pvt. Page | 16 ITA No.3933/Mum/2023 & CO No.62/Mum/2024 Moreshwar Trading Company Private Limited; A.Y. 2012-13 Ltd. held that object of business of assessee-company was development of real estate and advance to HDIL was given in ordinary course of business forfeiture of advance could not be categorised as capital expenditure but would be allowed as business expenditure. The relevant excerpts of the decision of Hon‟ble Delhi High Court are as under: “9. From the facts narrated in the impugned order, it emanates that the transaction between the assessee and HDIL, is not disputed. The transaction, in fact, has also been accepted by the AO while treating the write off as capital expenditure. Thus, the only question that arises for consideration is whether such a transaction could be categorised as "colourable device" and the forfeiture of Rs. 3.50 crores could be treated as capital expenditure. Since the genuineness of the transaction is not disputed, we are unable to find any cogent ground or reason for the same to be considered as colourable device. In fact, the assessee had produced several documents in support of the forfeiture, such as the copy of the agreement to sell dated 12th October, 2004; letter requesting for extension of agreement; letters granting extension from HDIL; letter granting final opportunity, and; letter of forfeiture of advance, which in fact has been extracted in the impugned order. In order to claim deduction, the assessee has to satisfy requirements of section 37(1) of the Act, which lays down several conditions, such as-the expenditure should not be in the nature described under Section 30 to 36; it should not be in the nature of capital expenditure; it should be incurred in the previous year; it should be in respect of business carried by the assessee; and be expended wholly and exclusively for the purpose of such business. The assessee is a company which is engaged in the business of real estate. The main object of the business of the company is Page | 17 ITA No.3933/Mum/2023 & CO No.62/Mum/2024 Moreshwar Trading Company Private Limited; A.Y. 2012-13 development of real estate. It made a payment of Rs. 3.50 crores as advance to HDIL for purchase of land to construct commercial complex for the development of real estate. Since it did not make payment of the balance amount - for whatever reason, the advance given was forfeited. In this view of the matter, the advance given in the ordinary course of business has been rightly treated as loss incurred by the company. We are unable to find any material on record to suggest to the contrary. In view of the aforesaid factual findings, the treatment given to the forfeiture of advance Rs. 3.50 crores could not be categorised as capital expenditure. Therefore, the question of law urged by the appellant does not arise for consideration, as the issue is factual.” 8.6 Further, the appellant placed reliance of the decision of Hon‟ble Delhi High Court in the case of PCIT-4 vs Industrial Finance Corporation of India Ltd. in ITA No. 170/2017 and CM No. 7386/2017 dtd. 15.03.3017 where in it was held as under: “Applying to the facts of the present case, the decision of Badridas Daga vs CIT [1958] 34 ITR 10 (Supreme Court), instructs that where moneies were advanced through the Mechanism of Equity Participation, the intention of the lender - in the present case, the assessee was to derive income rather than to increase its investment on the capital side. Such being the case, if there were profits, with the assessee/lender from the investment it would properly lie in the revenue side of income and conversely, if there were losses as in the present case it properly would have fallen, as was correctly claimed as bad debts in the present instance.” 8.7 Considering the facts and circumstances of the cases mentioned supra are similar to appellant‟s case, therefore, following the Page | 18 ITA No.3933/Mum/2023 & CO No.62/Mum/2024 Moreshwar Trading Company Private Limited; A.Y. 2012-13 decision of Hon‟ble Delhi High Court in the case of Frontier Land Development Pvt. Ltd. and Industrial Finance Corporation of India Ltd. (supra), it is held that the AO is not justified in adding the forfeited amount claimed of Rs.1,25,00,000/- for the year under consideration by to the total income of the appellant. Consequently, the AO is directed to delete the addition of Rs.1,25,00,000/-. This ground of appeal is allowed" 018. With respect to the disallowance of 40% of the expenditure, he found that the assessee submitted the copy of profit and loss account only which was sent to the learned Assessing Officer for his comment, however, no comments were received and therefore, he deleted the disallowance. His findings are as under :- "9.3 The assessment order and submissions of the appellant have been considered. It is seen from the Assessment Order that the AO disallowed 40% of expenses of Rs.1,22,14,178/- claimed under the head Miscellaneous Expenditure, Tour & Travel Expenditure, Sale Promotion, Labour Charges and Vehicle Expenses amounting to the tune of Rs. 48,85,671/- for want of details. The AO stated that correctness and genuineness of the expenses can‟t be established and thereby disallowed 40% of such expenses resulted into disallowance of Rs.48,85,671/-. During appellate proceedings, the appellant submitted the copy of Profit and Loss Account audited u/s. 44AB of the Act. The reason mentioned in the assessment order is that correctness and genuineness can‟t be established in absence of details. The relevant details submitted by the appellant are forwarded to AO to submit his comments. However, the AO didn‟t submit the remand report. Therefore, the details submitted by the appellant on account of expenses claimed under the head Miscellaneous Page | 19 ITA No.3933/Mum/2023 & CO No.62/Mum/2024 Moreshwar Trading Company Private Limited; A.Y. 2012-13 Expenditure, Tour & Travel Expenditure, Sale Promotion, Labour Charges and Vehicle Expenses aggregating to Rs. 1,22,14,178/- are verified and found in order. In view of the above, the disallowance of 40% of Rs. 1,22,14,178/- made in the assessment order is unreasonable and hereby deleted. This Ground of appeal is allowed." 019. So far as the above two issues are concerned, we are of the opinion that the learned CIT (A) has deleted the disallowance without following the rule 46A of the Income Tax Rules. 020. With respect to the third addition under Section 14A of the Act of ₹27,33,792/- against the exempt income earned of ₹60,00,000/- , we find no infirmity in the order of the learned CIT (A) as he restricted the disallowance following the judicial precedents laid down by the Hon'ble High Court that disallowance under Section 14A of the Act of expenditure incurred for the earning of exemption incurred in relation to exempt income cannot exceed the exempt income. Therefore, with respect to the deletion of this disallowance, we do not find any infirmity in the order of the learned CIT (A). 021. In view of the above facts, we restore the ground no. A,B,C,E,F,G to the file do the learned CIT (A) to comply with the provisions of Rule 46A of the Rules and decide the issue afresh. 022. With respect to the ground No. D, we do not find any infirmity in the order of the learned CIT (A), and therefore, same is dismissed. 023. In the result, the appeal filed by the learned Assessing Officer is partly allowed to the extent indicated above. 024. The cross objection of the assessee is merely supportive in nature, however, we find that as there is clear violation of provision of Rule Page | 20 ITA No.3933/Mum/2023 & CO No.62/Mum/2024 Moreshwar Trading Company Private Limited; A.Y. 2012-13 46A of the Income Tax rules, the cross objection filed by the assessee to the extent of disallowance deleted of ₹1.25 crores and disallowance deleted of the expenditure of ₹48,85,671/-. Thus, the cross objection is also partly allowed. 025. In the result, the appeal of the learned Assessing Officer and cross objection of the assessee, are partly allowed. Order pronounced in the open court on 30.05.2024. Sd/- Sd/- (SUNIL KUMAR SINGH) (PRAS HANT MAHAR ISHI) (JUDIC IAL MEM BER) (ACC OUNTANT MEMB ER) Mumbai, Dated: 30.05.2024 Sudip Sarkar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai