JOVIAL INVESTMENT AND TRADING COMPANY PRIVATE LIMITED,MUMBAI V. DCIT 3(2)(1), MUMBAI

CO 244/MUM/2024

AI Insights

The case involves an appeal by the Revenue against the order of the learned Commissioner of Income Tax (Appeals), which had deleted the additions made under sections 68 and 69C of the Income Tax Act, 1961, concerning an alleged accommodation entry transaction of bogus unsecured loans amounting to INR 4 crores. The assessee, Jovial Investment and Trading Company Private Limited, argued that the amount received was from the sale of Compulsory Convertible Debentures (CCDs) and not a loan. The Revenue also challenged the deletion of a disallowance under section 14A related to expenses incurred for earning exempt income. The Tribunal found that the CIT(A)'s decisions were well-supported by evidence and thus upheld those decisions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312418 (ITAT-MUMBAI)
• Appeal Type: Cross Objection
• Pronouncement Date: 02-05-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2017-2018
• Other Referred Cases: Maxopp Investment Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PRASHANT BARATE
• Assessee Lawyers: NITESH JOSHI
• Keywords: Reassessment proceedings; Unexplained cash credit; Cost of acquisition; Capital expenditure; Search and seizure; Accommodation entries; Rule 8D; Bogus
• Section: 147; 148; 143(3); 142(1); 68; 69C; 37; 14A; 43B

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA No.5025/MUM/2024 Assessment Year : 2017-18 DCIT-3(2)(1), Room No.608, 6th Floor Aayakar Bhavan, M.K. Road, Mumbai - 400020 ……………. Appellant v/s Jovial Investment and Trading Company Private Limited 612 Raheja Chambers, FPJ Road, Nariman Point, Mumbai – 400021 PAN: AACCJ3364R ……………. Respondent CO No.244/MUM/2024 (Arising out of ITA No.5025/Mum/2024) Assessment Year : 2017-18 Jovial Investment and Trading Company Private Limited 612 Raheja Chambers, FPJ Road, Nariman Point, Mumbai – 400021 PAN: AACCJ3364R ……………. Cross Objector (Original Respondent) v/s DCIT-3(2)(1), Room No.608, 6th Floor Aayakar Bhavan, M.K. Road, Mumbai - 400020 ……………. Respondent (Original Appellant) ITA No.5025/Mum/2024 & CO No.244/Mum/2024 (A.Y. 2017-18) 2 Assessee by : Shri Nitesh Joshi Revenue by : Shri Prashant Barate, Sr.DR Date of Hearing – 11/03/2025 Date of Order – 02/05/2025 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The present appeal by the Revenue and cross-objection by the assessee has been filed against the impugned order dated 30/07/2024, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2017-18. 2. In its appeal, the Revenue has raised the grounds challenging the relief granted by the learned CIT(A) on merits. While in its cross-objection, the assessee has raised the grounds challenging the reopening of the assessment under section 147 of the Act. During the hearing, the learned Authorised Representative (“learned AR”) submitted that the assessee has a good case on merits, and if the relief is granted to the assessee on merits, then the assessee wishes not to press the grounds raised in its cross- objection and the same may be kept open. Accordingly, we are dealing with the grounds raised by the Revenue in its appeal at the outset and the same are reproduced as follows for ready reference: – “a) \"Whether on the facts and circumstances of the case and in law the Ld. CIT(A) is correct in deleting the addition made u/s.68 of the Act. the accommodation entry taken by the assessee company totalling of Rs. 4 Crores from M/s. CEA Consultants Put. Ltd. without considering the facts of the case ITA No.5025/Mum/2024 & CO No.244/Mum/2024 (A.Y. 2017-18) 3 that in the statement of Shri. Anil Agarwal and Shri Shailendra had admitted to given accommodation entry to the assessee company through M/s. CEA Consultants Pvt. Ltd. b) \"Whether on the facts and circumstances of the case and in law the Ld. CIT(A) is correct in deleting the addition made u/s.69C of the Act of Rs.8,00,000/- at rate of 2% of the accommodation entry of Rs.4 Crore without considering the statement the statement of Shri. Anil Agarwal and Shri Shailendra wherein they had admitted to provide accommodation entry to the assessee company through M/s. CEA Consultants Pvt. Ltd. c) \"Whether on the facts and circumstances of the case and in law the Ld. CIT(A) to delete the addition made u/s. 14A r.w.rule 8D of the Act, without appreciating the decision of Maxopp Investment Ltd. of the Hon'ble High Court, wherein it is noted that investments are made which are liable to earn expenditure. d) \"Whether on the facts and circumstances of the case and in law the Ld. CIT(A) to delete the addition without taking into consideration of the CBDT circular No.5/2014 dtd. 11.02.2024.” 3. The issue arising in Grounds No.1 and 2, raised in Revenue’s appeal, pertains to the deletion of the addition made under sections 68 and 69C of the Act on account of the alleged accommodation entry transaction of bogus unsecured loan. 4. The brief facts of the case pertaining to this issue, as emanating from the record, are: On the basis of the information available with the Income Tax Department regarding a search and seizure operation conducted in the case of Samtel Group of Companies, wherein it was found that four Non-Banking Financial Company (“NBFC”), namely M/s SW Consultants Private Limited, M/s CEA Consultants Private Limited, Tish Consultant Private Limited, and M/s Lenient Consultant Private Ltd were involved in providing accommodation entries in the form of bogus unsecured loans and the assessee is one of the beneficiaries of the accommodation entry transaction in the form of bogus unsecured loans amounting to INR 4 crores, notice under section 148 of the ITA No.5025/Mum/2024 & CO No.244/Mum/2024 (A.Y. 2017-18) 4 Act was issued to the assessee on 31/03/2021 and proceedings under section 147 of the Act were initiated. In response to the notice issued under section 148 of the Act, the assessee filed its return of income on 23/04/2021, declaring a loss of INR 9,83,655. In response to the statutory notice issued during the reassessment proceedings, the assessee submitted that as a NBFC it had invested in the debentures of Turnaround Consultants Private Limited and during the year under consideration, these debentures were sold to CEA Consultants Private Limited, for which it received INR 4 crores. 5. The Assessing Officer (“AO”), vide order dated 21/03/2022, passed under section 147 read with section 144B of the Act, disagreed with the submissions of the assessee on the basis that the assessee has sold the debentures to CEA Consultants Private Limited, which is one of the four NBFCs that were involved in providing accommodation entries in the form of bogus unsecured loans, and Mr. Anil Agarwal and Mr. Shailendra have admitted on oath under section 131(1A) of the Act that there were involved in providing accommodation entries on commission basis through the above 4 NBFCs. Accordingly, the AO treated the amount of INR 4 crore received by the assessee as unexplained cash credit under section 68 of the Act and added the same to the total income of the assessee. Further, the AO also made an addition on account of the alleged payment of commission at the rate of 2%, and made an addition of INR 8 lakhs under section 69C of the Act. 6. The learned CIT(A), vide impugned order, allowed the ground raised by the assessee on this issue and deleted the addition made under section 68 and section 69C of the Act on the basis that the AO has merely arrived at the ITA No.5025/Mum/2024 & CO No.244/Mum/2024 (A.Y. 2017-18) 5 conclusion that the assessee has received accommodation entry without appreciating the fact that the assessee has sold its investment in Compulsory Convertible Debentures (“CCDs”) to CEA Consultants Private Limited and the assessee has not received any unsecured loan as alleged by the AO. The relevant findings of the learned CIT(A), vide impugned order, are reproduced as follows: - “5.1 Analysis and Findings The AO made an addition of Rs. 4,00,00,000/- under section 68, alleging that the appellant received accommodation entries in the form of bogus unsecured loans from M/s CEA Consultants Pvt. Ltd. This addition was based on information obtained during a search and seizure operation conducted on the Samtel Group of Companies. The appellant, in its submissions, provided detailed evidence to support the genuineness of the transactions with CEA Consultants Pvt. Ltd. The appellant submitted bank statements from State Bank of India and HDFC Bank, along with transaction details highlighting the relevant transactions with CEA Consultants Pvt. Ltd. These documents were provided to demonstrate the actual flow of funds and the legitimacy of the transactions. The appellant's audited financial statements for the relevant financial year were submitted, which include the transactions in question. These statements were duly certified by a Chartered Accountant, further validating the authenticity of the transactions. The appellant is a Non-Banking Financial Company (NBFC) listed with the Reserve Bank of India (RBI), engaged in investment and lending activities. The transactions with CEA Consultants Pvt. Ltd. were part of the regular business activities and were carried out in the normal course of business. The AO's reliance on the statements made by individuals during the search operation justified. The appellant has provided substantial evidence to prove the genuineness of the transactions, and the AO has not been able to substantiate the claim that the transactions were bogus. The appellant was holding 40,00,000 Compulsorily Convertible Debentures (CCDs) of Rs. 10/- each of Turnaround Consultants Private Limited (TCPL) aggregating to Rs.4,00,00,000/-. The said investment was held from financial year 2015-16 onwards. Such investment is also reflected in the audited annual report, which was filed during the course of assessment proceedings. A copy of audited accounts is at page 44 to 66. The said investment in CCDs was sold to CCPL during the year ended 31st March, 2017 for a total consideration of Rs.4 crores. The sale consideration was received through. RTGS/ cheques and via proper banking channels. However, the Assessing Officer had arrived at the conclusion that, entry providers routed the unaccounted money of the beneficiaries into their books in the garb of unsecured loans. While arriving at the above conclusion, it is apparent that the Assessing Officer has merely relied on statements given on oath by one Mr. Anil Agarwal and ITA No.5025/Mum/2024 & CO No.244/Mum/2024 (A.Y. 2017-18) 6 Mr. Shailendra under section 131(1A) of the Act. During search and seizure operation conducted on Samtel Group of companies, the above persons admitted that they were involved in providing accommodation entries on commission basis through four NBFC's and CCPL (entity-buying CCDs sold by the company) is one of the entities to the transaction under consideration. The Assessing Officer has merely arrived at the conclusion that the appellant has provided accommodation entry to the appellant without appreciating the fact that the appellant has sold its investment in CCDs. The appellant had not received any unsecured loan from CCPL as alleged by the Assessing officer. The said CCDs were sold at an aggregate value of Rs.4,00,00,000/- which is same as cost of acquisition and hence in profit & loss account there is no capital gain/ loss in respect of said sale of CCDs. However, the fact remains that the appellant has sold the CCDs and all the relevant supporting documents were furnished during the course of re-assessment proceedings. The AO has not rebutted the claims of the appellant in any manner. In light of the evidence provided by the appellant, it is clear that the addition made by the AO under section 68 is not sustainable. Therefore, the addition of Rs.4,00,00,000/- under section 68 is deleted.” Being aggrieved, the Revenue is in appeal before us. 7. We have considered the submissions of both sides and perused the material available on record. In the present case, the assessee is a company registered under the Companies Act, 1966, and is a NBFC registered with the Reserve Bank of India. The assessee, being a NBFC, invested in equity shares, debentures and bonds of various companies. For the year under consideration, the assessee filed its original return of income on 25/10/2017, declaring a total income of INR Nil, after claiming a loss of INR 9,83,654. The return filed by the assessee was selected for scrutiny, and an order under section 143(3) of the Act was passed on 28/06/2019, accepting the income as returned. Subsequently, notice under section 148 of the Act was issued on 31/03/2021 on the basis of the information available in the Insight Portal regarding the transaction of the ITA No.5025/Mum/2024 & CO No.244/Mum/2024 (A.Y. 2017-18) 7 assessee with CEA Consultants Private Limited. Since as per the information available with the Income Tax Department, CEA Consultants Private Limited was found to be one of the entities which was engaged in providing accommodation entries in the form of bogus unsecured loans, it was alleged that the assessee is a beneficiary of the bogus accommodation entry transaction and the amount of INR 4 crore received by the assessee from CEA Consultants Private Limited has escaped assessment. 8. As per the assessee, during the year under consideration, it sold 40,00,000 CCDs of INR 10 each of Turnaround Consultants Private Limited to CEA Consultants Private Limited at INR 10 each per debenture and the consideration of INR 4 crores was received by it from CEA Consultants Private Limited in respect of same, which has been wrongly treated as an accommodation entry transaction in the form of bogus unsecured loans. We find that during the reassessment proceedings, statutory notice under section 142(1) of the Act was issued to the assessee, inter-alia, seeking information to verify the genuineness of the transaction with CEA Consultants Private Limited. We find that in response thereto, the assessee furnished a copy of the bank statements of the State Bank of India and the HDFC Bank highlighting the relevant transactions with CEA Consultants Private Limited. The assessee also furnished a copy of correspondence between the assessee and CEA Consultants Private Limited for the sale of CCDs, as well as the ledger account of CEA Consultants Private Limited in the assessee’s books. The copy of all the above documents has also been ITA No.5025/Mum/2024 & CO No.244/Mum/2024 (A.Y. 2017-18) 8 placed on record before us by the assessee in the factual paper book. Further, in order to substantiate its submission that the assessee sold CCD of CEA Consultants Private Limited, the assessee has also placed reliance on the disclosures made in its Financial Statements for the year ended 31/03/2017. From the perusal of Note No. 5-Non-Current Investment, on page 24 of the paper book, we find that the assessee disclosed its investments in equity shares of various companies, redeemable preference shares and mutual funds. Further, we find that the assessee has also disclosed its investment in CCDs of Turnaround Consultants Private Limited. From the said disclosure made by the assessee in its Financial Statements, we find that the assessee held 40,00,000 CCDs of Turnaround Consultants Private Limited in the financial year 2015-16, which has been declared Nil in the financial year 2016-17. Therefore, from the perusal of the aforesaid documents, we find merits in the submissions of the assessee that during the year under consideration, the assessee sold 40,00,000 CCDs of Turnaround Consultants Private Limited to CEA Consultants Private Limited. Thus, from the material placed on record, it is evident that the amount of INR 4 crore received by the assessee from CEA Consultants Private Limited was pursuant to the aforesaid sale transaction, and the same was not an accommodation entry transaction of availing bogus unsecured loans, as claimed by the Revenue merely on the basis of statement recorded during the search without the same being corroborated by any documentary evidence. Accordingly, we do not find any infirmity in the findings of the learned CIT(A) on this issue, and the deletion of the ITA No.5025/Mum/2024 & CO No.244/Mum/2024 (A.Y. 2017-18) 9 addition made under section 68 of the Act in the hands of the assessee is upheld. Consequently, there is also no merit in the addition made under section 69C of the Act on account of the alleged payment of commission for availing the accommodation entry transaction. As a result, Grounds No.1 and 2 raised in Revenue’s appeal are dismissed. 9. The issue arising in Ground No.3, raised in Revenue’s appeal, pertains to the disallowance under section 14A of the Act. 10. We have considered the submissions of both sides and perused the material available on record. During the year under consideration, the assessee earned dividend income amounting to INR 7,57,90,253 from its investments in equity shares and units of mutual funds. While computing its total income, the assessee suo motu disallowed INR 7,87,317 under section 14A of the Act. The AO, vide assessment order, disagreed with the suo motu disallowance made by the assessee under section 14A of the Act and by applying the provisions of Rule 8D of the Income Tax Rules, 1962 (“the Rules”), computed the net disallowance of INR 63,06,650 under section 14A of the Act and added the same to the total income of the assessee. The learned CIT(A), vide impugned order, allowed the ground raised by the assessee on this issue and deleted the disallowance made by the AO under section 14A read with Rule 8D of the Rules, inter-alia, on the basis that the computation of the AO does not align with the actual expenditure incurred by the assessee as evident from the financial records. Being aggrieved, the Revenue is in appeal before us. ITA No.5025/Mum/2024 & CO No.244/Mum/2024 (A.Y. 2017-18) 10 11. During the hearing, the learned AR submitted that out of the total expenditure amounting to INR 2,04,92,837 debited by the assessee to its profit and loss account, an amount of INR 1,97,05,519 was disallowed and added back by the assessee while computing its income either under section 37 or under section 43B or as a capital expenditure. Thus, the learned AR submitted that the balance expenditure amounting to INR 7,87,317 was suo motu offered for disallowance by the assessee under section 14A of the Act. In this regard, the learned AR referred to the following statement of expenses disallowed vis-à-vis the amount debited to the profit and loss account for calculation of disallowance made under section 14A of the Act: – 12. Therefore, having perused the aforesaid statement along with the computation of total income for the year under consideration, forming part of ITA No.5025/Mum/2024 & CO No.244/Mum/2024 (A.Y. 2017-18) 11 the paper book on page 42, we agree with the submission of the assessee that invoking the provisions of Rule 8D of the Rules and making an addition under section 14 A of the Act over and above the suo motu disallowance made by the assessee would effectively result in an addition of non-existing expenditure which is neither incurred by the assessee nor debited in its profit and loss account. Therefore, we are of the considered view that the same is completely impermissible. Accordingly, we do not find any infirmity in the findings of the learned CIT(A) in deleting the disallowance made by the AO under section 14A read with Rule 8D of the Rules. As a result, Ground No.3 raised in Revenue’s appeal is dismissed. 13. In the result, the appeal by the Revenue is dismissed. 14. Since the relief has been granted to the assessee on merits, the grounds raised in the assessee’s cross-objection are kept open in light of the submissions of the learned AR as noted above. Accordingly, the cross- objection filed by the assessee is dismissed as not pressed. 15. In the result, the appeal by the Revenue and the cross-objection by the assessee are dismissed. Order pronounced in the open Court on 02/05/2025 Sd/- OM PRAKASH KANT ACCOUNTANT MEMBER Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 02/05/2025 Prabhat ITA No.5025/Mum/2024 & CO No.244/Mum/2024 (A.Y. 2017-18) 12 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order Assistant Registrar ITAT, Mumbai "