KOHINOOR PLANET CONSTRUCTIONS PRIVATE LIMITED,MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 6(3)(2), MUMBAI

ITA 1159/MUM/2024

AI Insights

The case involves Kohinoor Planet Constructions Pvt. Ltd., which faced scrutiny from the Income Tax Department over various financial transactions and claims made in their tax returns for the assessment years 2016-17 and 2017-18. The primary issues revolved around the disallowance of interest expenditures, the treatment of certain investments as business losses, and the addition of unexplained cash credits under Section 68 of the Income Tax Act. The Tribunal's decision highlighted the need for a detailed examination of the financial transactions and the application of legal provisions concerning the nature and source of funds involved.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312136 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: misc
• Other Referred Cases: Gagandeep Infrastructure (P.) Ltd. vs. ITO, Veedhata Tower Pvt. Ltd. vs. ITO, ITO vs. Gaurav Triyugi Singh, CIT vs. Green Infra Ltd., Deputy Commissioner of Income-tax vs. R.K.Shah Projects (P.) Ltd., Vessela Greens vs. Union of India, Colgate Palmolive (India) Ltd. vs. CIT, ACE Designers Ltd. vs. Additional Commissioner of Income Tax, Reliance Utilities and Power Ltd. vs. CIT, Piramal Enterprises Ltd. vs. CIT, Bhushan Steel Ltd. vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BISWANATH DAS
• Assessee Lawyers: JAYESH DADIA
• Keywords: Set aside; Capital asset; Revised return; Revenue expenditure; Question of law; Unexplained cash credit; Commercial expediency; Principle of natural justice; Accommodation entries; Earning of tax free income; Competent authority; Wholly owned subsidiary; Rule 8D
• Section: 144; 142(1); 43CA; 68; 133(6); 37; 14A; 115JB

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE MS. KAVITHA RAJAGOPAL, JM AND SMT. RENU JAUHRI, AM ITA No. 1158/Mum/2024 (Assessment Year: 2017-18) And ITA No. 1159/Mum/2024 (Assessment Year: 2016-17) Kohinoor Planet Constructions Pvt. Ltd. Kohinoor Corporate Office, Senapati Bapat Marg, Dadar West, Mumbai – 400028. Vs. Assistant Commissioner of Income Tax, Circle 6(3)(1) 506, 5th Floor, Aayakar Bhavan, Maharishi Karve Road, Mumbai – 400020. PAN/GIR No. AABCR6994E (Assessee) : (Respondent) ITA No. 1493/Mum/2024 (Assessment Year: 2016-17) & ITA No. 1495/Mum/2024 (Assessment Year: 2017-18) Income Tax Officer, Ward-6(3)(1) Room No. 524, 5th Floor, Aayakar Bhavan, M. K. Road, Mumbai – 400020. Vs. Kohinoor Planet Constructions Pvt. Ltd. 3, Kohinoor Corporate Office, Senapati Bapat Marg, Dadar West, Mumbai – 400028. PAN/GIR No. AABCR6994E (Assessee) : (Respondent) Assessee by : Shri. Jayesh Dadia Respondent by : Shri. Biswanath Das – CIT DR. Date of Hearing : 30.01.2025 Date of Pronouncement : 29.04.2025 O R D E R Per Bench: These are cross appeals filed by the assessee and revenue, challenging the order of the learned Commissioner of Income Tax (Appeals) Delhi (‘ld. CIT(A)’ for short), ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 2 National Faceless Appeal Centre (‘NFAC’ for short) passed u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to Assessment Year (‘A.Y.’ for short) 2016-17 & 2017-18. 2. As the facts are identical, we hereby pass a consolidated order by taking A.Y. 2017-18 as the lead year for the sake of convenience. 3. Brief facts of the case are that the assessee company is engaged in the business of property development and constructions of buildings, and power generation with the help of wind power turbines, thereby making strategic investments. The assessee had e-filed its return of income dated 28.09.2017, declaring a loss at Rs. 33,570/- and had filed revised return dated 20.03.2018, declaring loss of Rs. 75,25,056/-. The assessee’s case was selected for scrutiny under CASS and notices u/s. 143(2) and 142(1) of the Act were duly issued and served upon the assessee. The learned Assessing Officer ('ld. A.O.' for short) observed that the assessee has borrowed funds at 14% to 15% per annum claiming the interest expenditure for the same. It is also observed that the assessee has given short term interest free advances amounting to Rs. 20,51,98,102/- to M/s. Pallai Developers Private Limited. The ld. AO disallowed the interest expenditure of Rs.2,87,27,734/- on the ground that the assessee has failed to prove that the interest bearing funds have been utilized exclusively for its business expediency and further the assessee has failed to establish the fact that the assessee had own interest free funds which were utilized for the purpose of advancing fund to M/s. Pallai Developers Private Limited in case of the mixed fund, where the assessee has failed to bifurcate the own fund and borrowed funds. Further, the ld. AO observed that the assessee has claimed ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 3 diminution on the value of investment in Kohinoor CTNL Infrastructure Private Limited amounting to Rs. 50 crores for A.Y. 2017-18, for which the assessee stated that it had subscribed the preference share capital of Kohinoor CTNL Infrastructure Private Limited amounting to Rs. 250 crores and the said investment was for business purpose where Kohinoor CTNL Infrastructure Private Limited was facing insolvency proceeding before NCLT. The assessee had written off Rs. 50 crores to its P and L account and has claimed the same as deduction u/s. 37 of the Act as revenue expenditure. The ld. AO disallowed the expenditure as not being allowable either u/s. 36(2) of the Act or u/s. 37 of the Act, where the said investment and advances was said to have been out of the capital fund of the assessee and the same would be the capital loss which is not allowable as business loss. The ld. AO made addition of Rs. 50 crores on the same. The ld. AO also made an addition u/s. 43CA of the Act on sale at a price lesser than this market value in case of CVK Infra Realty Private Limited. The ld. AO made an addition u/s. 68 of the Act for an amount of Rs. 25 lacs being unsecured loan from Sri Water Front Health Farms Pvt. Ltd., which the assessee is alleged to have failed to prove the genuineness and creditworthiness of the creditor. The ld. AO then passed the assessment order dated 18.12.2019, u/s. 143(3), determining total income at Rs. 52,37,03,678/- after making the above-mentioned additions/disallowances. 4. Aggrieved the assessee was in appeal before the first appellate authority, who vide order dated 31.03.2024 had partly allowed the appeal filed by the assessee on various grounds. ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 4 5. Both the assessee as well as revenue are in appeal before us, against the impugned order of the ld. CIT(A). ITA No. 1158/Mum/2024 (Assessment Year: 2017-18) 6. This appeal filed by the assessee challenges the solitary ground on the addition of Rs. 25,00,000/- made u/s. 68 of the Act as unexplained cash credit. 7. It is observed that the learned Assessing Officer (ld. A.O. for short) has show caused the assessee during the assessment proceeding pertaining to the unsecured loan of Rs. 39,68,79,637/- and why the same should not be added u/s. 68 of the Act. The assessee contended that during the year under consideration the unsecured loan of Rs. 25,00,000/- was taken from Sri Water Front Health Farms Pvt Ltd. The ld. AO made an addition on the said amount holding that the assessee has failed to prove the genuineness and creditworthiness of the parties and added the same u/s. 68 of the Act to the total income of the assessee. The first appellate authority upheld the addition on the ground that the amended provision of Section 68 which is applicable from A.Y. 2013-14 mandates that even the creditors should establish the nature and source of the l oans given to the assessee. The ld. CIT(A) further held that the creditor has only earned a meager profit during the year under consideration and that its P & L account shows that there is not much of regular activities of the company, thereby the creditworthiness of the company has not been substantiated. 8. The learned Authorised Representative (ld. AR for short) during the appellate proceeding contended that the said loan was received through banking channel and that the assessee had filed confirmation from the lender along with other documentary ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 5 evidences such as audited balance sheet and P & L account of the lender to show the identity and creditworthiness of the party. The ld. AR further stated that the proviso to Section 68 is with effect from 01.04.2023 and the same would be applicable only for A.Y. 2023-24 onwards. The ld. AR reiterated that the source of source should not be seen for the impugned year which is prior to the insertion of the proviso to Section 68 of the Act by the Finance Act, 2022. The ld. AR contended that the assessee has proved the three ingredients of Section 68 which is the identity and creditworthiness of the party and the genuineness of the transaction. The ld. AR relied on the catena of decision for the same which are mentioned as below: a. Decision of Hon’ble Bombay High Court in the case of Gagandeep Infrastructure (P.) Ltd. (394 ITR 680) b. Decision of Hon’ble Bombay High Court in the case of Veedhata Tower Pvt. Ltd. (403 ITR 415) c. Decision of Hon’ble Bombay High Court in the case of ITO vs. Gaurav Triyugi Singh (121 taxmann.com 86) d. Decision of Hon’ble Bombay High Court in the case of CIT vs. Green Infra Ltd. (78 taxmann.com 340) 9. The learned Departmental Representative (ld. DR for short) on the other hand controverted the said fact and stated that the assessee has failed to discharge the primary onus casted upon it to prove the identity, genuineness and creditworthiness of the parties. The ld. DR further stated that source of source should be established by the assessee, where the assessee has failed to substantiate the creditworthiness of its ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 6 creditor viz. Sri Water Front Health Farms Pvt Ltd. The ld. DR further stated that the decisions relied upon by the ld. AR are prior to the Finance Act, 2012 and that subsequent to the amendment to the proviso to Section 68, the assessee is entitled to establish the creditworthiness of the creditors which is the source of source of the assessee. The ld. DR relied on the order of the lower authorities. 10. We have heard the rival submissions and perused the materials available on record. The issue pertinent to the addition u/s. 68 of the Act was that the lower authorities had failed to consider the assessee’s submission that it had discharged the primary onus of proving the identity and creditworthiness of the party and the genuineness of the transaction for the reason that the assessee has failed to prove the source of the source, herein in this case Sri Water Front Health Farms Pvt Ltd. which the lower authorities have alleged that it does not have sufficient creditworthiness to extend the loan of Rs. 25 lacs to the assessee. The ld. CIT(A) further held that the amended provision of Section 68 was applicable from A.Y. 2013-14 which requires that even the creditors’ nature and source of the loan given by them to the assessee had to be established to the satisfaction of the ld. AO. It is also held that the P & L account of the said company shows that it only operates as a conduit for providing accommodation entries for beneficiaries and as the assessee has failed to prove the source of the source, the impugned addition was made by the ld. AO and upheld by the ld. CIT(A). The assessee on the other hand contended that it had discharged the primary onus casted upon it by furnishing the confirmation from the party, along with the audited balance sheet and P & L account. The assessee also contends that the said transaction was through banking channels and the same was ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 7 recorded in the books of accounts of the assessee as well as the creditor. The ld. AR extensively relied on the proviso to Section 68 and stated that the source of source is to be proved only in case of A.Y. 2022-23 onwards as per the amended provision by Finance Act, 2022. For the sake of clarity, we hereby deem it fit to extract the relevant provisions of the Act as amended by Finance Act, 2012 and Finance Act, 2022 herein under: Income-Tax Act, 1961 - As Amended by Finance Act 2012 Cash credits. 7668. 77Where any sum is found credited in the books78 of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the 79[Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year : The following provisos shall be inserted in section 68 by the Finance Act, 2012, w.e.f. 1- 4-2013 : 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 assessee-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. Income-Tax Act, 1961 - As Amended by Finance Act 2022 Cash credits. 47 68. 48Where any sum is found credited in the books49of an assessee maintained for any previous year, and the assessee offers no explanation49 about the nature and source thereof or the explanation offered by him is not, in the opinion of the 50[Assessing] Officer, satisfactory, the sum so credited may49 be charged to income-tax as the income of the assessee of that previous year : ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 8 51[51a[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 assessee-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: 51b [Provided further] that nothing contained in the first proviso 51c[or second 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.] 11. From the above, it is evident that the Finance Act, 2012 which is w.e.f. 01.04.2013 requires that the source of source on any sum which is found credited either by way of share application money, share capital, share premium or any such amount has to be explained to the satisfaction of the ld. AO and even the amendment by Finance Act, 2022 states that whether the assessee company not being a company in which the public are substantially interested, has to explain the nature and source of the creditor to the satisfaction of the ld.AO. Thus, it is a mandate of the proviso to Section 68 w.e.f. 01.04.2013 that the assessee is liable to explain the source of source during the assessment proceeding pertaining to any cash credit as per Section 68 of the Act. 12. In the present case in hand, the decisions relied upon by the ld. AR has also held that the same is applicable for A.Y. 2013-14 onwards and the assessee’s case is for A.Y. 2016-17 and 2017-18. Having said that the issue is whether the assessee has explained the source of source pertaining to the loan received from Sri Water Front Health Farms Pvt Ltd. From the assessment order it is observed that the though the assessee has claimed that it had furnished details such as confirmation, P & L account, audited balance sheet, we do not find any observation as to the financials of the creditor in the ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 9 assessment order and even in the ld. CIT(A)’s order, the same has been mentioned in a very cryptic manner. The facts related to whether the assessee has repaid the said loan in the subsequent years, the details of interest paid to the creditor, etc. are not filed neither before the lower authorities nor before us. We would like to place our reliance on the decision of the Hon’ble High Court of Telangana in the case of Vessela Greens vs. Union of India [2025] 170 taxmann.com 53 (TELANGANA), dated 05.12.2024, where it is held that there has to be a detail finding based on the materials available on record and had remanded the issue to the lower authorities for adjudicating the issue by properly assigning the reasons for the decision. The relevant extract of the said decision is cited herein under for ease of reference: “11. A careful reading of the highlighted portion shows that on the one hand, the proper officer opined that no reply has been furnished and on the other hand, considered the reply. The consideration is also cryptic. We find substance in the argument of the learned counsel for the petitioner that the reply and the documents filed therewith were not considered in proper perspective. There is no application of mind on the bank's confirmation letter and bank statement of Yashoda Nookaratnam. Thus, reasons have not been given for not accepting the defence of the petitioner. The reasons are held to be heartbeat of conclusions. In Kranthi Associates (P.) Ltd. v. Masood Ahmed Khan (2010) 9 SCC 496, the Supreme Court has emphasized the need of assigning reasons in administrative, quasi-judicial and judicial orders and held as under: \"47. Summarising the above discussion, this Court holds: (a) In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially. (b) A quasi-judicial authority must record reasons in support of its conclusions. (c) Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well. (d) Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power. (e) Reasons reassure that discretion has been exercised by the decision-maker on relevant grounds and by disregarding extraneous considerations. (f) Reasons have virtually become as indispensable a component of a decision- making process as observing principles of natural justice by judicial, quasi- judicial and even by administrative bodies. ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 10 (g) Reasons facilitate the process of judicial review by superior courts. (h) The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the lifeblood of judicial decision-making justifying the principle that reason is the soul of justice. (i) Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants' faith in the justice delivery system. (j) Insistence on reason is a requirement for both judicial accountability and transparency. (k) If a judge or a quasi-judicial authority is not candid enough about his/her decision-making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism. (l) Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or \"rubber-stamp reasons\" is not to be equated with a valid decision-making process. (m) It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision-making not only makes the judges and decision-makers less prone to errors but also makes them subject to broader scrutiny. (See David Shapiro in Defence of Judicial Candor [(1987) 100 Harvard Law Review 731-37].) (n) Since the requirement to record reasons emanates from the broad doctrine of fairness in decision-making, the said requirement is now virtually a component of human rights and was considered part of Strasbourg Jurisprudence. See Ruiz Torija v. Spain [(1994) 19 EHRR 553] EHRR, at 562 para 29 and Anya v. University of Oxford [2001 EWCA Civ 405 (CA)], wherein the Court referred to Article 6 of the European Convention of Human Rights which requires, \"adequate and intelligent reasons must be given for judicial decisions\". (o) In all common law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of law, requirement of giving reasons for the decision is of the essence and is virtually a part of \"due process\".\" 12. In view of glaring illegality, we are not inclined to relegate the petitioner to avail alternative remedy. The assessment order is set aside. The competent authority shall re- hear the petitioner and decide the matter afresh in accordance with law. It is made clear that this Court has not expressed any opinion on merits. 13. In the result, the Writ Petition is disposed of with the above direction. No order as to costs. As a sequel, miscellaneous applications pending in this petition, if any shall stand closed.” ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 11 13. We would also place our reliance on the decision of the coordinate bench in the case of Deputy Commissioner of Income-tax vs. R.K.Shah Projects (P.) Ltd. [2023] 149 taxmann.com 101 (Surat-Trib.), dated 31.01.2023, where on identical facts the Tribunal had remanded the issue back to the file of the ld. AO to examine the source of cash deposit pertaining to unsecured loan. It is also observed that the even for A.Y. 2016-17, the assessee has availed loan from Sri Water Front Health Farms Pvt Ltd. along with two other parties in which the lower authorities have given a finding that out of three parties only two parties had replied to the 133(6) notice and that Sri Water Front Health Farms Pvt. Ltd. did not respond to the 133(6) notice issued by the ld. AO. 14. We therefore are of the considered opinion that this issue shall be remanded back to the ld. AO for verification of the source of the creditor in terms of the proviso to Section 68, where the assessee is directed to furnish all details required by the ld. AO for adjudication of the issue and the ld. AO is directed to decide the same on the merits by giving a detail finding based on the submission of the assessee and in accordance with law. For the above reasons, we deem it fit to remand this issue back to the file of the ld. AO for verifying the said transaction. We therefore allow the grounds of appeal filed by the assessee for statistical purpose. 15. In the result, the appeal filed by the assessee is allowed for statistical purpose. ITA No. 1495/Mum/2024; (A.Y. 2017-18) 16. The revenue has challenged the following grounds of appeal: “1. On facts and in the circumstances of the case and law, the Ld.CIT(A) erred in deleting the disallowance of Rs. 2,87,27,734/-under Section 36(1) (lii) made by the AO, merely on a presumption that the interest-free advances were out of Assessee's own interest-free funds? ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 12 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance made by the AO u/s 37 of the Act without appreciating that any loss on account of non-recovery of investment in preference shares will only represent loss of capital and cannot be claimed as revenue expense. 3. The Appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored” . 17. Ground no. 1 pertains to the disallowance of Rs. 2,87,27,734/- u/s. 36(1)(iii) of the Act made by the ld. AO on the ground that the assessee has given interest free loan to M/s. Pallai Developers Limited to the tune of Rs. 20,51,98,102/- and has failed to substantiate that the said interest free loan was out of the own funds of the assessee or from the borrowed funds. The ld. CIT(A) in the appeal filed by the assessee had deleted the addition on the ground that the assessee was having the surplus funds of Rs. 489.69 crores and Rs. 661.79 crores of interest free funds. The borrowed funds of the assessee was only Rs. 22 crores which is lesser than the total surplus and interest free funds of the assessee. The ld. CIT(A) placed reliance on the decision of the jurisdictional High Court in the case of Commissioner of Income-tax vs. Reliance Utilities & Power Ltd. [2009] 178 Taxman 135 (Bombay)/[2009] 313 ITR 340 (Bombay)/[2009] 221 CTR 435 (Bombay)[09-01-2009], where in case of mixed funds the presumption is that the assessee has given interest free loan out of the own funds. The ld. CIT(A) also relied on the decision of the Tribunal in assessee’s own case for earlier years where on identical issue on disallowance of Section 36(1)(iii) of the Act was set aside. The ld. AR for the assessee relied on the decision of the Tribunal in assessee’s own case and had also relied on the decision of the Hon'ble Jurisdictional High Court in the case of ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 13 Reliance Utilities and Power Limited (supra) which was extensively relied upon by the ld. CIT(A). 18. The ld. DR on the other hand controverted the said fact and relied on the decision of the ld. AO. 19. Upon perusal of the rival contentions, it is observed that the assessee’s interest free funds consist of its own fund of Rs. 489.69 crores which is its reserves and surplus and along with borrowed interest free fund of Rs. 66.79 crore was very much higher than the investment made in M/s. Pallai Developers Private Limited, vide an agreement for Rs. 22 crore against the rights in property developed by the assessee company. The revenue has not brought anything on record to controvert the said fact. In the absence of any contradictory statement that the borrowed funds of the assessee was much higher than the own funds, we deem it fit to decide this issue on the proposition laid down by the Hon'ble jurisdictional High Court in the case of Reliance Utilities and Power Ltd. (supra) which held that when own funds are more than the interest free advance then the presumption would be that the interest free advances made by the assessee is out of the own funds of the assessee and not the interest bearing borrowed funds. On these observations, we find no infirmity in the order of the ld. CIT(A) and therefore ground no. 1 of the revenue is hereby dismissed. 20. Ground no. 2 pertains to the disallowance made by the ld. AO u/s. 37 of the Act amounting to Rs.50 crores being diminution in the value of preference shares which was added by the ld. AO and deleted by the ld. CIT(A). It is observed that in 2008, the assessee has subscribed the preference share capital of Kohinoor CTNL Infrastructure ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 14 Private Limited amounting to Rs. 250 crores which was claimed to be for the purpose of business. As KCTNL was undergoing insolvency proceeding before the Hon’ble NCLT which is pending, the assessee had written off Rs. 15 crores to the profit and loss account and had claimed the same as deduction u/s. 37 of the Act as revenue expenditure. The claim of diminution in value of investment made by the assessee in KCTNL was rejected by the ld. AO as not being allowable expenditure either u/s. 36(2) or u/s. 37 of the Act, for the reason that the said investment was given from the capital fund of the assessee and any loss arising out of the non-recovery of the same will only amount to a capital loss and not as business loss. The ld. AO further stated that deduction u/s. 36(2) is termed as bad debt only when the same has been declared as income in any of the earlier years or the same amounted to a loan given in the ordinary course of a banking or money lending business. The ld. AO further held that the investment in preference share of KCTNL cannot be allowed u/s. 37 for the reason that it amounts to loss of capital which cannot be allowed under the head ‘business’ neither as income from ‘capital gain’ as the same will not come under the purview of Section 44 of the Act as there has been no ‘transfer’ in such transaction. The ld. AO made an addition of Rs. 50 crores to the total income of the assessee. In an appeal preferred before the ld. CIT(A), the same was held to be a business loss by relying on the various decisions of the Hon'ble Jurisdictional High Court viz. in the case of CIT vs. Colgate Palmolive (India) Ltd. [2015] 370 ITR 728 (Bom) and Hon'ble Karnataka High Court decision in the case of ACE Designers Ltd. vs. Additional Commissioner of Income Tax [2020] 120 taxmann.com 321 (Karnataka). ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 15 21. Aggrieved the revenue is in appeal before us challenging the said ground. 22. The ld. DR for the revenue contended that the investment made by the assessee in M/s. KCTNL was not for business expediency and the same cannot be a business loss on non-recovery of the same. The ld. DR further stated that it cannot be allowed neither u/s. 36(2) nor u/s. 37 of the Act, as the same amounts to loss of capital and not a business loss. The ld. DR relied on the order of the ld. AO. 23. The ld. AR on the other hand controverted the said fact and stated that the issue was clearly covered by the decision of the Hon'ble Jurisdictional High Court in the case of Colgate Palmolive (India) Ltd. (supra) and the Karnataka High Court in the case of ACE Designers Ltd. (supra). The ld. AR relied on the order of the ld. CIT(A). 24. Having heard the rival submissions and perused the material available on record, it is observed that the assessee has made investment in its subsidiary company M/s. KCTNL which was also engaged in the business of construction, by way of preference shares amounting to Rs. 250 crores in F.Y. 2008-09. Out of the said investment, M/s. KCTNL has purchased a plot from National Textile Corporation by availing loan of Rs. 936 crores from a consortium of banks led by State Bank of India (SBI) and had also taken additional loan to the tune of Rs. 295 crores in September, 2014. It is stated that M/s. KCTNL has commenced the project of multi storied Public Parking Lot (“PPL”) after due approval from the Municipal Corporation of Greater Mumbai, where the said project was stalled for 3 to 4 years due to change in government policies and was also facing litigations due to the same. This issue reached up to the Hon'ble Apex Court and after the consent terms dated 25.07.2013, the project commenced. Due to the delay in ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 16 contesting the litigation M/s. KCTNL faced financial crunches and its account became NPA. The consortium of banks then transferred assets of M/s. KCTNL to Edelweiss ARC which had filed petition under IBC for recovery and the same was pending before the Hon'ble NCLT, which vide order dated 21.02.2018 accepted the resolution plan. For the above-mentioned reason, the assessee also had to face the hardship caused due to this. The assessee’s contentions is that the said investment is for strategic business purpose and the write off of the investment arised due to peculiar facts and circumstances which was incidental to the business and the same amounted to loss due to commercial expediency and business necessity. The assessee has placed reliance on the decision of the Hon'ble Jurisdictional High Court in the case of Colgate Palmolive (India) Ltd. (supra) which on identical facts has held that the loss on write off of investment made in subsidiary company is business loss which was for the purpose of the extension of business activity and does not entitle for creating capital asset by holding shares. It was also held that there was no acquisition of capital asset neither was the expenditure incurred for enduring benefits and further there is no relinquishment or transfer of capital asset to any third party. The relevant extract of the decision in the case of ACE Designers Ltd. (supra) which has dealt with the decision of the Hon’ble Jurisdictional High Court in the case of Colgate Palmolive (India) Ltd. (supra) is cited herein under for ease of reference: - “8. Thus, from perusal of the aforesaid facts, it is evident that the issue involved in this appeal is covered by decision of Bombay High Court in Colgate Palm Olive (India) Ltd. (supra), which has been upheld by the Supreme Court. The ratio of aforesaid decision is where the assessee makes investment in its 100% subsidiary for business purpose, loss or sale of investment has to be treated as business loss of the assessee. In the instant case, the assessee made investment in the shares of WOS for the business purpose i.e., for the enhancement of business activity of the assessee in global market which primarily related to business operation of the assessee. The WOS suffered losses and ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 17 therefore the assessee wrote off the assessment of Rs. 3,41,23,200/- as business loss. The investment was made for the purpose of extension of business activity and not with a view to creating capital asset in the form of holding shares. It is also pertinent to note that the assessee never acquired any capital asset or expenditure of enduring benefits to WOS and there is no relinquishment or transfer of capital asset to any third party. In view of preceding analysis, the first substantial question of law is answered in the negative and in favour of the assessee. It is not necessary for us to answer the remaining substantial questions of law in view of our answer to the first substantial question of law. In the result, the order of the Tribunal dated 14-12-2012 to the extent of the findings contained against the assessee is quashed. Accordingly, the appeal is allowed.” 25. From the above decision, it is observed that the investment made by the assessee in its subsidiary company was for its commercial expediency and for promoting business operations. Non-recovery of the said amount tantamount to a business loss where the subsidiary company was unable to complete its project due to reasons beyond its control. The assessee had to write off the said loss as revenue expenditure, for the reason that there was no capital asset introduced out of such investment. The revenue has also failed to establish that the investment was in view of creating capital asset by way of holding preference shares in the said company and also whether the investment was incurred for the enduring benefit. In the absence of the same, we find no infirmity in the order of the ld. CIT(A) in allowing the said claim of the assessee. The ground no. 2 raised by the revenue is hereby dismissed. 26. In the result, the appeal filed by the revenue is hereby dismissed. ITA No. 1159/Mum/2024 (A.Y.: 2016-17) 27. This appeal filed by the assessee challenges the order of the ld. CIT(A) in upholding the addition of Rs. 14,07,44,799/- as unexplained cash credit u/s. 68 of the Act. It is observed that during the year under consideration, the assessee has received loan from the following three parties which are tabulated herein under: ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 18 Party name Amount Goodhope software Pvt Ltd 5,23,00,000 Good view engineering pvt ltd 5,37,00,000 Sri water Front Health Farms Pvt Ltd 3,47,44,799 28. During the assessment proceeding, the assessee has furnished loan confirmation from these parties along with details of the ITR, balance sheet and bank statement of the said parties. The ld. AO observed that in the case of Good View Engineering Pvt. Ltd which is based in Kolkata, the total income was Nil and going through the balance sheet, it was observed that the said company had no assets and liabilities and the bank statement reflected transfer of money from other entities which was routed to the assessee subsequently. The ld. AO observed that these companies had very thin capital which were entities in Kolkata, having high debt equity inspite of not being into any business operation. Out of these three companies, notice u/s. 133(6) of the Act was replied along with details of P & L account, balance sheet and bank statement except in the case of Sri Water Front Health Farms Pvt. Ltd. which did not respond to the said notice. The assessee claimed the same to be Inter Corporate Deposits which was not to the satisfaction of the ld. AO who then proceeded to make addition u/s. 68 of the Act for the reason that the assessee has failed to prove the creditworthiness of the party and genuineness of the transaction. 29. The ld. CIT(A) in an appeal filed by the assessee upheld the addition made by the ld. AO on the ground that the assessee has failed to substantiate the source of the creditors, where the first two creditors mentioned above had a meager profit during the year under ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 19 consideration and with regard to Sri Water Front Health Farms Pvt. Ltd, the said company had not responded to the notice u/s. 133(6) of the Act issued by the ld. AO. Though the assessee has filed the confirmation, the return of income and bank statement of the said creditor, on perusal of the same, it is observed that Sri Water Front Health Farms Pvt Ltd had declared total income of Rs. 46,50,200/- but the P & L account showed no regular business operation. The ld. CIT(A) upheld the addition made u/s. 68 of the Act by the ld. AO on the ground that the source of source has not been proved. 30. Aggrieved the assessee is in appeal before us, challenging the impugned order. 31. It is observed that on identical facts in ITA No. 1158/Mum/2024 for A.Y. 2017-18, the assessee is said to have taken unsecured loan from the same party i.e., Sri Water Front Farms Pvt. Ltd., where the assessee has failed to prove the source of source as per proviso to Section 68 of the Act. As the facts are identical on this ground for both the years, the finding given in ITA No. 1158/Mum/2024 will apply mutatis mutandis to this appeal also. We therefore remand this issue back to the file of ld. AO as per the observation given by us for A.Y. 2017-18. 32. Therefore, the grounds of appeal filed by the assessee is allowed for statistical purpose. 33. In the result, the appeal filed by the assessee is allowed for statistical purpose. ITA No. 1493/Mum/2024 (A.Y.: 2016-17) 34. The revenue has challenged the following grounds of appeal: “1. On the facts and in the circumstances of the case and law, the Ld.CIT(A)erred in deleting addition u/s 14A r.w.r. BD of Rs.3,70,93,456/- ignoring that the provisions clearly provide for the method of computing the disallowance vis-à-vis investments & interest expenses? 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance made by the AO u/s 144 r.w.r. 8D without appreciating that CBDT vide ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 20 Circular No.5/2014 has clarified that rule 8D r.w.s. 14A of the Act provides for disallowance of the expenditure even where tax payer in a particular year has not earned any exempt income?\" 3. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.3,70,93,456/- made u/s.14A r.w. Rule 8D of the LT. Act, 1961 by stating that no adjustment can be made by the AO to the Book Profit computed u/s 115/B of the Act\" 4. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs 45,00,000/- regarding unrecognized sales from the Book Profit computed u/s 115JB of the Act without giving any reason to delete the addition made.\" 5. The Appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.” 35. Briefly stated, the assessee had e-filed its return of income dated 17.10.2016, declaring total Income at Rs. 4,00,76,270/-. It is observed that the assessee company has made investment in equity shares and preference shares and also share application money, where total investment of the assessee company was Rs. 485.72 crores out of the own funds which includes share capital and free reserves of Rs 506.97 crores. The assessee is said to have received dividend income amounting to Rs. 1,08,440/- from the Cosmos Co-op Bank Ltd. and the same has been offered to tax and has not been claimed as exempt u/s. 10(34) of the Act. The ld. AO observed that the assessee has not apportioned any interest expenditure from borrowed funds amounting to Rs 704,29,56,198/-, where the current liability during the year under consideration was Rs. 82,48,50,813, the ld. AO further observed that the assessee’s surplus funds was Rs 499,96,52,034/-. The ld. AO made a disallowance of Rs. 3,70,93,456/- u/s. 14A r.w.r. 8D of the Act. In an appeal before the ld. CIT(A), the said disallowance was deleted on the ground that no disallowance could be made where the assessee has not earned any exempt income for the year under consideration. The ld. CIT(A) had also relied on the ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 21 Tribunal decision in assessee’s case for A.Y. 2010-11 to 2012-13 on identical facts, where the said disallowance was deleted when the assessee has not earned any exempt income during the year under consideration. 36. On hearing the rival contentions, we deem it fit to hold that this issue is no longer res- integra and has been decided in favour of the assessee by various decisions of the Hon'ble High Courts and Hon'ble Apex Court. By respectfully following the same, we find no infirmity in the order of the ld. CIT(A) and therefore ground no. 1 and 2 raised by the revenue is hereby dismissed. 37. Ground no. 3 pertains to the addition of Rs. 3,70,93,456/- made u/s. 14A r.w.r. 8D of the Act, while computing the book profit u/s. 115JB of the Act. The ld. AO added the disallowance made u/s. 14A of the Act while computing book profit u/s. 115JB of the Act. The same was deleted by the ld. CIT(A) by placing reliance on the following decisions: a. Decision of Special Bench of Delhi Tribunal in the case of Vireet Investment P. Ltd. (82 taxmann.com 415) b. Decision of ITAT Mumbai Bench in the case of Reliance Natural Resources Ltd. (85 taxmann.com 128) c. Decision of ITAT Mumbai Bench in the case Piramal Enterprises Ltd. (97 taxmann.com 352) d. CITIAVs decision in the Assessee Company’s own case 38. On hearing rival contentions, it is observed that the ld. CIT(A) had deleted the disallowance made u/s. 14A while computing book profit u/s. 115JB of the Act by ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 22 relying on the decision of his predecessors in A.Y. 2011-12 who in turn had relied on the decision of the Hon'ble Delhi High Court in the case of CIT vs. Bhushan Steel Ltd. in ITA No.901/Del/2010, dated 22.09.2011, which has held that no adjustments can be made to the book profit u/s. 115JB with respect to the disallowance made u/s. 14A r.w.r. 8D of the Act. It is settled preposition of law that while computing book profit u/s. 115JB, disallowance made u/s. 14A of the Act cannot be included and the same does not come under the purview of Section 115JB of the Act. By respectfully following the same, we deem it fit to dismiss ground no. 3 raised by the revenue. 39. Ground no. 4 pertains to addition of Rs. 45 lacs pertaining to unrecognised sales from the book profit u/s. 115JB of the Act. It is observed that the assessee has not offered income of Rs. 45 lacs on sale of property which was located in Aundh, Pune. Before the ld. AO the assessee contended that it had entered into MOU with Devidas Manikchand Butala and Ragavendra Tulsibagwale for selling development rights for the said land, for which the assessee is said to have received a consideration of Rs. 10 lacs in the year 2006. The assessee had offered to tax amounting to Rs. 45 lacs in A.Y. 2006-07 as the sales of the assessee. The assessee further contended that since the buyers could not complete the said transaction as per the terms of MOU, the assessee demanded for compensation in addition to the original balance of Rs. 90 lacs excluding Rs. 10 lacs advance received. The assessee further stated that Rs. 45 lacs was already offered to tax, the buyers had agreed for the compensation of Rs. 50 lacs, where the balance of Rs. 45 lacs remained to be offered by the assessee. The ld. AO had made ITA No. 1158, 1493 & 1495/Mum/2024 (A.Y. 2016-17 & 2017-18) Kohinoor Planet Constructions Pvt. Ltd. 23 addition of Rs. 45 lacs on account of unrecognised sales. In an appeal before the ld. CIT(A), the said ground was not adjudicated by the ld. CIT(A). 40. Upon perusal of rival contentions, we deem it fit to restore this issue back to the file of ld. CIT(A) to decide this issue on the merits of the case by giving detailed reasoning for the finding which is to be arrived at by the ld. CIT(A). We therefore remand this issue back to the file of the ld. CIT(A) for adjudicating the same in accordance with law. Ground no. 4 is allowed for statistical purpose. 41. In the result, the appeal filed by the revenue is partly allowed for statistical purpose. Order pronounced in the open court on 29.04.2025 Sd/- Sd/- (RENU JAUHRI) (KAVITHA RAJAGOPAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated: 29.04.2025 Karishma J. Pawar (Stenographer) Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT- concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER, (Dy./Asstt.Registrar) ITAT, Mumbai "