SOHAMS FOUNDATION ENGINEERING PRIVATE LIMITED,MUMBAI V. DCIT-CIRCLE 15(3)(2), MUMBAI

ITA 5135/MUM/2025

AI Insights

The case involves Sohams Foundation Engineering Private Limited, which appealed against the order of the NFAC/CIT(A) concerning various additions and disallowances made by the AO for the assessment year 2011-12. The primary issues included the addition of Rs. 40,00,000 under Section 68 as unexplained cash credit, disallowances under Section 40(a)(ia) for non-deduction of TDS on equipment hire charges, and disallowances under Section 14A related to interest on capital work-in-progress. The Tribunal examined the evidences and arguments presented by both parties, including the identity and creditworthiness of the investor, the nature of the transactions, and the applicability of relevant tax provisions.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 848261 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2026
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Mumbai
• Assessment Year: 2011-2012
• Appeal Filed On: 21-08-2025
• Other Referred Cases: Moradul Haque vs. ITO, ACIT vs. Kohinoor Project P. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LEYAQAT ALI AAFAQUI
• Assessee Lawyers: DEVDATTA MAINKAR; TAKING
• Keywords: Proportionate interest; Additional evidence; Unexplained cash credit; TDS; Source of fund; Earning of tax free income; Rule 8D
• Section: 68; 14A; 40(a)(ia)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER & SHRI ARUN KHOPADIA, ACCOUNTANT MEMBER ITA No. 5135/MUM/2025 (AY: 2011-12) (Physical hearing) Sohams Foundation Engineering Private Limited 301-303, 3rd Floor, Thapar Complex, Konkan Bhavan S.O. Konkan Bhavan, Thane, 400614 [PAN No. AABCS1759G] Vs DCIT Circle 15(3)(2), Aykar BhavanRoom No. 483, 4th Floor, Mumbai, Maharashtra, 400020 Appellant / Assessee Respondent / Revenue Assessee by Shri Devdatta Mainkar, CA Revenue by Shri Leyaqat Ali Aafaqui, Sr. DR Date of hearing 07.01.2026 Date of pronouncement 27.03.2026 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee is directed against the order ofNational Faceless Appeal Centre (‘NFAC’ for short)/ CIT(A) dated 25.06.2025 for A.Y. 2011-12. The assessee has raised following grounds of appeal; i. On the facts and in the circumstances of the case and also in law, the learned CIT(A) erred in confirming assessed total income as Rs.4,74,79,590/- as against the returned income (loss) of Rs.6,98,543/- without considering written submissions including additional evidence submitted by the Appellant Company in the course of appellate proceedings under Section 250 of the Income Tax Act, 1961 (the Act). ii. On the facts and in the circumstances of the case and also in law, the learned CIT(A) erred in confirming addition of Rs. 40,00,000/- under section 68 without appreciating the documentary evidences establishing identity, source Printed from counselvise.com Sohams Foundation Engineering Pvt. Ltd. ITA No. 5135/MUM/2025 2 and creditworthiness in respect of share capital issued to a non-resident shareholder during the year. iii. On the facts and in the circumstances of the case and also in law, the learned CIT(A) erred in directing the AO to verify reconciliation of TDS & corresponding income between 26AS and books of account without considering the reconciliation statement along with copies of ledgers. iv. On the facts and in the circumstances of the case and also in law, the learned CIT(A) erred in confirming disallowance of Rs. 2,27,50,574/-under Section 40(a) (ia) of the Act for non-deduction of TDS on equipment hire charges deducted by the customers without appreciating that the Appellant Company was no required to deduct TDS in view of the arrangement with the said customers. v. Without prejudice to the Ground No. 4 above, the learned CIT(A) erred in not accepting the alternative contention of the Appellant that 30% of Rs.2,27,50,574/- is disallowable under Section 40(a)(ia) as the amendment to the said section with effect from AY2015-16 is beneficial and hence, applies retrospectively. vi. On the facts and in the circumstances of the case and also in law, the learned CIT(A) erred in confirming disallowance of Rs.1,75,655/- being interest attributable to capital work-in-progress (CWIP) of Rs. 16,02,692/- as on 31.03.2011 by wrongly concluding that loan funds were used for the impugned CWIP. vii. On the facts and in the circumstances of the case and also in law, the learned CIT(A) erred in confirming disallowance interest and other expenses u/s 14A of the Act. 2. Brief facts of the case are that assessee company is engaged in the business of Geotechnical Investigation & Ground improvement solutions, rock anchors, retaining earth walls for improving soil/ground conditions. The assessee filed its return of income for AY 2010-11 on 30.11.2022 declaring loss. The case was selected for scrutiny. During the assessment, the Assessing Officer (‘AO’ for Printed from counselvise.com Sohams Foundation Engineering Pvt. Ltd. ITA No. 5135/MUM/2025 3 short) noted that the assessee has issued 23,392 shares in previous year to non- resident shareholders. The shares were issued at a premium of Rs. 161 aggregating to Rs. 37,66,080/- to Sunil R Mehta. The AO in para 4 of the assessment order recorded that assessee was asked to explain the identity., creditworthiness and genuineness of transaction. The AO, in para 4.3 of his order recorded that no details were filed by assessee in respect of introduction of capital of Rs. 40 Lacs. The AO by recording certain case-laws treated the share capital of Rs. 40 Lacs as unexplained cash credit under Section 68. 3. The AO further noted that assessee has paid a sum of Rs. 5.42 Crore on account of equipment hiring charges. The assessee was asked to furnish party-wise details. The assessee filed its response vide letter dated 11.02.2014.From the details, the AO noted that assessee have made payment of Rs. 7,12,474/-to M/s. ITD Cementation India Ltd. and Rs. 2,20,38,100/- to M/s. Mhatre Infra Private Ltd. The assessee explained that the payments to these parties relates to equipment supplied by these clients during execution of work contract, which was awarded to the assessee by the same clients at their site. It was further explained that payment of such hiring charges was adjusted against the payment of contract bills raised by the assessee. The AO was not convinced with the explanation of assessee and again issued showcausenotice as to why claim of such hiring charges should not be disallowed under Section 40(a)(ia). The AO recorded that the assessee has not furnished explanation of details. The AO disallowed the aggregate amount of Rs. 2,87,50,574/- under Section 40(a)(ia). Printed from counselvise.com Sohams Foundation Engineering Pvt. Ltd. ITA No. 5135/MUM/2025 4 4. The AO further recorded that assessee has shown capital work-in-progress to the tune of Rs. 16,02,692/-. The assessee has borrowed fund and paid interest of Rs. 2.77 Crore during the relevant financial year. The assessee was asked to furnish the details of capital work-in-progress such as opening balance, addition, deletion made during the year. The AO, on perusal of details, noted that assessee has not allocated any interest on borrowed capital for such capital work in progress. The AO issued showcausenotice as to why proportionate interest on work in progress should not be capitalized. The AO recorded that the assessee has not given valid explanation. From the profit and loss account, the AO found that the assessee has borrowed fund of Rs. 25.35 Crore and has shown interest cost of Rs. 2.77 Crore. The AO estimated average rate of cost on borrowed fund at 10.96% and proportionate interest cost on Capital Work-in-progress (CWIP) of Rs. 1,75,655/- was added back to the income of assessee. 5. The AO further noted that the assessee has made investment in share of Rs. 1.74 Crore, the assessee was asked to furnish working of disallowance under Section 14A read with Rule 8D. In response to show-cause-notice, the assessee submits that assessee did not have any exempt income during the relevant financial year. The reply of assessee was not accepted by the AO. The AO applied the formula of Rule 8D and worked out the disallowance of Rs. 13,30,360/-. 6. Aggrieved by the additions in the assessment order, the assessee filed appeal before the CIT(A). Before CIT(A), the assessee filed detailed written submission on all four additions. On the addition of share capital, the assessee stated that Printed from counselvise.com Sohams Foundation Engineering Pvt. Ltd. ITA No. 5135/MUM/2025 5 the assessee company has received Rs. 40 Lacs from Sunit Mehta who is renowned person and settled in USA. He has furnished copy of return of income.The assessee also furnished his degree of qualification. As per return of income, he is showing independent income at Rs. 10.40 Lacs during the year. In earlier orders, he has invested in share of the company to the extent of 60 Lacs. Bank statement of investor was also furnished. The Ld. CIT(A) on considering the submission of assessee recorded that before AO, the assessee has not furnished evidence of identity, genuineness and creditworthiness of person who was introduced capital. Even during appellate proceeding, the assessee has not discharged their burden. The assessee has not proved the creditworthy and genuineness of transaction. Source of fund with the investor is not explained. Income of Rs. 10.40 Lacs is not sufficient to prove the creditworthiness of such person. Merely person is well-educated, do not establish the creditworthiness. On the basis of such observation, the Ld. CIT(A) upheld the action of AO. 7. On the disallowance of expenses of Rs. 2.27 Crore under Section 40 (a) (ia), the assessee submitted that at the time of execution of contract, the said party informed that in order to execute their contract speedily, they will provide additional machines, in addition to the machineries put to contract by the assessee. The assessee further stated that no service is provided by them except material and know-how for operation of machines, when their client is putting machine to use. The machines are either owned or rented by the clients and put to use on contract which the assessee has executed. These machines are in no Printed from counselvise.com Sohams Foundation Engineering Pvt. Ltd. ITA No. 5135/MUM/2025 6 way rented by assessee and hence, question of deduction of tax under Section 194I will rise. The client has deducted TDS only on the amount which is finally payable to the assessee. The Ld. CIT(A) after considering the submission of assessee, recorded that the fact recorded by AO is not disputed by assessee. The stand of assessee that machines are in no way rented by the assessee and hence there is no question of deduction of tax under Section 194I, such argument of assessee is against the fact noted by AO. As the assessee has debited such retained hire charges in its profit and loss account which clearly means that assessee is claiming equipment hire charges as expenditure and not making TDS. On the basis of such view, the Ld. CIT confirmed the action of AO. 8. On the addition on account of proportionate interest disallowance of Rs. 1,75,655/-, the assessee submitted that the capital work in progress at the yearend was at Rs. 16,02,692/- which can be seen the balance-sheet of the assessee-company. The assessee was having reserve and surplus of Rs. 13.36 Crore. In such circumstances, there was no need for assessee to utilize banking finance for working capital requirement. For the purpose of which, the loan is sanctioned.The Ld. CIT(A) not accepted the explanation of assessee by taking view that such explanation of assessee is not acceptable. The assessee has not explained for incurring huge interest expenses, if the assessee was having surplus reserve amount, which was available for WIP. The assessee has not furnished evidence that the loan amount was not utilized for WIP. The Ld. CIT(A) confirmed the action of AO. Printed from counselvise.com Sohams Foundation Engineering Pvt. Ltd. ITA No. 5135/MUM/2025 7 9. On the disallowance under Section 14A, the assessee submits that presence of exempt income is not pre condition for disallowance under Section 14A. The assessee has not earned any exempt income on the investment in Taiwan Subsidiary namely Merex EA Co Ltd. The Ld. CIT(A) not accepted the submission of assessee and held that when the shares are held as stock and trade, therefore, those investments attract disallowance under Section 14A. Further aggrieved, the assessee has filed present appeal before the Tribunal. 10. We have heard the submission of Ld. Authorized Representative (AR of the assessee) and the Ld. Sr. DR for the revenue. Both the parties have filed their short-written synopsis, which are also considered. At the outset of hearing, the Ld. AR of the assessee submits that the ground No. 1 of appeal is general in nature and need no specific allegation. Further, he is not pressing ground No. 3. Considering the submission of assessee, ground Nos. 1&3 are dismissed as not pressed. 11. Ground No. 2 relates to addition under Section 68 of Rs. 40 Lacs. The Ld. AR of the assessee submits that before Ld. CIT(A), the assessee furnished additional evidence to substantial genuineness of investment in share. The assessee has discharged their primary onus by filing bank statement showing transaction through banking channel and return of income of investor. Identity of the investor was not disputed; otherwise he is one of the non-resident shareholders of assessee-company. Further, proviso to Section 68 requiring source of source in respect to share application money as applicable from AY 2013-14 and is not Printed from counselvise.com Sohams Foundation Engineering Pvt. Ltd. ITA No. 5135/MUM/2025 8 applicable for the year under consideration. The assessee has furnished sufficient evidence to prove the identity, creditworthiness and genuineness of transaction. Once the assessee discharges its onus, the onus shifts of the revenue to disprove the evidences furnished by the assessee. 12. On the other hand, the Ld. Sr. DR for the revenue submits that the assessee has not furnished the address and the evidence of creditworthiness and genuineness of transaction in absence of complete detail and bank statement of lender, the assessee has not discharged its onus. Mere name and bank details is not sufficient to prove the creditworthiness. 13. We have considered rival submission of both parties and perused the orders of lower authorities carefully. We find that AO made addition for the want of evidence i.e. creditworthiness of investor and genuineness of transaction. We find that before ld CIT(A) the assessee furnished the details of bank account showing the transaction through banking channel. The assessee also furnished the copy of bank statement of NRO account with State Bank of India. Further, the lower authorities have not disputed the identity of investor. Furthermore, the investor is non-resident share holder of the assessee company. There is no allegation by AO that share subscriber is part of any entry provider syndicate. Thus, we find that assessee once, the assessee discharges their onus in proving the creditworthiness and genuineness of transaction, the onus shifts on the AO to disprove such facts and to bring adverse evidence. In our view, the assessee has proved the identity of investor, creditworthy and genuineness of transaction. Printed from counselvise.com Sohams Foundation Engineering Pvt. Ltd. ITA No. 5135/MUM/2025 9 Thus, we do not find any justification of such addition. In the result, this ground of appeal is allowed. 14. Ground No. 4& 5 relates to disallowance under Section 40(a)(ia). The Ld. AR of the assessee submits that assessee has furnished complete explanation with regard to expenses debited aggregating of Rs. 2.27 Crore. In alternative submission, the Ld. AR submits that only 30% of Rs. 2.27 is disallowable as the amendment made in Section 40(a)(ia) is beneficial and may be applied retrospectively. To support such view, the Ld. AR relied upon the decision of Delhi Tribunal in Moradul Haque vs. ITO (2020) 117 taxmann.com 251 (Delhi- Tribunal). 15. On the other hand, Ld. Sr. DR supported the order of lower authorities. On the alternative submission of assessee, the Ld. Sr. DR submitted that the amendment made by Finance Act, 2015 is applicable from AY 2015-16 only. 16. We have considered the submission of both parties and perused the record carefully. We find that lower authorities disallowed Rs. 2.27 Crore for the want of proper explanation and the TDS on such hire charging expenses. The Ld. AR of the assessee made an alternative plea to restrict the disallowance at the rate 30%. Thus, considering the decision of coordinate bench of Delhi Tribunal in Moradul Haque vs. ITO (supra) wherein itwas held that the amendment made by Finance Act of 2015 to Section 40(a)(ia) w.e.f. 01.04.2015 is curative in nature and the said provision has to be applied retrospectively. Thus, respectfully following the decision of coordinate bench, the AO is directed to restrict the Printed from counselvise.com Sohams Foundation Engineering Pvt. Ltd. ITA No. 5135/MUM/2025 10 disallowance under Section 40(a)(ia) to the extent of 30% i.e. 30% of 2.274 Crore. In the result, there ground of appeal is partly allowed. 17. Ground No. 6 relates to disallowance of interest of Rs. 1.75 Crores. The Ld. AR of the assessee made submission as per the submission made before Ld. CIT(A). On the other hand, the Ld. Sr. DR for the revenue supported the order of AO/CIT. 18. We have considered the rival submission of both parties and gone through the orders of lower authorities carefully.Considering the fact that assessee is having own fund and capital work in progress consist of vacuum pump purchased on 19.03.2011 and custom duty and related charges paid thereon. The pump was received and installed in April, 2011. The AO computed the interest for whole of the year whereas the amount item of WIP was purchased only on 29.03.2011. Therefore, in our view, the proportionate interest disallowance was not justified, thus, proportionate interest allowance is deleted. In the result, ground of appeal allowed. 19. Ground No. 7 relates to disallowance under Section 14 A. The Ld. AR of the assessee submit that there is no income during the year under consideration hence, no disallowance under Section 14A. To support his submission, the Ld. AR relied on decision of Bombay High Court in ACIT vs. Kohinoor Project P. Ltd. 2020 121 taxmann.com 177(Bombay). On the other hand, Ld. Sr. DR relied on the order of lower authorities. 20. We have considered the submission of both parties. We find that the assessee has not claimed exempt income from the investment made by assessee. The AO Printed from counselvise.com Sohams Foundation Engineering Pvt. Ltd. ITA No. 5135/MUM/2025 11 has not identified, if any, exempt income is shown or earned by assessee. Thus, it is settled position in law that when no exempt income is earned by assessee, no disallowance under Section 14A is justified. In the result, this ground of appeal is allowed. 21. In the result, appeal of the assessee is partly allowed. Order pronounced in open court on 27.03.2026 Sd/- Sd/- SHRI ARUN KHOPADIA PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai: Dated: 27/03/2026 Zu PS* Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; (5) Guard file. By Order Assistant Registrar ITAT, Mumbai Printed from counselvise.com "