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2020 (10) TMI 1370 - AT - Income TaxAddition u/s 68 - unexplained cash credit for the loans taken - HELD THAT - Both the lender companies i.e. Aereo Deal Com Pvt. Ltd and M/s Chamak Traxim Pvt. Ltd are genuine companies carrying out regular business of finance in their capacity as Non Banking Finance Companies registered with Reserve Bank of India and having sufficient liquidity to give loan to various borrowers. Ld. CIT(A) has also mentioned the fact that Mr. Deepak Kalani who controls the financials of M/s ADPL and M/s CTPL is having long time friendship with the Directors of Agrawal Group of Companies and in the past also he has given loan to other group concerns of Agrawal Group on interest. We further find that the issue of unexplained cash credit u/s 68 of the Act from the very same lender companies namely M/s Aereo Deal Com Pvt. Ltd and M/s Chamak Traxim Pvt. Ltd which were received by another group concern of the assessee namely M/s Agrawal Coal Corporation Pvt. Ltd and Admanum Finance Ltd came for adjudication before the Tribunal wherein the appeal was filed by the revenue challenging the finding of Ld. CIT(A) deciding in favour of the assessee. The Co-ordinate Bench has dealt this issue in Agrawal Coal Corporation Pvt. Ltd 2011 (10) TMI 496 - ITAT INDORE and has confirmed the finding of Ld. CIT(A) thereby confirming the identity of the lenders , genuineness of transactions and accepting the creditworthiness of the lender companies namely M/s ADPL M/s CTPL and holding that the Ld. A.O was not justified in making the addition u/s 68. Thus assessee has duly proved the identity of the cash creditors, genuineness of the transaction and proved creditworthiness of the lender companies which thus do not call for any addition u/s 68 of the Act and the interest paid on such loans should be allowed. Disallowance u/s 14A r.w.r. 8D - CIT(A) held that disallowance of interest was not called for since at the end of the year it earned net interest income and secondly the assessee had sufficient own capital and from reserves to cover up the investments made - HELD THAT - As far as interest disallowance is concerned we observe that during the year assessee has earned interest income which is higher than the interest paid during the year. The judgment of Hon ble Bombay High Court in the case of CIT V/s Reliance Utilities Power Ltd 2009 (1) TMI 4 - BOMBAY HIGH COURT is also squarely applicable in the case of assessee as the assessee has sufficient share capital and free reserves at Rs. 1584.75 lakhs and Rs. 1682 lakhs as on 31.3.2013 and 31.3.2014 respectively to cover up the investments of Rs. 1101.46 lakhs. This itself proves that borrowed funds have not been utilised for making these investments and nothing contrary has been brought to our notice by the revenue authorities. Therefore we confirm the finding of Ld. CIT(A) to the extent of that no interest disallowance was called for u/s 14A of the Act in the case of the assessee and thus the interest disallowance has been rightly deleted. Remaining portion as computed by the Ld. A.O applying 0.5% on the average investment the word average investment referred in Rule 8D of I.T rules certainly does not include the investments made for earning taxable interest income but for sure includes the investment fetching tax free interest and those made in equity shares, which can be listed or unlisted. The contention of the assessee and finding of Ld. CIT(A) that investment in unlisted companies should not consider for computing the disallowance under third limb of rule 8D is devoid of any merit. There is no bar under the law for the unlisted companies to declare dividend. In other words dividend income can be generated from both the listed as well as unlisted companies. So for calculating the disallowance under third limb of Rule 8D of I.T. Rules we first need to subtract the investment in debentures of Rs. 5 crores from the total average investments of Rs. 11.01 crores. The resultant average investment will be Rs. 6.01 crores and 0.5% of this average investment works out to Rs. 3,00,731/-. However the disallowance so calculated at Rs. 3,00,731/- should not exceed the dividend income earned by the assessee during the year at Rs. 2,70,120/-. Our this view of not making disallowance u/s 14A of the Act exceeding the total exempt income earned during the year is on the basis of the judgment of Cheminvest Ltd 2015 (9) TMI 238 - DELHI HIGH COURT wherein as confirmed the finding of Tribunal that in the absence of any exempt income disallowance u/s 14A of the Act is not warranted. In view of the above judgment we sustain the disallowance u/s 14A of the Act at Rs. 2,71,120/-. Thus Ground No. 1 of assessee s appeal in case of Admanum Finance Ltd is partly allowed.
Issues Involved:
1. Validity of Reassessment Proceedings 2. Unexplained Cash Credits under Section 68 3. Disallowance of Interest on Unsecured Loans 4. Disallowance under Section 14A Issue-Wise Detailed Analysis: 1. Validity of Reassessment Proceedings: The assessee challenged the reopening of assessment under Section 147, arguing that it was based on borrowed satisfaction from the Investigation Wing without independent verification. The Tribunal upheld the reopening, stating that the AO is justified in reopening based on information from the Investigation Wing. The AO followed proper procedures, including issuing a notice under Section 148 and disposing of objections through a speaking order. The Tribunal dismissed the assessee's contention that the proceedings should have been initiated under Section 153C instead of Section 147. 2. Unexplained Cash Credits under Section 68: The core issue was whether the AO was justified in making additions under Section 68 for unsecured loans taken from M/s Aereo Dealcom Pvt. Ltd (ADPL) and M/s Chamak Trexim Pvt. Ltd (CTPL), and disallowing interest paid thereon. The Tribunal examined the identity, genuineness, and creditworthiness of the lenders. It was established that both ADPL and CTPL are registered NBFCs with substantial share capital and reserves, regularly assessed to tax. The Tribunal noted that the lenders had sufficient financial standing and provided loans from their own funds. The Tribunal also referred to past assessments where loans from these companies were accepted as genuine. Consequently, the additions under Section 68 and disallowance of interest were deleted. 3. Disallowance of Interest on Unsecured Loans: The AO disallowed interest paid on loans from M/s Jayant Securities & Finance Ltd and Lunkward Media Entertainment Ltd, treating them as accommodation entries. The Tribunal found that the loans were taken in previous years and interest was paid on the opening balances. Since no addition under Section 68 was made in the year the loans were taken, the interest disallowance was deemed uncalled for. The Tribunal relied on its earlier decision in the case of Agrawal Coal Corporation Pvt. Ltd, where similar disallowances were deleted. 4. Disallowance under Section 14A: The AO made a disallowance under Section 14A read with Rule 8D, which was significantly reduced by the CIT(A). The Tribunal upheld the CIT(A)'s decision, noting that the assessee had sufficient own funds to cover the investments and earned net positive interest income. The Tribunal also limited the disallowance to the extent of the exempt income earned, following the principle that disallowance under Section 14A should not exceed the exempt income. Conclusion: The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's appeals, confirming that the loans from ADPL and CTPL were genuine and the interest paid thereon was allowable. The reassessment proceedings were upheld as valid, and the disallowance under Section 14A was restricted to the exempt income earned.
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