The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) confirms Rs. 2513 Crore loss disallowance of the assessee Nayara Energy Ltd. The tribunal cited the lack of a Share Purchase Agreement ( SPA ) and insufficient evidence of fair valuation as reasons for treating the Inter-Corporate Deposits ( ICDs ) as a sham transaction.
The primary issue in the appeal was the disallowance of Rs. 2,513 crore loss incurred by the assessee due to the assignment of ICD receivables of Rs. 955 crore) and ICD payables of Rs. 699 crore to Ibrox Aviation and Trading Pvt. Ltd. at a value of just Rs. 4.98 crore. The loss was treated as a deduction by the assessee, but the Assessing Officer (AO) and CIT(A) disallowed this deduction.
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The assessee’s legal representatives Nitesh Joshi, Advocate, and Sagar Devani CA submitted that the assessee had previously requested time to submit additional evidence before the CIT (A) on February 18, 2021, but due to various constraints, the assessee could not present these details during the original proceedings.
The counsel claimed that these documents were essential to properly argue their case and that they were not submitted earlier due to unavoidable circumstances.
On the contrary, the revenue representative S. Srinivasu objected to the admission of additional evidence. The counsel argued that the assessee had ample time (from November 8, 2021, to February 25, 2022) to submit the documents but failed to do so.
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The Revenue counsel contended that the assessee’s claim that they were denied the opportunity to submit documents was false. Moreover, no valid reasons were provided as to why these documents weren’t submitted during the original assessment stage.
The two-member Bench comprising Prashant Maharishi (Accountant Member) and Rahul Chaudhary (Judicial Member) decided to admit the additional evidence. The tribunal found that the documents were relevant for properly evaluating this case, especially concerning the interest expenses on ICDs and the rationale behind the investment in subsidiaries.
The tribunal noted that the AO and CIT(A) both disallowed the deduction due to the loss was not genuine because it arose from related-party transactions within the Essar Group and was booked to inflate losses artificially and treated the transaction as a sham.
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The tribunal noted that the assessee did not provide a Share Purchase Agreement (SPA) but had referenced the SPA in its financial statements and auditor’s report. When asked to produce the SPA, the company claimed it did not possess the document.
The tribunal found this explanation insufficient and stated that the absence of the SPA significantly undermined the assessee’s case, as it could not provide the necessary context for the ICD transaction.
The tribunal questioned the business rationale behind selling receivables worth ₹955.38 crores and liabilities of ₹699.29 crores for just ₹4.98 crores. It found that the transaction was conducted without sufficient justification, and the assessee had not demonstrated any efforts to recover the ICDs before selling them at a discount.
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Therefore, the tribunal upheld the disallowance of the Rs. 2,513 crore loss claimed by the assessee. The tribunal cited the missing SPA, the questionable timing of the fair valuation, and the lack of a genuine business rationale as key reasons for its decision. It confirmed that the transaction was a sham, and the loss was not deductible under the Income Tax Act. Thus, the appeal of the assessee on this ground had been dismissed.
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