Bombay High Court
Kedaara Capital Advisors Llp vs Deputy Commissioner Of Income Circle ... on 8 October, 2025
Author: B. P. Colabawalla
Bench: B. P. Colabawalla
2025:BHC-OS:18657-DB
20.wp(l).29142.2025.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION (L) NO.29142 OF 2025
Kedaara Capital Advisors LLP .. Petitioner
Versus
Deputy Commissioner of Income Tax,
Circle 17(1) & Ors. .. Respondents
Mr.J. D. Mistry, Senior Advocate a/w Harsh Kapadia,
Atul K. Jasani, Advocates for the Petitioner.
Mr.Ravi Rattesar, Advocate for the Respondents.
Digitally
signed by
UTKARSH
UTKARSH
KAKASAHEB
KAKASAHEB BHALERAO
CORAM : B. P. COLABAWALLA &
BHALERAO Date:
2025.10.13
13:56:37
+0530 AMIT S. JAMSANDEKAR, JJ.
DATE : OCTOBER 08, 2025
P. C.
1. Rule. Respondents waive service. With the consent of parties, Rule made returnable forthwith and heard finally.
2. The present Petition primarily challenges the communication dated 30th July 2024 issued by Respondent No.1 rejecting the Petitioner's Application dated 22 nd April 2025 for stay of the income tax demand for A.Y.2023-24 and directing payment of 20% Page 1 of 14 OCTOBER 08, 2025 Utkarsh ::: Uploaded on - 13/10/2025 ::: Downloaded on - 17/10/2025 22:45:47 :::
20.wp(l).29142.2025.doc of the demand raised, i.e., Rs.54,44,10,611/- being 20% of total demand of Rs.272,20,53,053/-.
3. The Petitioner is a Limited Liability Partnership firm formed in November 2011 and engaged in the business of providing investment advisory services. On 11th October 2012, the Petitioner entered into an agreement with Kedaara Capital Investment Managers Ltd., Mauritius (for short 'KCIML') for providing non-binding investment advisory services. It is stated that KCIML is the investment manager for various funds/investors based in Mauritius. It is licensed by the Financial Services Commission, Mauritius. The Petitioner provides non-binding investment advisory services to KCIML on a principal-to-principal basis. KCIML, based on the Petitioner's recommendations and subsequent independent evaluation, provides investment management services to the investors/funds. Apart from the above services, the Petitioner is also appointed as an investment manager and sponsor of Kedaara Capital Alternative Investment Fund I, a Category II Alternate Investment Fund (for short 'KCAIF'). It is categorically averred that KCIML is not the parent/partner of the Petitioner. Likewise, the Petitioner is also not the parent/shareholder of KCIML.
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4. In A.Y.2023-24, the Petitioner earned the following business income: (i) advisory fee income from KCIML of Rs.336,62,13,988/- and (ii) management fee income from KCAIF - Rs.45,81,515/-. The Petitioner filed its return of income for A.Y.2023-24 on 31st October 2023 declaring a total income of Rs.136,63,06,505/-. This income included the abovementioned advisory fee earned from KCIML and management fees from KCAIF. Against the aforesaid total income declared, the total tax liability was determined at Rs.47,78,75,165/-. The Petitioner claimed credit of prepaid taxes of Rs.50,44,99,782/-. Resultantly, an income tax refund of Rs.2,66,24,617/- was claimed in the said return of income.
5. The aforesaid return was picked up for scrutiny assessment by the Revenue vide notice dated 19th June 2024 issued under section 143(2) of the Income-tax Act, 1961 ('the IT Act'). Various notices were issued by the assessing officer during the course of the assessment proceedings seeking various details/information/evidence, all of which were duly responded to by the Petitioner.
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6. The records indicate that initially, the Assessing Officer had proposed to make disallowances of certain expenses and had issued a show cause notice to the Petitioner. This show cause notice was duly responded to by the Petitioner. However, towards the fag-end of the assessment, the Assessing Officer embarked upon a fresh issue. During the course of the personal hearing on 7 th March 2025, the Petitioner was called upon to show cause why an addition under Section 68 of the IT Act ought not to be made by treating the entire advisory fees earned by the Petitioner from KCIML during the subject year of Rs.338,94,75,662/- (erroneously considered by the Assessing Officer and instead of Rs.336,62,13,988/-) as 'unexplained credit'. A formal show cause notice also followed.
7. The Petitioner responded to the above vide its submissions dated 11th, 17th & 18th March 2025. Amongst other defences, the primary objection raised by the Petitioner to the above was that such an addition under Section 68 of the IT Act was wholly unsustainable, unlawful and perverse as the said advisory fees was forming part of the business income of the Petitioner for the year and taxes arising therefrom were discharged. Accordingly, it was submitted that, based on well settled principles of law, addition under Section 68 of the IT Act on such facts Page 4 of 14 OCTOBER 08, 2025 Utkarsh ::: Uploaded on - 13/10/2025 ::: Downloaded on - 17/10/2025 22:45:47 :::
20.wp(l).29142.2025.doc could not be made. Be that as it may, in any case, during the course of the assessment proceedings, the Petitioner furnished all relevant details/evidence/information sought by the Assessing Officer so as to discharge the onus caste upon it to proving the identity, genuineness and creditworthiness of KCIML.
8. On 24th March 2025, the Assessing Officer however passed the assessment order under section 143(3) of the IT Act rejecting the Petitioner' contentions. In this order, the Assessing Officer treated the entire advisory fees received from KCIML of Rs.338.95 Crores as 'unexplained credit' under Section 68 of the IT Act. While doing so, the Assessing Officer did not reduce this income from the head 'Profit and Gains from Business and Profession'. Further, a perusal of the assessment order at least prima facie reveals that the Assessing Officer has not considered/dealt with the Petitioner's primary objection that no addition under section 68 is called for as the Petitioner has already offered the said advisory fee from KCIML as business income and, thus, could not be taxed again. The Assessing Officer in respect of this contention of the Petitioner observed:
"In various replies submitted by the assessee, the firm instead of proving the genuineness of the transactions, it is only arguing that it may result double taxation if the receipts from Mauritius company is taxed u/s 68 of the act.Page 5 of 14
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20.wp(l).29142.2025.doc In the wake of large scale routing of funds for various purposes through tax havens, it is the responsibility of the assessee to prove the genuineness of transaction and also genuineness of the services rendered by it. However, the assessee could not prove the genuineness of transaction along with any services rendered by it. It has also failed to provide any reliable evidences to prove that it is not a sham transaction."
9. Be that as it may, the Assessing Officer assessed the Petitioner's total income for A.Y. 2023-24 at Rs.348,22,99,511/- as against the returned income of Rs.136,61,07,490/- filed by the Petitioner. Pursuant thereto, a notice of demand under Section 156 of the IT Act was also issued raising a tax demand of Rs.272,20,53,053/-. A penalty show cause notice under Section 274 read with section 271AAC(1) of the IT Act has also been issued.
10. Aggrieved, the Petitioner, on 22 nd April 2025 filed an appeal before Commissioner of Income Tax (Appeals) in terms of Section 246A, challenging the aforesaid assessment order. This appeal is presently pending and is yet to be disposed of.
11. Simultaneously, the Petitioner on 22 nd April 2025 also filed before the Assessing Officer an application for stay of the subject demand of Rs.272.21 Crores.
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12. The Assessing Officer, vide the impugned letter dated 30th July 2025 passed the following directions:
3. The assessee's application is perused. As per provision for section 220(6) of IT. Act, 1961 r.w. Board's Instruction on stay of demand, where an appeal is pending at first appeal stage, the Assessing Officer may grant stay of demand on payment of 20% of the disputed demand subject to conditions as may be imposed by the Assessing Officer.
Further, as the assessee's appeal is pending before CIT(A), the matter is subjudice.
4. In view of the above, the assessee is required to pay 20% of the disputed demand so that the balance demand can be considered for stay till the disposal of appeal by Ld. CIT(A). The assessee's stay application is disposed of with the above remarks.
(emphasis supplied)
13. Thus, the Petitioner's application has been rejected by the Assessing Officer solely on the ground that in view of the CBDT's Instructions, stay will be granted to an assessee once 20% of the outstanding demand is paid. No other reasons have been given by the Assessing Officer in the impugned order rejecting an unconditional stay of the demand.
14. In these facts and circumstances of the case, the Petitioner submits that the impugned letter dated 30 th July 2025 rejecting the Petitioner's stay application is unlawful, unsustainable, contrary to the Page 7 of 14 OCTOBER 08, 2025 Utkarsh ::: Uploaded on - 13/10/2025 ::: Downloaded on - 17/10/2025 22:45:47 :::
20.wp(l).29142.2025.doc provisions of law, and thus, liable to be quashed and set aside. It is further urged that the present facts warrant a full stay on the impugned demand for A.Y. 2023-24 considering that (i) the Petitioner has a strong prima facie case on merits, (ii) the assessment is high-pitched as the assessed income is more than twice the returned income, (iii) the balance of convenience is in the Petitioner's favour (iv) a recovery of the outstanding demand, or even a part thereof will cause irreversible loss, prejudice and hardship to the Petitioner.
15. On the other hand, the learned advocate appearing on behalf of the Revenue supported the order and stated that the genuineness of the transaction between the Petitioner and KCIML has not been established by the Petitioner. It is for this reason, that the Assessing Officer correctly added the amount of Rs.336.95 Crores to the income of the Petitioner under Section 68 of the IT Act. In this regard, the learned advocate brought to our attention parts of the Assessment Order dated 24th March 2025, and more particularly pages 1575 and 1576 of the paper book.
16. As far as the stay Application is concerned, the learned advocate appearing on behalf of the Revenue submitted that the Page 8 of 14 OCTOBER 08, 2025 Utkarsh ::: Uploaded on - 13/10/2025 ::: Downloaded on - 17/10/2025 22:45:47 :::
20.wp(l).29142.2025.doc Assessing Officer has directed the Petitioner to deposit 20% of the disputed tax demand as per the Circular of the CBDT dated 31 st July 2017. The Assessing Officer is bound by the said CBDT Circular. In these circumstances, he submitted that there was nothing wrong in the impugned order asking the Petitioner to deposit 20% as a condition precedent for granting the stay of the balance demand.
17. Without prejudice to the aforesaid arguments, the learned advocate appearing on behalf of the Revenue submitted that even though the stay was granted by the Assessing Officer on conditions which were not palatable to the Petitioner, the Petitioner could approach the CIT (Appeals) [the Authority before which the Appeal is pending] and seek a stay to the recovery of the demand. This admittedly has not been done by the Petitioner, and therefore, there is no reason to interfere with the impugned order passed by the Assessing Officer putting a condition on the Petitioner that it deposit 20% of the tax demand for a stay on recovery. Lastly it was submitted that this Court, whilst passing any order ought to also take into consideration the interest of the Revenue and therefore if any interference is called for in the impugned order, this Court may reduce the percentage of deposit as it thinks fit in the facts and circumstances of the present case. Page 9 of 14
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18. We have heard the learned counsel for the parties. We have also perused the papers and proceedings in the above Writ Petition. Insofar as the first argument, viz., strong prima facie case on merits, we find force in the argument of the the Petitioner that the addition made under Section 68 is prima facie unsustainable as the entire advisory fees earned from KCIML was already offered to tax as business income and that taxing the same amount under Section 68 without its reduction from the head "Profit and Gains from Business and Profession", prima facie amounts to double taxation, which is entirely unsustainable based on well settled principles of law. Further, the assessment order has grossly failed to consider/deal with the Petitioner's fundamental argument that the addition under Section 68 was a double addition.
19. This apart, whilst making the addition under Section 68 , at least prima facie, the Assessing Officer ignored all supporting documents which could establish the identity, creditworthiness and genuineness of KCIML. Hence, we are of the opinion that the Petitioner had made out a strong prima facie case.
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20. As far as the rejection of the Petitioner's stay Application is concerned, it was rejected by simply relying on the CBDT's instruction dated 31st July 2017. It is well settled that CBDT's Office Memorandums/Instructions by which assessing officers have been directed to grant stay of the disputed demand on payment of 20% does not fetter the power of the Assessing Officer to grant stay on payment of amounts lesser than 20% and they must deal with the prima facie merits and give reasons for rejection of the stay Application. This has been so held by the Hon'ble Supreme Court in PCIT V/S LG Electronics India (P.) Ltd. [(2018) 96 taxmann.com 656].
21. Apart from the above, we find that the impugned order dated 30th July 2025 is in breach of the principles laid down by this Hon'ble Court in the case of KEC International V/S B.R Balakrishnan [(2001) 251 ITR 158] and UTI Mutual Fund V/S ITO [(2012) 345 ITR 71]. The parameters laid down in KEC International (supra), which are required to be mandatorily followed by the tax authorities while deciding the stay application pending appeal to the first appellate authority, have clearly not been met. In the present case, the actions of the Assessing Officer suffer from the following infirmities:
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(i) He does not consider the merits of the Petitioner's case.
(ii) The relevant consideration concerning the assessable income being much higher than the returned income has not been given any weightage in order to arrive at a conclusion as to whether the Petitioner is entitled to an unconditional stay.
(iii) Failure to take into consideration the difficulties of the Petitioner.
22. Further, in UTI Mutual Fund, this Hon'ble Court held:
"These are, we may say so with respect, sage observations which must be borne in mind by the assessing authorities. Consistent with the parameters which were laid down by the Division Bench in KEC International Ltd. (supra) and the observations in the judgment in Coca Cola (P.) Ltd. (supra), we direct that the following guidelines should be borne in mind for effecting recovery:
1. No recovery of tax should be made pending
(a) Expiry of the time limit for filing an appeal;
(b) Disposal of a stay application, if any, moved by the assessee and for a reasonable period thereafter to enable the assessee to move a higher forum, if so advised. Coercive steps may, however, be adopted where the authority has reason to believe that the assessee may defeat the demand, in which case brief reasons may be indicated.
2. The stay application, if any, moved by the assessee should be disposed of after hearing the assessee and bearing in mind the guidelines in KEC International Ltd. (supra);
3. If the Assessing Officer has taken a view contrary to what has been held in the preceding previous years without there being a material change in facts or law, that is a relevant consideration in deciding the application for stay;
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4. When a bank account has been attached, before withdrawing the amount, reasonable prior notice should be furnished to the assessee to enable the assessee to make a representation or seek recourse to a remedy in law;
5. In exercising the powers of stay, the Income Tax Officer should not act as a mere tax gatherer but as a quasi judicial authority vested with the public duty of protecting the interest of the Revenue while at the same time balancing the need to mitigate hardship to the assessee. Though the assessing officer has made an assessment, he must objectively decide the application for stay considering that an appeal lies against his order : the matter must be considered from all its facets, balancing the interest of the assessee with the protection of the Revenue."
23. Since, prima facie, we feel that the Petitioner had made out a strong prima facie case, the Petitioner's case merits a stay on the recovery of the entire demand for A.Y.2023-24. Recovery of the demand would cause tremendous injustice and severe hardship to the Petitioner. We are of the opinion that therefore, the balance of convenience also lies in favour of the Petitioner. Hence, the following order:-
(i) The CIT (Appeals) is directed to dispose of the Appeal of the Petitioner for A.Y.2023-24 in accordance with law, as expeditiously as possible and preferably within a period of 6 months from the date of this order.
(ii) Until this Appeal is disposed of, and for a period of 4 weeks thereafter, the Revenue shall not recover the demand of Rs.272,20,53,053/- plus additional interest, if any, arising pursuant to the Assessment Order dated 24th March 2025 for A.Y.2023-24.Page 13 of 14
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(iii) In view of the fact that the demand is stayed by us, no further proceedings shall be taken against the Petitioner in respect of the addition made in the Assessment Order dated 24th March 2025 until disposal of the aforesaid Appeal and for a period of 4 weeks thereafter.
24. We make it clear that all observations made in this order are only prima facie and shall not influence the CIT (Appeals) whilst deciding the Appeal filed by the Petitioner. That Appeal shall be decided on merits and in accordance with law uninfluenced by any observations made herein. All contentions of both parties are expressly kept open to be agitated before the CIT (Appeals) when it hears the Appeal of the Petitioner.
25. Rule is made absolute in the aforesaid terms and the Writ Petition is also disposed of in terms thereof. In the facts and circumstances of the case, there shall be no order as to costs.
26. This order will be digitally signed by the Private Secretary/ Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order. [AMIT S. JAMSANDEKAR, J.] [B. P. COLABAWALLA, J.] Page 14 of 14 OCTOBER 08, 2025 Utkarsh ::: Uploaded on - 13/10/2025 ::: Downloaded on - 17/10/2025 22:45:48 :::