SAVATEX P.LTD, MUMBAI V. ITO 2(3)(2), MUMBAI

ITA 1030/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6013 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 01-03-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Keywords: Business expenditure; Difference of opinion; Commercial expediency; Change of opinion
• Section: 143(3)

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.1030/ MUM/2016 ( / ASSESSMENT YEAR : 2010 - 11) SAVATEX PRIVATE LTD., MEHTA HOUSE, 79 - 91, MUMBAI SAMACHAR MARG, FORT, MUMBAI 400001 / V. ITO 2(3)(2) MUMBAI ./ PAN : AAACS0729B ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY: NONE REVENUE BY : SHRI V JUSTIN ,DR / DATE OF HEARING : 05.07.2018 / DATE OF PRONOUNCEMENT : 12 .07.2018 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE, BEING ITA NO. 1030/MUM/2016, IS DIRECTED AGAINST APPELLATE ORDER DATED 11.12.2015 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 6, MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR ASSESSMENT YEAR (AY) 2010 - 11, THE APPELLATE PR OCEEDINGS HAD ARISEN BEFORE LEARNED CIT(A) FROM ASSESSMENT ORDER DATED 31.12.2012 PASSED BY LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) FOR AY 2010 - 11. 2. THE GROUNDS OF APP EAL RAISED BY THE ASSESSEE IN THE MEMO OF APPEAL FILED WITH THE INCOME - TAX APPELLATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER: - I.T.A. NO.1030/MUM/2016 2 1. THE LEARNED CIT (A) ERRED ON THE FACTS AND IN LAW IN REJECTING THE APPELLANTS CLAIM ON TREAT ING EXPENDITURE ON INTEREST PAYMENT AS NOT FOR THE PURPOSE OF BUSINESS THEREBY MAKING AN ADDITION OF RS.57,59,731/ - INSPITE OF BEING AN NBFC THE HONOURABLE TRIBUNAL MAY BE PLEASED TO ORDER ACCORDINGLY. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF INVES TMENT IN SECURITIES AND REAL ESTATE. 4. THE AO DURING THE COURSE OF PROCEEDINGS U/S 143(3) R.W.S. 143(2) OBSERVED FROM P&L ACCOUNT THAT THE ASSESSEE HAS PAID AN AMOUNT OF RS. 57,59,731/ - WHICH IS DEBITED IN PROFIT AND LOSS ACCOUNT TOWARD S INTEREST PAID . T HE AO OBSERVED FROM THE DETAILS FILED BY THE ASSESSEE THAT INTEREST WAS PAID ON LOANS RAISED FROM M/S. HOME MEHTA & SONS P. LTD. AND M/S. CITI CORP FINANCE INDIA LTD. THE AO OBSERVED THAT THE ASSESSEE HAS DECLARED INCOME FROM OPERATIONS WHICH CONSISTE D DIVIDEND INCOME OF RS. 4,75,422/ - , INTEREST INCOME OF RS. 7,36,087/ - ON ICD AND INCOME FROM TRUST PROPERTY AT RS. 44,717/ - . THE AO OBSERVED THAT THE INTEREST INCOME RECEIVED BY THE ASSESSEE WAS FROM OLD LOANS GRANTED TO SISTER CONCERN. THE AO OBSERVED THAT THERE WERE NO OTHER ACTIVITIES CARRIED OUT BY THE ASSESSEE DURING THE YEAR EXCEPT SALE OF OLD SHARES ON WHICH CAPITAL GAINS TO THE TUNE OF RS. 76,06,320/ - WAS EARNED . THERE WAS ALSO SOME INCOME FROM WRITE BACK OF EXCESS PROVISION OF DIMINUTION OF INVESTMENT WRITTEN BACK TO THE TUNE OF RS. 1,30,578/ - . THE ASSESSEE CLAIMED ADMINISTRATIVE EXPENSES OF RS. 2,74,778/ - AND INTEREST PAYMENT OF RS. 57,59,731/ - WHICH WAS SET OFF AGAINST THESE INCOME. THE AO OBSERVED THAT THERE IS NO DIRECT NEXUS BETWEEN THE INCOME EARNED AND EXPENSES INCURRED BY THE ASSESSEE. THE ASSESSEE WAS ASKED BY THE AO TO EXP LAIN AND ESTABLISH THAT LOANS WERE UTILISED FOR BUSINESS PURPOSES AND THAT THERE IS A NEXUS BETWEEN INTEREST PAID AND INTEREST EARNED . THE ASSESSEE COULD NOT EXPLAIN THE SAME AND RATHER AGREED FOR DISALLOWANCE OF INTEREST EXPENSES TO THE TUNE OF RS. 57,59,731/ - . T HE AO DISALLOWED THE INTEREST PAID OF RS. 57,59,731/ - AND THE SAME WAS ADDED TO THE INCOME OF THE ASSESSEE VIDE A SSESSMENT ORDER DATED 31.12.2012 P ASSED U/S 143(3) OF THE 1961 ACT . THE ASSESSEE FILED FIRST APPEAL BEFORE LEARNED CIT(A) AND CONTENDED WITH RESPECT TO THE DISALLOWANCE AS WAS MADE BY THE AO AND SUBMITTED AS UNDER: - C. GROUND NO. 1: DISALLOWANCE OF INTEREST OF RS. 57,59,731/ - I.T.A. NO.1030/MUM/2016 3 A . THE LD . AO RELIED ON THE RATIO OF INCOME EARNED VIS - A - VIS EXPENDITURE INCURRED WHILE MAKING DISALLOWANCE U/S. 36(1)(III). THE EXPRESSION FOR THE PURPOSE OF BUSINESS IS WIDER IN SCOPE THAN THE EXPRESSION FOR THE PURPOSE OF EARNING INCOME, PROFITS AND GAINS - M EDHAV JATIA V. CIT [1979] 118 ITR 200 (SC). B . AS PER THE PROVISO TO CLAUSE (III) OF SEC. 36(1) , INTEREST OF THE PERIOD FROM THE DATE OF CAPITAL BORROWED TILL THE ASSET WAS FIRST PUT TO USE, WILL NOT BE ALLOWABLE AS DEDUCTION IF THE CAPITAL WAS BORROWED FOR ACQUISITION OF AN ASSET. IN THE CASE OF ASSESSEE, RS. 3.67 CRORE OF THE CAPITAL BORROWED WAS U SED PARTIALLY FOR ENHANCIN G THE % HOLDING IN THE UNDIVIDE D SHARE IN LEASEHOLD LAND & BUILDING FROM WHERE THE REGULAR OPERATIONS ARE CARRIED FROM THE DATE OF INCORPORATION. ON THE SAID AMOUNT OF CAPITAL THE COMPANY PAID A SUM OF RS.0.45 CRORE BY WAY OF INTE REST. C . ASSESSEE HAS BORROWED A SUM OF RS. 1 CRORE FROM CITI CROP FINANCE ON WHICH 0.12 CRORE WAS PAID AS INTEREST. OUT OF THE TOTAL AMOUNT BORROWED A SUM OF RS. 0.65 CRORE WAS UTILIZED FOR MAKING INVESTMENT IN OTHER GROUP COMPANIES FROM WHOM THE INCOME EAR NED BY WAY OF INTEREST WAS REGULARLY OFFERED FOR TAX AND BALANCE AMOUNT WAS UTILIZED AS WORKING CAPITAL. ALL OTHER LOANS ON WHICH INTEREST WAS PAID BY THE ASSESSEE WERE ONLY UTILIZED FOR REGULAR BUSINESS PURPOSE ONLY. D . ALL THE ABOVE MENTIONED DETAILS WERE SUBMITTED BEFORE THE LD. AO DURING THE ASSESSMENT PROCEEDINGS BUT THOSE WERE NOT REFERRED AT ALL ONLY BECAUSE THE CASE WAS COVERED UNDER TIME BARRING PERIOD ENDED ON 31 ST DECEMBER, 2012. E . IN ALL THE ASSESSMENTS HAPPENED FOR THE YEARS PROCEEDING TO AY. 201 0 - 11 WHEREIN THE AOS WERE SATISFIED WITH THE ASSESSEES CLAIM WITH RESPECT TO THE ALLOWABILITY OF INTEREST. THE CURRENT DISALLOWANCE IS NOTHING BUT THE CHANGE OF OPINION OF THE ASSESSING OFFICER WHICH HAS RESULTED IN DISALLOWANCE OF INTEREST WITHOUT GIVIN G ASSESSEE ENOUGH OPPORTUNITY TO SUBSTANTIATE HIS CLAIM. F. THE RETURNS FILED BY ASSESSEE FOR ASSESSMENT YEARS 08 - 09 AND 06 - 07 WERE ASSESSED UNDER SEC. 143(3) OF THE ACT WHEREIN THE CLAIM FOR DEDUCTION OF INTEREST TOWARDS BUSINESS EXPENDITURE WAS ACCEP TED BY THE DEPARTMENT . 5 . THE LEARNED CIT(A) DISMISSED THE CONTENTION OF THE ASSESSEE VIDE APPELLATE ORDERS DATED 11.12.2015,, BY HOLDING AS UNDER: - 4.1 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSION MADE BY THE ID. AR, IT IS SEEN FROM THE DETAILS THAT ASSESSEE RECEIVED DIVIDEND INCOME OF RS,4,75,422/ - , INTEREST INCOME OF RS.7,36,087/ - ON INTER CORPORATE DEPOSITS (ICD) AND INCOME FROM HOUSE PROPERTY OF RS.44,717/ - . HENCE, THE AO HAS RIGHTLY CONCLUDED THAT ASSESSEE DID NOT CARRY OUT ANY BUSINESS ACTIVITY AND THERE WAS NO I.T.A. NO.1030/MUM/2016 4 NEXUS BETWEEN THE INCOME EARNED AND EXPENSES INCURRED INCLUDING INTEREST EXPENDITURE OF RS.57,59,731/ - . THE ASSESSEE ITSELF COULD NOT EXPLAIN THE NEXUS BEFORE THE AO, HENCE, THE DISALLOWANCE OF INTEREST EXPENDITU RE OF RS.57,59,731/ - IS UPHELD AND THE GROUND IS DISMISSED . 6 . THE ASSESSEE HAS FILED SECOND APPEAL WITH THE TRIBUNAL WHEREIN IT HAS CHALLENGED THE ADDITION OF RS. 57,59,731/ - TOWARDS INTEREST EXPENDITURE CLAIMING ITSELF TO BE NBFC IN THE GROUNDS OF APP EALS RAISED BY THE ASSESSEE BEFORE THE TRIBUNAL. 7. N ONE APPEARED ON BEHALF OF THE ASSESSEE WHEN APPEAL WAS CALLED FOR HEARING BEFORE THE BENCH . T HE LD. DR CONTENDED THAT ASSESSEE IS NOT COOPERATING SINCE THE PROCEEDINGS COMMENCED AND ON ALL THE THREE EARLIER DATES WHEN THE APPEAL WAS FIXED BEFORE THE TRIBUNAL ON 26.12.2017, 03.04.2018 AND 30.05.2106, THE ASSESSEE DID NOT APPEAR BEFORE THE TRIBUNAL. IT WAS SUBMITTED THAT THERE IS NO EVIDENCE ON RECORD THAT THE ASSESSEE IS ENGAGED IN ANY BUSINESS ACTIVI TIES. IT WAS SUBMITTED THAT THERE IS NO NEXUS BROUGHT ON RECORD WITH THE UTILISATION OF LOANS FOR BUSINESS PURPOSES AS WELL NO NEXUS IS PROVED BETWEEN INTEREST PAID AND INTEREST EARNED. IT WAS PRAYED THAT THE APPEAL OF THE ASSESSEE BE DISMISSED. 6. WE H AVE HEARD LD. DR AND PERUSED THE MATERIAL ON RECORD . W E HAVE OBSERVED THAT ASSESSEE IS ENGAGED IN BUSINESS OF INVESTMENT IN SECURITIES AND REAL ESTATE. THE ASSESSEE HAS BORROWED MONEY FROM M/S. HOME MEHTA & SONS P. LTD. AND M/S. CITI CORP FINANCE INDIA LT D. THE ASSESSEE HAS DECLARED INCOME FROM OPERATIONS WHICH CONSISTED DIVIDEND INCOME OF RS. 4,75,422/ - , INTEREST INCOME OF RS. 7,36,087/ - ON ICD AND INCOME FROM TRUST PROPERTY AT RS. 44,717/ - . IT WAS OBSERVED BY AUTHORITIES BELOW THAT INTEREST INCOME R ECEIVED BY THE ASSESSEE WAS FROM OLD LOANS GRANTED TO SISTER CONCERN. IT WAS OBSERVED THAT THERE WERE NO OTHER ACTIVITIES CARRIED OUT BY THE ASSESSEE DURING THE YEAR EXCEPT SALE OF OLD SHARES ON WHICH CAPITAL GAINS TO THE TUNE OF RS. 76,06,320/ - WAS EARNE D. THERE WAS ALSO SOME INCOME FROM WRITE BACK OF EXCESS PROVISION OF DIMINUTION OF INVESTMENT WRITTEN BACK TO THE TUNE OF RS. 1,30,578/ - . I T WAS ALSO OBSERVED BY THE AUTHORITIES BELOW THAT THE LOANS HAVE BEEN GIVEN TO SISTER CONCERN WHICH ARE VERY OLD LOA NS AND THERE ARE NO OPERATION S CONDUCTED BY THE ASSESSEE AS IT IS MERELY MAKING INVESTMENT IN SECURITIES AND REAL ESTATE . O N BEING ASKED BY THE AO TO EXPLAIN THE SAME, THE ASSESSEE COULD NOT EXPLAIN NEXUS BETWEEN I.T.A. NO.1030/MUM/2016 5 THE INTEREST EARNED AND INTEREST EXPENDED. THE ASSESSEE INSTEAD AGREED FOR ADDITION OF THE SAID INCOME BY WAY OF DISALLOWANCE OF INTEREST EXPENDITURE TO THE TUNE OF RS. 57,59,731/ - BEFORE THE AO . BEFORE LEARNED CIT(A) , THE ASSESS E E HAD SUBMITTED THAT IT INVESTED IN INCREASING ITS HOLDING IN UNDIVIDED SHARE IN LEASEHOLD LAND AND BUILDING AS WELL FOR MAKING INVESTMENTS IN GROUP COMPANIES, BUT NO EVIDENCES HAVE BEE N BROUGHT ON RECORD TO PROVE COMMERCIAL EXPEDIENCY. . THE ASSESSEE IS NOT APPEARING BEFORE THE TRIBUNAL AN D THERE IS NO MATERIAL ON RECORD TO PROVE COMMERCIAL EXPEDIENCY IN UTILISATION OF THE PROCCEDS OF LOAN FOR BUSINESS PURPOSES . U NDER THESE CIRCUMSTANCES KEEPING IN VIEW FACTUAL MATRIX OF THE CASE, WE ARE OF THE VIEW THAT THIS APPEAL IS TO BE DISMISSED AS T HERE IS NO MERIT IN THE APPEAL FILED BY THE ASSESSEE AND THERE IS NO MATERIAL ON RECORD TO PROVE THAT ASSESSEE HAS CARRIED OUT ANY BUSINESS IN CONNECTION THEREWITH THESE INTEREST EXPENDITURE OF RS. 57,59,731/ - WAS INCURRED. O NLY BA L D STATEMENT HAVE BEEN MA DE NOT SUPPORTED BY EVIDENCE TO CONTEND THAT THE ASSESSEE IS ENGAGED IN BUSINESS OF NBFC . BOTH THE AUTHORITIES BELOW HAVE CONCURRENTLY HELD THAT NO BUSINESS ACTIVITY WAS CARRIED OUT BY THE ASSESSEE AND THERE WAS NO NEXUS BETWEEN THE INTEREST EARNED AND IN TEREST EXPENDED BY THE ASSESSEE. WE DO NOT FIND ANY INFIRMITY IN THE ORDERS OF AUTHORITIES BELOW AND FIND NO REASONS TO DEVIATE FROM CONCURRENT FINDINGS OF THE AUTHORITIES BELOW. SO FAR AS ALLOWABILITY OF INTEREST EXPENSES IN PRECEDING YEARS, PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO INCOME TAX PROCEEDINGS. K EEPING IN VIEW FACTUAL MATRIX OF THE CASE AND OUR DETAILED DISCUSSIONS ABOVE, WE ARE INCLINED TO DISMISS THE APPEAL OF THE ASSESSEE. WE ORDER ACCORDINGLY. 7. IN THE RESULT , APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 2 .07.2018 1 2 .07.2018 S D / - S D / - (SAKTIJIT DEY) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 1 2 .07.2018 I.T.A. NO.1030/MUM/2016 6 NISHANT VERMA SR. PRIVATE SECRETARY COPY TO 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE CIT(A) CONCERNED, MUMBAI 4 . THE CIT - CONCERNED, MUMBAI 5 . THE DR BENCH, 6 . MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI