TRIMAX DATACENTER SERVICES LTD, MUMBAI V. DCIT RG 10(2), MUMBAI

ITA 1077/MUM/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0247 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 20-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Keywords: Principle of natural justice; Proportionate interest; Notional interest; Sham transactions
• Section: 143(3); 37(1)

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 1077/ MUM/2015 ( / ASSESSMENT YEAR : 2011-12) TRIMAX DATACENTER SERVICES LIMITED, UNIVERSAL MILL BUILDING, ASHA USHA COMPOUND, MEHRA ESTATE, L.B.S. MARG, VIKHROLI (W), MUMBAI 400 079. / V. INCOME TAX OFFICER WARD 14(3)(2), (ERSTWHILE RANGE 10(2)), ROOM NO. 458, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AADCT0232D ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEEBY : SHRI VIMAL PUNMIYA & SHRI BHARAT KUMAR REVENUE BY : SHRI V. JUSTIN / DATE OF HEARING : 10-08-2017 / DATE OF PRONOUNCEMENT : 18.08.2017 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE, BEING ITA NO. 1077/MUM/2015, IS DIRECTED AGAINST THE APPELLATE ORDER DATED 30.01.20 15 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 22, MUMBAI (H EREINAFTER CALLED THE CIT(A)), FOR ASSESSMENT YEAR 2011-12, APPELLATE PR OCEEDINGS BEFORE LEARNED CIT(A) HAD ARISEN FROM THE ASSESSMENT ORDER DATED 2 3.01.2014 PASSED BY THE LEARNED ASSESSING OFFICER ( HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) PASSED BY A.O. ITA 1077/MUM/2015 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THE MEMO OF APPEAL FILED WITH THE INCOME-TAX APPELLATE TRIBUNAL, MUMBA I (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- 1. THE LEARNED CIT APPEAL HAS ERRED IN CONFIRMING DISALLOWANCES OF INTEREST RS L,48,96,056/- BY ASSES SING OFFICER IN ASSESSMENT ORDER. A. DISALLOWANCE OF INTEREST U/S 36(1)(III) OF RS.L,48,96,056/- 2. THE LEARNED CIT (APPEAL) HAS NOT CONSIDERED SUBM ISSION OF APPELLANT (A) THAT THESE ADVANCES WERE NOT FOR EXTENSION OF B USINESS WHERE 36(1)(III) APPLICABLE. (B) THAT NOTIONAL INTEREST OF RS.L,48,96,056/- IS C ALCULATED WITHOUT CONSIDERING ACTUAL RATE OF INTEREST AND DAT E OF ADVANCE GIVEN. (C) THAT THERE WAS A CASH PROFIT OF RS.5,75,27,704/ - EARNED BY THE APPELLANT DURING THE YEAR. (D) THAT IN PRACTICAL MARKET HOW IT IS DIFFICULT TO CANCEL THE ORDER AND RECOVER THE MONEY. 3. THE APPELLANT PRAY THAT THE ASSESSING OFFICER MA Y BE DIRECTED TO DELETE THE DISALLOWANCES OF INTEREST OF RS.L,48,96,056/- 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF SETTING UP, RUNNING AND MAINTAINING DAT A CENTERS, IT ENABLED AND MAINTENANCE SERVICES, IT CONSULTANCY SERVICES, DEAL ING IN NETWORKING ITEMS. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) R.W.S. 143(2) OF THE 1961 ACT, THE ASSESSEE WAS ASKED BY THE AO TO P ROVIDE THE DETAILS OF LOANS AND ADVANCES GIVEN BY THE ASSESSEE COMPANY DURING T HE YEAR, PURPOSE FOR WHICH IT HAD BEEN GIVEN AND TO STATE AS TO WHETHER IT WAS GIVEN INTEREST FREE. IT ITA 1077/MUM/2015 3 WAS ALSO SHOW CAUSED BY THE AO AS TO WHY EQUIVALENT INTEREST AT PREVAILING MARKET RATE SHOULD NOT BE DISALLOWED OUT OF THE GRO SS INTEREST EXPENSES CLAIMED AS DEDUCTION ON THE GROUND OF NOT HAVING BE EN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AS REQU IRED U/S 37(1) OF THE 1961 ACT. THE ASSESSEE COMPANY SUBMITTED THAT TOTAL ADVANCES OF RS. 10,64,00,398/- WAS OUTSTANDING AS AT THE END OF THE YEAR, WHICH WA S CLAIMED BY THE ASSESSEE TO BE MADE BY THE ASSESSEE FOR THE PURPOSES OF PURC HASE OF FIXED ASSET. THE A.O. OBSERVED FROM THE PERUSAL OF BALANCE SHEET OF THE ASSESSEE COMPANY THAT THE ASSESSEEE HAS UTILIZED THE FUNDS FOR VARIO US PURPOSES DURING THE YEAR WHICH WERE MAINLY BORROWED FUNDS AS THE SHARE CAPIT AL OF THE COMPANY WAS RS.18 CRORES WHILE IT HAS TOTAL LOAN LIABILITY OF R S. 96.97 CRORES. IT WAS OBSERVED BY LEARNED AO THAT THE UNSECURED LOAN HAD INCREASED TO RS. 44.31 CRORES AS AT 31 ST MARCH, 2011 AS AGAINST UNSECURED LOAN OF RS. 29.20 CRORES AS AT 31 ST MARCH 2010 , AND THE ASSESSEE HAD DEBITED TOTAL IN TEREST EXPENSES OF RS. 11,15,68,076/- IN THE PROFIT & LOSS ACCOUNT . IT WAS ALSO OBSERVED BY THE AO THAT THE ASSESSEE COMPANY HAS ACCUMULATED LO SS OF RS. 6.73 CRORES AS AT 31.03.2011. IT WAS ALSO OBSERVED BY THE AO THAT INTEREST FREE A DVANCES WERE GIVEN BY THE ASSESSEE FOR PURCHASE OF FIXED ASSET WHICH ASSETS W ERE NOT PUT TO USE DURING THE YEAR. THE ASSESSEE EXPLAINED THAT DURING THE PREVIOUS YEA R RELEVANT TO THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE HAD GIVEN CE RTAIN ADVANCES TO PURCHASE ADDITIONAL EQUIPMENT FOR EXISTING DATA CEN TRE PROJECT AT BANGALORE BUT IN THE NEXT YEAR THE ASSESSEE DECIDED NOT TO PU T ADDITIONAL EQUIPMENTS AND WITH GREAT DIFFICULTY THE ASSESSEE COULD RECOVE R THE ORIGINAL AMOUNT OF ITA 1077/MUM/2015 4 ADVANCES. THE ASSESSEE HAS PRODUCED COPIES OF PURC HASE ORDERS, DATE WISE AND PARTY WISE DETAIL OF BUSINESS ADVANCES GIVEN AN D RECEIVED BACK AND LEDGER ACCOUNT ETC. BEFORE THE AO. THE A.O., HOWEVER, REJECTED THE CONTENTION OF THE A SSESSEE WHEREBY IT WAS OBSERVED BY THE AO THAT THE ADVANCES HAD BEEN GIVEN DURING A LONG PERIOD OF TIME STARTING FROM 17.10.2008 TO 20.12.2010 WHILE I N NONE OF THE CASES, PURCHASE OF FIXED ASSETS HAD BEEN MADE DURING ANY O F THE INTERVENING YEARS. IT WAS OBSERVED BY THE AO THAT THE ASSESSEE SUBMITT ED SELF MADE COPIES OF PURCHASE ORDER FOR PURCHASE OF FIXED ASSETS , WHERE IN THE AO OBSERVED THAT IT HAS FOLLOWING DISCREPANCIES:- I. IN ALL THE CASES OF PURCHASE ORDER, THE ASSESSE E COMPANY HAS MERELY REFERRED TO THE TELEPHONIC DISCUSSION AN D THERE IS NO MENTION OF ANY QUOTATION OR ANY OTHER DETAILS OF TH E PRODUCT BEING ORDERED BEING SUPPLIED TO THE ASSESSE BEFORE PLACING THE ORDER. II. IN MANY OF THE CASES, NO SPECIFIC DETAILS SUCH AS CONFIGURATION, MODEL, TECHNOLOGICAL SPECIFICATIONS ARE MENTIONED AND INSTEAD VAGUE & GENERAL DETAILS SUCH AS 'DESKTO P PC-100 NOS, HIGH END SERVER' ARE MENTIONED IN THE PURCHASE ORDERS. HOWEVER, IN THE NATURE OF THE BUSINESS ACTIVITIES O F THE ASSESSEE, IT IS HIGHLY IMPORTANT TO SPECIFY IN DETAIL THE EXA CT CONFIGURATION OF THE PRODUCT BEING ORDERED SO AS TO AVOID ANY MISCOMMUNICATION AS THE PRODUCTS USED IN THE BUSINE SS OF THE ASSESSEE ARE REQUIRED TO BE OF EXACT SPECIFICATIONS . III. IN NONE OF THE PURCHASE ORDER, THE DATE OF DEL IVERY IS MENTIONED AND IT IS SIMPLY STATED THAT DELIVERY DAT E WILL BE INFORMED BY LETTER. IV. IT IS HIGHLY IMPROBABLE ON THE TEST OF HUMAN PR OBABILITIES THAT SUCH HUGE AMOUNTS OF BORROWED MONEY WOULD BE A DVANCED BY THE ASSESSEE COMPANY TO THE UNKNOWN VENDORS FOR SUCH A LONG PERIOD OF TIME RANGING FROM FEW MONTHS TO 5 YEARS W ITHOUT THERE ITA 1077/MUM/2015 5 BEING ANY SECURITY OF THE AMOUNT ADVANCED OR ANY AC TUAL PURCHASE BEING MADE EITHER IN PART OR FULL. V. THERE IS NO CONFIRMATION FROM THE ALLEGED SUPPLI ER OF HAVING RECEIVED SUCH ADVANCE FOR THE PURPOSE OF THE SO-CAL LED PURCHASES. THERE IS ALSO NO DOCUMENTARY EVIDENCE TO ESTABLISH THE RECEIPT BY THE ALLEGED SUPPLIER OF THE SO-CALLED PURCHASE ORDE R. THUS, THE A.O. CONCLUDED THAT INTEREST ON BORROWED CAPITAL FOR THE PURPOSES OF MAKING ADVANCES FOR PURCHASE OF FIXED ASSETS CAN NOT BE ALLOWED U/S 37(1) OR 36(1){III) OF THE ACT AS THE ASSESSEE FAILED TO ESTABLISH THAT THE SAID ADVANCES WERE GIVEN FOR LEGITIMATE BUSINESS NEED OF THE ASSESSEE AS THE SAID INTEREST ON BORROWED CAPITAL WAS NOT BEING INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. IT WAS FURTHER HELD BY THE AO , WITHOUT PREJUDICE T O THE ABOVE CONCLUSION THAT THE PROPORTIONATE INTEREST EXPENSES ON THE BORROWED FUNDS USED BY THE ASSESSEE FOR MAKING ADVANCES IS NOT ALLOWABLE UNDER PROVISO TO SECTION 36(1)(III) OF THE ACT BECAUSE THE SAID FIXED ASSET HAS NOT BEEN PUT TO USE, FOR THE FOLLOWING REASON:- I. THE ASSESSEE COMPANY HAS MADE ADVANCES OF RS. 10,64,00,398/- FOR THE PURPOSE OF ACQUISITION OF FI XED ASSET FOR EXTENSION OF THE EXISTING BUSINESS. THE PURPOSE OF ACQUISITION OF THESE ASSETS IS TO SET UP A NEW UNIT AUGMENTING THE EXISTING CAPACITY OF THE ASSESSEE COMPANY TO EXTEND THE EXIS TING BUSINESS OF THE ASSESSEE. II. THE ASSESSEE COMPANY HAS USED THE BORROWED FUND S FOR THE PURPOSE OF MAKING THESE ADVANCES, AS THERE ARE NO O WN FUNDS AVAILABLE TO THE ASSESSEE COMPANY AS DISCUSSED IN T HE PARA 4.2 ABOVE. III. THE ASSESSEE COMPANY HAS ALSO NOT CLAIMED AT A NY TIME DURING THE ASSESSMENT PROCEEDINGS THAT THE SOURCE F OR MAKING THESE ADVANCES IS OUT OF THE INTERNAL ACCRUALS. THE ONUS IS ON THE ITA 1077/MUM/2015 6 ASSESSEE COMPANY TO ESTABLISH WITH EVIDENCE THAT SO URCE OF MAKING ADVANCES IS INTEREST FREE FUNDS, WHICH HAS N OT BEEN DISCHARGED BY THE ASSESSEE. FURTHER, THE ASSESSEE C OULD NOT HAVE BEEN ABLE TO TAKE SUCH AS STAND AS THE ONLY FREE FU NDS AVAILABLE TO THE ASSESSEE IS OUT OF THE LOAN LIABILITY. IV. THE PROVISO TO SECTION 36(1)(III) CLEARLY PROVI DES THAT ANY AMOUNT OF THE INTEREST PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING B USINESS OR PROFESSION (WHETHER CAPITALIZED IN THE BOOKS OR NOT ) SHALL NOT BE ALLOWED AS DEDUCTION FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH CAPITAL WAS BORROWED FOR ACQUISITION OF THE A SSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE. V. IN VIEW OF THE ABOVE DISCUSSION, THE CASE OF THE ASSESSEE IS CLEARLY COVERED BY THE PROVISO TO SECTION 36(1)(III ) OF THE ACT AS IN THE INSTANT CASE, NO ASSET HAS EVER COME INTO EXIST ENCE AND HENCE, THE QUESTION OF IT BEING EVER PUT TO USE DOE S NOT ARISE AT ALL. HENCE, THE INTEREST EXPENSES IN RESPECT OF THE BORROWED CAPITAL EMPLOYED FOR MAKING THESE ADVANCES ARE TO L IABLE TO BE DISALLOWED AS DEDUCTION FOR THE ENTIRE PERIOD FROM THE TIME OF MAKING ADVANCES TO THE END OF THE YEAR I.E. 31.3.20 11. THUS, THE A.O. WORKED OUT INTEREST ON ADVANCES AMOU NTING TO RS. 1,48,96,056/- WHICH IS RELATABLE TO THE ADVANCES PA ID FOR ACQUISITION OF THE SAID FIXED ASSETS AND DISALLOWED THE SAME BY ADDING TO THE INCOME OF THE ASSESSEE , VIDE ASSESSMENT ORDER DATED 23-1-2014 PA SSED BY THE AO U/S 143(3) OF THE 1961 ACT, AS DETAILED HEREUNDER: LOANS TAKEN DURING THE YEAR(SECURED AND UNSECURED) 789740208 INTEREST PAID 111303728 RATE OF INTEREST PAID 14% INTEREST FREE ADVANCE GIVERN 106400398 INTEREST @ 14% ON RS. 106400398/- 1,48,96,056 5. AGGRIEVED BY THE ASSESSMENT ORDER DATED 23-01-20 14 PASSED BY THE A.O. U/S 143(3) OF THE 1961 ACT, THE ASSESSEE FILED FIRS T APPEAL BEFORE THE LD. CIT(A). ITA 1077/MUM/2015 7 6. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED TH AT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING DATA CENTER SERVICES T O ITI LIMITED BEING A JOINT VENTURE PROJECT SET UP AT BANGALORE WITH THE CAPITA L COST OF RS.81.50 CRORES. IT WAS SUBMITTED THAT IT HAD GIVEN ADVANCES TO THE SUP PLIERS FOR REPLACEMENT OF EQUIPMENT IN THE EXISTING DATA CENTRE WITHOUT CREAT ING ANY ADDITIONAL CAPACITY. IT WAS SUBMITTED THAT NO FRESH LOANS WER E TAKEN DURING THE FINANCIAL YEAR. THE ASSESSEE GAVE DETAILS OF LOAN R AISED BY IT, FOR WHICH THE POSITION IS AS UNDER:- S NO. NAME OF THE LOAN ACCOUNT OPENING BALANCE AS ON 01.04.2010 (RS IN CRORES) CLOSING BALANCE AS ON 31.3.2011 (RS IN CRORES) 1 TRIMAX IT INFRASTRUCTURE AND SERVICES LIMITED 29.20 44.31 2 STATE BANK OF HYDERABAD 23.24 17.20 3 BANK OF INDIA 23.66 17.46 TOTAL 76.10 78.97 IT WAS SUBMITTED THAT LOAN AMOUNT INCREASED AS THE UNPAID AMOUNT STOOD CREDITED TO LOAN ACCOUNT. IT WAS SUBMITTED THAT THE ASSESSEE HAD EARNED CASH PROFIT OF RS. 5.75 CRORES FROM OPERATIONS DURING TH E YEAR. IT WAS SUBMITTED THAT BECAUSE OF SHORTAGE OF FUNDS, THE ASSESSEE HAD DROPPED THE IDEA TO REPLACE OLD EQUIPMENT AND CANCELLED ALL THE ORDERS AND RECOVERED THE MONEY WITH INTEREST. IT WAS SUBMITTED THAT THESE ADVANCES WERE NOT FOR THE EXTENSION OF ASSESSEES BUSINESS WHERE SECTION 36(1)(III) OF THE 1961 ACT IS APPLICABLE AND BORROWING WAS FOR THE PURPOSE OF THE BUSINESS A ND THE SAME SHOULD BE ALLOWED AS REVENUE EXPENSE. IT WAS SUBMITTED THAT TO IMPROVE THE QUALITY OF SERVICES, THE ASSESSEE THOUGHT TO REPLACE CERTAIN E QUIPMENT BUT DUE TO SHORTAGE OF FUND THE ORDERS WERE CANCELLED. IT WAS SUBMITTED THAT THE AO CHARGED INTEREST FOR THE FULL YEAR WITHOUT CONSIDER ING THE DATES OF FUND BEING UTILIZED DURING THE YEAR. ITA 1077/MUM/2015 8 THE LD. CIT(A) CONSIDERED THE SUBMISSION OF THE ASS ESSEE AND OBSERVED AS UNDER:- I HAVE CONSIDERED THE APPELLANTS SUBMISSIONS. THE APPELLANT HAD GIVEN ADVANCES WERE RS. 10,64,00,398/- FOR PURC HASE OF NEW EQUIPMENT ON WHICH AO DISALLOWED NOTIONAL INTEREST FOR RS. 1,48,96,056/- CALCULATED @ 14% ON THE ADVANCES ON T HE GROUND OF APPLYING PROVISO 1 OF SEC. 36(L)(III) WHEREIN IT IS HELD INTEREST PAID FOR CAPITAL BORROWED FOR PURPOSE OF EXTENDING THE EXISTING BUSINESS IS TO BE DISALLOWED TILL IT WAS TO BE USED FOR THE FIRST TIME. THE APPELLANT'S MAIN CONTENTION IS DURING THE YEAR, THIS EQUIPMENT REQUIRED IS NOT FOR THE EXTENSION OF BUSI NESS. THE REPLACEMENTS OF EQUIPMENT IN THE EXISTING DATA WITH OUT CREATING ANY ADDITIONAL CAPACITY. THE APPELLANT CONTENDS THA T DURING THE YEAR UNDER CONSIDERATION ON OPENING BALANCE AS ON 1 .04.2010 THE LOANS OF APPELLANT IN THE BALANCE SHEET ARE 76.10 C RORES. AT THE END OF THE YEAR 31.03.2011 THE LOANS AS PER BALANCE SHEET ARE RS.78.97 CRORES AND CONTENDS THAT THIS INCREASE IS ALSO MAINLY ON INTEREST ON THESE LOANS WERE CREDITED TO THESE ACCO UNTS. THESE EXTRA AMOUNTS WHICH ARE SHOWN IN THE ACCOUNTS FOR R S 2.87 CRORES IS AN OUTSTANDING LOAN AS PER THE APPELLANT. HOWEVER, WHEN WE EXAMINED VARIOUS LOANS, THE APPELLANT HAD G IVEN BELOW THE FACTUAL POSITION OF LOAN ACCOUNT WHICH IS AS UN DER: S NO. NAME OF THE LOAN ACCOUNT OPENING BALANCE AS ON 01.04.2010 (RS IN CRORES) CLOSING BALANCE AS ON 31.3.2011 (RS IN CRORES) 1 TRIMAX IT INFRASTRUCTURE AND SERVICES LIMITED 29.20 44.31 2 STATE BANK OF HYDERABAD 23.24 17.20 3 BANK OF INDIA 23.66 17.46 TOTAL 76.10 78.97 WHEN WE EXAMINED THE ABOVE TABLE, IT IS CLEAR THAT THE LOANS FROM STATE BANK OF HYDERABAD AND BANK OF INDIA WERE REDU CED DURING THE YEAR. LOANS FROM TRIMAX IT INFRASTRUCTURE AND S ERVICES LIMITED HAD INCREASED FROM RS. 29.20 CRORES TO RS.4 4.31 CRORES I.E .ABOUT RS. 15 CRORES INCREASE IN LOANS DURING T HE YEAR. 3.4 THE APPELLANT FURTHER STATES THAT THERE WAS A C ASH PROFIT OF ITA 1077/MUM/2015 9 RS.5,75,27,704/- FROM THE OPERATIONS WHICH WERE UTI LIZED FOR THE PAYMENT OF ADVANCES OF THESE EQUIPMENT. THE APPELLA NT ALSO SUBMITTED DETAILS IN WHICH ADVANCES WERE GIVEN TO V ARIOUS PARTIES AND IN ITS SUBMISSIONS FURTHER STATES THAT THIS YEA R ITSELF ADVANCES WERE RECOVERED AND ORDERS FOR NEW EQUIPMEN T WERE CANCELLED. 3.5 AFTER CONSIDERING THE SUBMISSIONS OF THE APPELL ANT, IT IS CLEAR THAT THE APPELLANT'S LOANS FROM TRIMAX IT INFRASTRU CTURE AND SERVICES LIMITED HAS INCREASED BY RS. 15 CRORES FOR WHICH APPELLANT COULD NOT PROVIDE ANY EVIDENCE TO SHOW TH AT THESE LOANS WERE NOT UTILIZED FOR THE PURCHASE OF EQUIPMENT FOR EXTENSION OF BUSINESS. 3.6 THE APPELLANT'S SECOND CONTENTION IS THAT AMOUN TS WERE RECOVERED. ORDER WAS CANCELLED AND AMOUNTS WERE REC OVERED. HOWEVER, WHEN WE EXAMINED THE ACCOUNTS OF THE APPEL LANT, IT IS SEEN THAT THE AMOUNTS WERE RECOVERED IN THE NEXT YE AR. HENCE DISALLOWANCE OF INTEREST HAS TO BE CONSIDERED IN TH IS YEAR ONLY. 3.7 THE APPELLANT'S THIRD CONTENTION IS THAT THE LO AN IS NOT FOR EXTENSION OF THE BUSINESS BUT REPLACEMENT OF EQUIPM ENT FOR EXISTING DATACENTER WHICH APPELLANT COULD NOT PROVI DE ANY EVIDENCE TO PROVE THIS FACT. 3.8 HENCE I FIND THERE IS ANY ERROR IN AO'S DISALLO WANCE OF THIS EXPENDITURE APPLYING PROVISO 1 TO SEC. 36(1)(III) O F THE ACT. HENCE GROUND OF APPEAL IS DISMISSED. THUS, THE LD. CIT(A) DISMISSED THE APPEAL OF THE AS SESSEE , VIDE APPELLATE ORDER DATED 30.01.2015 PASSED BY LEARNED CIT(A). 7. AGGRIEVED BY THE APPELLATE ORDER DATED 30.01.201 5 PASSED BY LEARNED CIT(A), THE ASSESSEE FILED AN APPEAL BEFORE THE TR IBUNAL. 8. THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET, SUBMITTED THAT THE ASSESSEE HAD SUBMITTED LARGE NUMBER OF DOCUMENTS BE FORE THE AUTHORITIES BELOW WHICH HAS NOT BEEN APPRECIATED IN THE PROPER CONTEXT, HENCE, IT WAS ITA 1077/MUM/2015 10 PRAYED THAT THE MATTER MAY BE SET ASIDE TO THE FILE OF THE A.O. FOR DE NOVO DETERMINATION OF THE ISSUE. THE ASSESSEE HAS FILED PAPER BOOK BEFORE THE TRIBUNAL RUNNING INTO 117 PAGES.THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO PAPER BOOK / PAGE 29 TO 35 WHEREIN CON FIRMATION FROM VARIOUS PARTIES WERE PLACED. OUR ATTENTION WAS ALSO DRAWN TO PAPER BOOK / PAGE 41 TO 75 WHEREIN THE COPY OF COMMERCIAL AGREEMENT FOR PU RCHASE OF EQUIPMENTS WITH SUPPLIERS ARE PLACED. OUR ATTENTION WAS ALSO DRAWN TO PAPER BOOK PAGE 76 TO 85 WHEREIN VARIOUS SUBMISSIONS MADE BY THE AS SESSEE BEFORE LEARNED CIT(A) AND THE A.O. IS PLACED. OUR ATTENTION WAS A LSO DRAWN TO PAPER BOOK PAGE 86 WHEREIN THE SUMMARY OF ACCOUNTS OF THESE SU PPLIERS WERE PLACED ON RECORD AND LEARNED COUNSEL FOR THE ASSESSEE HAD CON TENDED THAT THESE AMOUNTS HAVE BEEN RECEIVED BACK. IT IS SUBMITTED T HAT THESE DETAILS WERE GIVEN BEFORE THE AUTHORITIES BELOW WHEREAS THE A.O. ERRED IN CONTENDING THAT INFORMATION WAS NOT GIVEN. IT IS SUBMITTED THAT TH E MATTER CAN BE SET ASIDE TO THE FILE OF THE A.O. FOR PROPER VERIFICATION/ EXAMI NATION AND DE-NOVO DETERMINATION OF THE ISSUE ON MERITS. 9. THE LD. D.R. RELIED ON THE ORDERS OF AUTHORITIES BELOW AND FAIRLY SUBMITTED THAT THE MATTER CAN BE SET ASIDE TO THE F ILE OF THE A.O. FOR VERIFICATION/ EXAMINATION AND DE-NOVO DETERMINATION OF THE ISSUE ON MERITS . THUS, IN NUT-SHELL BOTH THE PARTIES HAVE FAIRLY AGR EED THAT THIS MATTER NEED TO BE RESTORED TO AO FOR DE-NOVO DETERMINATION OF THE ISSUE ON MERITS. 10. WE HAVE HEARD RIVAL CONTENTION AND PERUSED THE MATERIAL PLACED ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE IS ENGAG ED IN PROVIDING DATA CENTER SERVICES TO ITI LIMITED BEING A JOINT VENTUR E PROJECT SET UP AT BANGALORE WITH THE CAPITAL COST OF RS. 81.50 CRORES. ITI LIM ITED IS A GOVERNMENT OF INDIA UNDERTAKING BEING A PUBLIC SECTOR COMPANY. THE ASS ESSEE HAS A JV WITH THE SAID ITI LIMITED AND IT IS CLAIMED THAT THE ASSESSE E AS PART OF ITS OBLIGATION UNDER THE SAID JV HAD GIVEN ADVANCES TO THE SUPPLIE RS FOR REPLACEMENT OF ITA 1077/MUM/2015 11 EQUIPMENT IN THE EXISTING DATA CENTRE WHICH WAS SET UP IN JV WITH ITI LIMITED WITHOUT CREATING ANY ADDITIONAL CAPACITY IN ORDER T O ENHANCE QUALITY OF SERVICES. THE ASSESSEE HAD CLAIMED THAT IT WANTED T O UPGRADE ITS MACHINERY TO ENHANCE THE QUALITY OF SERVICES BY REPLACING CERTAI N EQUIPMENTS WHICH WAS INSTALLED IN JV WITH ITI LIMITED. THE ASSESSEE HAD SUBMITTED THAT RS. 10,64,00,398/- WAS ADVANCED TO VARIOUS MACHINERY/EQ UIPMENT SUPPLIERS FOR SUPPLY OF EQUIPMENTS FOR THE SAID UPGRADATION OF MA CHINERY TO ENHANCE QUALITY OF SERVICES BY REPLACING CERTAIN EQUIPMENTS . IT IS CLAIMED THAT THE SAID PROPOSAL FOR UPGRADATION OF MACHINERY FOR ENHANCEME NT OF QUALITY OF SERVICES WAS ULTIMATELY DROPPED DUE TO PAUCITY OF FUNDS AND THE AMOUNT WAS RECEIVED BACK FROM SUPPLIERS WITH GREAT DIFFICULTY IN SUCCEE DING YEARS. THE AO HAS BROUGHT ON RECORD THAT THESE ADVANCES WERE GIVEN TO EQUIPMENT SUPPLIERS OVER A LONG PERIOD OF TIME FROM 17.10.2008 TO 20.12 .2010 WITH NO SUPPLIES OF EQUIPMENT FORTHCOMING AGAINST THESE ADVANCES WHICH ULTIMATELY ENDED WITH CANCELLATION OF PURCHASE ORDERS. THE ASSESSEE HAS S UBMITTED THAT IT SUBMITTED PURCHASE ORDERS ENTERED INTO WITH MACHINERY SUPPLIE RS AS WELL THEIR CONFIRMATIONS , STATEMENT OF ACCOUNTS ETC ,WHICH AR E NOT BEEN PROPERLY APPRECIATED BY AUTHORITIES BELOW WHILE DISALLOWING INTEREST EXPENDITURE ON BORROWINGS WHICH ARE ATTRIBUTABLE TO THESE ADVANCES . ONE CONTENTION OF THE REVENUE IS THAT THESE SO CALLED FIXED ASSET WERE NO T PUT TO USE AND HENCE PROVISO TO SECTION 36(1)(III) IS APPLICABLE AND INT EREST CANNOT BE ALLOWED AS REVENUE EXPENSES. THE ISSUE ALSO IN OUR CONSIDERED VIEW BOILS DOWN TO WHETHER THESE ADVANCES SOUGHT TO BE MADE TO EQUIPME NT SUPPLIERS WERE GENUINE OR WERE THESE COLORABLE DEVICES ADOPTED BY THE ASSESSEE TO EVADE TAXES AND WERE PART OF SHAM TRANSACTIONS. SINCE THE ASSESSEE HAS A JV WITH ITI LIMITED, GOVERNMENT OF INDIA UNDERTAKING , ALL THE EXPANSION , ENHANCEMENT OF QUALITY SERVICES SCHEME ETC. AS CLAI MED BY THE ASSESSEE HAS TO BE IN TANDEM ,CONCURRENCE AND CONSENT WITH SAID JV PARTNER WHO IS A GOVERNMENT OF INDIA UNDERTAKING WHICH IS SUBJECT TO STRICT RULES AND REGULATIONS AS ARE APPLICABLE TO PSU AND THE ASSESS EE CANNOT UNILATERALLY ITA 1077/MUM/2015 12 UNDERTAKE OR CANCEL ANY SUCH SCHEME OF MODERNIZATI ON OR EXPANSION . THE ASSESSEE IS DIRECTED TO FILE ALL RELEVANT COMMUNICA TIONS , APPROVALS,, COPY OF JV AGREEMENT AND ALSO ANY OTHER AGREEMENT WITH ITI LIMITED INCLUDING COPIES OF PROJECT REPORTS APPROVED BY ITI LIMITED FOR SUCH ENHANCEMENT OF SERVICES , MODERNIZATION ETC , , TENDER DOCUMENTS ETC WITH RES PECT TO THE PLAN OF UPGRADATION/MODERNIZATION/ ENHANCEMENT OF QUALITY O F SERVICES SCHEME W.R.T. DATA CENTER WHICH WAS APPROVED/ACCEPTED BY THE SAI D ITI LIMITED AND THE ASSESSEE BEING JV PARTNERS, FOR DUE CONSIDERATION, EXAMINATION AND VERIFICATION BY THE A.O.. THE ONUS IS ON THE ASSESS EE TO PROVE THE GENUINENESS OF THE SAID TRANSACTION OF GRANTING ADVANCES TO EQU IPMENT SUPPLIERS . THE ASSESSEE IS ALSO DIRECTED TO PRODUCE THE DETAILS/PR OJECT REPORT OF VARIOUS MACHINERY/EQUIPMENT REQUIRED FOR THE UPGRADATION/IM PROVEMENT IN QUALITY OF SERVICES AS APPROVED BY ITI LIMITED, WHICH ULTI MATELY DID NOT MATERIALIZED AND GOT CANCELLED AND THE AMOUNT WAS REFUNDED BY TH E SUPPLIER PARTIES. THUS, FOR PROPER VERIFICATION AND ENQUIRY AND ESTAB LISHING GENUINENESS OF THE SAID TRANSACTIONS, THE MATTER IS SET ASIDE TO THE F ILE OF THE A.O. AND ASSESSEE IS DIRECTED TO PRODUCE ALL COGENT EVIDENCES AS DETAILE D ABOVE BEFORE THE A.O. TO ESTABLISH THE GENUINENESS OF THE TRANSACTION IN CON TEXT OF THE CLAIM OF THE ASSESSEE FOR UPGRADATION OF THE QUALITY OF SERVICE W.R.T. DATA CENTER ENTERED SET UP BY THE ASSESSEE IN JV WITH ITI LIMITED. THE ONUS IS ON THE ASSESSEE TO PROVE THAT THESE INTEREST EXPENSES ARE ALLOWABLE IN ACCORDANCE WITH THE PROVISIONS OF THE 1961 ACT. THE ASSESSEE SHALL BE A LLOWED BY THE AO TO FILE ALL RELEVANT EVIDENCES/ EXPLANATIONS IN ITS DEFENSE ,WH ICH SHALL BE ADMITTED BY THE AO IN THE INTEREST OF JUSTICE. NEEDLESS TO SAY THAT THE A.O. SHALL PROVIDE ADEQUATE AND SUFFICIENT OPPORTUNITY TO THE ASSESSEE OF BEING HEARD IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE IN AC CORDANCE WITH LAW. WE ORDER ACCORDINGLY. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO . 1077/MUM/2015 FOR A.Y. 2011-10 IS ALLOWED FOR STATISTICAL PURPOSE. ITA 1077/MUM/2015 13 ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH AUGUST 2017. # $% &' 18.08.2017 ( ) SD/- SD/- (JOGINDER SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 18.08.2017 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI E BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI