E-CITY INVESTMENTS & HOLDINGS COMAPNY P. LTD, MUMBAI V. DCIT CIR 8(1), MUMBAI

ITA 1153/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8248 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 10-02-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 26-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Keywords: Commercial expediency
• Section: 115JB; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI B.R.BASKARAN (AM) AND SHRI RAM LAL NEGI ( JM) ITA NO 1153/MUM/2015 ASSESSMENT YEAR: 2008-09 E - CITY INVESTMENTS & HOLDINGS COMPANY PRIVATE LIMITED. 844/4, SHAH INDUSTRIAL ESTATE, OFF. NEW LINK ROAD, OPP. LAXMI INDUSTRIAL ESTATE, ANDHERI (WEST), MUMBAI- 400053. PAN:- AAACE8030F VS. THE DY.CIT, CIRCLE 8(1), ROOM NO. 210, 2 ND FLOOR, AAYAKAR BHAVAN, MUMBAI-400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. JAY BHANSALI. RESPONDENT BY : SHRI. SUMAN KUMAR DATE OF HEARING: 10/02/2017 DATE OF PRONOUNCEMENT: 15/02/20 17 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST ORDER DATED 25/11/2014 PASSED BY THE LD. CIT(APPEALS)-16 MUMBAI FOR THE ASST. YEAR 2008-09, WHEREBY THE LD. CIT(A) DISMISSED THE APPEA L FILED BY THE ASSESSEE AND CONFIRMED THE PENALTY OF RS. 2,25,60,040/- U/S 271( 1)(C) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY FILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR DECLARING T HE LOSS OF RS. 1,75,537/- UNDER THE REGULAR PROVISIONS OF THE ACT AND LOSS OF RS. 6,71,20,385/- U/S 115JB OF THE ACT. THE RETURN WAS PROCESSED U/S 143( 1) OF THE ACT AND 2 ITA NO 1153/MUM/2015 ASSESSMENT YEAR: 2008-09 ASSESSMENT ORDER WAS ACCORDINGLY PASSED U/S 143(3)( II) OF THE ACT AFTER MAKING INTER-ALIA ADDITION OF RS. 6,63,78,465/- ON ACCOUNT OF DISALL OWANCE OF INTEREST U/S 36(1)(III) OF THE ACT. 3. FEELING AGGRIEVED BY THE ASSESSMENT ORDER THE AS SESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) IN FIRST APPEAL. THE L D. CIT(A) AFTER HEARING THE ASSESSEE CONFIRMED THE AFORESAID ADDITION. ACCORDIN GLY, THE A.O INITIATED PROCEEDINGS U/S 271(1)(C) OF THE ACT AND LEVIED PE NALTY OF RS. 2,25,60,040/- HOLDING THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME AND HAS COMMITTED A CLEAR DEFAULT WITHIN THE MEANING OF SECTION 271(1)(C) READ WITH EXPLANATION (1) TO SECTION 271(1)(C) OF THE ACT, TH EREBY SUPPRESSING ITS REAL INCOME BY RS. 6,63,78,465/-. IN APPEAL THE LD. CIT( A) CONFIRMED THE PENALTY ORDER. THE ASSESSEE HAS CHALLENGED THE IMPUGNED ORD ER BY RAISING THE FOLLOWING GROUNDS OF APPEAL:- 1 . THE LD. CIT(A) ERRED IN LAW AND FACTS IN UPHOLDIN G LEVY OF PENALTY OF RS. 2,25,62,040/- U/S 271(1)(C) OF THE ACT IN RE SPECT OF DISALLOWANCE OF INTEREST OF RS. 6,63,78,465/- U/S 3 6(1)(III) OF THE ACT. THE REASONS GIVEN BY HIM FOR DOING SO ARE WRONG, CO NTRARY TO THE FACTS OF THE CASE AND AGAINST THE PROVISIONS OF LAW . 2. THE LD. CIT(A) ERRED IN LAW AND FACTS IN UPHOLDI NG LEVY OF PENALTY U/S 271(1)(C) SOLELY ON THE BASIS OF DISALLOWANCE O F INTEREST BY THE A.O AND SUSTAINED BY THE LD. CIT(A) IN QUANTUM APPE AL WITHOUT DISCHARGING THE ONUS AND PROVIDING CONCEALMENT OF I NCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. 3. THE LD. CIT(A) ERRED IN LAW AND FACTS IN UPHOLDI NG LEVY OF PENALTY U/S 271(1)(C) OF THE ACT IN RESPECT OF DISALLOWANCE OF INTEREST OF RS. 6,63,78,465/- U/S 36(1)(III) OF THE ACT WHICH IS NE ITHER CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS O F INCOME. 4. THE ABOVE GROUNDS/SUB-GROUNDS ARE WITHOUT PREJUD ICE TO EACH OTHER. 3 ITA NO 1153/MUM/2015 ASSESSMENT YEAR: 2008-09 4. AT THE VERY OUTSET THE LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE ADDITION IN QUESTION HAS BEEN DELETED BY THE ITAT, MUMBAI IN QUANTUM APPEAL ITA NO. 8382/M/2011 FOR ASST. YEAR 2008-09 VIDE ORD ER DATED 03/02/2016. SINCE THE ADDITION HAS BEEN DELETED THE PENALTY ORD ER CONFIRMED BY THE CIT(A) DOES NOT SURVIVE. 5. THE LD. DR DID NOT DISPUTE THE FACT THAT THE ITA T HAS DELETED THE ADDITION IN QUANTUM APPEAL. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON RECORD, INCLUDING THE ORDER PASSED BY THE CO-ORDINA TE BENCH IN QUANTUM APPEAL. WE NOTICE THAT THE DISALLOWANCE OF INTEREST OF RS. 6,63,78,465/- MADE U/S 36(1)(III) OF THE ACT ON ACCOUNT OF FINANCE PR OVIDED BY WAY OF SHARE APPLICATION/LOAN TO ITS SUBSIDIARIES/SISTER CONCERN S OUT OF COMMERCIAL EXPEDIENCY HAS BEEN DELETED BY THE CO-ORDINATE BENC H VIDE ORDER DATED 03/02/2016 HOLDING AS UNDER:- 2.8. FOR MAKING A DISALLOWANCE U/S 36(1)(III) OF T HE ACT ESSENTIALLY, THERE HAS TO BE A FINDING THAT THE BORROWED MONEY W ERE UTILIZED FOR NON-BUSINESS PURPOSES. AS WAS HELD IN CIT VS HOTEL SAVERA 148 CTR (MAD.) 585 ; 239 ITR 795 (MAD.). IN THIS CONTEX T, THE FACT THAT THE ASSESSEE HAD AMPLE FUNDS OR RESOURCES AT HIS DI SPOSAL AND NEED NOT HAVE BORROWED FUNDS IS NOT A RELEVANT MATTER FO R CONSIDERATION. ALL THAT IS GERMANE IS WHETHER THE BORROWING WAS, O R WAS NOT, FOR THE PURPOSES OF BUSINESS. IN CITY MOTOR SERVICE LTD . VS CIT (1966) 61 ITR 426 (MAD. ) THE ASSESSEE USED THE BORROWED CAPI TAL FOR GIVING LOANS ON INTEREST TO OTHERS IN NORMAL COURSE OF HIS BUSINESS. SUBSEQUENTLY, IT WAVED INTEREST IN RESPECT OF CERTA IN SUCH LOANS. IT WAS HELD THAT THE SUBSEQUENT WAVER DID NOT ALTER TH E NATURE OF LOANS. THE RATIO LAID DOWN IN GLENEBURN ESTATE LTD. VS STATE OF TAMILNADU 240 ITR 719 (MAD.) SUPPORTS THE CASE OF T HE ASSESSEE. 4 ITA NO 1153/MUM/2015 ASSESSMENT YEAR: 2008-09 2.9. THE EXPRESSION FOR THE PURPOSES OF BUSINESS O CCURRING IN SECTION 36(1)(III) AND ALSO IN SECTION 37(1) IS WID ER IN SCOPE THEN THE EXPRESSION FOR THE PURPOSES OF MAKING OR EARNING INCOME OCCURRING IN SECTION 57(III). THUS, THE SCOPE FOR A LLOWING A DEDUCTION U/S 36(1)(III) IS MUCH WIDER. WE ARE AWARE THAT WHE RE THE BORROWED MONEY ARE NOT USE FOR PURPOSES OF BUSINESS BUT AR E UTILIZED FOR MEETING PERSONAL OBLIGATION OF THE ASSESSEE HIMSELF (MADHAV PRASAD JATIA VS CIT) 118 ITR 200 (SC), OR FOR PAYING TAX L IABILITY (KISHANCHAND CHELARAM VS CIT) 114 ITR 654 (BOM.), O R ARE GIVEN OVER TO PARTNERS FOR THEIR PERSONAL USE, THE CLAIM OF THE INTEREST IS NOT ALLOWABLE. BUT FOR SUCH DISALLOWANCE, A FINDING OF FACT, BASED ON RELEVANT MATERIAL, IS NECESSARY AS WAS HELD IN CIT VS R.K. METAL WORKS 112 ITR 445 (PUNJAB). IN VEECUMSESS VS CIT (1996) 220 ITR 185, 190 (SC), THEIR LORDSHIP OF THE APEX COURT HAVE TAKEN A VIEW THAT W HEN THE ASSESSEE CARRIES ON MORE THAN ONE BUSINESS AND ONE BUSINESS IS TRANSFERRED OR CLOSED AND IF LOAN WAS TAKEN EARLIER FOR THE BUSINESS, WHICH SUBSEQUENTLY CLOSED, BUT IF THE MANAGEMENT IS COMMON, THE INTEREST PAID ON THAT LOAN CANNOT BE DENIED, THOUGH ONE OF THE LINES OF THE BUSINESS OR ANY BRANCH OF THE BUSINESS IS CL OSED FOR WHICH THE LOAN HAD BEEN TAKEN. 2.10 IT IS TRUE THAT NO ALLOWANCE NO SHAM OR COLOR ABLE TRANSACTION IS PERMISSIBLE. IF THE OBJECT OF THE BORROWING IS ILLU SORY OR COLORABLE AND NOT GENUINELY FOR THE BUSINESS PURPOSES, THEN THE P ROVISION HAS NO APPLICATION. TO BE ADMISSIBLE AS AN ALLOWANCE UNDER THE SECTION INTEREST MUST BE PAID IN RESPECT OF THE CAPITAL BOR ROWED. WHERE THE MONEY BORROWED HAVE BEEN UTILIZED FOR BUSINESS PUR POSES AND ALSO EARNING INCOME UNDER THE RESIDUARY HEAD INCOM E FROM OTHER SOURCES THE INTEREST PAID ON MONEY SO BORROWED SHO ULD BE BIFURCATED PROPORTIONATELY BETWEEN THE BUSINESS IN COME AND INCOME FROM OTHER SOURCES (H.K. INVESTMENT PVT. L TD. VS CIT 211 ITR 511, 514 (GUJ.). HOWEVER, IN THE PRESENT CASE, THE FACTS ARE ENTIRELY DIFFERENT AS THE ASSESSEE ADVANCED THE FUNDS TO ITS SUBSIDIARIES FOR BUSINESS EXIGENCIES, WHEREIN, THE ASSESSEE IS A H OLDING COMPANY, THUS, IT IS NOT A COLORABLE DEVICE. 5 ITA NO 1153/MUM/2015 ASSESSMENT YEAR: 2008-09 2.11 IN THE CASE OF CIT VS RELIANCE COMMUNICATION INFRASTRUCTURE LTD. (2012) 207 TAXMAN 219 (BOM.), THE HONBLE JURI SDICTIONAL HIGH COURT VIDE ORDER DATED 28/03/2012, CONSIDERING THE DECISION IN S.A. BUILDERS LTD. VS CIT (2007) 288 ITR 1(SC) HELD THAT IF THERE IS A BUSINESS PURPOSE, WHILE ADVANCING MONEY TO ITS SIST ER CONCERN, THE DISALLOWANCE OF INTEREST CANNOT BE SUSTAINED, SUPPO RTS THE CASE OF THE ASSESSEE. THE HONBLE HIGH COURT FURTHER HELD T HAT THERE WOULD NOT BE ANY DIFFERENCE IN THE LEGAL POSITION WHETHER THE INVESTMENT IS MADE IN THE SUBSIDIARY COMPANY IN THE FORM OF LOAN, ADVANCES OR SHARE APPLICATION MONEY. IF THE AMOUNT HAS BEEN INV ESTED FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE, THEN NO DISAL LOWANCE CAN BE MADE IN THE HANDS OF THE ASSESSEE. THE HONBLE APEX COURT IN HERO CYCLES PVT. LTD. VS CIT (2015) 379 ITR 347 (SC) VID E LATEST ORDER DATED 05/11/2015 ON THE ISSUE OF INTEREST ON BORROW ED CAPITAL, WHEREIN, ADVANCES WERE MADE TO SUBSIDIARIES, PURSUA NT TO UNDERTAKING GIVEN TO FINANCIAL INSTITUTIONS BY ASSE SSEE TO PROVIDE ADDITION MARGIN TO SUBSIDIARY TO MEET WORKING CAPIT AL FOR MEETING CASH LOSSES, IT WAS HELD THAT THE ADVANCES WERE OUT OF BUSINESS EXPEDIENCY, THEREFORE, INTEREST PAID ON BORROWING N OT TO BE DISALLOWED U/S 36(1)(III) OF THE ACT. IT IS NOTEWOR THY THAT WHILE COMING TO THIS CONCLUSION, THE HONBLE APEX COURT A PPLIED THE DECISION ALREADY TAKEN IN S.A. BUILDERS LTD. VS CIT (SUPRA) AND ALSO CONSIDERED IN MADHAV PRASAD CASE (1979) 118 ITR 200 (SC), CIT VS MALAYALAM PLANTATION LTD. (1964) 53 ITR 140 (SC), C IT VS BIRLA COTTON SPINNING AND WEAVING MILLS LTD. (1971) 82 IT R 166 (SC) AND CIT VS DALMIA CEMENTS (B.) LTD. (2002) 254 ITR 377 (DEL.), CIT VS ABHISHEK INDUSTRIES LTD. (2006) 286 ITR 1 (P & H). IDENTICAL RATIO WAS LAID DOWN IN S.P. JAISWAL ESTATES (P.) LTD. VS ACIT (2013) 140 ITD 19 (KOLKATA)(TM); 29 TAXMAN.COM 221 (KOLKATA)(T RIB.)(TM). 2.12 TO SUM UP THE MATTER, IN THE LIGHT OF THE AFO RESAID JUDICIAL PRONOUNCEMENT AND THE FACTUAL MATRIX AVAILABLE ON R ECORD, WE FIND THAT THE MONEY WAS ADVANCED BY THE ASSESSEE HOLDING COMPANY TO ITS SUBSIDIARIES FOR BUSINESS EXPEDIENCY, WHICH H AS TO BE JUDGED BY THE BUSINESS MAN ITSELF. THE FACTS BROUGHT BEFOR E US ARE THAT THE ASSESSEE HAS PLEADED BEFORE THE LOWER AUTHORITIES T HAT THE AMOUNT INVESTED HAS BEEN USED BY THE SUBSIDIARIES FOR THE PURPOSE OF BUSINESS. THE ASSESSEE HAS SIGNIFICANT INTEREST IN THE BUSINESS OF 6 ITA NO 1153/MUM/2015 ASSESSMENT YEAR: 2008-09 SUBSIDIARIES, AS THESE SUBSIDIARIES ARE IN SAME BUS INESS AS THAT OF ASSESSEE. IT IS FURTHER NOTED THAT MAJOR PORTION OF THE AMOUNTS WERE INVESTED IN THE EARLIER YEARS. NO DISALLOWANCE HAS BEEN MADE IN ASSESSMENT YEAR 2007-08 OR EARLIER. THUS, KEEPING I N VIEW, THE LEGAL POSITION AS DISCUSSED ABOVE AND FACTS OF THIS CASE, IT CAN BE SAID THAT AMOUNT INVESTED IN THE SUBSIDIARIES COMPANY WA S ARISING OUT OF COMMERCIAL EXPEDIENCY AND WAS THUS FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THEREFORE, WE REVERSE THE DECISION OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND ALLOW THE APPEAL OF THE ASSESSEE. 7. SINCE, THE ADDITION ON THE BASIS OF WHICH THE PE NALTY WAS LEVIED HAS BEEN DELETED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL, T HE IMPUGNED ORDER CONFIRMING THE PENALTY LEVIED BY THE AO DOES NOT SU RVIVE. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER AND DELETE THE PENALTY OF RS. 2,25,62,040/- LEVIED U/S 271(1)(C) OF THE ACT. 8. IN THE RESULT APPEAL FILED BY THE ASSESSEE FOR THE ASST. YEAR 2008-09 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH FEBRUARY, 2017 SD/- SD/- ( B.R.BASKARAN ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED:15/02/2017 7 ITA NO 1153/MUM/2015 ASSESSMENT YEAR: 2008-09 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. !' , $ !'% , / DR, ITAT, MUMBAI 6. &' ( / GUARD FILE. / BY ORDER, ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI PRAMILA