ACIT 5(2), MUMBAI V. MIDDAY MULTIMEDIA LTD, MUMBAI

ITA 1154/MUM/2011

• Counselvise Citation: 115419914 RSA 2011
• Duration Of Justice: 3 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2014
• Appeal Filed By: Department
• Bench Allotted: G
• Next Hearing Date: 13-10-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 08-02-2011
• Court: TRIBUNAL
• Department Lawyers: PAWAN KU MAR BEERLA
• Keywords: Proportionate interest; Commercial expediency
• Section: 143(3); 5(2); 14A; 115JB

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI . . , , , BEFORE SHRI B.R. BASKARAN , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBER . / ITA NO. 1154 /MUM./ 2011 ( / ASSESSMENT YEAR : 20 07 08 ) ADDL. COMMISSIONER OF INCOME TAX 5(2) AAYAKAR BHAVAN, 101, M.K. ROAD MUMBAI 400 020 . . / APPELLANT V/S MIDDAY MULTIMEDIA LT D. PENNINSULA CENTRE, DR. S.S. ROAD PAREL (E), MUMBAI 400 012 .. . . / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AAACM7512L / ASSESSEE BY : NONE / REVENUE BY : SHRI PAWAN KU MAR BEERLA / DATE OF HEARING 13 . 10 .2014 / DATE OF ORDE R 21.10.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HA S BEEN PREFERRED BY THE REVENUE, CHALLENGING THE I MPUGNED ORDER DATE D 30 TH NOVEMBER 2010, PASSED BY THE LEARNED COMMISSIONER (APPEALS) I X, MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 MIDDAY MU LTIMEDIA LTD. 2 (FOR SHORT THE ACT ) FOR THE ASSESSMENT YEAR 20 07 08, ON THE FOLLOWING GROUNDS: 1. WHETHER ON THE FACTS AND IN C IRCUMSTAN C ES OF THE CASE AND AS PER LAW , THE LD . CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST OF RS . 43 , 78 , 306/ - ON INTEREST BEARING ADVANCES TO SUBSIDIARY COMPANIES RELYING ON THE SUPREME COURT DECISION IN THE CASE OF M / S . SA BUILDERS V / S CIT (269 ITR 535) WITHOUT APPRECIATING THE FACT THAT THE FACTS OF THE CASE ARE DISTINGUISHABLE IN AS MUCH AS COMMERCIAL EXPENDIENCY I N ADVANCING INTEREST FREE LOANS IS REQUIRED TO BE SHOWN BY THE ASSESSEE . 2. WHETHER ON THE FACTS AND C I R CUMSTANCE OF THE CASE AND AS PER LAW , THE LD . CIT(A) ER R ED IN RESTRICT I NG T HE DISAL L O WANCE TO RS. 3 , 6 8 , 450 / - BE I NG 5% OF DIVIDEND INCOME WITHOUT APPREC I ATING THE FACT THAT THE D E C I S I ON OF HON ' BLE HIGH COURT IN THE CASE OF MIS GODREJ & BOYCE MANUFA C TURING CO L TD . , IS NOT ACCEPTED BY THE DEPARTMENT AS ALSO THE FACTS OF THE CASE IN M I S VIP IND U STRIES LTD ARE DISTINGUISHABLE . 3. WHETHER ON THE FACTS AND I N CIRCUMSTANCES OF THE CASE AND AS PER LAW , THE LD. CIT(A) ERRED IN DELETING DISALLOWANCE ULS 14A OF THE I . T . ACT WHILE COMPUTING BOOK PROFIT ULS 115JB OF THE I . T . ACT . ' ? 2 . FACTS IN BRIEF : THE ASSESSEE COMPANY IS IN THE BUSINESS OF PUBLICATION AND PRINTING OF NEWSPAPERS. DURING THE COURSE OF THE ASSESSMENT PROCE EDINGS, ON EXAMINATION OF BALANCE SHEET, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS INVESTED AN AMOUNT OF RS. 72,57,27,308, IN THE FORM OF EQUITY AND ADVANCEMENT OF LOANS TO SUBSIDIARY COMPANIES. ON THESE INVESTMENTS AND ADVANCES, NO INCOME HAS BEE N EARNED DURING THE YEAR EXCEPT FROM INVESTMENT OF RS. 21,10,02,000, IN ONE OF THE SUBSIDIARY COMPANY RADIO MID DAY WEST INDIA LTD. HE FURTHER NOTED THAT THE ASSESSEE HAS INTEREST BEARING FUNDS TO THE TUNE OF RS. 20,63,29,696, ON WHICH THE ASSESSEE HAS DEBITED MIDDAY MU LTIMEDIA LTD. 3 INTEREST AND FINANCE CHARGES TO THE TUNE OF RS. 1,61,42,479. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE STATED THAT THE ADVANCE IN INVESTMENTS WERE MADE IN THE SUBSIDIARY AND ASSOCIATE COMPANIES OVER THE YEARS AND IT HAS RAISED RS. 10 CRORES BY FRESH ISSUE OF CAPITAL SPECIFICALLY TO FUND THE SUBSIDIARY PROJECTS. OTHER THAN THAT THE INVESTMENTS AND LOANS WERE WERE GIVEN FROM ASSESSEE S OWN CAPITAL AND FREE RESERVES. SUCH FUNDS HAD NO INTEREST COST AND, THEREFORE, NO DISALLOWANCE SHOULD BE MADE FROM THE INTEREST DEBITED IN THE PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER REJECTED THE ASSESSEE S CONTENTION AND HELD THAT NO PRUDENT BUSINESSMAN WILL PARK SUCH A HUGE FUND WITHOUT EARNING ANY INCOME THEREON. AFTER RELYING UPON VARIOUS DECISIONS, HE APPORTIONED THE INTEREST BEARING FUNDS FOR INVESTMENT IN SUBSIDIARY IN THE FOLLOWING MANNER: SHARES CAPITAL AND RESERVES & SURPLUS RS. 1,691,423,319 INVESTMENT IN SUBSIDIARIES (WITHOUT INTEREST) RS. 514,725,308 TOTAL BORROWED FUNDS RS. 206,329,696 FINANCE COST RS. 16,1 42,479 BORROWED FUNDS USED FOR INVESTMENT IN SUBSIDIARIES IS BORROWED FUNDS * INVESTMENT IN SUBSIDIARIES SHARE CAPITAL & RESERVE FUND + BORROWED FUND 206,329,696*514,725,308 = RS. 55,962,560 1, 691,423,319+206,329,696 PROPORTIONATE INTEREST IS BORROWED FUND USED IN SUBSIDIARIES * FINANCE COST BORROWED FUNDS 55,962,560 * 16,142,479 = RS. 4,378,306 206,329,696 MIDDAY MU LTIMEDIA LTD. 4 ACCORDINGLY, HE DISA LLOWED AN AMOUNT OF RS. 1,61,42,479, OUT OF THE TOTAL INTEREST CLAIMED. 2 . FURTHER, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS CLAIMED RS. 73,69,048 BEING DIVIDEND INCOME EXEMPT FROM TAX UNDER SECTION 10(34). AFTER INVOKING THE PROVISIONS OF SECTION 14A, HE WORKED OUT THE DISALLOWANCE OF RS. 42,71,943, AFTER RELYING UPON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL, MUMBAI, IN DAGA CAPITAL MANAGEMENT PVT. LTD. [2008] 119 TTJ (MUM.) 289 (SB). HE ALSO MADE DISALLOWANCE UNDER SECTION 14A, WHILE WORKING OUT THE BOOK PROFIT UNDER SECTION 115JB. 3 . BEFORE THE LEARNED COMMISSIONER (APPEALS), THE ASSESSEE GAVE THE DETAILS OF INVESTMENT MADE IN THE SUBSIDIARY AND STATED THAT THESE INVESTMENTS AND ADVANCES WERE GIVEN AS A STRATEGIC BUSINESS DECISIONS WHICH ULTIMATEL Y INCREASED PROFITABILITY OF THE ASSESSEE COMPANY. THAT APART, THE ASSESSEE ALSO FURNISHED CASH FLOW STATEMENT TO SHOW THAT THE ASSESSEE HAD GENERATED CASH OF MORE THAN RS. 2000 LAKHS FROM THE DISPOSAL OF INVESTMENTS PLUS RS. 3917 LAKHS BY WAY OF ISSUANCE OF F RESH EQUITY SHARES. THUS, THE TOTAL INFUSION OF THE FUNDS OTHER THAN THE BORROWED FUNDS WERE RS. 5968 LAKHS. THUS, IT WAS CONTENDED THAT NO INTEREST BEARING FUNDS / LOANS WERE GIVEN TO THE SUBSIDIARY COMPANIES. RELIANCE WAS PLACED ON SEVERAL DECISIONS INCLUD ING THAT OF S.A. BUILDERS V/S CIT, [2007] 288 ITR 001 (SC). THE ASSESSEE S SUBMISSIONS HAVE MIDDAY MU LTIMEDIA LTD. 5 BEEN INCORPORATED BY THE LEARNED COMMISSIONER (APPEALS) IN PAGE 3 TO 6 OF HIS ORDER. AFTER CONSIDERING THE ASSESSEE S SUBMISSIONS AND THE MATERIAL ON RECORD, THE LEARNED COMMISSIONER (APPEALS) DELETED THE ADDITION AFTER GIVING FINDING OF FACT THAT THE ASSESSEE HAD HUGE INTEREST FREE FUNDS TO INVEST IN SUBSIDIARY COMPANIES AND WERE GIVEN FOR BUSINESS PURPOSES WHEREIN THE ASSESSEE HAS DEEP INTEREST AS HOLDING COMPANY. HE ALS O ANALYSED THE FINDINGS OF THE HON BLE SUPREME COURT IN S.A. BUILDERS (SUPRA) AND ALSO THE OTHER DECISIONS AND DELETED THE DISALLOWANCE AFTER OBSERVING AND HOLDING AS UNDER: 4 . 2.7 SO, IN VIEW OF THE AFORESAID OBSERVATIONS AND DECISION OF THE SUPREME COURT AND THE FACT THAT THERE IS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF BUSINESS (WHICH NEED NOT NECESSARILY BE BUSINESS OF THE ASSESSEE ITSELF) AND THAT INTEREST BEARING FUNDS WERE ADVANCED TO SUBSIDIARY COMPANIES WITHOUT CHARGING OF INTEREST . THE AU DITORS HAVE OBSERVED THAT INTEREST BEARING FUNDS WERE USED FOR THE PURPOSE OF COMMERCIAL EXPEDIENCY. NOT ONLY THIS, BUT THE APPELLANT WAS HAVING MUCH MORE FUNDS OF INTEREST FREE , ADVANCES IN THE FORM OF CAPITAL RESERVES AND SHARE CAPITAL MONEY. FURTHER, TH E INTEREST FREE INVESTMENTS AND ADVANCES WERE GIVEN TO SUBSIDIARY COMPANY FOR BUSINESS PURPOSES WHEREIN THE APPELLANT COMPANY HAS A DEEP INTEREST AS HOLDING COMPANY. THEREFORE, THIS ISSUE IS SQUARELY COVERED BY THE AFORESAID DECISION OF SUPREME COURT IN TH E CASE OF S.A. BUILDERS V/S CIT. SO, I AM OF THE VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE PROPORTIONATE FINANCE CHARGES AND INTEREST. HE IS DIRECTED TO ALLOW THE CLAIM OF APPELLANT. THUS, DISALLOWANCE MADE BY THE ASSESSING OFFIC ER IS DELETED. GROUND OF APPEAL IS ALLOWED. 5 . REGARDING THE DISALLOWANCE UNDER SECTION 14A, THE LEARNED COMMISSIONER (APPEALS) HELD THAT RULE 8D IS APPLICABLE FROM THE ASSESSMENT YEAR 2008 09 IN VIEW OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COUR T IN GODREJ & BOYCE MFG. CO. LTD. V/S D CIT, (2010), 328 ITR 081 (BOM.). THUS, HE HELD THAT THE REASONABLE MIDDAY MU LTIMEDIA LTD. 6 DISALLOWANCE SHOULD BE MADE AND ACCORDINGLY, HE DISALLOWED 5% OF THE DIVIDEND INCOME WHICH WORKED OUT AT RS. 3,68,450. CONSEQUENT DIRECTION WAS ALSO GIV EN FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 14A, WHILE WORKING OUT THE BOOK PROFIT UNDER SECTION 115J. 6 . BEFORE US, THE LEARNED DEPARTMENT REPRESENTATIVE STRONGLY RELIED UPON THE FINDINGS OF THE ASSESSING OFFICER AND SUBMITTED THAT WHEN THE ASSESSEE HA S TWO KINDS OF FUNDS I.E., INTEREST BEARING FUNDS AND INTEREST FREE FUNDS THEN IT CANNOT BE PRESUMED THAT ONLY THE INTEREST FREE FUNDS HAVE BEEN ADVANCED TO THE SISTER CONCERN / SUBSIDIARY COMPANIES. THUS, PROPORTIONATE DISALLOWANCE WAS MADE BY THE ASSESSI NG OFFICER IS DEFINITELY CALL FOR. REGARDING 14A, HE JUST SIMPLY RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 7 . BEFORE US, WHEN THE CASE WAS CALLED FOR HEARING, NEITHER THE RESPONDENT ASSESSEE NOR ANY OF ITS AUTHORIZED REPRESENTATIVE APPEARED DESPITE SER VICE OF NOTICE. 8 . AFTER CONSIDERING THE SUBMISSIONS OF THE LEARNED DEPARTMENT REPRESENTATIVE AND ALSO THE RELEVANT FINDINGS OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS), WE FIND THAT THE ASSESSEE HAS EXPLAINED THE AVAILABILITY OF HUGE IN TEREST FR EE FUNDS FOR MAKING THE INVESTMENT IN SUBSIDIARY AND ALSO ADVANCES GIVEN TO THEM ON THE BASIS OF DETAIL ANALYSIS OF ITS FUND. FROM THE ORDERS, IT IS SEEN THAT THE ASSESSEE HAD SHARE CAPITAL RESERVE AND SURPLUS AT RS. 169,14,23,319 MIDDAY MU LTIMEDIA LTD. 7 WHICH ALSO INCLUDE D CASH GENERATED FROM DISPOSAL OF INVESTMENT AND ISSUANCE OF FURNISHING EQ U ITY SHARES WHICH AGGREGATED TO 5968 LAKHS. OUT OF SUCH SURPLUS FUNDS WHICH ARE INTEREST FREE THE ASSESSEE HAS INVESTED SUM OF RS. 514,75,308 IN THE SUBSIDIARY. THUS, THE SURPLUS FUNDS (WHICH WERE FREE OF INTEREST COST) WERE SUFFICIENT TO MEET THE ADVANCES IN THE INVESTMENT MADE IN THE SUBSIDIARY. THE LEARNED COMMISSIONER (APPEALS) HAS GIVEN A CATEGORICAL FINDING THAT THE INTEREST BEARING FUNDS HAVE BEEN USED FOR BUSINESS PURPOSE AND TH ERE IS A NEXUS BETWEEN INTEREST EXPENDITURE INCURRED AND LOAN TAKEN BY THE ASSESSEE. IN VIEW OF THESE FACTS, THE FINDING S OF THE LEARNED COMMISSIONER (APPEALS) IS CONFIRMED AND, ACCORDINGLY, NO DISALLOWANCE OF INTEREST IS CALLED FOR. 9 . AS REGARDS THE DISALL OWANCE UNDER SECTION 14A, WE AGREE WITH THE FINDINGS OF THE LEARNED COMMISSIONER (APPEALS) THAT IN THIS YEAR, DISALLOWANCE UNDER SECTION 14A CAN NOT BE MADE AFTER APPLYING RULE 8D WHICH IS ADMITTEDLY APPLICABLE FROM THE ASSESSMENT YEAR 2008 09. FOR THE ASSE SSMENT YEAR 2007 08, SOME REASONABLE DISALLOWANCE SHOULD BE MADE , WHICH THE LEARNED COMMISSIONER (APPEALS) HAS MADE 5% OF THE DIVIDEND INCOME . SUCH A DISALLOWANCE APPEARS TO BE REASONABLE LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE. THUS, ON THIS SC ORE ALSO, WE AFFIRM THE ORDER OF THE LEARNED COMMISSIONER (APPEALS). MIDDAY MU LTIMEDIA LTD. 8 10 . LASTLY, THE DISALLOWANCE UNDER SECTION 14A WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB, HAS ALREADY BEEN DIRECTED BY THE LEARNED COMMISSIONER (APPEALS) TO BE MADE , WHICH IS 5% OF THE DIVIDEND INCOME AND ACCORDINGLY, SUCH DIRECTIONS OF THE LEARNED COMMISSIONER (APPEALS) IS CONFIRMED. THUS, GROUNDS RAISED BY THE DEPARTMENT ARE DISMISSED. 11 . 10 . IN THE RESULT, REVENUE S APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT O N 21 ST OCTOBER, 2014. SD/ - SD/ - . . B.R. BASKARAN ACCOUNTANT ME MBER SD/ - SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 21.10.2014. / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI