SHOPPERS STOP LTD, MUMBAI V. ACIT CEN CIR 29, MUMBAI

ITA 1361/MUM/2013

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7887 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 25-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 18-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T A KHAN
• Keywords: Earning of tax free income; Commercial expediency
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI D.T. GARASIA (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 1361/MUM/2013 ASSESSMENT YEAR: 2009 - 10 & ITA NO. 3248/MUM/2013 ASSESSMENT YEAR: 2010 - 11 & ITA NO. 6155/MUM/2014 ASSESSMENT YEAR: 2011 - 12 SHOPPERS STOP LTD. EUEKA TOWERS, B - WING, 9 TH FLOOR, MINDSPACE, LINK ROAD, MALAD (W) MUMBAI - 400064 VS. ACIT - 29 AAYAKAR BHAVAN MUMBAI . PAN NO. AABCS4383A APPELLANT RESPONDENT ASSESSEE BY : MS. AARTI SATHE , AR REVENUE BY : MR. T.A. KHAN , DR DATE OF HEARING : 11/10 /2017 DATE OF PRONOUNCEMENT : 27/12/2017 ORDER PER N.K. PRADHAN, A.M. THE CAPTIONED APPEAL S FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS) - 40 , MUMBAI AND ARISE OUT OF THE ASSESSMENT ORDER U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). AS COMMON ISSUES ARE INVOLVED WE ARE PROCEEDING TO DISPOSE THEM OFF BY THIS CONSOLI DATED ORDER FOR THE SAKE OF CONVENIENCE. SHOPPER STOP LTD. ITA NO. 1361 & 3248/MUM/2013 & 6155/MUM/2014 2 2. TWO ISSUES ARE INVOLVED IN THESE APPEALS. ONE IS THE DISALLOWANCE MADE BY THE ASSESSING OFFICER (AO) U/S 14A R.W. RULE 8D OF THE INCOME TAX RULES, 1962. THE OTHER ONE IS THE DISALLOWANCE U/S 36(1)(III)/ ADDITION ON ACCOUNT OF NOTIONAL INCOME U/S 5 OF THE ACT. 2.1 WE BEGIN WITH THE FIRST ISSUE. ITA NO. 1361/MUM/2013 ASSESSMENT YEAR: 2009 - 10 3. THE AO OBSERVED THAT IT HAD DEBITED RS.25,60,30,000/ - IN ITS PROFIT & LOSS ACCOUNT AS INTEREST PAYMENT AND FINANCE CHARGES AGAINST BORROWED MONEY CLAIMED TO BE UTILIZED FOR THE PURPOSE OF BUSINESS. AT THE SAME TIME, THE INVESTMENTS AS STATED IN THE BALAN CE SHEET WERE VALUED AT RS.97,44,50,000/ - AS ON 31.03.2009 AS COMPARED TO THE INVESTMENTS AS ON 01.04.2008 AT RS.80,72,10,000/ - . THE AO WORKED OUT THE DISALLOWANCE U/S 14A R.W. RULE 8D AND MADE A DISALLOWANCE OF RS.3,69,33,354/ - . 4. AGGRIEVED BY THE ORDE R OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). THE ASSESSEE SUBMITTED BEFORE HIM THAT THE COMPANY HAD SUFFICIENT INTEREST - FREE FUNDS AVAILABLE AND HENCE NO PART OF INTEREST COULD BE ATTRIBUTED TO INVESTMENT IN SHARES. ALSO IT WAS STATED B EFORE THE LD. CIT(A) THAT THE ASSESSEE HAS NOT RECEIVED ANY DIVIDEND OR EXEMPT INCOME FROM THESE INVESTMENTS IN ANY OF THE YEARS INCLUDING THE CURRENT ASSESSMENT YEAR. THE SAME IS EVIDENT FROM THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE. SHOPPER STOP LTD. ITA NO. 1361 & 3248/MUM/2013 & 6155/MUM/2014 3 RELIANCE WAS PLA CED BY THE ASSESSEE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN DELITE ENTERPRISES IN ITA NO. 110 OF 209 DATED 26.12.2009. HOWEVER, THE LD. CIT(A) WAS NOT CONVINCED WITH THE ABOVE SUBMISSION OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE OF RS.3,6 9,33,354/ - BY FOLLOWING THE ORDER OF HIS PREDECESSOR - IN - OFFICE FOR THE AY 2008 - 09. ITA NO. 3248/MUM/2013 ASSESSMENT YEAR: 2010 - 11 5. THE AO OBSERVED THAT IT HAD DEBITED RS.22,44,35,000/ - IN ITS PROFIT & LOSS ACCOUNT AS INTEREST PAYMENT AND FINANCE CHARGES AGAINST BORROWED MONEY CLAIMED TO BE UTILIZED FOR THE PURPOSE OF BUSINESS. AT THE SAME TIME, THE INVESTMENTS AS STATED IN THE BALAN CE SHEET WERE VALUED AT RS. 119,67,45,000/ - AS ON 31.03.2010 AS COMPARED TO T HE INVESTMENTS AS ON 01.04.2009 AT RS. 97,44,50,000 / - . THE AO WORKED OUT THE DISALLOWANCE U/S 14A R.W. RULE 8D AND MADE A DISALLOWANCE OF RS. 3,79,86,618 / - . 6. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE FILED SUBMISSION BEFORE THE LD. CIT(A) SIMILAR TO AY 2009 - 10 MENTIONED AT PARA 4 ABOVE. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE OF RS.3,79,86,618/ - ON THE SAME BASIS AS FOR AY 2009 - 10 . ITA NO. 6155/MUM/2014 ASSESSMENT YEAR: 2011 - 12 7. THE AO OBSERVED THAT ASSESSEE - COMPANY HAD DEBITED RS.14,53,77,000/ - IN ITS PROFIT & LOSS ACCOUNT AS INTEREST PAYMENT AND SHOPPER STOP LTD. ITA NO. 1361 & 3248/MUM/2013 & 6155/MUM/2014 4 FINANCE CHARGES AGAINST BORROWED MONEY CLAIMED TO BE UTILIZED FOR THE PURPOSE OF BUSINESS. AT THE SAME TI ME, THE INVESTMENTS AS STATED IN THE BALANCE SHEET WERE VALUED AT RS.237,19,34,000/ - AS ON 31.03.2011 AS COMPARED TO THE INVESTMENTS AS ON 01.04.2010 AT RS.119,67,45,000/ - . THE AO WORKED OUT THE DISALLOWANCE U/S 14A R.W. RULE 8D AND MADE A DISALLOWANCE OF RS.3,53,14,668/ - . 8. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE FILED SUBMISSION BEFORE THE LD. CIT(A) AS MADE FOR AY 2009 - 10 AND AY 2010 - 11 AS MENTIONED ABOVE. THE LD. CIT(A) CO NFIRMED THE DISALLOWANCE OF RS.3,53,14,668 / - ON THE SAME BASIS A S FOR THE AY 2009 - 10 AND AY 2010 - 11 . 9. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT THE INVESTMENTS HAVE BEEN MADE FROM TIME TO TIME OUT OF THE ASSESSEES OWN SURPLUS FUNDS. SO NO DISALLOWANCE U/S 14A IS CALLED FOR. RELIANCE IS PLACED BY HER O N THE DECISION IN RELIANCE UTILITIES & POWER LTD . 313 ITR 3 40 (BOM). SHE FILES THE FO LLOWING DETAILS: RS. IN CRORES NAME OF THE COMPANY IN WHICH STRATEGIC INVESTMENTS ARE MADE: - STATUS AY 2009 - 10 AY 2010 - 11 AY 2011 - 12 NUANCE GROUP (INDIA) PVT. LTD. JOINT VENTURE 5.35 11.81 - HYPERCITY RETAIL (INDIA) LTD. SUBSID I ARY 11.40 9.50 113.61 TIMEZONE ENTERTAINMENT PVT. LTD. JOINT VENTURE - 0.92 3.91 TOTAL INVESTMENTS 16.75 22.23 117.52 SHARE CAPITAL AND REVERSES & SURPLUS (OPENING BALANCE) 296 .70 244.83 308.89 THE LD. COUNSEL FURTHER SUBMITS THAT THE ASSESSEE - COMPANY HAS NOT RECEIVED ANY DIVIDEND OR EXEMPT INCOME FROM THESE INVESTMENTS IN ANY OF THE AFOREMENTIONED ASSESSMENT YEARS. THEREFORE, NO SHOPPER STOP LTD. ITA NO. 1361 & 3248/MUM/2013 & 6155/MUM/2014 5 DISALLOWANCE U/S 14A R.W. RULE 8D IS CALLED FOR. RELIANCE IS PLACED BY HER ON THE DECISION IN DELITE ENTERPRISES (SUPRA). 10. PER CONTRA THE LD. DR SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). IT IS SUBMITTED BY HIM THAT THE ASSESSEE COULD NOT DIRECTLY LI NK THE INVESTMENT APPEARING THE BALANCE SHEET AND MADE DURING THE YEAR TO THE SOURCES OF FUNDS SAID TO BE GENERATED FROM THE BUSINESS OPERATION. ALSO IT IS STATED BY HIM THAT THE ASSESSEE COULD NOT FILE FUND FLOW STATEMENT BEFORE THE AO AND THE INVESTMENT WAS MADE OUT OF A SINGLE BANK ACCOUNT ON WHICH THE ASSESSEE HAD AVAILED CASH CREDIT/OVERDRAFT FACILITIES. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISION ARE GIVEN BELOW. WE FIND THAT IN THE AY 2009 - 10 , THE SHARE CAPITAL AND RESERVES AND SURPLUS (OPENING BALANCE) IS RS.296.70 CRORES. THIS IS MUCH MORE THAN THE INVESTMENT MENTIONED BY THE AO AT PARA 3 HEREINBEFORE. IN THE AY 2010 - 11 , THE SHARE CAPITAL AND RESERVES AND SURPLUS (OPENING BAL ANCE) IS RS.244.83 CRORES. THIS IS MUCH MORE THAN THE INVESTMENT MENTIONED BY THE AO AT PARA 5 ABOVE. IN THE AY 2011 - 12 , THE SHARE CAPITAL AND RESERVES AND SURPLUS (OPENING BALANCE) IS RS.308.89 CRORES. THIS IS MUCH MORE THAN THE INVESTMENT MENTIONED BY T HE AO AT PARA 7 ABOVE. IN HDFC BANK LTD. VS. DCIT [2016] 67 TAXMANN.COM 42 (BOM), THE HON'BLE BOMBAY HIGH COURT REFERRING TO THE DECISION IN CIT VS. HDFC BANK LTD. [2014] 366 ITR 505 (BOM) A ND RELIANCE UTILITIES & POWER LTD. (SUPRA) HELD AS UNDER : SHOPPER STOP LTD. ITA NO. 1361 & 3248/MUM/2013 & 6155/MUM/2014 6 15. IT IS CLEAR THAT FOR THE FIRST TIME IN THE CASE OF HDFC BANK LTD. (SUPRA) THAT THIS COURT TOOK A VIEW THAT THE PRESUMPTION WHICH HAS BEEN LAID DOWN IN RELIANCE UTILITIES & POWER LTD . (SUPRA) WITH REGARD TO INVESTMENT IN TAX FREE SECURITIES COMING OUT OF AS SESSEE'S OWN FUNDS IN CASE THE SAME ARE IN EXCESS OF THE INVESTMENTS MADE IN THE SECURITIES (NOTWITHSTANDING THE FACT THAT THE ASSESSEE CONCERNED MAY ALSO HAVE TAKEN SOME FUNDS ON INTEREST) APPLIES, WHEN APPLYING SECTION 14A OF THE ACT. THUS, THE DECISION OF THIS COURT IN HDFC BANK LTD. (SUPRA) FOR THE FIRST TIME ON 23RD JULY, 2014 HAS SETTLED THE ISSUE BY HOLDING THAT THE TEST OF PRESUMPTION AS HELD BY THIS COURT IN RELIANCE UTILITIES AND POWER LTD . (SUPRA) WHILE CONSIDERING SECTION 36(1)(III) OF THE ACT W OULD APPLY WHILE CONSIDERING THE APPLICATION OF SECTION 14A OF THE ACT. THE AFORESAID DECISION OF THIS COURT IN HDFC BANK LTD. (SUPRA) ON THE ABOVE ISSUE HAS ALSO BEEN ACCEPTED BY THE REVENUE IN AS MUCH AS EVEN THOUGH THEY HAVE FILED AN APPEAL TO THE SUPRE ME COURT AGAINST THAT ORDER ON THE OTHER ISSUE THEREIN VIZ. BROKEN PERIOD INTEREST, NO APPEAL HAS BEEN PREFERRED BY THE REVENUE ON THE ISSUE OF INVOKING THE PRINCIPLES LAID DOWN IN RELIANCE UTILITIES & POWER LTD . (SUPRA) IN ITS APPLICATION TO SECTION 14A O F THE ACT. 11.1 WE FURTHER FIND THAT THE ASSESSEE HAD SUBMITTED BEFORE THE LD. CIT(A) THAT IT HAD NOT RECEIVED ANY DIVIDEND OR EXEMPT INCOME FROM THE INVESTMENTS MADE IN THE ABOVE ASSESSMENT YEARS. WE REFER HERE TO PAGE 18 OF THE APPELLATE ORDER DATED 07. 12.2012, PAGE 10 OF THE APPELLATE ORDER DATED 12.03.2013 AND PAGE 6 OF THE APPELLATE ORDER DATED 07.08.2014 PASSED BY THE LD. CIT(A). THAT THE ASSESSEE DID NOT RECEIVE ANY DIVIDEND OR EXEMPT INCOME FROM THE INVESTMENTS IS EVIDENT FROM THE PROFIT AND LOSS A CCOUNT FILED BY IT FOR THE ABOVE ASSESSMENT YEARS. THE ISSUE WHETHER DISALLOWANCE U/S 14A R.W. RULE 8D CAN BE MADE IN A CASE WHEN THERE IS NO EXEMPT INCOME IS NO LONGER RES SHOPPER STOP LTD. ITA NO. 1361 & 3248/MUM/2013 & 6155/MUM/2014 7 INTEGRA. IN THE CASE OF CIT V. SHIVAM MOTORS (P) LTD. (2015) 55 TAXMANN.COM 262 (ALL), IT HAS BEEN HELD THAT IN ABSENCE OF ANY TAX FREE INCOME EARNED BY THE ASSESSEE, DISALLOWANCE U/S 14A COULD NOT BE MADE. IN A SIMILAR VEIN, IT HAS BEEN HELD IN CHEMINVEST LTD. V. CIT (2015) 61 TAXMANN.COM 118 (DEL) THAT SEC TION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. 11.2 THE BASIS ON WHICH THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO U/S 14A R.W. RULE 8D IS THE ORDER OF HIS PREDECESS OR - IN - OFFICE FOR TH E AY 2008 - 09. WE FIND THAT THE ITAT E BENCH MUMBAI FOR THE SAID ASSESSMENT YEAR (ITA NO. 2189/MUM/2012) HAS ALLOWED THE APPEAL FILED BY THE ASSESSEE ON THE ABOVE ISSUE WITH THE FOLLOWING REASONS: WE FIND THAT ASSESSEE HAD NOT CLAIMED ANY DEDUCTION IN R ESPECT OF EXEMPT INCOME NOR HAS IT CLAIMED ANY EXPENDITURE AGAINST THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THUS, BOTH THE BASIC INGREDIENTS FOR MAKING A DISALLOWANCE U/A 14A ARE MISSING. SECONDLY, THE FUND FLOW STATEMENT MADE AVAILABLE TO THE FAA, DURING THE APPELLATE PROCEEDINGS, CLEARLY SHOW THAT IT HAD SUFFICIENT OWN FUNDS TO MAKE INVESTMENTS (PG - 1 OF THE PB). THE FAA HAS ADMITTED THAT FUNDS AVAILABLE TO THE ASSESSEE WERE MORE THAN THE INVESTMENTS MADE DURING THE YEAR UNDER CONSIDERATION . THEREFORE, IN OUR OPINION THERE WAS NO JURISDICTION FOR MAKING DISALLOWANCE AS PER THE PROVISIONS OF SECTION 14A R.W.R. 8D OF THE RULES. CONSIDERING ALL THESE FACTORS WE ARE OF THE OPINION THAT THE FAA WAS NOT JUSTIFIED IN UPHOLDING THE ORDER OF THE AO. HENCE, REVERSING HIS ORDER WE DECIDE THE EFFECT GROUND OF AP PEAL IN FAVOUR OF THE ASSESSEE. 12. IN VIEW OF THE REASONS DELINEATED AT PARA 11 ABOVE , WE DELETE THE DISALLOWANCE OF RS.3,69,33,354/ - (AY 2009 - 10), RS.3,79,86,618/ - SHOPPER STOP LTD. ITA NO. 1361 & 3248/MUM/2013 & 6155/MUM/2014 8 (2010 - 11) AND RS.3,53,14,668/ - (AY 2011 - 12) MADE BY THE AO U/S 14A R.W. RULE 8D. 13. N OW WE TURN TO THE SECOND ISSUE WHICH ARISES IN THE AY 2009 - 10 AND AY 2010 - 11. ITA NO. 1361/MUM/2013 ASSESSMENT YEAR: 2009 - 10 14. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE - COMPANY HAD ADVANCED LOAN OF RS.24.87 CRORES TO ITS SUBSIDIARY M/S GATEWAY MULTICHANNEL RETAIL (INDIA) LTD. AND HAD CHARGED INTEREST ON THE SAME UP TO DECEMBER 2008 ONLY, SINCE THE BOARD OF DIRECTORS OF THE SUBSIDIARY DECIDED IN JANUARY 2009 TO DISCONTINUE THE CATALOGUE RETAILING OPERATIONS. THE AO OBSERVED THAT THE ASSESSEE HAD PAID INTEREST @ 13.5% ON THE LOANS TAKEN; THAT IN THE ASSESSEES CASE THERE WAS NO COMMERCIAL EXPEDIENCY FOR NOT CHARGING/PROVIDING INTEREST ON THE OUTSTANDING INTER - CORPORATE DEPOSIT. THEREFORE, HE WORKED OUT THE PROPORTIONATE DISAL LOWANCE AND MADE AN ADDITION OF RS.83,91,532/ - U/S 36(1) (III) OF THE ACT. 15. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS HELD THAT THOUGH THE RATIO OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH CO URT IN RELIANCE UTILITIES LTD . (SUPRA) IS APPLICABLE TO THE CASE OF THE ASSESSEE, STILL THE ACCRUED INTEREST INCOME HAS TO BE TAXED DURING THE YEAR. ACCORDINGLY, HE DIRECTED THE AO TO WORK OUT THE INCOME ON ACCOUNT OF INTEREST ACCRUED FOR THE BALANCE THREE MONTHS AND TAX THE SAME. ITA NO. 3248/MUM/2013 ASSESSMENT YEAR: 2010 - 11 SHOPPER STOP LTD. ITA NO. 1361 & 3248/MUM/2013 & 6155/MUM/2014 9 16 . DURING THE ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE - COMPANY HAD ADVANCED LOAN TO ITS SUBSIDIARY M/S GATEWAY MULTICHANNEL RETAIL (INDIA) LTD. BUT HAD NOT OFFERED ANY INTEREST INCOME ON THE SAME DURING THE YEAR. IN RESPONSE TO A QUERY RAISED BY THE AO , THE ASSESSEE SUBMITTED THAT THE BOARD OF DIRECTORS OF THE SUBSIDIARY COMPANY HAD, IN JANUARY 2009, DECIDED TO DISCONTINUE ITS CATALOGUE RETAILING OPERATIONS AND IN VIEW OF THE SAME, THE ASSESSEE HAD TO DISCONTINUE THE INTEREST ACCRUAL FROM 01.01.2009 ONWA RDS. IT ALSO SUBMITTED THAT THERE WAS NO QUESTION OF CHARGING INTEREST ON LOAN TO THE SUBSIDIARY, WHERE IT WAS IMPOSSIBLE TO GET BACK ANY PORTION OF THE PRINCIPAL AMOUNT OF LOAN AND THAT NO PRUDENT BUSINESSMAN WOULD CHARGE INTEREST WHEN THE BORROWER WAS IN SOLVENT OR THE LOAN HAD BECOME STICKY ON NON - PERFORMING ASSET. THE ASSESSEE ALSO CONTENDED THAT BORROWED FUNDS HAD NOT BEEN UTILIZED FOR ADVANCING THE LOAN. IT WAS FURTHER CONTENDED BY THE ASSESSEE BEFORE THE AO THAT HYPOTHETICAL INCOME, EVEN IF ACCRUED AS PER MERCANTILE SYSTEM OF ACCOUNTING, COULD NOT BE BROUGHT TO TAX AND THAT SINCE THE LOAN TO THE SUBSIDIARY HAD BECOME IRRECOVERABLE, ANY ACCRUAL OF INTEREST POST 01.01.2009 COULD NOT BE CONSIDERED AS REAL INCOME. HOWEVER, THE AO WAS NOT CONVINCED WITH T HE ABOVE EXPLANATION OF THE ASSESSEE BECAUSE THE SUBSIDIARY COMPANY HAD REFUNDED PART OF THE LOAN AMOUNTING TO RS.1,87,71,100/ - TO THE ASSESSEE DURING THE YEAR AND THE BALANCE AMOUNT RECEIVABLE FROM THE SUBSIDIARY AS ON 31.03.2010 WAS RS.22,96,10,000/ - . TH E AO HELD THAT THERE WAS NO BUSINESS EXPEDIENCY IN NOT CHARGING INTEREST ON THE LOAN ADVANCED TO THE SUBSIDIARY COMPANY. HE WORKED OUT THE INTEREST RECEIVABLE @ 13.5% (RATE AT WHICH THE ASSESSEE HAD RECEIVED INTEREST IN EARLIER YEAR) SHOPPER STOP LTD. ITA NO. 1361 & 3248/MUM/2013 & 6155/MUM/2014 10 AND THUS MADE AN ADDIT ION OF RS.3,22,04,906/ - TO THE INCOME SHOWN BY THE ASSESSEE. 1 7 . AG GRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) HAS FOLLOWED HIS ORDER FOR THE AY 2009 - 10 AND CONFIRMED THE ABOVE ADDITION M ADE BY THE AO. 18. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT THE AOS ASSUMPTION THAT THE FUNDS WERE ADVANCED TO GATEWAY OUT OF BORROWED FUNDS IS INCORRECT. THE ASSESSEE HAD ADVANCED RS. 9 CRORE IN THE AY 2009 - 10. IT HAD SHAREHOLDERS FUND O F RS.297 CRORES AS ON MARCH 2008 AND RS.245 CRORES AS ON MARCH 2009. THE ASSESSEE HAD ALSO EARNED CASH PROFIT OF RS.24 CRORES IN THE AY 2009 - 10. IN THE SAME WAY, THE LD. COUNSEL PRESENTED THE DATA FOR THE AY 2010 - 11. THUS IT IS STATED THAT THE ASSESSEE HA D SUFFICIENT FUNDS, BOTH ACCUMULATED RESERVES AND CASH PROFIT GENERATED DURING THE YEAR TO FUND THE LOAN TO GATEWAY. RELYING ON THE DECISION IN RELIANCE UTILITIES & POWER LTD. (SUPRA), THE LD. COUNSEL SUBMITS THAT NO DISALLOWANCE U/S 36(1)(III) SHOULD HAVE BEEN MADE BY THE AO IN THE ABOVE TWO ASSESSMENT YEARS. 19. PER CONTRA , THE LD. DR SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT IN THE AY 2009 - 10, THE ASSE SSEE - COMPANY HAD NOT CHARGED INTEREST ON INTER - CORPORATE DEPOSIT OF RS.24,86,38,000/ - GIVEN TO ITS SUBSIDIARY FOR A PERIOD OF THREE MONTHS. SHOPPER STOP LTD. ITA NO. 1361 & 3248/MUM/2013 & 6155/MUM/2014 11 WE ALSO FIND THAT THE SHARE CAPITAL AND RESERVES AND SURPLUS (OPENING BALANCE) IN AY 2009 - 10 WAS RS.296.70 CRORES. IN THE AY 2010 - 11, THE AO FOUND THAT THE SUBSIDIARY COMPANY HAD REFUNDED PART OF THE LOAN AMOUNTING TO RS.1,87,71,100/ - AND THE BALANCE AMOUNT RECEIVABLE FROM THE SUBSIDIARY AS ON 31.03.2010 WAS RS.22,96,10,100/ - . HOWEVER, WE FIND THAT THE SHARE CAPITAL A ND RESERVES AND SURPLUS (OPENING BALANCE) IN AY 2010 - 11 WAS RS.244.83 CRORES. WE OBSERVE THAT AS PER SECTION 36(1)(III), THE AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS OR PROFESSION IS ALLOWED AS DEDUCTION. AS PER THE HONBLE SUPREME COURT IN CASE OF MA D HAV PRASAD JATIA V. CIT (1979) 118 ITR 200 (SC) , FOR CLAIMING DEDUCTIONS UNDER THIS SUB - CLAUSE, THE BASIC REQUIREMENTS ARE: (A) THE MONEY I.E. (CAPITAL) MUST HAVE BEEN BORROWED BY THE ASSESSEE; (B) IT MUST HAVE BEEN BORROWED BY THE ASSESSEE FOR HIS BUSINESS, PROFESSION OR VOCATION; AND (C) THE ASSESSEE MUST HAVE PAID INTEREST ON THE AMOUNT AND CLAIMED IT AS AN ALLOWANCE. 20.1 IN THE CASE OF RELIANCE UTILITIES & POWER LTD . (SUPRA), THE HONBLE BOMB AY HIGH COURT HELD: 10. IF THERE BE INTEREST - FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST - FREE FUNDS AVAILABLE. I N OUR OPINION THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD. (SUPRA) HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. (SUPRA) WHERE A SIMILAR ISSUE HAD SHOPPER STOP LTD. ITA NO. 1361 & 3248/MUM/2013 & 6155/MUM/2014 12 ARISEN. BEFORE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THES E CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSIDERABLE FORCE, BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTE D THAT IN WOOLCOMBERS CASE (SUPRA) THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITED IN THE OVERDRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD B E PRESUMED THAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE THE HIGH COURT. THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST - FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST - FREE FUND GENERATED OR AVAILABLE WITH THE C OMPANY, IF THE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE CIT(A) AND TRIBUNAL . 20.2 IN EXCEL INDUSTRIES LTD. 358 ITR 295 (SC) , IT HAS BEEN HELD THAT TO RECOGNIZE INCOME, IT HAS TO PASS THROUGH THREE TESTS, NAMELY, (A) WHETHER THE INCOME ACCRUED TO THE ASSESSEE IS REAL OR HYPOTHETICAL; (B) WHETHER THERE IS A CORRESPONDING LIABILITY OF THE OTHER PARTY TO PAY THE AMOUNT; AND (C) PROBABILITY OR IMPROBABIL ITY OF REALIZATION TO BE CONSIDERED FROM A REALISTIC AND PRACTICAL POINT OF VIEW. WE OBSERVE THAT GATEWAY HAS NEITHER PROVIDED FOR INTEREST IN ITS BOOKS OF ACCOUNTS NOR PAID ANY INTEREST TILL DATE. THE OTHER CONDITION OF SHOPPER STOP LTD. ITA NO. 1361 & 3248/MUM/2013 & 6155/MUM/2014 13 IMPROBABILITY OF REALIZATION IS A LSO APPLICABLE HERE. WE HOLD THAT THE ADDITION CANNOT BE MADE EVEN U/S 5 OF THE ACT. 20.3 RESPECTFULLY FOLLOWING THE ABOVE DECISION S , WE DELETE THE ADDITION OF RS.83,91,532/ - MADE BY THE AO IN AY 2009 - 10 AND RS.3,22,04,90 6/ - IN AY 2010 - 11. 21. IN THE RESULT, APPEALS FILED BY THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27/12/2017. SD/ - SD/ - (D.T. GARASIA) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 27/12/2017 RAHUL SHARMA, SR. P.S. 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