ACIT 10(2)(1), MUMBAI V. LAQSHYA MEDIA P.LTD, MUMBAI

ITA 1774/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0990 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2011-2012
• Appeal Filed On: 23-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAURABH DESHPANDEDR
• Assessee Lawyers: RAJAN VORA HEMEN CHANDARIYA
• Keywords: Transfer pricing; Business expenditure; International transaction; Commercial expediency
• Section: 92B; 234B; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUM BAI , , BEFORE S/SHRI RAJENDRA, A.M. AND AMARJIT SINGH, J.M . ./ITA NOS. 1774 /MUM/2016, /ASSESSMENT YEAR: 2011-12 M/S.LAQSHYA MEDIA PVT. LTD, LAQSHYA HOUSE, NEXT TO RAMESHWAR TEMPLE, SARASWATI BAUG, SOCIETY ROAD, JOGESHWARI (E), MUMBAI 400 060. PAN: AAACL5004C VS. A.C.I.T - 10(2)(1), R.NO.216-A, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI 400 020. ( /APPELLANT ) ( / RESPONDENT ) ./ITA NO. 1820/MUM/2016, /ASSESSMENT YEAR: 2011-12 A.C.I.T - 10(2)(1), MUMBAI 400 020. VS. M/S.LAQSHYA MEDIA PVT. LTD, MUMBAI 400 060. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY : SHRI SAURABH DESHPANDE-DR ASSESSEE BY : SHRI RAJAN VORA, HEMEN CHANDARIYA / DATE OF HEARING: 26/10/2017 / DATE OF PRONOUNCEMENT: /01/2018 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , -PER RAJENDRA,AM: CHALLENGING THE DIRECTIONS OF THE DRP,DATED 15/12/2 015, THE ASSESSING OFFICER(AO)HAS FILED AN APPEAL FOR THE YEAR UNDER CONSIDERATION.THE ASSESSE E HAS FILED APPEAL AGAINST THE ORDER OF THE AO, DATED 21/01/2016, PASSED IN PURSUANCE OF THE DIRECT IONS OF THE DRP.WE ARE ADJUDICATING BOTH THE APPEALS TOGETHER.ASSESSEE-COMPANY IS ENGAGED IN PRO VIDING OUTDOOR MEDIA ADVERTISING SERVICES. IT FILED ITS RETURN OF INCOME,ON 30/09/2011, DECLAR ING LOSS OF RS.10.98 CRORES. THE AO COMPLETED THE ASSESSMENT U/S.143(3) R.W.S144C(13)OF THE ACT,D ETERMINING THE INCOME OF THE ASSESSEE AT RS . (-)6.34 CRORES. 2. FIRST GROUND OF APPEAL IS ABOUT ADDITION OF RS.75.9 7 LAKHS UNDER THE HEAD CORPORATE GUARANTEE (CG)TO ITS ASSOCIATED ENTERPRISES (AE).DURING THE A SSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD ENTERED INTO FOLLOWING INTERNATIONAL T RANSACTION (IT.S) WITH ITS AE.S. NATURE OF TRANSACTIONS DETAILS OF AE AMOUNT (RS.) M ETHOD LOANS LAQSHYA MEDIA INTERNATIONAL, MAURITIUS LOANS GRANTED DURING THE YEAR RS.4,78,47,714/- CUP LOANS GRANTED IN EARLIER YEARS RS.85,99,87,807/- CUP CORPORATE GUARANTEE LAQSHYA MEDIA INTERNATIONAL, MAURITIUS RS.62,88,30,000/- NIL. ITA NOS.1800 & 1774 OF 2016, M/S.LAQSHYA MEDIA PVT . LTD. 2 2.1. TO DETERMINE ARMS LENGTH PRICE (ALP)OF THE TRANSACT IONS,HE MADE A REFERENCE TO THE TRANSFER PRICING OFFICER(TPO).DURING THE TRANSFER PRICING (T P) PROCEEDINGS,THE TPO FOUND THAT THE ASSESSEE HAD GIVEN CG TO ITS AE NAMELY LAQHYA MEDIA INTERNATIONAL-MAURITIUS(LMI)WHICH HAD IN TERM ISSUED A CG TO HSBC BANK MIDDLE EAST LTD, D UBAI OF AED 33 MILLIONS AND TO NATIONAL BANK DUBAI FOR AED 20 MILLION FOR DUE REPAYMENT OF TERM LOAN AVAILED BY RIGHT ANGLE MEDIA FZ LLC (RAM FZ)A STEPPED-DOWN-SUBSIDY OF THE ASSESS EE, THAT CG PROVIDED BY THE ASSESSEE TO LMI WAS REDUCED TO 51 MILLION VIDE AMENDMENT TO DEE D OF GUARANTEE, DATED 04/01/ 2010,THAT CG WAS SUBSEQUENTLY ADJUSTED WITH NATIONAL BANK DUBAI FOR AED 18 MILLION,THAT THE TOTAL CG OUTSTANDING IN THE BOOKS WAS RS.62.88 CRORES,THE AS SESSEE HAS NOT CHARGED ANY GUARANTEE FEE. THE TPO DIRECTED IT TO EXPLAIN AS TO WHY CG FEE SHO ULD NOT BE CALCULATED FOR THE TP PURPOSES. HE ALSO CALLED FOR VARIOUS DETAILS FROM THE ASSESSE E IN THAT REGARD.AFTER CONSIDERING THE SAME AND THE CASE LAWS RELIED UPON BY IT,THE TPO HELD THAT C G WAS AN INTERNATIONAL TRANSACTION,THAT THE NATURE OF GUARANTEE WAS FINANCIAL GUARANTEE AND SAM E WAS EXPLICIT IN NATURE,THAT THE GUARANTEE WAS PROVIDED TO AE TO GIVE IN TURN GUARANTEE TO THE LENDER BANK OF STEP-DOWN-OVERSEAS-SUBSI - DIARY TO BORROW FUNDS, THAT THE STEP-DOWN-SUBSIDIAR Y COULD GET A LOAN FACILITY FROM THE BANK THAT THE GUARANTEE CONFERRED A BENEFIT IN FORM OF REDUCE D INTEREST RATE, THAT THE AE.S CREDIT RATING EQUAL THE RATING OF THE PARENT ENTITY.APPLYING THE YIELD METHOD FOR BENCHMARKING THE IT.S AND ADOPTING THE VALUES FROM DEBT EQUITY RATIO,HE DETER MINED THE % OF THE CG FEE AS UNDER : PARTICULARS INDIAN CORP BOND RATES CREDIT RATING OF GUARANTOR (I.E. THE ASSESSEE) AS D ISCUSSED ABOVE AAA YIELD OR INTEREST RATE FOR 5 YEAR UNSECURED BOND 8.63% CREDIT RATING OF AES (AS DISCUSSED ABOVE) BBB- YIELD OR INTEREST RATE FOR 5 YEAR UNSECURED BOND 11 .91% BENEFIT TO AE ON ACCOUNT OF GUARANTEE GIVEN BY THE ASSESSEE 3.28% HE ALSO CALLED FOR INFORMATION FROM VARIOUS BANKS A ND HELD THAT THE RATES FOR FINANCIAL GUARANTEE CHARGED BY THE BANKS VARIED BETWEEN 2-3%,THAT IT HA D GIVEN EXPLICIT FINANCIAL GUARANTEE TO ITS AE WHICH WERE BASED IN MAURITIUS, THAT THE AE.S WERE N EWLY FORMED ENTITIES,THAT THEY HAD VERY LOW CREDIT RATING WITH UNPROVEN TRACK RECORD,THAT THE A SSESSEE HAD NOT BENCHMARKED THE IT.S. FINALLY, HE HELD THAT IT WOULD BE APPROPRIATE TO CHARGE GUAR ANTEE FEE @ 2.75%.AN UPWARD ADJUSTMENT OF RS.1.72 CRORES ,UNDER THE HEAD CG FEE WAS SUGGEST ED AND IT READ AS UNDER: AMOUNT OF GUARANTEE IN AED AMOUNT OF GUARANTEE NO OF DAYS RATE OF GUARANTEE FEE AMOUNT OF CG FEE 53,000,000 RS.62,88,30,000 365 2.75% RS.1,72,92,825 ARMS LENGTH GUARANTEE FEE (RS) RS.1,72,92,825 ACCORDINGLY,THE AO ISSUED A DRAFT ASSESSMENT ORDER TO THE ASSESSEE. ITA NOS.1800 & 1774 OF 2016, M/S.LAQSHYA MEDIA PVT . LTD. 3 2.2. AGGRIEVED BY THE ORDER OF THE TPO/AO,THE ASSESSEE F ILED OBJECTIONS BEFORE THE DRP AND MADE ELABORATE SUBMISSIONS.IT RELIED UPON VARIOUS C ASE LAWS.WITHOUT PREJUDICEIT ALSO SUBMITTED THAT THE ALP OF THE CG FEE SHOULD BE RESTRICTED TO 0.5%. AFTER CONSIDERING THE AVAILABLE MATERIAL,THE DRP HELD THAT CG PROVIDED A BENEFIT TO THE AE,THAT GUARANTEE FEE HAD TO BE CHARGED FROM THE AE,THAT AS PER AMENDED PROVISION OF SECTIO N 92B(1)EXPLANATION(C) GUARANTEE OF ANY TYPE CONSTITUTED AN IT.THE DRP REFERRED TO THE CASE MAHINDRA AND MAHINDRA LTD., (40 TAXMANN.COM 522) AND OBSERVED THAT THE TPO HAD ADOP TED 4.66% AS ARMS LENGTH CG RATE, THAT THE TRIBUNAL HAD ACCEPTED THE CONTENTION OF THE TAX PAYER THAT CG SHOULD BE TAKEN AT 3%. IT ALSO REFERRED TO THE CASE OF TECNIMONT ICB PRIVATE LIMIT ED(TS-251-ITAT-2013(MUM)-TP)WHEREIN GC@3% WAS UPHELD UPHELD.FINALLY, THE DRP HELD THAT GC FEES @1.75%,IN RESPECT OF UNSECURED FINANCIAL GUARANTEES,ISSUED BY THE ASSESSEE,WOULD B E APPROPRIATE TO BENCHMARK THE IT.S.IT DIRECTED THE AO TO MODIFY THE AMOUNT ACCORDINGLY. 2.3. DURING THE COURSE OF HEARING BEFORE US,THE AUTHORIS ED REPRESENTATIVE (AR) STATED THAT THE IDENTICAL ISSUE WAS DELIBERATED UPON AND DECIDED BY THE TRIBUNAL ON 04/01/2017(ITA/500/ MUM/2015-A.Y 2010-11).THE DR CONTENDED THAT FACTS O F THE EVEREST KANTO RELIED UPON BY THE ITAT WERE NOT SIMILAR TO THE FACTS OF THE CASE, THA T THERE WAS NO INTERNAL BENCH- MARKING, THAT CG WAS FROZEN AT 0.5% WITHOUT ANY BASIS. HE RELIED UPO N THE CASE OF MAHINDRA & MAHINDRA LTD., FOR THE A.Y. 2007-08 (ITA/7999/MUM/2011, DATED 08/06/20 12) WHEREIN 3% CG WAS CONSIDERED AT ARMS LENGTH.IN THE REJOINDER, THE AR STATED THAT C ASE OF MAHINDRA & MAHINDRA WAS DECIDED IN 2012, THAT IN THE SUBSEQUENT YEAR IT WAS CONSIDERED (ITA/269/M/2014,DATED 15/03/2017)AND CG FEE @ 0.5% WAS TAKEN.THE AR ALSO RELIED UPON CASE O F EVEREST KANTO CYLINDERS LIMITED WHICH WAS APPROVED BY THE HONBLE BOMBAY HIGH COURT IN I. T. APPEAL NO.1165 OF 2013,DATED 08/05/2015 AND GLENMARK PHARMACEUTICALS(62SOT79)WHI CH WAS APPROVED BY THE HONBLE JURISDICTION HIGH COURT IN IT APPEAL 1302 OF 2014 V IDE ORDER DATED 02/02/2017. 2.4. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL BEFORE US.WE FIND THE TRIBUNAL WHILE DECIDING THE APPEAL FOR THE EARLIER YEAR (SUP RA) AS HELD AS UNDER : 4.1 THE ASSESSEE GAVE CORPORATE GUARANTEE OF AED 53 MILLION TO ITS MAURITIUS AE NAMELY LAQSHYA MEDIA INTERNATIONAL (MAURITIUS) [LMI] WHO IN TURN GAVE GUARANTEE TO HSBC BANK MIDDLE EAST LTD., DUBAI FOR AED 33 MILLION AND TO N ATIONAL BANK OF DUBAI, DUBAI FOR AED20 MILLION FOR DUE REPAYMENT OF TERM LOAN AVAILED BY RIGHT ANGEL MEDIA FZ, LLC, A STEP DOWN SUBSIDIARY OF THE ASSESSEE COMPANY. THE CORPORATE G UARANTEE WAS REDUCED TO 51 MILLION VIDE AMENDMENT TO DEED OF GUARANTEE DATED 04/01/2010 AND THUS, TOTAL CORPORATE GUARANTEE REMAINING ITA NOS.1800 & 1774 OF 2016, M/S.LAQSHYA MEDIA PVT . LTD. 4 OUTSTANDING STOOD AT INR 62.475 CRORES. THE TRANSAC TION WAS REFERRED TO TPO TO SUGGEST SUITABLE ADJUSTMENT. BEFORE TPO, THE ASSESSEE CONTENDED THAT CORPORATE GUARANTEE [CG] WAS NOT AN INTERNATIONAL TRANSACTION AND HENCE NO BENCHMARKING THEREOF HAS BEEN DONE BY THE ASSESSEE BUT THE SAME GOT REJECTED BY TPO BY NOTICING AMENDMENT MADE BY FINANCE ACT, 2012 WHICH HAS SPECIFICALLY TAKEN CORPORATE GUARANTEE IN THE AMB IT OF DEFINITION OF INTERNATIONAL TRANSACTION W.E.F. 01/04/2002. ON MERITS, IT WAS CONTENDED THAT CREDIT RATING OF BOTH GUARANTOR AND GUARANTEE WAS THE SAME I.E. CARE BB+ (IS). HOWEVER, TPO AFTER ANALYZING THE FINANCIALS AND RISK PROFILES OF THE BOTH COMPANIES WAS NOT CONVINCED WITH THE EX PLANATION OF ASSESSEE AND REJECTED THE SAME. THEREAFTER, TPO PROCEEDED TO COMPUTE THE ALP BY ADO PTING EXTERNAL CUP METHOD ON THE BASIS OF YIELD APPROACH ON UNSECURED BONDS CORRESPONDIN G TO CREDIT RATING OF TWO ENTITIES AFTER CONSIDERING FOLLOWING JUDGMENTS OF FOREIGN COURTS:- I. GENERAL ELECTRIC CAPITAL CANADA INC. V. THE QUEE N (TAX COURT OF CANADA 2009 TCC 563) II. CONTAINER CORPORATION VS. COMMISSIONER (TAX COU RT OF USA 134 TC NO. 5 2010) TPO ADOPTED 5 YEARS ANNUALIZED AVERAGE YIELD DATA O BTAINED FROM CRISIL. THE TPO ASSIGNED RATING OF CARE BB+ TO ASSESSEE COMPANY AND CARE B+ TO ITS AE I.E. ONE NOTCH BELOW THE ASSESSEE. AFTER MAKING SUITABLE ADJUSTMENTS FOR THESE RATINGS, TPO ARRIVED AT TP ADJUSTMENT OF 2.74% WHICH CAME TO RS.1,71,18,150/- AND FOLLOWI NG THE SAME, DCIT PASSED DRAFT ASSESSMENT ORDER. THE ASSESSEE ASSAILED BENCHMARKING BY TPO BE FORE DRP AND RAISED VARIOUS CONTENTIONS IN HIS SUPPORT BUT REJECTING THE SAME, DRP AFFIRMED THE STAND OF TPO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4.2 THE INITIAL CONTENTION OF THE LD. SENIOR COUNSE L FOR ASSESSEE [AR], SH. RAJAN VORA WAS THAT THE SAID TRANSACTION WAS NOT AN INTERNATIO NAL TRANSACTION BUT FAIRLY CONCEDED THAT IN VIEW OF AMENDMENT IN SECTION 92B AND JURISDICTIONAL BOMBAY HIGH COURT JUDGMENT IN CIT VS. EVEREST KENTO CYLINDERS LTD. 378 ITR 57, THE SAID T RANSACTION CONSTITUTES INTERNATIONAL TRANSACTION. ON MERIT, IS WAS STATED THAT THE CG HA S BEEN PROVIDED TO ITS AE UNDER OVERALL FINANCING STRUCTURING ARRANGEMENT WHERE OVER AND AB OVE THE SHARE CAPITAL INVESTED, FUNDS WERE PROVIDED AND CG WAS ALSO GIVEN. MOREOVER, THE ASSES SEE WAS NOT IN THE BUSINESS OF FINANCING / GIVING GUARANTEES AND THE SAME HAS BEEN GIVEN SOLEL Y FOR ITS OWN BENEFIT TO PROTECT ITS GOODWILL, REPUTATION AND EXPAND ITS BUSINESS OPERATIONS ABROA D AND TO SAFEGUARD ITS ECONOMIC AND STRATEGIC BUSINESS RELATIONSHIP WITH ITS AE. HENCE, CG WITHOUT CHARGING COMMISSION WAS AT ARMS LENGTH CONSIDERING OVERALL FINANCING ARRANGEM ENT. FURTHER, THE CREDIT RATING OF BOTH THE ENTITIES WAS SIMILAR AND HENCE, NO ADJUSTMENT WAS C ALLED FOR IN THESE CIRCUMSTANCES. MOREOVER, THE BENCHMARKING DONE BY TPO WAS ERRONEOUS BY TAKIN G 5 YEARS AVERAGE ANNUALIZED YIELD WHEREAS THE GUARANTEE GIVEN BY ASSESSEE WAS FOR A S HORTER PERIOD OF LESS THAN 4 YEARS. IN NUMBER OF JUDGMENTS, THE RATE RANGING FROM 0.20% TO 0.50% HAS BEEN FOUND TO BE ACCEPTABLE BY JUDICIAL AUTHORITIES AT VARIOUS LEVELS AND THEREFORE, THE SA ME SHOULD BE APPLIED AND THAT TOO ON THE AMOUNT OF ACTUAL LOAN AVAILED BY THE AE. PER CONTRA, LD. D R SUPPORTED THE TP ADJUSTMENT ON THE GROUND THAT AE STANDS BENEFITTED BY OBTAINING THE GUARANTE E AND HAD RATING OF BOTH THE COMPANIES BEEN SIMILAR, THERE WOULD HAVE BEEN NO REQUIREMENT TO GI VE THE SAID CG. 4.3 WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED MAT ERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT THE ASSESSEE COMPANY PROPOSED TO CHAR GE 0.5% GUARANTEE FEES FROM ITS AE BUT WAIVED IT SUBSEQUENTLY ON ACCOUNT OF POOR FINANCIAL HEALTH OF THE AE. FURTHER, THE ASSESSEES CONTENTION IS THAT BOTH ENTITIES ENJOYED SIMILAR RA TINGS AND HENCE NO TP ADJUSTMENT THEREOF IS CALLED FOR, WITH WHICH WE ARE NOT CONVINCED AS HAD THAT BEEN THE POSITION, THERE WOULD HAVE BEEN NO REQUIREMENT TO PROVIDE THE SAID GUARANTEE. THE A SSESSEE CONSIDERING THE SAME TO BE A BENEFIT TO ITS AE, HAD PROPOSED TO CHARGE GUARANTEE FEES OF 0.5%. HONBLE BOMBAY HIGH COURT IN CIT VS. EVEREST KENTO CYLINDERS LTD. (SUPRA) HAS AFFIRM ED GUARANTEE ADJUSTMENT OF 0.50% AS UPHELD BY THE TRIBUNAL. IN VARIOUS OTHER JUDICIAL PRONOUNC EMENTS, CG HAS BEEN BENCHMARKED IN THE RANGE OF 0.20% TO 0.50%. THEREFORE, KEEPING IN MIND THE OVERALL FACTS AND CIRCUMSTANCES OF THE ITA NOS.1800 & 1774 OF 2016, M/S.LAQSHYA MEDIA PVT . LTD. 5 CASE,WE RESTRICT TP ADJUSTMENT AGAINST BANK GUARANT EE TO 0.50% ON CG GIVEN BY THE ASSESSEE. FURTHER, WE ARE OF THE CONSIDERED OPINION THAT CG S TOOD IN FORCE AT ALL TIME AND THE ASSESSEE WAS CONTINGENTLY LIABLE FOR THE GROSS AMOUNT OF CG PROV IDED TO ITS AE NOTWITHSTANDING THE AMOUNT OF ACTUAL LOAN AVAILED BY THE AE AND FURTHER, AE, AT A LL TIMES, GOT INSULATED TO THE EXTENT OF GUARANTEE PROVIDED BY THE ASSESSEE AND THEREFORE, T HE ADJUSTMENT HAS TO BE CALCULATED ON GROSS VALUE OF CG PROVIDED BY THE ASSESSEE. WE DIRECT SO. THIS GROUND IS PARTLY ALLOWED. RESPECTFULLY,FOLLOWING THE ABOVE AND CONSIDERING TH E JUDGMENTS OF BOMBAY HIGH COURT IN THE CASES OF EVEREST KANTO AND GLEN PHARMACEUTICAL (SUP RA),WE HOLD THAT CG FEE SHOULD BE RESTRICTED TO 0.50% ON CG GIVEN BY THE ASSESSEE.FIR ST GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE,IN PART. 3 .SECOND GROUND OF APPEAL IS ABOUT DISALLOWANCE OF I NTEREST U/S.36(1)(III) OF THE ACT, AMOUNTING TO RS.2.36 CRORES.IT WAS BROUGHT TO OUR NOTICE THAT IDENTICAL ISSUE WAS DEALT BY THE TRIBUNAL WHILE DECIDING THE APPEAL FOR AY.2010-11(SUPRA).WE ARE RE PRODUCING THE RELEVANT PORTION OF THE ORDER: 5.1 GROUND NOS. 14 TO 16 ASSAILS INTEREST DISALLOWA NCE U/S 36(1)(III) FOR RS.492.15 LACS. DCIT NOTED THAT THE ASSESSEE CLAIMED INTEREST EXPENDITUR E OF RS.690.95 LACS U/S 36(1)(III) WHEREAS IT HAS ADVANCED CERTAIN INTEREST FREE LOANS TO ITS SUB SIDIARY COMPANIES, THE DETAILS OF WHICH ARE AS FOLLOWS:- NO. NAME OF THE CONCERN BALANCE AS ON 31/03/2010 (RS. IN LACS) 1. LAQSHYA DIGITAL MEDIA PVT. LTD. 6201.84 2. LAQSHYA OOH MEDIA PVT. LTD 21.07 3. LAQSHYA HYDERABAD AIRPORT MEDIA PVT LTD. 3979.36 TOTAL 10202.27 LACS DCIT FURTHER NOTED THAT SECURED LOANS AND UNSECURED LOANS STOOD AT RS.6423.22 LACS ON WHICH INTEREST EXPENDITURE OF RS.690.95 LACS HAS BEEN CLA IMED IN THE PROFIT & LOSS ACCOUNT AND SINCE INTEREST BEARING FUNDS WERE USED TO MAKE INTEREST F REE LOANS, THE SAME CALLED FOR FULL DISALLOWANCE U/S 36(1)(III). BEFORE DRP, ASSESSEE CONTENDED THAT THE ASSESSEE AND ITS AE, BEING IN THE SAME LINE OF BUSINESS, THE SAID LOANS ARE OUT OF COMMERC IAL EXPEDIENCY AND BUSINESS INTEREST OF THE ASSESSEE. FURTHER, THESE LOANS WERE QUASI-EQUITY IN NATURE AS OUT OF RS.102.02 CRORES, AN AMOUNT OF RS.69.14 CRORES WAS FINALLY CONVERTED INTO EQUIT Y INVESTMENT IN SUBSIDIARY COMPANIES IN SUBSEQUENT YEAR. FURTHER, THE ASSESSEE CONTENDED TH AT SUFFICIENT INTEREST FREE OWN FUNDS WERE AT THE DISPOSAL OF THE ASSESSEE TO MAKE THESE INTEREST FREE INVESTMENTS. REJECTING THE SAME, DRP ALLOWED PART RELIEF TO THE ASSESSEE QUA INTEREST ON TERM LOANS AMOUNTING TO RS.20.59 CRORES BUT UPHELD THE DISALLOWANCE QUA INTEREST AGAINST WORKIN G CAPITAL LOAN OF RS.42.40 CRORES. FOLLOWING THE SAME, DCIT PROVIDED RELIEF TO THE EXTENT OF RS. 198.80 LACS BEING INTEREST ON TERM LOANS BUT DISALLOWED BALANCE INTEREST COMPONENT OF RS.492.15 LACS. THE SAME HAS BEEN ASSAILED BEFORE US. 5.2 FIRST OF ALL, THE LD. AR DREW OUR ATTENTION TO RECTIFICATION APPLICATION DATED 09/12/2014 FILED BY ASSESSEE U/S 154 AGAINST THE SAID ORDER TO CONTE ND THAT THE DISALLOWANCE HAS WRONGLY BEEN COMPUTED BY DCIT AND THE SAME SHOULD ACTUALLY BE RS .427.57 LACS AS AGAINST RS.492.15 MADE BY DCIT AND THE BREAK-UP OF INTEREST COMPONENT WAS AS FOLLOWS:- NATURE OF INTEREST AMT. (RS. IN LACS) ON FIXED TERM LOANS 248.17 ITA NOS.1800 & 1774 OF 2016, M/S.LAQSHYA MEDIA PVT . LTD. 6 ON WORKING CAPITAL LOANS 427.58 OTHER INTEREST 15.20 TOTAL 690.95 OUR ATTENTION WAS FURTHER DRAWN TO COMPUTATION OF I NCOME FOR IMPUGNED AY WHERE WE FIND THAT OUT OF OTHER INTEREST OF RS.15.20 LACS, ASSESSEE HAD ALREADY MADE SUO-MOTO DISALLOWANCE OF RS.11.23 LACS COMPRISING OF INTEREST ON TDS AND INTEREST PROVISION TO MSME. THE BALANCE AMOUNT MAINLY REPRESENTS INTEREST ON SERVICE TAX. T HIS BEING THE FACTUAL POSITION, WE CONCLUDE THAT AMOUNT OF RS.15.20 LACS HAS WRONGLY BEEN DISAL LOWED BY DCIT. 5.3 FURTHER, DCIT HAS COMPUTED INTEREST OF RS.198.8 0 LACS ON TERM LOAN WHEREAS, AS PER THE ABOVE BREAK-UP THE SAME STOOD AT RS.248.17 LACS GIV ING RISE TO FURTHER DIFFERENCE OF RS.49.37 LACS. AT THIS JUNCTURE, IT WOULD BE PRUDENT TO TAKE UP THE MATTER ON MERITS. 5.4 THE LD. AR HAS CONTENDED THAT ASSESSEE AND ITS AE ARE INTO SAME LINE OF BUSINESS VIZ. DISPLAY / HOARDINGS ADVERTISEMENT. THE SEPARATE SUB SIDIARIES HAVE BEEN FLOATED FOR THE PURPOSE OF BUSINESS EXIGENCIES AND GETTING BUSINESS CONTRACTS AND LICENSES AT VARIOUS PLACES. TO ACHIEVE THE COMMON OBJECTIVE, QUASI-EQUITY HAS BEEN INTRODUCED IN THESE CONCERNS AS A PART OF OVERALL FINANCIAL ARRANGEMENT. A MAJOR PORTION OF T HESE LOANS HAVE BEEN CONVERTED INTO EQUITY IN SUBSEQUENT YEARS. SUBSIDIARIES HAVE CARRIED OUT COM MON BUSINESS AND HAVE NOT MADE ANY FURTHER INVESTMENTS. THESE SUBSIDIARIES ARE ENGAGED IN THE BUSINESS OF PROVIDING OUT OF HOME ADVERTISING SOLUTIONS, THROUGH MEDIA ASSETS ACROSS THE VERTICAL S, BILL BOARDS OR HOARDING AND OTHER MEDIA ASSET LIKE STEEL FURNITURE, TRANSIT MEDIA, AMBIENT MEDIA, DIGITAL MEDIA AND AIRPORT MEDIA ETC. WHICH IS NOTHING BUT EXTENSION OF BUSINESS OF THE A SSESSEE. MOREOVER, THE ASSESSEE HAS SUFFICIENT OWNED FUNDS TO MAKE THESE INVESTMENTS AND A PRESUMP TION HAS TO BE DRAWN THAT INVESTMENT ARE OUT OF OWNED FUNDS AS PER VARIOUS JUDICIAL PRONOUNC EMENTS. ALSO, ON THE PRINCIPLE OF COMMERCIAL EXPEDIENCY THE INTEREST CANNOT BE DISALLOWED AS THE LOANS TO SUBSIDIARIES ARE FOR BUSINESS PURPOSES. FURTHER, DISALLOWANCE AGAINST WORKING CAP ITAL LOAN OF RS. 42.40 CRORES HAS BEEN MADE BUT THE WORKING CAPITAL LOANS WERE MEANT TO CARRY O UT DAY TO DAY OPERATIONS OF THE COMPANY AND AS PER SANCTIONED TERMS, THE SAME COULD NOT BE USED FOR THE PURPOSE OF GRANTING OF LOANS TO SUBSIDIARIES. THUS, THE IMPUGNED LOANS WERE OUT OF OWN FUNDS AND THERE WAS CLEAR NEXUS BETWEEN FUNDS ADVANCED TO SUBSIDIARIES AND FREE FUNDS INTER NALLY GENERATED BY ASSESSEE AND HENCE IMPUGNED ADDITIONS DESERVES TO BE DELETED. RELIANCE HAS BEEN PLACED UPON FOLLOWING JUDICIAL PRONOUNCEMENTS FOR VARIOUS CONTENTIONS:- I. S.A.BUILDERS VS. CIT [SUPREME COURT 288 ITR 1] II. HERO CYCLES PVT. LTD. VS. CIT [SUPREME COURT] [ CIVIL APPEAL NO. 514 OF 2008] III. CIT VS RELIANCE COMMUNICATION INFRASTRUCTURE [ 207 TAXMANN 219 BOMBAY HIGH COURT] IV. CIT VS RELIANCE UTILITIES [313 ITR 340 BOMBAY H IGH COURT] V. CIT VS ASHOK COMMERCIAL ENTERPRISES [BOMBAY HIGH COURT] [ITA-L NO. 2985 OF 2009)] VI. CIT VS. HDFC BANK LTD [BOMBAY HIGH COURT][ITA N O, 330 OF 2012] PER CONTRA, LD. DR JUSTIFIED THE DISALLOWANCES MADE BY LOWER AUTHORITIES ON THE GROUND THAT DEDUCTION THEREOF COULD BE ALLOWED ONLY IF THE FUND S WERE USED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE BUT HERE, T HE FUNDS HAVE BEEN DIVERTED TO SUBSIDIARIES AND THAT TOO WITHOUT CHARGING ANY INTEREST. 5.5 WE HAVE HEARD VARIOUS CONTENTIONS AND PERUSED R ELEVANT MATERIAL INCLUDING CITED CASE LAWS. AFTER ANALYZING THE VARIOUS JUDICIAL PRONOUNC EMENTS, WE FIND STRENGTH IN THE VARIOUS ARGUMENTS OF LD. AR. THE PERUSAL OF NET WORTH STATE MENTS REVEALS THAT AS ON 31/03/2010, THE ASSESSEES CAPITAL STRUCTURE STOOD AS FOLLOWS:- LIABILITIES AMOUNT (RS. IN CRORES) ASSETS AMOUNT (RS. IN CRORES) SHAREHOLDERS FUND 249.00 FIXED ASSETS 27.45 ITA NOS.1800 & 1774 OF 2016, M/S.LAQSHYA MEDIA PVT . LTD. 7 LOAN FUNDS 64.22 INVESTMENTS 12.60 LOANS & ADVANCES 143.23 NET CURRENT ASSETS 4.82 PROFIT & LOSS A/C 125.12 TOTAL 313.22 313.22 IT CAN BE OBSERVED THAT AGAINST SHARE HOLDERS FUND S OF RS.249.00 CRORES, THE LOANS & ADVANCES STOOD AT RS.143.23 CRORES OUT OF WHICH IMP UGNED INTEREST FREE LOANS ARE RS.102.02 CRORES AND HENCE OWNED FUNDS ARE SUFFICIENT TO COVE R THE SAID LOANS. IT IS WELL SETTLED BY CATENA OF JUDGMENTS THAT IN SUCH A SCENARIO, IT IS TO BE PRES UMED THAT THE INVESTMENT MADE IN SUBSIDIARY WERE OUT OF OWN FUNDS AND NOT OUT OF BORROWED FUNDS . HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN CIT VS. HDFC BANK LTD.(SUPRA) HAVE OBSERVED THAT IF ASSESSEES CAPITAL, PROFITS RESERVES AND SURPLUS WERE HIGHER THAN THE INVESTMENT IN TAX FREE SECURITIES THEN IT WOULD HAVE TO BE PRESUMED THAT INVESTMENT MADE BY ASSESSEE WOULD BE OUT OF IN TEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. FURTHER, WE FIND THAT THE ASSESSEE AND ITS SUBSIDIA RIES ARE IN THE SAME LINE OF BUSINESS AND THE SAID LOANS ARE OUT OF COMMERCIAL EXPEDIENCY. THE FU NDS ADVANCED TO SUBSIDIARIES HAVE BEEN USED FOR ITS BUSINESS AND THIS FACT IS NOWHERE DISPUTED BY THE REVENUE. THE HONBLE APEX COURT IN S.A.BUILDERS VS. CIT (SUPRA) HAS CONCLUDED THAT INT EREST ON BORROWED FUNDS CANNOT BE DISALLOWED IF THE ASSESSEE HAS ADVANCED INTEREST FREE LOAN TO A SISTER CONCERN AS A MEASURE OF COMMERCIAL EXPEDIENCY. WHAT IS TO BE SEEN IS BUSINESS PURPOSE AND WHAT THE SISTER CONCERN DID WITH THE MONEY. THE EXPRESSION COMMERCIAL EXPEDIENCY IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FO R THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATI ON, BUT YET IT IS ALLOWABLE AS A BUSINESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMER CIAL EXPEDIENCY. FURTHER, THE EXPRESSION FOR THE PURPOSE OF BUSINESS IS WIDER IN SCOPE THAN THE EXPRESSION FOR THE PURPOSE OF EARNING PROFITS. ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF, THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARMCHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH S REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINES SMAN CAN BE COMPELLED TO MAXIMIZE HIS PROFITS. THE IT AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LOO K THE MATTER FROM THEIR OWN VIEWPOINT BUT THAT OF A PRUDENT BUSINESSMAN. 5.6 KEEPING ALL THESE FACTORS IN MIND AND ON THE FA CTS AND CIRCUMSTANCES OF THE CASE, WE ARE INCLINED TO DELETE IMPUGNED ADDITIONS. THE GROU ND OF ASSESSEES APPEAL SUCCEEDS. RESPECTFULLY,CONSIDERING THE ABOVE,WE DECIDE SECOND GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE,AS THE FACTS FOR THE BOTH THE AY.S ARE IDE NTICAL-THE ONLY DIFFERENCE IS OF AMOUNTS CONTESTED. 4. GROUND NO.3 DEALS WITH AN ADDITION OF RS.6.12 LAKHS IN RESPECT OF AMOUNT REMAINING UNMATCHED IN FORM 26 AS.IN OUR OPINION,THE MATTER N EED FURTHER VERIFICATION.WE DIRECT THE AO TO AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE A SSESSEE AND DECIDE THE ISSUE AFRESH.GROUND NO.3 IS PARTLY ALLOWED. 5. FOURTH GROUND IS ABOUT NO GRANTING TDS CREDIT OF RS .1.95 CRORES.AS PER THE ASSESSEE, THE AO HAD GRANTED CREDIT OF RS.1.94 CRORES ONLY.WE DIRECT THE AO TO MAKE VERIFICATION ABOUT THE CLAIM ITA NOS.1800 & 1774 OF 2016, M/S.LAQSHYA MEDIA PVT . LTD. 8 MADE BY THE ASSESSEE AND GIVE CREDIT ACCORDINGLY.GR OUND NO.4 IS ALSO RESTORED BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION. 6. FIFTH GROUND OF APPEAL DEALS WITH LEVY OF INTEREST U/S 234B OF THE ACT. AS THE LEVY OF INTEREST IS CONSEQUENTIAL, SO WE ARE NOT ADJUDICATING THE SAME. 7 .LAST GROUND OF APPEAL IS ABOUT INITIATION OF PENAL TY U/S.271(1)(C) OF THE ACT. IN OUR OPINION THE ISSUE IS PREMATURE,HENCE,WE DISMISS THE SAME. ITA/1774/MUM/2016: 8. SOLITARY GROUND OF APPEAL,RAISED BY THE AO,IS ABOUT REDUCING THE RATE OF GC FROM 2.75 % TO 1.75%. WHILE DECIDING APPEAL OF THE ASSESSEE WE HAD (PARAGRAPHS 2 TO 2.4) DEALT WITH THE ISSUE. ACCORDINGLY,WE DECIDE THE GROUND AGAINST THE AO AS A RESULT APPEAL FILED BY THE ASSESSEE STANDS PAR TLY ALLOWED AND APPEAL OF THE AO IS DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD JANUARY, 2018. SD/- SD/- / AMARJIT SINGH ) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : .03.01.2018. S.GANGADHARA RAO, SR.PS/JV, SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR K BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.