DCIT 5(1)(2), MUMBAI V. ETHL GLOBAL CAPITAL LTD, MUMBAI

ITA 185/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9122 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 15-09-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 08-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P R GHOSHDR
• Keywords: Rectification of order; Earning of tax free income; Notional interest
• Section: 143(3); 14A; 147

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -IBENCH MUMBAI , . . , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND C. N. PRASAD,JUDICIAL MEMBER ./I.T.A./185/MUM/2015, /ASSESSMENT YEAR:2008-09 DCIT,5(1)(2), ROOM NO.568, 5TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020 VS. M/S. ETHL GLOBAL CAPITAL LTD. 19, BHULABHAI DESAI ROAD, MAHALAXMI MUMBAI-400028 PAN:AABCE 4907 A ( /ASSESSEE) ( / RESPONDENT) / REVENUE BY: SHRI P.R. GHOSH-DR /ASSESSEE BY: S/SHRI VIJAY MEHTA & ANUJ KISNADWALA / DATE OF HEARING: 16/11/2016 / DATE OF PRONOUNCEMENT:06.01.2017 , / PER RAJENDRA A.M. - CHALLENGING THE ORDERS DATED 21.10.2014 OF THE CIT( A)- 9,MUMBAI,THE ASSESSING OFFICER(AO) HAS FILED PRESENT APPEAL.ASSESSEE-COMPA NY,ENGAGED IN THE BUSINESS OF HOLDING INVESTMENT IN SHARES AND DEBENTURES OF COMPANIES,FI LED ITS RETURN OF INCOME ON 23.09.2008,DISCLOSING TOTAL INCOME AT RS.NIL. ORIGI NAL ASSESSMENT IN THIS CASE WAS COMPLETED U/S 143(3) OF. ACT ON 29.10.2010. THEREAFTER THE CA SE WAS REOPENED U/S 147 OF I.T. ACT AND REASSESSMENT WAS COMPLETED U/S 143(3) R.W.S.147 OF THE ACT ON 28/03/2013 ,DETERMINING ITS TOTAL INCOME AT RS.4,26,49,193/-. 2.FIRST GROUND OF APPEAL IS ABOUT DELETING THE ADDI TION MADE BY THE AO UNDER THE HEAD NOTIONAL INTEREST,AMOUNTING TO RS.7.48 CRORES.IN TH IS CASE THE AO RECEIVED, INFORMATION FROM THE OFFICE OF THE DGIT(INV.)THAT THE CENTRAL AGENCI ES, INVESTIGATING THE CASES PERTAINING TO 2G ALLOCATION,HAVE SUGGESTED THAT THE FINANCIAL TRANSA CTIONS OF THE ASSESSEE HAVE TO BE LOOKED INTO FOR TAX IMPLICATION AS IT WAS ALSO FIGURED IN THE 2G SPECTRUM SCAM.WHILE COMPLETING THE RE-ASSESSMENT,THE AO HELD THAT THE ASSESSEE HAD PAI D RS.175 CRORES TO LOOP TELECOM LTD. ON 01.01.2008 TO ENABLE THE LATTER FOR LICENSE FEES O F UASL . THE ASSESSEE STATED THAT THIS SUM WAS ADVANCED TO LTL TOWARDS SHARE APPLICATION MONEY .THE AO ALSO OBSERVED THAT ON THE SAME DATE, ESSAR TELECOM INFRASTRUCTURE P. LTD. HAS ALSO ADVANCED MONEY TO LTL FOR ACQUISITION UASL LICENSE.FROM THE PERUSAL OF THE RE CORDS AND INFORMATION RECEIVED U/S.133(3) OF THE ACT,THE AO HELD THAT THE SOURCE OF THE FUND OF RS.175 CRORES HAD COME FROM ESSAR INVESTMENT LTD. ON 10.01.2008, THAT THE MONEY WAS REFUNDED ON THE SAME TO ESSAR INVESTMENT LTD.,AFTER THE ASSESSEE HAD RECEIVED THE REFUND, THAT THE REAL INTENTION OF THE 185/M/15-ETHL GLOBAL 2 ASSESSEE WAS NOT SHARE SUBSCRIPTION IN LTL BUT TO A DVANCE THE FUNDS AS LOAN TO ENABLE THE LATTER TO MOBILIZE RESOURCES FOR ACQUISITION OF US AL LINCESE FROM DOT.HE HELD THAT THE ADVANCE OF RS.175 CRORES WAS A LOAN GIVEN BY THE AS SESSEE. APPLYING THE PRINCIPLE OF DECISION OF APEX COURT IN THE CASE OF M/S. MC DOWELL(154 I TR 148),THE AO HELD THAT ON THE SAID LOAN NOTIONAL INTEREST @20% FOR 77 DAYS HAS TO BE TAXED AT RS.7,48,61,111/-. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA)AND MADE ELABORATE SUBMISSI ONS.AFTER CONSIDERING THE AVAILABLE MATERIAL,HE HELD THAT AS PER THE PROVISIONS OF ACT ONLY THE INCOME ACCRUED OR RECEIVED COULD BE TAXED,THAT AN ASSESSEE COULD NOT BE COMPELLED T O EARN A PARTICULAR INCOME IN A PARTICULAR WAY,THAT IN THE BUSINESS ADVANCING INTEREST FREE LO ANS WAS A COMMON PRACTICE,THAT IF SOMEONE WAS ADVANCING INTEREST FREE LOAN OUT OF ITS OWN FUN DS OR OUT OF NON INTEREST BEARING BORROWED FUNDS TO ANYBODY, THE AO CANNOT TAX NOTIONAL INCOME OF INTEREST UNLESS THERE WAS ANY PROOF OF UNDERHAND PAYMENTS OF INTEREST BY THE SAID PERS ON,THAT IN THE INSTANT CASE THERE WAS NO PROOF THAT THE INTEREST BEARING BORROWED CAPITAL WA S DIVERTED FOR NON INTEREST BEARING LOANS, THAT THE ADDITION MADE BY THE AO ON ACCOUNT OF NOTI ONAL INTEREST WAS NOT SUSTAINABLE. 4. BEFORE US,THE DEPARTMENTAL REPRESNETATIVE(DR)SUPPOR TED THE ORDER OF THE AO.THE AUTHORISED REPRESENTATIVE(AR)SUPPORTED THE ORDER OF THE FAA AND RELIED UPON THE CASES OF HIGHWAY CONSTRUCTION CO.P.LTD.(199 ITR 702),B AND A PLANTATIONS AND INDUSTRIES LTD.( 242 ITR 22). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD ADVANCED LOAN FROM ITS INTEREST FREE F UNDS AND HAD NOT CHARGED ANY INTEREST,THAT THE AO HAD TAXED NOTIONAL INTEREST IN THE HANDS OF THE ASSESSEE WITHOUT BRINGING ANY EVIDENCE OF CHARGING OF INTEREST BY THE ASSESSEE.HE HAS ALSO NOT EXPLAINED AS TO HOW THE INTEREST INCOME ACCRUED TO THE ASSESSEE.IN THE NORMAL COURSE OF ITS BUSINESS TRANSACTION THE ASSESSEE HAD ADVANCED LOAN AND HAD NOT CHARGED ANY INTEREST. CHARGING OR NOT CHARGING OF INTEREST IS A DISCRETION OF AN ASSESSEE-ESPECIALLY WHEN THE ADVAN CE IS MADE OUT OF INTEREST FREE FUNDS. WE ARE OF THE OPINION,THAT THE ORDER OF THE FAA DOES N OT SUFFER FROM ANY LEGAL INFIRMITY.SO, CONFIRMING THE SAME WE DISMISS GROUND NO.1,RAISED B Y THE AO. 6. SECOND GROUND OF APPEAL IS ABOUT DISALLOWANCE MADE U/S.14 A OF THE ACT.DURING THE ASSESSMENT PROCEEDING,THE AO FOUND THAT THE ASSESSE E HAS SHOWN INVESTMENTS IN THE BALANCE 185/M/15-ETHL GLOBAL 3 SHEET.HE ASKED IT AS TO WHY DISALLOWANCE U/S.14A OF R.W.RULE 8D SHOULD NOT BE MADE.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,THE AO WORKED OUT THE DISALLOWANCE OF RS.7.20 CRORES AND ADDED TO THE TOTAL INCOME OF THE ASSESS EE.IT IS, HOWEVER, NOTED THAT THERE WAS A MISTAKE IN THE WORKING OF THE ASSESSING OFFICER,AS THE DISALLOWANCE WAS MADE 5% INSTEAD OF PRESCRIBED RATE OF 0.5% UNDER RULE 8D OF THE RULES .ACCORDINGLY BY A RECTIFICATION ORDER SAME WAS REDUCED TO RS.72 LACS. 7.DECIDING THE APPEAL,FILED BY THE ASSESSE,THE FAA HELD THAT IN THE COMPUTATION OF INCOME NO EXPENDITURE,EXCEPT AN AMOUNT OF RS.L,212/- WAS CLAI MED DEDUCTIBLE BY IT,THAT A PLAIN READING OF THE PROVISIONS OF SECTION 14A MADE IT APPARENT T HAT UNDER THIS SECTION DISALLOWANCE COULD BE MADE WHEN THE ASSESSEE WOULD CLAIM DEDUCTION OF EXPENDITURE,THAT IF AN ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE THEN THERE WAS NO SCOPE OF DISALLOWANCE,THAT THE DISALLOWANCE COULD NOT EXCEED THE EXPENDITURE CLAIMED BY ASSESSEE. ACC ORDINGLY, HE DIRECTED THE AO TO RESTRICTED THE DISALLOWANCE TO RS.L,212/- ONLY. 8. BEFORE US,THE DR STATED THAT MATTER COULD BE DECID ED ON MERITS.THE AR CONTENDED THAT THE ASSESSEE HAD INCURRED EXPENDITURE OF RS.1,212/- ONL Y. WE HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD.WE FIND THAT THE FAA HAD DISALLOWED THE EXPENDITURE THAT WAS CLAIMED AGAINST THE EXEMPT INC OME.THE BASIC CONCEPT FOR DISALLOWANCE U/S.14A OF THE ACT R.W.R.8D OF THE RULES IS TO DEPR IVE THE ASSESSEE OF DOUBLE BENEFIT I.E. CLAIMING DEDUCTION AGAINST TAX FREE INCOME.IN THE C ASE UNDER CONSIDERATION THE FAA HAS RESTRICTED THE DISALLOWANCE TO THE EXTENT IT WAS CL AIMED AGAINST THE EXEMPT INCOME.IN OUR OPINION THERE IS NO NEED TO INTERFERE WITH HIS ORDE R.SO,CONFIRMING THE SAME SECOND GROUND IS DECIDED AGAINST THE AO. AS A RESULT, APPEAL FIL ED BY THE AO STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 06 TH JANUARY, 2017. 06 , 2017 SD/- SD/- ( !'#$ / AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 06 .01.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / 2. RESPONDENT / 185/M/15-ETHL GLOBAL 4 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.