DCIT-6(1)(1), MUMBAI V. M/S. ESSAR HOUSE PVT LTD., MUMBAI

ITA 1924/MUM/2023

AI Insights

The case involves the Deputy Commissioner of Income Tax (Dy. CIT-6(1)(1)) as the appellant and M/s Essar House Pvt. Ltd. as the respondent. The primary issues in the appeal were the deletion of disallowances made under section 14A read with rule 8D concerning the non-earning of exempt income, and the allowance of interest expenses on sales tax liabilities. The Assessing Officer had initially made these disallowances, which were later deleted by the CIT(A). The Tribunal's decision was based on precedents and the interpretation of relevant sections of the Income-tax Act, particularly focusing on the absence of exempt income and the direct nexus of interest expenses with the income earned from investments in zero coupon bonds.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123456 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 27-08-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 24-05-2023
• Other Referred Cases: GVK Projects and Technical Services Ltd. (2019) 106 Taxmann.com 181 (SC), Oil Industry Development Board (2019) 103 Taxmann.com 326 (SC), Chettinad Logistics P. Ltd. (2018) 95 Taxmann.com 250 (SC), State Bank of Patiala (2018) 99 Taxmann.com 286 (SC), CIT Vs. Shivam Motors P. Ltd (272 GTR 277), CIT Vs. Lakhani Marketing ITA NO: 970/2008 dated 02.04.2014, PCIT Vs. Ballarpur Industries Ltd. ITA: No. 15 of 2016 dated 13.10.2016 (Mumbai High Court), PCIT Vs. M/s ERA Infrastructure (India) Ltd. dated 20.07.2022, K.Raheja Corporate Services P. Ltd. ITA no. 2521 to 2527/Mum/2021 dated 17.06.2022
• Laws Referred To: Income-tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: WAY OF INTEREST FROM ZERO COUPON; WAY OF INTEREST FROM ZERO COUPON BONDS HAD A
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “E” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI SANDEEP SINGH KARHAIL (JUDICIAL MEMBER) ITA No. 1924/MUM/2023 Assessment Year: 2015-16 Dy. CIT-6(1)(1), Room No. 504, 5 th floor, Aayakar Bhavan, M.K. Road, Mumbai-400020. Vs. M/s Essar House Pvt. Ltd., 11, Essar House, K.K. Marg, Mahalaxmi, Mumbai-400034. PAN No. AAACJ 2883 P Appellant Respondent Assessee by : None Revenue by : Mr. Biswanath Das, CIT-DR Date of Hearing : 28/08/2023 Date of pronouncement : 28/08/2023 ORDER PER OM PRAKASH KANT, AM This appeal has been preferred by the Revenue against the order dated 25.03.2023 passed by the Ld. Commissioner of Income- tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2015-16, raising following grounds: 1. "Whether on the facts and circumstances of the case in law, the Ld. CIT(A) has erred in deleting the disallowance made us 14A r.w.r. 8D of the I.T. Act amounting to Rs.2,59,66, 127/- despite the clarification issued vide CBDT Circular No. 5/2014 dt. 11.02.2014 that disallowance u/s 14 has to be made irrespective of the fact whether any exempt income has been earned during the year by the assessee or not?" 2. "Whether on the facts and circumstances of the case in law, the Ld. CIT(A) has erred in deleting the disallowance made u/s 14A r.w.r. 8D of Rs. 2,59,66,127/ 23/2022 (Explanatory notes to the provisions of 2022) dt. 03.11.2022 that disallowance u/s 14A has to be made irrespective of the fact whether any exempt income has been earned during the year by the assessee or not?" 3. "Whether on the facts and circumstances of the case in law, th CIT(A) has erred in deleting the disallowance in respect of interest on sales tax liability of Rs. 1,76,26,00,000/ findings as to how the assessee has incurred the said expenses." 4. "Whether on the facts and circumstance CIT(A) has erred in allowing the expense claimed as interest on sales tax liability when the AO has accepted that the transaction is colorable transaction." 5. "Whether on the facts and circumstances of the case in law, the Ld. CIT(A) has erred in allowing the interest expenses, without appreciating the fact that the interest on sales tax liability has been paid to Essar Oil Ltd. as per the agreement with M/s. and the assessee has no connection to the income earned by Ms. Essar Oil Ltd." 6. "Whether on the facts and circumstances of the case in law, the Ld. CIT(A) has erred in allowing the expenses of the nature of interest on sales tax liability entered in to agreement dated March, 2009 with M/s. Essar Oil Ltd. by way of misrepresentation of facts as Ms. Essar Oil Ltd. was not eligible for the benefit and hence, the agreement itself was void." 2. Briefly stated, facts of the case are that the assessee filed return of income electronically on 29.09.2015 declaring total income at Rs. Nil. The return of income filed by the assessee was selected for scrutiny and statutory notices were issued and complied with. In the assessment completed u/s 143(3) of the Act on 23.11.2017, the Assessing Officer made disallowance u/s 14A of the Act amounting to Rs.225,66,127/ paid on sales tax liabilities amounting to Rs.1,76,26,00,000/ further appeal, the Ld. CIT(A) deleted both the additions. Aggrieved of Rs. 2,59,66,127/- despite the amendment issued vide Circular No. 23/2022 (Explanatory notes to the provisions of the bai Finance Act, 2022) dt. 03.11.2022 that disallowance u/s 14A has to be made irrespective of the fact whether any exempt income has been earned during the year by the assessee or not?" 3. "Whether on the facts and circumstances of the case in law, th CIT(A) has erred in deleting the disallowance in respect of interest on sales tax liability of Rs. 1,76,26,00,000/-without giving any working / findings as to how the assessee has incurred the said expenses." 4. "Whether on the facts and circumstances of the case in law, the Ld. CIT(A) has erred in allowing the expense claimed as interest on sales tax liability when the AO has accepted that the transaction is colorable transaction." 5. "Whether on the facts and circumstances of the case in law, the Ld. CIT(A) has erred in allowing the interest expenses, without appreciating the fact that the interest on sales tax liability has been paid to Essar Oil Ltd. as per the agreement with M/s. Essar Oil Ltd. and the assessee has no connection to the income earned by Ms. 6. "Whether on the facts and circumstances of the case in law, the Ld. CIT(A) has erred in allowing the expenses of the nature of interest on sales tax liability without appreciating the fact that the assessee entered in to agreement dated March, 2009 with M/s. Essar Oil Ltd. by way of misrepresentation of facts as Ms. Essar Oil Ltd. was not eligible for the benefit and hence, the agreement itself was void." iefly stated, facts of the case are that the assessee filed return of income electronically on 29.09.2015 declaring total income at Rs. Nil. The return of income filed by the assessee was selected for scrutiny and statutory notices were issued and with. In the assessment completed u/s 143(3) of the Act on 23.11.2017, the Assessing Officer made disallowance u/s 14A of the Act amounting to Rs.225,66,127/- and disallowance of interest sales tax liabilities amounting to Rs.1,76,26,00,000/ further appeal, the Ld. CIT(A) deleted both the additions. Aggrieved M/s Essar House Pvt. Ltd. 2 ITA No. 1924/Mum/2023 despite the amendment issued vide Circular No. the bai Finance Act, 2022) dt. 03.11.2022 that disallowance u/s 14A has to be made irrespective of the fact whether any exempt income has been earned 3. "Whether on the facts and circumstances of the case in law, the Ld. CIT(A) has erred in deleting the disallowance in respect of interest on without giving any working / findings as to how the assessee has incurred the said expenses." s of the case in law, the Ld. CIT(A) has erred in allowing the expense claimed as interest on sales tax liability when the AO has accepted that the transaction is 5. "Whether on the facts and circumstances of the case in law, the Ld. CIT(A) has erred in allowing the interest expenses, without appreciating the fact that the interest on sales tax liability has been Essar Oil Ltd. and the assessee has no connection to the income earned by Ms. 6. "Whether on the facts and circumstances of the case in law, the Ld. CIT(A) has erred in allowing the expenses of the nature of interest on without appreciating the fact that the assessee entered in to agreement dated March, 2009 with M/s. Essar Oil Ltd. by way of misrepresentation of facts as Ms. Essar Oil Ltd. was not eligible for the benefit and hence, the agreement itself was void." iefly stated, facts of the case are that the assessee filed return of income electronically on 29.09.2015 declaring total income at Rs. Nil. The return of income filed by the assessee was selected for scrutiny and statutory notices were issued and with. In the assessment completed u/s 143(3) of the Act on 23.11.2017, the Assessing Officer made disallowance u/s 14A of and disallowance of interest sales tax liabilities amounting to Rs.1,76,26,00,000/-. On further appeal, the Ld. CIT(A) deleted both the additions. Aggrieved, the Revenue is in appeal before the Tribunal by way of raising grounds as reproduced as above. 3. At the outset, we may like to mention that none appeared on behalf of the assessee and adjournment. Before us, the Ld. Departmental Representative (DR) submitted that issue in dispute involved in both the grounds covered in favour of the assessee and therefore, the appeal was heard ex-parte qua the asse DR. 4. The ground Nos made u/s 14A r.w.s. 8D of the Income Rules). The Ld. CIT(A) has deleted the disallowance u/s 14A of the Act observing that there was no exempted income earned by the assessee. The relevant finding of the Ld. CIT(A) is reproduced as under: “6.3 Decision I have considered facts of the case, assessment order and submissions filed by the appellant. The A observed that the appellant had made investments in equity shares of Rs. 3311727575 on which the appellant did not receive any exempt income during the year by way of dividend. The appellant submitted before the AO that no disallowance us 14A can be made as the assessee did The AO did not accept the contention of the appellant and calculated the disallowance of Rs. 25966127. However, the calculation of disallowance is not correct as the AO computed wrongly Rs. 860288 being 0.5% Rs.1881727575 instead of correct amount of Rs. 9408638 The appellant has submitted various decisions of the Courts in which it is held that when there is no exempt income no in appeal before the Tribunal by way of raising grounds as reproduced as above. At the outset, we may like to mention that none appeared on behalf of the assessee and a written application was filed for adjournment. Before us, the Ld. Departmental Representative (DR) submitted that issue in dispute involved in both the grounds covered in favour of the assessee and therefore, the appeal was parte qua the assessee after hearing arguments of the Ld. s. 1 and 2 of the appeal relate made u/s 14A r.w.s. 8D of the Income-tax Rules, 1962 (in short ‘the Rules). The Ld. CIT(A) has deleted the disallowance u/s 14A of the g that there was no exempted income earned by the assessee. The relevant finding of the Ld. CIT(A) is reproduced as “6.3 Decision I have considered facts of the case, assessment order and submissions filed by the appellant. The A observed that the appellant had made investments in equity shares of Rs. 3311727575 on which the appellant did not receive any exempt income during the year by way of dividend. The appellant submitted before the AO that no disallowance us 14A can be made as the assessee did not receive any exempt income during the year. The AO did not accept the contention of the appellant and calculated the disallowance of Rs. 25966127. However, the calculation of disallowance is not correct as the AO computed wrongly Rs. 860288 being 0.5% of average value of investment of Rs.1881727575 instead of correct amount of Rs. 9408638. The appellant has submitted various decisions of the Courts in which it is held that when there is no exempt income no M/s Essar House Pvt. Ltd. 3 ITA No. 1924/Mum/2023 in appeal before the Tribunal by way of raising At the outset, we may like to mention that none appeared on a written application was filed for adjournment. Before us, the Ld. Departmental Representative (DR) submitted that issue in dispute involved in both the grounds is covered in favour of the assessee and therefore, the appeal was ssee after hearing arguments of the Ld. to disallowance tax Rules, 1962 (in short ‘the Rules). The Ld. CIT(A) has deleted the disallowance u/s 14A of the g that there was no exempted income earned by the assessee. The relevant finding of the Ld. CIT(A) is reproduced as I have considered facts of the case, assessment order and submissions filed by the appellant. The A observed that the appellant had made investments in equity shares of Rs. 3311727575 on which the appellant did not receive any exempt income during the year by way of dividend. The appellant submitted before the AO that no disallowance us 14A can be made not receive any exempt income during the year. The AO did not accept the contention of the appellant and calculated the disallowance of Rs. 25966127. However, the calculation of disallowance is not correct as the AO computed of average value of investment of The appellant has submitted various decisions of the Courts in which it is held that when there is no exempt income no disallowance u the following case laws: 1. GVK Projects and Technical Services Ltd. (2019) 106 Taxmann.com 181 (SC) 2. Oil Industry Development Board (2019) 103 Taxmann.com 326 (SC) 3. Chettinad Logistics P. Ltd. (2018) 95* Taxmann.com 250 (SC) 4. State Bank of Patiala (2018),99 Taxmann.com 286 (SC) 5. CIT Vs. Shivam Motors P. Ltd (272 GTR 277) 6. CIT Vs. Lakhani Marketing ITA NO: 970/2008 dated 02.04.2014. 7. PCIT Vs. Ballarpur Industries Ltd. ITA: No. 15 of 2016 dated 13.10.2016 ( Mumbai High Court) The Hon'ble. Delhr High, Court in its fécent order in the' case of PCIT Vs. M/s ERA Infrastructure (India) Ltd. dated 20.07.2022 held that amendment brought in by the Finance Act 2022 in sec. 14A is applicable prospectively we.f (from A. Y. 2022 decision of the Mumbai Tribunal in the case of K.Raheja Corporate Services P. Ltd. ITA no. 2521 to 2527/Mum/2021 dated 17.06.2022. I find merits in the argument of the appellant that w exempt income received by the appellant during the year no disallowance u/s 14A r.w.r. 8D can be made. Further, Hon'ble Mumbai Tribunal in the appellant's own case for assessment years 2011-12, 2012 contention of the appellant by following the decision of jurisdictional Mumbai High Court in the case of PCIT Vs.Ballarpur Industries Ltd. wherein the Hon'ble High Court have held that no disallowance u/s 14A r.w.r. 8D is required to be made when there is no exempt income. Accordingly, in the present case, the AO is directed to delete the disallowance made us 14A r.w.r. 8D of the IT Act. In the result, the appeal on this ground is Allowed. 5.1 We find that the Ld. CIT(A) has followed the binding precedent of the Hon’ble Delhi High Court in the case of PCIT v. ERA Infrastructure India Ltd. (supra), wherein it is held that the disallowance u/s 14A can be made. This view finds support from the following case laws:- 1. GVK Projects and Technical Services Ltd. (2019) 106 Taxmann.com 181 (SC) 2. Oil Industry Development Board (2019) 103 Taxmann.com 326 3. Chettinad Logistics P. Ltd. (2018) 95* Taxmann.com 250 (SC) Bank of Patiala (2018),99 Taxmann.com 286 (SC) 5. CIT Vs. Shivam Motors P. Ltd (272 GTR 277) 6. CIT Vs. Lakhani Marketing ITA NO: 970/2008 dated 7. PCIT Vs. Ballarpur Industries Ltd. ITA: No. 15 of 2016 dated 13.10.2016 ( Mumbai High Court) e Hon'ble. Delhr High, Court in its fécent order in the' case of Vs. M/s ERA Infrastructure (India) Ltd. ITA No. 2004/2022 20.07.2022 held that amendment brought in by the Finance Act 2022 in sec. 14A is applicable prospectively we.f 01.04:2022 (from A. Y. 2022-23 onwards). This view is supported by the decision of the Mumbai Tribunal in the case of K.Raheja Corporate Services P. Ltd. ITA no. 2521 to 2527/Mum/2021 dated I find merits in the argument of the appellant that when there is no exempt income received by the appellant during the year no disallowance u/s 14A r.w.r. 8D can be made. Further, Hon'ble Mumbai Tribunal in the appellant's own case for assessment years 12, 2012-13, 2013-14 and 2014-15 have allowed the contention of the appellant by following the decision of jurisdictional Mumbai High Court in the case of PCIT Vs.Ballarpur Industries Ltd. wherein the Hon'ble High Court have held that no disallowance u/s 14A r.w.r. 8D is required to be made when there no exempt income. Accordingly, in the present case, the AO is directed to delete the disallowance made us 14A r.w.r. 8D of the IT In the result, the appeal on this ground is Allowed.” We find that the Ld. CIT(A) has followed the binding precedent of the Hon’ble Delhi High Court in the case of PCIT v. ERA Infrastructure India Ltd. (supra), wherein it is held that the M/s Essar House Pvt. Ltd. 4 ITA No. 1924/Mum/2023 nds support from 1. GVK Projects and Technical Services Ltd. (2019) 106 2. Oil Industry Development Board (2019) 103 Taxmann.com 326 3. Chettinad Logistics P. Ltd. (2018) 95* Taxmann.com 250 (SC) 6. CIT Vs. Lakhani Marketing ITA NO: 970/2008 dated 7. PCIT Vs. Ballarpur Industries Ltd. ITA: No. 15 of 2016 dated e Hon'ble. Delhr High, Court in its fécent order in the' case of ITA No. 2004/2022 20.07.2022 held that amendment brought in by the Finance 01.04:2022 23 onwards). This view is supported by the decision of the Mumbai Tribunal in the case of K.Raheja Corporate Services P. Ltd. ITA no. 2521 to 2527/Mum/2021 dated hen there is no exempt income received by the appellant during the year no disallowance u/s 14A r.w.r. 8D can be made. Further, Hon'ble Mumbai Tribunal in the appellant's own case for assessment years 15 have allowed the contention of the appellant by following the decision of jurisdictional Mumbai High Court in the case of PCIT Vs.Ballarpur Industries Ltd. wherein the Hon'ble High Court have held that no disallowance u/s 14A r.w.r. 8D is required to be made when there no exempt income. Accordingly, in the present case, the AO is directed to delete the disallowance made us 14A r.w.r. 8D of the IT We find that the Ld. CIT(A) has followed the binding precedent of the Hon’ble Delhi High Court in the case of PCIT v. ERA Infrastructure India Ltd. (supra), wherein it is held that the amendment brought by way of Finance Act, 2022 in section 14A of the Act is applicable prospectively. Since, the Ld. CIT(A) has followed the binding precedent on the issue in dispute, we do not find any error in the order of the Ld. CIT(A) and accordingly uphold the same. The ground Nos. 1 & 2 accordingly dismissed. 6. The ground Nos the issue of interest on deleted the disallowance observing as under: “7.3 Decision I have considered facts of the case, assessment order and submissions filed by the appellant. Facts of the case are as per the Sales Tax Scheme granted by Gujarat Government. Essar Oil Ltd. was entitled to collect Sales Tax/AT and defer the payment of such was collected upto 14.08.2020. Subsequent to 14.08.2020 this deferred tax liability was pavable to Government in 6 equal annual installments. Essar Oil Ltd. decided to assign the sale tax liability in favour of the appellant by paying the calculated by discounting the value of liability. Accordingly, the appellant vide agreement dated 31.03.2009 agreed to take over the sales tax liability of Essar Oil Ltd. for a consideration of Rs. 1805.52 crores which was determined to the present value of the liability. The appellant in order to meet the liability on account of sales tax which would entail under the scheme and also to earn margin on the said amount received invested the amount received of Rs. 1805 from Essar Oil Ltd. in zero coupon bonds of Imperial Consultants and Securities Pvt. Ltd. (ICSL). In the mean time the Hon'ble Supreme Court delivered a judgment in the case filed by Gujarat Sales Tax Department against Essar Oil Ltd. wherein it entitled to the above, sales tax incentive scheme. As a result of said judgment, Essar Oil Ltd, was no longer entitled to the deferment of the sales tax liability and as a result the payment of the same had to be made immediately to the government. Essar Oil Ltd. demanded Rs. 1805.52 crores paid to the appellant along with the interest. The appellant in order to make payment to Essar Oil Ltd., encashed the zero coupon bonds of ICSL. The appellant received interest income amendment brought by way of Finance Act, 2022 in section 14A of the Act is applicable prospectively. Since, the Ld. CIT(A) has d the binding precedent on the issue in dispute, we do not find any error in the order of the Ld. CIT(A) and accordingly uphold the same. The ground Nos. 1 & 2 raised by the Revenue are accordingly dismissed. s. 3 to 6 of the appeal of the Revenue relate to the issue of interest on sales tax liabilities. The Ld. CIT(A) has deleted the disallowance observing as under: “7.3 Decision I have considered facts of the case, assessment order and submissions filed by the appellant. Facts of the case are as per the Sales Tax Scheme granted by Gujarat Government. Essar Oil Ltd. was entitled to collect Sales Tax/AT and defer the payment of such sales tax which was collected upto 14.08.2020. Subsequent to 14.08.2020 this deferred tax liability was pavable to Government in 6 equal annual installments. Essar Oil Ltd. decided to assign the sale tax liability in favour of the appellant by paying the present value of such liability which was calculated by discounting the value of liability. Accordingly, the vide agreement dated 31.03.2009 agreed to take over the sales tax liability of Essar Oil Ltd. for a consideration of Rs. 1805.52 hich was determined to the present value of the liability. The appellant in order to meet the liability on account of sales tax which would entail under the scheme and also to earn margin on the said amount received invested the amount received of Rs. 1805 from Essar Oil Ltd. in zero coupon bonds of Imperial Consultants and Securities Pvt. Ltd. (ICSL). In the mean time the Hon'ble Supreme Court delivered a judgment in the case filed by Gujarat Sales Tax Department against Essar Oil Ltd. wherein it was held that Essar Oil Ltd. was no entitled to the above, sales tax incentive scheme. As a result of said judgment, Essar Oil Ltd, was no longer entitled to the deferment of the sales tax liability and as a result the payment of the same had to be mmediately to the government. Essar Oil Ltd. demanded Rs. 1805.52 crores paid to the appellant along with the interest. The appellant in order to make payment to Essar Oil Ltd., encashed the zero coupon bonds of ICSL. The appellant received interest income from zero coupon bonds of Rs. 176.26 crores and the M/s Essar House Pvt. Ltd. 5 ITA No. 1924/Mum/2023 amendment brought by way of Finance Act, 2022 in section 14A of the Act is applicable prospectively. Since, the Ld. CIT(A) has d the binding precedent on the issue in dispute, we do not find any error in the order of the Ld. CIT(A) and accordingly we raised by the Revenue are the Revenue relate to sales tax liabilities. The Ld. CIT(A) has I have considered facts of the case, assessment order and submissions filed by the appellant. Facts of the case are as per the Sales Tax Scheme granted by Gujarat Government. Essar Oil Ltd. was entitled to sales tax which was collected upto 14.08.2020. Subsequent to 14.08.2020 this deferred tax liability was pavable to Government in 6 equal annual installments. Essar Oil Ltd. decided to assign the sale tax liability in favour of the present value of such liability which was calculated by discounting the value of liability. Accordingly, the vide agreement dated 31.03.2009 agreed to take over the sales tax liability of Essar Oil Ltd. for a consideration of Rs. 1805.52 hich was determined to the present value of the liability. The appellant in order to meet the liability on account of sales tax which would entail under the scheme and also to earn margin on the said amount received invested the amount received of Rs. 1805.52 crores from Essar Oil Ltd. in zero coupon bonds of Imperial Consultants and Securities Pvt. Ltd. (ICSL). In the mean time the Hon'ble Supreme Court delivered a judgment in the case filed by Gujarat Sales Tax Department was held that Essar Oil Ltd. was no entitled to the above, sales tax incentive scheme. As a result of said judgment, Essar Oil Ltd, was no longer entitled to the deferment of the sales tax liability and as a result the payment of the same had to be Essar Oil Ltd. demanded Rs. 1805.52 crores paid to the appellant along with the interest. The appellant in order to make payment to Essar Oil Ltd., encashed the zero coupon bonds of ICSL. The appellant received from zero coupon bonds of Rs. 176.26 crores and the same was credited in the P&L account. Similarly, the appellant had paid interest of Rs. 176.26 crores (out of total interest payment of Rs. 287.05 crores paid to EOL) to Essar Oil Ltd. which was debited P&L account. In the computation of the income, the income was offered as income from other sources and interest expenditure was claimed against the same income us 57. (il) of the Act. The appellant contended that since the amount received from Essar zero coupon bonds, any interest payable on the money received from Essar Oil Ltd. is ailowable as deduction us 57 (i) of the Act against the interest income received from the zero coupon bonds as there is a direct nexus between the amount received from Essar Oil Ltd. and amount invested in zero coupon bonds in ICSL. However, contention of the appellant was not accepted by the AQ who relied on the judgement of CIT Vs. VP Gopinathan 248 IT 449 (SC). The AO disallowed interest of Rs.1,76,26,00,000. and the interest paid on the funds received from Essar Oil Ltd. This factual position has not been doubted by the AO in the assessment order. The appellant has further submitted that the applied decision of the Hon'ble Supreme Court in the case of VP Gopinathan (supra). The most distinguishing fact of the appellant's case with that of VP Gopinathan case is that, in the case of Gopinathan the fixed deposit was made out of appellant the investment in zero coupon bonds were made out of funds received from Essar Oil Ltd. on which interest was paid. Therefore, interest expenses are allowable Us 57 (¡i) of the Act. The appellant has informed that this issue is covered by the decisions of Hon'ble ITAT in appellant's favour in preceding assessment years from A. Y. 2012 2014-15. The relevant part of decision of ITAT Mumbai in the appellant's case for A.Y. 2012-13, IT No. 6980/M/2016 dated 0 under:- “13. Wo have hoard the rival sumissiohs perised the material on record. According to the assess6e, Essar Oil Ltd. was entitled to collect the sales tax/AT and defer the same up to 14.08.2020 and th lax liability was to be Ltd. decided to assign the sales tax liability to another entity at the present value which was worked out at Rs. 1805.52 crores. The sales tax liability wa and the assessee received Rs. 1,805.52 Cr from Essar Oil Ltd. from time to time. The said money received by the assessee was invested in zero coupon bonds of Imperial Consultants and Securities Pvt. Ltd. In the meantime delivered a judgment in a case filed by the Sales Tax Department, Government of Gujarat wherein the Hon'ble Supreme Court held that Essar Oil Ltd. was not entitled to sales tax incentive scheme following which the Essar Oil Ltd. asked to make the payment to the government exchequer. As per the agreement between Essar Oil Ltd. and the assessee the money was to be ITA No.2199/M/2017 M/s. Essar same was credited in the P&L account. Similarly, the appellant had paid interest of Rs. 176.26 crores (out of total interest payment of Rs. 287.05 crores paid to EOL) to Essar Oil Ltd. which was debited P&L account. In the computation of the income, the income was offered as income from other sources and interest expenditure was claimed against the same income us 57. (il) of the Act. The appellant contended that since the amount received from Essar Oil Ltd. was invested in the zero coupon bonds, any interest payable on the money received from Essar Oil Ltd. is ailowable as deduction us 57 (i) of the Act against the interest income received from the zero coupon bonds as there is a direct n the amount received from Essar Oil Ltd. and amount invested in zero coupon bonds in ICSL. However, contention of the appellant was not accepted by the AQ who relied on the judgement of CIT Vs. VP Gopinathan 248 IT 449 (SC). The AO disallowed interest of Rs.1,76,26,00,000. discounting charges income from zero coupon bonds and the interest paid on the funds received from Essar Oil Ltd. This factual position has not been doubted by the AO in the assessment order. The appellant has further submitted that the A had erroneously applied decision of the Hon'ble Supreme Court in the case of VP Gopinathan (supra). The most distinguishing fact of the appellant's case with that of VP Gopinathan case is that, in the case of Gopinathan the fixed deposit was made out of surplus money whereas in the case of appellant the investment in zero coupon bonds were made out of funds received from Essar Oil Ltd. on which interest was paid. Therefore, interest expenses are allowable Us 57 (¡i) of the Act. The appellant has that this issue is covered by the decisions of Hon'ble ITAT in appellant's favour in preceding assessment years from A. Y. 2012 The relevant part of decision of ITAT Mumbai in the appellant's case for 13, IT No. 6980/M/2016 dated 04.04.2019 is reproduced as 3. Wo have hoard the rival sumissiohs-of. bolh tho partes and perised the material on record. According to the assess6e, Essar Oil Ltd. was entitled to collect the sales tax/AT and defer the same up to 14.08.2020 and thereafter the said deferred sales lax liability was to be paid in six annual installments. Essar Oil Ltd. decided to assign the sales tax liability to another entity at the present value which was worked out at Rs. 1805.52 crores. The sales tax liability was assigned in favour of the assessee and the assessee received Rs. 1,805.52 Cr from Essar Oil Ltd. from time to time. The said money received by the assessee was invested in zero coupon bonds of Imperial Consultants and Securities Pvt. Ltd. In the meantime the Hon'ble Supreme Court delivered a judgment in a case filed by the Sales Tax Department, Government of Gujarat wherein the Hon'ble Supreme Court held that Essar Oil Ltd. was not entitled to sales tax incentive scheme following which the Essar Oil Ltd. asked to make the payment to the government exchequer. As per the agreement between Essar Oil Ltd. and the assessee the money was to be ITA No.2199/M/2017 M/s. Essar M/s Essar House Pvt. Ltd. 6 ITA No. 1924/Mum/2023 same was credited in the P&L account. Similarly, the appellant had paid interest of Rs. 176.26 crores (out of total interest payment of Rs. 287.05 crores paid to EOL) to Essar Oil Ltd. which was debited to the P&L account. In the computation of the income, the income was offered as income from other sources and interest expenditure was claimed against the same income us 57. (il) of the Act. The appellant contended Oil Ltd. was invested in the zero coupon bonds, any interest payable on the money received from Essar Oil Ltd. is ailowable as deduction us 57 (i) of the Act against the interest income received from the zero coupon bonds as there is a direct n the amount received from Essar Oil Ltd. and amount invested in zero coupon bonds in ICSL. However, contention of the appellant was not accepted by the AQ who relied on the judgement of CIT Vs. VP Gopinathan 248 IT 449 (SC). The AO disallowed interest of discounting charges income from zero coupon bonds and the interest paid on the funds received from Essar Oil Ltd. This factual position has not been doubted by the AO in the assessment A had erroneously applied decision of the Hon'ble Supreme Court in the case of VP Gopinathan (supra). The most distinguishing fact of the appellant's case with that of VP Gopinathan case is that, in the case of Gopinathan the surplus money whereas in the case of appellant the investment in zero coupon bonds were made out of funds received from Essar Oil Ltd. on which interest was paid. Therefore, interest expenses are allowable Us 57 (¡i) of the Act. The appellant has that this issue is covered by the decisions of Hon'ble ITAT in appellant's favour in preceding assessment years from A. Y. 2012-13 to The relevant part of decision of ITAT Mumbai in the appellant's case for 4.04.2019 is reproduced as of. bolh tho partes and perised the material on record. According to the assess6e, Essar Oil Ltd. was entitled to collect the sales tax/AT and defer the ereafter the said deferred sales paid in six annual installments. Essar Oil Ltd. decided to assign the sales tax liability to another entity at the present value which was worked out at Rs. 1805.52 crores. s assigned in favour of the assessee and the assessee received Rs. 1,805.52 Cr from Essar Oil Ltd. from time to time. The said money received by the assessee was invested in zero coupon bonds of Imperial Consultants and the Hon'ble Supreme Court delivered a judgment in a case filed by the Sales Tax Department, Government of Gujarat wherein the Hon'ble Supreme Court held that Essar Oil Ltd. was not entitled to sales tax incentive scheme following which the Essar Oil Ltd. was asked to make the payment to the government exchequer. As per the agreement between Essar Oil Ltd. and the assessee the money was to be ITA No.2199/M/2017 M/s. Essar House Pvt. Ltd. paid along with interest, thus assessee had to pay interest of Rs.296. bonds and received interest income on the said zero coupon bonds of Rs.296.90 crores. The assessee credited the income by way of interest on zero coupon bonds in the P&L account while interest paid was c computation of income, the assessee offered the said income under the head of other sources by claiming interest paid to Essar Oil Ltd. of Rs.296.19 crores under section 57(il) of the Act. After the examining the that there is a direct nexus between the money received by the assessee from Essar Oil Ltd. upon the assignment of sales tax liability and therefore there is a nexus between the interest received from the zero coupo the assessee was liable to pay as per the agreement on the said assigned amount accordingly the same is allowable under section 57(il) of the Act. We have carefully perused the decision passed in the case of CIT vs. Gop that the facts in the case are distinguishable from the facts of the present case. In the said case the assessee had surplus funds which were invested in fixed deposits and the assessee earned interest on such fixed deposits. T Supreme Court held that interest paid on money borrowed from the bank against the security the fixed deposits is not allowable under section 57 (ill) of the Act. Since the income earned by the assessee by way of interest from Zero coupon corresponding liability attached to it. The assessee has not gained anything from the said transaction and thus it is incorrect to say that interest has to be taxed without allowing deduction under section 57(i). In our opinion, the said transaction is not a sham transaction in view of the fact that the assignment of liability on account of sales tax and VAT has taken place at present value has taken place on a date which was prior to the decision of the Hon'ble Supreme Court. It was clearly a c entities though related and therefore not colourable transactions to circumvent tax liability. has passed a very reasoned and speaking order which does not require any inte Facts being the similar for the assessment year under respectfully following the decision of Mumbai ITAT in appellant's own case in preceding years as referred above, claim of the appellant is allowed. The AO is directed of interest paid on sales tax liabilities of Rs. 1,76,26,00,000. In the result, the appeal on this ground is Allowed. Ltd. paid along with interest, thus assessee had to pay interest of Rs.296.19 crores to Essar Oil Lid. The assessee enashed the bonds and received interest income on the said zero coupon bonds of Rs.296.90 crores. The assessee credited the income by way of interest on zero coupon bonds in the P&L account while interest paid was charged in the P8L Account. While making the computation of income, the assessee offered the said income under the head of other sources by claiming interest paid to Essar Oil Ltd. of Rs.296.19 crores under section 57(il) of the Act. After the examining the facts, we are of the considered opinion that there is a direct nexus between the money received by the assessee from Essar Oil Ltd. upon the assignment of sales tax liability and therefore there is a nexus between the interest received from the zero coupon bonds and interest liability which the assessee was liable to pay as per the agreement on the said assigned amount accordingly the same is allowable under section 57(il) of the Act. We have carefully perused the decision passed in the case of CIT vs. Gopinathan (supra) and observed that the facts in the case are distinguishable from the facts of the present case. In the said case the assessee had surplus funds which were invested in fixed deposits and the assessee earned interest on such fixed deposits. Therefore, Hon'ble Supreme Court held that interest paid on money borrowed from the bank against the security the fixed deposits is not allowable under section 57 (ill) of the Act. Since the income earned by the assessee by way of interest from Zero coupon bonds had a corresponding liability attached to it. The assessee has not gained anything from the said transaction and thus it is incorrect to say that interest has to be taxed without allowing deduction under section 57(i). In our opinion, the said ction is not a sham transaction in view of the fact that the assignment of liability on account of sales tax and VAT has taken place at present value has taken place on a date which was prior to the decision of the Hon'ble Supreme Court. It was clearly a commercial transaction entered into between two entities though related and therefore not colourable transactions to circumvent tax liability. Accordingly, we hold that Ld. CIT(A) has passed a very reasoned and speaking order which does not require any interference at our end. Facts being the similar for the assessment year under consideration, respectfully following the decision of Mumbai ITAT in appellant's own case in preceding years as referred above, claim of the appellant is allowed. The AO is directed to delete the disallowance made on account of interest paid on sales tax liabilities of Rs. 1,76,26,00,000. In the result, the appeal on this ground is Allowed.” M/s Essar House Pvt. Ltd. 7 ITA No. 1924/Mum/2023 Ltd. paid along with interest, thus assessee had to pay interest 19 crores to Essar Oil Lid. The assessee enashed the bonds and received interest income on the said zero coupon bonds of Rs.296.90 crores. The assessee credited the income by way of interest on zero coupon bonds in the P&L account while harged in the P8L Account. While making the computation of income, the assessee offered the said income under the head of other sources by claiming interest paid to Essar Oil Ltd. of Rs.296.19 crores under section 57(il) of the Act. facts, we are of the considered opinion that there is a direct nexus between the money received by the assessee from Essar Oil Ltd. upon the assignment of sales tax liability and therefore there is a nexus between the interest n bonds and interest liability which the assessee was liable to pay as per the agreement on the said assigned amount accordingly the same is allowable under section 57(il) of the Act. We have carefully perused the decision inathan (supra) and observed that the facts in the case are distinguishable from the facts of the present case. In the said case the assessee had surplus funds which were invested in fixed deposits and the assessee herefore, Hon'ble Supreme Court held that interest paid on money borrowed from the bank against the security the fixed deposits is not allowable under section 57 (ill) of the Act. Since the income earned by the bonds had a corresponding liability attached to it. The assessee has not gained anything from the said transaction and thus it is incorrect to say that interest has to be taxed without allowing deduction under section 57(i). In our opinion, the said ction is not a sham transaction in view of the fact that the assignment of liability on account of sales tax and VAT has taken place at present value has taken place on a date which was prior to the decision of the Hon'ble Supreme Court. It was ommercial transaction entered into between two entities though related and therefore not colourable transactions Accordingly, we hold that Ld. CIT(A) has passed a very reasoned and speaking order which does not consideration, respectfully following the decision of Mumbai ITAT in appellant's own case in preceding years as referred above, claim of the appellant is to delete the disallowance made on account of interest paid on sales tax liabilities of Rs. 1,76,26,00,000. 6.1 We find that the Tribunal in the case of the In the year under consideration, the facts and circumstances being identical, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and accordingly grounds Nos. 3 to 6 of the appeal of the Revenue are accordingly dismissed. 7. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open Court. Sd/- (SANDEEP SINGH KARHAIL JUDICIAL MEMBER Mumbai; Dated: 28/08/2023 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// We find that the Ld. CIT(A) has followed the finding of the Tribunal in the case of the assessee for assessment year 2012 In the year under consideration, the facts and circumstances being identical, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and accordingly, we uphold the same. The . 3 to 6 of the appeal of the Revenue are accordingly In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open Court. Sd/ SANDEEP SINGH KARHAIL) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai M/s Essar House Pvt. Ltd. 8 ITA No. 1924/Mum/2023 the finding of the assessee for assessment year 2012-13. In the year under consideration, the facts and circumstances being identical, we do not find any error in the order of the Ld. CIT(A) on we uphold the same. The . 3 to 6 of the appeal of the Revenue are accordingly In the result, the appeal filed by the Revenue is dismissed. Sd/- (OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai