The ACIT,(OSD)Circle-8, Ahmedabad V. Tanti Holding Pvt.Ltd., Gandhinagar

ITA 2025/AHD/2012

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8022 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-08-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 07-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH SINGH
• Assessee Lawyers: P B PARMAR
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER THE ACIT(OSD), CIRCLE - 8, AHMEDABAD (APPELLANT) VS M/S. TANTI HOLDING PVT. LTD. SUZLAN , 5, SHRIMALI SOCIETY, NR. SHREE KRISHNA COMPLEX, NAVRANGPURA, AHMEDABAD - 380009 PAN: AACCS1420K (RESPONDENT) REV ENUE BY : S H RI SAURABH SINGH , SR. D . R. ASSESSEE BY: S H RI TUSHAR HEMANI & SHRI P.B. PARMAR , A.R. DATE OF HEARING : 11 - 04 - 2 018 DATE OF PRONOUNCEMENT : 25 - 06 - 2 018 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS REVENUE S APPEAL FOR A.Y. 2009 - 10 , ARISES FROM ORDER OF THE CIT(A) - XIV , AHM EDABAD DATED 25 - 06 - 2012 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1). 'WHETHER THE CIT(A) IS RIGHT IN LAW AND ON FACTS IN DELETING, THE DISALLOWANCE OF INTEREST EXPENSE OF RS. 29,19,452/ - . 2). 'WHETHER THE CIT(A) IS RIGHT IN LAW AND ON FACTS IN DELETING THE DISALLOWAN CE RS. 59,61, 430/ - MADE BY THE AO U/S. 14A OF THE ACT'. 3). WHETHER THE CIT(A) IS RIGHT IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 59,61,430/ - , BEING THE AMOUNT OF DISALLOWANCE MADE U/S. 14A OF THE ACT WHILE COMPUTING BOOK PROFIT/INCOME U/S. 115JB OF THE ACT'.. I T A NO . 2025 / A HD /20 12 A SSESSMENT YEAR 200 9 - 10 I.T.A NO. 2025 /AHD/20 12 A.Y. 2009 - 10 PAGE NO ACIT VS. M/S. TANTI HOLDING PVT. LTD. 2 3. IN THIS CASE, RETURN OF INCOME DECLARING INCOME OF RS NIL WAS FILED ON 14 TH SEP, 2009. SUBSEQUENTLY, THE CASE WAS SELECTED UNDER SCRUTINY BY ISSUING OF NOTICE U/S. 143(2) OF THE ACT ON 19 TH AUGUST, 2010. THE ASSESS EE COMPANY WAS ENGAGED IN THE BUSINESS OF INVESTMENT AND FINANCING. FURTHER FACTS OF THE CASE ARE DISCUSSED UNDER DIFFERENT GROUNDS OF APPEAL: DISALLOWANCE ON INTEREST OF RS. 29 ,19, 452/ - 4. ON SCRUTINY OF THE DETAILS FILED BY THE ASSESSEE, IT WAS NOTICED THAT ASSESSE E HAS ADVANCED UN - SECUR ED LOAN TO SUZLAN ENERGY LTD. WHICH WAS A R ELA TED PARTY, FROM THE FUNDS BORROWED FOR BUSINESS PURPOSES. T H E ASSESSING OFFICER HAS ALSO OBSERVED THAT ASSESSEE COMPANY HAS CHARGED INTEREST @ 12% FROM SUZLAN ENERGY LTD WHEREAS IT H AS PAID INTEREST ON SUCH LOAN @ 16.5%. T HE ASSESSEE HAS BORROWED FUND S FROM IFCI AND IDFC OF THE PUR P OSE OF SUBSC RI B ING ITS RIGHT ISSUE OF EQUITY SHARE OF SUZLAN ENERGY LTD. HOWEVER, THE RIGHT ISSUE HAS NOT BEEN MATERIALIZED , THEREFORE, IT HAS ADVANCED T HE BORROWED FUND TO SUZLAN ENERGY LTD @ 12% FOR TEMPORARY PERIOD. THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE . HE WAS OF THE VIEW THAT ASSESSEE HAS NOT USED THE BORROWED FUND FOR THE PURPOSE OF BUSINESS AS IT HAS ADVANCED THE B ORROWED FUND TO ITS RELATED PARTY AT LOWER RATE OF INTEREST ON WHICH IT HAS PAID INTEREST AT HIGHER RATE. CONSEQUENTLY , THE ASSESSING OFFICER HAS DISALLOWED AN AMOUNT OF RS. 29 , 19 , 452/ - (BEING THE DIFFERENCE OF INTE REST CHARGED @ 12% AND PAID @ 1 6.5% ON R S. 148 CRORES). D ISALLOWANCE U/S. 14A AND COMPUTING BOOK PROFIT U/S. 1115JB OF T H E ACT. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT ASSESSEE HA S EARNED EXEMPT INCOME OF RS. 13 , 03 , 29 , 180/ - THE REFORE THE ASSESSI NG OFFICER HAS ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE TO EXPLAIN WHY NOT DISALLOWANCE U/S/ 14A SHOULD BE COMPUTED AS PER RULE 8D OF IT I.T.A NO. 2025 /AHD/20 12 A.Y. 2009 - 10 PAGE NO ACIT VS. M/S. TANTI HOLDING PVT. LTD. 3 RULE. THE ASSESSEE EXPLAINED THAT IT HAS ALREADY DISALLOWED EXPENSES U/S 14A AS PER RULE 8D AMOUNTING TO RS. 9.66 CR ORES . IT WAS FURTHER SUBMITTED TH A T BORROWED FUNDS WERE NOT DIRECTLY USED FOR THE PURPOSE OF INVESTMENT IN SHARES . HOWEVER THE ASSESSING OFFICER STATED THAT ASSESSEE HAS MADE NEW INVESTMENT OF APPROXIMATELY RS. 63.7 CRORES DURING THE RELEVANT PREVIOUS YE AR FROM BORROWED FUND O N WHICH IT HAS INCURRED INTEREST EXPENSES @ 16.5% WHEREAS ASSESSEE HAS NOT INCLUDED SUCH DIRECT EXPENSES IN THE WORKING OF DISALLOWANCE U/S. 14A R.W. RULE 8D OF THE ACT. CONSEQUENTLY, THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF RS. 59 , 61 ,430 / - U/S. 14A R.W. RULE 8D AND ADDED TO THE TOTAL INCOME OF THE ASSESSEEE. 6. AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. THE RELEVANT PART OF THE DECISION OF THE LD. CIT(A) IS REPRODUCED AS UNDER: - 2.3 DECISION: I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER AND THE SUBMISSIONS GIVEN BY THE APPELLANT. THE A. O. HAS DISALLOWED THE EXPENDITURE ON INTEREST BORROWED FROM FINANCIAL INSTITUTION BY RESTRICTING TH E EXPENDITURE TO 12% OF THE FUNDS BORROWED. IT WAS HELD BY HIM THAT THE APPELLANT HAD ADVANCED FUNDS TO SISTER CONCERN AT LOWER RATE OF INTEREST WITHOUT ANY JUSTIFICATION AND HE ACCORDINGLY DISALLOWED THE DIFFERENCE IN THE RATE OF INTEREST BORROWED AND RAT E OF INTEREST RECEIVED ON THE FUNDS ADVANCED. THE APPELLANT HAS SUBMITTED THAT THE FUNDS WERE BORROWED FOR INVESTING IN EQUITY SHARES OF SUZLON ENERGY LIMITED (SEL) FROM IFCI AND IDFC AT THE RATE OF 16.5%. HOWEVER, DUE TO REASONS BEYOND CONTROL OF THE APPE LLANT, THE RIGHT ISSUE DID NOT COME AND THE APPELLANT ADVANCED THE MONEY TO SEL AT THE RATE OF 12%. IT WAS A COMMERCIAL DECISION, CONSIDERING THE CIRCUMSTANCES AT THAT POINT OF TIME. THE INTEREST RECEIVED FROM SEL HAS BEEN OFFERED IN THE RETURN OF INCOME. IT HAS FURTHER BEEN SUBMITTED BY THE APPELLANT THAT THE BORROWING OF MONEY AND PAYMENT OF INTEREST THEREON WAS FOR THE PURPOSE OF BUSINESS AND, THEREFORE, DEDUCTION SHOULD BE ALLOWED FROM THE PROFITS AND GAINS OF THE BUSINESS. THE APPELLANT HAS FURTHER REL IED ON THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF LAXMI AGENTS PVT. LTD. [125ITR 227] AND THE DECISION OF HONOURABLE SUPREME COURT IN THE CASE OF S. A. BUILDERS LTD. [288 ITR1]. AFTER CONSIDERING THE SUBMISSION OF THE APPELLANT AND THE FACTS, I AM O F THE OPINION THAT THE FACTS CLEARLY SHOW THAT THE APPELLANT HAD BORROWED THE MONEY FOR THE PURPOSE OF SUBSCRIBING FOR THE EQUITY SHARES OF SEL. IT IS A DIFFERENT MATTER THAT DUE TO SOME EXTRANEOUS CIRCUMSTANCES, THE RIGHT ISSUE WAS DELAYED AND THE ISSUE W AS ULTIMATELY BROUGHT IN THE MONTH OF JUNE, 2010 AND THE APPELLANT ULTIMATELY SUBSCRIBE FOR THE ISSUE. THE APPELLANT IS UNDOUBTEDLY IN THE BUSINESS OF INVESTMENT AND FINANCING AND, THEREFORE, BORROWING OF THE MONEY WAS FOR THE PURPOSE OF THE BUSINESS OF T HE APPELLANT. SINCE THE APPELLANT COMPANY COULD NOT UTILIZE THE AMOUNT BORROWED FOR SUBSCRIBING THE EQUITY SHARES, IT ADVANCED THE MONEY TO SEL AT 12% SO THAT SOME PART OF THE INVESTMENT WAS RECOVERED. THE A. O. HAS NOT GIVEN ANY FINDING POINTING OUT THAT THE BORROWAL OF MONEY WAS NOT FOR THE PURPOSE OF BUSINESS. MERELY BECAUSE OF THE FACT THAT THE FUNDS HAVE BEEN I.T.A NO. 2025 /AHD/20 12 A.Y. 2009 - 10 PAGE NO ACIT VS. M/S. TANTI HOLDING PVT. LTD. 4 ADVANCED AT THE RATE LESSER THAN AT WHICH IT WERE BORROWED, THE DIFFERENCE IN INTEREST CANNOT BE DISALLOWED AS LONG AS THE PURPOSE OF THE BORROWI NG AND ADVANCING IS CLEAR. THE RELIANCE PLACED BY THE APPELLANT ON THE JUDGMENT OF ITAT, AHMEDABAD BENCH IN THE CASE OF ADITYA MEDISALES LIMITED [1TA NO. 3272/AHD/2002] IS DIRECTLY ON THE ISSUE. IT HAS BEEN HELD BY THE HONOURABLE BENCH THAT THE REVENUE CAN NOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM - CHAIR OF BUSINESSMAN OR IN THE POSITION OF BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE, HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. IT HAS FURTHER BEEN HELD BY THE B ENCH THAT THE INCOME TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. IT IS FURTHER NOTED THAT THERE IS NO DISPUTE ABOUT THE FACT THAT THE EXPENDITURE HAS BEEN INCURRED AND FURTHER THE MONEY HAS BEEN ADVANCED ON INTEREST WHICH HAS BEEN SHOWN BY THE APPELLANT IN THE RETURN OF INCOME. AFTER CONSIDERING THESE FACTS AND CIRCUMSTANCES, NO DISALLOWANCE OF INTEREST CAN BE MADE. ACCORDINGLY, THE DISALLOWANCE MADE BY THE A. O. IS DIRECTED TO BE DELE TED AND THE GROUNDS OF APPEAL ARE ACCORDINGLY ALLOWED. 3.3 DECISION: I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER AND THE SUBMISSIONS GIVEN BY THE APPELLANT. THE A. O. HAS MADE DISALLOWANCE U/S. 14A BY APPLYING RULE 8D AND THE INTEREST EXPENDITURE ON THE BORROWED FUNDS FOR THE PURPOSE OF INVESTMENT IN EQUITY SHARES HAVING TAKEN AS DIRECT EXPENSES. THE A. O. HAS ACCORDINGLY TAKEN INDIRECT INTEREST EXPENSES AT RS.22,20,46,241/ - BY REDUCING AN AMOUNT OF RS. 1,00,28,833/ - ON ACCOUNT OF DIRECT INTEREST E XPENSES TAKEN BY HIM. THEREFORE, IN ADDITION TO AN AMOUNT OF RS.9,66,64,268/ - ALREADY DISALLOWED BY THE APPELLAN T, DISALLOWANCE OF RS.59,61,430/ - HAS BEEN MADE BY HIM. THE APPELLANT HAS SUBMITTED THAT THE BORROWED FUNDS WERE NOT DIRECTLY USED FOR THE INVES TMENT IN SHARES AND, THEREFORE, PROPORTIONATE DISALLOWANCE WAS MADE BY THE APPELLANT AND THE ACTION OF THE A. O. WAS NOT JUSTIFIED. AFTER CONSIDERING THE FACTS, IT IS NOTED THAT THOUGH THE APPELLANT HAD BORROWED CERTAIN AMOUNT FOR INVESTING IN THE EQUITY S HARES OF SEL, THE ISSUE WAS DELAYED AND NO INVESTMENT IN THE EQUITY SHARES WAS MADE BY THE APPELLANT DURING THE YEAR. IT IS ALSO NOTED THAT THE INVESTMENT IN EQUITY SHARES WAS MADE IN THE MONTH OF JUNE, 2010 WHICH IS AFTER THE PRESENT ASSESSMENT YEAR. IT I S ALSO AN ADMITTED FACT THAT THE FUNDS BORROWED FROM IFCI AND IDFC WERE ADVANCED TO SEL AT THE RATE OF 12% AS THE EQUITY ISSUE COULD NOT MATERIALIZE. ONCE THE AMOUNT BORROWED FOR A SPECIFIC PURPOSE WAS NOT INVESTED IN THAT PURPOSE AND IT WAS DELAYED AND TH E AMOUNT WAS ADVANCED FOR SOME OTHER PURPOSE, THE FUNDS GET MERGED AND SPECIFIC USE OF THE FUNDS CANNOT BE POINTED OUT. IN THESE CIRCUMSTANCES, FOR MAKING THE DISALLOWANCE U/S. 14A BY APPLYING RULE 8D, OVERALL INTEREST EXPENDITURE I.E. INDIRECT EXPENDITURE WILL HAVE TO BE TAKEN INTO ACCOUNT. THE A. O. HAS NOT ALSO ESTABLISHED THE CLEAR NEXUS BETWEEN THE FUNDS BORROWED AND NEW INVESTMENT OF RS.63.7 CRORE MADE DURING THE YEAR. THEREFORE, THE ACTION OF THE A. O. BY WORKING OUT THE INTEREST EXPENDITU RE AMOUNTIN G TO RS. 1,00,28,833/ - BY APPLYING THE RATE OF 16.5% ON THE BORROWED FUNDS AND TREATING IT AN DIRECT INTEREST EXPENDITURE CANNOT BE UPHELD. THE WORKING OF DISALLOWANCE FOR THE PURPOSE OF SECTION 14A BY TAKING THE OVERALL INTEREST EXPENDITURE IS, THEREFORE, UPHELD AND THE DISALLOWANCE MADE BY THE A.O. IS DIRECTED TO BE DELETED. THEREFORE, THE THIRD AND FOURTH GROUND OF APPEAL ARE ALLOWED. 7 . WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE MATERIAL ON RECORD CAREFULLY. THE ASSESSING OFFICER HAS DISALLO WED AN AMOUNT OF R S. 29,19,452/ - BEING THE DIFFERENCE OF INTEREST CHARGED AT THE RATE OF 12% ON T H E UNSECURED LOAN ADVANCED TO THE RELATED CONCERN SUZLAN ENERGY LTD. AND THE INTEREST PAID ON THE I.T.A NO. 2025 /AHD/20 12 A.Y. 2009 - 10 PAGE NO ACIT VS. M/S. TANTI HOLDING PVT. LTD. 5 LOAN @ 16.5 BY THE ASSESSEE . THE LD. CIT(A) HAS DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AF T ER CONSIDERING THE FACT THAT T HE ASSESSEE HAS BORROWED THE MO N EY FOR THE PURPOSE OF SUBSCRIBING FOR THE EQUITY SHARES OF SUZLAN ENERGY LTD. HOWEVER , BECAUSE OF SOME EXTRANEOUS REASONS THE RIGHT ISSUE WAS DELA YED AND TH E ISSUE WA S FINALLY MADE IN THE MONTH OF JUNE, 2010 WHICH WAS SUBSCRIBED BY THE ASSESSEE. BECAUSE OF DELAY IN SUBSCRIPTION OF THE ISSUE THE ASSESSEE HAS ADVANCED T HE MONEY TO THE SEL AT 12% FOR THE PERIOD TILL THE SHARES WAS SUBSCRIBED A ND THE A SSESSEE HAS RECOVERED TH E PART OF THE COST O F TH E BORROWING MADE FROM THE INVESTMENT. WE CONSIDER THAT ABOVE FACTS DEMONSTRATE THAT SINCE THE ASSESSEE COULD NOT UTILIZE THE AMOUNT BORROWED FOR SUBSCRIBING THE EQUITY SHARES THEREFORE IT ADVANCED THE MONEY AT 12% SO THAT SOME PART OF INVESTMENT WAS RECOVERED. AFTER CONSIDERING THE SPECIFIC FACTS AND CIRCUMSTANCES ON THIS ISSUE AS ABOVE AND AS ELABORATED IN THE FINDINGS OF THE LD. CIT(A), WE DO NOT FIND ANY REASON TO INTERFERE IN THE DECISION OF THE LD. CIT( A). THE SECOND ISSUE IS RELATED TO DISALLOWANCE OF RS. 59,61,430/ - MADE BY THE ASSESSING OFFICER U/S. 14A R.W.S. 8D OF THE I.T. RULE. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE MATERIAL ON RECORD CAREFULLY. THE ASSESSEE HAS ITSELF DISALLOWED A N AMOUNT OF RS. 9,66,64,268/ - AS EXPENDITURE INCURRED TOWARDS EARNING EXCEPT INCOME. HOWEVER THE ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE HAS MADE INVESTMENT OUT OF BORROWED - FUNDS @ 16.5% AND OBSERVED IT AS DIRECT EXPENSE S INCURRED TO EARN EX EMPT INCOME. CONSEQUENTLY , THE ASSESSING OFFICER HAS WORKED OUT AN EXPENSE OF RS. 10 , 26 , 25698/ - TO BE DISALLOWED U/S. 14A R.W. RULE 8D OF THE IT RULE . IT HAS RESULTED IN DISALLOWANCE OF DIFFERENCE OF RS . 59,61,430/ - (RS. 10 , 26 , 25 , 698 - 9 , 66 , 64 , 268/ - ). AF TER PERUSAL OF MATERIAL ON RECORD WE OBSERVE THAT THE BORROWED FUNDS WERE NOT INVESTED IN THE EQUITY SHARES AS SA M E COULD NOT BE SUBSCRIBED TILL JUNE, 2010 BECAUSE THE RIGHT ISSUE WAS DELAYED. W E CONSIDER THAT THE ASSESSING OFFICER HAS NOT DEMONSTRATED TH AT HOW T HE BORROWED FUNDS WERE INVESTED IN EARNING EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION. T HE ASSESSING OFFICER HAS FAILED TO PROVE INFIRMITY IN THE ACTION O F THE AS S ESSEE OF TREATING I.T.A NO. 2025 /AHD/20 12 A.Y. 2009 - 10 PAGE NO ACIT VS. M/S. TANTI HOLDING PVT. LTD. 6 INTEREST EXPENDI TU RE AS INDIRECT EXPENDITURE AS AGAINST OF T R EATING DIRECT EXPENDITURE BY THE ASSESSING OFFICER . IN VIEW OF THE ABOVE FACTS AND THE DETAILED FINDINGS OF THE LD. CIT(A) AS ELABORATED ABOVE IN THIS ORDER, WE DO NOT FIND ANY ERROR IN THE DECISION OF THE LD. CIT(A). THEREFORE, THE APPEAL OF THE ASSE SSEE ON THIS ISSUE IS DISMISSED. THE THIRD GROUND OF APPEAL OF THE REVENUE PERTAINING TO ADDITION OF RS. 59 , 61 , 430/ - WHILE COMPUTING BOOK PROFIT HAS BECOME INFRUCTUOUS AS WE HAVE UPHELD THE DECISION OF THE LD. CIT(A) IN DELETING THE IMPUGNED ADDITION AS PER GROUND NO. 2 OF APPEAL AS DISCUSSED SUPRA IN THIS ORDER. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 25 - 06 - 201 8 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 25 /06 /2018 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,