Appeal details
Counselvise Citation
[2017] 128 COUNSELVISE.COM (IT) 1074 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
28-04-2017
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
B
Next Hearing Date
09-02-2015
Assessment Year
2009-2010
Appeal Filed On
04-04-2013
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NOS.2562/M/2013 & 4852/M/2015 ASSESSMENT YEARS: 2009-10 & 2005-06 ASST. COMMISSIONER OF INCOME- TAX, 11(3), ROOM NO.446, 4 TH FLOOR, AAYAKAR BHAVAN, MUMBAI 400 020 VS. SHRI NISHITH DESAI, PROP. OF NISHITH DESAI ASSOCIATES, 94-B, MITTAL COURT, NARIMAN POINT, MUMBAI 400 021 PAN: AAAPD8418K (APPELLANT) (RESPONDENT) ITA NO.2439/M/2013 ASSESSMENT YEAR: 2009-10 MR. NISHITH M. DESAI, PROP: NISHITH DESAI ASSOCIATES, 94B, MITTAL COURT, NARIMAN POINT, MUMBAI 400 021 PAN: AAAPD8418K VS. THE ADDL. COMMISSIONER OF INCOME-TAX, RANGE 11(3), MUMBAI (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI FIROZE B. ANDHYARUJINA, A.R. REVENUE BY : SHRI N.P. SINGH, D.R. DATE OF HEARING : 23.02.2017 DATE OF PRONOUNCEMENT : 28.04.2017 O R D E R PER D.T. GARASIA, JUDICIAL MEMBER: THE ABOVE TITLED APPEAL AND TWO CROSS APPEALS HAVE BEEN PREFERRED AGAINST THE ORDERS DATED 11.01.2013 & 19.09.2015 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)]-2 MUMBAI RELEVANT TO ASSESSMENT YEAR 2009-10 & 2005-06 RESPE CTIVELY. 2. NOW WE WILL DEAL WITH ITA NO.4852/M/2015 WHICH I S DEPARTMENTS APPEAL FOR ASSESSMENT YEAR 2005-06. ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 2 ITA NO.4852/M/2015 3. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF A PPEAL:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DEDUCTION U/S 57 OF THE I NCOME-TAX ACT, 1961 CLAIMED UNDER THE HEAD 'INCOME FROM OTHER SOURCES' AMOUNTING TO RS.53,65,251/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITIONS MADE BY THE AO ON ACCOUNT OF FINANCIAL EXPENSES AMOUNTING TO RS. 2,94,754/- OUT OF TOTAL EXPENSES CLAIMED AMOUNTING TO RS.25,33,850/- UNDER THE HEAD 'FINANCIAL EXPENSES'. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(AP PEALS) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 4. THE SHORT FACTS OF THE CASE ARE AS UNDER: ASSESSEE FILED A RETURN OF INCOME FOR ASSESSMENT Y EAR 2005-06 ON 30.05.2005. THE RETURN WAS PROCESSED UNDER SECTION 143(3) READ WITH SECTION 147 OF THE INCOME TAX ACT. THE ASSESSEE IN COMPUTA TION OF INCOME HAS CLAIMED INTEREST AMOUNT OF RS.53,65,251/- AS INTERE ST PAID TO HDFC LTD. AND CLAIMED THE DEDUCTION UNDER SECTION 57 OF THE ACT. THE LD. A.R. SUBMITTED THAT THIS LOAN OF RS.7 CRORES WAS TAKEN FROM HDFC L TD. THE LD. A.R. EXPLAINED THAT THE SAID LOAN WAS TAKEN FOR PURCHASE OF DEBENTURES OF TWO COMPANIES NAMELY MAKRUPA CHEMICALS PVT. LTD. AND TV ZINE INDIA.COM PVT. LTD. TO THE TUNE OF RS.7,20,65,400/-. THE ASSESSIN G OFFICER (HEREINAFTER REFERRED TO AS THE AO) OBSERVED THAT HDFC LTD. GIVE S LOAN FOR HOUSING PURPOSE. THE SAID LOAN WAS ALSO GIVEN ONLY FOR THE PURPOSE OF HOUSING LOAN AGAINST FLAT NO.51 WHICH IS ESTABLISHED FROM THE IN TEREST CERTIFICATE OBTAINED FROM HDFC LTD. THE SAID CERTIFICATE CONTAINS THAT THIS IS TO CERTIFY THAT MR. DESAI NISHITH HAS BEEN GRANTED A HOUSING LOAN OF RS .7 CRORES IN RESPECT OF PROPERTY I.E. FLAT NO.51, NCPA RESIDENTIAL APARTMEN T. THE AO WAS OF A VIEW THAT THE ABOVE CERTIFICATE STATES THAT LOAN OF RS.7 CRORES IS HOUSING LOAN GIVEN BY HDFC LTD. IN THE SAID CERTIFICATE IT IS CATEGOR ICALLY MENTIONED THAT ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 3 CERTIFICATE IS ISSUED FOR CLAIMING DEDUCTION UNDER SECTION 24(B) OF THE INCOME TAX ACT, 1961, ACCORDING TO THE LOAN APPLICATION FO RM SUBMITTED BY THE ASSESSEE IN HIS SUBMISSION DATED 11.08.14 IN ANNEXU RE 21, TYPE OF LOAN : ASSESSEE HAS TAKEN HOME LOAN. THE PROPERTY FLAT NO .51, NCPA RESIDENTIAL APARTMENT IS NOT IN THE NAME OF THE ASSESSEE. THE ASSESSEE ALSO CONFIRMED THAT ASSESSEE HAS PURCHASED RESIDENTIAL FLAT NO.51 AT NC PA RESIDENTIAL APARTMENTS, SIR DORABJI TATA ROAD, NARIMAN POINT, MUMBAI BY ACQ UIRING DEBENTURES OF MAKRUPA CHEMICALS PVT. LTD. WHOSE PRINCIPAL ASSET I S SAID FLAT AND DEBENTURE OF TV ZINE INDIA.COM PVT. LTD. THE CONFIRMATORY LE TTER STATES THAT WHERE TITLE TO AN IMMOVABLE PROPERTY IS REPRESENTED BY THE SECU RITIES ISSUED BY CO- OPERATIVE SOCIETIES OR A LIMITED COMPANY, WHICH DIR ECTLY OR INDIRECTLY OWNED THE FLAT OR THE BUILDING, THE LOAN FOR ACQUISITION OF SUCH PROPERTY IS SECURED BY PLEDGE OF THE DEBENTURE AND CLASSIFIED AS HOUSING L OAN. THEREFORE, ABOVE LOAN OBTAINED BY THE ASSESSEE WAS REGARDED AS HOUSING LO AN. THE ASSESSEE HAS SUBMITTED THAT ASSESSEE HAS PURCHASED THE DEBENTURE OUT OF THE LOAN SECURED BY THE HOUSE. ASSESSEE AVAILED THIS LOAN FOR PURCHASE OF SAID DEBENTURE WITH FULL KNOWLEDGE AND ACQUAINTANCE OF HDFC LTD. THE AO WAS OF A VIEW THAT THE LOAN TAKEN BY THE ASSESSEE IS A HOUSING LOAN AND NO DEDUCTION CAN BE PROVIDED TO THE ASSESSEE IN ANY PROVISIONS OF SAID CHAPTER 4 . THE ASSESSEE HAS CLAIMED THE DEDUCTION UNDER SECTION 57 OF THE ACT WHICH CAN BE ALLOWED, IF ANY OTHER EXPENDITURE NOT BEING CAPITAL IN NATURE LAID OUT OR EXPEDIENTLY FULLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SU CH INCOME. THE LOAN WAS TAKEN FROM HDFC LTD. IS NOT USED FOR HOUSING AND SA ME WAS USED FOR PURCHASE OF DEBENTURES. THEREFORE, THE ASSESSEE HAS CONTEND ED THAT ASSESSEE HAS GOT THE HUGE MONEY OF INTEREST OUT OF WHICH 10% IS APPLIED IN DEBENTURES AND ASSESSEE HAD INDIRECT OWNERSHIP OF THE PROPERTY, THEREFORE A O WAS OF A VIEW THAT ASSESSEE IS NOT ENTITLED FOR DEDUCTION UNDER SECTIO N 57(III) OF THE INCOME TAX ACT, 1961. THE AO ALSO DISCUSSED THAT THE ASSESSEE HAS TAKEN LOAN FROM HDFC LTD. AS A HOUSING LOAN AND THERE WAS NO COMMERCIAL JUSTIFICATION FOR PURCHASING THE DEBENTURE. THEREFORE, AO ALSO EXAMI NED THE DETAIL ABOUT ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 4 COMPANY TV ZINE INDIA.COM PVT. LTD. AND MAKRUPA CHE MICALS PVT. LTD. THE SHARE HOLDING OF THE COMPANIES WHICH ARE AS UNDER: NAME OF THE COMPANY SHARE HOLDERS TV ZINE INDIA.COM PVT. LTD. NISHIT DESAI 5010 SHARE S OF RS.10 EACH SWATI NISHIT DESAI 5000 SHARES OF RS.10 EACH VIKRAM SHROFF 1 SHARE OF RS.10 EACH DEVANG DHRUVA 1 SHARE OF RS.10 EACH MAKRUPA CHEMICALS PVT. LTD. NISHIT DESAI 10 SHARES OF RS.10 EACH. TV ZINE INDIA.COM PVT. LTD. 9990 SHARES OF RS.10 EACH DEVANG DHRUVA IS THE EMPLOYEE OF THE ASSESSEE. SWA TI NISHIT DESAI IS NOT HAVING TAXABLE INCOME, THEREFORE NISHIT DESAI I S THE ONLY OWNER OF THIS COMPANY. THE MAKRUPA CHEMICALS PVT. LTD. WAS INCOR PORATED ON 08.09.1989 AND IT WAS INCURRING LOSS FROM A.Y. 1994-95 TO 2009 -10. THE AO HAS ALSO VERIFIED THE PROFIT & LOSS ACCOUNT OF THE SAID COMP ANY AND HE WAS OF THE VIEW THAT THE MAJOR ITEMS IN PROFIT & LOSS ACCOUNT SHOW THAT THERE WAS NO ACTIVITIES, THERE WAS NO SALARY AND NO EMPLOYEE. THE RENT RECE IVED BY THE COMPANY WAS FOR FLAT NO.51, NCPA RESIDENTIAL APARTMENT FROM SWI SS BANK CORPORATION. THUS, THERE IS CONSISTENT LOSS IN THE COMPANY. THE COMPANY OWNS ONE IMMOVABLE PROPERTY I.E. FLAT NO.51, NCPA RESIDENTIA L APARTMENT. THE SAID FLAT WAS PURCHASED ON 08.05.91. THE SAID COMPANY WAS TA KEN OVER BY TV ZINE INDIA.COM PVT. LTD. BY PURCHASING THE EQUITY OF FAC E VALUE OF RS.99900/- AT PREMIUM OF ABOUT RS.3400/- PER SHARE. NISHIT DESAI IS THE SUBSTANTIAL SHAREHOLDER OF THE COMPANY. THE FLAT WAS GIVEN TO SWATI DESAI BY COMPANY IN THE STATUS OF EMPLOYEE OF THE COMPANY WITHOUT ANY R ENT. BUT SWATI DESAI DOES NOT POSSESS ANY SPECIAL QUALIFICATION. THE RETURN OF SUBSEQUENT YEAR FILED BY THE MAKRUPA CHEMICALS PVT. LTD. SHOWS ONLY LOSSES. THE SAID COMPANY TV ZINE INDIA.COM PVT. LTD. HAS INVESTED THE AMOUNT RE CEIVED FROM NISHIT DESAI OF RS.3,45,65,400/- IN MAKRUPA CHEMICALS PVT. LTD. THE SAID AMOUNT WAS RECEIVED ON ACCOUNT OF DEBENTURE FOR WHICH THE NISH IT DESAI CLAIMED THAT HE ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 5 HAS TAKEN LOAN FROM HDFC LTD. SIMILARLY TV ZINE IN DIA.COM PVT. LTD. WAS ALSO INCORPORATED ON 13.09.2000 AND THAT COMPANY IS ALSO INCURRING LOSSES. THE AO HAS ALSO VERIFIED THE PROFIT & LOSS ACCOUNT OF THE SAID COMPANY AND THE ADDRESS OF THE COMPANY IS 94B, MITTAL COURT, NARIMA N POINT, MUMBAI. BUT THE SAID PREMISES IS OWNED BY NISHIT DESAI. THEREFORE, AO WAS OF THE VIEW THAT BOTH THESE COMPANIES HAD NEVER DONE ANY BUSINESS AN D THERE WAS NO INTENTION TO DO THE BUSINESS AT ALL. ASSESSEE WAS FULLY AWAR E ABOUT THE FINANCIAL POSITION OF THIS COMPANY AND HE WAS ALSO AWARE THAT THE COMP ANY WAS JUST PAPER COMPANY. IN SPITE OF THIS FACT ASSESSEE HAS PURCHA SED THE DEBENTURE OF BOTH THESE COMPANIES BY BORROWING FUNDS FROM THE BANK. THE DEBENTURES ARE UNSECURED AND CARRY INTEREST AT A NEGLIGIBLE RATE O F 0.05%. THOUGH THE DEBENTURES HAVE BEEN ISSUED BY TWO COMPANIES ACTUAL LY ENTIRE FUNDS HAVE FOUND THEIR WAY INTO THE COMPANY MAKRUPA CHEMICALS PVT. LTD. FUNDS TRANSFERRED BY ASSESSEE OSTENSIBLY THROUGH THE DEBE NTURE TO TV ZINE INDIA.COM PVT. LTD. WERE ENTIRELY TRANSFERRED TO MAKRUPA CHEM ICALS PVT. LTD. FOR ACQUIRING ENTIRE SHARE CAPITAL. THE SHARES WERE AC QUIRED BY TV ZINE INDIA.COM PVT. LTD. AT A PREMIMUM OF RS.3400/- PER SHARE. TH E PREMIUM AMOUNT DOES NOT APPEAR IN THE BALANCE SHEET OF THE MAKRUPA CHEM ICALS PVT. LTD. THEREFORE, THERE IS NO JUSTIFICATION FOR ASSESSEE TO ADVANCE A HUGE SUM OF RS.7.2 CRORES AGAINST THE DEBENTURES THAT ARE UNSECURE AND CARRY A NEGLIGIBLE INTEREST RATE BY UTILIZING BORROWED MONEY AT SUBSTANTIAL INTEREST. THEREFORE WHOLE THE TRANSACTION IS COLOURABLE DEVICE FOR CLAIMING THE T AX DEDUCTION WHICH ASSESSEE SHOULD HAVE NOT AVAILED. THEREFORE AO HAS RELIED U PON THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. SWAPNA ROY 192 TAXMAN 105 (ALL) 2010 AND ON THE DECISION OF HONBL E GUJARAT HIGH COURT IN THE CASE OF KALINDI INVESTMENTS PVT. LTD. 129 TAXMA N 219 AND HELD THAT INVESTMENT IN THE SAID COMPANIES WHICH WERE IN LOSS ES FOR SEVERAL YEARS. THIS SHOWS THAT THE INVESTMENT WAS NOT DONE WITH BONAFID E INTENTION. THIS IS A COLOURABLE DEVICE, THEREFORE INTEREST OF RS.79,92,9 29/- CLAIMED ON THE ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 6 DEBENTURES WAS DISALLOWED BY AO. MATTER CARRIED TO LD. CIT(A) AND LD. CIT(A) HAS ALLOWED THE CLAIM BY OBSERVING AS UNDER: 9.10 THE APPELLANT HAS CITED A NUMBER OF DECISIONS TO SUPPORT HIS CASE. THE APPELLANT HAS CITED THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF RAJENDRA PRASAD MOODY (SUPRA), WHICH SUPPORTS THE C ASE OF THE APPELLANT DIRECTLY. THE RELEVANT PART OF THIS DECISION IS AS UNDER: 3. THE EXPENDITURE TO BE DEDUCTIBLE UNDER S. 57(III ) MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF MAKING OR EARNING SUCH INCOME. THE ARGUMENT OF THE REVENUE WAS THAT UNLESS THE EXPENDITURE SOUGHT TO BE DEDUCTED RESULT ED IN THE MAKING OR EARNING OF INCOME, IT COULD NOT BE SAID T O BE LAID OUT OR EXPENDED FOR THE PURPOSE OF MAKING OR EARNING SUCH. INCOME. THE MAKING OR EARNING OF INCOME, SAID THE REVENUE, WAS A SINE QUA NON TO THE ADMISSIBILITY OF THE EXPENDITURE UNDER S. 57 (III) AND, THEREFORE, IF IN A PARTICULAR ASSESSMENT YEAR THERE WAS NO INC OME, THE EXPENDITURE WOULD NOT BE DEDUCTIBLE UNDER THAT SECT ION. THE REVENUE RELIED STRONGLY ON THE LANGUAGE OF S. 37(1) AND, CO NTRASTING THE PHRASEOLOGY EMPLOYED IN S. 57(III) WITH THAT IN S. 37(I), POINTED OUT THAT THE LEGISLATURE HAD DELIBERATELY USED WORDS OF NARROWER IMPORT IN GRANTING THE DEDUCTION UNDER S. 57(III). SEC. 37(L) PROVIDED FOR DEDUCTION OF EXPENDITURE LAID OUT OR EXPENDED WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OR PROF ESSION COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS OR GAI NS OF BUSINESS OR PROFESSION'. THE LANGUAGE USED IN S. 37(1) WAS ' LAID OUT OF EXPENDEDFOR THE PURPOSE OF THE BUSINESS OR PROFESS ION' AND NOT LAID OUT OR EXPENDEDFOR THE PURPOSE OF MAKING OR EARNIN G SUCH INCOME AS SET OUT IN S. 57(III). THE WORDS IN S. 5 7(III) BEING NARROWER, CONTENDED THE REVENUE, THEY CANNOT BE GIV EN THE SAME WIDE MEANING AS THE WORDS IN S. 37(L) AND HENC E NO DEDUCTION OF EXPENDITURE COULD BE CLAIMED UNDER S. 57(III) UN LESS IT WAS PRODUCTIVE OF INCOME IN THE ASSESSMENT YEAR IN QUES TION. THE CONTENTION OF THE REVENUE UNDOUBTEDLY FOUND FAVOUR WITH THE HIGH COURT BUT WE DO NOT THINK WE CAN ACCEPT IT. OU R REASONS FOR SAYING SO ARE AS FOLLOWS: 4. WHAT S. 57(III) REQUIRES IS THAT THE EXPENDITURE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME. IT IS THE PURPOSE OF THE EXPENDITUR E THAT IS RELEVANT IN DETERMINING THE APPLICABILITY OF S. 57(III) AND THA T PURPOSE MUST BE MAKING OR EARNING OF INCOME. SEC. 57(III) DOES NOT REQUIRE THAT THIS PURPOSE MUST BE FULFILLED IN ORDER TO QUALIFY THE E XPENDITURE FOR DEDUCTION. IT DOES NOT SAY THAT THE EXPENDITURE SHA LL BE DEDUCTIBLE ONLY IF ANY INCOME IS MADE OR EARNED. THERE IS IN F ACT NOTHING IN THE LANGUAGE OF S. 57(III) TO SUGGEST THAT THE PURPOSE FOR WHICH THE EXPENDITURE IS MADE SHOULD FRUCTIFY INTO ANY BENEFI T BY WAY OF RETURN IN THE SHAPE OF INCOME. THE PLAIN NATURAL CONSTRUCT ION OF THE LANGUAGE OF S. 57(III) IRRESISTIBLY LEADS TO THE CONCLUSION THAT TO BRING A CASE ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 7 WITHIN THE SECTION, IT IS NOT NECESSARY THAT ANY IN COME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF THE EXPENDITURE. IT MAY BE POINTED OUT THAT AN IDENTICAL VIEWS WAS TAKEN BY THIS COURT IN EASTERN INVESTMENTS LTD. VS. CIT (1951) 20 ITR 1 (SC): TC41R.491, WHERE INTERPRETING THE CORRESPONDING PROVISION IN S.12(2) OF THE INDIAN IT ACT, 1922, WHICH WAS IPSISSIMA VERBA IN THE SAME TERMS AS S. 57(III) , BOSE J., SPEAKING ON BEHALF OF THE COURT, OBSERVED: 'IT IS NOT NECESSARY TO SHOW THAT THE EXPENDITURE W AS A PROFITABLE ONE OR THAT IN FACT ANY PROFIT WAS EARNE D.' IT IS INDEED DIFFICULT TO SEE HOW, AFTER THIS OBSER VATION OF THE COURT THERE CAN BE ANY SCOPE FOR CONTROVERSY IN REGARD TO THE INTERPRETATION OF S. 57(III). 5. IT IS ALSO INTERESTING TO NOTE THAT, ACCORDING T O THE REVENUE, THE EXPENDITURE WOULD DISQUALIFY FOR DEDUCTION ONLY IF NO INCOME RESULTS FROM SUCH EXPENDITURE IN A PARTICULAR ASSESSMENT YE AR, BUT IF THERE IS SOME INCOME, HOWSOEVER SMALL OR MEAGRE, THE EXPENDI TURE WOULD BE ELIGIBLE FOR DEDUCTION. THIS MEANS THAT IN A CASE W HERE THE EXPENDITURE IS RS.1,000, IF THERE IS INCOME OF EVEN RE.1, THE EXPENDITURE WOULD BE DEDUCTIBLE AND THERE WOULD BE RESULTING TOSS OF RS. 999 UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. BUT IF THERE IS NO INCOME, THEN, ON THE ARGUMENT OF THE REVENUE, THE E XPENDITURE WOULD HAVE TO BE IGNORED AS IT WOULD NOT BE LIABLE TO BE DEDUCTED. THIS WOULD INDEED BE A STRANGE AND HIGHLY ANOMALOUS RESULT AND IT IS DIFFICULT TO BELIEVE THAT THE LEGISLATURE COULD HAV E EVER INTENDED TO PRODUCE SUCH ILLOGICALITY. MOREOVER, IT MUST BE REM EMBERED THAT WHEN A PROFIT AND LOSS ACCOUNT IS CAST IN RESP ECT OF ANY SOURCE OF INCOME, WHAT IS ALLOWED BY THE STATUTE AS PROPER EXPENDITURE WOULD BE DEBITED AS AN OUTGOING AND INC OME WOULD BE CREDITED AS A RECEIPT AND THE RESULTING INCOME OR L OSS WOULD BE DETERMINED. IT WOULD MAKE NO DIFFERENCE TO THIS PRO CESS WHETHER THE EXPENDITURE IS X OR Y OR NIL; WHATEVER IS THE PROPE R EXPENDITURE ALLOWED BY THE STATUTE WOULD BE DEBITED. EQUALLY, I T WOULD MAKE NO DIFFERENCE WHETHER THERE IS ANY INCOME AND IF SO , WHAT, SINCE WHATEVER IT BE, X OR Y OR NIL, WOULD BE CREDITED. A ND THE ULTIMATE INCOME OR LOSS WOULD BE FOUND. WE FAIL TO APPRECIAT E HOW EXPENDITURE WHICH IS OTHERWISE A PROPER EXPENDITURE CAN CEASE TO BE SUCH MERELY BECAUSE THERE IS NO RECEIPT OF IN COME. WHATEVER IS A PROPER OUTGOING BY WAY OF EXPENDITURE MUST BE DEBITED IRRESPECTIVE OF WHETHER THERE IS RECEIPT OF INCOME OR NOT. THAT IS THE PLAIN REQUIREMENT OF PROPER ACCOUNTING AND THE INTERPRETATION OF S. 57(III) CANNOT BE DIFFERENT. THE DEDUCTION OF THE E XPENDITURE CANNOT, IN THE CIRCUMSTANCES, BE HELD TO BE CONDITIONAL UPO N THE MAKING OR EARNING OF THE INCOME. 6. IT IS TRUE THAT THE LANGUAGE OF S. 37(1) IS A LI TTLE WIDER THAN THAT OF S. 57(III), BUT WE DO NOT SEE HOW THAT CAN MAKE ANY DI FFERENCE IN THE ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 8 TRUE INTERPRETATION OF S. 57(III). THE LANGUAGE OF S. 57(III) IS CLEAR AND UNAMBIGUOUS AND IT HAS TO BE CONSTRUED ACCORDING TO ITS PLAIN NATURAL MEANING AND MERELY BECAUSE A SLIGHTLY WIDER PHRASEOLOGY IS EMPLOYED IN ANOTHER SECTION WHICH MAY TAKE IN SOMET HING MORE, IT DOES NOT MEAN THAT S. 57(III) SHOULD BE GIVEN A NAR ROW AND CONSTRICTED MEANING NOT WARRANTED BY THE LANGUAGE OF THE SECTIO N AND, IN FACT, CONTRARY TO SUCH LANGUAGE. THIS VIEW WHICH WE ARE TAKING IS CLEARLY SUPPORTED BY THE OBSERVATIONS OF LORD THANKERTON IN HUGES VS. BANK O F NEW ZEALAND (1938) 6 ITR 636 (HL): TC16R.381, WHERE THE LEARNED LAW LORD SAID: 'EXPENDITURE IN COURSE OF THE TRADE WHICH IS UNREMU NERATIVE IS NONE THE LESS A PROPER DEDUCTION, IF WHOLLY AND EXCLUSIVELY MADE FOR THE PURPOSES OF THE TRADE. IT DOES NOT REQ UIRE THE PRESENCE OF A RECEIPT ON THE CREDIT SIDE TO JUSTIFY THE DEDUCTION OF AN EXPENSE.' 7. WE FIND THAT THE SAME VIEW HAS BEEN TAKEN BY THE MADRAS HIGH COURT IN APPA RAO VS. CIT (1962) 46 ITR 511 (MAD) A ND MOHAMED GHOUSE VS. CIT (1963) 49 ITR 127 (MAD): TC1 5R. 117 0, THE BOMBAY HIGH COURT IN ORMERODS (INDIA) (P) LTD. VS. CIT (19 59) 36 ITR 329 (BOM). TC41R.658, THE ALLAHABAD HIGH COURT IN CHAIL BEHARI LAL VS. CIT (1960) 39 ITR 696 (ALL) : TC41R.659, THE MADHYA PRADESH HIGH COURT IN CIT VS. DR. FIDA HUSSAIN G. ABBASI (1969) 71 ITR 314 (MP): TC41R.666, THE KERALA HIGH COURT IN M.N. RAMASWAMY IYER VS. CIT (1969) 71 ITR 218 (KER): TC41R. 667 AND THE ORISSA HIGH COURT IN CIT VS. GOPAL CH. PATNAIK (1978) 111 ITR 86 (ORI) : TC4 1R.668. THIS VIEW IS EMINENTLY CORRECT AS IT IS NOT ONLY JUSTIFIED BY THE LANGUAGE OF S. 57(III) BUT IT ALSO ACCORDS WITH THE PRINCIPLES OF COMMERCIAL ACCOUNTING. THE CONTRARY VIEW TAKEN BY THE PATNA HI GH COURT IN MAHARAJADHIRAJ KAMESHWAR SINGH VS. CIT (1957) 32 IT R 377 (PAT). TC41R.656 AND CALCUTTA HIGH COURT IN MADANLAL SOHAN LAL VS. CIT (1963) 47 ITR 1 (CAL). TC41R,655 MUST IN THE CIRCUM STANCES BE HELD TO BE INCORRECT. 9.11 IT MAY BE SEEN FROM THE ABOVE DECISION THAT HO N'BLE SUPREME COURT HAS HELD THAT THE EXPENDITURE TO BE DEDUCTIBLE UNDE R SECTION 57(II) MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. IT IS THE PURPOSE OF THE EX PENDITURE THAT IS RELEVANT IN DETERMINING THE APPLICABILITY OF SECTIO N 57(III) AND THAT PURPOSE MUST BE MAKING OR EARNING OF INCOME. SECTION 57(III ) DOES NOT SAY THAT THE EXPENDITURE SHALL BE DEDUCTIBLE ONLY IF ANY INCOME IS MADE OR EARNED. THERE IS IN FACT NOTHING IN THE LANGUAGE OF SECTION 57(III) TO SUGGEST THAT THE PURPOSE FOR WHICH THE EXPENDITURE IS MADE SHOUL D FRUCTIFY INTO ANY BENEFIT BY WAY OF RETURN IN THE SHAPE OF INCOME. TH E PLAIN NATURAL CONSTRUCTION OF THE LANGUAGE OF SECTION 57(III) IRR ESISTIBLY LEADS TO THE CONCLUSION THAT TO BRING A CASE WITHIN THE SECTION, IT IS NOT NECESSARY THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RES ULT OF THE EXPENDITURE. THIS IS EXACTLY THE CASE OF THE APPELLANT AND HENCE IN VIEW OF THIS SUPREME ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 9 COURT DECISION, THE APPELLANT IS ENTITLED FOR DEDUC TION OF INTEREST UNDER SECTION 57(III) OF THE ACT. 9.12 IN ANOTHER CASE OF NEW SAWAN SUGAR & GUR REFIN ING CO. LTD, THE QUESTION WAS AS TO 'WHETHER, ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIGHT IN ALLOWING THE EXPEND ITURE OF RS.27,000 PAID TO M/S K.C. THAPAR & BROS. (F) LTD, AS A DEDUCTIBLE EXPENSE UNDER SECTION 37(1) OF THE IT ACT, 1961, RELATING TO THE AY 1972- 73?' IN THIS CASE, WHILE CITING THE DECISION OF SUPREME COURT IN THE CASE OF RAJENDRA PRASAD MOODY (SUPRA), HON'BLE CALCUTTA HIGH COURT CAME TO THE FO LLOWING CONCLUSION: 10. THE FINDING OF THE TRIBUNAL IS THAT THE EXPENDI TURE WAS REASONABLE ON THE FACTS OF THIS CASE AND THAT IT WA S WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF BUSINESS. A LTHOUGH THERE MAY BE DISAGREEMENT AS TO WHETHER THE EXPENDITURE W AS FOR THE PURPOSE OF BUSINESS AS NO CONTENTION WAS RAISED BEF ORE THE TRIBUNAL THAT THE ASSESSEE ONLY DERIVED LEASE RENT WHICH COULD NOT BE TERMED AS BUSINESS ACTIVITY, THERE CANNOT BE ANY DISPUTE THAT IT WAS WHOLLY AND EXCLUSIVELY LAID OUT OR EXPE NDED FOR THE PURPOSE OF MAKING OR EARNING THE INCOME. WE ARE OF THE VIEW THAT ON THE FACTS OF THIS CASE, THE TRIBUNAL CAME T O A CORRECT CONCLUSION REGARDING THE ALLOWABILITY OF THE EXPEND ITURE IN QUESTION. 9.13 SIMILAR DECISIONS HAVE BEEN RENDERED IN THE CA SES OF SASSOON J. DAVID & CO. P. LTD, 118 ITR 261 (SC) AND JAYSHREE TEA & I NDUSTRIES LTD, 272 ITR 193 (CAL), AS CITED BY THE APPELLANT, ALTHOUGH THEY ARE IN THE CONTEXT OF BUSINESS EXPENDITURE DEDUCTIBLE UNDER SECTION 37(1) OF THE ACT. IN THE CASE OF BEAM ESTATES (P) LTD, 15 TAXMANN.COM 386 (DELHI) CITED BY THE APPELLANT (SUPRA) HON'BLE ITAT HAS OBSERVED THAT: 'THE ASSESSEE HAD RECEIVED LOAN FROM NIS AND THE OP ENING BALANCE THEREOF WAS RS. 1, 02,10,182 AND INTEREST THEREON W AS AMOUNTED TO RS. 7,10,916. THE ASSESSEE HAD ADVANCED A SUM OF RS . 1 CRORE OUT OF THE ABOVE TO MGS. RS. 13,50, 000 OUT OF THE ABOVE W ERE RECALLED AND THE OPENING BALANCE THEREON AS ON 1-4-2005 WAS RS.86,50,000. INTEREST EARNED ON THE SAME WAS RS.6,92,000. THEN T HE INTEREST PAID BY THE ASSESSEE TO NIS TO THE PROPORTION OF THE AMO UNT ADVANCED CAME TO RS.6,14,992. HENCE, ADMITTEDLY IN EARNING T HE INCOME OF RS.6,92,000, THE ASSESSEE HAD SPENT RS.6,14,992 AS INTEREST ON AMOUNT BORROWED. SINCE THE INTEREST EARNED ON AMOUN T ADVANCED WAS DIRECTLY CORRELATED TO THE INTEREST SPENT ON AM OUNT BORROWED, THERE WAS NO INFIRMITY IN THE DIRECTIONS OF THE COM MISSIONER (APPEALS) THAT AGAINST THE INTEREST INCOME OF RS.6, 92,000, RS.6,14,992 SHOULD BE ALLOWED AS EXPENDITURE AND, H ENCE, THE NET TAXABLE INCOME UNDER OTHER SOURCES WILL BE RS.77,00 8 ONLY. HENCE, THERE WAS DIRECT NEXUS BETWEEN THE AMOUNT ADVANCED AND AMOUNT BORROWED AND, HENCE, THE ORDER OF THE COMMISSIONER (APPEALS) WAS TO BE AFFIRMED.' ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 10 9.14 ABOVE DECISION IS DIRECTLY IN FAVOUR OF THE AP PELLANT AS THE ISSUE INVOLVED IN THE ABOVE CASE IS EXACTLY IDENTICAL TO THE ISSUE INVOLVED IN THE CASE OF THE APPELLANT. 915 IT MAY BE NOTED THAT IN ASSESSMENT YEAR 2009-1 0, MY LD. PREDECESSOR HAS NOT AGREED WITH THE CONTENTIONS OF THE APPELLAN T AND HAS UPHELD THE ORDER OF THE AO DISALLOWING THE CLAIM OF DEDUCTION OF INTEREST UNDER CONSIDERATION. WITH DUE RESPECT AND REGARD, I DO NO T AGREE WITH THE VIEW OF MY LD. PREDECESSOR. IT IS SEEN FROM THE SAID APP ELLATE ORDER THAT MY LD. PREDECESSOR HAS NOT FORMED AN INDEPENDENT VIEW AND HAS ONLY REITERATED THE FINDINGS OF THE AO INCLUDING THE ASPECT OF 'LIF TING OF VEIL'. SUCH AN ISSUE OF 'LIFTING OF VEIL' IS NOT INVOLVED AT ALL IN THE PRESENT CASE. THE SIMPLE FACTS ARE THAT THE APPELLANT HAD TAKEN LOAN OF RS. 7 CRORES FROM HDFC LTD (IN THE FORM OF A HOUSING LOAN) AND HAD INVESTED TH E WHOLE AMOUNT IN PURCHASING THE DEBENTURES OF THE TWO COMPANIES NAME LY MAKRUPA AND TVZINE. SINCE MAKRUPA WAS THE OWNER OF THE CONCERNE D RESIDENTIAL PROPERTY I.E. FLAT NO. 51, NCPA APARTMENTS, APSARA CO-OPERATIVE HOUSING SOCIETY, THE APPELLANT THUS INDIRECTLY BECAME ENTIT LED TO THE OWNERSHIP OF THE SAID RESIDENTIAL PROPERTY (IT MAY BE NOTED THAT THE DEBENTURES PURCHASED BY THE APPELLANT WERE CONVERTIBLE INTO SH ARES OF THE COMPANIES AT THE OPTION OF THE APPELLANT). HENCE IT CANNOT BE SAID THAT THERE WAS ANY COLOURABLE DEVICE. THE UTILISATION OF LOAN GIVEN BY THE HDFC LTD WAS ALSO VERY MUCH IN THE KNOWLEDGE OF THE BANK (I.E. HDFC) BECAUSE THE RELEVANT DOCUMENTS FOR SECURING THE SAID LOAN INCLUDING THE ORIGINAL TITLE DOCUMENTS HELD BY MAKRUPA IN RESPECT OF FLAT NO. 51 , NCPA APARTMENTS, APSARA COOPERATIVE HOUSING SOCIETY ALONG WITH THE O RIGINAL SHARE CERTIFICATE IN THIS REGARD ISSUED BY APSARA CO-OPER ATIVE HOUSING SOCIETY HAVE ALSO BEEN PLEDGED AS SECURITY WITH THE BANK. 9.16 THE PRINCIPLE OF 'LIFTING OF VEIL' WOULD BE AP PLICABLE ONLY IN THOSE CASES, WHERE THE TRANSACTION CAN BE TERMED TO BE 'S HAM' OR 'A TRANSACTION IN NULLITY'. IN THE PRESENT CASE, THERE IS NO SUCH ALLEGATION MADE BY THE AO. AT THE MOST, THE AO COULD HAVE ONLY QUESTIONED THE COMMERCIAL EXPEDIENCY OF THE ABOVE TRANSACTION. HOWEVER, EVEN THAT STANDS PROVED FROM THE DISCUSSION MADE ABOVE. THE APPELLANT BY VI RTUE OF INVESTMENT IN DEBENTURES HAD TAKEN OVER THE COMPANY MAKRUPA WHICH OWNED THE FLAT NO. 51 IN NCPA APARTMENTS IN APSARA CO-OPERATIVE HO USING SOCIETY. THE SAID COMPANY MAKRUPA HAD TO REPAY A DEPOSIT TAKEN F ROM ERSTWHILE TENANT OF THE PROPERTY OWNED BY THE COMPANY. FOR THAT PURP OSE, THE APPELLANT HAD TO BORROW MONEY TO INFUSE INTO THE COMPANY. HOW EVER, THE APPELLANT WANTED TO SECURE THE FUNDS TO BE INFUSED BY HIM SO THAT IN THE EVENT OF ANY FUTURE LIABILITY ON THE COMPANY, THE SAID FUNDS REMAIN SECURE. THEREFORE, IT WAS CONSIDERED PRUDENT BY THE APPELLA NT TO SUBSCRIBE TO THE DEBENTURES OF THE COMPANY SO THAT IT CAN RETURN THE DEPOSIT TO THE TENANT. UNDER THIS ARRANGEMENT, WHEREAS THERE WAS A POSSIBI LITY OF A HIGHER INTEREST INCOME ALSO, THE MORE IMPORTANT CONSIDERAT ION WAS THAT THE APPELLANT WAS ENTITLED TO RECOVER ATLEAST THE AMOUN T EQUIVALENT TO WHAT WAS BORROWED FROM HDFC. IF THIS WAS NOT DONE, THE A PPELLANT MAY HAVE ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 11 LOST ALL THE MONEY BY SUBSCRIBING TO SHARES AND HE WOULD HAVE BEEN LESS SECURE AND WOULD HAVE BEEN FORCED TO PAY THE MONEY BORROWED FROM HDFC. THEREFORE, THIS WAS A PRUDENT COMMERCIAL DECI SION ON THE PART OF THE APPELLANT TO INVEST IN DEBENTURES, MORE SO FROM THE POINT OF VIEW OF LIABILITY MANAGEMENT. 9.17 IT IS ALSO NOT THE ALLEGATION OF THE AO THAT T HE TRANSACTION WAS NOT DONE AT ARM'S LENGTH. WHEN THE DEBENTURES WERE ISSU ED, THE INTEREST RATES PREVAILING IN THE MARKET WERE VERY LOW. HOWEVER, TH E DEBENTURE HOLDER I.E. THE APPELLANT WAS ENTITLED TO A HIGHER RATE OF INTEREST IN THE EVENT THE COMPANY MAKES GOOD PROFIT. NOW, MAKRUPA HAS ACTUALL Y TURNED AROUND AND HAS MADE BRISK BUSINESS OVER THE LAST 2 YEARS T HROUGH THE FRANCHISEE STORE. THE APPELLANT CONTENDS THAT DEPENDING ON THE SUCCESS OF THIS, MORE STORES MAY COME UP. THUS, THERE IS A SIGNIFICANT UP SIDE TO INVESTING IN DEBENTURES PURELY IN TERMS OF INCOME GENERATION AND ALSO TO SECURE THE INVESTMENT. 9.18 THE APPELLANT'S CONTENTION THAT THE PREDOMINAN T INTENTION OF INVESTMENT IN DEBENTURES WAS TO OBTAIN CONTROLLING INTEREST IN THE COMPANY SOONER OR LATER AS THE DEBENTURES ARE CONVE RTIBLE, HAS TO BE APPRECIATED. THOUGH THE RATE OF INTEREST PAYABLE TO HDFC IS 10.5%, THERE IS A POSSIBILITY THAT THE APPELLANT MAY EARN UPTO 18% P.A., IF THE COMPANY MAKES PROFIT; INCLUDING FROM SALE OF FLAT OR OTHERW ISE. 9.19 IN THIS REGARD, IT MUST BE UNDERSTOOD THAT ANY ASSESSEE IS ENTITLED TO CONDUCT ITS BUSINESS AS PER ITS OWN PRUDENCY. THE T RANSACTIONS UNDERTAKEN BY THE APPELLANT CANNOT BE CONSIDERED EITHER TO BE SHAM OR A COLOURABLE DEVICE IN ANY MANNER, AS THERE IS NO UNDUE TAX GAIN DERIVED BY THE APPELLANT. HAD THE APPELLANT DIRECTLY PURCHASED THE SAID FLAT NO. 51, NCPA APARTMENTS, APSARA CO-OPERATIVE HOUSING SOCIETY, TH E APPELLANT WOULD HAVE BEEN ENTITLED TO DEDUCTION OF ENTIRE INTEREST UNDER SECTION 24 OF THE ACT. SO BOTH WAY THE APPELLANT COULD NOT HAVE BEEN DENIED DEDUCTION OF INTEREST. IN THIS REGARD, I WOULD LIKE TO CITE THE CASE OF CWT VS ARVIND NAROTTAM, 173 ITR 479 (SC), WHERE THREE TRUST DEEDS WERE EXECUTED BY NAROTTAM LALBHAI FOR THE BENEFIT OF HIS SON ARVIND (A MINOR) IN SUCH A MANNER SO AS TO REDUCE THE WEALTH TAX LIABILITY ON THE ASSESSEE (ARVIND NAROTTAM). PRACTICALLY ALL PROPERTIES IN THAT CASE WERE KEPT OUTSIDE THE PURVIEW OF WEALTH TAX THROUGH TRUST DEEDS EXECUTED IN A NOVEL WAY. THE MATTER WHICH WAS CONTESTED BY THE DEPARTMENT (WHICH TRIED TO TAX THE WEALTH OF THE TRUST IN THE HANDS OF THE ASSESSEE) U P TO SUPREME COURT WAS DECIDED AGAINST THE REVENUE AND IN FAVOUR OF THE AS SESSEE BECAUSE NOTHING COULD BE FOUND IN THE TRUST DEEDS WHICH COULD BE HE LD ILLEGAL OR UNLAWFUL. IN ANOTHER CASE OF MUTHURAM AGARWAL VS STATE OF MAD HYA PRADESH, 87 AIR 109, IT HAS BEEN HELD THAT A PERSON CANNOT BE TAXED ON THE BASIS OF INFERENCE OR ANALOGY WITHOUT A PROVISION IN THE STA TUTE APPLICABLE TO THE FACTS OF HIS CASE. 9.20 THE APPELLANT HAS EVERY RIGHT TO PLAN HIS AFFA IRS TO REDUCE THE TAX INCIDENCE. IN THE CASE OF AZADI BACHAO ANDOLAN, 263 ITR 706 (SC), IT HAS BEEN HELD THAT EVERY ATTEMPT AT TAX PLANNING CANNOT BE HELD TO BE ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 12 ILLEGITIMATE AND EVERY PERSON IS ENTITLED TO CLAIM WITHIN THE LAW ALL THE LEGITIMATE ADVANTAGES. IN THE CASE OF BUNYAN AND BE RRY, 222 ITR 831 (GUJARAT), WHILE COMMENTING ON THE DECISION IN THE CASE OF MCDOWELL & CO, 154 ITR 148 (SC), HON'BLE GUJARAT HIGH COURT HA S OBSERVED AS UNDER: 'THE COURT (I.E. THE SUPREME COURT IN THE CASE OF M CDOWELL) NOWHERE SAID THAT EVERY ACTION OR INACTION ON THE P ART OF THE TAXPAYER WHICH RESULTS IN REDUCTION OF TAX LIABILIT Y TO WHICH HE MAY BE SUBJECTED IN FUTURE, IS TO BE VIEWED WITH SUSPIC ION AND BE TREATED AS A DEVICE FOR AVOIDANCE OF TAX IRRESPECTI VE OF LEGITIMACY OR GENUINENESS OF THE ACT; AN INFERENCE WHICH UNFORTUN ATELY IN OUR OPINION, THE TRIBUNAL APPARENTLY APPEARS TO HAVE DR AWN FROM THE ENUNCIATION MADE IN MCDOWELL'S CASE [1958] 154 ITR 148 (SC). THE RATIO OF ANY DECISION HAS TO BE UNDERSTOOD IN THE C ONTEXT IT HAS BEEN MADE. THE FACTS AND CIRCUMSTANCES WHICH LED TO MCDOWELL'S DECISION LEAVES US IN NO DOUBT THAT THE PRINCIPLE E NUNCIATED IN THE ABOVE CASE HAS NOT AFFECTED THE FREEDOM OF THE CITI ZEN TO ACT IN A MANNER ACCORDING TO HIS REQUIREMENTS, HIS WISHES IN THE MANNER OF DOING ANY TRADE, ACTIVITY OR PLANNING HIS AFFAIRS W ITH CIRCUMSPECTION, WITHIN THE FRAMEWORK OF LAW, UNLESS THE SAME FALL I N THE CATEGORY OF COLOURABLE DEVICE WHICH MAY PROPERLY BE CALLED A DE VICE OR A DUBIOUS METHOD OR A SUBTERFUGE CLOTHED WITH APPAREN T DIGNITY.' 9.21 OTHER DECISIONS CITED BY THE APPELLANT ALSO SU PPORT HIS CASE FOR DEDUCTION OF INTEREST OF RS.53,65,251/- UNDER SECTI ON 57(III) OF THE ACT. THE APPELLANT HAS ALSO ARGUED THAT IN THE PRECEDING YEARS, THE CLAIM OF INTEREST MADE BY THE APPELLANT UNDER SECTION 57(III ) OF THE ACT WAS CONSISTENTLY ALLOWED IN ASSESSMENT PROCEEDINGS U/S 143(3) AND HENCE THE PRINCIPLE OF CONSISTENCY HAS BEEN VIOLATED IN IDENT ICAL CIRCUMSTANCES. IN THIS REGARD, THE APPELLANT HAS CITED THE DECISION O F THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. NAISHADH V. VACHHARAJANI (SU PRA). THIS ARGUMENT OF THE APPELLANT ALSO CANNOT BE IGNORED. HENCE, THE AO IS DIRECTED TO GRANT DEDUCTION OF RS.53,65,251/- UNDER SECTION 57(III) O F THE ACT. SINCE, I HAVE DECIDED THE CLAIM OF THE APPELLANT UNDER SECTION 57 (III) OF THE ACT IN HIS FAVOUR, I AM NOT DISCUSSING THE ALTERNATE CLAIM OF THE APPELLANT REGARDING DEDUCTION UNDER SECTION 24 OF THE ACT. 5. THE ASSESSEE IS IN APPEAL IN RESPECT OF NOT FOL LOWING LD. CIT(A) FOR A.Y. 2009-10 IN WHICH THE LD. CIT(A) HAS UPHELD THE ACTION OF AO WHILE IN A.Y. 2005-06 THE LD. CIT(A) HAS ALLOWED THE CLAIM O F THE ASSESSEE. 6. LD. D.R. RELIED UPON THE ORDER OF LD. CIT(A) FOR A.Y. 2009-10 AND SUBMITTED THAT THE AO HAS VERIFIED THE DETAILS SUBM ITTED BY THE ASSESSEE. FROM THE FACT IT IS CLEAR THAT ASSESSEE HAS TAKEN THE LO AN FROM HDFC LTD. FOR ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 13 PURCHASE OF PROPERTY I.E. FLAT NO.51 AND THE ASSESS EE HAS USED THIS MONEY TO REPAY THE INTEREST ON PRE-DEPOSIT TAKEN FROM UBS AG AND TO PAY FOR THE CONSIDERATION OF PURCHASE OF SHARES OF MAKRUPA CHEM ICALS PVT. LTD. AND TV ZINE INDIA.COM PVT. LTD. ASSESSEE HAS PASSED ON TH ESE MONIES THROUGH INSTRUMENT OF PARTICIPATING COMPULSORILY CONVERTIBL E UNSECURED DEBENTURES (IN SHORT PCCUD). THE ASSESSEE HAS SUBSCRIBED 3750 PCCUD OF RS.10,000/- EACH TOTAL INTO RS.3,75,00,000/- IN THE COMPANY M/S . MAKRUPA CHEMICALS PVT. LTD. THE LD. D.R. SUBMITTED THAT ASSESSEE HAS TAKE N LOAN FROM HDFC FOR PURCHASE OF PROPERTY OF FLAT NO.51 NCPA APARTMENTS. THE ASSESSEE HAS MADE OF HUGE MONEY TO REPAY THE INTEREST FREE DEPOSIT TA KEN FROM UBS AG AND ALSO TO PAY FOR CONSIDERATION FOR THE PURPOSE OF PURCHAS E OF SHARES OF M/S. MAKRUPA CHEMICALS PVT. LTD. BY COMPANY M/S. TV ZINE INDIA.C OM PVT. LTD. THE SUBSCRIPTION AGREEMENT CLEARLY SAYS THAT MONEY OF P CCUD WILL BE USED FOR REPAYMENT OF INTEREST FREE DEPOSIT TAKEN FROM THE U BS WARBURG. THE ASSESSEE HAS PASSED ON RS.3,45,70,000/- TO M/S. TV ZINE INDI A.COM PVT. LTD. THROUGH INSTRUMENT OF PCCUD. THE ASSESSEE HAD SUBSCRIBED R S.3,45,70,000/- (3450 PCCUD OF RS.10,000 EACH) IN THE TV ZINE INDIA.COM P VT. LTD. THE SUBSCRIPTION AGREEMENT (PARA 3) CLEARLY SAYS THAT M ONEY WILL BE USED BY TV ZINE INDIA.COM PVT. LTD. FOR PURCHASING THE SHARES OF MAKRUPA CHEMICALS PVT. LTD. THEREFORE, THE ASSESSEE HAS TAKEN LOAN ONLY T O PURCHASE FLAT NO.51, NCPA APARTMENT BY ACQUIRING COMPANY M/S. MAKRUPA CHEMICA LS PVT. LTD. AND ALSO TO CLEAR THE INTEREST FREE DEPOSIT TAKEN BY M/S. MA KRUPA CHEMICALS PVT. LTD. FROM UBS WARBURG WHILE LETTING OUT THE PROPERTY BY MAKRUPA CHEMICALS PVT. LTD. THE ASSESSEE AND HIS WIFE HAVE BORROWED THE M ONEY FROM HDFC FOR THE PURPOSE OF PURCHASING THE PROPERTY BY ACQUIRING THE COMPANY MAKRUPA CHEMICALS PVT. LTD. THE ASSESSEES CONTENTION IS T HAT THE ASSESSEE HAS BORROWED THE MONEY TO INVEST IN PCCUD OF THESE TWO COMPANIES TO MAKE BELIEF ARRANGEMENT. THE APPARENT IS NOT REAL. THE REAL PURPOSE FOR BORROWING THE MONEY FROM HDFC IS NOT TO INVEST IN PCCUD FOR T HE PURPOSE OF EARNING INCOME FROM PCCUD BUT TO INVEST IN THE HOUSE PROPER TY THROUGH ACQUIRING THE ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 14 COMPANY MAKRUPA CHEMICALS PVT. LTD. THEREFORE AO I S JUSTIFIED IN NOT ALLOWING THE CLAIM OF THE ASSESSEE. 7. THE LD. SR. COUNSEL ARGUED THAT IT IS A SIMPLE P ROPOSITION THAT ASSESSEE HAS BORROWED FUNDS FROM HDFC LTD. TO THE TUNE OF RS .7 CRORES AND INVESTED THE SAID FUNDS IN PURCHASE OF DEBENTURES OF TWO COM PANIES. THE ASSESSEE HAS PAID THE INTEREST OF RS.79,92,929/- IN ASSESSMENT Y EAR 2009-10 AND IN ASSESSMENT YEAR 2005-06 ASSESSEE HAS PAID THE INTER EST OF RS.53,65,251/- TO HDFC LTD. AND CLAIMED THE DEDUCTION UNDER SECTION 5 7 OF THE ACT. THE ASSESSEE CLAIMED THE DEDUCTION OF SAID AMOUNT ONLY UNDER SECTION 57 AND NOT UNDER SECTION 24 OF THE ACT. THE LD. COUNSEL ARGUE D THAT IT IS OUR SIMPLE PROPOSITION THAT ASSESSEE HAS BORROWED AN AMOUNT OF RS.7 CRORES FROM HDFC ON 02.11.02 IN A.Y. 2002-03. ON THE SAME DAY, OUT OF THE SUM OF RS.7 CRORES BORROWED, ASSESSEE ACQUIRED DEBENTURES OF TWO PRIVA TE LIMITED COMPANIES NAMELY M/S. MAKRUPA CHEMICALS PVT. LTD. AND M/S. TV ZINE INDIA.COM PVT. LTD. THE DEBENTURE HOLDER IS ENTITLED TO INVEST WH ICH CAN GO UP TO 18%. BESIDES THE DEBENTURE HOLDER HAS ALSO OPTION TO CON VERT HIS DEBENTURES INTO SHARES AT ANY TIME FROM EXPIRY OF SIX MONTHS OR BEF ORE 20 YEARS FROM THE DATE OF ISSUE OF DEBENTURE. THE ASSESSEE HAS EARNED THE INTEREST INCOME ON DEBENTURES OF M/S. MAKRUPA CHEMICALS PVT. LTD. AND M/S. TV ZINE INDIA.COM PVT. LTD. THE ASSESSEE HAS ALSO PAID INTEREST ON T HE SAID LOAN FROM HDFC. THE SAID INTEREST EARNED AND INTEREST PAYMENT IS SHOWN UNDER THE HEAD INCOME FROM OTHER SOURCES IN TERMS OF SECTIONS 56 & 57 OF THE ACT. THE SAID BORROWINGS WERE ENTIRELY USED FOR THE PURPOSE OF AC QUIRING THE SAID DEBENTURES. THIS IS EVIDENT FROM THE COPY OF THE BANK STATEMENT INDICATING THE ENTRY OF THE AMOUNT BORROWED OF RS.7 CRORES FROM HDFC AND AMOUNT PAID TOWARDS THE INVESTMENT AND DEBENTURE OF M/S. MAKRUPA CHEMICALS PVT. LTD. AND M/S. TV ZINE INDIA.COM PVT. LTD. IT IS A CONSCIOUS DECISIO N AND COMMERCIAL DECISION BY THE ASSESSEE TO INVEST IN SAID DEBENTURES. THE SAID DEBENTURES ARE CONVERTIBLE INTO SHARES IN RESPECT OF COMPANY. WHE NEVER HOUSING FINANCE IS ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 15 PROVIDED BY HDFC TO BORROWERS, THE BORROWERS GENERA LLY PRODUCE THE SHARES AND DEBENTURES OF THE CO-OPERATIVE SOCIETY OR A COM PANY AS THE CASE MAY BE WHICH DIRECTLY OR INDIRECTLY ENHANCE THE FLAT OR BU ILDING. THEREFORE, SUCH LOAN HAS BEEN CLASSIFIED AS HOUSING LOAN BY HDFC ACCORDI NG TO THEIR POLICY. THE SAID LOAN IS SECURED BY ORIGINAL DEBENTURE ISSUED B Y M/S. MAKRUPA CHEMICALS PVT. LTD. AND M/S. TV ZINE INDIA.COM PVT. LTD. THE ORIGINAL DOCUMENT WAS HELD BY M/S. MAKRUPA CHEMICALS PVT. LTD. IN RESPECT OF FLAT NO.51, NCPA APARTMENT. THE ORIGINAL SHARE CERTIFICATE ISSUED B Y APSARA CO-OPERATIVE HOUSING SOCIETY LTD. TO M/S. MAKRUPA CHEMICALS PVT. LTD. AND 12 DOCUMENTS WERE EXECUTED AT THE TIME OF TAKING THE LOAN AND IN VESTMENT IN DEBENTURES. THEREFORE, HDFC WAS FULLY AWARE THAT LOAN GUARANTEE D BY THEM WAS BEING DIRECTLY INVESTED IN THE SAID DEBENTURES. AS PER S ECTION 57 OF THE ACT CERTAIN DEDUCTIONS ARE TO BE MADE IN COMPUTING THE INCOME C HARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND ONE SUCH DEDUCTION IS THAT SET OUT IN CLAUSE (III) WHICH SAYS THAT ANY EXPENDITURE LAID OUT OR E XPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SU CH INCOME. THE EARNING OF INCOME OR SUFFICIENCY OR ADEQUACY OF THE SAME IS NO T A PRE-REQUISITE FOR CLAIMING THE DEDUCTION UNDER SECTION 57. IT DOES N OT SAY THAT EXPENDITURE SHALL BE DEDUCTIBLE ONLY IF INCOME IS EARNED. THE COPY O F THE BANK STATEMENT INDICATES THAT ASSESSEE HAS BORROWED RS.7 CRORES FR OM HDFC FOR THE PURPOSE OF PURCHASING THE DEBENTURES. THE NEXUS BETWEEN BORRO WING AND UTILIZATION OF THE BORROWING IS ESTABLISHED BEYOND A SHADOW OF DOU BT. THE ASSESSEE HAS SUBMITTED A COPY OF CERTIFICATE FROM HDFC FOR INTER EST PAID, THE COPY OF THE APPLICATION FOR LOAN SUBMITTED TO HDFC, COPY OF DEB ENTURE CERTIFICATE OF M/S. TV ZINE INDIA.COM PVT. LTD. AND THE COPY OF BANK ST ATEMENT INDICATING THE ENTRY OF LOAN TAKEN OF RS.7 CRORES FROM HDFC DEPOSI TED AND INDICATING ENTRY FOR ITS UTILIZATION FOR PURCHASE OF DEBENTURES OF M /S. MAKRUPA CHEMICALS PVT. LTD. AND M/S. TV ZINE INDIA.COM PVT. LTD. THE PRIN CIPLE OF LIFTING OF VEIL WOULD NOT BE APPLICABLE IN THOSE CASES WHERE THE TR ANSACTION CAN BE TERMED TO BE SUM OR THE TRANSACTION IN NULLITY. IN THE PRESE NT CASE, THERE IS NO SUCH ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 16 ALLEGATION BY THE AO. HOWEVER, IN THIS CASE IT CAN BE QUESTIONED ONLY ON COMMERCIAL EXPEDIENCY OF THE ABOVE TRANSACTION. TH E ASSESSEE BY VIRTUE OF INVESTMENT IN DEBENTURE HAS TAKEN OVER THE COMPANY M/S. MAKRUPA CHEMICALS PVT. LTD. WHICH OWNS THE FLAT NO.51, NCPA APARTMENT , APSARA CO-OPERATIVE HOUSING SOCIETY LTD. THE SAID M/S. MAKRUPA CHEMICA LS PVT. LTD. HAD TO REPAY THE DEPOSIT TAKEN FROM ERSTWHILE TENANT OF THE PROP ERTY OWNED BY THE COMPANY. FOR THAT PURPOSE ASSESSEE HAD TO BORROW THE MONEY T O INFUSE INTO THE COMPANY. HOWEVER, THE ASSESSEE WANTED TO SECURE THE FUNDS BE TWEEN INVESTORS BY HIM SO IN THE EVENT OF FUTURE LIABILITY ON THE COMPANY THE SAID FUND REMAIN SECURED THEREFORE IT WAS CONSCIOUS DECISION OF ASSESSEE TO SUBSCRIBE DEBENTURES OF THIS COMPANY SO THAT IT CAN RETURN THE DEPOSIT TO THE TE NANT. THEREFORE, THIS WAS A COMMERCIAL DECISION OF THE ASSESSEE. THE ASSESSEE IS ENTITLED TO CONDUCT HIS BUSINESS AS PER HIS OWN PRUDENCY. THEREFORE, TRANS ACTION TAKEN BY THE ASSESSEE CANNOT BE CONSIDERED AS TO BE SUM OR CO-RELIABLE DE VICES. THE CLAIM OF THE DEDUCTION OF INTEREST PAID TO HDFC LTD. UNDER SECTION 57 OF THE ACT HAS BEEN CONSISTENTLY ACCEPTED BY THE DEPARTMENT FROM A.Y. 2003-04 TO A.Y. 2008-09 IN SCRUTINY ASSESSMENT COMP LETED UNDER SECTION 143(3) BY ADDITIONAL COMMISSIONER/ASSISTANT COMMISS IONER AND IT WAS ALSO ACCEPTED IN A.Y. 2005-06 BY THE LD. CIT(A). THE LD . A.R. RELIED UPON THE DECISION OF CIT VS. NAISHADH CACHHARAJANI WHEREIN T HE HONBLE BOMBAY HIGH COURT HAS HELD THAT PRINCIPLES OF CONSISTENCY AND R EASONABLE EXPECTATION ON THE SAME SET OF FACTS IN LAW ON THE SUBJECT A DIFFERENT VIEW CANNOT BE TAKEN. THE AO COULD NOT TAKE THE DIFFERENT VIEW IN SUBSEQUENT YEAR AND THE LD. A.R. RELIED UPON THE DECISION OF RAJENDRA PRASAD MOODY 1 15 ITR 519 (SC). HE ALSO RELIED UPON THE DECISION OF CIT VS. NAVSARA SA GAR 185 ITR 564 AND THE LD. A.R. ALSO RELIED UPON THE DECISION RELIED BY TH E LD. CIT(A) FOR A.Y. 2005- 06 IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERT ILIZERS LTD. 227 ITR 172, SASSON J. DAVID & CO. (P) LTD. 118 ITR 261 (SC), JA YSHREE TEA & INDUSTRIES LTD. 272 ITR 193, EXPRESS NEWSPAPERS LTD. 53 ITR 25 0 (SC), ORMERODS ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 17 (INDIA) (P) LTD. 36 ITR 329 (BOM), RADHASOAMI SATS ANG SAOMI BAGH S. CIT 193 ITR 321 & CIT VS. GOPALA NAICKER BANGURA 344 IT R 297. 8. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE IT IS SUBMITTED FACT ON RECORD THAT ASSESSEE HAS TAKEN THE LOAN FROM HDFC LTD. AND INTEREST PAID TO BANK AND WHICH WAS CLAIMED UNDER SECTION 57(III) OF THE ACT AND UNDER THE HEAD INCOME FROM OTHER SOURCES ON THE GROUND THAT THE BORROWINGS FROM HDF C LTD. HAVE BEEN DIRECTLY UTILISED FOR ACQUISITION OF DEBENTURE OF MAKRUPA CH EMICALS PVT. LTD. AND TV ZINE INDIA.COM PVT. LTD. THE AO WAS OF A VIEW THAT THE INTEREST PAID TO HDFC LTD. IS NOT ALLOWABLE UNDER SECTION 24 AND SECTION 57 OF THE ACT. THE LD. CIT(A) HAS CONSIDERED THE SUBMISSION OF THE ASSESSE E AND HELD THAT THE ASSESSEE HAS PURCHASED THE DEBENTURES OF TWO COMPAN IES I.E. 3457 DEBENTURES OF TV ZINE INDIA.COM PVT. LTD. AND 375 DEBENTURES O F MAKRUPA CHEMICALS PVT. LTD. AND TOTAL AMOUNT WAS INVESTED OF RS.3,20,65,40 0/-. THE TERM OF DEBENTURE WAS 20 YEARS AND ASSESSEE HAS INVESTED THIS MONEY. THEREFORE, AS PER THE PROVISIONS OF SECTION 57 OF THE ACT ANY EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING TH E INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES WILL BE ALLOWED AS DEDU CTION. ASSESSEE HAS BORROWED THE LOAN IN THE NAME OF HOUSING LOAN BUT I T HAS BEEN UTILISED FOR INVESTING IN DEBENTURES ON THE INTEREST INCOME. TH EREFORE, THE INTEREST EXPENDITURE INCURRED ON BORROWED LOAN AS AN EXPENDI TURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING THE INTEREST OF INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. THE LD. CIT(A) HAS CI TED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RAJENDRA PRASA D MOODY (SUPRA) WHEREIN THE HONBLE SUPREME COURT HAS DISCUSSED THE ISSUE I N DETAIL WHICH READS AS UNDER: THE EXPENDITURE TO BE DEDUCTIBLE UNDER S. 57( III ) MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. THE ARGUMENT OF THE REVENUE WAS THAT UNLESS THE EXPENDI TURE SOUGHT TO BE DEDUCTED RESULTED IN THE MAKING OR EARNING OF INCOME, IT COU LD NOT BE SAID TO BE LAID OUT OR EXPENDED FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. THE MAKING OR ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 18 EARNING OF INCOME, PAID THE REVENUE, WAS A SINE QUA NON TO THE ADMISSIBILITY OF THE EXPENDITURE UNDER S. 57( III ) AND, THEREFORE, IF IN A PARTICULAR ASSESSMENT YEA R THERE WAS NO INCOME, THE EXPENDITURE WOULD NOT BE DEDUCTI BLE UNDER THAT SECTION. THE REVENUE RELIED STRONGLY ON THE LANGUAGE OF S. 37(1) AND, CONTRASTING THE PHRASEOLOGY EMPLOYED IN S. 57( III ) WITH THAT IN S. 37(1), POINTED OUT THAT THE LEGIS LATURE HAD DELIBERATELY USED WORDS OF NARROWER IMPORT IN GRANT ING THE DEDUCTION UNDER S. 57( III ). S. 37(1) PROVIDED FOR DEDUCTION OF EXPENDITURE L AID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OR PROFESSION IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS OR GAINS OF BUSINESS OR PROFESSION'. THE LANGUAGE USED IN S. 37(1) WAS 'LAID OUT OR EXPENDED FOR THE PURPOSE OF THE BUSINESS OR PROFESSION' AND NOT 'LAID OUT OR EXPEND EDFOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME' AS SET OUT IN S. 57( III ). THE WORDS IN S. 57( III ) BEING NARROWER, CONTENDED THE REVENUE, THEY CANNOT BE GIV EN THE SAME WIDE MEANING AS THE WORDS IN S. 37(1) AND HENCE NO DEDUCTION OF EXP ENDITURE COULD BE CLAIMED UNDER S. 57( III ) UNLESS IT WAS PRODUCTIVE OF INCOME IN THE ASSESSM ENT YEAR IN QUESTION. THIS CONTENTION OF THE REVENUE UNDOUBTEDL Y FOUND FAVOUR WITH THE HIGH COURT BUT WE DO NOT THINK WE CAN ACCEPT IT. OUR REA SONS FOR SAYING SO ARE AS FOLLOWS. 9. FROM THE ABOVE JUDGEMENT THE HONBLE SUPREME COU RT HAS HELD THAT THE EXPENDITURE TO BE DEDUCTIBLE UNDER S. 57(III) MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. THEREFORE, WE ARE OF THE VIEW THAT THE LD. CIT(A) I S JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. WE ALSO FIND THE SUPPORT OF THE DECISION IN THE CASE OF CIT VS. NEW SAVAN SAGAR AND GAR REFINING CO. LTD. 1 85 ITR 564 (CAL.) WHEREIN THEY HAVE RELIED UPON THE DECISION OF HONB LE SUPREME COURT. THEREFORE, WE ARE OF THE VIEW THAT LD. CIT(A) IS JU STIFIED IN HIS ACTION AND OUR INFERENCE IS NOT REQUIRED. WE ALSO FIND THAT LD. C IT(A) HAS ALSO DISCUSSED THIS ISSUE IN HIS ORDER REGARDING CORPORATE VEIL AND WE ARE OF THE VIEW THAT THE ASSESSEES PREDOMINANT INTENTION OF INVESTMENT IN D EBENTURES WAS TO OBTAIN, CONTROLLING INTEREST IN THE COMPANY ON THE GROUND T HAT RATE OF INTEREST TO HDFC LTD. IS 10.5% WHEREIN ASSESSEE MADE THE INTEREST AT 8.18%. THEREFORE, THE TRANSACTION CARRIED OUT BY THE ASSESSEE CANNOT BE C ONSIDERED TO BE SHAM AND COLOURABLE DEVICES. THEREFORE, WE ARE OF THE VIEW THAT LD. CIT(A) IS JUSTIFIED IN HIS ACTION. MOREOVER, WE ALSO GET THE SUPPORTS FROM THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. NA ISHADH V. CACHHARAJANI 193 ITR 321 WHEREIN IT IS HELD THAT RES-ADJUDICATA DOES NOT APPLY TO INCOME TAX ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 19 PROCEEDINGS. EACH ASSESSMENT YEAR BEING A UNIT WHA T IS DECIDED IN ONE YEAR MAY NOT APPLY IN FOLLOWING YEAR BUT WHERE A FUNDAME NTAL ASPECT FRAMING THROUGH THE DIFFERENT ASSESSMENT YEAR HAS BEEN FOUN D AS FACT ONE WAY OR OTHER, PARTIES HAVE ALLOWED THAT THE PROPOSITION TO BE SUS TAINED BY NOT CHALLENGING THE ORDER. IT WOULD NOT BE APPROPRIATE TO ALLOW THE PO SITION TO BE CHANGED IN SUBSEQUENT YEAR. MOREOVER, IT IS ALSO HELD BY THE HONBLE SUPREME COURT THAT IN ABSENCE OF ANY MATERIAL CHANGE JUSTIFYING THE RE VENUE TO TAKE A DIFFERENT VIEW OF THE MATTER, IF THERE WAS NO CHANGE, THERE I S NO REASON TO TAKE A DIFFERENT VIEW IN A SUBSEQUENT YEAR. HONBLE SUPREME COURT I N THE CASE OF RADHASOAMI SATSANG VS. CIT (1992) 193 ITR 321 HAS CATEGORICALL Y HELD AS UNDER: .. STRICTLY SPEAKING, RESJUDICATA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS. THOUGH, EACH ASSESSMENT YEAR BEING A UNIT, WHAT WAS DECIDED IN ONE YEAR MIGHT NOT APPLY IN THE FOLLOWING YEAR, WHERE A FUNDAMENTA L ASPECT PERMEATING THROUGH DIFFERENT ASSESSMENT YEARS HAS BEEN FOND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NO CH ALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE C HANGED IN A SUBSEQUENT YEAR. THE SAME VIEW HAS BEEN TAKEN BY THE HONBLE DELHI H IGH COURT IN CIT VS. NEO POLY PACK (P) LTD. (2000) 245 ITR 492. RESPECT FULLY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RA DHASOAMI SATSANG SAOMI BAGH (SUPRA), WE ARE OF THE VIEW THAT THE AO HAS AL LOWED THE CLAIM WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3) FOR A.Y. 2003-04, 2004-05, 2006-07 & 2007-08 & 2008-09. THEREFORE, RESPECTFUL LY FOLLOWING THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. NAISHADH V. CACHHARAJANI (SUPRA), WE ARE OF THE VIEW THAT THE LD. CIT(A) IS JUSTIFIED IN ALLOWING THE CLAIM. THEREFORE, WE DISMISS THE DEPARTMENTAL APPE AL FOR A.Y. 2005-06 AND WE ALLOW THE CLAIM FOR A.Y. 2009-10. IN THE RESULT , GROUND NO.1 OF THE REVENUE IS DISMISSED. GROUND NO.2 10. THIS GROUND RELATES TO FINANCIAL EXPENSES OF RS .2,94,754/-. THE AO HAS DISALLOWED RS.2,94,754/- ON THE GROUND THAT ASSESSE E HAS GIVEN INTEREST FREE ADVANCE OF RS.51,35,817/- TO RELATED CONCERN. THE ASSESSEE HAS DEBITED ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 20 RS.25,33,850/- UNDER THE HEAD FINANCIAL EXPENSES OUT OF WHICH RS.2,94,754/- PERTAINS TO INTEREST PAID FOR WORKING CAPITAL LOAN OBTAINED AGAINST THE MORTGAGE OF PROPERTY. AS AGAINST THIS, ASSESSEE HAS GIVEN L OANS AND ADVANCES OF MORE THAN RS.2 CRORES SHOWN IN THE BALANCE SHEET. THE A SSESSEE WAS ASKED TO EXPLAIN WHY THIS INTEREST PAID TO WORKING CAPITAL L OAN SHOULD NOT BE DISALLOWED. IN REPLY, THE ASSESSEE CONTENDED THAT THE TOTAL INT EREST FREE ADVANCES GIVEN BY HIM DO NOT EXCEED TOTAL INTEREST FREE FUNDS AVAILAB LE WITH THE ASSESSEE, THUS THE INTEREST FREE ADVANCES ARE GIVEN OUT OF THE CAPITAL OF THE ASSESSEE. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND HE DI SALLOWED RS.2,94,754/- . THE MATTER CARRIED TO LD. CIT(A) AND LD. CIT(A) HAS ALLOWED THE CLAIM BY OBSERVING AS UNDER: 10.5 REGARDING DISALLOWANCE OF FINANCIAL EXPENSES, IT IS SEEN THAT THE SAME ISSUE HAS BEEN CONSIDERED BY MY LD. PREDECESSOR IN ASSESS MENT YEAR 2009-10 AND THE DISALLOWANCE MADE BY THE AO AT RS.22,53,000/- WAS D IRECTED TO BE DELETED. SINCE THE FACTS ARE SIMILAR IN THE CURRENT YEAR, RESPECTF ULLY AGREEING WITH MY LD. PREDECESSOR, I DIRECT THE AO TO DELETE THE DISALLOW ANCE OF RS.2,94,754/- ON ACCOUNT OF FINANCIAL EXPENSES . THUS, GROUND OF APPEAL NO.19 IS ALLOWED. 11. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. THE AO HAS DISALLOWED FINANCIAL EXPENSES OF RS.2,94,754/- BEIN G INTEREST ON WORKING CAPITAL LOAN ON THE GROUND THAT ASSESSEE HAS GIVEN INTEREST FREE ADVANCE OF RS.51,35,817/- TO HIS RELATED CONCERN. WE FIND THA T ASSESSEE HAS PRODUCED THE BALANCE SHEET OF 31 ST MARCH 2004 AND SUBMITTED THAT ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUND LYING IN HIS ACCOUNT, THEREFORE DISALLOWANCE OF INTEREST FREE ADVANCE DOES NOT ARISE. THE ASSESSEE HAS GIVEN THE LOANS TO THE PARTY ON WHICH NO INTEREST HAS BEEN CHARGED BUT ASS ESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS, THEREFORE IN OUR OPINION THE I SSUE IN CONTROVERSY IS COVERED BY THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITY AND POWER LTD. 178 TAXMAN 135 (BOM.) IN TH E SAID JUDGEMENT JURISDICTIONAL HIGH COURT HAS HELD THAT WHERE AN AS SESSEE HAS HIS OWN FUNDS AS WELL AS BORROWED FUNDS, THEN A PRESUMPTION CAN BE M ADE THAT FOR NON BUSINESS PURPOSES FUNDS HAVE BEEN MADE OUT FROM OWN FUNDS AN D BORROWED FUNDS HAVE ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 21 NOT BEEN USED FOR THE NON BUSINESS PURPOSES. MOREO VER, ASSESSEE HAS ESTABLISHED THAT BORROWINGS HAVE BEEN UTILISED FOR THE PURPOSE OF WHICH IT WAS BORROWED, NO PART OF INTEREST ON THIS BORROWING SHO ULD BE DISALLOWED EVEN IF THE ASSESSEE HAS ADVANCED ANY INTEREST FREE ADVANCE S. IT IS ALSO FACT ON RECORD THAT ASSESSEE HAD INTEREST FREE FUND TO THE TUNE OF RS.6,77,75,208/- AND OUT OF INTEREST FREE FUNDS ASSESSEE HAS GIVEN THE LOANS ON WHICH THE INTEREST HAS NOT BEEN CHARGED IS OF RS.51,35,817/-. THEREFORE, NO D ISALLOWANCE CAN BE MADE. MOREOVER, WE FIND THAT THE ASSESSEE HAS UTILISED TH IS BORROWINGS FOR THE PURPOSE OF BUSINESS. THEREFORE AS PER THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BOMBAY SAMACHAR L TD. 74 ITR 723 (BOM) WHICH SUPPORTS THE CASE OF THE ASSESSEE, WE ARE OF THE VIEW THAT LD. CIT(A) IS JUSTIFIED IN HIS ACTION AND OUR INFERENCE IS NOT RE QUIRED AT ALL. 12. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED . 13. NOW WE WILL DEAL WITH THE ASSESSEES APPEAL BEA RING ITA NO.2439/M/2013FOR A.Y. 2009-10. ITA NO.2439/M/2013 (A.Y. 2009-10) GROUND NO.1 14. THIS GROUND IS ALREADY ADJUDICATED BY US IN ITA NO.4852/M/2015. THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE ALLO W THE APPEAL OF THE ASSESSEE FOR THIS ASSESSMENT YEAR ALSO. GROUND NO.2 15. THIS GROUND RELATES TO DISALLOWANCE OF RS.14,43 ,735/-. THE SHORT FACTS OF THE CASE ARE AS UNDER: THE AO NOTICED FROM THE DETAIL OF BUSINESS PROMOTIO N EXPENSES THAT THERE WAS ENTRY OF PURCHASE OF HONDA CIVIC CAR. TH E ASSESSEE WAS ASKED TO EXPLAIN HOW THIS EXPENDITURE IS ALLOWABLE AS BUSINE SS EXPENDITURE. THE AO ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 22 HAS RECORDED THE STATEMENT OF SHEFALI GARODIA UNDER SECTION 131 OF THE ACT AND IN HER STATEMENT SHE HAS ACCEPTED THAT SHE WAS GIFT ED CAR TO HER IN SEPTEMBER- OCTOBER 2008 AND THERE WAS NO FUNCTION ON THE DAY T HE RC BOOK WAS PRESENTED IN HER NAME BUT EARLIER IT WAS IN HIS NAME. THE AO WAS OF THE VIEW THAT THE GIFT OF HONDA CIVIC CAR TO SHEFALI GARODIA IS MAINL Y DUE TO PERSONAL RELATIONSHIP AND THE ASSESSEE HAS GIFTED THIS CAR F OR GOODWILL AMONG OTHER EMPLOYEES BUT AO WAS OF A VIEW THAT IT WAS A PERSON AL GIFT, THEREFORE AO HAS DISALLOWED THE EXPENDITURE OF RS.14,43,735/- ON THE SAID HONDA CIVIC CAR TREATED AS NON BUSINESS EXPENDITURE. 16. THE MATTER CARRIED TO LD. CIT(A) AND LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE. 17. THE LD. A.R. SUBMITTED THAT THIS CAR WAS GIFTED TO SHEFALI GARODIA, EX- EMPLOYEE. MRS. SHEFALI GARODIA HAD WORKED IN THE N ISHITH DESAI ASSOCIATES FOR ABOUT 14 YEARS AND LEFT THE FIRM W.E.F. 16.08.2 008 AND ALL HER CONTRACTUAL OBLIGATIONS WERE ALSO DISCHARGED ON THE SAME DAY BY THE FIRM. SHE WAS GIFTED A HONDA CIVIC CAR BY DELIVERING THE SAME ON SECOND AND THIRD WEEK OF SEPTEMBER 2008. THIS CAR WAS GIFTED FOR CREATING G OODWILL AND GOOD FEEL ABOUT THE FIRM AS AN OWN ORGANIZATION AND ORGANIZATION TR EATS HIS EMPLOYEE WITH RESPECT, DIGNITY, LOVE AND AFFECTION. THERE WAS NO CONTRACTUAL OBLIGATION EXIST. BUT LD. CIT(A) HAS NOT CONSIDERED THAT THIS CAR WAS GIVEN FOR MAINTAINING GOODWILL OF THE FIRM. THEREFORE, IT MAY BE ALLOWED . 18. ON THE OTHER HAND, LD. D.R. RELIED UPON THE ORD ER OF REVENUE AUTHORITIES. 19. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT S HEFALI GARODIA WAS RELIEVED FROM ASSESSEES OFFICE FROM 16.08.2008. THE CAR WA S PURCHASED ON 01.09.2008 AND IN THE SAME MONTH OF SEPTEMBER 2008 IT WAS TRAN SFERRED TO SHEFALI ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 23 GARODIAS NAME. THE TERMS OF EMPLOYMENT DOES NOT P ROVIDE FOR GIVING ANY CAR TO HER. WE FIND THAT GIFT OF CAR IS PURELY GRATITU DE. THIS EXPENDITURE WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. WE ALSO FIND DURING THE COURSE OF HEARING THAT WHETHER THE ASSES SEE HAS GIVEN CARS TO ALL HIS EMPLOYEES. THE LD. A.R. FAIRLY ADMITTED THAT WE HA VE NOT GIVEN CAR TO EVERY EMPLOYEE. THEREFORE, WE ARE OF THE VIEW THAT IT IS A PERSONAL GIFT RATHER THAN PART OF EMPLOYMENT OR CONTRIBUTION MADE TO HIS BUSI NESS. WE ARE OF THE VIEW THAT EVERY BUSINESSMAN IS FREE TO MAKE THE EXPENDIT URE BUT IT MUST BE ALLOWABLE SUBJECT TO THAT IT WAS WHOLLY AND EXCLUSIVELY FOR T HE PURPOSE OF BUSINESS. THEREFORE, WE ARE OF THE VIEW THAT LD. CIT(A) IS JU STIFIED IN HIS ACTION AND OUR INFERENCE IS NOT REQUIRED. 20. IN THE RESULT, THIS GROUND OF THE ASSESSEE IS D ISMISSED. GROUND NO.3 21. THIS GROUND RELATES TO DISALLOWANCE OF RS.5 LAK HS BEING AMOUNT PAID TO CHATRAPATI SHIVAJI MAHARAJ VASTHU SANGRAHALAYA AND RS.12,35,250/- PAID TO AMERICAN INDIA FOUNDATION. THE SHORT FACTS OF THE CASE ARE THAT DURING THE CO URSE OF HEARING THE AO FOUND THAT ASSESSEE HAS PAID RS.5 LAKHS TO CHATRAPA TI SHIVAJI MAHARAJ VASTHU SANGRAHALAYA. THE AO WAS OF A VIEW THAT THIS PUBLI CATION IS NOT CONNECTED TO ASSESSEES BUSINESS. IN VIEW OF THIS, EXPENDITURE OF RS.5 LAKHS WAS NOT FOR BUSINESS PURPOSE. SIMILARLY, AO HAS ALSO DISALLOWE D RS.12,35,250/- MADE TO AMERICAN INDIA FOUNDATION. THE ASSESSEE DID NOT EX PLAIN HOW THE PAYMENT IS CONNECTED WITH ASSESSEES BUSINESS. IN VIEW OF THI S, HE HAS NOT ALLOWED THE CLAIM. THE MATTER CARRIED TO LD. CIT(A) AND THE LD . CIT(A) HAS DISMISSED THE APPEAL. 22. THE LD. A.R. SUBMITTED BEFORE US THAT RS.5 LAKH S HAS BEEN PAID TO CHATRAPATI SHIVAJI MAHARAJ VASTHU SANGRAHALAYA FORM ERLY PRINCE OF WALES MUSEUM TOWARDS CO-PUBLICATION OF BOOK NAMED INDIAN LIFE AND LANDSCAPE BY ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 24 WESTERN ARTISTS. ASSESSEE WAS PROVIDED 100 COPIES OF SAID BOOK WHICH HAVE BEEN USED BY THE ASSESSEE FOR PRESENTING TO FOREIGN AND INDIAN POTENTIAL CLIENTS, DELEGATES COMING FROM OVERSEAS AND VISITING INDIA T O MAKE PRESENTATION SUCH AS BUSINESS LAW AND INTERNATIONAL TAXATION. THEREF ORE, THIS EXPENDITURE IS INCURRED FOR ENHANCING THE PROFESSIONAL ACTIVITY AN D ASSESSEE FIRM HAS ACHIEVED SPECIALIZATION AND PROFESSIONAL ACTIVITY HAS BEEN G ROWN THEREFORE IT MAY BE ALLOWED. LD. A.R. SUBMITTED THAT RS.12,35,250/- HA S BEEN PAID TO INTERNATIONAL FISCAL ASSOCIATION. THIS ASSOCIATION IS FOR INTERN ATIONAL TAXATION ASSOCIATION COMPRISES OF TAX PROFESSIONAL ALL OVER THE WORLD. THEREFORE, IT ENHANCES THE KNOWLEDGE IN THE FIELD OF INTERNATIONAL TAXATION. THEREFORE, IT MAY BE ALLOWED AS PROFESSIONAL EXPENDITURE. 23. ON THE OTHER HAND, LD. D.R. RELIED UPON THE ORD ER OF AO AND COMMISSIONER (APPEALS). 24. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT A SSESSEE HAD MADE PAYMENT TO CHATRAPATI SHIVAJI MAHARAJ VASTHU SANGRAHALAYA. TH IS AMOUNT HAS BEEN PAID TO CHATRAPATI SHIVAJI MAHARAJ VASTHU SANGRAHALAYA T OWARDS CO-PUBLICATION OF THE BOOK NAMED INDIAN LIFE AND LANDSCAPE BY WESTER N ARTISTS. ASSESSEE HAS BEEN PROVIDED 100 COPIES OF THE SAID BOOK WHICH ASS ESSEE HAS PRESENTED TO FOREIGN AND INDIAN CLIENTS WHO ARE COMING TO INDIA FOR PROFESSIONAL WORK SUCH AS BUSINESS LAW AND INTERNATIONAL TAXATION. THEREF ORE, WE HAVE VERIFIED THE COPY OF THE RELEVANT PAGES OF THE BOOK. WE ARE OF THE VIEW THAT THIS EXPENDITURE IS A BUSINESS EXPENDITURE, THEREFORE WE ALLOW THE SAME. 25. WE FIND THAT ASSESSEE HAS PAID RS.12,50,000/- T O INTERNATIONAL FISCAL ASSOCIATION (IFA) WHICH COMPRISES OF TAX PROFESSION ALS FROM WORLD OVER AND NDA HAS INITIATED IFA-NISHITH DESAI CENTER FOR THO UGHT LEADERSHIP IN INTERNATIONAL TAXATION TO LOOK INTO THE EMERGING IS SUES IN INTERNATIONAL TAXATION AND FIND NEW GENERATION SOLUTIONS FOR CROSS BORDER TAX ISSUES IN A FAIR AND ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 25 EQUITABLE MANNER. THEREFORE, WE ARE OF THE VIEW TH AT THIS IS A GENUINE EXPENDITURE FOR PROFESSIONAL DEVELOPMENT. THEREFOR E, WE ALLOW THE SAME. HENCE, THIS GROUND IS ALLOWED. GROUND NOS.4 TO 10 26. GROUND NOS.4, 5, 6, 7, 8, 9 & 10 ARE RELATED TO DISALLOWANCE OF ELECTRICITY EXPENSES, GENERAL OFFICE EXPENSES, RENT AND RATE TA X EXPENSES AND TELECOMMUNICATION EXPENSES. THE SHORT FACTS OF THE CASE ARE THAT AO HAS DISALL OWED RS.20,000/- FOR ELECTRICITY EXPENSES OUT OF RS.35,77,096/- ON THE G ROUND THAT ALL THE EXPENSES ARE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PUR POSE OF BUSINESS. SIMILARLY, FOR GENERAL OFFICE EXPENSES OUT OF RS.39,71,783/- A O HAS DISALLOWED 20% ON THE GROUND THAT THE WHOLE EXPENSES ARE NOT WHOLLY A ND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. SIMILARLY, RENT AND TAXES OF RS.20,000/- OUT OF RS.1,64,26,153/- WAS DISALLOWED. SIMILARLY, TELECO MMUNICATION EXPENSES OF RS.20,000/- WAS DISALLOWED TREATING AS NON BUSINESS EXPENDITURE. THE MATTER CARRIED TO LD. CIT(A) AND THE LD. CIT(A) HAS DISMIS SED THE APPEAL. 27. DURING THE COURSE OF HEARING, THE LD. A.R. SUBM ITTED THAT ALL THESE EXPENSES ARE INCURRED FOR BUSINESS AND THERE WAS NO NON BUSINESS PURPOSES, THEREFORE ENTIRE EXPENSES SHOULD BE ALLOWED. 28. THE LD. D.R. SUBMITTED THAT THE ASSESSEE BEFORE LD. CIT(A) HAD ALREADY ADMITTED THAT HE WAS NOT PRESSING THIS GROUND BEFOR E LD. CIT(A) IN EARLIER YEARS, THEREFORE THIS GROUND MAY BE DISMISSED. 29. HAVING HEARD BOTH THE PARTIES, LOOKING TO THE F ACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSEE HIMSELF HAS NOT PRESSED THIS GROUND. THEREFORE, APPEAL OF THE ASSESSEE IS DISMISSED AS A SSESSEE HAD CONCEDED BEFORE LD. CIT(A). THEREFORE, WE DISMISS ALL THESE GROUND S OF APPEAL. ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 26 ITA NO.2562/M/2013 FOR A.Y. 2009-10 GROUND NO.1 :- 30. THE AO HAS OBSERVED THAT ASSESSEE HAS PAID SALA RY OF RS.4,80,000/- TO HIS SON MR. SURIL DESAI. THE AO HAS GIVEN SHOW CAU SE NOTICE TO THE ASSESSEE AND IN REPLY TO THE SHOW CAUSE NOTICE, ASSESSEE HAS TAKEN THE CONTENTION THAT SALARY OF RS.40,000/- PER MONTH PAID TO SURIL DESAI WHO IS QUALIFIED OF BACHELOR OF SCIENCE IN MANAGEMENT AND THE SALARY OF RS.40,000/- PER MONTH IS COMMENSURATE WITH HIS QUALIFICATION AND EXPERIENCE. THE AO TRIED TO VERIFY WHETHER SURIL DESAI WAS QUALIFIED AS LAWYER OR NOT AND AO WAS OF A VIEW THAT THIS EXPENDITURE IS IN EXCESS UNDER SECTION 40A(2)( B), THEREFORE, HE DISALLOWED THE SAME. MATTER CARRIED TO LD. CIT(A) AND THE LD. CIT(A) HA S HELD AS UNDER: 7.11. I HAVE GONE THROUGH THE ISSUE. MR. SURIL DES AI HAS COMPLETED HIS B.SC. IN MANAGEMENT FROM MENLO CALIFORNIA. THE APPELLANT HAS PAID RS.40,000/- P.M. FOR THE SERVICES RENDERED BY MR. SURIL DESAI TO THE APP ELLANT. THE AO COULD NOT ESTABLISH THAT MR. SURIL DESAI HAS NOT DONE ANY SER VICES TO THE APPELLANTS BUSINESS. THE AO ALSO COULD NOT ESTABLISH THAT MR. SURIL DESA I IS PURSUING FULL TIME LAW COURSE. THE APPELLANT HAS SUBMITTED THAT MR. SURIL DESAI IS PURSUING PART TIME B.L. COURSE AND HAS ATTENDED TO THE WORKS OF THE APPELLANT IN T HE REMAINING TIME. FURTHER, FROM THE STATEMENT RECORDED FROM ADVOCATE BIJAL AJINKYA BY THE AO IT IS SEEN THAT THE STARTING SALARY FOR THE FRESH GRADUATES IN LAW IS R S.60,000/- P.M. FURTHER, IT IS SEEN THAT THIS EXPENDITURE INCURRED WAS ACCEPTED BY THE DEPARTMENT IN EARLIER ASSESSMENT YEAR. CONSIDERING ALL THESE FACTS, I HOL D THAT THE PAYMENT MADE TO MR. SURIL DESAI HAS TO BE ALLOWED FULLY AS DEDUCTION FO R INCOME TAX PURPOSE. I DIRECT THE AO TO DELETE THE ADDITION. 31. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT T HE LD. CIT(A) HAS HELD THAT AO COULD NOT ESTABLISH THAT SURIL DESAI HAS NOT DON E ANY SERVICES TO ASSESSEES BUSINESS. MOREOVER, IN THIS FIRM THE STARTING SALA RY FOR FRESH GRADUATE IS RS.60,000/- PER MONTH, THEREFORE IN THIS YEAR THE S ALARY IS RS.40,000/- ONLY. THEREFORE, LD. CIT(A) HAS ALLOWED THE CLAIM AND OUR INFERENCE IS NOT REQUIRED. 32. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO NOTICED THAT ASSESSEE HAS DEBITED RS.1,20,60,755/- UNDER THE HEA D BUSINESS EXPENSES. IN ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 27 THIS YEAR THE EXPENSES WERE EIGHT FOLD INCREASE, TH EREFORE THE BUSINESS OF THE ASSESSEE DOES NOT INCREASE IN EIGHT FOLD. THEREFOR E, WHY THIS EXPENDITURE HAS BEEN INCURRED? THE ASSESSEE WAS ASKED TO PRODUCE T HE BILLS AND VOUCHERS FOR BUSINESS PROMOTION EXPENSES. THE AO WAS OF A VIEW THAT THE BUSINESS PROMOTION EXPENSES WERE CONTAINING MAINLY HOTEL EXP ENDITURE AND GIFT OF RS.5 LAKHS TO CHATRAPATI SHIVAJI MAHARAJ VASTHU SANGRAHA LAYA AND GIFT OF RS.3,410/- AND RS.49,194 TO FARIYAS HOTEL. THE AO WAS OF A VI EW THAT THIS EXPENDITURE IS NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSIN ESS, THEREFORE HE DISALLOWED RS.1 CRORE FROM THE SAID EXPENSES. MATTER CARRIED TO LD. CIT(A) AND THE LD. CIT(A) HAS VERIFIED THE CLAIM AND DISALLOWED ONLY R S.27,35,250/- OUT OF RS.1 CRORE BY OBSERVING AS UNDER: 8.11. I HAVE GONE THROUGH THE DETAILS WITH REGARD TO THE OTHER EXPENSES. I AM OF THE VIEW THAT THE HOTEL EXPENSES ARE MET OUT FOR THE BUSINESS PURPOSES AND HENCE, NO DISALLOWANCE NEEDS TO BE MADE. SIMILARLY, THE GIFT EXPENSES ARE THE NORMAL BUSINES S EXPENSES IN THE NATURE OF THE BUSINESS CARRIED ON BY THE APPELLANT. IN VIEW OF THIS, I HOLD THAT THE GIFT EXPENSES ALSO SHOULD BE ALLOWED AS A DEDUCTION. 8.12. OUT OF THE SPONSORSHIP EXPENSES, I AM OF THE VIEW THAT THE FOLLOWING EXPENSES CANNOT BE CONSIDERED AS BUSINESS EXPENDITURE: I. AMOUNT PAID TO AARUSHA HOMES P. LTD. RS.10,00,000/- (ALREADY A CCEPTED BY THE APPELLANT). II. AMOUNT OF RS.5,00,000/- PAID TO CHATRAPATI SHIVAJI MAHARAJ VASTU SANGRAHALAYA. IN THIS CASE, THE AMOUNT IS PAID TOWA RDS PUBLISHING OF A BOOK WHICH IS NOT AT ALL CONNECTED WITH THE APPELLANT'S BUSINESS. IN VIEW OF THIS, THE EXPE NDITURE OF RS.5 LAKHS IS NOT CONSIDERED AS EXPENDITURE MET OUT FOR BUSINESS PURPOSES AND HENCE, SHOULD BE DISALLOW ED. III. PAYMENT OF (USD 25,000) RS.12,35,250/- MADE TO AMER ICA INDIA FOUNDATION. IT APPEARS TO BE A DONATION TO A FOUNDA TION AND THE APPELLANT COULD NOT PROPERLY EXPLAIN HOW THIS PAYMENT IS CONNECTED WITH THE BUSINESS CARRIED ON B Y THE APPELLANT. IN VIEW OF THIS, I HOLD THAT RS.12,35,25 0/- CANNOT BE ALLOWED AS DEDUCTION. 33. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT T HE ASSESSEE HAS GIVEN THE BREAK UP OF THE TOTAL EXPENSES AMOUNT OF RS.96,70,3 08/- PERTAINS TO ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 28 SPONSORSHIP EXPENSES AND 20% AMOUNT FOR GIFT. THE ASSESSEE HAS PRODUCED THE EVIDENCE THAT OUT OF TOTAL EXPENSES OF RS.96,70,308 /- EXPENDITURE TOWARDS THE CONFERENCE AND SPONSORSHIP OF SEMINARS AND ALL THE EXPENDITURE PERTAIN TO HOTEL, FOOD AND TRAVELLING EXPENSES. THEREFORE, TH IS EXPENDITURE WAS VERIFIED BY THE LD. CIT(A) AND LD. CIT(A) HAS RIGHTLY DISALL OWED RS.27,35,250/- AND OUR INFERENCE IS NOT REQUIRED. 34. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED . GROUND NO.3 35. THE AO FOUND THAT ASSESSEE HAS CLAIMED ELECTRIC ITY EXPENSES OF RS.4,80,000/- FOR 91/92, MITTAL COURT. THE SAID PR EMISES WAS OWNED BY PRANTIK STRATEGIC ADVISORS PVT. LTD. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE ELECTRICITY EXPENSES HAVE BEEN PAID FOR THE PRE MISES OF WHICH ASSESSEE IS NOT AN OWNER OF THE PROPERTY. THE ASSESSEE CONTEND ED THAT HE IS USING THE PREMISES FOR BUSINESS PURPOSE, BUT AO DID NOT ALLOW THE SAME. MATTER CARRIED TO LD. CIT(A) AND THE LD. CIT(A) HAS ALLOWED THE CL AIM OBSERVING AS UNDER: 12.3. I HAVE GONE THROUGH THE ISSUE AND SUBMISSION S OF THE APPELLANT. THE AO HAS NO MATERIAL EVIDENCE TO SHOW THAT THE APPELL ANT HAS NOT USED THESE PREMISES FOR HIS BUSINESS PURPOSES. THE APPEL LANT HAS STATED THAT DUE TO SHORTAGE OF SPACE, THE APPELLANT IS ALSO USING T HE PREMISES OF PRANTIK STRATEGIC SECURITIES ADVISORS P. LTD. THE APPELLANT HAS STATED THAT THE APPELLANT HAS NOT PAID ANY OTHER COMPENSATION BUT M EETING OUT THE ELECTRICITY EXPENSES OF THE PREMISES FOR THE PREMIS ES BEING USED BY THE APPELLANT FOR HIS BUSINESS PURPOSE. I FIND THAT THE RE IS NOTHING ON RECORD TO SHOW THAT THE PREMISES ARE NOT USED BY THE APPEL LANT FOR HIS BUSINESS PURPOSES. IN VIEW OF THIS, THE APPELLANT'S SUBMISSI ONS ARE ACCEPTED AND I HOLD THAT THE ELECTRICITY EXPENSES ARE MET OUT FO R THE BUSINESS PURPOSES OF THE APPELLANT AND IT SHOULD BE ALLOWED AS DEDUCTION. THE AO IS DIRECTED TO DELETE THE ADDITION. 36. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT T HE ASSESSEE SUBMITTED THAT THOUGH THE PREMISES BELONGS TO PRANTIK STRATEGIC AD VISORS PVT. LTD. BUT ASSESSEE IS ONE OF THE SHAREHOLDER AND SWATHI DESAI IS ALSO DIRECTOR OF THE SAID COMPANY. SINCE THE ASSESSEE COMPANY WAS FACING SHO RTAGE OF SPACE TO ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 29 ACCOMMODATE THEIR EMPLOYEES, THEY HAVE USED THE OFF ICE PREMISES OF PRANTIK STRATEGIC ADVISORS PVT. LTD. ADJOINING OF ASSESSEE S EXISTING OFFICE. THEREFORE, THE ENTIRE ELECTRICITY EXPENSES WERE BORNE BY NISHI TH DESAI ASSOCIATES. THE NISHITH DESAI ASSOCIATES DOES NOT PAY ANY COMPENSAT ION TO PRANTIK STRATEGIC ADVISORS PVT. LTD. FOR USING THE SAID OFFICE PREMIS ES, THEREFORE THEY HAVE PAID THE ELECTRICITY BILL. WE ARE OF THE VIEW THAT LD. CIT(A) IS JUSTIFIED IN ALLOWING THE SAME. 37. THE NEXT GROUND RELATES TO DISALLOWANCE OF FINA NCIAL EXPENSES OF RS.22,53,000/- OUT OF FINANCIAL EXPENSES. THE AO N OTED THAT ASSESSEE HAS DEBITED RS.22,53,000/- UNDER THE HEAD FINANCIAL EXP ENSES. THE AO WAS OF A VIEW THAT THE SAID EXPENDITURE IS INCURRED ON THE I NTEREST WHICH IS INTEREST EXPENSES AND ASSESSEE HAS GIVEN THE INTEREST FREE A DVANCES. THEREFORE, AO HAS DISALLOWED THE CLAIM. THE MATTER CARRIED TO LD. CI T(A) AND THE LD. CIT(A) HAS ALLOWED THE CLAIM BY OBSERVING AS UNDER: 14.7 THE APPELLANT HAS SUBMITTED THE DETAILS OF LO ANS GIVEN, ON WHICH INTEREST HAS BEEN CHARGED AS UNDER: PARTICULARS AMOUNT (RS.) DATE ON WHICH LOAN GIVEN NILESH BAXI 5,00,000 21/07/2007 PRIOR TO 31/03/2001 MUKUND NEGANDHI 10,000 VIKEY OVERSEAS 6,00,000 F.Y.2002-03 MAKRUPA CHEMICALS PRIVATE LIMITED 1,2 1,99,294 RUNNING ACCOUNT TVZINELNDIA.COM PRIVATE LIMITED 2,37,369 RUNNING ACCOUNT IPPRO SERVICES (INDIA) PVT. LTD. (5,22,663) CREDIT BALANCE PRANTIK STRATEGIC ADVISORS PVT. LTD. 1,19,67,999 RUNNING ACCOUNT SWIFTLNDIALNC CORPORATE SERVICES PVT. LTD. 31,01,010 RUNNING ACCOUNT SUNAGE INDIA CONSULTANCY PVT. LTD. 1,02,946 F.Y. 2008-09 ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 30 EASTERN ENERGY & MINES (INDIA) PVT. LTD. 8,400 31/03/2007 SEDEF TRUSTEE COMPANY PVT. LTD. 1,200 31/03/2007 2,82,05,555 14,8. THE AO HAD DISALLOWED THE AMOUNT OF RS.22,53, 000/- OBSERVING THAT THE APPELLANT WAS NOT ABLE TO EXPLAIN WITH RESPECT TO FUND FLOW STATEMENT, HOW THE APPELLANT HAS GIVEN INTEREST FRE E LOAN FROM CAPITAL. IN THIS CONNECTION, THE APPELLANT STATED THAT IT IS TH E BALANCE SHEET AS AT THE END OF THE RELEVANT YEAR THAT IS TO BE CONSIDERED A ND NOT THE RELEVANT POINT OF TIME WHEN THESE ADVANCES ARE GIVEN FOR THE PURPOSE OF MAKING DISALLOWANCE AS HELD BY THE BOMBAY HIGH COURT IN TH E CASE OF RELIANCE UTILITIES & POWER LTD. (178 TAXMAN 235). 14.9. AS REGARDS RUNNING ACCOUNT WITH MAKRUPA CHEMI CALS PRIVATE LIMITED, TVZINELNDIA.COM PRIVATE LIMITED, PRANTIK S TRATEGIC ADVISORS PVT. LTD. AND SWIFTLNDIALNC CORPORATE SERVICES PVT. LTD., THE APPELLANT INFORMED THAT THESE ARE THE COMPANIES WHERE THE APP ELLANT HAS HIS MAJORITY SHAREHOLDING AND AS AND WHEN THE SAID COMP ANIES NEED FUNDING, THE APPELLANT HAS PROVIDED FUNDS TO THEM O UT OF HIS OWN CAPITAL. FURTHER, IT HAS BEEN SUBMITTED THAT THE FINANCIAL E XPENSES OF RS.22,53,000/- DOES NOT INCLUDE ANY INTEREST ON OVERDRAFT FACILITY. 14.10. I HAVE GONE THROUGH THE ISSUE. IT IS SEEN TH AT THE INTEREST EXPENSES WHICH ARE DISALLOWED BY THE AO ARE THE INTEREST ON LOAN WHICH ARE SPECIFICALLY BORROWED TO ACQUIRE THE BUSINESS ASSET S OF THE APPELLANT. NONE OF THE BORROWED FUNDS WERE DIVERTED AS INTERES T FREE LOANS TO THE RELATIVES. FURTHER, IT IS NOT THE CASE THAT FUNDS T O THE RELATIVES ARE GIVEN FROM THE OD ACCOUNT. IN VIEW OF THESE FACTS, I HOLD THAT THESE FINANCIAL EXPENSES ARE PURELY SPENT FOR THE PURPOSES OF THE B USINESS AND IT SHOULD BE ALLOWED FULLY. I DIRECT THE AO TO DELETE THE ADD ITION. 38. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. WE FIND THAT THE LD. CIT(A) HAS VERIFIED HOW MUCH INTEREST FREE FUND IS AVAILABLE WITH THE ASSESSEE AND HE HAS VERIFIED THE BALANCE SHEET AT T HE END OF THE YEAR AND LD. CIT(A) WAS OF A VIEW THAT ASSESSEE HAS SUFFICIENT C APITAL TO GIVE INTEREST FREE LOANS, THEREFORE IN OUR OPINION THE ISSUE IN CONTRO VERSY IS COVERED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF CIT VS. RELIANCE UTILITY POWER LTD. 178 TAXMAN 135 (BOM.). THEREFORE, IN OU R OPINION LD. CIT(A) IS JUSTIFIED IN HIS ACTION AND OUR INFERENCE IS NOT RE QUIRED. ITA NO.2439/M/2013 ITA NOS.2562/M/2013 & 4852/M/2015 SHRI NISHITH DESAI 31 39. IN THE RESULT, APPEALS OF THE REVENUE ARE DISMI SSED AND APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.04.2017. SD/- SD/- (MANOJ KUMAR AGGARWAL) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 28.04.2017. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.
