ACIT, Faridabad V. M/s. Blue Stamping & Forgings Ltd., Faridabad

ITA 2578/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3255 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 03-07-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 28-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVI KANT GUPTA SENIOR
• Assessee Lawyers: K C SINGHAL
• Keywords: Bogus purchase; Business expenditure; Wholly owned subsidiary; Block assessment
• Section: 40A(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A : NEW DELHI) BEFORE HONBLE PRESIDENT, SHRI G.D. AGRAWAL AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.2533/DEL./2014 (ASSESSMENT YEAR : 2008-09) M/S. BLUE STAMPING & FORGINGS LTD., VS. ACIT, CIRC LE II, PLOT NO.12, SECTOR 25, FARIDABAD. FARIDABAD 121 001 (HARYANA. (PAN : AAACB9348K) ITA NO.2578/DEL./2014 (ASSESSMENT YEAR : 2008-09) ACIT, CIRCLE II, VS. M/S. BLUE STAMPING & FORGINGS LTD., FARIDABAD. PLOT NO.12, SECTOR 25, FARIDABAD 121 001 (HARYANA. (PAN : AAACB9348K) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.C. SINGHAL, ADVOCATE REVENUE BY : SHRI RAVI KANT GUPTA, SENIOR DR DATE OF HEARING : 08.02.2018 DATE OF ORDER : 20.02.2018 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : PRESENT CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS BY THE REVENUE ARE BEING DISPOSED OF BY WAY OF CONSOLIDATE D ORDER TO AVOID REPETITION OF DISCUSSION. ITA NO.2533/DEL./2014 ITA NO.2578/DEL./2014 2 2. THE APPELLANT, M/S. BLUE STAMPING & FORGINGS LTD . (HEREINAFTER REFERRED TO AS THE ASSESSEE COMPANY) IN ITA NO.2533/DEL/2014 BY FILING THE PRESENT APPEAL, SOUG HT TO SET ASIDE THE IMPUGNED ORDER DATED 26.02.2014 PASSED BY LD. C IT(APPEALS), FARIDABAD QUA THE ASSESSMENT YEAR 2008-09 ON THE GR OUNDS INTER ALIA THAT :- 1. ON THE FACTS & CIRCUMSTANCES OF THE CASE & IN L AW, THE ID. CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT TR ADING CO WAS A BOGUS PARTY. 2. WITHOUT PREJUDICE TO THE ABOVE GROUND, ON THE FA CTS & CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A ) WAS NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE TO RS. 22,62,960/- IN RESPECT OF PURCHASES FROM THE ABOVE PARTY. THE L D. CIT(A) OUGHT TO HAVE DELETED THE ENTIRE DISALLOWANCE PARTI CULARLY WHEN THE G.P. RATIO DECLARED BY THE APPELLANT WAS B ETTER THAN EARLIER YEARS. ALTERNATIVELY, THE DISALLOWANCE @ 40% WAS TOO EXCESSIVE. 3. ON THE FACTS & CIRCUMSTANCES OF THE CASE & IN LA W, THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE OF INTEREST OF RS.38,20,408/-. ALTERNA TIVELY, THE INTEREST SHOULD HAVE BEEN ALLOWED U/S 57 OF THE I.T . ACT 1961. 3. THE APPELLANT, ASSISTANT COMMISSIONER OF INCOME- TAX, CIRCLE II, FARIDABAD (HEREINAFTER REFERRED TO AS T HE REVENUE) IN ITA NO.2578/DEL/2014 BY FILING THE PRESENT APPEAL, SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 26.02.2014 PASSED BY LD. CIT(APPEALS), FARIDABAD QUA THE ASSESSMENT YEAR 200 8-09 ON THE GROUNDS INTER ALIA THAT :- ITA NO.2533/DEL./2014 ITA NO.2578/DEL./2014 3 (1) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE, THE LD. CIT(A) WAS RIGHT ON FACTS AND IN LAW IN DELETING THE ADDITIONS OF RS.33,94,440/- OUT OF ADD ITION OF RS.56,57,400/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF BOGUS PURCHASES SHOWN FROM M/S MAA DURGA TRADING CO EVEN THOUGH THE ASSESSEE WAS NOT ABLE TO SUBSTANTIA TE THE IDENTITY OF THIS FIRM AND GENUINENESS OF THE PURCHA SES CLAIMED FROM THIS FIRM.' (2) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS RIGHT ON FACTS AND IN LAW IN NOT CONFIRMING THE ADDITION OF RS.56,57,400/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BOGUS PURCHASES SHO WN FROM M/S MAA DURGA TRADING CO EVEN THOUGH THE LD. CIT(A) HAS APPROVED THE DECISION OF THE AO OBSERVIN G THAT I HOLD THAT THE AO RIGHTLY HELD M/S MAA DURGA TRAD ING CO TO BE A BOGUS PARTY RESULTING IN THE ADDITION OF RS.56,57,400/- TO THE INCOME OF THE APPELLANT. (3) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS RIGHT ON FACTS AND IN LAW IN DELETING THE DISALLOWANCE OF RS.17,50,560/- MADE BY THE ASSESSING OFFICER ON A/C OF INTEREST EXPENDITURE ON INVESTMENT BY THE ASSESSEE IN SHARES OF ITS SISTER CONCERNS THOUGH THERE WAS NO BUSINESS EXIGENCY IN MAKING SUC H INVESTMENT.' (4) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS RIGHT ON FACTS AND IN LAW IN DELETING THE DISALLOWANCE OF RS.14,17,200/- MADE BY THE ASSESSING OFFICER ON A/C OF INTEREST EXPENDITURE ON INVESTMENT IN PLOT WHICH WAS NEVER PUT TO USE FOR B USINESS PURPOSES OF THE ASSESSEE DURING THE YEAR AND ACCORD INGLY INTEREST EXPENDITURE OF RS.14,17,200/- ATTRIBUTABLE TO THE COST OF LAND BEFORE IT IS PUT TO USE WAS DISALLOWED.' 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICA TION OF THE CONTROVERSY AT HAND ARE : ASSESSING OFFICER NOTICED FROM THE PROFIT AND LOSS ACCOUNT PURCHASES OF RAW MATERIAL BY THE A SSESSEE COMPANY TO THE TUNE OF RS.40,60,63,073/- AND FROM T HE DETAILS OF ITA NO.2533/DEL./2014 ITA NO.2578/DEL./2014 4 PURCHASES FILED BY THE ASSESSEE COMPANY, IT IS NOTI CED BY THE AO THAT PURCHASES OF RS.56,57,400/- WERE SHOWN TO HAVE BEEN MADE FROM M/S. MAA DURGA TRADING CO. (MDTC). MDTC WAS N OT FOUND TO BE A GENUINE DEALER. DURING ASSESSMENT PR OCEEDINGS, THE ASSESSEE COMPANY HAD NOT PRODUCED PROPRIETOR OF MDT C AND ITS ALLEGED PAN MENTIONED AS ACGPG3229Q WAS FOUND TO BE INVALID ON VERIFICATION AND ANOTHER PAN FOUND TO BE OVERWRI TTEN. FINDING THE EXPLANATION FILED BY THE ASSESSEE COMPANY NOT T ENABLE, AO AFTER CONSIDERING THE REPORT GIVEN BY INSPECTOR OF INCOME-TAX VIDE LETTER DATED 14.12.2010 WRITTEN BY EXCISE & TAXATIO N DEPARTMENT AND STATEMENT OF ACCOUNT OF MDTC MAINTAINED WITH AX IS BANK PROCEEDED TO CONCLUDE THAT MDTC IS NOT AN EXISTING FIRM AND CONSEQUENTLY REJECTED THE BOOKS OF ACCOUNT AND THER EBY DISALLOWED THE AMOUNT OF RS.56,57,400/- OUT OF THE ASSESSEE CO MPANYS CLAIM OF PURCHASES. AO ALSO DISALLOWED PROPORTIONATE AMO UNT OF INTEREST AT RS.14,17,200/- ON THE INVESTMENT OF RS.1,18,10,0 00/- @ 12% P.A. ON THE GROUND THAT THE ASSESSEE COMPANY HAS RA ISED SUBSTANTIAL FUNDS ON INTEREST AND ALSO DIVERTED AMOUNT OF RS.1, 18,10,000/- IN MAKING INVESTMENT IN PLOT WHICH WAS NEVER PUT TO US E. AO ALSO DISALLOWED PROPORTIONATE AMOUNT OF INTEREST OF RS.1 7,50,560/- ON INVESTMENT OF RS.1,45,88,000/- @ 12% P.A. ON THE GR OUND THAT THE ITA NO.2533/DEL./2014 ITA NO.2578/DEL./2014 5 ASSESSEE COMPANY HAS RAISED SUBSTANTIAL FUNDS ON IN TEREST AND ALSO DIVERTED AMOUNT OF RS.1,45,88,000/- IN MAKING INVES TMENT IN SHARES WHICH IS NOT FOR BUSINESS PURPOSES AND THERE BY ASSESSED THE INCOME OF THE ASSESSEE COMPANY AT RS.5,24,71,850/-. 3. ASSESSEE CARRIED THE MATTER BY WAY OF FILING APP EAL BEFORE THE LD. CIT (A) WHO HAS RESTRICTED THE ADDITION MAD E ON ACCOUNT OF BOGUS PURCHASES BY THE AO FROM MDTC TO RS.33,94,440 /- AS AGAINST ADDITION OF RS.56,57,400/- MADE BY THE AO, DELETED THE DISALLOWANCE OF RS.17,50,560/- MADE BY THE AO ON AC COUNT OF INTEREST EXPENDITURE ON INVESTMENT IN SHARES AND DE LETED THE DISALLOWANCE OF RS.14,17,200/- MADE BY THE AO ON AC COUNT OF INTEREST EXPENDITURE ON INVESTMENT IN PLOT WHICH WA S NEVER PUT TO USE FOR BUSINESS PURPOSE, BY PARTLY ALLOWING THE AP PEAL. FEELING AGGRIEVED, THE ASSESSEE COMPANY AS WELL AS REVENUE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF CHALLENGING THE IMPUG NED ORDER PASSED BY LD. CIT (A). 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.2533/DEL./2014 ITA NO.2578/DEL./2014 6 GROUNDS NO.1 & 2 OF ASSESSEES APPEAL (ITA NO.2533/DEL/2014) GROUNDS NO.1 & 2 OF REVENUES APPEAL (ITA NO.2578/DEL/2014) 5. UNDISPUTEDLY, ALL TRANSACTIONS QUA ALLEGED BOGUS PURCHASES HAVE BEEN MADE THROUGH BANKING CHANNEL. IT IS ALSO NOT IN DISPUTE THAT AO BY INVOKING THE PROVISIONS CONTAINED U/S 14 5 OF THE ACT REJECTED THE BOOKS OF ACCOUNT. IT IS ALSO NOT IN D ISPUTE THAT THE LD. CIT (A) AFTER ACCEPTING THE LEGAL PROPOSITION SETTL ED IN N.K. PROTEINS LTD. (SUPRA) AND VIJAY TRADING CO. (SUPRA) HELD 40% OF THE PURCHASE PRICE OF THESE ITEMS AMOUNTING TO RS.2 2,62,960/- TO BE THE EMBEDDED PROFIT ELEMENT IN THE LIGHT OF THE GRO SS PROFIT EARNED BY THE ASSESSEE DURING THE PRECEDING YEARS. 6. THE LD. AR FOR THE ASSESSEE COMPANY CHALLENGING THE IMPUGNED ORDER CONTENDED THAT WHEN QUANTITATIVE DET AILS ARE THERE THE ENTIRE AMOUNT OF BOGUS PURCHASES CANNOT BE TREA TED AS UNDISCLOSED INCOME; THAT ALL THE SAID PURCHASES HAV E BEEN FOUND TO BE GENUINE BY THE SALES-TAX DEPARTMENT AS MDTC IS R EGISTERED WITH SALES-TAX DEPARTMENT; THAT WHEN THE AO HAS REJ ECTED THE BOOKS OF ACCOUNT THEN SPECIFIC ADDITION CANNOT BE M ADE, RATHER IN SUCH A CASE GP IS TO BE ESTIMATED; AND RELIED UPON THE DECISION RENDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN N.K. PROTEINS ITA NO.2533/DEL./2014 ITA NO.2578/DEL./2014 7 LIMITED VS. DCIT (2004) 4 SOT 479 (AHMEDABAD) , AFFIRMED BY HONBLE GUJARAT HIGH COURT AND HONBLE APEX COURT I N N.K. PROTEINS LTD. VS. DCIT (2017) 84 TAXMANN.COM 195 (SC) . ASSESSEE ALSO RELIED UPON THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN VIJAY TRADING CO. VS. ITO (2016) 76 TAXMANN.COM 366 (GUJARAT) . 7. HOWEVER, ON THE OTHER HAND, LD. DR FOR THE REVEN UE RELIED ON THE ORDER OF THE AO. 8. NOW, IN THE GIVEN CIRCUMSTANCES, THE SOLE QUESTI ON ARISES FOR DETERMINATION IN THIS CASE IS :- AS TO WHETHER CIT (A) HAS RIGHTLY HELD 40% OF THE BOGUS PURCHASE AMOUNTING TO RS.22,62,960/- TO BE TH E EMBEDDED PROFIT ELEMENT AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE? 9. UNDISPUTEDLY ASSESSEE COMPANYS GROSS PROFIT AND NET PROFIT IN THE CURRENT YEAR AND TWO PRECEDING YEARS ARE AS UNDER :- FINANCIAL YE AR ENDING GROSS PROFIT NET PROFIT 31.03.2006 10.59% 6.43% 31.03.2007 12.38% 6.78% 31.03.2008 14.45% 8.12% ITA NO.2533/DEL./2014 ITA NO.2578/DEL./2014 8 10. COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF N.K. PROTEINS LTD. (SUPRA) DETERMINED THE ISSUE IN CONTROVERSY BY OBSERVING AS UNDER :- IT IS WELL-SETTLED LAW THAT TAX CAN BE LEVIED ONLY ON REAL INCOME. IT IS AN ELEMENTARY RULE OF ACCOUNTANCY AS WELL AS OF TAXATION LAWS THAT PROFIT CANNOT BE ASCERTAINED WITHOUT DEDUCTING COST OF PURCHASES FROM SALES, OTHERWISE I T WOULD AMOUNT TO LEVY OF INCOME-TAX ON GROSS RECEIPTS OR O N SALES. SUCH RECOURSE IS NOT PERMISSIBLE UNDER ANY PROVISIO NS CONTAINED IN THE ACT. THE ENTIRE AMOUNT OF BOGUS PU RCHASES COULD NOT BE TREATED AS UNDISCLOSED INCOME/CONCEALE D INCOME, BECAUSE MATERIAL IN QUESTION HAD REALLY BEE N RECEIVED. THE INFLATED PORTION OF PURCHASE PRICE ME NTIONED IN THE FICTITIOUS INVOICES WAS WITHIN EXCLUSIVE KNO WLEDGE OF THE ASSESSEE. THE ASSESSEE WAS NOT WILLING TO TELL THE TRUTH; THEREFORE, THE ESTIMATE OF SUCH UNDISCLOSED INCOME LIABLE TO TAX IN BLOCK ASSESSMENT IN RELATION TO SUCH BOGUS P URCHASES WOULD HAVE TO BE MADE. THE LEGISLATURE IN ITS WISDO M HAS AMENDED SECTION 40A(3) BY THE FINANCE ACT, 1995 WIT H EFFECT FROM 1.4.1996 WHICH PROVIDES FOR DISALLOWANC E OF 20 PER CENT OF SUCH EXPENDITURE INCURRED OTHERWISE THA N BY CROSSED OR ACCOUNT PAYEE CHEQUES. THE 20 PER CENT DISALLOWANCE IS CONTEMPLATED IN CASES WHERE BLACK M ONEY IS NOT EMPLOYED IN RESPECT OF SUCH UNACCOUNTED PURCHAS ES. IT IS APPLICABLE ONLY IN CASES WHERE THE PAYMENT OF EX PENDITURE EXCEEDING RS. 20,000 IS MADE OTHERWISE THAN BY A CR OSSED CHEQUE OR CROSSED DEMAND DRAFT. THE INSTANT CASE WA S A CASE WHERE NOT ONLY THE BENEFIT BY WAY OF AVOIDANCE OF VARIOUS KINDS OF TAXES SUCH AS EXCISE DUTY, SALES-T AX AT VARIOUS STAGES OF INPUTS WAS THERE BUT IT WAS A CAS E WHERE SUCH PURCHASES ON THE STRENGTH OF FICTITIOUS INVOIC ES GIVEN BY THE BILLING AGENTS/NAME LENDERS WERE TREATED AS CREDIT PURCHASES. THEREFORE, WHILE ESTIMATING THE AMOUNT L IABLE TO BE TREATED AS UNDISCLOSED INCOME IN RELATION TO SUC H PURCHASES AGGREGATING TO RS. 11.99 CRORES, THE QUES TION RELATING TO UNEXPLAINED, NON-GENUINE CREDIT SHOWN I N THE ACCOUNTS OF THESE NAME LENDERS/BILLING AGENTS WOULD HAVE TO BE KEPT IN MIND. 11. HONBLE HIGH COURT OF GUJARAT IN VIJAY TRADING CO. (SUPRA) ALSO APPROVED THE VIEW TAKEN BY THE TRIBUNAL IN N.K. PROTEINS LTD. ITA NO.2533/DEL./2014 ITA NO.2578/DEL./2014 9 VS. CIT (1996) 58 ITD 428 (AHD.) BY RESTRICTING THE DISALLOWING MADE WITH REGARD TO BOGUS PURCHASES TO 25% OF SUCH PURCHASES BY RETURNING FOLLOWING FINDINGS :- 8. IN VIEW OF THE ABOVE POSITION OF LAW, WE ARE OF THE OPINION THAT THE ASSESSING OFFICER'S ACTION IN TREA TING THE PURCHASES AS BOGUS AND ADDING THE ENTIRE COST O F PURCHASES IN THE ASSESSMENT OUGHT NOT TO HAVE BEEN RESTORED BY THE TRIBUNAL. THE VIEW TAKEN BY THE TRIBUNAL IN THE CASE OF VIJAY PROTEINS LTD.V.CIT [1 996] 58 ITD 428 (AHD.) HAS BEEN APPROVED. IN THAT VIEW O F THE MATTER, KEEPING IN MIND THE FACT T AT NOT THE E NTIRE AMOUNT COVERED UNDER SUCH PURCHASE, BUT THE PROFIT ELEMENT EMBEDDED THEREIN WOULD BE SUBJECT TO TAX, W E FIND THAT IT SHALL BE APPROPRIATE TO RESTRICT THE DISALLOWANCE MADE IN THIS REGARD TO 25% OF THE COST OF SUCH PURCHASES IN EACH YEAR. 9. IN VIEW OF THE ABOVE, THE QUESTION RAISED IN THE PRESENT APPEALS IS ANSWERED PARTLY IN FAVOUR OF THE ASSESSEE AND PARTLY IN FAVOUR OF THE REVENUE. 25% O F THE PAYMENTS MADE TO THE PARTIES SHALL BE DISALLOWED ON ACCOUNT OF POSSIBLE INFLATION OF PURCHASE PRICE. CONSEQUENTLY, THE IMPUGNED JUDGMENT AND ORDER PASSE D BY THE ITAT IS MODIFIED TO THE AFORESAID EXTENT. HE NCE, THE PRESENT TAX APPEALS ARE ALLOWED ACCORDINGLY. 12. SO, KEEPING IN VIEW THE FACTS INTER ALIA THAT A LL TRANSACTIONS QUA THE ALLEGED BOGUS PURCHASES HAVE BEEN ROUTED TH ROUGH BANKING CHANNELS AND THE GROSS PROFIT EARNED BY THE ASSESSE E COMPANY DURING THE LAST PRECEDING TWO YEARS HAS BEEN IMPROV ING AND IN VIEW OF THE DECISION RENDERED BY THE TRIBUNAL AS WELL AS HONBLE HIGH COURT OF GUJARAT IN CASE OF VIJAY TRADING CO. (SUPRA) AND N.K. ITA NO.2533/DEL./2014 ITA NO.2578/DEL./2014 10 PROTEINS LTD. (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT IN THE GIVEN CIRCUMSTANCES, IT IS FAIR AND REASONABLE TO R ESTRICT THE DISALLOWANCE MADE BY THE CIT (A) TO 25% OF THE COST OF SUCH PURCHASES DURING THE YEAR UNDER ASSESSMENT INSTEAD OF 40% MADE BY THE CIT (A) KEEPING IN VIEW THE EMBEDDED PROFIT ELEMENT. CONSEQUENTLY, THE ALTERNATIVE PLEA RAISED BY THE AS SESSEE COMPANY THAT DISALLOWANCE @ 40% WAS TOO EXCESSIVE IS ALLOWE D BY RESTRICTING THE DISALLOWANCE @ 25%. SO, GROUNDS NO .1 & 2 OF ASSESSEES APPEAL IN ITA NO.2533/DEL/2014 IS PARTLY ALLOWED IN FAVOUR OF THE ASSESSEE. GROUNDS NO.1 & 2 RAISED BY THE REVENUE IN ITA NO.2578/DEL/2014 ARE DETERMINED AGAINST THE REV ENUE. GROUND NO.3 OF ASSESSEES APPEAL (ITA NO.2533/DEL/2014) 13. ASSESSEE COMPANY FOUND TO HAVE DEBITED INTEREST EXPENSES TO THE TUNE OF RS.3,39,20,12,010/- ON ACCOUNT OF IN VESTMENT MADE IN SHARES OF M/S. MECA STAMPINGS FRANCE, A FOREIGN COMPANY AND DISALLOWED THE SAME ON THE GROUND THAT THE INTEREST BEARING FUNDS HAVE BEEN DIVERTED TO MAKE INVESTMENT IN SHARES WHI CH CANNOT BE ALLOWED AS BUSINESS EXPENDITURE AS CLAIMED BY THE A SSESSEE COMPANY. CIT (A) CONFIRMED THE DISALLOWANCE MADE B Y THE AO. 14. UNDISPUTEDLY, THE ASSESSEE COMPANY HAS PURCHASE D 60% SHARES OF M/S. MECA STAMPINGS IN ORDER TO HAVE CONT ROL OVER THE ITA NO.2533/DEL./2014 ITA NO.2578/DEL./2014 11 COMPANY. IT IS A CASE OF THE ASSESSEE COMPANY THAT ASSESSEE COMPANY HAS BEEN ACTUALLY RUNNING THE BUSINESS OF M /S. MECA STAMPINGS AND HAS APPOINTED HIS OWN MANAGING DIRECT OR. ASSESSEE COMPANY ALSO CONTENDED THAT THE DEDUCTION IS ALLOWABLE U/S 36(1)(III) OF THE ACT AND RELIED UPON THE DECIS ION RENDERED BY HONBLE PUNJAB & HARYANA HIGH COURT IN SMT. SATISH BALA MALHOTRA VS. CIT 391 ITR 256 (P&H) AND DECISION RENDERED BY HONBLE DELHI HIGH COURT IN CIT VS. TULIP STAR HOTELS LTD. 338 ITR 482 (DELHI) . 15. IN THE FACE OF THE ADMITTED FACT THAT M/S. MECA STAMPINGS HAS BECOME A SUBSIDIARY OF ASSESSEE COMPANY AND IT IS ENTIRELY CONTROLLED WITH 60% OF ITS SHARE WAS WITH ASSESSEE COMPANY AND THE INTEREST PAID ON THE BORROWED FUNDS FOR INVESTM ENT BY THE ASSESSEE COMPANY IN M/S. MECA STAMPINGS IS AN ALLOW ABLE DEDUCTION U/S 36 (1)(III) OF THE ACT. HONBLE HIGH COURT OF PUNJAB & HARYANA IN SMT. SATISH BALA MALHOTRA VS. CIT (SUPRA) DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE COMPA NY BY RETURNING FOLLOWING FINDINGS :- CONVERSELY, IT IS POSSIBLE THAT AN ACQUISITION OF SHARES IS FOR THE PURPOSE OF MAKING AND EARNING INCOME. IN SUCH A CASE, IF INCIDENTALLY, A PERSON, TOGETHER WITH OTHERS IN THE GROUP, ACQUIRES CONTROL OVER THE COMPANY, IT WOULD NOT NECESSARILY FOLLOW THAT T HE PURCHASE IS FOR THE PURPOSE OF GAINING CONTROL OVER THE ITA NO.2533/DEL./2014 ITA NO.2578/DEL./2014 12 COMPANY. MERELY BECAUSE THE ACQUISITION OF SHARES RESULTS IN A PERSON OR A GROUP OF PERSONS ACQUIRING CONTROL OF WHATEVER NATURE AND TO WHATEVER EXTENT, IT WOULD NOT NECESSARILY FOLLOW THAT THE PURPOSE OF TH E ACQUISITION WAS TO GAIN CONTROL. THAT WOULD AGAIN DEPEND UPON THE FACTS OF THE CASE. IF THE EXPENDITU RE IS LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING DIVIDENDS, THE FACT THAT THE ASS ESSEE INCIDENTALLY ALSO ACQUIRES CONTROL OF A COMPANY FOR HIMSELF AND/OR FOR OTHERS WOULD MAKE NO DIFFERENCE. HE WOULD BE ENTITLED TO THE BENEFIT OF SECTION 57(III) FOR THE PURPOSE FOR WHICH THE SHARES WERE ACQUIRED WAS MAKING OR EARNING INCOME AND NOT GAINING CONTROL. IN SUCH A CASE, GAINING CONTROL OF A COMPANY WOULD BE PURELY INCIDENTAL. IT WOULD NOT EVEN BE A MOTIVE. E VEN IF IT WAS THE MOTIVE, IT WOULD MAKE NO DIFFERENCE SO L ONG AS THE SHARES WERE ACQUIRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING AND EARNING INCOME BY WAY OF DIVIDEND. IN THE PRESENT CASE, THE ASSESSEE ACQUIRED ABOUT 28 PER CENT OF THE SHARES IN THE COMPANY. IT IS TRUE THAT THE MALHOTRA GROUP OWNS THE ENTIRE SHAREHOLDING IN THE COMPANY. WHEN A PARTY BUYS SHARES IN A COMPANY, IT IS REASONABLE TO PRESUME THAT IT DOES SO WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING DIVIDEND INCOME. IF A PARTY EXPECTS THE COMPANY TO DO WELL PRESENTLY OR IN FUTURE, IT IS BUT NATURAL THAT IT WOULD SEEK TO ACQUIRE AS MANY SHARES AS IT CAN. THIS TOO WOULD BE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME THEREFROM. PARTIES DO NOT ACQUIRE CONTROL FOR CONTROLS SAKE. IN THE PRESENT CASE, TH E OTHER MEMBERS OF THE GROUP HELD 72% OF THE EQUITY SHARES. THERE IS NOTHING TO INDICATE THAT THE ASSESSEE HERS ELF OR IN CONCERT WITH OTHERS INTENDED ACQUIRING CONTROL F OR ANY REASON. OUR ATTENTION WAS NOT INVITED TO ANYTHI NG THAT INDICATES ANY REASON FOR THE ASSESSEE ACQUIRIN G THE SHARES FOR THE PURPOSE OF ACQUIRING OR EVEN MAINTAI NING CONTROL. IT IS REASONABLE THEN TO PRESUME THAT THE ASSESSEE ACQUIRED THE SHARES WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME. ITA NO.2533/DEL./2014 ITA NO.2578/DEL./2014 13 16. SIMILARLY, HONBLE DELHI HIGH COURT IN CIT VS. TULIP STAR HOTELS LTD. (SUPRA) DECIDED THE IDENTICAL ISSUE IN FAVOUR OF TH E ASSESSEE COMPANY BY RETURNING FOLLOWING FINDINGS :- SECTION 36(1)(III) OF THE INCOME-TAX ACT, 1961 - INTEREST ON BORROWED CAPITAL ASSESSEE BORROWED CERTAIN FUNDS WHICH WERE UTILIZED TO SUBSCRIBE TO E QUITY CAPITAL OF SUBSIDIARY COMPANY - SUBSIDIARY COMPANY USED SAID FUNDS FOR PURPOSE OF ACQUIRING A HOTEL - ASSESSEE PAID INTEREST ON BORROWED MONEY AND CLAIME D DEDUCTION FOR SAME UNDER SECTION 36(1 )(III) - ASSE SSING OFFICER DISALLOWED CLAIM OF ASSESSEE - TRIBUNAL, HOWEVER, ALLOWED ASSESSEE'S CLAIM- ON REVENUE'S APPEAL, IT WAS NOTICED THAT ASSESSEE WAS IN BUSINES S OF OWNING, RUNNING AND MANAGING HOTELS AND, FOR EFFECT IVE CONTROL OF NEW HOTEL ACQUIRED BY ASSESSEE UNDER ITS MANAGEMENT IT HAD INVESTED' IN A WHOLLY OWNED SUBSIDIARY - WHETHER IN AFORESAID CIRCUMSTANCES, INTEREST ON BORROWED CAPITAL WOULD BE TREATED AS EXPENDITURE INCURRED FOR BUSINESS PURPOSES AND THUS , IT WAS ALLOWABLE UNDER SECTION 36(I)(III) - HELD, YES [IN FAVOUR OF ASSESSEE] 17. SO, IN VIEW OF THE FACTS AND CIRCUMSTANCES OF T HE CASE DISCUSSED IN THE PRECEDING PARAS AND FOLLOWING THE AFORESAID JUDGMENTS OF HONBLE PUNJAB & HARYANA HIGH COURT AN D HONBLE DELHI HIGH COURT, WE ARE OF THE CONSIDERED VIEW THA T WHEN THE ASSESSEE COMPANY HAD INVESTED THE BORROWED MONEY TO ACQUIRE THE CONTROL OF M/S. MECA STAMPINGS BY PURCHASING 60% OF ITS SHARES AND INTEREST PAID ON THE BORROWED FUNDS IS ALLOWABL E DEDUCTION U/S 36(1)(III) OF THE ACT. SO, THE LD. CIT (A) HAS ERR ED IN DISALLOWING ITA NO.2533/DEL./2014 ITA NO.2578/DEL./2014 14 THE DEDUCTION CLAIMED ON ACCOUNT OF INTEREST BY THE ASSESSEE. SO, GROUND NO.3 OF ASSESSEES APPEAL IN ITA NO.2533/DEL /2014 IS DETERMINED IN FAVOUR OF THE ASSESSEE GROUNDS NO.3 & 4 OF REVENUES APPEAL (ITA NO.2578/DEL/2014) 18. THE REVENUE HAS CHALLENGED THE DELETION OF DISA LLOWANCE BY LD. CIT (A) OF RS.17,50,560/- AND RS.14,17,200/- MA DE BY THE AO ON ACCOUNT OF INTEREST EXPENDITURE ON INVESTMENT BY THE ASSESSEE COMPANY IN SHARES OF A SISTER CONCERN AND ON ACCOUN T OF INTEREST EXPENDITURE IN PLOT WHICH WAS NEVER PUT TO USE FOR BUSINESS PURPOSES RESPECTIVELY. 19. SO FAR AS DELETION OF DISALLOWANCE OF RS.17,50, 560/- MADE BY THE LD. CIT (A) IS CONCERNED, UNDISPUTEDLY SIMILAR DELETION HAS BEEN MADE BY THE REVENUE IN ASSESSEES OWN CASE FOR AYS 2005- 06 AND 2007-08 AND THE DECISIONS RENDERED BY THE RE VENUE AUTHORITIES HAVE BEEN CONFIRMED BY THE COORDINATE B ENCH OF THE TRIBUNAL IN ITA NO.770/DEL/2009 FOR AY 2005-06 AND ITA NO.2655/DEL/2010 FOR AY 2007-08 BOTH ORDER DATED 06 .11.2009 . LD. DR FOR THE REVENUE HAS NOT BROUGHT ON RECORD AN Y MATERIAL TO TAKE A DIFFERENT VIEW IN THE IDENTICAL FACTS AND CI RCUMSTANCES NOR HAS BROUGHT ON RECORD ANY MATERIAL IF THE DECISIONS RENDERED BY THE ITA NO.2533/DEL./2014 ITA NO.2578/DEL./2014 15 COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE HAVE NOT ATTAINED FINALITY. 20. SIMILARLY, DELETION OF ADDITION OF RS.14,17,200 /- MADE BY THE AO HAS ALSO BEEN DELETED BY THE LD. CIT (A) HAVING IDENTICAL FACTS BY FOLLOWING THE DECISION OF THE COORDINATE BENCH O F THE TRIBUNAL FOR AY 2007-08 IN ASSESSEES OWN CASE IN ITA NO.2655/DEL/2010 (SUPRA). LD. DR FOR THE REVENUE DID NOT CONTROVERT THIS FACT. 21. CONSEQUENTLY, WE ARE OF THE CONSIDERED VIEW THA T THERE IS NO INFIRMITY IN THE FINDINGS RETURNED BY THE LD. CIT ( A) WHILE DELETING THE AFORESAID ADDITIONS, HENCE, GROUNDS NO.3 & 4 RA ISED BY THE REVENUE IN ITA NO.2578/DEL/2014 ARE DETERMINED AGAI NST THE REVENUE. 22. RESULTANTLY, THE APPEAL FILED BY THE ASSESSEE C OMPANY BEARING ITA NO.2533/DEL/2014 IS PARTLY ALLOWED AND THE REVENUES APPEAL BEARING ITA NO.2578/DEL/2014 IS DI SMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 20 TH DAY OF FEBRUARY, 2018. SD/- SD/- (G.D. AGRAWAL) (KULDIP SINGH) PRESIDENT JUDICIAL MEMBER DATED THE 20 TH DAY OF FEBRUARY, 2018 TS ITA NO.2533/DEL./2014 ITA NO.2578/DEL./2014 16 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A), FARIDABAD. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.