DCIT CIR 3(1), MUMBAI V. CHINSHA PROPERTY P.LTD, MUMBAI

ITA 274/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100822 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 10-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PREMANAND J
• Assessee Lawyers: BEHARILAL
• Keywords: Business expenditure; Commercial expediency
• Section: 143(3); 14A

Judgement Text

M/S CHINSHA PROPERTY PVT LTD ITA NO. 274 /MUM/20 1 4 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI . . , , BEFORE SHRI G S PANNU , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBER ITA NO. : 274 /MUM/20 1 4 ( ASSESSMENT YEAR: 20 1 0 - 11 ) DY COMMISSIONER OF INCOME TAX - RANGE - 8(1), MUMBAI VS M/S CHINSHA PROPERTY PVT LTD , 41/44, SHAPOORJI PALLONJI CENTRE, MINOO DESAI MARG, COLABA, MUMBAI - 400 005 .: PAN: AAACC 6982 A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PREMANAND J RESPONDENT BY : SHRI BEHARILAL /DATE OF HEARING : 17 - 06 - 201 5 / DATE OF PRONOUNCEMENT : 14 - 08 - 201 5 ORDER , . . : PER AMIT SHUKLA, AM : THE A FORESAID APPEAL HA S BEEN FILED BY THE REVENUE A GAINST THE IMPUGNED ORDER DATED 1 8 . 1 0 .20 1 3 , PASSED BY CIT (A) - 6 , MUMBAI FOR QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE ASSESSME NT YEAR 20 1 0 - 11 , ON THE FOLLOWING GROUNDS OF APPEAL : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN ALLOW ING INTEREST EXPENDITURE OF RS. 1,40,36,055/ - AS DEDUCTION U/S 36(1)(III) OF THE IT ACT WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS DIVERTED ITS INTEREST BEARING LOAN TO THE BUSINESS PURPOSES OF THE OTHER ENTITY AND WITHOUT ANY COMMERCIAL EXPEDIENCY AND THE SAME CANNOT BE ALLOWED AS DEDUCTION U/S 36(1)(III). 2. WHETHER ON THE FACTS AND IN T HE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT SECTION 14A IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE WITHOUT APPRECIATING THE FACT THAT ANY RETURN BY WAY OF PROFIT OF THE COMPANY IS ONLY BY WAY OF DIVIDEND WHICH I S EXEMPTED. M/S CHINSHA PROPERTY PVT LTD ITA NO. 274 /MUM/20 1 4 2 2. BRIEF FACTS ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF INVESTMENT IN IMMOVABLE PROPERTIES. THE ASSESSEE COMPANY HAD ENTERED INTO THE SHAREHOLDERS AGREEMENT ON 15 TH APRIL, 2004 ALONG WITH DLF UNIVERSAL LTD. AND AKRUTI NIRMAN LTD. TO REGULATE THEIR RELATIONSHIP INTER SE WITH AGREED SHAREHOLDING PATTERN IN A COMPANY NAMED AS MANGAL SHRUSTI GRUH NIRMITI PRIVATE LIMITED (NOW JOYOUS HOUSING LTD.). A S PER THE TRIPARTITE AGREEMENT AND IN TERMS OF MOU DATED 15.04.2004 , T HE ASSESSEE C OMPANY HELD 37.5% SHARES; DLF UNIVERSAL LTD. 37.5%; AND A KRUTI NIRMAN LTD . 25% SHARES OF THE TOTAL PAID - UP CAPITAL OF RS. 1 CRORE . THE JOYOUS HOUSING LTD. HAS UNDERTAKEN A PROJECT OF SLUM REHABILITATION AND RE - DEVELOPMENT AT TULSIWADI, TARDE O , MUMBAI UNDER URBAN RENEWAL SCHEME . FOR THE DEVELOPMENT OF THE SAID PROJECT, THE ASSESSEE COMPANY HAD FUNDED RS. 11,25,00,000/ - UP TO 31 ST MARCH, 2010, WHICH WAS INTEREST FREE AS PER THE TERMS OF AGREEMENT READ WITH MOU , W HEREIN, INTEREST WAS NOT TO BE CHARGED UPTIL CE RTAIN AMOUNT. TO FINANCE THOSE PROJECT, THE ASSESSEE HAS TAKEN LOAN FROM SHAPOORJI PALLONJI & CO. LTD. FOR SUM OF RS. 12,67,25,000/ - . ON THIS LOAN THE ASSESSEE HAS PAID INTEREST OF R S. 1,54,82,005/ - , OUT OF WHICH RS. 14,45,950/ - WAS CAPITALIZED BEING PAID FOR PAYING DEBTS OF SWADESHI MILLS LTD AND BALANCE INTEREST OF RS. 1,40,36,055/ - WAS CLAIMED AS DEDUCTION IN THE PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER HELD THAT SUCH AN INTEREST CANNOT BE ALLOWED U/S 36(1)(III) AS IT WAS NOT INCURRED FOR THE BUSINES S PURPOSE AND THERE WAS NO COMMERCIAL EXPEDIENCY . WITHOUT PREJUDICE , HE HELD THAT THE SAID INTEREST IS DISALLOWABLE AS THE ASSESSEE HAS INVESTED IN THE SHARES OF A COMPANY ON WHICH DIVIDEND INCOME WOULD BE EXEMPT AND HENCE SAME WOULD NOT BE ALLOWABLE U/S 1 4A. THE RELEVANT GROUNDS FOR REJECTING THE ASSESSEES CLAIM BY THE ASSESSING OFFICER IS AS UNDER: (I) THE ASSESSEE HAS BORROWED FUNDS ON INTEREST FROM ITS HOLDING COMPANY AND IT HAS DIVERTED IT TO M/S JOYOUS HOUSING LTD., WITHOUT CHARGING ANY INTEREST. M/S CHINSHA PROPERTY PVT LTD ITA NO. 274 /MUM/20 1 4 3 (II) IT IS NOT THE BUSINESS OF THE ASSES S EE COMPANY TO IN V EST IN THE BUSINESS OF OTHER COMPANIES. AS PER CLAUSE III(A - 1 OF MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPANY, AS FURNISHED BY THE ASSESSEE, IT IS SEEN THAT THE MAIN OBJECT OF THE ASSESSEE CO MPANY IS TO CARRY ON THE BUSINESS OF INVESTMENT IN IMMOVABLE PROPERTIES , LAND, HOUSES, FLATS, GARAGES, SHOPS, SHOWROOMS, GODOWNS, THEATERS, HOTELS, RESTAURANTS, VEHICLES, FURNITURES, ALL OTHER IMMOVABLE AND MOVABLE PROPERTIES IN INDIA OR ELSEWHERE. THUS, L ENDING OF MONEY INTEREST - FREE IN THE PROJECTS OF ANY OTHER COMPANY IS NOT THE BUSINESS OF THE ASSESSEE COMPANY. (III) THE SO - CALLED MEMORANDUM OF UNDERSTANDING MADE BY THE ASSESSEE COMPANY WITH M/S JOYOUS HOUSING LTD., IS NOTHING BUT AN AFTERTHOUGHT TO GI VE THE TRANSACTION A COLOUR OF LEGITIMACY . 3. BEFORE THE CIT(A), THE ASSESSEE FIELD VERY DETAILED EXPLANATION AS TO HOW THE FUNDS GIVEN T O JOINT VENTURE COMPANY WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS . THE ASSES S EES DETAILED SUBMISSIONS H AVE BEEN INCORPORATED BY THE CIT(A) FROM PAGES 4 TO 13 OF THE APPELLATE ORDER ALONG WITH VARIOUS JUDICIAL CITATIONS. THE LD. CIT(A) AFTER CONSIDERING THE ENTIRE GAMUT OF THE FACTS, MATERIAL ON RECORD AND SUBMISSIONS OF THE ASSESSEE, ALLOWED ASSESSEES CLAI M AFTER OBSERVING AND HOLDING AS UNDER : - IT MAY BE SEEN FROM THE ABOVE DISCUSSION AND NARRATION OF FACTS THAT IN THE CASE OF THE APPELLANT THERE IS NO DISPUTE REGARDING COMMENCEMENT OR SETTING UP OF BUSINESS BECAUSE THE AO HAS NOWHERE HELD THAT THE BUSI NESS WAS NOT SET UP (AND ALSO COMMENCED) AND HENCE THE INTEREST EXPENSE IS DISAL LOWABLE. EVEN OTHERWISE, IN VIE W OF THE CASE LAWS CITED BY THE APPELLANT , THE FACT THAT THE BUSINESS OF THE APPELLANT HAS BEEN ALREADY SET UP AND HENCE THE INTEREST EXPENSES AR E ALLOWABLE, IS EVIDENT. THE CASE LAWS CITED BY THE APPELLANT IN THIS REGARD ARE DHOOMKETU BUILDERS AND DEVELOPMENT PVT. LTD (SUPRA), DECCAN GOLDMINES LTD (SUPRA), WHIRLPOOL OF INDIA LTD (SUPRA), HUGHES ESCORTS COMMUNICATIONS LTD (SUPRA), ESFN SOFTWARE IND IA PVT. LTD (SUPRA). THESE CASE LAWS ARE EQUALLY M/S CHINSHA PROPERTY PVT LTD ITA NO. 274 /MUM/20 1 4 4 APPLICABLE TO THE FACTS OF THE APPELLANT. HENCE, THERE IS NO DISPUTE REGARDING THE BUSINESS HAVING BEEN SET UP IN THE YEAR UNDER CONSIDERATION. 9. THE MAIN OBJECTION OF THE AO FOR DISALLOWANCE OF INTEREST EXPENSES OF RS. 1,40,36,055/ - IS THAT THE SAME HAS BEEN INCURRED FOR PURPOSES OTHER THAN THE BUSINESS PURPOSE AND THERE IS NO COMMERCIAL EXPEDIENCY IN INCURRING THE SAID EXPENDITURE. IN THIS REGARD IT MAY BE NOTED THAT THE APPELLANT IS ALREADY IN THE BUSIN ESS OF INVESTMENT IN REAL ESTATE AND EARNING OF INCOME THEREFROM. THE APPELLANT, ALONG WITH AKRUTI NIRMAN LTD. WAS THE HOLDING COMPANY OF MSPL (NOW JOYOUS HOLDINGS LTD) WHICH HAD UNDERTAKEN A PROJECT OF REDEVELOPMENT OF TULSIWADI SLUM AREA. THUS, THE APPEL LANT, ALONG WITH AKRUTI NIRMAN LTD. WAS ALREADY INTO A REAL ESTATE PROJECT THROUGH MSFL (NOW JOYOUS HOLDINGS LTD). THE ONLY CHANGE WHICH HAS HAPPENED IS THAT W.E.F. 15.04.2004, A THIRD PARTY I.E. DLF UNIVERSAL LTD. HAS ALSO JOINED THE PROJECT AND AS PER TH E SHAREHOLDERS' AGREEMENT DATED 15.04.2004; IT HAS BEEN ALLOTTED 37.5% SHARES IN MSPL (NOW JOYOUS HOLDINGS LTD). AS A RESULT, THE APPELLANT ALONG WITH AKRUTI NIRMAN LTD. IS NOW HOLDING 62.5% SHARES OF MSPL (NOW JOYOUS HOLDINGS LTD) AND THE BALANCE (37.5)% IS HELD BY DLF UNIVERSAL LTD. AS PER THE MOU DATED 15.04.2004 WHICH WAS EXECUTED SIMULTANEOUSLY WITH THE SHAREHOLDERS' AGREEMENT, THE APPELLANT SHALL BE ENTITLED TO TAXABLE INCOME OF RS.42 CRORES ON THE HAPPENING OF FIVE EVENTS WHICH ARE STATED ON PAGES 1 0 AND 11 OF THE MOU. IN ADDITION TO THIS THE APPELLANT SHALL ALSO BE ENTITLED TO DIVIDEND AS PER ITS SHAREHOLDING, OUT OF THE BALANCE PROFITS EARNED FROM THE TULSIWADI PROJECT (REFER PAGE 19 OF THE MOU), ON WHICH DIVIDEND DISTRIBUTION TAX WILL ALSO HAVE T O BE PAID BY MSPL (NOW JOYOUS HOLDINGS LTD). THUS, IT CANNOT BE SAID THAT THE INVESTMENT OR LOAN OF RS. 11.25 CRORES GIVEN BY THE APPELLANT TO MSPL (NOW JOYOUS HOLDINGS LTD.) M/S CHINSHA PROPERTY PVT LTD ITA NO. 274 /MUM/20 1 4 5 WAS NOT FOR BUSINESS PURPOSES. SINCE THE APPELLANT IS ENGAGED IN THE BUSINESS OF REAL ESTATE, TULSIWADI PROJECT IS BEING EXECUTED BY THE APPELLANT JOINTLY ALONG WITH OTHER 2 PARTNERS VIZ. DLF UNIVERSAL LTD. AND AKRUTI NIRMAN LTD: THROUGH THE JOINTLY HELD COMPANY MSPL (NOW JOYOUS HOLDINGS LTD) WHICH HAD ACQUIRED THE SAID PROJECT FOR REDEVELOPMENT OF TULSIWADI AREA AS PER REGULATION NO.33 (9) OF THE DEVELOPMENT CONTROL REGULATIONS OF GREATER MUMBAI, 1991. HENCE, COMMERCIAL EXPEDIENCY/BUSINESS PURPOSE FOR INVESTING RS.11.25 CRORES IN THE SAID PROJECT THROUGH MSPL (NOW JOYOUS HOLDIN GS LTD) IS ESTABLISHED. THEREFORE, ON THIS COUNT, THE INTEREST OF RS.1,40,36,055/ - CANNOT BE DISALLOWED. SECONDLY, THE AO HAS ALSO WITHOUT PREJUDICE HELD THAT THE SAID INTEREST IS DISALLOWABLE U/S. 14A OF THE ACT BECAUSE THE DIVIDEND INCOME RECEIVABLE FR OM MSPL (NOW JOYOUS HOLDINGS LTD) MAY BE EXEMPT FROM TAX. I DO NOT AGREE WITH THE AO BECAUSE THE AMOUNT OF RS.11.25 CRORES, WHICH HAS BEEN GIVEN BY THE APPELLANT AS LOAN TO MSPL (NOW JOYOUS HOLDINGS LTD), HAS NOT BEEN INVESTED IN SHARES OF MSPL (NOW JOYOUS HOLDINGS LTD). THE APPELLANT, IN RETURN IS ASSURED OF A MINIMUM OF RS.42 CRORES (ON HAPPENING OF 5 EVENTS AS MENTIONED ON PAGES 10 AND 11 OF THE MOU DATED 15.04.2004) FROM THE PROJECT AS REVENUE RECEIPT WHICH WILL BE TAXABLE. THEREFORE, IN MY OPINION THE AO'S OBSERVATIONS THAT THE INTEREST OF RS.1,40,30,055/ - IN RESPECT OF LOAN TAKEN FROM SHAPOORJI PALLONJI & CO. LTD IS DISALLOWABLE U/S 14A ALSO, IS NOT CORRECT. I ACCORDINGLY HOLD AND DIRECT THE AO TO GRANT DEDUCTION OF INTEREST OF RS.1,40,36,055/ - TO THE APPELLANT. 4. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE MATERIAL ON RECORD , WE FIND THAT IT IS AN UNDISPUTED FACT THAT THE ASSE S SEE ALONG WITH THE 2 OTHER COMPANIES HAS INVESTED IN A JOINT VENTURE COMPANY M/S JOYOUS HOLDING LTD., WHICH HAD UND ERTAKEN A PROJECT OF M/S CHINSHA PROPERTY PVT LTD ITA NO. 274 /MUM/20 1 4 6 SLUM REDEVELOPMENT AT TULSIWADI, TARDE O UNDER THE DCR OF GREATER MUMBAI, 1991. AS PER THE TRIPARTITE AGREEMENT AND THE MOU, FOR THE DEVELOPMENT OF THIS PROJECT, HUGE FUNDS WERE REQUIRED , WHICH WERE TO BE CONTRIBUTED BY THE COMPANY IN THE FORM OF PARTICIPATION OF EQUITY SHARES. APART FROM T H AT FURTHER AMOUNT OF RS. 11.25 CRORES WAS FUNDED WHICH WAS OVER AND ABOVE THE SUBSCRIPTION AND ACQUIRING OF SHARES WHICH WAS IN THE FORM OF INTEREST FREE. THE BUSINESS OF THE JOYOUS HOLDING LTD. HAS ALREADY BEEN SET - UP AND COMMENCED. SUCH A FUND DEPLOYED OUT OF THE INTEREST BEARING LOAN WAS WHOLLY FOR THE PURPOSE OF BUSINESS, OF JOINT VENTURE WHICH WAS TO DEVELOP PROJECT BECAUSE THE ASSES S EE WAS IN THE BUSINESS OF REAL ESTATE AND EARNING INCOME THEREF ROM. FURTHER , THE ASSESSEE WERE ENTITLED FOR PROFIT OF RS. 42 CRORES FROM THE SAID BUSINESS, WHICH WAS STATED IN THE MOU ITSELF. ALL THESE ASPECTS HAVE BEEN DEALT BY THE CIT(A) AND FINDING OF FACT HAS BEEN GIVEN THAT THE SAID FUNDS WERE UTILIZED WHOLLY FOR THE BUSINESS PURPOSE AND FOR THE COMMERCIAL EXPEDIENCY AND THEREFORE , ANY INTEREST PAID ON SUCH FUND HAS TO BE ALLOWED AS BUSINESS EXPENDITURE U/S 36(1)(III). FINDING RECORDED BY THE LD. CIT(A) IS THUS AFFIRMED ACCORDINGLY, WE DO NOT FIND ANY MERITS IN THE GROUNDS RAISED BY THE REVENUE AND THE SAME ARE DISMISSED. 5. REGARDING ALTERNATIVE GROUND RAISED BY THE REVENUE, WE FIND THAT THE LD. CIT(A) HAS GIVEN CATEGORICAL FINDING THAT RS. 11.25 CRORES HAS BEEN GIVEN BY THE ASSESSEE AS LOAN AND NOT AS INV ESTMENT IN SHARES. IN FACT, THE ASSESSEE IN RETURN WAS ASSURED OF MINIMUM OF RS. 42 CRORES FROM THE SAID PROJECT, WHICH WAS IN THE FORM OF A REVENUE RECEIPT AND THAT WOULD BE A TAXABLE INCOME. THUS, THERE WAS NO QUESTION OF ANY DISALLOWANCE U/S 14A. ACCOR DINGLY, THE ALTERNATIVE GROUND RAISED BY THE DEPARTMENT IS ALSO DISMISSED. M/S CHINSHA PROPERTY PVT LTD ITA NO. 274 /MUM/20 1 4 7 6. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH AUGUST , 2015. SD/ - SD/ - ( . . ) ( ) ( G S PANNU ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 14 TH AUGUST , 2015 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - 6 , MUMBAI. 4 ) THE CIT 3 , MUMBAI. 5 ) , , / THE D.R. C BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS