RUSTOMJEE KNOWLEDGE CITY P.LTD, MUMBAI V. ASST CIT 9(1), MUMBAI

ITA 3317/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0070 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 11-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N HEMLATHA SHRI SATISH MODY
• Keywords: Notional interest
• Section: 142(1); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA , AM AND SHRI AMARJIT SINGH , JM / I .T.A. NO. 3317 / MUM/ 20 1 6 ( / ASSESSMENT YEAR: 2010 - 11 ) M/S. RUSTOMJEE KNOWLEDGE CITY PVT. LTD. RUSTOMJEE ACRES, J.S. ROAD. OFF. RUSTOM IRANI MARG, DAHISAR (W), MUMBAI - 400099. / VS. THE ASST. CIT - 9(1), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020. ./ ./ PAN/GIR NO. : AADCA 1923 E ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING : 22 .0 6 .2018 / DATE OF PRONOUNCEMENT : 1 9. 09 . 201 8 / O R D E R PER AMARJIT SINGH, J M: THE ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 04 .0 4 .201 6 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 21 MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO THE AY. 20 10 - 11 . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1. THE LEARNED COMMISSIONER OF INCOME - LAX (APPEALS) - 21, MUMBAI , HAS ERRED IN DISALLO WING INTEREST OF RS. 16,13,25G/ - ON THE GROUND THAT THE FUNDS BORROWED F OR BUSINESS PURPOSES WERE USED OR UTILIZED FOR GIVING ADVANCES TO ONE 'TERRAFORM REALTY ON WHICH NO INTERES T WAS CHARGED. REVENUE BY: MS. N . HEMLATHA ASSESSEE BY : SHRI SATISH MODY ITA. NO.3317 /M/1 6 A.Y.2010 - 11 2 THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - 21, MUMBAI HAS ERRED BY DISALLOWING PART OF INTEREST PAID THOUGH THE INTEREST PAID WAS FOR BUSINESS PURPOSES ONLY, WITHOUT PREJUDICE TO THE ABOVE THE INTEREST PAID MAY BE ALLOWED U/S. 37(1) OF THE ACT, THE INTEREST PAID BEING TOR BUSINESS PURPOSES AND THAT THE S ECURITY DEPOSIT APPLICATION MONEY GIVEN FOR THE BUSINESS OF THE APPELLANT COMPANY. THE APPELLANT RESERVES RIGHT TO ADD, AMEND AND ALTER ANY GROU NDS OF APPEAL AS AND WHEN KINDLY NECE SSARY. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE A.Y. 2010 - 11 ON 13.10.2010 DECLARING TOTAL LOSS TO THE TUNE OF RS.86,72,351/ - . THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. THEREAFTER, THE CASE WAS SELECTE D FOR SCRUTINY HENCE NOTICE U/S 143(2) OF THE ACT DATED 25.08.2011 WAS ISSUED AND SERVED UPON THE ASSESSEE. NOTICE U/S 142(1) OF THE ACT DATED 19.10.2012 WAS ALSO ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF CONST RUCTION OF BUILDING, LAND AND ESTATE DEVELOPMENT, LEASING AND/ OR SALE OF THE PREMISES AND ACTIVITIES INCIDENTAL TO IT. THE ASSESSEE ALSO ENGAGED IN THE PRE - PRIMARY EDUCATION RUNNING OF VOCATIONAL TRAINING AND EDUCATION CLASSES. ON VERIFICATION , IT WAS FOU ND THAT THE ASSESSEE PAID THE INTEREST FREE LOAN TO THE TUNE OF RS. 1,07,55,000/ - TO TERRAFIRMA REALTY PVT. LTD. AND ON THE OTHER HAND CLAIMING THE INTEREST ON BORROWING. NOTICE U/S 36(1)(III) OF THE ACT WAS ISSUED AND AFTER GETTING THE REPLY , 15% INTEREST UPON THE SAID INCOME I.E. TO THE TUNE OF RS.16,13,250/ - WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. THE CLAIM OF THE ASSESSEE WAS ALSO DISALLOWED U/S 40A OF THE ACT TO THE TUNE OF RS.51,330/ - AND THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED AS LOSS TO THE TUNE OF RS.70,07,771/ - . FEELING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE SAID FINDING ITA. NO.3317 /M/1 6 A.Y.2010 - 11 3 OF THE AO IN CONNECTION WITH DISALLOWANCE OF INTEREST OF RS.16,13,250/ - , THEREFORE, THE ASSESSEE HAS FILED THE PRESENT APP EAL BEFORE US. 4 . WE HAVE HEARD THE ARGUMENTS ADVANCED BY THE LD. REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECORD. UNDER THIS ISSUE THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF THE DISALLOWANCE OF INTEREST OF RS.16,13,250/ - BY THE CIT(A). THE AO O BSERVED THAT THE FUNDS/BORROWING WERE USED FOR INVESTMENT/LOAN TO TERRAFIRMA REALTY PVT. LTD TOTALING TO THE TUNE OF RS.1,07,55,000/ - . THE NOTICE WAS GIVEN TO THE ASSESSEE TO THE EF FECT THAT WHY NOTIONAL INTEREST SHOULD NOT BE CHARGED U/S 36(1)(III) OF THE ACT , BECAUSE THE INTEREST ON BORROWING FUNDS WERE USED FOR INVESTMENT/TERRAFIRMA REALTY PVT. LTD . THE CONTENTION OF THE ASSESSEE IS THAT THE PART OF THE ADVANCE GIVEN WAS FOR THE ACQUISITION OF THE SHARE OF THE SAID COMPANY WHILE BALANCE WAS GIVEN AS SECU RITY/DEPOSIT/ADVANCE FOR A CQUIRING VENTURE CAPITAL ISSUED BY SEBI FOR CARRYING ON BUSINESS CAPITAL FINANCING, T HEREFORE, THE SAME WAS NOT REQUIRED TO BE DISALLOWED U/S 36(1)(III) OF THE ACT AND WAS WRONGLY ADDED TO THE INCOME OF THE ASSESSEE. THE LD. REPRE SENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE TERRAFIRMA REALTY PVT. LTD WAS THE SISTER CONCERN OF THE ASSESSEE AND THEREFORE PURCHASE OF THE SHARE OF THE SAID FIRM OF RS.30,00,000/ - AND G IVING THE SECURITY DEPOSIT AND ALSO GIVING THE SECURITY DEPOSIT TOWA RDS THE VENTURE CAPITAL LICENCE OF BORROWING ON VENTURE CAPITAL FINANCING IS IN CONNECTION WITH THE MANAGEMENT OF FUNDS AND STRATEGIC INVESTMENT, THEREFORE, THE SAME IS NOT LIABLE TO BE DISALLOWED . IT IS NOT IN DISPUTE THAT THE TERRAFIRMA REALTY PVT. LTD I S THE SISTER CONCERN OF THE ASSESSEE . THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE WANTED TO RAISE THE FINANCES , THEREFORE, MOVED TO ACQUIRE ITA. NO.3317 /M/1 6 A.Y.2010 - 11 4 THE LICENSE TO RAISE VENTURE CAPITAL SO FUND COULD BE USED IN ACQUIRING PROPERTIES AND TO PAY THE SECURITY D EPOSIT WHICH WAS IN THE INTEREST OF THE BUSINESS OF THE APPELLANT. THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ALSO CONTENDED THAT THE INVESTMENT WAS IN THE INTEREST OF BUSINESS OF THE ASSESSEE, THEREFORE, THE INTEREST IS NOT LIABLE TO BE ADDED INTO THE INC OME OF THE ASSESSEE IN VIEW OF THE LAW SETTLED IN S. A. BUILDERS LTD. CIT 228 ITR 01 (SC). NO DOUBT, THE SAID INVESTMENT BY THE ASSESSEE IS IN CONNECTION WITH THE BUYING OF EQUITY - SHARES OF TERRAFIRMA REALTY PVT. LTD AND FOR FURNISHING THE SECURITY TO THE TUNE OF RS. 77,50,000/ - TOWARDS THE VENTURE CAPITAL FINANCING. THE ASSESSEE PURCHASED THE SHARE TO THE TUNE OF RS.30,00,000/ - EQUITY - SHARES. NO DOUBT, THE SAID EXPENSES ARE NOT RELATED TO THE BUSINESS OF THE ASSESSEE BUT THE SAID INVESTMENT SEEMS TO BE BUSI NESS EXPEDIENCY IN WHICH THE ASSESSEE WANTED TO SECURE THE PRESENT BUSINESS AS WELL AS IN THE BUSINESS OF VENTURE CAPITAL FINANCING RELATED TO TERRAFIRMA REALTY PVT. LTD . THE CERTIFICATE ISSUED BY SEBI S ECURITY AND EXCHANGE BOARD OF INDIA DATED 29.03.2007 RELATED TO TERRAFIRMA REALTY PVT. LTD FUND IS ON THE FILE WHICH LIES AT PAGE NO. 1 OF THE PAPER BOOK. THE CLAIM OF THE ASSESSEE FIRM WAS IN CONNECTION WITH ASHRAY DWELLERS PVT. LTD. EARLIER NAME OF THE FIRM M/S. RUSTO MEJEE KNOWLEDGE CITY PVT. LTD. T HE LEDG ER ACCOUNT OF THE ASSESSEE FIRM IS ON THE FILE WHICH LIES AT PAGE NO. 2 OF THE PAPER BOOK IN WHICH THE ASSESSEE PAID THE AMOUNT TO M/S.TERRAFIRMA ADVISORS REALTY PVT. LTD . FOR THE PURPOSE OF SECURITY DEPOSIT TOWARDS THE VENTURE CAPITAL LICENSE IF ANY . N O I NTEREST WAS RECEIVED . T HE DETAILS OF SHARE - HOLDING OF TERRAFIRMA REALTY ADVISORS PVT. LTD. IS ON ALSO ON THE FILE WHICH LIES AT PAGE NO. 3 OF THE PAPER BOOK. THE ASSESSEE CAN TAKE THE DECISION ON ACCOUNT OF HIS BUSINESS EXPEDIENCY . T HE CASE OF THE ASSESSEE ITA. NO.3317 /M/1 6 A.Y.2010 - 11 5 SEEMS TO SQUARELY COVERED BY DECISION OF HONBLE SUPREME COURT IN THE CASE OF S.A BUILDERS (SUPRA), THEREFORE, IN THE SAID CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE FINDING OF THE CIT(A) IS NOT JUSTIFIABLE HEN CE WE SET ASIDE THE FINDING OF THE CIT( A) ON THE ISSUE AND DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE AND DELETE THE SAID ADDITION OF THE INTEREST TO THE TUNE OF RS.16,13,250/ - . 5 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS HERE BY ORDERED TO BE ALLOWED . ORDER PRONOUNCED I N THE OPEN COURT ON 19. 09 .2 01 8 . SD/ - SD/ - ( SHAMIM YAHYA ) ( AMARJIT SINGH ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 19. 09 . 201 8 . VIJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI