Appeal details
Counselvise Citation
[2019] 112 COUNSELVISE.COM (IT) 1287 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 6 month(s) 24 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
17-12-2019
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
C
Assessment Year
2012-2013
Appeal Filed On
23-05-2018
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI A.D. JAIN, VICE PRESIDENT AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO. 3529/MUM/2018 (ASSESSMENT YEAR: 2012-13) M/S. IMPERIAL CONSULTANTS & SECURITIES LTD. (FORMERLY IMPERIAL CONSULTANTS & SECURITIES P. LTD) MANICKAM COMPLEX, GR. FLOOR 1/3, GENERAL PATERS ROADCHENNAI 600002 VS. DCIT, CIRCLE - 6(3)(1) ROOM NO. 506, 5TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 PAN AAACG4413G APPELLANT RESPONDENT ITA NO. 2797/MUM/2018 (ASSESSMENT YEAR: 2012-13) DCIT, CIRCLE - 6(3)(1) ROOM NO. 506, 5TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 VS. M/S. IMPERIAL CONSULTANTS & SECURITIES LTD. ESSAR HOUSE, 11, KK MARG MAHALAXMI, MUMBAI 400034 PAN AAACG4413G APPELLANT RESPONDENT APPELLANT BY: SHRI VIJAY MEHTA RESPONDENT BY: SHRI AWUNGSHI GIMSON DATE OF HEARING: 25.09.2019 DATE OF PRONOUNCEMENT: 17.12.2019 O R D E R PER RAJESH KUMAR, AM THESE CROSS APPEALS FILED BY THE ASSESSEE AND REVEN UE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A)-12, MUMBAI DATED 12 .03.2018 AND IT RELATES TO A.Y. 2012-13. ITA NO. 3529/MUM/2018 2. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE PRESSED ONLY GROUND NO. 4(A) RAISED BY THE ASSESSEE AND ALL OTHER GROUNDS, NAMELY ITA NO. 3529/MUM/2018 IMPERIAL CONSULTANTS & SECURITIES LTD./DCIT, CIRCLE - 6(3)(1) 2 GROUND NOS. 1, 2, 3(A) & 3(B) ARE ACCORDINGLY DISMI SSED AS NOT PRESSED. GROUND NO. 4(A) READS AS UNDER: - 4(A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT(A) OUGHT TO HAVE ALLOWED THE DEDUCTION OF INTER EST INCURRED ON ZERO COUPON BONDS OF RS.84,70,63,010/- (I.E., RS . 143,30,28,279/- LESS RS. 58,59,65,260/-) U/S 36(1)( III) OF THE ACT THOUGH CLAIMED BY THE APPELLANT U/S 57(III) OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED RETURN OF INCOME ON 30.09.2012 DECLARING LOSS OF RS. 1170,64,32,415/- O THER THAN THE LOSS UNDER LONG TERM CAPITAL GAIN WHICH WAS RS. 20,89,72 ,023/-. THE RETURN OF INCOME TAX WAS LATER ON REVISED ON 29.03.2014 DEC LARING TOTAL INCOME AT NIL OTHER THAN THE LOSS OF ` 66,38,62,883/- UNDER THE HEAD OF LONG TERM CAPITAL GAIN. THEREAFTER THE CASE WAS SELECTED UNDE R COMPULSORY SCRUTINY AND NOTICES WERE ISSUED AND SERVED UPON THE ASSESSE E. THE ASSESSEE HAS MADE SOME BORROWINGS AND ONE OF THE MAJOR BORROWING S WAS ON ACCOUNT OF ZERO COUPON BONDS ISSUED BY M/S. ESSAR HOUSE LTD. O UT OF THE BORROWED FUND, THE ASSESSEE HAS ADVANCED MONEY THROUGH INTE R CORPORATE DEPOSITS ( HEREINAFTER REFERRED TO AS ICD) TO M/S. ESSAR OIL L TD. THE TRANSACTIONS OF BORROWING AND LENDING WERE CARRIED OUT DURING THE F INANCIAL YEARS 2009- 10, 2010-11 AND 2011-12. THE TRANSACTIONS WERE CARR IED OUT EARLIER BY ASSESSEES PREDECESSOR M/S. ESSAR INVESTMENT LTD. A ND AFTER DEMERGER OF INVESTMENT AND FINANCE DIVISION OF ESSAR INVESTMENT LTD. MERGED WITH THE ASSESSEE W.E.F. 01.04.2010. IN THE RETURN OF INCOME , THE ASSESSEE DECLARED INTEREST INCOME OF ` 124.58 CRORES UNDER SECTION 56 OF THE ACT AS INCOME FROM OTHER SOURCES AGAINST WHICH INTEREST EXPENDITU RE OF ` 143.30 CRORES WAS CLAIMED. ACCORDING TO THE AO THE ASSESSEE HAS N OT FURNISHED COMPLETE PARTICULARS OF THE SAID CLAIM AS DEDUCTION UNDER SE CTION 57 OF THE ACT CAN ONLY BE ALLOWED WHEN THE EXPENSE IS EXCLUSIVELY AND WHOLLY INCURRED FOR THE PURPOSE OF EARNING THAT INCOME AND ACCORDINGLY, THE AO PASSED THE ASSESSMENT ORDER WHEREIN, INTER ALIA, HE DISALLOWED THE ENTIRE AMOUNT OF INTEREST OF ` 143.30 CRORES CLAIMED BY THE ASSESSEE UNDER SECTION 57 OF THE ACT BY FRAMING THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT DATED 31 ST MARCH, 2015. ITA NO. 3529/MUM/2018 IMPERIAL CONSULTANTS & SECURITIES LTD./DCIT, CIRCLE - 6(3)(1) 3 4. IN THE APPELLATE PROCEEDINGS BEFORE THE CIT(A), THE LEARNED CIT(A) PARTLY ALLOWED THIS GROUND BY ALLOWING INTEREST EXP ENDITURE TO THE TUNE OF ` 58.59 CRORES OUT OF THE TOTAL EXPENDITURE OF ` 143.30 CRORES AND THUS SUSTAINED THE DISALLOWANCE TO THE TUNE OF ` 84.70 CRORES. THE LEARNED CIT(A), DURING THE COURSE APPELLATE PROCEEDINGS, OB SERVED THAT THE ASSESSEE HAS FILED EVIDENCES WITH THE AO, HOWEVER, THE SAME WERE INADEQUATE AND THUS DISMISSED THE GROUND OF THE ASS ESSEE REGARDING ASSESSMENT BEING COMPLETED U/S 144 OF THE ACT WITHO UT ADEQUATE OPPORTUNITY TO THE ASSESSEE. THE LEARNED CIT(A) ACC EPTED THE ADDITIONAL EVIDENCES AND ALSO CALLED FOR REMAND REPORTS FROM T HE AO FROM TIME TO TIME, WHICH WERE DULY REPRODUCED AND DISCUSSED IN T HE APPELLATE ORDER. EVEN THE REJOINDER FILED BY THE ASSESSEE IN REPLY T O THE REMAND REPORT WAS DISCUSSED AT LENGTH. THE DETAILED OPERATIVE PART OF THE ORDER IS EXTRACTED AS UNDER: - 78. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, THE ASSESSMENT ORDER, THE WRITTEN SUBMISSIONS OF THE APPELLANT, TH E REMAND REPORTS OF THE AO AND THE REJOINDERS FURNISHED BY THE APPELLAN T. THE APPELLANT CLAIMED DEDUCTION FOR INTEREST EXPENDITURE OF RS.14 3,30,28,270/- INCURRED IN RESPECT OF THE ZERO COUPON BONDS (ZCBS) ISSUED TO ESSAR HOUSE LTD AGAINST THE INTEREST INCOME OF RS.124,58, 14,513/- CREDITED TO THE P & L ACCOUNT, WHILE COMPUTING THE INCOME UN DER THE HEAD INCOME FROM OTHER SOURCES. THE BREAK-UP OF THE INTE REST INCOME, AS FURNISHED BY THE APPELLANT DURING THE APPELLATE PRO CEEDINGS IS AS UNDER: SR. NO. PARTICULARS INTEREST INCOME (RS.) 1 INTEREST ON ICDS ESSAR OIL LIMITED 102,02,64,568 HIMACHAL FUTURISTIC COMMUNICATIONS LTD 1,20,00,000 EQUINOX BUSINESS PARKS PVT. LTD 44,45,013 INDSEC SECURITIES & FINANCE LTD 9,00,000 SURAJBARI WINDFARM DEVELOPMENT PVT LTD 85,81,233 MATIX FERTILISERS AND CHEMICAL PVT LTD 1,13,68,219 SUB-TOTAL 105,75,59,033 2 INTEREST ON LOANS AND ADVANCES TO OTHERS 1,25,35,486 3 INTEREST ON DEBENTURES 17,57,19,994 TOTAL 124,58,14,513 79. AS CAN BE SEEN FROM THE ABOVE, THE INTEREST INC OME SHOWN BY THE APPELLANT COMPRISED OF INTEREST OF RS.105,75,59,033 /- IN RESPECT OF ICDS, INTEREST OF RS.1,35,35,486/-IN RESPECT OF LOA NS AND ADVANCES TO OTHERS AND INTEREST OF RS.17,57,19,994/- IN RESPECT OF DEBENTURES. THE INTEREST INCOME OF RS.105,75,59,033/- SHOWN IN RESP ECT OF ICDS ITA NO. 3529/MUM/2018 IMPERIAL CONSULTANTS & SECURITIES LTD./DCIT, CIRCLE - 6(3)(1) 4 COMPRISED OF INTEREST INCOME OF RS. 102,02,64,568/- IN RESPECT OF ICDS PLACED WITH ESSAR OIL LTD. AND INTEREST OF RS. 3,72,94,465/- IN RESPECT OF ICDS PLACED WITH OTHER COMPANIES. 80. THE ZCBS WERE INITIALLY ISSUED TO ESSAR HOUSE L TD (EHL) BY ESSAR INVESTMENTS LTD (EIL). SIMILARLY, THE ICDS WITH ESS AR OIL LTD (EOL) WERE PLACED BY EIL. ON DEMERGER OF THE INVESTMENT & FINANCE DIVISION OF EIL INTO THE APPELLANT COMPANY ON THE A PPOINTED DATE OF 01.04.2010, THE SAID LIABILITY OF ZCBS AND THE SAID ASSET OF ICDS WERE VESTED WITH THE APPELLANT COMPANY ALONG WITH OTHER ASSETS AND LIABILITIES OF THE INVESTMENT & FINANCE DIVISION OF EIL AND THE SAME WERE INCORPORATED IN THE BOOKS OF ACCOUNT OF THE AP PELLANT DURING THE PREVIOUS YEAR RELEVANT TO THE PRESENT ASSESSMENT YE AR AFTER THE DEMERGER WAS APPROVED BY THE HON'BLE BOMBAY HIGH CO URT ON 20.01.2012. IN VIEW OF THIS REASON, THE LEDGER ACCO UNTS OF THE ZCBS ISSUED TO EHL AND ICDS PLACED WITH EOL IN THE BOOKS OF ACCOUNT OF EIL AND THE BANK ACCOUNT STATEMENTS/BANK BOOKS OF E IL FOR THE FYS 2009-10, 2010-11 AND 2011-12, WHEN THE RELEVANT TRA NSACTIONS TOOK PLACE, ARE REQUIRED TO BE EXAMINED IN ORDER TO ASCE RTAIN WHETHER THERE WAS A DIRECT NEXUS BETWEEN THE FUNDS RAISED BY ISSU E OF ZCBS TO EHL AND THE FUNDS INVESTED BY WAY OF ICDS IN EOL AS CLA IMED BY THE APPELLANT FOR THE PURPOSE OF ASCERTAINING WHETHER T HE INTEREST EXPENDITURE IN RESPECT OF THE ZCBS HAS BEEN INCURRE D FOR THE PURPOSE OF EARNING THE INTEREST INCOME ON ICDS FOR THE PURP OSE OF BEING ELIGIBLE FOR DEDUCTION U/S. 57(III) OF THE ACT. 81. ON PERUSAL OF THE LEDGER ACCOUNT EXTRACTS OF TH E ZCBS ISSUED TO EHL AND ICDS PLACED WITH EOL IN THE BOOKS OF ACCOUN T OF EIL FOR THE FYS 2009-10, 2010-11 AND 2011-12, IT IS SEEN THAT T HE DETAILS OF ZCBS ISSUED TO EHL AND ICDS PLACED WITH EOL DURING THESE YEARS ARE AS UNDER: FY ZCBS ISSUED TO EHL (RS.) ICDS PLACED WITH EOL (RS.) 12.25% ICDS 9.75 % ICDS 9.5% ICDS TOTAL ICDS 2009-10 739,73,50,000 382,10,49,929 199,80,00,000 429,40,31,008 1011,30,80,937 2010-11 571,46,30,000 0 195,50,00,000 505,30,74,276 700,80,74,276 2011-12 494,31,80,000 0 886,50,00,000 0 886,50,00,000 TOTAL 1805,51,60,000 382,10,49,929 1281,80,00,000 934,71,05,284 2598,61,55,213 82. AS REGARDS THE FLOW OF FUNDS, IT IS SEEN THAT T HE RECEIPT OF FUNDS ON ISSUE OF ZCBS AND THE PLACEMENT OF FUNDS IN ICDS TO OK PLACE THROUGH THE FOLLOWING BANK ACCOUNTS OF THE APPELLANT AND TH E APPELLANT EITHER FURNISHED THE BANK ACCOUNT STATEMENTS OR THE BANK B OOKS MAINTAINED IN THE BOOKS OF ACCOUNT IN RESPECT OF THE SAID BANK ACCOUNTS ALONGWITH THE WRITTEN SUBMISSION DATED 09.11.2017 AND THE VER IFICATION OF THE DIRECT NEXUS HAS BEEN MADE WITH REFERENCE TO THE SA ID BANK ACCOUNT STATEMENTS OR THE BANK BOOKS: SR. NO. NAME OF THE BANK ACCOUNT NO. EVIDENCE FURNISHED 1 ING VYSYA BANK 500011017018 BANK ACCOUNT STATEMENT 2 ING VYSYA BANK 500011026084 BANK ACCOUNT STATEMENT ITA NO. 3529/MUM/2018 IMPERIAL CONSULTANTS & SECURITIES LTD./DCIT, CIRCLE - 6(3)(1) 5 3 STATE BANK OF MYSORE 54030683976 BANK BOOK 4 STATE BANK OF MYSORE EQUITY SUPPORT ACCOUNT BANK BOOK 5 PUNJAB NATIONAL BANK BANK BOOK 6 AXIS BANK BANK BOOK 7 ROYAL BANK OF SCOTLAND 183643 BANK BOOK 8 ICICI BANK 623505366830 BANK BOOK 83. ON EXAMINATION OF THE LEDGER ACCOUNTS OF THE ZC BS ISSUED TO EHL AND ICDS PLACED WITH EOL ALONG WITH THE BANK ACCOUN T STATEMENTS/BANK BOOKS, IT IS NOTICED THAT DIRECT NE XUS BETWEEN THE FUNDS RAISED BY ISSUE OF ZCBS TO EHL AND THE FUNDS INVESTED BY WAY OF ICDS IN EOL EXISTS TO THE EXTENT SHOWN IN THE TABLE BELOW: SR. NO. FUNDS RECEIVED FROM EHL ON ISSUE OF ZCBS FUNDS PLACED WITH EOL BY WAY OF ICDS AMOUNT (RS.) DATE AMOUNT 1 27.04.2009 225,00,00,000 28.04.2009 40,00,00,00 55,00,00,00 80,00,00,00 2 29.04.2009 26,21,63,808 29.04.2009 25,00,00,00 3 19.11.2009 25,00,00,000 19.11.2009 25,00,00,00 4 20.11.2009 45,00,00,000 20.11.2009 45,00,00,00 5 23.11.2009 27,00,00,000 23.11.2009 27,00,00,00 6 27.11.2009 32,80,00,000 27.11.2009 32,80,00,00 7 03.12.2009 42,00,00,000 03.12.2009 42,00,00,00 8 04.12.2009 8,05,92,126 04.12.2009 8,00,00,000 9 18.12.2009 109,38,41,681 21.12.2009 109,38,00,0 10 08.03.2010 70,00,00,000 08.03.2010 70,00,00,00 11 10.03.2010 20,00,00,000 10.03.2010 20,00,00,00 12 10.03.2010 27,14,40,271 10.03.2010 27,00,00,00 13 18.03.2010 75,00,00,000 18.03.2010 75,00,00,00 14 19.03.2010 7,13,17,619 19.03.2010 7,00,00,000 SUB - TOTAL 739,73,55,50 688,18,00, 15 21.09.2010 72,50,00,000 21.09.2010 72,00,00,00 16 28.09.2010 89,00,00,000 28.09.2010 89,00,00,00 17 29.09.2010 45,39,09,786 29.09.2010 45,00,00,00 18 24.12.2010 72,00,00,000 24.12.2010 72,00,00,00 19 28.12.2010 105,02,59,927 29.12.2012 105,00,00,0 20 17.03.2011 75,00,00,000 17.03.2011 75,00,00,00 21 24.03.2011 105,23,84,736 24.03.2011 105,00,00,0 22 31.03.2011 7,30,77,636 31.03.2011 7,00,00,000 SUB - TOTAL 571,46,32,08 570,00,00, 23 30.06.2011 63,00,00,000 20.07.2011 63,00,00,00 24 30.06.2011 25,00,00,000 02.07.2011 21,00,00,00 25 30.06.2011 100,00,00,000 02.07.2011 100,00,00,0 26 09.08.2011 74,46,97,005 09.08.2011 74,00,00,00 27 22.12.2011 32,85,33,573 22.12.2011 32,50,00,00 28 26.12.2011 68,09,01,667 27.12.2011 68,00,00,00 ITA NO. 3529/MUM/2018 IMPERIAL CONSULTANTS & SECURITIES LTD./DCIT, CIRCLE - 6(3)(1) 6 29 28.12.2011 130,26,37,691 28.12.2011 130,00,00,0 SUB-TOTAL 493,67,69,93 488,50,00, 30 TOTAL 1804,87,57,5 1746,68,0 84. AS CAN BE SEEN FROM THE TABLE ABOVE, DIRECT NEX US BETWEEN THE FUNDS RECEIVED BY THE APPELLANT FROM EHL BY ISSUE O F ZCBS AND THE FUNDS ADVANCED BY THE APPELLANT TO EOL BY WAY OF IC DS IS FOUND TO BE EXIST TO THE EXTENT OF RS. 1746.68 CRORES OUT OF THE TOTAL AMOUNT OF ICDS OF RS.2598.61 CRORES PLACED WITH EOL DURING TH E FYS 2009-10 TO 2011-12. THIS SHOWS THAT ONLY 67.21% OF THE AMOU NTS ADVANCED AS ICDS TO EOL WERE MET OUT OF THE BORROWINGS MADE FRO M EHL BY ISSUE OF ZCBS. 85. HOWEVER, ON FURTHER EXAMINATION, IT IS NOTICED THAT THOUGH SUCH DIRECT NEXUS EXISTED TO THE EXTENT OF RS. 1746.68 C RORES AT THE TIME WHEN THE AMOUNTS WERE ADVANCED TO EOL BY WAY OF ICD S, THERE WAS CONSIDERABLE REPAYMENT OF ICDS BY EOL TO THE APPELL ANT DURING THE FYS 2009-10 AND 2010-11. IT IS SEEN THAT THOUGH FUN DS TO THE EXTENT OF 1712.10 CORES WERE ADVANCED TO EOL TOWARDS ICDS DURING THE FYS 2009-10 AND 2010-11 (RS.1011.30 CRORES + RS. 700.80 CRORES), THE AMOUNT OF ICDS THAT WERE OUTSTANDING AT THE BEGINNI NG OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION STOOD AT RS.968,79,55,915/- ONLY. THE BREAK-UP OF T HE ICDS OUTSTANDING AS ON 01.04.2011, AS SEEN FROM THE LEDG ER ACCOUNTS OF THE ICDS WITH EOL, IS AS UNDER: PARTICULARS OF THE ICDS WITH EOL AS ON 01.04.2011 AMOUNT (RS.) 12.75% ICDS 0 9.75% ICDS 105,00,00,000 9.5% ICDS 863,79,55,915 TOTAL 968,79,55,915 86. FURTHER, IT IS SEEN FROM THE LEDGER ACCOUNTS OF THE ICDS WITH EOL FOR THE PRESENT ASSESSMENT YEAR THAT THERE WERE REP AYMENTS OF ICDS DURING THE YEAR ALSO. THE DETAILS OF FUNDS ADVANCED TO EOL TOWARDS THE ICDS AND THE REPAYMENT OF THE ICDS BY EOL DURIN G THE YEAR ARE AS UNDER: DATE OPENING BALANCE OF ICDS WITH EOL AS ON 01.04.2011(RS.) FUNDS ADVANCED TO EOL TOWARDS ICDS (RS.) REPAYMENT OF ICDS BY EOL (RS.) CLOSING BALANCE OF ICDS WITH EOL (RS.) 01.04.2011 968,79,55,915 968,79,55,915 02.07.2011 100,00,00,000 1068,79,55,915 02.07.2011 21,00,00,000 1089,79,55,915 04.07.2011 25,00,00,000 1064,79,55,915 20.07.2011 63,00,00,000 1127,79,55,915 28.07.2011 200,00,00,000 927,79,55,915 0908.2011 74,00,00,000 1001,79,55,915 23.08.2011 68,00,00,000 1069,79,55,915 ITA NO. 3529/MUM/2018 IMPERIAL CONSULTANTS & SECURITIES LTD./DCIT, CIRCLE - 6(3)(1) 7 30.09.2011 200,00,00,000 1269,79,55,915 10.10.2011 200,00,00,000 1069,79,55,915 22.12.2011 32,50,00,000 1102,29,55,915 27.12.2011 68,00,00,000 1170,29,55,915 28.12.2011 135,00,00,000 1305,29,55,915 03.01.2012 5,30,00,000 1299,99,55,915 23.01.2012 125,00,00,000 1424,99,55,915 23.01.2012 125,00,00,000 1299,99,55,915 24.01.2012 150,00,00,000 1149,99,55,915 02.02.2012 6,00,00,000 1143,99,55,915 09.03.2012 35,00,00,000 1108,99,55,915 31.03.2012 1108,99,55,915 87. BASED ON THE ABOVE DATA REGARDING THE AMOUNT OF ICDS OUTSTANDING WITH EOL AT DIFFERENT POINTS OF TIME DU RING THE YEAR, THE WEIGHTED AVERAGE DAILY BALANCE OF THE ICDS WITH EOL DURING THE YEAR WORKS OUT TO RS.1098,43,16,568/-. AS ALREADY MENTIO NED EARLIER, ONLY 67.21% OF THE AMOUNT ADVANCED BY WAY OF ICDS TO EOL WAS MET OUT OF THE BORROWINGS MADE FROM EHL BY ISSUE OF ZCBS. I N VIEW OF THIS, 67.21% OF THE WEIGHTED AVERAGE DAILY BALANCE OF THE ICDS WITH EOL OF RS. 1098,43,16,568/- DURING THE YEAR CAN BE CONS IDERED TO HAVE BEEN SOURCED OUT OF SUCH BORROWINGS. ACCORDINGLY, T HE ICDS TO THE EXTENT OF RS.738,25,59,165/- ONLY CAN BE CONSIDERED TO HAVE BEEN SOURCED OUT OF THE BORROWINGS MADE FROM EHL BY WAY OF ZCBS FOR THE YEAR UNDER CONSIDERATION. 88. THE APPELLANT HAS INCURRED INTEREST EXPENDITURE OF RS. 143,30,28,270/- DURING THE YEAR IN RESPECT OF THE Z CBS OF RS. 1805,51,60,000/- ISSUED TO EOL. OUT OF SUCH BORROWE D FUNDS OF RS. 1805,51,60,000/-, THE AMOUNT UTILISED FOR EARNING I NTEREST INCOME FROM THE ICDS PLACED WITH EOL DURING THE YEAR UNDER CONSIDERATION AMOUNTED TO RS.738,25,59,165/-AS MENTIONED IN THE P RECEDING PARAGRAPH, WHICH REPRESENTS 40.89% OF THE BORROWED FUNDS. THE PROPORTIONATE INTEREST EXPENDITURE IN RESPECT OF TH E BORROWED FUNDS SO UTILISED TOWARDS ICDS OF RS.738,25,59,165/- WORKS O UT TO RS.58,59,65,260/-. HENCE, INTEREST EXPENDITURE INCU RRED ON THE ZCBS TO THE EXTENT OF RS.58,59,65,260/- ONLY CAN BE CONS IDERED TO HAVE BEEN INCURRED FOR THE PURPOSE OF EARNING THE INTERE ST INCOME FROM THE ICDS PLACED WITH EOL. IN VIEW OF THIS, IT IS HELD T HAT THE APPELLANT IS ELIGIBLE FOR DEDUCTION OF INTEREST EXPENDITURE OF R S.58,59,65,260/- U/S.57(III) OF THE ACT, WHILE COMPUTING THE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AS AGAINST THE CLAIM FOR DEDUCTION OF RS.143,30,28,270/- MADE BY THE APPELLANT IN THE RET URN OF INCOME. 89. THE APPELLANT ADVANCED A WITHOUT PREJUDICE CONT ENTION THAT ALL THE INTEREST EXPENSES AND INTEREST INCOME ARE CONSOLIDA TED IN THE P & L ACCOUNT AND IT IS THEREFORE NECESSARY TO APPORTION THE INTEREST EXPENDITURE ON A PRO-RATA BASIS TO ALLOW DEDUCTION U/S.57(III) OF THE ACT. IT WAS STATED THAT THE WORKING OF DEDUCTION OF INTEREST U/S.57(III) OF THE ACT ON A PRO-RATA BASIS HAS BEEN SUBMITTED A T PAGE NO.152 OF THE WRITTEN SUBMISSION DATED 11.01.2017 WHEREIN IT HAS BEEN COMPUTED AT RS.136,33,80,525/-. IT WAS STATED THAT THE AVERAGE ITA NO. 3529/MUM/2018 IMPERIAL CONSULTANTS & SECURITIES LTD./DCIT, CIRCLE - 6(3)(1) 8 VALUE OF THE ICDS/LOANS GIVEN/DEBENTURES IN RESPECT OF WHICH INTEREST INCOME WAS EARNED AND THE AVERAGE VALUE OF LOANS AN D ADVANCES FROM OTHERS AND SHORT TERM BORROWINGS ON WHICH INTE REST EXPENDITURE WAS INCURRED WERE TAKEN INTO ACCOUNT FOR COMPUTING THE INTEREST EXPENDITURE OF RS.136.33 CRORES TO BE ALLOWED U/S.5 7(III) ON A PRO- RATA BASIS. 90. IN THIS REGARD, ON PERUSAL OF THE WORKING FURNI SHED BY THE APPELLANT IN THE WRITTEN SUBMISSION DATED 11.01.201 7, IT IS SEEN THAT THE APPELLANT HAS CONSIDERED THE ENTIRE FINANCE COS T OF RS.1022,76,70,168/- FOR THE PURPOSE OF APPORTIONMEN T AND ARRIVED AT PROPORTIONATE INTEREST EXPENDITURE OF RS.136,33,80, 525/-. HOWEVER, IT IS PERTINENT TO POINT OUT THAT WHILE COMPUTING THE INCOME UNDER THE HEAD BUSINESS IN THE RETURN OF INCOME, THE APPELLAN T ADDED BACK THE ENTIRE FINANCE COST OF RS.1022.76 CRORES AND CLAIME D DEDUCTION FOR THE INTEREST EXPENDITURE ON ZCBS OF 143.30 CRORES I NCLUDED IN THE SAID FINANCE COST WHILE COMPUTING INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. NO DEDUCTION WAS CLAIMED FOR THE BAL ANCE FINANCE COST OF RS.879.46 CRORES UNDER ANY HEAD OF INCOME IN THE RETURN OF INCOME. THE REASON FOR THE SAME WAS THAT THE SAID F INANCE COST WAS INCURRED TOWARDS THE BORROWINGS UTILISED FOR MAKING INVESTMENTS IN SHARES AND SECURITIES IN THE GROUP COMPANIES AND OT HERS. IT IS THEREFORE EVIDENT FROM THE TREATMENT GIVEN BY THE A PPELLANT ITSELF IN THE RETURN OF INCOME THAT THE FINANCE COST TO THE E XTENT OF RS.879.46 CRORES HAS NO RELATION TO THE EARNING OF INTEREST I NCOME BY THE APPELLANT FROM ICDS AND LOANS AND ADVANCES. HENCE, THE WITHOUT PREJUDICE CONTENTION OF THE APPELLANT FOR ALLOWING DEDUCTION FOR INTEREST EXPENDITURE OF RS. 136,33,80,525/- COMPUTE D ON A PRO-RATA BASIS BY APPORTIONING THE ENTIRE FINANCE COST OF RS . 1022.76 CRORES IS HELD TO BE UNTENABLE IN THE FACTS OF THE CASE. 91. THE APPELLANT ALSO ADVANCED ANOTHER WITHOUT PRE JUDICE CONTENTION THAT THE AO OUGHT TO HAVE DISALLOWED INTEREST TO TH E EXTENT OF RS.18.72 CRORES ONLY, REPRESENTING THE EXCESS OF TH E INTEREST EXPENDITURE OF RS.143.30 CRORES ON ZCBS OVER THE IN TEREST INCOME OF RS.124.58 CRORES. IN SUPPORT OF THIS PROPOSITION, T HE APPELLANT RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF KESHAVJI RAVJI & CO. VS. CIT 183 ITR 1. HOWEVER, ON CAREFUL PERUSAL OF THE DECISION OF THE HON'BLE SUPREME COURT RELIED UPON B Y THE APPELLANT, IT IS SEEN THAT THE SAME IS DISTINGUISHABLE ON FACTS A ND THEREFORE NOT APPLICABLE TO THE FACTS OF THE APPELLANT'S CASE. IN THE SAID CASE, THE HON'BLE SUPREME COURT DEALT WITH THE ISSUE OF DISAL LOWANCE OF INTEREST PAID TO THE PARTNERS OF A FIRM ON THE CAPITAL CONTR IBUTED BY THEN AND HELD THAT WHERE THE APPELLANT FIRM PAID INTEREST TO PARTNERS ON CAPITAL CONTRIBUTED BY THEM AND RECEIVED INTEREST FROM PART NERS ON BORROWINGS MADE BY THEM, THE SAID TRANSACTIONS HAD ELEMENT OF MUTUALITY AND WERE REFERABLE TO FUNDS OF PARTNERSHI P AS SUCH AND THEREFORE ONLY THE EXCESS INTEREST PAID BY APPELLAN T FIRM IS LIABLE TO DISALLOWANCE UNDER SECTION 40(B) OF THE ACT. AS CAN BE SEEN, THE ISSUE DEALT BY THE HON'BLE SUPREME COURT IS COMPLETELY DI FFERENT FROM THE ISSUE UNDER CONSIDERATION IN THE CASE OF THE APPELL ANT. HENCE, IT IS ITA NO. 3529/MUM/2018 IMPERIAL CONSULTANTS & SECURITIES LTD./DCIT, CIRCLE - 6(3)(1) 9 CONSIDERED THAT THE SAID DECISION OF THE HON'BLE SU PREME COURT IS NOT APPLICABLE TO THE APPELLANT'S CASE. ACCORDINGLY, TH IS WITHOUT PREJUDICE CONTENTION OF THE APPELLANT IS HELD TO BE UNSUSTAIN ABLE. 92. IN VIEW OF THE DETAILED DISCUSSION ABOVE, IT IS HELD THAT THE APPELLANT IS ELIGIBLE FOR DEDUCTION OF INTEREST EXP ENDITURE OF RS.58,59,65,2607- U/S.57(III) OF THE ACT, WHILE COM PUTING THE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AS AGAINST THE CLAIM FOR DEDUCTION OF RS. 143,30,28,2707- MADE BY THE APPELL ANT IN THE RETURN OF INCOME. IN THE ASSESSMENT ORDER, THE AO DISALLOW ED THE ENTIRE CLAIM OF DEDUCTION OF INTEREST OF RS. 143,30,28,270 /-. THE AO IS THEREFORE DIRECTED TO ALLOW DEDUCTION FOR INTEREST EXPENDITURE TO THE EXTENT OF RS.58,59,65,260/- U/S.57(III) OF T HE ACT, WHILE COMPUTING THE INCOME UNDER THE HEAD INCOME FROM OTH ER SOURCES. THE DISALLOWANCE OF THE BALANCE INTEREST EXPENDITUR E OF RS.84,70,63,010/- IS UPHELD. THIS GROUND OF APPEAL IS THEREFORE PARTLY ALLOWED. 5. THE LEARNED A.R. VEHEMENTLY SUBMITTED BEFORE THE B ENCH THAT THE CALCULATION AS GIVEN BY THE LEARNED CIT(A) WHILE AL LOWING PART RELIEF TO THE TUNE OF ` 58.59 CRORES IS HAVING SEVERAL LEGAL AND FACTUAL E RRORS AND NEED TO BE CORRECTED ACCORDINGLY. THE LEARNED A.R. SUBMI TTED THAT THE LD. CIT(A) HAS ALSO ERRED IN CONSIDERING ONLY THE GROSS FIGURE S ADVANCED BY IGNORING THE REPAYMENTS BY THE ASSESSEE. THE LEARNED A.R. SU BMITTED THAT SINCE COMPLETE PARTICULARS WERE AVAILABLE WITH THE LEARNE D CIT(A), IGNORING REPAYMENTS AND WORKING OUT THE AVERAGE BORROWED FUN DS UTILISED FOR THE PURPOSE OF ADVANCE IS TOTALLY WRONG AND ANOMALOUS. THE LEARNED A.R. CLASSIFIED THE ERRORS/ANOMALIES 6. THE LD COUNSEL OF THE ASSESSEE DIVIDED THE ERRORS COMMITTED BY THE CIT(A) UNDER THREE BROAD CATEGORIES, I.E. (I) INTER EST PERTAINING TO ADVANCE MADE IN EARLIER YEARS, (II) INTEREST PERTAINING TO ADVANCE MADE IN CURRENT YEAR, AND (III) INTEREST EXPENDITURE CORRESPONDING TO INTEREST INCOME OTHER THAN INTEREST RECEIVED FROM ESSAR OIL LTD. WHILE AR GUING THE ISSUE UNDER THE FIRST CATEGORY, THE LEARNED A.R. SUBMITTED THAT THE CIT(A) HAS ANALYSED THE TRANSACTIONS PERTAINING TO EARLIER YEARS. THE L EARNED A.R. SUBMITTED THAT IN THE IMMEDIATELY PRECEDING YEAR, THE ASSESSE E HAS MADE A CLAIM UNDER SECTION 57 OF THE ACT IN RESPECT OF THE ENTIR E AMOUNT OF INTEREST AND THE SAME WAS ALLOWED BY THE AO WHILE PASSING THE AS SESSMENT ORDER UNDER SECTION 143(3) OF THE ACT. REFERRING TO THE COMPUTA TION OF TOTAL INCOME AND ITA NO. 3529/MUM/2018 IMPERIAL CONSULTANTS & SECURITIES LTD./DCIT, CIRCLE - 6(3)(1) 10 ASSESSMENT ORDER FOR A.Y. 2011012 FILED AT PAGES 2 2 AND 24 OF THE PAPER BOOK, THE LEARNED A.R. FURTHER SUBMITTED THAT THE C LAIM OF ENTIRE AMOUNT OF INTEREST EXPENDITURE IS JUSTIFIED IN VIEW OF THE FA CT THAT ASSESSEE HAS SHARE CAPITAL OF ONLY ` 24.50 LAKHS. THEREFORE, IRRESPECTIVE OF THE NEXUS, IT CAN EASILY BE CONCLUDED THAT THE ASSESSEE HAS INCURRED CORRESPONDING INTEREST EXPENDITURE. THE LEARNED A.R. SUBMITTED THAT IF THE INTEREST EXPENDITURE HAS BEEN ALLOWED IN A PARTICULAR YEAR, THE SAME CAN NOT BE DISALLOWED IN SUBSEQUENT YEAR UNLESS THERE IS A CHANGE IN THE FAC TS AND CIRCUMSTANCES. THE LEARNED A.R. RELIED UPON THE DECISION OF THE HO N'BLE GUJARAT HIGH COURT IN THE CASE OF VIRENDRA R. GANDHI VS. ACIT TA X APPEAL NO. 20 OF 2004& ANR. DATED 27.11.2014. THE LD AR ALSO RELIED ON THE FOLLOWING DECISIONS: (I) CIT VS. SRIDEV ENTERPRISES [192 ITR 165 (KARN)] (II) ESCORTS LTD. VS. ACIT [104 ITD 427 (DEL)] (III) MALWA COTTON SPG. MILLS VS. ACIT [89 ITD 65 (TM) (C HD)] (IV) ITO VS. J.M.P. ENTERPRISES [101 ITD 324 (SMC) (ASR) ] (V) VIRENDRA R. GANDHI VS. ACIT [T.A NO. 20 OF 2004 WIT H T.A. NO. 124 OF 2005 DATED 27.11.2014 (GUJ) (VI) ITO VS. ABHINAND INVESTMENT LTD. [ITA NO. 982/KOL/2 016 DATED 07.02.2018] (VII) GULITA SECURITIES LTD. VS. DCIT [ITA NO. 91/MUM/201 6 DATED 03.08.2018] (VIII) ITO VS. DAVINDER HIDE CO. [2007] (109 TTJ 580) THE LEARNED A.R. ,THEREFORE ,SUBMITTED THAT IN VIEW OF THE RATIO LAID IN THE ABOVE DECISIONS ,THE DISALLOWANCE OF INTEREST EXPEN DITURE IN RESPECT OF OPENING BALANCE OF THE AMOUNT OF LOANS ADVANCED, I. E. ` 968.79(OPENING BALANCE OF ADVANCES) CRORES MAY KINDLY BE DELETED. 7. AS REGARDS THE INTEREST PERTAINING TO ADVANCES MADE IN THE CURRENT YEAR, THE LEARNED A.R. SUBMITTED THAT THE LEARNED C IT(A) HAS ANALYSED THE TRANSACTIONS AND REPRODUCED THE RELEVANT TABLE ON P AGE NOS. 49 & 50 OF THE APPELLATE ORDER, WHICH IS EXTRACTED HEREINABOV E IN THE CIT(A) FINDINGS AS REPRODUCED ABOVE. WHILE POINTING OUT THE APPARE NT MISTAKES IN THE TABLE, THE LEARNED A.R. POINTED OUT THAT ON 30.09.2 011 AN ADVANCE OF ` 200 ITA NO. 3529/MUM/2018 IMPERIAL CONSULTANTS & SECURITIES LTD./DCIT, CIRCLE - 6(3)(1) 11 CRORES HAS BEEN SHOWN TO BE MADE WHEREAS THE ACTUAL DATE OF ADVANCE WAS 08.10.2011 BY REFERRING TO PAGE NO. 26 OF THE PAPER BOOK, WHICH IS A STATEMENT ISSUED BY KOTAK MAHINDRA BANK AND IT WAS REPAID ON 10.10.2011 AS IT IS APPARENT FROM THE BANK STATEMEN T FILED AT PAGE NO. 27 OF THE PAPER BOOK. SIMILARLY THE TRANSACTION OF ` 125 CRORES ON 31.01.2012 IS A CONTRA ENTRY AS IS CLEAR FROM THE BANK STATEME NT FILED AT PAGE NO. 28 OF THE PAPER BOOK AND NOT A TRANSACTION OF ADVANCE AND REPAYMENT WHICH HAS BEEN MISCONSTRUED BY THE LEARNED CIT(A) IN THE TABLE. THE LEARNED A.R. SUBMITTED THAT IN RESPECT OF THOSE ADVANCES, WHERE THE DIRECT NEXUS IS NOT AVAILABLE, THE DEDUCTION OF PROPORTIONATE EXPENDITU RE OF INTEREST OUGHT TO HAVE BEEN GRANTED. THIS IS BECAUSE THE ASSESSEE HAS OWN FUNDS IN THE FORM OF SHARE CAPITAL ONLY TO THE EXTENT OF ` 24.50 LAKHS. IN SUPPORT OF HIS ARGUMENTS, THE LEARNED A.R. RELIED UPON THE DECISIO N OF THE TRIBUNAL IN THE CASE OF J.F. LABORATORIES LTD. VS. ITO 98 TTJ 389 ( MUM). 8. IN RESPECT OF THE CATEGORY THAT INTEREST EXPENDITU RE CORRESPONDING TO INTEREST INCOME OTHER THAN INTEREST RECEIVED FROM E SSAR OIL LTD. MAY BE ALLOWED, THE LEARNED A.R. SUBMITTED THAT THE CIT(A) ERRED IN IGNORING THE INTEREST EXPENDITURE CORRESPONDING TO THE INTEREST OTHER THAN INTEREST RECEIVED FROM ESAR OIL LTD. THE LEARNED A.R. SUBMIT TED THAT THE ASSESSEE HAS RECEIVED TOTAL INTEREST OF ` 124.58 CRORES AS IS OBSERVED BY THE LEARNED CIT(A) AT PAGE NO. 46, PARA 78 OF THE APPELLATE ORD ER. THE LEARNED A.R. THEREFORE PRAYED THAT THE AO MAY BE DIRECTED TO ALL OW THE INTEREST EXPENDITURE IN RESPECT OF INTEREST INCOME OTHER THA N INTEREST RECEIVED FROM ESSAR OIL LTD. THE LEARNED A.R. FURTHER SUBMITTED T HAT COMPUTATION OF CORRESPONDING INTEREST EXPENDITURE SHOULD BE ON PRO PORTIONATE BASIS, AS SUBMITTED EARLIER, WHEREVER DIRECT NEXUS IS NOT AVA ILABLE. 9. FINALLY THE LEARNED A.R. SUBMITTED THAT THE ISSUE O F CALCULATION OF ALLOWABLE INTEREST EXPENDITURE MAY BE SET ASIDE TO THE FILE OF THE AO WITH SPECIFIC DIRECTION AS HAS BEEN PRAYED HEREINABOVE. 10. THE LD DR , ON THE OTHER HAND RELIED, HEAVILY ON TH E ORDER OF AO BY SUBMITTING THAT THE INTEREST EXPENSES AS CLAIMED B Y THE ASSESSEE U/S 57 OF THE ACT AGAINST THE INTEREST INCOME WAS RIGHTLY DISALLOWED BY THE AO. ITA NO. 3529/MUM/2018 IMPERIAL CONSULTANTS & SECURITIES LTD./DCIT, CIRCLE - 6(3)(1) 12 THE LD DR SUBMITTED THAT EVEN PART OF THE RELIEF T O THE ASSESSEE TO THE TUNE OF RS. 58.59 CR BY LD CIT(A) WAS WRONGLY ALLOWED T O THE ASSESSEE AS THE INTEREST IN ORDER TO QUALIFY FOR DEDUCTION U/S 57(I II) OF THE ACT WAS NOT WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF EARNING THE INTEREST INCOME. THE LD DR FINALLY SUBMITTED THAT THE ORDER OF AO MAY BE RESTORED. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD INCLUDING THE CASE LAW CITED BY THE LEARN ED A.R. IN THIS CASE THE ASSESSEE HAS DECLARED INTEREST INCOME OF ` 124.58 CRORES UNDER SECTION 56 OF THE ACT AGAINST WHICH IT HAD CLAIMED INTEREST EX PENDITURE OF ` 143.30 CRORES UNDER SECTION 57 OF THE ACT. AFTER PERUSING THE ORDER OF THE CIT(A), ESPECIALLY INTEREST PERTAINING TO ADVANCE MADE IN E ARLIER YEARS WE OBSERVE THAT THE ASSESSMENT FOR A.Y. 2011-12 HAS ALSO BEEN FRAMED AND THE SAID CLAIM OF THE ASSESSEE UNDER SECTION 57(III) OF THE ACT HAS BEEN ALLOWED BY THE AO AS IS APPARENT FROM THE COPY OF THE ASSESSME NT ORDER FILED AT PAGE NOS. 24 & 25 OF THE PAPER BOOK. WE FURTHER NOTE THA T REVENUE HAS NOT TAKEN ANY STEP FOR REOPENING THE ASSESSMENT FOR A.Y . 2011-12. FURTHER ASSESSEES OWN FUND IN THE FORM OF SHARE CAPITAL IS ONLY ` 24.50 LAKHS AND THUS THERE IS MERIT IN THE CONTENTIONS OF THE ASSES SEE THAT THE ENTIRE AMOUNT OF INTEREST EXPENDITURE IS TO BE ALLOWED TO THE ASSESSEE CONSIDERING THE FACT THAT THE AMOUNTS ADVANCED WERE OUT OF LO ANED MONEY BESIDES , ONCE INTEREST EXPENDITURE HAS BEEN ALLOWED IN A PAR TICULAR YEAR, THE SAME CANNOT BE DISALLOWED IN THE SUBSEQUENT YEAR UNLESS THERE IS CHANGE IN THE FACTS. THE CASE OF THE ASSESSEE IS SUPPORTED BY THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF VIRENDRA R. GANDH I (SUPRA) WHEREIN SUBSTANTIAL QUESTION OF LAW RAISED IS EXTRACTED AS UNDER: - 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE INTEREST OF RS. 4,42,207/- WAS RIGHTLY DISALLOWED U NDER SECTION 57(HI) OF THE INCOME-TAX ACT, 1961 EVEN WHEN THE INTEREST ON THE SAME BORROWING HAD BEEN ALLOWED IN THE IMMEDIATELY PRECE DING ASSESSMENT YEAR?' IN DISPOSING OF THIS APPEAL, THE HON'BLE COURT FOLL OWED THEIR DECISION RENDERED ON 19.11.2014 IN TAX APPEAL NO. 230 OF 200 3. THE RELEVANT OBSERVATIONS MADE BY THE HON'BLE COURT IN ANSWERING THE SUBSTANTIAL QUESTION OF LAW ARE AS UNDER: ITA NO. 3529/MUM/2018 IMPERIAL CONSULTANTS & SECURITIES LTD./DCIT, CIRCLE - 6(3)(1) 13 '5. WE HAVE HEARD LEARNED ADVOCATES FOR THE PARTIES . IT APPEARS THAT WHILE ADMITTING THESE APPEALS THE COURT HAD DIRECTE D TO HEAR THESE APPEALS ALONG WITH TAX APPEAL NO. 230 OF 2003 AS TH E QUESTION OF LAW INVOLVED IN THESE APPEALS ARE IDENTICAL TO TAX APPEAL NO. 230 OF 2003,. WE HAVE ALREADY DECIDED THE SAID TAX APPEAL NO. 230 OF 2003 ON 19 FH NOVEMBER, 2014 IN THE FOLLOWING MANNER: 4. MR. SHAH, LEARNED COUNSEL FOR THE APPELLANT HAS TAKEN US TO THE ORDER OF THE ASSESSING OFFICER, COMMISSIONER OF INC OME TAX AS WELL AS THE ORDER OF THE TRIBUNAL AND SUBMITTED THAT THE TR IBUNAL HAS COMMITTED ERROR IN UPHOLDING THE DISALLOWANCE OF IN TEREST OF RS. 3,81,924/-FROM THE TOTAL INTEREST OF RS. 5,49,006/- PAID BY THE ASSESSEE. HE FURTHER SUBMITTED THAT THE TRIBUNAL HA S NOT PROPERLY APPRECIATED THE FACT THAT THE APPELLANT WAS MAINTAI NING ONE COMMON ACCOUNT IN WHICH ALL HIS INCOME WAS DEPOSITED AND F ROM WHICH WITHDRAWAL FOR ALL THE EXPENDITURE WAS DONE. 4.1 HE HAS DRAWN OUR ATTENTION TO THE PROVISIONS OF SECTION 57(III) OF THE INCOME TAX ACT, WHICH READS AS UNDER: '(III) ANY OTHER EXPENDITURE (NOT BEING IN THE NATU RE OF CAPITAL EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME.' 4.2 IN SUPPORT OF HIS CONTENTION, HE RELIED UPON TH E DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SRIDEV ENTERPRISES, REPORTED IN 1922 ITR165 (SIC 192 ITR 165). 4.3 HE ALSO RELIED UPON THE DECISION OF THE APEX CO URT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. EXCEL INDUSTRIES LTD . REPORTED IN 358 ITR 295 . SIMILARLY, THE CASE OF THE ASSESSEE IS ALSO SUPPORT ED BY SEVERAL CASES, NAMELY CIT VS. SRIDEV ENTERPRISES [192 ITR 165 (KAR N)], ESCORTS LTD. VS. ACIT [104 ITD 427 (DEL)], MALWA COTTON SPG. MILLS V S. ACIT [89 ITD 65 (TM) (CHD)], ITO VS. J.M.P. ENTERPRISES [101 ITD 324 (SM C) (ASR)] AND OTHER DECISIONS REFERRED TO ABOVE WHEREIN THE COMMON RATI O IS THAT ONCE AN EXPENSE IS ALLOWED IN THE EARLIER YEAR SOME CANNOT BE DISALLOWED IN THE SUBSEQUENT YEAR UNLESS THERE IS A CHANGE OF FACTS D URING THE YEAR VIS-A-VIS EARLIER YEARS. THEREFORE AFTER CONSIDERING THE FACT S OF THE CASE IN THE LIGHT OF THE DECISIONS RELIED UPON BY THE LEARNED A.R., WE A RE OF THE CONSIDERED OPINION THAT INTEREST EXPENDITURE IN RESPECT OF OPE NING BALANCE OF AMOUNT ADVANCED IS TO BE ALLOWED. ACCORDINGLY WE SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ALLOW INTEREST R ELATING TO ADVANCE MADE IN EARLIER YEARS. ITA NO. 3529/MUM/2018 IMPERIAL CONSULTANTS & SECURITIES LTD./DCIT, CIRCLE - 6(3)(1) 14 12. SO FAR AS INTEREST RELATING TO ADVANCES MADE DURING THE YEAR ARE CONCERNED, WE HAVE NOTICED THAT THE LEARNED CIT(A) HAS COMMITTED SEVERAL FACTUAL ERRORS IN THE TABLE APPENDED ON AGE 49 OF T HE APPELLATE ORDER . AS HAS BEEN POINTED OUT BY THE LEARNED A.R., ` 200 CRORES HAS BEEN SHOWN TO BE ADVANCE ON 30.09.2011 IN THE TABLE WHEREAS THE A CTUAL DATE WAS 08.20.2011 AS IS CLEAR FROM THE COPY OF BANK STATEM ENT FILED ON PAGE NO. 26 OF THE PAPER BOOK. WE FURTHER NOTE THAT THE SAID AMOUNT HAS BEEN REPAID ON 10.10.2011 AS IS CLEAR FROM PAGE NO. 27 O F THE PAPER BOOK. SIMILARLY THE AMOUNT OF ` 125 CRORES ON 23.01.2012 IS A CONTRA ENTRY AS IS CLEAR FROM PAGE NO. 28 OF THE PAPER BOOK AND NOT A TRANSACTION OF ADVANCE PAYMENT AS OBSERVED BY THE LEARNED CIT(A) IN THE AB OVE TABLE. SINCE THE ASSESSEES OWN FUNDS WERE ONLY TO THE TUNE OF ` 24.50 LAKHS, WHICH MEANS THAT MONEY ADVANCED BY THE ASSESSEE HAS BEEN OUT OF THE BORROWINGS ONLY AND THEREFORE WHERE THERE IS NO DIRECT NEXUS AVAILA BLE, WE ARE CONVINCED WITH THE ARGUMENTS OF THE AR THAT INTEREST SHOULD B E ALLOWED ON PROPORTIONATE BASIS. THE CASE OF THE ASSESSEE GETS SUPPORT FROM THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF J.F. LABORATORIES LTD. (SUPRA) WHEREIN THE BENCH HAS HEL D AS UNDER: - HELD : THERE IS NO GAINSAYING THE FACT THAT THE TRIBUNAL , WHILE RESTORING THIS ISSUE TO THE AO FELT THAT IF THE PRE -OPERATIVE EXPENSES INCLUDING INTEREST ON BORROWED CAPITAL HAVE BEEN IN CURRED DIRECTLY FOR EARNING THE INTEREST INCOME, APPROPRIATE DEDUCTION UNDER S. 57(III) HAS TO BE ALLOWED. THE TRIBUNAL DIRECTED THE AO TO ALLO W OPPORTUNITY TO THE ASSESSEE AND TO VERIFY AS TO WHETHER THE ASSESSEE H AS INCURRED ANY EXPENDITURE FOR THE PURPOSES OF EARNING OR MAKING T HE INCOME WITHIN THE MEANING OF S. 57(III) AND IF SO, WHAT IS THE EX TENT OF SUCH EXPENDITURE. THE TRIBUNAL MADE IT ABUNDANTLY CLEAR THAT THE ASSESSEE'S CLAIM WAS ADMITTED IN PRINCIPLE. IN OTHE R WORDS, THE PRINCIPLE OF APPORTIONMENT OF EXPENDITURE ALLOWABLE UNDER S. 57(III) IS INHERENT IN THE ORDER OF THE TRIBUNAL. THE SCOPE OF THE AO IN THE RESTORED MATTER WAS LIMITED TO ASCERTAINING THE QUA NTUM OF EXPENDITURE WHICH IS ALLOWABLE UNDER S. 57(III) AS DIRECTED BY THE TRIBUNAL. THE TRIBUNAL, WHILE RESTORING THE MATTER WAS WELL AWARE OF THE FACT THAT ALL THE EXPENSES ARE CONSOLIDATED AND EXPENSES WHICH ARE ALLOWABLE UNDER S. 57(III) HAVE TO BE IDENTIFIE D, WHICH CAN BE DONE ONLY BY APPORTIONMENT ON A LOGICAL AND CONCRETE BAS IS. IN SUCH A SITUATION, THE EXPENDITURE HAS TO BE APPORTIONED AN D IT IS WELL KNOWN THAT THE PRINCIPLE OF APPORTIONMENT IS NORMALLY APP LIED BY THE IT DEPARTMENT IN SUCH CASES. THE AO WAS DUTYBOUND TO V ERIFY THE DETAILS FILED BEFORE HIM TO FIND OUT WHAT PORTION O F THE EXPENDITURE IS ITA NO. 3529/MUM/2018 IMPERIAL CONSULTANTS & SECURITIES LTD./DCIT, CIRCLE - 6(3)(1) 15 REFERABLE TO THE LOAN ON WHICH INTEREST INCOME IS E ARNED, WHICH IS CHARGEABLE TO TAX UNDER S. 56. CONTINENTAL CONSTRU CTION LTD. VS. CIT (1992) 101 CTR'-(SC) 386 : (1992) 195 ITR 81 (SC), U.K. (INVESTMENT) CO. (P) LTD. VS. CIT (1994) 121 CTR (GUJ) 470 : (19 95) 211 ITR 511 (GUJ) AND INDIA CEMENTS LTD. VS. CIT (1966) 60 ITR 52 (SC) RELIED ON; MS. ILA R. AMBANI (ITA NOS. 4340 & 9341/BOM/90, DT. 30TH SEPT., 2004) AND SRNT. PADMAVATI JAIKNSHNA VS. ADDL CIT (1 987) 62 CTR (SC) 14 : (1987) 166 ITR 176 (SC) DISTINGUISHED; MANDIDEEP ENGINEERING & PACKAGING INDUSTRIES (P) LTD. VS. DY. CIT (2001) 71 TTJ (IND) 954 : (2001)77 ITD 307 (IND) NOT FOLLOWED. 13. WE ALSO FIND MERIT IN THE CONTENTIONS OF THE ASSESS EE THAT INTEREST EXPENDITURE CORRESPONDING TO INTEREST INCOME OTHER THAN INTEREST RECEIVED FROM ESSAR OIL LTD. IS TO BE ALLOWED. WE NOTE THAT THE TOTAL INTEREST INCOME DURING THE YEAR WAS ` 125.58 CRORES OUT OF WHICH INTEREST RECEIVED FROM ESSAR OIL LTD. IS ` 102.02 CRORES AS OBSERVED BY THE LEARNED CIT(A) ON PAGE NO. 46, PARA 78 OF THE APPELLATE ORDER AND THEREFOR E IN OUR OPINION ASSESSEE HAS TO BE ALLOWED INTEREST EXPENDITURE IN RESPECT OF INTEREST INCOME OTHER THAN INTEREST RECEIVED FROM ESSAR OIL LTD. NEEDLESS TO SAY THAT COMPUTATION OF CORRESPONDING INTEREST EXPENDIT URE HAS TO BE ON PROPORTIONATE BASIS, AS OBSERVED EARLIER, WHEREVER NO DIRECT NEXUS IS AVAILABLE. CONSIDERING THE FACTS IN THE LIGHT OF TH E DISCUSSIONS GIVEN HEREINABOVE WE ARE RESTORING THE ISSUE OF CALCULATI ON OF INTEREST EXPENDITURE TO THE FILE OF AO WITH THE DIRECTION AS CONTAINED HEREINABOVE I.E (I) TO CALCULATE CORRECT AMOUNT OF INTEREST I N RESPECT OF ADVANCES GIVEN IN EARLIER YEARS,(II) CALCULATE THE CORRECT AMOUNT OF INTEREST PERTAINING TO ADVANCES MADE DURING THE YEAR AND (III) TO CALCULAT E INTEREST EXPENDITURE CORRESPONDING TO INTEREST INCOME OTHER THAN INTERES T RECEIVED FROM ESSAR OIL LTD. AND ALLOW THE SAME. THE ISSUE IS RESTORED FOR THE LIMITED PURPOSE OF CALCULATION. GROUND IS ALLOWED FOR STATISTICAL PURP OSES. 14. ASSESSEE HAS ALSO RAISED ADDITIONAL GROUNDS WHICH A RE REPRODUCED AS UNDER: - 1 . THE LEARNED CIT (A) OUGHT TO HAVE DIRECTED THE AS SESSING OFFICER ('AO') TO ALLOW THE INTEREST EXPENDITURE, OUT OF TH E TOTAL FINANCE COST INCURRED BY THE APPELLANT COMPANY, AGAINST THE INTEREST INCOME ON ICDS/DEBENTURES EVEN WHERE HE HAS FOUND T HAT THERE IS NO DIRECT NEXUS WITH THE BORROWING. ITA NO. 3529/MUM/2018 IMPERIAL CONSULTANTS & SECURITIES LTD./DCIT, CIRCLE - 6(3)(1) 16 2. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT (A) OUGHT TO HAVE DIRECTED THE AO TO ALLOW THE PROPORTIONATE INTEREST EXPENDITURE, OUT OF THE TOTAL FINANCE COST INCURRED BY THE APPEL LANT COMPANY, AGAINST THE INTEREST INCOME ON ICDS/DEBENTURES EVEN WHERE HE HAS FOUND THAT THERE IS NO NEXUS WITH THE BORROWING . 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) OUGHT TO HAVE DIRECTED THE AO FOR GR ANTING IDS CREDIT TO THE EXTENT OF RS. 10,45,30,427/- U/S 199 OF THE ACT. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) OUGHT TO HAVE DIRECTED THE AO TO GRA NT DEDUCTION OF DONATION AMOUNTING TO RS. 1,00,00,000/- U/S 80G OF THE ACT. 15. THE LEARNED A.R. AT THE OUTSET SUBMITTED THAT THE ADDITIONAL GROUNDS RAISED ABOVE DO NOT REQUIRE ANY VERIFICATIO N OF FACTS AND ARE COMING OUT OF THE ASSESSMENT RECORDS. THEREFORE THE LEARNED A.R. PRAYED THAT THE SAME MAY KINDLY BE ADMITTED FOR ADJUDICATI ON. THE LD AR RELIED ON THE FOLLOWING DECISIONS ON THE ADMISSIBILITY OF ADD ITIONAL GROUNDS: I)JUTE CORPORATION OF INDIA LTD VS. CIT 187 ITR 688 (SC) II)NATIONAL THERMAL POWER CORPORATION OF INDIA LTD. VS CIT(1998) 220 ITR 383(SC) III) CIT VS PRITHVI BROKERS AND SHAREHOLDERS (2012) 349 ITR 336(BOM) 16. THE LEARNED D.R., ON THE OTHER HAND, STRONGLY OPPOS ED ADMISSION OF ADDITIONAL GROUNDS ON THE GROUND THAT THESE GROUNDS WERE NEVER RAISED BEFORE THE LEARNED CIT(A) NOR THE CLAIM WAS MADE IN THE RETURN OF INCOME SO FAR AS GROUND NOS. 3 & 4 WERE CONCERNED. THE LEA RNED D.R. SUBMITTED THAT THESE GROUNDS COULD BE ADMITTED ONLY IF THE FA CTS REGARDING THESE GROUNDS WERE AVAILABLE BEFORE THE AO. ACCORDINGLY T HE LEARNED D.R. PRAYED THAT ADDITIONAL GROUNDS MAY KINDLY BE DISMISSED. 17. THE LEARNED A.R. REBUTTING THE ARGUMENTS OF THE LEA RNED D.R. SUBMITTED THAT SINCE THERE WAS LOSS DURING THE YEAR , THERE WAS NO OCCASION TO CLAIM THE DEDUCTION UNDER SECTION 80G OF THE ACT IN RESPECT OF DONATIONS. HOWEVER, IN RESPECT OF THE REMAINING THR EE GROUNDS ALL THE FACTS WERE ALREADY BEFORE THE AO. ITA NO. 3529/MUM/2018 IMPERIAL CONSULTANTS & SECURITIES LTD./DCIT, CIRCLE - 6(3)(1) 17 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. SO FAR AS GROUND NOS. 1, 2 AND 3 ARE CONCER NED THE FACTS ARE ALREADY AVAILABLE BEFORE THE AO AND EMANATING FROM THE ASSESSMENT RECORDS WHEREAS QUA THE 4 TH GROUND WHICH DEALS WITH DEDUCTION UNDER SECTION 80G OF THE ACT IN RESPECT OF DONATIONS, WE FIND THAT THE SAME COULD NOT BE CLAIMED BY THE ASSESSEE AS THERE WAS H UGE LOSS DURING THE YEAR. CONSIDERING ALL THESE FACTS OF THE CASE WE AR E OF THE OPINION THAT THE ADMISSION OF ADDITIONAL GROUNDS DO NOT REQUIRE ANY FURTHER VERIFICATION OF FACTS AND THEREFORE WE ARE INCLINED TO ADMIT THE SA ME FOR ADJUDICATION IN THE INTEREST OF FAIR PLAY IN VIEW OF THE RATIO LAID DOWN IN BY THE HONBLE APEX COURT IN JUTE CORPORATION OF INDIA LTD VS. CIT AND NATIONAL THERMAL POWER CORPORATION OF INDIA LTD.VS CIT (SUPRA) 18. SO FAR AS ADDITIONAL GROUND NOS. 1 & 2 ARE CONCERNE D WE HAVE ALREADY ADJUDICATED THE ISSUE OF INTEREST EXPENDITU RE WITH REFERENCE TO INTEREST EXPENDITURE ON ZERO COUPON BONDS AMOUNTING TO ` 143.30 CRORES, RESTORING THE MATTER BACK TO THE FILE OF THE AO. NE EDLESS TO SAY THAT WHERE THERE IS NO NEXUS, PROPORTIONATE INTEREST EXPENDITU RE IS TO BE ALLOWED. THIS GROUND HAS ALREADY BEEN DECIDED BY US IN GROUND NO. 4(A) HEREINABOVE. ACCORDINGLY, THE GROUNDS ARE RESTORED TO AO TO BE D ECIDED ON THE SAME LINES. 19. SO FAR AS ADDITIONAL GROUND NOS. 3 & 4 ARE CONCERNE D WE ADMIT THE GROUNDS FOR ADJUDICATION AND RESTORE THE SAME TO TH E FILE OF THE AO WITH THE DIRECTION TO DECIDE THE SAME AFTER VERIFYING THE FA CTS AND AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 20. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ITA NO. 2797/MUM/2018 21. THE GROUNDS RAISED BY THE REVENUE IN THIS APPEAL RE ADS AS UNDER: 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION FOR INTEREST EXPENDITURE TO THE EXTENT OF RS. 58,59,65,260/- U/S. 57(III) OF THE ACT, OUT OF THE TOTAL DISALLOWANCE OF INTEREST OF RS. 143.30 CRORES MADE BY A.O., WHICH WAS BASED ON ADDITIONAL EVIDENCE, IN THE FORM OF BANK STATEMENT, ADMITTED BY LD. CIT(A) IN VIOLAT ION OF ITA NO. 3529/MUM/2018 IMPERIAL CONSULTANTS & SECURITIES LTD./DCIT, CIRCLE - 6(3)(1) 18 PROVISIONS OF RULE 46A OF THE INCOME TAX ACT, 1961, AND WITHOUT PROVIDING THE A.O. AN OPPORTUNITY TO EXAMIN E THE SAME AS PER PRINCIPLES OF NATURAL JUSTICE. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, T HE LD. CIT (A) ERRED IN RESTRICTING THE DISALLOWANCE MADE BY A.O. U/S 14 A R.W.R. 8D OF THE INCOME TAX ACT, 1961, TO THE EXTENT OF EXEMPT I NCOME, WITHOUT APPRECIATING THE FACT THAT THE BOARD CIRCULAR 5/201 4 STATES THAT RULE 8D READ WITH SECTION 14A OF THE ACT PROVIDES F OR DISALLOWANCE OF THE EXPENDITURE EVEN WHERE TAXPAYER IN A PARTICU LAR YEAR HAS NOT EARNED ANY EXEMPT INCOME. 3. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, T HE LD. CIT (A) IS NOT JUSTIFIED IN RESTRICTING THE UPWARD ADJUSTME NT, TO THE EXTENT OF EXEMPT INCOME, IN BOOK PROFIT U/S 115JB O F INCOME TAX ACT, SINCE, THE ISSUE OF RESTRICTING THE DISALL OWANCE MADE BY A.O. U/S 14A R.W.R. 8D OF THE INCOME TAX ACT, 19 61, TO THE EXTENT OF EXEMPT INCOME IS ALREADY CONTESTED. 4. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A PPEALS) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO B E RESTORED.' 22. THE ISSUE RAISED IN GROUND NO. 1 IS AGAINST THE ORD ER OF CIT(A) ALLOWING DEDUCTION OF INTEREST EXPENDITURE TO THE T UNE OF ` 58,59,65,260/- UNDER SECTION 57(III) OF THE ACT OUT OF TOTAL DISAL LOWANCE OF ` 143.30 CRORES MADE BY THE AO BASED UPON THE ADDITIONAL EVIDENCES IN THE FORM OF BANK STATEMENT ADMITTED BY CIT(A) IN VIOLATION OF RULE 4 6A OF THE I.T. RULES. 23. AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSING TH E MATERIAL ON RECORD WE OBSERVE THAT THE CIT(A) HAS RECORDED A FI NDING REGARDING ADMISSION OF ADDITIONAL EVIDENCES IN PARA 18 OF PAGE 12 OF TH E APPELLATE ORDER AFTER CALLING REMAND REPORTS FROM THE AO FROM TIME TO TIM E, WHICH ARE DISCUSSED IN DETAIL IN THE APPELLATE ORDER. WE FURTHER NOTE THAT THE LEARNED CIT(A) HAS ACCEPTED THE BANK STATEMENT WHICH IS AN AUTHENTIC D OCUMENT ISSUED BY THE THIRD PARTY. WE FURTHER NOTE THAT THE AO HAS NOT CA LLED FOR ANY BANK STATEMENT DURING THE COURSE OF HEARING AND THUS IT WAS GIVEN ONLY TO THE FIRST APPELLATE AUTHORITY AFTER THE LEARNED CIT(A) HAS SP ECIFICALLY CALLED FOR THE SAME. ACCORDINGLY WE FIND NO PREJUDICE CAUSED TO TH E REVENUE BY THE DECISION OF THE LEARNED CIT(A). ACCORDINGLY GROUNDS RAISED BY THE REVENUE IS DISMISSED. ITA NO. 3529/MUM/2018 IMPERIAL CONSULTANTS & SECURITIES LTD./DCIT, CIRCLE - 6(3)(1) 19 24. GROUND NOS. 2 & 3 OF REVENUE APPEAL ARE IN RESPECT OF DISALLOWANCE UNDER SECTION 14A OF THE ACT UNDER THE NORMAL PROVI SIONS OF THE ACT AS WELL UNDER SECTION 115JB OF THE ACT. 25. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MAT ERIAL ON RECORD WE OBSERVE THAT LEARNED CIT(A) RECORDED CLEAR CUT FIND ING THAT THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE IN COMPUTATION OF INCOM E. SIMILARLY, WHILE DISCUSSING THE COMPUTATION OF BOOK PROFIT UNDER SEC TION 115JB OF THE ACT THE LEARNED CIT(A) AT PAGE NO. 95 ONWARDS HAS GIVEN A F INDING THAT THE ASSESSEE HAS ALREADY DISALLOWED EXPENDITURE UNDER SECTION 14 A OF THE ACT ON WHICH THE LEARNED AO HAS FAILED TO GIVE ANY CONTRARY FIND INGS. UNDER THESE FACTS AND CIRCUMSTANCES, WE ARE NOT INCLINED TO INTERFERE IN THE ORDER OF THE CIT(A) AND ACCORDINGLY THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 26. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. 27. IN THE NUTSHELL, THE APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED FOR STATISTICAL PURPOSE AND THE APPEAL OF THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17.12.2019. SD/- SD/- (A.D. JAIN) (RAJESH KUMAR) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 17.12.2019 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -12, MUMBAI 4. THE PR.CIT - 6, MUMBAI 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.
