ODYSSEY CAPITAL P.LTD, MUMBAI V. DCIT 5(2), MUMBAI

ITA 3691/MUM/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0826 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 15-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Keywords: Commercial expediency
• Section: 5(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'B' BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NOS.3690 & 3691/MUM/2015 (ASSESSMENT YEARS: 2010-11 & 2011-12) M/S. ODYSSEY CAPITAL P. LTD. VS. DEPUTY COMMISSION E R OF 4TH FLOOR, SADHANA HOUSE 570 PANDURANG BUDHKAR MARG, WORLI MUMBAI 400018 INCOME TAX - 5(2) MUMBAI PAN AAACO2528A APPELLANT RESPONDENT APPELLANT BY: SHRI VIJAY MEHTA RESPONDENT BY: SHRI SUMAN KUMAR DATE OF HEARING: 16.01.2018 DATE OF PRONOUNCEMENT: 24.01.2018 O R D E R PER RAJESH KUMAR, AM THESE APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAIN ST THE ORDER OF THE CIT(A)-10, MUMBAI DATED 23.04.2014 FOR ASSESSMENT Y EARS 2010-11 AND 2011-12. 2. THE ASSESSEE HAS RAISED IDENTICAL GROUNDS OF APPEAL IN BOTH THE ASSESSMENT YEARS EXCEPT DIFFERENCE IN FIGURES. THE GROUND FOR A.Y. 2010-11 READS AS UNDER: - DISALLOWANCE OUT OF EXPENSES : 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISAL LOWANCE OF RS.41,822,471/- OUT OF ADMINISTRATIVE EXPENSES AND DIRECTING THAT THE ADMINISTRATIVE EXPENSES OF THE APPELLANT B E DIVIDED AMONGST SIX COMPANIES. 1.1 THE LEARNED CIT(A) FAILED TO APPRECIATE AND CON SIDER THAT THE OTHER GROUP COMPANIES ARE DIFFERENT ENTITIES HAVING THEIR OWN BUSINESS SETUP AND STAFF, FUNCTIONS INDEPENDENTLY A ND DOES NOT HAVE ANY COMMON BUSINESS INTEREST WITH YOUR APPELLA NT. 1.2 THE LEARNED CIT(A) HAS NOT GIVEN ANY FINDINGS W HETHER THE EXPENDITURE IS OF CAPITAL OR PERSONAL NATURE AND / OR UNDER WHICH PROVISIONS OF THE ACT THE SAME IS DISALLOWED. ITA NOS. 3690 & 3061/MUM/2015 M/S. ODYSSEY CAPITAL P. LTD. 2 1.3 THE LEARNED CIT(A) FAILED TO APPRECIATE AND CON SIDER THAT THE EXPENSES INCURRED BY YOUR APPELLANT FOR THE GROUP C OMPANIES AGGREGATING RS.6,903,077/- HAVE BEEN RECOVERED FROM THE SAID COMPANIES, MEANING THEREBY THAT NO FURTHER EXPENSE IS INCURRED BY YOUR APPELLANT FOR SUCH GROUP COMPANIES AND HENCE NO FURTHER DISALLOWANCE IS CALLED FOR. 2. WITHOUT PREJUDICE: YOUR APPELLANT SUBMITS THAT THE LEARNED CIT(A) OUG HT TO HAVE DIRECTED TO DEDUCT RS.5,20,215/- BEING LOSS ON ASSE T SOLD / SCRAPPED INCLUDED UNDER ADMINISTRATIVE AND OTHER EX PENSE SINCE RS.5,20,215- IS ALREADY ADDED BACK M THE COMP UTATION OF INCOME. DISALLOWANCE OF INTEREST: 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOW ANCE OF INTEREST OF RS.6,168,000/- AND HOLDING THAT APPELLA NT HAS NOT FILED ANY SATISFACTORY DOCUMENTARY EVIDENCE TO ESTA BLISH THAT THE LOANS UNDER CONSIDERATION WERE NPAS. YOUR APPELLANT SUBMITS THAT THE LEARNED CIT(A) FAI LED TO APPRECIATE AND CONSIDER THAT (A) YOUR APPELLANT BEING A NBFC (NON-BANKING FINAN CIAL COMPANY) IT HAS TO FOLLOW THE RESERVE BANK'S GUIDEL INES ON PRUDENTIAL NORMS, INCOME RECOGNITION, CLASSIFICATIO N OF ASSETS ETC. (B) YOUR APPELLANT THEREFORE SUBMITS THAT TO COMPL Y WITH THE GUIDELINES AS AFORESAID IT WAS PRECLUDED FROM PROVI SIONING ANY INTEREST ON SUCH PRINCIPLE SUMS WHICH ARE CONSIDERE D NON- PERFORMING ASSETS (NPA). (C) YOUR APPELLANT FURTHER SUBMITS THAT NPA STATUS OF A LOAN IS BASED ON REGULATORY FRAMEWORK AS PER RBI NORMS AND NO DOCUMENTARY EVIDENCE IS NECESSARY TO ESTABLISH THE SAME. 1.2 YOUR APPELLANT THEREFORE SUBMITS THAT AS PER FACTS AND LAW ON THE SUBJECT MATTER THE DISALLOWANCE CONFIRMED BY LE ARNED CIT(A) IS NOT IN ORDER. 2. AT THE OUTSET THE LEARNED A.R. SUBMITTED BEFORE TH E BENCH THAT BOTH THE ISSUES RAISED IN THE CURRENT APPEALS ARE FULLY COVERED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE IN ITA NOS. 3845 & 4179/MUM/2014 FOR A.Y. 2009-10 VIDE ORDER DATED 21.10.2016. THE LEARN ED A.R. PRAYED BEFORE THE BENCH THAT THE ISSUES INVOLVED IN THE CURRENT A PPEAL MAY ALSO BE ITA NOS. 3690 & 3061/MUM/2015 M/S. ODYSSEY CAPITAL P. LTD. 3 DECIDED BY FOLLOWING THE ABOVE MENTIONED OF ORDER O F THE COORDINATE BENCH. 3. THE LEARNED D.R. FAIRLY AGREED TO THE CONTENTION A ND ARGUMENT OF THE LEARNED A.R. 4. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. FROM A PERUSAL OF THE ORDER OF THE COORDINATE BENCH WE FIND THAT THE FACTS IN BOTH THE ISSUES BEFORE US ARE IDENTICAL AS DECID ED IN FAVOUR OF THE ASSESSEE BY THE COORDINATE BENCH OF THE TRIBUNAL IN ITA NOS. 3845 & 4179/MUM/2014 FOR A.Y. 2009-10 IN ASSESSEES OWN CA SE. 5. AS REGARDS THE ISSUE OF CONFIRMATION OF DISALLOWANC E OF ` 4,18,22,471/- OUT OF ADMINISTRATIVE EXPENSES WE FIN D THAT THE COORDINATE BENCH HAS DECIDED SIMILAR ISSUE IN PARAS 7 TO 9 OF THE ORDER IN ITA NOS. 3845 & 4179/MUM/2014, WHICH IS REPRODUCED AS UNDER: - 7. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND F ROM RECORD THAT TOTAL ADMINISTRATIVE EXPENSES INCURRED BY THE GROUP COMPANY AMOUNTS TO 22.02 CRORES. THE ASSESSEE HAS DEBITED T OTAL ADMINISTRATIVE EXPENDITURE OF 4.79 CRORES. THE ASSE SSEE HAS RECOVERED ADMINISTRATIVE EXPENSES FROM THE GROUP CO MPANY AMOUNTING TO 45.91 LAKHS. THUS, NET ADMINISTRATIVE EXPENSES WORKS OUT TO BE 27.27 CRORES, 1/6 TH OF SUCH EXPENDITURE INCURRED BY THE ASSESSEE AND ITS GROUP COMPANY WORKS OUT TO BE 4.54 CRORES. FROM THE RECORD WE FOUND THAT THE AO HAD WRONGLY DISALLO WED 7/8 TH OF THE ADMINISTRATIVE EXPENSES CONSIDERING THAT THE SAID E XPENSES ARE INCURRED FOR THE OTHER 7 GROUP COMPANIES MENTIONED IN THE ORDER. THE 7 GROUP COMPANIES HAVE THEIR OWN BUSINESS SET UP AN D FUNCTIONS INDEPENDENTLY, ARE SEPARATELY ASSESSED UNDER THE IN COME TAX ACT AND DO NOT HAVE ANY COMMON BUSINESS INTEREST WITH T HE ASSESSEE. WE FOUND THAT EXPENSES INCURRED FOR AND ON BEHALF OF S UCH COMPANIES AGGREGATING TO RS.45,91,976/- HAVE BEEN RECOVERED F ROM THE SAID GROUP COMPANIES. A STATEMENT SHOWING THE SAID RECOV ERY WITH A BRIEF RATIONAL WAS SUBMITTED BEFORE THE LOWER AUTHORITIES . THIS SHOWS THAT NO PART OF THE GROUP COMPANIES EXPENSES ARE INCLUDE D IN THE PROFIT & LOSS ACCOUNT OF THE COMPANY WHICH THE LEARNED DCIT HAS WRONGLY NOTED. 8. WE HAD ALSO VERIFIED THE BREAK-UP OF THE EXPENS ES INCLUDED IN THE ADMINISTRATIVE EXPENSES ARE FIXED OVERHEADS IN NATURE AND IRRESPECTIVE OF THE VOLUME / TURNOVER OF THE COMPAN Y; IT HAS TO BE INCURRED AND CANNOT BE REDUCED IMMEDIATELY. THE ADM INISTRATIVE EXPENSE ARE INCURRED BASED ON THE SET UP OF THE BUS INESS AND ITA NOS. 3690 & 3061/MUM/2015 M/S. ODYSSEY CAPITAL P. LTD. 4 COMMERCIAL EXPEDIENCY IN THE CONTEXT OF TYPE OF ACT IVITY, BUSINESS PROFILE OF THE COMPANY AND THE VOLUME OF TURNOVER / ACTIVITY. WE ALSO FOUND THAT DURING THE YEAR UNDER CONSIDERATION EXPE NSES HAVE BEEN REDUCED BY 7% AS COMPARED TO THE EXPENDITURE OF LAS T YEAR. MOREOVER, COMPANYS TOTAL INCOME FOR THE AY 2009-10 WAS RS.2. 89 CRORES AS PER PROFIT AND LOSS ACCOUNT WHICH IS MORE OR LESS SAME AS PER LAST YEAR. 9. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY JUSTIF ICATION FOR THE DISALLOWANCE SO MADE BY THE AO. 6. FROM A PERUSAL OF THE ABOVE PARAS IT IS QUITE APPAR ENT THAT IDENTICAL ISSUE HAS BEEN DECIDED IN A.Y. 2009-10 BY THE COORD INATE BENCH AND WE RESPECTFULLY FOLLOWING THE SAME, IN ORDER TO MAINTA IN CONSISTENCY WITH EARLIER YEAR, DELETE THE DISALLOWANCE OF ` 4,18,22,471/-. GROUND RAISED BY THE ASSESSEE IS ALLOWED. 7. AS REGARDS THE SECOND ISSUE OF CONFIRMATION OF DISA LLOWANCE ON ACCOUNT OF INTEREST AMOUNTING TO ` 61,68,000/- BY THE CIT(A) WE FIND THAT IDENTICAL ISSUE HAS BEEN DECIDED BY THE COORDINATE BENCH VIDE PARA 18 OF THE ABOVE CITED ORDER, WHICH IS REPRODUCED BELOW: - 18. FROM THE RECORD WE FOUND THAT AO HAD DISALLOWE D INTEREST ATTRIBUTABLE TO FUNDS GIVEN FREE OF INTEREST OR GIV EN ON INTEREST BUT NO INTEREST ON SUCH ADVANCES WERE ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS. IT WAS CONTENTION OF LEARNED AR THAT EVEN RECOVERY OF THE PRINCIPLE ADVANCE WAS DOUBTFUL, THEREFORE, INTEREST INCOME HAS NOT BEEN ACCOUNTED FOR ALL SUCH ADVANCES AND FOR THIS P URPOSE RELIANCE WAS PLACED ON THE DECISION OF DELHI HIGH COURT IN C ASE OF VASISTH CHAY VYAPAR LTD, 330 ITR 440. IT WAS ALSO CONTENTIO N OF LEARNED AR THAT ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE F UNDS WHICH WERE ADVANCED IN EARLIER YEARS ON WHICH NO DISALLOWANCE WAS MADE. WE HAVE CONSIDERED THE RIVAL CONTENTION AND FOUND THAT FOR NOT PROVIDING INTEREST INCOME ON ADVANCES, NO MATERIAL WAS BROUGH T ON RECORD BY ASSESSEE TO SUBSTANTIATE THAT EVEN PRINCIPLE AMOUNT IS IN DOUBT. IN THE INTEREST OF JUSTICE, WE RESTORE THIS ISSUE BACK TO THE FILE OF THE AO TO FIND INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSE E WHICH HAS BEEN USED FOR GIVING INTEREST FREE ADVANCES. ASSESSEE IS ALSO DIRECTED TO PLACE ON RECORD THE POSITION OF BORROWER SO AS TO F IND OUT IF THE PRINCIPLE LOAN ITSELF IS IN DOUBT, SO AS TO JUSTIFY ASSESSEES CLAIM OF NOT ACCOUNTING OF INTEREST ON SUCH ADVANCES. WE DIRECT ACCORDINGLY. AO IS TO DECIDE THE MATTER AFRESH AFTER CONSIDERING ALL T HE DOCUMENTS DISCUSSED HEREIN ABOVE AND APPLYING THE JUDICIAL PR ONOUNCEMENTS AS DISCUSSED ABOVE TO THE FACTS OF INSTANT CASE. 8. THE FACT OF THE GROUND RAISED BY THE ASSESSEE IS ID ENTICAL TO ONE AS DECIDED BY THE COORDINATE BENCH SUPRA. RESPECTFULLY FOLLOWING THE ORDER OF ITA NOS. 3690 & 3061/MUM/2015 M/S. ODYSSEY CAPITAL P. LTD. 5 THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR A.Y . 2009-10 WE RESTORE THIS ISSUE TO THE FILE OF THE AO TO DECIDE THE SAME AFRESH AFTER CONSIDERING ALL THE DOCUMENTS AND APPLYING THE JUDICIAL PRONOUN CEMENTS AS HAS BEEN DISCUSSED BY THE COORDINATE BENCH. THUS, THIS GROUN D IS ALLOWED FOR STATISTICAL PURPOSES. 9. IN ITA NO. 3691/MUM/2015 THE ASSESSEE HAS RAISED TW O IDENTICAL ISSUES; (I) CONFIRMATION OF DISALLOWANCE OF ` 3,27,25,000/- OUT OF ADMINISTRATIVE EXPENSES BY THE CIT(A) AND (II) DISA LLOWANCE OF INTEREST AMOUNTING TO ` 2,39,66,925/-. THESE ISSUES HAVES BEEN DECIDED BY U S IN ITA NO. 3690/MUM/2015 FOR A.Y. 2010-11 (SUPRA) AND THESE FINDINGS WOULD ,MUTATIS MUTANDIS ,APPLY TO THIS APPEAL AS WE LL. ACCORDINGLY THE DISALLOWANCE OF ` 3,27,25,000/- OUT OF ADMINISTRATIVE EXPENSES IS DEL ETED AND THE ISSUE OF DISALLOWANCE OF INTEREST OF ` 2,39,66,925/- IS RESTORED TO THE FILE OF THE AO FOR FRESH ADJUDICATION ON THE BA SIS OF THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR A.Y. 20 09-10. 10. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE AR E ALLOWED AS DISCUSSED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JANUARY, 2018. SD/ - SD/ - (SAKTIJIT DEY) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 24 TH JANUARY, 2018 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -10, MUMBAI 4. THE CIT - 5, MUMBAI 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.