MAHINDRA ENGINEERING & CHEMICAL PRODUCTS LTD, MUMBAI V. DCIT CIR 2(2), MUMBAI

ITA 3893/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0300 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 23-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Commercial expediency
• Section: 143(3); 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI D.T GARASIA , JUDICIAL MEMBER AND SHRI G. MANJUNATHA , ACCOUNTANT MEMBER ITA NO.3893/MUM./2015 (ASSESSMENT YEAR: 2010 - 11) MAHINDRA ENGINEERING & CHEMICAL PRODUCTS LTD., GATEWAY BLDG, STEVENS STREET, APOLLO BUNDER, MUMBAI 400001 PAN AAACM5764A . APPELLANT V/S DCIT, CIRCLE 2(2) AAYAKAR BHAVAN MUMBAI 400020 . RESPONDENT ASSESSEE BY : SHRI. KARTIK NATRAJAN REVENUE BY : SHRI. PURUSHOTTAM KUMAR DATE OF HEARING 15.05.2017 DATE OF ORDER - 14 .06 .2017 O R D E R PER: MANJUNATHA G. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST ORDER OF THE CIT(A) - 5, MUMBAI DATED 24.03.2015 AND IT PERTAINS TO THE ASSESSMENT YEAR 2010 - 11. MAHINDRA ENGINEERING & CHEMICAL PRODUCTS ITA NO.3893/MUM./2015 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE OF BULK MATERIAL EQUIPMENTS, ELECTRONICS CORRESSION PROTECTION DEVICE AND UNIT HANDLING SYSTEM FOR CAR MANUFACTURING UNIT , FILED ITS , RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010 - 11, DECLARING TOTAL INCOME OF RS.12, 79,27,766/ - . THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY , NOTICES U/S. 143(2) AND 142(1) OF THE ACT WERE ISSUED. IN RESPONSE TO NOTICES , THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPE ARED FROM TIME TO TIME AND FILED THE DETAILS CALLED FOR. T HE ASSESSMENT WAS COMPLETED U/.S 143(3) ON 21.03.2013, DETERMIN ING THE TOTAL INCOME AT RS.14,27,75,040 / - , INTER ALIA MAKING ADDITIONS TOWARDS DISALLOWANCE OF INTEREST EXPENDITURE U/S. 36(1)(III) AN D DISALLOWANCE OF EXPENDITURE U/S. 14A READ WITH RULE 8D OF THE I.T RULES. 3. AGGRIEVED BY THE ASSESSMENT ORDER , THE ASSESSEE PREFER RED AN APPEAL BEFORE THE CIT(A). B EFORE , THE CIT(A) , THE ASS ESSEE HAS FILED ELABORATE WRITTEN SUBMISSION AND CONTENDED THAT THE A.O WAS ERRED IN DISALLOWING INTEREST U/S. 36(1)(III) IN EXCESS OF TOTAL INTEREST PAID BY THE ASSESSEE. THE ASSESSEE ALSO CHALLENGED DISALLOWANCE OF EXPENDITURE U/S. 14 A OF THE ACT. THE CIT(A) , AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSE E , PARTLY ALLOWED APPEAL FILED BY MAHINDRA ENGINEERING & CHEMICAL PRODUCTS ITA NO.3893/MUM./2015 3 THE ASSESSEE, WHEREIN DIRECTED THE A.O TO DELETE ADDITIONS MADE TOWARDS DISALLOWANCE U/S. 14A OF THE ACT , BY HOLDING THAT INCOME FROM DEBENTURES ARE TAXABLE IN NATURE AND THEREFORE , THE A.O WAS INCORRECT IN DISALLOWING EXP ENDITURE INCURRED FOR EARNING INCOME FROM DEBENTURES. IN SO FAR AS DISALLOWANCE OF INTER EST U/S. 36(1)(III), REWORKED DISALLOWANCE TO RS.60,16,438/ - AS AGAINST DISALLOWANCE WORK ED OUT BY THE A.O AT RS.1,45,58,493/ - . AGGRIEVED BY THE CIT(A) ORDER , THE ASSES SEE IS IN APPEAL BEFORE US. 5. THE LD. A.R FOR THE ASSESSEE , SUBMITTED THAT THE LD. CIT(A) WAS ERRED IN CONFIRMING THE ACTION OF THE A.O IN MAKING ADDITIONAL DISALLOWANCE U/S.36(1)(III) OF THE ACT, ON ACCOUNT OF INTEREST PAID ON ICD OF RS.60,16,438/ - AS A GAINST RS.1,45,58,493/ - MADE BY THE A.O. THE A . R FURTHER SUBMITTED THAT THE ENTIRE INTEREST PAID ON AMOUNTS BORROWED OUGHT TO BE ALLOWED U/S. 36(1)(III) OF THE ACT, ON THE GROUND OF COMMERCIAL EXPEDIENCY AS THE ASSESSEE HAS ADVANCED LOANS TO ITS SUBSIDIARY COMPANIES. IT WAS FURTHER SUBMITTED THAT ONCE IT IS ACCEPTED TH AT FUNDS ADVANCED TO SUBSIDIARIES ARE FOR THE PURPOSE OF BUSINESS, THEN ENTIRE INTEREST MUST BE ALLOWED U/S. 36(1)(III) OF THE ACT. IN SUPPORT OF HIS ARGUMENTS , RELIED UPON THE DECISION OF HON BLE SUPREME COURT IN THE CA SE OF S.A BUILDERS LTD. VS CIT 2 88 ITR 1 AND ALS O HERO CYCLE PVT. LTD. VS. CIT 63 MAHINDRA ENGINEERING & CHEMICAL PRODUCTS ITA NO.3893/MUM./2015 4 TAXMANN.COM 308 . T HE ASSESSEE ALSO MADE ALTERNATIVE SUBMISSIONS TO THE EFFECT THAT , THE ADDITIONS MADE BY THE A.O TOWARDS DISALLOWANCE OF INTEREST U/S. 36(1)(III), AMOUNTS TO DOUBLE ADDITION AS THE ASSESSEE ITSELF DISALLOWED NET INTEREST PAID WHILE COMPUTING INCOME FROM BUSINESS. TO THIS EFFECT , FURNISHED FINANCIAL STATEMENT FOR THE RELEVANT FINANCIAL YEAR AND ALSO STATEMENT OF TOTAL INC OME EVIDEN CING SUO MOTTO DISALLOWANCE OF INTEREST PAID ON ICD . O N THE OTHER HAND , THE LD. DR SUPPORTED ORDER OF THE CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE FACTUAL MATRIX WHICH LEAD TO THE DISALLOWANCE OF INTEREST U/S.36(1)(III) OF THE ACT , ARE THAT THE ASSESSEE HAS BORROWED INTER CORPORATE DEPOSIT AND ALSO GIVEN INTER CORPORATE DEPOSI TS TO ITS SUBSIDIARY COMPANIES . THE ASSESSEE HAS PAID INTEREST OF RS.5, 0 1 , 33,720/ - AND RECEIVED INTEREST OF RS.1,45,58,493/ - ON INTER CORPORATE DEPOSITS. THE ASSESSEE SUO MOTTO DISALLOWED NET INTEREST EXPENDITURE OF RS.3,55,75,227/ - (RS.5, 0 1,33,720/ - - RS,1,45,58,493). THE A.O DISALLOWED INTEREST U/S. 36(1)(III) OF THE ACT , O N THE GROUND THAT ASSESSEE HAS DIVERTED ITS INTEREST BEARING FUNDS TO SUBSIDIARIES. IT IS THE CONTENTION OF THE ASSESSEE THAT INTEREST PAID ON ICD CANNOT BE DISALLOWED U/S. 36(1)(III) OF THE ACT, MAHINDRA ENGINEERING & CHEMICAL PRODUCTS ITA NO.3893/MUM./2015 5 ON THE GROUND OF COMMERCIAL EXPEDIENCY AS THE ASSESSEE HAS G IVEN INTER CORPORATE DEPOSITS TO ITS SUBSIDIARIES COMPANIES. THE ASSESSEE FURTHER CONTENDED THAT ONCE IT IS ACCEPTED THAT FU NDS ADVANCED TO SUBSIDIARIES ARE FOR THE PURPOSE OF BUSINESS, THEN ENTIRE INTEREST MUST BE AL LOWED U/S.36(1)(III) OF THE ACT. T HE A SSESSEE REFERRING TO THE PROVISION OF SECTION OF 36(1)(III) AND ALSO PROVISO TO THIS SECTION , ARGUED THAT THE PROVISO PROVIDED TO SECTION 36(1)(III) , ONLY QUALIFIES ALLOWANCE IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF ASSET, WHICH IS NOT THE FACTS IN THE PRESENT CASE, THEREFORE THE ENTIRE INTEREST PAID ON ICD OUGHT TO BE ALLOWED. 7. H AVING HEARD BOTH THE SIDE S AND CONSIDER ED MATERIAL ON RECORD, WE FIND NO MER ITS IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THE ASSESSEE ITSELF ACCEPTED INTER CORPORATE DEPOSITS ARE NOT EXTENDED IN THE NORMAL COURSE OF ITS BUSINESS AND HENCE , THE QUESTION OF COMMERCIAL EXPEDIENCY DOESNT COME IN THE WAY OF DISALLOWANCE OF INTEREST EXPENDITURE U/S. 36(1)(III) OF THE ACT. THE CASE LAWS RELIED UPON BY THE ASSESSEE , IN THE CASE OF S.A BUILDERS PVT. LTD. VS. CIT 288 ITR 1 (SC) HAS NO APPLICABLE TO THE FACTS OF THE PRESENT CASE, BECAUSE THE ASSESSEE ITSELF AS ADMITTED THESE ICD ARE NOT COMMERCIAL ADVANCES IN THE NORMAL COURSE OF ITS BUSINESS. MAHINDRA ENGINEERING & CHEMICAL PRODUCTS ITA NO.3893/MUM./2015 6 8. COMING TO THE ALTERNATIVE ARGUMENT OF THE ASSESSEE. THE ASSESSEE MADE A ALTERNATIVE SUBMISSIONS TO THE EFFECT THAT THE ASSESSEE ITSELF HAS DISALLOWED NET INTEREST EXPENDITURE AFTER REDUC ING INTEREST RECEIVED ON INTER CORPORATE DEPOSITS FROM ITS SUBSIDIARIES IN THE STATEMENT OF TOTAL INCOME, THEREFORE FURTHER DISALLOWANCE BY THE A.O AMOUNTS TO DOUBLE TAXATION OF AMOUNT OF RS.1,45,58,493/ - . WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE , FO R THE REASON THAT THE ASSESSEE HAS PAID INTEREST OF RS.5,01,33,720/ - ON INTER CORPORATE DEPOSITS. THE ASSESSEE ALSO RECEIVED INTEREST INCOME OF RS.1,45,58,493/ - FROM INTER CORPORATE DEPOSITS. THE ASSESSEE HAS SUO MOTTO DISALLOWED NET INTEREST EXPENDITURE O F RS.3,55,75,227/ - (RS.5,01,33,720 RS.1,45,58,493/ - ) IN ITS STATEMENT OF TOTAL INCOME. ONCE , THE ASSESSEE ITSELF HAS DISALLOWED NET INTEREST EXPENDITURE, FURTHER DISALLOWANCE OF RS.1,45,58,493/ - AMOUNTS TO DOUBLE TAXATION OF SAME AMOUNT. THEREFORE , WE ARE OF THE VIEW THAT THE A.O WAS ERRED IN DISALLOWING INTEREST OF RS.1,45,58,493/ - U/S. 36(1)(III) OF THE ACT. THE CIT(A) , WITHOUT APPRECIATING THE FACTS REWORKED DISALLOWANCE TO THE EXTENT OF RS.60,16,438/ - . WE, THEREFORE, DIRECT THE A.O TO DELETE ADDITIONS MADE TOWARDS DISALLOWANCE OF INTEREST EXPENDITURE U/S. 36(1)(III) OF THE ACT. MAHINDRA ENGINEERING & CHEMICAL PRODUCTS ITA NO.3893/MUM./2015 7 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED ORDER PRONOUN CED IN THE OPEN COURT ON 14 .06 .2017 SD/ - SD/ - ( D.T. GARASIA ) (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 14 .06 .2017 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE. BY ORDER NISHANT VERMA SR. PRIVATE SECRETARY (DY./ASSTT.REGISTRAR) ITAT, MUMBAI MAHINDRA ENGINEERING & CHEMICAL PRODUCTS ITA NO.3893/MUM./2015 8