MK COMMODITY BROKERS LTD., MUMBAI V. I.T.O. RG. 8(2)(3), MUMBAI

ITA 4586/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75386 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 08-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 06-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: PRASHANT TACKER
• Keywords: Commercial expediency
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ./I.T.A. NO.4586/M/2012 ( / ASSESSMENT YEAR: 2008 - 2009 ) M.K. COMMODITY BROKERS LIMITED, 501, HERITAGE PLAZA, J.P. ROAD, OPP. INDIAN OIL COLONY, ANDHERI (W), MUMBAI 400 053. / VS. THE ITO, RANGE - 8(2)(3), MUMBAI. ./ PAN : AADCM 6390 ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI PRASHANT TACKER & MR. NISHANT THAKKAR / RESPONDENT BY : SHRI PITAMBAR DAS, DR / DATE OF HEARING : 8.1.2014 / DATE OF PRONOUNCEMENT :15 .1.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 6.7.2012 IS AGAINST THE ORDER OF THE CIT (A) - 17, MUMBAI DATED 13.4.2012 FOR THE ASSESSMENT YEAR 2008 - 2009. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS U NDER: 1.1. THE CIT (A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW ERRED IN UPHOLDING THE DISALLOWANCE OF THE INTEREST EXPENSE OF RS. 13,42,466/ - UNDER THE PROVISIONS OF INCOME TAX ACT, 1961 ON THE PREMISE THAT SUCH EXPENSES HAVE NOT BEEN INCURRED OF ITS BUSINESS PURPOSES. 1.2. IN THE GIVEN FACTS AND CIRCUMSTANCES, THE ASSESSEE SUBMITS THAT IT HAS BORROWED LOANS FOR ITS BUSINESS PURPOSES AND THEREF ORE, BE ALLOWED TO CLAIM SUCH INTEREST EXPENSE AS TAX DEDUCTIBLE EXPENSE. THE APPELLANT SUBMITS THAT THE LD CIT (A) OUGHT TO HAVE APPRECIATED THE JUDICIAL PRECEDENTS WHEREIN THE ISSUE UNDER CONSIDERATION HAS BEEN EXTENSIVELY DISCUSSED AND ACCORDINGLY, INT EREST ON BORROWED FUNDS WAS ALLOWED AS REVENUE EXPENSE. 1.3. THE APPELLANT PRAYS THAT THE AO BE GIVEN APPROPRIATE DIRECTION TO ALLOW THE DEDUCTION OF RS. 13,42,466/ - UNDER SECTION 37 R.W.S 36(1)(III) OF THE ACT. 2 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE RECEIVED INTEREST BEARING FUNDS OF RS. 1.2 CRS FROM ONE OF ITS DIRECTOR NAMELY SHRI P.M. BHAGAT AND PAID INTEREST AMOUNTING TO RS. 13,42,466/ - WHICH WAS CLAIMED AS DEDUCTION U/S 36(1)(III) OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, AO NOTICED THAT THE SAID AMOUNT WAS UTILIZED BY THE COMPANY FOR PURCHASING THE SHARE CAPITAL OF ONE OF ITS SISTER EARNS INCORPORATED IN UAE. ON FINDING THAT THE SAID AMOUNT WAS GIVEN TO THE SISTER CONCERN, AO DENIED THE BENEFIT OF DEDUCTION U/S 36(1)(III) OF THE ACT. 4. DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSEE RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS VS. CIT (A), 158 TAXMAN 74 AND ARGUED THAT THE ASSESSEE AS WELL AS THE SISTER CONCE RN ARE ENGAGED IN THE SAME BUSINESS AND INVESTED THE SAID BORROWED AMOUNT AS A SHARE CAPITAL FOR ACQUIRING THE CONTROL AND MANAGEMENT OF THE SISTER CONCERN. IT IS ALSO A FACT THAT THE ASSESSEE IS ENTITLED TO DIVIDEND INCOME OUT OF THE SAID SHARE CAPITAL INVESTED IN THE UAE BASED COMPANY. CIT (A) CONSIDERED THE ABOVE SUBMISSIONS OF THE ASSESSEE AND DISTINGUISHED THE DECISIONS CITED BY THE ASSESSEE AND HELD THAT THE ASSESSEE FAILED TO ESTABLISH THE COMMERCIAL EXPEDIENCY IN MAKING INVESTMENT IN THE UAE BAS ED COMPANY. HE RELIED ON THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PHIL CORPORATION LTD, 2011 TIOL 432 AND OTHER DECISIONS BEFORE DECIDING THE ISSUE AGAINST THE ASSESSEE. RELEVANT PARA READS AS UNDER: IT IS THEREFORE, CLEAR THAT THE F ACTS IN PHIL CORPORATION CASE WHETHER THE INTEREST ON THE OD ACCOUNT WAS LIABLE TO BE BIFURCATED BETWEEN THE INVESTMENT IN SHARES AND THE REGULAR BUSINESS OF THE ASSESSEE. IN THE CIRCUMSTANCES, THE RATIO OF THAT DECISION IS OF NO HELP TO THE APPELLANT. O N THE OTHER HAND, I FIND THAT THE RATIO OF THE DECISION IN THE CASE OF KANKHAL INVESTMENT AND TRADING CO. P. LTD AND THE DELHI HIGH COURT IN THE CASE OF JK SYNTHETICS IS SQUARELY AGAINST THE ALLOWABILITY OF INTEREST ON INVESTMENT IN SHARE EQUITY . EVEN OTH ERWISE, ON FACT I FIND THAT THE APPELLANT HAS NOT BEEN ABLE TO ESTABLISH ANY CASE OF COMMERCIAL EXPEDIENCY IN THE INVESTMENT OF M/S. MANGAL KESHAV DMCC. THIS GROUND OF APPEAL IS THEREFORE, DISMISSED. 5. DURING THE PROCEEDINGS BEFORE US LD COUNSEL FOR TH E ASSESSEE MENTIONED THAT MAKING INVESTMENT IN THE SHARE CAPITAL OF THE SISTER CONCERN FOR OBTAINING THE CONTROL AND MANAGEMENT OF THE SAID COMPANY AND ALSO TO EARN DIVIDEND INCOME CONSTITUTES A COMMERCIAL EXPEDIENCY. IN THIS REGARD, HE FILED CERTAIN DECI SIONS TO SUPPORT HIS ARGUMENT. 6. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 3 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITATIONS MADE BEFORE US. IT IS NOBODYS CASE THAT THE AMOUNT INVESTED IN THE SHARE CAPITAL OF THE SISTER CONCERN ARE UTILIZED FOR NON - BUSINESS PURPOSES. THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE COMMUNICATIONS INFRASTRUCTURE LTD [2012] 207 TAXMAN 219 IS FOUND RELEV ANT FOR THE PROPOSITION THAT DEDUCTION OF INTEREST U/S 36(1)(III) IS ALLOWABLE WHEN THE RELEVANT LOANS ARE INVESTED IN THE SUBSIDIARY COMPANY AND ADVANCES GIVEN FOR THE PURPOSES OF BUSINESS . HOWEVER, WE ALSO PERUSED THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. TULIP STAR HOTELS LTD [2011] 338 ITR 482 (DELHI) , WHEREIN THE ASSESS EE WAS OWNING AND MANAGING THE H OTELS AND THE ASSESSEE INVESTED IN THE WHOLLY AND OWNED SUBSIDIARY COMPANY. THE INTEREST EXPENDITURE RELATED TO THE SAID INVES TMENT WAS HELD AS ALLOWABLE EXPENSE WITHIN THE MEANING OF SECTION 36(1)(III) OF THE ACT . ON PERUSAL, WE NOTICE THAT THE SAID DECISION WAS TAKEN BY THE HONBLE HIGH COURT AFTER CONSIDERING THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS VS. CIT [2007] 288 ITR 1 (SC) . CONSIDERING THE ABOVE LEGAL PROPOSITION AND FACTUAL MATRIX OF THE PRESENT CASE, WE ARE OF THE OPINION THAT THE INVESTMENT MADE BY THE ASSESSEE OUT OF BORROWED FUNDS IN A 100% SUBSIDIAR Y COMPANY BASED IN UAE, WHICH A CCEPTED TO PAY THE TAXABLE DIVIDEND IN INDIA , THE ISSUE SHOULD BE DECIDED IN FAVOUR OF THE ASSESSEE . J URISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF RELIANCE COMMUNICATIONS INFRASTRUCTURE LTD (SUPRA) AS WELL AS JUDGMENT OF THE HONBLE DELHI HIGH COURT I N THE CASE OF CIT VS. TULIP STAR HOTELS LTD HELPS THE ASSESSEE . ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED . 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCE D IN THE OPEN CO URT ON 1 5 T H JANUARY, 2014. S D / - S D / - (AMIT SHUKLA ) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 15 .1 .2014 . . ./ OKK , SR. PS 4 / 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 . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI