SETO TEKNOLOG P.LTD, MUMBAI V. ITO 10(2)(4), MUMBAI

ITA 4859/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8890 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 17-10-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 02-09-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUJIT BANGER
• Section: 143(3); 133(6); 37

Judgement Text

, , , , INCOME-TAX APPELLATE TRIBUNAL -KBENCH MUMBAI , ,, , , , , , , ,, , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND SAKTIJIT DEY,JUDICIAL MEMBER / ITA NO.4859/MUM/2015 : /ASSESSMENT YEAR-2011-12 SETO TEKNOLOG PRIVATE LIMITED 101/406, HILL VIEW INDL ESTATE OFF LBS MARG, GHATKOPAR (W) MUMBAI-400 086. PAN:AABCS 4066 J VS. INCOME TAX OFFICER-10(2)(4) 430-A, AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. (APPELLANT) (RESPON DENT) REV ENUE BY: SHRI SUJIT BANGER -CIT ASS ESSEE BY: NONE / DATE OF HEARING: 17.10.2016 / DATE OF PRONOUNCEMENT: 04.01.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , / PER RAJENDRA A.M. - CHALLENGING THE ORDER DATED 22.4.2015 OF CIT(A)-22 MUMBAI,THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY, ENGAGED IN THE BUS INESS OF MANUFACTURING RESEARCH AND DEVELOPMENT OF ALL TYPES OF ELECTRIC COMPUTERS,COMP UTER HARDWARE AND SOFTWARE SYSTEMS FILED ITS RETURN OF INCOME ON 30/09/2011, DECLARING TOTAL INCOME AT RS.5.78 LAKHS. THE ASSESSING OFFICER (A.O.)COMPLETED THE ASSESSMENT ON 14.3.2014 U/S. 143(3) OF THE ACT, DETERMINING ITS INCOME AT RS.42.74 LAKHS. 2. FIRST GROUND OF APPEAL IS ABOUT DISALLOWANCE OF IN TEREST OF RS.18.14 LAKHS ON LOAN TAKEN FROM SIDBI.DURING THE COURSE OF HEARING BEFORE US,T HE DEPARTMENTAL REPRESENTATIVE(DR) STATED THAT WHILE DECIDING THE APPEAL FOR THE AY.20 07-08(ITA/4195/MUM/2010,DATED 31.1. 2012), THE TRIBUNAL HAD DECIDED THE ISSUE AGAINS T THE ASSESSEE.WE WOULD LIKE TO REPRODUCE THE OPERATIVE PART OF THE ORDER OF THE TRIBUNAL AN D SAME READS AS UNDER :- 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS DECISIONS CITED . THE QUESTION FOR CONSIDERATION BEFORE US IS WHETHER INTEREST PAID BY THE ASSESSEE ON THE BORROW INGS FOR ACQUISITION OF SHARES OF SAMEERA ELECTRONICS PVT. LTD. FOR THE PURPOSE OF BUSINESS O R NOT ? THE CASE OF THE ASSESSEE IS THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AND DE ALING OF ELECTRICAL, ELECTRONICS AND COMPUTER HARDWARE AND SOFTWARE. DURING THE YEAR UNDER CONSID ERATION, THE ASSESSEE HAD ACQUIRED SHARES OF M/S SAMEERA ELECTRONICS PVT. LTD., A 100% SUBSID IARY OF THE ASSESSEE COMPANY, FOR WHICH IT HAD PAID RS. 16,91,958/- TO THE SIDBI FROM WHOM THE ASSESSEE BORROWED THE MONEY AND TO THIS EFFECT THE ASSESSEE REFERRED PAGES 58 & 59 WHERE TH E SCHEDULES OF THE PROJECT, FINANCE PLAN, AND AMORTIZATION SCHEDULE AND LETTER OF INTENT FROM SDB I FOR FINANCIAL ASSISTANCE. THE MAIN CONTENTION OF THE ASSESSEE IS THAT THE ABOVE STATED SHARES ACQUIRED BY THE ASSESSEE FOR THE EFFECTIVE CONTROL IN THE SAMEERA ELECTRONICS AND TH EREBY USING THE PREMISES OF THE SAMEERA FOR 4859/M/15(SETO TEKNOLOG PVT. LTD.) 2 THE PURPOSE OF IMMEDIATE NECESSITY OF ASSESSEES BU SINESS. THE ASSESSEE HAS EXPLAINED THE SAME BEFORE THE AO AND CIT(A) AND ULTIMATELY THEY HAVE R EJECTED THE EXPLANATION OFFERED BY THE ASSESSEE. TO THIS EFFECT, THE ASSESSEE REFERRED PAG ES 31 & 32 OF THE PAPER BOOK TO ESTABLISH THAT THE SAID SUBMISSIONS MADE BEFORE THE REVENUE AUTHOR ITIES. THE ASSESSEE HAD ACQUIRED SHARES IN SAMEERA ELECTRONICS PVT. LTD., WHICH IS A LOSS MAKI NG COMPANY IS THE SISTER CONCERN OF THE ASSESSEE COMPANY IN WHICH THE ASSESSEE IS HAVING IN TEREST. THE ASSESSEE HAD ALSO GIVEN INTEREST FREE LOANS TO ITS SISTER CONCERN SAMEERA ELECTRONIC S PVT. LTD. THE ASSESSEE IN ONE OF ITS SUBMISSIONS BEFORE US STATED THAT NOBODY IS INTERES TED IN ACQUIRING SHARES IN SAMEERA BECAUSE IT IS A LOSS MAKING COMPANY. WHEN THE SAMEERA ELECT RONICS PVT. LTD. IS LOSS MAKING COMPANY WHERE ASSESSEE IS ALSO HAVING INTEREST, WE ARE UNAB LE TO UNDERSTAND THAT WHAT IS THE NECESSITY OF ACQUIRING THE SHARES IN SAMEERA TO EFFECTIVE CONTRO L IN THAT COMPANY. IT IS A FACT THAT THE ASSESSEE HAS ENTERED INTO A SEPARATE AGREEMENT WITH M/S SAMEERA ELECTRONICS PVT. LTD. FOR UTILIZATION OF PREMISES AND RENT WAS ALSO PAID. WHE N THE ASSESSEE HAS PAID CHARGES FOR USING OF THE PREMISES, IT CANNOT BE SAID THAT THE SHARES ACQ UIRED BY THE ASSESSEE IS FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AND, THEREFORE, ALLOWABLE U/S 36(1)(III) OF THE ACT. THEREFORE, IN OUR CONSIDERED OPINION, ACQUIRING SHARES IN SAMEERA ELE CTRONICS PVT. LTD. BY THE ASSESSEE IS NOT CONNECTED FOR THE PURPOSE OF BUSINESS. THEREFORE, T HE ACQUISITION OF SHARES IN SAMEERA ELECTRONICS PVT. LTD. IS NOT FOR THE PURPOSE OF THE BUSINESS AND THE INTEREST PAID THEREON IS NOT ALLOWABLE EITHER IN THE SECTION 36(1)(III) OR SECTI ON 37 OF THE ACT. IN SO FAR AS THE CASE LAWS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE IS CONCERNED, IN THE CASE OF CIT VS. JARDINE HENDERSON LTD., [1994] 210 ITR 981 THE COURT HAS HE LD AS UNDER:- IT WAS CATEGORICAL FINDING OF THE TRIBUNAL THAT TH E BORROWAL FOR THE PURCHASE OF SHARES WAS FOR THE MANAGING AGENCY BUSINESS OF THE ASSESSEE AND TO RETAIN ITS GRIP OVER THE MANAGING AGENCY BUSINESS. THE TRIBUNAL ALSO FOUND THAT THE INVESTME NT IN SHARES WAS PRINCIPALLY AND PRIMARILY WITH A VIEW TO OBTAIN THE MANAGING AGENCY COMMISSIO N RATHER THAN DIVIDEND INCOME. THE SAID FACTS WAS ALSO EVIDENT FROM THE COMPARATIVELY SMALL AMOUNT OF DIVIDEND WHICH THE ASSESSEE RECEIVED COMPARED TO THE LARGE AMOUNT OF MANAGING A GENCY COMMISSION RECEIVED DURING THE VARIOUS PREVIOUS YEARS. THEREFORE, THE ENTIRE AMOUN T OF INTEREST PAID WAS DEDUCTIBLE IN COMPUTING THE PROFITS AND GAINS OF THE ASESSEES BU SINESS. 10. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIE D UPON THE DECISION OF ITAT, MUMBAI BENCH H, MUMBAI, IN THE CASE OF ATE ENTERPRISES LTD. VS . JCIT ORDER DATED 11/11/2005 WHEREIN THE TRIBUNAL HAS HELD AS UNDER:- 11. RIVAL SUBMISSIONS OF THE PARTIES HAVE BEEN CO NSIDERED CAREFULLY. THE QUESTION FOR CONSIDERATION I WHETHER INTEREST PAID BY THE ASSESSEE ON THE BORROWIN GS FOR ACQUISITION OF SHARES OF TRUMAC CAN BE ALLOWE D AS DEDUCTION U/S 36(1)(III) CONSIDERING THE FACTS O F THE CASE AND CASE LAW AVAILABLE ON THIS POINT. THE RE IS NO DISPUTE BETWEEN THE PARTIES THAT DEDUCTION IS ALLOWAB LE IF MONEY IS BORROWED FOR THE PURPOSE OF BUSINESS. THE EXPRESSION FOR THE PURPOSE OF BUSINESS IS MUCH WIDER THAN THE EXPRESSION FOR THE PURPOSE OF EARNING PRO FITS AS HELD BY HONBLE SUPREME COURT IN THE CASE OF INDI A CEMENTS LTD., 60 ITR 52. THUS, FOR THE PURPOSE OF ALLOWING DEDUCTION U/S 36(1)(III) IT WOULD BE IRRELE VANT TO CONSIDER WHETHER BORROWED MONEY WAS UTILIZED F OR MEETING DAY TO DAY EXPENSES OR FOR ACQUIRING CAPITA L ASSETS TO BE USED IN BUSINESS. THEREFORE, INTERES T FOR BORROWING WOULD BE ALLOWED EVEN IF BORROWED FUND IS UTI LIZED FOR ACQUIRING PLANT AND MACHINERY OR LAND AND BUILDING FOR USE IN BUSINESS. REFERENCE CAN BE MADE TO JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF CALICO DYEING & PRINTING WORKS VS. CIT, 34 ITR 265. 12. IN VIEW OF THE ABOVE LEGAL BACKGROUND, THE QUEST ION WHICH SURVIVES FOR OUR CONSIDERATION IS WHETHER ON FACTS IT CAN BE SAID THAT MONEY WAS BORROWED FOR THE PURPOSE OF BUSINESS. ADMITTEDLY TRUMAC WAS A JOINT VENTURE OF ASSESSEE AND MAFTLAL GROUP OF COMPANIES. IN ITS REPLY TO SHOW CAUSE NOTICE, THE ASSESSEE HAD STATED THAT PROMOTERS OF THE ASSESSEE COMPANY AS WEL L AS OF MAFTLAL GROUP HAD GOOD BUSINESS RELATIONSHI PS HAVING CLOSE ASSOCIATION WITH INDIAN TEXTILE INDUSTR Y. THIS FACT HAS NOT BEEN DISPUTED BY THE REVENUE A T ANY STAGE. IT IS BECAUSE OF THESE FACTS, THE CHAIRMAN O F ASSESSEE COMPANY WAS ON THE BOARD OF TRUMAC AS NO N- EXECUTIVE CHAIRMAN AND COULD GET SOLE SELLING AGENCY FOR THE DISTRIBUTION OF THE PRODUCTS MANUFACTURED BY TRUMAC. SINCE IT WAS MAIN SOURCE OF INCOME, IT WAS N ATURAL FOR A PRUDENT MAN TO SAFEGUARD ITS BUSINESS INTEREST. THEREFORE, IF THE ASSESSEE DECIDED TO INC REASE ITS HOLDING IN TRUMAC IN OUR OPINION, THE AS SESSEE WAS GUIDED BY BUSINESS CONSIDERATION TO SAFEGUARD IT S SELLING AGENCY. IF SHARES ARE PURCHASED BY OUTSID ERS THEN THERE IS POSSIBILITY THAT OUTSIDER MAY JEOPARD IZE TH BUSINESS INTEREST OF ASSESSEE COMPANY. THERF ORE, IN OUR OPINION, ACT OF BORROWING MONEY FOR THE ACQUISIT ION OF SHARES WAS CLOSELY CONNECTED WITH OR INCIDENTA L TO THE CARRYING ON THE BUSINESS. CONSEQUENTLY, THE COND ITIONS OF ALLOWING DEDUCTION U/S 36(1)(III) STOOD SATISFIED. THE ASSESSEE ALSO RELIED ON THE CIT VS. RAJEEV LOCH AN KANORIA (SUPRA) WHEREIN THE COURT HAS HELD AS UNDER:- 4859/M/15(SETO TEKNOLOG PVT. LTD.) 3 HELD, THAT DIRECTORSHIP IS NOTHING BUT A VOCATION. THE ASSESSEE WAS ADMITTEDLY A DIRECTOR OF SEVERAL CONTROLLED COMPANIES. THE ACTIVITY OF CONTROLLING, MANAGING, ADMINISTERING AND FINANCING COMPANIES IS NOTHING BUT A BUSINESS/PROFESSIONAL/VOCATIONAL ACTI VITY. A BUSINESSMAN, LIKE THE ASSESSEE IN THIS CASE , DID NOT PURCHASE SHARES OF DIFFERENT COMPANIES FOR ACQUIRIN G CONTROLLING INTEREST THEREIN ONLY FOR EARNING DIV IDENDS. ACQUIRING CONTROLLING INTEREST IN COMPANIES AND MAN AGING, ADMINISTERING, FINANCING AND REHABILITATING COMPANIES UNDER CONTROL WERE FOR BUSINESS AND/OR PRO FESSIONAL PURPOSE. INTEREST ON CAPITAL BORROWED FOR INVESTMENT IN SHARES WAS DEDUCTIBLE. 12. THE ABOVE THREE CASE LAWS RELIED UPON BY THE LE ARNED COUNSEL FOR THE ASSESSEE ARE NOT APPLICABLE TO THE FACTS OF THE CASE UNDER CONSIDERA TION FOR THE REASON THAT IN THE PRESENT CASE, ONE OF THE MATERIAL DISTINGUISHABLE FACT IS THAT TH E ASSESSEE ENTERED INTO A SEPARATE AGREEMENT WITH THE SAMEERA ELECTRONICS PVT. LTD. AND PAID SER VICE CHARGES FOR THE UTILIZATION OF THE PREMISES OF SAMEERA, THEREFORE, THE ABOVE CASE LAWS ARE NOT APPLICABLE TO THE CASE OF THE ASSESSEE. 13. IN VIEW OF THE ABOVE, THIS GROUND OF APPEAL RAI SED BY THE ASSESSEE IS DISMISSED. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL F OR AY 2007-08 GROUND NO.1 IS DECIDED AGAINST THE ASSESSEE. 3. NEXT GROUND OF APPEAL IS ABOUT DISALLOWING RS.13.13 LAKHS AS UNEXPLAINED LIABILITY. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE AS SESSEE HAD SHOWN SUNDRY CREDITORS IN THE NAME OF THINGNA & CONTRACTORS (T&C) AT RS,13.73 LAK HS WHICH WERE OUTSTANDING FOR MORE THAN 3 YRS. HE DIRECTED THE ASSESSEE TO FILE EXPLA NATION IN THAT REGARD.AFTER CONSIDERING SUBMISSION OF THE ASSESSEE DT.22.1.14 THE AO HELD THAT EXPLANATION WAS NOT SATISFACTORY.FOR MAKING FURTHER VERIFICATION OF THE OUTSTANDING LIAB ILITY HE ISSUED NOTICE U/S. 133(6) OF THE ACT TO T&C TO FILE A COPY OF THE LEDGER ACCOUNT OF THE ASSESSEE IN THEIR BOOKS OF ACCOUNTS. IT WAS FOUND THAT THE OUTSTANDING BALANCE OF THE ASSESSEE COMPANY IN THE BOOKS OF ACCOUNT OF T&C WAS SHOWN AT RS.6.58 LAKHS. SINCE THERE WAS DIFFERE NCE IN BALANCE OF BOTH THE PARTIES SO THE AO SUPPLIED A COPY OF LEDGER ACCOUNT OF T&C OF THE ASSESSEE AND ASKED IT TO RECONCILE WITH THE CORROBORATIVE DOCUMENTARY EVIDENCES.THE ASSESSE E FILED ITS REPLY ON 05.3.2014 . 4. AFTER CONSIDERING THE SAME,THE AO HELD THAT THE OUT STANDING BALANCE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY WAS SHOWN AT RS.1 3.73 LAKHS, THAT THE OUTSTANDING BALANCE IN T&C WAS SHOWN AS RS.6.58 LAKHS, THE ASSESSEE HA D NOT OFFERED AN EXPLANATION FOR RS.7.14 LAKHS, THAT ASSESSEE HAD NOT PROVED THAT THERE WAS ANY SETTLEMENT BETWEEN T&C AND ONE M/S. SAIF STEEL AS CLAIMED BY THE ASSESSEE ,THAT IN THE BOOKS OF ACCOUNT THERE WAS NO ENTRY FOR THE SETTLEMENT IN QUESTION. FINALLY HE HELD THAT EXCESS LIABILITY SHOWN IN THE BOOKS OF ACCOUNT OF THE ASSESSEE UNDER THE HEAD OF SUNDRY CREDITORS IN THE NAME OF M/S. T&C AT RS.7.14 LAKHS WAS AN UNEXPLAINED LIABILITY.HE MADE AN ADDITION OF RS. 7,14,925/-TO THE TOTAL INCOME OF THE ASSESSEE. 4859/M/15(SETO TEKNOLOG PVT. LTD.) 4 5. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PR EFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY ( FAA). BEFORE HIM, IT WAS ARGU ED THAT THE BILLS RECEIVED FROM T&C WERE ACCOUNTED FOR IN THE BOOKS OF ACCOUNT, THAT COMPANY MAINTAINED THAT OUTSTANDING FEE SHOWN IN THE BALANCE SHEET AS ON 31.3.2011 WAS OF RS.20.9 0 LAKHS, THAT T&C SURPRISINGLY INFORMED THE AO THAT CURRENT SUM TO BE RECEIVED FROM THE ASS ESSEE BY IT WAS ONLY RS.6.58 LAKHS, THAT THE ASSESSEE HAD ADVANCED A SUM OF RS.20 LAKHS TO A PARTY CALLED M/S. SAIF STEEL AT THE BEHEST OF T&C, THAT IT WAS THE MORAL RESPONSIBILITY TO SEC URE REPAYMENT OF THE SAME, THAT IT CONFIRMED A LOWER FIGURE OF OUTSTANDING .AFTER CONS IDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER THE FAA HELD THAT IN THE BOOKS OF THE ASSESSEE THE OUTSTANDING BALANCE FEE WAS SHOWN AT RS.20.90 LAKHS IN THE CASE OF T&C,THAT ON VERIFICATION T&C INFORMED THAT CORRECT OUTSTANDING WAS RS.6.58 LAKHS , THAT THE AO HAD COMPUTED RS.13.31 LAKHS THAT WAS NOT PAYABLE BY THE ASSESSEE TO T&C, THAT HE ADDED THE SAID AMOUNT AS UNEXPLAINED LIABILITY, THAT AO HAD ADDED RS.7.14 LA KHS ONLY, THAT THE DIFFERENCE BETWEEN FIGURE OF ASSESSEE AND T&C WAS RS.13.13 LAKHS.HE D IRECTED THE AO TO ADD THE ABOVE MENTIONED AMOUNT TO THE TOTAL INCOME OF THE ASSESSE E. . 6. AS STATED EARLIER NONE APPEARED BEFORE US, THAT DR SUPPORTED THE ORDER OF FAA.WE FIND THAT T&C HAD CATEGORICALLY STATED THAT OUTSTANDING AMOUNT WAS RS.6.58 LAKHS AND NOT RS.20.90 LAKHS, THAT THE ASSESSEE HAD NOT BROUGHT O N RECORD TO PROVE THAT THERE WAS ADVANCEMENT OF LOAN ON BEHALF OF T&C TO SAIF STEEL. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT DIRECT ISSUE BY FAA NEED NO INTERFEREN CE FROM OUR SIDE.CONFIRMING THE HIS ORDER, WE DECIDE THE SECOND GROUND AGAINST THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS DI SMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 04 TH JANUARY, 2017. 04 , 2017 SD/- SD/- ( / SAKTIJIT DEY ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 04.01.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR K BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ 4859/M/15(SETO TEKNOLOG PVT. LTD.) 5 //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.