ITO 2(2)(3), MUMBAI V. MAHINDRA ENGINEERING & CHEMICALS PRODUCTS LTD, MUMBAI

ITA 5321/MUM/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0369 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 10-08-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 10-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: KARTIK NATARAJAN
• Keywords: Commercial expediency

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -IBENCH MUMBAI , , , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND RAM LAL NEGI,JUDICIAL MEMBER ./I.T.A./5321/MUM/2015, /ASSESSMENT YEAR: 2011-12 INCOME TAX OFFICER-2(2)(3) AAYAKAR BHAVAN, R.NO.542 M.K. ROAD, MUMBAI VS. MAHINDRA ENGINEERING & CHEMICAL PRODUCTS LTD. GATEWAY BUILDING, APOLLO BUNDER MUMBAI-400 001. PAN:AAACM 5764 A ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI SAURABH KUMAR RAI- DR ASSESSEE BY: SHRI KARTIK NATARAJAN / DATE OF HEARING: 10.08.2017 / DATE OF PRONOUNCEMENT: 10.08.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 24/08/2015 OF THE CIT ( A)-5,MUMBAI THE ASSESSING OFFICER(AO) HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY,ENGAG ED IN THE BUSINESS OF INVESTMENT AND FINANCING, FILED ITS RETURN OF INCOME ON 30/09/2011 , DECLARING TOTAL INCOME OF RS.11.63 LAKHS. THE AO COMPLETED THE ASSESSMENT, UNDER SECTION 143 (3) OF THE ACT, ON 30/01/2014, DETERMINING ITS INCOME AT RS. 1.55 CRORES. 2. SOLITARY GROUND OF APPEAL IS ABOUT DELETING THE DIS ALLOWANCE OF RS.1.39 CRORES. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT ASSESSEE HAD ACCEPTED INTERCORPORATE DEPOSITS (ICD) OF RS.1,26,62,50,000/-FROM MAHINDRA AND MAHIN DRA (P.)LTD. THAT IT HAD PAID INTEREST OF RS.9.97 CRORE, THAT IT HAD GRANTED INTEREST-FREE LO AN TO ITS SUBSIDIARY AMOUNT IN RS.1,88,10,53,660/-.HE DIRECTED THE ASSESSEE TO EXP LAIN AS TO WHY PROPORTIONATE DISALLOWANCE SHOULD NOT BE MADE IN INTEREST EXPENDITURE.THE ASSE SSEE IN HIS REPLY STATED THAT DISALLOWANCE OF RS.8.58 CRORES WAS MADE BY IT IN THE COMPUTATION OF INCOME.ADOPTING THE FORMULA FOR THE PRECEDING YEAR, THE AO DISALLOWED PROPORTIONATE INT EREST EXPENDITURE OF RS.1,39,17,465/-. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA) AND MADE ELABORATE SUBMISS IONS. AFTER CONSIDERING THE ASSESSMENT ORDER AND THE ASSESSEES SUBMISSIONS,HE HELD THAT T HE ASSESSEE HAD SHARE CAPITAL, RESERVES AND SURPLUS OF RS. 36.56 CRORES,THAT INVESTMENT IN SUBS IDIARY COMPANIES WAS AT RS. 27.26 CRORES, 5321/M/15 MAHINDRA ENGINEERING & CHEMICAL PRODUCTS LTD. 2 THAT IT HAD RECEIVED INTEREST OF RS.1.39 CRORES FRO M THE INVESTMENTS, THAT THE ASSESSEE HAD PAID INTEREST OF RS.9.97 CRORES,THAT IT HAD NETTED THE I NCOME IN THE P&L ACCOUNT AT RS. 8.59 CRORES, THAT THE SAME WAS DISALLOWED IN ITS COMPUTATION OF INCOME,THAT THE AO DID NOT ALLOW NETTING OF THE INCOME AND FURTHER MADE A DISALLOWANCE OF RS . 1.39 CRORES,THAT THERE WAS NEXUS BETWEEN INTEREST RECEIVED AND INTEREST PAID,THAT TH E ASSESSEE HAD RIGHTLY CLAIMED NETTING OF INTEREST AS THE INCOME WAS ALREADY OFFERED FOR TAXA TION,THAT NO FURTHER DISALLOWANCE WAS REQUIRED. FINALLY HE DELETED THE DISALLOWANCE MADE BY THE AO. 4. DURING THE COURSE OF HEARING BEFORE US,THE DEPARTME NTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE AO AND STATED THAT IN THE EARLIER YEAR SIMILAR DISALLOWANCE WAS MADE.THE AUTHORISED REPRESENTATIVE (AR) STATED THAT THE ENTI RE INTEREST PAID ON AMOUNTS BORROWED (RS. 9.97 CRORES)OUGHT TO BE ALLOWED U/S.36(1)(III) ON T HE GROUND OF COMMERCIAL EXPEDIENCY,THAT THE FUNDS ADVANCED TO SUBSIDIARIES WERE FOR THE PUR POSE OF BUSINESS OF THE ASSESSEE,THAT THE INTEREST EARNED BY THE ASSESSEE FROM ICD.S HAD BEEN TAXED TWICE. HE RELIED UPON THE CASE OF HERO CYCLES (P.)LTD. (CIVIL APPEAL NUMBER 514 OF 20 08 OF THE. HONBLE SUPREME COURT).HE BROUGHT OUR NOTICE THAT THE TRIBUNAL,IN ITS ORDER,D ATED 14/06/2017,IN ITS OWN CASE(ITA/3893/MUMBAI/2015-AY.2010-11) HAS DECIDED T HE IDENTICAL ISSUE IN ITS FAVOUR. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD BORROWED FUNDS FROM SISTER CONCERN AND HAD ADVANCED THE LOANS TO SUBSIDIARIES, THAT IT HAD ON ITS OWN MADE A DISALLOWANCE OF RS.8. 59 CRORES,THAT IT HAD NETTED THE INTEREST EXPENDI -TURE,THAT THE SHARE CAPITAL,RESERVES AND S URPLUS OF THE ASSESSEE WERE MUCH MORE THAN THE INVESTMENTS MADE.THEREFORE,IN OUR OPINION,THE A O WAS NOT JUSTIFIED IN MAKING ANY DISALLOWANCE UNDER THE HEAD INTEREST EXPENDITURE.TH E FAA HAS GIVEN A CATEGORICAL FINDING OF FACT THAT DISPUTED INCOME HAD BEEN TAXED TWICE. THE BASIC PRINCIPLE OF TAXATION STIPULATES THAT SAME INCOME SHOULD NOT BE TAXED TWO TIMES.WE FIND T HAT WHILE ADJUDICATING THE APPEAL FOR THE AY.2010-11,THE TRIBUNAL HAD DECIDED IDENTICAL ISSUE AS UNDER: 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE FA CTUAL 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 DEPOSITS TO ITS SUBS IDIARY COMPANIES. THE ASSESSEE HAS PAID INTEREST OF RS.5,01,33,720/- AND RECEIVED INTEREST OF RS.1,45,58,493/- ON INTER CORPORATE DEPOSITS. THE ASSESSEE SUO MOTTO DISALLOWED NET INT EREST EXPENDITURE OF RS.3,55,75,227/- (RS.5,01,33,720/- - RS,1,45,58,493). THE A.O DISALL OWED INTEREST U/S. 36(1)(III) OF THE ACT, ON THE GROUND THAT ASSESSEE HAS DIVERTED ITS INTEREST BEARING FUNDS TO SUBSIDIARIES. IT IS THE CONTENTION OF THE ASSESSEE THAT INTEREST PAID ON IC D CANNOT BE DISALLOWED U/S. 36(1)(III) OF THE ACT, ON THE GROUND OF COMMERCIAL EXPEDIENCY AS THE ASSESSEE HAS GIVEN INTER CORPORATE DEPOSITS TO ITS SUBSIDIARIES COMPANIES. THE ASSESSE E FURTHER CONTENDED THAT ONCE IT IS ACCEPTED THAT FUNDS ADVANCED TO SUBSIDIARIES ARE FOR THE PUR POSE OF BUSINESS, THEN ENTIRE INTEREST MUST 5321/M/15 MAHINDRA ENGINEERING & CHEMICAL PRODUCTS LTD. 3 BE ALLOWED U/S.36(1)(III) OF THE ACT. THE ASSESSEE 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, THEREFO RE THE ENTIRE INTEREST PAID ON ICD OUGHT TO BE ALLOWED. 7. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATER IAL ON RECORD, WE FIND NO MERITS IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THE A SSESSEE ITSELF ACCEPTED INTER CORPORATE DEPOSITS ARE NOT EXTENDED IN THE NORMAL COURSE OF I TS BUSINESS AND HENCE, THE QUESTION OF COMMERCIAL EXPEDIENCY DOESNT COME IN THE WAY OF DI SALLOWANCE 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 C OMMERCIAL ADVANCES IN THE NORMAL COURSE OF ITS BUSINESS. 8. COMING TO THE ALTERNATIVE ARGUMENT OF THE ASSESS EE. THE ASSESSEE MADE A ALTERNATIVE SUBMISSIONS TO THE EFFECT THAT THE ASSESSEE ITSELF HAS DISALLOWED NET INTEREST EXPENDITURE AFTER REDUCING INTEREST RECEIVED ON INTER CORPORATE DEPOS ITS 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, FOR THE REASON THAT THE ASSESSEE HAS PAID INTEREST OF RS.5,01,33,720/- ON I NTER CORPORATE DEPOSITS. THE ASSESSEE ALSO RECEIVED INTEREST INCOME OF RS.1,45,58,493/- FROM I NTER CORPORATE DEPOSITS. THE ASSESSEE HAS SUO MOTTO DISALLOWED NET INTEREST EXPENDITURE OF 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 CI T(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 EXP ENDITURE U/S. 36(1)(III) OF THE ACT. CONSIDERING THE ABOVE,WE ARE OF THE OPINION THAT TH E ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY.SO,CONFIRMING IT,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT, APPE AL FILED BY THE AO STANDS DISMISSED. ! . PRONOUNCED IN THE OPE N COURT ON 10 TH ,AUGUST, 2017. 10 , 2017 SD/- SD/- ( / RAM LAL NEGI ) ( '#$ / RAJENDRA ) # %& / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 10.08 .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 I BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.