ASST CIT CIR 6(1), MUMBAI V. ION EXCHANGE (INDIA ) LTD, MUMBAI

ITA 5334/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75525 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2008-2009
• Appeal Filed On: 01-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Transfer pricing; International transaction; Earning of tax free income; Wholly owned subsidiary; Scheme of amalgamation; Notional interest; Commercial expediency
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K MUMBAI . . , / , ! ' # BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER . / ITA NO. 5109/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 ION EXCHANGE (I) LTD., IN HOUSE, 4 TH FLOOR, DR. E.MOSES RD., MAHALAXMI, MUMBAI 400011 / VS. THE ADDL. CIT 6 (1) AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 & ! ./ '( ./ PAN/GIR NO. : AAACI 1726L ( &) / APPELLANT ) .. ( *+&) / RESPONDENT ) . / ITA NO. 5334/MUM/2012 % % % % / ASSESSMENT YEAR 2008-09 THE ADDL. CIT 6(1), AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020. / VS. ION EXCHANGE (I) LTD., IN HOUSE, 4 TH FLOOR, DR. E.MOSES RD., MAHALAXMI, MUMBAI 400011 & ! ./ '( ./ PAN/GIR NO. : AAACW 2067L ( &) / APPELLANT ) .. ( *+&) / RESPONDENT ) ASSESSEE BY : SHRI PRV RAGHAVAN RESPONDENT BY : SHRI ABHINAY KUMBHAR , -.! / DATE OF HEARING : 10/02/2014 /0% , -.! / DATE OF PRONOUNCEMENT : 10/02/2014 . / ITA NO. 5109&5334/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 2 1 / O R D E R PER I.P.BANSAL,J.M: THESE CROSS APPEALS ARE DIRECTED AGAINST ORDER DATED 21/05/2013 PASSED BY LD. CIT(A)-15, MUMBAI FOR ASSESSMENT YE AR 2008-09. GROUNDS OF APPEAL READ AS UNDER: GROUNDS OF ASSESSEES APPEAL: 1. ADDITION ON A/C OF IMPUTED INTEREST ON LOANS / A DVANCES TO FOREIGN AES :- THE HONBLE COMMISSIONER OF INCOME-TAX (APPEALS) 15 , MUMBAL (THE LEARNED CITA) HAS ERRED IN LAW AND ON FACTS, VIDE PARAGRAPH 4.5 AT PAGE NOS.9 TO 11 OF HIS APPELLATE ORDER, IN DIRECTING THE AO TO CONSIDE R THE INTEREST ON FOREIGN AES LIBOR PLUS 250 BASIS POINT AND/OR LIBOR P/US 150 BA SIS POINTS ON THE ADVANCES. 2. DISALLOWANCE U/S 14A:- A. THE LEARNED CITA HAS ERRED IN LAW AND ON FACTS, VIDE PARAGRAPH 5 AT PAGE NO.11 TO 16 OF HIS APPELLATE ORDER, IN UPHOLDING AC S CALCULATION OF AN AMOUNT OF RS.408,412/- TOWARDS EXPENDITURE INCURRED U/S 14A F OR A DIVIDEND INCOME OF RS.900,459/- B. WITHOUT PREJUDICE, IT IS SUBMITTED, THAT AT THE MOST THE AO, IN ORDER TO JUSTIFY A VERY SMALL AND NEGLIGIBLE AMOUNT OF TIME, EFFORT AN D EXPENDITURE IS REQUIRED TO EARN DIVIDEND INCOME, SHOULD HAVE DISALLOWED O.5% O F SUCH EXEMPT INCOME. C. WITHOUT PREJUDICE, IT IS SUBMITTED, THAT AT THE MOST THE AO, SHOULD HAVE FOLLOWED THE PRECEDENCE OF AY 20072008 IN YOUR APP ELLANTS OWN CASE. D. IN DOING SO, THE CITA HAS OVERLOOKED THE FACT TH AT THE AC HAD ALREADY DISALLOWED CERTAIN EXPENSES OF INTEREST ON THE SO-C ALLED INVESTMENTS IN SHARES OUT OF BORROWED FUNDS AND, THUS, THIS DISALLOWANCE IS A DOUBLE JEOPARDY. 3. DISALLOWANCE OF INTEREST FREE ADVANCES TO SUBSID IARY COMPANIES / DISALLOWANCE OF INTEREST EXPENDITURE ON INVESTMENT FOR CONTROLLING INTEREST :- A. THE LEARNED CITA HAS ERRED IN LAW AND ON FACTS I N UPHOLDING, VIDE PARAGRAPH 6 AT PAGE 17 TO 21 OF HIS ORDER, THE DISALLOWANCE OF RS.238,580/- INCURRED ON INTEREST ON FUNDS BORROWED BY IT, WHICH DO NOT APPE AR TO HAVE BEEN DEPLOYED FOR THE PURPOSES OF THEIR BUSINESS BUT UTILISED FOR LEN DING TO YOUR APPELLANTS GROUP COMPANIES AND SUBSIDIARIES. B. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN OVERLOOKING YOUR APPELLANTS CONTENTION THAT IN PARA 7 OF THE ASSES SMENT ORDER, THE AO HAS EXTENSIVELY DISCUSSED CERTAIN COURT DECISIONS WIT HOUT DISCUSSING THE SAME AT THE TIME OF ASSESSMENT PROCEEDINGS. THE LEARNED CITA HA S NOT DISPOSED OFF THIS . / ITA NO. 5109&5334/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 3 GROUND EVEN THOUGH THE SAME IS APPEARING IN HIS APP ELLATE ORDER AT PARA 6.3.11. AT PAGE 20. C. THE LEARNED CITA HAS ERRED IN LAW AND ON FACTS I N UPHOLDING, VIDE PARAGRAPHS 7 AT PAGE NO.21 TO 23 OF HIS ORDER, THE DISALLOWANC E OF RS. 19,63,590/- MADE BY THE ITO ON INTEREST EXPENDITURE BEING CAPITAL IN NA TURE ATTRIBUTABLE TO INVESTMENT IN SUBSIDIARIES FOR CONTROLLING INTEREST. D. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN OVERLOOKING YOUR APPELLANTS CONTENTION THAT IN PARA 8 OF THE ASSESSM ENT ORDER, THE AO HAS EXTENSIVELY DISCUSSED CERTAIN COURT DECISIONS WITHO UT DISCUSSING THE SAME AT THE TIME OF ASSESSMENT PROCEEDINGS. THE LEARNED CITA HA S NOT DISPOSED OFF THIS GROUND EVEN THOUGH THE SAME IS APPEARING IN HIS APP ELLATE ORDER AT PARA 7.3.II. AT PAGE 23. E. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE EVIDENCE OF THE ORDER OF THE HONBLE BOMBAY HIGH CO URT DATED APRIL 04, 2000, ALONG WITH THE SCHEME OF AMALGAMATION OF HYDRANAUTI CS MEMBRANES INDIA LIMITED AND ION EXCHANGE FINANCE LIMITED WITH YOUR APPELLANTS. F. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE FACT IN THE ABSENCE OF ESTABLISHING ANY CLEAR NEXUS THAT THE BORROWED FUND S WERE USED FOR MAKING THE SAID ADVANCE, IT CANNOT BE SAID THAT THE BORROWED F UNDS WERE USED FOR MAKING THE SAID ADVANCE. 4. ADDITION ON ACCOUNT OF INTEREST ON BORROWED CAPI TAL TOWARDS CAPITAL WORK IN PROGRESS: A. THE LEARNED CITA HAS ERRED IN LAW AND ON FACTS, VIDE PARAGRAPH 9 AT PAGE NOS.25 TO 27 OF HIS APPELLATE ORDER, IN UPHOLDING T HE DISALLOWANCE OF RS.39,024/- TOWARDS INTEREST PAID ON BORROWED FUND TOWARDS CAPI TAL WORK IN PROGRESS. B. THE LEARNED CITA HAS ERRED IN LAW AND ON FACTS, VIDE PARAGRAPH 9.4.11 AT PAGE NOS.27 OF HIS APPELLATE ORDER, IN HOLDING THAT HON BLE SUPREME COURTS DECISION IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS CI T (1997) 227 ITR 172 (SC) IS NOT APPLICABLE IN YOUR APPELLANTS CASE. 5. GENERAL - THE LEARNED CITA HAS ERRED IN LAW AND ON FACTS, VIDE PARAGRAPH 12 AT PAGE NO.30 OF HIS APPELLATE ORDER, IN HOLDING TH AT THE MISTAKE IN DATE OF NOTICE OF DEMAND COULD BE CLERICAL / TYPOGRAPHICAL ERROR A ND THE SAME DOES NOT MAKE EITHER THE ASSESSMENT ORDER OR THE DEMAND NOTICE AS EITHER ERRONEOUS OR IN VALID. GROUNDS OF REVENUES APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN NOT CONSIDERING THE FACT THAT CHARGING THE ARMS LE NGTH INTEREST AT 6 MONTHS LIBOR + BASIS POINTS IS IN CONGRUOUS AS IT L EADS TO DISTORTION OF THE ESTIMATION OF THE RISK ASSUMED BY THE ASSESSEE. . / ITA NO. 5109&5334/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 4 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A) ERRED IN FACT AND LAW WHILE BENCHMARKING THE IMPUTED INTERES T ON INTEREST FREE LOANS BY RELYING UPON THE RBIS CIRCULAR IN RESPECT OF EXTERNAL COMMERCIAL BORROWINGS (ECB), WHICH DOES NOT TAKE IN TO ACCOUNT THE GEOGRAPHICAL PERSPECTIVE OF THE INTERNATIONAL TRANS ACTIONS AND VIOLATES THE VERY SPIRIT OF TRANSFER PRICING PROVISIONS. 2. GROUND NO.1 OF THE ASESSEES APPEAL AND THE GROU ND RAISED BY THE REVENUE ARE RELATING TO COMMON ISSUE OF T.P. ADJUST MENT OF RS.18,227,199/-. THE ASSESSEE LENT VARIOUS AMOUNTS TO ITS AES AS UND ER: S.NO. NAME OF THE AE LOAN GIVEN (RS.) OUTSTANDING (RS.) 1. ION EXCHANGE ASIA PACIFIC LTD., SINGAPORE 10,26,772/- 10,26,772/- 2. IEI ENVIRONMENTAL MANAGEMENT MALAYSIA 6,26,501/- 6,26,501/- 3. IEI ENVIRONMENTAL MANAGEMENT BANGLADESH 12,64,029/- 12,64,029/- 4. ION EXCHANGE LLC, USA 1,59,00,911/- 1,59,00,911 5. ION EXCHANGE & CO. 3000/- 3000/- 2.1 THE ASSESSEE IN ITS REPORT COMPUTED A DISALLOWA NCE OF RS.10,19,842/- ON ACCOUNT OF NOTIONAL INTEREST ON THESE LOANS. WHILE EXAMINING THESE TRANSACTIONS FOR THE PURPOSE OF ARMS LENGTH PRICE(A LP) TPO HAS COMPUTED THE ALP AT RS.28,47,041/- BY TAKING INTEREST @ 17.26%. AFTER REDUCING THE AMOUNT ADDED BY THE ASSESSEE OF A SUM OF RS.10,19, 842/- BALANCE AMOUNT OF RS.18,27,199/- WAS TREATED AS AN ADJUSTMENT ON THA T ACCOUNT. THE FINAL ANALYSIS OF ADJUSTMENT MADE BY TPO IS SHOWN IN THE FOLLOWING TABLE WHICH IS DESCRIBED AT PAGE 8 OF THE ORDER OF LD. CIT(A). INTEREST OFFERED BY THE ASSESSEE @LIBOR+1%(4.5 +1)% RS.10,19,842/- ARMS LENGTH INTEREST RATE RS. 17.26% P.A. ARMS LENGTH PRICE @17.26 P.A. ON LOAN AS COMPUTED BY THE ASSESSEE. RS. 28,47,041/- SHORTFALL BEING ADJUSTMENT U/S.92CA RS. 18,27,19 9/- . / ITA NO. 5109&5334/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 5 THE ADDITION WAS AGITATED IN AN APPEAL FIELD BEFORE LD. CIT(A). 2.2 THE AFOREMENTIONED RATE OF 17.26% HAS BEEN COMP UTED BY TPO BASED ON LIBOR+ ADJUSTMENT FOR CREDIT RATING OF THE A.E, TRA NSACTION AND FOR LOAN GIVEN WITHOUT SECURITY. THE ASSESSEE DISPUTED SUCH COMPU TATION ON THE BASIS THAT THE INTEREST RATE APPLIED BY THE TPO IS BASED ON HY POTHETICAL ASSUMPTION OF CREDIT RATING OF THE AE AND ASSUMPTION COST OF TRAN SACTION, PREMIUM OVER LIBOR TOWARDS RISK ETC. IT WAS PLEADED THAT CREDIT RATING ASSUMPTION BY THE TPO WAS PURELY BASED ON PROFIT OF THE AE FOR THE YE AR UNDER CONSIDERATION AS THE RATIO CONSIDERED BY PBIT TO INTEREST. CONSID ERING SUCH SUBMISSION OF THE ASSESSEE LD. CIT(A) HAS FOUND THAT THE STANDALONE F ACTOR ADOPTED BY THE TPO FOR ARRIVING AT THE CREDIT RATING OF A COMPANY M AY NOT GIVE APPROPRIATE RESULT AS THE SAME DOES NOT CONSIDER ASSETS HELD AND FUTUR E PROSPECTS/BUSINESS AND CORRESPONDING RISK AND RETURN. SUCH CREDIT RATING ASSIGNMENT IS DONE BY THE EXPERTS TAKING INTO ACCOUNT A VARIOUS FACTORS AND NOT ALONE THE RATIO OF PBIT/INTEREST. ACCORDINGLY, LD. CIT(A) HAS HELD TH AT CREDIT RATING ASSIGNED BY TPO ARE NOT ACCEPTABLE AND CONSEQUENTLY THE BENCH MARKING CONSIDERING THE CORRESPONDING YIELD OR INTEREST RATE FOR FIVE YEAR S UNSECURED BOND WOULD NOT BE JUSTIFIABLE. ACCORDING TO LD. CIT(A) WHEN THE M ONEY IS LENT THE INTEREST RATES APPLICABLE SHOULD LIBOR BASED WHICH ALSO FIND SU PPORT FROM THE DECISIONS OF ITAT. IT WAS OBSERVED BY LD. CIT(A) THAT TPO IN HIS ORDER ALSO HAS CONSIDERED EVEN LIBOR RATE AND ARRIVING AT THE INTE REST RATE TO BE CHARGED AT LIBOR + 650 BASIS POINT + 300 BASIS POINTS (TRANSAC TION COST). LD. CIT(A) HAS FURTHER FOUND THAT IT WAS THE SUBMISSION OF THE ASS ESSEE THAT LOAN GIVEN BY THE ASSESSEE TO ITS AE HAVE NO TRANSACTION COST AND IT WAS OBSERVED BY LD. CIT(A) THAT TPO DID NOT GIVE ANY COMPARABLE CIRCUMSTANCES TO ARRIVE AT 650 BASIS POINTS MORE THAN ON LIBOR AND FURTHER 300 BASIS POI NTS ON ACCOUNT OF TRANSACTION COST. CONSIDERING ALL THESE FACTS LD. CIT(A) ARRIVED AT A FINDING THAT SUITABLE BENCHMARK IN THE CASE OF THE ASSESSEE WITH REGARD TO IMPUGNED TRANSACTION WILL BE THE RATE PRESCRIBED BY RBI FOR ECB. ACCORDINGLY, HE HAS . / ITA NO. 5109&5334/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 6 GIVEN THE DIRECTION TO THE AO TO ADOPT LIBOR RATE AS PER RBIS MASTER CIRCULAR NO.02/2007-08 DATED 2/7/2007 ON EXTERNAL COMMERCIA L BORROWINGS (ECB) PROVIDED THAT ALL IN COST CEILING FOR ECB WITH AVER AGE MATURITY PERIOD OF THREE YEARS AND UP TO 5 YEARS IS TO BE SIX MONTHS LIBOR + 150 BASIS POINTS AND FOR PERIOD MORE THAN FIVE YEARS THE RATE IS SIX MONTHS LIBOR +250 BASIS POINTS. ACCORDINGLY, LD. CIT(A) DIRECTED THE AO/TPO TO WORK OUT THE AMOUNT OF ADJUSTMENT TOWARDS THE INTEREST CHARGEABLE ON LOA NS GIVEN BY THE ASSESSEE TO ITS AES BY CONSIDERING RATE OF INTEREST PROVIDED IN THE AFOREMENTIONED CIRCULAR DEPENDING UPON THE TERM/PERIOD OF LOAN GIVEN BY THE ASSESSEE TO ITS AE. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE WAS PARTLY ALLOWED. 2.3 THE DEPARTMENT IN ITS APPEAL IS AGITATING THE AFOREMENTIONED DIRECTION OF LD. CIT(A) AND ASSESSEE IN ITS APPEAL IS CONTEND ING THAT THE DISALLOWANCE MADE BY THE ASSESSEE SHOULD ONLY BE MADE AND BALAN CE DISALLOWANCE SHOULD BE DELETED. 2.4 WE HAVE HEARD BOTH PARTIES ON THIS ISSUE AND W E FOUND THAT LD. CIT(A) HAS RIGHTLY HELD THAT ACCORDING TO AFOREMENTIONED MASTER CIRCULAR ISSUED BY RBI THE ALP OF IMPUGNED INTERNATIONAL TRANSACTIONS SHOULD BE WORKED OUT. WE FOUND THAT SUCH VIEW TAKEN BY LD. CIT(A) HAS BEEN C ONSISTENTLY FOLLOWED BY ITAT AS IS OBSERVED BY LD. CIT(A) IN HIS ORDER. T HEREFORE, WE DECLINE TO INTERFERE IN SUCH DIRECTIONS ISSUED BY LD. CIT(A). ACCORDINGLY, THIS GROUND OF THE ASSESSEES APPEAL AS WELL AS DEPARTMENTAL APPEA LS ARE DISMISSED. 3. GROUND NO.2 OF ASSESSEES APPEAL RELATES TO DISA LLOWANCE MADE UNDER SECTION 14A R.W.R. 8D. RULE 8D IS APPLICABLE W.E. F. A.Y 2008-09. WHILE COMPUTING THE DISALLOWANCE AS PER RULE 8D TWO COMPO NENTS HAVE BEEN TAKEN INTO CONSIDERATION. DISALLOWANCE ON ACCOUNT OF IN TEREST IS COMPUTED AT RS.2,97,957/- AND DISALLOWANCE ON ACCOUNT OF EXPENS ES HAS BEEN COMPUTED AT RS.1,10,455/-. THE AGGREGATE OF BOTH THESE AMO UNTS I.E. A SUM OF RS. . / ITA NO. 5109&5334/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 7 4,08,412/- IS DISALLOWED BY FOLLOWING RULE 8D. THE TOTAL DIVIDEND RECEIVED BY THE ASSESSEE IS A SUM OF RS.9,00,459/-. THE DISALL OWANCE WAS AGITATED ON THE GROUND THAT ASSESSEE DID NOT INCUR ANY EXPENDITURE TO EARN THIS INCOME. IT HAS BEEN MENTIONED BY THE AO IN THE ASSESSMENT ORDER T HAT MONEY HAS COST IRRESPECTIVE OF WHETHER IT IS ONES OWN MONEY OR BOR ROWED MONEY. WHEN ONE USES BORROWED MONEY MAKES NO REAL DIFFERENCE IN AS MUCH AS BOTH OF THEM HAVE COST AND IF THEY HAVE COST, WHICH THEY DO HAVE , THE SAME WOULD HAVE TO BE ALLOCATED TO THE ACTIVITY FOR WHICH THEY ARE UTILIZ ED BECAUSE THEY ARE INCURRED IN RELATION TO THAT ACTIVITY. ACCORDINGLY, THE AO REJE CTED THE SUBMISSION OF THE ASSESSEE THAT NO COST WAS INCURRED TO EARN THE TAX FREE INCOME. THE DISALLOWANCE WAS AGITATED IN AN APPEAL FILED BEFORE LD. CIT(A). HOWEVER, LD. CIT(A) HAS UPHELD THE DISALLOWANCE REJECTING THE CO NTENTIONS OF THE ASSESSEE. THE ASSESSEE IS AGGRIEVED, HENCE, HAS FILED THE AF OREMENTIONED GROUND. 3.1 AFTER NARRATING THE FACTS, THE LD. AR SUBMITTED THAT ASSESSEE HAS SUFFICIENT OWN FUNDS TO MAKE THE INVESTMENT FROM WH ERE THE TAX FREE INCOME HAS BEEN EARNED. HE SUBMITTED THAT EVEN CURRENT Y EARS INCOME IS SUFFICIENT TO SATISFY THE INVESTMENT MADE BY THE ASSESSEE AS THE CURRENT YEARS INCOME IS TO THE EXTENT OF RS.9,96,59,710/-. THUS HE SUBMITTED THAT NO DISALLOWANCE SHOULD HAVE BEEN MADE ON ACCOUNT OF INTEREST. SO F AR AS IT RELATES TO OTHER EXPENSES HE SUBMITTED THAT ASSESSEE DID NOT INCUR SUCH EXPENDITURE AND THE ADDITION IN ITS ENTIRETY SHOULD BE DELETED. 3.2 ON THE OTHER HAND, IT WAS SUBMITTED BY LD. DR T HAT RULE 8D IS IN FORCE FOR THE YEAR UNDER CONSIDERATION AND, THEREFORE, DI SALLOWANCE HAS TO BE COMPUTED AS PER RULE-8D. LD. DR SUBMITTED THAT DIS ALLOWANCE UPHELD BY LD. CIT(A) IS IN ACCORDANCE WITH LAW. 3.3 WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TIONS HAVE CAREFULLY BEEN CONSIDERED. FROM THE ORDER OF AO AND LD. CIT(A) W E HAVE FOUND THAT IT WAS . / ITA NO. 5109&5334/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 8 THE CONTENTION OF ASSESSEE THAT IT DID NOT INCUR I NTEREST EXPENDITURE FOR THE PURPOSE OF MAKING INVESTMENT OUT OF WHICH THE ASSE SSEE HAS EARNED TAX FREE INCOME. SUCH CONTENTION HAS NOT BEEN EXAMINED BY E ITHER OF THEM. THEREFORE, TO THE EXTENT IT RELATES TO DISALLOWANCE OF INTERE ST WE CONSIDER IT JUST AND PROPER TO RESTORE THIS ISSUE TO THE FILE OF AO WITH DIRECTION TO RE-EXAMINE THE DISALLOWANCE TO THAT EXTENT. SO FAR AS IT RELAT ES TO ANOTHER COMPONENT WHICH RELATES TO OTHER EXPENSES, WE UPHOLD THE SAME. ACC ORDINGLY, GROUND NO.2 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 4. APROPOS GROUND NO.3 , IT WAS SUBMITTED BY LD. AR SUBMITTED THAT THE ISSUE HAS TO BE RESTORED BACK TO THE FILE OF AO AS SIMILAR ISSUE WAS RESTORED BACK BY ITAT IN RESPECT OF ASSESSMENT YEAR 2005-06 AND 2007-08. REFERENCE IN THIS REGARD WAS MADE TO THE ORDER DATED 30/4/201 3 PASSED IN ITA NO.249 & 250/MUM/2012. THE ISSUE HAS BEEN DISCUSSED BY TH E TRIBUNAL AS PER FOLLOWING OBSERVATIONS:- 2. VIDE THE FIRST GROUND OF APPEAL FOR BOTH THE YEARS, THE ASSESSEE CONTESTS THE DISALLOWANCE OF INTEREST IMPUTED ON INTEREST-FREE A DVANCE TO A SUBSIDIARY COMPANY, AS WELL AS THE DISALLOWANCE OF INTEREST ON INVESTMENTS FOR ACQUIRING CONTROLLING INTEREST IN SUCH COMPANIES. 3. AT THE VERY OUTSET, PLACING A COPY OF THE ORDER BY THE TRIBUNAL IN ITS OWN CASE FOR AN EARLIER YEAR (IN ITA NO.7381/MUM/2007 DATED 27.0 2.2009 FOR A.Y. 2004-05), IT WAS SUBMITTED BY THE LD. AR THAT THE SAID ISSUE IS ARIS ING CONSISTENTLY IN ITS CASE SINCE THE PAST. EVEN THE INVESTMENTS UNDER REFERENCE ARE AS M ADE IN THE PAST AND CARRIED OVER AS SUCH. THE TRIBUNAL HAS, IN VIEW OF THE DECISION BY THE APEX COURT IN THE CASE OF S. A. BUILDERS LTD. V. CIT(APPEALS) (2007) 288 ITR 1 (SC) , RESTORED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER (A.O.) FOR CONSIDERATION A FRESH IN LIGHT OF THE SAME. ON BEING ENQUIRED AS TO THE PARENT ORDER; THE TRIBUNAL FOR A .Y. 2004-05 FOLLOWING ITS EARLIER ORDER FOR A.Y. 2002-03 (IN ITA NO.59/MUM/2007 DATED 18.12 .2008), HE EXPRESSED HIS INABILITY TO FURNISH THE SAME, THOUGH WOULD STATE THAT THE MA TTER IN FACT DATES BACK TO EVEN AN EARLIER PERIOD, I.E., A.YS. 1997-98 AND 1998-99, AS WOULD BE APPARENT FROM PARA # 3 OF THE TRIBUNALS ORDER PLACED ON RECORD. THE LD. DR, ON THE OTHER HAND, DID NOT RAISE ANY OBJECTION TO THE SAID PROPOSITION BY THE LD. AR. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 4.1 THE PRIMARY FACTS ARE NOT IN DISPUTE. AS WE GATHER FROM THE ORDERS BY THE REVENUE AUTHORITIES, THE ASSESSEE HAS ADVANCED RS.79 LAKHS TO ITS SUBSIDIARY, M/S. ION EXCHANGE ENVIRO FARMS LTD. (IEEFL) ON INTEREST FREE BASIS IN AN EARLIER YEAR, WHICH CONTINUES TO . / ITA NO. 5109&5334/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 9 OUTSTAND FOR THE CURRENT YEAR/S AS WELL, CLAIMING T HE SAID LOAN TO BE FOR NON-BUSINESS PURPOSE AND, FURTHER, ADVANCED FROM INTEREST BEARIN G BORROWED FUNDS. THE ASSESSING OFFICER (A.O.), THUS, EFFECTED THE DISALLOWANCE QUA INTEREST AT THE AVERAGE INTEREST RATE INCURRED BY THE ASSESSEE FOR THE RELEVANT YEAR/S, B EING AT 4.85% AND 3.6% P.A. FOR THE TWO SUCCESSIVE YEARS RESPECTIVELY. APART THERE-FROM , INVESTMENTS WORTH RS.230.53 LAKHS (FOR A.Y. 2005-06) AND RS.467.03 LAKHS (FOR A.Y. 20 07-08) STAND MADE IN SHARES FOR ACQUIRING CONTROLLING INTEREST IN SUBSIDIARY COMPAN IES. IN THE ABSENCE OF SPECIFIC DATA IN THE FORM OF CASH FLOW STATEMENT, OR THE ANALYSIS OF THE BALANCE-SHEET FOR THE RELEVANT YEARS, THE INVESTMENTS HAVE BEEN PRESUMED TO BE FIN ANCED FROM INTEREST BEARING BORROWED FUNDS AND, ACCORDINGLY, INTEREST DISALLOWE D FOR THE TWO YEARS AT RS.11.18 LAKHS AND RS.16.81 LAKHS RESPECTIVELY. 4.2 IT IS, THEREFORE, APPARENT THAT THE ASSESSEE S CONTENTION OF NO FRESH INVESTMENTS HAVING BEEN MADE FOR THE CURRENT YEARS, WHICH ONLY FLOW FROM AN EARLIER YEAR/S, IS ONLY TRUE FOR THE FIRST COMPONENT, I.E., THE INTEREST-FR EE ADVANCE OF RS.79 LAKHS TO IEEFL, A 100% SUBSIDIARY, WHICH (ADVANCE) IS FROM AN ASSESSM ENT YEAR PRIOR TO A.Y. 2001-02. FURTHER, THE MATTER HAVING BEEN RESTORED BACK BY TH E TRIBUNAL TO EXAMINE THE TRANSACTION FROM THE STAND POINT OF COMMERCIAL EXPEDIENCY FOR T HE EARLIER YEARS, IN VIEW OF THE DECISION BY THE APEX COURT IN THE CASE OF S. A. BUI LDERS LTD. (SUPRA), THE FIRST APPELLATE AUTHORITY CALLED FOR A REPORT FROM THE A.O. IN THE MATTER. THE GIST OF THE SAME, WHICH STANDS REPRODUCED BY HIM IN HIS ORDERS, STATES OF T HE ASSESSING AUTHORITY BEING NOT SATISFIED WITH REGARD TO THE EXPLANATION QUA COMMER CIAL EXPEDIENCY AS FURNISHED BY THE ASSESSEE. NO DETAILS OR EVIDENCE IN RESPECT OF THE SAID SUBSIDIARY COMPANY STAND FURNISHED, SO THAT IT WAS NOT CLEAR AS TO THE FINAN CIAL HARDSHIP BEING FACED BY THE LOANEE COMPANY EVER SINCE, AND HOW COULD, AS CONTENDED BEF ORE HIM BY THE ASSESSEE, IT BE CONSIDERED THAT THE SAME WAS REQUIRED FOR - AND CON TINUES TO HAVE - A STABILIZING EFFECT ON THE SAID COMPANY. COMMERCIAL EXPEDIENCY COULD ON LY MEAN FURTHERANCE OF ONES OWN BUSINESS, AND NOT HELPING THE ASSESSEES SISTER CON CERN, A SEPARATE COMPANY, IN THE EVENT OF A MISHAP, I.E., EVEN WHERE SO. WITH REGARD TO THE INVESTMENT IN THE SUBSIDIARY COMPANIES FOR GAINING CONTROLLING INTEREST, THE ASS ESSEES CLAIM OF THE SAME BEING OUT OF OWN FUNDS IS NOT SUPPORTED, THE INVESTMENTS HAVING BEEN MADE PRIOR TO THE PERIOD FOR WHICH THE CASH FLOW STATEMENTS STANDS SUBMITTED. IN ANY CASE, THE INTEREST ON THESE INVESTMENTS WAS REQUIRED TO BE CAPITALIZED INASMUCH AS THE INVESTMENT IS FOR CONTROLLING BUSINESS INTEREST IN A SUBSIDIARY, A CAPITAL ASSET BY DEFINITION. 4.3 THE LD. AR ON BEING QUESTIONED IN THE MATT ER WOULD STATE AT BAR THAT NO ASSESSMENT HAS BEEN MADE BY THE REVENUE FOR A.Y. 20 02-03 OR IN FACT FOR ANY OF THE YEARS. THE MATTER HAVING BEEN CONTINUOUSLY RESTORED BACK TO THE FILE OF THE A.O. BY THE TRIBUNAL, IT IS INCUMBENT FOR THE REVENUE TO TAKE A COMPREHENSIVE AND CONSISTENT VIEW OF THE MATTER. UNLESS THERE IS A CHANGE IN THE FACTS A ND CIRCUMSTANCES OF THE CASE, THE SAME VIEW WOULD THEN BE REQUIRED TO BE FOLLOWED BY IT YEAR AFTER YEAR. SECONDLY, THE FINANCING PATTERN WOULD HAVE TO BE REVIEWED FROM YE AR TO YEAR. THIS IS AS NOT ONLY FRESH INVESTMENTS HAVE BEEN MADE, BUT ALSO THAT THE FINAN CING POSITION BEING SUBJECT TO CHANGE, IT MAY WELL BE THAT THE INVESTMENT, HITHERT O FINANCED BY BORROWED CAPITAL, GETS SOURCED FROM OWN FUNDS ON THE INFLUX OF PROFITS OR A BUILT-UP OF RESERVES, ETC. THE MATTER, WE MAY CLARIFY, IS PURELY FACTUAL, AND THE ONUS TO ESTABLISH ITS CLAIM IS ON THE ASSESSEE. 4.4 UNDER THE CIRCUMSTANCES, THEREFORE, IN VIEW OF THE FOREGOING AS WELL AS IN LINE WITH THE ORDERS BY THE TRIBUNAL IN ASSESSEES CASE FOR THE EARLIER YEARS, THE MATTER IS . / ITA NO. 5109&5334/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 10 RESTORED BACK TO THE FILE OF THE A.O. FOR FRESH ADJ UDICATION AFTER AFFORDING A REASONABLE OPPORTUNITY OF HEARING TO STATE ITS CASE BEFORE HIM . WE DECIDE ACCORDINGLY. 4.1 IT WAS SUBMITTED THAT THERE IS NO DIFFERENCE IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AS WELL AS IN THE FACTS AND CIRCUMSTANCES OF THE AFOREMENTIONED ASSESSMENT YEARS. 4.2 HOWEVER, LD. DR RELIED UPON THE ORDER PASSED B Y LD. CIT(A). 4.3 AFTER HEARING BOTH THE PARTIES, AS IT HAS NOT B EEN POINTED OUT THAT THERE IS ANY DIFFERENCE IN FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, AND EARLIER YEARS DECIDED BY THE TRIBUNAL, RESPECTFULLY FOLLOW ING THE AFOREMENTIONED ORDER, WE RESTORE THIS ISSUE TO THE FILE OF AO WITH SIMIL AR DIRECTIONS AS HAVE BEEN GIVEN IN RESPECT OF ASSESSMENT YEAR 2005-06 AND 200 7-08. THIS GROUND OF THE ASSESSEE IS TREATED TO BE ALLOWED FOR STATISTICA L PURPOSES. 5. GROUND NO.4 OF ASSESSEES APPEAL. THIS ISSUE IS DISCUSSED BY THE AO IN PARA 10 OF THE ASSESSMENT ORDER. THE ASSESSEE BORR OWED LOANS FROM EXIM BANK FOR EXPANSION OF RESIN MANUFACTURING UNDERTA KING AT ANKELSHWAR. REFERRING TO PROVISO TO SECTION 36(1)(III) THE AO O BSERVED THAT INTEREST PAID FOR EXPANSION OF EXISTING BUSINESS HAS TO BE TO BE DISA LLOWED. NOTING THAT WORK-IN- PROGRESS WAS SHOWN AT RS.4,59,111/- THE AO WORKED OUT INTEREST COST @ 8.5% AND DISALLOWED A SUM OF RS.39,024/-. 5.1 IT WAS SUBMITTED BY LD. AR THAT IT HAS BEEN C ASE OF THE ASSESSEE THAT WHILE COMPUTING WORK-IN-PROGRESS INTEREST RELATING TO BORROWED CAPITAL WAS CONSIDERED IN THE WORK-IN-PROGRESS AND THIS CONTENT ION OF THE ASSESSEE HAS NEVER BEEN CONSIDERED BY THE AO OR LD. CIT(A). IT WAS SUBMITTED BY LD. AR THAT THIS ISSUE SHOULD BE RESTORED BACK TO THE FILE OF AO WITH A DIRECTION TO EXAMINE SUCH CONTENTION OF THE ASSESSEE. . / ITA NO. 5109&5334/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 11 5.2 ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY LD. CIT(A). 5.3 WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTE NTIONS HAVE CAREFULLY BEEN CONSIDERED. SINCE WE ARE RESTORING OTHER ISSU ES TO THE FILE OF AO, THEREFORE, IN THE INTEREST OF JUSTICE THIS ISSUE I S ALSO RESTORED BACK TO THE FILE OF AO FOR RE-ADJUDICATION WITH A DIRECTION TO GIVE APP ROPRIATE OPPORTUNITY TO THE ASSESSEE TO BRING ALL FACTS ON RECORDS. AFTER BRIN GING ALL FACTS ON RECORD, THIS ISSUE WILL BE RE-ADJUDICATED BY THE AO AS PER LAW. THIS GROUND IS TREATED TO BE ALLOWED FOR STATISTICAL PURPOSES. 6. IN THE RESULT APPEAL FILED BY THE REVENUE IS DIS MISSED AND APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STAT ISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10/02/2014 1 , /0% ! 2 34 10/02/2014 0 , 5 # SD/- SD/- ( / N.K.BILLAIYA ) ( . . / I.P. BANSAL ) ! / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 3 DATED 10/02/2014 1 1 1 1 , ,, , *- *- *- *- 6%- 6%- 6%- 6%- / COPY OF THE ORDER FORWARDED TO : 1. &) / THE APPELLANT 2. *+&) / THE RESPONDENT. 3. 7 ( ) / THE CIT(A)- 4. 7 / CIT 5. 85 *- , , / DR, ITAT, MUMBAI 6. 59 : / GUARD FILE. 1 1 1 1 / BY ORDER, +- *- //TRUE COPY// ; ;; ; / < < < < ' ' ' ' (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI