MAPE ADVISORY GROUP P.LTD, MUMBAI V. DCIT 5(2)(2), MUMBAI

ITA 5392/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5909 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 21-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKASH KR AGARWAL
• Assessee Lawyers: R MURLIDHAR
• Keywords: Wholly owned subsidiary; Commercial expediency
• Section: 143(3); 142(1)

Judgement Text

, ,, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUM BAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER & SHRI RAM LAL NEGI, JUDICIAL MEMBER ./ ITA NO.5392/MUM/2017 ( / ASSESSMENT YEAR :2012-2013) MAPE ADVISORY GROUP PVT. LTD. 13/14 TH , 1 ST FLOOR, NIRLON HOUSE, DR. ANNIE BESANT ROAD, WORLI, MUMBAI - 400030 VS. DCIT-5(2)(2), MUMBAI ./PAN NO. : AACCM 8193 M ( /APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI R. MURLIDHAR, AR /REVENUE BY : SHRI VIKASH KR. AGARWAL, CITDR / DATE OF HEARING : 03/01/2019 /DATE OF PRONOUNCEMENT 15/01/2019 / O R D E R PER SHRI RAJESH KUMAR, AM : THIS APPEAL BY ASSESSEE ARISES OUT OF THE ORDER OF THE CIT(A) 10, MUMBAI, DATED 27.06.2017, WHICH IN TURN HAS ARISEN OUT OF THE ORDER PASSED BY THE ASSESSING OFFICER U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) RELATING TO A.Y. 2012-2013. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. DISALLOWANCE OF INTEREST U/S.36(1)(III) OF THE INCOME TAX ACT, 1961 OF AMOUNT OF RS.9,79,734/- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE OF RS.9,79,734/- BEING INTEREST EXPENSES INCURRED IN T HE COURSE OF BUSINESS. THEREFORE, THE APPELLANT PRAYS TO DELE TE THE DISALLOWANCE. 2. THE APPELLANT PRAYS CRAVES LEAVE TO, ALTER, AMEN D, ADD OR DELETE ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL WH ICH ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER ON OR BEFORE THE DATE OF HEARING. ITA NO.5392/17 2 3. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF FINANCIAL ADVISORY SERVICES AND FILED RETURN OF INC OME ELECTRONICALLY ON 27.09.2012 FOR THE YEAR UNDER CONSIDERATION DECLARI NG TOTAL INCOME OF RS.3,30,40,766/-. THEREAFTER THE ASSESSEE FILED REV ISED RETURN OF INCOME ON 29.03.2014 DECLARING TOTAL INCOME AT RS.3,30,40, 766/-, WHICH WAS PROCESSED U/S.143(1) OF THE ACT. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICES U/S.143(2) & 142(1) OF THE ACT ALONG WITH THE QUESTIONNAIRE WERE ISSUED AND SERVED ON TH E ASSESSEE. ON BEING ASKED THE ASSESSEE SUBMITTED THE DETAILS OF LOANS T AKEN AND INTEREST PAID ON THE SAME, HOWEVER, THE AO WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE WITH REGARD TO CLAIM OF INTEREST EXPEN SES AND ADDED THE ENTIRE INTEREST EXPENDITURE OF RS.9,79,734/- TO THE TOTAL INCOME OF THE ASSESSEE BY FRAMING ASSESSMENT U/S.143(3) OF THE AC T, VIDE ORDER DATED 20.03.2015. 4. IN THE APPELLATE PROCEEDINGS, LD. CIT(A) SUSTAIN ED THE ORDER OF AO BY OBSERVING THAT THE ASSESSEE COULD NOT PROVE ITS COMMERCIAL EXPEDIENCY TO SHOW THAT BY GIVING SUCH INTEREST-FRE E LOANS THERE IS SOME BENEFIT TO THE ASSESSEE COMPANY. THE CIT(A) FURTHER OBSERVED THAT IT IS IN FACT COMMERCIAL IMPROPRIETY TO BORROW FUNDS ON INTE REST AND DIVERT THEM TO SUBSIDIARY COMPANY WITHOUT CHARGING INTEREST FROM T HEM. 5. LD. AR BEFORE US SUBMITTED THAT SINCE THE ASSESS EE IS ENGAGED IN THE BUSINESS OF FINANCIAL ADVISORY AND MERCHANT BAN KING AND ADVANCED MONEY TO WHOLLY OWNED SUBSIDIARY COMPANY WITHOUT CH ARGING ANY INTEREST FROM THE SAID COMPANY AND THE MONEY WAS ADVANCED OU T OF COMMERCIAL ITA NO.5392/17 3 EXPEDIENCY ONLY TO WHOLLY OWNED SUBSIDIARY COMPANY I.E. MAPE SECURITIES PRIVATE LIMITED (MSPL), WHICH IS DOING S TOCK BROKING BUSINESS AND IS A MEMBER OF NSE AND BSE. THE STOCK BROKING B USINESS IS A CAPITAL INTENSIVE BUSINESS AND THE HOLDING COMPANY HAS TO R EGULARLY INFUSE FUNDS IN MSPL TO ENABLE IT TO EXECUTE MAXIMUM TRADES AND INCREASE REVENUES. THE ASSESSEE HAS ADVANCED MONEY TO PROTECT ITS INVE STMENTS AND BUSINESS INTEREST IN THE SAID SUBSIDIARY. THE AR RE LIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS VS. CIT (2007) 288 ITR 1 (SC). LD. AR ALSO DREW OUR ATTENTION TO THE C OPIES OF INVOICES ISSUED BY THE SUBSIDIARY COMPANY TO THE ASSESSEE. A COPY OF WHICH IS FILED AT PAGE 29 RAISING INVOICE FOR PROFESSIONAL S ERVICE RENDERED BY DEPLOYING STAFF FOR CORPORATE ADVISORY SERVICES AND ANALYTICAL SERVICES. LD. AR ALSO DREW OUR ATTENTION TO PAGES 46 TO 48, WHERE IN THE COPY OF AGREEMENT IS FILED AS ENTERED INTO BETWEEN THE SUBS IDIARY COMPANY MAPE SECURITIES PRIVATE LIMITED AND THE ASSESSEE WHEREB Y IT IS AGREED BETWEEN THE PARTIES THAT THE MAPE SECURITIES PVT. L TD. WOULD PROVIDE SERVICES TO THE ASSESSEE WHICH IS ENGAGED IN THE BU SINESS OF CORPORATE FINANCE, INVESTMENT BANKING, MERCHANT BANKING AND O THER ALLIED AND ASSOCIATED SERVICES FOR CORPORATE BY DEPLOYING STAF F FOR CORPORATE ADVISORY SERVICES AND RESEARCH/ANALYST RELATED SERVICES ETC. WHICH PROVES THAT THE ASSESSEE HAS BUSINESS INTEREST AND COMMERCIAL EXPE DIENCY IN ADVANCING THE SAID LOAN. LD. AR SUBMITTED THAT THE ASSESSEE OWNED FUNDS WERE FOR MORE THAN THE MONEY ADVANCED TO THE SUBSID IARY. LD. AR SUBMITTED THAT SHARE CAPITAL AND RESERVE OF THE COM PANY IS OF RS.298.27 ITA NO.5392/17 4 CRORES WHEREAS THE AMOUNT OF LOAN ADVANCED TO THE S UBSIDIARY COMPANY WAS ONLY TO THE TUNE OF RS.3.29 CRORES TO THE MAPE SECURITIES PVT. LTD.. LD.AR SUBMITTED THAT SINCE THE ASSESSEE OWNED FUNDS WERE FAR MORE, THAN FROM THE INTEREST FREE MONEY ADVANCED TO THE S UBSIDIARY COMPANY THE PRESUMPTION HAS TO BE DRAWN THAT THE ASSESSEE H AS ADVANCED MONEY OUT OF THAT OWN SOURCES AND NOT OUT OF THE BORROWED FUNDS. THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS :- I) CIT VS. CIT VS. RELIANCE UTILITIES AND POWER LT D. (2009) 313 ITR 340 (BOM); II) CIT VS. HDFC BANK LTD., (2014) 366 ITR 0505(BOM ); AND III) DCIT VS. ENERCON INDIA LTD., (2016) 48 ITR (TR IB) 0362 (MUMBAI) FINALLY, LD. AR SUBMITTED THAT SINCE THE CASE OF TH E ASSESSEE IS SQUARELY COVERED BY THE RATIO LAID DOWN IN THE ABOVE DECISIO NS BY THE HONBLE BOMBAY HIGH COURT AND THE COORDINATE BENCH OF THE T RIBUNAL, THE ADDITION MADE BY THE AO BE DELETED. 6. ON THE OTHER HAND, LD. DR RELIED ON THE ORDER OF LOWER AUTHORITIES. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD INCLUDING IMPUGNED O RDER. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE HAS PROVIDIN G ASSISTANCE TO THE TUNE OF RS.3.29 CRORES TO THE SUBSIDIARY WHICH IS P ROVIDING VARIOUS SERVICES BY WAY OF PROVIDING STAFF FOR CORPORATE AD VISORY SERVICES AND RESEARCH/ANALYST RELATED SERVICES ETC. AS REQUIRED BY THE ASSESSEE TO RENDER THE SERVICES TO ITS CLIENTS AN AGREEMENT TO THAT EFFECT IS ATTACHED AT PAGE 46 TO 48 OF THE PAPER BOOK. THUS, THERE IS A C OMMERCIAL EXPEDIENCY IN PROVIDING INTEREST FREE LOANS TO THE SUBSIDIARY WHICH CANNOT BE ITA NO.5392/17 5 DISALLOWED U/S.36(1)(III) OF THE ACT. BESIDES, WE A LSO FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT THE ASSESSEE HAS O WN FUNDS WERE TO THE TUNE OF RS.298.27 CRORES WHEREAS THE LOAN ADVANCED BY THE ASSESSEE WAS ONLY TO THE TUNE OF RS.3.29 CRORES. SINCE THE A SSESSEE HAS ADEQUATE FUNDS, THE PRESUMPTION HAS TO BE DRAWN THAT THE ASS ESSEE HAS ADVANCED MONEY TO THE SUBSIDIARY OUT OF THAT OWN FUNDS WHICH ARE INTEREST FREE AND NOT OUT OF THE INTEREST BEARING FUNDS. WE HAVE PERU SED THE VARIOUS DECISIONS REFERRED TO THE ABOVE IN CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. AND HDFC BANK LTD. (SUPRA) AND ALSO THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF EN ERCON INDIA LTD. (SUPRA), WHEREIN IT HAS BEEN HELD THAT WHERE THE IN TEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WERE FAR MORE THAN THE INVESTMENTS MADE THEN THE PRESUMPTION HAS TO BE DRAWN THAT THE ASSES SEE IS INVESTING MONEY OUT OF OWN INTEREST FREE FUNDS AND NOT OUT OF THE LOAN FUNDS. ACCORDINGLY, WE ARE NOT IN A POSITION TO AGREE WITH THE CONCLUSION DRAWN BY THE CIT(A) AND CANNOT SUSTAIN THE SAME. WE, THER EFORE, REVERSE THE ORDER OF CIT(A) AND DIRECT THE AO TO DELETE THE DIS ALLOWANCE MADE BY THE AO. ACCORDINGLY, GROUND OF APPEAL OF THE ASSESSEE I S ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 15/01/2019. SD/- ( R AM LAL NEGI ) SD/- (RAJESH KUMAR) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 15/01/2019 . . /PRAKASH KUMAR MISHRA , SR.PS. ITA NO.5392/17 6 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSISTANT REGISTRAR ) , / ITAT, MUMBAI 1. / THE APPELLANT- 2. / THE RESPONDENT- 3. ( ) / THE CIT(A), MUMBAI 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//