VIPULA J CHOKSI, MUMBAI V. ITO 8(3)(4), MUMBAI

ITA 6064/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3521 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 29-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A KUMBHAR
• Assessee Lawyers: AJAY R SINGH
• Keywords: Principle of natural justice; Proportionate interest; Commercial expediency; Capital expenditure
• Section: 143(3); 14A; 37; 56; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F, BENCH MUM BAI BEFORE SHRI JASON P. BOAZ, AM AND SHRI SANDEEP GOSA IN, JM ITA NO.6064/MUM/2014 (ASSESSMENT YEAR: 2011-12) VIPULA J. CHOKSI SIDDHI PRIYA BUILDING N.S. ROAD 4, JVPD SCHEME VILE PARLE (W) MUMBAI-400 056. VS. INCOME TAX OFFICER-8(3)-4 AAYKAR BHAVAN, MUMBAI-400 020. PAN: A CXPC2426M APPELLANT .. RESPONDENT APPELLANT BY S/SHRI AJAY R SINGH RESPONDENT BY S/SHRI A. KUMBHAR DATE OF HEARING: 03-05-2016 DATE OF PRONOUNCEMENT:25-05-2016 O R D E R PER SANDEEP GOSAIN,JUDICIAL MEMBER : THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER OF THE LEARNED CIT (A)-18, MUMBAI DATED 11-07 -2014 PASSED IN APPEAL NO.CIT(A)-18/ITO 8(3)(4)/IT-255/13-14 FOR AS SESSMENT YEAR 2011- 12 ON THE GROUNDS MENTIONED HEREIN BELOW:- 1.1 APPELLANT SUBMITS THAT THE LD. CIT(A) HAS ERR ED IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS. 16,96,8 98/ - THOUGH THE SAME WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INTEREST INCOME. APPELLANT THEREFORE PRAYS THAT THE SAID DIS ALLOWANCE OF INTEREST EXPENDITURE IS UNWARRANTED AND UNJUSTIFIED AND THE SAME BE DELETED. 2.1 APPELLANT SUBMITS THAT CIT(A) HAS ERRED IN HOL DING THAT AO HAS RIGHTLY DISALLOWED THE INTEREST OF RS.16,96,898/- PAID TO S ARASWAT CO-OP. BANK LTD. THEREFORE) APPELLANT PRAYS THAT THE CLAIM OF T HE ASSESSEE BE ALLOWED U/S 57 OF THE I.T. ACT, 1961 3.1 WITHOUT PREJUDICE TO THE ABOVE) APPELLANT SUBM ITS THAT SO AS TO KEEP THE SOURCE OF EARNING INTACT) THE EXPENDITURE SO WAS IN CURRED IN WHOLLY AND EXCLUSIVELY TO EARN FIXED DEPOSIT INTEREST INCOME. HENCE, APPELLANT PRAYS THAT INTEREST DEDUCTION BE ALLOWED AGAINST INTEREST INCOME. ITA NO.6064/MUM/2014 VIPULA J. CHOKSHI VS. ITO 2 4.1 WITHOUT PREJUDICE TO ABOVE) APPELLANT SUBMITS THAT CIT(A) HAD FAILED TO APPRECIATE THAT HAD ASSESSEE NOT MADE FIXED DEPOSIT AND OBTAINED OVERDRAFT) IT WOULD LENT THE MONEY DIRECTLY) IN WHI CH CASE THERE WOULD HAVE BEEN NO INTEREST INCOME ON FIXED DEPOSIT AND N O INTEREST EXPENSE ON OVERDRAFT. THEREFORE) MODE OF LENDING SHOULD NOT PREJUDICE THE APPELLANT'S CLAIM OF DEDUCTION. 5.1 WITHOUT PREJUDICE TO THE ABOVE, APPELLANT SUBM ITS THAT INTEREST INCOME OF RS. 17,86,597/- WAS EARNED FROM LOANS GIVEN AS AGAI NST THIS, INTEREST OF RS. 16)96)898/- WAS PAID BY THE ASSESSEE. APPELLANT SUBMITS THAT THE A.O HAS ERRED IN HOLDING THAT THERE IS NO NEXUS BET WEEN THE EXPENDITURE LAID OUT FOR THE PURPOSE OF EARNING SUCH INCOME. HE NCE) THE SAID DISALLOWANCE IS UNJUSTIFIED AND UNWARRANTED AND SAM E SHOULD BE DELETED. 6.1 WITHOUT PREJUDICE TO THE ABOVE APPELLANT SUBMI TS THAT SHE HAS NOT UTILIZED LOAN OF SARASWAT CO-OP BANK FOR ADVANCING IT TO INT EREST FREE FUNDS HENCE) CIT(A) HAS ERRED IN HOLDING THAT PRESENT CAS E IS SQUARELY COVERED BY THE ORDER PASSED BY LD. CIT(A) FOR A.Y 2009- 10. THEREFORE, THE SAID DISALLOWANCE IS UNJUSTIFIED AND SAME SHOULD BE DELE TED 6.1 APPELLANT SUBMITS THAT THE (IT (A) HAS NOT CON STRUED THE PROVISIONS OF LAW AND CASE LAWS ON THE SUBJECT) HENCE THE SAID DISALL OWANCES ARE CONTRARY TO THE PROVISIONS OF LAW AND THEREFORE IT SHOULD BE SET ASIDE. 7.1 APPELLANT CRAVES LEAVE TO ADD) ALTER) OMIT OR M ODIFY ANY OF THE GROUNDS OF APPEAL AS THE OCCASION MAY ARISE OR DEMAND. LATER ON, THE REVISED GROUNDS WERE ALSO FILED BY TH E ASSESEE WHICH ARE AS UNDER: 1.1 APPELLANT SUBMITS THAT CIT(A) HAS ERRED IN NOT ALLO WING SET-OFF OF THE INTEREST INCOME OF RS.19,46,578/- RECEIVED ON FIXED DEPOSIT KEPT WITH THE SARASWAT CO-OPERATIVE BANK AS AGAINST THE INTEREST PAID OF RS.16,96,890/- PAID TO SARASWAT CO-OPERATIVE BANK O N OVERDRAFT FACILITY OBTAINED FROM THE SAID BANK. 2.1 WITHOUT PREJUDICE TO ABOVE, APPELLANT SUBMITS T HAT CIT(A) HAD FAILED TO APPRECIATE THAT IF APPELLANT WOULD NOT HAVE MADE FI XED DEPOSIT AND OBTAINED OVERDRAFT, IT WOULD LENT THE MONEY DIRECTL Y, IN WHICH CASE THERE WOULD HAVE BEEN NO INTEREST INCOME ON FIXED DEPOSIT AND NO INTEREST EXPENSE ON OVERDRAFT. THEREFORE, MODE OF LENDING SH OULD NOT PREJUDICE THE APPELLANT'S CLAIM OF DEDUCTION. 3.1 IN ALTERNATIVE AND WITHOUT PREJUDICE TO ABOVE, THE APPELLANT IS IN THE BUSINESS OF MONEY LENDING AND CONSEQUENTLY, INTERES T PAID OF RS.16,96,890/- BE ALLOWED AS A DEDUCTION U/S 36(1)( III) OF INCOME TAX ACT, 1961. ITA NO.6064/MUM/2014 VIPULA J. CHOKSHI VS. ITO 3 4.1 APPELLANT CRAVES LEAVE TO ADD, ALTER, OMIT OR M ODIFY ANY OF THE GROUNDS OF APPEAL AS THE OCCASION MAY ARISE OR DEMAND. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE RETURN OF INCOME WAS E-FILED ON 30/07/2011 DECLARING TOTAL INCOME AT RS.28,45,75 0/-. THE SAME WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT,1961. LA TER ON THE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES U/S 143 (2) OF THE I.T. ACT WAS ISSUED AND DULY SERVED UPON THE ASSESSEE. AFTER SE EKING REPLY FROM THE ASSESSEE, ASSESSMENT ORDER U/S 143(3) OF THE I.T. A CT WAS PASSED BY AO THEREBY DISALLOWING INTEREST EXPENSES CLAIMED U/S 5 7 OF THE I.T. ACT AS WELL AS DISALLOWED EXPENDITURE U/S 14A OF THE I.T. ACT,1961. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT (A) AND THE LEARNED CIT (A) VIDE ORDER DATED 11.07.2014 DISMISSED THE APPEAL FILED BY THE ASSESEE. AGGRIEVE D BY THE ORDER OF THE LEARNED CIT (A), THE ASESSEE IS NOW IN APPEAL BEFOR E US ON THE AFOREMENTIONED GROUND. GROUND NO.1.1 3. THIS GROUND RELATES TO NOT ALLOWING SET OFF OF T HE INTEREST INCOME OF RS.19,46,578/- RECEIVED ON FIXED DEPOSIT KEPT WITH THE SARASWAT CO- OPERATIVE BANK AS AGAINST THE INTEREST PAID OF RS.1 6,96,890/- PAID TO SARASWAT CO-OPERATIVE BANK ON OVERDRAFT FACILITY OB TAINED FROM THE SAID BANK. AT THE VERY OUTSET, LD. AR APPEARING ON BEHAL F OF ASSESSEE ITA NO.6064/MUM/2014 VIPULA J. CHOKSHI VS. ITO 4 SUBMITTED BEFORE US THAT THIS GROUND OF APPEAL IS S QUARELY COVERED BY HONBLE ITAT IN ITA NO.215/MUM/13 FOR ASSESSMENT YE AR 2009-10 IN ASSESSEES OWN CASE. IN THIS RESPECT OUR ATTENTION WAS DRAWN TO PAGE NO. 18 TO 34 OF THE PAPER BOOK WHEREIN THE SAID COPY OF THE ORDER PASSED IN ITA NO.215/MUM/13 FOR ASSESSMENT YEAR 2009-10 HAS B EEN PLACED ON RECORD. WE HAVE ANALYSED THE ORDERS PASSED BY HONB LE ITAT IN ASSESSEE OWN CASE I.E. GROUND NO.1.1 HAS ALREADY BE EN DEALT BY THE CO- ORDINATE BENCH OF HONBLE ITAT IN PARA 10 AND THE O PERATIVE PORTION OF THE SAID ORDER IS REPRODUCED BELOW: 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND C AREFULLY PERUSED THE RELEVANT MATERIAL ON REOCORD AS WELL TH E CASE LAWS RELIED BY RIVAL PARTIES. AFTER CONSIDERING THE PROV ISIONS OF SECTION 56 AND 57 OF THE ACT AND ALSO THE DECISIONS RELIED UPON BY BOTH THE PARTIES, WE HOLD THAT THE EXPENDIT URE(OTHER THAN CAPITAL EXPENDITURE) SHALL BE ALLOWABLE ONLY I F IT IS INCURRED FOR THE PURPOSE OF EARNING INCOME AND NOT VICE-VERS A AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT V . .. V. GOPINATHAN (SUPRA) . HENCE AS PER RATIO OF HON'BLE SUPREME COURT DECISION IN V GOPINATHAN (SUPRA) CASE, THE NE TTING OF INTEREST EXPENDITURE AGAINST INTEREST INCOME FROM F DR CANNOT BE ALLOWED AS THE EXPENDITURE OF INTEREST INCURRED BY THE ASSESSEE IS NOT WHOLLY AND EXCLUSIVELY LAID OUT OR EXPENDED FOR MAKING OR EARNING INCOME AS PER MANDATE OF SECT ION 57(III) OF THE ACT RATHER IT IS VICE VERSA. AT THIS JUNCTUR E, IT IS APT TO REFER SECTION 57(III) OF THE ACT, WHICH READS AS UN DER: 'SEC. 57 : THE INCOME CHARGEABLE UNDER THE HEAD 'IN COME FROM OTHER SOURCES' SHALL BE COMPUTED AFTER MAKING THE FOLLOWING DEDUCTIONS, NAMELY: (I) TO (II) (III) ANY OTHER EXPENDITURE (NOT BEING IN THE NATUR E OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME.' ITA NO.6064/MUM/2014 VIPULA J. CHOKSHI VS. ITO 5 THE ASSESSEE HAS-TAKEN FOR OF RS.2 CRORES ON WHICH THE ASSESSEE HAS EARNED INTEREST INCOME OF RS.16.14 LAC S I THE ASSESSEE HAS AVAILED OVERDRAFT TO THE TUNE OF RS 1. 87 CRORES FROM SCBL ON THE SECURITY OF FOR OF RS 2 CRORES ON WHICH INTEREST OF RS 16,68,880 HAS BEEN PAID TO SCBL. THE SAID AMOUNT SO OVERDRAWN FROM SCBL OF RS 1.87 CRORES IS DIRECTLY UTILIZED BY THE ASSESSEE TO GIVE INTEREST FREE LOAN S OF RS 98 LACS TO PMIPL AND RS 92 LACS TO GFL, THUS REVENUE H AS PROVED DIRECT NEXUS OF GRANT OF INTEREST FREE LOANS OUT OF INTEREST BEARING OVERDRAWN AMOUNT FROM SCBL AND THE RELIANCE OF THE ASSESSEE ON THE CASE OF RELIANCE UTILITIES AND POWE R LIMITED (SUPRA ) IS MISCONCEIVED AS THE PRESUMPTION THEREIN IS REBUTTED. THE ASSESSEE HAS RAISED THE PLEA FOR THE FIRST TIME BEFORE US THAT SHE HAS GIVEN THE INTEREST FREE LOAN OF RS. 98 LACS TO GPL AS A MEASURE OF COMMERCIAL EXPEDIENCY B ECAUSE SHE IS THE DIRECTOR OF THE SAID COMPANY. HOWEVER TH E SAID PLEA HAS NOT BEEN VERIFIED BY THE AUTHORITIES BELOW . WE, THEREFORE, HOLD THAT TO THE EXTENT OF BORROWING MAD E FROM SCBL FOR LENDING TO GPL OF RS. 98 LACS, THE INTEREST ATT RIBUTABLE THEREOF PAID TO SCBL SHALL BE ALLOWABLE TO BE SET O FF AGAINST THE INTEREST INCOME IF THE ASSESSEE IS ABLE TO PROV E BEFORE THE ASSESSING OFFICER THAT THE SAID INTEREST FREE LOAN OF RS. 98 LACS GIVEN TO GPL HAS BEEN GIVEN AS A MEASURE OF COMMERC IAL EXPEDIENCY AS HELD BY THE HON'BLE SUPREME COURT IT THE CASE OF S.A BUILDERS (SUPRA) AND HENCE TO THAT EXTENT WE ALLOW THE APPEAL SUBJECT TO VERIFICATION BY THE ASSESSING OFF ICER AND ACCORDINGLY SET ASIDE THE MATTER TO THE FILE OF ASS ESSING OFFICER FOR NECESSARY VERIFICATION AS DETAILED ABOVE AND TH E ASSESSEE WILL BE GIVEN PROPER AND ADEQUATE OPPORTUNITY IN AC CORDANCE WITH THE PRINCIPLES OF NATURAL JUSTICE. RELEVANT EX TRACTS FROM THE DECISION OF HON'BLE SUPREME COURT DECISION IN S A BUILDERS LIMITED (SUPRA) ARE EXTRACTED BELOW FOR RE ADY REFERENCE: '16. WE HAVE CONSIDERED THE SUBMISSIONS OF THE RESP ECTIVE PARTIES. THE QUESTION INVOLVED IN THIS CASE IS ONLY ABOUT THE ALLOW ABILITY OF THE INTEREST ON BORROWED FUNDS AND HENCE WE ARE DEALING ONLY WITH THAT QUESTION. IN OUR OPINION , THE APPROACH OF THE HIGH 'COURT AS WELL AS THE AUTHORIT IES BELOW ON THE AFORESAID QUESTION WAS NOT CORRECT. 17. IN THIS CONNECTION WE MAY REFER TO SECTION 36(1 )(III) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS TH E 'ACT') WHICH STATES THAT 'THE AMOUNT OF THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS O R ITA NO.6064/MUM/2014 VIPULA J. CHOKSHI VS. ITO 6 PROFESSION' HAS TO BE ALLOWED AS A DEDUCTION IN COM PUTING THE INCOME-TAX UNDER SECTION 28 OF THE ACT. 18. IN MADHAV PRASAD JATIA V. CIT AIR 1979 SC 1291, THIS COURT HELD THAT THE EXPRESSION ''FOR THE PURPOSE OF BUSINESS' OCCURRING UNDER THE PROVISION IS WIDER IN SCOPE THA N THE EXPRESSION ''FOR THE PURPOSE OF EARNING INCOME, PRO FITS OR GAINS '. AND THIS HAS BEEN THE CONSISTENT VIEW OF THIS CO URT. 19. IN OUR OPINION, THE HIGH COURT IN THE IMPUGNED JUDGMENT, AS WELL AS THE TRIBUNAL AND THE IT AUTHORITIES HAVE APPROACHED THE MATTER FROM AN ERRONEOUS ANGLE. IN THE PRESENT CASE, THE ASSESSEE BORROWED THE FUND FROM THE BANK AND LENT S OME OF IT TO ITS SISTER-CONCERN (A SUBSIDIARY) ON INTEREST-FR EE LOAN. THE TEST, IN OUR OPINION, IN SUCH A CASE IS REALLY WHET HER THIS WAS DONE AS A MEASURE OF COMMERCIAL EXPEDIENCY. 20. IN OUR OPINION, THE DECISIONS RELATING TO SECTI ON 37 OF THE ACT WILL ALSO BE APPLICABLE TO SECTION 36(1)(III) B ECAUSE IN SECTION 37 ALSO THE EXPRESSION USED IS ''FOR THE PU RPOSE OF BUSINESS'. IT HAS BEEN CONSISTENTLY HELD IN DECISIO NS RELATING TO SECTION 37 THAT THE EXPRESSION ''FOR THE PURPOSE OF BUSINESS' INCLUDES EXPENDITURE VOLUNTARILY INCURRED FOR COMME RCIAL EXPEDIENCY, AND IT IS IMMATERIAL IF A THIRD PARTY A LSO BENEFITS THEREBY. 21. THUS IN ATHERTON V. BRITISH INSULATED & HE/SHY CABLES LTD. (1925) 10 TAX CASES 155 (HL), IT WAS HELD BY THE HO USE OF LORDS THAT IN ORDER TO CLAIM A DEDUCTION; IT IS ENO UGH TO SHOW THAT THE MONEY IS EXPENDED. NOT OF NECESSITV AND WI TH A VIEW TO DIRECT AND IMMEDIATE BENEFIT BUT VOLUNTARILY AND ON GROUNDS OF COMMERCIAL EXPEDIENCY AND IN ORDER TO INDIRECTLY FACILITATE THE CARRYING ON THE BUSINESS. THE ABOVE TEST IN ATH ERTON'S CASE (SUPRA) HAS BEEN APPROVED BY THIS COURT IN SEV ERAL DECISIONS E.G. EASTERN INVESTMENTS LTD. V. CIT (195 1) 20ITR 1 (SC), CITV. CHANDULAL KESHAVLAL & CO. (1960) 38 ITR 601 (SC) ETC. 22. IN OUR OPINION, THE HIGH COURT AS WELL AS THE T RIBUNAL AND OTHER IT AUTHORITIES SHOULD HAVE APPROACHED THE QUE STION OF ALLOW ABILITY OF INTEREST ON THE BORROWED FUNDS FRO M THE ABOVE ANGLE. IN OTHER WORDS THE HIGH COURT AND OTHER AUTH ORITIES SHOULD HAVE ENQUIRED AS TO WHETHER THE INTEREST-FRE E LOAN WAS GIVEN TO THE SISTER COMPANY (WHICH IS A SUBSIDIARY OF THE ITA NO.6064/MUM/2014 VIPULA J. CHOKSHI VS. ITO 7 ASSESSEE) AS A MEASURE OF COMMERCIAL EXPEDIENCY AND IF IT WAS, IT SHOULD HAVE BEEN ALLOWED. 23. THE EXPRESSION 'COMMERCIAL EXPEDIENCY' IS AN EX PRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A P RUDENT BUSINESSMAN INCURS (OR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LE GAL OBLIGATION, BUT VET IT IS ALLOWABLE AS A BUSINESS E XPENDITURE IFIT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. 24. NO DOUBT, AS HELD IN MADHAV PRASAD JATIA V. CIT (SUPRA), IF THE BORROWED AMOUNT WAS DONATED (OR SOME SENTIMENTA L OR PERSONAL REASONS AND NOT ON THE GROUND OF COMMERCIA L EXPEDIENCY. THE INTEREST THEREON COULD NOT HAVE BEE N ALLOWED UNDER SECTION 36(L)(III) OF THE ACT. IN MADHAV PRAS AD'S CASE (SUPRA), THE BORROWED AMOUNT WAS DONATED TO A COLLE GE WITH A VIEW TO COMMEMORATE THE MEMORY OF THE ASSESSEE'S DECEASED HUSBAND AFTER WHOM THE COLLEGE WAS TO BE N AMED. IT WAS HELD BY THIS COURT THAT THE INTEREST ON THE BORROWED FUND IN SUCH A CASE COULD NOT BE ALLOWED, AS IT COULD NO T BE SAID THAT IT WAS FOR COMMERCIAL EXPEDIENCY. THUS, THE RATIO OF MADHA V. PRASAD JATIA'S CASE (SU PRA) IS THAT THE BORROWED FOND ADVANCED TO A THIRD PARTY SHOULD BE FOR COMMERCIAL EXPEDIENCY IF IT IS SOUGHT TO BE ALLOWED UNDER SECTION 36(L)(III) OF THE ACT. 25. IN THE PRESENT CASE, NEITHER THE HIGH COURT NOR THE TRIBUNAL NOR OTHER AUTHORITIES HAVE EXAMINED WHETHE R THE AMOUNT ADVANCED TO THE SISTER-CONCERN WAS BY WAY OF COMMERCIAL EXPEDIENCY. 26. IT HAS BEEN REPEATEDLY HELD BY THIS COURT THAT THE EXPRESSION ''FOR THE PURPOSE OF BUSINESS' IS WIDER IN SCOPE THAN THE EXPRESSION ''FOR THE PURPOSE OF EARNING PR OFITS' VIDE CIT V. MALAYALAM PLANTATIONS LTD. (1964) 53 ITR 140 (SC), CIT V. BIRLA COTTON SPINNING & WEAVING MILLS LTD. ( 1971) 82ITR 166 (SC), ETC. 27. THE HIGH COURT AND THE OTHER AUTHORITIES SHOULD HAVE EXAMINED THE PURPOSE FOR WHICH THE ASSESSEE ADVANCE D THE MONEY TO ITS SISTER-CONCERN. AND WHAT THE SISTER-CO NCERN DID WITH THIS MONEY, IN ORDER TO DECIDE WHETHER IT WAS FOR COMMERCIAL EXPEDIENCY, BUT THAT HAS NOT BEEN DONE. ITA NO.6064/MUM/2014 VIPULA J. CHOKSHI VS. ITO 8 28. IT IS TRUE THAT THE BORROWED AMOUNT IN QUESTION WAS NOT UTILIZED BY THE ASSESSEE IN ITS OWN BUSINESS, BUT H AD BEEN ADVANCED AS INTEREST-FREE LOAN TO ITS SISTER- CONCE RN. HOWEVER, IN OUR OPINION, THAT FACT IS NOT REALLY RELEVANT. W HAT IS RELEVANT IS WHETHER THE ASSESSEE ADVANCED SUCH AMOUNT TO ITS SISTER- CONCERN AS A MEASURE OF COMMERCIAL EXPEDIENCY. 29. LEARNED COUNSEL FOR THE REVENUE RELIED ON A -BO MBAY HIGH COURT DECISION IN PHALTAN SUGAR WORKS LTD. V. CIT ( 1994) 208ITR 989 (BOM) IN WHICH IT WAS HELD THAT DEDUCTIO N UNDER SECTION 36(1)(III) CAN ONLY BE ALLOWED ON THE INTER EST IF THE ASSESSEE BORROWS CAPITAL FOR ITS OWN BUSINESS. HENC E, IT WAS HELD THAT INTEREST ON THE BORROWED AMOUNT COULD NOT BE ALLOWED IF SUCH AMOUNT HAD BEEN ADVANCED TO A SUBSI DIARY COMPANY OF THE ASSESSEE. WITH RESPECT, WE ARE OF TH E OPINION THAT THE VIEW TAKEN BY THE BOMBAY HIGH COURT WAS NO T CORRECT. THE CORRECT VIEW IN OUR OPINION WAS WHETHER THE AMO UNT ADVANCED TO THE SUBSIDIARY OR ASSOCIATED COMPANY OR ANY OTHER PARTY WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY. WE ARE OF THE OPINION THAT THE VIEW TAK EN BY THE TRIBUNAL IN PHALTAN SUGAR WORKS LTD. (SUPRA) THAT T HE INTEREST WAS DEDUCTIBLE AS THE AMOUNT WAS ADVANCED TO THE SU BSIDIARY COMPANY AS A MEASURE OF COMMERCIAL EXPEDIENCY IS TH E CORRECT VIEW, AND THE VIEW TAKEN BY THE BOMBAY HIGH COURT WHICH SET ASIDE THE AFORESAID DECISION IS NOT CORRE CT. 30. SIMILARLY, THE VIEW TAKEN BY THE BOMBAY HIGH CO URT IN PHALTAN SUGAR WORKS LTD. V. CIT (1995) 215 ITR 582 (BOM) ALSO DOES NOT APPEAR TO BE CORRECT. 31. WE AGREE WITH THE VIEW TAKEN BY THE DELHI HIGH COURT IN CIT V. DALMIA CEMENT (BHARAT) LTD. (2002) 254ITR 37 7 (DEL) THAT ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BE TWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELJ) , THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN T HE ARMCHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABL E EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF T HE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE ITS PRO FIT. THE IT AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD AC T. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEWPOINT BUT THAT OF A PRUDENT BUSINESSMAN. AS ALR EADY STATED ABOVE, WE HAVE TO SEE THE TRANSFER OF THE BO RROWED ITA NO.6064/MUM/2014 VIPULA J. CHOKSHI VS. ITO 9 FUNDS TO A SISTER-CONCERN FROM THE POINT OF VIEW OF COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER T HE AMOUNT WAS ADVANCED FOR EARNING PROFITS. 32. WE WISH TO MAKE IT CLEAR THAT IT IS NOT OUR OPI NION THAT IN EVERY CASE INTEREST ON BORROWED LOAN HAS TO BE ALLO WED IF THE ASSESSEE ADVANCES IT TO A SISTER- CONCERN. IT ALL D EPENDS ON THE (ACTS AND CIRCUMSTANCES OF THE RESPECTIVE CASE. FOR INSTANCE. IF THE DIRECTORS OF THE SISTER-CONCERN UT ILIZE THE AMOUNT ADVANCED TO IT BY THE ASSESSEE (OR THEIR PER SONAL BENEFIT. OBVIOUSLY IT CANNOT BE SAID THAT SUCH MONE Y WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY. HOW EVER, MONEY CAN BE SAID TO BE ADVANCED TO A SISTER-CONCER N FOR COMMERCIAL EXPEDIENCY IN MANY OTHER CIRCUMSTANCES ( WHICH NEED NOT BE ENUMERATED HERE). HOWEVER, WHERE IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS S UBSIDIARY, AND HENCE IF THE HOLDING COMPANY ADVANCES BORROWED MONEY TO A SUBSIDIARY AND THE SAME IS USED BY THE SUBSIDI ARY FOR SOME BUSINESS PURPOSES, THE ASSESSEE WOULD, IN OUR OPINION, ORDINARILY BE ENTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS. HOWEVER, THE INTEREST EXPENDITURE PAID TO SCBL AND ATTRIBUTABLE TO THE ADVANCE OF RS. 92 LACS GIVEN TO PMIPL SHALL NOT BE ALLOWED AS EXPENDITURE TO BE SET OFF AGAINST THE INTEREST INCOME FROM FDR AS PER REASONING GIVEN BY US ABOVE AND HENCE THE CONTENTION OF THE ASSESSEE TO THIS EXTENT IS REJECTED. WE ORDER ACCORDINGLY. AFTER ANALYZING THE AFORE MENTIONED ORDER WE ARE OF THE CONSIDERED VIEW THAT THE PRESENT ISSUE I.E. GROUND NO.1.1 HAS BEEN CONSIDERED BY THE CO- ORDINATE BENCH OF HONBLE ITAT AND THE SAID ISSUE W AS DECIDED AGAINST THE ASSESSEE. HOWEVER, SINCE THE ASSESSEE HAD RAISE D PLEA FOR THE FIRST TIME BEFORE THE HONBLE ITAT IN THE SAID ITA NO.215 /MUM/13 IN RESPECT OF THE FACT THAT THE ASSESSEE HAS GIVEN INTEREST FREE LOAN OF RS.98 LACS TO GPL AS A MEASURE OF COMMERCIAL EXPEDIENCY AS THE AS SESSEE WAS THE DIRECTOR OF THE SAID COMPANY. THEREFORE, HONBLE IT AT IN THE AFORE ITA NO.6064/MUM/2014 VIPULA J. CHOKSHI VS. ITO 10 MENTIONED ITA NO.215/MUM/13 A.Y.2009-10 HAS HELD TH AT THE EXTENT OF BORROWING MADE FORM SCBL FOR LENDING TO GPL OF RS.9 8 LAKHS, THE INTEREST ATTRIBUTABLE THEREOF PAID TO SCBL SHALL BE ALLOWED TO BE SET OFF AGAINST THE INTEREST INCOME IF THE ASSESSEE IS ABLE TO PROVE BE FORE THE ASSESSING OFFICER THAT THE SAID INTEREST FREE LOAN OF RS.98 LAKHS GIVEN TO GPL HAS BEEN GIVEN AS A MEASURE OF COMMERCIAL EXPEDIENCY AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS AND THEREFORE, TO THAT EXTENT THE HONBLE ITAT HAD ALLOWED THE APPEAL OF T HE ASSESSEE SUBJECT TO THE VERIFICATION BY THE ASSESSING OFFICER. SINC E THE SIMILAR ISSUE HAS AGAIN BEEN RAISED BEFORE US IN THE PRESENT APPEAL T HEREFORE, FOLLOWING THE PRINCIPLES OF NATURAL JUSTICE AND RESPECTFULLY FOLL OWING THE JUDGEMENTS OF ASSESSEE IN ASSESSEES OWN CASE WE ALSO DECIDE THIS ISSUE ACCORDINGLY. HOWEVER, DURING THE COURSE OF ARGUMENTS, LD. AR SUB MITTED THAT SOME OF THE LOAN AMOUNT HAS ALREADY BEEN RETURNED B ACK BY GPL AND THE SAID ARGUMENTS WERE ALSO RAISED BY THE ASSESSEE BEF ORE THE CIT(A) BUT NO CLEAR FINDINGS HAVE BEEN GIVEN BY CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF LD. AR AND AFTER HEARING LD. DR ON T HE SAID GROUND WE ARE OF THE CONSIDERED VIEW THAT ON THE SAME GROUND THE MATTER HAS BEEN SET ASIDE FOR NECESSARY VERIFICATION IN ITA NO.5105/MUM /13 THEREFORE WE ALSO SET ASIDE THE MATTER TO THE FILE OF THE AO WITH THE DIRECTION TO VERIFY THE DETAILS AND ALSO TO VERIFY AS TO HOW MUCH AMOUNT HA S BEEN PAID BACK BY GPL AND AFTER VERIFYING THE DETAILS, THE AO IS DIRE CTED TO ALLOW THE ITA NO.6064/MUM/2014 VIPULA J. CHOKSHI VS. ITO 11 PROPORTIONATE INTEREST TO BE SET OFF AGAINST THE IN TEREST INCOME. IF THE ASSESSEE IS ABLE TO PROVE BEFORE THE AO THAT THE SA ID INTEREST FREE LOAN OF RS.98 LAKHS GIVEN TO GPL HAS BEEN GIVEN AS A MEASUR E OF COMMERCIAL EXPEDIENCY AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS (SUPRA). NEEDLESS TO MENTION THAT THE ASSE SSEE WILL BE GIVEN PROPER AND ADEQUATE OPPORTUNITY IN ACCORDANCE WITH THE PRINCIPLES OF NATURAL JUSTICE. THEREFORE WE ORDER ACCORDINGLY. GROUND NO. 2.1 & 3.1 SINCE, THE MATTER HAS BEEN ADJUDICATED WHILE DECIDI NG THE GROUND NO.1.1 THEREFORE THE PRESENT GROUND NO.2.1 &3.1 BEC OME ACADEMIC IN NATURE AND HENCE, THERE IS NO NEED TO ADJUDICATE TH E SAID GROUND SEPARATELY. HENCE THESE GROUNDS ARE DISMISSED. GROUND NO. 4 IS GENERAL IN NATURE AND NEEDS NO SEPA RATE ADJUDICATION IN VIEW OF THE DECISION ON ABOVE GROUN D. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 25-05-2016. SD/- SD/- (JASON P. BOAZ) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI , DATED 25.05.2016 ASHWINI / ASHWINI / ASHWINI / ASHWINI /PS PSPS PS ITA NO.6064/MUM/2014 VIPULA J. CHOKSHI VS. ITO 12 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//