ACIT 11(1), MUMBAI V. SAGAR ENTERTAINMENT LTD, MUMBAI

ITA 630/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9046 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 04-12-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 27-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARUN SATHE
• Keywords: Commercial expediency
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J BENCH BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND SHRI RAJENDRA (ACCOUNTANT MEMBER) ITA NO.344/MUM/2010 ASSESSMENT YEAR: 2006-07 SAGAR ENTERTAINMENT PVT LTD. (FORMERLY SAGAR ENTERTAINMENT LTD), SAGAR INDIA, ROAD NO.12A, JVPD SCHEME, VILE PARLE (W), MUMBAI-49 PA NO.AAECS 6492 F ADDL. CIT 11(1), MUMBAI. (APPELLANT) VS. (RESPONDENT) ITA NO.630/MUM/2010 ASSESSMENT YEAR: 2006-07 ADDL. CIT 11(1), MUMBAI SAGAR ENTERTAINMENT PVT LTD. (FORMERLY SAGAR ENTERTAINMENT LTD), SAGAR INDIA, ROAD NO.12A, JVPD SCHEME, VILE PARLE (W), MUMBAI-49 PA NO.AAECS 6492 F (APPELLANT) VS. (RESPONDENT) ASSESSEE BY : SHRI ARUN SATHE RESPONDENT BY: SHRI RAKESH RANJAN DATE OF HEARING: 4 .12.2012 DATE OF PRONOUNCEMENT: 28 .12.2012 ORDER PER B.R.MITTAL, JM: THESE CROSS APPEALS ARE FILED BY THE ASSESSEE AND THE DEPARTMENT FOR ASSESSMENT YEAR 2006-07 AGAINST ORDER DATED 6.11.2 009 OF LD CIT(A)-3, MUMBAI DISPUTING CONFIRMATION/DELETION OF ADDITIONS MADE B Y THE ASSESSING OFFICER. 2. FIRSTLY, WE TAKE UP THE APPEAL FILED BY ASSESSEE BEING I.T.A. NO.344/M/2010. ITA NO.344/MUM/2010 ITA NO.630/MUM/2010 ASSESSMENT YEAR: 2006-07 2 3. GROUND NO.1 OF APPEAL IS AS UNDER: LD CIT(A) ERRED IN ENHANCING THE ADDITION TOTAL IN COME OF RS.72,000/- AND ALSO CONFIRMING ADDITION OF RS.33,000 OUT OF AM OUNT PAID TO MS REKHA CHAWALA TOWARDS RETAINER SHIP FEES AND REIMBU RSEMENT OF EXPENSES. 4. AT THE TIME OF HEARING, LD A.R. SUBMITTED THAT A BOVE GROUND IS NOT PRESSED FOR. HENCE, GROUND NO.1 OF APPEAL TAKEN BY ASSESSEE IS R EJECTED. 5. IN GROUND NO.2 OF APPEAL, ASSESSEE HAS DISPUTED THE ORDER OF LD CIT(A) IN CONFIRMING ADDITION OF RS.3,72,630 OUT OF AMOUNT P AID TO MS SHIRIN BENON TOWARDS LIASOINING WORK. 6. THE ASSESSING OFFICER HAS STATED THAT ASSESSEE W AS ASKED TO EXPLAIN AND JUSTIFY THE BUSINESS EXPEDIENCY TOWARDS COMMISSION PAYMENT OF RS.3,72,630/- TO MS SHIRIN BENON. HE HAS STATED THAT ASSESSEE WAS NOT ABLE TO EXPLAIN AS TO WHY THE COMMISSION HAD TO BE PAID FOR LIASOINING FOR OBTAINING ADVERT ISEMENTS ON DOORDARSHAN. HE HAS STATED THAT NO DETAILS OF THE SAID COMMISSION AND T HE LIASONING WORK DONE BY MS SHIRIN BENON HAVE BEEN FURNISHED. HENCE, AO STATED THAT E XPENSES CANNOT BE ALLOWED UNDER THE INCOME TAX ACT AS THE CLAIM IS NOT GENUINE BUSI NESS EXPENSES. LD CIT(A) ALSO CONFIRMED THE ACTION OF AO FOR WANT OF DETAILS OF L IAISONING WORK DONE BY MS BENON. HE HAS FURTHER STATED THAT ASSESSEE FAILED TO IDENTIFY AND ESTABLISH THAT THE SAID EXPENSE IN THE NAME OF MS BENON WAS WHOLLY AND EXCLUSIVELY FOR THEIR BUSINESS AND IN COMMERCIAL EXPEDIENCY. HENCE, ASSESSEE IS IN FURTHER APPEAL B EFORE THE TRIBUNAL. 7. AT THE TIME OF HEARING, LD A.R REFERRED TO PAGE 56 OF ADDITIONAL PAPER BOOK, WHICH IS A COPY OF CONFIRMATION OF ACCOUNTS AND SUB MITTED THAT ASSESSEE ALSO DEDUCTED TDS OF RS.19,004.00 ON THE SAID PAYMENT. SAVE AND EXCEPT ABOVE COPY OF CONFIRMATION ACCOUNTS, ASSESSEE COULD NOT FURNISH ANY DETAILS IN RESPECT OF BILLS SUBMITTED AND THE SERVICES RENDERED BY MS BENON TO THE ASSESSEE. FUR THER, ON PERUSAL OF SAID CONFIRMATION ACCOUNTS, IT IS OBSERVED THAT ASSESSEE HAS ALSO NOT PAID COMMISSION CHARGES OF RS.3,72,630 AS CLAIMED BY THE ASSESSEE. THE ABOVE CONFIRMATION ACCOUNTS DO NOT ESTABLISH THAT MS BENON RENDERED ANY SERVIC ES TO THE ASSESSEE AGAINST WHICH ASSESSEE HAS CLAIMED COMMISSION CHARGES OF RS.3,72, 630. IN VIEW OF ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD CIT(A) IN CON FIRMING THE DISALLOWANCE MADE BY THE ITA NO.344/MUM/2010 ITA NO.630/MUM/2010 ASSESSMENT YEAR: 2006-07 3 AO ON ACCOUNT OF CLAIM OF PAYMENT TO MS BENON. HEN CE, GROUND NO.2 OF APPEAL IS REJECTED. 8. IN GROUND NO.3 OF APPEAL, ASSESSEE HAS DISPUTED THE ORDER OF LD CIT(A) IN CONFIRMING THE ADDITION OF RS.10,07,508 OUT OF TELE PHONE AND ELECTRICITY EXPENSES. IT IS RELEVANT TO STATE THAT ABOVE GROUND IS CONNECTED WI TH GROUND NO.(D) OF APPEAL TAKEN BY DEPARTMENT WHICH READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) HAS ERRED IN DIRECTING THE AO TO DELETE THE ADDITION OF RS.3,35,836 (2/3 RD ELECTRICITY AND COMMUNICATION EXPENSES OF RS.20,15 ,016 MINUS AMOUNT CONFIRMED BY THE CIT(A) AT RS.10,07,508) MAD E ON ACCOUNT OF NON-SHARING EXPENSES WITH SISTER CONCERN. 9. THE RELEVANT FACTS ARE THAT ASSESSEE DEBITED ADM INISTRATIVE EXPENSES OF RS.43,94,248/- AND TV PRODUCTION EXPENSES AT RS.23, 84,669/- FOR THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. A O IN PARA 7.1 HAS GIVEN DETAILS OF INCOME AND EXPENDITURE ACCOUNT AND THE DETAILS OF T V SERIAL EXPENSES AND ADMINISTRATIVE EXPENSES. FURTHER, AO HAS ALSO GIVE N DETAILS OF PROFIT AND LOSS ACCOUNT AND SCHEDULE OF RELEVANT EXPENDITURE OF SISTER CONC ERN OF THE ASSESSEE NAMELY M/S. SAGAR FILMS P LTD. ON PERUSAL OF SAID DETAILS, AO IN PARA 7.3 HAS STATED AS UNDER: 7.3 FROM THE DETAILS AS ABOVE, THE FOLLOWING ISSU ES ARE NOTED: (A) UNLIKE IN LAST YEAR, THE ASSESSEE HAS DISCONTIN UED THE PRACTICE OF SHARING EXPENSES WITH THE SISTER CONCERN EVEN THOUGH THERE IS NO CHANGE IN METHOD OF CONDUCTING BUSINESS OVER THE LAST YEAR. (B) EXPENSES RELATED TO THE SALARY TO TECHNICIANS, SALARY TO STAFF, STAFF WELFARE AND MESS EXPENSES AND ELECTRICITY AND PRODUCTION OF FICE EXPENSES PERTAINING TO SISTER CONCERN M/S. SAGAR FILMS PVT.LTD, ARE CLEARL Y TAKEN UP BY THE ASSESSEE. (C) IT IS ALSO SEEN THAT M/S. SAGAR FILMS PVT. LTD. , SISTER CONCERN HAVING A LARGE TURNOVER DOES NOT HAVE ANY STAFF ON ITS ROLL WITH A N INTENTION OF AVOIDING FBT AND THE ENTIRE STAFF EXPENDITURE HAVE BEEN PASSED ON M/ S. SAGAR ENTERTAINMENT LTD., ASSESSEE CONCERN. THE ASSESSEE HAS NOT GIVEN ANY CO GENT REASON AS TO WHY THE COMMON EXPENSES HAVE NOT BEEN SHARED WITH THE SISTE R CONCERN. 10. IN VIEW OF ABOVE, AO VIDE PARA 7.4 HAS DISALLOW ED RS.27,00,000 CONSIDERING THE EXPENSES PERTAINS TO SISTER CONCERN OF THE ASSESSEE AND IT READS AS UNDER: ON ACCOUNT OF THE CUMULATIVE REASONS AS ABOVE, IT IS HELD THAT THE ASSESSEE HAS TAKEN UP ON ITSELF THE EXPENSES OF ITS SISTER CONCE RN. THE EXPENSES SHARED OF LAST YEAR AMOUNT TO RS.71,17,108 HAVE NOT BEEN SHAR ED IN THE CURRENT YEAR. THE OSTENSIVE REASON HAS BEEN TO AVOID PAYMENT OF FBT I N M/S. SAGAR FILMS PVT LTD. THIS TREATMENT CANNOT BE ACCEPTED AND EXPENSES AMOU NTING TO RS.27 LAKHS AS IN ITA NO.344/MUM/2010 ITA NO.630/MUM/2010 ASSESSMENT YEAR: 2006-07 4 LAST YEAR ARE HEREBY DISALLOWED AS PERTAINING TO TH E SISTER CONCERN OF THE ASSESSEE. IT IS ORDERED ACCORDINGLY. 11. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE T HE FIRST APPELLATE AUTHORITY. 12. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT CE RTAIN GROUP COMPANIES WERE FUNCTIONING FROM SHARED PREMISES IN EARLIER YEARS A ND, ACCORDINGLY, EXPENSES OF ELECTRICITY AND TELEPHONE WERE SHARED BY THEM. IT WAS STATED THAT GROUP COMPANIES I.E. M/S. SAGAR INFORMATION TECHNOLOGY P. LTD. (MAHDA PR EMISES), M/S, SAGAR LILA FINVEST HOLDING P. LTD. (SAGAR VILLA, JVPD)., M/S. SAGAR FI LM P.LTD. (ANAND VIHAR, BAJAJ ROAD, VILE PARLE (W), HAVE MOVED TO DIFFERENT ADDRESSES D URING A.Y. 2006-07 AND ONE OF THE COMPANY M/S. SAGAR SYSTEMS LTD. WAS NOT FUNCTIONING DURING A.Y. 2006-07. IT WAS ALSO CONTENDED ON BEHALF OF ASSESSEE THAT COMPARED TO F. Y. 2004-05, ELECTRICITY EXPENSES HAD GONE DOWN FROM RS. 31,00,000/- TO RS. 16.71 LAK HS. SIMILARLY, COMMUNICATION EXPENSES (INCLUDING TELEPHONE) HAD GONE DOWN FROM R S. 10.80 LAKHS (TELEPHONE RS. 9.51 LAKHS) TO RS. 3.43 LAKHS (TELEPHONE EXPS. RS. 3.17 LAKHS) WHICH CLEARLY SHOWS THAT WITH DIVISION OF OFFICES, THE EXPENSES HAVE GONE DO WN. IT WAS ALSO STATED THAT AO DENIED INCURRING EXPENDITURE ON BEHALF OF ITS GROUP COMPANY M/S. SAGAR FILMS P. LTD. LD CIT(A) AFTER CONSIDERING ABOVE SUBMISSIONS OF ASSES SEE, VIDE PARAS 3.5.2 AND 3.5.3 SUSTAINED THE DISALLOWANCE TO RS.10,07,508. THE RE LEVANT PARAS READ AS UNDER: 3.5.2 FACTS AND MATERIAL AVAILABLE ON RECORD ARE CONSIDERED. THE A.O. HAS NOT ESTABLISHED NOR EVIDENCED THE REASONS FOR CONSIDERI NG THE EXPENSES FOR M/S. SAGAR FILMS P. LTD. AS HAVING BEEN BORNE BY APPELLA NT. THE REASON AND GROUNDS FOR ARRIVING AT THE CONCLUSION THAT STAFF EXPENSES M/S. SAGAR FILMS P. LTD. WERE BORNE BY APPELLANT OSTENSIBLY TO AVOID PAYMENT OF F BT IN M/S. SAGAR FILMS P. LTD. HAS NOT BEEN ESTABLISHED. NOTWITHSTANDING THES E OBSERVATIONS, IT IS SEEN FROM APPELLANTS SUBMISSION IN APPELLATE PROCEEDING S, THAT THE ADDRESS OF M/S. SAGAR LILA FINVEST INDIA P LTD CONTINUES TO BE THAT OF APPELLANTS OWN WHICH IS SAGAR VILLA, JVPD, MUMBAI. THEREFORE, AT LEAST EXPE NSES OF THIS SISTER CONCERN CONTINUED TO BE BORNE BY APPELLANT IN THE YEAR UNDE R CONSIDERATION. THE DATE OF SHIFTING OF OTHER CONCERNS HAS ALSO NOT BEEN PROVID ED BY APPELLANT. 3.5.3 THE APPELLANTS CLAIM OF ALL SISTER CONCERNS HAVING MOVED AWAY FROM APPELLANTS PREMISE W.E.F THE BEGINNING OF THE PREV IOUS YEAR A.Y. 2006-07 IS THEREFORE NOT ESTABLISHED CONCLUSIVELY AND IN FACT PROVEN WRONG IN RESPECT OF M/S. SAGAR LILA FINVEST INDIA P. LTD. BY APPELLANT S SUBSEQUENT SUBMISSION DURING APPELLATE PROCEEDINGS. TOTAL EXPENSE DEBITED ON ELE CTRICITY AND COMMUNICATION EXPENSE (TELEPHONE) ARE RS.20,L5,016/- FOR THE YEAR UNDER CONSIDERATION. IN THE IMMEDIATELY PREVIOUS YEAR, THE APPELLANT HAD BORNE 1/3 RD OF THESE EXPENSES AND COLLECTED BALANCE FROM SISTER CONCERNS. CONSIDERING APPELLANTS SUBMISSIONS AND THE FACTS THAT ONE SISTER CONCERN CONTINUED AT THE SAME PREMISE AND THAT DATES OF MOVING OUT OTHER CONCERNS HAS NOT BEEN EVIDENCED , DISALLOWANCE THIS YEAR IS ITA NO.344/MUM/2010 ITA NO.630/MUM/2010 ASSESSMENT YEAR: 2006-07 5 RESTRICTED TO ONE HALF OF EXPENSES UNDER THESE HEAD S I.E. AT RS.10,07,508. APPELLANT GETS PARTIAL RELIEF IN RESPECT OF THIS GR OUND. 13. HENCE, ASSESSEE AS WELL AS DEPARTMENT ARE IN AP PEAL BEFORE THE TRIBUNAL. 14. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT EX PENDITURE AS CLAIMED BY THE ASSESSEE ON ACCOUNT OF TELEPHONE AND ELECTRICITY AR E ONLY ON BEHALF OF ASSESSEE AND THE DISALLOWANCE AS SUSTAINED BY LD CIT(A) IS NOT JUSTI FIED. HE SUBMITTED THAT THE DISALLOWANCE SUSTAINED BY LD CIT(A) BE DELETED. 15. ON THE OTHER HAND, LD D.R. SUBMITTED THAT ASSES SEE COULD NOT FURNISH DETAILS AS TO WHEN SISTER CONCERNS SHIFTED THEIR OFFICE. HE FURTHER SUBMITTED THAT SOME OF THE SISTER CONCERNS OF THE ASSESSEE CONTINUED TO FUNCTI ON FROM THE COMMON PREMISES. HE FURTHER SUBMITTED THAT IN RESPECT OF EXPENSES FOR O NE OF THE SISTER CONCERN NAMELY M/S. SAGAR FILMS PVT LTD., THE EXPENSES WERE BORNE BY TH E ASSESSEE. HENCE, ORDER OF LD CIT(A) TO CONFIRM THE DISALLOWANCE OF RS.27 LAKHS I S JUSTIFIED. 16. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTA TIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. 17. WE OBSERVE THAT DEPARTMENT HAS NOT DISPUTED THE FACT THAT SOME OF THE SISTER CONCERNS NAMELY, M/S. SAGAR INFORMATION TECHNOLOGY P. LTD. AND M/S, SAGAR LILA FINVEST HOLDING P. LTD HAD SHIFTED THEIR OFFICES TO DIFFERE NT PLACES. THE DEPARTMENT HAS ALSO NOT DISPUTED THE FACT THAT ONE OF THE SISTER CONCERN NA MELY, M/S. SAGAR SYSTEMS LTD. WAS NOT FUNCTIONING DURING A.Y. 2006-07. WE ALSO OBSER VE THAT SOME OF THE EXPENSES LIKE ELECTRICITY EXPENSES AND COMMUNICATION EXPENSES HAD ALSO GONE DOWN SUBSTANTIALLY DURING THE ASSESSMENT YEAR UNDER CONSIDERATION AS C OMPARED TO PRECEDING ASSESSMENT YEAR. CONSIDERING SAID FACTS, WE ARE OF THE CONSID ERED OPINION THAT LD CIT(A) HAS REASONABLY SUSTAINED THE DISALLOWANCE TO RS.10,07,5 08 IN THE FACTS AND CIRCUMSTANCES OF THE CASE PARTICULARLY, WHEN ASSESSEE HAS NOT BEEN A BLE TO CONTROVERT THE FACTS AS OBSERVED BY LD CIT(A). IN VIEW OF ABOVE, WE UPHOLD THE ORDER OF LD CIT(A) AND REJECT GROUND NO.3 OF APPEAL TAKEN BY ASSESSEE AND GROUND NO.(D) OF APPEAL TAKEN BY DEPARTMENT. 18. IN GROUND NO.4 OF APPEAL, ASSESSEE HAS DISPUTED THE ORDER OF LD CIT(A) IN RESPECT OF DISALLOWANCE OF RS.1200 U/S.14A OUT OF E XPENDITURE DEBITED BY THE ASSESSEE. ITA NO.344/MUM/2010 ITA NO.630/MUM/2010 ASSESSMENT YEAR: 2006-07 6 19. WE HAVE HEARD LD REPRESENTATIVES OF PARTIES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. WE OBSERVE THAT ASSESSEE INVEST ED A SUM OF RS.2.4 LAKHS IN M/S. SAGAR SYSTEMS LTD., AS EQUITY CAPITAL. AO MADE ADH OC DISALLOWANCE OF RS.1200 U/S.14A. LD CIT(A) HAS CONFIRMED THE SAID DISALLOWANCE CONSI DERING THAT THE DISALLOWANCE MADE BY THE AO IS NOMINAL. DURING THE COURSE OF HEARING , LD A.R. COULD NOT DISPUTE THE FACT OF MAKING INVESTMENT IN EQUITY SHARES OF SISTER CONCER N M/S. SAGAR SYSTEMS LTD. CONSIDERING THE AMOUNT OF RS.1200, WE ARE OF THE CO NSIDERED VIEW THAT SAID DISALLOWANCE OF RS.1200/- TOWARDS ADMINISTRATIVE EX PENSES IS REASONABLE AND NO INTERFERENCE IS CALLED FOR. GROUND NO.4 OF APPEAL IS REJECTED. 20. NOW WE TAKE UP APPEAL FILED BY DEPARTMENT BEING I.T.A. NO.630/M/2010. 21. IN GROUND NO.(A) OF APPEAL, DEPARTMENT HAS DISP UTED THE DELETION OF ADDITION MADE BY THE AO U/S.40A(3) AT RS.44,634/- . 22. WE OBSERVE THAT ASSESSEE PAID A SUM OF RS.1,08, 970/- TO SHRI B.C. PATEL, A RETAINER FOR STUDIO MAINTENANCE/CARETAKER TOWARDS V ARIOUS MAINTENANCE EXPENSES. ASSESSEE ALSO PAID A SUM OF RS.1,14,200 TO SHRI B.C .PATEL FOR ELECTRICITY BILL OF GEB. AO STATED THAT SAID AMOUNT HAS BEEN PAID IN CASH AND, ACCORDINGLY, DISALLOWED 20% OF THE SAID EXPENDITURE WHICH COMES TO RS.44,634/- U/S.40A (3) OF THE ACT. HOWEVER, LD CIT(A) DELETED THE SAID DISALLOWANCE BY CONSIDERING THAT E LECTRICITY PAYMENT WAS PAID BY THE ASSESSEE BY CHEQUE WHICH WAS RETURNED DUE TO INSUFF ICIENT FUNDS AND THEREAFTER ASSESSEE HAD ONLY OPTION FOR MAKING THE PAYMENT IN CASH, WHICH ASSESSEE DID THROUGH SHRI B.C.PATEL BY DEPOSITING THE ELECTRICITY BILL. IT FALLS WITHIN THE EXCEPTION LAID DOWN UNDER RULE 6DD(K) OF I.T.RULES, 1962. 23. DURING THE COURSE OF HEARING, LD A.R. SUBMITTED THAT A SUM OF RS.1,08,970/- WAS PAID TO SHRI B.C.PATEL TOWARDS MAINTENANCE/CARETAKE R DURING THE YEAR FOR MAINTAINING STUDIO AND NONE OF THE PAYMENT EXCEEDED RS.20,000 A T A TIME. HE FURTHER SUBMITTED THAT THE PAYMENT OF ELECTRICITY DUES WAS PAID IN CA SH THROUGH SHRI B.C.PATEL AS THE ASSESSEE HAD NO OPTION BECAUSE PAYMENT MADE BY CHEQ UE WAS DISHONORED. LD D.R. HAS NOT CONTROVERTED ABOVE FACTS SAVE AND EXCEPT RELYIN G ON THE ORDER OF AO. ITA NO.344/MUM/2010 ITA NO.630/MUM/2010 ASSESSMENT YEAR: 2006-07 7 24. CONSIDERING ABOVE FACTS OF THE CASE AND SUBMISS ION OF LD A.R. WE ARE OF THE CONSIDERED VIEW THAT LD CIT(A) HAS RIGHTLY HELD THA T THE DISALLOWANCE MADE BY THE AO IS NOT JUSTIFIED AND ACCORDINGLY, DELETED THE SAME. W E UPHOLD THE ORDER OF LD CIT(A) AND REJECT GROUND NO.(A) OF APPEAL TAKEN BY DEPARTMENT. 25. IN RESPECT OF GROUND NO.(B) OF APPEAL, DEPARTME NT HAS DISPUTED THE DELETION OF ADDITION OF RS.12,000 (20% OF RS.60,000) MADE U/S.4 0A(3) OF THE I.T.ACT, 1961 ON ACCOUNT OF PAYMENT TO MS REKHA CHAWLA. 26. WE HAVE HEARD LD REPRESENTATIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. WE OBSERVE THAT ASSESSEE PAID A SUM OF RS.1,65,000/- T O MS REKHA CHAWLA. THE SAID GROUND IS CONNECTED WITH GROUND NO.1 OF APPEAL TAKE N BY THE ASSESSEE, WHICH WAS NOT PRESSED FOR. HOWEVER, IN RESPECT OF PAYMENT OF RS. 60,000/- TO MS REKHA CHAWLA, WE OBSERVE THAT SAID PAYMENT WAS MADE FOR THE SERVICES RENDERED BY HER DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. HE SUBMITTED THAT SAID PAYMENT OF RS.60,000/- WAS NOT PAID AT ONE TIME. ASSESSEE ALSO DEDUCTED T DS ON ABOVE AMOUNT. WE ARE OF THE CONSIDERED VIEW THAT SAID PAYMENT WAS MADE TO M S REKHA CHAWLA FOR SERVICES RENDERED AND REGULAR REMUNERATION WAS PAID, ON WHIC H TDS WAS ALSO DEDUCTED. THEREFORE, LD CIT(A) HAS RIGHTLY CONSIDERED THAT TH E PROVISIONS OF SECTION 40A(3) IS NOT APPLICABLE TO THE SAID PAYMENT OF RS.60,000/-. ACC ORDINGLY, WE UPHOLD THE ORDER OF LD CIT(A) AND REJECT GROUND NO.(B) TAKEN BY DEPARTMENT . 27. GROUND NO.(C) READS AS UNDER: (C) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, LD CIT(A) HAS ERRED IN DIRECTING THE AO TO DELETE TH E ADDITION OF RS.13,36,919 ON ACCOUNT OF COMMISSION PAYMENTS MADE TO (A) GAURA VISION AND (B) KISHORE CHAWLA, THOUGH THE ASSESSEE HAS NOT PRODUCED ANY PROOF SUBSTANTIATING THE WORK DONE BY THESE PER SONS TO JUSTIFY THE COMMISSION. 28. ASSESSING OFFICER HAS STATED THAT ASSESSEE WAS ASKED TO EXPLAIN AND JUSTIFY THE BUSINESS EXPEDIENCY TOWARDS COMMISSION PAYMENT OF R S.11,90,619 TO M/S. GAURA VISION AND RS.1,47,300/- TO MR KISHORE CHAWLA. ASSESSEE S TATED THAT COMMISSION WAS PAID TO THEM FOR OBTAINING VARIOUS ADVERTISEMENTS ON DOORDA RSHAN DURING TELECAST OF SERIALS. THEREFORE, PAYMENT WAS MADE FOR THE PURPOSE OF BUSI NESS EXPEDIENCY. AO DID NOT ACCEPT ABOVE EXPLANATION OF THE ASSESSEE AND STATED THAT THE COMMISSION CLAIMED TO ITA NO.344/MUM/2010 ITA NO.630/MUM/2010 ASSESSMENT YEAR: 2006-07 8 HAVE TO BEEN PAID IS MISNOMER FOR PAYMENT OF NON-BU SINESS AND ILLEGAL GRATIFICATION. HENCE, AO DISALLOWED THE SAME. BEING AGGRIEVED, AS SESSEE FILED APPEAL BEFORE LD CIT(A). 29. DURING THE COURSE OF HEARING OF THE APPEAL BEFO RE LD CIT(A), ASSESSEE FILED DETAILS OF COMMISSION PAID TO M/S. GAURA VISION AND MR KISHORE CHAWALA. IT WAS CONTENDED THAT COMMISSION PAYABLE TO M/S. GAURA VIS ION WAS TOWARDS SALES ORDER FOR ADVERTISEMENTS SLOTS BOOKED FOR ASSESSEES TV SERIA LS ANKEHN FOR DIFFERENT EPISODES AND PAYMENT OF COMMISSION PAID TO SHRI KISHORE CHAW LA WAS FOR PROCURING BUSINESS OF THE TELECASTING SERIALS ON REGIONAL CHANNELS. LD C IT(A) HAS STATED THAT THE AO HAS ADDUCED NO EVIDENCE ON WHICH SUCH A CONCLUSION COUL D BE DRAWN THAT THE PAYMENT WAS MADE TO THEM FOR NON-BUSINESS AND ILLEGAL GRATIFICA TION. THE SAME HAS NOT BEEN SUBSTANTIATED. LD CIT(A) HAS FURTHER STATED THAT A O HAS NOT DOUBTED THE GENUINENESS OF THE EXPENDITURE NOR TREATED IT AS NOT BEING INCURRE D WHOLLY AND EXCLUSIVELY FOR ASSESSEES BUSINESS. ACCORDINGLY, LD CIT (A) HAS ALLOWED THE PAYMENT OF COMMISSION DEBITED TOWARDS GAURAV VISION AND MR KISHORE CHAWLA AS BUSI NESS EXPENSES. HENCE, DEPARTMENT IS IN APPEAL BEFORE THE TRIBUNAL. 30. DURING THE COURSE OF HEARING, LD D.R. RELIED ON THE ORDER OF AO AND ON THE OTHER HAND, LD A.R. RELIED ON ORDER OF LD CIT(A). 31. CONSIDERING THE REASONING AS MENTIONED BY LD CI T(A) AND IN THE ABSENCE OF ANY SUBMISSION OF LD D.R., TO CONTROVERT THE OBSERVATIO N OF LD CIT(A) (SUPRA), WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD CIT(A) . HENCE, WE UPHOLD THE ORDER OF LD CIT(A) AND REJECT GROUND NO.(C) OF APPEAL TAKEN BY DEPARTMENT. 32. GROUND NO.(E) READS AS UNDER: (E) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, LD CIT(A) HAS ERRED IN DIRECTING THE AO TO DELETE TH E ADDITION OF RS.34,71,375 BEING INTEREST EXPENSES WITHOUT APPREC IATING THE FACT THAT THE ENTIRE ADVANCES GIVEN TO THE DIRECTORS OR SISTE R CONCERNS WERE INTEREST FREE. 33. AO HAS STATED THAT ASSESSEE HAS TAKEN SUBSTANTI AL OVERDRAFT FOR RUNNING BUSINESS. IT IS STATED THAT THE OPENING BALANCE OF BORROWINGS WAS RS.2.71 CRORES, THE ITA NO.344/MUM/2010 ITA NO.630/MUM/2010 ASSESSMENT YEAR: 2006-07 9 CLOSING BALANCE AS ON 31.3.2006 WAS OF RS.1.68 CROR ES. IT IS STATED THAT ASSESSEE DEBITED A TOTAL INTEREST OF RS.36.70 LAKHS (WRONGLY MENTIONED AS RS.36.70 CRORES DUE TO TYPOGRAPHICAL MISTAKE) ON ACCOUNT OF THE OVERDRAFT AND OTHER LOANS. AO IN PARA 8.1 HAS STATED DETAILS OF LOANS AND ADVANCES GIVEN BY THE A SSESSEE TO ITS SISTER CONCERN AS UNDER: ADVANCE RECOVERABLE IN CASH OR IN KIND OR FOR VALUE TO BE RECEIVED (INCLUSIVE OF DEPOSIT TO DIRECTOR & HIS ASSOCIATE OF RS.29205461 TOWARDS PROPERTY TAKEN ON LEASE. 37189085.43 37681058.534 LOANS TO THE PERSONS/FIRMS/COMPANIES WHERE DIRECTORS ARE RELATED /INTERESTED (MAXIMUM OUTSTANDING DURING THE YEAR RS.26479532) 26397532.25 26479532.25 63586617.68 64160590.78 34. ASSESSEE STATED THAT THESE ARE OLD ADVANCES REC EIVABLE. HOWEVER, AO STATED THAT ASSESSEE CANNOT BE ALLOWED TO CLAIM ALL ADVANC E OF MONEYS TO SISTER CONCERN OUT OF OWN FUNDS IN THE EARLIER PERIOD AND BE ALLOWED TO H AVE TAKEN OVERDRAFT FROM BANKS FOR OPERATIONAL CAPITAL NEEDS. HE STATED THAT ASSESSEE COULD HAVE AS WELL RECEIVED THESE AMOUNTS BACK FROM SISTER CONCERNS AND OTHERS IN WHI CH DIRECTORS ARE SUBSTANTIALLY INTERESTED. AO CONSIDERING THE AVERAGE BORROWED CA PITAL OF RS.2.195 CRORES AND CONSIDERING THE FACT THAT AMOUNTS LEFT WITH SISTER CONCERNS ARE IN EXCESS OF THE AMOUNTS BORROWED, DISALLOWED THE ENTIRE INTEREST EXPENDITUR E DEBITED OF RS.34,71,375. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE LD CIT(A). 35. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT TH E TOTAL INTEREST CHARGES WERE AS UNDER: 1) BANK WORKING CAPITAL FINANCE INCLUDING BILL DISC OUNTING AND OVERDRAFT RS.33,69,714. 2) TERM LOAN AND CAR LOAN INTEREST RS.70,072. 3) PAID TO OTHERS RS.31,590/-. 36. IT WAS ALSO STATED BEFORE LD CIT(A) THAT INTERE ST FREE ADVANCES TO SHRI RAMANANDA SAGAR OF RS.2.35 CRORES AND M/S. SAGAR AR T CORPORATION OF RS.35 LAKHS WAS TOWARDS SECURITY DEPOSITS FOR USING THEIR PREMISES I.E UTILIZATION OF FUNDS FOR PURPOSE OF BUSINESS WHICH WAS MADE AT THE TIME OF INCORPORATIO N OF THE ASSESSEE COMPANY MANY YEARS EARLIER AND OUT OF COMPANYS OWN CAPITAL. IT WAS ALSO STATED THAT A SUM OF RS.2.64 CRORES WAS INHERITED BY THE ASSESSEE FROM M/S. SAGA R TOURIST RESORTS LTD., AT THE TIME OF ITA NO.344/MUM/2010 ITA NO.630/MUM/2010 ASSESSMENT YEAR: 2006-07 10 INCORPORATION OF M/S. SAGAR ART INTERNATIONAL WITH ASSESSEE COMPANY AND OTHER TRADE ADVANCES OF RS./24.13 LAKHS. THE SAID ADVANCES EXC EPT TRADE ADVANCES WERE MADE BY M/S. SAGAR ART INTERNATIONAL OUT OF ISSUED AND PAID UP CAPITAL OF THE ASSESSEE. IT WAS FURTHER STATED THAT ASSESSEE AVAILED WORKING CAPIT AL FINANCING, I.E. BILLS DISCOUNT /OVERDRAFT TO PART FINANCE TO ITS DEBTORS AND INVEN TORIES AND THERE WAS NO DIVERSION OF BANK FINANCE TO ADVANCE INTEREST FREE MONEY. LD CI T(A) AFTER CONSIDERING ABOVE FACTS VIDE PARA 3.6.2 DELETED THE DISALLOWANCE OF INTERES T MADE BY THE AO WHICH READS AS UNDER: .3.6.2 APPELLANTS STATED FURTHER THAT THE COMPANY AVAILED WORKING CAPITAL FINANCING I.E BILLS DISCOUNT /OVERDRAFT TO PART FINANCE TO ITS DEBTORS AND INVENTORIES. THERE WAS NO DIVERSION OF BANK FI NANCE TO ADVANCE INTEREST FREE MONEY AND THEREFORE TO DISALLOW INTER EST PAID TO BANK WOULD AMOUNT TO DISALLOWING LEGITIMATE BUSINESS EXPENDITU RE OF THE COMPANY. 37. HENCE, THIS APPEAL BY THE DEPARTMENT. 38. DURING THE COURSE OF HEARING, LD D.R. SUBMITTED THAT ASSESSEE HAS ADVANCED ITS OWN MONEY AND CHARGED NO INTEREST AND WHEREAS FOR I TS BUSINESS PURPOSES, HAD USED BORROWED FUND. THEREFORE, ASSESSEE COULD HAVE SAVED INTEREST PAYMENT HAD ASSESSEE USED ITS OWN MONEY IN STEAD OF GIVING INTEREST FREE ADVANCES TO ITS SISTER CONCERNS. LD D.R. RELYING ON THE DECISION OF HONBLE OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS VS CIT, 288 ITR 1(SC) SUBMITTED THAT IF TH E ASSESSEE HAS ADVANCED INTEREST FREE LOANS TO ITS SISTER CONCERN, WHICH IS NOT FOR COMME RCIAL EXPEDIENCY, ASSESSEE CANNOT CLAIM DEDUCTION OF INTEREST IN RESPECT OF AMOUNT B ORROWED FOR THE PURPOSES OF ITS BUSINESS. LD D.R. ALSO PLACED DECISION DATED 10.7. 2008 OF ITAT IN THE CASE OF ACIT VS. LANDMARK BUILDERS P. LTD., IN I.T.A. NO.2937/M/2002 AND SUBMITTED THAT IN THE SAID CASE, IT WAS HELD THAT TEST OF COMMERCIAL EXPEDIENC Y HAS TO BE APPLIED TO ALLOW INTEREST U/S.36(1)(III) OF THE ACT. 39. ON THE OTHER HAND, LD A.R. SUBMITTED THAT THERE IS NO NEXUS OF THE BORROWED FUNDS BY THE ASSESSEE AND INTEREST FREE FUNDS GIVE N BY THE ASSESSEE TO ITS SISTER CONCERN. HE SUBMITTED THAT BORROWED FUNDS WERE UT ILIZED BY THE ASSESSEE FOR ITS BUSINESS PURPOSES. HE FURTHER SUBMITTED THAT INTER EST LIABILITY IS ON ACCOUNT OF BANK WORKING CAPITAL FACILITY AND THE SAID BORROWED FUND WAS NEVER UTILIZED TO GIVE INTEREST FREE ADVANCE TO ANY OF ITS SISTER CONCERNS. ITA NO.344/MUM/2010 ITA NO.630/MUM/2010 ASSESSMENT YEAR: 2006-07 11 40. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF LD REPRESENTATIVES OF PARTIES AND PERUSED THE ORDERS OF AUTHORITIES BELOW. WE HA VE ALSO GONE THROUGH THE DECISIONS RELIED UPON BY LD D.R. 41. WE OBSERVE THAT THERE IS NO DISPUTE TO THE FACT THAT ASSESSEE HAS NOT USED BORROWED FUNDS FOR GIVING INTEREST FREE ADVANCES TO ITS SISTER CONCERNS. THE BORROWED FUND HAS BEEN UTILIZED BY THE ASSESSEE FOR ITS BUSI NESS PURPOSES. HENCE, THERE IS NO NEXUS BETWEEN THE INTEREST FREE ADVANCES GIVEN BY T HE ASSESSEE TO ITS SISTER CONCERNS AND MONEY BORROWED BY THE ASSESSEE ON WHICH INTERES T HAS BEEN CLAIMED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT. THE CASE O F S.A. BUILDERS (SUPRA) RELIED UPON BY LD D.R. IS NOT APPLICABLE TO THE FACTS OF THE CASE AS IN THAT CASE, HONBLE SUPREME COURT OBSERVED THAT ASSESSEE BORROWED FUNDS FROM THE BANK AND LENT SOME OF IT TO ITS SISTER CONCERN (SUBSIDIARY) AS INTEREST FREE LOAN. IN THA T CONTEXT, IT WAS HELD THAT THERE WAS NOT COMMERCIAL EXPEDIENCY TO ADVANCE TO SISTER CONC ERN AND, ACCORDINGLY, INTEREST WAS DISALLOWED, WHICH IS NOT A CASE BEFORE US. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD CIT(A) TO DELETE THE DISALLOWANCE OF IN TEREST MADE BY THE AO. ACCORDINGLY, WE UPHOLD ORDER OF LD CIT(A) AND REJECT GROUND NO. (E) OF THE APPEAL TAKEN BY DEPARTMENT. 42. IN THE RESULT, APPEAL FILED BY ASSESSEE IS PART LY ALLOWED AND WHEREAS APPEAL FILED BY DEPARTMENT IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 28 TH DECEMBER, 2012 SD/- (RAJENDRA) ACCOUNTANT MEMBER SD/- (B.R. MITTAL) JUDICIAL MEMBER MUMBAI, DATED 28 TH DECEMBER, 2012 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),3, MUMBAI 4. COMMISSIONER OF INCOME TAX, XI , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH J MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI