EZEEGO ONE TRAVEL & TOURS LTD, MUMBAI V. ACIT 2(1)(2), MUMBAI

ITA 6408/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1392 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2014-2015
• Appeal Filed On: 06-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMIT PRATAP SINGHLD
• Assessee Lawyers: RAJAN VORALD
• Keywords: Initiation of penalty proceedings; Commercial expediency
• Section: 143(3); 13

Judgement Text

ITA NO.6408/MUM/2018 EZEEGO ONE TRAVEL & TOURS LIMITED ASSESSMENT YEAR: 2014-15 1 IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . . , , BEFORE HONBLE SHRI C.N. PRASAD, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.6408/MUM/2018 ( ! ' / ASSESSMENT YEAR : 2014-15 ) EZEEGO ONE TRAVEL & TOURS L TD. 1 ST FLOOR, CECIL COURT, LANDSDOWN ROAD, COLABA MUMBAI 400 001 / VS. ACIT - C IRCLE - 2(1)(2) R.NO.561,5 TH FLOOR AAYKAR BHAWAN, M.K.ROAD MUMBAI 400 020 ./ ./PAN/GIR NO. AABCE-5758-R ( &'( /APPELLANT ) : ( )'( / RESPONDENT ) ASSESSEE BY : SHRI RAJAN VORA LD. AR REVENUE BY : SHRI AMIT PRATAP SINGH LD. DR / DATE OF HEARING : 12/12/2019 / DATE OF PRONOUNCEMENT : 12/12/2019 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2014-15 CONTEST THE ORDER OF L D. COMMISSIONER OF INCOME-TAX (APPEALS)-4, MUMBAI [IN SHORT REFERRED T O AS CIT(A)], APPEAL NO. CIT(A)-4/IT-284/ACIT 2(1)(2)/2016-17 DAT ED 31/08/2018, ON THE FOLLOWING GROUNDS OF APPEAL:- ITA NO.6408/MUM/2018 EZEEGO ONE TRAVEL & TOURS LIMITED ASSESSMENT YEAR: 2014-15 2 1. ERRED IN CONFIRMING THE ACTION OF THE LEARNED AS SESSING OFFICER ('AO') AND ASSESSING THE TOTAL LOSS OF THE APPELLANT AT RS (6,43,03,260) AGAINST RS (8,10,89,858) AS REPORTED BY THE APPELLANT IN ITS RETURN OF INCOME; DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) OF THE ACT 2. ERRED IN CONFIRMING THE ACTION OF THE LEARNED AO IN DISALLOWING THE INTEREST EXPENSES OF RS 1,67,86,595 UNDER SECTION 36(1)(III) OF THE A CT IN RESPECT OF INTEREST FREE LOANS AND ADVANCES GRANTED TO THE SUBSIDIARIES WITHOUT AP PRECIATING THAT THE SAID LOANS AND ADVANCES HAVE BEEN GIVEN FOR BUSINESS PURPOSE A ND COMMERCIAL EXPEDIENCY; 3. WITHOUT PREJUDICE TO THE ABOVE, NOT JUSTIFIED I N DISALLOWING THE INTEREST EXPENSES WITHOUT APPRECIATING THAT SINCE THE OWNED FUNDS IN THE FINANCIAL YEAR ('FY') 2008-09, FY 2009-10 AND FY 2010-11 WERE MORE THAN THE AMOUNT OF LOAN ADVANCED, THE LOANS HAVE BEEN DEEMED TO BE GIVEN OUT OF OWNED FUN DS AND NOT BORROWED FUNDS; 4. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN CONFIR MING THE ACTION OF THE LEARNED AO IN APPLYING THE INTEREST RATE OF 16.17% (APPLIED ON AN AD-HOC BASIS) DISREGARDING THE FACT THAT THE AVERAGE COST OF BORROWING OF THE APPE LLANT IS 14.19%; AND INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271 (1)(C) OF THE ACT 5. ERRED IN CONFIRMING THE ACTION OF THE LEARNED AO AN D INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C)OF THE ACT. AS EVIDENT, THE SOLE GROUND WHICH FORM SUBJECT MATT ER OF PRESENT APPEAL IS INTEREST DISALLOWANCE U/S 36(1)(III). GROUND NO. 1 IS GENERAL IN NATURE WHEREAS GROUND NO. 5 IS RELATED WITH INITIATION OF PENALTY. THESE GROUNDS WOULD NOT REQUIRE ANY SPECIFIC ADJUDICATION ON OUR PART. 2. IN THE ABOVE BACKGROUND, WE HAVE HEARD RIVAL SUB MISSIONS AND PERUSED RELEVANT MATERIAL ON RECORD INCLUDING DOCUM ENTS PLACED IN THE PAPER-BOOK. THE LD. AUTHORIZED REPRESENTATIVE FOR A SSESSEE (AR), SHRI RAJAN VORA , PLEADED THAT DISALLOWANCE MAY BE RESTRICTED TO TH E EXTENT OF INCREMENTAL INVESTMENTS / LOANS ADVANCED BY THE ASS ESSEE IN AYS 2013- 13 & 2014-15. THE COMPUTATIONS HAVE BEEN PLACED ON RECORD. THE LD. DR SUPPORTED THE DISALLOWANCE COMPUTED BY LOWER AUT HORITIES. 3.1 BRIEFLY STATED, THE ASSESSEE BEING RESIDENT COR PORATE ASSESSEE STATED TO BE ENGAGED AS TOUR OPERATOR AND TRAVEL AG ENT WAS ASSESSED FOR YEAR UNDER CONSIDERATION U/S 143(3) ON 29/12/2016 W HEREIN THE ITA NO.6408/MUM/2018 EZEEGO ONE TRAVEL & TOURS LIMITED ASSESSMENT YEAR: 2014-15 3 ASSESSEE WAS SADDLED WITH INTEREST DISALLOWANCE U/S 36(1)(III) FOR RS.167.86 LACS. 3.2 DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED TH AT THE ASSESSEE CLAIMED INTEREST / FINANCIAL EXPENDITURE OF RS.3916 .63 LACS. ACCORDINGLY, THE ASSESSEE WAS DIRECTED TO PROVE THE NEXUS BETWEE N OWN FUNDS AND INTEREST FREE ADVANCES OF RS.1239.20 LACS GRANTED B Y IT AND ALSO TO PROVE THE COMMERCIAL EXPEDIENCY IN THE LIGHT OF DEC ISION OF HONBLE SUPREME COURT IN THE CASE OF S.A.BUILDERS. HOWEVER, THE ASSESSEE COULD NOT SUBMIT ANY EVIDENCE IN SUPPORT OF THE CLA IM THAT THE FUNDS WERE ADVANCED FOR BUSINESS PURPOSES AND ALSO COULD NOT D EMONSTRATE THE COMMERCIAL EXPEDIENCY OF ADVANCING INTEREST FREE LO ANS TO ASSOCIATE / SISTER CONCERNS. CONSEQUENTLY LD. AO, IN TERMS OF P ROVISIONS OF SECTION 36(1)(III), OBSERVED THAT AN AMOUNT OF RS.1085.35 L ACS HAS BEEN ADVANCED FROM MIX FUNDS AND THEREFORE, COMPUTED THE DISALLOWANCE AS UNDER: YEAR ENDED OWN FUNDS IN LACS OF RS. BORROWED FUNDS IN LACS OF RS. TOTAL FUNDS IN LACS OF RS. % OF BORROWED FUNDS 31/03/09 1005.11 6000.00 7005.11 85.65 31/03/10 1005.11 1000.00 2005.11 49.87 31/03/11 1005.11 2066.18 3071.29 67.27 31/03/12 11.35 23294.89 23306.24 99.95 31/03/13 11.36 19188.48 19199.84 99.94 31/03/14 11.36 24197.97 24209.33 99.95 AVERAGE 80.54 INTEREST FREE ADVANCES 12,39,20,660 INTEREST FREE ADVANCES FROM BORROWED FUNDS 10,38,1 3,202 AVERAGE INTEREST RATE FOR THE YEAR 16.17% INTEREST DISALLOWABLE U/S.36(1)(III) 1,67,86,595 IT IS EVIDENT FROM ABOVE COMPUTATIONS THAT LD. AO H AS APPLIED AVERAGE OF PROPORTION OF BORROWED FUNDS OF 6 YEARS TO INTEREST FREE ADVANCES GIVEN ITA NO.6408/MUM/2018 EZEEGO ONE TRAVEL & TOURS LIMITED ASSESSMENT YEAR: 2014-15 4 BY THE ASSESSEE AND COMPUTED INTEREST DISALLOWANCE BY APPLYING AVERAGE RATE OF INTEREST FOR THE YEAR UNDER CONSIDE RATION. 4. THE LEARNED FIRST APPELLATE AUTHORITY, RELYING U PON APPELLATE ORDERS FOR AY 2013-14, CONFIRMED THE SAID DISALLOWANCE, AG AINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5. UPON DUE CONSIDERATION, WE FIND THAT THE PRIME A RGUMENT OF LD. AR REVOLVES AROUND THE FACT THAT NO SUCH DISALLOWANCE WAS MADE TILL AY 2012-13 AND REVENUE ACCEPTED THE POSITION THAT OWN FUNDS WERE QUITE SUFFICIENT TO MAKE THE INTEREST FREE ADVANCES / INV ESTMENTS AND THEREFORE, NO SUCH DISALLOWANCE WOULD BE WARRANTED ON SUCH ADV ANCES MADE UP-TO 31/03/2012. THE SAID FACT IS UNCONTROVERTED FACT WH ICH IS EVIDENT FROM ASSESSMENT ORDERS OF EARLIER YEARS AS PLACED ON REC ORD. IT IS ALSO EVIDENT THAT INTEREST DISALLOWANCE U/S 36(1)(III) HAS BEEN MADE FOR THE FIRST TIME STARTING FROM AY 2013-14. THE PLEA OF LD. AR IS THA T THE DISALLOWANCE SHOULD BE COMPUTED BASED ON INCREMENTAL ADVANCES / INVESTMENTS MADE STARTING FROM AY 2013-14. KEEPING IN VIEW THE GIVEN FACTUAL MATRIX, WE FIND SUBSTANCE IN THE SAME. THE LD. AR HAS PLACE D ON RECORD A COMPUTATION CHART TO SUBMIT THAT THE DISALLOWANCE, IN THIS MANNER, WOULD WORK OUT TO RS.60.42 LACS CONSIDERING THE INCREMENT AL ADVANCES MADE BY THE ASSESSEE IN AYS 2013-14 & 2014-15. CONCURRIN G WITH THE SAME, LD.AO IS DIRECTED TO VERIFY THE COMPUTATIONS AND IF FOUND CORRECT, RESTRICT THE DISALLOWANCE TO THAT EXTENT, AS WORKED OUT BY T HE ASSESSEE. NO OTHER SUBSTANTIAL ARGUMENT HAS BEEN MADE AND NO OTHER REL IEF HAS BEEN SOUGHT IN THE APPEAL. ITA NO.6408/MUM/2018 EZEEGO ONE TRAVEL & TOURS LIMITED ASSESSMENT YEAR: 2014-15 5 6. IN THE RESULT, THE APPEAL STANDS PARTLY ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH DECEMBER, 2019. SD/- SD/- (C.N. PRASAD) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 12/12/2019 SR.PS, TNMM /SR. PS. JAISY VARGHESE %& '(& / COPY OF THE ORDER FORWARDED TO : 1. &'( / THE APPELLANT 2. )'( / THE RESPONDENT 3. ../ ( & ) / THE CIT(A) 4. ../ / CIT CONCERNED 5. 01 * , .& , / DR, ITAT, MUMBAI 6. 12 3 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.