DCIT (OSD) RG 8(2), MUMBAI V. IL & FS MARITIME INFRASTRUCTURE CO. LTD, MUMBAI

ITA 6479/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88651 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 01-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARMANAND J
• Assessee Lawyers: D V LAKHANI
• Keywords: Source of fund
• Section: 14A

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I, MUMBAI , . , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO.6479/MUM/2013 ASSESSMENT YEAR: 2010-11 DCIT-8(2), ROOM NO.218, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 / VS. IL & FS MARITIME INFRASTRUCTURE LTD. (FORMERLY KNOWN AS OVIRA LOGISTICS LTD.) IL & FS FINANCIAL CENTRE, PLOT C-22, G-BLOCK, BANDRA KURLA COMPLEX, MUMBAI-400051 ( / REVENUE) ( /ASSESSEE) P.A. NO. AAACO1882F / REVENUE BY SHRI PARMANAND J.-DR / ASSESSEE BY): SHRI D.V. LAKHANI ' # / DATE OF HEARING : 24/03/2015 $%& ' # / DATE OF PRONOUNCEMENT : 26/03/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) : THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER, FOR ASSESSMENT YEAR 2010-11, DATED 30/08/2013, OF THE L D. FIRST APPELLATE AUTHORITY, MUMBAI, ON THE GROUND THAT THE LD. IL & FS MARITIME INFRASTRUCTURE LTD. 2 COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING THE DISALLOWANCE OF INTEREST OF RS.2,88,76,048/- WITHOU T APPRECIATING THAT THE BORROWED FUNDS WERE UTILIZED FOR PAYMENT OF LOANS PERTAINING TO THE DISCONTINUED BUS INESS, THEREFORE, THERE WAS NO NEXUS BETWEEN HE BORROWED F UNDS AND THE INCOME EARNED DURING THE RELEVANT TIME, CONSEQU ENTLY, RIGHTLY DISALLOWED IN TERMS OF SECTION 36(1)(III) O F THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT). 2. DURING HEARING OF THIS APPEAL, AT THE OUTSET, TH E LD. COUNSEL FOR THE ASSESSEE, SHRI D.V.LAKHANI, ASSERTE D THAT THE IMPUGNED ISSUE IS COVERED BY THE DECISION OF THE TR IBUNAL, IN THE CASE OF ASSESSEE ITSELF, VIDE ORDER DATED 30/08 /2013 (ITA NOS.3230 AND 2439/MUM/2012). THIS FACTUAL MATRIX WA S NOT CONTROVERTED BY SHRI PARMANAND J. , LD. DR. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL AVAILABLE ON RECORD. BEFORE COMING TO ANY CONCLUSION, WE ARE REPRODUCING HEREUNDER THE RELEVA NT PORTION OF THE ORDER OF THE TRIBUNAL DATED FOR PERUSAL AND READY REFERENCE:- 2. WE FIRST TAKE UP THE APPEAL OF THE REVENUE IN I TA NO. 3230/MUM/2012 . IN THIS APPEAL THE REVENUE HAS RAISED DISPUTES RELATING TO DISALLOWANCE OF INTEREST AND OTHER EXPE NSES. 2.1 FACTS CONFIRMING THE DISALLOWANCE OF INTEREST A RE THAT THE AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD CLAIMED FINANCIAL CHARGES OF RS. 4,93,27,754/-. AO, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN THE JUSTIFICATION OF SUCH INTEREST EXPENSES FOR THE PURPOSE OF BUSINESS. THE ASSESSEE SUBMITTED THAT IT HAD BORROWED MONEY IN THE EARLIER YEARS FOR THE PURPOSE OF BUSINESS AND OUTSTANDING BORROWINGS WERE TO THE TUN E OF RS.52.78 IL & FS MARITIME INFRASTRUCTURE LTD. 3 CRORE AS ON 31.3.2003. THE ASSESSEE HAD A SMALL CAP ITAL BASE AND SINCE IT WAS INCURRING LOSSES, THE LOSSES WERE FUND ED BY THE BORROWINGS. IT WAS THUS CLEAR THAT THE BORROWINGS H AD BEEN USED FOR THE PURPOSE OF BUSINESS. THE BORROWINGS HAD BEE N MADE AT VERY HIGHER INTEREST RATE AND, THEREFORE, TO REDUCE THE COST OF BORROWINGS THE ASSESSEE HAD ISSUED BONDS WORTH RS. 55 CRORE IN ASSESSMENT YEAR 2007-08 ON 27-9-2006. MONEY RAISED THROUGH BONDS WERE USED TO REPAY THE LOANS TO THE EXTENT OF RS. 54.99 LAKH ON THE SAME DATE I.E. 27.9.2006. THUS THE INTEREST EXPENDITURE HAD BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF BUSINESS. THE AO HOWEVER DID NOT ACCEPT THE EXPLANATION GIVEN . IT WAS OBSERVED BY HIM THAT PRIOR TO ASSESSMENT YEAR 2005- 06 THE ASSESSEE WAS ONLY HAVING CAR RENTAL AND OTHER INCOM E. IN ASSESSMENT YEAR 2005-06, THE ASSESSEE STARTED PROFE SSIONAL WORK OF BROKERAGE/ COMMISSION AND ALSO BUSINESS OF BPO. THE BPO BUSINESS AND CAR RENTAL BUSINESS HAD BEEN SOLD IN A SSESSMENT YEAR 2007-08. IT WAS ALSO OBSERVED BY HIM THAT THE LOANS TAKEN BY THE ASSESSEE IN THE EARLIER YEARS HAD BEEN MAINLY U SED TOWARDS THE INVESTMENT CURRENT LOANS AND ADVANCES. DURING T HE CURRENT YEAR I.E. ASSESSMENT YEAR 2008-09 THE ASSESSEE HAD EARNED ONLY INTEREST INCOME AND BROKERAGE INCOME FOR WHICH NO B ORROWINGS HAD BEEN UTILIZED. HE, THEREFORE, DISALLOWED THE IN TEREST EXPENDITURE OF RS. 4,92,87,061/-. HE ALSO COMPUTED DISALLOWANCE OF INTEREST U/S 14A OF RS. 1,48,32,122/-. SINCE ENT IRE INTEREST WAS ALREADY DISALLOWED, NO FURTHER DISALLOWANCE WAS MAD E U/S 14A. 2.2 THE ASSESSEE DISPUTED THE DECISION OF AO AND SU BMITTED BEFORE CIT(A) THAT THE ASSESSEE HAD BEEN CARRYING O N DIFFERENT BUSINESS ACTIVITIES AND ALL THE ACTIVITIES WERE UN DER COMMON ADMINISTRATION AND MANAGEMENT OF THE BOARD OF DIREC TORS WITH COMMON SOURCE OF FUNDS. THERE WAS UNIT OF CONTROL W HICH WAS INDICATED BY INTERLACING, INTERDEPENDENCE AND INTER CONNECTION BETWEEN THE BUSINESSES. THE INTEREST EXPENDITURE IN CURRED ON BORROWINGS IN EARLIER YEARS INCLUDING THE ASSESSMEN T YEAR 2007- IL & FS MARITIME INFRASTRUCTURE LTD. 4 08IN WHICH THE BONDS WERE ISSUED HAD BEEN ALLOWED B Y THE AO. THE ASSESSMENT IN ASSESSMENT YEAR 2007-08 WAS COMPL ETED U/S 143(3). THE INTEREST CLAIMED IN ASSESSMENT YEAR 200 8-09 WAS IN RESPECT OF THE SAME BOND ON WHICH THE INTEREST HAD BEEN ALLOWED BY AO IN ASSESSMENT YEAR 2007-08. THERE WAS NO FURT HER BORROWINGS, MADE IN THE ASSESSMENT YEAR 2008-09. TH E AO HIMSELF HAS TAXED THE INCOME OF THE ASSESSEE UNDER THE HEAD BUSINESS AND, THEREFORE, THE EXPENSES INCURRED IN CLUDING INTEREST HAVE TO BE ALLOWED. IT WAS ALSO SUBMITTED THAT THER E WAS NO REQUIREMENT U/S 36(1(III) THAT THE INTEREST PAYMENT SHOULD BE RELATING ON THE SAME BUSINESS HAVE FALLEN ALLOWING THE INTEREST EXPENDITURE. THE ONLY REQUIREMENT WAS THAT THE FUN DS SHOULD HAVE BEEN BORROWED FOR THE PURPOSE OF BUSINESS. EVE N IF THE ASSESSEE HAD DISCONTINUED PART OF THE BUSINESS, THE LOSS INCURRED IN RESPECT OF SAID BUSINESS HAS TO BE ALLOWED AGAIN ST THE INCOME FROM THE REMAINING BUSINESS. THE ASSESSEE PLACED RE LIANCE ON THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF VEECUM SEES VS. CIT (220 ITR 185). IT WAS ALSO SUBMITTED THAT DURING TH E YEAR THE ASSESSEE HAD NOT TRADED IN ANY SHARES AND SECURITIE S. THE ASSESSEE CONTINUED TO CARRY ON BUSINESS ACTIVITIES. THERE WERE NO FACTUAL CHANGES SINCE ASSESSMENT YEAR 2007-08 IN WH ICH YEAR THE CLAIM HAS BEEN ALLOWED. IT WAS, THEREFORE, URGED TH AT THE CLAIM SHOULD BE ALLOWED THIS YEAR ALSO. 2.3 CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT INTEREST ON BORROWINGS MADE IN THE EA RLIER YEARS HAD BEEN ALLOWED AND THE SAME BORROWINGS WERE REPLACED BY THE BONDS IN ASSESSMENT YEAR 2007-08 AND INTEREST ON TH E BONDS WERE ALSO ALLOWED AND, THEREFORE, IT WAS ACCEPTED B Y THE DEPARTMENT THAT THE BORROWINGS OR BONDS HAD BEEN IS SUED FOR THE PURPOSE OF BUSINESS. EVEN IF THE CAR RENTAL BUSINES S AND BPO BUSINESS HAD BEEN TRANSFERRED IN ASSESSMENT YEAR 20 07-08, THE LOANS TAKEN EARLIER CONTINUED TO BE USED FOR THE PU RPOSE OF BUSINESS. THERE WAS NO DISPUTE THAT LOANS HAD BEEN TAKEN IN THE IL & FS MARITIME INFRASTRUCTURE LTD. 5 EARLIER YEAR FOR THE PURPOSE OF BUSINESS AND, THERE FORE, INTEREST HAD TO BE ALLOWED. CIT(A) ACCORDINGLY, DIRECTED THE AO TO DELETE THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF INTERES T, AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL BEFORE TRIBUNAL. 2.4 BEFORE US LEARNED AR FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES WHEREAS T HE LEARNED DR PLACED RELIANCE ON THE ORDER OF ASSESSING OFFICE R. 2.5 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF INTEREST IN RESPECT OF BONDS ISSUED BY THE ASSESSEE. THESE BOND S WERE ISSUED IN ASSESSMENT YEAR 2007-08 TO REPAY THE LOANS TAKEN IN THE EARLIER YEARS. IN THE EARLIER YEARS WHEN THE LOANS WERE TAK EN, INTEREST HAD BEEN ALLOWED AS DEDUCTION WHICH MEANS THE DEPARTMEN T ACCEPTED THE CLAIM THAT THE BORROWINGS WERE FOR THE PURPOSE OF BUSINESS. IN ASSESSMENT YEAR 2007-08, THE SAME BORROWINGS WERE R EPLACED BY BONDS, THEREFORE, THE NATURE OF BORROWINGS REMAINED THE SAME IN ASSESSMENT YEAR 2007-08. THOUGHT THE CAR RENTAL BUS INESS AND BPO BUSINESS HAS BEEN TRANSFERRED, ASSESSEE CONTINU ED TO DO THE BUSINESS AND THE INCOME HAS BEEN ASSESSED BY AO UND ER THE HEAD BUSINESS. THEREFORE, EVEN IF PART OF THE BU SINESS HAS BEEN TRANSFERRED, BORROWINGS MADE EARLIER FOR THE PURPOS E OF BUSINESS CONTINUED TO REMAIN FOR THE PURPOSE OF BUSINESS AND THE CLAIM OF DEDUCTION HAS TO BE ALLOWED. IN FACT IN ASSESSMENT YEAR 2007-08 THE AO HAS HIMSELF HAVE ALLOWED INTEREST ON ACCOUNT OF BONDS ISSUED AND, THEREFORE, THE FACTS REMAINING THE SAME THIS YEAR, THE DISALLOWANCE CANNOT BE JUSTIFIED. HOWEVER THE ASSE SSEE HAS MADE SUBSTANTIAL INVESTMENTS IN SHARES INCOME FROM WHICH IS EXEMPT. THEREFORE THE DISALLOWANCE OF INTEREST U/S 14A IS U PHELD. SUBJECT TO ABOVE THE ORDER OF CIT(A) ON THIS ISSUE IS CONFI RMED. IL & FS MARITIME INFRASTRUCTURE LTD. 6 2.2. WE FIND THAT ON IDENTICAL FACTS, THAT TOO IN T HE CASE OF THE ASSESSEE FOR A.Y. 2008-09, THE TRIBUNAL DELIBERATED UPON THE ISSUE AND FINALLY DECIDED IN FAVOUR OF THE ASSESSEE . IT IS ALSO NOTED THAT IDENTICAL CLAIM FROM AY 2002-03 TO 2006- 07 AND 2007-08 WERE DECIDED IN FAVOUR OF THE ASSESSEE. TH E AMOUNTS BORROWED WERE USED FOR THE PURPOSES OF BUSINESS. T HE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ALREADY DI SCUSSED THE ISSUE IN THE CASE OF VEECUMSEES VS COMMISSIONER OF INCOME TAX (APPEALS) (220 ITR 185), THUS, THE INTER EST WAS RIGHTLY HELD TO BE TREATED AS DEDUCTION U/S 36(1)(I II). THE LOANS WERE ALSO OBTAINED FOR THE PURPOSES OF BUSINESS. NO NEW FACTS OR CONTRARY DECISION WAS BROUGHT TO OUR NOTIC E BY EITHER SIDE AND MORE SPECIFICALLY THE REVENUE, THEREFORE, FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL AND WITHOUT GOING INTO MUCH DELIBERATION, BEING IDENTICAL ISSUE/FACTS. WE ARE SATISFIED WITH THE FACTUAL FINDING RECORDED BY THE LD. FIRST APPELLATE AUTHORITY, THEREFORE, WE AFFIRM THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), RESULTING INT O DISMISSAL OF THE APPEAL OF THE REVENUE. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 26/03/2015. ' ' $%& ( )* 26 /0 3 /2015 % ' / 0 SD/ - (D. KARUNAKARA RAO) S D/ - (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER IL & FS MARITIME INFRASTRUCTURE LTD. 7 ) MUMBAI; ( ) DATED : 26/03/2015 F{X~{T? P.S/. .. %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. 23 45 / THE APPELLANT 2. 6745 / THE RESPONDENT. 3. 8 ( 23 ) / THE CIT, MUMBAI. 4. 8 / CIT(A)- , MUMBAI 5. :; / 6 < , 23# 2< , ) / DR, ITAT, MUMBAI 6. / / GUARD FILE. / BY ORDER, 7 :3 6 //TRUE COPY// / (DY./ASSTT. REGISTRAR) , ) / ITAT, MUMBAI