A.C.I.T. CIRCLE - 2(3)(1), Mumbai V. TRUST CAPITAL SERVICES (INDIA) PVT. LTD., Mumbai

ITA 709/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5372 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2014-2015
• Appeal Filed On: 06-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K CHATURVEDI
• Keywords: Earning of tax free income; Commercial expediency
• Section: 143(3); 14A

Judgement Text

1 IN THE INCOME-TAX APPELLATE TRIBUNAL E BENCH MUMB AI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ITA NO. 709/MUM/2018 (ASSESSMENT YEAR 2014-15 ) ACIT, CIRCLE-2(3)(1), R.NO. 552, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. VS. M/S TRUST CAPITAL SERVICES (INDIA) PVT. LTD., 105, VIKAS, 11 BANK STREET, FORT, MUMBAI- 400023. PAN: AABCT3654P APPELLANT RESPONDE NT APPELLANT BY : SHRI V.K. CHATURVEDI (SR.DR) RESPONDENT BY : SHRI SANJAY PARIKH (AR) DATE OF HEARING : 10.04.2019 DATE OF PRONOUNCEMEN T : 31.05.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY REVENUE UNDER SECTION 253 OF INCOME- TAX ACT (ACT) IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF I NCOME-TAX (APPEALS)- 6, MUMBAI [HEREINAFTER REFERRED AS LD. CIT(A)] DATE D 15.11.2017 FOR ASSESSMENT YEAR 2014-15, WHICH IN TURN ARISES FROM THE ASSESSMENT ORDER DATED 29.12.2016 PASSED UNDER SECTION 143(3) OF THE ACT. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) HAS ERRED IN PARTIALLY DELETING THE DISALLOWANC E MADE U/S 36(1)(III) OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE BEING A NON-BANKING FINANCIAL COMPANY PAID HIGHER RATE OF INTEREST TO I TS LENDERS THAN THE RATE OF INTEREST RECEIVED ON LOANS EXTENDED BY IT.' 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE NOTIONAL LOSS D EBITED BY THE ASSESSEE IN ITA NO. 709 MUM 2018-M/S TRUST CAPIT AL SERVICES (INDIA) PVT. LTD. 2 THE P&L ACCOUNT WITHOUT CONSIDERING THE FACT THAT T HE PROVISION FOR LOSS MADE BY THE ASSESSEE WAS CONTINGENT IN NATURE AND T HE SAME SHOULD HAVE BEEN DISALLOWED AS PER CBDT INSTRUCTION NO.3/2010 D ATED 23.03.2010'. 3.0N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING DISALLOWANCE U/S.14A OF THE ACT W ITHOUT APPRECIATING THE FACT THAT REVENUE HAS FILED FURTHER APPEAL ON THE S AME ISSUE BEFORE HON'BLE SUPREME COURT IN THE CASE OF CHEMINVEST LTD.' 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF INVESTMENT IN SECURITIES. THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2014-15 ON 30.11.2014 DE CLARING TOTAL INCOME OF RS. 10,40,99,210/-. THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED ON 29.12. 2016 UNDER SECTION 143(3) OF THE ACT. THE ASSESSING OFFICER WHILE PASS ING THE ASSESSMENT ORDER MADE THE ADDITION OF RS.62,71,660/- UNDER SEC TION 36(1)(III), ADDITION OF RS.64.24,201/- ON ACCOUNT OF MARKET TO MARKET LOSS AND DISALLOWANCE OF RS. 15,88,675/- UNDER SECTION 14A. ON APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE WAS ALLOWED PARTIAL RELIEF ON THE ADDITION UNDER SECTION 36(1)(III), HOWEVER, REMAINING OTHER ADDITI ONS/DISALLOWANCE WAS DELETED. THUS, AGGRIEVED BY THE ORDER OF LD. CIT(A) , THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. 3. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR FOR THE REVENUE AND THE LD AR FOR THE ASSESSEE AND PERUSED THE MATERIAL AVAILA BLE ON RECORD. WE HAVE ALSO DELIBERATED ON VARIOUS CASE LAWS RELIED B Y THE LOWER AUTHORITIES AND THE LD. REPRESENTATIVES OF THE PARTIES. GROUND NO.1 RELATES TO SUSTAIN ITA NO. 709 MUM 2018-M/S TRUST CAPIT AL SERVICES (INDIA) PVT. LTD. 3 THE PARTIAL THE DISALLOWANCE OF INTEREST EXPENSES U NDER SECTION 36(1)(III). THE LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE RE VENUE SUPPORTED THE ORDER OF ASSESSING OFFICER. THE LD. DR SUBMITS THAT THE ASSESSEE DURING THE RELEVANT PERIOD THE ASSESSEE HAS AVAILED LOAN F ROM M/S INFOLINE FINANCE AND PAID INTEREST @ 16%. HOWEVER, THE ASSES SEE HAS CHARGED LESSER INTEREST @ 12% PER ANNUM FOR LOANS GIVEN TO THE SAME COMPANY. BESIDES THAT THE ASSESSEE HAS ALSO CHARGED INTEREST FROM THE RELATED PARTIES AT A LOWER RATE OF INTEREST AVERAGE RATE OF INTEREST OF 8.968% WHEREAS THE ASSESSEE HAS PAID CHARGES AT AVERAGE RA TE INTEREST OF 10.97%. THE ASSESSEE ALSO CHARGED INTEREST FROM RELATED PAR TY @ 8% AND PAID INTEREST TO SANKHYA FINANCIAL SERVICES P. LTD. @ 14 %. THE ASSESSING OFFICER WORKED OUT THE ADDITION/DISALLOWANCE BY TAK ING AVERAGE RATE OF INTEREST (-) AVERAGE RATE OF INTEREST RECEIVED AND MULTIPLIED WITH TOTAL AMOUNT OF INTEREST RECEIVED (-) INTEREST RECEIVED F ROM M/S INDIA INFOLINE FINANCE LTD. (SUPRA) AND DIVIDED BY AVERAGE RATE OF INTEREST RECEIVED AND WORKED OUT EXCESS INTEREST OF RS. 62.71 LAKHS. THE AO WAS OF THE VIEW THAT THE ASSESSEE HAD FAILED TO EXPLAIN COMMERCIAL EXPEDIENCY IN GRANTING LOANS AT LOWER RATE OF INTEREST. THE LD. CIT(A) DEL ETED THE INTEREST OF RS. 4,65,753/- AGAINST THE INTEREST PAYMENT TO M/S INDI A INFOLINE FINANCE LTD. AS IN THE OPINION OF THE LEARNED CIT(A) THE SA ID PARTY INDIA INFOLINE FINANCE LIMITED IS AN NBFC WHERE IN COMMERCIAL REA LTY NBFCS HAVE HIGHER LENDING RATES AND LOWER DEPOSITS . FURTHER I T WAS OBSERVED BY ITA NO. 709 MUM 2018-M/S TRUST CAPIT AL SERVICES (INDIA) PVT. LTD. 4 LEARNED CIT(A) THAT THE SAID INDIA INFOLINE FINANCE LIMITED IS NOT A RELATED PARTY. THE LEARNED CIT(A) DELETED THE SAID ADDITION BY HOLDING THAT INTEREST PAID BY ASSESSEE TO INDIA INFOLINE FI NANCE LIMITED WAS FOR BUSINESS PURPOSES AND ORDERED FOR DELETION OF DISAL LOWANCE OF RS. 4,65,753/- AS WAS MADE BY AO U/S 36(1)(III) OF THE 1961 ACT. WITH RESPECT TO DISALLOWANCE OF INTEREST PAID TO RELATED PARTIES WHEREIN THE AO HAD ALLEGED THAT BORROWING COSTS WERE HIGHER THAN L ENDING RATES TO THESE RELATED PARTIES WHILE DISALLOWING INTEREST EXPENSES , THE LEARNED CIT(A) OBSERVED THAT FACTUALLY THE INTEREST PAID TO ONE RE LATED PARTY IS HIGHER, WHILE INTEREST RECEIVABLE FROM ALL OF THEM IS AT 8% ONLY. THE LEARNED CIT(A) WAS OF THE VIEW THAT IT IS FOR THE ASSESSEE TO DEMONSTRATE WHILE DEALING WITH RELATED PARTIES AS TO COMMERCIAL EXPED IENCY IN BORROWING AT HIGHER RATE OF INTEREST WHILE LENDING AT LOWER RATE OF INTEREST. THE LEARNED CIT(A) AFFIRMED THE ACTION OF AO IN DISALLOWANCE OF DIFFERENTIAL INTEREST RATES U/S 36(1)(III) OF THE 1961 ACT . THE LEARNED CIT(A) ALSO APPLIED PROVISIONS OF SECTION 40A(2)(B) OF THE 1961 ACT. TH E LEARNED CIT(A) AFTER ANALYZING THE DETAILS ALSO OBSERVED THAT ASSE SSEE HAS ALSO BORROWED FROM RELATED PARTIES @8% AND THUS THE LEARNED CIT(A ) ORDERED THE DISALLOWANCE TO BE RECOMPUTED BY RESTRICTING THE SA ME TOWARDS DIFFERENTIAL INTEREST RATE OF 6% IN CASE OF SANKHY A FINANCIAL SERVICES P. LTD.. THE LD. DR FOR THE REVENUE PRAYED FOR REVERSI NG THE ORDER OF LD CIT(A) AND RESTORING THE ORDER OF ASSESSING OFFICER . ITA NO. 709 MUM 2018-M/S TRUST CAPIT AL SERVICES (INDIA) PVT. LTD. 5 4. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUPPO RTED THE ORDER OF LD. CIT(A). THE LD. AR OF THE ASSESSEE SUBMITS THAT ASS ESSEE HAD GIVEN ADVANCE TO M/S INDIA INFOLINE FINANCE LTD. AND CHAR GED INTEREST @ 12%. THE ASSESSEE ALSO RECEIVED A LOAN FROM M/S INDIA IN FOLINE FINANCE LTD. AND PAID INTEREST @ 16%. THE ASSESSEE RECEIVED INTE REST OF RS. 24.57 LAKHS AND PAID INTEREST OF RS. 18.63 LAKHS TO SAID PARTY INDIA INFOLINE FINANCE LIMITED. THE ASSESSING OFFICER ACCORDINGLY DISALLOWED EXCESS INTEREST @ 4% OF RS. 4,64,753/-, WHICH DECISION OF AO WAS REVERSED BY LEARNED CIT(A) AS THE SAID PARTY IS NBFC AND NOT A RELATED PARTY . THE DECISION OF THE ASSESSEE TO PAY THIS DIFFERENTIAL I NTEREST WERE HELD TO BE GOVERNED BY COMMERCIAL EXPEDIENCY. THE LD. AR OF TH E ASSESSEE FURTHER SUBMITS THAT THE ASSESSEE HAD BORROWED FUND AT A SH ORT NOTICE AND FOR A SHORT PERIOD OF TIME I.E. AT THE TIME OF SETTLEMENT . IMMEDIATELY AFTER PAYMENT IS MADE FOR SETTLEMENT AND MONEY IS RECOVER ED FROM THE CLIENT, THE LOAN WAS RE-PAID THAT IS WHY THE ASSESSEE PAID INTEREST AT HIGHER RATE I.E @ 16% WHICH WAS A SHORT TERM LOAN. THE ASSESSEE GAVE LOAN TO M/S INDIA INFOLINE FINANCE LTD. AS INTER CORPORATE DEPO SIT (ICD) FOR A LONGER PERIOD. ACCORDINGLY, THE INTEREST RATE OF SUCH ICD GIVEN WAS AT A LOWER RATE OF INTEREST. M/S INDIA INFOLINE FINANCE LTD. I S NOT A RELATED ENTITY WITH THE ASSESSEE. FURTHER, BEING CORPORATE ENTITY, THE TAX RATE APPLICABLE TO M/S INDIA INFOLINE FINANCE LTD. AND ASSESSEE ARE SAME. THE DIFFERENCE IN INTEREST PAID WAS ONLY ON ACCOUNT OF IMMEDIATE D EMAND, SUPPLY NEED ITA NO. 709 MUM 2018-M/S TRUST CAPIT AL SERVICES (INDIA) PVT. LTD. 6 AND BUSINESS EXPEDIENCY. FOR DISALLOWANCE IN RESPEC T OF REMAINING OTHER PARTIES OF RS. 58,05,907/-, THE LD. AR OF THE ASSES SEE SUBMITS THAT ASSESSEE HAS TAKEN SHORT TERM BORROWINGS IN ORDER T O MEET ITS COMMITMENT AT THE TIME OF SETTLEMENT. THEREFORE, TH E ASSESSEE IS REQUIRED TO BORROW THE FUNDS FROM WHATEVER SOURCES AVAILABLE AT WHATEVER COMPETITIVE RATE OF INTEREST THE LOAN IS AVAILABLE IN MARKET. MOST OF THE PARTIES WHO PROVIDED LOAN ARE CORPORATE ASSESSEE. T HE INTEREST PAID TO UNRELATED PARTY ARE 13% TO 14% & 8% TO RELATED PART Y. THE ASSESSEE CHARGED INTEREST @ 12% FROM UNRELATED PARTIES AND @ 8% FROM RELATED PARTIES. IN MOST OF THE CASES, THE ASSESSEE HAS GEN ERALLY PAID AND RECEIVED INTEREST @ 8% FROM RELATED PARTIES, EXCEPT SANKHYA FINANCIAL SERVICES P. LTD., WHICH IS A NON-BANKING FINANCIAL COMPANY (NBF C) WHICH GIVEN LOAN TO THE ASSESSEE OUT OF BORROWINGS FOR WHICH, T HE ASSESSEE HAD TO PAY INTEREST @ 14%. THE LD. CIT(A) AFTER APPRECIATING T HE FACT RIGHTLY DELETED THE ADDITION/DISALLOWANCE OF RS. 4,65,753/- OUT OF INTEREST PAID TO M/S INDIA INFOLINE FINANCE LTD. SIMILARLY FOR SANKHYA F INANCIAL SERVICES P. LTD., WHICH IS RELATED PARTY THE DIFFERENTIAL RATE OF INTEREST I.E 6% AS BORROWING RATES WERE 14% WHILE LENDING RATE WAS 8% WAS DISALLOWED BY LEARNED CIT(A), WHICH DISALLOWANCE IS ACCEPTED BY A SSESSEE AND NO CHALLENGE IS MADE TO SUCH DISALLOWANCE UPHELD BY LE ARNED CIT)A. 5. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND GONE THROUGH THE ORDER OF AUTHORITIES BELOW. WE HAVE ALSO DELIBE RATED ON VARIOUS CASE ITA NO. 709 MUM 2018-M/S TRUST CAPIT AL SERVICES (INDIA) PVT. LTD. 7 LAWS RELIED BY LOWER AUTHORITIES AND LD. REPRESENTA TIVE OF THE PARTIES. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OF FICER NOTED THAT ASSESSEE HAS PAID INTEREST AT A HIGHER RATE OF LOAN S TAKEN FROM M/S INDIA INFOLINE FINANCE LTD., HOWEVER, ASSESSEE HAS CHARGE D INTEREST AT LOWER RATE FOR LOANS GIVEN TO THE SAME COMPANY. THE ASSES SEE PAID INTEREST @ 16% PER ANNUM, HOWEVER, CHARGED INTEREST @ 12% FROM THE SAME COMPANY. THE ASSESSEE ALSO CHARGED THE INTEREST FRO M THE RELATED PARTY AT THE LOWER INTEREST AVERAGE @ 8.96% WHEREAS; THE ASS ESSEE HAS PAID INTEREST AT AVERAGE RATE OF 10.97%. SIMILARLY, THE ASSESSEE HAS PAID INTEREST @ 14% TO SANKHYA FINANCIAL SERVICES P. LTD . THE ASSESSING OFFICER IDENTIFIED ALL THOSE PARTIES TO WHICH ASSES SEE EITHER CHARGED INTEREST OR PAID INTEREST DURING THE RELEVANT FINAN CIAL YEAR. THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE/ADDIT ION IN THE FOLLOWING MANNER: INDIA INFOLINE FINANCE LTD. INTEREST DISALLOWANCE 18,63,014 X 16-12 (DIFFERENTIAL INTEREST RATE) / 16 =4,65,753 INTEREST DISALLOWANCE OF OTHER PARTIES (AVG. RATE OF INTEREST PAID- AVG. RATE OF INTEREST RECEIVED) X (TOTAL AMOUNT OF INTEREST RECEIVED-INTEREST RECEIVED FROM INDIA INFO LINE)/ AVG. RATE OF INTEREST RECEIVED (10.971%-8.9618%) X (28356678-2457534)/8.9618= 2.009 X 25899144/ 8.9618 = 58,05,907 6. THE LD. CIT(A) WHILE CONSIDERING THE SUBMISSION OF ASSESSEE DIVIDED THE TRANSACTION IN TWO PARTS I.E. (I) WITH M/S INDIA I NFOLINE FINANCE LTD. AND (II) OTHER RELATED ENTITIES. FOR THE TRANSACTION WI TH M/S INDIA INFOLINE ITA NO. 709 MUM 2018-M/S TRUST CAPIT AL SERVICES (INDIA) PVT. LTD. 8 FINANCE LTD., THE LD. CIT(A) OBSERVED THAT THE ASSE SSEE HAS TAKEN SHORT TERM BORROWING TO MEET THE SETTLEMENT NEEDS OF INTE REST FUTURES. THE M/S INDIA INFOLINE FINANCE LTD. IS A NBFC WHICH IS DEAL S IN TAKING DEPOSIT AND LENDING THE MONEY. THE LD. CIT(A) FURTHER OBSER VED THAT IN COMMERCIAL REALITY, THE LOAN RATES OF BANK OF NBFC WERE HIGHER THAN INTEREST PAID ON DEPOSIT. M/S INDIA INFOLINE FINANC E LTD. IS NOT A RELATED PARTY, THUS IT CANNOT BE SAID THAT INTEREST PAID TO THEM IS NOT FOR BUSINESS PURPOSE. THEREFORE, THE DISALLOWANCE WAS TREATED AS UNJUSTIFIABLE AND DELETED THE SAME ACCORDINGLY. 7. SO FAR AS DISALLOWANCE OF INTEREST TO RELATED PARTI ES ARE CONCERNED, THE LD. CIT(A) OBSERVED THAT THE INTEREST PAID TO ONLY RELA TED PARTY IS HIGHER, WHEREAS THE INTEREST RECEIVED FROM ALL OF THEM IS A T 8% ONLY. THE LD. CIT(A) FURTHER OBSERVED THAT THE ASSESSEE HAS TO DE MONSTRATE THE BUSINESS EXPEDIENCY AND NEED WHILE DEALING WITH REL ATED PARTIES FOR PAYMENT OF INTEREST AT HIGHER RATE AND OR CHARGING LESS RATE OF INTEREST. AS SIMPLE AND SELF SERVING STATEMENT IS NOT SUFFICIENT . THE LD CIT(A) OBSERVED THAT THE ASSESSING OFFICER HAS PREPARED A COMPLETE CHART OF INTEREST RATE CHART AND PAID IN A TABULAR FORMAT IN PARA 6.1 OF HIS ORDER. THE LD. CIT(A) FURTHER OBSERVED THAT PARTY NO. 1 TO 8 ARE RELATED PARTIES AND THE INTEREST PAID AND RECEIVED FROM THOSE PARTI ES ARE @ 8% EXCEPT IN CASE OF SANKHYA FINANCIAL SERVICES P. LTD. THUS, TH E DISALLOWANCE CONSEQUENTIAL TO DIFFERENCE INTEREST RATE HAS RIGHT LY BEEN DONE BY ITA NO. 709 MUM 2018-M/S TRUST CAPIT AL SERVICES (INDIA) PVT. LTD. 9 ASSESSING OFFICER AS PROVISION OF SECTION 40A(2)(B) WOULD ALSO BE APPLICABLE. THE LD. CIT(A) FURTHER OBSERVED THAT TH ERE ARE INSTANCES THAT INTEREST PAID TO RELATED PARTIES AT 8% AND THEREFOR E, THE DISALLOWANCE MADE BY ASSESSING OFFICER WOULD BE JUSTIFIED TO BE RESTRICTED TO ONLY ONE CASE ON SANKHYA FINANCIAL SERVICES P. LTD. WHEREAS THE DIFFERENCE RATE OF INTEREST IS AT 6%. THEREFORE, THE ASSESSING OFFICER WAS DIRECTED TO RE- COMPUTE THE DISALLOWANCE OF INTEREST BY TAKING JUST IFIABLE RATE TO SANKHYA FINANCIAL SERVICES P. LTD. @ 8% ONLY AND GRANTED P ARTIAL RELIEF TO THE ASSESSEE. THE ASSESSEE HAS NOT CHALLENGED THE DISAL LOWANCE AS WERE AFFIRMED BY LEARNED CIT(A) WITH RESPECT OF INTEREST RATE DIFFERENTIAL SANKHYA FINANCIAL SERVICES PRIVATE LIMITED. 8. WE HAVE NOTED THAT THE LD. CIT(A) PASSED THE ORDER AFTER PROPERLY APPRECIATING THE FACT AND DIRECTED TO RECOMPUTE THE INTEREST DISALLOWANCE. WE HAVE OBSERVED THAT THE SAID PARTY M/S INDIA INFO LINE FINANCE LIMITED IS AN UNRELATED PARTY. IT IS EXPLAINED BY THE ASSES SEE BEFORE THE AUTHORITIES BELOW THAT THE ASSESSEE IS IN THE BUSINESS OF TRADI NG IN INTEREST FUTURES AND BORROWING ARE MADE AT SHORTER NOTICE FOR A SHOR TER PERIOD TO MEET IMMEDIATE FUND REQUIREMENTS AT THE TIME OF SETTLEME NT AND ONCE MONEY IS RECOVERED FROM CLIENTS, THE LOANS AND ADVANCES A RE REPAID. IT WAS EXPLAINED THAT THE LOAN BORROWED FROM INDIA INFOLIN E FINANCE LIMITED @16% WAS A SHORT TERM LOAN WHILE LOAN GRANTED TO IN DIA INFOLINE FINANCE LIMITED WAS AN INTER CORPORATE DEPOSIT FOR A LONGER PERIOD AND ITA NO. 709 MUM 2018-M/S TRUST CAPIT AL SERVICES (INDIA) PVT. LTD. 10 HENCE LOWER RATE OF INTEREST @12% WAS CHARGED. THIS IS A PLAUSIBLE VIEW OFFERED BY THE ASSESSEE GOVERNED BY PRINCIPLES OF C OMMERCIAL EXPEDIENCY AND THE ONUS WHICH LAY ON ASSESSEE STOO D DISCHARGED . NOW IT WAS FOR REVENUE TO HAVE REBUTTED THE SAME WITH C OGENT EVIDENCES THAT THE SAID DECISION WAS NOT GOVERNED BY PRINCIPLES OF COMMERCIAL EXPEDIENCY . MERELY BECAUSE WHILE DEALING WITH A PA RTY WHO IS AN NBFC, THE BORROWING RATES ARE HIGHER THAN LENDING R ATE , INFERENCES CANNOT BE DRAWN AGAINST THE TAX-PAYER IN A STRAIGHT JACKET MANNER. THE TERMS AND CONDITIONS OF BORROWING/LENDING IN TOTALI TY AS WELL SURROUNDING CIRCUMSTANCES GOVERNING SUCH BUSINESS DECISION OUGH T TO HAVE BEEN EVALUATED BY AO TO REBUT THE CONTENTIONS OF THE ASS ESSEE. THE AO FAILED TO DO SO AND FURTHER THE AO CANNOT SIT IN THE ARM C HAIR OF BUSINESSMEN AND DECIDE ABOUT COMMERCIAL EXPEDIENCY OF BUSINESS DECISION TAKEN BY TAX-PAYER. WITH RESPECT TO OTHER DISALLOWANCE OF I NTEREST RATE DIFFERENTIAL MADE BY THE AO WHICH WERE DELETED BY LEARNED CIT(A) , WE HAVE OBSERVED FROM THE CHART OF BORROWINGS AND LENDING A S REPRODUCED BY LEARNED CIT(A) IN PARA 6.1 THAT THE ASSESSEE HAS B ORROWED FROM RELATED PARTIES AT 8% AND LOANS WERE ALSO GRANTED TO RELAT ED PARTIES AT 8% . THE MAJOR BORROWINGS WERE FROM TRUST INVESTMENT ADVISOR PRIVATE LIMITED , A RELATED PARTY WHEREIN INTEREST @ 8% WAS PAYABLE A MOUNTING TO RS. 3.00 CRORES. SO FAR AS ALLEGATION OF LENDING AT LOW ER RATE OF INTEREST TO JM FINANCIAL SERVICES LIMITED @0.5% IS CONCERNED , IT IS EXPLAINED BY ITA NO. 709 MUM 2018-M/S TRUST CAPIT AL SERVICES (INDIA) PVT. LTD. 11 ASSESSEE THAT THE ASSESSEE HAS PAID RS. 22.69 LACS TO JM FINANCIAL SERVICES PRIVATE LIMITED TOWARDS PROCESSING CHARGES / BROKERAGE FOR ARRANGING LOAN FROM M/S JM FINANCIAL PRODUCTS LIMIT ED . IF THE PROCESSING CHARGES/BROKERAGE FOR ARRANGING LOANS AR E PAID, WE FAIL TO UNDERSTAND HOW THE SAME CAN BE CONSIDERED FOR COMPU TING DISALLOWANCE BASED ON INTEREST RATE DIFFERENTIAL. SO FAR AS DISA LLOWANCE CONFIRMED BY LEARNED CIT(A) WITH RESPECT TO INTEREST RATE DIFFER ENTIAL TO A RELATED PARTY NAMELY SANKHYA FINANCIAL SERVICES PRIVATE LIMITED , THE ASSESSEE HAS ACCEPTED THE SAME AND NO APPEAL/CO IS FILED BY THE ASSESSEE. THE CHARGEABILITY OF INTEREST ON LOANS GRANTED BY A TAX PAYER VIS-A-VIS INTEREST PAYABLE ON BORROWINGS ARE COMMERCIAL DECISIONS TAKE N BY A TAX-PAYER BASED ON COMMERCIAL EXPEDIENCY. THERE ARE SEVERAL F ACTORS WHICH GOVERN THESE DECISIONS SUCH AS PERIOD OF LOAN, TERMS OF LO AN, IMMEDIATE PRESSING BUSINESS NEEDS , SECURITIES OFFERED ETC FOR BORROWI NG/LENDING. THE REVENUE CANNOT SIT IN THE ARM CHAIR OF BUSINESSMEN AND START SCRUTINIZING THESE DECISIONS WITHOUT ANALYZING THE SEVERAL COMP LEX REASONS WHICH GOVERN DECISION MAKING PROCESS UNDERTAKEN BY A BUSI NESSMAN UNLESS IT IS SHOWN THAT MALAFIDE IS WRIT LARGE WITH A VIEW TO DE FRAUD REVENUE. IN OUR VIEW THE LD CIT(A) HAS TAKE A REASONABLE VIEW, WHIC H WE AFFIRM. NO CONTRARY FACT OR LAW IS BROUGHT TO OUR NOTICE TO TA KE ANY OTHER VIEW. THEREFORE, WE DO NOT FIND ANY JUSTIFICATION TO INTE RFERE WITH THE FINDING OF LD. CIT(A). IN THE RESULT, GROUND NO.1 OF THE APPEA L IS DISMISSED. ITA NO. 709 MUM 2018-M/S TRUST CAPIT AL SERVICES (INDIA) PVT. LTD. 12 9. GROUND NO.2 RELATES TO DISALLOWANCE OF MARKET TO MA RKET LOSS. THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF ASSESSING OF FICER. THE LD. DR FURTHER SUBMITS THAT ASSESSING OFFICER WHILE GOING THROUGH THE PROFIT & LOSS ACCOUNT NOTED THAT ASSESSEE HAS INCURRED NOTIO NAL LOSS OF RS. 64,24,201/-. THE LOSS BEING NOTIONAL IN NATURE WHIC H IS ONLY CONTINGENT AND WAS DISALLOWED AS PER PROVISION OF SECTION 37. 10. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUBMI TS THAT THIS GROUND OF APPEAL IS COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COURT AND THE DECISION OF TRIBUNAL IN SUPPORT OF HIS SUBMISSI ON, THE LD. AR OF THE ASSESSEE RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN DIT(IT) VS. CITYBANK [377 ITR 69], CIT VS. D. CHATA N & COMPANY [390 ITR 36 (BOM)], DCIT VS. BANK OF BAHRAIN AND KUWIT [ 2010] 5 ITR (TRIB.) 301 (MUM) (SB), IDBI VS. CAPITAL MARKET SER VICES LTD. VS. DCIT [2015] 42 ITR (TRIB.) 379 (MUM). 11. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF LOWER AUTHORITIES. WE HAVE OB SERVED THAT THE ASSESSEE IS TRADING IN INTEREST RATE FUTURES. THE A SSESSEE HAS CLAIMED LOSSES AS ON YEAR END BASED ON OPEN POSITIONS OF IN TEREST RATE FUTURES. THESE INTEREST RATE FUTURES ARE TRADED IN STOCK EXC HANGES. THE COPIES OF CONTRACT NOTES ARE PLACED IN PAPER BOOK. THE ASSESS EE HAS CLAIMED THE SAME TO HAVE ACCRUED DUE TO FLUCTUATION IN MARKET R ATES PREVAILING ON STOCK EXCHANGE AS AT YEAR END. THE ASSESSEE HAS CLA IMED THAT IT FOLLOWED ITA NO. 709 MUM 2018-M/S TRUST CAPIT AL SERVICES (INDIA) PVT. LTD. 13 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND IT IS NOT A CONTINGENT OR NOTIONAL LOSS AS THE SAID LOSS CRYSTALLIZED DUE TO ADVERSE RATE MOVEMENTS IN INTEREST RATE FUTURES AS AT YEAR END. WE HAVE ALSO DELIBERATED ON VARIOUS CASE LAW REFERRED AND RELIED BY LOWER AUTHO RITIES AND BY LD. REPRESENTATIVE OF THE PARTIES. THE ASSESSING OFFICE R DISALLOWED THE MARKED TO MARKET LOSS CONSIDERING THE SAME TO BE NO TIONAL IN NATURE AND FOR THE REASONS THAT APPELLANT HAS NOT SUBMITTED AN Y ACTUAL GAIN OR LOSS IN THE NEXT YEAR. WE HAVE NOTED THAT LD. CIT(A) GRANTE D RELIEF TO THE ASSESSEE BY FOLLOWING THE DECISION OF TRIBUNAL IN I DBI VS. CAPITAL MARKET SERVICES LTD.(SUPRA) AND THE DECISION OF SPE CIAL BENCH IN DCIT VS. BANK OF BAHRAIN AND KUWAIT (SUPRA). THE LD. CIT (A) FURTHER CONCLUDED THAT THE ASSESSEE HAS MADE SUBMISSION TO ASSESSING OFFICER REGARDING FINANCIAL OUTCOME OF DERIVATIVE IN THE NE XT YEAR DURING THE ASSESSMENT, COPY OF WHICH WAS ALSO FURNISHED FOR TH E PERUSAL OF LD. CIT(A), THEREFORE, THE LD. CIT(A) BY FOLLOWING THE DECISION OF IDBI VS. CAPITAL MARKET SERVICES LTD.(SUPRA) DIRECTED THE AS SESSING OFFICER TO DELETE THE DISALLOWANCES. IN OUR CONSIDERED VIEW AL SO THIS LOSS IS NOT A NOTIONAL LOSS OR CONTINGENT LOSS AS INFACT THE LOSS CRYSTALLIZED AS AT YEAR END DUE TO ADVERSE PRICE MOVEMENTS OF DERIVATIVES I N STOCK MARKET. NO CONTRARY LAW OR FACT IS BROUGHT TO OUR NOTICE TO DE VIATE FROM THE FINDING OF LD. CIT(A). IN THE RESULT, GROUND NO.2 OF THE AP PEAL IS ALSO DISMISSED. ITA NO. 709 MUM 2018-M/S TRUST CAPIT AL SERVICES (INDIA) PVT. LTD. 14 12. GROUND NO.3 RELATES TO DISALLOWANCE UNDER SECTION 1 4A. THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF LD. ASSESSING OF FICER. 13. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUBMI TS THAT DURING THE RELEVANT FINANCIAL YEAR, THE ASSESSEE HAS NOT EARNE D ANY EXEMPT INCOME; THEREFORE, NO DISALLOWANCE UNDER SECTION 14A IS WAR RANTED. IN SUPPORT OF HIS SUBMISSION, THE LD. AR OF THE ASSESSEE RELIED U PON THE DECISION OF JURISDICTIONAL HIGH COURT IN PCIT VS. BALARPUR INDU STRIES LTD. (ITA NO. 51/2015 DATED 13.10.2016). 14. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND HAVE PERUSED THE ORDER OF LOWER AUTHORITIES. WE HAVE ALSO DELIBE RATED ON VARIOUS CASE LAW RELIED BY RESPECTIVE PARTIES. THE ASSESSING OFF ICER NOTED THAT THE ASSESSEE HAS MADE INVESTMENT OF RS. 7.36 CRORE OUT OF TOTAL NON-CURRENT INVESTMENT OF RS. 39.16 CRORE IN UNLISTED EQUITIES AND MUTUAL FUND. THE ASSESSING OFFICER WHILE RELYING UPON THE DECISION O F SPECIAL BENCH IN MUMBAI TRIBUNAL IN M/S DAGA CAPITAL MANAGEMENT PVT. LTD. INVOKED THE PROVISION OF SECTION 14A R.W.R. 8D AND WORKED O UT THE DISALLOWANCE OF RS. 15,88,675/-. BEFORE THE LD. CIT(A), THE ASSE SSEE CONTENDED THAT THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME DURING THE RELEVANT FINANCIAL YEAR, THEREFORE, THERE WAS NO QUESTION OF DISALLOWANCE UNDER SECTION 14A. THE LD. CIT(A) DELETED THE ENTIRE DISA LLOWANCE BY FOLLOWING THE DECISION OF HONBLE DELHI HIGH COURT IN CHEMINV EST LTD. VS. CIT 9378 ITR 33). ITA NO. 709 MUM 2018-M/S TRUST CAPIT AL SERVICES (INDIA) PVT. LTD. 15 15. WE HAVE FURTHER NOTED THAT THE JURISDICTIONAL HIGH COURT PCIT VS. BALARPUR INDUSTRIES LTD. (SUPRA) BY FOLLOWING THE D ECISION OF HONBLE DELHI HIGH COURT IN ITA NO. 749/2014 HELD THAT THE PROVISION OF SECTION 14A WOULD NOT APPLY, IF NO EXEMPT INCOME WAS RECEIV ED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. CONSIDERING THE ABOVE FACTUAL AND LEGAL DISCUSSION WE DO NOT FIND ANY ILLEGALITY OR I NFIRMITY IN THE ORDER PASSED BY LD. CIT(A), WHICH WE AFFIRM. IN THE RESUL T THE GROUND NO.3 OF THE APPEAL IS ALSO DISMISSED. 16. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31/05/2019. SD/- SD /- RAMIT KOCHAR PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 31.05.2019 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR E BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI