M.K.COMMODITY, MUMBAI V. ITO 8(2)(3), MUMBAI

ITA 89/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88674 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 31-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 03-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRASHANT THAKKAR
• Keywords: Wholly owned subsidiary; Commercial expediency
• Section: 37

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , . . , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO.89/MUM/2013 ASSESSMENT YEAR: 2009-10 MK COMMODITY BROKERS LIMITED, 501, HERITAGE PLAZA, J.P. ROAD OPP. INDIAN OIL COLONY, ANDHERI (WEST), MUMBAI-400053 / VS. THE INCOME TAX OFFICER- 8(2)(3), AAYAKAR BHAWAN, MUMBAI ( #$% & /ASSESSEE) ( ' / REVENUE) P.A. NO. A ADCM6390H #$% & / ASSESSEE BY SHRI NISHANT THAKKAR & SHRI PRASHANT THAKKAR ' / REVENUE BY SHRI PAWAN KUMAR BEERLA ( ') * & + / DATE OF HEARING : 31/03/2015 * & + / DATE OF ORDER: 01/04/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DA TED 31/10/2012, OF THE LD. FIRST APPELLATE AUTHORITY, M UMBAI, MK COMMODITY BROKERS LIMITED 2 ON THE GROUND OF DISALLOWANCE OF INTEREST EXPENSES OF RS.3,04,564/- ON THE PREMISES THAT SUCH EXPENSES WE RE NOT INCURRED FOR BUSINESS PURPOSES. 2. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE, SHRI NISHANT THAKKAR ALONG WITH SHRI PRASHANT THAKK AR, CLAIMED THAT THE IMPUGNED ISSUE IS COVERED IN FAVOU R OF THE ASSESSEE BY THE DECISION DATED 15/01/2014 IN ITA NO.4586/MUM/2012 FOR AY 2008-09 IN THE CASE OF ASSESSEE ITSELF. THIS FACTUAL MATRIX WAS NOT CONTOR VERTED BY SHRI PAWAN KUMAR BEERLA, LD. DR BY DEFENDING THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW OF THE AB OVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION OF T HE IMPUGNED ORDER DATED 15/01/2014 OF THE TRIBUNAL: THIS APPEAL FILED BY THE ASSESSEE ON 6.7.2012 IS A GAINST THE ORDER OF THE CIT (A)-17, MUMBAI DATED 13.4.2012 FOR THE ASS ESSMENT YEAR 2008-2009. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GR OUNDS WHICH READ AS UNDER: 1.1. THE CIT (A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW ERRED IN UPHOLDING THE DISALLOWANCE OF THE INTEREST EXPENSE OF RS. 13,42,466/- UNDER THE PROVISIONS OF INCOME TAX ACT, 1961 ON THE PREMISE THAT SUCH EXPENSES HAVE NOT BEEN INCURR ED OF ITS BUSINESS PURPOSES. 1.2. IN THE GIVEN FACTS AND CIRCUMSTANCES, THE ASSE SSEE SUBMITS THAT IT HAS BORROWED LOANS FOR ITS BUSINESS PURPOSES AND TH EREFORE, BE ALLOWED TO CLAIM SUCH INTEREST EXPENSE AS TAX DEDUC TIBLE EXPENSE. THE APPELLANT SUBMITS THAT THE LD CIT (A) OUGHT TO HAVE APPRECIATED THE JUDICIAL PRECEDENTS WHEREIN THE ISSUE UNDER CON SIDERATION HAS MK COMMODITY BROKERS LIMITED 3 BEEN EXTENSIVELY DISCUSSED AND ACCORDINGLY, INTEREST ON BORROWED FUNDS WAS ALLOWED AS REVENUE EXPENSE. 1.3. THE APPELLANT PRAYS THAT THE AO BE GIVEN APPRO PRIATE DIRECTION TO ALLOW THE DEDUCTION OF RS. 13,42,466/- UNDER SECTION 37 R.W.S 36(1)(III) OF THE ACT. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE RECE IVED INTEREST BEARING FUNDS OF RS. 1.2 CRS FROM ONE OF ITS DIRECT OR NAMELY SHRI P.M. BHAGAT AND PAID INTEREST AMOUNTING TO RS. 13,42,466 /- WHICH WAS CLAIMED AS DEDUCTION U/S 36(1)(III) OF THE ACT. DU RING THE ASSESSMENT PROCEEDINGS, AO NOTICED THAT THE SAID AMOUNT WAS UT ILIZED BY THE COMPANY FOR PURCHASING THE SHARE CAPITAL OF ONE OF ITS SISTER EARNS INCORPORATED IN UAE. ON FINDING THAT THE SAID AMOU NT WAS GIVEN TO THE SISTER CONCERN, AO DENIED THE BENEFIT OF DEDUCT ION U/S 36(1)(III) OF THE ACT. 4. DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSEE RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F S.A. BUILDERS VS. CIT (A), 158 TAXMAN 74 AND ARGUED THAT THE ASSE SSEE AS WELL AS THE SISTER CONCERN ARE ENGAGED IN THE SAME BUSINESS AND INVESTED THE SAID BORROWED AMOUNT AS A SHARE CAPITAL FOR ACQ UIRING THE CONTROL AND MANAGEMENT OF THE SISTER CONCERN. IT IS ALSO A FACT THAT THE ASSESSEE IS ENTITLED TO DIVIDEND INCOME OUT OF THE SAID SHARE CAPITAL INVESTED IN THE UAE BASED COMPANY. CIT (A) CONSID ERED THE ABOVE SUBMISSIONS OF THE ASSESSEE AND DISTINGUISHED THE D ECISIONS CITED BY THE ASSESSEE AND HELD THAT THE ASSESSEE FAILED TO E STABLISH THE COMMERCIAL EXPEDIENCY IN MAKING INVESTMENT IN THE U AE BASED COMPANY. HE RELIED ON THE JUDGMENT OF THE BOMBAY H IGH COURT IN THE CASE OF CIT VS. PHIL CORPORATION LTD, 2011 TIOL 432 AND OTHER DECISIONS BEFORE DECIDING THE ISSUE AGAINST T HE ASSESSEE. RELEVANT PARA READS AS UNDER: IT IS THEREFORE, CLEAR THAT THE FACTS IN PHIL CORP ORATION CASE WHETHER THE INTEREST ON THE OD ACCOUNT WAS LIABLE TO BE BIF URCATED BETWEEN MK COMMODITY BROKERS LIMITED 4 THE INVESTMENT IN SHARES AND THE REGULAR BUSINESS O F THE ASSESSEE. IN THE CIRCUMSTANCES, THE RATIO OF THAT DECISION IS OF NO HELP TO THE APPELLANT. ON THE OTHER HAND, I FIND THAT THE RATI O OF THE DECISION IN THE CASE OF KANKHAL INVESTMENT AND TRADING CO. P. LTD AND THE DELHI HIGH COURT IN THE CASE OF JK SYNTHETICS I S SQUARELY AGAINST THE ALLOWABILITY OF INTEREST ON INVESTMENT IN SHARE EQUITY . EVEN OTHERWISE, ON FACT I FIND THAT THE APPELLAN T HAS NOT BEEN ABLE TO ESTABLISH ANY CASE OF COMMERCIAL EXPED IENCY IN THE INVESTMENT OF M/S. MANGAL KESHAV DMCC. THIS GROUND OF APPEAL IS THEREFORE, DISMISSED. 5. DURING THE PROCEEDINGS BEFORE US LD COUNSEL FOR THE ASSESSEE MENTIONED THAT MAKING INVESTMENT IN THE SHARE CAPIT AL OF THE SISTER CONCERN FOR OBTAINING THE CONTROL AND MANAGEMENT OF THE SAID COMPANY AND ALSO TO EARN DIVIDEND INCOME CONSTITUTE S A COMMERCIAL EXPEDIENCY. IN THIS REGARD, HE FILED CERTAIN DECIS IONS TO SUPPORT HIS ARGUMENT. 6. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITATIONS MADE B EFORE US. IT IS NOBODYS CASE THAT THE AMOUNT INVESTED IN THE SHARE CAPITAL OF THE SISTER CONCERN ARE UTILIZED FOR NON-BUSINESS PURPOS ES. THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE COMMUNICATIONS INFRASTRUCTURE LTD [2012] 2 07 TAXMAN 219 IS FOUND RELEVANT FOR THE PROPOSITION THAT DEDUCTI ON OF INTEREST U/S 36(1)(III) IS ALLOWABLE WHEN THE RELEV ANT LOANS ARE INVESTED IN THE SUBSIDIARY COMPANY AND ADVANCES GIV EN FOR THE PURPOSES OF BUSINESS. HOWEVER, WE ALSO PERUSED THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. TULIP STAR HOTELS LTD [2011] 338 ITR 482 (DELHI) , WHEREIN THE ASSESSEE WAS OWNING AND MANAGING THE HOTELS AND THE ASSESSEE INVESTED IN MK COMMODITY BROKERS LIMITED 5 THE WHOLLY AND OWNED SUBSIDIARY COMPANY. THE INTER EST EXPENDITURE RELATED TO THE SAID INVESTMENT WAS HELD AS ALLOWABL E EXPENSE WITHIN THE MEANING OF SECTION 36(1)(III) OF THE ACT. ON P ERUSAL, WE NOTICE THAT THE SAID DECISION WAS TAKEN BY THE HONBLE HIG H COURT AFTER CONSIDERING THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS VS. CIT [2007] 288 ITR 1 (SC) . CONSIDERING THE ABOVE LEGAL PROPOSITION AND FACTUAL MATRIX OF THE PRESENT CASE, WE ARE OF THE OPINION THAT THE INVEST MENT MADE BY THE ASSESSEE OUT OF BORROWED FUNDS IN A 100% SUBSIDIARY COMPANY BASED IN UAE, WHICH ACCEPTED TO PAY THE TAXABLE DIVIDEND IN INDIA, THE ISSUE SHOULD BE DECIDED IN FAVOUR OF THE ASSESSEE. JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF RELIANCE COMMUNICATI ONS INFRASTRUCTURE LTD (SUPRA) AS WELL AS JUDGMENT OF T HE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. TULIP STAR HOTELS LTD HELPS THE ASSESSEE. ACCORDINGLY, GROUNDS RAISED BY THE ASSES SEE ARE ALLOWED . 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. 2.3. WE FIND THAT THE TRIBUNAL IN THE AFORESAID ORD ER DATED 15/01/2014, THAT TOO IN THE CASE OF ASSESSEE ITSELF , ON IDENTICAL FACTS, DELIBERATED UPON THE ASSESSEE OF DISALLOWANCE OF INTEREST EXPENSES AND FINALLY, FOLL OWING VARIOUS DECISIONS INCLUDING FROM HONBLE JURISDICTI ONAL HIGH COURT IN THE CASE OF CIT VS RELIANCE COMMUNICATIONS INFRASTRUCTURE LTD. (2012) 207 TAXMAN 219 (BOM.), D ELHI HIGH COURT IN TULIP STAR HOTELS LTD. 338 ITR 482 AN D HONBLE APEX COURT IN S.A. BUILDERS VS CIT (288 ITR 1)(SC) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. IN TH E ABSENCE OF CONTRARY FACTS/DECISIONS, BROUGHT TO OUR NOTICE, BY EITHER SIDE, WE FIND MERIT IN THE APPEAL OF THE ASSESSEE. IT IS ALSO NOTED THAT THE ORDER OF THE TRIBUNAL DATED 15/01/20 14 WAS NOT AVAILABLE BEFORE THE LD. COMMISSIONER OF INCOME TAX MK COMMODITY BROKERS LIMITED 6 (APPEALS) AS THE ORDER OF THE TRIBUNAL IS OF LATER DATED. IN VIEW OF THE AFORESAID ORDER OF THE TRIBUNAL, THE AP PEAL OF THE ASSESSEE IS ALLOWED. FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 31/03/2015. S D/ - (N.K. BILLAIYA) S D/ - (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER ( ) MUMBAI; , DATED : 01/04/2015 F{X~{T? P.S/. . . %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. -./0 / THE APPELLANT 2. 12/0 / THE RESPONDENT. 3. 3 3 ( 4& ( -. ) / THE CIT, MUMBAI. P4. 3 3 ( 4& / CIT(A)- , MUMBAI 5. 6'7 1&# , 3 -.+ -# 8 , ( ) / DR, ITAT, MUMBAI 6. 9$ :) / GUARD FILE. / BY ORDER, 26.& 1& //TRUE COPY// / (DY./ASSTT. REGISTRAR) , ( ) / ITAT, MUMBAI