DCIT CIR 6(1)(1), MUMBAI V. AMMA LINES P.LTD, MUMBAI

ITA 93/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0443 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 07-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Keywords: Proportionate interest; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, MUMBAI BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NOS. 93 & 94/MUM/2016 (ASSESSMENT YEARS: 2011-12 & 2010-11) DCIT, CIRCLE - 6(1) ROOM NO. 506, 5TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 VS. M/S. AMMA LINES PVT. LTD. 304, SHIV SMRITI CHAMBERS 49, DR. ANNIE BESANT ROAD WORLI, MUMBAI 400018 PAN AAACA5349P APPELLANT RESPONDENT APPELLANT BY: SHRI RAJESH KUMAR YADAV RESPONDENT BY: SHRI MANI JAIN DATE OF HEARING: 09.01.2018 DATE OF PRONOUNCEMENT: 13.02.2018 O R D E R PER RAJESH KUMAR, AM THESE APPEALS HAVE BEEN FILED BY THE REVENUE AGAINS T THE ORDERS OF THE CIT(A)-12, MUMBAI DATED 23.10.2015 FOR ASSESSME NT YEARS 2011-12 AND 2010-11. SINCE BOTH THESE APPEALS PERTAIN THE S AME ASSESSEE AND THE GROUNDS ARE IDENTICAL, THESE ARE BEING HEARD TOGETH ER AND DISPOSED OFF BY THIS CONSOLIDATE ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. FIRST WE WILL TAKE UP APPEAL IN ITA NO. 93/MUM/2016 . THE ISSUE RAISED IN THE FIRST GROUND IS AGAINST DELETION OF A DDITION OR ` 1,32,94,241/- BY THE CIT(A) AS MADE BY THE AO UNDER SECTION 36(I) (III) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) WITHOUT APPRECIAT ING THE FACT THAT BORROWED FUNDS WERE UTILISED FOR THE PURPOSE OF INV ESTMENT FOR NON- BUSINESS PURPOSES. 3. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE CO URSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS AD VANCED INTEREST FREE LOANS TO THE TUNE OF ` 11,07,85,345/ - TO ITS SUBSIDIARIES WHEREAS ASSESSEE ITA NOS. 93 & 94/MUM/2016 M/S. AMMA LINES PVT. LTD. 2 PAID INTEREST OF ` `` ` 1,39,13,698/- ON BORROWED FUNDS . ACCORDINGLY THE AO ISSUED SHOW CAUSE NOTICE DATED 26.12.2013 TO SHOW C AUSE AS TO WHY PROPORTIONATE INTEREST UNDER SECTION 36(I)(III) OF THE ACT SHOULD NOT BE DISALLOWED ON THE LOANS ADVANCED TO RELATED COMPANI ES WHICH WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED 15.01.2014 WHEREI N IT WAS SUBMITTED THAT THE INVESTMENTS MADE/ADVANCES GIVEN TO SUBSIDIARY C OMPANIES WERE MADE FROM THE STRATEGIC POINT OF VIEW AND HAS COMMERCIAL EXPEDIENCY. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF PORTS AND THE COMPANY EXECUTED VARIOUS JOBS WORK THROUGH THE SUBS IDIARY COMPANIES FOR WHICH CONTRACTS OF MINOR WORKS WERE ASSIGNED TO THE M AND THE ADVANCES WERE ALSO GIVEN FOR THE SAME PURPOSES. IT WAS ALSO STATED BEFORE THE AO THAT THE ASSESSEE, IN ORDER TO FACILITATE DREDGING AND CONSTRUCTION WORK ESSENTIAL TO INITIATE THE CONSTRUCTION OF A PORT AS SESSEE, HAS FORMED A SUBSIDIARY COMPANY IN THE NAME OF MEKA DREDGING CO . PVT. LTD. AND MEKA MIX CONCRETE & CONSTRUCTION PVT. LTD.. THE A SSESSEE HAS COMMERCIAL TRANSACTIONS WITH BOTH THESE ENTITIES IN THE FORM OF CONTRACT RECEIPTS AND PAYMENTS. THE ASSESSEE HAS ALSO ENTERE D INTO A CONCESSIONAL AGREEMENT WITH M/S. MAHARASHTRA MARITIME BOARD, AN ORGAN OF THE GOVERNMENT OF MAHARASHTRA TO DEVELOP AN ALL WEATHER PORT IN REWAS, MAHARASHTRA FOR WHICH THE ASSESSEE INCORPORATED A S PECIAL PURPOSE VEHICLES IN THE NAME OF REWAS PORT DEVELOPMENT CO. LTD. AND REWAS PORT LTD. AS PER THE AGREEMENT THE ASSESSEE HAS TO SUBSC RIBE TO THE SHARE CAPITAL OF BOTH THESE COMPANIES AND INVESTMENTS IN THESE COMPANIES WERE MADE OUT OF THE SHARE CAPITAL AND RESERVES AND SURP LUS OF THE ASSESSEE COMPANY. COPY OF THE AGREEMENT WAS ALSO FILED WITH THE AO. SIMILARLY, THE ASSESSEE ALSO FORMED A JOINT VENTURE WITH M/S. MEKA DREDGING CO. PVT. LTD. IN ORDER TO EXECUTE A WORK PROJECT OF DREDGING OF S HIPYARD QUAYSIDE GRANTED BY M/S. COCHIN SHIPYARD LTD. AND COPY OF TH E JOINT VENTURE AGREEMENT WAS ALSO FILED. FINALLY THE ASSESSEE SUBM ITTED BEFORE THE AO THAT IN VIEW OF THESE FACTS IT IS ABUNDANTLY CLEAR THAT THE INVESTMENTS IN SHARE APPLICATION AND ADVANCES GIVEN TO THE ABOVE E NTITIES WERE PURELY MADE ON COMMERCIAL BASIS AND IT WAS ESSENTIAL TO MA KE SUCH INVESTMENTS/ADVANCES FOR THE PURPOSES OF BUSINESS O F THE ASSESSEE. THE ITA NOS. 93 & 94/MUM/2016 M/S. AMMA LINES PVT. LTD. 3 ASSESSEE RELIED ON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF S.A. BUILDERS LTD. 288 ITR 1 AND THE DECISIONS OF T HE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. MARUDHAR CHEMICALS & P HARMACEUTICALS (P) LTD. 319 ITR 75. HOWEVER, THE AO WAS NOT CONVINCED WITH THE CONTENTION OF THE ASSESSEE ON THE GROUND THAT THE TEST OF AVAILAB ILITY OF FUNDS IS NOT THE DECISIVE FACTOR UNDER SECTION 36(1)(III) OF THE ACT AND THUS DENIED THE CLAIM OF THE ASSESSEE AND DISALLOWED INTEREST ON PROPORTI ONATE BASIS @12% AT ` 11,07,85,343/- WHICH COMES TO AROUND RS.1,32,94,241 /- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE BY FRAMING ASSES SMENT UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 22.01.2014 ASSES SING THE INCOME AT ` 2,01,42,151/-. AGGRIEVED, ASSESSEE WENT IN APPEAL B EFORE THE CIT(A). 4. IN THE APPELLATE PROCEEDINGS THE LEARNED CIT(A) ALL OWED THE APPEAL OF THE ASSESSEE BY OBSERVING THAT THE ADVANCES MADE TO SUBSIDIARY COMPANIES WERE PURELY OUT OF COMMERCIAL EXPEDIENCY AND THEREF ORE THERE IS NO QUESTION OF DISALLOWANCE UNDER SECTION 36(1)(III) O F THE ACT. 5. THE LEARNED D.R. SUBMITTED BEFORE THE BENCH THAT I NTEREST BEARING FUNDS WERE TRANSFERRED OUT OF THE COMPANY BY WAY OF SHARE APPLICATION MONEY AND ADVANCES TO VARIOUS ENTITIES INCLUDING SU BSIDIARY COMPANIES AND THE COMMERCIAL EXPEDIENCY WAS NOT PROVED BEFORE THE AO. THUS THE ORDER OF THE CIT(A) REVERSING THE ASSESSMENT ORDER IS WRONG AND DESERVED TO BE SET ASIDE. THE LEARNED D.R. PRAYED THAT THE L EARNED AO HAS RIGHTLY DISALLOWED THE INTEREST UNDER SECTION 36(1)(III) OF THE ACT ON PROPORTIONATE BASIS AND THE ARGUMENT THAT THE ASSESSEE HAS OWN SU RPLUS FUNDS CARRY NO WEIGHT. THUS THE LD DR PRAYED FOR RESTORATION OF OR DER OF AO. 6. THE LEARNED A.R., ON THE OTHER HAND, RELIED HEAVILY ON THE ORDER OF THE CIT(A) AND SUBMITTED THAT ALL THESE INVESTMENTS /ADVANCES WERE MADE IN THE SUBSIDIARY COMPANIES AND OTHER CONCERNS WITH WHICH THE ASSESSEE HAS BUSINESS DEALINGS AND ALL THESE TRANSACTIONS WE RE SPECIFICALLY MADE FROM THE COMMERCIAL POINT OF VIEW AND HAS COMMERCIA L EXPEDIENCY. THE INVESTMENTS IN THE SUBSIDIARIES/SPECIAL PURPOSE VEH ICLE WERE MADE FOR THE PURPOSE OF GETTING THE WORK DONE THROUGH THESE ENTI TIES AND ADVANCES TO ITA NOS. 93 & 94/MUM/2016 M/S. AMMA LINES PVT. LTD. 4 THE CONCERNS WERE GIVEN ONLY UNDER THE TERMS OF JOI NT VENTURE AGREEMENTS AND NONE WAS ADVANCED WITHOUT COMMERCIAL EXPEDIENCY . THE LEARNED A.R. RELIED HEAVILY ON THE ORDER OF THE HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT 288 ITR 1 AND THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. MARUDHAR CHEMICAL S & PHARMACEUTICALS (P) LTD. 319 ITR 75 WHEREIN IT WAS HELD THAT ON INT EREST FREE ADVANCES TO SISTER CONCERNS GIVEN AS A MAJOR COMMERCIAL EXPEDIE NCY, NO DISALLOWANCE OF INTEREST IS CALLED FOR UNDER SECTION 36(1)(III) OF THE ACT. THE LEARNED A.R. ALSO SUBMITTED THAT THE INTEREST FREE FUNDS WERE AV AILABLE WITH THE COMPANY TO THE TUNE OF ` 174.94 CRORES AND ALL THE INVESTMENTS/ADVANCES WERE MADE OUT OF SAID FUNDS AND NOT OUT OF BORROWED FUNDS. IN VIEW OF THE SAID FACTS THE LEARNED A.R. PRAYED THAT THE ORDER O F THE CIT(A) DESERVED TO BE UPHELD. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E RELEVANT MATERIAL ON RECORD PLACED BEFORE US. A PERUSAL OF THE FACTS ON RECORD REVEALS THAT THE ASSESSEE HAS INVESTED IN THE FORM OF SHARE APPLICATION MONEY/ADVANCES IN ITS SUBSIDIARIES AND SPECIAL PURP OSE VEHICLE TO BE USED IN THE CONSTRUCTION OF PORT, WHICH IS THE BUSI NESS OF THE ASSESSEE. THE ASSESSEE HAS ALSO GIVEN ADVANCES TO VARIOUS OTHER C ONCERNS TO WHICH ASSESSEE HAS ASSIGNED CONSTRUCTION WORK. TAKING ALL THESE FACTS INTO CONSIDERATION WE ARE OF THE VIEW THAT THE ORDER PAS SED BY THE CIT(A) IS A VERY REASONED ORDER AND DOES NOT SUFFER FROM ANY IN FIRMITY, LEGALLY OR OTHERWISE AS ALL THE ADVANCES WERE MADE OUT OF COMM ERCIAL EXPEDIENCY. THE CASE OF THE ASSESSEE IS DIRECTLY COVERED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. (SU PRA). WE, THEREFORE, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE A BOVE SAID DECISION UPHOLD THE ORDER PASSED BY THE CIT(A). GROUND RAISED BY TH E REVENUE IS REJECTED. 8. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMI SSED. 9. IN ITA NO. 94/MUM/2016 FOR A.Y. 2010-11 THE REVENUE HAS RAISED IDENTICAL ISSUES AS RAISED IN ITA NO. 93/MUM/2016 E XCEPT VARIATION IN ITA NOS. 93 & 94/MUM/2016 M/S. AMMA LINES PVT. LTD. 5 FIGURES. THEREFORE OUR OBSERVATIONS AND DECISION GI VEN IN THE ABOVE MENTIONED APPEAL IS MUTATIS MUTANDIS APPLICABLE TO THIS APPEAL ALSO. 10. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH FEBRUARY, 2018. SD/ - SD / - (D.T. GARASIA) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 13 TH FEBRUARY, 2018 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -12, MUMBAI 4. THE PR. CIT - 6, MUMBAI 5. THE DR, A BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.