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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: HON’BLE KUL BHARAT & HON’BLE MANISH BORAD
The above captioned appeal filed at the instance of the assessee pertaining to Assessment Year 2013-14 is directed against the order of Ld. Commissioner of Income Tax (Appeals)-III (in short ‘Ld.CIT(A)’], Indore dated 31.01.2017 which are arising out of the order u/s 143(3) of the Income Tax Act 1961(In short the ‘Act’) dated 07.03.2016 framed by ITO-1(4), Indore.
Assessee has raised following grounds of appeals; “1. That on the facts and in the circumstances of the case Ld. CIT(A) has erred in confirming and adding an amount of Rs. 1,11,62,333 as amount of interest receivable on loans & advances granted.
2. That on the facts and in the circumstances of the case Ld. CIT(A) has erred in confirming and adding an additional amount of Rs. 2,18,480 as disallowance u/s 14A, even though an amount of Rs. 5,26,364 was already disallowed for the same by the assessee.
That the order so passed is bad in law and wrong.
That the assessee craves your honors permission to add alter or delete any grounds of appeal”
3. Briefly stated facts as culled out from the records are that the assessee company is an associated company of Bhatia Group of Companies namely Bhatia Global Trading Ld, Bhatia Coal Washeries Ltd, Bhatia Coke & Energy Ltd, Bhatia International PTE Ltd operating in the fields of tender business of coal/supply. The company had e-filed its return of income for Assessment Year 2013- 14 on 30.9.2013 declaring income of Rs.3,92,340/-. Case selected for scrutiny through CASS and notices u/s 143(2) & 142(1) of the Act duly served. During the course of assessment Ld. AO observed that the assessee had given interest free advances to related and unrelated parties. The assessee failed to satisfy the Ld. AO that the alleged advances were for business purposes. Ld. AO computed the 2
BCC Enterprises (India) Ltd Rs.1,11,62,333/- relating to following parties: Name Amount M/s GSB Real Estates Pvt. Ltd. 4,20,000/- M/s Bhatia International Pvt. Ltd. 11,40,587/- Shri Aman Deep Singh Bhatia 12,466/- M/s Positive Global 47,94,965/- M/s Converse Pvt. Ltd. 46,50,000/- M/s Shri Infrasture Pvt. Ltd. 1,44,315/- Total 1,11,62,333/-
4. Ld. AO also computed the disallowance u/s 14A of the Act applying the method providing under rule 8D of the IT, Rules and made addition for Rs. 2,18,480/- over and above suo moto disallowance made by the assessee. Disallowances were also made for expenditure of Rs.2,00,000/-. Income assessee at Rs.1,19,73,153/-.
Aggrieved assessee preferred an appeal before Ld. CIT(A) and partly succeeded. Ld. CIT(A) deleted the disallowance of expenses at Rs.2,00,000/- and confirmed the remaining additions against which the assessee is in appeal before Tribunal.
First we will take up Ground No.1 regarding addition of Rs.1,11,62,333/- on account of notional interest receivable on loans and advances granted to following parties: Name Amount M/s GSB Real Estates Pvt. Ltd. 4,20,000/- M/s Bhatia International Pvt. Ltd. 11,40,587/- Shri Aman Deep Singh Bhatia 12,466/- M/s Positive Global 47,94,965/- M/s Converse Pvt. Ltd. 46,50,000/- M/s Shri Infrasture Pvt. Ltd. 1,44,315/- Total 1,11,62,333/-
At the outset, Ld. counsel for the assessee submitted that he is not pressing the notional interest addition computed on the advances gave to relates parties namely M/s GSB Real Estates Pvt. Ltd., M/s Bhatia International Pvt. Ltd. & Shri Aman Deep Singh Bhatia for which notional interest addition stands at Rs.15,73,053/-. Since the Ld. counsel for the assessee is not pressing the interest addition of Rs.15,73,053/- on the loans and advances given to related parties, the interest addition at Rs.15,73,053/- stands confirmed.
For remaining addition of Rs.95,89,280/-. Ld. counsel for the assessee submitted referring to the following written submission place before the lower authorities:
That the assessee company is a associated company of Bhatia Group of Companies namely Bhatia Global Trading Ltd., Bhatia
BCC Enterprises (India) Ltd Coal Washeries Ltd., Bhatia Coke & Energy Ltd., Bhatia International PTE Ltd., BCC Enterprises (India) Ltd. etc. and are successfully operating in the fields of tender business of coal/supply to esteemed PSU's, trading of Coal, Coal washery operation, coke manufacturing and power generation, shipping & finance activities. In March 2011, Bhatia Group had planned for a new project & was in need of Group CFO for looking after and managing all the financial affairs of group companies. Mr. Umesh Bhargava CV was appointed as Group CFO vide Appointment letter dated 04.08.2011. For business funding Mr. Umesh Bhargava introduced a broker company named as Positive Global Services & Consultancy Pvt. Ltd. their Directors Mr. Aditya Kashyap, Mr. Kunal Aditya Kashyap , Mr. Rohit Kashyap , Mrs. Sushma Aditya Kashyap & CEO Mr. Koushal Mathur who were engaged in providing services & consultancy of loans & finances from finance companies on commission basis. That, Rohit Kashyap and Kaushal Mathur introduced themselves as finance brokers having big contacts with leading financing companies with the help of tablets, brochures, documents, bank deposit etc. and thereafter they introduced 1. Khalique Ahmed 2. Vinayak Sheshadari, 3. Sudeep K. Khanna 4. Devendra Gailad the Vice President and the Directors respectively of the loaning company FIC Finance (India) Limited to Bhatia Group's directors/officials. 3.That, FIC Finance and its Directors represented themselves as the Indian Chapter of Fortis International Company which is registered under the law of International Chamber of Commerce having its registration No. E.O/356 QE.G, S.0/7C9968E.G, L.7/ BI0079.C. and office at 3 Cammolie Street, 4 PPCA, Royal House London. They in order to win the confidence of CFO Mr. Umesh Bhargava, also showed a bank statement and CD (Cash Depository) of their company having 100 Billion Euros in their account. They had also assured quicker part fmance facility at Singapore. 4.That, the said persons of Positive Global and FIC Finance impressed and took CFO Mr. Umesh Bhargava into confidence 5
BCC Enterprises (India) Ltd Bhatia Group as Singapore Laws are more liberal and smoother than Indian strict rules. 5.That, believing the statement of the said persons, our Group company Bhatia International Pte Ltd. a Singapore registered Company having independent legal entity issued a Letter of Indent dated 19.01.2012 for sanction of US $ 550 Million for its business. Against the letter of indent Sudeep Khnanna director of Fortis International and Devendra Galad director of FIC Finance issued willingness letter dated 21.01.2012 an e of Rs. US$ 550 Million. In the said letter Sudeep Khanna and Vinayak Seshadri instructed Bhatia International Pte. Ltd. to urn of Rs, 45,00,250/- towards Membership fee, Enlisting fee, e fee and Legal Fee via RTGS model Account payee mode in the Bank Account of FIC Finance (India) Limited. That, believing their version and data/record Bhatia International Pte. Ltd. deposited the sum of Rs. 45,00,250/- through RTGS in the account of FIC Finance (India) Limited against which receipt No. FIC/IND/20649 dated 25.01.2012 was issued. 8.That, to further inspire confidence, Vinayak Seshadri vide letter dated 21.01.2012 also invited officials of Bhatia International Pte Ltd. for final discussion so as to proceed with processing of required documents. 9.That, Vinayak Seshadri on behalf of FIC Finance (India) Limited issued a forged Sanction Letter dated 28.01. 2012 sanctioning US$ 550 Million to Bhatia International Pte Ltd. with certain terms and condition. Out of the said terms and conditions one of the condition was to furnish Bank Guarantee of the Finance Amount to FIC Finance (India) Limited. On the same day i.e. 28.01.2012 the Agreement was signed between Fortis International Company acting through Khalique Ahmed VP (FIC-Asia Pacific) and Bhatia International Pte Ltd. through Mr. Umesh Bhargava (CFO). 15.That, as they have not disbursed the finance amount to Bhatia Group inspite of regular follow-up, reminders and request, it was realized that they all have cheated our company as well as our group company Bhatia International Pte. Ltd. and BCC Enterprises (India) Ltd Bhatia Global Trading Limited therefore they were advised to refund the amount obtained illegally with malafide intention by them towards Bank Guarantee and other charges.
17. A. That Bhatia Group of Companies as a whole had paid an amount of Rs. 74,45,00,000 (74.45 Crores) in the form of Commission/professional fees to the accused companies. Out of the said amount of 74.45 Crores, a sum ofRs. 6,00,00,000 (6 Crores) was paid by BCC Enterprises (India) Ltd. to Positive Global, a sum of Rs. 5,00,00,000 (5 Crores) was paid by BCC Enterprises (India) Ltd. to Converse Commerce Pvt. Ltd. and a sum of Rs. 50,00,000 (50 Lakhs) was paid by BCC Enterprises (India) Ltd. to Shil Infrastructure Pvt. Ltd .. B. That, Fortis International Company India Pvt. Ltd. & FIC Finance (India) Limited Director vide their email dated 08.08.2012 admitted the liability of Rs 61,00,00,0001- ( Rupees Sixty One Crore) towards Bhatia Group and its group companies and accordingly issued a Cheque bearing No.000031 dated 21.08.2012, for Rs 61,00,00,000/- ( Rupees Sixty One Crore) drawn on Standard Chartered Bank branch at Mumbai in favour of BCC Enterprises (India) Limited. The said cheque is signed by Md. Safi Kamal in the capacity of Director Fortis International Company India Pvt. Limited towards part refund. 18.That, as per your assurance BCC Enterprises presented the Cheque bearing No.000031 dated 21.08.2012, for Rs 61,00,00,000/- ( Rupees Sixty One Crore) drawn on Standard Chartered Bank, Branch at 21-23, Samarth Vaibhav, Lokhandwala, Andheri (W) Mumbai, for encashment in their bank IndusInd Bank Limited, Branch at Industry House, 15, A. B. Road, Indore (M.P) but to the utmost shock and surprise the aforesaid cheque was received back dishonored with the remark of "Payment Stopped By Drawer" vide bank memo dated 24/08/2012. 19.That the aforesaid persons also managed to give false, forged print outs , documents, e-pay orders, cheques right from the beginning with the intention to cheat our company and kept on 7
BCC Enterprises (India) Ltd making false promises of loan facilities. The aforesaid persons succeeded in obtaining Rs. 61 crores by dishonestly inducing Bhatia Group to pay the said amount to the accused persons. All these facts were deliberately suppressed by Mr. Umesh Bhargava as well as the consultant M/s Positive Moves. It has also come to light that the consultant has in fact been working with the business competitors of the Bhatia Group and the consultant has played the role of conduit to destroy the healthy business activities of the company through Mr. Umesh Bhargava. It is important to inform your good self that Mr. Umesh Bhargava induced the management to go for the loan facility with the accused persons so that he could make unlawful gain to them as well as to himself. Hence the aforesaid persons along with our group CFO Umesh Bhargava cheated our group of Companies. During the investigation of the EOW -Case no 98/2012, at Mumbai it was found that Mr. Umesh Bhargava, the group CFO has been instrumental in the fraud committed against the Company. He is one of the conspirator and beneficiary of the fraudulent fund. As such, Group immediately put him under suspension and started the in-depth enquiry of his credentials and his declarations made in the CV. During the enquiry from the HR Department of Electrosteel Casting Ltd. Kolkata it has been found that the information submitted by Mr. Bhargava is forged, false, manufactured & fabricated. 20.A. Accordingly our company BCC Enterprises has filed a criminal complaint against the said accused persons before the EOW, Crime branch, Mumbai on 18.10.2012, after investigation EOW registered a criminal case against the said accused persons and arrested them. Similarly a criminal case of cheating is also registered against the accused person in Palasia Police Station Indore and a criminal complaint under section 13 8 Negotiable Instruments Act for dishonor of a cheque of Rest.61.00 crores issued by accused persons is also registered and is pending in the court at Indore. Court has issued Bailable warrant against the accused persons.
BCC Enterprises (India) Ltd B. As a result of criminal cases launched against accused companies, BCC Enterprises (India Ltd. received back a sum of Rs. 5,20,00,000 (5.2 Crores) from Positive Global (one of the accused company). It is pertinent to note here that total sum of Rs. 6 Crores in the form of Commission/Professional Fees was paid by BCC Enterprises (India) Ltd. to Positive Global for arranging the loan for Bhatia Group. Therefore, the Closing outstanding balance on 31.03.2013 is Rs. 80,00,000 (80 Lakhs) only. Likewise a sum of Rs. 50,00,000 (50 Lakhs) vide Cheque No. 446122 was paid by BCC Enterprises (India) Ltd. to Shil Infrastructure Pvt. Ltd. in the form of Commission/Professional Fees on 02.02.2012. Another sum of Rs. 50,00,000 (50 Lakhs) vide cheque No. 805480 was also paid by BCC Enterprises (India) Ltd. to Shil Infrastructure Pvt. Ltd. in the form of Commission/Professional Fees on 07.03.2012. As a result of criminal cases launched against accused companies, BCC Enterprises (India) Ltd. received back a sum of Rs. 50,00,000 (50 Lakhs) vide Cheque No. INAB21203H000034 from SNS International (One of the accused Company) on 03.12.2012. Therefore, the Closing outstanding balance on 31.03.2013 is Rs. 50,00,000 (50 Lakhs) only. Further, a sum of Rs. 5,00,00,000 (5 Crores) vide Cheque No. 728409 was paid by BCC Enterprises (India) Ltd. to Converse Commerce Pvt. Ltd. in the form of Commission/Professsional Fees on 21.06.2012 and the said amount of Rs. 5 Crores is therefore closing outstanding balance on 31.03.2013.
Summarising the arguments, Ld. Counsel for the assessee submitted that the assessee company was cheated by group of companies who were working as a racket of doing fraud with various companies by way of making false promises of easy finance at a lower interest rate. Against providing of such finance, huge amount was charged for bank guarantee fees and other related
BCC Enterprises (India) Ltd expenses. Criminal proceedings are in process. Assessee has been making consistent efforts to recover the advances and still major portion is outstanding. Such advances were given in the interest of business and not for earing interest, therefore, the impugned addition may be deleted.
Per contra Ld. Departmental Representative vehemently argued supported the orders of both the lower authorities.
We have heard rival contentions and perused the records placed before us. The issue raised by the assessee relates to addition for notional interest on the advances giving to following unrelated parties:
Name Amount of Interest M/s Positive Global 47,94,965/- M/s Converse Pvt. Ltd. 46,50,000/- M/s Shri Infrasture Pvt. Ltd. 1,44,315/- Total 95,89,280/-
Ld. Counsel for the assessee made a detailed submissions before the Ld. CIT(A) giving complete documentary evidences that the assessee company fell in trap of a fraud made by group of companies headed by FIC Finance(India) Limited. The assessee group of companies needed finance at lower interest rate to establish new project for which Chief Financial Officer, Mr. Umesh Bhargava was appointed having vast experience in the finance field.
BCC Enterprises (India) Ltd CFO, Umesh Bhargava allegedly being part of the conspiracy introduced the company to the broker companies for funding named as Positive Global Services & Consultancy Pvt. Ltd. These finance brokers further introduced assessee group of companies to FIC Finance (India) Limited. Certain agreements were entered for providing finance. Assessee had to pay related fees, legal fees and bank guarantee. The Bhatia Group of companies as a whole paid an amount of Rs.74.45 crores (Approx.) in the form of commission/professional fees to the accused companies. Various payments were made within intra group companies on behalf of the each other. The alleged advances included the amounts advanced to the above referred parties namely, M/s Positive Global and M/s Shri Infrasture Pvt. Ltd.. When the assessee came across the fact that fraud has been committed with it and the group companies, FIR was lodged and criminal proceeding commenced. In the paper book running from page No.8 to 140. Plethora of evidences has been filed to prove that fraud was committed with the assessee, various forged documents were used by the alleged finance companies, copies of cheques issued which were subsequently dishonour. In the paper books copies of First Information Report (FIR), criminal complaint, letter issued by Assistant Police Inspector and Investigation Officer Mumbai, Copy of order of Additional Chief Metropolitan Magistrate Mumbai rejecting the bail of accused person and copy of order of Hon’ble High Court of Madhya Pradesh dated 18.06.2013 in the case of Mr. Umesh Bhargava and the State of MP for granting of bail.
It would be relevant to reproduce para 7 of the order of the Additional Chief Metropolitan Magistrate Mumbai placed at page 106 & 107 of the paper book which also discuss the report of the investigation officer given in this case of fraud against the assessee:
“The Investigating Officer Shri Mahesh Athavale has mentioned the role of each of the accused in his say filed by him separately and in short as per him, all the accused persons after availing amount of Rs.74.45 crores from the complainant had systematically siphoned it into various accounts and same is yet to investigated. The accused persons might have concealed the same and it is also to be traced out and if accused persons are released on bail, they may dispose of the same. The properties purchased by all the accused persons or any of them by using bank proceeds is yet to be identified and to be seized. Other accused persons are still absconding and not available for further investigation. The accused persons have collected huge amount from 109 persons and they have also collected 8000 crores and credited the same. As per him, Rs.64 crores is credited in benami accounts and out of them he has succeeded to freeze 54 accounts. As per him, the accused persons have purchases 8 four-wheelers and he has seized 5 vehicles out of them. The above said accused Umesh Bhargava was the Chief Financial Officer of the company and his instructions were followed by other accused persons as per their conspiracy, etc,. So on all these grounds and others all the bail application have been opposed by the Investigating Officer/Ld. APP/Complainant’s advocate.
The assessee has also filed the copy of summons issued to all the accused persons including Directors of Fortis International Company Pvt. Ltd. and FIC Finance & M/s Positive Global and Consultancy Pvt. Ltd. etc.
In view of the above discussions we can safely conclude to the BCC Enterprises (India) Ltd fact that the assessee gave advances believing that it will receive finance at low interest rate. There can be some mistakes on the part of the assessee also to blindly believe such proposals. The fact of the matter is that the advance given by the assessee was in the interest of running business and was not in the nature of interest free advances. It is also brought to our notice that some of the advances have been recovered by the consistent efforts made by the assessee. For instance in the case of advances given to M/s Positive Global, there was an opening balance of Rs.6 crores and closing balance as on 31.03.2013 is only Rs.80 lacs which shows that sum of Rs.5,20,00,000/- has been recovered in installment.
In these facts and circumstances of the case, we find no justification in the action of both lower authorities making addition for notional interest on such paid advances which though have been shown as recoverable but cannot be equated as advances which could fetch interest income to the assessee. We, therefore, set aside the finding of both the lower authorities and delete the notional interest addition of Rs.95,89,280/- and partly allow assessee’s ground no.1.
Now coming to the second issue relating to disallowance u/s 14A of the Act at 2,18,480/-.
Ld. Counsel for the assessee submitted that in the computation of income assessee made disallowance u/s 14A of the Act at Rs.5,26,364/-. The assessee had sufficient interest free funds still
BCC Enterprises (India) Ltd Ld. Assessing Officer made interest disallowance u/s 14A of the Act for Rs.2,18,256/- which has been confirmed by Ld. CIT(A) also. He prayed that disallowance of Rs.2,18,480/- may be deleted.
Per contra Ld. Departmental Representative vehemently argued supported the orders of both the lower authorities.
We have heard rival contentions and perused the records placed before us. In ground no.2 assessee has challenged the disallowance u/s 14A of the Act at Rs.2,18,480/- confirmed by Ld. CIT(A). We observe that Ld. Assessing Officer made total disallowance u/s 14A of the Act at Rs.7,44,620/- which comprised of interest disallowance of Rs.2,18,256/- and disallowance 0.5% of the average value of investment computed at Rs.5,23,364/-.
As far as the disallowance of Rs. 5,26,364/- is concerned, there is no dispute since the assessee has offered it to tax by adding it to the income in the computation of income itself. Dispute relates to remaining amount of Rs.2,18,256/-.
It has been consistently held by Hon’ble Courts and Coordinate Benches that if the assessee possess interest free funds in the form of equity share capital, reserves & surplus share premium and other interest from funds which exceeds the total value of investment made for fetching dividend income or other exempted income and the Ld. Assessing Officer has not made proper satisfaction to prove that interest bearing funds have been applied for making such investment then it should be presumed that BCC Enterprises (India) Ltd interest free funds have been applied for making such investment.
Hon’ble Bombay High Court in case of CIT vs. Reliance Utilities & Power Limited (313 ITR 340) has categorically held that “if there are funds available both, interest free and over draft and/or loans are taken, then a presumption would arise that investments would be out of the interior free fund generated or available with the company, if the interest free funds are sufficient to meet the investments. In the instant case said presumption was established considering the findings of fact, both by the Commissioner (Appeals) and the Tribunal (Para 10)”
Further in case of CIT vs. HDFC Bank 366 ITR 505(Bom) it is held that “where assessee’s own funds and other non interest bearing funds were more than investment in tax free securities, impugned order passed by Assessing Officer disallowing apart of interest payments under section 14A was to be set aside”.
Hon'ble Gujarat High Court in case of CIT vs. UTI Bank Limited (2013) 215 Taxman 8 (Gujarat) MAG ) has held that “if there are sufficient interest free funds to meet tax free investments they are presumed to be made from interest free funds and not loaned funds and no disallowance can be made under section 14A.
In case of CIT vs. Bombay Oil Industries (222 Taxman 38) (Bom) it is held that “where interest free funds are available with an assessee sufficient to meet its investments and at same time loans are taken, then a presumption would arise that investment has been BCC Enterprises (India) Ltd made out of interest free funds available with company and not out of loans”.
Examining the facts of the instant case in the light of the above judgments we observe that the amount of interest free funds as per the audited balance sheet at close of the year are Rs.12,70,47,326/- which is higher than the amount of non-trade investments at Rs.10,52,72,752/-. Thus, we are of the considered view that since the assessee has sufficient interest free funds, there is no justification in making interest disallowance u/s 14A. Finding of both the lower authorities are set aside and interest disallowance u/s 14A of the act at Rs.2,18,480/- is deleted. Thus, ground no.2 of the assessee is allowed.
Ground No.3 & 4 are general in nature which needs no adjudication.
In the result, appeal of the assessee is partly allowed.
The order pronounced in the open Court on 09.12.2019.