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Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH, AHMEDABAD
ITA No. 1904/Ahd/2016 Mani Market Creators Ltd Vs. ITO Assessment Year : 2012-13 Page 1 of 3 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH, AHMEDABAD [Coram: Pramod Kumar VP and Mahavir Prasad JM] ITA No. 1904/Ahd/2016 Assessment Year: 2012-13 Mani Market Creators Limited .......…………...........Appellant 70, Sampatrao Colony, Productivity Road, Alkapuri, Baroda- 390 007 [PAN : AABCM 3440 J] Vs. Income Tax Officer ............................Respondent Ward 2(1)(1), Baroda Appearances by: Urvashi Shodhan, for the Appellant S K Dev, for the Respondent Date of concluding the hearing : 16.11.2018 Date of pronouncing the order : 14.02.2019 O R D E R Per Pramod Kumar, Vice President : This appeal is directed at the order dated 27th May 2016 passed by the 1. CIT(A), in the matter of assessment under section 143(3) of the Income-tax Act 1961, for the assessment year 2012-13.
Grievance of the assessee is, in substance, against (i) learned CIT(A)’s restricting the disallowance under section 14A to Rs.6,20,115/- being the total exempt income; and (ii) learned CIT(A)’s confirming the disallowance of Rs.60,09,212/- out of interest expenses.
As regards the first issue, i.e. disallowance of Rs.6,20,115/- under section 14A, we have noted that the disallowance has been restricted to tax exempt income, and that there is no dispute that the amount so disallowed is less than the amount computed under section 14A read with rule 8D. In this view of the matter, we see no need to interfere in the matter. The findings and conclusions arrived at by the CIT(A) are thus confirmed.
As regards the second issue, i.e. disallowance of Rs. 60,09,212/-, we have noted that this disallowance has been made in respect of interest free advance of Rs.4,00,61,414/- given to Echo Consultant Pvt Ltd, and by computing interest @ 15% i.e. rate of interest on which borrowings taken from family members. The plea of the assessee that it was a strategic business investment was rejected by the Assessing Officer and was observed that “no documentary evidences have been
ITA No. 1904/Ahd/2016 Mani Market Creators Ltd Vs. ITO Assessment Year : 2012-13 Page 2 of 3 furnished by the assessee regarding its claim that the loan was given for strategic business purpose” and that “during the year under consideration, the advances have not been converted into shares as claimed by the AR”. The Assessing Officer thus disallowed interest computed @ 15% on the interest free loan to Echo Consultant Pvt Ltd. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. While confirming the disallowance, learned CIT(A) observed as follows:-
“4.1. Ground No. 2 pertains to disallowance of interest at Rs.60,09,212/- on account of interest free advances given to sister concern i.e. M/s. Echo Consultant Pvt. Ltd. Undisputedly, the appellant has utilized borrowed funds for making advances to Echo Consultant Pvt. Ltd. amounting to Rs.4,00,61,414/-. After receiving part payment back, the amount of advances remained at Rs.2,00,87,414/- as on 31.03.2012 and accordingly the Assessing Officer had computed disallowable amount of interest at Rs.60,09,212/- at 15% per annum being the rate of interest paid to family members. It may also be noted that repayment was made only on 28.03.2012 and 29.03.2012 and hence the Assessing Officer has worked out disallowable interest for entire year. The appellant has claimed that the advances given to Echo Consultant Pvt. Ltd. was for business purposes being the strategic investment and hence could not be treated as interest free advances. On examination of the details furnished, it is noticed that the appellant had acquired shares of Echo Consultant Pvt. Ltd. 20,04,519 in numbers out of total shares of 26,71,907 in numbers. Thus, it is clear that the appellant has acquired 75.02% of the share holding of Echo Consultant Pvt. Ltd. and consequentially, it has acquired controlling interest in the said concern. It is an established legal position that any expenditure including interest incurred for acquiring controlling interest is not deductible. In this regard reliance is placed on the ratio laid down in the cases of Lloyds Steel Industries Ltd. Vs. ACIT (2008) 20 SOT 40 (Mum.) and CIT Vs. Smt. Amritaben R. Shah (1999) 238 ITR 777 (Bom.), wherein it was held that interest expenditure incurred on borrowed funds utilized in investment of shares of subsidiary company for acquiring controlling interest could not be allowed as the same was not incurred wholly and exclusively for the purposes of business. Accordingly, I hold that the Assessing Officer has rightly disallowed interest expenditure of Rs.60,09,212/- out of the total expenditure on interest amounting to Rs.76,87,049/-. Thus, Ground No. 2 is dismissed.”
The assessee is not satisfied and is in further appeal before us.
We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 7. We have noted that the amount advanced to Echo Consultant represented the opening balance as at the beginning of the year and no advance was extended during the relevant previous year. In any case, it has been noted by the CIT(A) that the assessee had acquired 75.02% of the shareholdings of Echo Consultant and thus close business association cannot even be doubted. The interest free loan advanced to Echo Consultant does not constitute expenditure for acquiring
ITA No. 1904/Ahd/2016 Mani Market Creators Ltd Vs. ITO Assessment Year : 2012-13 Page 3 of 3 controlling interest, as has been assumed by the CIT(A), and the basis of impugned disallowance is thus devoid of legally sustainable basis. The interest free loan having been advanced to business associate and a sister concern does not warrant any disallowance of interest expenses. The reasoning which prevailed with the Assessing Officer is clearly negated by the findings of the CIT(A). In view of these discussions, as also bearing in mind entirety of the case, we uphold the plea of the assessee and delete the impugned interest disallowance of Rs.60,09,212/-. The assessee gets the relief accordingly.
No other issue was pressed before us.
In the result, the appeal is partly allowed in the terms indicated above. Pronounced in the open court today on the 14th February, 2019.
Sd/- Sd/-
Mahavir Prasad Pramod Kumar (Judicial Member) (Vice President) Ahmedabad, the 14th day of February, 2019 *bt Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order