NIAGARA FINANCIAL CONSULTANTS P. LTD.,MUMBAI vs. PR. CIT , CITY-6, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI AMARJIT SINGH, JM AND SHRI AMARJIT SINGH, AM आयकर अपील सं/ I.T.A. No.762/Mum/2021 (ननधधारण वर्ा / Assessment Years: 2015-16) बनधम/ Niagara Financial Pr. CIT, City-6 Room No.501, 5th Floor, Consultants Pvt. Ltd. Vs. C-201, Kailash Explanade, Aayakar Bhavan, LBS Marg, Opp. Sheryas Maharshi Karve Road, Theatre, Ghatkopar (W), Mumbai-400020. Mumbai-400086. स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No. : AACCN1918R (अपीलाथी /Appellant) (प्रत्यथी / Respondent) .. Assessee by: Shri Prakash Jhunjhunwala Revenue by: Shri Mahesh Akhade (DR) सुनवाई की तारीख / Date of Hearing: 10/01/2022 घोषणा की तारीख /Date of Pronouncement: 28/01/2022 आदेश / O R D E R PER AMARJIT SINGH, JM: The assessee has filed the present appeal against the order dated 30.03.2021 passed by the Principal Commissioner of Income Tax-06, Mumbai [hereinafter referred to as the “PCIT”] relevant to the A.Y.2015-16 in which the Principal Commissioner of Income Tax-06 has invoked the provisions u/s 263 of the I.T. Act, 1961. The assessee has raised the following grounds of appeal: - 2.

ITA No.762/Mum/2021 A.Y. 2015-16 a) The Ld. AO had passed the assessment order on conducting proper inquiries on due application of mind and on considering all material facts filed/available on assessment record; b) The Ld. AO had already made the disallowance of huge interest expense of Rs.7,92,27,335/-, out of total finance cost incurred of Rs. 11,49,54,281/-; c) The Ld. AO had verified the genuineness of loan ICDs supported with hank statements and other documents and on considering the fact that major loans/ICDs had been received from reputed Non-Banking Financial Company (NBFC); 3.0 The order passed u/s 263 is bad in law since there is no lack of inquiry on pail of Ld. AO and the cases involving inadequate inquiry does not empower the Pr. CIT to invoke the revisionary powers u/s Sec 263 of the Act. The appellant craves leave to add, amend, alter, and/or withdraw any of the grounds of appeal at time of hearing.”

ITA No.762/Mum/2021 A.Y. 2015-16 4 Jatayu Textile Industries Limited 17,56,617 5 Kajal Synthetic Silk Mills Limited 7,02,93,469 6 Raj Resorts Pvt. Ltd. 1,00,00,000 7 Mansoon Trading Company Limited 29,89,527 8 Meenakshi Steel Industries Limited 1,29,79,596 9 Nilkanth Engineering Limited 2,01,41,227 10 Sushree Trading Limited 4,68,47,268 Total 178,42,70,069/- It was also observed that the long term borrowing was of Rs.117,35,69,248/- on which the assessee has claimed finance costs of Rs.11.49,54,281/- in the profit and loss account. Further, the long term and short term loans and advances was given of Rs.79,84,42,190/- and Rs.1,29,70,062/- respectively. The assessee was borrowing huge money and paying huge interest and finance cost on these borrowings and at the same time advanced these borrowed sums and earned only Rs.43,16,099/-. During the course of assessment proceedings, the AO disallowed the interest expenses of Rs.7,92,27,335/- out of the total finance cost of Rs.11,49,54,281/- on the grounds that the advance of Rs.80,84,42,190/- given to builders/developers/others was not for business purposes of the assessee but at the same time erred in by not disallowing the entire amount of Rs.11,49,54,281/-. The notice was given u/s 263 of the Act dated 12.03.2021 to the assessee and after the reply of the assessee, the PCIT reopened the assessment by passing the order dated 30.06.2017 under challenge. The assessee was not satisfied, therefore, filed the present appeal before us. 4. We have heard the argument advanced by the Ld. Representative of the parties and perused the record. The assessment of the assessee was reopened for limited scrutiny on the following reasons: - (i) Large increase of unsecured loans during the year. (ii) High interest expenses as compared to business turnover. 5. The issue has squarely been examined by AO and passed the order dated 30.06.2017, therefore, the reopening is bad in law. The copy of the assessment order dated 30.06.2017 u/s 143(3) of the Act is on the file in which the interest

ITA No.762/Mum/2021 A.Y. 2015-16 issue has been examined and for ready reference the para 5 is hereby reproduced as under: - “5. Disallowance u/s 36: It is observed from the audited P & L a/c, that the assessee company has debited interest expenses of Rs.11,49,54,281/- on borrowed fund of Rs.117,35,69,248/- at an average interest rate of 9.80%. Assessee company was required to submit the details with reference to loans taken, utilization of loans and rate of interest. In response to the same, the assessee company submitted the details and stated that the advances had been given to the various projects and also enclosed the working of interest attributable towards the advance and investment account. The list of the persons to whom advances were given as under: - Sr. Name, address and particulars of the Amount given (in Interest @ 8.75% (in No. developers Rs.) Rs.) 1 Base Industries Ltd. 50,00,000 4,90,000 (PAN: AAACB8821F) 2 Better Equity Services Ltd. 9,88,66,099 96,88,878 (PAN: AACCR6479B) 3 Blue Square Properties Pvt. Ltd. 3,29,00,000 32,24,200 (PAN: AADCB1801C) 4 Osiris Infotech Pvt. Ltd. 95,00,000 9,31,000 (PAN: AAAC06865G) 5 Osiris Realty Pvt. Ltd. 2,59,16,000 25,39,768 (PAN: AABC06617R) 6 Suyog Towers Pvt. Ltd. 1,80,00,000 17,64,000 (PAN: AAACR8828G) 7 Chamatkar Finstock Pvt. Ltd. 8,25,000 80,850, (PAN: AACCG4723F) 8 Greenback Commodities P. Ltd. 5,32,640 52,199 PAN: AACCG4723F 9 Greenback Forex Services Pvt. Ltd. 7,00,000 68,600, PAN ADZPM3959L 10 Lifecycle career Avenues Pvt. Ltd. 19,00,000 186,200 PAN AQYPK5208Q 11 Morpheus Media Venture 2,15,00,000 21,07,000 PAN AACCG5382J 12 Surface Finance Pvt. Ltd. 1,00,00,000 9,80,000 PAN AAACA3246R 13 Tinta Media creations Pvt. Ltd. 3,80,20,000 37,25,960 PAN AACCT8850E 14 CNP Business Advisory Services Pvt. 3,80,20,000 37,25,960 Ltd. PAN AADCB1801C 15 KK Menon 36,40,000 3,56,720

ITA No.762/Mum/2021 A.Y. 2015-16 PAN ADZPM3959L 16 Landmark creators 25,00,000 2,45,000 17 Manish Goyal 28,85,000 2,82,730 (PAN: AEOPG0248Q) 18 Minal Goyal 110,00,000 10,78,000 (PAN: AQEPG6907E) 19 Pranita Chamnkar 82,00,000 8,03,600 (PAN: ACPPC6753M) 20 Praveen Agarwal 50,000 4,900 PAN ACSPA7553 21 Priya Murlidhar Chaini 6,00,000 58,800 PAN ADFPC1588D 22 Satish Kanse 15,00,000 1,47,000 PAN AQYPK5208Q 23 TB Mehta 10,00,000 98,000 PAN AAWPM2485M 24 PS Chamankar Property Developers Pvt. 30,64,00,605 3,00,27,259 Ltd. PAN AACCP0964F 25 Bombay Construction & Engineering Pvt. 2,65,00,000 25,97,000 Ltd. PAN AAACB9795N 26 Daksh Developers 5,18,00,000 50,76,400 PAN AAHFD0864C 27 Della Enclave Pvt. Ltd. 2,66,47,019 26,11,408 PAN AACCM4457C 28 Marudhara Buildwell Pvt. Ltd. 5,85,00,000 57,33,000 PAN AAGCM3644M 29 Opening Interest Capitalized 3,24,59,827 31,81,063 30 Burgar King Restaurant 1,00,00,000 9,80,000 Total 80,84,42,190 7,92,27,335 5.1 A perusal of the detailed working submitted by the assessee shows that the interest on borrowed funds attributable to the advances amounts to Rs. 7,92,27,335/and the same was debited in the P & La/c. Section 36 of the Act provides the deduction in respect of capital borrowed for the purpose of business or profession. The logic behind the provisions to 36(1){iii) of the Income Tax Act is only to ensure that whatever interest is capitalized for books of accounts, it remains capitalized for the purpose of Income-tax. This interest cannot be claimed as deduction u/s. 36(1)(iii) of the Income Tax Act. Borrowing cost that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalized as part of the that cost of a qualifying asset when it is probable that they will result in future economic benefits to the business and the costs can be measured reliably. It can be clearly seen from the details submitted by the assessee that the advances was given to the builders / developers and the same was not for the business of the assessee company. Since the expenses were not incurred for the purpose of business the same cannot be allowed as deduction.

ITA No.762/Mum/2021 A.Y. 2015-16 5.2 In view of the above discussion and the facts of the case, after examination of case records and submissions made, the interest income of Rs. 7,92,27,335/is hereby disallowed u/s. 36 of the Income Tax Act and added to the total income of the assessee company. Further in view of the above discussion, it is clear that the assessee has furnished inaccurate particular of income. Penalty proceeding u/s 271(1)(c) of the I.T Act. is being initiated. (Disallowance of Rs. 7,92,27,335/-)

ITA No.762/Mum/2021 A.Y. 2015-16 (v) Party-wise details of interest paid of Rs.11.49 crores. (vi) Confirmation of brokers account on profit/loss in trading in commodities; (vii) Working of interest capitalised to properties/Investment account. I hope the above details would satisfy the requirements and oblige. A letter of authorities in my favour is enclosed herewith. Thanking you,

Yours faithfully, Chartered Accountant.

ITA No.762/Mum/2021 A.Y. 2015-16 total Loss of Rs(-)11, 14, 50,265/-. The other details submitted are stated as under:- 1 I.T. acknowledgement receipt; 2. Computation of income (original); 3. Revised Computation of income. The original return of income filed on 30/09/2015 disclosing the total loss of Rs.11,14,50,265/is revised since the entire interest paid of Rs.11,49,54,281/- was claimed as deductible u/s.36(1)(lii) of the Act. However, since, the assessée had utilized the loans also for purchase of properties/ assets, accordingly there exist debate as to whether the interest is revenue or capital expenditure. The assessee, to avoid controversies in revised statement of income, has capitalized the interest in proportionate manner of Rs.7 ell 335k to the extent of funds utilized for properties/ assets; 4. Audited Balance sheet; 5. Tax audit report; 6. 26AS Statement; 7. 43B Challans; 8. Details of registered office; 9. Details of shareholders alongwith their address; 10. Details of bank accounts alongwith confirmation of bank balance; 11. There is no addition to share capital/ premium made during the year 12, There is no fixed assets held by the assessee. In respect of other details, a short adjournment may be allowed and oblige.

Thanking you,

Yours faithfully, Chartered Accountant 8. The assessee also submitted the relevant record before the AO which was examined by AO as requested. Thereafter, the AO disallowed the interest to the tune of Rs.7,92,27,335/-. Once the AO has examined the issue and one possible

ITA No.762/Mum/2021 A.Y. 2015-16 view has already been taken, therefore, the assessment u/s 263 of the Act is not liable to be reviewed in view of the decision of Hon‟ble High Court in the case of CIT Vs. Ballarpur Industries Ltd. 85 Taxmann.com 37, Grasim Industries Ltd. Vs. CIT 188 Taxman 327, CIT Vs. Kelvinator of India Ltd. 12 Taxmann.com 445 & CIT Vs. Mepco Industries Ltd, 163 Taxman 648. If it is assumed that the inquiry was not correct or conducted properly, therefore, the revisional power u/s 263 of the Act is not liable to be invoked in view of the decision of MOIL Ltd. Vs. CIT 81 Taxmann. Com 420, CIT Vs. Development Credit Bank Ltd. 196 Taxman 329, CIT Vs. Vikas Polymers 194 Taxman 57. Taking into account of all the facts and circumstances, we set aside the order passed by PCIT in question and allowed the appeal of the assessee. 9. In the result, the appeal of the assessee is hereby allowed Order pronounced in the open court on this 28/01/2022 Sd/- Sd/- (AMARJIT SINGH) (AMARJIT SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 28/01/2022 Vijay Pal Singh (Sr. PS) आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. आयकर आयुक्त(अपील) / The CIT(A)- 3. 4. आयकर आयुक्त / CIT 5. ववभागीय प्रवतवनवि, आयकर अपीलीय अविकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशधनुसधर/ BY ORDER, सत्यावपत प्रवत //True Copy// उि/सहधयक िंजीकधर /(Dy./Asstt. Registrar) आयकर अिीलीय अनधकरण, मुंबई / ITAT, Mumbai