M/S MAGADH HEALTH POINT(P) LTD. vs. ACIT,

IN THE INCOME TAX APPELLATE TRIBUNAL PATNA BENCH, PATNA Before Sh. N_ K. Saini, AM and Sh. Sudhanshu Srivastava, JM IT No.67/Pat./2016, Asst: Year :2012-13. Mls Magadh Health Point Pvt. Ltd. Patna. (APPELLANT) PAN No.AACCM32O8P Vs ACIT, C.C-3 , Patna: (RESPONDENT) Assessee by Shri A.K Rastogi, Shri Rakesh Kumar & Shri AK Agrawal, Adv. Revenue by Shri Abhay Kumar; Sr: S.C. Date of Hearing 15.03.2018 Date of Pronouncement : 16.03.2018 ORDER Per Sudhanshu Srivastava_JM: This appeal has been preferred by the assessee against order dated 30.03.2016, passed by the Ld_ CIT (Appeals) - 3, Patna for assessment year 2012-13 2 The brief facts of the case are that the assessee is engaged in the business of heath care The return of income was filed declaring income of Rs.33,49,826/-. Subsequently, the case was selected for scrutiny and during the course of assessment proceedings the AO observed that the assessee had claimed expenditure by way of interest amounting to Rs.52,49,628/-on borrowed funds which included interest on unsecured loans 2 ITA No.67/Pat./2016 amounting to Rs.26,35,835/- and interest on bank loan amounting to Rs.26,13,775/-. The AO required the assessee to file details regarding the interest paid to the various parties and on perusal of the details the AO noted that the assessee company had made investment in the shares of the two companies viz. Sanjivini Life Care Medical Centre amounting to Rs.2,78,29,500 / - and M/s Magadh Infra Venture Pvt: Ltd: amounting to Rs.28,30,000 / -. The AO observed that the borrowed funds were mainly used for making investment in shares of other companies with a long term perception to earn income which did not form part of total income and, therefore, the provisions of section 37 of the Income-tax Act, 1961 were attracted and the interest on borrowed capital was not allowable The AO proceeded to disallow an amount of Rs.30,56,950 / - on the ground that the assessee had used borrowed funds for the purpose of making investments not related to the business of the assessee 2.1 Aggrieved the assessee preferred an appeal before the Ld_ CIT (A) who restricted the disallowance to Rs.2,82,169 / only. 3 ITA No.67/Pat /2016 2.2 Still aggrieved, the assessee has noW approached the ITAT and challenged the part upholding of disallowance amounting to Rs.2,82,169 / - by the Ld _ CIT (A)_ 3_ The Ld_ AR submitted that the Ld CIT (A) has erred in upholding the disallowance on the ground that the interest free fund of Rs.28,00,000 / - invested in M / s Magadh Infra Venture Pvt. Ltd was not in commercial expediency. It was also submitted that the investment in M/s Magadh Infra Venture Pvt . Ltd was made in the assessment year 2009-10 and no part of interest was earlier disallowed. It was also submitted that the Ld_ CIT (A) had not appreciated the fact that the assessee had sufficient free funds by way of reserves and surplus and share capital to make investment in M / s Magadh Infra Venture Pvt. Ltd The Ld _ AR also submitted that the question as to what was a business expediency had to be decided by the assessee and the Department could not decide the same Reliance was placed on the judgment ITA No.67/Pat./2016 Hon'ble Apex Court in the case of Hero Cycles Pvt Ltd reported in 379 ITR 347 (SC) for the proposition that an expenditure may not have been incurred under any legal obligation but yet it is allowable as a business expenditure if it is incurred on the ground of business expediency. Reliance was also placed on the judgment of Hon'ble Apex Court in the case of S.A Builder VS _ CIT reported in 288 ITR 01 (SC) for the proposition that the revenue cannot put itself in the arm chair of the business man or the board of directors and assume their role to decide as how much is reasonable expenditure having regard to the circumstances of the case_ 4 _ The Ld. Sr_ D.R placed reliance on the order of the Ld_ CIT (A) and submitted that the Ld. CIT (A) had allowed substantial proportionate relief to the assessee after exam ining and verifying the facts of the case and, therefore, no further relief was allowable. 5 ITA No.67/Pat./2016 5_ We have heard the rival submissions and have also perused the material on record. It is seen that the Ld_ CIT (A) has upheld the disallowance of Rs.2,82,169 / - only on the ground that M/s Magadh Infra Venture Pvt. Ltd_ was not into any health care business and, therefore, there was n0 commercial expediency pertaining to the business of the assessee to invest in this company However, it is a settled position that the Department cannot step into shoes of the business man to test an item of expenditure on the anvil of commercial expediency. The Hon'ble Apex Court in the case of Hero Cycles Pvt. Ltd (supra) has held that the expression commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The Hon'ble Apex Court went on to hold that the expenditure may not have been incurred under any legal obligation, but all the same it will be allowable business expenditure if it was incurred on grounds of commercial expediency. The Hon'ble Apex Court als0 noted that "for the purpose of business is wider in ITA No.67/Pat./2016 scope than expression for the purpose of earn ing profit" _ The Hon'ble Apex Court has als0 observed that once it is established that there is nexus between to expenditure and the purpose of business, which need not necessarily be the business of the assessee itself, the revenue cannot justifiably claim to put itself in the arm chair of the business man or in the position of the board of directors and assume the role to decide how much is reasonable expenditure, having regard to the circumstances of the case_ The authorities must not look at the matter from their point of view but that of a prudent business man _ Similar observations were also made by the Hon'ble Delhi High Court in the case of CIT VS _ Dalmia Cement P_ Ltd reported in 254 ITR 377 (Del)_ Therefore, on the facts of the case and respectfully following the ratio of the Hon 'ble Apex Court as stated hereinabove, we are of the considered opinion that the Ld_ CIT(A) had no justifiable reason to sustain the disallowance to the extent of Rs _ 2,82,169 / - and the same is liable to be deleted Accordingly, the order of the ITA No.67/Pat./2016 Ld _ CIT (A) is set aside and Ao is directed to delete the remaining part of the addition_ 6 _ In the result, the appeal of the assessee stands allowed. (Order Pronounced in the Court on 16/03/2018) - N.K Saini) - (Sudhanshu Srivastava) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 16 /03/2018 S.sinha*