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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: Shri JOGINDER SINGH, & Shri G. MANJUNATHA
आदेश / O R D E R
Per Joginder Singh (Judicial Member) The Revenue as well as the assessee is in appeal and Cross objections by the assessee. First, we shall take up the appeal of the assessee for Assessment Year 2011-12 ( ), wherein, the first ground raised pertains to partly confirming the disallowance of interest under section 36(1)(iii) of the Income Tax Act, 1961 (hereinafter the Act) on the investment made by the assessee in group concerns (other than Ashfort Infotech Pvt. Ltd.).
During hearing, the ld. counsel for the assessee, Shri Dharan Gandhi, claimed that the impugned issue is covered in favour of the assessee by the order of the Tribunal for Assessment Year 2010-11 (ITA No.2135/Mum/2014), order dated 26/07/2017. The ld. Tribunal dated 26/07/2017. This factual matrix was not controverted by the ld. DR, Shri Satishchandra Rajora.
2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal:-
“Aforesaid cross appeals by the assessee and the Revenue and cross objection by the assessee are against common order dated 23rd January 2014, passed by the learned Commissioner (Appeals)–14, Mumbai, for the assessment year 2010–11.
./2014 – Assessee Appeal
2. Ground no.1, is against direction of the learned Commissioner (Appeals) to disallow part of the interest expenditure under section 36(1)(iii) of the Income Tax Act, 1961 (for short "the Act").
Brief facts are, the assessee is a company. As observed by the Assessing Officer, it is engaged in construction activities. For the assessment year under dispute, the assessee filed its return of income on 15th October 2010, declaring total income of ` 3,50,53,120. During the assessment proceedings, the Assessing Officer noticing that in the earlier assessment year, interest paid to L&T Infrastructure Finance Co. Ltd., was disallowed under section 36(1)(iii) on the reasoning that borrowed funds were utilised for non–business activities, proceeded to apply the same reasoning to the impugned assessment year as well. He observed, as per the annual accounts, the assessee has shown borrowed funds of ` 275 crore as on 31st March 2010, compared to ` 243 crore as on 31st March 2009. He observed, in the relevant previous year, the assessee has repaid the loan of ` 234 crore by availing fresh loans of `
5 CO. No.44/Mum/2015, ITA No.646/Mum/2017 CO. No.121/Mum/2018 Alok Infrastructure Ltd. 275 crore. Thus, stating that borrowed funds were applied for non–business purpose, the Assessing Officer disallowed interest expenditure of ` 3,24,64,466 under section 36(1)(iii) of the Act being interest paid to L&T Infrastructure Finance Co. Ltd. The Assessing Officer held that since the loan availed from L&T Infrastructure Finance Co. Ltd. was utilised for non–business purpose, the interest on loan availed from Axis Bank which was utilised for repaying the loan to L&T Infrastructure Finance Co. Ltd. cannot be allowed as business expenditure in terms of section 36(1)(iii) of the Act. Accordingly, he disallowed interest paid to Axis Bank amounting to ` 3,35,07,885. Being aggrieved of such disallowances, the assessee preferred appeal before the first appellate authority.
4. The learned Commissioner (Appeals), after examining the details filed before him found that the assessee has made investment in equity shares and share application money as under:–
Name of Investment Share Appli– Sr.no. Equity Shares Company cation Money 1. Alspun Infrastructure Ltd. 750000.00 159950000.00 2. Ashford Infotech Pvt. Ltd. 500000.00 679350000.00 Kesham Developers & 3. 540000000.00 130000000.00 Infotech P. Ltd. Springdale Information 4. 575000000.00 4500000.00 and Tech. P. Ltd. 5. Alok Realtors P. Ltd. 175000000.00 2951309000.00 6. Alok Hb Hotels Pvt. Ltd. 500000.00 7. Alok Hb Properties P. Ltd. 500000.00
5. The learned Commissioner (Appeals) observed, investment made in equity shares and share application money of Ashford Infotech Pvt. Ltd., is for the purpose of assessee’s business, hence, interest payment relating to the fund utilised for such activity is allowable as business expenditure. However, as far as investment made in other companies are concerned, the learned Commissioner (Appeals) observed that the assessee failed to demonstrate that that it had derived any commercial benefit out of such investments in subsidiaries. He, therefore, held that interest attributable to the fund utilised for
6. The learned Authorised Representative submitted, loan availed from L&T Infrastructure Finance Co. Ltd. was fully utilised for business purpose, hence, the Assessing Officer was wrong in concluding that loan availed from L&T Infrastructure Finance Co. Ltd. was utilised for investment activity. He submitted, similar disallowance was made by the Assessing Officer in assessment year 2008–09 and 2009–10, however, the Tribunal upheld assessee’s claim of deduction in respect of interest expenditure on loan availed from L&T Infrastructure Finance Co. Ltd. In this context, he drew out attention to the orders passed by the Tribunal for assessment years 2008–09 and 2009–10. The learned Authorised Representative submitted, since the loan availed from L&T Infrastructure Finance Co. Ltd. has been held to be for the purpose of business the interest paid to Axis Bank on the loan availed from Axis Bank to repay the loan liability of L&T Infrastructure Finance Co. Ltd. also has to be regarded to be for business purpose. He, therefore, submitted that disallowance of interest expenditure made by the Assessing Officer has to be deleted fully.
7. Learned Departmental Representative on the other hand submitted, the assessee having failed to conclusively prove that no borrowed funds have been utilised for investment activities, disallowance of interest expenditure made by the Assessing Officer should be restored.
8. We have heard the rival contentions and perused the material available on record. It is evident from the facts discussed by the Assessing Officer in the assessment order that in the relevant previous year assessee had loan liabilities of ` 43 crore and ` 200 crore from L&T Infrastructure Finance Co. Ltd. and Axis Bank respectively. He has also noted that the aforesaid loan liability was repaid by the assessee by availing fresh loan of ` 75 crore from India Bulls and ` 200 crore from J&K Bank. The Assessing Officer has disallowed interest paid to L&T Infrastructure Finance Co. Ltd. and Axis Bank on the reasoning that the borrowed funds availed from L&T Infrastructure Finance Co. Ltd. was utilised for investment activities. In other words, such loan was utilised for non– business purpose. It is also evident the Assessing Officer has come to such conclusion by relying upon similar disallowance made in the earlier assessment years. Notably, in assessment year 2008–09, the Assessing Officer disallowed interest expenditure on borrowings of ` 43 crore from L&T
7 CO. No.44/Mum/2015, ITA No.646/Mum/2017 CO. No.121/Mum/2018 Alok Infrastructure Ltd. Infrastructure Finance Co. Ltd. However, when the validity of such disallowance came up for consideration before the Tribunal in an appeal filed by the Revenue, the Tribunal while deciding the issue in order dated 29th July 2016, in ITA no.818/Mum./2012 and ITA no.1651/Mum./2012, held as under:–
“12. Before us, the Ld. Departmental Representative has primarily relied upon the order of the Assessing Officer in support of the case of the Revenue, without controverting any of the factual matrix brought out by the CIT(A). Notably, the CIT(A) in para 3.9 of his order has referred to the fund flow statement furnished by the assessee whereby, assessee had owned interest free funds of Rs.193.70 crores and investment in subsidiary was Rs.135.00 crores. On this basis, the CIT(A) has concluded that assessee had sufficient own funds and , therefore, following the judgment of Hon'ble Bombay High Court in the case Reliance Utilities And Power Limited(supra), it can be presumed that no borrowed funds were used to make such investments. As per Hon'ble Bombay High Court, the principle is that, if there are funds available both interest free and interest bearing, then a presumption can be drawn that investments are made out of interest free funds, so long as such interest free funds are sufficient to meet the investments. In our considered opinion, having regard to the fact position brought out by the CIT(A), the proposition laid down by the Hon'ble Bombay High Court in the case of Reliance Utilities And Power Limited(supra) is fully attracted in the present case. Such fact-situation has been enumerated by the CIT(A) in Para 3.4 of his order, which depicts the summarized fund flow position of the assessee, and the same has not been controverted by the Revenue before us, rather the same is also borne out of the material placed in the Paper Book filed before us. Therefore, on this count itself, we find no reason to interfere with the ultimate conclusion of the CIT(A) in deleting the addition of Rs.62,56,945/- which we hereby affirm. Thus, on this aspect also Revenue fails.”
Similar view was again expressed by the Tribunal while deciding cross appeals for assessment year 2009–10 in assessee’s own case vide ITA no.4843/Mum./2013 and C.O. no.198/Mum./2014, dated 6th October 2016. Thus, as far as the nature of utilisation of loan availed of ` 43 crore from L&T Infrastructure Finance Co. Ltd. is concerned, the issue is settled in favour of the assessee by the decisions of the Tribunal referred to above, wherein, it has been held that such loan availed was for business purpose. That being the case, the interest paid to L&T Infrastructure Finance Co. Ltd. for availing such loan cannot be disallowed under section 36(1)(iii) of the Act. As far as the loan availed from Axis Bank is concerned, the Assessing Officer himself has stated that it was utilised for repayment of loan liability of L&T Infrastructure Finance Co. Ltd. Thus, when the loan availed from L&T Infrastructure
8 CO. No.44/Mum/2015, ITA No.646/Mum/2017 CO. No.121/Mum/2018 Alok Infrastructure Ltd. Finance Co. Ltd. has been held to be for the purpose of business interest paid on loan availed for discharging the said liability would also be for business purpose. Therefore, no disallowance of the interest expenditure in terms of section 36(1)(iii) of the Act can be made. In our view, the learned Commissioner (Appeals) without properly appreciating the fact has confirmed disallowance of interest under section 36(1)(iii) barring investments made in Ashford Infotech Pvt. Ltd. There is no material before the Departmental Authorities to conclude that the interest disallowed by the Assessing Officer pertained to utilisation of borrowed fund for investment activities. On the contrary, the Tribunal in earlier assessment years held that the loan availed from L&t Infrastructure Ltd. was for business purpose. That being the case, there cannot be any interest disallowance on that account. Accordingly, we delete the addition. This ground is allowed. 2.2. We find that in the aforesaid order, the Tribunal duly considered the factual matrix and another decision of the Tribunal dated 29/07/2016 (ITA NO.818 and 1651/Mum/2012), wherein, it was held that the loan availed form L & T Infrastructure Ltd. was for business purposes, therefore, there cannot be any interest disallowance on that account. Consequently, the addition was directed to be deleted. Following the aforesaid order of the Tribunal and in the absence of any contrary material brought to our notice, this ground of the assessee is allowed.
3. The next grounds i.e. 4 to 10, raised by the assessee, pertains to confirming the disallowance under Act) r.w.r 8D of the Rules. The crux of argument on behalf of the assessee is that no exempt income was earned by the assessee. It was claimed that this issue is also covered by the aforesaid decision of the Tribunal.
3.1. We have considered the rival submissions and perused the material available on record. In the light of the above, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal for ready reference and analysis:-
The next issue as raised in grounds no.2 to 8 relates to disallowance made under section 14A r/w rule 8D.
Brief facts are, during the assessment proceedings, the Assessing Officer noticing that the assessee has invested in shares which would yield exempt income proceeded to make disallowance of an amount of ` 71,31,290 under section 14A r/w rule 8D.
The learned Commissioner (Appeals) also confirmed the disallowance under section 14A with partial modification.
Learned Authorised Representative submitted, in the relevant assessment year, the assessee has not earned any exempt income, therefore, no disallowance under section 14A r/w rule 8D can be made.
Learned Departmental Representative relied upon the observations of the Assessing Officer and the learned Commissioner (Appeals).
10 CO. No.44/Mum/2015, ITA No.646/Mum/2017 CO. No.121/Mum/2018 Alok Infrastructure Ltd.
We have heard the rival contentions and perused the material available on record. On a perusal of the assessment order, it is evident, the Assessing Officer has made disallowance under section 14A r/w rule 8D on the reasoning that investment made by the assessee in shares would yield exempt income. However, there is nothing on record to suggest that in the relevant previous year assessee earned any exempt income by way of dividend. In fact, the computation of income filed by the assessee for the impugned assessment year demonstrates that assessee has not earned any exempt income during the relevant previous year. In assessee’s own case, for assessment year 2008–09 and 2009–10, Tribunal, in orders referred to herein before, has held that in the absence of any exempt income earned by the assessee no disallowance under section 14A r/w rule 8D can be made. Following the consistent view of the Tribunal in assessee’s own case, we delete the addition made by the Assessing Officer.
In the result, Assessee’s appeal is allowed.” Since, no exempt income was earned by the assessee and the assessee suo-moto disallowance of Rs.4,68,811/- and having nexus with the business of the assessee, therefore, following the aforesaid order of the Tribunal, these grounds of the assessee is also allowed.
Now, we shall take up the appeal of the Revenue (ITA No.6031/Mum/2014), wherein, ground no.1 is with respect to delete the addition made under section 36(1)(iii) of the Act. The ld. counsel for the assessee claimed that this issue is covered in favour of the assessee by the decision of the Tribunal. The Ld. DR did not controvert the dealing with identical issue in ((supra)), therefore, on the same reasoning and following the aforesaid order of the Tribunal, this ground of the Revenue is having no merit, resultantly, dismissed.
The grounds no. 2 & 3 pertains to directing the Assessing Officer to verify the claim of the assessee in respect of issue of loan obtained from India Bulls utilized for giving inter-corporate deposits to its subsidiaries, against which interest income has been earned. The ld. counsel for the assessee claimed that this issue is covered by the decision dated 26/07/2017 (ITA No.2135 & 2304/Mum/2014). This factual matrix was not controverted by the Ld. DR. 5.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal dated 26/07/2017:-
12 CO. No.44/Mum/2015, ITA No.646/Mum/2017 CO. No.121/Mum/2018 Alok Infrastructure Ltd. 19. In ground no.2 and 3, the Revenue has challenged certain directions issued by the learned Commissioner (Appeals) in relation to allowability of interest expenditure.
Before the first appellate authority, it was contended by the assessee that loan of ` 75 crore obtained from India Bulls was utilised for giving inter–corporate deposits to its subsidiary Alok Realtors Pvt. Ltd., against which the assessee has earned interest income. After considering the aforesaid submission of the assessee, the learned Commissioner (Appeals) directed the Assessing Officer to verify assessee’s claim and if a nexus is established between the interest earned and interest paid then to give consequential relief to the assessee. The grievance of the Department against the aforesaid direction is, the Commissioner (Appeals) has no power to set aside the issue and restore the matter back to the file of the Assessing Officer.
The learned Authorised Representative on the other hand supported the order of the learned Commissioner (Appeals).
We have heard the rival contentions and perused the material available on record. As could be seen from the submissions made by the assessee in the course of assessment proceedings, the assessee has furnished all the details relating to the loan availed as well as the purpose for which such borrowed funds was utilised. Before the Assessing Officer himself, the assessee had explained that the loan received from India Bulls is utilised for providing inter–corporate deposit to one of its subsidiary and on such deposits assessee has received interest. It is relevant to observe, in spite of such details furnished by the assessee, the Assessing Officer has neither examined the issue in detail nor has made any discussion in the assessment order in that regard. In the aforesaid circumstances, we do not find any infirmity in the order of the learned Commissioner (Appeals) to upset the same. Accordingly, grounds raised are dismissed.
In the result, Revenue’s appeal is dismissed.”
We find that in the aforesaid case also similar directions were given to the ld. Assessing Officer by the Ld. Commissioner of Income Tax (Appeal) to verify the claim of the assessee with respect to interest earned and interest decision of the Tribunal, we find no merit in the ground of the Revenue. Thus, the appeal of the Revenue is dismissed.
Now, we shall take up the Cross Objection No.44/Mum/2015 (arising out of ITA No.6031/Mum/2014). The Ld. counsel for the assessee contended that if the appeal of the Revenue is dismissed, the Cross Objection will become in-fructuous. Since, we have dismissed the appeal of the Revenue, the ground raised in this Cross Objection have become in-fructuous.
Consequently, dismissed as in-fructuous.
Now, we shall take up the appeal of the Revenue (ITA No.646/Mum/2017), wherein, the first ground pertains to deleting the addition made under section 36(1)(iii) of the Act and the second ground pertains to delete the disallowance made under section 14A of the Act r.w.r 8D of the Rules. The ld. counsel for the assessee as well as the ld. DR claimed that it will be dependent upon these issues in favour of the assessee, therefore, this appeal of the Revenue is dismissed.
So far as, Cross Objection no.121/Mum/2018 (arising out of is concerned, in view of our above order, this cross objection have become in-fructuous, consequently, dismissed.
Finally, the appeal of the assessee is allowed, the appeals of the Revenue as well as the Cross Objections of the assessee are dismissed.
This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 03/10/2018.