Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
PER MAHAVIR SINGH, JM:
This appeals by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-21, Mumbai [in short CIT(A)], in appeal No. CIT(A)-10/ITO-5(1)(4)/30/2015-16 dated 30-10-2016. The Assessment was framed by the ITO, Ward-5(1)(4), Mumbai (in short ‘ITO’/
ITA No. 357/Mum/2017
AO) for the A.Y. 2012-13 vide order dated 30.03.2015 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The first issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in making disallowance by invoking the provisions of section 14A read with Rule 8D(2)(iii) expenses relatable to exempt income. For this assessee has raised the following grounds: -
“A) Disallowance u/s 14A.
1) The learned Commissioner of Income Tax (Appeals)-10, Mumbai [CIT(A)] erred on facts and in law in confirming the disallowance made by the Assistant Commissioner of Income Tax 5(1)(4), Mumbai (AO) under Rule 8D(2)(iii).
2) The appellant prays that the disallowance made by the AO u/s. 14A read with Rule 8D(2)(111) and as confirmed by the CIT(A) may be deleted."
At the outset, it is to be stated that the assessee has earned dividend income of ₹ 10.75 only. The AO by invoking the provision of section 14A read with Rule 8D made disallowance at ₹ 4,89,511/- i.e. under Rule 8D(2)(iii) i.e. half percentage of average value of investment being administrative expenses. The CIT(A) also confirmed the action of the Assessing Officer. Aggrieved, now assessee is in appeal before us.
We find that this issue is squarely covered. The learned Counsel for the assessee as well as the learned Sr. Departmental Representative agreed that the issue is squarely covered by the decision of Hon’ble Delhi High court in the case of Cheminvest Ltd. vs. CIT (2015) 378 ITR 33 (Delhi), wherein the disallowance is to be restricted to the extent of exempt income only. The Hon’ble Delhi High Court in the case of Cheminvest Ltd. (supra) held as under: -
ITA No. 357/Mum/2017
“23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression „does not form part of the total income‟ in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year.”
Respectfully following the Delhi High Court, we restrict the disallowance to the extent of exempt income of ₹ 10.75 only. This issue of the assessee’s appeal is partly allowed.
The next issue in this appeal of the assessee is against the order of CIT(A) confirming the action of the AO in disallowing the interest expenses. For this assessee has raised the following grounds: -
“B) Addition on account of interest Rs.93,24,110/-.
3) The learned CIT(A) erred on facts and in law in confirming the order of the AO making an addition of Rs. 93,24,110/- on account of interest.
4) The learned CIT(A) and the AO failed to appreciate that the appellant had earned only Rs. 27,97,232/- from M/s. Next Media works Limited as against the figure of Rs. 1,21,21,342/- shown as per Form 26AS. Hence, the addition of Rs. 93,24,110/- was uncalled for.
5) The appellant prays that the addition on account of interest Rs.93,24,110/- as made by the
ITA No. 357/Mum/2017
AO and as confirmed by the CIT(A), may be deleted."
Briefly stated facts are that the AO during the course of assessment proceedings noticed that the assessee has credited interest received from Next Media Works Limited (NMW) amounting to ₹ 27,97,232/-, but as per form No. 26AS, the total interest received from NMW was ₹ 1,21,21,342/-. According to the AO there is short disclosure of interest income from NMW at ₹ 93,24,110/-. Accordingly, the AO required the assessee to reconcile the same and in reply to the assessee stated that the NMW has initially credit interest at the rate of 13%, which subsequently was revised to 3% and therefore the assessee has credited the interest at the rate of 3% and disclosed in the P & L Account at ₹ 27,97,232/-. The AO was not convinced and accordingly he made addition of the differential interest by observing in Para 12.2 to 12.8 as under:-
“12.2 It is seen that not only has M/s NMW continued to credit the interest 13% for four quarters i.e. for Q1 to Q4 of the FY 2011-12 but also for Q1 of the subsequent FY 2012-13.
12.3 It is seen that M/s Next Media Work Ltd is a listed company who has to publish and submit the quarterly results to the SEBI. In none of the quarter M/s NMW realize about the financial hardship. It is seen that MIs NMW has audited its books of 08/05/2012. Till this date also there was no financial hardship to M/s NMW. Further there was no financial hardship when MM NMW has credited the interest for the Q-1 of the FY 2012-13 on 30.06.2012. It is seen that M/s NMW has reversed the interest credited only on 31/07/2012. It took five quarters and one month for M/s NMW to realize the
ITA No. 357/Mum/2017
financial hardship in respect of payment of interest. This shows that the reversal of the interest credited is just to reduce the taxable income of an associate company i.e. the assessee company.
12.4 It is further seen that M/s NMW has not revised the TDS return till 160914. It is seen that M/s WMW has revised the TDS return only when the assessee was told to reconcile the gross receipt with TDS return. This also shows that the reversal of the interest is an afterthought in order to reduce taxable income of the assessee. If the payer had bonafide reversed the interest on 31.072012, then he must have revised the TDS return then and then itself. Instead the payer waited till 16.09.2014 and revised the TDS return only when the question was raised during the scrutiny assessment.
12.5 It is seen that MIs NMW is an Associate concern of the assessee. Thus the question arises the assessee would have agreed for reversal of the interest, had it been credited by some unrelated patty. The answer is obviously 'NO" because the assessee is not a charity Organization. The assessee obviously agreed because it could reduce its taxable income. It is also seen that though M/s NMW has added back the interest reversed @ 1O% in its computation of total income it has still resulted in the loss. Thus both the payer and payee to paid any tax on the impugned amount.
12.6 The assessee has given the reason for the reduction of interest being the low growth in Indian Advertising Industry as compared to the growth anticipated by the payer M/s NMW. Coming to the
ITA No. 357/Mum/2017
growth of the Indian Advertising Industry, it is seen that M/s NMW is engaged in the business of running a FM channel through its subsidiary Radio One. For the moment even it is assumed that the actual growth was 8% as against the anticipated 17, the reduction of interest from 13% to 3% is just inexplicable. No documents or supporting were produced in support, of the reduction from 13% to 3%. It is also inexplicable that a listed company took five quarters and one month to understand, that the growth is not as expected. Further theta is nothing. sacrosanct about the expected growth of 17% as stated by the assessee. Tie payer may expect 100% growth but end Up achieving nothing. That does not mean the assessee should sacrosanct its taxable income.
12.7 While on the issue it will be relevant to cite certain instances as under:
a) M/s T.V. Today Network Ltd in its annual report for the FY 2011-12 has mentioned as under:
R. Radio.
- Overall, the industry grew 15 percent in CY 2011 to reach INR 1,150 Crore, compared to INR 1,000 Crore in CY 2010
b) M/s ENTERTAINMENT NETWORK (INDIA) LIMITED who runs a Radio Mirthi FM channel in its annual report for the FY 2011-12 has shown the revenue for at Rs. 31294.75 lakhs as compared to Rs. 28468.48 lakhs in the previous year registering a growth of 10%
ITA No. 357/Mum/2017
c) Another company M/s HT Media: Ltd. who runs a Fever 104 FM channel it is annual report for the FY 2011-12 has mentioned as under:
the Indian Media & Entertainment Industry grew by 11.7 percent in the calendar year (CY) 2011 to '728 billion from '652 billion in CY 10.
In view of the above the story of the assessee regarding 17% growth does not hold any ground.
12.8 All the above facts show only one thing that the reversal of interest credited is an afterthought arrangement by the assessee in order to reduce the taxable income. Further the tact, remains same that there was no reversal of interest during the.: PY Owl consideration by the payer and therefore there was no occasion for the assessee to reduce the Interest in its books. The arrangement made by the assessee Is nothing but the colorable device with the Intention to defraud the revenue. The transaction to question is not in accordance with the genuine spirit of the statute. Thus, it could be observed. 'that the planning made by. the assessee is not legitimate and made with fraudulent. motives and mate tide Intentions"
Aggrieved, assessee preferred the appeal before CIT(A).
The CIT(A) also confirmed the action of the AO by observing in Para 5.2 of his appellate order as under: -
“5.2 I have carefully considered the facts of the case and submissions made by the ld. AR. It is evident from the above that for the year under consideration the appellant has received interest @
ITA No. 357/Mum/2017
13% on which TDS was also made by the payer M/s Next Mediaworks Ltd. (NMW). Since the deductor has given credit to the interest paid by them to the assessee in the subsequent year, no credit can be given to the assessee at the reduce interest rate of 3% in the year under consideration. I, therefore, agree with the AO and confirm the addition. The Ground is dismissed."
Aggrieved, assessee is in second appeal before Tribunal.
Before us, the learned Counsel for the assessee argued that NMW has initially credited interest at the rate of 13% but subsequently revised to 3% and reversal entry by adopting the interest was passed on 30-09- 2011 and 31-07-2012. Therefore, the learned Counsel for the assessee stated that even form No. 26Q i.e. TDS return was also revised by disclosing interest expenses at ₹ 27,97,232/- for AY 2012-13 by NMW. The revised TDS return was submitted before the AO vide letter dated 21-10-2014. The learned Counsel for the assessee argued that NMW has reduced interest rate to 3% from 13% and the company has accepted to the request of the assesse in view of the fact that the advertising industry has been through a slowdown and it would not be in a position to pay the interest dues. It was further explained that during the FY 2011-12, the Indian Media and Entertainment Industry was going through bad phase and this he tried to explained that Indian advertising business grew by 8% as against the expectation of 17% and the Radio Advertising grew by 2% only. The learned Counsel for the assessee explained that on account of the above reason the interest accrued and accounted for at the rate of 13% during the year was reversed and brought down to 3% while in the Tax Computation of assessee company and also NMW for AY 2012-13. The assessee also explained that the TDS amounting to ₹ 13,36,160/- was claimed as per TDS certificates provided by the NMW but the TDS certificate was revised and revised TDS return in form No. 26Q was also
ITA No. 357/Mum/2017
revised. NMW has also confirmed that interest expenses booked by them on information obtained from assessee company for AY 2012-13 was to the tune of ₹ 27,97,232/- The assessee filed copy of confirmation letter received from NMW and submitted before the AO, the CIT(A) and now before us. The assessee has also filed the copy of resolution for charging of interest rate from 13% to 3%.
On the other hand, the learned Sr. Departmental Representative heavily relied on the assessment order and the order of CIT(A). He stated that the assessee has only reversed the entry just to reduce the tax liability. He stated that the reasons stated in the assessment order.
We have heard the rival contentions and gone through the facts and circumstances of the case. We find that NMW is a listed company and an associate concern of the assessee. The NMW a listed company has to publish and submit audited results to SEBI. We find from the facts that NMW continued crediting interest at the rate of 13% for the relevant FY 2012-13 relevant to AY 2013-14 for first quarter even . It is also fact that NMW has audited book of accounts, which were audited on 08-05- 2012. We also find that the assessee is unable to prove the financial hardship faced by NMW despite the fact that NMW has credited the interest at the rate of 13% for quarter 1 of the FY 2012-13 for relevant AY 2013-14 as on 30-06-2012. It is also a fact that NMW has reversal interest credit only on 31-07-2012. We cannot understand that it takes five quarters and one month for NMW to realize the financial hardship and reversed the payments of interest. It is also a fact that NMW has not revised TDS return till 16-08-2014. NMW is revised the TDS return only when the Revenue pointed out to the assessee to reconcile the gross receipts with TDS return. Accordingly, we are of the view that entire reversal of interest is an afterthought to reduce the taxable income of the assessee and this is not done bonafide. Even now before us, the assessee could not substantiate that NMW was facing financial hardship.
ITA No. 357/Mum/2017
Before us, the learned counsel for the assessee relied on the decision of Hon’ble Bombay High court in the case of CIT vs. Neon solutions Pvt. Ltd (2016) 387 ITR 667 (Bom), but we find that in the case before Hon’ble Bombay High court the board resolution for waiver of interest on debentures was passed on 31-05-2004 and approved by board for waiver of interest for 6 years and including AY 2007-08 and 2009-10. But in the present case before us, the reduction was done after almost 2 years i.e. on 31-07-2012 for the AY 2012-13. Hence, the facts are entirely different and distinguishable.
In view of the above facts and circumstances, we are of the view that the lower authorities have rightly made addition and CIT(A) rightly confirmed the addition. We confirm the order of CIT(A) and this issue of assessee’s appeal is dismissed.
In the result, the appeal of the assessee is party allowed.
Order pronounced in the open court on 29-06-2018. AadoSa kI GaaoYaNaa Kulao mao idnaMk 29-06-2018 kao kI ga[- .
Sd/- Sd/- (महावीर स िंह /MAHAVIR SINGH) (जी. मंजुनाथ /G MANJUNATHA) (लेखा दस्य / ACCOUNTANT MEMBER) (न्याययक दस्य/ JUDICIAL MEMBER) Mumbai, Dated: 29-06-2018 Sudip Sarkar /Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT (A), Mumbai. 4. CIT BY ORDER, 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// Assistant Registrar ITAT, MUMBAI