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Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य, राजे�� के अनुसार सद�य राजे�� के अनुसार राजे�� के अनुसार/ PER Rajendra A.M.- राजे�� के अनुसार Challenging the order dated 22.4.2015 of CIT(A)-22 Mumbai,the Assessee has filed the present appeal.Assessee-company, engaged in the business of manufacturing research and development of all types of electric computers,computer hardware and software systems filed its return of income on 30/09/2011, declaring total income at Rs.5.78 lakhs. The Assessing Officer (A.O.)completed the assessment on 14.3.2014 u/s. 143(3) of the Act, determining its income at Rs.42.74 lakhs. 2.First Ground of appeal
is about disallowance of interest of Rs.18.14 lakhs on loan taken from SIDBI.During the course of hearing before us,the Departmental Representative(DR) stated that while deciding the appeal for the AY.2007-08(ITA/4195/Mum/2010,dated 31.1. 2012), the Tribunal had decided the issue against the assessee.We would like to reproduce the operative part of the order of the Tribunal and same reads as under :-
9. We have considered the rival submissions, perused the record and gone through the orders of the authorities below as well as decisions cited. The question for consideration before us is whether interest paid by the assessee on the borrowings for acquisition of shares of Sameera Electronics Pvt. Ltd. for the purpose of business or not ? The case of the assessee is that the assessee is in the business of manufacturing and dealing of electrical, electronics and computer hardware and software. During the year under consideration, the assessee had acquired shares of M/s Sameera Electronics Pvt. Ltd., a 100% subsidiary of the assessee company, for which it had paid Rs. 16,91,958/- to the SIDBI from whom the assessee borrowed the money and to this effect the assessee referred pages 58 & 59 where the schedules of the Project, finance plan, and amortization schedule and letter of intent from SDBI for financial assistance. The main contention of the assessee is that the above stated shares acquired by the assessee for the effective control in the Sameera Electronics and thereby using the premises of the Sameera for 4859/M/15(Seto Teknolog Pvt. Ltd.) the purpose of immediate necessity of assessee’s business. The assessee has explained the same before the AO and CIT(A) and ultimately they have rejected the explanation offered by the assessee. To this effect, the assessee referred pages 31 & 32 of the paper book to establish that the said submissions made before the revenue authorities. The assessee had acquired shares in Sameera Electronics Pvt. Ltd., which is a loss making company is the sister concern of the assessee company in which the assessee is having interest. The assessee had also given interest free loans to its sister concern Sameera Electronics Pvt. Ltd. The assessee in one of its submissions before us stated that nobody is interested in acquiring shares in Sameera because it is a loss making company. When the Sameera Electronics Pvt. Ltd. is loss making company where assessee is also having interest, we are unable to understand that what is the necessity of acquiring the shares in Sameera to effective control in that company. It is a fact that the assessee has entered into a separate agreement with M/s Sameera Electronics Pvt. Ltd. for utilization of premises and rent was also paid. When the assessee has paid charges for using of the premises, it cannot be said that the shares acquired by the assessee is for the purpose of the business of the assessee and, therefore, allowable u/s 36(1)(iii) of the Act. Therefore, in our considered opinion, acquiring shares in Sameera Electronics Pvt. Ltd. by the assessee is not connected for the purpose of business. Therefore, the acquisition of shares in Sameera Electronics Pvt. Ltd. is not for the purpose of the business and the interest paid thereon is not allowable either in the section 36(1)(iii) or section 37 of the Act. In so far as the case laws relied upon by the learned counsel for the assessee is concerned, in the case of CIT Vs. Jardine Henderson Ltd., [1994] 210 ITR 981 the Court has held as under:- “It was categorical finding of the Tribunal that the borrowal for the purchase of shares was for the managing agency business of the assessee and to retain its grip over the managing agency business. The tribunal also found that the investment in shares was principally and primarily with a view to obtain the managing agency commission rather than dividend income. The said facts was also evident from the comparatively small amount of dividend which the assessee received compared to the large amount of managing agency commission received during the various previous years. Therefore, the entire amount of interest paid was deductible in computing the profits and gains of the asessee’s business.”
The learned counsel for the assessee also relied upon the decision of ITAT, Mumbai Bench “H”, Mumbai, in the case of ATE Enterprises Ltd. Vs. JCIT order dated 11/11/2005 wherein the Tribunal has held as under:- “11. Rival submissions of the parties have been considered carefully. The question for consideration I whether interest paid by the assessee on the borrowings for acquisition of shares of Trumac can be allowed as deduction u/s 36(1)(iii) considering the facts of the case and case law available on this point. There is no dispute between the parties that deduction is allowable if money is borrowed for the purpose of business. The expression for the purpose of business is much wider than the expression for the purpose of earning profits’ as held by Hon’ble Supreme Court in the case of India Cements Ltd., 60 ITR 52. Thus, for the purpose of allowing deduction u/s 36(1)(iii) it would be irrelevant to consider whether borrowed money was utilized for meeting day to day expenses or for acquiring capital assets to be used in business. Therefore, interest for borrowing would be allowed even if borrowed fund is utilized for acquiring plant and machinery or land and building for use in business. Reference can be made to jurisdictional high Court judgment in the case of Calico Dyeing & Printing Works Vs. CIT, 34 ITR 265.
12. In view of the above legal background, the question which survives for our consideration is whether on facts it can be said that money was borrowed for the purpose of business. Admittedly Trumac’ was a joint venture of assessee and Maftlal Group of companies. In its reply to show cause notice, the assessee had stated that promoters of the assessee company as well as of Maftlal Group had good business relationships having close association with Indian Textile Industry. This fact has not been disputed by the revenue at any stage. It is because of these facts, the Chairman of assessee company was on the Board of Trumac’ as non- executive Chairman and could get sole selling agency for the distribution of the products manufactured by Trumac. Since it was main source of income, it was natural for a prudent man to safeguard its business interest. Therefore, if the assessee decided to increase its holding in Trumac’ In our opinion, the assessee was guided by business consideration to safeguard its selling agency. If shares are purchased by outsiders then there is possibility that outsider may jeopardize th business interest of assessee company. Therfore, in our opinion, act of borrowing money for the acquisition of shares was closely connected with or incidental to the carrying on the business. Consequently, the conditions of allowing deduction u/s 36(1)(iii) stood satisfied. The assessee also relied on the CIT Vs. Rajeev Lochan Kanoria (supra) wherein the Court has held as under:-
4859/M/15(Seto Teknolog Pvt. Ltd.)
Held, that directorship is nothing but a vocation. The assessee was admittedly a director of several controlled companies. The activity of controlling, managing, administering and financing companies is nothing but a business/professional/vocational activity. A businessman, like the assessee in this case, did not purchase shares of different companies for acquiring controlling interest therein only for earning dividends. Acquiring controlling interest in companies and managing, administering, financing and rehabilitating companies under control were for business and/or professional purpose. Interest on capital borrowed for investment in shares was deductible.
The above three case laws relied upon by the learned counsel for the assessee are not applicable to the facts of the case under consideration for the reason that in the present case, one of the material distinguishable fact is that the assessee entered into a separate agreement with the Sameera Electronics Pvt. Ltd. and paid service charges for the utilization of the premises of Sameera, therefore, the above case laws are not applicable to the case of the assessee.
In view of the above, this ground of appeal
raised by the assessee is dismissed.” Respectfully following the order of the Tribunal for AY 2007
08. Ground No.1 is decided against the assessee.
3.Next Ground of appeal is about disallowing Rs.13.13 lakhs as unexplained liability. During the assessment proceedings the AO found that the assessee had shown sundry creditors in the name of Thingna & Contractors (T&C) at Rs,13.73 lakhs which were outstanding for more than 3 yrs. He directed the assessee to file explanation in that regard.After considering submission of the assessee dt.22.1.14 the AO held that explanation was not satisfactory.For making further verification of the outstanding liability he issued notice u/s. 133(6) of the Act to T&C to file a copy of the ledger account of the assessee in their books of accounts. It was found that the outstanding balance of the assessee company in the books of account of T&C was shown at Rs.6.58 lakhs. Since there was difference in balance of both the parties so the AO supplied a copy of ledger account of T&C of the assessee and asked it to reconcile with the corroborative documentary evidences.The assessee filed its reply on 05.3.2014 .
4.After considering the same,the AO held that the outstanding balance in the books of account of the assessee company was shown at Rs.13.73 lakhs, that the outstanding balance in T&C was shown as Rs.6.58 lakhs, the assessee had not offered an explanation for Rs.7.14 lakhs, that assessee had not proved that there was any settlement between T&C and one M/s. Saif Steel as claimed by the assessee ,that in the books of account there was no entry for the settlement in question. Finally he held that excess liability shown in the books of account of the assessee under the head of sundry creditors in the name of M/s. T&C at Rs.7.14 lakhs was an unexplained liability.He made an addition of Rs.7,14,925/-to the total income of the assessee.
4859/M/15(Seto Teknolog Pvt. Ltd.)
5.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority ( FAA). Before him, it was argued that the bills received from T&C were accounted for in the books of account, that company maintained that outstanding fee shown in the Balance sheet as on 31.3.2011 was of Rs.20.90 lakhs, that T&C surprisingly informed the AO that current sum to be received from the assessee by it was only Rs.6.58 lakhs, that the assessee had advanced a sum of Rs.20 lakhs to a party called M/s. Saif Steel at the behest of T&C, that it was the moral responsibility to secure repayment of the same, that it confirmed a lower figure of outstanding .After considering the submission of the assessee and the assessment order the FAA held that in the books of the assessee the outstanding balance fee was shown at Rs.20.90 lakhs in the case of T&C,that on verification T&C informed that correct outstanding was Rs.6.58 lakhs, that the AO had computed Rs.13.31 lakhs that was not payable by the assessee to T&C, that he added the said amount as unexplained liability, that AO had added Rs.7.14 lakhs only, that the difference between figure of assessee and T&C was Rs.13.13 lakhs.He directed the AO to add the above mentioned amount to the total income of the assessee. .
6.As stated earlier none appeared before us, that DR supported the order of FAA.We find that T&C had categorically stated that outstanding amount was Rs.6.58 lakhs and not Rs.20.90 lakhs, that the assessee had not brought on record to prove that there was advancement of loan on behalf of T&C to Saif Steel. In these circumstances, we are of the opinion that direct issue by FAA need no interference from our side.Confirming the his order, we decide the second ground against the assessee.
As a result, appeal filed by the assessee stands dismissed. फलतः िनधा�रती �ारा दािखल क� गई अपील नामंजूर क� जाती है. Order pronounced in the open court on 04th January, 2017. आदेश क� घोषणा खुले �यायालय म� �दनांक 04 जनवरी, 2017 को क� गई । Sd/- Sd/- (शि�जीत डे शि�जीत डे शि�जीत डे / Saktijit Dey) (राजे�� / Rajendra) शि�जीत डे �याियक सद�य / JUDICIAL MEMBER लेखा लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य मुंबई Mumbai; �दनांकDated : 04.01.2017. Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1.Appellant /अपीलाथ� 2. Respondent /��यथ� 3.The concerned CIT(A)/संब� अपीलीय आयकर आयु�, 4.The concerned CIT /संब� आयकर आयु� 5.DR “K ” Bench, ITAT, Mumbai /िवभागीय �ितिनिध, खंडपीठ,आ.अ.�याया.मुंबई 6.Guard File/गाड� फाईल 4
4859/M/15(Seto Teknolog Pvt. Ltd.)