Income Tax Appellate Tribunal - Delhi
M/S. Pushpanjli Finsolutions Ltd., New ... vs Dcit, New Delhi on 18 April, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'F', NEW DELHI
BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER &
SHRI B.R.R.KUMAR, ACCOUNTANT MEMBER
ITA No. 3094/Del./2015
Assessment Year: 2011-12
Pushpanjli vs. DCIT
Finsolutions Ltd. Circle-14(1), Room No. 221,
M-62 & 63, C.R.Building, I.P.Estate
First Floor, New Delhi
Connaught Place (Respondent)
New Delhi
PAN : AAFCP2583G
(Appellant)
Revenue by Smt. Pramita Tripathy, CIT(DR)
Assessee by Sh. Ashwani Teneja & Sh.
Shantanu Jain, Advs.
Date of Hearing 17.04.2018
Date of Pronouncement 18.04.2018
ORDER
Per B.R.R.KUMAR, A.M.:
This is an appeal filed by the assessee against the order dated 17/03/2015 of CIT (A)-VII, New Delhi for Assessment Year 2011-12.
2. The only effective issue is ground no. 1 relating to the disallowance of expenditure representing the payment of interest of Rs. 7,53,34,110/-.
3. Brief facts of the case are that the assessee filed return of income declaring total income of Rs. Nil.
4. During assessment proceedings the assessing officer held that the assessee has taken loans from six parties ITA No.3094/Del./2015 2 and has received interest of Rs. 6,29,89,577/- @ 12% on the loans given. Similarly, the assessee has paid interest of Rs. 7,53,28,326/- on the loans received. The interest amounts have been paid @ 10 to 25% to various loan parties. Regarding the interest paid to one company namely Indiabulls Finance Company Pvt. Ltd. the interest paid from April to December is @ 25%. The ld. Assessing Officer prepared a chart of flow of funds at page no. 6 of assessment order. The assessing officer held that the analysis of the flow of funds, the material on record clearly shows that the assessee company is though engaged in business of consultancy relating to investment and other matters, has been facilitating to its group companies as a bridge to receive and infuse funds. The documents, submissions and facts on the record shows no commercial expediency on the part of assessee company or its group companies to work as a bridge between the group companies only. The assessee company as evident from above has accepted loan from its holding or Group Companies for Rs.1021.35cr and has refunded an amount of Rs,859.06cr and has passed the remaining balance to other group companies. During the year the company has booked interest income for Rs.6.3cr and has booked finance expense for Rs.7.53cr and has shown loss under head profit and gains from business or profession for Rs.1,23,79,095/-, In the above transactions executed by the assessee company with all the group companies, there is neither justification on nature & purpose of the transactions executed nor there is any ITA No.3094/Del./2015 3 justification on interest expense booked of such huge amount resulting in a loss. The object of assessee company is only to involve in consulting business and not to be involved in money lending business. Further the assessee company is not a registered NBFC with RBI to involve & operate business of money lending. Hence the assessed is not carrying on business of money lending. It is also apparent that assessee has received the funds from group companies varying from one day to one week before transferring or passing the same to the group companies and that too on minimal interest basis i.e. at a rate of interest of lending which Is equivalent to borrowing rate resulting definitely in any situation no profit in the hands of the assessee company, This also shows and confirms that the assessee has no intention to involve in business of lending & borrowing. The transactions in consideration are a device, and loss, thus, was self inflicted in order to reduce assessee's taxable income.
5. The Assessing Officer further held that in the above flow chart it is clear that the assesse company has infused funds for Rs.l36cr in Shivshakti Financial Services Pvt. Ltd and has received back the same as unsecured loan from the same company shivshakti financial services pvt. Ltd and has again distributed the funds to other group companies. The transactions have been arranged as a device to book self inflicted loss or expenditure. Further the financial statements shows that the assessee company neither has any fixed assets or any infrastructure nor has arranged any infrastructure facility and thus not booked any expenditure with relation to personnel ITA No.3094/Del./2015 4 expense and infrastructure expenditure which again raises a significant doubt on actual modus operand! of the assessee company.
6. Holding thus, the assessing officer treated the entire interest expense of Rs. 75,33,34,110/- as self-inflicted loss or expenditure in the books of accounts of the assessee and disallowed the entire amount claimed under the head in interest payment.
7. Ld. CIT(A) upheld the addition on the grounds that the interest expenditure is not a business expenditure and the appellant has borrowed funds and given to its sister concern and paying interest on this funds.
8. Before us the ld. AR has brought to our notice the order of the coordinate bench of ITAT in ITA no. 3093/Del/2015 for the assessment year 2011-12 in the case of Pushpanjli Finsolutions Ltd. We find that the issue involved in the year before us is similar to the issue dealt by the order of the ITAT in the ITA no. 3093/Del/2015.The tribunal after due verification of fund flow held as under :-
"We appreciate the concern of the Ld. assessing officer however, we failed to comprehend that why borrowing and lending of the funds cannot be considered as a business. Further absence of any registration certificate with the assessee in accordance with the RBI directions applicable to nonbanking financial companies will not make any material difference in assessing the correct income of the assessee. It may be an offence under the particular directions of the reserve bank of India issued in 1998. Furthermore, it cannot be said that assessee has not borrowed for the purpose of the business when the same money is lent, interest is earned and same is taxed as business income. In fact, out of the transactions with 16 companies of borrowing and lending of the funds, the Ld. assessing ITA No.3094/Del./2015 5 officer has not stated that any of the loans given by the assessee does not carry interest. Therefore, all the transactions of borrowing and lending of the money entered into by the assessee are carrying interest at varying rates. For this assessee has submitted a chart showing period of finance, amount financed and rate of interest with interest earned and paid. The assessee is paying interest maximum at the rate of 25% and that too to IndiaBulls financial services Ltd for a limited period of September to December. The same company is also paid interest of to the August 2010 at the rate of 9% and from January to March 2011 at 14%. Therefore all the loans taken by the assessee are generally carrying interest rate of 9% to 13% except in case of one transaction where the rate of interest has gone up to 25%. The analysis of the interest received by the assessee shows that assessee is receiving interest at the rate of 9% to 12% generally. In one case of Shiv Shakthi financial services private limited where the assessee has earned interest of Rs. 261,277,098/- the rate of interest in the month of May to July was 27%, from July to September 36 percent, from October to December 52% and from January to March 45 percent. The Ld. AO as well as the Ld. departmental representative before us could not controvert these transactions of the assessee. Therefore on analysis of the details of interest paid and received by the assessee it is apparent that assessee is engaged in the business of money lending. Hence, the natural corollary that follows is that assessee is incurring interest expenditure for the purpose of its business."
9. Further the Coordinate Bench has also given reasons while deleting the disallowance on account of interest which is as under :-
"a. all the loans made by the assessee are only interest and all the loans received by the assessee also carry interest, b. the interest rates carried by the loans given and taken by the assessee are not disputed c. the interest income earned by the assessee is taxed as business income d. in the earlier years on the identical facts the interest expenditure has been disallowed and there is no action taken to disturb that assessment year e. in the subsequent years the interest disallowance has not been ITA No.3094/Del./2015 6 made under section 36 but under section 14 A of the income tax act which to what deleted before the 1st appellate authority f. provision in the memorandum of Association permitting the assessee company to grant and receive the loans."
10. Since, the facts and circumstances of the method of operation of the business of the assessee stands on similar lines of the order mentioned (supra) and also for the fact that the rational given is applicable mutates mutandis for the instant case, we hereby delete the addition made by the assessing officer on account of the interest paid.
11. In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 18.04.2018 Sd/- Sd/-
(AMIT SHUKLA) (B.R.R.KUMAR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 18.04.2018
*BR*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
TRUE COPY
ASSISTANT REGISTRAR
ITAT NEW DELHI
ITA No.3094/Del./2015 7
Draft dictated on 18.04.2018
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ITA No.3094/Del./2015 8