Income Tax Appellate Tribunal - Mumbai
Dcit 5(1)(2), Mumbai vs Ethl Global Capital Ltd, Mumbai on 6 January, 2017
आयकर अपीलीय अिधकरण, मुंबई "अई" खंडपीठ Income-tax Appellate Tribunal -"I"Bench Mumbai सव ी राजे ,लेखा सद य एवं सी. एन. साद, याियक सद य Before S/Sh.Rajendra,Accountant Member and C. N. Prasad,Judicial Member आयकर अपील सं./I.T.A./185/Mum/2015,िनधा रण वष /Assessment Year:2008-09 DCIT,5(1)(2), M/s. ETHL Global Capital Ltd.
Room No.568, 5th Floor 19, Bhulabhai Desai Road, Mahalaxmi
Vs.
Aayakar Bhavan, M.K. Road Mumbai-400028
Mumbai-400 020 PAN:AABCE 4907 A
(अपीलाथ /assessee) ( यथ / Respondent)
राज
व क ओर से / Revenue by: Shri P.R. Ghosh-DR
अपीलाथ क ओर से /Assessee by: S/Shri Vijay Mehta & Anuj Kisnadwala सुनवाई क तारीख / Date of Hearing: 16/11/2016 घोषणा क तारीख / Date of Pronouncement:06.01.2017 लेखा सद , राजे के अनुसार/ PER Rajendra A.M.-
Challenging the orders dated 21.10.2014 of the CIT(A)- 9,Mumbai,the Assessing Officer(AO) has filed present appeal.Assessee-company,engaged in the business of holding investment in shares and debentures of companies,filed its return of income on 23.09.2008,disclosing total income at Rs.Nil. Original assessment in this case was completed u/s 143(3) of. Act on 29.10.2010. Thereafter the case was reopened u/s 147 of I.T. Act and reassessment was completed u/s 143(3) r.w.s.147 of the Act on 28/03/2013 ,determining its total income at Rs.4,26,49,193/-.
2.First ground of appeal is about deleting the addition made by the AO under the head notional interest,amounting to Rs.7.48 crores.In this case the AO received, information from the office of the DGIT(Inv.)that the central agencies, investigating the cases pertaining to 2G allocation,have suggested that the financial transactions of the assessee have to be looked into for tax implication as it was also figured in the 2G spectrum scam.While completing the re-assessment,the AO held that the assessee had paid Rs.175 crores to Loop Telecom Ltd. on 01.01.2008 to enable the latter for License Fees of UASL. The assessee stated that this sum was advanced to LTL towards share application money.The AO also observed that on the same date, Essar Telecom Infrastructure P. Ltd. has also advanced money to LTL for acquisition UASL License.From the perusal of the records and information received u/s.133(3) of the Act,the AO held that the source of the fund of Rs.175 crores had come from Essar Investment Ltd. on 10.01.2008, that the money was refunded on the same to Essar Investment Ltd.,after the assessee had received the refund, that the real intention of the 185/M/15-ETHL Global assessee was not share subscription in LTL but to advance the funds as loan to enable the latter to mobilize resources for acquisition of USAL Lincese from DOT.He held that the advance of Rs.175 crores was a loan given by the assessee. Applying the principle of decision of Apex Court in the case of M/s. MC Dowell(154 ITR 148),the AO held that on the said loan notional interest @20% for 77 days has to be taxed at Rs.7,48,61,111/-.
3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA)and made elaborate submissions.After considering the available material,he held that as per the provisions of Act only the income accrued or received could be taxed,that an assessee could not be compelled to earn a particular income in a particular way,that in the business advancing interest free loans was a common practice,that if someone was advancing interest free loan out of its own funds or out of non interest bearing borrowed funds to anybody, the AO cannot tax notional income of interest unless there was any proof of underhand payments of interest by the said person,that in the instant case there was no proof that the interest bearing borrowed capital was diverted for non interest bearing loans, that the addition made by the AO on account of notional interest was not sustainable.
4.Before us,the Departmental Represnetative(DR)supported the order of the AO.The Authorised Representative(AR)supported the order of the FAA and relied upon the cases of Highway Construction Co.P.Ltd.(199 ITR 702),B and A plantations and Industries Ltd.( 242 ITR 22).
5.We have heard the rival submissions and perused the material before us.We find that the assessee had advanced loan from its interest free funds and had not charged any interest,that the AO had taxed notional interest in the hands of the assessee without bringing any evidence of charging of interest by the assessee.He has also not explained as to how the interest income accrued to the assessee.In the normal course of its business transaction the assessee had advanced loan and had not charged any interest.Charging or not charging of interest is a discretion of an assessee-especially when the advance is made out of interest free funds. We are of the opinion,that the order of the FAA does not suffer from any legal infirmity.So, confirming the same we dismiss ground no.1,raised by the AO.
6.Second ground of appeal is about disallowance made u/s.14 A of the Act.During the assessment proceeding,the AO found that the assessee has shown investments in the balance 2 185/M/15-ETHL Global sheet.He asked it as to why disallowance u/s.14A of r.w.Rule 8D should not be made.After considering the submissions of the assessee,the AO worked out the disallowance of Rs.7.20 crores and added to the total income of the assessee.It is, however, noted that there was a mistake in the working of the Assessing Officer,as the disallowance was made 5% instead of prescribed rate of 0.5% under Rule 8D of the Rules.Accordingly by a rectification order same was reduced to Rs.72 lacs.
7.Deciding the appeal,filed by the assesse,the FAA held that in the computation of income no expenditure,except an amount of Rs.l,212/- was claimed deductible by it,that a plain reading of the provisions of section 14A made it apparent that under this section disallowance could be made when the assessee would claim deduction of expenditure,that if an assessee had not claimed any expenditure then there was no scope of disallowance,that the disallowance could not exceed the expenditure claimed by assessee. Accordingly, he directed the AO to restricted the disallowance to Rs.l,212/- only.
8.Before us,the DR stated that matter could be decided on merits.The AR contended that the assessee had incurred expenditure of Rs.1,212/- only.
We have perused the material available on record.We find that the FAA had disallowed the expenditure that was claimed against the exempt income.The basic concept for disallowance u/s.14A of the Act r.w.r.8D of the Rules is to deprive the assessee of double benefit i.e. claiming deduction against tax free income.In the case under consideration the FAA has restricted the disallowance to the extent it was claimed against the exempt income.In our opinion there is no need to interfere with his order.So,confirming the same second ground is decided against the AO.
As a result, appeal filed by the AO stands dismissed.
फलतःिनधा रती अिधकारी ारा दािखल क गई अपील नामंजूर क जाती है.
Order pronounced in the open court on 06th January, 2017. आदेश क घोषणा खुले यायालय म दनांक 06 जनवरी, 2017 को क गई ।
(अमरजीत #सह / Amarjit Singh ) (राजे
/ Rajendra)
Sd/- Sd/-
याियक सद
य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मुंबई Mumbai; दनांकDated : 06 .01.2016.
Jv.Sr.PS.
आदेश क ितिलिप अ ेिषत/Copy of the Order forwarded to :
1.assessee /अपीलाथ 2. Respondent / यथ
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185/M/15-ETHL Global
3.The concerned CIT(A)/संब# अपीलीय आयकर आयु&, 4.The concerned CIT /संब# आयकर आयु&
5.DR "A " Bench, ITAT, Mumbai /िवभागीय ितिनिध, खंडपीठ,आ.अ.'याया.मुंबई
6.Guard File/गाड फाईल स यािपत ित //True Copy// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुंबई /ITAT, Mumbai.
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