Income Tax Appellate Tribunal - Chandigarh
Acit, C-6, Ludhiana vs Majestic Hotels Ltd., Ludhiana on 26 November, 2018
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ "बी" , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH 'B', CHANDIGARH ी संजय गग , याय क सद य एवं ीमती अ नपणा ू ग$ता ु , लेखा सद य BEFORE: SHRI SANJAY GARG, JM & SMT.ANNAPURNA GUPTA, AM आयकर अपील सं./ ITA No.171/Chd/2018 नधा रण वष / Assessment Year : 2012-13 The A.C.I.T., बनाम M/s Majestic Hotels Ltd., Circlel-6, Ferozepur Road, Ludhiana. Ludhiana.
थायी लेखा सं./PAN NO: A A A C M 9 0 6 6 F
अपीलाथ /Appellant यथ /Respondent
नधा रती क ओर से/Assessee by : Shri Jagdeep Goel, CIT DR
राज व क ओर से/ Revenue by : Shri R.S. Khera, CA
सनवाई
ु क तार#ख/Date of Hearing : 28.08.2018
उदघोषणा क तार#ख/Date of Pronouncement: 26.11.2018 आदे श/Order PER ANNA PURNA GUPTA, A M:
The present ap peal has been fi l ed by the Re venue agai nst the order of the Commi ssi oner of I ncome Ta x ( Appeal s) -3, Ludhi ana (in short CI T( A) ) dated 2.11.2017 passed u/s 250 ( 6) of the I ncome Ta x Act, 1961 ( i n short referred to as 'Act') .
2. G r o u n d N o s . 1 an d 1 . 1 r a i s e d b y t h e R e v e n u e r ea d s a s under:
"1. Whether on the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals) was justified in deleting the disallowance of Rs.24,56,693/- made by the Assessing Officer under section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules on the reasoning that no exempt income was earned in the relevant year ?2 ITA No.171/Chd/2018
A.Y.2012-13 1.1 Whether on the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals) was justified in deleting the disallowance of Rs.24,56,693/- made by the Assessing Officer under section 14A of the Income Tax Act particularly when the similar disallowance had been partly confirmed by the CIT(A) in the case of M/s Malwa Cotton & Spinning Mills Ltd. in AYs 2010-11, 2011-12 and 2012-13 ?
3. Th e i s s u e r a i sed i n t h e a b o v e g r o u n d r el a t e s to t h e deletion of d i s al l o w a n c e of e xpe n s e s made by invoking p r o v i s i o ns o f se ct i o n 1 4 A o f t h e Ac t .
4. Brief f ac t s re l at i n g to the i s su e are th a t du r i n g a s s e s s m e nt p r o ce e d i n g s i t wa s n o t i c e d t h at t h e a s s e s s e e h a d m a d e i nv e s tm e n t i n t h e s h a re s o f M a c ro D a i r y V e n t u re ( P ) L t d . a m o un ti n g t o R s . 6 , 50 ,3 3 , 6 0 0 / - a n d i t w a s a l s o n o t i c e d t h a t a s se s s e e h a d i n c u r re d i n t e r e s t e x p en d i t u r e of R s . 2 , 3 5 , 30 , 1 5 3 /-. Th e a s s e s s e e w a s a s k e d t o e xp l a i n w h y i n t e r e s t e x p en d i t u r e r el a t i n g t o i n v e s t m e nt i n Ma c r o D ai r y V e n t u r e ( P ) L t d . ( s u p r a ) no t b e d i s a l l o we d b y i nv o k i n g t he p r o v i s i o ns u /s 1 4 A r e ad w i t h R u l e 8 D o f t h e I n co m e Ta x Rules, 1 96 2 . In r e s p o ns e to the s a me , the a s s e s s ee s u b m i t t e d i t s rep l y w h i c h w a s co n s i d e r e d b u t no t a c c e p te d b y t h e A . O . n o t b e i n g s a t i s fi e d w i t h t h e c o r r e ctn e s s o f t h e c l a i m of t h e a s ses s e e t ha t n o e x pe n d i t u r e h a d b e en m a d e i n r e l a t i o n t o t he i n c o m e w h i c h d i d n o t f o r m p a r t of t h e t o t a l i n c o m e un d e r th e A c t f o r t he i m p u g n e d y e a r . Th e r e f o r e, d i s a l l o w an c e o f R s . 2 4 , 5 6 ,6 9 3 / - w a s c a l c u l a te d an d a d d e d t o t h e t o ta l i nc o m e o f t he a s se s s e e u / s 1 4 A r e a d w i th R u l e 8 D o f t h e R ul e s .
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A.Y.2012-13
5. The matter was carri ed i n appeal before the CI T(A) who del eted the di sal l o wance on fi ndi n g that no di vi den d/e xempt i ncome had been earned duri ng the year and fol l o wi ng the deci si on of the H on'bl e Juri sdi cti onal Hi gh Court in the case of CI T, Fari dabad Vs. Lakhani Marketi ng I nc. ( 2014) 49 TAxmann.com 2 57, hol di ng categori cal l y that unl ess and unti l there i s a recei pt of e xempted i ncome for the concerned assessment year s, secti on 14A cannot be i nv oked. The Ld.CI T( A) al so noted that i denti cal proposi ti on had been l ai d do wn by the Hon'bl e Del hi Hi gh Court i n the case of CI T Vs. Hol ci m I ndi a ( P) Ltd. ( 2015) 57 Ta xmann.com 28, the Hon'bl e Gujarat Hi gh Court i n the case of Corrtech Energ y (P) Ltd. ( 2014) 272 C TR 262 ( Guj) , the H on'bl e Al l ahabad Hi gh Court i n the case of Shi vam Motors ( P) td. ( 2015) 272 C TR 27 7 ( Al l ) , the Hon'bl e Del hi Hi gh Court i n the case of Chemi nvest Ltd. ( 2015) 378 I TR 33( Del ) an d the Hon'bl e M adras Hi gh Court i n the case of Redi ngton (I ndi a) Ltd. ( 2017) 392 I TR
633.
6. Before us the Ld . DR rel i ed upon the order of the A.O. and stated that the cl ai m of the assessee th at it had i ncurred no e xpendi ture for the purpose of maki ng the i mpugned i nvestment i n shares of Macro Dai r y Venture ( P) Ltd. was unaccep tabl e and further that as per CBD T Ci rcul ar No.5 of 2014 i t has been cl ari f i ed that whethe r there i s e xempt i ncome or not duri ng the year, Rul e 8D wi l l be appl i ed to the i n vestment for wor ki ng out di sal l o wance u/s 14A of the Act.
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A.Y.2012-13
7. The Ld. counsel for assessee, on the other hand, rel i ed upon the order o f the CI T( A) , poi n ti ng out therefrom that the Hon'bl e Juri sdi cti onal Hi gh Court i n the case of Lakhani Marketi ng I nc. (supra) had categori cal l y hel d that where no e xempt i ncome has been earned no di sal l o wance u/s 14A i s warranted and further dra wi ng our attenti on to the deci si on of the Hon'bl e M adras Hi gh Court i n the case of Redi ngton ( I ndi a) Ltd. ( supra) whi ch had bee n consi dered by the CI T( A) al so at para 5.7 of her order, pointi ng out that the Hon'bl e Court i n the sa i d deci si on had e xpressed i ts i nabi li t y to subscri be to the vi e w e xpressed i n the aforesai d Circul ar of CBD T. The Ld. counsel for asse ssee poi nted ou t that the Hon'bl e Madras Hi gh Court had noted that the p rovi si ons of secti on 14A were i nserted as a re sponse to the ju dgments of the Hon'bl e Supreme Court in the case of CI T Vs. Maharashtra Sugar Mi l l s Ltd. ( 1971) 82 I TR 452 and Ra jasthan State Warehousi ng Corporati on Vs. CI T ( 2000) 242 I TR 450 in terms of whi ch e xpendi ture i ncurred by an assessee carr yi ng on composi te busi ness gi vi ng ri se to both ta xabl e as wel l as non-ta xabl e i ncome was al l o wabl e i n enti ret y wi thout apporti onment. It was thus that secti on 14A of the Act was i n serted provi di ng that no deducti o n woul d be al l o wabl e i n respect of e xpendi ture i ncurred i n relati on to earni ng of i ncome e xempt from taxati on. The Hon' bl e Madras Hi gh Court hel d that the provi si ons i s cl earl y rel atabl e to the earni ng of actual i ncome and not noti onal or anti ci pated i ncome. Therefo re, the vi e w propounded by the CBD T Ci rcul ar that sec ti on 14A woul d b e attracted even to e xempt 5 ITA No.171/Chd/2018 A.Y.2012-13 i ncome "i ncl udabl e" i n total i ncome was not acceptabl e. Our attenti on was dra wn to the rel evant fi ndi ngs of the CI T( A) at paras 4.7 and 4.8 as under:
"4.7 Recently the Hon'ble High Court of Madras in the case of Redington (India) Ltd. [2017] 392 ITR 633 expressed its inability to subscribe to the view expressed vide the aforesaid circular of the CBDT. Elaborating on the disapproval of the circular, it was stated that the provisions of section 14A were inserted as a response to the judgments of the Supreme Court in CIT Vs. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452 and Rajasthan State Warehousing Corporation Vs. CIT [2000] 242 ITR 450 in terms of which, expenditure incurred by an assessee carrying on a composite business giving rise to both taxable as well as non-taxable income, was allowable in entirety without apportionment. It was, thus, that section 14A was inserted providing that no deduction shall be allowable in respect of expenditure incurred in relation to the earning of income exempt from taxation. As observed by the Supreme Court in the judgment in the case of CIT Vs. Walfort Share & Stockbrokers (P) Ltd.[2010] 326 ITR 1:
"......... The mandate of s. 14A is clear. It desires to curb the practice to claim deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail of the tax incentive by way of an exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income."
4.8 In view of the aforesaid, the Hon'ble Madras High Court held that the provision is clearly relatable to the earning of actual income and not notional or anticipated income. The view propounded by the CBDT circular to the effect that section 14A would be attracted even to exempt income "includable" in total income would entail the assessment of notional income, assumed to be exempt in the future, in the present Assessment Year, The computation of total income in terms of section 5 of the Act is on real income and there is no sanction in law for the assessment of admittedly notional income, particularly in the context of effecting a disallowance in connection therewith. The exemption extended to dividend income, it was held, would relate only to the previous year when the income was earned and none other and consequently the expenditure incurred in connection therewith should also be dealt with in the same previous year. Thus, by application of the matching concept, in a year where there is no exempt income, there cannot be a disallowance of expenditure in relation to such assumed income [Madras Industrial Investment Corporation Ltd. 225ITR 802,(SC)]. The Hon'ble Court, thereafter, held that language of section 14A should be read in that context and such that it advances the scheme of the Act rather than distort it and 6 ITA No.171/Chd/2018 A.Y.2012-13 concluded that the provisions of section 14A read with Rule 8D cannot be made applicable in a vacuum i.e. in the absence of exempt income."
8. We have heard th e ri val contenti o ns. We do not fi n d any meri t i n thi s gro und rai sed by th e Revenue. The f act that n o e xempt i ncome was earned by the assessee duri ng the year from the i mpugn ed i nvestments made i n the shar es of Macro Dai r y Venture ( P) Ltd. i s not di sputed. Moreover, as poi nted out by the Ld. counsel for assessee i t has been categori cal l y hel d by vari ous Hi gh Courts, as poi nted out by the Ld. counsel for asse ssee above, that no di sal l o wance u/s 14A of the Act i s warranted when no e xempt i ncome i s earned. More i mportantl y, even the Hon'bl e Juri sdi cti onal Hi gh Court has hel d so i n the case of Lakhani Mark eti ng I nc. ( supra) . The Ld. DR has not brought to our noti ce any contrar y deci si on ei ther of the Hon'bl e Juri sdi cti onal Hi gh Court or of the Hon'bl e Ape x Court i n thi s regard. Further the rel i ance pl aced by the Ld. DR on the CBD T Ci rcul ar has been deal t wi th by the Hon'bl e Madras Hi gh Court i n the case of Redi ngton ( I ndi a) Ltd. ( supra) categori cal ly e xpressi ng i ts i n abi l i t y to subscri be to the vi e w la i d do wn i n the sai d Ci rcul a r, by poi nti ng o ut that the pro vi sions of secti on 14A of th e Act were rel ata bl e to the earni n g of actual i ncome and not noti onal or anti ci pated i ncome si nce the y were brought on the Statute to negate/nul l i f y the deci si on of the Hon'bl e Supr eme Court i n the case of Maharas htra Sugar Mi l l s Ltd. ( supr a) and in Ra ja sthan State Wa rehousing Corporati on ( supra) wherei n i t was hel d that the e xpenses were to be al l o wed in enti ret y wi thout apporti onment 7 ITA No.171/Chd/2018 A.Y.2012-13 bet ween ta xabl e and non-ta xabl e i ncome. I n vie w of the same, we fi nd no meri t i n the pleadi ngs of the Ld. DR and, therefore, re ject the same. Grou nd Nos.1 and 1. 1 rai sed by the Revenue are, therefore, di smi ssed.
9. Ground Nos.2, 2.1 and 2.2 rai sed by the Revenue rel ate to the i ssue of disal l o wance of i nterest e xpenses made under secti on 36( 1) ( i i i ) of the Act and read as under:
2. Whether on the facts & circumstances of the case and in law, the Commissioner of Income Tax (Appeals) was justified in deleting the disallowance of Rs.1,33,11,998/- made by the Assessing Officer under section 36(l)(iii) of the Income-tax Act particularly when she has followed the decision of Hon'ble Punjab & Haryana High Court in the case of Abhishek Industries Ltd. 286 ITR 1 in many cases while confirming the disallowance of interest ?
2.1 Whether on the facts & circumstances of the case and in law, the Commissioner of Income Tax (Appeals) was justified in deleting the disallowance of Rs.1,33,11,998/- made by the Assessing Officer under section 36(l)(iii) of the Income-tax Act particularly when the said advances given to M/s Macro Dairy Venture Pvt. Ltd. were made out of composite funds including the borrowed funds ?
2.2 Whether on the facts & circumstances of the case and in law, the Commissioner of Income Tax (Appeals) was justified in deleting the disallowance of Rs.1,33,11,998/- made by the Assessing Officer under section 36(l)(iii) of the Income-tax Act particularly when the assessee failed to demonstrate the commercial expediency of advances were given to M/s Macro Dairy Venture Pvt. Ltd. out of composite funds including the borrowed funds deleting the disallowance of Rs.1,33,11,998/- made by the Assessing Officer under section 36(l)(iii) of the Income-tax Act particularly when the said advances given to M/s Macro Dairy Venture Pvt. Ltd. were made out of composite funds including the borrowed fund."
10. Bri ef facts rel ati ng to the i ssue are that during assessment proceedi ngs the Assessi ng Offi cer noted that the assessee had made i nterest free advances of 8 ITA No.171/Chd/2018 A.Y.2012-13 Rs.10,23,99,988/- to M/s Macro Dai r y Ventures Pvt. Ltd. The assessee wa s sho w caused a s to why the pro portionate i nterest on the above sai d sum shoul d not be di sal lo wed. Due repl y was fi l ed by the assessee, whi ch was not accepted by the Assessi ng Offi cer for the reason that the assessee had mi xed funds, i n the face of whi ch as per the Assessi ng Offi cer, provi si ons of secti on 36( 1) ( i i i ) of the Act were appl i cabl e and further that nothi ng had been brought on record to sho w commerci al e xpedi enc y for maki ng the sai d l oans. The Ass essi ng Offi cer further rel i ed upon the judgment of Hon'bl e Juri sdi cti onal Hi gh Court i n the case of CI T Vs. Abhi shek I ndustri es Ltd. 286 I TR 1 and di sal l o wed the i nterest rel at i ng to the i mpug ned advances @ 13%, whi ch worked out to Rs.1,33,11,998/-.
11. Before the Ld.CI T ( Appeal s) the assessee rei terated i ts contenti ons that the advances had been made out of i ts o wn funds and furth er demonstrated the avai l abi l i t y of the sai d funds al so. The assessee al so co ntended that the advances had been made out of busi ne ss e xpedi enc y si nce the assessee was ho l di ng shares i n M/s Macro Dai r y Ventures Pvt. Ltd. as busi ness i nvestment and si nce M/s Macro Dai r y Ventures Pvt. Ltd. was i ncurri ng huge l osses the said advances were made to i t by the assessee. The assessee further contended that for the p recedi ng year th e I . T.A. T. had del eted i denti cal di sal l o wance of i nterest under secti on 36( 1) ( i i i ) of the Act on fi ndi ng the avai l abi l i t y of suffi ci ent o wn funds wi th the assessee. Th e Ld.CI T ( Appeal s) fi ndi ng 9 ITA No.171/Chd/2018 A.Y.2012-13 meri t i n the contenti on made by the assessee del eted the di sal l o wance so made hol di ng that the advances had been made out of commerci al e xpedi enc y and no borro wed funds had been used for gi vi ng t he se advances. The Ld.CI T ( Appeal s) further hel d that the cl ai m of the assessee coul d not be deni ed merel y on the assumpti on that i t had di verted i ts borro wed funds for non business purpose. The rel evant fi ndi ngs of the CI T ( Appeal s) at para 5.8 of her order are reproduced as under:
"5.8 In my considered opinion, there is considerable force in the claim of appellant that, the appellant company submitted that advances had been given out of commercial expediency and no specific borrowing had been made for giving these advances. The claim of the appellant cannot deny just for the assumption that the appellant had diverted his borrowed funds for non-business purpose. The Id. AO has not adduced any evidence on the contrary to negate the claim of appellant. In view of the above, I am inclined to agree with the contentions of the Id. A.R. Accordingly, disallowance of Rs.1,33,11,998/- u/s 36(1)(iii) of the Act on account of capital advance is ordered to be deleted. This ground of appeal is allowed."
12. Before us the L d. D.R. rel i ed u pon the order o f the Assessi ng Offi cer contendi ng that undeni abl y the funds avai l abl e wi th the assessee were mi xed funds and, therefore, the deci si on of the Hon'bl e Juri sdi cti onal Hi gh Court i n the case of Abhi shek I ndustri es Ltd. ( supra) was squarel y appl i cabl e i n the present case, w hi ch the Assessi ng Offi cer had ri ghtl y appl i ed and made the i mpugned di sal l o wance of i nterest e xpenses.
13. The Ld. counsel for the assessee, on the other hand, rel i ed upon the o rder of the CI T ( A) . Further, the Ld. counsel for the assessee dre w our attenti on to the factual 10 ITA No.171/Chd/2018 A.Y.2012-13 submi ssi ons m ade before the CI T ( A) demonst rati ng the avai l abi l i t y of o wn funds for t he purpose of maki ng the i mpugned busi ne ss whi ch were ta ken note of the C I T ( A) al so at para 5.4 of her order as under
"5.4 The appellant has vehemently contended that the appellant has applied its own interest free funds in advancing loan to M/s Macro Dairy Ventures Pvt . The appellant has filed detailed submission to explain its availability of interest free funds to evidence the availability of Non-interest bearing funds with the appellant. I have carefully considered assesses submission it is seen that from the FY 2007-08 to 2011-12, the appellant has in its possession sufficient interest free funds , to the tune of Rs.1349.73 lacs for financial year 2007-08, Rs.1498.08 lacs for financial year 2008-09, Rs. 1689.64 lacs for financial year 2009-2010, Rs.2111.67 Lacs for FY 2010-11 and Rs. 2329.74 lacs for the FY 2011-12 relevant to the Assessment Year 2012-13 under appeal. The amount advanced by the appellant to M/s. Macro Dairy Ventures Pvt. Ltd. is just Rs. 1023.99 Lacs only, which is just 43.95 % of the interest free funds available with the appellant as on 31.03.2012.Therefore it is evident that, the presumption of AO , that the borrowed funds were used for making the payment to M/s Macro Dairy Ventures Pvt. Ltd. by the appellant company is without basis and the invocation of provisions of Section 36(1)(iii)of Income Tax Act, 1961 is not justified. I am satisfied with the contention of appellant that , no borrowed funds were used for making advances to M/s Macro Dairy Ventures Pvt. Ltd. Since the assessee company has demonstrated effectively that sufficient interest free funds were lying with it at its discretion and further explained her that a part of the amount advanced was already advanced during the FY 2010-11 relevant to the AY 2011-12 and the amount left with M/s Macro Dairy Venture Pvt. Ltd after allotment of shares was given as advance to it along with further funds. This fact is evident from the audited Balance Sheet of the company as at 31.03.2012. the assessee has also reiterated that , the payments made to M/s. Macro Dairy Ventures Pvt. Ltd. have been made for the purpose of business of the assessee, since the assessee is holding equity shares in this company as business investment and therefore , the payments made to this company were not a diversion in the matter of investments of surplus funds and the provisions of Section 36(1)(iii) of IT. Act, 1961 arc not applicable."
14. The Ld. co unsel for the assessee further dre w our at to the fi ndi ngs of the CI T ( A) that the Assessi ng Officer had 11 ITA No.171/Chd/2018 A.Y.2012-13 fai l ed to prove that he i nterest beari ng funds had been di verted for maki ng the i mpugned advances as under:
"It is noticed that the A.O. had miserably failed to discharge his onus and failed to prove that part of interest bearing fund was diverted as non interest bearing funds. Thus, advances made are much below the interest free funds available with the appellant in the form of capital and reserves and surplus. It is held by Hon'ble Mumbai High Court in Reliance Utilities and Power Ltd. 313 ITR 340 that if funds are available, both interest free and interest bearing, then a pre assumption arise that investments are made out of interest bearing funds generated or available with the assessee. If the interest free funds were sufficient to meet investment, no disallowance of interest is warranted. Respectfully, following the ratio of Hon'ble Mumbai high court decision in the case of Reliance utilities & Power Ltd. I am inclined to agree with the contentions of the ld A.R
15. Thereafter the L d. counsel for the assessee pointed out from the submi ssi ons made before Ld.CI T ( A) that i denti cal di sal l o wance made i n the prece di ng year i .e. assessment year 2010-11, had been del eted by the I . T.A. T. on fi ndi ng the avai l abi l i t y of suffi ci ent o wn funds for maki ng the i mpugned advances as under:
"e) It is important to bring to your kind notice that the Hon'ble ITAT Delhi Bench E New Delhi vide its order in ITA No. 1689/Del/2013/AY 2008-09 and ITA No.6260/Del/2013/AY 2010-11 in cases of DC/7 Circle-6(1) New Delhi vs. M/s.
Majestic Hotels Ltd. and M/s. Majestic Hotels Ltd. vs. Addl. CIT Range-6 New Delhi (copy enclosed) has categorically given its finding that the appellant assessee having own adequate sufficient interest free funds at its disposal and has decided in favor of the appellant and has deleted the addition of interest disallowance amounting to Rs.24,05,433/-for the assessment year 2008-2009 and Rs.29,63,872/- for the assessment year 2010-2011 made by the Ld. Predecessor Assessing Officers of the appellant."
16. The Ld. counsel for the assessee, therefore, stated that the Ld.CI T ( A) had ri ghtl y del eted the di sal l o wance of i nterest made, on account of avai l abi l i t y of suffi ci ent o wn funds havi ng been demonstrated by the assessee for maki ng 12 ITA No.171/Chd/2018 A.Y.2012-13 the i mpugned advances. The Ld . counsel for the assessee further poi nted out that the commerci al e xpedi enc y for maki ng the i mpugned advances had been demonstrated to the CI T ( A) by po i nti ng out that t he i nvestment i n M/s Macro Dai r y Ventures Pvt. Ltd. was a busi ness i nves tment and si nce M/s Macro Dai r y Ventures Pvt. Ltd. was i ncurri ng l osses the i mpug ned advance was made to provi de fi nanci al stabi l i t y to i t. Our attenti on was dra wn to the relevant submi ssi ons made i n thi s regard as reproduced i n the order of the CI T ( A) al so as under:
"It is further pointed out that the payments made to M/s Macro Dairy Ventures Pvt. Ltd. as mentioned above have been made for the purpose of business of the assessee, since the assessee is holding equity shares in the company as bus/ness investment and therefore the assessee darifies that the payments made to this company were not a diversion in the matter of investments of surplus funds and the provisions of Section 36(1)(iii) of IT. Act, 1961 are not attracted even to the investment.
It is further clarified that the transfer of funds to the company was made by the assessee keeping in view the commercial expediency and not with a view of earning profits on this amount, which is very much a prerogative of a prudent assessee though M/s. Macro Dairy Ventures Pvt. Ltd. is a sister concern of the assessee.
Regarding the amount advanced to M/s. Macro Dairy Ventures Pvt. Ltd. it is further brought to your kind notice that the company at the moment »/s incurring heavy losses and it is a sister concern of the assessee, the reference in this regard may kindly be made to the Income Tax records of the company, the case of which is under scrutiny assessment before your good self for the A.Y.2012-13 and in view of huge losses, the interest on this amount was not charged by the assessee."
17. The Ld. counsel for the assessee, therefore, stated that i n the l i ght of a bove facts the C I T ( A) had ri ghtl y hel d that even the commerci al e xpedi enc y for maki ng advances had been establ i shed by the assessee and had, theref ore, ri ghtl y 13 ITA No.171/Chd/2018 A.Y.2012-13 del eted the di sal l o wance made under secti on 36( 1) ( ii i ) of the Act.
18. We have heard the ri val contenti ons and perused the orders of the aut hori ti es bel o w. We do not fi nd a ny meri t i n the contenti on of the Ld. D.R. Th e contenti on and the basi s of the Ld. D.R. for supporti ng the di sal l o wance of i nterest under secti on 36( 1) ( i i i ) of the Act i n the present case, we fi nd, has been d ul y consi dered a nd deal t wi th by the Ld.CI T ( A) whi l e del eti ng the same. The onl y reason for maki ng the di sal l o wance, we fi nd, i s the avail abi l i t y of mi xed funds wi th the assessee, to whi ch fact the deci si on of th e Hon'bl e Juri sdi cti onal Hi gh Court i n the case of Abhi shek I ndustri es Ltd. ( supra) has been appl i ed a nd di sal l o wance of interest made by the AO. Thi s contenti o n, we fi nd has been dul y addressed by the Ld. counsel for the assessee by recordi ng a fi ndi ng of fact th at suffi ci ent o wn funds were avai l abl e wi th the assessee in the precedi ng years when part of the advances was made and even i n the i mpugned year when the remai ni ng advance was made. The factual fi nding of the Ld.CI T ( A) have not been cont roverted by the Revenue. Further the Ld.CI T ( A) has ri ghtl y fol l o wed the deci si on of the Hon'bl e Mumbai Court i n the case of Rel i ance Uti l i ti es & Po wer Li mi ted, 313 I TR 340 to hol d that where suffici ent o wn funds are avai l abl e no di sal l o wance under section 36( 1) ( i i i ) of the Act i s warranted whi ch proposi tion we fi nd has been reaffi r med by the Hon' bl e Juri sdi cti onal Hi gh Court in the case of Bri ght Enterpri ses Pvt. Ltd. Vs. CI T, 14 ITA No.171/Chd/2018 A.Y.2012-13 Jal andhar, 381 I TR 107. Further even the I . T.A. T. in the case of the asse ssee i tsel f for as sessment year 2 010-11 had del eted the di sal l o wance of i nterest made on account of advances gi ven on fi ndi ng the avai l abi l i t y of suffici ent o wn funds wi th the assessee. Even other wi se, we find that the assessee had demonstrated the commerci al e xpedi enc y al so for maki ng the i mpugned advances. The contenti on of the assessee was tha t the i nvestment made i n M/s M acro Dai r y Venture Pvt. Ltd. was a busi ness i nvestment and si nce M/s Macro Dai r y Ven ture Pvt. Ltd. wa s i ncurri ng huge l osses the sai d advances were requi red to be made to i t to tide over i ts fi nanci al di ffi cul ti es. These facts have not been controverted by the Revenue. Therefore, whe n the assessee had made busi ness i nvestment i n M/s Macro Dai r y Venture Pvt. Ltd. and the sai d com pany i ncurred l o sses, the advanc es made by the assessee to enabl e M/s Macro Dai r y Venture Pvt. Ltd. to ti de over i ts fi nanci al di ffi cul ti es can safel y be sai d to be commerci al advances si nce it is di rectl y l i nked to safeguardi ng the busi ness i nvest ment made by th e assessee i n the sai d company. Fi ndi ng of the CI T ( A) , therefore, that even the commerci al e xpedi enc y of the sai d advance had been establ i shed by the assessee i s, we hol d correct. I n the l i ght of the above we concur with the Ld.CI T ( A) that the commerci al e xpedi enc y of the advances havi ng been demonstrated and al so the avai l abi l i t y of suffi ci ent o wn funds for maki ng the i mpugned advances, there was no reason or occasion to warrant any di sal l o wance of interest under secti on 36( 1) ( i i i ) of the Act. The order of Ld.CI T ( A) on 15 ITA No.171/Chd/2018 A.Y.2012-13 thi s account, in del eti ng the di sal l o wance of i nterest amounti ng to Rs.1,33,11,998/- i s, therefore, upheld. Ground Nos.2, 2.1 and 2.2 rai sed by the Revenue are di smi ssed.
19. Ground Nos.3 an d 3.1 rai sed by the Revenue rea ds as under:
"3. Whether on the facts and circumstances of the case the Commissioner of Income Tax (Appeals) was justified in deleting the disallowance of Rs.1,00,000/- made by the Assessing Officer out of club expenses particularly when the assessee failed to demonstrate the commercial expediency of such expenditure when it runs a very high standard hotel at its place of business ?
3.1 Whether on the facts & circumstances of the case and in law, the Commissioner of Income Tax (Appeals) was justified in deleting the disallowance of Rs.1,00,000/- made by the Assessing Officer out of club expenses particularly when no material was brought on the appellate/assessment records to demonstrate the veracity of such expenditure wholly and exclusively for business purposes ?"
20. I n the aforesai d grounds the Revenue has chal l enged the del eti on by the CI T( A) of di sal l o wance of cl ub e xpenses cl ai med by the assessee.
21. The bri ef facts rel evant to the same are that the A.O. had di sal l o wed a sum of Rs.1 l ac cl ai med by the assessee on account of cl ub membershi p of Sutl e j Cl ub hol di ng that no busi ness acti vi t y emerged from the sai d e xpenses. The Ld.CI T( A) del eted the sai d di sal l o wance on fi ndi n g that the membershi p was taken i n the name of seni or e xecuti ves of the assessee company for the purpose of i ts busi ness, as the cl ub was not offeri ng corporate membershi p i n the name of the company to whi ch effect a ce rti fi cate had al so been fi l ed by the assessee f rom the cl ub. Th e Ld.CI T( A) , ther efore, hel d 16 ITA No.171/Chd/2018 A.Y.2012-13 that the membershi p of the cl ub had been taken for busi ness purpose. The Ld.CI T( A) further noted that i denti cal di sal l o wance made i n the case of assessee i n assessment year 2010-11 had been del eted by the I . T.A. T. i n i ts order i n I TA No.6260/Del /2013.
22. Before us, the Ld. DR rel i ed upon the order of the A.O., whi l e the Ld. counsel for assessee rel i ed upon the order of the CI T( A) . The Ld. counsel for assessee further dre w our attenti on to the submi ssi ons made before the CI T( A) on pa yment made to Sutl e j cl ub before the CI T( A) dra wing our attenti on to the same as reproduced at page 20 of the order whi ch i s reproduced as under:
b) During the course of assessment proceedings, vide its letter dated 17/03/2015(copy enclosed), the assessee has made following submissions on the issue:
"Regarding the payment of Satluj Club amounting to Rs. 1,00,000/-, the assessee respectfully submits that the payment for membership of the club was subscribed to in the FY 2005-2006 for senior executive of the company. The executives entitled included:
a) General Management Operations.
b) General Manager Finance
c) Finance Controller
d) Food & Beverage Controller
e) Executive Chef
f) Executive House Keeper
g) Front Office Manager
h) Chief Executive Officer
"Sutlej Club is the prominent club in the city, akin to Delhi Gymkhana Club or Chelmsford Club in New Delhi. Almost all the leading citizens of Ludhiana are members. The reason for obtaining the membership was that the senior executives would be interacting with patrons, prominent business men, senior executives in public and private sector in more informal environs as against the formal hotel setting. Informal exchange of views with 17 ITA No.171/Chd/2018 A.Y.2012-13 people who matter are considered good for goodwill and business relations as also for the patterns. Thus, the expenditure of Rs.1,00,000/- was made for improving the business relations and to increase the business of the hotel to fight out the cut throat competition in the market conditions of Ludhiana where a number of star rated hotels have come up in the recent past. It is therefore, very humbly submitted that no adverse inference in the matter may kindly be made."
it was poi nted out therefrom t hat the member shi p was subscri bed for fi nanci al year 2005-06 for seni or e xecuti ves of the company whi ch i ncl uded a number of offi ce rs as l i sted above and Sutl e j cl ub bei ng a promi nent cl ub i n the ci t y, the membershi p was taken so that the seni or e xecuti ves woul d i nteract wi th patrons, promi nent busi ness men, senior e xecuti ves i n publ i c and pri vate sector i n more i nformal envi ronments and thus devel op goodwi l l and busi ness rel ati on for the assessee. I t was al so poi nted out that i denti cal di sal l o wance made i n assessment year 2010-11 i n the case of the a ssessee was del e ted by the I . T.A. T. vi de i ts order dated 6.11.2015.
23. We have heard the ri val contenti ons and perused the orders of the aut hori ti es bel o w. We do not fi nd a ny meri t i n the present grounds rai sed before us. The fact that the membershi p was subscri bed for in assessment year 2005-06 for seni or e xecuti ves of the company so as to enable them to i nteract wi th promi nent busi ness men and seni or e xecuti ves, has not been controverted by the Revenue. Further i t i s not di sputed that i denti cal di sal l o wance made i n assessment year 2010-11 ha d been del eted by the I . T.A. T. The Ld. DR has fai l ed to poi nt out any di sti ngui shi ng fact from assessment year 2010-11 to us. I n vi e w of the sa me, we see 18 ITA No.171/Chd/2018 A.Y.2012-13 no reason why the sai d deci si on wi l l not appl y i n the present case al so. More so, for the reaso n that the asses see havi ng establ i shed that the membershi p was taken to faci l itate the seni or e xecuti ves of the company to meet promi ne nt persons in i nformal envi ronment for devel opi ng better busi ness rel ati ons and for promoti ng goodwi l l of the assessee company. I n vi ew of the same, we uphol d the order of the CI T( A) i n hol di ng the cl ub membe rshi p e xpenses t o be i n the nature of busi ness e xpenses and hence al l o wabl e under secti on 37( 1) of the Act. The gro und of appeal N os.3 & 3.1 rai sed by the Revenue are, therefore, di smi ssed.
24. I n e f f e ct , t h e a p pe a l o f th e R e v enu e i s d i sm i s s e d.
O r d e r p r on o u n c ed i n t h e O p e n Cou r t .
Sd/- Sd/-
संजय गग अ नपणा
ू ग$ता
ु
(SANJAY GARG ) (ANNAPURNA GUPTA)
याय क सद य/ Judicial Member लेखा सद य/ Accountant Member
*दनांक /Dated: 26th November, 2018
*रती*
आदे श क त*ल+प अ,े+षत/ Copy of the order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आय-त
ु / CIT
4. आयकर आय-त
ु (अपील)/ The CIT(A)
5. +वभागीय त न0ध, आयकर अपील#य आ0धकरण, च2डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File
आदे शानसार
ु / By order,
सहायक पंजीकार/ Assistant Registrar