Income Tax Appellate Tribunal - Mumbai
Dcit 10(1)(2), Mumbai vs Il & Fs Maritime Infrastructure Co.Ltd, ... on 4 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL " A" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI G. MANJUNATHA, AM
ITA No.5193/Mum/2015
(A.Y:2011-12)
Dy. Commissioner of Income M/s IL&FS Maritime
Tax 10(1)(1), Mumbai Infrastructure Co. Ltd.
Room No. 209, Aayakar (Formerl y know n as Ovira
Bhavan, M.K. Road, Logistics)
Vs.
Mumbai-400 020 IL&FS Financial Centre,
Plot C-22, G-Block, Bandra
Kurla Complex, Mumbai -51
P AN No. AAACO1882F
Appellant .. Respondent
Revenue by .. Shri Rajesh Kumar Yadav, DR
Assessee by .. Shri D.V. Lakhani, AR
Date of hearing .. 25-07-2017
Date of pronouncement .. 04-08-2017
ORDER
PER MAHAVIR SINGH, JM:
This appeal by the Revenue is arising out of the order of CIT(A)-17, Mumbai, in appeal No. CIT(A)-17/IT-04/14-15 dated 07-08-2015. The assessment was framed by DCIT (OSD)-Circle 8(2), Mumbai for the A.Y. 2011-12 vide order dated Nil under section 143(3) of the Income Tax Act, 1961 (hereinafter 'the Act').
2. The first issue in this appeal of Revenue is against the order of CIT(A) deleting the disallowance of deduction claimed by assessee on account of interest. For this Revenue has raised following ground No.1: -
"1. Whether on the facts and circumstances of the case and in the law the Ld. CIT(A) is justified in allowing deduction of interest of Rs 1,14,14,290/- without appreciating the fact that there is no nexus ITA No . 51 9 3/ Mu m/ 20 1 5 M/ s IL &F S Ma r it im e I nfr as tr uct ur e Co . L td . ( A. Y : 20 1 1 - 1 2) between these claims made by the assessee and the income earned by it during the year as business has ceased to exist?"
3. At the outset, the learned Counsel for the assessee as well as the learned Sr. DR fairly conceded that the issue is squarely covered by the decision of this Tribunal in assessee's own case for AY 2008-09 in ITA No. 3230/Mum/2012 vide order dated 30-08-2013, wherein Tribunal has considered this issue and allowed the claim of the assessee by observing in Para 2.1 to 2.5 as under: -
"2.1 Facts confirming the disallowance of interest are that the AO during the assessment proceedings noted that the assessee had claimed financial charges of Rs. 4,93,27,754/-. AO, therefore, asked the assessee to explain the justification of such interest expenses for the purpose of business. The assessee submitted that it had borrowed money in the earlier years for the purpose of business and outstanding borrowings were to the tune of Rs.52.78 crore as on 31.3.2003. The assessee had a small capital base and since it was incurring losses, the losses were funded by the borrowings. It was thus clear that the borrowings had been used for the purpose of business. The borrowings had been made at very higher interest rate and, therefore, to reduce the cost of borrowings the assessee had issued bonds worth Rs. 55 crore in assessment year 2007-08 on 27-9-2006. Money raised through bonds were used to repay the loans to the extent of Rs. 54.99 lakh on the same date i.e. 27.9.2006. Thus the interest expenditure had been incurred wholly and exclusively for the purpose of business. The AO however did not accept the explanation given. It was observed by him that prior to assessment year 2005-06 the assessee was only having car rental Page 2 of 7 ITA No . 51 9 3/ Mu m/ 20 1 5 M/ s IL &F S Ma r it im e I nfr as tr uct ur e Co . L td . ( A. Y : 20 1 1 - 1 2) and other income. In assessment year 2005-06, the assessee started professional work of brokerage/ commission and also business of BPO. The BPO business and car rental business had been sold in assessment year 2007-08. It was also observed by him that the loans taken by the assessee in the earlier years had been mainly used towards the investment current loans and advances. During the current year i.e. assessment year 2008-09 the assessee had earned only interest income and brokerage income for which no borrowings had been utilized. He, therefore, disallowed the interest expenditure of Rs. 4,92,87,061/-. He also computed disallowance of interest u/s 14A of Rs. 1,48,32,122/- . Since entire interest was already disallowed, no further disallowance was made u/s 14A.
2.2 The assessee disputed the decision of AO and submitted before CIT(A) that the assessee had been carrying on different business activities and all the activities were under common administration and management of the board of Directors with common source of funds. There was unit of control which was indicated by interlacing, interdependence and interconnection between the businesses. The interest expenditure incurred on borrowings in earlier years including the assessment year 2007- 08in which the bonds were issued had been allowed by the AO. The assessment in assessment year 2007-08 was completed u/s 143(3). The interest claimed in assessment year 2008-09 was in respect of the same bond on which the interest had been allowed by AO in assessment year 2007-08. There was no further borrowings, made in the assessment year 2008-09. The AO himself has taxed the income of the assessee under the head "business" and, Page 3 of 7 ITA No . 51 9 3/ Mu m/ 20 1 5 M/ s IL &F S Ma r it im e I nfr as tr uct ur e Co . L td . ( A. Y : 20 1 1 - 1 2) therefore, the expenses incurred including interest have to be allowed. It was also submitted that there was no requirement u/s 36(1(iii) that the interest payment should be relating on the same business have fallen allowing the interest expenditure. The only requirement was that the funds should have been borrowed for the purpose of business. Even if the assessee had discontinued part of the business, the loss incurred in respect of said business has to be allowed against the income from the remaining business. The assessee placed reliance on the judgment of Hon'ble Supreme Court in case of Veecumsees Vs. CIT (220 ITR 185). It was also submitted that during the year the assessee had not traded in any shares and securities. The assessee continued to carry on business activities. There were no factual changes since assessment year 2007-08 in which year the claim has been allowed. It was, therefore, urged that the claim should be allowed this year also.
2.3 CIT(A) after considering the submissions of the assessee observed that interest on borrowings made in the earlier years had been allowed and the same borrowings were replaced by the bonds in assessment year 2007- 08 and interest on the bonds were also allowed and, therefore, it was accepted by the department that the borrowings or bonds had been issued for the purpose of business. Even if the car rental business and BPO business had been transferred in assessment year 2007-08, the loans taken earlier continued to be used for the purpose of business. There was no dispute that loans had been taken in the earlier year for the purpose of business and, therefore, interest had to be allowed. CIT(A) accordingly, directed the AO to Page 4 of 7 ITA No . 51 9 3/ Mu m/ 20 1 5 M/ s IL &F S Ma r it im e I nfr as tr uct ur e Co . L td . ( A. Y : 20 1 1 - 1 2) delete the addition made on account of disallowance of interest, aggrieved by which the revenue is in appeal before Tribunal.
2.4 Before us learned AR for the assessee reiterated the submissions made before lower authorities whereas the learned DR placed reliance on the order of assessing officer.
2.5 We have perused the records and considered the matter carefully. The dispute is regarding allowability of interest in respect of bonds issued by the assessee. These bonds were issued in assessment year 2007-08 to repay the loans taken in the earlier years. In the earlier years when the loans were taken, interest had been allowed as deduction which means the department accepted the claim that the borrowings were for the purpose of business. In assessment year 2007-08, the same borrowings were replaced by bonds, therefore, the nature of borrowings remained the same in assessment year 2007-08. Thought the car rental business and BPO business has been transferred, assessee continued to do the business and the income has been assessed by AO under the head "business". Therefore, even if part of the business has been transferred, borrowings made earlier for the purpose of business continued to remain for the purpose of business and the claim of deduction has to be allowed. In fact, in assessment year 2007-08 the AO has himself have allowed interest on account of bonds issued and, therefore, the facts remaining the same this year, the disallowance cannot be justified. However, the assessee has made substantial investments in shares income from which is exempt. Therefore, the disallowance Page 5 of 7 ITA No . 51 9 3/ Mu m/ 20 1 5 M/ s IL &F S Ma r it im e I nfr as tr uct ur e Co . L td . ( A. Y : 20 1 1 - 1 2) of interest u/s 14A is upheld. Subject to above the order of CIT(A) on this issue is confirmed."
4. Further, this order of Tribunal was reaffirmed in AY 2010-11 in ITA No. 6479/Mum/2013 order dated 26-03-2015. It was not disputed by Revenue that the same funds are under consideration what was in AY 2008-09 and 2010-11. There is no factual difference in the facts, hence, taking a consistent view, we also confirm the order of CIT(A) allowing the claim of interest of Rs. 1,14,14,290/- deposited on account of interest on convertible bonds as under section 36(1)(3) of the Act. Accordingly, this issue of Revenue's appeal is dismissed.
5. The next issue in this appeal of Revenue is against the order of CIT(A) deleting the disallowance of expenses relatable to exempted income made by AO by invoking the provisions of Section 14A of the act read with Rule 8D of the Rules. For this Revenue has raised following ground No.2: -
"2. Whether on the facts and circumstances of the case and in the law the Ld. CIT(A) is justified in deleting the disallowance made by the AO of Rs. 56,09,896/- on account of 14A of the act by applying Rule 8D of the IT Act.?"
6. At the outset, the learned Counsel or the assessee stated that there is no exempt income in the case of assessee and this fact is narrated by AO in its order in Para 6.17 at page 13 and accepted by Revenue. The learned Counsel for the assessee stated that this issue is covered in favour of assessee and against Revenue by the decision of the Hon'ble Delhi High Court in the case of Cheminvest Limited vs. CIT in ITA No 749/2014 dated 02-09-2015, reads as under: -
"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 Page 6 of 7 ITA No . 51 9 3/ Mu m/ 20 1 5 M/ s IL &F S Ma r it im e I nfr as tr uct ur e Co . L td . ( A. Y : 20 1 1 - 1 2) 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."
7. Respectfully, following the Hon'ble Delhi High Court in the case of Cheminvest Limited (supra), we confirm the order of CIT(A) deleting the disallowance. This issue of Revenue's appeal is also dismissed.
8. In the result, the appeal of Revenue is dismissed.
Order pronounced in the open court on 04-08-2017.
Sd/- Sd/-
(G. MANJUNATHA) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated:04- 08-2017
Sudip Sarkar /Sr.PS
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
//True Copy//
BY ORDER,
Assistant Registrar
ITAT, MUMBAI
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