Income Tax Appellate Tribunal - Mumbai
Finquest Financial Solutions P.Ltd, ... vs Dcit 9(3)(1), Mumbai on 28 February, 2019
आयकर अपीऱीय अधिकरण "F" न्यायपीठ मुंबई में ।
IN THE INCOME TAX APPELLATE TRIBUNAL "F" BENCH, MUMBAI
BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER
AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
आयकर अपीऱ सं./I.T.A. No.7383/Mum/2016
(नििाारण वर्ा / Assessment Year : 2012 -13)
Finquest Financial बिाम/ DCIT 9(3) (1)
Solutions P. Ltd., 418, 4 t h Floor,
3-3A, Churchgate House, v. Aayakar Bhavan,
32/34, Veer Nariman M.K Road,
Road, Fort, New Marine Lines,
Mumbai-400023 Mumbai- 400020
स्थायी ऱेखा सं ./ PAN: AAACF8117 G
(अपीऱाथी /Appellant) .. (प्रत्यथी / Respondent)
आयकर अपीऱ सं./I.T.A. No.7241/Mum/2016
(नििाारण वर्ा / Assessment Year : 2012 -13)
DCIT 9(3) (1) बिाम/ Finquest Financial
215, 2nd Floor, Solutions Private Ltd.,
Aayakar Bhavan, v. 3-3A, Churchgate
M.K Road, House, 32/34,
New Marine Lines, Veer Nariman Road,
Mumbai-400020 Fort, Mumbai-400023
स्थायी ऱेखा सं ./ PAN: AAACF8117 G
(अपीऱाथी /Appellant) .. (प्रत्यथी / Respondent)
Assessee by: Shri. Devdatta Mainkar
Revenue by: Miss. Deepika Arora (DR)
सुनवाई की तारीख /Date of Hearing : 07.01.2019
घोषणा की तारीख /Date of Pronouncement : 28.02.2019
आदे श / O R D E R
I.T.A. No.7383/Mum/2016
I.T.A. No.7241/Mum/2016
PER RAMIT KOCHAR, Accountant Member:
These are cross appeals, filed by Assessee as well by Revenue, being ITA No. 7383/Mum/2016 and ITA no. 7241/Mum/2016 respectively are directed against appellate order dated 20.09.2016 in appeal no. CIT(A)-16/IT-98/DCIT9(3)(1)/2015-16, passed by learned Commissioner of Income Tax (Appeals)-16 , Mumbai (hereinafter called "the CIT(A)"), for assessment year 2012-13, the appellate proceedings had arisen before learned CIT(A) from assessment order dated 09.03.2015 passed by learned Assessing Officer (hereinafter called "the AO") u/s 143(3) of the Income-tax Act, 1961 (hereinafter called "the Act") for AY 2012-13.
2. The grounds of appeal raised by assessee in memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") in its appeal in ITA No. 7383/Mum/2016 , read as under:-
"1. On the facts and in the circumstances of the case, and also in law, the Ld. CIT(A) erred in confirming the disallowance of Rs.2,28,396/- made by the Ld. A.O. u/s. 14A r/w. Rule 8D(2)(iii). The Ld. CIT(A) failed to appreciate, and ought to have held, that the disallowance U/S.14A r/w Rule 8D cannot be made in respect of the shares held by the appellant as stock-in- trade. Your appellant, therefore, prays that the disallowance of Rs.2,28,396/- be deleted.
2. On the facts and in the circumstances of the case, and also in law, the Ld. C1T(A) erred in confirming the disallowance of Rs, 15,00,000/- made by the Ld. A.O. being professional fees paid for arranging loans borrowed by the appellant. Your appellant, therefore, prays that the disallowance of Rs. 15,00,000/- be deleted.
3. Your appellant craves leave to alter, modify, amend or delete any of the above grounds of appeal, or to add one or more new ground(s), at or before the hearing of the appeal, as may be necessary."
3. The grounds of appeal raised by Revenue in memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") in its appeal in ITA no. 7241/Mum/2016, read as under:-
2I.T.A. No.7383/Mum/2016 I.T.A. No.7241/Mum/2016 "Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance of Rs.79,52,228/- under section 14A without appreciating that sub-rule 8D(3) starts with heading "Formula for determination of expenditure" and the three steps prescribed under this sub-rule to compute the expenditure in relating to exempt income and shall be applied collectively. Therefore, the total disallowance under section 14A has to be the aggregate of the amounts determined so by applying three steps together and not in isolation as done by the Ld. CIT(a) ?"
ii) "Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance of Rs.79,52,228/- under section 14A without appreciating that the assessee could not establish that no part of interest bearing fund had found its way into investment in shares nor any documentary evidences have been produced and thus the funds and expenses needs to be considered mixed one ?"
iii) "Whether on the facts and in the circumstances of he(sic. the) case and in law, the ld. CIT(A) erred in deleting the addition of Rs.56,25,000/- under section 36(1)(iii) without appreciating the fact that these advance were given to prospective customer without charging any interest and no evidence was brought on record to show as to whether prospective customers turned to regular customers ?"
iv) "Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs.56,25,000/- under section 36(1)(iii) without appreciating the fact that the assessee company was having borrowed funds on which it had paid interest and also could not prove that borrowed funds were used for its business?"
The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the Dy.CIT 9(3)(1), Mumbai. be restored.
The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary."
4. The brief facts are that the assessee is engaged in the business of Trading in Shares & Securities, Investment & Finance activities. The assessee received dividend income of Rs. 7,20,212/- during the impugned assessment year which was claimed as an exempt income. The assessee has shown in its Balance Sheet inventories in Stock-in- trade of Rs. 4,12,15,574/- which was invested by the assessee in Equity Shares/Securities, Mutual Funds and Partnership Firms . It was claimed that since assessee is engaged in the business of trading 3 I.T.A. No.7383/Mum/2016 I.T.A. No.7241/Mum/2016 in Shares and Securities, Investments and Finance activities, the assessee held some of these Equities/Securities as Stock-in-trade. The assessee had claimed that since shares are held as stock-in-trade as well Free Reserves were utilised for investing in these securities and no interest was payable with respect to investments made in these securities, no disallowance of expenditure incurred in relation to earning of an exempt income is warranted u/s 14A of the 1961 Act. The AO rejected the aforesaid contentions of the assessee and invoked provisions of Section 14A of the 1961 Act read with Rule 8D of the Income-tax Rules, 1962 and made the additions to the income of the assessee vide assessment order dated 09.03.2015 passed by the AO u/s 143(3) of the 1961 Act, as detailed hereunder:-
5. Aggrieved by an assessment framed by the AO u/s 143(3) of the 1961 Act, The assessee filed first appeal with ld. CIT(A). The assessee contended before learned CIT(A) that interest free funds available with 4 I.T.A. No.7383/Mum/2016 I.T.A. No.7241/Mum/2016 the assessee are more than Rs. 18 crores and inventories in stock in trade invested in equity shares/securities, mutual funds and partnership firm was only Rs. 4.12 crores as at 31.03.2012. The learned CIT(A) granted part relief to the assessee vide appellate order dated 20.09.2016, wherein additions as were made by the AO by invoking Provisions of Section 14A of the 1961 Act read with Rule 8D(2)(ii) of the 1962 Rules were deleted by the Ld. CIT(A), by holding as under:-
" 6.1.4 Respectfully following the judgement of the Hon'ble jurisdictional High Court in the case of HDFC Bank Ltd. (supra) and Reliance Utilities & Power Ltd.(supra). The addition of Rs.79,52,228/- u/r.8D(2)(ii) is deleted and appeal of the appellant on this ground is allowed."
While , on the other hand the Ld. CIT(A) confirmed the additions of Rs. 2,28,396/- as were made by the AO by invoking provisions of Section 14A of the 1961 Act read with Rule 8D(2)(iii) of the 1962 Rules , by holding as under:-
" 6.1.7 I have considered the submission of the appellant. It is an undisputed fact that appellant had earned dividend income amounting to Rs.7,20,212/- which was claimed as exempt. Since the appellant has earned exempt income it cannot be ruled out that some of the administrative expenses had been incurred by the appellant towards earning exempt income. It is unbelievable that no administrative expenditure is incurred for incurring exempt income. Therefore, the A.O. was correct in adopting the formula prescribed u/r 8D(2)(iii). By application of the above mentioned formula, the indirect expenses attributable to earning of exempted income was worked out to a figure of Rs.2,28,396/- by the A.O. which is based upon the method prescribed in the Income tax Rules. Therefore, I have no reason to interfere with the working of expenditure relating to income which does not form part of the total income u/r.8D(2)(iii) of the I.T. Rules. Hence, the amount of Rs.2,28,396/- disallowed by the A.O. u/r.8D(2)(iii) is confirmed and the appeal of the appellant on this ground is dismissed."
6. The assessee is aggrieved by confirmation of disallowance of Rs. 2,28,396/- by learned CIT(A) u/s. 14A of the 1961 Act r.w.r. 8D2(iii) of the 1962 Rules, while Revenue is aggrieved by the deletion of additions of Rs. 79,52,228/- u/s. 14A of the 1961 Act r.w.r. 8D2(ii) of the 1962 Rules, hence cross appeals filed by assessee as well by 5 I.T.A. No.7383/Mum/2016 I.T.A. No.7241/Mum/2016 Revenue. Thus, both the assessee as well Revenue have filed an appeal before the tribunal on this issue which is now before us.
6.2 The Ld. DR opened argument and submitted that the assessee has received dividend of Rs. 7.2 lakh which was claimed as an exempt income while no disallowance of expenditure incurred in relation to earning of an exempt income were made by the assessee voluntarily by invoking provision of section 14A of the 1961 Act. It was submitted that disallowance were made u/r. 8D(2)(ii) of the 1962 Rules r.w.s. 14A of the 1961 Act to the tune of Rs. 79.52 lakh by the AO , while disallowance u/r. 8D(2)(iii) of the 1962 Rules read with Section 14A of the 1961 Act were made to the tune of Rs. 2.28 lakh by the AO. It was submitted that the disallowance of Rs. 79.52 lakh u/r. 8D(2)(ii) of the 1962 Rules read with Section 14A of the 1961 Act was deleted by Ld. CIT(A) by relying on the judgment of Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities & Power Ltd. (2009) 313 ITR 340(Bom.) and judgment of Hon'ble Bombay High Court in the case of CIT v. HDFC Bank Ltd. (2014) 366 ITR 505(Bom.) . It was submitted that disallowance of expenditure under Rule 8D(2)(iii) of the 1962 Rules read with Section 14A of the 1961 Act to the tune of Rs. 2.28 lakh was confirmed by Ld. CIT(A) . It was submitted by learned DR that the funds utilised for making investments in aforesaid securities/share were mixed use funds and the assessee could not bring on record evidence of having used interest free funds for making investments in these shares/securities held as stock-in-trade to the tune of Rs.4.12 crores.
6.3 The Ld. Counsel for the assessee on the other hand drew our attention to page no. 7 of the Paper Book filed with tribunal which is audited Balance Sheet of the assessee company as at 31st March 2012 and submitted that the assessee's Share Capital as at 31.03.2012 was Rs. 4.3 crores while Reserves and Surplus were to the tune of Rs. 13.93 crores , aggregating to Rs. 18.23 crores. It was submitted that 6 I.T.A. No.7383/Mum/2016 I.T.A. No.7241/Mum/2016 investments in shares and securities held as stock-in-trade was only to the tune of Rs. 4.12 crores and since interest free funds available with the assessee were much higher than investments, presumption will apply that assessee utilised its own interest free funds in making investments in the securities/shares to the tune of Rs. 4.12 crores. The assessee relied upon judgment of Hon'ble Bombay High Court in the case of Reliance Utilities & Power Ltd.(supra) and also in the case of HDFC Bank Ltd.(supra) to contend that interest free own funds available with the assessee were sufficient to make investments in shares/securities. The assessee also relied upon another judgment of Hon'ble Bombay High Court in the case of HDFC Bank Limited v. DCIT reported in (2016) 383 ITR 529(Bom.) . It was submitted that administrative expenses were disallowed by invoking Rule 8D(2)(iii) of the 1962 Rules read with Section 14A of the 1961 Act and it was prayed that reasonable disallowance be made by the Bench under Rule 8D(2)(iii) of the 1962 Rules r.w.s. 14A of the 1961 Act. It was admitted by learned counsel for the assessee that the AO duly recorded satisfaction while invoking provisions of Section 14A of the 1961 Act read with Rule 8D of the 1962 Rules , which is not under dispute . It was also confirmed by learned counsel for the assessee that the assessee did not disallowed any expenditure incurred for earning exempt income by invoking provisions of Section 14A of the 1961 Act voluntarily while filing return of income with the Revenue.
6.4 . We have considered rival contentions and perused the material on record including cited case laws and orders of the authorities below. The assessee is engaged in the business of Trading in Shares & Securities, Investment & Finance activities. The assessee received dividend income of Rs. 7,20,212/- during the impugned assessment year which was claimed as an exempt income. The assessee has shown in its Balance Sheet Inventories being Stock-in-trade of Rs. 4,12,15,574/- consisting of investments in Equity Shares/Securities, Mutual Funds and Partnership Firm . We have observed from the 7 I.T.A. No.7383/Mum/2016 I.T.A. No.7241/Mum/2016 perusal of audited financial statement for financial year 2011-12 that the assessee has made investments to the tune of Rs. 4.12 crores as at 31.03.2012 , while the investments were in securities/shares of Rs. 5.01 crore as at 31.03.2011. We have observed that the assessee is claiming that the investments are made in Shares/Securities as Stock-in-trade and hence Section 14A of the 1961 Act is not applicable , as is discernible form the orders of the authorities below. We are afraid that this contention of the assessee cannot be accepted in view of decision of Hon'ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT reported in (2018) 402 ITR 640(SC) wherein it has been held by Hon'ble Supreme Court that the dominant purpose/intention of parties of investing in securities from which exempt income is received , is irrelevant for the purpose of computing disallowance of expenditure incurred in relation to earning of an exempt income as is mandated u/s 14A of the 1961 Act and Section 14A of the 1961 Act will be applicable wherein expenditure is incurred in relation to earning of an exempt income and the same shall not be allowed while computing income even when investments are made in shares and securities as strategic investments or stock-in-trade.
6.5 Now coming to the next contention of the assessee that it has its own interest free funds available with it which are in excess of investments made in shares/securities from which dividend income was received/receivable , then presumption will apply that assessee has invested its own interest free funds for making investments in shares/securities which yielded exempt income in view of decision of Hon'ble Bombay High Court in the case of Reliance Utilities & Power Ltd.(supra) and also decision of Hon'ble Bombay High Court in the case of HDFC Bank Ltd.(supra). We have observed that the assessee's share capital is Rs. 4.3 crores comprising equity shares as at 31.03.2012 while Reserves and Surplus are to the tune of Rs. 13.93 crores, aggregating to Rs. 18.23 crores , while on the other hand investments of only Rs. 4.12 crores were made in shares and 8 I.T.A. No.7383/Mum/2016 I.T.A. No.7241/Mum/2016 securities as at 31.3.2012. Similarly, the assessee's own interest free funds available as at 31.3.2011 are far in excess of investments made in shares/securities as at 31.3.2011. The share capital as at 31.3.2011 was Rs. 4.30 crores while Reserves and Surpluses were to the tune of Rs. 12.49 crores . The investments in shares and securities as at 31.3.2011 were Rs. 5.01 crores. We agree with the contentions of the assessee that presumption will apply that assessee invested its own interest free funds for making investments in shares and securities from which exempt income was received and no disallowance of interest expenditure u/s. 14A of the 1961 Act r.w.r. 8D2(ii) of the 1962 Rules can be made. We have also observed that the assessee has received dividend of Rs. 7,20,212/- which was claimed as an exempt income and admittedly these are mixed use funds which were utilised by the assessee for making investments in shares and securities which yielded exempt income and the Revenue has not brought on record any adverse/incriminating material to rebut the aforesaid presumption or to prove that that the assessee had borrowed interest bearing funds specifically to make investments in the shares and securities and hence relying on the decision of Hon'ble Bombay High Court in the case of Reliance Utilities and Power Limited (supra) and HDFC Bank Limited(supra) , disallowance of Rs. 79,52,228/- as was made by the AO u/s 14A of the 1961 Act r.w.r. 8D(2)(ii) of the 1962 Rules stood deleted. The assessee has also rightly relied upon another judgment of Hon'ble Bombay High Court in the case of HDFC Bank Limited v. DCIT reported in (2016) 383 ITR 529(Bom.). We have also observed that Hon'ble Supreme Court in the case of CIT v. Reliance Industries Limited reported in (2019) 102 taxman.com 52(SC),while deciding question number 1 raised by Revenue upheld the presumption that if interest free funds available with the tax-payer are sufficient to meet its investment, then it could be presumed that the investments were made from interest free funds available with the tax-payer and Hon'ble Supreme Court refused to interfere with the judgment of the Hon'ble High Court albeit in context 9 I.T.A. No.7383/Mum/2016 I.T.A. No.7241/Mum/2016 of Section 36(1)(iii) of the 1961 Act, by holding vide judgment dated 02.01.2019 as under:
"6. The appeals by the Revenue raise the following questions:
1. Whether the High Court is correct in holding that interest amount being interest referable to funds given to subsidiaries is allowable as deduction under Section 36(1)(iii) of the Income Tax Act, 1961 (for short 'the Act1) when the interest would not have been payable to banks, if funds were not provided to subsidiaries;
2. ***
3. ***
4. ***
5. ***
7. Insofar as the first question is concerned, the issue raises a pure question of fact. The High Court has noted the finding of the Tribunal that the interest free funds available to the assessee were sufficient to meet its investment. Hence, it could be presumed that the investments were made from the interest free funds available with the assessee. The Tribunal has also followed its own order for Assessment Year 2002-03.
8. In view of the above findings, we find no reason to interfere with the judgment of the High Court in regard to the first question. Accordingly, the appeals are dismissed in regard to the first question.
*** ***"
Thus, the appellate order passed by learned CIT(A) cannot be faulted with on this issue and we sustain/affirm the same by holding that the AO erred in making disallowance of Rs. 79,52,228/- by invoking provisions of Section 14A of the 1961 Act read with Rule 8D(2)(iii) of the 1962 Rules. The Revenue fails on this issue. We order accordingly.
6.6 We have further observed that the disallowance of Rs. 2,28,396/- was made by invoking provision of Section 14A r.w.r. 8D2(iii) of the 1962 Rules, wherein disallowance of indirect administrative expenses to the tune of 0.5% of the average investments held by the assessee were made by the AO which was later confirmed by learned CIT(A). The assessee has not voluntarily made any disallowance of expenditure incurred in relation to earning of an exempt income. The 10 I.T.A. No.7383/Mum/2016 I.T.A. No.7241/Mum/2016 assessee has earned an exempt income of Rs. 7,20,212/- by way of dividend income which was claimed as an exempt income in the return of income filed with Revenue. It is admitted by the assessee that AO has recorded satisfaction while applying Rule 8D of the 1962 Rules read with Section 14A of the 1961 Act. Under these circumstances , disallowance of administrative expenses computed @ 0.5% of the average investments amounting to Rs. 2,28,396/- by invoking Section 14A of the 1961 Act read with Rule 8D(2)(iii) of the 1962 Rules cannot be faulted with, which we sustain/confirm by upholding the appellate order passed by learned CIT(A). The assessee fails on this issue. We order accordingly.
7. The next issue concerns itself with grant of interest free loan and advances by the assessee of Rs. 3.75 crores despite the fact the assessee borrowed interest bearing loans , as detailed here under:-
(i) Vanraj Shah HUF : Rs. 75,00,000/-
(ii) Gayatri Infra. & Dev. Pvt. Ltd. Rs1,00,00,000/-
(iii) SERI Finance & Invt. Co. Pvt. Ltd Rs. 50,00,000/-
(iv) Superior Financial Con. Ser. P. Ltd. : Rs.l,50,00,000/-
Total : Rs.3,75,00,000/-
The AO was not satisfied with the contentions of the assessee that these interest free loans and advances granted by the assessee were for the purpose of business purposes and the AO was of the view that interest paid by the assessee is to be disallowed to the tune of 15% of the said amount of Rs. 3.75 crores granted by the assessee as interest free loans and advances . The assessee submitted that the assessee is a Non-banking financial corporation It was submitted that these interest free loans and advances were granted to these four parties to convert them into prospective clients in the near future and earn income through financing as part of the business strategy to earn taxable income in near future. The AO brought to tax an amount of Rs. 56.25 lacs out of interest paid by the assessee by disallowing the same u/s. 36(1)(iii) of the Act and adding to the income of the 11 I.T.A. No.7383/Mum/2016 I.T.A. No.7241/Mum/2016 assessee, vide assessment order dated 09.03.2015 passed by the AO u/s 143(3) of the 1961 Act.
7.2. The assessee being aggrieved by assessment order dated 09.03.2015 passed by the AO u/s 143(3) of the 1961 Act filed first appeal before learned CIT(A) who allowed the appeal of the assessee by relying on the decision of Hon'ble Jurisdictional High Court in the case of Reliance Utilities & Power Ltd.(supra) , vide appellate order dated 20.09.2016, by holding as under:-
"6.2.3 Since the own funds available with the appellant were many time more than the interest free advances given by the appellant, therefore respectfully following the decision of Hon'ble jurisdictional High Court in the case of CIT vs. Reliance Utilities & Power Ltd. (supra), no disallowance of interest paid can be made u/s.36(1)(iii). In view of it addition of Rs.56,25,000/- made by the A.O. is deleted and appeal of the appellant is allowed."
7.3. Aggrieved by decision of learned CIT(A) , the Revenue has come in an appeal before the tribunal. The ld. DR submitted that the assessee has advanced Rs. 3.75 crores towards loans and advances to four parties without charging any interest , while on the other hand , the assessee is paying interest on the borrowings and considering the same disallowance of interest expenditure @ 15% on this amount of Rs. 3.75 crores was made which led to disallowance of Rs. 56.25 lakh u/s. 36(1)(iii) of the 1961 Act. It was submitted that Ld. CIT(A) relied upon the decision of Hon'ble Bombay High Court in the case of Reliance Utilities & Power Ltd.(supra) to grant relief to the assessee.
7.4 On the other hand, the Ld. Counsel for the assessee reiterated its submissions as were advanced while arguing the issue of disallowance of interest expenditure made u/s. 14A of the 1961 Act read with Rule 8D(2)(ii) of the 1962 Rules . It was submitted by learned counsel for the assessee that the assessee is engaged in business of Trading in Share and Securities, Investment and Finance activities. Our attention was drawn to the audited Financial 12 I.T.A. No.7383/Mum/2016 I.T.A. No.7241/Mum/2016 Statements for the financial year 2011-12 which are placed in paper book. It was submitted that the assessee's Share Capital as at 31.03.2012 was Rs. 4.3 crores while Reserves and Surplus were to the tune of Rs. 13.93 crores , aggregating to Rs. 18.23 crores. It was submitted that Investments in shares and securities held as stock-in- trade was only to the tune of Rs. 4.12 crores and interest free loans and advances granted by the assessee were to the tune of Rs. 3.75 crores. Since interest free funds available with the assessee were much higher than investments as well loans and advances taken together, presumption will apply that the assessee utilised its own interest free funds in making investments in the securities/shares to the tune of Rs. 4.12 crores and granting interest free loans and advances to the tune of Rs. 3.75 crores taken cumulatively . The assessee relied upon judgment of Hon'ble Bombay High Court in the case of Reliance Utilities & Power Ltd.(supra) and also in the case of HDFC Bank Ltd.(supra) to contend that interest free own funds available with the assessee were sufficient to make investments in shares/securities as well interest free loans and advances taken cumulatively. The assessee also relied upon another judgment of Hon'ble Bombay High Court in the case of HDFC Bank Limited v. DCIT reported in (2016) 383 ITR 529(Bom.) .It was submitted that decision of Hon'ble Bombay High Court in the case of Reliance Utilities & Power Ltd.(supra), dealt with provision of Section 36(1)(iii) of the Act, with which we are presently concerned with so far as this issue is concerned.
7.5. We have considered rival contentions and perused the material on record including cited case la ws. We have observed that the assessee is engaged in business of Trading in Shares and Securities, Investment and Finance activities. We have observed that the assessee has advanced interest free loans and advances to the tune of Rs. 3.75 crores to following parties on which no interest was charged, detailed as under:
13I.T.A. No.7383/Mum/2016 I.T.A. No.7241/Mum/2016
(i) Vanraj Shah HUF : Rs. 75,00,000/-
(ii) Gayatri Infra. & Dev. Pvt. Ltd. Rs1,00,00,000/-
(iii) SERI Finance & Invt. Co. Pvt. Ltd Rs. 50,00,000/-
(iv) Superior Financial Con. Ser. P. Ltd. : Rs.l,50,00,000/-
Total : Rs.3,75,00,000/-
Since the assessee had borrowings which carried interest and the assessee was infact incurring interest expenditure, the AO added interest @ 15% p.a. on these interest free loans and advances to the tune of Rs. 3.75 crores by disallowing the aforesaid interest expenditure incurred by the assessee on the ground that interest bearing funds were utilised for grant of interest free loans and advances , which led to the additions to the tune of Rs. 56.25 lacs to the income of the assessee by invoking provisions of Section 36(1)(iii) of the 1961 Act.The learned CIT(A) after relying on aforesaid Hon'ble Jurisdictional High Courts judgment held that since interest free funds available with assessee are higher than the interest free loans and advances made by the assessee, presumption will apply that the assessee advanced interest free funds available with it for granting interest free loans and advances to the tune of Rs. 3.75 crores. We have observed from the audited financial statements for the financial year 2011-12 which is placed in paper book that the assessee's Share Capital as at 31.03.2012 was Rs. 4.3 crores while Reserves and Surplus were to the tune of Rs. 13.93 crores , aggregating to Rs. 18.23 crores as at 31.03.2012. The assessee has made investments in shares and securities held as stock-in-trade to the tune of Rs. 4.12 crores and interest free loans and advances granted were to the tune of Rs. 3.75 crores as at 31.03.2012, aggregating to Rs. 7.78 crores which is far in excess of interest free funds to the tune of Rs. 18.23 crores available with the assessee as at 31.3.2012 . Similar was the position as at 31.03.2011, wherein interest free funds available with the assessee were much higher than the aggregate of investments in shares and securities as well interest free loans and advances. Since interest free funds available with the assessee were much higher than 14 I.T.A. No.7383/Mum/2016 I.T.A. No.7241/Mum/2016 investments as well loans and advances as detailed above, presumption will apply that assessee utilised its own interest free funds available with it in making investments in the securities/shares to the tune of Rs. 4.12 crores and granting interest free loans and advances to the tune of Rs. 3.75 crores, aggregating to Rs. 7.78 crores. The assessee has rightly relied upon judgment of Hon'ble Bombay High Court in the case of Reliance Utilities & Power Ltd.(supra) and also decision of Hon'ble Bombay High Court in the case of HDFC Bank Ltd.(supra) and hence presumption shall apply that the assessee invested interest free funds available with it for making investments in shares and securities as well interest free loans and advances, aggregating to Rs. 7.78 crores The assessee also rightly relied upon another decision of Hon'ble Bombay High Court in the case of HDFC Bank Limited v. DCIT reported in (2016) 383 ITR 529(Bom.) . The decision of Hon'ble Bombay High Court in the case of Reliance Utilities & Power Ltd.(supra) dealt with provisions of Section 36(1)(iii) of the Act, with which we are presently concerned with so far as this issue is concerned. Nothing incriminating material has been brought on record by Revenue to rebut this presumption or to prove that interest bearing funds were raised or diverted for grant of interest free loans and advances. We have also observed that Hon'ble Supreme Court in the case of CIT v. Reliance Industries Limited reported in (2019) 102 taxman.com 52(SC),while deciding question number 1 raised by Revenue in the said appeal upheld the presumption that if interest free funds available with the tax-payer are sufficient to meet its investment, then it could be presumed that the investments were made from interest free funds available with the tax-payer and Hon'ble Supreme Court refused to interfere with the judgment of the Hon'ble High Court , by holding vide judgment dated 02.01.2019 as under:
"6. The appeals by the Revenue raise the following questions:
6. Whether the High Court is correct in holding that interest amount being interest referable to funds given to subsidiaries is allowable as deduction under Section 15 I.T.A. No.7383/Mum/2016 I.T.A. No.7241/Mum/2016 36(1)(iii) of the Income Tax Act, 1961 (for short 'the Act1) when the interest would not have been payable to banks, if funds were not provided to subsidiaries;
7. ***
8. ***
9. ***
10. ***
7. Insofar as the first question is concerned, the issue raises a pure question of fact. The High Court has noted the finding of the Tribunal that the interest free funds available to the assessee were sufficient to meet its investment. Hence, it could be presumed that the investments were made from the interest free funds available with the assessee. The Tribunal has also followed its own order for Assessment Year 2002-03.
8. In view of the above findings, we find no reason to interfere with the judgment of the High Court in regard to the first question. Accordingly, the appeals are dismissed in regard to the first question.
*** ***"
Thus, based on our detailed discussions as above, we hold this issue in favour of the assessee by upholding the appellate order of learned CIT(A), which we confirm/affirm and confirm deletion of interest expenses of Rs. 56,25,000/- as was made by learned CIT(A). The Revenue fails in this appeal. We order accordingly.
8. The next issue raised by assessee in its appeal concerns itself with disallowance of Rs. 15 lakh towards professional fees paid for arranging loans borrowed by the assessee. It was observed by the Assessing Officer that the assessee in its P&L account had claimed to have paid Professional Fees to two Private Limited Companies namely , M/s. Moneshi Consultancy Private Ltd., and M/s. Niyosi Trading & Investment P. Ltd. to the tune of Rs. 15 lacs in aggregate. The AO asked the assessee about the nature of the services rendered by these two companies to which the assessee submitted that these two companies had provided consultancy services for arranging loans to the tune of Rs. 25 crores for assessee from IIFL and IL&FS. The Assessing Officer observed from 16 I.T.A. No.7383/Mum/2016 I.T.A. No.7241/Mum/2016 the bills and vouchers submitted by these two companies, that both the bills are identical with common addresses of these two companies. It was also observed by the AO that with an intention to avoid paying service tax, the bills are just split to keep it below the threshold limits of Rs. 9 lacs as applicable for chargeability of service tax. It was observed by the AO from sanction letter of IIFL that the loan of Rs. 25 crores was sanctioned in the financial year 2010-11(AY 2011-12) on 14.01.2011. The AO observed that the assessee has obtained these invoices to boost its expenses and to reduce tax liability. The AO was of the view that the genuinity of the services rendered , common addresses , common type of bills and the loan being sanctioned in the preceding year led to the conclusion that these expenses towards professional ffes are not allowable as business expenses as these expenses are not genuine and these expenses were claimed to reduce profits and avoid taxes, vide assessment order dated 09.03.2015 passed by the AO u/s 143(3) of the 1961 Act.
8.2. The matter reached Ld. CIT(A) at the behest of the assessee , who also dismissed the appeal of the assessee vide appellate order dated 20.09.2016 , by holding as under:-
" 6.3.2 During the course of appellate proceedings a written submission was filed which find place in para 5 of this order. The appellant only submitted that it was a well settled provision of law that any expenditure incurred for borrowing funds was an allowable revenue expenditure. In support of its claim reliance was placed on the judgement of Hon'ble Apex Court in the case of India Cements Ltd. vs. CIT 60 ITR 52. There is no dispute about the fact that expenditure incurred for borrowing of fund is an allowable expenditure but as pointed out by the A.O., appellant has failed to prove the genuineness of expenditure incurred during assessment proceedings. Even during appellate stage the appellant could not produce any documentary evidences regarding professional services rendered by the above mentioned parties. This fact is properly recorded vide order sheet entry dated 14.09.2016. The appellant even could not furnish the evidences regarding deduction of tax on the payments made and any confirmation 17 I.T.A. No.7383/Mum/2016 I.T.A. No.7241/Mum/2016 from the person who had rendered the professional services. Since the appellant had failed to prove the genuineness of professional services taken and necessary bills and vouchers issued by them, therefore claim of the appellant cannot be allowed. In view of it addition of Rs. 15,00,000/- made by the A.O. is confirmed and appeal of the appellant on this ground is dismissed."
Thus , the Ld. CIT(A) dismissed the appeal of the assessee on the grounds that assessee could not prove genuineness of these expenses and also that the assessee could not produce evidence as to deduction of income-tax at source on these professional fees incurred by the assessee.
8.3. The assessee has come in an appeal before the tribunal on this issue . The Ld. Counsel for the assessee submitted that loans raised by the assessee were to the tune of Rs. 25 crores syndicated from IIFL and ILFS for which professional services were rendered by these two companies namely M/s Niyosi Trading & Investment Private Limited and M/s Moneshi Consulatncy Private Limited for raising these loans . Our attention was drawn to page no. 17 to 19 of the paper book to contend that that invoices issued by these two companies on the assessee for raising loans for the assessee was submitted before the AO and the note was also submitted explaining that these professional expenses were paid for loan syndication done by these companies for assessee from IIFL and ILFS. . The assessee has now produced before the tribunal for the first time , TDS certificates issued to these two companies by the assessee w.r.t. income-tax deducted at source on professional fee charges incurred by the assessee. The said TDS certificates are placed in file. However , these TDS certificate were not produced before the authorities below. On being asked by the Bench , the learned counsel for the assessee expressed inability to produce any further evidences to substantiate that these professional fees paid by the assessee were genuine expenditure incurred wholly & exclusively for the purposes of business of the assessee nor it could be 18 I.T.A. No.7383/Mum/2016 I.T.A. No.7241/Mum/2016 substantiated with any evidences that these two companies infact rendered these professional services.
8.4 The Ld. DR on the other hand relied upon the appellate order passed by Ld. CIT(A) and submitted that no documentary/evidences was filed by the assessee to prove genuineness of these expenses and further TDS certificates were also not produced before the authorities below.
8.5. We have considered rival contentions and perused the material on record. We have observed that the assessee is claiming to have incurred expenses towards professional fees of Rs. 15 lakh purported to be rendered by two parties namely M/s. Moneshi Consultancy P. Ltd., and M/s. Niyosi Trading & Investment P. Ltd. for arranging loan of Rs. 25 crore from IIFL and IL&FS for the assessee . The assessee could not produce any evidence to substantiate that these two companies in-fact rendered services in connection with arranging loans of Rs. 25 crores from IIFL and ILFS for the assessee. Even before us, the assessee could not produce any evidences to substantiate that these two companies infact rendered services in arranging loans of Rs. 25 crores form IIFL and ILFS for the assessee. The expenses can be allowed as business expenses within mandate of Section 37(1) of the 1961 Act when it is incurred wholly and exclusively for the purposes of business of the assessee and it is neither a capital expenditure nor incurred for personal purposes. The Assessing Officer has also averred that these loans were sanctioned in the preceding year i.e. AY 2011-12 and hence these expenses cannot be allowed in the impugned assessment i.e AY 2012-13 being prior period expenses , Even before us , no evidences is produced to substantiate and justify genuineness of these expenses nor it is substantiated as to why these expenses be allowed in the current year while the loans 19 I.T.A. No.7383/Mum/2016 I.T.A. No.7241/Mum/2016 were purportedly sanctioned in earlier years. The TDS certificates were also not produced before the authorities below and these TDS certificates are produced for the first time before us which have not stood the test of verification by lower authorities . In any case in our considered view merely production of TDS certificates is not sufficient justification to prove genuineness of the expense or to establish that the expenses were incurred wholly and exclusively for the purposes of the business of the assessee. No agreement entered into by the assessee with these two companies are brought on record neither any evidences has been brought on record to substantiate that the services were in fact rendered by these two companies to the assessee in connection with availing of loans by assessee from IIFL and ILFS to the tune of Rs. 25 crores. Under these circumstances and factual matrix as narrated by us as above, we are afraid that the assessee's contentions cannot be accepted . The assessee fails on this ground. The appeal of the assessee on this ground stood dismissed. We order accordingly.
9. In the result, appeal of the assessee as well appeal of the Revenue stand dismissed.
Order pronounced in the open court on 28.02.2019.
आदे श की घोषणा खऱ
ु े न्यायाऱय में ददनांकः 28.02.2019 को की गई
Sd/- Sd/-
(SAKTIJIT DEY) (RAMIT KOCHAR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, dated: 28.02.2019
Nishant Verma
Sr. Private Secretary
20
I.T.A. No.7383/Mum/2016
I.T.A. No.7241/Mum/2016
copy to...
1. The appellant
2. The Respondent
3. The CIT(A) - Concerned, Mumbai
4. The CIT- Concerned, Mumbai
5. The DR Bench,
6. Master File
// Tue copy//
BY ORDER
DY/ASSTT. REGISTRAR
ITAT, MUMBAI
21