Income Tax Appellate Tribunal - Kolkata
The Peerless General Finance & ... vs Department Of Income Tax on 18 March, 2016
I . T. A . N o. 8 7 3 / KO L . / 2 0 1 3
Assessment year: 2009-2010
Page 1 of 17
IN THE INCOME TAX APPELLATE TRIBUNAL,
KOLKATA 'B' BENCH, KOLKATA
Before Shri P.M. Jagtap, Accountant Member
and Shri S.S. Viswanethra Ravi, Judicial Member
I.T .A. No. 873/KOL/ 2013
Assessment Year: 2009-2010
Deputy Commissioner of Income Tax,........ ........................................Appellant
Circle-3, Ko lkata,
Aayakar Bhawan,
P-7, Chowringhee Square,
Kolkata-700 069
-Vs.-
M/s. The Peerless General Finance & Inve stment Company Ltd. .....Respondent
3, Esplanade Eas t,
Kolkata-700 069
[PAN : AABCT 3043 L]
Appearances by:
Shri Sachidananda Srivastava, JCIT, Sr. D.R., for the Department
Shri S.K. Tulsiyan, Advocate, fo r th e assessee
Date of concluding th e hearing : February 08, 2016
Date of pronouncing the order : March 18, 2016
O R D E R
Per Shri P.M. Jagtap :-
This appeal is preferred by the Revenue against the order of the ld. Commissioner of Income Tax (Appeals)-I, Kolkata dated 29.01.2013.
2. The issue involved in Ground No. 1 of the Revenue's appeal relates to the deletion by the ld. CIT(Appeals) of the addition made by the Assessing officer by way of a disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules.
I . T. A . N o. 8 7 3 / KO L . / 2 0 1 3 Assessment year: 2009-2010 Page 2 of 17
3. The assessee in the present case is a Non-Banking Finance Company with its principal business being to accept deposit from public against the issue of endowment certificate under its various small savings schemes and invest the same in the financing business for earning interest, dividend, etc. It also provides services in relation to the processing of insurance proposals on behalf of M/s. Max New York Live and M/s. IPCO Tokyo General Insurance. The return of income for the year under consideration was filed by it on 23.09.2009 declaring total income of Rs.1,96,66,57,700/-. In the said return, interest received on tax-free bonds of Rs.2,44,,37,175/- and dividend income of Rs.7,87,11,626/- was claimed to be exempt by the assessee from tax and disallowance of Rs.68,02,166/- under section 14A was suo moto offered on account of expenses incurred in relation to the said exempt income as worked out by applying Rule 8D as under:-
01. Average investment in shares on which Rs.87,11,01,435/-
dividend was received 02 Average investment in Mutual Funds on Rs.22,50,00,000/-
which dividend was received 03 Average investment in Bonds on which Rs.26,43,31,824/-
tax free interest was received Rs.136,04,33,259/-
0.50% of average investment Rs.68,02,166/-
4. According to the Assessing Officer, the disallowance worked out by the assessee under section 14A as above was not strictly according to the method laid down in Rule 8D. He, therefore, required the assessee to offer its explanation in relation to the specific queries raised in this regard. In reply, the following submission was filed by the assessee: -
(i) The assessee company revised it s comput ation of disallowance Under Rule 8D(2)(iii). The revised disallowance stands to the tune of I . T. A . N o. 8 7 3 / KO L . / 2 0 1 3 Assessment year: 2009-2010 Page 3 of 17 Rs.68 ,18,668/-(being 0.5% of average value of invest ment of Rs.136,37,33 ,620/-).T he assessee explained that thi s mist ake is on account of inco rrect computatio n of average investment in shares from which exempt dividend inco me was earned.
(ii) Th e assessee explained that the average val ue of investment in shares, mut ual funds and bonds on which Tax free income were earned has been t aken into account as the exempt income during the previous year received fro m th ese invest ments.
(iii) As there was no direct expenses fo r earning such income were incurred the disallowance under rule 8 D(2)(i) h as been taken at ' NIL'.
As far as the question of demat ch arges concerned, the assessee company has incurred demat ch arges of Rs.30,425/- during the Assessment Year 2009-10. But on appeal against the said order, th e Ld. C IT(A)-I, Kolkat a held that the demat expenses cannot be t reated as a direct expenses for earning the exempt dividend inco me.
(iv) The assessee co mpany vide its said explanatio n Annexure '12(D)' expl ained th at the interest of Rs.153.46 C rores debited to the P/L. A/c. fo r Assessment Year 2009-10 does not attract provision of Rule 8D(2)(ii) of the I.T Rules. As because asseesee's i nvestments in bonds and shares in company's and units of mut ual funds wh ich generated its exempt income were made out of its own funds instead of funds borrowed from certificate holders. As a result neither the funds, borrowed fro m the certificate holders nor the int erest of Rs.1 53.46 Crores payable on such borrowed fund could be att ributed t o the exempt inco me".
5. The above explanation of the assessee was not found acceptable by the Assessing Officer and he proceeded to re-compute the disallowance under section 14A read with Rule 8D at Rs.5,44,74,963/- as under:-
"Direct expenses:- The amount of expenditure directly relating to income which does not form part of total income in the profit and loss account, no item of expenditure is identified which can be directly attributable to earning of such income or making of the long term investments. The assessee has debited an amount of Rs.30,425/- and the issue is separately explained hereunder in point no. B.
(i)Disallowance of interest: = A x B/C -
Where A = Amount of expenditure by way of interest other than the amount of interest included in Point no. (i) incurred during the I . T. A . N o. 8 7 3 / KO L . / 2 0 1 3 Assessment year: 2009-2010 Page 4 of 17 previous year. Here the assessee company vide its reply dated 20.12.2011 disclosed an amount of Rs.153,46,06,000/-. Hence, the same figure is considered for this purpose.
B= The average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year.
C= The average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year.
Here A = Rs.153,46,06,000/-
B = Average value of investments yielding in the exempt income as submitted by the assessee by letter dated 20.12.2011.
Nature of exempt income Average value
Tax free interest- Rs.2,44,37,175/- Rs.26,43,31,824/-
Dividend ..............Rs.7,87,11,626/-
Rs.130,04,93,234/-
Average value of investment Rs.156,48,25,058/-
C = Rs.5147,58,15,000/-
So the resultant figure of A X B/C =
Rs.4,66,50,838/-
(i) Disallowance of ½% of average value of investment: The average value of investment, the income from which does not or shall not form part of total income in assessee's case, this amount is Rs.156,48,25,058/-. Therefore, this component of disallowance would be Rs.78,24,125/-.
Therefore, total disallowance U/R 8D of the I.T. Rules read with sec. 14A of the I.T. Act = (i) + (ii) + (iii) = Rs. NIL + Rs.4,66,50,838/- + Rs.78,24,125/- = Rs.5,44,74,963/-".
As the assessee-company had already offered suo moto disallowance of Rs.68,02,166/- under section 14A, the difference of Rs.4,76,72,798/- (Rs.5,44,74,963/- minus Rs.68,02,166/-) was further disallowed by the Assessing Officer under section 14A read with Rule 8D.
I . T. A . N o. 8 7 3 / KO L . / 2 0 1 3 Assessment year: 2009-2010 Page 5 of 17
6. The disallowance made by the Assessing Officer under section 14A of the Act read with Rule 8D of the Income Tax Rules was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) deleted the said disallowance made by the Assessing Officer for the following reasons given in his impugned order:-
"Assessee-company was NBFC and engaged in the business of service for insurance Company. The assessee- company earned tax-free interest and dividend income for Rs.2,44,37,175/- and Rs.7,87,11,626/- respectively. The AO disallowed further a sum of Rs.4,76,72,797/- on account of section 14A read with Rule 8D as against a sumo-moto offer of Rs.68,02,166/- (computed as 1/2% of the average investment in the shares and mutual funds from which tax-free income was received) disallowance in the computation of income filed by the company. The appellant disputed the disallowance of Rs.4,66,50,838/- on account of interest not directly attributable under Rule 8D(2)(ii) read with section 144 and also disputed the figure of average value of investment taken by the AO at Rs.150,48,25,058/- and contented that the correct figure of average value of investment in relation to tax-
free interest and dividend income was Rs.
136,37,33,620/- which was furnished before the AO on 16.09.2011 along with annexure 12A, 128 and 12C. There is no dispute regarding the average value of investment in bonds having tax-free interest income. Assessee also filed the details of average value of shares which did not generate any dividend income at pages 76 and 77 of the paper book. The AO included the value of shares which had not yielded any dividend income. After excluding these non-dividend yielding investments the average value of the investment is determined at Rs.136,37,33,620/- in relation to earning of exempt income. Therefore the AO is directed to adopt this figure of Rs.136,37,33,620/- rather than Rs.156,48,25,058/ - while computing the disallowance under Rule 8D. Therefore ground no. 1(a) is allowed.
Next ground relates to the disallowance under Rule 8D regarding debit of interest expenses I . T. A . N o. 8 7 3 / KO L . / 2 0 1 3 Assessment year: 2009-2010 Page 6 of 17 Rs.153,46,06,000/- in P&L a/c. The A/R contended that shares and tax free bonds were not purchased out of borrowed funds against which interest was payable and detail note regarding this contention was submitted before AO as per annexure 12D along with letter dated 16,.09.2011. This annexure 12D is as under:
Note explaining why the Interest of Rs.153.46 crs. debited to the assessee's P&L for A.Y. 2009-10 does not attract provisions of Rule 8D(2)(ii) of the IT. Act.
As per Rule-8D(2)(ii) of the I.T. Rules, where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, proportionate amount of Interest computed in accordance with the formula A x B/C has to be disallowed. In the case of the assessee, a sum of Rs.153.46 crs. has been debited to its P & L a/c on account of interest payable to Certificate Holders. This Interest does not however attract the provision of Rule 8D(2)(ii) for the reasons discussed below.
The assessee is a Residuary Non-Banking Finance Company. In the course of carrying on its financing business, it floated several small saving schemes in which the public (Certificate Holders) deposited money with it. Against such deposits, interest on accrual basis is debited to its P&L a/c. The Interest of RS:.153.46 crs. debited to its P&L a/ c relates to such accrued interest. As per the Balance Sheet of the assessee as on 31.3.09, the total amount of deposits from the public (i.e. Certificate Holders) is Rs.3934.99 Crs. which included unpaid / unclaimed maturity value of Certificates amounting to Rs.1467.90 Crs. Since no interest is paid or payable on unpaid /unclaimed maturity value, interest of Rs.153.46 crs. debited to P&L a/c related to total deposit of Rs.2467.09 crs. (Rs.3934.99 crs. - Rs.1467.90 crs.) from the Certificate Holders.
In this connection, it is submitted that the assessee being a Residuary Non-Banking Finance Company, its activities are directly controlled by the Reserve Bank of India. In order to protect the interest of the Certificate Holders, the RBI issued guidelines I . T. A . N o. 8 7 3 / KO L . / 2 0 1 3 Assessment year: 2009-2010 Page 7 of 17 directing the assessee to invest its fund in a particular manner. Such guidelines are contained in "Residuary Non-Banking Companies (Reserve Bank) Direction 1987"
(as amended from time to time). As these guidelines were issued by the RBI in exercise of its statutory powers conferred by Sec.451 and 45K of the RBI Act 1934, those were mandatory and binding on the assessee. As per para 6 of this Direction, the assessee was required to invest its fund in approved securities, fixed deposits/ certificate of deposits of scheduled commercial banks/ financial institutions, in Government Securities, Bonds, Debentures etc. An extract of Para-6 of the Residuary Non- Banking Companies (Reserve bank) Direction, 1987 is enclosed. The RBI also closely monitors such investments and the assessee is required to submit monthly statements certified by its Auditors to the RBI. Copies of its statements on status of investment as on 10th June, 30th September, 3151 December 2008 and 3151 March 2009 are enclosed ill order to show that its total investment in the types of securities prescribed in Para-e of the RBI Directions arc more deposit of Rs.2467.09 crs. taken from the Certificate Holders on which interest of 153.46 crs. was payable.
As a result, the interest of Rs.153.46 crs. debited to its P&L a/c is attributable to its income or receipt by way of interest from investments made in terms of I of RBI direction e.g. approved securities FD / CDs from commercial banks and Central ate Government Securities etc. referred to above.
In the above circumstances, the, assessee's investments in Bonds and shares in companies and units of mutual funds which generated its exempt dividend income or Tax free interest were made out of! its own funds instead of funds borrowed from the Certificate Holders. As a result, neither the fund borrowed from the Certificate Holders nor the interest of Rs.153.46 crs payable on such borrowed fund could be attributable to the exempt dividend income or tax free interest and hence no part of the Interest of Rs.153.46 crs. could be disallowed in terms of Rule 8D(ii) of the I.T. Rules.
I . T. A . N o. 8 7 3 / KO L . / 2 0 1 3 Assessment year: 2009-2010 Page 8 of 17 The A/R further relied upon the order of CIT(A)-I, Kolkata dtd.25.10.2010 for AY 2008-09. After considering the above submissions, monthly statements certified by company auditors to the RBI and the annual accounts it is noticed that the share capital and the reserves and surpluses as on 31.003.2009 were Rs.1011.8 crores which was exceeded the value of investment in earning tax free interest and dividend and moreover assessee had credited an interest and dividend of Rs.440.5 crores from the approved securities referred above as per RBI guidelines in P&L etc and this formed a major part of the net taxable income of Rs.196.067 crores shown in the return of income filed for the AY- 2009-10. Keeping in view the above facts and circumstances and AO is directed to delete the addition made on account of interest debited in P&L etc and reduce the disallowance u/s 14A/Rule 8D to Rs.68,18,668/-. This ground is partly allowed. The demat expenses of Rs.30,425/- were directly related to earning of dividend income from shares held as investment in terms of Rule 8D and accordingly addition of Rs.30,425/- is confirmed".
Aggrieved by the order of the ld. CIT(Appeals) on this issue, the Revenue has raised Grounds No. 1(a) and 1(b) in its appeal, which read as under:-
1. (a) Whether on th e facts and in circumstances of the case and in law, Ld. CIT(A) is correct in allowing relief to the assessee in respect o f disallowance u/s. 14A without taking into account the verdict of jurisdictional High Court in the case of Dhanuk a & Sons Vs. CIT (Central)-I, Kolkata (2011) 12 Taxman. Co m 227 (C al) dated 19.04.2011, where the Hon'ble Court held that it is to the assessee to show by flow of fund that no amount of expenditures has been incurred in relation to exempt inco me and assessee company failed to discharge the burden.
(b) Wh ether o n the facts and in circumstances of the case and in law, Ld. CIT (A) is correct in directing the AO to exclude the investment from which dividend was not earned during the year from the average value of invest ment and thereby ignored the judgement of ITAT, Delhi(SB) in the case of Cheminvest Lt d vs ITO [2009] 121 ITD 318 (Del.) (SB ) where it was held that disallowance u] s 14A is to made even if no dividend is earned during the year.
I . T. A . N o. 8 7 3 / KO L . / 2 0 1 3 Assessment year: 2009-2010 Page 9 of 17
7. We have heard the arguments of both the sides and also perused the relevant material available on record. As regards the issue involved in Ground No. 1(a) relating to the deletion by the ld. CIT(Appeals) of the disallowance made by the Assessing Officer on account of interest under section 14A, the ld. counsel for the assessee has submitted that the relevant investment, on which exempt income was received, had been made by the assessee in the earlier years out of its own funds and this position was consistently accepted by the Tribunal right from A.Y. 2000-
01. He has invited our attention to the latest order passed by the Tribunal for A.Y. 2008-09 vide its order dated 30.06.2014 in ITA No. 136/KOL/2011, wherein the action of the ld. CIT(Appeals) in deleting the disallowance made by the Assessing Officer on account of interest under section 14A was upheld by the Tribunal after having found that the relevant investment was entirely made by the assessee out of its own funds and not from the borrowed funds. In this regard, the ld. D.R. has relied on the decision of the Hon'ble Calcutta High Court in the case of Dhanuka & Sons -vs.- CIT (2011) 12 taxman.com 227 to contend that even though the relevant investment was made by the assessee in the earlier years, it is for the assessee to show on evidence that the said investment was acquired from its own funds available at the relevant point of time without taking benefit of any loan. It is, however, observed that a similar contention was raised on behalf of the Revenue before the Hon'ble Calcutta High Court in the case of CIT -vs.- M/s. REI Agro Limited (ITAT No. 220 of 2013 dated 09.04.2014) by relying on the decision of the Court in the case of Dhanuka & Sons (supra), but the same was not accepted by Their Lordships on the ground that the assessee in the case of Dhanuka & Sons was unable to establish on evidence, the sources from which the shares were acquired whereas in the case of REI Agro Limited before it, there was no such finding recorded by the Assessing Officer. In our opinion, the assessee in the present case stands on better footing, inasmuch as the Tribunal in the case of the assessee has consistently recorded a finding in all the earlier years including the immediately preceding year, i.e. A.Y. 2008-09 that the relevant investment on which I . T. A . N o. 8 7 3 / KO L . / 2 0 1 3 Assessment year: 2009-2010 Page 10 of 17 exempt income was earned by the assessee, had been made in the earlier years out of the own funds of the assessee and not from the borrowed funds. We, therefore, respectfully follow the decision of the Hon'ble Calcutta High Court in the case of REI Agro Limited (supra) and uphold the impugned order of the ld. CIT(Appeals) deleting the disallowance made by the Assessing Officer under section 14A on account of interest. Ground No. 1(a) of the Revenue's appeal is accordingly dismissed.
8. As regards the issue involved in Ground No. 1(b), it is observed that a similar issue was decided by the Coordinate Bench of this Tribunal in the case of REI Agro Limited -vs.- DCIT vide its order dated 19.06.2013 passed in ITA Nos. 1331 and 1423/KOL/2011 vide its paragraphs no. 7.1, 8 and 8.1, which read as under:-
"7.1. In any case, the work ing of the disallowance under sub- part (ii) of sub-clause (2) of rule 8D as made by the AO also suffers fro m a subst antial error in so far as in the said rule in regard to the numerator B, the words used are the average value of the investment, income from which does not form or shall not form part of the total income as appearing in the balance-sheet as on the first day and in the last day of the previous year. Here the AO has tak en int o consideration the investment of Rs.103 crores made this year, which has not earned any dividend or exempt income. It is only the average of the value of the investment from which t he income has been earned which is not falling within the part of the total income that is to be considered. This is wh y the question of satisfactio n is pro vided in sectio n 14A and rule 8D(1 ), th at rel ates to the account s of the assessee. Thus, it is not th e total invest ment at the beginning of the year and at the end of the yea r, which is to be considered but it is the average of the value of investments which has given rise t o the income wh ich does not form part of the total income which is to be co nsidered. A quest ion may arise as to why the term "average of the value of i nvestment" is then used. The, term average of th e value of investment wo uld be to take care of cases where there is t he issue of dividend striping. In any case, as we have already h eld that the assessee has not incurred any expenditure by way o f interest during the previous year, which is not directl y attribut able to any particul ar income, th e findings of the ld. CIT(A) on the issue stand confirmed and consequently the appeal filed by the Revenue st ands dismissed.
I . T. A . N o. 8 7 3 / KO L . / 2 0 1 3 Assessment year: 2009-2010 Page 11 of 17
8. In respect of provisions of rule 8D(2 )(iii), which is th e subject-matt er of the appeal in the assessee's hand, a perusal of the said pro visio n shows that what is disallowance under rule 8 D(2)(iii) is th e amo unt equal to ½ percent age of the average value of investment the inco me from which does not or shall not form part of the total income. Thus, unde r sub-clause
(iii), what is disallowed is ½ percent age of the numerator B in Rule 8D(2)(ii). Again this is to be calculated in the same line as mentio ned earlier in respect of Numerator B in rule 8D(2)(ii) of the Act .
8.1. Thus, not all invest ments become the subject-matter of consideration when comput ing disallowance under section 14A read with rule 8D. T he disallowance under sect ion 14A read with rule 8 D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the invest ment which has given rise to this income which does not form part of the total income. Under the circumst ances, the co mputatio n of the dis allowance under sectio n 14A read with Rule 8D(2 )(iii), which is issue in the assessee's appeal, is restored to the file of the AO fo r re- comput ation in line with the direction given above. No disallowance under section 14A read wit h Rule 8D(2)(i) and
(ii) can be made in th is case" .
Although the ld. D.R. has relied on the decision of the Delhi Special Bench of ITAT in the case of Cheminvest Limited -vs.- ITO reported in 121 ITD 318 in support of the Revenue's case on this issue, it is observed that the decision rendered by the Coordinate Bench of this Tribunal in the case of REI Agro Limited (supra) has been affirmed by the Hon'ble Calcutta High Court vide its order dated 09.04.2014 passed in ITAT No. 220 of 2013 (supra). We, therefore, respectfully follow the said decision of the Hon'ble Jurisdictional High Court and uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue. Ground No. 1(b) is accordingly dismissed.
9. The issue involved in Ground No. 2 of the Revenue's appeal relates to the deletion by the ld. CIT(Appeals) of the addition of Rs.9,58,22,500/- made by the Assessing Officer on account of bad debts written off and the specific grievance of the Revenue as projected in the ground of appeal is I . T. A . N o. 8 7 3 / KO L . / 2 0 1 3 Assessment year: 2009-2010 Page 12 of 17 that the ld. CIT(Appeals) has given relief to the assessee on this issue without allowing any opportunity to the Assessing Officer thereby violating Rule 46A of the Income Tax Rules.
10. During the course of assessment proceedings, the claim of the assessee for deduction on account of bad debts written off was examined by the Assessing Officer. On such examination, he, inter alia, found that the following three debts written off by the assessee apparently did not satisfy the conditions laid down under section 36(1)(vii) read with section 36(ii):-
(i) Loan to M/s. Sreeji Real Properties......................Rs.9,50,00,000/-;
(ii) Amount paid to United Bank of India.................Rs.58,06,00,500/-
(iii) Advance to M/s. Essars Furnitures...................Rs. 2,35,000/-.
The assessee, therefore, was called upon by the Assessing Officer to justify its claim for deduction on account of above bad debts written off in terms of section 36(1)(vii) read with section 36(ii). In reply, it was submitted by the assessee that all the three amounts in question were given in connection with its business and the same having become irrecoverable are liable to be allowed alternatively as business or trading loss. This explanation of the assessee was not found acceptable by the Assessing Officer and keeping in view that the relevant provisions of section 36(1)(vii) read with section 36(ii) were not satisfied by the assessee, he disallowed the claim of the assessee for deduction of Rs.9,58,22,500/- on account of bad debts written off.
11. The disallowance made by the Assessing Officer on account of its claim of bad debts written off was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on I . T. A . N o. 8 7 3 / KO L . / 2 0 1 3 Assessment year: 2009-2010 Page 13 of 17 record, the ld. CIT(Appeals) deleted the addition made by the Assessing Officer for the following reasons given in his impugned order:-
"The major component of bad debt of Rs.9.50 crores being irrecoverable loan was relating ra Mls Shreeji Real Properties Pvt. Ltd., Bombay which was advanced in the months of March to May' 1991. The AO disallowed the claim on the basis of reply received on 05.10.2011 in response to enquiry notice u/s 133(6). Assessee had produced by way of evidences, copies of confirmation letter dtd.31.05.1993 and 09.02.1993 received from M/s. Shreeji Real properties Pvt. Ltd., Bombay confirming the receipt of the loans and copy of letter dated 03.07.1992 enclosing TDS certificate from interest paid by it. The AO disallowed the claim as M/s Shreeji Real Properties Pvt. Ltd., Bombay could not furnish the details pertaining to above transactions as the matter was almost 20 years old. The A/R further relied upon the judgment of Hon'ble Supreme Court in the case TRF Ltd. reported in 323 ITR
397. It is admitted that loan given to the above party was genuine and the M/s Shreeji Real Properties Pvt. Ltd., Bombay deducted TDS from interest paid by it to the appellant who accounted for this interest income in the relevant assessment year in its books of accounts and subsequently the party could not pay interest to the appellant because of financial problems and the appellant had written-off the above loan after 20 years as irrecoverable in its book of accounts. Keeping in view these facts and circumstances ground no.3 relating to M/s Shreeji Real Properties Pvt. Ltd., Bombay is allowed as advance given during the course of business as NBFC written-off being irrecoverable after 20 years. The AO is also disallowed a sum of Rs.5,87,500/- as advance given to United Bank of India on 29.12.1991 in connection with land deal which was claimed as bad debt by the appellant in AY-2009-10. It was informed vide letter dated 01.08.2011 by DGM United Bank of India(UBI) that a total sum of Rs.21,42,906/- consisting of principal sum and interest accrued was returned to appellant. The appellant requested the AO to allow business loss in this year and accrued interest along with the recovered amount could be shown as income of the FY-2011-12 relevant to AY- 2012-13. Keeping in view, these facts and circumstances addition of Rs.5,87,500/- made by AO on account of advance given to UBI on 29.12.1991 and written-off in the current financial year due to non-recovery for 20 yrs. is deleted as this amount along with the interest recovered in FY 2011-12 is taxable in AY-2012-13 u/s 41 of the I.T. I . T. A . N o. 8 7 3 / KO L . / 2 0 1 3 Assessment year: 2009-2010 Page 14 of 17 Act,1961. The AO further disallowed a sum of Rs.2,35,OOO/- given to M/s Essars Furnitures, Vijyavada as the notice was return unserved. The Assessee had filed a copy of tender dtd. 29.11.1993 submitted by M/s Essars Furnitures, Vijyavada for interior decoration of the company office at Vijyavada. It was contended that advance payment was given to this party about 16 years ago for the purpose of interior decoration could not be recovered and should be allowed as trading loss. Keeping in view these facts and circumstances addition of Rs.2,35,OOO/- is deleted".
12. We have heard the arguments of both the sides and also perused the relevant material available on record. As already mentioned, the specific grievance of the Revenue on this issue as projected in the ground of appeal is that the ld. CIT(Appeals) has allowed the claim of the assessee for bad debts written off by relying on the additional evidence filed by the assessee for the first time before him without giving any opportunity to the Assessing Officer to verify the same, which is in contravention of Rule 46A of the Income Tax Rules. In this regard, when the Ld. D.R. was asked to point out such additional evidence relied upon by the ld. CIT(Appeals), he has invited our attention to the relevant portion of the impugned order of the ld. CIT(Appeals) and stated that the confirmation letters dated 31.05.1993 and 09.02.1993 issued by M/s. Sreeji Real Properties Pvt. Limited confirming the receipts of loan as well as the letter dated 03.07.1992 issued by the said party enclosing the TDS Certificate for interest paid by them to the assessee constituted additional evidence, which was filed by the assessee for the first time before the ld. CIT(Appeals). In this regard, the ld. counsel for the assessee has invited our attention to the copy of letter dated 12.09.2011 filed before the Assessing Officer during the course of assessment proceedings along with annexures placed at page no. 120 to 128 of the paper book to point out that the copies of confirmation letters dated 31.05.1993 and 09.02.1993 received from M/s. Sreeji Real Properties Pvt. Limited and a copy of letter dated 03.07.1992 received from the said I . T. A . N o. 8 7 3 / KO L . / 2 0 1 3 Assessment year: 2009-2010 Page 15 of 17 party enclosing the TDS certificate for interest paid were duly filed by the assessee even before the Assessing Officer during the course of assessment proceedings and this position clearly evident from the relevant documentary evidence placed on record is not disputed by the ld. D.R. It is thus clear that there was no additional evidence filed by the assessee during the course of appellate proceedings before the ld. CIT(Appeals) and it is not a case where the ld. CIT(Appeals) can be said to have given relief to the assessee on this issue by relying on such additional evidence, which is in contravention of Rule 46A as alleged by the revenue. We, therefore, find no merit in Ground No. 2 raised by the Revenue and dismiss the same.
13. The issue raised in Ground No. 3 relates to the deletion by the ld. CIT(Appeals) of the addition of Rs.82,78,301/- made by the Assessing Officer by way of disallowance out of interest on account of loan given by the assessee to its subsidiary company.
14. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee-company has given interest-free loan of Rs.16.55 crores to its subsidiary company M/s. Peerless Developers Pvt. Limited. He, therefore, required the assessee to explain as to why interest paid by it to the extent attributable to such loan given for non- business purpose should not be disallowed. In reply, it was submitted by the assessee that the loan to its sister concern was given out of own funds and therefore, there was no reason to disallow the interest paid even on proportionate basis. Reliance was also placed by the assessee on the decision of the Hon'ble Supreme Court in the case of S.A. Builders Limited reported in 288 ITR 1 to contend that the loan advanced to the subsidiary was justified even on the touch-stone of commercial expediency. This explanation of the assessee was not found acceptable by the Assessing Officer. According to him, there was no commercial expediency in the I . T. A . N o. 8 7 3 / KO L . / 2 0 1 3 Assessment year: 2009-2010 Page 16 of 17 loan given by the assessee-company to its subsidiary and since the assessee had failed even to establish that the said loan was given out of its own funds, it was the case of diversion of the borrowed funds by the assessee for non-business purpose. He accordingly worked out the interest attributable to the loan given by the assessee-company to its subsidiary by applying the interest rate of 5% at Rs.82,78,301/- and made a disallowance to that extent out of interest expenditure.
15. The disallowance made by the Assessing Officer out of interest expenditure was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submission made by the assessee as well as the material available on record, the ld. CIT(Appeals) deleted the said disallowance after having found that the loan to its subsidiary was given by the assessee out of its own funds, which far exceeded the amount of loan of Rs.16.55 crores.
16. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. Although the ld. counsel for the assessee has again relied on the decision of the Hon'ble Calcutta High Court in the case of Dhanuka & Sons (supra) in support of the revenue's case on this issue to contend that the onus is on the assessee to show that the amount in question was advanced to its sister concern free of interest out of its own funds, it is observed that a similar disallowance made on account of interest attributable to the interest-free loans given to the subsidiaries has been consistently deleted by the Tribunal in assessee's own case upto A.Y. 2003-04 after having found that the interest-free loans were given by the assessee-company to its subsidiary companies out of its own funds and not out of interest bearing borrowed funds. As further submitted by the ld. counsel for the assessee, even though the disputes involved in A.Y. 2004-05 to A.Y. 2007-08 in its case were settled by the assessee-company before the Settlement I . T. A . N o. 8 7 3 / KO L . / 2 0 1 3 Assessment year: 2009-2010 Page 17 of 17 Commission, no such disallowance on account of interest attributable to the interest-free advances given to its subsidiary companies was made by the Assessing Officer in the said years and even in the assessment completed under section 143(3) for A.Y. 2008-09 vide its order dated 20.07.2010, no such disallowance was made by the Assessing Officer. Keeping in view all these facts of the case and applying the rule of consistency, we uphold the impugned order of the ld. CIT(Appeals) deleting the disallowance made by the Assessing Officer on account of interest allegedly attributable to the interest-free loans given by the assessee-company to its subsidiary companies and dismiss Ground No. 3 of the Revenue's appeal.
17. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open Court on March 18, 2016.
Sd/- Sd/-
(S.S. Viswanethra Ravi) (P.M. Jagtap)
Judicial Member Accountant Member
Kolkata, the 18 t h day of March, 2016
Copies to : (1) Deputy Commissioner of Income Tax,
Circle-3, Ko lkata,
Aayakar Bhawan,
P-7, Chowringhee Square,
Kolkata-700 069
(2) M/s. The Peerless General Finance & Inve stment Company Ltd. ,
3, Esplanade E ast,
Ko lkata-700 069
(3) Commissioner of Inco me-t ax (Appeals)-XXIV, Kolkata (4) Commissioner of Income Tax, Kolkata (5) The Depart ment al Represent ative (6) Guard File By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.