TMI Blog2017 (12) TMI 1120X X X X Extracts X X X X X X X X Extracts X X X X ..... est has been paid for the business purposes while no such evidences are brought on record by the assessee to prove its contention that the said loans were used for business purposes by the assessee and mandate of Section 36(1)(iii) was complied with. The payments and the return thereof of the said advances are from the sister concerns and in the absence thereof of the evidences on record to substantiate that these were business expenses, we are afraid claim of the assessee to allow interest expenses on bank overdraft as business expenses cannot be accepted and hence the appeal of the assessee is dismissed. - Decided against assessee. - I.T.A. No. 3377/Mum/2017 - - - Dated:- 20-12-2017 - SHRI C.N PRASAD JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri. Rahul K Hakani For The Revenue : Shri. Purushotaam Kumar ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the assessee, being ITA No. 3377/Mum/2017 for assessment year 2012-13, is directed against the appellate order dated 31-01-2017 passed by learned Commissioner of Income-tax (Appeals)-53, Mumbai (hereinafter called the CIT(A) ) for assessment year 2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdraft amount outstanding during A.Y. 2011-12 and is solely for the purpose of business of the Assessee Company as the Assessee Company has used the overdraft facility for making advance payment for purchase of business assets and hence the same should be allowed as deduction . The A.O observed that the finance cost cannot be allowed as business expenses as there is no business activity during the year under consideration, vide assessment order dated 26-03-2015 passed by the AO u/s 143(3). 4. Aggrieved by the assessment order dated 26-03-2105 passed by the AO, the assessee filed an appeal before learned CIT(A). It was explained by the assessee before learned CIT(A) that the assessee has entered into MOU with M/s. Sapphire Land Development Pvt. Ltd. for purchase of land viz. Manvelpada situated at Vasai (West), Mumbai for a consideration of ₹ 30,00,00,000/- and as a part of advance payment, the assessee has paid ₹ 26.49 crore to M/s. Sapphire Land Development Pvt. Ltd. on 10.04.2010 by obtaining overdraft facility from Punjab and Maharashtra co-op Bank Limited. It was also explained by the assessee that the deal could not materialise over the price issue and appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Builders Ltd. (supra), what needs to be examined is the purpose for which the assessee advanced the money to its sister concern and what the sister concern did with this money. 5.3.2 Let us now examine whether the appellant in the present case has been able to discharge the onus cast upon it in this regard. In the first place, it is found that the A.O. is correct in observing that there was no business activity carried on by the appellant during the relevant period. It is noticed from the record that the appellant does not have an office either of its own or a rented one. There is no office premises appearing in the Schedule of Fixed Assets attached with the Balance Sheet as on 31.03.2012 nor has any office rent expenditure been debited to the P L Account. The appellant has also not debited any salaries to the P L account which shows that it has not employees or staff either. The appellant is found to be having only investments to the tune of ₹ 10.73 crores in shares of HDIL and group companies. In other words, the appellant seems to be engaged in managing the said investments and earning dividend there on which cannot be regarded as a business activity within the mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e noted that the appellant, SLDPL and Emerald Realtors Pvt. Ltd. are associated entities forming part of HDIL Group. In view of the close relationship among these parties, it is difficult to accept the contention that some deal for alleged purchase of land between the appellant and SLDPL could not materialize over price issues . The appellant has not placed on record copy of the MOU executed with SLDPL for alleged purchase of land and, therefore, it is not possible to ascertain the terms and conditions of the same. Be that as it may, the whole arrangement in substance appears to. be a case of diversion of interest-bearing funds to sister concerns for extra-commercial consideration, although it has been clothed in the form of an advance against purchase of business asset. Since the aforesaid companies are closely connected, it is not uncommon for them to provide financial accommodation to each other depending on the capacity of one entity to raise funds and fund requirements of the other associate entity. The factum of diversion of interest-bearing funds to associate concerns is also proved by the fact that while money was advanced by the appellant to SLDPL, the repayment has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se acquire, erect, maintain, reconstruct and adopt any buildings, offices, workshops, showrooms, warehouses, factories, mills, plants, machineries, accessories and other things found necessary or convenient for the purposes of the Company and also enlarging or pulling down, removing or placing all or any of the buildings, mill premises and machinery for the time being the property in possession of the Company, and by expending from time to time such sums of money as may be necessary or expedient for the purpose of improving, adding to, altering, repairing and maintaining the buildings, machineries and properties for the time being of the Company . **** **** Thus, it was submitted that real estate business activity although did not found mentioned in the main object clause in MOA but the same is part of the objects incidental or ancillary to the attainment of the main objects of the assessee. It was submitted that the MOU entered into by the assessee with the M/s. Sapphire Land Development Pvt. Ltd. is not available as there was a fire in the office of the assessee on 18.11.2010 and all the documents were destroyed in the fire. He placed on record intimation sent to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med by the assesssee which allegedly destroyed records of the assessee took place on 18.11.2010 while the assessment year under consideration is AY 2012-13 . It is submitted that the assessee has no business during the impugned assessment year which is evident from audited financial statements as only Revenue is dividend income. The learned DR would reply on the orders of the authorities below. 6. We have considered rival contentions and perused the material on record including cited case laws and orders of authorities below. We have observed that the assessee has claimed to be engaged in the business of Advertising Agency . The assessee has filed copy of Memorandum and Articles of Association wherein the main object clause are relating to the advertisements and other consultancies . The assessee has claimed by virtue of clause B (5) which are objects incidental and ancillary to the main object clause that the assessee is entitled to carry out real estate business . The said incidental or ancillary objects to attainment of main objects as per clause B(5) are reproduced hereunder: B. THE OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN OBJECTS: **** ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck by the assessee on 18-11-2011 from Emarald Realtors Private Limited. The assessee has failed to bring on record MOU/agreement stated to be entered into with Sapphire Land Development Private Limited to substantiate its contention that the advances made to M/s. Sapphire Land Development Pvt. Ltd are towards purchase/acquisition of the said property. All the three companies namely assessee, Sapphire Land Development Private Limited and Emarald Realtors Private Limited from whom the assessee received back the said amounts, are sister/associated concerns . It was also not brought on record whether the said MOU was registered with registering authority as is required under amended law as contained in The Registration Act, 1908. The cancellation agreement stated to be entered in July 2011 for cancelling MOU is also not on record and hence it could not be seen as to the terms and reasons for the cancellation of the said MOU. Now it is claimed for the first time before the tribunal that there was a fire in the office of the assessee on 18-11-2010 and all the records were destroyed . In any case cancellation deed was alleged to be entered on 18-07-2011 which in any case cannot be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses of business of the assessee and the conditions as stipulated u/s. 36(1)(iii) are duly complied with which in the instant case has not been done by the assessee. Merely because the revenue has accepted the said claim of interest as business expenses in the earlier years in the summary proceedings u/s. 143(1) does not create res-judicata as revenue has never gone into the details of the said claim as the return of income was accepted in summary manner u/s 143(1) without scrutiny being conducted u/s. 143(3) r.w.s. 143(2). Thus, mere acceptance of the claim in earlier years in proceedings u/s 143(1) does not debar Revenue from examining the claim on merits in subsequent years and does not create a bar of res-judicata . We are fully aware that consistency is to be maintained but the claim of interest expenses was never examined by the revenue in any of the earlier years as scrutiny proceedings were not initiated in any of the earlier years since said loans were raised by the assessee. Thus only bald statements are made by the assessee for claiming that the interest has been paid for the business purposes while no such evidences are brought on record by the assessee to prove its con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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