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TMI Blog2018 (12) TMI 638X X X X Extracts X X X X X X X X Extracts X X X X ..... which contest the order of Ld. Commissioner of Income Tax (Appeals) - 41, Mumbai, [CIT(A)], Appeal No.CIT(A)-41/IT-364/16-17 dated 16/05/2017 qua deletion of addition of Rs. 1,07,88,885/- on account of interest u/s 36(1)(iii) as made by Ld. AO. 2.1 Facts leading to the dispute are that the assessee being resident firm engaged in facilities management was assessed for impugned AY in scrutiny assessment u/s 143(3) on 14/03/2016 by Ld. Income Tax Officer-30(2)(2) wherein the income of the assessee was assessed at Rs. 89.65 Lacs after certain additions as against returned loss of Rs. 18.43 Lacs filed by the assessee on 29/09/2013. The interest disallowance of Rs. 107.88 Lacs u/s 36(1)(iii) is the sole subject matter of present appeal before u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, keeping in view the fact that the assessee reflected loss during the impugned AY and claimed interest expenditure of Rs. 131.35 Lacs, the deposit, in the opinion of Ld. AO, was excessive and not a genuine transaction and also not carried out at Arm Length Price. It was noted that the deposits were approx. 10 times of annual income and approx. 4 times of annual receipts. The Ld. AO attempted to substantiate this fact by comparing the quantum of security deposits required in tenders floated by Air India and SIDBI for facility management contract and found that the security deposits required in those cases were 5% of the contract value per year. 2.3 The Ld. AO also examined the source of interest free deposit in AY 2012-13 being unsecured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 727/- charged by the assessee. Another factor to which the attention was drawn was the fact that the contract validity of Air India tender and SIDBI tender was 1 year / 2 year respectively as against perpetual validity enjoyed by the assessee. The attention was drawn to the fact that the interest expenditure claimed by the assessee was incurred for business purposes and the same was allowable in terms of Section 36(1)(iii) irrespective of the source of unsecured loans, the genuineness of which was not under doubt. It was also submitted that carpet area under the contractual term always meant usable or chargeable area, in support of which a letter dated 20/09/2010 was submitted to Ld. AO. 2.6 However, not convinced, Ld. AO, inter-alia, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after thought as the same was not filed during assessment proceedings for AY 2012-13. The AO is not justified to impose a condition that the clarificatory letter should be on a stamp paper. It was just a clarification that the term 'carpet area' in the main agreement should be considered as 'usable area'. If the two parties have agreed on even a plain paper, the substance has to be accepted for the reason that the word 'usable area' appears in the agreements with the licensees and hence the clarificatory letter is very much justified to make any working possible. To conclude, it is found that the arrangement is not devoid on any commercial expediency. Without the interest free deposits, the assessee could not have earned any income. Moreov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a businessman so as to adjudge the sufficiency of the deposits given by the assessee which was duly authorized by the contractual terms. This is further fortified by the fact that deposits were given by the assessee out of commercial expediency so as to get the right to collect the maintenance charges from the licensees which generated business income for the assessee. Therefore, the same was inextricably linked with contract generating business income for the assessee. It is trite law that tax planning is legitimate provided it fell within the four corners of law and it is permissible under the law provided the same is not a colorable device and not done so as to merely defraud the exchequer. We do not find any such attempt by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. 35. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the Directors of the sister concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister concern for commercial expediency in many other circumstances (which need not be enumerat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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