9911796707
TMI Blog2019 (12) TMI 1034X X X X Extracts X X X X X X X X Extracts X X X X ..... gh claimed by the appellant u/s 57(iii) of the Act. 3. Brief facts of the case are that the assessee filed return of income on 30.09.2012 declaring loss of Rs. 1170,64,32,415/- other than the loss under long term capital gain which was Rs. 20,89,72,023/-. The return of income tax was later on revised on 29.03.2014 declaring total income at nil other than the loss of Rs. 66,38,62,883/- under the head of long term capital gain. Thereafter the case was selected under compulsory scrutiny and notices were issued and served upon the assessee. The assessee has made some borrowings and one of the major borrowings was on account of Zero Coupon Bonds issued by M/s. Essar House Ltd. Out of the borrowed fund, the assessee has advanced money through inter corporate deposits ( hereinafter referred to as ICD) to M/s. Essar Oil Ltd. The transactions of borrowing and lending were carried out during the financial years 2009- 10, 2010-11 and 2011-12. The transactions were carried out earlier by assessee's predecessor M/s. Essar Investment Ltd. and after demerger of investment and finance division of Essar Investment Ltd. merged with the assessee w.e.f. 01.04.2010. In the return of income, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns Ltd 1,20,00,000 Equinox Business Parks Pvt. Ltd 44,45,013 Indsec Securities & Finance Ltd 9,00,000 Surajbari Windfarm Development Pvt Ltd 85,81,233 Matix Fertilisers and Chemical Pvt Ltd 1,13,68,219 Sub-total 105,75,59,033 2 Interest on loans and advances to others 1,25,35,486 3 Interest on debentures 17,57,19,994 Total 124,58,14,513 79. As can be seen from the above, the interest income shown by the appellant comprised of interest of Rs. 105,75,59,033/- in respect of ICDs, interest of Rs. 1,35,35,486/-in respect of loans and advances to others and interest of Rs. 17,57,19,994/- in respect of debentures. The interest income of Rs. 105,75,59,033/- shown in respect of ICDs comprised of interest income of Rs. 102,02,64,568/- in respect of ICDs placed with Essar Oil Ltd. and interest of Rs. 3,72,94,465/- in respect of ICDs placed with other companies. 80. The ZCBs were initially issued to Essar House Ltd (EHL) by Essar Investments Ltd (EIL). Similarly, the ICDs with Essar OIL Ltd (EOL) were placed by EIL. On demerger of the Investment & Finance Division of EIL into the appellant company on the appointe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce furnished 1 ING Vysya Bank 500011017018 Bank account statement 2 ING Vysya Bank 500011026084 Bank account statement 3 State Bank of Mysore 54030683976 Bank Book 4 State Bank of Mysore Equity support account Bank Book 5 Punjab National Bank Bank Book 6 Axis Bank Bank Book 7 Royal Bank of Scotland 183643 Bank Book 8 ICICI Bank 623505366830 Bank Book 83. On examination of the ledger accounts of the ZCBs issued to EHL and ICDs placed with EOL along with the bank account statements/bank books, it is noticed that direct nexus between the funds raised by issue of ZCBs to EHL and the funds invested by way of ICDs in EOL exists to the extent shown in the table below: Sr. No. Funds received from EHL on issue of ZCBs Funds placed with EOL by way of ICDs Amount (Rs.) Date Amount 1 27.04.2009 225,00,00,000 28.04.2009 40,00,00,00 55,00,00,00 80,00,00,00 2 29.04.2009 26,21,63,808 29.04.2009 25,00,00,00 3 19.11.2009 25,00,00,000 19.11.2009 25,00,00,00 4 20.11.2009 45,00,00,000 20.11.2009 45,00,00,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y EOL to the appellant during the FYs 2009-10 and 2010-11. It is seen that though funds to the extent of 1712.10 Cores were advanced to EOL towards ICDs during the FYs 2009-10 and 2010-11 (Rs. 1011.30 Crores + Rs. 700.80 Crores), the amount of ICDs that were outstanding at the beginning of the previous year relevant to the assessment year under consideration stood at Rs. 968,79,55,915/- only. The break-up of the ICDs outstanding as on 01.04.2011, as seen from the ledger accounts of the ICDs with EOL, is as under: Particulars of the ICDs with EOL as on 01.04.2011 Amount (Rs.) 12.75% ICDs 0 9.75% ICDs 105,00,00,000 9.5% ICDs 863,79,55,915 Total 968,79,55,915 86. Further, it is seen from the ledger accounts of the ICDs with EOL for the present assessment year that there were repayments of ICDs during the year also. The details of funds advanced to EOL towards the ICDs and the repayment of the ICDs by EOL during the year are as under: Date Opening balance of ICDs with EOL as on 01.04.2011(Rs.) Funds advanced to EOL towards ICDs (Rs.) Repayment of ICDs by EOL (Rs.) Closing balance of ICDs with EOL (Rs.) 01.04.2011 968,79,55,915 968,79,55,915 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the borrowed funds so utilised towards ICDs of Rs. 738,25,59,165/- works out to Rs. 58,59,65,260/-. Hence, interest expenditure incurred on the ZCBs to the extent of Rs. 58,59,65,260/- only can be considered to have been incurred for the purpose of earning the interest income from the ICDs placed with EOL. In view of this, it is held that the appellant is eligible for deduction of interest expenditure of Rs. 58,59,65,260/- u/s.57(iii) of the Act, while computing the income under the head Income from Other Sources as against the claim for deduction of Rs. 143,30,28,270/- made by the appellant in the return of income. 89. The appellant advanced a without prejudice contention that all the interest expenses and interest income are consolidated in the P & L account and it is therefore necessary to apportion the interest expenditure on a pro-rata basis to allow deduction u/s.57(iii) of the Act. It was stated that the working of deduction of interest u/s.57(iii) of the Act on a pro-rata basis has been submitted at page No.152 of the written submission dated 11.01.2017 wherein it has been computed at Rs. 136,33,80,525/-. It was stated that the average value of the ICDs/loans given/deben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinguishable on facts and therefore not applicable to the facts of the appellant's case. In the said case, the Hon'ble Supreme Court dealt with the issue of disallowance of interest paid to the partners of a firm on the capital contributed by then and held that where the appellant firm paid interest to partners on capital contributed by them and received interest from partners on borrowings made by them, the said transactions had element of mutuality and were referable to funds of partnership as such and therefore only the excess interest paid by appellant firm is liable to disallowance under section 40(b) of the Act. As can be seen, the issue dealt by the Hon'ble Supreme Court is completely different from the issue under consideration in the case of the appellant. Hence, it is considered that the said decision of the Hon'ble Supreme Court is not applicable to the appellant's case. Accordingly, this without prejudice contention of the appellant is held to be unsustainable. 92. In view of the detailed discussion above, it is held that the appellant is eligible for deduction of interest expenditure of Rs. 58,59,65,2607- u/s.57(iii) of the Act, while computin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xus, it can easily be concluded that the assessee has incurred corresponding interest expenditure. The learned A.R. submitted that if the interest expenditure has been allowed in a particular year, the same cannot be disallowed in subsequent year unless there is a change in the facts and circumstances. The learned A.R. relied upon the decision of the Hon'ble Gujarat High Court in the case of Virendra R. Gandhi vs. ACIT Tax Appeal No. 20 of 2004& Anr. Dated 27.11.2014. The ld AR also relied on the following decisions: (i) CIT vs. Sridev Enterprises [192 ITR 165 (Karn)] (ii) Escorts Ltd. vs. ACIT [104 ITD 427 (Del)] (iii) Malwa Cotton Spg. Mills vs. ACIT [89 ITD 65 (TM) (Chd)] (iv) ITO vs. J.M.P. Enterprises [101 ITD 324 (SMC) (Asr)] (v) Virendra R. Gandhi vs. ACIT [T.A No. 20 of 2004 with T.A. No. 124 of 2005 dated 27.11.2014 (Guj) (vi) ITO vs. Abhinand Investment Ltd. [ITA No. 982/Kol/2016 dated 07.02.2018] (vii) Gulita Securities Ltd. vs. DCIT [ITA No. 91/Mum/2016 dated 03.08.2018] (viii) ITO vs. Davinder Hide Co. [2007] (109 TTJ 580) The learned A.R. ,therefore ,submitted that in view of the ratio laid in the above decisions ,the disallowance of interest exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arlier, wherever direct nexus is not available. 9. Finally the learned A.R. submitted that the issue of calculation of allowable interest expenditure may be set aside to the file of the AO with specific direction as has been prayed hereinabove. 10. The ld DR , on the other hand relied, heavily on the order of AO by submitting that the interest expenses as claimed by the assessee u/s 57 of the Act against the interest income was rightly disallowed by the AO. The ld DR submitted that even part of the relief to the assessee to the tune of Rs. 58.59 Cr by ld CIT(A) was wrongly allowed to the assessee as the interest in order to qualify for deduction u/s 57(iii) of the Act was not wholly and exclusively incurred for the purpose of earning the interest income. The ld DR finally submitted that the order of AO may be restored. 11. We have considered the rival submissions and perused the material on record including the case law cited by the learned A.R. In this case the assessee has declared interest income of Rs. 124.58 crores under Section 56 of the Act against which it had claimed interest expenditure of Rs. 143.30 crores under Section 57 of the Act. After perusing the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciated the fact that the appellant was maintaining one common account in which all his income was deposited and from which withdrawal for all the expenditure was done. 4.1 He has drawn our attention to the provisions of Section 57(iii) of the Income Tax Act, which reads as under: '(iii) any other expenditure (not being in the nature of capital expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income.' 4.2 In support of his contention, he relied upon the decision of the Karnataka High Court in the case of Commissioner of Income Tax vs. Sridev Enterprises, reported in 1922 ITR165 (sic 192 ITR 165). 4.3 He also relied upon the decision of the Apex Court in the case of Commissioner of Income Tax vs. Excel Industries Ltd. reported in 358 ITR 295." Similarly, the case of the assessee is also supported by several cases, namely CIT vs. Sridev Enterprises [192 ITR 165 (Karn)], Escorts Ltd. vs. ACIT [104 ITD 427 (Del)], Malwa Cotton Spg. Mills vs. ACIT [89 ITD 65 (TM) (Chd)], ITO vs. J.M.P. Enterprises [101 ITD 324 (SMC) (Asr)] and other decisions referred to above wherein the common ratio is that once an expense is allowed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that the assessee's claim was admitted in principle. In other words, the principle of apportionment of expenditure allowable under s. 57(iii) is inherent in the order of the Tribunal. The scope of the AO in the restored matter was limited to ascertaining the quantum of expenditure which is allowable under s. 57(iii) as directed by the Tribunal. The Tribunal, while restoring the matter was well aware of the fact that all the expenses are consolidated and expenses which are allowable under s. 57(iii) have to be identified, which can be done only by apportionment on a logical and concrete basis. In such a situation, the expenditure has to be apportioned and it is well known that the principle of apportionment is normally applied by the IT Department in such cases. The AO was dutybound to verify the details filed before him to find out what portion of the expenditure is referable to the loan on which interest income is earned, which is chargeable to tax under s. 56.- Continental Construction Ltd. vs. CIT (1992) 101 CTR'-(SC) 386 : (1992) 195 ITR 81 (SC), U.K. (Investment) Co. (P) Ltd. vs. CIT (1994) 121 CTR (Guj) 470 : (1995) 211 ITR 511 (Guj) and India Cements Ltd. vs. CIT ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing. 3. On the facts and circumstances of the case and in law, the learned CIT(A) ought to have directed the AO for granting IDS credit to the extent of Rs. 10,45,30,427/- u/s 199 of the Act. 4. On the facts and circumstances of the case and in law, the learned CIT(A) ought to have directed the AO to grant deduction of donation amounting to Rs. 1,00,00,000/- u/s 80G of the Act." 15. The learned A.R. at the outset submitted that the additional grounds raised above do not require any verification of facts and are coming out of the assessment records. Therefore the learned A.R. prayed that the same may kindly be admitted for adjudication. The ld AR relied on the following decisions on the admissibility of additional grounds: i)Jute Corporation of India Ltd Vs. CIT 187 ITR 688(SC) ii)National thermal Power Corporation of India Ltd.Vs CIT(1998) 220 ITR 383(SC) iii) CIT Vs Prithvi Brokers and Shareholders (2012) 349 ITR 336(bom) 16. The learned D.R., on the other hand, strongly opposed admission of additional grounds on the ground that these grounds were never raised before the learned CIT(A) nor the claim was made in the return of income so far as ground Nos. 3 & 4 were con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction for interest expenditure to the extent of Rs. 58,59,65,260/- u/s. 57(iii) of the Act, out of the total disallowance of interest of Rs. 143.30 crores made by A.O., which was based on additional evidence, in the form of bank statement, admitted by Ld. CIT(A) in violation of Provisions of Rule 46A of the Income Tax Act, 1961, and without providing the A.O. an opportunity to examine the same as per Principles of Natural Justice. 2. On the facts and in circumstances of the case, the Ld. CIT (A) erred in restricting the disallowance made by A.O. u/s 14A r.w.r. 8D of the Income tax Act, 1961, to the extent of exempt income, without appreciating the fact that the Board circular 5/2014 states that Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income. 3. On the facts and in circumstances of the case, the Ld. CIT (A) is not justified in restricting the upward adjustment, to the extent of exempt income, in Book Profit u/s 115JB of Income tax Act, since, the issue of restricting the disallowance made by A.O. u/s 14A r.w.r. 8D of the Income tax Act, 1961, to the extent of exempt i ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
