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TMI Blog2017 (10) TMI 1624X X X X Extracts X X X X X X X X Extracts X X X X ..... other sources" instead of business income. 3. The Assessing Officer has erred in making addition of Rs. 3,65,00,326/-in respect of provision for income tax recoverable from Gujarat Electricity Board and Essar Steel Ltd. while computing normal income under the Act as well as computing book profit u/s. 115JB of the Act. 4. The Assessing Officer has erred in disallowing Rs.43,39,710/-, being depreciation claimed on the major overhauling expenditure capitalized in A.Y. 2003-04. 5. The Assessing Officer has erred in disallowing Rs.6,53,14,500/- u/s. 14A of the Act read with Rule 8D while computing normal income under the Act and adding the same while determining book profit u/s. 115JB of the Act. 6. The Assessing Officer has erred in disallowing Rs.3,04,65,754/-, being interest expenditure claimed under section 36(l)(iii) of the Act. 7. The learned Assessing Officer has erred in initiating penalty proceedings under section 271(l)(c) of the Act. 3. The ld. Counsel of the assessee has submitted an additional ground also which reads as under: 1. The order passed by the Assessing Officer u/s. 144C r.w.s 143(3) of the Act dated 16.01.2015 in conformity with the direction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 31.12.2013 received by Assessing Officer. The Assessing Officer had time to pass consequential order till 28.02.2014 as per s. 144C(13) r.w.s. 143(3) of the Act 2. 29.01.2014 Order of the Hon'ble Bombay High Court directing the Assessing Officer not to pass the final assessment order till disposal of Writ petition. The Assessing Officer had a further time of 30 days to pass the consequential order as per s. 144C(13) r.w.s. 143(3) of the Act. 3. 18.11.2014 Order of the Hon'ble Bombay High Court directing the Assessing Officer to pass the final assessment order after deleting the transfer pricing adjustment on issue of equity shares. 4. 18.12.2014 Time limit for passing order u/s. 144C(13) r.w.s 143(3) of the Act expired being 30 days from 18.11.2014 5. 16.01.2015 Order passed u/s. 144C(13) r.w.s. 143(3) of the Act by the Assessing Officer. 6. In this connection, the ld. Counsel of the assessee relies on the case laws as under: 1. Honda Trading Corporation vs. Dy. CIT in ITA No.1132/Del/2015 dated 15.09.2015 (Delhi-Trib) 2. Mahindra & Mahindra Ltd. vs. Dy. CIT [2009] 30 SOT 374 (Mum-SB) 7. Per contra, the ld. Departmental Representative (DR) has submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase may be; or (ii) where, in the case of a firm, an assessment is made on a partner of the firm in consequence of an assessment made on the firm under section 147, on or before the expiry of twelve months from the end of the month in which the assessment order in the case of the firm is passed. 10. Now in this case, it is the contention of the ld. Counsel of the assessee that the original direction of DRP was dated 30.12.2013. As per section 144C(13), the A.O. had one month from the end of the month in which such direction was received to pass the order. However, the Hon'ble Bombay High Court on 29.01.2014 directed the A.O. not to pass the final assessment order. On 18.11.2014, the Hon'ble Bombay High Court directed the A.O. to pass the final assessment order after deleting the transfer pricing adjustment. Now it is the contention of the assessee that period of one month as mandated u/s. 144C(13) commenced from the date of passing of the Hon'ble Bombay High Court dated 18.11.2014. Thus according to the ld. Counsel of the assessee, the A.O. had time limit upto 18.12.2014, i.e., within 30 days from 18.11.2014 to pass the assessment order. Since the assessment order wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing provision but is a machinery provision to arrive at ALP of a transaction between Associated Enterprises; and (v) Chapter X of the Act does not change the character of the receipts but only permits re-quantification of income uninfluenced by the relationship between the Associated Enterprises". 5) Mr, Tejveer Singh, learned Counsel appearing for the Revenue very fairly states that the issue arising in the present petition stands covered in favour of the petitioner by the decision of this Court in Vodafone-IV. 6) This Court by an order dated 29 January 2014 had restrained the Assessing Officer from acting further in pursuance of the impugned order dated 31 December 2013 passed by the DRP. The above stay continues till today. Thus, no final assessment order has been passed till date. 7) In view of the above, the directions of the DRP to tax short fall in consideration received on the basis of the ALP receivable on the issue of Equity shares to Associated Enterprises are set aside. The Assessing Officer is directed to pass the final assessment order on the above basis. 12. A reading of the above order of the Hon'ble High Court reveals that the Hon'ble High Court has ordere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der passed by the Assessing Officer is well within the time limit mandated as per section 153(6) of the Act. Hence, the additional ground raised by the assessee stands dismissed. 14. The ld. counsel of the assessee relies upon the decision of ITAT Delhi Bench decision in the case of Honda Trading Corporation (supra) and Mahindra & Mahindra Ltd. vs. DCIT 30 SOT 374. Both are not applicable on the facts of the case. In those cases, there was no order from the Hon'ble High Court with reference to which the time limit was to be computed. Hence, this case is distinguishable from these two decisions. 15. On merits of the issues raised in this appeal, the ld. Counsel of the assessee has submitted that majority of the issues raised are already covered except the ground relating to disallowances of interest expenditure u/s. 36(1)(1) amounting to Rs.3,04,65,754/-. The ld. Departmental Representative does not dispute this proposition. The ld. Counsel has submitted following chart for ready reference: Gr. No. Issue Amount (Rs.) A.O. DRP Remarks Page No. Page No. 1 General 2 Directing the A.O. to treat interest income on 5 41 Issue at Sr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel of the assessee, the interest mentioned in item number (i) and (ii) are covered in favour of the assessee by the decision of the tribunal in assessee's own case mentioned above. 19. The ld. DR did not dispute this proposition. Accordingly, we hold that respectfully following the precedent in assessee's own case, these interest incomes mentioned in item number (i) and (ii) above should be treated as income from business. 20. As regards the interest on ICDs and interest on fixed deposits, the ld. Counsel of the assessee fairly conceded that these should be treated as income from other sources. Accordingly, we uphold the order's of the authorities below, confirming the treatment of this interest income as income from other sources. 21. Ground no. 3 relates to the addition for the provision of income tax recoverable from Gujarat Electricity Board and Essar Steel Ltd while computing normal income under the Act as well as computing book profit u/s. 115 JB of the Act. The issue as regards the addition under the normal provisions of the Act is covered against the assessee by the tribunal's order in assessee's own case as mentioned in the chart above. Accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of a Ballarpur Industries Ltd. (supra) as under: By this income tax appeal, the appellant-Department challenges the orders of the Commissioner of Income Tax and the Income Tax Appellate Tribunal, Nagpur. On hearing the learned Counsel for the Department and on a perusal of the impugned orders, it appears that both the Authorities have recorded a clear finding of fact that there was no exempt income earned by the assessee. While holding so, the Authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014, which holds that the expression "does not form part of the total income" in Section 14A of the Income Tax Act, 1961 envisages that there should be an actual receipt of the income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. The Income Tax Appellate Tribunal held that the provisions of Section 14A of the Income Tax Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous year. It is not the case of the Assessing Officer that any actual income was rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, it is noticed that the assessee has given sums aggregating to Rs.59.75 Crore to VPCL on various dates. It is further noticed that the assessee has received ICD of Rs.50 Cr from VPCL on 27.06.2008. The Ledger account of Vadinar Company Ltd. (Advance Towards Equity shares) as appearing in the books of assessee is as under: Posting Date Text Amount Cumm. Balance ADVANCE TOWARDS EQUITY ISSUE OF SHARES Opening Balance 499.780,001.00 499,780,001.00 25.06.2008 VADINAR POWER CO.LIMITEDADV.AGST.EQUITY 110,000,000.00 609,780.001.00 110,000,000.00 03.07.2008 VADINAR POWER CO.LIMITEDADV.AGST.EQUITY 10,000,000.00 619,780,001.00 10,000,000,00 01.09.2008 VADINAR POWER CO.LIMITEDADV.AGST.EQUITY 50,000,000.00 669,780,001.00 50,000,000.00 17.09.2008 VADINAR POWER CO.LIM1TEDADV.AGST.EQUITY 85,000,000.00 754,780,001.00 85,000,000.00 29.09.2008 [email protected] SHARE- TOTAL SH 75478000 (754,780,000.00} 1.00 (754,780,000.00) 27.11.2008 VADINAR POWER CG.LIMITEDADV.AGST.EQUITY 10,000,000.00 10,000,001.00 10,000,000.00 12.01.2009 VADINAR POWER CO.LIMITED- ADV.AGST.EQUITY 150,000,000.00 160,000,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low & outflow -it clearly transpires that the assessee has taken back its own money given to VPCL as 'advance for equity shares' under the garb of 'ICD' and paid an interest of Rs.3.04 Crore on the very same amount @ 8%. There is a direct nexus between the amount given by the assessee to VPCL in the form of 'advance for shares' and the amount taken by the assessee back in the form of 'ICD'. In fact it is the same amount that was given by it to VPCL as advance was routed back to the assessee as ICD. In a way, the assessee is creating the liability of interest on its own money. 10.4 Even otherwise, if it was to be stated that there is no direct nexus between the interest bearing borrowed funds and its utilization for investment purposes as required, it is seen from the perusal of the Balance Sheet of the assessee as on 31.03.2009 that though interest free borrowed funds and own funds exceeded the funds on which the interest was required to be paid, however, own funds (capital) and interest free loans have already been invested in the Fixed Assets and Investments in Shares of its subsidiaries & other companies (other than VPCL) as can be seen from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utilized for the purpose of business. Since the assessee has failed to prove the need to borrow funds from VPC and finally utilize its funds for purchase of shares of VPCL to whom it paid interest, therefore, the interest expense claimed by the assessee cannot be allowed as the assessee has failed to discharge onus lying on him. On this issue, reliance Is also placed on CIT vs. M.S. Venkateshwar [222 ITR 939], the Hon'ble Madras High Court has held that the capital borrowed should not only be invested in the business but should continue to remain in the business. If after investment in the business, the return thereon i.e. sale proceeds to the extent that are not crystallized into profits are diverted elsewhere the interest would not be allowable u/s.36(l)(iii) of the Act. In the case of assessee, the assessee has diverted the mixed funds towards purchase of shares of VPCL, therefore, the facts of the case are also applicable in the case of assessee. 10.8 In the case of AOT, 10(1) v, Landmark Builders P. Ltd. I.T.A. No. 2937/Mum/2Q02, it was held by the Hon'ble ITAT that - "the disallowance of interest as made by the AO was completely in conformity with the principles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f its business cannot be accepted. Entire money in a business entity comes in a common kitty. The monies received as share capital, as term loan, as working capital loan, as sale proceeds etc. do not have any different colour. 10.11 As discussed above the assessee has utilized its common kitty funds in acquiring shares of VPCL (its subsidiary subsequently) from where no business is generated during the year and no income is shown. On the contrary interest expenditure is shown to have been made to the said group company. Thus an amount invested in subsidiary is held to be given for Non Business purpose and without any Commercial Expediency. Considering this the deduction claimed for the interest paid by the assessee is not allowable in view of the decision given by the Hon'ble Supreme Court in the case of M/s 5 A Builders Ltd as reported in 288 JTR 1 (2007). In this case the Apex Court has held that interest paid on borrowed funds is allowable as deduction u/s 36(l)(iii), 37 only if the amounts lent to sister concerns are for the "Purpose of Business" w out of "Commercial Expediency". In view of the above facts the undersigned is not satisfied with the claim of the assessee th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as a natural activity. He submitted that the assessee had adequate own funds to make advance for share issue, no borrowed funds were utilized for this. The ld. Counsel further submitted that he is stating at bar that the loan obtained was utilized for business purposes and he submitted that he had no objection if the matter is remitted to the Assessing Officer to examine this aspect. The ld. Counsel submitted that the assessee had subsequently also received share capital against the advance for share. He submitted that it is not true that money given being advance for share has been received back in the guise of loan. 27. Per contra, the ld. Departmental Representative submitted that the assessee has not submitted any fund flow statement before the authorities below. He submitted that the assessee is having huge amount of unsecured loan which are interest bearing. He submitted that it is clear from the ledger account details hereinabove that it is only the amount which was earlier advanced to the lender company as advance for share, free of interest has been received back as loan (ICD-inter corporate deposit) on which the assessee is paying interest. Hence, the ld. Departmental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the test of the amount having been borrowed, for allowance of interest under section 36(1)(iii). 30. The next issue is whether the amount borrowed was used for business purposes. In this regard, the Assessing Officer has clearly brought on record that no detail whatsoever was given for the utilization of the said borrowed fund. The Assessing Officer has given a finding that the assessee had not at all discharged the onus to explain that the capital was borrowed as well as used for the purpose of business. The Assessing Officer has gone on to mention that the assessee has unnecessarily burdened the business by inter corporate deposit obtained from VPCL. We further note that before ld. Dispute Resolution Panel also the assessee has not produced necessary details or evidence showing that the borrowed funds have been utilized for the purpose of business. This aspect has been clearly mentioned in the direction of the ld. Dispute Resolution Panel wherein it has been categorically stated that the assessee had not shown any evidence in this regard. Before us also the assessee had not submitted any detail to counter this clear finding of the authorities below that there was absence of nec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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