PLUTO SECURITIES PRIVATE LIMITED, MUMBAI v. DEPUTY COMMISSIONER OF INCOME TAX 10(3)(2), MUMBAI

ITA 5872/MUM/2018 | 2015-2016
Pronouncement Date: 04-11-2019 | Result: Allowed

Appeal Details

RSA Number 587219914 RSA 2018
Assessee PAN AAACP8330R
Bench Mumbai
Appeal Number ITA 5872/MUM/2018
Duration Of Justice 1 year(s) 23 day(s)
Appellant PLUTO SECURITIES PRIVATE LIMITED, MUMBAI
Respondent DEPUTY COMMISSIONER OF INCOME TAX 10(3)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 04-11-2019
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted SMC
Tribunal Order Date 04-11-2019
Assessment Year 2015-2016
Appeal Filed On 12-10-2018
Judgment Text
IN THE INCOME-TAX APPELLATE TRIBUNAL C BENCH MUMB AI BEFORE SHRI R.C. SHARMA ACCOUNTANT MEMBER AND SHRI PAWAN SINGH JUDICIAL MEMBER ITA NO. 5872/MUM/2018 (ASSESSMENT YEAR 2015-16 ) M/S PLUTO SECURITIES PRIVATE LTD. L-1/110 THE SUMMIT NEAR SAWAN CLUB VILE PARLE (E) MUMBAI- 400057. PAN: AAACP8330R VS. DCIT CIRCLE- 10(3)(2) ROOM NO. 509 AAYAKAR BHAVAN M.K. ROAD MUMBAI-400020. APPELLANT RESPONDE NT APPELLANT BY : DR. K. SHIVRAM SR ADVOCATE WITH SHRI RAHUL KAKKANI AD VOCATE RESPONDENT BY : SHRI ABI RAMA KARTIKIYEN (DR) DATE OF HEARING : 03.09.2019 DATE OF PRONOUNCEMEN T : 04.11.2019 ORDERUNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH JUDICIAL MEMBER ; 1. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORD ER OF LD. CIT(A)-17 MUMBAI DATED 13.08.2018. IN THE ASSESSMENT ORDER PA SSED UNDER SECTION 143(3) FOR ASSESSMENT YEAR 2015-16. THE ASSESSEE HA S RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LD. HON'BLE COMMISSIONER OF INCOME TAX(A) -1 7 MUMBAI ERRED IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING THE INTEREST EXPENSES AMOUNTING TO 9 50 547/ -WITHOUT APPRECIATING THE FACT THAT TH E APPELLANT COMPANY HAD ACTUALLY PAID INTEREST AS PER THE PREVAILING MARKET RATES. 2. THE LD. HON'BLE COMMISSIONER OF INCOME TAX (A)-1 7 MUMBAI FURTHER ERRED BY ENHANCING SUCH DISALLOWANCE FROM RS.9 50 547/- T O 34 85 340/- BEING INTEREST PAID ON NON-CONVERTIBLE DEBENTURES WITHOUT APPRECIA TING THE FACT THAT APPELLANT COMPANY HAD INVESTED IN FIXED DEPOSITS FROM THE PRO CEEDS RECEIVED FROM ISSUANCE OF NON-CONVERTIBLE DEBENTURES AND THAT THE RE WAS A DIRECT NEXUS ITA NO. 5368 MUM 2018-BHARAT S. KANUNGO. 2 BETWEEN THE SOURCE AND END UTILIZATION OF THE FUNDS RECEIVED BY ISSUING THE NON- CONVERTIBLE DEBENTURES. 3. THE LEARNED CIT(A) FURTHER ERRED IN CONFIRMING T HE ACTION OF THE AO IN DISALLOWING EXPENSES AMOUNTING TO RS.17 04 538/- CL AIMED AGAINST INCOME EARNED FROM FIXED DEPOSITS ON THE GROUNDS THAT THE SAME WERE NOT EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING S UCH INCOME WITHOUT APPRECIATING THE FACT THAT THE APPELLANT COMPANY HA D EXPENDED THE SAID EXPENSES FOR THE PURPOSE OF RUNNING DAY-TO-DAY BUSINESS ACTI VITY AND THE SAME SHOULD BE ALLOWED U/ S 37 OF THE ACT AND THE BUSINESS LOSS SO CREATED SHOULD BE ALLOWED TO BE SET OFF AGAINST INCOME FROM OTHER SOURCES UNDER INTER HEAD ADJUSTMENT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF PROVIDING MAN POWER RECRUITMENT SERVICE S IN GULF COUNTRIES FILED ITS RETURN OF INCOME FOR IMPUGNED ASSESSMENT YEAR (AY) ON 31.03.2016 DECLARING TOTAL INCOME OF RS. 6 11 310/- . THE CASE WAS SELECTED FOR SCRUTINY. DURING THE ASSESSMENT THE A SSESSING OFFICER NOTED THAT ASSESSEE HAS SHOWN BUSINESS INCOME OF RS. 6 34 503/- AND INCOME FROM OTHER SOURCES I.E. INTEREST INCOME OF RS. 58 38 323/-. THE ASSESSEE HAS DEBITED EXPENSES OF RS. 51 90 073/- FROM THE SC HEDULE OF INCOME FROM OTHER SOURCES. THE ASSESSING OFFICER FURTHER NOTED THAT ASSESSEE RECEIVED INTEREST INCOME OF RS. 58 38 323/- AS INTE REST RECEIVED ON FIXED DEPOSITS. THE EXPENSES OF RS. 51 90 073/- WAS CLAIM ED UNDER SECTION 57 OF THE ACT. THE ASSESSEE CLAIMED INTEREST EXPENDITURE OF RS. 34 85 340/-. THE INTEREST EXPENDITURE WAS INCURRED ON ISSUANCE OF NO N-CONVERTIBLE DEBENTURE (NCD) TO DIFFERENT PARTIES @ 16.5%. THE I NTEREST WAS PAID TO RELATED PARTIES WHO WERE DIRECTOR IN THE ASSESSEE -COMPANY AND AS PER THE ITA NO. 5368 MUM 2018-BHARAT S. KANUNGO. 3 VIEW OF ASSESSING OFFICER WAS TREATED AS HIT BY T HE PROVISION OF SECTION 40A(2)(B). ON SHOW-CAUSE NOTICE THE ASSESSEE EXPLA INED THAT A SUM OF RS. 4.25 CRORE WAS RECEIVED BY ASSESSEE ON ACCOUNT OF S ALE OF OFFICE PREMISES DURING THE FINANCIAL YEAR 2013-14. THE ASSESSEE-COM PANY ALSO RAISED FUND OF RS. 4 CRORE BY ISSUING 6.5% NCD DURING THE SAID FINANCIAL YEAR. THE ASSESSEE-COMPANY WAS LOOKING FOR SOME INVESTMEN T OPPORTUNITY HOWEVER DURING THE MEAN TIME RS. 7 CRORE WAS DEPOS ITED WITH THE CO- OPERATIVE BANK WHICH RESULTED INTO EARNING OF INTER EST INCOME ON FIXED DEPOSITS. THE ASSESSEE CLAIMED THAT FUND FROM DEBEN TURE IS UTILIZED IN FIXED DEPOSITS. THEREFORE RESULTANT INTEREST SHOUL D BE ALLOWED AGAINST THE INTEREST INCOME OF FIXED DEPOSIT. THE EXPLANATION F URNISHED BY ASSESSEE WAS NOT ACCEPTED BY THE ASSESSING OFFICER. THE ASSE SSING OFFICER TOOK HIS VIEW THAT THE ASSESSEE PAID EXCESS INTEREST I.E. 4 .5% AND ACCORDINGLY MADE A DISALLOWANCE OF RS. 9 50 547/-. THE ASSESSING OFF ICER ALSO DISALLOWED RS. 17 04 733/- WHICH WAS CLAIMED AS EXPENSES AGAIN ST THE INTEREST INCOME BY TAKING VIEW THAT NO NEXUS HAS BEEN ESTABL ISHED OF THESE EXPENSES AGAINST THE INTEREST INCOME. THESE EXPENSE S CONSIST OF ELECTRICITY EXPENSES BANK CHARGES SUNDRY EXPENSES AND MEDICL AIM FOR STAFF MISCELLANEOUS EXPENSES WRITTEN OFF AND REMUNERATION TO DIRECTORS. ON APPEAL BEFORE THE LD. CIT(A) THE DISALLOWANCE OF E XPENSES WAS UPHELD HOWEVER ON DISALLOWANCE OF INTEREST EXPENSES OF RS . 9 50 547/- THE LD. CIT(A) ISSUED NOTICE OF ENHANCEMENT AND AFTER GIVIN G OPPORTUNITY TO THE ITA NO. 5368 MUM 2018-BHARAT S. KANUNGO. 4 ASSESSEE THE ENTIRE INTEREST EXPENSES OF RS. 34 85 340/- CLAIMED BY ASSESSEE WAS DISALLOWED THEREBY MADE FURTHER DISAL LOWANCE BY WAY OF ENHANCEMENT OF RS. 25 34 766/-. THUS AGGRIEVED BY THE ORDER OF LD. CIT(A) THE ASSESSEE HAS FILED THE PRESENT APPEAL B EFORE THIS TRIBUNAL. 3. WE HAVE HEARD THE SUBMISSION OF LD. AUTHORIZED REPR ESENTATIVE (AR) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (D R) FOR THE REVENUE AND PERUSED THE ORDER OF LOWER AUTHORITIES. WE HAVE ALSO DELIBERATED ON VARIOUS CASE LAWS RELIED BY LOWER AUTHORITIES AND T HE REPRESENTATIVE OF THE PARTIES. 4. GROUND NO. 1 & 2 RELATES TO DISALLOWANCE OF INTERES T EXPENSES ON DEBENTURE OF RS. 34 85 340/-. THE LD. AR OF THE ASS ESSEE SUBMITS THAT DURING THE EARLIER ASSESSMENT YEAR I.E. 2014-15 TH E ASSESSEE RAISED RS. 4 CRORE BY ISSUING NCD TO YOGRAJ CHAUHAN YOGRAJ CHAU HAN (HUF) VIJAY YOGRAJ CHAUHAN AND YESHI YOGRAJ CHAUHAN; ALL PERSON S FROM WHOM FUNDS WERE RAISED BY ISSUING NCD WERE SHAREHOLDER AND DIR ECTOR. THE ASSESSEE ALSO RECEIVED RS. 4.25 CRORE ON SALE OF OFFICE PREM ISES IN SEPTEMBER & OCTOBER 2013. THE NCD ISSUED TO VARIOUS PERSONS @ 1 6.5% INTEREST PER ANNUM (P.A.). THE AMOUNT RECEIVED BY WAY OF DEBENTU RE AND OF SALE CONSIDERATION OF OFFICE PREMISES THE ASSESSEE DEPO SITED IT IN FIXED DEPOSITED RS. 7 CRORE @ INTEREST RATE OF 8% WITH BHARAT CO-OPERATIVE BANK OF. DURING THE YEAR THE INTEREST PAID ON DEBE NTURE WAS RS. 34 85 340/-. THE INTEREST EARNED ON FIXED DEPOSITS WAS RS. 58 38 323/-. ITA NO. 5368 MUM 2018-BHARAT S. KANUNGO. 5 THE INTEREST PAID ON DEBENTURE WAS ADJUSTED AGAINST THE INTEREST EARNED ON FIXED DEPOSITS UNDER THE HEAD INCOME FROM OTHER SO URCES. HOWEVER DURING THE NEXT FINANCIAL YEAR 2014-15 THE ASSESSE E COULD NOT FIND SUITABLE PROPERTY AND DECIDED TO REDEEM IT NCD AND PERMANENTLY CLOSED THE TIME DEPOSITS AND RETURN BACK THE MONEY TO THE DEBENTURE HOLDER. THE ASSESSING OFFICER MADE ADDITION OF DIFFERENT OF 4.5 % OF INTEREST EXPENDITURE AND MADE ADDITION OF RS. 9 50 547/-. HO WEVER THE LD. CIT(A) ENHANCE THE DISALLOWANCE BY DISALLOWING ENTIRE INTE REST PAID ON DEBENTURE UNDER SECTION 57 OF THE ACT. 5. THE LD. AR OF THE ASSESSEE SUBMITS THAT IT IS NOT I N DISPUTE THAT THERE IS A DIRECT NEXUS BETWEEN INTEREST EARNED ON FIXED DEPOS IT AND INTEREST PAID ON DEBENTURE AS AMOUNTS RECEIVED PURSUANT TO ISSUE OF DEBENTURE KEPT IN FIXED DEPOSIT AND THE ASSESSEE IS ENTITLED FOR INTEREST E XPENSES. THE ASSESSEE MADE INVESTMENT FOR THE PURPOSE OF EARNING INTEREST INCOME. THE SIMILAR INTEREST EXPENDITURE WAS ALLOWED IN EARLIER ASSESSM ENT YEARS IN THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2014-15 PASSED UNDER SECTION 143(3) DATED 02.12.2016. THE LD. AR OF THE ASSESSE E PLACED ON RECORD THE COPY OF ASSESSMENT ORDER DATED 02.12.2016. THE LD. AR OF THE ASSESSEE ALSO FILED THE COPY OF REPLY FILED BEFORE THE ASSES SING OFFICER DURING THE ASSESSMENT OF ASSESSMENT YEAR 2014-15 WHEREIN SIMI LAR ISSUE WAS EXAMINED. THE LD. AR FURTHER SUBMITS THAT CASE LAW RELIED BY LD. CIT(A) IN SHREE MAHESHWAR HYDEL POWER CORPORATION LTD. [2018] 96 TAXMANN.COM ITA NO. 5368 MUM 2018-BHARAT S. KANUNGO. 6 167 (BOM. HC) CIT VS. DR. V.P. GOPINATHAN [2001] 2 48 ITR 449 (SC) SMT. PADMAVATI JAI KRISHNA V. ADDL. CIT [1987] 166 ITR 176 (SC) POONA CLUB LTD. [2018] 90 TAXMAN.COM 422 (PUNE TRIB.) ARE NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. 6. IN SUPPORT OF HIS SUBMISSION THE LD. AR OF THE ASS ESSEE RELIED UPON THE DECISION OF TRIBUNAL IN TRIUMPH INTERNATIONAL FINAN CE INDIA LTD. VS. ACIT [2016] 161 ITD 464 (MUM. TRIB.) AND CIT VS. RAJEND RA PRASAD MOODY [1978] 115 ITR 519 (SC). 7. ON THE OTHER HAND THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF LD. CIT(A) THE LD. DR FURTHER SUBMITS THAT THE EXPENDI TURE CLAIMED BY ASSESSEE UNDER SECTION 57 DOES NOT FULFIL THE CONDI TION OF THE SAID PROVISION AND ACCORDINGLY THE ENTIRE CLAIM WAS LIAB LE TO BE DISALLOWED WHICH WAS RIGHTLY DISALLOWED BY LD. CIT(A). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDER OF AUTHORITIES BELOW. THE ASSESSI NG OFFICER DURING THE ASSESSMENT DISALLOWED THE INTEREST EXPENDITURE OF R S. 9 50 547/- BY TAKING VIEW THAT THE INTEREST PAID BY ASSESSEE WAS EXCESSI VE AND UNREASONABLE. THE ASSESSING OFFICER DISALLOWED 4.5% OF THE INTERE ST PAID BY ASSESSEE TO THE DIRECTOR/DEBENTURE HOLDERS AND WORKED OUT THE D ISALLOWANCE OF RS. 9 50 547/-. THE ASSESSEE CHALLENGED THE DISALLOWANC E BEFORE LD CIT(A). THE LD. CIT(A) ISSUED THE NOTICE ON ENHANCEMENT. WH ILE ISSUING THE NOTICE OF ENHANCEMENT THE LD CIT(A) NOTED THAT RATE OF INTEREST ON FIXED ITA NO. 5368 MUM 2018-BHARAT S. KANUNGO. 7 DEPOSITS WAS 8% AND THERE IS NO CLARITY ON THE DIF FERENTIAL RATE OF INTEREST. ONCE AN EXPENDITURE IS EXAMINED ON THE FOUNDATION OF PROVISION OF SECTION 57(II) AND FOUND THAT IT DOES NOT QUALIFY T HE CONDITION STIPULATED IN THE PROVISIONS THEN ENTIRE CLAIM IS TO BE DISALLOW ED AND NOT THE DIFFERENTIAL RATE OF INTEREST. THE ASSESSEE IN RES PONSE TO THE SAID SHOW CAUSE NOTICE FILED ITS REPLY DATED 10 TH AUGUST 2018. IN THE REPLY THE ASSESSEE CONTENDED THAT DURING FINANCIAL YEAR 2013- 14 THE ASSESSEE HAD RECEIVED RS. 4.25 CRORE ON SALE OF OFFICE PREMISES IN THE MONTH OF SEPTEMBER AND OCTOBER 2013. THE ASSESSEE FURTHER RA ISED 4 CRORE BY ISSUING 16.5% NONCONVERTIBLE DEBENTURES IN THE MONT H OF JULY AND OCTOBER 2013. THE ASSESSEE WAS LOOKING TO REINVEST THE SAID SALE CONSIDERATION IN A NEW PROPERTY. HOWEVER SINCE FIN DING A GOOD INVESTMENT WAS DIFFICULT AND TIME CONSUMING THE AS SESSEE HAD PERMANENTLY MADE TIME DEPOSIT WITH BHARAT CO-OPERAT IVE BANK FOR AN AMOUNT OF 7 CRORE IN THE MONTH OF OCTOBER 13. HOWEVER IN TH E NEXT FINANCIAL YEAR 2014-15 ASSESSEE COMPANY COULD NOT F IND ANY SUITABLE PROPERTY IT DECIDED TO REDEEM ITS NONCONVERTIBLE D EBENTURES. LIST OF THE ASSESSEE ITS TIME DEPOSIT IN FINANCIAL YEAR 2014-1 5 AND RETURN BACK THE MONEY TO THE DEBENTURE HOLDERS. THE ASSESSEE ALSO F URNISHED THE DETAILS WORKING OF INTEREST EXPENSES AGAINST THE INCOME EAR NED ON SUCH DEPOSIT. THE ASSESSEE ALSO FURNISHED THE EXTRACT OF BANK STA TEMENT SHOWING THE CORRESPONDING DEBIT AND CREDIT ENTRIES. THE ASSESSE E EXPLAINED THAT OUT OF ITA NO. 5368 MUM 2018-BHARAT S. KANUNGO. 8 RS. 4 CRORE RAISED THROUGH ISSUING NON-CONVERTIBLE DEBENTURES OF RS. 3.10 CRORE WAS UTILISED FOR MAKING THE FIXED DEPOSITS AN D THEREFORE THE ENTIRE INTEREST ON SUCH NONCONVERTIBLE DEBENTURES SHOULD B E ALLOWED TO BE CLAIMED AS DEDUCTION AGAINST THE INTEREST FROM FIXE D DEPOSITS. THE ASSESSEE FURTHER EXPLAINED THAT REMAINING GROUP IN RS. 90 LA KHS WAS UTILISED BY THE ASSESSEE FOR THE PURPOSE OF RUNNING ITS DAY TO DAY ACTIVITIES AND CLAIM THAT INTEREST ON SAME SHOULD BE ALLOWED AS INTEREST EXPE NDITURE UNDER SECTION 36(1)(III). THE ASSESSEE CLAIMED THAT ALARMING INTE REST EXPENDITURE UNDER SECTION 57(III) AND ALLOWING THE SAME UNDER SECTION 36(III) WOULD NOT HAVE ANY IMPACT ON THE TAX AS THE SAME WOULD BE ALLOWED TO GET SET OFF. AND THE ENTIRE EXERCISE WOULD BE A TAX NEUTRAL. 9. THE REPLY OF ASSESSEE WAS NOT ACCEPTED BY LEARNED C IT(A). THE LEARNED CIT(A) CONCLUDED THAT THE ASSESSEE HAD MADE ATTEMPT TO SHOW THAT THE FUNDS WHICH WERE ISSUANCE OF NON-CONVERTIBLE DEBENT URES HAVE BEEN INVESTED IN FIXED DEPOSIT. THE ASSESSEE CLAIMED THA T RS. 90 LAKHS WAS UTILISED BY THE ASSESSEE FOR THE PURPOSE OF EARNING ITS DAY TO DAY ACTIVITIES AND THEREFORE INTEREST ON THE SAME SHOULD BE ALLOWE D AS INTEREST UNDER SECTION 36(1)(III) OF THE ACT. THE LEARNED CIT(A) F URTHER CONCLUDED THAT THE SCOPE OF ALLOWANCE OF EXPENDITURE UNDER SECTION 57( III) IS MUCH NARROW. UNLIKE 37(1) WHICH TALKS ABOUT EXPENDITURE INCURRED WHOLLY AND EXCLUSIVE FOR THE PURPOSE OF BUSINESS WHEREAS SECTION 57(III ) REF IS TO THOSE EXPENDITURE WHICH HAVE BEEN INCURRED WHOLLY AND EXC LUSIVELY FOR THE ITA NO. 5368 MUM 2018-BHARAT S. KANUNGO. 9 PURPOSE OF EARNING THAT INCOME. MAKING OF FIXED DEP OSIT WAS NOTED IN OUTCOME OF ISSUANCE OF NON-CONVERTIBLE DEBENTURES A T THE RATE OF 16.5 PERCENT. THE NONCONVERTIBLE DEBENTURES WERE ISSUED FOR THE FUNDS FOR NORMAL BUSINESS ACTIVITIES OR PLAY AND ACTIVITIES. ANY ALLOWANCE FROM INCOME FROM OTHER SOURCES HAS TO BE EXAMINED UNDE R THE PARAMETERS OF SECTION 57(III) OF THE ACT AND ACCORDINGLY ENHANCED THE DISALLOWANCE FROM RS. 9 50 547/- TO RS. 34 85 340/-. THE LD. CIT(A) W HILE DISALLOWING THE ENTIRE INTEREST EXPENSES RELIED UPON THE DECISION O F SHREE MAHESHWAR HYDEL POWER CORPORATION LTD. (SUPRA) CIT VS. DR. V .P. GOPINATHAN (SUPRA) SMT. PADMAVATI JAI KRISHNA V. ADDL. CIT (S UPRA) & POONA CLUB LTD.(SUPRA). 10. DURING THE ASSESSMENT THE ASSESSING OFFICER DISALL OWED RS. 9 50 547/- BY TAKING VIEW THAT THE INTEREST PAID ON DEBENTURE @16 .5% IS UNREASONABLE. THE ASSESSING OFFICER DISALLOWED 4.5% OF INTEREST A ND WORKED OUT THE DISALLOWANCE OF RS. 9 50 547/-. HOWEVER THE LD. CI T(A) WHILE CONSIDERING THE SUBMISSION OF ASSESSEE ON DISALLOWA NCE MADE BY ASSESSING OFFICER ISSUED NOTICE OF ENHANCEMENT THA T NON-CONVERTIBLE DEBENTURE WAS ISSUED FOR THE FUNDS FOR NORMAL BUSIN ESS ACTIVITIES OR PLANNED ACTIVITIES HAS TO BE EXAMINED UNDER THE PAR AMETERS OF SECTION 57(III). WE HAVE NOTED THAT THE ASSESSEE HAS FILED DETAILED REPLY DATED 10.08.2018 BEFORE THE LD. CIT(A) IN RESPONSE TO TH E SHOW-CAUSE NOTICE OF ENHANCEMENT DATED 20.07.2018. IN THE REPLY THE ASS ESSEE SPECIFICALLY ITA NO. 5368 MUM 2018-BHARAT S. KANUNGO. 10 STATED THAT RS. 4 CRORE RECEIVED ON ACCOUNT OF NON- CONVERTIBLE DEBENTURE WAS UTILIZED FOR MAKING FDS. THE ASSESSEE ALSO STAT ED THAT ALLOWANCE UNDER SECTION 57(III) AND/OR UNDER SECTION 36(1)(II I) WOULD NOT HAVE ANY IMPACT ON THE TAX AND THE ENTIRE EXERCISE WOULD BE A TAX NEUTRAL. THE LD. CIT(A) HAVE NOT EXAMINED NOR GAVE ANY FINDING ON TH E AFORESAID PLEA OF THE ASSESSEE. THE ASSESSEE ALSO FURNISHED DETAILED WORKING OF THE FIXED DEPOSITS (FDS) AND THE INTEREST PAID ON NON-CONVERT IBLE DEBENTURE TO VARIOUS PARTIES/DIRECTORS. IN OUR VIEW FOR ALLOWABI LITY OF EXPENDITURE UNDER SECTION 57(III) THE EXPENSES MUST HAVE BEEN INCURR ED SOLELY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INCOME. THE EXPENDITURE SHOULD NOT BE IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES AND SHOULD BE INCURRED IN THE ACCOUNTING YEAR. THERE MUST BE A CL EAR NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE INCOME SOUGHT TO BE EA RNED. THE DOMINANT PURPOSE OF EXPENDITURE INCURRED MUST BE TO EARN INC OME. THE ASSESSEE THROUGHOUT THE PROCEEDING TOOK THE STAND THAT THEY HAVE SOLD AN OFFICE PREMISES IN THE MONTH OF SEPTEMBER OCTOBER 2013 AN D RECEIVED RS. 4.25 CRORE. THE ASSESSEE ALSO RAISED RS. 5 CRORE BY ISSU ING NON-CONVERTIBLE DEBENTURE. THE ASSESSEE-COMPANY WAS LOOKING TO REIN VEST THE SALE CONSIDERATION AND THE AMOUNT RECEIVED ON DEBENTURE TO PURCHASE A NEW PROPERTY AND THAT THE FUNDS WERE TEMPORARILY PARKED IN A FDS. THE ASSESSEE ALSO STATED THAT THEY COULD NOT FIND THE S UITABLE PROPERTY AND DECIDED TO REDEEM ITS NON-CONVERTIBLE DEBENTURES AN D RETURNED BACK THE ITA NO. 5368 MUM 2018-BHARAT S. KANUNGO. 11 MONEY TO THE DEBENTURE HOLDERS. IN OUR VIEW THE DE POSITS ON WHICH INTEREST WAS EARNED AND THE INTEREST ON NON-CONVERT IBLE DEBENTURE HAVE DIRECT NEXUS. 11. THE HONBLE SUPREME COURT IN CIT VS. RAJENDRA PRASA D MODY (SUPRA) HELD THAT EXPENDITURE UNDER SECTION 57(III) MUST BE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING IN COME. IT IS THE PURPOSE OF EXPENDITURE THAT IS RELEVANT IN DETERMINING THE APPLICABILITY OF SECTION 57(III) ANT THAT PURPOSE MUST BE OF MAKING OR EARNI NG OF INCOME. SECTION 57(III) DOES NOT REQUIRE THAT THIS PURPOSE MUST BE FULFILLED IN ORDER TO QUALIFY THE EXPENDITURE FOR DEDUCTION. IT DOES NOT SAY THAT EXPENDITURE SHALL BE DEDUCTIBLE ONLY IF AN INCOME IS MADE OR EA RNED. THE PLAIN NATURAL CONSTRUCTION OF LANGUAGE OF SECTION 57(III) IRRESIS TIBLY LEADS TO THE CONCLUSION THAT TO BRING THE CASE WITHIN THE SECTIO N IT IS NOT NECESSARY THAT ANY INCOME SHOULD INFACT HAVE BEEN EARNED AS A RESU LT OF EXPENDITURE. THEREFORE IN VIEW OF THE AFORESAID DISCUSSION WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE IS ENTITLED FOR THE DEDUCTIO N OF ENTIRE AMOUNT OF RS. 34 85 340/-. 12. THE CASE LAW RELIED BY LD. DR FOR THE REVENUE ARE B ASED ON DIFFERENT FACTS. IN SHREE MAHESHWAR HYDEL POWER CORPORATION LTD. (SU PRA) THE ISSUE WAS WHETHER THE INTEREST EARNED ON THE DEPOSIT CAN BE C APITALIZED WHICH IS NOT ISSUE IN THE PRESENT CASE. IN THE PRESENT CASE THE ISSUE IS ALLOWABILITY OF EXPENSES AGAINST THE INTEREST INCOME. IN CIT VS. DR . V.P. GOPINATHAN ITA NO. 5368 MUM 2018-BHARAT S. KANUNGO. 12 (SUPRA) THE ISSUE WAS WHETHER INTEREST PAID ON MON EY BORROWED BY KEEPING FDR AS SECURITY CAN BE ADJUST AGAINST THE I NCOME FROM FDR. IT WAS HELD THAT THERE IS NO NEXUS BETWEEN THE INCOME EARNED ON FDS AND INTEREST PAID ON BORROWED BY KEEPING THOSE FDS AS S ECURITY. THUS THE FACTS IN THE SAID CASE ARE DIFFERENT FROM THE PRESE NT CASE. IN PADMAVATI VS. JAI KRISHNA (SUPRA) THE FACTS WERE COMPLETELY DIFF ERENT. IN SAID CASE ASSESSEE TOOK LOAN TO MEET HER PERSONAL LIABILITY O F PAYMENT OF INCOME-TAX AND WEALTH TAX WHICH DOES NOT QUALIFY THE CONDITIO NS UNDER SECTION 57. IN POONA CLUB (SUPRA) THE ASSESSEE CLAIMED OPERATING EXPENSES AND REPAIR AGAINST THE INTEREST ON FDR KEPT OUT OF MEMBERSHIP FEES. HENCE THERE WAS NO NEXUS BETWEEN THE EXPENSES AND THE INTEREST EARN ED. IN THE RESULT THE GROUND NO.1 & 2 OF THE APPEAL ARE ALLOWED. 13. GROUND NO.3 RELATES TO DISALLOWANCE OF EXPENSES OF RS. 17 04 538/-. THE LD. AR OF THE ASSESSEE SUBMITS THAT THE ASSESSEE-CO MPANY IS ENGAGED IN THE BUSINESS OF MAN POWER RECRUITMENT SERVICES IN T HE GULF COUNTRIES FOR WHICH THE ASSESSEE IS EARNING HANDLING CHARGES AND SERVICE CHARGES. THE ASSESSING OFFICER DISALLOWED THE EXPENSES BY TAKING VIEW THAT THE SAME IS NOT ALLOWABLE AS DEDUCTION UNDER SECTION 57(III). T HE ASSESSEE BEFORE THE ASSESSING OFFICER REQUESTED TO ALLOW THE SAID EXPEN SES UNDER SECTION 37 STATING THEREIN THAT THE EXPENSES WERE WRONGLY CLAI MED UNDER SECTION 57. THE LD. CIT(A) HELD THAT EXPENSES CANNOT BE ALLOWED UNDER SECTION 57. NO FINDING WAS GIVEN AS TO WHY SAID EXPENSES CANNOT BE ALLOWED UNDER ITA NO. 5368 MUM 2018-BHARAT S. KANUNGO. 13 SECTION 37. THE LD. AR OF THE ASSESSEE SUBMITS THAT THE ASSESSEE CARRIED ITS BUSINESS DURING THE RELEVANT PERIOD AND THE ASSESSE E IS ENTITLED FOR ALLOWANCE OF EXPENSES UNDER SECTION 37. IN SUPPORT OF HIS SUBMISSION THE LD. AR OF THE ASSESSEE RELIED UPON THE DECISION OF TRIBUNAL IN SHRI SARANG R. WADHAWAN VS. ACIT IN ITA NO. 2990/MUM/2016 DATED 18.02.2019 WHEREIN IT WAS HELD THAT EXPENSES ARE NOT ALLOWABLE UNDER SECTION 57 THE ALLOWABILITY OF THE SAME SHOULD BE ALTERNATIVELY CO NSIDERED UNDER SECTION 37. 14. IN ALTERNATIVE SUBMISSION THE LD. AR OF THE ASSESS EE SUBMITS THAT EXPENSES INCURRED ARE OF NORMAL BUSINESS EXPENDITURE OF THE CORPORATE ENTITY AND ARE ALLOWABLE AS BUSINESS EXPENDITURE. IN SUPPORT OF HI S SUBMISSION THE LD. AR OF THE ASSESSEE RELIED ON THE DECISION OF HONBL E BOMBAY HIGH COURT IN CIBA OF INDIA LTD. VS. CIT [1993] 202 ITR 1 (BOM . HC) AND DY.CIT VS. OZONELAND AGRO P. LTD. [2018] 64 ITR (TRIB.) 6 (MUM.TRIB). 15. ON THE OTHER HAND THE LD. DEPARTMENTAL REPRESENTA TIVE (DR) FOR THE REVENUE SUPPORTED THE ORDER OF LOWER AUTHORITIES. T HE LD. DR FURTHER SUBMITS THAT IN CASE THE TRIBUNAL DEEM IT APPROPRI ATE TO CONSIDER THE ALLOWANCE UNDER SECTION 37 IN THAT EVENTUALITY THE ISSUE MAY BE RESTORED BACK TO THE FILE OF ASSESSING OFFICER FOR VERIFICAT ION OF FACT AND TO DECIDE IT FOR DECISION AFRESH. 16. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE REPR ESENTATIVES AND HAVE GONE THROUGH THE ORDERS OF LOWER AUTHORITIES. THE A SSESSING OFFICER ITA NO. 5368 MUM 2018-BHARAT S. KANUNGO. 14 DISALLOWED THE EXPENSES AS THE SAME IS NOT ADMISSIB LE UNDER SECTION 57. THE LD. CIT(A) CONFIRMED THE ACTION OF ASSESSING OF FICER BY TAKING VIEW THAT THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED A ND THAT THE CASE IS SQUARELY IDENTICAL TO THE FACTS OF DECISION OF HON BLE SUPREME COURT IN TUTICORIN ALKALI CHEMICAL (227 ITR 127). 17. WE HAVE NOTED THAT NEITHER THE ASSESSING OFFICER NO R THE LD. CIT(A) CONSIDERED THE ALTERNATIVE CLAIM FOR CONSIDERATION OF EXPENSES UNDER SECTION 37. ADMITTEDLY THE CLAIM OF ASSESSEE FOR DE DUCTION UNDER SECTION 57 IS NOT ADMISSIBLE AS IT DOES NOT FULFIL THE COND ITION PRESCRIBED UNDER SECTION 57(III). HOWEVER CONSIDERING THE SUBMISSIO N OF ASSESSEE THAT ASSESSEE IS A CORPORATE ENTITY AND INCURRED CERTAIN EXPENSES WHICH CONSIST OF ELECTRICITY EXPENSES BANK CHARGES SUNDRY EXPEN SES MEDICLAIM FOR STAFF MISCELLANEOUS EXPENSES WRITTEN OFF AND REMUN ERATION TO DIRECTORS WHICH WERE INCURRED FOR THE PURPOSE OF BUSINESS. TH EREFORE WE RESTORED THIS GROUND TO THE FILE OF ASSESSING OFFICER TO VER IFY THE EXPENSES AND PASS THE ORDER IN ACCORDANCE WITH LAW. HENCE THIS GROUN D OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 18. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04/11/2019. SD/- SD/- R.C. SHARMA PAWAN SINGH ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI DATE: 04.11.2019 SK COPY OF THE ORDER FORWARDED TO : ITA NO. 5368 MUM 2018-BHARAT S. KANUNGO. 15 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR C BENCH ITAT MUMBAI 6. GUARD FILE BY ORDER DY./ASST. REGISTRAR ITAT MUMBAI