, `'
INCOME TAX APPELLATE TRIBUNAL MUMBAI - `I' BENCH MUMBAI
[^ ,Û / Û],
Before S/Sh.Vijaypal Rao,Judicial Member & Rajendra,Accountant Member
/.ITA No. 2690/M/2011, [ [/ Assessment Year 1997-98
Indian Express Property Ltd. DCIT 3(2)
Express Towers, Nariman Point, Vs. 6th Floor, Aayakar,
Mumbai- 400021 Mumbai.
PAN: AAACI2838R
(/ Appellant) (×/ Respondent)
/.ITA No. 2692/M/2011, [ [/ Assessment Year 2001-02
Indian Express Property Ltd. DCIT 3(2)
Express Towers, Nariman Point, 6th Floor, Aayakar,
Mumbai- 400021 Vs. Mumbai.
PAN: AAACI2838R
(/ Appellant) (×/ Respondent)
/ Appellant by : Shri V.Mohan
× /Respondent by : Shri Pitamber Das
/ Date of Hearing : 01-05-2014
/ Date of Pronouncement : 01- 05- 2014
, 1961 ( 1 ) 254 Û[
Order u/s.254(1)of the Income-tax Act,1961(Act)
Per Rajendra,A.M:
Challenging the order dated10.01.2011of the CIT(A)-7,Mumbai,assessee-company has filed
appeals for the above referred two Assessment Years(AY.s)raising identical Grounds of Appeal.
Grounds of appeal for the year 1997-98 read as under:
1.On the facts and in the circumstances of the case, the Learned CIT (A) erred in confirming the
disallowance of interest of Rs. 9,23,148/-.
2.Appellant craves leave to amend or alter the existing Ground or add further Ground at the time
of hearing.
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Following are the grounds for the AY.2001-02:
1. On the facts and in the circumstances of the case, the Learned CIT (A) erred in confirming the
disallowance of interest of Rs. 1,59,99,452/-.
2. Appellant craves leave to amend or alter the existing Ground or add further Ground at the time
of hearing.
ITA/2960/M/2011-AY.1997-98:Brief facts and history:
2.Effective Ground of appeal pertains to disallowance of interest expenditure of Rs.9,23,148/-.
Assessee-company,had filed its return of income declaring net loss of Rs.30,05,061/-.Assessing
officer(AO)finalised the assessment order u/s.143(3) of the Act,on 15.03.2000.During the
assessment proceedings,AO found that the assessee had claimed deduction under the heads
interest expenditure and discounting charges.It was argued before him that rent receivable from
the sub tenants was discounted upfront by the payment of the discounting charges and advancing
interest-free loan to the holding company i.e. Indian Express Newspapers Ltd.(IENL).He disallo-
wed the discounting charges on the basis that interest bearing funds were utilised for the purpose
of advancing interest-freeloans which were totally unconnected with assessee's business,that
expenditure was not incurred wholly and exclusively for the purpose of the business,that same
was not allowable either under section 37(1) or under section 36(1 )(iii) of the Act.Against the
order of the AO,assessee preferred an appeal before the First Appeal Authority (FAA).After
considering the submissions of the assessee and the assessment order,he dismissed the appeal
filed by the assessee
Thereafter the assessee carried the matter in appeal before the Tribunal and vide its order dated
17.08.2004(ITA/4484/M/01)it restored the matter to the file of the FAA.In his order dated 30.08.
2005,he worked out the nexus between interest and non interest bearing funds available with the
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assessee that were used for advancing interest-free loans to IENL.He held that an amount of Rs.
10,71,038 was allowable as deduction while Rs.9,23,143/- was required to be disallowed. Cross-
appeals were filed by the assessee and the AO against the order of the Tribunal.In the
consolidated order dated 22.09.2208(ITA No.6444/M/05,ITA/6734/M/05-AY. and ITA/6735/M/
05-AY. 2001 -02)Tribunal held as under:
9.We have heard both the sides and perused the record of the case.In our opinions the facts have
to be reexamined in the light of the decision of the Hon'ble Supreme Court in the case of S.A.
Builders(supra) wherein it has been held as under:
"In order to decide whether interest on funds borrowed by the assessee to give an interest free
loan to a sister concern, should be allowed as a deduction u/s. 36(1)(vii)of the I. T. Act,1961, one
has to enquire whether the loan was given by the assessee as a measure of commercial
expediency.The expression "commercial expediency" is one of wide importance and includes
such expenditure as a prudent businessman it incurs for the purpose of business.The expenditure
may not have been incurred under any legal obligation, but yet it is allowable as business
expenditure if it was incurred on grounds of commercial expediency,"
Respectfully following the decision of the Hon'ble Supreme Court in the case of S.A. Builders
(supra),we restore the issue to the file of the Assessing Officer for both the assessment years
under appeal with the following directions:
1) To examine the facts in the light of decision in the case of S.A. Builders (cited
supra). While so examining, he will also examine, as rightly submitted by
Learned DR., the utilization of funds by borrower also in order to reach correct
conclusion.
2) If there is mixed up funds then the disallowance be made proportionately in the
ratio of interest bearing to non interest bearing funds."
Thus,the matter stood restored to the file of the AO for framing the assessment order on the basis
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of the directions given in this behalf by the ITAT.In the proceedings before the AO assessee
made detailed submissions.After perusing the same,the AO held that interest free loans were
advanced to IENB were not in the ambit of commercial expediency,that the lease agreement
entered by the assessee company with IENB was a business agreement ,that all the commitments
as per the lease agreement were fulfilled by the assessee-company and after having done so it
went on reducing the interest burden of IENB, that interest amount paid over and above the lease
agreement was not allowable,that the entire money borrowed from HDFC was directly provided
to IENB by HDFC,that as per the loan agreement IENB was the borrower and the assessee was
the confirming party,that the amount was not advanced by the assessee company from its own
fund,that issue of non interest bearing fund and interest bearing find had no relevance to decide
the tax liability of the assessee.
2.1.Order of the AO was challenged before the FAA.Deciding the appeal against the assessee,he
held that AO had considered the submissions of the assessee and had also examined the
applicability of the decision of the Hon'ble Apex Court.He agreed with the conclusion with the
observation and conclusion made by the AO,that the AO had given effect to the order of the
ITAT properly.
2.2.Before us,Authorised Representative (AR) submitted that holding company was facing
financial hardship,that loans were advanced to holding company,that there was commercial
expediency in the transaction entered in to by the holding company and the assessee,that AO/FAA
not looked into the commercial expediency aspect,that issue of utilisation of mixed funds in the
ratio of interest bearing to non-interest bearing fund was not considered by both the authorities,
that assessee had 76.03 % non-interest bearing funds with it during the year under appeal, that
interest bearing funds from the HDFC were diverted to the holding company.He referred to page
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no.5 and 15 of the paper book.Departmental Representative (DR) supported the order of the FAA.
2.3.We have heard the rival submissions and perused the material before us.We find that
assessee had acquired certain floors on lease in Express Towers belonging to IENL and gave
them on sub-lease to various tenants,that in the computation of income it disallowed an amount
of Rs.48,77,641/-being interest on the amount borrowed from HDFC under section 43B of the
Act,that the balance interest of Rs.1,28,465 and rent discounting charges of Rs.19,94,186/- was
claimed as deduction.FAA in his order dated 30.08.2005 had worked out the nexus between
interest bearing and non- interest bearing funds available with the assessee that were advanced to
IENL and had held that certain portion of the interest expenditure was allowable.We further find
that ITAT in its order (supra) had specifically directed the AO to look in to the issue of
utilisation of funds and to consider the commercial expediency angle before reaching at final
conclusion.AO was specifically directed to make disallowance proportionately in ratio of interest
bearing to non-interest bearing funds, if assessee had mixed funds.We find that while passing the
order giving effect to the order of the ITAT,AO has observed that issue of disallowance to be
made proportionately had no relevance with regard to commercial expediency.We also find that
the AO had not deliberated upon the financial hardship of the holding company and relevant
material.In the appeal filed by the assessee,before the FAA,it was specifically mentioned that AO
had not adhered to directions of the Tribiunal,that disallowance out of interest payment and
discounting charges was not warranted. Deciding the appeal against the assessee, FAA had held
that he agreed with the observations and conclusions made by the AO in the assessment order.
We find that he has not given any finding on commercial expediency as well as issue of interest
bearing/non-interest bearing funds.Whin specific grounds against the order of the AO were taken
before him, it was the duty of the FAA to pass a speaking order.
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2.3.a.It is said reason is the soul of law and when reason of any particular law ceases,so does the
law. In State of West Bengal v. Atul Krishna Shaw,AIR 1990 SC 2205,the Apex court has held
that that giving of reasons is an essential element of administration of justice.A right to reason is,
therefore, considered an indispensable part of sound system of judicial review.The principles of
natural justice has twin ingredients ;firstly, the person who is likely to be adversely affected by
the action of the authorities can be given notice to show cause thereof and granted an opportunity
of hearing and,secondly, the orders so passed by the authorities should give reason for arriving at
any conclusion showing proper application of mind.Violation of either of them could, in the
given facts and circumstances of the case,vitiate the order itself.In the matter of GEC Alsthom
India Ltd.Hon'ble Madras High Court (361ITR304)has summarised the principles of recording
of reasons as under:
(a) In India the judicial trend has always been to record reasons, even in administrative decisions,
if such decisions affect anyone pre-judicially.
(b)A quasi-judicial authority must record reasons in support of its conclusions.
(c)Insistence on recording of reasons is meant to serve the wider principle of justice that justice
must not only be done it must also appear to be done as well.
(d)Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of
judicial and quasi-judicial or even administrative power.
(e)Reasons reassure that discretion has been exercised by the decision-maker on relevant grounds
and by disregarding extraneous considerations.
(f)Reasons have virtually become as indispensable a component of a decision-making process as
observing principles of natural justice by judicial, quasi-judicial and even by administrative
bodies.
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(g)Reasons facilitate the process of judicial review by superior courts.
(h)The ongoing judicial trend in all countries committed to rule of law and constitutional
governance is in favour of reasoned decisions based on relevant facts. This is virtually the
lifeblood of judicial decision-making justifying the principle that reason is the soul of justice.
(i)Judicial or even quasi-judicial opinions these days can be as different as the judges and authori
-ties who deliver them. All these decisions serve one common purpose which is to demonstrate
by reason that the relevant factors have been objectively considered. This is important for
sustaining the litigants' faith in the justice delivery system.
(j)Insistence on reason is a requirement for both judicial account-ability and transparency.
(k)If a judge or a quasi-judicial authority is not candid enough about his/her decision-making
process then it is impossible to know whether the person deciding is faithful to the doctrine of
precedent or to principles of incrementalism.
(l)Reasons in support of decisions must be cogent, clear and succinct.A pretence of reasons or
'rubber-stamp reasons' is not to be equated with a valid decision-making process.
(m)It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial
powers.Transparency in decision-making not only makes the judges and decision-makers less
prone to errors but also makes them subject to broader scrutiny
(n)Since the requirement to record reasons emanates from the broad doctrine of fairness in
decision-making, the said requirement is now virtually a component of human rights.
(o)In all common law jurisdictions judgments play a vital role in setting up precedents for the
future.Therefore, for development of law, requirement of giving reasons for the decision is of the
essence and is virtually a part of 'due process'.
In view of the above discussion we are of the opinion that an order without reasons is as good as
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no order.Order of the FAA,challenged before us,is an order that falls in the category of non
speaking order i.e.the order not mentioning the reasons for arriving at a conclusion.By endorsing
the view of the AO;that the issue of non interest bearing fund and interest bearing find had no
relevance to decide the tax liability of the assessee;FAA has proved that his order contains
rubber stamp reason.Tribunal had specifically given directions in this regard and it was the third
time the same issue was before him.It was expected that he would take notice of the percentage
of availability of funds and decide the issue.But,he simply endorsed the order of the AO,who
according to us has failed to understand the directions of the Tribunal in proper prospective.
As the order of the FAA does not reveal the reasons for upholding the order of the AO, therefore,
in the interest of justice,we are sending back the matter to the file of the FAA for fresh
adjudication, he is directed to pass speaking and reasoned order, following the direction of the
ITAT and decide the issue afresh. He is directed to afford a reasonable opportunity of hearing to
the assessee.
Effective ground of appeal is decided in favour of the assessee.
ITA/2062/M/2011-AY.2001-02:
3.During the AY.under consideration also assessee had given certain properties on sub-lease to
tenants that were taken on lease from IENL.Return of income was filed declaring loss of Rs.1.88
Crores including interest payment,to HDFC,amounting to Rs.1.59 Crores.AO disallowed the
claim of interest made by the assessee,holding that interest bearing funds were utilised for the
purpose of advancing interest free loans.Rest of the facts are identical to the facts for the
AY.1997-98 mentioned in earlier part of our order.
FAA vide his order dated 10.01.2011,held that following the order for the AY.1997-98 he was
dismissing the appeal filed by the assessee for the year under consideration also.
8
Following our order for the AY.1997-98,we are restoring the matter to the file of the FAA for
fresh adjudication.Appeal filed by the assessee is allowed in part.
As a result,appeals filed by the assessee for both the AYs. stand partly allowed.
[ [ .
Order pronounced in the open court on 1st,May,2014.
Û 1 ,2014
Sd/- Sd/-
( / VIJAY PAL RAO) (Û] /RAJENDRA)
Û /JUDICIAL MEMBER /ACCOUNTANT MEMBER
/Mumbai,/Date: .01.05.2014
SK
/Copy of the Order forwarded to :
1. Assessee / 2. Respondent /×
3. The concerned CIT (A) / , 4.The concerned CIT /
5. DR "I" Bench, ITAT, Mumbai / ,..Û.
6. Guard File/[
× //True Copy//
/ BY ORDER,
/ Dy./Asst. Registrar
, /ITAT, Mumbai
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