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TMI Blog2013 (10) TMI 379X X X X Extracts X X X X X X X X Extracts X X X X ..... lated to the business of the assessee. The said expenses were duly supported by the vouchers as observed by the CIT(A) in his order. But since these expenses were incurred by M/s. Sahara India, so the vouchers were in possession of that firm and that the assessee after having satisfied itself about the correctness of these expenses had accepted the debit note of M/s. Sahara India and credited in their account the amount by issuing debit vouchers - No doubt was raised about the genuineness of the said expenditure. When the expenses were incurred wholly and exclusively for the purpose of the business, the same are allowable - AO made the addition on estimate basis. The first appellate authority as well as Tribunal restricted the same on estimate basis. The estimation is a question of law, as per the ratio laid down in the following cases s.a. New Plaza Restaurant vs. ITO, [2008 (7) TMI 260 - HIMACHAL PRADESH HIGH COURT] and Sanjay Oil Cake vs. CIT, [2008 (3) TMI 323 - GUJARAT HIGH COURT]- Decided against the Revenue. Addition of Notional Interest – Held that:- M/s. Sahara India is the collecting agent not only of the assessee but also of various other companies. As per MoU, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of the case, the Hon'ble ITAT erred in law in deleting the addition of Rs.4,38,91,176/- made by the Assessing Officer by restricting the expenses claimed by the respondent as paid/reimbursed to its agent M/s. Sahara India to 3% of the total deposits collected, without appreciating that the memorandum of understanding between the respondent and M/s. Sahara India was only a colourable device resorted to defraud the revenue and that necessary details to prove that the expenses had been incurred wholly and exclusively for the business purposes could not be furnished by the respondent. 2. Whether in view of the facts and in the circumstances of the case, the Hon'ble ITAT erred in law in deleting the aforesaid addition of Rs.4,38,91,176/- without appreciating that mere issue of debit notes by M/s Sahara India did not amount to discharge of onus by the respondent that expenses as mentioned in the debit note had been incurred wholly and exclusively for the business purposes specially when no supporting details were supplied by the respondent. 3. Whether in view of the facts and in the circumstances of the case, the Hon'ble ITAT erred in law in deleting the aforesaid addition of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Appeal No. 185 of 2005:- "1. Whether the transfer of investors' deposit to the tune of 18 to 20% by the respondent-Assessee, M/s. Sahara India Ltd. as agent's money, amounts to colourable exercise of power and accordingly, the addition made by the Assessing Officer restricting the investment to 3% was correct and the deletion of the said amount by the appellate authority is substantially illegal, being non application of mind to the facts, circumstances and evidence on record? 2. Whether the order passed by the Appellate Tribunal is substantially illegal being non-speaking, perverse and based on unfounded facts ?" On 06.02.2006, another Coordinate Bench of this Court has admitted the Appeal No.56 of 2006 on the following substantial questions of law:- "1. Whether in view of the facts and in the circumstances of the case, the Hon'ble ITAT erred in law in deleting the addition of Rs.4,80,45,534/- made by the Assessing Officer by restricting the expenses claimed by the respondent as paid/reimbursed to its agent M/s. Sahara India to 3% of the total deposits collected, without appreciating that the memorandum of understanding between the respondent and M/s. Sahara India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee company has entered into an agreement with M/s. Sahara India, a partnership firm constituted in January 1982 with the head office at Lucknow to collect the funds. M/s. Sahara India has developed/built-up a large infrastructure throughout the country. At the relevant time, it has various well equipped 1000 establishments spread all over the country with expert manpower. M/s. Sahara India has developed sufficient expertise for promoting business of savings and finance. As per agreement between the assessee company and M/s. Sahara India dated 01.01.1991, M/s. Sahara India shall works as agent to the assessee company for collecting money, leading money, supply of receipts and documents and communicating various schemes and proposals launched by the assessee company from time to time. M/s. Sahara India was also authorized to collect the requisite amount from the members for its savings schemes and the so collected amount through its branches shall be send it to the assessee company. M/s. Sahara India shall submit to the assessee company, the statement of account or such other information as the company may require. For this purpose, the expenses were paid. During the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sufficient to prove that the payments had infact ever been made to M/s. Sahara India. However, the Tribunal by order dated 30.06.1998 has allowed "operational expenditure" at 4.5% as against the 3% applied by the Assessing Officer. However, on a miscellaneous application by the assessee against the said order dated 30.06.1998, the Tribunal has recalled the said order vide a subsequent order dated 14.02.2000. The said order of recall dated 14.02.2000 has been challenged by the Department and is presently pending before the Hon'ble Allahabad High Court, Allahabad interalia on the ground that the Tribunal does not have the power to recall its own order. Further, it was observed by the Assessing Officer that while different sister concerns of the Sahara Group had similar MoUs for appointing M/s. Sahara India as their sole collection agent, the percentage of expenses paid to M/s. Sahara India by the said concerns were considerably less than the 18.85% paid by the assessee. Therefore, the Assessing Officer, in his wisdom, has applied the test of reasonableness and fixed 3% as reasonable expenses since the same percentage had been paid/reimbursed by a sister concern of the assessee, bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (v) Goetze (India) Ltd. vs. Commissioner of Income-Tax, [2006] 284 ITR 323 (SC); (vi) Commissioner of Income-Tax vs. Pruthvi Brokers and Shareholders P. Ltd., [2012] 349 ITR 336 (Bom); (vii) Commissioner of Income-Tax vs. Jai Parabolic Springs Ltd., [2008] 306 ITR 42 (Del); (viii) Commissioner of Income-Tax vs. Escorts Auto Components Ltd., [2010] 323 ITR 11 (P H); and (ix) Smt. Raj Rani Gulati vs. Commissioner of Income-Tax, [2012] 346 ITR 543 (All); Lastly, he made a request that all the appeals filed by the Department may kindly be dismissed. After hearing both the parties and on perusal of the record, it appears that assessee company is a mutual benefit company duly registered with the Central Government carrying on business of mobilization of deposits from the general public at large. It is making investments in accordance with N.B.F.C. Directives issued by the Reserve Bank of India, which have to be mandatorily followed by the assessee company. M/s. Sahara India firm was having the infrastructure throughout the country and this infrastructure was used for collection of the funds on behalf of the assessee company. This infrastructure also includes skilled staff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellate authority for the reasons mentioned therein. Thus, the first issue is decided in favour of the assessee and against the revenue. The second issue is pertaining to the payment of interest. The Assessing Officer observed in its order that the assessee had taken a loan from M/s. Sahara India Firm as working capital on which no interest was charged. It was also observed that the interest pertaining to the funds of the assessee were utilized for non-business purpose by advancing the free loan to the sister concern. Therefore, the AO had observed that the interest on the borrowing to the extent of interest not charged on the interest free loan given to M/s. Sahara India is not allowable. So, he charged the interest @ 24% per annum. Finally, the AO has observed that the interest paid on the borrowing to the extent of interest not charged will have to be added to the income of the assessee. However, the first appellate authority as well as Tribunal have deleted the addition. Being aggrieved, the Department is before this Court. Sri D.D. Chopra, learned counsel for the Department, at the strength of written submission, submits that it was observed by the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt judgment of this Hon'ble Court in Commissioner of Income Tax vs. Smt. Swapna Roy, 331 ITR 367, wherein this Hon'ble Court has concluded that - "The condition precedent to avail of the benefit of Section 57(iii) of the Act is that the investment must be proper and justified. Proper investment means correct investment with intention to earn profit. Where there was no question of any income from the source against which the interest on the borrowed funds could be set off, the interest paid by the company on borrowed funds could not be allowed as deduction either under Section 36(1)(iii) or under Section 57(iii) of the Act." The above mentioned decision of this Hon'ble Court applies squarely to the present matter, both on similarity of facts and on the question of law involved. A similar view has consistently been adopted by the High Courts of Madras, Bombay and Gujarat as well while interpreting the nature and scope of allowing tax benefit under Section 57(iii) of the Act. The same are reported as CIT vs. Sujani Textiles Pvt. Ltd., 151 ITR 653, CIT vs. Amritaben R. Shah, 238 ITR 777 and Sarabhai Sons vs. CIT, 201 ITR 464. Therefore, in view of the fact that the whole nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruction Co. Pvt. Ltd. vs. Commissioner of Income-tax, [1993] 199 ITR 702 (supra); and India Finance Construction Co. Pvt. Ltd. vs. B.N. Panda, Deputy Commissioner of Income-Tax Anr., [1993] 200 ITR 710. Lastly, he made a request that the appeals may kindly be dismissed. After hearing both the parties and on perusal of the record, it appears that as per the Memorandum of Understanding, M/s. Sahara India had incurred the total expenditure by including the items like bad debts, depreciation, deferred revenue expenses, interest paid on schemes, interest paid to companies for delayed transmission of funds and debit balance of schemes, because these expenses had nothing to do with the business of above companies. From the record, it appears that as per the MoU, the assessee's business has certainly increased manifold. The MoU was signed on 01.01.1991 (F.Y. 1990-91) and in the first nine months, the assessee's total collection was more than Rs.4.38 crores. In the financial year 1992-93, the collection was more than Rs.26 crores. This all shows that the assessee's signing of MoU with M/s. Sahara India was not for any extra-business consideration and that the assessee has certainl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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