TaxTMI 
TaxTMI 
2013 (10) TMI 379
X X X X Extracts X X X X
X X X X Extracts X X X X
....ors' 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 01.04.2008, a Coordinate Bench of this Court has admitted the Appeal No.185 of 2005, on the following substantial question 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.4,38,91,176/- 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 necessa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rrendered its income of its directors, employees and other sister concerns of the Sahara Group and that the said arrangement between the respondent and its directors, employees and sister concerns was only a colourable device entered into by them to defraud the revenue. 6. Whether in view of the facts and in the circumstances of the case, the Hon'ble ITAT erred in law in holding that even though the revised return filed by the assessee was invalid, the claim made therein in regard to the sum of Rs.1,10,30,490/- could not be ignored as the respondent was entitled to make claim of expenses any time before the completion of the assessment. On 23.03.2010, a Coordinate Bench of this Court has framed the following substantial questions of law 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,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s and circumstances of the cases, viz., first issue is pertaining to the addition on expenditure; and the second issue is pertaining to the interest. The brief facts of the case are that the assessee company was incorporated with a view to engage itself in the financial business by encouraging saving habits among its members and accordingly to accept deposits from its members only. The said transactions will not in any manner and shall not carry on the way be in violation to the provisions Banking Regulations Act, 1949 and Price Chits & Money Circulations Scheme (Banning) Act, 1978. As the members of the company are scattered all over the country and company cannot established its infrastructure throughout the country, so, the assessee 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 sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to about 18.85% of the collection made during the year. Therefore, no benefit can legitimately accrue to the assessee as an "operational expenses" under the Act. Learned counsel also submits that the Tribunal has ignored the facts apparent on record and the finding of the Assessing Officer that the assessee had entered into an MoU with M/s. Sahara India whereby the latter had agreed to act as a collection agent for the assessee. The assessee has relied on the said MoU to justify the "operational expenses" paid to M/s. Sahara India and has claimed the same to be wholly and exclusively for the purpose of the business of the assessee. However, the Assessing Officer has found that the documents produced by the assessee were insufficient 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 cha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d unreasonable does not arise and further no basis has been recorded by the Assessing Officer that the expenditure is in excess of 3% of the deposits mobilized has to be disallowed. In support of the aforesaid submission, counsel for the respondent had placed reliance on the ratio laid down in the following cases :- (i) Jwala Prasad Radha Krishna vs. Commissioner of India Tax, [1992] 198 ITR 415; (ii) Highways Construction Co. Pvt. Ltd. vs. Commissioner of Income-tax, [1993] 199 ITR 702; (iii) India Finance & Construction Co. Pvt. Ltd. vs. B.N. Panda, Deputy Commissioner of Income-Tax & Anr., [1993] 200 ITR 710; (iv) Universal Subscription Agency P. Ltd. vs. Joint Commissioner of Income-Tax, [2007] 293 ITR 244; (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 ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed. Thus, unless a case has been made out that the payment was not genuine and what was borrowed was not true then there is no scope for any interference. Moreover, the 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 :- (i) Commissioner (Custom) vs. Stoneman Marble, (2011) 2 SCC 758; (ii) Vijay K. Talwar vs. CIT, (2011) 1 SCC 673; (iii) New Plaza Restaurant vs. ITO, 309 ITR 259 (HP); and (iv) Sanjay Oil Cake vs. CIT, 316 ITR 274 (Gujarat). Hence, no question of law is emerging from the impugned order. Therefore, we upheld the order 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 ad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....doned/surrendered its income in favour of its sister concern and agent M/s. Sahara India by not charging any interest on the balance of Rs.23,30,78,196/-. It is also a submission of the learned counsel for the Department that while the assessee was claiming deductions on loans taken, it was not charging any interest from its sister firm in respect of the loans/advances it had allowed forward. Therefore, the Assessing Officer has rightly applied an interest of 18% on the amount due and made an addition of Rs.34,96,173/- to the taxable income of the assessee. Further, learned counsel for the appellant-department submits that the impugned order suffers from material infirmity in the light of the recent 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 pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee along with other entities in the group. There is no dispute that the amount outstanding as on 31.03.1992 is less than two months deposits mobilized. It is therefore, clear that there is no advancement of funds by the assessee to the agent without interest. The whole case of the Assessing Officer is that the assessee ought to have charged interest on the amount outstanding from the firm and on a failure on the part of the assessee to do so, it was upon to him to make a notional addition @ 18%, which is not desirable in law. For this purpose he relied on the ratio laid down in the case of Jwala Prasad Radha Krishna vs. Commissioner of India Tax, [1992] 198 ITR 415 (supra); Highways Construction 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, ....