M/s. Bumi Hiway India Pvt. Ltd., New Delhi V. DCIT, New Delhi

CO 239/DEL/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 1545 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 12 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 12-05-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 30-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S D KAPILA
• Keywords: Transfer pricing; Business expenditure; Corroborative evidences; TDS
• Section: 37(1); 201; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A, NEW DELHI BEFORE SH. AMIT SHUKLA, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER ITA NO. 3131/DEL/2016 : ASSTT. YEAR : 2010-11 ITA NO. 3132/DEL/2016 : ASSTT. YEAR : 20 11-12 DCIT, CIRCLE-5(1), NEW DELHI VS BUMI HIWAY INDIA PVT. LTD., A-1/292, PHANKHA ROAD, JANAKPURI, NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AABCB5995M CO NO. 239/DEL/2016 : ASSTT. YEAR : 2010-11 CO NO. 240/DEL/2016 : ASSTT. YEAR : 201 1-12 BUMI HIWAY INDIA PVT. LTD., A-1/292, PHANKHA ROAD, JANAKPURI, NEW DELHI VS DCIT, CIRCLE-5(1), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AABCB5995M ASSESSEE BY : SH. S. D. KAPILA, ADV. REVENUE BY : SH. RAJESH KUMAR, SR. DR DATE OF HEAR ING: 20 . 02 .20 20 DATE OF PRONOUNCEMENT: 12 .0 5 .20 20 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEALS BY THE REVENUE AND THE CROSS OBJECTIONS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS OF THE LD. CIT(A)-14, NEW DELHI DATED 23.03.2016. ITA NOS. 3131 & 3132/DEL/2016 CO NOS. 239 & 240/DEL/2016 BUMI HIWAY INDIA PVT. LTD. 2 2. SINCE, THE ISSUES INVOLVED IN BOTH THE APPEALS A ND THE CROSS OBJECTIONS ARE COMMON, THEY WERE HEARD TOGETH ER. 3. IN ITA NO. 3131/DEL/2016, FOLLOWING GROUNDS HAVE BEEN RAISED BY THE DEPARTMENT: 1. ON THE BASIS OF THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HA S ERRED IN DELETING THE 50% ADDITION OF RS.4,70,59,275/- ON ACCOUNT OF ADDITION MADE AFTER DISALLOWING OF INTEREST ON WORKING CAPITAL, WITHOUT APPRECIATING THE FACT THAT ASSESSEE ITSELF HAD FAIL ED TO PROVE THAT THE SAID INTEREST CLAIMED ON WORKING CAPITAL WAS UTILIZED WHOLLY & EXCLUSIVELY FOR BUSIN ESS PURPOSE AND ALSO NO TDS WAS DEDUCTED ON THE SAID INTEREST PAYMENT. 4. IN CO NO. 239/DEL/2016, FOLLOWING GROUNDS HAVE B EEN RAISED BY THE ASSESSEE: 1. THAT THE LD. CIT (APPEAL) ERRED IN LAW IN UPHOLDING THE 50% OF DISALLOWANCE MADE BY THE APPELLANT TOWARDS INTEREST ON WORKING CAPITAL OF RS 4,70,59,275/- WITHOUT APPLYING HIS MIND TO THE MERITS OF THE CASE, AND ON AD-HOC BASIS AS NOT BEIN G INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE RESPONDENT. THE SAID PAYMENT IS MERE REIMBURSEMENT OF EXPENDITURE AND AT ARMS LENGTH PRICE AND IS FULLY ALLOWABLE U/S 37(1) OF TH E IT ACT. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT (A) ERRED IN LAW IN UPHOLDING THE DISALLOWANCE OF BANK CHARGES OF RS 29,23,003/- WITHOUT APPLYING HIS MIND TO THE MERITS OF THE CASE AND ON AN AD-HOC BASIS. THE SAID EXPENDITURE REPRESENTS LEGITIMATE BUSINESS EXPENDITURE AND IS FULLY ALLOWABLE U/S 37(1) OF THE ACT. ITA NOS. 3131 & 3132/DEL/2016 CO NOS. 239 & 240/DEL/2016 BUMI HIWAY INDIA PVT. LTD. 3 DISALLOWANCE OF INTEREST ON WORKING CAPITAL: 5. DURING THE YEAR THE ASSESSEE COMPANY CLAIMED INT EREST ON WORKING CAPITAL TO THE TUNE OF RS.4,70,59,275/- (AN D FE LOSSES). THE AO HELD THAT THESE EXPENSES WERE NOT INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AS THE ASSE SSEE COMPANY HAS INVESTED IN STPL EQUITY AT RS.42,50,00, 000/- WHICH IS MORE THAN TO THE LOAN AMOUNT ON WHICH THE INTEREST ON WORKING CAPITAL HAS BEEN CLAIMED BY THE ASSESSEE. I N VIEW OF THIS INTEREST CLAIMED AMOUNTING TO RS.4,70,59,275/- IS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSE SSEE. DISALLOWANCE OF BANK CHARGES: 6. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY CLAIMED BANK CHARGES TO THE TUNE OF RS.58,46,006/-. AS THE ASSESSEE HAS NOT BEEN ABLE TO PROVE THAT THESE EXPE NSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THE AO HAS DISALLOWED 50% OF THESE EXPENSES AMOUNTING T O RS.29,23,003/-. 7. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE THE L D. CIT (A) WHO RESTRICTED THE DISALLOWANCE ON ACCOUNT OF INTER EST TO 50%. THE REVENUE IS IN APPEAL AGAINST RESTRICTING DISALL OWANCE TO 50% AND THE ASSESSEE IS IN CO FOR CONFIRMING 50% OF THE DISALLOWANCE ON INTEREST AND AGAINST CONFIRMING THE 50% OF THE BANK CHARGES. ITA NOS. 3131 & 3132/DEL/2016 CO NOS. 239 & 240/DEL/2016 BUMI HIWAY INDIA PVT. LTD. 4 8. A COMPLETE BACKGROUND OF THE ISSUE IS AS UNDER: 9. THE ASSESSEE IS PRIMARILY ENGAGED IN CONSTRUCTIO N OF HIGHWAYS AND INFRASTRUCTURE DEVELOPMENT ON SUBCONTR ACT BASIS IN INDIA, PROMOTED BY ITS MALAYSIAN ASSOCIATED ENTE RPRISE, BUMI HIWAY (M) SDN. BHD. DURING THE F.Y. 2009-10 RELEVAN T TO A.Y. 2010-11, ITS 99.61% OF SHARES WERE HELD BY BUMI HIW AY (MAURITIUS) ONLY 0.39% SHARES WERE HELD BY BUMI HIW AY (M) SDN. BHD. THE ASSESSEE FILED RETURN OF INCOME ON OC TOBER 12, 2010 DECLARING A LOSS OF RS 4,74,69,436/-. 10. THE AO DISALLOWED INTEREST ON WORKING CAPITAL O F RS 4,70,59,275, HOLDING IT AS NON BUSINESS EXPENDITURE U/S 37 OF THE ACT. THE ADDITION WAS MADE MAINLY ON THE GROUND S THAT NO SUPPORTING EVIDENCE HAS NOT BEEN SUBMITTED TO PROVE THAT EXPENDITURE INCURRED WERE WHOLLY AND EXCLUSIVELY FO R BUSINESS PURPOSE AND INVESTMENT IN EQUITY OF STPL IS EQUAL T O WORKING CAPITAL LOAN ON WHICH INTEREST HAS BEEN CLAIMED. T HE AO TREATED THE ENTIRE LOAN AMOUNT AS INVESTMENT IN EQU ITY OF STPL. 11. BEFORE THE LD. CIT (A), IT WAS SUBMITTED THAT T HE ASSESSEE AVAILED CREDIT FACILITIES/LOAN FROM BANK OF NOVA SC OTIA, NEW DELHI, (BNS) DURING THE FINANCIAL YEAR 2001-02, W HICH WAS UTILIZED FOR MEETING THE WORKING CAPITAL REQUIREMEN TS OF ITS VARIOUS PROJECT OFFICES IN INDIA. THE SAID BANK LOA N WAS ADEQUATELY GUARANTEED BY THE STANDBY LETTER OF CRED ITS (SBLCS) ISSUED BY MALAYSIAN BANK I.E. CIMB BANK O N BEHALF OF THE ULTIMATE HOLDING COMPANY I.E. BUMI HIWAY VENTUR ES BERHAD (BHV). SUBSEQUENTLY, DURING FY 2006-07, CIMB BANK RESTRUCTURED ITS GUARANTEES BY OFFERING A LOAN BNV FOR RE- ITA NOS. 3131 & 3132/DEL/2016 CO NOS. 239 & 240/DEL/2016 BUMI HIWAY INDIA PVT. LTD. 5 FINANCING THE LOAN AVAILED BY ASSESSEE FOR GRANTED TO BHV WAS FURTHER ADVANCED TO APPELLANT COMPANY TO SETTLE ITS BNS LOAN. 12. IN OTHER WORDS, DURING FINANCIAL YEAR 2006-07, THE ASSESSEE RECEIVED ADVANCES FROM BHV IN ORDER TO REP AY ITS BANK LOAN. THESE ADVANCES WERE ARRANGED BY BHV FROM ITS BANKER IN MALAYSIA, CIMB BANK ON WHICH INTEREST CHARGES WERE PAID BY BHV. THE ACTUAL INTEREST PAID BY THE BHV ON THE AFO RESAID LOAN PROCURED FROM CIMB BANK WAS SUBSEQUENTLY RECHARGED BY COMPANY ON COST TO COST BASIS, WITHOUT CHARGING ANY MARK UP. IT WAS ARGUED BEFORE THE LD. CIT (A) THAT THE WORKI NG CAPITAL TERM LOAN WAS UTILIZED FOR DAY-TO-DAY EXPENDITURE O F THE BUSINESS, THE INTEREST CLAIMED AS BUSINESS EXPENDIT URE HAS TO BE ALLOWED. 13. THE LD. CIT (A) HELD THAT THE MAJOR PORTION OF THE LOAN AMOUNT WAS UTILIZED FOR INVESTMENT IN SWARNA TOLL W AY PRIVATE LTD'S EQUITY AND AS REGARDS CLAIM FOR INVESTMENT IN THE VIJAYWADA, ORISSA AND JALLANDHAR PROJECT, THE ASSES SEE FAILED TO FURNISH ANY DOCUMENTARY EVIDENCE BEFORE THE AO, IN THE ABSENCE OF WHICH IT WAS HELD BY HIM THAT THE MAJORI TY AMOUNT OF LOAN IS TREATED AS UTILIZED FOR INVESTMENT IN THE E QUITY FUNDS WHICH CANNOT BE TREATED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND, THEREFORE, RESTRICTED THE DISALLOW ANCES OF 50% OF THE SAID CHARGES ON SIMILAR GROUNDS. 14. BEFORE US DURING THE ARGUMENTS, IT WAS BROUGHT TO OUR NOTICE THAT THE SIMILAR ISSUE STANDS COVERED AGAINS T THE REVENUE IN THE EARLIER YEAR IN ITA NO.5871/DEL/2013 FOR THE ASSESSMENT ITA NOS. 3131 & 3132/DEL/2016 CO NOS. 239 & 240/DEL/2016 BUMI HIWAY INDIA PVT. LTD. 6 YEAR 2009-10. HENCE, THE APPEAL OF THE REVENUE IS H EREBY DISMISSED. 15. REGARDING THE CROSS OBJECTIONS OF THE ASSESSEE, THE MATTER IS BEING REFERRED TO THE FILE ASSESSING OFFICER FOR VERIFICATION OFTHE UTILIZATION OF THE LOAN FOR BUSINESS PURPOS E BY TAKING INTO ACCOUNT THE AMOUNT OF THE LOAN RAISED, THE QUA NTUM OF THE OWN CAPITAL AND THE RESERVES & SURPLUS, UTILIZATION OF THE AMOUNT FOR DAY-TO-DAY RUNNING OF THE BUSINESS AND U TILIZATION OF THE AMOUNT FOR INVESTMENT IN THE EQUITY SHARES OF T HE SUBSIDIARY COMPANY OR THE AMOUNT INVESTED FOR INFUSION OF THE CAPITAL IN ANY OTHER COMPANY. THE AO MAY THEN TAKE A CONSIDER ED DECISION WITH REGARD TO DISALLOWANCE OF INTEREST ON LOAN AND BANK CHARGES IN ACCORDANCE WITH THE PROVISIONS OF T HE INCOME TAX ACT. 16. IN THE RESULT, THE APPEALS OF THE REVENUE ARE D ISMISSED AND THE CROSS OBJECTIONS OF THE ASSESSEE ARE ALLOWED FO R STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 12/05/2020. SD/- SD/- (AMIT SHUKLA) (DR. B. R. R. KUMAR) JUDICIAL MEMBER ACCOUNT ANT MEMBER DATED: 12/05/2020 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR