Appeal details
Counselvise Citation
114222514 RSA 2014
Assessee PAN
Bench
Appeal Number
Duration Of Justice
6 month(s) 24 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
31-12-2014
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
24-12-2014
Assessment Year
2010-2011
Appeal Filed On
06-06-2014
Judgement Text
ITA NOS.581 656 AND 1142 OF 2014 SKS MICROFINANCE LTD HYDERABAD PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH , HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND S MT.ASHA VIJAYARAGHAVAN , JUDICIAL MEMBER IT A NO . 581 / HYD /20 1 4 ( ASSESSMENT YEAR: 2009 - 1 0 ) DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRC LE 3(2) HYDERABAD VS. M/S SKS MICROFINANCE LTD (FORMERLY KNOWN AS SKS MICROFINANCE PRIVATE LTD) D.NO.1 - 10 - 60 TO 62, OPP: STOPPER SHOP, BEGUMPET HYDERABAD PAN: AAICS 2940 J (APPELLANT) (RESPONDENT ) ITA NO.656 & 1142 /HYD/2014 (ASSESSMENT YEAR S : 2009 - 1 0 & 2010 - 11 ) M/S SKS MICROFINANCE LTD (FORMERLY KNOWN AS SKS MICROFINANCE PRIVATE LTD) D.NO.1 - 10 - 60 TO 62, OPP: STOPPER SHOP, BEGUMPET HYDERABAD PAN: AAICS 2940 J VS. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 3(2), HYDERABAD (APPELLANT) (RESPON DENT) ASSESSEE BY: SHRI K.C. DEVDAS, CA DEPARTMENT BY: SHRI D. SUDHAKAR RAO , CIT ( DR ) DATE OF HEARING: 24/12 / 2014 DATE OF PRONOUNCEMENT: 31 /12/ 201 4 O R D E R PER P.M. JAGTAP, A .M. OUT OF THESE THR EE APPEALS, TWO APPEALS BEING ITA NO.581 AND 656/HYD/2014 ARE CROSS APPEALS FOR A.Y 2009 - 10 WHICH ARE DIRECTED AGAINST THE ORDER OF THE LD CIT (A) - IV HYDERABAD DATED 10.01.2014, WHILE THE REMAINING THIRD APPEAL IS THE APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF THE LD CIT (A) - IV HYDERABAD DATED 10.04.2014 FOR A.Y 2010 - 11. ITA NOS.581 656 AND 1142 OF 2014 SKS MICROFINANCE LTD HYDERABAD PAGE 2 OF 8 2. BOTH THE APPEALS OF THE ASSESSEE FOR A.Y 2009 - 10 AND 2010 - 11 INVOLVE A COMMON ISSUE RELATING TO DISALLOWANCE OF INTEREST MADE BY THE AO AND CONFIRMED BY THE LD CIT (A) TO THE EXT ENT IT IS ALLEGEDLY ATTRIBUTABLE TO THE LOANS ADVANCED BY THE ASSESSEE TO THE EMPLOYEES WELFARE TRUST. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF MICRO FINANCE LENDING ACTIVITIES FOR PROVIDING FINANCIAL SERVICES TO THE POOR WOMEN IN THE RURAL AREAS OF INDIA. THE RETURNS OF INCOME FOR THE YEARS UNDER CONSIDERATION WERE FILED BY IT ON 26.09.2009 AND 13.09.2010 DECLARING TOTAL INCOME OF ` 133.47 CRORES AND ` 289.24 CRORES FOR A.YS 2009 - 10 AND 2010 - 11 RESPECTIVELY. DUR ING THE COURSE OF THE ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS ADVANCED INTEREST FREE LOANS TO ITS EMPLOYEES WELFARE TRUST AND THE LOANS SO ADVANCED WAS OUTSTANDING AS ON 31.3.09 AND 31.3.2010 TO THE EXTENT OF ` .6,98,13,059/ - A ND ` 8,72,85,811/ - RESPECTIVELY. ACCORDING TO THE AO, THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE TO THE EXTENT APPLICABLE TO THE SAID LOANS WAS LIABLE TO BE DISALLOWED BEING NOT INCURRED FOR THE PURPOSE OF ITS BUSINESS. H E, THEREFORE, REQUIRE D THE ASS ESSEE TO OFFER ITS EXPLANATION IN THE MATTER. IN REPLY , THE FOLLOWING EXPLANATION WAS OFFERED BY THE ASSESSEE: (I) THE COMPANY HAS GIVEN INTEREST FREE LOAN TO SKS MICROFINANCE EMPLOYEES WELFARE TRUST (TRUST) UNDER THE ESPS.THE TRUST HAS BEEN ESTABLISHED EXCLUSIVELY FOR THE BENEFIT OF THE EMPLOYEES OF THE COMPANY. (II) THE TRUST PROVIDES FINANCIAL ASSISTANCE TO EMPLOYEES TO ENABLE THEM TO PURCHASE SHARES OF THE COMPANY UNDER THE EMPLOYEES SHARE PURCHASE SCHEME. (III) IT IS TO BE NOTED THAT THE EMPLOYEE S OF THE COMPANY ARE THE SOLE BENEFICIARIES OF THE TRUST AND NO OTHER. ITA NOS.581 656 AND 1142 OF 2014 SKS MICROFINANCE LTD HYDERABAD PAGE 3 OF 8 (IV) BASED ON THE ABOVE, SUCH INTEREST FREE LOANS ARE ADVANCES SOLELY FOR THE BENEFIT OF THE EMPLOYEES OF THE COMPANIES AND HENCE SUCH EXPENSE SHOULD BE REGARDED AS HAVING BEEN INCURR ED SOLELY AND EXCLUSIVELY FOR BUSINESS PURPOSE. (V) BUSINESS PURPOSE IS VERY WIDE TERM. IT HAS TO BE ASSIGNED A MEANING ACCORDING TO FACTS AND CIRCUMSTANCES, OF EACH CASE AND CANNOT BE ASSIGNED A LIMITED MEANING. IT INCLUDES THE SUM OF MONEY EXPENDED, NO T ONLY OUT OF NECESSITY AND WITH A VIEW OF DIRECT AND IMMEDIATE BENEFIT TO THE TRADE, BUT ALSO VOLUNTARILY AND ON THE GROUND OF BUSINESS EXPEDIENCY. IT ALSO INCLUDES ANY ACT DONE BY THE ASSESSEE IN ORDER TO FACILITATE THE SMOOTH RUNNING OF BUSINESS. THE COMPANY RESPECTFULLY PLACES RELIANCE ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V DALMIA CEMENT (HARAT) LTD (SUPRA) WHEREIN IT WAS HELD THAT: THE TERM COMMERCIAL EXPEDIENCY IS NOT A TERM OF ART. IT MEANS EVERYTHING THAT SERVES T O PROMOTE COMMERCE AND INCLUDES EVERY MEANS SUITABLE TO THAT END. IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY, FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINESS THE REASONABLENESS OF THE EXPENDITU RE HAS TO BE JUDGED FROM THE POINT OF THE BUSINESS AND NOT THE REVENUE. RELIANCE IS PLACED ON THE DECISION OF THE HON'BLE HIGH COURT OF MADRAS IN THE CASE OF CIT VS. KANDAGIRI SPINNING MILLS LTD (2008) (298 ITR 306) WHEREIN IT WAS OBSERVED THAT: THE RE VENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARMCHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE AND REVENUE SHOULD NOT LOOK AT THE MATTER FROM THEIR OWN POINT OF VIEW BUT THAT OF A PRUDENT BUSINESSMAN FURTHER, RELIANCE IS PLACED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD VS. CIT (A) AND ANR (2007) (288 ITR 1) WHEREIN THE ASSESSEE HAS A DVANCED INTEREST FREE LOAN TO ITS SISTER CONCERNS OUT OF BORROWED FUNDS. THE ASSESSEE CLAIMED INTEREST ITA NOS.581 656 AND 1142 OF 2014 SKS MICROFINANCE LTD HYDERABAD PAGE 4 OF 8 ON SUCH FUNDS AS REVENUE EXPEN DITURE ON THE GROUNDS THAT INTEREST FREE LOAN WAS GIVEN TO THE SISTER CONCERN AS A MEASURE OF COMMERCIAL EXPEDIENCY. THE EXPRESSION COMMERCIAL EXPEDIENCY IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESS MAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION BUT YET IT IS ALLOWABLE AS BU SINESS EXPENDITURE IF IT IS INCURRED ON THE GROUNDS OF COMMERCIAL EXPEDIENCY. . THE COMPANY HAS ADVANCED INTEREST FREE LOANS TO THE TRUST TO PROVIDE APPROPRIATE REMUNERATION TO EMPLOYEES OF THE COMPANY AND HENCE SUCH LOAN IS ADVANCED FOR COMMERCIAL AND BUSINESS PURPOSES AND NO INTEREST SHALL BE DISALLOWED DUE TO THE SAME. 4. THE ABOVE EXPLANATION OFFERED BY THE ASSESSEE WAS FOUND TO BE NOT ACCEPTABLE BY THE AO. ACCORDING TO HIM , THE LOAN WAS EXTENDED BY THE ASSESSEE TO EMPLOYEES WELFARE TRUST FOR THE PURPOSE OF PURCHASE OF ITS SHARES AND SINCE THE SAID PURCHASE OF SHARES WAS FOR THE PERSONAL BENEFIT OF THE EMPLOYEES, IT WAS IN NO WAY CONNECTED TO THE BUSINESS OF THE ASSESSEE COMPANY. ACCORDINGLY , RELYING ON THE DECISION OF THE KERALA HIGH COURT IN THE CASE OF CIT VS . V. I. BABY & CO (2002 ) 254 ITR 248 AND THAT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. PUNJAB STAINLESS STEEL (324 ITR 396), HE DISALLOWED THE CLAIM OF THE ASSESSEE FOR INTEREST EXPENDITURE TO THE EXTENT OF ` .62,83,175/ - AND ` .7 8,55,732/ - FOR A.Y 2009 - 10 AND 2010 - 11 , BEING ATTRIBUTABLE TO THE LOAN ADVANCED TO EMPLOYEES WELFARE TRUST. ON APPEAL , THE LD CIT (A) CONFIRMED THE SAID DISALLOWANCE MADE BY THE AO ON ACCOUNT OF INTEREST FOR BOTH THE YEARS UNDER CONSIDERATION , F OLLOWING TH E ORDER OF HIS PREDECESSOR IN ASSESSEES OWN CASE FOR A.Y 2008 - 09, WHEREIN SIMILAR DISALLOWANCE MADE ON ACCOUNT OF INTEREST ATTRIBUTABLE TO THE LOAN GIVEN BY THE ASSESSEE COMPANY TO ITS M.D AND EMPLOYEES WELFARE TRUST FOR ACQUISITION ITA NOS.581 656 AND 1142 OF 2014 SKS MICROFINANCE LTD HYDERABAD PAGE 5 OF 8 OF ITS SHARES WAS CONF IRMED. AGGRIEVED BY THE ORDER OF THE LD CIT (A) , THE ASSESSEE HAS RAISED THIS ISSUE IN THE PRESENT APPEALS FILED BEFORE THE TRIBUNAL FOR BOTH THE A.YS UNDER CONSIDERATION. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND ALSO PERUSED THE MATERIAL ON RECORD. THE LD COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT A SIMILAR ISSUE INVOLVED IN ASSESSEES OWN CASE FOR A.Y 2008 - 09 WAS RESTORED BY THE TRIBUNAL TO THE FILE OF THE AO VIDE ITS ORDER DATED 21.06.2013 PASSED IN ITA NO.1789/HYD/2011 WITH THE FOLLOWING DIRECTIONS GIVEN IN PARAGRAPH NO.28 : 28. WE HAVE HEARD RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IT IS THE CONTENTION OF THE ASSESSEE THAT THE INTEREST FREE LOANS WERE ADVANCED DUE TO COMMERCIAL EXPEDIENCY AND FOR THE PURPOSE O F BUSINESS. IT IS THE FURTHER CONTENTION OF THE ASSESSEE THAT NO BORROWED FUND WAS UTILIZED FOR ADVANCING LOAN TO THE MD OR THE EMPLOYEES WELFARE TRUST. FROM THE ASSESSMENT ORDER OR THE ORDER OF THE CIT (A), WE DO NOT FIND ANY CLEAR CUT FINDING WHETHER TH E ASSESSEE HAS UTILIZED BORROWED FUNDS FOR GIVING LOAN TO THE MD OR EMPLOYEES WELFARE TRUST. IN CASE OF SSPDL LTD. VS. DCIT (24 ITR (TRIB) 290 CO - ORDINATE BENCH OF THIS TRIBUNAL HELD THAT UNLESS INTEREST PAYMENT IS DIRECTLY RELATED TO THE DIVERTED FUNDS, I T CANNOT BE SAID THAT INTEREST INCURRED BY THE ASSESSEE WAS FOR NON BUSINESS PURPOSE. SINCE THIS FACT HAS NOT BEEN PROPERLY VERIFIED, WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WHO SHALL DECIDE THE SAME AFTER A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6. AS FURTHER SUBMITTED BY THE LD COUNSEL FOR THE ASSESSEE , THE AO HAS ALREADY EXAMINED THIS ISSUE AS PER THE DIRECTIONS OF THE TRIBUNAL AND DECIDED THE SAME IN FAVOUR OF THE ASSESSEE AFTER RECORDING THE FOLLOWING FINDINGS IN PARA NO.4.3 OF THE ORDER DATED 31.7.2014 PASSED U/S 143(3) R.W.S. 254 OF THE ACT: ITA NOS.581 656 AND 1142 OF 2014 SKS MICROFINANCE LTD HYDERABAD PAGE 6 OF 8 4.3 FOR THE DISALLOWANCE OF INTEREST ON LOAN GIVEN TO THE MANAGING DIRECTOR AND TO THE EMPLOYEES WELFARE TRUST, DETAILS REGARDING LOAN GIVEN TO THE MANAGING DIRECTOR AND TO EMPLO YEES WELFARE TRUST THE ASSESSEE SUBMITTED THAT THE LOANS WERE GRANTED OUT OF INTERNAL ACCRUALS OF THE COMPANY AND NO INTEREST BEARING LOANS WERE UTILIZED FOR GIVING ADVANCE TO THE MANAGING DIRECTOR AND TO THE EMPLOYEES WELFARE TRUST AND ALSO SUBMITTED RELE VANT DETAILS SUCH AS RESERVES AND SURPLUS OF THE COMPANY. IN SUPPORT, THE ASSESSEE COMPANY SUBMITTED THE CASH FLOW OF THE ABOVE TERM LOANS AND UTILIZATION CERTIFICATE REQUIRED TO BE SUBMITTED TO LENDING BANKS WH ICH ARE DULY CERTIFIED BY THE CA TO THE EFFEC T THAT THE TERM LOANS RAISED WERE UTILIZED FOR THE PURPOSE OF ITS PORTFOLIO LENDING BUSINESS. 7. THE LD COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT SINCE THE SAME LOAN GIVEN BY THE ASSESSEE COMPANY TO THE EMPLOYEES WELFARE TRUST IN A.Y 2008 - 09 HAS CONTIN UED IN BOTH THE YEARS UNDER CONSIDERATION I.E. A.YS 2009 - 10 AND 2010 - 11, THE DECISION RENDERED BY THE AO AS PER THE DIRECTIONS OF THE TRIBUNAL IN A.Y 2008 - 09 ON SIMILAR ISSUE IS APPLICABLE FOR BOT H THE YEARS UNDER CONSIDERATION I.E. 2009 - 10 AND 2010 - 11 . 8. THE LD DR, HOWEVER, CONTENDED THAT THIS ASPECT OF THE MATTER REQUIRES VERIFICATION AS IT IS NOT CLEAR THAT THE SAME LOAN GIVEN BY THE ASSESSEE COMPANY TO THE EMPLOYEES WELFARE TRUST FOR A.Y 2008 - 09 IS CONTINUED IN BOTH THE YEARS UNDER CONSIDERATION. SIN CE THE LD COUNSEL FOR THE ASSESSEE ALSO HAS NO OBJECTION FOR GETTING THIS ASPECT VERIFIED FROM THE AO, WE RESTORE THIS ISSUE TO THE FILE OF THE AO FOR THE LIMITED PURPOSE OF VERIFYING AS TO WHETHER SAME LOAN GIVEN BY THE ASSESSEE COMPANY TO ITS EMPLOYEES W ELFARE TRUST IS CONTINUED EVEN DURING THE YEAR UNDER CONSIDERATION. IF THIS FACTUAL POSITION IS FOUND TO BE CORRECT ON SUCH VERIFICATION, THE AO SHALL DELETE THE DISALLOWANCE MADE ON ACCOUNT OF INTEREST FOR BOTH THE YEARS UNDER CONSIDERATION. THE ITA NOS.581 656 AND 1142 OF 2014 SKS MICROFINANCE LTD HYDERABAD PAGE 7 OF 8 RELEVANT GROUNDS OF THE ASSESSEES APPEAL ARE ACCORDINGLY TREATED ALLOWED FOR STATISTICAL PURPOSES. 9. THE OTHER ISSUE RAISED BY THE ASSESSEE IN ITS APPEAL FOR A.Y 2009 - 10 AND 2010 - 11 RELATING TO LEVY OF INTEREST U/S 234B IS CONSEQUENTIAL IN NATURE AND THE AO IS A CCORDINGLY DIRECTED TO ALLOW CONSEQUENTIAL RELIEF TO THE ASSESSEE ON THIS ISSUE. 10. IN ITS APPEAL FOR A.Y 2009 - 10, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. THE LD CIT (A) HYDERABAD ERRED BOTH IN LAW AND ON FACTS OF THE CASE. 2. THE HON'BLE ITAT OUGHT NOT TO HAVE ALLOWED THE RELIEF OF ` RS.9,09,307/ - AS THE ASSESSEE FAILED TO PRODUCE NECESSARY EVIDENCES. 3. THE HON'BLE CIT (A) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE HAD NOT OFFERED THE AMOUNT OF ` 9,09,307/ - TO TAX IN ANY EARLIER A.YS AND IS N OT ELIGIBLE FOR RELIEF U/S 36(I)(VII) OF THE ACT . 11. AS IS CLEARLY EVIDENT FROM THE GROUNDS RAISED BY THE REVENUE, THE TAX EFFECT INVOLVED IN THE APPEAL OF THE REVENUE IS LESS THAN RS. ` . 3. 00 LAKHS AND THIS POSITION IS NOT DISPUTED EVEN BY THE LD DR. 12 . AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINION THAT THE TAX EFFECT INVOLVED IN THIS APPEAL IS LESS THAN RS. 3 LAKHS. BEING SO, IN VIEW OF THE INSTRUCTION NO. 3 OF 2011 (F. NO. 279/ MISC. 142/2007 - ITJ), DATED 9TH FEBRUARY, 2011 ISSUED BY THE CBDT, THE PRESENT APPEAL OF THE REVENUE INVOLVING TAX EFFECT OF ITA NOS.581 656 AND 1142 OF 2014 SKS MICROFINANCE LTD HYDERABAD PAGE 8 OF 8 LESS THAN RS. 3 LAKHS IS NOT MAINTAINABLE BEFORE THIS TRIBUNAL AND ACCORDINGLY THE SAME IS DISMISSED IN LIMINE WITHOUT ADMITTING THE SAME. 13. IN THE RESULT, APPEALS FILED BY THE ASSESSEE ARE ALLO WED FOR STATISTICAL PURPOSE, WHILE THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COUR T ON 31 ST DECEMBER , 2014 . SD/ - SD/ - ( ASHA VIJAYARAGHAVAN ) ( P.M. JAGTAP ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 31 ST D ECEMBER , 2014 . VNODAN/SPS/BVS COPY TO: 1 . THE APPELLANT : 2 . THE RESPONDENT 3 . THE CONCERNED CIT(A) 4 . THE CONCERNED CIT 5 . THE DR, ITAT, HYDERABAD 6 . GUARD FILE BY ORDER
