Talent Prop India HR Private Limited, CHENNAI V. ACIT, CHENNAI

ITA 1191/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95960 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 14-08-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 19-05-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: S SWAMINATHAN
• Keywords: Notional interest; Commercial expediency
• Section: 143(3); 147

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL SMC BENCH, CHENNAI . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A.NO. 11 91 /MDS/2015 / ASSESSMENT YEAR :200 9 - 1 0 M/S. TALENT PRO INDIA HR PRIVATE LTD., NOEW NO. 64, OLD NO. 30, BRILEY ONE , III FLOOR, ETHIRAJ SALAI (NEXT TO KANCHI HOTEL), EGMORE, CHENNAI 600 008. [PAN: AA BCP9823A ] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III( 1 ), CHENNAI 600 034. ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI S. SWAMINATHAN, C.A. / RESPONDENT BY : SHRI A.V. SREEKANTH , JCIT / DATE OF HEARING : 14 . 0 8 .201 5 / DA TE OF P RONOUNCEMENT : 28 . 0 8 .201 5 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 11 , C HENNAI DATED 30 .0 1 .201 5 RELEVANT TO THE ASSESS MENT YEAR 20 0 9 - 1 0 . 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING SERVICES LIKE MANPOWER PLANNING, RECRUITMENT OF PERSONNEL, ETC. AND FILED THE RETURN OF INCOME DECLARING LOSS OF .1,33,07,618/ - . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND I.T.A. NO. 11 91 /M/ 1 5 2 AFTER DUE PROCESS, ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE INCOME TAX ACT BY DETERMINING TOTAL INCOME AT .5,86,860/ - . 3. THE ONLY ISSUE BEFORE US IS WITH REGARD TO DISALLOWANCE OF LOANS AND ADVANCES A MOUNTING TO .1,21,88,735/ - . IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED AS UNDER: 6. LOANS & ADVANCES: THE ASSESSEE COMPANY HAS SHOWN A SUM OF RS.6,8,68,892/ - AS LOANS AND ADVANCES (SCHEDULE - 7) IN THE BALANCE SHEET AS ON 31 - 03 - 2009. OUT OF THIS AMOUNT, A SUM OF RS.6,77,15,194/ - HAS BEEN ADVANCED AS LOAN TO M/S. INTERPRO GLOBAL PVT. LTD., CHENNAI - 17. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED THAT THE ASSESSEE COM PANY HAS INCURRED A LOSS OF RS.1 ,33,07,618/ - DURING THE A. Y 2009 - 10. DETAILS WERE CALLED FOR FROM THE ASSESSEE COMPANY AS TO THE NATURE OF THE LOAN ADVANCED, INTEREST CHARGED ON LOAN ADVANCED, RELATIONSHIP BETWEEN THE ASSESSEE COMPANY AND M/S. INTERPRO GLOBAL PVT LTD. ON EXAMINATION OF THE DETAILS PROVIDED BY THE ASSESSEE THE FOLLOWING FACTS EMERGE: (I) LOANS HAVE BEEN ADVANCED 5 YEARS AGO TO THE SUBSIDIARY COMPANY M/S. INTERPRO GLOBAL PVT LTD. NO INTEREST HAS BEEN CHARGED ON THE LOAN ADVANCED. (II) THE ASSESSEE COMPANY IS HAVING SHAREHOLDING TO THE EXTENT OF 98.90% IN THE SUBSIDIARY COMPANY M/S. INTERPRO GLOBAL PVT. LTD. (III) M/S. INTERPRO GLOBAL PVT LTD., IS EARNING PROFITS AND ALSO CLAIMING EXEMPTION U/S 10A. (IV) THE ASSESSEE COMPANY IS EARNING INCOME ON THE FIXED DEPOSITS AND ALSO DIVIDENDS FROM THE I NVESTMENTS MADE IN THE MUTUAL FUNDS WHEREAS NO INTEREST HAS BEEN CHARGED ON THE LOANS GIVEN TO THE SUBSIDIARY COMPANY M/S. INTERPRO GLOBAL PVT. LTD. (V) THERE IS NO COMMERCIAL EXPEDIENCY WITH REGARD TO THE LOAN GIVEN TO THE SUBSIDIARY COMPANY M/S. INTERP RO GLOBAL PVT. LTD. I.T.A. NO. 11 91 /M/ 1 5 3 THE ABOVE FACT WERE PUT BEFORE THE ASSESSEE COMPANY AND WAS ASKED TO EXPLAIN THE GENUINENESS OF THE TRANSACTION ESPECIALLY AS TO HOW IT COULD GIVE ANY SUM AS LOAN TO A PROFIT MAKING COMPANY WHEN THE ASSESSEE WAS INCURRING LOSS DURING T HE FINANCIAL YEAR IN QUESTION. THE ASSESSEE COMPANY IN ITS SUBMISSIONS PLACED RELIANCE ON THE DECISION IN THE CASE OF CIT VS. LAKSHMI DAL MILLS 223 ITR 825 WHEREIN THE HON BLE ALLAHABAD HIGH COURT HAS HELD THAT ADDITION OF ESTIMATED INTEREST ON LOANS ADVAN CED WAS JUSTIFIED. HOWEVER, IT IS SEEN FROM THE FACTS OF THE ABOVE CASE, THAT IT ENTIRELY DIFFERENT FROM THE FACTS OF THE EXISTING CASE. IN THE CITED CASE, NO INTEREST WAS CHARGED ON THE LOANS ADVANCED TO THE DEBTOR AS THE ASSESSEE M/S. LAKSHMI DAL MILLS H AD COME TO A CONCLUSION THAT THE RECOVERY OF THE PRINCIPAL AMOUNT ITSELF WAS IN DOUBT AND THEREFORE DECIDED NOT TO CHARGE ANY INTEREST ON THE OUTSTANDING LOAN ADVANCED BY IT. HOWEVER, IN THE INSTANT CASE, IT IS SEEN THAT SUFFICIENT PROFITS EXIST WHICH ARE IN FACT TAX FREE INCOME OF THE DEBTOR VIZ., M/S. INTERPRO GLOBAL P. LTD AND UNDER NO STRETCH OF IMAGINATION COULD BE CONSIDERED AS NOT RECOVERABLE. IT IS SIMPLY ENJOYING THE BENEVOLENCE OF THE HOLDING COMPANY WHICH ITSELF IS FACING FINANCIAL DIFFICULTIES. WHEN THE ASSESSEE COMPANY AS A PRUDENT BUSINESS MEASURE COULD HAVE INVESTED THE ADVANCED FUNDS TO ITS BENEFIT, IT HAS CHOSEN NOT TO TAKE ANY STEPS OF RECOVERING THE LOAN OR TO CHARGE INTEREST ON THE LOAN ADVANCED. IN VIEW OF THE ABOVE CITED FACTS THE INTER EST WHICH WOULD HAVE ACCRUED IF THE ASSESSEE COMPANY HAD PRUDENTLY INVESTED ITS FUNDS IS COMPUTED AT RS. 1.21,88,735/ - @ 18% ON THE LOAN ADVANCED TO M/S. INTERPRO GLOBAL P LTD., AND IS ADDED BACK TO THE TOTAL INCOME. 4. THE ASSESSEE CARRIED THE MATTER I N APPEAL BEFORE THE LD. CIT(A) AND IT WAS SUBMITTED THAT IF AT ALL INTEREST HAS TO BE CHARGED, IT CANNOT BE MORE THAN 8%. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) CONFIRMED THE ORDER PASSED BY THE ASSESSING OFFICER BY REDUCING THE INTEREST CHARGED BY THE ASSESSING OFFICER FROM 18% TO 12.5% AS PER THE PRIME LENDING RATE PRESCRIBED BY THE RESERVE BANK OF INDIA. 5. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AND THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED TH AT NOTIONAL INCOME CANNOT I.T.A. NO. 11 91 /M/ 1 5 4 BE ADDED BY THE ASSESSING OFFICER. HE RELIED ON THE DECISION IN THE CASE OF CIT V. DCM LTD. [2009] 177 TAXMAN 300 (DELHI). 6. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT THE ASSESSEE HAS GIVEN INTEREST FREE LOAN TO SUBSIDI ARY AND THE SUBSIDIARY WAS EARNING PROFITS AND ALSO CLAIMING EXEMPTION UNDER SECTION 10A. THEREFORE, NON - RECOVERY OF AMOUNT ADVANCED BY THE ASSESSEE WAS NOT SUBSTANTIATED IN THE EYE OF LAW FOR THE REASON THAT THE ASSESSEE IS RUNNING INTO LOSS. 7. BOTH S IDES HAVE BEEN HEARD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSEE COMPANY HAD ADVANCED AN AMOUNT OF . 6,88,68,892/ - AS A LOAN TO M/S. INTERPRO GLOBAL PVT. LTD., CHENNAI. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER H AS OBSERVED THAT THE ASSESSEE HAS INCURRED LOSS OF .1,33,07,618/ - . AFTER CALLING DETAILS FROM THE ASSESSEE, THE ASSESSING OFFICER EXAMINED THE DETAILS AND OBSERVED THAT THE ASSESSEE HAS ADVANCED LOANS TO THE SUBSIDIARY COMPANY M/S. INTERPRO GLOBAL PVT. LT D AND NO INTEREST HAS BEEN CHARGED. M/S. INTERPRO GLOBAL PVT. LTD IS EARNING PROFITS AND ALSO CLAIMING EXEMPTION UNDER SECTION 10A. FURTHER, THE ASSESSEE IS EARNING INCOME ON THE FIXED DEPOSITS AND ALSO DIVIDENDS FROM THE INVESTMENTS MADE IN THE MUTUAL FUN DS WHEREAS NO INTEREST HAS BEEN CHARGED ON THE LOANS GIVEN TO THE SUBSIDIARY COMPANY. THEREFORE, THE ASSESSING OFFICER CAME TO A CONCLUSION THAT THERE IS NO BUSINESS EXPEDIENCY BETWEEN THE ASSESSEE AND M/S. INTERPRO GLOBAL PVT. I.T.A. NO. 11 91 /M/ 1 5 5 LTD. AND THE SUBSIDIARY COMPANY IS SIMPLY ENJOYING THE BENEVOLENCE OF THE HOLDING COMPANY WHICH ITSELF IS FACING FINANCIAL DIFFICULTIES. ACCORDINGLY, THE ASSESSING OFFICER COMPUTED THE TAXABLE INCOME AT .1,21,88,735/ - @ 18% ON THE LOAN ADVANCED TO M/S. INTERPRO GLOBAL PVT. LTD. AND ADDED BACK TO THE TOTAL INCOME. ON APPEAL, THE LD. CIT(A), AFTER CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES AND ALSO CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THAT THE LOAN WAS ADVANCED 5 YEARS AGO AND NO INTEREST WAS CHARGED TILL DATE, WHEREAS T HE SUBSIDIARY COMPANY IS EARNING PROFIT AND ALSO CLAIMING EXEMPTION UNDER SECTION 10A OF THE ACT. ACCORDINGLY, THE LD. CIT(A) REDUCED THE INTEREST RATE FROM 18% TO 12.5% AS PER THE LENDING RATE PRESCRIBED BY THE RBI AND PARTLY ALLOWED THE APPEAL. THUS, I F IND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A). 8. SO FAR AS CASE LAW RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE IN THE CASE OF CIT V. DCM LTD. (SUPRA), THE HON BLE DELHI HIGH COURT HAS CONSIDERED THE REOPENING AFTER EXPIRY OF FOUR YEARS AND OBSERVED THAT THE COMMISSIONER (APPEALS) RECORDED A FINDING THAT INITIATION OF PROCEEDINGS UNDER SECTION 147 WAS ITSELF INVALID AND HE ALSO RECORDED A FINDING THAT IN ANY EVENT ADDITION ON ACCOUNT OF NOTIONAL INTEREST WAS NOT MADE OUT ON MERITS INASMUCH AS ASSESSEE COMPANY HAD MORE INTEREST - FREE FUNDS THAN AMOUNT OF LOANS/ADVANCES SAID TO HAVE BEEN ADVANCED TO SUBSIDIARY COMPANIES/TRUSTS. IN THE PRESENT CASE, THE ASSESSEE IS RUNNING INTO LOSS AND I.T.A. NO. 11 91 /M/ 1 5 6 SUBSIDIARY IS RUNNING WITH PROFIT AND ALSO CLAIMING EXEMPTION UNDER SECTION 10A OF THE ACT. THEREFORE, THE ABOVE CASE LAW HAS NO APPLICATION TO THE FACTS OF THE PRESENT CASE. 9. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS DISMIS SED. ORDER PRONOUNCED ON THE 28 TH OF AUGUST, 2015 AT CHENNAI. SD/ - ( V. DURGA RAO ) JUDICIAL MEMBER CHENNAI, DATED, THE 28 . 0 8 .201 5 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / C IT(A) , 4. / CIT , 5. / DR & 6. / GF.