M/s Priyadarshini Filaments Pvt. Ltd., Bangalore V. The Commissioner of Income Tax, Bangalore

ITA 1249/BANG/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8710 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 22-09-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; Notional interest; Commercial expediency
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE A BENCH, BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO.1249(BNG)/2015 (ASSESSMENT YEAR : 2012-13) M/S PRIYADARSHINI FILAMENTS PVT. LTD. NO.16, IV MAIN, IND. TOWN, WEST OF CHORD ROAD, RAJAJINAGAR, BANGALORE-560 010 APPELLANT VS THE COMMISSIONER OF INCOME-TAX-II, CENTRAL REVENUES BUILDING, QUEENS ROAD, BANGALORE-560 001 RESPONDENT AND S.P NO.124(BNG)2015 (IN ITA NO.1249(B)/2015) (ASSESSMENT YEAR 2012-13) (BY ASSESSEE) ASSESSEE BY : NONE REVENUE BY : DR. P.K.SRIHARI, ADDL.CIT DATE OF HEARING : 09-12-201 5 DATE OF PRONOUNCEMENT : 08-01-2016 O R D E R PER SHRI INTURI RAMA RAO, AM : THIS APPEAL FILED BY THE ASSESSEE COMPANY DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-5, BANGALORE, DATED 10-08-201 5 FOR THE ASSESSMENT YEAR 2012-13. 2 ITA NO.1249 & SP NO.124(B)/15 2. THE ASSESSEE COMPANY RAISED THE FOLLOWING GROUND S OF APPEAL; 1. THAT THE ASSESSEE BE ALLOWED TO URGE POINTS OF LAW IN TERMS OF THE DECISION OF THE APEX COURT IN NTPC VS CIT, 1998)99) ELT 200(SC). 2. THAT THE ORDER U/S 143(3) DATED OCTOBER 16, 2014 BY THE LD.ITO AND THE LD.CIT(A) IS WITHOUT APPRECIATION OF FACTS OF THE CASE AND IS ARBITRARY AND CONTRARY TO THE PROVI SIONS OF LAW. 3. THAT THE LD.CIT(A) HAVE ERRED IN IMPUTING NOTION AL INTEREST ON LOSS ADVANCED BY THE ASSESSEE TO M/S SUVIKRAM PL ASTEX PVT.LTD OF INR 2,508,000/- AND THEREBY INCREASING T HE ASSESSEES TAXABLE INCOME. 4. THAT THE LD.CIT(A) HAS NOT REFERENCED ANY SEC. O F THE IT ACT,1961UNDER WHICH NOTIONAL INTEREST COULD BE IMPU TED. 5. THAT ASSUMING WITHOUT CONCEDING THE ABOVE GROUND , THE LD. CIT HAVE REFERRED ERRONEOUSLY TO THE DOMESTIC T RANSFER PRICING REGULATIONS UNDER SECTION 92BA OF THE IT AC T, 1961 6. THAT THE DOMESTIC TRANSFER PRICING MECHANISM WAS BOUGHT INTO THE AMBIT OF THE IT ACT, FOR THE FIRST TIME I N THE YEAR 2014 AND PRIOR TO THE SAID DATE THE SAID PROVISIONS COULD NOT BE APPLIED TO AY : 2012-13. 7. THAT THE LD.CIT HAVE FAILED TO APPRECIATE THAT T HE DOMESTIC TRANSFER PRICING REGULATIONS APPLY ONLY TO EXPENDIT URE IN 3 ITA NO.1249 & SP NO.124(B)/15 RESPECT OF WHICH PAYMENTS HAVE BEEN MADE, TO PARTIE S MENTIONED U/S 92CB(I). 8. THAT THE LD.CIT HAVE NOT APPRECIATED THE FACT TH E DOMESTIC TRANSFER PRICING REGULATIONS U/S 92CB DO NOT APPLY TO IMPUTATION OF INCOMES IN CASES SUCH AS THAT OF THE ASSESSEE. 9. THAT ASSUMING BUT NOT ACCEPTING THE IMPUTED INTE REST ADDITIONS TOTAL INCOME, THE LD.CIT HAVE ALSO FAILE D TO APPRECIATE THAT THE DOMESTIC TRANSFER PRICING REGUL ATIONS APPLY ONLY IN CASES WHERE THE AGGREGATE OF SUCH TRANSACTIONS ENTERED INTO BY THE ASSESSEE EXCEEDS I NR 5 CRORES. 10. THAT THE ORDERS OF THE LOWER AUTHORITIES DO NOT TAKE BUSINESS EXPEDIENCIES INTO ACCOUNT, WHICH IS A SINE -QUA-NON SINCE LAW HAS BEEN APPLIED IN VACCUM WITHOUT APPREC IATING THE FACTS OF THE CASE. 11. THAT THE DEPARTMENT CANNOT MANDATE CONDUCT OF T HE BUSINESS OF FORCING A PARTICULAR MODE TO THE ASSESS EE. 12. THAT THE FACTS OUGHT TO BE APPRECIATED IN PERSP ECTIVE, WHICH THE IMPUGNED ORDER HAS FAILED TO DO. THE ORD ER IS NON-APPRECIATIVE OF FACTS AND THEREFORE, BAD. 13. THAT THE ORDERS OF THE LOWER AUTHORITIES FAIL T O APPRECIATE THE LONG STANDING BUSINESS RELATIONSHIP BETWEEN THE ASSESSE E AND SSPL. 4 ITA NO.1249 & SP NO.124(B)/15 14. THAT THE ORDERS OF THE LOWER AUTHORITIES FAIL TO TAKE COGNIZANCE OF LAW PREVALENT DURING THE RELEVANT AY: 2012-13 AND APPLY A PERSPECTIVE LAW RESPECTIVELY, WHICH IS IMPERMISSIBLE. THE ORDER IS THEREFORE, NOT LEGAL O R PROPER. 15. THAT PERPETRATING SOMETHING THROUGH THE BACK DO OR (ADDITION OF NOTIONAL INTEREST TO THE INCOME OF THE ASSESSEE) SINCE THE SAME IS IMPERMISSIBLE THROUGH THE FRONT D OOR CANNOT BE PERMITTED IN A COUNTRY GOVERNED ON HE RUL E OF LAW. 16. THAT THE CONSEQUENT INTEREST COMPUTED U/S 234B OF THE ITA IS ERRONEOUS AND LIABLE TO BE NEGATED AND THE O RDER SET ASIDE. 17. THE ORDERS OF THE LOWER AUTHORITIES ARE WITHOUT THE AUTHORITY OF LAW AND HENCE CONTRARY TO ARTICLE 265 OF THE CONSTITUTION OF INDIA. 18. THAT THE ORDERS OF LOWER AUTHORITIES ARE VIOLAT IVE OF THE PRINCIPLES OF NATURAL JUSTICE INASMUCHAS THE RELEVA NT SECTION IN TERMS OF WHICH THE INCOME IS SOUGHT TO BE ADDED AS NOT MENTIONED. 19. THAT THE ORDERS OF THE LOWER AUTHORITIES AMON G OTHERS ARE CONTRARY TO THE DECISIONS OF THE APEX COURT IN CGT VS N.S.CHTTIAR, 1971 (82) ITR 599 (SC) & HEMRJ) GORDHA NDAS VS HH DAVE, 1978 (2) ELT 350(SC). 5 ITA NO.1249 & SP NO.124(B)/15 20. THAT THERE IS NO INTENDMENT IN A TAX STATUTE IS WELL SETTLED. THAT THE NOTIONAL INTEREST CANNOT BE ADD ED TO HE INCOME OF THE ASSESSEE IN THE YEAR 2012-13 WHEN THE RE WAS NO PROVISION IN THE IT ACT TO DO SO. THE ORDER IS THEREFORE, ILLEGAL. 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASS ESSEE COMPANY IS DULY INCORPORATED UNDER THE PROVISIONS OF COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF MONOFILA MENTS YARN, VEGETABLE SACKS AND FABRICS. THE RETURN OF INCOME FOR THE AS SESSMENT YEAR 2012-13 WAS FILED ON 27-09-2012 DECLARING INCOME OF RS.25,5 9,202/-. AGAINST THE SAID RETURN OF INCOME THE CASE WAS SELECTED FOR SCR UTINY ASSESSMENT AND THE ASSESSMENT WAS COMPLETED AT A TOTAL INCOME OF R S.50,67,200/-. WHILE DOING SO, THE AO MADE ADDITION OF RS.25,08,000/- TO WARDS INTEREST FREE LOAN ADVANCED TO M/S SUVIKRAM PLASTICS PVT.LTD. BY HOLDING THAT THE ASSESSEE RECEIVED INTEREST BEARING BORROWED FUND. IT WAS CONTENDED BEFORE THE AO THAT THE ADVANCES WERE MADE TO THE SAID COMP ANY OUT OF ITS OWN FUNDS I.E. OUT OF ADVANCE RECEIVED AGAINST THE PROP OSED SALE OF AGRICULTURAL LANDS WHICH ARE OWNED BY THE ASSESSEE COMPANY. THE REFORE, IT WAS SUBMITTED THAT NO DISALLOWANCE SHOULD BE MADE. THE SUBMISSIONS DID NOT 6 ITA NO.1249 & SP NO.124(B)/15 FIND FAVOUR WITH THE AO AND THE AO PROCEEDED TO MAK E DISALLOWANCES O RS.25,08,000/-. 4. BEING AGGRIEVED BY THIS ORDER AN APPEAL WAS FIL ED BEFORE THE CIT(A) WHO VIDE IMPUGNED ORDER HAD CONFIRMED THE ACTION OF THE AO BY HOLDING THAT THE ASSESSEE COMPANY HAD FAILED TO PROVE THE N EXUS THAT THE ADVANCES WERE MADE TO THE SAID COMPANY OUT OF THE ADVANCES R ECEIVED AGAINST THE PROPOSED SALE OF AGRICULTURAL LANDS. 5. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFO RE US. 6. BEFORE US NOBODY APPEARED ON BEHALF OF THE ASSE SSEE COMPANY AND THE LEARNED SR.DR, PLACED RELIANCE ON THE ORDERS OF THE LOWER AUTHORITIES. 7. WE HAVE HEARD THE SUBMISSION OF THE LEARNED SR. DR AND PERUSED THE MATERIAL ON RECORD. 7 ITA NO.1249 & SP NO.124(B)/15 7.1 THE SHORT ISSUE THAT CAME UP FOR CONSIDERATION BEFORE US, IS THAT WHETHER THE ACTION OF THE AO BY MAKING DISALLOWANCE OF RS.25,08,000/- ON THE GROUND THAT THE BORROWED FUNDS ARE UTILIZED FOR THE PURPOSE OF MAKING ADVANCE TO M/S SUVIKRAM PLASTICS PVT.LTD (SUPRA) WA S JUSTIFIED. WE FIND FROM THE ASSESSMENT ORDER THAT THE AO MADE THE DISA LLOWANCE OF RS.25,08,000/- WITHOUT GIVING ANY FINDING AS TO HOW THE CLAIM OF THE ASSESSEE COMPANY THAT THE ADVANCES WERE MADE TO M/S SUVIKRAM PLASTICS PVT. LTD OUT OF THE ADVANCES RECEIVED AGAINST THE P ROPOSAL OF SALE OF AGRICULTURAL LANDS IS NOT ACCEPTABLE. IN CASE IT IS FOUND THAT THE ADVANCES ARE MADE OUT OF THE BORROWED FUNDS, THEN THE ISSUE IS TO BE ADJUDICATED IN THE LIGHT OF LAW LAID DOWN BY THE HONBLE APEX COUR T IN THE CASE OF S A BUILDERS LTD VS CIT & ANOTHER (2007) 288 ITR 1 AND REITERATED AGAIN RECENTLY IN THE CASE OF HERO MOTOR CYCLES LTD VS CI T IN CIVIL APPEAL 514 OF 2008 DATED 05-11-2015, WHEREIN IT WAS HELD THAT WHE N THE LOANS ARE ADVANCED TO THE SUBSIDIARY COMPANY/SISTER CONCERN O UT OF THE BORROWED FUNDS, THE INTEREST ATTRIBUTABLE TO THE AMOUNTS ADV ANCED TO SUBSIDIARY/SISTER CONCERN OF THE ASSESSEE COMPANY I S TO BE DISALLOWED, IF NO NEXUS OF EXPENDITURE WITH THE PURPOSE OF BUSINES S IS ESTABLISHED AND IN 8 ITA NO.1249 & SP NO.124(B)/15 THE ABSENCE OF COMMERCIAL EXPEDIENCY IN ADVANCING T HE LOANS THE INTEREST HAD TO BE DISALLOWED. IT APPEARS FROM THE ASSESSM ENT ORDER THAT THE AO HAD FAILED TO EXAMINE THE ISSUE FROM THIS APPROACH AND THEREFORE, WE ARE OF THE CONSIDERED OPINION, THAT THE INTEREST OF JUSTIC E WOULD BE MET, IF THE ISSUE IS RESTORED TO THE FILE OF THE AO FOR DE-NOVO ASSESSMENT, IN ACCORDANCE WITH LAW LAID DOWN BY THE HONBLE APEX COURT IN THE CASES CITED SUPRA, AFTER AFFORDING DUE OPPORTUNITY OF BEING HEARD TO THE ASS ESSEE-COMPANY. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE -COMPANY IS ALLOWED FOR STATISTICAL PURPOSES. 9. SINCE WE HAVE DISPOSED OF THE APPEAL, THE STAY PETITION FILED BY THE ASSESSEE BECOMES INFRUCTUOUS AND DISMISSED AS SUCH. ORDER PRONOUNCED IN THE OPEN COURT ON THE 08-01-201 6 SD/- (VIJAYPAL RAO) SD/- (INTURI RAMARAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: BANGALORE D A T E D : 08-01-2016 AM* 9 ITA NO.1249 & SP NO.124(B)/15 COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER, AR,ITAT, BANGALORE