ITO, New Delhi V. M/s. Escotrac Finance and Investments (Pvt.) Ltd., Faridabad

ITA 1278/DEL/2014

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4293 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 30-11-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 06-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIL KUMAR SHARMA SENIOR
• Assessee Lawyers: R M MEHTA
• Keywords: Business expenditure; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH B BB B : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT AND AND AND AND SHRI SUDHANSHU SRIVASTAVA SHRI SUDHANSHU SRIVASTAVA SHRI SUDHANSHU SRIVASTAVA SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA NO ITA NO ITA NO ITA NO . .. . 1278/DEL/2014 1278/DEL/2014 1278/DEL/2014 1278/DEL/2014 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2010 2010 2010 2010 - -- - 11 1111 11 INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, WARD WARD WARD WARD - -- -11(2), 11(2), 11(2), 11(2), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. VS. VS. VS. VS. M MM M /S ESCOTRAC FINANCE AND /S ESCOTRAC FINANCE AND /S ESCOTRAC FINANCE AND /S ESCOTRAC FINANCE AND INVESTMENTS (PVT.) LTD., INVESTMENTS (PVT.) LTD., INVESTMENTS (PVT.) LTD., INVESTMENTS (PVT.) LTD., (MERGED WITH ESCORTS LTD.), (MERGED WITH ESCORTS LTD.), (MERGED WITH ESCORTS LTD.), (MERGED WITH ESCORTS LTD.), C/O ESCORTS LTD., C/O ESCORTS LTD., C/O ESCORTS LTD., C/O ESCORTS LTD., 15/5, MATHURA ROAD, 15/5, MATHURA ROAD, 15/5, MATHURA ROAD, 15/5, MATHURA ROAD, FARIDABAD. FARIDABAD. FARIDABAD. FARIDABAD. PAN : AAACE0088R. PAN : AAACE0088R. PAN : AAACE0088R. PAN : AAACE0088R. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANIL KUMAR SHARMA, SENIOR DR. RESPONDENT BY : S HRI R.M. MEHTA, ADVOCATE. DATE OF HEARING : 30.11.2016 30.11.2016 30.11.2016 30.11.2016 DATE OF PRONOUNCEMENT : 13.12.2016 13.12.2016 13.12.2016 13.12.2016 ORDER ORDER ORDER ORDER PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP : :: :- -- - THIS APPEAL BY THE REVENUE FOR THE ASSESSMENT YEAR 201 0-11 IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-XIII, NEW DELHI DATED 6 TH DECEMBER, 2013. 2. THE ONLY GROUND RAISED BY THE REVENUE READS AS UNDE R :- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD.CIT(A) HAS ERRED IN DELETING THE ADDI TION OF RS.66,88,884/- MADE BY THE AO ON ACCOUNT OF INTEREST INCOME. ITA-1278/DEL/2014 2 3. THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER DISALLOWED `66,88,884/- OUT OF INTEREST PAID BY THE ASSESSEE WITH T HE FOLLOWING OBSERVATION :- FROM THE ABOVE IT IS CLEAR THAT ON THE ONE HAND THE ASSESSEE IS PAYING INTEREST AT A HIGHER RATE RANGING FRO M 14% TO 17% ON UNSECURED LOAN, FROM 10% TO 16.75% ON SECURED LOAN AND ON THE OTHER HAND HE IS CHARGING INT EREST FROM ITS SISTER CONCERN AT A LOWER RATE OF 10% THUS EIT HER INTEREST ON UNSECURED LOAN/SECURED LOAN SHOULD BE RESTRICTED TO 10% OR INTEREST CHARGED FROM SISTER CONCE RN SHOULD BE INCREASED TO AT LEAST 15%. THEREFORE INTERE ST FROM SISTER CONCERN IS BEING INCREASED TO 15%. DURING THE YEAR ASSESSEE HAS CHARGED @ 10% ON RS.11954.60 LACS WHICH IS RS.1,33,77,768/- AND THE SAME IS INCREASED TO RS.2,00,66,652/- BY MAKING ADDITION OF 5% INTEREST IN COME AMOUNTING TO RS.66,88,884/- TO THE TOTAL INCOME OF T HE ASSESSEE DURING THE YEAR. 4. LEARNED CIT(A) DELETED THE ADDITION WITH THE FOL LOWING FINDING :- 3.1 I HAVE CAREFULLY CONSIDERED THE FACTS OF THIS CASE AND THE SUBMISSIONS FILED BY THE COUNSEL OF THE APPELLANT. IT IS OBSERVED THAT THE ASSESSING OFFICER HAS MADE THE ADDITION OF RS.66,88,884/- ON ACCOUNT OF INTEREST ON NOTIONAL BASIS. THE APPELLANT COMPANY HAS BORROWED FUNDS BY WAY OF INTER-CORPORATE DEPOSITS AT THE RATE OF INTEREST RANGI NG BETWEEN 10% TO 17% FROM VARIOUS PARTIES. THE FUNDS H AVE BEEN LENT @ 13% TO 17% P.A. THE APPELLANT HAD ADVA NCED A LOAN @ 10% P.A. IN THE EARLIER YEAR AND DURING TH E YEAR THE INTEREST WAS CHARGED AT THE CONTRACTED RATE AS AG REED IN THE PRECEDING YEAR. THE ASSESSING OFFICER HAS HELD T HAT THE APPELLANT HAD CHARGED INTEREST @ 10% WHEREAS THE INTEREST HAS BEEN PAID @ 10% TO 17% PER ANNUM. THE VARIOUS DETAILS FILED DURING THE ASSESSMENT PROCEEDINGS HAVE BEEN CHECKED AND IT IS NOTED THAT DURING THE YE AR UNDER CONSIDERATION THE APPELLANT HAD BORROWED FUNDS @ 10% TO 17% P.A. AND CHARGED INTEREST @ 13% TO 17% P. A. ON THE ADVANCES MADE DURING THE YEAR. THE HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CI T ITA-1278/DEL/2014 3 REPORTED IN 288 ITR 001 HELD THAT THE EXPRESSION COMMERCIAL EXPEDIENCY IS ONE OF WIDE IMPORT AND INC LUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE BEE N INCURRED UNDER ANY LEGAL OBLIGATION YET IT IS ALLOWA BLE BUSINESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. THE APPELLANT HAD BORROWED FUNDS BY WAY OF INTER- CORPORATE DEPOSITS @ 10% TO 17% P.A. DURING THE YEAR AND LENT @ 13% TO 17% P.A. DURING THE YEAR. THERE IS ON E INSTANCE WHERE THE INTEREST HAS BEEN CHARGED @ 10% P.A . AT THE CONTRACTED RATE IN THE EARLIER YEAR AND NO DISALLOWANCE OF INTEREST HAS BEEN MADE BY THE ASSESSING OFFICER IN THAT YEAR. THE ASSESSING OFFICER HAD MADE T HE ADDITION ON NOTIONAL BASIS WITHOUT POINTING OUT ANY SP ECIFIC LINK OF BORROWING AT THE HIGHER RATE AND LENDING AT THE LOWER RATE. THE ADHOC ADDITION OF RS.66,88,884/- MA DE BY THE ASSESSING OFFICER IS, THEREFORE, DELETED. 5. THE REVENUE, AGGRIEVED WITH THE ORDER OF LEARNED CIT(A), IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND H AVE PERUSED THE MATERIAL PLACED BEFORE US. AFTER CONSIDER ING THE FACTS OF THE CASE AND SUBMISSIONS OF BOTH THE SIDES, WE DO NOT FIND ANY INFIRMITY IN THE ABOVE ORDER OF LEARNED CIT(A). TH E ASSESSEE HAS BORROWED THE MONEY BY WAY OF INTER-CORPORATE DEPOSIT AT THE RATE OF 10% TO 17%. DURING THE YEAR UNDER CONSIDERATION, TH E ASSESSEE LENT THE MONEY AT THE RATE OF 13% TO 17%. THERE IS ONLY ONE INSTANCE WHERE THE INTEREST HAS BEEN CHARGED AT THE RATE OF 10 % PER ANNUM. HOWEVER, IT WAS IN RESPECT OF THE MONEY ADVANCED EARL IER AND THEREFORE, INTEREST CONTINUED TO BE CHARGED AT THE R ATE ON WHICH THE MONEY WAS ADVANCED. NO NEXUS HAS BEEN POINTED OUT BY THE ASSESSING OFFICER THAT THE MONEY BORROWED AT A HIGHER R ATE OF INTEREST HAS BEEN ADVANCED AT A LESSER RATE. IN VIEW OF THE A BOVE, WE DO NOT ITA-1278/DEL/2014 4 FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER O F LEARNED CIT(A). THE SAME IS UPHELD. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED . DECISION PRONOUNCED IN THE OPEN COURT ON 13.12.2016. SD/- SD/- (SUDHANSHU SRIVASTAVA (SUDHANSHU SRIVASTAVA (SUDHANSHU SRIVASTAVA (SUDHANSHU SRIVASTAVA ) )) ) ( (( ( G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL ) )) ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VK. COPY FORWARDED TO: - 1. APPELLANT : INCOME TAX OFFICER, WARD INCOME TAX OFFICER, WARD INCOME TAX OFFICER, WARD INCOME TAX OFFICER, WARD - -- -11(2), NEW DELHI. 11(2), NEW DELHI. 11(2), NEW DELHI. 11(2), NEW DELHI. 2. RESPONDENT : M/S ESCOTRAC FINANCE AND INVESTMENTS ( PVT.) LTD., M/S ESCOTRAC FINANCE AND INVESTMENTS (PVT.) LTD., M/S ESCOTRAC FINANCE AND INVESTMENTS (PVT.) LTD., M/S ESCOTRAC FINANCE AND INVESTMENTS (PVT.) LTD., (MERGED WITH ESCORTS LTD.), C/O ESCORTS LTD., (MERGED WITH ESCORTS LTD.), C/O ESCORTS LTD., (MERGED WITH ESCORTS LTD.), C/O ESCORTS LTD., (MERGED WITH ESCORTS LTD.), C/O ESCORTS LTD., 15/5, MATHURA ROAD, FARIDABAD. 15/5, MATHURA ROAD, FARIDABAD. 15/5, MATHURA ROAD, FARIDABAD. 15/5, MATHURA ROAD, FARIDABAD. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR