TT Holdings & Services Pvt.Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1284/CHNY/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96449 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 26-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 11-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Keywords: Commercial expediency

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI ... , ! ', $ %& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ./ ITA NO.1284/MDS/2012 ( )( / ASSESSMENT YEAR : 2008-09 M/S TT HOLDINGS & SERVICES PVT. LTD., RAHEJA TOWERS, 5001, OMEGA WING, NEW NO.177B, ANNA SALAI, CHENNAI - 600 0002. PAN : AACCT 6156 D V THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(2), CHENNAI - 600 034. (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SH. PHILIP GEORGE, ADVOCATE -.+, / 0 / RESPONDENT BY : SHRI A.V. SREEKANTH, JCIT 1 / 2$ / DATE OF HEARING : 26.10.2015 34) / 2$ / DATE OF PRONOUNCEMENT : 27.11.2015 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, CHENN AI, DATED 2 I.T.A. NO.1284/MDS/14 15.03.2012 AND PERTAINS TO ASSESSMENT YEAR 2008-09. THE ONLY ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DI SALLOWANCE OF INTEREST TO THE EXTENT OF ` 45,81,145/-. 2. SH. PHILIP GEORGE, THE LD.COUNSEL FOR THE ASSESS EE, SUBMITTED THAT THE ASSESSEE-COMPANY ADVANCED INTERE ST FREE LOAN ON ACCOUNT OF DEMERGER TO M/S TT ENTERPRISES PVT. L TD., M/S TT TRADING PVT. LTD. AND M/S TT INSURANCE BRAKING SERV ICES PVT. LTD. THE ASSESSING OFFICER DISALLOWED THE INTEREST PAID BY THE ASSESSEE ON THE BORROWED FUNDS ON THE GROUND THAT THE INTERE ST EXPENDITURES WERE NOT USED FOR THE BUSINESS PURPOSES. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) FOUND THAT THE ASSESSEE FAILED TO ESTABLISH THE INTEREST FREE LOANS GIVEN TO THE GROU P CONCERNS WERE FOR BUSINESS PURPOSE. ACCORDING TO THE LD. COUNSEL , THE ASSESSEE ADVANCED LOAN ON ACCOUNT OF DEMERGER OF TT ENTERPRI SES LTD. REFERRING TO THE COPY OF THE JUDGMENT OF MADRAS HIG H COURT IN COMPANY PETITION NOS.39 AND 40 OF 2007, TT ENTERPRI SES PVT. LTD. WAS DEMERGED BY THE SCHEME OF ARRANGEMENT APPROVED BY THE HIGH COURT. THE ASSESSING OFFICER HAS TAKEN NOTE OF THI S DEMERGER, HOWEVER, DISALLOWED THE CLAIM OF THE ASSESSEE WITHO UT APPRECIATING THE FACT THAT THE AMOUNT ADVANCED BY THE ASSESSEE I S ONLY FOR BUSINESS PURPOSE. WHEN THE ASSESSEE ADVANCED MONEY ON 3 I.T.A. NO.1284/MDS/14 ACCOUNT OF DEMERGER OF TT ENTERPRISES PVT. LTD. AND OTHER LOANS TO TT TRADING PVT. LTD. AND TT INSURANCE BRAKING SERVI CES PVT. LTD., THE CIT(APPEALS) MAY NOT BE CORRECT IN SAYING THAT THE ASSESSEE HAS TO ESTABLISH THAT THE INTEREST FREE LOAN WAS FO R BUSINESS PURPOSE. THE FACT REMAINS THAT THE INTEREST FREE LOAN WAS AD VANCED DUE TO DEMERGER AND THE SISTER CONCERNS, WHO RECEIVED MONE Y, ADMITTEDLY USED THE SAME FOR BUSINESS PURPOSES. IT IS NOBODY S CASE THAT THE DIRECTOR OF RECIPIENT COMPANY USED THE MONEY FOR PE RSONAL PURPOSE OTHER THAN ITS BUSINESS PURPOSE. 3. PLACING RELIANCE ON THE JUDGMENT OF APEX COURT I N S.A. BUILDERS LTD. V. CIT (2007) 288 ITR 1, THE LD.COUNS EL FOR THE ASSESSEE SUBMITTED THAT WHEN THE ASSESSEE ADVANCED MONEY DUE TO COMMERCIAL EXPEDIENCY TO THE SISTER CONCERNS, IT HAS TO BE CONSTRUED THAT THE MONEY WAS USED FOR BUSINESS PURP OSE. MERELY BECAUSE A THIRD PARTY GETS BENEFIT OUT OF SUCH ADVA NCE, IT IS IMMATERIAL. THE LD.COUNSEL HAS ALSO PLACED RELIANC E ON THE JUDGMENT OF MADRAS HIGH COURT IN CIT V. TENNECO RC INDIA (P.) LTD. (2013) 217 TAXMAN 362 AND ON THE JUDGMENT OF BOMBAY HIGH COURT IN CIT V. RELIANCE COMMUNICATIONS INFRASTRUCTURE LT D. (2013) 260 CTR 159 AND THAT OF THE DELHI HIGH COURT IN CIT V. DALMIA CEMENT BHARAT LTD. (2011) 330 ITR 595. 4 I.T.A. NO.1284/MDS/14 4. ON THE CONTRARY, SHRI A.V. SREEKANTH, THE LD. DE PARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE HAS NOT FILED ANY MATERIAL TO SUBSTANTIATE THAT THE INTEREST FREE LOA N WAS GIVEN FOR BUSINESS PURPOSE OF THE GROUP CONCERNS. ON A QUERY FROM THE BENCH, WHEN THE ASSESSING OFFICER HERSELF FOUND THA T THE LOAN WAS ADVANCED ON ACCOUNT OF DEMERGER OF TT ENTERPRISES L TD., WHETHER THE PAYMENT MADE BY THE ASSESSEE ON ACCOUNT OF DEME RGER IS FOR COMMERCIAL EXPEDIENCY OR NOT, THE LD. D.R. CLARIFIE D THAT BEFORE THE CIT(APPEALS) THERE WAS NO MATERIAL, THEREFORE, THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE ADDITION. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE-COMPANY, TT ENTERPRISES P VT. LTD., TT TRADING PVT. LTD. AND TT INSURANCE BRAKING SERVICES PVT. LTD. ARE SISTER CONCERNS. THE ASSESSEE-COMPANY ADVANCED MON EY ON ACCOUNT OF DEMERGER OF TT ENTERPRISES PVT. LTD. AND OTHER LOANS TO TT TRADING PVT. LTD. AND TT INSURANCE BRAKING SERVI CES PVT. LTD. THE ASSESSING OFFICER DISALLOWED THE INTEREST ON TH E BORROWED FUNDS AT THE RATE OF 12.25% ON THE GROUND THAT THE BORROW ED FUNDS WERE DIVERTED FOR NON-BUSINESS PURPOSES. 5 I.T.A. NO.1284/MDS/14 6. THE QUESTION ARISES FOR CONSIDERATION IS WHEN TH E ASSESSEE ADVANCED THE BORROWED FUNDS TO THE SISTER CONCERNS DUE TO DEMERGER AND LOANS TO TT TRADING PVT. LTD. AND TT I NSURANCE BRAKING SERVICES PVT. LTD., WHETHER SUCH ADVANCES C AN BE CONSIDERED AS DIVERSION OF FUNDS FOR NON-BUSINESS P URPOSES? THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE SAME CANNOT BE CONSIDERED TO BE DIVERSION OF FUNDS FOR NON-BUSINES S PURPOSE. BUT IT HAS TO BE CONSIDERED AS ADVANCE MADE TO SISTER CONC ERN ON COMMERCIAL EXPEDIENCY. 7. THE APEX COURT IN S.A. BUILDERS LTD. (SUPRA) HAD AN OCCASION TO CONSIDER THIS ISSUE ELABORATELY. THE APEX COURT FOUND THAT THE TEST IN THIS CASE IS WHETHER THE ADVANCE WAS MADE D UE TO COMMERCIAL EXPEDIENCY OR NOT. IF THERE WAS COMMERC IAL EXPEDIENCY FOR ADVANCING THE MONEY THAT MERELY BECAUSE A THIRD PARTY BENEFITS OUT OF THE ADVANCE, THERE CANNOT BE ANY DISALLOWANC E OF INTEREST. THE APEX COURT HAS FOUND THAT FOR THE PURPOSE OF B USINESS INCLUDED EXPENDITURE VOLUNTARILY INCURRED FOR COMME RCIAL EXPEDIENCY ALSO. THE APEX COURT FURTHER FOUND THAT THE EXPEND ITURE MAY NOT HAVE BEEN INCURRED UNDER LEGAL OBLIGATION BUT, YET IT IS AN ALLOWABLE EXPENDITURE IF IT IS INCURRED ON THE GROUND OF COMM ERCIAL 6 I.T.A. NO.1284/MDS/14 EXPEDIENCY. THEREFORE, WHAT IS TO BE SEEN IS WHETH ER THERE WAS ANY COMMERCIAL EXPEDIENCY IN ADVANCING MONEY BY THE ASS ESSEE TO OTHER SISTER CONCERNS. AS OBSERVED BY THE APEX COU RT, THE REVENUE CANNOT PUT ITSELF IN THE ARM-CHAIR OF THE BUSINESSM AN AND ASSUME WHAT IS REASONABLE EXPENDITURE AND WHAT IS NOT. TH E REVENUE AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE BUSINESSMAN AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. 8. WHEN THE ASSESSEE TRANSFERRED THE BORROWED FUNDS TO SISTER CONCERNS FOR A COMMERCIAL EXPEDIENCY AND NOT FROM A POINT OF EARNING ANY PROFIT, IT DOES NOT MEAN THAT THE ASSES SEE HAS DIVERTED BORROWED FUNDS FOR NON-BUSINESS PURPOSE. A SIMILAR VIEW WAS TAKEN BY THE MADRAS HIGH COURT IN TENNECO RC INDIA (P.) L TD. (SUPRA) AND BY THE BOMBAY HIGH COURT IN RELIANCE COMMUNICATIONS INFRASTRUCTURE LTD. AND BY THE DELHI HIGH COURT IN DALMIA CEMENT BHARAT LTD. (SUPRA). WHEN THE ASSESSEE ADVANCED MO NEY TO ITS SISTER CONCERNS AND THERE WAS NO ALLEGATION OF THE REVENUE THAT THE MONEY ADVANCED WAS MISUSED EITHER BY THE SISTER CON CERNS OR ITS DIRECTOR FOR PERSONAL BENEFIT OF INDIVIDUAL BENEFIC IARIES, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE INTEREST ON T HE BORROWED FUNDS HAS TO BE ALLOWED AS EXPENDITURE. IN THIS CASE, TH ERE IS NO ALLEGATION OR NOT EVEN WHISPER THAT THE RECIPIENT C ONCERNS HAVE 7 I.T.A. NO.1284/MDS/14 DIVERTED THE FUNDS FOR THE BENEFIT OF PARTICULAR IN DIVIDUAL OR DIRECTOR OF THE CONCERNS. IN THOSE CIRCUMSTANCES, THIS TRIBUNA L IS UNABLE TO UPHOLD THE ORDER OF THE CIT(APPEALS). ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ADDITION OF ` 45,81,145/- IS DELETED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED ON 27 TH NOVEMBER, 2015 AT CHENNAI. SD/- SD/- ( ! ' ) ( ... ) (CHANDRA POOJARI) (N.R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 6 /DATED, THE 27 TH NOVEMBER, 2015. KRI. / -278 98)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 :2 () /CIT(A)-III, CHENNAI 4. 1 :2 /CIT, CHENNAI-I, CHENNAI 5. 8; -2 /DR 6. <( = /GF.