SHOPPERS STOP LTD, MUMBAI V. ACIT CEN CIR 29, MUMBAI

ITA 1362/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8398 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 25-05-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 18-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Assessee Lawyers: ARVIND SONDE
• Keywords: Wholly owned subsidiary; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH E,MUM BAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.1362/MUM/2013 (ASSESSMENT YEAR- 2004-05) ITA NO. 1363/MUM/2013 (ASSESSMENT YEAR- 2005-06) SHOPPERS STOP LTD. EUREKA TOWERS, B-WING, 9 TH FLOOR, MINDSPACE, LINK ROAD, MALAD (WEST), MUMBAI-400064 PAN: AABCS4383A VS. ACIT, CENTRAL CIRCLE- 29, AAYAKAR BHAVAN, MUMBAI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ARVIND SONDE ( AR) REVENUE BY : SHRI B.S. BIST (DR) DATE OF HEARING : 18.01.2017 DATE OF PRONOUNCEMENT : 01.03.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JM: 1. THESE TWO APPEAL BY ASSESSEE U/S 253 OF THE INCOME- TAX ACT (THE ACT) ARE DIRECTED AGAINST THE ORDER(S) OF LD. COMMISSIONER OF INCOME- TAX (APPEALS) [FOR SHORT THE CIT(A)] 40, MUMBAI DATED 07.01.2013 FOR ASSESSMENT YEAR (AY) 2004-05 & 2005- 06. THE ASSESSEE HAS RAISED IDENTICAL GROUNDS OF AP PEAL FOR BOTH THE YEARS, FACTS OF THE CASE ARE ALSO SIMILAR, THUS BOTH THE APPEAL WERE CL UBBED TOGETHER AND ARE DECIDED BY COMMON ORDER TO AVOID CONFLICTING DECISION. THE AS SESSEE RAISED SOLE GROUND OF APPEAL FOR BOTH THE YEARS THAT LD. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE U/S 35(1)(III) OF THE ACT. FOR APPRECIATION OF FACTS, WE ARE REFERRING THE FACTS OF THE APPEAL FOR AY 2004-05. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSMENT U/S 143(3) R.WS. 147 OF THE ACT WAS PASSED ON 23.12.2011. THE ASSESSING OFFICER (AO) WH ILE PASSING ASSESSMENT ORDER BESIDES THE OTHER ADDITIONS/DISALLOWANCE DISALLOWED A SUM OF RS. 29,82,438/- U/S 2 ITA NOS. 1362 & 1363/M/2013 SHOPPERS STOP LTD. 36(1)(III) OF THE ACT. THE AO MADE THE DISALLOWANCE HOLDING THAT INTEREST BEARING FUNDS WERE DIVERTED TO ITS SUBSIDIARY COMPANY. ON A PPEAL BEFORE THE LD. CIT(A), THE DISALLOWANCE WAS UPHELD. AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 3. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE (AR ) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENUE AN D PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. AR OF THE ASSESSEE ARGUED THAT A SSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF RETAIL STORE THROUGH VARIOUS OUTLETS IN VARIOUS BIG CITIES IN COUNTRY. THE UPASANA TRADING LTD. (UTL) IS 100% SUBSIDIARY OF AS SESSEE AND ENTIRELY DEPENDENT OF ASSESSEE-COMPANY. BEING 100% SUBSIDIARY OF ASSES SEE, THE ASSESSEE IS COMMITTED TO PROVIDE NECESSARY FINANCIAL SUPPORT TO UTL TO EN ABLE IT TO OPERATE AND PAY ITS DEBTS, IF REQUIRED. THE LD AR FOR ASSESSEE SUBMITTED DURIN G THE ASSESSMENT PROCEEDING, THE ASSESSEE VIDE ITS LETTER DATED 19.12.2011 CONTENDE D THAT AMOUNT OF RS. 3,97,65,845/- WAS ADVANCED TO UTL FROM ITS INTEREST FREE FUNDS AV AILABLE WITH ASSESSEE. THE ASSESSEE FURTHER PROVIDED THE FUND FLOW STATEMENT T O AO. THE AO DISALLOWED THE EXPENDITURE OF RS. 29,82,438/- HOLDING THAT INTERES T BEARING FUND HAVE BEEN DIVERTED TO ITS SUBSIDIARY AND DISALLOWED THE INTEREST ON PR O-RATA BASIS U/S 36(1)(III) OF THE ACT. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE HOLDING T HAT THERE WAS NO COMMERCIAL EXPEDIENCY AND NO MONTH WISE CASH FLOW STATEMENT HA S BEEN FURNISHED. IT WAS ALSO ARGUED THAT IN THE LD. AR OF THE ASSESSEE TO SUBS TANTIATE HIS SUBMISSIONS RELIED UPON THE DECISION OF HONBLE APEX COURT IN S.A. BUILDER VS CIT IN CIVIL APPEAL NO. 5811 OF 2006 DATED 14.12.2006 . ON THE OTHER HAND THE LD . DR FOR THE REVENUE SUPPORTED THE ORDER OF AUTHORITIES BELOW. LD. DR FOR THE REVE NUE ARGUED THAT MONEY WAS PAID ON ACCOUNT OF SALE-TAX LIABILITY IN THE NAME OF M/S K.R. TRENDS, A DIVISION OF UTL. THE AMOUNT WAS NOT SHOWN AS ADVANCE. 4. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND GONE THROUGH THE ORDER OF AUTHORITIES BELOW. THE AO DURING THE ASSESSMENT PRO CEEDING, NOTICED THAT ASSESSEE HAS SHOWN LOANS AND ADVANCES TO ITS SUBSIDIARY AT R S. 4,05,94,175/- OUT OF WHICH AN AMOUNT OF RS. 3,97,65,845/- WAS DUE FROM UTL. THE A O ASKED THE ASSESSEE TO EXPLAIN WHY INTEREST ON PRO-RATA BASIS SHOULD NOT B E DISALLOWED, AS THE ASSESSEE CLAIMED HUGE INTEREST EXPENSES WHILE ASSESSEE HAS A DVANCED INTEREST FREE LOAN TO ITS SUBSIDIARY. THE ASSESSEE FILED ITS REPLY DATED 19.1 2.2011. THE ASSESSEE CONTENDED THAT 3 ITA NOS. 1362 & 1363/M/2013 SHOPPERS STOP LTD. UTL IS ITS 100% SUBSIDIARY AND ARE DEPENDENT UPON T HE ASSESSEE-COMPANY TO PROVIDE NECESSARY LEVEL OF FINANCIAL SUPPORT TO ENABLE IT T O OPERATE AND PAY ITS DEBTS, IF REQUIRED. THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUND AVAILABLE FOR ADVANCING AMOUNT OF RS. 4,97,65,000/- TO ITS SUBSIDIARY COMP ANY . THE REPLY OF ASSESSEE WAS NOT ACCEPTED BY AO. THE AO CONCLUDED THAT REPLY AND FUND FLOW STATEMENT GIVEN BY ASSESSEE DOES NOT SUPPORT THE ASSESSEE- COMPANYS C ONTENTION. THE AO FURTHER CONCLUDED THAT ASSESSEE COULD NOT MAKE OUT GROUND F OR COMMERCIAL EXPEDIENCY FOR ADVANCING INTEREST FREE LOAN AND DISALLOWED INTERES T OF PRO-RATA BASIS. THE INTEREST WAS WORKED OUT AT 7.5% ON THE AMOUNT OF RS. 3,97,65,485 /-. THE INTEREST WAS CALCULATED AT RS. 29,82,438/-. ON APPEAL BEFORE THE LD. CIT(A), T HE SIMILAR CONTENTION WERE URGED. IN ADDITION, IT WAS SUBMITTED THAT ADVANCES GIVEN T O UTL WAS NOT A LOAN OR ADVANCE, BUT IT WAS A TRADE ADVANCE AND HENCE, THERE WAS A C OMMERCIAL EXPEDIENCY. THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY LD. CIT(A). THE LD. CIT (A) ALSO CONCLUDED THAT IN THE BALANCE-SHEET, THE AMOUNT HAS BEEN SHOWN AS ADVANCE. THE ASSESSEE CANNOT GO AGAINST ITS OWN ENTRY IN THE BOO KS OF ACCOUNT; THE AMOUNT PROVIDED BY ASSESSEE TO UTL WAS NOT A BUSINESS TRANSACTION. THUS, THERE WAS NO COMMERCIAL EXPEDIENCY AND CONFIRMED THE DISALLOWANCE. 5. WE HAVE SEEN THAT THE ASSESSEE OWNED SUFFICIENT INT EREST FREE FUNDS AVAILABLE WITH IT AS SHOWN IN THE BALANCE SHEET OF THE ASSESSEE. WE HAVE ALSO PERUSED THE COPY OF REPLY OF THE ASSESSEE DATED 24 TH DECEMBER 2012 FILED BEFORE COMMISSIONER (APPEALS) DURING THE APPELLATE PROCEEDINGS, WHEREIN THE ASSESSEE HAS SPECIFICALLY CONTENDED THAT UTL IS 100% SUBSIDIARY OF THE ASSESSEE COMPANY WHICH IS ENGAGED IN THE BUSINESS OF PROVIDING DISTRIBUTION AND LOGISTICS SUPPORT TO THE ASSESSEE. THE ASSESSEE COMPANY ADVANCES CERTAIN FUNDS TO UTL IN THE ORDINARY COURS E OF BUSINESS OF PROVIDING SERVICES TO ASSESSEE. THE COPY OF FINANCIAL STATEME NT OF UTL FOR THE YEAR ENDING ON 31 MARCH 2004 WAS ALSO FURNISHED. WE HAVE ALSO SEEN THAT IN THE FINANCIAL STATEMENT OF UTL, UTL MENTIONED THAT ITS OPERATIONS ARE ENTIR ELY DEPENDENT ON ITS HOLDING COMPANY I.E. SHOPPERS STOP LTD (SSL). THE SSL HAS COMMITTED TO PROVIDE THE NECESSARY LEVEL OF FINANCIAL SUPPORT TO UTL TO OPER ATE AND PAY ITS DEBTS AS AND WHEN IT BECAME DUE. THE UTL FURTHER MENTIONED THAT SSL B USINESS PLANS ENVISAGE A SIGNIFICANT INCREASE IN ITS OPERATIONS. ACCORDINGLY , UTL PREPARED THE STATEMENTS ASSUMING THAT THE COMPANY WILL CONTINUE AS A GOING CONCERN AND DO NOT THEREFORE 4 ITA NOS. 1362 & 1363/M/2013 SHOPPERS STOP LTD. INCLUDE ANY ADJUSTMENT RELATING TO THE RECOVERABILI TY AND CLASSIFICATION OF ASSET AMOUNTS OR THE AMOUNTS AND CLASSIFICATION OF LIABIL ITIES THAT MIGHT RESULT SHOULD THE COMPANY BE UNABLE TO CONTINUE AS A GOING CONCERN. W E HAVE ALSO FIND ON RECORD THE COPY OF ASSESSMENT ORDER OF UTL PASSED UNDER SECTI ON 143(3) FOR ASSESSMENT YEAR 2004-05 DATED 20 TH NOV 2006, FOR AY 2003-04 AND AY 2002-03, WHEREIN T HE NATURE OF BUSINESS OF UTL IS ACCEPTED BY REVENUE AS DIS TRIBUTION AND LOGISTICS FUNCTION OF M/S SHOPPERS STOP LTD. WE HAVE ALSO SEEN THAT UTL IN ITS NOTES TO THE FINANCIAL STATEMENTS ENDING IN MARCH 2004 HAS ALSO MENTIONED THE LIABILITY OF SSL. FROM THE ABOVE FACTUAL POSITION OBSERVED ABOVE WE ARE OF THE VIEW THAT THERE WAS BUSINESS EXPEDIENCY FOR ADVANCING INTEREST FREE LOAN BY THE ASSESSEE TO ITS SUBSIDIARY COMPANY. THUS, NO DISALLOWANCE WAS WARRANTED AGAINST THE ASS ESSEE, WHEN, THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS AVAILABLE WIT H THE ASSESSEE. WITH THESE OBSERVATION WE DELETE THE DISALLOWANCE OF INTEREST UNDER SECTION 36 (1)(III) OF THE ACT. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 1363/MUM/2013 6. THE ASSESSEE HAS RAISED IDENTICAL GROUNDS OF APPEAL FOR AY 2005-06. AS WE HAVE ALREADY ALLOWED THE APPEAL OF ASSESSEE FOR AY 2004- 05 ON SIMILAR GROUNDS. THUS, THE APPEAL FOR AY 2005-06 IS ALLOWED WITH SIMILAR OBSER VATION. WE ORDER ACCORDINGLY. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTY ALLO WED AND THE APPEAL OF THE REVENUE IS DISMISSED. 7. IN THE RESULT, APPEAL FILED BY ASSESSEE FOR BOTH TH E AYS ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 1 ST MARCH, 2017. SD/- SD/- (B.R. BASKARAN) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 01/03/2017 S.K.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/