DLF Hotel Holdings Ltd., New Delhi V. DCIT, New Delhi

ITA 1425/DEL/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2835 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 15-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Transfer pricing; Business expenditure; International transaction; Proportionate interest; Question of law; Commercial expediency
• Section: 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E I - 1 , NEW DELHI BEFORE SH. BHAVNESH SAINI, JUDICIAL MEMBER A ND SH. N. S. SAINI, ACCOUNTANT MEMBER ITA NO. 1425/DEL/2016 : ASSTT. YEAR : 2011 - 12 DL F HOTEL HOLDINGS LTD., 9 TH FLOOR, DLF CENTRE, SANSAD MARG, NEW DELHI - 110001 VS DY. COMMISSIONER OF INCOME TAX, CIRCLE - 7(1), NEW DELHI - 110002 (APPELLANT) (RESPONDENT) PAN NO. A A CCD5033D ASSESSEE BY : SH. R. S. SINGH VI, CA & SH. SATYAJEE T GOEL, CA REVENUE BY : SH. SANJAY I. BARA, CIT DR DATE OF HEARING : 27 .02 .201 9 DATE OF PRONOUNCE MENT : 28 .02 .201 9 ORDER PER N. S . SAINI, A CCOUNTANT M EMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF ASSESSING OFFICER DATED 29.01.2016 U/S 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961. 2. THE FIRST GROUND OF APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE AO/DRP TREATING ADVANCEMENT OF SHARE APPLICATION MONEY AS AN INTERNATIONAL TRANSACTION AND THEREBY APPLYING TRANSFER PRICING PROVISIONS. 3. AT THE TIME OF HEARING, THE AR OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE B Y THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF FOR ASSESSMENT YEAR 2008 - 09 REPORTED IN 51 ITR(T) 499 (DEL) . ITA NO. 1425/DEL/2016 DLF HOTEL HOL DINGS LTD. 2 HENCE, HE PRAYED THAT FOLLOWING THE SAME, THE ADJUSTMENT MADE OF RS.4,73,64,439/ - SHOULD BE DELETED. 4. THE LD. DR CONCURRED WITH THE ABOVE SUBMISSIONS OF THE AR OF THE ASSESSEE. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE MATERIALS AVAILABLE ON THE RECORD, WE FIND THAT IN THE INSTANT CASE, THE ASSESSEE HAS ADVANCED SHARE APPLICATION MONEY OF RS.2,23,57,60,800/ - TO ITS ASSOCIATED ENTERPRISES. THE AO/DRP/TPO APPLIED INTERNAL CUP OF 10.31% ON THE SAID AMOUNT FOR THE PURPOSE OF COMPUTATION OF ADJUSTMENT AND ADDED RS.4,73,64,439/ - TO THE INCOME OF THE ASSESSEE. 6. BEFORE US, THE ASSESSEE CONTENDED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF IN ASSESSMENT YEAR 2008 - 09 AND THE DR HAS ALSO AGREED WITH THE ABOVE SUBMISSION OF THE AR OF THE ASSESSEE. 7. WE FIND THAT THE TRIBUNAL HAS HELD AS UNDER: WE FIND THAT QUASI CAPITAL CAN BE SAID TO BE A CATEGORY OF DEBT TAKEN BY A COMPANY WHICH IN THE CONTEXT OF TRANSFER PRICING ISSUES IS NOT ONLY AN INSTRUMENT OF LEGITIMATE FUNDING BUT IS ALSO A HYBRID INSTRUMENT PRE - STIPULATED TO BE A LOAN FOR A TRANSITORY PERIOD, THE ECONOMIC PURPOSE OF WHICH IS A FUTURE CAPITAL INVESTMENT IN ALL ITS FORMS INCLUDING CONTRIBUTION TO EQUITY OR SUBSCRIPTION OF CAPITAL AND CANNOT BE JUSTIFIABLY BE TREATED AS A DEBT SIMPLICITOR. RELIANCE HAS ALSO BEEN PLACED ON THE CASE OF BHAR TI AIRTEL LTD. (SUPRA) IN (COPY OF WHICH HAS BEEN PLACED AT BOOK PAGES 38 TO 94). THOUGH RELIANCE ON THE SAID DECISION HAS PRIMARILY BEEN PLACED QUA GROUND NO. 2 IN ORDER TO ARGUE THAT WITHOUT PREJUDICE TO THE MAIN ITA NO. 1425/DEL/2016 DLF HOTEL HOL DINGS LTD. 3 ISSUE IF AT ALL INTEREST WAS TO BE CHARGE D ON THE INTEREST FREE ADVANCES THEN THE LIBOR RATE WOULD APPLY. THE SAID PROPOSITION IT HAS BEEN ARGUED IS ALSO SUPPORTED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF COTTON NATURALS (I) (P.) LTD. (SUPRA). HOWEVER, APART FROM THE ISSUE AGITATED IN GROUND NO. 2, BHARTI AIRTEL LTD.'S CASE (SUPRA) HAS ALSO BEEN RELIED IN SUPPORT OF THE PRIMARY ISSUE FOR THE PROPOSITION THAT THE ACTIVITY OF INTEREST FREE ADVANCES ULTIMATELY TO BE CONVERTED INTO EQUITY BY A HOLDING COMPANY TO A SUBSIDIARY COM PANY DOES NOT GIVE RISE TO AN INTERNATIONAL TRANSACTION. 8. FURTHER, WE FIND THAT THE HON BLE BOMBAY HIGH COURT IN THE CASE OF PCIT VS PMP AUTO COMPONENTS PVT. LTD. IN ITA NO. 12 48/2016, ORDER DATED 28.01.2019 WHERE T HE ASSESSEE HAD ENTERED INTO A TRANSA CTION OF PURCHASE OF SHARE OF SHARES OF AN AE , HAS HELD THAT THE TPO COULD NOT HAVE TREATED SUCH TR ANSACTIONS AS A LOAN AND CHARGE INTEREST THEREON ON NOTIONAL BASIS. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF THE ASSESSING OFFICER AND DELETE THE ADDI TION OF RS.4,73,64,439/ - AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 9. IN GROUND NO. 2 OF THE APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE ASSESSING OFFICER ERRED IN DISALLOWING PROPORTIONATE INTEREST COST ON BORROWINGS U/S 36(1)(III) OF THE AC T, IGNORING THE FACT THAT BORROWED FUNDS WERE NOT USED TO MAKE INVESTMENT IN GROUP ENTITIES. 10. THE FACTS OF THE CASE ARE THAT FROM THE BALANCE SHEET OF THE ASSESSEE, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS MADE INVESTMENT IN SHARES OF GROUP COMPANIES AMOUNTING TO RS. 1240,62,57,500/ - ON WHICH NO INCOME IN THE SHAPE OF DIVIDEND OR ANY OTHER INCOME WAS EARNED. HE OBSERVED THAT THE COMPANY HAS TAKEN SECURED AND UNSECURED LOANS AND PAID ITA NO. 1425/DEL/2016 DLF HOTEL HOL DINGS LTD. 4 INTEREST OF RS.27,11,68,479/ - . THUS, HE OBSERVED THAT THE AS SESSEE HAS UTILIZED INTEREST BEARING FUND FOR MAKING INVESTMENT IN GROUP COMPANIES. THEREFORE, HE MADE THE PROPORTIONATE DISALLOWANCE OF INTEREST OF RS.7,23,03,338/ - WHICH WAS CONFIRMED BY THE DRP. 11. BEFORE US, THE AR OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED BY THE HON BLE DELHI HIGH COURT IN THE CASE OF THE ASSESSEE ITSELF FOR ASSESSMENT YEAR 2010 - 11 WHEREIN ON IDENTICAL FACTS, DISALLOWANCE OF INTEREST WAS DELETED. HE PRAYED THAT FOLLOWING THE SAME, THE DISALLOWANCE OF INTEREST SHOULD BE DELE TED. 12. THE LD. DR AGREED WITH THE SUBMISSIONS OF THE AR OF THE ASSESSEE. 13. WE FIND THAT THE HON BLE DELHI HIGH C OURT HAS HELD AS UNDER: 6.THE TRIBUNAL VIDE ORDER DATED 9THAPRIL, 2018 HAS AFFIRMED FINDINGS OF THE COM MISSIONER OF INCOME TAX (A PPEALS) DELETING ADDITION OF RS.5,33,01,263/ - MADE BY THE ASSESSING OFFICER AS BEING CONTRARY TO LAW AND IN PARTICULAR SECTION 36(1)(III) OF THE ACT. THE TRIBUNAL OBSERVED THAT INVESTMENT IN SUBSIDIARIES/ JOINT VENTURE COMPANIES WAS ON E OF THE MAIN OBJECTS OF THE RESPONDENT - ASSESSEE AND HENCE EXPENDITURE IN THE NATURE OF INTEREST INCURRED FOR THE PURPOSE OF MAKING INVESTMENTS CANNOT BE DISALLOWED UNDER SECTION 36(1)(III) OF THE ACT. 7. APART FROM THE INC ONGRUITIES IN THE REASONING AND CALCULATIONS MADE BY THE ASSESSING OFFICER REFERRED TO IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), WHICH HAVE BEEN ACCEPTED BY THE TRIBUNAL, THE ISSUE RAISED IS COVERED AGAINST THE REVENUE BY T HE DECISION OF THE SUPREME COURT IN S.A. ITA NO. 1425/DEL/2016 DLF HOTEL HOL DINGS LTD. 5 BUILDERS LIMITED VERSUS COMMISSIONER OF INCOME TAX AND ANOTHER,(2007) 288 ITR 1 (SC) AND IN MUNJAL SALES CORPORATION VERSUS COMMISSIONER OF INCOME TAX,( 2008) 298 ITR 298(SC). THE SUPRE ME COURT IN S.A. BUILDERS LIMITED(SUPRA)HELD AS FOLLOWS: - 24. IN OUR OPINION, THE DECISIONS RELATING TO SECTION 37 OF THE ACT WILL ALSO BE APPLICABLE TO SECTION 36(1)(III) BECAUSE IN SECTION 37 ALSO THE EXPRESSION USED IS FOR T HE PURPOSE OF BUSINESS . IT HAS BEEN CONSISTENTLY HELD IN DECISIONS RELATING TO SECTION 37 THAT THE EXPRESSION FOR THE PURPOSE OF BUSINESS INCLUDES EXPENDITURE VOLUNTARILY INCURRED FOR COMMERCIAL EXPEDIENCY, AND IT IS IMMATERIAL IF A THIRD PARTY ALSO BENEFITS THEREBY. 25. THUS IN ATHERTON V. BRITISH INSULATED & HELSBY CABLES LTD.[(1925) 10 TC 155 : 1 KB 421 : 132 LT 288 (CA)] IT WAS HELD BY THE HOUSE OF LORDS THAT IN ORDER TO CLAIM A DEDUCTION, IT IS ENOUGH TO SHOW THAT THE MONEY IS EXPENDED, NOT OF NECESSITY AND WITH A VIEW TO DIRECT AND IMMEDIATE BENEFIT, BUT VOLUNTARILY AND ON GROUNDS OF COMMERCIAL EXPEDIENCY AND IN ORDER TO INDIRECTLY FACILITATE THE CARRYING ON OF THE BUSINESS. THE ABOVE T EST IN ATHERTON CASE[(1925) 10 TC 155: 1 KB 421 : 132 LT 288 (CA)] HAS BEEN APPROVED BY THIS COURT IN SEVERAL DECISIONS E.G. EASTERN INVESTMENTS LTD. V. CIT[(1951) 20 ITR 1 : AIR 1951 SC 278], CIT V. CHANDULAL KESHAVLAL & CO.[(1960) 38 ITR 601 : AIR 1960 SC 738] , ETC. 26. IN OUR OPINION, THE HIGH COURT AS WELL AS THE TRIBUNAL AND OTHER INCOME TAX AUTHORITIES SHOULD HAVE APPROACHED THE QUESTION OF ALLOWABILITY OF INTEREST ON THE BORROWED FUNDS FROM THE ABOVE ANGL E. IN OTHER WORDS, THE HIGH COURT AND OTHER AUTHORITIES SHOULD HAVE ENQUIRED AS TO WHETHER THE INTEREST - FREE LOAN WAS GIVEN TO THE SISTER COMPANY (WHICH IS A SUBSIDIARY OF THE ASSESSEE) AS A MEASURE OF ITA NO. 1425/DEL/2016 DLF HOTEL HOL DINGS LTD. 6 COMMERCIAL EXPEDIENC Y, AND IF IT WAS, IT SHOULD HAVE BEEN ALLOWED. 27. THE EXPRESSION COMMERCIAL EXPEDIENCY IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXP ENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS A BUSINESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. XXX 37. WE WISH TO MAKE IT CLEAR THAT IT IS NOT OUR OPINION THAT IN EVERY CASE INTEREST ON BORROWED LOAN HAS TO BE ALLOWED IF THE ASSESSEE ADVANCES IT TO A SISTER CONCERN. IT ALL DEPENDS ON THE FACTS AND CIRCUMSTANCES OF THE RESPECTIVE CASE. FOR INSTANCE, IF THE DIRECTORS OF THE SISTER C ONCERN UTILISE THE AMOUNT ADVANCED TO IT BY THE ASSESSEE FOR THEIR PERSONAL BENEFIT, OBVIOUSLY IT CANNOT BE SAID THAT SUCH MONEY WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY. HOWEVER, MONEY CAN BE SAID TO BE ADVANCED TO A SISTER CONCERN FOR COMMERCIAL EXPEDIENCY IN MANY OTHER CIRCUMSTANCES (WHICH NEED NOT BE ENUMERATED HERE). HOWEVER, IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS SUBSIDIARY, AND HENCE IF THE HOLDING COMPANY A DVANCES BORROWED MONEY TO A SUBSIDIARY AND THE SAME IS USED BY THE SUBSIDIARY FOR SOME BUSINESS PURPOSES, THE ASSESSEE WOULD, IN OUR OPINION, ORDINARILY BE ENTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS. THE ASSESSING OFFICER HAD REFERRED AND FOLLOWED SOME OF THE JUDGMENTS IN COMMISSIONER OF INCOME TAX VERSUS ABHISHEK INDUSTRIES LIMITED,(2006) 286 ITR 1(P&H) AND OTHERS, WHICH HAVE BEEN OVERRULED BY THE SUPREME COURT IN S.A. BUILDERS LIMITED(SUPRA). ITA NO. 1425/DEL/2016 DLF HOTEL HOL DINGS LTD. 7 8. AS THE IS SUE IS COMPLETELY COVERED BY THE AFORESAID TWO DECISIONS OF THE SUPREME COURT, NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATION AND ACCORDINGLY THE APPEAL IS DISMISSED. 14. FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE PRECEDENT , WE SET ASIDE THE ORDER OF THE AO AND VACATE THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS. 7,23,03,338/ - AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. (ORDER PRON OUNCED IN THE OPEN COURT ON 28 /02 /2019 ) SD/ - SD/ - ( BHAVNESH SAINI ) (N. S . SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 28 /02 /2019 *SUBODH* COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASSISTANT REG ISTRAR