Vadilal Industries Ltd., Ahmedabad V. The Jt. CIT, Range-8, Ahmedabad

ITA 1631/AHD/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8172 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 08-06-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Keywords: Proportionate interest; Wholly owned subsidiary; Notional interest
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SHR I MAHAVIR PRASAD , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER VADILAL INDUSTRIES LTD., VADILAL HOUSE , SHRIMALI SOC., NAVRANGPURA, AHMEDABAD - 380009, PAN: AAACV4887F (APPELLANT) VS JOINT COMMISSIONER OF INCOME TAX, RANGE - 8, AHMEDABAD (RESPONDENT) REVENUE BY : S H RI V.K. SINGH , SR. D . R. ASSESSEE BY: MS. URVASHI SHODHAN , A.R. DATE OF HEARING : 30 - 10 - 2 017 DATE OF PRONOUNCEMENT : 13 - 11 - 2 017 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT ME MBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2011 - 12 , AR IS ES FROM ORDER OF THE CIT(A) - 8, AHMEDABAD DATED 18 - 03 - 2015 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - I T A NO . 1631 / A HD/20 15 A SSESSMENT YEAR 2011 - 12 I.T.A NO. 1631 /AHD/20 15 A.Y. 2011 - 12 PAGE NO VADILAL INDUSTRIES LTD. VS. JCIT 2 (1) THE LEARNED COMMISSIONER (APPEAL) FAILED TO UNDERSTAND THE FACTS AND CIRCUMSTANCES OF THE CASE. (2) THE LEARNED COMMISSIONER (APPEAL) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER ADDING NOTIONAL INTEREST OF RS.3,61,355/ - ON TH E INTEREST FREE ADVANCES GIVEN TO WHOLLY OWNED SUBSIDIARY IN USA. THE LEARNED COMMISSIONER (APPEAL) ERRED IN CONFIRMING RATE OF INTEREST APPLIED BY ASSESSING OFFICER OF 5.1% INSTEAD OF THE LIBOR RATE PREVAILING IN USA FOR BORROWING THE FUNDS. 3. IN THIS CASE, RETURN OF INCOME DECL ARING INCOME OF RS. NIL WAS FIL ED ON 31 ST MARCH, 2012. SUBSEQUENTLY, THE CASE WAS SELECTED UNDER SCRUTINY BY ISSUING OF NOTICE U/S. 143(2) OF THE ACT ON 3 RD AUGUST, 2012. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSI NG OFFICER NOTICED THAT ASSESSEE HAS PRO VIDED LOAN OF RS. 1,50,000/ - US $ (RS. 70,85,000/ - ) TO ITS FOREIGN SUBSIDIARY ASSESSEE ON WHICH NO INTEREST WAS CHARGED. THE ASSESSING OFFICER OBSERVED THAT O N OTHER HAND, THE ASSESSEE HAS INCURRED INTEREST EXPENSES OF RS . 9.61 CRORES. THE REFORE THE ASSESS EE WAS ASKED WHY NOT PROPORTIONATE INTEREST EXPENSES SHOULD BE DISALLOWED. T HE ASSESSEE SUBMITTED THAT IT HA D GIVEN LOAN TO V ADILAL, INC, USA S UBSIDIARY IN USA AND OFFERED LIBOR RATE AVERAGE FOR THE WHOLE YEAR @ 0.27% OF O RS. 12618/ - . THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE ON THE GROUND THAT THE MORE RELEVANT IS THE COST AT WHICH THE ASSESSE E HAS OBTAINED ITS INTEREST BEARING FUND IN INDIA . THE HAS DETERMINED THE EFFECTIVE INTER EST RATE IN THE CASE OF THE ASSESSEE TO 5.1% .ACCORDINGLY, THE ASSESSING OFFICER HAS DISALLOWED RS. 3 , 61 ,33 5/ - AS INTEREST EXPENDITURE ON THE AMOUNT OF LOAN PROVIDED TO THE SUBSIDIARY WITHOUT CHARGING ANY INTEREST. I.T.A NO. 1631 /AHD/20 15 A.Y. 2011 - 12 PAGE NO VADILAL INDUSTRIES LTD. VS. JCIT 3 4. AGGRIEVED ASSESSEE FAILED BEFORE T HE LD. CIT(A). THE LD. CIT(A) HAS SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER: - 5. THE SUBMISSIONS ARE CONSIDERED . IT IS SEEN THAT DEDUCTION UNDER SECTION 36(1)(III) IS GOVERNED BY PROVISIONS OF SECTION 40A(2)(A) WHICH PROV IDES THAT IF ANY EXCESSIVE EXPENDITURE OR UNREASONABLE BENEFIT HAS BEEN EXTENDED TO HIS SISTER CONCERN COVERED BY PROVISIONS OF SECTION 40A(2)(B) , THEN EXCESSIVE EXPENDITURE INCURRED FOR THE BENEFIT OF RELATIVE COVERED BY CLAUSE (B) IS DISALLOWED. HENCE T HE CONTENTION OF THE APPELLANT THAT THE RATE AT WHICH FOREIGN SUBSIDIARY WOULD HAVE AVAILED LOAN IS NOT RELEVANT. WHAT IS REQUIRED TO BE SEEN IS THAT EXPENSES INCURRED BY THE APPELLANT IN EXTENDING THE BENEFIT TO THE RELATIVE. THE ASSESSING OFFICER HAS CON SIDERED THE COST TO THE APPELLANT BY TAKING THE OVERALL VIEW OF THE AVAILABILITY OF FUNDS. NEEDLESS TO STATE THAT FUNDS OF THE APPELLANT ARE MIXED AND NO CASE HAS BEEN MADE OUT THAT ONLY THE INTEREST FREE FUNDS WERE UTILISED TO GRANT CREDIT TO THE SISTER C ONCERN. IN VIEW OF THIS, I AGREE WITH THE FINDINGS OF THE ASSESSING OFFICER AND DISALLOWANCE MADE BY HER IN THE ORDER IS CONFIRMED. GROUND NUMBER 3 IS DISMISSED. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD CAREFULLY. WE OBS ERVED THAT THAT COST OF FUNDS IN THE HANDS OF THE ASSESSEE IS TO BE DETERMINED TO CONSIDER THE UNREASONABLE BENEFIT EXTENDED TO IT S SUBSIDIARY AS PER THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT AS AGAINST THE RATE AT WHICH THE FOREIGN SUBSIDIARY WOU LD HAVE AVAILED LOAN. WE HAVE NOTICED THAT THE A SSESSING OFFICER HAS DETERMINED SUCH COST OF THE FUNDS @ 5.1% AFTER TAKING INTO CONSIDERATION THE AVAILABILITY OF FUND WITH THE ASSESSEE . THE ASSESSEE HAS NOT CONTRAVERTED THESE FINDINGS OF THE ASSESSIN G OFFICER WITH SPECIFIC RELEVANT MATERIAL. AFTER CONSIDERING THE ABOVE FACTS AND FINDINGS , WE ARE OF THE VIEW T HAT IT IS UNREASONABLE TO ACCEPT I NTEREST @ 0.27% AS AGAINST THE COST OF THE FUNDS AVAILABLE TO THE ASSESSEE I.T.A NO. 1631 /AHD/20 15 A.Y. 2011 - 12 PAGE NO VADILAL INDUSTRIES LTD. VS. JCIT 4 @5.1%. THEREFORE, WE DO NOT FIND AN Y ERROR IN THE FINDINGS OF THE LD. CIT(A). ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS DISMISSED. 6. IN THE RESULT , THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OU RT ON 13 - 11 - 201 7 SD/ - SD/ - ( MAHAVIR PRASAD ) ( AM ARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 13 /11 /2017 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. G UARD FILE. BY ORDER/ , / ,