DCIT, CHENNAI V. PVP Ventures Ltd., CHENNAI

ITA 1706/CHNY/2013

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2683 (ITAT-CHENNAI)
• Duration Of Justice: 6 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2020
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2004-2005
• Appeal Filed On: 06-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business expenditure; Set aside

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH : CHENNAI , . , [BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ] !' ./I.T.A. NO.1706/CHNY/2013. #$% &$ / ASSESSMENT YEAR : 2004-2005. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(2) CHENNAI 600 034. VS. M/S. PVP VENTURES LTD (FORMERLY M/S. SSI LTD) NEW NO.34, OLD NO.54, THIRUMALAI ROAD, T. NAGAR, CHENNAI 600 017. [PAN AAACS 3101P] ( / APPELLANT) ( /RESPONDENT) !' '( ) * / APPELLANT BY : SHRI. ABANI KANTA, NAYAK, CIT. +,'( ) * /RESPONDENT BY : SHRI. B. RAMAKRISHNAN, C.A. # - ) . /DATE OF HEARING : 10-03-2020 /0&% ) . /DATE OF PRONOUNCEMENT : 10-03-2020 / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE DEPARTMENT DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S)-VI, CHENNAI (CIT(A) FOR SHORT) DATED 22.02.2013 FOR THE ASSES SMENT YEAR (AY) 2004-05. ITA NO.1706/2013 :- 2 -: 2. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL. 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD. CIT(A) ERRED IN DELETING THE INTEREST DI SALLOWANCE ON ACCOUNT OF PURCHASE OF SHARES OF APTECH LTD.. 2.1. THE LD CIT(A) OUGHT TO HAVE APPRECIATED THAT T HE ASSESSEE BORROWED LOAN FROM THE BANK TO PURCHASE SH ARES OF APTECH LTD WITH THE SOLE INTENTION TO ACQUIRE CONTR OLLING INTEREST, WHO WAS A COMPETITOR OF THE ASSESSEE COMP ANY. THIS ACT OF THE ASSESSEE CANNOT BE TERMED AS AN EXPENSE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING I NCOME FROM ITS BUSINESS. IT IS ONLY TRYING TO WEED OUT THE COM PETITION IN AN UNHEALTHY MANNER. 2.2. IT IS SUBMITTED THAT BY DOING SO, THE ASSESSEE CERTAINLY DERIVES A SUBSTANTIAL INTEREST IN THE AFFAIRS OF TH E COMPANY M/S APTECH LTD., WHICH OUGHT TO HAVE BEEN CONSIDERED BY THE LD CIT(A). 2.3. FURTHER, THE LD CIT(A) OUGHT TO HAVE NOTED THA T THE ASSESSEE ENJOYED THE BENEFIT OF VOTING POWER / SUBS TANTIAL INTEREST IN THE COMPANY, THE SHARES OF WHICH WERE P URCHASED OUT OF THE LOAN AMOUNT. THIS IS ALSO SQUARELY COVER ED BY THE PROVISIONS OF SECTION 28(IV) OF THE ACT. 2.4. THE LD CIT(A) OUGHT TO HAVE CONSIDERED THE DEC ISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF M/S SU JANI TEXTILES (P) LTD (151 ITR 653) WHEREIN IT WAS HELD THAT THE INVESTMENT IN SHARES CANNOT BE CONSIDERED AS AN INVESTMENT FOR THE PURPOSE OF BUSINESS AND THAT APPLICABILITY OF SECTION 36(1) (III) STANDS EXCLUDED IN SUCH CIRCUMSTANCES 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LD CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE RESPONDENT ASSESSEE NAMELY M/S.PVP VENTURE S LTD IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE CO MPANIES ACT, ITA NO.1706/2013 :- 3 -: 1956. IT IS ENGAGED IN THE BUSINESS OF SOFTWARE TR AINING, DEVELOPMENT, EXPORT ETC., THE RETURN OF INCOME FOR THE ASSESSM ENT YEAR 2004-2005 WAS FILED ON 1.11.2004 ADMITTING LOSS OF RS.93,94,8 9,910/-. AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-V (2), CHENNAI PASSED U/S.143(3) OF THE ACT ON 18.12.2006 AT TOTAL LOSS OF RS.36,92,22,032/-. WHILE DOING SO, THE ASSESSING OFFICER DISALLOWED I NTEREST EXPENDITURE OF RS.8,84,11,739/- U/S.36(1) (III) OF THE ACT ON T HE GROUND THAT INTEREST BEARING FUNDS WERE DIVERTED FOR NON BUSIN ESS PURPOSE . 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A SSESSING OFFICER OBSERVED THAT THE RESPONDENT- ASSESSEE HA D ADVANCED THE FOLLOWING AMOUNT TO SISTER SUBSIDIARY COMPANIES. AGS HOLDINGS P. LTD ( L & B A/C) 86,551.10 APTECH LIMITED (SALE OF BUSINESS) 14,03,07,812.10 SSI EDUCATION APTECH A/C 51,37,374.23 SSI EUROPE 12,79,35,646.84 SSI EUROPE (2001-02) 78,54,334.47 SSIT SINGAPORE 4,76,95,777.12 SSIT SINGAPORE 42,98,995.96 SSIT NA INC 2,28,773.77 CLIENTSOFT INCOME USA 16,21,37,413.67 SSI T NA 64,57,92,354.88 TOTAL 1,22,79,39,814.14 THEREFORE THE ASSESSING OFFICER WAS OF THE VIEW THA T INTEREST BEARING FUNDS WERE DIVERTED AND ACCORDINGLY DISALLOWED INT EREST EXPENDITURE . ITA NO.1706/2013 :- 4 -: 5. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE THE LD.CIT(A) WHO VIDE IMPUGNED ORDER DELETED THE ADDIT ION HOLDING THAT AMOUNT INVESTED IN THE FORM OF EQUITY SHARES TO A CQUIRE CONTROLLING INTEREST IN THE SISTER CONCERN IS A BUSINESS EXPE NDITURE, FOLLOWING THE ORDER OF LD. CIT(A) IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-2004, ACCORDINGLY DIRECTED THE ASSESSING OFFIC ER TO DELETE THE ADDITION. 6. BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE U S IN THE PRESENT APPEAL. IT IS CONTENDED THAT INTEREST BEAR ING FUNDS WERE BEING DIVERTED TO SISTER CONCERN, THEREFORE, THE INTERE ST CANNOT BE ALLOWED AS EXPENDITURE U/S.36(1) (III) OF THE ACT. IT IS FU RTHER CONTENDED THAT ACQUIRING CONTROLLING INTEREST IN SUBSIDIARY COMP ANY DOES NOT AMOUNT TO BUSINESS ACTIVITY AND THEREFORE INTEREST CAN BE DISALLOWED U/S.36(1)(III) OF THE ACT PLACING RELIANCE ON THE D ECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF SUJANI TEXTILES (P) LTD ( SUPRA). 7. ON THE OTHER HAND, THE LD. AUTHORISED REPRESENTATIV E SUBMITTED THAT NO DISALLOWANCE OF INTEREST IS WARR ANTED, AS THE AMOUNTS WERE INVESTED IN THE FORM OF SHARE CAPITAL FOR ACQUIRING CONTROLLING INTEREST IN SUBSIDIARY COMPANY PLACING RELIANCE ON THE DECISIONS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE COMMUNICATIONS INFRASTRUCTURE LTD (2012) 21 TAXMAN 118 AND CIT VS.PANAJI VS. PHIL CORPN LTD, (2011) 14 TAXMAN. COM 58 . ITA NO.1706/2013 :- 5 -: 8. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. THE ONLY ISSUE INVOLVED IN THE PRESENT APPE AL RELATES TO WHETHER OR NOT THE ASSESSING OFFICER IS JUSTIFIED I N MAKING DISALLOWANCE U/S.36(1) (III) OF THE ACT ON THE GROU ND THAT BORROWED FUNDS WERE UTILIZED FOR NON BUSINESS PURPOSE. THE ISSUE IN THE PRESENT APPEAL WAS DECIDED IN ASSESSEES OWN CASE I N ITA NO.1705/CHNY/2013 FOR ASSESSMENT YEAR 2003-2004, D ATED 21.11.2019, WHEREIN IT WAS HELD AS FOLLOWS:- 8. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD. THE ONLY ISSUE INVOLVED IN THE PRESENT APPE AL RELATES TO WHETHER OR NOT THE ASSESSING OFFICER IS JUSTIFIED I N MAKING DISALLOWANCE U/S.36(1) (III) OF THE ACT ON THE GROU ND THAT BORROWED FUNDS WERE UTILIZED FOR NON BUSINESS PURPOSE. ADM ITTEDLY, AMOUNTS WERE ADVANCED TO THE SISTER CONCERN FOR THE PURPOSE OF ACQUIRING SHARES IN APTECH LTD AND PURCHASE OF ASSETS. THE A MOUNTS WERE ADVANCED IN THE FORM OF LOAN TO THE SISTER CONCERN. THEREFORE, THE CONTENTION THAT THE AMOUNT WERE ADVANCED FOR THE PURPOSE OF ACQUIRING CONTROLLING INTEREST CANNOT BE ACCEPTED. IT IS THE SISTER CONCERN OF THE COMPANY WHICH ACQUIRED THE CONTROLLI NG INTEREST OF APTECH LTD. IF THE LOANS ARE ADVANCED TO SISTER CONCERN OUT OF BUSINESS EXPEDIENCY, IT CAN BE ALLOWED AS DEDUCTIO N. BUSINESS EXPEDIENCY IS A QUESTION OF FACT WHICH REQUIRES TO BE SUBSTANTIATED WITH EVIDENCE. THE LD. COMMISSIONER OF INCOME TAX ( APPEALS) WITHOUT DISCUSSING ANY FACTUAL SITUATION MERELY JUMPED TO CONCLUSION THAT IT IS A BUSINESS EXPENDITURE. RELIANCE PLACED BY THE AUTHORISED REPRESENTATIVE ON THE DECISION OF BOMBAY HIGH COUR T IN THE CASE OF RELIANCE COMMUNICATIONS INFRASTRUCTURE LTD (SUPRA) CANNOT BE APPLIED TO THE FACTS OF THE PRESENT CASE, AS THE RATIO LA ID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE ABOVE CASE IS THAT IN CASE OF THE MIXED FUNDS, BORROWED FUNDS AND OWN FUNDS, WHERE TH E OWN FUNDS ARE MORE THAN THE INVESTMENT, THE PRESUMPTION IS TO BE DRAWN THAT OWN FUNDS WERE UTILIZED FOR THE PURPOSE OF MAKING INVESTMENTS. IN THE PRESENT CASE, IT IS NOT THE CONTENTION OF THE ASSESSEE THAT OWN FUNDS ARE UTILIZED FOR THE PURPOSE OF MAKING INVEST MENT. IN THE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION TH AT THE MATTER SHOULD GO BACK TO THE FILE OF THE LD. COMMISSIONER OF INCOME TAX ITA NO.1706/2013 :- 6 -: (APPEALS) TO DECIDE THE ALLOWABILITY OF THE INTERES T AS BUSINESS EXPENDITURE KEEPING IN VIEW THE FACTUAL FACTS OF TH E CASE. 9. SINCE IN THE EARLIER ASSESSMENT YEAR 2003-2004, THE MATTER WAS REMITTED BACK TO THE FILE OF THE CIT(A) FOR TH E REASONS STATED HEREIN, THIS MATTER IS REMANDED BACK TO THE FILE O F THE LD. CIT(A) FOR FRESH ADJUDICATION WHETHER THE FUNDS WERE ADVANCED TO SISTER CONCERN OUT OF BUSINESS EXPEDIENCY OR NOT. NEEDLESS TO SAY LD. CIT(A) SHOULD AFFORD DUE OPPORTUNITY OF HEARING TO THE ASSESSEE IN ACCO RDANCE WITH LAW. HENCE, THE APPEAL FILED BY THE REVENUE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 10TH DAY OF MARCH, 2020, A T CHENNAI. SD/- SD/- ( . ! ) (DUVVURU RL REDDY) ' # /JUDICIAL MEMBER ( ) (INTURI RAMA RAO) /ACCOUNTANT MEMBER 1 #- / CHENNAI 2# / DATED:10TH MARCH, 2020. KV 3 ) +.4 5' !6 5&. / COPY TO: 1 . !' '( / APPELLANT 3. 7. (!' ) / CIT(A) 5. 5 :; +.#< / DR 2. +,'( / RESPONDENT 4. 7. / CIT 6. ;$ =- / GF