D.C.I.T.8(1), MUMBAI V. DENIS EXPORTS PVT LTD., MUMBAI

ITA 1764/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88341 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Department
• Bench Allotted: J
• Next Hearing Date: 10-02-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 03-03-2011
• Court: TRIBUNAL
• Department Lawyers: HARIGOVIND SINGH
• Keywords: Commercial expediency

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ./I.T.A. NO. 1764/M/2011 ( / ASSESSMENT YEAR : 2006 - 2007 ) DCIT 8(1), R.NO.210, 2 ND FLOOR, AAYAKAR BHAVAN, MUMBAI 400 020. / VS. DENIS EXPORTS PVT LTD., UNIT NO.2B, UNIT NO.10, MITTAL INDL. ESTATE, ANDHERI KURLA ROAD, ANDHERI (E), MUMBAI 400059. ./ PAN : AAACD 5065 H ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI HARI GOVIND SINGH, DR / RESPONDENT BY : NONE / DATE OF HEARING : 10.02.2015 / DATE OF PRONOUNCEMENT : 20 . 0 2.2015 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON3.3.2011 IS AGAINST THE ORDER OF THE CIT (A) - 16, MUMBAI DATED 23.12.2010 FOR THE ASSESSMENT YEAR 2006 - 07. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DELETING THE DISALLOWANCE OF GUARANTEE COMMISSION AMOUNTING TO RS. 13,00,425/ - WITHOUT APPRECIATING THE FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DELETING THE DISALLOWANCE OF GUARANTEE COMMISSION BY RELYING UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS, WITHOUT APPRECIATING THE FACTS THAT THE BENEFIT OF THE E XPENDITURE INCURRED BY THE ASSESSEE COMPANY HAS BEEN PASSED ON TO ITS SUBSIDIARY. 2. THERE IS NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE THE NUMBER OF NOTICES ISSUED IN THE PAST. REVENUE DID NOT MENTION WHETHER THERE IS A CROSS APPEAL. IN THIS APPE AL THE ISSUE RAISED BY THE REVENUE RELATES TO THE DISALLOWANCE OF GUARANTEE COMMISSION AND RECORDED THE OBJECTION AGAINST THE CIT (A)S RELIANCE ON THE APEX COURT JUDGMENT IN THE CASE OF S.A. BUILDERS . ON CONSIDERING THE ISSUE 2 IN THIS APPEAL AND THE BACK GROUND OF THIS CASE, WE FIND THE APPEAL CAN BE DISPOSED OF WITHOUT PRESENCE OF THE LD COUNSEL. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE CLAIMED DEDUCTION OF RS. 13,00,425/ - ON ACCOUNT OF GUARANTEE COMMISSION INCURRED IN CONNECTION WITH THE LOANS GRANTED TO THE ASSESSEES SUBSIDIARY COMPANIES. ASSESSING OFFICER DISALLOWED THE SAME STATING THAT THE SAME IS INCURRED FOR THE BENEFIT OF THIRD PARTY. BEFORE US, IT IS BROUGHT TO OUR NOTICE THAT ASSESSEE HAS A SUBSIDIARY COMPAN Y NAMED M/S. VIKAS FASHION PVT LTD (VFPL) LOCATED AT NEPAL DURING THE BUSINESS. VFPL REQUIRES LOANS FACILITATED IN NEPAL FOR CONDUCTING BUSINESS FOR WHICH ASSESSEE IS THE GUARANTOR. IT IS UNDISPUTED FACT THAT THE ASSESSEE SUPPLIES MATERIAL TO THE VFPL, T HUS THEY HAVE A COMMERCIAL CONNECTIVITY BETWEEN THE TWO. AFTER EXAMINING AND APPRECIATING THE SAID BUSINESS / COMMERCIAL NEXUS BETWEEN THE TWO, CIT (A) GRANTED RELIEF TO THE ASSESSEE RELYING ON THE JUDGMENT IN THE CASE OF S.A. BUILDERS (SUPRA). 4. WE HA VE HEARD THE LD DR WHO HEAVILY RELIED ON THE ORDER OF THE ASSESSING OFFICER. WE HAVE PERUSED THE ORDER OF THE CIT (A) IN GENERAL AND PARAS 2.3.1 AND 2.3.2 IN PARTICULAR. ON PERUSAL OF THE SAID PARAS WE FIND THE SAME ARE RELEVANT IN THIS REGARD AND THERE FORE THEY ARE EXTRACTED AS FOLLOWS. 2.3.1. I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE APPELLANT COMPANY AS WELL AS CAREFULLY GONE THOUGH THE AVAILABLE DOCUMENTS ON RECORD. I FIND THAT THE INALIENABLE FACTS OF THIS CASE ARE THAT M/S. VIKAS FASHION S PVT LTD IS THE APPELLANTS SUBSIDIARY COMPANY AND IS PERFORMING ITS BUSINESS ACTIVITY IN NEPAL. IT IS ALSO A MATTER OF FACT THE APPELLANT IS EXPORTING THE GARMENTS AND THE SUBSIDIARY COMPANY IS PERFORMING THE APPELLANTS WORK IN NEPAL. THE GUARANTEE CO MMISSION IS IN FACT NOTHING BUT THE INTEREST FOR THE GUARANTEE THAT THE APPELLANT HAD TAKEN IN RESPECT OF ITS SUBSIDIARY COMPANY AT NEPAL SO AS TO ENABLE TO OBTAIN LOAN FROM STANDARD CHARTERED BANK. THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS ( SUPRA) HAS HELD AS UNDER: .. .. . 2.3.2. THEREFORE, APPLYING THE RATIO OF THE HONBLE SUPREME COURT TO THE FACTS OF THIS CASE, IT IS CLEAR THAT THE APPELLANT IN ORDER TO ENABLE ITS SUBSIDIARY COMPANY TO OBTAIN LOAN, HAD GIVEN A GUARANTEE TO STANDARD CHARTERED BANK IN INDIA. THIS IS PARALLEL TO THE FACT THAT THE LOANS WERE GIVEN FREE OF INTEREST TO ITS SUBSIDIARY COMPANY FOR THE COMMERCIAL PURPOSES BY THE APPELLANT COMPANY. THE LD ASSESSING OFFICER HAS NOT POINTED ANY INSTANCES AS TO WHETHER LOAN GIVE N WERE UTILIZED BY THE SUBSIDIARY COMPANY FOR ITS PERSONAL USE OR BY DIRECTORS FOR THEIR PERSONAL USE. THEREFORE, UTILIZATION OF LOAN IS FOR THE BUSINESS PURPOSES OF THE APPELLANTS SUBSIDIARY COMPANY. THEREFORE, IN VIEW THESE UNDISPUTED FACT IT CANNOT B E SAID THAT THE GUARANTEE 3 COMMISSION PAID BY THE APPELLANT COMPANY FOR THE BUSINESS TO ITS SUBSIDIARY COMPANY IS NOT ALLOWABLE IN VIEW OF THE HONBLE SUPREME COURT DECISION IN THE CASE OF S.A. BUILDERS (SUPRA). THEREFORE, THE ADDITION MADE BY THE LD ASSES SING OFFICER CANNOT BE SUSTAINED BOTH IN LAW AND FACT. 5. FROM THE ABOVE, IT IS AN UNDISPUTED FACT THAT THE CONCERNS IN QUESTION ARE COMMERCIALLY CONNECTED WHICH IS SUFFICIENT ENOUGH FOR ESTABLISHING THE COMMERCIAL EXPEDIENCY. REVENUE HAS NOT BROUGHT ANYTHING ON RECORD TO DEMONSTRATE THAT THE IMPUGNED LOANS FROM THE STANDARD CHARTERED BANK WERE NOT UTILIZED FOR THE COMMERCIAL ACTIVITIES. THEREFORE, IN OUR OPINION, THE ORDER OF THE CIT (A) IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENC E. ACCORDINGLY, GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRON OUNCED IN TH E OPEN COURT ON 2 0 T H FEBRUARY, 2015. S D / - S D / - (VIJAY PAL RAO) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 2 0 .2.2015 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI