Swiftmail Communications Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1875/CHNY/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73702 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-02-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 22-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHAM IRS
• Assessee Lawyers: T N SEETHARAMAN
• Section: 143(3); 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , ! '# , $ !%' !& BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENTAND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ! ./ ITA NOS. 409 & 1875(MDS)/2012 $ ' (' / ASSESSMENT YEARS : 2003-04 & 2004-05 M/S SWIFTMAIL COMMUNICATIONS LTD., C/O SHRI T.N. SEETHARAMAN, ADVOCATE, #384 (OLD NO.196), LLOYDS RD., CHENNAI - 600 086. PAN : AAACS 5109 H V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(4), CHENNAI - 600 034. ( #* ) (APPELLANT) ( ,-#* ) (RESPONDENT) #* . ! / APPELLANT BY : SHRI T.N. SEETHARAMAN, ADVOCATE ,-#* . ! / RESPONDENT BY : SHRI GURU BHASHAM, IRS, JCIT ! / . 01 / DATE OF HEARING : 11 TH FEBRUARY, 2014 23( . 01 / DATE OF PRONOUNCEMENT : 11 TH FEBRUARY, 2014 / O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT THESE TWO APPEALS ARE FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEARS ARE 2003-04 AND 2004-05. THESE A PPEALS ARE DIRECTED AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME TAX 2 I.T.A. NO. 409/MDS/2012 I.T.A. NO. 1875/MDS/2012 (APPEALS)-V AT CHENNAI, DATED 30.12.2011 AND 13.9.2 012 RESPECTIVELY. THESE APPEALS ARISE OUT OF THE ASSES SMENTS COMPLETED UNDER SECTION 143(3) READ WITH SECTION 14 7 OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF PROVIDING TELECOMMUNICATION AND INTERNET SERVICES. THE ASSESSEE- COMPANY HAD MADE CERTAIN ADVANCES TO ANOTHER COMPAN Y, NAMELY, M/S IOCEE EXPORTS LTD. M/S IOCEE EXPORTS LTD. IS A COMPANY UNDER THE MANAGEMENT OF THE ASSESSEE-COMPANY. 3. IN THE AUDIT REPORTS FOR THE IMPUGNED ASSESSMENT YEARS, THE COMPANY STATUTORY AUDITORS HAVE MADE A QUALIFICATIO N THAT THE ASSESSEE-COMPANY HAS NOT CHARGED ANY INTEREST ON TH E ADVANCES MADE TO M/S IOCEE EXPORTS LTD. AND INTEREST SHOULD HAVE BEEN LEVIED AT LEAST AT THE PREVAILING BANK RATE. IN TH E LIGHT OF THE ABOVE AUDIT QUALIFICATION, THE ASSESSING OFFICER HELD THA T NON-CHARGING OF INTEREST ON ADVANCES MADE TO M/S IOCEE EXPORTS LTD. CANNOT BE ACCEPTED FOR THE PURPOSE OF ASSESSMENT. HE ACCORDI NGLY ESTIMATED THE INCOME ON SUCH ADVANCES AT PREVAILING BANK RATE AND ADDED SUCH ESTIMATED AMOUNTS OF INTEREST TO THE INCOME OF THE ASSESSEE. IN FIRST APPEALS, THESE ADDITIONS WERE CONFIRMED BY THE 3 I.T.A. NO. 409/MDS/2012 I.T.A. NO. 1875/MDS/2012 COMMISSIONER OF INCOME TAX (APPEALS). THEREFORE, T HE SECOND APPEALS BEFORE THE TRIBUNAL. 4. WE HEARD BOTH SIDES IN DETAIL. AS A MATTER OF F ACT, IT IS SEEN FROM THE FACTS OF THE CASE THAT THE ASSESSEE-COMPAN Y HAS GIVEN ADVANCES TO M/S IOCEE EXPORTS LTD. AFTER GETTING TH E APPROVAL OF THE EXTRAORDINARY GENERAL MEETING. THE ADVANCES WE RE MADE, INTEREST FREE, ON THE BASIS OF THE APPROVAL GIVEN B Y EXTRAORDINARY GENERAL MEETING. THERE IS NO STIPULATION FOR CHARG ING INTEREST ON SUCH ADVANCES MADE TO M/S IOCEE EXPORTS LTD. 5. THERE IS NO CASE FOR THE REVENUE THAT THE ASSESS EE- COMPANY HAD AVAILED ANY LOANS FOR THE PURPOSE OF GI VING THE ADVANCES TO M/S IOCEE EXPORTS LTD. THE ADVANCES HA VE NOT BEEN MADE OUT OF THE ANY BORROWED FUNDS AND INTEREST BEA RING FUNDS. THE ADVANCES HAVE BEEN MADE OUT OF THE FUNDS AVAILA BLE IN THE HANDS OF THE ASSESSEE-COMPANY ITSELF. IT IS ALSO T O BE SEEN FROM THE RECORDS OF THE CASE THAT BY GIVING SUCH ADVANCES TO M/S IOCEE EXPORTS LTD., THE ASSESSEE-COMPANY HAS NOT INCURRED ANY LOSS, EITHER. 6. WHEN THESE ARE THE FACTS OF THE CASE, IT IS NOT PERMISSIBLE IN LAW FOR THE ASSESSING OFFICER TO ESTIMATE A NOTIONA L INCOME BY WAY 4 I.T.A. NO. 409/MDS/2012 I.T.A. NO. 1875/MDS/2012 OF INTEREST THAT COULD HAVE BEEN CHARGED ON THE ADV ANCES MADE BY THE ASSESSEE-COMPANY TO M/S IOCEE EXPORTS LTD. THE FACT IS THAT THE ASSESSEE-COMPANY HAS NOT LEVIED ANY INTEREST. WHEN INTEREST IS NOT LEVIED, THERE IS NO SCOPE FOR RECOGNIZING ANY I NCOME ACCRUING OR RECEIVING IN THE HANDS OF THE ASSESSEE-COMPANY. W HEN NO INCOME IS GENERATED OR LIABLE TO BE RECEIVED BY THE ASSESS EE-COMPANY, THERE IS NO QUESTION OF RECOGNITION OF ANY INCOME. THEREFORE, THERE IS NO BASIS TO MAKE AN ESTIMATED ADDITION IN THE HA NDS OF THE ASSESSEE-COMPANY AGAINST A NOTIONAL INCOME. WHETHE R INTEREST IS TO BE CHARGED OR NOT ON THE ADVANCES GIVEN TO THE A SSOCIATE CONCERN, WAS A BUSINESS DECISION CAREFULLY TAKEN BY THE ASSESSEE- COMPANY WITH THE APPROVAL OF EXTRAORDINARY GENERAL MEETING. THE REVENUE COMES INTO PLAY ONLY WHEN SUCH INTEREST-FRE E ADVANCES HAVE UNDERSTATED THE PROFITS OF THE ASSESSEE-COMPAN Y OR OVERSTATED THE LOSS OF THE ASSESSEE-COMPANY AND HAS SUFFERED S OME COST AGAINST THE FUNDS GIVEN BY WAY OF ADVANCES. NO SUC H ADVERSE FACT IS SEEN IN THE PRESENT CASE. 7. THE ONLY BASIS TO MAKE SUCH AN ESTIMATE OF NOTIO NAL INCOME IS THE AUDIT QUALIFICATION MADE BY THE STATUTORY AU DITORS OF THE ASSESSEE-COMPANY. IT IS TO BE SEEN THAT THE STATUT ORY AUDITORS HAVE MADE SUCH QUALIFICATION IN THEIR REPORTS FOR DISCLO SURE PURPOSE AS 5 I.T.A. NO. 409/MDS/2012 I.T.A. NO. 1875/MDS/2012 REQUIRED UNDER THE COMPANIES ACT, 1956. THE COMPUL SION OF SUCH A QUALIFICATION FOR THE PURPOSE OF DISCLOSURE ENVIS AGED UNDER THE COMPANIES ACT NEED NOT BE A GROUND FOR THE REVENUE AUTHORITIES TO ADVENT UPON ESTIMATING INCOME. SUCH AN AUDIT QUALI FICATION DOES NOT HAVE IMPLICATION UNDER THE INCOME-TAX ACT. 8. THEREFORE, WE FIND THAT THE ADDITIONS MADE BY TH E ASSESSING AUTHORITY ARE NOT PERMISSIBLE IN LAW. ACCORDINGLY, THOSE ADDITIONS ARE DELETED. 9. AS THE ISSUE RAISED IN THESE TWO APPEALS IS DECI DED ON MERIT, WE ARE NOT CONSIDERING THE GROUND RAISED BY THE ASS ESSEE AGAINST REOPENING OF THE IMPUGNED ASSESSMENTS. 10. IN RESULT, THESE TWO APPEALS FILED BY THE ASSES SEE ARE ALLOWED. ORDERS PRONOUNCED IN THE OPEN COURT AT THE TIME O F HEARING ON TUESDAY, THE 11 TH OF FEBRUARY, 2014 AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (DR. O.K. NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED, THE 11 TH FEBRUARY, 2014. KRI. 6 I.T.A. NO. 409/MDS/2012 I.T.A. NO. 1875/MDS/2012 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT, CHENN AI-III, CHENNAI 4. CIT(A)-V, CHENNAI-34 5. DR 6. GF.