Sh. Ashok kumar Malhotra(Deceased), Jalandhar V. The Asstt. Commissioner of Income Tax, Jalandhar

ITA 194/ASR/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9599 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 22-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 21-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHAWANI SHANKAR
• Assessee Lawyers: SAURAVH SEHGAL
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR (CAMP AT JALANDHAR) BEFORE SH. A.D.JAIN, HONBLE JUDICIAL MEMBER AND SH. T.S. KAPOOR, HONBLE ACCOUNTANT MEMBER [ I.T.A NO. 194(ASR)/2015 ASSESSMENT YEAR: 2010-11 SH. ASHOK KUMAR MALHOTRA (DECEASED) TH. L/H. SMT. SATISH BALA MALHOTRA PROP. M/S MODERN PUBLISHERS MBD HOUSE, RAILWAY ROAD, JALANDHAR. PAN:AARPM7568A VS. ASST. CIT, CENTRAL CIRCLE II, JALANDAHR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. SAURAVH SEHGAL (CA) RESPONDENT BY: SH. BHAWANI SHANKAR (DR.) DATE OF HEARING: 22.06. 2016 DATE OF PRONO UNCEMENT: 12.08.2016 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORD ER OF LEARNED CIT(A), LUDHIANA, DATED 27.02.2015 FOR ASST. YEAR:2 010-11 2. THE ASSESSEE HAS TAKEN FIVE GROUNDS OF APPEAL, H OWEVER THE CRUX OF GROUNDS OF APPEAL IS THE ACTION OF LEARNED CIT(A) B Y WHICH HE HAD CONFIRMED AN ADDITION OF RS.2,39,10,531/- WHICH THE ASSESSING OFFICER HAD MADE U/S 36(1)(III) OF THE ACT. 3. THE BRIEF FACTS OF THE CASE AS NOTED IN THE ASSE SSMENT ORDER ARE THAT ASSESSEE IS A PROP. OF M/S MODERN PUBLISHERS W HICH IS A PART OF MBD GROUP OF COMPANIES. THE RETURN WAS FILED BY THE LEGAL HEIR SMT. ITA NO.194 (ASR)/2015 ASST. YEA R: 2010-11 2 SATISH BALA MALHOTRA (WIFE OF THE DECEASED) DECLARI NG INCOME OF RS.40,55,8,027/-. THE CASE OF THE ASSESSEE WAS SELE CTED FOR SCRUTINY. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OF FICER OBSERVED THAT ASSESSEE HAD MADE INVESTMENT OF RS.72,28,15,197/- I N VARIOUS RELATED CONCERNS AND ASSESSEE HAD NOT CHARGED ANY INTEREST ON THESE INVESTMENTS. THE ASSESSING OFFICER FURTHER OBSERVED THAT ASSESSEE HAD CLAIMED BANK INTEREST AMOUNTING TO 2,39,01,531/- AS EXPENSES IN ITS P&L ACCOUNT AND THEREFORE, ASSESSEE WAS SHOW CAUSED AS TO WHY THE DISALLOWANCE OF THIS AMOUNT BE NOT MADE U/S 36(1)(I II) OF THE ACT. 4. THE ASSESSEE IN REPLY SUBMITTED THAT THE SAID AM OUNT HAS BEEN INVESTED IN THE GROUP COMPANIES IN THE LARGER INTER EST OF ASSESSEE FOR BUSINESS EXPEDIENCY AND THEREFORE, THE DISALLOWANCE WAS NOT CALLED FOR. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WI TH THE REPLY AND RELYING ON THE DECISION OF HONBLE PUNJAB AND HARYA NA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES 286 ITR MADE TH E DISALLOWANCE U/S 36(1)(III) OF THE ACT. 5. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE LEARN ED CIT(A) AND LEARNED CIT(A) ALSO DID NOT AGREE WITH THE CONTENTI ONS OF THE ASSESSEE AND RELYING ON THE JUDGMENT OF HONBLE PUNJAB & HAR YANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD.(SUPRA) AND FURTHER THE DECISION OF ITAT, AMRITSAR BENCH IN THE CASE OF M/S BRIGHT ENTERPRISES PVT. LTD. FOR THE ASST. YEAR 2005-06 UPHELD THE DIS ALLOWANCE. 6. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO.194 (ASR)/2015 ASST. YEA R: 2010-11 3 7. AT THE OUTSET, LEARNED AR SUBMITTED THAT THE TOT AL INTEREST BEARING LOANS TO THE TUNE OF RS.27.89 CRORES WERE MORE THAN THE INTEREST BEARING FUNDS WHICH THE ASSESSEE HAD INVESTED IN THE FIXED DEPOSITS OF BANK. THE LEARNED AR SUBMITTED THAT ASSESSEE HAD DECLARED AN INTEREST INCOME OF RS.2,58,06,699/- FROM THESE FIXED DEPOSITS WHICH WAS MORE THAN THE INTEREST PAID TO BANKS AMOUNTING TO RS.2,39,01,531/ -. HE SUBMITTED THAT IN VIEW OF THESE FACTS THE NET IMPACT OF TAKIN G INTEREST BEARING LOANS AND INVESTING THE SAME IN FIXED DEPOSITS WAS THAT A SSESSEE HAD EARNED MORE INTEREST INCOME THAN INTEREST PAID ON INTEREST BEARING FUNDS. THE LEARNED AR FURTHER SUBMITTED THAT THE FACT OF INVES TMENTS IN THE FORM OF FIXED DEPOSITS BEING MORE THAN INTEREST BEARING FUN DS ESTABLISHES THAT ASSESSEE HAD MADE ADVANCES TO SISTER CONCERNS OUT O F ITS OWN FUNDS AND FORM NON INTEREST BEARING FUNDS AND THEREFORE, THE DISALLOWANCE WAS JOT JUSTIFIED. THE LEARNED AR IN THIS RESPECT INVITED O UR ATTENTION TO (PB1TO9) TO HIGHLIGHT THAT ASSESSEE WAS HAVING MORE NON INTE REST BEARING FUNDS THAN NON INTEREST BEARING INVESTMENTS. IT WAS FURTH ER SUBMITTED THAT ASSESSEE WAS A MAJORITY SHAREHOLDER IN ALL THE INVE ST COMPANIES AND THESE INVESTMENTS WERE MADE KEEPING IN VIEW THE COM MERCIAL EXPEDIENCY. 8. WITHOUT PREJUDICE IT WAS SUBMITTED THAT THE LEAR NED CIT(A)HAS RELIED UPON THE JUDGMENT OF M/S BRIGHT ENTERPRISES PVT. LTD.(SUPRA), WHICH HAS BEEN REVERSED BY THE HONBLE PUNJAB & HAR YANA HIGH COURT REPORTED IN 381 ITR 107. THE LEARNED AR FURTHER SUB MITTED THAT IN THE CASE OF GROUP COMPANY M/S MBD PRINTOGRAPHICS PVT. L TD. FOR ASST. YEAR ITA NO.194 (ASR)/2015 ASST. YEA R: 2010-11 4 2010-11, SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR O F ASSESSEE AND OUR ATTENTION WAS INVITED TO THE ORDER PASSED BY THE AM RITSAR BENCH IN ITA NO.534(ASR)/2014 PLACED AT (PB PAGE 42 TO 57). IN V IEW OF THE ABOVE FACTS AND CIRCUMSTANCES, IT WAS PRAYED THAT THE ADDITION MADE BY ASSESSING OFFICER AND CONFIRMED BY LEARNED CIT(A) BE DELETED. 9. THE LEARNED DR, ON THE OTHER HAND, PLACED HIS RE LIANCE ON THE ORDERS OF AUTHORITIES BELOW. 10. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE T HROUGH THE MATERIAL PLACED ON RECORD. IT IS SEEN THAT THE RELI ANCE PLACED BY THE LEARNED CIT(A) ON THE JUDGMENT OF BRIGHT ENTERPRIS ES (P) LTD., OF THE ITAT, AMRITSAR BENCH, IS NOT PROPER, SINCE THAT JUD GMENT HAS BEEN REVERSED BY THE HONBLE JURISDICTIONAL HIGH COURT V IDE ORDER DATED 26.07.2015, REPORTED IN 38 ITR 107. THE FINDINGS OF THE HONBLE COURT ARE REPRODUCED BELOW. 17. THE ASSESSING OFFICERS VIEW THAT THE ADVANCE WAS NOT FOR BUSINESS PURPOSES AS THE APPELLANT HAD NO BUSINESS DEALING W ITH THE SISTER COMPANY IS ERRONEOUS. COMMERCIAL EXPEDIENCY IN ADVANCING LO ANS DOES NOT ARISE ONLY ON ACCOUNT OF THERE BEING TRANSACTIONS DIRECTLY BET WEEN THE HOLDING COMPANY AND THE SUBSIDIARY COMPANY OR BETWEEN THE GROUP COM PANIES INTER SE. THE TWO COMPANIES MAY EVEN BE IN A DIFFERENT LINE OF BU SINESS. IT WOULD, MAKE NO DIFFERENCE. IT WOULD STILL BE COMMERCIALLY EXPEDIEN T FOR ONE GROUP COMPANY TO ADVANCE AMOUNTS TO ANOTHER GROUP COMPANY, IF FOR IN STANCE, AS A RESULT THEREOF THE FORMER BENEFITS. IN THE PRESENT CASE, A S WE HAVE ALREADY DEMONSTRATED, THERE WOULD BE A DIRECT BENEFIT ON AC COUNT OF THE ADVANCE MADE BY THE APPELLANT TO ITS SISTER COMPANY IF THE SAME IMPROVES THE FINANCIAL HEALTH OF THE SISTER COMPANY AND MAKES IT A VIABLE ENTERPRISE. WE HASTEN TO ADD THAT IT IS NOT NECESSARY THAT THE ADVANCE RESUL TS IN A POSITIVE TANGIBLE BENEFIT. SO LONG, AS THE AMOUNT IS ADVANCED WITH TH AT VIEW IN MIND OR WITH ANY OTHER COMMERCIALLY EXPEDIENT VIEW IN MIND THAT IS SUFFICIENT. 11. FURTHER WE FIND THAT THE JUDGMENT IN THE CASE O F ABHISHEK INDUSTRIES (SUPRA) RELIED UPON BY BOTH THE AUTHORI TIES BELOW HAS ALSO ITA NO.194 (ASR)/2015 ASST. YEA R: 2010-11 5 BEEN THE OVERRULED BY THE HONBLE SUPREME COURT IN THE CASE OF HERO CYCLES VS. CIT 379 ITR 247 (SC), IN FAVOUR OF THE ASSESSEE BY HOLDING AS FOLLOWS: COMPANY HAD REVERSE/SURPLUS TO THE TUNE OF ALMOST 15 CORES AND, THEREFORE, ASSESSEE COMPANY COULD IN ANY CASE, UTIL IZE THOSE FUNDS FOR GIVING ADVANCE TO ITS DIRECTORS-ORDER OF THE HIGH C OURT SET ASIDE AND ORDER OF THE ITAT WAS RESTORED-APPEAL ALLOWED. ASSESSEE HAD A CREDIT BALANCE IN THE BANK ACCOUNT WHEN THE SAID ADVANCE OF RS.34 LAKHS WAS GIVEN. COMPANY HAD RESER VE/SURPLUS TO THE TUNE OF RS.15 CRORES AND, THEREFORE, THE ASSESSEE C OMPANY COULD IN ANY CASE, UTILIZE THOSE FUNDS FOR GIVING ADVANCE TO ITS DIRECTORS. 12. IN THE PRESENT CASE WE FIND THAT NON INTEREST B EARING FUNDS IN THE FORM OF PROPRIETORS CAPITAL ACCOUNT AND SUNDRY CRE DITOR AS APPARENT FROM (PB PAGE-2) AND (PB PAGE-6) ARE MUCH MORE THAN THE AMOUNT INVESTED IN THE GROUP COMPANIES WITHOUT CHARGING OF INTEREST. THE PROPRIETORS CAPITAL AS APPEARING IN PB PAGE 2 IS R S.1,54,45,382/- WHEREAS THE SUNDRIES WHICH ARE ALSO NON INTEREST BE ARING FUNDS APPEARING AS IN PB PAGE-6 ARE TO BE TUNE OF RS.83,2 7,79,798/- THEREFORE, THE TOTAL OF NON INTEREST BEARING FUNDS AS AVAILABL E WITH THE ASSESSEE ARE TO THE TUNE OF RS.84,82,25,180/- AGAINST WHICH THE ASSESSEE HAD INVESTED AS NON INTEREST BEARING INVESTMENTS TO THE TUNE OF RS.72,28,15,197/-. THEREFORE, NON INTEREST BEARING FUNDS ARE MORE THAN NON INTEREST BEARING INVESTMENTS. FURTHER WE FIND THAT ASSESSEE HAS DECLARED MORE INTEREST INCOME ON FIXED DEPOSITS THA N THE INTEREST PAID BY HIM ON INTEREST BEARING FUNDS. IN VIEW OF THE FACTS AND CIRCUMSTANCES, IT CANNOT BE SAID THAT ASSESSEE HAD DEPLOYED INTEREST BEARING FUNDS INTO NON INTEREST BEARING INVESTMENTS. ITA NO.194 (ASR)/2015 ASST. YEA R: 2010-11 6 13. WE FURTHER FIND THAT ASSESSEE IS A SOLE PRO PRIETOR OF M/S MODERN PUBLISHERS AND IS ALSO A MAJORITY SHAREHOLDERS IN T HE COMPANIES IN WHICH INTEREST FREE INVESTMENTS HAS BEEN MADE. PAPER BOOK PAGE 12 IS THE LIST OF COMPANIES IN WHICH THE ASSESSEE IS A HOLDING A M AJOR CHUNK OF SHARES. THE REST OF THE SHARES ARE ALSO HELD BY OTHER FAMIL Y MEMBERS OF THE ASSESSEE. FOR THE SAKE OF CONVENIENCE THE CHART SHO WING SHAREHOLDING OF ASSESSEE IN THE COMPANIES HAS BEEN MADE PART OF THI S ORDER. ITA NO.194 (ASR)/2015 ASST. YEA R: 2010-11 7 THEREFORE, FROM THE ABOVE CHART IT CAN BE SAFELY CO NCLUDED THAT ASSESSEE IS A MAJOR SHARE HOLDER AND THEREFORE THE ADVANCES/ INVESTMENTS MADE BY ASSESSEE IN THESE COMPANIES CAN NOT BE SAID TO BE W ITHOUT COMMERCIAL EXPEDIENCY. THERE WOULD BE A DIRECT BENEFIT TO THE ASSESSEE IF THE INTEREST FREE INVESTMENTS MADE IN THESE COMPANIES RESULTS IN TO MORE PROFITS TO THESE COMPANIES AND INDIRECTLY TO THE ASSESSEE 14. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES AN D IN VIEW OF THE JUDICIAL PRECEDENTS, THE APPEAL FILED BY THE ASSESS EE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.08.2016. SD/- SD/- (A.D. JAIN) (T. S. KAPOOR) JUDICIAL MEMBER ACCO UNTANT MEMBER DATED:12.08.2016. /PK/ PS. COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER