M/s MBD Printographics Pvt. Ltd., Jalandhar V. The Assistant Commissioner of Income Tax, Jalandhar

ITA 195/ASR/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0549 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 22-06-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 21-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHAWANI SHANKER
• Assessee Lawyers: SAURABH SEHGAL
• Keywords: Proportionate interest; Commercial expediency
• Section: 115JB

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. (CAMP AT JALANDHAR) BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER ITA NOS.127 & 195(ASR)/2015 ASSESSMENT YEARS:2012-13 & 2011-12 PAN: AAACM9208R M/S. M.B.D. PRINTOGRAPHICS PVT. LTD VS. ASSTT. COMM R. OF INCOME TAX, MBD HOUSE, RAILWAY ROAD, CENTRAL CIRCLE-II, JALANDHAR. JALANDHAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH.SAURABH SEHGAL, CA RESPONDENT BY: SH. BHAWANI SHANKER, DR DATE OF HEARING: 22/06/2016 DATE OF PRONOUNCEMENT: 24/06/2016 ORDER PER A.D. JAIN, JM; THESE TWO APPEALS FILED BY THE ASSESSEE ARE DIRECTE D AGAINST THE SEPARATE ORDERS, DATED 15.02.2015 & 27.02.2015, PASSED BY TH E LD. CIT(A)-5, LUDHIANA, FOR THE ASSESSMENT YEARS 2012-13 & 2011-12. SINCE T HE ISSUE INVOLVED IS COMMON IN BOTH THE APPEALS, THEY ARE BEING DISPOSE D OF BY THIS CONSOLIDATED ORDER. 2. IN ITA NO. 127(ASR)/2015 FOR THE A.Y. 2012-13, T HE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE WORTHY CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF PROPORTIONATE INTEREST AMOUNTING TO RS.1,50,12,044/ - U/S 36(1)(III) ON ACCOUNT OF INVESTMENT MADE IN VARIOUS SISTER CON CERNS AS SHARE APPLICATION MONEY. 2 ITA NO.127 & 195(ASR)/2015 AYS 2011-12 & 2012-13 2. THAT THE WORTHY CIT(A0 HAS FAILED TO CONSIDER TH AT THE SAID ADVANCE WAS MADE FOR BUSINESS EXPEDIENCY AND THE CI T(A) HAS ALSO FAILED TO CONSIDER THAT THE SHARES WERE ULTIMATELY ALLOTTED TO THE APPELLANT AGAINST SUCH INVESTMENT IN THE SUBSEQUENT YEARS. 3. THAT THE WORTHY CIT(A) HAS ALSO ERRED IN RELYING UPON THE JUDGMENT OF ABHISHEK INDUSTRIES, WHICH IS NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND HAS IGNORED THE VARIO US OTHER JUDGMENTS AS RELIED UPON BEFORE HIM BY THE APPELLAN T. 4. THAT THE CONFIRMATION OF ADDITION IS AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE ASSESSEE HAS ALSO RAISED THE FOLLOWING ADD ITIONAL GROUNDS OF APPEAL: 1. THAT THE LD. AO HAS ERRED IN CALCULATING THE BO OK PROFIT U/S 115JB BY MAKING ADDITION OF DISALLOWANCE OF INTEREST TO T HE TUNE OF RS.1,50,12,044/- AND UNDISCLOSED AND UNDISCLOSED IN TEREST TO THE TUNE OF RS.14,66,043/-. 2. THAT THE SAID DISALLOWANCE OF INTEREST AND UNDIS CLOSED INTEREST CANNOT BE A SUBJECT MATTER OF ADDITION WHILE CALCUL ATING THE BOOK PROFIT U/S 115JB. 4. THE ADDITIONAL GROUNDS, IT IS SEEN ARE MERELY AN AMPLIOFICATION OF THE ORIGINAL GROUND NO.1. THEY DO NOT REQUIRE ANY FRESH EVIDENCE TO BE LED. ITHEY ARE, ACCORDINGLY, ADMITTED. 5. THE AO OBSERVED THAT AN AMOUNT OF RS.1,16,35,83, 255/- WAS RECORDED AS INVESTMENTS IN VARIOUS SISTER CONCERNS OF THE ASSES SEE ON WHICH NO INTEREST OR INCOME HAD BEEN SHOWN. THE DETAILS OF SUCH INVESTM ENTS ARE AS FOLLOWS: SR. NO. NAME OF THE RELATED PARTIES BALANCE AS ON 3 1.03.2010 1. MBD ENTERPRISES (P) LTD. RS.1000/- 3 ITA NO.127 & 195(ASR)/2015 AYS 2011-12 & 2012-13 2. M. GULAB SINGH & SONS. PVT. LTD. RS.3,50,000/- 3. BRIGHT ENTERPRISES PVT. LTD. RS.1, 19,06,300/- 4. AKM ENTERPRISES PVT. LTD. RS.1,15,13,25,9 55/- TOTAL RS.1,16,35,83,255/- 6. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAD CL AIMED EXPENSES OF RS.5,92,34,487/- AS BANK INTEREST. THE INTEREST WAS DISALLOWED UNDER SECTION 36(1)(III) OF THE ACT. THE LD. CIT(A) VIDE IMPUGNED ORDER CONFIRMED THE AOS ACTION OBSERVING AS FOLLOWS: 7. I HAVE CONSIDERED THE FACTS OF THE CASE, THE BA SIS OF ADDITION MADE BY THE ASSESSING OFFICER AND THE ARGUMENTS OF THE AR O N THE ISSUE DURING ASSESSMENT AS WE' AS APPELLATE PROCEEDINGS. IT IS SEEN THAT THE APPELLANT HAD NOT EVEN ATTEMPTED TO SHOW THAT THE INVESTMENTS IN SISTER CONCERNS SERVE ANY BUSINESS PURPOSE. THE ENTIRE EMPHASIS HAS BEEN TO SUPPORT THE CLAIM THAT THE IMPUGNED INVESTMENT HAD BEEN MADE FR OM SELF OWNED FUNDS AND NOT FROM INTEREST BEARING SOURCES. THE APPELLAN T IN ORDER TO PROVE ITS POINT HIGHLIGHTED THAT TWO SEPARATE ACCOUNTS HAVE B EEN MAINTAINED FOR BORROWED FUNDS I.E. SBI TERM LOAN ACCOUNT AND SBI C ASH CREDIT ACCOUNT. THE FUNDS SO RECEIVED UNDER BOTH THE SOURCES HAVE B EEN USED SPECIFICALLY FOR THE SAID PARTIES. HOWEVER THE INVESTMENTS HAVE BEEN MADE FROM SEPARATE CURRENT ACCOUNT IN WHICH THE DEPOSITS REPR ESENT THE ACCRUALS FROM THE BUSINESS OF THE ASSESSEE COMPANY I.E. ITS SALES THIS TO SAY THAT IF SUCH ACCRUE HAD BEEN- CREDITED/DEPOSITED IN THE CASH CR EDIT ACCOUNT, THE NEED TO CONTINUE WITH OR EVEN RAISING SUCH INTEREST BEAR ING FUNDS FOR WORKING CAPITAL REQUIREMENTS WOULD NOT HAVE BEEN THERE. THI S PROVE THE POINT OF THE ASSESSING OFFICER THAT FUNDS RAISED ON INTEREST FOR WORKING CAPITAL REQUIREMENTS HAD TO BE RAISED IN ORDER TO MAKE UP FOR THE SHORT FALL CAUSED BY INTEREST FREE INVESTMENTS IN THE SISTER C ONCERNS WHICH DID NOT SERVE ANY BUSINESS PURPOSE FOR THE APPELLANT COMPAN Y. THE JUDICIAL PRONOUNCEMENT RELIED UPON BY THE AR DURING THE APPE LLATE PROCEEDINGS DO NOT ADDRESS THIS BASIC SALIENT FEATURE OF FUNDS POS ITION AND USAGE THEREOF. THE DIRECT LINK BETWEEN THE NON BUSINESS INTEREST F REE INVESTMENT AND RAISING OF INTEREST BEARING FUNDS HAS BEEN CLEARLY ESTABLISHED BY THE ANALYSIS OF TWO SEPARATE ACCOUNT MAINTAINED BY THE APPELLANT. IN THE CIRCUMSTANCES THE JUDGMENT OF HON'BLE JURISDICTION 'HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES IS SQUARELY APPLICABLE. THE ASSESSING OFFICER HAS FURTHER HIGHLIGHTED THAT DISALLOWANCE INTEREST ON S IMILAR FACTS IN THE CASE OF 4 ITA NO.127 & 195(ASR)/2015 AYS 2011-12 & 2012-13 ASSESSEE'S SISTER CONCERN M BRIGHT ENTERPRISES PVT. LTD. FOR THE ASSESSMENT YEAR 2005-06 HAD BE UPHELD BY THE HON'BLE ITAT, AMR ITSAR BENCH VIDE THEIR ORDER DATED 07/08/2012. IN THE CIRCUMSTANCES , THE DISALLOWANCE MADE BY THE AO IS THEREFORE, CONFIRMED. 7. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED T HAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF PROPORTIO NATE INTEREST AMOUNTING TO RS.1,50,12,044/- U/S 136(1)(III) ON ACCOUNT OF INVE STMENT MADE IN VARIOUS SISTER CONCERNS AS SHARE APPLICATION MONEY. HE FURT HER STATED THAT THE LD. CIT(A HAS ALSO FAILED TO CONSIDER THAT THE SHARES WERE UL TIMATELY ALLOTTED TO THE ASSESSEE AGAINST SUCH INVESTMENTS IN THE SUBSEQUENT YEARS. FURTHER, THE LD. CIT(A) WRONGLY RELIED UPON THE JUDGMENT OF ABHISHE K INDUSTRIES, WHICH IS NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE C ASE. THE LD. COUNSEL SUBMITTED THAT THE AO HAS ERRED IN CALCULATING THE BOOK PROFIT U/S 115JB BY MAKING ADDITION OF DISALLOWANCE OF INTEREST TO THE TUNE OF RS.1,50,12,044/- AND UNDISCLOSED INTEREST TO THE TUNE OF RS.14,66,043/-. IN VIEW OF THE ABOVE, HE PRAYED THAT THE APPEAL OF THE ASSESSEE MAY BE ALLOW ED. 8. THE LD. DR, ON THE OTHER HAND, STRONGLY RELIED U PON THE IMPUGNED ORDER. 9. HAVING HEARD THE RIVAL CONTENTIONS IN THE LIGHT OF THE MATERIAL AVAILABLE ON RECORD, IT IS SEEN THAT THE ASSESSEE DEBITED AN AMOUNT OF RS.1,50,12,044/-, AS INTEREST IN THE PROFIT & LOSS ACCOUNT ON CC ACCO UNT. THEN, HE ADVANCED INTEREST FREE AMOUNTS TO ITS GROUP CONCERNS, AS ABO VE. THE AO OBSERVED THAT THE ASSESSEE HAD ADVANCED THE AMOUNTS WITHOUT CHARG ING INTEREST, FOLLOWING 5 ITA NO.127 & 195(ASR)/2015 AYS 2011-12 & 2012-13 THE DECISION OF CIT VS. ABHISHEKH INDUSTRIES, 286 ITR 1 (P&H), THE AO MADE DISALLOWANCE U/S 136(1)9III) OF THE ACT. THE LD. CI T(A) CONFIRMED THE SAME. 10. AS PER THE ASSESSEE, THE TOTAL INVESTMENTS DURI NG THE YEAR UNDER CONSIDERATION AS ON 31.03.2012 WERE OF RS.1,16,32,3 3,255/-, AS ALSO OBSERVED BY THE AO IN PARA-3 OF THE ASSESSMENT ORDER. THE AM OUNTS IN QUESTION WERE ADVANCED OUT OF THE ASSESSEES OWN SOURCES. AS ON 3 1.03.2012, THE ASSESSEE WAS HAVING INTEREST FREE FUNDS AS FOLLOWS: A. SHARE CAPITAL RS.4,02,25,100.00 B. RESERVE & SURPLUS RS.95,40,75,432.00 C. SHARE APPLICATION RECEIVED RS.1,75,32,65,196.00 AS PER BALANCE SHEET TOTAL: RS.2,74,75,65,728.00 THE ADVANCES MADE WERE OF RS.1,16,32,33,255/-. NO TICEABLY OUT OF THE TOTAL AMOUNT ADVANCE, THE ADVANCE OF RS.1,15,13,25,955/- TO M/S. AKM ENTEPRISES PVT. LTD., WAS THE AMOUNT INVESTED FOR THE PURCHAS E F PREFERENCE SHARES, WHICH WERE ULTIMATELY ALLOTTED ON 28.05.2014 TO THE ASSES SEE. THE ABOVE APART, THE ASSESSEES BALANCE SHEET REFLECTED FIXED DEPOSITS ON THE ASSETS SIDE, AMOUNTING TO RS.7,37,88,296/-. ON THIS FDRS, THE AS SESSEE DISCLOSED INTEREST INCOME OF RS.68,60,942/-, ON THE FDRS VALUING RS.7, 37,88,296/-, AS MENTIONED IN THE NOTES ON ACCOUNTS ON THE BALANCE S HEET AS ON 31.03.2012 AND STATEMENT OF PROFIT & LOSS FOR THE YEAR ENDED MARCH, 2012 (APB-9, ITEM 2.12). THE AFORESAID INTEREST RECEIVED, AMOUNTING T O RS.68,60,942/- STANDS 6 ITA NO.127 & 195(ASR)/2015 AYS 2011-12 & 2012-13 REFLECTED ON ITEM 2.16 OF THE ABOVE NOTES ON ACCOUN TS OF BALANCE SHEET AS ON 31.03.2012 AND STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED MARCH, 2012. 11. UNDISPUTEDLY, ALL THE ABOVE FACTS WERE DULY BRO UGHT BEFORE THE TAXING AUTHORITIES. THE LD. CIT(A) WHILE CONFIRMING THE AS SESSMENT ORDER, RELIED ON THE DECISION OF THE AMRITSAR BENCH OF THE TRIBUNAL IN THE CASE OF M/S. BRIGHT ENTERPRIES PVT. LTD, ONE OF THE GROUP CONCERNS OF THE ASSESSEE, FOR THE ASSESSMENT YEAR 2005-06, RENDERED ON 07.08.2012. TH E ASSESSEES CONTENTION THAT THE DECISION OF THE TRIBUNAL HAS SINCE BEEN RE VERSED BY THE HONBLE HIGH COURT IN M/S. BRIGHT ENTERPRISES PVT. LTD. VS. CIT , 381 ITR 107 (P&H), IS PATENT ON RECORD. DURING THE PREVIOUS YEAR RELEVANT TO AY 2005-06, THE ASSESSEE ADVANCED MONIES TO ITS SISTER CONCERN. THE AO DISALLOWED THE INTEREST PAID BY THE ASSESSEE ON THE LOANS TAKEN FROM BANKS, OBSERVING THAT IF THE ASSESSEE DID NOT ADVANCE MONEY TO ITS SISTER CONCER N WITHOUT CHARGING INTEREST, IT WOULD BE LEFT WITH SUFFICIENT FUNDS TO RETURN TH E BANK LOAN AND THE ASSESSEE WOULD NOT HAVE TO PAY INTEREST TO THE BANK. THE AO FURTHER HELD THAT THE ADVANCE MADE TO THE ASSESSEES SISTER CONCERN WAS N OT FOR BUSINESS PURPOSES, SINCE THE ASSESSEE HAD NO BUSINESS DEALING WITH THE SISTER CONCERN. THE COMMISSIONER (APPEALS) ALLOWED THE INTEREST. THE TR IBUNAL DISALLOWED THE INTEREST ON THE GROUND THAT THE ASSESSEE FAILED TO ESTABLISH THAT THE MONEY ADVANCED BY THE ASSESSEE TO THE SISTER CONCERN WAS USED AS A MEASURE OF COMMERCIAL EXPEDIENCY. 12. THE HONBLE PUNJAB & HARYANA HIGH COURT HELD AS FOLLOWS: 7 ITA NO.127 & 195(ASR)/2015 AYS 2011-12 & 2012-13 HELD, ALLOWING THE APPEAL, THAT WHETHER THE AMOUNT WAS DEBITED TO THE ACCOUNT OF THE SISTER CONCERN IN RESPECT OF THE PAYMENT MADE OR WHETHER THE AMOUNT WAS ACTUALLY PAID TO THE SISTER CONCERN AND USED BY IT FOR THE PURPOSE OF BUSINESS, WAS IMMATER IAL. EITHER WAY THE AMOUNT WAS USED FOR THE BUSINESS OF THE SISTER CONCERN. IT WAS NOT EVEN SUGGESTED THAT THE ADVANCE WAS USED BY TH E SISTER CONCERN FOR THE PURPOSE OTHER THAN FOR THE PURPOSES OF ITS BUSINESS. IN THE MEMORANDUM OF APPEAL, THE ASSESSEE EXPRESSLY STATED THAT IT HAD ADVANCED THE AMOUNT TO ITS SISTER CONCERN AS A MEASURE OF COMMERCIAL EXPEDIENCY FOR THE PURPOSE OF BUSINESS. THE ASSERTION WAS NEVER DENIED. THE ASSESSEE OWNED ABOUT 89 PER C ENT OF THE EQUITY CAPITAL. WHEN A HOLDING COMPANY INVESTED MON EY FOR THE PURPOSE OF THE BUSINESS OF ITS SUBSIDIARY, IT MUST NECESSARILY BE HELD TO BE AN EXPENSE ON ACCOUNT OF COMMERCIAL EXPEDIENC Y. A FINANCIAL BENEFIT OF ANY NATURE DERIVED BY THE SUBSIDIARY ON ACCOUNT OF THE AMOUNTS ADVANCED TO IT BY THE HOLDING COMPANY WOULD NOT MERELY INDIRECTLY BUT DIRECTLY BENEFIT ITS HOLDING COMPAN Y. THERE WOULD BE A DIRECT BENEFIT ON ACCOUNT OF ADVANCE MADE BY THE AS SESSEE TO ITS SISTER COMPANY, IF IT IMPROVED THE FINANCIAL HEALTH OF THE SISTER COMPANY AND MADE IT A VIABLE ENTERPRISE. BUT IT WAS NOT NECESSARY THAT THE ADVANCE RESULTS IN A POSITIVE TANGIBLE BEN EFIT. THUS, THE ASSESSEE WAS ENTITLED TO THE DEDUCTION UNDER SECTIO N 136(1)(III) OF THE INCOME-TAX ACT, 1961. 13. THUS, THE HONBLE HIGH COURT HAS HELD THAT WHEN A HOLDING COMPANY INVESTS FOR THE PURPOSE OF THE BUSINESS OF ITS SUBS IDIARY, IT MUST NECESSARILY BE HELD TO BE AN EXPENSE ON ACCOUNT OF COMMERCIAL EXP EDIENCY. 14. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD., RENDERED BY THE HONBLE HI GH COURT, THE ORDER OF THE LD. CIT(A) IS REVERSED, ACCEPTING THE GRIEVANCE OF THE ASSESSEE TO BE JUSTIFIED. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. 8 ITA NO.127 & 195(ASR)/2015 AYS 2011-12 & 2012-13 15. NOW, WE TAKE UP ITA NO.195(ASR)/2015 FOR THE A. Y. 2011-12. THE FACTS IN THIS APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2011-12, AS NOTED IN THE INITIAL PART OF THIS ORDER, BEING, MUTATIS MUTA NDIS, EXACTLY SIMILAR TO THOSE FOR THE ASSESSMENT YEAR 2012-13, OUR ABOVE OBSERVAT IONS WILL EQUALLY APPLY FOR THE ASSESSMENT YEAR 2011-12 AS WELL. 15. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24TH JUNE, 2016. SD/- SD/- (T. S. KAPOOR) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 24/06/2016. /SKR/ COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE:M/S. MBD PRINTOGRAPHISCS PVT. LTD; JALANDHAR. (2) THE ACIT, CENTRAL CIRCLE-2, JALANDHAR (3) THE CIT(A)-5, LUDHIANA. (4) THE CIT, LUDHIANA (5) THE SR DR, I.T.A.T. TRUE COPY BY ORDER INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.