M/s Malhotra Book Depot, Jalandhar V. Assistant Commissioner of Income Tax, Jalandhar

ITA 196/ASR/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0620 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2016
• 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: SAURABH SEHGAL
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR (CAMP AT JA LANDHAR ) BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A NOS.125 & 196(ASR)/2015 ASSESSMENT YEAR: 2012-13 & 2010-11 M/S. MALHOTRA BOOK DEPOT, MBD HOUSE, RAILWAY ROAD, JALANDHAR. PAN: AABFM-2169D VS. ASST. CIT, CENTRAL CIRCLE-2, JALANDHAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. SAURABH SEHGAL ( CA) RESPONDENT BY: SH. BHAWANI SHANKAR (DR) DATE OF HEARING: 23.06. 2016 DATE OF PRONOUNCEMENT : 29.06.2016 ORDER PER T.S.KAPOOR (AM): THESE ARE TWO APPEALS FILED BY THE ASSESSEE AGAINST THE SEPARATE ORDERS, OF LEARNED CIT(A) DATED 15.01.2015 & 27.02. 2015, FOR ASST. YEARS: 2012-13 & 2010-11 RESPECTIVELY. SINCE, THE COMMON I SSUE IS INVOLVED IN BOTH THE APPEALS AND THESE WERE HEARD TOGETHER, THE REFORE, FOR THE SAKE OF CONVENIENCE A COMMON AND CONSOLIDATED ORDER IS BEIN G PASSED. 2. IN ITA NO. 125(ASR)/2015 FOR A.Y. 2012-13, THE A SSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE WORTHY COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF PROPORTIONATE INTERE ST AMOUNTING TO RS.91,30,928/- U/S 36 (1) (III) ON ACCOUNT OF INVES TMENT MADE IN VARIOUS SISTER CONCERNS AS SHARE APPLICABLE MONEY. ITA NOS.1 25 & 196 (ASR)/2015 ASST. YEARS: 2012-13 & 2010-11 2 2. THAT THE WORTHY CIT(A0 HAS FAILED TO CONSIDER TH AT THE SAID ADVANCE WAS MADE FOR BUSINESS EXPEDIENCY AND THE CIT(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 FA CTS AND CIRCUMSTANCES OF THE CASE. 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITA NO. 196 (ASR)/2015 FOR A. Y.: 2010-11. 1. THAT THE WORTHY COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN CONFIRMING THE ORDER OF ASSESSING OFFICER WITH REGA RD TO DISALLOWANCE OF INTEREST EXPENDITURE AS DEBITED IN THE PROFIT AND LOSS ACCOUNT TO THE TUNE OF RS.54,10,255/-. 2. THAT THE SAID DISALLOWANCE OF INTEREST U/S 36(1) (III) HAS BEEN MADE AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THAT THE WORTHY CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE AMOUNT WAS ADVANCED FOR BUSINESS EXPEDIENCY AND, AS SUCH, NO DISALLOWANCE SHOULD HAVE BEEN MADE. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE COMPANY IS ENGAGED IN THE BUSINESS ACTIVITY OF PUBLICATION AND TRADING OF EDUCATIONAL BOOKS WITH SALE DEPOTS/BRANCHES SCATTERED ALL OVER INDIA. THE CASES OF THE ASSESSEE WERE SELECTED FOR SCRUTINY. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT AS SESSEE HAD MADE SUBSTANTIAL INVESTMENT AS SHARE APPLICATION MONEY/A DVANCES AND HAD NOT RECOVERED ANY INTEREST ON SUCH INVESTMENTS. THE ASSESSING OFFICER HELD THAT SUCH INVESTMENTS WERE FOR NON BUSINESS PU RPOSES AND THEREFORE, HE DISALLOWED BANK INTEREST AMOUNTING TO RS.91,50,928/- AND RS.54,10,225/- FOUND DEBITED IN P&L ACCOUNT IN THES E TWO YEARS. THE ITA NOS.1 25 & 196 (ASR)/2015 ASST. YEARS: 2012-13 & 2010-11 3 DISALLOWANCE WAS MADE U/S 36(1)(III) OF THE ACT. TH E LEARNED CIT(A) ALSO CONFIRMED THE ACTION OF ASSESSING OFFICER BY OBSERV ING SIMILAR FINDINGS. THE FINDINGS OF LEARNED CIT(A) IN ITA NO.125(ASR)/2 015 AS CONTAINED IN PARA 3.2 ARE REPRODUCED BELOW. 3.2 I HAVE CONSIDERED THE FACTS OF THE CASE, THE B ASIS OF ADDITION MADE BY THE ASSESSING OFFICER AND THE ARGUMENTS OF THE A R ON THE ISSUE DURING ASSESSMENT AS WELL AS APPELLATE PROCEEDINGS. IT IS SEEN THAT THE APPELLATE 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 ISSUE RA ISED BY THE A.O. THAT THE AMOUNTS ADVANCED AS SHARE APPLICATION MONEY WAS MERELY AN ATTEMPT TO CAMOUFLAGE THE REAL INTENT AS THE RECIPIENT COMP ANY I.E., M/S. HOLLY FAITH PRIVATE LIMITED DID NOT HAVE SUFFICIENT AUTHO RIZED CAPITAL TO ACCEPT SHARE APPLICATION IN THIS REGARD. THIS BASIC CONTRA DICTION HAS NOT BEEN ADDRESSED BY THE APPELLANT IN ITS ARGUMENTS. IT IS AN ACCEPTED FACT THAT THE FUNDS OF THE APPELLANT COMPANY COMPRISES OF SELF GE NERATED FUNDS AS WELL AS INTEREST BEARING LOANS. IT HAS NOT BEEN POINTED OUT THAT INTEREST BEARING FUNDS HAVE BEEN EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS. FURTHER THE ADVANCING OF INTEREST FREE FUNDS IN THE GARB OF SHA RE APPLICATION MONEY BY THE APPELLANT HAS BEEN THE BASIC REASON FOR THE APP ELLANT COMPANY TO CONTINUE TO RAISE INTEREST BEARING FUNDS. THE ADVAN CING OF INTEREST FREE AMOUNTS TO SISTER CONCERN HAVE TO BE JUSTIFIED TO B E BUSINESS NECESSITY WHICH HAS NOT BEEN DONE BY THE APPELLANT. IN THE CI RCUMSTANCES, THE JUDGMENT OF THE HONBLE PUNJAB & HARYANAN HIGH COUR T IN THE CASE OF M/S ABHISHEK INDUSTRIES LIMITED 280 ITR 1 IS CLEARLY AP PLICABLE. IT IS ALSO IMPORTANT TO APPRECIATE THAT SIMILAR DISALLOWANCE M ADE IN THE CASE OF APPELLANTS SISTER CONCERN, I.E., M/S BRIGHT ENTERP RISES FOR THE ASSESSMENT YEAR 2005-06 HAD BEEN UPHELD BY THE HONBLE ITAT AM RITSAR BENCH AS POINTED OUT EARLIER. IN THE CIRCUMSTANCES, THE DISA LLOWANCE MADE IS CONFIRMED. 5. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED T HAT THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST AMOUNTING TO RS.91,30,928/- AND RS.54,10,255/- U/S 36(1)(III) OF THE ACT ON ACCOUNT OF INVESTMENTS MADE IN VARIOUS SISTER CONCERNS AS ADVA NCES OR AS SHARE APPLICATION MONEY. THE LEARNED AR SUBMITTED THAT L EARNED CIT(A) HAS ITA NOS.1 25 & 196 (ASR)/2015 ASST. YEARS: 2012-13 & 2010-11 4 FAILED TO CONSIDER THAT THE INVESTMENTS WERE MADE O N ACCOUNT OF BUSINESS EXPEDIENCY, AS THE ASSESSES OF THE COMPANIES TO WH OM ADVANCES FOR SHARE APPLICATION MONEY OR OTHERWISE WERE MADE WERE ALL SISTER CONCERNS AND INVESTMENTS IN THESE COMPANIES WAS KEEPING IN V IEW THE BUSINESS INTERESTS OF ASSESSEE. 7. CONTINUING HIS ARGUMENTS, THE LEARNED AR SUBMITT ED THAT WHILE UPHOLDING THE ADDITION THE LEARNED CIT(A) HAS RELIE D UPON THE JUDGMENTS OF HONBLE P&H HIGH COURT IN THE CASE OF M/S ABHISH EK INDUSTRIES PVT. LIMITED 280 ITR 1 AND HAS ALSO RELIED UPON THE JUDG MENTS OF ITAT AMRITSAR BENCH IN THE CASE OF M/S BRIGHT ENTERPRISE S. THE LEARNED AR SUBMITTED THAT JUDGMENT OF M/S BRIGHT ENTERPRISES H AS ALREADY BEEN OVERRULED BY HONBLE PUNJAB & HARYANA HIGH COURT AN D SIMILARLY THE JUDGMENT IN THE CASE OF M/S ABHISHEK INDUSTRIES LIM ITED IN ITA NO.414 (ASR)2010 FOR ASST. YEAR: 2005-06 HAS BEEN OVERRULE D BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF HERO CYCLE PV T. LIMITED VS. CIT. THE LEARNED AR FURTHER SUBMITTED THAT ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS FROM WHERE THE INVESTMENTS WERE MADE AND IN THIS RESPECT OUR ATTENTION WAS INVITED TO (PB PAGE-1) WHERE THE CHARTS SHOWING INTEREST FREE FUND AS AVAILABLE WITH THE FIRM AS ON 31.3.2012 AS ON 31.3.2010 WERE PLACED. THE LEARNED AR FURTHER ARGUE D THAT SINCE THE SISTER CONCERNS WHOM THE ASSESSEE HAD ADVANCED LOAN S ARE IN THE SAME LINE OF BUSINESS ACTIVITY, REVENUE COULD NOT DISALL OW INTEREST ON BORROWED CAPITAL ON GROUND THAT LOAN WAS ADVANCED FOR NON BU SINESS PURPOSES, ITA NOS.1 25 & 196 (ASR)/2015 ASST. YEARS: 2012-13 & 2010-11 5 AND RELIANCE IN THIS RESPECT WAS PLACED ON THE CASE LAW OF INDUSTRIAL FEEDERS VS. ACIT, CHENNI AS REPORTED IN 68 TAXMAN. COM 92. THE LEARNED AR FURTHER SUBMITTED THAT IN THE CASE OF ANOTHER GR OUP CONCERN OF THE ASSESSEE THE HONBLE AMRITSAR BENCH IN ITA NO. 534/ ASR/2014 FOR ASST. YEAR 2010-11 VIDE ORDER, DATED 13.06.2016 HAS DECID ED THE SIMILAR DISALLOWANCE IN FAVOUR OF ASSESSEE. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, THE LEARNED AR PRAYED FOR THE DELETI ON OF ADDITIONS SUSTAINED BY LEARNED CIT(A). 8. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED UP ON THE ORDER OF AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH E MATERIAL PLACED ON RECORD. WE FIND THAT FOR ASST. YEAR 2010-11 THE CAPITAL OF THE ASSESSEE COMPANY WAS RS.31,71,64,888/- WHICH IS APPARENT FRO M THE COPY OF BALANCE SHEET AS PLACED IN (PB-2). AS AGAINST THIS THE INVESTMENTS IN SISTER CONCERN IN THE SHAPE OF SHARE APPLICATION MO NEY AS PER PAPER BOOK PAGE 2 AND AS NOTED BY ASSESSING OFFICER IS RS.20,3 2,60,000/-. WE FURTHER FIND THAT ASSESSEE WAS HAVING CURRENT LIABI LITIES AND PROFITS TO THE TUNE OF RS.17,41,39,750/-, THEREFORE, THE TOTAL OF NON INTERESTS BEARING FUNDS AVAILABLE WITH THE ASSESSEE WERE PAID AT RS.4 9,43,04,638/-. THESE FIGURES ARE VERIFIABLE FROM THE COPIES OF BALANCE S HEET AS PLACED IN (PB- PAGE 2). OUT OF TOTAL AVAILABLE FUNDS ON WHICH NO I NTEREST WAS PAID BY ASSESSEE AMOUNTING TO RS.49,43,04,638/-, THE ASSESS EE HAD ADVANCED TO RS.20,32,60,000/-, THEREFORE, ONE FACT IS CLEAR THA T IN ITA NO. ITA NOS.1 25 & 196 (ASR)/2015 ASST. YEARS: 2012-13 & 2010-11 6 196(ASR)/2015, THERE WAS SUFFICIENT NON INTEREST B ORROWING FUNDS OUT OF WHICH THE ASSESSEE HAD ADVANCED/ INVESTED IN THE SI STER CONCERNS. 10. SIMILARLY, WE FIND THAT FOR ASST. YEAR 2012-13 THE CAPITAL OF THE FIRM AS PER BALANCE SHEET PLACED AT (PB-PAGE 3 ) WA S RS.13,21,61,500/- AND THE INTEREST FREE CURRENT LIABILITIES WERE TO T HE TUNE OF RS.91,37,20,514/- MAKING THE TOTAL AVAILABILITY OF INTEREST FREE FUNDS TO THE TUNE OF RS.104.58 CRORES. THE ASSESSEE IN THIS YEAR HAD MADE INVESTMENTS IN THE GROUP CONCERNS AS NOTED BY ASSES SING OFFICER TO THE TUNE OF RS.53.76 CRORES. THEREFORE, WE FIND THAT IN THIS YEAR ALSO THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS TO MAKE INVESTMENT IN THE GROUP COMPANIES. FURTHER WE FIND THAT LEARNED CIT(A ) HAS FOLLOWED THE DECISION OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES AND HAS FURTHER RELIED UPON THE DECISIO N OF M/S BRIGHT ENTERPRISES PVT. LTD., DECIDED BY AMRISAR BENCH, WE FIND THAT THE DECISION OF BRIGHT ENTERPRISES PVT. LTD. HAS BEEN O VERRULED BY PUNJAB & HARYANA HIGH COURT. THE FINDINGS OF HONBLE PUNJAB & HARYANA HIGH COURT ARE REPRODUCED BELOW. 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 ITA NOS.1 25 & 196 (ASR)/2015 ASST. YEARS: 2012-13 & 2010-11 7 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 EXPE DIENCY. A FINANCIAL BENEFIT OF ANY NATURE DERIVED BY THE SUBS IDIARY ON ACCOUNT OF THE AMOUNTS ADVANCED TO IT BY THE HOLDING COMPAN Y WOULD NOT MERELY INDIRECTLY BUT DIRECTLY BENEFIT ITS HOLDIN G COMPANY. THERE WOULD BE A DIRECT BENEFIT ON ACCOUNT OF ADVANCE MAD E BY THE ASSESSEE 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 TA NGIBLE BENEFIT. THUS, THE ASSESSEE WAS ENTITLED TO THE DEDUCTION UN DER SECTION 136(1)(III) OF THE INCOME-TAX ACT, 1961. 11. WE FURTHER FIND THAT HONBLE SUPREME COURT IN T HE CASE OF HERO CYCLES PVT. LTD. VS. CIT, (CENTRAL), 63 TAXMAN.COM 308 (SC ) LUDHIANA AFTER CONSISTING THE CASE LAW OF ABHISHEK INDUSTRIES HAS HELD THAT W HERE THE INVESTMENTS HAS BEEN MADE OUT OF OWN FUNDS/NON INTEREST BEARING FUN DS, THE DISALLOWANCE U/S 36(1)(III) IS NOT ALLOWED. THE FINDINGS OF HONBLE SUPREME COURT ARE REPRODUCED AS UNDER: INSOFAR AS THE LOANS TO DIRECTORS ARE CONCERNED, IT COULD NOT BE DISPUTED BY THE REVENUE THAT THE ASSESSEE HAD A CREDIT BALAN CE IN THE BANK ACCOUNT WHEN THE SAID ADVANCE OF RS.34 LAKHS WAS GI VEN. REMARKABLY, AS OBSERVED BY THE CIT(APPEALS) IN HIS ORDER, THE COMP ANY HAD RESERVE/SURPLUS TO THE TUNE OF ALMOST 15 CRORES AND , THEREFORE, THE ASSESSEE COMPANY COULD IN ANY CASE, UTILIZE THOSE F UNDS FOR GIVING ADVANCE TO ITS DIRECTORS. 12. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE ALLOW THE APPEALS FILED BY ASSESSEE. 13. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JUNE, 2016. SD/- SD/- (A.D. JAIN) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:29.06.2016. /PK/ PS. ITA NOS.1 25 & 196 (ASR)/2015 ASST. YEARS: 2012-13 & 2010-11 8 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