DCIT, New Delhi V. M/s. GE Money Financial Services Pvt. Ltd., New Delhi

ITA 1991/DEL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3642 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 11-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Revised return
• Section: 92C; 143(3); 142(1); 115JB; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.A. NO. 1991 /DEL/201 6 A.Y. : 2011-12 DCIT, CIRCLE 10(1), NEW DELHI VS. M/S GE MONEY FINANCIAL SERVICES PVT. LTD. 401-402, 4 TH FLOOR, AGGARWAL MILLENNIUM TOWER, E-1,2,3, NETAJI SUBHASH PLACE, PITAMPURA, DELHI 110 034 (PAN: AAACC0642F) (ASSESSEE) (RESPONDENT) REVENUE BY : SH. ARUN KUMAR YADAV, SR. DR ASSESSEE BY : SH. SACHIT JOLLY, ADV. ORDER PER H.S. SIDHU : JM THE REVENUE HAS FILED THIS APPEAL AGAINST THE IMP UGNED ORDER DATED 04.01.2016 OF THE LD. CIT(A)-16, NEW DELHI RELE VANT TO ASSESSMENT YEAR 2011-12. 2. THE FOLLOWING ARE THE GROUNDS RAISED BY THE REVEN UE- 1. WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS CORRECT IN DELETING 2 THE ADDITION OF RS. 5,30,83,067/- MADE ON ACCOUNT OF INTEREST ACCRUED ON STICKY LOANS AND ADVANCES, IGNORING THE FACT THAT THE ASSESSEE COMPANY FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING AND, THEREFORE, ALL THE INCOMES ARE MANDATORILY REQUIRED TO BE INCLUDED IN THE ITS TOTAL INCOME ON ACCRUAL BASIS. 2. THE APPELLANT CRAVES LEAVE, TO ADD, ALTER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE FIL ED RETURN OF INCOME DECLARING NIL INCOME AFTER CLAIMING SET OFF O F LOSSES AND INCOME U/S. 115JB AT RS. 92,77,50,120/- ON 28.11.201 1. SUBSEQUENTLY, THE ASSESSEE FILED REVISED RETURN OF INC OME ON 28.3.2013 DECLARING NIL INCOME AFTER CLAIMING SET O FF OF LOSSES AND INCOME U/S. 115JB AT RS. 92,91,86,141/-. IN THE REVIS ED COMPUTATION, THE ASSESSEE DECLARED NIL INCOME AND BO OKS PROFITS U/S. 115JB OF RS. 93,47,72,934/-. THE CASE WAS SELE CTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) WAS ISSUED ON 7.8.20 12. NOTICE U/S. 142(1) WAS ISSUED ON 5.8.2013. QUESTIONNAIRE U /S. 142(1) WAS 3 ISSUED DATED 30.10.2014. DUE TO CHANGE OF INCUMBENCY ISSUED FRESH NOTICE U/S. 142(1) ON 21.11.2014. IN RESPONSE TO NO TICES, THE AR OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED THE R EQUISITE DETAILS. ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF CONSUMER AND AUTO FINANCE. DURING THE COURSE OF HEARING, AR HA S PRODUCED BOOKS OF ACCOUNT WHICH HAVE BEEN TEST CHECKED. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD UNDERTAKEN TRA NSACTION WITH ITS ASSOCIATED ENTERPRISES. THE INTERNATIONAL TRANSAC TIONS ENTERED INTO BY THE ASSESSEE WITH THE ASSOCIATED ENTERPRISES WER E REFERRED TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARMS LENGTH PRICE. THE TPO HAS PASSED HIS ORDER U/S. 92C A(3) DATED 31.10.2014 WHEREIN NO ADVERSE INFERENCE HAS BEEN DR AWN IN RESPET OF INTERNATIONAL TRANSACTION. IN THIS CASE THE ASSESS EE COMPANY VIDE ITS REPLY DATED 17.12.2014 FURNISHED DETAILED SUBMIS SIONS ON THE ALLOWABILITY OF INTEREST ON STICKY LOANS AND ADVANCES OF RS. 5,30,83,067 (NET OF INTEREST REVERSAL IN RELATION T O WHICH PRINCIPAL HAS BEEN WRITTEN OFF) WHICH HAS NOT BEEN RECOGNISED B Y IT FOR THE ASSESSMENT YEAR IN QUESTION IN VIEW OF THE PRUDENTIAL NORMS PRESCRIBED BY THE RBI. THE ASSESSEE HAS SUBMITTED DE TAILED WRITTEN SUBMISSIONS AND TAKEN SUPPORT OF VARIOUS JUDICIAL PRE CEDENTS IN THIS RESPECT WHICH HAVE BEEN CONSIDERED. ADDITIONALLY, TH E ASSESSEE ALSO 4 BROUGHT TO MY NOTICE THE JUDGMENT OF DELHI ITAT PASSE D ON OCTOBER 31,2012 FOR AY 2003-04 AND AY 2004-05 IN THE ASSESSE E'S OWN CASE WHEREIN, FULL RELIEF ON THE ISSUE OF INTEREST ON STICK Y LOANS HAS BEEN GRANTED TO THE ASSESSEE. HOWEVER, THE DEPARTMENT HAS P REFERRED AN APPEAL BEFORE THE DELHI HIGH COURT THE MATTER IS PENDING . HENCE, CLAIM OF THE ASSESSEE IN THIS REGARD CANNOT BE ACCE PTED. AS PER COMPANIES ACT, 1956, SECTION 209 W.E.F. 15.06.1988 MA KES IT OBLIGATORY FOR ALL COMPANIES TO MAINTAIN THEIR ACCOUNTS ON ACCRUAL BASIS AND ACCORDING TO DOUBLE ENTRY SYSTEM OF ACCOUN TING. IN VIEW OF THIS AMENDMENT ALL THE COMPANIES ARE REQUIRED TO KE EP THEIR ACCOUNTS ON ACCRUAL BASIS OF ACCOUNTING IN RESPECT O F ANY ACCOUNTING YEAR CLOSING ON OR AFTER 15.6.1988. IN THE INSTANT CA SE FOR THE PURPOSE OF AUDITED ACCOUNTS PREPARED AS PER THE COMP ANIES ACT, 1956 THE INCOME ON STICKY LOANS IS PROVIDED AND RECO GNIZED AS INCOME. SUBSEQUENTLY THE ENTRY IS REVERSED ON THE CLOS E OF ACCOUNTING YEAR AND INCOME ON THE CLAIMED STICKY LOAN S IS NOT RECOGNIZED. THIS IMPLIES THAT MERCANTILE SYSTEM IS NOT BEING FOLLOWED AS FAR AS INTEREST INCOME IS CONCERNED ON TH E LOANS WHICH BECOME BAD. A SIMILAR ISSUE HAS BEEN DISCUSSED AT LE NGTH BY MY PREDECESSOR IN THE ASSESSMENT ORDER DATED 20.2.2001 P ASSED U/S. 143(3) OF THE ACT FOR AY 1998-99. EVEN THE LD. CIT(A ) VIDE HIS ORDER DATED 16.1.2002 UPHELD THE SAID ADDITIONS MADE BY PRE DECESSOR. 5 RESPECTFULLY FOLLOWING THE STAND OF THE DEPARTMENT IN PRIOR YEARS THE INTEREST ON STICKY LOANS AMOUNTING TO RS.5,30,83,067/- NOT RECOGNIZED BY THE ASSESSEE IN I TS BOOKS OF ACCOUNT WAS DISALLOWED AND WAS ADDED TO THE TAXAB LE INCOME OF THE ASSESSEE COMPANY VIDE ORDER DATED 16.3.2015 PASSED U/S. 143(3) OF THE ACT BY ASSESSING THE INCOME AT RS . 43,03,39,000/- AS PER NORMAL PROVISIONS AND INCOME U/ S. 115JB AT RS. 93,52,11,607/-. AGAINST THE AFORESAID A OS ORDER DATED 16.3.2015, ASSESSEE APPEALED BEFORE THE L D. CIT(A)-16, NEW DELHI WHO VIDE HIS IMPUGNED ORDER DA TED 04.1.2016 HAS DELETED THE ADDITION AND PARTLY ALLOWE D THE APPEAL OF THE ASSESSEE. AGGRIEVED WITH THE ORDER O F THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL . 4. LD. DR RELIED UPON THE ORDER OF THE AO AND REITERA TED THE CONTENTIONS RAISED IN THE GROUNDS OF APPEAL. 5. LD. COUNSEL OF THE ASSESSEE RELIED UPON THE ORDE R OF THE LD. CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ELEVANT RECORDS, ESPECIALLY THE IMPUGNED ORDER. WE FIND THA T THE ISSUE INVOLVED IN THE PRESENT APPEAL IS SQUARELY COVERE D IN FAVOUR OF 6 THE ASSESSEE IN ASSESSEE'S OWN CASE IN A.Y.2000-01, 2003-04 AND 2004-05. FOR THE SAKE OF CONVENIENCE, THE RELEVA NT OBSERVATION OF THE ITAT IN A.Y.2001-02 IN APPEAL NO. 3476 IS REPRODUCED AS UNDER: THE ASSESSEE HAD NOT RECOGNIZED THE INTEREST INCOME ON STICKY LOANS KEEPING IN VIEW THE MANDATORY GUIDELINES OF RBI IN REGARD TO NBFC. UNDER THE MERCANTILE SYSTEM OF ACCOUNTING AN INCOME ACCRUES WHEN THERE IS REASONABLE CERTAINTY FOR REALISING ANY RECEIPTS OR REVENUE. HYPOTHETICAL INCOME CANNOT BE TAKEN INTO ACCOUNT. IN RESPECT OF STICKY LOANS AND ADVANCES, THE INCOME IS RECOGNIZED WHEN INTEREST IS ACTUALLY COLLECTED. MERELY ON THE BASIS OF ACCRUAL IT CANNOT BE RECOGNIZED IN THE ABSENCE OF ITA NOS. 3192,3476,2809 & 2445/0ELL2007 ANY CERTAINTY OF ITS COLLECTION. THE HON'BLE SUPREME COURT IN THE CASE OF UCO BANK VS. CIT, 237 ITR 891 HAS HELD AS UNDER: 7 'THE CIRCULAR OF OCTOBER 9, 1984, ALSO SERVES ANOTHER PRACTICAL PURPOSE OF LAYING DOWN A UNIFORM TEST FOR THE ASSESSING AUTHORITY TO DECIDE WHETHER THE INTEREST INCOME WHICH IS TRANSFERRED TO THE SUSPENSE ACCOUNT IS, IN FACT, ARISING IN RESPECT OF A DOUBTFUL OR 'STICKY' LOAN. THIS IS DONE BY PROVIDING THAT NON- RECEIPT OF INTEREST ON A DOUBTFUL LOAN. BUT IF AFTER THREE YEARS THE PAYMENT OF INTEREST IS NOT RECEIVED, FROM THE FOURTH YEAR ONWARDS IT WILL BE TREATED AS INTEREST ON A DOUBTFUL LOAN AND WILL BE ADDED TO THE INCOME ONLY WHEN IT IS ACTUALLY RECEIVED. THERE IS NO INCONSISTENCY OR CONTRADICTION BETWEEN THE CIRCULAR SO ISSUED AND SECTION 145 OF THE INCOME TAX ACT. IN FACT, THE CIRCULAR CLARIFIES THE WAY IN WHICH THESE AMOUNTS ARE TO BE TREATED UNDER THE ACCOUNTING PRACTICE FOLLOWED BY THE LENDER. THE CIRCULAR, THEREFORE, CANNOT BE TREATED AS CONTRARY TO SEC. 145 OF THE INCOME TAX ACT OR ILLEGAL IN ANY FORM. IT IS MEANT FOR UNIFORM 8 ADMINISTRATION OF LAW BY ALL THE INCOME TAX AUTHORITIES IN A SPECIFIC SITUATION AND IS, THEREFORE, VALIDLY ISSUED U/S 119 OF THE INCOME TAX ACT. AS SUCH, THE CIRCULAR WOULD BE BINDING ON THE DEPARTMENT.' RESPECTFULLY FOLLOWING THE DECISION OF HON 'BLE SUPREME COURT WE CONFIRM THE ORDER OF LD. CIT(A). 6.1 WE ALSO FIND THAT ASSESSEE GOT FAVOURABLE DECISI ON IN ITS OWN CASE OF THIS ISSUE IN A.Y.2003-04, 2004-05 ALSO AN D PLACED RELIANCE BEFORE THE LD. CIT(A) ON THE FOLLOWING CASE LAWS: 1. FAVOURABLE ORDER PASSED BY HON'BLE DELHI ITAT IN ASSESSE'S GROUP COMPANY CASE (GE CAPITAL SERVICES INDIA) FOR A.Y.1999-00. 2. DECISION OF HON'BLE JURISDICTIONAL DELHI HIGH COURT IN CASE OF CIT VS VASISTH CHAY VYAPAR LTD.[(20TO) 330 ITR 440 DELHI HC]. 6.2 THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE MENT IONED JUDICIAL PRONOUNCEMENTS, LD. CIT(A) HAS RIGHTLY DELETED THE AD DITION OF RS.5,30,83,607/- AS INTEREST ACCRUED ON STICKY LOANS, WHICH DOES NOT 9 NEED ANY INTERFERENCE ON OUR PART, HENCE, WE UPHOLD THE ACTION OF THE LD. CIT(A) AND REJECT THE GROUND RAISED BY THE REV ENUE. 7. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMEN T STANDS DISMISSED. ORDER PRO NOUNCED ON 16/11/2017. SD/- SD/- [PRASHANT MAHARISHI] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 16/11/2017 SRBHATNAGAR COPY FORWARDED TO: - 1. ASSESSEE - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHE S