Soma Infrastructure Private Limited , Hyderabad V. Dy. Commissioner of Income Tax , Circle-3(2), Hyderabad

ITA 200/Hyd/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5526 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB-B
• Next Hearing Date: 14-09-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 13-02-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: Y.V.S.T. SAI
• Keywords: Wholly owned subsidiary
• Section: 143(3); 20

Judgement Text

ITA NO.200/HYD /2019 1 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD (THROUGH VIDEO CONFERENCING) BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA NO.200/HYD/2019 ASSESSMENT YEAR: 2015-16 SOMA INFRASTRUCTURE PRIVATE LIMITED, C/O. MOHD AFZAL, ADVOCATE, #402, SHERSONS RESIDENCY, 11-5-465, CRIMINAL COURT ROAD, RED HILLS, HYDERABAD-04, PAN NO.AAMCS0598Q VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(2), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI MOHD AFZAL. REVENUE BY : SRI Y.V.S.T. SAI - DR DATE OF HEARING: 14/09/2021 DATE OF PRONOUNCEMENT: 20/09/2021 ORDER PER S. S. GODARA, J.M. THIS ASSESSEES APPEAL FOR A.Y 2015-16 ARISES FROM THE CIT(A)-3, HYDERABADS ORDER DATED 14.11.2018, IN CA SE NO.0180/DCIT-3(2)/HYD/CIT(A)-3/2017-18 INVOLVING PR OCEEDINGS UNDER SECTION 143(3) OF INCOME TAX ACT, 1961 (IN S HORT, THE ACT). HEARD BOTH SIDES. CASE FILE PERUSED. ITA NO.200/HYD /2019 2 2. COMING TO THE ASSESSEES SOLE SUBSTANTIVE GRIEVA NCE THAT THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN AF FIRMING THE ASSESSING OFFICERS ACTION IN INVOKING SECTION 36(1 )(III) INTEREST AMOUNT OF RS.15,52,52,500/-; WE NOTE THAT THE CIT (A) IN HIS LOWER APPELLATE DISCUSSION READS AS UNDER : THE DISALLOWANCES U/S.36(1)(III) IS EXTRACTED FROM THE ORDER OF ASSESSING OFFICER SUPRA. IT IS SEEN AT PAGES 7 TO 12 OF THE A SSESSMENT ORDER, THE ASSESSING OFFICER HAS DISCUSSED IN DETAIL THE DISAL LOWANCE MADE ON ACCOUNT OF U/S.36(1)(III). THE UNDERSIGNED CONCURS WITH THE FINDINGS OF THE ASSESSING OFFICER AND AFTER CONSIDERING THE SUBMISS IONS OF THE APPELLANT AND THE FINDINGS IN THE ASSESSMENT ORDER. APART FRO M THE FINDINGS IN THE ASSESSMENT ORDER, IT IS NOT WORTHY THAT THE HON'BLE SUPREME COURT IN THE CASE OF HERO CYCLES PVT. LTD. VS ERR RELIED UPON BY THE APPELLANT HAS BEEN DISTINGUISHED APTLY ON PAGE 10 AND 11 OF THE ASSESS MENT ORDER. CONSIDERING THE FACTS, ISSUES AND CIRCUMSTANCES OF THE ISSUE, DISALLOWANCE MADE UJS.36(1)(III) IS UPHELD. HENCE, GROUND NO.2, 3, 4, 5, 6 & 7 IN APPEAL ARE PARTLY ALLOWED. 3. LEARNED AUTHORIZED REPRESENTATIVE NEXT STATED AT THE BAR THAT THE INSTANT ISSUE OF SEC 36(1)(III) INTERE ST DISALLOWANCE QUA ADVANCES MADE TO THE ASSESSEES ASSOCIATED ENTI TIES NAMELY, BETA INFRATECH PRIVATE LIMITED, SOMA JABALPUR REWA TOLLWAY PRIVATE LIMITED, AND ADILABAD EXPRESSWAY PVT. LIMIT ED INVOLVING VARYING SUMS; IS NO MORE RES INTEGRA AS THIS TRIBUN ALS COORDINATE BENCH IN A.Y. 2012-13 HAS UPHELD THE SAME AS UNDER : 5. AS REGARDS DISALLOWANCE OF INTEREST U/S 36(1)(I II), THE GROUND OF WHICH IS RAISED BY THE ASSESSEE IN ITS APPEAL, THE AO OBSERV ED THAT ON PERUSAL OF BALANCE SHEET OF THE ASSESSEE COMPANY AS AT 31/03/2 012, IT WAS NOTICED THAT THE ASSESSEE HAD AVAILED INTEREST BEARING FUNDS/LOA NS AND PAID INTEREST OF RS. 14,94,47,101/- ON SUCH LOANS FOR THE AY UNDER CONSI DERATION. HE FURTHER OBSERVED THAT THE COMPANY HAD ADVANCED INTEREST-FRE E FUNDS OF RS. 65.00 CRORE TO M/S BETA INFRATECH PVT. LTD., THE SUBSIDIA RY COMPANY AND RS. 100 CRORE TO M/S SOMA JABALPUR REWA TOLLWAY PVT. LTD., THE AS SOCIATE COMPANY OF THE ASSESSEE. 5.1 WHEN THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE INTEREST ON THE LOANS/ADVANCES MADE TO SUBSIDIARY COMPANY SHOULD NO T BE DISALLOWED OUT OF INTEREST EXPENDITURE AS THE SAME IS NOT WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS, THE ASSESSEE SUBMITTED ITS EXP LANATION VIDE ITS LETTER ITA NO.200/HYD /2019 3 DATED 29/01/2015, WHICH WAS EXTRACTED BY THE AO IN HIS ORDER AT PAGES 2 & 3. THE AO REJECTED THE EXPLANATION OF THE BY OBSERVING THAT THE ASSESSEE HAS RAISED LOANS AMOUNTING TO RS. 200.00 CRORES AND HAD DEBITED FINANCIAL CHARGES OF RS. 14,94,47,101/- IN THE PROFIT AND LOSS ACCOUN T WHICH LEAVES NO DOUBT THAT THE LOANS/ADVANCES TO SUBSIDIARY COMPANY HAS BEEN M ADE OUT OF BORROWED FUNDS. HE OPINED THAT THE DEDUCTION OF INTEREST ON BORROWING CAN BE ALLOWED ONLY IF THE ASSESSEE FULFILS THE PROVISIONS OF SECT ION 36(1)(III) OF THE ACT. IN VIEW OF THE ABOVE OBSERVATIONS AND ALSO FOLLOWING FEW CA SE LAW, THE AO HELD THAT THE INTEREST CLAIM OF THE ASSESSEE TO THE EXTENT OF INTEREST ATTRIBUTABLE TO INVESTMENTS IS TO BE DISALLOWED. THE ASSESSEE SUBMI TTED THAT THE INTEREST CHARGED BY BANKS ON ITS LOANS WAS AT 13% PER ANNUM AND, THEREFORE, THE INTEREST AT THE RATE OF 13% ON THE FUNDS DIVERTED F OR INVESTMENT IN LOANS WHICH WORKED OUT TO RS. 7,38,83,333/- AND THE SAME WAS DI SALLOWED. 5.2 WHEN THE ASSESSEE PREFERRED AN APPEAL BEFORE TH E CIT(A), THE CIT(A) CONFIRMED THE DISALLOWANCE BY OBSERVING AS UNDER: THE APPELLANT TOOK INTEREST BEARING LOAN FROM ICIC I BANK, IN TURN PASSED ON SUBSTANTIAL AMOUNT TO SISTER CONCERN S INTEREST FREE, THESE SISTER CONCERNS INTEREST FREE, THESE SI STER CONCERNS DID NOT CARRY OUT ANY WORK, AGAIN PASSED ON THE AMO UNTS TO SOMA ENTERPRISES. IN ANY CASE BETA INFRA AND SJRTPL DID NOT CARRYOUT ANY ACTIVITY, THEREFORE THE TEST OF COMMER CIAL EXPEDIENCY FAILS AND THEREFORE PROPORTIONATE DISALL OWANCE OF INTEREST MADE BY AO IS CONFIRMED. 5.3. BEFORE US, THE LD. AR SUBMITTED THAT THE BANK LOAN IS GUARANTEED BY THE PARENT COMPANY AND ITS PROMOTERS. LOAN WAS GRANTED FOR THE PURPOSE OF PROVIDING FUNDS BY WAY OF DEBT AND OR THROUGH OTHER MODES TO OTHER PROJECT COMPANIES LISTED IN THE LOAN SANCTION LETTER WHICH INCLUDE BETA INFRA TECH AND M/S SOMA JABALPUR REWA TOLL WAYS PVT LTD. 5.4 THE LD. DR FILED WRITTEN SUBMISSIONS, IN WHICH, INTER-ALIA, IT WAS STATED THAT BORROWER SHALL MAINTAIN DIRECT/INDIRECT SHAREHOLDIN G OF AT LEAST 26% IN THE PROJECT COMPANIES DURING THE ENTIRE DURATION OF THE FACILITY. AS PER THE SHARE HOLDING PATTERN OF THE GROUP COMPANIES, THE ASSESSE E COMPANY IS HAVING 15.11% OF SHARES OF SOMA TOLL WAYS P. LTD., TO WHIC H SOMA JABALPUR REWA TOLLWAY LTD. IS 100% SUBSIDIARY. 5.5 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. WE NOTICE THAT THE PARENT COMPANY IS SOMA ENTERPRISES LTD. AND THE HOLDING COMPANY. IT HAS FOLLOWING SUBSIDIARY COMPANIES: 1. M/S SOMA INFRASTRUCTURE PVT. LTD., 2. M/S SOMA TOLLWAYS PVT. LTD. 3. M/S SOMA HIGHWAYS PVT. LTD. 4. M/S CHENNAI ELEVATED TOLLWAY LTD. 5. M/S ADILABAD EXPRESSWAY PVT. LTD. 6. M/S SOMA HYDERABAD CITY CENTRE PVT. LTD. 7. M/S SOMA RAIPUR CITY CENTRE PVT. LTD. 8. M/S SOMA ANDAMAN RESORTS PVT. LTD. ITA NO.200/HYD /2019 4 AND STEP-DOWN SUBSIDIARIES ARE: 1. M/S SOMA ENERGY LTD. 2. BETA INFRATECH P. LTD. 3. SOMA JABALPUR REWA TOLLWAY PVT. LTD.(SPV). FROM THE ABOVE, IT IS CLEAR THAT ASSESSEE IS A SUBS IDIARY COMPANY AND ASSESSEE HAS DIVERTED THE FUNDS SANCTIONED BY ICICI BANK TO THE STEP DOWN SUBSIDIARIES I.E. BETA INFRATECH P. LTD. AND SOMA JABALPUR REWA TOLLWAY PVT. LTD.(SPV). 5.6 WE FURTHER NOTICE THAT ASSESSEE IS A COMPANY IN CORPORATED AND ACTIVE IN PROVIDING CONSULTANCY SERVICES TO ITS PARENT COMPAN Y I.E. SOMA ENTERPRISE LTD. ASSESSEE HAS NO OTHER BUSINESS CONNECTION WITH THE STEP DOWN SUBSIDIARIES EXCEPT RELATED CONCERN. THE ASSESSEE WAS UTILISED B Y THE PARENT COMPANY TO SOURCE THE FUNDS FROM THE BANK AFTER GIVING THE REQ UIRED BANK GUARANTEE. THE FUNDS WERE UTILIZED BY THE STEP DOWN COMPANIES AND WE NOTICE THAT ASSESSEE HAS ADVANCED TO M/S BETA INFRATECH AS LONG TERM UNS ECURED LOAN. THE FUNDS WERE UTILIZED IN THE BUSINESS FOR THE PURPOSE OF MA KING PAYMENT FOR FIXED ASSETS AND CAPITAL WORK-IN-PROGRESS. AT THE SAME TI ME, M/S SOMA JABALPUR REWA TOLLWAY PVT. LTD. RECEIVED THE LOAN FROM THE A SSESSEE AND DIVERTED THE SAME TO THE HOLDING COMPANY. 5.7. WE FURTHER NOTICE THAT THE OBJECT OF STEP DOWN SUBSIDIARIES WAS TO SET UP A CONTINUED CYCLE GAS BASED POWER PLANT IN UTTARAKHAN D AND THE OTHER STEP DOWN SUBSIDIARY IS SPV IN WHICH HOLDING COMPANY HOL DS 100% AND SET UP FOR DEVELOPING INFRASTRUCTURE ON BEHALF OF THE HOLDING COMPANY. IT IS CLEAR FROM THE ABOVE, THE OBJECT OF THESE STEP DOWN SUBSIDIARIES A RE COMPLETELY DIFFERENT TO ASSESSEE AND ONLY CONNECTING POINT IS THE HOLDING C OMPANY. THEREFORE, THE FUNDS SANCTIONED BY THE BANK WERE UTILIZED IN OTHER GROUP COMPANIES ON THE DIRECTION OF THE HOLDING COMPANY. THESE FUNDS WERE NOT UTILIZED FOR ANY PURPOSE OF THE OBJECT OF THE ASSESSEE COMPANY. HENC E, THE EXCLUSIVE UTILISATION OF THESE FUNDS WERE NOT FOR THE PURPOSE OF THE ASSE SSEES BUSINESS AND THE EXPENDITURE OF INTEREST IS NOT FOR THE PURPOSE OF A SSESSEES BUSINESS AND CLEARLY FOR THE PURPOSE OF OTHER GROUP COMPANIES. 5.8 COMING TO THE QUESTION OF BUSINESS EXPEDIENCY I N THIS TRANSACTION, ANY ACT CARRIED OUT FOR THE PURPOSE OF ITS OWN BUSINESS OR CARRIED OUT FOR THE BENEFIT OF THE SUBSIDIARY AS A SHARE HOLDER CAN BE REFERRED TO AS BUSINESS EXPEDIENCY. IN THE GIVEN CASE, THE ASSESSEE IS IN THE BUSINESS OF CONSULTANCY AND NO BUSINESS COMMITMENT TO FUND OTHER SISTER CONCERN AND THE ACT ION OF THE ASSESSEE TO FUND STEP DOWN SUBSIDIARY WILL NOT FIT INTO REPRESE NTING ANY SHARE HOLDER COMMITMENT. THE ACTUAL SHARE HOLDERS ARE THE HOLDIN G COMPANY, ANY HOLDING COMPANY DIVERTING ITS OWN FUNDS TO THE SUBSIDIARIES WILL FIT INTO BUSINESS EXPEDIENCY AS HELD IN THE CASE OF SA BUILDERS (SUPR A). THE ASSESSEE COMPANY WAS USED AS A SOURCE FOR FUNDING THE STEP DOWN SUBS IDIARIES AND THE COST SHOULD ALSO BE TRANSFERRED TO THE SUBSIDIARY WHO HA S UTILIZED THE FUNDS AND THE BURDEN OF COST OF FUNDS ON THE ASSESSEE IS UNWARRAN TED, MAY BE BENEFICIAL TO THE OVERALL GROUP BUT NOT ON THE ASSESSEE. IT CLEAR LY INDICATES THAT THE TRANSACTION OF FUNDING THE SISTER COMPANIES ARE NOT EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSINESS. THEREFORE, THE GROUND RAISE D BY THE ASSESSEE IS DISMISSED. ITA NO.200/HYD /2019 5 4. WE APPRECIATE THE LEARNED COUNSELS FAIR STAND A ND AFFIRM THE IMPUGNED SECTION 36(1)(III) INTEREST DIS ALLOWANCE MADE IN BOTH THE LOWER PROCEEDINGS SINCE THERE IS NO DIS TINCTION ON FACTS OR LAW PINPOINTED DURING THE COURSE OF HEARING. 5. THIS ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH SEPTEMBER, 2021. SD/- SD/- (LAXMI PRASAD SAHU) ACCOUNTANT MEMBER (S.S. GODARA) JUDICIAL MEMBER HYDERABAD, DATED 20 TH SEPTEMBER, 2021. TYNM/SPS COPY TO: S.NO ADDRESSES 1 SOMA INFRASTRUCTURE PRIVATE LIMITED, C/O. MOHD AF ZAL, ADVOCATE, #402, SHERSONS RESIDENCY, 11-5-465, CRIMINAL COURT ROAD, RED HILLS, HYDERABAD-04. 2 THE DY. COMMISSIO NER OF INCOME TA X, CIRCLE 3 ( 2 ), HYDERAB AD. 3 CIT (A)-3, HYDERABAD 4 PR. CIT 3, HYDERABAD 5 DR, ITAT HYDERABAD BE NCHES 6 GUARD FILE BY ORDER