M/s. Sindya Infrastructure Development Co. Pvt.. Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2002/CHNY/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9754 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 16-02-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 14-11-2013
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: S SRIDHAR
• Section: 14A; 37(1); 56

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , . ! , ' # $ [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NO.2002/MDS/2013 / ASSESSMENT YEAR : 2007-08 M/S SINDYA INFRASTRUCTURE DEVELOPMENT CO. PVT. LTD II FLOOR, POTTIPATTI PLAZA 77, NUNGAMBAKKAM HIGH ROAD CHENNAI 600 034 VS. THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE VI(3) CHENNAI [PAN AAGCS 6759 M ] ( %& / APPELLANT) ( '(%& /RESPONDENT) / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE /RESPONDENT BY : SHRI P. RADHAKRISHNAN, JCIT / DATE OF HEARING : 16 - 02 - 2016 ! / DATE OF PRONOUNCEMENT : 01 - 04 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-VI, CHENNA I, DATED 28.10.2013 AND PERTAINS TO ASSESSMENT YEAR 2007-08 . 2. SHRI S. SRIDHAR, LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE FIRST GROUND OF APPEAL IS WITH REGARD TO DISALL OWANCE OF INTEREST ON THE LOAN ADVANCED TO M/S KALPATHARU ENTERPRISES P. LTD., A SISTER ITA NO.2002/13 :- 2 -: CONCERN OF THE ASSESSEE. ACCORDING TO THE LD. COU NSEL, DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE OFFERED A SU M OF ` 9 CRORES AS LOANS AND ADVANCES TO M/S KALPATHARU ENTERPRISES P. LTD. THE ASSESSEE HAS NOT CHARGED ANY INTEREST. ACCORDING TO THE LD. COUNSEL, THE TRANSACTION OF ADVANCE GIVEN TO SISTER CONCERN FOR BUSINESS PURPOSE WITHOUT INTEREST AND THE TRANSACTION OF LOAN TAKEN WITH INTEREST FOR BUSINESS PURPOSE SHOULD BE DEALT WITH INDEPENDENTLY AND SEPARATELY IN THE ABSENCE OF DIVERSION OF INTEREST BEARING FUNDS FOR NON-BUSINESS PURPOSES. ACCORDING TO THE LD. COUNSEL, LINKING O F THE TWO DIFFERENT TRANSACTIONS IN PROCESSING THE LEGITIMATE CLAIM OF INTEREST IS NOT JUSTIFIED. ACCORDING TO THE LD. COUNSEL, THE ASSE SSEE AFTER SEIZING AN OPPORTUNITY IN THE BUSINESS OF DEALING IN REAL ESTA TE BUSINESS, MADE ADVANCE TO M/S KALPATHARU ENTERPRISES P. LTD FOR MAKING INVES TMENT IN THE LANDS. THEREFORE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF INTEREST. REFERRING TO TH E JUDGMENT OF THE APEX COURT IN THE CASE OF S.A BUILDERS VS CIT, 288 ITR 1, THE LD. COUNSEL SUBMITTED THAT INTEREST BEARING FUNDS FOR B USINESS PURPOSE WAS DIVERTED TO SISTER CONCERN FOR BUSINESS PURPOSE IS ONE OF THE PERMISSIBLE COURSE OF TRANSACTION. THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF BUSINESS IS AN ALLOWABLE DEDUCTION U/S 37(1) OF THE ACT. SIMI LARLY, THE INTEREST ON THE CAPITAL BORROWED HAS TO BE ALLOWED U/S 36(1)(I II) OF THE ACT. THE ITA NO.2002/13 :- 3 -: LD. COUNSEL FURTHER SUBMITTED THAT THE EXPRESSION FOR THE PURPOSE OF BUSINESS IS WIDER IN SCOPE THAN FOR THE PURPOSE O F EARNING INCOME. THEREFORE, ACCORDING TO THE LD. COUNSEL, SINCE THE ASSESSEE HAS ADVANCED THE MONEY FOR BUSINESS PURPOSE, THERE IS NO QUESTION OF ANY DISALLOWANCE AND THE CIT(A) IS NOT JUSTIFIED IN CON FIRMING THE ORDER OF THE ASSESSING OFFICER. THE LD. COUNSEL FOR THE AS SESSEE PLACED HIS RELIANCE ON THE JUDGMENT OF THE APEX COURT IN THE C ASE OF HERO CYCLES P. LTD VS CIT IN CIVIL APPEAL NO.514 OF 2008, DATED 5.11.2015, THE COPY OF WHICH IS FILED BY THE LD. COUNSEL. 3. ON THE CONTRARY, SHRI P. RADHAKRISHNAN, LD. DEPARTM ENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE CLAIMED AN AMOUNT OF ` 1,12,48,631/- UNDER THE HEAD INTEREST PAID TO M/S M /S KALPATHARU ENTERPRISES P. LTD FROM WHOM THE LOAN WAS BORROWED WITH INTEREST. ACCORDING TO THE LD. DR, THE ASSESSEE HAS BORROWED ` 10 CRORES FROM M/S KALPATHARU ENTERPRISES P. LTD ON 11.5.2005 FOR BUSINESS PURPOSE AND PAID INTEREST @ 9.75%. SUBSEQUENTLY, OUT OF ` 10 CRORES BORROWED FROM M/S KALPATHARU ENTERPRISES P. LTD, A SUM OF ` 9 CRORES WAS TRANSFERRED TO ANOTHER SISTER CONCERN, M/S KALPATHARU INFRASTRUCTURE DEVELOPMENT P. LTD. WITHOUT INTEREST. IN THE ACCOU NTS OF M/S KALPATHARU INFRASTRUCTURE DEVELOPMENT P. LTD. THE A MOUNT WAS SHOWN AS ADVANCE TO THE EXTENT OF ` 9.20 CRORES. M/S KALPATHARU INFRASTRUCTURE DEVELOPMENT P. LTD. CLAIMED TO HAVE UTILIZED THE FUNDS ITA NO.2002/13 :- 4 -: FOR ITS OWN BUSINESS PURPOSES. ACCORDING TO THE LD . DR, THE ASSESSEE IS NOT IN THE BUSINESS OF MONEY LENDING. THE MONEY ADVANCED TO M/S KALPATHARU INFRASTRUCTURE DEVELOPMENT P. LTD. WAS I NVESTED IN COMMERCIAL PROPERTIES. ACCORDING TO THE LD. DR, M/ S KALPATHARU ENTERPRISES P. LTD IS ALSO A SISTER CONCERN OF M/S KALPATHARU INFRASTRUCTURE DEVELOPMENT P. LTD. IF THE INTENTIO N OF THE ASSESSEE IS TO ADVANCE THE FUNDS FOR COMMERCIAL PURPOSE THEN M/S KALPATHARU INFRASTRUCTURE DEVELOPMENT P. LTD. WOULD HAVE BORR OWED THE LOAN FROM M/S KALPATHARU ENTERPRISES P. LTD. IT IS NOT NECESSARY TO ROUTE THE MONEY THROUGH THE ASSESSEE-COMPANY. THEREFORE, IT IS AN ARRANGEMENT TO DIVERT THE PROFIT OF THE ASSESSEE T O OTHER SISTER CONCERNS AND REDUCE THE TAX LIABILITY. REFERRING T O THE JUDGMENT OF THE APEX COURT IN THE CASE OF S.A. BUILDERS(SUPRA), THE LD. DR SUBMITTED THAT THE ASSESSEE BEFORE THE APEX COURT BORROWED M ONEY FROM THE BANK AND ADVANCED THE SAME TO ITS SISTER CONCERN FO R BUSINESS PURPOSE. IN THOSE CIRCUMSTANCES, THE APEX COURT FO UND THAT THE INTEREST ON THE BORROWED FUND IS AN ALLOWABLE EXPEN DITURE SINCE THE MONEY WAS ADVANCED FOR COMMERCIAL NECESSITY. IN TH E CASE BEFORE US, THERE IS NO EXPLANATION FROM THE ASSESSEE AS TO WH Y THE FUNDS WERE BORROWED ON INTEREST FROM ONE SISTER CONCERN AND TH E SAME WAS ADVANCED TO ANOTHER SISTER CONCERN WITHOUT CHARGING ANY INTEREST. IF THE ASSESSEE REALLY INTENDED TO ADVANCE THE MONEY FOR COMMERCIAL ITA NO.2002/13 :- 5 -: NECESSITIES, THEN INSTEAD OF BORROWING FUNDS FROM A NOTHER SISTER CONCERN VIZ. M/S KALPATHARU ENTERPRISES P. LTD , IT WOULD HAVE REQUESTED M/S KALPATHARU ENTERPRISES P. LTD TO ADV ANCE THE MONEY DIRECTLY TO M/S KALPATHARU INFRASTRUCTURE DEVELOPMENT P. LTD. IN STEAD OF ADVANCING MONEY DIRECTLY TO ANOTHER SISTER CONCE RN, M/S KALPATHARU ENTERPRISES P. LTD ROUTED THE MONEY THROUGH THE A SSESSEE BY CHARGING INTEREST @ 9.75%. THEREFORE, IT IS OBVIOU S THAT THE PROFIT EARNED BY THE ASSESSEE IS DIVERTED BY WAY OF PAYME NT OF INTEREST TO ANOTHER SISTER CONCERN, HENCE, THE CIT(A) HAS RIGHT LY DISALLOWED THE CLAIM OF THE ASSESSEE. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE, ADMITTEDLY, BORROWED FUNDS FROM M/S KALPATHARU ENTE RPRISES P. LTD ON PAYMENT OF INTEREST @ 9.75%. OUT OF THE BORROWED F UNDS, MAJORITY OF THE FUNDS WERE DIVERTED TO M/S KALPATHARU INFRASTRUCTURE DEVELOPMENT P. LTD. THE ASSESSEE CLAIMS THAT BOTH M/S KALPATHARU ENTERPRISES P. LTD AND M/S KALPATHARU INFRASTRUCTURE DEVELOPMENT P. LTD. ARE SISTER CONCERNS OF THE ASSESSEE. AS RIGH TLY SUBMITTED BY THE LD. DR, IF BOTH THE COMPANIES ARE SISTER CONCERNS O F THE ASSESSEE, WHAT IS THE NECESSITY TO BORROW THE FUNDS ON PAYMEN T OF INTEREST AND ADVANCE THE VERY SAME AMOUNT TO ANOTHER SISTER CONC ERN M/S KALPATHARU INFRASTRUCTURE DEVELOPMENT P. LTD. FREE OF INTEREST. ITA NO.2002/13 :- 6 -: THEREFORE, THERE IS SOME JUSTIFICATION IN THE CLAIM OF THE DEPARTMENT THAT THE PROFIT OF THE ASSESSEE-COMPANY WAS DIVERTE D IN THE FORM OF PAYMENT OF INTEREST TO THE SISTER CONCERN. THEREFO RE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE PROFIT OF ALL TH E THREE CONCERNS HAS TO BE EXAMINED BEFORE ALLOWING THE CLAIM OF THE AS SESSEE. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES AR E SET ASIDE ND THE CLAIM OF INTEREST ON THE BORROWED FUNDS WHICH WAS A DVANCED TO ANOTHER SISTER CONCERN M/S KALPATHARU INFRASTRUCTUR E DEVELOPMENT PVT. LTD. IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL REEXAMINE THE MATTER AFRESH AND FIND OUT THE PROFIT RATIO OF THE ASSESSEE-COMPANY AND OTHER TWO SISTER CONCER NS VIZ. M/S KALPATHARU ENTERPRISES P. LTD AND M/S KALPATHARU IN FRASTRUCTURE DEVELOPMENT P. LTD AND THEREAFTER DECIDE THE SAME I N ACCORDANCE WITH LAW IN THE LIGHT OF THE JUDGMENTS OF APEX COURT IN S.A. BUILDERS LTD (SUPRA) AND HERO CYCLES P. LTD.(SUPRA). 5. THE NEXT GROUND IS WITH REGARD TO DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A OF THE ACT. 6. SHRI S.SRIDHAR, LD. COUNSEL FOR THE ASSESSEE SUBMIT TED THAT THE ASSESSING OFFICER BY APPLYING RULE 8D OF THE IN COME-TAX RULES, DISALLOWED A SUM OF ` 1,69,877/-. ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE RULE 8D CAME INTO OPERATION WITH EFFECT FR OM 24.3.2008 AND ITA NO.2002/13 :- 7 -: APPLICABLE FROM ASSESSMENT YEAR 2008-09. THE ASSES SMENT YEAR UNDER CONSIDERATION IS 2007-08, THEREFORE, RULE 8D IS NOT APPLICABLE. THE LD. COUNSEL FURTHER SUBMITTED THAT MAJORITY OF THE INVE STMENT WAS MADE IN FIXED DEPOSITS. INTEREST INCOME FROM FIXED DEPOSIT S IS TAXABLE U/S 56 OF THE ACT. THEREFORE, ACCORDING TO THE LD. COUNSE L, THE INVESTMENTS MADE IN FIXED DEPOSITS CANNOT BE CONSIDERED FOR COM PUTING DISALLOWANCE U/S 14A. THE LD. COUNSEL HAS ENCLOSE D A WORKING OF DISALLOWANCE U/S 14A AS ANNEXURE TO THE WRITTEN SU BMISSION FILED BEFORE THIS TRIBUNAL. ACCORDING TO THE LD. COUNSEL , THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT JUSTIFIED. 7. ON THE CONTRARY, SHRI P. RADHAKRISHNAN, LD. DR SUBM ITTED THAT THE ASSESSING OFFICER BY APPLYING RULE 8D COMP UTED THE DISALLOWANCE AT ` 1,69,877/-. THE ASSESSEE, IN THE ANNEXURE TO THE WRITTEN SUBMISSION, COMPUTED THE DISALLOWANCE AT ` 22,167/-. SINCE THERE IS A DIFFERENCE BETWEEN THE TWO COMPUTATIONS, THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER MAY BE ASKED T O VERIFY THE COMPUTATION MADE BY THE ASSESSEE AND THEREAFTER PA SS NECESSARY ORDERS. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. TH E ASSESSMENT YEAR UNDER CONSIDERATION IS 2007-08, THEREFORE, RULE 8D IS NOT APPLICABLE. ITA NO.2002/13 :- 8 -: RULE 8D IS APPLICABLE ONLY FROM ASSESSMENT YEAR 200 8-09. NOW, BOTH THE ASSESSING OFFICER AND THE ASSESSEE COMPUTED TH E DISALLOWANCE UNDER RULE 8D. HOWEVER, THERE IS A VARIATION. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATER NEEDS TO BE RECONSIDERED BY THE ASSESSING OFFICER. ACCORDINGLY , THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ENTIRE ISSU E OF DISALLOWANCE MADE U/S 14A IS REMITTED BACK TO THE FILE OF THE A SSESSING OFFICER. THE ASSESSING OFFICER SHALL REEXAMINE THE ISSUE IN THE LIGHT OF THE MATERIAL AVAILABLE ON RECORD AND THEREAFTER DECIDE THE SAME AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST APRIL, 2016, AT CHENNAI. SD/- SD/- ( . ! ) (A. MOHAN ALANKAMONY) ' / ACCOUNTANT MEMBER ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER #$ / CHENNAI %& / DATED: 1 ST APRIL, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF