M/s. Wave Mechanics Private Limited, Bangalore V. Deputy Commissioner Of Income Tax, Circle-7(1)(2), Bangalore

ITA 2032/BANG/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2481 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-04-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 20-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Question of law; Commercial expediency; Set aside
• Section: 201

Judgement Text

ITA NO.2032/BANG/2019 M/S. WAVE MECHANICS PVT. LTD., BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO.2032/BANG/2019 ASSESSMENT YEAR : 2015-16 WAVE MECHANICS PVT. LTD. V-3, I MAIN, I PHASE PEENYA INDUSTRIAL AREA BANGALORE 560 058 PAN NO : AAACW3621J VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-7(1)(2) BANGALORE APPELLANT RESPONDENT APPELLANT BY : SHRI SHARATH RAO, A.R. RESPONDENT BY : SHRI KANNAN NARAYANAN, D.R. DATE OF HEARING : 01.04.2021 DATE OF PRONOUNCEMENT : 28.06.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 16.7.2019 PASSED BY LD. CIT(A)-7, BENGALURU AND IT RELATES TO THE ASSESSMENT YEAR 2015-16. THE ASSESSEE IS AGGRIEVED WITH THE DECISION OF LD CIT(A) IN CONFIRMING THE DISALLOWANC E ON INTEREST EXPENDITURE OF RS.54,32,211/- MADE BY THE A.O. 2. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS MADE INVESTMENT OF RS.2.71 CORES IN A COMPANY N AMED M/S. COMAVIA SYSTEM TECHNOLOGIES PVT. LTD. HE ALSO NOTI CED THAT THE ITA NO.2032/BANG/2019 M/S. WAVE MECHANICS PVT. LTD., BANGALORE PAGE 2 OF 5 ASSESSEE HAS ALSO GIVEN INTEREST FREE LOAN OF RS.3 CRORES TO OTHERS. (DURING THE COURSE OF HEARING BEFORE US, THE LD A.R SUBMITTED THAT THE ABOVE SAID AMOUNT OF RS.3.00 CRORES WAS ALSO GI VEN TO M/S COMAVIA SYSTEM TECHNOLOGIES P LTD). THE AO NOTICED THAT THE ASSESSEE HAS NOT CHARGED ANY INTEREST ON THE LOANS GIVEN. THE A.O. NOTICED THAT THE ASSESSEE WAS CLAIMING INTEREST EXP ENDITURE OF RS.54,32,211/-. THE A.O. TOOK THE VIEW THAT THE AS SESSEE HAS DIVERTED ITS INTEREST BEARING FUNDS FOR MAKING ABOV E SAID INVESTMENT AND GIVING INTEREST FREE LOAN. ACCORDINGLY, HE PRO POSED TO DISALLOW INTEREST EXPENDITURE RELATABLE TO THE ABOVE SAID IN VESTMENT & LOAN. HE CALCULATED INTEREST @ 12.5% ON THE INVESTMENT & LOAN AMOUNT, WHICH WORKED OUT TO RS.71,42,730/-. SINCE THE ASSE SSEE WAS CLAIMING INTEREST EXPENDITURE OF RS.54,32,211/- ONL Y, THE A.O. RESTRICTED THE DISALLOWANCE TO RS.54,32,211/-. THE LD. CIT(A) ALSO CONFIRMED THE SAME. AGGRIEVED, THE ASSESSEE HAS FI LED THIS APPEAL BEFORE US. 3. WE HEARD THE PARTIES AND PERUSED THE RECORD. TH E LD. A.R. ADVANCED HIS ARGUMENTS AT LENGTH ON DIFFERENT LIMBS IN ORDER TO CONTEND THAT THE INTEREST DISALLOWANCE WAS NOT JUST IFIED. ONE OF HIS ARGUMENTS WAS THAT THE OWN FUNDS AVAILABLE WITH THE ASSESSEE WAS MORE THAN THE VALUE OF INVESTMENT AND AMOUNT OF LOA N. HENCE NO DISALLOWANCE OF INTEREST IS CALLED FOR, SINCE THE P RESUMPTION IS THAT THE ASSESSEE HAS USED ITS OWN FUNDS FOR MAKING INVE STMENT AND GIVING LOAN. IN THIS REGARD, THE LD A.R INVITED OU R ATTENTION TO THE BALANCE SHEET PLACED IN THE PAPER BOOK. WE NOTICE FROM THE BALANCE SHEET THAT THE INTEREST FREE FUNDS AVAILABLE WITH T HE ASSESSEE AS AT THE BEGINNING AND END OF THE YEAR WAS RS.9.78 CRORE S AND RS.10.02 CRORES RESPECTIVELY. THE AGGREGATE AMOUNT OF INVES TMENT MADE AND INTEREST FREE LOAN GIVEN BY THE ASSESSEE WAS RS.5.7 1 CRORES. ITA NO.2032/BANG/2019 M/S. WAVE MECHANICS PVT. LTD., BANGALORE PAGE 3 OF 5 ADMITTEDLY, OWN FUNDS AVAILABLE WITH THE ASSESSEE I S IN EXCESS OF VALUE OF INVESTMENT AND LOAN GIVEN INTEREST FREE. 4. THE LD. A.R. INVITED OUR ATTENTION TO THE DECISI ON RENDERED BY HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. BRINDAVAN BEVERAGES PVT. LTD. (2017) 393 ITR 261, WHEREIN THE HONBLE JURISDICTIONAL HIGH COURT HELD THAT TRIBUNAL WAS JU STIFIED IN DELETING THE INTEREST DISALLOWANCE WHEN THE ASSESSEE HAD SUF FICIENT OWN FUNDS COVERING LOANS AND ADVANCES MADE TO ITS DIRECTORS A ND SISTER CONCERNS. THE LD. A.R. SUBMITTED THAT AN IDENTICAL ISSUE WAS EXAMINED BY THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. RELIANCE INDUSTRIES LTD (2017) 86 TAXMANN.COM 24, W HEREIN THE BOMBAY HIGH COURT HAS EXPRESSED THE FOLLOWING VIEW: 30. WE HAVE CAREFULLY PERUSED THIS PARAGRAPH AND THE R EASONING THEREIN. 31. THE FACTS WERE THAT, THE ASSESSEE HAD GIVEN INTERE ST FREE LOANS TO ITS SUBSIDIARIES AGGREGATING TO THE SUM SPECIFIED IN PA RA 7.2 AS ON 31-3-2003 AND THE CORRESPONDING FIGURES OF SUCH INTEREST FREE LOANS AS ON 31-3-2002 STOOD AT RS.2988.98 CRORES. THUS, THE DIFFERENTIAL LOANS GIVEN TO THE SUBSIDIARIES DURING THE YEAR UNDER CONSIDERATION WE RE WORTH RS.3,727.14 CRORES. THE NET PROFIT AFTER TAX AND BEFORE DEPRECI ATION WAS ARRIVED AT BY THE TRIBUNAL AND WHICH EXCEEDED NOT ONLY THE DIFFERENTI AL/INCREMENTAL LOAN GIVEN TO SUBSIDIARIES DURING THE YEAR BUT ALSO EXCEEDS TH E TOTAL INTEREST FREE LOANS OF RS.6,716.12 CRORES GIVEN TO THE SUBSIDIARIES AS ON 31-3-2003. CONSIDERING THESE FACTS, THE TRIBUNAL FOUND THAT THE POSITION I S NO DIFFERENT FROM THE PRIOR ASSESSMENT YEAR 2002-03. 32. THE REASONING IN PARAGRAPH 5.6 OF THE ORDER DATED 28-5-2012 OF THE TRIBUNAL FOR THE PRIOR ASSESSMENT YEAR HAS BEEN REP RODUCED. 33. WE DO NOT SEE HOW WHEN THE ASSESSING OFFICER'S VIE WS ARE THAT IN CASES OF THE INTEREST FREE LOANS AND INTEREST GIVEN BY TH E ASSESSEE TO ITS SUBSIDIARY COMPANIES ARE IN THE ABOVE SUMS, STILL, THE PRINCIP LE LAID DOWN BY THIS COURT THAT IF THERE ARE FUNDS AVAILABLE TO THEM INTEREST FREE AND OVERDRAFT OR LOANS TAKEN, WOULD NOT APPLY. THIS VIEW OF THE ASSESSING OFFICER IS EX FACIE CONTRARY TO THE SETTLED PRINCIPLE THAT A PRESUMPTION WOULD A RISE THAT THE INVESTMENT WOULD BE OUT OF THE INTEREST FREE FUNDS GENERATED O R AVAILABLE WITH THE COMPANY. THEN, THE BORROWED CAPITAL IN HAND IN THAT CASE AND INTEREST EXPENDITURE WAS DEDUCTIBLE UNDER SECTION 36(1)(III) OF THE I.T. ACT, 1961. THE ITA NO.2032/BANG/2019 M/S. WAVE MECHANICS PVT. LTD., BANGALORE PAGE 4 OF 5 TRIBUNAL HELD THAT THE INTEREST FREE FUND AVAILABLE TO THE ASSESSEE IS SUFFICIENT TO MEET ITS INVESTMENT. IT CAN BE PRESUMED THAT INV ESTMENTS WERE MADE FROM INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. TH IS POSITION CLEARLY EMERGES FROM THE RECORD AND FOR THE CURRENT ASSESSMENT YEAR AS WELL. WE DO NOT SEE HOW A DIFFERENT VIEW IN THE FACTS AND CIRCUMSTANCES CAN BE TAKEN. IF THE TRIBUNAL HAD FOLLOWED THE EARLIER VIEW AND ON FACTS , THEN, THERE IS NO PERVERSITY WHEN NOTHING CONTRARY TO THE FACTUAL MAT ERIAL WAS BROUGHT ON RECORD BY THE REVENUE. IN SUCH CIRCUMSTANCES, THE C ONCURRENT VIEW ON DISALLOWANCE OF INTEREST WAS REVERSED AND THE APPEA L OF THE ASSESSEE TO THAT EXTENT WAS PARTLY ALLOWED. WE DO NOT SEE ANY SUBSTA NTIAL QUESTION OF LAW ARISING FROM SUCH A VIEW OF THE TRIBUNAL. 5. THE ABOVE SAID VIEW OF THE HON'BLE BOMBAY HIGH C OURT HAS SINCE BEEN UPHELD BY HONBLE SUPREME COURT IN THE C ASE OF CIT VS. RELIANCE INDUSTRIES LTD. (CIVIL APPEAL NO.10 OF 201 9 DATED 2.1.2019). 6. IT IS NOW WELL SETTLED PROPOSITION OF LAW THAT T HE INTEREST DISALLOWANCE IS NOT CALLED FOR WHEN THE OWN FUNDS A VAILABLE WITH THE ASSESSEE IS MORE THAN THE AMOUNT OF INTEREST FREE A DVANCE GIVEN. IN THE INSTANT CASE, WE HAVE ALREADY SEEN THAT THE OWN FUNDS AVAILABLE WITH THE ASSESSEE IS IN EXCESS OF THE VALUE OF THE AMOUNT OF INVESTMENT AND INTEREST FREE LOAN. HENCE, THE TAX AUTHORITIES ARE NOT JUSTIFIED IN DISALLOWING THE INTEREST CLAIM MADE BY THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD. C IT(A) ON THIS ISSUE AND DIRECT THE A.O. TO DELETE THE DISALLOWANCE. 7. THE LD. A.R. ALSO ADVANCED HIS ARGUMENTS ON THE EXISTENCE OF COMMERCIAL EXPEDIENCY IN MAKING THE INVESTMENT AND ALSO IN GIVING LOAN. WE DO NOT FIND IT NECESSARY TO ADDRESS THE S AME AS WE HAVE ALREADY DELETED THE DISALLOWANCE ON THE REASONING G IVEN IN THE PRECEDING PARAGRAPH. ITA NO.2032/BANG/2019 M/S. WAVE MECHANICS PVT. LTD., BANGALORE PAGE 5 OF 5 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH JUNE, 2021 SD/- (GEORGE GEORGE K. ) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 28 TH JUNE, 2021. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.