Shree Vasu Automobiles Ltd., Meerut V. ACIT, Meerut

ITA 2198/DEL/2009

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7601 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 07-04-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 22-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B K SINGH
• Assessee Lawyers: DR RAKESH GUPTA; SOMIL AGGARWAL S
• Keywords: Proportionate interest; Wholly owned subsidiary; Commercial expediency
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : G : NEW DELHI BEFORE SH. I.C. SUDHIR , JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO. 2198 /DEL/ 2009 ASSESSMENT YEAR: 2004 - 05 SHREE VASU AUTOMOBILES LTD., C - 1, SHATABDI NAGAR, DELHI ROAD, MEERUT. VS. ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, MEERUT GIR/PAN : AAICS2245N (APPELLANT) (RESPONDENT) APPELLANT BY DR. RAKESH GUPTA & SH. SOMIL AGGARWAL , ADVOCATES RESPONDENT BY SH. B.K. SINGH, CIT (DR) DATE OF HEARING 07.04.2016 DATE OF PRONOUNCEMENT 06 .06.2016 ORDER PER O.P. KANT , A. M. : THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 31/03/ 2009 OF THE COMMISSIONER OF INCOME TAX (CENTRAL), KANPUR FOR ASSESSMENT YEAR 2004 - 05 NDER SECTION 263 OF THE INCOME - TAX ACT, 1961 (FOR SHORT THE ACT ) RAISING FOLLOWING GROUNDS: 1. THAT LD. CIT HAS ISSUED NOTICE U/S 263 ON SEVERAL ISSUE BUT DIRECTION MADE ONLY ONE ISSUE. THEREFORE, PROCEEDING U/S 263 WAS MADE ARBITRARY, UNJUST & TO HARASS THE AS SESSEE. 2. THAT LD. CIT IGNORED THE FACT THAT THE ASSESSEE HAS SUFFICIENT FUND OF THEIR CAPITAL AND RESERVE THEREFORE, ADVANCES MADE TO SISTER CONCERN WAS ONLY BUSINESS NECESSITY AND COMMERCIALLY EXPEDIENT BECAUSE THE ASSESSEE S COMPANY DESIRE TO ACQUIRE THE PROPERTY WHICH IS GIVEN BY THE SISTER CONCERN ON RENT AT LOWER RATE. 3. TH AT CIT IGNORED THE FACT THAT THE ADVANCE WAS MADE TO THE SISTER CONCERN WAS ONLY TO AVOID LITIGATION BECAUSE IN THE ABSENCE OF FUNDS SISTER CONCERN WANTS TO DISPOSE OFF THE PROPERTY WH ICH IS GIVEN ON RENT AT LOWER RATE. 4. THAT THE ORDER PASSED BY LD. A.C.I.T WAS NEITHER ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE BECAUSE INTEREST PAID TO THE BANK BY THE ASSESSEE S COMPANY WAS DISALLOWED UPTO THE EXTENT, IT REL ATES TO SISTER CONCERN. IN 2 ITA NO. 2198/DEL/2009 AY: 2004 - 05 OTHER WORDS, THE INTEREST IS ALLOWABLE TO THE SISTER CONCERN. THEREFORE, NO REVENUE LOSS BECAUSE TAX RATE OF BOTH THE COMPANY WAS SAME. 5. THAT THE ASSESSEE HAS RIGHT TO ADD/DELETE OR MODIFY ANY GROUND OF APPEAL DURING THE APPEAL PROCEEDING. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSMENT UNDER SECTION 143(3) OF TH E ACT WAS PASSED BY THE ASSESSING OFFICER FOR THE YEAR UNDER CO NSIDERATION AT A LOSS OF RS. 6,57, 312/ - AGAINST NIL RETURN OF INCOME FILED. HOWEVER, THE LD. CO MMISSIONER OF INCOME T AX IN PROCEEDIN GS UNDER SECTION 263 OF THE ACT , OBSERVED THAT THE ASSESSEE COMPANY HAD ADVANCED INTEREST FREE SUM OF RS. 58,15,866/ - TO ITS HOLDING COMPANY M/S JASONS ENGINEERING CORPORATION LIMITED , OUT OF THE FUNDS BORROWED FRO M OVERDRAFT BANK A CCOUNT . IT WAS EXPLAINED BY THE ASSESSEE THAT THE ASSESSEE COMPANY DID NOT HAVE ITS OWN BUSINESS PREMISES AND WAS OPERATING FROM THE PREMISES OWNED BY THE HOLDING COMPANY. IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT M/S TATA M OTORS LTD . AS WELL AS BANKER S OF THE ASSESSEE COMPANY WERE PUTTING PRESSURE ON THE ASSESSEE COMPANY TO HAVE ITS OWN BUSINESS PREMISES AND , THEREFORE , THE ASSESSEE ADVANCED MONEY TO THE HOLDING COMPANY WITH A VIEW TO PURCHASE THE BUSINESS PREMISES OF THE HOLDING COMPANY AND , THEREFORE , THE ADVANCE SHOULD BE TREATED AS GIVEN FOR BUSINESS PURPOSE AND RELYING ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF M/S S . A . B UILDERS LTD VS. CIT 288 ITR 1 (SC) , N O DISALLOWANCE UNDER SECTION 36 (1 )(III) OF THE ACT COULD BE MAD E . HOWEVER , THE CONTENTION OF THE ASSESSEE WERE NOT ACCEPTED AND THE COMMISSIONER OF INCOME T AX HELD THAT THE ORDER OF THE ASSE SSING OFFICER UNDER SECTION 143 (3) OF THE ACT TO BE ON ERRONEOUS AND PREJ UDICIAL TO THE INTEREST OF THE R EVENUE AS THE AO COMMITTED AN ERRO R OF LAW BY ALLOWING ENTIRE CLA IM OF INTEREST UNDER SECTION 36(1) (III) OF THE ACT. AGGRIEVED, THE ASSESSEE IN APPEAL BEFORE THE TRIBUNAL. 4. IN G ROUND S N O. 1 TO 4 , THE ASSESSEE HAS CHALLENGED THE PROCEEDINGS UNDER SECT ION 263 OF THE ACT BY THE COMMISSION ER OF I NCOM E T AX (CENTRAL) . 4.1 ADDRESSING THE GROUNDS RAISED, THE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS A N AUTHORIZED DEALER OF M/S . TATA 3 ITA NO. 2198/DEL/2009 AY: 2004 - 05 M OTORS LTD . AND 100% SUBSIDIARY OF M/S JASONS SONS ENGINEERING CORPORATION L IMITED. REFERRING TO THE PAGE S 1 TO 48 OF THE PAPER BOOK, HE FURTHER SUBMITTED THAT THE ASSESSEE COMPANY WAS HAVING A RUNNING ACCOUNT WITH THE HOLDING COMPANY SINCE 01/04/2000 UPTO 31.03.2008 AND UP TO 31/03/2002 THERE WAS A CREDIT BALANCE IN THE ACCOUNT OF M/S JASONS ENGINEERING CORPORATION L IMITED IN THE BOOKS OF THE ASSESSEE. IN THE YEAR UNDER CONSIDERATION , THERE WAS A DEBIT BALANCE OF RS. 58,15, 866/ - . HE FURTHER SUBMITTED THAT ASSESSMENT FOR THE ASSESSMENT YEAR 2003 - 04 WA S COMPLETED UNDER SECTION 143(3) OF THE ACT AND NO SUCH DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER DESPITE THE ASSESSEE ADVANCED THE MONEY TO THE HOLDING COMPANY. HE FURTHER SUBMITTED THAT A DISALLOWANCE OF RS. 16,96, 425/ - MADE BY THE ASSESSING OFFICER UNDER SECTION 36(1)(III) OF THE ACT IN ASSESSMENT YEAR 2007 - 08 FOR SIMILAR ADVANCES TO THE HOLDING COMPANY HAVE BEEN HELD BY THE TRIBUNAL IN APPEAL IN ITA NO. 5312/DEL/2010 AS THE LOANS COMING FROM EARLIER YEARS AND HOLD TO BE DUE TO COMMERC IAL EXPEDIENCY AND THUS CONFIRMED THE DELETION BY THE CIT(A) OF THE DISALLOWANCES MADE BY THE AO. HE ACCORDINGLY SUBMITTED THAT THERE WAS NO ERROR IN THE ORDER OF THE ASSESSING OFFICER AND IN VIEW OF THE ABOVE THE TWIN CONDITIONS OF ORDER OF THE ASSESSING OFFICER BEING ERRONEOUS AND PREJU DICIAL TO THE INTERESTS OF THE R EVENUE WERE NOT SATISFIED AND ACCORDINGLY THE ACTION OF THE LEARNE D COMMISSIONER OF INCOME T AX WAS NOT IN ACCORDANCE TO LAW. IN SUPPORT OF CONTENTION HE FURTHER RELIED ON THE JUDGMENT OF THE KARNATAKA HIGH COURT REPORTED IN 192 ITR 165 (KAR), DECISION OF ITA T, CHANDIGARH BENCH IN THE CASE OF PUNJAB W OOL CHAMBERS LTD VS. ACIT REPORTED IN 1 SOT 114 AND DECISION OF ITAT , JODHPUR SMC BENCH IN THE CASE OF SALIM C HAWDA VS. CIT REPORTED IN 96 TTJ 0656. 4.2 ON T HE CONTRARY, LEARNED CIT ( DR ) RELIED ON THE FINDINGS OF THE LEARN ED COMMISSIONER OF INCOME T AX AND SUBMITTED THAT NO ENQUIRIES WERE CONDUCTED BY THE ASSESSING OFFICER ON THE ISSUE OF DISALLOWANCE OF INTEREST UNDE R SECTION 4 ITA NO. 2198/DEL/2009 AY: 2004 - 05 36(1)(III) OF THE ACT AND THUS THE ORDER OF THE ASSESSING OFFICER WAS ERRONEOUS AS TO PREJUDICIAL TO THE INTEREST OF REVENUE IN VIEW OF SETTLED POSITION OF LAW. 4.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE WAS HAVING A RUNNING ACCOUNT WITH THE HOLDING COMPANY SINCE APRIL, 2000 AND IN INITIAL YEARS T HOUGH THERE WAS A CREDIT BALANCE, HOWEVER , AFTER A . Y . 2002 - 03 THERE WAS A DEBIT BALANCE IN THE ACCO UNT OF HOLDING COMPANY M/S JASONS ENGINEERING CORPORATION L IMITED. WE ALSO FIND THAT NO SUCH DISALLOWANCE FOR PROPORTIONATE INTEREST TOWARDS INTEREST FREE ADVANCES TO THE H OLDING COMPANY UNDER SECTION 36 (1)(III) OF THE ACT WAS MA DE IN AY 2003 - 04 AND DISALLOWANCES FOR INTEREST TOWARD DEBIT BALANCE IN THE SAME ACCOUNT FOR AY 2007 - 08 HAS BEEN DELETED BY THE TRIBUNAL IN ITA NO. 5312/DEL/2010. THE RELEVANT FINDING S OF THE TRIBUNAL ARE REPRODUCED AS UNDER: 7. WE HAVE CAREFULLY CONSIDE RED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT IN THIS CASE ASSESSEE HAS GRANTED THE LOANS TO THE HOLDING COMPANY. THE ASSESSEE DERIVES A HOST OF BENEFITS FROM ITS HOLDING COMPANY WHICH INCLUDE CORPORATE GUARANTEE GIVEN BY THE HOLDING COMPANY TO THE BANKS TO SECURE CASH CREDIT LIMITS OF THE ASSESSEE WITHOUT CHARGING ANY GUARANTEE FEE ON MORTGAGE OF IMMOVABLE PROPERTY OF THE HOLDING COMPANY AS SECURITY OF THE ABOVE MENTIONED CASH CREDIT LIMITS OF THE ASSESSEE. FURTHER WE NOTE THAT HOLDING COMPANY HAD PROVIDED THE VACANT LAND OWNED BY IT FOR PARKING OF NEW VEHICLES OF THE ASSESSEE WITHOUT CHARGING ANY INTEREST AND PROVISION OF BUILDING TO BE USED AS SHOWROOM BY THE ASSESSEE AT A NOMINAL RENT. WE ALSO NOTE THAT ASSESSEE HAS SUBMITTED THAT ASSESSEE DO ES NOT OWN ANY IMMOVABLE PROPERTY IN MEERUT WHICH IT COULD USE AS STOCKYARD FOR ITS BUSINESS. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT MONEY LENT BY THE HOLDING COMPANY WAS A MEASURE OF COMMERCIAL EXPEDIENCY. IN THIS REGARD RATIO FROM THE HON BLE APEX COURT IN THE CASE OF SA BUILDERS VS. C.I.T. 288 ITR 1 IS APPLICABLE. IN THIS CASE, IT WAS HELD THAT INTEREST ON BORROWED FUNDS CANNOT BE DISALLOWED, IF THE ASSESSEE HAS ADVANCED INTEREST FREE LOANS TO ITS SISTER CONCERNS AS A MEASURE OF COMMERCIAL EXP EDIENCY. 7.1 WE FURTHER NOTE THAT ASSESSEE HAS GIVEN THE SUBMISSIONS WHICH HAVE BEEN ACCEPTED BY THE LD. COMMISSIONER OF INCOME TAX (A) THAT ASSESSEE HAS SUFFICIENT NON - INTEREST BEARING FUNDS TO ADVANCE THE LOAN TO THE HOLDING COMPANY. IN THIS REGARD, L D. COUNSEL OF THE ASSESSEE HAS RELIED ON THE CASE LAW FROM THE HON BLE ALLAHABAD HIGH COURT IN THE CASE OF C.I.T. VS. PREM HEAVY ENGINEERING WORKS (P) LTD. IN 285 ITR 554. IN THIS CASE IT WAS HELD THAT INTEREST PAID BY THE ASSESSE ON BANK OVERDRAFT COULD N OT BE PARTLY DISALLOWED ON THE GROUND THAT THE IT HAD MADE INTEREST - FREE ADVANCES TO ITS SISTER CONCERN SINCE ASSESSEE HAD SUFFICIENT AMOUNT OF OWN FUNDS IN THE FORM OF SHARE CAPITAL, RESERVES AND SURPLUS AND INTEREST - FREE BORROWINGS TO COVER THE INTERESTF REE ADVANCES MADE BY IT. WE FIND THAT THE ABOVE CASE LAW IS ALSO APPLICABLE ON THE FACTS OF THE PRESENT CASE. 5 ITA NO. 2198/DEL/2009 AY: 2004 - 05 IN THIS VIEW OF THE MATTER ALSO THE DISALLOWANCE OF INTEREST IS NOT JUSTIFIED. FURTHERMORE, WE FIND THAT THE LOAN IS COMING FROM EARLIER YEARS. FURTHERMORE, NO DISALLOWANCE WAS MADE IN EARLIER PERIOD. SINCE THERE IS NO CHANGE IN THE FACTS OF THE CASE, DISALLOWANCE OF INTEREST IN THE PRESENT YEAR IS NOT JUSTIFIED. 4.4 I N THE DECISION OF THE TRIBUNAL IN THE CASE OF PUNJAB W OOL CHAMBERS LTD (SUPRA ) AND SALIM CHAWDA (SUPRA), ALSO IT IS HELD THAT IF NO DISALLOWANCE HAS BEEN MADE FOR INTEREST FREE ADVANCES TO SISTER CONCERN OR NOT RECORDED ANY FINDING IN THE YEAR OF ADVANCE THAT THE SAME WAS FOR NON - BUSINESS PURPOSES NO DISALLOWANCE CAN B E MADE IN THE SUBSEQUENT YEAR. W E FIND THAT IN VIEW OF THE ABOVE DECISIONS AS WELL AS THE DECISIONS IN THE CASE OF THE ASSESSEE FOR AY: 2007 - 08, THERE WAS NO ERROR OF LAW IN THE ORDER OF THE ASSESSING OFFICER PASSED FOR THE YEAR UNDER CONSIDERATION UNDER SECTION 143(3) OF THE ACT. THUS, IN OUR OPINION THE PRE - REQUISITE CONDITIONS OF ORDER BEING ERRONEOUS AS WELL AS PREJ UDICIAL TO THE INTEREST OF THE R EVENUE ARE NOT SATISFIED AND ACCORDINGLY WE SET ASIDE THE IMPUGNED ORDER OF T HE COMMISSIONER OF INCOME T AX. THE GROUNDS 1 TO 4 OF THE ASSESSEE ARE THUS ALLOWED. 5. THE GROUND NO. 5 OF THE APPEAL BEING GENERAL IN NATURE NOT REQUIRED TO ADJUDICATE UPON. 6. IN THE RESULT , THE APPEAL OF THE ASSESSEE IS ALLOWED. THE DECISION IS PRONOUNCED IN THE OPEN COURT O N 6 TH JUNE , 2016 . SD/ - SD/ - ( I.C. SUDHIR ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 6 TH JUNE , 2016 . LAPTOP / - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI