M/s. GMR Corporate Affairs Private Limited, Bangalore V. Deputy Commissioner Of Income Tax (OSD), Range - 3(1), Bangalore

ITA 224/BANG/2020

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5482 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-09-2020
• Assessment Year: 2016-2017
• Appeal Filed On: 19-02-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S. SUNDAR RAJAN
• Assessee Lawyers: YOGESH A.THAR; APPLYING CORRECT PROVISION OF LAW
• Keywords: Opportunity of being heard
• Section: 64

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: BANGALORE BEFORE SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.224/BANG/2020 ASSESSMENT YEAR: 2016-17 GMR CORPORATE AFFAIRS PVT. LTD. 25/1, SKIP HOUSE, MUSEUM ROAD BANGALORE PAN NO : AACCG 7570N VS. THE DEPUTY COMMISSIONER OF INCOME TAX (OSD), RANGE-3(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI YOGESH A. THAR, A.R. RESPONDENT BY : SHRI S. SUNDAR RAJAN, D.R. DATE OF HEARING : 30.09.2020 DATE OF PRONOUNCEMENT : 30.09.2020 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 31-12-2019 PASSED BY LD CIT(A)-3, BENGALURU AND IT RELATES TO THE ASSESSMENT YEAR 2016-17. 2. THE ISSUE CONTESTED IN THIS APPEAL RELATES TO THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS.47,54,951/- CLAIMED B Y THE ASSESSEE. 3. THE FACTS RELATING TO THE ABOVE SAID ISSUE ARE STATED IN BRIEF. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AD AVAILED LOAN OF RS.39.50 CRORES FROM ITS GROUP CONCERN NAMED M/S GMR INFRASTRUCTURE LTD AND PAID INTEREST OF RS.47,54,95 1/- ON THE ABOVE ITA NO.224/BANG/2020 GMR CORPORATE AFFAIRS PVT. LTD., BANGALORE PAGE 2 OF 4 SAID LOAN. THE ABOVE SAID INTEREST PAYMENT WAS CL AIMED AS DEDUCTION. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING CORPORATE SERVICES IN THE NATURE OF SHARE HOLDERS, MANAGEMENT AND ADMINISTRATIVE SUPPORT SERVICES TO D OMESTIC AS WELL AS OVERSEAS ENTITIES. HENCE THE AO ASKED THE ASSES SEE TO FURNISH DETAILS OF PURPOSE OF LOAN AND HOW THE INTEREST EXP ENDITURE IS ALLOWABLE U/S 36(1)(III) OF THE ACT. 4. IT WAS EXPLAINED THAT A GROUP CONCERN OF THE ASSESSEE NAMED M/S DHRUVI SECURITIES P LTD HAD MADE INVESTMENTS IN THE UNITS OF TWO VENTURE CAPITAL FUNDS NAMED M/S INFRASTRUCTURE PROJECT DEVELOPMENT FUND AND M/S INFRASTRUCTURE RESURRECTIO N FUND TO THE TUNE OF RS.55.41 CRORES. OUT OF THE ABOVE, INVESTM ENTS TO THE TUNE OF RS.39.35 CRORES WERE TRANSFERRED TO THE ASSESSEE HEREIN ON COST TO COST BASIS, I.E., THE ASSESSEE HAS PURCHASED THE UN ITS OF TWO VENTURE CAPITAL FUNDS REFERRED ABOVE TO THE TUNE OF RS.39.3 5 CRORES BY UTILISING THE LOAN OF RS.39.50 CRORES REFERRED ABOV E. 5. THE AO NOTICED THAT THE ASSESSEE HAS PURCHASE D THE UNITS OF VENTURE CAPITAL FUNDS FROM M/S DHRUVI SECURITIES P LTD IN ORDER TO HELP M/S DHRUVI SECURITIES P LTD TO COMPLY WITH A S TATUTORY CONDITION. FURTHER THE SAID INVESTMENT IS NOT RELA TED TO THE BUSINESS ACTIVITIES CARRIED ON BY THE ASSESSEE. FURTHER, TH E AO NOTICED THAT THE ASSESSEE OPERATES ON NO COST- NO PROFIT BASIS AND IT WILL NOT HAVE INCOME AT ALL, MEANING THEREBY, THE INTEREST EXPEND ITURE WILL ALWAYS RESULT IN LOSS ONLY. ACCORDINGLY, THE AO HELD THAT THE INTEREST EXPENDITURE CLAIM DOES NOT SATISFY THE REQUIREMENTS OF SEC.36(1)(III) OF THE ACT AND ACCORDINGLY DISALLOWED THE SAME. 6. THE LD CIT(A) ALSO CONFIRMED THE DISALLOWANCE MADE BY THE AO. 7. THE LD A.R SUBMITTED THAT THE INVESTMENTS MAD E IN VENTURE CAPITAL FUNDS (VCF) ARE GOVERNED BY THE PROVISIONS OF SEC.115U OF THE ACT. HE SUBMITTED THAT, AS PER THE ABOVE SAID PROVISION, THE VCF ITA NO.224/BANG/2020 GMR CORPORATE AFFAIRS PVT. LTD., BANGALORE PAGE 3 OF 4 IS A PASS THROUGH ENTITIES AND HENCE THE INCOME EAR NED BY A VCF IS ACTUALLY ASSESSABLE IN THE HANDS OF THE INVESTOR ON LY, AS IF THE UNIT HOLDERS HAVE MADE DIRECT INVESTMENTS. IN THIS REGA RD, THE VCF WILL ISSUE FORM 64 TO ALL THE UNIT HOLDERS SPECIFYING T HE INCOME ATTRIBUTABLE TO THEM. THE LD A.R SUBMITTED THAT TH E ASSESSEE HAS NOW FURNISHED FORM 64 BEFORE THE TRIBUNAL AS ADDIT IONAL EVIDENCE ALONG WITH AN APPLICATION SEEKING ADMISSION OF THE SAME. HE SUBMITTED THAT THE ASSESSEE AS WELL AS THE TAX AUTH ORITIES HAS FAILED TO APPLY THE PROVISIONS OF SEC.115U OF THE ACT, WHI CH IS THE APPLICABLE PROVISION IN THIS ISSUE. ACCORDINGLY, HE PRAYED TH AT THE ENTIRE ISSUES MAY BE RESTORED TO THE FILE OF THE AO FOR DETERMINI NG THE INCOME OF THE ASSESSEE BY APPLYING CORRECT PROVISION OF LAW. 8. WE HEARD LD D.R AND PERUSED THE RECORD. AD MITTEDLY, THE QUESTION OF ALLOWING INTEREST EXPENDITURE HAS BEEN EXAMINED BY THE TAX AUTHORITIES IN THE CONTEXT OF SEC.36(1)(III) OF THE ACT. HOWEVER, IT IS THE SUBMISSION OF THE ASSESSEE THAT, AS PER THE PROVISIONS OF SEC.115U OF THE ACT, THE INCOME EARNED BY VCF IS DI RECTLY ASSESSABLE IN THE HANDS OF THE ASSESSEE. IN SUPPORT OF THIS S UBMISSION, THE ASSESSEE HAS FURNISHED FORM 64 IN THE FORM OF ADDIT IONAL EVIDENCE, WHEREIN THE VCF HAS LISTED OUT THE DETAILS OF INCOM E DISTRIBUTED BY IT U/S 115U OF THE ACT. 9. THUS WE NOTICE THAT NON-CONSIDERATION OF PR OVISIONS OF SEC.115U OF THE ACT GOES TO THE ROOT OF THE ISSUE AND THE IS SUE OF DEDUCTION OF INTEREST EXPENDITURE IS DEPENDENT UPON SEC.115U OF THE ACT ALSO. THUS, WE NOTICE THAT THE TOTAL INCOME OF THE ASSESS EE ITSELF HAS NOT BEEN CORRECTLY ASSESSED. ACCORDINGLY, WE ADMIT ADD ITIONAL EVIDENCES AND RESTORE ALL THE ISSUES TO THE FILE OF THE AO FO R EXAMINING ALL OF THEM AFRESH. AFTER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD, THE AO MAY DECIDE ALL THE ISSUES IN ACCORDANCE WITH LAW. ITA NO.224/BANG/2020 GMR CORPORATE AFFAIRS PVT. LTD., BANGALORE PAGE 4 OF 4 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH SEPT, 2020 SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 30 TH SEPT, 2020. DS/BV/SPS COPY TO: 1. THE APP ELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.