Hopefull Traders Pvt.Ltd, Pune V. Assistant Commissioner of Income Tax, Circle -9, Pune

ITA 2536/PUN/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8600 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 13-08-2021
• Assessment Year: 2012-2013
• Appeal Filed On: 03-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Assessee Lawyers: NAND KISHOR LAHOTI
• Keywords: Proportionate interest; Commercial expediency; Capital expenditure; Rule 8D
• Section: 143(3); 14A; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE (THROUGH VIRTUAL COURT) BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, J UDICIAL MEMBER . / ITA NO . 2536 /PUN/20 1 7 / ASSESSMENT YEAR : 20 12 - 13 HOPEFUL TRADERS PVT. LTD., 365, J N ROAD, PIMPRI, PUNE 411017 PAN : AABCH1928E ...... / APPELLANT / V/S. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 9, PUNE / RESPONDENT ASSESSEE BY : SHRI NAND KISHOR LAHOTI REVENUE BY : SHRI S.P. WALIMBE / DATE OF HEARING : 1 3 - 08 - 2021 / DATE OF PRONOUNCEMENT : 13 - 0 8 - 2021 / ORDER PER S.S. VISWANETHRA RAVI, JM : THIS APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 05 - 07 - 2017 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 6, PUNE [CIT(A)] FOR ASSESSMENT YEAR 20 12 - 13. 2. THE ASSESSEE RAISED SEVEN GROUNDS OF APPEAL AMONGST WHICH THE ONLY ISSUE EMANATES FOR OUR CONSIDERATION IS AS TO WHETHER THE CIT(A) IS JUSTIFIED 2 ITA NO.2536/PUN/2017, A.Y. 2012 - 13 IN CONFIRMING THE ADD ITION MADE BY THE AO ON ACCOUNT OF PROPORTIONATE INTEREST IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. BRIEF FACTS RELATING TO THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF WHOLESALE TRADING IN COUNTRY LIQUOR. THE ASSESSEE DE CLARED A TOTAL INCOME OF RS. 44,40,940/ - . IN SCRUTINY, THE AO DETERMINED THE SAME AT RS.60,46,782/ - INTER ALIA MAKING ADDITIONS ON ACCOUNT OF PROPORTIONATE INTEREST AND DISALLOWANCE U/S. 14A R.W. RULE 8D OF THE RULES VIDE ITS ORDER DATED 16 - 02 - 2015 PASSED U/S. 143(3) OF THE ACT. THE CIT(A) CONFIRMED THE SAME. 4. HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE AO FOUND THE ASSESSEE INVESTED IN THE SHARES OF ITS SISTER CONCERN I.E. M/S. SENTOSA RESORT PVT. LTD. AND GIVEN ADVANCES TO THE SAID CONCERN ON WHICH NO INTEREST W AS CHARGED. ACCORDING TO THE AO, THE ASSESSEE WAS HAVING BORROWED FUNDS ABOUT RS.5.15 CRORES AND ON WHICH INCURRED FINANCE COST OF RS.59,36,048/ - . THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY INTEREST PAID ON BORROWED FUNDS TO THE EXTENT OF INTEREST FREE ADVANCES GIVEN TO M/S. SENTOSA RESORT PVT. LTD. SHOULD NOT BE DISALLOWED AT 12%. IT WAS EXPLAINED THAT THE ASSESSEE IS A MAJOR SHAREHOLDER IN THE SAID M/S. SENTOSA RESORT PVT. LTD. AND THE LOANS WERE GIVEN TO THE SAID CONCERN DUE TO BUSINESS EXIGENCY . THE SAID INTEREST FREE LOANS GIVEN TO M/S. SENTOSA RESORT PVT. LTD. FROM TIME TO TIME TO CATER THEIR NEED OF CAPITAL EXPENDITURE. IT WAS A STRATEGIC, JUDICIOUS BUSINESS DECISION TO FROM THE COMPANY ALONG WITH PE RSON HAVING EXPERIENCE TO CONDUCT SUCH BUSINESS AND THE INVESTMENTS WERE PARTLY AS INTEREST FREE ADVANCE AND PARTLY IN THE FORM OF FULLY PAID SHARES. THE AO DID NOT ACCEPT THE SUBMISSIONS OF ASSESSEE. ACCORDING TO THE AO, M/S. SENTOSA RESORT PVT. LTD. IS NOT SUBSIDIARY OF THE 3 ITA NO.2536/PUN/2017, A.Y. 2012 - 13 ASSESSEE AND BENEFITS EXPECTED TO BE DERIVED BY THE ASSESSEE OUT OF THE INVESTMENT MADE ARE FARFETCHED AND DO NOT WARRANT THE BURDENING OF ITS FINANCIAL BY HUGE INTEREST OUTGO. THE ASSESSEE HAS NOT RECEIVED THE DIVIDEND INCOME IN TH E CURRENT, PRECEDING OR SUCCEEDING YEAR FROM M/S. SENTOSA RESORT PVT. LTD. , T HEREFORE, HE DISALLOWED AN AMOUNT OF RS.11,87,848/ - WORKING OF WHICH IS REFLECTED AT PARA NO. 5.7 OF THE ASSESSMENT ORDER, ADDED THE SAID AMOUNT TO THE TOTAL INCOME OF THE ASSESSE E. WE NOTE THAT THE AO RELIED ON THE ORDER OF CIT(A) FOR A.Y. 2011 - 12 WHEREIN ON SIMILAR DISALLOWANCE WAS CONFIRMED. 5. THE CIT(A) ALSO HELD THAT THE M/S. SENTOSA RESORT PVT. LTD. IS NOT A SISTER CONCERN AND THE ASSESSEE DID NOT ESTABLISH THE COMMERCIA L EXPEDIENCY FOR EXTENDING SUCH INTEREST FREE LOANS TO M/S. SENTOSA RESORT PVT. LTD. FURTHER, HE HELD THAT THE BUSINESS OF THE ASSESSEE IS COMPLETELY DIFFERENT FROM M/S. SENTOSA RESORT PVT. LTD. WE NOTE THAT THE CIT(A) OBSERVED IN HIS ORDER THAT THE LOAN S EARLIER GIVEN HAS BEEN SUBSTANTIALLY REPAID AND FRESH AMOUNTS WERE PAID. THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO ONLY ON THE GROUND THAT THE ASSESSEE FAILED TO ESTABLISH THE COMMERCIAL EXPEDIENCY REGARDING THE INTEREST FREE LOANS MADE IN TH E YEAR UNDER CONSIDERATION. TAKING INTO CONSIDERATION THE SAID FACT HE HELD THE ORDER PASSED BY THE ITAT FOR A.Y. 2011 - 12 IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION I.E. A.Y. 2012 - 13. THE LD. AR PLACED ON RECORD THE ORDER FOR A.Y. 2011 - 12 FROM PA GE NO. 4 TO 18 IN THE PAPER BOOK. THE LD. DR VEHEMENTLY ARGUED THE SAID DECISION OF ITAT FOR A.Y. 2011 - 12 IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION FOR THE REASON THAT THE CIT(A) HELD CLEARLY THERE IS A CHANGE OF FACTS COMPARED TO EARLIER YEARS A ND THE YEAR UNDER CONSIDERATION. WE NOTE THAT THE CO - ORDINATE BENCH OF TRIBUNAL DISCUSSED THE ISSUE IN DETAIL FROM PARA NOS. 4 TO 7 , WHEREIN WE 4 ITA NO.2536/PUN/2017, A.Y. 2012 - 13 FIND THE FACTS AND CIRCUMSTANCES AROSE IN A.Y. 2011 - 12 AND IN THE YEAR UNDER CONSIDERATION I.E. 2012 - 13 ARE IDE NTICAL. THE RESPONDENT - REVENUE DID NOT BRING ON RECORD ANY VIEW CONTRARY TO THE VIEW TAKEN BY THE CO - ORDINATE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2011 - 12 AND IN VIEW OF THE SAME, WE FIND THE ORDER OF CIT(A) IS NOT JUSTIFIED. THE FINDING OF CO - ORDINATE BENCH OF TRIBUNAL RENDERED IN A.Y. 2011 - 12 VIDE ITS ORDER DATED 27 - 01 - 2017 IN ITA NO. 2270/PUN/2014 IN ASSESSEES OWN CASE IS APPLICABLE TO THE FACTS AND CIRCUMSTANCES FOR A.Y. 2012 - 13. THUS, THE ADDITION MADE BY THE AO AND CONFIRMED BY THE CI T(A) IS DELETED AND THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 6. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH AUGUST, 202 1 . SD/ - SD/ - ( R.S. SYAL ) ( S.S. VISWANETHRA RAVI ) VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 13 TH AUGUST, 202 1 . RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A) - 6, PUNE 4. THE PR. CIT - 5, PUNE 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. // // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE