M/s. PMS International P Ltd, Phagwara V. Dy. Commissioner of Income-tax, Phagwara

ITA 258/ASR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8800 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 17-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 28-04-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: RAVISH SOOD
• Keywords: Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR BEFORE SH. A.D.JAIN, HONBLE JUDICIAL MEMBER AND SH. T.S. KAPOOR, HONBLE ACCOUNTANT MEMBER I.T.A NO. 258(ASR)/2014 ASSESSMENT YEAR: 2008-09 M/S PMS INTERNATIONAL (P) LTD. VILLAGE:- JAMALPUR G.T. ROAD, PHAGWARA. PAN: AACCP1274G VS. DY. CIT, PHAGWAR CIRCLE, PHAGWARA. (APPELLANT) (RESPONDENT) I.T.A NO.350(ASR)/2014 ASSESSMENT YEAR: 2008-09 THE ACIT, PHAGWARA CIRCLE, PHAGWARA. VS. M/S PMS INTERNATIONAL (P) LTD. VILLAGE:- JAMALPUR G.T. ROAD, PHAGWARA. PAN: AACCP1274G (APPELLANT) (RESPONDENT) APPELLANT BY: SH. RAVISH SOOD (ADV.) RESPONDENT BY: SH. TARSEM LAL (DR.) DATE OF HEARING: 17.02.2016 DATE OF PRONO UNCEMENT: 04.03.2016 ORDER PER T. S. KAPOOR (AM): THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS BY THE REVENUE AGAINST THE ORDER OF LEARNED CIT(A) DATED 0 3.03.2014 FOR ASST. YEAR 2008-09. ITA NOS.258 & 350 (ASR)/2014 ASST. YEAR: 2008-09 2 2. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE REPRODUCED BELOW: 1. THAT THE ORDER OF THE CIT(A) TO THE EXTENT UPHO LDING THE ORDER OF THE AO PASSED U/S 143(3) OF THE INCOME TAX, 1961 IS AGAINST THE LAW AND FACTS OF THE CASE. (II) THAT THE CIT(A) HAD ERRED IN LAW AND FACTS OF THE CASE IN RESTRICTING THE ALLOWANCE OF INTEREST PAID BY THE ASSESSEE COMPANY TO IT SISTER CONCERN, I.E. M/S SAHDEV ENTERPRISES TO 12% P.A., AS AGAINST THE INTEREST PAID BY THE ASSESSEE COMPANY @ 14.25% P.A.. (III) THAT THE CIT(A) HAD ERRED IN LAW AND FACTS OF THE CASE BY PARTLY SUSTAINING THE DISALLOWANCE OF INTEREST ON BORROWE D CAPITAL AS REGARDS THE AMOUNTS MADE AVAILABLE BY THE ASSESSEE COMPANY TO ITS SISTER CONCERNS, BY LOOSING SIGHT OF THE VERY FACT THAT THE SAME WERE EITHER PURSUANT TO TRADE TRANSACTIONS OR PRO MPTED BY THE PRINCIPLE OF COMMERCIAL EXPEDIENCY. (IV) THAT WITHOUT PREJUDICE TO THE AFORESAID EVEN O THERWISE THE CIT(A) HAD GROSSLY ERRED BY UPHOLDING THE DISALLOWA NCE OF INTEREST ON BORROWED CAPITAL TO THE EXTENT THE FUNDS WERE M ADE AVAILABLE BY THE ASSESSEE COMPANY TO ITS SISTER CONCERNS , BY EXCESSIVELY APPLYING THE RATE OF 12% P.A. WHEREAS THE FOLLOWING GROUNDS OF APPEAL HAS BEEN TA KEN BY THE REVENUE. (I). ALLOWING INTEREST @ 12% PAID TO SISTER M/S EN TERPRISES, A PERSON COVERED U/S 40A(2)(B) IN SPITE OF THE FACT T HAT THE ASSESSEE HAS NOT CHARGED ANY INTEREST ON THE AMOUNTS OF ADVA NCES GIVEN TO OTHER SISTER CONCERNS AND PERSONS COVERED U/S 40A(2 )(B) OF THE I.T.ACT,1961. (II) ALLOWING RELIEF OF RS.4,90,331/- BY RESTRICTIN G THE DISALLOWANCE TO 12% INSTEAD OF 14.25% MADE BY THE A.O. U/S 36(1)(II I) OF THE INCOME TAX ACT, 1961 IGNORING THE FACT THAT THE SUPREME CO URT HAS ITSELF IN THE CASE S.A BUILDERS IN PAGE 32 STATED THAT THE SA ID DECISION IS NOT APPLICABLE IN ALL CASES WHERE THE INTEREST ON BUSIN ESS LOAN HAS TO BE ALLOWED, IF THE ASSESSEE ADVANCES IT TO SISTER CONC ERNS. (III) IT IS PRAYED THAT THE ORDER OF THE LEARNED CO MMISSIONER OF INCOME TAX (APPEALS) BE SET ASIDE AND THAT OF THE A SSESSING OFFICER BE RESORTED. 3. THE BRIEF FACTS OF THE CASE AS NOTED IN THE ASSE SSMENT ORDER ARE THAT THE ASSESSEE COMPANY DERIVES INCOME FROM MANUF ACTURING AND SALES INCLUDING EXPORT OF DIESEL ENGINES AND ITS PARTS. T HE CASE WAS SELECTED FOR ITA NOS.258 & 350 (ASR)/2014 ASST. YEAR: 2008-09 3 SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD MADE PAYMENT OF INTEREST TO ONE OF ITS GROUP COMPANY M/S SAHDEV ENTERPRISES @ 14.25%. THE ASSESSING OFFICER HELD THE INTEREST TO BE EXCESSIVE AND ALSO HELD THAT ASSESSEE HAD NOT CHARGED ANY INTEREST ON AMOUNTS ADVANCED TO ITS OTHER SISTER CONCERNS AND THEREFORE, THE PAYMENT OF INTEREST TO M/S SAHDEV ENTERPRISES WAS NOT JUSTIFIED AT ALL AND THEREFORE, HE MADE AN ADDITION OF RS.16,81,522/- U/S 40A(2)(B) OF THE ACT. THE ASSESS ING OFFICER FURTHER OBSERVED THAT ASSESSEE HAD MADE INTEREST FREE ADVAN CES TO TWO OF ITS GROUP COMPANIES NAMELY M/S STAR TRADING COMPANY AND M/S PMS ENTERPRISES. THE ASSESSING OFFICER OBSERVED THAT AS SESSEE HAD INCURRED HUGE COST IN THE FORM OF INTEREST ON BANK BORROWING S, THEREFORE, ASSESSEE WAS SHOW CAUSED AS TO WHY THE INTEREST PAID BY IT B E NOT TREATED AS EXPENSES NOT FOR BUSINESS PURPOSES. THE ASSESSEE I N ITS REPLY SUBMITTED THAT IN THE CASE OF M/S STAR TRADING COMPANY BESIDE S DEBIT BALANCE IN HEAD OFFICE THERE WAS CREDIT BALANCE IN THE BRANCH OFFICE BOOKS ALSO AND FURTHER SUBMITTED THAT THE ADVANCE WAS MADE TO SIST ER CONCERNS ON THE BASIS OF PRINCIPLE OF COMMERCIAL EXPEDIENCY. WITH R ESPECT TO THE ADVANCE TO M/S PMS ENTERPRISES, THE ASSESSEE SUBMITTED THAT KEEPING IN VIEW THE PRINCIPLE OF COMMERCIAL EXPEDIENCY NO ADVERSE VIEW CAN BE TAKEN FOR INTEREST FREE ADVANCES. RELIANCE IN THIS RESPECT WA S PLACED ON THE CASE LAW OF HONBLE SUPREME COURT IN THE CASE OF M/S S.A . BUILDERS LTD. 288 ITR 1. THE ASSESSING OFFICER, HOWEVER, DID NOT ACCE PT THE CONTENTIONS OF ITA NOS.258 & 350 (ASR)/2014 ASST. YEAR: 2008-09 4 ASSESSEE AND HELD THAT ASSESSEE WAS NOT ABLE TO EST ABLISH ELEMENT OF COMMERCIAL EXPEDIENCY AND THEREFORE, THE CASE LAW O F M/S. S.A. BUILDERS WAS NOT APPLICABLE AND IN VIEW OF THE ABOVE THE ASS ESSING OFFICER MADE THE ADDITION OF RS.9,09,745/- U/S 36(1)(III) OF THE ACT. 4. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE LEARN ED CIT(A) AND REITERATED ITS SUBMISSIONS. THE LEARNED CIT(A) FORW ARDED THE SUBMISSIONS TO ASSESSING OFFICER AND AFTER GETTING REMAND REPOR T FROM ASSESSING OFFICER ALLOWED PART RELIEF TO THE ASSESSEE BY GIVI NG HIS FINDINGS ON THE ADDITION AS UNDER: (I) ADDITION IN RESPECT OF DISALLOWANCE U/S 40A(2) (B) [PARA 6.4] (II) DISALLOWANCE U/S 36(1)(III) [PARA 7.5 TO 7.6] 5. AGGRIEVED BOTH THE PARTIES ARE IN APPEAL BEFORE US. 6. THE LEARNED DR ARGUED ITS APPEAL FIRST AND HEAVI LY PLACED HIS RELIANCE ON THE ORDER OF ASSESSING OFFICER AND SUBM ITTED THAT LEARNED CIT(A) HAS WRONGLY ALLOWED INTEREST PAYMENTS @12% T O SISTER CONCERN OF THE ASSESSEE AS ASSESSEE HAD NOT CHARGED ANY INTERE ST FROM OTHER GROUP COMPANIES TO WHOM ASSESSEE HAD ADVANCED INTEREST FR EE ADVANCES. 7. AS REGARDS THE DISALLOWANCE U/S 36(1)(III) THE L EARNED DR SUBMITTED THAT SINCE THE CASE LAW OF M/S. S.A. BUILDERS WAS N OT APPLICABLE AND THEREFORE, LEARNED CIT(A) HAS WRONGLY REDUCED THE D ISALLOWANCE FROM 14.25% TO 12%. ITA NOS.258 & 350 (ASR)/2014 ASST. YEAR: 2008-09 5 8. THE LEARNED AR, ON THE OTHER HAND, HEAVILY PLACE D HIS RELIANCE ON THE ORDERS OF LEARNED CIT(A). 9. IN ASSESSEES APPEAL THE LEARNED AR SUBMITTED TH AT THE ASSESSEE HAD ALREADY AVAILED BANK BORROWINGS AND NO FURTHER BANK FUNDS WAS AVAILABLE TO THE ASSESSEE AND THEREFORE, ASSESSEE H AD TAKEN LOAN FROM ITS GROUP COMPANY M/S SAHDEV ENTERPRISES AND INTEREST O F @14.25% WAS LINKED TO MARKET RATE OF BORROWING AND FURTHER SUBM ITTED THAT COMPARISON WITH BANK RATE WAS NOT A GOOD PROPOSITIO N AS THE ASSESSEE HAD OBTAINED LOANS FROM GROUP COMPANY WITHOUT FURNI SHING OF ANY SECURITY OR GUARANTEE, THEREFORE, HE ARGUED THAT LE ARNED CIT(A) SHOULD HAVE COMPLETELY DELETED THE ADDITION. 10. AS REGARDS THE DISALLOWANCE 36(1)(III), THE LEA RNED AR SUBMITTED THAT THE ADVANCES WERE MADE TO GROUP COMPANIES ON ACCOUNT OF PRINCIPLE OF COMMERCIAL EXPEDIENCY AS THE SAME WERE ON ACCOUNT OF TRADE TRANSACTIONS WITH THE FIRMS TO WHOM ADVANCES WERE G IVEN. THEREFORE, IN VIEW OF THE RATIO OF HONBLE SUPREME COURT IN THE C ASE OF M/S S.A BUILDERS LT. THE DISALLOWANCE WAS NOT WARRANTED. 11. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GON E THROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT ASSESSEE BESIDES BOR ROWING FROM SISTER CONCERN I.E. M/S SAHDEV ENTERPRISES HAD ALSO PLACED ITS FUNDS WITH M/S STAR TRADING COMPANY LTD. AND M/S PMS ENTERPRISE. T HE ASSESSEE HAD PAID INTEREST ON LOANS TAKEN FROM M/S SAHDEV ENTERP RISES @ 14.25% BUT ITA NOS.258 & 350 (ASR)/2014 ASST. YEAR: 2008-09 6 HAD NOT CHARGED INTEREST FROM TWO COMPANIES TO WHOM ADVANCES WERE MADE. THE ASSESSING OFFICER HAD MADE ADDITION OF TH E TOTAL AMOUNT OF INTEREST PAID TO M/S SAHDEV ENTERPRISE. THE LEANED CIT(A) HAS ALLOWED THE RELIEF BUT REDUCED THE RATE OF INTEREST FROM 14 .25% TO 12%, KEEPING IN VIEW THE FACT THAT BANK HAD CHARGED INTEREST FROM A SSESSEE AT THE RATE OF 8%. HE HAS ALSO RIGHTLY HELD THAT SINCE THE ASSESSE E HAD RECEIVED AND PAID INTEREST TO SISTER CONCERN M/S SAHDEV ENTERPRI SES, THEREFORE, THE NATURE OF TRANSACTIONS ENTERED INTO BY ASSESSEE WER E IN THE FORM OF FINANCIAL TRANSACTIONS AND ASSESSEE HAD BOTH CHARGE D INTEREST AND PAID INTEREST ON CREDIT AND DEBIT BALANCES OF THIS COMPA NY, THEREFORE, PAYMENT OF INTEREST WAS JUSTIFIED, HOWEVER, KEEPING IN VIEW THE RATE OF INTEREST OF 8% CHARGED BY BANK, HE HAS RIGHTLY REDUCED THE PAYM ENT OF INTEREST FROM 14.25% TO 12%. THEREFORE, WE DO NOT SEE ANY INFIRMI TY IN THE ORDER OF LEARNED CIT(A) AS REGARDS PAYMENT OF INTEREST TO M/ S SAHDEV ENTERPRISES @ 12%. IN VIEW OF THE ABOVE, GROUND NOS.1 AND 2 IN ASSESSEES APPEAL AND GROUND NO.1 IN REVENUES APPEAL ARE DISMISSED. 12. NOW COMING TO THE DISALLOWANCE U/S 36(1)(III) , WE FIND THAT BOTH AUTHORITIES BELOW HAS MADE A FINDING OF FACT THAT A SSESSEE WAS NOT ABLE TO PROVE COMMERCIAL EXPEDIENCY FOR MAKING ADVANCES TO THE GROUP COMPANIES AND BEFORE US ALSO THE LEARNED AR WAS NOT ABLE TO PROVE THE COMMERCIAL EXPEDIENCY FOR THE INTEREST FREE ADVANCE S OTHER THAN ARGUING THAT THERE WERE REGULAR TRADE TRANSACTION. THEREFOR E, LEARNED CIT(A) HAS RIGHTLY CONFIRMED THE ACTION OF ASSESSING OFFICER I N MAKING THE ITA NOS.258 & 350 (ASR)/2014 ASST. YEAR: 2008-09 7 DISALLOWANCE, HOWEVER, HE HAS RESTRICTED THE DISALL OWANCE FROM 14.25% TO 12% WHICH IS A CORRECT APPROACH KEEPING IN VIEW THE FACT THAT HE HAD ALSO RESTRICTED PAYMENT OF INTEREST TO M/S SAHDEV E NTERPRISES FROM 14.25% TO 12%. IN VIEW OF THE ABOVE, WE DO NOT SEE ANY FORCE IN THE ARGUMENTS OF LEARNED AR THAT THE ADVANCES WERE MADE ON THE PRINCIPLES OF COMMERCIAL EXPEDIENCY. THEREFORE, IN VIEW OF THE ABOVE, GROUND NO.3 & 4 OF ASSESSEES APPEAL AND GROUND NO.2 OF REVENUE S APPEAL ARE DISMISSED. 13. IN NUTSHELL, THE APPEAL FILED BY ASSESSEE AS WE LL AS APPEAL FILED BY REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH MARCH, 2016. SD/- SD/- (A.D. JAIN) (T. S. KAPOOR) JUDICIAL MEMBER A CCOUNTANT MEMBER DATED:04.03.2016. /PK/PS. COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.