Assistant Commissioner of Income Tax, Central Circle-2(3), Bengaluru V. M/s Kemfin services Pvt Ltd, Bengaluru

ITA 2671/BANG/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4826 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 08-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R RAMESH
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI N.V VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.2671 /BANG/2 017 (ASST. YEAR 2012-13) THE ASST. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE- 2(3), BENGALURU. . APPELLANT VS. M/S. KEMFIN SERVICES PVT., LTD., NO.11, KEMWELL HOUSE, TUMKUR ROAD, BENGALURU 560022. PAN: AAACK6926E .RESPONDENT APPELLANT BY : SHRI B.R. RAMESH, JCIT RESPONDENT BY : NONE DATE OF HEARING : 09-04-2018 DATE OF PRONOUNCEMENT : 11-04-2018 O R D E R PER SHRI N.V VASUDEVAN, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 31/8/2017 OF COMMISSIONER OF INCOME-TAX (APPEALS) - IV BANGALORE RELATING TO ASSESSMENT YEAR 2012-13. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ S AS FOLLOWS:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 1,18,09,527 W HICH WAS MADE ON ACCOUNT OF CHARGING OF INTEREST @4% ON ADVANCES GIV EN TO ASSOCIATE ITA NO.2671/B/17 2 CONCERN WHICH WERE GIVEN OUT OF INTEREST BEARING UN SECURED LOANS OBTAINED ON MUCH HIGHER RATE IE. 10%? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE HAS NOT BEEN ABLE TO PROVE WITH EVIDENCES THAT THERE WAS COMMERCIAL EXPEDIENCY INVO LVED IN THE TRANSACTIONS WITH THE SISTER CONCERN? 3. ANY OTHER GROUNDS WHICH MAY BE ADDED LATER ON. 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF MAKING INVESTMENTS IN SECURITIES. IN THE COURSE OF ASSESSMENT PROCEEDI NGS FOR AY 2012-13, THE AO NOTICED THAT THE ASSESSEE HAD PAID INTEREST ON FUND S BORROWED BY IT @ 10% P.A. THE AO ALSO NOTICED THAT THE ASSESSEE HAD GIVEN LOA N TO M/S KEMWELL BIOPHARMA PVT. LTD., AND M/S KEMWELL PVT. LTD., AND CHARGED I NTEREST ON THOSE LOANS @ 4% PER ANNUM. IN THE ORDER OF ASSESSMENT THE AO HAS OB SERVED THAT THE COMPANIES TO WHOM LOANS HAD BEEN GIVEN BY THE ASSESSEE WERE RELA TED PARTIES. THE AO HAS NOT SPELT OUT AS TO WHAT IS THE RELATIONSHIP WHETHER AS HOLDING OR SUBSIDIARY COMPANY OR BECAUSE OF COMMON SHAREHOLDERS OR DIRECTORS ETC. THE AO WAS OF THE VIEW THAT THE ASSESSEE OUGHT TO HAVE CHARGED @ 10% ON THE LOA N GIVEN TO TO M/S KEMWELL BIOPHARMA PVT. LTD., AND M/S KEMWELL PVT. LTD., I.E ., THE SAME RATE OF INTEREST AT WHICH IT PAID INTEREST ON ITS BORROWINGS. THE AO ADDED THE DIFFERENCE BETWEEN 10% RATE OF INTEREST ON THE LOANS GIVEN TO RELATED PARTIES AND 4% INTEREST WHICH WAS INTEREST CHARGED BY THE ASSESSEE ON THE LOAN GI VEN TO THE RELATED PARTY. THE COMPUTATION MADE BY THE AO WAS AS FOLLOWS:- INTEREST RECEIVED AT 4% PA FROM M/S KEMWELL PVT LTD. & M/S. KEMWELL BIOPHARMA PVT. LTD. RS. 78,73,031 INTEREST AT 10% RS. 1,96,82,578 DIFFERENCE RS. 1,18,09,527 ITA NO.2671/B/17 3 4. AGGRIEVED BY THE ADDITION MADE BY THE AO, ASSESS EE PREFERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT LOANS GIVEN TO M/S KEMWELL BIOPHARMA PVT. LTD., AND M/S KEMWELL PV T. LTD. WERE FROM AND OUT OF THE ASSESSEES OWN SURPLUS FUNDS AND NO BORR OWED FUNDS ON WHICH INTEREST WAS PAID WAS USED FOR THE PURPOSE OF GIVING LOAN TO THE RELATED PARTIES. THE ASSESSEE POINTED OUT THAT THERE WAS NO PROVISION IN THE INCOME TAX ACT, 1961 (ACT) ON THE BASIS OF WHICH NOTIONAL INCOME CAN BE BROUGHT TO TAX BY THE AO. THE ASSESSEE ALSO EXPLAINED THE COMMERCIAL PRUDENCE IN GIVING THE LOANS TO SISTER COMPANIES. THE CIT(A) FOUND FORCE IN THE ARGUMENT O F THE ASSESSEE AND HE HELD THAT THE AO HAS NOT MADE OUT A CASE OF DIVERSION OF BORROWED FUNDS ON WHICH INTEREST WAS PAID FOR THE PURPOSE OF GIVING LOAN TO THE RELATED CONCERNS. HE ALSO HELD THAT THE ASSESSEE HAD GIVEN LOANS TO THE RELAT ED PARTY OWING TO COMMERCIAL EXPEDIENCY. THE ADDITION MADE BY THE AO WAS DELETE D BY THE CIT(A). 5. AGGRIEVED BY THE ORDER OF THE CIT(A), REVENUE H AS PREFERRED PRESENT APPEAL BEFORE THE TRIBUNAL. 6. NOTICE OF HEARING WAS SERVED ON THE ASSESSEE. B UT NONE APPEARED ON BEHALF OF THE ASSESSEE. WE, THEREFORE, PROCEED TO D ECIDE THE APPEAL AFTER HEARING THE SUBMISSION OF THE LD DR. THE LD DR RELIED ON T HE ORDER OF THE AO. 7. WE HAVE PERUSED THE ORDER OF THE AO. IN THE ORD ER OF THE AO, THE ASSESSEE HAS SPECIFICALLY PUT FORTH HIS OBJECTIONS BEFORE TH E AO WHICH IS TO THE EFFECT THAT THE FUNDS GIVEN TO THE RELATED PARTIES WERE OUT OF ITS SURPLUS FUNDS WHICH WERE LYING IDLE. BESIDES THE ABOVE SUBMISSION, THE ASSE SSEE HAS ALSO HIGHLIGHTED THE COMMERCIAL EXPEDIENCY OF GIVING LOANS TO THE RELATE D PARTY. IT IS NOT THE CASE OF THE AO THAT ADDITION HAS TO BE MADE IN TERMS OF SEC . 40A(2)(B) OF THE ACT. THE AO HAS NOT GIVEN ANY FINDING WITH REGARD TO THE LOA N NOT HAVING BEEN GIVEN OUT OF ITA NO.2671/B/17 4 ASSESSEES SURPLUS FUNDS LYING IDLE. IN THE ABSENC E OF SUCH A CLEAR FINDING, WE ARE OF THE VIEW THAT THE ACTION OF THE AO IN MAKING THE ADDITION WAS WITHOUT ANY BASIS. THE FINDING OF THE CIT(A) THAT THERE WAS NO DIVERSION OF BORROWED FUNDS FOR NON BUSINESS PURPOSE HAS NOT BEEN DISPUTED BY THE REVENUE BEFORE US. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN THIS APPEAL BY THE REVENUE. ACCORDINGLY, THE APPEAL BY THE REVENUE IS DISMISSED. 8. IN THE RESULT, THE APPEAL BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 APRIL, 2018 . SD/- SD/- (JASON P BOAZ) (N. V VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMB ER BANGALORE DATED : 11/4/2018 VMS COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER SR. PRIVAT E SECRETARY, ITAT, BANGALORE ITA NO.2671/B/17 5 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR. P. S... 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT.. 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. ..