Brindavan Agencies (P) Ltd., New Delhi V. ACIT, Circle- 5(1), New Delhi

ITA 2677/DEL/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3490 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 17-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Commercial expediency
• Section: 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: SMC, NEW DELHI BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER ITA NO. 2677/DEL/2018 ASSESSMENT YEAR: 2014-15 BRINDAVAN AGENCIES (P) LTD., RAJ KUMAR & ASSOCIATES, CAS L-7A (LGF), SOUTH EXTENSION, PART-2, NEW DELHI 49 (PAN: AAACB3167C) VS. ACIT, CIRCLE 5(1), C.R. BUILDING, NEW DELHI (APPELLANT) (RESPONDENT) ORDER THE ASSESSEE HAS FILED THE APPEAL AGAINST THE IMP UGNED ORDER DATED 2.2.2018 PASSED BY LD. CIT(A)-2, NEW DELHI RE LEVANT TO ASSESSMENT YEAR 2014-15 ON THE FOLLOWING GROUNDS:- 1. THAT UNDER THE FACTS AND CIRCUMSTANCES, BOTH THE LOWER AUTHORITIES ERRED IN LAW AND ON MERITS IN DISALLOWING THE INTEREST EXPENSES OF RS. 19,66,506/ - OUT OF TOTAL INTEREST EXPENSES CLAIMED AT RS. 26,22,008/- ON THE GROUND THAT THE FUNDS TAKEN ON HIGHER RATE OF INTEREST HAVE BEEN GIVEN TO SISTER CONCERNS AT LOWER RATE OF INTEREST. 2. THAT UNDER THE FACTS AND CIRCUMSTANCES, LD. CIT(A) ERRED IN LAW AS WELL AS ON MERITS IN ENHANCING THE DISALLOWANCE OF INTEREST BY RS. 6,55,502/- THEREBY MAKING THE TOTAL DISALLOWANCE OF INTEREST BY RS. 6,55,502/- THEREBY MAKING THE TOTAL DISALLOWANCE OF INTEREST AT RS. 26,22,008/-, THUS IN DISALLOWING TH E 100% OF THE INTEREST EXPENSES CLAIMED. 2.1 THAT WITHOUT PREJUDICE TO GROUND NO. 2, LD. CIT(A) EXCEEDED HIS JURISDICTION IN ENHANCING THE DISALLOWANCE OF INTEREST BY RS. 6,55,502/-. ASSESSEE BY SH. RAJ KUMAR, CA DEPARTMENT BY SH. S.L. ANURAGI, SR. DR. 2 3. THAT WITHOUT PREJUDICE, EVEN ON THE BASIS OF FINDI NGS OF AO, THE CALCULATIONS OF DISALLOWABLE AMOUNT OF RS. 19,66,506/- IS ERRONEOUS AND EXCESSIVE. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE FILED ITS RETURN OF INCOME ON 12.10.2014 DECLARING INCOME OF RS. 24,66 ,410/-. NOTICE U/S. 143(2) OF THE INCOME TAX ACT, 1961 (IN SHORT ACT) DATED 18.9.2015 WAS ISSUED AND QUESTIONNAIRE WAS SERVED UPON THE AS SESSEE ALONGWITH THE NOTICE U/S. 142(1) OF THE ACT DATED 29.4.2016, ASKING TO SUBMIT THE REQUIRED INFORMATION. IN RESPONSE TO STATUTORY NOTI CES, THE AR OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED NECES SARY DETAILS. THE ASSESSEE COMPANY DURING RELEVANT ASSESSMENT YEAR IS ENGAGED IN THE BUSINESS OF FLOUR MAILING MACHINERIES AND EQUIPMENT S. LATER ON ITS ACTIVITIES WERE CHANGED IN EXPORTING THE FERROUS AN D NON-FERROUS I.E. CARBON FERRO, MANGANSES, FERRO SILICON, FERRO CHROM E ETC. ON PERUSAL OF P&L ACCOUNT OF THE ASSESSEE, AO NOTED THAT ASSES SEE HAS CLAIMED INTEREST EXPENSES ON OTHERS UNDER THE HEAD OF FINA NCIAL COAST OF RS. 26,22,008/-. VIDE NOTE SHEET ENTRY DATED 3.8.2016 ASSESSEE WAS SHOW CAUSED THAT WHY INTEREST ON FUNDS BORROWED HAVE BEE N DIVERTED @3% WHEREAS ASSESSEE IS PAYING INTEREST AT ABOVE 9% TO ITS RELATED PARTNERS. ASSESSEE VIDE ITS LETTER DATED 17.8.2016 HAS SUBMIT TED THE REPLY. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE AO OBSER VED THAT ASSESSEE HAS BORROWED FUNDS @12% PER ANNUM AND CLAIMED EXPEN SES OF RS. 26,22,008/- WHILE HE HAS RECEIVED INTEREST ON THE S AME @3% AMOUNTING TO RS. 2,89,308/- AS INCOME AND OBSERVED THAT THE INTEREST DISALLOWANCE AMOUNTING TO RS. 19,65,506/- WAS ADDED BACK TO THE TOTAL INCOME OF 3 THE ASSESSEE AND ASSESSED THE INCOME OF THE ASSESS EE AT RS. 44,32,916/- VIDE ORDER DATED 23.12.2016 PASSED U/S . 143(3) OF THE ACT. AGAINST THE ASSESSMENT ORDER DATED 23.12.2016, AS SESSEE APPEALED BEFORE THE LD. CIT(A), WHO VIDE HIS IMPUGNED ORDER DATED 2.2.2018 HAS DISMISSED THE APPEAL OF THE ASSESSEE BY ENHANCEMENT OF INCOME OF RS. 6,55,502/-. AGGRIEVED WITH THE IMPUGNED ORDER THE A SSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. LD. A.R. FOR THE ASSESSEE HAS STATED THAT THE L OWER AUTHORITIES ERRED IN LAW AND ON MERITS IN DISALLOWING THE INTEREST EX PENSES OF RS. 19,66,506/- OUT OF TOTAL INTEREST EXPENSES CLAIMED AT RS. 26,22,008/- ON THE GROUND THAT THE FUNDS TAKEN ON HIGHER RATE OF I NTEREST HAVE BEEN GIVEN TO SISTER CONCERNS AT LOWER RATE OF INTEREST. HE FU RTHER SUBMITTED THAT LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON MERITS IN ENH ANCING THE DISALLOWANCE OF INTEREST BY RS. 6,55,502/- THEREBY MAKING THE TO TAL DISALLOWANCE OF RS. 26,22,008/-, THUS IN DISALLOWING THE 100% OF THE IN TEREST EXPENSES CLAIMED AND WITHOUT PREJUDICE TO ABOVE, HE SUBMITTE D THAT LD. CIT(A) HAS EXCEEDED HIS JURISDICTION IN ENHANCING THE DISALLO WANCE OF INTEREST BY RS. 6,55,502/- AND ALSO STATED THAT EVEN ON THE BASIS OF FINDINGS OF AO, THE CALCULATIONS OF DISALLOWABLE AMOUNT OF RS. 19,66,50 6/- WHICH IS ERRONEOUS AND EXCESSIVE. IT WAS FURTHER SUBMITTED THAT M/S M URLIWALA AGROTECH (P) LTD. IS A SISTER CONCERN OF THE ASSESSEE AND THE AD VANCES GIVEN BY ASSESSEE TO MURLIWALA SINCE THAT CONCERN NEEDS FUND FOR THE PURPOSE OF BUSINESS; HENCE, ADVANCE GIVEN BY ASSESSEE TO M/S M URLIWALA AGROTECH P 4 LTD. IS DUE TO COMMERCIAL EXPEDIENCY. IT WAS FURT HER SUBMITTED THAT THE TOTAL LOAN GIVEN TO SISTER CONCERN WAS ABOUT RS. 2, 25,00,020/- WHILE INTEREST FREE FUNDS AVAILABLE WERE RS. 17,35,72,590 /- AND NO INTEREST DISALLOWED EVER IN THE PAST. IN SUPPORT OF HIS CONT ENTION, FILED A PAPER BOOK CONTAINING PAGES 1-19 IN WHICH HE HAS ATTACHED THE AUDITED BALANCE SHEET FOR AY 2014-15; LEDGER A/C OF MURLIWALA AGROT ECH (P) LTD. IN THE BOOKS OF ASSESSEE; LEGER A/C OF BRINDAVAN ENTT. P LTD. IN THE BOOKS OF ASSESSEE; SUB. TO CIT(A) DATED 23.11.2017 AND SUB. TO CIT(A) DATED 22.1.2018. TO SUPPORT HIS CONTENTION, HE ALSO RELIE D UPON THE FOLLOWING CASE LAWS:- - CIT VS. SA BUILDERS 288 ITR 1 (SC). - CIT VS. TIN BOX CO. 260 ITR 537 (DEL.) 4. ON THE CONTRARY, LD. DR HEAVILY SUPPORTED THE OR DER OF THE LD. CIT(A) WHICH DOES NOT NEED ANY INTERFERENCE. HE ST ATED THAT ON PERUSAL OF P&L ACCOUNT OF THE ASSESSEE, AO NOTED THAT ASSESSEE HAS CLAIMED INTEREST EXPENSES ON OTHERS UNDER THE HEAD OF FINANCIAL COA ST OF RS. 26,22,008/-. VIDE NOTE SHEET ENTRY DATED 3.8.2016 ASSESSEE WAS S HOW CAUSED THAT WHY INTEREST ON FUNDS BORROWED HAVE BEEN DIVERTED @3% WHEREAS ASSESSEE IS PAYING INTEREST AT ABOVE 9% TO ITS RELATED PARTNER S. ASSESSEE VIDE ITS LETTER DATED 17.8.2016 HAS SUBMITTED THE REPLY. AF TER CONSIDERING THE REPLY OF THE ASSESSEE, THE AO OBSERVED THAT ASSESSE E HAS BORROWED FUNDS @12% PER ANNUM AND CLAIMED EXPENSES OF RS. 26,22,00 8/- WHILE HE HAS RECEIVED INTEREST ON THE SAME @3% AMOUNTING TO RS. 2,89,308/- AS INCOME AND OBSERVED THAT THE INTEREST DISALLOWANCE AMOUNTING TO RS. 19,65,506/- WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE AND IN 5 APPEAL LD. CIT(A) HAS RIGHTLY ENHANCED THE INCOME BY RS. 6,55,502/-. SHE RELIED UPON THE CASE LAWS CITED BY THE LD. CIT( A) IN HIS ORDER. 5. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND GO NE THROUGH THE ORDERS OF LOWER AUTHORITIES AS WELL AS THE CASE LAWS CITED BY BOTH THE PARTIES AND THE PAPER BOOK, AS AFORESAID. I NOTE THAT IN P& L A/C, ASSESSEE CLAIMED INTEREST EXP OF RS. 26,22,008/-. ASSESSEE A LSO EARNED INTEREST INCOME OF RS. 58.58,451/-. IT IS FURTHER NOTED T HAT AO OBSERVED THAT ASSESSEE IS PAYING INTEREST @12%, HOWEVER, CHARGING INTT. @3% FROM ITS SISTER CONCERNS NAMELY MURLIWALA AGROTECH (P) LTD. AND NO INTEREST CHARGED FROM BRINDAVAN ENTERPRISES (P) LTD. THUS THE A.O. HELD THAT RATE OF INTEREST CHARGED FROM SISTER CONCERNS WAS LESSER BY 9% . HENCE HE DISALLOWED 3/4 TH OF THE INTEREST EXPENSES CLAIMED IN P&L A/C FOR RS.26,22,008/-, 3/4TH OF WHICH BEING DISALLOWANCE C ALCULATED RS. 19,66,506/-. IN APPEAL, LD. CIT(A) HELD THAT COMPL ETE INTEREST EXP IS LIABLE TO DISALLOWED AS THE INTEREST FREE FUNDS AVA ILABLE WERE NOMINAL, HENCE HE ENHANCED THE DISALLOWANCE BY RS.6,55,502/- , RESULTING INTO DISALLOWANCE OF TOTAL INTEREST CLAIMED AT RS.26,22, 008/-. I NOTE THAT LD. CIT(A) IS WRONG IN MENTIONING THAT LOAN GIVEN TO M/ S. MURLIWALA AGROTECH (P) LTD. REACHED TO RS. 21,85,61,355/- AT THE END OF THE YEAR. HOWEVER, CORRECTLY IT WAS ONLY RS. 50,36,252/-. IT IS ALSO NOTED THAT LD. CIT (A) WRONGLY ADOPTED THE TOTAL OF CREDIT SIDE BE ING RS.21,85,61,355/- AS THE FIGURE OF CLOSING BALANCE. HOWEVER, LD. CIT (A) ALSO INCORRECTLY STATED THE RESERVES AND CAPITAL AVAILABLE IS RS.2 C RORE APPROX AGAINST CORRECTLY THE CAPITAL AND RESERVES AT RS.4.25 CRORE . M/S. MURLIWALA 6 AGROTECH (P) LTD. (MURLIWALA) IS A SISTER CONCERN O F ASSESSEE. ADVANCES GIVEN BY ASSESSEE TO MURLIWALA SINCE THAT CONCERN N EEDS FUNDS FOR THE PURPOSE OF BUSINESS. HENCE, ADVANCE GIVEN BY ASSESS EE TO MURLIWALA IS DUE TO COMMERCIAL EXPEDIENCY. AFTER PERUSING THE PA PER BOOK VIZ. THE AUDITED BALANCE SHEET FOR AY 2014-15 (PAGE NO. 1-9 OF PB) OF THE ASSESSEE, IT IS NOTED THAT ASSESSEE WAS HAVING SUF FICIENT INTEREST FREE FUNDS AT IT'S DISPOSAL NAMELY: SHARE CAPITAL RS. 14,86,800/- RESERVE AND SURPLUS AS ON 31.03.14 RS. 4,13,31,961 /- INTT. FREE ADV. RECD., FROM CUSTOMERS AS ON 31.03.14 RS.13,07,53,829/- TOTAL INTT. FREE FUNDS AVAILABLE RS.17,35,72,590/ - 5.1 I FURTHER NOTE THAT THE LOANS GIVEN TO MURLIWA LA AGROTECH WAS @3% AND THE AMOUNT GIVEN DURING THE YEAR WAS ONLY RS.2 ,03,00,020/- (22,35,57,607 - 19,82,61,355 - 50,36,252) WHICH WER E ALSO FOR BUSINESS PURPOSES THUS FOR COMMERCIAL EXPEDIENCY. THE LOANS GIVEN TO M/S BRINDAVAN ENTERPRISES, DURING THE YEAR WAS ONLY RS. 22,00,000/-, RATHER BRINDAVAN ENTERPRISES GAVE INTEREST FREE LOANS TO A SSESSEE DURING THE YEAR AND THE CLOSING LOAN PAYABLE BY THE ASSESSEE T O M/S BRINDAVAN WAS RS.2,53,218.50. THUS, THE TOTAL LOAN GIVEN TO SIS TER CONCERNS WAS ABOUT RS. 2,25,00,020/- WHILE INTEREST FREE FUNDS AVAILAB LE WERE RS. 17,35,72,590/-. I NOTE THAT THE CASE LAWS RELIED UP ON BY A.O. AND CIT (A) ARE DISTINGUISHABLE ON FACTS OF THE CASE. IT IS ALSO NOTED THAT LD. 7 CIT(A) IN HIS ORDER VIDE PARA NO. 7.8 AT PAGE NO. 1 3-14 HAS MENTIONED THAT ASSESSEE HAVE ALSO BEEN RELYING ON THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF SA BUILDERS 288 ITR 1, BUT HE DID NOT DISCUSS THE SAID DECISION. HOWEVER, THE CASE LAW RE LIED UPON BY THE LD. AR FOR THE ASSESSEE IS DIRECTLY APPLICABLE IN THE P RESENT CASE I.E. CIT VS. S.A. BUILDERS 288 ITR 1 (SC), WHEREIN, IT HAS BEEN HELD THAT IF ADVANCE WAS GIVEN FOR COMMERCIAL EXPEDIENCY THEN NO DISALLOWANCE FOR INTEREST CAN BE MADE. 5.2 KEEPING IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE PRECEDENT, AS AFORESAID, I SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION I N DISPUTE ALLOW THE GROUNDS RAISED BY THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWE D. THE DECISION IS PRONOUNCED ON 22-02-2019. SD/- (H.S. SIDHU) JUDICIAL MEMBER DATED: 22-02-2019 SRBHATNAGAR COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI