INDIA INFRASTRUCTURE AND LOGISTICS INDIA PVT. LTD., MUMBAI V. ACIT 6(1), MUMBAI

ITA 3134/MUM/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 8199 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 09-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AARTI VISANJ
• Keywords: Commercial expediency
• Section: 143(3); 143(2); 43

Judgement Text

ITA No.3134/Mum/2019 A.Y. 2009-10 India Infrastructure and Logistics India Pvt. Ltd. 1 IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI AMARJIT SINGH, ACCOUNTANT MEMBER & MS. KAVITHA RAJAGOPAL, JUDICIAL MEMBER ITA No.3134/Mum/2019 (A.Y. 2009-10) India Infrastructure and Logistics India Pvt. Ltd. Techno Campus, 5 th Floor, Lodha Supremus III Building, Kanjur Marg East Mumbai – 400 042 Vs. The ACIT-6(1) [ n o w a s s e s s e d w i t h A C I T-1 5 ( 2 ) ( 1 ) ] Aayakar Bhavan, M.K. Road, Mumbai – 400 020 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AABCI4652G Appellant .. Respondent Appellant by : Aarti Visanj & Ajit Shah Respondent by : Shreekala Pardeshi Date of Hearing 28.07.2022 Date of Pronouncement 12.08.2022 आदेश / O R D E R Per Amarjit Singh (AM): The present appeal filed by the assessee is directed against the order passed by the ld. CIT(A)-24, Mumbai, which in turn arises from the order passed by the A.O u/s 143(3) of the Act for A.Y.2009-10. The assessee has raised the following grounds before us: ITA No.3134/Mum/2019 A.Y. 2009-10 India Infrastructure and Logistics India Pvt. Ltd. 2 “1. The Ld. CIT (A) in the fat and circumstances of the case and in law erred in: - (a) Passing the impugned Appellate Order on the basis of assumption, presumptions and ignoring the facts and circumstances of the Appellant, the financial statements and other documents as well as the judicial pronouncements submitted to him and therefore, the impugned order was illegal and bad in law. (b) Confirming that the appellant granted in tons and advance subsidiary companies Huma Multi-trade Pvt. Ltd and Chetana Multi-Trade Pvt. Ltd out of the funds borrowed by it from the bank. (c) Not appreciating the facts that the said loans/abrances were granted from the interest free funds available in the form of Stare Capital and Reserves (Share Premium) as available with appellant at the relevant time when the same were granted (d) Confirming disallowance of interest in respect of the said loans and advances to the subsidiary companies despite being provided with the audited facial statements of the appellant as well as the said subsidiary companies whereby It was clearly established the fact that the said loans and advances were granted out of the Share Capital and Reserves (Share Premium) and the loan from the Bank were taken only in the subsequent year le only after the gram of said loans and advances and was used for the purpose of the business. (e) Confirming disallowance of interest despite having been given year wise "Fund Flow Chart" for the relevant period. (f) Confirming disallowance of interest amount to Rs.1,30,65,059/- u/s 36(1)(iii) of the Act on the ground that the same lacked commercial expediency despite having been explained that the said subsidiary companies were formed by the appellant only for the purpose of setting up the Container Freight Station in the wake of integration of the appellant's business Le transportation of export, import and domestic cargo by container trains and the setting up of container freight station was to achieve higher growth volumes in its container train business. (g) Confirming the disallowance of interest u/s 36(1)(iii) on the ground that the borrowings were used for grant of loans /advances to the said subsidiaries despite being explained the rational of such grant and despite the facts and circumstances of the case of the appellant being similar to many judicial pronouncements on the subject including that of the Hon Supreme Court in “SA Builders”. (h) Without prejudice to the each of the earlier grounds in the alternate confirming the disallowance of interest computed @ 12% Instead of 9% being the actual rate of interest paid by the appellant la respect of the said borrowings. ITA No.3134/Mum/2019 A.Y. 2009-10 India Infrastructure and Logistics India Pvt. Ltd. 3 2. It is humbly prayed that the reliefs as prayed and such other and further reliefs as may be justified by the facts and circumstances of the case and as may meet the ends of justice, should be granted. 3. The appellant craves leave to amend or alter any ground or add a new ground, a may be necessary.” 2. The fact in brief is that return of income declaring income of Rs.nil was filed on 30.09.2009 showing loss of Rs.17,64,22,943/-. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 06.09.2011. The assessee company is engaged in the business of transportation of export/import and domestic cargo by way of container trains. During the course of assessment A.O noticed from the balance sheet and the profit and loss account of the assessee that it had granted interest free loan and advances to Huma Multirade Pvt. Ltd., a subsidiary company to the amount of Rs.4,89,57,597/- and similarly to another subsidiary company i.e. Chetana Multitrade Pvt. Ltd. to the amount of Rs.5,99,17,898/-. On query the assessee explained that it had granted the aforesaid loans to its associated companies to acquire the land and provide the same to the assessee company to set up inland container depot on the said land. It was also explained that the said subsidiary companies had not charged any lease charges from the assessee company using the said land for setting up inland container depot. Therefore, the assessee company has also not charged any interest in respect of the loans granted to them on the Principle of commercial expediency. The A.O has not agreed with the submission of the assessee and observed that assessee company was paying interest @ 12% whereas it had given interest free advances to its related parties. The A.O was of the view that the loans have been given for non business purposes and therefore, pro rata interest liability towards interest has ITA No.3134/Mum/2019 A.Y. 2009-10 India Infrastructure and Logistics India Pvt. Ltd. 4 been incurred to that extent for non business purposes or without commercial expediency. The A.O stated that the activity of advancing interest free loans cannot be accepted as business activity/commercial expediency of the assessee, therefore, interest expenses of Rs.1,30,65,059/- [12% of Rs.10,88,75,495/-(4,89,57,597 + 5,99,17,898)] was disallowed. Accordingly, the interest expenses of Rs.1,30,65,059/- was added to the total income of the assessee company. 3. Aggrieved, the assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee stating that assessee has failed to prove the commercial expediency of advancing interest free loans. 4. During the course of appellate proceedings before us the ld. Counsel contended that assessee company has given interest free advance to its aforesaid sister concern in the initial years of business for the purpose of acquiring land on which the assessee company had to set up inland container depot for the purpose of its business. It is further submitted that after giving the aforesaid advances the assessee company has used the land acquired by the aforesaid companies for its container depot for about six years. The ld. Counsel further submitted that assessee has given the advance to its sister concern out of interest free funds of the assessee company as it was having more than Rs.100 crore own funds. The ld. counsel further submitted that at para 5.2.5 of the order of the CIT(A) he has wrongly mentioned the financial position of the assessee until 31 st March, 2017 which was actually as on date 31 st March, 2007 showing net worth of the assessee of Rs.100.25 crores and the CIT(A) again wrongly mentioned the period as 31 st March, 2018 in respect of correct period of 31 st March, 2008 as on which the assessee ITA No.3134/Mum/2019 A.Y. 2009-10 India Infrastructure and Logistics India Pvt. Ltd. 5 was having net worth of Rs.92.50 crores. Then, the ld. Counsel referred page No. 5 & 11-13 of the paper book pertaining to financial statement of the assessee company for the period ending 31 st March, 2007 showing that assessee company had not purchased fixed asset in the year 2006- 07. The ld. Counsel also referred page No. 15 of the paper book showing that under the schedule 7 of loan and advances the assessee company has provided the loan amount to the associated concern during the F.Y. 2006-07. The ld. Counsel also referred page No. 11 of the paper book showing that during the year under consideration the assessee has not obtained any secured or unsecured loan for the purpose of making advances to the sister concern. She has also referred page no. 16 of the paper book showing that assessee company was incorporated in January 30, 2006 and it was engaged in the business of transportation of cargo of container trains. The ld. Counsel also referred page no. 27 of the paper book showing that as per the balance sheet of the assessee for the year ending 31 st March, 2008 the assessee company had obtained secured loan of Rs.80 crores only as a term loan from bank. It is also submitted that assessee company has earned income of Rs.43,65,56,606/- for the year ended March, 2008. She has further taken us to page no. 43 of the paper book pertaining to copy of balance sheet as on 31 st March, 2009 showing that secured loan was taken in the F.Y. 2008-09. The ld. Counsel has also referred page no. 61 to 65 showing the copies of balance sheet of its associated concern Huma Multitrade Pvt. Ltd. as per the balance sheet the amount of unsecured loan obtained was Rs.4,79,92,297/- from the assessee company which was invested in purchasing the freehold land of Rs.4,78,64,799/- as shown under the head fixed assets on which the assessee company had set up its inland container depot. The ld. Counsel has also referred page no. 66-73 as a ITA No.3134/Mum/2019 A.Y. 2009-10 India Infrastructure and Logistics India Pvt. Ltd. 6 financial statement of its another sister concern Chetana Multitrade Pvt. Ltd. At page no. 69 i.e balance sheet of the said associate concern unsecured loan of Rs.5,43,31,080/- received from the assessee company was reflected and same was invested in acquiring freehold land for Rs.5,50,98,264/- on which the assessee company had set up its inland container depot. The ld. Counsel has also placed reliance on the following judicial pronouncements: (i) decision of Hon’ble Supreme Court in the case of CIT Vs. Reliance Industry Ltd. (2019) 102 Taxman.com 52 (SC); (ii) decision of Hon’ble Delhi High Court in the case of CIT Vs. H.B. Stock Holding Ltd. (2009) 184 taxman.com 352 (Delhi); (iii) Decision of Hon’ble High Court of Bombay in the case of CIT Vs. Reliance Utility & Power Ltd. 178 taxman.com 135 (Bom); (iv) Decision of Hon’ble Punjab & Haryana High Court in the case of Pr.CIT Vs. Malhotra Book Depo (2019) (416 ITR 221) (P & H). On the other hand the ld. D.R submitted that associated concern of the assessee was not having any business except purchasing of the land used by the assessee and supported the finding of the ld. CIT(A). The ld. D.R submitted that what assessee has received in return for giving loan to its associated concern. On rejoinder the ld. Counsel submitted that assessee has got tremendous benefit after using the land acquired by the sister concern as it had set up its inland container depot on the acquired loan. The ld. Counsel attributed the earning of the business income by the assessee from the inland container depot set up on the land which was financed by the assessee company otherwise assessee company would have paid much amount as lease rent or as interest on bank loan for acquiring the said land by the assessee company itself. The ld. Counsel has further submitted that loan given was repaid to the assessee company in F.Y. 2013-14 by the associated concerns. 5. Heard both the sides and perused the material on record. The assessee company is a private limited company which was engaged in the ITA No.3134/Mum/2019 A.Y. 2009-10 India Infrastructure and Logistics India Pvt. Ltd. 7 business of transportation of export, import and domestic cargo by container trains. The assessee has granted interest free loans and advances to its subsidiary companies i.e Huma Multitrade Pvt. Ltd. and Chetana Multitrade Pvt. Ltd. to the amount of Rs.4,89,57,597/- and Rs. 5,99,17,898/- respectively. The assessee company was incorporated on 30 th January, 2006. During the initial financial year of 2006-07, the assessee company was having shareholders funds and reserve surplus to the amount of Rs.1,00,24,86,822/- and during the same financial year the assessee company had advanced the aforesaid amount of unsecured loan to its sister concern for the purpose of purchasing of land on which the assessee company had to set up its inland container depot for the purpose of its business. These two companies were wholly owned subsidiary company of the assessee which were formed by the assessee only for the purpose of setting up the inland container freight station by them. After perusal of the copy of the balance sheet of the assessee company placed in the paper book it is evident that there was no borrowing by the assessee company for the purpose of making advances to the subsidiary companies. We have also perused the copies of profit and loss account of different financial years pertaining to the assessee company placed in the paper book and it is noticed that for the year ended 31 st March, 2008 the assessee company has shown freight income to the amount of Rs.42,81,47,371/- and for the year ended 31 st March, 2009 it has shown gross rail freight income to the amount of Rs.1,03,84,17,140/- demonstrating that assessee company has earned substantial income by using the inland container depot set up at the land acquired by the associated concern out of the loan amount financed by the assessee company without paying any lease charges. These material fact establish that the assessee company had not charged any ITA No.3134/Mum/2019 A.Y. 2009-10 India Infrastructure and Logistics India Pvt. Ltd. 8 interest on loan advanced to the sister concern on the principle of commercial expediency. We have also perused the judicial pronouncements referred by the ld. Counsel. In the case of CIT Vs. Reliance Industry ltd. (2019) 102 taxmann.com 52 (SC), the Hon’ble Supreme Court after referring the question raised by the revenue regarding allowability of deduction u/s 36(1)(iii) of the Act at para 7 of the order held that in so far as the first question, the issue raises pure question of fact. The High Court has noted the finding of the Tribunal that the interest free funds available to the assessee were sufficient to meet its investment. Hence, it would be presumed that the investments were made from the interest free funds available with the assessee. The Hon’ble Supreme Court held that in view of the above finding no reason to interfere with the judgment of High Court in regard to the first question. In the case of CIT Vs. H.B. Stock Holding Pvt. Ltd. 154 taxmann.com 352 (Delhi) (2009). The Hon’ble High Court of Delhi held that the own funds of the assessee included share capital Rs.24.3 crores and reserve and surplus in the form of share premium money to the extent of Rs.106.92 crores consequently there was enough funds with the assessee company to give loan of Rs.13.05 crores to its sister concern and deduction for interest was allowable to the assessee u/s 36(1)(iii) of the Act. In the case of CIT Vs. Reliance Utility and Power Limited 178 taxman 135 (Bom) (2009) the Hon’ble jurisdictional High Court of Bombay held that if there are funds available both interest free and ITA No.3134/Mum/2019 A.Y. 2009-10 India Infrastructure and Logistics India Pvt. Ltd. 9 overdrafts and loan taken, then a presumption would arise that investment would be out of interest free funds generated or available with the company, provided said funds are sufficient to meet investments. In the case of the Pr.CIT Vs. Malhotra Book Depo (2019) (416 ITR 221) (P & H) Hon’ble Punjab & Haryana High Court while dismissing the appeal of revenue held that according to the findings of facts recorded by the Tribunal there was sufficient non-interest bearing funds out of which the assessee had advanced money to its sister concern. The department had not been able to show that the findings recorded by the Tribunal were legal or perverse warranting interference. In the light of the above facts and finding, we consider that assessee has demonstrated from the relevant supporting evidences as elaborated above in this order that it has provided unsecured loan to its sister concern for acquiring land on which it had set up its inland container depot which was used for business of the assessee company. The assessee company has also shown from the profit and loss account that is has earned sufficient income from its container business which was set up on the land acquired by the sister concern of the assessee company. The assessee company has also substantiated from the copy of balance sheet that the loan amount to the sister concern was given out of the interest free funds available with the assessee company i.e capital and reserve and surplus and no amount was obtained on interest for making advances to the sister concern. The assessee company has also established from the copy of balance sheets of the sister concerns that both the loan obtained from the assessee company was used for purchasing land on freehold basis on which the assessee company had ITA No.3134/Mum/2019 A.Y. 2009-10 India Infrastructure and Logistics India Pvt. Ltd. 10 established its inland container depot. The profit and loss account of these company also showed that these subsidiary companies have not charged any lease from the assessee company per using the land for setting up the inland container depot, therefore, the assessee company had also not charged any interest in respect of loan granted to its sister concerns on the principle commercial expediency. In the light of the above facts and finding we consider that decision of ld. CIT(A) in sustaining the disallowance of interest computed by the A.O is not justified. Accordingly, the ground of appeal of the assessee is allowed. 6. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 12.08.2022 Sd/- Sd/- (KAVITH RAJAGOPAL) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 12.08.2022 PS: Rohit ITA No.3134/Mum/2019 A.Y. 2009-10 India Infrastructure and Logistics India Pvt. Ltd. 11 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. संबंधधत आयकर आयुक्त / The CIT(A) 4. आयकर आयुक्त(अपील) / Concerned CIT 5. धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, अहमदाबाद / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशानुसार/BY ORDER, सत्याधपत प्रधत //True Copy// (Asst. Registrar) ITAT, Mumbai