Kamineni Health Services Private Limited, Hyderabad, Hyderabad V. DCIT, Circle-2(1), Hyderabad, Hyderabad

ITA 344/HYD/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9602 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 04-04-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 27-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C V PAWAN KUMAR
• Assessee Lawyers: P MURAL MOHAN RAO
• Keywords: Proportionate interest; Additional evidence
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A ', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO. 3 4 4 / HYD/201 7 ASSESSMENT YEAR: 20 12 - 13 KAMINENI HEALTH SERVICES PVT. LTD., HYDERABAD. PAN AA ACK 8313 R VS. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 2(1), HYDERABAD. A PPELLANT RESPONDENT ASSESSEE BY: S H RI P. MURAL MOHAN RAO REVENUE BY: S HRI C.V. PAWAN KUMAR DATE OF HEARING: 0 4 / 0 4 / 201 9 DATE OF PRONOUNCEMENT: 03 / 0 7 /201 9 O R D E R PER P. MADHAVI DEVI , J M: T H IS IS AN APPEAL OF THE ASSESSEE FOR THE AY 2012 - 13 AGAINST THE ORDER OF CIT(A) 2 , HYDERABAD, DATED, 24/11/2016. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY , ENGAGED IN THE BUSINESS OF PROVIDING HEALTH CARE, FILED ITS RETURN OF INCOME FOR THE AY 20 12 - 13 ON 2 8 / 09 /20 12 ADMITTING LOSS OF RS. 13,66,338/ - UNDER NORMAL PROVISIONS AND BOOK PROFITS U/S 115JB AMOUNTING TO RS. 81,21,589/ - . PURSUANT TO THE SCRUTINY UNDER CASS, THE ASSESSEES CASE WAS TAKEN UP FOR PROCEEDINGS U/S 143( 3 ) OF THE ACT . 2.1 AFTER EXAMINATION OF THE INFORMATION FURNISHED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCE OF RS. 6,03,39,031/ - TO UNITED STEEL ALLIED INDUSTRIES PVT. LTD. I.T.A. NO. 344 /HYD/1 7 KAMINENI HEALTH SERVICES PVT. LTD., HYD. 2 (USAIPL) . HE OBSERVED THAT THE ASSESSEE HAD INCURRED FINANCIAL CHARGES AMOUNTING TO RS. 3,90,18,229/ - ON ACCOUNT OF BORROWED FUNDS AND SINCE IT HA D HUGE BURDEN OF FINANCE COST , GIVING INTEREST FREE ADVANCE S TO ITS HOLDING COMPANY IS NOT A PRUDENT BUSINESS DECISION . THEREFORE, ASSESSEE WAS ASKED TO EXPLAIN THE REASON FOR MAKING SUCH INTEREST FREE ADVANCE. ASSESSEE SUBMITTED THAT IT HAD GIVEN ADVANCE TO ITS HOLDING COMPANY FOR CONSTRUCTION OF SUPER SPECIALITY HOSPITAL AT VIJAYAWADA AND IT IS NOT A LOAN AND IT IS ONLY CAPITAL ADVANCE FOR PROCURING MATERIALS AND FOR MEETING THE PAYMENTS RELATING TO THE CONSTRUCTION OF HOSPITAL. FURTHER, IT WAS ALSO SUBMITTED THAT IT WAS DECIDED THAT USAIPL WOULD BE DEMERGED AND THE RESULTANT NEW COMPANY CALLED KAMINENI HEALTH CARE PVT. TD., WHICH WOULD BE RUNNING THE HOSPITAL. IT WAS SUBMITTED THAT ADVANCE WAS GIVEN WITH AN INTENTION TO ACQUIRE EQUITY IN THE DEMERGED COMPANY I.E. KAMINENI HEALTH CARE PVT. LTD. 2.2 AO, HOWEVER, DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE. HE OBSERV ED THAT THE ASSESSEE IS TAKI NG TWO DIFFERENT STANDS I.E. INITIALLY IT WAS STATED THAT THE ADVANCE WAS GIVEN FOR THE PURPOSE OF CONSTRUCTION OF A HOSPITAL AND SUBSEQUENTLY, IT WAS STATED THAT THE ADVANCE WAS GIVEN WITH AN INTENTION TO ACQUIRE SHARES IN DEME RGED COMPANY I.E. KAMINENI HEALTH CARE PVT. LTD. THEREFORE, THE AO HELD THAT THE ASSESSEE HAS NOT BEEN ABLE TO EST ABLISH THAT THE FUNDS WERE TRANSFERRED TO ITS SISTER COMPANY FOR THE PURPOSE OF BUSINESS. THEREFORE, PROPORTIONATE INTEREST ON BORROWED FUNDS @ 12% WAS DISALLOWED BY THE AO. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: I.T.A. NO. 344 /HYD/1 7 KAMINENI HEALTH SERVICES PVT. LTD., HYD. 3 1. THE ORDER OF THE LEARNED CIT (APPEALS), IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE APPELLANT, IS AGAINST LAW, WEIGHT OF EVIDENCE AND PROBABILITIES OF THE CASE. 2. THE LEARNED CIT(APPEALS) GROSSLY ERRED IN DISALLOWING FINANCE COST @ 12% ON THE ADVANCE GIVEN TO UNITED STEEL ALLIED INDUSTRIES PVT LTD (USAIPL) OF RS 72,04,684/ - OVERLOOKING THE FACT THAT THAT THE APPELLANT HAD GIVEN THE MONEY TO USAIPL FOR CONSTRUCTION OF A SUPER SPECIALTY HOSPITAL IN VIJAYAWADA WITH AN INTENTION TO ACQUIRE SHARES IN THAT COMPANY. 3. THE LEA RNED CIT(APPEALS) FAILED TO APPRECIATE THAT THE ADVANCES GIVEN BY THE APPELLANT ARE USED FOR BUSINESS PURPOSE FOR CONSTRUCTION OF SUPER SPECIALTY HOSPITAL IN VIJAYAWADA AND SHARES WERE ALSO ALLOTTED BY THAT COMPANY AGAINST SUCH ADVANCES. 4. THE LEARNED C IT (APPEALS) OUGHT TO HAVE CONSIDERED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS V. CIT 288 ITR 1 (SC) AND ACIT VS. TULIP STAR HOTELS LTD. (2012) (SC), THE FACTS OF WHICH ARE SQUARELY APPLICABLE TO THE CASE OF APPELLANT. 5. WI THOUT PREJUDICE TO THE ABOVE GROUNDS, THE LEARNED CIT (APPEALS) GROSSLY ERRED IN DISALLOWING FINANCE COST @ 12% ON THE ADVANCE GIVEN TO UNITED STEEL ALLIED INDUSTRIES PVT LTD (USAIPL) OF RS 72,04,684/ - . 6. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR MODIFY THE ABOVE GROUND(S) OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING THE APPEAL. 4. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE FILED ADDITIONAL EVIDENCE ALONG WITH THE APPLICATION FOR ADMISSION OF THE SAME. THE ADDITIONAL EVIDENCE IS A COPY OF THE MOU BETWEEN THE ASSESSEE AND USAIPL AND ALSO COPIES OF MOU AND ARTICLES OF ASSOCIATION OF PARENT COMPANY. COPIES OF THE FINANCIAL STATEMENTS OF USAIPL ARE ALSO FILED BEFORE US. LD. DR, HOWEVER, OPPOSED THE ADMISSION OF THE ADDITIONAL EVIDENCE. 5. AFTER HEARING BOTH THE PARTIES, WE FIND THAT ASSESSEES CONTENTION HAS ALWAYS BEEN THAT IT HAS GIVEN THE ADVANCE FOR I.T.A. NO. 344 /HYD/1 7 KAMINENI HEALTH SERVICES PVT. LTD., HYD. 4 CONSTRUCTION OF A HOSPITAL AT VIJAYAWADA AND THAT IT WAS TO ACQUIRE EQUITY SHARES OF THE COMPANY TO MANAGE THE HOSPITAL AT VIJAYAWADA . HOWEVER, IT HAD NOT FILED THE RELEVANT DOCUMENTS EITHER BEFORE THE AO OR BEFORE THE CIT(A) AND HAVE NOW FILED THE S AME BEFORE US. ON PERUSAL OF MOU BETWEEN THE ASSESSEE AND USAIPL, WE FIND THAT THERE IS A CLAUSE THAT THE ASSESSEE SHALL ACQUIRE THE SHARES OF THE DEMERGED COMPANY. LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ASSESSEE COULD NOT ACQUIRE THE EQUITY SHARES I NITIALLY BECAUSE AT THAT POINT OF TIME THE DEMERGER OF THE SAID COMPANY HAS NOT YET TAKEN PLACE AND ON DEMERGER, ASSESSEE HAD ACQUIRED THE SHARES OF THE COMPANY, FOR WHICH, HE FILED COPIES OF THE DOCUMENTS SHOWING SHAREHOLDING OF THE KAMINENI HEALTH SERVIC ES PVT. LTD. HE, THEREFORE, PRAYED THAT ALL THESE DOCUMENTS BE CONSIDERED FOR ACCEPTING ASSESSEES CONTENTION THAT THE ADVANCE IS FOR BUSINESS PURPOSE S . WE FIND THAT THE DOCUMENTS FILED BEFORE US BY THE ASSESSEE, AS ADDITIONAL EVIDENCE, GO TO THE ROOT OF T HE MATTER AND IN THE INTEREST OF JUSTICE, WE ADMIT THE SAME AND REMIT THE ISSUE TO THE FILE OF THE AO FOR DE - NOVO CONSIDERATION. NEEDLESS TO SAY THAT THE ASSESSEE SHALL BE GIVEN FAIR OPPORTUNITY OF HEARING IN THE MATTER. 6. IN THE RESULT, APPEAL OF THE A SSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 3 RD JU LY , 2019. SD/ - ( S. RIFAUR RAHMAN) ACCOUNTANT MEMBER SD/ - ( (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 3 RD JU LY , 201 9. KV I.T.A. NO. 344 /HYD/1 7 KAMINENI HEALTH SERVICES PVT. LTD., HYD. 5 COPY FORWARDED TO: 1. KAMINENI HEALTH SERVICES PVT. LTD., NO. 10, KANCHAN JUNGA COMPLEX, KING KOTI, HYDEREABAD 500 001. 2 . DC IT, CIRCLE 2(1), HYDERABAD . 3 . CIT (A) - 2 , HYDERABAD 4. PR. CIT - 2 , HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE