The ITO, Ward-4(1), Ahmedabad V. Geotech Datamatics Pvt.Ltd., Ahmedabad

ITA 361/AHD/2012

• Counselvise Citation: 36120514 RSA 2012
• Duration Of Justice: 3 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-09-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 08-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Keywords: Commercial expediency
• Section: 143(3); 37; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD .. , ( .) , BEFORE SHRI G.D. AGARWAL,VICE PRESIDENT (AZ) AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ I.T.A. NO.361/AHD/2012 ( / ASSESSMENT YEAR : 2001-02) THE INCOME TAX OFFICER WARD-4(1) AHMEDABAD / VS. GEOTECH DATAMATICS PVT.LTD. G-51, NEW YORK TOWER-B, THALTEJ CROSS ROAD AHMEDABAD380 015 % & ./ ./ PAN/GIR NO. :AAACG 6998A ( %( / APPELLANT ) .. ( )*%( / RESPONDENT ) %( + / APPELLANT BY : SHRI DINESH SINGH, SR.DR )*%( , + / RESPONDENT BY : NONE -. , /& / DATE OF HEARING 14/09/2015 0123 , /& / DATE OF PRONOUNCEMENT 29/09/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-VIII, AHMEDA BAD [CIT(A) IN SHORT] DATED 18/11/2011 PERTAINING TO ASSESSMEN T YEAR (AY) 2001-02. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL:- ITA NO.361/AHD/ 2012 ITO VS. GEOTECH DATAMATICS PVT.LTD. ASST.YEAR 2001-02 - 2 - 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.16,40,553/- ON ACCOUNT OF DISALLOWAN CE OF INTEREST, WITHOUT APPRECIATING FACT THAT THE COMMERCIAL EXPED IENCY OF THE INTEREST FREE ADVANCES GIVEN TO THE SISTER CONCERNS IS NOT ESTABLISHED BY THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD.C IT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE REST ORED TO THE ABOVE EXTENT. 2. BRIEFLY STATED FACTS ARE THAT THIS IS SECOND ROU ND OF LITIGATION. IN THE EARLIER ROUND, THE TRIBUNAL WAS PLEASED TO REST ORE THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER (AO IN SHORT) FOR DEC ISION AFRESH IN THE LIGHT OF THE JUDGEMENT OF HONBLE SUPREME COURT RENDERED IN THE CASE OF S.A.BUILDERS LTD. VS. CIT (APPEALS) & ANR. REPORTED AT (2007)288 ITR 01 (SC). IN PURSUANCE TO THE DIRECTION OF THE TRIB UNAL, THE AO YET AGAIN MADE ADDITION OF RS.16,40,553/- ON ACCOUNT OF INTER EST. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS ALLOWED THE APPEAL. 3. THE LD.SR.DR SUBMITTED THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. HE SUBMITTED THAT THE AO HA S GIVEN FINDING THAT THE INTEREST-BEARING FUNDS WERE DIVERTED TO THE SIS TER-CONCERNS AS INTEREST- FREE LOANS AND HAD IT NOT BEEN DONE, THEN THE ASSES SEE WOULD NOT HAVE REQUIRED THE BANK LOANS ON WHICH HUGE INTEREST HAS BEEN PAID BY THE ASSESSEE. ITA NO.361/AHD/ 2012 ITO VS. GEOTECH DATAMATICS PVT.LTD. ASST.YEAR 2001-02 - 3 - 3.1. NONE APPEARED ON BEHALF OF THE RESPONDENT-ASSE SSEE. 4. WE HAVE HEARD THE LD.SR.DR AND PERUSED THE ORDER S OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) HAS DECIDED THE ISSUE IN PARAS-4 TO 4.4 OF HIS ORDER, BY OBSERVING AS UNDER: - 4. I HAVE CAREFULLY CONSIDERED THE FINDINGS OF TH E A.O, AND SUBMISSIONS OF THE APPELLANT. THE AO HAS DISALLOWED INTEREST OF R S.16,40,553 FOR NON- BUSINESS PURPOSES BY THE ORDER UNDER SEC. 143(3) DA TED 19-09-2003. THE CIT(A) ALLOWED THE RELIEF OF RS. 12,63,386 SINCE TH E BORROWING WAS UTILIZED FOR THE PURPOSE OF BUSINESS AND DISALLOWED INTEREST OF RS 3,77,167 ATTRIBUTABLE TO RS 22,63,000 TO GDPL. THE DEPARTMENT PREFERRED T HE APPEAL TO THE ITAT AND THE ASSESSEE HAS FILED CROSS OBJECTION. THE HON 'BLE ITAT SET-ASIDE THE ORDER TO THE AO WITH A DIRECTION TO CONSIDER THE SC DECISION IN CASE OF S.A. BUILDERS AND TO DECIDE AFRESH WITH A FINDING THAT;- 'FOR THE PURPOSE OF BUSINESS' INCLUDES EXPENDITURE VOLUNTARILY INCURRED FOR COMMERCIAL EXPEDIENCY, AND IT IS IMMAT ERIAL IF A THIRD PARTY ALSO BENEFITS THEREBY. THIS JUDGMENT WAS NOT AVAILABLE BEFORE THE AUTHORITIES BELOW WHEN THE ASSESSMENT WAS FRAMED IN THE CASE OF THE ASSESSEE. WE, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS (SUPRA), SET ASIDE THE ORDER OF THE AUTHORITIES BELOW AND RESTORE THIS ISSUE TO THE FILE OF THE A.O TO DECIDE IT FRESH IN ACCORDANCE WITH THE R ATIO LAID DOWN IN THE CASE OF S.A. BUILDERS (SUPRA) AFTER GIVING PROPER A ND REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE.' 4.1. THE AO HAS ONCE AGAIN DISALLOWED THE INTEREST OF RS. 16,40,553 FOR THE REASONS STATED IN THE ORIGINAL ASSESSMENT ORDER AND ON THE GROUND THAT NO EVIDENCES HAVE BEEN PRODUCED REGARDING COMMERCIAL E XPEDIENCY. THE SUPREME COURT IN THE CASE OF SA BUILDERS 288 ITR 1 HAS HELD THAT 'IN ORDER TO DECIDE WHETHER INTEREST ON FUNDS BORROWED BY THE AS SESSEE TO GIVE AN INTEREST FREE LOAN TO A SISTER CONCERN (E.G. A SUBSIDIARY OF THE ASSESSEE) SHOULD BE ALLOWED AS A DEDUCTION UNDER SECTION 36(1)(III) OF THE INCOME TAX ACT 1961, ONE HAS TO ENQUIRE WHETHER THE LOAN WAS GIVEN BY TH E ASSESSEE AS A MEASURE OF COMMERCIAL EXPEDIENCY. THE EXPRESSION' COMMERCIA L EXPEDIENCY' IS ONE OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS PRUDEN T BUSINESSMAN INCURS FOR ITA NO.361/AHD/ 2012 ITO VS. GEOTECH DATAMATICS PVT.LTD. ASST.YEAR 2001-02 - 4 - THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HA VE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS BU SINESS EXPENDITURE IF IT WAS INCURRED ON GROUND OF COMMERCIAL EXPEDIENCY. DEC ISIONS RELATING TO SECTION 37 WILL ALSO BE APPLICABLE TO SECTION 36(1)(III) BE CAUSE IN SECTION 37 ALSO THE EXPRESSION USED IS FOR THE PURPOSE OF THE BUSINESS. ' 4.2. I HAVE CAREFULLY CONSIDERED THE FINDINGS O F THE A.O, AND SUBMISSIONS OF THE APPELLANT AND THE ORDER OF THE SUPREME COURT IN THE CASE OF SA BUILDERS 288 ITR 1. THE AO HAS HELD THAT NO EVIDENCES ARE PR ODUCED ABOUT THE DEVELOPMENT OF SOFTWARE BY GDBPL. THE MANUAL PREPAR ED BY GDBPL IN RESPECT OF THE SOFTWARE WHICH WAS DEVELOPED BY GDBP L HAS BEEN PRODUCED BY THE ASSESSES. THE AO HELD THAT THE ASSESSEE HA S ALREADY INCURRED EXPENDITURE OF ABOUT RS. 54,00,000 IN DEVELOPMENT O F THE SOFTWARE. THEREFORE, HE DOUBTED THE ADVANCES TO SISTER CONCE RN. IN THIS CONNECTION, THE ASSESSEE COMPANY HAS STATED THAT IT HAS DEVELOPED T HE SOFTWARE ON ITS OWN AND THE EXPENDITURE INCURRED IS IN CONNECTION WITH THE SOFTWARE DEVELOPED BY THE COMPANY. 4.3. THE APPELLANT HAS FURTHER SUBMITTED THAT IT WA S NOT POSSIBLE TO DEVELOP THE SOFTWARE OF LAND INFORMATION SYSTEM AND CUSTOMIZATI ON OF ARC / INFO SOFTWARE AND THEREFORE, IT WAS OUTSOURCED AS PER MO U AND THE ADVANCE WAS GIVEN TOWARDS THE DEVELOPMENT OF SOFTWARE. IN THE S OFTWARE INDUSTRY, THE ADVANCE IS REQUIRED TO BE GIVEN SINCE THE COMPANY W HICH HAS TAKEN THE CONTRACT HAS TO INCUR EXPENDITURE ON SALARY AND OTH ER EXPENSES OF THE SOFTWARE AND THE ADVANCE TO GDPL IS FOR THE PURPOSE OF SOFTW ARE DEVELOPMENT AS PER AGREEMENT. THE APPELLANT HAS ALSO SHOWN THE LOAN UT ILIZATION STATEMENTS. 4.4. THE AO HAS ONCE AGAIN ADDED THE WHOLE AMOUNT I NCLUDING THE RELIEF OF RS. 12,63,386/- ORIGINALLY GIVEN BY THE CIT(A) IN M ECHANICAL MANNER WITHOUT APPRECIATING THE FACTS OF THE CASE AND THE DECISION OF THE SUPREME COURT IN THE CASE OF SA BUILDERS 288 ITR 1. SINCE THE ADVANCE WA S GIVEN FOR OUTSOURCING IS FOR COMMERCIAL EXPEDIENCY AND A/SO THAT THE ASSESSE E FULFILLS THE TEST LAID DOWN BY THE SC DECISION IN CASE OF SA BUILDERS 288 ITR 1. THE ASSESSEE IS FULLY COVERED BY SC DECISION IN CASE SA BUILDERS 28 8 ITR 1 AND THEREFORE, THE QUESTION OF DISALLOWANCE OF INTEREST DOES NOT ARISE . IN VIEW OF THE ABOVE DISCUSSION, ADDITION MADE BY AO OF RS.16,40,553/- I S DELETED AND ASSESSEE GETS THE RELIEF. ITA NO.361/AHD/ 2012 ITO VS. GEOTECH DATAMATICS PVT.LTD. ASST.YEAR 2001-02 - 5 - 4.1. THERE IS NO DISPUTE WITH REGARD TO THE FACT TH AT THE INTEREST-BEARING FUNDS HAVE NOT BEEN UTILIZED FOR THE PURPOSE OF GIV ING INTEREST-FREE LOANS TO THE SISTER-CONCERNS. THIS FINDING ON FACT IS NO T CONTROVERTED BY THE REVENUE BY PLACING ANY MATERIAL ON RECORD. THEREFO RE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CI T(A), SINCE THE LD.CIT(A) HAS GIVEN A FINDING THAT THE INTEREST-FRE E FUNDS WERE GIVEN TO THE SISTER-CONCERNS FOR THE PURPOSE OF COMMERCIAL EXPEDIENCY, THE SAME IS HEREBY UPHELD. THUS, GROUND NO.1 OF REVENUES A PPEAL IS REJECTED. 5. GROUND NOS.2 & 3 ARE GENERAL IN NATURE WHICH REQ UIRE NO INDEPENDENT ADJUDICATION. 6. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED . ORDER PRONOUNCED IN THE COURT ON TUESDAY, THE 29 TH DAY OF SEPTEMBER, 2015 AT AHMEDABAD. SD/- SD/- ( .. ) ( ) ( . ) ( G.D. AGARWAL ) ( KUL BHARAT ) VICE PRESIDENT (AZ) JUDICIAL MEMBER AHMEDABAD; DATED 29/ 09 /2015 6/..-, .-../ T.C. NAIR, SR. PS ITA NO.361/AHD/ 2012 ITO VS. GEOTECH DATAMATICS PVT.LTD. ASST.YEAR 2001-02 - 6 - !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. %( / THE APPELLANT 2. )*%( / THE RESPONDENT. 3. 789 : / CONCERNED CIT 4. : ( ) / THE CIT(A)-VIII, AHMEDABAD 5. ;< )-89 , / 893 , 7 / DR, ITAT, AHMEDABAD 6. <= >. / GUARD FILE. / BY ORDER, *; ) //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 14.9.2015 (DICTATION-PAD 4+ PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER ..23.9.2015 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.29.9.15 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 29.9.15 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER