Deputy Commissioner of Income-tax, V. M/s. Viva Swaraj, Pune

ITA 37/PUN/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9126 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-03-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 08-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Proportionate interest; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 37 /P U N/20 1 6 / ASSESSMENT YEAR : 20 1 1 - 1 2 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 3, PUNE . / APPELLANT VS. M/S. VIVA SWARAJ, 94/24, BHIHARIDEEP, LANE NO.11, PRABHAT ROAD, PUNE - 411004 . / RESPONDENT PAN: AAGFV7141P / APPELLANT BY : SHRI AJAY MODI, JCIT / RESPONDENT BY : SHRI NIKHIL PATHAK / DATE OF HEARING : 0 7 . 0 3 .201 8 / DATE OF PRONOUNCEMENT: 21 . 0 3 .201 8 / ORDER PER SUSHMA CHOWLA, J M : TH E APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) - 3 , PUNE , DATED 30 .1 0 .201 5 RELATING TO ASSESSMENT YEAR 20 1 1 - 1 2 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT ) . 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE LD. CIT(A) ERRED IN ALLOWING INTEREST OF RS.40,85,833/ - ON INTEREST BEARING FUNDS GIVEN TO SISTER CONCERNS UTILIZED FOR NON - BUSINESS PURPOSE. ITA NO. 37 /P U N/20 1 6 M/S. VIVA SWARAJ 2 2. THE LD. CIT(A) ERRED IN ALLOWING INTERE ST OF RS.40,85,833/ - ON INTEREST BEARING FUNDS GIVEN TO SISTER CONCERNS WITHOUT ESTABLISHING ANY COMMERCIAL EXPEDIENCY. 3. THE APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN DELETING ADDITION MADE ON ACCOUNT OF INTEREST FREE ADVANCES MADE T O SISTER CONCERNS. 4. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD FURNISHED THE RETURN OF INCOME DECLARING TOTAL INCOME OF 2,00,71,201/ - . DURING THE COURSE OF SCRUTINY ASSESSMENT, ASSESSING OFFICER NOTED THAT T HE ASSESSEE HAD ADVANCED SUM OF 7,96,96,736/ - AS LOANS, OUT OF WHICH SIZEABLE AMOUNT WAS ADVANCED TO SISTER CONCERNS I.E. VIVA SWASTIK ASSOCIATES AN D VIVA SWASTIC CONSTRUCTIONS. THE ASSESSING OFFICER ALSO NOTED THAT THE ASSESSEE ALSO HAD TAKEN SECURED L OANS FROM BANK OF 18,06,76,086/ - , ON WHICH INTEREST OF 1,69,89,152/ - WAS CLAIMED. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY DISALLOWANCE OF PROPORTIONATE INTEREST UNDER SECTION 36(1)(III) OF THE ACT SHOULD NOT BE MADE. THE ASSESSING OFFICER REJECTI NG EXPLANATION OF ASSESSEE CONCLUDED THAT OUT OF TOTAL LOANS TAKEN OF 18.06 CRORES, SUM OF 4.34 CRORES WAS UTILIZED FOR NON - BUSINESS PURPOSES. THEREFORE, PROPORTIONATE INTEREST DEDUCTION AGAINST THE SAME WAS NOT ALLOWED AT 40,85,833/ - . 5. THE CIT(A ) AFTER ELABORATING UPON THE ISSUE OF AVAILABILITY OF FUNDS AND INTEREST BEING PAID ON PROJECT LOANS TAKEN FROM STATE BANK OF INDIA WHICH WAS UTILIZED FOR THE PURPOSE OF BUSINESS HELD THAT IT COULD NOT BE SAID THAT THE ASSESSEE HAD ADVANCED INTEREST FREE L OANS TO THE SISTER CONCERNS OUT OF INTEREST BEARING FUNDS. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS DELETED. 6. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A). ITA NO. 37 /P U N/20 1 6 M/S. VIVA SWARAJ 3 7. SHRI AJAY MODI APPEARED ON BEHALF OF REVENUE AND SHRI NIKHIL PATHAK APPEARE D ON BEHALF OF ASSESSEE AND PUT FORWARD THEIR CONTENTIONS. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES IN THE PRESENT APPEAL IS AGAINST DELETION OF DISALLOWANCE MADE UNDER SECTION 36(1)(III) OF THE ACT AT 40,85 ,833/ - . THE ASSESSEE HAD MADE INTEREST FREE ADVANCES TO ITS SISTER CONCERNS TOTALING 4.34 CRORES. THE ASSESSEE ON THE OTHER HAND, HAD RAISED LOANS FROM STATE BANK OF INDIA TO THE TUNE OF 15.39 CRORES, ON WHICH FINANCE COST OF 1,66,57,556/ - WAS INCU RRED. THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE ASSESSEE HAD UTILIZED INTEREST BEARING FUNDS FOR MAKING ADVANCES INTEREST FREE TO ITS SISTER CONCERNS, THEN THE PROPORTIONATE INTEREST AGAINST THE SAME IS TO BE DISALLOWED IN THE HANDS OF ASSESSEE . HOWEVER, THE CASE OF ASSESSEE IN THE FIRST INSTANCE, WAS THAT SECURED LOAN WHICH WAS TAKEN FROM STATE BANK OF INDIA WAS A PROJECT LOAN, WHICH WAS STRICTLY MONITORED WITH DUE DILIGENCE AND UNDER NO CIRCUMSTANCES, THE SAME COULD HAVE BEEN DIVERTED TO GIVE LOANS TO SISTER CONCERNS. THE INTEREST BURDEN ON THE ASSESSEE FOR THE YEAR WAS SOLELY ON ACCOUNT OF LOAN RAISED FROM STATE BANK OF INDIA AND HENCE, NO PART OF INTEREST EXPENDITURE COULD BE DISALLOWED. THE CIT(A) DELETED THE ADDITION IN THIS REGARD. 9 . ANOTHER LINKED ASPECT WHICH WAS NOTED BY THE CIT(A) WAS THAT ENTIRE LOAN WAS REPAID BY MARCH, 2013. THE CIT(A) ALSO NOTED THAT THE ASSESSEE HAD RAISED 2.67 CRORES WORTH OF UNSECURED LOANS FROM FOUR DIFFERENT PARTIES, ON WHICH THE ASSESSEE WAS NOT PAYING ANY INTEREST. FURTHER, THE ASSESSEE ALSO HAD AVAILABILITY OF INTEREST FREE FUNDS IN THE FORM OF BOOKING FUNDS RECEIVED FROM THE CUSTOMERS, WHO HAD BOO KED FLATS IN THE PROJECT UNDERTAKEN BY THE ITA NO. 37 /P U N/20 1 6 M/S. VIVA SWARAJ 4 ASSESSEE. THE FINDING OF CIT(A) IS THAT THE LOANS TO RELATED PARTIES WERE MADE OUT OF SAID INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE HAS FAILED TO C ONTROVERT THE ABOVE SAID FINDINGS OF CIT(A) AND IN THE ABSENCE OF THE SAME, WE FIND NO MERIT IN THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 10. BEFORE PARTING, WE MAY ALSO NOTICE THE OBSERVATIONS OF CIT(A) AS TO THE NECESSITY FOR MAKING ABOVE SAID ADVANC ES INTEREST FREE TO THE SISTER CONCERN. THE RELEVANT FINDINGS OF CIT(A) ARE IN PARA 4.4 WHICH READ AS UNDER: - 4.4 NOW THE SECOND QUESTION TO BE ADDRESSED ON THIS ISSUE AS TO WHAT WERE THE CIRCUMSTANCES UNDER WHICH SUCH LOAN WAS GIVEN TO THE SISTER CONC ERNS. I T MAY BE SEEN THAT THE ASSESSING OFFICER HAS ALSO QUOTED THE SUPREME COURT JUDGMENT IN THE CASE OF S A B UILDERS LTD. (2006) 206 CTR 063 1 ( SC), WHEREIN IT HAS BEEN HELD THAT FUNDS GIVEN TO SISTER CONCERNS AS A COMMERCIAL EXPEDIENCY THEN IT HAS TO BE EXAMINED WHAT WAS THE PURPOSE FOR WHICH THE ASSESSEE ADVANCED MONEY TO ITS SISTER CONCERN AND WHAT THE SISTER CONCERN DID WITH THIS MONEY. THE APPELLANT HAS SUBMITTED THE COPY OF ACCOUNTS OF BOTH THE SISTER CONCERNS IN ITS OWN BOOKS FOR A.YRS. 2010 - 11, 201 1 - 12 AND 2012 - 13. I T IS SEEN THAT THE APPELLANT HAS INTACT MADE PAYMENTS ON ACCOUNT OF ITS SISTER CONCERNS TO VARIOUS AGENCIES FOR E.G. EARTH MOVERS, TRANSPORTER, TO PUNE MUNICIPAL CORPORATION FOR FIRE NOC, FOR LAND, FOR LAND REGISTRATION, STEEL ETC. ALL T HESE PAYMENTS HAVE BEEN MADE BY CHEQUE AND ARE BACKED BY PROPER INVOICES. THE REASON FOR SUCH LOAN WAS GIVEN THAT BOTH THE SISTER CONCERNS TOGETHER HAD UNDERTAKEN PROJECTS UNDER THE BRAND NAME 'VIVA' IN AMBEGAON AREA. IT WAS EXPLAINED THAT THE APPELLANT 'V IVA SWARAJ' IS THE MAIN CONCERN OF THIS VIVA GROUP AND HAS A GOOD NAME AND STANDING IN THE REAL ESTATE AND CONSTRUCTION BUSINESS OF PUNE. THE APARTMENT / COMPLEX BEING CONSTRUCTED AT BAVDHAN WAS UNDER THE TUTELAGE OF VIVA SWARAJ WHICH IS THE FLAGSHIP OF TH E WHOLE GROUP. ON THE OTHER HAND THE TWO SISTER CONCERNS WHICH ALSO BEAR THE SAME GROUP BRAND NAME WERE CONSTRUCTING A COMPLEX IN AMBEGOAN AREA, WHICH WAS NOT DRAWING A GOOD RESPONSE. IT IS THE APPELLANT'S SUBMISSION THAT DURING THE YEAR UNDER CONSIDERATIO N ITS OWN FINANCIAL POSITION WAS HEALTHY WHILE THE SISTER CONCERNS WERE FAILING IN THEIR PROJECTS. THIS IS DEMONSTRATED BY THE FACT THAT DUE TO LACK OF BOOKINGS THE SISTER CONCERNS WERE NOT HAVING ENOUGH MONEY FOR MAKING PAYM ENTS TO TRANSPORTERS, EARTHMOVERS, REGISTRATION, STEE L, ETC. THE APPELLANT WAS REQUESTED TO STEP IN WITH INFLUX FOR SOME LOAN FOR PAYMENT OF THESE EXPENDITURES WITHOUT WHICH THE PROJECTS WOULD HAVE FAILED COMPLETELY, THEREFORE, THERE WAS DIRE NEED FOR THES E FUNDS TO BE INFUSED INTO THE SISTER CONCERNS. I T IS SEEN THAT THE SITUATION OF THE SISTER CONCERNS STARTED IMPROVING FROM JUNE 2011 AND THEREAFTER ON A REGULAR BASIS THE FUNDS WERE REFUNDED IN 2012. THE ENTIRE AMOUNT HAS BEEN REPAID BY VIVA SWASTIK ASSO CIATES. IN THE CASE OF VIVA SWASTIK CONSTRUCTION THE PROJECT WAS STALLED BECAUSE ENVIRONMENTAL CLEARANCE COULD NOT BE OBTAINED AND MONEY WAS ADVANCED FOR OBTAINING VARIOUS PROJECT APPROVALS AS THE PROJECT COULD NOT TAKEOFF AT THE DESIGNATED TIME, THE FUNDS HAVE NOT BEEN RETURNED AS YET, BUT IT IS THE APPELLANT'S CONTENTION THAT SUCH FUNDS WERE REQUIRED TO SUPPORT BUSINESS ITA NO. 37 /P U N/20 1 6 M/S. VIVA SWARAJ 5 ACTIVITIES OF THE SISTER CONCERN AND PROTECT THE BRAND NAME. IT APPEARS THAT THERE WAS COMMERCIAL EXPEDIENCY FOR THE LOAN AS HAS BEEN EXP LAINED BY THE APPELLANT AND, THEREFORE, RESPECTFULLY FOLLOWING THE HONBLE SUPREME COURT DECISION IN S A BUILDERS (SUPRA), THE APPELLANT IS ALLOWED RELIEF IN RESPECT OF THE DISALLOWANCE OF INTEREST OF RS.40,85,833/ - . ' 11. ANOTHER FACET OF ADVANCES MADE TO SISTER CONCERN IS THE BUSINESS NECESSITY AND IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN SA BUILDERS LTD. VS. CIT & ANR . (2006) 206 CTR 631 (SC), WE ARE IN CONFORMITY WITH THE FINDINGS OF CIT(A) AND CONFIRMING THE SAME, WE DISMISS THE G ROUNDS OF APPEAL RAISED BY THE REVENUE. 1 2 . IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 21 ST DAY OF MARCH , 201 8 . SD/ - SD/ - ( ANIL CHATURVEDI ) (SUSH MA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 21 ST MARCH , 201 8 . G G C C V V S S R R / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPE LLANT ; 2. / THE RESPONDENT; 3. ( ) / THE C I T (A) - 3 , PUNE ; 4. THE PR. C I T - 2 , PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE