The Deputy Commissioner of Income tax, Jalandhar city V. M/s. Bright Enterprises Pvt.Ltd, Jalandhar

ITA 414/ASR/2010

• Counselvise Citation: 41420914 RSA 2010
• Duration Of Justice: 1 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 06-08-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 05-10-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO. 414(ASR)/2010 ASSESSMENT YEAR:2005-06 PAN :AAACB6469K THE DY. COMMR. OF INCOME-TAX, VS. M/S. BRIGHT ENT ERPRISES PVT. LTD. CIRCLE-III, JALANDHAR. JALANDHAR. (APPELLANT) (RESPONDENT) I.T.A. NO. 416(ASR)/2010 ASSESSMENT YEAR:2005-06 PAN :AAACB6469K M/S. BRIGHT ENTERPRISES PVT LTD. VS. THE ASSTT. COM MR. OF INCOME-TAX, JALANDHAR. CIRCLE-III, JALANDHAR. (APPELLANT) (RESPONDENT) DEPARTMENT BY: SH. TARSEM LAL, DR ASSESSEE BY: SH. SUDHIR SEHGAL, ADV. DATE OF HEARING:06/08/2012 DATE OF PRONOUNCEMENT: ORDER PER BENCH ; THESE CROSS APPEALS OF THE ASSESSEE AND THE REVENU E ARISE FROM THE ORDER OF THE CIT(A), JALANDHAR, DATED 26.07.2010 FO R THE ASSESSMENT YEAR 2005-06. 2 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL: 1. THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FAC TS OF THE CASE IN DELETING AN ADDITION OF RS.1,31,24,332/- MADE BY TH E A.O. ON ACCOUNT OF DISALLOWANCE OF INTEREST PAID TO BANKS W HEREAS THE ASSESSEE HAD ADVANCED INTEREST FREE LOAN TO ITS SIS TER CONCERNS WITH WHOM IT HAD NO BUSINESS DEALINGS. 2. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE G ROUNDS OF APPEAL ON OR BEFORE THE APPEAL IS HEARD AND DISPOSE D OFF. 3. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL: 1. THAT THE LD. CIT(A) IS WRONG IN BOTH LAW AND FA CTS, HENCE LIABLE TO BE QUASHED. 2. THAT THE LD. CITA) HAS ERRED IN LAW AND FACTS OF THE CASE, IN SUSTAINING ADDITION OF RS.33,00,000/- ON ACCOUNT OF FEE PAID TO M/S. RAJINDER KUMAR ASSOCIATES AND TO M/S. INDIA IN TERIOR CONCEPT (P) LTD. 3. THAT THE UPHOLDING OF ADDITION WAS WRONGLY IN VI EW OF FACTUAL AND LEGAL POSITION OF THE CASE. 4. THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE THE POSITION REGARDING LOSSES OF EARLIER YEARS. 5. THAT THE OBSERVATION REGARDING VARIOUS DISALLOWA NCES ARE WRONG AND CONTRARY OF ACTUAL FACTS OF THE CASE. 4. IN THE APPEAL OF THE REVENUE, THE BRIEF FACTS AR E AS PER AOS ORDER IN PARA 5, WHICH FOR THE SAKE OF CLARITY, ARE REPRODUC ED AS UNDER: 5. FROM THE DETAILS OF SUNDRY ADVANCES, IT IS NOTI CED THAT THE ASSESSEE HAS GIVEN ADVANCE TO PARTIES (PROJECT ADVA NCE) AMOUNTING TO RS.14,08,25,185/-. FROM THE DETAILS OF THESE ADVANC ES, IT IS NOTICED THAT THE ASSESSE3E COMPANY HAS ADVANCED RS.10,29,17 ,301/- TO ITS FAMILY/SISTER CONCERN M/S. KOKLATTA HOTEL. THIS ADV ANCE DOES NOT APPEAR TO BE FOR BUSINESS PURPOSES AS THE ASSESSEE COMPANY HAS NO BUSINESS DEALING WITH THE COMPANY M/S. KOLKATTA HOT EL. NO INTEREST IS CHARGED FROM M/S. KOLKATTA HOTEL ON THIS HUGE ADVAN CE WHEREAS THE ASSESSEE HAS PAID INTEREST TO BANKS AMOUNTING TO RS .1,31,24,332/- ON LOANS TAKEN FROM VARIOUS BANKS. HAD THE ASSESSEE NO T ADVANCE SUCH A 3 HUGE AMOUNT TO ITS SISTER CONCERN WITHOUT CHARGING ANY INTEREST IT WOULD HAVE BEEN LEFT WITH SUFFICIENT FUNDS TO REFUN D THE BANK LOANS AND THE ASSESSEE WOULD NOT HAVE TO PAY INTEREST AMO UNTING TO RS.1,31,24,332/-. THE CASE OF THE ASSESSEE IS COVER ED BY THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT DECISION DAT ED 4.8.2006 IN THE CASE OF COMMISSIONER OF INCOME TAX-1, LUDHIANA VS. M/S. ABHISHEK INDUSTRIES, LUDHIANA, IN ITA NO.110 OF 200 5. 5. THE LD. CIT(A) VIDE PARA 3.5 AND 3.6 OF HIS ORDE R OBSERVED AND ALLOWED THE RELIEF TO THE ASSESSEE, WHICH FOR THE S AKE OF CLARITY IS REPRODUCED AS UNDER: I HAVE CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE AOS RELIANCE ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD 286 ITR 1 (P&H) DOES NOT AP PEAR TO REFLECT THE LATEST POSITION OF LAW ON THE ISSUE OF ADVANCE OF INTEREST FREE LOANS TO SISTER CONCERNS. IN A SUBSEQUENT JUDGMENT IN THE CASE OF S.A. BUILDERS LTD. 288 ITR 1 (SC), THE HONBLE APEX COUR T HAVE EXAMINED THE ISSUE OF DISALLOWANCE OF INTEREST ON ACCOUNT OF ADVANCE OF INTEREST FREE FUNDS TO SISTER CONCERNS. THE HONBLE APEX COU RT HAVE HELD IN THIS DECISION THAT THE ISSUE OF LENDING OF FUNDS TO THE SISTER CONCERN SHOULD HAVE BEEN EXAMINED FROM THE VIEW POINT AS TO WHETHER THIS WAS DONE AS A MEASURE OF COMMERCIAL EXPEDIENCY. I T WAS NOTED THAT THE EXPRESSION FOR THE PURPOSE OF BUSINESS INCLUD ED EXPENDITURE VOLUNTARILY INCURRED FOR COMMERCIAL EXPEDIENCY AND IT WAS IMMATERIAL IF A THIRD PARTY ALSO BENEFITED THEREBY. IT WAS HEL D THAT THE HIGH COURT AS WELL AS THE TRIBUNAL AND OTHER INCOME TAX AUTHOR ITIES SHOULD HAVE APPROACHED THE QUESTION OF ALLOWABILITY OF INTEREST ON THE BORROWED FUNDS FROM THIS ANGLE AND THEY SHOULD HAVE INQUIRED AS TO WHETHER THE INTEREST FREE LOAN WAS GIVEN TO THE SISTER COMPANY AS A MEASURE OF COMMERCIAL EXPEDIENCY AND IF IT WAS, IT SHOULD HAVE BEEN ALLOWED. THEY FURTHER HELD THAT THE EXPRESSION COMMERCIAL E XPEDIENCY WAS AN EXPRESSION OF WIDE IMPORT AND INCLUDED SUCH EXPE NDITURE AS A PRUDENT BUSINESSMAN INCURRED FOR THE PURPOSE OF BUS INESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LE GAL OBLIGATION, BUT IT WAS ALLOWABLE IF IT WAS INCURRED ON GROUND O F COMMERCIAL EXPEDIENCY. IT WAS HELD THAT THE HIGH COURT AND THE OTHER AUTHORITIES SHOULD HAVE EXAMINED THE PURPOSE FOR WHICH THE ASSE SSEE ADVANCE THE 4 MONEY TO ITS SISTER CONCERN, AND WHAT THE SISTER CO NCERN DID WITH THE MONEY IN ORDER TO DECIDE WHETHER IT WAS FOR COMMERC IAL EXPEDIENCY. THE HONBLE APEX COURT REMANDED THE MATTER TO THE T RIBUNAL FOR FRESH DECISION IN ACCORDANCE WITH LAW. THE HONBLE JURISDICTIONAL HIGH COURT HAVE ALSO, IN THEIR RECENT DECISION IN T HE CASE OF CIT VS. MARUDHAR CHEMICALS & PHARMACEUTICALS (P) LTD. 319 I TR 75, HELD THAT DISALLOWANCE OF INTEREST IN RESPECT OF INTERES T FREE ADVANCE TO SISTER CONCERN WAS NOT WARRANTED WHERE THE ADVANCE WAS GIVEN AS A MEASURE OF COMMERCIAL EXPEDIENCY. THEY HAVE HELD THAT IT WAS NOT RELEVANT AS TO WHETHER THE ASSESSEE HAD UTILIZED TH E BORROWED AMOUNT IN ITS OWN BUSINESS OR HAD ADVANCED THE SAME AS INT EREST FREE LOAN TO ITS SISTER CONCERN, BUT HELD THAT THERE SHOULD BE S OME NEXUS BETWEEN THE FUNDS AND PURPOSE OF BUSINESS. THE HONBLE HIGH COURT FOLLOWED THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF S.A. BUILDERS (SUPRA) WHILE REFERRING TO THE EARLIER DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE ABHISHEK INDU STRIES LTD. 285 ITR 1 (P&H). 3.6. IN THE PRESENT CASE THE APPELLANT HAS ADVANCED THE MONEY TO ITS SISTER CONCERN M/S. KOLKATTA HOTELS. A COPY OF THE BALANCE SHEET AND P & L A/C OF KOLKATTA HOTELS (P) LTD. FOR THE RELEVAN T PREVIOUS YEAR DOES NOT SHOW THAT THE FUNDS RECEIVED BY THAT COMPA NY WERE ADVANCED TO ANY PERSON FOR NON BUSINESS USE. THE FUNDS ADVAN CED BY THE ASSESSEE COMPANY HAVE, THUS, APPARENTLY BEEN USED F OR THE PURPOSE OF BUSINESS OF KOLKATTA HOTELS (P) LTD. THOUGH THIS P LEA HAS BEEN RAISED BY THE APPELLANT IN ITS SUBMISSION ALONG WITH COPY OF BALANCE SHEET OF KOLKATTA HOTESL LTD THE AO HAS NOT COMMENTED ADVERS ELY ON THE APPELLANTS CONTENTION THAT THE FUNDS WERE USED BY KOLKATTA HOTELS LTD. FOR THE PURPOSE OF ITS BUSINESS. THAT M/S. KOL KATTA HOTELS IS A SISTER CONCERN OF THE ASSESSEE COMPANY IS ACCEPTED BY THE A.O. THESE FACTS INDICATE THAT THE ASSESSEE COMPANY ADVANCED S OME MONEY TO ITS SISTER CONCERN WHICH WAS USED BY THE SISTER CONCERN FOR THE PURPOSE OF ITS BUSINESS. I AM, THEREFORE, OF THE OPINION THAT THE ADVANCE WAS GIVEN BY THE COMPANY TO M/S. KOLKATTA HOTELS LTD. FOR THE PURPOSE OF BUSINESS OF THAT COMPANY WHICH, BECAUSE OF THE FACT THAT THE OTHER COMPANY WAS A SISTER CONCERN IN THE SAME LINE OF BU SINESS, WAS ON ACCOUNT OF COMMERCIAL EXPEDIENCY. HENCE, RELYING ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF S.A. BUILDERS LTD . (SUPRA) AND ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT VS. MARUDHAR CHEMICAL AND PHARMACEUTICAL LTD. (SUPR A), I HOLD THAT 5 DISALLOWANCE OF INTEREST WAS NOT CALLED FOR IN THIS CASE. THE DISALLOWANCE OF RS.1,31,24,332/- IS, THEREFORE, DEL ETED. GROUND NO.3 OF APPEAL IS ALLOWED. 6. THE LD. DCIT(DR), SH. TARSEM LAL, ARGUED AT THE OUTSET WITH REGARD TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. 288 ITR 1 (SC), WHERE THE LD. CITA) HAS NOT IN TERPRETED AND HAD APPLIED THE SAID DECISION IN THE RIGHT SPIRIT. IN THE CASE OF S.A. BUILDERS LTD.(SUPRA), THE HONBLE SUPREME COURT HAS DECIDED THAT IN ORDER TO DECIDE WHETHER INTEREST ON FUNDS BORROWED BY THE ASSESSEE TO GIVE AN INTEREST FREE LOAN TO A SISTER CONCERN SHOULD BE ALLOWED AS DEDUC TION ONE HAS TO INQUIRE WHETHER THE LOAN WAS GIVEN BY THE ASSESSEE AS A MEA SURE OF COMMERCIAL EXPEDIENCY I.E. EXPENDITURE WHICH A PRUDENT BUSINE SSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE SAID EXPENDITURE MAY NOT H AVE INCURRED UNDER ANY OBLIGATION, BUT YET IT IS ALLOWABLE AS BUSINESS EXP ENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. THE AUTHORITY SHOULD EXAMINE THE PURPOSE FOR WHICH THE ASSESSEE ADVANCED THE MONEY A ND WHAT THE SISTER CONCERN DID WITH THE MONEY. WHAT IS RELEVANT IS WHE THER THE AMOUNT WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER THE AMOUNT WAS ADVANCED FOR EARNING P ROFITS. ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN T HE EXPENDITURE AND PURPOSE OF THE BUSINESS, THE REVENUE CANNOT JUSTIFIA BLE CLAIM TO PUT ITSELF IN 6 THE ARM-CHAIR OF THE BUSINESSMAN. NO BUSINESSMAN C AN BE COMPELLED TO MAXIMIZE HIS PROFITS. MR. TARSEM LAL, LD. DCIT(DR) FURTHER ARGUED THAT THAT THE ASSESSEE HAD ADVANCED RS.10,29,17,301/- TO M/S. KOLKATTA HOTEL, A SISTER CONCERN OF THE ASSESSEE. NO COMMERCIAL EXPED IENCY HAS BEEN EXPLAINED BY THE ASSESSEE EITHER BEFORE THE AO OR B EFORE THE LD. CIT(A). THEREFORE, IN THE FACTS AND CIRCUMSTANCES, THE DECI SION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT 288 ITR 1 (SC), CANNOT BE MADE APPLICABLE. 7. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE, SH. SUDHIR SEHGAL, RELIED UPON THE DECISION OF THE LD. CIT(A). 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE ARE CONVINCED WITH THE ARGUMENTS MADE BY THE LD. DCIT(DR) MR. TARSEM LAL THAT THE LD. CIT(A) HAS NOT TAKEN THE DE CISION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT 288 ITR 1 (SC), IN RIGHT SPIRIT. NO WHERE THE ASSESSEE HAS ESTABLISHED THE MEASURE OF COMMERCIAL EXPEDIENCY EITHER BEFORE THE AO OR BEFOR E THE LD. CIT(A) AND NOT EVEN BEFORE US. THERE IS NOTHING ON RECORD THA T THE MONEY SO ADVANCED BY THE ASSESSEE TO THE SISTER CONCERN HAD BEEN USED AS A MEASURE OF COMMERCIAL EXPEDIENCY. IN THE FACTS AND CIRCUMSTANC ES OF THE CASE, THE LD. CIT(A) HAS WRONGLY INTERPRETED AND RELIED UPON THE DECISION OF HONBLE 7 SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT (SUPRA), WHICH IN FACT GOES AGAINST THE ASSESSEE. IN THE FACTS AND CI RCUMSTANCES, THE ORDER OF THE LD. CIT(A) IS REVERSED AND THAT OF THE A.O. IS RESTORED. THUS, ALL THE GROUNDS OF THE REVENUE ARE ALLOWED. 9. AS REGARDS THE APPEAL OF THE ASSESSEE IN ITA NO. 416(ASR)/2010, THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUNDS NO. 1, 2, 3, & 5 AND THEREFORE, THE SAME ARE DISMISSED AS NOT PRESSED. 9.1. AS REGARDS GROUND NO.4 WITH REGARD TO THE POSI TION OF LOSSES OF EARLIER YEARS, THE LD. COUNSEL FOR THE ASSESSEE ARGUED THA T THE EARLIER LOSSES SHOULD BE ALLOWED AS PER LAW. 9.2. THE LD. DCIT(DR), MR. TARSEM LAL, ON THE OTHER HAND ARGUED THAT NOTHING HAS BEEN PLACED ON RECORD HOW THE SAID LOSS ES ARE ALLOWABLE AND THEREFORE, THIS GROUND OF THE ASSESSEE SHOULD BE DI SMISSED, AS RIGHTLY DONE BY THE LD. CIT(A) 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE ARE CONVINCED WITH THE ARGUMENT OF THE LD. DCIT( DR), MR. TARSEM LAL THAT NOTHING HAS BEEN PLACED ON RECORD BY THE ASSES SEE BEFORE ANY OF THE AUTHORITIES BELOW WITH REGARD TO EARLIER YEARS LOSS ES AND HOW THEY ARE ALLOWABLE UNDER LAW AND THEREFORE, THE LD. CIT(A) H AS RIGHTLY DISMISSED THE 8 GROUND OF THE ASSESSEE. THUS, WE DO NOT FIND ANY IN FIRMITY IN THE ORDER OF THE LD. CIT(A) AND GROUND NO.4 OF THE ASSESSEE IS DISMI SSED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.414(ASR)/2010 IS ALLOWED AND THE APPEAL OF THE ASSESSEE IN ITA NO.41 6(ASR)/2010 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 7TH AUGUST, 2012. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 7TH AUGUST, 2012 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. BRIGHT ENTERPRISES PVT. LTD. JALA NDHAR. 2. THE ACIT R-IV/DCIT CCI, JALANDHAR 3. THE CIT(A), JLR 4. THE CIT, JLR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.