ACIT, Meerut V. M/s. Shree Vasu Automobiles Ltd., Meerut

ITA 5312/DEL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65551 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 11-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 26-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR PRABHA KANT
• Assessee Lawyers: ASHWANI TANEJA
• Keywords: Proportionate interest; Commercial expediency

Judgement Text

ITA NO. 5312/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 5312/DEL/2010 A.Y. : 2007-08 ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, MEERUT VS. M/S SHREE VASU AUTOMOBILES LTD., C-1, SHATABDI NAGAR, MEERUT (PAN/GIR NO. : AAICS2245N) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSESSEE BY : SH. ASHWANI TANEJA, ADV. & SH. TARUN KUMAR, ADV. DEPARTMENT BY : DR. PRABHA KANT, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), MEERUT DA TED 20.8.2010 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE GROUNDS RAISED READ AS UNDER:- 1. CIT(A) ERRED IN LAW IN DELETING THE ADDITION O F RS. 16,96,425/- AS BEING PROPORTIONATE INTEREST DISALLO WED BY THE AO, ON A WRONG APPRECIATION OF FACTS AND WITHOUT ANY BASIS TREATING IT TO BE ALLOWABLE IN TE RMS OF COMMERCIAL EXIGENCIES WITHOUT GIVING A FINDING WHETHER THE EXPENSES HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE. ITA NO. 5312/DEL/2010 2 2. CIT (A) IGNORED THE FINDINGS TO THIS EFFECT BY T HE AO THAT THERE WAS NO SUCH COMMERCIAL EXIGENCY FOR WHICH INTEREST FREE LOAN BE GIVEN TO THE HOLDING COMPANY M /S J. SONS & CO., OUT OF THE INTT. BEARING LOAN RECEIV ED FROM FINANCIAL INSTITUTIONS. 3. CIT (A) ERRED IN DELETING THE AFORESAID ADDITION WITHOUT ANY BASIS SUBSTITUTING HIS OWN SATISFACTION IN PLAC E OF AD'S SATISFACTION BY HOLDING THAT THE ASSESSEE HAS SUFFICIENT NON INTT. BEARING FUND IN THE SHAPE OF S HARE CAPITAL, RESERVES AND OTHER SURPLUSES WHICH COULD B E ADVANCES AS INTEREST FREE LOAN TO ITS HOLDING COMPAN Y. CIT(A) HAS NOT POINTED OUT ANY FACTS WHICH COULD INDICATE THAT ONLY THESE SURPLUSES WERE GIVEN TO TH E HOLDING COMPANY. 4. THAT THE ORDER OF THE LD. CIT (APPEALS) BEING ERRONEOUS IN LAW AND ON FACTS BE VACATED AND THE ORDER OF THE A.O. BE RESTORED. 5. THAT THE APPELLANT CRAVES LEAVE TO AMEND ANYONE OR MORE OF THE GROUNDS OF THE APPEAL AS STATED ABOVE AS AND WHEN NEED FOR DURING SO MAY ARISE. 3. ASSESSEE COMPANY IN THIS CASE IS A AUTHORIZED PAS SENGER CAR DEALER OF M/S TATA MOTORS. ASSESSEE COMPANY IS A W HOLLY OWNED SUBSIDIARY COMPANY OF M/S J. SONS COMPANY LIMITED. I N THE ASSESSMENT ORDER THE ASSESSING OFFICER DISALLOWED THE INTEREST OF ` 1696425/- ON THE GROUND THAT ASSESSEE HAS INCURRE D INTEREST ON LOAN AND CLAIMED THE DEDUCTION WHEREAS INTEREST FREE FUNDS HAVE BEEN GIVEN TO HOLDING COMPANY M/S J. SONS ENGINEERING COR PN. LTD. ITA NO. 5312/DEL/2010 3 ASSESSING OFFICER WAS OF THE OPINION THAT ASSESSEE HAS FAILED TO PROVE THAT THE INTEREST DEBITED IN THE P&L ACCOUNT HAD B EEN INCURRED WHOLLY, NECESSARILY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS. ASSESSING OFFICER OPINED THAT ASSESSEE WAS NOT ENT ITLED TO DEDUCTION U/S. 36(1)(III) OF THE I.T. ACT IN RESPECT OF THE P ROPORTIONATE INTEREST ON BORROWED FUNDS TO THE EXTENT IT HAS BEEN ADVANCED TO ITS HOLDING COMPANY M/S J. SONS COMPANY LTD. AND THUS, THIS PROPO RTIONATE INTEREST, WHICH WORKS OUT AT ` 16,96,426/- WAS DISA LLOWED. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (A) CONSIDERED THE SUBMISSIONS. LD. COMMISSIONER OF INCO ME TAX (A) OBSERVED THAT ASSESSEE DERIVES A HOST OF BENEFITS FROM ITS HOLDING COMPANY WHICH INCLUDE CORPORATE GUARANTEE GIVEN BY T HE HOLDING COMPANY TO STATE BANK OF BIKANER AND JAIPUR AS WELL AS ICICI BANK TO SECURE CASH CREDIT LIMITS OF THE ASSESSEE WITHOUT CH ARGING ANY GUARANTEE FEE ON MORTGAGE OF IMMOVABLE PROPERTY OF THE HOLDING COMPANY AS SECURITY OF THE ABOVE MENTIONED CASH CREDI T LIMITS OF THE ASSESSEE. FURTHER THERE WAS PROVISION OF VACANT L AND OWNED BY THE HOLDING COMPANY WHICH WAS USED BY THE ASSESSEE FOR PARKING OF NEW VEHICLES OF THE ASSESSEE WITHOUT CHARGING ANY INTER EST AND PROVISION OF BUILDING TO BE USED AS SHOWROOM BY THE ASSESSEE AT A NOMINAL RENT. IT WAS FURTHER SUBMITTED THAT ASSESSEE DOES NOT OWN ANY IMMOVABLE PROPERTY IN MEERUT WHICH IT COULD USE AS STOCKYARD FOR ITS BUSINESS. THUS, LD. COMMISSIONER OF INCOME TAX (A) OPINED THAT PRACTICALLY THE BUSINESS OF THE ASSESSEE IS RUN BY THE SUPPORT AND FACILITIES PROVIDED BY THE HOLDING COMPANY. LD. COMMISSIONER OF INCOME TAX (A) FURTHER HELD THAT IT IS ESTABLISHED BEYOND DOUBT THAT MONEY LENT TO THE HOLDING COMPANY WAS A MEASURE OF COMMERCIAL EXPEDIENCY. I N SUCH VIEW OF THE MATTER, THE INTEREST COULD NOT BE DISALLOWED. LD. COMMISSIONER ITA NO. 5312/DEL/2010 4 OF INCOME TAX (A) FURTHER PLACED RELIANCE IN THIS RE GARD INTER-ALIA ON THE DECISION OF THE HONBLE APEX COURT DECISION IN THE CASE OF SA BUILDERS VS. C.I.T. 288 ITR 1. LD. COMMISSIONER OF INCOME TAX (A) OBSERVED THAT THE ABOVE CASE LAW IS SQUARELY APPLIED IN THE CASE OF THE ASSESSEE. FURTHER, LD. COMMISSIONER OF INCOME TAX (A ) ACCEPTED THE ASSESSEES CONTENTION THAT LOAN TO THE HOLDING COMPA NY WAS GIVEN OUT OF OWN FUNDS AND NOT OUT OF CAPITAL BORROWED FROM BA NK. HE OBSERVED THAT NON-INTEREST BEARING FUNDS, VIZ. SHARE CAPITAL , RESERVES AND SURPLUS WITH THE ASSESSEE AMOUNTED TO ` 1.74 CRORES WHILE TH E AVERAGE LENDING AMOUNTED TO ` 1.41 CRORES. HE HELD THAT ON THESE FACTS ALSO NO DISALLOWANCE OF INTEREST ON BORROWED FUNDS COULD B E MADE FOLLOWING THE JURISDICTIONAL HIGH COURT IN C.I.T. VS. PREM HEAV Y ENGINEERING WORKS PVT. LTD. (2006), 285 ITR 554 (ALL.) AND C.I. T. VS. RADICO KHAITAN LTD. (2005) 142 TAXMAN 681 (ALL.). 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 6. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT A SSESSING OFFICER HAS GIVEN A REASONABLE ORDER AND THE SAME SHOULD BE SUSTAINED. HE FURTHER CLAIMED THAT LD. COMMISSIONER OF INCOME TAX (A) HAS ACCEPTED THE FRESH ARGUMENTS / MATERIALS FRO M THE ASSESSEE WHICH WERE NOT BEFORE THE ASSESSING OFFICER. HENC E, LD. DEPARTMENTAL REPRESENTATIVE PLEADED THAT THE MATTER SHOULD BE R EMITTED TO THE FILE OF THE ASSESSING OFFICER TO ENABLE HIM TO GO THROU GH THE MATERIALS / ARGUMENTS MADE BY THE ASSESSEE, BEFORE THE LD. COMMI SSIONER OF INCOME TAX (A). LD. COUNSEL OF THE ASSESSEE ON T HE OTHER HAND SUBMITTED THAT NO SUCH GROUND HAS BEEN RAISED BY T HE REVENUE. HE FURTHER SUBMITTED THAT LOANS WERE COMING FROM THE EA RLIER YEAR AND THIS YEAR INFACT THERE IS SOME DECREASE, THE LOAN W AS GIVEN IN EARLIER ITA NO. 5312/DEL/2010 5 PERIOD AND NO INTEREST WAS DISALLOWED. HE FURTHE R SUBMITTED THAT COMMERCIAL EXPEDIENCY OF THE LOAN IS FULLY ESTABLI SHED IN THIS CASE AND HENCE, THERE SHOULD NOT BE ANY DISALLOWANCE OF INTEREST. HE FURTHER SUBMITTED THAT ASSESSEE HAS SUFFICIENT OWN F UNDS TO GRANT THE LOAN TO THE HOLDING COMPANY AND INTEREST BEARING FUN DS IN THIS CASE WERE NOT USED. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT IN THIS CASE ASSESSEE HAS G RANTED THE LOANS TO THE HOLDING COMPANY. THE ASSESSEE DERIVES A HOST O F BENEFITS FROM ITS HOLDING COMPANY WHICH INCLUDE CORPORATE GUARANTEE GI VEN BY THE HOLDING COMPANY TO THE BANKS TO SECURE CASH CREDIT L IMITS OF THE ASSESSEE WITHOUT CHARGING ANY GUARANTEE FEE ON MORTG AGE OF IMMOVABLE PROPERTY OF THE HOLDING COMPANY AS SECURITY OF THE ABOVE MENTIONED CASH CREDIT LIMITS OF THE ASSESSEE. FURTHE R WE NOTE THAT HOLDING COMPANY HAD PROVIDED THE VACANT LAND OWNED BY IT FOR PARKING OF NEW VEHICLES OF THE ASSESSEE WITHOUT CHARGING AN Y INTEREST AND PROVISION OF BUILDING TO BE USED AS SHOWROOM BY THE ASSESSEE AT A NOMINAL RENT. WE ALSO NOTE THAT ASSESSEE HAS SUB MITTED THAT ASSESSEE DOES NOT OWN ANY IMMOVABLE PROPERTY IN MEE RUT WHICH IT COULD USE AS STOCKYARD FOR ITS BUSINESS. CONSIDERIN G THE ABOVE, WE ARE OF THE OPINION THAT MONEY LENT BY THE HOLDING COMPANY WAS A MEASURE OF COMMERCIAL EXPEDIENCY. IN THIS REGARD RATIO FRO M THE HONBLE APEX COURT IN THE CASE OF SA BUILDERS VS. C.I.T. 288 IT R 1 IS APPLICABLE. IN ITA NO. 5312/DEL/2010 6 THIS CASE, IT WAS HELD THAT INTEREST ON BORROWED FU NDS CANNOT BE DISALLOWED, IF THE ASSESSEE HAS ADVANCED INTEREST F REE LOANS TO ITS SISTER CONCERNS AS A MEASURE OF COMMERCIAL EXPEDIENC Y. 7.1 WE FURTHER NOTE THAT ASSESSEE HAS GIVEN THE SUB MISSIONS WHICH HAVE BEEN ACCEPTED BY THE LD. COMMISSIONER OF INCOME TAX (A) THAT ASSESSEE HAS SUFFICIENT NON-INTEREST BEARING FUNDS TO ADVANCE THE LOAN TO THE HOLDING COMPANY. IN THIS REGARD, LD. COUNS EL OF THE ASSESSEE HAS RELIED ON THE CASE LAW FROM THE HONBLE ALLAHA BAD HIGH COURT IN THE CASE OF C.I.T. VS. PREM HEAVY ENGINEERING W ORKS (P) LTD. IN 285 ITR 554. IN THIS CASE IT WAS HELD THAT INTEREST PA ID BY THE ASSESSE ON BANK OVERDRAFT COULD NOT BE PARTLY DISALLOWED ON TH E GROUND THAT THE IT HAD MADE INTEREST-FREE ADVANCES TO ITS SISTER CONCE RN SINCE ASSESSEE HAD SUFFICIENT AMOUNT OF OWN FUNDS IN THE FORM OF SH ARE CAPITAL, RESERVES AND SURPLUS AND INTEREST-FREE BORROWINGS T O COVER THE INTEREST- FREE ADVANCES MADE BY IT. WE FIND THAT THE ABOVE CASE LAW IS ALSO APPLICABLE ON THE FACTS OF THE PRESENT CASE. IN THIS VIEW OF THE MATTER ALSO THE DISALLOWANCE OF INTEREST IS NOT JUSTIFIED. FURTHERMORE, WE FIND THAT THE LOAN IS COMING FROM EARLIER YEARS. FURTHERMORE, NO DISALLOWANCE WAS MADE IN E ARLIER PERIOD. SINCE THERE IS NO CHANGE IN THE FACTS OF THE CASE, DISALLOWANCE OF INTEREST IN THE PRESENT YEAR IS NOT JUSTIFIED. ITA NO. 5312/DEL/2010 7 8. IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS A ND PRECEDENTS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD . COMMISSIONER OF INCOME TAX (A). ACCORDINGLY, WE UPHOLD THE SAME. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/9/2012. SD/- SD/- [ [[ [I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 28/9/2012 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES