M/s. Samtel Glass Limited, New Delhi V. ACIT, New Delhi

ITA 534/DEL/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6490 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 18-01-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 30-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHAVETA NAKRA DUTTA
• Keywords: Depreciation; Notional interest; Commercial expediency; Unabsorbed depreciation
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 534/DEL/2014 ASSESSMENT YEAR: 2009-10 M/S SAMTEL GLASS LIMITED, VS. ACIT, 501, COPIA CORPORATE SUITES, CIRCLE-7(1), DISTRICT CENTRE-JASOLA, C.R. BLDG., NEW DELHI 110 025 NEW DELHI (PAN: AAACS2730C) (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. D.C. GARG, CA DEPARTMENT BY : SMT. SHAVETA NAKRA DUTTA, SR. DR ORDER PER H.S. SIDHU, JM THE ASSESSEE HAS FILED THE APPEAL AGAINST THE IMPU GNED ORDER DATED 2.12.2013 OF LD. CIT(A)-X, NEW DELHI PERTAI NING TO ASSESSMENT YEAR 2009-10. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS:- 1. THAT THE LD. CIT(A), NEW DELHI, HAS ERRED IN LAW AS WELL AS ON FACTS AND IN CIRCUMSTANCES OF THE CASE I N UPHOLDING THE DISALLOWANCE OF RS. 1,60,95,995/- OUT OF INTEREST EXPENSES. 2. THAT THE LD. CIT(A), NEW DELHI HAS ERRED ON FACTS AND IN CIRCUMSTANCES OF CASE BY UPHOLDING THE DISALLOWANCE WITHOUT APPRECIATING THE COMPLETE FACT S. 3. THAT THE LD. CIT(A), NEW DELHI HAS ERRED IN LAW AS WELL AS ON FACTS AND IN CIRCUMSTANCES BY DISREGARDI NG THE VERDICTS OF HONBLE JURISDICTIONAL HIGH COURT. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR VARY F ROM THE AFORESAID GROUNDS OF APPEAL AT OR BEFORE THE TI ME OF HEARING. 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE RETUR N OF INCOME DECLARING INCOME OF RS. 4,91,90,884/- BEFORE SET OFF OF UNABS ORBED DEPRECIATION FOR AY 2002-03 AND NIL INCOME AFTER PARTIAL SET OFF OF UNABSORBED DEPRECIATION WAS FILED ON 29.9.2009 THROUGH E-FILI NG. THE CASE WAS PROCESSED U/S. 143 (1) OF THE I.T. ACT, 1961 AND SE LECTED FOR SCRUTINY ASSESSMENT THROUGH CASS. NOTICE UNDER SECTION 143( 2) OF THE I.T. ACT, 1961 WAS ISSUED ON 18.8.2010. THEREAFTER NOTICES U/ S. 142(1) OF THE I.T. ACT ALONGWITH THE DETAILED QUESTIONNAIRE WERE ISSUE D FROM TIME TO TIME. IN RESPONSE TO STATUTORY NOTICES, THE ASSISTANT MANAGE R (FINANCE) ATTENDED THE PROCEEDINGS FROM TIME TO TIME AND FILED THE DET AILS. AO OBSERVED THAT THE ASSESSEE COMPANY HAD BEEN GIVEN INTEREST FREE A DVANCE LOAN TO THE SUBSIDIARY COMPANY, M/S PALKA INVESTMENTS P. LTD.. THE AO OBSERVED THAT THE COMPANY HAD FINANCIAL EXPENSES OF RS. 13,0 1,71,430/- ON ACCOUNT OF INTEREST TO VARIOUS INSTITUTIONS. THE AO FURTH ER OBSERVED THAT THAT AN OPPORTUNITY WAS PROVIDED TO THE ASSESSEE TO EXPLAIN WHY THE INTEREST PAYMENTS MADE SHOULD NOT BE DISALLOWED IN VIEW OF T HE INTEREST FREE ADVANCES GIVEN TO A SISTER CONCERN. THE AO HAS CON SIDERED THE REPLY OF THE ASSESSEE AND HAS COME TO THE CONCLUSION THAT H E ASSESSEE WAS NOT ABLE TO SHOW THAT THE INTEREST FREE LOAN TO THE SUBSIDIA RY COMPANY HAD BEEN GIVEN OUT OF THE INTERNAL ACCRUAL AND THAT THE INTE REST BEARING FUNDS HAVE NOT BEEN USED FOR THIS PURPOSES. THE AO FURTHER OB SERVED THAT SINCE THE ASSESSEE IS BEARING INTEREST COST @14%, TO THE EXTE NT OF THE INTEREST FREE LOAN GIVEN TO THE SISTER CONCERN, THIS AMOUNT HAS T O BE DISALLOWED AND 3 ACCORDINGLY, AN AMOUNT OF RS. 1,60,95,995/- WAS DIS ALLOWED AND INCOME WAS ASSESSED AT RS. NIL VIDE ORDER DATED 19.12.2011 PASSED U/S. 143(3) OF THE ACT, 1961. 3. AGAINST THE AFORESAID ORDER OF THE AO, ASSESSEE APPEALED BEFORE THE LD. CIT(A), WHO VIDE HIS IMPUGNED ORDER DATED 02.12 .2013 HAS DISMISSED THE APPEAL OF THE ASSESSEE. 4. AGGRIEVED WITH THE AFORESAID ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING, LD. COUNSEL OF THE ASSES SEE HAS FILED THE WRITTEN SYNOPSIS, THE CONTENTS THEREOF READ AS UNDE R:- IT IS RESPECTFULLY SUBMITTED BEFORE HON'BLE BENCH THAT: 2. THE APPELLANT IS A PUBLIC LIMITED COMPANY ENGAGE D IN THE BUSINESS OF MANUFACTURE AND SALES OF GLASS SHELLS A ND FUNNELS USED IN COLOR TELEVISION PICTURE TUBES. THIS APPEAL IS P REFERRED AGAINST CONFIRMATION BY THE CIT(A) OF THE ADDITION AMOUNTI NG TO RS. 1,60,95,995/- MADE BY THE ASSESSING OFFICER AS NOTI ONAL INTEREST ON ACCOUNT OF INTEREST FREE LOAN GIVEN TO SUBSIDIARY. 3. BRIEFLY STATED, FACT OF THE CASE ARE THAT THE AS SESSEE COMPANY ADVANCED INTER CORPORATE DEPOSITS (ICD) TO M/S PALK A INVESTMENT PVT LTD. AND CHARGED AGREED INTEREST ON THE ICD. DE TAILS OF THE SAME ARE GIVEN AS UNDER: DATE AMOUNT RS. RATE OF INTT INTEREST AMT RS TD S RS 23.06.2008 7,48,00,000/- 14% 3,15,594 58,511 24.06.2008 5,96,00,000/- 14% 2,28,602 46,498 3. IT IS A MATTER OF FACT THAT DURING THE YEAR UNDE R CONSIDERATION, M/S PALKA INVESTMENT PVT. LTD. BECAME SUBSIDIARY OF THE APPELLANT COMPANY WHICH IS EVIDENT FROM THE FINANCIAL STATEME NT OF THE 4 APPELLANT (SCHEDULE - 5 'INVESTMENTS' AND COPY OF ' RESOLUTION' DATED 18-08-2008). 4. ON BECOMING OF ITS SUBSIDIARY ON 04-07-2008, FOR BUSINESS CONSIDERATIONS, THE APPELLANT COMPANY CONVERTED ITS EXISTING LOAN OF RS. 13,44,00,000/- TO INTEREST FREE LOAN AND GRANTE D FURTHER INTEREST FREE LOAN AMOUNTING TO RS. 3,15,00,000/- TO M/S PAL KA INVESTMENT PVT. LTD. 5. IT IS ALSO A MATTER OF FACT THAT THE L OANS GIVEN TO M/S PALKA INVESTMENT PVT LTD. WERE OUT OF INTERNAL ACCR UALS OF THE APPELLANT COMPANY AND IN ACCORDANCE WITH THE COMMER CIAL EXPEDIENCIES OF THE APPELLANT COMPANY. AS ON 31-03- 2009, NETWORTH (CAPITAL PLUS RESERVE) OF THE APPELLANT COMPANY WAS AMOUNTING TO RS 79.82 CRORES AS AGAINST THE ICD GRANTED TO SUBSI DIARY AMOUNTING TO RS. 16.59CRORES. 6. THE ASSESSING OFFICER AS WELL AS LD. CIT(A) DID NOT APPRECIATE THE FACT THAT THE APPELLANT IS MAINTAINI NG A BANK ACCOUNT WITH COMMON FUNDS IN WHICH ALL THE DEPOSITS AND WIT HDRAWALS WERE MADE. 7. THE LEARNED ASSESSING OFFICER CALCULATED NOTIONA L INTEREST ON PRESUMPTIONS WITHOUT ESTABLISHING ANY NEXUS BETWEEN THE FUNDS PROCURED AND GIVEN TO THE SUBSIDIARY COMPANY. 8. THERE IS NO FINDING IN THE ASSESSMENT ORDER THAT THE FUNDS HAVE BEEN USED FOR THE PERSONAL BENEFIT OF THE DIRE CTORS. 9. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE MAT TER OF CIT VS DALMIA CEMENT BHARAT LTD [ 330 ITR 595] HELD THA T 'IN THE ABSENCE OF ANYTHING TO SHOW THAT THE INTEREST-FREE LOAN GIVEN BY THE ASSESSEE COMPANY TO ITS SUBSIDIARY COMPANY WAS FOR PERSONAL BENEFIT OF ANY DIRECTOR OR FOR ANY OTHER PERSONAL R EASON, IT HAS TO BE HELD THAT THE LOAN WAS GIVEN FOR THE PURPOSE OF BUS INESS AND COMMERCIAL EXPEDIENCY AND, THEREFORE, NO PORTION OF THE INTEREST PAID BY THE ASSESSEE ON ITS BORROWED FUNDS CAN BE D ISALLOWED ON THE 5 GROUND THAT A PORTION THEREOF HAS BEEN DIVERTED TO THE SUBSIDIARY COMPANY.' COPY OF THE DECISION IS ENCLOSED HEREWITH AT PAGE NO. 45 -50. 10. IN ANOTHER CASE OF CIT VS BHARTI TELEVENTURE LT D. [331 ITR 502] HON'BLE JURISDICTIONAL HIGH COURT HELD THAT 'W HERE THE ASSESSEE WAS FOUND TO BE HAVING ADEQUATE NON-INTERE ST BEARING FUND BY WAY OF SHARE CAPITAL AND RESERVES AND THERE WAS NO NEXUS BETWEEN THE BORROWALS OF ASSESSEE AND THE ADVANCES GIVEN, NO DISALLOWANCE FOR INTEREST WAS CALLED FOR.' COPY OF THE DECISION IS ENCLOSED HEREWITH AT PAGE NO. 51 - 56. 11. THE LD. CIT(A) DISTINGUISHED ABOVE DECISIONS RE LIED BY THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF THE CASE PROPERLY. 12. ASSESSEE'S OWN CASE, IN THE NEXT ASSESSMENT YEA R I.E IN AY 2010-11, THE CIT(A) HAS DELETED THE SAME ADDITION V IDE ORDER DATED 17-02-2015. COPY OF THE ORDER IS ATTACHED HEREWITH AT PAGE NO. 29 - 34. 13. HON'BLE APEX COURT RECENTLY IN THE MATTER OF HE RO CYCLES PVT LTD VS CIT, LUDHIANA [CIVIL APPEAL NO. 514/2008 DEC ISION DELIVERED ON 05-11-2015] WHILE DEALING WITH THE TER M 'COMMERCIAL EXPEDIENCY' HELD THAT ONCE IT IS ESTABLISHED THAT T HERE IS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF BUSINESS , THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM-C HAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRE CTORS AND TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING RE GARD TO THE CIRCUMSTANCES OF THE CASE. COPY OF THE DECISION IS ATTACHED HEREWITH AT PAGE NO 36 - 44. 14. HON'BLE HON'BLE SUPREME COURT IN THE MATTER OF CIT, BOMBAY VS. WALCHAND AND CO. PRIVATE LTD (1967) 65 I TR 381 (SC) ITA NO 1249/2011 HELD THAT IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER AN EXPENDITURE W AS WHOLLY AND 6 EXCLUSIVELY FOR BUSINESS, THE EXPENDITURE HAS TO BE ADJUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT OF REV ENUE. IT IS HUMBLY PRAYED THAT NOTIONAL INTEREST MADE BY THE AO AND CONFIRMED BY THE CIT(A) MAY KINDLY BE DELETED. 6. ON THE CONTRARY, LD. DR RELIED UPON THE ORDERS O F THE AUTHORITIES BELOW. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORDS, ESPECIALLY THE IMPUGNED ORDER PASSED BY THE LD. CIT(A), WRITTE N SYNOPSIS. WE FIND THAT THE ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAG ED IN THE BUSINESS OF MANUFACTURE AND SALES OF GLASS SHELLS AND FUNNELS U SED IN COLOR TELEVISION PICTURE TUBES. THIS APPEAL IS PREFERRED AGAINST CON FIRMATION BY THE CIT(A) OF THE ADDITION AMOUNTING TO RS. 1,60,95,995/- MADE BY THE ASSESSING OFFICER AS NOTIONAL INTEREST ON ACCOUNT OF INTEREST FREE LOAN GIVEN TO SUBSIDIARY. WE NOTE THAT THE ASSESSEE COMPANY ADVA NCED INTER CORPORATE DEPOSITS (ICD) TO M/S PALKA INVESTMENT PVT LTD. AND CHARGED AGREED INTEREST ON THE ICD. DETAILS OF THE SAME ARE GIVEN AS UNDER: DATE AMOUNT RS. RATE OF INTT INTEREST AMT RS TD S RS 23.06.2008 7,48,00,000/- 14% 3,15,594 58,511 24.06.2008 5,96,00,000/- 14% 2,28,602 46,498 7.1 WE FURTHER NOTE THAT DURING THE YEAR UNDER CONS IDERATION, M/S PALKA INVESTMENT PVT. LTD. BECAME SUBSIDIARY OF THE ASSES SEE COMPANY WHICH IS EVIDENT FROM THE FINANCIAL STATEMENT OF THE APPELLA NT (SCHEDULE - 5 'INVESTMENTS' AND COPY OF 'RESOLUTION' DATED 18-08- 2008). ON BECOMING OF ITS SUBSIDIARY ON 04-07-2008, FOR BUSINESS CONSIDER ATIONS, THE ASSESSEE 7 COMPANY CONVERTED ITS EXISTING LOAN OF RS. 13,44,00 ,000/- TO INTEREST FREE LOAN AND GRANTED FURTHER INTEREST FREE LOAN AMOUNTI NG TO RS. 3,15,00,000/- TO M/S PALKA INVESTMENT PVT. LTD. THE LOANS GIVE N TO M/S PALKA INVESTMENT PVT LTD. WERE OUT OF INTERNAL ACCRUALS O F THE ASSESSEE COMPANY AND IN ACCORDANCE WITH THE COMMERCIAL EXPEDIENCIES OF THE ASSESSEE COMPANY. AS ON 31-03-2009, NETWORTH (CAPITAL PLUS R ESERVE) OF THE ASSESSEE COMPANY WAS AMOUNTING TO RS 79.82 CRORES A S AGAINST THE ICD GRANTED TO SUBSIDIARY AMOUNTING TO RS. 16.59CRORES. THE ASSESSING OFFICER AS WELL AS LD. CIT(A) DID NOT APPRECIATE THE FACT T HAT THE ASESSEE IS MAINTAINING A BANK ACCOUNT WITH COMMON FUNDS IN WHI CH ALL THE DEPOSITS AND WITHDRAWALS WERE MADE. WE OBSERVE THAT THE AS SESSING OFFICER CALCULATED NOTIONAL INTEREST ON PRESUMPTIONS WITHOU T ESTABLISHING ANY NEXUS BETWEEN THE FUNDS PROCURED AND GIVEN TO THE S UBSIDIARY COMPANY. THERE IS NO FINDING IN THE ASSESSMENT ORDER THAT TH E FUNDS HAVE BEEN USED FOR THE PERSONAL BENEFIT OF THE DIRECTORS. 7.2 WE FURTHER FIND THAT IN ASSESSEE'S OWN CASE, IN THE NEXT ASSESSMENT YEAR I.E IN AY 2010-11, THE CIT(A) HAS DELETED THE SAME ADDITION VIDE ORDER DATED 17-02-2015 BY HOLDING AS UNDER:- 4.2 I HAVE CONSIDER THE ASSESSMENT ORDER, WRITTEN SUBMISSION FILED BY THE LD. AR OF THE APPELLANT, I AGREE WITH THE ARGUMENT OF THE LD. AR OF THE APPELLANT. THE IN TEREST BEARING LOAN WAS CONVERTED INTO INTEREST FREE LOAN ON THE CONVERSION OF M/S PALKA INVESTMENT PVT. LTD. INTO A SUBSIDIARY OF THE APPELLANT COMPANY. LOAN GRANTED T O SUBSIDIARY COMPANY IS TO BE TREATED AS BUSINESS PUR POSES. HENCE I AM OF THE VIEW THAT THE LD. AO HAS WRONGLY TAKEN THE VIEW THAT INTEREST FREE ADVANCES WERE GRANTED TO TH E 8 SUBSIDIARY COMPANY FROM THE AMOUNT BORROWED ON INTE REST. HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DAL MIA CEMENT BHARAT LTD. 330 ITR 595 HELD THAT IN THE AB SENCE OF ANYTHING TO SHOW THAT THE INTEREST FREE LOAN GIVEN BY THE ASSESSEE COMPANY TO ITS SUBSIDIARY COMPANY WAS FOR PERSONAL BENEFIT OF ANY DIRECTOR OR FOR ANY OTHER PERSONAL R EASONS, IT HAS TO BE HELD THAT THE LOAN WAS GIVEN FOR THE PURP OSES OF BUSINESS AND COMMERCIAL EXPEDIENCY AND, THEREFORE, NO PORTION OF THE INTEREST PAID BY THE ASSESSEE ON ITS BORROWED FUNDS CAN BE DISALLOWED ON THE GROUND THAT A PART THEREOF HAS BEEN DIVERTED TO THE SUBSIDIARY COMPANY. RESP ECTFULLY FOLLOWING THE ABOVE CASE LAW, THE ADDITION MADE BY THE AO IS HEREBY DELETED. GROUND NO. 4 IS ALLOWED. 7.3 WE FURTHER NOTE THAT AGAIN IN ASSESSEE'S OWN CA SE, IN THE ASSESSMENT YEAR I.E IN AY 2012-13, THE CIT(A) HAS D ELETED THE SAME ADDITION VIDE ORDER DATED 20-07-2016 BY HOLDING AS UNDER:- 5. GROUND NO. 4 RELATES TO DISALLOWANCE OF INTERES T EXPENSES OF RS. 2,32,26,000/- MADE BY THE AO. I FIN D THAT THIS ISSUE HAS ALSO BEEN DECIDED BY THE THEN CIT(A)-8 IN THE APPELLANTS OWN CASE FOR THE AY 20 10- 11 IN THEIR FAVOUR. THEREFORE, FOR THIS YEAR ALSO, ON THE IDENTICAL FACTS, HIS ORDER IS FOLLOWED. 7.4 AFTER PERUSING THE AFORESAID DECISIONS OF THE L D. CIT(A) FOR THE ASSESSMENT YEAR 2010-11 AND 2012-13, WE ARE OF THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ARE EXACTLY SIMI LAR AND IDENTICAL TO THE ASSESSMENT YEARS 2010-11 & 2012-13, HENCE, THE ADDI TION IN DISPUTE NEEDS TO BE DELETED. WE ALSO FIND THAT HONBLE DELHI HI GH COURT IN THE CASE OF CIT VS. DALMIA CEMENT BHARAT LTD. 330 ITR 595 HAS H ELD THAT IN THE ABSENCE OF ANYTHING TO SHOW THAT THE INTEREST FREE LOAN GIVEN BY THE ASSESSEE COMPANY TO ITS SUBSIDIARY COMPANY WAS FOR PERSONAL BENEFIT OF ANY DIRECTOR OR FOR ANY OTHER PERSONAL REASONS, IT HAS TO BE HELD THAT THE 9 LOAN WAS GIVEN FOR THE PURPOSES OF BUSINESS AND COM MERCIAL EXPEDIENCY AND, THEREFORE, NO PORTION OF THE INTEREST PAID BY THE ASSESSEE ON ITS BORROWED FUNDS CAN BE DISALLOWED ON THE GROUND THAT A PART THEREOF HAS BEEN DIVERTED TO THE SUBSIDIARY COMPANY. 7.5 IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND RESPECTFULLY FOLLOWING THE PRECEDENTS, AS AFORESAID, THE ADDITIO N IN DISPUTE IS HEREBY DELETED AND ORDERS OF THE AUTHORITIES BELOW ARE CAN CELLED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 03/03/ 2017. SD/- SD/- (PRASHANT MAHARISHI) (H.S. SIDHU) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 03/03/2017 *SR BHATNAGAR* COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITATTRUE COPY BY ORDER, ASSISTANT REGISTRAR