DCIT CENT. CIR. 4(2), CENT. RANGE - 4, MUMBAI V. SHOPPERS STOP LTD., MUMBAI

ITA 5999/MUM/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0423 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 07-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Keywords: Wholly owned subsidiary

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL G B ENCH MUMBAI BEFORE SHRI PAWAN SINGH JUDICIAL MEMBER AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER ITA NO. 5999/MUM/2016 (ASSESSMENT YEAR 2012-13 ) DCIT CC-4(2) ROOM NO. 1918, 19 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI-400021. VS. M/S SHOPPERS STOP LTD. EUREKA TOWERS, B-WING, 9 TH FLOOR, MINDSPACE, LINK ROAD, MALAD (W), MUMBAI-400064 . PAN: AABCS4383A APPELLANT RESPONDE NT APPELLANT BY : SHRI CHAUDHARY ARUN KUMAR SINGH (DR) RESPONDENT BY : MS. AARTI SATHE (AR) DATE OF HEARING : 27.11.2018 DATE OF PRONOUNCEMEN T : 27.11.2018 ORDERUNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R OF LD. CIT(A)-52, MUMBAI DATED 11.07.2016 FOR ASSESSMENT YEARS 2012-1 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. 'WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD.CIT(A), WAS JUSTIFIED IN DIRECTING THE AO TO DEL ETE THE ADDITION OF RS. 2,86,37,549/- BEING INCOME U/S 5 OF THE IT ACT, 196 1 '. 2. 'WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A), WAS JUSTIFIED IN DIRECTING THE AO TO DELETE THE ADDITION OF RS.2,86,37,549/- ON THE BASIS OF THE RESOLUTION PAS SED BY THE BORROWER COMPANY ABOUT NON-PAYMENT OF INTEREST ON LOANS TAKE N BY IT.' ITA NO. 5999 MUM 2016-M/S SHOPPERS STOP LTD. 2 3. 'WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A), WAS RIGHT IN NOT TAKING INTO COGNIZANCE THE FACT THAT THE BORROWING COMPANY IS A 100% SUBSIDIARY OF THE ASSESSEE AND TH E DECISION TO NOT CHARGE INTEREST ON ICD WAS NOT A PRUDENT COMMERCIAL DECISI ON WHICH IS NOT AT ARMS LENGTH.' 4. 'WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A), WAS JUSTIFIED IN NOT FOLLOWING HIS PREDECES SOR'S DECISION AND DIRECTING THE AO TO DELETE THE ADDITION OF RS.2,86, 37,549/- BEING INCOME U/S 5 OF THE IT ACT WHEREAS THE PREDECESSOR OF THE LD.C IT(A) HAD CONFIRMED SUCH ADDITION IN THE ASSESSEE'S OWN CASE ON THE SAM E ISSUE FOR A.Y. 2009-10 AND 2010-11.' 2. AT THE OUTSET OF HEARING, THE LD. AUTHORIZED REPRES ENTATIVE (AR) OF THE ASSESSEE SUBMITS THAT THE GROUND OF APPEAL RAISED B Y REVENUE ARE COVERED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE BY TH E DECISION OF TRIBUNAL IN ASSESSMENT YEAR 2009-10 & 2010-11 IN ITA NO. 136 1/MUM/2013 FOR ASSESSMENT YEAR 2009-10 AND IN ITA NO. 3248/MUM/201 3 FOR ASSESSMENT YEAR 2010-11. 3. ON GOING THROUGH THE ORDER OF TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2009-10 & 2010-11, THE LD. AR OF TH E ASSESSEE RELIED ON THE ORDER OF ASSESSING OFFICER. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE NO TED THAT ON IDENTICAL GROUNDS OF APPEAL IN ASSESSMENT YEAR 2009-10 & 2020 -11 IN ITA NO. ITA NO. 5999 MUM 2016-M/S SHOPPERS STOP LTD. 3 1361/MUM/2012 AND IN ITA NO. 3248/MUM/2013 DATED 27 .12.2017, ON SIMILAR SET OF FACTS THE TRIBUNAL HAS PASSED THE FO LLOWING ORDER: 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE RELEVANT MATERIALS ON RECORD. WE FIND THAT IN THE AY 2009-10, THE ASSE SSEE-COMPANY HAD NOT CHARGED INTEREST ON INTER-CORPORATE DEPOSIT OF RS. 24,86,38,000/- GIVEN TO ITS SUBSIDIARY FOR A PERIOD OF THREE MONTHS. WE ALSO FIND THAT THE SHARE CAPITAL AND R SERVES AN D SURPLUS (OPENING BALANCE) IN AY 2009-10 WAS RS.296.70 CORES. IN THE AY 2010-11, THE AO FOUND THAT THE SUBSIDIARY COMPANY HAD REFUNDED PART OF THE LOAN AMOUNTING TO RS.1,87,71,1 00/- AND THE BALANCE AMOUNT RECEIVABLE FROM THE SUB DIARY AS ON 31.03.20 10 WAS RS.22,96,10,100/-. HOWEVER, WE FIND AT THE SHARE CA PITAL AND RESERVES AND SURPLUS (OPENING BALANCE) AY 2010-11 WAS RS.244.83 CRORES. WE OBSERVE THAT AS PER SECTION 36(1)(III), THE AMOU NT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSI NESS OR PROFESSION IS ALLOWED AS DEDUCTION. AS PER THE HON'BLE SUPREME CO URT IN CASE OF MADHAV PRASAD JATIA V. CIT (1979) 118 ITR 200 (SC), FOR CL AIMING DEDUCTIONS UNDER THIS SUB-CLAUSE, THE BASIC REQUIREMENTS ARE: (A) THE MONEY I.E. (CAPITAL) MUST HAVE BEEN BORROWE D BY THE ASSESSEE; (B) IT MUST HAVE BEEN BORROWED BY THE ASSESSEE FOR HIS BUSINESS, PROFESSION OR VOCATION; AND (C) THE ASSESSEE MUST HAVE PAID INTEREST ON THE AMO UNT AND CLAIMED IT AS AN ALLOWANCE. 20.1 IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA), THE HON'BLE BOMBAY HIGH COURT HELD: '10. IF THERE BE INTEREST-FREE FUNDS AVAILABLE TO A N ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSES SEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE F ROM THE INTEREST- FREE FUNDS AVAILABLE. IN OUR OPINION THE SUPREME CO URT IN EAST INDIA PHARMACEUTICAL WORKS LTD. (SUPRA) HAD THE OCCASION TO CONSIDER THE ITA NO. 5999 MUM 2016-M/S SHOPPERS STOP LTD. 4 DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. (SUPRA) WHERE A SIMILAR ISSUE HAD ARISEN. BEFORE TH E SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT I N ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO C LAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSI DERABLE FORCE, BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NO T BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WOO/COMBER'S CASE (SUPRA) THE CALCUTTA HIGH COURT H AD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITED IN THE OVE RDRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED T HAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO R AISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE THE HIGH COURT. THE PRINCIPLE THEREFORE WOUL D BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAF T AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOU LD BE OUT OF THE INTEREST-FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INV ESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FIN DING OF FACT BOTH BY THE C!T(A) AND TRIBUNAL.' 20.2 IN EXCEL INDUSTRIES LTD. 358 ITR 295 (SC), IT HAS BEEN HELD THAT TO RECOGNIZE INCOME, IT HAS TO PASS THROUGH THREE TEST S, NAMELY, (A) WHETHER THE INCOME ACCRUED TO THE ASSESSEE IS REAL OR HYPOTHETI CAL; (B) WHETHER THERE IS A CORRESPONDING LIABILITY OF THE OTHER PARTY TO PAY T HE AMOUNT; AND (C) PROBABILITY OR IMPROBABILITY OF REALIZATION TO BE C ONSIDERED FROM A REALISTIC AND PRACTICAL POINT OF VIEW. WE OBSERVE THAT GATEWAY HAS NEITHER PROVIDED FOR IN TEREST IN ITS BOOKS OF ACCOUNTS NOR PAID ANY INTEREST TILL DATE. THE OT HER CONDITION OF ITA NO. 5999 MUM 2016-M/S SHOPPERS STOP LTD. 5 IMPROBABILITY OF REALIZATION IS ALSO APPLICABLE HER E. WE HOLD THAT THE ADDITION CANNOT BE MADE EVEN U/S 5 OF THE ACT. 20.3 RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, WE DELETE THE ADDITION OF RS.83,91,532/- MADE BY THE AO IN AY 2009-10 AND RS. 3,22,04,906/- IN AY 2010-11. 5. CONSIDERING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE ON SIMILAR SET OF FACTS, WHEREIN THE SIMILAR ADDITION WAS DELE TED. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF TRIBUNAL, WE DO NOT FIND ANY ILLEGALITY OR INFIRMITY IN THE ORDER PASSED BY LD. CIT(A). 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT O N 27 /11/2018. SD/- SD/- N.K. PRADHAN PAWAN SINGH ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DATE: 27.11.2018 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR G BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI