Appeal Details
Counselvise Citation
[2015] 140 COUNSELVISE.COM (IT) 93615 (ITAT-PANAJI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 month(s) 10 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
27-07-2015
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
DB
Next Hearing Date
27-07-2015
Assessment Year
2011-2012
Appeal Filed On
16-02-2015
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI N.S. SAINI , HONBLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NO. 6 0 /PNJ/201 5 (ASST. YEAR : 20 11 - 1 2 ) DCIT, CIRCLE - 1(1), PANAJI. VS. M/S. V.S. DEMPO HOLDING PVT. LTD., DEMPO HOUSE, D.B. MARG , CAMPAL, PANAJI GOA. PAN NO. AAACE 4220 F (APPELLANT) (RESPONDENT) ASSESSEE BY : SMT. SHARMILA PRABHU C A DEPARTMENT BY : SHRI S. NATARAJ - D R DATE OF HEARING : 27 / 0 7 /2015 . DATE OF PRONOUNCEMENT : 27 / 0 7 /201 5 . O R D E R PER N.S. SAINI , ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) , PANAJI, DATED 21 / 11 /201 4 . 2. GROUND NOS. 1, 4 & 5 ARE GENERAL IN NATURE, HENCE, REQUIRES NO ADJUDICATION BY US. 3 . GROUND NO.2 OF THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DELETING THE ADDITION OF RS. 70,93,991/ - ON ACCOUNT OF FINANCE CHARGES/INTEREST ON BORROWED FUNDS WHICH THE ASSESSEE COULD NOT PROVE WITH EVIDENCE AT THE TIME OF ASSESSMENT THAT THE BORROWED FUNDS ARE WHOLLY EXCLUSIVELY USED FOR BUSINESS PURPOSE OR DIVERTED TO GIVE INTEREST FREE ADVANCE TO SISTER CONCERN. 2 ITA NO. 6 0 /PNJ/201 5 4 . BRIEF FACTS OF THE CASE ARE T HAT THE ASSESSEE COMPANY CLAIMED FINANCE CHARGES/INTEREST OF RS. 70,93,991/ - ON BORROWED FUNDS. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COMPANY HAS GIVEN HUGE INTEREST FREE ADVANCES TO THE SISTER CONCERNS. ACCORDING TO THE ASSESSING OFFICER , THE ASSESSEE COMPANY HAS NOT PROVED WHETHER THE BORROWED FUNDS ARE WHOLLY AND EXCLUSIVELY USED FOR BUSINESS PURPOSE OR DIVERTED TO GIVING OF INTEREST FREE ADVANCES TO SISTER CONCERNS. THEREFORE, THE ENTIRE INTEREST OF RS. 70,93,991/ - WAS DISALLOWED BY T HE ASSESSING OFFICER . 5. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE ASSESSING OFFICER HAS MADE DISALLOWANCE ONLY BECAUSE THE INTEREST FREE LOANS HAVE BEEN ADVANCED TO SISTER CONCERNS WITHOUT MAKING ANY EFFORTS TO FIND WHETHER THE LOANS GIVEN ARE OUT OF INTEREST BEARING LOAN FUNDS OR ASSESSEES OWN FUNDS. THE ASSESSEE HAS SUBMITTED THAT IT I S ONLY INTEREST BEARING LOANS WERE TAKEN FOR SPECIFIC PURPOSE OF PUR CHASING DEBENTURES OF ETHL VODAFONE AND LOANS WERE ADVANCED TO SISTER CONCERNS OUT OF ITS OWN FREE RESERVES . THEREFORE, COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 6 . THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER. 7 . THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). SHE ALSO FILED BEFORE US A COPY OF LETTER DATED 05/02/2010 FROM DEUTSCHE BANK CONFIRMING THE LOAN ADVANCE TO THE ASSESSEE OF RS. 9,80,13,000/ - FOR PURCHASING DEBENTURES . 8 . WE FIND FROM THE AFORESAID LETTER THAT THE ASSESSEE PURCHASED NON - CONVERTIBLE DEBENTURES OF ETHL COMMUNICATIONS SERIES - A ON 11/02/2010 BEING 171 NUMBER OF UNITS OF FACE VALUE OF RS. 10,00,000/ - 3 ITA NO. 6 0 /PNJ/201 5 AND DEAL VALUE OF RS. 15,09,93,000/ - . THUS, IT IS SEEN THAT THE COMMISSIONER OF INCOME TAX (APPEALS) AFTER VERIFYING THIS LETTER HAS ARRIVED AT A CONCLUSION THAT THE AMOUNT BORROWED WAS FOR PURCHA SE OF DEBENTURES AND NOT FOR ANY OTHER PURPOSE BY THE ASSESSEE. FURTHER NO EVIDENCE WAS BROUGHT ON RECORD BY THE REVENUE TO SHOW THAT THE ASSESSEE HAS ADVANCED INTEREST BEARING FUNDS TO ITS SUBSIDIARIES AS INTEREST FREE ADVANCE. IN ABSENCE OF SUCH EVIDEN CE BEING BROUGHT ON RECORD, WE DO NOT FIND ANY GOOD AND JUSTIFIABLE REASON TO INTERFERE WITH THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) WHICH IS HEREBY CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 9. GROUND NO.3 OF THE APPEAL IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) DELETING THE ADDITION OF RS. 15 , 37 , 40 , 627 / - MADE ON ACCOUNT OF INTEREST FREE LOANS ADVANCED TO THE SISTER CONCERNS. 10 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS ADVANCED INTEREST FREE LOANS OF RS. 1,32,31,09,867/ - TO ITS SUBSIDIARIES AND NO INTEREST IS CHARGED ON THESE LOANS. THEREFORE, THE ASSESSING OFFICER ADDED RS.15,37,40,627/ - AS INTEREST INCO ME WHICH THE ASSESSEE WOULD HAVE EARNED ON INTEREST FREE ADVANCES GIVEN TO ITS SUBSIDIARIES AT THE MARKET RATE OF INTEREST AT 12%. 11 . ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE ADDITION BY OBSERVING AS UNDER: - I HAVE GONE THROUGH THE ASSESSMENT ORDER AND THE SUBMISSION OF THE APPELLANT. IN THE ASSESSMENT ORDER, THE A.O. OBSERVED THAT THE ASSESSEE ADVANCED INTEREST FREE LOANS OF ABOUT RS. 132,31,09,867/ - TO ITS SUBSIDIARIES. HE FELT THAT EVEN IF THIS AMOUNT WAS DEPOSITED IN BANKS, THE ASSESSEE WOULD HAVE EARNED INTEREST AMOUNTING TO RS.15,37,40,627/ - @ 12% PER ANNUM. THE A.O. CONCLUDED THAT THE ASSESSEE HAD ADVANCED THIS LOAN TO ITS SUBSIDIARIES, FREE OF INTEREST, BECAUSE IT WAN TED TO SAVE TAXES ON 4 ITA NO. 6 0 /PNJ/201 5 THE INCOME THAT WOULD HAVE ARISEN. THE A.O. MADE ADDITION OF NOTIONAL INCOME, WHICH NEVER AROSE OR ACCRUED TO THE ASSESSEE. TO SUPPORT HIS CONCLUSION, THE A.O. PLACED RELIANCE ON THE DECISION OF HON. APEX COURT IN THE CASE OF JAISWAL (SP) VS. CIT, REPORTED IN 224 ITR 619 (1997). IN THE ABOVE M ENTIONED CASE, THE FATHER GAVE INTEREST FREE LOANS TO HIS MAJOR CHILDREN, WHO EARNED INTEREST INCOME ON THE SAME. THE HON. APEX COURT HELD THAT THE INTEREST INCOME WAS TAXABLE IN THE HANDS OF THE FATHER. I FIND THE FACTS OF THE INSTANT CASE COMPLETELY DIFF ERENT THAN THE ONE RELIED UPON BY THE A.O. THE APPELLANT IS A HOLDING COMPANY AND HAS MAJOR STAKES IN ITS SUBSIDIARIES. THE SOURCES OF SUBSIDIARIES, INCOME ARE NOT INTEREST. THE APPELLANT COMPANY HAS ITS OWN RESERVES IN EXCESS OF 1000 CRORES. GIVING LOANS TO ITS SUBSIDIARIES IS ITS BUSINESS REQUIREMENT. THE APPELLANT PLACED RELIANCE ON THE DECISION OF HON. BOMBAY HIGH COURT IN THE CASE OF CIT - 7 VS. RELIANCE COMMUNICATIONS IN APPEAL NO.3 155 OF 2009 AND DELIVERED ON 28.03.2012. IN THIS CASE, THE HON. HIGH C OURT OF BOMBAY RELIED ON THE DECISION OF HON SUPREME COURT IN THE CASE OF S.A. BUILDERS IN CIVIL APPEAL NOS. 5811 & 5812 OF 2006, REPORTED IN (007) 288 ITR 1 (SC). IN THE CASE OF RELIAN C E COMMUNICATIONS, THE HON. HIGH COURT DECIDED WITH FOLLOWING CONCLUDIN G PARA. NOW, HAVING REGARD TO THIS FACTUAL BACKGROUND, BOTH THE CIT(A) AND THE TRIBUNAL HELD THAT THE INVESTMENTS MADE IN THE WHOLLY OWNED SUBSIDIARY AND THE MONEY ADVANCED TO RIL WERE FOR FURTHERING THE BUSINESS OF THE ASSESSEE. THE F IN DINGS OF BOTH THE CIT(A) AND OF THE TRIBUNAL ARE CONSISTENT WITH THE JUDGMENT OF THE SUPREME COURT IN S. A. BUILDERS. WHERE THE ASSESSEE, AS IN THE PRESENT CASE, HAS SIGNIFICANT INTEREST IN THE BUSINESS OF THE SUBSIDIARY AND UTILIZES EVEN BORROWED MONEY FOR FURTHERING ITS BUSINESS CONNECTION, THERE IS NO REASON OR JUSTIFICATION TO MAKE A DISALLOWANCE IN RESPECT OF THE DEDUCTION WHICH IS OTHERWISE AVAILABLE UNDER SECTION 36(1)(III). COUNSEL APPEARING ON BEHALF OF THE REVENUE SUBMITS THAT THERE IS A DISTIN C TION BETWEEN AN ADV ANCE, WHICH IS A PAYMENT HANDED OVER TO SOMEONE AS A LOAN AND AN VBC 14/15 ITXA 3155.09 - 28.3 INVESTMENT WHICH IS MONEY PLACED INTO FINANCIAL SCHEMES, SHARES OR PROPERTY WITH THE EXPECTATION OF MAKING A PROFIT. 4 WE ARE UNABLE TO ACCEPT THAT SUCH A DISTINCT ION WILL HAVE ANY LEGAL CONSEQUENCE IN SO FAR AS THE ENTITLEMENT OF THE ASSESSEE TO CLAIM A DEDUCTION UNDER SECTION 36(1)(III) IS CONCERNED. IN THE PRESENT CASE, WHEN THE ASSESSEE ADVANCED AN AMOUNT TO RIL THAT WAS WITH A VIEW TO FURTHERING THE BUSINESS OF THE ASSESSEE. RIL IN TURN WAS TO EXECUTE COUNTER GUARANTEES IN FAVOUR OF FINANCIAL INSTITUTION FOR THE BENEFIT OF THE DISCHARGE OF THE EPCG OBLIGATIONS BY THE ASSES SEE. THAT WAS A SECURITY FOR THE GUARANTEES WHICH THOSE INSTITUTIONS WERE REQUIRED TO EXEC UTE UNDER THE EPCG SCHEME. THE FUNDS WHICH WERE INVESTED IN THE WHOLLY OWNED SUBSIDIARY WERE AGAIN FOR THE 5 ITA NO. 6 0 /PNJ/201 5 PURPOSES OF THE BUSINESS OF THE ASSESSEE. THERE IS EVIDENTLY A SIGNIFICANT INTEREST OF THE ASSESSEE IN THE BUSINESS OF ITS SUBSIDIARY SINCE BOTH THE ASSESSEE AND THE SUBSIDIARY ARE ENGAGED IN PROVIDING TELECOMMUNICATION SERVICES. CONSEQUENTLY, WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER OF THE TRIBUNAL. THERE IS A FINDING OF FACT THAT INTEREST FREE FUNDS BORROWED ARE NOT UTILIZED FOR THE PURPOSES O F BOTH THE TRANSACTIONS. BUT QUITE APART FROM THAT, THE FINDING IS 4 COMPACT OXFORD REFERENCE DICTIONARY PAGES 11 AND 436. VBC 15/15 ITXA 3155.09 - 28.3 THAT THE FUNDS WERE DEPLOYED AS A MATTER OF COMMERCIAL EXPEDIENCY AND TO FURTHER THE BUSINESS OF THE ASSE SSEE. THE LATTER FINDING IS INDEPENDENT OF WHETHER BORROWED FUNDS WERE OR WERE NOT UTILIZED, FOR IN VIEW OF THE JUDGMENT OF THE SUPREME COURT HELD, THE FACT THAT BORROWED FUNDS WERE UTILIZED FOR MAKING INVESTMENTS OR, AS THE CASE MAY BE, FOR MAKING ADVANCE S WOULD NOT DISENTITLE THE ASSESSEE TO THE DEDUCTION SO LONG AS BUSINESS EXPEDIENCY EXISTS. THUS, THE HON. SUPREME COURT AND HON. BOMBAY HIGH COURT DECIDED THAT EVEN IF INTEREST FREE BORROWED FUNDS ARE ADVANCED AS INTEREST FREE LOANS TO ITS SUBSIDIARIE S FOR BUSINESS EXPEDIENCY, THE INTEREST CANNOT BE DISALLOWED. IN THE INSTANT CASE, BUSINESS EXPEDIENCY EXISTS AND INTEREST FREE OWN FUNDS HAVE BEEN ADVANCED. NO INTEREST EXPENSES HAVE BEEN CLAIMED BY THE ASSESSEE ON THIS ACCOUNT. ADDITION MADE BY THE A.O. CANNOT BE SUSTAINED AND THE ADDITION OF INTEREST, ON NOTIONAL BASIS, AMOUNTING TO RS.15,37,40,627/ - IS HEREBY DELETED. 12 THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER . 13 THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 14 WE FIND THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS OBSERVED THAT THE ASSESSEE HAD GIVEN INTEREST FREE ADVANCES TO ITS SUBSIDIARIES IN ITS BUSINESS REQUIREMENTS. HE PLACED RELIANCE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT - 7 VS. RELIANCE COMMUNICATIONS IN APPEAL NO. 3155/2009 DATED 28/03/2012 AND HAS HELD THAT WHERE INTEREST FREE BORROWED FUNDS ARE ADVANCED AS INTEREST FREE LOANS TO ITS SUBSIDIARIES FOR BUSINESS EXPEDIENCY, THE INTEREST CANNOT BE DISALLOWED. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT IN THE CASE OF THE ASSESSEE, BUSINESS EXPEDIENCY EXISTS AND 6 ITA NO. 6 0 /PNJ/201 5 IN TEREST FREE OWN FUNDS HAVE BEEN ADVANCED . N O INTEREST EXPENSES HAVE BEEN CLAIMED BY THE ASSESSEE ON THIS ACCOUNT . THEREFORE, HE DELETED THE NOTIONAL INTEREST OF RS. 15,37,40,627/ - . THE HONBLE GAUHATI HIGH COURT IN THE CASE OF HIGHWAYS CONSTRUCTION CO. PVT. LTD. VS. CIT REPORTED IN 199 ITR 702 (GAU.) HELD AS UNDER: - II) THAT THERE WAS NO FINDING OF FACT TO THE EFFECT THAT ACTUALLY THE LOAN HAD BEEN GRANTED TO THE MANAGING DIRECTOR OR ANY OTHER PERSON ON INTEREST, OR THAT INTEREST HAD ACTUALLY BEEN COLLECTED BUT THE COLLECTION OF THE INTEREST WAS NOT REFLECTED IN THE ACCOUNTS. THE FINDING OF THE INCOME - TAX OFFICER WAS THAT THE ASSESSEE OUGHT TO HAVE COLLECTED INTEREST. IF THE ASSESSEE HAD NOT BARGAINED FOR INTEREST, OR HAD NOT COLLECTED INTEREST, THE INCOME - TAX AUTHORITIES COULD NOT FIX A NOTIONAL INTEREST AS DUE, OR AS COLLECTED BY THE ASSESSEE. THERE WAS NO PROVISION IN THE INCOME - TAX ACT EMPOWERING THE INCOME - TAX AUTHORITIES TO INCLUDE IN THE INCOME INTEREST WHICH WAS NOT DUE OR NOT COLLECTED. THE ADDITION OF AMOUNTS AS NOTIONAL INTEREST WAS NOT JUSTIFIED. 15 A READING OF THE ABOVE ORDER OF THE HON'BLE GAUHATI HIGH COURT SHOWS THAT UNDER THE INCOME TAX ACT, ONLY A REAL INCOME EARNED BY THE ASSESSEE CAN BE BROUGHT TO TAX AND NOT ANY NOTIONAL INCOME . ON THIS COUNT ALSO, THE ADDITION DELETED BY THE COMMISSIONER OF INCOME TAX (APPEALS) FINDS SUPPORT FROM THE ORDER OF THE HON'BLE GAUHATI HIGH COURT. 16. THEREFORE, IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) WHICH IS HEREBY CONFIRMED AND THE GR O UND OF APPEAL OF THE REVENUE IS DISMISSED. 1 7 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF THE HEARING ON MONDAY , THE 27 TH DAY OF JULY , 201 5 AT GOA . S D / - S D / - (GEORGE MATHAN) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 27 TH JU LY , 201 5 . 7 ITA NO. 6 0 /PNJ/201 5 VR/ - COPY TO: 1 . THE ASSESSEE. 2 . THE REVENUE. 3 . THE CIT 4 . THE CIT(A) 5 . THE D.R . 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., PANAJI 8 ITA NO. 6 0 /PNJ/201 5 DATE INITIAL ORIGINAL DICTATION PAD IS ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 27 .0 7 .2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 29 .07 .2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 29 /07 /2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 29 /0 7 /2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 29 /07 /2015 SR.PS 6. DATE OF PRONOUNCEMENT 27 /0 7 /2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 29 /07 /2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER
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