ACIT 2(1), MUMBAI V. ALL INDIA REPORTER (P) LTD, MUMBAI

ITA 6065/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78794 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 22-04-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 06-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Business expenditure; Wholly owned subsidiary; Commercial expediency; Revenue expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI . , !'# $% &'() , $* +, $ # BEFORE SHRI D.MANMOHAN, VICE PRESIDENT AND SHRI N.K . BILLAIYA, AM ./I.T.A. NO. 6065/MUM/2010 ( - - - - / ASSESSMENT YEAR : 2007-08 THE DCIT-2(1), AAYAKAR BHAVAN, MUMBAI-400 020 M/S. ALL INDIA REPORTERS (P) LTD., 1 ST FLOOR, MEDOWS HOUSE, NAGINDAS MASTER ROAD, FORT, MUMBAI-400 023 ,. $* ./ /0 ./PAN/GIR NO. : AABCA 6982F ( .1 /APPELLANT ) .. ( 23.1 / RESPONDENT ) .1 4 $ / APPELLANT BY : ` SHRI MAURYA PRATAP 23.1 5 4 $ /RESPONDENT BY : SHRI K.P. DEWANI 5 6* / DATE OF HEARING :22.4.2014 7- 5 6* / DATE OF PRONOUNCEMENT :30.4.2014 +$8 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-4, MUMBAI DT. 5.5.2010 PERTAINING TO ASSESSM ENT YEAR 2007-08. 2. THE GRIEVANCES OF THE REVENUE IS TWO-FOLD. FIRS TLY, THE REVENUE IS AGGRIEVED BY THE ORDER OF THE LD. CIT(A) WHO DELETE D THE ADDITION OF RS. 59.09 LAKHS HOLDING THAT ADVANCES OF RS. 59.09 LAKH S TO ITS SUBSIDIARY COMPANY CAN BE ALLOWED AS BAD DEBT. THE SECOND GR IEVANCE OF THE REVENUE RELATE TO THE DELETION OF ADDITION ON ACCOU NT OF INTEREST OF RS. 49.69 LAKHS. ITA NO.4169/M/2012 2 3. THE ASSESSEE IS IN THE BUSINESS OF PRINTING AND PUBLISHING OF LAW JOURNALS. THE RETURN OF INCOME WAS FILED ON 26.9.2 008 DECLARING LOSS AT RS. 8,21,520/-. THE RETURN WAS SELECTED FOR SCRUTI NY ASSESSMENT AND ACCORDINGLY STATUTORY NOTICES WERE ISSUED AND DULY SERVED ON THE ASSESSEE. DURING THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASS ESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEBITED RS. 61,60,166 /- TO THE PROFIT AND LOSS ACCOUNT OF BAD DEBT. THE RIGHT OFF WAS ON ACC OUNT OF THE FOLLOWING: 1) AIR ENGINEERING CO. PVT. LTD. RS. 59,09,599/- 2) MANGALA BINDING RS. 567/- 3) AMRIT NATURAL CHEMICALS RS. 2,50,000/- 3.1. THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM. THE ASSESSEE FILED COPY OF LEDGER ACCOUNT IN THE CASE OF M/S. AIR ENGI NEERING ONLY. THE AO WAS OF THE FIRM BELIEF THAT THE ASSESSEE CO. IS NOT ENGAGED IN THE BUSINESS OF GENERATING INCOME FROM INTEREST. THE A SSESSEE WAS ONCE AGAIN ASKED TO EXPLAIN THE CLAIM OF BAD DEBT WRITTE N OFF AND THE DETAILS OF INCOME OFFERED IN EARLIER YEARS. THE ASSESSEE FILE D A DETAILED REPLY CLAIMING THAT BAD DEBT COVERS NOT ONLY AMOUNT RECEI VABLE AND DUE ARISING OUT OF BUYING-SELLING TRANSACTIONS OR RENDERING OF SERVICES ONLY. IT VERY WELL COVERS AMOUNT KEPT BY WAY OF DEPOSITS OR ADVAN CES GIVEN, WHICH ARE IRRECOVERABLE. IT WAS EXPLAINED THAT M/S. AIR ENGI NEERING CO. IS A SISTER CONCERN. THE SUBMISSION OF THE ASSESSEE DID NOT FI ND ANY FAVOUR FROM THE AO WHO WAS OF THE FIRM BELIEF THAT THE WRITE OFF MA DE BY THE ASSESSEE DOES NOT FULFILL THE CONDITIONS LAID DOWN U/S. 36)1 )(VII) R.W.SECTION 36(2) OF THE ACT. THE AO ACCORDINGLY DISALLOWED THE CLAI M OF WRITE OFF IN THE CASE OF M/S. AIR ENGINEERING CO. TO THE TUNE OF RS. 59,09,599/-. ITA NO.4169/M/2012 3 4. BEFORE THE LD. CIT(A), IT WAS EXPLAINED THAT THE ASSESSEE HAS MADE SUBSTANTIAL INVESTMENT IN ITS SISTER CONCERN M/S. A IR ENGINEERING. IT WAS EXPLAINED THAT THE ADVANCES PROVIDED BY THE ASSESSE E WERE IN THE NATURE OF FINANCIAL ASSISTANCE. IT WAS FURTHER EXPLAINED THA T THE ASSESSEE WAS CHARGING INTEREST ON LOANS AND ADVANCES PROVIDED TO M/S. AIR ENGINEERING IN EARLIER YEARS WHICH WAS ASSESSED IN THE HANDS OF THE ASSESSEE AS BUSINESS INCOME. SINCE THEN M/S. AIR EN GINEERING CO. CLOSED DOWN ITS BUSINESS HENCE THE AMOUNT ADVANCED BY THE ASSESSEE BECAME IRRECOVERABLE. IT WAS CLAIMED THAT ADVANCES MADE B Y THE ASSESSEE WERE ENTIRELY IN THE NORMAL COURSE OF BUSINESS CARRIED O UT BY THE ASSESSEE. 4.1. AFTER CONSIDERING THE FACTS AND THE SUBMISSION S, THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS MADE SUBSTANTIAL INV ESTMENT IN M/S. AIR ENGINEERING SINCE ITS INCEPTION AND WAS CHARGING INTEREST ON THE INVESTMENT MADE TO THE SUBSIDIARY. SUCH INTEREST W AS BEING ASSESSED IN THE HANDS OF THE ASSESSEE AS BUSINESS INCOME OF TH E ASSESSEE. DRAWING SUPPORT FROM THE DECISION OF THE CALCUTTA HIGH COUR T IN THE CASE OF TURNER MORRISON & CO. LTD VS CIT 245 ITR 724(CAL), THE LD. CIT(A) WAS CONVINCED THAT THE ASSESSEE HAS LOST THE ADVANC E GIVEN TO ITS SUBSIDIARY. THEREFORE, THE LOSS OF ADVANCE BY ASSE SSEE COMPANY IS REQUIRED TO BE ALLOWED AS BUSINESS LOSS IF NOT AS B AD DEBT. DRAWING FURTHER SUPPORT FROM THE DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF S.A. BUILDERS 288 ITR 01 (SC), THE ADDITION WAS DELETED. 5. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 6. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED TH E FINDINGS OF THE LOWER AUTHORITIES. ITA NO.4169/M/2012 4 7. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWE R AUTHORITIES AND THE RELEVANT MATERIAL PLACED BEFORE US. IT IS NOT IN DISPUTE THAT M/S. AIR ENGINEERING CO. IS A 100% SUBSIDIARY OF THE ASSESSE E. IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS SUBSIDIA RY THEREFORE IF THE HOLDING COMPANY ADVANCES BORROWED MONEY TO A SUBSI DIARY AND THE SAME IS USED BY THE SUBSIDIARY FOR SOME BUSINESS PU RPOSE, IT CAN BE SAID THAT MONEY HAS BEEN ADVANCED TO SISTER CONCERN FOR COMMERCIAL EXPEDIENCY. IT IS ALSO AN UNDISPUTED FACT THAT THE ASSESSEE WAS CHARGING INTEREST ON THE SUM ADVANCE TO ITS SISTER CONCERN W HICH INTEREST WAS ASSESSED UNDER THE HEAD BUSINESS INCOME. 9. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT BR ING ANY DISTINGUISHING FACTS OR EVIDENCE TO CONTROVERT THE FINDINGS OF THE LD. CIT(A). THE AO HAS NOT DOUBTED THE GENUINENESS OF THE LOSS BUT HAS SIMPLY DISALLOWED HOLDING THAT IT IS NOT AN ALLOWAB LE REVENUE EXPENDITURE AS WELL AS BAD DEBT. RELIANCE ON THE DECISION OF T HE HONBLE CALCUTTA HIGH COURT IN THE CASE OF TURNER MORRISON & CO. LT D. (SUPRA) BY THE LD. CIT(A) IS WELL FOUNDED. A SIMILAR VIEW HAS ALSO BE EN TAKEN BY THE HONBLE M.P. HIGH COURT IN THE CASE OF MRS. GITA SA NGHI VS CIT 277 ITR 388 WHEREIN CLAIM OF ADVANCE GIVEN ON INTEREST ON BEING WRITTEN OFF HAS BEEN ALLOWED AS A BAD DEBT U/S. 36 OF THE ACT. EVEN OTHERWISE ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE LOSS OF ADVANCE BY THE ASSESSEE COMPANY TO ITS 100% SUBSIDIARY COMPANY IS TO BE ALLOWED AS A BUSINESS LOSS. WE THEREFORE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD. CIT(A). FIRST GRIEVANCE OF THE REVENUE IS ACCORDINGLY DISMISSED. ITA NO.4169/M/2012 5 10. THE SECOND GRIEVANCE RELATES TO THE DELETION OF ADDITION ON ACCOUNT OF INTEREST OF RS. 49.69 LAKHS. ON SCRUTINY OF THE RETURN, THE AO NOTICED THAT THE ASSESSEE HAS DEBITED A SUM OF RS. 97,05,4 26/- AS INTEREST WHICH COMPRISES OF BANK INTEREST WHICH COMPRISES OF BANK INTEREST OF RS. 61,02,058/- AND OTHER INTEREST OF RS. 31,54,003/-. THE AO FURTHER NOTICED THAT THE ASSESSEE HAS ADVANCED FOLLOWING INTEREST F REE LOANS TO ITS SISTER CONCERNS AND OTHERS: SR. NO. NAME OF THE CONCERN SUM ADVANCED (RS .) 1. LOANS TO SUBSIDIARY COMPANY 1,58,88,410/- 2. INTEREST FREE ADVANCE TO PARTNERSHIP FIRM 37,53,431/- 3. INTEREST FREE ADVANCE TO PVT. LTD. CO. WHERE DIRECTOR IS INTERESTED 40,55,869/- 4. INTEREST FREE ADVANCE TO ADVISOR WHO IS ALSO SHAREHOLDER AND HAVING SUBSTANTIAL INTEREST IN COMPANY 20,59,427/- TOTAL 2,57,57,137/- 11. THE AO WAS OF THE OPINION THAT THE PAYMENT OF I NTEREST ON THE AMOUNT NOT USED IN THE BUSINESS CANNOT BE REGARDED AS A BUSINESS EXPENDITURE AS THE BUSINESS DOES NOT DERIVE ANY BE NEFIT BY THE OUTGOING BY WAY OF INTEREST ON AN AMOUNT WHICH IS NO LONGER IN THE BUSINESS BUT HAD BEEN DIVERTED FROM THE BUSINESS. THE ASSESSEE WAS ASKED AS TO WHY THE INTEREST PAID SHOULD NOT BE DISALLOWED. THE AS SESSEE FILED A DETAILED REPLY DT. 8.10.2009. IT WAS CLAIMED THAT THE ASSES SEE WAS HAVING SUFFICIENT CREDIT BALANCE IN THEIR RESERVES ACCOUN T TO COVER THE ADVANCE INTEREST FREE LOANS TO ITS SUBSIDIARIES. IT WAS EX PLAINED THAT ON THE GROUNDS OF COMMERCIAL EXPEDIENCY THE LOANS WERE ADV ANCED/GIVEN FREE OF INTEREST. THIS SUBMISSION OF THE ASSESSEE WAS REJE CTED BY THE AO. THE AO WAS OF THE FIRM BELIEF THAT THE PRIMARY BURDEN O F ESTABLISHING THE ITA NO.4169/M/2012 6 CLAIM IS ON THE ASSESSEE AND IN THE INSTANT CASE TH E ASSESSEE HAS NOT LEAD ANY EVIDENCE IN THIS REGARD. THE AO FURTHER OBSERV ED THAT THE ASSESSEE HAS NOWHERE DISCHARGED THE PRIMARY BURDEN OF PROVI NG THAT THE INTEREST PAID BY THE ASSESSEE WAS UTILIZED FOR THE PURPOSE O F ITS OWN BUSINESS. DRAWING SUPPORT FROM THE VARIOUS JUDICIAL DECISIONS , THE AO COMPUTED THE PROPORTIONATE DISALLOWANCE OF INTEREST AT RS. 4 9,69,279/-. 12. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). THE FACTS OF THE CASE WERE EXPLAINED TO THE LD. CIT(A) AND AF TER PERUSING THE FACTS, THE LD. CIT(A) WAS OF THE BELIEF THAT THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS (SUPRA) SQUARELY APPLY ON THE FACTS OF THE PRESENT CASE. THE LD. CIT(A) FURTHER OBSERVED THAT THE ASSESSEE WAS HAVING SHARE CAPITAL OF RS. 40,00,000/-, RESERVES A ND SURPLUS OF RS. 616.42 LAKHS AGGREGATING TO RS. 656.42 LAKHS. THE TOTAL FUND COMPUTED BY THE AO FOR NON BUSINESS PURPOSE WAS AT RS. 257.5 7 LAKHS. DRAWING SUPPORT FROM THE DECISION OF THE HONBLE BOMBAY HI GH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES AND POWER LTD. 313 ITR 340, THE LD. CIT(A) WAS CONVINCED THAT THE ASSESSEE HAS SUCCESSFULLY DE MONSTRATED THAT ADVANCES GIVEN BY THE ASSESSEE WERE FOR THE PURPOSE OF BUSINESS AND DELETED THE ADDITION MADE BY THE AO. 13. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 14. THE LD. DR COULD NOT CONTROVERT ANYTHING TO THE FINDINGS OF THE AO. 15. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHA T HAS BEEN SUBMITTED BEFORE THE LD. CIT(A) ITA NO.4169/M/2012 7 16. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW. THE AO HAS NOT DEMONSTRATED THAT THE ASSESSEE HAS ADVAN CED MONEY OUT OF ITS BORROWED CAPITAL. IT IS NOT IN DISPUTE THAT THE AS SESSEE WAS HAVING ITS OWN CAPITAL WITH RESERVES AND SURPLUS AGGREGATING TO RS . 656.42 LAKHS. THUS, THE RATIO OF HONBLE JURISDICTIONAL HIGH COURT DECI SION IN THE CASE OF RELIANCE UTILITIES & POWER LTD (SUPRA) SQUARELY APP LY ON THE FACTS OF THE CASE. FURTHER AS POINTED OUT ELSEWHERE, THE ASSESS EE WAS CHARGING INTEREST ON ADVANCE TO AIR ENGINEERING CO. IN PAST YEAR WHIC H WAS ASSESSED AS BUSINESS INCOME IN THE HANDS OF THE ASSESSEE WHICH HAS BEEN BROUGHT TO OUR NOTICE THAT SIMILAR ADDITIONS WERE DELETED BY T HE LD. CIT(A) IN A.Y. 2009-10 AND THE REVENUE HAS ACCEPTED THE ORDER OF T HE LD. CIT(A). MOREOVER, IT IS SEEN THAT THESE ADVANCES ARE COMING FROM EARLIER YEARS. 17. THE LD. DR COULD NOT SHOW SUM ADVANCE WHICH WAS GIVEN AFRESH DURING THE YEAR UNDER CONSIDERATION NOR IT HAS BEEN MENTIONED IN THE ASSESSMENT ORDER. CONSIDERING ALL THESE FACTS IN T OTALITY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD . CIT(A). THE SECOND GRIEVANCE OF THE REVENUE IS ALSO DISMISSED. 18. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH APRIL, 2014 . +$8 5 - *$ 9 :+ ; 30.4.2014 5 < SD/- SD/- (D. MANMOHAN ) (N. K. BILLAIYA ) !'# / VICE PRESIDENT $* +, / ACCOUNTANT MEMBER MUMBAI; :+ DATED 30.4.2014 . . ./ RJ , SR. PS ITA NO.4169/M/2012 8 +$8 +$8 +$8 +$8 5 55 5 26& 26& 26& 26& =$&-6 =$&-6 =$&-6 =$&-6 / COPY OF THE ORDER FORWARDED TO : 1. .1 / THE APPELLANT 2. 23.1 / THE RESPONDENT. 3. > ( ) / THE CIT(A)- 4. > / CIT 5. &?< 26 , , / DR, ITAT, MUMBAI 6. < @ / GUARD FILE. +$8 +$8 +$8 +$8 / BY ORDER, 3&6 26 //TRUE COPY// ! !! ! / / / / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI