ACIT, New Delhi V. M/s. Satyam Properties & Finance Ltd., New Delhi

ITA 6691/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3834 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Appeal Filed On: 08-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AGAINST IMPUGNED DATED PASSED
• Keywords: Wholly owned subsidiary
• Section: 143(3); 92

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G: NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO.:- 6691/DEL /2014 ASSESSMENT YEAR: 2010-11 ACIT CIRCLE-7(1) NEW DELHI. VS. SATYAM PROPERTIES & FINANCE LIMITED 10, DARYA GANJ, NEW DELHI 110 002 PAN AAECS4928E (APPELLANT) (RESPONDENT) O R D E R PER AMIT SHUKLA, J.M. THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE A GAINST IMPUGNED ORDER DATED 2.9.2014, PASSED BY LD. CIT (A PPEALS) X DELHI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE ASSESSMENT YEAR 2010-11. THE SOLE GROUND RAISED BY THE REVENUE IS REGARDING DELETION OF ADDITION OF RS. 6,77,97,413/-. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COM PANY IS NON BANKING FINANCE COMPANY REGISTERED WITH RESERVE BANK OF INDIA AND IS WHOLLY OWNED SUBSIDIARY OF BENNETT, COLEMAN & CO. LTD. (BCCL). DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS EARNED INTEREST ON INTER CORPORATE DEPOSIT (ICD) GIVEN TO BCCL. THE ASS ESSEE HAD DEPARTMENT BY: SHRI KAUSHLENDRA TIWARI, SR. DR ASSESSEE BY : MS. RAMA JAIN, ADVOCATE DATE OF HEARING 25/10/2017 DATE OF PRONOUNCEMENT 25/10/2017 ITA NO. 6691/DEL/2014 ACIT VS. M/S. SATYAM PROPERTIES & FINANCE LTD. 2 EXTENDED ICD AMOUNTING TO RS. 147 LACS TO BCCL WHICH IS 100% HOLDING COMPANY, INITIALLY @ 10% PER ANNUM FOR THREE YEARS VIDE AGREEMENT DATED 17.6.2009. HOWEVER IN THE LATE OF THE YEAR 2009, BCCL PROPOSED FOR REDUCTION IN THE RATE OF INTEREST TO 7.25% PER ANNUM BASED ON THE THEN PREVAILING MARKET RATES. THE A SSESSEE AGREED TO THIS REDUCTION OF RATES, W.E.F., 1.1.2010 AS IT WAS NOT POSSIBLE TO OBTAIN A BETTER RATE OF INTEREST FROM ANY SAFE SOURCE SUCH AS LEADING BANKS. THE AO REQUIRED THE ASSESSEE TO JUSTIFY THE REDU CTION OF RATE OF INTEREST ON THE ICD FROM 10% TO 7.25% PER ANNUM. IN RE SPONSE TO WHICH, THE ASSESSEE FILED DETAILED REASONS ALONGWIT H DOCUMENTS IN SUPPORT JUSTIFYING THE REDUCTION OF RATE OF INTEREST ON I CD. HOWEVER THE LD. AO DID NOT ACCEPT THE ASSESSEES EXPLANATION AND OB SERVED THAT RATE OF INTEREST SHOULD BE ADOPTED AT 15% ON LOANS TO BCCL AS THE CHARGING OF INTEREST IS NOT ON ARMS LENGTH. ACCORDING LY, HE PROCEEDED TO COMPUTE THE INTEREST @ 15% PER ANNUM AT RS. 17,39,83, 561/- THUS MAKING AN ADDITION OF RS. 6,77,97,413/-. 3. BEFORE LD. CIT (A), ASSESSEE MADE DETAILED SUBMI SSIONS WHICH HAS BEEN INCORPORATED FROM PAGES 6 TO 9 OF THE APPEL LATE ORDER, THE SUM AND SUBSTANCE FOR WHICH ARE THAT, INCOME CAN ONL Y BE SAID TO HAVE BEEN ACCRUED ONCE THE ASSESSEE HAS ACQUIRED A R IGHT TO RECEIVE THE SAME OR THERE IS A DEBT CREATED IN FAVOUR OF THE P ERSON BY SOMEBODY. TILL THEN IT CANNOT BE SAID THAT HE HAS ACQUI RED A RIGHT TO RECEIVE THE INCOME OR THAT INCOME HAS ACCRUED TO HIM. I N SUPPORT RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE SUPRE ME COURT IN THE CASE OF CIT VS. SHOORJI VALLABHDAS AND CO. (1962)46 ITR 144 (SC) AND GODHRA ELECTRICITY CO. LTD. VS. CIT 225 ITR 746 (SC ) . SECONDLY, IT WAS SUBMITTED THAT ICD WAS ACTUALLY A RISK FREE AND THE SAME WAS GIVEN TO THE 100% HOLDING COMPANY AND HENC E THE RISK FACTOR WAS VERY LOW AND THE RATE OF INTEREST WAS HIGH ER THAN THE ITA NO. 6691/DEL/2014 ACIT VS. M/S. SATYAM PROPERTIES & FINANCE LTD. 3 PREVAILING RATE OF INTEREST OFFERED BY THE BANK ON THEI R FIXED DEPOSITS AT THAT POINT OF TIME. FURTHER THE PROVISION OF SECTION 40A(2 )(B) WOULD NOT BE APPLICABLE, BECAUSE INTEREST EARNED ON ICD EXTENDE D TO BCCL WAS THE INCOME OF THE ASSESSEE AND NOT THE EXPENSE AND THER EFORE, SUCH INTEREST INCOME CANNOT BE ENHANCED BY THE AO BY INVOKI NG SECTION 40(A)(2)(B) OR BY APPLYING ARMS LENGTH PRINCIPLE AS APPEARING IN SECTION 92 AS IT WILL NOT APPLY IN ASSESSEES CASE DURING TH E YEAR UNDER CONSIDERATION. LD. CIT (A), DULY ACCEPTED THE ASSESSE ES CONTENTION AND HELD THAT AO WAS NOT JUSTIFIED IN ENHANCING THE RATE OF INTEREST CHARGED BY THE ASSESSEE FROM 7.25% TO 15% AND ACCORDI NGLY, THE ADDITION MADE BY THE AO WAS DELETED. 4. AFTER HEARING BOTH THE PARTIES AND CONSIDERI NG THE RELEVANT FINDING OF THE IMPUGNED ORDERS AS WELL AS THE MATERI AL REFERRED TO BEFORE US, WE FIND THAT THE SOLE ISSUE RAISED BY THE REVENUE IS, WHETHER THE RATE OF INTEREST BY THE ASSESSEE ON THE ICD @ 7.5% P ER ANNUM COULD HAVE BEEN ENHANCED BY THE AO OR NOT. IT IS AN U NDISPUTED FACT THAT ASSESSEE HAS ADVANCED AN AMOUNT OF RS. 147 CRORES AS AN ICD TO BCCL WHICH IS ITS 100% HOLDING COMPANY. INITIALLY I T WAS AGREED THAT INTEREST RATE OF 10% PER ANNUM FOR A PERIOD OF THREE Y EARS WOULD BE GIVEN, HOWEVER AS PER THE INSISTENCE OF BCCL, IT WAS PROPOSED THAT THE RATE OF INTEREST WOULD BE AT 7.2% WHICH WAS BASED ON T HEN PREVAILING MARKET. ASSESSEE AGREED TO SUCH REDUCTION OF THE RATE OF INTEREST TO 7.25% PER ANNUM W.E.F. 1.1.2010, AS THE ASSESSEE WAS AN OPINION THAT IT WAS NOT POSSIBLE TO OBTAIN A BETTER RATE OF INTEREST F ROM ANY SAFE SOURCE SUCH AS LEADING BANKS. BEFORE THE AO THE ASSE SSEE HAS ALSO SUBMITTING A CHART SHOWING THE INTEREST RATE AS ON DECEMB ER 2009, WHEREIN THE HDFC, SBI AND PNB WERE OFFERING INTEREST R ATE OF LESS THAN 7.25% ON FIXED DEPOSITS FOR A MATURITY OF UP TO 3 YEARS. LD. AO HELD THAT RATE OF INTEREST SHOULD BE SEEN NOT FROM THE AN GLE OF FIXED ITA NO. 6691/DEL/2014 ACIT VS. M/S. SATYAM PROPERTIES & FINANCE LTD. 4 DEPOSITS OFFERED FROM THE BANKS RATHER IT HAS TO BE SEE N HOW MUCH THE BANKS HAVE CHARGED INTEREST TO GIVE LOANS TO RUN THE B USINESS WHERE THERE IS A FULL RISK ASSOCIATED WITH LOANS. ACCORDINGL Y, HE HELD THAT THE INTEREST RATE SHOULD BE SEEN FROM THE PROVISION OF SEC TION 40A(2)(B) AND UNDER ARMS LENGTH PRINCIPLE WHICH ADMITTEDLY IS N OT APPLICABLE FOR THE YEAR UNDER CONSIDERATION. OSTENSIBLY, IN THIS CASE, IT IS NOT ISSUE OF DISALLOWANCE OF INTEREST WHICH HAS BEEN CLAI MED AS EXPENSE, ALBEIT HERE THE ASSESSEE HAS BEEN RECEIVING INTEREST WHICH I S SHOWN AS INCOME @ 7.25% WHICH AS PER THE REVENUE SHOULD HAVE BEEN @ 15%. FOR MAKING SUCH ENHANCEMENT OF NOTIONAL INCOME, FIRS T OF ALL, IT HAS TO BE SEEN, WHETHER SUCH AN INCOME HAD ACTUALLY ACCRUED TO THE ASSESSEE, I.E., WHETHER THE ASSESSEE GOT VESTED WITH A NY RIGHT TO RECEIVE SUCH KIND OF AN INCOME FROM BCCL OR THERE IS ANY DE BT WHICH BEEN CREATED IN FAVOUR OF THE ASSESSEE BY THE BCCL. THERE CANNOT BE ANY ENFORCEABLE RIGHT TO RECEIVE THE INCOME TO THE ASSESSEE OVER AND ABOVE WHAT HAS BEEN AGREED AMONGST THE PARTY, BECAUSE AS P ER THE MUTUAL AGREEMENT BETWEEN THE PARTIES THE RATE OF INTEREST AGRE ED WAS 7.25%, WHICH ALONE COULD HAVE ENFORCED BY THE ASSESSEE AND NOT WHAT HAS NOT BEEN AGREED UPON. HENCE HERE IN THIS CASE IT CANNOT BE HELD THAT ANY INCOME HAS ACCRUED TO THE ASSESSEE. IN ANY CASE THE AS SESSEE HAS TRIED TO JUSTIFY THE RATE OF INTEREST AGREED AMONGST THE PARTIES BY BRINGING ON RECORD THE VARIOUS RATE OF INTEREST ON FDRS AT THE RELEVANT TIME OFFERED BY DIFFERENT THE BANK WHICH WAS FAR BELOW THAN 7.25%, WHICH IN OUR OPINION THE ONUS ON THE ASSESSEE IF ANY TO PROVE THE REASONABLENESS TOO HAS BEEN DISCHARGED, WHICH THOUGH IN OUR OPINION WAS NOT REQUIRED. AO HAS TREATED THE SUBSCRIPTION OF ICD AS A LOAN WHICH IN OUR UNDERSTANDING IS NOT A CORRECT WAY TO INTER PRET AN ICD, BECAUSE IT IS A DEPOSIT MADE BY THE SUBSCRIBER OF THE I CD ISSUED BY A COMPANY ON A FIXED RATE OF INTEREST AND HENCE IT CANN OT BE TREATED AS A LOAN. THUS SUCH AN ENHANCEMENT OF NOTIONAL INCOME AS DONE BY THE ITA NO. 6691/DEL/2014 ACIT VS. M/S. SATYAM PROPERTIES & FINANCE LTD. 5 AO CANNOT BE APPRECIATED, BECAUSE THE AO CANNOT STEP I NTO THE SHOES OF THE BUSINESSMAN TO HOLD THAT HE SHOULD HAVE MAXIMUM PROFIT FROM THE TRANSACTION. THERE IS NO REAL INCOME WHICH HAS AC CRUED TO THE ASSESSEE AND ACCORDINGLY, THE VIEW TAKEN BY THE LD. CI T (A) FOR DELETING THE ADDITION IS UPHELD AND THE GROUND RAISED BY THE RE VENUE IS DISMISSED 4. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 25 /10/2017 . SD/- SD/- (PRASHANT MAHARISHI) (A MIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31/10/2017 VEENA COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI