Sagar Cements Limited, Hyderabad, Hyderabad V. DCWT, Circle-3(1), Hyderabad, Hyderabad

ITA 678/HYD/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9009 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 16-06-2020
• Assessment Year: 2006-2007
• Appeal Filed On: 17-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNKU SRINIVASUDR
• Assessee Lawyers: A V RAGHURAM
• Keywords: Transfer pricing; Notional interest; TDS
• Section: 43B; 143(3); 22

Judgement Text

, , INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES, B, HYDERABAD , !' # $ , %& ' % BEFORE MS. SUSHMA CHOWLA, VP & MR. ANIL CHATURVEDI, AM [THROUGH VIDEO CONFERENCING] . / ITA NO.678 /HYD/2017 !' ( ( / ASSESSMENT YEAR-2006-07 M/S SAGAR CEMENTS LTD., S-2-472/B, ROAD NO.1, BANJARA HILL, HYDERABAD-500034. PAN-AACCS8680H ... )*/ APPELLANT VS. THE DCIT, CIRCLE-3(1), 7 TH FLOOR, SIGNATURE TOWERS, KONDAPUR, HYDERABAD .. ,-)* / RESPONDENT )* . / % / APPELLANT BY : SHRI A.V.RAGHURAM, ADV. ,-)* . / % / RESPONDENT BY : : SHRI SUNKU SRINIVASU, DR '0 . #& / DATE OF HEARING : 16-06-2020 12 . #& / DATE OF PRONOUNCEMENT : 31-07-2020 %3 / ORDER PER MS. SUSHMA CHOWLA, VICE PRESIDENT THE PRESENT APPEAL FILED BY ASSESSEE IS AGAINST ORD ER OF CIT(A)-10, HYDERABAD DATED 11.11.2016 RELATING TO ASSESSMENT Y EAR 2006-07 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE INCOME -TAX ACT, 1961 (IN SHORT THE ACT). 2 ITA NO.678 /HYD/2017 ASSESSMENT YEAR-2006-07 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL:- 1. THE ORDER OF THE LEARNED CIT(A) CONFIRMING THE ORDER OF THE AO IS NOT ONLY ERRONEOUS BOTH ON FACTS AND IN LAW IN SO F AR AS IT IS PREJUDICIAL TO THE ASSESSEE BUT IS ALSO WITHOUT APP LICATION OF MIND TO THE FACTS SUBMITTED. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDIT ION OF RS.15,50,466 AS SALES TAX ADVANCE PAYMENT IN SPITE OF DETAILED SUBMISSIONS WITH EVIDENCES THAT THIS IS NOT CLAIMED IN THE P & L ALE AND HENCE CANNOT BE ADDED. 3. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDIT ION OF RS.49,50,000/- AS DISALLOWANCE OF INTEREST IN SPITE OF EVIDENCE AND SUBMISSIONS THAT THE AMOUNTS ADVANCED TO SUBSID IARY IS FOR BUSINESS PURPOSE OF GETTING CONTINUOUS POWER AND IN SPITE OF THE DECISION OF THE SUPREME COURT. 4. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT ERRED IN CONFIRMING THE ADDITION OF RS.49,50,000 WITHOUT CONSIDERING TH E SUBMISSIONS THAT IT IS NOT CLAIMING THE INTEREST IN THE P&L SAL E AND IS DEBITED TO THE POWER CHARGES ACCOUNT. 5. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDIT ION OF RS.35,12,122 MADE BY ESTIMATING NOTIONAL INTEREST O N ADVANCES TO SUBSIDIARY M/S. SAGAR POWER LTD., WITHOUT APPRECIAT ING THE FACT THAT IT IS FOR BUSINESS PURPOSE OF GETTING CONTINUO US POWER AND FURTHER THAT THE AO HAS EARLIER DISALLOWED FROM INT EREST CLAIM AND AGAIN MAKING ADDITION OF NOTIONAL INTEREST. 6. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDIT ION OF RS.1,22,71,842 INTEREST INCOME RECEIVED FROM SUBSID IARY IN SPITE OF THE FACT THAT THE PAID SIMILAR AMOUNT TO THE BAN K ON THE LOAN AVAILED AND GIVEN TO SUBSIDIARY AN THAT THE ASSESSE E HAS NOT CLAIMED SUCH INTEREST AS DEDUCTION IN P & L A/C MER ELY ON THE BASIS OF TDS CERTIFICATES WITHOUT CONSIDERING THE F ACTS EMANATING FROM LEDGER COPIES FILED AND FINANCIAL 7. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT( A) OUGHT TO HAVE GIVEN DIRECTION TO ALLOW THE INTEREST THAT IS PAID TO THE BANK OF SIMILAR AMOUNT AS DEDUCTION AS THE SAME HAS NOT BEE N DEBITED TO THE P & L ALE HAVING SET OFF AGAINST INTEREST RECE IVED FROM THE SUBSIDIARY. 3. THE FIRST GROUND OF APPEAL RAISED BY THE ASSESSE E IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION; HENCE DISMI SSED. 4. GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS AGAINST THE ADDITION OF RS.15,50,466/- BEING AMOUNT OF SALES TAX ADVANCE PAID. 3 ITA NO.678 /HYD/2017 ASSESSMENT YEAR-2006-07 5. GROUND OF APPEAL NOS. 3 & 4 RAISED BY THE ASSESS EE IS ON ACCOUNT OF DISALLOWANCE OF INTEREST AMOUNTING TO RS.49,50,000/ - BEING INTEREST PAYABLE ON LOAN ADVANCED TO SUBSIDIARY M/S. SAGAR POWER LTD . 6. FURTHER, THE ASSESSEE IS AGGRIEVED AND HAS RAISE D GROUND OF APPEAL NO.5 ON ADDITION OF RS.35,12,122/- BEING THE INTERE ST ON LOAN TAKEN OVER BY THE ASSESSEE ON BEHALF OF THE SUBSIDIARY COMPANY M/ S. SAGAR POWER LTD. 7. BRIEFLY IN THE FACTS OF THE CASE THE ASSESSEE FO R THE YEAR UNDER CONSIDERATION FILED THE RETURN OF INCOME DECLARING TOTAL INCOME AT NIL AFTER SET OFF OF BROUGHT FORWARD LOSSES. THE CASE OF TH E ASSESSEE WAS PICKED UP FOR SCRUTINY. THE ASSESSING OFFICER NOTED THAT THE ASS ESSEE HAD PAID SUM OF RS.15,50,466/- AGAINST DEMAND OF RS.31,00,933/- RAI SED BY THE COMMERCIAL TAX DEPARTMENT. THE SAID AMOUNT WAS PAI D ON THE DIRECTIONS OF THE COURT. THE SAID AMOUNT WAS SHOWN AS ADVANCE F OR OTHERS. THE ASSESSING OFFICER DISALLOWED THE SAID SUM OF RS.15, 50,466/- HOLDING IT TO BE CONTINGENT LIABILITY. THE CIT(A) UPHELD THE SAID A DDITION, AGAINST WHICH THE ASSESSE IS IN APPEAL BEFORE US. 8. THE LD.AR FOR THE ASSESSEE POINTED OUT THAT THE SAID AMOUNT WAS ONLY SHOWN AS ADVANCE UNDER THE HEAD CURRENT ASSETS, LO ANS AND ADVANCES IN SCHEDULE (H) OF THE ANNUAL REPORT. HE STRESSED THA T THE AMOUNT WAS NOT DEBITED TO THE P&L A/C AND HENCE NO ADDITION CAN BE MADE ON THIS ACCOUNT. HE ALSO POINTED OUT THAT EVEN IF IT WAS CONTINGENT LIABILITY THEN AS THE 4 ITA NO.678 /HYD/2017 ASSESSMENT YEAR-2006-07 AMOUNT HAS BEEN PAID, THE STATUTORY DUES ARE TO BE ALLOWED ON PAYMENT BASIS IN VIEW OF THE PROVISION OF SECTION 43B OF TH E ACT. 9. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON T HE ORDER OF THE CIT(A). 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.2 IS AGAINST THE ADDITION MADE ON ACCOUNT OF THE DEMAND PAID BY THE ASSESSEE PURSUANT TO THE DIRECTIONS OF THE COURT. THE SAID AMOUNT WAS NOT DEBITED TO THE P&L A/C AND WAS ONLY CLAIMED AS ADVANCE FOR OTHERS UNDER MAIN HEAD CU RRENT ASSETS, LOANS AND ADVANCE OF THE ANNUAL REPORT. THE QUESTION WH ICH ARISES IS WHERE SUCH AMOUNT, WHICH IS NOT CLAIMED AS AN EXPENDITURE BY THE ASSESSEE WHILE PREPARING P&L A/C, THEN CAN ANY ADDITION BE MADE ON SUCH AN ENTRY. WE FIND NO MERIT IN THE ORDERS OF THE AUTHORITIES BELO W AS THE AMOUNT HAS ONLY BEEN SHOWN AS AN ADVANCE AND NOT CLAIMED AS AN EXPE NDITURE. 11. NOW, COMING TO THE SECOND STAND OF THE ASSESSIN G OFFICER EVEN IF THE SAID AMOUNT WAS CONTINGENT LIABILITY, BUT IN VIEW O F THE PROVISION OF SECTION 43B OF THE ACT, SUCH AMOUNT ARE DULY ALLOWABLE AS E XPENDITURE IN THE YEAR OF PAYMENT. HOWEVER, THE SAME IS NOT THE CASE OF THE ASSESSEE AND ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDIT ION OF RS.15,50,466/-. THUS, GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS ALLOWED. 12. NOW, COMING TO THE GROUND OF APPEAL NOS. 3 & 4 RAISED BY THE ASSESSEE. 5 ITA NO.678 /HYD/2017 ASSESSMENT YEAR-2006-07 13. BRIEFLY IN THE FACTS OF THE CASE RELATING TO TH E ISSUE THE ASSESSING OFFICER NOTED THAT DURING THE YEAR UNDER CONSIDERAT ION THE ASSESSEE HAD CLAIMED INTEREST OF RS.49,50,000/- AGAINST LOANS RA ISED. THE ASSESSING OFFICER ON VERIFICATION FURTHER NOTED THAT THE SAID LOAN WAS NOT AVAILED FOR BUSINESS PURPOSES OF THE ASSESSEE AND WAS AVAILED F OR TRANSFERRING OF FUNDS TO THE SUBSIDIARY. THE ASSESSING OFFICER WAS OF TH E VIEW THAT THE LOAN RECEIVED BY THE ASSESSEE COMPANY WAS NOT UTILIZED E XCLUSIVELY FOR BUSINESS PURPOSES AND HENCE, THE INTEREST PAID TO THE TUNE O F RS.49,50,000/- WAS NOT ALLOWABLE AS AN EXPENDITURE. THE CIT(A) UPHELD THE ORDER OF THE ASSESSING OFFICER AND AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 14. THE LD.AR FOR THE ASSESSEE POINTED OUT THAT THE SAID LOAN WAS TAKEN UP BY ITS SUBSIDIARY M/S. SAGAR POWER LTD. HOWEVER , ICICI BANK FROM WHOM THE LOAN WAS TAKEN, FORCED THE ASSESSEE TO TAKE OVE R THE LIABILITY. THE BALANCE DUE TO ICICI BANK WAS SHOWN IN THE BALANCE SHEET. THE INTEREST DISALLOWANCE WAS MADE ON THE AFORESAID LOAN. THE L D.AR FOR THE ASSESSEE IN THE FIRST INSTANCE POINTED OUT THAT THE SAME WAS A BUSINESS TRANSACTION AND NO DISALLOWANCE OF INTEREST NEEDS TO BE MADE IN VIE W OF THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN S.A. BUILDERS LTD. VS CIT(A) & ANR. [2007] 288 ITR 1 (SC). HE FURTHER POINTED OUT THAT THE TRANSA CTION BETWEEN THE ASSESSEE AND ITS SUBSIDIARY WAS TOTAL BUSINESS TRANSACTION W HEREIN THE WHOLLY OWNED COMPANY WAS GENERATING POWER, ONLY FOR ASSESSEES BENEFIT AND IT WAS BEING SUPPLIED TO THE ASSESSEE @ 0.25 PAISA LESS THAN THE RATES OF STATE BOARD. HENCE, THE ASSESSEE STOOD TO GAIN BENEFIT DIRECTLY. THE ASSESSEE WAS A 6 ITA NO.678 /HYD/2017 ASSESSMENT YEAR-2006-07 CEMENT MANUFACTURING COMPANY. FURTHER, HE DREW OU R ATTENTION TO PAGES 22 TO 25 OF THE PAPERBOOK AND POINTED OUT THAT NO I NTEREST WAS PAID ON THIS LOAN BY THE ASSESSEE AND THE INTEREST WAS CHARGED T O THE SUBSIDIARY COMPANY AT FIRST INSTANCE ITSELF. 15. IN RESPECT OF GROUND OF APPEAL NO.5 RAISED BY T HE ASSESSEE, IT WAS POINTED OUT THAT FURTHER DISALLOWANCE WAS ALSO BEEN MADE ON ACCOUNT OF NOTIONAL INTEREST ON THE AFORESAID LOAN TO THE SUBS IDIARY. HE POINTED OUT THAT THE ASSESSING OFFICER TREATED THE LOAN OF ICICI BAN K AS ADVANCE TO THE SUBSIDIARY AND MADE THE SAID ADDITION IN THE HANDS OF THE ASSESSEE. 16. THE LD.DR FOR THE REVENUE POINTED OUT THAT THER E IS NO EVIDENCE OF BUSINESS CONNECTION BETWEEN THE ASSESSEE COMPANY AN D ITS SUBSIDIARY AND THERE WAS OVER-LAPPING AND HENCE DISALLOWANCE IN TH E HANDS OF THE ASSESSEE COMPANY. 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FIRST ASPECT OF THE ISSUE IS THE INTEREST DISALLOWED ON T HE PREMISE THAT THE LOAN RAISED BY THE ASSESSEE COMPANY FROM ICICI BANK HAS BEEN UTILIZED FOR TRANSFERRING THE FUNDS TO THE SUBSIDIARY AND HENCE, NOT FOR BUSINESS PURPOSES. IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LOAN WAS RAISED BY M/S. SAGAR POWER LTD. WHICH IS THE SUBSIDIARY OF TH E ASSESSEE COMPANY. THE SAID LOAN WAS DISBURSED BY ICICI BANK AND IT FORCED THE ASSESSEE TO TAKE OVER THE AFORESAID LIABILITY OF THE SUBSIDIARY. CONSEQU ENTLY, ENTRIES WERE PASSED IN THE BOOKS OF ACCOUNTS AND OUTSTANDING OF THE LOA N WAS SHOWN IN THE 7 ITA NO.678 /HYD/2017 ASSESSMENT YEAR-2006-07 BALANCE SHEET. THE CASE OF THE REVENUE AUTHORITIES IS THAT WHERE THE LOAN RAISED BY THE BANK HAS BEEN UTILIZED FOR ADVANCING TO THE SUBSIDIARY, THEN THE INTEREST DUE ON SUCH LOAN IS TO BE DISALLOWED I N THE HANDS OF THE ASSESSEE. THE CASE OF THE ASSESSEE ON THE OTHER HA ND IS FIRSTLY THAT THE SAID TRANSACTION BETWEEN THE ASSESSEE AND ITS SUBSIDIARY IS WHOLLY BUSINESS TRANSACTION. M/S. SAGAR POWER LTD. WAS INVOLVED IN GENERATION OF POWER AND THE SAID ACTIVITY WAS UNDERTAKEN BY THE SUBSIDIARY FOR THE SOLE BENEFIT OF THE ASSESSEE COMPANY. THE TOTAL POWER GENERATED WAS SU PPLIED TO THE ASSESSEE @ 0.25 PAISA LESS THAN STATE ELECTRICITY BOARD CHAR GED. CONSEQUENTLY, THE LOAN COULD BE SAID TO BE A BUSINESS TRANSACTION UND ER WHICH THE BENEFIT FLOWED TO THE ASSESSEE. THE ASSESSEE WAS ENGAGED I N THE MANUFACTURING OF CEMENT AND SUCH POWER SUPPLY BY THE SUBSIDIARY ADVA NCED THE BUSINESS OF THE ASSESSEE. WE ARE OF THE VIEW THAT FOLLOWING TH E DICTATE OF THE HONBLE SUPREME COURT IN S.A. BUILDERS LTD. (SUPRA), THERE IS NO MERIT IN DISALLOWANCE OF INTEREST ON SUCH ADVANCEMENT OF LOA N TO THE SUBSIDIARY. 18. HOWEVER, IN THE PRESENT SET OF FACTS, THERE IS ANOTHER ASPECT OF THE ISSUE ALSO. THE PERUSAL OF THE DETAILS FILED AT PA GES 22 TO 25 OF THE PAPERBOOK REFLECTS THE ENTRIES PASSED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS. THE DETAILS FURNISHED AT PAGE 25 OF THE PAPERBOOK REFLE CTS THAT IN THE ACCOUNT OF INTEREST ON UNSECURED LOANS WITH ICICI BANK, THE ASSESSEE IS DEBITING THE INTEREST QUARTER-WISE WHICH IS DUE TO ICICI BANK A ND SIMULTANEOUSLY CREDITING THE SAID ACCOUNT BEING INTEREST ON LOAN GIVEN TO M/S. SAGAR POWER LTD. ENTRY TO ENTRY AMOUNT IS DEBITED & CREDITED T O THE ACCOUNT. IN OTHER 8 ITA NO.678 /HYD/2017 ASSESSMENT YEAR-2006-07 WORDS, THE ASSESSEE IS NOT CHARGING ANY INTEREST DU E ON THE LOAN DISBURSED TO THE ICICI BANK TO THE SUBSIDIARY COMPANY. THE SAID INTEREST IS SHOWN AS RECOVERABLE FROM M/S. SAGAR POWER LTD. & IN THE FIN AL ANALYSIS, NO AMOUNT HAS BEEN CLAIMED AS A DEDUCTION. IN THESE FACTS AN D CIRCUMSTANCES, THERE IS NO MERIT IN MAKING THE AFORESAID ADDITION IN THE H ANDS OF THE ASSESSEE ON ACCOUNT OF INTEREST ATTRIBUTABLE TO THE LOAN RAIS ED FROM ICICI BANK FOR THE SO CALLED BENEFIT OF THE SUBSIDIARY. SIMILARLY, TH E LOAN WHICH HAS BEEN SHOWN AS DUE TO ICICI BANK IS IN TURN BEING TREATED AS A DVANCE TO THE SUBSIDIARY. ON SUCH ADVANCEMENT OF LOAN TO THE SUBSIDIARY, THER E IS NO MERIT IN MAKING ANY DISALLOWANCE ON ACCOUNT OF NOTIONAL INTEREST. WE FIND NO MERIT IN THE ORDERS OF THE AUTHORITIES BELOW; CONSEQUENTLY, GROU ND OF APPEAL NOS. 3 TO 5 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. 19. THE LAST ISSUE RAISED BY THE ASSESSEE VIDE GROU ND OF APPEAL NO.6 IS ON ACCOUNT OF DIFFERENCE IN GROSS RECEIPT OF INTEREST. THE ASSESSING OFFICER HAD ADDED A SUM OF RS.1,20,47,243/- ON THIS ACCOUNT. H E HAD COMPARED THE ACTUAL INTEREST RECEIVED AS PER THE TDS RECEIPT AND ACTUAL INTEREST ADMITTED, AND ARRIVED AT A CONCLUSION THAT THERE WAS DIFFEREN CE IN INTEREST ADMITTED. THE SUBMISSIONS OF THE ASSESSEE IN THIS REGARD WAS THAT THE INTEREST RECEIVED FROM M/S. SAGAR POWER LTD. WAS PAID TO ICICI BANK A ND SUCH PAYMENT WAS AN EXPENDITURE, WAS NOT ACCEPTED. THE ASSESSEE IS IN APPEAL AGISNG THE FINDINGS OF THE ASSESSING OFFICER WHICH HAS BEEN UP HELD BY THE CIT(A). 20. WE HAVE ALREADY ADJUDICATED THE ISSUE RELATING TO THE AVAILMENT OF LOAN FROM ICICI BANK AND ITS ADVANCEMENT TO SUBSIDIARY M /S. SAGAR POWER LTD. IN 9 ITA NO.678 /HYD/2017 ASSESSMENT YEAR-2006-07 THE PARAS ABOVE. THE ASSESSEE ON THE OTHER HAND HA S NOT CLAIMED THE EXPENDITURE OF INTEREST DUE TO ICICI BANK AND HAS ALSO NOT SHOWN THE INTEREST RECEIVED FROM M/S. SAGAR POWER LTD., AS I T HAD SET OFF THE INTEREST ACCOUNT I.E. INTEREST RECEIPT FROM SUBSIDIARY WITH THE INTEREST DUE TO ICICI BANK. IN THESE FACTS AND CIRCUMSTANCES, WE FIND TH ERE IS NO MERIT IN THE EXERCISE CARRIED OUT BY THE ASSESSING OFFICER. IN CASE THE INTEREST INCOME IS ADDED IN THE HANDS OF THE ASSESSEE THEN, THE INTERE ST EXPENDITURE WHICH IS EQUIVALENT TO THE INTEREST INCOME EARNED SHOULD BE DEBITED AND NIL INCOME IS TO BE ASSESSED IN THE HANDS OF THE ASSESSEE. TH US, GROUND OF APPEAL NO.6 RAISED BY THE ASSESSEE IS ALLOWED. 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JULY, 2020. SD/- SD/- ( ANIL CHATURVEDI ) ( SUSHMA CHOWLA ) ACCOUNTANT MEMBER VICE PRES IDENT DATED: 31 ST JULY, 2020 *AMIT KUMAR* COPY OF THE ORDER FORWARDED TO : 1. M/S SAGAR CEMENTS LTD.,S-2-472/B, ROAD NO.1, BA NJARA HILL, HYDERABAD- 500034. 2. THE DCIT, CIRCLE-3(1), HYDERABAD. 3. THE DRP-1, BENGALURU. 4. THE DIRECTOR OF INCOME TAX (IT & TP), HYDERABAD. 5. THE ADD.CIT (TRANSFER PRICING), HYDERABAD. 6. D.R. ITAT, HYDERABAD. 7. GUARD FILE. / BY ORDER, //TRUE COPY// (DY./ASST. REGISTRAR) ITAT, HYDERABAD