M/s. Sri Endrash Investment & Finance (P) Ltd., New Delhi V. ITO, New Delhi

ITA 6956/DEL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6419 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 3
• Next Hearing Date: 04-10-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 24-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: F R MEENA
• Keywords: Notional interest; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SM C - I II , NEW DELHI BEFORE SH. N. K. SAINI, A CCOUNTANT M EMBER ITA NO. 6956/DEL/2014 : ASSTT. YEAR : 2010 - 11 M/S SRI ENDRASH INVESTMENT & FINANCE (P) LTD., ROOM NO. 209, BHANOT PLAZA - II, 3 - DB GUPTA ROAD, PAHAR GANJ, NEW DELHI - 110055 VS INCOME TAX OFFICER, WARD - 9(2), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. A A BCS6547E ASSESSEE BY : SH. SURESH KUMAR GUPTA, CA REVENUE BY : SH. F. R. MEENA , SR. DR DATE OF HEARING : 04.10 .201 6 DATE OF PRONOUNCEMENT : 27 . 12 .201 6 ORDER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 14.11.2014 OF LD. CIT(A) - XII , NEW DELHI . 2. THE ONLY EFFECTIVE GROUND RAISED IN THIS APPEAL READS AS UNDER: 1. T HE LD. CIT (A ) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.18,84,502/ - ON ACCOUNT OF ESTIMATED NOTIONAL INTEREST ON THE LOANS AND ADVANCES MADE TO TWO PARTIES. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FILED ELECTRONIC RETURN DECLARING LOSS OF RS.15,878/ - ON 04.10.2010 WHICH WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). THEREAFTER, THE CASE W AS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD GIVEN ITA NO. 6956 /DEL /201 4 SRI ENDRASH INVESTMENT & FINANCE PVT. LTD. 2 ADVANCES TO M/S SHARDA EDUCATION TRUST FOR AN AMOUNT OF RS.9,50,00,000/ - AND TO M/S ANAND SWAROP EDUCATION TRUST FOR RS.25,00,000/ - . HE ASKED THE ASSESSEE TO FILE THE CONFIRMATION IN THIS REGARD AND THAT AS TO WHY INTEREST WAS NOT CHARGED ON THE SAID AMOUNT. IN RESPONSE, THE ASSESSEE SUBMITTED THAT AS PER THE TERMS OF LOAN, THE INTEREST WILL BE RECEIVED IN NEXT YEAR @ 9% PER ANNUM AND ACCORDINGL Y THE INTEREST WAS RECEIVED IN THE YEAR RELEV ANT TO THE ASSESSMENT YEAR 2011 - 12. THE AO DID NOT AGREE TO THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT THE BUSINESS OF THE ASSESSEE WAS OF FINANCING AND THE CONCERN TO WHICH THE LOANS WERE GIVEN , WERE NOT FIRMS OR TRUST PROMOTED IN THE BUSINESS BY THE ASSESSEE AND THERE WAS NO BUSINESS CONNECTION BETWEEN THEM EXCEPT FOR THE FINANCIAL TRANSACTION. HE FURTHER OBSERVED THAT THE LEDGER ACCOUNT FURNISHED BY THE ASSESSEE FOR THE NEXT ASSESSMENT YEAR REVEALED THAT LOAN TO M/S SHARDA EDUCATION TRUST HAD GONE UP TO RS.23,88,93,866/ - . ACCORDING TO THE AO , I T WAS IMPROBABLE THAT SUCH HUGE FINANCIAL TRANSACTION OF PROVIDING LOANS AND ADVANCES TO ANY COMPLETELY UNRELATED CONCERN WITHOUT ANY COLLATERAL OR REGISTERED WRITT EN AGREEMENT. THE AO WORKED OUT THE INTEREST @ 9% ON THE BALANCE AS PER THE DATE ON WHICH THE LOAN WAS GIVEN WHICH CAME TO RS.18,65,752/ - FOR M/S SHARDA EDUCATION TRUST AND RS.18,750/ - FOR M/S SRI ANAND SWAROOP EDUCATION TRUST. ACCORDINGLY, ADDITION OF RS. 18,84,502/ - (RS.18,65,752/ - + RS.18,750/ - ) WAS MADE. ITA NO. 6956 /DEL /201 4 SRI ENDRASH INVESTMENT & FINANCE PVT. LTD. 3 4 . BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE BUSINESS WAS D ONE CONSIDERING VARIOUS FACTORS, RULES , COMMERCIAL EXPEDIENCY AND AS PER THE PRIVITY OF CONTRAC T BETWEEN THE TWO PARTIES BASED ON THEIR MUTUAL CONSENT. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAD GIVEN INTEREST BEARING LOANS TO T HE ABOVE TWO PARTIES SO THAT THO SE TRUST CAN FURTHER AUGMENT THEIR SOCIAL AND PHILAN THROPIC ACTIVITIES FOR WHICH THO SE TRUST REQUIRE D SUPPORT FROM THE DONORS AND OTHER RELATED PARTIES BY WAY OF LOANS, FINANCIAL ASSISTANCE ETC. IT WAS ALSO SUBMITTED THAT THE DOCUMENTARY EVIDENCES CLEARLY INDICATED THIS FACT THAT NO INT EREST HAD BEEN CHARGED BY THE ASSESSEE AND NO INTEREST H AD BEEN PAID BY THOSE TRUST ALSO AND THAT THE AO COULD NOT HAVE TRAVELLED BEYOND DOCUMENTS PRODUCED AND DRAW THE INFERENCES AS PER HIS SUITABILITY. THEREFORE, BASED ON HIS SURMISES AND CONJECTURES, THE AO COULD NOT HAVE ADDED THE NOTIONAL INTEREST FROM THE ASSESSEE COMPANY, MORE PARTICULARLY WHEN THE TRUST HAD NOT PAID ANY INTEREST AT ALL. IT WAS STATED THAT THE ASSESSEE COMPANY HAD NOT PAID ANY INTEREST FOR BORROWING THE MONEY, IF ANY, FOR GIVING LOANS TO THESE TRUST S AND STATED THAT THE AMOUNT WAS GIVEN O UT OF OWN RESOURCES AND NO INTEREST HAD BEEN CLAIMED AS EXPENDITURE IN THE BOOKS OF ACCOUNTS BY THE ASSESSEE. IT WAS FURTHER STATED THAT NO INTEREST HAD BEEN PAID SINCE THERE WAS NO BORROWED FUNDS AND ALL THE AMOUNTS GIVEN AS LOANS WERE OUT OF OWN FUNDS. T HEREFORE, NO ADDITION COULD HAVE BEEN MADE ON ACCOUNT OF NOTIONAL INTEREST. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: TRIPTY DRINKS PVT. LTD. (1978) 112 ITR 721 (ORISSA) ITA NO. 6956 /DEL /201 4 SRI ENDRASH INVESTMENT & FINANCE PVT. LTD. 4 BEEKAY ENG. CORPORATION (2010) 38 DTR 289 (CHHAT) 5 . IT WAS FURTHER SUBMITT ED THAT THE ASSESSEE HAD NOT CHARGED INTEREST FOR 15 DAYS DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AS THE LOAN WAS GIVEN AT THE FAG END OF THE FINANCIAL YEAR . IT WAS STATED THAT AS A MATTER OF CONVENIENCE AND WITH THE MU TUAL CONSENT OF THE BORROWER THE INTEREST FOR 15 DAYS WAS WAVED OFF WITH THE CONDITION THAT THE RATE OF INTEREST WOULD BE 9% W.E.F 01.04.2010 . IT WAS FURTHER STATED THAT THERE WAS A DIALOGUE BY THE ASSESSEE WITH THE TRUSTEES OF M/S SHARDA EDUCATION TRUST I N THIS REGARD AND IT WAS ONLY AFTER THE ACCEPTANCE OF THIS CONDITION REGARDING RATE OF INTEREST, THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY DECIDED TO GRANT THE LOAN TO M/S SHARDA EDUCATION TRUST WHO HAD A MASSIVE BASE OF RUNNING COLLEGES IN VARIOUS DI SCIPLINES ACROSS THE COUNTRY AND THE ASSESSEE ALSO GOT A BOOST IN ITS BUSINESS OF FINANCE AND INVESTMENT ACTIVITIES IN THE LONG RUN. 6 . THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE SUSTAINED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: IT IS A FACT THAT THE NATURE OF THE BUSINESS OF THE COMPANY IS OF A CARRYING OF BUSINESS OF FINANCING AND THERE IS NO BUSINESS CONNECTIONS BETWEEN THE CONCERNS TO WHOM THE LOANS ARE GIVEN AND THE ASSESSEE COMPANY. IN VIEW OF THIS, I FIND THAT THE A SSESSING OFFICER HAS CORRECTLY CHARGED INTEREST ON THE SAID AMOUNTS OF LOAN GIVEN TO TWO CONCERNS WITH WHOM THERE ARE NO BUSINESS CONNECTIONS IN THE LIGHT OF THE FACT THAT THE ASSESSEE IS IN THE BUSINESS OF GIVING FINANCES. ACCORDINGLY THE ADDITION OF INTE REST OF RS.18,84,502/ - IS UPHELD. GROUND RAISED IN APPEAL IS DISMISSED. ITA NO. 6956 /DEL /201 4 SRI ENDRASH INVESTMENT & FINANCE PVT. LTD. 5 7 . NOW THE ASSESSEE IS IN APPEAL. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE AMOUNT WAS ADVANCED BY T HE ASSESSEE AT THE FA G END OF THE FINANCIAL YEAR , OUT OF CAPITAL AND NOT OUT OF BORROWED FUNDS. THEREFORE, THE ADDITION MADE BY THE AO AND SUSTAINED BY THE LD. CIT(A) WAS NOT JUSTIFIED PARTICULARLY WHEN THE ASSESSEE CHARGED THE INTEREST IN THE SUBSEQUENTLY YEAR IN ACCORDANCE WITH THE AGREEMENT ENTERED BETWEEN THE PARTIES. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: M/S SHIVNANDAN BUILDCON PVT. LTD. VS CIT & ANR. AND M/S OMSHIV BUILDTECH PVT. LTD. VS CIT & ANR. IN W.P.(C) 6265/2013 AND 6326/2013 ORDE R DATED 30.04.2015 (DEL. HC) CIT VS DLF HILTON HOTELS IN ITA 623/2015 ORDER DATED 10.05.2016 (DEL. HC) CIT, CENTRAL - III VS M/S TEMPLETON ASSET MANAGEMENT ((INDIA) PVT. LTD. IN ITA NO. 1043/2010 ORDER DATED 12.09.2011 (BOMB. HC) CIT - II VS M/S SHREE VATSA FI NANCE & LEASING LTD. IN ITA NO. 585/2012 ORDER DATED 07.05.2012 (ALL. HC) 8 . IN HIS RIVAL SUBMISSIONS THE LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 9 . I HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERI AL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT APPEARS THAT THE ASSESSEE HAD ADVANCED THE LOAN OUT OF SURPLUS FUNDS AND NOT OUT OF BORROWED FUNDS . IN THE INSTANT CASE, THE CONTENTION OF THE ASSESSEE THAT NO EXPENDITURE ON ACCOUNT OF INTEREST WAS DEBIT ED TO THE PROFIT AND LOSS ACCOUNT WAS NOT REBUTTED AT ANY STAGE. IN THE PRESENT CASE, ITA NO. 6956 /DEL /201 4 SRI ENDRASH INVESTMENT & FINANCE PVT. LTD. 6 THE ASSESSEE HAD GIVEN THE LOAN TO M/S SHARDA EDUCATION TRUST AND M/S ANAND SWAROOP EDUCATION TRUST AT THE FAG END OF THE YEAR AND DID NOT CHARGE ANY INTEREST FOR 15 DAYS FALLING IN THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND FROM 1 ST APRIL, 2010, THE INTEREST WAS CHARGED @ 9% , IN ACCORDANCE WITH AGREEMENT ENTERED WITH THE PARTIES TO WHOM LOAN WAS GIVEN. THEREFORE, THE NOTIONAL INTEREST CHARGED BY TH E AO AND SUSTAINED BY THE LD. CIT(A) WAS NOT JUSTIFIED. 10 . ON A SIMILAR ISSUE THE HON BLE JURISDICTIONAL HIGH COU RT IN THE CASE OF SHIVNANDAN BUILDCON PVT. LTD. VS CIT & ANR. (SUPRA) IN W.P.(C) NO. 6265/2013 VIDE JUDGMENT DATED 30.04.2015 HELD THAT THER E WAS NOTHING TO SHOW THAT THE ASSESSEE HAD IN FACT RECEIVED INTEREST OR THAT THE COMPANY TO WHOM THE LOAN WAS GIVEN HAD IN FACT PAID INTEREST TO THE ASSESSEE. THERE WAS ALSO NOTHING ON RECORD TO SHOW THAT THE ALLEGED INTEREST WAS NOT REFLECTED IN THE ACCO UNTS, THE ONLY FINDING RECORDED WAS THAT THE ASSESSEE OUGHT TO HAVE CHARGED INTEREST. THE HON BLE HIGH COURT ALSO MADE A REFERENCE TO THE DECISION OF THE HON BLE GUWAHATI HIGH COURT IN THE CASE OF HIGHWAYS CONSTRUCTION CO. PVT. LTD. VS CIT (1993) 199 ITR 7 02 WHEREIN IT HAS BEEN HELD AS UNDER: 'THERE IS 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 AND THE COLLECTION OF THE INTERE ST WAS NOT REFLECTED IN THE ACCOUNTS. THE FINDING OF THE INCOME TAX OFFICER IS THAT THE ASSESSEE OUGHT TO HAVE COLLECTED INTEREST. IN OTHER WORDS, THE VIEW OF THE INCOME TAX OFFICER, WHICH HAS BEEN ACCEPTED BY THE TRIBUNAL, WAS THAT THE ASSESSEE, AS A GOOD BUSINESS CONCERN, SHOULD NOT HAVE GRANTED ITA NO. 6956 /DEL /201 4 SRI ENDRASH INVESTMENT & FINANCE PVT. LTD. 7 INTEREST - FREE LOAN, OR SHOULD HAVE INSISTED ON PAYMENT OF INTEREST. IF THE ASSESSEE HAD NOT BARGAINED FOR INTEREST, OR HAD NOT COLLECTED INTEREST, WE FAIL TO SEE HOW THE INCOME TAX AUTHORITIES CAN FIX A NOTIONAL I NTEREST AS ' DUE, OR COLLECTED BY THE ASSESSEE. OUR ATTENTION HAS NOT BEEN INVITED TO ANY PROVISION OF THE INCOME TAX ACT EMPOWERING THE INCOME TAX AUTHORITIES TO INCLUDE IN THE INCOME, INTEREST WHICH WAS NOT DUE OR NOT COLLECTED. IN THIS VIEW, WE ANSWER Q UESTION NO. (II) IN THE NEGATIVE, THAT IS, IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE.' 11 . IN THE PRESENT CASE ALSO, THE ASSESSEE DID NOT PAY ANY INTEREST AS THERE WAS NO BORROWED FUNDS, NEITHER THE ASSESSEE RECEIVED ANY INTEREST FROM THE PARTIES NOR THOSE PARTIES TO WHOM LOAN WAS GIVEN, PAID ANY INTEREST TO THE ASSESSEE FOR THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. I, THEREFORE, KEEPING IN VIEW THE RATIO LAID DOWN BY THE HON BLE JURISDICTIONAL HIGH COURT IN THE AFORESAID REFE RRED TO CASE , DELETE THE IMPUGNED ADDITION MADE BY THE AO AND SUSTAINED BY THE LD. CIT(A). 1 2 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . (ORDER PRON OUNCED IN THE CO URT ON 27 /12 /2016) SD/ - (N. K. SAINI) ACCOUNTANT MEMBER DAT ED: 27 /12 /2016 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR