The Dy. Commissioner of Income Tax, Jalandhar V. M/s. Holy Faith International Pvt. Ltd, Jalandhar

ITA 70/ASR/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7832 (ITAT-AMRITSAR)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 09-08-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 02-02-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Question of law; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N.K. CHOUDHRY, JUDICIAL MEMBER I.T.A NO. 70/(ASR)/2017 ASSESSMENT YEAR: 2013-14 PAN: AAACH6111J THE DY. CIT, CENTRAL CIRCLE-II, JALANDHAR. VS. M/S HOLY FAITH INTERNATIONAL PVT. LTD., M.B.D. HOUSE, RAILWAY ROAD, JALANDHAR. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. RAHUL DHAWAN (D. R.) RESPONDENT BY: SH. SUDHIR SEHGAL DATE OF HEARING: 09.08.2017 DATE OF PRONOUNCEMENT: 31.08.201 7 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY REVENUE AGAINST THE ORDE R OF LD. CIT(A), JALANDHAR DATED 15.12.2016 FOR ASST. YEAR: 2013-14. 2. THE ONLY ISSUE RAISED BY REVENUE IS THE ACTION O F LD. CIT(A) BY WHICH HE HAS DELETED THE ADDITION OF RS. 4,22,16,434/-, WHICH THE ASSESSING OFFICER HAD MADE U/S 36(1)(III) OF THE ACT. 3. AT THE OUTSET, THE LD. DR SUBMITTED THAT LD. CI T(A) HAS WRONGLY ALLOWED RELIEF TO THE ASSESSEE WITHOUT APPRECIATING THE FINDING OF HIS PREDECESSOR THAT THE FUNDS WERE RAISED TO MAKE UP F OR THE SHORTFALL ITA NO.70(ASR)/2017 ASSESSMENT YEAR: 2013-14 2 CAUSED BY INTEREST FREE INVESTMENTS IN SISTER CONCE RNS WHICH DID NOT SERVE ANY BUSINESS PURPOSE FOR THE ASSESSEE COMPANY . 4. THE LD. AR ON THE OTHER HAND INVITED OUR ATTENTI ON TO A COPY OF ORDER OF HON'BLE PUNJAB & HARYANA HIGH COURT DATED 24.07.2017 IN ITA NO. 87 OF 2017 PLACED IN PAPER BOOK PAGE 13 TO 18. THE LD. AR SUBMITTED THAT UNDER SIMILAR FACTS AND CIRCUMSTANCES, THE DIS ALLOWANCES WAS MADE BY ASSESSING OFFICER DURING ASSESSMENT YEAR 2012-13 ALSO AND HON'BLE TRIBUNAL HAD DELETED THE SAME BY HOLDING THAT INTER EST FREE FUNDS OF THE ASSESSEE WERE MORE THAN THE INTEREST FREE ADVANCES GIVEN BY IT. THE LD. AR SUBMITTED THAT THE SAID ORDER OF THE HON'BLE TRI BUNAL HAS BEEN UPHELD BY HON'BLE PUNJAB & HARYANA HIGH COURT. 5. THE LD. AR SUBMITTED THAT IN THIS YEAR ALSO THE ASSESSEES INTEREST FREE FUNDS WERE MORE THAN INTEREST FREE ADVANCES AN D IN THIS RESPECT OUR ATTENTION WAS INVITED TO LD. CIT(A)S ORDER IN WHIC H VIDE PARA 10 HE HAS HELD THAT ASSESSEE HAD GOT MORE INTEREST FREE FUNDS THAN INTEREST FREE ADVANCES. THE LD. AR ALSO INVITED OUR ATTENTION TO A COPY OF BALANCE SHEET FOR THE YEAR UNDER CONSIDERATION PLACED IN PA PER BOOK PAGE 1 TO 12 FROM WHICH FIGURES NOTED BY LD. CIT CAN BE VERIFIED . 6. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE THOUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ASSESSEE ITSELF FOR ASSESSMENT 2012- 13 HAD DISMISSED THE APPEAL OF THE REVENUE BY HOLDING THAT THE ADVANCES HAS BEEN MADE OUT OF INTEREST FREE FUNDS AVAILABLE AND THERE WAS NO Q UESTION OF DISALLOWANCE ITA NO.70(ASR)/2017 ASSESSMENT YEAR: 2013-14 3 OF INTEREST U/S 36(1)(III) OF THE ACT. THE RELEVANT FINDINGS OF THE HON'BLE COURT AS CONTAINED FROM PARA 2 TO 5 IS REPRODUCED B ELOW: 2. A FEW FACTS NECESSARY FOR ADJUDICATION OF THE C ONTROVERSY INVOLVED, AS NARRATED IN APPEAL, MAY BE NOTICED. THE ASSESSEE -COMPANY IS ENGAGED IN THE BUSINESS ACTIVITY OF PUBLICATION OF CHILDREN BOOKS AND AS PRINTERS AT ITS PLANTS SITUATED AT SAHIBABAD IN UTTAR PRADESH A ND JALANDHAR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICE D BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD AN AMOUNT OF? 149,36, 11,300/- STANDING AS INVESTMENTS AS SHARE APPLICATION MONEY IN VARIOUS RELATED CONCERNS BUT THE ASSESSEE COMPANY HAD NOT RECEIVED ANY INTEREST OR RETURN ON ACCOUNT OF SUCH INVESTMENTS. MAJOR INVESTMENT WAS IN THE SH APE OF SHARE APPLICATION MONEY WITH M/S MBD PRINTOGRAPHICS PRIVA TE LIMITED. FROM THE PERUSAL OF BALANCE SHEET OF M/S MBD PRINTOGRAPHICS PRIVATE LIMITED, THE ASSESSING OFFICER NOTICED THAT SHARE CAPITAL OF THE SAID COMPANY HAD ALREADY BEEN FULLY SUBSCRIBED AND THERE WAS NO REAS ON TO ACCEPT THE FUNDS FROM THE ASSESSEE AS SHARE APPLICATION MONEY. IT WAS CONCLUDED THAT THE INVESTMENT WAS COLORABLE TRANSACTION OF LOAN/ADVANC E WITHOUT ANY INTEREST TO ITS SISTER CONCERN IN THE SHAPE OF SHA RE APPLICATION MONEY. SIMILAR WAS THE POSITION WITH OTHER INVESTMENTS. TH E ASSESSEE HAD CLAIMED EXPENDITURE ON ACCOUNT OF BANK INTEREST. SI NCE THE ASSESSEE HAD NOT BEEN ABLE TO PROVE WITH EVIDENCE THAT INTEREST BEARING FUNDS WERE USED EXCLUSIVELY FOR BUSINESS PURPOSES, THE EXPENDITURE OF? 3,71,68,025/- OF BANK INTEREST ON CC LIMIT, WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE, VIDE ORDER DATED 31.01.2014, ANNEXURE A.I . AGGRIEVED BY THE ORDER, THE ASSESSEE FILED APPEAL BEFORE THE COMMISS IONER OF INCOME TAX (APPEALS) [CIT(A)]. VIDE ORDER DATED 12.11.2014, AN NEXURE A-II, THE CIT(A) CONFIRMED THE DISALLOWANCE OF INTEREST EXPENDITURE MADE BY THE ASSESSING OFFICER. IT WAS OBSERVED THAT THE ASSESSEE HAD NOT EVEN ATTEMPTED TO SHOW THAT THE INVESTMENTS IN SISTER CONCERNS SERVED ANY BUSINESS PURPOSE. THE ENTIRE EMPHASIS OF THE ASSESSEE WAS TO SUPPORT THE CLAIM THAT THE IMPUGNED INVESTMENTS HAD BEEN MADE FROM SELF OWNED FUNDS AND NOT FROM INTEREST BEARING FUNDS. THE INVESTMENTS HAD BE EN MADE FROM A SEPARATE CURRENT ACCOUNT IN WHICH THE DEPOSITS REPR ESENTED ACCRUALS FROM THE BUSINESS OF THE ASSESSEE COMPANY I.E. SALES. WI TH THESE OBSERVATIONS, THE DISALLOWANCE OF INTEREST EXPENDITURE MADE BY TH E ASSESSING OFFICER WAS CONFIRMED BY THE CIT(A). AGGRIEVED BY THE ORDER , THE ASSESSEE FILED APPEAL BEFORE THE TRIBUNAL. VIDE ORDER DATED 13.06. 2016, ANNEXURE A.III, THE TRIBUNAL ALLOWED THE APPEAL OF THE ASSESSEE DEL ETING THE ADDITION ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENDITURE. IT WAS HELD THAT THE IMPUGNED ADVANCE HAD BEEN MADE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AND THERE WAS NO QUESTION FOR DIS ALLOWANCE OF INTEREST UNDER SECTION 36(L)(III) OF THE ACT. THUS, THE DISA LLOWANCE OF INTEREST UNDER SECTION 36(1 )(III) PERTAINING TO THE SISTER CONCER NS UPHELD BY THE CIT(A) WAS NOT HELD TO BE JUSTIFIED. HENCE THE INSTANT APPEAL BY THE APPELLANT- REVENUE. 3. WE HAVE HEARD LEARNED COUNSEL FOR THE APPELLANT- REVENUE. 4. A PERUSAL OF THE ORDER PASSED BY THE TRIBUNAL SH OWS THAT RELYING UPON THE JUDGMENT OF THIS COURT IN BRIGHT ENTERPRISES PRIVATE LIMITED ITA NO.70(ASR)/2017 ASSESSMENT YEAR: 2013-14 4 VS. COMMISSIONER OF INCOME TAX (2016) 381 ITR 107, IT WAS RECORDED THAT COMMERCIAL EXPEDIENCY IN ADVANCING LOANS DOES NOT ARISE ONLY ON ACCOUNT OF THERE BEING TRANSACTIONS DIRECTLY BETWEE N THE HOLDING COMPANY AND THE SUBSIDIARY COMPANY OR BETWEEN THE GROUP COM PANIES INTER SE. THE TWO COMPANIES MAY EVEN BE IN A DIFFERENT LINE OF BU SINESS. IT WOULD MAKE NO DIFFERENCE. IT WOULD STILL BE COMMERCIALLY EXPED IENT FOR ONE GROUP COMPANY TO ADVANCE AMOUNTS TO ANOTHER GROUP COMPANY . IN THE PRESENT CASE, THE IMPUGNED ADVANCE HAD BEEN MADE OUT OF INT EREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AND, THEREFORE, THERE W AS NO QUESTION OF DISALLOWING INTEREST UNDER SECTION 36(L)(III) OF TH E ACT. AFTER CONSIDERING THE ENTIRE EVIDENCE ON RECORD AND THE CASE LAW ON THE P OINT, IT WAS CONCLUDED BY THE TRIBUNAL THAT DISALLOWANCE OF INTEREST UNDER SECTION 36(L)(III) OF THE ACT PERTAINING TO THE SISTER CONCERNS WAS NOT JUSTI FIED. THE RELEVANT FINDINGS RECORDED BY THE TRIBUNAL IN THIS REGARD RE AD AS UNDER:- WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE PERUS ED THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN THAT THE RELIANCE P LACED BY THE LD. CIT(A) ON THE JUDGMENT OF BRIGHT ENTERPRISES PRIVA TE LIMITED OF THE ITAT, AMRITSAR BENCH, IS NOT PROPER, SINCE THAT JUD GMENT HAS BEEN REVERSED BY THE HONBLE JURISDICTIONAL HIGH COURT V IDE ORDER DATED 26.07.2015, REPORTED IN 381 ITR 107 (COPY PLACED AT APB 100 TO 106), HOLDING AS UNDER:- 17. THE ASSESSING OFFICERS VIEW THAT THE ADVANCE WAS NOT FOR BUSINESS PURPOSES AS THE APPELLANT HAD NO BUSINESS DEALING WITH THE SISTER COMPANY IS ERRONEOUS. COMMERCIAL EXPEDIENCY IN ADVANCING LOANS DOES NOT ARISE ONLY ON ACCOUNT OF THERE BEING TRANS ACTIONS DIRECTLY BETWEEN THE HOLDING COMPANY AND THE SUBSIDIARY COMPANY OR B ETWEEN THE GROUP COMPANIES INTER SE. THE TWO COMPANIES MAY EVEN BE I N A DIFFERENT LINE OF BUSINESS. IT WOULD MAKE NO DIFFERENCE. IT WOULD STI LL BE COMMERCIALLY EXPEDIENT FOR ONE GROUP COMPANY TO ADVANCE AMOUNTS TO ANOTHER GROUP COMPANY IF, FOR INSTANCE, AS A RESULT THEREOF THE F ORMER BENEFITS. IN THE PRESENT CASE, AS WE HAVE ALREADY DEMONSTRATED, THER E WOULD BE A DIRECT BENEFIT ON ACCOUNT OF THE ADVANCE MADE BY THE APPEL LANT TO ITS SISTER COMPANY IF THE SAME IMPROVES THE FINANCIAL HEALTH O F THE SISTER COMPANY AND MAKES IT A VIABLE ENTERPRISE. WE HASTEN TO ADD THAT IT IS NOT NECESSARY THAT THE ADVANCE RESULTS IN A POSITIVE TANGIBLE BEN EFIT. SO LONG, AS THE AMOUNT IS ADVANCED WITH THAT VIEW IN MIND OR WITH A NY OTHER COMMERCIALLY EXPEDIENT VIEW IN MIND THAT IS SUFFICIENT. 7. FURTHER, THE JUDGMENT IN THE CASE OF ABHISHEK INDUSTRIES (SUPRA) RELIED UPON BY BOTH THE AUTHORITIES BELOW HAS ALSO BEEN OV ERRULED BY THE HONBLE SUPREME COURT IN TIRE CASE OF HERO CYCLES VS. CIT , 379 ITR 347 (SC) (COPY PLACED AT APB 112 TO 116), IN FAVOUR OF THE ASSESSE E BY HOLDING AS FOLLOWS: XXXXXXXXXXX. ASSESSEE HAD A CREDIT BALANCE IN THE BANK ACCOUNT W HEN THE SAID ADVANCE OF RS. 34 LAKHS WAS GIVEN. COMPANY HAD RESERVE/SURPLUS TO THE TUNE OF RS. 15 CRORES AND, T HEREFORE, THE ASSESSEE COMPANY COULD IN ANY CASE, UTILIZE THOSE F UNDS FOR GIVING ADVANCE TO ITS DIRECTORS. ITA NO.70(ASR)/2017 ASSESSMENT YEAR: 2013-14 5 8. FURTHER, THE RELIANCE ON THE FOLLOWING JUDGMEN TS ALSO SUPPORT THE CASE OF THE ASSESSEE OVERRULING THE JUDGMENT OF ABHISHE K INDUSTRIES, WHEREIN IT HAS BEEN HELD THAT THE DISALLOWANCE UNDER SECTIO N 36(L)(III) IS UNCALLED FOR: (I) CIT-1, LUDHIANA VS. RAKESH GUPTA, ITA NO.37-20 14, DATED 2.07.2015. (II) ACIT VS. OMAX BIKES LIMITED ITA NO.L085/CHD/ 2013 DATED 06.08.2015. 9. WE ARE OF THE VIEW THAT THE ID. COUNSEL FOR THE ASSESSEE IS CORRECT IN CONTENDING THAT SINCE THE DECISIONS IN THE CASE OF ABHISHEK INDUSTRIES LIMITED (SUPRA) AND BRIGHT ENTERPRISES PRIVATE LI MITED (SUPRA) FOLLOWED BY THE AUTHORITIES BELOW WHILE MAKING AND CONFIRMING A DDITION HAVE BEEN OVERRULED BY THE HONBLE COURTS, THE ADDITION DOES NOT SURVIVE. 10. IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT T HE IMPUGNED ADVANCE HAS BEEN MADE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AND THERE WAS NO QUESTION OF WHATSOEVER FOR DISALLOWING INTEREST UNDER SECTION 36(L)(III) OF THE ACT. ACCORDINGLY, WE HOLD THAT TH E DISALLOWANCE OF INTEREST UNDER SECTION 36(L)(III) PERTAINING TO THE SISTER C ONCERNS UPHELD BY THE ID. CIT(A) IS NOT JUSTIFIED, HENCE, THE SAME IS DELETED . THUS, THE APPEAL OF THE ASSESSEE IS ALLOWED. 5. LEARNED COUNSEL FOR THE APPELLANT-REVENUE HAS NO T BEEN ABLE TO SHOW THAT THE FINDINGS RECORDED BY THE TRIBUNAL ARE ILLEGAL OR PERVERSE OR BASED ON MISREADING OF EVIDENCE ON RECORD WARRANTIN G INTERFERENCE BY THIS COURT. THUS, NO SUBSTANTIAL QUESTION OF LAW ARISES. CONSEQUENTLY, THE APPEAL STANDS DISMISSED. 7. IN THE PRESENT YEAR WE FIND THAT THE ASSESSEE HA D INTEREST FREE FUNDS IN THE FORM OF CAPITAL, SHARE APPLICATION MON EY AND FREE RESERVES TO THE EXTENT OF RS.39,80,09,600/- THE BREAK UP OF WHI CH IS REPRODUCED: (I) SHARE CAPITAL RS.60,00,200/- PAGE 1 OF P.B. (II) RESERVES AND SURPLUS RS .33,97,08,668/- PAGE 1 OF P.B. (III) SHARE APPLICATION MONEY RS. 5,23,00,732/- PAGE 6 OF P.B. TOTAL RS.39,80,09,600/- THE INTEREST FREE ADVANCES MADE BY ASSESSEE WERE T O THE TUNE OF RS.37,77,38,334/-. THE LD. CIT(A) HAS ALLOWED RELIE F TO THE ASSESSEE BY ITA NO.70(ASR)/2017 ASSESSMENT YEAR: 2013-14 6 RELYING ON THE ORDER OF HON'BLE TRIBUNAL IN THE CAS E OF ASSESSEE ITSELF IN ASSESSMENT YEAR 2012-13 WHICH HAS NOW BEEN UPHELD B Y THE HON. PUNJAB & HARYANA HIGH COURT. 8. THEREFORE IN VIEW OF THE ABOVE FACTS AND CIRCUMS TANCES AND FOLLOWING THE JUDICIAL PRECEDENTS, WE DO NOT FIND A NY INFIRMITY IN THE ORDER OF LD. CIT(A). 9. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE RE VENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.08.2017 SD/- SD/- (N. K. CHOUDHRY) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 31.08.2017. /GP/SR. PS . COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER