J.A CREDIT CONSULTANTS P.LTD, MUMBAI V. DCIT 6(3)(1), MUMBAI

ITA 75/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1211 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 04-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AGAINST DATED PASSED
• Keywords: Wholly owned subsidiary
• Section: 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI RAJESH KUMAR , AM AND SHRI AMARJIT SINGH , JM I.T.A. NO . 75 /M/ 20 1 7 ( ASSESSMENT YEAR : 2012 - 13 ) M/S. J. A. CREDIT CONSULTANTS PVT. LTD. 107 - 108, VASAN UDYOG BAVAN, OPP. PHOENIX MILL, SENAPATI BAPAT MARG, LOWER PAREL (W) MUMBAI - 400013 . VS. DY. CIT 6(3)(1) MUMBAI ./ ./ PAN/GIR NO. : AAECA 3542 N ( APPELLANT ) .. ( RESPONDENT ) DATE OF HEARING : 03 . 10 .2018 DATE OF PRONOUNCEMENT : 27. 11 .201 8 O R D E R PER AMARJIT SINGH, JM: THE PRESENT APPEA L HA S BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 14 . 09 .201 6 PASSED BY THE COMMIS S IONER OF INCOME TAX (APPEALS) - 12 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE ASSESSMENT YEAR 20 12 - 13 . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW AND ON THE FACTS OF THE CASE IN INVOKING THE PROVISIONS OF SECTION 36(1)(III) OF THE INCOME TAX ACT, 1961 ('ACT') AND THEREBY MAKING THE DISALLOWANCE OF RS.10, 86,393/ - , ASSESSEE BY: SHRI TEJAS SODHA DEPARTMENT BY: SHRI RAJEEV GUBGOTRA (DR) ITA. NO. 75 /M/201 7 A.Y. 2012 - 13 2 1.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THE FAD THAT THE PROVISIONS OF SEC 36(1)(III) ARE NOT APPLICABLE IN THE CASE OF THE APPELLANT AS THE CAPITAL & RESERVES OF THE APPELLANT IS RS 3,06.83,106/ - WHICH IS MORE THAN THE INTEREST FREE LOANS AND ADVANCES AMOUNTING TO RS. 2,71 54,915/ - THE APPEL LANT HAD INTEREST FREE FUNDS TO GIVE INTEREST FREE LOANS AND ADVANCES TO THE APPELLANT'S WHOLLY OWNED SUBSIDIARY THEREFORE, DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE INCOME TAX ACT,1961 CANNOT BE DONE. 1.2 THE LEARNED COMMISSIONER OF INCOME TAX ( APPEALS) ERRED IN LAW AND FACT BY DISALLOWING INTEREST ON INTEREST FREE ADVANCE TO SUBSIDIARY COMPANY AS THE ADVANCES WERE GIVEN FOR BUSINESS PURPOSES. 1 3 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS R ELIED ON BOMBAY HIGH COURT JUDG MENT OF RELIANCE COMMUNICATIONS INFRASTRUCTURE LIMITED WHICH CLEARLY STATES THAT NO INTEREST CAN BE DISALLOWED ON THE ABOVE MENTIONED TRANSACTION. 1.4 THE APPELLANT PRAYS IT BE HELD THAT THE PROVISIONS OF SECTION 36(1 )(III) ARE NOT APPLICABLE IN THE CASE OF THE APPELLANT AND CONSEQUENTLY THE DISALLOWANCE OF RS.10,86,398/ - MADE BY THE AO BE DELETED. 2 THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER AND / OR WITHDRAW THE AFORESAID GROUND OF APPEAL. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 07 . 09 .20 12 DECLARING TOTAL IN COME TO THE TUNE OF RS.1,05,27,610 / - FOR THE A.Y 2012 - 13 . THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. THEREAFTER, THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICES U/S 143(2) A ND 142(1) OF THE ACT WERE ISSUED AND SERVED UPON THE ASSESSEE. ON VERIFICATION, IT WAS FOUND THAT THE ASSESSEE HAS INCURRED INTEREST COST OF RS.20,06,421/ - ON BORROWED FUND . THE ASSESSEE HAS ALSO ADVANCED THE INTEREST FREE FUNDS OF RS.2,71,54,915/ - TO CALL STREET SOLUTIONS INDIA PVT. LTD. THE AO ITA. NO. 75 /M/201 7 A.Y. 2012 - 13 3 ARRIVED AT THIS CONCLUSION THAT THE INTEREST BEARING FUNDS WERE UTILIZED FOR GIVING THE INTEREST FREE FUND. THE INTEREST BEARING ADVANCES WAS DIVERTED OR UTILIZED FOR NON - BUSINESS PURPOSE. THEREFORE, TAKEN INTO ACCOU NT ALL THE FACTS AND CIRCUMSTANCES, THE PROPORTIONATE DISALLOWANCE OF INTEREST WORKED OUT TO THE TUNE OF RS.71,21,960/ - AND THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS.1,82,36,170/ - . FEELING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THE CIT(A) WHO RESTRICTED THE CLAIM TO THE TUNE OF RS.10,86,398/ - . FEELING AGGRIEVED, THE ASSESSEE FILED THE PRESENT APPEAL BEFORE US. 4. WE HAVE HEARD THE ARGUMENT AND ADVANCED BY THE LD. REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECORD. ALL THE ABOVE SAID ISSUED ARE IN CONNECTION WITH THE INTEREST DISALLOWANCE TO THE TUNE OF RS.10,86,398/ - IN VIEW OF THE PROVISION U/S 36(1)(III) OF THE ACT. THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE ASSESSE ES CAPITAL RESERVES IS TO THE TUNE OF RS.3,06,88,106/ - WHICH IS MORE THAN THE INTEREST FREE FUND AND ADVANCE AMOUNTING TO RS.2,71,54,915/ - AND THE APPELLANT PROVIDED THE INTEREST FREE LOAN AND ADVANCES TO THE APPELLANTS WHOLLY OWN SUBSIDIARY, THEREFORE, N O DISALLOWA NCE IS REQUIRED IN VIEW OF THE LAW SETTLED IN CIT VS. RELIANCE UTILITIES & POWER LTD, CIT VS. RELIANCE COMMUNICATIONS INFRASTRUCTURE LTD., CIT VS. RPG TRANSMISSION LTD. & S.A. BUILDERS LTD. VS. CIT ETC. HOWEVER, ON THE OTHER HAND, THE LD. REPRES ENTATIVE OF THE ITA. NO. 75 /M/201 7 A.Y. 2012 - 13 4 DEPARTMENT HAS REFUTED THE SAID CONTENTION. COPY OF BALANCE - SHEET AS ON 31.03.2012 IS ON THE FILE WHICH LIES AT PAGE NO. 5 OF THE PAPER BOOK. ACCORDINGLY, THE ASSESSEES OWN FUND IS RS. 3,06,88,106 / - . THE APPELLANT INTEREST FREE LOAN AND AD VANCES TO ITS SUBSIDIARY IS TO THE TUNE OF RS.2,71,54,915/ - WHICH IS LESS THAN THE FUND OWN BY THE ASSESSEE. I N VIEW OF THE LAW SETTLED IN CIT VS. RELIANCE UTILITIES & POWER LTD, CIT VS. RELIANCE COMMUNICATIONS INFRASTRUCTURE LTD., CIT VS. RPG TRANSMISSION LTD. & S.A. BUILDERS LTD. VS. CIT (SUPRA). IT WILL BE PRESUMED THAT THE ASSESSEE PROVIDED THE INTEREST FREE LOAN TO ITS SUBSIDIARY FROM HIS OWN FUND. MEANING THEREBY THE BORROWED FUND TO WHICH THE INTEREST WAS CLAIMED WAS NOT UTILIZED FOR LOAN AND ADVANCE S TO ITS SUBSIDIARY. IN VIEW OF THE LAW RELIED UPON THE LD. REPRESENTATIVE OF THE ASSESSEE (SUPRA) , WE ARE OF THE VIEW THAT THE CLAIM OF THE ASSESSEE IS MORE THAN THE INTEREST IS NOT LIABLE TO BE DECLINED IN VIEW OF THE PROVISION U/S 36(1)(III) OF THE ACT, 1961. ACCORDINGLY, WE ALLOWED THE CLAIM OF THE ASSESSEE. 5 . IN RESULT, APPEAL FILED BY THE ASSESSEE IS HEREBY ORDERED TO BE ALLOWED . ORDER P RONOUNCED IN THE OPEN COURT ON 27. 11 .2 018 . SD/ - SD/ - ( RAJESH KUMAR ) (AMARJIT SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 27. 11 . 2018 ITA. NO. 75 /M/201 7 A.Y. 2012 - 13 5 VIJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI