M/s. Land Marvel Homes, CHENNAI V. ACIT, CHENNAI

ITA 941/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0752 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 07-02-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 26-04-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M RATHINASWAMY IRS
• Assessee Lawyers: G BASKAR
• Keywords: Notional interest
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE DR. O.K. NARAYANAN,VICE-PRESID ENT AND SHRI VIKAS AWASTHY, JUDICIAL MEM BER ITA NOS.681 & 941/MDS/2012 (ASSESSMENT YEARS: 2007-08 & 2008-0 9) M/S. LAND MARVEL HOMES, 9/23, 1 ST CROSS STREET, KASTHURIBAI NAGAR, ADYAR, CHENNAI-600 020. PAN: AABFL4387N VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-IV, CHENNAI-600 034. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. G.BASKAR, ADVOCATE RESPONDENT BY : MR. M.RATHINASWAMY, IRS, CIT DATE OF HEARING : 7 TH FEBRUARY, 2013 DATE OF PRONOUNCEMENT : 26 TH FEBRUARY, 2013 O R D E R PER VIKAS AWASTHY, JM: APPEAL NO.681/MDS/2012 HAS BEEN FILED BY THE ASSESSEE IMPUGNING THE ORDER OF THE CIT(A)-VIII, CH ENNAI DATED 25.11.2011 FOR THE ASSESSMENT YEAR 2007-08. ANOTHER APPEAL NO.941/MDS/2012 RELEVANT TO THE ASSESSMENT Y EAR 2008-09 HAS ALSO BEEN FILED BY THE ASSESSEE IMPUGNI NG THE ORDER OF THE CIT(A)-VIII, CHENNAI DATED 26.03.2012 . A COMMON ISSUE IS INVOLVED IN BOTH THE APPEALS FOR A DJUDICATION REGARDING DISALLOWANCE UNDER SECTION 14A ON ACCOUNT OF ITA NOS.681 & 941/MDS/2012 2 INTEREST FREE LOAN ADVANCED BY THE ASSESSEE COMPANY TO ITS SISTER CONCERNS. 2. THERE IS A DELAY OF 69 DAYS IN FILING OF ITA NO.681/MDS/2012 BY THE ASSESSEE. THE ASSESSEE HAS FILED AN APPLICATION FOR CONDONATION OF DELAY. THE APPLIC ATION HAS BEEN SUPPORTED BY AN AFFIDAVIT GIVING REASONS FOR T HE DELAY IN FILING OF THE APPEAL. WE ARE SATISFIED WITH THE REA SONS EXPLAINING DELAY IN FILING OF THE APPEAL. THEREFO RE, WE CONDONE THE DELAY OF 69 DAYS AND ADMIT THE APPEAL T O BE HEARD ON MERITS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM CARRYING ON REAL ESTATE BUSINESS A ND FLAT PROMOTION. IN THE ASSESSMENT YEAR 2007-08 THE ASSE SSEE FILED ITS RETURN OF INCOME ADMITTING TOTAL INCOME O F ` 34,44,921/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) WAS ISSUED TO THE ASSESSEE. THE ASSESSING OFFICER VIDE ASSESSMENT ORD ER DATED 15.12.2009 DISALLOWED INTEREST PAID ON THE AD VANCES AMOUNTING TO ` 4,41,86,247/- TO THE SISTER CONCERNS I.E. LAND MARVEL ANIMATION STUDIO, LAND MARVEL IT SYSTEMS LTD . AND ITA NOS.681 & 941/MDS/2012 3 LAND MARVEL INCORPORATE US WITHOUT CHARGING ANY INT EREST. THE ASSESSING OFFICER HELD THAT THERE WAS NO BUSINE SS EXPEDIENCY FOR THE INTEREST FREE ADVANCES TO THE SI STER CONCERNS OUT OF THE CAPITAL OF THE ASSESSEE WHICH CONSISTED OF BORROWED INTEREST BEARING FUNDS. THE SAME HAS T O BE DISALLOWED AND MADE ADDITION TO THE TUNE OF ` 1,14,88,424/- BEING NOTIONAL INTEREST @ 26% ON THE MONIES BORROWE D FROM CREDITORS. 4. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSE SSEE PREFERRED AN APPEAL BEFORE THE CIT(A) ON THE GROUND THAT THE INTEREST ADOPTED @ 26% IS VERY MUCH ON THE HIGHER S IDE AND THAT THE ASSESSING OFFICER HAS ERRED IN OVERLOOKING THAT ADVANCES WERE NOT MADE TO THE SISTER CONCERNS DURIN G THE YEAR BUT WERE MADE IN THE EARLIER YEAR FOR CERTAIN BUSINESS TRANSACTION. THE CIT(A) VIDE ORDER DATED 25.11.201 1 DISMISSED THE APPEAL OF THE ASSESSEE ON THE GROUND THAT NOTIONAL INTEREST WAS WORKED OUT BY MANAGING PARTNE R OF THE ASSESSEE FIRM HIMSELF ON THE ADVANCES MADE TO THE S ISTER CONCERNS @ 26% .THE MANAGING PARTNER WHO IS FULLY ITA NOS.681 & 941/MDS/2012 4 ACQUAINTED WITH THE BUSINESS OF THE ASSESSEE HAS MA DE STATEMENT TO THIS EFFECT ON 15.12.2009. AGGRIEVED AGAINST THE ORDER OF THE CIT(A), THE ASS ESSEE HAS COME IN SECOND APPEAL BEFORE THE TRIBUNAL FOR T HE ASSESSMENT YEAR 2007-08. 5. SHRI G.BASKAR APPEARING ON BEHALF OF THE ASSESSE E SUBMITTED THAT THE AMOUNT WAS INVESTED BY THE ASSES SEE FIRM IN THE COMPANIES SET UP IN SPECIAL ECONOMIC ZONE AN D IT COMPANIES. THE COUNSEL FURTHER CONTENDED THAT ADDI TION HAS BEEN MADE @ 26% INTEREST WHICH IS VERY MUCH ON THE HIGHER SIDE. HE FURTHER CONTENDED THAT THE CIT(A) HAS ERR ED IN UPHOLDING THE FINDINGS OF THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSMENT ORDER HAS BEEN PASSED ON THE AD MISSION OF THE ASSESSEE. THE COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE A.R OF THE ASSESSEE BEFORE THE CIT(A) HAD GIVEN WORKING AT THE AVERAGE RATE OF INTEREST ON THE TOTAL BORROW ED FUNDS WHICH CONSISTS OF SECURED AS WELL AS UNSECURED LOAN S @ 16.55% AND PRAYED FOR DELETION OF INTEREST MADE @ 2 6%. HOWEVER, THE CIT(A) FAILED TO TAKE INTO CONSIDERATI ON THE ITA NOS.681 & 941/MDS/2012 5 SUBMISSIONS OF THE A.R. OF THE ASSESSEE AND CONFIRM ED THE ORDER OF THE ASSESSING OFFICER. 6. FOR THE ASSESSMENT YEAR 2008-09, THE ASSESSING OFFICER VIDE ASSESSMENT ORDER DATED 29.12.2010 HAD MADE INTER-ALIA ADDITIONS ON ACCOUNT OF INTEREST FREE ADVANCES GIV EN BY THE ASSESSEE TO ITS SISTER CONCERNS AS WELL AS P AYMENT OF INTEREST AMOUNTING TO ` 75,50,000/-. THE ASSESSEE HAS ASSAILED THE ORDER OF THE ASSESSING OFFICER BEFORE THE CIT(A). THE CIT(A) VIDE ORDER DATED 26.03.2012 DISMISSED TH E APPEAL OF THE ASSESSEE CONFIRMING THE FINDINGS OF THE ASSE SSING OFFICER. THE ASSESSEE HAS COME IN SECOND APPEAL BE FORE THE TRIBUNAL. THE COUNSEL FOR THE ASSESSEE HAS PRESSED ONLY SINGLE GROUND WITH REGARD TO DISALLOWANCE OF INTER EST FREE LOAN GIVEN BY THE ASSESSEE TO ITS SISTER CONCERNS. NO OT HER GROUND ON WHICH THE ADDITIONS WERE MADE BY THE ASSESSING O FFICER AND CONFIRMED BY THE CIT(A) HAVE BEEN PRESSED BY TH E LEARNED COUNSEL FOR THE ASSESSEE FOR THE ASSESSMENT YEAR 2008-09. 7. SHRI M.RATHINASWAMY APPEARING ON BEHALF OF THE REVENUE SUBMITTED THAT THE ASSESSEE HAD MADE BORROW INGS ITA NOS.681 & 941/MDS/2012 6 FROM BANKS AS WELL AS FROM THIRD PARTIES. THE BORRO WINGS MADE FROM THIRD PARTIES BY THE ASSESSEE WERE @ 26%. THE D.R. STRONGLY SUPPORTED THE ORDERS OF THE CIT(A) FO R THE RESPECTIVE ASSESSMENT YEARS. 8. WE HAVE HEARD THE SUBMISSIONS MADE BY BOTH THE PARTIES AND HAVE PERUSED THE ORDERS OF THE AUTHORIT IES BELOW. A PERUSAL OF THE ORDER OF THE CIT(A) DATED 25.11.20 11 FOR THE ASSESSMENT YEAR 2007-08 SHOWS THAT THE ASSESSING OF FICER HAS MADE ADDITION @ 26% AS DEEMED INTEREST ON THE LOAN ADVANCED BY ASSESSEE TO ITS SISTER CONCERNS. IN OU R VIEW, INTEREST @ 26% IS VERY MUCH ON THE HIGHER SIDE AND IS UNJUSTIFIED. THE ASSESSEE HAD FILED WORKING STATEM ENT CALCULATING AVERAGE RATE OF INTEREST AT 16.55% . F OR THE ASSESSMENT YEAR 2008-09 THE ASSESSING OFFICER HAS A DOPTED INTEREST @ 11%. IT IS AN ADMITTED FACT THAT THE AS SESSEE HAS ADVANCED FUNDS TO THE SISTER CONCERNS. THE ASSESSEE COULD NOT PLACE ON RECORD ANY DOCUMENT TO SHOW THAT THE F UNDS ADVANCED WERE FROM OWN CAPITAL OF THE ASSESSEE COMP ANY. THEREFORE, THE BENEFIT EARNED BY THE SISTER CONCERN S ON THE ITA NOS.681 & 941/MDS/2012 7 LOANS ADVANCED BY THE ASSESSEE OUT OF INTEREST BEA RING ADVANCES ARE NOT OUT OF BUSINESS EXPEDIENCY. 9. IN VIEW OF OUR ABOVE FINDINGS, THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2007-08 IS PARTLY ALLOWED, WHEREIN THE RATE OF INTEREST IS REDUCED FROM 26% TO 16.55% AS ADOPTED BY THE ASSESSEE. IN THE APPEAL FOR THE A SSESSMENT YEAR 2008-09, RATE OF INTEREST IS @ 11% WHICH IS VE RY MUCH NOMINAL. WE THEREFORE, UPHOLD THE ORDER OF THE CIT( A) AND DISMISS THE APPEAL OF THE ASSESSEE. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO.681/MDS/2012 IS PARTLY ALLOWED AND ITA NO.941/MD S/2012 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON TUESDAY, THE 26 TH DAY OF FEBRUARY, 2013 AT CHENNAI. SD/- SD/- ( DR. O.K.NARAYANAN ) (VIKAS AWASTHY) VICE-PRESIDENT JUDICIAL MEMBER CHENNAI, DATED THE 26 TH FEBRUARY, 2013. SOMU COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.