Income Tax Appellate Tribunal - Delhi
Shree Vasu Automobiles Ltd., Meerut vs Department Of Income Tax on 20 August, 2010
ITA NO. 5312/Del/2010
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "G", NEW DELHI
BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER
AND
SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
I.T.A. No. 5312/Del/2010
A.Y. : 2007-08
Asstt. Commissioner of Income Tax, vs. M/s Shree Vasu Automobiles Ltd.,
Central Circle, Meerut C-1, Shatabdi Nagar, Meerut
(PAN/GIR NO. : AAICS2245N)
(Appellant ) (Respondent )
Assessee by : Sh. Ashwani Taneja, Adv. & Sh.
Tarun Kumar, Adv.
Department by : Dr. Prabha Kant, Sr. D.R.
ORDER
PER SHAMIM YAHYA: AM This appeal by the Revenue is directed against the order of the Ld. Commissioner of Income Tax (Appeals), Meerut dated 20.8.2010 pertaining to assessment year 2007-08.
2. The grounds raised read as under:-
"1. CIT(A) erred in law in deleting the addition of Rs.
16,96,425/- as being proportionate interest disallowed by the AO, on a wrong appreciation of facts and without any basis treating it to be allowable in terms of commercial exigencies without giving a finding whether the expenses have been incurred wholly and exclusively for the business of the assessee.1
ITA NO. 5312/Del/2010
2. CIT (A) ignored the findings to this effect by the AO that there was no such commercial exigency for which interest free loan be given to the holding Company M/s J. Sons & Co., out of the intt. Bearing loan received from financial institutions.
3. CIT (A) erred in deleting the aforesaid addition without any basis substituting his own satisfaction in place of AD's satisfaction by holding that the assessee has sufficient non intt. Bearing fund in the shape of share capital, reserves and other surpluses which could be advances as interest free loan to its holding Company. CIT(A) has not pointed out any facts which could indicate that only these surpluses were given to the holding Company.
4. That the order of the Ld. CIT (Appeals) being erroneous in law and on facts be vacated and the order of the A.O. be restored.
5. That the appellant craves leave to amend anyone or more of the grounds of the appeal as stated above as and when need for during so may arise."
3. Assessee company in this case is a authorized passenger car dealer of M/s Tata Motors. Assessee company is a wholly owned subsidiary company of M/s J. Sons Company Limited. In the assessment order the Assessing Officer disallowed the interest of ` 1696425/- on the ground that assessee has incurred interest on loan and claimed the deduction whereas interest free funds have been given to holding company M/s J. Sons Engineering Corpn. Ltd.
2ITA NO. 5312/Del/2010 Assessing Officer was of the opinion that assessee has failed to prove that the interest debited in the P&L account had been incurred wholly, necessarily and exclusively for the purpose of its business. Assessing Officer opined that assessee was not entitled to deduction u/s. 36(1)(iii) of the I.T. Act in respect of the proportionate interest on borrowed funds to the extent it has been advanced to its holding company M/s J. Sons Company Ltd. and thus, this proportionate interest, which works out at ` 16,96,426/- was disallowed.
4. Upon assessee's appeal Ld. Commissioner of Income Tax (A) considered the submissions. Ld. Commissioner of Income Tax (A) observed that assessee derives a host of benefits from its holding company which include corporate guarantee given by the holding company to State Bank of Bikaner and Jaipur as well as ICICI Bank to secure cash credit limits of the assessee without charging any guarantee fee on mortgage of immovable property of the holding company as security of the above mentioned cash credit limits of the assessee. Further there was provision of vacant land owned by the holding company which was used by the assessee for parking of new vehicles of the assessee without charging any interest and provision of building to be used as showroom by the assessee at a nominal rent. It was further submitted that assessee does not own any immovable property in Meerut which it could use as stockyard for its business. Thus, Ld. Commissioner of Income Tax (A) opined that practically the business of the assessee is run by the support and facilities provided by the holding company. Ld. Commissioner of Income Tax (A) further held that it is established beyond doubt that money lent to the holding company was a measure of commercial expediency. In such view of the matter, the interest could not be disallowed. Ld. Commissioner 3 ITA NO. 5312/Del/2010 of Income Tax (A) further placed reliance in this regard inter-alia on the decision of the Hon'ble Apex Court decision in the case of SA Builders vs. C.I.T. 288 ITR 1. Ld. Commissioner of Income Tax (A) observed that the above case law is squarely applied in the case of the assessee. Further, Ld. Commissioner of Income Tax (A) accepted the assessee's contention that loan to the holding company was given out of own funds and not out of capital borrowed from bank. He observed that non-interest bearing funds, viz. share capital, reserves and surplus with the assessee amounted to ` 1.74 crores while the average lending amounted to ` 1.41 crores. He held that on these facts also no disallowance of interest on borrowed funds could be made following the Jurisdictional High Court in C.I.T. vs. Prem Heavy Engineering Works Pvt. Ltd. (2006), 285 ITR 554 (All.) and C.I.T. vs. Radico Khaitan Ltd. (2005) 142 Taxman 681 (All.).
5. Against the above order the Revenue is in appeal before us.
6. Ld. Departmental Representative submitted that Assessing Officer has given a reasonable order and the same should be sustained. He further claimed that Ld. Commissioner of Income Tax (A) has accepted the fresh arguments / materials from the assessee which were not before the Assessing Officer. Hence, Ld. Departmental Representative pleaded that the matter should be remitted to the file of the Assessing Officer to enable him to go through the materials / arguments made by the assessee, before the Ld. Commissioner of Income Tax (A). Ld. Counsel of the assessee on the other hand submitted that no such ground has been raised by the Revenue. He further submitted that loans were coming from the earlier year and this year infact there is some decrease, the loan was given in earlier 4 ITA NO. 5312/Del/2010 period and no interest was disallowed. He further submitted that commercial expediency of the loan is fully established in this case and hence, there should not be any disallowance of interest. He further submitted that assessee has sufficient own funds to grant the loan to the holding company and interest bearing funds in this case were not used.
7. We have carefully considered the submissions and perused the records. We find that in this case assessee has granted the loans to the holding company. The assessee derives a host of benefits from its holding company which include corporate guarantee given by the holding company to the banks to secure cash credit limits of the assessee without charging any guarantee fee on mortgage of immovable property of the holding company as security of the above mentioned cash credit limits of the assessee. Further we note that holding company had provided the vacant land owned by it for parking of new vehicles of the assessee without charging any interest and provision of building to be used as showroom by the assessee at a nominal rent. We also note that assessee has submitted that assessee does not own any immovable property in Meerut which it could use as stockyard for its business. Considering the above, we are of the opinion that money lent by the holding company was a measure of commercial expediency. In this regard ratio from the Hon'ble Apex Court in the case of SA Builders vs. C.I.T. 288 ITR 1 is applicable. In 5 ITA NO. 5312/Del/2010 this case, it was held that interest on borrowed funds cannot be disallowed, if the assessee has advanced interest free loans to its sister concerns as a measure of commercial expediency.
7.1 We further note that assessee has given the submissions which have been accepted by the Ld. Commissioner of Income Tax (A) that assessee has sufficient non-interest bearing funds to advance the loan to the holding company. In this regard, ld. Counsel of the assessee has relied on the case law from the Hon'ble Allahabad High Court in the case of C.I.T. vs. Prem Heavy Engineering Works (P) Ltd. in 285 ITR 554. In this case it was held that interest paid by the assesse on bank overdraft could not be partly disallowed on the ground that the it had made interest-free advances to its sister concern since assessee had sufficient amount of own funds in the form of share capital, reserves and surplus and interest-free borrowings to cover the interest-
free advances made by it. We find that the above case law is also applicable on the facts of the present case.
In this view of the matter also the disallowance of interest is not justified. Furthermore, we find that the loan is coming from earlier years. Furthermore, no disallowance was made in earlier period.
Since there is no change in the facts of the case, disallowance of interest in the present year is not justified.
6ITA NO. 5312/Del/2010
8. In the background of the aforesaid discussions and precedents, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (A). Accordingly, we uphold the same.
9. In the result, the appeal filed by the Revenue stands dismissed.
Order pronounced in the open court on 28/9/2012.
Sd/- Sd/-
[I.C. SUDHIR]
SUDHIR] [SHAMIM YAHYA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date 28/9/2012
"SRBHATNAGAR"
Copy forwarded to: -
1. Appellant 2. Respondent 3. CIT 4. CIT (A)
5. DR, ITAT
TRUE COPY
By Order,
Assistant Registrar,
ITAT, Delhi Benches
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