THE PR COMMISSIONER OF INCOME TAX CENTRAL LUDHIANA vs. M/S MBD PRINTOGRAPHICS PVT LTD JALANDHAR

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ITA/20/2017HC Punjab & HaryanaPHHC01117392201708 August 2017Author: MR. JUSTICE SURINDER GUPTA,MR. JUSTICE ARUN MONGA4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeals filed by the revenue. The Court noted that the issue raised in these appeals was concluded by its previous decisions in ITA No. 163 of 2017 (The Pr. Commissioner of Income Tax (Central), Ludhiana v. Shri Satish Bala Malhotra) decided on 17.4.2017 and ITA No. 31 of 2017 (The Pr. Commissioner of Income Tax (Central), Ludhiana v. M/s Malhotra Book Depot) decided on 23.2.2017. In those cases, appeals filed by the revenue on similar issues had also been dismissed. Therefore, following its own precedents, the High Court found no reason to interfere with the ITAT's order deleting the addition of interest expenditure. The ratio decidendi is that if similar issues have been decided by the High Court in favour of the assessee, subsequent appeals on identical grounds will also be dismissed.

What were the facts?

The assessee, M/s MBD Printographics Pvt. Ltd., filed its return for assessment year 2011-12 declaring a loss. During scrutiny, the Assessing Officer noted investments of ₹67,25,52,955/- in sister concerns, where the assessee had not received interest but had claimed bank interest expenditure. Consequently, the Assessing Officer disallowed ₹1,94,74,037/- of bank interest on CC Limit and added it to the assessee's income. The CIT(A) upheld this disallowance. The assessee appealed to the Income Tax Appellate Tribunal (ITAT), which, by an order dated 24.6.2016, allowed the appeal and deleted the addition. The revenue has filed the present appeal against the ITAT's order.

What were the issues?

1. Whether the ITAT erred in deleting the addition of ₹1,94,74,037/- on account of disallowance of interest expenditure, despite the CIT(A)'s finding that the assessee did not demonstrate any business purpose for investments in sister concerns? (Question of law) 2. Whether the ITAT erred in deleting the addition of ₹1,94,74,037/- on account of disallowance of interest expenditure without appreciating the CIT(A)'s finding that funds raised on interest for working capital were needed to offset interest-free investments in sister concerns that served no business purpose? (Question of law) 3. Whether the ITAT erred in law by ignoring that the investment in 'Share Application Money' in sister concerns, whose share capital was almost fully subscribed, constituted a colorable transaction of interest-free loans/advances, which is impermissible? (Question of law) Assessee's contentions: Not recorded in the judgment. Revenue's contentions: The revenue argued that the ITAT erred in deleting the addition of interest expenditure. They contended that the assessee failed to establish a business purpose for its investments in sister concerns and that the funds borrowed on interest were used to fund these interest-free investments, which were essentially colorable transactions of interest-free loans/advances.

Which sections of the Income-tax Act were involved?

Section 260A,Section 143(2),Section 142(1)

AI-generated summary — verify with the full judgment below

ITA-20-2017 (O&M) -1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA-20-2017 (O&M) Date of Decision: 8.8.2017 The Principal Commissioner of Income Tax (Central), Ludhiana ....Appellant. Versus M/s MBD Printographics Pvt. Ltd., Jalandhar ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. HON'BLE MR. JUSTICE AMIT RAWAL. PRESENT: Mr. Rajesh Katoch, Senior Standing Counsel for the appellant. Mr. Pankaj Jain, Senior Advocate with Mr. Sachin Bhardwaj, Advocate for the respondent. AJAY KUMAR MITTAL, J.

1.

This order shall dispose of two appeals bearing ITA-20 and 21- 2017 as according to learned counsel for the parties, similar issues arise for consideration in these appeals. For brevity, the facts are being extracted from ITA-20-2017. 2. ITA-20-2017 has been filed by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 24.6.2016 (Annexure A-III) passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as “the Tribunal”) in ITA No. 195(Asr)/2015 for the assessment year 2011-12, claiming the following substantial questions of law:- Gurbachan Singh 2017.08.28 14:21 integrity of this document

ITA-20-2017 (O&M) -2- (i) Whether on the facts and in the circumstances of the case, the Hon'ble Income Tax Appellate Tribunal, Amritsar Bench, Amritsar has erred in deleting the addition of ` 1,94,74,037/- on account of disallowance of interest expenditure, ignoring the specific finding of the CIT(A) that the assessee had not even attempted to show that the investments in sister concerns served any business purpose? (ii) Whether on the facts and in the circumstances of the case, the Hon'ble Income Tax Appellate Tribunal, Amritsar Bench, Amritsar has erred in deleting the addition of ` 1,94,74,037/- on account of disallowance of interest expenditure without appreciating the finding of the CIT(A) that funds raised on interest for working capital requirements had to be raised to make up for the shortfall caused by interest free investments in sister concerns which did not serve any business purpose for the assessee company? (iii) Whether the Hon'ble ITAT, while allowing relief to the assessee, has erred in law in ignoring an important issue that the investment made by the assessee in the shape of 'Share Application Money' in those sister concerns, the share capital of which was almost fully subscribed, was a colorable Gurbachan Singh 2017.08.28 14:21 integrity of this document

ITA-20-2017 (O&M) -3- transaction of interest free loans/advances to its sister concerns and such colorable transactions are not permissible in the eyes of law?

2.

Put shortly, the facts necessary for adjudication of the present appeal as narrated therein are that the assessee is engaged in the business activity of publication and printing of books and manufacturing of paper. The assessee filed its return of income electronically on 30.9.2011 declaring the total income at ` (-) 1,64,95,079/-. The case was selected for scrutiny under CASS and notice dated 28.8.2012 under Section 143(2) of the Act was issued. Subsequently, statutory notices dated 29.9.2013 and 21.11.2013 under Section 142(1) of the Act along with questionnaires were issued to the assessee followed by queries vide order sheet entries dated 6.12.2013 and 18.12.2013. During the course of assessment proceedings, it was noticed that an amount of ` 67,25,52,955/- was standing as investments in various related sister concerns but the assessee had not received any interest to its sister concern in the shape of 'Share Application Money'. The assessee had claimed expenditure on account of bank interest. Accordingly, the Assessing Officer vide assessment order dated 30.12.2013 (Annexure A- I) disallowed the expenditure of ` 1,94,74,037/- of bank interest on CC Limit and added the same to the income of the assessee. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [for brevity “the CIT (A)”]. The CIT(A) vide order dated 27.2.2015 (Annexure A-II) confirmed the disallowance of interest expenditure made by the Assessing Officer and dismissed the appeal. Against the order, Annexure A-II, of the CIT(A), the assessee filed an appeal before the Tribunal, who vide order dated 24.6.2016 (Annexure A- Gurbachan Singh 2017.08.28 14:21 integrity of this document

ITA-20-2017 (O&M) -4- III) allowed the appeal and deleted the additional on account of disallowance of interest expenditure. Hence, the present appeals by the revenue.

3.

We have heard learned counsel for the parties.

4.

It is not disputed by the learned counsel for the revenue that the issue raised herein stands concluded by the decisions of this Court in ITA No. 163 of 2017 [The Pr. Commissioner of Income Tax (Central), Ludhiana v. Shri Satish Bala Malhotra, Legal Heir of Shri Ashok Kumar Malhotra, Prop. M/s Modern Publishers, MBD House, Railway Road, Jalandhar] decided on 17.4.2017 and ITA No. 31 of 2017 [The Pr. Commissioner of Income Tax (Central), Ludhiana v. M/s Malhotra Book Depot, MBD House, Railway Road, Jalandhar] decided on 23.2.2017 wherein the appeals filed by the revenue on similar issues have been dismissed.

5.

In view of the above, both the appeals are dismissed. (AJAY KUMAR MITTAL) JUDGE August 8, 2017 (AMIT RAWAL) gbs JUDGE Whether Speaking/Reasoned Yes Whether Reportable Yes Gurbachan Singh 2017.08.28 14:21 integrity of this document

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