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Income Tax Appellate Tribunal, DELHI BENCH: “E”, NEW DELHI
Before: SHRI BHAVNESH SAINI & SHRI O.P. KANT
Date of hearing 19.03.2019 Date of pronouncement 12.04.2019 ORDER PER O.P. KANT, A.M.: These two appeals by the assessee are directed against two separate orders dated 31/08/2012 passed by the Ld. Commissioner of Income-tax (Appeals)-XI, New Delhi [in short the Ld. CIT(A)] for assessment year 2008-09 and 2009-10. The issues in dispute involved in both appeals are identical, thus, same were heard together and disposed off by way of this consolidated order for convenience and avoid repetition of facts.
2. Grounds raised in 2008-09 are reproduced as under: 1.1 That on the facts and in the circumstances of the petitioner company's case, the learned Commissioner of Income tax (Appeals) erred in law in rejecting the contention of the assessee company 2 & 5739/Del/2012 whereby the assessee company had challenged the jurisdiction of the learned Dy. p Commissioner of Income tax (OSD) 2(3), Mumbai in completing the assessment at Mumbai. 1.2 The learned CIT(A) erred in not appreciating that since the assessee company had shifted its registered office from Mumbai to Delhi, the learned DCIT, (OSD) 2(3), Mumbai did not hold valid jurisdiction over the assessee company's case while completing the assessment under section 143(3) of the Act for assessment year 2008-09.
That on the facts and in the circumstances of the petitioner company's case, the learned Commissioner of Income tax (Appeals) was wrong in confirming the addition made by the learned assessing officer by treating notional interest of Rs. 45,00,000, on interest free loans advanced to an associate concern namely Sun Securities (India) Private Limited, as income of the assessee company.
3. That on the facts and in the circumstances of the petitioner company's case, the learned Commissioner of Income tax (Appeals) was wrong in confirming the disallowance of Rs. 23,824 out of travelling expenses incurred by the assessee company and in treating the same as purchase of camera. 2.1 Grounds raised
in ITA No. 5739/Del/2012 for assessment year 2009-10 are reproduced as under; 1.1 That on the facts and in the circumstances of the petitioner company's case, the learned Commissioner of Income tax (Appeals) erred in law in not treating the assessment order dated 21.12.2011 made under section 143(3) of the Act by the learned assessing officer Ward 8(1), New Delhi as invalid and bad in law as the notice dated 09.09.2010 made under section 143(2) of the Act was served on the assessee company on 10.10.2010 which is beyond the period prescribed for service of such notice. 1.2 The learned CIT(A) erred on facts and in law in not treating the assessment order dated 21.12.2011 as invalid and bad in law even while holding that the date of service of notice made under section 143(2) of the Act is not verifiable even though the onus to prove service of notice made under section 143(2) of the Act is on the assessing officer.
2. That on the facts and in the circumstances of the petitioner company's case, the learned Commissioner of Income tax (Appeals) was wrong in confirming the addition made by the learned assessing officer by treating notional interest of Rs. 45,00,000, on interest free loans advanced to an associate concern namely Sun Securities (India) Private Limited, as income of the assessee company.
Briefly stated facts of the case are that the assessee company filed return of income for assessment year 2008-09 on 30/09/2008 declaring nil income and for assessment year 2009- 10 on 13/09/2009 declaring nil income. In both the assessment years, the case was selected for scrutiny and statutory notices were issued and complied with. In assessment proceedings completed under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’), the Assessing Officer made addition for notional interest income of Rs.45,00,000/- on the advances of Rs.4,50,00,000/- to its holding company M/s. SUN Securities (India) Private Limited. The Ld. CIT(A) upheld the addition in both the assessment years. Aggrieved, the assessee is before the Tribunal raising the grounds as reproduced above.
At the outset, the Ld. counsel of the assessee did not press the ground No. 1.1 and 1.2 in both the assessment years. Accordingly, these grounds are dismissed as infructuous. 5. The ground No.2 raised in both the appeal is identical. In said ground, the assessee is aggrieved by confirming the addition of Rs.45,00,000/- on interest-free loans advanced to parent company . 5.1 Before us, the Ld. counsel of the assessee filed two paper books containing pages 1 to 33 and 1 to 38 for assessment year 2008-09 and assessment year 2009-10 respectively. The Ld. counsel of the assessee submitted that the assessee advanced two loans of Rs. 3 crore and Rs. 1.5 crore by way of two separate agreements dated 19/09/2003 and 30/12/2003 to its holding company M/s SUN Securities (India) Private Limited. A copy of the loan agreement has been filed by the assessee at page No. 19 4 & 5739/Del/2012 to 23 and 24 to 29 of the paperbook for assessment year 2008-09. According to the agreement both parties agreed for charging interest rate of 10% per annum. These agreements are duly registered for stamp duty registration of the state of Maharashtra. However, subsequently two separate addendums dated 21/12/2005 were signed between the parties to the agreement dated 19/09/2003 and 30/12/2003. Copy of these addendums are placed on pages 30 to 31 and pages 32 to 33 of the paper- book for assessment year 2008-09. According to the addendum both parties agreed to make the loan interest-free. 5.2 Before us, the learned counsel referred to page 17 of the paper-book and submitted that in notes to account to the financial statement, it is mentioned that the loans were advanced to the parent company for exploring new business opportunities and to increase the shareholding in the company and were payable at the end of the 3 years from the date of disbursement together with interest but later in view of the weak financial status of the holding company, it was agreed to waive the interest component. 5.3. The Ld. counsel further submitted that the assessee had waived the interest on advances, before it accrued to the assessee and accordingly it would not be added to the income of the assessee. The Ld. counsel relied on the decision of the Hon’ble Supreme Court in the case of CIT, Ahmedabad Vs Sarabhai Holding Private Limited (307 ITR 89) and submitted that when the law permits for modifying the mutual agreement to waive the interest, no interest would accrue to the assessee. The learned counsel submitted that interest was charged upto assessment year 2004-05, however, from assessment year 2005-06, no 5 & 5739/Del/2012 interest has been charged as the holding company was in losses and there was doubt even in respect of the repayment of the principal amount. According to the learned counsel, the loans were given for commercial expediency. The learned counsel submitted that in assessment year 2007-08, the Ld. CIT(A) deleted the addition made in assessment on this account. He submitted that in assessment year 2011-12 also similar addition has been deleted by the Ld. CIT(A). 5.4 On the contrary, the Ld. DR relied on the order of the Ld. CIT(A). On the argument of the learned counsel that loans were advanced for business exploration, the Ld. DR submitted that when the holding company itself was not engaged in any business, giving interest-free advance in the name of business exploration was not justified and cannot be said as for business expediency. 5.6 We have heard the rival submission of the parties on the issue in dispute. The undisputed facts are that the loans of Rs. 4.5 crores were initially advanced to holding company in financial year 2003-04 with interest rate 10%. The assessee in the assessment year 2004-05 duly declared this interest income also. However, w.e.f. December 2005, the assessee and the holding company modified agreement by way of addendum and waived off the interest charged on the loans. In assessment year 2007-08, the Assessing Officer made addition for the notional interest income of Rs. 45 lakh on the said loans of Rs. 4.5 crore. The said addition was deleted by the Ld. CIT(A) and the Department filed appeal before the Tribunal. However, the said appeal of the Department has been dismissed in view of the low tax effect involved. In the circumstances before us, the question arises, 6 & 5739/Del/2012 whether any interest accrued on the said loan advanced to Holding Co. In the instant year before us, the Ld. Counsel has relied on the decision of the Hon’ble Supreme Court in the case of Sarabhai Holdings Private Limited (supra). In the said case also, the assessee had transferred its industrial unit to its subsidiary company and entered the agreement of sale, part of sale consideration was to be paid by way of the deposit and balance sale consideration was to be paid in 8 equal installments. The agreement provided for an interest rate at the rate of 11% per annum on a balance sale consideration. Later on the agreement was modified containing the terms without carrying any interest. The Assessing Officer issued notice for amount of advance tax on the interest income accrued on deferred sale consideration. The Commissioner (Appeals) upheld the order of the assessment. In 2nd appeal, the Tribunal held that amount of interest could not be included in the income of the assessee since the resolution to modify the interest rate had been fast prior to the commencement of the relevant accounting year. The Hon’ble Supreme Court upheld the finding of the Tribunal as well as of the Hon’ble High Court observing as under:
“ 25. At this juncture, we cannot forget that the assessment for the asst. yr. 1980-81 was finalized by the Tribunal by holding that the interest could not be included. We, therefore, fail to follow, as to how, the said interest could be treated as an income, so as to compel the assessee to pay advance tax on the same. We, therefore, do not see any justification for a show-cause notice under s. 274 r/w s. 273(2)(a) of the Act on the ground that the assessee had deliberately filed an untrue estimate of the advance tax which he had known or reason to believe to be untrue. In our opinion, the Tribunal as well as the High Court were right in holding the transaction to be genuine.
We agree with the High Court's finding that the law permits the contracting parties to lawfully change their stipulations by mutual agreement and, therefore, the assessee and the vendee had no legal impediment in modifying the terms of their contract. We also agree 7 & 5739/Del/2012 with the further finding of the High Court that the resolution could not be given any retrospective effect so as to facilitate evasion of tax liability that had already arisen for the asst. yr. 1979-80. We further agree with the High Court's finding that it being a valid stipulation, changed the mode of payment from the date of the resolution and, therefore, under the changed mode of payment adopted under the resolution dt. 30th June, 1978, no interest was to accrue during the accounting period from 1st July, 1978 upto 30th June, 1979 and, therefore, the reasoning of the Tribunal on that count appeared to be correct as regards the asst. yr. 1980-81 is concerned. We further confirm the finding that since no interest had accrued in the accounting year 1st July, 1978 to 30th June, 1979, there could arise no question of relinquishment of interest for any commercial expediency. There was no such question because a party cannot relinquish income that has not accrued at all. We, therefore, accept the judgment of the High Court insofar as it pertains to the Ref. No. 56 of 1986. The High Court has correctly found that in view of the categorical stipulation that interest will be payable on the deferred consideration amount in respect of the sale, which became effective from 1st March, 1977, the interest started accruing on that time basis, from 1st March, 1977 determined by the amount outstanding from time to time and the rate applicable which both were stipulated in clearest possible terms in the deed of assignment dt. 28th June, 1977 and the agreements which preceded it. The High Court has assessed the facts correctly and has further observed in para 14.7 that what already accrued during the accounting year 1st July, 1977 to 30th June, 1978 could not be nullified by the resolution dt. 30th June, 1978, however, the same rule could not be applicable to the subsequent accounting year, when the interest had not accrued. We, therefore, confirm the finding of the High Court insofar as Ref. No. 56 of 1986 is concerned and hold that the High Court had correctly decided the Ref. No. 56 of 1986 insofar as it pertains to asst. yr. 1980-81.” 5.6.3 In the instant case before us also, the parties has agreed to modify the original agreement waiving the interest charged on the loan and that modification was done by way of addendum dated 21/12/2005, which is prior to the assessment year under consideration i.e. 2008-09 & 2009-10, thus respectfully following the above finding of the Hon’ble Supreme Court, we delete the addition in dispute. Accordingly, the grounds of the appeal is allowed both for assessment year 2008-09 and 2009-10.
8 & 5739/Del/2012 6. In ground No. 3 of the appeal for assessment year 2008-09, the assessee claimed allowance of Rs.23,824/- out of travelling expenses on purchase of the camera. 6.1 We have heard the rival submissions and perused the relevant material on record. The Ld. CIT(A) has upheld the disallowance observing as under: “Ground No. 4 is in r/o of the AO disallowing Rs.23,824/- of travelling expenses stating it was for purchase of camera. I am not convinced by the reasons given by the appellant on this issue. The voucher given by the appellant clearly states “travel and purchase of camera”. The appellant has not been able to prove the business purpose of the expense. In view thereof the addition of Rs.23,824/- is confirmed. This ground of appeal is ruled against the appellant.” 6.2 The assessee has failed to substantiate even before us the business use of the purchase of camera accordingly, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute. Accordingly, this ground of appeal is dismissed. 6.3 In the result, the appeal of the assessee for assessment year 2008-09 is partly allowed, whereas appeal for the assessment year 2009-10 is allowed. Order is pronounced in the open court on 12th April, 2019.