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Income Tax Appellate Tribunal, - 4 -
- 1 - ITA No. 324/2019 C/W ITA No. 326/2019
IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 29TH DAY OF MAY, 2023 PRESENT THE HON'BLE MR JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR JUSTICE T.G. SHIVASHANKARE GOWDA INCOME TAX APPEAL NO. 324 OF 2019 C/W INCOME TAX APPEAL NO. 326 OF 2019
IN I.T.A No. 324/2019
BETWEEN:
THE PR. COMMISSIONER OF INCOME-TAX CIT(A), 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095.
THE ASST. COMMISSIONER OF INCOME-TAX CIRCLE-1(2)(1), 2ND FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095. …APPELLANTS
(BY SHRI. M. DILIP, STANDING COUNSEL FOR SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL)
AND:
M/S. BANGALORE HOUSING DEVELOPMENT AND INVESTMENTS NO.10/1, LAKSHMINARAYANA COMPLEX PALACE ROAD BENGALURU-560 052. PAN-AAGFB 0819A …RESPONDENT
(BY SHRI. ARVIND KAMATH, SENIOR ADVOCATE FOR SHRI. POPAT PRASHANT DHARMASINH, ADVOCATE)
Digitally signed by ANUSHA V Location: HIGH COURT OF KARNATAKA
- 2 - ITA No. 324/2019 C/W ITA No. 326/2019
THIS ITA IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961, ARISING OUT OF THE ORDER DATED 07/11/2018 PASSED IN ITA NO. 425/BANG/2018, FOR THE ASSESSMENT YEAR 2014-2015, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED THEREIN AND ETC.
IN I.T.A No. 326/2019
BETWEEN:
THE PR. COMMISSIONER OF INCOME-TAX CIT(A), 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095.
THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-1(2)(1), 2ND FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095. …APPELLANTS
(BY SHRI. M. DILIP, STANDING COUNSEL FOR SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL)
AND:
M/S. BANGALORE HOUSING DEVELOPMENT AND INVESTMENTS NO.10/1, LAKSHMINARAYANA COMPLEX PALACE ROAD BENGALURU-560 052. PAN-AAGFB 0819A …RESPONDENT
(BY SHRI. ARVIND KAMATH, SENIOR ADVOCATE FOR SHRI. POPAT PRASHANT DHARMASINH, ADVOCATE)
THIS ITA IS FILED UNDER SECTION 260-A OF THE INCOME TAX ACT, 1961, ARISING OUT OF THE ORDER DATED 07/11/2018 PASSED IN ITA NO.557/BANG/2018, FOR THE ASSESSMENT YEAR 2014-2015, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED THEREIN AND ETC.
- 3 - ITA No. 324/2019 C/W ITA No. 326/2019
THESE ITAs, COMING ON FOR HEARING, THIS DAY, P.S.DINESH KUMAR, J., DELIVERED THE FOLLOWING:
JUDGMENT
These two appeals by the Revenue are directed against the common order dated November 7, 2018 in ITAs No.425 and 557/Bang/2018 for the A.Y.2014-15 passed by the ITAT1, Bengaluru. 2. Heard Shri M.Dilip, learned standing counsel for the Revenue and Shri Arvind Kamath, learned Senior Advocate for the assessee. 3. Though these appeals have been admitted to consider three questions, Shri Dilip prays that all six questions raised in this appeal may be considered and they read as follows: “1. Whether on the facts and in the circumstances of the case, the Tribunal is right in allowing expenses claimed by the assessee can be held as "Business expenses" and same can be allowed to be set off against income from Commission / Income from other sources when there is no nexus between the expenses and the income and same is not allowable under the provisions of section 37(1) of the Act?
1 Income Tax Appellate Tribunal
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Whether on the facts and in the circumstances of the case, the Tribunal is justified in allowing the expenses claimed as business expenses, when the assessee had ceased to have active business activities in the earlier years and did not show any revival during the relevant financial year 3. Whether on the facts and in the circumstances of the case, expenses claimed by the assessee can be held as "Business expenses" when the assessee had no reported business activities during the relevant financial year and income disclosed was from commission earned and income from other sources?
Whether on the facts and in the circumstances of the case, expenses claimed by the assessee can be held as "Business expenses" and allowed to be set-off against income from commission / income from other sources, contrary to the principle laid down by Apex Court in the case of Tuticorin Alkali Chemicals and Fertiliserz Ltd. Vs CIT (227 ITR 172), wherein, it is held that no adjustment can be allowed except in accordance with provisions of the Act?"
Whether on the facts and in the circumstances of the case, the Tribunal is right in holding that there was no diversion of interest bearing loans as interest free advances to sister concerns when the assessee did not have surplus interest free funds to the extent of loans given to the sister concerns during the relevant financial year?"
Whether on the facts and in the circumstances of the case, the Tribunal is right in holding that there was no diversion of interest bearing funds, when interest free loans given to the sister concerns during the relevant financial years was Rs. 10.68 crores for which interest free funds available with the assessee was only to the extent of Rs.3.2 crores ?"
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Briefly stated the facts of the case are, for A.Y.2013-14, assessee had claimed expenditure towards payment of interest to the Bank. Learned AO2 has held that assessee had failed to produce any evidence that it had incurred expenses on several heads including interest on working capital loan and accordingly, disallowed the interest paid by the assessee. On appeal by the assessee, the CIT(A)3 directed the AO to obtain the cause of borrowed funds from the assessee and to limit disallowance on prorata basis. On further appeal, the ITAT has allowed assessee’s appeal and deleted interest disallowance. 5. Shri Dilip for the Revenue submitted that assessee had borrowed funds from the Bank. However, the said funds were utilized by its sister concern. Therefore, tax component said to have been paid on the borrowings cannot be attributed as the funds borrowed by the assessee. In the circumstance, the AO has rightly held that no evidence was produced to show
2 Assessing Officer 3 Commissioner of Income Tax (Appeals)
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that expenses incurred were due to “interest paid on working capital loan”. He further submitted that the CIT(A) rightly remitted the matter to the file of the AO for reconsideration and to cause disallowance, if any, on prorata basis. According to the learned standing counsel, the ITAT ought not to have interfered in a case of this nature. Accordingly, he prayed for allowing these appeals. 6. Shri Dilip also submitted that in view of the order in ITA No.325/2019 passed today, questions No.1 to 4 do not survive for consideration. His submission is placed on record. 7. Shri Kamath, learned Senior Advocate, submitted that ITAT is the last fact finding authority. Adverting to para 18 of the impugned order, he submitted that assessee’s balance sheet was available before the ITAT. It has recorded a finding that assessee had its own fund Rs.35,17,36,566/-. Admittedly, assessee had lent a sum of Rs.30.87 Crores which is much less than the funds owned by the firm.
- 7 - ITA No. 324/2019 C/W ITA No. 326/2019
He argued that assessee had also borrowed money from the Bank for its business. To service the loan, assessee had paid interest and rightly claimed it as expenditure. Placing reliance on the Commissioner of Income Tax-3 Vs. Reliance Utilities and Power Ltd4., and the Commissioner of Income Tax and Others Vs. Brindavan Beverages Pvt.Ltd5., passed by this court, he submitted that a presumption can be drawn with the investment were made out of the interest free funds available with the assessee. In the instant case, the ITAT has recorded a finding of fact that a sum of Rs.35 Crores was available and assessee had lent only Rs.30.87 Crores. Therefore, following the authority in Reliance Utilities and Power Ltd followed by this court in Brindavan Beverages Pvt.Ltd, Revenue’s appeal does not merit any consideration. 8. We have carefully considered rival contentions and perused records.
4 [2009] 313 ITR 340 (Bom) 5 [2017] 393 ITR 261 (Kar)
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Undisputed facts of the case are, assessee had lent Rs.30.87 Crores to its sister concern. Shri Kamath is right in his submission that the ITAT is the last fact finding authority and it has recorded in Para 18 of the impugned order that as per the balance sheet for year ending 31.03.2014, assessee had a capital of Rs.35,17,36,566/-. In Para 10 of Reliance Utilities and Power Ltd., Bombay High Court has held that if the interest free funds were available with the assessee sufficient to meet its investments and at the same time, if assessee had raised a loan it can be presumed that investments were from the interest free funds available. This authority has been followed by this court in Brindavan Beverages Pvt.Ltd,. In view of the finding of the fact recorded by the ITAT and the impugned order having been passed by following earlier decisions in Reliance Utilities and Power Ltd., and Brindavan Beverages Pvt.Ltd, we find no error in the impugned order.
- 9 - ITA No. 324/2019 C/W ITA No. 326/2019
Shri Dilip, referring to a decision of this court in Commissioner of Income-tax Vs. Bharat Fritz Werner Ltd.6, argued that in similar circumstance, this court has remitted the matter to the ITAT. 11. We have carefully perused the said judgment. In para 7 of the said judgment, this court has held that the Tribunal in that case, had not recorded any finding whether or not interest free loans were given from the borrowed funds or from assessee’s own funds. As noted above, in this case, ITAT has held that assessee had own funds of Rs.35.17 Crores and it has followed the Bombay High Court judgment noted hereinabove. 12. In view of the above, we find no merit in this appeal. Hence, the following; ORDER (i) Both appeals stand dismissed;
6 [2022] 143 taxmann.com 206 (Karnataka) Para 7
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(ii) In view of the order passed in ITA No.325/2019, questions No.1 to 4 do not survive for consideration; and (iii) Questions No.5 and 6 are answered in favour of the assessee and against the Revenue.
No costs. Sd/- JUDGE
Sd/- JUDGE
AV List No.: 1 Sl No.: 31