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Income Tax Appellate Tribunal, B
Before: Shri. Sanmathi supporting the order passed by the AO
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ITA No. 297 of 2017
IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 13TH DAY OF MARCH, 2023 PRESENT THE HON'BLE MR JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR JUSTICE C.M. POONACHA INCOME TAX APPEAL NO. 297 OF 2017 BETWEEN:
PR COMMISSIONER OF INCOME TAX- 4 BMTC COMPLEX, KORAMANGALA, BANGALORE
DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 11(5), BANGALORE …APPELLANTS (BY SRI. E I SANMATHI., STANDING COUNSEL)
AND:
M/S JUPITER ENTERTAINMENT VENTURES (P) LTD., NO.54, RICHMOND ROAD, BANGALORE-560025 PAN:AABCJ7071Q …RESPONDENT (BY SRI. NARENDRA KUMAR J JAIN,ADVOCATE)
THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW; SET ASIDE THE APPELLATE ORDER DATED 03.11.2016 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'B' BENCH, BANGALORE, AS SOUGHT FOR, IN THE RESPONDENT - ASSESSEE'S CASE, IN APPEAL PROCEEDINGS IN ITA NO. 963/BANG/2013 FOR A.Y. 2009-10 AND ETC.
THIS ITA COMING ON FOR HEARING, THIS DAY P.S. DINESH KUMAR J., DELIVERED THE FOLLOWING:
Digitally signed by NIRMALADEVI Location: HIGH COURT OF KARNATAKA
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JUDGMENT
This Appeal by the Revenue challenging the order dated 03.11.2016 in ITA No. 963/Bang/2013 passed by the ITAT1, "B" Bench, Bangalore, has been admitted to consider the following questions of law: "1. Whether on the facts and in the circumstances of the case, the Tribunal is right in setting aside the disallowance of short term loss of Rs. 11,27,2000/- claimed by assessee in Profit and Loss Account by holding that the shares have acquired by assessee under normal business transaction and can be taken as stock-in trade even when assessing authority has proved that the assessee has adopted colorable device to reduce the tax liability by booking business of 11.27 crore and assessee had intentionally shown shares of M/s.Asianet Communication as an inventory in its books to claim loss as business loss, the assessee had failed to give any reason for conversion of loan to the exorbitant pricing of these shares at a premium of Rs.490/- per share? 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in deleting the disallowance made under Section 14A read with Rule 8D(ii) of the Act by relying upon the decision of Hon'ble Delhi High Court in the case of Cheminvest Limited (reported in 378 ITR page 33) even when the disallowance was made in
1 Income tax Appellate Tribunal, Bengaluru Bench
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accordance with parameters of Section 14A read with Rule 8D(ii) of the Act?
Whether on the facts and in the circumstances of the case, the Tribunal is right in setting aside the disallowance of Rs.1,45,83,467/- made under Section 36(1)(ii) of the Act even when the assessee had failed to prove the end use of loan in the hands of the sister concern as held by the Hon'ble Supreme Court in case of India Cement Limited (reported in 60 ITR page 52)?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowance made by assessing authority under Section 40A(2) of the Act alternatively under Section 37 of the Act even when the assessee has not furnished a single evidence to prove that exact services which would be provided by the sister concerns i.e., Hindusthan Infrastructure Project and Engineering Limited, Vectra Stock and Securities Private Limited?"
Shri. E.I. Sanmathi, learned Standing Counsel for the Revenue prays to consider question No.5 also. Shri. Narendra Kumar J. Jain, learned Advocate for the Assessee has no objection. The said question reads as under:
'Whether on the facts and in the circumstances of the case the Tribunal is right in setting aside the disallowance made by assessing authority under section
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37 of the Act, the payment made towards Consulting Fee for setting up joint venture with Star group by holding that assessee had made effort to start joint venture but could not do the same even when the this expenditure was not incurred exclusively for the business purposes or alternatively as a capital expenditure?' 3. Shri. Sanmathi submitted that Revenue does not press question No.1 with liberty to raise question No.1 in ITA No.298/2017. 4. Shri. Narendra Kumar submitted that question No.2 is covered against the Revenue as per the judgment in the case of Biocon Ltd V. DCIT (2021)2. The said submission is not refuted by Shri.Sanmathi. The remaining questions are 3, 4 and 5. 5. Brief facts of the case are, Assessee, an Advertising Company filed its return for the A.Y.3 2009-2010. 6. Re: question No.3: Assessing Officer has disallowed the payments of `1,45,83,467/- claimed under Section 36(1)(iii) of the Income Tax Act, 1961 (for short 'Act') and added it to the
2 125 taxmann.com 164 (Karnataka) 3 Assessing Year
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Income. The CIT(A)4 has deleted the said addition and ITAT has confirmed the view taken by the CIT(A). 7. Shri. Sanmathi submitted that the Assessee has transferred `74.49 crores to M/s. Asianet TV Holdings Pvt. Ltd., and `10.2 crores to India Radio Ventures Pvt. Ltd., `3.23 crores to India Radio Ventures Pvt. Ltd., `3.04 crores to Azure Services Pvt. Ltd., services private limited and `40 lakhs to I Designs, Deolloitte Corporate Finance Services Pvt. Ltd., The first four entities are Assesse's sister concerns. Supporting the order passed by the AO5, he submitted that the purpose for which the amounts have been paid was not clearly forthcoming and the financial statements of the Assessee showed that the advance has been made out of borrowed capital. Therefore, interest on the loan taken are liable to be disallowed as the money was being diverted for non business purposes. He argued that CIT(A) and ITAT6 have reversed the finding of the AO without properly appreciating the fact that money was transferred to the sister concerns.
4 Commissioner of Income Tax (Appeals) - I, Bangalore 5 Assessing Officer 6 Income Tax Appellate Tribunal, Bench 'B' at Bangalore
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Shri. Narendra Kumar submitted that the Assessee had paid an amount of `74.49 crores as share application money to M/s. Asainet TV Holdings to consolidate JELV's holding. A sum of `10.20 crores was paid to M/s. India Radio Ventures Pvt Ltd., to get the controlling rights/interest. He submitted that the Assessee is in the business of advertisement and made investment as it was commercially expedient. 9. With regard to payment of `3.23 crores to India Radio Ventures and `40 lakhs to M/s. Ajure Services Pvt. Ltd., submitted that the monies have been paid as a business strategy in the ordinary course of business. 10. We have carefully considered the rival contentions and perused the records. 11. Undisputed facts are that, `79.49 crores has been paid to M/s. Asianet TV Holdings and `10.20 crores has been paid to India Radio Ventures Pvt Ltd. It is the case of the Assessee that in the case of Asianet TV Holdings, the amount is towards share application, in the case of India Radio Ventures Pvt. Ltd., it is to obtain the controlling rights in the company. The sum of `10.20 crores and `3.23 crores have been paid to India Radio
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Ventures Pvt Ltd and M/s. Azure Services Pvt. Ltd. The CIT(A) has recorded that the money paid to M/s. Azure Services is towards business strategy in the course of business. The CIT(A) has accepted the amount paid to M/s. Azure as part of business strategy and the same has been accepted by the ITAT. The ITAT following the decision in S.A. Builders Ltd., V. CIT(A)7. With regard to payment of `40 lakhs made to I Designs Delloitte Corporate Finance Services Pvt. Ltd., etc., the AO has recorded that the said recipient was not connected with the Assessee. 12. As recorded hereinabove in respect of M/s. Asianet TV Holdings Pvt. Ltd., and India Radio Ventures Pvt. Ltd., both CIT(A) and ITAT have accepted Assesse's contention that it was a payment made towards purchaser of shares and to consolidate share holding in the two companies. With regard to M/s. Azure Services Pvt. Ltd., both fact finding authorities have recorded that the expenditure was commercially expedient. It is settled that the AO cannot sit in the chair of an Assessee and decide what is commercially expedient in a particular transaction. Having re-examined the matter, we find no error
7 (2007) 158 Taxman 74 (SC)
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in the order passed by the CITA and confirmed by the ITAT on this aspect. Accordingly, question No.3 is answered in favour of the Assessee and against the Revenue. 13. Re - Questions No.4 and 5: These two questions are considered together as transfer of money is to the sister concerns towards consultancy fee. The AO has recorded that only invoice and agreement have been produced before the AO and there was no other evidence to show that any consultancy services was provided by the recipients. 14. Shri. Sanmathi supporting the order passed by the AO submitted that the amount paid to M/s. Hindustan Infrastructure Projects is about 6.06 crores, `78,44,600/- and 4,50,000/- is to Vectra Stocks and Securities Pvt. Ltd. He submitted that the amount paid to Lexicon Finance Ltd., is `1,51,79,836/- and towards Lexicon Securities Ltd., is `28,09,000/-. 15. He submitted that Hindustan infrastructures and Projects Engineering Pvt. Ltd., M/s. Hindustan infrastructures Projects, Vectra Holdings Pvt. Ltd., and Vectra Stocks and Securities Pvt. Ltd., are sister concerns. He contended that except an
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Agreement and invoice no tenable material is placed on record to substantiate the payment. Assailing the order passed by the CIT(A), he submitted that both CIT(A) and ITAT have erred in law in allowing the expenditure solely based on the invoice. Further, payments to Lexicon Finance Ltd., and Lexicon Securities Ltd., are not established for business purpose. 16. We have carefully considered the submissions made by learned advocates on both sides. 17. Admittedly, Assessee has paid `6.06 crores to Hindustan Infrastructure Projects, `78,44,600/- to Vectra Holdings Pvt. Ltd., and `4,50,000/- Vectra Stocks and securities Pvt. Ltd.,. They are all sister concerns. 18. Assessing Officer has recorded that except producing General Agreement, there is no material on record to substantiate the payment. Shri Sanmati has rightly pointed out from the order passed by the CIT(A) and ITAT, that there is no proper application of mind while reversing the findings recorded by the Assessing Officer. Although Shri. Narendra Kumar made a feeble attempt to justify the order of CIT(A) and ITAT, we are persuaded to accept the argument of the Revenue that except
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invoice and the agreement, there is no other material to substantiate the payment of large sums of money in the name of consultancy services. Moreso, first three companies are sister concerns. Hence, we are of the view that matter requires re-consideration, in the hands of Assessing Officer. 19. In view of the above, questions No.4 and 5 are required to be remitted to the file of Assessing Officer for reconsideration in accordance with law. Hence, the following: ORDER
i) Appeal is allowed in part accordingly. ii) Question No.1 is permitted to be raised in ITA No.298/2017. iii) Questions No.2 is held in favour of the Assessee and against the Revenue . iv) Question No.3 is held in favour of the Assessee and against the Revenue. v) Questions No.4 and 5 are remitted to the Assessing Officer for consideration to reconsider the same in accordance with law. vi) Contentions of both the Assessee and the Revenue with regard to Questions No.4 and
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5 are kept open to be urged before the Assessing Officer. vii) Since the matter has been remanded with regard to Questions No.4 and 5, it does not call for any interference.
No costs.
SD/- JUDGE
SD/- JUDGE
BS List No.: 1 Sl No.: 20