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Income Tax Appellate Tribunal, ‘C’ (SMC
Before: SHRI ABRAHAM P. GEORGE]
आदेश / O R D E R
In this appeal filed by the Revenue, which is directed against an order dated 29.05.2017 of the ld. Commissioner of Income Tax (Appeals)-1, Chennai, it is aggrieved that the ld. Commissioner of Income Tax (Appeals) deleted the disallowance u/s.36(1) (iii) of the Income Tax Act, 1961 (in short ‘’the Act’’).
ITA No.1850/Mds/2017. :- 2 -:
Ld. Departmental Representative submitted that interest of Rs.46,44,877/- disallowed by the ld. Assessing Officer related to interest free loans given by the assessee to its subsidiaries and its affiliates. As per the ld. Departmental Representative, assessee had paid such interest to its directors and certain other parties from whom it had raised loans. Thus, according to him, disallowance was rightly made.
Per contra, ld. Authorised Representative strongly supporting 3.
the orders of the authorities below submitted that identical issue had come up before this Tribunal in assessee’s own case for assessment year 2010-2011 in ITA No.863/Mds/2016. As per the ld. Authorised Representative, the Tribunal had in its order dated 01.09.2016 followed its own decisions for assessment years 2004-05, 2005-06, 2008-09 & 2009-2010 in & 12/Mds/2010, and ITA Nos.2059 & 2062/Mds/2015, dated 11.06.2010 & 30.03.2016 respectively, were also similar issue was considered.
I have considered the rival contentions and perused the 4. orders of the authorities below. It is true that assessee had given interest free loans to its subsidiaries /affiliates and also made
ITA No.1850/Mds/2017. :- 3 -:
Rs.5,29,14,596/-, DSB Infosystems P Ltd Rs.2,10,44,032/- and DCS BPO P Ltd Rs.69,15,597/-. Ld. Assessing Officer had found that assessee had paid interest of Rs.46,44,877/- on loans borrowed from Directors/others. He had applied Sec.36(1) (iii) of the Act. Ld. Commissioner of Income Tax (Appeals) had followed the order the Co- ordinate Bench of the Tribunal in assessee’s own case for assessment year 2010-2011. It is admitted position that interest free loans given by the assessee during the relevant previous year were also to the same very subsidiaries and its affiliates, as in the earlier years. This is clear from the order dated 30.03.2016 for assessment years 2008-09 and 2009-2010 in & 2062/Mds/2015. Para 3 of the said decision is reproduced hereunder:-
‘’3.The brief facts of the case are the assessee is in the business of software development and export and filed return of income for the assessment year 2008-2009 on 30.09.2008 declaring loss of ₹57,15,918/- and was processed u/s.143(1) of the Act. Subsequently notice u/s.148 was issued for reason to believe that income has escaped assessment. In compliance to notice, the ld. Authorised Representative of the assessee appeared on various dates and filed details. The Assessing Officer on perusal of the financial statements of the company found that assessee borrowed secured loans from banks and unsecured loans from Directors and others paid varying interest rates. As per Balance sheet the assessee is having secured loans of ₹15,73,90,542/- and unsecured loans and assessee also paying interest on above loans as per page 2 of Assessing Officer order as under:- On Bank loans 1,46,15,759/- On other loans 27,88,064/-
ITA No.1850/Mds/2017. :- 4 -:
As per the information, the assessee has given interest free loans to subsidiaries and also invested in group concerns as under:- ‘’DSM Geodata Ltd. ₹5,55,69,765/- (loan/advance) ₹2,21,72,376/- DSM Infosystems P. Lt (loan/advance) DCS BPO Pvt. Ltd ₹1,79,45,150/- (loan/advance) DCS BPO Pvt. Ltd ₹49,58,877/- (investment) ’’
The ld. Authorised Representative explained that the assessee company made investment in subsidiary company DSM Geodata Ltd – Scotland ₹2,52,85,072/-. On perusal of the transaction with related parties, the assessee has not received any interest from associate companies. On further verification it was found that interest of ₹22,70,805/- was received from subsidiary company from DCS Geodata Ltd which has worked out to ₹4.26% interest rate on amount outstanding balance and interest of ₹1,59,252/- from D.S.M. Infosystems P. Ltd worked out 0.76% on the outstanding balance and there was no income from other group concerns. The Assessing Officer has made a comparison that the assessee company is paying interest at a higher rate than the interest received from its group concerns. So with these parameters of application of loan funds from group concerns and also not charging interest made in subsidiary concerns. The Assessing Officer analyzed based on the financial statements that the assessee company has obtained loans from bank, directors, shareholders and others and paying higher rate of interest wereas no interest income was received from subsidiaries except concessional rate of interest receipt from DSM Geodata Ltd and DSM infosystems P. Ltd and issued show cause notice to the assessee company for proportionate disallowance of interest on borrowed funds. In response to show cause notice, the ld. Authorised Representative filed detailed submissions and also relied on the decision of Co-ordinate Bench Tribunal in assessee’s own case for the assessment year 2004-05 and 2005-06 were the Tribunal has accepted the contention that the loans and advance to the group concerns or subsidiaries is for commercial expediency and no interest disallowance is warranted on such investments in subsidiaries. The ld. Assessing Officer perused the Tribunal order and found the Department has not accepted the decision of the Tribunal and contesting at higher forum in High Court. The ld. Assessing Officer has not relied on the decision and calculated proportionate disallowance of interest on the advance made to group concerns and worked out the calculation of interest component in is order and disallowed ₹58,87,623/-. Aggrieved
ITA No.1850/Mds/2017. :- 5 -: by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals).
Since fact situation is similar, I am of the opinion that ld. CIT(A) was justified in relying on the decision of Co-ordinate Bench in assessee’s own case for assessment year 2010-2011 (ITA No.863/Mds/2016, dated 01.09.2016) which had followed the earlier Tribunal order for assessment years 2008-09 and 2009-2010. The decision of the Tribunal in & 2062/Mds/2015 (supra) which appears at para 7 of such order is reproduced hereunder:-
We heard the rival submissions, perused the material on record and judicial decisions cited. The ld. Departmental Representative contested the issues that the Commissioner of Income Tax (Appeals) has not considered the facts on the borrowed capital and investment in equity of subsidiary companies and applied the decision of Apex Court and also Tribunal decision which has not attained finality for earlier assessment years as Department has contested the issue at higher forum. This Tribunal is of the considered opinion that mere pendency of appeal before the higher forum cannot be a reason to take a different view. So respectfully following the decision in assessee’s own in & 12/Mds/2010 and ITA Nos.366 & 367/MDS/2010 upheld the order of the Commissioner of Income Tax (Appeals) and dismiss the ground of the Revenue’’.
ITA No.1850/Mds/2017. :- 6 -:
I am of the opinion that the issue as on date is squarely covered in favour of the assessee. I do not find any reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals).
In the result, appeal of the Revenue stands dismissed. 5.
Order pronounced on Tuesday, the 19th day of December, 2017, at Chennai.