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Income Tax Appellate Tribunal, BANGALORE ‘A’ BENCH, BANGALORE
Before: SHRI VIJAY PAL RAO & SHRI INTURI RAMA RAO
This appeal filed by the assessee company directed against the order of the learned CIT(A)-5, Bangalore, dated 10-08-2015 for the assessment year 2012-13.
ITA No.1249 & SP No.124(B)/15
The assessee company raised the following grounds of appeal; “1. That the assessee be allowed to urge points of law in terms of the decision of the Apex Court in NTPC Vs CIT, 1998)99) ELT 200(SC).
2. That the order u/s 143(3) dated October 16, 2014 by the ld.ITO and the ld.CIT(A) is without appreciation of facts of the case and is arbitrary and contrary to the provisions of law.
3. That the ld.CIT(A) have erred in imputing notional interest on loss advanced by the assessee to M/s Suvikram Plastex Pvt.Ltd of INR 2,508,000/- and thereby increasing the assessee’s taxable income.
4. That the ld.CIT(A) has not referenced any Sec. of the IT Act,1961under which notional interest could be imputed.
5. That assuming without conceding the above ground, the ld. CIT have referred erroneously to the domestic transfer pricing regulations under section 92BA of the IT Act, 1961 6. That the domestic transfer pricing mechanism was bought into the ambit of the IT Act, for the first time in the year 2014 and prior to the said date the said provisions could not be applied to AY : 2012-13.
7. That the ld.CIT have failed to appreciate that the domestic transfer pricing regulations apply only to expenditure in ITA No.1249 & SP No.124(B)/15 respect of which payments have been made, to parties mentioned u/s 92CB(i).
8. That the ld.CIT have not appreciated the fact the domestic transfer pricing regulations u/s 92CB do not apply to imputation of incomes in cases such as that of the assessee.
9. That assuming but not accepting the imputed interest additions total income, the ld.CIT have also failed to appreciate that the domestic transfer pricing regulations apply only in cases where the aggregate of such transactions entered into by the assessee exceeds INR 5 Crores.
That the orders of the lower authorities do not take business expediencies into account, which is a sine-qua-non since law has been applied in vaccum without appreciating the facts of the case.
That the department cannot mandate conduct of the business of forcing a particular mode to the assessee.
That the facts ought to be appreciated in perspective, which the impugned order has failed to do. The order is non-appreciative of facts and therefore, bad.
That the orders of the lower authorities fail to appreciate the long standing business relationship between the assessee and SSPL.
ITA No.1249 & SP No.124(B)/15
That the orders of the lower authorities fail to take cognizance of law prevalent during the relevant AY: 2012-13 and apply a perspective law respectively, which is impermissible. The order is therefore, not legal or proper.
That perpetrating something through the back door (addition of notional interest to the income of the assessee) since the same is impermissible through the front door cannot be permitted in a country governed on he rule of law. 16. That the consequent interest computed u/s 234B of the ITA is erroneous and liable to be negated and the order set aside. 17. The orders of the lower authorities are without the authority of law and hence contrary to Article 265 of the Constitution of India. 18. That the orders of lower authorities are violative of the principles of natural justice inasmuchas the relevant section in terms of which the income is sought to be added as not mentioned. 19. That the orders of the lower authorities among others are contrary to the decisions of the Apex Court in CGT Vs N.S.Chttiar, 1971 (82) ITR 599 (SC) & Hemrj) Gordhandas Vs HH Dave, 1978 (2) ELT 350(SC).
ITA No.1249 & SP No.124(B)/15
That there is no intendment in a tax statute is well settled. That the notional interest cannot be added to he income of the assessee in the year 2012-13 when there was no provision in the IT Act to do so. The order is therefore, illegal.
Briefly, the facts of the case are that the assessee company is duly incorporated under the provisions of Companies Act, 1956. It is engaged in the business of manufacture and sale of monofilaments yarn, vegetable sacks and fabrics. The return of income for the assessment year 2012-13 was filed on 27-09-2012 declaring income of Rs.25,59,202/-. Against the said return of income the case was selected for scrutiny assessment and the assessment was completed at a total income of Rs.50,67,200/-. While doing so, the AO made addition of Rs.25,08,000/- towards interest free loan advanced to M/s Suvikram Plastics Pvt.Ltd. by holding that the assessee received interest bearing borrowed fund. It was contended before the AO that the advances were made to the said company out of its own funds i.e. out of advance received against the proposed sale of agricultural lands which are owned by the assessee company. Therefore, it was submitted that no disallowance should be made. The submissions did not ITA No.1249 & SP No.124(B)/15 find favour with the AO and the AO proceeded to make disallowances o Rs.25,08,000/-.
Being aggrieved by this order an appeal was filed before the CIT(A)
who vide impugned order had confirmed the action of the AO by holding that the assessee company had failed to prove the nexus that the advances were made to the said company out of the advances received against the proposed sale of agricultural lands.
Being aggrieved, the assessee is in appeal before us.
Before us nobody appeared on behalf of the assessee company and the learned Sr.DR, placed reliance on the orders of the lower authorities.
We have heard the submission of the learned SR.DR and perused the material on record.
ITA No.1249 & SP No.124(B)/15
7.1 The short issue that came up for consideration before us, is that whether the action of the AO by making disallowance of Rs.25,08,000/- on the ground that the borrowed funds are utilized for the purpose of making advance to M/s Suvikram Plastics Pvt.Ltd (Supra) was justified. We find from the assessment order that the AO made the disallowance of Rs.25,08,000/- without giving any finding as to how the claim of the assessee company that the advances were made to M/s Suvikram Plastics Pvt. Ltd out of the advances received against the proposal of sale of agricultural lands is not acceptable. In case it is found that the advances are made out of the borrowed funds, then the issue is to be adjudicated in the light of law laid down by the Hon’ble Apex Court in the case of S A Builders Ltd Vs CIT & Another (2007) 288 ITR 1 and reiterated again recently in the case of Hero Motor Cycles Ltd Vs CIT in Civil Appeal 514 of 2008 dated 05-11-2015, wherein it was held that when the loans are advanced to the subsidiary company/sister concern out of the borrowed funds, the interest attributable to the amounts advanced to subsidiary/sister concern of the assessee company is to be disallowed, if no nexus of expenditure with the purpose of business is established and in ITA No.1249 & SP No.124(B)/15 the absence of commercial expediency in advancing the loans the interest had to be disallowed. It appears from the assessment order that the AO had failed to examine the issue from this approach and therefore, we are of the considered opinion, that the interest of justice would be met, if the issue is restored to the file of the AO for de-novo assessment, in accordance with law laid down by the Hon’ble Apex Court in the cases cited supra, after affording due opportunity of being heard to the assessee-company.
In the result, the appeal filed by the assessee-company is allowed for statistical purposes.
Since we have disposed of the appeal, the Stay Petition filed by the assessee becomes infructuous and dismissed as such.
Order pronounced in the open court on the 08-01-2016