ASST CIT LTU, MUMBAI vs. ASIAN PAINTS LTD, MUMBAI

The brief facts of the case are that the assessee has filed the return of income declaring total income to the tune of Rs.2,27,72,31,850/- on 28.11.2003. The case was processed u/s.143(1) of the Income Tax Act, 1961 ( in short “the Act”). The refund was due and allowed to the assessee, thereafter the notices u/s. 143(2) of the Act were issued on 13.04.2004 and 07.12.2005. Subsequently, notice u/s.142(1) of the Act dated 12.12.2005 was issued and served upon the assessee. The assessee was in the business of manufacturing and trading in paints etc. Thereafter, the assessment was completed by assessing the total income to the tune of Rs.242,04,36,965/-. Being not satisfied, the assessee filed an appeal before the CIT(A) who confirmed the said order. Subsequently the assessee as well as revenue were in the appeal in and ITA No.5164/M/2007 wherein the case was remitted to the CIT(A) to decide the issue in view of the law settled in Supreme Court of India in the case of Goetze (India) Ltd., 284 ITR 323. Thereafter, the CIT(A) reconsidered the matter and disallowed an amount of Rs.25,94,034/- being unadjusted balance in employees Account written off during the year under prior period expenditure. Therefore, the assessee has filed the present appeal before us.

We have heard the arguments advanced by the learned representative of the parties and perused the record. The assessee has raised the sole issue on account of non allowance of deduction on & 3825/Mum/2012, I.T.A.No.2363& 2364/Mum/2013 A.Y.: 2003-04 ,2004-05 &2009-10 written off unadjusted balance in employees account of Rs.25,94,034/- but at the time of argument the learned representative of the assessee did not press this ground, therefore this issue is decided against the assessee and in favour of the revenue.

The revenue has raised the following grounds:-

Since this appeal relates to the appeal for the A.Y.2003-04 filed by the assessee which has been decided above. The facts of the present case same as mentioned in the above appeal of the assessee therefore there is no need to repeat the facts.

Under this issue the revenue has challenged the deletion of disallowance of notional interest of Rs.2,62,74,000/- on interest free loan given to wholly owned subsidiaries. Before going further it is necessary to advert the finding of the CIT(A) on record:-

On appraisal of the above mentioned order, it is not in dispute that the company Pentasia Investment Ltd. technically engaged in business of manufacturing and supply of Pentaerithritol an important raw material in manufacture of paints. The Pentasia Investments Ltd. and Technical Instruments Mfg. Co. Ltd. and Asian Paints Industrial Coatings Ltd. subsidiary company and assessee company was merged vide Mumbai High Court order dated 27.10.2003. Subsidiary & 3825/Mum/2012, I.T.A.No.2363& 2364/Mum/2013 A.Y.: 2003-04 ,2004-05 &2009-10 company and assessee company was merged vide Mumbai High Court order dated 27.10.2003. So far as the company of Pentasia Investments Ltd. is concerned the disallowance of interest in respect of loan to Pantasia Investments Ltd. for A.Y.2000-01, 2001-02 and 2002-03 the CIT(A) has arrived at this conclusion that the interest free loan to the tune of Rs.5,89,30,000/- given by the assessee to Pentasia Investments Ltd. was for the business purpose. Accordingly, the assessee had given the interest free loan of Rs.6,00,00,000/- to its subsidiary Asian Paints Industrial Coatings Ltd. which is also engaged in the business of manufacturing powder coatings similar to assessee’s business and assessee was also doing processing work for APIC Ltd. The CIT(A) was of the view that the Assessing Officer has wrongly declined the interest on the interest free loan to APIC Ltd. for the A.Y.2001-02, 2002-03 and 2005-06 because the said loan was for the business purpose. Similarly the assessee company advanced interest free loan of Rs.100,02,00,000/- to TIMI Ltd. so as to enable it to liquidate loans it had taken from its old shareholders. M/s. TIMI Ltd. was the owner of assessee’s corporate office and assessee had taken the office on rent. Assessee charged interest up to 10.09.2001, the date when TIMI Ltd. became its subsidiary to meet with the requirements of RBI regulations and when TIMI Ltd. became its subsidiary it stopped charging interest. The Assessing Officer disallowed the interest on account of interest free loan given to TIMI Ltd. to the tune of Rs.10,00,20,000/- but the CIT(A) has allowed the I.T.A. No.1295/Mum/2013 & 3825/Mum/2012, I.T.A.No.2363& 2364/Mum/2013 A.Y.: 2003-04 ,2004-05 &2009-10 same in view of the law settled by the Mumbai High Court in case CIT Vs. Reliance Utilities and Power Ltd.-221/CTR/435/Bom and Supreme Court in the case of S.A.Builders Ltd. V/s. CIT-288/ITR/1 and [2015] 379 ITR 347 (SC) in case titled as Hero Cycles P. Ltd. Vs. Commissioner of Income Tax. No distinguishable facts have been placed on record. The assessee company had given loan to its subsidiary company without interest for business purpose. Therefore, the learned CIT(A) has rightly deleted the disallowance on notional interest to the tune of Rs.2,62,74,000/- in accordance with law by duly relying upon the law settled by the Mumbai High Court (Supra) and Hon’ble Supreme Court (Supra) . Therefore, the CIT(A) has passed the order judiciously and correctly which does not require to be interest with at this appellate stage.

The revenue has raised the following grounds:-

The appellant prays that the order of the ld. CIT(A) on the above ground be set aside and that of the Assessing Officer restored.” & 3825/Mum/2012, I.T.A.No.2363& 2364/Mum/2013 A.Y.: 2003-04 ,2004-05 &2009-10 The facts of the case are the same as mentioned above while deciding the appeal relating to the A.Y.2003-04 filed by the parties. However the figures are the different.

This matter of controversy has already been adjudicated while deciding the appeal of the revenue for the A.Y.2003-04. The issue is the same which is in connection with disallowance of notional interest the tune of Rs.1,02,83,000/-. This issue has already been decided in favour of the assessee against the revenue therefore this issue is also decided in favour of the assessee against the revenue in view of the terms as decided above while deciding the appeal of the revenue for the A.Y.2003-04. Accordingly this issue is decided in favour of the assessee against the revenue.

The assessee has raised the following grounds:-

The facts of the case are same as mentioned above whereas the figures are quite different. In the said assessment year the assessee claimed the expenditure pertaining to the property tax for land at Turbhe. The Assessing Officer was of the view that the business activity was not their therefore the expenses to the tune of Rs.60,87,581/- is not liable to be allowed hence declined the same. CIT(A) has confirmed the order of the Assessing Officer, therefore the assessee has filed the present appeal before us.

We have heard the arguments advanced by the learned representative of the parties and perused the record. The sole point which has been raised by the assessee is that the disallowance on property tax to the tune of Rs.60,87,581/- on account of non running business there has wrongly been declined which is liable to be allowed. The contention of the assessee is that he purchased the lease hold right from M/s. Technical Instruments Manufactures (India) Pvt. Ltd. which was incorporated on 29.12.1955 and was 100% subsidiary of Asian Paints Ltd.. According to the objects, the assessee was entitled to acquire property for the purpose of the company. It is argued that the assessee acquired the lease hold rights of industrial land in MIDC area in Turbhe (Navi Mumbai) in A.Y.2008-09 and the said rights were assigned to Asian Paints Ltd. in A.Y.2009-10. It is argued that the permission letter from MIDC requiring Asian Paints & 3825/Mum/2012, I.T.A.No.2363& 2364/Mum/2013 A.Y.: 2003-04 ,2004-05 &2009-10 Ltd. to established R & D Centre. No doubt in the relevant assessment year no construction of any kind was shown but the property tax was paid in the relevant assessment year. On 24.07.2009 the assessee company amalgamated with Asian Paints Ltd, therefore in the said circumstances the said expenditure is not required to be disallowed on the ground of that the assessee had no business. In support of these contentions the learned representative of the assessee has placed reliance on the law settled in CIT Vs. Ralliwolf Ltd. (1980) 121 ITR 262 (Bom.) and Sardar Sarovar Narmada Nigam Ltd. Vs. ACIT (2012) 138 ITD 203 (Ahd.) (SB) and Western India Vegetable Products Ltd. Vs. CIT (1954) 26 ITR 151 (Bom.) and CIT Vs. Saurashtra Cement and Chemical Industries Ltd. (1973) 91 ITR 170 (Guj.)

On the other hand learned representative of the department has strongly relied upon the finding of the CIT(A) in question. It is not in dispute that the assessee company was incorporated on 29.12.1955 and in this regard the certification of incorporation is on record lies at page 69 of the paper book. The Memorandum of Understanding (MOU) is also on record which lies at page 66 to 94 of the paper book. In the said MOU at serial no.28 the company could acquire the property for the business purpose which is hereby reproduced below:-

Therefore in the said circumstances, it is not in dispute that the assessee company can purchase the property for the business purpose. The important documents has been filed by the assessee company which lies at page 25 of the paper book in which the lesser MIDC has leased out the land to the lessee M/s. Asian Paints Ltd. and in view of the said receipt the assessee paid an amount of Rs.60,87,581/- and assessee paid property tax to the tune of Rs.60,87,581/- during the relevant assessment year which has been declined on the ground of that the assessee did not do the business. The receipt lies at page 25 of the paper book also speaks about the purpose in which the purpose has been written for factory. Moreover, the allotted land was in nature of industrial land in MIDC area, Turbhe, Navi Mumbai. It is not a case where new factory has been established by the assessee. The company of the assessee is old and acquired the industrial plot whose money, only property tax has been paid to the tune of Rs.60,87,581/-. It is not necessary that after acquiring the right upon industrial plot the assessee should immediately construct the building and to start any another unit collateral to his object. The companies are working in accordance with its object. The incorporation date of the company is 29.12.1955. In the year for the year 2008-09, the companies cannot & 3825/Mum/2012, I.T.A.No.2363& 2364/Mum/2013 A.Y.: 2003-04 ,2004-05 &2009-10 be said to set up the business, in this regard we also found support of law relied in CIT Vs. Ralliwolf Ltd. (1980) 121 ITR 262 (Bom.) and Sardar Sarovar Narmada Nigam Ltd. Vs. ACIT (2012) 138 ITD 203 (Ahd.) (SB) and Western India Vegetable Products Ltd. Vs. CIT (1954) 26 ITR 151 (Bom.) and CIT Vs. Saurashtra Cement and Chemical Industries Ltd. (1973) 91 ITR 170 (Guj.).

Keeping in view of the said circumstances, we are of the view that the order passed by the CIT(A) in question is wrong against law and facts and is not liable to be sustainable in the eyes of law, therefore, we set aside the order of the CIT(A) on this issue and deleted the said addition and the Assessing Officer is hereby directed to allow the property tax to the tune of Rs.60,87,581/- for the relevant assessment year. Accordingly this issue is decided in favour of the assessee against the revenue.