DCIT, CHENNAI v. M/s. Toll (India) Logistics P Ltd., CHENNAI

ITA 1662/CHNY/2009 | 2004-2005
Pronouncement Date: 08-10-2010 | Result: Allowed

Appeal Details

RSA Number 166221714 RSA 2009
Assessee PAN AAACS8152Q
Bench Chennai
Appeal Number ITA 1662/CHNY/2009
Duration Of Justice 11 month(s) 17 day(s)
Appellant DCIT, CHENNAI
Respondent M/s. Toll (India) Logistics P Ltd., CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 08-10-2010
Appeal Filed By Department
Order Result Allowed
Bench Allotted C
Tribunal Order Date 08-10-2010
Date Of Final Hearing 29-09-2010
Next Hearing Date 29-09-2010
Assessment Year 2004-2005
Appeal Filed On 22-10-2009
Judgment Text
IN THE INCOMETAX APPELLATE TRIBUNAL: C- BENCH:CHENN AI (BEFORE SHRI HARI OM MARATHA JUDICI AL MEMBER AND SHRI ABRAHAM P. GEORGE. ACCOUNTANT MEMBER) ITA NO. 1662/ MDS/09 ASST. YEARS 2004-05 THE DCIT VS. M/S. TOLL (INDIA) LOGISTICS P.LTD. CO. CIR.III(2) CHENNAI. 51 2 ND FLOOR MONTIETH RD. EGMORE CHENNAI-600008 PAN AAACS8152Q (APPELLANT) (RESPONDENT) AND CO NO.204/MDS/09 IN ITA NO.1662/MDS/09 ASSESSMENT YEAR 2004 -05 M/S TOLL (INDIA) LOGISTICS P. LTD VS. THE DCIT . CHENNAI 600008 CO.CIR.III(2) CHENNAI (CROSAS-OBJECTOR) (RESPONDENT) ASSESSEE BY: DEPARTMENT BY: SRI SHRI JATIN H.SANGHVI AND SRI PARESH H.SANGHVI. SHRI B.SRINIVAS ITA NO.1662 & CO.204/09 2 ORDER PER SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER- GRIEVANCE OF THE REVENUE IN ITS APPEAL IS THAT THE CIT(A) HAD DELETED DISALLOWANCE OF PRO-RATA INTEREST ON ACCOUN T OF CERTAIN INTEREST FREE ADVANCES PAID BY THE ASSESSEE TO ITS WHOLLY OW NED SUBSIDIARY NAMELY M/S FRACHT FORWARDING & TRAVELS P. LTD. ACC ORDING TO THE REVENUE. CIT(A) ERRED IN APPLYING THE DECISION OF TH E HONBLE APEX COURT IN THE CASE OF S.A. BUILDERS P. LTD. V. CIT (288 ITR 1 ). FURTHER GRIEVANCE OF THE REVENUE IS THAT THE AGGREGATE OF THE CAPITAL AND LOANS OF THE ASSESSEE WERE LOWER THAN ITS ACCUMULATED LOSSES AN D HENCE IT WAS AGAINST ITS BUSINESS INTEREST TO ADVANCE ANY AMOUN T TO ITS SUBSIDIARY COMPANY. 2. SHORT FACTS APROPOS ARE THAT THE ASSESSEE HAD AD VANCED SUBSTANTIAL AMOUNT TO ITS SUBSIDIARY COMPANY CALLED FRACHIT FO RWARDING & TRAVELS P. LTD.. AS ON 31-03-2004 SUCH LOANS GIVEN TO THE SUBS IDIARY STOOD AT `. 1 35 91 812/- ASSESSEE WAS REQUIRED TO FURNISH REA SON WHY THE PROPORTIONATE INTEREST PAID BY IT ON THE LOANS TAKE N BY IT FROM BANKS SHOULD NOT BE DISALLOWED. IT SEEMS ASSESSEE WAS PAY ING SUBSTANTIAL INTEREST ON LOANS TAKEN FROM BANKS. EXPLANATION OF T HE ASSESSEE WAS THAT THE LOANS WERE GIVEN TO M/S FRACHIT FORWARDING & TR AVELS P.LTD. FROM ITA NO.1662 & CO.204/09 3 TIME TO TIME FOR HELPING THE BUSINESS OPERATION OF THE LATTER COMPANY WHICH WAS ITS SUIBSIDIARY. SUBMISSION OF THE ASSESS EE WAS THAT THE SUBSIDIARY COMPANY WAS SUFFERING CONTINUOUS LOSSES AND IT NEEDED FINANCIAL SUPPORT FOR ITS SURVIVAL AND GROWTH. ASS ESSEE HAD ALSO STATED THAT THE BANK LOANS WERE NOT UTILIZED FOR ADVANCING THE LOANS TO SUBSIDIARY. HOWEVER AO WAS OF THE OPINION THAT THE RE WAS NO EVIDENCE PRODUCED TO PROVE THAT LOANS TO SUBSIDIARY WERE GIV EN OUT OF SURPLUS FUNDS. ACCORDING TO HIM THE ASSESSEE WAS NOT CHARG ING INTEREST ON THE LOANS GIVEN TO ITS SUBSIDIARY WITHOUT ANY REASON WHEN IT WAS PAYING SUBSTANTIAL INTEREST ON LOANS TAKEN BY IT. THEREFOR E HE WAS OF THE OPINION THAT PRORATA INTEREST HAD TO BE DISALLOWED. OUT OF TOTAL INTEREST PAYMENT CLAIMED BY THE ASSESSEE A SUM OF `.39 22 8 44/- WAS DISALLOWED BY THE AO. 3. IN ITS APPEAL BEFORE THE CIT(A) SUBMISSION OF THE ASSESSEE WAS THAT THE NETWORTH OF FRANCHT FORWARDING & TRAVELS P.LTD. WAS COMPLETELY ERODED ON ACCOUNT OF ACCUMULATED LOSSES AND FINANCI AL SUPPORT WAS GIVEN TO THE SAID COMPANY BY THE ASSESSEE IN ITS CAPACIT Y AS PARENT COMPANY. ACCORDING TO THE ASSESSEE NO INTEREST WAS CHARGED IN VIEW OF THE ADVERSE FINANCIAL CONDITION OF THE SUBSIDIARY. LD. CIT(A) WA S APPRECIATIVE OF THESE CONTENTIONS. ACCORDING TO HIM SUBSIDIARY COMPANY B EING IN A BUSINESS ACTIVITY RELATABLE TO THE BUSINESS OF THE ASSESSEE IT WAS HAVING A DEEP ITA NO.1662 & CO.204/09 4 INTEREST IN SUCH SUBSDIARY. HE THEREFORE RELYING ON THE DECISION OF THE HONBLE APEX COURT IN S.A. BUILDERS P. LTD. V. CIT (2 88 ITR 1) DELETED THE DISALLOWANCE OF PRORATE INTEREST. 4. NOW BEFORE US THE LD. DR ASSAILING THE ORDER OF THE CIT(A) SUBMITTED THAT COMMERCIAL EXPEDIENCY IN GIVING LOAN S TO THE SUBSIDIARY WAS NOT PROVED BY THE ASSESSEE AND THE CIT(A) ERRED IN ALLOWING THE CLAIM WITHOUT VERIFYING THE FACTUM REGARDING COMME RCIAL EXPEDIENCY. 5. PER CONTRA THE LD. AR SUPPORTING THE ORDER OF T HE LD. CIT(A) AND ALSO SUPPORTING THE CROSS OBJECTION FILED BY THE AS SESSEE SUBMITTED THAT THE COMMERCIAL EXPEDIENCY WAS AN EXPRESSION OF WIDE IMPORT. ACCORDING TO HIM ASSESSEE HAD A DEEP INTEREST IN M/S FRACHT FORWARDING & TRAVELS P. LTD. AND THE SAID COMPANY WAS ACTUALL Y DEPENDENT ON LOANS GENERATED AND ADVANCE GIVEN BY THE ASSESSEE FOR ITS FUNDING REQUIREMENTS. LD. AR FURTHER SUBMITTED THAT M/S FRA CHT FOWARDING & TRAVELS P. LTD. USED THE FUNDS FOR BUSINESS PURPOS ES AND NOT FOR ANY PERSONAL BENEFITS OF ITS DIRECTORS OR EMPLOYES. REL YING ON HONBLE APEX COURTS DECISION IN THE CASE OF MADHAV PRASAD JATIA V. CIT (118 ITR 200) LD. COUNSEL ARGUED THAT THE TERMS FOR THE PURPOSE OF BUSINESS WAS WIDER IN SCOPE THAN THE EXPRESSION FOR THE PURPOSE OF EARNING INCOME PROFITS OR GAINS. SUBMISSION WAS THAT THOUGH NET W ORTH OF M/S FRACHT ITA NO.1662 & CO.204/09 5 FORWARDING & TRAVELS P. LTD. HAD COMPLETELY ERODED IT WAS THE BUSINESS INTEREST OF THE ASSESSEE THAT THE FORMER CONTINUED ITS OPERATIONS. 6. WE HAVE PERUSED THE ORDERS AND CAREFULLY CONSIDE RED THE RIVAL SUBMISSIONS. FACTS UNDISPUTED ARE THAT THE ASSESSEE HAD GIVEN SUBSTANTIAL LOANS WHICH STOOD AT `.1 35 91 812/- AS ON 31-3-200 4 TO ITS SUBSIDIARY M/S FRANCHT FORWARDING & TRAVELS P.LTD.. NO INTEREST WA S CHARGED BY THE ASSESSEE ON SUCH LOANS. ASSESSEE WAS ON THE OTHER HAND PAYING INTEREST ON LOANS TAKEN BY IT FROM THE BANK. ACCORDING TO TH E ASSESSEE NO INTEREST WAS CHARGED FOR THE REASON THAT IT HAD A DEEP INTER EST IN THE SUBSIDIARY AS THE SUBSIDIARY WAS SUFFERING CONTINUING LOSSES . CIT(A) HAD DELETED THE DISALLOWANCE BASED ON THE DECISION OF THE HONBLE A PEX COURT IN S.A. BUILDERS CASE (SUPRA). THE QUESTION HERE IS WHETHER COMMERCIAL EXPEDIENCY OF GIVING INTEREST FREE LOANS STOOD SUBST ANTIATED. ACCORDING TO THE LD. AR THE BUSINESS OF THE ASSESSEE COMPANY AS WELL AS SUBSIDIARY WERE CLOSELY RELATED. FURTHER THE WORKING OF THE S UBSIDIARYS BUSINESS WAS ENTIRELY DEPENDENT ON THE FINANCIAL INPUTS BY T HE ASSESSEE COMPANY. NO DOUBT IT HAS BEEN HELD BY THE HONBLE APEX COURT THAT WHERE MONEY WAS ADVANCED TO A SISTER CONCERN AS A MEASURE OF CO MMERCIAL EXPEDIENCY THEN NO DISALLOWANCE OF INTEREST COULD B E MADE ON PRORATA BASIS. IT WAS ALSO HELD BY THEIR LORDSHIPS THAT WHER E A HOLDING COMPANY HAD DEEP INTEREST IN THE SUBSIDIARY AND IF THE HOLD ING COMPANY HAD ITA NO.1662 & CO.204/09 6 ADVANCED BORROWED MONEY TO SUCH SUBSIDIARY AND SUCH MONEY WAS USED BY THE SUBSIDIARY FOR SOME BUSINESS PURPOSE ASSESS EE WOULD ORDINARILY BE ENTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED F UNDS. WHAT COMES OUT OF THE DECISION OF THE HONBLE APEX COURT IS THAT DE EP INTEREST OF THE ASSESSEE COMPANY IN THE SUBSIDIARY HAS TO BE PROVED UNLESS IT IS OBVIOUS. SECONDLY THE SUBSIDIARY SHOULD HAVE USED THE MONEY FOR BUSINESS PURPOSES. THE REVENUE OFFICIALS HAVE TO THEMSELVES PUT THE SHOES OF A BUSINESS MAN AND SEE HOW A PRUDENT BUSINESS MAN WOU LD ACT. THE POINT OF VIEW SHOULD BE ONE OF COMMERCIAL EXPEDIENCY AND N OT WHETHER THE MONEY ADVANCED WAS FOR EARNING PROFIT. IN OUR OPINI ON NONE OF THE AUTHORITIES BELOW HAS GIVEN A LOOK AT THIS ISSUE BA SED ON THE PRINCIPLES LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF S.A. BUILDERS (SUPRA). NEITHER THE DEEP INTEREST OF THE ASSESSEE IN SUBSID IARY HAS BEEN ANALYZED NOR HAS THE USE OF MONEY BY THE SUBSIDIAR Y BEEN VERIFIED. WE THEREFORE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND REMIT THE MATTER BACK TO THE A.O. IF THE ASSESSEE IS ABLE TO S ATISFY THE COMMERCIAL EXPEDIENCY BASED ON THE PRINCIPLES LAID DOWN IN S.A. BUILDERS CASE (SUPRA) IT HAS TO BE ALLOWED DEDUCTION OF THE INTE REST ON ITS BORROWED FUND IN FULL. ASSESSEE SHOULD BE GIVEN AN OPPORTUNI TY TO EXPLAIN ITS CASE. 7. AS AFORESAID THE CROSS OBJECTION OF THE ASSESSE E IS SUPPORTIVE OF THE ORDER OF THE LD. CIT(A). SINCE WE HAVE ALREADY S ET ASIDE THE ORDER OF ITA NO.1662 & CO.204/09 7 THE CIT(A) AND REMITTED THE ISSUE BACK TO THE FILE O F THE AO FOR FRESH CONSIDERATION THE GROUNDS TAKEN BY THE ASSESSEE IN ITS CROSS OBJECTIONS CAN BE RAISED BY IT BEFORE THE AO IN THE COURSE OF FRESH ASSESSMENT PROCEEDINGS. WE THEREFORE DISMISS THE CROSS OBJEC TIONS OF THE ASSESSEE. 8. IN THE RESULT APPEAL OF THE REVENUE IS ALLOWED F OR STATISTICAL PURPOSES WHEREAS CROSS OBJECTION FILED BY THE ASSE SSEE STANDS DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 8-10 - 2010 SD/- SD/- ( HARI OM MARATHA) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI: 8TH OCTOBER 2010 NBR CC: ASSESSEE/ ASSESSING OFFICER/ CIT(A)/ CIT/ D .R/ GUARD FILE.