Commissioner Of Income Tax Chennai v. M/S.tenneco Rc India Pvt. Ltd. (Formerly Hydraulics Limited)

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 01.07.2013 CORAM: THE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMANandTHE HONOURABLE MS.JUSTICE K.B.K.VASUKI Tax Case (Appeal) No.18 of 2010 Commissioner of Income TaxChennai...Appellantversus M/s.Tenneco RC India Pvt. Ltd.(Formerly Hydraulics Limited)No.122, SIPCOT Industrial EstateHosur-635 126...Respondent PRAYER: Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 as against the order of the Income Tax AppellateTribunal,Madras'B'Benchdated07.08.2009inI.T.A.No.629/Mds/2009. against the order dated 20.3.2009 in C.No.218/CIT-I/77/263/2008-2009 on the file of Commissioner of Income Tax,Chennai-1 and againt the oder deted 26.12.2006 in PAN/GIR.NO.AAACH8303 E for the assessment year 1999-2000 on the file of DeputyCommissioner of Income tax, Company ciorcle II (V) Chennai-34. For appellant:Mr.T.RavikumarStanding Counsel for Income TaxFor respondent:Mr.T.N.SeetharamanJUDGMENT (Judgment of the Court was delivered by CHITRA VENKATARAMAN,J.) The only substantial question of law on which this Tax CaseAppeal, filed against the order of the Tribunal, was admitted is asto whether the Appellate Tribunal was right in holding that theexercise of power under Section 263 by the Commissioner of IncomeTax was erroneous. https://hcservices.ecourts.gov.in/hcservices/ 2. It is seen from the show-cause notice issued under Section263 of the Income Tax Act dated 20.02.2009, that the assessee hadclaimed interest of Rs.5,29,72,918/- payable on the loans taken ona sum of Rs.27,29,01,157/- and Rs.6,00,00,000/- by way secured loanand unsecured loan respectively. Since the assessee had giveninterest-free advance of Rs.12,69,21,989/- to its subsidiarycompany, namely, Renowned Auto Products Manufacturers Ltd., whereinthe assessee had 83% share, the Commissioner held that the interestwas not allowable under Section 36(1)(iii) to the extent theborrowed funds not utilised for the purpose of business. Pointingout that the Assessing Officer had not examined the transaction ofthe assessee with Renowned Auto Products Manufacturers Ltd. andwhether the loan advanced was for the purpose of the assessee'sbusiness, the Commissioner called upon the the assessee to showcause as to why the order of assessment should not be set aside ormodified. 3. After hearing the assessee, the Commissioner passed anorder directing the Officer to look into the aspect of commercialexpediency which compelled the assessee to advance a sum ofRs.12,69,21,989/-. The Commissioner pointed out that the amountadvanced was more than 46% of its entire liability towards thesecured loan. In his proceedings, the Commissioner pointed outthat the company had acquired 83% of the shares of Renowned AutoProducts Manufacturers Ltd. in August 1996, by which time, theborrowing company had become a sick company, thereby increasing thefinancial burden of the assessee company. 4. Referring to the proceedings before the Company Law Board,the Commissioner viewed that the company, in their own interest,infused funds in the sick company and that the same had nothing todo with the protecting of either the income base or the asset baseof the assessee company or to further its own interest. Theborrowing was made by the assessee company in its own name forinvesting it in Renowned Auto Products Manufacturers Ltd.Referring to the decision reported in [2007] 288 ITR 1(S.A.Builders Ltd. Vs. CIT), the Commissioner held that the onuswas on the assessee to show that the amount advanced in the sisterconcern was a commercial expediency. Thus, the proceedings wasconfirmed with a direction to the Officer to examine whether theassessee had satisfied the test of commercial expediency.Aggrieved by this, the assessee went on appeal before the Tribunal. 5. Pointing out that for the purpose of invoking jurisdictionunder Section 263 of the Income Tax, the Commissioner has to havesome material to enable him to form a prima facie view that theorder passed by the Officer was erroneous and was prejudicial tothe interest of the Revenue, the Tribunal held that the case onhand did not satisfy the twin conditions. The view of the Commissioner that the lending of the money to the sister concernwas not on account of commercial expediency, but only to divertfunds was however negatived by the Tribunal by pointing out to therehabilitation scheme framed by the BIFR in the case of RenownedAuto Products Manufacturers Ltd., the sister Company. The Tribunalheld that the advance was not given by the company on its own, butwas under the order of rehabilitation passed by BIFR. Since theassessee had acted prudently in its own interest in the light ofthe investment made in the subsidiary company, the claim wasallowable as a deduction. Thus the appeal of the assessee wasallowed. Aggrieved by this, the present appeal has been filed bythe Revenue. 6. Learned Standing Counsel appearing for the Revenue pointedout that as the order of the Company Law Board order showed, whenthe assessee company itself was not doing well, it was difficult toaccept the contention of the assessee as to any commercialexpediency in advancing interest-free loan to the sister company;consequently, rightly, the Commissioner had exercised itsjurisdiction under Section 263 of the Act. With the twinconditions thus fulfilled and the error in the order of assessmentthus causing prejudice to the interests of the Revenue, noexception could be taken to the exercise of jurisdiction underSection 263 of the Act. 7. Per contra, learned counsel appearing for the assesseepointed out to the finding of the Tribunal as well as the orders ofthe BIFR, which put an obligation on the assessee to pump in moneyto bring the sister concern out of its sickness. The assessee hadacquired 83% of equity shares as early as August, 1996 and onlythereafter, the loan was given to the sister concern. He furtherpointed out that the sister concern is also in the same line ofbusiness as that of the assessee company in manufacturing shockabsorbers. Thus, as a commercial proposition, to extend itsbusiness, the assessee had purchased 83% of shares in the sickcompany - sister concern and the assessee had advanced money tobail the sick company out of its financial difficulties to advanceits business purpose. Thus, there are no merits in the Tax CaseAppeal. 8. Heard learned Standing Counsel appearing for the appellantand the learned counsel appearing for the Revenue and consideredthe material placed on record. 9. In order to find out whether the issue on the amount givento the sister concern was a matter of consideration by the Officerat the original assessment stage, this Court directed the learnedStanding Counsel appearing for the Revenue to get the assessmentrecords. Accordingly, the same were produced today before thisCourt. It is seen from the records produced that there is no 8. Heard learned Standing Counsel appearing for the appellantand the learned counsel appearing for the Revenue and consideredthe material placed on record. 9. In order to find out whether the issue on the amount givento the sister concern was a matter of consideration by the Officerat the original assessment stage, this Court directed the learnedStanding Counsel appearing for the Revenue to get the assessmentrecords. Accordingly, the same were produced today before thisCourt. It is seen from the records produced that there is no discussion at all on this aspect. Even though the balance sheetclearly pointed out that the loan was advanced to the sisterconcern, the issue on the borrowed money given to the sisterconcern being not a subject matter of consideration by theAssessing Officer, apart from taking other facts intoconsideration, namely, the order of the Company Law Board, theCommissioner of Income Tax exercised his jurisdiction under Section263 of the Act. As far as this aspect is concerned, the assessmentrecords disclose that there was no consideration by the AssessingOfficer on this issue of loan given by the assessee to the sickcompany. Going by this factual aspect, we do not find anyjustifiable ground to hold that there was no error in the order ofthe Assessing Officer to justify the invoking of the jurisdictionunder Section 263 of the Act. Thus, on this, we agree with thesubmission of the learned Standing Counsel appearing for theRevenue that invoking of the jurisdiction in this case cannot befaulted with. 10. It is no doubt true that Section 263 of the Income Tax Actcould not be invoked to correct a mistake or error in the orderpassed by the Assessing Officer. However, when the question as towhether there was any commercial expediency on the loan given bythe assessee to the sister concern was not considered at all by theAssessing Officer, no exception could be taken to the exercise ofjurisdiction of the Commissioner of Income Tax (Appeals) underSection 263 of the Act. Consequently, we agree with the Revenue onthis aspect. 11. However, on merits, on the basis of materials, once theTribunal had come to the conclusion that the loan advanced was onaccount of commercial expediency as well as in the orders of theBIFR, we do not find any ground to disturb the said finding.Rightly, the Revenue had not raised any question of law on this.Even though on the aspect of jurisdiction, the Revenue succeeds,yet, the further question on the merits being a pure question offact and rightly not raised, we do not find, any useful purposewould be achieved in setting aside the order of the Tribunal andfurther remanding the matter. In the circumstances, except forholding that the Revenue is justified in its plea in invokingjurisdiction under Section 263 of the Act, we do not think, theorder calls for any interference to remand the matter. 12. In the decision reported in [2007] 288 ITR 1 (SC)(S.A.Builders Ltd. Vs. CIT), the Apex Court pointed out that inconsidering the question as to whether the amount advanced was ameasure of commercial expediency, the authorities and the Courtsshould examine the purpose for which the assessee advanced themoney and what the sister concern did with the money. The ApexCourt further observed that in considering the question that theborrowed amount was not utilized by the assessee in its own 12. In the decision reported in [2007] 288 ITR 1 (SC)(S.A.Builders Ltd. Vs. CIT), the Apex Court pointed out that inconsidering the question as to whether the amount advanced was ameasure of commercial expediency, the authorities and the Courtsshould examine the purpose for which the assessee advanced themoney and what the sister concern did with the money. The ApexCourt further observed that in considering the question that theborrowed amount was not utilized by the assessee in its own business but had been advanced as interest free loan to its sisterconcern is not relevant, what is relevant is whether the amount wasadvanced as a measure of commercial expediency and not from thepoint of view whether the amount was advanced for earning profits.13. The Revenue does not dispute the fact that the advancingof funds by the assessee into the sister concern was in terms ofthe BIFR's order. That being the case, no useful purpose would beserved by again directing a remand on the merits of the claim ofthe assessee. In the circumstances, the Tax Case is allowed onlyfor statistical purposes. No costs. Sd/ Deputy Registrar //True Copy// Sub.Asst.Registrar ksv To 1. The Income Tax Appellate Tribunal Madras B Bench Chennai. 2. The Commissioner of Income Tax, Chennai-I Chennai-34. 3. The Deputy Commissioner of Income Tax Company Circle-II(1), Chennai-34. Company Circle-II(1), Chennai-34. 1 cc to Mr.T. Ravikumar, Advocate, sr. 327211 cc to Mr.T.N. Seetharaman, Advocate, sr. 32860 Tax Case (Appeal) No.18 of 2010 VD (CO)kk 22/7