Ita/77/2015 Of The Commissioner Of Income Tax v. M/S. Gokaldas Images Pvt.ltd

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE J2ZND DAY OF NOVEMBER 202 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD BETWEEN: I1LT.A. NO.77 OF 2ZO 1.|THE COMMISSIONER OF INCOME-TA® C.R. BUILDING, QUEENS ROAD BANGALORE. 2.|THE ADDL. COMMISSIONER OF INCOME-TAX RANGE-11, RASHTROTHANA BHAVAN NRUPATHUNGA ROAD BANGALORE..., APPELLANTS. (BY SRI. K.V. ARAVIND, ADV.,) AND" M/S. GOKALDAS IMAGES PVT. LTD., 7 & 12, INDUSTRIAL SUBURB|TUMKUR ROAD, YESHWANTHPURA.BANGALORE-560022 PAN: AAACG 6637(Q. (BY SRI. ASHOK A. KULKARNI, ADV.)| .., RESPONDENT THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,|1961L ARISING OUT OF ORDER DATED 26.09.2014 PASSED IN ITANO.693/BANG/2013 FOR THE ASSESSMENT YEAR 2008-09,PRAYING TQ: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED ABOVE. (11) ALLOW THE APPEAL AND SET ASIDE THE ORDERS.PASSED BY THE ITAT, BANGALORE IN ITA NO.693/BANG/2013—DATED 26-09-2014 CONFIRMING THE ORDER OF THE APPELLATE.COMMISSIONER AND CONFIRM THE ORDER PASSED BY THEADDL. COMMISSIONER OF INCOME TAX, RANGE-11, BANGALORE. THIS|ITACOMING|ONFOR.HEARING,|THISALOK ARADHE J.,DELIVERED THE FOLLOWING: | DAY, JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (hereinafter referred to as the Act for short)has been preferred by the revenue. The subject matter|of the appeal pertains to the Assessment year 2008-09.The appeal was admitted by a bench of this Court videorder dated 04.08.2015 on the following substantialquestion of law: (i) Whether on the facts and in.circumstances of the case, the Tribunal Isrignt in law in holding that the amount ofRs.62,84,681/- advanced by the assessee to|M/s. Hinduja Realtors Pvt. Ltd, which is asister concern of the assessee, for payment.of Municipal Taxes, without charging anyinterest on the same Is to be treated as business expenditure, without appreciatingthat the assessee does not have the Iiabilityof payment of Municipal Taxes and theinterest should have been charged on themoney advanced as held by the assessing.authority? (ii) Whether on the facts and in the.circumstances of the case, the Tribunal Isright in law in holding that the amount of.Rs.7,00,00,000 advanced by the assessee toM/s. Hinduja Investments Pvt. Ltd, which ts-a sister concern of the assessee, towardsacguisition/identifying and liaison of a textileAparel Park, without appreciating that the}loan given was to help the sister concern.which is separate legal entity and assessee.had not benefit from it and as such assesseehad diverted the borrowed fund to thisextent? (iii) Whether on the facts and in the.circumstances of the case, the Tribunal wasright in law in holding that the disallowancemade under section 14A should not be addedto the Book Profits of the assessee under section 115JB despite the explicit provisionsof Clause (i) of Explanation (1) to sectionJ15JB2. (iv) Whether on the facts and in the.circumstances of the case, the Tribunal wasright in law in deletion of portion of common.expenses allocated even when assessing.authority has rightly observed the expenses.incurred are to be apportioned among all the.Units|Intheratioofthelrrespective|turnovers 2 (v) Whether on the facts and in the.circumstances of the case, the Tribunal erredin giving relief to assessee in respect of set.of EOU profits against non EOU losses anabrought forward depreciation by followingthe decision of this Hon'ble Court in the caseof M/s. Yokogawa witnout appreciating thatthe fact that deduction has to be allowedfrom the total income of the assessee and asper section 2(45) of the I.T. Act the totalincome should be computed from varioussources after set off of losses from onesource against income from other sources under the same head of income in terms ofsection /09(1) and the order of the Hon'bleCourt has been challenged before Apex Courtby Revenue? (v) Whether on the facts and in the.circumstances of the case, the Tribunal erredin giving relief to assessee in respect of set.of EOU profits against non EOU losses anabrought forward depreciation by followingthe decision of this Hon'ble Court in the caseof M/s. Yokogawa witnout appreciating thatthe fact that deduction has to be allowedfrom the total income of the assessee and asper section 2(45) of the I.T. Act the totalincome should be computed from varioussources after set off of losses from onesource against income from other sources under the same head of income in terms ofsection /09(1) and the order of the Hon'bleCourt has been challenged before Apex Courtby Revenue? 2 |Thefactualbackground,In|whichtheaforesaid questions of law arise for our considerationneed mention. The assessee is a company engaged in|manufacture and export of readymade garments. The|assessee filed the return of Income for the Assessment.Year 2008-09 on 27.09.2009. The Assessing Officer byan order dated 08.17.7011 inter alia held that the.assessee advanced certain monies to its sister concern.without charging interest on the same. It was furtherheld that aforesaid monies have been advanced out of.borrowed funds and interest should have been chargedon the same. Accordingly interest to the tune ofRs.6,10,75,200/- was charged. The Assessing Officer.alSo made an addition in respect of claim under Section.115JB of the Act and deleted portion of common.expenses which were allocated. The set off of profits of export oriented units against non export oriented unit's|losses and brought forward unabsorbed depreciationwas also not allowed. | 3The assessee thereupon filed an appealbefore the Commissioner of Income Tax (Appeals) who.by an order dated 25.02.2013 inter alia held thatadvance of Rs.53.77 Crores given to M/s’ HindujaRelators Pvt. Ltd. is only out of commercial expediencyand can be considered as advance for business purpose.It was further held that there was neither anycommercial expediency nor any business transactionwith M/s Hinduja Investments Pvt. Ltd. For giving aninterest free advance of Rs./7 Crores. It was furtner neid.that expenses incurred towards legal and professionalfees,rates|and|taxes,insurance,|managerialremuneration and miscellaneous expenses can beallocated in respect of claim of set off of profits earnedby export oriented units against the losses of non exportoriented units. It was neld that there is no exemption. granted to a non dividend company in this regard andtherefore, the assessee is liable to tax on book profit inaccordance with the provisions of Section 115JB of theAct. The Assessing Officer was directed to quantify ifthere are any losses to be carried forward after giving.effect to the order passed by the Commissioner of.Income Tax (Appeals). Accordingly, the appeal waspartly allowed. 4Therevenueas|well.as| |(hereinafter referred to as ‘the tribunal’ for short) byfiling the appeals against the order passed by theCommissioner of Income Tax (Appeals). Tne assesseealso Tiled a cross objection against the order passed Dythe Commissioner of Income Tax (Appeals). Both theappeals as well as the cross objections was decided by|the tribunal by a common order dated 26.09.2014 andpartly allowed the appeals preferred by the revenue aswell as the assessee and dismissed the cross opjection— preferred by the assessee. In the aforesaid factualbackground, this appeal has been filed. 4Therevenueas|well.as| |(hereinafter referred to as ‘the tribunal’ for short) byfiling the appeals against the order passed by theCommissioner of Income Tax (Appeals). Tne assesseealso Tiled a cross objection against the order passed Dythe Commissioner of Income Tax (Appeals). Both theappeals as well as the cross objections was decided by|the tribunal by a common order dated 26.09.2014 andpartly allowed the appeals preferred by the revenue aswell as the assessee and dismissed the cross opjection— preferred by the assessee. In the aforesaid factualbackground, this appeal has been filed. 5.|Learned counsel for the revenue submittedthat the advance made by the assessee to thesubsidiary company was not for business purpose andno element of commercial expediency was involved.Therefore, the same was not allowable as deduction. Itis urged that advance of Rs.7 Crores made by the.assessee to the subsidiary company is neither forbusiness purpose nor any commercial expediency wasinvolved and even if the advance was made forcommercial expediency, the advance being made forsetting up of business, the same constitutes capitalexpenditure and could not have been treated as revenue.expenditure. It is pointed out that there is neither anymaterial nor any submission made on behalf of theassessee that advance of Rs.7 Crores was made duringthe earlier Assessment Year. It Is contended that thetribunal ought to have appreciated that addition to the book profit has been made in terms of Clause (f) toExplanation to Section 115JB of the Act. It is also.contended that the tribunal without any basis hasallowed the allocation of expenses between exportoriented units and non export oriented units and itought to have been appreciated that the AssessingOfficer has rightly allocated expenses on turnover basis.|It is also submitted that assessee had not maintained.separate books of accounts. It ought to Nave beenappreciated by the tribunal that adjustment and set offis governed by Section 70 of the Act and the issue was.covered in favour of the revenue in view of the.judgment of this court. In support of aforesaidsubmissions, reliance Nas been placed on decisions ofSupremeCourt|In|'S_A. BUILDERSLID,Ys,COMMISSIONER|OFINCOME-TAX|(APPEALS),CHANDIGARH’, (2007) 158 TAXMAN 74 (SC)‘COMMISSIONER OF INCOME-TAX VS. YOKOGA WAINDIA LTD, (2017) 77 TAXMANN.COM 41 (SC) and M/S KARLE INTERNATIONAL PRVIATE LTD. VS.THE ASSISTANT COMMISSIONER OF INCOME-TAX, | I.T.A.NO.377/2017 DECIDED ON 07.09.2020. 6.|On the other hand, learned counsel for theassessee submitted that amount of Rs.7 Crores was.alone advanced by the assessee to M/s_ HindujaInvestments Pvt. Ltd. For acquisition / identification andliaison towards exploring possibility of expanding intextile apparel park. Therefore, the amount wasadvanced as a matter of commercial and business.expediency and therefore, the first substantial question.of law in fact does not arise for consideration as the.same is a finding of fact. It is also submitted thatdisallowance computed under Section 14A of the Actpertains to computation of income under normalprovisions of the Act and the same cannot be read intoSection 115JB of the Act pertaining computation of Dookprofits for levy of Minimum Alternate Tax (MAT). It is”also pointed out that there is no express provision in. clause (f) of Explanation 1 to Section 115JB of the Act.It is also urged that common expenses incurred by theassessee exclusively pertain to non export unit and donot require allocation across all units. It is furthersubmitted that no substantial questions of law arises forconsideration in this appeal. In Support of aforesaidSubmissions, reliance has been placed on decisions in.S.A,.BUILDERS LTD.SUPIdand|'COMMISSTONER OFINCOME-TAX VS. SRIDEVI ENTERPRISES, 192 ITR165, clause (f) of Explanation 1 to Section 115JB of the Act.It is also urged that common expenses incurred by theassessee exclusively pertain to non export unit and donot require allocation across all units. It is furthersubmitted that no substantial questions of law arises forconsideration in this appeal. In Support of aforesaidSubmissions, reliance has been placed on decisions in.S.A,.BUILDERS LTD.SUPIdand|'COMMISSTONER OFINCOME-TAX VS. SRIDEVI ENTERPRISES, 192 ITR165, 7We have considered the submissions made§by learned counsel for the parties and nave perused therecord. Tne assessee paid a sum of Rs.29.17 Crores on.account of business transactions in relation to exports to.USA. Before the Commissioner of Income Tax.(Appeals), the assessee had furnished the completedetails, which were forwarded to the Assessing Officerwho did not make any comments in his remand report. |It is pertinent to mention here that the aforesaid amount pertains to export transactions to avail exportbenefits and the assessee had an understanding withHinduja Relators Pvt. Ltd. in this regard. Similarly, anamount of Rs.24.6 Crores was advanced to Hinduja)Relators Pvt. Ltd. For improvement of a new building)which was being constructed for the assessee under the)lease.agreement.The.ASS@SSINQ|Officer.didnotcomment anything in this regard in the remand report.The Commissioner of Income Tax (Appeals), therefore,held that the aforesaid amount was advanced by theassessee for business purpose as well as commercialexpediency. The aforesaid finding of fact has beenaffirmed by the tribunal. The aforesaid concurrentfindings of fact neither suffer from any infirmity nor canbe termed as perverse. Therefore, the first substantialquestion of law is answered against the revenue and infavour of the assessee. 8 _The Commissioner of Income Tax (Appeals)held that an advance of Rs.7 Crores was given to Hinduja Investments Pvt. Ltd. for acquiring the land for.textile Special Economic Zone (SEZ). However, theassessee neither acquired the land nor set up any SEZ.Therefore, the Commissioner of Income Tax (Appeals)held that there was neither any commercial expediencynor any business transaction for giving an interest free|advance of Rs./7 Crores. However, the tribunal hasreversed the aforesaid finding on the ground that the.aforesaid sum is opening balance on 01.04.2007 andrevenue having accepted the loan advanced for the.purpose of business in past assessment could not seekto decline the claim as not related to business. However,the tribunal itself has recorded a finding that theassessee has not led any evidence in this regard. Tnerelevant extract of the order passed by the tribunalreads as under: Asfar.dStheaforesaidSUTYIS|concerned, it was claimed by the assesseethat the sum in question was given to HIPL| for the purpose of acquiring and identifying|land for setting up textile apparel park. As wehave already seen, the assessee has not /et in.any evidence in this regard. It is however|seen from page 8 of the paper book that the|aforesaid sum is the opening balance as on.01.04.7007. oiThus, from perusal of the aforesaid extractedportion of the order of the tribunal, it is evident that theassessee Nas not let in any evidence to establish the factthat the amount was either advanced for business.purpose or for commercial expediency and it was notthe case of the assessee itself that the amount wasadvanced in previous year. The Commissioner of Income.Tax (Appeals) has recorded a finding that the assesseehas neither acquired the land nor has set up any SEZ.Therefore, in the fact situation of the case, we deem itappropriate to remit the matter for re consideration tothe tribunal afresh. Accordingly, the second substantialquestion of law is answered.| oiThus, from perusal of the aforesaid extractedportion of the order of the tribunal, it is evident that theassessee Nas not let in any evidence to establish the factthat the amount was either advanced for business.purpose or for commercial expediency and it was notthe case of the assessee itself that the amount wasadvanced in previous year. The Commissioner of Income.Tax (Appeals) has recorded a finding that the assesseehas neither acquired the land nor has set up any SEZ.Therefore, in the fact situation of the case, we deem itappropriate to remit the matter for re consideration tothe tribunal afresh. Accordingly, the second substantialquestion of law is answered.| 10. The Commissioner of Income Tax (Appeals)|has held that as per Section 115JB of the Act, theassessee being a company is liable to tax on bookprofits in accordance with the aforesaid provision andthere is no exemption granted to the non dividendcompany in this regard. However, the’ tribunal Dyplacing reliance on decision of the Supreme Court in.APOLLO TYRES, 255 ITR 2/73 (SC) has held thatAssessing Officer while determining book profits underSection 115JB of the Act cannot tamper with the profitsas per profit and loss account prepared in accordancewith the Companies Act except in the manner providedin Explanation 1 to Section 115JB of the Act. Thus, ithas been held that the additions made by the AssessingOfficer while determining the book profits under Section.115JB of the Act cannot be sustained. Any disallowance.computed under Section 14A of the Act pertain tocomputation of income under normal provisions of theAct and cannot be read into the provisions of Section 115JB of the Act pertaining to computation of bookprofits by levy of Minimum Alternate Tax (MAT) andthere is no express provision in clause (f) of Explanation.1 to Section 115JB of the Act to that extent. For the|aforementioned reasons, the third substantial question.of law is answered against the revenue and in favour ofthe assessee. 11. The Commissioner of Income Tax (Appeals)|has held that an amount of Rs.4,71,29,/95/- is relatedto the employees employed in non export oriented units.and the assessee had separately debited salaries andwages in respect of export oriented units in thecommunication which was forwarded to the AssessingOfficer. However,theAssessing|Officer.has.notmentioned anything contrary in his remand report,therefore, the Commissioner of Income Tax (Appeals)has permitted the allocation of the expenses incurred bythe assessee viz., legal and professional fees, rates andtaxes,|insurance,managerialremunerationand| miscellaneous expenses. The Income Tax AppellateTribunal has held that the expenses related exclusivelyto non export oriented units and has affirmed the finding|recorded by the Commissioner of Income Tax (Appeals).For the aforementioned reasons, the fourth substantial|question of law is also answered against the revenueand in favour of the assessee. 12. Admittedly, the decision rendered by this.court in case of YOKOGAWA has been upheld by theSupreme Court from perusal of para 29 of the orderpassed by the tribunal, it is evident that the revenue has_not disputed tnat the ratio laid down in ,YOKOGAWASupra IS applicable to tne facts of the present case. It ispertinent to mention that the decision of this court inM/S KARLE INTERNATIONAL PVT. LTD. Supra is notapplicable to facts of the case as in the aforesaid case,the assessee had not claimed any deduction underSection 10B of the Act. For the aforementioned reasons, the fifth substantial question of law is also answeredagainst the revenue and in favour of the assessee. In view of preceding analysis, the order passed bythe tribunal insofar as it pertains to finding recorded byit that an amount of Rs.7 Crores advanced by theassessee to M/s Hinduja Investments Pvt. Ltd., for)business purposes and commercial expediency is herebyquashed and the matter is remitted to the tribunal todecide the aforesaid issue afresh in accordance with law.In the result, the appeal is disposed of. SS| Sd/-—JUDGE.Sd/-JUDGE.