M/S.talent Pro India Hr Private Ltd.,New v. Commissioner Of Income Tax – 3, Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 10.08.2021 CORAM The Honourable Mr.Justice T.S.SIVAGNANAMandThe Honourable Mr.Justice SATHI KUMAR SUKUMARA KURUP T.C.A.No.201 of 2016 M/s.Talent Pro India HR Private Ltd.,New No.64, Old No.30,'Briley One' III Floor, Ethiraj Salai,(Next to kanchi Hotel), Egmore,Chennai-600 008. .. Appellant/ Appellant -vs- Commissioner of Income Tax – 3, Chennai... Respondent/Respondent Appeal under Section 260A of the Income Tax Act, 1961againsttheorderdated28.08.2015madeinI.T.A.No.1191/Mds/2015 on the file of the Income Tax AppellateTribunal 'SMC' Bench, Chennai for the assessment year 2009-10. Against the order of the Commissioner of Income Tax Appeals II, Chennai.34 dated 30/012015 old ITA No.1192/2013-2014 New ITA No.476/CIT A-II/2013-2014 in the Assessment Year 2009-2010 Against the order of the Commissioner of Income Tax Companycircle III(1) Chennai-34 dated 29/11/2011 GIR.No/ PAN AABCP9823Ain the Assessment Year 2009-2010 (Delivered by T.S.Sivagnanam, J.) This appeal, by the appellant/assessee, filed under Section https://hcservices.ecourts.gov.in/hcservices/ 260A of the Income Tax Act, 1961 (hereinafter referred to as“the Act”), is directed against the order dated 28.08.2015, madein I.T.A.No.1191/Mds/2015 on the file of the Income TaxAppellate Tribunal 'SMC' Bench, Chennai (for brevity “theTribunal”) for the assessment year 2009-10. 2.The appeal was admitted on 22.03.2016, on the followingsubstantial questions of law:- “(i) Whether under the facts and circumstancesof the case, the Income Tax Appellate Tribunal wasright in upholding the order of the LowerAuthorities, which brought to tax the notionalincome on the advances made by the appellant toits subsidiary? and (ii) Whether under the facts and circumstancesof the case, the Income Tax Appellate Tribunal wasright in holding that 12.5% of the advances madeby the appellant to its subsidiary is to beassessed as income of the appellant, though theadvance was an interest free advance?” 3.We have heard Mr.N.V.Balaji, learned counsel for theappellant/assessee and Ms.V.Pushpa, learned Junior StandingCounsel for the respondent/Revenue. 4.The assessee is a company engaged in the business ofproviding service like man power planning, recruitment ofpersonnel etc. It filed its return of income for the assessmentyear under consideration AY 2009-10 returning a loss. TheAssessing Officer completed the assessment under Section 143(3)of the Act and assessed the income of the assessee atRs.5,86,860/-. The Assessing Officer disallowed a sum ofRs.1,21,88,735/- as loans and advances by observing that theassessee had advanced a sum of Rs.6,77,15,194/- to M/s.InterproGlobal Pvt. Ltd., a subsidiary company of the assessee and thatthe said subsidiary company is making profits. Further, theAssessing Officer held that the assessee could not haveprudently invested and advanced funds to its own benefits andthat the assessee has not chosen to recover the same.Therefore, the Assessing Officer assessed a sum ofRs.1,21,88,735/- being 18% of the amount outstanding as on thelast date of the previous year relevant to the assessment year2009-10. Aggrieved by such order, the assessee preferred appealbefore the Commissioner of Income Tax (Appeals)-11, Chennai (forbrevity “the CIT(A)”). The appeal was dismissed by order dated30.01.2015. Aggrieved by the same, the assessee preferredappeal to the Tribunal, which has been rejected and the same ischallenged in this tax case appeal. 5.The question involved is whether the Assessing Officer,the CIT(A) and the Tribunal had dealt with the issue raised bythe assessee in a proper perspective. The assessee hadcontended that there is no specific agreement for charging anyinterest on the loans and advances to the subsidiary company andtherefore, notional income cannot be considered and assessed onthe loans and advances to a wholly owned subsidiary. It isfurther contended that the assessee had not incurred anyexpenses by way of interest and no addition could have beenmade, as interest income purported to have been earned. Thoughsuch was the contention, both the authorities and the Tribunalwere of the view that the subsidiary company, to which the loansand advances were extended by the assessee, is generatingsufficient profits and therefore, by no stretch of imagination,it could be considered by the assessee as if the loan extendedby them is not recoverable. Further, the Assessing Officer hadcommented upon the prudence of the assessee as a business manand accordingly, computed the interest at 18%. 6. We find, in the assessment order, the assessee had takena specific stand that they have not received any interest fromthe subsidiary company. However, the Assessing Officerproceeded on presumption and completed the assessment. Thecorrectness of such order was tested by the CIT(A), who alsoconcurred with the Assessing Officer by noting that the loan wasadvanced five years back and no interest was charged and the twosister concerns are profit making companies and also claimingSection 10A exemption. The Tribunal also concurred with theauthorities, but granted a small reprieve to the assessee byreducing the rate of interest at 12.5%. Unfortunately, theauthorities as well as the Tribunal did not consider thespecific stand of the assessee that no income had accrued to theassessee on account of the loans and advances made to thesubsidiary company. The question of considering commercialexpediency or observing that no prudent man, who runs a lossmaking company, will extend loans to another profit makingsubsidiary, which is also enjoying the benefit of Section 10A ofthe Act. Unless and until, there is evidence available for theauthority that for certain other purposes, the loans andadvances were extended by the assessee to the subsidiarycompany, no such adverse presumption could have been drawnagainst the assessee and no tax can be levied and collected on apresumptive income, as tax can be levied and collected onlyagainst real income, which has not been brought out by theauthorities or the Tribunal. Therefore, we are of theconsidered view that the authorities below and the Tribunalcommitted an error in fixing the rate of interest. 7.For the above reasons, this tax case appeal, filed by theassessee, is allowed and the substantial questions of law are answered in favour of the assessee. No costs. Sd/- Assistant Registrar(CS VII) //True Copy// Sub Assistant Registrar abr To 1. The Commissioner of Income Tax – 3, Chennai. Chennai. 2. The Income Tax Appellate Tribunal 'SMC' Bench, Chennai. 3. The Commissioner of Income Tax (Appeals II), Chennai.34 Chennai.34 4. The Assistant Commissioner of Income Tax Company Circle (III) Chennai.34 Chennai.34 T.C.A.No.201 of 2016 SRA(CO)CT(13/09/2021)