Tca/187/2011 Of Commissioner Of Income Tax-1 v. M/S Bnt Connections Impex Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS Tax Case Appeal No.187 of 2011 Commissioner of Income Tax - IChennai. ...Appellant -vs- M/s.BNT Connections Impex Ltd.,No.41, K.K.R.Avenue,Moolakadai, Perambur,Chennai - 600 011. ... Respondent Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 against the order of the Income Tax AppellateTribunal Chennai 'D' Bench, dated 03.12.2010 in ITA889/Mds/2010 for the Assessment Year 2007-08. against theorder of the Commisioner of income Tax(Appeals)-III,121,Mahathma Gandhi Road, Chennai. 34 dated 04.03.2010in ITA.no.599/09.10/A 111 for the Assessment Year 2007-2008 against the order of the Assistant Commisioner ofIncome Tax, Company Circle I(2)(i/c) Chennai. Dated24.12.2009 in GIR/PAN for the Assessment year2007-2008.For Appellant: Mrs.R.Hemalatha Senior Standing Counsel J U D G M E N T (Delivered by T.S.Sivagnanam, J.] This appeal is directed against the order passed bythe Income Tax Appellate Tribunal, Madras 'D' Bench, dated03.12.2010 in ITA 889/Mds/2010 for the Assessment Year2007-08. 2. Heard Mrs.R.Hemalatha, learned Senior StandingCounsel for the appellant. Though the respondent assesseehas been served and name is printed in the cause list, noneappears for the respondent. 3. This Appeal has been admitted on the followingSubstantial Question of Law:- https://hcservices.ecourts.gov.in/hcservices/ "1.Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in confirmingthe order of the Commissioner of Income Tax(Appeals) deleting the disallowance ofinterest on borrowed funds diverted foradvancing interest-free loans to sisterconcerns of Rs.1,69,84,787/- except onborrowed funds to the tune of Rs.74,76,027/-holding that the amounts were covered underthe expression "commercial expediency?" 4. The short issue which falls for consideration iswhether the Tribunal was right in confirming the orderpassed by the Commissioner of Income Tax (Appeals) -III,Chennai [CIT (A) ] dated 04.03.2010, who deleted thedisallowance of interest on borrowed funds, which accordingto the Revenue was diverted for advancing the interest-freeloans to sister concerns. 5. The question would be as to whether the saiddiversion of funds can be considered as commercialexpediency. 6. The Tribunal took note of the factual positionand found that the case of the assessee is acceptable. Theassessee explained the transaction on the following terms:-"The investment in wholly owned subsidiarycompany BNT Connections LLC USA was partlymade in the assessment year 2003-04 to theextentofRs.4,90,02,500/-andRs.4,63,67,500/- was made in the assessmentyear 2005-06. The investment made in theassessment year 2003-04 was out of the saleproceeds received on disinvestment of sharesof another BNT group subsidiary companyBerkley Sportwear LLC, USA and the assesseedisinvested its stake in this company basedin USA which has different brand name"Berkley" and floated its own new subsidiarycompany under its own brand name "BNT" knownas BNT Connections LLC USA. It was statedthat the investment in assessment year 2004-05 was out of the pre-closure of fixeddeposits in BNT Connections Impex Ltd.,which was accumulated out of surplus fundsof internal accruals since 2001-02.Accordingly, the entire investment was outof assessee's own funds and no part was out of the borrowed funds which could be saidto have been utilised for the purpose in theyear 2002-03 and in assessment year 2004-05in the investment in wholly owned subsidiarycompany." of the borrowed funds which could be saidto have been utilised for the purpose in theyear 2002-03 and in assessment year 2004-05in the investment in wholly owned subsidiarycompany." 7. The above submission made by the assessee wasfurnished by producing bank accounts of the company for therelevant assessment years to establish the deposit andwithdrawal. Furthermore, the loan advanced by Shri ThakurBakshani of Rs.1,05,06,690/- was stated to be against theloan taken from the earlier to the extent ofRs.3,00,00,000/- This was also substantiated by theassessee by producing accounts. Likewise, the assessmentlying in the account of Supreme Art Works to the extent ofRs.3,04,301/- was shown to be towards business expenses andthe said party is a sundry debtor of the assessee and nointerest could be charged on such balance due underbusiness transactions. The assessee fairly conceded that asum of Rs.74,76,027/- was made over to the sister concernsout of borrowed funds and as stated, for this, interest atthe rate of 8% could be disallowed. This submission wasaccepted by CIT(A). The Revenue argued before the Tribunalthat the reason given by the Assessing Officer justifiesthe disallowance of entire interest and it is not a smallamount and the contentions advanced by the assessee beforethe Assessing Officer were repeated before the CIT(A). 8. The Tribunal after considering the oralsubmissions as well as written arguments and the documentswhich were placed by the assessee before the CIT(A) onfacts held that the pattern of loan extended to sisterconcerns would qualify business expediency. It referred tothe decision of the Hon'ble Supreme Court in S.A.BuildersLtv. v. CIT reported in 288 ITR 1 (SC). 9. Mrs.R.Hemalatha, learned Standing Counselappearing for the appellant would contend that the Hon'bleSupreme Court in the judgment in S.A.Builders (supra) hadheld that it is not in every case interest on borrowed loanhas to be allowed if the assessee advances it to the sisterconcern. We agree with the submission of the learnedStanding Counsel that it is not a universal rule. However,in the impugned order passed by the Tribunal, we find thatthe Tribunal took note of the factual position and heldthat loans advanced by the assessee was a businessexpediency. 10. The learned Standing Counsel would refer to thedecision of the High Court of Kerala in Commissioner ofIncome-Tax, Cochin v. Alapatt Brothers [2016] 386 ITR 338(Kerala) . In the said decision, the Division Bench heldthat the CIT(A) though referred to the judgment in S.A.Builders did not examine as to how the principles thereinwould apply to the facts of the case. However, as indicatedby us in the preceding paragraphs, the Tribunal hasrecorded the facts to support its stand that the decisionin S.A.Builders would aid the case of the assessee. The CIT(A) was also satisfied with the nature of the transactionand it would qualify as "business expediency". The learnedStanding Counsel further submits that the Hon'ble SupremeCourt in the case of Additional Commissioner of Income-taxv. Tulip Star Hotels Ltd., [2012] 21 Taxmann.com 97 (SC),has doubted the correctness of the decision inS.A.Builders. Merely because a reference is pending thatdoes not mean that the decision rendered by the Hon'bleSupreme Court is no longer good law. As pointed out by usearlier, the CIT(A) and the Tribunal has discussed thefactual position and held that the transaction wouldqualify "business expediency". 11. Mrs.R.Hemaltha, learned Standing counselreferred to the decision in the case of Punjab StainlessSteel Inds. v. Commissioner of Income-tax VII [2010] 324ITR 396 (Delhi). We are of the considered view that thedecision will not in any manner advance the case of theassessee since the factual position has to be examined tohold whether the loans extended by the assessee wouldadvance its business interest. On facts, the firstappellate authority and the Tribunal held that thetransaction would qualify as "Business expediency". Wecannot sit on appeal over the said factual findings. It isfor the above reasons we hold that there is no substantialquestion of law involved in this appeal. Accordingly, theTax Case Appeal stands dismissed. 12. For the above reasons, the appeal filed by theassessee is allowed and the substantial questions of laware answered in favour of the assessee. No costs.Consequently, connected miscellaneous petition is closed. Assistant Registrar(CS vi) //True Copy// svki To The Income Tax Appellate Tribunal Madras 'D' Bench. Chennai. 2.The Commisioner of income Tax(Appeals)-III,121,MahathmaGandhi Road, Chennai. 34 3.The Assistant Commisioner of Income Tax, Company Circle I(2)(i/c) Chennai 34. +1cc to Mrs.R.Hemalatha , Advocate SR.No. 7317 T.C.A.No.187 of 2011A.SK(25/02/2019)