The Pr. Commissioner Of Income Tax -3 v. Diageo Distilleries Pvt. Ltd

$~5 *IN THE HIGH COURT OF DELHI AT NEW DELHI +ITA 148/2020 THE PR. COMMISSIONER OF INCOME TAX -3..... Appellant Through:Mr.RuchirBhatia,Sr.StandingCounselforRevenuewithMs.Mansie Jain, Advocate. versus DIAGEO DISTILLERIES PVT. LTD. ..... Respondent Through:None.%Date of Decision:07[th]September, 2022 CORAM:HON'BLE MR. JUSTICE MANMOHANHON'BLE MS. JUSTICE MANMEET PRITAM SINGH ARORA J U D G M E N T MANMEET PRITAM SINGH ARORA, J (ORAL): 1.Present Income Tax Appeal has been filed challenging the order dated23[rd]September, 2019 passed by Income Tax Appellate Tribunal (‘ITAT’) inITA No. 5502/DEL/2016 for the Assessment Year 2012-13. 2.The learned counsel for the Appellant states that the ITAT erred inupholding the order of Commissioner Income Tax (Appeals) [‘CIT(A)’] anddeletedthedisallowanceofinterestexpenditure,amountingtoRs.2,79,11,315/-madebytheAssessingOfficer(‘AO’),withoutconsidering the correct factual position that the borrowed funds advanced bythe Assessee to the Contract Bottling Units (‘CBUs’) were not used by theAssessee for the purposes of business since no revenue was disclosed from ITA 148/2020 such activities. He further states that the ITAT failed to consider that theCBUs are separate and distinct entities and therefore, the Assessee hadfailed to prove a direct nexus of the said interest expenses for its businesspurposes as stipulated under Sections 36 and 37 of the Income Tax Act,1961 (‘The Act’). 3.The learned counsel for the Appellant states that ITAT also erred inupholdingtheCIT(A)’sorderanddeletedthedisallowanceofRs.44,74,729/- made by the AO on account of legal and professional feeexpenses without considering that there was no business activity during thefinancial year. He further states that the ITAT also erred in upholding theCIT(A)’s order and deleted the disallowance of Rs.25,27,483/- made by theAOonaccountofwarehousinganddemurrageexpenses,withoutappreciating that there was no stock of goods or purchases and sales madeby the Assessee in the relevant financial year. 4.A perusal of the orders reveals that with respect to the interest amounton loan paid by the Assessee, the CIT(A) has returned a finding of fact thatthe working capital loan taken by the Assessee for its business purposes wasprovided to the CBUs as per the terms and conditions of its agreement. Thesaid working capital provided to the CBUs was taken into account by theparties while fixing the bottling charges payable under the agreement. TheCIT(A) therefore, concluded that the working capital loan availed by theAssessee from the Standard Chartered Bank had been used wholly andexclusively for the business purposes and therefore, deleted the addition ofRs.2,79,11,315/- on account of interest payment on loan made by the AO.The ITAT concurred with the aforesaid finding of the CIT(A) and in thisregard held as follows:- ITA 148/2020 “7. We have heard the Ld. DR and perused all therelevant material available on record. As regards toGround No. 1, from the perusal of the records it can beseen that the loan procured was utilized by the assesseewholly and exclusively for its business as per clause 14of the arrangement between third party contract bottlingunits (CBUs). The working capital is advanced to theseCBUs so as to enable them to procure material,undertake manufacturing and maintain stocks anddebtors for the assessee. The assessee's profit earningsource is the arrangement with the CBUs wherein theassessee provides working capital to these CBUs toenable them to procure materials and carry out largescale manufacturing of alcoholic beverages and deliverthe same to the assessee's customers on its behalf. Thus,from this it is clear that working capital loan was takenby the assessee for its business purpose and use forbusiness purposes only. Therefore, the CIT(A) was rightin deleting this disallowance. Ground No. 1of theRevenue's appeal is dismissed…” 5.With respect to the expenses of legal and professional fees as well asthe warehousing and demurrage charges, debited to the profit and lossaccount, the CIT(A) held that since the AO has not alleged that theseexpenses are bogus or of a personal nature the same do not warrant anydisallowance. The CIT(A) held that the said expenses have been incurredwholly and exclusively for the business purposes and therefore, deleted thedisallowances. 6.The ITAT upheld the aforesaid finding of the CIT(A) after observingthat the said expenses have been incurred by the Assessee on themaintenance of its business establishment during the relevant year. In thisregard, the finding of the ITAT reads as under:- “7..As regards to Ground Nos. 2 and 3, it can be seenthat it is an admitted position that during the year ITA 148/2020 there was no business activity, but during the saidperiodtheassesseeincurredexpensesonthemaintenance of its business establishment. During thesaid year, the Assessing Officer has not pointed outany bogus or expenditure of personal nature, whichwill warrant any disallowance. The CIT(A) rightlyheld that by simply mentioning that the expendituresare not commensurate with the turnover, will notautomatically prove that they have not been incurredwholly and exclusively for business purposes. Thus,there is no need to interfere with the findings of theCIT(A) Ground Nos. 2 and 3 are dismissed.” 7.The ITAT and CIT(A), both fact finding authorities have concurrentlyheld that the expenses claimed by the assessee were duly incurred in thecourse of business. In the present appeal, the appellant has not placed anymaterial on record to contradict the aforesaid concurrent finding of factsreturned by the ITAT and CIT(A), while reversing the disallowances madeby the AO. The appellant has failed to point out any error of law in thefindings of the ITAT. In this view of the matter, no substantial questions oflaw arise for consideration and accordingly, the appeal is dismissed. MANMEET PRITAM SINGH ARORA, J SEPTEMBER 07, 2022pkv MANMOHAN, J ITA 148/2020