Denis Exports Pvt Ltd., Mumbai vs Department Of Income Tax

IN THE INCOME TAX APPELLATE TRIBUNAL "J" BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER आयकर अपीऱ सं./I.T.A. No.1764/M/2011 (निर्धारण वर्ा / Assessment Year: 2006-2007) DCIT 8(1), फनाभ/ Denis Exports Pvt Ltd., R.No.210, 2 n d Floor, Aayakar Vs. Unit No.2B, Unit No.10, Bhavan, Mumbai - 400 020. Mittal Indl. Estate, Andheri Kurla Road, Andheri (E), Mumbai - 400059. स्थामी रेखा सं ./ PAN : AAACD 5065 H (अऩीराथी /Appellant) .. (प्रत्मथी / Respondent)

अऩीराथी की ओय से / Appellant by : Shri Hari Govind Singh, DR प्रत्मथी की ओय से/ Respondent by : None

सुनवाई की तायीख / Date of Hearing : 10.02.2015 घोषणा की तायीख /Date of Pronouncement : 20 .02.2015 आदे श / O R D E R

PER D. KARUNAKARA RAO, AM:

This appeal filed by the Revenue on3.3.2011 is against the order of the CIT (A)-16, Mumbai dated 23.12.2010 for the assessment year 2006-07. In this appeal, Revenue raised the following grounds which read as under:

"1. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in deleting the disallowance of guarantee commission amounting to Rs. 13,00,425/- without appreciating the facts of the case.

2. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in deleting the disallowance of guarantee commission by relying upon the decision of the Hon'ble Supreme Court in the case of S.A. Builders, without appreciating the facts that the benefit of the expenditure incurred by the assessee company has been passed on to its subsidiary."

2. There is none appeared on behalf of the assessee despite the number of notices issued in the past. Revenue did not mention whether there is a cross appeal. In this appeal the issue raised by the Revenue relates to the disallowance of guarantee commission and recorded the objection against the CIT (A)'s reliance on the Apex Court judgment in the case of S.A. Builders. On considering the issue 2

in this appeal and the back ground of this case, we find the appeal can be disposed of without presence of the Ld Counsel.

3. Briefly stated relevant facts of the case are that the assessee claimed deduction of Rs. 13,00,425/- on account of guarantee commission incurred in connection with the loans granted to the assessee's subsidiary companies. Assessing Officer disallowed the same stating that the same is incurred for the benefit of third party. Before us, it is brought to our notice that assessee has a subsidiary company named M/s. VIkas Fashion Pvt Ltd (VFPL) located at Nepal during the business. VFPL requires loans facilitated in Nepal for conducting business for which assessee is the guarantor. It is undisputed fact that the assessee supplies material to the VFPL, thus they have a commercial connectivity between the two. After examining and appreciating the said business / commercial nexus between the two, CIT (A) granted relief to the assessee relying on the judgment in the case of S.A. Builders (supra).

4. We have heard the Ld DR who heavily relied on the order of the Assessing Officer. We have perused the order of the CIT (A) in general and paras 2.3.1 and 2.3.2 in particular. On perusal of the said paras we find the same are relevant in this regard and therefore they are extracted as follows.

"2.3.1. I have carefully considered the contention of the appellant company as well as carefully gone though the available documents on record. I find that the inalienable facts of this case are that M/s. Vikas Fashions Pvt Ltd is the appellant's subsidiary company and is performing its business activity in Nepal. It is also a matter of fact the appellant is exporting the garments and the subsidiary company is performing the appellant's work in Nepal. The guarantee commission is in fact nothing but the interest for the guarantee that the appellant had taken in respect of its subsidiary company at Nepal so as to enable to obtain loan from Standard Chartered Bank. The Hon'ble Supreme Court in the case of S.A. Builders (supra) has held as under:

........

........

.......

2.3.2. Therefore, applying the ratio of the Hon'ble Supreme Court to the facts of this case, it is clear that the appellant in order to enable its subsidiary company to obtain loan, had given a guarantee to Standard Chartered Bank in India. This is parallel to the fact that the loans were given free of interest to its subsidiary company for the commercial purposes by the appellant company. The Ld Assessing Officer has not pointed any instances as to whether loan given were utilized by the subsidiary company for its personal use or by Directors for their personal use. Therefore, utilization of loan is for the business purposes of the appellant's subsidiary company.

Therefore, in view these undisputed fact it cannot be said that the guarantee 3

commission paid by the appellant company for the business to its subsidiary company is not allowable in view of the Hon'ble Supreme Court decision in the case of S.A. Builders (supra). Therefore, the addition made by the Ld Assessing Officer cannot be sustained both in law and fact."

5. From the above, it is an undisputed fact that the concerns in question are commercially connected which is sufficient enough for establishing the commercial expediency. Revenue has not brought anything on record to demonstrate that the impugned loans from the Standard Chartered Bank were not utilized for the commercial activities. Therefore, in our opinion, the order of the CIT (A) is fair and reasonable and it does not call for any interference. Accordingly, grounds raised by the Revenue are dismissed.

6. In the result, appeal of the Revenue is dismissed.

Order pronounced in the open court on 20th February, 2015.

Sd/- Sd/-

(VIJAY PAL RAO) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक 20.2.2015 व.नन.स./ OKK , Sr. PS

आदे श की प्रतिलऱपि अग्रेपिि/Copy of the Order forwarded to :

1. अऩीराथी / The Appellant

2. प्रत्मथी / The Respondent.

3. आमकय आमक् ु त(अऩीर) / The CIT(A)-

4. आमकय आमुक्त / CIT

5. ववबागीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai

6. गार्ड पाईर / Guard file.

सत्मावऩत प्रनत //True Copy// आदे शानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीऱीय अधिकरण, भुंफई / ITAT, Mumbai