The Pr. Commissioner of Income-tax-3 v. Federal Mogul Goetze India Ltd
[Citation -2019-LL-0820-93]

Citation 2019-LL-0820-93
Appellant Name The Pr. Commissioner of Income-tax-3
Respondent Name Federal Mogul Goetze India Ltd.
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 20/08/2019
Assessment Year 2008-09
Judgment View Judgment
Keyword Tags commercial expediency • prior period expenses • expenses incurred • notional interest • monetary limit • surplus funds • tax effect • cash flow
Bot Summary: One being an appeal by the Assessee and the other an appeal by the Revenue and therefore, there should have been two appeals in this Court. As far as the issue at 2.2 is concerned, the Court finds that there is a concurrent factual determination both by the CIT and ITAT on the justification for the prior period expenses incurred by the Assessee. As far as the issue at 2.1 is concerned, it is argued by learned counsel for the Revenue that the ITAT has merely followed its earlier order in the Assessee s own case for AY 2007-08 and has not really discussed the facts pertinent to the AY in question. Learned counsel for the Assessee has drawn the attention of this Court to the decision of the Supreme Court in Hero Cycles Pvt. Ltd. v. Commissioner of Income Tax, 2015 379 ITR 347, where relying on the earlier decision in S.A. Builders Ltd. v. Commissioner of Income Tax ITA 1425/2018 Page 2 of 4 2007 ITR 1, the Supreme Court upheld the advancing of loans by the Assessee to its subsidiary as being for commercial expediency. There was a further issue in the above case concerning advances given by the Assessee to its own Directors at a subsidized interest rate of 10 whereas the Assessee itself was borrowing from its banks at the rate of 18. Turning to the case on hand, this Court finds that in the impugned order, the ITAT, while adverting to this issue, has observed as under: we find that the assessee has huge interest free funds in the form of share capital reserve surplus which stood at more than Rs. 2,000 crores and surplus cash flow from operating activities at Rs. 149 crores and fresh capital received during the year amounted to Rs. 100 crores. On the facts of the present case, when factually the ITAT has found that the Assessee had surplus funds which it could part with for the business interests of its subsidiary, the view taken by the ITAT is a plausible one and does not call for interference.


IN HIGH COURT OF DELHI AT NEW DELHI ITA 1425/2018 & CM APPL. 52025/2018 PR. COMMISSIONER OF INCOME TAX-3 Appellant Through: Mr. Ruchir Bhatia, Advocate versus FEDERAL MOGUL GOETZE INDIA LTD. Respondent Through: Mr. Satyen Sethi, Mr. Arta Trana Panda and Ms. Gargi Sethee, Advocates CORAM: JUSTICE S.MURALIDHAR JUSTICE TALWANT SINGH ORDER % 20.08.2019 1. Revenue is in appeal against order dated 16th October 2017 passed by ITAT in ITA Nos.1521 & 1895/Del/2013 for Assessment Year (AY) 2008-09. 2. Appearing on advance notice, Mr. Satyen Sethi, learned counsel appearing for Respondent, points out that present appeal has been filed against common order of ITAT in two appeals i.e. ITA Nos.1521/2013 and 1895/2013., one being appeal by Assessee (ITA No.1521/2013) and other appeal by Revenue (ITA No.1895/2013) and therefore, there should have been two appeals in this Court. 3. Be that as it may, for reasons hereafter mentioned since Court is not inclined to frame any question of law, above objection is left open ITA 1425/2018 Page 1 of 4 for decision in appropriate case. 4. following two issues are raised in present appeal by Revenue: "2.1 Whether on facts and circumstances of case and in law ld. ITAT erred in deleting addition of Rs.2,13,84,000/- made by Assessing officer under section 36(1)(iii) of Income Tax Act,1961 on account of notional interest on alleged loan given to its subsidiary? 2.2 Whether on facts and circumstances of case and in law ld. ITAT /CIT(A) erred in deleting addition of Rs.2,48,95,404/- made by Assessing officer on account of prior period expenses?" 5. As far as issue at 2.2 is concerned, Court finds that there is concurrent factual determination both by CIT (A) and ITAT on justification for prior period expenses incurred by Assessee. In that view of matter, Court is not inclined to frame any question on this issue. 6. As far as issue at 2.1 is concerned, it is argued by learned counsel for Revenue that ITAT has merely followed its earlier order in Assessee s own case for AY 2007-08 and has not really discussed facts pertinent to AY in question. It is further pointed out that Assessee failed to point out what was commercial expediency in advancing loans to its subsidiary while at same time paying interest on loans borrowed by it from Banks. 7. Learned counsel for Assessee has drawn attention of this Court to decision of Supreme Court in Hero Cycles Pvt. Ltd. v. Commissioner of Income Tax, 2015 379 ITR 347 (SC), where relying on earlier decision in S.A. Builders Ltd. v. Commissioner of Income Tax (Appeals) ITA 1425/2018 Page 2 of 4 2007 (288) ITR 1 (SC), Supreme Court upheld advancing of loans by Assessee to its subsidiary as being for commercial expediency . There was further issue in above case concerning advances given by Assessee to its own Directors at subsidized interest rate of 10% whereas Assessee itself was borrowing from its banks at rate of 18%. This too Supreme Court was not inclined to interfere with. 8. Turning to case on hand, this Court finds that in impugned order, ITAT, while adverting to this issue, has observed as under: we find that assessee has huge interest free funds in form of share capital& reserve surplus which stood at more than Rs. 2,000 crores and surplus cash flow from operating activities at Rs. 149 crores and fresh capital received during year amounted to Rs. 100 crores. In wake of such huge surplus fund, advances of Rs. 9.71 crore during year, cannot be presumed to be out of interest bearing loans. Thus, in light of principle held by Tribunal in earlier year, we direct deletion said disallowance and accordingly, grounds raised by Assessee are allowed. 9. On facts of present case, when factually ITAT has found that Assessee had surplus funds which it could part with for business interests of its subsidiary, view taken by ITAT is plausible one and does not call for interference. 10. No substantial question arises. appeal and pending application are dismissed. 11. 1. tax effect being below stipulated monetary limit, appeal is treated as not pressed in terms of CBDT Circular No. 17 of 2019 dated 8th August, 2019 and is disposed of as such. ITA 1425/2018 Page 3 of 4 S. MURALIDHAR, J. TALWANT SINGH, J. AUGUST 20, 2019/rhc ITA 1425/2018 Page 4 of 4 Pr. Commissioner of Income-tax-3 v. Federal Mogul Goetze India Ltd
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