The Income Tax Appellate Tribunal ( ITAT ), Delhi Bench, has recently, in an appeal filed before it regarding TDS on interest income on FDRs, rejected the plea by Emaar’s subsidiary on interest paid to parent company.
The aforesaid observation was made by the Delhi ITAT, when an appeal was preferred before itby the assessee M/S s Prosperous Buildcon Pvt Ltd, as against the order of the CIT(A), New Delhi, dated 29.01.2016 pertaining to A.Y. 2011-12.
The grounds of the assessee’s appeal being the question as to whether the CIT(A) has erred on facts & circumstances of the case and in law, by upholding the addition made by the Income Tax Officer, Ward- 14(4), amounting to Rs. 1,75,26,989/, on the ground that the agreement between the appellant and Emaar MGF Land Limited (EMGF) ,was silent on the issue of reimbursement of Interest, and also as to whether the CIT(A) has erred on the facts & circumstances of the case and in law, by completely ignoring the fact that EMGF has shown the reimbursement of interest as its income and offered the same for the purpose of tax, the brief facts pertaining to these issues were that during the course of scrutiny assessment proceedings, the Assessing Officer had noticed that the assessee had shown interest on FDR at Rs. 1,78,76,896/–.
Subsequently, the Assessing Officer found that the assessee had reduced interest as ‘interest reimburse’ to the ultimate holding company, and on perusal of the transactions, he further noticed that the assessee had also made time deposits exceeding Rs. 2 lakhs, amounting to Rs.140.40 crores.
Thereafter, the assessee was asked to furnish bank certificates with respect to the FDRs made during the year and interest earned thereon, as well as to show cause as towhy interest expenses of Rs. 1,75,26,989/– to M/s EMAAR MGF Land Limited be not disallowed since no TDS has been deducted thereon.
The assessee furnished copy of bank certificate with respect to FDRs made and interest earned during the period 1.04.2010 to 31.03.2011. And the Assessing Officer found that the bank interest on FDRs for the period 1.04.2010 to 31.03.2011 was not Rs.1,78,76,896/– but Rs. 1,87,96, 285/.
On being asked to explain, the assessee in its reply, explained that it was a wholly owned subsidiary of M/s EMAAR MGF Land Limited, was engaged in the business of real estate construction, had received business advance from its holding company and had paid interest at 4.38% approximately on advance received/borrowed funds. The assessee also explained that since the interest paid by the assessee to M/s EMAAR MGF Land Limited does not qualify as interest income in the hands of M/s EMAAR MGF Land Limited, since the nature of interest paid was reimbursement and therefore, Section 194A of the Income Tax Act is not applicable in the present case.
However, this explanation of the assessee was dismissed by the Assessing Officer who was of the firm belief that the amount of Rs.1,75,26,989/– cannot be reduced from the interest income of the FDRs, who accordingly, disallowed the same.
Subsequently, the assessee carried the matter before the CIT(A) but without any success, and hence the assessee’s appeal before the Delhi ITAT.
With Shri Satyen Sethi and Shri A.T. Panda, the counsels for the assessee stating that the money was borrowed from M/s EMAAR MGF Land Limited from which the assessee purchased FDRs, on which the assessee earned interest and, accordingly, paid interest to M/s EMAAR MGF Land Limited, which was nothing but reimbursement of interest received on FDRs, and therefore, no disallowance should be made, per contra, Shri Kanav Bali, the Sr. DR, strongly supported the findings of the Assessing Officer.
Hearing the opposing contentions of either sides and thereby perusing the materials available on record, the ITAT Bench consisting of C.M Garg, the Judicial Member, along with, N.K Billaiya, the Accountant Member, observed:
“We have carefully perused the orders of the authorities below. There is no dispute that the assessee has purchased FDRs from the interest free borrowed funds from its parent company M/s EMAAR MGFLand Limited. It is equally true that on such FDRs, interest was received by the assessee on which bank deducted TDS. It is equally true that the assessee has claimed credit of TDS in its return of income. Therefore, the contentions/submissions of the counsel of the assessee, are baseless and deserves to be rejected.”
Thus, dismissing the assessee’s appeal, the Delhi ITAT held:
“Considering the facts of the case in totality, we do not find any reason to interfere with the findings of the CITA. In the result, the appeal of the assessee in ITA No. 1473/DEL/2016 is dismissed.”
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
