TaxTMI 
TaxTMI 
2026 (9) TMI 240
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....see is a resident corporate entity and is a subsidiary of M/s JK Lakshmi Cement Limited. For the Assessment Year under dispute, the assessee had filed its original return of income under Section 139(1) of the Act on 22-10-2018, declaring Nil income and current year's loss of Rs. 215,27,08,745/-. Subsequently, the assessee filed a revised return of income on 14-2-2019, claiming higher TDS and TCS. Be that as it may, assessee's case was selected for scrutiny to examine the following issues: I. Increase in TDS in revised return. II. Investments/advances/loan. III. Ind-As compliance under adjustment. IV. ICDS compliance and adjustment V. Income from Mining and Quarrying. 4. In course of assessment proceedings, the Assessing Officer issued statutory notices under Section 143(2) as also under Section 142(1) of the Act, along with a questionnaire seeking various details. In response to the statutory notices issued by the Assessing Officer, the assessee, from time to time, made compliances and furnished the details called for. After verifying the details furnished by the assessee on test-check basis, the Assessing Officer ultimately compl....
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....n Deduction of TDS on Interest Payment of Rs. 6535.60 Lakh made to one fellow subsidiary company M/s Hansdeep Industries and Trading Co. Ltd", as mentioned at Para 6 [B] above. 9.2 Further, the AO is also directed to re-confirm/reconcile the issues of "Difference in the Figures of 'Profit before Tax' in profit and loss account of ITR vis-à-vis the Tax Audit Report/3CA, dated 10.05.2018 [Over computation/assessment of business loss by Rs. 54,88,181/-], keeping in view the observations made in para 6 [A] vis-à-vis Para [D] herein above. 9.3 Also, the AO has to verify the genuineness/correctness/authenticity of the impugned Certificate Dated 10.05.2018, as issued and mentioned at Para 6[D] of this order as a third-party-verification, while finalizing the assessment u/s 263/143(3)/142(1) of the Act. 9.4 Thereafter, based on outcome of such enquiries and verification, necessary additions, wherever required, may be made to the total income of the assessee as per law by modifying the assessment order u/s 143(3) of the Act dated 19.04.2021. However, the AO is directed to ensure that ample opportunities of being heard are provided to the asse....
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.... the funds issuing the NCDs solely for the purpose of onward lending to the assessee for meeting its fund requirement. He submitted, HITCL issued the NCDs in dematerialized form and were listed on the stock-exchange. Thus, no TDS was required to be deducted by HITCL on payment of interest to debenture holders in accordance with the provisions of section 193 of the Act. He submitted, to lend the funds raised through issue of NCDs, HITCL entered into an agreement with the assessee to provide inter-corporate loan to it as per the terms and conditions contained therein. As per the agreement, HITCL charged interest of Rs. 57.87 crores from the assessee in the year under consideration on the amount of loan given. He submitted, out of the aforesaid amount of interest received by HITCL, interest amounting to Rs. 58.56 crores was paid by HITCL to the debenture holders as per terms of issue of the NCDs. 9. Insofar as balance amount of interest at Rs. 1.30 crores is concerned, HITCL offered to tax as its income. Thus, the assessee had deducted TDS of Rs. 13.89 lakh on the interest payment of Rs. 1.31 crores, which accrued as income to HITCL. He submitted, since balance amount of Rs. 58.56 ....
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....ed the materials on record. The major issue and perhaps the only issue, on which the revisionary authority had invoked the jurisdiction under section 263 of the Act, is concerning non-deduction of tax on interest payment of Rs. 6535.60 lakh to HITCL. Of course, the figure of Rs. 6535.60 lakh appears to be erroneous, as ultimately learned PCIT has restricted his finding to interest payment of Rs. 58.56 crores. Before we examine the validity of exercise of power under section 263 of the Act qua the aforesaid issue, one must bear in mind the cardinal principles of assumption of jurisdiction u/s. 263 of the Act. It is well known, revisionary jurisdiction under section 263(1) of the Act can be invoked on fulfilment of twin conditions of an order being erroneous as also prejudicial to the interest of revenue. Absence of both or any one of these conditions would invalidate the exercise of power under section 263 of the Act. Keeping in perspective the aforesaid legal position, if we examine the issue at hand, it can be seen from materials on record that in the year under consideration, the assessee had made aggregate interest payment of Rs. 67,03,86,131/-. The breakup of the aforesaid amou....
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....to observe, in course of proceedings under section 263 of the Act, in response to the show cause notice issued, as also in course of hearing, the assessee had not only furnished exhaustive written submissions explaining the reason for non-deduction of tax at source, but had also furnished the supporting evidences to substantiate its claim. As discussed earlier, the assessee was in dire needs of funds for its revival and rehabilitation, as also for expansion of its business. Since, the assessee failed to avail credit facilities from banks and financial institutions, it had to fall back upon its sister concern, HITCL, to bail it out. It is a fact that HITCL stepped in to bail out the assessee by infusing funds by arranging through issue of NCDs to subscribers. The funds generated through NCDs were ultimately lent to the assessee for its business purpose. The interest received by HITCL from the assessee on the funds advanced was paid back to the debenture holders. The amount of Rs. 58.56 crores essentially represent reimbursement of interest cost of NCDs that HITCL has to bear while making payment to the debenture holders. In other words, the amount of Rs. 58.56 crores represent back-....
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....4,658 2,466 Interest on unsecured Loan Interest charges Paid to Govt. Authorities 91,297 TDS not required as per Section 194A 7. Finance cost (Ind-As) 5,85,06,290 TDS not required since the amount is debited only as IND- AS adjustment Total 67,38,06,131 17,72,378 On perusal of the above table, it could be observed that the assessee company had deducted TDS from the interest payments, wherever it was required to be deducted as per the provisions of Act. As regards non-deduction of IDS from interest payment of Rs. 58,56,25,000/- made by the assessee company to Hansdeep Industries & Trading Company Ltd ("HITCL"), a group company, it was submitted that TDS was not required to be deducted on the same, as it was in the nature of reimbursement of interest cost to HITCL, which was paid by it to the Debenture holders, on which TDS was not required to be deducted as per the provisions of section 193 of the Act. (iii) It was also submitted that under the facts and prevailing circumstances of the case that it had a BIFR stigma with it, no Banks or Financial Institutions were willing....
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....erest payment of Rs. 1.31 Crs. made by it to HITCL. Since, the balance payment of interest of Rs. 58.56 Crs., was reimbursement of interest cost to be payable by HITCL to the Debenture holders, the assessee company did not deducted TDS from the said amount. (iv) In connection with the non-deduction of TDS by the assessee company, from the interest payment of Rs. 58.56 Crs. to HITCL, specifically, it was submitted by the assessee that the TDS was not required to be deducted from the said payment for the following reasons: - (a) The payment of aforesaid amount of interest to HITCL was in the nature of re-imbursement of interest expense incurred by HITCL on the funds raised by it from the Debenture holders solely for the purpose of onward lending to the assessee company. (b) The provisions of section 194A of the Act requires deduction of TDS from any income by way of interest, other than interest on securities, paid/payable by the payee to the payer. Since, the assessee company has not paid any income in the form of interest of Rs. 58.56 Crs. to HITCL, it was pure reimbursement of interest payable to Debenture holders, it was not required to deduct TDS from ....
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....#39;s group companies i.e. M/s Hansdeep Industries & Trading Company Limited to the tune of Rs. 58,56,25,000/-. (viii) In view of the above, the reply filed by the assessee on this issue is not appreciated to be as per law and hence, not-accepted. The assessee couldn't explain this issue reasonably for the reasons as categorically mentioned above. As such, the amount of Rs. 17,56,87,500/- [i.e. 30% of Rs. 58,56,25,000] was disallowable u/s 40(a)(ia) of the I.T. Act, 1961. As the AO/NaFAC didn't do the same, therefore, due to lack of enquiry and also due to incorrect and incomplete appreciation of facts, the assessment order duly passed u/s 143(3) r.w.s 144B of the IT Act on 19.04.2021 is found to be erroneous insofar as it is prejudicial to the interest of revenue, on this issue." 16. As could be seen from the aforesaid observations of learned PCIT, referring to the details of interest paid and tax deducted at source furnished in the tabular format, he has very clearly stated that the assessee had deducted tax at source on interest payments wherever it was required to be deducted as per the provisions of the Act. Thus, learned PCIT had tacitly accepted that the ....
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....he Act, keeping in view the legal pronouncements in relation to payment of interest cost on NCDs issued. Thus, the aforesaid observations of the revisionary authority demonstrate that he himself was not free from doubt regarding the applicability of section 194A of the Act qua the reimbursement of interest cost. 18. At this juncture, it would be profitable to refer to the decision of the Coordinate Bench in case of 'KD Light Developers Pvt. Ltd. vs. DCIT' (supra). The relevant facts of this case are, the assessee in the aforementioned case was part of a group comprising of 23 entities, 15 private limited companies, 7 partnership firms, one proprietary concern and family members forming part of it. Since all the entities are in similar lines of business as a group, they required finance for various projects carried out in individual names of the entities. The group mortgaged various projects to borrow money and fulfil the security obligations of lenders/financial/institutions. Thus, as per the modus operandi followed by the group, the entity in whose name funds were borrowed was the principal borrower, while other entities stood as co-borrowers. The funds were borrowed in the nam....
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....ntity companies. The group entity companies is not in lending business. 10. From the Balance Sheet of the assessee it has been observed that the assessee has shown the loan amount in the name of the group entity companies. If the credit limit has not been not transferred in the name of the assessee but the credit facility is being enjoyed by the assessee through the group entity companies, then in such a situation the assessee cannot directly show the name of the bank but liability has to be shown on the name of the group entity companies. The assessee has also relied upon the decision of the Coordinate Bench of ITAT in the case of Neo Sports Broadcast (P.) Ltd Vs. CIT (TDS), Mumbai, [2016] 69 taxmann.com 422 (Mumbai), wherein it was held that "Where a holding company provided bank guarantees for benefit of assessee, its reimbursement by assessee would not come under purview of interest so as to make assessee liable to TDS under Section 194A" The Ld. AR further relied upon the decision in the case of Onward e-service Ltd. Vs ACIT, [2012] 22 taxmann.com 60 (Mumbai), wherein it was held that "Reimbursement of interest by subsidiary to parent company which, in turn, ....