DILLI KARIGARI LTD. Vs. D.C.I.T.

JUDGEMENT

(1.) THESE appeals have been preferred by the assessee and the revenue against the order of the CIT(A) -XIII, New Delhi dated 05.09.2012 in Appeal No. 212/11 -12 for AY 2009 -10.

(2.) BRIEFLY stated the facts giving rise to these appeals are that the assessee company is engaged in the business of sale of branded readymade garments and made up articles of textiles. The assessee company is also trading in personal care, organics, jewellery and fabric. The case was selected for scrutiny under CASS and the AO issued notice u/s. 143(2) and 142(1) of the Income Tax Act, 1961 (for short the Act), along with a detailed questionnaire which were duly served upon the assessee. After considering the details and explanation of the assessee, the AO has held that the assessee is subsidiary of Fab India Overseas Pvt. Ltd. which deals in artisans based products of designer quality and the assessee company is doing the role of coordinator between artisans and Fab India Overseas Pvt. Ltd. (FOPL). Thus, the assessee company neither carried out any manufacturing activity nor any trading activity during the relevant period under consideration. The AO disallowed Rs. 1,25,70,364/ - out of total rent paid by the assessee company, also disallowed Rs. 22,43,080 out of professional charges paid by the assessee company and further disallowed interest payment of Rs. 6,57,669/ - paid by the assessee company. The AO finalised the assessment at Rs. 3,03,70,867 as against the returned income of the assessee of Rs. 1,48,99,754. Being aggrieved by the above assessment order, the assessee company preferred appeal before the CIT(A) which was partly disallowed on the issue of disallowance of interest payment to the group companies but partly allowed on the issue of rent payment and professional charges. Now, the aggrieved assessee as well as the revenue has preferred these appeals before this Tribunal.

(3.) APROPOS sole ground of the assessee, ld. AR submitted that the AO was not justified in making disallowance of Rs. 6,57,669/ - by holding that when both the companies happen to be group companies and transactions are covered u/s. 40A(2)(b) of the Act, then assessee company is not subsidiary company of Fab India Overseas (P) Ltd.. The AR further contended that admittedly the assessee company has received a sum of Rs. 2,52,89,149 from its holding company as unsecured loan but at the same time, the company has shown Fab India as its debtor for a sum of Rs. 5,26,61,159. The AR reiterating its submission before the AO submitted that the assessee company is paying interest on unsecured loan and the same company is a debtor, as the assessee company from day one maintained separate ledger for loan account and separate ledger account for sales to Fab India Overseas Pvt. Ltd. on bill to bill basis and assessee company is receiving payments against sales from FOPL on bill to bill basis. The AR also contended that the assessee company is getting funds from FOPL which has invested in purchases which were made for FOPL and accordingly, the interest pertains to purchase amount. The AR has also drawn our attention towards Paper Book and submitted that the purchases made are ultimately sold to FOPL and, accordingly, beneficiary for the purchase is also FOPL.