Mepco Industries Limited, Madurai V. DCIT, Madurai

CO 135/CHNY/2015

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2339 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 14 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 21-04-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 15-12-2015
• Court: TRIBUNAL
• Department Lawyers: S CHANDRASEKARAN
• Assessee Lawyers: P RADHAKRISHNAN
• Keywords: Depreciation; Question of law; Notional interest

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , ! , ' #$ BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ./ ITA NO. 2149/MDS/2015 / ASSESSMENT YEAR : 2010-11 AND C.O.NO. 135/MDS/2015 THE DEPUTY COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-2, MADURAI. ( /APPELLANT) VS M/S. MEPCO INDUSTRIES LIMITED, NO.17A, VALLABAI ROAD, CHOKKIKULAM, MADURAI 625 002. PAN AAACM7886M (RESPONDENT/CROSS OBJECTOR) / APPELLANT BY : SHRI P. RADHA KRISHNAN, JCIT / RESPONDENT BY : SHRI S. CHANDRASEKARAN, CA / DATE OF HEARING : 21.04.2016 ! / DATE OF PRONOUNCEMENT: 27.04.2016 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THE APPEAL BY THE REVENUE AND THE CROSS OBJECTI ON BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF T HE - - ITA 2149 & CO 135/15 2 COMMISSIONER OF INCOME-TAX(APPEALS) DATED 5.8.2015 FOR THE ASSESSMENT YEAR 2010-11. 2. THE FIRST GROUND IN REVENUES APPEAL IS WITH REG ARD TO DELETION OF ADDITION MADE ON ACCOUNT OF INTEREST CH ARGEABLE ON ADVANCE MADE BY THE ASSESSEE FOR NON-BUSINESS PURPO SE. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD GIVEN INTEREST FREE ADVANCES TO THE EXTENT OF ` 1,46,60,036/- TO VARIOUS PERSONS AS NOTED IN THE ASSESSMENT ORDER. THE ASSE SSING OFFICER OBSERVED THAT THE ASSESSEE COULD NOT EXPLAI N THE BUSINESS EXPEDIENCY AND, THEREFORE, DISALLOWED A SU M OF ` 10,11,428/- AS INTEREST FROM THE DATE OF GIVING LOA N TO THE CONCERNED PERSONS. AGAINST THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX(APPEALS). 3. BEFORE THE COMMISSIONER OF INCOME-TAX(APPEALS), THE ASSESSEES REPRESENTATIVE SUBMITTED THAT THE COMPAN Y DID NOT DIVERT ITS BORROWED FUNDS FOR NON-BUSINESS PURPOSES . FURTHER, HE SUBMITTED THAT THE INTEREST PAID BY THE COMPANY WAS ` 33,37,803/- (SCHEDULE-14) AS AGAINST INTEREST RECEI PT OF - - ITA 2149 & CO 135/15 3 ` 60,72,246/-(SCHEDULE-12) ON BANK DEPOSITS. THE AS SESSEES REPRESENTATIVE FURTHER SUBMITTED THAT THE NET RESUL T WAS ONLY INTEREST RECEIPT AND THERE WAS NO NET INTEREST CLAI MED BY THE ASSESSEE. HE FURTHER SUBMITTED THAT AS PER THE BAL ANCE SHEET AS ON 1.4.2010, THE COMPANY WAS HAVING ADEQUATE RESERV E AND SURPLUS APART FROM DEPRECIATION DESERVE. ACCORDIN G TO THE ASSESSEES REPRESENTATIVE, THE RESERVES AND SURPLUS AND THE DEPRECIATION ITSELF IS MORE THAN THE AMOUNT ALLEGED TO HAVE BEEN DIVERTED FOR NON-BUSINESS PURPOSES. HE FURTHER SUB MITTED THAT THE RESERVE AND SURPLUS OF THE COMPANY WAS MORE THA N 33 CRORES APART FROM DEPRECIATION RESERVE OF ` 27 CRORES AGAINST WHICH THE AMOUNT ALLEGED TO HAVE BEEN DIVERTED IS O NLY ` 1.5 CRORES. THE ASSESSEES REPRESENTATIVE, BEFORE THE COMMISSIONER OF INCOME-TAX(APPEALS) CONTENDED THAT IN VIEW OF THE ADEQUATE RESERVE AND SURPLUS, IT CANNOT BE SAID THAT THE ASSESSEE DIVERTED BORROWED FUNDS FOR NON-BUSINESS P URPOSES. 3.1 ON APPEAL, THE COMMISSIONER OF INCOME-TAX(APPEA LS) OBSERVED THAT THE ASSESSEE HAS PAID INTEREST OF ` 33,37,803/- WHEREAS AS PER SCHEDULE-12 THE ASSESSEE HAS RECEIVE D INTEREST - - ITA 2149 & CO 135/15 4 FROM BANKS TO THE EXTENT OF ` 60,72,246/-. ACCORDING TO THE CIT(APPEALS), THE ASSESSEE HAS RECEIVED MORE INTERE ST THAN WHAT WAS PAID. THE CIT(APPEALS) FURTHER OBSERVED T HAT FROM THE BALANCE SHEET (SCHEDULE-3), IT IS SEEN THAT THE ASS ESSEE HAS TAKEN LOAN OF ` 2,77,00,000/- FROM INDIAN OVERSEAS BANK, AGAINST BANK DEPOSITS OF ON WHICH INTEREST WAS PAID . ACCORDING TO THE COMMISSIONER OF INCOME-TAX(APPEALS), THE AS SESSEE HAS DEPOSITED ITS OWN MONEY AS FIXED DEPOSITS ON WHICH LOAN IS TAKEN FOR WHICH INTEREST IS PAID. FURTHER, THE CI T(APPEALS) OBSERVED THAT THE ASSESSING OFFICER HAS NOT ESTABLI SHED THAT THE CASH CREDIT LOAN AVAILED BY THE ASSESSEE WAS DIVERT ED FOR NON- BUSINESS PURPOSES. ACCORDINGLY, THE CIT(APPEALS) AGREED WITH THE CONTENTION OF THE ASSESSEES REPRESENTATIVE THA T THE CAPITAL, RESERVE & SURPLUS AND DEPRECIATION RESERVE AS AT TH E BEGINNING OF THE YEAR AND AS AT THE END OF THE YEAR IS VERY H IGH COMPARED TO THE AMOUNT ALLEGED TO HAVE BEEN DIVERTED FOR NON -BUSINESS PURPOSES AND DELETED THE ADDITION. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. - - ITA 2149 & CO 135/15 5 4. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD. THE MAIN CONTENTION OF THE LD. DR IS TH AT THE ASSESSEE HAS NOT PLACED NECESSARY INFORMATION IN SP ITE OF GIVING ADEQUATE OPPORTUNITY OF HEARING TO IT. HOWEVER, TH E ASSESSEE HAS PRODUCED CERTAIN DETAILS BEFORE THE COMMISSIONE R OF INCOME-TAX(APPEALS) ON THE BASIS OF WHICH, THE CIT( APPEALS) DELETED THE ADDITION. THEREFORE, THE LD. DR SUBMIT TED THAT THE ISSUE MAY BE REMITTED BACK TO THE FILE OF THE AO. HOWEVER, THE LD. AR SUBMITTED THAT THE ASSESSEE IS HAVING OWN FU NDS IN THE FORM OF PROFITS, GENERAL RESERVE AND THE ASSESSEE H AS AVAILED LOAN PLEDGING THE FIXED DEPOSITS IN BANK AND THERE IS NO DISALLOWANCE OF NOTIONAL INTEREST AND NO ADVANCE TO INTEREST FREE LOAN TO VARIOUS PERSONS. IN OUR OPINION, THE EVIDE NCE PLACED BEFORE THE CIT(APPEALS) TO COME TO A CONCLUSION THA T THE ASSESSEE IS HAVING OWN FUNDS, WAS NOT AVAILABLE WIT H THE AO, WHO WAS DEPRIVED OF CONSIDERING THE SAME. HENCE, I N THE INTEREST OF JUSTICE, WE REMIT THE ISSUE TO THE FILE OF THE AO FOR FRESH CONSIDERATION. THIS GROUND OF APPEAL IS ALLO WED FOR STATISTICAL PURPOSES. - - ITA 2149 & CO 135/15 6 5. THE NEXT GROUND IN THIS APPEAL IS WITH REGARD TO ALLOWING THE CLAIM OF DEDUCTION U/S.80IA OF THE ACT. 6. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E GENERATED STEAM FOR CAPITAL CONSUMPTION PURPOSE AND CLAIMED DEDUCTION U/S.80IA AMOUNTING TO ` 47,06,992/-. THE ASSESSING OFFICER DID NOT ALLOW DEDUCTION U/S.80IA OF THE ACT ON THE GROUND THAT THE GENERATION STEAM DOES NOT AMOUNT TO GENERA TION OF POWER. THE ASSESSING OFFICER OBSERVED THAT THE ASS ESSEE COMPANY HAD NOT SATISFACTORILY EXPLAINED HOW THE SA LE VALUE OF CONSUMPTION WAS ARRIVED AND ON THE ABOVE REASONING, DEDUCTION U/S.80IA WAS DENIED IN RESPECT OF SALE VALUE OF STE AM FOR CAPTIVE CONSUMPTION. AGGRIEVED, THE ASSESSEE WENT IN APPEA L BEFORE THE CIT(APPEALS), WHO ALLOWED THE CLAIM OF THE ASSE SSEE. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE COMMISSIONER OF INCOME-TAX(APPEALS) DECIDED THIS ISSUE BY FOLLOWING THE JUDGMENT OF THE JURISDI CTIONAL HIGH COURT IN THE CASE OF CIT V. M/S. TANFAC INDUSTRIES LTD. IN - - ITA 2149 & CO 135/15 7 TC(APPEAL) NO.475 OF 2008 DATED 23.7.2008, WHEREIN IT WAS HELD AS UNDER : 5. THE TRIBUNAL HAS RECORDED A FINDING THAT WHEN T HE RELIEF OF THE PRESENT NATURE HAS BEEN GRANTED TO TH E ASSESSEE FOR THE ASSESSMENT YEAR 1996097, THE DEPARTMENT ACCEPTED THE DECISION AND NO APPEAL WAS FILED AGAINST THAT ISSUE. THE TRIBUNAL FURTHER HEL D THAT WHEN THE ASSESSEE HAD STARTED A NEW UNDERTAKING WHICH IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80-I OF THE ACT, THEN EVEN IF GOODS ARE CONSUMED IN THE OTHER BUSINESS DIVISION OF THE ASSESSEE, THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80-I OF THE ACT . IN ORDER TO SUBSTANTIATE, THE ABOVE POSITION THE TRIBU NAL HAS ALSO RELIED ON THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF CIT V. AHMEDABAD MANUFACTURING AND CALICO PRINTING CO. LTD., 162 ITR 760 AND ALSO THE DECISION OF THIS COURT IN THE CASE OF CIT V. STANDA RD MOTOR PRODUCTS OF INDIA LTD., 131 ITR 300. THE TRIBUNAL HAS ALSO TAKEN NOTE OF THE JUDGMENT OF THI S COURT IN CIT V. CHITRAM & CO. PVT. LTD., 191 ITR 96 , WHEREIN THIS COURT HAS HELD THAT, IN ORDER TO CLAIM ANY RELIEF UNDER SECTION 80-I OF THE INCOME TAX ACT, 19612, THE ASSESSEE SHOULD BE ENGAGED IN THE PRODUCTION OR MANUFACTURE OF ONE OR MORE OF THE ITEMS ENUMERATED IN SCHEDULE VI TO THE INCOME TAX ACT, 1961, IN WHICH CASE THE ASSESSES SHOULD BE REGARDED AS ENGAGED IN A PRIORITY INDUSTRY. THE EMPHASIS FOR GRANT OF RELIEF IS ON THE MANUFACTURE OF ONE OR MORE OF THE ITEMS NUMERATED IN SCHEDULE VI. WHETHER THE ITEMS MENTIONED IN SCHEDULE VI ARE MANUFACTURED AND SOLD BY THE ASSESSEE AS SUCH OR UTILIZED BY THE ASSESSEE IN THE MANUFACTURE OF OTHER GOODS FOR SALE WILL NOT MAKE ANY DIFFERENCE FOR GRANT OF RELIEF UNDER SECTION 80-I. - - ITA 2149 & CO 135/15 8 FOLLOWING THE DECISIONS OF OUR HIGH COURT AND THAT OF THE GUJARAT HIGH COURT IN THE CASE OF CIT VS. AHMEDABAD MANUFACTURING AND CALICO PRINTING CO. LTD., 162 ITR 760, WHEREIN IT WAS HELD THAT, THE ASSESSEE WOULD BE ENTITLED TO THE DEDUCTION UNDER SECTION 80-I OF THE INCOME TAX ACT, 1961 IRRESPECTI VE OF WHETHER THE PRODUCT IS SOLD IN THE OPEN MARKET O R IS USED BY THE ASSESSEE HIMSELF FOR CONSUMPTION IN ITS OTHER PLANTS OR UNITS, THE PRODUCT SHOULD BE TAKEN AT ITS MARKET PRICE FOR THE PURPOSE OF ALLOWING DEDUCTION UNDER SECTION 80-I, CONFIRMED THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS). 6. AS THE ISSUE IS ALREADY DECIDED AGAINST THE REVE NUE, WE DO NOT FIND ANY QUESTION OF LAW, MUCH LESS A SUBSTANTIAL QUESTION OF LAW ARISING OUT OF THE ORDE R OF THE TRIBUNAL FOR CONSIDERATION SO AS TO ENTERTAIN T HIS APPEAL. THE APPEAL IS DISMISSED. NO COSTS. IN VIEW OF THE ABOVE JUDGMENT OF THE JURISDICTIONAL HIGH COURT, WE AGREE WITH THE CIT(APPEALS) IN DECIDING THE ISSU E IN FAVOUR OF THE ASSESSEE AND THIS GROUND OF APPEAL IS DISMISSED . 8. THE CROSS OBJECT OF THE ASSESSEE IS IN SUPPORT OF THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS). SINCE WE HAVE ADJUDICATED THE ISSUES IN DISPUTE IN REVENUES APPE AL, THE CROSS OBJECTION FILED BY THE ASSESSEE HAS BECOME IN FRUCTUOUS AND DISMISSED. - - ITA 2149 & CO 135/15 9 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 27 TH OF APRIL, 2016 AT CHENNAI. SD/- SD/- ( ' . . ' . #$ ) ( % & ' ( ) ) N.R.S.GANESAN * )+,-./0-1223-04* 5 67 /JUDICIAL MEMBER 6789::2;.<-.<=>?@>0 %5 /CHENNAI, A6 /DATED, THE 27 TH APRIL, 2016. MPO* 6$ BCDC /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. E)* /CIT(A) 4. E /CIT 5. CF# G /DR 6. #HI /GF.