M/s. Vipul Ltd., New Delhi V. DCIT, New Delhi

CO 185/DEL/2017

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3763 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 8 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-05-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 22-09-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S L ANURAGI
• Assessee Lawyers: RAJESH ARORA
• Section: 143(3); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : C : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO.5115/DEL/2015 ASSESSMENT YEAR : 2006-07 DCIT, CIRCLE-26(2), CR BUILDING, NEW DELHI. VS. VIPUL LTD., 9-A, 3 RD FLOOR, VASANT SQUARE MALL, SECTOR-B, POCKET-5, VASANT KUNJ, NEW DELHI. PAN: AAACA5396C CO NO.185/DEL/2017 (ITA NO.5115/DEL/2015) ASSESSMENT YEAR : 2006-07 VIPUL LTD., 9-A, 3 RD FLOOR, VASANT SQUARE MALL, SECTOR-B, POCKET-5, VASANT KUNJ, NEW DELHI. PAN: AAACA5396C VS. DCIT, CIRCLE-26(2), CR BUILDING, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAJESH ARORA, CA DEPARTMENT BY : SHRI S.L. ANURAGI, SR. DR DATE OF HEARING : 30.05.2018 DATE OF PRONOUNCEMENT : 31.05.2018 ITA NO.5115/DEL/2015 CO NO.185/DEL/2017 2 ORDER PER R.S. SYAL, VP: THIS APPEAL FILED BY THE REVENUE AND THE CROSS OBJ ECTION FILED BY THE ASSESSEE ARISE OUT OF THE ORDER PASSED BY THE CIT(A ) ON 25.03.2015 IN RELATION TO THE ASSESSMENT YEAR 2006-07. 2. THE ONLY GROUND RAISED BY THE REVENUE IN ITS APP EAL IS AGAINST THE DELETION OF ADDITION OF RS.44,38,231/- (SIC RS.38,6 6,143/-) MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST PAID ON BO RROWED FUNDS. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE TH AT THE ASSESSEE FILED ORIGINAL RETURN DECLARING INCOME OF RS.15.73 CRORE, WHICH WA S SUBSEQUENTLY REVISED TO AN INCOME OF RS.27.00 CRORE. THE ASSESSMENT WAS CO MPLETED U/S 143(3) AT AN INCOME OF RS.38.00 CRORE. PURSUANT TO THE ORDER PA SSED BY THE TRIBUNAL, THE ASSESSING OFFICER AGAIN COMPLETED ASSESSMENT AT RS. 27.00 CRORE. THEREAFTER, NOTICE WAS ISSUED U/S 148. THE ASSESSMENT GOT COMP LETED U/S 143(3) READ WITH SECTION 147 ON 31.03.2014 IN WHICH THE ASSESSI NG OFFICER MADE AN ADDITION OF RS.44,38,231/- BY DISALLOWING INTEREST TO THIS EXTENT. SUCH DISALLOWANCE OF INTEREST WAS MADE BY OBSERVING THAT THE ASSESSEE AVAILED BORROWED FUNDS OF RS.36.36 CRORE ON WHICH INTEREST OF RS.44.38 LAC WAS PAID ITA NO.5115/DEL/2015 CO NO.185/DEL/2017 3 AND, AT THE SAME TIME, THE ASSESSEE MADE INVESTMENT S IN ITS RELATED COMPANIES TO THE TUNE OF RS.8,63,04,063/- ON WHICH NO INTERES T INCOME WAS EARNED. THE LD. CIT(A), APART FROM UPHOLDING THE INITIATION OF RE-ASSESSMENT, DELETED THE ADDITION BY OBSERVING THAT THE INVESTMENTS WERE MAD E BY THE ASSESSEE FOR BUSINESS PURPOSE. THE REVENUE HAS COME UP IN APPEA L AGAINST THE DELETION OF ADDITION. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. A COPY OF THE ASSESSEES BALANCE SHEET IS AVAILABLE IN THE PAPER BOOK FROM WHICH IT CAN BE SEEN THAT ITS SHARE CAPIT AL AS AT THE END OF THE YEAR, IS RS.5.10 CRORE AND RESERVES & SURPLUS ARE TO THE TUNE OF RS.11.53 CRORE. THIS SHOWS THAT THE ASSESSEES SHAREHOLDER FUND STA NDS AT RS.16.64 CRORE. AS AGAINST THAT, THE ASSESSING OFFICER HAS NOTICED THA T THE ASSESSEE MADE INVESTMENT IN ITS RELATED COMPANIES TO THE TUNE OF RS.8.63 CRORE. WITHOUT GOING INTO THE BUSINESS PURPOSE OR OTHERWISE OF THE ASSESSEE IN MAKING INVESTMENTS IN ITS COMPANIES, WE FIND THAT THE AMOU NT IN THE ASSESSEES SHAREHOLDER FUND IS ALMOST DOUBLE THE AMOUNT GIVEN TO RELATED COMPANIES. ITA NO.5115/DEL/2015 CO NO.185/DEL/2017 4 5. AT THIS JUNCTURE, IT IS RELEVANT TO NOTE THAT SE CTION 36(1)(III) PROVIDES FOR DEDUCTION OF INTEREST OF THE AMOUNT OF INTEREST PAI D IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS OR PROFESSION. THE ESSENCE OF THIS PROVISION IS THAT THE INTEREST SHOULD BE ALLOWED SO LONG AS THE CAPITAL BORROWED, ON WHICH SUCH INTEREST IS PAID, IS USED F OR THE PURPOSE OF BUSINESS OR PROFESSION. IF, HOWEVER, AN ASSESSEE IS HAVING ITS OWN INTEREST FREE SURPLUS FUNDS AND SUCH FUNDS ARE UTILISED AS INTEREST FREE ADVANCES EVEN FOR A NON- BUSINESS PURPOSE, THERE CANNOT BE ANY DISALLOWANCE OF INTEREST PAID ON INTEREST BEARING LOANS. THE HON'BLE BOMBAY HIGH CO URT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM) , HAS HELD THAT WHERE AN ASSESSEE POSSESSED SUFFICIENT INTEREST FREE FUNDS O F ITS OWN WHICH WERE GENERATED IN THE COURSE OF RELEVANT FINANCIAL YEAR, APART FROM SUBSTANTIAL SHAREHOLDERS FUNDS, PRESUMPTION STANDS ESTABLISHED THAT THE INVESTMENTS IN SISTER CONCERNS WERE MADE BY THE ASSESSEE OUT OF IN TEREST FREE FUNDS AND, THEREFORE, NO PART OF INTEREST ON BORROWINGS CAN BE DISALLOWED ON THE BASIS THAT THE INVESTMENTS WERE MADE OUT OF INTEREST BEAR ING FUNDS. IN THAT CASE, THE AO RECORDED A FINDING THAT A SUM OF RS.213 CRORE WA S INVESTED BY THE ASSESSEE OUT OF ITS OWN FUNDS AND RS.1.74 CRORE OUT OF BORROWED FUNDS. ITA NO.5115/DEL/2015 CO NO.185/DEL/2017 5 ACCORDINGLY, DISALLOWANCE OF INTEREST WAS MADE TO T HE TUNE OF RS.2.40 CRORE. THE ASSESSEE ARGUED THAT NO PART OF INTEREST BEARIN G FUNDS HAD GONE INTO INVESTMENT IN THOSE TWO COMPANIES IN RESPECT OF WHI CH THE AO MADE DISALLOWANCE OF INTEREST. IT WAS ALSO ARGUED THAT I NCOME FROM OPERATIONS OF THE COMPANY WAS RS.418.04 CRORE AND THE ASSESSEE HA D ALSO RAISED CAPITAL OF RS.7.90 CRORE, APART FROM RECEIVING INTEREST FREE D EPOSIT OF RS.10.03 CRORE. THE ASSESSEE SUBMITTED BEFORE THE FIRST APPELLATE A UTHORITY THAT THE BALANCE- SHEET OF THE ASSESSEE ADEQUATELY DEPICTED THAT THER E WERE ENOUGH INTEREST FREE FUNDS AT ITS DISPOSAL FOR MAKING INVESTMENT. THE LD . CIT(A) GOT CONVINCED WITH THE ASSESSEES SUBMISSIONS AND DELETED THE ADD ITION. BEFORE THE TRIBUNAL, IT WAS CONTENDED ON BEHALF OF THE REVENUE THAT THE SHAREHOLDERS FUNDS WERE UTILIZED FOR THE PURCHASE OF ITS ASSETS AND HENCE T HE ASSESSEE WAS LEFT WITH NO RESERVE OR OWN FUNDS FOR MAKING INVESTMENT IN THE S ISTER CONCERN. THUS, IT WAS ARGUED THAT THE BORROWED FUNDS HAD BEEN UTILIZE D FOR THE PURPOSE OF MAKING INVESTMENT IN THE SISTER CONCERN AND THE DIS ALLOWANCE OF INTEREST WAS RIGHTLY CALLED FOR. THE TRIBUNAL, ON APPRECIATION O F FACTS, RECORDED A FINDING THAT THE ASSESSEE HAD SUFFICIENT FUNDS OF ITS OWN F OR MAKING INVESTMENT WITHOUT USING THE INTEREST BEARING FUNDS. ACCORDING LY, THE ORDER OF CIT(A) ITA NO.5115/DEL/2015 CO NO.185/DEL/2017 6 WAS UPHELD. WHEN THE MATTER CAME UP BEFORE THE HON BLE HIGH COURT, IT WAS CONTENDED BY THE DEPARTMENT THAT THE SHAREHOLDERS FUNDS STOOD UTILIZED IN THE PURCHASE OF FIXED ASSETS AND HENCE COULD NOT BE CONSTRUED AS AVAILABLE FOR INVESTMENT IN SISTER CONCERN. REPELLING THIS CONTE NTION, THE HONBLE HIGH COURT OBSERVED THAT : IN OUR OPINION, THE VERY BASIS ON WHICH THE REVENUE HAD SOUGHT TO CONTEND OR ARGUE THEIR CASE THAT THE SHAREHOLDERS FUND TO THE TUNE OF OVER RS.172 CRORE WAS UTILIZED FOR THE PUR POSE OF FIXED ASSETS IN TERMS OF THE BALANCE-SHEET AS ON MARCH 31, 1999, IS FALLACIOUS. IN UPHOLDING THE ORDER OF THE TRIBUNAL, THE HONBLE HI GH COURT HELD THAT: IF THERE BE INTEREST FREE FUNDS AVAILABLE TO AN ASSESS EE SUFFICIENT TO MEET ITS INVESTMENT AND AT THE SAME TIME THE ASSESSEE HAD RA ISED A LOAN, IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTERES T FREE FUNDS AVAILABLE . THEREAFTER, THE JUDGMENT OF THE HONBLE SUPREME COU RT IN THE CASE OF EAST INDIA PHARMACEUTICAL WORKS LTD. VS. CIT (1997) 224 ITR 627 (SC) AND ALSO THE JUDGMENT OF THE HONBLE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. VS. CIT (1981) 134 ITR 219 (CAL) WERE CONSIDERED. IT WAS FINALLY CONCLUDED THAT: THE PRINCIPLE, THEREFORE, WOULD BE THAT IF THERE A RE FUNDS AVAILABLE BOTH INTEREST FREE AND OVERDRAFT AND/OR L OANS TAKEN, THEN A ITA NO.5115/DEL/2015 CO NO.185/DEL/2017 7 PRESUMPTION WOULD ARISE THAT THE INVESTMENTS WOULD BE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF T HE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT . CONSEQUENTLY THE INTEREST WAS HELD TO BE DEDUCTIBLE IN FULL. FROM THE ABOVE JUDGMENT, IT IS MANIFEST THAT THERE CAN BE NO PRESUMPTION THAT THE SHAREHOLDERS FUND OF A COM PANY WAS UTILIZED FOR THE PURCHASE OF FIXED ASSETS. IF AN ASSESSEE HAS INTERE ST FREE FUNDS AS WELL AS INTEREST BEARING FUNDS AT ITS DISPOSAL, THEN THE PR ESUMPTION WOULD BE THAT INVESTMENTS WERE MADE FROM INTEREST FREE FUNDS AT T HE DISPOSAL OF THE ASSESSEE. SIMILAR VIEW HAS BEEN TAKEN BY THE HON'B LE DEHI HIGH COURT IN CIT VS. TIN BOX COMPANY (2003) 260 ITR 637 (DEL) , HOLDING THAT WHEN THE CAPITAL AND INTEREST FREE UNSECURED LOAN WITH THE A SSESSEE FAR EXCEEDED THE INTEREST FREE LOAN ADVANCED TO THE SISTER CONCERN, DISALLOWANCE OF PART OF INTEREST OUT OF TOTAL INTEREST PAID BY THE ASSESSEE TO THE BANK WAS NOT JUSTIFIED. 6. IN VIEW OF THE FOREGOING DISCUSSION, WE ARE SATI SFIED THAT THE ORDER OF THE CIT(A) DOES NOT REQUIRE ANY INTERFERENCE SINCE THE AMOUNT OF ASSESSEES SHAREHOLDER FUNDS IS MUCH MORE THAN THE AMOUNT OF I NTEREST FREE LOANS ADVANCED TO SISTER CONCERN. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER ON THIS SCORE. ITA NO.5115/DEL/2015 CO NO.185/DEL/2017 8 7. THE LD. AR DID NOT PRESS THE CROSS OBJECTION AND THE SAME IS, THEREFORE, DISMISSED AS NOT PRESSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE A ND THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MAY, 2018. SD/- SD/- [BEENA A. PILLAI] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 31 ST MAY, 2018. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.