Nadampadam Rubber Estate Muncipal office road, Trichur V. ACIT, Trichur

ITA 10/COCH/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7234 (ITAT-COCHIN)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 17-07-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 13-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Assessee Lawyers: V VENUGOPAL
• Keywords: Proportionate interest

Judgement Text

1 ITA NO.10/COCH/2014 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI CHANDRA PO OJARI (AM) I.T.A NO. 10/COCH/2014 (ASSESSMENT YEAR 2006-07) NADAMPADAM RUBBER ESTATE VS ACIT, CIR.2(1) MUNICIPAL OFFICE ROAD THRISSUR THRISSUR 680 001 PAN : AABFN9972D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V VENUGOPAL RESPONDENT BY : SMT. LATHA V KUMAR, JR DR DATE OF HEARING : 17-07-2014 DATE OF PRONOUNCEMENT : 24-09-2014 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF CIT(A)- V, KOCHI DATED 06-11-2013 AND PERTAINS TO ASSESSMEN T YEAR 2006-07. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS ADDIT ION OF RS.8,75,000 BEING THE PROPORTIONATE INTEREST ON THE LOAN BORROW ED FOR BUSINESS PURPOSE. 2 ITA NO.10/COCH/2014 3. SHRI V VENUGOPAL, THE LD.REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE, A PARTNERSHIP FIRM, IS ENGAGED I N THE BUSINESS OF EXPORTS OF SEEDS. ACCORDING TO THE LD.REPRESENTATI VE, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS PAID INTEREST TO TH E EXTENT OF RS.8,75,000 ON THE LOAN BORROWED. HOWEVER, THE ASSESSING OFFIC ER DISALLOWED THE ENTIRE PAYMENT OF INTEREST ON THE GROUND THAT THE L OAN WAS DIVERTED FOR PERSONAL PURPOSE OF THE PARTNERS. ACCORDING TO THE LD.REPRESENTATIVE, DURING THE YEAR UNDER CONSIDERATION, THE INCREASE I N THE BANK LOAN WAS ONLY RS.31,34,268. THERE WAS A NET INCREASE IN THE CAPITAL TO THE EXTENT OF RS.9,13,519. THE NET DECREASE IN THE DRAWINGS WAS TO THE EXTENT OF RS.17,66,975. THE AMOUNT OF ADVANCE TO THE RELATED PERSON IS ONLY RS.10,89,670. THEREFORE, ACCORDING TO THE LD.REPRE SENTATIVE, THERE WAS NO DIVERSION OF THE BORROWED FUNDS. REFERRING TO THE ORDER OF THE CIT(A), MORE PARTICULARLY PAGE 9, THE LD.REPRESENTATIVE SUBMITTE D THAT THE DETAILS FURNISHED BY THE ASSESSEE WAS EXTRACTED BY THE CIT( A). ACCORDING TO THE LD.REPRESENTATIVE, THE LOAN WAS BORROWED UNDER CSB PACKING CREDIT FOR EXPORT PURPOSE; HENCE, IT CANNOT BE DIVERTED FOR AN Y OTHER PURPOSE. ACCORDING TO THE LD.REPRESENTATIVE, SINCE SUFFICIEN T FUNDS WERE AVAILABLE FOR THE YEAR UNDER CONSIDERATION, THE JUDGMENT OF THE K ERALA HIGH COURT IN CIT VS V.I.. BABY & CO 254 ITR 248 (KER) RELIED UPON BY THE ASSESSING OFFICER IS NOT APPLICABLE TO THE FACTS OF THE CASE. REFERR ING TO THE STATEMENTS OF ACCOUNTS AS ON 31-03-2006, THE LD.DR SUBMITTED THAT THE CAPITAL ACCOUNT OF 3 ITA NO.10/COCH/2014 THE FIRM WAS RS.1,80,62,834. THE LD.REPRESENTATIVE FURTHER SUBMITTED THAT THE CURRENT ACCOUNT SHOWED A DEBIT BALANCE OF RS.1, 77,34,748. HOWEVER, THE CLOSING BALANCE AND THE CURRENT ACCOUNT OF THE PARTNERS SHOW A DEBIT BALANCE OF RS.1,59,67,763. IT COULD BE SEEN THAT T HE DEBIT BALANCE IN THE CURRENT ACCOUNT WAS INCREASED BY RS.17,66,975 WHICH GOES AGAINST THE THEORY OF DIVERSION OF FUNDS AS ALLEGED BY THE ASSE SSING OFFICER. THE CREDIT IN THE CAPITAL ACCOUNT OF THE PARTNERS SHOWS AN INC REASE OF RS.9,13,519. ACCORDING TO THE LD.REPRESENTATIVE, THE JUDGMENT OF THE KERALA HIGH COURT IN V.I.. BABY & CO (SUPRA) MAY NOT BE APPLICABLE TO THE FACTS OF THE CASE. REFERRING TO THE JUDGMENT OF THE BOMBAY HIGH COURT IN CIT VS RELIANCE UTILITIES AND POWER LIMITED (2009) 313 ITR 340 (BOM ), THE LD.REPRESENTATIVE SUBMITTED THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND OVERDRAFTS, THEN, THE PRESUMPTION WOULD AR ISE THAT THE INVESTMENT WOULD BE OF INTEREST FREE FUNDS GENERATED OR AVAILA BLE WITH THE ASSESSEE IN CASE THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEE T THE INVESTMENT. THE LD.REPRESENTATIVE HAS ALSO PLACED RELIANCE ON THE J UDGMENT OF THE APEX COURT IN S.A. BUILDERS VS CIT (2007) 288 ITR 1 (SC) AND ALSO ON THE DELHI HIGH COURT IN CIT VS DALMIYA CEMENT (B) LTD (2002) 254 ITR 377 (DEL). 4. ON THE CONTRARY, SMT. LATHA V KUMAR, THE LD.DR S UBMITTED THAT THE MANAGING PARTNER HAD AN OPENING DEBIT CAPITAL OF RS .1.90 CRORES. THE WITHDRAWAL DURING THE YEAR UNDER CONSIDERATION IS R S.53.42 LAKHS WHICH IS 4 ITA NO.10/COCH/2014 MORE THAN THE BANK LOAN AVAILED BY THE ASSESSEE. T HE OPENING FIXED CAPITAL IS ONLY RS.70.50 LAKHS. THEREFORE, THE MAJ OR PART OF THE BANK LOAN WAS UTILIZED BY THE ASSESSEE FOR PERSONAL PURPOSE B Y THE PARTNERS INSTEAD OF USING THE SAME FOR BUSINESS PURPOSE. THEREFORE, ACCORDING TO THE LD.DR, THE JUDGMENT OF THE APEX COURT IN V.I.. BABY (SUPRA) IS SQUARELY APPLICABLE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGMENT OF THE KERALA HIGH COURT IN V. I. BABY & CO (SUPRA) AND THE JUDGMENT OF THE APEX COURT IN THE CASE OF M UNJAL SALES CORPORATION VS CIT 298 ITR 298 (SC). THE APEX COUR T FOUND THAT WHEN THE INTEREST FREE FUNDS ARE AVAILABLE WITH THE ASSE SSEE AND THE INTEREST FREE FUNDS AND THE PROFIT OF THE YEAR IS MORE THAN THE F UNDS DIVERTED FOR THE NON BUSINESS PURPOSE, THEN, THERE CANNOT BE ANY DISALLO WANCE. THE ASSESSEE HAS ALSO FILED A CASH FLOW STATEMENT BEFORE THIS TR IBUNAL AND THE BALANCE- SHEET AS ON 31-03-2006. THE CASH FLOW STATEMENT SHO WS THAT THE NET PROFIT AS ON 31-03-2006 IS RS.9,13,520. THE FUNDS INTRODU CED BY THE PARTNERS IS RS.76,82,188. THE INCREASE IN THE UNSECURED LOAN I S RS.31,34,268. THE PARTNERS DRAWINGS COMES TO NEARLY RS.59,15,213. T HEREFORE, APPARENTLY, THE AVAILABLE FUNDS INCLUDING THE PROFIT OF THE YEA R ARE MORE THAN THE PARTNERS DRAWINGS. IT IS NOT KNOWN WHETHER THE CA SH FLOW STATEMENT WAS 5 ITA NO.10/COCH/2014 FILED BEFORE THE LOWER AUTHORITIES OR NOT? IN THOS E CIRCUMSTANCES, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE AVAI LABILITY OF FUNDS INCLUDING THE PROFIT OF THE YEAR HAS TO BE EXAMINED AND THERE AFTER THE ASSESSING OFFICER HAS TO DECIDE WHETHER THE BORROWED FUNDS WE RE DIVERTED FOR NON BUSINESS PURPOSE IN THE LIGHT OF THE JUDGMENT OF TH E APEX COURT IN MUNJAL SALES CORPORATION (SUPRA). ACCORDINGLY, THE ORDERS OF LOWER AUTHORITIES ARE SET SIDE AND THE ISSUE OF ADDITION OF RS. 8,75,000 IS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFIC ER SHALL RECONSIDER THE ISSUE IN THE LIGHT OF THE JUDGMENT OF THE APEX COUR T IN MUNJAL SALES CORPORATION (SUPRA) AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO T HE ASSESSEE. 6. IN THE RESULT, APPEAL OF THE ASSESEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 TH SEPTEMBER, 2014. SD/- SD/- (CHANDRA POOJARI) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 24 TH SEPTEMBER, 2014 PK/- COPY TO: 1. NADAMPADAM RUBBER ESTATE, MUNICIPAL OFFICE ROAD, THRISSUR 680 001 2. ACIT, CIR.2(1), THRISSUR 3. THE COMMISSIONER OF INCOME-TAX, THRISSUR 4. THE COMMISSIONER OF INCOME-TAX(A)-V, KOCHI 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH