M/s Kem Auto Components Ltd., V. DCIT, Bangalore

ITA 100/BANG/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9358 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 18-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 22-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NAMBI RAJAA PILLAI
• Assessee Lawyers: NARENDRA SHARMA ADVOACATE
• Keywords: Proportionate interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C BEFORE SHRI A .K. GARODIA , ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO , JUDICIAL MEMBER I.T.A. NO. 100 /BANG/201 4 (ASSESSMENT YEAR : 20 10 - 11 ) M/S. KEMS AUTO COMPONENTS LTD., NO.110, RAILWAY PARALL EL ROAD, KUMARAPARK WEST, SESHADRIPURAM, BANGALORE - 560 020 PAN AAACK 6751B VS. DY. COMMISSIONER OF INOCME TAX, CIRCLE 11(5), BANGALORE. APPELLANT RESPONDENT. APPELLANT BY : SHRI NARENDRA SHARMA, ADVOACATE. RESPONDENT BY : SHRI NAMBI RAJAA PILLAI, JCIT (D.R) DATE OF H EARING : 18.8. 2016. DATE OF P RONOUNCEMENT : 16 . 09. 201 6 . O R D E R PER SHRI VIJAY P AL RAO , J. M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DT.25.10.2013 OF COMMISSIONER OF INCOME TAX (APPEALS) - I, BANGALORE FOR THE ASSESSMENT YEAR 2010 - 11. 2 ITA NO. 100 /BANG/ 2014 2. THE ONLY ISSUE ARISES FOR OUR CONSIDERATION AND ADJUDICATION IS WHETHER I N THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST ON ACCOUNT OF THE LOAN/ADVANCES OF RS.1,58,54,874 TO ITS THREE DIRECTORS. IN THE SCRUTINY ASSESSMENT, THE ASSESSING OFFICER NOTICED FROM THE D ETAILS FILED BY THE ASSESSEE THAT THE ASSESSEE CLAIMED THE INTEREST OF RS.2,82,57,064 ON LOANS AGGREGATING TO RS.21,72,89,376. THE ASSESSING OFFICER FURTHER NOTI C ED THAT THE ASSESSEE HAS GIVEN ADVANCES AMOUNTING TO RS.1,58,64,874 TO ITS THREE DIRECTORS A S UNDER : S.NO. NAME OF THE DIRECTOR ADVANCE GIVEN (RS.) 1. DEEPAK GANDHI 5,86,000 2. S.K. GANDHI 92,72,000 3. MANISH GANDHI 60,06,874 TOTAL : 1,58,64,874 ACCORDINGLY, THE ASSESSING OFFICER HAS WORKED OUT THE PROPORTIONATE INTEREST OF RS.20,62,434 AND DISALLOWED THE SAME O N THE GROUND THAT IT IS NOT LAID OUT FOR THE PURPOSE OF BUSINESS OF ASSESSEE. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER BEFORE THE CIT (APPEALS) AND EXPLAINED THA T THE ASSESSEE'S OWN FUND IS SUFFICIENT FOR ADVANC ING THE LOAN TO THE DIRECTORS. THE ASSESSEE HAS GIVEN THE DETAILS THAT ITS OWN INTEREST FREE FUND IS MORE THAN RS.10 CRORES AND 3 ITA NO. 100 /BANG/ 2014 THEREFORE NO INTEREST CAN BE DISALLOWED FOR ADVANCING OF LOAN AMOUNTING TO RS.1,58,64,874 TO THE DIRECTORS. THE CIT (APPEALS) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. 3. BEFORE US, THE LD. AR OF THE ASSESSEE HAS REITERATED THE CONTENTION THAT THE ASSESSEE'S OWN FUND IS SUFFICIENT TO ADVANCE THE AMOUNT IN QUESTION TO THE DIRECTORS. HE HAS REF E RRED THE BALANCE SHEET AND SUBMITTED THAT THE ASSESSEE'S OWN FUND IS RS.10.35 CRORES WHEREAS THE ADVANCES GIVEN TO THE DIRECTORS ARE AT RS. 8 1.58 CRORES. THEREFORE THE ASSESSEE'S OWN INTEREST FREE FUND IS MORE THAN SUFFICIENT TO ADVANCE THE AMOUNT TO DIRECTORS . IN SUPPORT OF HIS C ONTENTION, HE HAS RELIED UPON THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. (2009) 313 ITR 340 (BOM) AS WELL AS THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL DT.29.4.2016 IN THE CASE OF KBD S UGARS & DISTILLERIES LTD. VS. ACIT IN ITA NO.1062 & 1073 /BANG/2014 AND SUBMITTED THAT EVEN IF THE ASSESSEE'S OWN FUND AS WELL AS BORROWED FUND ARE POOLED TOGETHER THE PRESUMPTION CAN BE RAISED THAT THE ASSESSEE'S OWN FUND IS UTILIZED FOR THE PURPOSE OF GIV ING INTEREST FREE ADVANCES TO THE DIRECTORS. 4. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE HAS FAILED TO SHOW THE DIRECT NEXUS 4 ITA NO. 100 /BANG/ 2014 BETWEEN THE ADVANCES GIVEN TO THE DIRECTORS AND THE A SSESSEE'S OWN FUND. HE HAS FURTHER CONTENDED THAT WHEN THE ASSESSEE'S OWN FUND IS ALREADY UTILIZED FOR ACQUISITION OF THE ASSETS THEN IT CANNOT BE PRESUMED THAT THE OWN FUND IS AVAILABLE FOR GIVING LOAN TO THE DIRECTORS. 5. WE HAVE CONSIDERED THE RIV AL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS CLAIMED THAT THE ASSESSEE'S OWN FUND COMPRISING SHARE CAPITAL, SHARE APPLICATION MONEY, RESERVES AND SURPLUS COMES TO RS.10.35 CRORES AS UNDER : SL.NO. PARTICULARS AMOUNTS (RS.) 1. SHARE CAPITAL 66,80,000. 2. SHARE APPLICATION MONEY 8,00,000 3. RESERVES & SRUPLUS 9,60,32,194 TOTAL : 10,35,12,194. THIS FACTUAL POSITION HAS NOT BEEN DISPUTED BY THE AUTHORITIES BELOW THAT THE ASSESSEE'S OWN FUND IS RS.10.35 CRORES. AN IDENTIC AL ISSUE WAS FELL FOR CONSIDERATION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILIT IES & POWER LTD. (SUPRA) WHEREIN THE REVENUE HAS FILED THE APPEAL AGAINST THE ORDER OF THE TRIBUNAL AND RAISED THE CONTENTION AS RECORDED IN PARA 6 OF THE JUDGMENT. AFTER CONSIDERING THE CONTENTION OF THE REVENUE THAT THE OWN FUND 5 ITA NO. 100 /BANG/ 2014 HAS BEEN UTILIZED FOR THE PURPOSE OF FIXED ASSETS THE HON'BLE HIGH COURT HAS HELD IN PARAS 8 TO 10 AS UNDER : 8. WE HAVE HEARD LEARNED COUNSEL FOR BOTH THE PARTIES. IN OUR OPINION THE VERY BASIS ON WHICH THE REVENUE HAD SOUGHT TO CONTEND OR ARGUE THEIR CASE THAT THE SHAREHOLDERS FUNDS TO THE TUNE OF OVER RS. 172 CRORES WAS UTILISED FOR THE PURPOSE OF FIXED ASSETS IN TERMS OF THE BALANCE SHEET AS ON 31ST MARCH, 1999, IS FALLACIOUS. FIRSTLY, WE ARE NOT CONCERNED WITH THE BALANCE SHEET AS OF 31ST MARCH, 1999. WHAT WOULD BE RELEVANT WOULD BE BALANCE SHEET AS ON 31ST MARCH, 2000. APART FROM THAT, THE LEARNED COUNSEL HAS BEEN UNABLE TO POINT OUT TO US FROM THE BALANCE SHEET TH AT THE BALANCE SHEET AS ON 31ST MARCH, 1999 SHOWED THAT THE SHAREHOLDERS FUNDS WERE UTILISED FOR THE PURPOSE OF FIXED ASSETS. TO OUR MIND THE P&L A/C AND THE BALANCE SHEET WOULD NOT SHOW WHETHER SHAREHOLDERS FUNDS HAVE BEEN UTILISED FOR INVESTMENTS. THE AR GUMENT HAS TO BE REJECTED ON THIS COUNT ALSO. 9. APART FROM THAT WE HAVE NOTED EARLIER THAT BOTH IN THE ORDER OF THE CIT(A) AS ALSO THE TRIBUNAL, A CLEAR FINDING IS RECORDED THAT THE ASSESSEE HAD INTEREST - FREE FUNDS OF ITS OWN WHICH HAD BEEN GENERATED IN THE COURSE OF THE YEAR COMMENCING FROM 1ST APRIL, 1999. APART FROM THAT IN TERMS OF THE BALANCE SHEET THERE WAS A FURTHER AVAILABILITY OF RS. 398.19 CRORES INCLUDING RS. 180 CRORES OF SHARE CAPITAL. IN THIS CONTEXT, IN OUR OPINION, THE FINDING OF FACT RECO RDED BY CIT(A) AND TRIBUNAL AS TO AVAILABILITY OF INTEREST - FREE FUNDS REALLY CANNOT BE FAULTED. 10. IF THERE BE INTEREST - FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN IT CAN BE P RESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST - FREE FUNDS AVAILABLE. IN OUR OPINION THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD. (SUPRA) HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. (SU PRA) WHERE A SIMILAR ISSUE HAD ARISEN. BEFORE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNN ING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSIDERABLE FORCE, BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUI RE TO BE ANSWERED. IT THEN NOTED THAT IN WOOLCOMBER S CASE (SUPRA) THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITED IN THE OVERDRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED THAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIAL AND THE ASSESSEE H AD URGED THE CONTENTION BEFORE THE HIGH COURT. THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST - FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE 6 ITA NO. 100 /BANG/ 2014 INTEREST - FREE FUND GE NERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE CIT(A) AND ITAT. THUS THE C ONTENTION RAISED BY THE REVENU E THAT OWN FUND HAS BEEN UTILIZED FOR THE PURPOSE OF FIXED ASSETS WAS NOT ACCEPTED BY THE HON'BLE HIGH COURT AND IT WAS HELD THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND LOAN THEN THE PRESUMPTION WOULD ARISE THAT THE INVESTMENT WOULD BE OUT OF INTEREST FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST FREE FUND WAS SUFFICIENT TO MEET THE INVESTMENT. WE ARE OF THE VIEW THAT THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILIT IES & POWER LTD. (SUPRA ) IS APPLICABLE IN THE FACTS OF THE PRESENT CASE. ACCORDINGLY, FOLLOWING THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT (SUPRA), ADDITION MADE BY THE ASSESSING OFFICER IN QUESTION IS DELETED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.09. 201 6 . SD/ - (A .K. GARODIA ) ACCOUNTANT MEMBER SD/ - (VIJAY PAL RAO) JUDICIAL M EMBER *REDDY GP