ACIT, Ernakulam V. Popular Vehicles & services ltd, Ernakulam

ITA 1015/COCH/2008

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58308 (ITAT-COCHIN)
• Duration Of Justice: 3 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 16-02-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 19-12-2008
• Court: TRIBUNAL
• Department Lawyers: VIJAYAPRABHA
• Assessee Lawyers: A S NARAYANAMOORTHY
• Keywords: Opportunity of being heard; Proportionate interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO.1015/COCH/2008 ASSESSMENT YEAR : 2002-03 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(3), ERNAKULAM. VS. M/S. POPULAR VEHICLES & SERVICES LTD., MAMANGLAM, ERNAKULAM, COCHIN-25 [PAN: AABCF 3805G] (REVENUE-APPELLANT) (ASSESSEE -RESPO NDENT) REVENUE BY SMT. VIJAYAPRABHA, JR. DR ASSESSEE BY SHRI A.S. NARAYANAMOORTHY, CA DATE OF HEARING 16/02/2012 DATE OF PRONOUNCEMENT 9/03/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THIS APPEAL WAS ORIGINALLY DISPOSED OFF BY THE TR IBUNAL VIDE ITS ORDER DATED 13-04-2010. SUBSEQUENTLY, THE DEPARTMENT MOVED A M ISCELLANEOUS PETITION AND ACCORDINGLY, THE TRIBUNAL, VIDE ITS ORDER DATED 26- 09-2011, RECALLED THE ORDER FOR THE PURPOSE OF DISPOSING OFF GROUND NOS. 5 & 6 AFRESH O N MERITS. ACCORDINGLY, THE CASE WAS POSTED FOR HEARING. THIS APPEAL RELATES TO THE ASS ESSMENT YEAR 2002-03. GROUND NOS. 5 & 6 RELATE TO THE DISALLOWANCE OF PROPORTIONATE INT EREST OF RS. 22,16,000/- ON ACCOUNT OF DIVERSION OF FUNDS FOR PURCHASE OF SHARES OF THE SI STER CONCERNS. 2. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD CLAIMED INTEREST EX PENDITURE OF RS. 332.01 LAKHS. THE AO NOTICED THAT THE ASSESSEE HAD INVESTED RS. 93.69 LA KHS IN PURCHASING SHARES OF THE SISTER CONCERNS WHICH WAS CONSIDERED AS DIVERSION OF THE F UNDS BY THE AO FOR NON-BUSINESS I.T.A. NO.1015/COCH/2008 2 PURPOSE. ACCORDINGLY, HE DISALLOWED PROPORTIONATE INTEREST EXPENDITURE, WHICH WAS WORKED OUT AT RS.22.16 LAKHS. THE LD. CIT(A) DELET ED THE SAID ADDITION BY PLACING RELIANCE ON THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF S.A. BUILDERS VS. CIT, 288 ITR 1. THE REVENUE IS ASSAILING THE SAID DECISION OF LD. CIT(A) BEFORE US. 3. THE LD. DR SUBMITTED THAT THE FIRST APPELLAT E AUTHORITY HAS NOT PROPERLY APPRECIATED THE DECISION OF THE HONBLE KERALA HIGH COURT IN TH E CASE OF CIT VS. V.I. BABY & CO., 254 ITR 248, WHICH IS APPLICABLE TO THE FACTS OF TH E INSTANT CASE. SHE FURTHER SUBMITTED THAT THE LD CIT(A) WRONGLY PLACED RELIANCE ON THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS (SUPRA), WHICH I S DISTINGUISHABLE. SHE ALSO INVITED OUR ATTENTION TO THE ORDER DATED 06-10-2009 PASSED BY T HE HONBLE JURISDICTIONAL KERALA HIGH COURT IN THE ASSESSEES OWN CASE RELATING TO THE AS SESSMENT YEAR 2004-05 IN WHICH IT WAS HELD THAT THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS, (SUPRA) IS NOT APPLICABLE TO THE FACTS PREVAILING IN THE ASSES SEES CASE. 4. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT THE DECISION RENDERED BY HONBLE KERALA HIGH COURT IN THE ASSESSEES OWN CASE IS DIS TINGUISHABLE. HE FURTHER SUBMITTED THAT THE IMPUGNED INVESTMENTS WERE MADE IN PURCHASI NG THE SHARES OF LIMITED COMPANIES PROMOTED BY THE GROUP AND THERE IS BUSINESS EXPEDIE NCY IN MAKING THE IMPUGNED INVESTMENTS. ELABORATING FURTHER, HE SUBMITTED THAT THE ASSESSEE HEREIN IS AN AUTHORISED DEALER OF MARUTI BRAND VEHICLES AND AS PER THE TERM S AND CONDITIONS OF DEALERSHIP AGREEMENT, IT IS NOT ENTITLED TO DEAL IN VEHICLES O F OTHER BRANDS. HENCE, IN ORDER TO TRADE IN VEHICLES OF OTHER BRANDS, THE PROMOTERS WERE CONSTR AINED TO FLOAT VARIOUS COMPANIES TO TAKE DEALERSHIP OF TATA AND TOYATA BRAND VEHICLES. ACCORDINGLY, THE ASSESSEE COMPANY WAS REQUIRED TO MAKE INVESTMENTS IN THOSE COMPANIES AND SUCH KIND OF PROMOTION OF BUSINESS OF SISTER CONCERNS WOULD AUTOMATICALLY HEL P TO IMPROVE THE BUSINESS OF THE ASSESSEE ALSO. ACCORDINGLY HE SUBMITTED THAT THERE IS BUSINESS EXPEDIENCY IN MAKING THE IMPUGNED INVESTMENTS. APART FROM THE ABOVE, HE SUB MITTED THAT THERE IS NO NEXUS BETWEEN THE BORROWED FUNDS AND THE IMPUGNED INVESTM ENT AND IN FACT, THE BORROWED FUNDS WERE NOT USED FOR THE SAID PURPOSE. IN THIS REGARD, HE SUBMITTED THAT THE ASSESSEE IS I.T.A. NO.1015/COCH/2008 3 POSSESSING RESERVE FUNDS TO THE TUNE OF RS.861 LAKH S AS AGAINST THE INVESTMENTS OF RS.93.69 LAKHS MADE IN THE SISTER CONCERNS. BESIDE S ABOVE, THE ASSESSEE IS CONSISTENTLY MAKING PROFITS MORE THAN 100 LAKHS EVERY YEAR, I.E. IN THE YEAR UNDER CONSIDERATION, IT HAS MADE A PROFIT OF ABOUT RS.134 LAKHS AND IN THE IMME DIATELY PRECEDING YEAR IT MADE A PROFIT OF RS.144 LAKHS. ACCORDINGLY HE SUBMITTED T HAT THE PROFIT EARNED BY THE ASSESSEE EVERY YEAR WAS MORE THAN THE IMPUGNED INVESTMENT OF RS.93 LAKHS. HE FURTHER SUBMITTED THAT WHERE THERE ARE OWN FUNDS AS WELL AS BORROWED FUNDS, THE PRESUMPTION SHOULD BE THAT THE INVESTMENT HAS BEEN MADE OUT OF OWN FUNDS ONLY. 5. IN REJOINDER, THE LD. DR SUBMITTED THAT THE CLA IM OF THE ASSESSEE WITH REGARD TO THE BUSINESS EXPEDIENCY AS WELL AS THE SUBMISSION M ADE WITH REGARD TO THE FINANCIAL POSITION OF THE COMPANY, HAVE BEEN MADE FOR THE FIR ST TIME BEFORE THE TRIBUNAL AND HENCE, THEY REQUIRE EXAMINATION AT THE END OF THE ASSESSIN G OFFICER. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE RECORD. WE NOTICE THAT THE ORDER WAS RECALLED TO DISPOSE OF THE ISSUE UNDER CONSIDERATION ON THE BASIS OF THE DECISION DATED 06-10-2009 PASSED BY THE HONBLE JUR ISDICTIONAL HIGH COURT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 . WE HAVE GONE THROUGH THE SAID ORDER. IN THAT CASE, IT WAS NOTICED BY THE HIGH CO URT THAT THE ASSESSEE HEREIN HAD INVESTED IN THE PARTNERSHIP CONCERNS OF THE SAME GROUP. FUR THER, IT WAS NOTED THAT THE FINDING OF THE ASSESSING OFFICER THAT THE FUNDS ADVANCED BY TH E ASSESSEE HEREIN TO THE SISTER CONCERNS WHICH ARE PARTNERSHIP FIRMS, ARE OUT OF BO RROWED FUNDS, IS NOT FOUND FAULT WITH BY THE APPELLATE AUTHORITY INCLUDING THE TRIBUNAL. SINCE THE INVESTMENTS WERE MADE IN THE PARTNERSHIP CONCERNS, THE HONBLE JURISDICTIONAL HI GH COURT HELD THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS (SUPRA) DOES NOT APPLY TO THE FACTS OF THE CASE, SINCE INCOME FROM THE PARTNERSHIP FIRM IS EXEMPT U/S. 10(2A) OF THE ACT. THE HONBLE HIGH COURT HELD THAT THE PROVISIONS OF S.14 A SHALL APPLY TO THE FACTS OF THE CASE AND HENCE, DISALLOWANCE OF PROPORTIONATE INTEREST O N BORROWED FUNDS DIVERTED AS INTEREST FROM LOANS TO PARTNERSHIP FIRMS WAS CONFIRMED. I.T.A. NO.1015/COCH/2008 4 7. HOWEVER, IN THE YEAR UNDER CONSIDERATION, WE NOT ICE THAT THE INVESTMENTS HAVE BEEN MADE IN THE FOLLOWING LIMITED COMPANIES, WHICH IS A DISTINGUISHING FEATURE FOR THE YEAR UNDER CONSIDERATION:- DETAILS YEAR ENDING 31-03-2002 YEAR ENDING 31-03-2001 (RS.) (RS.) KUTTUKARAN LEASING & INVESTMENTS LTD. 4000000 4000000 POPULAR AUTOSPARES (P) LTD. 1700000 1700000 KUTTUKARAN MACHINE TOOLS LTD. 11 69500 212500 POPULAR MEGA MOTORS LTD. 2500000 2500000 9369500 8412500 8. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE HAS MADE DETAILED SUBMISSIONS REGARDING AVAILABILITY OF RESERVES AND SURPLUS AND ALSO ABOUT THE PROFITABLE POSITION OF THE ASSESSEE . HE HAS FURTHER SUBMITTED THAT THE BUSINESS OF THE S ISTER CONCERNS ARE RELATED TO THE ASSESSEE HEREIN AND ACCORDINGLY CONTENDED THAT THER E IS BUSINESS EXPEDIENCY IN MAKING THE INVESTMENTS CITED ABOVE. APPARENTLY, THESE FAC TS HAVE NOT BEEN EXAMINED BY THE ASSESSING OFFICER DURING THE COURSE OF THE ASSESSME NT PROCEEDINGS. WE NOTICE THAT THE AO HAS REJECTED THE CLAIM OF THE BUSINESS EXPEDIENC Y WITH THE FOLLOWING OBSERVATIONS:- THE BUSINESS OF THE SISTER CONCERNS CANNOT BE CONS IDERED AS THE BUSINESS OF THE ASSESSEE. MOREOVER, THE ASSESSEE HAS NOT EARNE D ANY INCOME ON THESE INVESTMENTS. IN OUR VIEW, THE AO HAS MADE VAGUE OBSERVATIONS WIT H OUT PROPERLY CONSIDERING THE EXPLANATIONS OF THE ASSESSEE. BEFORE US, THE LD A.R STATED THAT THE COMPANIES CITED ABOVE HAVE TAKEN DEALERSHIP OF TATA AND TOYATO BRAND VEHI CLES. HOWEVER, HE DID NOT POINT OUT THE COMPANIES, WHICH HAVE TAKEN THE SAID DEALERSHIP . THE BUSINESS DETAILS OF OTHER TWO COMPANIES WERE NOT SUBMITTED. ANY WAY THE SAID CLA IM OF THE ASSESSEE REGARDING EXISTENCE OF BUSINESS EXPEDIENCY NEEDS TO BE EXAMIN ED OBJECTIVELY AT THE END OF THE AO. 8. IN VIEW OF THE FOREGOING DISCUSSIONS, WE OF THE VIEW THAT THE MATTER REQUIRES FRESH EXAMINATION AFTER DULY CONSIDERING THE FACTS NOW BR OUGHT ON RECORD. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE I SSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINATION OF THE SAME AFRESH IN ACCOR DANCE WITH LAW AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD TO THE ASSESSE E. I.T.A. NO.1015/COCH/2008 5 9. IN THE RESULT, THE APPEAL OF THE REVENUE WITH RE GARD TO GROUND NOS. 5 & 6 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 9-03-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 9TH MARCH, 2012 GJ COPY TO: 1. M/S. POPULAR VEHICLES & SERVICES LTD., MAMANGLAM , ERNAKULAM, COCHIN-25 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1(3), ERNAKULAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, KOC HI. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE . BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN