Sakthi Auto Components Limited, CHENNAI V. DCIT, Coimbatore

ITA 1071/CHNY/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8753 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 29-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 21-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N RENGARAJ
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI .. , . . ! , ' #$ BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER ./ ITA NO. 1071/MDS/2013 ' % &% / ASSESSMENT YEAR : 2008-09 M/S SAKTHI AUTO COMPONENTS LIMITED, NO.180, RACE COURSE, COIMBATORE 641 018. PAN : AAECS 6536 J V. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(1), COIMBATORE 641 018. (()/ APPELLANT) (+,()/ RESPONDENT) () - . / APPELLANT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE +,() - . / RESPONDENT BY : SHRI N. RENGARAJ, CIT / - 0 / DATE OF HEARING : 29.01.2015 1!& - 0 / DATE OF PRONOUNCEMENT : 04.02.2015 / O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING T HE VALIDITY OF REVISION ORDER DATED 22.03.2013, PASSED BY LD. COMM ISSIONER OF INCOME TAX-I, COIMBATORE AND IT RELATES TO ASSESSME NT YEAR 2008- 09. 2 I.T.A. NO. 1071/MDS/13 2. WE HEARD THE PARTIES AND PERUSED THE RECORD. TH E ASSESSMENT IN THE HANDS OF THE ASSESSEE WAS COMPLET ED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHOR T 'THE ACT') FOR THE YEAR UNDER CONSIDERATION, ON 27.12.2010. THE LD. C IT, ON EXAMINATION OF THE RECORD, NOTICED THAT THE ASSESSE E HAD DEBITED PROFIT & LOSS ACCOUNT WITH A SUM OF ` 19.45 CRORES TOWARDS DIVIDEND PAYABLE TO PREFERENTIAL SHAREHOLDERS. THE ASSESSEE HAD BROUGHT FORWARD THE OPENING ACCUMULATED LOSSES OF ` 16.68 CRORES AND DURING THE CURRENT YEAR, IT HAD INCURRED A LOSS OF ` 25.43 CRORES, BOTH AGGREGATING TO AN ACCUMULATED LOSS TO ` 42.11 CRORES. IN THE NOTES ON ACCOUNT, THE ASSESSEE HAD STATED THAT THE DIVIDEND WAS DECLARED IN ANTICIPATION OF DIVIDEND INCOME TO BE R ECEIVED FROM FOREIGN SUBSIDIARIES. IT WAS FURTHER STATED THAT T HE ASSESSEE DID NOT RECEIVE DIVIDEND INCOME AND HENCE IT HAD TREATED TH E DIVIDEND DECLARED ON PREFERENCE SHAREHOLDERS AS ADVANCES REC OVERABLE. ON THE BASIS OF THESE FACTS, THE LD. CIT TOOK THE VIEW THAT THE ASSESSEE HAS USED BORROWED FUNDS FOR DECLARING DIVIDEND ON P REFERENCE SHAREHOLDERS. ACCORDINGLY, THE LD. CIT TOOK THE VI EW THAT THE INTEREST ON LOANS RELATABLE TO DIVIDEND SO DECLARED IS NOT ALLOWABLE AS DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT. ACCORDINGLY, HE SET ASIDE THE ASSESSMENT ORDER AND DIRECTED THE ASSESSI NG OFFICER TO 3 I.T.A. NO. 1071/MDS/13 REDO THE SAME AFRESH IN THE LIGHT OF THE DISCUSSION MADE BY HIM. AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFOR E US. 3. THE LD. COUNSEL APPEARING FOR THE ASSESSEE SUBMI TTED THAT THE ASSESSEE HAD DECLARED ONLY INTERIM DIVIDEND ON PREFERENCE SHAREHOLDERS AND THE SAME WAS DECIDED TO BE RECOVER ED SUBSEQUENTLY. HE FURTHER SUBMITTED THAT THE LD. CI T HAS PRESUMED THAT THE ASSESSEE HAS USED THE BORROWED FUNDS FOR D ISBURSING THE DIVIDEND, WHEREAS THE FACT REMAINS THAT THE ASSESSE E HAD SUFFICIENT FUNDS WITH IT. THE LD. COUNSEL FURTHER SUBMITTED T HAT THE LD. CIT HAS CONSIDERED THE LOSSES WITHOUT ADDING THE NON-CASH E XPENDITURE, I.E. DEPRECIATION. HE SUBMITTED THAT THE ASSESSEE HAD A CTUALLY REALIZED CASH SURPLUS DURING THE YEAR UNDER CONSIDERATION. THE LD. COUNSEL FURTHER SUBMITTED THAT THE LD. CIT WAS NOT RIGHT IN LAW FOR PRESUMING THAT THE INTEREST ON BORROWINGS, IF ANY MADE, FOR D ISBURSING THE DIVIDEND INCOME IS NOT ALLOWABLE AS EXPENDITURE. H E SUBMITTED THAT IN THE FOLLOWING CASES, IT HAS BEEN HELD THAT THE I NTEREST PAID ON AMOUNT BORROWED FOR PAYMENT OF DIVIDEND IS ALLOWABL E AS DEDUCTION:- (A) TINGRI TEA COMPANY LTD. 79 ITR 294 (CAL.) (B) CIT V. CALCUTTA ELECTRIC SUPPLY CORPORATION 166 ITR 797 (CAL.) (C) SHREE CHANGDEO SUGAR MILLS 143 ITR 469 (BOM.) (D) KESAR SUGAR WORKS 140 CTR 431 (BOM.) (E) KIRLOSKAR ELECTRIC CO. LTD. 228 ITR 674 (KAR.) (F) CIT V. PHALTON SUGAR WORKS LTD. 162 ITR 622 (B OM.) (G) CIT V. BELAPUR CO. LTD. 161 ITR 516 (BOM.) 4 I.T.A. NO. 1071/MDS/13 ACCORDINGLY, HE SUBMITTED THAT THE LD. CIT HAS PASS ED THE IMPUGNED REVISION ORDER ON ERRONEOUS PRESUMPTION AB OUT LAW AND ALSO ABOUT THE FACTS PREVAILING IN THE CASE AND HEN CE THE SAME IS NOT SUSTAINABLE. 4. ON THE CONTRARY, THE LD. D.R. SUBMITTED THAT THE ASSESSING OFFICER DID NOT LOOK INTO THIS MATTER AND HENCE THE LD. CIT WAS JUSTIFIED IN PASSING THE IMPUGNED REVISION ORDER. 5. HAVING HEARD THE RIVAL SUBMISSIONS, WE ARE OF TH E VIEW THAT THERE IS A MERIT IN THE CONTENTIONS OF THE LD. COUN SEL. WE HAVE ALREADY NOTICED THAT THE LD. CIT HAS PASSED THE IMP UGNED REVISION ORDER ONLY ON THE REASONING THAT THE INTEREST ON BO RROWINGS, IF ANY MADE, FOR DISBURSING DIVIDEND IS NOT ALLOWABLE AS D EDUCTION UNDER SECTION 36(1)(III) OF THE ACT. HOWEVER, THE VARIOU S CASE LAWS RELIED ON BY THE LD. COUNSEL MAKE IT VERY CLEAR THAT THE I NTEREST ON THE AMOUNTS BORROWED FOR PAYMENT OF DIVIDEND IS ALLOWAB LE AS DEDUCTION. THUS, IT IS SEEN THAT THE VERY FOUNDATI ON ON WHICH THE IMPUGNED REVISION ORDER HAS BEEN PASSED BY LD. CIT FAILS, IN WHICH CASE WE ARE NOT ABLE TO SUSTAIN THE SAME. ACCORDIN GLY, WE SET ASIDE THE REVISION ORDER PASSED BY THE LD. CIT. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 5 I.T.A. NO. 1071/MDS/13 ORDER PRONOUNCED ON THE 4 TH DAY OF FEBRUARY, 2015 AT CHENNAI. SD/- SD/- ( . . ! ) ( .. ) (S.S. GODARA) (B.R. BASKARAN) ' /JUDICIAL MEMBER /ACCOUNTANT MEMBER /CHENNAI, > /DATED, THE 4 TH FEBRUARY, 2015. KRI. ? - +'0@A BA&0 /COPY TO: 1. () /APPELLANT 2. +,() /RESPONDENT 3. / C0 /CIT-I, COIMBATORE 5. AD +'0' /DR 6. E% F /GF.