The DCIT, Circle-10, Ahmedabad V. M/s. Intercontinental India, Ahmedabad

ITA 1229/AHD/2010

• Counselvise Citation: 122920514 RSA 2010
• Duration Of Justice: 2 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 26-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 19-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAHUL KUMAR
• Assessee Lawyers: S N SOPARKAR
• Keywords: Principle of natural justice; Source of fund; Commercial expediency
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD A BENCH BEFORE: SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARA T, JUDICIAL MEMBER DY. COMMISSIONER OF INCOME-TAX, CIRCLE -10, AHMEDABAD (APPELLANT) VS. M/S INTERCONTINENTAL (INDIA) (RESPONDENT) PAN NO. AAAF5170K REVENUE BY : SRI RAHUL KUMAR, SR. D.R. ASSESSEE BY : SRI S.N. SOPARKAR, A.R. DATE OF HEARING : 26-09-2012 DATE OF PRONOUNCEMENT : 25-10-2012 / ORDER PER : KUL BHARAT, JUDICIAL MEMBER:- THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER LD. COMMISSIONER OF INCOME TAX (APPEALS)-XVI, AHMEDBAD DATED 12-02-2010 THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. THE CIT(A) IS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS. 81,36,320/- MADE U/S 36(1)(III) ON ACCOUNT O F INTEREST EXPENSES. I.T.A. NO 1229/AHD/2010 A.Y.:-2007-08 ITA NO. 1229/AHD/2010 A.Y NO. 2007-08 PAGE NO. DY COMMISSIONER OF INCOME-TAX VS. M/S INTERCONTINEN TAL (INDIA) 2 2. THE LD. CIT(A) HAS RELIED ON HIS OWN EARLIER ORDER TO HOLD THAT INTEREST BEARING FUNDS ARE ADVANCED TO M/S BHANSALI ASSOCIATES & OTHERS FOR BUSINESS PURPOSE FOR EARLIE R YEAR. HOWEVER CIT(A) HAS FAILED TO APPRECIATE THAT THE AS SESSEE HAS NOT PROVED THAT THE ADVANCE REMAINS BUSINESS ADVANC E, AS HE HAS NOT CHARGED INTEREST ON SUCH ADVANCES WHICH WAS DONE UP TO A.Y. 2003-04. 3. BEFORE ACCEPTING THAT THE SOURCE OF FUNDS ADVANCED TO M/S BHANSALI BULLION OF RS. 6.38 CRORE AND OTHERS (0.15+0.90+1.70 CRORE) ARE FROM ASSESSEES NON INTE REST BEARING ADVANCES RECEIVED, THE LD. CIT(A) HAS FAILE D TO GIVE OPPORTUNITY TO THE ASSESSING OFFICER AS ASSESSEE HA S FILED FRESH EVIDENCE AND THUS CLT(A) HAS FAILED TO FOLLOW PRINC IPLES OF NATURAL JUSTICE AND RULE 46A. 4. THE LD. CIT(A) FAILED TO APPRECIATE THE FAC TS THAT THE ASSESSEE HAS FAILED TO PROVE THE NEXUS OF FUNDS UTILIZED FOR GRANTING INTEREST FREE LOANS. 5. THE DECISION OF CIT(A) ON THE RELEVANT ISSUES DE CIDED IN ASSESSEE FAVOUR WAS NOT ACCEPTED FOR A.Y, 2004-05, 2005-06 AND 2006-07 ON THE SAME ISSUE. 6. THE LD. CIT(A) HAS ERRED IN RESTORING THE ISSUE DISALLOWANCE U/S 14A TO THE FILE OF AO, AS THE CIT(A) HAS NO POWER TO SET ASIDE THE ASSESSMENT (IN PART OR FULL) AND I S REQUIRED TO ADJUDICATE THE ISSUE ON MERITS WHICH HE HAS NOT DONE. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. C1T(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER, AS THE ASSESSEE HAS ADVANCED HUGE AMOUNT OF INTEREST FREE LOANS TO VARIOUS PARTIES THOUGH IT IS NOT BUSINESS OF ASSESSEE TO GRANT INTEREST FREE LOANS AND ADVANCES. 8. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE ORDER OF ASSESSING OFF ICER BE RESTORED TO THE ABOVE EXTENT. ITA NO. 1229/AHD/2010 A.Y NO. 2007-08 PAGE NO. DY COMMISSIONER OF INCOME-TAX VS. M/S INTERCONTINEN TAL (INDIA) 3 2. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE AS SESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S 143(3) O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FINAL IZED VIDE ORDER DATED 26- 12-2009. WHILE FINALIZING THE ASSESSMENT, THE ASSE SSING OFFICER DISALLOWED INTEREST EXPENDITURE OF RS. 81,36,320/-, DISALLOWAN CE U/S 14A OF RS. 9,93,653/-, DISALLOWANCE OF LOSS FROM COAL HANDLING OF RS. 1,53,246/-. AGAINST THIS ORDER, THE ASSESSEE FILED AN APPEAL BE FORE THE LD. CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE P ARTLY ALLOWED THE APPEAL. LD. CIT(A) WHILE PARTLY ALLOWING THE APPEAL DELETED ADDITION OF RS. 81,36,320/- MADE ON ACCOUNT OF DISALLOWANCE OF INTE REST EXPENDITURE AND REMITTED BACK THE ISSUE IN RESPECT OF DISALLOWANCE MADE U/S 14A OF THE ACT. AGAINST THIS, THE REVENUE HAS FILED THE PRESENT APP EAL. 3. GROUND NO. 1 TO 5 ARE INTERCONNECTED, THEREFORE, THE SAME ARE DISPOSED OF TOGETHER. LD. D.R. RELIED ON THE ORDER OF THE A SSESSING OFFICER. ON THE CONTRARY, LEARNED COUNSEL FOR THE ASSESSEE SRI S.N . SOPARKAR SUBMITTED THAT THE GROUND NO. 1 TO 5 ARE COVERED BY THE DECISION O F THE CO-ORDINATE BENCH OF THIS TRIBUNAL RENDERED IN THE CASE OF ASSESSEES OWN CASE IN RESPECT OF ASSESSMENT YEAR 2006-07 IN ITA 612/AHD/2010. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS PERUSED THE MATERIAL AVAILABLE ON RECORD AND THE JUDGMENT CITED. WE FIND THAT THE HO NBLE CO-ORDINATE BENCH IN ITA NO. 612/AHD/2010 HAS DECIDED THESE SIMILAR GROUNDS OF APPEAL IN ITA 612 OF 2010 AS UNDER:- 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIALS AVAILABLE ON RECORD AND DECISION CITED BY LD. AR OF THE ITA NO. 1229/AHD/2010 A.Y NO. 2007-08 PAGE NO. DY COMMISSIONER OF INCOME-TAX VS. M/S INTERCONTINEN TAL (INDIA) 4 ASSESSEE. WE FIND THAT HON'BLE CO-ORDINATE BENCH H AS HELD IN PARA-14 IN ASSESSES OWN CASE IN ITA NO. 2033, 600-6 01 /AND/200 9 (SUPRA) IS REPRODUCED AS UNDER:- '14, WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MATERIAL ON RECORD. ITAT AHRNEDABAD BENCH IN THE CA SE OF CORE HEALTH CARE LTD, (SUPRA) RELIED UPON DECISI ON OF THE HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILD ERS VS CIT 288 ITR 1, ACCORDING TO WHICH, IF INTEREST F REE ADVANCES ARE GIVEN FOR BUSINESS PURPOSES, THEN NO DISALLOWANCE OF INTEREST IS REQUIRED TO BE MADE IRRESPECTIVE OF WHETHER THEY ARE GIVEN OUT OF INTER EST FREE CAPITAL OF INTEREST BEARING FUNDS. THE TRIBUNAL, CONSIDERING THE IDENTICAL FACTS DISMISSED THE DEPAR TMENTAL APPEAL. THE LEARNED CIT(A), THEREFORE, RIGHTLY NOTE D THAT THE CONDITIONS OF SECTION 36(1)(III) OF THE IT ACT ARE SATISFIED IN THIS CASE. ON GROUND NO. 1 IT IS HELD THAT THE AMOUNTS/ADVANCES HAVE BEEN GIVEN TO M/S. BHANSALI ASSOCIATES IN EARLIER YEARS ON WHICH INTEREST WAS A LSO CHARGED. THEREFORE, AT THE TIME GIVING THE ADVANCES IT WAS CLEARLY GIVEN FOR THE PURPOSE OF BUSINESS. IT WAS ALSO HELD THAT IN THE ASSESSMENT YEAR UNDER APPEAL INTEREST W AS NOT CHARGED DUE TO COMMERCIAL EXPEDIENCY ON MUTUAL UNDERSTANDING. THE AO ALSO NOTED IN THE ASSESSMENT ORDER THAT SUCH ADVANCES WERE GIVEN AS BUSINESS TRANSACTIONS AND WITH THE MOTIVE TO EARN INTEREST. THE AO ALSO ADMITTED THAT IT IS NOT A CASE OF DIVERSION OF INTEREST BEARING FUNDS TO NON-BUSINESS PURPOSES. ON GROUND NO.1, WE HAVE CONFIRMED THE FINDINGS OF THE LEARNED CLT(A) IN DELETING THE ADDITION AND IT WAS ALSO HEL D THAT ADVANCE WAS GIVEN FOR COMMERCIAL CONSIDERATION. HON'BLE SUPREME COURT IN THE CASE S.A. BUILDERS LTD R VS CIT 288 ITR 1 HELD THAT IN ORDER TO DECIDE WHETHER INTEREST ON FUNDS BORROWED BY THE ASSESSEE TO GIVEN BY THE ASSESSEE AS A MEASURE OF COMMERCIAL EXPEDIENCY. THE EXPRESSION 'COMMERCIAL EXPEDIENCY' IS ONE OF WI DE IMPORT ARID INCLUDES SUCH EXPENDITURES AS A PRUDENT BUSINESS MAN INCURS FOR THE PURPOSE OF BUSINESS. TH E EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LE GAL OBLIGATION, BUT, YET IT IS ALLOWABLE AS BUSINESS E XPENDITURE ITA NO. 1229/AHD/2010 A.Y NO. 2007-08 PAGE NO. DY COMMISSIONER OF INCOME-TAX VS. M/S INTERCONTINEN TAL (INDIA) 5 IF IT WAS INCURRED ON GROUND OF COMMERCIAL EXPEDIE NCY. SINCE SUBSTANTIAL LOAN WAS GIVEN IN EARLIER YEARS THEREFORE, LEARNED CIT(A) ON PROPER APPRECIATION OF FACTS RIGHTLY DELETED THE ADDITION. THOUGH LEARNED CIT(A) NOTED IN THE IMPUGNED ORDER THAT SUFFICIENT INTEREST FREE FUNDS ARE AVERTABLE WITH THE ASSESSEE FOR GIVING ADVANCE TO MS- BHANSALI ASSOCIATES, THE LEARNED CLT(A) SHOULD NOT HAVE REJECTED THE CLAIM OF THE ASSESSES BY FOLLOWING THE DECISION IN THE CASE OF ABHISHEK INDUSTRIES PVT. LT D. SUP WHICH IS NO LONGER A GOOD LAW IN VIEW OF THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF MUNJAL SAL ES CORPORATION 298 ITR 298. CONSIDERING THE ABOVE DISCUSSIONS, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF THE LEARNED C1T(A) IN DELETING THE ADDITION, IN THE RES ULT THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED ' SINCE THE FACTS ARE IDENTICAL IN THIS YEAR ALSO AND NO CHANGE INTO THE FACTS AND CIRCUMSTANCES HAS BEEN POINTED OUT BY LD. DR OF THE REVENUE AND IN THIS VIEW OF THE MATTER, RESPECT FULLY FOLLOWING THE DECISION OF HON'BLE CO-ORDJNATE BENCH OF ITAT AHMEDABAD IN ASSESSOR'S OWN CASE IN ITA NO. 2033, 6 00- 601/AHD/2009 (SUPRA), THIS GROUND OF REVENUE'S APPE AL IS DISMISSED. 5. SINCE THERE IS NO CHANGE IN THE FACTS AND CIRCUM STANCES IS POINTING OUT BY THE REVENUE, THE FACTS ARE IDENTICAL IN THIS YEA R ALSO AS WERE IN ITA NO. 612/AHD/2010, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION RENDERED IN 612/AHD/2010 GROUND NO. 1 TO 5 OF THE REVENUE ARE D ISMISSED. 6. GROUND NO. 6 IS AGAINST RESTORING THE ISSUE OF D ISALLOWANCE U/S 14A TO THE FILE OF THE ASSESSING OFFICER. LD. SR. D.R. SU BMITTED THAT LD. CIT(A) HAS NO POWER TO SET ASIDE IN PART OR FULL AND IS REQUIR ED TO ADJUDICATE THE ISSUE ON MERIT WHICH HE HAS NOT DONE. ON THE CONTRARY, LEAR NED COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF THE LD. CIT(A). WE FIND THAT THE ISSUE HAS BEEN DECIDED BY THE LD. CIT(A) IN PARA 4 OF HIS ORDER AS UNDER: ITA NO. 1229/AHD/2010 A.Y NO. 2007-08 PAGE NO. DY COMMISSIONER OF INCOME-TAX VS. M/S INTERCONTINEN TAL (INDIA) 6 4, AS REGARDS GROUND NO.2 REGARDING DISALLOWANCE O F INTEREST U/S. 14A OF RS. 10,81,544/-, THIS ISSUE IS ALSO COM MON IN A Y 2006-07 WHICH HAS BEEN ADJUDICATED BY ME AS UNDER : - '4.1 I HAVE CONSIDERED THE SUBMISSIONS. I AGREE WITH THE CONTENTION OF THE APPELLANT THAT THERE HAS TO B E POSITIVE FINDING BY THE ASSESSING OFFICER THAT SAME INTEREST BEARING FUNDS HAVE BEEN INVESTED IN CERTAIN SECURITIES, INC OME FROM WHICH IS EXEMPTED. BUT IT IS THE DUTY OF THE APPEL LANT TO PROVIDE NECESSARY DATA TO THE ASSESSING OFFICER. IT IS NO T SUFFICIENT TO SAY THAT THE APPELLANT HAS SUFFICIENT INTEREST FREE FUNDS TO INVEST IN SUCH INVESTMENTS. IT IS THE DUTY OF THE APPELL ANT TO PRODUCE NECESSARY DOCUMENTS SUCH AS BANK STATEMENT, BANK BO OK ETC TO PROVE THAT THE SOURCE OF INVESTMENT IS OUT OF NO N INTEREST BEARING FUNDS. IF IT IS FOUND THAT THE SOURCE OF I NVESTMENT IN SUCH SECURITIES / INVESTMENT IS OUT OF NON INTEREST BEARING FUNDS. THEN NO DISALLOWANCE U/S. 14A ON ACCOUNT OF INTERES T CAN BE MADE BY THE ASSESSING OFFICER. HOWEVER IF IT IS FO UND THAT THE APPELLANT HAS UTILIZED CERTAIN INTEREST BEARING FUN DS IN SUCH SECURITIES / INVESTMENT THEN, THE ASSESSING OFFICER IS CORRECT IN APPLYING RULE 8D AS HELD BY THE SPECIAL BENCH, IT A T IN DAGA CAPITAL FINANCE 119 TTJ 289 [SPL. BENCH MUMBAI). TH E ASSESSING IS OFFICER THEREFORE DIRECTED TO EXAMINE THE_SOURCE OF INVESTMENT IN THOSE SECURITIES/ INVESTMENT FROM WHOM THE APPELLANT HAS RECEIVED DIVIDEND INCOME OF RS. 13.31 LAC. THE APPELLANT WILL PRODUCE THE RELEVANT BONK BOOK / COP Y OF BANK ACCOUNT OF THE YEAR IN WHICH SUCH INVESTMENTS WERE MADE BY THE APPELLANT. IF THE APPELLANT HAS USED INTEREST BEARING FUNDS IN SUCH INVESTMENT THEN ONLY DISALLOWANCE U/S. I4A CAN BE MADE. IF HOWEVER, IT IS FOUND THAT ALL THE INTERES T FREE FUNDS WERE UTILIZED IN THE INVESTMENT/SECURITIES THEN THE DISALLOWANCE OF RS. 26,89,800/- WOULD BE DELETED. THE ASSESSING OFFICER WOULD ALSO TAKE INTO CONSIDERATION THE FACT THAT INVESTMENT OF RS. 19,73,00,000/- MADE IN 0% OPTIONALLY FULLY CONV ERTIBLE DEBENTURE FROM WHICH NO TAX FREE INCOME HAS BEEN SH OWN BY THE APPELLANT COULD NOT FORM PART OF THE INVESTMENT IN SECURITIES FOR THE PURPOSE OF DISALLOWANCE U/S. 14A. IN OTH ER WORDS, THE ASSESSING OFFICER WOULD FIRST ASCERTAIN WHETHER ANY INTEREST BEARING BORROWED FUNDS HAVE BEEN INVESTED IN THOSE SECURITIES FROM WHICH THE APPELLANT SHOWED DIVIDEND INCOME OF RS, ITA NO. 1229/AHD/2010 A.Y NO. 2007-08 PAGE NO. DY COMMISSIONER OF INCOME-TAX VS. M/S INTERCONTINEN TAL (INDIA) 7 13.3LACS. IF ANY BORROWED FUNDS ARE FOUND TO HAVE BEEN INVESTED, THEN ONLY HE WOULD WORKOUT THE DISALLOWAN CE OF INTEREST U/S, 14A IN VIEW OF RULE 8D OF THE I T RUL ES. IF NO INTEREST BEARING FUNDS ARE FOUND TO HAVE BEEN INVES TED THEREIN, THEN THE ASSESSING OFFICER SHOULD NOT MAKE ANY DISA LLOWANCE U/S. 14A. SUBJECT TO THIS DIRECTION, THIS GROUND IS DISPOSED OFF. 4.1 SINCE THE FACTS OF THE PRESENT CASE ARE IDENTIC AL TO THE FACTS OF A Y 2006-07, THE ASSESSING OFFICER IS DIRE CTED TO FOLLOW THE ABOVE MENTIONED DIRECTION IN THIS YEAR ALSO. 7. SINCE THE LD. CIT(A) HAD GIVEN DIRECTION TO EXAM INE THE SOURCE OF INVESTMENT IN THOSE SECURITIES/INVESTMENT FROM WHOM THE ASSESSEE HAS RECEIVED DIVIDEND INCOME. IT WAS FURTHER DIRECTED THAT THE ASSESSING OFFICER WOULD FIRST ASCERTAIN WHETHER ANY INTEREST BEARING BORROWED FUNDS WERE INVESTED IN THOSE SECURITIES FROM WHICH THE ASSESSE E HAD SHOWN DIVIDEND INCOME. IF ANY BORROWED FUNDS ARE FOUND TO HAVE BE EN INVESTED THEN ONLY HE WOULD WORK OUT THE DISALLOWANCE OF INTEREST U/S 14A IN VIEW OF RULE 8D OF IT RULE. IF NO INTEREST BEARING FUNDS ARE FOUND TO HAVE BEEN INVESTED THEREIN THE AO SHOULD NOT MAKE ANY DISALLOWANCE U/S 14A. SUBJECT TO THIS DIRECTION THE ISSUE WAS DISPOSED OF BY THE LD. CIT(A). THE CONTENTION OF THE REVENUE IS THAT THE LD. CIT(A) HAS IN FACT REMITTED BACK THE ISSUE TO THE FILE OF THE ASSESSING OFFICER UNDER THE GUISE OF DIRECTI ON. IT IS THE CONTENTION OF THE REVENUE THAT LD. CIT(A) HAS POWER TO REMAND THE MATTER TO THE FILE OF THE ASSESSING OFFICER. 8. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO AL L ASPECTS OF THE MATTER SINCE IN THE FORM OF DIRECTION OF LD. CIT(A) HAS RESTORED THE ISSUE OF DISALLOWANCE OF INTEREST EXPENDITURE U/S 14A TO THE FILE OF THE ASSESSING OFFICER SUCH ACT IS IN OUR CONSIDERED OPINION IS BE YOND THE POWER OF LD. CIT(A), THEREFORE, THE ORDER OF LD. CIT(A) IS HEREB Y SET ASIDE AND THIS ISSUE ITA NO. 1229/AHD/2010 A.Y NO. 2007-08 PAGE NO. DY COMMISSIONER OF INCOME-TAX VS. M/S INTERCONTINEN TAL (INDIA) 8 IS RESTORED BACK TO THE FILE OF CIT(A) TO DECIDE TH IS ISSUE AFRESH ON MERIT. NEEDLESS TO SAY THAT THE LD. CIT(A) WOULD AFFORD SU FFICIENT OPPORTUNITY TO THE CONCERNED PARTIES IN ACCORDANCE WITH LAW. THIS GROUND OF REVENUES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 9. NEXT GROUND IS AUGMENTATIVE AND NEEDS NO ADJUDIC ATION AND LAST GROUND IS PRAYER TO THIS TRIBUNAL WHICH HAS BEEN CO NSIDERED GROUND-WISE AND THIS GROUND IS DISPOSED OF ACCORDINGLY. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (A.K. GARODIA) (KUL BHARAT) ACCOUNTANT MEMBER JU DICIAL MEMBER AHMEDABAD : DATED 25 /10/2012 AK / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. / CONCERNED CIT 4. - / CIT (A)-III, BARODA 5. , ! , '# / DR, ITAT, AHMEDABAD 6. $% &' / GUARD FILE. BY ORDER/ , ( / ' ) ! , '#