Micro Age Instruments P. Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 1263/PUN/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1905 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 11-06-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIPUL WAGHMARE
• Keywords: Opportunity of being heard; Additional evidence

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , ! , # $ BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.1263/PN/2014 #& & / ASSESSMENT YEAR : 2008-09 MICRO AGE INSTRUMENTS PVT. LTD., D-1, PLOT NO.18/2, CHINCHWAD, PUNE. PAN NO.AABCM1787E . / APPELLANT V/S DCIT, CIRCLE-9, PUNE . / RESPONDENT / ASSESSEE BY : SHRI C.H. NANIWADEKAR / REVENUE BY : SHRI VIPUL WAGHMARE / ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 14-03-2014 OF THE CIT(A)-V, PUNE RELATING TO ASSESSMENT YEAR 2008-09. 2. DISALLOWANCE OF INTEREST OF RS.70,19,178/- BY THE AO AND UPHELD BY THE CIT(A) IS THE ONLY ISSUE RAISED BY THE ASSE SSEE IN THE GROUNDS OF APPEAL. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF / DATE OF HEARING :03.05.2016 / DATE OF PRONOUNCEMENT:03.05.2016 2 ITA NO.1263/PN/2014 AUTOMOBILES AND ENGINEERING COMPONENTS. IT FILED ITS RETURN OF INCOME ON 26-09-2008 DECLARING LOSS OF RS.6,39,898/- WHICH WAS SUBSEQUENTLY REVISED ON 01-01-2010 DECLARING TOTAL INCOM E OF RS.1,47,55,954/-. DURING THE COURSE OF ASSESSMENT PROCEED INGS THE AO NOTED THAT THE ASSESSEE HAS SHOWN INTEREST EX PENSES OF RS.73,45,326/- WHICH INCLUDES INTEREST OF RS.70,19,178/- PAID ON ICD OF RS.5 CRORES TAKEN FROM ITS SISTER CONCERN, M/S. JAYA HIND SCIAKY. HOWEVER, THE AO ON PERUSAL OF THE DETAILS OF UNSE CURED LOANS ACCEPTED BY THE COMPANY DURING THE YEAR NOTICED THAT THE ASSESSEE COMPANY HAS RECEIVED UNSECURED LOAN FROM ITS D IRECTORS AND THEIR RELATIVES AND HAS NOT PAID ANY INTEREST ON TH ESE UNSECURED LOAN OF RS.128,81,01,051/-. THUS, ACCORDING TO THE AO THE ASSESSEE COMPANY HAD AT ITS DISPOSAL INTEREST FREE FU NDS OF RS.128,84,01,051/- AND THEREFORE, THERE WAS ABSOLUTELY NO REASON TO BORROW FUNDS WHATSOEVER FOR THE PURPOSE OF BUSINESS OR FOR ANY OTHER REASONS TO THE EXTENT OF THIS INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE INTEREST EXPENSES OF RS.70,19,178/- PAID TO M/ S. JAYA HIND SCIAKY LTD. SHOULD NOT BE DISALLOWED AS THE SAID ICD WAS NOT USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 4. IT WAS SUBMITTED BY THE ASSESSEE THAT IT HAS SHOWN INTEREST INCOME OF RS.2,23,96,515/- FOR INTEREST EARNED FROM M/S. KINET IC ENGINEERING LTD. TO WHOM AN ICD OF ABOUT RS.30 CRORES WA S GIVEN DURING THE YEAR. IT WAS ACCORDINGLY ARGUED THAT THE IN TEREST EXPENSES OF RS.70,19,178/- SHOULD BE ALLOWED. 5. HOWEVER, THE AO DID NOT ACCEPT THE ABOVE CONTENTION OF THE ASSESSEE ON ACCOUNT OF THE FOLLOWING : 3 ITA NO.1263/PN/2014 1. ASSESSEE HAD MORE THAN ENOUGH INTEREST FREE FUNDS, I .E. RS.1,28,84,01,051/- CRORES AT IT DISPOSAL WHEREAS THE I .C.D. GIVEN TO M/S. KINETIC ENGINEERING LTD. WAS AMOUNTING TO ABOUT RS.30 CRORES ONLY. 2. THE NEXUS OF INTEREST INCOME WITH INTEREST EXPENSE C OULD NOT BE ESTABLISHED BY THE ASSESSEE. HENCE THE SAID INTEREST EX PENSE IS DISALLOWABLE U/S.57 OF THE I.T. ACT. 3. AS PER ASSESSEES OWN ADMISSION, THE SAID I.C.D. FROM M/S . JAYA HIND SCIAKY LTD. WAS NOT USED FOR THE PURPOSE OF ASSESSEE S REGULAR BUSINESS. THE AO ACCORDINGLY DISALLOWED THE INTEREST EXPENSES OF RS.70,19,178/-. 6. IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF THE AO BY OBSERVING AS UNDER : 8. THE APPELLANT ALSO FILED COPY OF CURRENT A/C. WHEREIN IT WAS SHOWN THAT RS. 5 CRORES WAS RECEIVED ON, 23.03.2007 WH ICH WAS PAID TO KINETIC ENGINEERING LTD. ON 26.03.2007. THE APPE LLANT SUBMITTED THAT THIS SHOULD BE ADMITTED AS ADDITIONAL EVIDENCE. T HE ADDITIONAL EVIDENCE FILED BY THE APPELLANT WAS FORWARDED TO THE ASSESSING OFFICER VIDE THIS OFFICE LETTER 12.04.2012. SUBSEQUEN TLY, REMINDER IN THIS REGARD WAS ISSUED ON 28.09.2013. HOWEVER, NO REPLY HAS BEEN RECEIVED FROM THE OFFICE OF THE ASSESSING OFFICER IN TH IS REGARD. IN VIEW OF THE ABOVE POSITION, IT IS HELD THAT THE ASSESSING OFFICER HAS NOTHING TO OFFER IN THIS REGARD. COMING TO THE ISSUE O F ADMISSIBILITY OF THE ADDITIONAL EVIDENCE, IT IS SEEN THAT THE APPELLAN T HAS NOT MADE ANY PRAYER FOR THE ADMISSION OF THE SAME, STATING THE REASON S AS TO WHY THE SAME COULD NOT BE PRODUCED BEFORE THE ASSESSING OFF ICER AS COPY OF CURRENT A/C WAS VERY MUCH AVAILABLE WITH THE APPE LLANT WHILE ASSESSMENT PROCEEDINGS WERE FINALIZED AND THE AR OF THE APPELLANT WAS CONFRONTED ON THIS ISSUE. HON'BLE MUMBAI TRIBUNAL I N THE CASE OF SAGAR SARHADI VS. ITO, HON'BLE MUMBAI TRIBUNAL REPOR TED IN 148 TTJ PAGE 86 HAS HELD THAT ASSESSEE, THOUGH IN POSSESSION OF T HE DOCUMENTS HAVING NOT PRODUCED THE SAME BEFORE THE ASSES SING OFFICER WHILE REPLYING TO THE RELEVANT QUERY MADE B Y THE ASSESSING OFFICER IS NOT ENTITLED TO PRODUCE THE SAME IN APPEA L BEFORE THE CIT(A)'. IN THIS CASE, IT IS SEEN THAT THE APPELLANT WA S HAVING THE DETAILS REGARDING THE CURRENT A/C AND EVEN THOUGH IN POSSESSION OF THE SAME, IT COULD NOT BE PRODUCE BEFORE THE ASSESSING O FFICER WHEN THE ISSUE WAS CONFRONTED. THIS BEING SO, ADDITIONAL EVID ENCE FILED BY WAY OF COPY OF CURRENT A/C IS HELD TO BE NOT ADMISSIBL E UNDER RULE 46A OF INCOME-TAX RULES. 9. COMING TO THE ISSUE OF MERIT, IT IS SEEN THAT THE AP PELLANT'S AR HIMSELF HAS ACCEPTED THAT INTER-CORPORATE DEPOSITS TAKE N FROM M/S. JAYA HIND SCIAKY LTD WAS NOT USED FOR THE PURPOSE OF B USINESS. FROM THE REPLY OF THE APPELLANT TOO, IT IS CLEAR THAT TH E APPELLANT HAS NOT BEEN ABLE TO SUBSTANTIATE THAT THE SAME WAS USED FOR THE PURPOSE OF BUSINESS. AS FAR AS THE ADMISSIBILITY OF THE INTEREST AMOUN TING TO 4 ITA NO.1263/PN/2014 RS.70,19,178/- PAID ON ACCOUNT INTER-CORPORATE DEPOSI T OF M/S. JAYA HIND SCIAKY LTD IS CONCERNED, IT IS SEEN THAT THE SAME HAS BEEN PAID TO KINETIC ENGINEERING LTD. NOT FOR THE PURPOSE OF INVE STMENT, AS THE TOTAL INVESTMENT HAS ACTUALLY DECLINED. IT IS SEEN FRO M THE BALANCE SHEET THAT AS ON 31.03.2007 INTER-CORPORATE DEPOSIT T O KINETIC ENGINEERING LTD., WAS RS. 16,19,18,434/- WHICH HAS BEE N REDUCED TO RS.7,42,98,565/-. THIS BEING SO, PAYMENT OF RS. 5 CRORE S RECEIVED FROM M/S. JAYA HIND SCIAKY LTD IS MERELY A TEMPORARY TRANSACTION AND NOT FOR INVESTMENT PURPOSE. THIS BEING SO, THE SAME CANNOT BE ALLOWED U/S. 57 OF INCOME-TAX ACT TOO AS THERE IS NO NEXUS BETWEEN INTEREST EARNED AND INTEREST EXPENDITURE. ACCORDINGLY , I DO NOT FIND ANY MERIT IN THE SUBMISSIONS OF THE APPELLANT AND THE A CTION OF THE ASSESSING OFFICER IN DISALLOWING RS. 70,19,178/- IS UPHELD . THUS, THE GROUND IS DISMISSED. 7. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 8. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET REFER RED TO THE BANK ACCOUNT OF THE ASSESSEE COMPANY, COPY OF WHICH IS PLACED AT PAGES 1 AND 2 OF THE PAPER BOOK. REFERRING TO PAGE 2 OF THE PAPER BOOK HE SUBMITTED THAT THE ASSESSEE HAS OB TAINED A LOAN OF RS.5 CRORES ON 23-03-2007 WHICH WAS ADVANCED TO M/S. KINETIC ENGINEERING LTD. ON 26-03-2007. HE SUBMITTED THAT ALTHOUGH THE NEXUS OF LOAN OBTAINED AND LOAN GIVEN WAS SUBMITTED BEFORE THE CIT(A), HOWEVER, HE REJECTED THE SAME ON THE GROUND THAT THIS IS AN ADDITIONAL EVIDENCE. HE SUBMITTED THAT THE RE IS A DIRECT NEXUS BETWEEN THE LOAN OBTAINED AND THE LOAN GIVE N. FURTHER, IT WAS SUBMITTED BEFORE THE AO THAT ASSESSEE H AS RECEIVED INTEREST INCOME OF RS.2,23,96,515/- FROM M/S. KINETIC ENGINEERING LTD. TO WHOM ICD OF ABOUT RS.30 CRORES WAS G IVEN AND THE ASSESSEE HAS INCURRED INTEREST EXPENDITURE OF RS.70,19,178/- ON LOAN OBTAINED. THEREFORE, THE NEXUS WAS PROVED. HE ACCORDINGLY SUBMITTED THAT THE DISALLOWANCE IS UNCALLED FOR. 5 ITA NO.1263/PN/2014 9. IN HIS ALTERNATE CONTENTION HE SUBMITTED THAT THE MA TTER MAY BE SET ASIDE TO THE FILE OF THE AO WITH A DIRECTION TO GIVE ANOTHER OPPORTUNITY TO THE ASSESSEE TO EXPLAIN THE NEX US OF INTEREST INCOME WITH THE INTEREST EXPENDITURE. 10. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED TH AT DESPITE OPPORTUNITIES GIVEN DURING THE ASSESSMENT PROCEE DINGS AND APPEAL PROCEEDINGS THE ASSESSEE WAS UNABLE TO EXPLA IN THE NEXUS OF INTEREST INCOME AND INTEREST EXPENDITURE. THERE FORE, THE ORDER OF THE CIT(A) BEING A REASONED ONE SHOULD BE UPHELD. 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PA PER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND THE AO DISALLOWED THE INTEREST EXPENDITURE OF RS.70,19,178/- ON THE GROUND THAT THE ASSESSEE HAD MORE THAN ENOUGH INTEREST FREE FUNDS, I.E. TO THE TUNE OF RS.128.84 CRORES AT ITS DISPOSAL WHEREAS THE ICD GIVEN TO M/S. KINETIC ENGINEERING WAS AMOUNTING TO RS.30 CRORES ONL Y. THE ASSESSEE HAS NOT USED THE ICD FROM M/S. JAYA HIND S CIAKY LTD. FOR THE PURPOSE OF ITS OWN BUSINESS AND THE ASSESSE E COULD NOT ESTABLISH THE NEXUS OF INTEREST INCOME WITH THAT OF TH E INTEREST EXPENDITURE. WE FIND THE CIT(A) REJECTING THE ADDITIONAL EVID ENCE FILED BEFORE HIM UPHELD THE ACTION OF THE AO. THE REASONS GIVEN BY CIT(A) HAVE ALREADY BEEN REPRODUCED IN THE PRECEDING PARAGRAPHS. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE T HAT THERE IS A CLEAR NEXUS BETWEEN THE ICD TAKEN FROM M/S. JAYA HIN D SCIAKY LTD. AND GIVEN TO M/S. KINETIC ENGINEERING LTD. WHICH IS ROUTED THROUGH AND REFLECTED IN THE BANK ACCOUNT. ALTH OUGH SUCH EVIDENCE WAS FILED DURING THE COURSE OF HEARING BEFOR E CIT(A) 6 ITA NO.1263/PN/2014 HE HAS NOT ADMITTED THE SAME ON THE GROUND THAT THER E WAS NO PRAYER FOR ADMISSION OF THE ADDITIONAL EVIDENCE AND THERE IS NO JUSTIFIABLE REASON AS TO WHY THE SAME WAS NOT FILED DURING THE ASSESSMENT PROCEEDINGS. ALTHOUGH THE ASSESSEE HAS EXP LAINED THAT THERE IS DIRECT NEXUS BETWEEN THE ICD TAKEN FROM M/S. JAYA HIND SCIAKY AND GIVEN TO M/S. KINETIC ENGINEERING LTD., HOWE VER, IT IS A FACT THAT SUCH NEXUS WAS NOT EXPLAINED PROPERLY BEFORE THE AO AND THE CIT(A) HAS NOT ACCEPTED THE ADDITIONAL EVIDENC E FILED BEFORE HIM AS MENTIONED EARLIER. UNDER THESE CIRCUMSTANC ES, WE DEEM IT PROPER TO RESTORE THE MATTER TO THE FILE OF THE AO WITH A DIRECTION TO GIVE ONE MORE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE WITH EVIDENCE TO HIS SATISFACTION REGARDING TH E NEXUS OF SUCH ICDS TAKEN AND LOAN GIVEN AND THE NEXUS OF INTER EST INCOME AND THE INTEREST EXPENDITURE. THE AO SHALL DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. GROUND RAISED BY THE ASSESSEE IS ACCORDIN GLY ALLOWED FOR STATISTICAL PURPOSES. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEA RING ITSELF, I.E. ON 03-05-2016. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE ; DATED : 3RD MAY, 2016. 7 ITA NO.1263/PN/2014 ) *#,! -! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A) - V, PUNE 4. 5. 6. THE CIT-V, PUNE $ ''(, (, / DR, ITAT, B PUNE; - / GUARD FILE. / BY ORDER , // TRUE COPY // // TRUE COPY // // $ ' //TRUE /0 ' ( / SR. PRIVATE SECRETARY (, / ITAT, PUNE