DCIT, Madurai V. Modern Cotton Yarn Spinners Ltd., Madurai

ITA 1362/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8833 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 17-05-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: R VIJAYARAGHAVAN

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI . . . , ! . '#'$ , % !& ' [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./ I.T.A.NO.1362/MDS/2016 / ASSESSMENT YEAR : 2012-13 THE DY. COMMISSIONER OF INCOME TAX CORPORATE CIRCLE 2 MADURAI VS. M/S MODERN COTTON YARN SPINNERS L TD REG. OFFICE : NO.3, MADURAI MELAKKAL ROAD, MADURAI 625016 [PAN AAECM 5782 G ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : SHRI A.V. SREEKANTH, JCIT /RESPONDENT BY : SHRI R. VIJAYA RAGHAVAN, ADVOCATE / DATE OF HEARING : 0 4 - 8 - 2016 ! / DATE OF PRONOUNCEMENT : 10 - 0 8 - 2016 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-1, MADURA I, DATED 9.2.2016 FOR ASSESSMENT YEAR 2012-13. 2. THE GRIEVANCE OF THE REVENUE IS THAT THE CIT(A) DEL ETED ADDITION OF ` 79,35,274/- MADE FOR INTEREST PAYMENT BY THE ASSE SSEE TO ITS PRINCIPAL, M/S J.K FENNER(INDIA) LTD. ITA NO.1362/16 :- 2 -: 3. FACTS APROPOS ARE THAT THE ASSESSEE, ENGAGED IN TH E BUSINESS OF MANUFACTURE AND SALE OF COTTON YARN, PO LYESTER YARN AND FABRICS, FILED ITS RETURN DECLARING NIL INCOME. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE ASSESSI NG OFFICER THAT ASSESSEE HAD RECEIVED AN ADVANCE OF `17 CRORES FROM ITS PRINCIPAL, M/S J.K. FENNER (INDIA) LTD. ASSESSEE HAD PAID INTE REST OF ` 79,35,274/- ON THE ABOVE ADVANCE. A QUESTION WAS RAISED BY THE ASSESSING OFFICER WHY SUCH INTEREST WAS PAID ON ADVANCE RECEIVED AND WHETHER ASSESSEE HAD RECEIVED ANY INTEREST ON ADVANCE GIVEN BY IT TO ANY OTHER PARTY, THE REPLY OF THE ASSESSEE WAS THAT INTEREST PAID TO THE HOLDING COMPANY WAS AS AGREED WITH THEM AND IT COULD NOT BE CONNECTED TO THE ADVANCES GIVEN BY THE ASSESSEE TO OTHER PARTIE S. ASSESSING OFFICER WAS OF THE OPINION THAT ASSESSEE COULD NOT SATISFY THAT THE PAYMENT OF INTEREST WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE CLAIM OF INTEREST WAS DISALLOWED. 4. AGGRIEVED, THE ASSESSEE MOVED IN APPEAL BEFORE THE CIT(A). ARGUMENT OF THE ASSESSEE BEFORE THE CIT(A) WAS THA T IT WAS SELLING INDUSTRIAL FABRIC TO THE HOLDING COMPANY. AS PER T HE ASSESSEE, IT WAS NECESSARY TO MAINTAIN CONSISTENT QUALITY FOR SUCH I NDUSTRIAL FABRIC. IT BECAME NECESSARY TO PROCURE MORE COTTON AND THEREFO RE, THE ASSESSEE SOUGHT AN ADVANCE OF ` 17 CRORES FROM ITS HOLDING COMPANY. ITA NO.1362/16 :- 3 -: ASSESSEE ALSO POINTED OUT THAT THE HOLDING COMPANY HAD SENT A LETTER DATED 16.8.2011 AGREEING TO PROVIDE THE ADVANCE OF ` 17 CRORES ON THE CONDITION THAT THE ASSESSEE WAS TO PAY INTEREST @ 11.75% THEREOF. THE CIT(A) WAS APPRECIATIVE OF THESE CONTENTIONS. ACCORDING TO HIM, THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH IT S HOLDING COMPANY COULD NOT BE CONSIDERED AS A COLOURABLE DEVICE. AS PER THE CIT(A), ASSESSEE DECIDED TO PROCURE COTTON FOR CONSUMPTION AND REQUIRED ONLY FOR IT. HENCE, TAKING ADVANCE FROM ITS HOLDING COMP ANY FOR PROCURING COTTON IN SUFFICIENT QUANTITIES WOULD BE IN THE INT EREST OF BUSINESS OF THE ASSESSEE. HE HELD THAT IT IS PURELY A COMMER CIAL TRANSACTION AND DISALLOWANCE OF INTEREST WAS NOT WARRANTED. HE DEL ETED THE ADDITION. 5. NOW BEFORE US, STRONGLY ASSAILING THE ORDER OF THE CIT(A), LD.DR SUBMITTED THAT THE PRINCIPAL OR HOLDING COMPA NY HAD NOTHING TO DO WITH THE COTTON BUSINESS. ACCORDING TO HIM, INT EREST BEARING ADVANCE RECEIVED BY THE ASSESSEE FROM ITS HOLDING COMPANY DID NOT HAVE ANY BUSINESS PURPOSE. 6. PER CONTRA, THE LD. AR SUBMITTED THAT THE ASSESSEE HAD SOLD GOODS WORTH ` 11.47 CRORES TO THE HOLDING COMPANY DURING THE RELEVANT PREVIOUS YEAR HENCE, IT COULD NOT BE SAID THAT ASSESSEE HAD NO DEALINGS WITH THE HOLDING COMPANY. AS PER THE LD . AR, INTEREST GIVEN WAS @ 11.75% AND WORKING CAPITAL LOAN, IF RAISED BY THE ASSESSEE ITA NO.1362/16 :- 4 -: FROM THE BANK WOULD HAVE COST MUCH MORE. THE LD. A R FURTHER SUBMITTED THAT WORKING CAPITAL LOAN CAME DOWN SUBST ANTIALLY DUE TO THE ADVANCE RECEIVED FROM THE HOLDING COMPANY. THU S, ACCORDING TO THE LD. AR, THE DISALLOWANCE WAS RIGHTLY DELETED BY THE CIT(A). 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. A LOOK AT THE NOT ES TO THE FINANCIAL STATEMENT FILED BY THE ASSESSEE SHOWS THAT THE AS SESSEE HAD SOLD GOODS WORTH ` 11.74 CORES TO ITS PRINCIPAL, VIZ. M/S J.K. FENNER (INDIA) LTD. THERE IS NO CASE FOR THE REVENUE THAT THE MON EY RECEIVED BY THE ASSESSEE AS ADVANCE FROM THE HOLDING COMPANY WAS UT ILIZED FOR ANYTHING OTHER THAN ITS BUSINESS PURPOSE. ONCE THE ASSESSEE HAD RECEIVED MONEY AS ADVANCE FROM ITS PRINCIPAL AND HA D USED IT FOR THE PURPOSE OF ITS BUSINESS, PAYMENT OF INTEREST ON SUC H ADVANCE COULD NOT BE CONSIDERED AS NON-BUSINESS PURPOSE. NOTHING HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO SHOW THAT THE MONEY TAKEN AS ADVANCE FROM THE PRINCIPAL WAS USED ELSEWHERE BY THE ASSESSEE. THE RATE OF INTEREST PAID BY THE ASSESSEE WAS ONLY 11.75% WHER EAS THE CANARA BANK THROUGH ITS LOAN SANCTION LETTER DATED 20.1.20 11 HAD CHARGED INTEREST @ 13%. THUS, WE CANNOT SAY THAT THE INTER EST PAID BY THE ASSESSEE TO THE HOLDING COMPANY WAS EXCESSIVE IN NA TURE. WE FIND THAT THE CIT(A) WAS JUSTIFIED IN DELETING THE DISAL LOWANCE MADE BY THE ITA NO.1362/16 :- 5 -: ASSESSING OFFICER. WE DO NOT FIND ANY REASON TO IN TERFERE WITH THE ORDER OF THE CIT(A). 8. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH AUGUST, 2016, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! . '#'$ ) (ABRAHAM P. GEORGE) % / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 10 TH AUGUST, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF