Collar Pack Pvt.Ltd., Daman V. The ACIT.,Valsad Circle, Valsad

ITA 1405/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80330 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 22-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 16-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: BHAVESH SHAH
• Keywords: Capital asset; Business expenditure; Commercial expediency
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI ANI L CHATURVEDI, ACCOUNTANT MEMBER ITA NO.1405/AHD/2011 A.Y.2007-08 COLLAR PACK PVT. LTD. (NOW AVI GLOBAL PLAST PVT. LTD.) SURVEY NO.266/4, 5,6, 269/4, 268/1 COASTAL HIGHWAY, VILLAGE DUNETHA, DAMAN. PAN: AABCC 5843R VS THE ACIT, VALSAD, ASHISH BUILDING, 1 ST FLOOR, ROOM NO.1, NARANDAS PATEL MARG, BEHIND MADANWAD, VALSAD, GUJARAT. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI NIMESH YADAV, SR.D.R., ASSESSEE(S) BY : SHRI BHAVESH SHAH, AR / // / DATE OF HEARING : 22/08/2014 / DATE OF PRONOUNCEMENT: 05/09/2014 / O R D E R PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE ARISING FRO M AN ORDER OF LD. CIT(APPEALS), VALSAD, DATED 20/12/2010 FOR A.Y.2007 -08. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON REC ORD AS UNDER. 3. THE ASSESSEE IS A COMPANY STATED TO BE ENGAGED I N THE BUSINESS OF MANUFACTURE, EXPORT AND MARKETING OF PLASTIC MADE A CCESSORIES FOR GARMENTS, PVC TUBING, SHEETS AND OTHER RELATED PLAS TIC PRODUCTS. THE ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 2007-08 ON 24.09.2008 DECLARING INCOME OF RS.32,95,639/-. THE CASE WAS SELECTED ITA NO.1405/AHD/2011 COLLAR PACK P. LTD., VS. ACIT, VALSAD CIRCLE VALSAD FOR A.Y. 2007-08 - 2 - FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAM ED U/S.143(3) VIDE ORDER DATED 21.12.2009 AND THE TOTAL INCOME WAS DET ERMINED AT RS.46,22,750/-. AGGRIEVED BY THE ORDER OF AO, ASSES SEE CARRIED THE MATTER BEFORE LEARNED CIT(A). LEARNED CIT(A) VIDE O RDER DATED 20.12.2010 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF CIT(A), ASSESSEE IS NOW IN APPEA L BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS: 1. (A) THE LEARNED CIT (APPEALS) - VALSAD HAS DISALL OWED THE WHOLE AMOUNT OF INTEREST OF RS.764377/- PAID DURING THE YEAR ON UNSECURED LOANS AS BEING ATTRIBUTABLE TO INVESTMENT OF RS. 1 CRORE IN SBI ON E INDIA FUND MADE BY THE ASSESSEE COMPANY ON 28.12.2006 AS AGAINST THE ASSES SEE COMPANY'S CLAIM FOR THE WHOLE AMOUNT AS BUSINESS EXPENDITURE ARISING OU T OF COMMERCIAL AND BUSINESS EXPEDIENCY AS EXPLAINED TO THE LEARNED CIT (A). (B) THE INTEREST OF RS.764377/- WAS THE TOTAL AMO UNT OF INTEREST PAID ON UNSECURED LOANS FOR THE WHOLE YEAR AS THE UNSECURED LOANS WERE TAKEN PRIOR (EARLIER YEARS) TO THE INVESTMENT AND HAD THUS NO N EXUS OR INTERLACING OR CONNECTION WITH THE INVESTMENT OF RS. 1 CORE IN SBI ONE INDIA FUND MADE BY THE ASSESSEE COMPANY ON 28.12.2006 WHICH WAS TO BE MADE AS THE MERGED COMPANY ENJOYED CREDIT LIMITS FROM STATE BANK OF IN DIA. (C) ASSUMING BUT NOT ADMITTING, THE LEARNED CIT(A ) SHOULD HAVE ATLEAST CONSIDERED THE DEDUCTION OF INTEREST RELATING TO TH E PERIOD PRIOR TO THE INVESTMENT I.E. 01.04.06 TO 28.12.2006 AS A BUSINES S EXPENDITURE INSTEAD OF DISALLOWING THE WHOLE INTEREST ON ASSUMPTION BASIS. 2. THE APPELLANT THEREFORE PRAYS THAT INTEREST AMO UNT OF RS. 764377/- PAID ON UNSECURED LOANS SHOULD BE FULLY ALLOWED AS BUSINESS EXPENDITURE IN VIEW OF BUSINESS EXPEDIENCY/EXIGENCY. 6. BEFORE US LEARNED AR, AT THE OUTSET, SUBMITTED T HAT THOUGH THE ASSESSEE HAS RAISED THE VARIOUS GROUNDS BUT ONLY IS SUE IS ABOUT THE DISALLOWANCE OF INTEREST OF RS.7,64,377/-. 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON VERIFICATION OF THE BALANCE-SHEET, AO NOTICED THAT ASSESSEE HAD INV ESTED A SUM OF RS.1 ITA NO.1405/AHD/2011 COLLAR PACK P. LTD., VS. ACIT, VALSAD CIRCLE VALSAD FOR A.Y. 2007-08 - 3 - CRORE IN MUTUAL FUND. HE ALSO NOTICED THAT ASSESSEE HAD PAID INTEREST ON BORROWED FUNDS TO THE EXTENT OF RS.7,64,377/- AND I NTEREST TO THE CREDITORS FOR GOODS OF RS.5,62,731/-. THE ASSESSEE WAS THEREF ORE ASKED TO EXPLAIN THE COMMERCIAL EXPEDIENCY OF INVESTMENT AND EXPLAIN AS TO WHY THE INTEREST NOT BE DISALLOWED U/S.36(1)(III) OF THE AC T. IN RESPONSE, THE ASSESSEE INTER ALIA SUBMITTED THAT THE INVESTMENT MADE IN SBI MUTUAL FUND WAS TO AVAIL LOAN FROM SBI AND THE INVESTMENT WAS A PRECONDITION FOR THE SANCTION OF LOAN AND THEREFORE THE INVESTME NT WAS ON ACCOUNT OF BUSINESS/COMMERCIAL EXPEDIENCY. THE SUBMISSION OF T HE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO AS HE WAS OF THE VIEW TH AT THE INVESTMENT MADE BY THE ASSESSEE IN SBI MUTUAL FUND WAS FOR NON BUSINESS PURPOSES AND THEREFORE THE INTEREST COST OF THE FUND BORROWE D BY THE ASSESSEE CAN ONLY BE ALLOWED AS EXPENDITURE IF THE BORROWING IS GENUINELY FOR THE PURPOSE OF BUSINESS. IN THE CASE OF ASSESSEE, THERE WAS DIVERSION OF INTEREST BEARING FUND AND THEREFORE, ASSESSEE WAS L IABLE FOR A DISALLOWANCE OF INTEREST U/S.36(1)(III) OF THE ACT. HE ACCORDING LY CONSIDERED THE INVESTMENT IN SBI MUTUAL FUND AS FOR NON BUSINESS P URPOSES AND ACCORDINGLY THE INTEREST OF RS.13,27,108/- ON SUCH DIVERSION OF BORROWED FUND WAS DISALLOWED. 8. AGGRIEVED BY THE ORDER OF AO; ASSESSEE CARRIED T HE MATTER BEFORE LEARNED CIT(A). LEARNED CIT(A) GRANTED PARTIAL RELI EF TO THE ASSESSEE BY HOLDING AS UNDER: I HAVE CONSIDERED THE OBSERVATIONS OF THE AO IN TH E ASSESSMENT ORDER AS WELL AS THE CONTENTIONS RAISED BY THE AR OF THE APPELLAN T IN THE WRITTEN SUBMISSION. I FOUND THAT THE AO IS JUSTIFIED IN MAKING ADDITION IN RESPECT OF INTEREST ON SBI MUTUAL FUND, AS THE APPELLANT COULD NOT PROVE THE P RE-CONDITION THAT THERE WAS SUCH REQUIREMENT TO MAKE INVESTMENT FOR AVAILIN G LOANS FROM SBI TO THAT EXTENT AND FOR THE REASON THAT SINCE THE INCOME FRO M SUCH INVESTMENT IS NOT LIABLE TO TAX AND THEREFORE, NOT ELIGIBLE FOR DEDUC TION U/S. 14A R.W.S. 36(1)(III)OF THE ACT. THEREFORE, INTEREST ON BORROW ED FUNDS AMOUNTING TO RS. ITA NO.1405/AHD/2011 COLLAR PACK P. LTD., VS. ACIT, VALSAD CIRCLE VALSAD FOR A.Y. 2007-08 - 4 - 7,64,377/- IS RIGHTLY DISALLOWED BY THE AO. ON THE OTHER HAND, INTEREST IN RESPECT OF CREDIT PERIOD ALLOWED BY THE CREDITORS I S CONCERNED, THE AO'S FINDING IS NOT CORRECT, AS THESE EXPENSES ARE INCUR RED IN NORMAL COURSE OF BUSINESS. THEREFORE, THE INTEREST ON THIS ACCOUNT A MOUNTING TO RS.5,62,731/- IS TO BE ALLOWED. THUS, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 9. AGGRIEVED BY THE ORDER OF LEARNED CIT(A), THE AS SESSEE IS NOW IN APPEAL BEFORE US. BEFORE US, LEARNED AR SUBMITTED THAT NO BORROWED FU NDS HAVE BEEN UTILIZED FOR MAKING INVESTMENT. HE FURTHER SUBMITTE D THAT ASSESSEE HAD RECEIVED RS.1,75,00,000/- FROM VAKRANGEE ELECTRONIC S PVT. LTD. AS ADVANCE AGAINST THE SALE OF ASSET AND THE AFORESAID AMOUNT WAS INTEREST FREE AMOUNT AND IT WAS USED FOR MAKING THE INVESTME NT IN SBI MUTUAL FUND. HE POINTED TO SCHEDULE V OF CURRENT LIABILITI ES AT PAGE 41 OF THE PAPER BOOK AND POINTED TO THE AMOUNT SHOWN AGAINST THE ADVANCE AGAINST CAPITAL ASSET AT RS.1.75 CRORES. HE FURTHER SUBMITT ED THE CASH FLOW STATEMENT AND FROM IT HE TRIED TO DEMONSTRATE THAT THE AMOUNT INVESTED IN MUTUAL FUND WAS FROM FREE FUND RECEIVED FROM VAKRAN GEE ELECTRONICS PVT. LTD. LEARNED AR, THEREFORE, SUBMITTED THAT SIN CE NO BORROWED FUNDS HAVE BEEN USED FOR MAKING INVESTMENT AND SINCE THE ASSESSEE HAS ESTABLISHED THE NEXUS OF INTEREST FREE FUNDS WITH T HE INVESTMENT NO DISALLOWANCE OF INTEREST WAS CALLED FOR. 11. LEARNED DR, ON THE OTHER HAND, SUBMITTED THAT B EFORE AO ASSESSEE COULD NOT PRODUCE ANY MATERIAL ON RECORD TO DEMONST RATE THAT THE INVESTMENT WAS A PRECONDITION FOR SANCTION OF TERM LOAN FROM SBI. HE THEREFORE SUBMITTED THAT THE AO RIGHTLY DISALLOWED THE INTEREST. HE FURTHER SUBMITTED THE STAND OF ASSESSEE BEFORE TRIBUNAL THA T THE AMOUNT OF INVESTMENT IS OUT OF THE INTEREST FREE FUNDS RECEIV ED AS CAPITAL ADVANCE ITA NO.1405/AHD/2011 COLLAR PACK P. LTD., VS. ACIT, VALSAD CIRCLE VALSAD FOR A.Y. 2007-08 - 5 - AGAINST SALE OF ASSETS WAS NOT TAKEN EITHER BEFORE AO OR LEARNED CIT(A) AND THEREFORE BOTH THE AUTHORITIES DID NOT HAVE ANY OCCASION TO EXAMINE THE AFORESAID FACTUAL ASPECT. HE THEREFORE SUBMITTE D THAT MATTER BE REMITTED TO THE FILE OF AO TO EXAMINE THE CONTENTIO N OF THE ASSESSEE THAT THE INVESTMENT HAVE BEEN MADE OUT OF INTEREST FREE FUNDS. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAD MADE AN INVESTMENT OF RS.1 CRORE IN SBI INDIA FUND. BEFORE US, IT IS T HE SUBMISSION OF THE ASSESSEE THAT THE AMOUNT OF RS.1.75 CRORE WHICH WAS RECEIVED FROM VAKRANGEE ELECTRONICS PVT. LTD. BEING THE ADVANCE M ONEY AGAINST SALE OF ASSETS WHICH WAS INTEREST FREE IN NATURE WAS UTILIZ ED FOR MAKING THE INVESTMENT AND FOR WHICH THE ASSESSEE HAS ALSO SUBM ITTED THE CASH FLOW STATEMENT. WE FIND THAT THE AFORESAID SUBMISSION WA S NEITHER MADE BY THE ASSESSEE BEFORE AO OR LEARNED CIT(A) AND FURTHER TH E CASH FLOW STATEMENT WAS ALSO NOT BEFORE THEM FOR THEIR VERIFI CATION. WE ARE THEREFORE OF THE VIEW THAT IN THE PRESENT CASE, THE CONTENTION OF THE ASSESSEE NEEDS FACTUAL EXAMINATION. WE THEREFORE RE MIT THE ISSUE TO THE FILE OF LEARNED CIT(A) FOR EXAMINING THE CONTENTION OF THE ASSESSEE AND MORE SO ABOUT THE UTILIZATION OF INTEREST FREE FUND S FOR MAKING THE INVESTMENT AND THEREAFTER DECIDE THE ISSUE IN ACCOR DANCE WITH LAW. WE ALSO DIRECT THE ASSESSEE TO SUO MOTU APPEAR BEFORE LEARNED CIT(A) WITHIN 30 DAYS OF THE ORDER AND FURNISH ALL THE DETAILS RE QUIRED BY HIM FOR DECIDING THE ISSUE. NEEDLESS TO STATE THAT LEARNED CIT(A) SHALL GRANT ADEQUATE OPPORTUNITY OF HEARING TO BOTH THE PARTIES . RESULTANTLY, THIS GROUND OF THE ASSESSEE IS ALLOWED OF STATISTICAL PU RPOSE. ITA NO.1405/AHD/2011 COLLAR PACK P. LTD., VS. ACIT, VALSAD CIRCLE VALSAD FOR A.Y. 2007-08 - 6 - 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES ONLY. SD/- SD/- (G.C. GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD; DATED 05/09/2014 PRABHAT KR. KESARWANI, SR. P.S. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT. 3. #$#% ' '& / CONCERNED CIT 4. ' '&() / THE CIT(A)-III, AHMEDABAD 5. )*' %, ' ' % , ,-$ / DR, ITAT, AHMEDABAD 6. *./ 0 / GUARD FILE. / BY ORDER, 1 11 1/ // /,' #2 ,' #2 ,' #2 ,' #2 ( DY./ASSTT.REGISTRAR) ' ' % ' ' % ' ' % ' ' % , , , , ,-$ ,-$ ,-$ ,-$ / ITAT, AHMEDABAD