ACIT, New Delhi V. M/s. Exotique Exports, New Delhi

ITA 1409/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3602 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 01-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Section: 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B NEW DELHI) BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI K.G. BANSAL, ACCOUNTANT MEMBER I.T.A. NO.1409/DEL/2010 ASSESSMENT YEAR : 2004-05 ACIT, ACIT, ACIT, ACIT, VS. VS. VS. VS. M/S EXOTIQUE EXPORTS, M/S EXOTIQUE EXPORTS, M/S EXOTIQUE EXPORTS, M/S EXOTIQUE EXPORTS, CIRCLE CIRCLE CIRCLE CIRCLE- -- -22(1), 22(1), 22(1), 22(1), Z ZZ Z- -- -45, OKHLA INDL. AREA, 45, OKHLA INDL. AREA, 45, OKHLA INDL. AREA, 45, OKHLA INDL. AREA, NEW DELHI NEW DELHI NEW DELHI NEW DELHI PHASE PHASE PHASE PHASE- -- -II, NEW DELHI II, NEW DELHI II, NEW DELHI II, NEW DELHI PAN NO.AAFPR 0049 K (APPELLANT) (RESPONDENT) APPELLANT BY : MS. Y. KAKKAR, SR. DR RESPONDENT BY : SHRI R.S. SINGHVI, CA ORDER PER RAJPAL YADAV:JM: THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDE R OF CIT(A) DATED 13.01.2010 PASSED FOR ASSESSMENT YEAR 2004- 05. THE SOLITARY SUBSTANTIAL GRIEVANCE OF THE REVE NUE IS THAT LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWAN CE OF `32,05,767/-, WHICH WAS DISALLOWED U/S 14A OF THE I NCOME- TAX ACT, 1961 BY THE ASSESSING OFFICER. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF GARMEN TS. IT HAS FILED ITS INCOME-TAX RETURN ON 26.10.2004 DECLA RING A LOSS OF `4,87,05,475/-. THE CASE OF THE ASSESSEE W AS SELECTED FOR SCRUTINY ASSESSMENT AND A NOTICE U/S 1 43(2) AND 2 142(1) WERE ISSUED AND SERVED UPON THE ASSESSEE. O N SCRUTINY OF THE ACCOUNTS IT REVEALED TO THE ASSESSI NG OFFICER THAT ASSESSEE HAD MADE FRESH INVESTMENT IN MUTUAL F UNDS. THE NET INVESTMENT IN MUTUAL FUND AS ON 31.03.2004 WERE `12,66,29,523/-. HE ALSO FOUND THAT ASSESSEE HAD M ADE ADVANCES TO SISTER CONCERN WITHOUT CHARGING INTERES T. THE DETAILS OF SUCH ADVANCES HAVE BEEN NOTICED AT PAGE 2 OF THE ASSESSMENT ORDER WHICH READ AS UNDER:- M/S MANJULA EXPORTS (P) LTD. ` 21,49,042/- M/S R.R. ENTERPRISES ` 1,87,26,185/- M/S ROHIT ENTERPRISES `2,55,57,036/- 3. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HAD PAID INTEREST OF `32,05,767/-. HE OBSERVED THAT IF THE ASSESSEE HAD NOT ADVANCED THE MONEY TO THE SISTER C ONCERN AND MADE INVESTMENT IN MUTUAL FUNDS, THEN FOR THE P URPOSE OF BUSINESS IT WOULD NOT REQUIRE TO RAISE LOAN FROM THE BANKS AND INCUR INTEREST EXPENSES. HE DISALLOWED THE TOT AL INTEREST EXPENSES CLAIMED BY THE ASSESSEE. ON APPEAL, LEARN ED CIT(A) DELETED THE DISALLOWANCE. THE FINDINGS RECO RDED BY THE LEARNED CIT(A) IN THIS CONNECTION IS WORTH TO N OTE WHICH READ AS UNDER:- 10) NOW, WE SHALL ANALYSE WHETHER THE PROVISIONS OF SECTION 36(1)(III) CAN BE INVOKED IN THE ASSESSEES CASE. THE LEARNED ASSESSING OFFICER, IN THE IMPUGNED ORDER, WAS OF THE OPINION THAT IF THE ASSESSEE HAD NOT MADE INVESTMENTS IN MUTUAL FUNDS UNITS AND GIVEN INTEREST FREE ADVANCES TO THE 3 SISTER CONCERNS, IT WOULD NOT HAVE HAD THE NECESSITY TO BORROW FUNDS AND PAY INTEREST THEREON. THE IMPORTANT ISSUE HEREIN IS WHETHER /THE ASSESSEE HAD SURPLUS CASH, OVER AND ABOVE THE LOAN TAKEN FOR INVESTMENTS IN MUTUAL FUNDS UNITS AND INTEREST FREE ADVANCES TO THE SISTER CONCERNS. ANALYSING THE SUBMISSIONS MADE BY THE ASSESSEE, IT IS CRYSTAL CLEAR THAT THERE WERE ENOUG H FUNDS WITH THE ASSESSEE AND EVEN AFTER MAKING THE SAID INVESTMENTS AND PROVIDING INTEREST FREE ADVANCES, IT HAD A SURPLUS CASH OF `6,75,49,238/-. ONCE IT IS CLEAR THAT THE ASSESSEE HAD SURPLUS CASH, ANY DISALLOWANCE UNDER SECTION 36(1)(III) CANNOT BE MADE, NOTWITHSTANDING THE FACT THAT IN THE QUESTIONNAIRES DATED 24.07.2006 AND 15.11.2006, THIS ISSUE WAS NEVER RAISED AT ALL AND ARE PART OF THE PAPER BOOK SUBMITTED BY THE ASSESSEE AT PAGES 34 AND 35. SINCE, THE ASSESSEE HAD SURPLUS CASH, RELYING ON THE DECISION OF CIT VS . TIN BOX CO. (2003) 260 ITR 637 (DELHI), IT IS HELD THAT THERE WAS NO EVIDENCE TO INDICATE THAT INTEREST BEARING BORROWINGS WERE DIVERTED TO SISTER CONCERNS OR INVESTMENTS MADE IN MUTUAL FUNDS UNITS, DISALLOWANCE UNDER SECTION 36(1)(III) CANNOT BE MADE. THE MATTER ALSO GETS FURTHER SETTLED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE APEX COURT IN S.A. BUILDERS LTD. VS. CIT (2007) 288 ITR 1 (SUPREME COURT). 4. WITH THE ASSISTANCE OF REPRESENTATIVE, WE HAVE G ONE THROUGH /THE RECORD CAREFULLY. LEARNED FIRST APPEL LATE AUTHORITY HAS DELETED THE DISALLOWANCE ON THE GROUN D THAT ASSESSEE HAS MORE SURPLUS INTEREST FREE FUNDS THAN THE ADVANCES AND INVESTMENT. IN OTHER WORDS ON THE REC ORD ASSESSING OFFICER FAILED TO ESTABLISH THAT INTEREST BEARING FUNDS WERE USED EITHER FOR MAKING ADVANCES TO THE S ISTER 4 CONCERN OR FOR INVESTMENT IN THE MUTUAL FUNDS. IF THAT BE SO, THEN HOW DISALLOWANCE CAN BE MADE. THE STAND OF TH E ASSESSING OFFICER IS THAT ASSESSEE SHOULD HAVE USED ITS OWN FUND INSTEAD OF INTEREST BEARING BORROWINGS FOR RUN NING THE BUSINESS. IN OUR OPINION, ASSESSING OFFICER CANNOT FORCE THE ASSESSEE TO EARN INTEREST INCOME OR SAVE INTEREST E XPENSES FOR RUNNING THE BUSINESS. THE ASSESSING OFFICER WA S UNABLE TO DEMONSTRATE THAT INTEREST BEARING LOANS WERE USE D BY THE ASSESSEE OTHER THAN BUSINESS PURPOSE. LEARNED FIRS T APPELLATE AUTHORITY HAS APPRECIATED THE FACTS AND CIRCUMSTANCES IN RIGHT PERSPECTIVE AND WE DO NOT SE E ANY REASON TO INTERFERE IN HIS ORDER. HENCE, THIS APPE AL OF THE REVENUE IS DISMISSED. 5. IN RESULT, APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 15.07.2011. SD/- SD/- ( K.G. BANSAL ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 15.07.2011. NS 5 COPY FORWARDED TO:- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY. BY ORDER (ITAT, NEW DELHI).