Marikar Engineers P.Ltd, Trivandrum V. Jt.Commissioner of Incometax, Trivandrum

ITA 148/COCH/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64840 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 25-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SREENIVASU KOLLIPAKA
• Assessee Lawyers: R SRIDHAR
• Keywords: Sale consideration of property below Jantri Value; Commercial expediency

Judgement Text

1 ITA NO.148/COCH/2011 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKARA N(AM) I.T.A NO. 148/COCH/2011 (ASSESSMENT YEAR 2007-08) MARIKAR ENGINEERS PVT LTD VS JT.CIT, RANGE-1 MARIKAR BUILDINGS TRIVANDRUM M.G. ROAD, TRIVANDRUM 695 001 PAN : AABCM5450C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R SRIDHAR RESPONDENT BY : SHRI SREENIVASU KOLLIPAKA DATE OF HEARING : 13-09-2012 DATE OF PRONOUNCEMENT : 18-09-2012 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE TAXPAYER IS DIRECTED AGAINST TH E ORDER OF COMMISSIONER OF INCOME-TAX(A)-I, TRIVANDRUM DATED 21-12-2010 AND PER TAINS TO ASSESSMENT YEAR 2007-08. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS DISAL LOWANCE OF INTEREST ON THE BORROWED FUND. 3. SHRI R SRINIVASU KOLLIPAKA, THE LD.REPRESENTATIVE FOR THE TAXPAYER SUBMITTED THAT THE TAXPAYER COMPANY IS A PARTNER IN THREE PAR TNERSHIP FIRMS, VIZ. M/S 2 ITA NO.148/COCH/2011 MARIKAR APPAREL INCORPORATED; M/S MARIKAR MARKETING CO RPORATION; AND M/S MARIKAR INDUSTRIES AND EARNED SHARE OF PROFIT TO THE EXTENT OF RS.18,95,520 FROM THESE FIRMS. DURING THE YEAR UNDER CONSIDERATION, THE TAXPAYER CLAIMED INTEREST TO THE EXTENT OF RS.78,92,243 ON THE LOANS OF RS.8, 05,40,653 TAKEN BY IT FROM BANKS FOR ITS BUSINESS PURPOSES. THE ASSESSING OFFI CER DISALLOWED RS. 7,99,291 BEING THE SHORTFALL OF INTEREST CREDITED IN THE ACC OUNT. THE LD.REPRESENTATIVE SUBMITTED THAT THE TAXPAYER HAS NOT ADVANCED MONEY FREE OF INTEREST TO ANY OF THE SISTER CONCERNS. WHAT WAS GIVEN TO THE FIRMS W AS TOWARDS CAPITAL CONTRIBUTION AS A PARTNER WHICH IS CLEARLY DISCLOSE D IN NOTE I TO SCHEDULE 6 OF THE BALANCE-SHEET UNDER THE HEAD INVESTMENT. THIS FAC T WAS NOT CONSIDERED BY THE LOWER AUTHORITIES. ONCE THE TAXPAYER INVESTED THE FUNDS FOR BUSINESS DIRECTLY OR AS A PARTNER OF THE FIRMS AND EARNED INCOME BY WAY OF SHARE OF PROFIT, THERE CANNOT BE ANY DISALLOWANCE ON THE PAYMENT OF INTERE ST ON THE BORROWED FUNDS. 4. ON THE CONTRARY, SHRI SRINIVASU KOLLIPAKA, THE LD. DR SUBMITTED THAT THE LOWER AUTHORITIES HAVE NOT EXAMINED WHETHER THE TAX PAYER HAS INVESTED IN THE PARTNERSHIP FIRMS IN WHICH THE TAXPAYER IS PARTNER AND WHETHER THE TAXPAYER HAS RECEIVED ANY SHARE OF PROFIT FROM THOSE PARTNERSHIP FIRMS IN WHICH THE MONEY WAS INVESTED. REFERRING TO THE ASSESSMENT ORDER, THE L D.DR POINTED OUT THAT THE TAXPAYER NEVER CLAIMED THAT IT INVESTED TOWARDS CAP ITAL IN THE PARTNERSHIP FIRMS AS A PARTNER. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER HAS DIS ALLOWED THE CLAIM OF THE TAXPAYER ON THE GROUND THAT THE TAXPAYER HAS CLAIME D INTEREST PAYMENT TO THE EXTENT OF RS.78,92,243 ON THE LOAN OF RS.8,05,40,65 3. THE ASSESSING OFFICER FURTHER FOUND THAT THE TAXPAYER HAS ADVANCED UNSECU RED LOANS TO THE EXTENT OF 3 ITA NO.148/COCH/2011 RS. 81,56,798 TO THE SISTER CONCERN. THE CLAIM OF THE TAXPAYER COMPANY THAT IT WAS A PARTNER IN THE FIRM AND THE INVESTMENT WAS TO WARDS CAPITAL WAS NOT CONSIDERED BY THE ASSESSING OFFICER. THE TAXPAYER SPECIFICALLY CLAIMED BEFORE THE COMMISSIONER OF INCOME-TAX(A) THAT THE AMOUNT ADVANC ED IS TOWARDS CAPITAL CONTRIBUTION AS A PARTNER AND NOT LOAN OR ADVANCE. IT APPEARS THAT THE TAXPAYER PLACED RELIANCE ON THE JUDGMENT OF THE APEX COURT I N THE CASE OF SA BUILDERS VS COMMISSIONER OF INCOME-TAX 288 ITR 1 (SC) TO CLAIM T HAT THE FUNDS WERE ADVANCED ON COMMERCIAL EXPEDIENCY; THEREFORE, THE I NTEREST CANNOT BE DISALLOWED. THE FACT REMAINS IS THAT THE SPECIFIC CLAIM OF THE TAXPAYER IS THAT THE FUNDS WERE INVESTMENT TOWARDS THE CAPITAL IN THE FI RM AS A PARTNER. THE TAXPAYER HAS ALSO CLAIMED THAT IT HAS RECEIVED RS.18,95,520 AS SHARE OF PROFIT FROM THE PARTNERSHIP FIRMS. IF THIS IS SO, THE INVESTMENT M ADE IN THE BUSINESS VENTURE CANNOT BE CONSTRUED AS ADVANCE OR LOAN. THE INVEST MENT TOWARDS CAPITAL OF THE PARTNERSHIP FIRM AS ONE OF THE PARTNERS IS A BUSINE SS INVESTMENT. THEREFORE, THE QUESTION OF DISALLOWANCE OF ANY INTEREST ON THE BOR ROWED FUND WOULD NOT ARISE AT ALL. HOWEVER, THE CLAIM OF THE TAXPAYER THAT IT IS INVESTMENT AS CAPITAL CONTRIBUTION IN THE PARTNERSHIP FIRM WAS NOT VERIFI ED BY BOTH THE AUTHORITIES BELOW. THEREFORE, THIS TRIBUNAL IS OF THE OPINION THAT THE ASSESSING OFFICER HAS TO EXAMINE THE ISSUE AFTER CONSIDERING THE PARTNERSHIP DEEDS AND THE BALANCE- SHEETS OF THE RESPECTIVE PARTNERSHIP FIRM AND FIND OUT WHETHER THE TAXPAYER HAS ACTUALLY INVESTED TOWARDS THE CAPITAL OF THE PARTNE RSHIP FIRM AS A PARTNER OR NOT. THEREFORE, THIS TRIBUNAL IS OF THE OPINION THAT THE MATTER NEEDS TO BE EXAMINED BY THE ASSESSING OFFICER. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ISSUE OF DISALLOWANCE OF INTEREST IS RESTORED TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-E XAMINE THE ISSUE AFRESH IN THE LIGHT OF THE CLAIM OF THE TAXPAYER THAT THE AMOUNTS PAID TO THE PARTNERSHIP FIRM 4 ITA NO.148/COCH/2011 WERE TOWARDS THE CAPITAL CONTRIBUTION AND THEREAFTE R DECIDE THE SAME IN THE LIGHT OF OBSERVATIONS MADE BY THIS TRIBUNAL IN THIS ORDER . 6. IN THE RESULT, THE APPEAL OF THE TAXPAYER IS ALL OWED, FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH SEPTEMBER, 2012. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 18 TH SEPTEMBER, 2012 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE COMMISSIONER OF INCOME-TAX 4. THE COMMISSIONER OF INCOME-TAX(A) 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH