DCIT, Circle-1, Siliguri, Siliguri V. M/s Durga Automotives Pvt. Ltd., Siliguri

ITA 1553/KOL/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6427 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 28-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SOUMYAJITD DASGUPTA
• Assessee Lawyers: SIDDHARTH AGARWAL LD
• Keywords: Proportionate interest
• Section: 143(3)

Judgement Text

, D , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH D KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO.1553/KOL/2016 ASSESSMENT YEAR:2012-13 DCIT, CIRCLE-1, AAYAKAR BHAWANA, PARIBAHAN NAGAR, MATIGARA, SILIGURI PIN-734010 / V/S . M/S DURGA AUTOMOTIVES PVT. LTD., T.N ROAD, DAGAPUR, SILIGURI, PIN-734003 [ PAN NO.AABCD 7913 K ] /APPELLANT .. /RESPONDENT /BY APPELLANT SOUMYAJITD DASGUPTA, ADDL. CIT-DR /BY RESPONDENT SHRI SIDDHARTH AGARWAL, LD.ADVOCATE /DATE OF HEARING 20-03-2018 /DATE OF PRONOUNCEMENT 03-05-2018 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), SILIGURI DATED 10.05.2016. AS SESSMENT WAS FRAMED BY DCIT, CIRCLE-1, SILIGURI U/S 143(3) OF THE INCOME TAX ACT , 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 27.03.2015 FOR ASSE SSMENT YEAR 2012-13. THE GROUNDS RAISED BY THE REVENUE PER ITS APPEAL ARE AS UNDER:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) HAS ERRED BY DELETING DISALLOWANCE OF INTEREST PAID OF RS.38, 65,837/- MADE BY THE AO BEING NOT INCIDENTAL TO THE BUSINESS ACTIVITY OF THE ASSESSEE . THE LD. CIT(A) HAS NOT APPRECIATED THE CLEAR FINDINGS GIVEN BY THE AO IN PARA 2.2 AT P AGE-2 OF THE ASSESSMENT ORDER. 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE INTEREST ON BORROWED FUNDS IS TO BE DISALLOWED AS NOT MEANT FOR BUSINESS PURPO SE WHEN FUNDS HAVE BEEN DIVERTED AS INVESTMENT IN SHARES OF GROUP COMPANIES. ITA NO.1553/KOL/2016 A.Y. 2012-13 DCI, CIR-1, SLG. VS. M/S DURGA AUTOMOTIVES PVT. L TD. PAGE 2 RELIANCE IS PLACED ON THE FOLLOWING JUDGMENT: (A) PUNJAB STAINLESS STEEL LTD. VS. CIT 196 TAXMAN 404 (DEL) (B) CIT-1, LUCKNOW VS. SAHU ENTERPRISES LTD. 214 TAXMAN 225 (ALL) 3. THAT THE DEPARTMENT RESERVES THE RIGHT TO ADD, D ELETE, REVIEW, CHANGE OR MODIFY ANY GROUND IN THE COURSE OF HEARING. SHRII SOUMYAJIT DASGUPTA, LD. DEPARTMENTAL REPRESEN TATIVE APPEARED ON BEHALF OF ASSESSEE AND SHRI SIDDHARTH AGARWAL, LD. ADVOCATE A PPEARED ON BEHALF OF ASSESSEE. 2. SOLITARY ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICE R FOR 38,65,837/- ON ACCOUNT OF DIVERSION FUND. 3. BRIEFLY STATED FACTS ARE THAT ASSESSEE IS A PRIV ATE LIMITED COMPANY AND HOLDING DEALERSHIP OF HYUNDAI MOTOR. THE ASSESSEE IN THE YE AR UNDER CONSIDERATION HAS SHOWN FOLLOWING INVESTMENTS:- SL.NO. NAME OF THE COMPANY CL. BALANCE AS ON 31.03.12 CL. BALANCE AS ON 31.03.11 (I) BANSAL AUTOMOTIVES PVT. LTD. 22,47,250 22,47,250 (II) DINODIA ACADEMY PVT LTD 30,00,000 30,00,000 (III) DURGA AUTOCARE PVT LTD 1,09,20,000 1,09,20,000 (IV) NRSM INFRATECH LTD 96,05,000/- 96,05,000 TOTAL 2,57,72,250 THE ASSESSEE HAS INCURRED AN INTEREST COST OF 3,37,57,078/- ON THE TOTAL BORROWING OF 23,62,85,916/- ONLY. ACCORDINGLY, THE AO WAS OF THE VIEW THAT ASSESSEE HAS DIVERTED ITS BORROWED FUND TO THE TUNE OF 2,57,72,250/- AND CLAIMED THE CORRESPONDING INTERES T EXPENSE IN ITS BOOKS OF ACCOUNT. THE AO WAS OF THE VIEW THAT THE BORROWED FUND FOR 2,57,72,250/- HAS NOT BEEN UTILIZED FOR THE BUSINES S OF ASSESSEE. THEREFORE, THE AMOUNT OF INTEREST EXPENSE CLAIMED BY THE ASSESSEE CORRESPONDING TO THE INVESTMENT MADE IN ITS SISTER CONCERN WAS NOT ELIGIBLE FOR DED UCTION U/S. 36(1)(III) OF THE ACT. THEREFORE, THE AO DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF ASSESSEE. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT ALL THE INVESTMENT S WERE MADE IN SISTER CONCERN FOR THE PURPOSE OF HOLDING THE CONTROLLING INTEREST IN THOSE COMPANIES. THEREFORE, THE ITA NO.1553/KOL/2016 A.Y. 2012-13 DCI, CIR-1, SLG. VS. M/S DURGA AUTOMOTIVES PVT. L TD. PAGE 3 INVESTMENTS ARE IN THE NATURE OF STRATEGIC INVESTME NT AND THEREFORE NO DISALLOWANCE CAN BE MADE OUT OF INTEREST EXPENSE CLAIMED BY IT. THE ASSESSEE ALSO SUBMITTED THAT ITS OWN FUND INCLUDING THE FREE RESERVE AND SURPLUS EXC EEDS THE AMOUNT OF INVESTMENT MADE IN THE SISTER CONCERN. THEREFORE, THE PRESUMPT ION CAN BE DRAWN THAT NO BORROWED FUND HAS BEEN UTILIZED IN MAKING THE INVESTMENT IN SISTER CONCERN. THE ASSESSEE IN SUPPORT OF ITS CLAIM FURNISHED THE DETAILS OF ITS O WN FUND VIS--VIS INVESTMENT MADE IN SISTER CONCERN, WHICH IS REPRODUCED AS UNDER:- PARTICULARS AS ON 31.03.12 AS ON 31.03.11 SHARE CAPITAL 1,76,87,000 1,29,65,000 RESERVES AND SURPLUS 4,95,18,476 3,11,77,956 TOTAL OWNED FUNDS 6,72,05,476 4,41,42,956 INVESTMENT IN CONCERNS 2,57,72,250 2,57,72,250 RATIO 2,61 TIMES 1,71 TIMES THE ASSESSEE ALSO SUBMITTED THAT THE BORROWED FUND HAS BEEN UTILIZED FOR ITS BUSINESS ACTIVITY AND THERE WAS NO DIVERSION OF FUND AT ALL AS ALLEGED BY THE AO. THE ASSESSEE IN SUPPORT OF ITS CLAIM ALSO FILED THE DETAILS OF INTE REST EXPENSES INCURRED BY IT WHICH IS REPRODUCED:- PARTICULARS AMOUNT BANK LOAN PROCESSING FEES 7,05,731.64 INTEREST ON CASH CREDIT ACCOUNT 1,65,69,241.00 INTEREST ON TERM LOAN 4,30,254.00 INTEREST ON INVENTORY FUNDING 1,48,44,244.90 INTEREST PAID TO BODY CORPORATE 1,00,378.00 INTEREST PAID ON STATUTORY LIABILITIES 11,17,229.00 TOTAL 3,37,67,078.54 THE ASSESSEE IN VIEW OF ABOVE SUBMITTED THAT THERE WAS NO POSSIBILITY FOR USING THE BORROWED FUND FOR MAKING THE INVESTMENT IN THE SIST ER CONCERN. LD. CIT(A) AFTER ITA NO.1553/KOL/2016 A.Y. 2012-13 DCI, CIR-1, SLG. VS. M/S DURGA AUTOMOTIVES PVT. L TD. PAGE 4 CONSIDERING THE SUBMISSION OF ASSESSEE DELETED THE ADDITION MADE BY AO BY OBSERVING AS UNDER:- 3.2 THE SUBMISSION OF THE ASSESSEE HAS BEEN CONSIDE RED IN THE LIGHT OF THE FACTS OF THE CASE AND THE RATIO OF THE CASE LAWS REFERRED TO. TH E ASSESSEE IS A DEALER OF HYUNDAI MOTORS. THE BALANCE SHEET OF THE ASSESSEE COMPANY R EFLECTS BROUGHT FORWARD INVESTMENTS IN THE CAPITAL OF FOUR SISTER / GROUP C OMPANIES AGGREGATING TO RS.2,57,72,250/-. NO FRESH INVESTMENT WAS MADE DURI NG THE YEAR IN QUESTION. THE AO, HOWEVER, HELD THAT THE ASSESSEE HAD DIVERTED INTERE ST BEARING FUNDS TOWARDS INVESTMENTS IN THE SHARES OF THE SISTER / RELATED C OMPANIES AND DISALLOWED PROPORTIONATE INTEREST @ 15% EVEN THOUGH THERE WAS NO FRESH INVESTMENT IN THE RELEVANT YEAR. LD. AR HAS CONTENDED THAT THE ASSESS EE HAD ITS OWN INTEREST-FREE FUNDS OF RS.6.72 CRORES COMPRISING OF SHARES CAPITAL AND RESERVE & SURPLUS AND ENTIRE INVESTMENTS IN SISTER/GROUP COMPANIES WERE MADE OUT OF THAT INTEREST-FREE FUNDS. LD. AR HAS ALSO GIVEN A BIFURCATION OF TOTAL FINANCE CO ST OF RS.3,37,67,078/-, QUOTED HEREINABOVE, SHOWING UTILSATION OF BORROWED FUNDS F OR SPECIFIC PURPOSES. ON THE OTHER HAND, THE AO FAILED TO BROUGHT ON RECORD ANY MATERI AL EVIDENCE THAT THE BORROWED FUNDS WERE UTILIZED FOR INVESTMENTS IN THE CAPITAL OF THE SISTER / GROUP COMPANIES. IN VIEW OF THE FACTS OF THE CASE THAT THERE WAS NO FRE SH INVESTMENTS IN THE CAPITAL OF THE SISTER / GROUP COMPANIES IN THE RELEVANT YEAR; THAT ASSESSEE HAD ENOUGH INTEREST-FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVE & SU RPLUS; BORROWED FUNDS FOR WHICH INTEREST WAS PAID WERE UTILIZED FOR SPECIFIC BUSINE SS PURPOSES AS WELL AS RELYING UPON THE JUDGMENTS REFERRED TO BY THE ASSESSEE AND QUOTE D HEREINABOVE, I DO NOT FIND MERIT IN THE DECISION OF AO IN DISALLOWING PROPORTIONATE FINANCE COST. THE ADDITION OF RS.38,65,837/- IS THEREFORE, DELETED . BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENU E IS IN APPEAL BEFORE US. 5. BEFORE US LD. DR VEHEMENTLY RELIED ON THE ORDER OF AO WHEREAS LD. AR FOR THE ASSESSEE FILED PAPER BOOK WHICH IS RUNNING PAGE S FROM 1 TO 16 AND RELIED ON THE ORDER OF LD. CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE AO HAS ALLEGED THAT ASSESSEE HAS DIVERTED ITS INTEREST BEARING FUND BY GIVING NON-IN TEREST BEARING ADVANCES TO ITS SISTER CONCERNS. THEREFORE, THE AO MADE THE DISALLOWANCE O F INTEREST EXPENDITURE AS CLAIMED BY ASSESSEE CORRESPONDING TO THE INTEREST FREE ADVA NCE MADE BY IT TO ITS SISTER CONCERNS. HOWEVER, THE VIEW TAKEN BY THE AO WAS REVERSED BY L D. CIT(A) BY OBSERVING THAT OWN FUND OF ASSESSEE EXCEEDS THE AMOUNT INVESTED IN ITS SISTER CONCERNS. IT IS UNDISPUTED FACT THAT THE OWN FUND OF ASSESSEE EXCEE DS THE AMOUNT OF INVESTMENT MADE IN SISTER CONCERNS AS DISCUSSED IN THE ORDER OF LD. CIT-A. THEREFORE, THE PRESUMPTION CAN BE INFERRED THAT THE OWN FUND HAS BEEN USED IN MAKING THE INVESTMENT IN SISTER CONCERN. IN HOLDING SO, WE FIND SUPPORT AND GUIDANC E FROM THE JUDGMENT OF HON'BLE ITA NO.1553/KOL/2016 A.Y. 2012-13 DCI, CIR-1, SLG. VS. M/S DURGA AUTOMOTIVES PVT. L TD. PAGE 5 BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITY AND POEWR LTD. 213 ITR 340 (BOM) MUNJAL SALES CORPORATION VS. CIT (2008) 289 ITR 298 (SC) CIT VS. TIN BOX CO. (2003) 260 ITR 637 (DEL) CIT VS. HDFC BANK LTD . 366 ITR 505 (BOM) THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COU RT AND HON'BLE HIGH COURT ARE SQUARELY APPLICABLE TO THE INSTANT FACTS OF THE CAS E. THEREFORE, WE HOLD THAT NONE OF THE INVESTMENTS IN SISTER CONCERNS HAD BEEN MADE BY THE ASSESSEE OUT OF BORROWED FUNDS. THE LD. DR HAS ALSO NOT BROUGHT ANYTHING ON RECORD CONTRARY TO THE FINDING OF LD. CIT- A. THEREFORE, THERE IS NO REASON TO MAKE DISALLOWAN CE OF THE INTEREST EXPENSE. HENCE WE FIND NO REASON TO INTERFERE IN THE ORDER OF LD. CIT(A). WE HOLD ACCORDINGLY. THIS GROUND OF REVENUES APPEAL IS DISMISSED. 7. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 03/05/2018 SD/- SD/- ( % ') ( ') (S.S.VISWANETHRA RAVI) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER *DKP, SR.P.S ) - 03/05/2018 / KOLKATA / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-DCIT, CIRCLE-1, AAYAKAR BHAWAN, PARIBAHA N NAGAR, MATIGARA SILIGURI, P IN-734010 2. /RESPONDENT-M/S DURGA AUTOMOTIVES PVT. LTD., T.N. R OAD, DAGAPUR, SILIGURI, PIN- 734003 3. , - / CONCERNED CIT 4. - - / CIT (A) 5. . %%, , , / DR, ITAT, KOLKATA 6. 2 / GUARD FILE. BY ORD ER/ , /TRUE COPY/ SR. PRIVATE SECRETARY HEAD OF OFFICE/DDO ,,