ACIT, CHENNAI V. Balaji Distilleries Ltd., CHENNAI

ITA 1585/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86358 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 26-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 09-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAMOD NANGIA CIT MS S SRIN
• Keywords: Capital asset; Question of law; Capital receipt

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . , ! . . ' , # $ BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER ./ ITA NO.1585/MDS/2014 # % !&% / ASSESSMENT YEAR : 2009-10 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(2), CHENNAI - 600 034. V. M/S BALAJI DISTILLERIES LTD., (MERGED WITH UNITED SPIRITS) BYE PASS ROAD POONAMALLEE, CHENNAI - 600 034. PAN : AAACB 3589 Q (()/ APPELLANT) (+,()/ RESPONDENT) () - . / APPELLANT BY : SHRI PRAMOD NANGIA, CIT +,() - . / RESPONDENT BY : MS. S. SRINIRANJANI, ADVOCATE / ! - 0 / DATE OF HEARING : 26.02.2015 1& - 0 / DATE OF PRONOUNCEMENT : 11.03.2015 / O R D E R PER S.S. GODARA, JUDICIAL MEMBER: THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2009-10 , ARISES FROM ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)- I, CHENNAI, DATED 24.02.2014 PASSED IN ITA NO.640/1 1-12/A-I RESTRICTING INTEREST DISALLOWANCE MADE U/S 36(1)(II I) OF ` 6.12 - - I.T.A. NO.1585/MDS/2014 2 CRORES TO ` 3.25 CRORES AND DELETING ADDITION OF ` 2,25,13,704/- U/S 28(IV) ARISING FROM WAIVER OF PRINCIPAL AMOUNT IN O NE TIME SETTLEMENT SCHEME, IN PROCEEDINGS UNDER SECTION 143 (3) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). 2. THE ASSESSEE-COMPANY MANUFACTURES INDIAN MADE FOREIGN LIQUOR. IT FILED ITS RETURN ON 20.09.2009 STATING LOSS OF ` 23,29,24,828/-. THE A.O. TOOK UP SCRUTINY. HE I NTER ALIA NOTICED AN INTEREST OUTGO OF ` 17,60,21,995/-. HE WAS OF THE VIEW THAT THE ASSESSEE HAD UTILIZED BOTH UNSECURED AND SECURED LO AN FUNDING FOR MAILING INTEREST FREE ADVANCE TO IS ASSOCIATE C ONCERN M/S REPL. HE OPINED THAT THERE WAS NO COMMERCIAL EXPED IENCY INVOLVED THEREIN AND IT HAD RESULTED IN DEPRIVATION OF FINANCIAL SOURCES ONLY. HE QUOTED HISTORY OF THIS ISSUE TO H AVE ARISEN IN REGULAR ASSESSMENT FRAMED IN EARLIER ASSESSMENT YEA RS. THERE IS NO DISPUTE THAT THE CIT(A) HAS DELETED IDENTICAL DISALLOWANCES IN THE PAST. THE ASSESSING OFFICER SOUGHT TO DISTI NGUISH THE RELEVANT FACTS FOR INVOKING SECTION 36(1)(III) AND TREATED THE IMPUGNED INTEREST OUTGO AS UNFRUITFUL FOR DISALLOWI NG THE SUM IN QUESTION OF ` 6,11,69,042/- - - I.T.A. NO.1585/MDS/2014 3 3. THE ASSESSEE PREFERRED AN APPEAL. THE CIT(APPEA LS) RESTRICTS THE IMPUGNED INTEREST DISALLOWANCE @ 15% OF THE INTEREST RELATABLE TO DIVERSION OF INTEREST BEARING FUNDS TO ` 3.25 CRORES AS UNDER:- 5.2 I HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE SAME ISSUE HAS BEEN LINGERING FROM A.Y.0 2-03 ONWARDS. MY LD. PREDECESSOR WHILE PASSING ORDER FO R A.Y.08- 09 VIDE HIS ORDER IN ITA NO.654/10-11/A.III DATED 1 1.4.2011 HAD A DETAILED DISCUSSION OF THE DIVERSION OF FUNDS TO THE SISTER CONCERN M/S RAGHAVA ENTERPRISE P LTD. (RAPL). WHIL E DISCUSSING ABOUT THE BORROWED FUNDS AND OWN FUNDS A ND THE SOURCES OF DIVERTED FUND TO SISTER CONCERNS, HE HAS SAFELY CAME TO A CONCLUSION THAT ` 3.25 CRORES WHICH ARE INTEREST BEARING FUNDS, HAVE BEEN DIVERTED TO SISTER CONCERN , RAPL AND RESTRICTED THE DEEMED INTEREST DISALLOWANCE ONL Y ON THIS AMOUNT @ 15%. THE CONCLUDING PART OF MY PREDECESSO RS ORDER IS REPRODUCED HEREUNDER: 5.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE LD.AR. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY THE A.O. AND THE AR. THE FACTS OF THE CASE AND SUBMISSION OF THE LD.AR A RE SIMILAR TO THOSE OF A.YS 2002-03, 2004-05 AND 2005- 06. THE ISSUE HAS BEEN ELABORATELY DISCUSSED IN THE APPELLATE ORDER FOR A.Y.2002-203 IN ITA NO.813/09- 10/A.III DATED 25.10.2010. IT WAS SEEN FROM THE WO RKING GIVEN BY THE APPELLANT FOR VARIOUS YEARS THAT INTER EST BEARING FUND OF ` 3.25 CRORES HAD BEEN ADVANCED BY IT TO REPL DURING THE PREVIOUS YEAR RELEVANT TO A.Y.20 00- 01. NO FURTHER ADVANCE OUT OF INTEREST BEARING FUN D HAD BEEN MADE SUBSEQUENTLY. HENCE, INTEREST @ 15 PER CENT ON THE ADVANCE OF ` 3.25 CRORES AMOUNTING TO ` 48.75 LAKHS WAS HELD TO BE NOT ALLOWABLE. SINCE NO FURTHER ADVANCES WERE MADE OUT OF INTEREST BEARING FUNDS IN THE SUBSEQUENT YEARS, FOLLOWING THE REASON S GIVEN IN A.Y.2002-03, THE DISALLOWANCE WAS RESTRICT ED TO ` 48.75 LAKHS EACH IN A.Y.2004-05 AND 2005-06 RESPECTIVELY VIDE ORDERS IN ITA NOS.811 & 812/09- 10/A.III DATED 25.10.2010. IT IS SEEN FROM THE DET AILS GIVEN BY THE LD.AR FOR THE YEAR UNDER CONSIDERATION THAT NO FRESH ADVANCE WAS GIVEN BY APPELLANT TO REPL - - I.T.A. NO.1585/MDS/2014 4 DURING THE PREVIOUS YEAR ENDING 31.03.2008. HENCE, FOR THE REASONS STATED IN ITA NOS.813, 811 AND 812/09- 10/A.III DATED 25.10.2010 (SUPRA), THE A.O. IS DIRE CTED TO RESTRICT THE DISALLOWANCE TO ` 48.75 LAKHS TOWARDS THE INTEREST ATTRIBUTABLE TO INTEREST-FREE ADVANCES GIV EN BY THE APPELLANT TO REPL. ACCORDINGLY, THIS GROUND IS PARTLY ALLOWED. RESPECTFULLY FOLLOWING MY PREDECESSORS PAINSTAKING OBSERVATIONS, I DIRECT THE A.O. TO RESTRICT THE DIS ALLOWANCE OF 15% INTEREST RELATABLE TO DIVERSION OF INTEREST-BEA RING FUNDS OF ` 3.25 CRORES. THE GROUND IS PARTLY ALLOWED. 4. WE HAVE HEARD BOTH SIDES AND PERUSED RELEVANT FI NDINGS. THERE IS NO DISPUTE THAT THE VERY INTEREST DISALLOW ANCE HAD BEEN RESTRICTED TO THE EXTENT OF DIVERSION OF INTEREST B EARING FUNDS @ 15% IN THE PAST. IT HAS ALREADY COME ON RECORD THA T THE TRIBUNAL (SUPRA) HAS ALSO DECIDED THIS GROUND IN ASSESSEES FAVOUR TO THE EXTENT INDICATED HEREINABOVE. NO DISTINCTION MUCH LESS A JUSTIFIABLE ONE ON FACTS IS FORTHCOMING. IN THESE CIRCUMSTANCES, WE UPHOLD THE CIT(A)S FINDINGS AND REJECT THE REVE NUES GROUND. 5. NOW, WE TAKE UP THE SECOND ISSUE INVOLVING ADDIT ION OF ` 2,25,13,704/- U/S 28(IV) OF THE ACT. THE ASSESSEE GOT SANCTIONED A TERM LOAN OF ` 10 CRORES FOR ITS BREWERY PROJECT. DURING FINANCIAL YEAR 2008-09, IT HAD AN OUTSTANDING LOAN OF ` 3,29,99,927/-. THE LENDER BANK SETTLED IT THROUGH ONE TIME - - I.T.A. NO.1585/MDS/2014 5 SETTLEMENT SCHEME OF ` 1,04,86,223/-. THE ASSESSEE GOT BENEFITTED BY A SUM OF ` 2,25,13,704/-. IT WOULD TREAT THIS AMOUNT AS A CAPITAL RECEIPT SINCE THE LOAN HAD BEEN AVAILE D FOR ACQUIRING A CAPITAL ASSET; NOT TO BE INCLUDED IN ITS TOTAL IN COME. THE ASSESSING OFFICER REFERRED TO RELEVANT LOAN DOCUMEN TS AND OBSERVED THAT THE SAME HAD BEEN OBTAINED FOR SERVIC ING TERM LOAN OF ` 9.4 CRORES ALREADY GRANTED. HE HELD THAT THE SAME WAS A WORKING LOAN TO HELP IN COST OVER RUN. THIS MADE HIM TO INVOKE SECTION 28(IV) OF THE ACT AND INCLUDE THE PRINCIPAL AMOUNT AS INCOME RESULTING IN THE IMPUGNED ADDITION OF ` 2,25,13,704/-. 6. THE CIT(APPEALS) HAS ACCEPTED THE ASSESSEES ARGUMENTS AS UNDER:- 6.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, THE SUBMISSION MADE BY THE LD. AR AND THE CASE LAWS REL IED UPON BY THE A.O. THE APPELLANT HAS SUBMITTED THAT THE REMISSION IN THE LIABILITY RELATED TO A LOAN TAKEN FOR ACQUISITION OF A CAPITAL ASSET. THERE WAS ONE TIME SETTLEMENT (OTS) OF THE LOAN OBTAINED FROM BANK OF BARODA RESULTING IN A REMISSION OF PRINCIPAL BORROWED. IT HAS BEEN HELD IN VARIOUS JUDICIAL DECISIONS THAT WHERE THERE IS A WAIVER OF LOAN RELATING TO A CAPITAL ASSET, THE SAM E CANNOT BE TREATED AS A REVENUE RECEIPT. WHERE, HOWEVER, T HERE IS A WAIVER OF LOAN UTILIZED FOR THE PURPOSE OF TRADIN G OBLIGATION OR INTEREST, THE SAME IS CHARGEABLE TO TAX AS A REV ENUE RECEIPT. THE HON'BLE MADRAS HIGH COURT IN THE RECE NT DECISION IN THE CASE OF ISKRAEMECO REGENT LTD. V. C IT (331 ITR 317 (MAD.), HAS TAKEN SIMILAR VIEW AND UPHELD T HE CLAIM OF THE ASSESSEE. IN THAT CASE, THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF T.V. SUNDARAM IYENGAR & - - I.T.A. NO.1585/MDS/2014 6 SONS LTD. (222 ITR 344) WAS CLEARLY DISTINGUISHED. THE JURISDICTIONAL HIGH COURT IN THE ABOVE CASE HELD AS UNDER: (II) THAT ADMITTEDLY THE ASSESSEE WAS NOT TRADING IN MONEY TRANSACTIONS. A GRANT OF LOAN BY A BANK CANNOT BE TERMED A TRADING TRANSACTION NOR CONSTRUE D TO BE IN THE COURSE OF BUSINESS. INDISPUTABLY, THE ASSESSEE OBTAINED THE LOAN FOR THE PURPOSE OF INVESTING IN ITS CAPITAL ASSETS. A PART OF THIS LO AN WITH INTEREST WAS WAIVED UNDER AGREEMENT BETWEEN THE PARTIES. THE AMOUNT REFERABLE TO THE LOANS OBTAINE D BY THE ASSESSEE TOWARDS THE PURCHASE OF ITS CAPITAL ASSET WOULD NOT CONSTITUTE TRADING RECEIPT. THEREF ORE, THE FACTS WERE TOTALLY DIFFERENT FROM THE FACTS IN CIT V. T.V. SUNDARAM IYENGAR AND SONS LTD. [1996] 222 ITR 344 (SC). (III) THAT SECTION 28(IV) OF THE ACT SPEAKS ABOUT THE BENEFIT OR PERQUISITE RECEIVED IN KIND AND HAS NO APPLICATION TO ANY TRANSACTION WHICH INVOLVES MONEY . THE TRANSACTION IN QUESTION BEING A LOAN TRANSACTIO N HAVING NO APPLICATION WITH RESPECT TO SECTION 28(IV ) OF THE INCOME-TAX ACT, THE SUM IN QUESTION WAS NOT INCOME WITHIN THE PURVIEW OF SECTION 2(24) OF THE A CT. (IV) THAT SIMILARLY SECTION 41(1)(A) OF THE ACT AL SO DID NOT APPLY AS IT WOULD BE APPLICABLE ONLY TO A TRADING LIABILITY. FURTHER, THE HON'BLE DELHI HIGH COURT IN THE CASE O F CIT V. TOSHA INTERNATIONAL LTD. 331 ITR 440 (DEL) AND HON' BLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDR A LTD. V. CIT 261 ITR 501 HAVE ALSO DECIDED A SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, I AM OF THE CONSIDERED OPINION THAT THE AMOUNT OF REMISSION OF PRINCIPAL AMOUNT ON ACCOUNT OF ONE TIM E SETTLEMENT RELATING TO CAPITAL ASSETS CANNOT BE CHA RGEABLE TO TAX. ACCORDINGLY, THE A.O. IS DIRECTED TO DELET E THE ADDITION. THE GROUND IS ALLOWED. 7. HEARD BOTH SIDES. RECORD PERUSED. THERE IS NO DISPUTE ON FACTS. UNDISPUTEDLY, PURPOSE OF THE LOAN IN QUE STION IS ACQUISITION OF CAPITAL ASSETS ONLY. THE LOWER APPE LLATE ORDER RECORDS A FINDING OF FACT THAT ONE TIME SETTLEMENT SCHEME IN - - I.T.A. NO.1585/MDS/2014 7 QUESTION DOES NOT GIVE RISE TO ANY REVENUE OR TRADI NG RECEIPT UNDER SECTION 28(IV) OF THE ACT IN THE NATURE OF RE MISSION OF A CORRESPONDING TRADING LIABILITY UNDER SECTION 41(1) OF THE ACT. IT ALSO REFERS TO CASE LAW OF HON'BLE JURISDICTIONAL H IGH COURT (SUPRA) DECIDING THE VERY SUBSTANTIAL QUESTION OF LAW AGAIN ST THE REVENUE. IN THE COURSE OF HEARING, THE APPELLANT-R EVENUE FAILS TO DRAW ANY DISTINCTION ON FACTS AS WELL AS LAW. T HUS, WE UPHOLD THE FINDING UNDER CHALLENGE. THE REVENUES CORRESP ONDING GROUND IS DISMISSED. 8. THIS REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 11 TH OF MARCH, 2015 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY) (S.S. GODARA) ( . ) ( . . ') / ACCOUNTANT MEMBER # /JUDICIAL MEMBER /CHENNAI, 3 /DATED, THE 11 TH MARCH, 2015. 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