DCIT C.C.22, MUMBAI V. PARLE BISLERI P. LTD, MUMBAI

ITA 165/MUM/2009

• Counselvise Citation: 16519914 RSA 2009
• Duration Of Justice: 2 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 30-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 09-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: REENA JHA TRIPATHI
• Keywords: Rule of consistency; Proportionate interest; Scheme of amalgamation
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J,MUMBAI BEFORE SHRI D.K. AGARWAL (JM) & SHRI B. RAMAKOTAI AH (AM) I.T.A. NO.165/MUM/2009 (A.Y. 2005-06) DY. COMMR. OF INCOME-TAX, CENTRAL CIRCLE 22, MUMBAI. VS. M/S. PARLE BISLERI PVT. LTD., WESTERN EXPRESS HIGHWAY, ANDHERI (E), MUMBAI-400 099. PAN: AABBA2056N APPELLANT RESPONDENT APPELLANT BY MS. REENA JHA TRIPATHI. RESPONDENT BY SHRI V IJAY MEHTA. DATE OF HEARING 30-11-2011 DATE OF PRONOUNCEMENT 09 -12-2011 O R D E R PER D.K. AGARWAL, JM : THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 10-10-2008 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 20 05-06. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF PACKAGED DRINKING WATE R AND FRUIT PULP/JUICE ETC. RETURN WAS FILED DECLARING NIL INCOME. AFTER PROCESSING OF THE RETUR N, THE AO NOTED THAT THE ASSESSEE HAS DEBITED INTEREST EXPENSES OF RS.1,55,69,072/-. HE FURTHER N OTED THAT THE ASSESSEE HAS INVESTED AN AMOUNT OF RS.34,80,77,848/- IN SHARES AND HAS EARNED DIVID END INCOME OF RS.10,50,976/- WHICH WAS CLAIMED AS EXEMPT U/S. 10(34) OF THE INCOME-TAX ACT , 1961 (THE ACT). ON BEING ASKED AS TO WHY PROPORTIONATE EXPENSES SHOULD NOT BE DISALLOWED U/S .14A OF THE ACT, IT WAS, INTER ALIA, SUBMITTED ITA NO.165/M/2009 PARLE BISLERI P.LTD. 2 BY THE ASSESSEE THAT NO PART OF THE BORROWED FUNDS HAD BEEN DEPLOYED FOR THE PURPOSE OF MAKING INVESTMENT AS ALL THE INVESTMENTS WERE FROM ITS SUR PLUS FUNDS ARISING FROM OPERATIONS/DISPOSAL OF ASSETS OF THE COMPANY IN THE PAST. IN THIS CONTE XT, IT WAS POINTED OUT THAT TWO WHOLLY OWNED SUBSIDIARIES OF THE ASSESSEE COMPANY, NAMELY, PARLE (EXPORTS) PVT. LTD. (PEPL) AND PARLE BISLERI PVT. LTD. (PBPL) WERE AMALGAMATED IN THE ASSESSEE C OMPANY IN TERMS OF A SCHEME OF AMALGAMATION. IN THIS RESPECT, IT WAS SUBMITTED THA T BEFORE THE AMALGAMATION, THE ASSESSEE COMPANY WAS HOLDING INVESTMENTS OF RS.2.52 CRORES O NLY WHICH WERE MADE ENTIRELY FROM ITS OWN FUNDS AND THAT THERE WERE NO BORROWED FUNDS BEFORE THE AMALGAMATION. ELABORATING, IT WAS FURTHER SUBMITTED THAT INVESTMENTS BROUGHT BY PEPL HAD BEEN MADE OUT OF PROCEEDS OF SALE OF TRADEMARK, TECHNICAL KNOWHOW, OTHER ASSETS TO COCO COLA IN THE F.Y. 1993-94 AND THAT AS AT 31-3- 1994, THE INVESTMENTS OF PEPL WERE OF RS.32.41 CROR ES AND THERE WERE NO BORROWINGS. REFERRING TO PBPL, IT WAS MENTIONED THAT THE MAJOR INVESTMENT S HAD BEEN MADE IN THE F.Y. 1998-99 OUT OF SALE PROCEEDS OF MACHINERIES AND OTHER ASSETS TO HI NDUSTAN COCO COLA. FURTHER, AS AGAINST SMALL INVESTMENT OF RS.0.06 CRORE AS ON 31-3-1998, AS ON 31-3-1999, THE INVESTMENT OF PBPL INCREASED TO RS.27.06 CRORES AND THERE WERE NO BORROWINGS. AS IN THE CASE OF PEPL, SUBSEQUENT BORROWINGS WERE ONLY FOR THE PURPOSE OF INVESTING IN MINERAL W ATER BUSINESS. HOWEVER, THE A.O. DID NOT ACCEPT THE ASSESSEES EXPLANATION. THE AO WAS OF TH E VIEW THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE THAT INVESTMENTS HAD BEEN MADE OUT OF OWN FUNDS AND IN THE ABSENCE OF ANY NEXUS BETWEEN THE INVESTMENT AND ITS OWN FUNDS, HE DISALL OWED PROPORTIONATE INTEREST OF RS.61,48,789/- U/S. 14A OF THE ACT. A FURTHER SUM O F RS.64,164/- INCURRED AS PORTFOLIO MANAGEMENT EXPENSES WAS ALSO DISALLOWED AS IT WAS H ELD TO BE RELATED TO EXEMPT DIVIDEND INCOME. 3. ON APPEAL, THE LD. CIT(A), FOLLOWING THE APPELLA TE ORDER FOR THE ASSESSMENT YEAR 2004-05 IN ASSESSEES OWN CASE, DELETED THE DISALLOWANCE OF RS.62,12,953/- MADE U/S.14A OF THE ACT. 4. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US TAKING THE FOLLOWING GROUNDS OF APPEAL : ITA NO.165/M/2009 PARLE BISLERI P.LTD. 3 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE AMOU NTING TO RS.62,12,953/- WITHOUT CONSIDERING THE FACT THAT TH E DISALLOWANCE WAS CORRECTLY MADE AS PER THE PROVISIONS OF SECTION 14A OF THE I.T. ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) ERRED IN NOT APPRECIATING HIS PREDECESSORS ORDER FOR A.Y. 2004-05 CIT(A)C-V/ACCC-25/350/06-07 DT: 11.3.2008) WHEREIN HE HAS HELD THAT ADVANCE OF RS.15.06 CRORE COULD NOT B E PROVED BY THE ASSESSEE AS OUT OF ITS OWN FUNDS. 5. AT THE TIME OF HEARING, THE LD. D.R., WHILE RELY ING ON THE ORDER OF THE AO, SUBMITS THAT, IN ALTERNATIVE, THE ISSUE MAY BE SET ASIDE TO THE FI LE OF THE AO. 6. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE, WHILE RELYING ON THE ORDER OF THE LD. CIT(A), SUBMITS THAT SINCE THE ASSESSEE HAS EXPLAIN ED THAT THE ASSESSEE HAD SUFFICIENT FUNDS OF ITS OWN FOR INVESTMENT AND THERE WAS NO REQUIREMENT TO DEPLOY BORROWED FUNDS FOR MAKING INVESTMENT IN SHARES WHEREIN THE ASSESSEE HAS EARNE D DIVIDEND INCOME, THEREFORE, FOLLOWING THE EARLIER ORDER OF THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2004-05, WHICH HAS BEEN ACCEPTED BY THE REVENUE, NO DISALLOWANCE OR SET ASIDE IS CALLED FOR . 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THERE IS NO DISPUTE THAT BEFORE THE AO THE ASSESSEE HAS FILED ITS WRITTEN SUBMISSIONS TO SHOW THAT NO PART OF BORROWED FUNDS HAD BEEN DEPLOYED FOR THE PURPOSE OF MAKING INVESTMENT AS ALL THE INVESTMENTS WERE FROM ITS SURPLUS FUNDS ARISING FROM OPERATIONS/DISPOSAL OF ASSETS OF THE COMPANY IN THE PAST. HOWEVER, THE AO, WITHOUT EXAMINING THE FACTS, HAS MADE THE DISALLOWANCE U/S.14A ON THE GROUND THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE THAT INVESTMENT HAD BEEN MADE OUT OF O WN FUNDS AND NO NEXUS BETWEEN THE INVESTMENT AND ITS OWN FUNDS HAS BEEN PROVED. ON AP PEAL, THE LD. CIT(A) OBSERVED THAT ON THE IDENTICAL FACTS SIMILAR DISALLOWANCE WAS MADE IN TH E ASSESSMENT YEAR 2004-05 WHICH HAS BEEN DELETED BY THE LD. CIT(A) VIDE HIS ORDER DATED 11-0 3-2008 ON THE GROUND THAT THE ASSESSEE HAD HUGE AMOUNT OF RESERVES AND THE AO HAS NOT BEEN ABL E TO ESTABLISH ANY NEXUS BETWEEN THE ITA NO.165/M/2009 PARLE BISLERI P.LTD. 4 BORROWED FUNDS AND INVESTMENTS. ACCORDING TO THE LD . CIT(A), SINCE THE FACTS REMAINING THE SAME, THEREFORE, HE FOLLOWED THE APPELLATE ORDER FOR THE ASSESSMENT YEAR 2004-05 AND AFTER EXAMINING OF THE BALANCE-SHEET OBSERVED THAT THE RESERVES ARE ALWAYS IN EXCESS OF INVESTMENTS INDICATING THEREBY AVAILABILITY OF NON-BORROWED FUNDS WITH THE ASSESSEE FOR INVESTMENT AND HENCE THE ASSESSEE HAD SUFFICIENT FUNDS OF ITS OWN FOR INVEST MENT AND THERE WAS NO REQUIREMENT TO DEPLOY BORROWED FUNDS TOWARDS THEM AND ACCORDINGLY HE DEL ETED THE DISALLOWANCE MADE BY THE AO. 8. IN GODREJ BOYCE & CO. LTD. VS. DCIT (2010) 328 ITR 81, IT HAS BEEN, INTER ALIA, HELD THAT THE AO IS DUTY BOUND TO DETERMINE THE EXPENDITURE W HICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE AO MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES. IN THE CASE BEFORE US, EVEN AT THIS STAGE, THE REVENUE HAS PLAC ED NO MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE HAS USED BORROWED FUNDS FOR MAKING INVESTM ENT IN SHARES OR HAS INCURRED ANY EXPENDITURE IN RELATION TO SUCH INCOME. THIS BEING SO, AND KEEPING IN VIEW THE RULE OF CONSISTENCY, WE FIND NO MERIT IN THE PLEA OF THE LD . D.R. THAT THE ISSUE MAY BE SET ASIDE TO THE FILE OF AO AND ACCORDINGLY WE ARE INCLINED TO UPHOLD THE FINDING OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS.62,12,953/- MADE U/S.14A BY THE AO. THE GROUNDS TAKEN BY THE REVENUE ARE, THEREFORE, REJECTED. 9. IN THE RESULT, THE REVENUES APPEAL STANDS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 09TH DAY OF DECEMBER ,2011. SD/- SD/- (B. RAMAKOTAIAH) (D.K. AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 09TH DECEMBER , 2011. NG: COPY TO : ITA NO.165/M/2009 PARLE BISLERI P.LTD. 5 1. DEPARTMENT. 2.ASSESSEE. 3 CIT(A), CENTRAL-V,MUMBAI. 4 CIT,CENTRAL-II,MUMBAI. 5.DR,J BENCH,MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER , ASST. REGI STRAR, ITAT, MUMBAI. ITA NO.165/M/2009 PARLE BISLERI P.LTD. 6 DETAILS DATE INITIALS DESIGNATI ON 1. DRAFT DICTATED ON 30-11-2011 SR.PS/ 2. DRAFT PLACED BEFORE AUTHOR 01-12-2011 SR.PS/ 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/A M 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER