DCIT, Kollam V. M/s.Tasty Nuts Industries, Kollam

ITA 168/COCH/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4727 (ITAT-COCHIN)
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-10-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 04-04-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: LATHA S KUMAR
• Assessee Lawyers: IYPE MATHEW
• Keywords: Tax effect

Judgement Text

1 ITA NO.168/COCH/2013 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKA RAN(AM) I.T.A NO.168/COCH/2013 (ASSESSMENT YEAR 2008-09) DY.CIT, CENT.CIR. VS M/S TASTY NUTS INDUSTRIES KOLLAM KILIKOLLOOR, KOLLAM PAN : AAEFT7698D (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. LATHA S KUMAR RESPONDENT BY : SHRI IYPE MATHEW DATE OF HEARING : 08-10-2013 DATE OF PRONOUNCEMENT : 18-10-2013 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A)-III, KOCHI DATED 21-08-2012 FOR THE ASSESSMENT YEAR 2008 -09. 2. SMT. LATHA S KUMAR, THE LD.DR SUBMITTED THAT THE ONLY ISSUE ARISES FOR CONSIDERATION IS DIVERSION OF INTEREST FREE FUN DS FOR NON BUSINESS PURPOSE. ACCORDING TO THE LD.DR, THE ASSESSEE CLAI MED AN AMOUNT OF RS.74,71,459 AS INTEREST PAID ON BANK LOANS. AS ON 31-03-2008, THE LOAN OUTSTANDING WAS RS.11,09,42,802. THE ASSESSEE HAS DIVERTED 2 ITA NO.168/COCH/2013 RS.96,21,774 FOR NON BUSINESS PURPOSE. THE ASSESSE E HAS NOT FURNISHED ANY SATISFACTORY EXPLANATION BEFORE THE ASSESSING O FFICER, THEREFORE, THE ASSESSING OFFICER DISALLOWED THE PROPORTIONATE INTE REST PAID TO THE BANK. HOWEVER, ON APPEAL BY THE ASSESSEE, THE CIT(A) DELE TED THE ADDITION MADE BY THE ASSESSING OFFICER ON THE GROUND THAT TH E ASSESSEE WAS HAVING SUFFICIENT NON INTEREST BEARING FUNDS, THEREFORE, T HE JUDGMENT OF THE APEX COURT IN THE CASE OF MUNJAL SALES CORPORATION VS CI T 298 ITR 298 (SC) APPLIES. 3. ON A QUERY FROM THE BENCH, WHEN THE TAX EFFECT I NVOLVED IN THE APPEAL IS RS.2,35,246, HOW THE APPEAL IS MAINTAINAB LE BEFORE THIS TRIBUNAL IN VIEW OF THE CIRCULAR ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES FIXING THE MONETARY LIMIT FOR FILING APPEAL BEFORE THIS TR IBUNAL, THE LD.DR SUBMITTED THAT THIS IS A RECURRING ISSUE ARISE FOR CONSIDERAT ION IN THE ASSESSEES CASE. IDENTICAL ISSUE AROSE FOR THE SUBSEQUENT ASSESSMENT YEAR, I.E. A.Y. 2009- 10 BEFORE THIS TRIBUNAL IN ITA NO.301/COCH/2012 AND THIS TRIBUNAL REMANDED THE MATTER BACK TO THE FILE OF THE ASSESSI NG OFFICER FOR RECONSIDERATION AFTER CONSIDERING THE INTEREST FREE FUNDS VIDE ORDER DATED 10-07-2013. THEREFORE, IN VIEW OF THE JUDGMENT OF THE APEX COURT IN SURYA HERBAL LTD 243 CTR 29 (SC), THE APPEAL IS MAINTAINA BLE BEFORE THIS TRIBUNAL EVEN THOUGH THE TAX EFFECT INVOLVED IN THI S APPEAL IS BELOW THE MONETARY LIMIT FIXED BY THE CBDT. 3 ITA NO.168/COCH/2013 4. ON THE CONTRARY, SHRI IYPE MATHEW, THE LD.REPRES ENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROCESSING AND EXPORTING CASHEW KERNELS. DURING TH E YEAR UNDER CONSIDERATION, THE ASSESSEE HAS ADVANCED FUNDS TO I TS SISTER CONCERN, VIZ. M/S A.S. CASHEW EXPORTS IN THE REGULAR COURSE OF BU SINESS. ACCORDING TO THE LD.REPRESENTATIVE, FUNDS WERE ADVANCED TO M/S A .S. CASHEW EXPORTS FOR PURCHASE OF CASHEW KERNEL. THE LD.REPRESENTATI VE FURTHER SUBMITTED THAT THE PARTNERS OF THE ASSESSEE FIRM BROUGHT AN A MOUNT OF RS.3,82,84,123 AS FRESH CAPITAL DURING THE YEAR UND ER CONSIDERATION. HOWEVER, WHAT WAS FOUND TO BE DIVERTED IS ONLY RS.9 6,21,774. THEREFORE, INTEREST FREE FUNDS IN THE FORM OF CAPITAL CONTRIBU TION BY THE RESPECTIVE PARTNERS ARE MORE THAN THE FUNDS ADVANCED TO M/S A. S. CASHEW EXPORTS. REFERRING TO THE JUDGMENT OF THE APEX COURT IN THE CASE OF MUNJAL SALES CORPORATION (298 ITR 298) THE LD.REPRESENTATIVE SUB MITTED THAT WHEN THE ASSESSEE IS HAVING SURPLUS FUNDS IT CANNOT BE SAID THAT THE FUNDS WERE DIVERTED FOR NON BUSINESS PURPOSE. REFERRING TO TH E JUDGMENT OF THE APEX COURT IN THE CASE OF S.A. BUILDERS VS CIT 288 ITR 1 (SC), THE LD.REPRESENTATIVE SUBMITTED THAT WHEN THE FUNDS ARE ADVANCED FOR PURCHASE OF CASHEW KERNEL IN THE REGULAR COURSE OF BUSINESS ACTIVITY, IT CANNOT BE SAID THAT THE FUNDS WERE DIVERTED FOR NON BUSINESS PURPOSE. IN FACT, THE FUNDS WERE ADVANCED FOR BUSINESS PURPOSE. THEREFOR E, ACCORDING TO THE LD.REPRESENTATIVE, THERE WAS NO DIVERSION OF INTERE ST BEARING FUNDS FOR NON 4 ITA NO.168/COCH/2013 BUSINESS PURPOSE. ON A QUERY FROM THE BENCH, WHETH ER THE FUNDS WERE ADVANCED FOR BUSINESS PURPOSE OR NOT HAS TO BE FIRS T EXAMINED BY THE ASSESSING OFFICER AND SINCE THE ASSESSING OFFICER H AS ALSO NOT EXAMINED THE AVAILABILITY OF THE INTEREST FREE FUNDS WHY THE MATTER SHOULD NOT BE REMITTED TO THE FILE OF THE ASSESSING OFFICER FOR R ECONSIDERATION, THE LD.REPRESENTATIVE FOR THE ASSESSEE RAISED APPREHENS ION THAT THE ASSESSING OFFICER MAY NOT VERIFY THE ACCOUNTS PROPERLY AND MA Y REPEAT THE ADDITION WITHOUT LOOKING INTO THE DETAILS THAT ARE AVAILABLE ON RECORD. THEREFORE, THE LD.REPRESENTATIVE PRAYED THAT THE MATTER MAY BE EXA MINED BY THE TRIBUNAL AND A DECISION MAY BE TAKEN IN ACCORDANCE WITH LAW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSE SSING OFFICER FOUND THAT A SUM OF RS.96,21,774 WAS ADVANCED TO SISTER CONCER N M/S A.S. CASHEW EXPORTS. THE CONTENTION OF THE ASSESSEE IS THAT TH E ADVANCE WAS MADE IN THE COURSE OF REGULAR BUSINESS ACTIVITY FOR PURCHAS E OF CASHEW KERNELS. IF THE FUNDS WERE ADVANCED FOR PURCHASE OF CASHEW KERN ELS IN THE COURSE OF REGULAR BUSINESS ACTIVITY, THEN WE MAY NOT BE ABLE TO SAY THAT THERE WAS DIVERSION OF FUNDS FOR PERSONAL PURPOSE. THE ADVAN CE MADE DURING THE COURSE OF REGULAR BUSINESS FOR PURCHASE OF RAW MATE RIALS IS FOR THE PURPOSE OF BUSINESS. HOWEVER, THE MATTER AS TO WHETHER THE ADVANCE WAS IN FACT MADE FOR PURCHASE OF RAW CASHEW KERNELS NEEDS TO BE VERIFIED BY THE 5 ITA NO.168/COCH/2013 ASSESSING OFFICER. IF THE ADVANCE WAS MADE IN THE COURSE OF REGULAR BUSINESS ACTIVITY FOR PURCHASE OF CASHEW KERNELS, T HIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE FUNDS ADVANCED FOR PURC HASE OF CASHEW KERNELS IS ONLY FOR BUSINESS PURPOSE. THEREFORE, T HE JUDGMENT OF THE APEX COURT IN THE CASE OF S.A. BUILDERS (SUPRA) COMES IN TO OPERATION. EVEN IF THE FUNDS WERE DIVERTED FOR NON BUSINESS PURPOSE, T HEN THE ASSESSING OFFICER HAS TO EXAMINE THE AVAILABILITY OF INTEREST FREE FUNDS IN VIEW OF THE JUDGMENT OF THE APEX COURT IN THE CASE OF MUNJAL SA LES CORPORATION (SUPRA). THE ASSESSEE CLAIMS THAT A SUM OF RS.3,82 ,84,123 WAS INTRODUCED AS CAPITAL CONTRIBUTION BY THE PARTNERS DURING THE YEAR UNDER CONSIDERATION. IF AN AMOUNT OF RS.3,82,85,123 WAS AVAILABLE AS CAPITAL FROM THE PARTNERS, THEN THE AMOUNT ADVANCED TO M/S A.S. CASHEW EXPORTS EVEN FOR NON BUSINESS PURPOSE MAY NOT AMOUNT TO DIV ERSION OF BORROWED FUNDS. HOWEVER, THIS FACT HAS TO BE EXAMINED WITH REGARD TO THE AVAILABILITY OF THE CAPITAL CONTRIBUTION BY THE RESPECTIVE PARTN ERS AND THE OTHER INTEREST FREE FUNDS AVAILABLE ON THE DATE OF ADVANCE MADE TO M/S A.S. CASHEW EXPORTS. THOUGH THE ASSESSEE HAS FILED DETAILS OF AVAILABILITY OF INTEREST FREE FUNDS, THIS TRIBUNAL IS OF THE CONSIDERED OPIN ION THAT THE ASSESSING OFFICER HAS TO LOOK INTO THE MATTER AND FIND OUT WH ETHER INTEREST FREE FUND IS AVAILABLE AS CLAIMED BY THE ASSESSEE. THEREFORE, T HIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE EXAM INED BY THE ASSESSING OFFICER AT THE FIRST INSTANCE. 6 ITA NO.168/COCH/2013 6. THE LD.REPRESENTATIVE FOR THE ASSESSEE RAISED AN APPREHENSION THAT THE ASSESSING OFFICER MAY NOT EXAMINE THE BOOKS OF ACCOUNT AND MAY SIMPLY CONFIRM THE ADDITION WITHOUT LOOKING INTO TH E MATERIAL THAT ARE AVAILABLE ON RECORD. THIS TRIBUNAL IS OF THE CONSI DERED OPINION THAT THE ASSESSING OFFICER IS AN AUTHORITY ESTABLISHED UNDER THE INCOME-TAX ACT FOR THE PURPOSE OF COMPLETING THE ASSESSMENT AT THE ORI GINAL STAGE. THEREFORE, THE ASSESSING OFFICER HAS TO APPLY HIS M IND TO THE MATERIAL AVAILABLE ON RECORD AND FIND OUT WHETHER THE INTERE ST FREE FUNDS ARE AVAILABLE ON THE DATE OF ADVANCE AND WHETHER THE FU NDS WERE ADVANCED TO M/S A.S. CASHEW EXPORTS FOR PURCHASE OF CASHEW KERN EL. WE HOPE AND EXPECT THAT THE ASSESSING OFFICER WILL EXAMINE THE MATERIAL AVAILABLE ON RECORD WITHOUT ANY FEAR, FAVOUR OR BIAS. THE ASSES SING OFFICER BEING A QUASI JUDICIAL AUTHORITY EXERCISING JUDICIAL POWER IN COMPLETING THE ASSESSMENT HAS TO APPLY HIS MIND TO THE MATERIAL AV AILABLE ON RECORD AND DECIDE THE MATTER ONE WAY OR THE OTHER WITHOUT ANY FEAR, FAVOUR OR BIAS. WE MAKE IT CLEAR THAT THE ASSESSING OFFICER SHALL A PPLY HIS MIND INDEPENDENTLY WITHOUT ANY FEAR, FAVOUR OR BIAS. IF ANY ALLEGATION WITH REGARD TO NON APPLICATION OF MIND OR OTHERWISE FOR ULTERIOR MOTIVE IS RAISED, THEN THE MATTER WILL BE VIEWED SERIOUSLY. THEREFOR E, THE ASSESSING OFFICER SHALL EXAMINE THE MATTER WITHOUT GIVING ANY ROOM FO R SUCH ALLEGATION. 7 ITA NO.168/COCH/2013 7. WITH THE ABOVE OBSERVATIONS, THE ORDERS OF THE L OWER AUTHORITIES ARE SET SIDE AND THE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL EXAMINE THE MATTER AFRE SH IN THE LIGHT OF THE OBSERVATIONS MADE ABOVE AND FIND OUT WHETHER THE FU NDS ADVANCED TO A.S. CASHEW EXPORTS IS FROM INTEREST FREE FUNDS AVAILABL E WITH THE ASSESSEE ON THE DATE OF ADVANCE AND WHETHER THE ADVANCE IS MADE FOR PURCHASE OF CASHEW KERNEL IN THE COURSE OF REGULAR BUSINESS ACT IVITY AND THEREAFTER THE ASSESSING OFFICER SHALL DECIDE THE MATTER AFRESH IN ACCORDANCE WITH LAW IN THE LIGHT OF THE JUDGMENT OF THE APEX COURT IN THE CASE OF MUNJAL SALES CORPORATION (SUPRA) AFTER GIVING REASONABLE OPPORTU NITY OF HEARING TO THE ASSESSEE. 8. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH OCTOBER, 2013. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 18 TH OCTOBER, 2013 PK/- 8 ITA NO.168/COCH/2013 COPY TO: 1. THE DY.CIT, CENT.CIR. KOLLAM 2. M/S TASTY NUTS INDUSTRIES, KILIKOLLOOR, KOLLAM 3. THE COMMISSIONER OF INCOME-TAX, CENTRAL 4. THE COMMISSIONER OF INCOME-TAX(A)-III, KOCHI 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH