METRO EXPORTERS PVT LTD, MUMBAI V. ASST. C.I.T.-6(3), MUMBAI

ITA 1768/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2731 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Assessee
• Bench Allotted: G
• Next Hearing Date: 13-07-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 03-03-2011
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Earning of tax free income; Commercial expediency
• Section: 143(3); 80HHC; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO. 1768/MUM./2011 ( ASSESSMENT YEAR : 20 0 1 02 ) M/S. METRO EXPORTERS PVT. LTD. KAKAD CHAMBERS 132, DR. ANNIE BES ANT ROAD WORLI, MUMBAI 400 018 PAN AABCM0349J .. APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX RANGE 6(3), AAYAKAR BHAWAN 101, M.K. ROAD, MUMBAI 400 020 .... RESPONDENT ASSESSEE BY : SHRI PIYUSH CHHAJED A/W SHRI M.P. CHHAJED REVENUE BY : SHRI SATYAJIT MANDAL DATE OF HEARING 29 . 10 .2015 DATE OF ORDER 06.11.2015 O R D E R PER SAKTIJIT DEY , J.M. THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 8 TH DECEMBER 2010, PASSED BY THE LEARNED COMMISSI ONER (APPEALS) 12, MUMBAI, FOR THE ASSESSMENT YEAR 2001 02. THE ASSESSEE HAS RAISED THREE GROUNDS IN THE APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF ` 3 8,31,920/ AND ` 17,11,417 UNDER SECTION 36(1)(III) OF THE ACT WITHOUT APPRECIATING THAT THE APPELLANT WAS HAVING SUFFICIENT M/S. METRO EXPORTERS PVT. LTD. 2 INTEREST FREE FUNDS AND, THEREFORE, THERE WAS NO INTEREST INCURRED FOR THE ADVANCES MADE TO ITS SISTER CONCERN. 2. ON THE FACTS AN D CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT THE ADVANCES WERE GIVEN TOWARDS THE PURCHASE OF HOODS AND THEREFORE WERE BUSINESS ADVANCES REQUIRED BY COMMERCIAL EXPEDIENCY AND THEREFORE COULD NOT HAV E BEEN DISALLOWED U/S.36(1)(III) OF THE I.T. ACT. 3. THE ASSESSING OFFICER ERRED IN DISALLOWING ` 2,76,251 UNDER SECTION 14A OF THE ACT WITHOUT APPRECIATING THAT THERE WAS NO EXEMPT INCOME EARNED DURING THE YEAR AND THEREFORE THERE COULD HAVE BEEN NO DISA LLOWANCE UNDER SECTION 14A . 2. GROUNDS NO.1 AND 2, RELATE TO DISALLOWANCE OF INTEREST EXPENDITURE AMOUNTING TO ` 38,31,920 AND ` 17,11,417 UNDER SECTION 36(1)(III). 3. BRIEFLY STATED THE FACTS ARE, ASSESSEE A COMPANY, FILED RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 31 ST OCTOBER 2001, DECLARING TOTAL INCOME AT NIL. ASSESSMENT IN ASSESSEES CASE WAS COMPLETED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) ON 10 TH FEBRUARY 2004, BY DETERMINING TOTAL INCOME OF ` 5,17,24,400, AFTE R MAKING VARIOUS ADDITION S / DISALLOWANCE S . BEING AGGRIEVED OF THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. BEING UNSUCCESSFUL IN GETTING THE DESIRED RELIEF BEFORE THE FIRST APPELLATE AUTHORITY, THE ASSESSEE WEN T IN FURTHER APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL, WHILE DISPOSING OFF ASSESSEES APPEAL IN ITA NO.1693/MUM./2005 DATED 20 TH FEBRUARY M/S. METRO EXPORTERS PVT. LTD. 3 2009, ON CERTAIN ISSUES RESTORED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE ISSUE AFRESH WH ICH ARE AS UNDER: A) DISALLOWANCE OF INTEREST EXPENDITURE; B) DISALLOWANCE UNDER SECTION 14A IN CONNECTION WITH EXEMPT INCOME OF ` 2,76,251; C) RE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC IN THE LIGHT OF THE HON'BLE SUPREME COURT JUDGMENT IN THE CASE OF IPC A LABORATORIES AND HON'BLE BOMBAY HIGH COURT IN THE CASE OF KANTILAL CHOTALAL. 4. IN PURSUANCE TO THE DIRECTIONS OF THE TRIBUNAL, THE ASSESSING OFFICER TOOK UP THE PROCEEDINGS AGAIN. AS FAR AS INTEREST EXPENDITURE IS CONCERNED, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS GIVEN INTEREST FREE LOAN TO ITS SISTER CONCERN PAKS VETERINARY DRUGS CO. LTD. AMOUNTING TO ` 8,16,41,865. HE, THEREFORE, CALLED UPON THE ASSESSEE TO PROVE ITS CLAIM THAT SUCH INTEREST FREE LOAN WAS ADVANCED OUT OF SURPLUS INTEREST FR EE FUNDS. HE ALSO CALLED UPON THE ASSESSEE TO PROVE THE COMMERCIAL EXPEDIENCY FOR ADVANCING SUCH LOAN. AS OBSERVED BY THE ASSESSING OFFICER , THOUGH , THE ASSESSEE CLAIMED THAT IT HAD SUFFICIENT SURPLUS FUNDS AMOUNTING TO ` 39, CRORE OUT OF WHICH THE INTERES T FREE LOAN WAS GIVEN TO THE SISTER CONCERN, HOWEVER, HE ALLEGED THAT THE ASSESSEE DID NOT FURNISH ANY EVIDENCE TO BACK I T S CLAIM. HE, THEREFORE, RELYING UPON CERTAIN JUDICIAL PRECEDEN T HELD THAT AS THE ASSESSEE HAS FAILED TO ESTABLISH THE NEXUS BETWEEN TH E INTEREST FREE M/S. METRO EXPORTERS PVT. LTD. 4 FUNDS AVAILABLE AND LOAN ADVANCED TO THE SISTER CONCERN AND ALSO COULD NOT PROVE THE COMMERCIAL EXPEDIENCY IN ADVANC ING SUCH LOAN TO SISTER CONCERN, TH E INTEREST EXPENDITURES OF ` 38,31,920 AND ` 17,11,417 HAVE TO BE DISALLOWED, AS DONE BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT ORDER. 5. THE FIRST APPELLATE AUTHORITY ALSO SUSTAINED THE DISALLOWANCE BY OBSERVING THAT THE ASSESSEE HAS NOT ESTABLISHED THE COMMERCIAL EXPEDIENCY BY FURNISHING RELEVANT MATERIAL IN TERMS WITH THE DIRECTIONS O F THE TRIBUNAL . 6. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH HIM TO MAKE ADVANCES TO THE SISTER CONCER N, THEREFORE, NO DISALLOWANCE OF INTEREST EXPENDITURE CAN BE MADE WITHOU T ESTABLISHING THE FACT THAT THE ASSESSEE HAS DIVERTED INTEREST BEARING FUNDS TO ITS SISTER CONCERN. HE SUBMITTED , ONCE IT IS ESTABLISHED THAT SUFFICIENT INTEREST FREE FUND IS AVAILABLE WITH THE ASSESSEE THE PRESUMPTION WOULD BE THE INTEREST FREE LOAN ADVA NCED TO SISTER CONCERN IS OUT OF INTEREST FREE SURPLUS FUNDS AND THE ASSESSEE IS NOT EVEN REQUIRED TO PROVE COMMERCIAL EXPEDIENCY. IN THIS CONTEXT, THE LEARNED COUNSEL RELIED UPON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S RELIANCE UT ILIT IES AND POWER LTD. , [ 2009 ] 313 ITR 340 (BOM.) AND THE DECISION M/S. METRO EXPORTERS PVT. LTD. 5 OF HON'BLE DELHI HIGH COURT IN CIT V/S BHARTI TELE VENTURE LTD., [ 2013 ] 313 ITR 502 (DEL.). THE LEARNED COUNSEL REFERRING TO THE AUDITED BALANCE SHEET OF THE COMPANY, A COPY OF WHICH IS AT PAGE 1 OF THE PAPER BOOK SUBMITTED THAT ASSESSEE HAD SURPLUS FUNDS OF ` 39 CRORES ON ACCOUNT OF CAPITAL AND RESERVE AND SURPLUS. THAT BESIDES, THE ASSESSEE HAD AVAILABLE WITH HIM AN AMOUNT OF ` 867.98 LAKH TOWARDS ADVANCE AGAINST ORDERS AND SUNDRY LOANS OF ` 364.63 LAKH. THEREFORE, IT HAS SUBSTANTIAL INTEREST FREE FUND AVAILABLE TO MAKE THE ADVANCE TO SISTER CONCERN. HE SUBMITTED AS FAR AS LOAN OBTAINED FROM BANKS ARE CONCERN ED , THEY ARE FOR SPECIFIC PURPOSE, HENCE, COULD NOT HAVE BEEN DIVERTED FOR ANY OTHER PURPOSES. FURTHER, THE LEARNED COUNSEL SUBMITTED THAT AS FAR AS COMMERCIAL EXPEDIENCY IS CONCERNED, IT IS PROVED FROM THE FACT THAT ALMOST ENTIRE PRODUCTS MANUFACTURED BY THE SISTER CONCERN WA S SOLD TO THE ASSESSEE WHICH PROVES THAT THE ASSESSEE HAS AN INT IMATE BUSINESS CONNECTION WITH THE SISTER CONCERN. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELYING UPON THE ORDER OF THE LEARNED COMMISSIONER (APPEALS), SUBMITTED THAT AS THE ASSESSEE HAS FAILED TO ESTABLISH A NEXUS BETWEEN SURPLUS FUN D AND THE INTEREST FREE ADVANCE MADE TO THE SISTER CONCERN DISALLOWANCE MADE IS JUSTIFIED. M/S. METRO EXPORTERS PVT. LTD. 6 8. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. IT IS A FACT THAT IN THE EARLIE R ROUND, THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENDITURE WAS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER BY THE TRIBUNAL WHILE DECIDING ASSESSEES APPEAL. WHILE DOING SO, THE TRIBUNAL DIRECTED THE ASSESSING OFFICER TO VERIFY WHE THER THE ASSESSEE HAD SUFFICIENT RESERVE AND SURPLUS TO ADVANCE INTEREST FREE LOAN AND ALSO TO EXAMINE THE COMMERCIAL EXPEDIENCY. ON A PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDERATION, A COPY OF WHICH IS SUBMITTED IN TH E PAPER BOOK, IT IS NOTICED THAT THE ASSESSEE HAD SUFFICIENT CASH INFLOW AVAILABLE WITH IT BY WAY OF OWN CAPITAL, RESERVE AND SURPLUS , ADVANCES RECEIVED AGAINST ORDERS , AND SUNDRY LOANS WHICH IS MORE THAN ENOUGH TO TAKE CARE OF THE INTEREST FREE ADVANCES T O THE SISTER CONCERN. MOREOVER, AS HELD BY THE HON'BLE JURISDICTIONAL HIGH COURT IN RELIANCE UTILIT IES AND POWER LTD. (SUPRA) AND THE HON'BLE DELHI HIGH COURT IN BHARTI TELE VENTURE LTD., (SUPRA) WHEN MIXED FUNDS VIZ. BOTH INTEREST BEARING AND NON INTEREST BEARING ARE AVAILABLE WITH ASSESSEE , PRESUMPTION WOULD BE INTEREST FREE LOAN HAS BEEN GIVEN OUT OF NON INTEREST BEARING FUNDS AVAILABLE WITH THE ASSESSEE. THEREFORE, KEEPING IN VIEW THE AFORESAID PRINCIPLE LAID DOWN BY THE COURTS, WHEN THE ASSESSEE HAD SU FFICIENT INTEREST FREE FUNDS AVAILABLE WITH IT, THE PLEA OF THE ASSESSEE THAT IT HAS M/S. METRO EXPORTERS PVT. LTD. 7 ADVANCED THE INTEREST FREE LOAN TO THE SISTER CONCERN OUT OF SUCH NON INTEREST BEARING FUNDS IS ACCEPTABLE. THEREFORE, IN OUR VIEW, NO DISALLOWANCE OF INTEREST EXPENDITURE CAN BE MADE. AS FAR AS COMMERCIAL EXPEDIENCY IS CONCERNED, IT HAS BEEN BROUGHT TO OUR NOTICE BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT ALMOST THE ENTIRE PRODUCT MANUFACTURED BY THE SISTER CONCERN TO WHICH INTEREST FREE LOAN WAS ADVANCED WAS SOLD TO THE ASSESSEE. THIS VERY FACT REVEAL S THAT ASSESSEE HA S A BUSINESS INTEREST IN THE SISTER CONCERN, THEREFORE, ADVANCEMENT OF INTEREST FREE LOAN TO THE SISTER CONCERN CAN BE CONSIDERED TO BE FOR COMMERCIAL EXPEDIENCY. IN VIEW OF THE AFORESAID, WE DELETE THE ADD ITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENDITURE, GROUNDS NO.1 AND 2 ARE ALLOWED. 9. IN GROUND NO.3, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF ` 2,76,251 UNDER SECTION 14A OF THE ACT. 10. THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITTED BEFORE US THAT AS THE ASSESSEE DURING THE RELEVANT YEAR HAS NOT EARNED ANY EXEMPT INCOME NO DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MADE. 11. THE LEARNED DEPARTMENTAL REPRESENTATIVE RAISING PRELIMINARY OBJECTION SUBMITTED THAT THE A SSESSEE HAS NOT RAISED THIS GROUND BEFORE THE FIRST APPELLATE AUTHORITY, THEREFORE, HE CANNOT RAISE THIS ISSUE AT THIS STAGE. M/S. METRO EXPORTERS PVT. LTD. 8 12. IN THE REJOINDER, THE LEARNED COUNSEL FOR THE ASSESSEE THOUGH ADMITTED THAT THIS GROUND WAS NOT RAISED BEFORE THE FIRST APPELLATE AUTHORITY DUE TO OVERSIGHT , BUT , HE NEVERTHELESS SUBMITTED THAT THE ISSUE EMANATES FROM THE ASSESSMENT ORDER AND THE TRIBUNAL IS COMPETENT TO ENTERTAIN THE GROUND RAISED BY THE ASSESSEE. FOR SUCH PROPOSITION, HE RELIED UPON THE DECISION OF THE HON'BLE JUR ISDICTIONAL HIGH COURT IN CIT V/S PRUTHVI BROKERS & SHAREHOLDERS, [ 2012 ] 349 ITR 336 (BOM.). 13. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DOUBT THAT ASSESSEE HAS NOT RAISED THIS ISSUE BEFORE T HE FIRST APPELLATE AUTHORITY. HOWEVER, ON EXAMINATION OF RECORD, IT IS FOUND THAT THIS ISSUE WAS NOT ONLY THE SUBJECT MATTER OF DISPUTE IN THE EARLIER ROUND OF LITIGATION BUT IS ALSO A SUBJECT MATTER OF DISALLOWANCE BY THE ASSESSING OFFICER IN THE SECOND R OUND. THEREFORE, IN OUR VIEW, THE ISSUE EMANATES FROM THE ASSESSMENT ORDER. HOWEVER, CONSIDERING THE FACT THAT THE ASSESSEE HAS NOT CHALLENGED THE DISALLOWANCE BEFORE THE FIRST APPELLATE AUTHORITY, AND A PLEA WAS TAKEN BEFORE US BY THE LEARNED COUNSEL THAT THE ASSESSEE DID NOT EARN A N Y EXEMPT INCOME DURING THE IMPUGNED ASSESSMENT ORDER, HENCE, NO DISALLOWANCE UNDER SECTION 14A IS CALLED FOR , WE CONSIDER IT APPROPRIATE TO RESTORE THE ISSUE TO THE FILE OF THE M/S. METRO EXPORTERS PVT. LTD. 9 ASSESSING OFFICER FOR EXAMINING ASSESSEES CLAIM A ND DECIDE IT IN ACCORDANCE WITH LAW AFTER DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND IS, THEREFORE, ALLOWED FOR STATISTICAL PURPOSES. 14. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20.11.2015 SD/ - ASHW ANI TAEAJA ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED : 20.11.2015 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (DY./ASSTT. REGISTRAR) ITAT, MUMBAI