DCIT, Ernakulam V. Sri.P.A.Jose, Kottayam

ITA 189/COCH/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7250 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 16-07-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 15-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Assessee Lawyers: R KRISHNA IYER
• Keywords: Proportionate interest

Judgement Text

1 ITA NO. 189/COCH/2013 ITA NO. 190/COCH/2013 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI CHANDRA PO OJARI (AM) I.T.A NO. 189 & 190/COCH/2013 (ASSESSMENT YEARS 2008-09 & 2009-10) DY.CIT, CENT.CIR.1 VS SHRI P.A. JOSE ERNAKULAM PAYYUAPALLIL KOTTAYAM 686 001 PAN : ACBPA3391B (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. LATHA V KUMAR, JR DR RESPONDENT BY : SHRI R KRISHNA IYER DATE OF HEARING : 16-07-2014 DATE OF PRONOUNCEMENT : 28S-08-2014 O R D E R PER N.R.S. GANESAN (JM) BOTH THE APPEALS OF THE REVENUE ARE DIRECTED AGAIN ST THE RESPECTIVE ORDERS OF CIT(A)-IV, KOCHI FOR THE ASSESSMENT YEARS 2008-009 AND 2009- 10. 2. LET US FIRST TAKE ITA NO.189/COCH/2013 FOR ASSES SMENT YEAR 2008- 09. 2 ITA NO. 189/COCH/2013 ITA NO. 190/COCH/2013 3. THE ONLY ISSUE RISES FOR CONSIDERATION IS DISALL OWANCE OF RS.2,28,13,661 TOWARDS INTEREST ON THE GROUND THAT THE BORROWED FUNDS WERE DIVERTED FOR NON BUSINESS PURPOSE. 4. SMT. LATHA V KUMAR, THE LD.DR SUBMITTED THAT THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING HIS OWN ORDE R FOR THE ASSESSMENT YEAR 2009-10. REFERRING TO THE ORDER OF THE CIT(A) FOR THE ASSESSMENT YEAR 2009-10, THE LD.DR SUBMITTED THAT THE CIT(A) FOUND THAT THE ASSESSEE HAS NON INTEREST BEARING FUNDS TO THE EXTENT OF RS.45,8 2,46,709, THEREFORE, THE CIT(A) HELD THAT THE ASSESSING OFFICER OUGHT NOT TO HAVE DISALLOWED THE CLAIM OF THE ASSESSEE ESPECIALLY WHEN SURPLUS NON I NTEREST BEARING FUNDS WERE AVAILABLE WITH THE ASSESSEE. ACCORDING TO THE LD.DR, THE LOANS WERE ADVANCED TO RELATIVES OF THE ASSESSEE AND THEY ARE NOT FOR BUSINESS PURPOSE. ACCORDING TO THE LD.DR, THE JUDGMENT OF T HE KERALA HIGH COURT IN CIT VS VI BABY & CO (2001) 254 ITR 248 (KER) WOULD BE SQUARELY APPLICABLE TO THE CASE. THE LD.DR FURTHER SUBMITTE D THAT FOR THE ASSESSMENT YEAR 2007-08 IN ASSESSEES OWN CASE, THI S TRIBUNAL HAD AN OCCASION TO CONSIDER AN IDENTICAL ISSUE. THIS TRIB UNAL, BY AN ORDER DATED 07-06-2013 IN ITA NO.233 & 282/COCH/2010 REMANDED B ACK THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO FIND O UT THE AVAILABILITY OF FUNDS IN THE CAPITAL / CURRENT ACCOUNT AND ALSO THE CURRENT YEAR PROFIT AND THEREAFTER 3 ITA NO. 189/COCH/2013 ITA NO. 190/COCH/2013 DECIDE THE MATTER IN THE LIGHT OF THE JUDGMENT OF T HE APEX COURT IN MUNJAL SALES CORPORATION 298 ITR 298 (SC). THE LD.DR SUBM ITTED THAT FOR THE YEAR UNDER CONSIDER THE MATTER MAY BE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. 5. ON THE CONTRARY, SHRI R KRISHNA IYER, THE LD.REP RESENTATIVE FOR THE ASSESSEE SUBMITTED THAT NO DOUBT FOR THE ASSESSMENT YEAR 2007-08 THIS TRIBUNAL REMANDED BACK THE MATTER TO THE FILE OF TH E ASSESSING OFFICER FOR VERIFICATION OF AVAILABILITY OF FUNDS TO THE EXTENT OF RS.20.74 CRORES. FOR THE YEAR UNDER CONSIDERATION, ACCORDING TO THE LD.REPRE SENTATIVE, THE ASSESSEE HAS FILED ALL THE FINANCIAL STATEMENTS BEFORE THE L OWER AUTHORITIES AND BEFORE THIS TRIBUNAL. TO SUBSTANTIATE THE CLAIM OF THE AS SESSEE THAT SUFFICIENT INTEREST FREE FUNDS WERE AVAILABLE FOR MAKING INTER EST FREE ADVANCES, THE LD.REPRESENTATIVE, SUBMITTED THAT FOR THE ASSESSMEN T YEAR 2007-08 THE GROSS PROFIT WAS RS.34,05,28,563 AND THE NET PROFIT WAS RS.10,23,92,696. FOR THE YEAR UNDER CONSIDERATION THE GROSS PROFIT I S RS.56,75,44,845 AND THE NET PROFIT IS RS.20,70,77,485. WHAT WAS ADVANC ED BY THE ASSESSEE IS RS.15,62,97,311 WHICH IS LESS THAN THE PROFIT OF TH E YEAR UNDER CONSIDERATION. APART FROM THIS, THE ASSESSEE ALSO HAD OTHER NON INTEREST BEARING FUNDS LIKE CAPITAL, SUNDRY CREDITS, ETC. T HEREFORE, ACCORDING TO THE LD.REPRESENTATIVE, FOR THE YEAR UNDER CONSIDERATION , IT MAY NOT BE NECESSARY 4 ITA NO. 189/COCH/2013 ITA NO. 190/COCH/2013 TO REMIT BACK THE MATTER TO THE FILE OF THE ASSESSI NG OFFICER IN VIEW OF THE ADMITTED POSITION. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THIS TRI BUNAL HAD AN OCCASION TO EXAMINE AN IDENTICAL ISSUE IN ASSESSEES OWN CASE F OR THE ASSESSMENT YEAR 2007-08 (SUPRA). THIS TRIBUNAL AFTER EXAMININ G THE AVAILABILITY OF THE FUNDS FOUND THAT THE FUNDS AVAILABLE WITH THE ASSES SEE INCLUDING THE SUNDRY CREDITORS WAS RS.39.23 CRORES WHEREAS THE FUNDS INV ESTED BY THE ASSESSEE WAS RS.35.77 CRORES, THEREFORE, THIS TRIBUNAL FOUND THAT THE CLAIM OF THE ASSESSEE THAT INTEREST FREE FUNDS OF RS.20.74 CRORE S WERE AVAILABLE WITH THE ASSESSEE WAS NOT BORNE OUT OF RECORDS. THEREFO RE, TO VERIFY THE AVAILABILITY OF INTEREST FREE FUNDS OF RS.20.74 CRO RES, THE MATTER WAS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER WITH A CLEAR DIRECTION THAT IF THE ASSESSEE DEMONSTRATES THE AVAILABILITY OF CAPIT AL, THEN THERE MAY NOT BE ANY DIVERSION OF FUNDS. FOR THE YEAR UNDER CONS IDERATION, THE ASSESSING OFFICER EXTRACTED THE TURNOVER, GROSS PROFIT AND NE T PROFIT IN THE ASSESSMENT ORDER ITSELF. AS EXTRACTED BY THE ASSESSING OFFICE R IN THE ASSESSMENT ORDER ON PAGE 2, THE TURNOVER, GROSS PROFIT AND NET PROFI T IS AS FOLLOWS: 5 ITA NO. 189/COCH/2013 ITA NO. 190/COCH/2013 A.Y. TURNOVER GROSS PROFIT NET PROFIT ------- ---------------- ----------------- ----- --------- 2006-07 2176702399 190753913 78249701 2007-08 3658455835 340528563 102392629 2008-09 5643732705 567544845 207077485 8. THEREFORE, THE NET PROFIT FOR THE ASSESSMENT YEA R 2008-09 WHICH IS UNDER CONSIDERATION IS RS.20,70,77,485. ADMITTEDLY WHAT WAS FOUND TO BE DIVERTED IS ONLY RS.15,62,96,311. THEREFORE, THE A MOUNT SAID TO BE DIVERTED IS FAR BELOW THE NET PROFIT OF THE YEAR UN DER CONSIDERATION. THE APEX COURT IN THE CASE OF MUNJAL SALES CORPORATION (SUPRA) FOUND THAT WHEN THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUN DS AND ALSO THE PROFIT, THERE MAY NOT BE ANY NECESSITY TO DISALLOW THE PROP ORTIONATE INTEREST FOR DIVERSION OF THE BORROWED FUNDS. IN THIS VIEW OF T HE MATTER, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE DISALLOWANCE HAS RIGHTLY BEEN DELETED BY THE CIT(A). THIS TRIBUNAL DO NOT FIND ANY INFIRMIT Y IN THE ORDER OF THE LOWER AUTHORITIES. ACCORDINGLY, THE SAME IS CONFIRMED. 9. NOW COMING TO APPEAL FOR ASSESSMENT YEAR 2009-10 , THE FIRST ISSUE IS WITH REGARD TO ADDITION IN RESPECT OF INTEREST O N HDFC HOME LOAN AND SUNDARAM HOME FINANCE. WE HEARD THE LD.DR AND THE LD.REPRESENTATIVE FOR THE ASSESSEE. 6 ITA NO. 189/COCH/2013 ITA NO. 190/COCH/2013 10. IT HAS BEEN BROUGHT TO THE NOTICE OF THE BENCH THAT THE VERY SAME ISSUE CAME UP BEFORE THIS TRIBUNAL IN THE CASE OF S MT. P.P. ALPHONSA FOR THE ASSESSMENT YEAR 2009-10 IN ITA NO.191/COCH/2013 , COPY OF WHICH IS FILED IN THE PAPER BOOK. THIS TRIBUNAL AFTER EXAMI NING THE MATTER FOUND THAT IF THE LOAN IS AVAILED BY WHATEVER NAME CALLED, IS USED FOR THE PURPOSE OF BUSINESS, THEN THERE SHOULD NOT BE ANY PROBLEM IN A LLOWING THE INTEREST PAID THEREON. IN FACT, THIS TRIBUNAL OBSERVED AS F OLLOWS AT PARAGRAPH 4.2 ON PAGE 3: 4.2 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS I SSUE. WE AGREE WITH THE CONTENTIONS OF LD A.R THAT THE NOMEN CLATURE OF THE LOAN IS NOT THE DECISIVE FACTOR TO ALLOW THE IN TEREST CLAIM. IT IS THE USER OF THE LOAN THAT IS REQUIRED TO BE EXAM INED. IF THE LOAN AVAILED, BY WHATEVER NAME IT IS CALLED, IS USE D FULLY FOR THE PURPOSE OF BUSINESS, THEN THERE SHOULD NOT BE ANY P ROBLEM IN ALLOWING THE INTEREST PAID THEREON AS DEDUCTION. I N THE INSTANT CASE, THE ASSESSING OFFICER HAS STATED THAT THE HDF C HOME LOAN WAS AVAILED TO FINANCE THE FLAT BELONGING TO T HE ASSESSEE. HOWEVER, ACCORDING TO THE ASSESSEE, SHE HAS USED TH E FUNDS OBTAINED THROUGH THE SAID LOAN FOR BUSINESS PURPOSE S. THOUGH THE LD CIT(A) HAS CONSIDERED THE CERTIFICATE GIVEN BY THE HDFC BANK, YET WE NOTICE THAT THE SAID CERTIFIC ATE ONLY FURNISHES THE DETAILS OF LOAN, THE SECURITY AND EMI DETAILS. IN OUR VIEW, THE CERTIFICATE GIVEN BY THE BANK DOES NO T BRING OUT THE USAGE OF FUNDS. HENCE, WHAT IS REQUIRED TO BE EXAMINED IS 7 ITA NO. 189/COCH/2013 ITA NO. 190/COCH/2013 THE USAGE OF FUNDS. IF THE LOAN FUNDS HAVE BEEN UTILIZED FOR BUSINESS PURPOSES, THEN THE INTEREST RELATING TO TH E ABOVE SAID LOAN IS ALLOWABLE AS DEDUCTION. ON THE CONTRARY, I F THOSE LOAN FUNDS HAVE BEEN USED FOR PERSONAL PURPOSES OR FOR P URCHASING FLAT, THEN THE INTEREST RELATING THERETO IS NOT ALL OWABLE AS DEDUCTION. HOWEVER, THE DETAILS OF USER OF FUNDS H AVE NOT BEEN EXAMINED BY BOTH THE TAX AUTHORITIES, THOUGH T HE ASSESSEE CLAIMS THAT IT WAS USED FOR BUSINESS PURPO SES ONLY. ACCORDINGLY, IN OUR VIEW, THE DETAILS OF USAGE OF L OAN FUNDS REQUIRE EXAMINATION AT THE END OF THE ASSESSING OFF ICER. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING O FFICER WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH IN THE L IGHT OF DISCUSSIONS MADE SUPRA AND TAKE APPROPRIATE DECISIO N IN ACCORDANCE WITH THE LAW. BY FOLLOWING THE ABOVE ORDER OF THIS TRIBUNAL IN TH E CASE OF P.P. ALPHONSA (SUPRA), THE ORDERS OF THE LOWER AUTHORITIES ARE SE T SIDE AND THE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL EXAMINE THE ISSUE IN THE LIGHT OF THE DIRECTI ONS CONTAINED IN THE ORDER OF THIS TRIBUNAL IN THE CASE OF SMT. P.P. ALPHONSA (SUPRA) AND THEREAFTER DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 8 ITA NO. 189/COCH/2013 ITA NO. 190/COCH/2013 11. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DISA LLOWANCE OF RS.62,48,847 TOWARDS PROPORTIONATE INTEREST ON DIVE RSION OF FUNDS. 12. SMT. LATHA V KUMAR, THE LD.DR SUBMITTED THAT FO R THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER FOU ND THAT THERE WAS INCREASE IN THE PERSONAL ASSET TO THE EXTENT OF RS. 7,35,11,623. THEREFORE, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS D IVERTED THE BORROWED FUNDS TO THE EXTENT OF RS.7,35,11,623. THE ASSESSI NG OFFICER FOUND THAT THIS INCREASE IN THE PERSONAL ASSET WOULD AMOUNT TO DIVERSION OF FUNDS FOR THE YEAR UNDER CONSIDERATION. THEREFORE, THE PROPO RTIONATE INTEREST WAS DISALLOWED. THE CIT(A), HOWEVER, BY TAKING INTO CO NSIDERATION OF THE AVAILABILITY OF THE NON INTEREST BEARING FUNDS TO T HE EXTENT OF RS. 45,82,46,709 ALLOWED THE CLAIM OF THE ASSESSEE. AC CORDING TO THE LD.DR, WHEN THE INTEREST BEARING FUNDS WERE DIVERTED, THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE PROPORTIONATE INTEREST. 13. ON THE CONTRARY, SHRI R KRISHNA IYER, THE LD.DR SUBMITTED THAT THE ASSESSING OFFICER ADMITS THAT THE ASSESSEE HAD NON INTEREST BEARING FUNDS TO THE EXTENT OF RS.45,82,46,709. THEREFORE, EVEN IF THE ASSESSEE GIVES INTEREST FREE LOAN TO THE EXTENT OF RS. 7,35,11,623 IT IS NOT FROM INTEREST BEARING FUNDS. FOR THE YEAR UNDER CONSIDERATION, T HE PROFIT OF THE ASSESSEE 9 ITA NO. 189/COCH/2013 ITA NO. 190/COCH/2013 IS MUCH MORE THAN WHAT WAS GIVEN AS INTEREST FREE F UNDS. IN VIEW OF THE ADMITTED POSITION THAT THE ASSESEE HAD INTEREST FRE E FUNDS TO THE EXTENT OF RS.45,82,46,709, ACCORDING TO THE LD.REPRESENTATIVE , THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT JUSTIFIED. TH EREFORE, THE CIT(A) HAS RIGHTLY DELETED THE ADDITION. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSION ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ON PAGE 3 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER FOUND THAT NON INTERES T BEARING FUNDS OF RS. 45,82,46,709 WERE AVAILABLE AS ON 31-03-2009. ONCE THE ASSESSING OFFICER ACCEPTS THAT NON INTEREST BEARING FUND IS A VAILABLE TO THE EXTENT OF RS.45,82,46,709 BESIDES PROFIT OF THE YEAR UNDER CO NSIDERATION, THEN, THE ADVANCE, IF ANY, MADE TO THE EXTENT OF RS. 7,35,11, 623 CANNOT BE CONSIDERED TO BE FROM INTEREST BEARING FUNDS IN VIE W OF THE JUDGMENT OF THE APEX COURT IN THE CASE OF MUNJAL SALES CORPORATION (SUPRA). THEREFORE, THE JUDGMENT OF THE HIGH COURT IN THE CASE OF V.I. BABY & CO (SUPRA) MAY NOT BE APPLICABLE TO THE FACTS OF THE CASE. ACCORD INGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY. THE SAME IS UPHELD. 15. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DIS ALLOWANCE OF 75% OF THE ADVERTISEMENT EXPENSES. 10 ITA NO. 189/COCH/2013 ITA NO. 190/COCH/2013 16. WE HEARD THE LD.,DR AND THE LD.REPRESENTATIVE F OR THE ASSESSEE. THIS ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN THE C ASE OF SMT. P.P. ALPHONSA (SUPRA). THIS TRIBUNAL ON IDENTICAL CIRCU MSTANCES FOUND THAT THE CIT(A) HAS RIGHTLY DELETED THE ADDITION TO THE EXTE NT OF 75% OF THE ADVERTISEMENT EXPENSES. IN FACT, THIS TRIBUNAL HAS OBSERVED AS FOLLOWS: ON PAGES 2 & 3 OF THE ORDER: 3.3 WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E RECORD. IT IS THE COMMON PRACTICE OF MANY BUSINESS MEN TO CONTRIBUTE FUNDS DURING FESTIVAL AND OTHER OCCASION S EITHER AS ADVERTISEMENT IN THE SOUVENIRS OR IN THE FORM OF SP ONSORS OF SOME PROGRAM. IN CASE OF SPONSORSHIP, THE NAME OF THE SPONSOR IS PROMINENTLY DISPLAYED AND ALSO ANNOUNCED TO THE GATHERINGS. IN OUR DAY TO DAY LIFE, WE SEE THAT MA NY TV PROGRAMS ARE SPONSORED BY THE COMMERCIAL ESTABLISHM ENTS. THOUGH THERE MAY SOME ELEMENT OF PHILANTHROPIC ATTI TUDE IN MAKING SUCH TYPE OF CONTRIBUTIONS, IN OUR VIEW, THE PREDOMINANT OBJECT OF A BUSINESSMAN WOULD BE TO REA P THE ADVERTISEMENT BENEFITS WHICH WOULD BE OBTAINED DUE TO HUGE GATHERINGS DURING SUCH OCCASIONS. WE NOTICE THAT T HE LD CIT(A) HAS CONSIDERED 25% OF THE EXPENDITURE AS REL ATING TO PHILANTHROPIC PURPOSES AND THE BALANCE 75% AS RELAT ING TO ADVERTISEMENT. IN VIEW OF THE FOREGOING DISCUSSIONS , WE ARE OF THE VIEW THAT THE LD CIT(A) WAS REASONABLE IN MAKIN G THE 11 ITA NO. 189/COCH/2013 ITA NO. 190/COCH/2013 ABOVE SAID ESTIMATE AND ACCORDINGLY, WE CONFIRM HIS ORDER ON THIS ISSUE. IN VIEW OF THE ABOVE, THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY, THE SAME IS CONF IRMED. 17. IN THE RESULT, APPEAL IN ITA NO.189/COCH/2013 I S DISMISSED AND THE APPEAL IN ITA NO.190/COCH/2013 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH AUGUST, 2014. SD/- SD/- (CHANDRA POOJARI) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 28 TH AUGUST, 2014 PK/- COPY TO: 1. DY.CIT, CENT.CIR.1, ERNAKULAM 2. SHRI P.A. JOSE, PAYYAPPALLIL, KOTTAYAM 686 001 3. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM 4. THE COMMISSIONER OF INCOME-TAX(A)-IV, KOCHI 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH