Kirloskar Pneumatic Co. Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 1987/PUN/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 9921 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 06-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 1 98 7 /P U N/201 6 / ASSESSMENT YEAR : 20 06 - 07 KIRLOSKAR PNEUMATIC CO. LTD., HADAPSAR INDUSTRIES ESTATE, PUNE SOLAPUR ROAD, HADAPSAR, PUNE 411013 . / APPELLANT PAN: AAA CK2479C VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 1 1(1) , PUNE . / RESPONDENT / APPELLANT BY : SHRI C.H. NANIWADEKAR / RESPONDENT BY : SHRI PANKAJ GARG / DATE OF HEARING : 19 . 0 9 .201 8 / DATE OF PRONOUNCEMENT: 26 . 0 9 .201 8 / ORDER PER SUSHMA CHOWLA, J M : THE APPEAL FILED BY ASSESSEE IS AGAINST ORDER OF CIT (A) - 7 , PUNE , DATED 27 .0 6 .2016 RELATING TO ASSESSMENT YEAR 20 06 - 07 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND OF APPEAL: - ITA NO. 1 98 7 /P U N/20 1 6 KIRLOSKAR PNEUMATIC CO. LTD. 2 1. THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDING DISALLOWANCE OF INTEREST OF RS.5,88,091/ - CONTENDING THE SAME AS NOT USED FOR BUSINESS PURPOSE AND WITHOU T APPRECIATING THE FACTS AND SUBMISSIONS MADE BEFORE THE LEARNED AO AS WELL AS LEARNED CIT(A) IN THIS BEHALF. HE ALSO FAILED TO CONSIDER THE APPLICABILITY OF HONBLE BOMBAY HIGH COURTS DECISION IN CASE OF RELIANCE UTILITIES AND POWER LTD [313 ITR 340] WH ICH WAS SPECIFICALLY DIRECTED TO BE CONSIDERED BY HONBLE PUNE BENCH OF ITAT. 3. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST DISALLOWANCE OF INTEREST OF 5,88,091/ - . 4. BRIEFLY, IN THE FACTS OF THE CASE, ORIGINAL ASSESSMENT WAS COMPLETED ON 1 5.12.2008, WHEREIN DISALLOWANCE WAS MADE OUT OF INTEREST EXPENSES TO THE TUNE OF 5,88,091/ - . THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) AND THEN BEFORE THE TRIBUNAL. THE TRIBUNAL IN ITS ORDER VIDE ITA NO.242/PN/2011, DATED 30.04.2012 RESTORED THE IS SUE BACK TO THE FILE OF ASSESSING OFFICER TO VERIFY THE CAPITAL AND RESERVES & SURPLUS AS ON 31.03.2005 AND 31.03.2006 AND DECIDE THE ISSUE IN THE LIGHT OF THE DECISION OF JURISDICTIONAL HIGH COURT. THE ASSESSEE IN THE SECOND ROUND BEFORE THE ASSESSING OF FICER EXPLAINED THAT THE ISSUE STANDS COVERED BY THE ORDER OF THE HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 ITR 340 (BOM) AND POINTED OUT THAT AS DISCLOSED IN THE BALANCE SHEET, SHAREHOLDER S FUNDS SHOWS THAT TH E CAPITAL & RESERVES & SURPLUS AS AT 31.03.2005 ARE RS.35.87 CRORES & AS AT 31.03.2006 ARE RS.46.36 CRORES. THE AVERAGE OF THE SAME COMES TO RS.41.11 CRORES . THUS, THE COMPANY HAS SUFFICIENT CAPITAL AND RESERVES & SURPLUS TO ADVANCE SUCH INTEREST FREE AD VANCE TO THE SISTER CONCERN. THE ADVANCE PAID TO THE SISTER CONCERN KIRLOSKAR MACQUAY PVT. LTD. IS ONLY RS.74,28,520/ - . IN THE VIEW OF THE ABOVE THE DISALLOWANCE MAY BE DELETED. THE ASSESSING OFFICER HOWEVER, REJECTED THE PLEA OF ASSESSEE OBSERVING AS U NDER: - 6.2 HOWEVER, ON PERUSAL OF RELEVANT CLAUSES OF THE PURCHASE ORDER OF MAZGAON DOCK, MUMBAI SUBMITTED BY THE ASSESSEE, IT IS SEEN THAT CLAUSE - 9 ITA NO. 1 98 7 /P U N/20 1 6 KIRLOSKAR PNEUMATIC CO. LTD. 3 DEFINES THE TERMS OF PAYMENT WHEREIN IT IS MENTIONED THAT THE PAYMENT OF ADVANCE UPTO 20% OF THE PURCHASE ORDER VALUE (EXCLUDING TAXES AND DUTIES) OF THE TOTAL EQUIPMENT COST PER SHIP (EXCLUSIVE OF INSTALLATION AND COMMISSIONING CHARGES) CAN BE GIVEN IN THE CASE M/S KIRLOSKAR PNEUMATIC CO. LTD. I.E. THE ASSESSEE COMPANY REQUESTS FOR THE SAME. THIS CLAUSE CLEA RLY SIGNIFIES THAT ADVANCE HAS BEEN GIVEN BY MAZGAON DOCK LIMITED, MUMBAI AT THE REQUEST OF THE ASSESSEE COMPANY AND ON THIS ADVANCE ASSESSEE COMPANY HAS PAID INTEREST OF RS.16,53,820/ - . AS AGAINST THIS ASSESSEE COMPANY HAS PAID INTEREST - FREE ADVANCE OF R S.74,28,520/ - TO ITS ASSOCIATED CONCERN WITHOUT CHARGING ANY INTEREST. IF ASSESSEE COMPANY HAD NOT GIVEN INTEREST - FREE PURCHASE ADVANCE TO ITS SISTER CONCERN, IT WOULD HAVE HAD RS.74,28,520/ - IN ITS FUND KITTY AND THERE WAS NO NEED FOR THE ASSESSEE COMPAN Y TO MAKE A REQUEST TO MAZGOAN DOCK LIMITED, MUMBAI FOR GIVING AN ADVANCE ON WHIC H HUGE INTEREST HAS BEEN PAID B Y THE ASSESSEE COMPANY. IT IS ALSO SEEN FROM THE PURCHASE ORDERS PLACED BY THE ASSESSEE COMPANY TO ITS SISTER CONCERN I.E. KIRLOSKER MCQUAY PVT. LTD. THAT INSPECTION IN RESPECT OF THE SUPPLY OF ITEMS, WAS TO BE MADE BY THE MDL/ MDL APPROVED INSPECTION AUTHORITY. THIS FACT SIGNIFIES THAT THERE IS A DIRECT NEXUS BETWEEN THE PURCHASES MADE FROM ITS SISTER CONCERN AND THAT THE SALES MADE TO MAZGAON DO CK LIMITED. 5. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER ON THE GROUND THAT CERTAIN DOCUMENTS WERE NOT FILED I.E. IN RESPECT OF PURCHASE ORDERS FROM THE SAID CONCERN. 6. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 7. THE LEARNED AUTHO RIZED REPRESENTATIVE FOR THE ASSESSEE TOOK US THROUGH THE FACTUAL ASPECTS OF THE CASE AND POINTED OUT THAT THE ISSUE STANDS COVERED BY THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (SUPRA), WHEREIN THE AS SESSEE HAD SUFFICIENT INTEREST FREE ADVANCES AVAILABLE WITH IT. HE ALSO POINTED OUT THAT EVEN OTHERWISE, THE ADVANCES MADE TO SISTER CONCERN WERE FOR THE PURPOSE OF BUSINESS AND THERE WAS NO MERIT IN DISALLOWING ANY PART OF INTEREST RELATABLE TO SUCH INTE REST FROM ADVANCES, IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN SA BUILDERS VS.CIT REPORTED IN 2006 TIOL 179 - SC - IT . ITA NO. 1 98 7 /P U N/20 1 6 KIRLOSKAR PNEUMATIC CO. LTD. 4 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE LIMITED ISSUE WHICH ARISES BEFORE US IN THE PRESENT APPEAL IS IN RESPECT OF DISALLOWANCE OF INTEREST OUT OF INTEREST PAID ON SECURED LOANS , RELATABLE TO INTEREST FREE ADVANCES MADE BY THE ASSESS EE. THE ASSESSEE HAD GIVEN INTEREST FREE ADVANCES OF 74,28,520/ - TO ITS ASSOCIATED CONCERN. THE CASE OF ASSESSEE IN THE FIRST INSTANCE IS THAT IT HAD SUFFICIENT INTEREST FREE ADVANCES AVAILABLE WITH IT. BOTH THE ASSESSING OFFICER AND CIT(A) HAVE NOTED THE PLEA OF ASSESSEE IN THIS REGARD I.E. CAPITAL AND RESERVES & SURPLUS AS ON 31.03.2005 WERE TO THE TUNE OF 35.87 CRORES AND AS ON 31.03.2006 WERE TO THE TUNE OF 46.36 CRORES. THE AVERAGE OF THE SAME COMES TO 41.11 CRORES. THE ASSESSEE HAD ADVANCED SUM OF 74,28,520/ - TO ITS SISTER CONCERN KIRLOSKAR MCQUAY PVT. LTD. WITHOUT GOING INTO ANY OTHER DETAILS REFERRED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSE SSEE, WE ARE OF THE VIEW THAT WHERE THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WERE SUFFICIENT TO COVER INTEREST FREE ADVANCES MADE BY THE ASSESSEE, THEN NO PART OF INTEREST EXPENDITURE INCURRED BY THE ASSESSEE ON ITS SECURED LOANS CAN BE DISALLOW ED IN THE HANDS OF ASSESSEE. FOR THIS, WE FIND SUPPORT FROM THE PROPOSITION LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (SUPRA), WHEREIN IT WAS HELD AS UNDER: - IF THERE WERE FUNDS AVAILABLE BOTH INTEREST - FREE A ND OVERDRAFT AND/OR LOAN TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF THE INTEREST FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. ITA NO. 1 98 7 /P U N/20 1 6 KIRLOSKAR PNEUMATIC CO. LTD. 5 10. APPLYING THE SAID PRINCI PLE TO THE FACTS OF PRESENT CASE, WE FIND THERE IS NO MERIT IN DISALLOWANCE MADE AT 5,88,091/ - AND THE SAME IS DELETED . THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 1 1 . IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNC ED ON THIS 26 TH DAY OF SEPTEMBER , 201 8 . SD/ - SD/ - (ANIL CHATURVEDI) (SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 26 TH SEPTEMBER , 201 8 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - 7 , PUNE ; 4. THE PR. CIT - 6 , PUNE ; 5. 6. , , / DR B , ITAT, PUNE ; / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE