The ACIT, 3(1), Bhopal V. M/s Writers & Publishers Limited, Bhopal

ITA 20/IND/2011

• Counselvise Citation: 2022714 RSA 2011
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 27-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 25-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KESHAV SAXENA
• Assessee Lawyers: S S DESH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AAACW1376J I.T.A.NO. 20 / IND /20 1 1 A.Y. : 200 6 - 07 ACIT, M/S.WRITERS & PUBLISHERS LIMITED, 3(1), VS BHOPAL. BHOPAL APPELLANT RESPONDENT APPELLANT BY : SHRI KESHAV SAXENA, CIT DR RESPONDENT BY : SHRI S.S.DESHPANDE, C.A. DATE OF HEARING : 1 9 .1 2 .2011 DATE OF PRONOUNCEMENT : 22 . 12 .2011 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 30 TH NOVEMBER, 2010, FOR THE ASSESSMENT YEAR 2006-07 IN THE MATTER OF ORDER PASSED U/S 145(3), W HEREIN FOLLOWING GROUND HAS BEEN TAKEN BY THE REVENUE :- -: 2: - 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE CIT(A) HAS ERRED IN DELETING THE ADDITIONAL HOLDING THAT THE AO WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE OF INTEREST OF RS. 2,18,36,300/- ON INTEREST FREE LOANS/ADVANCES, RIGHTLY MADE BY THE ASSESSING OFFICER AS THE ASSESSEE HAS FAILED TO DISCHARGE ITS ONUS TO PROVIDE BUSINESS REASONS FOR THESE INTEREST FREE ADVANCES. 2. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOUND THAT THE AO HAS MADE THE DISALLOWANCE OF INTEREST P AID BECAUSE ON THE ONE HAND THE ASSESSEE COMPANY IS PAY ING INTEREST OF RS. 2,18,36,300/- WHICH INCLUDES RS. 1. 65 CRORE PAID TO M/S. DBCL WHICH IS GROUP CONCERN WHEREAS IT HAS ADVANCED INTEREST FREE LOANS TO VARIOUS GROUP COMPA NIES ON WHICH NO INTEREST HAS BEEN RECEIVED. IT WAS OBSERVE D STATED BY THE ASSESSING OFFICER THAT NO SPECIFIC DETAIL HAS B EEN FURNISHED ABOUT THE NATURE OF THE ADVANCE GIVEN AND THEREFORE INTEREST @ 12 % WAS WORKED OUT ON OTHER INTEREST FREE ADVANCES AND DISALLOWED TO THE EXTENT OF INTEREST PAID BY THE AS SESSEE COMPANY TO THE TUNE OF RS. 2,18,36,300/-. -: 3: - 3 3. BY THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ENTIRE DISALLOWANCE OF INTEREST AFTER HAVING FOLLOW ING OBSERVATIONS :- I HAVE GONE THROUGH THE ASSESSMENT ORDER, THE WRITTEN SUBMISSION OF THE LD. AUTHORIZED REPRESENTATIVE AND VARIOUS CASE LAWS RELIED UPON BY HIM. THE AO HAS MADE THE DISALLOWANCE OF TOTAL INTEREST BY THE ASSESSEE COMPANY DURING THE YEAR AMOUNTING TO RS.2,18,36,300/- ON THE BASIS OF THE FACT THAT INTEREST HAS BEEN PAID ON LOANS BORROWED BUT NO INTEREST HAS BEEN CHARGED ON INTEREST FREE ADVANCES OF RS. 91.95 CRORES GIVEN TO VARIOUS GROUP CONCERNS. S.NO. NAME OF PARTY AMOUNT (RS. ) 1. BHASKAR FISCAL & INFRASTRUCTURE LTD. 21,60,62,555.71 2. BHASKAR MULTINET LIMITED 68,42,95,877.67 3. EURO MULTI BUSINESS PRODUCTS PVT.LTD. 1,92,39,315.00 TOTAL RS. 91,95,97,747.38 -: 4: - 4 THE LD. AUTHORIZED REPRESENTATIVE HAS DISPUTED THE DISALLOWANCE OF INTEREST ON VARIOUS COUNTS. THE DISALLOWANCE OF INTEREST IS WRONG BECAUSE THE LOANS TAKEN BY THE APPELLANT IS UTILIZED FOR BUSINESS PURPOSE AND THE ADVANCE GIVEN ON WHICH INTEREST HAS NOT BEEN CHARGED HAVE NO NEXUS WITH THE BORROWED FUNDS. IT HAS BEEN STATED BY THE LD. AUTHORIZED REPRESENTATIVE THAT THE BUSINESS OF THE APPELLANT COMPANY I.E. PRINTING AND PUBLISHING HAS BEEN DEMERGED WITH DB CORP LIMITED. THE UNSECURED LOAN OF RS. 70 CRORES OF DB CORP LTD. IS ONLY BECAUSE OF IMPLEMENTATION OF SCHEME OF DEMERGER UNDER THE COMPANIES ACT, 1956, AND DULY APPROVED BY THE HON'BLE HIGH COURT, GUJARAT. THUS, THERE WAS NO INTEREST FREE ADVANCES MADE TO GROUP CONCERNS OUT O F THE BORROWED FUNDS. THE LD. AUTHORIZED REPRESENTATIVE HAS FURTHER STATED THAT RS. 1.65 CRO RE HAS BEEN PAID TO DB CORP LIMITED BY WAY OF INTEREST , OTHER PAYMENT OF INTERESTS ARE ON ACCOUNT OF INTERE ST PAYMENT TO BANK TO THE TUNE OF RS. 46.27 LAKHS, RS. -: 5: - 5 6.59 LAKHS TO NOIDA AUTHORITY AND RS. 0.50 LAKH ON PUBLIC DEPOSITS WHICH COMES TO RS. 2,18,36,300/-. THE APPELLANT COMPANY HAS ALSO RECEIVED TOTAL INTEREST PAYMENT OF RS. 155.69 LAKHS AND HENCE NET INTEREST PAYMENT IS ONLY RS. 62.67 LAKHS DURING THE YEAR. DURING THE APPELLATE PROCEEDINGS IT HAS BEEN VEHEMENTLY ARGUED THAT NO NEW LOANS HAVE BEEN TAKEN DURING THE YEAR AND NEITHER THE APPELLANT HAS MADE REPAYMENT OF OLD LOANS AND, HENCE, THERE IS NO QUESTION OF PAYMENT OF INTEREST ON NEW LOANS. WHATEVER INTEREST HAS BEEN PAID ARE ON BORROWED FUNDS REPRESENTING OLD LOANS ONLY. THE LD. AUTHORIZED REPRESENTATIVE HAS CONTENTED THA T THE APPELLANT COMPANY HAS INTEREST FREE UNSECURED LOANS FROM DIRECTORS/SHAREHOLDERS AMOUNTING TO RS. 6.43 CRORES AND CREDIT BALANCE OF RS. 103 CRORES MAINLY FROM GROUP COMPANIES ON WHICH NO INTEREST HAS BEEN PAID DURING THE YEAR. THIS ASPECT HAS BEEN IGNORED BY THE ASSESSING OFFICER WHILE MAKING THE DISALLOWANCE OF INTEREST ALLEGEDLY ON NON-INTEREST -: 6: - 6 BEARING ADVANCES. THE AO HAS NOT LOOKED INTO THE FACTS IN TOTALITY BECAUSE BECAME WHERE INTEREST HAS BEEN DISALLOWED, NO COGNIZANCE HAS BEEN GIVEN TO SUBSTANTIAL INTEREST FREE FUNDS WHICH WAS AVAILABLE AT THE DISPOSAL OF THE APPELLANT COMPANY TO COVER T HE ADVANCES MADE DURING THE YEAR. THE LD. AUTHORIZED REPRESENTATIVE FURTHER CONTENDED THAT THE ADVANCES MADE ARE WITH BUSINESS INTENTION ONLY AND NOT OTHERWISE. THE APPELLANT HAS ALSO POINTED TO THE FA CT THAT M/S. EURO MULTI BUSINESS PRODUCTS PVT.LTD. IS NOT A GROUP CONCERN AND THE SAID ADVANCE OF RS. 1.9 2 CRORES HAS NOT BEEN GIVEN DURING THE YEAR BUT IT IS AN OLD ADVANCE. THE LD. AUTHORIZED REPRESENTATIVE HAS ALSO STATED THAT IN ADDITION TO THE INTEREST FREE UNSECURED LOANS AND INTEREST FREE CREDIT BALANCES AVAILABLE WITH THE APPELLANT COMPANY AND AS DISCUSSED ABOVE, THE ASSESSEE HAS OWN FUNDS DURING THE BEGINNING OF THE YEAR AMOUNTING TO RS. 136.36 CRORE. THE BIFURCATION OF THE SAME IS AS UNDER :- -: 7: - 7 PAID UP SHARE CAPITAL RS. 32.92 CRORES RESERVE & SURPLUS RS. 87.48 CRORES DEFERRED TAX LIABILITY RS. 15.96 CRORES RS.136.36 CRORES THE LD. AUTHORIZED REPRESENTATIVE CONTENDED THAT NO EXPENSES ON INTEREST HAVE BEEN INCURRED BY THE APPELLANT ON HIS OWN FUND OF RS. 136.35 CRORES WHIC H IN ITSELF IS QUITE ADEQUATE TO COVER ANY INTEREST F REE ADVANCE IN ADDITION TO THE AVAILABILITY OF INTEREST FREE UNSECURED LOANS AND CREDIT BALANCES. THE LD. AUTHORIZED REPRESENTATIVE HAS RELIED UPON VARIOUS CASE LAWS IN SUPPORT OF HIS CONTENTION THAT INTERES T CANNOT BE DISALLOWED IN SUCH A SITUATION WHEN THE ASSESSEE HAS SUFFICIENT FUNDS AND THE AO WAS WRONG IN MAKING DISALLOWANCE OF INTEREST AMOUNTING TO RS. 2,18,36,300/-. THE REASONING GIVEN BY THE ASSESSING OFFICER IN DISALLOWING THE IMPUGNED ADDITION OF INTEREST AMOUNTING TO RS. 2,18,36,300/- HAS BEEN CONSIDERED ALONGWITH THE DETAILED SUBMISSION OFFERED BY THE LD . AUTHORIZED REPRESENTATIVE. THERE IS CONSIDERABLE -: 8: - 8 STRENGTH IN THE ARGUMENTS OFFERED BY THE APPELLANT THAT NO NEW LOANS HAVE BEEN TAKEN DURING THE YEAR AND THE OLD LOANS HAVE BEEN REPAID CONSIDERABLY. IT HAS ALSO BEEN PLEADED THAT LOANS TAKEN HAVE BEEN UTILIZED FOR BUSINESS PURPOSE ONLY. THE AO HAS FURTHER NOT PROVED THAT THERE IS A NEXUS BETWEEN TH E BORROWED FUNDS AND THE INTEREST FREE ADVANCES TO THE EXTENT OF INTEREST FREE FUNDS AVAILABLE WITH TH E APPELLANT. IT HAS BEEN HELD IN THE CASE OF CIT VS. HOTEL SAVERA (1999) 239 ITR 795 BY HON'BLE MADRAS HIGH COURT THAT IF THE FIRM HAS SUFFICIENT FUNDS TO COVER ITS ADVANCES THAN INTEREST ON BORROWED CAPITA L IS ALLOWABLE IN FULL U/S 36(I)(III) AND NO DISALLOW ANCE OF INTEREST IS CALLED FOR. FURTHER IN THE CASE OF C IT VS. PREM HEAVY ENGG.WORKS PVT. LTD., (2006) 285 ITR 554 (ALL), IT IS HELD THAT IF THE APPELLANT HAD SUF FICIENT AMOUNT OF MONEY TOWARDS SHARE CAPITAL, RESERVE & SURPLUS AND ALSO INTEREST FREE ADVANCES THAN THE INTEREST FREE ADVANCES MADE TO VARIOUS SISTER CONCERNS ARE FULLY COVERED FROM THE INTEREST FREE -: 9: - 9 ADVANCES, SHARES CAPITAL, SURPLUS & RESERVES. THE HON'BLE TRIBUNAL WAS JUSTIFIED IN CONFIRMING THE DELETION OF DISALLOWANCE OF INTEREST. THE RATIO OF THIS CASE IS APPLICABLE TO THE CASE OF THE APPELLANT AS THE APPELLANT HAD SUFFICIENT INTEREST FREE FUNDS WITH H IM TO TAKE CARE OF THE INTEREST FREE LOANS AND ADVANCE S. IN VIEW OF THE ABOVE FACTS, I AM OF THE CONSIDERED VIEW THAT THE AO WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE OF INTEREST OF RS. 2,18,36,300/- ON INTEREST FREE LOANS/ADVANCES. THUS, THE DISALLOWANC E MADE BY THE ASSESSING OFFICER IS DELETED AND THIS GROUND IS DECIDED IN FAVOUR OF THE APPELLANT. 4. THE LD. CIT DR DREW OUR ATTENTION TO THE FACT THAT THE ASSESSEE HAS PAID INTEREST TO THE ASSOCIATE CONCERN EVEN IN RESPECT OF CREDIT BALANCE OF RS. 70 CRORES AROSE OU T OF THE ADJUSTMENT ENTRIES PASSED ON ACCOUNT OF DEMERGER OF ITS PUBLISHING BUSINESS INTO D.B.CORP.LTD. AS PER LD. C IT DR, WHEN THE ASSESSEE HAD PAID INTEREST EVEN IN RESPECT OF SUCH ADJUSTMENT ENTRIES RESULTING INTO CREDIT BALANCE, T HERE IS NO -: 10: - 10 REASON FOR NOT CHARGING INTEREST OUT OF THE DEBIT B ALANCE IN RESPECT OF OTHER ASSOCIATE CONCERNS DUE TO SUCH DE MERGER. 5. ON THE OTHER HAND, THE LD. AUTHORIZED REPRESENTATIV E DREW OUR ATTENTION TO THE STATEMENT OF ACCOUNT OF T HESE THREE COMPANIES, WHEREIN ADJUSTMENT ENTRIES WERE PASSED A T THE END OF THE YEAR AND DEBIT BALANCE WAS ARISING OUT O F SUCH ENTRIES ON ACCOUNT OF DEMERGER OF THE ASSESSEE COMP ANY. ACCORDINGLY, HE ARGUED THAT AS PER THE FINDINGS REC ORDED BY THE LD. CIT(A), NO DISALLOWANCE OF INTEREST WAS WAR RANTED. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. T HERE IS NO DISPUTE TO WELL SETTLED LEGAL PROPOSITION THAT DISA LLOWANCE OF INTEREST IS WARRANTED WHEN THE ASSESSEE HAD DIVERTE D THE INTEREST BEARING FUNDS TO ASSOCIATE CONCERN WITHOUT CHARGING ANY INTEREST AND WITHOUT SHOWING COMMERCIAL EXPEDIE NCY FOR THE SAME. IN THE INSTANT CASE, WE FOUND FROM RECORD THAT THE AO HAS MADE DISALLOWANCE OF INTEREST EXPENDITURE IN RESPECT OF INTEREST FREE ADVANCES MADE TO THE FOLLOWING CONCER NS, WHICH WERE FOUND TO BE NOT FOR BUSINESS PURPOSES :- -: 11: - 11 S.NO. NAME OF PARTY AMOUNT (RS. ) INTEREST @ 12 % 1. BHASKAR FISCAL & INFRASTRUCTURE LTD. 21,60,62,555.71 2,59,27,506.69 2. BHASKAR MULTINET LIMITED 68,42,95,877.67 8,21,15,503.32 3. EURO MULTI BUSINESS PRODUCTS PVT.LTD. 1,92,39,315.00 23,08,717.68 TOTAL RS. 11,03,51,729.69 7. AS PER STATEMENT OF ACCOUNT PLACED ON RECORD, WE FOUND THAT IN CASE OF BHASKAR FISCAL AND INFRASTRUC TURE LIMITED, DEBIT BALANCE AROSE ONLY FROM 22 ND MARCH, 2006, WHEN ADJUSTMENT ENTRIES WERE PASSED IN RESPECT OF DEMERG ER. HOWEVER, FURTHER LEDGER ENTRY WAS PASSED ON 31 ST MARCH, 2006, WHICH RESULTED INTO INCREASE IN SUCH DEBIT BALANCES AS AT THE END OF THE YEAR. ACCORDINGLY, WE DIRECT THE AO TO C HARGE INTEREST ON RS. 1.20 CRORES FOR THE PERIOD 22.3.200 6 TO 31.3.2006. IN RESPECT OF BHASKAR MULTINET LIMITED, WE FOUND THAT THERE IS OPENING CREDIT BALANCE OF RS. 2.88 CR ORES AND THE DEBIT BALANCE AROSE ONLY OUT OF ENTRIES PASSED ON 3 1 ST MARCH, 2006. ACCORDINGLY, NO INTEREST IS CHARGEABLE ON THE DEBIT BALANCE WHICH AROSE ONLY ON THE LAST DATE OF THE AC COUNTING YEAR. IN RESPECT OF EURO MULTI BUSINESS PRODUCTS PR IVATE LIMITED, WE FOUND THAT THERE WAS A DEBIT BALANCE OF RS. 1.92 -: 12: - 12 CRORES FROM 1.4.2005. HOWEVER, INTEREST FREE FUNDS WERE AVAILABLE WITH ASSESSEE OUT OF CREDIT BALANCE OF RS . 2.88 CRORES IN THE ACCOUNT OF M/S. BHASKAR MULTINET LIMITED FRO M 1.4.2005 TO 31.12.2005. ACCORDINGLY, WE DIRECT THE AO TO CHA RGE INTEREST ON THE AMOUNT OF RS. 1.92 CRORES FROM 1.1.2006 TO 3 1.3.2006 FOR THE PURPOSE OF MAKING DISALLOWANCE. WE DIRECT A CCORDINGLY. THE CONTENTION OF LD. AUTHORIZED REPRESENTATIVE THA T DEBIT BALANCE AROSE ONLY ON ACCOUNT OF ADJUSTMENT ENTRIES PASSED ON DEMERGER AND THERE WAS NO ACTUAL TRANSACTION OF LOAN, THEREFORE, NO DISALLOWANCE OF INTEREST IS WARRANTED FOR SUCH ADJUSTMENT ENTRY IS NOT TENABLE IN SO FAR AS ASSESS EE IS PAYING INTEREST TO OTHER ASSOCIATE CONCERN ON ACCOUNT OF C REDIT BALANCE AROSE FOR SUCH ADJUSTMENT ENTRY ON DEMERGER . 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 22 ND DECEMBER, 2011. (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 22 ND DECEMBER, 2011. CPU* 1823