Amman Granite Exports Pvt Ltd., CHENNAI V. ITO, CHENNAI

ITA 2032/CHNY/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4867 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 01-10-2015
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Keywords: Reopening of assessment; Business expenditure; Commercial expediency
• Section: 143(3); 10B; 147; 148

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO. 2 032/MDS/2015 / ASSESSMENT YEAR :20 0 4 - 0 5 M/S . AMMAN GRANITE EXPORTS PVT. LTD., M.G. COLONY, HARUR 636 903, DARMAPURI DISTRICT. [PAN: A AACA4104E ] VS. THE INCOME TAX OFFICER , COMPANY WARD I ( 1 ) CHENNAI 600 034 . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : NONE / RESPONDENT BY : S HRI S HIVA SRINIVAS , J CIT / DATE OF HEARING : 0 6 . 0 2 .201 7 / DATE OF P RON OUNCEMENT : 19. 0 4 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : TH I S APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMIS SIONER OF INCOME TAX (APPEALS) I , C HENNAI DATED 2 9 . 1 0 .201 4 RELEVANT TO THE ASSESSMENT Y EAR 20 0 4 - 0 5 . THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF INTEREST PAYMENT MADE TO THE BANK ON ACCOUNT OF INTEREST FREE LOANS ADVANCED TO THE MD OF THE ASSESSEE COMPANY AND TO ITS SISTER CONCERNS. I.T.A. NO . 2032 / M/ 1 5 2 2. THIS APPEAL FILED BY THE ASSESSEE WAS INSTITUTED ON 01.10.2015 AND POSTED FOR HEARING ON 23.11.2015. NONE APPEARED WHEN THE APPEAL WAS TAKEN UP FOR HEARING. THEREAFTER, THE HEARING OF THE APPEAL WAS FIXED ON 18.01.2016 AND SINCE THEN FOR ONE REASON OR OTHER, THE HEARING WAS ADJOURNED. FINALLY, THE APPEAL WAS POSTED FOR HEARING ON 06.02.2017. THE LD. COUNSEL FOR THE ASSESSEE PHYSICALLY APPEARED AND SUBMITTED A PETITION SEEKING ADJOURNMENT WITHOUT EXPLAINING THE REASON FOR ADJOURNME NT AND REFUSED TO ARGUE THE CASE. HENCE, WE PROCEEDED TO DECIDE THE APPEAL AFTER HEARING THE LD. DR AND CONSIDERING THE FACTS AND MATERIALS AVAILABLE ON RECORD. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS A 100% EOU ENGAGED IN MANUFACTUR E AND EXPORT OF GRANITE MONUMENTS. FOR THE ASSESSMENT YEAR 2004 - 05, THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 0 1.11.2004 ADMITTING NIL INCOME AFTER CLAIMING DEDUCTION U NDER SECTION 10B OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] OF .1,30,69,886 / - . A SSESSMENT U NDER SECTION 143(3) OF THE ACT WAS COMPLETED ON 21.12.2006 DENYING DEDUCTION U NDER SECTION 10B OF THE ACT OF .1,30,69,886 / - . THE A SSESSING O FFICER OBSERVED THAT THE ASSESSEE HAS PAID AND CLAIMED INTEREST OF .52,32,179 / - AND AT THE SAME TIME DI VERTED/ADVANCED MONEY TO THE MANAGING DIRECTOR SHRI MASE AND TO M/S. SRI SANGAWESWARI SPINNING MILLS. THE ASSESSING OFFICER HAS NOTICED THAT THE ASSESSEE ALSO ADVANCED I.T.A. NO . 2032 / M/ 1 5 3 .163.95 LAKHS TO AMMAN EDUCATIONAL TRUST IN WHICH THE MD IS THE MANAGING DIRECTOR AND .24.17 LAKHS TO M/S TIRUMALAI GRANITES IN WHICH THE MD IS THE PROPRIETOR. THE A SSESSING O FFICER WAS OF THE OPINION THAT THE ADVANCES MADE DOES NOT RELATE TO THE BUSINESS. THEREFORE, SINCE THE INCOME HA S ESCAPED BY WAY OF ALLOWING EXCESSIVE ALLOWANCE OF INT EREST WHICH WAS NOT RELATING TO THE BUSINESS OF THE COMPANY AND INTEREST WAS PAID WHILE THE ASSESSEE HA S MADE ADVANCES AS ABOVE, THE ASSESSING OFFICER HAS ISSUED NOTICE U NDER SECTION 148 OF THE ACT ON 23.3.09 FOR REOPENING OF ASSESSMENT U NDER SECTION 147 O F THE ACT . HEARING NOTICE WAS ISSUED ON 20.10.09 ALONG WITH REASONS FOR REOPENING. THE ASSESSEE OBJECTED TO THE ABOVE AND REQUESTED FOR DROPPING THE PROCEEDINGS U NDER SECTION 148 OF THE ACT . THE A SSESSING O FFICER HAS PASSED AN ADJUDICATION ORDER ON 16.11.2 009 OVERRULING OBJECTIONS RAISED BY THE ASSESSEE . AFTER HEARING THE ASSESSEE AND CONSIDERING THE FACTS OF THE CASE , THE ASSESSMENT WAS COMPLETED U NDER SECTION 143(3) R.W.S. 147 ON 24.12.2009 DETERMINING THE TOTAL INCOME AT .1,71,57,740 / - BY MAKING DISALLO WANCE OF INTEREST PAYMENTS MADE TO THE BANK. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND FOLLOWING VARIOUS DECISIONS, THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE BY PASSING A WELL REASONED SPEAKING ORDER. I.T.A. NO . 2032 / M/ 1 5 4 5. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. IN THE GROUNDS OF APPEAL, THE ASSESSEE HAS MADE A SUBMISSION THAT THE INTEREST FREE LOANS ADVANCED TO THE MD OF THE ASSESSEE COMPANY AND TO ITS SISTER CONCERNS ARE FROM THE ACCUMULATED RESERVES AND SURPLUS. IT WAS FURTHER SUBMISSION OF THE ASSESSEE THAT THE ASSESSEE CAN WITHDRAW THE CAPITAL IN ANY MANNER AND IT WAS NOT OBLIGATORY UNDER ANY LAW THAT THE ASSESSEE SHOULD NOT WITHDRAW ITS OWN CAPITAL . 6. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT TO CLAIM DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT, THE ONUS CAST UPON THE ASSESSEE TO PROVE WITH EVIDENCES LIKE LEDGER FOLIOS, CONFIRMATION LETTERS, ETC. THAT THE INTEREST WAS ACTUALLY PAID ONLY FOR BUSINESS PURPOSES AND BORROWED FUNDS HAVE NOT BEEN DIVERTED TO ADVANCE INTEREST FREE LOANS TO MD AS WELL AS ASSESSEE S SISTER CONCERNS. FURTHER, THE LD. DR HAS SUBMITTED THAT THE DEPARTMENT CANNOT DICTATE THE ASSESSEE HOW IT SHOULD USE ITS OWN FUNDS A RISEN OUT OF ITS INTERNAL ACCRUALS, BUT THE ASSESSEE SHOULD ANSWER AS TO WHY THE ASSESSEE COMPANY HAS GONE FOR BORROWINGS FROM BANKS WHILE IT HAS GIVEN INTEREST FREE LOANS TO ITS DIRECTORS AND SISTER CONCERNS , WHEN THE ASSESSEE HAS AN INTEREST BURDEN ON SU CH BORROWALS. MOREOVER, THE ASSESSEE HAS FAILED TO ESTABLISH THE 'COMMERCIAL EXPEDIENCY' FOR ADVANCING INTEREST - FREE LOANS TO THE DIRECTORS AND OTHER SISTER CONCERNS . UNDER THE ABOVE CIRCUMSTANCES, THE LD. I.T.A. NO . 2032 / M/ 1 5 5 CIT(A) HAS RIGHTLY CONFIRMED THE DISALLOWANCE MADE ON THIS ACCOUNT AND PLEADED THAT THE GROUND RAISED BY THE ASSESSEE SHOULD BE REJECTED. 7. WE HAVE HEARD THE LD. DR AND CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSEE HAS PAID AND CLAIMED INTEREST OF .52,32,179 / - IN ITS PROFIT AND LOSS ACCOUNT, WHEREAS , IT HAS DIVERTED AMOUNTS TO THE INDIVIDUALS AND SISTER CONCERNS WITHOUT CHARGING ANY INTEREST FROM THEM. AS PER THE BALANCE - SHEET FOR THE ASSESSMENT YEAR 200 4 - 05, THE AMOUNTS OUTSTANDING AGAINST SHRI MA SE, M.D. WAS .91,76,075 / - AND AGAINST M/S. SRI SANGAMESWARI SPINNING MILLS WA S .83, 00 , 000/ - . BESIDES THESE AMOUNTS OUTSTANDING AS ON 31 .03 . 20 04 IN THEIR NAMES, THE A SSESSING O FFICER HAS ALSO OBSERVED THAT FURTHER ADVANCES WERE GIVEN TO (I) AMMAN EDUCATIO N TRUST OF .1,63,95, 000/ - AND (II) TIRUMALAI GRANITES OF .24.17 LAKHS, EVEN THOUGH THEY WERE NOT SHOWN AS OUTSTANDING FOR THE YEAR AS THEY WERE CLEARED DURING THE YEAR. THE BORROWED FUNDS AS PER SECURED LOANS OUTSTANDING WA S .5.98 CRORES INCLUDING WORKI NG CAPITAL LOAN OF .4 .95 CRORES. THE REFORE, THE A SSESSING O FFICER WAS OF THE OPINION THAT NO INTEREST U NDER SECTION 36(1)(III) OF THE ACT SHOULD BE ALLOWED IF SUCH INTEREST PAYMENT WA S NOT RELAT ING TO BUSINESS. BEFORE THE ASSESSING OFFICER, THE ASSESSEE H AS STRONGLY CONTENDED THAT NO DISALLOWANCE CAN BE MADE WHEN THE ASSESSEE HAS SUFFICIENT OWN FUNDS. I T WAS ONUS OF THE ASSESSEE TO PROVE WITH EVIDENCES LIKE LEDGER FOLIOS, CONFIRMATION LETTERS THAT INTEREST WAS ACTUALLY I.T.A. NO . 2032 / M/ 1 5 6 PAID ONLY FOR BUSINESS PURPOSES. SINC E THE ASSESSEE HAS NOT PROVED WITH MATERIAL EVIDENCE THAT THE INTEREST WAS ACTUALLY PAID ONLY FOR BUSINESS PURPOSES, THE ASSESSING OFFICER DISALLOWED INTEREST OF .38,10,248/ - OUT OF INTEREST CLAIM OF .52,32,179/ - . THE LD. CIT(A) HAS OBSERVED THAT THE PROVISIONS OF THE ACT ARE VERY VOCAL THAT NO INTEREST UNDER SECTION 36(1)(III) OF THE ACT SHALL BE ALLOWED TO BE CLAIMED AS DEDUCTION IF THE LOANS ADVANCED BY THE AS SESSEE ARE NOT RELATING TO THE BUSINESS OF THE ASSESSEE. BEFORE THE LD. CIT(A), THE ASSESSEE HAS ARGUED THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS FOR THE PURPOSE OF ADVANCE TO THE DIRECTORS AND SISTER CONCERNS , THE BORROWED FUNDS WERE USED BY THE A SSESSEE FOR ITS OWN BUSINESS ONLY AND THE INTEREST DEBITED WAS A BUSINESS EXPENDITURE. HOWEVER, THE ASSESSEE HAS NOT FILED ANY EVIDENCES SUCH AS LEDGER FOLIOS, CONFIRMATION LETTERS THAT INTEREST WAS ACTUALLY PAID ONLY FOR BUSINESS PURPOSES, AND MOREOVER, T HE ASSESSEE HAS NOT FURNISHED ANY EXPLANATION AS TO WHY THE ASSESSEE HAS GONE FOR BORROWINGS FROM BANKS WHILE THE ASSESSEE HAS GIVEN INTEREST FREE LOANS WHEN IT HAS AN INTEREST BURDEN ON SUCH BORROWALS. FURTHER, THE ASSESSEE COULD NOT PROVE THE COMMERCIAL EXPEDIENCY TO ADVANCE MONIES TO THE DIRECTORS AND OTHER SISTER CONCERNS. 8. A S PER THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF S A BUILDERS 288 ITR 1 (SC) , THE ASSESSEE COULD NOT PROVE WHAT WAS THE COMMERCIAL EXPEDIENCY TO ADVANCE MONIES TO THE DIRECTORS AND OTHER SISTER I.T.A. NO . 2032 / M/ 1 5 7 CONCERNS. IT IS NOT CLEAR AS TO HOW THE ASSESSEE COMPANY HAS DERIVED ANY BENEFIT OUT OF SUCH ADVANCES. EVEN IF WE TAKE, FOR A WHILE, THAT RETURN BENEFIT IS NOT AN ESSENTIAL REQUIREMENT AND IT IS SUFFICIENT IF THE HOLDING COM PANY (A SSESSEE ) HAS A DEEP INTEREST IN ITS SUBSIDIARY, THE ASSESSEE SHOULD BE ABLE TO PROVE THAT THE ASSESSEE S SUBSIDIARY SISTER COMPANY WA S SICK OR NOT HAVING REGULAR FUNDS AND IS IN DIRE NEED OF HELP FROM THE ASSESSEE COMPANY. THE SISTER COMPANY COULD H AVE INDEPENDENTLY APPROACHED THE BANKS FOR FUNDS ON THE BASIS OF THE FINANCIAL STRENGTH OF THE ASSESSEE COMPANY BY GIVING COLLATERAL SECURITY. THE SAME PACKAGE OF LOANS COULD HAVE VERY WELL BEEN OBTAINED FROM THE BANKS AND INDIVIDUALS BY THE SISTER CONCERN , INSTEAD OF ROUTING THROUGH THE ASSESSEE COMPANY AND DUMPING THE INTEREST BURDEN ON IT. THOUGH THE REVENUE CAN NOT DICTATE HOW THE BUSINESS HOUSES SHOULD BEHAVE, BUT ONUS IS ON THEM TO EXPLAIN THE CIRCUMSTANCES, MORE SO WHEN THE ASSESSEE WANTS TO CLAIM EXP ENDITURE ATTACHED TO IT. 8.1 FURTHER, IN THE CASES OF P.R.M.S. RAMANATHAN CHETTIAR V. CIT 72 ITR 534 AND M.P.S. RAJA V. CIT 105 ITR 295, THE HON BLE JURISDICTIONAL HIGH COURT HAS HELD THAT INTEREST PAID ON BORROWED CAPITAL WILL BE ALLOWED A DEDUCTION ONL Y IF THE CAPITAL WAS USED FOR THE PURPOSE OF BUSINESS. IF IT WAS USED FOR A PURPOSE OTHER THAN THAT OF ITS OWN BUSINESS, THEN THE INTEREST TO THAT EXTENT TO WHICH CAPITAL WAS SO USED, WILL NOT BE ALLOWED. UNDER THE ABOVE FACTS AND CIRCUMSTANCES AND SINCE T HE ASSESSEE FAILED TO PROVE WITH I.T.A. NO . 2032 / M/ 1 5 8 EVIDENCES LIKE LEDGER FOLIOS, CONFIRMATION LETTERS THAT INTEREST WAS ACTUALLY PAID ONLY FOR BUSINESS PURPOSES AS WELL AS THE ASSESSEE FAILED TO ESTABLISH ANY 'COMMERCIAL EXPEDIENCY' FOR ADVANCING INTEREST - FREE LOANS TO THE DIRECTORS AND OTHER SISTER CONCERNS , THE LD. CIT(A) CONFIRMED THE D ISALLOWANCE MADE ON THIS ACCOUNT. IN VIEW OF THE CONCURRENT FINDINGS OF THE LD. CIT(A), WE FIND NO REASON TO INTERFERE WITH HIS ORDER AND ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE DISMISSED. 9 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED . ORDER PRONOUNCED ON THE 19 TH APRIL , 201 7 AT CHENNAI. SD/ - SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 19 . 0 4 .201 7 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.