M/s. Visura (India) Limited [ Formerly M/s. Visura Trading & Investment (India) Ltd.,], Kolkata V. ITO, Ward - 8(1), Kolkata, Kolkata

ITA 2190/KOL/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6151 (ITAT-KOLKATA)
• Duration Of Justice: 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2005-2006
• Appeal Filed On: 13-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATYAJIT MONDAL
• Assessee Lawyers: S M SURANA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH SMC, KOLKATA [BEFORE SHRI P.M. JAGTAP, AM] I.T.A. NO. 2190/KOL/2017 ASSESSMENT YEAR: 2005-06 M/S. VISURA (INDIA) LTD.........................................APPELLANT (FORMERLY M/S. VISURA TRADING & INVESTMENT (INDIA) LTD.) 156A, MAHATMA GANDHI ROAD, 2 ND FLOOR, ROOM NO. 206, KOLKATA 700 007. [PAN: AAACV 9060 C] INCOME TAX OFFICER KOLKATA..................................RESPONDENT WARD NO. 8(1), P-7, CHOWRINGHEE SQUARE, KOLKATA 700 069. APPEARANCES BY: SHRI S.M. SURANA, ADVOCATE APPEARING ON BEHALF OF THE ASSESSEE. SHRI SATYAJIT MONDAL, ADDL. CIT APPEARING ON BEHALF OF THE REVENUE. DATE OF CONCLUDING THE HEARING : MAY 30, 2018 DATE OF PRONOUNCING THE ORDER : JULY 18, 2018 ORDER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD. CIT (APPEALS) 3, KOLKATA DATED 21.08.2017 AND THE SOLITARY ISSUE INVOLVED THEREIN RELATES TO THE DISALLOWANCE OF RS. 5,71,281/- MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF INTEREST. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF TRADING & CONSIGNMENT AGENCY. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 25.10.2005 DECLARING A TOTAL INCOME OF RS. 3,67,260/-. IN THE ASSESSMENT ORIGINALLY COMPLETED U/S 143(3) VIDE AN ORDER DATED 31.12.2007, THE DISALLOWANCE INTER ALIA WAS MADE BY THE AO ON ACCOUNT OF INTEREST AMOUNTING TO RS. 11,94,715/-. ON APPEAL, THE LD. CIT(A) ALLOW A PART RELIEF TO THE ASSESSEE ON THE ISSUE OF DISALLOWANCE OF INTEREST. ON 2 I.T.A. NO. 2190/KOL/2017 ASSESSMENT YEAR: 2005-06 M/S. VISURA (INDIA) LTD. FURTHER APPEALS FILED BY THE ASSESSEE AS WELL AS BY THE DEPARTMENT, THE TRIBUNAL RESTORED THE ISSUE RELATING TO DISALLOWANCE ON ACCOUNT OF INTEREST TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION. DURING THE COURSE OF SET ASIDE PROCEEDINGS, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE COMPANY THAT IT HAD SUFFICIENT OWN FUNDS AT THE RELEVANT TIME TO GIVE ADVANCES TO M/S. TARAJYOT POLYMERS LTD. AND SINCE THERE WAS NO DIVERGENCE OF BORROWED FUNDS FOR GIVING SUCH ADVANCES, NO DISALLOWANCE ON ACCOUNT OF INTEREST WAS CALLED FOR. IT WAS ALSO SUBMITTED ON BEHALF OF THE ASSESSEE COMPANY THAT IT HAD EARNED INTEREST AND OTHER INCOME FROM ITS CUSTOMERS AND BANK WHICH WAS MORE THAN INTEREST EXPENDITURE OF RS. 24,01,734/- INCURRED BY IT AND THEREFORE THE DISALLOWANCE ON ACCOUNT OF INTEREST WAS NOT WARRANTED. THESE SUBMISSIONS OF THE ASSESSEE WERE NOT FOUND ACCEPTABLE BY THE A.O. ACCORDING TO HIM, THE ADVANCES OF RS. 71,45,161/- HAVING BEEN PAID BY THE ASSESSEE COMPANY OUT OF ITS OVERDRAFT ACCOUNT WITH ICICI BANK, THERE WAS A CASE OF DIVERGENCE OF BORROWED FUNDS WARRANTING DISALLOWANCE OUT OF INTEREST ATTRIBUTABLE TO SUCH ADVANCES. HE ACCORDINGLY CALCULATED THE AVERAGE RATE OF INTEREST PAID BY THE ASSESSEE ON THE TOTAL FUNDS EMPLOYED AT 6.23% AND APPLYING THE SAID RATE TO THE ADVANCES GIVEN BY THE ASSESSEE TO M/S. TARAJYOT POLYMERS LTD., HE MADE A DISALLOWANCE OF RS. 5,71,281/- OUT OF INTEREST IN THE ASSESSMENT COMPLETED UNDER SECTION 254/143(3) VIDE AN ORDER DATED 31.03.2013. 3. AGAINST THE ORDER PASSED BY THE A.O. UNDER SECTION 254/143(3), AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(A) DISPUTING THE DISALLOWANCE MADE BY THE A.O. OUT OF INTEREST. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE LD. CIT(A), 3 I.T.A. NO. 2190/KOL/2017 ASSESSMENT YEAR: 2005-06 M/S. VISURA (INDIA) LTD. SUBMISSIONS MADE BEFORE THE A.O. WERE REITERATED BY THE ASSESSEE COMPANY IN SUPPORT OF ITS CASE ON THIS ISSUE. THE LD. CIT(A) HOWEVER DID NOT FIND MERIT IN THE SAME AND CONFIRMED THE DISALLOWANCE MADE BY THE A.O. OUT OF INTEREST FOR THE FOLLOWING REASONS GIVEN IN HIS IMPUGNED ORDER: FROM THE ABOVE EXTRACT OF THE LEDGER IT IS OBSERVED THAT FUNDS OF RS. 71,45,561.00 HAS GONE TO M/S. TARAJYOT POLYMERS PVT. LTD. DIRECTLY FROM THIS OVER DRAFT ACCOUNT. THE ASSESSEE HAS SECURED LOAN FROM ICICI BANK TO THE EXTENT OF RS. 2,24,71,426/- ON WHICH INTEREST OF RS. 16,72,150/- WAS PAID. FURTHER, INTEREST OF RS. 7,29,584/- WAS PAID ON UNSECURED LOANS. IN THE ASSESSMENT ORDER THE A.O. HAS GIVEN A DEFINITE FINDING THAT THE ACTIVITIES OF THE ASSESSEE WITH TARAJYOT POLYMERS PVT. LTD. CAN BE DIVIDED INTO TWO PARTS (A) CONSIGNMENT SALE AND (B) PURE ADVANCING OF FUNDS. IT HAS BEEN HELD THAT CONSIGNMENT SALE REPRESENTS BUSINESS ACTIVITY. HOWEVER, PURE ADVANCES GIVEN ARE NOT RELATED TO BUSINESS AND INTEREST PERTAINING TO SUCH INTEREST FREE ADVANCES HAS BEEN TREATED AS INCURRED FOR NON-BUSINESS PURPOSES AND NOT ALLOWABLE AS AN INTEREST EXPENDITURE U/S 36(1)(III). THE RELEVANT EXTRACT FROM THE ASSESSMENT ORDER ARE AS FOLLOWS: ON PERUSAL OF COPY OF LEDGER ACCOUNT OF TARAJYOT POLYMERS PVT. LTD., SUBMITTED BY THE A/R OF THE ASSESSEE COMPANY IT IS FOUND THAT THE LEDGER ACCOUNT CONSISTED OF TWO PARTS; ONE FOR PAYMENTS AND RECEIPT OF FUNDS FROM BANKS WITH TARAJYOT POLYMERS PVT. LTD. AND SECOND ONE FOR ALL THE CONSIGNMENT SALES ENTRIES, JOURNAL ENTRIES ON ACCOUNT OF GAIL INDIA LTD. DISCOUNT PAYABLE, CREDIT NOTES ETC. THE ENTRIES REFLECTED IN THE SECOND PART OF THE LEDGER ACCOUNT OF TARAJYOT POLYMERS PVT. LTD, THEREFORE, REQUIRED TO BE EXCLUDED TO DETERMINE THE ACTUAL FUNDS GIVEN TO TARAJYOT POLYMERS PVT. LTD. FREE OF COST AND FOR NON-BUSINESS PURPOSES THIS FINDING OF THE A.O. HAS NOT BEEN DISPUTED BY THE A/R OF THE ASSESSEE. NOW IT IS AN ADMITTED FACT THAT PURE ADVANCES ARE GIVEN TO TARAJYOT POLYMERS PVT. LTD. FOR NON-BUSINESS PURPOSES AND THE DISALLOWANCES OF INTEREST HAS BEEN WORKED OUT BY THE A.O. ACCORDINGLY BY TAKING AVERAGE COST OF BORROWED FUNDS ADVANCED FOR NON-BUSINESS PURPOSES. FUNDS HAVE BEEN ADVANCED DIRECTLY FROM THE OD A/C ON WHICH INTEREST HAS BEEN INCURRED BY THE ASSESSEE. THE ISSUE IN THIS CASE IS NOW SUMMARIZED AS DISALLOWANCE OF INTEREST ON ACCOUNT OF BORROWED FUNDS USED FOR NON- BUSINESS PURPOSES. 4 I.T.A. NO. 2190/KOL/2017 ASSESSMENT YEAR: 2005-06 M/S. VISURA (INDIA) LTD. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4. THE LEARNED COUNSEL FOR THE ASSESSEE INVITED MY ATTENTION TO THE BALANCE-SHEET OF THE ASSESSEE COMPANY AS ON 31.03.2005 TO SHOW THAT SUFFICIENT OWN FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES & SURPLUS WERE AVAILABLE WITH THE ASSESSEE COMPANY TO THE TUNE OF RS. 1.26 CRORES. HE CONTENDED THAT SINCE THE SAID OWN FUNDS WERE SUFFICIENT TO GIVE THE ADVANCES IN QUESTION TO M/S. TARAJYOT POLYMERS PVT. LTD., THE DISALLOWANCE OF INTEREST MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) IS NOT JUSTIFIED. HE CONTENDED THAT THERE WAS THUS NO CASE OF DIVERGENCE OF BORROWED FUNDS AND THE ASSESSEE COMPANY HAVING UTILISED SUCH BORROWED FUNDS ENTIRELY FOR THE PURPOSE OF ITS BUSINESS, THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) OUT OF INTEREST IS LIABLE TO BE DELETED. 5. THE LEARNED DR, ON THE OTHER HAND, CONTENDED THAT THE ADVANCES IN QUESTION WERE PAID BY THE ASSESSEE TO M/S. TARAJYOT POLYMERS LTD. FROM ITS OVER DRAFT ACCOUNT WITH ICICI BANK AND THIS FACT ALONE WAS SUFFICIENT TO ESTABLISH THAT IT WAS A CASE OF DIVERGENCE OF BORROWED FUNDS BY THE ASSESSEE COMPANY FOR NON BUSINESS PURPOSE. HE CONTENDED THAT THERE IS NOTHING BROUGHT ON RECORD BY THE ASSESSEE TO SHOW THAT THE SAID ADVANCES WERE PAID FROM ITS OWN FUNDS AND THERE BEING A DIRECT NEXUS BETWEEN THE FUNDS BORROWED BY THE ASSESSEE AND THE ADVANCES PAID TO TARAJYOT POLYMERS LTD., THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) OUT OF INTEREST DESERVES TO BE CONFIRMED. 5 I.T.A. NO. 2190/KOL/2017 ASSESSMENT YEAR: 2005-06 M/S. VISURA (INDIA) LTD. 6. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT THE DISALLOWANCE OUT OF INTEREST HAS BEEN MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) MAINLY ON THE GROUND THAT THE ADVANCES IN QUESTION WERE GIVEN BY THE ASSESSEE COMPANY TO M/S. TARAJYOT POLYMERS LTD. FOR NON BUSINESS PURPOSE FROM ITS OVER DRAFT ACCOUNT WITH ICICI BANK. ACCORDING TO THEM, THERE WAS THUS A DIRECT NEXUS BETWEEN THE FUNDS BORROWED BY THE ASSESSEE AND THE ADVANCES GIVEN TO TARAJYOT POLYMERS LTD. WARRANTING DISALLOWANCE OUT OF INTEREST. I AM UNABLE TO SUBSCRIBE TO THIS VIEW TAKEN BY THE AUTHORITIES BELOW. IN MY OPINION, OVERALL FINANCIAL POSITION OF THE ASSESSEE COMPANY AT THE RELEVANT TIME HAS TO BE SEEN IN ORDER TO ASCERTAIN AS TO WHETHER THE ADVANCES IN QUESTION WERE GIVEN TO TARAJYOT POLYMERS LTD. OUT OF ITS OWN FUNDS BY THE ASSESSEE COMPANY OR FROM THE BORROWED FUNDS. IN THIS REGARD, THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED ON RECORD A BALANCE SHEET OF THE ASSESSEE COMPANY AS ON 31.03.2005 AT PAGE NO 7 OF THE PAPER BOOK AND PERUSAL OF THE SAME SHOWS THAT THE ASSESSEE COMPANY AT THE RELEVANT TIME HAD OWN FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES TO THE EXTENT OF RS. 1.26 CRORES. THE BORROWED FUNDS, ON THE OTHER HAND, WERE TO THE EXTENT OF ABOUT RS. 2.30 CRORES WHICH WERE MAINLY UTILISED FOR THE PURPOSE OF ITS BUSINESS IN THE FORM OF WORKING CAPITAL. THE OWN FUNDS OF THE ASSESSEE COMPANY, ON THE OTHER HAND, WERE AVAILABLE FOR GIVING ADVANCES TO M/S. TARAJYOT POLYMERS LTD. AND SINCE THE SAME WERE SUFFICIENT TO GIVE THE ADVANCES, I AM OF THE VIEW THAT IT CANNOT BE SAID THAT THE SAID ADVANCES WERE GIVEN BY THE ASSESSEE COMPANY OUT OF BORROWED FUNDS MERELY BECAUSE THE PAYMENT OF SUCH ADVANCES WAS MADE BY THE ASSESSEE COMPANY OUT OF ITS OVER DRAFT 6 I.T.A. NO. 2190/KOL/2017 ASSESSMENT YEAR: 2005-06 M/S. VISURA (INDIA) LTD. ACCOUNT WITH ICICI BANK. IN THAT VIEW OF THE MATTER, I DELETE THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) OUT OF INTEREST AND ALLOW THIS APPEAL OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH JULY, 2018. SD/- (P.M. JAGTAP) ACCOUNTANT MEMBER DATED: 18/07/2018 BISWAJIT, SR. PS COPY OF ORDER FORWARDED TO: 1. M/S. VISURA (INDIA) LTD., FORMERLY M/S. VISURA TRADING & INVESTMENT (INDIA) LTD., 156A, MAHATMA GANDHI ROAD, 2 ND FLOOR, ROOM NO. 206, KOLKATA 700 007. 2. ITO WARD 8(1), P-7, CHOWRINGHEE SQUARE, KOLKATA 700 069. 3. THE CIT(A) [SENT THROUGH MAIL] 4. THE CIT 5. DR - [SENT THROUGH MAIL] TRUE COPY, BY ORDER, SR. P.S. / H.O.O. ITAT, KOLKATA