M/s. G.D. Goenka Tourism Corporation Ltd., New Delhi V. DCIT, New Delhi

ITA 241/DEL/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7568 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 09-10-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 16-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Assessee Lawyers: T N CHOPRA
• Section: 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C, NEW DELHI) BEFORE SHRI R. P. YADAV, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.241 /DEL/2012 ASSESSMENT YEAR : 2006-07 M/S. G. D. GOENKA TOURISM VS. DCIT, CIRCLE 12(1), CORPORATION LTD., NEW DELHI N-86, CONNAUGHT PLACE, NEW DELHI-110 001 GIR / PAN:AAACG3083E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI T. N. CHOPRA, ADV. RESPONDENT BY : SHRI SATPAL SINGH, SR. DR ORDER PER T.S. KAPOOR, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST OR DER OF LD. CIT(A) DATED 31.10.2011. THE ASSESSEE HAS TAKEN THREE GRO UNDS OF APPEAL. HOWEVER, THE CRUX OF GROUNDS OF APPEAL IS THE ACTIO N OF LD. CIT(A) BY WHICH HE HAD CONFIRMED THE ADDITION OF RS.20,46,474 /- ON ACCOUNT OF DISALLOWANCE OF INTEREST PAID BY ASSESSEE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND DURING ASSESSMENT PROCEED INGS, THE A.O. MADE AN ADDITION OF RS.20,46,474/- BY HOLDING AS UNDER: 3. ADDITION ON ACCOUNT OF PROPORTIONATE DISALLOWAN CE OF INTEREST: IT IS SEEN FROM THE P & L ACCOUNT OF THE ASSESSEE T HAT THE ASSESSEE HAS INCURRED FINANCIAL EXPENSES OF RS. 34,01,638/- INCL UDING INTEREST EXPENDITURE OF RS.33,02,101/-. FURTHER, IT IS SEEN THAT THE ASSESSEE HAS MADE INVESTMENTS IN THE SISTER COMPANIES AS UNDER: ITA NO.241/DEL/2012 2 SAM G.D. GOENKA PVT. LTD. RS.2,06,32,000 GENUINE PROMOTORS PVT. LTD. RS. 13,60,000 A.K.GOENKA & SONS PVT. LTD. RS. 10,00,000 TOTAL - RS.2,29,92,000: MOREOVER, THE ASSESSEE COMPANY HAS TAKEN INTEREST-B EARING LOAN FROM VARIOUS INSTITUTIONS. ON THE ONE HAND THE ASSESSEE IS INCURRING HUGE INTEREST EXPENSES AND ON THE OTHER HAND, HEAVY INVE STMENTS HAVE BEEN MADE IN THE SISTER CONCERN ON WHICH NO RETURN IS BE ING RECEIVED BY IT. THEREFORE, THIS INVESTMENT MADE BY THE ASSESSEE IS NON BUSINESS USE OF BORROWED FUNDS RAISED BY IT AND THE INTEREST EXPEND ITURE RELATING TO IT IS NOT ALLOWABLE UNDER SECTION 37(1) OF THE INCOME TAX ACT, 1961. MOREOVER, THE ONLY INCOME THAT COULD ARISE WITH THI S INVESTMENT IS THE DIVIDEND INCOME WHICH IS EXEMPT FROM TAX UNDER SECT ION 10(34) OF THE INCOME TAX ACT, 1961. THEREFORE, THE ASSESSEE HAS M ADE INVESTMENT FOR EARNING THE DIVIDEND INCOME AND THEREFORE, THE INTEREST EXPENDITURE RELATING TO THE INVESTMENT MADE BY THE ASSESSEE TO EARN DIVIDEND INCOME IS NOT ALLOWABLE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. THE ASSESSEE HAS MADE INVESTMENT OF RS.2,29,92,000/ - WHILE THE TOTAL ASSETS OF THE ASSESSEE ARE RS.3,82117,172/;F:THE TO TAL FINANCIAL - EXPENDITURE INCURRED BY THE ASSESSEE IS RS.34,01,63 8/-. THEREFORE, THE EXPENSES PERTAINING TO THE ABOVE INVESTMENT COMES T O RS. 20,46,474/- , ON PROPORTIONATE BASIS. HENCE THE INTEREST EXPENDIT URE AMOUNTING TO RS. 20,46,474/- IS HEREBY DISALLOWED AND ADDED TO T HE INCOME OF THE ASSESSEE. (ADDITION OF RS. 20,46,474/-) 3. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE LD. CIT(A). LD. CIT(A) UPHELD THE ACTION OF THE A.O. BY HOLDING AS UNDER: 3.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AS WELL AS THE WRITTEN SUBMISSION OF THE APPELLANT .THE WRITTEN SU BMISSION OF THE APPELLANT WAS FORWARDED BY THE CIT(A)XV ON 29.3.11 FOR COMMENTS, FOLLOWED BY TWO REMINDERS, HOWEVER TILL DATE, NO RE PORT HAS BEEN RECEIVED FROM THE ACIT CIRCLE-12(1).WHILE MAKING TH E PROPORTIONATE ITA NO.241/DEL/2012 3 DISALLOWANCE, THE A.O HAS TAKEN THE TOTAL ASSET TO BE RS 3,82,17,172/- WHICH REPRESENTS ONLY CURRENT ASSETS. MEANWHILE TH E APPELLANT HAS PLEADED THAT THE TOTAL ASSET AS PER BALANCE SHEET I S RS.12,43,18,603 AND THEREFORE THE RATIO OF INVESTMENT OF SISTER CON CERN IN COMPARISON COMES TO TOTAL ASSET COMES TO 18.4944%, I HAVE GONE THROUGH THE BALANCE SHEET AND I FIND THAT THE A.O HAS CORRECTLY TAKEN THE ASSET OF ~ 3,82,17,172 WHICH REPRESENTS THE NET CURRENT ASSETS I.E. CURRENT ASSETS, LOANS AND ADVANCES LESS CURRENT LIABILITIES AND PROVISIONS AS PER BALANCE SHEET. THERE IS NO JUSTIFICATION IN THE SUBMISSION OF THE APPELLANT TO INCLUDE THE VALUE OF FIXED ASSETS ETC. WHILE CALCULATING PROPORTIONATE DISALLOWANCE. ACCORDINGLY THE ADDITIO N MADE BY THE A.O IS UPHELD AND THE GROUND IS DISMISSED. 4. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 5. AT THE OUTSET, THE LD. A.R. SUBMITTED THAT LOANS WERE ADVANCED OUT OF NET OWN FUNDS AND, THEREFORE, ADDITION ON ACCOUNT O F PROPORTIONATE DISALLOWANCE OF INTEREST WAS NOT WARRANTED. IT WAS SUBMIT4EDTHAT A.O. WITHOUT GIVING OPPORTUNITY TO ASSESSEE TO EXPLAIN S UO-MOTTO MADE THE ADDITION. WITHOUT PREJUDICE TO THE ABOVE, IT WAS S UBMITTED THAT THE A.O. HAS NOT CALCULATED THE PROPORTIONATE DISALLOWANCE PROPE RLY. WHILE REFERRING TO THE ASSESSMENT ORDER WITH REFERENCE TO PAGE 3 OF TH E PAPER BOOK, IT WAS SUBMITTED THAT THE DISALLOWANCE IF ANY SHOULD HAVE BEEN RESTRICTED TO RS.6.29 LACS. 6. LD. D.R. ON THE OTHER HAND SUBMITTED THAT DURING ASSESSMENT PROCEEDINGS, IT IS THE DUTY OF ASSESSEE TO EXPLAIN THAT NO INTEREST BEARING FUNDS WERE UTILIZED FOR MAKING INVESTMENTS WHICH TH E ASSESSEE HAD NOT DONE. IT WAS SUBMITTED THAT ASSESSEE IS DUTY BOUND TO SUB MIT SUCH DETAILS EVEN IF A.O. DID NOT ASK FOR THE SAME. LD. D.R. HEAVILY RE LIED ON THE ORDERS OF AUTHORITIES BELOW. ITA NO.241/DEL/2012 4 7. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL PLACED ON RECORD. TOTAL NET OWNED FUNDS INCLUDING CURRENT LIABILITIES AVAILABLE WITH THE ASSESSEE COMPANY AS ON 31.03.2006 IS RS.3.05 CR ORES AS IS APPARENT FROM COPY OF BALANCE SHEET PLACED AT PAGE 113. THE FIXE D ASSETS OF ASSESSEE IS RS.6.77 CRORES AGAINST WHICH LOANS AGAINST FIXED AS SETS IS RS.6.12 CRORES WHICH MEANS THAT OUT OF NET OWNED FUNDS RS.0.65 CRO RES HAS BEEN INVESTED TOWARDS FIXED ASSETS LEAVING A BALANCE OF RS.2.40 C RORES FOR INVESTMENT IN CURRENT ASSETS WHICH INCLUDES LOANS TO SISTER CONCE RNS. THE ASSESSEE IS ALSO AVAILING CASH CREDIT FACILITY AGAINST DEBTORS AND T HE BALANCE OUTSTANDING AS ON 31.03.2006 IS RS.2.12 CRORES AS IS APPARENT FORM PA PER BOOK PAGE 111. THEREFORE, IT EMERGES THAT FOR INVESTMENT IN NET CU RRENT ASSETS INCLUDING LOANS TO SISTER CONCERNS, THE ASSESSEE HAS BEEN USI NG MIXED FUNDS CONSISTING OF OWN FUNDS AND BORROWED FUNDS. WE FIND THAT ASS ESSEE HAD DEBITED INTEREST EXPENSES TO THE EXTENT OF RS.34.01 LACS AS IS APPARENT FROM COPY OF P & L ACCOUNT PLACED IN THE PAPER BOOK. AS ON 31.03. 2006, THE ASSESSEE HAD TOTAL SECURED BORROWINGS OF RS.8.24 CRORES GIVING A VERAGE RATE OF INTEREST PAID BY ASSESSEE AT 4.12%. THE ABOVE RATE OF INTE REST IS LOWER THAN NORMAL INTERESTS RATE BECAUSE OF THE FACT THAT ASSESSEE HA S BEEN USING SECURED LOANS AGAINST DEBTORS WHICH IS USED AS PER NEEDS OF THE C OMPANY AND SOMETIME IT MAY NOT BE USED BECAUSE OF SURPLUS FUNDS. SINCE IT IS A CASE OF MIX USE OF FUNDS, THE DISALLOWANCE OF INTEREST SHOULD BE BASED UPON COSTS OF FUNDS TO THE ASSESSEE WHICH IN THE PRESENT CASE IS 4.12%. THEREFORE, THE INTEREST TO BE CHARGED TO THE SISTER CONCERN ON ACCOUNT OF LOAN AND ADVANCES SHOULD NOT EXCEED THE AMOUNT OF INTEREST CALCULATED @ 4.12%. IF WE CALCULATE LOSS OF INTEREST TO THE ASSESSEE ON INTEREST FREE ADVANCES @ 4.12%, WE FIND THAT THE AMOUNT OF INTEREST LOSS BY ASSESSEE COMES OUT AT RS .9,47,270/-. THE ITA NO.241/DEL/2012 5 CALCULATION OF INTEREST LOSS CALCULATED BY ASSESSEE AS SUBMITTED BY LD. A.R. AS PLACED AT PAPER BOOK PAGE 3, IS NOT CORRECT, THE REFORE, WE RESTRICT THE DISALLOWANCE OF INTEREST TO RS.9,47,270/- AND ORDER DELETION OF REMAINING DISALLOWANCE. 8. IN VIEW OF ABOVE, APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED. 9. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH DEC., 2014. SD./- SD./- ( R. P. YADAV) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 12 TH DEC., 2014 SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER