ACIT, Kollam V. Sri.Johnson G.oommen, Kottarakkara

ITA 26/COCH/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68927 (ITAT-COCHIN)
• Duration Of Justice: 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2003-2004
• Appeal Filed On: 23-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: A S NARAYANAMURTHY
• Keywords: Proportionate interest

Judgement Text

1 ITA NO.26 & 27/COCH/2013 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKA RAN(AM) I.T.A NO. 26 & 27/COCH/2013 (ASSESSMENT YEARS 2003-4 & 2009-10) A.C.I.T., CIR.1 VS SHRI JOHNSON G OOMMEN KOLLAM ST. GREGORIOUS CASHEW INDUSTRIES,CHEPRA,KOTTARAKKARA PAN : AAAPO8803H (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. S VIJAYAPRABHA RESPONDENT BY : SHRI A.S. NARAYANAMURTHY DATE OF HEARING : 24-07-2013 DATE OF PRONOUNCEMENT : 23-08-2013 O R D E R PER N.R.S. GANESAN (JM) BOTH THE APPEALS OF THE REVENUE ARE DIRECTED AGAIN ST THE INDEPENDENT ORDERS OF CIT(A)-III, KOCHI DATED 07-11 -2012 AND 05-11-2012 FOR THE ASSESSMENT YEARS 2003-04 AND 2009-10, RESPE CTIVELY. SINCE COMMON ISSUE ARISES FOR CONSIDERATION WE HEARD THE APPEALS TOGETHER AND DISPOSE OF THE SAME BY THIS COMMON ORDER. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IN BOTH THE APPEALS IS DISALLOWANCE OF INTEREST ON THE BORROWED LOAN. 2 ITA NO.26 & 27/COCH/2013 3. SMT. S VIJAYAPRABHA, THE LD.DR SUBMITTED THAT TH E ASSESSEE HAS DIVERTED THE BORROWED FUNDS FOR NON BUSINESS PURPOS E. THEREFORE, THE ASSESSING OFFICER DISALLOWED PROPORTIONATE INTEREST ON THE FUNDS DIVERTED FOR NON BUSINESS PURPOSE. ACCORDING TO THE LD.DR, FOR THE ASSESSMENT YEAR 2003-04 THE ASSESSING OFFICER FOUND THAT AROUND RS. 343.44 LAKHS WAS OUTSTANDING TOWARDS LOAN AS ON 31-03-2003 AND THE ASSESSEE ALSO CLAIMED INTEREST OF RS.48.92 LAKHS. ACCORDING TO T HE LD.DR, THE ASSESSEE DIVERTED INTEREST BEARING FUNDS FOR NON BUSINESS PU RPOSE WITHOUT CHARGING INTEREST. THE LD.DR SUBMITTED THAT THE ASSESSEE CL AIMED THAT THE FUNDS WERE USED FOR PERSONAL PURPOSES FROM THE PROFIT ACC UMULATED OVER THE YEARS. HOWEVER, THE PROFIT ACCUMULATED FROM THE YE AR 1998-99 COMES ONLY TO RS.6,50,28,520 AS PER THE STATEMENT FILED BY THE ASSESSEE. THE LD.DR FURTHER SUBMITTED THAT AS ON 31-03-2002 THE OUTSTAN DING LOAN WAS RS.73,30,063. HOWEVER, THIS WAS DRASTICALLY INCREA SED FOR THE YEAR ENDING 31-03-2003 AT RS. 4,64,59,809 AS PER THE BALANCE-SH EET FILED. NOTICING THIS INCREASE IN THE BORROWED FUNDS, THE ASSESSING OFFICER HELD THAT THE ASSESSEE DIVERTED THE BORROWED FUNDS FOR NON BUSINE SS PURPOSE. THEREFORE, THE ASSESSING OFFICER, BY PLACING RELIAN CE ON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN CIT VS V.I. BABY & CO (2002) 254 ITR 248 (KER) DISALLOWED THE PROPORTIONATE INTEREST. SIMILARLY F OR THE ASSESSMENT YEAR 2009-10 ALSO, THE ASSESSING OFFICER DISALLOWED PROP ORTIONATE INTEREST ON THE FUNDS DIVERTED FOR NON BUSINESS PURPOSE. 3 ITA NO.26 & 27/COCH/2013 4. ON THE CONTRARY, SHRI A.S. NARAYANAMURTHY, THE L D.REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT FOR THE ASSESSMENT YEAR 2003-04 THE BALANCE IN THE CAPITAL ACCOUNT AS ON 31-03-2003 WAS RS.9,24 ,72,915. THE PACKING CREDIT LOAN AVAILED FROM FEDERAL BANK WHICH WAS OUT STANDING AS ON 31-03- 2003 WAS RS.29,62,930. THE AMOUNT SAID TO BE DIVER TED FOR NON BUSINESS PURPOSE IS TO THE EXTENT OF RS.3,43,44,000. THE NE T PROFIT OF THE YEAR IS RS.87,77,445. THE CLOSING STOCK AS ON 31-03-2003 A ND EXPORT BILLS RECEIVABLE AS ON THAT DATE STOOD AT RS.4,24,34,139 AND RS.24,28,716 TOTALLING RS.4,48,62,855. THEREFORE, ACCORDING TO THE LD.REPRESENTATIVE, SUFFICIENT FUNDS WERE AVAILABLE WITH THE ASSESSEE A ND AS SUCH THERE IS NO QUESTION OF ANY DIVERSION OF FUNDS. THE LD.REPRESE NTATIVE PLACED HIS RELIANCE ON THE DECISION OF THE CO-ORDINATE BENCH O F THIS TRIBUNAL IN SHRI ABDUL AZEEZ VS THE DY.CIT IN ITA NO.135/COCH/2008 O RDER DATED 22 ND APRIL, 2009. THEREFORE, ACCORDING TO THE LD.REPRES ENTATIVE, THE CIT(A) HAS RIGHTLY DELETED THE ADDITION. 4.1 FOR THE ASSESSMENT YEAR 2009-10, THE LD.REPRESE NTATIVE SUBMITTED THAT THE BALANCE AVAILABLE IN THE CAPITAL ACCOUNT A S ON 31-03-2009 WAS RS.11,53,95,706. THE PACKING CREDIT LOAN AVAILED F ROM THE FEDERAL BANK WHICH WAS OUTSTANDING AS ON 31-03-2009 IS RS. 5,57, 92,992. THE AMOUNT WHICH WAS SAID TO BE DIVERTED FOR NON BUSINESS PURP OSE IS RS. 1,97,73,640. THE NET PROFIT FOR THE YEAR UNDER CONSIDERATION IS RS. 3,28,73,728. THE 4 ITA NO.26 & 27/COCH/2013 CLOSING STOCK AS ON 31-03-2009 AND EXPORT BILL RECE IVABLE AS ON 31-03- 2009 WAS NEARLY RS.9,48,97,722. THEREFORE, ACCORDI NG TO THE LD.REPRESENTATIVE, SUFFICIENT FUNDS WERE AVAILABLE EVEN FOR THE ASSESSMENT YEAR 2009-10. HENCE, ACCORDING TO THE LD.REPRESENT ATIVE, THE CIT(A) HAS RIGHTLY DELETED THE ADDITION. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSE SSING OFFICER DISALLOWED PROPORTIONATE INTEREST ON THE BORROWED FUNDS ON THE GROUND THAT THE FUNDS BORROWED WERE DIVERTED FOR NON BUSINESS PURPOSE. T HE ASSESSEE CLAIMS THAT SUFFICIENT OWN FUNDS WERE AVAILABLE APART FROM THE BORROWED FUNDS AND, THEREFORE, THERE IS NO QUESTION OF ANY DIVERSI ON OF FUNDS. 6. WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN V.I. BABY & CO (SUPRA) . IN THE CASE BEFORE THE JURISDICTIONAL HIGH COURT, THE KERALA HIGH COURT FO UND THAT THE ASSESSEE HAS PAID HUGE INTEREST TO THE BANKS FOR THE BORROWI NGS MADE FOR BUSINESS PURPOSE. IT WAS ALSO FOUND THAT THERE WAS HUGE DEB IT BALANCE IN THE ACCOUNTS OF THE FIRM IN THE NAME OF PARTNERS FROM R ELATIVES AS ALSO SISTER CONCERNS. IN THOSE FACTUAL CIRCUMSTANCES, THE KERA LA HIGH COURT FOUND THAT THE ASSESSING OFFICER WAS PERFECTLY JUSTIFIED IN DISALLOWING THE PROPORTIONATE INTEREST ON THE LOAN BORROWED. 5 ITA NO.26 & 27/COCH/2013 7. WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGMENT OF THE APEX COURT IN THE CASE OF MUNJAL SALES CORPORATION VS CIT (200 8) 298 ITR 298 (SC) WHICH WAS RELIED UPON BY THE CIT(A). IN THE CASE B EFORE THE APEX COURT FOR THE ASSESSMENT YEAR 1995-96, THE TRIBUNAL CONFI RMED THE DISALLOWANCE OF PROPORTIONATE INTEREST ON THE BORROWED FUNDS ON THE GROUND THAT THERE WAS NOTHING ON RECORD TO SHOW THAT THE LOANS WERE G IVEN TO SISTER CONCERNS BY THE FIRM OUT OF ITS OWN FUNDS. THE APEX COURT F OUND THAT THE OPENING BALANCE AS ON 01-04-1994 WAS RS.1.91 CRORES WHEREAS THE LOAN GIVEN TO SISTER CONCERN WAS ONLY RS.5 LAKHS. THE PROFIT EAR NED BY THE ASSESSEE DURING THE RELEVANT YEAR WAS ENOUGH TO COVER THE IM PUGNED LOAN OF RS.5 LAKHS. THEREFORE, THE APEX COURT HELD THAT THE LOA N WAS GIVEN TO SISTER CONCERNS OUT OF THE OWN FUNDS OF THE ASSESSEE. IN VIEW OF THIS JUDGMENT OF THE APEX COURT IN THE CASE OF MUNJAL SALES CORPORAT ION (SUPRA) WE HAVE TO FIND OUT THE AVAILABLE FUNDS WITH THE ASSESSEE BEFO RE US. AS SHOWN IN THE BALANCE-SHEET, THE AVAILABLE FUNDS AS ON 31-03-2003 IS RS.9,24,72,915. IT IS NOT IN DISPUTE THAT THE ASSESSEE BORROWED PACKIN G CREDIT LOAN FROM FEDERAL BANK, OUTSTANDING OF WHICH AS ON 31-03-2003 WAS RS. 29,62,930. THE NET PROFIT FOR THE YEAR UNDER CONSIDERATION IS RS.87,77,445. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSEE HAS SUFFICIENT CASH BALANCE TO THE EXTENT OF RS.3,43,44,000. IN V IEW OF THE JUDGMENT OF THE APEX COURT IN THE CASE OF MUNJAL SALES CORPORAT ION (SUPRA), THIS 6 ITA NO.26 & 27/COCH/2013 TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CIT( A) HAS RIGHTLY DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2003- 04. WE CONFIRM HIS ORDER. 8. NOW COMING TO ASSESSMENT YEAR 2009-10, THE AVAIL ABLE BALANCE A ON 31-03-2009 WAS RS.11,53,95,706. THE LOAN BORROW ED WHICH WAS OUTSTANDING AS ON 31-03-2009 WAS ADMITTEDLY RS.5,57 ,92,992. THE AMOUNT SAID TO BE DIVERTED IS ONLY RS. 1,97,73,640. THE PROFIT FOR THE YEAR UNDER CONSIDERATION ALONE COMES TO RS.3,28,73,728. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSE SSEE HAS SUFFICIENT CASH BALANCE FOR MAKING INVESTMENT AS SHOWN IN THE RETUR N OF INCOME. IN VIEW OF THE JUDGMENT OF THE APEX COURT IN THE CASE OF MU NJAL SALES CORPORATION (SUPRA), THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDERS OF LOWER AUTHORITY. ACCORDINGLY, THE SAME IS CONFIRMED. 9. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE S TAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD AUGUST, 2013. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 23 RD AUGUST, 2013 PK/- 7 ITA NO.26 & 27/COCH/2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE COMMISSIONER OF INCOME-TAX 4. THE COMMISSIONER OF INCOME-TAX(A) 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH