DCIT, Kollam V. JAISON G OOMMEN, Kollam

ITA 264/COCH/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73891 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 20-12-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 18-04-2011
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Assessee Lawyers: A S NARAYANAMOORTHY
• Keywords: Gift
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKARAN, AM I.T.A. NO. 264/COCH/2011 ASSESSMENT YEAR : 2007-08 THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, KOLLAM. VS. JAISON G. OOMMEN, M/S. ST. MARYS CASHEW FACTORY, PUTHOOR, KOTTARAKKARA, KOLLAM. [PAN: AAEPO 3332K] (REVENUE -APPELLANT) (ASSESSEE-RESPONDEN T) REVENUE BY SMT. LATHA V. KUMAR, JR. DR ASSESSEE BY SHRI A.S. NARAYANAMOORTHY, CA DATE OF HEARING 20/12/2013 DATE OF PRONOUNCEMENT 31/01/2014 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 04.1.2011 PASSED BY LD CIT(A)-I, TRIVANDRUM AND IT RELATES TO THE AS SESSMENT YEAR 2007-08. 2. FOLLOWING TWO ISSUES ARE URGED BY THE REVENUE IN THIS APPEAL:- (A) DISALLOWANCE OF PART OF INTEREST EXPENDITURE (B) DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO PF & ESI. 3. THE FACTS RELATING TO THE ISSUES CITED ABOVE ARE STATED IN BRIEF. THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICED THAT THE FOLLOWING INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE. (A) GOVERNMENT OF INDIA RELIEF BOND - RS.3 ,00,00,000 (B) INVESTMENT IN MALAYALAM COMMUNICATION - RS. 40,000 --------------------- RS.3,00,40,000 ========== THE AO ALSO NOTICED THAT THE ASSESSEE HAS CLAIMED I NTEREST EXPENDITURE OF RS.57,55,810/- ON THE LOANS AVAILED BY HIM. ACCORDINGLY, THE AO TOOK THE VIEW THAT THE ASSESSEE HAS DIVERTED INTEREST BEARING FUNDS FOR MAKING INVESTMENTS LISTE D ABOVE. THE OPENING AND CLOSING I.T.A. NO.264/COCH/2011 2 BALANCE OF LOAN AMOUNT STOOD AT RS.146.77 LAKHS AND RS.30.19 LAKHS RESPECTIVELY. THE AO COMPUTED THE AVERAGE OF BOTH THE BALANCES AND NOTIC ED THAT THE AVERAGE LOAN BALANCE WAS LESS THAN THE AMOUNT OF INVESTMENTS LISTED ABOVE. HENCE HE DISALLOWED THE ENTIRE INTEREST EXPENDITURE OF RS.57,55,810/- TREATING IT AS RELATE D TO THE ABOVE SAID INVESTMENTS, I.E., FUNDS DIVERTED FOR NON-BUSINESS PURPOSES. THE AO NOTICED THAT THE ASSESSEE HAS PAID THE EMPLOYEES CONTRIBUTION TO PF & ESI BELATEDLY, I.E., BEYOND THE DUE DATE PRESCRIBED IN THE CONCERNED STATUTE. HENCE THE AO DISALLOWED THE AMO UNT OF RS.62,24,842/- RELATING TO SUCH CONTRIBUTIONS. 4. BEFORE LD CIT(A), THE ASSESSEE SUBMITTED THAT THE ABOVE SAID INVESTMENTS WERE MADE BY HIM IN THE EARLIER YEARS. IT WAS FURTHER SUBMIT TED THAT THE PROFIT EARNED OVER THE YEARS AND THE CAPITAL BALANCES FAR EXCEEDED THE INVESTMEN T AMOUNTS. THE ASSESSEE ALSO SUBMITTED THAT THE ASSESSEE IS EARNING INTEREST INC OME OUT OF GOVERNMENT OF INDIA RELIEF BOND, THOUGH THE SAID INTEREST INCOME IS EXEMPT FRO M TAXATION. ACCORDINGLY, THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS HAVING SUFFICIENT BA LANCE OF INTEREST FREE FUNDS AND ACCORDINGLY CONTENDED THAT THERE WAS NO DIVERSION O F INTEREST BEARING FUNDS. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF HONBLE SUP REME COURT IN THE CASE OF MUNJAL SALES CORPORATION VS. CIT (298 ITR 298). THE LD CIT(A) W AS CONVINCED WITH THE SAID CONTENTIONS AND ACCORDINGLY DELETED THE ADDITION. WITH REGARD TO THE DISALLOWANCE OF EMPLOYEES CONTRIBUTIONS, THE ASSESSEE SUBMITTED THAT THE SAME HAS BEEN PAID BEFORE THE DUE DATE FOR FILING RETURN OF INCOME AND ACCORDINGLY CONTENDED T HAT THEY CANNOT BE DISALLOWED. IN THIS REGARD, HE PLACED RELIANCE ON THE DECISION OF COCHI N BENCH OF ITAT IN THE CASE OF PARRY AGRO INDUSTRIES VS. ACIT (314 ITR (AT) 181) AND HARRISON MALAYALAM LTD VS. ACIT (315 ITR (AT) 1). THE LD CIT(A) WAS CONVINCED WITH THE SAID CONT ENTIONS AND ACCORDINGLY DELETED THE SAID DISALLOWANCE. AGGRIEVED, THE REVENUE HAS FILE D THIS APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. ACCORDING TO THE ASSESSEE, THE INVESTMENT IN GOVERNMENT OF INDIA BONDS WAS MADE DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2003-04. IT WAS FU RTHER SUBMITTED THAT THE ASSESSEE HAS EARNED SUFFICIENT PROFITS DURING THE FINANCIAL YEAR S 2000-01 TO 2002-03 IN ADDITION TO THE RECEIPT OF GIFT OF SUBSTANTIAL AMOUNT FROM HIS FATH ER IN THAT PERIOD. THE AGGREGATE AMOUNT OF PROFITS AND GIFTS EARNED/RECEIVED BY THE ASSESSE E DURING THE ABOVE SAID YEARS WAS RS.1913.91 LAKHS, WHICH WAS MORE THAN THE INVESTMEN T OF RS.300.00 LAKHS MADE IN I.T.A. NO.264/COCH/2011 3 GOVERNMENT OF INDIA BONDS. THE ASSESSEE HAS FILED COPIES OF FINANCIAL STATEMENTS RELATING TO THE YEAR UNDER CONSIDERATION. FROM THE BALANCE SHEET, WE NOTICE THAT THE LOAN FUNDS STAND AT RS.30.19 LAKHS AND THE CLOSING STOCK STAND AT RS.875.63 LAKHS. ACCORDING TO THE ASSESSEE, HE HAS AVAILED PACKING CREDIT LOANS F ROM THE BANK, WHICH IS REQUIRED TO BE UTILIZED FOR PURCHASE OF RAW MATERIALS AND OTHER IT EMS WHICH ARE REQUIRED FOR MANUFACTURE OF GOODS THAT ARE GOING TO BE EXPORTED. ACCORDINGLY, THE ASSESSEE SUBMITTED THAT HE HAS USED THE ENTIRE LOAN AMOUNT TO PURCHASE MATERIALS AND HE NCE THE QUESTION OF DIVERSION OF FUNDS DOES NOT ARISE IN RESPECT OF PACKING CREDIT LOAN. WE FIND MERIT IN THE SAID SUBMISSIONS. 6. EVEN OTHERWISE, WE NOTICE THAT THE ASSESSEE I S HAVING CAPITAL BALANCE OF RS.1775.46 LAKHS AND THE OUTSTANDING LOAN AMOUNT WAS ONLY RS.3 0.19 LAKHS. THE INVESTMENT POINTED OUT BY THE AO WAS ONLY 300.40 LAKHS. THUS, IT IS S EEN THAT THE INTEREST FREE FUNDS FAR EXCEEDED THE LOAN FUNDS. ANOTHER IMPORTANT POINT I S THAT THE ASSESSEE HAS CLAIMED TO HAVE RECEIVED INTEREST FROM GOVERNMENT OF INDIA RELIEF FU ND, WHICH MEANS THAT THERE WAS NO LOSS OF REVENUE TO THE ASSESSEE. 7. THE LD D.R PLACED HEAVY RELIANCE ON THE DECI SION OF JURISDICTIONAL HONBLE KERALA HIGH COURT IN THE CASE OF V.I. BABY (254 ITR 248) TO SUPP ORT THE DISALLOWANCE. HOWEVER, THIS BENCH OF TRIBUNAL, VIDE ITS ORDER DATED 28.6.2013 P ASSED IN ITA NO.256/COCH/2012 AND ITA NO.375/COCH/2012 RELATING TO THE ASSESSMENT YEAR 20 08-09 HAS HELD THAT THE CASE OF V.I. BABY SHALL NOT APPLY TO THE FACTS OF INSTANT CASE. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVATIONS MADE BY THE TRIBUNA L:- 14. THE LD D.R PLACED HEAVY RELIANCE ON THE DECIS ION RENDERED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF V.I.BABY (R EFERRED SUPRA). WE HAVE CAREFULLY GONE THROUGH THE SAID DECISION AND NOTICE THAT THE ASSESSEE THEREIN WAS A PARTNERSHIP FIRM AND THE WITHDRAWALS MADE BY ITS PARTNERS RESUL TED IN CONVERTING THE CAPITAL BALANCES INTO DEBIT BALANCES. THERE SHOULD NOT B E ANY DOUBT THAT THE DEBIT BALANCE IN THE CAPITAL ACCOUNT SIGNIFIES DRAWING OF FUNDS FROM LOAN AND OTHER CREDITORS ACCOUNT. UNDER THAT SET OF FACTS, THE WITHDRAWALS MADE BY TH E PARTNERS OF THE FIRM WERE CONSIDERED AS DIVERSION OF FUNDS IN THE CASE OF V.I. BABY (SUPRA). ACCORDING TO LD A.R, THE FACTS AVAILABLE IN THE INSTANT CASES ARE TOTALL Y DIFFERENT AND HENCE THE ABOVE SAID DECISION OF JURISDICTIONAL HIGH COURT CANNOT BE APP LIED HERE. HOWEVER, IN THE INSTANT CASE, WE HAVE ALREADY NOTIC ED THAT THE ASSESSEE IS HAVING CREDIT BALANCE IN HIS CAPITAL ACCOUNT EVEN AFTER THE WITHD RAWALS AND EVEN IF THE INVESTMENTS WERE SET OFF AGAINST THE CAPITAL ACCOUNT. ACCORDINGLY, IN OUR VIEW, THE DECISION RENDERED IN THE CASE OF V.I. BABY (REFERRED SUPRA) BY THE JURISDICTI ONAL HIGH COURT SHALL NOT APPLY TO THE FACTS OF THE INSTANT CASE. I.T.A. NO.264/COCH/2011 4 8. HENCE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IN OUR VIEW, THERE IS NO REASON TO COME TO THE CONCLUSION THAT THE ASSESSEE HAS DIVERT ED INTEREST BEARING FUNDS FOR MAKING THE ABOVE SAID INVESTMENTS. ACCORDINGLY, WE CONFIRM TH E ORDER OF LD CIT(A) ON THIS ISSUE. 9. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO PF & ESI. THE SAID ISSUE HAS SINCE BEEN SETTLED BY HONBLE SU PREME COURT IN THE CASE OF VINAY CEMENTS (213 CTR 268), WHICH WAS FOLLOWED BY HONBL E DELHI HIGH COURT IN THE CASE OF CIT VS. DHARMENDRA SHARMA (297 ITR 320). ACCORDING TO THESE DECISIONS, THE EMPLOYEES CONTRIBUTIONS TO PF AND ESI PAID BEFORE THE DUE DAT E FOR FILING RETURN OF INCOME IS ELIGIBLE FOR DEDUCTION U/S 43B OF THE ACT. SIMILAR VIEW HAS BEE N EXPRESSED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF PARRY AGRO INDUSTRIES V S. ACIT (SUPRA) AND HARRISON MALAYALAM LTD VS. ACIT (SUPRA). IN THE INSTANT CASE, THERE I S NO DISPUTE THAT THE EMPLOYEES CONTRIBUTION HAS BEEN PAID BEFORE THE DUE DATE FOR FILING RETURN OF INCOME. SINCE THE LD CIT(A) HAS FOLLOWED THE ABOVE SAID DECISIONS, WE DO NOT FIND ANY REASON TO INTERFERE WITH HIS ORDER ON THIS ISSUE. 10. IN THE RESULT, THE APPEAL FILED BY THE REVE NUE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 31-01-20 14. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCO UNTANT MEMBER PLACE: KOCHI DATED: 31ST JANUARY, 2014 GJ COPY TO: 1. JAISON G. OOMMEN, M/S. ST. MARYS CASHEW FACTORY , PUTHOOR, KOTTARAKKARA, KOLLAM. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CI RCLE, KOLLAM. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-I, TRIVAN DRUM. 4. THE COMMISSIONER OF INCOME-TAX, CENTRAL, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN I.T.A. NO.264/COCH/2011 5