The DCIT, Circle-4, Ahmedabad V. Jay Laminart Limited, Ahmedabad

ITA 2860/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5841 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 18-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 03-07-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Assessee Lawyers: PAMIL SHAHAR
• Keywords: Depreciation; Proportionate interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' [BEFORE S/SHRI D T GARASIA,JM & A N PAHUJA,AM] ITA NO.2860/AHD/2007 (ASSESSMENT YEAR:-2003-04) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-4, NAVJIVAN TRUST BUILDING, OFF ASHRAM RAOD, AHMEDABAD V/S JAY LAMINART PVT. LTD., 301, AKASHARATH, B/H PARISEEMA COMPLEX, OFF. C G ROAD, AHMEDABAD [PAN:AAACJ3628C] [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI K M MAHESH, DR ASSESSEE BY:- SHRI PAMIL SHAH,AR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 20- 04-2007 OF THE LD. CIT(APPEALS)-VIII, AHMEDABAD, RA ISES THE FOLLOWING GROUNDS :- 1 THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE ADDITION OF RS.6,15,014/- BEING UNUTILIZED MODVAT C REDIT. 2 THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF T HE CASE IN DELETING THE ADDITION OF RS.4,99,370/- BEING INTEREST ATTRIBUTAB LE TO INTEREST FREE ADVANCES. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESS ING OFFICER. 4 IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD . CIT(A) MAY BE CANCELLED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED TO THE ABOVE EFFECT. 2. ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL, FA CTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING LOSS OF RS.2,86,55,790/- FILED ON 28-11-2003 BY THE ASSESSEE-COMPANY, AFTER BEING PROCESSED ON 17.1.2004 U/S 143(1) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT], WAS SELECT ED FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 25.11. 2004. DURING THE ITA NO.2860/AHD/2007 FOR AY 2003-04 JAY LAMINART PVT. LTD. 2 COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER[AO IN SHORT] ASKED THE ASSESSEE AS TO WHY THE UNUTILIZED MODVAT CREDIT SHOULD NOT BE TREATED AS INCOME OF THE CURRENT YEAR . IN RESPONSE , THE ASSESSEE WHILE SUBMITTING DETAILED CALCULATIONS OF UTILIZATION OF MODVAT CREDIT REPLIED VIDE LETTER DATED 30-12-2005 THAT THE UNUTILIZED BALANCE OF MODVAT PERTAINING TO PURCHASES, NOT UTIL IZED AGAINST THE EXCISE DUTY ON SALES, WILL BE UTILIZED IN THE NEXT YEAR AND THEREF ORE, THERE IS NO QUESTION OF TREATING THE SAME AS INCOME .HOWEVER, THE AO REJECT ED THE CONTENTIONS OF THE ASSESSEE ON THE GROUND THAT MODVAT IS A KIND OF SUBSIDY AND INCENTIVE GIVEN BY THE GOVERNMENT AND BECOMES INCOME OF THE ASSESSEE FOR THE PREVIOUS YEAR IN WHICH THE CLAIM IS GRANTED BY THE GOVERNMENT. ACCOR DINGLY, THE AO BROUGHT TO TAX THE UNUTILIZED PORTION OF THE MODVAT CREDIT OF RS. 6,15,074/- . 3. ON APPEAL, THE LD. CIT(A) FOLLOWING HIS OWN DEC ISION FOR THE AY. 2002-03 DELETED THE ADDITION WHILE CONCLUDING T HAT THE DEBIT BALANCE REPRESENTING EXPENDITURE INCURRED BUT NOT CHARGED T O PROFIT AND LOSS ACCOUNT, CANNOT BE TAKEN TO THE CREDIT SIDE OF THE PROFIT AN D LOSS ACCOUNT. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LD. CIT(A).AT THE OUTSET, BOTH THE PARTIES AGREED THAT ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION DATED 03-04-2007 OF THE ITAT AHMEDABAD BENCH-A, IN THE ASSESSEES OWN CASE IN ITA NO.264/AHD/2007 FOR THE AY 2002-03. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISION OF THE ITAT IN THE ASSESSEES OWN CASE. WE FIND THAT THE ITAT IN THEI R AFORESAID DECISION DATED 03-04-2007 WHILE ADJUDICATING A SIMI LAR ISSUE, CONCLUDED THAT THE COST OF RAW MATERIAL AND CAPITA L GOODS TO THE EXTENT OF MODVAT CLAIM WERE REDUCED WAS AN UNDISPUTED FACT AN D AFTER ADJUSTMENT FOR CURRENT YEARS UTILIZATION, THIS, IN FACT, WAS A P RE-PAID EXPENDITURE, NOT CHARGEABLE TO PROFIT & LOSS ACCOUNT AND HENCE COULD NOT CONSTI TUTE INCOME. IN THE LIGHT OF THIS ITA NO.2860/AHD/2007 FOR AY 2003-04 JAY LAMINART PVT. LTD. 3 VIEW TAKEN BY THE ITAT IN THE ASSESSEES OWN CASE I N THE PRECEDING ASSESSMENT YEAR AND UNDISPUTEDLY, THE FACTS AND CIRCUMSTANCES IN THE YEAR UNDER CONSIDERATION BEING SIMILAR TO THE FACTS & CIRCUMST ANCES OBTAINING IN THE PRECEDING ASSESSMENT YEAR, WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE FINDINGS OF THE LD. CIT(A). THEREFORE, GROUND NO.1 IN THE APPEAL IS DISMISSED. 6. GROUND NO.2 RELATES TO DISALLOWANCE OF INTEREST ATTRIBUTABLE TO INTEREST FREE ADVANCES. DURING THE COURSE OF ASSESS MENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE PAID TOTAL INTEREST OF RS.2,15,65,039/- TO BANKS AND OTHERS ON BORROWED FU NDS WHILE INTEREST FREE ADVANCES WERE GIVEN TO THE FOLLOWING PARTIES : SR. NO. PARTICULARS JAY DECOR JAY LAMINART TOTAL 1 MADAN MOHAN MOHTA 1,50,000 - 1 ,50,000 2 OOSYPINE MARPACK LTD. 5,30,000 - 5,30,000 3 SPORTS FOLIO (I) EXPORTS LTD. 90,00,000 - 90,00,000 4 ZENITH DISTRIBUTORS 1,35,015 3,75,397 5,10,412 5 PRECISION PROCESSORS (I) P. LTD. - 2,34,632 2,34,632 6.1 TO A QUERY BY THE AO, SEEKING TO DISALLOW IN TEREST ON BORROWED FUNDS UTILIZED FOR NON-BUSINESS PURPOSES OF GIVING INTEREST FREE LOANS AND ADVANCES, THE ASSESSEE REPLIED VIDE LETTER DAT ED 30-12-2005 THAT ADVANCES TO ZENITH DISTRIBUTORS, SPORTS FOLIO (I) EXPORTS LTD & PRECISION PROCESSORS (I) P. LTD., WERE TRADE ADVANC ES AND BALANCES IN THE ACCOUNTS OF AFORESAID PARTIES WERE OPENING B ALANCES. SINCE THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AV AILABLE, RELYING UPON THE ITA NO.2860/AHD/2007 FOR AY 2003-04 JAY LAMINART PVT. LTD. 4 DECISION IN THE CASE OF TORRENT FINANCERS VS. ACIT (2001) 73 TTJ 624 (AND.), THE ASSESSEE CONTENDED THAT NO DISALLOWANCE OF INTE REST COULD BE MADE. HOWEVER, THE AO DID NOT ACCEPT THESE SUBMISSIONS OF THE ASSESSEE ON THE GROUND THAT THE TOTAL SHARE CAPITAL PLUS RESERVES AND SURPLUS HAD BEEN ERODED COMPLETELY ON ACCOUNT OF HUGE ACCUMULATED LOSS OF R S. 3.40 CRORES, EVEN WHEN NON CASH EXPENDITURE ON ACCOUNT OF DEPRECIATION WA S REDUCED FROM THE SAID ACCUMULATED LOSS . WHILE OBSERVING THAT ANY LOAN AN D ADVANCE MADE FOR NON BUSINESS PURPOSE WOULD AMOUNT TO DIVERSION OF INTER EST BEARING FUNDS FOR NON- BUSINESS PURPOSES AND THE ASSESSEE HAVING NOT FURNI SHED THE DETAILS REGARDING THE SOURCES OF FUNDS FOR NON-BUSINESS ADVANCES, THE AO DISALLOWED PROPORTIONATE INTEREST OF 4,99,370/- OUT OF INTER EST OF RS. 2,12,65,039/-. 7. ON APPEAL, THE LEARNED CIT(A) DELETED THE DISALL OWANCE IN THE FOLLOWING TERMS:- 3.2 BEFORE ME, IT WAS CONTENDED BY THE APPELLANT T HAT THE TREATMENT GIVEN BY THE AO WAS ON A HYPOTHETICAL BASIS AND THE ADVANCES WERE NOT CURRENT YEAR TRANSACTIONS BUT THE BALANCES BROUGHT FORWARD AND ITEM AT SR. NO. 3 VIZ. M/S. SPORTS FOLIO (I) EXPORTS LTD. (PAGE 4 OF THE ORDER) REPRESENTED TRADE ADVANCE FOR SECURITY MADE AS ON 3 1-3-2000 AND OTHER BALANCES HAVE ONLY COME DOWN DURING THE YEAR, THERE BEING NO DISALLOWANCE ON THIS GROUND FOR EARLIER YEARS. WITH OUT PREJUDICE TO THE ABOVE ARGUMENTS IT WAS CONTENDED THAT THE APPELLANT HAD SUFFICIENT FUNDS IN THE FORM OF SHARE CAPITAL AFTER MEETING OPERATIO NAL LOSSES AND THE BORROWED FUNDS OF RS.14.42 CRORES OF SECURED LOANS WERE APPLIED ONLY FOR ACQUISITION OF FIXED ASSETS AND THERE WAS NEVER DI VERSION OF BORROWED FUNDS FOR ADVANCES WITHOUT INTEREST. IT WAS FURTHER CONTENDED THAT THE APPELLANT ALSO ENJOYED INTEREST FREE FUNDS TO THE T UNE OF RS.70 LACS BY WAY OF SUNDRY CREDITORS IN EXCESS OF SUNDRY DEBTORS . IN THAT FACTUAL POSITION AND RELYING ON THE DECISION OF AHMEDABAD I TAT 'A' BENCH IN THE CASE OF TORRENT FINANCIERS V. ACIT 73 TTJ 624 (AH D) IT WAS CONTENDED THAT THE ADDITION ON THIS COUNT BE DELETED IN TOTO. 3.2.1 AS TO SPECIFIC QUERY AS TO HOW THE FIGURE OF RS.33,55,005/- WAS CONSIDERED IN WORKING OUT INTEREST, THE APPELLANT C ONTENDED THAT THE AO DID NOT EXPLAIN THE BASIS OF TAKING THE FIGURE WHEN THE RE IS NO SUCH ADVANCE. 3.3 I FIND THAT THE CONTENTION OF THE APPELLANT ARE TENABLE ON FACTS ON RECORD IN THAT THE BORROWED FUNDS HAVE BEEN USED FO R SPECIFIC PURPOSE OF ACQUIRING FIXED ASSETS AND THE AVAILABILITY OF SURP LUS FUNDS IN MAKING THE ITA NO.2860/AHD/2007 FOR AY 2003-04 JAY LAMINART PVT. LTD. 5 ADVANCES IN DISPUTE CANNOT BE DISBELIEVED. ALSO THE MAJOR PART OF ADVANCES AT RS.90 LACS WAS FOR TRADING SECURITY AND BALANCE ADVANCES ARE IN ANY CASE COVERED BY THE AVAILABILITY INTEREST FR EE FUNDS. IN THAT VIEW OF THE MATTER, THERE IS NO FACTUAL BASIS TO COMPUTE AN Y INTEREST FOR DISALLOWANCE ON PRORATA OR OTHERWISE. THE ADDITION OF RS.4,99,370/- IS HENCE WITHOUT BASIS AND DIRECTED TO BE DELETED. 8. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A), THE LEARNED DR RELIED O N THE ORDER OF THE AO WHILE THE LD. AR ON BEHALF OF THE ASSESSEE SUPPO RTED THE FINDINGS OF THE LD. CIT(A) ON THE BASIS OF AN ORDER OF MUMBA I BENCH OF THE ITAT IN THE CASE OF ALMONA INVESTMENT & MARKETING P VT. LTD. VS, ITO IN ITA NO.4908/MUM./2006. 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. UNDISPUTEDLY AND AS POINTED OUT BY THE LD . CIT(A), THE ADVANCE OF RS. 90 LACS TO SPORTS FOLIO(I) EXPORTS L TD. IS TRADING ADVANCE BY WAY OF TEMPORARY SECURITY AND IS STATED TO HAVE BEEN TRANSFERRED FROM REGULAR TRADING ACCOUNT WITH THE S AID PARTY TO WHOM MAJORITY OF SALES WERE MADE. THERE IS NOTHING ON RE CORD TO SUGGEST THAT THE SAID AMOUNT WAS FOR NON-BUSINESS PURPOSES. MOREOVER, AS CONCLUDED BY THE LD. CIT(A), THERE IS NO BASIS AVAI LABLE FOR WORKING OUT OF THE AMOUNT OF RS.33,55,005/- ON WHICH INTERE ST HAS BEEN DISALLOWED WHILE THE ADVANCES ARE STATED TO HAVE BE EN GIVEN IN THE EARLIER YEARS AND DURING THE YEAR UNDER CONSIDERATI ON NO FURTHER ADVANCE HAS BEEN GIVEN. IN THESE CIRCUMSTANCES, THE RE IS NO QUESTION OF DIVERSION OF ANY BORROWED FUNDS IN THE YEAR UNDER C ONSIDERATION FOR NON-BUSINESS PURPOSES WHILE IN THE PRECEDING YEARS NO SUCH DISAL LOWANCE ON ACCOUNT OF INTEREST IS STATED TO HAVE BEEN MADE. HO NBLE KARNATAKA HIGH COURT IN BIT TUL (P.) LTD. V. CIT (ITRC 141 OF 1977 DATED 29-7-1980) HELD THAT THERE SHOULD BE MATERIAL TO JUSTIFY THE CONCLU SION THAT ANY BORROWED MONEY BY THE ASSESSEE IN A YEAR TO WHICH INTEREST HAD BEE N PAID HAD BEEN DIVERTED FOR NON-BUSINESS PURPOSE BEFORE MAKING ANY DISALLOWANCE . HONBLE KARNATAKA HIGH ITA NO.2860/AHD/2007 FOR AY 2003-04 JAY LAMINART PVT. LTD. 6 COURT IN THEIR ANOTHER DECISION IN CIT VS. SRIDEV E NTERPRISES,192 ITR 165(KAR) HELD THAT THE STATUS OF THE AMOUNT OUTSTANDING FROM NALAND A ON THE FIRST DAY OF THE ACCOUNTING YEAR IS THE AMOUNT THAT STOOD OUTSTANDIN G ON THE LAST DAY OF THE PREVIOUS ACCOUNTING YEAR AND, THEREFORE, ITS NATURE AND STATUS CANNOT BE DIFFERENT ON THE FIRST DAY OF THE CURRENT ACCOUNTING YEAR FRO M ITS NATURE AND STATUS AS ON THE LAST DAY OF THE PREVIOUS ACCOUNTING YEAR. REGARDING THE PAST YEARS, THE ASSESSEE'S CLAIMS FOR DEDUCTION WERE ALLOWED IN RES PECT OF THE SUMS ADVANCED DURING THOSE YEARS ; THIS COULD BE ONLY ON THE ASSU MPTION THAT THOSE ADVANCES WERE NOT OUT OF BORROWED FUNDS OF THE ASSESSEE. THI S FINDING DURING THE PREVIOUS YEARS IS THE VERY BASIS OF THE DEDUCTIONS PERMITTED DURING THE PAST YEARS, WHETHER A SPECIFIC FINDING WAS RECORDED OR NOT. A DEPARTURE FROM THAT FINDING IN RESPECT OF THE SAID AMOUNTS ADVANCED DURING THE PREVIOUS YEAR WOULD RESULT IN A CONTRADICTORY FINDING ; IT WILL NOT BE EQUITABLE TO PERMIT THE REVENUE TO TAKE A DIFFERENT STAND NOW IN RESPECT OF THE AMOUNTS WHICH WERE THE SUBJECT-MATTER OF PREVIOUS YEARS' ASSESSMENTS ; CONSISTENCY AND DEFIN ITENESS OF APPROACH BY THE REVENUE IS NECESSARY IN THE MATTER OF RECOGNISING T HE NATURE OF AN ACCOUNT MAINTAINED BY THE ASSESSEE SO THAT THE BASIS OF A C ONCLUDED ASSESSMENT WOULD NOT BE IGNORED WITHOUT ACTUALLY REOPENING THE ASSES SMENT. THE PRINCIPLE IS SIMILAR TO THE CASES WHERE IT HAS BEEN HELD THAT DEBT WHICH HAD BEEN TREATED BY THE REVENUE AS A GOOD DEBT IN A PARTICULAR YEAR CANNOT SUBSEQUENTLY BE HELD BY IT TO HAVE BECOME BAD PRIOR TO THAT YEAR. 9.1 EVEN OTHERWISE, HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM.) HELD THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN , THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST -FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST-FREE FU NDS WERE SUFFICIENT TO MEET THE INVESTMENTS. 10. IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID DECISIONS, ESPECIALLY WHEN IN THE INSTANT CASE THE REVENUE HAVE NOT PLACE D BEFORE US ANY MATERIAL THAT THE BORROWED FUNDS HAD INDEED BEEN UT ILIZED TOWARDS THE AFORESAID ADVANCES, WE ARE NOT INCLINED TO INTE RFERE WITH THE FINDINGS OF THE LD. CIT(A). THEREFORE, GROUND NO.2 IN THE APPEAL IS ALSO DISMISSED. ITA NO.2860/AHD/2007 FOR AY 2003-04 JAY LAMINART PVT. LTD. 7 11.. GROUND NOS. 3 & 4 BEING GENERAL IN NATURE, D O NOT REQUIRE ANY SEPARATE ADJUDICATION AND ARE, THEREFORE, DISMISSED . 12. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 30-6 -2010 SD/- SD/- (D T GARASIA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 30-6-2010 COPY OF THE ORDER FORWARDED TO: 1. JAY LAMINART PVT. LTD., 301, AKASHARATH, B/H PAR ISEEMA COMPLEX, OFF. C G ROAD, AHMEDABAD 2. THE DCIT, CIRCLR-4, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-VIII, AHMEDABAD 5. THE DR, BENCH-C, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD