UNITHERM ENGINEERS LTD., THANE V. ADDL.C.I.T. RG.3, THANE

ITA 2864/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88600 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 27-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 27-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAWAN KUMAR BIRLA
• Assessee Lawyers: VISHWAS V MEHENDALE
• Section: 143(3)

Judgement Text

, ,Q ,Q,Q ,Q INCOME TAX APPELLATE TRIBUNAL,MUMBAI - F BENCH , , BEFORE S/SH. I P BANSAL,JUDICIAL MEMBER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.2864/MUM/2012, ! ! ! ! ' ' ' ' / ASSESSMENT YEAR-2008-09 UNITHERM ENGINEERS LIMITED, A-109, BOOMERANG, FIRST FLOOR, CHANDIVALI FARM ROAD, CHANDIVALI, POWAI, ANEHEREI(E), THANE-400606 PAN:AAACU4041L VS ACIT RANGE 3, L.G.FLOOR, VARDAAN BLDG,. MIDC, WAGLE INDL. ESTATE, THANE(W)-400604 ( #$ / ASSESSEE) ( %&#$ / RESPONDENT) ! '( ! '( ! '( ! '( ) ) ) ) /ASSESSEE BY :SHRI VISHWAS V. MEHENDALE. * ) / REVENUE BY :SHRI PAWAN KUMAR BIRLA ! ! ! ! * ** * (+ (+ (+ (+ / DATE OF HEARING :17 - 03 -2015 ,-' * (+ / DATE OF PRONOUNCEMENT :17 -03-2015 ! ! ! ! , 1961 * ** * 254 )1 ( (.( (.( (.( (.( / / / / ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. ! : CHALLENGING THE ORDER DATED 31.01.12 OF CIT(A)-1 TH ANE, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, HON. CIT-A-1, THANE, ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST U/S 36(1)(I II) OF THE ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, HON. CIT-A-1, THANE, ERRED IN MAKING ERRONEOUS OBSERVATION THAT, THE APPELLANTS DID NOT ESTABLISH THE NEXUS BETWEEN THE INTEREST FREE FUNDS AND THE INTEREST FREE ADVANCES. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, HON. CIT-A-1, THANE, ERRED IN MAKING ERRONEOUS OBSERVATION THAT THE INTEREST FREE ADVANC ES GIVEN TO THE JOINT VENTURE COMPANY WERE NOT FOR THE PURPOSE OF APPELLANTS' BUSINESS. 4. APPELLANTS CRAVE LEAVE TO ADD, ALTER, AMEND OR W ITHDRAW THE GROUNDS OF APPEAL. THE ASSESSEE-COMPANY, ENGAGED IN THE BUSINESS OF MA NUFACTURE HEAT TREATMENT FURNISHES AND COMMERCIAL EAT TREATMENT SERVICES, FILED ITS RETURN OF INCOME ON 30.09.2008, DECLARING TOTAL INCOME OF RX. 5.91 CRORES. THE ASSESSING OFFICER (A O) COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT, ON 30.12.2010, DETERMINING THE INCOME OF T HE ASSESSEE AT RS. 6.55 CRORES. 2 .EFFECTIVE GROUNDS OF APPEAL IS ABOUT DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD ADVANCED A SUM OF RS. 2.32 CRORES TO ONE OF ITS SISTER CONCERNS, NAMELY INDO-G ERMAN VACU TREAT LTD. (ICVTL), THAT IT HAD NOT CHARGED ANY INTEREST FROM THE SISTER CONCERN. THE A O CONFRONTED THE ASSESSEE ABOUT NON-CHARGING OF INTEREST,VIDE HIS ORDER-SHEET ENTRY DATED 03.12. 2010. THE ASSESSEE STATED THAT THE LOAN HAD BEEN GIVEN AS PER THE JOINT VENTURE AGREEMENT, THAT MONE Y HAD BEEN ADVANCED FROM ITS OWN FUNDS CONSISTING OF SHARE CAPITAL AND RESERVES, THAT IGVT L WAS IN LOSSES AND HAD APPLIED FOR WAIVER OF THE INTEREST TO THE JV, THAT AS PER ACCOUNTING STAN DARD 27 ASSESSEE HAD TO PROVIDE FOR LOSSES IN THE JV, THAT BECAUSE OF THE ABOVE MENTIONED REASONS IT DID NOT CHARGE INTEREST FROM THE SISTER CONCERN. THE AO, AFTER CONSIDERING THE REPLY OF THE ASSESSEE , HELD THAT THE ASSESSEE HAD PAID AN INTEREST OF RS. 1.03 CRORES ON TERM LOANS, CASH CREDIT AND UNSE CURED LOANS, THAT IT COULD NOT SUBSTANTIATE ITS CLAIM,THAT FUNDS WERE TRANSFERRED FROM THE RESERVES AND SURPLUS,THAT IT HAD BASKET OF FUNDS THAT ITA/2864/MUM/2012 UNITHERM ENGINEERS LIMITED 2 INCLUDED RESERVES AND BORROWED FUNDS. RELIED UPON T HE JUDGMENT OF HONBLE ALLAHABAD HIGH COURT DELIVERED IN CASE OF HR SUGAR FACTORY LTD. (1 87 ITR 365),HE WORKED OUT THE AVERAGE COST OF FUND AND MADE THE PROPORTIONATE DISALLOWANCE OF INTEREST @ 5.5.%, AMOUNTING TO RS. 12,79, 023/-. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER, THE FAA HELD THAT THERE WERE SECURED LOANS OF RS. 9.46 CRORES AS ON 31.03.2008 AS COMPARED TO LAST YEAR FIGURES OF RS. 4.85 CRORES, THAT THE ASSESSEE HAD BORROWED FRESH FUNDS DURING THE YEAR UNDER CONSIDERATION, THAT THE SHARE CAPITAL AND SURPLUS F UNDS IN THE FORM OF RESERVES WERE UTILIZED IN ACQUISITION OF VARIOUS ASSETS, THAT THE ONUS WAS ON THE ASSESSEE TO ESTABLISH THE NEXUS THAT THE INTEREST FREE ADVANCES WERE GIVEN OUT OF INTEREST F UNDS AVAILABLE, THAT THE ASSESSEE HAD NOT FURNISHED ANY DOCUMENTARY EVIDENCE TO ESTABLISH SUC H NEXUS, THAT IT HAD NOT CHARGED INTEREST FROM THE JV, THE JV WAS RUNNING IN LOSSES, IT HAD NOT CH ARGED INTEREST WITH CLEAR INTENTION OF AVOIDING TAX.RELYING UPON THE ORDER OF B.I. BABY & CO. (254 ITR 248) OF THE HONBLE KERALA HIGH COURT, HE HELD THAT PROPORTIONATE DISALLOWANCE MADE BY THE AO WAS JUSTIFIED. 4. BEFORE US, AUTHORISED REPRESENTATIVE(AR) STATED THA T ASSESSEE HAD SUFFICIENT OWN FUNDS IN FORM OF SHARE CAPITAL AND RESERVE AND SURPLUSES. HE RELI ED UPON THE CASE OF RELIANCE UTILITIES AND POWER LTD.(313ITR340),DELIVERED BY THE HONBLE BOMBAY HIG H COURT.DEPARTMENTAL REPRESENTATIVE (DR SUPPORTED THE ORDER OF THE FAA. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ASSESSEE ADVANCED LOAN OF RS. 2.32 CRORE TO ITS SISTER CONCE RN,THAT IT HAD NOT CHARGED ANY INTEREST FOR THE AMOUNT ADVANCED, THAT AO HAD DISALLOWED PROPORTIONA TE INTEREST PAYMENT INVOKING THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. WE FIND THAT THE ASSESSEE HAD OPENING BALANCE OF RS. 12.62 CRORES IN FORM OF SHARE CAPITAL AND RESERVES AND SURPLUSES AS AGAINST OWE FUNDS OF RS. 9.10 CRORES FOR THE IMMEDIATELY PRECEDING YEAR. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITY AND POWER LTD. (SUPRA) HAS DECIDED THE ISSUE OF INTERES T PAYMENT,WHEN ASSESSEE IS HAVING ITS OWN FUNDS,AS UNDER: 14. WE HAVE HEARD LEARNED COUNSEL FOR BOTH THE PAR TIES. IN OUR OPINION, THE VERY BASIS ON WHICH THE REVENUE HAD SOUGHT TO CONTEND OR ARGUE THEIR CA SE THAT THE SHAREHOLDERS FUNDS TO THE TUNE OF OVER RS. 172 CRORES WAS UTILISED FOR THE PURPOSE OF FIXED ASSETS IN TERMS OF THE BALANCE-SHEET AS ON MARCH 31, 1999, IS FALLACIOUS. FIRSTLY, WE ARE NOT CONCERNED WITH THE BALANCE-SHEET AS ON MARCH 31, 1999. WHAT WOULD BE RELEVANT WOULD BE THE BALAN CE-SHEET AS ON MARCH 31, 2000. APART FROM THAT, THE LEARNED COUNSEL HAS BEEN UNABLE TO POINT OUT TO US FROM THE BALANCE-SHEET THAT THE BALANCE-SHEET AS ON MARCH 31, 1999, SHOWED THAT THE SHAREHOLDERS FUNDS WERE UTILISED FOR THE PURPOSE OF FIXED ASSETS. TO OUR MIND THE PROFIT AND LOSS ACCOUNT AND THE BALANCE- SHEET WOULD NOT SHOW WHETHER THE SHAREHOLDERS FUNDS HAVE BEEN UTILI SED FOR INVESTMENTS. THE ARGUMENT HAS TO BE REJECTED ON THIS COUNT ALSO. 15. APART FROM THAT WE HAVE NOTED EARLIER THAT BOTH IN THE ORDER OF THE COMMISSIONER OF INCOME- TAX (APPEALS) AS ALSO THE APPELLATE TRIBUNAL, A CLE AR FINDING IS RECORDED THAT THE ASSESSEE HAD INTEREST-FREE FUNDS OF ITS OWN WHICH HAD BEEN GENER ATED IN THE COURSE OF THE YEAR COMMENCING FROM APRIL 1, 1999. APART FROM THAT IN TERMS OF THE BALA NCE-SHEET THERE WAS A FURTHER AVAILABILITY OF RS. 398.19 CRORES INCLUDING RS. 180 CRORES OF SHARE CAP ITAL. IN THIS CONTEXT, IN OUR OPINION, THE FINDING OF FACT RECORDED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) AND THE INCOME-TAX APPELLATE TRIBUNAL AS TO AVAILABILITY OF INTEREST-FREE FUNDS REALLY CANNOT BE FAULTED. 16. IF THERE BE INTEREST-FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST-FREE FUNDS AVAILABLE. IN OUR OPINION, THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD. V. CIT [1997] 224 ITR 627 HAD THE OCCASI ON TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. [1982] 134 ITR 219 WHERE A SIMILAR ISSUE HAD ARISEN. ITA/2864/MUM/2012 UNITHERM ENGINEERS LIMITED 3 BEFORE THE SUPREME COURT IT WAS ARGUED THAT IT SHOU LD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFI TS OF THE RELEVANT YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS A ND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSIDERABLE FORCE, BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WOOLCOMBERS O F INDIA LTD.'S CASE [1982] 134 ITR 219 THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITE D IN THE OVER DRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED THAT THE TAXES WE RE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUS INESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE THE HIGH COURT. THE PRINCIPLE, THEREFORE, WOULD BE THAT IF THERE ARE FU NDS AVAILABLE BOTH INTEREST-FREE AND OVER DRAFT 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 FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS E STABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSIONER OF INCOME-TAX (APPEALS) AND THE IN COME-TAX APPELLATE TRIBUNAL. 17. CONSIDERING THE ABOVE, IN OUR OPINION, THERE IS NO MERIT IN THIS APPEAL WHICH IS ACCORDINGLY DISMISSED. RESPECTFULLY,FOLLOWING THE ABOVE AND CONSIDERING TH E FACT THAT THE ASSESSEE HAD SUFFICIENT OWN FUNDS DURING THE YEAR UNDER CONSIDERATION,WE ARE RE VERSING THE ORDER OF THE FAA.EFFECTIVE GROUND OF APPEAL (GROUNDS OF APPEAL-1 TO 4) IS DECIDED IN FAVOUR OF THE ASSESEE. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. 0(1 ! '( 2 3 * . 4 * ( 5 6 . ORDER PRONOUNCED IN THE OPEN COURT ON 17TH, MARCH, 2015. / * ,-' 7 8! 17 , EKPZ , ,, , 201 5 - * . = SD/- SD/- ( /I P BANSAL) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, 8! /DATE: 17.03.2015 SK / / / / * ** * %(> %(> %(> %(> ?>'( ?>'( ?>'( ?>'( / COPY OF THE ORDER FORWARDED TO : 1. / #$ 2. RESPONDENT / %&#$ 3. THE CONCERNED CIT(A)/ @ A , 4. THE CONCERNED CIT / @ A 5. DR F BENCH, ITAT, MUMBAI / >B. %(! ,Q ,Q,Q ,Q , . . . 6. GUARD FILE/ . 0 &>( %( //TRUE COPY// /! / BY ORDER, C / 5 DY./ASST. REGISTRAR , /ITAT, MUMBAI