UNITHERM ENGINEERS LTD, MUMBAI V. ADDL CIT RG 3, THANE

ITA 2955/MUM/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2666 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 15-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H M WANARE
• Assessee Lawyers: MADHUKAR KHANDEKAR
• Keywords: Proportionate interest
• Section: 2

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE HONBLE S/SHRI JOGINDER SINGH (JM), AND RAJESH KUMAR, ( AM ) ./ I.T.A. NO . 2954 AND 2955 /MUM/20 1 5 ( / ASSESSMENT YEAR : 200 9 - 10 AND 2010 - 11 ) M/S UNITHERM ENGINEERINGS LTD., A - 109, BOOMERANG, FIRST FLOOR, CHANDIVALI F A RM ROAD, CHANDIVALI, POWAI, ANDHERI (E), MUMBAI - 400072 / VS. ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE - 3, 6 TH FLOOR, ASHAR IT PARK, ROAD NO.16 - Z, WAGLE INDUSTRIAL ESTATE, THANE(W) - 400604 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AAACU4041L / APPELLANT BY: SHRI MADHUKAR KHANDEKAR / RESPONDENT BY SHRI H M WANARE AND SHRI KAILASH KANOJIYA / DATE OF HEARING : 20 . 7 .201 6 / DATE OF PRONOUNCEMENT : 25. 7.2016 / O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER : THESE ARE THE TWO AP PEALS FILED BY THE ASSESSEE AGAINST THE TWO SEPARATE ORDERS OF LD.CIT(A) - 2, THANE, DATED 12.2.2015 FOR THE ASSESSMENT YEARS 2009 - 10 AND 20010 - 11. SINCE THESE APPEALS PERTAIN TO THE SAME ASSESSEE, THESE APPEALS ARE BEING DECIDED BY THIS COMMON ORDER FOR TH E SAKE OF CONVENIENCE. 2. THE COMMON ISSUE RAISED BY THE ASSESSEE IN THE SOLE GROUND OF APPEAL IS AGAINST THE CONFIRMATION OF ADDITION ON ACCOUNT OF NOTIONAL ITA NO. 29 5 4 AND 2955 /MUM/2015 2 INTEREST U/S 36(1)(III) OF THE INCOME TAX ACT, 1961 ON LOAN GIVEN TO SISTER CONCERNED BY THE CO MPANY. I.T.A. NO.2954/MUM/2015 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS ADVANCED A SUM OF RS. 2,32,54,964/ - TO INDO GERMAN VACU TREAT (IGVT) A SISTER CONCERN OF THE ASSESSEE WITHOUT CHARGING ANY INTEREST. DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, THE ASSESSEE WAS CONFRONTED WITH THE QUERY A S TO WHY THE INTEREST SHOULD NOT BE CHARGED AND ADDED TO THE INCOME OF THE ASSESSEE AS IT HAS ADVANCED INTEREST F R EE LOAN TO THE SISTER CON CERN WHEREAS THE ASSESSEE HAS BORROWED INTEREST BEARING F UNDS. THE ASSESSEE EXPLAINED THAT THE SAID LOAN WAS ADVANCED OUT OF OWN FUNDS IN THE FORM OF SHARE CAPITAL RESERVE AND WAS NOT OUT OF INTEREST BEARING FUNDS. HOWEVER, THE AO DID NOT AGREE WITH THE SUBMISSIONS OF THE ASSESSEE ON THE GROUND THAT THE ASSESS EE PAID INTEREST OF RS.1,53,70,866/ - ON TERM LOANS, CASH CREDITS AND UNSECURED LOANS AND ADDED A SUM OF RS.11,13,912/ - U/S 36(1)(III) OF THE ACT ON THE GROUND THAT THE ASSESSEE HAS FAILED TO PROVE ANY NEXUS BETWEEN THE OWN FUNDS AND INTEREST BEARING B ORROWED FUNDS AND THE MONEY ADVANCED TO THE SISTER CONCERN. THE MATTER WAS CARRIED BEFORE THE LD.CIT(A) WHO ALSO DISMISSED THE APPEAL OF THE ASSESSEE. THE LD.AR SUBMITTED BEFORE US THAT THE ISSUE IS FULLY COVERED BY THE DECISION OF THE TRIBUNAL IN IT A NO.2864/MUM/2012 FOR THE ASSESSMENT YEAR 2008 - 09 VIDE ORDER DATED 17.3.2015 WHEREIN AN IDENTICAL ISSUE WAS DECIDED IN ITA NO. 29 5 4 AND 2955 /MUM/2015 3 FAVOR OF THE ASSESSEE IN ITS OWN CASE . THE LD. DR FAIRLY CONCEDED THE CONTENTIONS OF THE LD.AR. 4. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BELOW. WE FIND FROM THE RECORD BEFORE US THAT THE IDENTICAL ISSUE IN ASSESSEES OWN CASE HAS BEEN DECIDED IN IS FAVOUR BY THE TRIBUNAL IN ASSESSEES OWN CAS E. THE OPERATIVE PORTION OF THE SAID ORDER IS REPRODUCED BELOW: 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 CONCERN,THAT IT HAD NOT CHARGED ANY INTEREST FOR THE AMOUNT ADVANCED, THAT AO HAD DISALLOWED PROPORTIONATE 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 A GAINST 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 INTEREST PAYMENT,WHEN ASSESSEE IS HAVING ITS OWN FUNDS,AS UNDER: 14. WE H AVE HEARD LEARNED COUNSEL FOR BOTH THE PARTIES. IN OUR OPINION, THE VERY BASIS ON WHICH THE REVENUE HAD SOUGHT TO CONTEND OR ARGUE THEIR CASE THAT THE SHAREHOLDERS FUNDS TO THE TUNE OF OVER RS. 172 CRORES WAS UTILISED FOR THE PURPOSE OF FIXED ASSETS IN TER MS 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 BALANCE - SHEET AS ON MARCH 31, 2000. APART FROM THAT, THE LEARNED COUNSEL HAS BEEN UN ABLE 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 WHET HER THE SHAREHOLDERS FUNDS HAVE BEEN UTILISED 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 INCOMETAX (APPEALS) AS ALSO THE APPELLATE TRIBUNAL, A CLEAR FINDING IS RECORDED THAT THE ASSESSEE HAD INTEREST - FREE FUNDS OF ITS OWN WHICH HAD BEEN GENERATED IN THE COURSE OF THE YEAR COMMENCING FROM APRIL 1, 1999. APART FROM THAT IN TERMS OF THE BALANCE - SHEET THERE WAS A FURTHER ITA NO. 29 5 4 AND 2955 /MUM/2015 4 AVAILABILITY OF RS. 398.19 C RORES INCLUDING RS. 180 CRORES OF SHARE CAPITAL. 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 FAUL TED. 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, TH E SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD. V. CIT [1997] 224 ITR 627 HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. [1982] 134 ITR 219 WHERE A SIMILAR ISSUE HAD ARISEN. BEFORE THE SUPREME COUR T IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPELLANT W AS 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 OF 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 DEPOSITED IN THE OVER DRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PR ESUMED THAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS. 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 FUNDS AVAILABLE BOTH INTEREST - FREE AND OVER DRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTERESTFREE FUND GENERATED OR AVAILABLE WITH THE COM PANY, IF THE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSIONER OF INCOME - TAX (APPEALS) AND THE INCOME - TAX APPELLATE TRIBUNAL. 17. CONSIDERING T HE ABOVE, IN OUR OPINION, THERE IS NO MERIT IN THIS APPEAL WHICH IS ACCORDINGLY DISMISSED. RESPECTFULLY,FOLLOWING THE ABOVE AND CONSIDERING THE FACT THAT THE ASSESSEE HAD SUFFICIENT OWN FUNDS DURING THE YEAR UNDER CONSIDERATION,WE ARE REVERSING THE ORDER OF THE FAA.EFFECTIVE GROUND OF APPEAL (GROUNDS OF APPEAL - 1 TO 4) IS DECIDED IN FAVOUR OF THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ITA NO. 29 5 4 AND 2955 /MUM/2015 5 5 . IN VIEW OF THE ABOVE, WE ALLOW THE APPEAL OF THE ASSESSEE BY FOLLOWING THE DECISION OF CO - ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE. I.T.A. NO.2955/MUM/2015 6 . WE HAVE ALREADY DECIDED AN IDENTICAL ISSUE IN ITA NO. 2954/MUM/2015 (AY - 2009 - 10) AND THEREFORE, OUR DECISION IN ITA NO. 2954 /MUM/2015 WOULD , MUTATIS MUTANDIS , WOULD APPLY TO THIS APPEAL AS WELL. THE AO IS DIRECTED ACCORDINGLY. 7. IN THE RESULT, THE APPEAL S OF THE ASSESSEE ARE ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 25TH JULY, 2016 . 25TH JULY, 2016 S D SD (JOGINDER SINGH ) ( RAJESH KUMAR ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBA I: 25TH JULY, 2016 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. 6. , , / DR, ITAT, MUMBAI CONCERNED / GUARD FILE. / BY ORDER, T RUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI