M/sPlatino Classic Motors India P. Ltd, Cochin V. The DCIT, Cochin

ITA 315/COCH/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8623 (ITAT-COCHIN)
• Duration Of Justice: 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 12-05-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 28-05-2015
• Court: TRIBUNAL
• Keywords: Capital asset; Proportionate interest
• Section: 263

Judgement Text

ITA NO.315/COCH/2015 1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI B P JAIN, AM & GEORGE GEORGE.K, JM ITA NO.315/COCH/2015 (ASST YEAR : 2010-11) M/S. PLATINO CLASSIC MOTORS INDIA (P) LTD., II/68, NH-47, BY PASS ROAD, MARADU, KOCHI-682 304. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-4(1), KOCHI. ( ASSESSEE APPELLANT) VS (REVENUE -RESPONDENT) PAN NO. AADCK 1325N ASSESSEE BY SHRI R. KRISHNAN, CA REVENUE BY SHRI K P GOPAKUMAR, SR DR DATE OF HEARING 12/05/2016 DATE OF PRONOUNCEMENT 19/05/2016 ORDER PER B.P. JAIN, AM: THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER O F THE LD. CIT(A)-II, KOCHI DATED 20.03.2015 PASSED U/S. 263 OF THE I.T. ACT F OR THE ASSESSMENT YEAR 2010-11. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND O F APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX ERRED IN INVOKING THE PROVISIONS OF SECTION 263 OF THE INCOME TAX ACT OVERLOOKING THE O BJECTIONS RAISED BY THE APPELLANT. 2. THE LEARNED COMMISSIONER OF INCOME TAX OUGHT TO HAVE APPRECIATED THAT THE TWIN CONDITIONS REQUIRED FOR INVOKING THE PROVI SIONS OF SECTION 263 OF THE INCOME TAX ACT WAS ABSENT IN THE APPELLANTS CASE. 3. THE LEARNED COMMISSIONER OF INCOME TAX OUGHT TO HAVE MET THE OBJECTIONS OF THE APPELLANT AND THEREAFTER CONCLUDE D THAT, THERE WAS ERROR IN ITA NO.315/COCH/2015 2 THE ORDER PASSED BY ASSESSING OFFICER, CAUSING PREJ UDICE TO THE DEPARTMENT. HAVING NOT DONE SO, ORDER U/S. 263 IS BAD IN LAW. 4. THE LEARNED COMMISSIONER OF INCOME TAX ERRED IN NOT ENTERING INTO A FINDING AS TO HOW INTEREST BEARING FUNDS WERE DIVER TED TO SISTER CONCERNS. MERE MENTION THAT THERE IS DIVERSION IS BAD IN LAW. 5. THE LEARNED COMMISSIONER OF INCOME TAX OUGHT TO HAVE APPRECIATED THAT THE ADVANCE TO THE SISTER CONCERN WAS IN THE NATURE OF RENT ADVANCE, AS THE BUILDING OF THE SISTER CONCERN WAS USED AS SHOWROOM AND SERVICE CENTRE. THIS FACT HAS BEEN COMPLETELY OVERLOOKED BY THE COMMISSI ONER OF INCOME TAX. 6) THE LEARNED COMMISSIONER OF INCOME TAX HAS NOT M ADE A WHISPER OF THE OBJECTIONS RAISED BY THE APPELLANT BEFORE CONCLUDIN G THAT THERE WAS INFACT DIVERSION OF INTEREST BEARING FUNDS. APPELLANT PRAYS THAT THE ORDER U/S. 263 MAY BE QUASHED. 3. THE BRIEF FACTS OF THE CASE ARE THAT ON VERIF ICATION OF RECORDS, IT IS NOTICED THAT THE ASSESSEE HAD PAID INTEREST ON SECURED AND UNSECURED LOANS AMOUNTING TO RS.1,21,11,857/-. THE AVERAGE OF THE OPENING BA LANCE AND CLOSING BALANCE OF THE LOANS AS ON 01.04.2009 AND 31.03.2010 WAS RS .4,40,45,423/-. THE ASSESSEE HAD GIVEN INTEREST FREE LOANS AND ADVANCES TO ONE O F ITS DIRECTORS AND TO ITS RELATED COMPANIES IN WHICH THE DIRECTORS ARE INTERE STED, FOR RS.264.94 LAKHS. AS NO INTEREST WAS LEVIED, PROPORTIONATE INTEREST PAID ON SECURED AND UNSECURED LOANS AMOUNTING TO RS.72,82,333/- WAS TO BE DISALLO WED. 4 . NOTICE U/S. 263 OF THE ACT DATED 24.02.2015 WAS ISS UED TO THE ASSESSEE AND IN RESPONSE TO WHICH THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED AND FILED WRITTEN REPLY WHICH IS REPRODUCED BY THE LD. CIT(A) AT PAGES 1, 2 AND 3 OF ITA NO.315/COCH/2015 3 HIS ORDER. THE LD. CIT(A) NOT BEING SATISFIED WITH THE REASON AND EXPLANATION OF THE ASSESSEE DIRECTED THE ASSESSING OFFICER TO REDO THE ASSESSMENT AND PASS A FRESH ASSESSMENT ORDER. THE RELEVANT FINDINGS OF T HE LD. CIT ARE REPRODUCED HEREINBELOW: 5. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF T HE LEARNED AR. THE ASSESSEE IS PAYING HEAVY INTEREST TO FINANCIAL INST ITUTIONS FOR ACQUIRING CAPITAL ASSETS AND FOR WORKING CAPITAL REQUIREMENT AND AT T HE SAME TIME LENDING TO RELATED PARTIES INTEREST-FREE. AS SUCH, PROPORTION ATE INTEREST IS LEVIABLE AND THE SAME HAS NOT BEEN LOOKED INTO BY THE ASSESSING OFFICER WHILE MAKING ASSESSMENT INADVERTENTLY. 6. IN THE LIGHT OF THE ABOVE, BY INVOKING THE PRO VISIONS OF SECTION 263 OF THE INCOME TAX ACT, 1961, THE ASSESSMENT ORDER DATED 06 /03/2013 IS SET ASIDE AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE AND I DIRECT THE ASSESSING OFFICER REDO THE ASSESSMENT BY INCORPORATING THE ABOVE DIRE CTION AND PASS A FRESH ASSESSMENT ORDER. 5. THE LD. COUNSEL FOR THE ASSESSEE, SHRI R. KRI SHNAN, CA RELIED UPON THE WRITTEN SUBMISSIONS PLACED BEFORE THE LD. CIT(A) WHICH, AS A MATTER OF FACT, IS PART OF THE ORDER OF THE LD. CIT(A) AT PG. NOS. 1, 2 & 3 ME NTIONED HEREINABOVE. THE LD. DR ON THE OTHER HAND RELIED UPON THE ORDER OF THE L D. CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE FACTS OF THE CASE. THE ERROR POINTED OUT BY THE LD. CIT(A) IN THE SHOW CA USE NOTICE WAS THAT INTEREST FREE LOANS AND ADVANCES HAVE BEEN GIVEN TO ONE OF THE DIRECTORS AND TO THE RELATED COMPANIES IN WHICH THE DIRECTORS ARE INTERE STED AMOUNTING TO RS.264.94 LAKHS AND ACCORDINGLY, PROPORTIONATE INTEREST PAID ON SECURED AND UNSECURED ITA NO.315/COCH/2015 4 LOANS AMOUNTING TO RS.72,82,333/- WAS TO BE DISALLO WED. IT WAS SUBMITTED THAT ON VERIFICATION OF SECURED LOANS, SCHEDULE-3 AND UN SECURED LOANS, SCHEDULE-4, THE FOLLOWING PICTURE HAD EMERGED: SCHE DULE-3 SECURED LOAN: F.Y. 2009-10 RS. PS F.Y. 2008-09 RS. PS. HDFC CAR LOAN (16178262-INDICA) 2,90,529.00 - ICICI CAR LOAN (LACOC 001911159-32(OD) 13,61,839. 10 20,24,792.50 ICICI CAR LOAN (LACOC 00015191161-X5 28,35,106.00 27,92,354.50 ICICI CAR LOAN (LACOC 00015555759-320D 12,47,549. 00 23,69,962.00 ICICI CAR LOAN (LACOC 00016943231-730D 56,90,06 .60 - TATA FINANCE CAR LOAN (5000333104-INDIA DI 2,00,112.27 3,00,600.00 HDFC-INVENTORY FLOOR FUNDING 3,82,53.329.23 - TOTAL 4,98,78,531.20 74,87,709.00 SCHEDULE -4 UNSECURED LOAN: F.Y. 2009-10 RS. PS F.Y. 2008-09 RS. PS. TATA CAPITAL CAR LOAN (7000058961-X6) 53,63,211 .60 - GOKULAM CHITS - 3,44,167.00 ICICI CAR LOAN X5 - 60,28,000.00 PLATINO CARS INDIA PVT. LTD., KOCHI - 79,89,608.00 SHAMINA ASHIQUE 19,88,169.40 24,76,912.00 RELIANCE CAPITAL CAR LOAN - 65,34, 538.00 TOTAL 73,51,381.00 2,33,73,225.00 CORRESPONDINGLY DETAILS OF FINANCE CHARGES ARE GIVE N IN SCHEDULE-15, WHICH READS AS BELOW: ITA NO.315/COCH/2015 5 SCHEDULE-15 FINANCE CHARGES: F.Y. 2009-10 RS. PS F.Y. 2008-09 RS. PS. BANK CHARGES 4,52,739.93 3,94,208.00 CHITTY LOSS 6,33,833.00 - INTEREST SPARE PARTS (BMW) 17,82,827.00 13,63,6 21.00 INTEREST INVENTORY FUNDING (HDFC) 10,81,911.11 - INTEREST VEHICLE (BMW) 61,72,795.10 14,10,758.00 INTEREST VEHICLE (HYPOTHECATION) 26,21,584.39 15,92,041.00 INTEREST ON FBT AND IT - 30,374.00 TOTAL 1,27,45,690.53 47,91,002.00 ON PERUSAL OF THE ABOVE SCHEDULE, IT IS EVIDENT THA T THE LOANS AVAILED ARE BASICALLY FOR SPECIFIC PURPOSES LIKE PURCHASE OF AS SETS, I.E., CARS AND IT WAS EXPLAINED THAT HDFC INVENTORY FLOOR FUNDING AMOUNTI NG TO RS.382.33 LAKHS WAS SANCTIONED DURING THE YEAR FOR THE PURPOSE OF PURCH ASE OF GOODS AND THE CORRESPONDING INTEREST FOR THE LOAN AVAILED IS ONLY RS.10,81,911/- WHICH IS MARKED IN SCHEDULE-15. WHEREAS, THE PROPORTIONATE INTEREST DISALLOWANCE HAS BEEN WORKED OUT BY THE LD. CIT(A) AT RS.72,83,333/-. 7. IT WAS EXPLAINED THAT THERE IS NO DIVERSION O F FUNDS TO RELATED PARTIES OTHER THAN NORMAL BUSINESS TRANSACTION AND THE AMOUNT SHO WN AS ADVANCE TO KOYENCO AUTORS (P) LTD. IS IN THE NATURE OF RENT AD VANCE AND CLASSIFIED UNDER LOANS & ADVANCES. THE BUILDING BELONGS TO THE M AND THE ASSESSEE IS PAYING RENT OF RS. 60 LAKHS FOR THAT BUILDING. THE BUILDI NG IS USED AS SHOW ROOM AND SERVICE CENTRE. ITA NO.315/COCH/2015 6 8. AS REGARDS ADVANCE IN THE NAME OF THE DIRECT OR, IT WAS IN CONNECTION WITH BUSINESS REQUIREMENTS OF THE COMPANY AND THE LOAN A DVANCES WERE NOT PAID OUT OF BORROWED FUNDS. THE ASSESSING OFFICER WAS S ATISFIED THAT THERE WAS NO DIVERSION OF FUNDS DURING THE ASSESSMENT PROCEEDING S. SINCE THE LOANS/ADVANCES HAVE BEEN GIVEN FOR THE SPECIFIC PUR POSE, THEREFORE, THE VIEW TAKEN BY THE LD. CIT(A) IS NOT A CORRECT VIEW AND T HERE CANNOT BE ANY OCCASION TO COME TO THE CONCLUSION THAT THE ORDER OF THE ASS ESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE LD. CIT(A) HIMSELF IN PARA 5 OF HIS ORDER REPRODUCED HEREINABOVE HAS MENT IONED THAT THE ASSESSEE WAS PAYING HEAVY INTEREST TO THE FINANCIAL INSTITUT IONS FOR ACQUIRING CAPITAL ASSETS AND FOR WORKING CAPITAL REQUIREMENTS. NO FINDING H AS BEEN GIVEN AS TO HOW THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS IN SO F AR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE LD. CIT(A) IN PARA 6 HAS REFERRED TO THE ASSESSMENT ORDER WHICH IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE BUT, HE HAS NOT MENTIONED THAT THE ORDER IS ERRONEOUS AS WELL. T HEREFORE, THE MATTER CANNOT BE REMITTED TO THE ASSESSING OFFICER FOR FRESH DECISIO N TO CONDUCT FURTHER ENQUIRIES WITHOUT A FINDING THAT THE ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND THE TWIN CONDITIONS HA VE TO BE SATISFIED. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. G.M. M ITTAL STAINLESS STEEL (P) LTD. (2003) 263 ITR 255 HAS OBSERVED THAT THE SATISFACTI ON BY THE COMMISSIONER MUST BE ONE OBJECTIVELY JUSTIFIABLE AND BASED ON MATERIA L EITHER LEGAL OR FACTUAL WHEN AVAILABLE AND IT CANNOT BE MERE IPSE DIXIT OF THE C OMMISSIONER. ITA NO.315/COCH/2015 7 9. THOUGH WE HAVE HELD THAT THE VIEW TAKEN BY THE LD. CIT(A) IS NOT A CORRECT VIEW, BUT EVEN IF ONE POSSIBLE VIEW IS TAKEN BY T HE LD. CIT(A), THEN THERE ARE TWO VIEWS POSSIBLE AND THE ASSESSING OFFICER HAS TA KEN ONE OF THE VIEWS PERMISSIBLE IN LAW AND IN SUCH CIRCUMSTANCES, THE V IEW HELD BY THE HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT 109 TAXMAN 66 WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFI CER ADOPTS ONE OF THE VIEWS PERMISSIBLE IN LAW, THEN THE ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT ERESTS OF THE REVENUE, UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. IN THE PRESENT CASE, THE LD. COMMISSIONER HAS NOT BEEN ABLE TO DEMONSTRATE THAT THE VIEW TAKEN BY THE ASSESSING OFFICER WAS NOT A POSSIBLE VIEW, BEING IL LEGAL, UNSUSTAINABLE AND INCORRECT AND NO FINDING IN THIS REGARD HAS BEEN RE FLECTED. ACCORDINGLY, THE LD. COMMISSIONER CANNOT REMAND THE MATTER TO THE ASSESS ING OFFICER TO DECIDE THE ISSUE AFRESH BY SAYING THAT THE ORDER OF THE ASSESS ING OFFICER IS ERRONEOUS. IN SUCH CIRCUMSTANCES AND FACTS OF THE CASE AND IN THE LIGHT OF OUR FINDINGS HEREINABOVE, THE ORDER OF THE LD. COMMISSIONER IN E XERCISING JURISDICTION U/S. 263 OF THE ACT CANNOT BE HELD TO BE SUSTAINABLE IN LAW AND THE SAME IS ACCORDINGLY SET ASIDE AND QUASHED. ITA NO.315/COCH/2015 8 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I.T.A. NO.315/COCH/2015 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 9-05-2016. SD/- SD/- (GEORGE GEORGE K.) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : COCHIN DATED: 19/05/2016 GJ COPY TO: 1. M/S. PLATINO CLASSIC MOTORS INDIA (P) LTD., II/ 68, NH-47, BY PASS ROAD, MARADU, KOCHI-682 304. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-4 (1), KOCHI. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCH I. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. THE DR/ITAT, COCHIN BENCH. 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN ITA NO.315/COCH/2015 9 1 .DATE OF DICTATION : 18/05/2016 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER OTHER MEMBER: 19/05/2016 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR . PS/PS: 19/05/2016 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER : 19/05/2016 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. PS/PS : 6. DATE ON WHICH THE FILE GOES TO BENCH CLERK: 19/ 05/2016 7. DATE ON WHICH THE FILE GOES TO HEAD CLERK: 8. DATE ON WHICH THE FILE GOES TO ASSISTANT REGISTR AR 9. DATE OF DISPATCH OF THE ORDER: