SKM ANIMAL FEEDS AND FOODS (I) PVT LTD, ERODE V. ACIT-2, ERODE

ITA 3174/CHNY/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0471 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 22-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: G BASKAR
• Keywords: Commercial expediency; Revised return
• Section: 143(3)

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A. NO. 3174/CHNY/2018 / ASSESSMENT YEAR: 2013-14 M/S. SKM ANIMAL FEEDS AND FOODS (INDIA) PRIVATE LIMITED, CHAVADIPALAYAMPUDUR ROAD, NANJAIUTHUKULI, MODAKKURICHI, ERODE DT. TAMIL NADU 638 104 [PAN:AACCS9493E] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2, ERODE. ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI G. BASKAR, ADVOCATE / RESPONDENT BY : SHRI CLEMENT RAMESH KUMAR, ADDL.CIT / DATE OF HEARING : 15.07.2019 /DATE OF PRONOUNCEMENT : 13.09.2019 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 3, COIMBATORE, DATED 01.11.2018 RELEVANT TO THE ASSESSMENT YEAR 2013-14. IN THE GROUNDS OF APPEAL, THE ASSESSEE HAS CHALLENGED THE ORDER OF THE LD. CIT(A) ON CONFIRMATION OF DISALLOWANCE OF INTEREST EXPENSES OF .2,63,93,294/-. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2013-14 ON 29.09.2013 DECLARING INCOME OF I.T.A. NO. 3174/CHNY/18 2 . 7,27,32,700/-. THEREAFTER, REVISED RETURN WAS FILED ON 23.03.2015 DECLARING TAXABLE INCOME AT .7,04,95,400/-. AFTER CONSIDERING THE DETAILS FURNISHED BY THE ASSESSEE AGAINST THE STATUTORY NOTICES, EXPLANATIONS AND ON VERIFICATION OF THE RECORDS, THE ASSESSING OFFICER DETERMINED THE INTEREST OF .2,63,93,294/- PAID TO THE BANK ON THE ADVANCES GIVEN TO M/S. PRADEEP KRISHNA INDUSTRIES (P) LTD. AND DISALLOWED THE SAME ON THE GROUND THAT THERE IS DIVERSION OF INTEREST BEARING FUNDS FOR THE PURPOSE OF ACTIVITIES NOT CONNECTED WITH ASSESSEES BUSINESS. 3. ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND FACTS OF THE CASE, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. BESIDES RELYING UPON THE DECISION IN THE CASE OF CIT V. RELIANCE INDUSTRIES LTD. [2019] 102 TAXMANN.COM 52 (SC), TRIBUNALS ORDER IN THE CASE OF TCP LIMITED V. ACIT IN I.T.A. NOS. 1627 TO 1629/CHNY/2018 DATED 08.05.2019 AND BY REFERRING TO THE BALANCE SHEET AS ON 31.03.2013, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS TO ADVANCE INTEREST-FREE LOAN TO ITS SISTER CONCERN, WHICH IS A SUBSIDIARY, AS A MEASURE OF COMMERCIAL EXPEDIENCY AND PRAYED FOR DELETING THE ADDITION MADE TOWARDS INTEREST EXPENDITURE. I.T.A. NO. 3174/CHNY/18 3 5. PER CONTRA, BESIDES PLACING ON RECORD VARIOUS JUDGEMENTS, THE LD. DR STRONGLY SUPPORTED THE ORDER PASSED BY THE LD. CIT(A). 6. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW INCLUDING PAPER BOOK FILED BY THE ASSESSEE. WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT, THE ASSESSING OFFICER MADE AN ADDITION OF .2,63,93,294/- TO THE RETURNED INCOME BEING THE DISALLOWANCE OF INTEREST PAID TO THE BANK WORKED OUT ON THE ADVANCES GIVEN TO M/S. PRADEEP KRISHNA INDUSTRIES (P) LTD., BY HOLDING THAT THERE IS DIVERSION OF INTEREST BEARING FUNDS FOR THE PURPOSE OF ACTIVITIES NOT CONNECTED WITH ASSESSEES BUSINESS, WHICH WAS CONFIRMED BY THE LD. CIT(A). ON PERUSAL OF THE ASSESSMENT ORDER, WE FIND THAT THE ASSESSING OFFICER HAS OBSERVED THAT HAD THE AMOUNTS BEEN FUNDED OUT OF ACCUMULATED RESERVES, THE LOAN LIABILITY AND INTEREST EXPENSES WOULD NOT HAVE SUBSTANTIALLY INCREASED DURING THE YEAR COMPARED TO THE PREVIOUS YEAR. THE DEPARTMENT HAD NOTHING TO DO WITH THE INCREASE OF LOAN LIABILITY AND INTEREST EXPENSES OF THE ASSESSEE. THE ASSESSING OFFICER IS REQUIRED TO EXAMINE AS TO WHETHER THE INTEREST FREE FUNDS WERE AVAILABLE TO THE ASSESSEE WHICH WERE SUFFICIENT TO MEET ITS INVESTMENT IN SUBSIDIARIES OR AT THE MOST HE CAN VERIFY WHETHER THE INVESTMENT MADE IN THE SUBSIDIARIES ARE MORE THAN THE INTEREST FREE FUNDS AND IF IT IS SO, THE INTEREST PAYABLE TO THAT EXCESS I.T.A. NO. 3174/CHNY/18 4 INVESTMENT CAN BE DISALLOWED. IN THIS CASE, THE ASSESSING OFFICER HAS NOT DISPUTED THE INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE. 7. THE ASSESSING OFFICER HAD NO MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE HAS UTILIZED THE BORROWED FUNDS FOR ITS BUSINESS PURPOSE AND DIVERTED THE BORROWED FUNDS FOR INVESTMENT IN SUBSIDIARIES OR TO ANY OTHER PURPOSES. THUS, THE CASE LAW RELIED ON BY THE LD. DR HAVE NO APPLICATION TO THE FACTS OF THE PRESENT CASE. 8. THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH M/S. PRADEEPKRISHNA INDUSTRIES PVT. LTD., A COMPANY DULY INCORPORATED UNDER THE COMPANIES ACT, 1956, OWNS ABSOLUTELY AND HAS FACILITIES FOR THE PROCESSING OF POULTRY AND CATTLE FEEDS AT THEIR FACTORY AT MODAKKURICHI AND AGREED TO PROCESS POULTRY AND CATTLE FEEDS BY USING RAW MATERIALS AND FEED ADDITIVES FOR THE ASSESSEE, AS MAY BE SUPPLIED BY THE ASSESSEE. AS PER THE SAID AGREEMENT, THE ASSESSEE AGREED TO PAY .23 CRORES AS SIX MONTHS PROCESSING CHARGE. THE ABOVE AGREEMENT SHALL BE IN FORCE FOR A PERIOD STARTING FROM 15.08.2012 TO 31.03.2022, SUBJECT TO RENEWAL BY THE SECOND PARTY. AS PER THE ABOVE SAID AGREEMENT, BOTH THE ASSESSEE AND THE SECOND PARTY, I.E., M/S. PRADEEPKRISHNA INDUSTRIES PVT. LTD. ARE IN THE SAME LINE OF BUSINESS AND BOTH COMPANIES ARE HEADED BY SAME MANAGING DIRECTOR, THE LATER COMPANY IS A SISTER CONCERN OF THE ASSESSEE COMPANY AND WHATEVER I.T.A. NO. 3174/CHNY/18 5 INVESTMENT MADE WAS ABSOLUTELY ON BUSINESS EXPEDIENCY ONLY. WITH REGARD TO INVESTMENT OF INTEREST FREE ADVANCES IN THE SISTER CONCERN, ON PERUSAL OF THE PAPER BOOK PAGE NO. 45, WE FIND THAT THE ASSESSEE HAD INTEREST FREE FUND AS ON 31.03.2013 AT .49,34,04,836/-, WHEREAS, THE ADVANCE MADE AND OUTSTANDING AS ON 31.03.2013 WAS ONLY .28,66,29,539/-. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO EXAMINE AND VERIFY AS TO WHETHER SUFFICIENT INTEREST FREE FUNDS ARE AVAILABLE TO THE ASSESSEE FOR MAKING INVESTMENT ON THE PARTICULAR DAY AND IF NOT AVAILABLE, NATURALLY, THE ASSESSEE WOULD HAVE UTILIZED THE INTEREST BEARING LOANS FOR INVESTMENT AND THEREAFTER, THE ASSESSEE WOULD HAVE ADJUSTED WITH SUBSEQUENT RECEIVABLES, INTEREST ON SUCH INTEREST BEARING LOANS UTILIZED FOR THE INVESTMENT PURPOSE NEEDS TO BE ASCERTAINED AND DISALLOWED. IN CASE, THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS FOR INVESTMENT AND NOT UTILIZED ANY INTEREST BEARING BORROWED FUNDS FOR INVESTMENT, BY KEEPING IN MIND THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V. RELIANCE INDUSTRIES LTD. (SUPRA), THE ASSESSING OFFICER SHALL DELETE THE DISALLOWANCE. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO. 3174/CHNY/18 6 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 13 TH SEPTEMBER, 2019 IN CHENNAI. SD/ - SD/ - (INTURI RAMA RAO) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, 13.09.2019 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.