M/s.Kerala Cars P.Ltd, Cochin V. The Jt CIT,(OSD), Cochin

ITA 370/COCH/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86386 (ITAT-COCHIN)
• Duration Of Justice: 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 30-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 31-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K JOHN
• Assessee Lawyers: V G KESAVA SHENOY
• Keywords: Earning of tax free income

Judgement Text

1 ITA NO.370 & 371/COCH/2014 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI CHANDRA PO OJARI (AM) I.T.A NO.370 & 371/COCH/2014 (ASSESSMENT YEARS 2009 & 2010) M/S KERALA CARS (P) LTD VS JT.CIT(OSD) EDAPALLY PO, ELLIKKAT BUILDING CIR.1(2), KOCHI 6 82 018 KOCHI-682 024 PAN : AABCK4746M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V.G. KESAVA SHENOY RESPONDENT BY : SHRI K.K. JOHN DATE OF HEARING : 30-12-2014 DATE OF PRONOUNCEMENT : 09-01-2015 O R D E R PER N.R.S. GANESAN (JM) BOTH THE APPEALS OF THE ASSESSEE ARE DIRECTED AGAI NST THE RESPECTIVE ORDERS OF CIT(A)-II, KOCHI DATED 28-03-2014 FOR THE ASSESSMENT YEARS 2009-10 & 2010-11. 2. SHRI V.G. KESAVA SHENOY, THE LD.REPRESENTATIVE F OR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED INT EREST ON THE BORROWED LOAN ON THE GROUND THAT THE BORROWED FUNDS WERE USE D FOR EARNING EXEMPT INCOME. ACCORDING TO THE LD.RPERESENTATIVE, THE AS SESSEE HAD SUFFICIENT 2 ITA NO.370 & 371/COCH/2014 OWN FUNDS FOR MAKING THE INVESTMENT IN THE EQUITY S HARES OF OTHER COMPANIES. THEREFORE, ACCORDING TO THE LD.REPRESEN TATIVE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT J USTIFIED. ACCORDING TO THE LD.RPERESENTATIVE, INVESTMENT WAS MADE IN THE S ISTER CONCERNS; THEREFORE THE DISALLOWANCE MADE BY THE ASSESSING OF FICER NEEDS TO BE DELETED. THE ASSESSEE HAS FILED FUND FLOW STATEMEN TS FOR THE FINANCIAL YEARS 2002-03 TO 2009-10. 3. ON THE CONTRARY, SHRI K.K. JOHN, THE LD.DR SUBMI TTED THAT THE ASSESSEE BORROWED FUNDS AND MADE INVESTMENT. IF TH E ASSESSEE HAS SUFFICIENT OWN FUNDS, THERE IS NO NECESSITY FOR THE ASSESSEE TO BORROW LOAN FROM THE FINANCIAL INSTITUTIONS. THEREFORE, ACCORD ING TO THE LD.RPERESENTATIVE, THE ASSESSEE HAS DIVERTED THE BO RROWED FUNDS FOR NON BUSINESS PURPOSE OF MAKING INVESTMENT IN THE EQUITY SHARES OF THE SO- CALLED SISTER CONCERNS. ACCORDING TO THE LD.REPRES ENTATIVE, IF THE INVESTMENT IS MADE IN THE EQUITY SHARES OF COMPANIES, THE INCO ME EARNED FROM SUCH EQUITY SHARES IS EXEMPT, THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING THE EXEMPT INCOME HAS TO BE DI SALLOWED. THE LD.DR HAS PLACED HIS RELIANCE ON THE JUDGMENT OF THE KERA LA HIGH COURT IN CIT VS POPULAR VEHICLES & SERVICES LTD (2010) 325 ITR 523; CIT VS V.I. BABY (2002) 254 ITR 248 AND IN CIT VS STATE BANK OF TRAV ANCORE (2011) 16 TAXMAN.COM 289. 3 ITA NO.370 & 371/COCH/2014 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSE SSEE NOW CLAIMS THAT SUFFICIENT OWN FUNDS WERE AVAILABLE FOR MAKING INVE STMENT IN THE SO-CALLED SISTER CONCERNS. THE ASSESSEE HAS FILED FUND FLOW STATEMENTSS FOR THE FINANCIAL YEARS 2002-03 TO 2009-10. THE ASSESSEE H AS ALSO FILED COPIES OF THE AUDITORS REPORT, CASH FLOW STATEMENT AND THE B ALANCE-SHEET. AS PER THE FUND FLOW STATEMENTS FILED BY THE ASSESSEE FOR THE FINANCIAL YEARS 2008- 09 RELEVANT TO ASSESSMENT YEAR 2009-10, THE ASSESSE E CLAIMS THAT OWN FUNDS WERE AVAILABLE TO THE EXTENT OF RS.9,47,68,62 5. SIMILARLY FOR THE FINANCIAL YEAR 2009-10 RELEVANT TO ASSESSMENT YEAR 2010-11, THE ASSESSEE CLAIMS THAT IT HAD OWN FUNDS TO THE EXTENT OF RS.14 ,00,96,522. THE AVAILABILITY OF OWN FUNDS WAS NOT VERIFIED BY THE L OWER AUTHORITIES. THEREFORE, THE GENUINENESS OF THE CLAIM OF AVAILABI LITY OF OWN FUNDS HAS TO BE EXAMINED BY THE ASSESSING OFFICER AFTER VERIFYIN G THE BOOKS OF ACCOUNT. THE APEX COURT IN THE CASE OF MUNJAL SALES CORPORAT ION VS CIT 298 ITR 298 (SC) EXAMINED AN IDENTICAL ISSUE AND FOUND THAT IF THE ASSESSEE HAS OWN SUFFICIENT FUNDS AND CURRENT YEARS PROFIT, THE N TO THAT EXTENT IT CANNOT BE CONSIDERED THAT BORROWED FUNDS ARE DIVERTED. HO WEVER, BEFORE APPLYING THE PRINCIPLES LAID DOWN BY THE APEX COURT IN THE C ASE OF MUNJAL SALES CORPORATION (SUPRA), THE AVAILABILITY OF OWN FUNDS NEEDS TO BE ASCERTAINED FACTUALLY ONLY AFTER VERIFYING THE BOOKS OF ACCOUNT AND OTHER MATERIALS. SINCE THIS ISSUE WAS NOT CONSIDERED BY THE LOWER AU THORITIES, THIS TRIBUNAL 4 ITA NO.370 & 371/COCH/2014 IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RE-EXAMINED. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES AR E SET ASIDE AND THE ISSUE OF DISALLOWANCE OF INTEREST ON BORROWED FUNDS IS RE MITTED TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL REC ONSIDER THE ISSUE AFTER VERIFYING THE BOOKS OF ACCOUNT AND OTHER MATERIALS AVAILABLE ON RECORD WITH REGARD TO AVAILABILITY OF OWN FUNDS WITH THE ASSESS EE FOR MAKING INVESTMENT AND THEREAFTER DECIDE THE ISSUE IN THE LIGHT OF THE JUDGMENT OF THE APEX COURT IN THE CASE OF MUNJAL SALES CORPORATION (SUPR A) AFTER GIVING OPPORTUNITY OF HEARING TO THE ASSESSEE. 5. FOR THE ASSESSMENT YEAR 2010-11, THE ASSESSEE HA S TAKEN ONE MORE GROUND WITH REGARD TO PAYMENT MADE TO REGISTRA R OF COMPANIES IN CONNECTION WITH THE INCREASE OF CAPITAL BY MAKING P UBLIC ISSUE. DURING THE COURSE OF HEARING OF THE APPEAL, THE LD.REPRESENTAT IVE FOR THE ASSESSEE SUBMITTED THAT HE DID NOT WANT TO PRESS THIS GROUND OF APPEAL. TE LD.REPRESENTATIVE FOR THE ASSESSEE HAS MADE AN ENDO RSEMENT ON THE APPEAL FOLDER TO THAT EFFECT. ACCORDINGLY, THE GRO UND RAISED WITH REGARD TO PAYMENT TO REGISTRAR OF COMPANY IN CONNECTION WITH SHARE ISSUE EXPENSES IS DISMISSED AS WITHDRAWN. 5 ITA NO.370 & 371/COCH/2014 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.370/COCH/2014 IS ALLOWED FOR STATISTICAL PURPOSE AND THE APPEAL OF T HE ASSESSEE IN ITA NO.371/COCH/2014 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 09 TH JANUARY, 2015. SD/- SD/- (CHANDRA POOJARI) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 09 TH JANUARY, 2015 PK/- COPY TO: 1. M/S KERALA CARS PVT LTD, 508A, ELLIKKATT BUILDIN G, EDAPPALLY PO, KOCHI 2. THE JCIT (OSD), CIR.1(2), I.S. PRESS ROD, KOCHI 682 018 3. THE COMMISSIONER OF INCOME-TAX, KOCHI 4. THE COMMISSIONER OF INCOME-TAX(A)-II, KOCHI 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH