ACIT, Cochin V. M/s.Focus Corporation P.Ltd, Cochin

ITA 383/COCH/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69143 (ITAT-COCHIN)
• Duration Of Justice: 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 07-10-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 05-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P K SASIDHARAN
• Keywords: Proportionate interest

Judgement Text

1 ITA NO.383/COCH/2013 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKA RAN(AM) I.T.A NO. 383/COCH/2013 (ASSESSMENT YEAR 2008-09) A.C.I.T., CIR.1(1) VS M/S FOCUS CORPORATION PVT LTD KOCHI FOCUZ TOWERS, EDAPALLY KOCHI PAN : AAACB9529J (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M ANIL KUMAR, CIT SMT. LATHA V KUMAR RESPONDENT BY : SHRI P.K. SASIDHARAN DATE OF HEARING : 07-10-2013 DATE OF PRONOUNCEMENT : 31-12-2013 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A)-II, KOCHI DATED 21-03-2013 AND PERTAINS TO ASSESSMENT Y EAR 2008-09. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS DISAL LOWANCE OF INTEREST ON THE BORROWED FUNDS. 2 ITA NO.383/COCH/2013 3. SHRI M ANIL KUMAR, THE LD.DR SUBMITTED THAT DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS DIVERTED BORROWED FUNDS TO SISTER CONCERN. ACC ORDINGLY, THE ASSESSING OFFICER DISALLOWED THE PROPORTIONATE INTEREST PAYAB LE TO BANK AND THE OUTSTANDING LIABILITY AS ON 31-03-2008. HOWEVER, T HE CIT(A) DELETED THE ADDITION ON THE GROUND THAT IT WAS ONLY A PURCHASE CONSIDERATION RECEIVABLE FROM THE SISTER CONCERN AND NOT DIVERSION OF BORROW ED FUNDS. THE CIT(A) HAS ALSO FOUND THAT THE ASSESSEE HAS SUFFICIENT FUN DS IN THE FORM OF SHARE CAPITAL AND RESERVES AND SURPLUS TO COVER THE ADVAN CES SAID TO BE MADE BY THE SISTER CONCERN. ACCORDING TO THE LD.DR, WHEN T HE BORROWED FUNDS WERE DIVERTED, THE PROPORTIONATE INTEREST HAS TO BE DISA LLOWED. 4. ON THE CONTRARY, SHRI P.K. SASIDHARAN, THE LD.RE PRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT NO BORROWED FUNDS WERE DIVE RTED TO ANY SISTER CONCERN. ACCORDING TO THE LD.REPRESENTATIVE, FOCUS INNOVATION PVT LTD AND FOCUS VOYAGES PVT LTD WERE TWO DEPARTMENTS OF THE A SSESSEE COMPANY. DURING THE FINANCIAL YEAR 2004-05, THESE TWO DEPART MENTS WERE SEPARATED FROM THE ASSESSEE COMPANY AND FORMED AS SEPARATE CO MPANIES IN THE NAME AND STYLE OF FOCUS INNOVATION PVT LTD AND FOCU S VOYAGES PVT LTD. AS ON 31-03-2005, THE AMOUNTS DUE FROM THESE COMPAN IES TOWARDS BALANCE CONSIDERATION FOR TAKE OVER WERE RS.90.21 L AKHS AND 12.74 LAKHS RESPECTIVELY. ACCORDING TO THE LD.REPRESENTATIVE, AS ON 31-03-2008, THE 3 ITA NO.383/COCH/2013 COMPANY HAD PAID UP CAPITAL OF RS.686 LAKHS AND RES ERVES AND SURPLUS OF RS.736 LAKHS. THE ASSESSEE ALSO HAD CURRENT LIABIL ITY TO THE EXTENT OF RS.1,943 LAKHS WHICH ARE NON INTEREST BEARING FUNDS . ACCORDING TO THE LD.REPRESENTATIVE, WHAT WAS OUTSTANDING FROM THE SI STER CONCERN IS ONLY PURCHASE CONSIDERATION FOR TRANSFER OF ASSET. IT H AS NO NEXUS WITH THE BORROWED FUNDS. EVEN OTHERWISE, THE SURPLUS AND RE SERVES IS VERY MUCH AVAILABLE TO MEET THESE OUTSTANDING FUNDS. THEREFO RE, ACCORDING TO THE LD.REPRESENTATIVE, THERE WAS NO CASE FOR DISALLOWAN CE OF ANY INTEREST ON THE BORROWED FUNDS. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE SPEC IFIC CASE OF THE ASSESSEE RIGHT FROM THE LEVEL OF ASSESSING OFFICER IS THAT THE TWO SISTER CONCERNS WHICH WERE PART AND PARCEL OF THE ASSESSEE COMPANY EARLIER SEPARATED AND FORMED AS SEPARATE COMPANIES. WHAT R ECEIVED FROM THE TWO COMPANIES WAS ONLY BALANCE CONSIDERATION ON TAK E OVER AND THEIR FORMATION. IF IT IS A BALANCE CONSIDERATION FOR TA KEOVER, THEN IT IS NOT KNOWN HOW IT COULD BE DIVERSION OF BORROWED FUNDS. THE I NITIAL CONTRIBUTION WAS MADE BY THE ASSESSEE AND THEY WERE FUNCTIONING AS A SSESSEES OWN DEPARTMENTS IN THE COURSE OF ITS BUSINESS ACTIVITY EARLIER. SUBSEQUENTLY, FOR VARIOUS REASONS, THESE TWO DEPARTMENTS WERE SEPARAT ED AS TWO DIFFERENT AND INDEPENDENT COMPANIES. THEREFORE, THE FORMATIO N OF THE NEW 4 ITA NO.383/COCH/2013 COMPANIES AND THE SO-CALLED BALANCE CONSIDERATION P AYABLE BY THE NEW COMPANIES WERE TAKEN PLACE ONLY IN THE COURSE OF BU SINESS ACTIVITY FOR FORMATION OF NEW COMPANIES. THOUGH THE ASSESSEE CL AIMS THAT AS ON 31- 03-2005, RS.90.21 LAKHS WERE DUE FROM FOCUS INNOVAT ION PVT LTD AND RS. 12.74 LAKHS FROM FOCUZ VOYAGES PVT LTD, IN THE ASSE SSMENT ORDER ON PAGE 3, THE ASSESSING OFFICER SAYS THAT THE BALANCE OUTS TANDING FROM THESE TWO COMPANIES AS ON 31-03-2007 IS RS.330 LAKHS AND AS O N 31-03-2008 IS RS.374 LAKHS. IF THE BALANCE CONSIDERATION IS ONLY RS. 90.21 LAKHS AND 12.74 LAKHS RESPECTIVELY, THEN IT IS NOT KNOWN HOW THESE AMOUNTS BECOME RS.330 LAKHS AS ON 31-03-2007 AND RS.374 LAKHS AS O N 31-03-2008. THE ASSESSING OFFICER SEPARATELY ALLOWED RS.103 LAKHS A GAINST PURCHASE CONSIDERATION DUE FROM THESE TWO COMPANIES. THEREF ORE, AS FOUND BY THE ASSESSING OFFICER, THE BALANCE DUE FROM THESE TWO C OMPANIES AS ON 31-03- 2008 AFTER DEDUCTING THE BALANCE CONSIDERATION OF R S.103 LAKHS ONLY A SUM OF RS.249 LAKHS WAS DUE FROM THEM. THE ASSESSEE HA S FILED THE COPY OF THE BALANCE-SHEET WHICH IS AVAILABLE ON PAGE 12 OF THE PAPER BOOK. THE SHARE CAPITAL AS ON 31-03-2008 IS RS.686 LAKHS AND RESERVES AND SURPLUS RS. 7,36,91,422. THEREFORE, THE AVAILABILITY OF S HARE CAPITAL AND RESERVES AND SURPLUS IS NOT IN DISPUTE. IF THIS IS NOT DISP UTED, THEN THE OUTSTANDING AMOUNT OF RS.249 LAKHS FROM THE SISTER CONCERNS, EV EN IF IT IS NOT BALANCE CONSIDERATION, CANNOT BE SAID THAT IT WAS DIVERSION OF FUNDS. IN VIEW OF THE JUDGMENT OF THE APEX COURT IN THE CASE OF MUNJAL SA LES CORPORATION VS CIT 5 ITA NO.383/COCH/2013 298 ITR 298 (SC), THERE CANNOT BE ANY DISALLOWANCE. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LOWER AUTHOR ITY. ACCORDINGLY, THE ORDER OF THE CIT(A) IS CONFIRMED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DECEMBER, 2013. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 31 ST DECEMBER, 2013 PK/- COPY TO: 1. ACIT, CIR.1(1), KOCHI 2. M/S FOCUS CORPORATION PVT LTD, FOCUZ TOWERS, EDA PPALLY, KOCHI 3. THE COMMISSIONER OF INCOME-TAX, KOCHI 4. THE COMMISSIONER OF INCOME-TAX(A)-II, 7 TH FLOOR, KERA BHAVAN,KOCHI-11 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH