BINAYAK TEX PROCESSORS LTD, MUMBAI V. ASST CIT CEN CIR 38, MUMBAI

ITA 4318/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0930 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 18-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 143(3); 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH B, MU MBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.4318/MUM/2014 (ASSESSMENT YEAR- 2010-11) M/S BINAYAK TEX PROCESSORS LTD. C/O SHANKARLAL JAIN & ASSOCIATES, 12, ENGINEER BUILDING, 265, PRINCESS STREET, MUMBAI-400002 PAN: AAACB1554D VS. ACIT-CC-38, AAYAKAR BHAVAN, GROUND FLOOR, MUMBAI-400020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SATISH JAIN (AR) REVENUE BY : SHRI KAILASH KANOJIYA (DR) DATE OF HEARING : 03.05.2017 DATE OF PRONOUNCEMENT : 03.05.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: 1. THIS APPEAL U/S 253 OF THE INCOME-TAX ACT (THE ACT) IS DIRECTED BY ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-41, MUMBAI DATED 28.03.2014 FOR AY 2010-11. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE LEARNED CIT (APPEAL) ERRED IN CONFIRMING DIS ALLOWANCE MADE U/S.14A R/W. 8D OF RS.2935273/- SUBJECT TO CERTAIN DIRECTIONS WITHO UT PROPERLY APPRECIATING THE FACTS OF THE CASE AND LAW APPLICABLE THERETO. 2. THE LEARNED CIT(APPEAL) OUGHT TO HAVE DIRECTED T HAT NO DISALLOWANCE IS REQUIRED TO BE MADE U/S.14A R/W. RULE 8D(2)(II) OUT OF INTEREST OF RS.2566723/- AS BORROWINGS ARE SPECIFICALLY MADE FOR THE PURPOSE OF BUSINESS OF TH E APPELLANT AND AS REFLECTED IN THE AUDITED ACCOUNTS, SUCH BORROWED FUNDS ARE USED IN T HE BUSINESS ASSETS AND HENCE NO DISALLOWANCE OUT OF INTEREST WAS CALLED FOR. 3. LEARNED CIT (APPEAL) SHOULD HAVE APPRECIATED THA T NO ADMINISTRATIVE EXPENSES ARE INCURRED FOR THE PURPOSE OF EARNING OF DIVIDEND AND NO DISALLOWANCE WAS CALLED FOR UNDER RULE 8D(2)(III) OF RS.368550/-, AS ALL THE IN VESTMENTS ARE MADE IN THE ASSOCIATED CONCERN WITH A VIEW TO HOLD EQUITY IN SUCH CONCERN. ALL INVESTMENTS WERE MADE IN EARLIER YEARS AND THERE HAS BEEN NO SALE DURING THE YEAR, NO DIVIDEND IS BEING RECEIVED ON SUCH SHARES. 4. LEARNED CIT (APPEAL) SHOULD HAVE APPRECIATED THA T PROVISIONS OF SECTION 14A ARE INAPPLICABLE, AS DIVIDEND RECEIVED FROM A CO-OPERAT IVE BANK OF RS.2000/- IS NOT SUBJECT TO PROVISIONS OF SECTION 115-0; HENCE SUCH DIVIDEND IS NOT EXEMPT UNDER THE ITA NO.4318/M/2014 - M/S BINAYAK TEX PROCESSORS LTD. 2 PROVISIONS OF SECTION-10(34) OF INCOME TAX ACT FOR THE REASON, THE PROVISIONS OF SECTION-14A ARE INAPPLICABLE. 5. LEARNED CIT (APPEAL) ERRED IN UPHOLDING DISALLOW ANCE OF DEPRECIATION OF RS 4,923/- OUT OF DISPUTED PURCHASES OF FURNITURE & FI XTURES OF RS.98,459/- WITHOUT APPRECIATING THE FACTS THAT EXCEPT A MERE SUSPICION , THERE IS NOTHING TO PROVE THAT SUCH PURCHASES ARE NOT MADE BY THE APPELLANT IN THE NORM AL COURSE OF THE BUSINESS AND WITHOUT APPRECIATING THE FACT THAT PURCHASES ARE SU PPORTED BY DULY ISSUED BILLS, PAYMENTS ARE MADE BY ACCOUNT PAYEE CHEQUE AND THE S TATEMENT ALLEGED TO HAVE BEEN MADE BEFORE THE SALES TAX AUTHORITIES WAS NEITHER P ROVIDED, NOR THE PARTY WAS MADE AVAILABLE TO THE APPELLANT FOR CROSS-EXAMINATION. 6. APPELLANT PRAYS THAT DISALLOWANCE MADE BE DELETE D. 2. AT THE OUTSET OF THE PROCEEDING, THE LD. AR OF THE ASSESSEE ARGUED THAT THE GROUNDS OF APPEAL RAISED IN THE PRESENT APPEAL ARE COVERED IN FAVOUR OF ASSESSEE IN ASSESSEES OWN CASE FOR AY 2009-10 IN ITA NO. 7740/ MUM/2012 DATED 21.03.2014. LD. DR FOR THE REVENUE HAS NOT DISPUTED THE CONTENTION OF LD. AR OF THE ASSESSEE. 3. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND HAVE SEEN THAT SIMILAR GROUNDS OF APPEAL WAS RAISED BY ASSESSEE FOR AY 200 9-10 IN APPEAL FILED BEFORE THE TRIBUNAL AND THE TRIBUNAL PASSED THE FOLLOWING ORDER: 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND HAVE ALSO GONE THROUGH THE RECORD. WE MAY OBSERVE THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF 'CIT VS. RELIANCE UTILITIES AND POWER LTD.' (SUPRA), HAS OBS ERVED THAT IF THERE ARE FUNDS AVAILABLE, BOTH INTEREST FREE AND OVERDRAFT/LOANS TAKEN, THEN PRESU MPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST FREE FUND GENERATED OR AVAIL ABLE WITH THE ASSESSEE. HOWEVER, THERE SEEMS TO BE FORCE IN THE CONTENTION OF THE LEARNED D.R. THAT SUCH A PRESUMPTION WOULD ARISE ONLY IF ON THE DATE OF INVESTMENT, ASSESSEE HAD ITS OWN/INT EREST FREE FUNDS AVAILABLE WITH IT. HOWEVER, A PERUSAL OF THE ORDERS OF LOWER AUTHORITIES REVEAL THAT THE ABOVE STATED EXPLANATION PUT BY THE ASSESSEE REGARDING INVESTMENTS MADE FROM OWN FUNDS HAS NOT BEEN EXAMINED BY THE LOWER AUTHORITIES. THE SAME HAS BEEN REJECTED ON THE GROU ND OF IT BEING GENERAL IN NATURE. 7. WE MAY OBSERVE THAT IN DAY TO DAY BUSINESS, IT I S FOR THE ASSESSEE TO SEE HOW TO MANAGE ITS BUSINESS. EVEN THOUGH THE ASSESSEE MAY N OT SHOW IN THE ABSENCE OF SEPARATE FUND FLOW STATEMENT OR SEPARATE ACCOUNTS RELATING TO BUS INESS LOANS AND TRANSACTIONS AND INVESTMENTS MADE FROM OWN FUNDS, BUT IF THE ASSESSE E IS ABLE TO SHOW THE NEAR PROXIMITY OF AVAILABILITY OF OWN FUNDS MAY BE EXACTLY NOT ON THE DATE OF INVESTMENT OR ADVANCEMENT OF LOAN BUT IN A VERY NEAR FUTURE DATE OR WITHIN A REASONAB LE SHORT PERIOD OF TIME, EVEN THEN THE PRESUMPTION WILL BE THAT THE INVESTMENT WAS MADE BY THE ASSESSEE FROM HIS OWN FUNDS OR IN ANTICIPATION OF AVAILABILITY OF ITS OWN FUNDS WITHI N A SHORT PERIOD OF TIME. THE PRINCIPLE UNDERLYING THIS PROPOSITION IS THAT A BUSINESSMAN H AS TO CIRCULATE HIS MONEY ACCORDING TO THE DAY TO DAY REQUIREMENTS AND THE LIKELY INFLOW AND O UTFLOW OF MONEY IN THE NEAR FUTURE IS TAKEN INTO CONSIDERATION WHILE MAKING INVESTMENTS. EVEN I F ON THE DATE OF INVESTMENT/EXPENDITURE, OWN FUNDS MAY NOT BE AVAILABLE WITH THE ASSESSEE BU T IF THE INVESTMENT/ EXPENDITURE IS MADE IN ANTICIPATION OF AVAILABILITY OF OWN FUNDS AND THE O WN FUNDS ARE AVAILABLE TO THE ASSESSEE WITHIN A VERY SHORT PERIOD OF TIME, THEN UNDER SUCH CIRCUM STANCES DISALLOWANCE CANNOT BE MADE ON THE ENTIRE LOAN AMOUNT BUT A VERY REASONABLE PROPO RTIONATE DISALLOWANCE CAN BE MADE AND ITA NO.4318/M/2014 - M/S BINAYAK TEX PROCESSORS LTD. 3 EVEN IN CERTAIN CASES CAN BE IGNORED DUE TO THE SHO RTNESS OF THE PERIOD BETWEEN THE DATE OF ADVANCEMENT/EXPENDITURE AND DATE OF AVAILABILITY OF OWN FUNDS. IT CAN BE OBSERVED BY THE ASSESSING OFFICER FROM THE BALANCE SHEET AS TO WHET HER SUFFICIENT OWN FUNDS WERE AVAILABLE TO THE ASSESSEE DURING THE FINANCIAL YEAR OR THE INTER EST FREE FUNDS WERE GENERATED DURING THE COURSE OF THE YEAR EVEN IF THE ASSESSEE COULD NOT P ROVE THE AVAILABILITY OF OWN FUNDS ON THE PARTICULAR DATE OF INVESTMENT/ADVANCEMENT/EXPENDITU RE. 8. THE LD. AR OF THE ASSESSEE HAS RELIED UPON THE FOLLOWING REPRODUCED CHART TO SHOW THAT THE ASSESSEE WAS HAVING ITS OWN SUFFICIENT FUN DS FOR INVESTMENTS. PARTICULARS A.Y.05-06 A.Y.06-07 A.Y.07-08 A.Y.08-09 A.Y.09-10 1 INVESTMENTS HELD 7,20,10,000 7,20,10,000 7,37,10,000 7 ,37,10,000 7,37,10,000 2 CAPITAL & FREE RESERVE 19,27,34,088 21,14,70,107 22,10,90,423 29,89,11,892 34,48,80,915 3 SECURED LOANS (A) PACKING CREDIT 63,68,100 1,04,77,100 1,26,08,000 4,82,95,721 4,53,37,824 (B) BILL DISCOUNTING 5,43,24,525 3,27,77,988 5,37,92,429 19,51,1 7,861 16,78.65,401 (C) TERM LOAN ---- ---- 1,35,24,896 2,55,52,351 1,90,20,699 6,06,92,625 4,32,55,088 7,99,25,325 26,89,65,933 23,22,23,924 (D) UNSECURED LOAN 10,00,000 10,00,000 10,00,000 -------- ---- TOTAL LOAN 6,16,92,625 4,42,55,088 8,09,25,325 26,89,65,933 23,22,23,924 4 CURRENT ASSETS (A) INVENTORY 2,92,55,376 4,72,33,666 4,10,88,378 10,32,78,183 11,43,39,202 (B) SUNDRY DEBTORS 12,69,19,694 11,02,79,113 23,87,39 ,116 33,94,67,035 26,92,01,126 15,61,75,070 15,75,12,779 27,98,27,494 44,27,45,218 38,35,40,328 5 INTEREST PAID (A) ON PACKING CREDIT 10,61,579 7,90,982 2,46,376 1,10,09,764 39,33,828 (B) BILL DISCOUNTING 39,31,552 39,02,685 45,46,961 27,77,200 2,20,32,420 (C) TERM LOAN ---- ---- 7,70,367 22,25,123 26,26,090 49,93,131 46,93,667 55,63,704 1,60,12,087 2,85,92,338 LESS: SUBSIDY ON EXPORT CREDIT --- ---- ---- 21,31,220 45,74,694 1,38,80,8 67 2,40,17,644 ITA NO.4318/M/2014 - M/S BINAYAK TEX PROCESSORS LTD. 4 AMOUNT YEAR OF INVESTMENT INTEREST HELD ARE AS UNDER :- SARASWAT CO-OP BANK 1 10,000 A.Y.2004-05 2 VALIANT GLASS WORKS (P) LTD 7,20,00,000 A.Y. 2005-06 3 PARAMOUNT FINTEX & INDUSTRIES (I) (P) LTD 17,00,000 A. Y. 2007-08 TOTAL : 7,37,10,000 THE LD. AR OF THE ASSESSE EXPLAINED THAT INVESTMENT OF THE ASSESSEE IN THE ASSESSMENT YEAR 2003-04 WAS OF RS.10,000/- AS AGAINST CAPITAL AND FREE RESERVE OF RS.17.05 CRORES. IN THE ASSESSMENT YEAR 2004-05, INVESTMENT CONTINUED T O BE RS.10,000/- AND ITS CAPITAL AND FREE RESERVES WERE OF RS.17.90 CRORES, SECURED LOAN S FROM BANK WERE OF RS.5.42 CRORES AND UNSECURED LOANS WERE OF RS.15.00 LAKHS ON WHICH INTEREST WAS PAID TO THE BANK OF RS.34.90 LAKHS. IN ASSESSMENT YEAR 2005-06, SUCH IN VESTMENT INCREASED TO RS.7,20,10,000/-. ITS CAPITAL AND FREE RESERVES WER E OF RS.19.27CRORES, SECURED LOANS WERE OF RS.6.06 CRORES AND UNSECURED LOANS WERE OF RS.10 .00 LAKHS. INTEREST PAID TO THE BANK WAS OF RS.49.93 LAKHS. THUS, SUBSTANTIAL INVESTMENT HAD BEEN MADE IN AY 2005-06, SECURED BORROWINGS HAD INCREASED DURING THIS YEAR B Y RS.64.00 LAKHS AND UNSECURED LOANS HAD DECREASED BY RS.5.00 LAKHS. THUS, NET ACC RETION IN BORROWINGS WAS ONLY RS.59.00 LAKHS. FRESH INVEST MENT MADE DURING THAT YEAR WAS OF RS.720.00 LAKHS. HE STRESSED THAT FROM THE ABOVE, IT WAS CLEAR THAT THE ASSESSEE HAD NOT UTILIZED BORROWED FUNDS FOR MAKING INVESTMENTS. INC REMENTAL BORROWINGS OF RS.59.00 LAKHS HAS BEEN USED FOR THE PURPOSE OF BUSINESS AS THE ASSESSEE BORROWED FUNDS FROM BANKS FOR ITS EXPORT UNDER PCL LIMIT AS WELL AS BIL L DISCOUNTING LIMIT. IN AY 2006-07, INVESTMENT CONTINUED TO BE THE SAME. HOWEVER, ITS S ECURED BORROWINGS FELL DOWN TO RS.4.32 CRORES DURING THE YEAR. IN ASSESSMENT YEAR 2007-08, INVESTMENT INCREASED TO RS.737.10 LAKHS. THUS, A FRESH INVESTMENT OF RS.17. 00 LAKHS OVER ITS CAPITAL AND FREE RESERVES INCREASED TO RS.22.10 CRORES. SECURED LOAN S WERE INCREASED TO RS.799.25 LAKHS AND UNSECURED LOANS WERE OF RS.10,000/-. FOR ASSESS MENT YEARS 2008-09 AND 2009-10, SAME INVESTMENT CONTINUED AND NO FRESH INVESTMENT H AD BEEN MADE. IN ASSESSMENT YEAR 2008-09 FREE RESERVES AND CAPITAL OF THE COMPANY WE RE OF RS.29.89 CRORE AND ITS BORROWINGS FROM THE BANK BEING SECURED BORROWING WA S OF RS.2689.65 LAKHS. THERE WAS NO UNSECURED LOAN. ASSESSEE PAID INTEREST TO THE BA NK OF RS.138.80 LAKHS. UP TO ASSESSMENT YEAR 2008-09, NO DISALLOWANCE U/S 14A HAD BEEN MADE IN THE ASSESSEE'S CASE WHILE ALL THE ASSESSMENTS HAD BEEN COMPLETED U/S 143(3) OF THE ACT. HE FURTHER SUBMITTED THAT IN ASSESSMENT YEAR 2009-10, INVESTME NT OF THE ASSESSE REMAINED SAME AT RS.737.10 LAKHS. ITS CAPITAL AND FREE RESERVES WERE OF RS.3448.80 LAKHS AND SECURED LOANS OF RS.2322.20 LAKHS ON WHICH INTEREST PAID WA S OF RS.240.17 LAKHS. THUS, IN ASSESSMENT YEAR 2009-10, THERE WAS NO FRESH INVESTM ENT AND AS THERE WAS NO DISALLOWANCE U/S 14A UP TO ASSESSMENT YEAR 2008-09. HE THEREFORE CON TENDED THAT NO DISALLOWANCE WAS WARRANTED U/S 14A OF INCOME-TAX ACT FOR THE YEAR UNDER CONSIDERAT ION ALSO. AFTER CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSE SSE AND AFTER GOING THROUGH THE ITA NO.4318/M/2014 - M/S BINAYAK TEX PROCESSORS LTD. 5 ABOVE CHART WHICH IS THE SUMMARY OF BALANCE SHEETS RELATING TO DIFFERENT ASSESSMENT YEARS, WE ARE SATISFIED WITH THE SUBMISSIONS OF THE LD. AR THAT THE MAJOR INVESTMENTS WERE MADE BY THE ASSESSEE IN ASSESSMENT YEAR 2005-0 6. TOTAL INVESTMENT IN ASSESSMENT YEAR 2005-06 WAS OF RS.7.20 CRORES AS AGAINST WHICH CAPITAL AND FREE RESERVES WERE OF RS.27.00 CRORES. THUS, CAPITAL & FREE RESERVES EXCE EDED INVESTMENT. BORROWINGS WERE FROM BANKS IN THE FORM OF EXPORT BILL DISCOUNTING A ND PACKING CREDIT. THESE TWO BORROWINGS WERE FOR EXPORT BUSINESS OF THE ASSESSEE AND COULD NOT BE SAID TO BE DIVERTED FOR THE PURPOSE OF INVESTMENT IN SHARES. THE AUTHO RITIES WERE SATISFIED THAT THE INVESTMENTS IN THE SHARES WERE MADE FROM THE INTERE ST FREE FUNDS AVAILABLE WITH THE ASSESSEE AND NOT FROM THE INTEREST BEARING FUNDS AN D HENCE NO DISALLOWANCE WAS MADE U/S 14A BY THE AUTHORITIES FOR A.Y. 2005-06. THESE INVESTMENTS CONTINUED IN THE SUBSEQUENT ASSESSMENT YEARS. THE CAPITAL AND FREE RESERVES OF THE ASSESSE INCREA SED DURING SUBSEQUENT YEARS AND THE BORROWINGS DECREASE D. THUS, IN ASSESSMENT YEAR 2009- 10, THERE WAS NO FRESH INVESTMENT AND AS THERE WAS NO DISALLOWANCE U/S 14A UP TO ASSESSMENT YEAR 2008-09. IN VIEW OF THE ABOVE STATE D FACTUAL POSITION AND ALSO TAKING INTO CONSIDERATION OUR OBSERVATIONS MADE ABOVE IN R ELATION TO THE CIRCUMSTANCES TO BE TAKEN INTO CONSIDERATION WHILE MAKING DISALLOWANCE U/S 14A OF THE ACT, NO DISALLOWANCE IS CALLED FOR IN RELATION TO INTEREST EXPENDITURE U NDER RULE 8 D(II) OF THE I.T. RULES AND THE SAME IS HEREBY ORDERED TO BE DELETED. 9. HOWEVER SO FAR THE DISALLOWANCE OF RS.3,68,550/- AS PER THE METHOD PRESCRIBED UNDER RULE 8D (III) OF THE I.T. RULES ON ACCOUNT O F ADMINISTRATIVE EXPENSES IS CONCERNED, WE DO NOT FIND ANY REASON TO INTERFERE I N RELATION TO THE SAID DISALLOWANCE. MOREOVER THE ASSESSE HIMSELF HAD OFFERED THE SAID D ISALLOWANCE BEING 0.5% OF THE AVERAGE INVESTMENT AMOUNTING TO RS.3,68,550/-. THE SAID DISALLOWANCE MADE BY THE LOWER AUTHORITIES IS HEREBY CONFIRMED. 4. CONSIDERING THE DECISION OF CO-ORDINATE BENCH IN AS SESSEES OWN CASE, THE APPEAL OF THE ASSESSEE IS ALLOWED IN TERMS OF ORDER DATED 21.03.2014. 5. IN THE RESULT, APPEAL FILED BY ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD DAY OF MAY 2017. SD/- SD/- (SHAMIM YAHYA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 03/05/2017 S.K.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/