ACIT, New Delhi V. M/s Hal Offshore Ltd., New Delhi

ITA 4327/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91003 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 28-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 09-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T VASANTHAN
• Section: 143(3)

Judgement Text

ITA NO. 4327/DEL/2012 ASSTT.YEAR: 2009-10 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI CHANDRAMOHAN GARG, JUDICIAL MEMBER ITA NO.4327/DEL/2012 ASSTT.YEAR: 2009-10 ACIT, VS HAL OFFSHORE LTD., CIRCLE 12(1), 25, BAZAR LANE, NEW DELHI. BENGALI MARKET, NEW DELHI. (PAN: AAACH3144B) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI T. VASANTHAN, SR. DR RESPONDENT BY: SHRI PIYUSH KAUSHIK, A DV. O R D E R PER C.M. GARG, JUDICIAL MEMBER THIS APPEAL OF THE REVENUE HAS BEEN DIRECTED AGAIN ST THE ORDER OF THE CIT(A)-XIII, NEW DELHI DATED 24.05.2012 IN APPEAL N O. 201/11-12 FOR AY 2008-09. 2. THE SOLE GROUND RAISED BY THE REVENUE READS AS U NDER:- 1. WHETHER LD. CIT(A) WAS CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN DELETING TH E DISALLOWANCE OF RS.23,75,256/- MADE BY THE AO ON AC COUNT OF INTEREST PAYMENT U/S 36(1)(III). 3. BRIEFLY STATED THE FACTS GIVING RISE TO THIS APP EAL ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF OFF SHORE OPE RATIONS AND ALSO ENGAGED IN ITA NO. 4327/DEL/2012 ASSTT.YEAR: 2009-10 2 RUNNING ON CONTRACT FOR CHARTER HIRE OF MULTI-SUPPO RT VESSEL WITH ONGCL, PAINTING OF ONGC PLATFORM AND A RUNNING CONTRACT FO R OPERATION AND MAINTENANCE OF WATER MAKER ON ONGCL PLATFORMS. DUR ING THE ASSESSMENT PROCEEDINGS, THE AO DISALLOWED INTEREST PAYMENT OF RS. 23,75,256/- U/S 36(1)(III) OF THE INCOME TAX ACT, 1961 (FOR SHORT T HE ACT) BY OBSERVING THAT THE AVERAGE INTEREST COST DEBITED IN THE PROFIT AND LOS S ACCOUNT ON INTEREST FREE ADVANCES AND LOANS WILL NOT BE ALLOWED AS DEDUCTION U/S 36(1)(III) OF THE ACT. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE T HE CIT(A) WHICH WAS ALLOWED BY PASSING THE IMPUGNED ORDER. NOW, THE AG GRIEVED REVENUE IS BEFORE THIS TRIBUNAL WITH THE SOLE GROUND AS REPRODUCED HE REINABVOVE. 4. WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND CA REFULLY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD INTER ALIA PAPER BOOK OF THE ASSESSEE SPREAD OVER 34 PAGES, ASSESSEES WRITTEN SUBMISSIONS AND D ECISION OF ITAT G BENCH MUMBAI IN THE CASE OF M/S APLAB LIMITED VS ACIT IN ITA NO. 3313/MUM/2010 FOR AY 2006-07 DATED 23.12.2011 AND ANOTHER DECISIO N OF ITAT MUMBAI D BENCH IN THE CASE OF ACIT VS M/S RELIANCE COMMUNICATIONS INFRASTRUCTURE LTD. 2009-TIOL-313-ITAT-MUM. 5. LD. DR SUBMITTED THAT THE CIT(A) WAS NOT CORRECT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW DELETING THE I MPUGNED DISALLOWANCE MADE BY THE AO ON ACCOUNT OF INTEREST PAYMENT U/S 36(1)( III) OF THE ACT. LD. DR POINTED OUT THAT THE AO NOTICED THAT THE ASSESSEE H AS MADE INVESTMENT OF ITA NO. 4327/DEL/2012 ASSTT.YEAR: 2009-10 3 RS.4,18,79,945 AND HAS BORROWED MONEY IN THE SHAPE OF SECURED AND UNSECURED LOANS AND HAS PAID INTEREST OF RS.13,07,08,614. LD . DR FURTHER POINTED OUT THAT ON THE ONE HAND, THERE WERE INTEREST BEARING LOANS AND ON THE OTHER HAND, THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCES AND THE A SSESSEE FAILED TO ESTABLISH NEXUS BETWEEN THE SURPLUS FUNDS OF THE COMPANY AND INTEREST FREE ADVANCES, THEREFORE, THE AO RIGHTLY MADE DISALLOWANCE U/S 36( 1)(III) OF THE ACT. LD. DR REQUESTED THAT THE IMPUGNED ORDER MAY BE SET ASIDE BY RESTORING THAT OF THE AO. 6. REPLYING TO THE ABOVE, LD. COUNSEL OF THE ASSESS EE HAS DRAWN OUR ATTENTION TOWARDS OPERATIVE PARA NO. 2 AND 3 AT PAGE 12 OF TH E IMPUGNED ORDER AND SUBMITTED THAT THE ASSESSEE HAS GOT EQUITY SHARE CA PITAL OF MORE RS. 10 CRORE AND RESERVE AND SURPLUS OF MORE THAN RS. 51 CRORE WHICH CLEARLY SHOW THAT THERE WAS HUGE CAPITAL AVAILABLE WITH THE ASSESSEE, THEREFORE , INVESTMENTS MADE BY THE ASSESSEE AMOUNTING TO RS.44,596,370 HAVE NO NEXUS W ITH THE INTEREST BEARING LOANS OF THE ASSESSEE. LD. COUNSEL OF THE ASSESSEE VEHEMENTLY CONTENDED THAT THE ASSESSEE, BY WAY OF STATEMENT OF ACCOUNTS, BALA NCE SHEET AND PROFIT AND LOSS ACCOUNT SUBMITTED BEFORE THE AUTHORITIES BELOW, SUC CESSFULLY ESTABLISHED THAT NO INTEREST BEARING FUNDS WERE UTILIZED FOR MAKING INV ESTMENT IN THE SHARES OF VARIOUS COMPANIES AND THE INVESTMENT IN SUCH SHARES WAS CARRIED FORWARD FROM THE LAST YEARS, THEREFORE, THE CIT(A) RIGHTLY HELD THAT THE DISALLOWANCE OF INTEREST MADE BY THE AO ON THE ALLEGATION OF DIVERSION OF IN TEREST BEARING FUNDS WAS NOT JUSTIFIED AND BASELESS. LD. COUNSEL SUPPORTED THE IMPUGNED ORDER. ITA NO. 4327/DEL/2012 ASSTT.YEAR: 2009-10 4 7. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS FR OM OPERATIVE PART OF THE IMPUGNED ORDER, WE NOTE THAT THE CIT(A) GRANTED REL IEF FOR THE ASSESSEE WITH FOLLOWING OBSERVATIONS AND CONCLUSION:- IT IS CLAIMED BY THE APPELLANT THAT INTEREST OF RS . 1,93,54,438/- HAS BEEN PAID ON CASH CREDIT LOANS AN D RS. 8,75,50,782/- HAS BEEN PAID ON THE TERM LOAN RAISED FOR PURCHASE OF VESSEL WHICH HAS BEEN GIVEN TO ONGC ON HIRE BASIS, THEREFORE, THE INTEREST WAS ON ACCOUNT OF PU RCHASE OF VESSEL. THE INTEREST PAYMENT SHOWN AT S.NO. 3 IS PE RTAINING TO THE CAR LOANS. THE INTEREST OF RS. 27,29,276/- PERT AINS TO THE BUYERS CREDIT LOAN AND INTEREST OF RS. 11,01,513/- PERTAINS TO DELAY IN PAYMENT OF SERVICE TAX. THE BALANCE AMOUNT OF RS. 1,99,12,685/- IS BANK CHARGES PAID ON ACCOUNT OF GU ARANTEE COMMISSION TO VARIOUS BANKS. THE ABOVE ANALYSIS SHO WS THAT NO INTEREST BEARING FUNDS WERE UTILIZED FOR MAKING INVESTMENTS IN THE COMPANIES LISTED IN THE TABLE GIVEN ABOVE. IT IS ALSO SEEN THAT APPELLANT HAS GOT EQUITY SHARE CAPITAL OF RS. 10,03,12,000/- AND RESERVE & SURPLUS OF RS.51,04,71,127/- WHICH SHOWS THAT THERE IS HUGE CA PITAL BASE AVAILABLE WITH THE APPELLANT. THE APPELLANT HAS CLA IMED THAT INVESTMENTS IN THE SHARES OF VARIOUS COMPANIES WAS MADE OUT OF THE SHARES CAPITAL AND RESERVE AND SURPLUS AVAIL ABLE WITH THE APPELLANT. IT IS CLAIMED BY THE APPELLANT THAT THE LOANS WERE RAISED FOR SPECIFIC PURPOSES AND SAME HAVE BEEN UTI LIZED FOR THE STATED PURPOSES AND NO AMOUNT OF SUCH LOANS HAS BEEN DIVERTED FOR INVESTMENT PURPOSES. IT IS ALSO OBSERV ED THAT THE ASSESSING OFFICER HAS NOT ESTABLISHED ANY NEXUS BET WEEN THE INTEREST BEARING FUNDS TAKEN BY THE APPELLANT AND I NVESTMENTS MADE IN THE SHARES OF VARIOUS COMPANIES. IN THE ABS ENCE OF SUCH NEXUS IT CANNOT BE HELD THAT INVESTMENT WAS MA DE OUT OF INTEREST BEARING FUNDS AND THE NATURAL PRESUMPTION WOULD BE THAT SUCH INVESTMENTS WERE MADE OUT OF SHARE CAPITA L AND RESERVE & SURPLUS. IT IS ALSO CLAIMED BY THE APPELL ANT THAT THE ASSESSMENT FOR A. Y. 2008-09 WAS PASSED U/S 143(3) OF THE IT ACT AND INVESTMENTS IN SHARES AND SECURITIES WAS MO RE THAN THE INVESTMENTS DURING THE YEAR, HOWEVER, NO DISALL OWANCE OF INTEREST ON ACCOUNT OF THESE INVESTMENTS WAS MADE B Y THE ASSESSING OFFICER IN A.Y. 2008-09. ITA NO. 4327/DEL/2012 ASSTT.YEAR: 2009-10 5 IN VIEW OF THE FACTS DISCUSSED ABOVE, IT IS ESTABLI SHED THAT NO INTEREST BEARING FUNDS WERE UTILIZED FOR MA KING INVESTMENTS IN SHARES OF VARIOUS COMPANIES LISTED A BOVE AND THE INVESTMENT IN SUCH SHARES WAS CARRIED FORWARD F ROM THE LAST YEAR. HENCE, THE DISALLOWANCE OF INTEREST MADE BY THE ASSESSING OFFICER FOR DIVERSION OF INTEREST BEARING FUNDS WAS NOT JUSTIFIED. THEREFORE, THE SAME IS DELETED. 8. ON CAREFUL PERUSAL OF THE ASSESSMENT ORDER, WE N OTE THAT THE AO IN PARA 4.12 OBSERVED THAT THE AVERAGE INTEREST COST DEBITE D IN THE PROFIT AND LOSS ACCOUNT OF INTEREST FREE ADVANCES AND LOANS WILL NO T BE ALLOWED AS DEDUCTION U/S 36(1)(III) OF THE ACT AND THE AO PICKED UP AMOUNT O F INVESTMENT OF RS.4,18,79,945 FOR CALCULATING THE AMOUNT OF DISALL OWANCE WHICH WAS ACTUALLY INVESTMENT AS SHOWN IN THE TABLE AT PAGE 10 AND 11 OF THE IMPUGNED ORDER. IN VIEW OF ABOVE UNCONTROVERTED DETAILS OF INVESTMENT OF THE ASSESSEE, IT IS VIVID THAT THE AMOUNT OF RS.4.18 CRORE AS PICKED UP BY TH E AO WAS ACTUALLY AMOUNT OF INVESTMENT AT THE END OF THE FINANCIAL YEAR UNDER C ONSIDERATION. THE ASSESSEE HAS ALSO GIVEN DETAILS OF RS. 13,07,08,614 WHICH IN CLUDES BANK INTEREST AND BANK CHARGES. THESE FACT AND FIGURES HAVE ALSO NOT BEEN CONTROVERTED BY THE AO. FROM THE BALANCE SHEET, IT IS ALSO CLEAR THAT THE A SSESSEE HAS GOT EQUITY SHARE CAPITAL OF MORE THAN RS.10 CRORE AND RESERVE AND S URPLUS OF MORE THAN RS.51 CRORE AND, IN THIS SITUATION, THE NATURAL PRESUMPTI ON WOULD BE THAT SUCH INVESTMENTS WERE MADE OUT OF SHARE CAPITAL AND RESE RVE AND SURPLUS IN ABSENCE OF ANY NEXUS BETWEEN INTEREST BEARING FUNDS TAKEN B Y THE ASSESSEE AND INVESTMENT MADE IN THE SHARES OF VARIOUS COMPANIES. UNDER ABOVE NOTED FACTS AND CIRCUMSTANCES, WE ARE INCLINED TO HOLD THAT THE AO MADE DISALLOWANCE ON ITA NO. 4327/DEL/2012 ASSTT.YEAR: 2009-10 6 WRONG PREMISE WHICH WAS RIGHTLY DELETED BY THE CIT( A) BY PROPERLY ANALYSING THE FACTS AND FIGURES SUBMITTED BY THE ASSESSEE AND WE HAVE NO REASON TO INTERFERE WITH THE IMPUGNED ORDER IN THIS REGARD AN D WE UPHOLD THE SAME. 9. ON THIS ISSUE, WE RESPECTFULLY FOLLOW THE DECISI ON OF COORDINATE BENCH OF ITAT MUMBAI G BENCH IN THE CASE OF M/S APLAB LIMI TED VS ACIT (SUPRA) WHEREIN IT WAS HELD AS UNDER:- 13. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE C ASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. [(2009) 313 ITR 340 (BOM)] CONSIDERED ALMOST SIMILAR FACTS. IN THAT CAS E THE AO RECORDED A FINDING THAT A SUM OF RS.213 CRORES WAS INVESTED BY THE ASSESSEE OUT OF THEIR OWN FUNDS AND RS.1.74 CRO RES OUT OF BORROWED FUNDS. ACCORDINGLY, DISALLOWANCE OF INTERE ST WAS MADE TO THE TUNE OF RS.2.40 CRORES. IT WAS ARGUED ON BEH ALF OF THE ASSESSEE THAT NO PART OF INTEREST BEARING FUNDS HAD GONE INTO INVESTMENT IN THOSE TWO COMPANIES IN RESPECT OF WHI CH THE AO MADE DISALLOWANCE OF INTEREST. IT WAS ALSO ARGUED T HAT INCOME FROM OPERATIONS OF THE COMPANY WAS RS.418.04 CRORES AND THE ASSESSEE HAD ALSO RAISED CAPITAL OF RS.7.90 CRORES, APART FROM RECEIVING INTEREST FREE DEPOSIT OF RS.10.03 CRORES. IT WAS, THEREFORE, SUBMITTED BEFORE THE FIRST APPELLATE AUT HORITY THAT THE BALANCE-SHEET OF THE ASSESSEE ADEQUATELY DEPICTED T HAT THERE WERE ENOUGH INTEREST FREE FUNDS AT ITS DISPOSAL FOR MAKI NG INVESTMENT. THE LD. CIT(A) GOT CONVINCED WITH THE ASSESSEE'S SU BMISSIONS AND DELETED THE ADDITION. BEFORE THE TRIBUNAL, IT WAS C ONTENDED ON BEHALF OF THE REVENUE THAT THE SHAREHOLDERS' FUNDS WERE UTILIZED FOR THE PURCHASE OF ITS ASSETS AND HENCE THE ASSESS EE WAS LEFT WITH NO RESERVE OR OWN FUNDS FOR MAKING INVESTMENT IN TH E SISTER CONCERN. THUS, IT WAS ARGUED THAT THE BORROWED FUND S HAD BEEN UTILIZED FOR THE PURPOSE OF MAKING INVESTMENT IN TH E SISTER CONCERN AND THE DISALLOWANCE OF INTEREST WAS RIGHTL Y CALLED FOR. THE TRIBUNAL, ON APPRECIATION OF FACTS, RECORDED A FINDING THAT THE ASSESSEE HAD SUFFICIENT FUNDS OF ITS OWNS FOR M AKING ITA NO. 4327/DEL/2012 ASSTT.YEAR: 2009-10 7 INVESTMENT WITHOUT USING THE INTEREST BEARING FUNDS . ACCORDINGLY, THE ORDER OF CIT(A) WAS UPHELD. WHEN THE MATTER CAM E UP BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT, IT WAS CONTE NDED BY THE DEPARTMENT THAT THE SHAREHOLDERS' FUNDS STOOD UTILI ZED IN THE PURCHASE OF FIXED ASSETS AND HENCE COULD NOT BE CON STRUED AS AVAILABLE FOR INVESTMENT IN SISTER CONCERN. REPELLI NG THIS CONTENTION, THE HON'BLE HIGH COURT OBSERVED THAT : 'IN OUR OPINION, THE VERY BASIS ON WHICH THE REVENUE HAD SO UGHT TO CONTEND OR ARGUE THEIR CASE THAT THE SHAREHOLDERS' FUND TO THE TUNE OF OVER RS.172 CRORES WAS UTILIZED FOR THE PUR POSE OF FIXED ASSETS IN TERMS OF THE BALANCE-SHEET AS ON MARCH 31 , 1999, IS FALLACIOUS.' IN UPHOLDING THE ORDER OF THE TRIBUNAL , THE HON'BLE HIGH COURT HELD THAT : 'IF THERE BE INTEREST FREE F UNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENT AND A T THE SAME TIME THE ASSESSEE HAD RAISED A LOAN, IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST FREE FUNDS AVAIL ABLE'. THEREAFTER, THE JUDGMENT OF THE HON'BLE SUPREME COU RT IN THE CASE OF EAST INDIA PHARMACEUTICAL WORKS LTD. VS. CI T [(1997) 224 ITR 627 (SC)] AND ALSO THE JUDGMENT OF THE HON' BLE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. VS. CIT [(1 981) 134 ITR 219 (CAL)] WERE CONSIDERED. IT WAS FINALLY CONC LUDED THAT : 'THE PRINCIPLE, THEREFORE, WOULD BE THAT IF THERE A RE FUNDS AVAILABLE BOTH INTEREST FREE AND OVERDRAFT AND/OR L OANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT THE INVESTMENTS WOULD BE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT'. CONSEQUENTLY THE INTEREST WAS HELD TO BE DEDUCTIBLE IN FULL. 14. FROM THE ABOVE JUDGMENT, IT IS MANIFEST THAT TH ERE CAN BE NO PRESUMPTION THAT THE SHAREHOLDERS' FUND OF A COMPAN Y IS UTILIZED FOR THE PURCHASE OF FIXED ASSETS. IF THE ASSESSEE H AS INTEREST FREE FUNDS AS WELL AS INTEREST BEARING FUNDS AT ITS DISP OSAL, THEN THE PRESUMPTION WOULD BE THAT INVESTMENTS WERE MADE FRO M INTEREST FEE FUNDS AT THE DISPOSAL OF THE ASSESSEE. THE FACT S OF THE INSTANT CASE ABUNDANTLY SHOW THAT THE SHAREHOLDERS FUND IS MUCH MORE THAN THE AMOUNT ADVANCED BY THE ASSESSEE WITHOUT AN Y INTEREST TO ITS SISTER CONCERNS. RESPECTFULLY FOLLOWING THE PRE CEDENT, WE HOLD THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING ADDITION UNDER ITA NO. 4327/DEL/2012 ASSTT.YEAR: 2009-10 8 THE PRESENT CIRCUMSTANCES. WE, THEREFORE, ORDER FOR THE DELETION OF ADDITION. GROUND NO.5 IS ALLOWED. 10. IN THE PRESENT CASE ALSO, THE ASSESSEE HAS INTE REST FREE FUNDS AS WELL AS INTEREST BEARING FUNDS AT ITS DISPOSAL, THEN THE PR ESUMPTION WOULD BE THAT INVESTMENTS WERE MADE FROM INTEREST FREE FUNDS WHIC H WERE AT THE DISPOSAL OF THE ASSESSEE. HENCE, THE PRESENT CASE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE AFORESAID ORDER OF ITAT, MUMBAI. A CCORDINGLY, SOLE GROUND OF THE REVENUE IS DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01/05/2015. SD/- SD/- (R.S. SYAL) (CHANDRAMOHAN GARG ) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 1 ST MAY, 2015 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. C.I.T. 5. DR BY ORDER ASSTT. REGISTRAR