R.Ranganatha Reddiar, Kollam V. ACIT, Kollam

ITA 437/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61569 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 26-06-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 09-07-2010
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA JR DR RGVB C
• Keywords: Proportionate interest; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A NO. 437/COCH/2010 ASSESSMENT YEAR: 2006-07 SHRI R. RANGANATHA REDDIAR, M/S. RADHAS, MAIN ROAD, KOLLAM. [PAN: AERPR 0733E] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOLLAM. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI R. SREENIVASAN, FCA REVENUE BY SMT. S.VIJAYAPRABHA, JR.DR R5GVB C0020 DATE OF HEARING 26/06/2012 DATE OF PRONOUNCEMENT 27/07/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 18-6-2010 PASSED BY LD CIT(A)-1, TRIVANDRUM AND IT RELATES TO THE AS SESSMENT YEAR 2006-07. THE ASSESSEE IS ASSAILING THE DECISION OF LD CIT(A) IN CONFIRMING THE ADDITION OF RS.6,85,465/- PERTAINING TO INTEREST ON FUNDS DIVER TED FOR NON-BUSINESS PURPOSES. 2. THE FACTS RELATING TO THE ISSUE ARE DISCUSSE D IN BRIEF. THE ASSESSEE IS THE PROPRIETOR OF THREE BUSINESS CONCERNS AS DETAILED B ELOW:- (A) M/S RADHAS DEALING IN TEXTILES (B) M/S HOTEL SAKUNTALA INTERNATIONAL A HOTEL (C) M/S M/S RADHAS FILM CIRCUIT DISTRIBUTION OF MOVIES. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS AVAILED LOANS TO THE TUNE OF RS.68.51 LAKHS AND PAID INTEREST OF RS.8,42,702/- D URING THE YEAR IN THE TEXTILE BUSINESS. I.T.A. NO. 437/COCH/2010 2 THE AO FURTHER NOTICED THAT THE TEXTILE BUSINESS HA S MADE INTEREST FREE ADVANCE OF RS.55.72 LAKHS TO M/S RADHAS FILM CIRCUIT, ANOTHER PROPRIETARY CONCERN OF THE ASSESSEE. THE AO CONSIDERED IT AS DIVERSION OF FUNDS TO THE S ISTER CONCERNS FOR NON-BUSINESS PURPOSE. ACCORDINGLY, BY FOLLOWING THE DECISION OF JURISDICTIONAL KERALA HIGH COURT IN THE CASE OF CIT VS. BABY & CO. (254 ITR 248), DISALLOWE D PROPORTIONATE INTEREST AMOUNTING TO RS.6,85,465/-. 3. THE ASSESSEE CHALLENGED THIS ADDITION BEFORE LD CIT(A) BY FILING AN APPEAL. THOUGH THE LD CIT(A) TOOK THE VIEW THAT THE TRANSAC TIONS MADE WITH DIFFERENT DIVISIONS OF ASSESSEE CANNOT BE CONSIDERED AS TRANSACTIONS WI TH SISTER CONCERNS, YET SHE TOOK THE VIEW THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE COMMERCIAL EXPEDIENCY IN CARRYING OUT THIS TRANSACTION AS SPECIFIED BY HONBLE SUPREM E COURT IN THE CASE OF S.A.BUILDERS (288 ITR 1). ACCORDINGLY, THE LD CIT(A) CONFIRMED THE ADDITION. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE TRANSACTIONS BETWEEN DIFFERENT DIVISIONS OF THE ASSESSEE CANNOT BE CONSIDERED AS T RANSACTIONS WITH SISTER CONCERNS. HE FURTHER SUBMITTED THAT THE VERY SAME TEXTILE DIVISI ON OF THE ASSESSEE HAS RECEIVED INTEREST FREE FUNDS OF RS.68.65 LAKHS FROM M/S HOTE L SAKUNTHALA INTERNATIONAL DURING THE YEAR UNDER CONSIDERATION AND HENCE IT CANNOT BE SAI D THAT THERE WAS DIVERSION OF INTEREST BEARING FUNDS. HE FURTHER SUBMITTED THAT EVEN IF INTEREST IS CHARGED BY TEXTILE BUSINESS, THE SAME WILL BECOME INCOME OF THE TEXTIL E DIVISION AND EXPENDITURE OF THE FILM DIVISION BUSINESS, THE NET EFFECT OF WHICH IS TAX NEUTRAL. 5. ON THE OTHER HAND, THE LD D.R SUBMITTED THAT THE ASSESSEE DID NOT PROVE THE COMMERCIAL EXPEDIENCY IN TRANSFERRING FUNDS TO THE FILM DIVISION AND HENCE THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDE RS, SUPRA SHALL SQUARELY APPLY TO THE FACTS OF THE INSTANT CASE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREF ULLY PERUSED THE RECORD. THERE IS NO DISPUTE THAT THREE BUSINESSES NOTED ABOVE ARE THREE DIVISIONS OF THE ASSESSEE HEREIN. I.T.A. NO. 437/COCH/2010 3 IN ORDER TO QUALIFY AS SISTER CONCERN, THE BUSINE SS CONCERNS SHOULD BE OWNED BY DIFFERENT PERSONS AND SUCH OWNERS SHOULD BE RELATED TO EACH OTHER. SINCE THE ASSESSEE HEREIN IS THE OWNER OF ALL THE THREE BUSINESSES, TH EY CAN ONLY BE TAKEN AS THE DIFFERENT DIVISIONS OF THE ASSESSEE. HENCE, THE LD CIT(A) WA S RIGHT IN HOLDING THAT THE THREE BUSINESS DIVISIONS CANNOT BE CALLED AS SISTER CONC ERNS. 7. IF MONEY IS TRANSFERRED FROM ONE BUSINESS DIV ISION TO ANOTHER BUSINESS DIVISION BELONGING TO THE SAME PERSON, THERE CANNOT BE ANY Q UESTION OF DIVERSION OF FUNDS, AS IT IS EQUIVALENT TO TRANSFERRING MONEY FROM ONE POCKET TO ANOTHER POCKET OF THE SAME SHIRT. AS SUBMITTED BY LD A.R, EVEN IF THE INTERES T IS CHARGED, IT WOULD BE TAX NEUTRAL, AS THE INTEREST SO CHARGED BECOMES EXPENDITURE FOR ONE DIVISION AND INCOME FOR ANOTHER DIVISION. FURTHER THE LD A.R ALSO POINTED OUT THAT THE TEXTILE DIVISION HAS RECEIVED INTEREST FREE FUNDS TO THE TUNE OF RS.68.65 LAKHS F ROM THE HOTEL DIVISION, WHICH IS MORE THAN THE AMOUNT OF RS.55.72 LAKHS ADVANCED TO FILMS DIVISION. HENCE, VIEWED FROM ANY ANGLE, WE DO NOT FIND ANY JUSTIFICATION IN THE ADDI TION MADE BY THE AO. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE DISALLOWANCE OF INTEREST REFERRED ABOVE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED ACCORDINGLY ON 27-07-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 27TH JULY, 2012 GJ COPY TO: 1. SHRI R. RANGANATHA REDDIAR, M/S. RADHAS, MAIN RO AD, KOLLAM. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1, KOLLAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I,TRIVA NDRUM. 4. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) ITAT COCHIN I.T.A. NO. 437/COCH/2010 4