DCIT, New Delhi V. M/s. Jaipuria Beverages and Food Industries Pvt. Ltd., New Delhi

ITA 4846/DEL/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52849 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 10-10-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 24-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Keywords: Capital asset; Business expenditure; Earning of tax free income; Proportionate interest; Capital expenditure
• Section: 14A; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI SHAMIM YAHYA ITA NO. 4846/DEL/2009 ASSTT. YR: 2003-04 DCIT CIR. 4(1), VS. M/S JAIPURIA BEVERAGES AND F OOD NEW DELHI. INDUSTRIES PVT. LTD.,(FORMERLY KNOWN AS RAJPUTANA STORES P. LTD.) 702, ANSAL BHAWAN, 16- K.G. MARG, NEW DELHI-110001. PAN/GIR NO. AABCT 7041C (APPELLANT ) ( RESPONDENT ) APPELLANT BY : MS. Y. KAKKAR DR RESPONDENT BY : SHRI K. SAMPATH ADVOCATE O R D E R PER R.P.TOLANI, J.M : THIS IS REVENUES APPEAL AGAINST CIT(A)S ORDER DA TED 16-11-2009 RELATING TO A.Y. 2003-04. SOLE ISSUE RAISED PERTAIN S TO DELETION OF DISALLOWANCE OF PROPORTIONATE INTEREST AS RAISED BY FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED CIT(APPEALS) IS ERRON EOUS & CONTRARY TO FACTS & LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS. 26,33,776/- MADE BY THE AO DISALLOWING PROPORTIONAT E INTEREST PAID BY THE ASSESSEE ON BORROWED CAPITAL. 3. THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT HE AO HAS MADE PROPORTIONATE DISALLOWANCE OF INTEREST INC URRED BY THE ASSESSEE ON INVESTMENT MADE DURING THE YEAR IN SHAR ES. ITA 4846/DEL/09 DCIT VS. M/S JAIPURIA BEVERAGES & FOOD INDUS. 2 4. THE LD. CIT(A) IGNORED THE FACT THAT THE ASSE SSEE MADE INVESTMENT IN THE SHARES FOR ACQUIRING THE CONTROLL ING INTEREST IN THE CONCERNED COMPANIES. 5. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR AMEND ANY GROUNDS OF APPEAL RAISED ABOVE AT THE TIME OF HARIN G. 2. BRIEF FACTS ARE : ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS. 13,520/-, WHICH WAS OFFERED AND ACCEPTED U/S 143(1) . AO, THEREAFTER, ISSUED NOTICE U/S 148 ON THE REASONING THAT PROVISIONS OF SEC. 14A WERE ATTRACTED. THE DIVIDEND WERE RECEIVED ON MAJORITY OF SHARES RE TAINED IN ASSOCIATE CONCERNS FOR CONTROLLING PURPOSES. AO RELYING ON HO NBLE BOMBAY HIGH COURT JUDGMENT IN THE CASE OF AMRITBEN SHAH 238 ITR 77, DISALLOWED THE INTEREST ATTRIBUTABLE TO SUCH INVESTMENTS, PROPOSED TO DISALLOW THE INTEREST DEBITED TO P&L A/C. 2.1. ASSESSEE DURING THE COURSE OF ASSESSMENT PROCE EDINGS CONTENDED AS UNDER: (1) DURING A.Y. 2003-04 THE DIVIDEND INCOME WAS FULLY T AXABLE AND THEREFORE PROVISIONS OF SEC. 14A WERE NOT ATTRACTED . (2) THE ASSESSEE COMPANY WAS HAVING INVESTMENT OF RS. 2 .37 CRORES AS ON 31-03-2002 AND RS. 2.34 CRORES AS ON 31-03-2003 AND NO SUBSTANTIAL INCREMENTAL INVESTMENT WAS MADE DURING THE YEAR. INVESTMENTS WERE OLD, MADE IN THE EARLIER YEARS AND NO DISALLOWANCE WAS MADE OF ANY PART OF INTEREST IN EARLIER YEARS B Y THE AO ON ITS BORROWINGS. THE ASSESSEE COMPANY HAS SUFFICIENT INT EREST FREE FUNDS OF ITS OWN CONSISTING OF SHARE CAPITAL, RESERVES, R ETAINED EARNINGS AND INTERNAL ACCRUAL. THE NATURE AND STATUS OF THE INVE STMENT IN THESE SHARES WAS THE SAME AS IN THE EARLIER YEARS. THAT B EING SO IT COULD NOT BE ASSUMED NOW THAT THE NATURE AND STATUS OF THESE INVESTMENTS WAS ITA 4846/DEL/09 DCIT VS. M/S JAIPURIA BEVERAGES & FOOD INDUS. 3 OUT OF BORROWED FUNDS DURING THE YEAR. RELIANCE WAS PLACED ON THE RATIO OF DECISIONS IN THE CASE OF CIT VS. SRIDEV EN TERPRISES (1991) 192 ITR 65, WHICH HAS BEEN RELIED UPON BY THE ITA T IN ITS THIRD MEMBER DECISION IN MALWA COTTON SPINNING MILLS VS. ACIT REPORTED IN (2004) 89 ITD 65(CHD.). (3) THE ASSESSEE COMPANYS OWN CAPITAL, RESERVES, RETAI NED PROFITS AND OTHER INTEREST FREE FUNDS WERE IN MIXED KITTY WITH THE BORROWED FUNDS AND THERE WAS ONE COMMON STREAM OF FUNDS. THERE WAS NO DIRECT OR SPECIFIC NEXUS BETWEEN THE BORROWINGS AND THE INVES TMENT IN THE SHARES. IN THE CASE OF MIXED FUNDS, THE ASSUMPTION IS THAT INVESTMENT IN SHARES WERE MADE OUT OF INTEREST FREE FUNDS AND NO PART OF INTEREST COULD BE DISALLOWED U/S 36(1)(III). RELIANCE WAS PL ACED ON THE RATIO OF FOLLOWING DECISIONS: - TORRENT FINANCE VS. ACIT (2001) 73 TTJ 624 (ALL.) - MALWA COTTON SPINNING MILLS V. ACIT (2004)89 ITD 65 (CHD.)(T.M) - APPOLLO TRADE LINKS V. ITO (1994) 48 ITD 159 (DEL)( T.M) - MAFATLAL HOLDINGS LTD. VS. ADDL. CIT (2004) 85 TTJ (MUM.)81 - VIDYUT INVESTMENT LTD. VS. ITO 10 SOT 284 2.2. AO, HOWEVER, DISALLOWED AN AMOUNT OF RS. 26,33 ,776/-. 2.3. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL TO THE CIT(A), WHO DELETED THE ADDITION BY FOLLOWING OBSERVATIONS: 3. I HAVE CONSIDERED THE SUBMISSION MADE ON BEHALF OF THE APPELLANT, THE FINDINGS OF THE ASSESSING OFFICER AN D THE FACTS ON RECORD. I HAVE ALSO PERUSED THE PROVISIONS OF SECTI ON 10(33) OF THE ACT. IT IS OBSERVED THAT SECTION 10(33) WAS OMI TTED W.E.F. 01-4-32003 BY THE FINANCE ACT, 2002 BY VIRTUE OF WH ICH ITA 4846/DEL/09 DCIT VS. M/S JAIPURIA BEVERAGES & FOOD INDUS. 4 EXEMPTION UNDER SECTION 10(33) IN RESPECT OF DIVIDE ND INCOME WAS WITHDRAWN FROM 01-4-2003. THIS MAKES IT CLEAR T HAT IN ASSESSMENT YEAR 2003-04, THE DIVIDEND INCOME WAS FU LLY TAXABLE AND EXEMPTION UNDER SECTION 10(33) OF THE A CT WAS NOT AVAILABLE IN RESPECT OF DIVIDEND INCOME. IN OTHER W ORDS, THE DIVIDEND INCOME WAS NOT EXEMPT FROM TAX IN ASSESSME NT YEAR 2003-04. THIS ALSO MEANS THAT T HE DIVIDEND INCOME FORMED PART OF THE TOTAL INCOME IN ASSESSMENT YEAR 2003-04. 3.1. AS PER THE PROVISIONS OF SECTION 14A OF THE AC T NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITUR E INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT F ORM PART OF THE TOTAL INCOME UNDER THE ACT. AS THE DIVIDEND IN COME FORMED PART OF THE TOTAL INCOME IN ASSESSMENT YEAR 2003-04, THE PROVISIONS OF SECTION 14A WERE NOT APPLICABLE TO DI VIDEND INCOME ARISING IN THE PREVIOUS YEAR RELEVANT TO ASS ESSMENT YEAR 2003-04. IN VIEW OF THE AFORESAID, I HAVE NO HESITA TION TO HOLD THAT HE CONTENTION OF THE APPELLANT IS CORRECT THAT PROVISIONS OF SECTION 14A ARE NOT APPLICABLE TO DIVIDEND INCOME I N ASSESSMENT YEAR 2003-04. HENCE, I AM OF THE CONSIDE RED VIEW THAT THE ACTION OF THE ASSESSING OFFICER IN MAKING DISALLOWANCE UNDER SECTION 14A IN ASSESSMENT YEAR 2003-04 IS NOT JUSTIFIED AND THEREFORE, NOT SUSTAINABLE IN LAW. AS A RESULT, GROUND OF APPEAL NO. 3 IS ALLOWED IN VIEW OF THE ABOVE FINDIN G THAT DIVIDEND INCOME WAS NOT EXEMPT INCOME IN ASSESSMENT YEAR 2003-04. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 3. LEARNED DR CONTENDS THAT IN THE ASSESSMENT ORDE R BESIDES INVOKING SEC. 14A HAS BEEN MENTIONED BY AO, DISALLOWANCE OF PROPORTIONATE INTEREST HAS BEEN MADE BY THE AO ON THE REASONING THAT THE A SSESSEE INVESTED HUGE FUNDS FOR ACQUIRING CONTROLLING INTEREST IN VARIOUS COMPANIES. AO OBSERVED AS UNDER, RELYING ON BOMBAY HIGH COURTS JUDGMENT I N THE CASE OF AMRITABEN R. SHAH 238 ITR 177: ITA 4846/DEL/09 DCIT VS. M/S JAIPURIA BEVERAGES & FOOD INDUS. 5 IN THE CASE OF AMRITABEN R. SHAH REPORTED IN 238 I TR 177, THE ISSUE BEFORE THE BOMBAY HIGH COURT WAS THAT WHETHER DEDUCTION U/S 57(III) OF THE I.T. ACT, 1961 OF INTEREST ON TH E LOANS RAISED BY THE ASSESSEE FOR ACQUIRING SHARES WITH AN INTENTION TO ACQUIRE CONTROL OVER THE SAID COMPANY WAS ALLOWABLE. BOMBAY HIGH COURT ANSWERED THE AFORESAID QUESTION IN NEGATIVE. THE BOMBAY HIGH COURT IN THE CASE OF AMRITABEN R. SHAH (238 IT R 177) WHILE DECIDING SIMILAR ISSUE FOR CLAIM U/S 57(III) HELD THAT IN ORDER TO GET DEDUCTION THE EXPENDITURE SHOULD BE IN CURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING THE INCOME FROM OTHER SOURCES AND THAT IT SHOULD NO T BE IN THE NATURE OF CAPITAL EXPENDITURE. THE QUESTION BEFORE THE BOMBAY HIGH COURT WAS THAT WHETHER THE EXPENDITURE INCURR ED FOR BORROWING MONEY FOR PURCHASING SHARES FOR ACQUIRING CONTROLLING INTEREST IN A COMPANY CAN BE HELD TO BE AN EXPENDITURE INCURRED WHOLLY OR EXCLUSIVELY FOR EARN ING INCOME FROM DIVIDEND. THE ANSWER WAS NEGATIVE 3.1. CIT(A) WHILE DECIDING THE ASSESSEES APPEAL HA S GIVEN RELIEF ONLY ON THE REASONING THAT SEC. 14A WAS NOT APPLICABLE IN THIS YEAR. IT HAS BEEN IGNORED THAT THE DISALLOWANCE WAS ACTUALLY MADE BY THE AO FOR INTEREST ATTRIBUTABLE TO USE OF FUNDS IN ACQUIRING THE CONTR OLLING INTEREST IN THE CONCERNED COMPANIES. ORDER OF AO WAS RELIED ON. 4. LEARNED COUNSEL FOR THE ASSESSEE IN REPLY VEHEME NTLY ARGUES THAT THE AO HIMSELF WAS NOT CLEAR AS TO WHAT SHOULD BE DISAL LOWED, THEREFORE, A VAGUE ORDER HAS BEEN PASSED IN WHICH THE ISSUE OF S EC. 14A AND CONTROLLING INTEREST, BOTH HAVE BEEN INVOKED. IT IS PLEADED TH AT THE AOS APPROACH ON BOTH THESE COUNTS IS MISCONCEIVED AS SECTION 14A WA S NOT APPLICABLE AT ALL IN THIS YEAR. BEFORE CIT(A), THE ASSESSEE HAD TAKEN PR OPER GROUNDS AND THE CIT(A) HELD IT AGAINST THE DEPARTMENT ONLY U/S 14A. 4.1. ON THE SECOND COUNT I.E. APPLICABILITY OF BOMB AY HIGH COURT JUDGMENT IN THE CASE OF AMRITABEN R. SHAH (SUPRA), THE ISSUE THEREIN WAS IN ITA 4846/DEL/09 DCIT VS. M/S JAIPURIA BEVERAGES & FOOD INDUS. 6 RESPECT OF ALLOWING THE INTEREST CLAIMED BY THAT AS SESSEE ON BORROWED FUNDS UNDER THE HEAD INCOME FROM OTHER SOURCES U/S 57( 3). IN ASSESSEES CASE THE INTEREST PAID IN QUESTION HAS BEEN DEBITED AS B USINESS EXPENSES, WHICH IS APPARENT FROM THE P&L A/C, ENCLOSED IN THE PAPER BO OK FILED BY ASSESSEE. THE ISSUE IN THIS CASE IS OF BUSINESS EXPENDITURE. 4.2. APROPOS THE FACTS OF INVESTMENTS IN GROUP COMP ANIES, IT IS PLEADED THAT: (1) ALL THE MAJOR INVESTMENTS IN SHARES WERE MADE IN E ARLIER YEARS AND ONLY A MINOR SUM OF ABOUT RS. 3 LACS WAS INVESTED I N SUCH SHARES THE CURRENT YEAR. NO DISALLOWANCE OF INTEREST WAS MADE IN EARLIER YEARS. (2) ASSESSEE DEMONSTRATED BEFORE AO THAT IN ANY CASE AS SESSEE HAD SUFFICIENT INTEREST FREE FUNDS OF ITS OWN BY WAY OF SHARE CAPITAL; RESERVES & SURPLUS; CURRENT LIABILITIES & PROVISION S; AND INTERNAL ACCRUALS. THIS BEING SO, NO DISALLOWANCE COULD HAVE BEEN MADE, AS SUCH INVESTMENTS CAN BE ATTRIBUTED TO OWN FUNDS. 4.3. LEARNED COUNSEL RELIED ON THE DETAILED WRITTEN SUBMISSIONS FILED DURING HE COURSE OF ASSESSMENT PROCEEDINGS DATED 16 -12-2008. IN THESE WRITTEN SUBMISSIONS A DETAILED WORKING OF EARNING O F FUNDS WAS GIVEN TO THE AO WHICH IS AS UNDER: APPLICATION OF FUNDS A) BUSINESS ASSETS FIXED ASETS 21,090,594 CURRENT ASSETS 14,283,568 TOTAL BUSINESS ASSETS 35,374,162 B) INVESTMENTS 23,404,384 TOTAL: 58,778,546 ITA 4846/DEL/09 DCIT VS. M/S JAIPURIA BEVERAGES & FOOD INDUS. 7 SOURCES OF FUNDS A) OWN INTEREST FREE FUNDS SHARE CAPITAL 1,000,000 RESERVES & SURPLUS 5,016,826 CURRENT LIABILITIES & PROVISIONS 11,883,484 INTERNAL ACCRUALS 10,065,789 27,966,099 B) BORROWED FUNDS UNSECURED LOANS 30,812,447 TOTAL: 58,778,546 THUS OUT OF TOTAL INTEREST FREE FUNDS OF RS. 2.80 C RORES, THE INVESTMENTS ARE RS. 2.34 CRORES ONLY AND HENCE NO D ISALLOWANCE CALLED FOR U/S 14A. DURING THE YEAR THE DIVIDEND IS FULLY TAXABLE AND THEREFORE PROVISIONS OF SECTION 14A FURTHER NOT APPLICABLE. IN VIEW OF THE AFORESAID CASE LAW IT IS CLEAR THAT UP TO A.Y. 2003-04 NO DISALLOWANCE U/S 14A CAN BE MADE ON ESTI MATED BASIS THERE SHOULD BE SOME MATERIAL ON RECORD TO PR OVE THAT EXPENDITURE HAVE BEEN INCURRED IN RELATION TO EARNI NG OF EXEMPT INCOME. THEREFORE, NO DISALLOWANCE U/S 14A IS WARRA NTED IN ASSESSMENT YEAR 2003-04. THE EXCLUSIVE RELIANCE IN THE CASE OF AMRITABEN SHOW 238 ITR 77 FOR REOPENING THE CASE U/ S 148 AND FOR DISALLOWANCE OF INTEREST ON PROPORTIONATE BASIS IS UNCALLED FOR IN VIEW OF SUBMISSIONS STATED ABOVE AND MORE SO ON ACCOUNT OF THE FACT THE ASSESSEE COMPANY HA SUFFICIENT INTE REST FREE FUNDS OF ITS OWN CONSISTING OF SHARE CAPITAL, RESERVES, R ETAINED EARNINGS AND INTEREST ACCRUALS. RELIANCE IS PLACED ON CASE LAWS RELIED ON BEFORE CI T(A). 5. LEARNED DR IN REJOINDER CONTENDS THAT: (1) THE BOMBAY HIGH COURT IN THE CASE OF AMRITABEN R. S HAH (SUPRA), THOUGH HAS DECIDED THE ISSUE ON THE ASPECT OF INCOM E FROM OTHER SOURCES, NEVERTHELESS IT LAYS DOWN AN OBITER THAT T HE EXPENDITURE ITA 4846/DEL/09 DCIT VS. M/S JAIPURIA BEVERAGES & FOOD INDUS. 8 RELATABLE TO ACQUIRING CONTROLLING INTEREST SHOULD NOT BE ALLOWED. THE HEAD OF INCOME CAN BE CHANGED BY THE ITAT. (2) NO DIRECT NEXUS HAS BEEN PROVED BY THE ASSESSEE IN RESPECT OF AVAILABILITY OF INTEREST FREE FUNDS; (3) CONTROLLING INTEREST IS A CAPITAL ASSET, THEREFORE, PROPORTIONATE INTEREST SHOULD BE DISALLOWED. 5.1. LEARNED DR CONTENDS THAT THE ISSUE MAY BE SET ASIDE, RESTORED BACK TO THE FILE OF AO. RELIANCE IS PLACED ON THE RATIO OF DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF KAPOOR CHAND SHRIMAL 1 31 ITR 451 (SC) FOR THE PROPOSITION THAT ITAT SHOULD ENSURE A PROPER AS SESSMENT. 6. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED MATE RIAL AVAILABLE ON RECORD. FROM THE AOS ORDER IT APPEARS THAT THE PRO PORTIONATE INTEREST WAS SOUGHT TO BE DISALLOWED ON TWO COUNTS I.E. SEC. 14A AND RELYING ON AMRITABEN R. SHAH (SUPRA). SINCE THE PROVISIONS OF SEC. 14A WERE NOT APPLICABLE TO THIS YEAR, CIT(A) WAS JUSTIFIED IN GI VING RELIEF ON THIS ASPECT. 6.1. COMING TO THE OTHER ASPECT ABOUT RELIANCE ON THE CASE OF AMRITABEN R. SHAH (SUPRA), IN OUR VIEW THE LEARNED COUNSEL HA S AMPLY DEMONSTRATED THAT THE ASSESSEE HAD SUFFICIENT AVAILABILITY OF NO N-INTEREST BEARING OWN FUNDS BY WAY OF SHARE CAPITAL, RESERVES & SURPLUS; CURREN T LIABILITIES & PROVISIONS; AND INTERNAL ACCRUALS, DETAILS WHEREOF WERE SUPPLIE D TO THE AO AND ARE PART OF PAPER BOOK. IN OUR VIEW, WHEN THE ASSESSEE FURN ISHED ALL THE DETAILS ABOUT AVAILABILITY OF SUFFICIENT NON-INTEREST BEARING OWN FUNDS FOR INVESTMENT IN SUCH SHARES BEFORE AO, IT WAS HIS DUTY TO CONTROVER T THE ASSESSEES EXPLANATION AND PROVE THAT THE ASSESSEE HAD NO OR L ESS OWN INTEREST FREE FUNDS. IN OUR VIEW THE ASSESSEES STAND REMAINS UNR EBUTTED. EVEN IF WE PROPOSE TO CHANGE THE HEAD OF INCOME AS PLEADED BY LEARNED DR, WHEN ASSESSEE HAS GIVEN PROPER EXPLANATION BEFORE AO ABO UT AVAILABILITY OF ITA 4846/DEL/09 DCIT VS. M/S JAIPURIA BEVERAGES & FOOD INDUS. 9 SUFFICIENT INTEREST FREE FUNDS, WHICH IS NEITHER DI STURBED NOR REFUTED BY AO, WE SEE NO REASON TO SET ASIDE THE ISSUE BACK TO THE FILE OF AO. CONSEQUENTLY, ON THE FACTS AND CIRCUMSTANCES OF THE CASE WE HOLD THAT THE ASSESSEE HAD AVAILABILITY OF SUFFICIENT OWN INTEREST FREE FUNDS TO ACQUIRE THE SHARES OF ASSOCIATED COMPANIES IN EARLIER YEARS. THIS BEING S O, ON THE COUNT OF AMRITABEN R. SHAHS CASE (SUPRA), ALSO NO DISALLO WANCE IS CALLED FOR IN ASSESSEES CASE. CONSEQUENTLY, WE UPHOLD THE ORDER OF CIT(A), DELETING THIS ADDITION IN THE HANDS OF THE ASSESSEE. 7. IN VIEW OF ABOVE FACTS, WE DISMISS THE APPEAL FI LED BY THE REVENUE. ORDER PRONOUNCED IN OPEN COURT ON 14-10-2011. SD/- SD/- (SHAMIM YAHYA ) ( R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 14-10-2011. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR ITA 4846/DEL/09 DCIT VS. M/S JAIPURIA BEVERAGES & FOOD INDUS. 10