MARTIN & HARRIS LABORATORIES LTD., MUMBAI V. DCIT - 1(2), MUMBAI

ITA 501/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4247 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 21-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SACHCHIDANAND DUBE
• Assessee Lawyers: SANJIV M SHAH
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 263

Judgement Text

M/S MARTIN AND HARRIS LABORATORIES LTD ITA NO. 501 /MUM/20 14 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D , MUMBAI , , BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI RA MIT K OCH AR , ACCOUNTAN T MEMBER ITA NO. : 501 /MUM/20 1 4 (ASSESSMENT YEAR: 200 4 - 0 5 ) M/S MARTIN AND HARRIS LABORATORIES LTD, APPEEJAY CHAMBERS, WALLANCE STREET, FORT, MUMBAI - 400 001 .: PAN: AABHR 0754 D VS DY. COMMISSIONER OF INCOME - TAX - 1 ( 2 ), MUMBAI (AP PELLANT) (RESPONDENT) APPELLANT BY : SHRI SANJIV M SHAH RESPONDENT BY : SHRI SACHCHIDANAND DUBE /DATE OF HEARING : 27 - 0 1 - 201 6 / DATE OF PRONOUNCEMENT : 10 - 02 - 20 16 ORDER , . . : - PER AMIT SHUKLA , J. M. : T HE AFORESAID APPEAL HA S BEEN FILED BY THE ASSESSEE AGAINST IMPUGNED ORDER DATE DATED 18.09.2013 PASSED BY CIT(A) - 2 , MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) R.W. S. 263 FOR THE ASSESSMENT YEAR 2004 - 05 , ON FOLLOWING GROUNDS OF APPEAL. 2. BRIEF F ACTS QUA THE ISSUE RAISED IN GROUND NO. 1 IS THAT, THE ASSESSEE HAD ADVANCED RS. 49,40,812/ - AS INTEREST - FREE ADVANCES TO THE FOLLOWING PERSONS: 1. P G INFRASTRUCTURE P. L TD. RS. 1,15,440/ - 2. G M INFRASTRUCTURE P LTD. RS.38,25,000/ - 3. SAFFIRE CHEMICALS P LTD. RS. 3,20,372/ - 4. MR. B V GARG (DIRECTOR) RS. 1,80,000/ - M/S MARTIN AND HARRIS LABORATORIES LTD ITA NO. 501 /MUM/20 14 2 THE AO NOTED THAT, ASSESSEE HAS BORROWED FUNDS WHICH AS ON 31 ST MARCH, 2004 STOOD AT RS. 4,53,6 0 ,78 2/ - ON WHICH THE ASSESSEE HAS INCURRED INTEREST EXPENSES OF RS.34,19,167/ - AND THE S E INTEREST FREE ADVANCES GIVEN TO THE PERSONS WERE COVERED UNDER THE PROVISIONS OF SECTION 40A( 2 )(B). IN RESPONSE TO THE SHOW CAUSE NOTICE AS TO WHY DISALLOWANCE O F I NT EREST SHOULD NOT BE MADE, THE ASSESSEE SUBMITTED THAT, THESE ADVANCES WERE GIVEN IN THE COURSE OF THE BUSINESS AND THERE WAS NO NEXUS BETWEEN THE AMOUNTS BORROWED AND FUNDS ADVANCE D TO THE THESE PERSONS. IT WAS FURTHER CONTENDED THAT ASSESSEE HAD HUGE SURPLUS F UNDS WHICH HAS EXCEEDED THE BORROWED FUNDS , THEREFORE, NO DISALLOWANCE SHOULD BE MADE. THE LD. AO, HOWEVER, REJECTED THE CONTENTION OF THE ASSESSEE AND RELYING UPON CERTAIN DECISIONS CALCULATED THE DISALLOWANCE AT RS. 3,34,375/ - . THE LD. CIT(A) TOO CONFIRM ED THE SAID ADDITION AFTER REFERRING TO VARIOUS JUDICIAL PRONOUNCEMENTS WHICH HAS BEEN DEALT AND INCORPORATED BY HIM AT PAGE 5 AND 6 OF THE APPELLATE ORDER. 3. BEFORE US, THE LD. COUNSEL SUBMITTED THAT, ASSESSEE HAD OWN FUNDS OF RS. 11.60 CRORES WHICH INC LUDED RESERVES AND SURPLUS FUND OF RS. 5.97 CRORES AND ONCE THAT IS SO, THEN AMOUNT OF RS. 44 LAKHS GIVEN TO THE CONCERNED PERSONS SHOULD BE PRESUMED TO HAVE BEEN GIVEN OUT OF THESE FUNDS ONLY. IN SUPPORT OF HIS CONTENTION, STRONG RELIANCE WAS PLACED ON BO MBAY HIGH COURT DECISION IN THE CASE OF CIT VS RELIANCE UTILITIES AND POWER LTD. REPORTED IN [2009] 313 ITR 34 (BOM); IN THE CASE OF CIT V HDFC BANK LTD., REPORTED IN [2014] 366 ITR 505. THUS, HE ARGUED THAT NO DISALLOWANCE SHOULD BE MADE. 4. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER OF THE CIT(A) AND SUBMITTED THAT ONUS IS ON THE ASSESSEE TO SHOW THAT THE BORROWED FUNDS WERE NOT UTILIZED FOR GIVING ADVANCES TO THE CONCERNED PERSONS. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE IMPUGNED ORDERS, WE FIND THAT IT IS NOT IN DISPUTE THAT ASSESSEE M/S MARTIN AND HARRIS LABORATORIES LTD ITA NO. 501 /MUM/20 14 3 HAS FAR EXCESS INTEREST - FREE FUNDS AVAILABLE WITH IT , WHICH IS EVIDENT FROM THE FIGURES NOTED BY THE CIT(A) I.E. RS. 11.60 CRORES , W HEREAS TH E BORROWED FUNDS WERE RS. 4.6 C RO R ES. IN SUCH A CAS E, ADVANCE OF ONLY RS. 44 LAKHS TO THE CONCERNED PERSONS CANNOT BE SAID TO BE GIVEN FROM THE BORROWED FUNDS AS THE PRESUMPTION WOULD BE THAT THESE ADVANCES HAVE BEEN GIVEN OUT OF SURPLUS FUNDS. THIS PROPOSITION HAS BEEN UPHELD BY THE HONBLE BOMBAY HIGH COU RT RIGHT FROM THE DECISION OF RELIANCE UTILITIES LTD ( SUPRA ) TO CIT VS HDFC BANK LTD ( 366 ITR 505 ), WHEREIN THE HONBLE HIGH COURT HAVE REITERATED THE PRINCIPLE THAT IF THERE WERE FUNDS AVAILABLE , BOTH INTEREST FREE AND LOAN TAKEN ON INTEREST, THEN PRESUMP TION WOULD ARISE THAT INVESTMENT OR ADVANCES HAVE BEEN GIVEN OUT OF INTEREST FREE FUNDS. ON THIS PRINCIPLES WE HOLD THAT , DISALLOWANCE OF RS. 3,34,735/ - AS SUSTAINED BY THE CIT(A) CANNOT BE SUSTAINED, HENCE DELETED . 6. SO FAR AS THE DISALLOWANCE UNDER SECTION 14A OF RS. 54,448/ - , THE LD. COUNSEL SUBMITTED THAT ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME AND, THEREFORE, THERE IS NO QUESTION OF M AKING ANY DISALLOWANCE UNDER SECTION 14A. IN SUPPORT, HE HAS RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD VS CIT , REPORTED IN [2012] 347 ITR 272 (DEL) WHEREIN IT H AS BEEN HELD THAT, IF ASSESSEE DOES NOT HAVE ANY EXEMPT INCOME , THEN DISALLOWANCE UNDER SECTION 14A CANNOT BE TRIGGERED. HE FURTHER POINTED OUT THAT, ASSESSEE HAS OWN H UGE SURPLUS FUNDS , T HEREFORE, INVESTMENT AGGREGATING TO RS. 24,31,530/ - CAN BE VERY WELL HELD TO BE MA DE OUT OF OWN FUNDS. THE LD. DR, ON THE OTHER HAND, RELIED ON ORDER OF THE CIT(A). 7. AFTER CONSIDERING THE RIVAL CONTENTION AND ON PERUSAL OF IMPUGNED O RDERS, WE FIND THAT, FIRSTLY , THERE IS NO EXEMPT INCOME EARNED BY THE ASSESSEE, THEREFORE, IN VIEW OF THE PRINCIPLES LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEM I NVEST LTD. ( SUPRA ) NO DISALLOWANCE UNDER SECTION 14A CAN BE MADE; AND SECONDL Y , A HUGE SURPLUS FUNDS WAS AVAILABLE WITH THE ASSESSEE M/S MARTIN AND HARRIS LABORATORIES LTD ITA NO. 501 /MUM/20 14 4 AND, THEREFORE, PRESUMPTION IS THAT SUCH AN INTEREST FREE FUNDS HAS BEEN UTILIZED FOR INVESTMENT AND CONSEQUENTLY DISALLOWANCE OF INTEREST UNDER RULE 8D CANNOT BE MADE. ACCORDINGLY, THE DISALLOWANCE U NDER SECTION 14A AS CONFIRMED BY THE CIT(A) STANDS DELETED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH FEBRU ARY , 201 6. SD/ - SD/ - ( ) ( ) ( RAMIT KOCHAR ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 10 TH FEBRUARY , 2016 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - 34 , MUMBAI . 4 ) THE COMMISSIONER OF INCOME TAX - 24 MUMBAI . 5 ) , , / THE D.R. D BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS