Campagnie Indo Franchise DE Commerce Private Limited, Secunderabad, Hyderabad V. DCIT, Circle-1(2), Hyderabad, Hyderabad

ITA 561/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2433 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 28-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHALINI BHARGAVA KAUSHAL
• Assessee Lawyers: BRIJESH MATHUR
• Keywords: Opportunity of being heard; Proportionate interest
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 561/HYD/2017 ASSESSMENT YEAR: 2012-13 COMPAGNIE INDO FRANCAISE DE COMMERCE PVT. LTD., SECUNDERABAD PAN AAACC 8364L VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 1(2), HYDERBAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI BRIJESH MATHUR REVENUE BY : SMT. SHALINI BHARGAVA KAUSHAL DATE OF HEARING : 07-11-2017 DATE OF PRONOUNCEMENT : 15-11-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ASSESSMENT ORDER DATED 14/02/2017 PASSED U/S 143(3) RWS 144C OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) FOR A Y 2012-13. 2. IN THIS APPEAL, ASSESSEE HAS RAISED GROUND NO. 1 TO 4, THE SUM AND SUBSTANCE OF WHICH IS DISALLOWANCE OF PROPORTIO NATE INTEREST OF RS. 14,28,544/- OUT OF INTEREST EXPENSES CLAIMED BY THE ASSESSEE U/S 36(1)(III) OF THE ACT. 3. BRIEF FACTS RELATING TO THE DISALLOWANCE OF THE ABOVE EXPENSES ARE, DURING THE ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAS GIVEN INTEREST FREE ADVANCES TO ITS RELATED PAR TIES TO THE EXTENT OF RS. 3,76,61,399/-. HE OBSERVED THAT ASSESSEE HAS AL SO BORROWED INTEREST BEARING LOANS TO THE EXTENT OF RS. 381,15, 76,206/-, ON WHICH, 2 ITA NO. 561/H/17 CAMPAGNIE INDO FRANCAISE DE COMMERCE PVT. LTD., SEC BAD . IT HAS PAID INTEREST OF RS. 14,45,78,832/- DURING T HE YEAR UNDER CONSIDERATION. AO ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY PROPORTIONATE INTEREST SHOULD NOT BE DISALLOWED IN THE LIGHT OF THE DECISIONS IN THE CASE OF CIT VS. ABHISHEK INDUSTRI ES LTD., (P&H HC) AND CIT VS. BABY & CO. (KERALA HC). THE ASSESSEE V IDE ORDER SHEET ENTRY DATED 22/02/2016 HAS AGREED THE DISALLOWANCE CALLED FOR IN THE SHOW CAUSE NOTICE. ACCORDINGLY, THE AO DISALLOWED P ROPORTIONATE INTEREST TO THE EXTENT OF RS. 14,28,554/-. 4. AGGRIEVED WITH THE ABOVE ORDER, THE ASSESSEE PRE FERRED AN APPEAL BEFORE THE DRP AND DRP VIDE ITS ORDER CONSID ERED THE OBJECTION OF THE ASSESSEE AND ADJUDICATED THAT THE PANEL IS CONVINCED WITH THE RATIONALE FOR MAKING DISALLOWANC E OF INTEREST AND FURTHER NOTED THAT ASSESSEE HAS AGREED FOR THIS DIS ALLOWANCE OF INTEREST AS RECORDED IN PARA 5.7 OF THE ASSESSMENT ORDER. 5. AGGRIEVED WITH THE ORDER OF DRP, THE ASSESSEE IS IN APPEAL BEFORE US RAISING VARIOUS GROUNDS OBJECTING TO THE ABOVE DISALLOWANCE. 6. LD. AR SUBMITTED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN FERTILIZERS. IN THE COURSE OF TRADING, A SSESSEE IMPORTS CHEMICALS AND DISTRIBUTES IN INDIA. ASSESSEE COLLEC TS RECEIVABLES FROM VARIOUS CUSTOMERS AND DEPOSITS THE SAME WITH THE BA NK. HE BROUGHT TO OUR NOTICE NOTE 14 OF BALANCE SHEET PLACED AT PAGE 19 OF THE PAPER BOOK FILED BEFORE US TO SUBMIT THAT THE ASSES SEE HAS MADE DEPOSITS TO THE EXTENT OF RS. 389,12,95,265/- AND H E FURTHER SUBMITTED THAT ASSESSEE HAS MADE ARRANGEMENT WITH THE BANK FO R BUYERS CREDIT AGAINST THE DEPOSITS MADE WITH THE BANK, THEREFORE, THE BUYERS CREDIT OUTSTANDING ON THE BALANCE SHEET DATE STANDS AT RS. 380,58,63,832/-. HE SUBMITTED THAT THE BUYERS CREDIT AVAILED BY THE ASSESSEE AGAINST THE DEPOSITS WITH THE BANK AND RELATED INTEREST PAY MENT IS RELATING TO THE ACTIVITIES OF TREASURY, WHICH IS NOTHING TO DO WITH THE OTHER REGULAR 3 ITA NO. 561/H/17 CAMPAGNIE INDO FRANCAISE DE COMMERCE PVT. LTD., SEC BAD . ACTIVITIES OF THE BUSINESS. THE DETAILS ON SECURED LOANS IS PLACED ON RECORD AT PAGE 15 OF THE PAPER BOOK. HE SUBMITTED T HAT THE ASSESSEE HAS ADVANCED TO ITS RELATED PARTIES OUT OF INTEREST FREE FUNDS AVAILABLE IN THE BUSINESS TO THE EXTENT OF RS. 3,76,61,399/-. HE CONTENDED THAT SINCE THERE IS NO INTEREST COST TO THE BUSINESS OF THE ASSESSEE, AO CANNOT DISALLOW PROPORTIONATE INTEREST COST CONSIDE RING THE ABOVE FACTUAL BACKGROUND. HE HUMBLY SUBMITTED THAT SUCH D ISALLOWANCE SHOULD NOT HAVE BEEN MADE. 7. LD. DR, ON THE OTHER HAND, SUBMITTED THAT ASSES SEE HAS AGREED FOR THE ABOVE DISALLOWANCE DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, THEREFORE, IT CANNOT PROTEST NOW. TO T HIS EFFECT, SHE HAS BROUGHT TO OUR NOTICE THE ORDER SHEET ENTRY, IN WHI CH, THE DIRECTOR OF THE ASSESSEE HAS AGREED FOR SUCH DISALLOWANCE. 8. IN THE REJOINDER, LD. AR SUBMITTED THAT THE ASSE SSEE HAS AGREED FOR SUCH DISALLOWANCE UNDER PRESSURE AND SUCH AGREE MENT IS NOT BINDING ON THE ASSESSMENT, AS AO SHOULD HAVE CONSID ERED THE FACTS ON RECORD. 9. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED MAT ERIAL FACTS ON RECORD. NO DOUBT, THE SUBMISSIONS OF THE LD. AR OF THE ASSESSEE IS FACTUALLY CORRECT AND ASSESSEE HAS SEPARATE TREASUR Y DEPARTMENT, WHICH MANDATES COLLECTION FROM RECEIVABLES AND PAY MENT TO ITS CREDITORS BY HAVING FACILITIES WITH THE BANK. THE T OTAL INTEREST COST TO THE ASSESSEE AS NOTED BY AO IS RS. 14,45,78,832/-. HOWEVER, IN THE FINANCIAL STATEMENT, ASSESSEE HAS DECLARED INTEREST INCOME OF RS. 1,81,16,931/- AND CLAIMED FINANCIAL CHARGES, WHICH INCLUDES BORROWING COST TO THE EXTENT OF RS. 4,70,99,117/-. ASSESSEE HAS DECLARED NET INTEREST INCOME IN THE FINANCIAL STATE MENT AFTER SETTING OFF OF THE INTEREST EXPENDITURE. SINCE THE ASSESSEE HAS AGREED FOR THE PROPORTIONATE DISALLOWANCE OF INTEREST, AO HAS NOT GONE INTO THE VERIFICATION OF THE WHOLE TRANSACTION. FOR THE SAKE OF CLARITY AND 4 ITA NO. 561/H/17 CAMPAGNIE INDO FRANCAISE DE COMMERCE PVT. LTD., SEC BAD . JUSTICE, WE FIND IT APPROPRIATE TO REMIT THIS ISSUE BACK TO THE FILE OF THE AO WITH A DIRECTION TO VERIFY THE TREASURY TRANSACT IONS VIS--VIS WITH OTHER BORROWINGS IN THE BUSINESS AND VERIFY/DECIDE THE ISSUE AFRESH ONLY ON THE INCOME AND EXPENDITURE OF TREASURY TRAN SACTIONS AND COST OF BORROWINGS. IN CASE, AO FINDS THAT ALL THE INTER EST COST RELATE TO ONLY THE TREASURY TRANSACTIONS, THEN, AO CANNOT DIS ALLOW ANY PROPORTIONATE INTEREST. HOWEVER, AT THE SAME TIME, IF THERE IS ANY INTEREST COST TO THE BUSINESS, AO IS JUSTIFIED IN D ISALLOWING PROPORTIONATE INTEREST COST. NEEDLESS TO SAY, PROPE R OPPORTUNITY OF BEING HEARD TO THE ASSESSEE MAY BE PROVIDED IN THE MATTER. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATE D AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 15 TH NOVEMBER, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RA HMAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 15 TH NOVEMBER, 2017. KV COPY TO:- 1) M/S COMPAGINE INDO-FRANCAISE DE COMMERCE PVT. LT D., 66, RP ROAD, SECUNDERABAD 500 003 2) DCIT, CIRCLE 1(2), B-BLOCK, 7 TH FLOOR, IT TOWERS, HYD. 3) DRP, BANGALORE. 4) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYD ERABAD. 5) GUARD FILE 5 ITA NO. 561/H/17 CAMPAGNIE INDO FRANCAISE DE COMMERCE PVT. LTD., SEC BAD . S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./ P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER