Suryavanshi Industries Limited, Secunderabad V. DCIT, Hyderabad

ITA 589/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59241 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 23-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B V PRASAD REDDY
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Depreciation; Commercial expediency
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE CHANDRA POOJARI, ACCOUNTANT MEMBER & SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 589/HYD/2010 ASSESSMENT YEAR 2006-07 M/S SURYAVANSHI INDUSTRIES LIMITED, SECUNDERABAD. (PAN AADCS2804C) VS THE DY. DIRECTOR OF IT, CIRCLE 3(2), HYDERABAD APPELLANT RESPONDENT APPELLANT BY : SHRI V. SIVAKUMAR RESPONDENT BY : SHRI B.V. PRASAD REDDY DATE OF HEARING : 18.1.2012 DATE OF PRONOUNCEMENT : 17.2.2012 ORDER PER ASHA VIJAYARAGHAVAN, JM . THIS APPEAL PREFERRED BY THE ASSESSEE IS DIREC TED AGAINST THE ORDER PASSED BY THE CIT(A) GUNTUR DATED 29.1.2010 AND PERTAINS TO THE ASSESSMENT YEAR 2006-07. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER HAS MADE THE FOLLOWING ADDITIONS IN THE ASSESSMENT ORDER: 1. DISALLOWANCE OF INTEREST ATTRIBUTABLE TO INVEST MENTS MADE IN TWO COMPANIES WITHOUT CHARGING ANY INTEREST . THE ASSESSING OFFICER WORKED OUT INTEREST @ 12% ON THE TOTAL INVESTMENT OF RS.2,37,47,507/- AND DISALLOWED THIS. 2. THE ASSESSING OFFICER ADDED AN AMOUNT OF RS.1,02,367/- ON ACCOUNT OF DIFFERENCE IN VALUATION OF CLOSING STOCK OF COTTON SEED. ITA NO.589 OF 2010 M/S SURYAVANSHI INDUSTRIES LTD., HYDERABAD 2 3. THE ASSESSING OFFICER DISALLOWED A TOTAL AMOUNT OF RS.33,094/- CLAIMED U/S 43B AND AN AMOUNT OF RS.8,800/- CLAIMED U/S 40(A)(IA) SINCE NO PROOF OF PAYMENT WAS PRODUCED. 4. A DISALLOWANCE OF RS.3,89,100/- WAS MADE ON ACC OUNT OF SUBSIDY RECEIVED FROM THE COTTON COMMISSION TO T HE EXTENT OF RS.25,94,000/-. 5. THE ASSESSING OFFICER ALSO DISALLOWED CARRIED F ORWARD LOSSES AND DEPRECIATION CLAIMED TO THE EXTENT OF RS.24,25,625/-. 3. BEFORE THE CIT(A) THE ASSESSEE HAS SUBMITTED AS FOLLOWS: 3.1. THE ASSESSING OFFICER HAS ERRED IN DISALLOWIN G INTEREST OF RS.25,00,791/- AND ENCLOSED A STATEMENT SHOWING THE DETAILS OF INVESTMENTS MADE IN THE TWO COMPANIES AND THE LOANS RAISED BY THE ASSESSEE YEAR WISE WITH DETAILS OF UTILISATION OF SUCH LOANS. IT WAS SUBMITTED THAT IT WAS CLEAR FROM THE STATEME NT THAT THE ASSESSEE HAD NOT UTILISED BORROWED FUNDS EITHER FOR MAKING INVESTMENTS OR FOR GIVING INTEREST FREE ADVANCES. STATING THAT ALL THE BORROWED FUNDS WERE UTILISED ONLY FOR ACQUIRING ASSETS FOR BUSINESS PURPOSES, THE ASSESSEES COUNSEL SUBMITTED THAT THE DISALLOWANCE OF INTEREST WAS NOT JUSTIFIED. RELIAN CE WAS PLACED ON THE FOLLOWING DECISIONS: I) CIT VS. RELIANCE UTILITIES AND POWER LTD. (178 TAXMAN 135) II) VOLTAS LTD. VS. ACIT (125 TTJ 601) III) CIT VS. SUSHMA KAPOOR (319 ITR 299) 4. THE CIT(A) HELD THAT FROM THE STATEMENT FILED B EFORE THE ASSESSING OFFICER IT IS SEEN THAT THE ASSESSEE HAD MADE INVESTMENTS TO EXTENT OF RS.65.15 LAKHS PRIOR TO 20 .12.2004 ITA NO.589 OF 2010 M/S SURYAVANSHI INDUSTRIES LTD., HYDERABAD 3 WHEN TERM LOAN OF RS.77.75 WAS TAKEN. HE FURTHER O BSERVED THAT THEREAFTER THE ASSESSEE OBTAINED A WORKING CAPITAL LOAN OF RS.47.20 LAKHS AND AN INCREASE IN TERM LOAN AND WOR KING CAPITAL LOAN OF RS.24.36 LAKHS AND RS.174.22 LAKHS RESPECTI VELY IN THE ASSESSMENT YEAR 2005-06. THE CIT(A) HELD THAT THE A SSESSEE IS SEEN TO HAVE MADE INVESTMENTS IN SISTER CONCERNS TO THE EXTENT OF RS.172.42 LAKHS AFTER 20.12.2004, I.E. AFTER THE LOANS WERE TAKEN. 5. THE CIT(A) FURTHER HELD THAT THE ASSESSEES COU NSEL HAS NOT RAISED ANY CONTENTION THAT THAT SUCH INVESTMENTS WE RE MADE ON COMMERCIAL EXPEDIENCY OR WERE FOR BUSINESS PURPOSES . THE CONTENTION RAISED WAS THAT BORROWED FUNDS WERE NOT UTILISED FOR MAKING THESE INVESTMENTS, AND THAT THE TERM LOAN AN D WORKING CAPITAL LOANS WERE ONLY USED FOR ACQUIRING ASSETS F OR BUSINESS PURPOSES. 6. THE CIT(A) HELD THAT SINCE THE ASSESSEE WAS PAY ING INTEREST ON THE LOANS TAKEN AFTER 20.12.2004, TO TH E EXTENT OF INVESTMENTS AND ADVANCES MADE AFTER THAT DATE, DIS ALLOWANCE OF INTEREST IS CALLED FOR. FURTHER THE CIT(A) HELD TH AT SINCE THE INTEREST WORKED OUT ON THIS AMOUNT WOULD ALSO EXCEE D THE INTEREST DEBITED BY THE ASSESSEE, THE ENTIRE DISALL OWANCE WAS UPHELD BY HIM. 7. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 8. WE HEARD BOTH THE PARTIES AND PERUSED THE MATER IALS AVAILABLE ON RECORD. THE ASSESSEE HAD INVESTMENTS IN SURYAVANSHI TEXTILES LTD. (RS.2,37,47,507/- AND IN M/S SURYAVANSHI SPINNING MILLS LTD. (RS.12,84,980/-). WE FIND FROM THE DETAILS OF INVESTMENTS AND SOURCES SUBMITTED AT PAGE 1 OF THE PAPER BOOK AND YEAR-WISE DETAILS OF SOURCES AND INCREASE IN ITA NO.589 OF 2010 M/S SURYAVANSHI INDUSTRIES LTD., HYDERABAD 4 INVESTMENTS SUBMITTED AT PB PAGE NO.2 THAT ACCRUALS OF PROFIT AND INCREASE IN INVESTMENTS AMOUNTED TO RS.3.87,91/ - LAKHS DURING THE FINANCIAL YEAR 2003-04 TO 2005-06 WHEREA S THE INVESTMENTS IN SISTER COMPANY WERE ONLY TO THE TUNE OF RS.250.32 LAKHS. THE ADVANCES TO OTHERS WHICH STOO D AT RS.206.60 LAKHS AS ON 31.3.2005 STOOD REDUCED TO RS .119.80 LAKHS AS ON 31.3.2006 WHICH SHOWS AN AMOUNT OF RS.8 8.90 LAKHS WAS RECOVERED DURING THE RELEVANT YEARS FROM OUT OF THE ADVANCES MADE TO OTHERS. IT WAS SUBMITTED THAT LOA N OBTAINED WERE UTILISED FOR PURCHASE OF MACHINES AND RAW MATE RIALS AND WERE NOT MADE UTILISED FOR MAKING INVESTMENTS IN SI STER CONCERNED. 9. WE FIND THAT THE ACTION OF THE LOWER AUTHORITIE S IN DISALLOWING RS.25,791/- OUT OF INTEREST ON FINANCE CHARGES DEBITED TO P&L ACCOUNT STATING THAT THE ASSESSEE HA S MADE INVESTMENTS IN THE COMPANY AND GAVE ADVANCES TO OT HERS WITHOUT INTEREST IS NOT SUSTAINABLE SINCE THE INVES TMENTS HAVE BEEN MADE OUT OF INTERNAL ACCRUALS DURING THE YEARS IN WHICH SUCH ADVANCES WERE MADE. FURTHER, IT HAS BEEN POIN TED OUT THAT DURING THE ASSESSMENT YEAR 2006-07 THE ASSESSEE HAS NOT MADE ANY ADVANCES TO OTHERS COMPARED TO EARLIER ASSESSME NT YEARS SINCE THE ASSESSEE HAS RECOVERED PART OF SUCH ADVAN CES. 10. WE ARE OF THE OPINION THAT TAKING INTO CONSIDE RATION THAT THE HUGE PROFIT EARNED BY THE ASSESSEE FROM YEAR TO YEAR AND ALSO ACCUMULATED RESOURCES AVAILABLE TO THE ASSESSEE THA T INVESTMENT SHOULD BE CONSIDERED AS HAVING BEEN MADE OUT OF INT ERNAL ACCRUAL AND NO PART OF THE BORROWALS CAN BE SAID TO HAVE BEEN UTILISED FOR THE PURPOSE OF INVESTMENT. UNLESS THE ASSESSING OFFICER PROVES THAT THE BORROWED FUND HAS BEEN ACTU ALLY UTILISED FOR THE PURPOSE OF MAKING INVESTMENT, IN SISTER COM PANIES AND ITA NO.589 OF 2010 M/S SURYAVANSHI INDUSTRIES LTD., HYDERABAD 5 IN GIVING ADVANCES TO OTHERS WITHOUT INTEREST. THE INTEREST DEBITED TO PROFIT AND LOSS ACCOUNT CANNOT BE DISALL OWED. THE DECISION OF THE P&H HC IN THE CASE OF HERO CYCLES R EPORTED 323 ITR 518 SUPPORTS THIS VIEW. 11. THE NEXT GROUND RAISED BY THE ASSESSEE IS : THE ASSESSEE ARGUED THAT THE ASSESSING OFFICER HAD ERRED IN RE- COMPUTING THE DEPRECIATION TO EXCLUDE THE SUBSIDY O F RS.25,94,000/- FROM THE COST OF THE ASSETS. IT WAS SUBMITTED THAT THE SUBSIDY WAS GIVEN FOR DEVELOPMENT OF THE S PINNING INDUSTRY BY THE GOVT. OF INDIA UNDER THE TECHNOLOGY MISSION ON COTTON SCHEME. IT WAS STATED THAT SINCE THE SUBSID Y WAS GIVEN FOR DEVELOPMENT OF THE SPINNING INDUSTRY IT COULD N OT BE DEDUCTED FROM THE COST OF ASSETS FOR COMPUTING DEPR ECIATION FOLLOWING THE DECISION OF THE TRIBUNAL, VIZAG. BENC H IN THE CASE OF SAI SRI EXTRACTIONS LTD. VS. ACIT (307 ITR (AT) 127). 12. THE ASSESSEES COUNSEL WAS ASKED TO FILE BEFOR E CIT(A) A COPY OF THE ORDER GRANTING THE SUBSIDY TO THE ASSES SEE. THE PURPOSE WAS TO EXAMINE THE NATURE OF THE SUBSIDY GR ANTED TO THE ASSESSEE COMPANY, AND TO VERIFY WHETHER IT WAS UNDE R THE SAME SCHEME AS IN THE CASE BEFORE THE TRIBUNAL, VIZAG BE NCH. HOWEVER, IT WAS SUBMITTED THAT THE ORDER HAD BEEN M ISPLACED AND COULD NOT BE PRODUCED FOR VERIFICATION. IN THE ABSENCE OF INFORMATION REGARDING THE EXACT SCHEME OF SUBSIDY, THE CIT(A) COULD NOT HOLD THAT THE DECISION OF THE TRIBUNAL, V IZAG BENCH APPLIES IN THIS CASE. THE CIT(A) THEREFORE UPHELD THE ASSESSING OFFICERS ACTION OF RE-COMPUTING DEPRECIATION AFTER EXCLUDING THE SUBSIDY RECEIVED FROM THE COST OF THE ASSETS. 13. WE HEARD THE PARTIES. WE FIND THAT THE ISSUE IS COVERED BY THE DECISION OF SC IN THE CASE OF CIT VS. PJ CHEMIC ALS LTD. (210 ITA NO.589 OF 2010 M/S SURYAVANSHI INDUSTRIES LTD., HYDERABAD 6 ITR 830) (SC) AND THE DECISION IN THE CASE OF CIT V S. GODAVARI PLYWOODS LTD (168 ITR AP 632) (AP HC), THE VIZAG BENCH OF THIS TRIBUNAL IN THE CASE OF SAI SRI EXTRACTIONS L TD. VS. ACIT (307 ITR AT 127) HAS FOLLOWED THE DECISION IN PJ CH EMICAL (SUPRA) WHEREIN IT HAS BEEN HELD THAT THE SUBSIDY AMOUNT IS NOT TO BE REDUCED FROM THE ACTUAL COST OF THE CAPITAL A SSET. 14. RESPECTFULLY FOLLOWING THE DECISION OF THE APE X COURT THE REDUCTION OF THE COST OF PLANT AND MACHINERY TO THE EXTENT OF CAPITAL SUBSIDY OF RS.25,94,000 AND DISALLOWANCE OF RS.3,89,100 OUT OF DEPRECIATION ON PLANT AND MACHINERY MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) IS NO T CORRECT AND HENCE WE DIRECT THE ASSESSING OFFICER TO FOLLOW THE DECISION IN THE CASE OF P J CHEMICALS LTD. (SUPRA) AND RE-COMPUTE ACCORDINGLY. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE COURT ON : 17.2.201 2 SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER DATED THE 17 TH FEBRUARY, 2012 COPY FORWARDED TO: 1. M/S SURYAVANSHI INDUSTRIES LTD., 105, 6 TH FLOOR, SURYA TOWERS, SARDAR PATEL ROAD, SECUNDERABAD 2. THE DY. CIT, CIRCLE 3(2), HYDERABAD 3. THE CIT(A)-GUNTUR, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/