Accelerated freeze Drying Co. Ltd, Cherthala V. DCIT, Alappuzha

ITA 591/COCH/2004

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61496 (ITAT-COCHIN)
• Duration Of Justice: 7 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 25-04-2012
• Assessment Year: 1997-1998
• Appeal Filed On: 17-06-2004
• Court: TRIBUNAL
• Department Lawyers: ABHIMANYU SINGH YADAV
• 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. 591/COCH/2004 ASSESSMENT YEAR: 1997-98 M/S. ACCELERATED FREEZE DRYING CO. LTD., EXHUPUNNA,ALAPPUZHA. [PAN:AABCA 9632J] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, ALLEPPEY. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI R. SREENIVASAN, CA REVENUE BY SHRI ABHIMANYU SINGH YADAV, JR. DR DATE OF HEARING 26/04/2012 DATE OF PRONOUNCEMENT 01/06/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THIS APPEAL WAS ORIGINALLY DISPOSED OF BY THE CO-O RDINATE BENCH OF TRIBUNAL ON 19-12-2008. THE REVENUE CHALLENGED THE ORDER OF TH E TRIBUNAL BEFORE THE HONBLE HIGH COURT OF KERALA AND THE HONBLE HIGH COURT, VIDE IT S ORDER DATED 18-12-2009, SET ASIDE THE ORDER OF THE TRIBUNAL ON THE ISSUE OF DISALLOWA NCE OF INTEREST ON ACCOUNT OF DIVERSION OF BORROWED FUNDS AND REMANDED THE CASE TO THE TRIB UNAL WITH THE DIRECTION TO DECIDE THE ISSUE ON MERITS. HENCE THE APPEAL WAS FIXED FO R HEARING TO DECIDE THE ABOVE CITED ISSUE AND THE PARTIES WERE HEARD. 2. THE FACTS RELATING TO THE ABOVE SAID ISSUE A RE STATED IN BRIEF. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF EXPORT OF MAR INE PRODUCTS. THE AO NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDING THAT THE ASSESSEE HAD ADVANCED INTEREST FREE LOAN TO THE TUNE OF RS.4.03 CRORES TO A SISTER CONCERN NAMED M/S AMALGAM INVESTMENTS P LTD. THE AO ALSO NOTICED THAT THE AS SESSEE HAD PAID AN INTEREST OF I.T.A. NO.591/COCH/2004 2 RS.64,72,000/- ON ITS BORROWED FUNDS. THE TERM LOA N OUTSTANDING AT THAT POINT OF TIME WAS 17.74 CRORES. THE AO WORKED OUT PROPORTIONATE INTEREST ATTRIBUTABLE TO THE FUNDS DIVERTED TO THE SISTER CONCERN INTEREST FREE AT RS. 14,76,510/- AND DISALLOWED THE SAME. THE AO FOLLOWED THE DECISION OF HONBLE ALLAHABAD H IGH COURT IN THE CASE OF CIT VS. H.R.SUGAR FACTORY PVT LTD (187 ITR 367) IN THIS REG ARD. THE ASSESSEE CHALLENGED THIS ADDITION BEFORE THE LD CIT(A) AND THE FIRST APPELLA TE AUTHORITY UPHELD THE VIEW OF THE AO ON THIS ISSUE BY FOLLOWING THE DECISION OF JURIS DICTIONAL KERALA HIGH COURT IN THE CASE OF CIT VS. V.I.BABY & CO. (254 ITR 248). THE LD CI T(A) NOTICED THAT THE ASSESSEE HAS PAID INTEREST TO BANKS ON EXPORT PACKING CREDIT AND ON BILLS TO THE TUNE OF RS.2,09,59,307/-, APART FROM PAYMENT OF INTEREST ON TERM LOANS TO THE TUNE OF RS.64,72,000/-. HENCE THE LD CIT(A) TOOK THE VIEW THAT THE DISALLOWANCE MADE BY THE AO WAS NOT ADEQUATE AND ACCORDINGLY ENHANCED THE DI SALLOWANCE TO RS.45.00 LAKHS. 3. THE ASSESSEE CHALLENGED THE SAID ORDER OF LD CIT(A) BEFORE THE TRIBUNAL AND THE TRIBUNAL ALLOWED THE APPEAL OF THE ASSESSEE BY FOLL OWING ITS OWN ORDER PASSED IN THE ASSESSEES OWN CASE RELATING TO THE ASSESSMENT YEAR 2003-04 IN ITA NO.267/COCH/2006. IN THE APPEAL FILED BY THE REVENUE BEFORE THE HONB LE HIGH COURT CHALLENGING THE DECISION OF THE TRIBUNAL, THE HONBLE HIGH COURT NO TICED THAT THE TRIBUNAL HAD ALLOWED THE APPEAL OF THE ASSESSEE RELATING TO THE ASSESSME NT YEAR 2003-04 BY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S. A. BUILDERS LTD VS. CIT (288 ITR 1) AND BY ACCEPTING THE CONTENTION THAT THERE WAS COMM ERCIAL EXPEDIENCY IN GIVING INTEREST FREE ADVANCES TO THE SISTER CONCERNS. HOW EVER, IT WAS NOTICED BY THE HONBLE HIGH COURT THAT THE ASSESSEE HAD NEVER URGED THE GR OUND OF COMMERCIAL EXPEDIENCY BEFORE THE TAX AUTHORITIES IN THE INSTANT YEAR. IN STEAD, THE ASSESSEE HAD CONTENDED THAT IT HAD SUFFICIENT INTEREST FREE FUNDS IN THE FORM O F RESERVES ETC. HENCE, THE HONBLE HIGH COURT OPINED THAT THE TRIBUNAL SHOULD HAVE DECIDED THE IMPUGNED ISSUE WITH REFERENCE TO THE FACTS AND NOT BY JUST FOLLOWING THE EARLIER YEARS ORDER. THE HONBLE HIGH COURT ALSO OBSERVED THAT THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S.A.BUILDERS, SUPRA COULD BE APPLIED ONLY IF, ON FACTS, THE ASSES SEE ESTABLISHES COMMERCIAL EXPEDIENCY IN ADVANCING INTEREST FREE LOANS WHICH T HE ASSESSEE HAS NOT VENTURED TO RAISE OR PROVE BEFORE THE TWO LOWER AUTHORITIES. I.T.A. NO.591/COCH/2004 3 4. BEFORE US, THE LD COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THE SISTER CONCERN M/S AMALGAM INVESTMENTS PRIVATE LIMITED IS PROVIDING VA RIOUS TYPES OF MANAGERIAL AND TECHNICAL SERVICES VIDE AN AGREEMENT DATED 01-01-19 94 ENTERED WITH IT. THE MONTHLY SERVICE CHARGES PAYABLE TO M/S AMALGAM INVESTMENTS PRIVATE LIMITED WAS FIXED INITIALLY AT RS.1,25,000/- PER MONTH, WHICH WAS LATER INCREAS ED TO RS.4.00 LAKHS PER MONTH. HE FURTHER SUBMITTED THAT THE ASSESSEE COMPANY PAID SE RVICE CHARGES OF RS.4.00 LAKHS DURING THE PERIOD UNDER CONSIDERATION. HE INVITED OUR ATTENTION TO THE AGREEMENT DATED 01-01-1994 PLACED IN THE PAPER BOOK AND ALSO THE RU NNING ACCOUNT COPY OF THE M/S AMALGAM INVESTMENTS PRIVATE LIMITED IN THE BOOKS OF THE ASSESSEE. 5. ON THE CONTRARY, THE LD D.R SUBMITTED THAT TH E DIVERSION OF HUGE AMOUNT OF ABOUT RS.4.00 CRORES CANNOT BE CONSIDERED ON ACCOUNT OF B USINESS CONSIDERATIONS CONSIDERING THE QUANTUM OF SERVICE CHARGES REFERRED ABOVE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREF ULLY PERUSED THE RECORD. FROM THE DOCUMENTS REFERRED BY THE LD A.R, ONE CAN SAY THAT THERE IS SOME BUSINESS CONNECTION BETWEEN THE ASSESSEE COMPANY AND M/S AMALGAM INVEST MENTS PRIVATE LIMITED. BUT, WHAT IS REQUIRED TO THE ESTABLISHED IS THE EXISTENC E OF COMMERCIAL EXPEDIENCY IN ADVANCING THE AMOUNT OF ABOUT RS.4.00 CRORES TO THE ABOVE SAID COMPANY. EXCEPT SHOWING SOME DOCUMENTS RELATING TO THE BUSINESS CON NECTION, THE ASSESSEE COULD NOT PRODUCE ANY OTHER MATERIAL TO SHOW THAT THERE EXIST ED COMMERCIAL EXPEDIENCY IN MAKING THE INTEREST FREE ADVANCE OF RS.4.00 CRORES TO M/S AMALGAM INVESTMENTS PRIVATE LIMITED. IN VIEW OF THE ABOVE, WE FIND NO REASON T O INTERFERE WITH THE ORDER OF LD CIT(A) ON THIS ISSUE. I.T.A. NO.591/COCH/2004 4 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE ON THE ISSUE OF DISALLOWANCE OF INTEREST IS DISMISSED. PRONOUNCED ACCORDINGLY ON 01-06-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 1ST JUNE, 2012 GJ COPY TO: 1. M/S. ACCELERATED FREEZE DRYING CO. LTD., EXHUPUNN A, ALAPPUZHA. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, ALLEPPEY. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-IV, KOC HI. 4. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER ( ASSISTANT REGISTRAR) ITAT, COCHIN