ACIT 6(2), MUMBAI V. CHAMPAGNE INDAGE LTD, MUMBAI

ITA 5940/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62522 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 29-05-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 28-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A C TEJPAL
• Assessee Lawyers: D B SHAH
• Keywords: Depreciation; Capital expenditure
• Section: 43B; 143(3); 11; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI DINESH KUMAR AGARWAL (J.M.) AND SHRI N.K. BILLIAYA (A.M.) ITA NO. 6414/MUM/2010 ASSESSMENT YEAR : 2005-06 CHAMPAGNE INDAGE LTD. (NOW KNOWN AS INDAGE VINTNERS LIMITED), 82, INDAGE HOUSE, DR. A.B. ROAD, WORLI, MUMBAI 400 018. PAN : AAACI 1335D VS. ASSTT. COMMISSIONER OF INCOME TAX- CIRCLE 6(2), AAYAKAR BHAVAN, MUMBAI. (APPELLANT) (RESPONDENT) ITA NO. 5940/MUM/2010 ASSESSMENT YEAR : 2005-06 ASSTT. COMMISSIONER OF INCOME TAX- CIRCLE 6(2), AAYAKAR BHAVAN, MUMBAI. VS. CHAMPAGNE INDAGE LTD. (NOW KNOWN AS INDAGE VINTNERS LIMITED), 82, INDAGE HOUSE, DR. A.B. ROAD, WORLI, MUMBAI 400 018. PAN : AAACI 1335D (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI D.B. SHAH REVENUE BY : SHRI A.C. TEJPAL DATE OF HEARING 29-5-2012 DATE OF PRONOUNCEMENT 06-06-2012 O R D E R PER DINESH KUMAR AGARWAL, J.M. THESE CROSS APPEALS BY THE ASSESSEE AND THE REVENU E ARE DIRECTED AGAINST THE ORDER DATED 20-04-2010 PASSED BY THE LD . CIT (A) 12, ITA NO. 6414 & 5940/MUM/2010 2 MUMBAI FOR THE A.Y. 2005-06. BOTH THESE APPEALS ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE O F WINES. THE RETURN OF INCOME WAS FILED DECLARING TOTAL LOSS OF RS. 1,8 4,91,284/-. HOWEVER, THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS. 68 ,88,020/- UNDER NORMAL PROVISIONS OF THE ACT AND BOOK PROFIT U/S 11 5JB OF THE INCOME TAX ACT, 1961 (THE ACT) RS. 6,02,26,847/- VIDE ORDE R DTD. 31-12-2007 PASSED U/S 143(3) OF THE ACT. 3. ON APPEAL, THE LD. CIT(A) PARTLY ALLOWED THE APP EAL. 4. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE ASSESSEE AND THE REVENUE BOTH ARE IN APPEAL BEFORE US. ITA NO. 5940/MUM/2010 (REVENUES APPEAL) 5. THE GROUNDS TAKEN BY THE REVENUE READ AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN GIVING DIRECTIONS T HAT RATIO OF DELHI HIGH COURTS DECISION IN THE CASE OF CIT V. T IN BOX (260 ITR 637) IS TO BE APPLIED IN THE ASSESSEES CASE WH EN FACTS OF THE CASE BEFORE HIM WERE DIFFERENT FROM THE FACTS P REVAILING IN THE CASE OF CIT VS. TIN BOX (SUPRA). 2. THE LD. CIT(A) WHILE MAKING THE ABOVE OBSERVATIO N HAS ERRED IN LAW IN NOT APPRECIATING THE FACT THAT TO C LAIM DEDUCTION IN TERMS OF SECTION 36 OF THE ACT, THE BU RDEN TO ESTABLISH THAT THE BORROWED FUNDS WERE UTILISED EXC LUSIVELY FOR THE PURPOSE OF BUSINESS WAS ON THE ASSESSEE AND SIN CE THE ITA NO. 6414 & 5940/MUM/2010 3 ASSESSEE DID NOT FILE ANY SUCH PROOF BEFORE THE ASS ESSING OFFICER, IT WAS NOT ENTITLED TO CLAIM THE DEDUCTION . 3. THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSIN G OFFICER BE RESTORED. 6. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT DURING T HE COURSE OF ASSESSMENT IT WAS INTER ALIA OBSERVED BY THE A.O. T HAT THE ASSESSEE HAD A BORROWING OF RS. 51.10 CRORES AND MADE PAYMENT OF R S. 4.15 CRORES AS INTEREST DURING THE YEAR. HOWEVER, IT HAD ALSO GIV EN INTEREST FREE LOANS AND ADVANCES AMOUNTING TO RS. 4.72 CRORES. THE A.O . FURTHER OBSERVED THAT THE ASSESSEE HAS NOT EXPLAINED THE NATURE AND PURPOSE OF SUCH LOANS AND ADVANCES NOR EXPLAINED AS TO WHY NO INTER EST WAS COLLECTED, WHEN THE ASSESSEE IS DEBITING HUGE AMOUNT OF INTERE ST ON THE BORROWED FUNDS. HE FURTHER OBSERVED THAT THE INTEREST FREE A DVANCES WERE MADE OUT MIXED FUNDS CONSISTING OF BORROWED AND OWN FUNDS. THE A.O. AFTER CONSIDERING THE PROVISIONS OF SECTION 36(1)(III) A ND THE VARIOUS DECISIONS CITED IN THE ASSESSMENT ORDER DISALLOWED THE INTERE ST OF RS. 37,79,720/- CALCULATED AT THE AVERAGE RATE OF INTEREST AT 8%. 7. ON APPEAL, THE LD. CIT(A) WHILE UPHOLDING THE RA TE OF INTEREST AT 8% DIRECTED THE A.O. TO APPLY THE PRINCIPLE LAID DOWN IN CIT VS. TIN BOX CO. (2003) 260 ITR 637(DELHI) TO DETERMINE WHETHER THE INTEREST FREE ADVANCES ARE OUT OF OWN FUNDS OR NOT AND IF THE ASS ESSEE FAILS TO PASS THE ABOVE TEST, DISALLOWANCE MADE ON THE GROUND THAT BO RROWED FUNDS HAD BEEN USED FOR INTEREST FREE ADVANCES WOULD BE JUSTI FIED. ITA NO. 6414 & 5940/MUM/2010 4 8. AT THE TIME OF HEARING, THE LD. D.R. WHILE RELYI NG ON THE ORDER OF THE A.O. SUBMITS THAT THE DECISION IN THE CASE OF TIN B OX CO. (SUPRA) RELIED ON BY THE LD. CIT(A) IS DISTINGUISHABLE AND NOT APP LICABLE TO THE FACTS OF THE ASSESSEES CASE AS SHARE CAPITAL AND RESERVE AN D SURPLUS WERE UTILISED FOR THE PURPOSE OF FIXED ASSETS SHOWN IN S CHEDULE 5 OF THE BALANCE SHEET AS ON 31-3-2005 APPEARING AT PAGE 22 AND 25 OF THE ASSESSEES PAPER BOOK, THEREFORE, THE INTEREST FREE ADVANCES WERE NOT GIVEN BY THE ASSESSEE OUT OF OWN FUNDS AND HENCE TH E DISALLOWANCE MADE BY THE A.O. BE RESTORED. 9. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE SUBMITS THAT THERE IS NO DISPUTE THAT INTEREST FREE ADVANCES WER E MADE OUT OF MIXED FUNDS CONSISTING OF BORROWED AND OWN FUNDS VIDE FIN DINGS RECORDED IN PARA 4.2 OF THE ASSESSMENT ORDER. HE FURTHER SUBMI TS THAT WHEN MIXED POOL OF FUNDS IS UTILISED AND NO SPECIFIC BORROWED FUNDS ARE USED FOR INVESTMENT AND SUFFICIENT NON-INTEREST BEARING FUND S ARE AVAILABLE, PRESUMPTION IS THAT INVESTMENT IS MADE OUT OF OWN N ON-INTEREST BEARING FUNDS AND FOR THIS PROPOSITION, THE RELIANCE WAS AL SO PLACED IN (A) CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 34 0 (BOM), (B) VEECUMSEES V. CIT (1996) 220 ITR 185 (SC) AND (C) C IT V. TIN BOX CO. (2003) 260 ITR 637 (DELHI). HE FURTHER SUBMITS THA T THE A.O. WHILE GIVING EFFECT TO THE ORDER OF THE LD. CIT(A) HAS DELETED T HE DISALLOWANCE OF INTEREST OF RS. 3779720/- VIDE ORDER DTD. 16-6-2010 APPEARING AT PAGE 39 ITA NO. 6414 & 5940/MUM/2010 5 OF THE PAPER BOOK. HE THEREFORE SUBMITS THAT THE O RDER PASSED BY THE LD. CIT(A) IN DELETING THE DISALLOWANCE BE UPHELD. 10. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUT E THAT THE INTEREST FREE ADVANCES WERE GIVEN OUT OF MIXED FUNDS CONSISTING O F BORROWED AND OWN FUNDS. 11. IN RELIANCE UTILITIES AND POWER LTD. (SUPRA) TH EIR LORDSHIPS AFTER CONSIDERING THE PLEA OF THE REVENUE THAT ....... IT IS POINTED OUT THAT IN SO FAR AS THE SHAREHOLDERS FUNDS ARE CONCERNED, IN TER MS OF THE BALANCE- SHEET AS ON MARCH 31, 1999, THEY WERE UTILISED FOR THE PURPOSE OF PURCHASE OF FIXED ASSETS SHOWN IN SCHEDULE D HAVE HELD AT PAGE 344 AS UNDER:- ...... THE PRINCIPLE, THEREFORE, WOULD BE THAT IF THERE AR E FUNDS AVAILABLE BOTH INTEREST-FREE AND OVER DRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOU LD BE OUT OF THE INTEREST-FREE FUND GENERATED OR AVAILABLE WI TH THE COMPANY, IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTA BLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISS IONER OF INCOME-TAX (APPEALS) AND THE INCOME-TAX APPELLATE T RIBUNAL. 12. IN ABSENCE OF ANY CONTRARY MATERIAL PLACED ON R ECORD BY THE REVENUE, WE RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN RELIANCE UTILITIES AND POWER LTD. (SUPRA) WHILE REJECTING THE PLEA OF THE LD. D.R. HOLD THAT THE DISALLOWANCE MADE BY THE A.O. IS NOT SUSTAINABLE IN LAW. THE GROUNDS TAKEN BY THE REVENUE ARE THEREFORE REJECTED. ITA NO. 6414 & 5940/MUM/2010 6 ITA 6414/MUM/2010 (ASSESSEES APPEAL) 13. GROUND NO. 1 IS AGAINST THE FINDINGS OF THE LD. CIT(A) THAT THE RATE OF 8% APPLIED BY THE A.O. WHILE DISALLOWING THE INT EREST IS NOT EXCESSIVE. 14. AFTER HEARING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT SINCE WE HAVE DELETED THE DISALLOWANCE OF INTEREST IN PAR A NO. 10, 11 AND 12 OF THIS ORDER, THEREFORE, THE ABOVE ISSUE RAISED BY TH E ASSESSEE DOES NOT SURVIVE AND ACCORDINGLY THE GROUND TAKEN BY THE ASS ESEE IS REJECTED. 15. GROUND NO. 2 IS AGAINST THE SUSTENANCE OF DISAL LOWANCE OF EMPLOYEES CONTRIBUTION TO PF AND ESIC . 16. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE A.O . OBSERVED THAT THE ASSESSEE HAS MADE BELATED PAYMENT OF EMPLOYEES CON TRIBUTION AMOUNTING TO RS.8,32,490/- AND ESIC PAYMENT AMOUNTI NG TO RS. 16,000/- AND ACCORDINGLY HE MADE DISALLOWANCE OF RS . 8,48,490/- U/S 43B R.W.S. 36(1)(VA) OF THE ACT. ON APPEAL, THE LD . CIT(A) DIRECTED THE A.O. TO ALLOW THE PAYMENT TO THE EXTENT, IT IS MADE WITHIN THE DUE DATE AS EXTENDED BY THE GRACE PERIOD ALLOWED BY THE PF AUTH ORITIES AND RESTRICTED THE DISALLOWANCE TO THE PAYMENT MADE BEYOND THE EXT ENDED DUE DATE. 17. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESSEE HAS MADE THE ENTIRE PAYMENT OF EM PLOYEES CONTRIBUTION TO PF AND ESIC BEFORE THE DUE DATE OF FILING OF THE RETURN U/S 139(1) OF THE ACT, THEREFORE, FOLLOWING THE DEC ISION IN CIT V. ALOM ITA NO. 6414 & 5940/MUM/2010 7 EXTRUSIONS LTD. 319 ITR 306 (SC) AND CIT V. AIMIL L IMITED 321 ITR 508 (DEL) AND THE OTHER DECISIONS OF THIS TRIBUNAL, THE DISALLOWANCE MADE BY THE A.O. AND SUSTAINED BY THE LD. CIT(A) BE DELETED . 18. ON THE OTHER HAND, THE LD. D.R. SUPPORTS THE OR DER OF THE A.O. AND THE LD. CIT(A). 19. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND T HAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS DEPOSITED THE AMOUNT OF PF AND ESIC RS.8,48,490/- BEFORE THE DUE DATE OF FILING OF THE RETURN U/S 139(1) OF THE ACT. THIS BEING SO AND KEEPING IN VIEW THE DECISION OF THE HONBLE SUPREME COURT IN C IT V/S ALOM EXTRUSIONS LTD. (2009) 319 ITR 306 (SC) AND THE DEC ISION OF THE HONBLE DELHI HIGH COURT IN CIT V/S AIMIL LTD. (2010) 321 I TR 508 (DEL) WHEREIN IT HAS BEEN HELD THAT IF THE EMPLOYEES SHARE OF CO NTRIBUTION IS PAID BEFORE THE DUE DATE OF FILING OF THE RETURN U/S 139 (1), THEN NO DISALLOWANCE CAN BE MADE. RESPECTFULLY FOLLOWING TH E ABOVE DECISIONS AND THE CONSISTENT VIEW OF THE TRIBUNAL, WE ARE OF THE VIEW THAT THE DISALLOWANCE MADE BY THE AO RS. 8,48,490/- IS NOT S USTAINABLE IN LAW AND ACCORDINGLY THE SAME IS DELETED. THE GROUNDS TA KEN BY THE ASSESSEE ARE, THEREFORE, ALLOWED. 20. GROUND NO. 3 IS AGAINST THE SUSTENANCE OF DISAL LOWANCE OF RS. 2,07,51,098/- U/S 40(A)(IA) OF THE ACT. ITA NO. 6414 & 5940/MUM/2010 8 21. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE A.O . OBSERVED THAT THE ASSESSEE HAS MADE CONTRACT PAYMENT TO M/S INDAGE DE VELOPMENT CORPORATION PVT. LTD. AMOUNTING TO RS. 2,07,51,098/ - AND DEDUCTED TDS OF RS. 4,33,905/- AND THE SAME WAS DEPOSITED IN THE CENTRAL GOVERNMENT ACCOUNT ON 9-9-2005 WHICH WAS REQUIRED TO BE DEPOSI TED ON OR BEFORE 31-5-2005. ON BEING ASKED, IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE HAS MADE PAYMENT TO INDAGE DEVELOPMENT COR PORATION PVT. LTD. FOR CONSTRUCTION OF IIIRD WINERY AND THE SAID PAYME NT WAS TREATED BY THE ASSESSEE AS CAPITAL EXPENDITURE NOT CHARGED TO P&L ACCOUNT. IT WAS FURTHER SUBMITTED THAT THE TDS HAS ALSO BEEN DEDUCT ED AND THE PAYMENT OF SUCH TDS WAS MADE ON 9-9-2005. HOWEVER, THE A.O . HAS NOT ACCEPTED THE ASSESSEES EXPLANATION. ACCORDING TO THE A.O. THE PAYMENT OF TDS WAS REQUIRED TO BE DEPOSITED BY 31-5-2005 AND HENCE HE DISALLOWED THE PAYMENT OF RS. 2,07,51,098/- U/S 40(A)(IA) OF THE A CT. ON APPEAL, THE LD. CIT(A) WHILE OBSERVING THAT THE ASSESSEE HAS CLAIME D DEPRECIATION ON THE ASSET WHICH ARE CAPITALIZED, INDIRECTLY CLAIMED DED UCTION ON ACCOUNT OF THE ABOVE PAYMENT, THEREFORE, THE CLAIM OF THE ASSE SSEE REGARDING THE CAPITAL EXPENDITURE IS NOT TENABLE. HOWEVER, HE DI RECTED THE A.O. TO ALLOW THE AMOUNT AS DEDUCTION IN THE NEXT ASSESSMENT YEAR ON PAYMENT BASIS. 22. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT SINCE THE PAYMENT OF TDS WAS MADE BEFORE THE D UE DATE OF THE FILING OF THE RETURN U/S 139(1) OF THE ACT, THEREFORE, ACC ORDING TO THE PROVISIONS OF SECTION 40(A)(IA), NO SUCH DISALLOWANCE IS CALLE D FOR AND IN SUPPORT HE ITA NO. 6414 & 5940/MUM/2010 9 ALSO PLACED ON RECORD A COPY OF THE CHALLAN DTD. 12 -9-2005 FOR THE PAYMENT OF TDS RS. 433905/- ON THE PAYMENT OF RS. 2 ,07,51,098/- APPEARING AT PAGE 54 OF THE ASSESSEES PAPER BOOK. HE, THEREFORE, SUBMITS THAT THE DISALLOWANCE MADE BY THE A.O. AND SUSTAINED BY THE LD. CIT(A) BE DELETED. 23. ON THE OTHER HAND, THE LD. D.R. SUPPORTS THE OR DER OF THE A.O. AND THE LD. CIT(A). 24. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUT E THAT THE ASSESSEE HAS DEDUCTED TDS OF RS. 4,33,905/- DURING MARCH, 2005 O N THE PAYMENT OF RS. 2,07,51,098/- AND DEPOSITED THE AMOUNT OF TDS O N 12-9-2005 BEFORE THE DUE DATE OF THE FILING OF RETURN U/S 139(1) OF THE ACT. RECENTLY THE HONBLE CALCUTTA HIGH COURT IN CIT VS. VIRGIN CREAT IONS IN ITA NO. 302 OF 2011, GA 3200/2011 VIDE JUDGMENT DATED 23-11-2011 H AS HELD THAT THE AMENDMENT MADE U/S 40(A)(IA) REQUIRES TO BE TREATED WITH RETROSPECTIVE OPERATION. RESPECTFULLY FOLLOWING THE SAME AND THE DECISIONS OF THE TRIBUNAL INCLUDING THE DECISION IN RAJAN C. PILLAI VS. DY. CIT AND VICE VERSA IN ITA NO. 4176 AND 4984/M/2010 FOR A.Y. 2006 -07 DTD. 27.4.2012 WHEREIN IT HAS BEEN HELD THAT SINCE THE ASSESSEE HAS PAID TDS AMOUNT ON 8-6-2006 BEFORE THE DUE DATE OF FILIN G OF RETURN OF INCOME U/S 139(1) OF THE ACT, THE IMPUGNED DISALLOWANCE U/ S 40(A)(IA) MADE BY ITA NO. 6414 & 5940/MUM/2010 10 THE A.O. IS DELETED, WE HOLD THAT IN THE PRESENT C ASE THE AMOUNT OF TDS RS. 4,33,905/- HAS BEEN DEPOSITED ON 12-9-2005 BEFO RE THE DUE DATE OF FILING OF THE RETURN OF INCOME U/S 139(1), THEREFOR E, WE DELETE THE ADDITION OF RS. 2,07,51,098/- MADE BY THE A.O. U/S 40(A)(IA) OF THE ACT. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, ALLOWED . 25. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED AND REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED ON THIS 6 TH DAY OF JUNE, 2012. SD/- (N.K. BILLIAYA) ACCOUNTANT MEMBER SD/- (DINESH KUMAR AGARWAL) JUDICIAL MEMBER MUMBAI, DATED 6 TH JUNE, 2012. RK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- 12, MUMBA I 4. COMMISSIONER OF INCOME TAX CITY -6, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH C, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI