M/s. United Breweries (Holdings) Ltd., Bangalore V. ACIT, Bangalore

ITA 61/BANG/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0630 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-09-2009
• Assessment Year: misc
• Appeal Filed On: 22-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JACINTA ZIMIK VASHAI
• Keywords: Set aside
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI K.P.T. THANGAL, VICE PRESIDENT AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NOS.61 & 62/BANG/2009 ASSESSMENT YEARS : 1984-85 & 1985-86 M/S. UNITED BREWERIES (HOLDINGS) LTD., (FORMERLY M/S. UNITED BREWERIES LTD.), UB TOWERS, LEVEL 4 (4 TH FLOOR), UB CITY, 24 VITTAL MALLYA ROAD, BANGALORE 560 001. : APPELLANT VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(3), BANGALORE. : RESPONDENT APPELLANT BY : SHRI S. PARTHASARATHI RESPONDENT BY : SMT. JACINTA ZIMIK VASHAI O R D E R PER K.P.T. THANGAL, VICE PRESIDENT THESE APPEALS ARE BY THE ASSESSEE FOR THE ASSESSM ENT YEARS 1984- 85 AND 1985-86 DIRECTED AGAINST THE ORDER OF THE CI T(APPEALS)-VI, BANGALORE DATED 20.11.2008. 2. FOR THE A.Y. 1984-85 THE ORIGINAL ASSESSMENT ORD ER WAS COMPLETED U/S. 143(3) ON 11.2.1997 FIXING INCOME AT RS.3,53,4 8,074 AS AGAINST THE ITA NO.61/B/09 PAGE 2 OF 6 RETURNED INCOME OF RS.2,61,24,640. SUBSEQUENTLY TH E ASSESSMENT WAS REOPENED AND ORDER PASSED ON 14.3.1989 U/S. 143(3) R.W.S. 148, THE INCOME WAS FIXED AT RS.3,57,48,900. FOR THE A.Y. 1 985-86 ORIGINAL ASSESSMENT WAS COMPLETED FIXING INCOME AT RS.3,66,2 0,660 AS AGAINST RETURNED INCOME OF RS.2,49,39,980. THE ASSESSING OF FICER DISALLOWED RS.49,43,660 FOR THE A.Y. 1984-85 AND RS.54,58,763 FOR THE A.Y. 1985-86 HOLDING THAT INTEREST ON FUNDS WERE DIVERTED TO SIS TER CONCERNS FOR NON- BUSINESS PURPOSES AND IT WAS NOT ALLOWABLE AS A DED UCTION. THE CIT(APPEALS) ALLOWED THE ASSESSEES APPEALS AND DEL ETED THE ADDITIONS. THE TRIBUNAL CONFIRMED THE ORDER OF THE CIT(APPEALS ). THE MATTER WAS CARRIED BEFORE THE HONBLE HIGH COURT OF KARNATAKA AND THE HIGH COURT SET ASIDE THE ISSUE BACK TO THE ASSESSING OFFICER TO RE DO THE SAME. 3. THE ASSESSEE WAS DIRECTED TO PRODUCE THE BOOKS O F ACCOUNTS BY THE ASSESSING OFFICER. THE REPLY OF THE ASSESSEE WAS T HAT FIGURES WERE AVAILABLE IN THE FIRST ASSESSMENT ORDER, IT WAS FUR THER AVAILABLE IN THE CIT(APPEALS) ORDER AND ALSO THE ISSUE HAS BEEN DEAL T WITH BY THE TRIBUNAL. IT WAS FURTHER SUBMITTED THAT THE DECISION OF THE H ONBLE HIGH COURT IN THE CASE OF S.A. BUILDERS LTD. V. CIT & ANR. (2007) 288 ITR 1 WAS PASSED MUCH LATER TO THE DECISION RENDERED BY THE HONBLE HIGH COURT OF KARNATAKA IN ASSESSEES CASE. IT WAS CONTENDED BEFORE THE AO THAT IN THE ABOVE REFERRED CASE, THE HONBLE SUPREME COURT HELD, IF T HE ASSESSEE IS HAVING DEEP INTEREST IN THE SUBSIDIARY AND IN FURTHERANCE OF THE SAID INTEREST IF THE HOLDING COMPANY ADVANCES BORROWED MONEY TO THE SUBS IDIARY AND THE SUBSIDIARY USES SUCH MONEY FOR BUSINESS PURPOSES, T HE ASSESSEE WOULD BE ENTITLED TO THE DEDUCTION OF INTEREST ON ITS BORROW ED LOANS. THE AO HAS NOT ITA NO.61/B/09 PAGE 3 OF 6 APPRECIATED THE ABOVE FACTS AND CONCLUDED THE ASSES SMENT ON THE GROUND THAT THE ASSESSEE HAD NOT PRODUCED THE PRIMARY BOOK S OF ACCOUNTS FOR VERIFICATION AND DISALLOWED THE INTEREST HOLDING TH AT THERE WAS DIVERSION OF FUNDS TO ITS SUBSIDIARY FOR NON-BUSINESS PURPOSE. 4. ACCORDING TO THE ASSESSEE, THE ASSESSEE CONTENDE D BEFORE THE CIT(APPEALS) THAT ADVANCES GIVEN BY THE ASSESSEE WE RE ONLY TO ITS SUBSIDIARIES IN RELATION TO BREWERY BUSINESS IN WHI CH THE ASSESSEE IS HOLDING A DOMINANT POSITION. IT WAS FURTHER SUBMIT TED THAT THE BALANCE SHEET WILL SHOW THAT THERE WERE DUES BY THE SUBSIDI ARIES AND THE DUES TO THE SUBSIDIARIES BY THE ASSESSEE WHICH WOULD CLEARL Y SHOW THAT THERE WERE BUSINESS RELATIONS BETWEEN THE ASSESSEE AND ITS SUB SIDIARIES. IN THE WRITTEN SUBMISSIONS, THE ASSESSEE SUBMITS THE FOLLO WING ARE THE SUBSIDIARIES OF THE ASSESSEE: (A) M/S. PURE BEVERAGES LTD. (B) M/S. U.B. MEC. BATTERIES LTD. (C) M/S. NEPAL BEVERAGES & FOOD PRODUCTS LTD. (D) M/S. OPTREX INDIA LTD. (E) M/S. KALYANI BREW LTD. AND SO FORTH. AGAIN THE ATTENTION OF THE CIT(APPEALS) WAS DRAWN T O THE DECISION OF THE HONBLE SUPREME COURT REFERRED TO ABOVE IN THE CASE OF S.A. BUILDERS LTD. HOWEVER, THE CIT(APPEALS) ALSO DID NOT APPRECIATE T HE ABOVE FACTS. 5. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES. HE FURTHER SUBMITT ED THAT ASSESSEE WAS HAVING SUFFICIENT FUNDS OF ASSESSEES OWN WHEN THE ADVANCES WERE MADE TO THE SISTER CONCERN. IT IS FURTHER THE CASE OF T HE ASSESSEE THAT ASSESSEE ITA NO.61/B/09 PAGE 4 OF 6 WAS HAVING A EXCLUSIVELY OPERATING BANK ACCOUNT IN THE BANK OF BARODA, THE PRINCIPAL BANKER OF THE ASSESSEE. THE PROFITS A ND BANK ACCOUNTS HAVE GONE INTO THIS BANK ACCOUNT AND MIXED UP AND ACCORD INGLY IT CANNOT BE SAID THAT BORROWED FUNDS HAVE BEEN USED FOR ADVANCING TO THE SISTER CONCERN. ASSESSEE WAS HAVING SUFFICIENT AND ADEQUATE RESERVE AND SURPLUS FAR EXCEEDING THE FUNDS MADE AVAILABLE TO THE SUBSIDIAR IES AND THIS FACT IS CLEAR FROM THE BALANCE SHEET. THE ASSESSEE ALSO RELIED U PON THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA DATED 15.9.06 IN IT A NO.12 OF 1999 IN THE CASE OF DCIT, CENTRAL CIRCLE II V. M/S. MCDOWELL & COMPANY LTD. WHEREIN THE HONBLE HIGH COURT HELD THAT INTEREST ON ADVANC ES SHOULD BE ALLOWED WHEN THE ADVANCES WERE MADE FOR BUSINESS PURPOSES. IN THE LIGHT OF THE ABOVE FACTS, THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF S.A. BUILDERS LTD. (SUPRA) , SMT. CHANCHAL KATYAL V. CIT (2008) 298 ITR 182 (ALL ), CIT V. TINBOX CO. (2003) 260 ITR 637 (DEL) , CIT V. HOTEL SAVERA (1999) 239 ITR 795 (MAD) AND ALSO THE TRIBUNAL DECISION REPORTED IN 90 ITD 1 SUPPORT THE CASE OF THE ASSESSEE AND THE CLAIM OF T HE ASSESSEE IS LIABLE TO BE ALLOWED. 6. THE LD. DR, ON THE OTHER HAND, SUBMITTED COMMERC IAL EXPEDIENCY SHOULD BE ESTABLISHED BY THE ASSESSEE AND THIS HAS NOT BEEN DONE IN THE INSTANT CASE. SHE ALSO RELIED ON THE HONBLE ORISS A HIGH COURT DECISION REPORTED IN 193 ITR 344 (ORI) AND ALSO MUNJAL SALES CORPORATION V. CIT & ANR. REPORTED IN 298 ITR 288 (P&H) WHEREIN THE HONBLE HIGH COURT HELD THAT WHERE INTEREST BEARING BORROWED MONEY IS USED TO GRANT INTEREST FREE LOAN TO SISTER CONCERN, DISALLOWANCE OF SUCH INTERE ST IS JUSTIFIED. ITA NO.61/B/09 PAGE 5 OF 6 7. HEARING THE RIVAL SUBMISSIONS AND CONSIDERING TH E FACTS BROUGHT ON RECORD, WE ARE OF THE VIEW THAT THE APPEALS OF THE ASSESSEE ARE LIABLE TO BE ALLOWED. IN THE CASE REPORTED IN 298 ITR 182 (ALL) , THE HONBLE ALLAHABAD HIGH COURT HELD IF THE ASSESSEE IS HAVING SUFFICIEN T NON-INTEREST BEARING FUNDS OTHER THAN THE BORROWED MONEY, THEN INTEREST ON THE BORROWED MONEY IS TO BE ALLOWED AS DEDUCTION. IN CIT V. HOTEL SAVERA 239 ITR 795, THE HONBLE MADRAS HIGH COURT HELD THAT THE AMOUNT BORROWED BY THE FIRM MIXED WITH ITS OWN FUNDS, IF THE FIRM HAD SUFFICIEN T FUNDS TO COVER THE ADVANCES, PRESUMPTION SHOULD BE DRAWN THAT ADVANCE HAD BEEN MADE WITH FIRMS OWN FUNDS AND THEREFORE INTEREST PAID IS ALL OWABLE. IN THE LIGHT OF THE ABOVE DECISION AND ALSO CONSIDERING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. (SUPRA) , WHEREIN THE HONBLE SUPREME COURT HELD THAT IF THE ASSESSEE IS HAVING B USINESS INTEREST IN THE SUBSIDIARY, THEN SUCH ADVANCES ARE TO BE TREATED AS GENUINE AND THE INTEREST PAID ARE TO BE ALLOWED. WE ALLOW THE APP EALS BY THE ASSESSEE. 8. IN THE RESULT, THE APPEALS BY THE ASSESSEE ARE A LLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF NOVEMBER, 2009. SD/- SD/- (A. MOHAN ALANKAMONY ) ( K.P.T. THANG AL ) ACCOUNTANT MEMBER VICE PRES IDENT BANGALORE, DATED, THE 20 TH NOVEMBER, 2009. DS/- ITA NO.61/B/09 PAGE 6 OF 6 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.