M/s. PROMED LABORATORIES P. LTD., Indore V. The ITO 3(1), Indore

ITA 613/IND/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5599 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 19-10-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 29-09-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MOHD JAVED
• Assessee Lawyers: S S DESHPANDE
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE .., .., % BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER M/S.PROMED LABORATORIES PVT.LTD., 6, JAMUNA COLONY, INDORE. .. ./ PAN: AABCP0410F VS. ITO, 3(1), INDORE. / APPELLANT / RESPONDENT / APPELLANT BY SHRI S.S.DESHPANDE, C. A. / RESPONDENT BY SHRI MOHD. JAVED, SR. DR DATE OF HEARING 19.10.2016 DATE OF PRONOUNCEMENT 10.11.2016 / O R D E R PER O.P. MEENA, ACCOUTANT MEMEBR. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-I, INDORE [HEREINAFTER .. . / I.T.A. NO. 613/IND/2014 %' ' / ASSESSMENT YEAR: 2010-11 I.T.A.NO.613/IND/2014 A.Y.2010-11- M/S.PROMED LABORATORIES P.LTD. PAGE 2 OF 10 REFERRED TO AS THE CIT(A)] DATED 01.07.2014 AND PER TAINS TO ASSESSMENT YEAR 2010-11 AS AGAINST APPEAL DECIDED I N ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT DATED 28.03.2013 OF ITO WARD 3(1) INDORE [HEREINAFTER REF ERRED TO AS THE AO]. 2. THE ASSESSEE HAS TAKEN AS MANY AS FOUR GROUNDS OF APPEAL. HOWEVER, THE EFFECTIVE GROUND RELATES TO M AINTAINING THE DISALLOWANCE OF RS. 30,80,000/- OUT OF INTEREST PAYMENT ON THE GROUND THAT THE BORROWED FUNDS HAVE BEEN UTILIZ ED FOR NON-BUSINESS PURPOSES. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE AO NOTICED THAT THE ASSESSEE COMPANY HAS SHOWN AN AMOUN T OF RS. 2,20,96,398/- UNDER THE HEAD ADVANCES RECOVERA BLE IN CASH OR IN KIND OR FOR VALUE TO BE RECEIVED IN SCH EDULE I IN THE BALANCE SHEET. THE ASSESSEE WAS, THEREFORE, SPECIFIC ALLY ASKED ABOUT THE NATURE OF THESE ADVANCES AND DETAILS OF I NTEREST OR ANY OTHER VALUE RECEIVED DURING THE YEAR. THE AO EX AMINED THE REPLY OF THE ASSESSEE AND NOTED THAT THE ASSESSEE H AS CLAIMED A HUGE AMOUNT ON ACCOUNT OF INTEREST AND BANK CHARG ES TO THE I.T.A.NO.613/IND/2014 A.Y.2010-11- M/S.PROMED LABORATORIES P.LTD. PAGE 3 OF 10 TUNE OF RS. 69,29,242/-. THEREFORE, THE AO HAS DRAWN THE INFERENCE THAT THE ASSESSEE COMPANY HAS BORROWED LO AN FROM BANKS AT THE PREVAILING MARKET RATES FOR THE PURPOS E OF REGULAR BUSINESS NEEDS. EVEN IF THE AMOUNT OF ONLY SECURED LOAN IS TAKEN INTO CONSIDERATION AT RS. 4,60,27,437/- BALAN CE AS ON 31.03.2011. IN NUT-SHELL, THE AO NOTED THAT THE ASS ESSEE WAS IN DEARTH OF FUNDS DURING THE YEAR AND TO OVERCOME THIS REQUIREMENT, THE ASSESSEE COMPANY TOOK SECURED AS W ELL AS UNSECURED LOANS. THE AMOUNT OF RS. 69.29 LAKHS PAID AS INTEREST AND BANK CHARGES HAS DEFINITELY EFFECTED T HE PROFIT MARGIN OF THE ASSESSEE COMPANY. ON THE OTHER HAND, THE ASSESSEE COMPANY HAS ADVANCED HUGE AMOUNTS OF RS. 2 .20 CRORES WHICH IS MENTIONED IN THE SCHEDULE I OF THE B ALANCE SHEET. THE PLEA OF THE ASSESSEE JUSTIFYING FORWARDIN G INTEREST FREE LOAN TO GROUP COMPANIES AND PAYING INTEREST AN D BANK CHARGES ON LOAN TAKEN WAS NOT FOUND ACCEPTABLE IN AB SENCE OF SUBSTANCE AND LOGIC. THE AO NOTED THAT THE INTEREST ON BANK CHARGES ARE AT RS. 69.29 LAKHS, WHEREAS THE CLOSING BALANCE OF SECURED AND UNSECURED LOAN OF RS. 5,18,13,983/-. TH US, THE I.T.A.NO.613/IND/2014 A.Y.2010-11- M/S.PROMED LABORATORIES P.LTD. PAGE 4 OF 10 EFFECTIVE RATE OF INTEREST COMES TO APPROXIMATELY 1 4%. ACCORDINGLY, THE AO DISALLOWED THE PROPORTIONATE IN TEREST AT RS. 30.80 LAKHS ON ADVANCES OF RS. 2.20 CRORES AND ADDED THE SAME TO THE TOTAL INCOME. 4. AGGRIEVED WITH THE ORDER, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A). THE LD. CIT(A) NOTED THAT THE FI RST EXPLANATION OF THE ASSESSEE THAT SUCH ADVANCE WAS FO R THE BUSINESS PURPOSE DOES NOT BEAR OUT ON FACTS. NO PRO OF ,OF ANY PURCHASE OR SALE AMONGST ASSESSEE AND ITS TWO CONCER NS HAVE FURNISHED BUT HENCE NO BUSINESS RELATION WAS ESTABLI SHED BETWEEN THE ASSESSEE AND TWO CONCERNS TO WHOM INTERE ST FREE ADVANCE WAS GIVEN. ALSO SINCE EXTENDING INTEREST FRE E LOAN TO SISTER CONCERN DOES NOT COME UNDER THE BUSINESS OBJ ECTIVES OF ASSESSEE AND IT DEFINITELY DO NOT HELP THE EXPANSIO N OF BUSINESS OF THE ASSESSEE. THE LD. CIT(A) HAS ALSO R ELIED IN THE CASE OF HARRISONS MALAYALAM LIMITED, (2012 25 TAXMA N.COM 546 (KERALA), WHEREIN IT WAS HELD THAT INTEREST FREE LOAN IF NOT BEEN GIVEN TO SUBSIDIARY COMPANY, THE ASSESSEE WOULD HAVE MEET ITS FUNDS REQUIREMENT FROM INTERNAL SOURCES. AS REGARDS I.T.A.NO.613/IND/2014 A.Y.2010-11- M/S.PROMED LABORATORIES P.LTD. PAGE 5 OF 10 CONTENTION OF THE ASSESSEE THAT ADVANCES TO SISTER CONCERN WAS GIVEN OUT OF RESERVES AND PROFITS AVAILABLE WITH THE COMPANY WAS ALSO FOUND INCORRECT, BECAUSE OF TWO REASONS, FIR STLY, THE CONSEQUENCE OF AVAILABILITY OF FUNDS OVER THE YEARS , THE RESERVES, PROFITS AND SHARE CAPITAL OF THE COMPANY WERE DULY STANDING IN BALANCE SHEET OF THE COMPANY EVEN IN FI NANCIAL YEAR 2005-06, YET IN THAT YEAR ASSESSEE TOOK A BANK LOAN FOR THE FIRST TIME UNDER CC ACCOUNT OF RS. 2.16 CRORES AND TERM LOAN OF RS. 2.56 CRORES FROM BANK OF BARODA AND AFT ER TAKING SUCH LOAN FROM BANK, THE ASSESSEE EXTENDED ADVANC E OF RS. 77.40 LAKHS TO PRO LABORATORIES PVT.LTD. IN FINANCI AL YEAR 2005-06 AND ADVANCE OF RS.15 LAKHS IN FINANCIAL YEA R 2006-07 TO CECIL PHARMACEUTICAL PVT.LTD. WHICH WENT UP TO RS. 1.40 CRORE IN FINANCIAL YEAR 2008-09. THESE THINGS PROVE D THAT NEED AROSE TO TAKE SUCH BANK LOANS BECAUSE SHARE CAPITAL , RESERVES AND PROFITS OF THE COMPANY WERE ALREADY UTILIZED IN PURCHASE OF FIXED ASSETS OF THE COMPANY, WHICH STOOD AT RS. 8.44 CRORES AS ON 31.03.2010. ACCORDINGLY, THE LD. CIT(A ) HAS UPHELD THE DISALLOWANCE ON INTEREST OF RS. 30.80 LAK HS U/S I.T.A.NO.613/IND/2014 A.Y.2010-11- M/S.PROMED LABORATORIES P.LTD. PAGE 6 OF 10 36(1)(III) OF THE INCOME-TAX ACT, 1961, PLACING REL IANCE ON VARIOUS CASE LAWS IN PARA 5.3, WHICH ARE AS FOLLOWS :- 1) A.MURALI & CO.(P)LTD., (2013) 357 ITR 580 (MAD). 2) SAHU ENTERPRISES (P)LTD.,(2013) 352 ITR 8 (ALL). 3) RAVINDER SINGH ARORA, (2012) 53 SOT 124 (HYD) 4) RAJENDRA PRASAD SUBHASH CHAND, (2012) 344 ITR 533 (RAJ) 5) LACHHIRAM PURANMAL, (2001) 119 TAXMAN 1 (MP). 6) ABHISHEK IND. LIMITED, (2006) 286 ITR 1 (P&H). 5. BEING AGGRIEVED, THE ASSESSEE HAS FILED APPEAL BEFO RE THE TRIBUNAL. 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ADVANCES WERE GIVEN TO TWO CONCERNS IN THE EARLIER Y EARS, WHO WERE MANUFACTURING THE PHARMACEUTICALS AND TO EXPAND THE BUSINESS OF THE ASSESSEE. THESE ADVANCES WERE GIVEN FOR THE MANUFACTURING UNITS IN THE NOTIFIED AREA. THE ADVAN CE TO M/S. CECIL PHARMACEUTICALS WAS TO THE TUNE OF RS. 1.40 CR ORES AS ON 31.03.2009, WHEREIN THE ASSESSEE HELD 50% SHARES. TH E I.T.A.NO.613/IND/2014 A.Y.2010-11- M/S.PROMED LABORATORIES P.LTD. PAGE 7 OF 10 ADVANCE TO M/S. PRO LABORATORIES PRIVATE LIMITED, R OORKEE WAS TO THE TUNE OF RS. 36.11 LAKHS AS ON 31.03.2009, WH EREIN THE ASSESSEE HELD APPROXIMATELY 40 % SHARES. IT WAS SUB MITTED THAT THESE ADVANCES GIVEN IN THE EARLIER YEARS HAVE BEEN REDUCED DURING THE YEAR IN THE CASE OF CECIL PHARMA CEUTICALS. IT HAS COME DOWN TO RS. 1.4 CRORES TO RS. 1.29 CROR ES AND IN THE CASE OF PRO LABORATORIES, IT HAS MARGINALLY INC REASED FROM RS. 36 LAKHS TO RS. 39 LAKHS. IT WOULD BE SEEN FROM THE BALANCE SHEET THAT UNSECURED LOANS HAVE GONE DOWN T O RS. 67 LAKHS TO RS. 54 LAKHS. THE SHARE CAPITAL AND RESERV ES TO THE TUNE OF RS. 6.38 CRORES. THUS, IT COULD VERY WELL B E SEEN THAT NO INTEREST BEARING LOANS ARE UTILIZED FOR THE ADVA NCES TO THESE CONCERNS DURING THE YEAR UNDER CONSIDERATION. IN SU PPORT OF THIS, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSE SSEE HAS PLACED RELIANCE ON THE FOLLOWING DECISIONS :- (I) D & H SECHERON, 142 ITR 528 (M.P.. (II) R. D.JOSHI, 251 ITR 332 (MP) (III) PREM HEAVY ENGINEERS, 285 ITR 554 (ALLD.). (IV) TULIP STAR HOTELS LIMITED, 338 ITR 482 (DEL). I.T.A.NO.613/IND/2014 A.Y.2010-11- M/S.PROMED LABORATORIES P.LTD. PAGE 8 OF 10 (V) RELIANCE COMMUNICATIONS, 207 TAXMAN 219 (BOM). (VI) CIT VS. SHREDEV ENTERPRISES, 192 ITR 165 (KAR). 7. WE HAVE CONSIDERED THE FACTS AND MATERIALS AVAILABL E ON RECORD. WE FIND THAT THE ASSESSEE HAS SHOWN AN A MOUNT OF RS. 2.20 CRORES AS INTEREST FREE ADVANCES, WHICH, IN TER ALIA, INCLUDED INTEREST FREE ADVANCES GIVEN TO M/S. CECIL PHARMACEUTICALS LIMITED OF RS. 1.29 CRORES AND M/S. PRO LABORATORIES PRIVATE LIMITED AT RS. 39 LAKHS BOTH B EING SISTER CONCERNS. WE FURTHER NOTE THAT THE ASSESSEE HAS UN- SECURED LOAN AMOUNTING TO RS. 5.1 CRORES AS AT THE END OF T HE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATIO N. THE ASSESSEE HAS PAID INTEREST ON BANK CHARGES AT RS. 6 9.29 LAKHS. WE FURTHER FIND THAT THE INTEREST FREE ADVANCES GIV EN TO SISTER CONCERN HAVE NO BUSINESS LINK WITH THE ASSESSEE COMP ANY. THE CLAIM OF THE LD. AUTHORIZED REPRESENTATIVE OF T HE ASSESSEE THAT THE ASSESSEE HAD CAPITAL RESERVES TO THE TUNE OF RS. 6.3 CRORES, HENCE, NON-INTEREST BEARING LOAN, WERE DEEME D TO HAVE I.T.A.NO.613/IND/2014 A.Y.2010-11- M/S.PROMED LABORATORIES P.LTD. PAGE 9 OF 10 BEEN UTILIZED FROM THE SAID FUNDS, IS ALSO NOT FOUN D ACCEPTABLE ON THE GROUND THAT THE ASSESSEE COMPANY TOOK A LOAN FOR THE FIRST TIME UNDER C.C. ACCOUNT OF RS. 2.16 CRORES AN D TERM LOAN OF RS. 2.56 CRORES FROM THE BANK OF BARODA, DURING THE FINANCIAL YEAR 2005-06 OUT OF WHICH THE ASSESSEE HAS EXTENDED THE ADVANCE TO THE AFORESAID SISTER CONCERN DURING THE FINANCIAL YEAR 2005-06 ALSO. THIS PROVES THAT THE A SSESSEE NEEDED SUCH A HUGE BANK LOAN, BECAUSE SHARE CAPITAL , RESERVE AND PROFITS OF THE COMPANY, WHICH STOOD AT RS. 8.44 CRORES AS ON 31.03.2010. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT CAPITAL RESERVE STANDING AT RS. 6.38 CRORES AS ON 31.03.2010 STANDS ALREADY UTILIZED TOWARDS INVESTME NT IN FIXED ASSETS. HENCE, THERE WAS NO SURPLUS FUNDS AVA ILABLE WITH THE ASSESSEE FOR MAKING INTEREST FREE ADVANCES TO T HE SISTER CONCERN. THEREFORE, THE CASE LAWS RELIED UPON BY TH E LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ARE DISTI NGUISHABLE ON FACTS AND FACTS AND CIRCUMSTANCES OF THIS PARTIC ULAR CASE AND ARE NOT APPLICABLE. IN THE LIGHT OF THESE FACTS , WE DO NOT FIND ANY INFIRMITY IN THE ORDERS OF LOWER AUTHORITI ES. HENCE, THE I.T.A.NO.613/IND/2014 A.Y.2010-11- M/S.PROMED LABORATORIES P.LTD. PAGE 10 OF 10 PROPORTIONATE DISALLOWANCE OF INTEREST OF RS. 30.80 LAKHS ON ADVANCE OF RS. 2.20 CRORES IS UPHELD. CONSEQUENTLY, ALL THE GROUNDS OF APPEAL STAND DISMISSED. 8. IN THE RESULT, THE APPEAL IS DISMISSED. THE ORDER HAS BEEN PRONOUNCED IN OPEN COURT ON THE 10 TH NOVEMBER, 2016. SD/- (..) (D.T.GARASIA) JUDICIAL MEMBER SD/- (..) (O.P.MEENA) ACCOUNTANT MEMBER * / DATED : 10 TH NOVEMBER, 2016. CPU* 10.11