DCIT, Thiruvalla V. M/s Poabs Rocks products P.Ltd, Thiruvalla

ITA 619/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61350 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 22-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHERRY P KURIEN
• Assessee Lawyers: T J VINCENT
• Keywords: Period of limitation; Proportionate interest; Commercial expediency
• Section: 80IB

Judgement Text

1 ITA NOS 574 & 575/COCH/2010 ITA NOS 618 & 619/COCH/2010 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKARA N(AM) I.T.A NO. 574 & 575/COCH/2010 (ASSESSMENT YEARS 2006-07 & 2007-08) POABS ROCK PRODUCTS PVT LTD VS THE DY.CIT, CIR.1 KUTTOR POST, THIRUVALLA THIRUVALLA PATHANAMTHITTA DIST PAN : AACCP8494J (APPELLANT) (RESPONDENT) I.T.A NO. 618& 619/COCH/2010 (ASSESSMENT YEARS 2006-07 & 2007-08) DY.CIT, CIR.1 VS M/S POABS ROCK PRODUCTS PVT L TD THIRUVALLA KUTTOR POST, THIRUVALLA (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI CHERRY P KURIEN RESPONDENT BY : SHRI T.J. VINCENT DATE OF HEARING : 26-03-2012 DATE OF PRONOUNCEMENT : 03-04-2012 O R D E R PER N.R.S. GANESAN (JM) BOTH THE ASSESSEE AND THE REVENUE FILED THE APPEAL S FOR ASSESSMENT YEARS 2006-07 AND 2007-08. SINCE COMMON ISSUES ARISE FOR C ONSIDERATION IN THESE APPEALS WE HEARD THEM TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER. ASSESSEES APPEALS 2 ITA NOS 574 & 575/COCH/2010 ITA NOS 618 & 619/COCH/2010 2. THE FIRST ISSUE FOR THE ASSESSMENT YEAR 2006-07 I S DISALLOWANCE OF RS. 1,01,448 TOWARDS INTEREST. 3. SHRI CHERRY P KURIEN, THE LD.REPRESENTATIVE FOR T HE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS NOT AVAILED ANY INTEREST BEARING W ORKING CAPITAL LOAN. THE LOAN AVAILED BY THE ASSESSEE WAS FOR THE PURPOSE OF ACQU ISITION OF SPECIFIC ASSET. ACCORDING TO THE LD.REPRESENTATIVE, THE TERM LOAN A VAILED BY THE ASSESSEE WAS IN FACT UTILIZED FOR THE PURPOSE OF ACQUISITION OF THE SPECIFIC ASSET. ACCORDING TO THE LD.REPRESENTATIVE, THE ASSESSEE HAS TRANSFERRED SOM E FUNDS TO THE GROUP CONCERNS. THIS TRANSFER WAS NOT OUT OF FINANCE AVA ILED BY THE ASSESSEE. ACCORDING TO THE LD.REPRESENTATIVE, THE FUNDS GENERATED DURIN G THE YEAR UNDER CONSIDERATION WERE TRANSFERRED TO THE GROUP CONCERN . THE LD.REPRESENTATIVE FURTHER SUBMITTED THAT THE BORROWED FUNDS WERE NOT DIVERTED. THEREFORE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN ESTIMATING TH E INTEREST AT 12%. 4. ON THE CONTRARY, SHRI T.J. VINCENT, THE LD.DR SU BMITTED THAT THE ASSESSEE HAS MADE INTEREST FREE ADVANCE TO POABS ORGANICS PV T LTD. THE ASSESSEE HAS NOT INDICATED THE PURPOSE FOR WHICH THE LOAN WAS ADVANC ED OR THE COMMERCIAL EXPEDIENCY WHICH NECESSITATED ADVANCE OF FUNDS BY T HE ASSESSEE. THE ASSESSING OFFICER FOUND THAT THERE WAS NO COMMERCIAL EXPEDIEN CY IN ADVANCING THE FUNDS BY THE ASSESSEE TO GROUP CONCERN. THEREFORE, THE INTE REST PAYABLE ON SUCH FUNDS WAS DISALLOWED. 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS ON EITHER S IDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE TRANSFERRED FUNDS TO GROUP CONCERN. THE ONLY CONTENTION OF THE ASSESSEE IS THAT THE BORROWED FUNDS WERE NOT DIVERTED. THE FUNDS GENERA TED IN THE COURSE OF 3 ITA NOS 574 & 575/COCH/2010 ITA NOS 618 & 619/COCH/2010 BUSINESS ACTIVITY ALONE ARE DIVERTED TO GROUP CONCE RN. THEREFORE, THE ASSESSEE CLAIMS THAT NO PART OF THE INTEREST COULD BE DISALL OWED WHILE COMPUTING THE TAXABLE INCOME. THE FACT REMAINS IS THAT THE ASSES SEE BORROWED FUNDS FOR THE PURPOSE OF BUSINESS AND PAYING INTEREST. WHEN THE ASSESSEE BORROWED FUNDS AND PAYING INTEREST FOR THE PURPOSE OF ACQUISITION OF A SSET IT CANNOT CLAIM THAT THE FUNDS GENERATED OUT OF THE BUSINESS WAS DIVERTED TO GROUP CONCERN. THE FACT REMAINS IS THAT EVEN THOUGH THERE WAS PROFIT FROM T HE BUSINESS THE SAME WAS DIVERTED TO GROUP CONCERN AND THE ASSESSEE BORROWED FUNDS FOR THE PURPOSE OF ACQUIRING THE ASSET. THEREFORE, IT IS FOR THE ASES SEE TO ESTABLISH THE COMMERCIAL EXPEDIENCY IN DIVERTING THE FUNDS TO GROUP CONCERN. NO COMMERCIAL EXPEDIENCY WAS EXPLAINED BY THE ASSESSEE EITHER BEFORE THE LOW ER AUTHORITIES OR BEFORE THIS TRIBUNAL. IT IS ALSO NOT KNOWN FOR WHAT PURPOSE THE FUNDS WERE TRANSFERRED TO GROUP CONCERN. THE MATTER WOULD BE ENTIRELY DIFFER ENT IF THE ASSESSEE EXPLAINED THE PURPOSE FOR WHICH THE FUNDS WERE TRANSFERRED TO GROUP CONCERN. IF THE FUNDS WERE TRANSFERRED FOR BUSINESS OF THE GROUP CONCERN, THEN IT MAY COME WITHIN THE MEANING OF COMMERCIAL EXPEDIENCY. IN THE ABSENCE O F ANY EXPLANATION OF THE ASSESSEE, THIS TRIBUNAL IS OF THE OPINION THAT WHEN THE FUNDS WERE DIVERTED AND THE ASSESSEE PAID INTEREST ON THE BORROWED FUNDS, T HE PROPORTIONATE INTEREST RELATABLE TO FUNDS TRANSFERRED TO GROUP CONCERN HAS TO BE DISALLOWED. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LO WER AUTHORITY. ACCORDINGLY THE SAME IS CONFIRMED. 6. THE NEXT GROUND OF APPEAL IS WITH REGARD TO SALE S PROMOTION EXPENDITURE. DURING THE COURSE OF HEARING, THE LD.REPRESENTATIVE FOR THE ASSESSEE VERY FAIRLY SUBMITTED THAT THE ASSESSEE IS NOT PRESSING THIS GR OUND OF APPEAL. IN VIEW OF THE ABOVE SUBMISSION OF THE LD.REPRESENTATIVE FOR THE A SSESSEE, THE GROUND OF APPEAL RELATING TO SALES PROMOTION EXPENDITURE IS DISALLOW ED, AS NOT PRESSED. 4 ITA NOS 574 & 575/COCH/2010 ITA NOS 618 & 619/COCH/2010 7. NOW COMING TO THE APPEAL FOR ASSESSMENT YEAR 200 7-08, THE FIRST GROUND OF APPEAL IS WITH REGARD TO ADDITION OF RS.1 LAKH TO WARDS THE AMOUNT OUTSTANDING IN THE NAME OF POABS BATTERY CONTAINERS (P) LTD, A SISTER CONCERN OF THE ASSESSEE. 8. SHRI CHERRY P KURIEN, THE LD.REPRESENTATIVE FOR T HE ASSESSEE SUBMITTED THAT AN AMOUNT OF RS.1 LAKH WAS OUTSTANDING FROM THE SIS TER CONCERN POABS BATTERY CONTAINERS (P) LTD FOR THE LAST THREE YEARS. THE A SSESSING OFFICER CAME TO THE CONCLUSION THAT SINCE THREE YEARS PERIOD HAS BEEN EXPIRED, THE LIABILITY WAS BARRED BY LIMITATION. THEREFORE, IT WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. REFERRING TO THE JUDGMENT OF THE APEX CO URT IN COMMISSIONER OF INCOME-TAX VS SUGAULOI SUGAR WORKS (P) LTD (1999) 236 ITR 518 (SC), THE LD.REPRESENTATIVE SUBMITTED THAT EXPIRY OF LIMITATI ON PERIOD UNDER LIMITATION ACT CANNOT EXTINGUISH THE DEBT BUT IT WILL PREVENT THE CREDITOR FROM ENFORCING THE DEBT. THEREFORE, SECTION 41(1) OF THE ACT HAS NO A PPLICATION AT ALL. 9. WE HEARD THE LD.DR SHRI T.J. VINCENT ALSO. THE LD.DR PLACED HAS PLACED HIS RELIANCE ON THE OBSERVATION MADE BY THE COMMISSIONE R OF INCOME-TAX(A). 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OF FICER ADDED THE OUTSTANDING AMOUNT IN THE NAME OF SISTER CONCERN SINCE THREE YE ARS PERIOD HAS BEEN EXPIRED. NO DOUBT, FOR RECOVERY OF ANY AMOUNT THE LIMITATION PROVIDED UNDER THE LIMITATION ACT IS THREE YEARS. THE THREE YEARS PE RIOD IS ONLY TO ENFORCE THE RECOVERY OF THE DEBT THROUGH COURT OF LAW. HOWEVER , IT WILL NOT EXTINGUISH THE DEBT. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF THE APEX COURT IN THE CASE OF SUGAULI SUGAR MILLS LTD (SUPRA). IN THE CA SE BEFORE THE APEX COURT, THE 5 ITA NOS 574 & 575/COCH/2010 ITA NOS 618 & 619/COCH/2010 ASSESSEE TRANSFERRED CERTAIN ADVANCES AND DEPOSITS OUT OF THE SUSPENSE ACCOUNT TO CAPITAL RESERVE. THE INCOME-TAX OFFICER CAME TO THE CONCLUSION THAT THE LIABILITY HAD COME TO AN END SINCE THE CREDITOR HAS NOT TAKEN ANY STEPS TO RECOVER THE AMOUNT. ON THESE FACTS, THE APEX COURT, AFTER CONSIDERING THE PROVISIONS OF SECTION 41(1) FOUND THAT THE PRINCIPLE THAT THE EXP IRY OF PERIOD OF LIMITATION PRESCRIBED UNDER THE LIMITATION ACT CANNOT EXTINGUI SH THE DEBT BUT IT WILL ONLY PREVENT THE CREDITOR FROM ENFORCING THE DEBT. THER EFORE, THE PROVISIONS OF SECTION 41(1) ARE NOT APPLICABLE. IN VIEW OF THE J UDGMENT OF THE APEX COURT, THE PROVISIONS OF SECTION 41(1) ARE NOT APPLICABLE TO T HE FACTS OF THE CASE ON HAND. THEREFORE, THE ASSESSING OFFICER IS NOT JUSTIFIED I N ADDING BACK THE AMOUNT OF RS.1 LAKH TO THE TOTAL INCOME OF THE ASSESSEE. ACCORDING LY, BY RESPECTFULLY FOLLOWING THE JUDGMENT OF THE APEX COURT IN SUGAULI SUGAR MIL LS LTD (SUPRA) WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DIRECT THE ASSESSIN G OFFICER TO DELETE THE ADDITION OF RS.1 LAKH. 11. THE NEXT GROUND OF APPEAL IS WITH REGARD TO SAL ES PROMOTION EXPENDITURE. DURING THE COURSE OF HEARING, THE LD.REPRESENTATIVE FOR THE ASSESSEE VERY FAIRLY SUBMITTED THAT THE ASSESSEE IS NOT PRESSING THIS GR OUND OF APPEAL. IN VIEW OF THE ABOVE SUBMISSION OF THE LD.REPRESENTATIVE FOR THE A SSESSEE, THE GROUND OF APPEAL RELATING TO SALES PROMOTION EXPENDITURE IS DISALLOW ED, AS NOT PRESSED. REVENUES APPEAL 12. NOW COMING TO THE DEPARTMENTAL APPEAL, THE ONLY ISSUE ARISES FOR CONSIDERATION IN THE APPEALS FOR ASSESSMENT YEARS 2 006-07 AND 2007-08 IS WITH REGARD TO DEDUCTION U/S 80IB FOR EXTRACTING GRANITE FROM GRANITE HILLS AND CRUSHING GRANITE BOULDERS. 6 ITA NOS 574 & 575/COCH/2010 ITA NOS 618 & 619/COCH/2010 13. THE LD. DR SUBMITTED THAT EXTRACTING GRANITE FR OM GRANITE HILLS CANNOT BE CONSIDERED TO BE A MANUFACTURING ACTIVITY. REFERRI NG TO THE DEFINITION INTRODUCED BY FINANCE ACT, 2009, THE LD.DR SUBMITTED THAT NO D ISTINCT ARTICLE OR OBJECT WAS CREATED BY CRUSHING GRANITE BOULDERS INTO SMALL PIE CES AND THE CHARACTER OF THE ORIGINAL ARTICLE DOES NOT CHANGE SO AS TO AMOUNT TO MANUFACTURING ACTIVITY. 14. ON THE CONTRARY, THE LD.REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE DEFINITION OF MANUFACTURE WAS INTRODUCED BY FINAN CE ACT, 2009. THE ASSESSMENT YEARS UNDER CONSIDERATION ARE 2006-07 AND 2007-08, THEREFORE, THE DEFINITION INTRODUCED BY FINANCE ACT, 2009 IS NOT A PPLICABLE TO THE FACTS OF THE CASE. FOR THE EARLIER ASSESSMENT YEAR, THIS TRIBUN AL HAD AN OCCASION TO CONSIDER THE VERY CLAIM OF THE ASSESSEE AND THIS TRIBUNAL FO UND THAT THE ACTIVITY OF THE ASSESSEE IS MANUFACTURE AND ENTITLED FOR DEDUCTION U/S 80IB OF THE ACT. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. AS RIGHTLY SUBMIT TED BY THE LD. REPRESENTATIVE FOR THE ASSESSEE, THE TRIBUNAL HAD AN OCCASION TO CONSI DER THE VERY SAME ISSUE IN THE ASSESSEES OWN CASE AND FOUND THAT THE ACTIVITY OF THE ASSESSEE AMOUNTS TO MANUFACTURE. THIS TRIBUNAL HAS PLACED ITS RELIANCE ON ITS EARLIER DECISION IN PANACHAYIL INDUSTRIES (ITA NOS 336, 337 & 338/COCH/ 2002) DATED 01-01-2004. SINCE THE ACTIVITY OF THE ASSESSEE WAS CONSIDERED B Y THE CO-ORDINATE BENCH OF THIS TRIBUNAL AND HELD TO BE MANUFACTURING ACTIVITY ENTI TLED FOR DEDUCTION U/S 80IB, FOR THE SAKE OF CONSISTENCY, FOLLOWING EARLIER ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE WE HOLD THAT THE ASSESSEE IS ENTITLED FOR DEDU CTION U/ 80IB OF THE ACT. MOREOVER, AS RIGHTLY SUBMITTED BY THE LD.REPRESENTA TIVE FOR THE ASSESSEE, THE NEW DEFINITION INTRODUCED BY FINANCE ACT, 2007 IS NOT A PPLICABLE TO THE ASSESSMENT YEARS UNDER CONSIDERATION. THEREFORE, THE DECISION OF THE CO-ORDINATE BENCH IN 7 ITA NOS 574 & 575/COCH/2010 ITA NOS 618 & 619/COCH/2010 ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001-02 IN I TA NO. 495/COCH/2004 IS APPLICABLE TO THE CASE OF THE ASSESSEE. BY FOLLOWI NG THE ORDER OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 200 1-02 WE UPHOLD THE ORDER OF COMMISSIONER OF INCOME-TAX(A). 16. IN THE RESULT, ITA NO.574/COCH/2010 IS DISMISSE D, ITA NO.575/COCH/2010 IS PARTLY ALLOWED AND ITA NOS 618 & 619/COCH/2010 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON THIS 03-04-2012. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 03 RD APRIL, 2012 PK/- COPY TO: 1. POABS ROCK PRODUCTS PVT LTD, KUTTOR, TIRUVALLA, PATHA NAMTHITTA DIST. 2. A.C.I.T.,CIR.1, THIRUVALLA 3. THE C.I.T.(A)-I, TRIVANDRUM 4. C.I.T., TRIVANDRUM 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH