DATAMATICS LTD, MUMBAI V. ITO WD 8(1)(3), MUMBAI

ITA 6225/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56234 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 08-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 16-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PA RTHASARATHY NAIK
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, A.M. AND SHRI V. DU RGA RAO, J.M. ITA NO. 5944/MUM/2010 ASSESSMENT YEAR: 2005-06 DY. COMMISSIONER OF INCOME TAX-8(1), APPE LLANT R.NO. 210, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. VS. DATAMATIDS LTD., RESPONDENT UNIT NO. 189, SDF-VI, SEEPZ-SEZ, MIDC, ANDHERI (E), MUMBAI 400 096. (PAN AAACD1347C) ITA NO. 6225/MUM/2010 ASSESSMENT YEAR: 2005-06 DATAMATIDS LTD., APPELLANT UNIT NO. 189, SDF-VI, SEEPZ-SEZ, MIDC, ANDHERI (E), MUMBAI 400 096. (PAN AAACD1347C) VS. DY. COMMISSIONER OF INCOME TAX-8(1), RESP ONDENT R.NO. 210, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. REVENUE BY : MR. PARTHASARATHY NAIK ASSESSEE BY : MR. J.P. BAIRAGRA DATE OF HEARING : 08/12/2011 DATE OF PRONOUNCEMENT : 16/12/2011 ORDER PER V. DURGA RAO, J.M.: THESE ARE THE CROSS APPEALS DIRECTED AGAINST THE OR DER OF CIT(A)- 16, MUMBAI, PASSED ON 28/05/2010 FOR THE ASSESSMENT YEAR 2005-06. ITA NO. 5944 & 6225/M/2010 M/S DATAMATICS LTD. 2 ITA NO. 5944/MUM/2010 APPEAL BY THE REVENUE 2. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION, MADE BY THE AO OF RS. 1,83,15,737/- @ 8% AS NOTIONAL INTEREST ON THE AMOUNT RENDERED TO ITS SISTER CONCERN, WITHOUT APPRECIATIN G THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND TO BE SET ASIDE AND THAT OF THE ITO/ACIT/DCI T BE RESTORED. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD GIVEN INTEREST FREE LOANS TO ITS SUBSIDIARIES CONCERNS AMOUNTING TO RS. 2,22,07,483/-. THE EXPLAN ATION OF THE ASESSSEE BEFORE THE AO WAS THAT SIMILAR ADDITIONS MADE IN AY 2002- 03 & 2003-04 WERE DELETED BY THE ITAT IN ASSESSEE S OWN CASE. THE ASSESSEE RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT, 288 ITR 1(SC) CONTEN DED THAT NO ADDITION ON THIS ACCOUNT MAY BE MADE AS THE INTERES T FREE ADVANCES WERE GIVEN TO ITS SUBSIDIARIES CONCERNS FOR BUSINES S EXPEDIENCY. HOWEVER, THE AO FOUND THAT THE LOANS TO THE SUBSIDI ARIES CONCERNS HAD NEXUS TO THE INTEREST BEARING FUNDS I.E. FROM S ECURED AND UNSECURED LOANS AND, THEREFORE, REJECTED THE CLAIM OF THE ASSESSEE AND MADE ADDITION OF RS. 1,83,15,737/- @ 8% ON THE AMOU NT TENDERED TO ITS SISTER CONCERNS RELYING ON VARIOUS JUDGMENTS. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CI T(A). 4. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT T HE ISSUE HAD BEEN DECIDED BY THE ITAT IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE FOR AY 2004-05. THE CIT(A) FOLLOWING THE DECISION OF T HE ITAT IN ASSESSEES OWN CASE FOR AY 2003-04 & 2006-07, HELD THAT THERE IS NO NEXUS BETWEEN THE FUNDS BORROWED AND FUNDS DIVERTED ON WHICH NOTIONAL INTEREST IS CHARGED. THE APPELLANT HAS SUF FICIENT HIS OWN INTEREST FREE FUNDS IN THE FORM OF CAPITAL, RESERVE , SURPLUS & PROFITS AND ITA NO. 5944 & 6225/M/2010 M/S DATAMATICS LTD. 3 THEREFORE, THE SAME IS SUFFICIENT TO COVER THE ADVA NCES AND LOANS TO ITS SUBSIDIARY COMPANY. IN VIEW OF THE ABOVE FACTS, THE AO IS DIRECTED TO DELETE THE ADDITION. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS CANVASSED THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVE RED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI BENCH D, MUMBAI IN THE OWN CASE OF THE ASSESSEE IN ITA NOS. 6357, 6370, 64 32, & 6431/MUM/08 FOR AY 2004-05 VIDE ORDER DATED 25 TH MARCH, 2010, A COPY OF WHICH HAS BEEN FILED ON RECORD. THE LEARNED DR ON THE OTHER HAND DID NOT CONTROVERT THE SUBMISSION OF THE ASSES SEE NOR BROUGHT ANY CONTRARY DECISION IN THIS REGARD. 6. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PA RTIES AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE I SSUE IN DISPUTE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F ITAT IN ASSESSEES OWN CASE FOR AY 2004-05 (SUPRA) WHEREIN THE TRIBUNA L FOLLOWING ITS DECISION IN AY 2003-04 AND 2002-03 IN ASSESSEES OW N CASE ALLOWED THE GROUND OF APPEAL OF THE ASSESSEE. SINCE THE ISS UE UNDER CONSIDERATION IS IDENTICAL TO THAT OF THE DECISIONS OF THE ITAT IN EARLIER YEARS IN ASSESSEES OWN CASE, RESPECTFULLY FOLLOWIN G THE SAME, WE CONFIRM THE ORDER OF CIT(A) IN DIRECTING THE AO TO DELETE THE ADDITION OF RS. 1,83,15,737/- MADE BY THE AO. THUS, THIS GRO UND OF APPEAL OF THE REVENUE IS DISMISSED. ITA NO. 6225/MUM/10 APPEAL BY THE ASSESSEE 7. IN THIS APPEAL, THE GROUND RAISED BY THE ASSESSE E IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS. 3,00,000/- OUT OF INTEREST PAID U/S 36(1)(III) OF T HE ACT. 8. ON SCRUTINY OF BALANCE SHEET, THE AO NOTICED THA T THE ASSESSEE HAD SHOWN CAPITAL WORK-IN-PROGRESS OF RS. 6,93,06,1 67/-, ON WHICH ITA NO. 5944 & 6225/M/2010 M/S DATAMATICS LTD. 4 THE ASSESSEE WAS NOT ELIGIBLE TO CLAIM INTEREST PAI D IN RESPECT OF CAPITAL WORK-IN-PROGRESS. THEREFORE, ON BEING ASKED BY THE AO TO EXPLAIN AS TO WHY INTEREST PAID IN RESPECT OF ACQUI SITION OF AN ASSET U/S 36(1)(III) NOT PUT TO USE SHOULD NOT BE DISALLO WED AND ADDED BACK TO THE TOTAL INCOME, THE ASSESSEE STATED THAT THEY HAD NOT PAID ANY INTEREST FOR ACQUIRING ASSETS DURING THE YEAR. THE EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO ON ACCOUNT OF T HE FACT THAT THERE WAS CAPITAL WORK-IN-PROGRESS AND THE ASSESSEE WAS P AYING INTEREST TO VARIOUS PERSONS WHICH WAS NOT DISPUTED BY THE ASSES SEE. THE AO WAS OF THE VIEW THAT AS PER SECTION 36(10(III) THE AMOU NT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN A SSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION FOR ANY PERIOD BEGI NNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION O F THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE, SHAL L NOT BE ALLOWED AS DEDUCTION. IN VIEW OF THE ABOVE FACTS, THE AO COMPU TED THE INTEREST U/S 36(1)(III) AT RS. 3,00,000/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL, THE CIT(A) CONFI RMED THE ACTION OF THE AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 9. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THIS ISSUE IS COVERED BY THE DECISION OF ITAT IN ASSESSEES OW N CASE FOR AY 2004- 05 (SUPRA). THE LEARNED DR, ON THE OTHER HAND, DID NOT CONTROVERT THE SAID SUBMISSION. 10. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT THE ISSUE IN DISPUTE IS COVERED BY THE DECISIO N OF ITAT IN ASSESSEES OWN CASE IN AY 2004-05, WHEREIN THE TRIB UNAL HELD AS UNDER:- 36. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE DESER VES TO SUCCEED IN THIS GROUND. CONTENTION OF THE ASSESSEE THAT NO INTEREST HAS BEEN PAID ON BORROWED FUNDS DURING THE YEAR UNDER C ONSIDERATION WAS NOT FOUND FALSE OR INCORRECT. THE ASSETS WERE P URCHASED IN EARLIER YEARS AND THE AMOUNTS WERE CAPITALIZED IN T HAT YEAR. THEREAFTER, NO INTEREST WAS PAID ON THE BORROWED FU NDS DURING THE YEAR UNDER CONSIDERATION. IN OUR CONSIDERED VIE W, THE ITA NO. 5944 & 6225/M/2010 M/S DATAMATICS LTD. 5 DISALLOWANCE ON INTEREST ON ADHOC BASIS WAS NOT JUS TIFIED AT THE END OF THE AO AND THE CIT(A) WAS ALSO NOT JUSTIFIED IN CONFIRMING THE SAME. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTAN CES, WE DELETE THE ADDITION OF RS. 3,00,000/-. 11. SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICA L TO THAT OF THE AY 2004-05, WE RESPECTFULLY FOLLOW THE DECISION OF THE ITAT IN THAT YEAR AND IN THE LIGHT OF THAT WE SET ASIDE THE ORDE R OF CIT(A) AND DELETE THE ADDITION OF RS. 3,00,000/- MADE BY THE A O OUT OF INTEREST PAID U/S 36(1)(III) OF THE ACT. THUS, THE GROUND RA ISED BY THE ASSESSEE IS ALLOWED. 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF DECEMBER, 2011. SD/- SD/- (J. SUDHAKAR REDDY) (V. DU RGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 16 TH DECEMBER, 2011 KV COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, D BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI.