HUSH INDIA P. LTD, MUMBAI V. ITO 8(2)-1, MUMBAI

ITA 6327/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55661 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2007-2008
• Appeal Filed On: 25-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: RAKESH MILWANI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER, A ND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 6327/MUM./2010 (ASSESSMENT YEAR : 2007-08 ) HUSH INDIA PVT. LTD. 46, SAKI VIHAR ROAD ANDHERI (E), MUMBAI 400 072 PAN AAACP6815F .. APPELLANT V/S INCOME TAX OFFICER WARD-8(2)1, AAYAKAR BHAVAN MAHARSHI KARVE MARG MUMBAI 400 020 .... RESPONDENT ASSESSEE BY : MR. RAKESH MILWANI REVENUE BY : MR. V.V. SHASTRI DATE OF HEARING 13.10.2011 DATE OF ORDER 21.10.2011 O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL PREFERRED BY THE ASSESSEE, IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 5 TH MAY 2010, PASSED BY THE COMMISSIONER (APPEALS)- XVII, MUMBAI, FOR ASSESSMENT YEAR 2007-08, ON THE F OLLOWING GROUNDS:- 1. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLO WANCE OF RS. 251078 OUT OF INTEREST PAID BY THE APPELLANT AND THE SAME OUGHT TO HAVE BEEN ALLOWED. HUSH INDIA PVT. LTD. ITA NO. 6327/MUM./2010 2 2. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE C ASE AND WITHOUT PREJUDICE TO GROUND NO. 1 ABOVE, THE CIT(A) ERRED O N FACTS AND IN LAW IN NOT RESTRICTING DISALLOWANCE TO RS. 201420 BEING DISALLOWANCE ON SAME ISSUE IN EARLIER ASSESSMENT YEAR IN THE MANNER CALCULATED IN ANNEXURE I. 2. THE ASSESSEE IS IN THE BUSINESS OF TRADING. THE FAC TS REGARDING THE DISALLOWANCES ARE BROUGHT OUT AT PAGES-2 AND 3 OF T HE ASSESSMENT ORDER. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HA S GIVEN AN INTEREST FREE ADVANCE OF ` 13,00,383 TO ITS SISTER CONCERN M/S. SOFTEX MANUFA CTURING CO. AS THE ASSESSEE COMPANY HAD ALSO BORROWED FUNDS ON INTEREST. THE ASSESSING OFFICER WAS OF THE VIEW THAT INTEREST BEA RING FUNDS WERE DIVERTED AS INTEREST FREE ADVANCE TO SISTER CONCERN. HE REJE CTED THE CONTENTIONS OF THE ASSESSEE THAT INTEREST FREE FUNDS WERE AVAILABLE WI TH IT BY OBSERVING THAT THE SAME ARE ALREADY BLOCKED / INVESTED IN FIXED ASSETS WORTH ` 42,96,698. THUS, HE DISALLOWED 12% OF THE INTEREST PAID ON BORROWED FUNDS ON AN AMOUNT OF ` 13,00,055. AGGRIEVED, THE ASSESSEE CARRIED THE MATT ER IN APPEAL BUT WITHOUT ANY SUCCESS. FURTHER AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. WE HAVE HEARD THE LEARNED COUNSEL, MR. RAKESH MILWA NI, ON BEHALF OF THE ASSESSEE AND LEARNED DEPARTMENTAL REPRESENTATIV E, MR. V.V. SHASTRI, ON BEHALF OF THE REVENUE. ON A CAREFUL CONSIDERATION O F THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAP ERS ON RECORD, WE HOLD AS FOLLOWS:- 4. THE ASSESSEE HAS ADVANCED THE AMOUNTS IN QUESTION T O THE SISTER CONCERN M/S. SOFTTEX MANUFACTURING CO. IN THE EARLI ER ASSESSMENT YEARS AND THIS AMOUNT OF ` 13,00,383, IS ONLY THE OPENING BALANCE AS AT THIS YEAR. COMING TO THE FACTUAL POSITION, WE FIND THAT THE AS SESSEE HAS BOTH INTEREST FREE FUNDS AS WELL AS INTEREST BEARING FUNDS. ON AN ALYSIS OF THE BALANCE SHEET SHOWS THAT AS ON 31 ST MARCH 2007, THE INTEREST FREE FUNDS ARE ` 25,57,234. AGAINST THIS, THE NET BLOCK I.E., FIXED ASSETS OF ` 18,01,404. THE ASSESSEE ALSO HAS NET CURRENT ASSETS FOR ` 36,50,304. THE SECURED LOANS IN THIS CASE ARE ONLY FROM A SCHEDULED BANK ON HYPOTHECATION OF STOCKS AND THE AMOUNT HUSH INDIA PVT. LTD. ITA NO. 6327/MUM./2010 3 IS ` 23,94,484. IN OTHER WORDS, THE LOAN WAS SANCTIONED FOR A VERY SPECIFIC PURPOSE AND IT WOULD BE WRONG TO ALLEGE DIVERSION O F THE SAME WITHOUT ANY EVIDENCE. 5. ON THE ABOVE FACTUAL MATRIX, WE HOLD THAT THE ASSES SEE HAD SUFFICIENT INTEREST FREE FUNDS WHICH CAN BE PRESUMED TO HAVE B EEN UTILISED FOR THE PURPOSE OF ADVANCING AMOUNTS TO THE SISTER CONCERN. THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S RELIANCE UTILI TIES & POWER LTD. (2009) 313 ITR 340 (BOM.), HELD AS FOLLOWS:- HELD , DISMISSING THE APPEAL, THAT IF THERE WERE FUNDS A VAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN, THE N A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE IN TEREST-FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INT EREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CA SE THIS PRESUMPTION WAS ESTABLISHED CONSIDERING THE FINDING OF FACT BOT H BY THE CIT(A) AND THE TRIBUNAL. THE INTEREST WAS DEDUCTIBLE. 6. THE PRINCIPLES, THEREFORE, WOULD BE THAT IF THERE A RE FUNDS AVAILABLE BOTH INTEREST FREE AND OVER DRAFT AND/OR LOANS TAKE N, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF INTERES T FREE FUNDS GENERATED OR AVAILABLE WITH THE ASSESSEE COMPANY IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. 7. APPLYING THE PROPOSITION LAID DOWN BY THE HON'BLE J URISDICTIONAL HIGH COURT CITED SUPRA, WE AGREE WITH THE CONTENTIONS OF THE LEARNED COUNSEL AND, CONSEQUENTLY, SET ASIDE THE ORDER OF THE COMMISSION ER (APPEALS) AND DELETE THE DISALLOWANCE IN QUESTION. 8. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST OCTOBER 2011 SD/- VIJAY PAL RAO JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 21 ST OCTOBER 2011 HUSH INDIA PVT. LTD. ITA NO. 6327/MUM./2010 4 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, H BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI DATE INITIAL 1. DRAFT DICTATED ON 13.10.2011 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 17.10.2011 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 18.10.2011 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 18.10.2011 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 18.10.2011 SR.PS 6. DATE OF PRONOUNCEMENT 21.10.2011 SR.PS 7. FILE SENT TO THE BENCH CLERK 21.10.2011 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER