D.C.I.T. 5(2), MUMBAI V. MOHIT DIAMONDS PVT. LTD., MUMBAI

ITA 6736/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9019 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 07-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K MEHTA
• Assessee Lawyers: B V JHAVERI
• Keywords: Commercial expediency

Judgement Text

PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT & SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER I.T.A.NO. 6736/MUM/2011 ASSESSMENT YEAR - 2008-09 DY. COMMISSIONER OF I.T. 5(2), MUMBAI. VS. M/S MOHIT DIAMONDS PVT. LTD., 5 TH FLOOR, MEHTA BHAVAN, 311 NEW CHARNI ROAD, MUMBAI 400 004. PAN: AAACM 2843 A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N. K. MEHTA. RESPONDENT BY : SHRI B. V. JHAVERI. DATE OF HEARING: 06-09-2012. DATE OF PRONOUNCEMENT: 14-09-2012. O R D E R PER D.KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ARISES OUT OF THE CIT(A)S ORDER DATED 16-07-2011 FOR THE AY 2008-09. THE GROUND RAI SED BY THE REVENUE READS AS UNDER: WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS RIGHT IN DELETING THE DISALLOWANCE O F INTEREST OF RS.16,73,645/- RELYING ON THE DECISION OF HON'BLE S UPREME COURT IN THE CASE OF M/S S.A. BUILDERS (288 ITR 1) WITHOUT A PPRECIATING THE FACT THAT THE ASSESSEE FAILED TO ESTABLISH THE COMMERCIA L EXPEDIENCY IN ADVANCING THE LOANS TO THE SISTER CONCERNS. 2. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THE ISSUE OF DISALLOWANCE OF INTEREST EXPENDITURE CAME UP FOR CONSIDERATION OF THE ITAT FOR THE IMMEDIATELY PRECEDING ASSESSMEN T YEAR 2007-08 IN THE ASSESSEES OWN CASE AND HE REFERRED TO PAGE 29 OF THE PAPER BOOK. ON FACTS, LD COUNSEL MENTIONED THAT THE ASSESSEE DE BITED INTEREST EXPENDITURE AND AO DISALLOWED THE CLAIM TO THE EXTE NT OF RS. 16,73,645/- HOLDING THAT THE SAME IS RELATABLE TO T HE INTEREST FREE LOANS GIVEN TO THE GROUP CONCERNS OF THE ASSESSEE. CIT(A ) DELETED THE SAME ITA NO. 6736 OF 2011 MOHIT EDITED PAGE 2 OF 5 VIDE REASONS GIVEN IN PARA 2.2 OF HIS ORDER. IN THE PROCESS, CIT(A) FOLLOWED HIS ORDER FOR THE AY 2007-08 AND RELIED ON THE APEX COURTS JUDGMENT IN THE CASE OF S A BUILDERS 288 ITR 1 AS W ELL AS THE JURISDICTIONAL HIGH COURTS JUDGMENT IN THE CASE OF RELIANCE UTILITIES & POWER LTD, 313 ITR 340. THE CIT(A) MENTIONED THAT T HE LOANS GIVEN TO SISTER CONCERNS ARE THE SAME. THE REVENUE IS AGGRIE VED WITH THE SAID RELIEF AND RAISED THE ABOVE GROUND BEFORE US. 3. IN THIS REGARD, LD. COUNSEL FOR THE ASSESSEE FIL ED WRITTEN SUBMISSIONS WHEREIN HE MENTIONED THAT THE ASSESSEE HAS NON-INTEREST BEARING FUNDS WHICH WERE GIVEN TO THE SUBSIDIARY CO MPANIES, VIZ., (I) M/S MOHIT JEWELLERY PVT. LTD., (II) M/S MOHIRA JEWE LLERY PVT. LTD., AND (III) M/S EMAAR DIAMONDS PVT. LTD. BY WAY OF WRITTE N SUBMISSIONS, LD COUNSEL DESCRIBED AS HOW THE ABOVE CITED JUDGMENTS ARE APPLICABLE TO THE FACTS OF THE GROUND RAISED BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE ALSO MENTIONED THAT IDENTICAL ARGUMENTS SU BMITTED BEFORE THE TRIBUNAL IN CONNECTION WITH THE APPEAL FOR A.Y 2007 -08 WERE CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE I N THE APPEAL I.T.A. NO. 2097/MUM/2011 AND THE REVENUES APPEAL FOR THAT YEAR WAS ALSO DISMISSED AS PER THE DISCUSSIONS GIVEN IN PARAS 2 & 3 OF THE SAID ORDER OF THE TRIBUNAL DATED 31-07-2012. THE LD. COUNSEL F OR THE ASSESSEE SUBMITTED THAT THE FACTS RELATING TO THE INTEREST D ISALLOWANCE ARE IDENTICAL IN BOTH THE ASSESSMENT YEARS. THEREFORE, THE DECISION OF THE CO-ORDINATE BENCH IS REQUIRED TO BE FOLLOWED. ON T HE OTHER HAND, LD. DR RELIED ON THE ORDER OF THE AO. 4. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE ORDE RS OF THE REVENUE, THE PAPER BOOK FILED BEFORE US, CITED ORDE RS OF THE HIGHER JUDICIARY AND THE ORDER OF THE TRIBUNAL DATED 31-7- 2012 (SUPRA) IN THE ASSESSEES OWN CASE. IT IS NOT THE CASE OF THE REVE NUE THAT FACTS WERE NOT COMPARABLE IN BOTH THE YEARS. THE CONTENTS OF P ARA 2.2 OF THE ORDER OF THE CIT(A) BEARS WITNESS TO THE REMARKS OF THE CIT(A) THAT THE LOANS GIVEN TO THE SUBSIDIARY COMPANIES BOTH IN A.Y 2007-08 AS WELL AS ITA NO. 6736 OF 2011 MOHIT EDITED PAGE 3 OF 5 IN THE CURRENT YEAR, ARE THE SAME. REVENUE HAS NOT DEMONSTRATED THAT THE CITED JUDGMENTS HAVE NO APPLICABLE TO THE FACTS OF THE CASE. 5. THE PERUSAL OF THE CITED ORDER OF THE TRIBUNAL R EVEALED THAT THE RELIEF WAS GRANTED TO THE ASSESSEE ON FINDING THE A PPLICABILITY OF THE JUDGMENTS OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWERS LTD. [SUPRA] AND THAT OF HON'BLE SUPREME COURT IN THE CASE OF S. A. BUILDERS (SUPRA) AND FINALLY DISM ISSED THE APPEAL OF THE REVENUE. NOTHING CONTRARY IS BROUGHT BEFORE US BY THE REVENUE TO SHOW THAT THE ASSESSEE DID NOT HAVE EXCESS FUNDS OR NON INTEREST BEARING FUNDS AND THE LOANS GIVEN BY THE ASSESSEE W ERE NOT USED FOR THE PURPOSE OF COMMERCIAL EXPEDIENCY BY THE REVENUE . FOR THE PURPOSE OF COMPLETENESS OF THIS ORDER, WE REPRODUCE THE REL EVANT PARAS 2 AND 3 OF THE TRIBUNALS ORDER IN ASSESSEES OWN CASE IN I .T.A. NO.2097/M/2011 WHICH ARE AS UNDER: 2. THE FIRST GROUND IS A AGAINST THE DELETION OF DI SALLOWANCE OF INTEREST OF RS. 45,78,389/-. BRIEFLY STATED THE FAC TS OF THIS GROUND ARE THAT THE ASSESSEE ADVANCED LOAN TO ITS SISTER C ONCERN. THE ASSESSING OFFICER OBSERVED THAT THE AVERAGE AMOUNT OF LOAN FOR THE YEAR ENDING 31.3.2006 WAS AT RS. 7,41,76,000/-. CON SIDERING THE TOTAL AMOUNT OF INTEREST PAID BY THE ASSESSEE TO BA NK ON THE OVERALL INTEREST BEARING FUNDS, THE AO COMPUTED PROPORTIONA TE DISALLOWANCE ON INTEREST AT RS. 45,78,389/- AS RELA TABLE TO SUCH INTEREST FREE LOAN ADVANCED BY THE ASSESSEE TO ITS SISTER CONCERNS AMOUNTING TO RS. 7.41 CRORE. THE LD. CIT (A) DELETE D THE ADDITION BY RELYING ON THE JUDGMENT IN THE CASE OF M/S. S.A. BUILDERS VS. CIT (2007) 288 ITR 1 (SC). 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE RATIO DECIDENDI OF THIS JUDGMENT IS THAT INTEREST ON BORROWED LOANS ADVANCE D TO A SISTER CONCERN WITHOUT INTEREST IS ALLOWABLE AS DEDUCTION IF THERE IS A COMMERCIAL EXPEDIENCY IN ADVANCING SUCH LOANS. TO D ECIDE THE COMMERCIAL EXPEDIENCY , IT IS IMPORTANT TO EXAMINE THE PURPOSE FOR WHICH THE ASSESSEE ADVANCED MONEY TO THE SISTER CONCERN AND WHAT THE SISTER CONCERN DID WITH THIS MONEY. WHERE THE BORROWED MONEY IS UTILIZED BY THE SUBSIDIARY FOR SOME BUSINE SS PURPOSES, THERE CAN BE NO DENIAL OF DEDUCTION. THE HONBLE SU PREME COURT IN THAT CASE, AFTER LAYING DOWN THE BROAD PARAMETERS, REMITTED THE MATTER TO THE FILE OF THE TRIBUNAL FOR CONSIDERATIO N AND TAKING A FRESH DECISION IN THE LIGHT OF THE BROADER GUIDELINES LAI D DOWN BY IT. EXCEPT FOR THE SUBMISSIONS MADE BY THE LEARNED AR, THERE IS NO MATERIAL TO DEMONSTRATE AS TO HOW THE SUBSIDIARY CO MPANY UTILIZED THE FUNDS BORROWED FROM THE ASSESSEE COMPANY. IN SU CH A SITUATION, THE ACTION OF THE LD. CIT (A) IN DELETIN G THE ADDITION BY ITA NO. 6736 OF 2011 MOHIT EDITED PAGE 4 OF 5 RELYING STRONGLY ON THE JUDGMENT OF THE HONBLE SUP REME COURT IN THE CASE OF M/S. S.A. BUILDERS (SUPRA) CANNOT BE SU STAINED. THE LEARNED AR POINTED OUT THAT THE ASSESSEE HAD SHAREH OLDERS FUNDS INCLUDING SHARE CAPITAL ALONG WITH RESERVE AND SURP LUS TO THE TUNE OF RS. 72.19 CRORES AT THE END OF THE YEAR AND THE CORRESPONDING FIGURE FOR THE PRECEDING YEAR STOOD AT RS. 67.85 LA CS. THE ABOVE REFERRED FIGURES ARE APPARENT FROM THE COPY OF BALA NCE SHEET AVAILABLE ON RECORD. WHEN WE CONSIDER THE AMOUNT OF AVERAGE LOAN ADVANCED BY THE ASSESSEE TO ITS SISTER CONCERN, AS TAKEN BY THE AO, AT RS. 7.41 CRORES, WE OBSERVE THAT SUCH INTERE ST FREE LOAN IS FAR SHORT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE IN THE FORM OF SHAREHOLDERS FUNDS. THE HONBLE JURISDICTI ONAL HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LIMITED (2009) 313 ITR 340 (BOM.) HAS HELD THAT IF THERE ARE INTER EST FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENTLY IN EXCESS OF ITS INVESTMENT AND AT THE SAME TIME THE ASSESSEE HAS ALSO RAISED A LOA N, IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM INTEREST FR EE FUNDS AVAILABLE. IN VIEW OF THE FACT THAT THE INTEREST FR EE FUNDS ADVANCED BY THE ASSESSEE TO ITS SUBSIDIARY COMPANY ARE MUCH LESS THAN THE INTEREST FREE FUNDS AVAILABLE WITH IT IN THE SHAPE OF SHARE CAPITAL ALONG WITH RESERVE AND SURPLUS, IN OUR CONSIDERED O PINION THERE CAN BE NO QUESTION OF SUSTAINING ANY ADDITION IN TH IS REGARD. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER BUT FROM A DIF FERENT ANGLE. THIS GROUND IS NOT ALLOWED. 6. THE AVAILABILITY OF THE INTEREST FREE FUNDS ADEQ UATE ENOUGH TO ACCOUNT FOR THE ADVANCES GIVEN BY THE ASSESSEE TO T HE SISTER CONCERN IN THE RELEVANT YEAR IS A RELEVANT FACTOR. ON THE ORDE R SIDE, THE USE OF THE FUNDS BY THE LOSSES MAKING SISTER CONCERNS FOR THEI R BUSINESS ACTIVITIES IS ANOTHER FACTOR. ON BOTH THE FRONTS, THE TRIBUNAL HAS ALREADY OPINED IN FAVOUR OF THE ASSESSEE WHILE DECIDING THE APPEAL FOR THE AY 2007-08. CONSIDERING THE ABOVE SETTLED POSITION ON FACTS AS WELL AS LAW, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) . ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 14/9/2012. SD/- SD/- (D.MANMOHAN) (D.KARUNAKARA RAO) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI: 14-09-2012. P/-* ITA NO. 6736 OF 2011 MOHIT EDITED PAGE 5 OF 5