KIRAN GEMS P.LTD, MUMBAI V. ADDL CIT 5(2), MUMBAI

ITA 7403/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3626 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-03-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 14-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M MURLIDR
• Assessee Lawyers: K A VAIDYALINGAM
• Keywords: Capital asset
• Section: 142(1); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO.7403/MUM/2012 ASSESSMENT YEAR-2008-09 M/S KIRAN GEMS PRIVATE LTD. FE 5011, BHARAT DIAMOND BOURSE, G-BLOCK, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI-400051 / VS. ADDL.CIT - 5(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 PAN NO.AADCK1665M ( / ASSESSEE) ( / REVENUE) / ASSESSEE BY SHRI K.A. VAIDYALINGAM / REVENUE BY SHRI M. MURLI-DR / DATE OF HEARING : 21/03/2016 / DATE OF ORDER: 21/03/2016 ITA NO.7403/MUM/2012 M/S KIRAN GEMS P. LTD. 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DATED 24/09/2012 OF THE LD. FIRST APPELLATE AUTHORI TY, MUMBAI. 2. DURING HEARING, THE LD. COUNSEL FOR THE ASSESS EE, SHRI K.A. VAIDYALINGAM DID NOT PRESS GROUNDS NO.3 T O 6, IN THE GROUNDS OF APPEAL, TO WHICH THE LD. DR, SHRI M. MURLI HAD NO OBJECTION, THEREFORE, THESE GROUNDS ARE DISM ISSED AS NOT PRESSED. 2.1. THE ONLY GROUNDS AGITATED BY THE LD. COUNSEL FOR THE ASSESSEE ARE GROUNDS NO. 1 AND 2, WHICH PERTAIN S TO UPHOLDING THE DISALLOWANCE OF INTEREST AMOUNTING TO RS.9,93,457/- MADE U/S 36(1)(III) OF THE ACT WITHOU T APPRECIATING THE FACTS THAT OWN FUNDS WERE UTILIZED FOR ACQUISITION OF CAPITAL ASSET AND NOT THE BORROWED F UNDS. RELIANCE WAS PLACED BY THE ASSESSEE UPON THE DECISI ON FROM HONBLE JURISDICTIONAL HIGH COURT IN CIT VS HD FC BANK LTD. (2014) 366 ITR 505 (BOM.) ORDER DATED 23/07/2014 AND ALSO WRIT PETITION IN HDFC BANK LTD. VS DCIT (W.P. NO.1753 OF 2016) ORDER DATED 25/02/2016. 2.2. ON THE OTHER HAND, THE LD. DR, SHRI M. MURLI, MERELY RELIED UPON THE DECISION OF THE ASSESSING OFFICER/COMMISSIONER OF INCOME TAX (APPEALS). ITA NO.7403/MUM/2012 M/S KIRAN GEMS P. LTD. 3 2.3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE IS ENGAGED IN IMPORT OF ROUGH DIAMONDS, CUTTING POLISHING AND EXPORT OF DIAMONDS, DECLARED INCOME OF RS.21,76,42,072/- FILED ON 23/09/2008. THE CASE OF THE ASSESSEE WAS SELECTED F OR SCRUTINY, THEREFORE, NOTICES U/S 143(2) AND 142(1) WERE SERVED UPON THE ASSESSEE. IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE PAID INTEREST O N BUSINESS ADVANCED OBTAINED FROM BANKS TO THE TUNE O F RS.19,48,21,282/- ON THE TOTAL LOANS AS ON CLOSE OF BALANCE SHEET, IT WAS RS.620.99 CRORES AND THE RESERVE AND CAPITAL WAS ONLY RS.124.53 CRORES. THE ASSESSEE COMPANY GAV E ADVANCE FOR PURCHASE OF BUSINESS PREMISES IN BHARAT DIAMOND BOARS AND OTHER IMMOVABLE PROPERTIES INCLUD ING AMBY VALLEY PROJECTS, GUJARAT HIRA BOARS, EVEREST ELECTRICALS, SUZLON ENERGY AND VESTAS RRB INDI, ETC . THE AVERAGE BALANCE, DURING THE YEAR WAS COMPUTED AT RS.6,08,05,929/-. SINCE, THERE WERE ADVANCES FOR F IXED ASSETS AND THEY WERE NOT PUT TO USE, THEREFORE, PROPORTIONATE DISALLOWANCE OF INTEREST WAS PROPOSED . IT WAS FURTHER OBSERVED BY THE ASSESSING OFFICER THAT THER E WERE NO SPECIFIC BORROWINGS MADE FOR MAKING THIS PAYMENT AND THE ASSESSEE COMPANY HAD OWN FUNDS IN THE FORM OF S HARE CAPITAL, SHARE PREMIUM AND ACCUMULATED PROFIT OF RS.124.54 CRORES AND UNSECURED INTEREST FREE LOANS OF RS.74.78 CRORES ON THE LAST DAY OF THE YEAR. THE L D. ITA NO.7403/MUM/2012 M/S KIRAN GEMS P. LTD. 4 ASSESSING OFFICER WAS OF THE VIEW THAT WHEN THE ASS ESSEE WAS HAVING OWN FUNDS THEN WHY THE INTEREST TO THE T UNE OF RS.19,48,21,282/- WAS PAID TO BANKS AND SINCE THE ACCOUNTS ARE MIXED AND NO NEXUS WAS PROVED BY THE ASSESSEE, THEREFORE, HE MADE DISALLOWANCE OF THE CL AIMED INTEREST OF RS.9,93,475/-. ON APPEAL, THE LD. COMM ISSIONER OF INCOME TAX (APPEALS) AFFIRMED THE STAND OF THE A SSESSING OFFICER. THE ASSESSEE IS IN FURTHER APPEAL BEFORE T HIS TRIBUNAL. 2.4. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF K EPT IN JUXTAPOSITION AND ANALYZED, WE FIND THAT THE RATIO LAID DOWN IN CIT VS RELIANCE UTILITIES AND POWER LTD (2009) 3 13 ITR 340 (BOM.), WHEREIN, THE ASSESSEE WAS HAVING SUFFIC IENT INTEREST FREE FUNDS OF ITS OWN AND APART FROM SUBST ANTIAL SHARE HOLDER FUNDS, IT IS PRESUMED THAT INVESTMENT IN SISTER CONCERN WERE MADE BY THE ASSESSEE OUT OF INT EREST FREE FUNDS, THUS, NO PART OF INTEREST ON BORROWINGS CAN BE DISALLOWED ON THE BASIS THAT INVESTMENT WERE MADE O UT OF INTEREST BEARING FUNDS, SUPPORTS THE CASE OF THE AS SESSEE. LIKEWISE, HONBLE HIGH COURT IN CIT VS HDFC BANK L TD. (366 ITR 505) (BOM.), TOOK IDENTICAL VIEW. IT IS N OTEWORTHY THAT WHILE COMING TO A PARTICULAR CONCLUSION, THE H ONBLE JURISDICTIONAL HIGH COURT, DULY CONSIDERED THE DECI SION IN ITA NO.7403/MUM/2012 M/S KIRAN GEMS P. LTD. 5 RELIANCE UTILITIES AND POWER LTD. (SUPRA) ALONG WIT H THE CASE OF AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION VS CIT (2002) 258 ITR 601, CIT VS M/S L ORD KRISHNA BANK LTD. (NOW MERGE WITH HDFC BANK LTD.) O RDER DATED 04/07/2014 (ITA NO.1079 OF 2012). IDENTICALL Y, THE HONBLE HIGH COURT IN HDFC BANK LTD. VS DCIT (W.P. NO.1753 OF 2016) ORDER DATED 25/02/2016 IN PARA 11 (A) OBSERVED AS UNDER:- ONE MORE ASPECT WHICH NEEDS TO BE ADVERTED TO AND T HAT IS A DECISION WOULD BE CONSIDERED TO BE A BINDING PRECEDENT ONLY IF IT DEALS WITH/DECIDES AN ISSUE WHICH IS SUBJECT MATTER OF CONSIDERATION/DECISION B EFORE A COORDINATE OR SUBORDINATE COURT. IT IS AXIOMATIC THAT A DECISION CANNOT BE RELIED UPON IN SUPPORT OF THE PROPOSITION THAT IT DID NOT DECIDE. (MITTAL ENGINEERING V. COLL,OF CENTRAL EXCISE 1997 (1)SCC 203).THEREFORE IT IS ONL Y THE RATIO DECIDENDI I.E. THE PRINCIPLE OF LAW THAT DECIDES THE DISPUTE WHICH CAN BE RELIED UPON AS PRECEDENT AND NOT ANY OBITER DICTUM OR CASUAL OBSER VATIONS. (GIRNAR TEA VS. STATE OF MAHARASHTRA 2007(7) SCC 555 AND SHIN ESTU CHEMICAL CO. LTD V. AKSH OPTICFIBRE LTD. 2005 (7) SCC 234). KEEPING THE AFORESAID POSITION OF LAW IN MIND, WE S HALL NOW EXAMINE THE IMPUGNED ORDER OF THE TRIBUNAL. THE ISSUE BEFORE TH E TRIBUNAL AS RAISED BY THE PETITIONER WAS THAT SECTION 14A WOULD HAVE NO A PPLICATION TO DISALLOW INTEREST EXPENDITURE ON FUND BORROWED IN RESPECT OF THE TAX FREE RETURNS ON THE SECURITIES FOR THE FOLLOWING TWO REASONS: THE PETIT IONER POSSESSED OF SUFFICIENT INTEREST FREE FUNDS OF RS.2153 CRORES AGAINST THE I NVESTMENT IN TAX FREE SECURITIES OF RS. 52.05 CRORES. CONSEQUENTLY, THERE IS A PRESUMPTION THAT THE INVESTMENT WHICH HAS BEEN MADE IN THE TAX FREE SECU RITIES HAS COME OUT OF THE INTEREST FREE FUNDS AVAILABLE WITH THE PETITION ER. THIS IS SO AS IT BEEN HELD BY THIS COURT IN THE PETITIONERS OWN CASE FOR AN E ARLIER AY BEING HDFC BANK LTD. IN ANY EVENT, THE TAX FREE INVESTMENTS IN SECU RITIES WERE THE PETITIONERS STOCK IN TRADE. CONSEQUENTLY, THERE WOULD BE NO OCC ASION TO INVOKE SECTION 14A AS HELD BY THIS COURT IN INDIA ADVANTAGE SECURI TIES LTD. WHEREIN THE REVENUES APPEAL FROM THE ORDER OF THE TRIBUNAL WAS DISMISSED, TO CONTEND THAT NO DISALLOWANCE CAN BE UNDER SECTION 14A IN RE SPECT OF EXEMPTED INCOME ARISING FROM STOCK IN TRADE. ONE MORE FACT WHICH MUST BE EMPHASIZED IS THAT MERE LY BECAUSE A DECISION HAS BEEN CITED BEFORE THE COURT AND A REFERENCE TO THAT HAS BEEN MADE IN THE ORDER OF THE COURT SUCH AS IN THE CASE OF GODREJ AN D BOYCE MANUFACTURING ITA NO.7403/MUM/2012 M/S KIRAN GEMS P. LTD. 6 CO. LTD. REFERENCE WAS MADE TO CIT VS. RELIANCE UTI LITIES AND POWER LTD. 313 ITR 340 BY ITSELF WOULD NOT LEAD TO THE CONCLUSION THAT RELIANCE UTILITIES AND POWER LTD. BEEN CONSIDERED AND THE OPINION ON THE S AME BEEN RENDERED IN THE CASE OF GODREJ AND BOYCE MANUFACTURING CO. LTD. THE TEST TO DECIDE WHETHER OR NOT TWO DECISIONS ARE IN CONFLICT WITH E ACH OTHER IS TO FIRST DETERMINE THE RATIO OF BOTH THE CASES AND IF THE RA TIO IN BOTH CASES ARE IN CONFLICT TO EACH OTHER, THEN ALONE, CAN IT BE SAID THAT THE TWO DECISIONS ARE IN CONFLICT. WE FIND THAT NO SUCH EXERCISE HAS BEEN DO NE IN CURRENT CASE. IT IS CLEAR THAT FOR THE FIRST TIME IN THE CASE OF HDFC BANK LTD., THIS COURT TOOK A VIEW THAT THE PRESUMPTION WHICH HAS BEEN LAID DOW N IN RELIANCE UTILITIES AND POWER LTD. WITH REGARD TO INVESTMENT IN TAX FRE E SECURITIES COMING OUT OF ASSESSEES OWN FUNDS IN CASE THE SAME ARE IN EXCESS OF THE INVESTMENT MADE IN THE SECURITIES APPLIES, WHEN APPLYING SEC.1 4A. THUS DECISION OF THIS COURT IN HDFC BANK LTD. FOR THE FIRST TIME ON 23 RD JULY,2014 HAS SETTLED THE ISSUE BY HOLDING THAT THE TEST OR PRESUMPTION AS HE LD BY THE COURT IN RELIANCE UTILITIES AND POWER LTD. WOULD APPLY WHILE CONSIDER ING THE APPLICATION OF SEC.14A. THE ABOVE DECISION HAS ALSO BEEN ACCEPTED BY THE REVENUE INASMUCH NO APPEAL HAS BEEN FILED AGAINST THIS ORDE R IN APEX COURT. THEREFORE THE ISSUE WHICH AROSE FOR CONSIDERATION BEFORE THE TRIBUNAL HAD NOT BEEN DECIDED BY THIS COURT IN GODREJ AND BOYCE MANUFACTU RING LTD. 328 ITR 81. IT AROSE AND WAS SO DECIDED FOR THE FIRST TIME BY THIS COURT IN HDFC BANK LTD. THUS THERE IS NO CONFLICT AS SOUGHT TO BE MADE OUT OF THE ORDER. THUS THE ORDER OF TRIBUNAL HAS PROCEEDED ON A FUNDAMENTALLY ERRONEOUS BASIS. IN THE PRESENT APPEAL, THE ACCOUNTS WERE MIXED AND THE DISALLOWANCE WAS MADE BY THE LD. ASSESSING OFFICER ON THE PLEA THAT THE ASSESSEE COULD NOT PROVE THAT ONLY SU RPLUS FUNDS WERE GIVEN FOR ACQUISITION OF FIXED ASSET. H OWEVER, THE CLAIM OF THE ASSESSEE IS THAT THE OWN NETWORTH OF THE ASSESSEE IS 124.54 CRORES AND UNSECURED INTEREST FR EE LOANS FROM THE PROMOTER WAS RS.74.78 CRORES AND EVEN THE CURRENT YEAR NET PROFIT IS MUCH MORE THAN THE INVES TMENT IN CAPITAL ASSET. IN SUCH A SITUATION, RESPECTFUL LY FOLLOWING THE AFORESAID DECISIONS, FROM HONBLE HIGH COURT, T HE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.7403/MUM/2012 M/S KIRAN GEMS P. LTD. 7 FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 21/03/2016. SD/- SD/- (RAJENDRA) (JOGINDER SINGH) !' / ACCOUNTANT MEMBER #' / JUDICIAL MEMBER MUMBAI; # DATED : 21/03/2016 F{X~{T? P.S/. . . $#%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. %& '( / THE APPELLANT (RESPECTIVE ASSESSEE) 2. )*'( / THE RESPONDENT. 3. + + , ( %& ) / THE CIT, MUMBAI. 4. + + , / CIT(A)- , MUMBAI, 5. /01 )2 , + %& %23 , / DR, ITAT, MUMBAI 6. 14 5 / GUARD FILE. / BY ORDER, */& ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI