ITO, Hyderabad V. M/s Shree Processors Ltd, Chennai

ITA 817/HYD/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53775 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-07-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 03-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DAYASAGAR
• Assessee Lawyers: A V RAGHURAM

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, A.M. AND SMT. ASHA VIJAYARAGHAVAN, J.M. ITA NO.817/HYD/2010 ASSESSMENT YEAR 2005-06 THE ITO WARD 3(1), HYDERABAD VS M/S SHREE PROCESSORS LTD., SECUNDERABAD (PAN AAFCS 0353 N) APPELLANT RESPONDENT APPELLANT BY : SHRI DAYASAGAR RESPONDENT BY : SHRI A.V. RAGHURAM DATE OF HEARING : 9.11.2011 DATE OF PRONOUNCEMENT : 16.11.2011 ORDER PER ASHA VIJAYARAGHAVAN, J.M: THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER PASSED BY THE CIT(A) TIRUPATHI DATED 25.2.20 11 AND PERTAINS TO THE ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 ON 29.10.2006. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES WERE ISSUED TO THE ASSESSEE AND ASSESSM ENT WAS COMPLETED U/S 143(3). THE ASSESSING OFFICER DISALL OWED FINANCIAL CHARGES OF RS.96,37,000/- AND ALSO ESTABLISHMENT EX PENSES. ON FURTHER APPEAL BEFORE THE CIT(A), THE LEARNED AUTHO RIZED REPRESENTATIVE SUBMITTED THAT THE INTEREST OF RS.96 ,37,000/- PAID TO THE BANK ON SUMS BORROWED WAS DIVERTED TO A SIST ER CONCERN FOR NON BUSINESS PURPOSES, THE LEARNED AUTHORIZED REPRE SENTATIVE SUBMITTED THAT THE SAID SUM HAD BEEN ADVANCED TO PE RKIN INTERNATIONAL LIMITED AS PART OF A BUSINESS DEAL FO R THE PURPOSE OF ITA NO.817 OF 2011 M/S SHREE PROCESSORS LTD., HYDERABAD 2 EARNING INCOME AND NOT AS ALLEGED AND THAT AS THE E XPENDITURE WAS LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THE ENTIRE INTEREST PAID WAS ADMISSIBLE BUSINESS DE DUCTION. 3. WITH RESPECT TO THE ESTABLISHMENT EXPENSES ALSO , THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE EXPLAINED THAT THE ACCOUNTING ENTRIES NEED NOT ALWAYS BE FINAL. T HE CIT(A) CONFIRMED THE DISALLOWANCE OF THE ESTABLISHMENT EXP ENSES, AND WITH RESPECT TO THE DISALLOWANCE OF FINANCIAL CHARG ES, THE CIT(A) HELD AS FOLLOWS: THE SOURCE OF THE FUNDS IS APPARENTLY FROM THE CASH CREDIT FACILITY ENJOYED BY THE ASSESSEE COMPANY FROM INDIA N OVERSEAS BANK, CHENNAI. THESE FUNDS WERE NOT UTILI SED IN THE BUSINESS BUT WERE PLACED WITH SLFL UNDER THEIR PORTFOLIO MANAGEMENT SCHEME SINCE THE FUNDS CARRY INTEREST LI ABILITY, THE INTEREST WAS DEBITED TO THE PROFIT AND LOSS ACC OUNT AS AN EXPENSE. SLFL HAS CHARGED 1% OF THE FUNDS PLACED W ITH THEM UNDER PORTFOLIO MANAGEMENT SCHEME AS SERVICE CHARGES. THE FUNDS PLACED WITH SLFL WERE IN TURN P LACED WITH PIL WHICH HAVE BEEN SUPPOSEDLY YIELDED INCOME OF RS.3.41 CRORES BY ASSESSEE COMPANY IN THE FINANCIAL YEAR 2006-07 AND THIS INCOME IS CREDITED TO PROFIT AND L OSS ACCOUNT OF THE ASSESSEE COMPANY. ON ENQUIRY WITH THE ASSESSEES THE LEARNED AUTHORIZ ED REPRESENTATIVE AS TO WHAT IS THE BUSINESS OPERATION S CARRIED OUT BY THE ASSESSEE COMPANY AND WHERE THE PLANT IS LOCATED, IT WAS SUBMITTED THAT NO PLANT HAS BEEN SET UP SO F AR AND THE COMPANY WAS ONLY INDULGING IN TRADING. IN THIS BAC KGROUND, IT IS SURPRISING THAT THE BANK HAS SANCTIONED CASH CREDIT LIMITS OF RS.46 CRORES OUT OF WHICH THE MONIES WERE ITA NO.817 OF 2011 M/S SHREE PROCESSORS LTD., HYDERABAD 3 WITHDRAWN AND PLACED WITH ANOTHER SISTER CONCERN FO R PORTFOLIO MANAGEMENT SERVICES. NO PRUDENT BUSINESS WOULD WITHDRAW SUCH HIGH INTEREST BEARING FUNDS AT 13.5% WOULD PLACE THE FUNDS AT SUCH A RISKY ADVENTUROUS SCHEME WHERE THE RETURNS ARE NOT ASSURED BUT ONLY EXPENDITURE IN THE FORM OF INTEREST AS WELL AS SERVICE CHARGES ARE CERTAIN. THIS IS AN ODD BALL OF TRANSACTION, ANOMALIES AT THE BEGINNING TO END. HENCE, IT CANNOT BE HELD ENTIRELY THAT THE MONIES A ND EXPENDITURE WERE UTILISED FOR BUSINESS TO MAKE IT E LIGIBLE FOR DEDUCTION. EVEN IF IT IS ACCEPTABLE THAT THE ASSES SEE COMPANY IS IN ITS LIBERTY TO PLACE ITS BORROWED FUN DS UNDER PORTFOLIO MANAGEMENT SCHEME, THE SAME CANNOT BE STA TED ABOUT THE MONIES PAID TO SLFL. NO SERVICES ARE APP ARENT IN THE SCHEME OF THINGS RENDERED BY SLFL. HENCE, IT I S HELD THAT THE 1% SERVICE CHARGES PAYABLE TO SLFL ARE NOT AN ALLOWABLE EXPENDITURE. THE ASSESSING OFFICER IS DI RECTED TO ELICIT THE SERVICE CHARGES PAID/PAYABLE TO SLFL AND DISALLOW THE SAME AS NOT RELEVANT FOR THE INVESTMENT. THUS THIS GROUND IS PARTLY ALLOWED. 4. AGGRIEVED, THE DEPARTMENT IS IN APPEAL BEFORE U S AND RAISED THE FOLLOWING GROUNDS: 1. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT T HAT THERE ARE NO SERVICE CHARGES PAID DURING THE YEAR, WHICH HE DIRECTED THE ASSESSING OFFICER TO DISALLOW AS AN EX PENSES DURING THE YEAR. 2. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT T HAT THE MOU SIGNED BY THE COMPANY ASSESSEE, WITH OTHER ENTI TLES OF SERVICE PROVIDES AND THE INVESTMENTS, REFERRING TO THE SURPLUS FUNDS OF THE ASSESSEE WHERE AS THE AMOUNTS DIVERTED FOR INVESTMENTS ARE THE CASH CREDIT TAKEN FROM BANKS FO R RUNNING THE BUSINESS, WHICH AMOUNTED TO REAL DIVERSION AND AS SUCH ITA NO.817 OF 2011 M/S SHREE PROCESSORS LTD., HYDERABAD 4 THE DISALLOWANCE OF INTEREST ON SUCH FUNDS SHOULD H AVE BEEN UPHELD. 3. ANY OTHER GROUNDS THAT MAY BE TAKEN IN DUE COUR SE OF TIME, WITH PERMISSION BY TRIBUNAL. 5. WE HEARD BOTH THE PARTIES. THE LEARNED AUTHORI ZED REPRESENTATIVE FOR THE ASSESSEE SHRI A.V. RAGHURAM POINTED OUT THAT WITH RESPECT TO THE FIRST GROUND THAT THERE AR E NO SERVICE CHARGES PAID DURING THE YEAR, IF IT WAS SUBMITTED T HAT THE CIT(A) HAS MERELY DIRECTED THE ASSESSING OFFICER TO ELICIT INFORMATION ABOUT THE SERVICE CHARGES PAID/PAYABLE TO SLFL AND DISALLOW THE SAME IF IT WAS NOT RELEVANT FOR THE INVESTMENT. FU RTHER, THE CIT(A) HAS HELD THAT NO SERVICE ARE APPARENT IN THE SCHEME OF THINGS RENDERED BY SLFL AND OBSERVED THAT 1% SERVICE CHARG ES PAYABLE TO SLFL ARE NOT ALLOWABLE EXPENDITURE. HOWEVER, HE HAS DIRECTED THE ASSESSING OFFICER TO VERIFY THE ISSUE. IN THES E CIRCUMSTANCES, THERE CANNOT BE ANY GRIEVANCE FOR THE DEPARTMENT AS THE MATTER HAS BEEN MERELY SET ASIDE FOR VERIFICATION AND HENC E, THIS GROUND RAISED BY THE DEPARTMENT IS INFRUCTUOUS. 6. WITH REGARD TO THE FINANCIAL CHARGES, THE LEARN ED AUTHORIZED REPRESENTATIVE RELIED ON THE ORDER OF TH E CIT(A). WHEREAS THE LEARNED DEPARTMENTAL REPRESENTATIVE POI NTED OUT THAT CLARIFICATION IS NEEDED WITH RESPECT TO THE ORDER O F THE CIT(A). 7. WE HEARD BOTH THE PARTIES. SINCE THE CIT(A) HA S MERELY HELD THAT IT IS ACCEPTABLE THAT THE ASSESSEE COMPAN Y IS AT LIBERTY TO PLACE ITS BORROWED FUNDS UNDER FORTPOLIO MANAGEM ENT SCHEME WHEREAS THE SAME CANNOT BE STATED ABOUT MONIES PAID TO SLFL. THE CIT(A) HAS FAILED TO GIVE CLEAR A FINDING ON TH E ISSUE OF FINANCIAL CHARGES. IN THESE CIRCUMSTANCE, WE DEEM IT FIT TO REMIT ITA NO.817 OF 2011 M/S SHREE PROCESSORS LTD., HYDERABAD 5 BACK THE ISSUE TO THE FILE OF CIT(A) TO PASS SPEAKI NG ORDER WITH RESPECT TO THE FINANCIAL CHARGES CLAIMED BY THE ASS ESSEE. 8. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 16.11.2011 SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 16 TH NOV., 2011 COPY FORWARDED TO: 1. THE ITO, AC GUARDS, HYDERABAD 2. M/S SHREE PROCESSORS LTD., 5D MOOKAMBIKA COMPLEX, 5 TH FLOOR, NEW NO.7 LADY DESIKACHARY RD., MYLAPORE, CHENNAI.4 3. THE CIT(A) TIRUPATHI & HYDERABAD 4. , HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/