Diamond Engineering (Chennai) P Ltd., CHENNAI V. ACIT, CHENNAI

ITA 820/CHNY/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96322 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 03-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 30-04-2013
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTHJCIT
• Assessee Lawyers: S SRIDHAR
• Keywords: Proportionate interest; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , ! , ' #$ % , & ' BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NO.820 /MDS./2013 ( / ASSESSMENT YEAR :2009-10) M/S. DIAMOND ENGINEERING (CHENNAI) PRIVATE LTD ., 179,OLD MAHABALLIPURAM ROAD, SHOLINGANALLUR, CHENNAI 600 119. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(4), CHENNAI. PAN AACD 3949 E ( () / APPELLANT ) ( %*() / RESPONDENT ) / APPELLANT BY : MR.S.SRIDHAR, ADVOCATE / RESPONDENT BY : MR.A.V.SREEKANTH,JCIT, D.R / DATE OF HEARING : 03.09.2015 /DATE OF PRONOUNCEMENT : 11.11.2015 + / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE, AGGRIEVED B Y THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-IX, CHENN AI DATED ITA NO.820 /MDS/2013 2 28.02.2013 IN ITA NO.624/11-12 PASSED UNDER SEC.14 3(3) READ WITH SECTION SEC. 250 OF THE ACT. 2. THE ASSESSEE HAS RAISED SEVEN ELABORATE GROUNDS IN ITS APPEAL, HOWEVER THE CRUX OF THE ISSUE IS THAT:- I) THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLO WANCE OF ` 3,27,78,927/- BEING PROPORTIONATE INTEREST ON INTER EST FREE FUNDS DIVERTED TO SISTER CONCERNS VIZ. M/S.EMERALD ENGIN EERING UNIT-II & M/S.RUBY ENGINEERING. 3.1 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE IS A COMPANY, ENGAGED IN THE BUSINESS OF ENGINEERING AND FABRICATION, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 29.09.2009 ADMITTING TOTAL INCOME AS ` 13,42,02,851/-. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSME NT U/S.143(3) WAS COMPLETED ON 21.12.2011 WHEREIN THE LD.A.O DISA LLOWED INTEREST TO THE EXTENT OF ` 3,27,78,927/- BEING PROPORTIONATE INTEREST TOWARDS INTEREST FREE LOAN ADVANCED TO SISTER CONCERNS. ITA NO.820 /MDS/2013 3 3.2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE LD. ASSESSING OFFICER, ON EXAMINING THE BOOKS OF ACCOUN TS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE COMPANY HAD AVA ILED LOAN TO THE TUNE OF ` 65/- CRORES AND PAID INTEREST THEREON. IT WAS FURT HER NOTICED THAT THE ASSESSEE COMPANY HAD ADVANCED SUM OF ` 14,28,59,575/- TO ITS SISTER CONCERN VIZ. M/S.EMERA LA ENGINEERING UNIT-II AND OF ` 7,30,87,712/- TO OTHER SISTER CONCERN VIZ. M/S.RUBY ENGINEERING AS INTEREST FREE LOAN. THEREFORE THE LD . ASSESSING OFFICER DISALLOWED THE PROPORTIONATE INTEREST OF ` 3,27,78,927/- BY INVOKING THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. WHILE DOING SO, THE LD. ASSESSING OFFICER DID NOT DISPUTE THE FOLLOWING FAC TS THAT:- (A) THE ADVANCES WERE RECEIVED BY THE SISTER CONCERNS OF TH E ASSESSEE COMPANY AND THE SISTER COMPANIES WERE ONLY RENDERIN G SERVICES FOR THE ASSESSEE COMPANY AND NONE ELSE. (B) THE ASSESSE E COMPANY WAS ALSO PAYING ITS SISTER CONCERNS IN ADVANCE FOR THE SERVICES RENDERED. (C) THE SISTER COMPANIES HAD UTILIZED THE ADVANCES RECEIVED FROM THE ASSESSEE COMPANY TO MEET THEIR MA TERIAL COST AND WORKING CAPITAL. ITA NO.820 /MDS/2013 4 3.3 ON APPEAL, THE LD. CIT (A) CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER BY OBSERVING AS FOLLOWS:- 6.3 FROM THE ABOVE, IT IS SEEN THAT THE A.O HAS ELABORATELY ANALYSED THE TRANSACTIONS BETWEEN THE APPELLANT AND ITS SIST ER CONCERNS. IT IS CLEARLY EVIDENT FROM THE ABOVE THAT THE APPELLANT HAS GIVEN ITS FUNDS TO THE SISTER CONCERNS TO MEET THEIR CAPITAL EXPENDITURE AND NOT GIVEN TO MEET THE MATERIAL COST, AS CLAIMED BY THE APPELLANT. IN OTH ER WORDS, THE APPELLANTS FUNDS ARE DIVERTED TO ITS SISTER CONCERNS BY DOING SO, THE APPELLANT DID NOT GET ANYTHING IN RETURN. AS THE FUNDS ADVANCED TO TH E SISTER CONCERNS ARE INTEREST FREE, THE APPELLANT IS NOT GETTING ANY RET URN OUT OF THIS INVESTMENT AND HENCE THE INTEREST EXPENDITURE PAID BY THE APPE LLANT IS REQUIRED TO BE RESTRICTED PROPORTIONATELY AND THE A.O HAS QUANTIFI ED SUCH DISALLOWANCE OF INTEREST AT ` 3,27,78,927/-. IN VIEW OF THE ABOVE, THE APPELLANT S CONTENTIONS ARE NOT ACCEPTABLE. THEREFORE, AGREEING WITH THE R EASONING OF THE A.O IN THIS REGARD AND I HEREBY CONFIRM THE ACTION OF THE A.O. 4. AT THE TIME OF HEARING, THE LD. A.R. AT THE OUT SET SUBMITTED THAT THE ASSESSEE COMPANY HAD SUFFICIENT RESERVES AND SU RPLUS COUPLED WITH EQUITY OVER AND ABOVE ` 31 CRORES AS ON 01.04.2008 WHILE AS THE AMOUNT ADVANCED TO ITS SISTER CONCERNS WAS ONLY ABO UT ` 21.6 CRORES APPROXIMATELY. THEREFORE, IT COULD BE CONSTRUED TH AT THE ASSESSEE ITA NO.820 /MDS/2013 5 HAD ADVANCED LOAN TO ITS SISTER CONCERNS FROM ITS N ON-INTEREST BEARING FUNDS. HENCE IT WAS PLEADED THAT THE ADDITION MADE BY THE LD. ASSESSING OFFICER BY DISALLOWING THE INTEREST AGGRE GATING TO ` 3,27,78,927/- IN VIEW OF THE NON-INTEREST BEARING L OAN TO SISTER CONCERNS IS NOT WARRANTED. LD. D.R VEHEMENTLY ARGU ED IN SUPPORT OF THE ORDERS OF THE REVENUE AND ALSO RELIED ON DECISI ON OF S.A. BUILDERS VS. CIT(A) REPORTED IN 288 ITR 1. 5. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PE RUSED THE MATERIALS AVAILABLE ON RECORD. ON PERUSING THE BALA NCE SHEET SUBMITTED BY THE ASSESSEE IT IS APPARENT THAT THE A SSESSEE IS HAVING RESERVES AND SURPLUS OF ` 11.8 CRORES APPROXIMATELY AND ` 20/- CRORE EQUITY AS ON 01.04.2008. THIS FUND OF THE ASSESSEE IS NON-INTEREST BEARING AND AVAILABLE TO THE ASSESSEE FOR DEPLOYING IN THE BUSINESS AS IT DEEMS FIT. THEREFORE, THE NON-INTEREST BEARIN G FUND OF THE ASSESSEE COMPANY VIZ. EQUITY AND RESERVES/SURPLUS O F RS.31.8 CRORES (APPROX.) CAN BE PRESUMED TO HAVE BE ADVANCED AS TH E INTEREST FREE ADVANCES TO THE SISTER COMPANY OF ` 21.6 CRORES(APPROX.) WHICH IS FAR LESS THAN THE NON-INTEREST BEARING FUND AVAILABLE W ITH THE ASSESSEE ITA NO.820 /MDS/2013 6 COMPANY. HENCE, THE ADDITION MADE BY THE LD. ASSESS ING OFFICER BY DISALLOWING THE INTEREST IS NOT WARRANTED. SINCE T HESE FACTS WERE NOT EXAMINED BY THE REVENUE, WE HEREBY REMIT THE MATTER BACK TO THE FILE OF THE LD. ASSESSING OFFICER FOR THE LIMITED PURPOS ES OF VERIFYING THE AMOUNT OF EQUITY CAPITAL & RESERVES/SURPLUS DISCLOS ED IN THE BALANCE SHEET AND IF THE LD.A.O FINDS THAT THE NON-INTEREST BEARING FUND OF THE ASSESSEE IS MORE THAN THE INTEREST FREE ADVANCE EXT ENDED TO ITS SISTER CONCERN THEN THE LD.A.O SHALL DELETE THE ADDITION M ADE BY HIM OF RS. 3,27,78,927/- TOWARDS DISALLOWANCE OF PROPORTIONATE INTEREST ON INTEREST-FREE FUND DIVERTED TO SISTER CONCERNS. HOW EVER IF FOUND OTHERWISE HE SHALL PASS APPROPRIATE ORDER AS PER LA W AND MERITS. 6. ORDER PRONOUNCED ON 11 TH NOVEMBER, 2015 AT CHENNAI. SD/- SD/- ( ' #$ % ) ((CHALLA NAGENDRA PRASAD) ( . ) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 11 TH NOVEMBER, 2015. K S SUNDARAM. !'## $%#&% /COPY TO: # 1. /APPELLANT 2. /RESPONDENT 3. # '#() /CIT(A) 4. # ' /CIT 5. %*+# , /DR 6. +-#. /GF