ACIT, Alwar V. LAKHANI SHOE CO. PVT. LTD.,

ITA 833/JPR/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2148 (ITAT-JAIPUR)
• Duration Of Justice: 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 15-03-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 22-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R C VERMA
• Assessee Lawyers: S C VASUDEVA
• Section: 143(3); 147; 148

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA- @ ITA NO. 833/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2009-2010 THE ACIT, CIRCLE- 2, ALWAR. CUKE VS. M/S LAKHANI SHOE CO. PVT. LTD., PLOT NO. 130, SECTOR-24, FARIDABAD, HARYANA. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACL2991A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 834/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2012-2013 THE ACIT, CIRCLE- 2, ALWAR. CUKE VS. M/S LAKHANI SHOE CO. PVT. LTD., PLOT NO. 130, SECTOR-24, FARIDABAD, HARYANA. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACL2991A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI S.C. VASUDEVA (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI R.C.VERMA (ADDL. CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 20/04/2017 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 25/04/2017 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. ITA NO. 833&834/JP/2016 ACIT ,ALWAR VS. M/S LAKHANI SHOE CO. PVT. FARIDABAD, HARYANA 2 THESE ARE TWO APPEALS FILED BY THE REVENUE AGAINST TWO SEPARATE ORDERS PASSED BY LD. CIT (A) -2, ALWAR DAT ED 20.07.2016 FOR A.Y. 2009-10 AND DATED 15.07.2016 FOR A.Y. 2012-13 RESPECTIVELY. SINCE COMMON ISSUES ARE INVOLVED IN BOTH THESE APPE ALS, THE SAME WERE HEARD TOGETHER AND DISPOSED OFF BY THIS CONSOLIDATE D ORDER. 2. THE SOLITARY GROUND OF APPEAL TAKEN BY THE REVEN UE IN A.Y. 2009-10 IS AS UNDER:- 1. THAT THE LED. CIT(A) HAS ERRED ON THE FACTS & C IRCUMSTANCES OF THE CSAS IN DELETING THE DISALLOWANCE MADE BY THE A O TO THE EXTENT OF RS. 55,79,771/- OUT OF INTEREST PAID ON L OANS WHICH WAS UNNEEDS SINCE THE ASSESSEE COMPANY HAD INVESTED HUG E AMOUNTS IN THE FIRMS ( IN WHICH DIRECTORS OF THE FIRM ARE P ARTNERS) WHICH GENERATE VERY LOW RETURN IN COMPARISON TO INTEREST PAID ON LOANS. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SMENT IN THIS CASE WAS REOPENED BY ISSUANCE OF NOTICE U/S 148 OF THE ACT BY THE ASSESSING OFFICER. IN TERMS OF THE REASONS RECORDE D BY THE AO, IT WAS STATED THAT THE ASSESSEE COMPANY HAS MADE INVESTMEN T OF RS. 3,19,21,938/- IN M/S MASCOT FOOTCARE, NOIDA AND RS. 1,45,76,154/- IN M/S MASCOT UDHYOG, NOIDA AND THE DIRECTORS OF T HE ASSESSEE COMPANY ARE ALSO PARTNERS IN THE SAID TWO FIRMS. IT WAS FURTHER STATED THAT THE ASSESSEE WAS PAYING INTEREST ON UNSECURED LOAN FROM SHRI GUNJAN LAKHANI AND INTEREST TO BANKS ON SECURED LOA N ON WHICH IT WAS PAYING THE INTEREST @ 12% WHICH IS HIGHER AS COMPAR ED TO LOW RATE OF RETURN ON INVESTMENT IN THE SAID TWO FIRMS AND THE INVESTMENTS WERE NOT REASONABLE. THEREAFTER, AFTER DISPOSING OFF TH E OBJECTIONS RAISED BY THE ASSESSEE, THE REASSESSMENT WAS COMPLETED U/S 14 7 R/W SECTION ITA NO. 833&834/JP/2016 ACIT ,ALWAR VS. M/S LAKHANI SHOE CO. PVT. FARIDABAD, HARYANA 3 143(3) OF THE ACT WHEREIN THE AO HAS HELD THAT THE BUSINESS OF THE ASSESSEE COMPANY IS MANUFACTURE OF HAWAI CHAPAL, TH E INVESTMENT IN THESE TWO FIRMS IS NOT PART OF THE BUSINESS OF THE ASSESSEE AND THERE IS NO PROFIT TO THE BUSINESS OF THE ASSESSEE FROM SUCH INVESTMENT AND THE AMOUNTS SO INVESTED IS NOT REASONABLE. THE ASSESSIN G OFFICER DIDNT ACCEPT THE ASSESSEES COMPANY SUBMISSION THAT THE I NVESTMENTS IN THE FIRMS WERE NOT MADE OUT OF BORROWED FUNDS BUT OUT O F INTERNAL ACCRUALS AND THE INVESTMENTS WERE MADE IN THE EARLIER YEARS. THE ASSESSING OFFICER FINALLY HELD THAT IF THE ASSESSEE HAD NOT M ADE THE ABOVE INVESTMENT, THE ASSESSEE COMPANY WOULD HAVE SAVED T HE AMOUNT OF INTEREST PAID ON UNSECURED LOAN AND BANK LOAN TO TH E EXTENT OF 12% OF THE INVESTMENT MADE WHICH COMES TO RS. 55,79,771/- WHICH WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE COMPANY. 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT (A) WHO NOTED THAT THE INITIAL INVESTME NT IN M/S MASCOT FOOTWARE, NOIDA WAS MADE IN THE YEAR 1988-89 AMOUNT ING TO RS. 1,25,000/- AND THEREAFTER TILL YEAR 1999-2000, A T OTAL INVESTMENT OF RS. 60,00,000/- WAS MADE. SIMILARLY, IN MASCOT UDHYOG , AN INVESTMENT OF RS. 5,00,000/- WAS MADE IN THE YEAR 1989-90 AND THE REAFTER RS. 40,00,000/- WAS INVESTED IN THE YEAR 1999-2000. IT WAS FURTHER NOTED BY THE LD CIT(A) THAT INVESTMENTS IN THESE TWO FIRM S HAVE INCREASED OVER THE YEARS ON ACCOUNT OF SHARE OF PROFIT AND IN TEREST ON CAPITAL AND ALL THESE INVESTMENTS HAVE BEEN MADE OUT OF INTERNA L ACCRUALS AND NO BORROWED FUNDS HAVE BEEN TAKEN OR UTILIZED OVER AL L THESE YEARS. THEREAFTER, THE LD. CIT (A) HAS REFERRED TO THE DEC ISION PASSED BY THE CO-ORDINATE BENCH IN ITA NO. 724/JP/2016 FOR A.Y. 2 010-11 AND STATED ITA NO. 833&834/JP/2016 ACIT ,ALWAR VS. M/S LAKHANI SHOE CO. PVT. FARIDABAD, HARYANA 4 THAT SINCE THERE IS NO CHANGE IN THE FACTS AND CIRC UMSTANCES OF THE CASE, FOLLOWING THE DECISION PASSED BY THE CO-ORDINATE BE NCH AND CONSIDERING THE FACTS THAT INVESTMENTS WERE MADE OUT OF INTERES T FREE FUNDS AVAILABLE IN THE ASSESSEE BUSINESS, ADDITION OF RS. 55,79,771/- WAS DELETED. 5. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSES SEE SUBMITTED THAT ISSUE UNDER CONSIDERATION STAND DECIDED IN FAV OUR OF THE ASSESSEE COMPANY BY THE ORDER OF THE CO-ORDINATE BENCH IN AS SESSEES OWN CASE FOR A.Y. 2010-11 IN ITA NO. 724/JP/2014. IT WAS FUR THER BROUGHT TO THE NOTICE OF THE BENCH THAT SIMILAR ISSUE WAS INVOLVED IN A.Y. 2011-12 WHICH HAS ALSO BEEN DECIDED IN FAVOUR OF THE ASSESS EE BY THE CO- ORDINATE BENCH VIDE ITS ORDER DATED 15.09.2016 IN I TA NO. 38/JP/2016. IT WAS ACCORDINGLY SUBMITTED THAT SINCE THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE EARLIER ORDERS P ASSED BY THE CO- ORDINATE BENCHES IN ASSESSEES OWN CASE MAY KINDLY BE FOLLOWED. 6. THE LD. D/R IS HEARD WHO HAS RELIED UPON THE ORD ER OF THE LOWER AUTHORITIES. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUED THE MATERIAL AVAILABLE ON RECORD. IT IS NOTED THAT THE FACTS IN THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THE FACTS IN A.Y. 20 09-10 AND A.Y. 2012- 13. THE INVESTMENT MADE BY THE ASSESSEE IN M/S MAS COT FOOTCARE, NODIA AND M/S MASCOT UDHYOG, NODIA WERE UNDER CONSI DERATION AND DISALLOWANCES OF INTEREST WERE MADE BY THE ASSESSIN G OFFICER. NO FRESH INVESTMENT HAS BEEN MADE DURING THE YEAR UNDER CONS IDERATION. FURTHER, ONCE THE ASSESSEE COMPANY HAS SUBMITTED TH AT THE INVESTMENTS HAVE NOT BEEN MADE OUT OF BORROWED FUND S, THE ONUS SHIFT ITA NO. 833&834/JP/2016 ACIT ,ALWAR VS. M/S LAKHANI SHOE CO. PVT. FARIDABAD, HARYANA 5 ON THE ASSESSING OFFICER. HOWEVER, THE ASSESSING OF FICER HAS NOT ESTABLISHED THE NECESSARY NEXUS BETWEEN THE BORROWE D FUNDS AND THE INVESTMENTS IN THESE TWO FIRMS IN THE RESPECTIVE YE AR OF MAKING THE INVESTMENTS. THE INTEREST ON BORROWED FUNDS THEREFO RE CANNOT BE DISALLOWED. 8. THE CO-ORDINATE BENCHES AFTER CONSIDERING THE AR GUMENTS RAISED BY BOTH THE PARTIES HAS DECIDED THE MATTER IN FAVOU R OF THE ASSESSEE. THE RELEVANT FINDING OF THE CO-ORDINATE BENCH IN IT A NO. 38/JP/2016 DATED 15.09.2016 READS AS UNDER:- 7. THE FACTS IN THE YEAR UNDER CONSIDERATION ARE NO T ANY DIFFERENT FROM THOSE IN A.Y. 2010-11. EVEN THE LD. CIT(A) HAS OBSERVED IN THE IMPUGNED ORDER, INTER ALIA, THAT THE ISSUE HAD BEEN CONSIDERED BY HIM IN HIS ORDER DATED 14/8/2014, IN THE ASSESSEES CASE FOR A.Y. 2010-11. IT WAS THE SAID ORDER OF THE LD. CIT(A) FOR A.Y. 2010-11, AGAINST WHICH THE ASSESSEES APPEAL W AS ALLOWED BY THE TRIBUNAL VIDE ITS AFORESAID ORDER DATED 18/3 /2016. 8. THEREFORE, RESPECTIVELY FOLLOWING THE TRIBUNAL O RDER (SUPRA), IN THE ASSESSEE OWN CASE FOR A.Y. 2010-11, THE DISALLO WANCE MADE FOR THE YEAR UNDER CONSIDERATION IS DELETED. 9. WE HOLD THAT NO NEXUS BETWEEN THE BORROWED FUNDS IN THE INVESTMENTS MADE HAVING BEEN PROVED AND THE BORROWI NG HAVING BEEN MADE FOR BUSINESS PURPOSES, THE INTEREST THERE ON IS ALLOWABLE U/S 36(1)(III) OF THE ACT. TOO, AS PER RE CORD, THE ASSESSEE IS A PARTNER IN M/S MASCOT FOOTCARE, NOID A AND M/S MASCOT UDHYOG, NOIDA, WHERE THE ASSESSEE MADE CAPIT AL CONTRIBUTION OUT OF ITS OWN INTERNAL ACCRUALS, WHIC H CONTRIBUTIONS HAVE GROWN OVER TIME DUE TO SHARE OF PROFIT AND INT EREST ON CAPITAL. ITA NO. 833&834/JP/2016 ACIT ,ALWAR VS. M/S LAKHANI SHOE CO. PVT. FARIDABAD, HARYANA 6 9. IN LIGHT OF ABOVE DISCUSSIONS, RESPECTIVELY FOL LOWING THE CO- ORDINATE BENCHES DECISION IN ASSESSEE OWN CASE FOR A.Y. 2010-11 AND A.Y. 2012-13, WE DONOT FIND ANY INFIRMITY IN THE OR DER OF LD CIT(A) WHO HAS RIGHTLY DELETED THE DISALLOWANCE OF INTEREST MA DE BY THE ASSESSING OFFICER FOR THE YEAR UNDER CONSIDERATION. ITA NO. 834/JP/16 IT IS NOTED THAT UNDER IDENTICAL FACTS AND CIRCUMST ANCES OF THE CASE, SIMILAR GROUND OF APPEAL HAVE BEEN TAKEN BY THE REV ENUE IN ITS APPEAL FOR A.Y. 2012-13. THEREFORE, FOLLOWING OUR DECISION IN ITA NO. 833/JP/16, THE ORDER OF LD CIT(A) IS CONFIRMED WHO HAS RIGHTLY DELETED THE DISALLOWANCE OF INTEREST MADE BY THE ASSESSING OFFICER FOR THE YEAR UNDER CONSIDERATION. IN THE RESULT, BOTH THE APPEALS FILED BY THE REVENU E ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25/04/2017 SD/- SD/- DQY HKKJR FOE FLAG ;KNO (KUL BHARAT) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 25/04/2017. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- ACIT, CIRCLE-2, ALWAR 2. IZR;FKHZ@ THE RESPONDENT- M/S LAKHANI SHOE CO. PVT. LTD. PLOT NO. 130, SECTOR-24. FARIDABAD, HARYANA. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 833 & 834/JP/2016} ITA NO. 833&834/JP/2016 ACIT ,ALWAR VS. M/S LAKHANI SHOE CO. PVT. FARIDABAD, HARYANA 7 VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR