INTERSIL (INIDA) P. LTD, MUMBAI V. DCIT 8(2), MUMBAI

ITA 8370/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75401 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 18-11-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 02-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Keywords: Opportunity of being heard; Revenue expenditure; Capital expenditure
• Section: 143(3); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 8370/MUM/2010 ASSESSMENT YEAR: 2005-06 M/S. INTERSIL (INDIA) PRIVATE LTD. UNIT A-4, UDYOG SADAN NO.3, MIDC, ANDHERI (EAST), MUMBAI-.400 093 VS. DCIT 8(2) MUMBAI. (APPELLANT) (RESPONDENT) PERMANENT ACCOUNT NO. :- AAACI 0954 Q APPELLANT BY : SHRI JAYESH DADIA RESPONDENT BY : SHRI O.P. SINGH DATE OF HEARING : 18.11.2013 DATE OF PRONOUNCEMENT : 15.01.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD.CIT(A) -17, MUMBAI DATED 06.08.2010 FOR THE ASSESSMENT YEAR 200 5-06. 2. GROUND NO. 1 IS NOT PRESSED BY THE ASSESSEE AND THE SAME REQUIRES NO ADJUDICATION. 3. IN GROUND NO. 2, THE ASSESSEE HAS AGITATED THE D ECISION OF THE LD.CIT(A) IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING THE INTEREST OF 1,10,000/- PAID BY THE ASSESSEE TO SISTER CONCERN INTERSIL SEMICONDUCTORS PVT. LTD. 3.1 BRIEFLY STATED, THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURERS OF SOFTWARE FOR PRODUCT DEVELOPMENT AND WEALTH CARE BU SINESS, WHILE DECLARING A TOTAL INCOME AT 2,71,17,770/- HAD IN THE P/L ACCOUNT DEBITED AN AMO UNT OF 14,37,918/- ON ACCOUNT OF INTEREST PAID. THIS INCLUDED THE INTERES T PAID TO THE BANKERS AMOUNTING TO 1,04,906/-, INTEREST PAID ON SHORT TERM LOAN FROM I NTERSIL SEMICONDUCTOR PVT. LTD AMOUNTING TO 1,10,000/- AND INTEREST ON SHORT TERM LOAN FROM DIR ECTORS AMOUNTING TO ITA NO. 8370/MUM/2010 M/S INTERSIL (INDIA) PRIVATE LTD. ASSESSMENT YEAR: 2005-06 2 12,19,416/-. IN THE ASSESSMENT FRAMED U/S 147 READ WITH SECTION 143(3) OF THE ACT, THE AO DISALLOWED THE ENTIRE AMOUNT OF INTEREST PAID BY INVOKING SECTION 36(1) (III) AS THE ASSESSEE HAS BORROWED FUNDS ON WHICH INTEREST HAS B EEN PAID WHEREAS THE ASSESSEE HAS ADVANCED INTEREST FREE LOAN. ON APPEAL, THE LD.CIT( A) BY RELYING ON THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSM ENT YEAR 2004-05 DELETED THE ADDITIONS EXCEPT THE DISALLOWANCE OF 1,10,000/- MADE BY THE AO. AGGRIEVED BY THE IMPUGNE D DECISION, THE ASSESSEE HAS RAISED THIS GROUND IN TH E APPEAL BEFORE US. 3.2 BEFORE US, THE LD.AR OF THE ASSESSEE BY DRAWING OUR ATTENTION TO THE BALANCE SHEET HAS DEMONSTRATED THAT THE ASSESSEE HAS SUFFICIENT O WN FUNDS TO MAKE THE ADVANCE/LOANS AND CONTENDED THAT THE CASE OF THE ASSESSEE IS COVE RED BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. VS. CIT 313 ITR 340 WHEREIN IT HAS BEEN HELD THAT NO DISALLOWANCE OUT O F INTEREST EXPENDITURE IS TO BE MADE IF INTEREST FREE FUNDS ARE SUFFICIENT TO MEET THE INVE STMENT MADE. THEREFORE, THE AUTHORITIES BELOW OUGHT NOT TO HAVE DISALLOWED/CONFIRMED THE DI SALLOWANCE OF INTEREST PAID TO THE SISTER CONCERN. ON THE OTHER HAND, THE LD.DR HAS RELIED ON THE ORDERS OF THE AO AND THE LD.CIT(A) IN SUPPORT OF THE REVENUES CASE. 3.3 WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD. IT IS PERTINENT TO MENTION THAT THE DISALLOWANCE/ADDITION HAS BEEN MAD E/CONFIRMED ON THE GROUND THAT THE ASSESSEE HAS BORROWED FUNDS ON WHICH INTEREST HAS B EEN PAID WHEREAS THE ASSESSEE HAS ADVANCED INTEREST FREE LOAN AND MADE INVESTMENTS. I N THIS CONTEXT, THE PERUSAL OF THE BALANCE SHEET AVAILABLE AT PAGE 1 OF THE PAPER BOOK INDICATES THAT THE ASSESSEE HAS SUFFICIENT OWN FUNDS TO MAKE LOANS AND INVESTMENTS. WHEN THE FACT BEING SO, THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE O F RELIANCE UTILITIES AND POWER LTD (SUPRA) IS APPLICABLE IN THE CASE OF THE ASSESSEE T O SUPPORT THE PROPOSITION THAT THE ASSESSEE HAS MADE THE LOANS AND INVESTMENTS OUT OF THE SURPLUS FUNDS. ALSO, IT IS NOT DISPUTED THAT THE BORROWED FUNDS ON WHICH THE INTER EST PAID TO THE SISTER CONCERN IS UTILIZED FOR THE PURPOSE OF BUSINESS. THEREFORE, THERE NEED NOT BE ANY DOUBT ABOUT THE ALLOWABILITY OF THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE U/S 36(1) (III) OF THE ACT. IN VIEW OF THAT MATTER, THE DISALLOWANCE/ADDITION MADE ON ACCOUNT O F INTEREST ON THIS COUNT IS DELETED. GROUND NO. 2 IS ALLOWED. ITA NO. 8370/MUM/2010 M/S INTERSIL (INDIA) PRIVATE LTD. ASSESSMENT YEAR: 2005-06 3 4. GROUND NO. 3 RELATES TO THE DECISION OF THE LD.C IT(A) IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING 7,38,617/- BEING 50% OF THE REPAIRS & MAINTENANCE EXPENDITURE OF 14,77,234/- CONSIDERING THE SAME AS CAPITAL IN NATURE. FROM THE P&L ACCOUNT, THE AO OBSERVED THAT THE ASSESSEE HAD INCURRED EXPENSES TO WARDS REPAIRS AND MAINTENANCE AND THE DETAILS OF WHICH ARE EXTRACTED HEREUNDER:- RS. 1 REPAIRS & MAINTENANCE TO BUILDING 11,07,534 2 REPAIRS & MAINTENANCE TO OTHERS 14,77,234 3 REPAIRS & MAINTENANCE-MACHINERY 31,738 TOTAL 26,16,551 AS THE NATURE OF REPAIR IN RESPECT OF THE AMOUNT RS .14,77,234/- WERE NOT CLEAR AND THE ASSESSEE HAD NOT PROVIDED ANY BREAK UP OF EXPENDITU RE, THE AO DISALLOWED 50% OF THE EXPENDITURE ON REPAIRS AND THEREBY ADDED THE SAME T O BE TOTAL INCOME OF THE ASSESSEE. ON APPEAL, THE LD.CIT(A) AFTER NOTING THAT THE EXPENSE S WERE RELATED TO LAYING OF MARBLE FLOOR, LAYING TILES, NEW WALLS AND PARTITIONS, ELECTRICAL AND FURNITURE AND FIXTURES ETC AND IN THE NATURE OF CAPITAL EXPENDITURE, SUSTAINED THE IMPUGN ED DISALLOWANCE MADE BY THE AO. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE HA S RAISED THIS GROUND IN THE APPEAL BEFORE US. 4.1 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD, IT IS PERTINENT TO NOTE THAT THE LD.AR OF THE ASSESSEE BY DRAWING OUR ATTENTION TO PAGE NOS. 8 TO 10 OF THE PAPER BOOK HAS DEMONSTRATED THE DETAILS OF REPAIR A ND MAINTENANCE CHARGES OF 14,77,234/- AND ALSO THE RELEVANT BILLS ARE AVAILAB LE AT PAGES NO. 11 TO 48 OF THE PAPER BOOK. MOREOVER, THERE IS A CONFUSION IN THE REASONI NG ON THE PART OF THE AO AND THE LD.CIT(A) IN MAKING AND CONFIRMING THE IMPUGNED DIS ALLOWANCE. THE AO DISALLOWED THE IMPUGNED CLAIM OF THE ASSESSEE AS THE NATURE OF REP AIR IN RESPECT OF THE AMOUNT RS.14,77,234/- ARE NOT CLEAR AND THE ASSESSEE HAS N OT PROVIDED ANY BREAK UP OF EXPENDITURE DESPITE THE FACT THAT THE DETAILS HAVE BEEN PRODUCED BEFORE HIM WHEREAS THE LD.CIT(A) CONFIRMED THE DISALLOWANCE OF 50% ON A DI FFERENT REASONING THAT THE SAID EXPENDITURE IS CAPITAL IN NATURE. CONSIDERING THE T OTALITY OF FACTS AND AFTER OBSERVING THAT SIMILAR CLAIMS OF THE ASSESSEE HAS BEEN ALLOWED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05, WHEREIN IT HAS BEE N HELD THAT THE EXPENDITURE INCURRED ITA NO. 8370/MUM/2010 M/S INTERSIL (INDIA) PRIVATE LTD. ASSESSMENT YEAR: 2005-06 4 ON THIS ACCOUNT HAS TO BE ALLOWED AS NORMAL REVENUE EXPENDITURE, WE, FOLLOWING THE SAID ORDER, DELETE THE ADDITION MADE/CONFIRMED BY THE AO /CIT(A). RESULTANTLY, GROUND NO. 3 IS ALLOWED. 5. IN GROUND NO. 4, THE ASSESSEE HAS AGITATED THE A CTION OF THE LD.CIT(A) IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING REDUCTION/WRITI NG OFF OF STOCK IN TRADE OF 12,75,872/- 5.1 BRIEFLY STATED, DURING THE ASSESSMENT PROCEEDIN GS, THE AO OBSERVED THAT THE ASSESSEE HAD DEBITED 14,27,654/- AND 12,75,872/- BEING LOSS ON ASSETS DISCARDED/ SOLD AND OBSOLETE STORES/SPARES WRITTEN OFF/ CONSUM ED RESPECTIVELY TO THE MANUFACTURING EXPENSES. AS THE ASSESSEE HAD ACCEPTED THE ERROR ON ITS PART IN RESPECT OF THE CLAIM OF EXPENSES OF 14,27,654/-, THE SAID AMOUNT WAS DISALLOWED BY THE AO. ON THE CLAIM OF THE ASSESSEE IN RESPECT OF THE AMOUNT 12,75,872/-, THE AO DISALLOWED THE SAME BY REJECTING THE CONTENTION OF THE ASSESSEE THAT DUE T O CHANGE IN TECHNOLOGIES, LINE OF MANUFACTURE BECAME OBSOLETE AND THEREFORE, INTERSIL USA/MALAYSIA DISCONTINUED THE BUSINESS GIVEN TO THE ASSESSEE COMPANY. ON APPEAL, THE LD.CIT(A) CONFIRMED THE SAID DISALLOWANCE ON THE GROUND THAT ITEMS IN RESPECT OF WHICH LOSS HAS BEEN CLAIMED RELATE TO STORES AND SPARES IN STOCK PRIOR TO 31.03.2003 AND SUCH LOSS WILL ARISE ONLY ON ACTUAL SALE. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE HA S RAISED THIS GROUND IN THE APPEAL BEFORE US. 5.2 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD, IT IS PERTINENT TO MENTION THAT THE ASSESSEE HAS CLAIMED THE IMPUGNED WRITTEN OFF IN RESPECT OF THE STOCK AS THE BUSINESS HAS BECOME OBSOLETE AND THE SAID STOCK S HAVE BEEN DESTROYED. THE PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW INDICATES THAT THE SAID CLAIM OF THE ASSESSEE HAS NOT BEEN PROPERLY VERIFIED WHILE MAKING/CONFIRMING THE SAID DISALLOWANCE. CONSIDERING THE FACTS IN TOTO, WE ARE OF THE VIEW THAT IT IS JUST AND PRO PER TO SET ASIDE THE ISSUE TO THE FILE OF THE AO TO VERIFY THE CLAIM OF THE ASSESSEE WHETHER THE STOCK HAS BECOME OBSOLETE/DESTROYED. ON CONFIRMING THE SAME, THE AO MAY ACCORDINGLY DECI DE THE ISSUE IN ACCORDANCE WITH LAW AFTER PROVIDING DUE OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE. WE ORDER AND DIRECT ACCORDINGLY. GROUND NO. 4 IS ALLOWED FOR STATISTICAL PURPOSE. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED. ITA NO. 8370/MUM/2010 M/S INTERSIL (INDIA) PRIVATE LTD. ASSESSMENT YEAR: 2005-06 5 ORDER PRONOUNCED IN THE OPEN COURT ON T HIS 15 TH DAY OF JANUARY, 2014. SD/- SD/- (P.M. JAGTAP) (DR.S.T.M.PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 15.01.2014 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR I BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.