The DCIT, Circle-1(1), Baroda V. M/s. Jewel Consumer Care Pvt.Ltd., Baroda

ITA 882/AHD/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51030 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 08-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 20-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K VOHRA
• Assessee Lawyers: MRS URVASHI SHODHAN; S N SOPARKAR
• Keywords: Proportionate interest

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI D.K.TYAGI, JM AND B.P. JAIN, AM. DY. CIT, CIR-1(1), BARODA. VS. JEWEL CONSUMER CARE (P) LTD., UNIT GORADIA INNOVATIVE TECHNOLOGIES (P) LTD., PLOT NO.212, LUNA PADRA, BARODA, (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI R. K. VOHRA, DR RESPONDENT BY:- SHRI S. N. SOPARKAR, SR.ADVOCATE & MRS. URVASHI SHODHAN, ADVOCATE. DATE OF HEARING :8/12/2011 DATE OF PRONOUNCEMENT : 21.12.11. O R D E R PER D. K. TYAGI, JUDICIAL MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) DATED 22.12.2008. THE ONLY EFFECTIVE GROUND TAKEN BY THE REVENUE IN THIS APPEAL IS REGARDING DISALLOWANCE OF INTEREST OF RS.16,07,368/- U/S 36(1)(III) OF THE ACT WHICH HAS BEEN DELETED BY THE LD. CIT(A). ITA NO.882/AHD/2009 ASST. YEAR :2005-06 ITA NO.882/AHD/2009 ASST. YEAR 2005-06 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY MADE ADVANCES TO ITS SISTER CONCERN M/S DENTA BRUSH (P) LTD., THE OUTSTANDING AMOUNT OF WHICH AS ON 31 ST MARCH, 2005 WAS RS.76,45,821/-. THE AO OBSERVED THAT NO INTEREST WAS RECOVERED BY THE ASSE SSEE COMPANY ON SUCH ADVANCES. IT WAS FURTHER NOTED THAT THE ASSESSEE CO MPANY HAD INVESTED FUNDS IN EQUITY SHARES OF RS.67,99,665/- WHICH COUL D ALSO NOT BE CONSIDERED FOR BUSINESS PURPOSES. THE AO HENCE ASKE D THE ASSESSEE TO SHOW CAUSE AS TO WHY PROPORTIONATE INTEREST ON INTE REST FREE ADVANCES GIVEN AND INVESTMENT IN EQUITY SHARES SHOULD NOT BE DISALLOWED U/S 36(1)(III) HOLDING THAT THE SAID INTEREST FREE ADVA NCES AND INVESTMENTS HAD BEEN MADE OUT OF INTEREST-BEARING FUNDS OF THE ASSE SSEE. THE ASSESSEE IN REPLY SUBMITTED THAT THE ADVANCES TO ITS SISTER CON CERN DPL WAS TO ENABLE DPL TO ACQUIRE PLANT & MACHINERY IN ORDER TO CARRY ON ITS ACTIVITIES. THE ASSESSEE FURTHER SUBMITTED THAT IT WAS A PART OF A GROUP OF COMPANIES WHO WERE ENGAGED IN MANUFACTURE OF TOOTHBRUSHES AND WER E EXCLUSIVE SELLERS OF SUCH TOOTHBRUSHES TO M/S HINDUSTAN LEVER LTD. HE NCE ITS FORTUNES AND THAT OF ITS SISTER CONCERN COMPANIES WERE INEXTRICA BLY LINKED. THE ASSESSEE ARGUED THAT SINCE THE FUNDS ADVANCED BY IT WERE USED BY ITS SISTER COMPANY FOR ITS BUSINESS PURPOSE, THE ELEMENT OF CO MMERCIAL EXPEDIENCY AS REQUIRED BY THE SUPREME COURT IN THE CASE OF S.A . BUILDERS 288 ITR 0001 WAS SATISFIED AND ACCORDINGLY, NO DISALLOWANCE OF INTEREST WAS JUSTIFIED. THE SAID CONTENTION OF THE ASSESSEE WAS REJECTED BY THE AO. THE ITA NO.882/AHD/2009 ASST. YEAR 2005-06 3 ALTERNATE CONTENTION OF THE ASSESSEE COMPANY TO THE EFFECT THAT IT HAD SUFFICIENT INTEREST FREE FUNDS AGAINST THE ABOVE IN TEREST FREE ADVANCES AND INVESTMENTS, WAS ALSO REJECTED ON THE GROUND THAT T HE COMPANYS INVESTMENTS IN FIXED ASSETS ALONE WERE IN EXCESS OF THE SAID INTEREST FREE FUNDS. ACCORDINGLY, THE AO HELD THAT THE ENTIRE INT EREST FREE ADVANCE OF RS.76.45 LACS TO DPL WAS FOR NON-BUSINESS PURPOSE. HE FURTHER HELD THAT INVESTMENT IN EQUITY SHARES OF RS.67.99 LACS WAS AL SO DIVERSION OF INTEREST-BEARING FUNDS FOR NON-BUSINESS PURPOSE. HE NCE, THE PROPORTIONATE INTEREST EXPENDITURE OF RS.16,07,366/- OUT OF TOTAL INTEREST EXPENDITURE OF RS.39,30,858/- WAS DISALLOWED. 2.1 IN APPEAL, IN RESPECT OF THE INTEREST FREE ADVA NCE TO DPL IT WAS SUBMITTED THAT THE SAME WAS MADE TO A SISTER CONCER N IN ORDER TO ENABLE IT TO SET UP ITS BUSINESS BY PURCHASING SUITABLE FIXED ASSETS IN THE FORM OF MACHINERY AND ALSO FACTORY BUILDING IN ORDER TO DEV ELOP DPL AS AN ANCILLARY INDUSTRY TO THE GROUPS MANUFACTURING ACT IVITIES. M/S DPL HAD ACQUIRED BRISTLING MACHINE, WHICH DPL WOULD HAVE US ED TO DO BRISTLING FOR TOOTHBRUSHES FOR VARIOUS GROUP COMPANIES. IN SU PPORT OF THIS POINT, THE BALANCE SHEET OF M/S DENTABRUSH LTD. FOR FY 2004-05 SHOWING DEVELOPMENT OF FUNDS IN ITS FIXED ASSETS WAS REFERR ED TO. IT WAS ARGUED THAT THE SAID ADVANCE WAS MADE DUE TO COMMERCIAL EX PEDIENCY. THE LD. AR SUBMITTED THAT THE SUPREME COURT IN THE CASE OF S.A. BUILDERS VS. CIT ITA NO.882/AHD/2009 ASST. YEAR 2005-06 4 288 ITR 0001 HAS CLEARLY HELD THAT ONCE A NEXUS CAN BE SHOWN BETWEEN THE EXPENDITURE AND PURPOSE OF THE BUSINESS (WHICH NEED NOT BE THE BUSINESS OF THE ASSESSEE ITSELF), THE REVENUE CANNO T JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARMCHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HO W MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCE OF TH E CASE. THE SUPREME COURT HAD LAID DOWN THE PRINCIPLE THAT AS LONG AS T HE FUNDS ARE USED IN BUSINESS, EVEN IF THE BUSINESS IS OF A SISTER CONCE RN AND ARE NOT DIVERTED FOR THE PERSONAL USE OF ANY SHAREHOLDER OR DIRECTOR S, THE INTEREST FREE ADVANCE WOULD HAVE THE ELEMENT OF COMMERCIAL EXPEDI ENCY. 2.2 IN THE ALTERNATE, THE LD. AR SUBMITTED THAT NO DISALLOWANCE OUGHT TO BE MADE IN VIEW OF THE FACT THAT SUFFICIENT INTERES T FREE FUNDS WERE AVAILABLE TO MAKE SUCH INTEREST FREE ADVANCES. THE COMPANY HAD INTEREST FREE FUNDS CONSISTING OF SHARE CAPITAL AND RESERVES AND SURPLUS OF RS.439.07 LACS. THE LD. AR RELIED ON THE SUPREME CO URTS JUDGMENT IN THE CASE OF MUNJAL SALES CORPORATION VS. CIT 298 ITR 29 8, WHEREIN IT WAS HELD THAT WHERE THE OPENING BALANCE OF PROFITS OF T HE FIRM EXCEEDS THE LOANS GIVEN TO SISTER CONCERNS, IT IS PRESUMED THAT THE SAID LOANS ARE GIVEN OUT OF ITS OWN FUNDS. 3. AFTER TAKING INTO CONSIDERATION THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) DELETED THE ADDITION. ITA NO.882/AHD/2009 ASST. YEAR 2005-06 5 AGGRIEVED BY THIS ORDER, NOW THE REVENUE IS IN APPE AL BEFORE THE TRIBUNAL. 4. THE LD. DR SUPPORTED THE ORDER OF AO AND SUBMITT ED THAT THE ASSESSEE COMPANY MADE ADVANCES TO ITS SISTER CONCER N M/S DENTABRUSH (P) LTD., THE OUTSTANDING AMOUNT OF WHICH AS ON 31/ 3/2005 WAS RS.76,45,821/-. THE AO HAD NOTED THAT INTEREST WAS RECOVERED BY THE ASSESSEE COMPANY ON SUCH ADVANCES. IT WAS FURTHER N OTED THAT THE ASSESSEE COMPANY HAD INVESTED FUNDS IN EQUITY SHARES OF RS.6 7,99,665/- WHICH COULD NOT BE CONSIDERED FOR BUSINESS PURPOSES. THE AO HAD HELD THAT THE ENTIRE INTEREST FREE ADVANCE OF RS.76.45 LACS TO DP L WAS FOR NON-BUSINESS PURPOSE. THE AO FURTHER HELD THAT INVESTMENT IN EQU ITY SHARES OF RS.67.99 LACS WAS ALSO DIVERSION OF INTEREST-BEARING FUNDS F OR NON-BUSINESS PURPOSE. HENCE THE PROPORTIONATE INTEREST EXPENDITU RE OF RS.16,07,366/- OUT OF TOTAL INTEREST EXPENDITURE OF RS.39,30,858/- WAS DISALLOWED. THE LD. CIT(A) WITHOUT APPRECIATING THE FACTS HAS DELETED T HE DISALLOWANCE. THEREFORE, HIS ORDER MAY KINDLY BE SET ASIDE AND TH AT OF THE AO BE RESTORED. 5. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE RELYING ON THE ORDER OF LD. CIT(A) SUBMITTED THAT THE ISSUE IS NOW COVERED IN FAVOUR OF ASSESSEE BY THE TRIBUNAL IN ITA NO.134 & 158/AHD/20 08 ASST. YEAR ITA NO.882/AHD/2009 ASST. YEAR 2005-06 6 2004-05 IN THE CASE OF DCIT VS. ANIGA BRUSHES (P) L TD. AND JEWEL CONSUMER CARE (P) LTD. VS. ACIT VIDE ITS ORDER DATE D 14/05/2010. THEREFORE, THERE IS NO INFIRMITY IN THE ORDER OF LD . CIT(A). THE SAME MAY KINDLY BE UPHELD. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND GOIN G THROUGH THE MATERIAL ON RECORD, WE FIND FORCE IN THE SUBMISSION S OF THE LD. COUNSEL OF THE ASSESSEE THAT THE ISSUE IS NOW COVERED BY THE D ECISION OF THE TRIBUNAL IN ITA NO.134 & 158/AHD/2008 FOR ASST. YEAR 2004-05 IN ASSESSEES OWN CASE VIDE ORDER DATED 14/05/2010, WHEREIN THE T RIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER :- 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED THE CASE RECORDS INCLUDING THE ASSESSMENT ORDER AS WELL AS THE ORDER OF CIT(A). WE FIND THAT THE ASSESSEE HAS GIVEN INTEREST FREE INTER-CORPORATE DEPOSITS DURING THE Y EAR AS UNDER:- NAME OF THE PARTY OPENING BALANCE FURTHER GIVEN (NET) REPAID CLOSING BALANCE AMIGO SECURITIES PVT. LTD. 1,69,82,464 NIL 1,69,57,464 25,000 DENTABRUSH PVT. LTD. 3,68,34,816 15,80,184 NIL 3,84,15,000 TOTAL 3,84,40 ,000 WE FIND THAT THE MAIN ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE WAS THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE-COMPANY E NTERED INTO MEMORANDUM OF UNDERSTANDING (MOU IN SHORT) WITH AMIGO SECURITIES PVT. LTD. FOR UTILIZATION OF OFFICE SPACE AND OTHER FACILITIES. IN TURN, THE ASSESSEE-C OMPANY PROVIDED INTEREST FREE DEPOSIT TO AMIGO SECURITIES PVT. LTD. FOR FINANCING INSTRUCTION AS PER THE TERMS AND CONDITIONS OF MOU. THE RELEVANT TERMS AND CONDITION S AS NARRATED BEFORE US AS UNDER:- ITA NO.882/AHD/2009 ASST. YEAR 2005-06 7 I) ASPL SHALL CONSTRUCT THE PREMISES ON A PRE-FIXE D SCHEDULE AND HAVING PREFIXED SPECIFICATION II) ON COMPLETION OF THE CONSTRUCTION, ASPL SHALL A LLOT 7,000 SQ. FT. OF SPACE IN THE SAID PREMISES ON A PRIORITY BASIS. BROADLY SPEAKING, THE ASSESSEE-COMPANY WILL TAKE PR EMISES ON LEASE ON PRE-FIXED MONTHLY RENTAL OF RS.24/- PER SQ. FT., WHICH WOULD BE INCLUSIVE OF RENT & CHARGES FOR THE FURNITURE AND FIXTURES. THE ASSESSEE COMPANY H AS TO GIVE INTEREST FREE LOAN OF RS.1 CRORE AND A FLOATING OF ADVANCE OF RS.1.5 CROR ES FOR ENABLING ASPL TO FINANCE THE CONSTRUCTION OF THESE PREMISES. THERE WAS ANOTHER C ONDITION / OPTION WITH THE ASSESSEE IN THE SAID AGREEMENT TO PURCHASE THE PREMISES WITH IN THE SPECIFIED PERIOD AND THAT ALSO AT THE SOLE DISCRETION OF THE ASSESSEE. IN VIE W OF THESE FACTS, WE ARE OF THE CONSIDERED VIEW THAT THE AMOUNT ADVANCED FOR OBTAIN ING THE PREMISES ON LEASE AND WAS FOR THE PURPOSES OF BUSINESS EXPEDIENCY. ACCORD INGLY, THE DECISION OF HONBLE APEX COURT IN THE CASE OF S.A. BUILDERS V. CIT(A) ( 2007) 288 ITR 1 (SC) WILL SQUARELY APPLY. ACCORDINGLY, WE REVERSE THE FINDINGS OF LOWE R AUTHORITIES AND THIS ISSUE IS ALLOWED IN FAVOUR OF THE ASSESSEE. 6. AS REGARDS TO PLACEMENT OF FUNDS WITH DENTA BRU SH PVT. LTD. WE FIND THAT THE ASSESSEE-COMPANY IS IN THE SAME LINE OF BUSINESS I. E. MANUFACTURING OF TOOTH BRUSHES AND ADVANCE TO DENTA BRUSH PVT. LTD. FOR PURCHASE O F BLUSTER MACHINE IS MAINLY A BUSINESS TRANSACTION AND THERE IS COMMERCIAL EXPEDI ENCY AS HELD BY CIT(A). THE REVENUE COULD NOT ADDUCE ANYTHING AGAINST THIS FIND ING. ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A) AND THIS ISSUE OF REVENUES APPEAL IS DISMISSED. FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL, WE OBSER VE THAT THERE IS NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A). WE UPHOLD THE SAME. THE GROUND RAISED BY THE REVENUE IS DISMISSED. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 21/12/11. SD/- SD/- (B.P. JAIN) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICI AL MEMBER AHMEDABAD, MAHATA/- ITA NO.882/AHD/2009 ASST. YEAR 2005-06 8 COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 9/12/2011. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER.OTHER MEMBER 12/12/2011 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..