MERIND LTD, MUMBAI V. ACIT CEN CIR 14, MUMBAI

ITA 905/MUM/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3654 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 08-08-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 01-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M RAJAN
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI BEFORE SHRI D. KARUNAKARA RAO (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 905/MUM/2011 ASSESSMENT YEAR: 2003-04 M/S. MERIND LIMITED. MULUND GOREGAON LINK ROAD, BANDUP (WEST), MUMBAI- 400 078. PAN: AAACM2735P VS. THE A CIT CENTRAL CIRCLE - 1 4 , AAYAKAR BHAVAN, M.K.ROAD, MUMBAI- 400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. M.P.LOHIA RESPONDENT BY : SHRI. M. RAJAN DATE OF HEARING: 0 8/08/2016 DATE OF PRONOUNCEMENT: 12/08/20 16 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST ORDER DATED 22/11/2010 PASSED BY THE LD. CIT(APPEALS)-22, MUMBA I, FOR THE ASST. YEAR 2003-04. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE E NGAGED IN THE BUSINESS OF MANUFACTURING OF PHARMACEUTICAL PRODUCTS, FILED IT S RETURN OF INCOME DECLARING THE TOTAL LOSS OF RS. 2,09,53,498/-. THE RETURN WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AND THE A SSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT, DETERMINING TOTAL INCOME OF THE ASSESSEE AT RS. 16,58,880/- AFTER MAKING DISALLOWANCE OF RS. 44,92 ,382/-CLAIMED U/S 35(2AB) OF THE ACT AND RS. 1,81,20,000/-CLAIM AS INTEREST E XPENDITURE. IN APPEAL THE LD. CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSE E, HOWEVER, UPHELD THE 2 ITA NO. 905/MUM/2011 ASSESSMENT YEAR: 2003-04 DISALLOWANCE IN RESPECT OF DEDUCTION OF RS. 44.42 L ACS CLAIMED U/S 35(2AB) AND INTEREST EXPENDITURE CLAIMED U/S 36(1)(III) OF THE ACT. 3. AGGRIEVED, THE ASSESSEE HAS CHALLENGED THE IMPUG NED ORDER ON THE FOLLOWING GROUNDS OF APPEAL:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A): DISALLOWANCE OF WEIGHTED DEDUCTION UNDER SECTION 35 (2AB) OF THE ACT 1. ERRED IN UPHOLDING THE DISALLOWANCE OF WEIGHTED DE DUCTION TO THE EXTENT OF RS. 44.92 LAKHS UNDER SECTION 35(2AB) OF THE ACT ON THE GROUND THAT THE APPELLANT FAILED TO COMPLY WITH PRO CEDURAL REQUIREMENTS AND FURNISHING OF INFORMATION SUCH AS FORM 3CL, FORM 3CM, COPY OF AGREEMENTS UNDER SECTION 35(2AB) OF TH E ACT. DISALLOWANCE OF INTEREST EXPENSES 2. ERRED IN UPHOLDING THE DISALLOWANCE OF INTEREST EXPENDITURE TO THE EXTENT OF RS. 1.81 CRORES UNDER SECTION 36(1)(III) OF THE ACT ON THE GROUND THAT SUCH INTEREST EXPENDITURE PERTAINED TO ADVANCEMENT OF BORROWED FUNDS FOR GRANT OF INTEREST FREE ADVANCES. 4. BEFORE US THE LD. AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT THE ASSESSEE DOES NOT WANT TO CONTEST GROUND NO. 1 OF T HE APPEAL. HENCE, GROUND NO. 1 OF THE APPEAL IS DISMISSED AS NOT PRESSED. AS REGARDS THE GROUND NO. 2, THE LD. AR SUBMITTED THAT THE IDENTICAL ISSUE I.E., INTEREST EXPENSES U/S 36(1)(III) OF THE ACT, HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT MUMBAI IN ASSESSEES OWN CASE (ITA NO. 904/MUM /2011) FOR THE A.Y. 2002-03. THE LD. AR FURTHER SUBMITTED THAT THE LOAN S RELATABLE TO THE SAID INTEREST PERTAIN TO EARLIER YEARS. THE CLAIM OF INT EREST WAS MADE IN A.Y. 2001-02 3 ITA NO. 905/MUM/2011 ASSESSMENT YEAR: 2003-04 ONWARDS. ASSESSEE GOT RELIEF IN 2001-02. THEREFORE, THE ISSUE IS COVERED BY THE SAID DECISION OF THE ITAT. 5. ON THE OTHER HAND THE LD. DEPARTMENTAL REPRESENT ATIVE (DR) DID NOT CONTROVERT THE CONTENTION OF THE ASSESSEE, HOWEVER, RELYING ON THE FINDINGS OF THE AUTHORITIES BELOW, SUBMITTED THAT SINCE EACH CA SE HAS TO BE DECIDED ON ITS OWN MERIT, THE PRESENT APPEAL IS REQUIRED TO BE DEC IDED ACCORDINGLY. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE DOCUMENTS PLACED ON RECORD IN THE LIGHT OF THE RESPECTIVE CON TENTIONS OF THE PARTIES. WE NOTICE THAT THE COORDINATE BENCH OF ITAT HAS DECIDE D THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR T HE A.Y. 2002-03, AFORESAID, BY FOLLOWING THE DECISION DATED 21.01.2009, RENDERE D BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE (ITA NO 5438/M/2006) FOR THE A.Y. 2001-02. THE RELEVANT PORTION OF THE DECISION RENDERED BY THE CO ORDINATE BENCH IN ASSESSEE,S CASE FOR THE ASSESSMENT YEAR 2002-03 READS AS UNDER :- .THE SIMILAR DISALLOWANCE WAS MADE BY THE AO IN ASSESSEES CASE FOR THE ASSESSMENT YEAR 2001-02, HOWEVER, IN APPEAL, THE SA ME WAS DELETED BY THE CIT(A). THE REVENUE CHALLENGED THE ORDER OF THE CIT (A) BEFORE THE ITAT AND THE COORDINATE BENCH OF ITAT DISMISSED THE REVENUES AP PEAL HOLDING AS UNDER. 9. WE HEARD BOTH THE PARTIES. 10. FIRST, THE AO CANNOT DISALLOW THE INTEREST EXPE NSES FOR THE YEAR UNDER CONSIDERATION AS THE ADVANCE IN QUESTION HAS NOT BEEN MADE DURING THE YEAR UNDER CONSIDERATION. FOLLOWING THE DECISION IN THE CASE OF CIT(A) VS SRIDEV ENTERPRISES 192 ITR 165 (K AR.), THE AO CANNOT DISALLOW THE INTEREST EXPENSE FOR THE YEAR U NDER CONSIDERATION ON THE PREMISE THAT INTEREST BEARING FUNDS ARE USED TO 4 ITA NO. 905/MUM/2011 ASSESSMENT YEAR: 2003-04 ADVANCE INTEREST FREE ADVANCES, IF NO SUCH DISALLOW ANCES ARE MADE IN ANY PRIOR ASSESSMENT YEAR. THEREFORE THE ASSESSE E'S CLAIM IS TO BE ALLOWED. 11. SECONDLY, IT IS ESSENTIAL TO PROVE DIVERSION OF BORROWED FUNDS FOR NON BUSINESS PURPOSE BEFORE DISALLOWING INTEREST PA ID ON BORROWED CAPITAL IN ACIT VS CLARIDGES INVESTMENTS & FINANCE PVT. LTD. 18 SOT 390(MUM) IT HAS BEEN HELD AS UNDER: 'THERE IS NO CASE FOR MAKING ANY DISALLOWANCE ON T HE INTEREST PAID ON THE MONIES BORROWED AS THE FACTS CLEARLY RE VEAL THAT THE BORROWED FUNDS HAVE BEEN UTILIZED FOR THE PURPO SE OF BUSINESS. MERELY BECAUSE THERE WAS HUGE OVERDRAFT A CCOUNT IT CANNOT BE HELD THAT SUCH BORROWED FUNDS WERE UTILIZ ED FOR NON-BUSINESS PURPOSE. THE ASSESSEE HAD SUFFICIENT I NTEREST FREE FUNDS TAKEN FROM ITS GROUP CONCERNS. 12. THE AO HAS NOT PROVED THE DIVERSION OF FUNDS FO R NON BUSINESS PURPOSES. THEREFORE THE ASSESSEE'S CLAIM IS TO BE A LLOWED. 13. THIRDLY, SINCE CAPITAL PLUS RESERVES EXCEEDS TH E INVESTMENTS, NO DISALLOWANCE OF INTEREST IS WARRANTED, IN RESPECT O F INTEREST BEARING BORROWINGS. THIS PROPOSITION HAS BEEN LAID OUT IN T HE CASE OF CIT VS RADICO KHAITAN LTD 274 ITR 354 (ALL.) WHEREIN IT HA S BEEN HELD AS UNDER: 'TRIBUNAL HAVING FOUND ON FACTS THAT ASSESSEE HAD S UFFICIENT FUNDS IN THE FORM OF CAPITAL RESERVE AND SURPLUS OT HER THAN THE BORROWED FUNDS, ASSESSEE WAS ENTITLED TO FULL A LLOWANCE OF INTEREST ON BORROWED MONEY. 14. THE CO-ORDINATE BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF GRASIM INDUSTRIES VS DCIT 64 TTJ 357(MUM) HAS BEEN HELD AS UNDER: 5 ITA NO. 905/MUM/2011 ASSESSMENT YEAR: 2003-04 'HAVING REGARD TO THE PRINCIPLES LAID DOWN BY THE CALCUTTA HIGH COURT IN THE CASES OF WOOLCOMBERS OF INDIA LTD . VS CIT 134 ITR. 217 (CAL), RECKITT & COLMAN OF INDIA VS. C IT 135 ITR 698 (CAL.) AND OTHER AUTHORITIES AND POSITION OF DE POSITS OUT OF PROFIT AND OWN FUNDS IN THE COMMON ACCOUNT BEING MORE THAN WITHDRAWALS, THE INVESTMENT IN SECURITIES WAS TO BE PRESUMED TO BE MADE BY THE ASSESSEE OUT OF ITS OWN FUNDS AND NOT OF BORROWINGS. THE AO WRONGLY PLACED ONUS O N THE ASSESSEE TO LINK THE INVESTMENT AND ERRONEOUSLY DRE W A CONCLUSION AQAIN.ST THE ASSESSEE AND ALLOCATED INTE REST ON PROPORTIONATE BASIS. 15. RESPECTFULLY FOLLOWING THE DECISION (SUPRA), WE CONFIRM THE ORDER OF THE LD. CIT(A) AND DISMISS THE REVENUE'S APPEAL. 7. SINCE, THIS ISSUE HAS ALREADY BEEN DECIDED IN FA VOUR OF THE ASSESSEE BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASES FOR THE A .Y. 2001-02 AND 2002-03, WE, RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THE CO ORDINATE BENCH IN ASSESSEES CASE FOR THE ASSESSMENT YEARS 2001-02 AND 2002-03, ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 8. IN THE RESULT APPEAL FILED BY THE ASSESSEE FOR T HE A.Y. 2003-04 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COUR T 12 TH AUGUST, 2016. SD/- SD/- ( D.KARUNAKARA RAO ) (RAM LAL NEGI) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED: 12/08/2016 6 ITA NO. 905/MUM/2011 ASSESSMENT YEAR: 2003-04 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. !' , $ !'% , / DR, ITAT, MUMBAI 6. &' ( / GUARD FILE. / BY ORDER, ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI PRAMILA