DCIT, Hyderabad V. M/s Bambino Agro Industries Ltd, Secunderabad

ITA 933/HYD/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53646 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 30-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 18-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B V PRASAD REDDY
• Assessee Lawyers: C N PRASAD
• Keywords: Notional interest; Set aside
• Section: 143(3); 14A; 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AN D SHRI AKBER BASHA, ACCOUNTANT MEMBER ITA NO. 933/HYD/2010 (ASSESSMENT YEAR 2006-07) THE DCIT CIRCLE-3(2), RANGE-3 HYDERABAD VS M/S. BAMBINO AGRO INDUSTRIES LTD., HYDERABAD PAN: AACCB4321N APPELLANT RESPONDENT APPELLANT BY: SHRI B.V. PRASAD REDDY RESPONDENT BY: SHRI C.N. PRASAD DATE OF HEARING: 22.09.2011 DATE OF PRONOUNCEMENT: 28.09.2011 ORDER PER ASHA VIJAYARAGHAVAN, J.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), GUNTUR DA TED 31.3.2010 FOR THE ASSESSMENT YEAR 2006-07. 2. FACTS OF THE CASE ARE THAT THE ASSESSEE IS CARRY ING ON THE BUSINESS OF MANUFACTURING AND SELLING OF WHEAT AND PASTA PRODUCTS. THE ASSESSEE FILED THE RETURN OF INCOME ON 30 TH NOVEMBER, 2006. DECLARING TAXABLE INCOME OF RS. 85,67,676. THE RET URN WAS PROCESSED U/S. 143(1) AND THE CASE WAS SELECTED FOR SCRUTINY. 3. THE DCIT, CIRCLE 3(2), HYDERABAD COMPLETED THE ASSESSMENT U/S. 143(3) OF THE INCOME-TAX ACT, 1961. THE ASSESSEE HAD SHOWN UNDER THE HEAD 'IN BALANCE SHEET' AN AMOU NT OF RS. 1,95,49,000 TOWARDS INVESTMENT IN EQUITY SHARES OF SPECTRUM POWER GENERATION LTD. (SPGL FOR SHORT). THE SAID I NVESTMENT WAS MADE DURING THE FINANCIAL YEAR 1994-95. THE DCIT A DOPTED NOTIONAL RATE OF 12% ON THE INVESTMENT AMOUNT AND D ISALLOWED I.T.A. NO. 933/HYD/2010 M/S. BAMBINO AGRO INDUSTRIES LTD. ========================= 2 INTEREST OF RS. 23,45,880 U/S. 14A OF THE ACT. FUR THER THE ASSESSING OFFICER REJECTED THE ASSESSEE'S ARGUMENTS THAT THE INVESTMENTS WERE NOT MADE OUT OF BORROWED FUNDS. THE ASSESSING OFFICER RELIED ON THE DECISION OF KERALA HIGH COURT IN CIT VS. V.I . BABY & CO. (254 ITR 248). THE ASSESSING OFFICER ALSO RELIED ON THE DECISION OF THE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. H.R. SU GAR FACTORY PVT. LTD., 187 ITR 363 AND HELD THAT HAD THE MONEY NOT BEEN INVESTED IT WOULD HAVE BEEN AVAILABLE TO THE ASSESS EE FOR ITS BUSINESS PURPOSES AND TO THAT EXTENT IT IS NECESSAR Y TO BORROW FROM BANK. 4. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT U NLESS THERE IS EVIDENCE TO SHOW THAT THE INTEREST BEARING FUNDS HAD BEEN INVESTED IN TAX FREE INVESTMENTS AND THE NEXUS WAS ESTABLISHED BY THE REVENUE, NO DISALLOWANCE CAN BE MADE. THE CIT( A) HELD THAT THE ASSESSEE HAS MADE THIS INVESTMENT IN 1994 AND T HE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY FACTS TO SHOW THAT THE ASSESSEE HAS INVESTED INTEREST BEARING FUNDS TO ACQ UIRE SHARES OF THE SISTER-CONCERN. FURTHER, EVEN IF IN THAT YEAR INTEREST BEARING FUNDS WERE UTILISED BY THE ASSESSEE NOTHING HAS BEE N BROUGHT ON RECORD BY THE ASSESSING OFFICER TO SHOW THAT THE LO AN IS STILL OUTSTANDING AND THE INTEREST PAYABLE IS REFERABLE T O SUCH LOAN. 5. THE CIT(A) HELD THAT THE ASSESSING OFFICER HAS N OT ESTABLISHED THAT THE INVESTMENT WAS NOT FOR THE PUR POSE OF ASSESSEE'S BUSINESS. THE CIT(A) FURTHER HELD THAT THE INVESTMENT HAS BEEN MADE IN 1994 AND THERE IS NOTHING TO SHOW THAT EVEN IF THE INVESTMENT WAS ORIGINALLY OUT OF INTEREST BEARI NG LOAN FUNDS SUCH LOAN STILL REMAINS UNPAID. THE CIT(A) DELETED THE AMOUNT OF RS. 23,45,880 HOLDING THAT THERE IS NO PROVISION IN THE ACT THAT ALLOWS CHARGING OF NOTIONAL INTEREST. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE DEPART MENT HAS COME UP IN APPEAL BEFORE US AND RAISED THE GROUND T HAT THE CIT(A) I.T.A. NO. 933/HYD/2010 M/S. BAMBINO AGRO INDUSTRIES LTD. ========================= 3 OUGHT TO HAVE UPHELD THE ACTION OF THE ASSESSING OF FICER IN DISALLOWING INTEREST RELATABLE TO INVESTMENT MADE I N M/S. SPGL. 7. THE LEARNED DR, SHRI B.V. PRASAD REDDY, RELIED O N THE DECISION OF V.I. BABY & CO. (SUPRA), S.A. BUILDERS LTD. VS. CIT, 288 ITR 1 AND CIT VS. ABHISHEK INDUSTRIES LTD., 286 ITR 1 (P&H). THE LEARNED DR RELIED ON THE DECISION OF ABHISHEK INDUS TRIES LTD. (SUPRA) WHEREIN IT HAS BEEN HELD AS FOLLOWS: 'THE VIEW THAT WHERE THE AMOUNT IS ADVANCED FROM A MIXED ACCOUNT OR SHARE CAPITAL OR SALE PROCEEDS OR PROFITS, IT WOULD NOT BE DEEMED DIVERSION OF BORROW ED CAPITAL OR THAT THE REVENUE HAD NOT BEEN ABLE TO ESTABLISH NEXUS OF THE FUNDS ADVANCED TO THE SISTER CONCERNS WITH THE BORROWED FUNDS, IS NOT CORRECT. ONCE IT IS BORNE OUT FROM THE RECORD THAT THE ASSES SEE HAD BORROWED CERTAIN FUNDS ON WHICH LIABILITY TO PA Y TAX IS BEING INCURRED AND ON THE OTHER HAND, CERTAI N AMOUNTS HAD BEEN ADVANCED TO SISTER CONCERNS OR OTHERS WITHOUT CARRYING ANY INTEREST AND WITHOUT AN Y BUSINESS PURPOSE, THE INTEREST TO THE EXTENT THE ADVANCE HAD BEEN MADE WITHOUT CARRYING ANY INTEREST IS TO BE DISALLOWED UNDER SECTION 36(1)(III) OF THE ACT.' 8. THE LEARNED COUNSEL FOR THE ASSESSEE STATED SINC E THE INVESTMENT OF RS. 1,95,49,000 IS NOT MADE OUT OF FU NDS BORROWED FROM BANKS/FINANCIAL INSTITUTIONS, IT WILL NOT BE A PPROPRIATE TO CONCLUDE THAT THE FUNDS BORROWED ARE NOT UTILISED F OR BUSINESS PURPOSES AND REQUESTED THAT THE DISALLOWANCE OF RS. 23,45,880 MAY BE DELETED. 9. WE HAVE HEARD BOTH THE PARTIES. IN THE CASE REL IANCE UTILITIES & POWER LTD (ITA NO 1398 OF 2008 - ORDER DATED 9.1.2009 OF HONBLE BOMBAY HIGH COURT), WHERE THE ASSESSEE HAD ITS OWN FUNDS AS WELL AS BORROWED FUNDS AND IT ADVANCED FUN DS TO ITS SISTER- CONCERN FOR ALLEGEDLY NON BUSINESS PURPOSES AND QUE STION AROSE WHETHER THE ASSESSING OFFICER WAS JUSTIFIED IN DISA LLOWING INTEREST ON THE BORROWED FUNDS ON THE GROUND THAT THEY HAD B EEN USED FOR NON-BUSINESS PURPOSES, IT WAS HELD THAT 'WHERE AN A SSESSEE HAS ITS OWN FUNDS AS WELL AS BORROWED FUNDS, A PRESUMPTION CAN BE MADE I.T.A. NO. 933/HYD/2010 M/S. BAMBINO AGRO INDUSTRIES LTD. ========================= 4 THAT THE ADVANCES FOR THE NON-BUSINESS PURPOSES HAV E BEEN MADE OUT OF OWN FUNDS AND THAT THE BORROWED FUNDS HAVE N OT BEEN USED FOR THIS PURPOSE. ACCORDINGLY, THE DISALLOWANCE OF INTEREST ON THE BORROWED FUNDS IS NOT JUSTIFIED. 10. SINCE THE ASSESSEE HAS NOT FILED THE CASH FLOW STATEMENT AND BALANCE SHEET FOR THE RELEVANT YEAR AND THAT TH E ASSESSEE HAS STATED THAT THE INVESTMENT HAS BEEN MADE IN 1994 AN D THAT THE INVESTMENTS WERE MADE OUT OF ACCUMULATED PROFITS, I N THESE CIRCUMSTANCES, WE SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND THE MATTER IS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER TO VERIFY WHETHER OWN FUNDS WERE AVAILABLE WITH THE ASSESSEE ITSELF AND THEREAFTER TO DECIDE THE ISSUE IN THE LIGHT OF THE DECISION OF THE BOMBAY HIGH COURT IN CASE OF RELIANCE UTILITIES & P OWER LTD. (SUPRA), AFTER GIVING AN OPPORTUNITY TO THE ASSESSE E TO PRESENT ITS CASE. 11. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS ALLOWED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH SEPTEMBER, 2011. SD/- (AKBER BASHA) ACCOUNTANT MEMBER SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER HYDERABAD, DATED THE 28 TH SEPTEMBER, 2011 TPRAO COPY FORWARDED TO: 1. DY. COMMISSIONER OF I.T., CIRCLE 3(2), ROOM NO. 723, 7 TH FLOOR, I.T. TOWERS, A.C. GUARDS, HYDERABAD-500 004. 2. M/S. BAMBINO AGRO-INDUSTRIES LTD., SURYA TOWERS , 4 TH FLOOR, E-BLOCK, 104, SARDAR PATEL ROAD, SECUNDERABAD-500 0 03. 3. THE CIT(A), GUNTUR 4. THE CIT-III, HYDERABAD 5. DR, B-BENCH, ITAT, HYDERABAD.