LAXMI DIAMOND P.LTD, MUMBAI V. ADDITIONAL COMMISSIONER OF INCOME TAX 5(2), MUMBAI

MA 301/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6582 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 26 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 20-02-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 24-04-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset
• Section: 254(2)

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A , MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER M.A. NO.301/MUM/2018 (ARISING OUT OF ITA NO.6991/MUM/2012) ASSESSMENT YEAR: 2008-09 LAXMI DIAMOND PVT. LTD. DW-2200, BHARAT DIAMOND BOURSE, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI-400051 / VS. ADDL. CIT - 5(2), 5 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400020 ( /ASSESSEE) ( / REVENUE) P.A. NO.AABCL1815G / DATE OF HEARING : 18/01/2019 / DATE OF ORDER: 20/02/2019 / O R D E R PER G. MANJUNATHA (ACCOUNTANT MEMBER) THE ASSESSEE HAS FILED THIS MISCELLANEOUS APPLICATI ON U/S 254(2) OF THE INCOME TAX ACT, 1961 TO RECALL THE ORDER PASSED BY THE ITA T MUMBAI A BENCH IN ITA NO.6991/MUM/2012 FOR AY 2008-09. THE ASSESSEE HAS N ARRATED FACTS AS WELL AS MISTAKES APPARENT FROM THE ORDER OF THE ITAT DATED 04/10/2017. THE RELEVANT CONTENTS OF THE MISCELLANEOUS APPLICATION FILED BY THE ASSESSEE ARE AS UNDER:- / REVENUE BY SHRI B. SATYANARAYANE RAJI / ASSESSEE BY SHRI K.A. VAIDYALINGAM 2 MA NO.301/MUM/2018 LAXMI DIAMOND PVT. LTD. 1. THE ABOVE APPEAL OF THE APPELLANT WAS DISPOSED O F BY THE HON. TRIBUNAL, MUMBAI BENCH-A, VIDE ITS COMMON ORDER DATED 4.10.2017 FOR A YS 2007-08 AND 2008-09. THE APPELLANT BEGS TO PRESENT THIS APPLICATION FOR RECTIFICATION OF CERTAIN MISTAKES WHICH ARE APPARENT FROM RECORD IN THE SAID ORDER. 2. GROUNDS NO.1 AND 2 OF THE ABOVE APPEAL RELATING TO THE ACTION OF THE LEARNED CIT(A) IN UPHOLDING THE DISALLOWANCE OF RS.49,14,18 8/- U/S. 36 (1)(III) WERE DISMISSED BY THE HON. TRIBUNAL VIDE PARA 18 OF THE SAID ORDER, WHICH READS AS UNDER:- '18. FACTS REMAIN UNCHANGED. THE ASSESSE FAILS TO B RING ON RECORD ANY EVIDENCES TO REBUT THE FINDINGS OF FACTS RECORDED BY THE CIT (A) . THOUGH THE ASSESSE HAS RELIED UPON THE DECISIONS OF HON'BLE SUPREME COURT IN THE CASE OF VARDHMAN POLYTEX LTD (SUPRA), IN THE BACKDROP OF THE CLEAR FINDINGS OF T HE AO AND CIT(A) THAT THE ASSESSE HAS FAILED TO EXPLAIN THE AVAILABILITY OF INTEREST FREE FUNDS TO EXPLAIN ACQUISITION OF CAPITAL ASSET, INTEREST PAID ON LOANS BORROWED HAS TO BE DISALLOWED U/S. 36 (1)(III) FOR DIVERSION OF FUNDS FOR ACQUISITION OF CAPITAL ASSET . THEREFORE, WE ARE INCLINED TO UPHOLD THE ORDER OF THE CIT(A) AND REJECT THE GROUN D RAISED BY THE ASSESSE.' 3. BRIEF FACTS RELATING TO THE ISSUE: THESE GROUNDS RELATE TO DISALLOWANCE OF RS.49,47,18 8/- U/S. 36 (1)(III) OUT OF INTEREST PAID OF RS.40.50 CR ON THE GROUND THAT THE BORROWED FUNDS WERE ALLEGED UTILISED FOR GIVING ADVANCE FOR ACQUIRING ASSETS, WHICH WERE NOT PUT TO USE. THE FACT IS THAT INTEREST BEARING BORROWINGS WERE F ROM BANK FOR WORKING CAPITAL IN THE FORM OF PACKING CREDIT, POST SHIPMENT CREDIT, ETC. THERE WERE NO BORROWINGS FOR ACQUIRING FIXED ASSETS. TOTAL ADVANCE PAID FOR ACQU IRING ASSETS AS AT THE END OF THE YEAR WAS RS.19.86 CR WHICH INCLUDES RS.0.55 CR PAID DURING THE YEAR. THE APPELLANT HAD OWN INTEREST FREE FUNDS IN THE FORM OF SHARE CA PITAL, SHARE PREMIUM, UNSECURED LOANS FROM SHAREHOLDERS, ETC. AS UNDER: AT THE BEGINNING OF THE YEAR AT THE END OF THE Y EAR RS. (IN CRS.) RS. (IN CRS.) PAID UP SHARE CAPITAL 15.00 15.00 SHARE PREMIUM ACCOUNT 72.00 72.00 UNSECURED LOANS FROM SHAREHOLDERS (INTEREST FREE) 130.78 52.08 PROFIT & LOSS ACCOUNT CREDIT BALANCE 16.63 36.38 234.41 175.46 4. AS COULD BE SEEN FROM THE ABOVE, THE APPELLANT H AD MORE THAN SUFFICIENT OWN INTEREST FREE FUNDS. IN FACT, CURRENT YEAR'S NET PROFIT (RS.19.75 CR) ITSELF IS MORE THAN THE AMOUNT OF PAID DURING THE YEAR OF RS.0.55 CR. 5. IN SUPPORT OF THE ABOVE FINANCIAL POSITION, THE APPELLANT HAD FILED RELEVANT PAGES OF ITS BALANCE SHEET (PAGES 1 -5) IN THE PAPER BOOK FILED BEFORE THE HON. TRIBUNAL. 6. AT THE TIME OF HEARING, THE AR OF THE APPELLANT HAD RELIED INTER ALIA ON THE FOLLOWING BINDING JUDGMENTS OF THE HON. SUPREME COURT AND THE HON. BO MBAY HIGH COURT: 1. MUNJAL SALES CORPORATION 209 ITR 298 (SC) 2. RELIANCE UTILITIES & POWER LIMITED 313 ITR 340 (BORN) 3 MA NO.301/MUM/2018 LAXMI DIAMOND PVT. LTD. 3. HDFC BANK LIMITED 366 ITR 0505 (BORN) 7. THE FOLLOWING OBSERVATIONS OF THE HON. SUPREME C OURT IN MUNJAL SALES CORPORATION (SUPRA) IN PARA 17 OF THE JUDGMENT ARE RELEVANT: '17. ONE ASPECT NEEDS TO BE MENTIONED DURING THE AS SESSMENT YEAR 1995-96 APART FROM THE LOAN GIVEN IN AUGUST/SEPTEMBER 1991, THE ASSESSEE A DVANCED INTEREST FREE LOAN TO ITS SISTER CONCERN AMOUNTING TO RS.5 LACS. ACCORDING TO THE TR IBUNAL, THERE WAS NOTHING ON RECORD TO SHOW THAT THE LOANS WERE GIVEN TO THE SISTER CONCER N BY THE ASSESSEE FIRM OUT OF ITS OWN FUNDS AND, THEREFORE, IT WAS NOT ENTITLED TO CLAIM DEDUCTION UNDER S. 36(1)(III). THIS FINDING IS ERRONEOUS. THE OPENING BALANCE AS ON 1ST APRIL 1994 WAS RS.1.91 CRORES WHEREAS THE LOAN GIVEN TO THE SISTER CONCERN AS A SMALL AMOUNT OF RS .5 LACS. IN OUR VIEW, THE PROFITS EARNED BY THE ASSESSEE DURING THE RELEVANT YEAR WERE SUFFICIE NT TO COVER THE IMPUGNED LOAN OF RS.5 LACS.' (EMPHASIS SUPPLIED) 8. IN THE JURISDICTIONAL HON. BOMBAY HIGH COURT JUD GMENT IN CIT V/S RELIANCE UTILITIES & POWER LTD(2009) 313 ITR 340, THE HON. HIGH COURT HA S OBSERVED IN PARA 10 AS UNDER: '10. IF THERE BE INTEREST-FREE FUNDS AVAILABLE TO A N ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST-FREE FUNDS AVAIL ABLE. IN OUR OPINION, THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD. (SUPRA) HAD TH E OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD . (SUPRA) WHERE A SIMILAR ISSUE HAD ARISEN. BEFORE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSIDERABLE FORCE, BUT CONSIDERING THE FACT TH AT THE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WOOLCOMBER'S CASE (SUPRA), THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITE D IN THE OVERDRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE, IT SHOULD BE PRESUMED THAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE R UNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIA L AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE THE HIGH COURT. THE PRINCIPLE THE REFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR L OANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST -FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE CIT(A) AND TRIBUNAL.' (EMPHASIS SUPPLIED). 9. FURTHER THE JURISDICTIONAL BOMBAY HIGH COURT IN HDFC BANK LIMITED (366 ITR 0505) AND ALSO IN HDFC BANK'S WRIT PETITION NO.1753 OF 2016 D ATED 25.2.2016 HELD THAT NO DISALLOWANCE IS WARRANTED IN THE FACTS AND CIRCUMST ANCES OF THE CASE. IN FACT, IN PARA 16 ON PAGE 23/24, THE HON. HIGH COURT HAS OBSERVED ' ONC E THE ISSUE IS SETTLED BY THE DECISION OF THIS COURT IN HDFC BANK LTD. (SUPRA), THERE IS N OW NO NEED FOR THE ASSESSEE TO ESTABLISH WITH EVIDENCE THAT THE AMOUNTS WHICH HAS BEEN INVES TED IN THE TAX FREE SECURITIES HAVE COME OUT OF INTEREST FREE FUNDS AVAILABLE WITH IT THIS I S BECAUSE ONCE THE ASSESSEE IS POSSESSED OF INTEREST FREE FUNDS SUFFICIENT TO MAKE THE INVESTME NT IN TAX FREE SECURITIES; IT IS PRESUMED THAT IT HAS BEEN PAID FOR OUT OF THE INTEREST FREE FUNDS . CONSEQUENTLY, WE DO NOT FIND ANY MERIT IN THE ABOVE SUBMISSIONS MADE AT THE HEARING ON BEHALF OF THE REVENUE.' 4 MA NO.301/MUM/2018 LAXMI DIAMOND PVT. LTD. 10.THE AR FOR THE APPELLANT HAD ALSO RELIED ON THE FOLLOWING ORDERS OF THE COORDINATE BENCHES OF THE HON. TRIBUNAL: A) TORRENT LEASING & FINANCE PVT.LTD. (TAX APPEAL N O.620 TO 625/2006 DATED 17.12.2014) B) MEHTA BROTHERS GEMS PVT.LTD. - ITA NO.4791/MUM/2 01 I DATED 24.4.2012 C) GITANJALI EXPORTS CORPORATION LIMITED - ITA NO.6 947 & 6948/MUM/201 I D) INTER JEWEL PRIVATE LIMITED - ITA NO.7013/MUM/20 12 DATED 9.2.2015 - A Y 2008/09 (PAGES 39-44 OF PAPER BOOK) E) INTER JEWEL PRIVATE LIMITED - ITA NO.547/MUM/201 4 DATED 23.9.2015 - A Y 2009/10 (PAGES 45-49 OF PAPER BOOK) F) KIRAN GEMS PRIVATE LIMITED - ITA NO.7403/MUM/201 2 DATED 21.3.2016 - A Y 2008/09 (PAGES 50-56 OF PAPER BOOK) 11. THE APEX COURT IN THE CASE OF HERO CYCLES (P) L TD. REPORTED IN (2015) 379 ITR 0347 ALSO HELD THAT THE COMPANY IN THAT CASE HAD RESERVE /SURPLUS TO THE TUNE OF ALMOST 15 CRORES AND, THEREFORE, THE ASSESSE COMPANY COULD IN ANY CA SE, UTILIZE THOSE FUNDS FOR GIVING ADVANCE TO ITS DIRECTORS. 12.THE RATIOS LAID IN THE ABOVE JUDGMENTS OF THE AP EX COURT AND JURISDICTIONAL HIGH COURT/ORDERS OF THE CO-ORDINATE BENCHES ARE BINDING AND OUGHT TO HAVE BEEN CONSIDERED AND FOLLOWED. 13. IT IS RESPECTFULLY SUBMITTED THAT THE HON. TRIB UNAL MAY BE PLEASED TO SUITABLY AMEND ITS ORDER TO RECTIFY THE AFORESAID MISTAKE WHICH IS APP ARENT FROM THE RECORD. 2. THE LD AR FOR THE ASSESSEE, AT THE TIME OF HEARI NG, SUBMITTED THAT THERE IS ERROR IN THE ORDER PASSED BY THE TRIBUNAL DATED 04/10/2017 I S AS MUCH AS, THE TRIBUNAL CONFIRMED THE ADDITIONS MADE BY THE ASSESSING OFFIC ER TOWARDS DIFFERENCE OF INTEREST EXPENDITURE U/S 36(1)(III) OF THE INCOME TAX ACT,19 61, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE IS HAVING ENOUGH OWN FUNDS IN THE FORM OF CAPITAL ASSETS AS WELL AS RESERVES AND SURPLUS, WHICH IS MORE THAN THE AMOUNT OF LOANS AND ADVANCES GIVEN TO VARIOUS CONCERNS. THE LD AR FURTHER SUBMITTED THAT ALTHOUGH THE ASSESSEE HAS ADVANCED ARGUMENTS IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS INCLUDING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF RELIANCE UTILITIES & POWER LTD. (2009) 313 ITR 340, BUT THE TRIBUNAL HAS FAILED TO CONSIDER THE ARGUMENTS ADVANCED BY 5 MA NO.301/MUM/2018 LAXMI DIAMOND PVT. LTD. THE LD. COUNSEL FOR THE ASSESSEE IN THE LIGHT OF SA ID DECISION AND ALSO VARIOUS FACTS BROUGHT IN THE FORM OF FINANCIAL STATEMENTS TO PROV E THE AVAILABILITY OF OWN FUNDS. THEREFORE, NON- CONSIDERATION OF ARGUMENTS ADVANCED DURING THE COURSE OF HEARING ALONG WITH CERTAIN JUDICIAL PRECEDENCE IS A MISTAKE APPAR ENT FROM RECORD, WHICH CAN BE RECTIFIED U/S 254(2) OF THE ACT. 3. THE LD. DR, ON THE OTHER HAND, SUBMITTED THAT TH ERE IS NO PRIMA FACIE MISTAKES APPARENT FROM THE ORDER OF ITAT, BUT WHAT THE ASSES SEE SEEKS THROUGH ITS MISCELLANEOUS APPLICATION IS RECONSIDERTION OF THE DECISION RENDE RED BY THE TRIBUNAL IN THE LIGHT OF ARGUMENTS ADVANCED BY BOTH OF PARTIES. THEREFORE, S AID ARGUMENTS OF THE ASSESSEE CANNOT BE CONSIDERED AS MISTAKES APPARENT FROM RECO RD WHICH CAN BE RECTIFIED U/S 254(2) OF THE ACT. 4. WE HAVE CONSIDERED THE ARGUMENTS OF BOTH SIDES I N THE LIGHT OF FACTS OF PRESENT CASE ALONG WITH FINDINGS RECORDED BY THE TRIBUNAL I N ITS ORDER DATED 04/10/2017 IN ITA NO.6991/MUM/2012. WE FIND THAT THE TRIBUNAL HAS GIV EN FINDINGS IN THE LIGHT OF EXPLANATION TO SECTION 36(1)(III) OF THE ACT, WHERE IT WAS CLEARLY STATED THAT NO DEDUCTION WILL BE ALLOWED IN RESPECT OF ANY AMOUNT OF INTERES T PAID FOR A PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR THE ACQU ISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE. WE FURTHER N OTICED THAT WHEN THE ISSUE BEFORE US FOR DELIBERATIONS IS IN RESPECT OF DEDUCTIBILITY OF INTEREST PAID ON LOANS BORROWED FOR THE PURPOSE OF ACQUISITION OF CAPITAL ASSET, TILL THE D ATE SUCH CAPITAL ASSET IS PUT TO USE. THE MIXED FUND THEORY ADVANCED BY THE ASSESSEE IN THE L IGHT OF THE DECISION OF HONBLE 6 MA NO.301/MUM/2018 LAXMI DIAMOND PVT. LTD. BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UT ILITIES & POWER LTD(SUPRA) IS NOT RELEVANT TO THE ISSUE AT ALL. ALTHOUGH, THE ASSESSE E HAS TAKEN ARGUMENTS IN THE LIGHT OF THE ABOVE DECISION, BUT THE FACTS IN THE PRESENT CA SE BEFORE US IS ALTOGETHER DIFFERENT FROM THE FACTS OF THE CASE BEFORE THE HONBLE JURIS DICTIONAL HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. THEREFORE, WE ARE O F THE CONSIDERED VIEW THAT THERE IS NO ERROR IN THE ORDER OF THE TRIBUNAL IN ITA NO. 6991/ MUM/2012. THE ASSESSEE WANTS TO REVIEW THE DECISION RENDERED BY THE TRIBUNAL IN THE GUISE OF MISTAKES APPARENT ON RECORD U/S 254(2) OF THE ACT, WHICH IS NOT PERMISSIBLE UND ER THE ACT. ACCORDINGLY, THE MISCELLANEOUS APPLICATION FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20/02/2019 SD/- SD/- ( MAHAVIR SINGH ) (G. MANJUNATHA) ! ' /JUDICIAL MEMBER # ' / ACCOUNTANT MEMBER MUMBAI; DATED : 20/02/2019 F{X~{T? P.S / /. .. $!%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. !' / THE APPELLANT (RESPECTIVE ASSESSEE) 2. #$%!' / THE RESPONDENT. 3. &% &% ' ( ) / THE CIT, MUMBAI. 4. &% &% ' / CIT(A)- , MUMBAI, 5. )*+ % # , , &% % ,. , / DR, ITAT, MUMBAI 6. +/ 0 / GUARD FILE. / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI