PCS Technology Ltd.,, Pune v. Jt. CIT, Range-4,, Pune

ITA 1979/PUN/2012 | 2009-2010
Pronouncement Date: 28-10-2013 | Result: Allowed

Appeal Details

RSA Number 197924514 RSA 2012
Assessee PAN AABCP0316J
Bench Pune
Appeal Number ITA 1979/PUN/2012
Duration Of Justice 1 year(s) 18 day(s)
Appellant PCS Technology Ltd.,, Pune
Respondent Jt. CIT, Range-4,, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 28-10-2013
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 28-10-2013
Assessment Year 2009-2010
Appeal Filed On 10-10-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO. 1979/PN/2012 (ASSTT.YEAR : 2009-10) PCS TECHNOLOGY LTD. S.NO.1A IRANI MARKET COMPOUND YERAWADA PUNE-411006 .. APPELLANT PAN NO.AABCP0316J VS. JT.CIT RANGE-4 PUNE. .. RESPONDENT APPELLANT BY : SHRI C.H. NANIWADEKAR RESPONDENT BY : SHRI WALIMBE DATE OF HEARING : 21-10-2013 DATE OF PRONOUNCEMENT : 28-10-2013 ORDER PER R.K. PANDA AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 02-07-2012 OF THE CIT(A)-II PUNE RELATING TO ASSES SMENT YEAR 2009-10. 2. DISALLOWANCE OF INTEREST OF RS.36 06 000/- BY TH E ASSESSING OFFICER AND UPHELD BY THE CIT(A) IS THE ONLY ISSUE RAISED B Y THE ASSESSEE IN THE GROUNDS OF APPEAL. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE ACTIVITY OF MANUFACTURING AND MARKETING OF C OMPUTER SYSTEMS WHICH INCLUDES PROVIDING OF COMPUTERS ON LOAN BASIS PROV IDING COMPUTER HARDWARE SOFTWARE MAINTENANCE AND REPAIR SERVICES AND PROVIDING CONSULTANCY SERVICES. DURING THE COURSE OF ASSESSM ENT PROCEEDINGS THE ASSESSING OFFICER NOTED FROM THE DETAILS FURNISHED BY THE ASSESSEE THAT IT HAS GIVEN ADVANCES OF RS.40 50 000/- TO MR. PRATAP HEGDE AND 2 RS.2 60 00 000/- TO M/S. PSC POSITIONING LTD. HOWE VER NO INTEREST HAS BEEN CHARGED FROM THE ABOVE 2 PARTIES. 3.1 THE ASSESSING OFFICER FURTHER NOTED THAT THE AS SESSEE COMPANY HAS BORROWED FUNDS TO THE TUNE OF RS.95.08 CRORES AND H AS INCURRED INTEREST EXPENDITURE OF RS.7 68 38 548/-. THE ASSESSING OFF ICER THEREFORE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY PROPORTIONATE INT EREST SHOULD NOT BE DISALLOWED. IT WAS EXPLAINED THAT MR. PRATAP HEGDE WAS ENGAGED BY M/S. PCS POSITIONING LTD. WHICH IS A SUBSIDIARY OF THE ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF GPS/GPRS BUSINESS. MR. PRATAP HEDGE WAS AN EXPERT IN THE FIELD OF GPS/GPRS AND HENCE WAS ENGAG ED BY M/S. PCS POSITIONING LTD. AS AN IT EXPERT/ADVISOR TO RUN AN D MANAGE THE GPS/GPRS BUSINESS. IN ORDER TO RETAIN HIS SERVICES M/S.PCS POSITIONING PVT. LTD. WAS REQUIRED TO ADVANCE THE ABOVE AMOUNT TO MR. PRATAP HEGDE. HOWEVER IN VIEW OF ADVERSE LIQUIDITY POSITION IT WAS NOT POSS IBLE FOR M/S. PCS POSITIONING LTD. TO GIVE THE SAID ADVANCE. HENCE THE ASSESSEE COMPANY BEING THE HOLDING COMPANY GAVE THE AFORESAID ADVANC E. THE ASSESSEE HAS FURTHER STATED THAT MR. PRATAP HEGDE HAS LEFT SERVI CE. IN RESPECT OF ADVANCE TO M/S. PCS POSITIONING PVT. LTD. THE ASSESSEE COMP ANY HAS MERELY SUBMITTED THAT ON 31-03-2007 ADVANCE OF RS.2.60 CRO RES WAS GIVEN TO THIS COMPANY TOWARDS FUNDING REQUIREMENT OF THE SAID SUB SIDIARY. DURING THE YEAR RS.2.50 CRORES WAS RECEIVED BACK FROM THIS CO MPANY ON 31-03-2009. 4. HOWEVER THE ASSESSING OFFICER WAS NOT CONVINCED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. SINCE THE ASSES SEE COULD NOT JUSTIFY THE BUSINESS PURPOSE OR EXPEDIENCY OF THE AMOUNTS ADVAN CED HE DISALLOWED AN AMOUNT OF RS.36 06 000/- BEING 12% INTEREST ON THE AFORESAID ADVANCES. 3 5. BEFORE THE CIT(A) THE ASSESSEE REITERATED THE SA ME SUBMISSIONS AS MADE BEFORE THE ASSESSING OFFICER. THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT REP ORTED IN 288 ITR 1 WAS BROUGHT TO HIS NOTICE. THE ASSESSEE FURTHER SUBMIT TED THAT THE DISALLOWANCE AS CALCULATED BY THE ASSESSING OFFICER IS ALSO NOT JUSTIFIED AND DISALLOWANCE TO THE EXTENT OF RS.8 09 908/- ONLY AT BEST CAN BE MADE IN VIEW OF THE FOLLOWING : PARTICULARS AMT. (RS. IN LAKHS) TOTAL LOAN FUNDS AS ON 31-03-2009 95.08 LESS: INTEREST FREE LOANS FROM DIRECTORS 57.87 INTEREST BEARING FUNDS (A) 37.21 SHAREHOLDERS FUNDS AS ON 31-03-2009 78.55 LESS: REVALUATION RESERVE 7.95 70.60 ADD : INTEREST FREE LOANS FROM DIRECTORS 57.87 INTEREST FREE FUNDS (B) 128.47 TOTAL FUNDS (C) 165.68 PROPORTION OF INTEREST BEARING FUNDS TO TOTAL FUNDS (A)/(C) 22.46% 6. HOWEVER THE LD.CIT(A) WAS ALSO NOT SATISFIED WI TH THE EXPLANATION GIVEN BY THE ASSESSEE. THE LD.CIT(A) DISTINGUISHED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD.(SUPRA) SINCE THE ASSESSEE FAILED TO BRING ANY MATERIAL ON THE THEORY OF COMMERCIAL EXPEDIENCY. RELYING ON VARIOUS OTHER DECISIONS THE LD.CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER. 6.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 7. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO TH E DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE U TILITIES AND POWER LTD. REPORTED IN 313 ITR 340 SUBMITTED THAT IF BOTH INTEREST FREE AND INTEREST BEARING FUNDS ARE AVAILABLE THEN A PRESUMPTION WOU LD ARISE THAT INVESTMENT 4 SHOULD BE OUT OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. 7.1 REFERRING TO THE TABLE AT PAGE 3 AND 4 OF THE O RDER OF THE CIT(A) HE SUBMITTED THAT SINCE INTEREST FREE FUNDS ARE FAR MO RE THAN THE INTEREST FREE LOANS AND ADVANCES THEREFORE IN VIEW OF THE DECIS ION OF THE JURISDICTIONAL HIGH COURT NO DISALLOWANCE IS CALLED FOR. 8. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE ASSESSING OFFICER AND TH E CIT(A). 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS ADVANCED INTEREST FREE LOAN OF RS.40 50 000/- T O MR. PRATAP HEGDE AND RS.2 60 00 000/- TO M/S. PCS POSITIONING PVT. LTD. WHEREAS IT HAS INCURRED INTEREST EXPENDITURE OF RS.7 68 38 548/- ON ACCOUNT OF BORROWED FUNDS. SINCE THE ASSESSEE COULD NOT ESTABLISH THE COMMERCI AL EXPEDIENCY OF SUCH INTEREST FREE LOAN ADVANCED TO THE ABOVE 2 PARTIES THE ASSESSING OFFICER DISALLOWED INTEREST OF RS.36 06 000/- BEING 12% INT EREST ON THE AFORESAID ADVANCES WHICH HAS BEEN UPHELD BY THE CIT(A). IT I S THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SINCE THE TOTAL I NTEREST FREE FUNDS I.E. SHARE CAPITAL AND INTEREST FREE LOAN FROM DIRECTORS AMOUN TING TO RS.128.47 CRORES IS MORE THAN THE INTEREST FREE ADVANCE OF RS.3 00 5 0 000/- (I.E. 40 50 000 + 2 60 00 000/-) THEREFORE IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. NO AMOUNT OF INTEREST CAN BE DISALLOWED. IT HAS BEEN HELD IN THE AFOREMENTIONED DECISION THAT IF THERE WERE FUNDS AVAILABLE BOTH IN TEREST FREE AND OVERDRAFTS 5 AND/OR LOANS TAKEN THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS SHOULD BE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABL E WITH THE COMPANY IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INV ESTMENTS. AS HAS ALREADY BEEN NOTED IN THE ORDER OF THE CIT(A) AT PAGE 3 AND 4 THE ASSESSEE HAD GIVEN THE DETAILS OF INTEREST FREE LOAN FROM DIRECT ORS AT RS.57.87 CRORES AND THE SHAREHOLDERS FUNDS AS ON 31-03-2009 AT RS.70.60 CRORES (AFTER DEDUCTING THE REVALUATION RESERVE OF RS.7.95 CRORES). THUS THE TOTAL INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE COMES TO RS.128.4 7 CRORES WHICH IS MUCH MORE THAN THE INTEREST FREE ADVANCES GIVEN TO THE 2 PARTIES AMOUNTING TO RS.3 00 50 000/-. 10. WE FIND THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA) HAS OBSERVED AS UN DER : APART FROM THAT WE HAVE NOTED EARLIER THAT BOTH IN THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AS ALSO THE APPELLA TE TRIBUNAL A CLEAR FINDING IS RECORDED THAT THE ASSESSEE HAD INTEREST -FREE FUNDS OF ITS OWN WHICH HAD BEEN GENERATED IN THE COURSE OF THE YEAR C OMMENCING FROM APRIL 1 1999. APART FROM THAT IN TERMS OF THE BALANCE-SHE ET THERE WAS A FURTHER AVAILABILITY OF RS. 398.19 CRORES INCLUDING RS. 180 CR ORES OF SHARE CAPITAL. IN THIS CONTEXT IN OUR OPINION THE FINDING OF FACT RE CORDED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) AND THE INCOME-TA X APPELLATE TRIBUNAL AS TO AVAILABILITY OF INTEREST-FREE FUNDS RE ALLY CANNOT BE FAULTED. IF THERE BE INTEREST-FREE FUNDS AVAILABLE TO AN 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 IN TEREST-FREE FUNDS AVAILABLE. IN OUR OPINION THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD. V. CIT [1997] 224 ITR 627 HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. [1982] 134 ITR 219 WHERE A SIMILAR ISSUE HAD ARISEN. BEFORE THE SU PREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENC E 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 CONSIDERAB LE FORCE BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BEE N ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WO OLCOMBERS OF INDIA LTD.` S CASE [1982] 134 ITR 219 THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET TH E ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITED IN THE OVER DRAFT ACCO UNT 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 ACC OUNT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION T HERE WAS SUFFICIENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTENTION BEFO RE THE HIGH COURT. THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE AR E FUNDS AVAILABLE BOTH 6 INTEREST-FREE AND OVER DRAFT AND/OR LOANS TAKEN THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST-FRE E FUND GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST-FREE FUN DS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ES TABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSION ER OF INCOME-TAX (APPEALS) AND THE INCOME-TAX APPELLATE TRIBUNAL. 10.1 SINCE IN THE INSTANT CASE THE INTEREST FREE FU NDS AVAILABLE WITH THE ASSESSEE COMPANY AT RS.128.47 CRORES IS MUCH MORE T HAN THE INTEREST FREE ADVANCES GIVEN THEREFORE RESPECTFULLY FOLLOWING T HE DECISION OF THE JURISDICTIONAL HIGH COURT CITED (SUPRA) WE HOLD THA T NO DISALLOWANCE IS WARRANTED IN THE INSTANT CASE. WE ACCORDINGLY SET- ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION. 11. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 28 TH DAY OF OCTOBER 2013. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K . PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED : 28 TH OCTOBER 2013 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-II PUNE 4. THE CIT-II PUNE 5. D.R. B BENCH PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE