S Anitha, Kollam v. Assistant Commissioner of Income Tax, Kollam

ITA 220/COCH/2009 | 2005-2006
Pronouncement Date: 30-11-2011

Appeal Details

RSA Number 22021914 RSA 2009
Assessee PAN AATPA3450H
Bench Cochin
Appeal Number ITA 220/COCH/2009
Duration Of Justice 2 year(s) 7 month(s) 6 day(s)
Appellant S Anitha, Kollam
Respondent Assistant Commissioner of Income Tax, Kollam
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2011
Appeal Filed By Assessee
Bench Allotted DB
Tribunal Order Date 30-11-2011
Date Of Final Hearing 15-09-2011
Next Hearing Date 15-09-2011
Assessment Year 2005-2006
Appeal Filed On 24-04-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH COCHIN BEFORE S/SHRI N.R.S.GANESAN JM & SANJAY AR ORA AM I.T.A NO. 220 /COCH/2009 ASSESSMENT YEAR:2005-06 S.ANITHA R.K.FABRICS VADATTUKOTTA KOLLAM. [PAN:AATPA 3450H] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-1 KOLLAM. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI K.M.V.PANDALAI ADV. REVENUE BY MS. S.VIJAYAPRABHA JR. DR DATE OF HEARING 17/10/2011 DATE OF PRONOUNCEMENT 30/11/2011 O R D E R PER N.R.S.GANESAN JM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-I TRIVANDRUM DATED 12.2.2009 AND PERTAINS TO ASSESSME NT YEAR 2005-06. 2. THE ONLY ISSUE ARISING FOR CONSIDERATION IS DISA LLOWANCE OF ` 2 25 047/- TOWARDS INTEREST ON BORROWED FUNDS. SHRI K.M.V.PANDALAI L D. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS ADVANCED A SUM OF ` 4 0 92 040/- TO THE SISTER CONCERN M/S. R.K. SAREES OF WHICH THE ASSESSEES HUSBAND IS A PROPRIE TOR. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS AND SUNDRY CREDITS WHICH IS MORE THAN SUFFICIENT FOR ADVANCING TO THE SISTER CO NCERN. THEREFORE THE DISALLOWANCE BY THE LOWER AUTHORITIES IS NOT JUSTIFIED. I.T.A. NO. 220/COCH/2009 2 3. ON THE CONTRARY MS. S. VIJAYAPRABHA THE LD. DE PARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE IS A PROPRIETOR OF R.K. FABRICS AND THE ASSESSEES HUSBAND IS A PROPRIETOR OF R.K.SAREES. THE ASSESSEE BORROWED FUN DS HEAVILY AND DIVERTED THE SAME TO THE SISTER CONCERN. MERELY BECAUSE THE ASSESSEE HA S SOME INTEREST FREE FUNDS IT DOES NOT MEAN THAT THEY CAN DIVERT THE SAME TO THE SISTER CO NCERN AND BORROWED THE FUNDS FOR THE PURPOSE OF THE BUSINESS. REFERRING TO THE JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF CIT VS. V.I. BABY & CO. 254 ITR 248 THE LD. DEPARTMENTAL REPRESENTATIVE SU BMITTED THAT SO LONG AS THE ASSESSEE WAS NOT THE BENEFICIAR Y OF THE INVESTMENTS MADE BY THE SISTER CONCERN AND SO LONG AS THE ADVANCES WERE INTEREST F REE THE ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING THE INTEREST IN PROPORTION TO THE ADVANCES MADE. MOREOVER IT IS NOT CLEAR FROM THE MATERIALS PLACED ON RECORD WHETH ER THE FUNDS DIVERTED WAS UTILIZED FOR THE BUSINESS OF THE ASSESSEES HUSBAND. THEREFORE THE LOWER AUTHORITIES HAVE RIGHTLY DISALLOWED THE CLAIM OF THE ASSESSEE. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF EITHE R SIDE AND PERUSED THE MATERIAL ON RECORD. THE CLAIM OF THE ASSESSEE IS THAT THE FUNDS WERE NOT DIVERTED AND THE ASSESSEE HAS SUFFICIENT CASH BALANCES AND SUNDRY CREDITS FOR THE PURPOSE OF ADVANCING FUNDS TO THE BUSINESS OF THE ASSESSEES HUSBAND. WE FIND THAT TH E APEX COURT IN THE CASE OF S.A. BUILDERS VS. CIT 288 ITR 1 HAD AN OCCASION TO CONSIDER THIS ISSUE E LABORATELY. IN THE CASE BEFORE THE APEX COURT THE ASSESSEE BORROWED F UNDS FROM THE BANK AND LENT TO THE SISTER CONCERN AS INTEREST FREE LOANS. THE APEX CO URT AFTER REFERRING TO THE PROVISIONS OF SECTION 37 OF THE INCOME TAX ACT FOUND THAT THE EXP RESSION FOR THE PURPOSE OF BUSINESS INCLUDES EXPENDITURE VOLUNTARILY INCURRED FOR COMM ERCIAL EXPEDIENCY AND IT IS IMMATERIAL IF A THIRD PARTY ALSO BENEFITS THEREBY. THE APEX C OURT FURTHER FOUND THAT THE PURPOSE FOR WHICH THE MONEY WAS ADVANCED HAS TO BE EXAMINED AN D WHAT THE SISTER CONCERN DID WITH THIS MONEY ALSO NEEDS TO BE EXAMINED BY THE REVENUE AUTHORITIES. IF THE BORROWED FUNDS WAS NOT UTILIZED FOR ITS OWN BUSINESS BUT HAD BEEN ADVANCED AS INTEREST FREE LOAN TO THE SISTER CONCERN THAT FACT IS NOT RELEVANT. WHAT IS RELEVANT IS WHETHER THE ASSESSEE ADVANCED AMOUNTS TO THE SISTER CONCERN AS A MEASURE OF I.T.A. NO. 220/COCH/2009 3 COMMERCIAL EXPEDIENCY. THEREFORE WHEN THE BORROWED FUNDS OF THE HOLDING COMPANY WAS DIVERTED TO THE SUBSIDIARY CONCERN FOR THE PURP OSE OF ITS BUSINESS THEN THE INTEREST PAYABLE BY THE HOLDING COMPANY IS ALSO AN ALLOWABLE EXPENDITURE. HOWEVER IT IS FOR THE ASSESSEE TO ESTABLISH THAT THE BORROWED FUNDS WER E LENT TO THE SISTER CONCERN OR THE SUBSIDIARY COMPANY AND THE SAME WAS UTILIZED FOR TH E BUSINESS OF THE SISTER CONCERN. IN THE CASE BEFORE US THE ASSESSEE IS A PROPRIETOR OF INDEPENDENT BUSINESS. THE MONEY BORROWED BY THE ASSESSEE WAS DIVERTED TO ANOTHER IN DEPENDENT BUSINESS RUN BY HER HUSBAND. IT IS NOT THE CASE OF THE ASSESSEE THAT THE ASSESSEE IS HAVING ANY INTEREST IN THE BUSINESS RUN BY HER HUSBAND. IF THE ASSESSEE CLAIMS THAT THE ASSESSEE HAS SOME INTEREST IN THE BUSINESS OF THE ASSESSEES HUSBAND EXCEPT RELAT IONSHIP AS WIFE THEN THE MATTER WOULD STAND ENTIRELY ON A DIFFERENT FOOTING. IN THE CASE BEFORE US IN VIEW OF THE ABSENCE OF RELATIONSHIP/INTEREST OF THE ASSESSEE IN THE BUSINE SS CARRIED ON BY THE ASSESSEES HUSBAND IN OUR OPINION THE BUSINESS CARRIED ON BY THE ASSE SSEES HUSBAND CANNOT BE CONSIDERED AS A SISTER CONCERN. THEREFORE THE MONEY ADVANCED TO THE ASSESSEES HUSBAND CANNOT BE CONSIDERED TO BE AN ADVANCE MADE TO THE SISTER CONC ERN. IN OUR OPINION THE JUDGMENT OF THE APEX COURT IN THE CASE OF S.A. BUILDERS (SUPRA) MAY NOT BE APPLICABLE TO THE FACTS OF THE CASE. 5. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF T HE KERALA HIGH COURT IN THE CASE OF CIT VS. V.I. BABY & CO. (SUPRA). THE KERALA HIGH COURT AFTER CONSIDERING TH E CLAIM OF THE ASSESSEE THAT THE CASH BALANCES WERE AVAILABLE IT DOES NOT MEAN THAT THE AVAILABLE CASH BALANCE COULD BE DIVERTED AS INTEREST FREE FUNDS AN D THE ASSESSEE COULD BORROW FUNDS FOR BUSINESS AND PAY INTEREST ON THE BORROWERS FUNDS. IN VIEW OF THE OBSERVATION MADE BY THE KERALA HIGH COURT WHICH IS BINDING ON THIS TRIB UNAL IN OUR OPINION MERELY BECAUSE THE ASSESSEE HAS CASH BALANCES AND SUNDRY CREDITS I N ITS ACCOUNTS IT DOES NOT MEAN THAT IT CAN BORROW FUNDS AND DIVERT THE AMOUNTS TO OTHER BU SINESS RUN BY THE ASSESSEES HUSBAND. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE KERALA H IGH COURT IN THE CASE OF V.I.BABY & CO. (SUPRA) WE UPHOLD THE ORDER OF THE LOWER AUTHORIT IES. I.T.A. NO. 220/COCH/2009 4 6. IN THE RESULT THE ASSESSEES APPEAL IS DISMISSE D. SD/- SD/ - (SANJAY ARORA) (N.R.S. GANESAN) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) PLACE: ERNAKULAM DATED: 30TH NOVEMBER 2011 GJ COPY TO: 1. S.ANITHA R.K. FABRICS VADAYATTUKOTTAH KOLLAM. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE -1 KOLLAM.. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I TRIV ANDRUM. 4. THE COMMISSIONER OF INCOME-TAX TRIVANDRUM. 5. D.R. I.T.A.T. COCHIN BENCH COCHIN. 6. GUARD FILE .