Addl. CIT, Hyderabad v. M/s Coromandal Fertilisers Ltd, Secunderabad

ITA 314/HYD/2009 | 2005-2006
Pronouncement Date: 30-07-2010 | Result: Dismissed

Appeal Details

RSA Number 31422514 RSA 2009
Assessee PAN CEACT2003W
Bench Hyderabad
Appeal Number ITA 314/HYD/2009
Duration Of Justice 1 year(s) 4 month(s) 26 day(s)
Appellant Addl. CIT, Hyderabad
Respondent M/s Coromandal Fertilisers Ltd, Secunderabad
Appeal Type Income Tax Appeal
Pronouncement Date 30-07-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 30-07-2010
Date Of Final Hearing 07-07-2010
Next Hearing Date 07-07-2010
Assessment Year 2005-2006
Appeal Filed On 04-03-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI N.R.S. GANESAN JUDICIAL MEMBER AND SHRI AKBER BASHA ACCOUNTANT MEMBER ITA. NO. 270/HYD/2008 ASSESSMENT YEAR 2004-2005 ITA. NO. 314/HYD/2009 ASSESSMENT YEAR 2005-2006 ACIT CIRCLE 1 (3) HYDERABAD 4. VS. COROMANDEL FERTILIZERS LTD. HYDERABAD (APPELLANT) (RESPONDENT) CROSS OBJECTION NO. 8/HYD/2008 ARISING OUT OF ITA. NO. 270/HYD/2008 ASSESSMENT YEAR 2004-2005 AND CROSS OBJECTION NO. 7/HYD/2009 ARISING OUT OF ITA. NO. 314/HYD/2009 ASSESSMENT YEAR 2005-2006 COROMANDEL FERTILIZERS LTD. HYDERABAD VS. ACIT CIRCLE 1 (3) HYDERABAD 4. (CROSS-OBJECTOR) (RESPONDENT) FOR REVENUE : SHRI T. VENKAT REDDY (CIT-DR) FOR ASSESSEE : S/SHRI PERCY PARDIWALA SR. ADVOC ATE AND A.V. RAGHURAM ORDER PER N.R.S GANESAN J.M. 1. THE REVENUE FILED THE APPEALS FOR THE ASSESSMEN T YEARS 2004-2005 AND 2005-2006 AND THE ASSESSEE HAS FILED THE CROSS OBJECTIONS. THEREFORE WE HEARD ALL THE APPEALS AND CROSS-OBJECTIONS TOGETHER AND DISPOSE OF THE SAME BY THIS COMMON ORD ER. 2. LET US FIRST TAKE DEPARTMENT APPEALS. THE FIRST ISSUE ARISES FOR CONSIDERATION IN BOTH THE APPEALS IS DISALLOWAN CE OF INTEREST ON BORROWED CAPITAL. SHRI VENKAT REDDY LEARNED REPRES ENTATIVE FOR THE ITA. NOS. 270/HYD/2008 & ITA. NO. 314/HYD/2009 & C.OS. 8/HYD/2008 & 7/HYD/2009 COROMANDAL FERTILISER S LTD. 2 REVENUE SUBMITTED THAT THE ASSESSEE HAS CLAIMED A S UM OF RS.3 55 76 814/- FOR THE ASSESSMENT YEAR 2004-2005 AND RS.4 57 50 000/- FOR THE ASSESSMENT YEAR 2005-2006 AS INTEREST PAID ON THE BORROWED FUNDS. ACCORDING TO THE LEARNED REPRES ENTATIVE THE ASSESSEE HAS BORROWED THE FUNDS FOR THE PURPOSE OF PURCHASIN G THE SHARES OF GODAVARI FERTILIZERS AND CHEMICALS LTD. THE BUSINES S OF THE ASSESSEE IS MANUFACTURE AND SALE OF FERTILIZER AND NOT PURCHASE AND SALE OF SHARES. THEREFORE BORROWAL OF FUNDS FOR THE PURPOSE OF PUR CHASING THE SHARES OF GODAVARI FERTILIZERS AND CHEMICALS LTD. CANNOT FORM PART OF THE BUSINESS ACTIVITY OF THE ASSESSEE. THEREFORE INTEREST PAID BY THE ASSESSEE ON SUCH BORROWAL CANNOT BE ALLOWED AS DEDUCTION WHILE COMPU TING THE TOTAL INCOME OF THE ASSESSEE. 2.1. LEARNED REPRESENTATIVE AGAIN REFERRED TO EXPL ANATION 8 TO SECTION 43 (1) SUBMITTED THAT WHEN THE ASSESSEE BOR ROWED FUNDS FOR ACQUISITION OF AN ASSET THE INTEREST PAID/PAYABLE O N SUCH FUNDS CANNOT BE ALLOWED AS DEDUCTION BEFORE THE ASSET WAS PUT TO USE. THEREFORE THE CIT (A) COMMITTED AN ERROR IN ALLOWING THE CLAIM OF THE ASSESSEE. 3. ON THE CONTRARY SHRI PARDIWALA LEARNED COUNSE L FOR THE ASSESSEE SUBMITTED THAT ADMITTEDLY ASSESSEE IS IN THE BUSINESS OF MANUFACTURE AND SALE OF FERTILIZER INCLUDING DI-AMM ONIUM PHOSPHATE. M/S. GODAVARI FERTILIZERS AND CHEMICALS LTD. IS ALS O MANUFACTURING DI AMMONIUM PHOSPHATE AMMONIA PHASPATE AND THEY ARE SE LLING THE FERTILIZER IN THE STATE OF ANDHRA PRADESH MADHYA P RADESH CHATTISGADH UTTAR PRADESH AND MAHARASHTRA. THEREFORE ACCORDING TO THE LEARNED COUNSEL GODAVARI FERTILIZERS AND CHEMICALS LTD. I S A CONTESTANT IN THE MARKET OF THE ASSESSEE. THEREFORE THE ASSESSEE DEC IDED TO HAVE A CONTROL OVER THE GODAVARI FERTILIZERS AND CHEMICALS LTD. AN D PURCHASED 25.88% OF THE EQUITY SHARES FROM THE GOVERNMENT OF ANDHRA PRADESH AND 14.93% OF THE EQUITY SHARES FROM PUBLIC THROUGH OPE N OFFER. ACCORDING TO ITA. NOS. 270/HYD/2008 & ITA. NO. 314/HYD/2009 & C.OS. 8/HYD/2008 & 7/HYD/2009 COROMANDAL FERTILISER S LTD. 3 THE LEARNED COUNSEL ACQUISITION OF THESE EQUITY SH ARES IS ONLY TO HAVE A CONTROL OVER GODAVARI FERTILIZERS AND CHEMICALS LTD . WHICH WILL HAVE AN ADVANTAGE AND BENEFIT IN THE BUSINESS OF THE ASSESS EE-COMPANY. ONE OF THE BENEFIT ACCORDING TO THE LEARNED COUNSEL IS THA T WHILE PURCHASING THE RAW MATERIAL ASSESSEE CAN PLACE ORDERS FOR BOTH THE COMPANIES WHICH WOULD GO TO REDUCE THE COST OF INPUT UTILIZED IN TH E MANUFACTURING ACTIVITY. ACCORDING TO THE LEARNED COUNSEL WHEN THE ASSESSEE PLACED THE ORDER FOR BOTH THE COMPANIES THE QUANTITY OF THE RA W MATERIAL REQUIRED MAY BE MORE THEREFORE THE SUPPLIER MAY REDUCE THE COST AND THE COST OF TRANSPORT WOULD ALSO COME DOWN HEAVILY WHICH WILL D EFINITELY HAVE AN IMPACT IN THE BUSINESS OF THE ASSESSEE-COMPANY. 4. REFERRING TO SECTION 36 (1) (III) OF THE I.T. A CT SHRI PARDIWALA LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE INTEREST PAID BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS SHALL BE ALLOW ED AS DEDUCTION WHILE COMPUTING THE TOTAL INCOME. REFERRING TO PROVISO OF SECTION 36 (1) (III) OF THE I.T. ACT LEARNED COUNSEL SUBMITTED THAT THIS PR OVISO WAS INCORPORATED BY FINANCE ACT 2003 W.E.F. 1-4-2004. THEREFORE THE PROVISO IS APPLICABLE FOR THE ASSESSMENT YEARS UNDER CONSIDERATION. ACCOR DING TO THE LEARNED REPRESENTATIVE THE PROVISO TO SECTION 36 (1) (III) IS APPLICABLE IN RESPECT OF CAPITAL ASSET LIKE PLANT AND MACHINERY. THEREFORE THE INTEREST ON SUCH BORROWED FUNDS FOR ACQUISITION OF A CAPITAL ASSET L IKE PLANT AND MACHINERY SHALL NOT BE ALLOWED AS DEDUCTION TILL TH E ASSET WAS FIRST PUT TO USE. IN THE CASE OF THE ASSESSEE MONEY WAS BORROWED NOT FOR THE PURPOSE OF ACQUISITION OF PLANT OR MACHINERY BUT IT WAS BO RROWED FOR THE PURPOSE OF ACQUISITION OF EQUITY SHARES OF OTHER COMPANY IN ORDER TO HAVE CONTROL OVER THE OTHER COMPANY. THEREFORE ACCORDING TO THE LEARNED COUNSEL THE PROVISO TO SECTION 36 (1) (III) MAY NOT BE APPLICAB LE TO THE FACTS OF THIS CASE. 5. LEARNED COUNSEL PLACED HIS RELIANCE ON THE JUDG MENT OF THE APEX COURT IN THE CASE OF DCIT VS. CORE HEALTH CARE LTD. (2008) 298 ITR ITA. NOS. 270/HYD/2008 & ITA. NO. 314/HYD/2009 & C.OS. 8/HYD/2008 & 7/HYD/2009 COROMANDAL FERTILISER S LTD. 4 194 AND SUBMITTED THAT WHEN THE FUNDS ARE BORROWED FOR THE PURPOSE OF BUSINESS THE ASSESSEE IS ENTITLED FOR DEDUCTION OF THE INTEREST PAID ON SUCH BORROWED FUNDS. SECTION 36 (1) (III) DOES NOT MAKE ANY DISTINCTION BETWEEN MONEY BORROWED TO ACQUIRE A CAPITAL ASSET O R A REVENUE ASSET. ACCORDING TO THE LEARNED REPRESENTATIVE THE SUPREME COURT IN THE CASE OF CORE HEALTH CARE LTD. (SUPRA) CONSIDERED SECTION 36 (1) (III) IN DETAIL AND FOUND THAT SECTION 36 (1) (III) DOES NOT MAKE ANY D ISTINCTION BETWEEN THE BORROWED FUNDS TO ACQUIRE CAPITAL ASSET OR REVENUE ASSET. THEREFORE WHAT IS REQUIRED TO BE PROVED IS THAT ASSESSEE BORROWED FUNDS FOR THE PURPOSE OF BUSINESS. ONCE THE ASSESSEE SATISFIED THAT THE MONEY WAS BORROWED FOR THE PURPOSE OF BUSINESS THE INTEREST ON SUCH B ORROWED FUNDS IS A NECESSARY ITEM OF EXPENDITURE IN THE BUSINESS. ACCO RDING TO THE LEARNED COUNSEL THE ASSESSEE CLAIMED THE INTEREST PAID ON BORROWED FUNDS UNDER SECTION 36 (1) (III) BEFORE THE LOWER AUTHORITIES. THEREFORE IT HAS TO BE ALLOWED WHILE COMPUTING THE TOTAL INCOME. LEARNED C OUNSEL AGAIN PLACED HIS RELIANCE ON THE JUDGMENT OF THE APEX COURT IN T HE CASE OF INDIA CEMENTS (1966) 60 ITR 52 AND SUBMITTED THAT THE FUN DS BORROWED FOR THE PURPOSE OF RUNNING THE BUSINESS IS AN ALLOWABLE EXP ENDITURE. IN THIS CASE ALSO LEARNED COUNSEL SUBMITTED THAT ASSESSEE BORRO WED FUNDS FOR THE PURPOSE OF BUSINESS THEREFORE THE INTEREST PAID ON SUCH BORROWED FUNDS HAS TO BE ALLOWED AS AN EXPENDITURE FOR THE PURPOSE OF BUSINESS. LEARNED COUNSEL FURTHER SUBMITTED THAT ASSESSEE CLAIMED INT EREST AFTER THE ASSET WAS ACQUIRED NAMELY EQUITY SHARES OF GODAVARI FERTI LIZERS AND CHEMICALS LTD. AND NOT BEFORE THE ACQUISITION. THE CIT (A) T HEREFORE RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. LEARNED COUNSEL AGAIN PL ACED HIS RELIANCE ON THE JUDGMENT OF THE APEX COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT (2007) 288 ITR 1 AND SUBMITTED THAT IN THE CASE BEF ORE THE SUPREME COURT IN SA BUILDERS (SUPRA) THE ASSESSEE BORROWE D FUNDS FOR ADVANCING THE SAME TO THE SISTER CONCERN. THE APEX COURT HEL D THAT THE MONEY ADVANCED TO A SISTER CONCERN WAS FOR THE PURPOSE OF BUSINESS THEREFORE INTEREST ON SUCH AMOUNT HAS TO BE ALLOWED AS BUSINE SS EXPENDITURE. ITA. NOS. 270/HYD/2008 & ITA. NO. 314/HYD/2009 & C.OS. 8/HYD/2008 & 7/HYD/2009 COROMANDAL FERTILISER S LTD. 5 6. LEARNED COUNSEL AGAIN PLACED HIS RELIANCE ON TH E DECISION OF THE MUMBAI BENCH OF THIS TRIBUNAL IN ATE ENTERPRISE S 102 ITD 110 AND SUBMITTED THAT ASSESSEE-COMPANY BEFORE THE MUMBAI B ENCH OF THIS TRIBUNAL ENGAGED IN THE BUSINESS OF DISTRIBUTION OF VARIOUS GOODS AND TEXTILE MACHINERIES AS THE SOLE SELLING AGENT OF A COMPANY. THE COMPANY WHICH MANUFACTURED THE GOODS WAS A JOINT VENTURE CO MPANY. ASSESSEE- COMPANY ACQUIRED CERTAIN SHARES OF THE COMPANY WHIC H MANUFACTURED THE GOODS BY INVESTING BORROWED FUNDS AND CLAIMED T HE INTEREST PAID UNDER SECTION 36 (1) (III) OF THE ACT. THE ASSESSIN G OFFICER HOWEVER FOUND THAT THE INTEREST PAID ON BORROWED FUNDS SHOULD BE ALLOWED UNDER SECTION 57 (III) AND NOT UNDER SECTION 36 (1) (III) OF THE ACT. THE MUMBAI BENCH OF THIS TRIBUNAL AFTER EXAMINING THE VARIOUS CASE LAWS ON THE SUBJECT FOUND THAT FOR THE PURPOSE OF DEDUCTION UNDER SECTION 36 (1) (III) IT WOULD BE IRRELEVANT TO CONSIDER WHETHER THE BORROWED FUNDS W ERE UTILIZED FOR MEETING THE DAY-TO-DAY EXPENSES OR FOR ACQUIRING CA PITAL ASSET TO BE USED IN THE BUSINESS. THE ASSESSEE PURCHASED THE EQUITY SHARES IN ORDER TO PROTECT HIS BUSINESS INTERESTS. IN THE CASE THE SHA RES WERE PURCHASED BY THE OUTSIDERS THE BUSINESS OF THE ASSESSEE MIGHT BE JEOPARDIZED THEREFORE IT WAS FOUND THAT THE ACT OF BORROWING M ONEY FOR ACQUISITION OF SHARES WAS CLOSELY CONNECTED WITH AND INCIDENTAL TO THE CARRYING ON THE BUSINESS OF THE ASSESSEE. ACCORDINGLY IT WAS FOUND THAT THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION NOT ONLY UNDER SECTION 36 (1) (III) BUT ALSO UNDER SECTION 37 OF THE I.T. ACT. IN THIS CASE ALSO ACCORDING TO THE LEARNED COUNSEL THE ASSESSEE PURCHASED THE SHARES OF GODAV ARI FERTILIZERS AND CHEMICALS LTD. IN ORDER TO SAFEGUARD ITS BUSINESS I NTERESTS AND TO CARRY ON THE BUSINESS IN A PROFITABLE MANNER. THEREFORE ASSESSEE BORROWED THE FUNDS ONLY FOR THE PURPOSE OF BUSINESS. HENCE IT HAS TO BE ALLOWED UNDER SECTION 36 (1) (III) OF THE ACT EVEN OTHERWIS E IT HAS TO BE ALLOWED UNDER SECTION 37 OF THE ACT. LEARNED COUNSEL AGAIN PLACED HIS RELIANCE ITA. NOS. 270/HYD/2008 & ITA. NO. 314/HYD/2009 & C.OS. 8/HYD/2008 & 7/HYD/2009 COROMANDAL FERTILISER S LTD. 6 ON THE JUDGMENT OF THE APEX COURT IN THE CASE OF CI T VS. BOMBAY DYEING MANUFACTURING CO. LTD. (1996) 219 ITR 521. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF EIT HER SIDE AND ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. ADM ITTEDLY THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE AND SALE OF FERTI LIZERS. THE ASSESSEE BORROWED FUNDS FOR THE PURPOSE OF PURCHASING EQUITY SHARES OF M/S. GODAVARI FERTILIZERS AND CHEMICALS LTD. THE INTERES T PAID ON SUCH BORROWED FUNDS WAS DISALLOWED BY THE A.O. ON THE GR OUND THAT PURCHASE AND SALE OF SHARES IS NOT THE BUSINESS OF THE ASSES SEE. IT IS NOT IN DISPUTE THAT GODAVARI FERTILIZERS AND CHEMICALS LTD. IS ALS O MANUFACTURING FERTILIZER. THEREFORE THE ASSESSEE FOUND THAT IT IS NECESSARY TO HAVE A CONTROL OVER GODAVARI FERTILIZERS AND CHEMICALS LTD . IN ORDER TO RUN ITS BUSINESS IN A PROFITABLE MANNER. THE ONLY CONTENTIO N OF THE DEPARTMENT IS THAT IN VIEW OF EXPLANATION 8 TO SECTION 43 (1) OF THE I.T. ACT THE INTEREST ON THE BORROWED FUNDS HAS TO BE ALLOWED ON LY AFTER THE ASSET WAS PUT TO USE. IN THE CASE BEFORE US IT IS NOT AN ACQU ISITION OF PLANT OR MACHINERY AS RIGHTLY POINTED OUT BY THE LEARNED COU NSEL FOR THE ASSESSEE. THE ASSESSEE PURCHASED THE EQUITY SHARES OF THE COM PANY THEREFORE THE QUESTION OF PUTTING AN ASSET INTO USE MAY NOT ARISE FOR CONSIDERATION. ADMITTEDLY THE ASSESSEE CLAIMED THE PAYMENT OF INTE REST AS DEDUCTION ONLY AFTER ACQUISITION OF EQUITY SHARES AND NOT BEF ORE THAT. THE APEX COURT IN THE CASE OF CORE HEALTH CARE LTD. (SUPRA) CONSIDERED THIS ISSUE ELABORATELY AND FOUND THAT EXPLANATION 8 TO SECTION 43 (1) APPLIES ONLY TO SECTION 32 32A 33 AND 41 WHICH DEALS WITH CONCEPT LIKE DEPRECIATION. IT WAS FURTHER FOUND BY THE APEX COURT THAT THE CONCEP T OF DEPRECIATION IS NOT THERE IN SECTION 36 (1) (III) OF THE ACT. THERE FORE EXPLANATION 8 TO SECTION 43 (1) HAS NO RELEVANCY TO SECTION 36 (1) ( III). THEREFORE IN OUR OPINION EXPLANATION 8 TO SECTION 43 (1) MAY NOT BE APPLICABLE TO THE FACTS OF THIS CASE. ITA. NOS. 270/HYD/2008 & ITA. NO. 314/HYD/2009 & C.OS. 8/HYD/2008 & 7/HYD/2009 COROMANDAL FERTILISER S LTD. 7 8. SECTION 36 (1)(III) SPEAKS OF THE MONEY BORROWE D FOR THE PURPOSE OF BUSINESS. THIS SECTION DOES NOT SAY THAT THE MONEY BORROWED HAS TO BE UTILIZED FOR A CAPITAL EXPENDITURE OR A R EVENUE EXPENDITURE. WHAT IS REQUIRED IS THAT THE MONEY BORROWED SHOULD BE USED FOR BUSINESS. THEREFORE IT IS NOT NECESSARY FOR THE AS SESSEE TO SHOW THAT THE MONEY BORROWED WAS USED AS REVENUE EXPENDITURE FOR THE PURPOSE OF CLAIMING THE SAME AS DEDUCTION. THE APEX COURT AFTE R CONSIDERING SECTION 36 (1) (III) OF THE I.T. ACT FOUND THAT THI S SECTION DOES NOT MAKE ANY DISTINCTION WHETHER THE BORROWED MONEY WAS UTIL IZED TO ACQUIRE CAPITAL ASSET OR TO MEET THE REVENUE EXPENDITURE. T HEREFORE ONCE IT IS FOUND THAT ASSESSEE BORROWED FUNDS FOR THE PURPOSE OF BUSINESS IT IS IMMATERIAL WHETHER IT IS USED FOR ACQUISITION ASSET OR REVENUE EXPENDITURE. 9. NOW THE QUESTION ARISE FOR CONSIDERATION IS WH ETHER THE ASSESSEE BORROWED FUNDS FOR THE PURPOSE OF BUSINESS ? 10. IT IS NOT IN DISPUTE THAT GODAVARI FERTILIZERS AND CHEMICALS LTD. IS ALSO MANUFACTURING DI-AMMONIUM PHOSPHATE AN D THEY HAVE CONSIDERABLE MARKET SHARE IN THE STATES OF ANDHRA P RADESH MADHYA PRADESH CHATTISGARH UTTAR PRADESH AND MAHARASHTRA . THEREFORE GODAVARI FERTILIZERS AND CHEMICALS LTD. IS A RIVAL CONTENDER IN THE FERTILIZER MARKET FOR THE ASSESSEE. THE ASSESSEE DE CIDED TO HAVE A CONTROL OVER GODAVARI FERTILIZERS AND CHEMICALS LTD. BY ACQ UIRING THE EQUITY SHARES. BY SUCH ACQUISITION THE ASSESSEE COULD IMP ROVE THE PROFIT OF ITS OWN BUSINESS. MORE OVER WHILE PLACING ORDERS FOR P URCHASE OF RAW MATERIAL FROM FOREIGN COUNTRY THE COST OF TRANSPORT WOULD DEFINITELY BRING DOWN THE COST OF THE RAW MATERIAL. THEREFORE IT W ILL DEFINITELY INCREASE THE PROFIT OF THE ASSESSEE IN CARRYING OUT ITS BUSI NESS. THEREFORE IN VIEW OF THE ABOVE KEEPING THE BUSINESS CONSIDERATION IN MIND ASSESSEE HAS DECIDED TO PURCHASE THE EQUITY SHARES OF GODAVARI F ERTILIZERS AND ITA. NOS. 270/HYD/2008 & ITA. NO. 314/HYD/2009 & C.OS. 8/HYD/2008 & 7/HYD/2009 COROMANDAL FERTILISER S LTD. 8 CHEMICALS LTD. FROM THE STATE OF ANDHRA PRADESH AND THROUGH OPEN OFFER. THEREFORE IN OUR OPINION THE BORROWAL OF FUNDS IS ONLY FOR THE PURPOSE OF BUSINESS. THE ASSESSEE IS THE BETTER PERSON TO DECI DE WHETHER TO PURCHASE THE SHARES OF GODAVARI FERTILIZERS AND CHE MICALS LTD. OR NOT. THE INCOME TAX AUTHORITIES CANNOT DECIDE THE NECESS ITY OR DESIRABILITY OF PURCHASE OF ANY SHARES AND HAVE A CONTROL OVER GODA VARI FERTILIZERS AND CHEMICALS LTD. THE ASSESSEE BEING A PRUDENT BUSINES SMAN AFTER TAKING INTO CONSIDERATION OF VARIOUS FACTORS DECIDED TO HA VE CONTROL OVER GODAVARI FERTILIZERS AND CHEMICALS LTD. AND PURCHAS ED EQUITY SHARES. THEREFORE IN OUR OPINION THE ASSESSEE BORROWED FU NDS FOR THE PURPOSE OF BUSINESS. ONCE IT IS FOUND THAT THE ASSESSEE BORROW ED FUNDS FOR THE PURPOSE OF BUSINESS THE UTILIZATION OF THE FUNDS EI THER FOR PURCHASING CAPITAL ASSET OR REVENUE EXPENDITURE IS IRRELEVANT AND THE INTEREST PAID BY THE ASSESSEE HAS TO BE ALLOWED AS DEDUCTION WHILE C OMPUTING THE TOTAL INCOME AS HELD BY THE APEX COURT IN THE CASE OF COR E HEALTH CARE LTD (SUPRA). EXPLANATION 8 TO SECTION 43 (1) MAY NOT BE APPLICABLE TO SECTION 36 (1) (III) OF THE I.T. ACT. THEREFORE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY THE SAME IS CONFIRMED. 11. FOR THE ASSESSMENT YEAR 2005-2006 REVENUE HAS RAISED ONE MORE ISSUE WITH REGARD TO PUBLIC RELATION EXPENSES. SHRI VENKAT REDDY LEARNED DR SUBMITTED THAT PUBLIC RELATION EXPENSES ARE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THEREFORE THE ASSESSING OFFICER RIGHTLY DISALLOWED THE SUM OF RS .20 94 315/-. ON AN APPEAL BY THE ASSESSEE LEARNED CIT (A) CONFIRMED TH E DISALLOWANCE TO THE EXTENT OF RS.5 91 006/-. HOWEVER THE BALANCE AMOUN T WAS DIRECTED TO BE DELETED. 12. ASSESSEE HAS FILED CROSS OBJECTION IN RESPECT OF THE AMOUNT CONFIRMED BY THE CIT (A) TO THE EXTENT OF RS.5 91 0 06/-. ACCORDING TO THE LEARNED REPRESENTATIVE COMPLIMENT FOR THE NEW YEAR AND THE EXPENDITURE ITA. NOS. 270/HYD/2008 & ITA. NO. 314/HYD/2009 & C.OS. 8/HYD/2008 & 7/HYD/2009 COROMANDAL FERTILISER S LTD. 9 FOR SPONSORING THE MEETING CANNOT BE CONSIDERED TO BE A BUSINESS EXPENDITURE. ON THE CONTRARY SHRI PARDIWALA LEARN ED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE CLAIMED PUBLIC REL ATION EXPENSES TO THE EXTENT OF RS.20 94 315/-. HOWEVER LEARNED CIT (A) HAS ALLOWED ONLY AN AMOUNT OF RS.15 03 309/-. ACCORDING TO THE LEARNED REPRESENTATIVE ASSESSEE HAS FURNISHED THE ENTIRE BREAK-UP DETAILS OF THE EXPENDITURE BEFORE THE A.O. WHICH WAS REPRODUCED BY THE A.O. IN THE ASSESSMENT ORDER. REFERRING TO THE ITEM-WISE EXPENDITURE INCUR RED BY THE ASSESSEE LEARNED COUNSEL SUBMITTED THAT ASSESSEE SPONSORED S EMINARS AND OFFERED COMPLIMENTS DURING NEW YEAR AND VISITING DI GNITARIES. ACCORDING TO THE LEARNED COUNSEL THESE EXPENSES ARE NECESSAR Y TO RUN THE BUSINESS IN AN EFFECTIVE AND EFFICIENT MANNER. DURING THE CO URSE OF SEMINAR THE ASSESSEE DISPLAYED ITS ADVERTISEMENT WHICH WOULD DE FINITELY HELP TO PROMOTE THE BUSINESS OF THE ASSESSEE. BY GIVING COM PLIMENTS DURING NEW YEAR AND VISITING DIGNITARIES ASSESSEE WAS ABLE TO PROMOTE ITS BUSINESS IN A BETTER WAY. THEREFORE ACCORDING TO THE LEARNED R EPRESENTATIVE THE EXPENDITURE INCURRED BY THE ASSESSEE WAS FOR BUSINE SS PURPOSE THEREFORE IT HAS TO BE ALLOWED WHILE COMPUTING THE TOTAL INCO ME. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON E ITHER SIDE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE APPELLATE ORDER IT APPEARS THAT FOR THE ASSESSMENT YEAR 2005-2006 THE EXPENDITURE INCURRED IN CONNECTION WITH ANALYSIS AND INVESTMENT S MADE WAS DISALLOWED ON THE GROUND THAT IT WAS BASICALLY FOR SNACKS FOOD ETC. MORE OVER THE COMPLEMENTS FOR THE NEW YEAR AND VISITING DIGNITARIES WAS ALSO NOT INCURRED FOR THE PURPOSE OF BUSINESS. THE ASSES SEE HAS NOT FURNISHED DETAILS OF THE DIGNITARIES TO WHOM THE COMPLIMENT W AS GIVEN AND THE PURPOSE FOR WHICH IT WAS GIVEN. IT WAS ALSO NOT DIS CLOSED THE DETAILS OF NEW YEAR COMPLEMENTS. THEREFORE IN THE ABSENCE OF DETAIL AND PURPOSE OF THE COMPLIMENT IT CANNOT BE SAID THAT THE EXPEN DITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS UNLESS IT WAS ITA. NOS. 270/HYD/2008 & ITA. NO. 314/HYD/2009 & C.OS. 8/HYD/2008 & 7/HYD/2009 COROMANDAL FERTILISER S LTD. 10 ESTABLISHED THAT IT WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IT CANNOT BE ALLOWED. THEREFORE WE DO NOT FIND AN Y INFIRMITY IN THE ORDER OF THE LOWER AUTHORITIES AND ACCORDINGLY THE SAME I S CONFIRMED. 14. NOW COMING TO THE CROSS OBJECTIONS OF THE ASSE SSEE FOR THE ASSESSMENT YEAR 2004-2005. LEARNED COUNSEL SUBMITTE D THAT ASSESSEE CLAIMED PUBLIC RELATION EXPENSES OF RS.8 44 352/-. THE A.O. DISLLOWED THE CLAIM OF THE ASSESSEE. HOWEVER CIT (A) CONFIRMED T HE DISALLOWANCE TO THE EXTENT OF RS.1 24 352/- AND ALLOWED THE CLAIM TO TH E EXTENT OF RS.7 20 000/-. ACCORDING TO THE LEARNED COUNSEL TH E EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS BANKERS MEET ANAL YSTS INVESTOR MEETING SPORTS SPONSORSHIP WHICH ARE ALL FOR THE PURPOSE OF BUSINESS. THEREFORE THE EXPENDITURE INCURRED BY THE ASSESSEE HAS TO BE ALLOWED. LEARNED COUNSEL HAS ALSO PLACED RELIANCE ON THE JUD GMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. DELHI CLOTHING AN D GENERAL MILLS LTD. (1978) 115 ITR 659 AND SUBMITTED THAT WHEN THE ASSE SSEE SPONSORED MEETING AND SPORTS EVENTS IT WOULD GET IMPRESSION I N THE MINDS OF THE PEOPLE THAT WOULD DEFINITELY HELP THE ASSESSEE TO P ROMOTE ITS BUSINESS. THEREFORE SO LONG AS THE EXPENDITURE WAS NOT DOUBT ED THE SAME HAS TO BE ALLOWED. 15. ON THE CONTRARY LEARNED DR STRONGLY RELIED UP ON THE ORDER OF THE ASSESSING OFFICER. 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS ON EITHER SIDE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE DETAILS OF ITEM- WISE EXPENDITURE INCURRED BY THE ASSESSEE WAS REPRO DUCED BY THE A.O. AS WELL AS THE CIT (A). DURING THE COURSE OF SPONSORSH IP ASSESSEE HAS DISPLAYED ITS ADVERTISEMENT. THEREFORE IT WILL HEL P THE ASSESSEE TO PROMOTE ITS BUSINESS. WHEN THE ASSESSEE DISPLAYS IT S ADVERTISEMENT IN THE SHARE BROKERS MEETING SPORTS EVENTS OF THE SCH OOLS WHICH WOULD DEFINITELY HELP THE ASSESSEE TO PROMOTE ITS BUSINES S. THE PRODUCT OF THE ITA. NOS. 270/HYD/2008 & ITA. NO. 314/HYD/2009 & C.OS. 8/HYD/2008 & 7/HYD/2009 COROMANDAL FERTILISER S LTD. 11 ASSESSEE WOULD GET REGISTERED IN THE MIND OF THE PU BLIC WHO ARE PARTICIPATING IN THE PROGRAMME. THEREFORE IT WOULD DEFINITELY HELP THE ASSESSEE IN PROMOTING THE SALE OF ITS PRODUCT. THER EFORE IN OUR OPINION THERE IS NO QUESTION OF ANY DISALLOWANCE ON THIS IS SUE. THE CIT (A) RESTRICTED THE DISALLOWANCE ON THE GROUND THAT SPON SORSHIP EXPENDITURE MAY NOT BE FOR THE BUSINESS NECESSITY. IN OUR OPINI ON THE EXPENDITURE INCURRED BY THE ASSESSEE WOULD DEFINITELY PROMOTE T HE BUSINESS THEREFORE IT MAY NOT BE CORRECT TO SAY THAT THE EXPENDITURE W AS NOT FOR THE BUSINESS PURPOSE. THE EXPENDITURE INCURRED BY THE ASSESSEE T O SPONSOR MUSICAL PROGRAMMES WOULD DEFINITELY PROMOTE THE BUSINESS O F THE ASSESSEE. THEREFORE THE CIT (A) MAY NOT BE CORRECT IN ASSUMI NG THAT THIS WOULD NOT HELP THE ASSESSEE. THEREFORE WE ARE UNABLE TO UPHO LD THE ORDER OF THE LOWER AUTHORITIES. HOWEVER THE EXPENDITURE IN RESP ECT OF COMPLIMENTS TO DIGNITARIES AND ON THE OCCASION OF NEW YEAR ARE NOT FOR BUSINESS PURPOSE. ACCORDINGLY WHILE CONFIRMING THE EXPENDI TURE ON COMPLIMENTS TO DIGNITARIES AND ON THE OCCASION OF NEW YEAR THE OTHER EXPENDITURE IN SPONSORING MEETINGS MUSICAL PROGRAMME ARE DELETED. 17. IN THE RESULT BOTH THE DEPARTMENTAL APPEALS A RE DISMISSED AND CROSS OBJECTIONS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS THE 30 TH DAY OF JULY 2010. SD/- SD/- (AKBER BASHA) (NRS. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD DATE 30 TH JULY 2010 VBP/- ITA. NOS. 270/HYD/2008 & ITA. NO. 314/HYD/2009 & C.OS. 8/HYD/2008 & 7/HYD/2009 COROMANDAL FERTILISER S LTD. 12 COPY TO 1. ACIT CIRCLE 1 (3) HYDERABAD 4. 2. M/S. COROMANDEL FERTILIZERS LTD. COROMANDAL HOU SE 1-2-10 S.P. ROAD SECUNDERABAD 500 003. PAN AAACC-78 52-K 3. CIT (A)-II HYDERABAD. 4. CIT HYDERABAD-1 HYDERABAD 5. DR A BENCH HYDERABAD 6. GUARD FILE