Texmaco Ltd., Kolkata v. DCIT, Circle - 6, Kolkata, Kolkata

ITA 347/KOL/2010 | 2006-2007
Pronouncement Date: 07-05-2010

Appeal Details

RSA Number 34723514 RSA 2010
Assessee PAN AABCT0814B
Bench Kolkata
Appeal Number ITA 347/KOL/2010
Duration Of Justice 2 month(s) 21 day(s)
Appellant Texmaco Ltd., Kolkata
Respondent DCIT, Circle - 6, Kolkata, Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 07-05-2010
Appeal Filed By Assessee
Bench Allotted B
Tribunal Order Date 07-05-2010
Date Of Final Hearing 09-04-2010
Next Hearing Date 09-04-2010
Assessment Year 2006-2007
Appeal Filed On 16-02-2010
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : KOLKATA [ BEFORE SHRI D.K.TYAGI J.M. & SHRI B.C. MEENA A.M. ] I.T.A.NOS. 347 & 522 (KOL) OF 2010 ASSESSMENT YEARS 2006-07 & 2007-08 M/S. TEXMACO LTD. -VS- DY.COMMISSIONE R OF INCOME-TAX KOLKATA (PAN-AABCT0814B) CIRCLE-6 KOLKATA.. ( ASSESSEE ) ( RESPONDENT ) ASSESSEE BY : S/SRI R.N.BAJORIA & S.BANDYOPADHYAY RESPONDENT BY : SRI PIYUSH KOLHE. O R D E R PER SRI B.C.MEENA A.M. : THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDERS DATED 13.01.2010 & 17.02.2010 OF C.I.T .(A)-VI KOLKATA PERTAINING TO ASSESSMENT YEARS 2006-07 & 2007-08 RESP ECTIVELY. FOR THE SAKE OF CONVENIENCE THESE TWO APPEALS ARE DISPOSED OF BY THIS COMMON ORDE R. 2. GROUND NO.1 IN EACH OF THESE TWO APPEALS IS AGAINST DIS ALLOWANCE OF RS.86 57 054/- FOR A.Y. 2006-07 AND RS.1 34 38 056/- FOR A.Y. 2 007-08 CONFIRMED BY THE C.I.T.(A) BEING INTEREST DISALLOWED ON ACCOU NT OF INTEREST-FREE ADVANCES GIVEN TO NEORA HYDRO LTD. 3. THE FACTS RELATING TO THIS ISSUE IN BOTH THE YEARS ARE IDENTICAL. THEREFORE WE TAKE THE FACTS OF THE CASE FOR ASSESSMENT YEAR 2006-07. THE BRIEF FACTS ARE THAT THE ASSESSEE ENTERED INTO AN AGREE MENT ON 12/3/1999 WITH M/S. NEORA HYDRO LTD. TO PURCHASE ELECTRICITY GENERA TED BY THE SAID COMPANY. THE ASSESSEE ALSO ENTERED INTO AN AGREEMENT O N 22/4/2002 WITH HANUMAN TEA CO. LTD. OWNED BY M/S. BAGLA TO ACQUIRE 50% CAPITAL IN NEORA HYDRO LTD. AND BALANCE 50% CAPITAL WAS HELD BY M/S. BAGLA AND THEIR CONCERNS. SOME OF THE SISTER CONCERNS OF THE ASSESSEE AND SOME INDIVIDUALS HAD ADVANCED CERTAIN LOANS TO M/S. BAGLA AND THEIR ASSOC IATES. THE SISTER CONCERNS AND INDIVIDUALS FILED CASES BEFORE HONBLE CALCUTTA HIGH COURT FOR RECOVERY OF LOANS FROM M/S. BAGLA GROUP. THE HIGH COURT PA SSED DECREE AND M/S. BAGLA GROUP SURRENDERED 50% SHARES OF NEORA HYDRO LTD. HELD BY THEM. NEORA HYDRO LTD. HAD NOT GONE TO PRODUCTION TILL 31/3/20 06. IT STARTED 2 COMMERCIAL PRODUCTION FROM 3/4/2006. FROM THE AUDITED ACC OUNTS OF NEORA HYDRO LTD. AS ON 31/3/2006 THE POSITION OF RESOURCES WAS AS UNDER :- 1) SHARE CAPITAL - RS. 5 00 00 000 2) SECURED LOAN FROM BANKS - RS. 8 80 80 388 3) ADVANCES GIVEN BY ASSESSEE - RS. 12 54 90 511 TOTAL : RS. 26 35 70 899 THE GROSS BLOCK OF NEORA HYDRO LTD. AS ON 31/3/2006 A MOUNTED TO RS. 17 81 44 567/- AND PRE-OPERATION EXPENSES RS.6 57 53 968/-. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS COPIES OF THE JOINT VENTUR E AGREEMENT AUDITED ACCOUNTS OF NEORA HYDRO LTD. DETAILS OF THE ADVANCES GIVE N AND INTEREST PAID THEREON AND SCHEME OF MERGER OF NEORA HYDRO LTD. WITH T HE ASSESSEE WITH EFFECT FROM 1/8/2007 WERE FILED. IT WAS SUBMITTED BEFORE THE A.O. THAT THE AMOUNT WAS ADVANCED TO NEORA HYDRO LTD. FROM THE CASH CREDIT ACCOUNT WHICH IS A MIXED ACCOUNT. THE ASSESSEE DEPOSITED ALL THE SALE PROCEEDS IN THE SAID ACCOUNT. THE TOTAL TURNOVER OF THE ASSESSEE DURING THE YEAR WAS RS.392 CRORES AND PROFIT AFTER TAX WAS ABOUT RS. 19 CRORES. THE CAPITAL A ND RESERVES OF THE ASSESSEE WAS RS.140 CRORES. IT WAS SUBMITTED BEFOR E THE A.O. THAT ALL ADVANCES WERE GIVEN FROM CASH CREDIT ACCOUNT. SINCE THE ASSESSEE HELD 50% SHARES IN NEORA HYDRO LTD. THERE WAS COMMERCIAL EXPEDIEN CY. A.O.S ATTENTION WAS INVITED TO THE JUDGMENT OF HONBLE SUPREM E COURT IN THE CASE OF S.A. BUILDERS LTD. VS CIT(A) [(288 ITR 1 (SC)]. THE A.O. HOWEVE R FOR THE REASONS MENTIONED IN THE ASSESSMENT ORDER HAS DISALLOWE D THE SAID SUM OF RS.86 87 054/-. 4. THE ASSESSEE CAME IN APPEAL BEFORE THE C.I.T.(A) AND RE ITERATE THE SUBMISSIONS MADE BEFORE THE A.O. IT WAS FURTHER SUBMITTED THAT THE PROVISIONS OF SEC.36(1)(III) ARE NOT APPLICABLE AS THE ASSESSEE H AD NOT SET UP THE UNIT FOR POWER GENERATION BUT IT WAS SET UP BY NEOR A HYDRO LTD. THE AMOUNTS WERE ADVANCED OUT OF THE RESOURCES OF THE ASS ESSEE. THE ADVANCES WERE GIVEN ON COMMERCIAL EXPEDIENCY. RELIANCE WAS PLACED ON THE HONBLE SUPREME COURT DECISION IN THE CASE OF S.A. BUILDERS LTD. V S. CIT(A) (SUPRA). ON CONSIDERATION OF THE ASSESSEES SUBMISSIONS AND PERUS ING THE A.O.S ORDER 3 THE C.I.T.(A) UPHELD THE DISALLOWANCE MADE BY THE A.O. WITH T HE FOLLOWING OBSERVATION :- I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPELLANT A ND ALSO THE ASSESSMENT ORDER OF THE A.O. THE LD. A.R. ARGUED THAT TH E PROVISIONS OF SECTION 36(1)(III) ARE APPLICABLE TO NEORA HYDRO LTD. AND NO T THE APPELLANT COMPANY. IT IS OBVIOUS THAT THE APPELLANT COMPAN Y HAS INTEREST IN THE CONCERN NEORA HYDRO LTD. AND THE FUNDS WERE ADVANCED FOR THE PURCHASE OF FIXED ASSETS AND PROJECT EXPENDITURE. THE COMPANY NEORA HYDRO LTD STARTED COMMERCIAL PRODUC TION OF POWER FROM 03/04/2006 ONLY. THE APPELLANT HIMSELF AGREED T HAT CAPITALIZATION HAS TO BE DONE IN THE BOOKS OF THE COMPANY NEORA HYDRO LTD. THE MONEY WAS ADVANCED BY THE APPELLANT COM PANY TOWARDS PROJECT FINANCE I.E. TOWARDS PURCHASE OF PLANT A ND MACHINERY AND PRE OPERATIVE EXPENSES. THE OBSERVATION O F THE A.O. THAT COMMERCIAL EXPEDIENCY CANNOT OVERRIDE THE SPECIFIC PROVISIONS OF THE STATUTE UNTIL SUCH INTEREST PAID TILL A COMPANY GOES INTO PRODUCTION HAS TO BE CAPITALISED IS APPLICABLE TO THE APPE LLANT COMPANY. THE HONBLE SUPREME COURT IN THE CASE REFERRED TO BY THE APPELLANT COMMENTED HOWEVER WHERE IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS SUBSIDIARY AND HENCE IF THE HOLDING COMPANY ADVANCES BORROWED MONEY TO ITS SUBSIDIARY AND THE SAME IS USED BY THE SUBSIDIARY FOR SOME BUSINESS PURPOSE S THE ASSESSEE WOULD IN OUR OPINION ORDINARILY BE ENTITLED TO DED UCTION OF INTEREST ON ITS BORROWED FUNDS.. IN APPELLANTS CASE THE ADVANCED FUNDS WERE NOT USED FOR BUSINESS PURPOSE BECAUSE THE C OMPANY NEORA HYDRO LTD. HAS NOT STARTED BUSINESS DURING THIS PERIOD. THE BORROWED FUNDS WERE UTILISED BY THE COMPANY NEORA HYDRO LTD. FOR SETTING UP THE BUSINESS WHICH IS A CAPITAL EXPENDITURE. IN THESE CONDITIONS THE HONBLE SUPREME COURT DECISION IS NOT SQUA RELY APPLICABLE TO THE FACTS OF THE CASE. THE GROUND OF APPEAL IS DISMISSED. HENCE THESE APPEALS BY THE ASSESSEE BEFORE US. 5. AT THE TIME OF HEARING BEFORE US THE ASSESSEES LEAR NED COUNSEL EXPLAINED THE FACTS OF THE CASE AND SUBMITTED THAT M/S. N EORA HYDRO LTD. IS A JOINT VENTURE OF THE ASSESSEE-COMPANY. THE ASSESSEE-C OMPANY ADVANCED MONEY TO NEORA HYDRO LTD. FROM ITS C.C. ACCOUNT FOR BUSI NESS EXPEDIENCY WHEREIN ALL ITS SALE PROCEEDS WHICH INCLUDED PROFIT OF THE CO MPANY ARE ALSO DEPOSITED. IT WAS FURTHER SUBMITTED THAT SINCE THE ASSE SSEE HELD 50% SHARES IN NEORA HYDRO LTD. AT THE RELEVANT TIME THERE WAS CO MMERCIAL EXPEDIENCY IN GIVING SUCH INTEREST FREE ADVANCE. THE CAPITAL AND RESER VES OF THE ASSESSEE WAS RS.140 CRORES AND THE AMOUNTS WERE ADVANCED TO S EPARATE LEGAL ENTITY 4 I.E. NEORA HYDRO LTD. OUT OF THE RESOURCES OF THE ASSESS EE-COMPANY ON COMMERCIAL EXPEDIENCY. HE FURTHER SUBMITTED THAT PROVISIO NS OF SEC.36(1)(III) ARE NOT APPLICABLE TO THE CASE OF THE ASSESSEE BECAUSE THE ASSESSEE HAD NOT SET UP THE UNIT FOR POWER GENERATION RATHER IT WAS SET UP BY NEORA HYDRO LTD. REFERRING TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S.A.BUILDERS VS. CIT(A) (SUPRA) THE LEARNED COUNSEL SUBMITTED THAT INTERE ST PAID BY THE ASSESSEE ON BORROWED FUNDS TAKEN FOR ITS BUSINESS PURP OSES CANNOT BE DISALLOWED IF THE ASSESSEE HAS ADVANCED INTEREST-FREE LOAN TO A CONCERN WHERE IT HAS 50% STAKE AS A MEASURE OF COMMERCIAL EXPEDIENCY. WHAT IS TO BE SEEN IS BUSINESS PURPOSE NOT WHAT NEORA HYDRO DID WITH THE MONEY ADVANCED. IT WAS ALSO PLEADED THAT THE FUNDS CAME OUT OF COMPOSITE C.C . ACCOUNT WHERE ASSESSEE WAS DEPOSITING SALE PROCEEDS AND PROFIT THEREON . THE LEARNED COUNSEL IN SUPPORT OF THE ASSESSEES CLAIM ALSO RELIED ON THE DECIS ION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. BRITANNIA INDS. LTD. [280 ITR 525 (CAL)] AND SPECIAL BENCH DECISION OF ITAT KOLKATA IN THE CASE OF JCIT VS. I.T.C. LTD. [299 ITR (AT) 341 AT 397]. 6. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. HE FURTHER SUBMITTED THA T WHEN THE ASSESSEE BORROWS MONEY AND MADE ADVANCES TO SUBSIDIARY COMPANY THE BURDEN IS ON THE ASSESSEE TO PROVE THAT ADVANCES WERE MADE OUT O F ITS OWN FUNDS SO AS NOT TO DISALLOW ANY PORTION OF INTEREST PAYMENTS U/S. 36(1)(III) OF TH E ACT. THE ASSESSEE HAS FAILED TO DISCHARGE THIS RESPONSIBILITY WITH ANY DOCUMENTARY EVIDENCE. IT WAS FURTHER CONTENDED THAT THE ASSESSEE HAD HUGE TURNOVER IN ITS C.C. ACCOUNT AND IT IS THE ASSESSEE WHO SHOULD PROVIDE AN D EXPLAIN THAT ADVANCES WERE MADE FROM ITS OWN SOURCES AND NOT FROM B ORROWED FUND. THE ASSESSEE HAD ONUS TO FILE NECESSARY DETAILS WHICH IT HAD N OT DONE. IN THIS CONNECTION HE REFERRED TO THE DECISION OF HONBLE ORISSA HIGH COURT IN THE CASE OF [193 ITR 344 (ORI)]. HE ALSO PLEADED THAT THE ASSES SEE HAD MADE ADVANCE FOR ESTABLISHING A PROJECT BY SUBSIDIARY. THE BUSIN ESS OF THE ASSESSEE IS NOT SAME AS OF SUBSIDIARY. THE BUSINESS HAD NOT COMME NCED DURING THE RELEVANT PERIOD. THE INTEREST HAD TO BE CAPITALIZED. IN S UCH SITUATION THE INTEREST CANNOT BE ALLOWED AS REVENUE EXPENDITURE. THERE FORE THE REVENUE 5 AUTHORITIES HAVE RIGHTLY DISALLOWED NOTIONAL INTEREST CALCULAT ED ON ADVANCES GIVEN BY THE ASSESSEE TO ITS SUBSIDIARY COMPANY M/S. NEO RA HYDRO LTD. AND ADDED THE SAME AS ASSESSEES INCOME. 7. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. IT IS UNDISPUTED FACTS THAT THE ASSESSEE-COMPANY MADE THE ADVANCE OF INTEREST- FREE LOAN TO ITS SUBSIDIARY. THE SUBSIDIARY COMPANY UTILIZED THIS FUND FOR ERECTION OF A PROJECT. THE PROJECT DID NOT COMMENCE ITS COMMERCIAL PRODUCTION DURING THIS FINANCIAL YEAR RELEVANT TO ASSESSMEN T YEAR UNDER CONSIDERATION. THE C.I.T.(A) HAS NOT DECIDED THE ISSUE REGA RDING THE CLAIM OF THE ASSESSEE THAT THE AMOUNT WAS ADVANCED FROM A COM POSITE ACCOUNT WHERE THE ASSESSEE WAS CREDITING ITS SALE AND PROFIT THEREON. F URTHER IT IS ALSO NOT CLEAR FROM THE RECORDS THAT ON WHAT TIME THE ADVANCES WERE MADE DURING THE FINANCIAL YEAR WHETHER THESE WERE IN THE INITIAL MONTHS OR A T THE LATER PERIOD OF THE FINANCIAL YEAR. THE ONUS IS ON THE ASSESSEE TO EST ABLISH THAT THE ADVANCES WERE MADE FROM THE MIXED ACCOUNT AND THE SA LE PROCEEDS & PROFIT THEREON FOR THE YEAR UNDER CONSIDERATION WERE CREDITED IN THE C.C. ACCOUNT. KEEPING THESE FACTS IN VIEW WE SET ASIDE THE ORDER OF THE C.I.T.(A) AND RESTORE THE ISSUE TO HIS FILE TO BE DECIDED DE NOVO IN ACCORDANCE WITH LAW AND AFTER HEARING THE ASSESSEE. 8. THE ONLY OTHER GROUND RAISED BY THE ASSESSEE IN TH E APPEAL FOR ASSESSMENT YEAR 2006-07 (ITA NO. 347/K/2010) IS REGARD ING NON-ALLOWANCE OF CREDIT OF WITHHOLDING TAX DEDUCTED BY GOVT. OF BHUTAN. THE ASSESSEE EXECUTED SOME CONTRACT WORKS IN BHUTAN AND THE GOVT. OF BHUTAN MADE PAYMENTS TO THE ASSESSEE AFTER WITHHOLDING TAX @ 3% THEREON. THE A.O. HAS NOT ALLOWED CREDIT OF RS.26 21 182/- BEING TAX DEDUCTED AT SOURCE IN B HUTAN. THE C.I.T.(A) UPHELD THE ACTION OF THE A.O. ON THE GROUND THAT T HE ASSESSEE NEITHER CLAIMED CREDIT IN THE RETURN OF INCOME NOR FILED DETAILS IN RES PECT OF INCOME EARNED FROM BHUTAN. IN THE PAPER BOOK THE ASSESSEE HA S FILED A CHART SHOWING DETAILS OF WITHHOLDING TAX DEDUCTED FROM PAYMENTS M ADE BY GOVT. OF BHUTAN. THE ASSESSEE ALSO FILED TDS CERTIFICATE ISSUED BY R OYAL GOVT. OF BHUTAN IN THIS REGARD. IN THIS VIEW OF THE MATTER THE ORD ERS OF THE AUTHORITIES 6 BELOW ARE SET ASIDE AND THE ISSUE IS RESTORED BACK TO T HE FILE OF A.O. WHO IS DIRECTED TO VERIFY THE DETAILS AND TDS CERTIFICATES FILED BY THE ASSESSEE AND GIVE RELIEF ACCORDINGLY IN ACCORDANCE WITH LAW. THE A.O. WILL ALS O PROVIDE ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 9. NOW COMING TO THE OTHER APPEAL OF THE ASSESSEE BEING ITA NO. 522 (KOL) OF 2010 FOR A.Y. 2007-08 THE FACTS AND CIRCUMSTANCES BEING IDENTICAL TO THOSE OF APPEAL FOR A.Y. 2006-07 FOR THE REASONS MENTIONED IN PAR AGRAPH-7 ABOVE OF THIS ORDER WE RESTORE THE MATTER BACK TO THE FILE OF C.I.T.(A) TO READJ UDICATE THE ISSUE IN TERMS OF OUR DIRECTIONS GIVEN FOR A.Y. 2006-07. 10. IN THE RESULT THE APPEALS OF THE ASSESSEE ARE ALLOWE D FOR STATISTICAL PURPOSES. ORDER IS PRONOUNCED IN THE COURT ON 7.5.10. SD/- SD/- [D.K.TYAGI] [B.C. MEENA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 7-05-2010 COPY FORWARDED TO : 1. TEXMACO LTD. BIRLA BUILDING (5 TH FLOOR) 9/1 R.N. MUKHERJEE ROAD KOLKATA-700 001. 2. D.C.I.T. CIRCLE-6 KOLKATA.. 3. C.I.T.(A)-VI KOLKATA. 4. THE C.I.T. KOL- 5. THE DEPARTMENTAL REPRESENTATIVE ITAT KOLKATA. TRUE COPY BY ORDER [DKP] DY. REGISTRAR.