R.Ranganatha Reddiar, Kollam v. ACIT, Kollam

ITA 437/COCH/2010 | 2006-2007
Pronouncement Date: 27-07-2012

Appeal Details

RSA Number 43721914 RSA 2010
Assessee PAN AERPR0733E
Bench Cochin
Appeal Number ITA 437/COCH/2010
Duration Of Justice 2 year(s) 18 day(s)
Appellant R.Ranganatha Reddiar, Kollam
Respondent ACIT, Kollam
Appeal Type Income Tax Appeal
Pronouncement Date 27-07-2012
Appeal Filed By Assessee
Bench Allotted DB
Tribunal Order Date 27-07-2012
Date Of Final Hearing 26-06-2012
Next Hearing Date 26-06-2012
Assessment Year 2006-2007
Appeal Filed On 09-07-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH COCHIN BEFORE S/SHRI N.R.S.GANESAN JM AND B.R.BASKAR AN AM I.T.A NO. 437/COCH/2010 ASSESSMENT YEAR: 2006-07 SHRI R. RANGANATHA REDDIAR M/S. RADHAS MAIN ROAD KOLLAM. [PAN: AERPR 0733E] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-1 KOLLAM. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI R. SREENIVASAN FCA REVENUE BY SMT. S.VIJAYAPRABHA JR.DR R5GVB C0020 DATE OF HEARING 26/06/2012 DATE OF PRONOUNCEMENT 27/07/2012 O R D E R PER B.R.BASKARAN ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 18-6-2010 PASSED BY LD CIT(A)-1 TRIVANDRUM AND IT RELATES TO THE AS SESSMENT YEAR 2006-07. THE ASSESSEE IS ASSAILING THE DECISION OF LD CIT(A) IN CONFIRMING THE ADDITION OF RS.6 85 465/- PERTAINING TO INTEREST ON FUNDS DIVER TED FOR NON-BUSINESS PURPOSES. 2. THE FACTS RELATING TO THE ISSUE ARE DISCUSSE D IN BRIEF. THE ASSESSEE IS THE PROPRIETOR OF THREE BUSINESS CONCERNS AS DETAILED B ELOW:- (A) M/S RADHAS DEALING IN TEXTILES (B) M/S HOTEL SAKUNTALA INTERNATIONAL A HOTEL (C) M/S M/S RADHAS FILM CIRCUIT DISTRIBUTION OF MOVIES. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS AVAILED LOANS TO THE TUNE OF RS.68.51 LAKHS AND PAID INTEREST OF RS.8 42 702/- D URING THE YEAR IN THE TEXTILE BUSINESS. I.T.A. NO. 437/COCH/2010 2 THE AO FURTHER NOTICED THAT THE TEXTILE BUSINESS HA S MADE INTEREST FREE ADVANCE OF RS.55.72 LAKHS TO M/S RADHAS FILM CIRCUIT ANOTHER PROPRIETARY CONCERN OF THE ASSESSEE. THE AO CONSIDERED IT AS DIVERSION OF FUNDS TO THE S ISTER CONCERNS FOR NON-BUSINESS PURPOSE. ACCORDINGLY BY FOLLOWING THE DECISION OF JURISDICTIONAL KERALA HIGH COURT IN THE CASE OF CIT VS. BABY & CO. (254 ITR 248) DISALLOWE D PROPORTIONATE INTEREST AMOUNTING TO RS.6 85 465/-. 3. THE ASSESSEE CHALLENGED THIS ADDITION BEFORE LD CIT(A) BY FILING AN APPEAL. THOUGH THE LD CIT(A) TOOK THE VIEW THAT THE TRANSAC TIONS MADE WITH DIFFERENT DIVISIONS OF ASSESSEE CANNOT BE CONSIDERED AS TRANSACTIONS WI TH SISTER CONCERNS YET SHE TOOK THE VIEW THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE COMMERCIAL EXPEDIENCY IN CARRYING OUT THIS TRANSACTION AS SPECIFIED BY HONBLE SUPREM E COURT IN THE CASE OF S.A.BUILDERS (288 ITR 1). ACCORDINGLY THE LD CIT(A) CONFIRMED THE ADDITION. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE TRANSACTIONS BETWEEN DIFFERENT DIVISIONS OF THE ASSESSEE CANNOT BE CONSIDERED AS T RANSACTIONS WITH SISTER CONCERNS. HE FURTHER SUBMITTED THAT THE VERY SAME TEXTILE DIVISI ON OF THE ASSESSEE HAS RECEIVED INTEREST FREE FUNDS OF RS.68.65 LAKHS FROM M/S HOTE L SAKUNTHALA INTERNATIONAL DURING THE YEAR UNDER CONSIDERATION AND HENCE IT CANNOT BE SAI D THAT THERE WAS DIVERSION OF INTEREST BEARING FUNDS. HE FURTHER SUBMITTED THAT EVEN IF INTEREST IS CHARGED BY TEXTILE BUSINESS THE SAME WILL BECOME INCOME OF THE TEXTIL E DIVISION AND EXPENDITURE OF THE FILM DIVISION BUSINESS THE NET EFFECT OF WHICH IS TAX NEUTRAL. 5. ON THE OTHER HAND THE LD D.R SUBMITTED THAT THE ASSESSEE DID NOT PROVE THE COMMERCIAL EXPEDIENCY IN TRANSFERRING FUNDS TO THE FILM DIVISION AND HENCE THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDE RS SUPRA SHALL SQUARELY APPLY TO THE FACTS OF THE INSTANT CASE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREF ULLY PERUSED THE RECORD. THERE IS NO DISPUTE THAT THREE BUSINESSES NOTED ABOVE ARE THREE DIVISIONS OF THE ASSESSEE HEREIN. I.T.A. NO. 437/COCH/2010 3 IN ORDER TO QUALIFY AS SISTER CONCERN THE BUSINE SS CONCERNS SHOULD BE OWNED BY DIFFERENT PERSONS AND SUCH OWNERS SHOULD BE RELATED TO EACH OTHER. SINCE THE ASSESSEE HEREIN IS THE OWNER OF ALL THE THREE BUSINESSES TH EY CAN ONLY BE TAKEN AS THE DIFFERENT DIVISIONS OF THE ASSESSEE. HENCE THE LD CIT(A) WA S RIGHT IN HOLDING THAT THE THREE BUSINESS DIVISIONS CANNOT BE CALLED AS SISTER CONC ERNS. 7. IF MONEY IS TRANSFERRED FROM ONE BUSINESS DIV ISION TO ANOTHER BUSINESS DIVISION BELONGING TO THE SAME PERSON THERE CANNOT BE ANY Q UESTION OF DIVERSION OF FUNDS AS IT IS EQUIVALENT TO TRANSFERRING MONEY FROM ONE POCKET TO ANOTHER POCKET OF THE SAME SHIRT. AS SUBMITTED BY LD A.R EVEN IF THE INTERES T IS CHARGED IT WOULD BE TAX NEUTRAL AS THE INTEREST SO CHARGED BECOMES EXPENDITURE FOR ONE DIVISION AND INCOME FOR ANOTHER DIVISION. FURTHER THE LD A.R ALSO POINTED OUT THAT THE TEXTILE DIVISION HAS RECEIVED INTEREST FREE FUNDS TO THE TUNE OF RS.68.65 LAKHS F ROM THE HOTEL DIVISION WHICH IS MORE THAN THE AMOUNT OF RS.55.72 LAKHS ADVANCED TO FILMS DIVISION. HENCE VIEWED FROM ANY ANGLE WE DO NOT FIND ANY JUSTIFICATION IN THE ADDI TION MADE BY THE AO. ACCORDINGLY WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE DISALLOWANCE OF INTEREST REFERRED ABOVE. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED ACCORDINGLY ON 27-07-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 27TH JULY 2012 GJ COPY TO: 1. SHRI R. RANGANATHA REDDIAR M/S. RADHAS MAIN RO AD KOLLAM. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE -1 KOLLAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I TRIVA NDRUM. 4. THE COMMISSIONER OF INCOME-TAX TRIVANDRUM. 5. D.R. I.T.A.T. COCHIN BENCH COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) ITAT COCHIN I.T.A. NO. 437/COCH/2010 4