DCIT, Circle - 4, Kolkata, Kolkata v. M/s. Huldibari Industries & Plantation Co. Ltd., Kolkata

ITA 446/KOL/2010 | 2004-2005
Pronouncement Date: 14-05-2010

Appeal Details

RSA Number 44623514 RSA 2010
Assessee PAN AAACH8051R
Bench Kolkata
Appeal Number ITA 446/KOL/2010
Duration Of Justice 2 month(s) 14 day(s)
Appellant DCIT, Circle - 4, Kolkata, Kolkata
Respondent M/s. Huldibari Industries & Plantation Co. Ltd., Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 14-05-2010
Appeal Filed By Department
Bench Allotted C
Tribunal Order Date 14-05-2010
Assessment Year 2004-2005
Appeal Filed On 01-03-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SRI D. K. TYAGI JM & HONBLE SRI C . D. RAO AM] I.T.A. NO.446 & 447/KOL/2010 ASSESSMENT YEARS: 2004-05 & 2005-06 DEPUTY COMMISSIONER OF INCOME-TAX -VS- M/S. HULDI BARI INDUSTRIES & PLANTATION CIRCLE-4 KOLKATA. CO. LTD. (PA NO. AAACH 805 1 R) (APPELLANT) (RESPONDENT) APPELLANT BY : SRI NEERAJ SINGH RESPONDENT BY : SRI SANJAY BHATTACHARJEE O R D E R PER D. K. TYAGI JM: BOTH THESE APPEALS PREFERRED BY THE REVENUE ARE DIR ECTED AGAINST THE SEPARATE ORDERS OF THE LD. CIT(A) KOLKATA BOTH DATED 13.11. 2009 FOR ASSESSMENT YEARS 2004-05 & 2005-06. SINCE SOME OF THE GROUNDS ARE COMMON AND FACTS ARE IDENTICAL FOR THE SAKE OF CONVENIENCE WE DISPOSE OF BOTH THESE APPEALS BY THIS CONSOLIDATED ORDER. 2. GROUND NO.1 FOR BOTH THE ASSESSMENT YEARS RELATE S TO DELETION OF ADDITION ON ACCOUNT OF INTEREST EXPENDITURE PAID ON BORROWED C APITAL USED FOR ADVANCING INTEREST FREE LOAN TO SISTER CONCERN. BRIEF FACTS OF THE ISS UE AS OBSERVED BY THE AO FOR AY 2004- 05 ARE THAT DURING THE COURSE OF ASSESSMENT PROCEED INGS IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.1 08 90 12 0/- ON ACCOUNT OF INTEREST. AS PER BALANCE SHEET THE ASSESEE HAS GIVEN INTEREST FREE L OAN TO ITS SUBSIDIARY COMPANY AMOUNTING TO RS.1 58 82 570/- (INCLUDING OPENING BA LANCE OF RS.1 54 32 840). THE ASSESSEE HAD TAKEN SECURED LOAN OF RS.5 35 10 689/- AND UNSECURED LOAN OF RS.3 27 20 538/- ON WHICH INTEREST WAS DEBITED TO T HE P & L: ACCOUNT. ACCORDING TO THE AO HAD THE ASSESSEE NOT ADVANCED THE INTEREST FRE E LOAN TO THE SUBSIDIARY COMPANY THE REQUIREMENT OF TAKING INTEREST BEARING LOAN WOULD H AVE BEEN REDUCED BY THAT AMOUNT. IT WAS ALSO OBSERVED BY THE AO THAT THE ASSESSEE WAS N OT A FINANCE COMPANY. IT WAS CONCLUDED BY THE AO THAT THE INTEREST FREE LOAN WAS THEREFORE NOT ADVANCED DURING THE COURSE OF BUSINESS OF THE ASSESSEE. ON BEING QUEST IONED IT WAS EXPLAINED BY THE ASSESSEE THAT THE LOAN TO THE SUBSIDIARY WAS ADVANC ED NOT OUT OF LOAN TAKEN BUT FROM ITS OWN FUND. IT WAS SUBMITTED THAT THE SUBSIDIARY COM PANY WAS SICK THEREFORE THE LOAN WAS ADVANCED TO THE COMPANY FOR ITS BUSINESS PURPOS E. HOWEVER THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO FOR THE REASON THAT FINANCING THE SICK INDUSTRIES 2 WAS NOT THE BUSINESS OF THE ASSESSEE. HE THEREFOR E DISALLOWED THE INTEREST OF RS.20 10 469/- ON PROPORTIONATE BASIS. ON THE SAME PLEAS THE AO ALSO DISALLOWED THE INTEREST OF RS.18 50 030/- ON PROPORTIONATE BASIS FOR THE YEAR 2005-06. ON APPEAL THE LD. CIT(A) RELYING ON A RECENT DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS- RELIANCE UTILITIES & POWER LTD. (2009) 178 TAXMAN 135 (BOM) HELD THAT THE AO WAS NOT JUSTIFIED IN MAKING ADDITIONS OF RS.20 1 0 469/- FOR AY 2004-05 AND RS.18 50 030/- FOR AY 2005-06 AND DIRECTED TO DELET E THE ADDITIONS. AGGRIEVED BY THE SAID ORDER NOW THE REVENUE IS IN APPEALS BEFORE US. 3. AT THE TIME OF HEARING BEFORE US THE LD. DR RELIED ON THE ORDER OF THE AO AND URGED BEFORE THE BENCH TO CONFIRM HIS ACTION. 4. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSES SEE RELIED ON THE ORDER OF THE LD. CIT(A) AND URGED BEFORE THE BENCH TO CONFIRM THE SA ME. 5. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND THAT THE LD. CIT(A) HAS DELETED THE ADDITION S O MADE BY THE AO BY RELYING ON A DECISION OF HONBLE APEX COURT IN THE CASE OF S. A . BUILDERS LTD. VS- CIT REPORTED IN (2007) 158 TAXMAN 74 (SC). FOR THE SAKE OF BREVITY WE REPRODUCE THE RELEVANT PORTION OF HIS ORDER FROM THE ORDER FOR THE AY 2004-05 AS U NDER : (6) I HAVE CONSIDERED THE SUBMISSION OF THE APPELL ANT AND PERUSED THE ASSESSMENT ORDER. WHILE COMPLETING THE ASSESSMENT THE A.O. HA S DISALLOWED INTEREST AMOUNTING TO RS.20 10 469/- OUT OF THE TOTAL AMOUNT OF INTEREST DEBITED BY THE APPELLANT IN THE P & L A/C. THE A.O. HAS DISALLOWED THE INTEREST FOR THE R EASONS THAT IF THE APPELLANT WOULD HAVE NOT ADVANCED THE INTEREST-FREE LOAN TO ITS SUB SIDIARY M/S.. SOMBARIA COMPANY LTD. THEN IT MIGHT HAVE REDUCED ITS INTEREST LIABILITY T O THAT EXTENT AND ALSO FOR THE REASON THAT ADVANCING THE LOAN TO THE SICK COMPANY WAS NOT THE BUSINESS OF THE APPELLANT. DURING THE COURSE OF ASSESSMENT PROCEEDING IT WAS EXPLAINE D BY THE APPELLANT THAT LOAN TO THE SUBSIDIARY WAS NOT ADVANCED OUT OF THE LOAN TAKEN B UT FROM THE APPELLANTS OWN FUND IN THE FORM OF RESERVES ETC. IT WAS ALSO EXPLAINED TO THE A.O. THAT LOAN WAS GIVEN TO THE SUBSIDIARY FOR COMMERCIAL EXPEDIENCY AS THE COMPANY WAS SICK AND IT WAS NECESSARY TO FINANCE THE COMPANY FOR ITS REVIVAL. HOWEVER THE C ONTENTION OF THE APPELLANT WAS NOT ACCEPTED BY THE A.O. DURING THE COURSE OF APPELLATE PROCEEDINGS THE APPELLANT HAS REITERATED ITS SUBMISSION THAT INTEREST FREE LOAN W AS GIVEN TO THE SUBSIDIARY COMPANY FOR BUSINESS AND COMMERCIAL EXPEDIENCY AS THE SAID COMP ANY WAS SICK AND IT WAS NECESSARY FOR THE APPELLANT TO ASSIST THE COMPANY FINANCIALLY FOR ITS REVIVAL. IT WAS SUBMITTED BY THE APPELLANT THAT LOAN WAS ADVANCED DURING F.Y. 1995-9 6 WHICH CONTINUED IN SUBSEQUENT YEARS. IT WAS SUBMITTED THAT DURING F.Y. 1995-96 T HE APPELLANTS ACTUAL GROSS INCOME WAS RS.9 64 37 964/- THE GENERAL RESERVE WAS RS.L 39 07 871/- AND LOAN GIVEN TO THE SUBSIDIARY WAS RS.48 37 755/-. IN SUBSEQUENT YEARS ALSO LOAN WAS PROVIDED TO THE SUBSIDIARY OUT OF APPELLANTS OWN INCOME AND RESERV ES. IT WAS FURTHER SUBMITTED BY THE APPELLANT THAT IT WAS NOT THE CASE THAT THE APPELL ANT HAS KEPT ON GIVING THE LOAN TO THE SUBSIDIARY. WHENEVER THERE WAS SURPLUS WITH THE SU BSIDIARY IT HAS ALSO RETURNED THE 3 LOAN TO THE APPELLANT. DURING F.Y. 2001-02 LOAN OF RS.17 46 252/- WAS REPAID AND SIMILARLY DURING THE YEAR UNDER CONSIDERATION ALSO THE SUBSIDIARY COMPANY HAS REPAID AMOUNT OF RS4 81 360/- TO THE APPELLANT. ON CAREFUL CONSIDERATION OF FACTS OF THE CASE AND SUBMISSION OF THE APPELLANT AND THE ASSESSMENT ORDER I AM OF THE VIEW THAT THE A.O. WAS NOT JUSTIFIED IN DISALLOWING THE INTEREST OF RS .20 0 469/- MERELY BY STATING THAT IF INTEREST FREE LOAN WOULD HAVE NOT GIVEN BY THE APPE LLANT IT HAS REDUCED ITS INTEREST LIABILITY OR BY SAYING THAT ADVANCING LOAN TO THE S ICK COMPANY WAS NOT THE BUSINESS OF THE APPELLANT. THE A.O. HAS NOT COMMENTED UPON THE SUBMISSION OF THE APPELLANT THAT THE LOAN WAS GRANTED OUT OF ITS FUNDS AND NOT FROM THE BORROWED FUNDS OR THAT THE LOAN WAS GRANTED BY THE APPELLANT TO ITS SICK SUBSIDIARY COMPANY FOR COMMERCIAL EXPEDIENCY. IN THE CASE OF S.A. BUILDERS LTD. VS. CIT REPORTED IN [2007) 158 TAXMAN 74 (SC) THE HONBLE SUPREME COURT HAS HELD/OBSERVED AS UNDER: IN OUR OPINION THE HIGH COURT AS WELL AS THE TRIB UNAL AND OTHER INCOME TAX AUTHORITIES SHOULD HAVE APPROACHED THE QUESTION OF ALLOWABILITY OF INTEREST ON BORROWED FUNDS FROM THE ANGLE OF COMMERCIAL EXPEDIE NCY. IN OTHER WORDS THE HIGH COURT AND OTHER AUTHORITIES SHOULD HAVE ENQUIRED AS TO WHETHER THE INTEREST FREE LOAN WAS GIVEN TO THE SISTER COMPANY WHICH IS A SUB SIDIARY OF THE ASSESSEE AS A MEASURE COMMERCIAL EXPEDIENCY AND IF IT WAS IT SH OULD HAVE BEEN ALLOWED. THE EXPRESSION COMMERCIAL EXPEDIENCY IS AN EXPRES SION OF WIDE IMPORTANCE AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESS INC URS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION BUT YET IT IS ALLOWABLE AS A BUSINESS EXPENDITURE IF IT WAS INCU RRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. IN THE CASE OF APPELLANT IT HAS ADVANCED THE INTER EST FREE LOAN TO THE SUBSIDIARY COMPANY FOR COMMERCIAL EXPEDIENCY ONLY BECAUSE THE COMPANY WAS SICK AND THEREFORE THE APPELLANT HAS ASSISTED IT FINANCIALLY. IT IS NOT THE CASE THE A.O. THAT DIRECTORS OF THE SISTER CONCERN UTILIZED THE AMOUNT ADVANCED TO IT BY THE APPELLANT FOR THEIR BENEFIT. WHERE IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS SUBSID IARY AND HENCE IF THE HOLDING COMPANY ADVANCES BORROWED MONEY TO A SUBSIDIARY AND THE SAM E IS USED BY THE SUBSIDIARY FOR SOME BUSINESS PURPOSES THE APPELLANT WOULD BE ENTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS. THE APPELLANT HAS RELIED ON DECISIONS OF VAR IOUS HIGH COURTS INCLUDING A RECENT DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS RELIANCE UTILITIES & POWER LTD. (2009) 178 TAXMAN 135 (BOM) WHICH ALSO SUPPORT THE CONTENTION OF THE APPELLANT. IN VIEW OF ABOVE IT IS HELD THAT THE AO. WAS NOT JUST IFIED IN MAKING ADDITION OF RS.20 10 469/-. HE IS DIRECTED TO DELETE THE ADDITION. THE GROUND N O. 2 AND 3 ARE ALLOWED. AT THE TIME OF HEARING BEFORE US THE LD. DR DID NO T CONTROVERT THE ABOVE FINDINGS OF THE LD. CIT(A) BY PRODUCING ANY COGENT MATERIAL/EVIDENC E THEREFORE IN ABSENCE OF ANY CONTROVERTING MATERIAL WE DO NOT FIND ANY INFIRMIT Y IN THE ORDER OF THE LD. CIT(A) AND THE SAME IS HEREBY UPHELD. THEREFORE THIS GROUND OF APPEAL OF THE REVENUE FOR BOTH THE YEARS I.E. AYS 2004-05 AND 2005-06 IS DISMISSED. 6. GROUND NO. 2 FOR AY 2005-06 RELATES TO DELETION OF ADDITION ON ACCOUNT OF CESS ON GREEN LEAVE TO THE TUNE OF RS.20 70 682/-. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS HAS OBSERVED THAT THE ASSESEE HAS CLAIM ED PAYMENT OF TEA EXCISE CESS FOR RS.20 70 682/-. THE ASSESSEE WAS ASKED AS TO WHY T HE CLAIM WILL NOT BE DISALLOWED AS IT IS RELATED TO 100% AGRICULTURAL INCOME. IN RESPONS E THE ASSESSEE REFERRED SOME COURT 4 CASES IN FAVOUR OF THE ASSESSEE. BUT AS THE DEPART MENT HAS FILED SLP BEFORE THE SUPREME COURT ON THIS ISSUE TO MAINTAIN JUDICIAL CONSISTEN CY THE CLAIM OF THE ASSESEE WAS DISALLOWED AND TEA EXCISE CESS AMOUNTING TO RS.20 7 0 682/- WAS ADDED TO COMPOSITE INCOME OF THE ASSESSEE. ON APPEAL THE LD CIT(A) DELETED THE ADDITION BY RELYING ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASES OF WARREN TEA LTD. VS- UNION OF INDIA 236 ITR 492 AND CIT VS- AFT INDUSTR IES LTD. REPORTED IN 270 ITR 167 (CAL) AND ALSO THE DECISION OF TRIBUNAL IN AS SESSEES OWN CASE. AGGRIEVED BY THE SAID ORDER NOW THE REVENUE IS IN APPEAL BEFORE US. 7. AT THE TIME OF HEARING BEFORE US THE LD. DR REL IED ON THE ORDER OF THE AO AND ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE RE LIED ON THE ORDER OF THE LD. CIT(A). 8. AFTER HEARING THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND THAT THE LD. CIT(A) HAS DELETED THE ADDITION B Y RELYING ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASES OF WARREN TEA LTD. VS- UNION OF INDIA 236 ITR 492 AND CIT VS- AFT INDUSTRIES LTD. REPORTED IN 270 IT R 167 (CAL) AND ALSO THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE. SINCE THE LD. DR DID NOT CONTROVERT THIS FINDING OF THE LD. CIT(A) BY PRODUCING ANY OTHER DECISION IN F AVOUR OF THE REVENUE AUTHORITIES WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. C IT(A) AND THE SAME IS HEREBY UPHELD. THIS GROUND OF APPEAL OF THE REVENUE IS THEREFORE DISMISSED. 9. IN THE RESULT THE APPEALS OF THE REVENUE ARE D ISMISSED. 10. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 14 .5.10 SD/- SD/- (C. D. RAO) (D. K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED :14 TH MAY 2010 COPY TO : 1. DCIT CIRCLE-4 KOLKATA. 2. M/S. HULDIBARI INDUSTRIES & PLANTATION CO. LTD. 3 N. S. ROAD KOL-1. 3. CIT(A) KOLKATA. 4. CIT KOLKATA. 5. DR ITAT KOLKATA. TRUE COPY BY ORDER DEPUTY REGISTRAR JD.(SR.P.S.) I.T.AT. KOLKATA