DCIT, New Delhi v. M/s. Haldiram Manufacturing Co. (P) Ltd., New Delhi

ITA 498/DEL/2010 | 2006-2007
Pronouncement Date: 11-11-2011 | Result: Dismissed

Appeal Details

RSA Number 49820114 RSA 2010
Assessee PAN AAACH3170K
Bench Delhi
Appeal Number ITA 498/DEL/2010
Duration Of Justice 1 year(s) 9 month(s) 7 day(s)
Appellant DCIT, New Delhi
Respondent M/s. Haldiram Manufacturing Co. (P) Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 11-11-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 11-11-2011
Date Of Final Hearing 25-10-2011
Next Hearing Date 25-10-2011
Assessment Year 2006-2007
Appeal Filed On 03-02-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C DELHI BEFORE SHRI C.L. SETHI AND SHRI K.G. BANSAL ITA NO. 4909(DEL)/2009 ASSESSMENT YEAR: 2006-07 HALDIRAM MANUFACTURING CO. A DDITIONAL COMMISSIONER OF PVT. LTD. B1/H-3 MOHAN VS. INCOME-TAX RANGE-12 COOPERATIVE INDL. ESTATE NEW DELHI. MATHURA ROAD NEW DELHI. PAN: AAACH3170K AND ITA NO. 498(DEL)/2010 ASSESSMENT YEAR: 2006-07 ADDITIONAL COMMISSIONER OF HALDIRAM MANUFACTURING CO. INCOME-TAX RANGE-12 VS. PVT. LTD. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K. SAMPATH AD VOCATE & SHRI V. RAJA KUMAR ADVOCATE DEPARTMENT BY : SH RI SALIL MISHRA SR. DR DATE OF HEA RING : 25.10.2011 DATE OF PRO NOUNCEMENT : 11.11.2011 ORDER PER K.G. BANSAL : AM THESE CROSS APPEALS HAVE BEEN ARGUED IN A CONSO LIDATED MANNER. THEREFORE A COMMON ORDER IS PASSED. ITA NO. 4909(DEL)/2009 & ITA NO. 498(DEL)/2010 2 2. THE ONLY GROUND TAKEN BY THE ASSESSEE IN ITS APPEAL IS THAT THE LD. CIT(APPEALS) ERRED ON FACTS AND IN LAW IN SUSTAI NING THE DISALLOWANCE OF RS. 4 73 811/- MADE BY THE AO IN RESPECT OF SHORT -TERM CAPITAL LOSS (STCL). 2.1 THE FACTS ARE THAT THE ASSESSEE-COMPANY HEL D 1 57 937 SHARES OF HALDIRAM SNACKS (P) LTD. WHICH WERE SOLD @ RS. 15/- PER SHARE. THE ASSESSEE INCURRED LOSS OF RS. 33 30 913/- IN THE TRANSACTION. IT WAS SUBMITTED THAT THE SHARES WERE SOLD @ RS. 15/- PER SHARE AGAINST THE BREAKUP VALUE OF RS. 18/- PER SHARE. THE BREAKUP VALUE HAD BEEN WORKED OUT ON THE BASIS OF BALANCE-SHEET OF THE COMPANY AS ON 31.03.2005. THIS IS A CLOSELY HELD COMPANY AND THUS THE SHAR ES ARE NOT FREELY TRADED IN THE MARKET. IN VIEW OF THIS DIFFICULTY THE SHA RES WERE SOLD @ RS. 15/- PER SHARE. THE LD. CIT(APPEALS) CONSIDERED THE F ACTS AND SUBMISSIONS MADE BY THE ASSESSEE. IT IS MENTIONED THAT THESE SHARES HAVE BEEN SOLD TO ANOTHER GROUP COMPANY. THE ASSESSEE HAS NOT BEEN ABLE TO EXPLAIN THE NECESSITY OF ENTERING INTO SUCH A TRANSACTION. NO FACT HAS BEEN BROUGHT ON RECORD TO JUSTIFY THE SALE PRICE. IN VIEW OF THI S THE FINDING OF THE AO THAT THE LOSS TO THE EXTENT OF RS. 4 73 811/- IS NOT A LLOWABLE HAS BEEN CONFIRMED. ITA NO. 4909(DEL)/2009 & ITA NO. 498(DEL)/2010 3 2.2 BEFORE US THE LD. COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE BASIS FOR DETERMINATION OF THE CAPITAL GAINS OR LOSS IS THE SALE PRICE AND NOT THE FAIR MARKET VALUE. IN ANY CASE A DISCOUNT HAS TO BE GIVEN FOR DETERMINING FAIR MARKET VALUE OF A SHARE FROM THE BREAKUP VALUE AS THE SHARES OF THE COMPANY WERE NOT FREELY TRADABLE IN THE MARKET. RELIANCE HAS BEEN PLACED ON THE DECISION OF J BENCH OF MUMBAI TRIBUNAL IN THE CASE OF RUPEE FINANCE & MANAGEMENT (P) LTD. VS. A CIT (2008) 22 SOT 174. IT HAS BEEN HELD IN THIS CASE THAT UNDER SECTION 48 THE STARTING POINT FOR COMPUTATION OF CAPITAL GAIN IS THE AMOUNT OF FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF A CAPITAL ASSET. THE TERM FULL VALUE OF CONSIDERATION C ANNOT BE EQUATED WITH THE MARKET VALUE OF THE ASSET. IT REFERS TO THE PRI CE BARGAINED BY THE PARTIES AND ADEQUACY OF THE PRICE IS NO CONSIDERATION. 2.3 IN REPLY THE CASE OF THE LD. DR IS THAT EVEN IF THE LOSS HAS TO BE DETERMINED ON THE BASIS OF SALE PRICE IT HAS T O BE CLASSIFIED AS STCL. 2.4 WE HAVE CONSIDERED THE FACTS OF THE CASE AN D SUBMISSIONS MADE BEFORE US. THE FACTS ARE THAT 157937 SHARES OF HALDIRAM SNACKS (P) LTD. ITA NO. 4909(DEL)/2009 & ITA NO. 498(DEL)/2010 4 WERE SOLD TO A SISTER CONCERN @ RS. 15/- PER SHAR E. THE TRANSACTION RESULTED IN LOSS OF RS. 33 30 913/-. THE BREAKUP VALUE OF THE SHARE WAS RS. 18/- PER SHARE AGAINST THE SALE PRICE OF RS. 15/-. THE AO ADOPTED THE SALE PRICE AT RS. 18/- PER SHARE. THIS RESULTED IN RE DUCTION OF THE LOSS BY AN AMOUNT OF RS. 4 73 811/-. THE LD. CIT(APPEALS) CON FIRMED THIS FINDING BY INTER-ALIA MENTIONING THAT THE JUSTIFICATION FOR SALE PRICE HAS NOT BEEN PROVIDED AND THE TRANSACTION IS WITH A RELATED PA RTY. WE HAVE ALREADY PROVIDED THE SUMMARY OF THE DECISION IN THE CAS E OF RUPEE FINANCE & MANAGEMENT (P) LTD. (SUPRA). WHILE COMING TO THE DECISION THE TRIBUNAL HAS CONSIDERED A NUMBER OF DECISIONS INCLUDING IN THE CASE OF K.P. VARGHESE VS. ITO (1981) 131 ITR 597 (SC). THE DECISION IS THAT CAPITAL GAIN HAS TO BE COMPUTED ON THE BASIS OF THE PRICE BARGAINED. THEREFORE THERE COULD HAVE BEEN NO OBJECTION TO THE COMPUTA TION MADE BY THE ASSESSEE UNDER THE HEAD CAPITAL GAINS. FURTHER IT IS SEEN THAT THE AO HAS COMPUTED THE LOSS UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE CASE OF THE LD. DR IS THAT TH E LOSS FROM THE TRANSACTION SHOULD BE CLASSIFIED UNDER THE HEAD CAPITAL GAI NS. FROM THE GROUND AS WELL AS FROM THE ARGUMENTS OF THE LD. COUNSEL IN WHICH HE HAS RELIED ON THE DECISION IN THE CASE OF RUPEE FINANCE & MANAG EMENT (P) LTD. (SUPRA) IT IS CLEAR THAT HE IS OF THE VIEW THAT THE LOS S SHOULD BE CLASSIFIED UNDER THE ITA NO. 4909(DEL)/2009 & ITA NO. 498(DEL)/2010 5 HEAD CAPITAL GAINS. THEREFORE THE AO IS DI RECTED TO TREAT THE LOSS AS THE STCL. 3. COMING TO THE APPEAL OF THE REVENUE THE ONLY GR OUND IS THAT THE LD. CIT(APPEALS) WAS NOT JUSTIFIED IN DELETING THE D ISALLOWANCE OF RS. 16 11 254/- MADE BY THE AO ON ACCOUNT OF INTEREST EXPENDITURE IN RESPECT OF LOANS GIVEN TO A RELATED CONCERN @ 7.5% P.A. AND 8.5% P.A. FOR DIFFERENT PERIODS DURING THE YEAR AS AGAINST PAY MENT OF INTEREST @ 9.5% P.A. ON THE CASH CREDIT ACCOUNT (CC A/C). 3.1 THE FACTS ARE THAT THE ASSESSEE-COMPANY AD VANCED LOAN TO HALDIRAM SNACKS (P) LTD. @ 7.5% P.A. AND 8.5% IN DIFFERENT PERIODS OF THE YEAR. THESE LOANS WERE ADVANCED FROM THE CC A/C ON WHICH THE ASSESSEE WAS PAYING INTEREST @ 9.5% P.A. THE A O WORKED OUT THE DIFFERENTIAL OF INTEREST CHARGED AND PAID ON THE AFORESAID LOANS AT RS. 16 11 254/-. THIS AMOUNT WAS DISALLOWED ON THE GR OUND THAT BORROWINGS TAKEN AT HIGHER RATE OF INTEREST WERE DIVERTE D TO A SISTER CONCERN AT LOWER RATE OF INTEREST. IT WAS SUBMITTED THAT VARIOUS COMPANIES OF HALDIRAM GROUP ARE CARRYING ON THE BUSINESS OF M ANUFACTURE AND SALE OF SWEETS AND NAMKEENS. ALL THESE COMPANIES HAVE T HEIR RETAIL OUTLETS IN ITA NO. 4909(DEL)/2009 & ITA NO. 498(DEL)/2010 6 WHICH PRODUCTS MANUFACTURED BY VARIOUS COMPANIES ARE SOLD. THE ASSESSEE MANUFACTURES SOME PRODUCTS WHICH ARE SOL D TO OTHER GROUP COMPANIES WHICH DO NOT MANUFACTURE SUCH PRODUCTS. THE ASSESSEE AVAILED OF WORKING CAPITAL FACILITY FROM STATE BANK OF BIK ANER & JAIPUR IN WHICH INTEREST IS PAID @ 9.5% P.A. ON THE OVERDRAFT W HICH IS MAINLY TAKEN DURING FESTIVAL PERIOD. FROM THIS ACCOUNT THE ASSESSEE HAS ADVANCED LOANS TO HALDIRAM SNACKS (P) LTD. IN TWO DIFFERE NT PERIODS @ 7.5% P.A. AND 8.5% P.A. THE ASSESSEE HAS ALSO GIVEN LOAN TO ANOTHER SISTER CONCERN M.R. EQUIPMENT & WAREHOUSING (P) LTD. @ 10% P.A. THE ASSESSEE HAS BEEN MAINTAINING A RUNNING ACCOUNT WITH VARIOUS SISTER CONCERNS FOR CONDUCTING THE BUSINESS. THEREFORE THE MONIES A RE ADVANCED IN THE COURSE OF BUSINESS SO THAT PRODUCTS OF THE ASSESSEE A RE SOLD BY OTHER SISTER COMPANIES AND THEIR PRODUCTS ARE SOLD BY THE ASS ESSEE THEREBY ENHANCING THE VALUE OF HALDIRAM PRODUCTS. THIS WILL SHOW THAT THE ADVANCES HAVE BEEN MADE IN THE COURSE OF BUSINESS. THEREFORE INTEREST PAID ON OVERDRAFT ACCOUNT CANNOT BE DISALLOWED AS ADVANCES THEREF ROM HAD BEEN MADE IN THE COURSE OF BUSINESS. RELIANCE HAS BEEN PLACE D ON THE DECISION IN THE CASE OF S.A. BUILDERS LTD. VS. CIT(A) & ANOTHER ( 2007) 288 ITR 1 IN WHICH IT HAS BEEN HELD THAT INTEREST ON BORROWED FUNDS CANNOT BE DISALLOWED EVEN IF ASSESSEE HAS ADVANCED INTERE ST-FREE LOAN TO A SISTER ITA NO. 4909(DEL)/2009 & ITA NO. 498(DEL)/2010 7 CONCERN AS A MATTER OF COMMERCIAL EXPEDIENCY. WHA T IS TO BE SEEN IN SUCH A CASE IS THE PURPOSE AND NOT WHAT THE SISTER C ONCERN DID WITH THE MONEY ADVANCED. THE SUBMISSIONS WERE CONSIDERED BY THE L D. CIT(APPEALS) IN THE LIGHT OF THE PROVISIONS CONTAINED IN SECTION 37 AND THE CASES DECIDED THEREUNDER. IT HAS BEEN HELD THAT THE QUESTION TO BE SEEN IS WHETHER THE MONEY BORROWED HAS BEEN USED FOR THE PURPOSE O F BUSINESS. ONCE IT IS SHOWN THAT THE MONEY HAS BEEN WHOLLY AND EXCLUSI VELY USED FOR THE PURPOSE OF BUSINESS THE REVENUE AUTHORITIES CAN NOT GO INTO NECESSITY OR REASONABLENESS OF THE EXPENDITURE. THE LD. CIT(A PPEALS) FURTHER CAME TO THE CONCLUSION THAT THE MONEY WAS ADVANCED IN THE COURSE OF BUSINESS AND THEREFORE CHARGING OF LOWER RATE OF INTEREST CAN NOT BE THE BASIS FOR DISALLOWING A PART OF INTEREST PAID TO THE BAN K. 3.2 BEFORE US THE LD. DR REFERRED TO THE ORDE RS OF THE LOWER AUTHORITIES. IT IS MENTIONED THAT THE CC A/C IS IN THE NATURE OF A MIXED ACCOUNT WHERE ALL RECEIPTS AND OUTGOINGS ARE CR EDITED AND DEBITED. IN THIS ACCOUNT INTEREST IS PAID @ 9.5%. HOWEVER THE ASSESSEE HAS CHARGED INTEREST FROM THE SISTER CONCERN ON THE ADVANCES MADE FROM THIS ACCOUNT @ 7.5% AND 8.5% P.A. THEREFORE AN UNREASONABLE BENEFIT HAS BEEN PASSED ON TO THE SISTER CONCERN. ON THE OTHER HAND IT HAS BEEN SUBMITTED BY THE ITA NO. 4909(DEL)/2009 & ITA NO. 498(DEL)/2010 8 LD. COUNSEL THAT THE ADVANCES HAVE BEEN MADE IN THE COURSE OF BUSINESS A FACT NOT DISPLACED BY THE LD. DR. ONCE IT IS HE LD THAT THE ADVANCES HAVE BEEN MADE IN THE COURSE OF BUSINESS THE DISALLOWA NCE CANNOT BE MADE BY GOING INTO RATES OF INTEREST PAID AND CHARGED. 3.3 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. IT IS SEEN THAT THE LD. DR HAS NOT BEE N ABLE TO DISPLACE THE FINDING OF THE LD. CIT(APPEALS) THAT THE ADVANCES WERE MADE TO HALDIRAM SNACKS (P) LTD. A SISTER CONCERN IN THE COURSE OF BUSINESS OF MANUFACTURE AND SALE OF SWEETS AND SNACKS. IN SUCH A SITUATION THE DECISION IN THE CASE OF S.A. BUILDERS LTD. (SUP RA) IS DIRECTLY APPLICABLE. THEREFORE WE ARE OF THE VIEW THAT HE WAS RIGHT IN DELETING THE DISALLOWANCE. 4. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. SD/- SD/- (C.L. SETHI) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER SP SATIA ITA NO. 4909(DEL)/2009 & ITA NO. 498(DEL)/2010 9 COPY OF THE ORDER FORWARDED TO:- 1. HALDIRAM MANUFACTURING CO. PVT. LTD. N EW DELHI. 2. ADDITIONAL CIT RANGE 12 NEW DELHI. 3. CIT 4. CIT(A) 5. THE DR ITAT NEW DELHI. ASSISTANT REGISTRAR.