ACIT 9(3), MUMBAI v. SAY INDIA JEWELLERS P. LTD, MUMBAI

ITA 5676/MUM/2010 | misc
Pronouncement Date: 18-11-2011 | Result: Dismissed

Appeal Details

RSA Number 567619914 RSA 2010
Assessee PAN AAACM7171K
Bench Mumbai
Appeal Number ITA 5676/MUM/2010
Duration Of Justice 1 year(s) 4 month(s) 5 day(s)
Appellant ACIT 9(3), MUMBAI
Respondent SAY INDIA JEWELLERS P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 18-11-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted H
Tribunal Order Date 18-11-2011
Date Of Final Hearing 15-11-2011
Next Hearing Date 15-11-2011
Assessment Year misc
Appeal Filed On 13-07-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI D.K. AGARWAL (JM) & SHRI R.K. PANDA (A M) I.T.A. NO.5676/MUM/2010 (A.Y. 2007-08) ) ASSTT COMMR. OF INCOME-TAX-9(3) 2 ND FLOOR R.NO.229 AAYKAR BHAVAN M.K. ROAD MUMBAI-400 020. VS. M/S. SAY INDIA JEWELLERS PVT. LTD. DYNAMN HOUSE YASHODHAM GEN. A.K. VAIDYA MARG GOREGAON (E) MUMBAI-400 063. PAN: AAACM7171K. APPELLANT RESPONDENT APPELLANT BY SHRI V.V. SHASTRI. RESPONDENT BY MS. AR ATI VISSANJI. DATE OF HEARING 15 - 11 - 2011 DATE OF PRONOUNCEMENT 18 - 11 - 2011 O R D E R PER D.K. AGARWAL JM : THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER DATED 10-05-2010 PASSED BY THE LD. CIT(A) FOR THE ASSESSM ENT YEAR 2007-08. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF STUDDED JEWELLERY FILED ITS RETURN DECLARING TOTAL INCOME OF RS.2 13 42 396/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO INTER ALIA OBSERVED THAT THE ASSESSEE HAS CLAIMED HUGE INTEREST EXPENSES AMOUNTING TO RS.6 76 83 513/-. H E FURTHER OBSERVED THAT THE ASSESSEE HAS DIVERTED RS.3 46 13 500/- OUT OF BORRO WED FUNDS FOR MAKING INVESTMENT IN SHARES. HE FURTHER OBSERVED THAT INVE STMENT IN SHARES WAS MADE IN ITA NO.5676M/2010 M/S.SAY INDIA JEWELLERS P. LTD. 2 THE CURRENT YEAR AND DIVERSION OF FUNDS FOR THAT PU RPOSE WAS NOT FOR THE BUSINESS PURPOSE AS THE ASSESSEE IS NOT ENGAGED IN TRADING I N SHARES. HE WAS OF THE VIEW THAT INTEREST EXPENDITURE ATTRIBUTABLE TO THE AMOUN T INVESTED IN SHARES IS DISALLOWABLE AS NON-BUSINESS EXPENDITURE AND WITHOU T PREJUDICE AS CAPITAL EXPENDITURE ON THE GROUND THAT ADVANTAGE ACCRUING T O THE ASSESSEE FROM INVESTMENT IS OF ENDURING NATURE. THE AO THEREFORE ASKED THE ASSESSEE TO WORK OUT THE PROPORTIONATE AMOUNT OF INTEREST FOR DISALL OWANCE. THE ASSESSEE WITHOUT PREJUDICE TO ITS CLAIM FURNISHED COMPUTATION OF D ISALLOWANCE OF INTEREST WHICH HE WORKED OUT TO RS.28 47 766/- AND ACCORDINGLY THE AO DISALLOWED THE SAME. THE AO AFTER MAKING SOME OTHER DISALLOWANCES COMPLETE D THE ASSESSMENT AT AN INCOME OF RS.2 58 84 321/- VIDE ORDER DATED 12-11-2 009 PASSED U/S.143(3) OF THE I.T. ACT 1961 (THE ACT). ON APPEAL THE LD. CIT(A) WHILE OBSERVING THAT THE ASSESSEE HAD ADEQUATE INTEREST FREE FUNDS AT ITS DI SPOSAL WHEN IT MADE INVESTMENT IN SHARES HELD THAT THE AO HAS ERRED IN HOLDING THAT THE ASSESSEE DIVERTED BORROWED FUNDS IN MAKING INVESTMENT IN SHA RES AND DISALLOWING PROPORTIONATE INTEREST EXPENSES DELETED THE DISALL OWANCE OF RS.28 47 766/- MADE BY THE AO. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE REVENUE IS IN APPEAL BEFORE US TAKING THE FOLLOWING GROUNDS OF APPEAL : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.28 47 766/- WHICH REPRESENTS INTEREST PAID BY T HE ASSESSEE ON BORROWED FUNDS UTILIZED FOR NON-BUSINES S INVESTMENT PURPOSES INSPITE OF THE FINDING BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD NOT DISCHARGED THE ON US TO ESTABLISH THAT THE BORROWED FUNDS WERE USED ONLY FO R BUSINESS PURPOSES. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A ) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. ITA NO.5676M/2010 M/S.SAY INDIA JEWELLERS P. LTD. 3 4. AT THE TIME OF HEARING THE LD. D.R. SUBMITS THA T SINCE THE ASSESSEE HAS FAILED TO PROVE NEXUS TO SHOW THAT THE BORROWED FUN DS HAVE NOT BEEN USED TO MAKE INVESTMENT IN SHARES THE LD. CIT(A) WAS NOT J USTIFIED IN DELETING THE ADDITION OF RS.28 47 766/-. HE THEREFORE SUBMITS THAT THE ADDITION MADE BY THE AO BE RESTORED. 5. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSES SEE WHILE RELYING ON THE ORDER OF THE LD. CIT(A) SUBMITS THAT SINCE THE INV ESTMENT OF RS.3 46 13 500/- IN SHARES WAS MADE BY THE ASSESSEE TO ITS WHOLLY OWNED FOREIGN SUBSIDIARY COMPANY WHICH IS ENGAGED IN THE BUSINESS OF TRADING IN DIAMONDS AND DIAMOND STUDDED JEWELLERY AND THE FUNCTIONAL CONTROL OVER T HE WHOLLY OWNED FOREIGN SUBSIDIARY COMPANY IS WITH THE ASSESSEE WHICH HAS B EEN ACCEPTED BY THE AO BY OBSERVING THAT AS THE INVESTMENT IS MADE NOT FOR ROUTINE OR DAY T O DAY TRADING IN SHARES BUT FOR A STRATEGIC PURPOSE. THEREFORE THE AO WAS NOT JUSTIFIED IN HOLDING THAT THE INTEREST EXPENDITURE IS FOR NON-BUSINESS P URPOSE. SHE FURTHER SUBMITS THAT SUCH INVESTMENT IN FOREIGN SUBSIDIARY COMPANY IS NOT A CAPITAL EXPENDITURE AND THE INTEREST ON SUCH AMOUNT IS ALLOWABLE AS BUS INESS EXPENDITURE AS NO BORROWED FUND WAS DIVERTED TO SUCH INVESTMENT. RELI ANCE WAS ALSO PLACED ON THE DECISIONS IN THE CASE OF S.A. BUILDERS LTD. VS. CI T(A) & ANR. (2007) 288 ITR 1 (SC) AND CALICO DYEING & PRINTING WORKS VS. CIT (19 58) 34 ITR 265 (BOM). SHE THEREFORE SUBMITS THAT THE ORDER PASSED BY THE LD. CIT(A) IN DELETING THE DISALLOWANCE BE UPHELD. 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT THERE IS NO DISPUTE THAT IT HAS BEEN INTER ALIA OBSERVED BY THE AO THAT THE I NVESTMENT WAS MADE FOR A ITA NO.5676M/2010 M/S.SAY INDIA JEWELLERS P. LTD. 4 STRATEGIC PURPOSE. WE FURTHER FIND THAT BEFORE THE LD. CIT(A) IT HAS BEEN SUBMITTED BY THE ASSESSEE THAT THE INVESTMENT OF RS .3 46 13 500/- IN SHARES WAS MADE IN A WHOLLY OWNED FOREIGN SUBSIDIARY COMPANY E NGAGED IN THE BUSINESS OF TRADING IN DIAMONDS AND DIAMOND STUDDED JEWELLERY A ND THE FUNCTIONAL CONTROL OVER THE WHOLLY OWNED FOREIGN SUBSIDIARY COMPANY IS WITH THE ASSESSEE. HOWEVER THE LD. CIT(A) AFTER EXAMINING THE BALANC E-SHEET OF THE ASSESSEE HAS HELD THAT THE ASSESSEE HAD ADEQUATE INTEREST FREE F UNDS AT ITS DISPOSAL WHEN IT MADE INVESTMENT IN SHARES AND HENCE DELETED THE ADD ITION MADE BY THE AO. IN THE ABSENCE OF ANY CONTRARY MATERIAL PLACED ON RECO RD BY THE REVENUE TO SHOW THAT THE ASSESSEE HAS NOT MADE INVESTMENT OF RS.3 4 6 13 500/- IN SHARES OF WHOLLY OWNED FOREIGN SUBSIDIARY COMPANY OR THE ASSE SSEE HAS NO ADEQUATE INTEREST FREE FUNDS AT ITS DISPOSAL WHEN IT MADE IN VESTMENT IN SUCH SHARES WE RESPECTFULLY FOLLOWING THE RATIO OF DECISION OF HON BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. (SUPRA) WHEREIN IT HAS BEEN HELD THAT (PAGE 10 OF 288 ITR) WHERE IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS SUBSIDIARY AND HENCE IF THE HOLDING COMPANY ADVANC ES BORROWED MONEY TO A SUBSIDIARY AND THE SAME IS USED BY THE SUBSIDIARY F OR SOME BUSINESS PURPOSES THE ASSESSEE WOULD IN OUR OPINION ORDINARILY BE E NTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION O F INTEREST AS CLAIMED. EVEN OTHERWISE SINCE THE LD. D.R. HAS NOT CONTROVERTED THE FINDING OF THE LD. CIT(A) THAT THE ASSESSEE HAD ADEQUATE IN TEREST FREE FUNDS AT ITS DISPOSAL WHEN IT MADE INVESTMENT IN SHARES THE ASS ESSEE IS ENTITLED TO SUCCEED IN VIEW OF THE RATIO OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION VS. CIT & ANR. (2008) 298 ITR 298 (SC) WHEREIN IT HAS BEEN HELD (PLACITUM 17 AT PAGE 305) .THE OPENING BALANCE AS ON APRIL 1 1994 WAS RS.1.91 CRORES WHEREAS THE LOAN GIVEN TO THE SI STER CONCERN WAS A SMALL ITA NO.5676M/2010 M/S.SAY INDIA JEWELLERS P. LTD. 5 AMOUNT OF RS. 5 LAKHS. IN OUR VIEW THE PROFITS EAR NED BY THE ASSESSEE DURING THE RELEVANT YEAR WERE SUFFICIENT TO COVER THE IMPUGNED LOAN OF RS. 5 LAKHS. RESPECTFULLY FOLLOWING THE RATIO OF THE ABOVE DECIS IONS WE ARE INCLINED TO UPHOLD THE ORDER OF THE LD. CIT(A) IN DELETING THE DISALLO WANCE OF INTEREST MADE BY THE AO. THE GROUNDS TAKEN BY THE REVENUE ARE THEREFORE REJECTED. 7. IN THE RESULT THE REVENUES APPEAL STANDS DISMI SSED. ORDER PRONOUNCED IN THE COURT ON THE 18TH DAY OF NOVEMBER 2011. SD/- SD/- (R.K. PANDA) (D.K. AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 18TH NOVEMBER 2011. NG: COPY TO : 1. DEPARTMENT. 2.ASSESSEE. 3 CIT(A)-20 MUMBAI. 4 CIT CITY-9 MUMBAI. 5.DR H BENCH MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER ASST.REGISTRAR ITAT MUMBAI. ITA NO.5676M/2010 M/S.SAY INDIA JEWELLERS P. LTD. 6 DETAILS DATE INITIALS DESIGNA TION 1. DRAFT DICTATED ON 15-11-2011 SR.PS/ 2. DRAFT PLACED BEFORE AUTHOR 16-11-2011 SR.PS/ 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/ AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER