ARTEX SYRFIN CHEMICALS LTD, MUMBAI v. DCIT RG 8(1), MUMBAI

ITA 8327/MUM/2011 | 2008-2009
Pronouncement Date: 09-10-2013 | Result: Allowed

Appeal Details

RSA Number 832719914 RSA 2011
Assessee PAN AAACA3374Q
Bench Mumbai
Appeal Number ITA 8327/MUM/2011
Duration Of Justice 1 year(s) 10 month(s) 1 day(s)
Appellant ARTEX SYRFIN CHEMICALS LTD, MUMBAI
Respondent DCIT RG 8(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-10-2013
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 09-10-2013
Date Of Final Hearing 26-09-2013
Next Hearing Date 26-09-2013
Assessment Year 2008-2009
Appeal Filed On 08-12-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH MUM BAI . . BEFORE SHRI B. R. MITTAL JM AND SHRI SANJAY ARORA AM ./ I.T.A. NO. 8327/MUM/2011 ( / ASSESSMENT YEAR: 2008-09) ARTEK SURFIN CHEMICALS LIMITED SURFIN CENTRE PLOT NO.121 MAROL CO-OP. INDUSTRIAL ESTATE M. V. ROAD ANDHERI (EAST) MUMBAI-400 059 / VS. THE DY. CIT RANGE 8(1) 2 ND FLOOR AAYAKAR BHAVAN M. K. ROAD MUMBAI-400 020 ! ./' ./PAN/GIR NO. AAACA 3374 Q ( !# /APPELLANT ) : ( $!# / RESPONDENT ) !# % / APPELLANT BY : SHRI LALCHAND CHOUDHARY $!# & % / RESPONDENT BY : SHRI P. K. SINGH ' ()* & + / DATE OF HEARING : 26.09.2013 -. & + / DATE OF PRONOUNCEMENT : 09.10.2013 / / O R D E R PER SANJAY ARORA A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-16 MUMBAI (CIT(A) FOR SH ORT) DATED 05.09.2011 DISMISSING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S .143(3) OF THE INCOME TAX ACT 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A. Y.) 2008-09 VIDE ORDER DATED 16.12.2010. 2 ITA NO. 8327/MUM/2011 (A.Y. 2008-09) ARTEK SURFIN CHEMICALS LTD. VS. DY. CIT 2.1 OPENING THE ARGUMENTS FOR AND ON BEHALF OF THE ASSESSEE-APPELLANT IT WAS SUBMITTED BY THE LD. AUTHORIZED REPRESENTATIVE (AR) ITS COUNSEL THAT THOUGH THE ASSESSEE IMPUGNS THE ENTIRE DISALLOWANCE OF RS.19 0 6 722/- EFFECTED U/S.14A OF THE ACT SINCE CONFIRMED BY THE LD. CIT(A) IT HAS NO GRIEVA NCE AND RATHER CONCEDES TO THE VALIDITY TO THE SAID DISALLOWANCE IN-SO-FAR AS IT R ELATES TO INDIRECT EXPENDITURE COMPUTED WITH REFERENCE TO RULE 8D(2)(III) AT RS.8 32 149/-. THE ASSESSEES GRIEVANCE AND ARGUMENTS WOULD THUS BE CONFINED TO THE BALANCE A MOUNT OF RS.10 74 572/- AND WHICH IS IN RESPECT OF INTEREST ON THE INVESTMENTS HELD B Y THE ASSESSEE DURING THE PREVIOUS YEAR. THE SAME IS NOT VALID IN-AS-MUCH AS THE ASSESSEE HA S AS AGAINST AN AVERAGE INVESTMENT OF RS.108.97 LACS I.E. ON WHICH TAX-FREE INCOME ARISES AN AVERAGE CAPITAL (INCLUDING RESERVE AND SURPLUS) OF RS.8638.86 LACS FOR THE RELEVANT YEAR OR EVEN AT A LOWER SUM OF RS.7645 LACS I.E. IF THE PROFIT FOR THE YEAR IS TO BE EXCLUDE D TAKING THE OPENING CAPITAL AS ON 01.04.2007. THERE IS AS SUCH NO OCCASION TO DRAW AN INFERENCE OF THE INVESTMENTS HAVING BEEN FINANCED EVEN TO THE PROPORTIONATE EXT ENT BY BORROWINGS WHICH ARE PRIMARILY IN THE FORM OF SECURED LOANS OUTSTANDING AT RS.1110.86 LACS AS ON 31.03.2008 THE RELEVANT YEAR-END. FURTHER THIS POSITION GETS ALL THE MORE ACCENTUATED AS THE ASSESSEE HAS RECEIVED INTEREST FOR THE YEAR AT RS.202.70 LAC S I.E. IN EXCESS OF RS.116.92 LACS INCURRED BY IT BY WAY OF INTEREST FOR THE RELEVANT YEAR AND WHICH STANDS ALLOCATED PROPORTIONATELY LEADING TO THE IMPUGNED DISALLOWAN CE PLACING A COPY OF ITS BALANCE- SHEET FOR THE RELEVANT YEAR ON RECORD. IN FACT THE RE HAVE BEEN DECISIONS BY THE TRIBUNAL AS BY ITS KOLKATA BENCH IN THE CASE OF DY. CIT VS. TRADE APARTMENT LTD. (IN ITA NO.1277/KOL./2011 DATED 30.03.2012/COPY ON RECORD) WHEREIN SIMILAR DISALLOWANCE WAS DELETED AS THERE WAS NO RESULTANT INTEREST EXPENDIT URE I.E. AFTER SETTING OFF THE INTEREST INCOME EARNED TAKING US THROUGH THE RELEVANT PART OF THE SAID ORDER. ON A QUERY BY THE BENCH AS TO THE PURPOSE FOR WHICH THE SECURED LOANS ON WHICH ALMOST THE ENTIRE INTEREST SAVE RS.12.28 LACS STANDS INCURRED FOR THE RELEVAN T YEAR IT WAS EXPLAINED BY HIM THAT THE SAME ARE FOR BUSINESS PURPOSES I.E. TOWARD FINANC ING ITS WORKING CAPITAL VIZ. STOCKS DEBTORS ETC. THERE COULD BE UNDER THE CIRCUMSTANCE S NO INFERENCE OF BORROWED CAPITAL 3 ITA NO. 8327/MUM/2011 (A.Y. 2008-09) ARTEK SURFIN CHEMICALS LTD. VS. DY. CIT HAVING BEEN DEPLOYED FOR INVESTMENT IN SHARES AND S ECURITIES YIELDING TAX EXEMPT INCOME BY WAY OF DIVIDEND AS ALSO LONG TERM CAPITAL GAIN ( LTCG). 2.2 THE LD. DEPARTMENTAL REPRESENTATIVE (DR) WOULD ON THE OTHER HAND SUBMIT THAT THE ONUS TO EXHIBIT THE NEXUS BETWEEN THE BORROWING S AND THE AVENUE/S OF THEIR INVESTMENT/APPLICATION IS ONLY ON THE ASSESSEE FAI LING WHICH THE PRESCRIPTION OF THE RULE WHICH IS BASED ON THE COMMON POOL OF FUNDS HYPOTHES IS WOULD APPLY. THE ASSESSEE HAS NOWHERE BEEN ABLE TO EXHIBIT THE PURPOSE FOR WHICH THE BORROWINGS HAVE BEEN TAKEN AND FURTHER THEIR ACTUAL APPLICATION FOR THE SAID PURP OSE/S. THAT BEING THE CASE THERE IS NO DISCRETION LEFT WITH THE ASSESSING OFFICER (A.O.) AND HE HAS TO APPLY THE COMPUTATION FORMULA OF RULE 8D(2)(II). FURTHER AS REGARDS THE SUFFICIENCY OF OWN CAPITAL THE SAME GETS FACTORED INTO THE COMPUTATION ITSELF AND WHICH WOU LD ALSO BE EVIDENT FROM THE FACT THAT AS AGAINST AN AVERAGE INVESTMENT OF RS.86.39 CRORES AND BORROWING OF RS.11.11 CRORES THE INTEREST DISALLOWED WORKS TO A MEAGER RS.10.75 LACS . THERE IS THEREFORE BOTH FACTUALLY AND LEGALLY NO OCCASION OR BASIS FOR ITS DELETION. 3. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD. THE ISSUE WE MAY CLARIFY TURNS ESSENTIALLY ON THE FACTS OF THE CASE. IF THE ASSESSEE IS ABLE TO WITH REFERENCE TO ITS ACCOUNTS EXHIBIT THAT THE BORROWINGS HAVE BEEN APPLIED FOR FINANCING ITS BUSINESS ASSETS VIZ. STOCK-IN-TR ADE DEBTORS ETC. THERE WOULD BE NO OCCASION TO APPROPRIATE ANY PART OF THE INTEREST TH EREON TOWARD INVESTMENTS LEADING TO A DISALLOWANCE U/S.14A. IT IS ONLY IN THE ABSENCE OF A CLEAR FINDING OF FACT IN THE MATTER WHICH HAS TO BE ON THE BASIS OF THE ASSESSEES ACCO UNTS THAT THE LAW PRESCRIBES THE PROPORTIONATE METHOD BASED ON THE COMMON POOL OF FU NDS HYPOTHESIS AND IN WHICH CASE THERE IS NO DISCRETION AVAILABLE WITH THE ASSESSING AUTHORITY APART FROM THE RULE ITSELF BEING JUST AND APPROPRIATE EVEN AS FOUND AND EXPLA INED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V. DY. CIT [2010] 328 ITR 81 (BOM). COMING TO THE FACTS OF THE INSTANT CASE THE ASSESS EE PLEADS OF SUFFICIENT CAPITAL BEING AVAILABLE WITH IT SO THAT THE INVESTMENTS UN DER REFERENCE STAND FINANCED THERE-FROM. 4 ITA NO. 8327/MUM/2011 (A.Y. 2008-09) ARTEK SURFIN CHEMICALS LTD. VS. DY. CIT FOLLOWING THE SAME LOGIC THEREFORE EVEN THE ADVAN CE/S TO SISTER CONCERN/S ON WHICH IT HAS RECEIVED INTEREST AT RS.202.70 LACS FOR THE YEA R HAS ALSO BEEN FINANCED FROM OWN CAPITAL AND THERE IS NO BASIS TO CLAIM THAT THE BO RROWED FUNDS FROM THE BANK/S HAVE BEEN LENT TO THE SISTER CONCERN/S SO AS TO SET OFF THE INTEREST SUFFERED AGAINST THE INTEREST RECEIVED ON LOANS TO THE SAID CONCERN/S. THE SAID A RGUMENT I.E. OF SET OFF OF THE INTEREST RECEIVED AGAINST THAT PAID IT WOULD BE NOTED ALSO CONTRADICTS THE ASSESSEES CLAIM OF THE SECURED (BANK) LOANS BEING TOWARD FINANCING THE CUR RENT ASSETS OF ITS BUSINESS. AS SUCH WE FIND NO BASIS ON FACTS OR SUBSTANCE IN THE ASSES SEES CASE WITH REGARD TO THE SET OFF OF THE INTEREST PAID AGAINST INTEREST RECEIVED. SO HOWEVER THE ASSESSEE HAS MADE A CASE BEFORE THE AUTHORITIES BELOW THAT THE SECURED LOANS FROM THE BANK HAVE BEEN MADE FOR SPEC IFIC BUSINESS PURPOSES . THE ASSESSE OUGHT TO HAVE BEEN THEREFORE REQUIRED BY THEM TO SP ECIFY AND SUBSTANTIATE THOSE PURPOSES AND FURTHER EXHIBIT THE ACTUAL APPLICATION OF THE BORROWING TOWARD THE SAME I.E. WITH REFERENCE TO ITS ACCOUNTS FOR THE YEAR RATHER THAN BEING IGNORED OR BRUSHED ASIDE. WHERE THE ASSESSEE HAS MAINTAINED ADEQUATE INVENTORIES OF THE RELEVANT ASSETS I.E. THE CURRENT ASSETS (NET OF THE SPONTANEOUS CURRENT LIABILITIES) DURING THE YEAR AS IT APPEARS ON THE BASIS OF THE CURRENT ASSETS/LIABILITIES AT THE BEGINNING AS WELL AS AT THE END OF THE YEAR THE ASSESSE HAS A PRIMA FACIE CASE WHICH THE LD. AR WAS REQUIRED TO SHOW BY US DURING HEARING SO AS TO JUSTIFY HIS CASE FOR A REMAND. THI S ASPECT AS AFORESAID OUGHT TO HAVE BEEN EXAMINED BY THE AUTHORITIES BELOW REQUIRING T HE ASSESSEE TO LEAD EVIDENCE AS TO THE APPLICATION OF THE SAID BORROWED FUNDS. IT WOULD BE RELEVANT TO STATE THAT THE BANKS GENERALLY PROVIDE THE CONDITIONS FOR THE GRANT OF L OANS AND WHICH INCLUDE THEIR APPLICATION FOR SPECIFIED PURPOSES AS WELL. AS SUCH IF THE SAME STAND SPECIFIED IN THE RELEVANT AGREEMENTS WITH THE ASSESSEE EXHIBITING M AINTENANCE OF APPROPRIATE LEVELS OF THE RELEVANT ASSETS (COMPUTED IN THE MANNER PROVIDED) D URING THE YEAR THERE IS NO OCCASION TO INFER THAT THE SECURED LOANS HAVE NOT BEEN APPLIED FOR THE STATED PURPOSES I.E. FOR WHICH THEY HAVE BEEN GRANTED. THE UNSECURED LOANS WHICH ARE THOUGH MEAGER IN THE INSTANT CASE STAND ON A DIFFERENT FOOTING INASMUCH AS THE ASSESSEE IS FREE TO DEPLOY THE SAME IN ANY MANNER IT DEEMS FIT. 5 ITA NO. 8327/MUM/2011 (A.Y. 2008-09) ARTEK SURFIN CHEMICALS LTD. VS. DY. CIT UNDER THE CIRCUMSTANCES WE ONLY CONSIDER IT FIT AN D PROPER THAT THE MATTER IS RESTORED BACK TO THE FILE OF THE A.O. FOR A PROPER EXAMINATION OF THE ASSESSEES CASE EVEN AS THE ONUS TO ESTABLISH ITS CLAIM/S WOULD ONLY BE ON THE ASSESSEE AND DECIDE THE SAME IN ACCORDANCE WITH LAW ISSUING DEFINITE FINDINGS OF F ACT. IT WOULD ALSO BE PERTINENT TO STATE THAT WHILE THE TOTAL INTEREST PAID AND CLAIMED BY T HE ASSESSEE FOR THE YEAR IS AT RS.116.92 LACS THE A.O. HAS APPORTIONED ONLY RS.70.36 LACS (REFER PG. 3 OF THE ASSESSMENT ORDER). THIS WOULD ALSO NEED TO BE CLARIFIED EVEN AS IT AP PEARS THAT THE DIFFERENCE IS ON ACCOUNT OF EXCLUSION OF BANK CHARGES AND COMMISSION IN WHI CH CASE IT IS ONLY CORRECT INASMUCH AS ONLY THE INTEREST ON BORROWED CAPITAL FALLS UNDE R THE PURVIEW OF RULE 8D(2)(II). WE DECIDE ACCORDINGLY. 4. IN THE RESULT THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 0. 1 (230 & 4& 567 8 ) 9 & :; ORDER PRONOUNCED IN THE OPEN COURT ON OCTOBER 09 2 013 SD/- SD /- (B. R. MITTAL) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ' * MUMBAI; <( DATED : 09.10.2013 ).(../ ROSHANI SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $!# / THE RESPONDENT 3. ' = ( ) / THE CIT(A) 4. ' = / CIT CONCERNED 5. @)AB $ (C2 + C2. ' * / DR ITAT MUMBAI 6. BD3 E* / GUARD FILE ! ( / BY ORDER )/(* + (DY./ASSTT. REGISTRAR) ' * / ITAT MUMBAI