CRESCENT ORGANICS P. LTD, v. DCIT - 8(1),

MA 194/MUM/2011 | 2005-2006
Pronouncement Date: 22-07-2011 | Result: Dismissed

Appeal Details

RSA Number 19419924 RSA 2011
Assessee PAN AAACC1690D
Bench Mumbai
Appeal Number MA 194/MUM/2011
Duration Of Justice 3 month(s) 25 day(s)
Appellant CRESCENT ORGANICS P. LTD,
Respondent DCIT - 8(1),
Appeal Type Miscellaneous Application
Pronouncement Date 22-07-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 22-07-2011
Assessment Year 2005-2006
Appeal Filed On 28-03-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH MUMBAI BEFORE SHRI D.K. AGARWAL JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER MA NO. 194/MUM/2011 (ARISING OUT OF ITA NO. 366/MUM/2009) (ASSESSMENT YEAR: 2005-06) M/S. CRESCENT ORGANICS P. LTD. DCIT 8 (1) 201 WINDSOR 2ND FLOOR MUMBAI CST ROAD KALINA VS. SANTACRUZ (E) MUMBAI 400098 PAN - AAACC 1690 D APPLICANT RESPONDENT APPLICANT BY: SHRI H.N. MOTIWALLA & SHRI PIYUSH CHHAJED RESPONDENT BY: SHRI P.K.B. MENON O R D E R PER B. RAMAKOTAIAH A.M. THIS MISCELLANEOUS APPLICATION IS FILED AGAINST THE ORDER OF THE ITAT C BENCH IN ITA NO. 366/MUM/2009 DATED 28 TH FEBRUARY 2011. 2. IN THIS MA ASSESSEE HAS RAISED TWO CONTENTIONS AS DETAILED IN 24 PARAGRAPHS. THE FIRST CONTENTION WAS THAT WHILE DEC IDING GROUND NO. 4 THE ITAT RESTRICTED THE DISALLOWANCE TO 20% OF TRAVELLI NG EXPENSES WITHOUT CONSIDERING THE EVIDENCES PLACED ON RECORD AND THE DETAILS FURNISHED. THE PRAYER FOR THIS WAS DETAILED FROM PARA 3 TO PARA 14 . THE SUMMARY OF THE CONTENTIONS WERE THAT THE ITAT HAS NOT CONSIDERED T HE EXPLANATIONS AND DETAILS PLACED ON RECORD AND ALSO HAS NOT CONSIDERE D THAT THERE CANNOT BE ANY PERSONAL ELEMENT OR NON-BUSINESS USE AS LAID DO WN BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF M/S. SAYAJI IRON ENGINEERING CO. LTD. 253 ITR 749. 3. THE SECOND CONTENTION COVERED IN PARA 15 TO 24 IS W ITH REFERENCE TO THE UPHOLDING THE DISALLOWANCE CONTESTED IN GROUND NO. 6 IN RESPECT OF INTEREST PAID ON INVESTMENTS IN SISTER CONCERN. ASS ESSEE WAS OBJECTING THAT THE CASE LAWS RELIED UPON BY THE ASSESSEE IN THE CO URSE OF ARGUMENT WERE MA NO. 194/MUM/2011 M/S. CRESCENT ORGANICS P. LTD. 2 DIFFERENTIATED BUT RELIED ON THE SPECIAL BENCH DECI SION WHICH WAS RENDERED IN THE CONTEXT OF SECTION 14A. THEREFORE THE RATIO OF THE ABOVE JUDGEMENT DOES NOT APPLY TO THE ASSESSEE. IT WAS FURTHER SUBM ITTED THAT THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CI T VS. RAJENDRA PRASAD MOODY 115 ITR 519 WAS NOT CONSIDERED. IN THE APPLIC ATION ASSESSEE REFERRED TO THE ORDER IN THE CASE OF DARTMOUR HOLDINGS PVT. LTD. 51 DTR 321. 4. THE LEARNED COUNSEL SUBMITTED THAT THE DETAILS WERE FILED AT THE TIME OF ARGUMENTS AND REFERRED TO THE PAPER BOOK FILED I N THIS REGARD AND SUBMITTED THAT THERE IS NO NEED FOR DISALLOWANCE OF TRAVELLING EXPENDITURE AS WAS DONE BY THE ITAT. IT WAS HIS CONTENTION THAT NO T CONSIDERING THE FACTS IS A MISTAKE APPARENT FROM RECORD. WITH REFERENCE TO T HE SECOND CONTENTION HE AGAIN MADE DETAILED SUBMISSIONS AND REFERRED TO THE FACTS OF THE CASE TO SUBMIT THAT THE ITAT HAS COMMITTED A MISTAKE IN REL YING ON THE SPECIAL BENCH DECISION WHEREAS THE ASSESSEES CASE WAS THAT INTEREST WAS ALLOWABLE WITHER UNDER SECTION 36(1)(III) OR UNDER SECTION 57 RELYING ON THE DECISION LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF RAJENDRA PRASAD MOODY 115 ITR 519. 5. THE LEARNED D.R. SUBMITTED THAT THE ITAT CONSIDERED THE ISSUE IN ITS ENTIRETY AND PASSED A DETAILED ORDER. IF THE MA IS TO BE CONSIDERED IT WILL NOT BE A MISTAKE APPARENT FROM RECORD BUT A REVIEW OF T HE ORDER. 6. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE CONTE NTIONS RAISED IN THE MISCELLANEOUS APPLICATION AND THE ORDERS PASSED BY THE ITAT ON THIS ISSUE. THE FIRST ISSUE I.E. DISALLOWANCE OF TRAVE LLING EXPENSES THE ITAT HAS PASSED THE FOLLOWING ORDER IN PARA 11.3: - 11.3 WE HAVE EXAMINED THE DETAILS AND THE ARGUMENT S. THE ASSESSEE SUPPORTED THE CLAIM BY FURNISHING DETAILS OF JOURNEYS WHERE AS ON THE BASIS OF THE NOTE BY THE AUDITORS THE ASS ESSING OFFICER DISALLOWED THE 20% OF THE EXPENDITURE CLAIM. KEEPI NG IN VIEW THE SUBMISSIONS AND THE DETAILS PLACED ON RECORD AND TH E NOTE OF THE AUDITORS WE ARE OF THE OPINION THE DISALLOWANCE CA N BE RESTRICTED TO 10% OF THE FOREIGN TRAVEL EXPENDITURE. THE ASSESSI NG OFFICER IS DIRECTED TO RESTRICT ACCORDINGLY. THE GROUND IS PAR TLY ALLOWED. BEFORE ARRIVING ON THIS DECISION THE ITAT ALSO NOTE D THE REASONS FOR A.O. DISALLOWING THE SUBMISSION OF THE ASSESSEE AND DET AILS IN THE PAPER BOOK. MA NO. 194/MUM/2011 M/S. CRESCENT ORGANICS P. LTD. 3 SINCE THE CONTENTIONS SUBMISSIONS AND DETAILS WERE ALREADY CONSIDERED AND EXAMINED WE ARE OF THE OPINION THAT THE DECISION T AKEN ALREADY IN RESTRICTING THE DISALLOWANCE TO 10% OF THE FOREIGN TRAVEL EXPENSES RATHER THE ENTIRE EXPENDITURE CLAIM IS A CONSCIOUS AND APPROPR IATE DECISION OF THE ITAT CONSIDERING THE FACTS OF THE CASE. IN VIEW OF THIS WE ARE OF THE OPINION THAT THE PRAYER IN THE MISCELLANEOUS APPLICATION WOULD A MOUNT A REVIEW OF THE ORDER. THEREFORE IT CANNOT BE CONSIDERED UNDER SECT ION 254(2). ACCORDINGLY THE CONTENTIONS RAISED FROM PARA 3 TO 14 IN THE MIS CELLANEOUS PETITION ARE ACCORDINGLY REJECTED. 7. WITH REFERENCE TO THE SECOND ISSUE OF DISALLOWANCE OF INTEREST THE ITAT HAS CONSIDERED THE ISSUE IN PARAGRAPHS 16 17 & 18 WHICH ARE AS UNDER: - 16. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE DETAILS. DURING THE YEAR THE ASSESSEE MADE FRESH INVESTMENT OF ` 3 57 96 450/-IN GROUP COMPANY APART FROM PURCHASE O F SHARES IN OTHER COMPANIES. IT WAS ALSO ADMITTED THAT UNSECUR ED LOANS FROM DIRECTORS AND SHARE HOLDERS HAD BEEN TAKEN AT ` 2.3 CRORES FOR INVESTMENT IN THE GROUP COMPANY FOR ACQUIRING 60% O F THE SHARES AND AN INTEREST OF ` 10 80 781/- WAS PAID ( IN SOME PLACE IT WAS SHOWN AS ` 1 08 078/- IN THE ORDERS). WE ARE OF THE OPINION THAT THE INTEREST PAID DIRECTLY ON BORROWALS UTILIZED FOR INVESTMENTS IN FOREIGN COMPANY CANNOT BE ALLOWED AS DEDUCTION AS THE SAME IS NOT IN THE COURSE OF ASSESSEES BUSINESS. THERE WAS NO EVIDENCE PLACED O N RECORD TO SUPPORT THE ARGUMENT OF COMMERCIAL EXPEDIENCY IN MA KING THE INVESTMENT ABROAD AS BOTH THE REVENUE AUTHORITIES E XAMINED THIS CONTENTION AND REJECTED. IN THE CASE OF S.A. BUILD ERS LTD. VS. CIT(A) IN 288 ITR 1 THE HONBLE SUPREME COURT HAS EXAMINED T HE ISSUE OF COMMERCIAL EXPEDIENCY AND DEDUCTION U/S.36(1)(III) AND HELD AS UNDER: IN ORDER TO DECIDE WHETHER INTEREST ON FUNDS BORRO WED BY THE ASSESSEE TO GIVE AN INTEREST FREE LOAN TO A SISTER CONCERN (E.G. A SUB SIDIARY OF THE ASSESSEE) SHOULD BE ALLOWED AS A DEDUCTION U/S.36(1)(III) OF THE I.T. A CT 1961 ONE HAS TO ENQUIRE WHETHER THE LOAN WAS GIVEN BY THE ASSESSEE AS A MEA SURE OF COMMERCIAL EXPEDIENCY. THE EXPRESSION COMMERCIAL EXPEDIENCY IS ONE OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE BEEN INCUR RED UNDER ANY LEGAL OBLIGATION BUT YET IT IS ALLOWABLE AS BUSINESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. DECISIONS RELATING TO SECTION 37 WILL ALSO BE APPLI CABLE TO SECTION 36(1)(III) BECAUSE IN SECTION 37 ALSO THE EXPRESSION USED IS FOR THE PUR POSE OF THE BUSINESS. FOR THE PURPOSE OF BUSINESS INCLUDES EXPENDITURE VOLUNTARI LY INCURRED FOR COMMERCIAL EXPEDIENCY AND IT IS IMMATERIAL IF A THIRD PARTY A LSO BENEFITS THEREBY. MA NO. 194/MUM/2011 M/S. CRESCENT ORGANICS P. LTD. 4 THE EXPRESSION FOR THE PURPOSE OF BUSINESS IS WID ER IN SCOPE THAN THE EXPRESSION FOR THE PURPOSE OF EARNING PROFITS. TO CONSIDER WHETHER ONE SHOULD ALLOW DEDUCTION U/S. 36(1)(III) OF THE INTEREST PAID BY THE ASSESSEE ON AMOUNTS BORROWED B Y IT FOR ADVANCING TO A SISTER CONCERN THE AUTHORITIES AND THE COURTS SHOULD EXAMINE THE PURPOSE FOR WHICH THE ASSESSEE ADVANCED THE MONEY AND WHAT THE SISTER CONCERN DID WITH THE MONEY. TH AT THE BORROWED AMOUNT IS NOT UTILIZED BY THE ASSESSEE IN ITS OWN B USINESS BUT HAD BEEN ADVANCED AS INTEREST FREE LOAN TO ITS SISTER C ONCERN IS NOT RELEVANT. WHAT IS RELEVANT IS WHETHER THE AMOUNT WAS ADVANCED AS MEASURE OF COMMERCIAL EXPEDIENCY AND NOT FROM THE P OINT OF VIEW WHETHER THE AMOUNT WAS ADVANCED FOR EARNING PROFITS . 17. RELIANCE ON ABOVE DECISION BY THE ASSESSEE IS N OT CORRECT AS IN THE SAID CASE THE FACTS ARE THAT AN AMOUNT OF ` 82 LAKHS WAS ADVANCED AS LOAN BUT ONLY A SUM OF ` 18 LAKHS HAD B EEN ESTABLISHED TO HAVE BEEN ADVANCED OUT OF BORROWED FUNDS AND THE RE WAS FINDING THAT THE FUNDS ARE USED FOR THE PURPOSE OF BUSINESS . HOWEVER IN THE ASSESSEES CASE IT WAS NOT OF ADVANCING A LOAN BUT INVESTMENT IN SHARE CAPITAL OF A COMPANY ESTABLISHED IN FOREIGN C OUNTRY. SIMILARLY THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F MUNJAL SALES CORPORATION VS CIT 298 ITR 298(SC) WAS ALSO NOT REL EVANT AS THE ISSUE THERE IN WAS AGAIN ABOUT ADVANCES TO SISTER C ONCERNS AND THE ISSUE WAS EXAMINED WITH REFERENCE TO SCOPE AND AMBI T OF S.40(B) (IV) VIS-A-VIS S. 36(1)(III) AND FURTHER THERE WAS A FIN DING IN EARLIER YEARS THAT NO BORROWED FUNDS WERE UTILIZED FOR ADVANCING TO SISTER CONCERNS AND INTEREST WAS ALLOWED BEFORE CHANGE OF LAW IN EA RLIER YEARS. IN THIS CASE IT WAS ADMITTED THAT ASSESSEE HAD UTILIZE D AN AMOUNT OF ` 37 85 00 000/- FOR INVESTMENT IN THE CAPITAL OF THE ANOTHER COMPANY ESTABLISHED IN DUBAI AND SINCE THE PURPOSE OF BORRO WAL IS DIRECTLY RELATED TO INVESTMENT IN THE SHARE CAPITAL WE ARE OF THE OPINION THAT THE CLAIM OF INTEREST ON THE SAID AMOUNT FOR THE PURPOSE OF BUSINESS ON THE PRINCIPLE OF COMMERCIAL EXPEDIENCY CAN NOT B E ACCEPTED SINCE IT IS NOT THE AMOUNT ADVANCED IN THE COURSE OF BUSI NESS BUT THE INVESTMENT DIRECTLY MADE WITH THE BORROWED FUNDS T HE NEXUS OF WHICH WAS ADMITTED. THE ARGUMENT THAT DIVIDEND IS T AXABLE IN INDIA ALSO CAN NOT BE ACCEPTED AS SUCH A CLAIM WAS EXAMIN ED IN THE CASE OF CHEMINVEST LTD VS ITO BY THE SPECIAL BENCH REPOR TED AS 317 ITR (AT) 86(DEL)(SB) WHERE IN IT WAS HELD THAT INTEREST CAN NOT BE ALLOWED WHETHER THE SHARES ARE HELD AS INVESTMENTS OR AS ST OCK-IN-TRADE AND WHETHER DIVIDEND WAS RECEIVED OR NOT. THE CLAIM OF INTEREST IS RELATED TO EARNING OF DIVIDEND AND SO CAN ONLY BE CLAIMED U NDER OTHER SOURCES AS AND WHEN THE TAXABLE DIVIDEND WAS EARNE D. THE INTEREST PAID ON THAT BORROWED FUNDS CANNOT BE ALLOWED AS DE DUCTION UNDER 36(1)(III) AGAINST BUSINESS INCOME. IN VIEW OF THI S WE UPHOLD THE ORDER OF THE CIT(A) TO THE EXTENT OF INTEREST CLAIM ED ON BORROWED FUNDS FOR INVESTMENTS IN M/S. KEMSOL (I) LTD. THE BALANCE OF INVESTMENT SEEMS TO BE OUT OF ASSESSEES OWN FUNDS AND THE ASS ESSING OFFICER MA NO. 194/MUM/2011 M/S. CRESCENT ORGANICS P. LTD. 5 HAS NOT MADE OUT ANY CLAIM TO ESTABLISH THAT THE BO RROWED FUNDS ARE DIVERTED FOR INVESTMENT. 18. HOWEVER THE AMOUNT OF INTEREST PAID ON THE BOR ROWED AMOUNT IS TO BE ASCERTAINED. IN THE ORDER OF AO AS WELL AS CIT(A) IT STATED AS ` 10 80 781/- WHERE AS IT WAS ALSO STATED AS ` 1 08 081/-. THE ASSESSING OFFICER DISALLOWED THE AMOUNT OF ` 27 87 772/- THE CALCULATION OF WHICH COULD NOT BE ASCERTAINED FROM THE ORDER SINCE THE ENTIRE AMOUNT HAS BEEN DISALLOWED. THEREFORE TO TH E EXTENT OF QUANTIFICATION OF INTEREST FOR DISALLOWANCE U/S.36( 1)(III) THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER TO WO RK OUT THE CORRECT AMOUNT OF DISALLOWANCE AFTER GIVING DUE OPPORTUNIT Y TO THE ASSESSEE. SUBJECT TO VERIFICATION AND QUANTIFICATION OF THE D ISALLOWANCE THE GROUND IS CONSIDERED AS PARTLY ALLOWED. 8. SINCE THE ISSUE WAS DISCUSSED ELABORATELY ON THE FA CTS OF THE CASE WE ARE OF THE OPINION THAT THERE IS NO NEED TO RECONSI DER THIS ISSUE AS IT AMOUNTS TO REVIEW OF THE EARLIER ORDER. THE LEARNED COUNSEL RELIED ON THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF RAJENDRA PRASAD MOODY (SUPRA) GIVEN IN THE CONTEST OF SECTION 57(3) WHICH WAS CONSIDERED BY THE SPECIAL BENCH IN THE CASE OF CHEMINVEST LTD. VS . ITO 121 ITD 318 IN PARA 31 OF THE ORDER WHILE DECIDING UNDER WHAT CIRC UMSTANCES INTEREST CAN BE ALLOWED. IN VIEW OF THIS THE BENCH FELT THAT TH ERE IS NO NEED TO SEPARATELY CONSIDER THE ISSUE AGAIN WHILE INVOKING THE DECISIO N OF THE SPECIAL BENCH IN DECIDING THE ISSUE. THE LEARNED COUNSEL ALSO RELIED ON THE DECISION OF THE CASE OF HONDA SIEL POWER PRODUCTS LTD. VS. CIT 295 ITR 466 (SC) TO SUBMIT THAT NON-CONSIDERATION OF COORDINATE BENCH DECISION CAN BE CONSIDERED FOR RECTIFICATION UNDER SECTION 254(2). THE LEARNED COU NSEL PLACED THE FOLLOWING ORDERS IN SUPPORT OF THE CONTENTIONS: - I) HONDA SIEL POWER PRODUCTS LTD. VS. CIT 295 ITR 466 (SC) II) SAYAJI IRON & ENGG. CO. VS. CIT 253 ITR 749 (GUJ) III) CIT VS. RAJENDRA PRASAD MOODY 115 ITR 529 (SC) IV) CHEMINVEST LTD. VS. ITO 121 ITD 318 (DEL) (SB) V) M/S. PEARL FARBEN CHEM PVT. LTD. VS. DCIT ITA NO. 1122/MUM/ 2010 DATED 12.11.2010 VI) ACIT VS. ARTHUR ANDERSON & CO. 5 SOT 393 (MUM) VII) JCIT VS. R.T. EXPORTS LTD. ITA NO. 4072/MUM/2008 DA TED 29.10.2010 VIII) AYUSHAKTI AYURVED (P) LTD. VS. ACIT 37 SOT 313 (MUM ) MA NO. 194/MUM/2011 M/S. CRESCENT ORGANICS P. LTD. 6 MANY OF THE ORDERS ARE GIVEN IN A SET OF FACTS. IF THERE IS ANY SPECIFIC DIRECT JUDGEMENT IN ASSESSEES OWN CASE OR ON THE FACTS T HEN IT CAN BE CONSIDERED AS JUDGEMENT THAT WAS NOT FOLLOWED WHILE CONSIDERIN G THE ISSUE. THE FACTS ARE DIFFERENT FROM CASE TO CASE. SUFFICE TO SAY THA T ITAT HAS CONSIDERED THE FACTS OF THE CASE AND DECIDED THE ISSUE. THEREFORE RECONSIDERATION OF THE ISSUE AMOUNTS TO REVIEW OF THE ORDER THE POWERS OF WHICH ARE NOT GIVEN TO ITAT AS CONSIDERED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RAMESH ELECTRIC AND TRADING CO. 203 ITR 497. THEREF ORE THE SECOND CONTENTION IS ALSO REJECTED. 9. IN THE RESULT ASSESSEES MISCELLANEOUS APPLICATION IS REJECTED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JULY 2011. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 22 ND JULY 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) MUMBAI 4. THE CIT MUMBAI CITY 5. THE DR C BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.