Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘B’ BENCH,
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
This appeal by the Revenue is directed against the order dated 19-11-2013 passed by the Commissioner of Income Tax(Appeals), XII, Kolkata for the assessment year 2008-09.
In this appeal, the Revenue has raised the following effective ground:-
1. 1. That on the facts in the circumstances of the case and as per law Ld. CIT(A) erred in deleting the addition amounting Rs. 11463036/- u/s 36(i)(iii).
2. That on the facts and in the circumstances of the case and as per law Ld. CIT(A) erred in deleting the addition of interest paid M/s. DIC India Ltd 1 by the assessee on borrowed fund utilized for investment in subsidiary company.
3. That on the facts and in the circumstances of the case and as per law Ld. CIT(A) erred to delete the factual finding made by the AO on the basis of available records.
The assessee is a company and engaged in the business of manufacturing, trading and selling of printing inks, industrial adhesive and other allied products and filed its return of income declaring total income of Rs.19,26,75,196/- on 29.09.2008. Under scrutiny, notices u/s.143(2) and 142(1) of the Act were issued and in response, the assessee appeared and represented its case through its representatives.
The AO found that the assesee has debited interest of Rs.6,28,93,526/- in the P & L account and total investment standing as on 31.03.2008 of Rs.10,75,33,170/- in the equity shares of DIC Coatings India Ltd, which is a subsidiary company. The AO was of the opinion that the said investment is not used for business purpose and it is not a business activity of the assessee. The assessee explained the said investment in DIC Coatings India Ltd was made from own and surplus fund of assesse. On examination of past records the AO noticed that the assessee company has made investment during the year ending 31.03.1998 and ascertained the source of investment and noticed as under:
Source of fund 31.03.1998 31.03.1997 Own fund i.e. share and reserve 81,12,06,002 56,78,26,597 Investment in fixed asset 26,45,78,764 26,07,81,734 Inventory 24,06,07,085 22,51,58,282 Cash and bank 10,47,91,899 6,50,91,568 Loans and advances 16,57,50,580 11,77,01,712 M/s. DIC India Ltd 2 Total 77,57,28,328 66,87,33,296 Investment in other than Coats 2,03,40,350 2,67,60,100 Coating India Ltd. (now DIC Coating India Ltd.) Total 157,17,97,006 69,54,93,396 Investment in Coats Coating 29,89,87,270 Nil India Ltd. (now DIC Coating India Ltd.
According to AO that the assessee has exhausted its entire own source towards acquisition / investment / expenditure for the purpose of the company and the assessee was not left with own sources to invest in the said subsidiary company. The AO held that the assessee utilized its own funds which resulted in earning of exempted income. In absence of specific calculation with reference to said investments, the AO opined that amount of Rs.10,75,33,170/- has not been used for the purpose of business and average interest thereon was disallowed.
Amount of loan as on 31.03.2007 Rs. 79,26,58,9671- Amount of loan as on 31.03.2008 Rs. 38,78,81,383/- Average of loan Rs. 59,02,70,175/- Amount debited into P & L account Rs. 6,28,93,526/- Average rate of interest 10.66% Amount of interest @ 10.66% on Rs.10,75,33,170/- Rs. 1,14,63,036/-
The AO was of the opinion that the assessee borrowed certain funds on which liability to pay interest is being incurred and on the other hand certain amounts had been advanced to others without carrying any interest and without any business purpose, the interest to that extent is liable to be disallowed u/s.36(1)(iii) of the Act. The amount of interest M/s. DIC India Ltd 3 Rs.1,14,63,036/-@10.66% on investment of Rs.10,75,33,170/- in subsidiary company was disallowed and added to the total income of the assessee.
The Assessee questioned the order of assessment before the CIT-A. The contention of the assessee was that the factual matrix involved in the order passed by CIT-A in assessee's own case for AY 2005-06 is as same to the facts of the case year under consideration. Further, submitted that the shares of the subsidiary company were acquired pursuant to sale of coating business in terms of a Scheme of arrangement approved by Hon’ble Calcutta High Court and no fresh investments were made in the year under consideration. Considering the submissions of the assesse, the CIT-A deleted the addition made consequent to the disallowance by taking reference to the order passed by the CIT-A for A.Y 2005-06 and the relevant portion of which is reproduced as under:-
The appellant is engaged in the business of manufacturing, trading & selling of printing inks, industrial adhesive and other allied products. The appellant has only one investment which is in its wholly owned subsidiary, DIC Coatings Limited which was made in the year 1997. Till 31.12.1997 the appellant was carrying on business of can coatings through its coatings division having manufacturing facilities at Bangalore. In terms of the order passed by the Calcutta High Court u/s 391 to 394 of the Companies Act, 1956 approving a scheme of arrangement; coating business on a going concern basis with all its assets and liabilities was transferred on slump sale basis to appellant's wholly owned subsidiary viz. DIC Coatings Limited (then known as Coates Coatings I. Ltd.) effective from 1.1.1998. As per the terms approved by the High Court the consideration for sale of coating business was entirely satisfied by the transferee by issuing its equity shares. As such it will be appreciated that no borrowed funds were utilized by the assessee for acquiring the shares of the wholly owned subsidiary. In the facts of the case it is amply clear that the shares were allotted to the appellant in consideration of sale of its coating business undertaking into its wholly owned subsidiary and accordingly the investments were not made out of interest bearing funds. M/s. DIC India Ltd 4
As is apparent from the Investment Schedule, no fresh investments were made during the relevant assessment year 2008-09. The only investment in the books of the appellant as on 31 .03.2008 was shares in the' wholly owned subsidiary DIC Coating India Limited which was acquired in 1997-98. It is pertinent to submit that in the income-tax assessments upto AY 2005-06 the Assessing Officer in the regular assessment never disallowed interest with reference to investment made by the appellant in its wholly owned subsidiary. This issue came up for consideration in the appellant's case for AY 2005-06. In that year also the Assessing Officer had disallowed interest of Rs.21, 19, 144/- with reference to the investment in DIC Coating India Limited holding that interest bearing funds were utilized to make the investments. On appeal, the ClT(Appeals)-XII, Kolkata in his order in Appeal NO. 456/XII/R-10/08-09 dated 08.07.2011 held that the facts on record clearly establish that the investment in wholly owned subsidiary was made pursuant to a Scheme of arrangement approved by the Calcutta High Court whereby the coating business was transferred on slump sale basis to the subsidiary which in consideration allotted shares to the assessee. Since the assessee had established that the source of acquisition of shares of the wholly owned subsidiary was sale of coating business and not interest bearing funds, the CIT(Appeals) held that the interest paid on borrowings could not be disallowed and accordingly deleted the addition of Rs.21,19, 144/-. It is material to mention that the Department has not preferred an appeal against the order of the CIT(Appeals) for AY 2005-06 before the Hon'ble ITAT, Kolkata. However in the various grounds taken in the appeal the Department has not objected to the CIT(Appeals)'s order deleting the interest disallowed with reference to investment in the wholly owned subsidiary. Meaning thereby the Department has accepted the factual findings of the CIT(Appeals) to the effect that the investments were not made out of interest bearing funds. The appellate order of CIT(Appeals) for AY 2005-06 to the extent of deletion of interest disallowance has therefore attained finality. The appellant submits that the factual matrix involved in the appellate order passed by your predecessor in appellant's own case for AY 2005-06 is pari materia to the facts involved in the relevant year under consideration. In the impugned order the Assessing Officer has categorically observed that the appellant has only single investment in its wholly owned subsidiary DIC Coating India Limited which was acquired in 1997. He has also noted the fact that the shares of the subsidiary were acquired pursuant to sale of coating business to the latter in terms of a Scheme of arrangement approved by Calcutta High Court. Undisputedly no fresh investments were made in the year under consideration. In the circumstances when the fact permeating through the years is exactly the same, it is prayed that following the order passed by your Id. predecessor for the assessment year 2005- M/s. DIC India Ltd 5
06, the interest of Rs.1, 14,63,036/- disallowed by the AO under Section 36( 1) (iii) may kindly be deleted in full.
“In the light of the above discussion & findings and perusing the entire facts of the case including the findings of the AO, i am inclined to agree with the contention of the A/R the factual matrix involved in the appellate order passed by my predecessor in appellant's own case for AY 2005-06 is pari materia to the facts involved in the relevant year under consideration, in the impugned order the Assessing Officer has categorically observed that the appellant has only single investment in its wholly owned subsidiary DIC Coating lndio Limited which was acquired in 1997. He has also noted the fact that the shares of the subsidiary were acquired pursuant to sale of coating business to the latter in terms of a Scheme of arrangement approved by Calcutta High Court. Hence, undisputedly no fresh investments were made in the year under consideration. Under the facts and in the circumstances when the fact permeating through the years is exactly the same, following the order passed by my predecessor for the assessment year 2005-06 in appellant's own case, I direct the AO to delete the disallowance of interest on borrowed funds of Rs.1,14,63,036/- made by him under section 36(1)(iii) of the Act. Thus, these grounds of appeal of the appellant are allowed.
8. The Revenue in challenge by raising aforementioned grounds against the order of CIT-A is in appeal before us. The Ld. DR relied on the order of AO. The Ld.AR submits that the AO reproduced the assessment order passed for AY 2005-06 and reiterated the same submissions as made in the first appellate proceedings and relied on the order of CIT-A.
9. Heard rival submissions and perused the material available on record. We find that that the equity shares of the subsidiary company i.e DIC Coatings India Ltd were acquired pursuant to sale of coating business by the assesse in terms of a scheme of arrangement approved by Hon’ble Calcutta High Court. The CIT-A examined the facts of the order passed by the CIT-A for A.Y 2005-06 and found satisfied that the facts involved therein in the first appellate order for AY 2005-06 is one and same to the facts of case the year under consideration. M/s. DIC India Ltd 6 Further, the CIT-A found that the assessee invested only in its wholly owned subsidiary DIC Coating lndia Limited which was acquired in 1997 in terms of the scheme approved by the Hon’ble High Court of Calcutta. Undisputedly, the Revenue did not carry the first appellate order for A.Y 2005-06 in appeal to the higher forums having jurisdiction. Therefore, we find no infirmity in the order impugned before us and the said order passed by the CIT-A is justified in deleting the disallowance of interest made on account of borrowed funds to an of Rs.1,14,63,036/- u/s. 36(1)(iii) of the Act and confirmed. Accordingly, grounds raised by the revenue are dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order Pronounced in the Open Court on 19th October,2016