Income Tax Appellate Tribunal - Mumbai
Parle Bisleri P. Ltd , Mumbai vs Assessee on 26 December, 2011
ITA Nos.5522 of 09 and 3135 of 2010
Parle Bileri Pvt Ltd Mumbai
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" Bench, Mumbai
Before Shri B. Ramakotaiah, Accountant Member
and Shri V.Durga Rao, Judicial Member
ITA No. 5522/Mum/2009
&
ITA No.3135/Mum/2010
(Assessment Years: 2006-07 & 2007-08)
Parle Bisleri (P) Ltd., A.C.I.T (CC)
Western Express Highway Aayakar Bhavan
Chakal, Andheri (E) MK Road
Mumbai 400 099 Vs. Mumbai 400020
PAN - AABCA 2056 N
Appellant Respondent
Appellant by: Shri Vijay Mehta
Respondent by: Shri Parthsarathi Naik, Sr.DR
Date of Hearing: 26/12/2011
Date of Pronouncement: /12/2011
ORDER
Per B. Ramakotaiah, A.M.
These two appeals are by assessee for the A.Y 2006-07 and 2007-08 against the orders of CIT (Central)-V, Mumbai respectively dated 21.07.2009 and 24.02.2010. Since the issues are common, these appeals were heard together and decided as under.
2. We have heard the learned Counsel Shri Vijay Mehta and learned Sr. Departmental Representative Shri Parthsarathi Naik.
3. Issue No.1: Interest disallowance of `21.96 lakhs for A.Y 2006-07 and Rs. 2,52,219/- for A.Y 2007-08.
This issue was raised as Ground No.1 in both appeals. The facts relating to the present issue are that assessee has advanced certain funds to its sister concern and the Assessing Officer was of the opinion that the amounts were advanced out of borrowed funds. In addition, assessee also had investment in shares and the Page 1 of 9 ITA Nos.5522 of 09 and 3135 of 2010 Parle Bileri Pvt Ltd Mumbai Assessing Officer was of the opinion that borrowed funds were also diverted to investments in shares. Thus two types of disallowance was made.
3.2 A) Interest disallowance on advances: AO listed the amounts advanced and arrived at the disallowance at 4% of the amounts advanced out of the total funds thereby disallowing the respective amounts. The amounts of interests involved in advances to sister concern were Rs. 1,58,651/- for A.Y 1996-97 and Rs. 24,707/- in A.Y 2007-08. As seen from the records Assessing Officer noted that assessee has advanced the following sums to its sister concern:
Assessment year 2006-07:
Name of the Company Amount(`)
Parle Software Ltd 4,00,000
Parle Plastic Ltd 1,08,63,631
Parle Health Products Ltd 21,00,062
Parle Fruits & Foods Ltd 1,10,72,751
Total 2,44,36,44
Assessment year 2007-08:
Name of the Company Amount(`)
Parle Software Ltd 4,00,000
Parle Plastic Ltd 99,88,631
Parle Fruits & Foods Ltd 1,10,99,318
Total 2,14,87,949
3.3 Assessee explained that it has sufficient capital to the tune
of more than Rs. 80/- crores and these amounts were advanced long back due to various business considerations and at the time the funds were advanced, assessee does not have any borrowed funds Page 2 of 9 ITA Nos.5522 of 09 and 3135 of 2010 Parle Bileri Pvt Ltd Mumbai and so no disallowance was required. The Assessing Officer did not agree and made the disallowances by proportionately working the amounts which is approximately around 4.06% of the total amount borrowed by the company. Before the CIT (A) assessee contended that the funds were advanced in earlier years and that the advances have came down during the years under consideration and relied on the orders for A.Y 2004-05 by the CIT (A). The CIT (A) however, did not agree and confirmed the disallowance so made.
3.4 B) Interest on investments: Invoking Rule 8D Assessing Officer disallowed an amount of Rs.20,37,325 in AY 2006-07 and Rs.2,27,512 in AY 2007-08 which CIT(A) confirmed differing from his predecessor orders in AY 2004-05 and AY 2005-06.
4. It was the submission that the funds are advanced out of its own funds and assessee had sufficient funds to advance the amount and relied on the decision of the Hon'ble Bombay High Court in the case of Reliance Utilities Ltd 310 ITR 340 (Bom.).
Further it was the submission that the CIT (A) in A.Y 2004-05 gave finding that the advances given to Parle Plastic Ltd and Parle Health Products Ltd were given before the year 2000 when there was no borrowing and therefore, the funds were advanced out of its own funds. With reference to the Parle Fruits & Foods Ltd, there are funds that were advanced out of own funds and not borrowed funds. The learned Counsel referred to the orders of the assessment and the findings of the Income Tax Appellate Tribunal in A.Y 2005- 06 on the issue and submitted that the advances are from own funds in earlier years and the amount of `4.00 lakhs to Parle Software ltd also was advanced out of it own funds but not borrowed funds. It was further submitted that there are no fresh advances during the year and the CIT (A) differed from the orders of the earlier years without giving any proper reason while confirming the disallowance so made.
Page 3 of 9ITA Nos.5522 of 09 and 3135 of 2010 Parle Bileri Pvt Ltd Mumbai
5. With reference to the investment in shares, the learned Counsel relied on the orders of the CIT (A) in the earlier years 2004- 05 and 2005-06 further supported by the orders of the ITAT in A.Y 2005-06 to submit that assessee had sufficient funds of its own for investment and there is no diversion of borrowed funds to investment in shares.
6. The learned Departmental Representative however, relied on the orders of the AO and CIT (A) to submit that when assessee had investment in shares, disallowance of interest is required as per Rule 8D which AO invoked.
7. We have considered the submissions and examined the orders of the CIT (A) in A.Y 2004-05 and 2005-06 and the orders of the ITAT in 2005-06 which are placed on record. The Assessing Officer made disallowance of similar nature out of the interest claimed by assessee in earlier years AY 2004-05 and AY 2005-06. The disallowances made in A.Y 2004-05 invoking section 14A was to the tune of Rs. 76,76,199/-. Vide findings in Para 4 & 5 of the CIT (A) order in that year, it was established that assessee had its own funds for making the advances and investments and there was no diversion of borrowed funds. There was also finding that there were no borrowals in the year in which funds were advanced and investments were made. Therefore, in view of the settled proposition of the law, assessee is entitled to claim interest out of the borrowed funds which are used for the purpose of business. Without going into the legal provisions on facts itself it can be established that assessee's advances so made which were in fact coming down year after year and the investment made were out of its own funds. Similar findings were given in A.Y 2004-05 by the CIT (A) on which Revenue has not came in appeal in that year and by the CIT(A) and ITAT in A.Y 2005-06 when revenue contested. Therefore, on merits there is no issue for disallowance of any interest because assessee had made advances and investments in shares from own funds.
Page 4 of 9ITA Nos.5522 of 09 and 3135 of 2010 Parle Bileri Pvt Ltd Mumbai Consequently, the interest claim on borrowed funds used for the purpose of business was allowable under section 36(1)(iii). We also notice that without any probable reason the CIT (A) differed from the findings of his predecessor CIT(A), in confirming the disallowance made by the Assessing Officer. For these reasons, we direct the Assessing Officer to allow the amounts as claimed. Ground No.1 in both the appeals is allowed.
8. Issue No.2: Disallowance under section 14A:
Assessee has received dividend income of Rs. 18,35,874/- in A.Y 2006-07 and Rs. 43,62,186/- in A.Y 2007-08. Invoking the provisions in section 14A r.w.r 8D(2)(iii), the Assessing Officer disallowed an amount of Rs. 16,44,641/- in A.Y 2006-07 and Rs. 18,23,631/-. It was the submission that invoking Rule 8D in this year does not arise as decided by the Hon'ble Bombay High Court in the case of Godrej Boyce Mfg Co 328 ITR 81 (Bom). The learned Counsel has no objection if the "reasonable amount" to be disallowed under section 14A is fixed to 5% of the dividend as decided by the Coordinate Benches in various decisions more particularly in the case of M/s P.N. Writer & Co. Pvt. Ltd., Vs. Add. CIT in ITA Nos.4388 & 4390/Mum/2010 dated 14th October, 2011.
9. After hearing the rival contentions, we find that the Assessing Officer disallowed ½ % of the average valuation of the investment on the ground that these are relatable to earning of income. However, considering the facts of the case that assessee had invested from surplus funds, we hold that no part of interest is to be considered for disallowance made under section 14A. Moreover Rule 8D is not applicable to this year as held by the Jurisdictional High Court in the case of Godrej Boyce Mfg Co 328 ITR 81 (Bom). In our considered opinion, the ends of justice would be met if 5% of the dividend income earned by assessee is disallowed as expenditure incurred in relation to the earning of exempt income. Thus, we allow Page 5 of 9 ITA Nos.5522 of 09 and 3135 of 2010 Parle Bileri Pvt Ltd Mumbai these grounds in part and direct the Assessing Officer to disallow only 5% of the dividend income as expenditure relatable to earning that income under section 14A. Grounds No 2 in both appeals are accordingly partly allowed.
10. Issue No.3. Disallowance on account of software charges of Rs. 8,604/- in A.Y 2006-07 and Rs. 11,785/- in A.Y 2007-08.
Assessee has claimed certain expenditure for purchase of software. The Assessing Officer was of the opinion that in view of the amendment to the definition to the 'block of assets' expenditure on computer software has to be considered as capital expenditure and allowed the depreciation at 60%. The net difference was accordingly disallowed. These amounts were confirmed by the CIT (A).
11. After considering the rival contentions and considering the smallness of the amount and the fact that in other A.Ys similar action was taken, we do not intend to disturb the findings of the Assessing Officer and the CIT (A). Therefore, the grounds are rejected.
12. Issue No.4. Addition of unutilized MODVAT as on 31.3.2006 (Rs. 3.75 lakhs) in A.Y 2006-07 and Rs. 1,272/- in A.Y 2007-08.
The issue is with reference to the unutilized MODVAT in which similar grounds were raised in both the years. For the sake of clarity, Ground No.4 in A.Y 2006-07 are extracted below:
"Ground No.4.Addition of unutilized MODVAT as on 31.3.2006 (`.3.75 lakhs).
4.1 On the facts and circumstances of the case and in law, the learned CIT (A) erred in confirming addition of Rs. 3.75 lakhs to the valuation of closing stock of raw materials in respect of un-availed cenvat (modavt) balance as at year end under section 145A of the Act. The learned CIT (A) erred in ignoring the 'Net' method of accounting for cenvat (modvat) and thereby erred in not appreciating the tax neutral effect of section 145A.Page 6 of 9
ITA Nos.5522 of 09 and 3135 of 2010 Parle Bileri Pvt Ltd Mumbai 4.2 Without prejudice basis to the above and without admitting, the learned CIT (A) erred in not appreciating that the addition of Rs. 3,74,988/- with respect to unutilized balance as at year end could have been made only after considering similar unutilized opening balance of Rs. 10,83,012/-. Thus the learned CIT (A) erred in not allowing deduction of similar unutilized modvat balance of Rs. 10,83,012/- in respect of opening stock. 4.3 Without prejudice basis to the above and without admitting, the learned CIT (A) erred in not appreciating that the excise duty liability of Rs. 85,223/- arising after adjusting MODVAT credit as on 31.3.2006 was already paid before the due date of filing the return of income, therefore, it is allowable under section 43B. 4.4 Without prejudice to the above and without admitting, addition made to closing stock be directed to be granted as deduction by way of enhanced opening stock of the subsequent year".
13. The issue addition under 145A was decided in A.Y 2004-05 and also in A.Y 2005-06 invoking the provisions of Section 145A and making the additions to the closing stock valuation. The grievance is mainly not with reference to addition, but about not giving credit to the opening stock valuation which was disturbed in the last year by making an addition to closing stock. It was the submission that both the Assessing Officer and the CIT (A) refused to give credit for the amounts that were brought to tax in the respective A.Ys as opening stock in the succeeding A.Ys. If directions were given to allow the benefit, assessee has no grievance on the issue. The learned Departmental Representative however, submitted that this aspect may be restored to the file of the Assessing Officer for examining the issue of MODVAT.
14. After considering the rival submissions and examining the orders of the CIT (A), we find that the addition per se under section 145A was confirmed by the orders of the CIT (A) in A.Y 2004-05 and 2005-06 and it was fairly admitted that assessee has no grievance on the addition on unutilized MODVAT at the end of the year. The problem is that the amount added in A.Y 2005-06 as unutilized Page 7 of 9 ITA Nos.5522 of 09 and 3135 of 2010 Parle Bileri Pvt Ltd Mumbai modvat was not allowed as opening credit in the A.Y 2006-07 while calculating the addition for this year. Similarly the amount added in the year AY 2006-07 was not given credit in A.Y 2007-08 while working out the addition for that year. As mentioned by the Departmental Representative the working of the modvat credit was not clear in the sense that whether the opening stock was taken as per the book value of the closing stock or as per the additions made by the Assessing Officer to the closing stock valuation in assessments. Since the original addition was made in A.Y 2040-05, which was in fact followed in A.Y 2005-06, we direct the Assessing Officer to verify the record and allow the consequential benefit of credit of the amount which was sustained in A.Y 2005-06 while working out the addition under section 145A in AY 2006-07. Similarly if any addition on valuation was made to the closing stock in A.Y 2006-07, the same has to be given credit in A.Y 2007-08. With these directions to the Assessing Officer, the issue of working is restored to the file of the Assessing Officer to do accordingly. Assessee should be given proper opportunity before deciding issue. The grounds are considered allowed for statistical purposes.
15. In the result, assessee's appeals are partly allowed.
Order pronounced in the open court on 30th December, 2011.
Sd/- Sd/-
(V.Durga Rao) (B. Ramakotaiah)
Judicial Member Accountant Member
Mumbai, dated 30th December, 2011.
Vnodan/Sps
Copy to:
1. The Appellant
2. The Respondent
3. The concerned CIT(A)
Page 8 of 9
ITA Nos.5522 of 09 and 3135 of 2010
Parle Bileri Pvt Ltd Mumbai
4. The concerned CIT
5. The DR, "C" Bench, ITAT, Mumbai
By Order
Assistant Registrar
Income Tax Appellate Tribunal,
Mumbai Benches, MUMBAI
S.No. Details Date Initials Designation
1 Draft dictated on 26.12.11 Sr. PS/PS
2 Draft placed before author 27.12.11 Sr. PS/PS
Draft proposed & placed
3 27.12.11 JM/AM
before the Second Member
Draft discussed/approved by
4 27.12.11 AM/AM
Second Member
Approved Draft comes to the
5 28.12.11 Sr. PS/PS
Sr. PS/PS
6 Kept for pronouncement 30.12.11 Sr. PS/PS
7 File sent to Bench Clerk 30.12.11 Sr. PS/PS
Date on which the file goes
8
to Head Clerk
Date on which file goes to
9
A.R.
10 Date of Dispatch of order
Page 9 of 9