Ita/229/2015 Of The Commissioner Of Income-Tax v. M/S Himatsingka Seide Ltd

IN THR HIGH COURT OF KARNATAKA AT BENGALURU DATEKD THIS THER[‘T]DAY OF APRIL 2016. PRESENT THR HON’BLE MR.JUSTICE JAYANT PATEL AND THR HON’BLE MRS. JUSTICE B.V.NAGARATHNA ITA NO.229/2015 C/W ITA NO.228/2015 ITA NO.229/2015 BHITWER 1.THR COMMISSIONBR OF INCOME-TAX_C.R. BUILDING,QUEENS ROAD,BANGALORE. C.R. BUILDING,QUEENS ROAD,BANGALORE. a2THR DY. COMMISSIONER OF INCOME-TAX.CIRCLE -11(4),RASHTROTHANA BHAVAN,NRUPATHUNGA ROAD,BANGALORBE-560 OO1.CIRCLE -11(4),RASHTROTHANA BHAVAN,NRUPATHUNGA ROAD,BANGALORBE-560 OO1. .. APPELLANTS (BY SRI.K.V.ARAVIND, ADVOCATE) AN M/S. HIMATSINGKA SEIDE LTD10/24, KUMARA KRUPA ROAD, HIGH GROUNDS,BANGALORE-560 OO1,PAN: AAACGH 3507 — RBSPONDBNT (BY SMT.VANI.H, ADVOCATE) THIS ITA [S FILED UNDBR SBCVJ60-A OFINCOME TAX ACT 1961, ARISING OUT OF ORDER)DATED:10/01/2014 PASSEDIN|ITA|NO.430/BANG/2012, FOR THE ASSESSMENT YEAR2007-2008PRAYINGTO.FORMULATE.THE.SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE)AND ALLOW THR APPKAL AND SBT ASIDBK THEORDER PASSED BY THE ITAT, BANGALORE IN ITA NO. 430/BANG/2012 DATED 10/01/2014 CONFIRMINGTHR ORDBR OF THR APPBLLATR COMMISSIONER|AND CONFIRM THR ORDER PASSBD BY THR DBPUTY|COMMISSIONER OF INCOME TAX, CIRCLE-11(4),.BANGALORE.| ITA NO.228/2015 BHITWER 1.THR COMMISSIONER OF INCOME-TAX_C.R.BUILDING,QUEENS ROAD,BANGALORE. C.R.BUILDING,QUEENS ROAD,BANGALORE. 2.THERE DY. COMMISSIONER OF INCOME-TACIRCLE -11(4),CIRCLE -11(4), RASHTROTHANA BHAVAN, NRUPATHUNGA ROAD,BANGALORBE-560 OO1. _ APPRHLLANTS (BY SRILK.V. ARAVIND, ADVOCATE) ANI M/S. HIMATSINGKA SEIDE LTD —10/24, KUMARA KRUPA ROAD,HIGH GROUNDS,BANGALORE-560 OO1,PAN: AAACH 3507N — RBSPONDBNT (BY SMT. VANI. H, ADVOCATE) THIS JIA IS FILED UNDER SBKC260-A OFINCOME TAX ACT 1961, ARISING OUT OF ORDER)DATED:10/01/2014 PASSEDIN|ITA|NO.393/BANG/2012, FOR THE ASSESSMENT YEAR2007-2008PRAYINGTO.FORMULATE.THESUBSTANTIAL QUESTIONS OF LAW STATED ABOVE)AND ALLOW THR APPKAL AND SBT ASIDBK THEORDER PASSED BY THE ITAT, BANGALORE IN ITA NO. 393/BANG/2012DATED:10/01/2014.CONFIRMING|THR ORDBR OF THR APPBLLATR COMMISSIONER|CONFIRMING THR ORDER PASSBD BY THER DBPUTYCOMMISSIONER OF INCOME TAX, CIRCLE-11(4),.BANGALORE.| THRESH APPEALS COMING ON FOR ORDERS THIS|DAY,JAYANTPATELJ>DBRBLIVBRETHEFOLLOWING: JUDGMENT The appellant-Revenue has preferred the presentappeals by raising the following substantial questions oflaw: a aeWhether,OTlthefactsand1nthecircumstances of the case, the Tribunal is right in law in holding that the assessee isentitled for deduction under section 10B otthe Act by following its earlier order passedin the case ot the assessee even when the)assessee has not fulfilled the conditions set|out in the said provision and the orders|relied upon by the Tribunal has _ noreached finality? 2 |Whether,OT]thefactsandin.the.circumstances of the case, the Tribunal is|right in law in holding that the issue of.disallowance under section 14A of the Act!being sustained at 5% of exempted income.1e., RS.25,23,655/- does not call for any. interferenceeCVeTwhenthe assessingauthorityWaSCOTTectInmaking.disallowance under section 14A of the Act!and the Commissioner ot Income Tax.(Appeals) had modified the same in theabsence of proper reasonings? 3.|Whether,OT]thefactsandin.the.circumstances of the case, the Tribunal is)right in law in setting aside the disallowance.of interest amounting to Rs.44,/1,565/-.under section 36(1)(i11) of the Act even when.theassessingauthorityhadrightlydisallowed the same by holding that the.ASSECSSEEhadadvancedinter-corporateloans amounting to Rs.21,03,98,510/- to its|100% subsidiary concern M/s.HimatsingkaWovens Pvt. Ltd., interest free for which no_interest was charged by the assessee and.assessed had failed to prove that the same.was for the business purpose?” 2. We have heard Mr.K.V.Aravind, learned Counselappearing for the appellants-Revenue and Ms.Vani H.,learned Counsel appearing for the respondent-assessee. 3.|Whether,OT]thefactsandin.the.circumstances of the case, the Tribunal is)right in law in setting aside the disallowance.of interest amounting to Rs.44,/1,565/-.under section 36(1)(i11) of the Act even when.theassessingauthorityhadrightlydisallowed the same by holding that the.ASSECSSEEhadadvancedinter-corporateloans amounting to Rs.21,03,98,510/- to its|100% subsidiary concern M/s.HimatsingkaWovens Pvt. Ltd., interest free for which no_interest was charged by the assessee and.assessed had failed to prove that the same.was for the business purpose?” 2. We have heard Mr.K.V.Aravind, learned Counselappearing for the appellants-Revenue and Ms.Vani H.,learned Counsel appearing for the respondent-assessee. 3. We may record that so far as question No.1 isconcerned, learned Counsel for the appellant-Revenuehas not pressed the said question and therefore the saidquestion would not arise in the present appeals. 4. So far as question No.2 is concerned, theIncome Tax Appellate Tribunal (hereinafter referred toas ‘the Tribunal’ for brevity) in the impugned order hasconsidered the said aspects from para-7.3 and 8 whichread as under: “7.3 We have heard both parties at lengthand perused and carefully considered the.materialOT]recordandthe judicialdecisions cited. [t is seen from the order otthe learned CIT (Appeals) that while he has_held that the Assessing Officer was correct. in making of the disallowance under section14A of the Act, the provisions of Rule 8D.would not be applicable for the year underconsideration i.e. Assessment Year 2007-08but would be applicable w.e.f. 24.3.2008 1.e..for -and trom Assessment Year 2008-09. In.holding that a reasonable disallowance ofo% of exempted income i.e. RS.25,23,055 is.to be made in respect of the expenditureincurred to earn such income, the learned)CIT (Appeals) followed the decisions of the.co-ordinate benches of this Tribunal in the.case of ING Vysya Bank Ltd. in ITA.No.5989/Bang/2006 dated 23.4.2008 andthe case of ACIT V Ingersoll Rand India Ltd..in ITA No.7254/Mum/Bangalore ‘A’ Bench.dated 30.8.2010. In view of the aforesaid.judgments of the co-ordinate benches of.thisTribunal(Supra)andOT]ay?appreciation of the facts of the case on.hand, we are of the view the order of the.learned CIT (Appeals) on the issue of the.disallowance under section 14A of the Act. being sustained at 5% of exempted income,le. Rs.25,23,655 does not call for any.interference and we therefore uphold theorder of the learned CIT (Appeals) on this_iSSUe. Consequently both the groundsraised by revenue at 8.No.95 to 7 and by theassessee at S.No.2 of its grounds of appealare dismissed. * * * 3.|In the result, revenue’s appeal is.dismissed.” o. It may also be recorded that in the decision ofthe Bombay High Court in case of|Godrej & Boyce Mfg. Co. Ltd., Vs. Deputy Commissioner of Income Tax & Anr.reported at.(2010) 328 ITR OO81, the view taken|was that Rule 8(D) of the Income Tax Rules, (hereinaiterreferred to as the ‘1.T. Rules’ for short) would apply withprospective effect and not retrospectively, has also beenconsidered by the Tribunal. 6. As per the decision of the Bombay High Courtin the above referred case, once Rule 8(D) of the I.T.Rules, is held to be having prospective effect, naturallyit could not be applied to the assessment year inquestion and therefore, the view taken by the Tribunalcannot be said to be erroneous nor it can be said that|any substantial question of law would arise forconsideration. ¢. However, Mr.K.V.Aravind, learned Counselappearing for the appellants-Revenue did rely upon thedecision of the Kerala High Court in the case ofCommisstoner of Income Tax Vs. Catholic SyrianBank Ltd. & Ors.reported at|(2012) 344 ITR 0259and contended that though the said case was pertainingto assessment year 2007-08, the applicability of Rule8(D) of the I.T. Rules was accepted by Kerala High Court. and therefore, a different view is said to have been)taken. Under the circumstances, the appeal maydeserve consideration on question No.2. ¢. However, Mr.K.V.Aravind, learned Counselappearing for the appellants-Revenue did rely upon thedecision of the Kerala High Court in the case ofCommisstoner of Income Tax Vs. Catholic SyrianBank Ltd. & Ors.reported at|(2012) 344 ITR 0259and contended that though the said case was pertainingto assessment year 2007-08, the applicability of Rule8(D) of the I.T. Rules was accepted by Kerala High Court. and therefore, a different view is said to have been)taken. Under the circumstances, the appeal maydeserve consideration on question No.2. 8. We may record that in the said decision ofKerala High Court, the question did not arise at all forconsideration before the Kerala High Court as towhether Rule 8(D) of the I.T. Rules is havingretrospective effect or prospective effect. On thecontrary at para-3 of the judgment, it has been recordedas under: “According to both counsel for the assessees|proportionate disallowance is called for only|under sub-s. (2) r/wr.8D of the IT Rules whichcame into force from 2JOO7/-O8 onwards and thSarmmcannotbe|appliedforanyearlierassessment year.” 9. Therefore the judgment can hardly be said to beon the point decided for considering the applicability ofRule 8(D) of the I.T. Rules with retrospective effect assought to be canvassed. Further, in any case, there isno consideration on the aspects of prospectivity orretrospectivity of Rule 8(D) of the I.T.Rules. It is hardlyrequired to be stated that the decision of any HighCourt would not be a precedent by deducing the resulton facts of the case and the effect thereon. But it can beconsidered as a precedent only if the point is specificallyconsidered and decided in either way. Under thecircumstances, the decision of Kerala High Court is ofno help to the learned Counsel for the appellants-Revenue. 10. Once the point is already concluded as per thedecision of Bombay High Court referred to hereinabove,we do not find that any substantial question of law viz., question No.2 would arise for consideration as sought tobe canvassed. 11.)On question No.3 the relevant discussion ofthe Tribunal from paras-10.5.1 to 10.5.3 read as under: “10.5.1We,haveheard.therival Submissions and perused and carefullyconsidered the orders ot the authorities|below, the assessee’s submissions and thematerial on record. From the details on'/record, it is seen that there is no dispute|with regard to the fact that the assessee hadborrowed funds from banks for acquiringfixed assets for its new unit at Hassan, aswell as Term Loans and working capital of its"existing operational units at Seide and Filatefor manufacturing fabrics and yarn. ThelearnedAuthorisedRepresentativehasfurnished break up of the interest debited toprofit and loss account for the relevantperiod which evidences that the interest ofRs.44,71,5605 was claimed as follows: /&On Term Loan for Filate & Siede unitsRs.44,20,762 and :&On working capital for Filate & Siedeunits Rs.50,803.. Therefore the facts that the entireinterest paid on the Term Loan taken foracquiring fixed assets for its new unit atHassan has been capitalized as work-in-progress has evidently not been claimed as arevenue expenditure is, in our view, factuallyestablished. 10.5.2.We,alsofindfromthesubmissionsoT the learnedAuthorisedRepresentative that the assessee companyhas been earning profits year on year andhad a net worth of approx... Rs.600.71Crores, whereas the loan advanced to itssubsidiaryM/s. Himatsingka Wovens P.|Ltd.during the period under consideration,|was only Rs.9.60 Crores and the aggregateloans advanced by the assessee to thissubsidiary including that of earlier year is approx.. Rs.21.03. Crores. We also observefrom the order of assessment, that theAssessing Officer has not established withany.materialevidence|that|the.loansadvanced interest free by the assessee to itssubsidiary,Himatsingka Wovens P.Ltd.were diverted to it by the assessee from outof the Term Loan taken by it from banks forthe existing manufacturing units at Filateand Seide or from out ot loans taken for'working capital for its existing units at Filateand Seide. approx.. Rs.21.03. Crores. We also observefrom the order of assessment, that theAssessing Officer has not established withany.materialevidence|that|the.loansadvanced interest free by the assessee to itssubsidiary,Himatsingka Wovens P.Ltd.were diverted to it by the assessee from outof the Term Loan taken by it from banks forthe existing manufacturing units at Filateand Seide or from out ot loans taken for'working capital for its existing units at Filateand Seide. 10.5.3|In view of the established fact§that the interest of Rs.44,71,565 claimed bythe assessee in its profit and loss account forthe period under consideration pertained to- (i) The Term Loan taken for the existingmanutiacturing units at Filate and Seideamounting to Rs.44,20,/62; and (ii) Working Capital Loan taken for the)existingunitsaT|Filate|andSeideamounting to Rs.950,803, it is, in ouropinion, factually clear that the intereston the Term Loan for the new Hassanunit of the assessee company has beencapitalized and what has been chargedby the assessee to the profit and lossaccount is only interest pertaining to itsexisting manufacturing units at Filateand Seide. In this view of the matter, asdiscussed from para 10.1 to 10.5.3 ofthis order (Supra), we are of the opinionthat|thedisallowanceot interestamountingTO Rs.44,71,505under|section 936(1)(111) of the Act made andconfirmed by the authorities below isunsustainable on facts and is, therefore,accordinglydeleted.It|1Sorderedaccordingly.” The atoresaid shows that the ‘Tribunal has _§aftundergoing the examination of the record found that theamount of Rs.44,20,762/- was pertaining to the termloan taken for the existing manufacturing unit at Faliteand Seide and it has also found that the amount ot Rs.90,803/- is pertaining to working capital loan takenfor the existing unit at Falite and Seide and both theatoresaildamounttotalingTO Rs.44,71,5605/-are|towards interest claimed by the assessee. 12. Once the interest is of a loan taken tor theexisting manutacturing unit, may be as term loan ormay be working capital, the interest cannot bedisallowed. Further on the question of diversion offund, itis by now well settled that the business wisdomof the assessee cannot be substituted by the assessingofficer. Further the loan was actually taken for) establishing a new unit and the utilization thereof isproved.| 13. Under these circumstances, we find that it cannot be said that the Tribunal has committed an/error in deleting the disallowance made by theAssessing Officer or CIT (Appeals) of the amount ofinterest of Rs.44,71,565/-. In our view, no substantialquestion of law vide question No.3 would arise for consideration as sought to be canvassed. 14. In view of the above, both the appeals aredismissed. JT/-| Sd/-.JUDGE| Sd/-.JUDGE|