Ita/523/2008 Of The Commissioner Of Income Tax v. M/S United Breweries (Holdings) Ltd

IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 19 DAY OF AUGUST, 2014. PRESENT THR HON’BLE MR.JUSTICE N. KUMAR AND THR HON’BLE MRS..JUSTICK RATHNAKALA INCOME TAX APPEAL NO.523 OF 2008 BEREITWE 1.THE COMMISSIONER OF INCOME-TAX,CENTRAL CIRCLE,C.R. BUILDING, ©QUEENS ROAD,BANGALORE.| 2. THE DY. COMMISSIONER OF INCOME-TAX,CENTRAL CIRCLE — 2(3),C.R. BUILDING,QUEENS ROADBANGALORE... APPELLANTS (BY SRI K.V. ARAVIND, ADV.) AND: M/S. UNITED BREWERIES (HOLDINGS) LTD.,NO.1/1, VITTAL MALLYA ROAD,BANGALORE — 560 OO1. RBSPONDENT (BY SRI D.L.N.RAO, SR.COUNSEL FOR |OMT.S.R. ANURADHA, ADV.) THIS INCOMB TAX APPEAL JIS FILED UNDERSECTION 260-A OF LT. ACT, 1961 ARISING OUT OF)ORDERDATHRD07/12/2007PASSEDINITA| NO.1029/BNG/2007, FOR THE ASSESSMENT YEAR 2004-2005, PRAYING THAT THIS HON'BLE COURT MAY BEPLEASED TO: 1.FORMULATE THE SUBSTANTIAL QUESTIONS OFLAW SIATED THEREIN,LAW SIATED THEREIN, Il.ALLOW THR APPEAL AND SET ASIDE THE ORDER|PASSED>BY|THEINCOME-TAXAPPELLATETRIBUNAL, BANGALORE IN ITA NO.1029/BNG/2007,DATED 07/12/2007, CONFIRMING THE ORDER OF.THR APPEKELLATKH COMMISSIONER AND CONFITHE.ORDERPASSEDBY|‘THKDEPUTYCOMMISSIONER.OF|INCOME|TAX,CHRNTRALCIRCLE-2(3), BANGALORE IN THE INTEREST OF)JUSTICE.PASSED>BY|THEINCOME-TAXAPPELLATETRIBUNAL, BANGALORE IN ITA NO.1029/BNG/2007,DATED 07/12/2007, CONFIRMING THE ORDER OF.THR APPEKELLATKH COMMISSIONER AND CONFITHE.ORDERPASSEDBY|‘THKDEPUTYCOMMISSIONER.OF|INCOME|TAX,CHRNTRALCIRCLE-2(3), BANGALORE IN THE INTEREST OF)JUSTICE. THIS APPBAL COMING ON FOR FINAL HBARING THIS.DAY,N. KUMAR aaDELIVBRED THR FOLLOWING: JU DBiGMENT This appeal is preferred by the Revenue, challenging|the order passed by the Tribunal in ITA No.1029/Bang/2007dated 07.12.2007. 2. The Revenue has raised the following substantial| questions of law: 1,Whether the Tribunal was correct in notrecording the finding on all the issues raisedby the revenue and processed to answer thecontroversies by recording irrelevant reasonson mere conjuncture and surmises by failingto appreciate the facts and grounds in therecording the finding on all the issues raisedby the revenue and processed to answer thecontroversies by recording irrelevant reasonson mere conjuncture and surmises by failingto appreciate the facts and grounds in the proper prospective and recorded a perversefinding?finding? 2.Whether the Appellate Authorities werecorrectin|holdingthatpayments|ofRs.3,77,72,988/- made to Castle Brewerieswhich was into liquidation to purchase itsShares or alternatively money lent was anallowable bad debt as held by the ApexCourt in 288 [TR 1?correctin|holdingthatpayments|ofRs.3,77,72,988/- made to Castle Brewerieswhich was into liquidation to purchase itsShares or alternatively money lent was anallowable bad debt as held by the ApexCourt in 288 [TR 1? 3.Whether the Appellate Authorities werecorrectinholding thatpaymentofRs.4,72,48,147/- to UB PharmaceuticalsRs. 1,18,53,410/-toASI1anAge(East),Rs.52,14,853/-|toKindFisher.Com0%Rs.8,03,774/- to Card Board Industries Ltd.,all being subsidiary companies of_ theassessee where reasons for paying thisamount were not correctly explained shouldbe allowed as a bad debt in view of the ApexCourtjudgment in 288 ITR 1?correctinholding thatpaymentofRs.4,72,48,147/- to UB PharmaceuticalsRs. 1,18,53,410/-toASI1anAge(East),Rs.52,14,853/-|toKindFisher.Com0%Rs.8,03,774/- to Card Board Industries Ltd.,all being subsidiary companies of_ theassessee where reasons for paying thisamount were not correctly explained shouldbe allowed as a bad debt in view of the ApexCourtjudgment in 288 ITR 1? 4.Whether the Appellate Authorities werecorrectinholding thataSUT|ofRs.4, 96, 85,026/payablebyDominionChemicals Ltd., a sister concern of theassessee in respect of loans availed fromBank of Tokyo which had entered into acorrectinholding thataSUT|ofRs.4, 96, 85,026/payablebyDominionChemicals Ltd., a sister concern of theassessee in respect of loans availed fromBank of Tokyo which had entered into a 4.Whether the Appellate Authorities werecorrectinholding thataSUT|ofRs.4, 96, 85,026/payablebyDominionChemicals Ltd., a sister concern of theassessee in respect of loans availed fromBank of Tokyo which had entered into acorrectinholding thataSUT|ofRs.4, 96, 85,026/payablebyDominionChemicals Ltd., a sister concern of theassessee in respect of loans availed fromBank of Tokyo which had entered into a litigation is an allowable deduction in thehands of the assessee who had dischargedthe same in view of the judgment of the ApexCourt in 226 ITR 188 and the judgment ofthis Hon’ble Court and the view taken in theearlier assessment years when there was nobusiness obligation? 5,Whether the Appellate Authorities werecorrect"in|allowingdepreciationofRs.86,57,636/- on Aircraft when the aircraftwas not utilised in the course of assessee’sbusiness and the maintenance over it wasclaimed in the hands ofMc.Dowell & Co.?correct"in|allowingdepreciationofRs.86,57,636/- on Aircraft when the aircraftwas not utilised in the course of assessee’sbusiness and the maintenance over it wasclaimed in the hands ofMc.Dowell & Co.? ioWhether the Appellate Authorities correct inholding that out of the interest payments oncapital borrowed a sum of Rs.40,25,52,591/-is also an qllowable deduction as the nexusin respect of the capital borrowed andinvestment made in equity shares was notestablished despite the assessee having nofunds and declaring a loss and therefore, thefinding of the Assessing Officer about theapplicability of Section 14A being applicableshould be upheld?holding that out of the interest payments oncapital borrowed a sum of Rs.40,25,52,591/-is also an qllowable deduction as the nexusin respect of the capital borrowed andinvestment made in equity shares was notestablished despite the assessee having nofunds and declaring a loss and therefore, thefinding of the Assessing Officer about theapplicability of Section 14A being applicableshould be upheld? 7 Whether the Appellate Authorities werecorrect in upsetting the finding of thecorrect in upsetting the finding of the Assessing Officer who had recorded cogentreasons based on evidence? 3. The assessee filed return of income for theassessment year 2004 — O5 on 27.10.2004, declaring a loss|of Rs.41,46,78,/00/-. The assessing authority while framing| the assessment, added the following: a. Disallowance of the long term capital lossclaimed in respect of sale of shares oOfU.B.Pharmaceuticals Ltd., and MWP Limited.claimed in respect of sale of shares oOfU.B.Pharmaceuticals Ltd., and MWP Limited. b. Disallowance of bad advances claimed in the|name of Castle Breweries Ltd.name of Castle Breweries Ltd. c. Disallowance of bad debts claimed in the nameof U.B.Pharmaceuticals Ltd., Asian Age (East),Kingfisher.com and Card Board Industries Ltd.of U.B.Pharmaceuticals Ltd., Asian Age (East),Kingfisher.com and Card Board Industries Ltd. d. Disallowance of guarantee obligation. e. Depreciation on aircraft. f. Disallowance of interest on borrowed capitalutilisedfor purposes other than business.utilisedfor purposes other than business. Agegrieved by the said order, the assessee preferred an appealbefore the Commissioner of Income Tax (Appeals). Theappeal was partly allowed. The Appellate Commissioner| b. Disallowance of bad advances claimed in the|name of Castle Breweries Ltd.name of Castle Breweries Ltd. c. Disallowance of bad debts claimed in the nameof U.B.Pharmaceuticals Ltd., Asian Age (East),Kingfisher.com and Card Board Industries Ltd.of U.B.Pharmaceuticals Ltd., Asian Age (East),Kingfisher.com and Card Board Industries Ltd. d. Disallowance of guarantee obligation. e. Depreciation on aircraft. f. Disallowance of interest on borrowed capitalutilisedfor purposes other than business.utilisedfor purposes other than business. Agegrieved by the said order, the assessee preferred an appealbefore the Commissioner of Income Tax (Appeals). Theappeal was partly allowed. The Appellate Commissioner| deleted the addition of Rs.3,/77,72,988/- on the ground thatthe said amount was incurred by way of commercial|expediency to advance money to a company being associatedby the assessee in the same group. On the same reasoning,advances made to UB Pharmaceuticals Limited, Asian Age(East) Limited, Kingfisher.com and Cardboard IndustriesLimited were also deleted. Similarly, amounts claimed underthe guarantee obligation and the depreciation on aircraft|were also deleted. Interest on delayed payments of TDS wasnot pressed by the assessee before the First AppellateAuthority. While granting the reliefs on guarantee.obligation, the Appellate Commissioner has followed thejudgment of this Court in the case of)Commissioner ofIncome Tax and Another Vs. United Breweries Ltd.|reported in (2010) 321 ITR 546-and SLP against which isdismissed. Insofar as the interest on borrowed capital is |concerned, the said addition was also deleted. The assesseehas withdrawn the said litigation in order to live in peace|and avoid litigation. The Revenue aggrieved by the said|order, preferred an appeal to the Tribunal. The Tribunal by|the impugned order has dismissed the appeal. The said|reads as under:- 3.3. We have heard both the sides. It wasclaimed by the assessee that advances could notbe recovered from the parties. Such advanceswere given on account of business expediency. —Therefore, in view of the decision of SupremeCourt in the case of S.A.Builders Ltd. Vs. CIT (288ITR 1), it is also allowable as deduction u/s.37(1)of the I T Act. For the asst. year 2004 —- O5,learned CIT (A) discussed each and everyadvance claimed as bad debts. In the case of UBPharmaceuticals Ltd., a sister concern of theassessee, it was incurring huge loss in thisbusiness. Plants and machinery were leased outfor its existence to protect the business interestand out of commercial expediency, the total duesto the bank and other companies of Rs.472 lakhswas paid by the assessee and that could not berecovered. In the case of Asian Age (East) Ltd.,the assessee company made advances to theAsian Age Ltd. to settle its debts and ultimatelyAsian Age Ltd. went in liquidation and there wasno possibility to recover the advances given bythe assessee. Similarly, the assessee companypromotedKingfisher.comandCardboardIndustries Ltd. to whom advances were given andthose two companies were closed. Hence, therewas no chance of recovery. Learned CIT (A) in his detailedorder|consideredthatin|Similarcircumstances,claim.ofthe asSSCSSCCWas|allowed for the asst. years 95 — 96 and 2000 -Ol. The order for the asst. year 2000-01 wasupheldbyHon’bleKarnatakaHighCourt.Considering the aforesaid circumstances, we findthat the finding of learned CIT (A) appears to becorrect. There is no dispute that the advanceswere given by the assessee to its sister concernon account of business consideration and themoney could not be recovered because debtorcompanies went in liquidation. Therefore, baddebts were written off by the assessee company. |Hence, in view of Section 36(1) of the Act, it isallowable. The finding of learned CIT(A) does notrequire any interference.” detailedorder|consideredthatin|Similarcircumstances,claim.ofthe asSSCSSCCWas|allowed for the asst. years 95 — 96 and 2000 -Ol. The order for the asst. year 2000-01 wasupheldbyHon’bleKarnatakaHighCourt.Considering the aforesaid circumstances, we findthat the finding of learned CIT (A) appears to becorrect. There is no dispute that the advanceswere given by the assessee to its sister concernon account of business consideration and themoney could not be recovered because debtorcompanies went in liquidation. Therefore, baddebts were written off by the assessee company. |Hence, in view of Section 36(1) of the Act, it isallowable. The finding of learned CIT(A) does notrequire any interference.” 4. When the Assessing Authority as well as the First!Appellate Authority have not dealt with each claim|independently, the Tribunal declined to consider the saidclaim. They have not given any detailed reasons for its non-acceptance of the claim. The minimum that was expected bythem was to deal with each of the claim independently andthen by passing a speaking order, they could have affirmed|the findings. So that, in appeal, this Court would be in a|better position to appreciate the reasons for affirming the judgment of the Appellate Authority. In the absence of any|such reasons being set out in the order, it is not possible for|this Court to find out as to what was in the mind of the'Tribunal while affirming the order of the Appellate Authority.Mere relying on the judgment of the Apex Court, without|setting out the facts would not be proper. In fact, in|S.A.Builders Ltd. Vs. Commissioner of Income Tax(Appeals) and Another reported in (2007) 288 ITR 1 (SC),the Apex Court while dealing with a case of interest on|borrowed loan, which is sought to be deducted as an|expenditure, has categorically stated that “we wish to make|it clear that it is not our opinion that in every case, interest|on borrowed loan has to be allowed if the assessee advancedit to a sister concern. It all depends on the facts and_/circumstances of the respective case”. Therefore, before|applying the judgment of the Apex Court it was obligatory onthe part of the Tribunal to briefly set out the facts of the caseand then apply the law. If that exercise has been done by |the Tribunal in second appeal, then the scope of interferenceby this Court under Section 260 of the Act would be|minimum. The Tribunal having not done that exercise, the|proper thing to do is to set aside the order passed by the| Tribunal and remand the matter to the Tribunal to'undertake that exercise and pass appropriate orders in|accordance with law, after hearing both the parties and after|taking note of the judgments to be relied on, which has a|bearing on the case. It is made clear that the Tribunal shallrecord its decision only on the subject matter of the appeal|before it and shall not go into the entire matter afresh as if itis the assessing authority. Ordered accordingly. Sd/-.JUDGESd/-.JUDGENv] Sd/-.JUDGE