ORDER
A. Kalyanasundharam, Senior Vice-President
1. These are two appeals by the assessee, a limited company, and the issue is with regard to non-allowing of interest on the reason that the investment was not made for business purposes.
2. The rival contentions in regard to the above have been very carefully considered. In this case the Assessing Officer disallowed the interest in excess of 15 per cent. The CIT(A) was of the view that there was diversion of fund. The assessee claimed that it had free reserves to the tune of Rs. 1,58,23,406. The assessee also provided statement of funds that were generated over the years which showed funds that were received back from companies to which it had advanced earlier and the extent of surplus funds still available for advance to the sister concern. For the assessment year 1993-94 the amount that were generated was to the tune of Rs. 22.22 lakhs and the surplus funds are Rs. 13.22 lakhs. In another statement also the same figures are shown. This statement shows that the assessee’s own funds was more than what it had advanced to the sister concern. Therefore, the question of assessee utilising the borrowed funds for advancing to the sister concern is not correct.
3. For the assessment year 1995-96 also the statement of funds showed the assessee having Rs. 93.36 lakhs surplus funds after advancing funds to sister concern. Therefore, for both the assessment years the assessee had clearly shown that it had funds from which it had advanced money. Therefore, disallowance as part of diversion of borrowed funds is not correct. The disallowance is accordingly deleted.
N. Vijayakumaran, Judicial Member
1. I have gone through the order of the learned Senior Vice-President in the above case. As I am unable to agree with the findings of the learned Senior Vice-President, I proceed to pass my order of dissent in this case.
2. These two appeals are by the assessee. The Assessing Officer disallowed the interest on the ground that borrowed amounts were diverted to the sister concern for which no interest was charged. While taking the ground of appeal the assessee challenged the disallowance of interest of Rs. 4,89,788 stating that the investment was made for a purpose not relating to business. The assessee prayed for the allowance of the interest as expenses of the company. It was the contention of the assessee that the investments were out of the reserve funds available with the company and the company purchased shares out of the free reserves also. Hence the disallowance is not justified. For the assessment year 1995-96 the grievance of the assessee is that the Commissioner (Appeals) is wrong in confirming the disallowance of Rs. 4,20,000 being interest at the rate of 15 per cent per annum on the amounts given to PMP Steel Rolling Mills (Mds.) Ltd. and PMP Steels Ltd. Here also the assessee’s contention was that these amounts were given for the purchase of shares from out of own funds generated during that assessment year from the income earned and by way of depreciation availed during that period. While hearing the case the assessee has also filed paperbook along with the 10th, 11th, 12th, 13th, 14th and 15th Annual Reports of the assessee-company to show cash reserves. However, the assessee could not establish that these documents were already available before the revenue authorities for the purpose of deciding the issue. It is a settled law that if an assessee is having sufficient reserve to advance an amount, the burden is on the assessee. The assessee, in our view, has not discharged the burden that there is no borrowed funds diverted to sister concerns free of interest. The paperbook filed before us requires adjudication by the revenue authorities. Hence this is a fit case to be remanded back to the file of the Assessing Officer for the purpose of adjudication particularly with reference to the position of funds as to whether the assessee is having sufficient surplus funds for advancing to the sister concerns. It is also the duty of the assessee to prove that borrowed funds were never advanced to the sister concerns. For this aspect I feel that this case should go back to the Assessing Officer for the purpose of adjudication. Therefore, I feel that the order of the Commissioner (Appeals) is to be set aside and the issue is to be remitted back to the Assessing Officer to decide the issue in accordance with law. As in my view the issue is to be remitted back to the Assessing’ Officer, the deletion made by the learned Senior Vice-President is not found agreeable to me. I differ on this. The appeals are to be allowed for statistical purposes only.
ORDER UNDER SECTION 255(4) OF INCOME TAX ACT, 1961
1. The appeals, referred to below, were heard by Shri A. Kalyanasundharam, Sr. Vice President and Shri N. Vijayakumaran, Judicial Member. Shri A. Kalyanasundharam had kept the files with him for dictation of orders. However, orders were not passed till Shri A. Kalyanasundharam was transferred and relinquished his office as Sr. Vice President, Chennai Benches, Chennai. He appears to have sent proposed orders subsequently to the learned Judicial Member for his signatures, who did not agree and has passed dissenting orders. Shri A. Kalyanasundharam is not available for stating the point or points of difference and accordingly learned Vice President, Chennai Zone has sent these files to me. In terms of Section 255(4), I frame the points of difference in the five appeals as below and appoint the Zonal Vice President as Third Member, for dealing with cases in accordance with law:
1. I.T-A. Nos. 955 and 1851/Mds./1995 Asstt. Years: 1994-95 & 1995-96
MAC Industrial Products, Chennai v. Asstt. Commissioner of Income-tax.
Whether, on facts and in the circumstances of the case, impugned order of CIT(Appeals) on pre-operative expenses and interest is to be confirmed or appeal of the assessee is to be allowed?
2. ITA No.717/Mds./1998 Asstt. Year: 1996-97
Dy. Commissioner of Income-tax v. Shripet Cybertech Systems Ltd., Chennai.
Whether, on facts and in the circumstances of the case, appeal of the revenue is required to be allowed in part, as held by the learned Sr. Vice-President or is to be fully allowed, as held by the learned Judicial Member?
3. WTA Nos. 316to318/Mds./1997 Asstt. Years: 1990-91 to 1992-93
Mrs. Umayal Ramanathan, Chennai v. Asstt. Commissioner of Income-tax.
Whether, on facts and in the circumstances of the case, the amount advanced to the companies in dispute is liable to be added in the wealth of the assessee on the valuation date, as held by the learned Judicial Member or its value is to be taken at zero, as held by the learned Sr. Vice President?
4. ITA Nos. 2057 & 2058/Mds./1998 Asstt. Years: 1993-94 & 1995-96
Kumaragiri Textiles Ltd., Chennai v. Dy. Commissioner of Income-tax.
Whether, on facts and in the circumstances of the case, the order of the Sr. Vice-President is to be upheld or that of the Judicial Member, in respect of claim of interest made by the assessee?
5. ITA No. 2771/Mds./1993 Asstt. Year: 1990-91
Smt. M.V. Rajamma, Chennai v. Asstt. Commissioner of Income-tax.
Whether, on facts and in the circumstances of the case, order of C.I.T. under Section 263 is required to be set aside, as held by learned Sr. Vice-President or upheld as held by the learned Judicial Member?
The above points of differences in 5 cases are referred to the Hon’ble Vice-President, Chennai as a Third Member, for separate decision in each case, for disposal in accordance with law.
M.K. Chaturvedi, Vice-President
1. These appeals came before me as a Third Member to express my opinion on the following question:
Whether, on the facts and in the circumstances of the case, the order of the Sr. Vice-President is to be upheld or that of the Judicial Member, in respect of claim of interest made by the assessee?
2. The solitary issue raised in these appeals relates to the disallowance of interest to the extent of Rs. 4,89,788 on the ground that the assessee had diverted its borrowed funds to its sister concerns without charging any interest. The funds alleged to have been diverted to the following 3 sister concerns are as under:
1. M/s. P.M.P. Textiles Spinning Mills Ltd. : Rs. 2,84,850
2. M/s. P.M.P. Steels Pvt. Ltd. : Rs. 1,95,000
3. M/s. Kumaragiri Electronics Ltd. : Rs. 9,938
Total : Rs. 4,89,788
3. It was contended before the revenue authorities that the sums were advanced by the assessee out of own funds to the sister concerns for allotment of shares. No borrowed funds were used for making such advances. It was noticed by the revenue authorities that the assessee was having its own funds as well as borrowed funds. The funds were in a mixed bag. Due to paucity of funds assessee had to borrow money for business purposes. The finding is recorded by the Assessing Officer that the assessee had made bulk advances to sister concerns out of cash credit with Andhra Bank, Madras Main (Explanade) Branch.
4. It was contended before the Tribunal that the assessee did make advance to the sister concerns to purchase shares. Such advance was made out of the free reserves. It was submitted free reserves to the tune of Rs. 1,58,23,406 were available with the assessee.
5. The learned Counsel for the assessee invited my attention on the provision of Section 139(9) of the Income-tax Act, 1961. It was stated that the assessee did furnish Trading and Profit & Loss Account for all the years and Balance-Sheet. No defect memo under Section 139(9) was issued. This proves beyond the shadow of doubt that the assessee discharged its onus in respect of the availability of funds. It was further submitted that the powers of the Tribunal in the matter of setting aside an assessment are large and wide, but these cannot be exercised to allow the Assessing Officer an opportunity to patch up weak part of his case and to fill up omission. For this proposition reliance was placed on the decision of the Tribunal rendered in the ase of Asstt. CIT v. Anima Investment Ltd. [2000] 73 ITD 125 (Delhi)(TM).
6. Learned Counsel for the assessee further relied on the decision of the Apex Court rendered in the case of Tin Box Co. v. CIT . In this case Tribunal found that Assessing Officer did not give to the assessee proper opportunity of being heard. It was held that the assessee had opportunity before the CIT(A). Issue was decided on merits against the assessee. On reference the High Court held that there was no reason why the Tribunal should set aside the order of the Assessing Officer merely because that officer did not grant all reasonable opportunities to the assessee. On appeal the Apex Court reversed the order of the High Court and held that once Tribunal found that Assessing Officer had not given to the assessee proper opportunity of being heard, the assessee could have placed evidence before the CIT(A) was really of no consequence. The matter was restored to the file of Assessing Officer for fresh adjudication.
7. It was further submitted by the learned Counsel for the assessee that the assessee is expected to maintain books for 6 years and not beyond that, as such Judicial Member was not correct in restoring the matter to the file of Assessing Officer for fresh adjudication.
8. The Id. D.R. relied on the decision of the Id. Judicial Member. It was submitted that the assessee failed to adduce evidence before the revenue authorities in regard to its claim. As it was not clear that whether advance was made out of the borrowed funds or out of own funds, the Id. Judicial Member rightly restored the matter to the file of the Assessing Officer for fresh adjudication.
9. Having heard rival submissions and after perusing the details available on record, I find that the Id. Judicial Member restored the matter to the file of the Assessing Officer as because in his opinion assessee failed to discharge the burden as to the fact that no borrowed funds were diverted to the sister concerns free of interest. It is the burden of the assessee to prove beyond doubt that the interest-free funds advanced to the sister concerns were not out of the borrowed funds. It appears from the records that before the revenue authorities no direct evidence was adduced in this regard. Burden of proof lies on the person who has to prove a fact and it never shifts. The assessee failed to demonstrate the existence of sufficient reserve out of which interest-free advances were said to have been made before the revenue authorities. What for the funds were borrowed? Whether such borrowed funds were used to advance the money? How much money was available with the assessee? All these questions were not examined. No finding is recorded apropos the same. What evidence assessee did adduce before the revenue authorities to substantiate the claim? Assessee did furnish some documents and papers before the Tribunal. It was not established full well whether these documents were available with the revenue authorities. As such Id. Judicial Member restored the issue to the file of Assessing Officer for fresh adjudication. I have gone through both the conflicting orders. In my opinion Id. Judicial Member took a correct view in the matter. I concur with his decision.
10. Now the matter will go back to the regular Bench for deciding the appeals in accordance with the majority.
N. Vijayakumaran, Judicial Member
1. In this case, on a difference of opinion amongst the Members who originally heard the appeals, the following question was referred for the opinion of the Hon’ble Third Member:
Whether, on the facts and in the circumstances of the case, the order of the Sr. Vice-President is to be upheld or that of the Judicial Member, in respect of claim of interest made by the assessee?
2. The Hon’ble Third Member, vide order dated 24.1.2006 expressed the view that the opinion of the Id. Judicial Member took a correct view in the matter and accordingly he concurred with the decision of the Id. Juidicial Member.
3. In view of the majority decision of the Bench, the appeals of the assessee are allowed for statistical purposes.