M/S HERBICIDES INDIA LTD V. INCOME TAX OFFICER

ITA/817/2008

AI Insights

The case involves two appeals by M/s Herbicides (India) Limited against the orders of the Income Tax Appellate Tribunal, Jaipur, concerning disallowances of interest on advances made to various companies. The tribunal had reversed the CIT (Appeals)'s decision which had deleted the addition made on account of deemed interest on these advances. The main legal contention was whether the ITAT was justified in reversing the CIT (Appeals)'s finding and whether the ITAT was correct in confirming the addition of deemed interest. The Supreme Court had earlier remitted the case back to the High Court for disposal. The High Court found that the appellant did not substantiate their claims with documentary evidence and thus dismissed the appeals.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 746505 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 27-03-2025
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: ANUROOP SINGHI; N S BHATI; ADITYA KHANDELWAL
• Assessee Lawyers: ANANT KASLIWAL; CHARU PAREEK; RAGHAV KRISHNATRI; DIVISHA MISHRA
• Keywords: Assessment Year; Deemed interest; Documentary evidence; Income tax appeal; Interest Free Advances
• Section: 36 (1) (iii); 260-A

Judgement Text

"[2025:RJ-JP:13935-DB] HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 816/2008 M/s Herbicides (India) Limited, having its registered at Plot No.12, Industrial Area, Jhotwara, Jaipur through its Authorised Signatory – Mr. Kuldeep Kumar, Manager (Accounts) ----Appellant Versus The Assistant Commissioner of Income Tax, Circle 3, Jaipur ----Respondent Connected With D.B. Income Tax Appeal No. 817/2008 M/s Herbicides (India) Limited, having its registed at Plot No.12, Industrial Area, Jhotwara, Jaipur through its Authorized Signatory – Mr. Kuldeep Kumar, Manager (Accounts) ----Appellant Versus The Income Tax Officer, Ward 3(1), Central Revenue Building, Statue Circle, Jaipur. ----Respondent For Appellant(s) : Mr. Anant Kasliwal, Sr. Adv. assisted by Ms. Charu Pareek, Mr. Raghav Krishnatri & Ms. Divisha Mishra For Respondent(s) : Mr. Anuroop Singhi with Mr. NS Bhati & Mr. Aditya Khandelwal HON'BLE MR. JUSTICE AVNEESH JHINGAN HON'BLE MR. JUSTICE MANEESH SHARMA Judgment Reserved on : 19.03.2025 Pronounced on : 27.03.2025 AVNEESH JHINGAN, J:- 1. These two appeals are decided by this order as the facts and issue involved are similar. 2. These appeals under Section 260-A of the Income Tax Act, 1961 (for brevity ‘the Act’) are filed against the orders dated [2025:RJ-JP:13935-DB] (2 of 6) [ITA-816/2008] 31.07.2008 and 20.06.2008 passed by the Income Tax Appellate Tribunal, Jaipur (for brevity ‘the tribunal’). 3. On 01.12.2008 and 18.11.2009, the appeals were admitted on following substantial questions of law for assessment year 2001-02 and 2002-03 respectively:- “Whether the ITAT was justified in having reveresed the finding of the CIT (Appeals) in revenue’s appeal in respect of deletion of addition made on account of deemed interest in respect of credits appearing in the names of M/s. DPFL, Tetenal India Limited and M/s. Moolji Tulsidas & Company merely because revenue failed to furnish any documentary evidence before it?” “Whether ITAT was justified in confirming the finding of CIT (Appeals) in respect of addition made on account of deemed interest in respect of credits appearing in the name of M/s. DPEL. Tetenal India Limited and M/s. Moolji Tulsidas & Company, on account of interest on interest free advances given to the sister concern?” 4. These appeals were dismissed on 10.05.2017 and 26.04.2017 by this Court but were remitted back by Supreme Court vide order dated 04.01.2024 with direction to dispose of both the appeals together. Facts of D.B.I.T.A. No.816/2008:- 5. The brief facts are that appellant company was engaged in manufacturing of pesticides. For the Assessment Year (for short ‘AY’) 2002-03, the income tax return was filed declaring income of Rs.9,63,915/-. During the assessment proceedings, the assessing officer (A.O.) found that the appellant borrowed interest bearing loans and had made interest free advances of Rs.31,68,294/- to M/s. Dugar Photofilms Limited (for short ‘DPFL’), of [2025:RJ-JP:13935-DB] (3 of 6) [ITA-816/2008] Rs.28,62,084/- to M/s. Tetenal India Limited and Rs.2,01,668/- to M/s. Mooji Tulsidas & Co. In response to the show-cause notice, the appellant took the stand that the advances were in normal course of business and had nothing to do with the interest bearing loans and were given from own funds. The interest free advances to DPFL was with an understanding to supply X-ray films at a concessional rate but due to technical problems the DPFL had to stop production and could not refund the amount. After the closure of DPFL with an objective to have a foreign collaboration with M/s.Tetenal Photowerk GMBH & Co., KG Germany and to set up Joint Venture expenses were incurred by the appellant to promote M/s. Tetenal India Limited. With regard to M/s. Moolji Tulsidas & Co., the payment was made for clearing the goods imported from Israel but the agent had not cleared the material and did not send the bill on time. The assessment was finalised on 16.02.2005 under Section 36(1)(iii) of the Act and interest to tune of Rs.10,24,500/- was disallowed. The appeal against the order of assessment was partly accepted by the CIT(A) vide order dated 28.12.2007 and the disallowance of interest was set aside. The appeal filed by the department was accepted by the tribunal on 31.07.2008. It was held that without cogent explanation, in absence of documentary evidence and solely relying upon calculation produced by appellant, the CIT(A) erred in deleting disallowance of interest. Hence, the present appeal. Facts of D.B.I.T.A. No.817/2008:- 6. For the AY 2001-02, the appellant filed income tax return declaring income of Rs.11,16,862/- derived from manufacture and [2025:RJ-JP:13935-DB] (4 of 6) [ITA-816/2008] sale of pesticides. During assessment proceedings the records revealed that the appellant had borrowed interest bearing loans and given interest free advances to the tune of Rs.37,06,431/-, out of which Rs.32,75,000/- was given to DPFL. The AO framed assessment on 10.03.2004 and under section 36(1)(iii) disallowed the interest to the tune of Rs.4,91,250/- out of interest paid by the appellant of Rs.14,25,855/-. The CIT(A) affirmed the disallowance of interest vide order dated 18.09.2007. Before tribunal, the assessee pleaded that the advances were given in normal course of business. The payment to DPFL was for setting up a depot and unit at Silvassa for manufacturing of X-ray films. Reliance was placed on order of CIT(A) for the AY 2002-03 wherein the disallowance of interest was set aside. The case set up was that the advances were made in preceding year and interest cannot be disallowed in the year in question. The tribunal dismissed the appeal and held that no evidence was produced with regard to advances having been in normal course of business or that the advances were of the preceding years. It was considered that in 2002-03, the appellant took a stand that the payment was made to DPFL to ensure supply of X-ray films at concessional rates, whereas, now case set up is that it was for setting up a depot and unit at Silvassa. Contentions:- 7. Learned counsel for the appellant submits that the departmental authorities cannot sit in the chair of the entrepreneur to judge the business prudence. The interest free advances were made in normal course of business. The contention [2025:RJ-JP:13935-DB] (5 of 6) [ITA-816/2008] is that the advances were made from the funds of the company and not from the interest bearing loans. It is argued that for AY 2001-02, tribunal erred in holding that there was shift in stand of the appellant explaining the purpose of giving interest free advance to DPFL. 8. As per contra on one hand the appellant had borrowed interest free loans and paid interest whereas on the other hand interest free advances were made. The argument is that there is no substantial question of law involved as the appellant failed to produce documentary proof for advance being made in the normal course of business and out of any funds of the appellant company. Conclusion:- 9. In the assessment proceedings for both the years, apart from giving an explanation with regard to the purpose of the interest free advances, no documentary evidence was produced. In the AY 2002-03, against the reserves and surpluses of Rs.31,76,967/-, the interest free advances were given to the tune of Rs.72,44,787/-. The plea taken in the AY 2002-03 that the interest free advance was given to DPFL with an understanding that X-ray films shall be supplied at a concessional rate was not substantiated. Moreover, it cannot be lost sight that the appellant is dealing in pesticides. 10. Similarly the advances given to Tetenal India Limited being for purpose of setting up of joint venture to revive the production of DPFL remained a bald statement. Same was the position of payment made to M/s. Mooji Tulsidas & Co. [2025:RJ-JP:13935-DB] (6 of 6) [ITA-816/2008] 11. In the AY 2001-02 though there was change in the stand for the purposes of giving interest free advances to DPFL, be that as it may, no documentary evidence was brought on record to support either of the explanation. From perusal of the order of CIT(A) for assessment year 2002-03 it is forthcoming that the disallowance of the interest was deleted by accepting the contentions of the appellant which were not supported by documentary evidence. The tribunal recorded a finding that the explanations for giving interest free advance were not substantiated by documentary evidence. 12. In view of the factual findings recorded, the issue as to whether the interest free advances were in normal course of business and for business expediency does not arise for lack of evidence. The findings of fact recorded do not suffer from perversity. 13. Though an endeavor by annexing documents with this appeal has been made to support the plea that the advances were for in normal course of business but no case is set up that these documents were produced before the authorities. 14. In view of the above discussion, no case is made out for interference in the orders of the tribunal. The substantial questions of law are answered against the appellant. 15. The appeals are dismissed. (MANEESH SHARMA),J (AVNEESH JHINGAN),J Chandan/105-106 Reportable: Yes "