The ACIT Circle-2(1) Guntur, Guntur V. Sri Vajramsetty Panduranga, Guntur

ITA 1/VIZ/2012

• Counselvise Citation: 125314 RSA 2012
• Duration Of Justice: 2 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 26-02-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 02-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K SINGH
• Assessee Lawyers: N O N E
• Keywords: Commercial expediency
• Section: 143(3); 263

Judgement Text

ITA NO.1/VIZAG/2012 SRI VAJRAMSETTY PANDURANGA, GUN TUR IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 1 /VIZAG/ 2012 ASSESSMENT YEAR : 2005-06 ACIT CIRCLE-2(1) GUNTUR VS. SRI VAJRAMSETTY PANDURANGA GUNTUR (APPELLANT) (RESPONDENT) PAN NO.ABAPV 7348F ASSESSEE BY: N O N E REVENUE BY: SHRI R.K. SINGH, ADDL. CIT DATE OF HEARING : 26.02.2014 DATE OF PRONOUNCEMENT : 03.03.2014 ORDER PER SAKTIJIT DEY, JUDICIAL MEMBER:- THIS APPEAL OF THE DEPARTMENT IS DIRECTED AGAINST THE ORDER DATED 15.06.2011 OF THE CIT(A) PERTAINING TO THE ASSESSME NT YEAR 2005-06. THE SOLE ISSUE ARISING OUT OF THE GROUNDS RAISED BY THE DEPARTMENT IS WITH REGARD TO THE CIT(A) DELETING THE ADDITION OF AN AMOUNT OF RS.15,16,737/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF INTEREST DUE TO INTEREST FREE ADVANCE TO SISTER CONCERNS. INSPITE OF SERVICE OF NOTICE, NO ONE ON BEHALF OF THE ASSESSEE APPEARED WHEN THE APPEAL WAS CALLED FOR HEARING. THEREFORE, WE PROCEED TO DISPOSE OF THE APPEAL AFTE R HEARING THE LD. D.R. 2. BRIEFLY STATED, THE ASSESSEE, AN INDIVIDUAL FILE D HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER DISPUTE DECLARING TOTAL I NCOME OF RS.2,76,11,600/- INITIALLY ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME-TAX ACT VIDE ORDER DATED 26.12.2007. HOWEVER, THE CIT EXERCISIN G HIS POWERS U/S 263 OF THE INCOME TAX ACT SET ASIDE THE SAID ORDER OF ASSE SSMENT AND DIRECTED THE ASSESSING OFFICER TO RE-DO THE ASSESSMENT IN ACCORD ANCE WITH THE OBSERVATIONS MADE BY HIM. IN PURSUANCE TO SUCH DIRECTION OF THE CIT IN ORDER PASSED U/S ITA NO.1/VIZAG/2012 SRI VAJRAMSETTY PANDURANGA, GUN TUR 2 263 OF THE ACT, THE ASSESSING OFFICER INITIATED RE- ASSESSMENT PROCEEDING AGAIN. IN COURSE OF THE RE-ASSESSMENT PROCEEDING, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS ADVANCED AN AMOUNT OF RS.1,03,57,136/- TO M/S. GANGOTRI PHARMA PVT. LTD., RS.2,33,86,973/- TO M/S. VAZRAM INNS PVT. LTD. AND RS.25,85,200/- TO SRI V. PRAVEEN KUMAR DUR ING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER DISPUTE. HE FURTHER NOTED THAT ON THE ADVANCES MADE, THE ASSESSEE HAS NOT COLLECTED ANY I NTEREST. WHEN THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO SHOW REASONS WHY INTEREST FREE ADVANCES WERE GIVEN WHEN THE ASSESSEE IS HIMSELF PA YING INTEREST ON BORROWED FUNDS, THE ASSESSEE CONTENDED THAT THE INT EREST FREE ADVANCES WERE OUT OF SURPLUS FUNDS AVAILABLE WITH THE ASSESSEE AN D NOT FROM THE BORROWED FUNDS. THE ASSESSING OFFICER HOWEVER WAS NOT CONVI NCED WITH THE EXPLANATION OF THE ASSESSEE AND CONCLUDED THAT SINCE THE ASSESS EE DURING THE YEAR HAS OBTAINED SECURED LOAN FOR AN AMOUNT OF RS.1,97,82,1 20/- AND UNSECURED LOAN OF RS.43,08,689/- ON WHICH INTEREST EXPENDITURE OF RS.15,16,737/- HAS BEEN CLAIMED BY THE ASSESSEE, THE SAME IS NOT ALLOWABLE AS THE ASSESSEE HAS DIVERTED FUNDS TO THE SISTER CONCERN WITHOUT CHARGI NG ANY INTEREST. BEING AGGRIEVED ON SUCH ADDITION, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 3. IN COURSE OF HEARING OF APPEAL BEFORE THE CIT(A), THE ASSESSEE SUBMITTING CASH FLOW STATEMENT CONTENDED THAT SURPL US AMOUNT WAS AVAILABLE WITH HIM, OUT OF WHICH THE INTEREST FREE ADVANCES W ERE MADE TO SISTER CONCERNS AND THE UNSECURED LOAN OF RS.43.08 LAKHS F ROM V. PRAVEEN KUMAR IS ALSO INTEREST FREE. IT WAS SUBMITTED BY THE ASSESS EE THAT THIS UNSECURED LOAN OF RS.43.08 LAKHS ALONG WITH RS.321.76 LAKHS OF OWN CAPITAL WAS AVAILABLE WITH THE ASSESSEE FOR MAKING THE INTEREST FREE ADVA NCES. IT WAS FURTHER CONTENDED THAT THE TWO COMPANIES TO WHICH THE INTER EST FREE ADVANCES WERE GIVEN ARE PROMOTED/INVESTED BY THE ASSESSEE AND THE ASSESSEE IS DIRECTOR/INVESTOR IN THE SAID COMPANIES AND KEEPING IN VIEW THE BUSINESS PRUDENCE IN THE MANNER AND INVESTING INTO THE COMPA NIES WHICH BELONG TO THE SAME PROMOTER/DIRECTOR, THE ASSESSEE HAS MADE T HE ADVANCES. IT WAS SUBMITTED THAT THE DECISION TO MAKE INTEREST FREE A DVANCES WERE KEEPING IN VIEW THE COMMERCIAL EXPEDIENCY, HENCE, CANNOT BE QU ESTIONED BY THE ASSESSING OFFICER. IT WAS FURTHER SUBMITTED THAT T HE REASON FOR WHICH THE INTEREST FREE ADVANCES WERE MADE WERE BECAUSE IF TH E AMOUNT WOULD HAVE ITA NO.1/VIZAG/2012 SRI VAJRAMSETTY PANDURANGA, GUN TUR 3 BEEN INVESTED AS EQUITY CAPITAL, THE SAME COULD NOT HAVE BEEN CLAIMED BACK FROM THE SAID COMPANIES AND IF INVESTED IN THE FORM OF INTEREST FREE LOANS, THE SAME CAN BE DRAWN BACK BY THE ASSESSEE FOR BEING IN VESTED IN ANY OTHER ACTIVITIES AT FUTURE TIMES. IT WAS CONTENDED THAT B Y CHARGING INTEREST ON SUCH ADVANCES, THE SAME HAVE TO BE CLAIMED AS A LOSS IN THE COMPANIES AND PROFIT IN THE HANDS OF THE ASSESSEE, WHICH IS TAX NEUTRAL IN THE CASES OF CLOSELY HELD FAMILY CONCERN. IN THESE CIRCUMSTANCES, THE ASSESSI NG OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE INTEREST EXPENDITURE. IN SUPPORT OF SUCH CONTENTION, THE ASSESSEE RELIED UPON VARIOUS JUDICI AL PRECEDENTS INCLUDING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F S.A. BUILDERS LIMITED VS. CIT 288 ITR 1. THE CIT(A) AFTER CONSIDERING THE SU BMISSIONS OF THE ASSESSEE ALONG WITH OTHER MATERIALS ON RECORD DELETED THE AD DITION BY HOLDING AS UNDER: 4.3. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT, GONE THROUGH THE ORDER OF THE AO. THE FACTS IN THE CASE LAW CITED BY THE AO WHILE CHARGING INTEREST ON ADVANCES GIVEN TO SISTER CONCERNS AND THE ACTUAL FACTS OF THE CASE ON HAND ARE DIFFER ENT AND AS SUCH NOT COMPARABLE. THE CASE LAW CITED BY THE AO RELATES TO A PUBLIC LIMITED COMPANY WHICH RAISED SHARE CAPITAL FROM PUBLIC AND PARTED PART OF THOSE FUNDS FOR NON-BUSINESS PURPOSES WITHO UT CHARGING INTEREST TO THE SISTER CONCERN. IN SUCH CIRCUMSTANC ES, THE AO HAS DISALLOWED APPROPRIATE INTEREST, DEPENDING UP ON THE FACTS AND CIRCUMSTANCES OF THAT CASE, WHICH WAS UPHELD BY HIG HER APPELLATE AUTHORITIES. BUT, HOWEVER, IN THE PRESENT CASE ON H AND, THE TWO COMPANIES INVOLVED ARE APPELLANT PROMOTED/INVESTED AND THE APPELLANT IS DIRECTOR/INVESTOR IN THE SAID COMPANIE S AND THE PRUDENCE DEMANDS THAT THE MANNER OF INVESTING INTO THE SAID OWN COMPANIES IS THE DISCRETION OF THE APPELLANT, WHICH IS GUIDED BY BUSINESS PRUDENCE. IT IS ALSO TRUE THAT THE LENDING OF MONIES WERE OUT OF SURPLUS GENERATED, INTEREST FREE FUNDS BROUG HT IN, APART FROM BUSINESS EXPEDIENCY. IN THIS REGARD, THE FACTS AND FIGURES QUOTED BY THE APPELLANT ARE APPRECIATED. THE AO HAS NOT BR OUGHT ANY COGENT MATERIAL ON RECORD TO REFUTE THE CONTENTION OF THE APPELLANT. IN LIGHT OF THE FACTS, CIRCUMSTANCES AND THE LEGAL POSITION DISCUSSED ABOVE, THERE IS NO SCOPE FOR ADDITION IN THIS REGAR D AND AS SUCH THE AO IS DIRECTED TO DELETE THE SAME. 4. BEING AGGRIEVED OF THE SAID ORDER OF THE CIT(A), THE DEPARTMENT IS BEFORE US. 5. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI ALS ON RECORD. THE LD. D.R. RELIED ON THE GROUNDS RAISED BEFORE US. O N A PERUSAL OF THE ORDER OF ITA NO.1/VIZAG/2012 SRI VAJRAMSETTY PANDURANGA, GUN TUR 4 THE CIT(A) AS WELL AS ASSESSMENT ORDER, IT IS VERY MUCH EVIDENT THAT THE FACT THAT THE ASSESSEE WAS HAVING SURPLUS FUNDS IS NOT C ONTROVERTED BY THE ASSESSING OFFICER. THEREFORE, BEFORE DISALLOWING I NTEREST, THE ASSESSING OFFICER HAS TO ESTABLISH THE NEXUS BETWEEN THE BORROWED FUN DS AND INTEREST FREE ADVANCE. HOWEVER, THERE IS NO SUCH NEXUS ESTABLISH ED BY THE ASSESSING OFFICER. THEREFORE, WHEN SURPLUS FUND WAS AVAILABL E WITH THE ASSESSEE WHICH HAS BEEN ADVANCED TO THE SISTER CONCERN, KEEPING IN VIEW THE COMMERCIAL EXPEDIENCY, INTEREST EXPENDITURE CLAIMED BY THE ASS ESSEE CANNOT BE DISALLOWED BY LINKING IT TO INTEREST FREE ADVANCES. NOTHING HAS BEEN BROUGHT TO OUR NOTICE TO CONTROVERT THE FINDING OF THE CIT( A) THAT THE INTEREST FREE ADVANCES WERE OUT OF SURPLUS FUNDS AVAILABLE WITH T HE ASSESSEE AND NOT OUT OF BORROWED FUNDS. THAT BEING THE CASE, WE DO NOT FIND ANY REASON TO INTERFERE WITH FINDING OF THE CIT(A) WHICH IS ACCOR DINGLY SUSTAINED. THE GROUNDS RAISED ARE DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 3 RD MAR14 SD/- SD/- (J. SUDHAKAR REDDY) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 3 RD MARCH, 2014 COPY TO 1 ACIT CIRCLE-2(1), GUNTUR 2 VAJRAMSETTY PANDURANGA, PROP: M/S. UNIVERSAL EXPO RTERS, 3-28-18/81A, A- 1, KAVYA KARTHIK, 7 TH LANE, BRINDAVAN GARDENS, GUNTUR 3 THE CIT, GUNTUR 4 THE CIT(A), GUNTUR 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER (B. VENU GOPAL) SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM