DCIT, Allahabad V. Smt.Iti Mehrotra, Allahabad

ITA 105/ALLD/2011

• Counselvise Citation: 10520714 RSA 2011
• Duration Of Justice: 1 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 20-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y P SRIVASTA VA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ALLAHABAD BENCH, ALLAHABAD BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO.105/A/2011 ASSESSMENT YEAR: 2007-08 DY. COMMISSIONER OF INCOME TAX, VS. SMT. ITI MEHROTRA, CIRCLE-I, ALLAHABAD. 15, L.B. SHASTRI MARG, ALLAHABAD (PAN: AJOPM 3159 R) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI Y.P. SRIVASTAVA, D.R. RESPONDENT BY : NONE DATE OF HEARING : 01.11.2012 DATE OF PRONOUNCEMENT : 08.11.2012 ORDER PER A.L. GEHLOT, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 17.03.2011 PASSED BY THE LD. CIT(A), ALLAHABAD FOR THE ASSESSM ENT YEAR 2007-08. 2. THE EFFECTIVE GROUND RAISED BY THE REVENUE IN TH IS APPEAL IS IN RESPECT OF DELETION OF ADDITION OF RS.12,24,957/- MADE BY THE A.O. OUT OF INTEREST CLAIM OF THE ASSESSEE. ITA NO.105/A/2011 A.Y. 2007-08 2 3. NONE WAS PRESENT ON BEHALF OF THE ASSESSEE. HOW EVER, AFTER HEARING THE LEARNED DEPARTMENTAL REPREHENSIVE, WE PROCEED TO DE CIDE THE APPEAL ON MERIT. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS IN THE BUSINESS OF MONEY LENDING. DURING THE ASSESSMENT PROCEEDINGS, THE A. O. NOTICED THAT THE ASSESSEE DID NOT CHARGE INTEREST FROM CERTAIN PARTIES. THE ASSE SSING OFFICER FOUND THAT THE RATE AT WHICH THE MONEY LENT WAS GENERALLY LOWER THAN TH E RATE AT WHICH THE MONEY WAS BORROWED. THE ASSESSEE HAD LENT MONEY MOSTLY TO ME MBERS OF HER FAMILY AND BUSINESS CONCERNS/BUSINESS PARTNERS OF CLOSE FAMILY MEMBERS. IN CASE WHERE THE DEBTOR WAS RELATED TO THE ASSESSEE, NO INTEREST WAS RECEIVED. THE ASSESSING OFFICER, THEREFORE, DISALLOWED THE INTEREST CLAIM O F THE ASSESSEE, NOT BEING FOR THE PURPOSE OF BUSINESS. 5. THE CIT(A) EXAMINED THE ISSUE FROM VARIOUS ANGLE S AND DELETED THE ADDITION AS UNDER :- (PARAGRAPH NO.3.7, PAGE NO.10) THE APPELLANT HAS IN ALL ADVANCED INTEREST FREE LO ANS OF RS.41,50,000/-, OUT OF THE TOTAL AMOUNT LENT OF RS. 1,47,62,429 (APP. 28%). ON THE OTHER HAND APPELLANT BORROWED RS.2,47 ,65,000/- WHICH IS HIGHER THAN THE AMOUNT LENT BY ABOUT 67.76%. IF THE AMOUNT ADVANCED AS INTERS FREE LOAN IS FURTHER SUBTRACTED AND RIGHTLY SO, THE AMOUNT BORROWED BY THE APPELLANT WOULD BE GREATER T HAN AMOUNT LENT BY THE APPELLANT BY 133.38% (AFTER ACCEPTING APPELL ANTS VERSION OF MAINTENANCE OF BOOKS OF ACCOUNTS ON CASH BASIS). T HEREFORE, ORDINARILY THE APPELLANT CAN NOT TAKE THE PLEA THAT THE INTEREST FREE LOANS GIVEN BY THE ASSESSEE WERE OUT OF HER OWN FUN DS, BY ANY STRETCH OF IMAGINATION. CONSIDERING, HOWEVER, THAT THE APP ELLANT HAS ALSO BORROWED INTEREST FREE LOANS DURING THE YEAR ITSELF TO THE EXTENT OF ITA NO.105/A/2011 A.Y. 2007-08 3 RS.1,76,00,000/-, IT CAN BE SAFELY SAID THAT THERE IS SUFFICIENT OWN FUNDS COUPLED WITH THE INTEREST FREE LOANS AVAILABL E WITH THE APPELLANT. THEREFORE, IT MAY BE STATED THAT THE APPELLANT HAS ADVANCED MONEY FREE OF INTEREST OUT OF FUNDS ACQUIRED, ON WHICH IN TEREST S NOT BEEN PAID. THE DISALLOWANCE OF ENTIRE INTEREST PAID BY THE APPELLANT DURING THE YEAR IS HELD TO BE NOT CORRECT AND THE PLEA TAK EN BY THE APPELLANT AFTER CAREFUL DISCUSSION OF FACTS AND FIGURES IS FO UND TO BE TENABLE BOTH ON LEGAL AND FACTUAL PLATFORMS. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED U PON THE JUDGEMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LIMITED, 156 TAXMAN 257 (P&H). HE HAS ALSO PLACED RELIANCE ON JUDGMENTS OF HON'BLE JURISDICTIONAL HIGH COURT OF ALLAHABAD IN T HE CASE OF CIT VS. H.R. SUGAR FACTORY PVT. LTD. 187 ITR 363 (ALL.) AND CIT VS. SA RAYA SUGAR MILLS (P) LTD., 201 ITR 181 (ALL.) 7. WE NOTICE THAT IN THE CASE UNDER CONSIDERATION, THE FINDING OF CIT(A), THAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST-FREE FU ND TO COVER THE INTEREST-FREE ADVANCE GIVEN, HAS NOT BEEN DISPUTED BY THE REVENUE BY ANY EVIDENCE OR MATERIAL. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LIMITED (SUPRA). THE SAID JUDGEMENT HAS BEEN IMPLIEDLY REV ERSED BY THE APEX COURT IN THE CASE OF MUNJAL SALES CORPORATION VS. CIT & ANOTHER , 298 ITR 298(SC). IN THE CASE OF MUNJAL SALES CORPORATION (SUPRA), THE HON'B LE PUNJAB & HARYANA HIGH COURT HAS FOLLOWED THE JUDGEMENT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES ITA NO.105/A/2011 A.Y. 2007-08 4 LIMITED (SUPRA). THUS, THE JUDGEMENT OF HON'BLE PU NJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LIMITED DOE S NOT HELP TO THE REVENUE. IN THE CASE OF CIT VS. H.R. SUGAR FACTORY PVT. LTD. (S UPRA), THE HON'BLE JURISDICTIONAL HIGH COURT OF ALLAHABAD HAS HELD THAT THE INCOME TA X OFFICER WAS RIGHT IN DISALLOWING THE DIFFERENCE OF INTEREST UNDER SECTIO N 36(1)(III) OF THE ACT. THE FACT WAS THAT THE CASE IS DIFFERENT AS THERE WAS NO CONT ENTION THAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST-FREE FUND. THE CONTENTI ON THAT INTEREST-FREE FUND HAS BEEN CONSIDERED BY THE HON'BLE HIGH COURT IN ANOTHER JUD GEMENT IN THE CASE OF CIT VS. PREM HEAVY ENGINEERING WORKS PVT. LTD., 285 ITR 55 4 (ALL.) WHEREIN THE HON'BLE JURISDICTIONAL HIGH COURT CLEARLY HELD THAT INTERES T PAID BY THE ASSESSEE ON BANK OVER DRAFT COULD NOT BE PARTLY DISALLOWED ON THE GR OUND THAT IT HAD MADE INTEREST- FREE ADVANCES TO ITS SISTER CONCERN SINCE THE ASSES SEE HAD SUFFICIENT AMOUNT OF OWN FUNDS IN THE FORM OF SHARE CAPITAL, RESERVES AND SU RPLUS AND INTEREST-FREE BORROWINGS TO COVER THE INTEREST-FREE ADVANCES MADE BY IT. THIS ISSUE HAS ALSO BEEN DISCUSSED IN DETAIL IN ONE OF THE ORDER OF I.T.A.T. , MUMBAI BENCH IN THE CASE OF ACIT VS. H.P. SHAH & CO., MUMBAI IN ITA NO.3694/M/2 006 ORDER DATED 15.01.2009. THE RELEVANT ABSTRACT OF ORDER OF H.P. SHAH & CO. IS REPRODUCED AS UNDER :- 4.7 ON THE BASIS OF ABOVE DISCUSSION A PROPOSITION /FORMULA CAN BE LAID DOWN THAT IF AN ASSESSEE HAVING SUFFICIENT INT EREST FREE FUNDS, IN THE FORM OF CAPITAL RESERVES AND OTHER FUNDS WITHOU T INTEREST BEARING FROM RELATIVES AND FRIENDS NOT RELATED TO BUSINESS, TO COVER FUNDS GIVEN INTEREST FREE OR UTILIZED OTHER THAN FOR BUSINESS P URPOSES, NO DISALLOWANCE IS WARRANTED. IF THE OWN FUNDS ARE NO T SUFFICIENT TO ITA NO.105/A/2011 A.Y. 2007-08 5 COVER INTEREST FREE ADVANCES, A PROPORTIONATE DISAL LOWANCE IS WARRANTED. WHILE EXAMINING INTEREST FREE FUNDS AVA ILABLE WITH ASSESSEE AND INTEREST FEE FUNDS GIVEN A CARE IS REQ UIRED TO BE TAKEN THAT THESE FUNDS WERE NOT RELATED TO BUSINESS OF TH E ASSESSEE. CAPITAL AND RESERVES ARE CERTAINLY ASSESSEES OWN INTEREST FUNDS. THIS PROPORTION IS FORTIFIED BY THE DECISION OF I.T.A.T. IN THE CASE OF TORRENT FINANCERS VS. ACIT, 73 TTJ 624 (AHD), JUDGEMENT OF ALLAHABAD HIGH COURT IN THE CASE OF CIT VS.. PREM HEAVY ENGINEERIN G WORKS P. LTD., 285 ITR 554 (ALL.), AND THE JUDGMENT OF HON'BLE SUP REME COURT IN THE CASE OF MUNJAL SALES CORPORATION VS. CIT, 298 ITR 2 98 (SC). IT IS TO NOTE THAT DECISIONS OF THE HON'BLE PUNJAB AND HARYA NA HIGH COURT IN MUNJAL SALES CORPORATION VS. CIT, 298 ITR 288 AND C IT VS. MUNJAL SALES CORPORATION (2008) 298 ITR 294 WHEREIN THE HO N'BLE PUNJAB & HARYANA HIGH COURT FOLLOWED CIT VS. ABHISHEK INDUST RIES LIMITED (2006) 286 ITR 1 (P&H) HAVE BEEN REVERSED BY THE HO N'BLE SUPREME COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LI MITED (2006) 286 ITR 1 (P&H) HAS BEEN IMPLIEDLY REVERSED ON THE ISSU E. 8. IN THE LIGHT OF ABOVE DISCUSSION, WE FIND THAT T HE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE J URISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. PREM HEAVY ENGINEERING WORKS PVT. L TD. (SUPRA) AND OTHER JUDGMENTS AS DISCUSSED ABOVE. SINCE THE REVENUE HA S FAILED TO POINT OUT ANY CONTRARY MATERIAL TO THE FINDING OF CIT(A), IN THE LIGHT OF THE FACT, ORDER OF THE CIT(A) IS CONFIRMED. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. (ORDER PRONOUNCED IN THE OPEN COURT) SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER PBN/* ITA NO.105/A/2011 A.Y. 2007-08 6 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, ALLAHABAD BENCH, ALLAHABAD 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE T RIBUNAL, ALLAHABAD TRUE COPY