ACIT, Ludhiana V. M/s Omax Bikes Ltd., Ludhiana

ITA 1085/CHANDI/2013

• Counselvise Citation: 108521514 RSA 2013
• Duration Of Justice: 1 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 26-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 27-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S K MUKKHI; AJAY CHAUDHARY
• Keywords: Question of law; Commercial expediency
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES SMC CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT ITA NO. 1085/CHD/2013 (ASSESSMENT YEAR: 2008-09) THE A.C.I.T., VS. M/S OMAX BIKES LTD. CIRCLE I, C-75, PHASE V, LUDHIANA, FOCAL POINT, LUDHIANA PAN NO. AAACO2827O (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JITENDER KUMAR, D.R. RESPONDENT BY : S/SHRI S.K. MUKKHI & AJAY CHAUDHARY DATE OF HEARING : 23.07.2015 DATE OF PRONOUNCEMENT : 06.08.2015 O R D E R PER H.L.KARWA, VP : THIS APPEAL IS FILED BY THE REVENUE I S DIRECTED AGAINST THE ORDER OF THE ORDER OF THE LEARNED COMMI SSIONER OF INCOME TAX (APPEALS)-I, LUDHIANA DATED 4.9.2013 REL ATING TO ASSESSMENT YEAR 2008-09. 2 2. THE ONLY GROUND RAISED BY THE REVENUE IN THIS APPEAL READS AS UNDER : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 18,22,368/- MADE ON ACCOUNT OF INTEREST FREE ADVANCE GIVEN TO SISTER CONCERN BY THE ASSESSEE, THEREBY IGNORING THE JUDGMENT OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S ABHISHEK INDUSTRIES LTD., 286 ITR 1. 3. THE ONLY ISSUE INVOLVED IN THIS CASE RELATES T O THE ALLOWANCE OF INTEREST ON ACCOUNT OF INTEREST FREE A DVANCE GIVEN TO SISTER CONCERN. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS ENGAGED IN THE BUSINESS OF MANUFACTURING CYCLE PART S. FOR THE IMPUGNED ASSESSMENT YEAR, RETURN DECLARING NIL INCOME WAS FILED BY THE ASSESSEE ON 3.10.2008. DURING AS SESSMENT PROCEEDINGS IT WAS FOUND THAT THE ASSESSEE HAD GIVE N INTEREST FREE ADVANCES OF RS.1,51,86,399/- TO M/S OMAX ENTER PRISES PVT. LTD. A SISTER CONCERN. FURTHER IT WAS FOUND T HAT INTEREST PAID ON BORROWED FUNDS DURING THE YEAR AMOUNTED TO RS. 21,90,790/-. THE ASSESSING OFFICER STATED THAT THE ASSESSEE HAD FAILED TO ESTABLISH COMMERCIAL EXPEDIENCY FOR T HE AMOUNT ADVANCED AND FOLLOWING THE JUDGMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. M/S ABHIS HEK INDUSTRIES LTD. (2006) 286 ITR 1 (P&H), DISALLOWED INTEREST EXPENSES AMOUNTING TO RS.18,22,368/- UNDER SECTION 36(I)(III) 3 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT), V IDE HIS ORDER DATED 26.11.2010. 5. THE CIT (APPEALS) VIDE HIS ORDER DATED 4.9.201 3, DELETED THE ADDITION BY STATING THAT THE FACT THAT THE ASSESSEE HAD ENOUGH INTEREST FREE LOANS OF RS.3,02,96,760/- TO MAKE THE INTEREST FREE ADVANCES OF RS.1,51,86,399/- ONLY MEANT THAT INTEREST BEARING FUNDS WERE NOT DIVERTED FOR N ON-BUSINESS PURPOSE. MOREOVER HE OBSERVED THAT EVEN IN EARLIE R YEARS I.E. ASSESSMENT YEAR 2006-07, THE ASSESSING OFFICER HAD CONSIDERED THIS ISSUE AND BROUGHT ON RECORD THE FAC T THAT THE ASSESSE COMPANY HAD INTEREST FREE FUNDS TO THE TUNE OF RS.1,16,75,000/- AND THE INTEREST FREE ADVANCE WAS TO THE TUNE OF RS.1,51,86,399/-. THE ASSESSING OFFICER, T HEREFORE, HELD THAT THE INTEREST FREE ADVANCES WERE IN EXCESS OF RS.38,61,399/- AND MADE DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT ONLY ON THE EXCESS. THE LEARNED CIT (A PPEALS) FURTHER OBSERVED THAT THE ACTION OF THE ASSESSING O FFICER IN THIS REGARD WAS LOGICAL, HOWEVER, IN THIS YEAR, THE INTEREST FREE AMOUNTS RAISED FROM DIRECTORS AND RELATIVES ARE ALM OST DOUBLE THE AMOUNT REMAINING AS INTEREST FREE ADVANCE TO SI STER CONCERN. HE, THEREFORE, HELD THAT THE ACTION OF T HE ASSESSING OFFICER IN MAKING DISALLOWANCE ON THE ENTIRE AMOUNT ADVANCED FREE OF INTEREST IS AT VARIANCE WITH THE ACTION TAK EN IN ASSESSMENT YEAR 2006-07, WHICH WAS ON LOGICAL FOOTI NG. ACCORDING TO THE LEARNED CIT (APPEALS), THE DISALLO WANCE MADE DURING THE YEAR UNDER CONSIDERATION WAS NOT CALLED FOR IN VIEW 4 OF THE ABOVE LOGIC HIGHLIGHTED BY THE ASSESSING OFF ICER IN ASSESSMENT YEAR 2006-07 WITH WHICH, THE LEARNED CIT (APPEALS) AGREED. CONSEQUENTLY, HE DELETED THE DI SALLOWANCE OF RS.18,22,368/-. 6. AGGRIEVED BY THE ORDER OF THE LEARNED CIT (APPE ALS) THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 7. BEFORE ME, THE LEARNED D.R. VEHEMENTLY ARGUED THAT THE PRESENT CASE IS SQUARELY COVERED BY THE DECISIO N OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF ABHISHEK I NDUSTRIES LTD. (SUSPRA). HE ARGUED THAT THE DISTINCTION ON FACTS MADE BY THE LEARNED CIT (APPEALS) WAS INCORRECT. THE LE ARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE LEARNED CIT (APPEALS). HE ALSO PRODU CED A CHART DEPICTING THE STATUS OF THE IMPUGNED ISSUE IN APPEA L IN VARIOUS YEARS FROM ASSESSMENT YEARS 2005-06 TO 2009 -10. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER STATED THA T THE ASSESSEES CASE IS SQUARELY COVERED BY THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF C IT-I, LUDHIANA VS. RAKESH GUPTA IN ITA NO. 37/2014, DATED 02/07/2015 (P&H). 8. I HAVE HEARD THE RIVAL SUBMISSIONS, GONE THROUG H THE DOCUMENTS SUBMITTED AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. I FIND THAT THE FACTS IN THE PR ESENT CASE ARE THAT, THE ASSESSE HAD ADVANCED INTEREST FREE AMOUN TS TO SISTER CONCERNS SINCE EARLIER YEARS. AT THE SAME TIME THE ASSESSE HAD TAKEN INTEREST FREE LOANS ALSO SINCE EA RLIER YEARS. 5 IN THE IMPUGNED ASSESSMENT YEAR, THE INTEREST FREE LOANS GIVEN AMOUNTED TO RS.1,51,86,399/- AND THE INTEREST FREE LOANS TAKEN FROM FAMILY MEMBERS AMOUNTED TO RS.3,02,96,7 60/-. IN THE PRECEDING YEAR I.E ASSESSMENT YEAR 2006-07, THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE COM PANY AMOUNTED TO RS.1,16,75,000/- AND THE INTEREST FREE ADVANCES MADE TO SISTER CONCERNS AMOUNTED TO RS.1,51,86,399/ -.IN THE ASSESSMENT FRAMED FOR AT 2006-07, THE ASSESSING OFF ICER HELD THE INTEREST FREE ADVANCES TO HAVE BEEN MADE OUT OF INTEREST FREE FUNDS AVAILABLE AND DISALLOWED INTEREST UNDER SECTION 36(1)(III) OF THE ACT ONLY ON THE EXCESS AMOUNT OF RS. 38,61,399/-. 9. FROM THE ABOVE SET OF FACTS IT IS EVIDENT THAT IN ASSESSMENT YEAR 2006-07, THE ISSUE OF DISALLOWANCE OF INTEREST U/S 36(I)(III) OF THE ACT, ON INTEREST FRE E ADVANCES MADE TO SISTER CONCERNS WAS EXAMINED BY THE ASSESSI NG OFFICER AND IT WAS HELD BY THE ASSESSING OFFICER T HAT THE INTEREST FREE ADVANCES WERE MADE OUT OF INTEREST FR EE FUNDS TO THE EXTENT AVAILABLE. IT WAS ONLY THE EXCESS ADVANC ES, WHICH WERE HELD TO BE MADE OUT OF INTEREST BEARING FUNDS AND THE PROVISIONS OF SECTION 36(I)(III) OF THE ACT WERE AP PLIED THEREON. IN THE IMPUGNED ASSESSMENT YEAR, ON THE VERY SAME A DVANCES, THE REVENUE SEEMS TO BE TAKING A DIFFERENT VIEW, BY HOLDING THAT THE ENTIRE INTEREST FREE ADVANCES ARE OUT OF I NTEREST BEARING FUNDS. THERE HAS TO BE CONSISTENCY AND DEFI NITENESS IN THE APPROACH OF THE REVENUE IN RECOGNIZING THE NATU RE OF AN 6 ACCOUNT SO THAT THE BASIS OF A CONCLUDED ASSESSMENT WOULD NOT BE IGNORED. HAVING HELD THE INTEREST FREE ADVAN CES TO BE OUT OF INTEREST FREE FUNDS IN ASSESSMENT YEAR 2006- 07, THE REVENUE CANNOT NOW TAKE A TOTALLY DIFFERENT VIEW AN D HOLD THE SAME ADVANCES TO BE OUT OF INTEREST BEARING FUNDS I N THE IMPUGNED YEAR. THE KARNATAKA HIGH COURT IN CASE OF COMMISSIONER OF INCOME TAX VS. SRIDEV ENTERPRISES 1 92 ITR 165 HAS HELD : WE ARE IN AGREEMENT WITH THE VIEW EXPRESSED BY THE APPELLATE TRIBUNAL. THE STATUS OF THE AMOUNT OUTSTANDING FROM NALANDA ON THE FIRST DAY OF THE ACCOUNTING YEAR IS THE AMOUNT THAT STOOD OUTSTANDING ON THE LAST DAY OF THE PREVIOUS ACCOUNTING YEAR AND, THEREFORE, ITS NATURE AND STATUS CANNOT BE DIFFERENT ON THE FIRST DAY OF THE CURRENT ACCOUNTING YEAR FROM ITS NATURE AND STATUS AS ON THE LAST DAY OF THE PREVIOUS ACCOUNTING YEAR. REGARDING THE PAST YEARS, THE ASSESSEES CLAIMS FOR DEDUCTION WERE ALLOWED IN RESPECT OF THE SUMS ADVANCED DURING THOSE YEARS; THIS COULD BE ONLY ON THE ASSUMPTION THAT THOSE ADVANCES WERE NOT OUT OF BORROWED FUNDS OF THE ASSESSEE. THIS FINDING DURING THE PREVIOUS YEARS IS THE VERY BASIS OF THE DEDUCTIONS PERMITTED DURING THE PAST YEARS, WHETHER A SPECIFIC FINDING WAS RECORDED OR NOT. A DEPARTURE FROM THAT FINDING IN RESPECT OF THE SAID AMOUNTS ADVANCED DURING THE PREVIOUS YEAR WOULD RESULT IN A CONTRADICTORY FINDING; IT WILL NOT BE EQUITABLE TO PERMIT THE REVENUE TO TAKE A DIFFERENT STAND NOW IN RESPECT OF THE AMOUNTS 7 WHICH WERE THE SUBJECT-MATTER OF PREVIOUS YEARS ASSESSMENTS; CONSISTENCY AND DEFINITENESS OF APPROACH BY THE REVENUE IS NECESSARY IN THE MATTER OF RECOGNIZING THE NATURE OF AN ACCOUNT MAINTAINED BY THE ASSESSEE SO THAT THE BASIS OF A CONCLUDED ASSESSMENT WOULD NOT BE IGNORED WITHOUT ACTUALLY REOPENING THE ASSESSMENT. THE PRINCIPLE IS SIMILAR TO THE CASES WHERE IT HAS BEEN HELD THAT A DEBT WHICH HAD BEEN TREATED BY THE REVENUE AS A GOOD DEBT IN A PARTICULAR YEAR CANNOT SUBSEQUENTLY BE HELD BY IT TO HAVE BECOME HAD PRIOR TO THAT YEAR. 10. EVEN ON MERITS IT IS CLEAR FROM THE FACTS STAT ED ABOVE, THAT THE ASSESSEE HAD ENOUGH INTEREST FREE F UNDS TO ADVANCE INTEREST FREE SUMS TO ITS SISTER CONCERN. T HE PRESUMPTION IN SUCH CASES IS THAT THE ADVANCES ARE OUT OF INTEREST FREE FUNDS. THE HON'BLE APEX COURT IN MUNJ AL SALES CORPORATION VS. CIT AND ANOTHER 298 ITR 298(SC) HAS HELD : HELD ALSO, THAT SINCE THE OPENING BALANCE OF THE PROFITS OF THE ASSESSEE-FIRM AS ON APRIL 1,1994, WAS 1.91 CRORES, AND THE PROFITS WERE SUFFICIENT TO COVER THE LOAN GIVEN TO A SISTER CONCERN OF RS. 5 LAKHS ONLY, THE APPELLATE TRIBUNAL OUGHT TO HAVE HELD THAT THE LOAN GIVEN WAS FROM THE ASSESSEES OWN FUNDS. 11. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CAS E OF BRIGHT ENTERPRISES PVT. LTD. VS. CIT, JALANDHAR, IN ITA NO.224 OF 2013 DATED 24.7.2015 HAS HELD AS UNDER: 8 16. AS WE NOTED EARLIER, THE FUNDS/RESERVES OF THE APPELLANT WERE SUFFICIENT TO COVER THE INTEREST FREE ADVANCES MADE BY IT OF RS. 10.29 CRORES TO ITS SISTER COMPANY. WE ARE ENTIRELY IN AGREEMENT WITH THE JUDGMENT OF THE BOMBAY HIGH COURT IN COMMISSIONER OF INCOME TAX VS. RELIANCE UTILITIES & POWER LTD., (2009) 313 ITR 340, PARA-10, THAT IF THERE ARE INTEREST FREE FUNDS AVAILABLE A PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. 12. THE ASSESSES CASE IS ALSO SQUARELY COVERED BY THE DECISION OF THE PUNJAB AND HARYANA HIGH COURT IN TH E CASE OF CIT-I, LUDHIANA VS. RAKESH GUPTA IN ITA NO.37 OF 20 14 DATED 2.7.2015, WHEREIN ONE OF THE SUBSTANTIAL QUESTIONS WAS AS UNDER : '(I) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE ITAT WAS RIGHT IN LAW IN UPHOLDIN G THE ORDER OF THE ID. CIT(A) WHEREIN DISALLOWANCE MADE UNDER SECTION 36 (1) (III) WAS DELETED IGNORIN G THE JUDGEMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS ABHISHEK INDUSTRIES LTD . REPORTED 286 ITR 1, RELIED UPON BY THE ASSESSING OFFICER? WHILE DECIDING THE ABOVE QUESTION, THE HON'BLE JURISDICTIONAL HIGH COURT HAS HELD AS UNDER : AS REGARDS QUESTION (I), THE APPELLANT'S CASE IS THAT AN AMOUNT OF RS. 8.89 CRORES WAS ADVANCED BY THE RESPONDENT/ASSESSEE TO HIS 9 SON. THE RESPONDENT/ASSESSEE ON THE OTHER HAND CONTENDS THAT DURING THE ASSESSMENT YEAR IN QUESTION 2008-2009, ONLY ABOUT RS.2.14 CRORES WAS ADVANCED BY HIM TO HIS SON. IT WOULD MAKE NO DIFFERENCE. THE TRIBUNAL HAS RIGHTLY UPHELD THE DETAILED AND REASONED ORDER OF THE CIT(APPEALS). THE CIT(APPEALS) HAS ANALYZED THE CASH AVAILABLE WITH THE RESPONDENT. FOR INSTANCE, THE OPENING BALANCE OF CAPITAL AS ON 01.04.2007 WAS ABOUT RS. 13.45 CRORES AND THE CLOSING BALANCE AS ON 31.03.2008 WAS ABOUT RS. 10.40 CRORES. THE OPENING BALANCE AS ON 01.04.2007 WAS ABOUT RS. 73.57CRORES AND THE CLOSING BALANCE AS ON 31.03.2008 WAS ABOUT RS. 86.60 CRORES. THE OPENING BALANCE OF INTEREST FREE UNSECURED LOANS FROM FAMILY AND FRIENDS AS ON 01.04.2007 WAS ABOUT RS. 55.95 CRORES AND THE CLOSING BALANCE OF INTEREST FREE UNSECURED LOANS FROM FAMILY AND FRIENDS AS ON 31.03.2008 WAS ABOUT RS. 51.46 CRORES. IT WAS NOT THE CASE OF THE AO THAT THE ASSESSEE HAD DIVERTED THE FUNDS BORROWED ON INTEREST FOR THE PURPOSE OF ADVANCING THE SUM TO HIS SON FOR BUSINESS. THE TRIBUNAL NOTED THAT THE AO HAD IN FACT ACCEPTED THAT NO SUCH BORROWED FUNDS HAD BEEN DIVERTED / ADVANCED BY THE ASSESSEE TO HIS SON. THERE WAS NO NEXUS BETWEEN THE FUNDS BORROWED BY THE ASSESSEE AND THE FUNDS DIVERTED/ ADVANCED TO HIS SON. THERE WERE FREE RESERVES AVAILABLE WITH THE ASSESSEE TO ADVANCE THE INTEREST FREE LOAN TO HIS SON. IT IS NOT POSSIBLE TO HOLD THAT THE APPRECIATION OF THESE FACTS WAS PERVERSE OR ABSURD. NO QUESTION OF LAW, THEREFORE, ARISES IN THIS REGARD EITHER. 10 13. IN THE ABOVE CASE,, THE SUBSTANTIAL QUESTION O F LAW RAISED BY THE REVENUE WAS THAT THE TRIBUNAL HAS PAS SED THE ORDER IGNORING THE JUDGMENT OF HON'BLE PUNJAB & HAR YANA HIGH COURT IN THE CASE OF CIT VS. M/S ABHISHEK IND USTRIES LTD., 286 ITR 1. IT APPEARS THAT WHILE DECIDING TH E SUBSTANTIAL QUESTION OF LAW, THE HON'BLE HIGH COURT HAS CONSIDERED THE DECISION RENDERED IN THE CASE OF M/ S ABHISHEK INDUSTRIES LTD. (SUPRA). IN THE INSTANT CASE ALSO, THE REVENUE HAS CHALLENGED THE ORDER OF THE LEARNED CIT (APPEAL S) ON THE GROUND THAT WHILE DECIDING THE ISSUE IN FAVOUR OF T HE ASSESSEE, THE LEARNED CIT (APPEALS) HAS IGNORED THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S ABHI SHEK INDUSTRIES LTD. (SUPRA). IN MY OPINION, THE DECIS ION OF THE HON'BLE JURISDICTIONAL HIGH COURT PASSED IN THE CAS E OF RAKESH GUPTA (SUPRA) IS SQUARELY APPLICABLE TO THE FACTS OF PRESENT CASE. IN THAT VIEW OF THE MATTER, I DO N OT FIND ANY INFIRMITY IN THE FINDINGS OF THE LEARNED CIT (APPEA LS) ON THIS ISSUE AND ACCORDINGLY, I UPHOLD THE ORDER OF THE LE ARNED CIT (APPEALS) AND DISMISS THE APPEAL OF THE REVENUE. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 6 TH DAY OF AUGUST, 2015. SD/- (H.L.KARWA) VICE PRESIDENT DATED : 6 TH AUGUST, 2015 *RATI/AG* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. 11 ASSISTANT REGISTRAR, ITAT, CHANDIGARH 12