Hem Kiran Diesels, Kolhapur V. Assistant Commissioner of Income-tax, Central Circle -Kolhapur , Kolhapur

ITA 1085/PUN/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7761 (ITAT-PUNE)
• Duration Of Justice: 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2004-2005
• Appeal Filed On: 15-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: THIS CONSOLIDATED

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER . / ITA NOS.1084 TO 1087/PUN/18 / ASSESSMENT YEARS : 2003-04 TO 2006-07 HEM KIRAN DIESELS, 1227, E, RAJARAM ROAD, KOLHAPUR 416 008 PAN : AABFH6497B VS. ACIT, CENTRAL CIRCLE, KOLHAPUR (APPELLANT) (RESPONDENT) / ORDER PER R.S.SYAL, VP : THESE FOUR APPEALS BY THE ASSESSEE RELATING TO THE ASSESSMENT YEARS 2003-04 TO 2006-07 INVOLVE A COMMON ISS UE. FOR THE SAKE OF CONVENIENCE, WE HAVE CLUBBED SUCH APPEA LS FOR DISPOSAL BY THIS CONSOLIDATED ORDER. 2. THE ONLY ISSUE PRESSED BY THE LD. AR IN RESPECT OF THE SE APPEALS IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF INTEREST, APPELLANT BY SHRI M.K.KULKARNI RESPONDENT BY SHRI M.K. VERMA DATE OF HEARING 08-01-2019 DATE OF PRONOUNCEMENT 09-01-2019 ITA NOS.1084 TO 1087/PUN/2018 HEM KIRAN DIESELS 2 WHICH WAS CLAIMED BY THE ASSESSEE AS DEDUCTIBLE U/S. 36(1) (III) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO REFERRED TO AS `THE ACT). A.Y. 2003-04 : 3. BRIEFLY STATED, THE FACTS FOR THE ASSESSMENT YEAR 2003-0 4 ARE THAT THE ORIGINAL ASSESSMENT IN THIS CASE WAS COMPLETED U/S.143(3) OF THE ACT, IN WHICH THE DISALLOWANCE OF INTEREST WAS MADE, WHICH WAS CLAIMED BY THE ASSESSEE AS DEDUCTIB LE U/S.36(1)(III). THE MATTER FINALLY TRAVELLED TO THE TRIBUNAL, WHICH REMITTED THE MATTER TO THE AO FOR DE NOVO ADJUDICATION. IN THE FRESH PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE ADVANCED VARIOUS SUMS TO ITS TWO RELATED CONCERNS, NAMELY M/S. JAYKUMAR PATIL TRANSPORTS PVT. LTD. RS.46,35,793/- A ND M/S. GHATGE PATIL & SONS RS.11,14,495/-. HE NOTED THAT THE ASSESSEE DID NOT CHARGE ANY INTEREST ON THESE ADVANCES WH EREAS IT WAS PAYING INTEREST ON CERTAIN LOANS OBTAINED BY IT. ON BEING CALLED UPON TO EXPLAIN AS TO WHY INTEREST SHOULD NOT BE DISALLOWED, THE ASSESSEE TENDERED AN EXPLANATION WHICH HAS BEEN REPRODUCED ON PAGE 4 ONWARDS OF THE ASSESSMENT ORDER. THE ASSESSEE MAINLY CONTENDED THAT THE LOANS WERE ADVANCED ITA NOS.1084 TO 1087/PUN/2018 HEM KIRAN DIESELS 3 TO THE ABOVE SISTER CONCERNS DURING THE PERIOD 1994 TO 199 7 WHEN CASH PROFITS WERE MUCH MORE THAN THE AMOUNT OF LOAN S ADVANCED. THE AO MADE DISALLOWANCE OF INTEREST @ 16% OF ADVANCES MADE TO SISTER CONCERNS BY NOTICING THAT DURING THE YEARS IN QUESTION THE AMOUNT OF PARTNERS CAPITAL WAS LESS TH AN THE AMOUNT OF ADVANCES GIVEN TO THE SISTER CONCERNS. THE LD. CIT(A) SUSTAINED THE DISALLOWANCE, AGAINST WHICH THE ASSESSE E HAS APPROACHED THE TRIBUNAL. 4. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. IT IS SEEN THAT THE LOANS WERE ADVANCED TO THE SISTER CONCERNS DURING THE PERIOD 1994 TO 1997. THE ASSESSEE STATED IN WRITING BEFORE THE AO, WHICH HAS BEEN REPRODUCED IN THE ASSESSMENT ORDER, THAT CASH PROFITS DURING THE ABOVE YEARS WERE MUCH MORE THAN THE AMOUNT OF ADVANCES GIVEN TO THE SISTER CONCERNS. IN THE YEAR 199 6-97, THE ASSESSEE PAID RS.20.11 LAKHS TO M/S. JAYKUMAR PATIL TRANSPORTS PVT. LTD. AND RS.3,08,168/- TO M/S. GHATGE PATIL & SONS AS AGAINST THE CUMULATIVE CASH PROFITS OF RS.61.25 LAKH S AND THE TOTAL ADVANCES PENDING ON 31-03-1998 AT RS.28.47 LAKHS. DURING THE YEAR ENDING 31-03-1999, CASH PROFITS WAS RS.11.02 LAKHS AND THE TOTAL ADVANCES PAID AMOUNTED TO ITA NOS.1084 TO 1087/PUN/2018 HEM KIRAN DIESELS 4 RS.30.35 LAKHS AGAINST THE CUMULATIVE CASH PROFIT UP TO 31-03 - 1999 AT RS.72.28 LAKHS AND THE TOTAL ADVANCES AMOUNTING TO RS.58.82 LAKHS. THIS SHOWS THAT AT THE TIME OF MAKING ADVANCES TO THE SISTER CONCERNS, THE ASSESSEE WAS HAVING SUFFICIENT CASH PROFITS/INTEREST FREE FUNDS AVAILABLE AT ITS DISPOSAL. IF IN LATER YEARS, CAPITAL ACCOUNT BALANCE OF THE ASSESSEE HAS REDUCED VIS--VIS THE AMOUNT OF ADVANCES, NO ADVERSE INFERENCE CAN BE DRAWN AGAINST THE ADVANCES GIVE N WHEN ADMITTEDLY THE AMOUNT OF INTEREST FREE FUNDS IN THE SHA PE OF CAPITAL ETC. WERE MORE THAN THE ADVANCES, MEANING THEREB Y, THAT SUCH ADVANCES WERE FUNDED OUT OF INTEREST FREE FUNDS . IT IS FURTHER RELEVANT TO MENTION, AS STATED BY THE LD. AR WHICH H AS NOT BEEN CONTROVERTED, THAT THE ADVANCES TO THE SISTER CONCE RNS WERE ALSO IN THE COURSE OF BUSINESS IN AS MUCH AS M/S. JAYKUMAR PATIL TRANSPORTS PVT. LTD. WERE TRANSPORTING THE GOODS SOLD BY THE ASSESSEE. 5. SECTION 36(1)(III) PROVIDES FOR DEDUCTION OF INTEREST P AID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINE SS OR PROFESSION. THE ESSENCE OF THIS PROVISION IS THAT THE INTERES T SHOULD BE ALLOWED SO LONG AS THE CAPITAL BORROWED, ON WHICH SUCH INTEREST IS PAID, IS USED FOR THE PURPOSE OF BUSINESS OR ITA NOS.1084 TO 1087/PUN/2018 HEM KIRAN DIESELS 5 PROFESSION. IF, HOWEVER, AN ASSESSEE IS HAVING ITS OWN INTEREST FREE SURPLUS FUNDS AND SUCH FUNDS ARE UTILISED AS INTEREST FREE ADVANCES EVEN FOR A NON-BUSINESS PURPOSE, THERE CANNO T BE ANY DISALLOWANCE OF INTEREST PAID ON INTEREST BEARING LOANS. THE HON'BLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM) , HAS HELD THAT WHERE AN ASSESSEE POSSESSED SUFFICIENT INTEREST FREE FUNDS OF ITS OW N WHICH WERE GENERATED IN THE COURSE OF RELEVANT FINANCIAL YE AR, APART FROM SUBSTANTIAL SHAREHOLDERS FUNDS, PRESUMPTION STAN DS ESTABLISHED THAT THE INVESTMENTS IN SISTER CONCERNS WERE MADE BY THE ASSESSEE OUT OF INTEREST FREE FUNDS AND, THEREFOR E, NO PART OF INTEREST ON BORROWINGS CAN BE DISALLOWED ON THE BASIS THAT THE INVESTMENTS WERE MADE OUT OF INTEREST BEARING FUNDS. T HE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF EAST INDIA PHARMACEUTICAL WORKS LTD. VS. CIT (1997) 224 ITR 627 (SC) AND ALSO THE JUDGMENT OF THE HONBLE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. VS. CIT (1981) 134 ITR 219 (CAL) ALSO FORTIFY THIS VIEW. IN VIEW OF THE FOREGOING DISCUSSION, WE ARE SATISFIED THAT THE DISALLOWANCE MADE BY THE AO HAS BEEN WRONGLY SUSTAINED IN THE FIRST APPEAL. WE, THEREFORE, ORDER TO DELETE THE SAME. ITA NOS.1084 TO 1087/PUN/2018 HEM KIRAN DIESELS 6 A.Y. 2004-05 TO 2006-07 : 6. FACTS FOR THE SUBSEQUENT THREE ASSESSMENT YEARS UNDER CONSIDERATION, NAMELY, 2004-05 TO 2006-07 ARE ADMITTEDLY MUTATIS MUTANDIS SIMILAR TO THOSE FOR THE ASSESSMENT YEAR 2003-04. FOLLOWING THE VIEW TAKEN HEREINABOVE, WE ORDER TO DELETE THE SUSTENANCE OF DISALLOWANCE OF INTEREST. 7. IN THE RESULT, ALL THE APPEALS ARE ALLOWED TO THIS EXTENT. ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH JANUARY, 2019. SD/- SD/- (VIKAS AWASTHY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESID ENT PUNE; DATED : 09 TH JANUARY, 2019 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT (APPEALS),-11, PUNE 4. 5. THE PR. CIT CENTRAL, PUNE , , SMC / DR SMC, ITAT, PUNE; 6. / GUARD FILE. // TRUE COPY // / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE ITA NOS.1084 TO 1087/PUN/2018 HEM KIRAN DIESELS 7 DATE 1. DRAFT DICTATED ON 08-01-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 08-01-2019 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *