D.C.I.T CC - V,kolkata, Kolkata V. M/s Sai Iron India Ltd, Kolkata

ITA 1087/KOL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4567 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 30-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 06-05-2013
• Court: TRIBUNAL
• Department Lawyers: R AJAT KUMAR KUREEL JCIT LD
• Assessee Lawyers: A K TULSIYAN FCA LD
• Keywords: Additional evidence; Deemed dividend
• Section: 43B; 28; 139

Judgement Text

1 I.T.A NOS. 1087 & 1669/KOL/2013 M/S. SAI IRON (I) LTD IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, K OLKATA BEFORE : SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A NO. 1087/KOL/2013 A.Y : 2008-09 D.C.I.T, CC-V, KOLKATA VS. M/S. SAI IRON INDIA LTD PAN: AADC S7255D (APPELLANT) (RESPON DENT) I.T.A NO. 1669/KOL/2013 A.Y : 2008-09 M/S. SAI IRON INDIA LTD VS. D.C.I.T, CC-V, KO LKATA PAN: AADC S7255D (APPELLANT) (RESPON DENT) FOR THE APPELLANT/DEPARTMENT : SHRI RAJAT KUMAR KUR EEL, JCIT, LD.SR.DR FOR THE RESPONDENT/ASSESSEE: SHRI A.K . TULSIYAN, FCA, LD.AR DATE OF HEARING: 30-06-2016 DATE OF PRONOUNCEMENT: 26 -08-20 16 ORDER SHRI S.S. VISWANETHRA RAVI, JM THE TWO APPEALS ABOVE BY THE REVENUE AND ASSESSEE F ILED AGAINST THE COMMON ORDER DATED :22-03-2013 PASSED BY THE CIT(A) , CENTRAL-I, KOLKATA FOR THE ASSESSMENT YEAR 2008-09. 2. SINCE THE IMPUGNED ORDER IS SAME IN BOTH THE APP EALS, BOTH THE APPEALS HEARD TOGETHER WITH THE CONSENT OF BOTH THE PARTIES AND D ISPOSED OF THE SAME BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2 I.T.A NOS. 1087 & 1669/KOL/2013 M/S. SAI IRON (I) LTD 3. FIRST, WE TAKE UP THE APPEAL IN ITA NO.1087/KOL/2013 FILED BY THE REVENUE FOR THE A.Y 2008-09. 4. THE 1 ST GROUND REGARDING VIOLATION OF RULE 46A AND 2 ND GROUND RELATING TO ALLOWABILITY OF RS.40,32,762/- U/S 43B OF THE ACT I S TO BE DECIDED IS AS TO WHETHER CIT-A JUSTIFIED IN ALLOWING THE CLAIM OF ASSESSEE W ITHOUT AFFORDING AN OPPORTUNITY TO THE REVENUE IN THE CIRCUMSTANCES OF THE CASE. 5. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY HAVING ENGAGED IN MANUFACTURING AND TRADING OF STEEL PRODUCTS. THE AS SESSEE FILED ITS RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.17,34,087/- ON 30-09 -2008. UNDER SCRUTINY NOTICES U/S. 143(2)/142(1) OF THE ACT WERE ISSUED, IN RESPO NSE TO WHICH, THE AR APPEARED AND FURNISHED THE PARTICULARS. 6. DURING THE COURSE OF SCRUTINY PROCEEDINGS THE AS SESSEE FURNISHED A REVISED COMPUTATION OF INCOME SHOWING ITS TOTAL INCOME AT LOSS OF RS.22,98,680/- WHEREIN THE ASSESSEE CLAIMED PAYMENT OF SALES TAX OF RS.40, 32,762/- PERTAINING TO A.Y 1999-2000 AND FILED A COPY OF SALES TAX ORDER DT. 2 6-7-1999 AS PROOF OF THE SAME. THE AO OBSERVED THAT THE ASSESSEE DID NOT EXPLAIN T HE CIRCUMSTANCES WHICH LEAD TO PAY THE SALES TAX IN THE YEAR UNDER CONSIDERATIO N WHICH IS RELEVANT TO A.Y 1999- 2000 AND DISALLOWED THE CLAIM U/SEC 43B OF THE ACT AND THE RELEVANT PORTION OF WHICH IS REPRODUCED HEREIN BELOW: ACCORDING TO THE AO, THE ASSESSEE COULD NOT EXPLAIN THE REASON FOR SUCH DELAY IN MAKING THE PAY MENT. IT IS ALSO OBSERVED BY THE AO THAT THE ASSESSEE DO NOT ACCOUNT FOR SALES TAX IN THE P & L ACCOUNT. THE AO NOTED THAT HOW MUCH SALES TAX WAS COLLECTED FROM THE CUSTOMERS AND HOW MUCH WAS PAID TO THE SALES TAX AUTHORITY, HAS NOT BEEN SHOWN IN THE ACCOUNTS OF TH E ASSESSEE. FURTHER, AS PER THE AO, THE ASSESSEE DID NOT CLAIM THE PAYMENT IN THE 3 I.T.A NOS. 1087 & 1669/KOL/2013 M/S. SAI IRON (I) LTD RETURN OF INCOME. THE AO WAS OF THE OPINION THAT ME RE CLAIMING BY FILING REVISED COMPUTATION IN THE COURSE OF ASSESSM ENT PROCEEDINGS IS NOT SUFFICIENT FOR DEDUCTION TO BE ALLOWED. HENCE, HE DISALLOWED THE CLAIM MADE BY THE ASSESSEE U/S 43B OF THE ACT. 7. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE CIT-A AND CONTENDED THAT THE ASSESSEE WAS ENJOYED A N EXEMPTION FROM LEVY OF SALES TAX AND WAS SUDDENLY WITHDRAWN BY THE GOVERNM ENT AND THE DEMAND WAS RAISED. THE ASSESSEE CONTESTED THE DECISION MADE BY THE GOVERNMENT AND THE PAYMENT OF SALES TAX WAS WITHHELD. THE SALES TAX AU THORITIES STARTED MOUNTING PRESSURE ON THE ASSESSEE FOR PAYMENT OF TAX AND THE ASSESSEE STARTED PAYING DURING THE F.Y. 2007-08 AND PAID DURING THE YEAR UNDER CON SIDERATION. IT IS FURTHER SUBMITTED BY THE ASSESSEE THAT THE DEMAND OF SALES TAX OF RS.39,57,921/- AND THE PENALTY THEREON OF RS.1,97,896/- TOTALING OF RS.41, 55,817/- AND THE ENTIRE DEMAND WAS PAID DURING THE YEAR UNDER APPEAL. THE CLAIM OF RS.1,23,055/- OUT OF THE PAYMENT OF RS.41,55,817/- WAS ALREADY MADE IN THE R ETURN FILED BY THE ASSESSEE AND THE BALANCE AMOUNT OF RS.40,32,762/- I.E. (RS.4 1,55,817 MINUS RS.L,23,055) WAS CLAIMED BEFORE THE AO. IT WAS ALSO SUBMITTED TH AT THE ASSESSEE IS ENTITLED FOR DEDUCTION OF RS.39,57,921/- UNDER SECTION 43B ON PA YMENT BASIS. IT WAS ALSO SUBMITTED BY THE ASSESSEE THAT THE DEDUCTION OF THE ENTIRE AMOUNT WAS NOT CLAIMED IN THE RETURN DUE TO INADVERTENCE BUT THE TAX WAS P AID BY THE ASSEESSEE VIDE SALES TAX CHALLANS. 8. THE CIT-A AFTER CONSIDERING THE SUBMISSIONS OF T HE ASSESSEE, THE CIT-A FOUND THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCT ION U/SEC 43B OF THE ACT TAKING INTO ACCOUNT THAT THE AO ACCEPTED THE PAYMENT OF SA LES TAX AND GAVE RELIEF TO AN EXTENT OF RS.38,34,866/- AND RELEVANT PORTION OF W HICH IS REPRODUCED HEREUNDER: 4 I.T.A NOS. 1087 & 1669/KOL/2013 M/S. SAI IRON (I) LTD 8. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPE LLANT AND PERUSED THE ASSESSMENT ORDER. ON CAREFUL CONSIDERATION OF THE F ACTS AND IN LAW, I AM OF THE OPINION THAT THE AO WAS NOT JUSTIFIED IN DENYING THE CLAIM MADE BY THE APPELLANT U/S 43B OF THE ACT ON ACCOUNT OF PAYMENT OF SALES TAX. THE AO HAS NOT DISPUTED THE PAYMENT OF SALES T AX MADE BY THE APPELLANT IN THE YEAR UNDER APPEAL. HENCE, THE DEDU CTION IS ALLOWABLE TO THE APPELLANT U/S.43B ON PAYMENT BASIS. HOWEVER, IT IS OBSERVED THAT THE APPELLANT IS ENTITLED FOR DEDUCTION OF RS.39,57 ,921/- ONLY WHICH WAS PAID TOWARD SALES TAX LIABILITY. THE AMOUNT OF RS.1 ,97,896/- PAID TOWARDS PENALTY IS NOT ALLOWABLE AS DEDUCTION. AS P ER THE OWN SUBMISSION OF THE APPELLANT, IT HAS ALREADY CLAIMED DEDUCTION OF RS.1,23,055/- IN THE ORIGINAL RETURN OF INCOME, AND THEREFORE, THE APPELLANT IS NOW ENTITLED FOR DEDUCTION OF BALANCE AMOUNT OF RS.38,34,866/- I.E. (RS.39,57,921 MINUS RS. 38,34,8 66/- U/S. 43B OF THE ACT. GROUND NO. 2 IS PARTLY ALLOWED. 9. BEFORE US, THE REVENUE IS CHALLENGING THE ORDER OF CIT-A BY WAY OF ABOVEMENTIONED GROUNDS OF APPEAL. THE LD. DR SUBMIT S THAT THE ASSESSEE PRODUCED BILLS RELATING TO SALES TAX BEFORE THE CIT -A AND WITHOUT GIVING AN OPPORTUNITY TO THE AO, THE CIT-A GAVE RELIEF BASING ON THE SUBMISSIONS OF THE ASSESSEE AND WITHOUT SEEKING REMAND REPORT URGED TO REMAND THE ISSUE TO THE AO. IN REPLY, THE LD.AR SUBMITS THAT NO NEW EVIDENCE WA S PRODUCED BEFORE THE CIT-A AND SECTION 43B IS OVERRIDING EFFECT AND THE ASSESS EE IS ENTITLED TO CLAIM THE DEDUCTION THOUGH THE DEMAND THE RELEVANT TO THE A.Y . 1999--2000. 10. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L ON RECORD REGARDING THE PLEA OF VIOLATION OF RULE 46A, THE REVENUE WAS UNABLE TO SH OW ANY MATERIAL EVIDENCE PRODUCED BY THE ASSESSEE BEFORE THE CIT-A FOR THE FIRST TIME AS ADDITIONAL EVIDENCE WHICH RESULTED THE CIT-A TO PASS THE IMPUGNED ORDER. WE FIND THAT THE CIT-A CONSIDERED THE ONLY MATERIAL WHICH WAS AVAILABLE BEFORE THE AO. WE COUL D NOT SEE ANY MATERIAL EVIDENCE AS RELIED ON BY THE CIT-A IN GIVING RELIEF TO ASSESSEE . THUS, WE ARE OF THE OPINION THAT THERE 5 I.T.A NOS. 1087 & 1669/KOL/2013 M/S. SAI IRON (I) LTD WAS NO ADDITIONAL EVIDENCE PRODUCED BEFORE THE CIT- A. THE GROUND NO-1 RAISED BY THE REVENUE FAILS AND ACCORDINGLY, IT IS DISMISSED. 11. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L ON RECORD REGARDING GROUND NO-2. WE FIND THAT THE ASSESSEE PAID THE SAL ES TAX AMOUNT AS DEMANDED BY THE SUCH DEPARTMENT IN THE YEAR UNDER CONSIDERATION AND THE CLAIM TO AN EXTENT OF RS.1,23,055/- WAS ALREADY MADE IN THE RETURN FILED BY THE ASSESSEE AND BESIDES OF WHICH THE AO ACCEPTED THE PAYMENT OF SALES TAX TO T HE RESPECTIVE GOVERNMENT WAS PAID DURING THE YEAR UNDER CONSIDERATION. IN THIS R EGARD, WE MAY REFER TO THE RELEVANT PROVISION SECTION 43B RELEVANT TO THE A.Y 08-09 UNDER WHICH THE ASSESSEE CLAIMED DEDUCTION AND IT IS REPRODUCED FOR READY REFERENCE AS UNDER: SECTION - 43B, INCOME-TAX ACT, 1961-2008 CERTAIN DEDUCTIONS TO BE ONLY ON ACTUAL PAYMENT. 43B. NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PR OVISION OF THIS ACT, A DEDUCTION OTHERWISE ALLOWABLE UNDER THI S ACT IN RESPECT OF (A) ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX , DUTY, CESS OR FEE, BY WHATEVER NAME CALLED, UNDER ANY LAW FOR THE TIME BEING IN FORCE, OR PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHALL APPLY IN RELATION TO ANY SUM WHICH IS ACTUALLY PAID BY THE A SSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN HIS CASE FOR FURN ISHING THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 139 IN R ESPECT OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SU M WAS INCURRED AS AFORESAID AND THE EVIDENCE OF SUCH PAYMENT IS FURNI SHED BY THE ASSESSEE ALONG WITH SUCH RETURN. EXPLANATION [ 1].FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT WHERE A DEDUCTION IN RESPECT OF ANY SUM REFERR ED TO IN CLAUSE 6 I.T.A NOS. 1087 & 1669/KOL/2013 M/S. SAI IRON (I) LTD (A) OR CLAUSE (B) OF THIS SECTION IS ALLOWED IN COMPUT ING THE INCOME REFERRED TO IN SECTION 28 OF THE PREVIOUS YEAR (BEI NG A PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1 ST DAY OF APRIL, 1983, OR ANY EARLIER ASSESSMENT YEAR) IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE , THE ASSESSEE SHALL NOT BE ENTITLED TO ANY DEDUCTION UNDER THIS SECTION IN RES PECT OF SUCH SUM IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHI CH THE SUM IS ACTUALLY PAID BY HIM. EXPLANATION 2.FOR THE PURPOSES OF CLAUSE (A), AS I N FORCE AT ALL MATERIAL TIMES, 'ANY SUM PAYABLE' MEANS A SUM FOR W HICH THE ASSESSEE INCURRED LIABILITY IN THE PREVIOUS YEAR EV EN THOUGH SUCH SUM MIGHT NOT HAVE BEEN PAYABLE WITHIN THAT YEAR UN DER THE RELEVANT LAW. 12. A PLAIN READING OF THE PROVISO SUGGESTS THAT TH E DEDUCTIONS IS ALLOWABLE OTHERWISE THAT IN RESPECT OF ANY SUM PAYABLE TOWARD S ANY TAX, DUTY, CESS OR FEE, BUT, HOWEVER, AFORESAID SECTION DOES NOT APPLY TO ANY S UM WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN HI S CASE FOR FURNISHING THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 139 IN RESP ECT OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED AS AFORESAID AND THE EVIDENCE OF SUCH PAYMENT IS FURNISHED BY THE ASSESSEE ALONG WIT H SUCH RETURN. 13. WITH REGARD TO THE ISSUE RAISED BY THE REVENUE FOR DELETION OF THE DISALLOWANCE OF SALES TAX LIABILITY, WE FIND THAT T HE ALLOWABILITY OF THE SALES TAX LIABILITY IS GOVERNED BY THE PROVISIONS OF SECTION 43B OF THE ACT I.E. ON ACTUAL PAYMENT BASIS. IN THE INSTANT CASE THE ASSESSEE HAS NOT BROUGHT ANYTHING ON RECORD WHICH JUSTIFIED THAT THE SALES TAX LIABILITY WAS TA XED IN THE EARLIER YEARS. THE LD. AR BEFORE US SUBMITTED THAT THE SALES TAX WAS EXEMPTED BY THE WEST BENGAL GOVERNMENT. THEREFORE THERE WAS NO COLLECTION OF SA LES TAX DURING THE PERIOD OF THE EXEMPTION ON THE SALES OF THE GOODS. THE ENTIRE SAL E PRICE HAS BEEN OFFERED TO TAX IN 7 I.T.A NOS. 1087 & 1669/KOL/2013 M/S. SAI IRON (I) LTD THE YEAR 1998-99. IT IS WELL SETTLED LAW THAT THE S ALES TAX LIABILITY IS ALLOWED IN THE YEAR OF THE PAYMENT BY VIRTUE OF THE PROVISIONS OF SECTION 43B OF THE ACT. THE LD. AR DREW OUR ATTENTION TO THE SCHEDULE 10 OF THE BAL ANCE SHEET TO DEMONSTRATE THAT NO SALES TAX LIABILITY IS APPEARING IN THE AUDITED FINANCIAL STATEMENTS AS ON 31.3.1998. OUR ATTENTION WAS ALSO DRAWN TO PAGES 20 TO 21 OF THE PAPER BOOK WHERE THE ORDER OF THE SALES TAX DEPARTMENT WAS ALSO PLAC ED DEMANDING THE OUTSTANDING AMOUNT OF SALES TAX PERTAINING TO THE YEAR 1998-99. IN VIEW ABOVE WE CONCLUDE THAT THE PAYMENT OF THE SALES TAX DEMAND IS VERY MUCH CO VERED UNDER THE PROVISIONS OF SECTION 43B OF THE ACT. ACCORDINGLY WE DO NOT FIND REASONS TO INTERFERE IN THE ORDER OF LD. CIT(A). HENCE THIS GROUND OF REVENUES APPEA L IS DISMISSED. ITA NO.1669/KOL/2013 AY 2008-09 (BY THE ASSESSEE) 14. THE ONLY GROUND IN ASSESSEES APPEAL IS AGAINS T THE ACTION OF THE AO IN MAKING THE DISALLOWANCE OF INTEREST AMOUNTING TO RS.38,63, 307/- WHICH PAID TO THE BANK AGAINST THE O.D. ACCOUNT. THE OBSERVATION OF THE AO IS AS UNDER: THE ASSESSEE HAS MADE ADVANCE OF RS.10.7 CRORES TO ITS GROUP COMPANY, M/S SUPER SMELTERS LTD. THE ASSESSEE RUN I TS BUSINESS ON BORROWED CAPITAL AND HAS INCURRED INTEREST EXPENSES ON O.D ACCOUNT AT RS.38,63,307/-. THE A/R HAS EXPLAINED THAT THE ASSE SSEE HAD BUSINESS TRANSACTION SALE AS WELL AS PURCHASE WITH M/S. SUPE R SMELTERS LTD. AND HAD A CLOSING DEBIT BALANCE OF RS.6,32,541/- ONLY D UE TO SALE ON 31.03.2008. IT WAS ARGUED THAT C.C. ACCOUNT BALANCE HAD BEEN REDUCED DURING THE YEAR IN COMPARISON TO EARLIER YEARS. NO UNSECURED LOAN-WAS TAKEN. IT IS, THEREFORE, CLEAR THAT BORROWED FUND HAD NOT BEEN PAID TO M/S. SUPER SMELTERS LTD. HENCE, NO INTEREST SHOULD BE DISALLOWED. THE ACCOUNT OF SUPER SMELTERS LTD. HAVE BEEN FURNISHED. PURCHASE OF RAW MATERIALS WAS MADE DURING THE YEAR ONLY AT RS.93.2 LAKHS AND SALES AND OTHERS WERE MADE ONLY AMOUNTING TO RS.48,12,869/-. THEREFORE, IT IS NOT TRUE THAT THE ADVANCES MADE ON DIFFERENT TIMES FOR THE PURPOSE OF BUSINESS. 8 I.T.A NOS. 1087 & 1669/KOL/2013 M/S. SAI IRON (I) LTD THE ASSESSEE HOWEVER EXPLAINED THAT THIS ADVANCE DO ES NOT ATTRACT PROVISIONS OF DEEMED DIVIDEND BECAUSE THERE WAS NO HOLDING OF SHARES. THE ARGUMENT OF THE ASSESSEE THAT BORROWED CAPITAL WAS NOT UTILIZED FOR THE PURPOSE OF ADVANCING FUND TO M/S SUPER SMELTERS LTD. IS ALSO NOT ACCEPTABLE. HAD IT NOT MADE THE ADVANCE, IT COULD H AVE SAVED THE INTEREST PAYMENT TO C.C. ACCOUNT. ON VERIFICATION, IT HAS BE EN FOUND THAT IN ALMOST EVERY MONTH, IT HAS PAID INTEREST-FREE ADVANCE TO M /S SUPER SMELTERS LTD. ON THE OTHER HAND, IT IS STATED THAT HAD THE ASSESS EE NOT PAID THE ADVANCE TO SUPER SMELTERS, ITS BUSINESS FUND WOULD HAVE INC REASED SO MUCH TO LIQUIDATE THE DEBIT OF THE C.C. ACCOUNT. THE DEDUCT ION FOR INTEREST EXPENSE CLAIMED BY THE ASSESSEE AMOUNTING TO RS. 38,63,307/ - IS, THEREFORE, DISALLOWED IN TERMS OF SECTION 36 OF THE ACT BEING INCURRED NOT FOR THE PURPOSE OF BUSINESS. 15. BEFORE THE AO THE ASSESSEE SUBMITTED THAT IT HA D BUSINESS TRANSACTIONS WITH M/S. SUPER SMELTERS LTD IN RESPECT OF SALE AS WELL AS PURCHASE. BUT, HOWEVER, THE AO ON EXAMINATION OF THE ACCOUNT OF SUPER SMELTERS LTD AND FOUND THAT PURCHASE OF RAW MATERIALS AT RS.93.2 LAKHS AND SALES AND OTH ERS WERE AT RS.48,12,869/- AND THEREBY DOUBTED THE VERSION OF THE ASSESSEE AND DIS ALLOWED THE AMOUNT OF RS. 38,63,307/- UNDER SECTION 36 OF THE ACT BY OBSERVI NG THAT THE SAID WAS NOT INCURRED FOR THE PURPOSE OF BUSINESS. 16. THE ASSESSEE CHALLENGED THE ORDER OF AO BEFORE THE CIT-A AND SUBMISSIONS MADE THROUGH LETTER DT:23-12-2010 IS REPRODUCED HER EUNDER: DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT REITERATED THE SUBMISSIONS MADE BEFORE THE AO VIDE LETTER DATE D 23.L2.2010 THAT THE APPELLANT COMPANY HAS BUSINESS TRANSACTIONS WIT H THE COMPANY NAMELY AS SUPER SMELTERS LTD. DURING THE FY 2007-08 , THE APPELLANT HAS PURCHASED IRON AND STEEL PRODUCTS FOR TRADING A ND HAS ALSO PURCHASED RAW MATERIALS FROM THE SAID PARTY. THE AP PELLANT COMPANY HAS ALSO SOLD FINISHED GOODS TO SAID PARTY. THE ADV ANCES GIVEN DURING THE YEAR ARE IN THE NORMAL COURSE OF THE BUSINESS A S THE APPELLANT HAS 9 I.T.A NOS. 1087 & 1669/KOL/2013 M/S. SAI IRON (I) LTD PURCHASE AS WELL AS SALE TRANSACTIONS WITH THE SAID PARTY. IT IS SUBMITTED BY THE APPELLANT THAT IT WAS HAVING A RUN NING ACCOUNT WITH THE PARTY, AND AS SUCH, THE ADVANCE GIVEN AND TAKEN ARE PART OF THE BUSINESS TRANSACTIONS. THE OPENING BALANCE WITH THE SAID PARTY WAS NIL AND AT THE YEAR END RS.6,32,54L/- WAS RECEIVABL E ON ACCOUNT OF SALE MADE ON 31.03.2008. IT IS CONTENDED BY THE APPELLAN T THAT ON PERUSAL OF THE BALANCE SHEET, IT MAY BE OBSERVED THAT THE S ECURED LOAN HAS BEEN REDUCED FROM RS.3.20 CRORE TO RS.1.74 CRORE. THE SUNDRY DEBTORS REDUCED FROM RS.52 LAKH TO RS.36.79 LAKH. F URTHER, THE COMPANY WAS HAVING ITS OWN FUND OF RS.2.05 CRORE. T HUS, IT INDICATES THAT THE APPELLANT HAS NOT TAKEN ANY LOAN TO GIVE A DVANCE AND ONLY OWN FUND AND INTERNAL ACCRUAL HAS BEEN USED FOR GIV ING ADVANCES. AS SUCH , NO PART OF THE INTEREST IS DISALLOWABLE. IT IS ALSO CONTENDED BY THE APPELLANT THAT IT HAS NOT PAID RS.10.7 CRORE AT A TIME TO THE SAID PARTY WHICH IS EVIDENT FROM THE LEDGER ACCOUNT. THE APPELLANT HAD GIVEN AS WELL AS TAKEN THE ADVANCE FROM THE SAID PA TTY. THE RELIANCE IS PLACED ON THE DECISIONS IN THE CASE OF CIT VS RELI ANCE UTILITIES AND POWER LTD 313 ITR 340 (BOM.) AND CIT VS BRITANNIA I NDUSTRIES LTD 280 ITR 525 (CAL). IN VIEW OF THE ABOVE, THE APPELL ANT PLEADED THAT THE AO BE DIRECTED TO DELETE THE DISALLOWANCE MADE BY HIM ON ACCOUNT OF PAYMENT OF INTEREST. 17. THE CIT-A CONSIDERING THE SUBMISSIONS OF THE AS SESSEE AND DISPOSED OF THE APPEAL BY STATING AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED THE ASSESSMENT ORDER. I HAVE ALSO GONE THROUGH THE BAL ANCE SHEET FOR THE YEAR UNDER CONSIDERATION AS WELL AS THE LEDGER ACCOUNT OF SUPER SMELTERS LTD. ON CAREFUL CONSIDERATION OF THE FACTS AND PERUSAL O F THE LEDGER ACCOUNT OF SUPER SMELTERS LTD. I AM NOT INCLINED TO AGREE WITH THE SUBMISSION OF THE APPELLANT THAT NO BORROWED FUND WAS UTILIZED FOR MA KING ADVANCES TO THE GROUP CONCERN ON VARIOUS DATES OF THE FINANCIAL YEA R. IT IS OBSERVED THAT AS ON 1.4.2007, THE OPENING BALANCE IN THE ACCOUNT OF THE SAID PARTY WAS NIL. FROM 03.04.2007 TO 02.05.2007, THE APPELLANT COMPAN Y MADE ADVANCES OF RS.1.90 CRORE, OUT OF WHICH ADVANCE OF RS.60 LAKHS WAS REFUNDED BY THE SAID PARTY. THUS AS ON 02.05.2007, THERE WAS DEBIT BALAN CE OF RS.1.30 CRORE. FOR THE FIRST TIME, THE APPELLANT COMPANY MADE PURCHASE S OF RS.13,14,500/- FROM THE SAID PARTY ON 12.05.2007. THEREAFTER, THERE WER E REGULAR TRANSACTIONS OF 10 I.T.A NOS. 1087 & 1669/KOL/2013 M/S. SAI IRON (I) LTD ADVANCING THE MONEY TO THE GROUP CONCERN AND REFUND OF ADVANCES. IN BETWEEN, THERE WERE OCCASIONALLY TRANSACTIONS OF PU RCHASE AND SALE. THE CLAIM OF THE APPELLANT THAT IT HAD GIVEN AS WELL AS TAKEN THE ADVANCES FROM SUPER SMELTERS LTD IS NOT CORRECT BECAUSE THERE WAS NEVER A CREDIT BALANCE IN THE ACCOUNT. THE APPELLANT KEPT ON ADVANCING THE MONEY TO THE SAID COMPANY AND OUT OF THAT, REPAYMENTS WERE MADE TO TH E APPELLANT. THUS, THE CONTENTION OF THE APPELLANT THAT THE ADVANCES WERE GIVEN IN THE COURSE OF NORMAL BUSINESS ACTIVITIES IS NOT CORRECT. THE APPE LLANT HAS FAILED TO PROVE THAT THE BORROWED FUND WAS NOT UTILIZED FOR MAKING ADVANCES TO THE GROUP CONCERN. UNDER THE CIRCUMSTANCES, I AM OF THE OPINI ON THAT THE AO HAS RIGHTLY DISALLOWED THE INTEREST PAYMENT OF RS.38,63 ,307/-. THE DISALLOWANCE AS MADE BY THE AO IN THE ASSESSMENT ORDER IS UPHELD . THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE APPELLANT ARE NOT APPLICABLE AS THEY ARE DISTINGUISHABLE ON FACTS. GROUND NO. 1 IS DISMISSED . 18. AGGRIEVED BY THE ORDER OF CIT-A, IN SECOND APPE AL BEFORE US THE LD.AR SUBMITS THAT THE ENTIRE INTEREST WAS PAID TO BANK A ND REFERRED TO PAGES 3-4 OF THE PAPER BOOK TO SUPPORT THE CONTENTIONS OF THE ASSESS EE AS REFLECTED IN THE LEDGER ACCOUNT OF SALES ACCOUNT OF M/S. SUPER SMELTERS. TH E LD.AR ALSO FURTHER ARGUED THAT THE ENTIRE INTEREST CANNOT BE DISALLOWED AND D ISALLOWANCE, IF ANY, MAY BE RESTRICTED TO RS. 1.23 LACS. HE DREW OUR ATTENTION TO THE STATEMENT SHOWING CALCULATION OF INTEREST AS AVAILABLE AT PAGES 15-1 7 OF THE PAPER BOOK. THE LD. AR EXPLAINED THAT ON 03-04-2007 AN AMOUNT OF RS.45,00, 000/- WAS DEBITED FROM ACCOUNT OF ASSESSEE AND AGAIN ON 7-4-07 AN AMOUNT O F RS.27,00.000/- WAS CREDITED TO THE ACCOUNT OF ASSESSEE AND SUCH AMOUNT WAS AVAI LABLE WITH M/S. SUPER SMELTERS FOR FOUR DAYS AND AT THE SAME TIME THE LD.AR EXPLAI NED THAT THE ASSESSEE HAD OWN FUNDS OF RS.2,05,05,4334/-. FURTHER, HE HAS DRAWN O UR ATTENTION THE PAGE 16 REFERRING TO A TRANSACTION FROM 29-8-2007 ONWARDS. WHEREAS ITS OWN FUND WAS PAID BEING INTEREST TO BANK UPTO 31-03-2008 TOTALING TO RS.1,23,476/- AND PRAYED BEFORE US TO DISALLOW THE SAME. 11 I.T.A NOS. 1087 & 1669/KOL/2013 M/S. SAI IRON (I) LTD 19. IN REPLY, THE LD.DR SUBMITS THAT THE ASSESSEE PRIMARILY INDULGED IN DIVERSIFICATION OF FUNDS AND FURTHER SUBMITS THAT T HERE WERE OCCASIONAL SALES. HOWEVER, HE RELIED ON THE ORDER OF THE AO. 20. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L ON RECORD. PRIMARILY WE FIND THAT THE TRANSACTIONS WITH REGARD TO THE SALE & PURCHASE WITH THE M/S SUPER SMELTERS WERE MINIMAL CONSIDERING THE FLOW OF MONEY BETWEEN THE TWO. THEREFORE THE ISSUE OF THE DIVERSION OF THE INTEREST BEARING FUND CANNOT IGNORED/ DIVERTED. HOWEVER FROM THE SUBMISSION OF THE ASSESSEE WE FIND THAT THERE IS REGULAR OUTFLOW AND INFLOW OF FUNDS IN THE ACCOUNT OF M/S SUPER SME LTERS. THE FUND IS GOING TO THE ACCOUNT OF M/S SUPER SMELTERS FROM THE BANK OF THE ASSESSEE AND AFTER SOME DAYS THE AMOUNT IS ALSO COMING BACK TO THE ACCOUNT OF TH E ASSESSEE FROM M/S SUPER SMELTERS. THIS REGULAR ACTIVITY OF THE FUND TRANSFE R SHOWS THAT THE BORROWED MONEY HAS NOT BEEN UTILIZED SOLELY BY M/S SUPER SMELTERS FOR THE ENTIRE YEAR. FOR PART OF THE YEAR THE ASSESSEE HAS UTILIZED THE FUND AND FOR PART OF THE YEAR M/S SUPER SMELTERS HAS UTILIZED THE FUND. THEREFORE IN OUR CO NSIDERED VIEW THE INTEREST ON BORROWED MONEY NEEDS TO BE ALLOCATED ON PROPORTIONA TE BASIS DEPENDING ON THE UTILIZATION OF FUNDS. IN SUPPORT OF THIS THE LD. AR HAS ALLOCATED THE INTEREST AMOUNT WHICH IS ENCLOSED AS ANNEXURE 1 IN THIS ORDER. 21. NOW THE ISSUE ARISES WHETHER THE DISALLOWANCE O F THE INTEREST SHALL BE WORKED AFTER CONSIDERING THE CAPITAL OF THE ASSESSE E. THE LD. AR BEFORE US SUBMITTED THAT THE AMOUNT GIVEN TO M/S SUPER SMELTE RS FIRST NEEDS TO BE ADJUSTED WITH THE OWNED FUND OF THE ASSESSEE AND THE AMOUNT WHICH IS OVER AND ABOVE OF THE OWNED FUND OF THE ASSESSEE GIVEN TO M/S SUPER SMELT ERS SHOULD ONLY BE TAKEN FOR THE PURPOSE OF THE DISALLOWANCE OF THE INTEREST. WE ARE FINDING THE FORCE IN THE SUBMISSION OF THE ASSESSEE THEREFORE WE ARE INCLINE D TO DISALLOW THE INTEREST ON THE 12 I.T.A NOS. 1087 & 1669/KOL/2013 M/S. SAI IRON (I) LTD BORROWED FUND ONLY FOR THE PERIOD UTILIZED BY M/S S UPER SMELTERS AND ONLY THAT AMOUNT SHALL BE CONSIDERED WHICH IS OVER AND ABOVE OF THE OWNED FUND OF THE ASSESSEE. IN THIS CONNECTION WE ALSO RELY IN THE OR DER OF HONBLE TRIBUNAL OF CHENNAI IN THE CASE OF DCIT VS. ALLIANCE RETREAT (P ) LTD. 61 TAXMANN.COM 249. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED BELOW : SECTION 36(1)(III) OF THE INCOME-TAX ACT, 1961 - IN TEREST ON BORROWED CAPITAL (INTEREST FREE LOANS TO SISTER CONCERNS) - ASSESSME NT YEAR 2009-10 - ASSESSEE, A REAL ESTATE COMPANY, HAD TAKEN A TERM LOAN AND PA ID INTEREST ON IT - ASSESSING OFFICER MADE DISALLOWANCE ON ACCOUNT OF D IVERSION OF INTEREST- BEARING BORROWED FUNDS TO GROUP COMPANIES - ASSESSE E HAD BEEN ABLE TO EXPLAIN THAT ENTIRE SECURED LOAN WAS USED FOR BUSIN ESS PURPOSE AS ASSESSEE HAD GIVEN DETAILS OF BORROWINGS AND UTILISATION OF SAME - FURTHER, ASSESSING OFFICER FAILED TO ESTABLISH THAT LOAN AMOUNT ADVANC ED TO SISTER CONCERNS WAS OUT OF INTEREST BEARING FUNDS ONLY - WHETHER DISALL OWANCE MADE BY ASSESSING OFFICER WAS UNJUSTIFIED - HELD, YES [PARAS 8 AND 9] [IN FAVOUR OF ASSESSEE]. 22. RESPECTFULLY FOLLOWING THE AFORESAID ORDER WE P ARTLY ALLOW THE GROUND OF THE ASSESSEES APPEAL AND ACCORDINGLY DIRECTS TO AO IN TERMS OF ABOVE. HENCE THIS GROUND OF ASSESSEES APPEAL IS PARTLY ALLOWED. 23. IN THE RESULT, THE APPEAL OF THE REVENUE IN I TA NO.1087/KOL/2013 IS DISMISSED AND APPEAL OF THE ASSESSEE IN ITA NO.166 9/KOL/2013 AY 2008-09 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH AUGUST, 2016. SD/- SD/- WASEEM AHMED S.S.VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMB ER DATED: 26 /08 /2016 13 I.T.A NOS. 1087 & 1669/KOL/2013 M/S. SAI IRON (I) LTD *PRADEP/SR.PS COPY OF ORDER FORWARDED TO: 1 APPELLANT/DEPARTMENT: THE DCIT, CC-V, AAYKAR BHAWAN (POORVA) 110 SHANTIPALLY, KOLKATA-107. 2 RESPONDENT/ASSESSEE: M/S. SAI (IRON) INDIA LTD 39 S HAKESPEARE SARANI, KOL-17. 3 THE CIT(A), 4 5 CIT, 5. D.R. TRUE COPY, BY ORDER ASSTT. REGISTRAR , ITAT, KOLKATA