Shelly Bansal, Chandigarh V. DCIT, Chandigarh

ITA 1110/CHANDI/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5203 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 21-02-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 01-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: K VRIND JAIN

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE MS.DIVA SINGH, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.1110/CHD/2016 (ASSESSMENT YEAR : 2012-13) SHELLY BANSAL, VS. THE D.C.I.T., H.NO.1376, SECTOR 40-B, CIRCLE 4(1), CHANDIGARH. CHANDIGARH. PAN: AENPB4396P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K. VRIND JAIN RESPONDENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 03.04.2017 DATE OF PRONOUNCEMENT : 28.04.2017 O R D E R PER ANNAPURNA GUPTA, A.M . : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(APPEALS)-2, CHANDIGARH DAT ED 12.8.2016 RELATING TO ASSESSMENT YEAR 2012-13. 2. GROUND NO.1 IS GENERAL AND NEEDS NO ADJUDICATION. 3. GROUND NOS.2 AND 3 RAISED BY THE ASSESSEE ARE O N THE ISSUE OF RESTRICTION OF DISALLOWANCE OF DEDUCTI ON CLAIMED U/S 80IC, TO 25% AS AGAINST 100%. THE SAID GROUNDS READ AS UNDER: 2 THAT THE LD. CIT APPEALS HAS ERRED ON LAW WHILE INT ERPRETING THE PROVISIONS OF THE SECTION 80IC. 3 THAT THE LD. CIT APPEALS HAS ERRED IN LAW AS WELL A S ON FACTS OF THE CASE WHILE RESTRICTING THE DEDUCTION TO THE TUNE OF 25 % RATHER THAN 100% DEDUCTION U/S 80IC, FROM THE PROFITS OF THE ELIGIBL E BUSINESS UNDERTAKING. 2 SO THE DISALLOWANCE OF RS.6109195/- MAY PLEASE BE A LLOWED AS DEDUCTION WRONGLY DENIED BY THE A.O. 4. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80IC OF THE INCO ME TAX ACT, 1961 (IN SHORT THE ACT) AMOUNTING TO RS.81,4 5,593/- @ 100% OF THE ELIGIBLE PROFITS. THE INDUSTRIAL UND ERTAKING OF THE ASSESSEE HAD COMMENCED OPERATION/ACTIVITY ON 6.11.2006 AND THE INITIAL ASSESSMENT YEAR WAS 2007- 08. THE ASSESSEE HAD CLAIMED 100% DEDUCTION FROM THE PR OFITS DURING FIRST FIVE ASSESSMENT YEARS. IN THE RELEVAN T YEAR UNDER CONSIDERATION I.E. 6 TH YEAR FROM COMMENCEMENT OF THE PRODUCTION, THE ASSESSEE AGAIN CLAIMED DEDUCTION U/ S 80IC @ 100% FROM THE ELIGIBLE PROFITS CLAIMING THAT SUB STANTIAL EXPANSION OF THE UNDERTAKING WAS CARRIED OUT DURING ASSESSMENT YEAR 2010-11. THE ASSESSING OFFICER ELA BORATELY DISCUSSED THE ISSUE IN THE ASSESSMENT ORDER AND RES TRICTED THE CLAIM OF DEDUCTION TO THE EXTENT OF 25% ON ACCO UNT OF THE IMPUGNED YEAR BEING THE 6 TH ASSESSMENT YEAR FROM THE INITIAL ASSESSMENT YEAR I.E. A.Y 2007-08. THE LD. CIT (APPEALS) UPHELD THE ORDER OF THE ASSESSING OFFICER FOLLOWING THE DECISION OF THE I.T.A.T., CHANDIGARH BENCH IN T HE CASE OF HYCRON ELECTRONICS VS. ITO IN ITA NO.798/CHD/20 12. 5. DURING THE COURSE OF HEARING BEFORE US THE LD. COUNSEL FOR THE ASSESSEE FAIRLY ADMITTED THAT THE I SSUE WAS COVERED AGAINST IT BY THE DECISION OF THE I.T.A.T. IN THE CASE OF HYCRON ELECTRONICS (SUPRA). 3 6. WE HAVE HEARD BOTH THE PARTIES. WE FIND NO INFIRMITY IN THE ORDER OF THE CIT (APPEALS). THE U NDISPUTED FACTS IN THE PRESENT CASE ARE THAT THE ASSESSEE CO MMENCED ITS MANUFACTURING ACTIVITY ON 06.11.2006 I.E AFTE R SECTION 80IC WAS BROUGHT ON STATUTE VIDE FINANCE ACT, 2003 W.E.F 01.04.2004. IT IS ALSO NOT DENIED THAT THE ASSESSE E HAD ALREADY CLAIMED 100% DEDUCTION OF ITS PROFITS FOR T HE FIRST FIVE YEARS. THE IMPUGNED YEAR IS THE SIXTH YEAR SINCE COMMENCEMENT OF BUSINESS OPERATIONS AND THE ASSESSE E HAS CLAIMED DEDUCTION @ 100% ON ACCOUNT OF SUBSTANTIAL EXPANSION CARRIED OUT BY IT IN A.Y 2010-11. THE I. T.A.T. CHANDIGARH BENCH, IN THE CASE OF HYCRON ELECTRONIC S (SUPRA), HAS CATEGORICALLY HELD THAT A NEW UNIT WHI CH COMES INTO EXISTENCE AFTER THE PROVISION OF SECTION 80IC WAS BROUGHT ON STATUTE, IS NOT ENTITLED TO DEDUCTION @ 100% ON ACCOUNT OF SUBSTANTIAL EXPANSION UNDERTAKEN. THE I .T.A.T. HAS FURTHER HELD THAT AN ELIGIBLE ASSESSEE IS ENTIT LED TO CLAIM ONLY ONE INITIAL ASSESSMENT YEAR FOR THE PURP OSE OF CLAIMING DEDUCTION @ 100% OF ITS PROFITS AND THAT IN ANY CASE A UNIT SET UP IN HIMACHAL PRADESH IS ENTITLED TO DEDUCTION @ 100% OF ITS PROFITS ONLY FOR A PERIOD O F FIVE YEARS AND THEREAFTER @ 25%. IN VIEW OF THE SAME, T HE ISSUE IN THE PRESENT CASE BEING SQUARELY COVERED BY THE D ECISION OF THE I.T.A.T., CHANDIGARH BENCH IN THE CASE OF H YCRON ELECTRONICS (SUPRA) THE CIT (APPEALS), WE HOLD, HAS RIGHTLY UPHELD THE ORDER OF THE ASSESSING OFFICER RESTRICTI NG THE 4 DEDUCTION CLAIMED TO 25% OF THE PROFITS. GROUND NO S.2 AND 3 RAISED BY THE ASSESSEE ARE, THEREFORE, DISMISSED. 7. GROUND NO.4 OF THE ASSESSEES APPEAL READS AS UNDER: 4. THAT THE LD. CIT APPEALS HAS ERRED IN LAW AS WE LL AS ON FACTS WHILE REDUCING AN ADDITION TO THE TUNE OF RS.90000/ - ON ACCOUNT OF INTEREST NOT CHARGED ON LOAN AND ADVANCES, THE ADDI TION MAY KINDLY BE DELETED. 8. BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT THE ASSESSEE WAS PAYING INTEREST ON BORROWED FUNDS FRO M BANK AND ON THE OTHER HAND, NO INTEREST WAS CHARGED ON T HE LOANS AND ADVANCES MADE TO ONE SHRI HEMANT GARG AMOUNTING TO RS.9 LACS. THEREFORE, THE ASSESSING O FFICER MADE ADDITION ON ACCOUNT OF INTEREST INCOME ON THE SAID LOAN @ 16% AMOUNTING TO RS.1,44,000/- TREATING THE SAME AS INCOME FROM OTHER SOURCES. THE LD. CIT (APPEALS ) UPHELD THE ADDITION, HOLDING THAT NO MATERIAL HAD BEEN BRO UGHT ON RECORD BY THE ASSESSEE TO PROVE THAT NO INTEREST BE ARING FUNDS HAD BEEN DIVERTED FOR MAKING INTEREST FREE AD VANCES. THE LD. CIT (APPEALS), HOWEVER, RESTRICTED THE INTE REST RATE TO 10% INSTEAD OF 16% APPLIED BY THE ASSESSING OFFI CER, HOLDING THE SAME TO BE REASONABLE AND THEREBY RESTR ICTED THE ADDITION TO THE EXTENT OF RS.90,000/-. 9. BEFORE US, LD. COUNSEL FOR THE ASSESSEE ARGUED THAT NO ADDITION WAS TO BE MADE SINCE THE ASSESSEE HAD SUFFICIENT OWN INTEREST FREE FUNDS FOR MAKING THE I MPUGNED ADVANCE. THE LD. COUNSEL FOR ASSESSEE DREW OUR ATT ENTION TO THE BALANCE SHEET OF THE ASSESSEES PROPRIETARY CONCERN 5 I.E. M/S HIMSHELL INDUSTRIES, BADDI, PLACED BEFORE US IN THE PAPER BOOK FILED AND POINTED OUT THAT THE CAPITAL A CCOUNT OF THE PROPRIETOR SHOWED A BALANCE OF RS.2,06,76,978/- . THE LD. COUNSEL FOR THE ASSESSEE FURTHER POINTED OUT TH AT THE ADVANCE GIVEN TO SHRI HEMANT GARG WAS RS.9 LACS ONL Y AND THUS IT WAS CLEAR AND EVIDENT THAT OWN INTEREST FRE E FUNDS OF THE ASSESSEE WERE SUFFICIENT TO MAKE THE SAID ADVAN CE AND, THEREFORE, CALLED FOR NO ADDITION TO BE MADE ON ACC OUNT OF INTEREST. 10. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE LD. CIT (APPEALS). 11. WE HAVE HEARD THE RIVAL CONTENTIONS. WE FIND MERIT IN THE CONTENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE. AS DEMONSTRATED BY THE LD. COUNSEL FOR THE ASSESSEE THE OWN INTEREST FREE FUNDS OF THE ASSESSEE AMOUNTED TO RS.2,06,76,978/-, WHILE INTEREST FREE ADVANCES GIVE N WAS ONLY RS.9 LACS.THE LD.DR HAS NOT CONTROVERTED THIS FACT. THUS CLEARLY, THERE WAS SUFFICIENT INTEREST FREE OW N FUNDS AVAILABLE WITH THE ASSESSEE FOR MAKING THE SAID ADV ANCES AND THE PRESUMPTION IN SUCH CASES IS THAT ADVANCE H AS BEEN MADE OUT OF THE SAME. THE HON'BLE JURISDICTIO NAL HIGH COURT IN THE CASE OF BRIGHT ENTERPRISES IN IT A NO.224 OF 2013 (O & M) DATED 24.7.2015 HAS LAID DOWN THE AFORESAID PROPOSITION AT PARA 16 OF ITS ORDER AS F OLLOWS: 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 6 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 A RISE THAT INVESTMENT WOULD BE OUT OF THE INTEREST FREE FUNDS GENERATED O R AVAILABLE WITH THE COMPANY IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. 12. IN VIEW OF THE ABOVE, WE HOLD THAT THERE IS NO CASE FOR MAKING ANY ADDITION OF INTEREST ON ACCOUNT OF D IVERSION OF INTEREST BEARING FUNDS FOR MAKING INTEREST FREE ADVANCES AND THE ADDITION UPHELD IN THE PRESENT CASE OF RS.9 0,000/- IS, THEREFORE, DIRECTED TO BE DELETED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (DIVA SINGH) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 28 TH APRIL, 2017 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH