Deputy Commissioner of Income-tax, V. Jain Irrigation System Ltd., Jalgaon

ITA 1183/PUN/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 6799 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-08-2018
• Assessment Year: 2005-2006
• Appeal Filed On: 01-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E BEFORE SHRI R.S. SYAL, VP AND SHRI PARTHA SARATHI CHAUDHURY, JM / ITA NO.1183/PUN/2016 / ASSESSMENT YEAR : 2005-06 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2, JALGAON. .... / APPELLANT / V/S. JAIN IRRIGATION SYSTEMS LTD., JAIN PIPE NAGAR, PLASTIC PARK, N.H. : 6, BAMBHORI, DIST- JALGAON-425 001 PAN : AAACJ7163Q / RESPONDENT ASSESSEE BY : SHRI PRASHANT MAHESHWARI REVENUE BY : SHRI SUDHENDU DAS / DATE OF HEARING : 20.12.2018 / DATE OF PRONOUNCEMENT : 20.12.2018 / ORDER PER PARTHA SARATHI CHAUDHURY, JM : THIS APPEAL PREFERRED BY THE REVENUE EMANATES FROM THE ORDER OF CIT(APPEAL)-2, NASHIK DATED 11.03.2016 FOR THE ASSESSMENT YEAR 2005-06 AS PER FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 1,26,66,295/- MADE ON ACCOUNT OF INTEREST ON THE INTEREST FREE LOAN OF RS.10,55,52,465/- 2 ITA NO. 1183/PUN/2016 A.Y.2005-06 GIVEN FOR THE PROPERTIES TAKEN ON RENT FROM THE DIR ECTORS AND THEIR RELATIVES. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE ORDER OF THE LD.CIT(A) BE CANCELLED ON THE ABOVE ISSUE AND T HAT OF THE A.O. BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, MODIFY , DELETE AMEND ANY OF THE GROUNDS WITH PRIOR PERMISSION OF THE HON'BLE PR .CIT, AS PER THE CIRCUMSTANCES OF THE CASE. 4. THE APPELLANT PRAYS TO FILE ANY OF THE ADDITIONA L EVIDENCE APPROPRIATE TO THE GROUNDS TAKEN IN APPEAL, WITH PRIOR PERMISSI ON OF THE HON'BLE PR. CIT, AS PER THE CIRCUMSTANCES OF THE CASE. 2. THE FACTS OF THIS CASE ARE THAT SCRUTINY ASSESSMENT W AS COMPLETED AND AN ORDER U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFT ER REFERRED TO AS THE ACT) WAS PASSED ON DETERMINING TOTAL INCOME OF RS.3 3,00,62,916/-. AFTER SET OFF OF BROUGHT FORWARD BUSINESS LOSS OF RS.34,15,32,0 64/- OF A.Y.1997-98, LOSS WAS ASSESSED AT RS.1,14,69,148/- WHICH WAS NOT ALLOWED TO BE CARRIED FORWARD. FURTHER, DURING THE SCRUTINY ASSES SMENT PROCEEDING FOR A.Y.2008-09, IT WAS NOTICED BY THE THEN ASSESSING OFFICER , THAT THE ASSESSEE COMPANY HAS GIVEN AN AMOUNT OF RS.10,52,52,465/- AS DEPOSITS TO THE DIRECTORS, THEIR RELATIVES AND ASSOCIATED CONCERNS FO R TAKING THEIR PROPERTIES ON RENT. NOT ONLY SUBSTANTIAL DEPOSITS HAVE BEEN GIVEN BUT ALSO EXORBITANT RENT HAS BEEN PAID TO THESE PERSONS. THE AS SESSING OFFICER ALSO FOUND THAT THE BORROWED FUNDS HAVE BEEN DIVERTED FOR GIV ING DEPOSITS AND SIMULTANEOUSLY PAID INTEREST ON BORROWED FUNDS. THEREFORE, THE CASE WAS REOPENED U/S.148 OF THE ACT ON THE FACT THAT THE ASSES SEE HAS GIVEN INTEREST FREE ADVANCES TO ITS DIRECTORS AND FAMILY MEMBERS OF TH E DIRECTORS. ACCORDINGLY, ASSESSMENT WAS COMPLETED AND AN ORDER U/S .143(3) R.W.S.147 OF THE ACT WAS PASSED ON 28.03.2013 DETERMINING THE TOTAL IN COME AT RS.34,04,70,447/-. AFTER SET OFF OF BROUGHT FORWARD BUSINESS LO SS, ASSESSED INCOME BECOME NIL. 3 ITA NO. 1183/PUN/2016 A.Y.2005-06 3. DURING SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS WORKED OUT THE AMOUNT OF INTEREST OF RS.1,26,66,295/- I.E. @ 12% ON INTEREST FREE DEPOSITS OF RS.10,55,52,465/- GIVEN FOR THE PROPERTIES TAKEN ON RENT FROM THE DIRECTORS AND THEIR RELATIVES AND ADDED TO THE TOTAL INCOME. 4. THAT BEFORE THE LD. CIT(APPEALS), THE ASSESSEE MADE ELAB ORATE SUBMISSION MENTIONED AS UNDER : IN SUPPORT OF ADDITION OF RS.1,26,66,295/- ON ACCOU NT OF DISALLOWANCE OF INTEREST ON DEPOSITS IN RESPECT OF PROPERTY HIRE D ON RENT, THE APPELLANT HAS RAISED FOLLOWING CONTENTIONS: 1) THE A.O. FAILED TO APPRECIATE THAT THE APPELLANT COMPANY HAD ADEQUATE OWN FUNDS AS ON 31/03/2004 AND 31/03/2005 AMOUNTING TO RS. 272.99 CRORES AND RS. 328.44 CRORES RESPECTIVELY IN THE FORM OF SHARE CAPITAL AND RESERVES AND SURPLUS AS PER AUDIT ED BALANCE SHEETS WHICH IS MUCH MORE THAN THE INTEREST FREE AMOUNT ADVANCED FOR HIRING THE IMMOVABLE PROPERTY OF R S. 10.55 CRORES. IN VIEW OF THE ABOVE FACTS DISALLOWANCE OF INTEREST IS NOT JUSTIFIED AS LAID DOWN BY HON'BLE BOMBAY HIGH COURT, IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 340 (BORN) AND PUNE ITAT, IN THE CASE OF DR. D.Y. PATIL PRATISTHAN VS. DCIT (2013) 154 IT] 320 (PUNE). 2) THE A.O. HAD MADE THIS DISALLOWANCE WITHOUT POINTING OUT ANY DIRECT NEXUS BETWEEN BORROWED FUNDS AND AMOUNT OF INTEREST FREE DEPOSITS. 3) THE INTEREST FREE DEPOSITS WERE GIVEN FOR HIRING TH E IMMOVABLE PROPERTIES FOR THE PURPOSE OF BUSINESS IN THE ORDINARY COURSE OF BUSINESS. THE A.O. HAD NOT POINTED OUT THAT THE IMPUGNED PROPERTY WAS USED FOR NON BUSINESS PURPOSE. 4) IN RESPECT OF THE IMPUGNED HIRED PROPERTY FOR WHICH DEPOSIT WAS GIVEN, 25% OF RENT PAID WAS DISALLOWED IN THE PAST AND FOR THE YE AR UNDER APPEAL AND THE SAID DISALLOWANCE WAS ACCEPTED BY THE DEPARTMENT BY CONSIDERING THE SAME AS FAIR AND REAS ONABLE. 5) THE IMPUGNED DISALLOWANCE IMPLIEDLY U/S.36(1)(III) ON NOTIONAL BASIS IN THE HANDS OF THE TENANT I.E. THE APPELLANT AND ALSO IN THE HANDS OF OWNERS ON THE GROUND OF ALLEGED DEEMED BENEFIT U/S.2(24)(IV) IS SELF CONTRADICTORY AND IS NOT SUSTAINABLE EITHER ON FACT S OR IN LAW. 6) THE A.O. HAS NOT BROUGHT ON RECORD ANY EVIDENCE OR COMPARABL E CASES, SHOWING THAT THE PROPERTY WAS HIRED BY THE A PPELLANT AT EXCESSIVE RENT AND EXCESSIVE DEPOSIT COMPARED TO TH E MARKET RATE. THE RENT PAID AND DEPOSIT GIVEN CONSIDERING COMMERC IAL EXPEDIENCY OF THE SAME AND HENCE, DISALLOWANCE IS NOT JUSTIFIE D. 4 ITA NO. 1183/PUN/2016 A.Y.2005-06 IN SUPPORT OF THE ABOVE PROPOSITION THE APPELLANT H AD RELIED ON FOLLOWING DECISIONS: I) S.A. BUILDERS LTD. VS. CIT(A) & ANR. (2006) 206 CTR 631 (SC) II) ATHERTON ( H.M. INSPECTOR OF AXES) VS. BRITISH INSULATED & HELSBY CABLES LTD. (1925) 10 TAX CASES 155(HL) III) EASTERN INVESTMENTS LTD. VS. CIT (1951) 20 ITR 1 (SC) IV) CIT VS. CHANDULAL KESHAVLAL & CO. (1960) 38 ITR 601 (SC) V) CIT VS. MALAYALAM PLANTATIONS LTD. (1964) 53 ITR 140 VI) CIT VS. BIRLA COTTON SPG. & WVG. MILLS LTD. (19 71) 82 ITR 166(SC) THE LD. CIT(A) AFTER CONSIDERING FACTS OF THE CASE , ASSESSM ENT ORDER AND THE SUBMISSIONS MADE BY ASSESSEE HELD AS FOLLOWS: 6.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND RIVAL CONTENTIONS. ON PERUSAL OF THE SAME IT HAS BEEN NOT ICED AT THE OUTSET THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE APP ELLANT COMPANY IN THE FORM OF SHARE CAPITAL AND RESERVES WAS AMOUNTING TO RS.272.99 CRORES AND RS.328.44 CRORES AS ON 31.03.2004 AND 31.03.200 5 RESPECTIVELY WHICH IS MUCH MORE THAN THE INTEREST FREE DEPOSIT O F RS.10.55 CRORES. THE A.O. HAS ALSO NOT BROUGHT ON RECORD ANY EVIDENC E SHOWING DIRECT NEXUS OF BORROWED FUND AND INTEREST FREE DEPOSITS. THEREFORE, IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE BOMBAY HIGH COUR T IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 340 (BO M.), THE DISALLOWANCE OF INTEREST OF RS.1,26,66,295/- IS NOT JUSTIFIED. FURTHER THE A.O. HAS NOT BROUGHT ON RECORD ANY EVID ENCE SHOWING THAT THE IMPUGNED PROPERTY WAS NOT HIRED FO R BUSINESS PURPOSE. THE AO HAS ALSO NOT BROUGHT ON RECORD ANY COMPARABLE CASES OR EVIDENCE SHOWING THAT THE RENT PAID OR DEP OSITS GIVEN FOR HIRING THE PROPERTIES IS EXCESSIVE. IN FACT WHILE M AKING ORIGINAL ASSESSMENT U/S.143(3) AND ALSO IN EARLIER YEARS THE AO/DEPARTMENT HAD ACCEPTED THE DISALLOWANCE OF RENT PAID TO THE E XTENT OF 25% AS EXCESSIVE. IN VIEW OF THE ABOVE FACTS AND RATIO LAID DOWN BY V ARIOUS DECISIONS RELIED ON BY THE APPELLANT, I AM OF THE C ONSIDERED VIEW THAT THE A.O. IS NOT JUSTIFIED IN DISALLOWING INTER EST OF RS.1,26,66,295/-. THE ADDITION OF RS.1,26,66,295/- IS THEREFORE DELETED. 5. WE HAVE PERUSED THE CASE RECORD AND HEARD THE RIVA L CONTENTIONS. WE FIND THAT THE DECISION OF LD. CIT(A) IS PASSED ON THE RATIO LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER 5 ITA NO. 1183/PUN/2016 A.Y.2005-06 LTD. REPORTED AS 313 ITR 340 (BOM.) AND HAVE HELD THAT THE DISALLOWANCE OF INTEREST OF RS.1,26,66,295/- IS NOT JUSTIFIED. FURTHER, WE OBS ERVE THAT ON THE BASIS OF THE SAME HIGH COURT DECISION, THE PUNE BENCH OF THE TRIBUNA L IN ITA NO.1070/PUN/2013 FOR ASSESSMENT YEAR 2008-09 IN THE CA SE OF JAIN IRRIGATION SYSTEMS LTD. VS. DCIT, ON THE SAME ISSUE HAS G IVEN RELIEF TO THE ASSESSEE. THE OBSERVATION OF THE TRIBUNAL IS AS UNDER: 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUNDS IS WITH RE SPECT TO DISALLOWANCE OF INTEREST BY HOLDING THAT THE DEPOSITS PAID TO TH E RESPECTIVE PARTIES ARE EXCESSIVE. IT IS AN UNDISPUTED FACT THAT IN MOST OF THE CASES, THE DEPOSITS HAVE BEEN GIVEN BY THE ASSESSEE TO THE VARIOUS PART IES IN EARLIER YEARS AND DURING THE YEAR UNDER CONSIDERATION TO SOME OF THE PARTIES, FURTHER DEPOSITS HAVE BEEN GIVEN. IT IS ALSO AN UNDISPUTED FACT THAT IN THE ASSESSMENTS FRAMED U/S.143(3) OF THE ACT FOR AY 200 6-07 AND 2007-08, NO DISALLOWANCE OF THE INTEREST ON ACCOUNT OF THE D EPOSITS BEING EXCESSIVE AND UNREASONABLE WAS MADE BY THE AO. THE TOTAL DEPOSIT GIVEN BY THE ASSESSEE UPTO THE YEAR, AS PER THE DET AILS AS GIVEN ON PAGE 134 OF THE PAPER BOOK IS RS.13.26 CRORE AS AGAINST WHICH THE AVAILABILITY OF INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES AND SURPLUS AS AT THE END OF THE FINANCIAL YEAR 31ST MARCH 2008 IS IN EXCESS OF RS.965 CRORES INDICATING THAT THE AVAILABILITY OF INTEREST FREE FUNDS WITH THE ASSESSEE TO BE FAR IN EXCESS OF THE AMOUNTS GIVEN ON DEPOSITS. WHEN THE AVAILABILITY OF INTERES T FREE FUNDS ARE FAR IN EXCESS OF THE AMOUNTS GIVEN AS DEPOSITS, THEN AS PE R THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE U TILITIES (SUPRA), A PRESUMPTION ARISES THAT THE DEPOSITS ARE OUT OF INT EREST FREE FUNDS AND NO INTEREST BEARING FUNDS ARE UTILIZED FOR MAKING T HE DEPOSITS. THE RATIO OF THE AFORESAID DECISION OF HONBLE BOMBAY HIGH CO URT IN THE CASE OF RELIANCE UTILITIES (SUPRA) HAS BEEN FOLLOWED BY THE VARIOUS BENCHES OF PUNE TRIBUNAL. BEFORE US, REVENUE HAS NOT BROUGHT O N RECORD ANY CONTRARY BINDING DECISION IN ITS SUPPORT. WE THEREF ORE FOLLOWING THE RATIO OF THE AFORESAID DECISION RENDERED IN THE CASE OF R ELIANCE UTILITIES (SUPRA) HOLD THAT IN THE PRESENT CASE, NO DISALLOWA NCE OF INTEREST IS CALLED FOR. THUS, THE GROUNDS OF THE ASSESSEE ARE A LLOWED . THEREFORE, THE PROPOSITION OF LAW IS VERY CLEAR ON THE ISSUE AND AS PER FACTUAL PARAMETERS, ONCE THE ASSESSEE IS HAVING INTEREST FREE FUNDS AS ITS RESERVES THEN IF THERE IS ANY INTEREST FREE DEPOSITS MADE FROM THAT RESERVES, ADDITION CANNOT BE MADE IN THE HANDS OF ASSESSEE. IN THIS CASE, IT IS CLEARLY INDICATED IN FACTS ON RECORD THAT THE ASSESSEE-COMPANY WAS HAVING INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES AMOUN TING TO RS.272.99 CRORES AND RS.328.44 CRORES AS ON 31.03.2004 AND 31.03.20 05 RESPECTIVELY 6 ITA NO. 1183/PUN/2016 A.Y.2005-06 WHICH IS MUCH MORE THAN THE INTEREST FREE DEPOSITS OF RS. 10.55 CRORES. IN VIEW OF THE MATTER, RELIEF GRANTED BY THE LD. CIT(A) TO THE A SSESSEE IS HEREBY SUSTAINED AND GROUNDS OF APPEAL RAISED BY REVENUE ARE DISMISSED. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 20 TH DAY OF DECEMBER, 2018. SD/- SD/- R.S. SYAL PARTHA SARATH I CHAUDHURY VICE-PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 20 TH DECEMBER, 2018. SB !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEAL)-2, NASHIK. 4. THE PR. CIT-2, NASHIK. 5. '#$ %%&' , ( &' , )*+ , / DR, ITAT, B BENCH, PUNE. 6. $,- ./ / GUARD FILE. // TRUE COPY // (0 / BY ORDER, %1 &+ / PRIVATE SECRETARY ( &' , / ITAT, PUNE. 7 ITA NO. 1183/PUN/2016 A.Y.2005-06 DATE 1 DRAFT DICTATED ON 20.12.2018 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 20 .12.2018 SR.PS/PS 3 DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 DATE OF UPLOADING OF ORDER SR.PS/PS 8 FILE SENT TO BENCH CLERK SR.PS/PS 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10 DATE ON WHICH FILE GOES TO THE A.R 11 DATE OF DISPATCH OF ORDER