Grandhi Subba Rao, Hyderabad V. DCIT, Hyderabad

ITA 1266/HYD/2006

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59220 (ITAT-HYDERABAD)
• Duration Of Justice: 5 year(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 26-04-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 28-12-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B V PRASAD REDDY
• Assessee Lawyers: S V RAMA RAO
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE CHANDRA POOJARI, ACCOUNTANT MEMBER & SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1266/HYD/2006 ASSESSMENT YEAR 2001-02 GRANDHI SUBBA RAO GUNTUR. (PAN: ACKPG6041R) VS THE DCIT, CENTRAL CIRCLE 3 HYDERABAD APPELLANT RESPONDENT APPELLANT BY : SHRI S.V. RAMA RAO RESPONDENT BY : SHRI B.V. PRASAD REDDY DATE OF HEARING : 15.11.2011 DATE OF PRONOUNCEMENT : ORDER PER ASHA VIJAYARAGHAVAN, JM . THIS APPEAL PREFERRED BY THE ASSESSEE IS DIREC TED AGAINST THE ORDER PASSED BY THE CIT(A) I, HYDERABAD DATED 20. 10.2006 AND PERTAINS TO THE ASSESSMENT YEAR 2001-02. 2. THE ASSESSEE IS ON APPEAL AGAINST THE DISALLOWA NCE OF INTEREST OF RS.7892814/- ON THE GROUND THAT THE ASS ESSEE HAS MADE INVESTMENT IN SHARES AS WELL AS GRANTING INTER EST FREE LOAN TO SISTER CONCERNS OUT OF HIS BORROWED FUNDS. 3. THE FACTS OF THE CASE ARE THAT T HE ASSESSING OFFICER HAS DISALLOWED AN AMOUNT OF INTEREST OF RS.78,92,814/- OUT OF THE INTEREST OF RS.1,92,39,651/- PAID TO SHIMOGA PARTIE S. THE INTEREST DEBITED TO THE PROFIT AND LOSS ACCOUNT OVE R AND ABOVE THE SAID INTEREST OF RS.78,92,814/- HAS BEEN CONSIDERED AS ADMISSIBLE U/S 36(1)(III) OF THE IT ACT, 1961. THE INTEREST OF RS.1,92,39,651/- IS IN RESPECT OF SUNDRY CREDITORS CALLED SHIMOGA PARTIES FROM WHOM THE ASSESSEE IS TO PURCHA SE ARECA ITA NO.1266/HYD/2006 SHRI GRANDHI SUBBA RAO, GUNTUR 2 NUT WHICH IS THE RAW MATERIAL FOR MANUFACTURING BET EL NUT POWDER. 3.1 THE ASSESSING OFFICER HAS FOUND THAT THE ASSESS EE HAS GIVEN INTEREST FREE LOANS TO FRIENDS, RELATIVES AND SISTER CONCERNS TO THE TUNE OF RS.1,39,62,613/- THE ASSESSING OFF ICER ALSO FOUND OUT THAT THE ASSESSEES INVESTMENTS IN SHARES OF SISTER CONCERNS AND OTHER COMPANIES AMOUNTS TO RS.3,07,47, 737/- FROM WHICH DIVIDEND INCOME IS EXEMPT FROM TAX. THU S THE TOTAL AMOUNT OF INTEREST FREE LOANS AS WELL AS INVESTMENT IN SHARES OF COMPANIES, DIVIDEND INCOME FROM WHOM IS TAX EXEMPT, AMOUNTS TO RS.4,47,10,350/-. 3.2. THE ASSESSING OFFICER ALSO FOUND THAT THE CRE DIT BALANCE IN THE BALANCE SHEET IS AN INFLATED FIGURE SINCE VALUE OF FIXED ASSETS ARE TAKEN WITHOUT DEDUCTING DEPRECIATION AND AFTER ADJUSTING THE SAME TAKING INTO ACCOUNT WDA OF THE FIXED ASSETS TH E ASSESSING OFFICER FOUND THAT THE CREDIT BALANCE IN THE CAPITA L ACCOUNT COMES TO ONLY RS.65,83,300/-. 3.3. THUS, THE ASSESSING OFFICER FOUND THAT AS AGA INST INTEREST FREE LOANS AND INVESTMENT IN SHARES OF RS.4,47,10,3 50/-, THE CAPITAL AVAILABLE WAS ONLY RS.65,83,300/- WHICH ME ANS THAT ASSESSEE UTILISED INTEREST BEARING BUSINESS FUNDS I N GIVING INTEREST FREE LOANS AND INVESTMENT IN INCOME EXEMPT ED SHARES. 4. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 4.1. THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSIN G OFFICER STATING THAT THE DECISION OF PUNJAB & HARYANA HIGH COURT IN CIT VS. ABHISHEK INDUSTRIES PVT. LTD. (286 ITR 1) APPL IES TO THE ASSESSEES CASE AND CONFIRMED THE ORDER OF THE ASSE SSING OFFICER THAT THE INTEREST OF RS.78,92,814/- IS TO BE DISALL OWED. 5. AGGRIEVED THE ASSESSEE HAS PREFERRED APPEAL BEF ORE US. ITA NO.1266/HYD/2006 SHRI GRANDHI SUBBA RAO, GUNTUR 3 6. THE LEARNED DR SHRI B.V. PRASAD REDDY RELIED ON THE FOLLOWING CASE LAWS AND ALSO FILED WRITTEN SUBMISSI ONS. 1. CIT VS. VI BABY AND CO. (254 ITR 248) 2. CIT VS. MOTOR GENERAL FINANCE LTD. (254 ITR 449) 3. PUNJAB STAINLESS STEEL INDUSTRIES LTD. VS. CIT ( 324 ITR 396) 4. CIT VS. HR SUGAR FACTORY (P) LTD. (187 ITR 363) 5. KANKHAL INVESTMENTS & TRADING CO. P LTD. VS. AC IT (301 ITR (AT) 359) 6. INDIAN SHAVINGS PRODUCTS LTD. VS. CIT (265 ITR 2 50) (RAJ.) 7. CIT VS. AVERY CYCLE IND. LTD. (298 ITR 0239) P&H ) 8.CIT VS. ABHISHEK INDUSTRIES LTD. (286 ITR 1) 9. SMT. IVA GOGOI VS. CIT (254 ITR 576) (GUJ.) 10. CIT VS. DURGA PRASAD MORE (SC) 72 ITR 809) 11. INDIAN METALS AND FERRO ALLOYS LTD. VS. CIT (19 3 ITR 344) (ORS.) 12. SARAYA SUGAR MILLS P LTD. (ALL.) VS. CIT (193 I TR 375) 13. VIJAYAKUMAR MILLS LTD. VS. CIT (MDS.) (194 ITR 197) 14.PHALTAN SUGAR WORKS LTD. VS. CWT (208 ITR 989) 15. MCDOWELL AND CO. LTD. VS. COMMERCIAL TAX OFFICE R (154 ITR 148) (SC) 16. DY. CIT VS. SMT. PHOOLWATI DEVI (314 ITR (AT) ( 1) (DEL.) 17. SHRI HERSH CHANDHA VS. DDIT-1 (ITA NOS.3088 TO 3098 & 3107/DEL./2005) 7. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI S.V. RAMA RAO RELIED ON THE FOLLOWING CASE LAWS: 1. ASHOK BROTHERS VS. ITO (76 TTJ 427) (HYD.) ITA NO.1266/HYD/2006 SHRI GRANDHI SUBBA RAO, GUNTUR 4 2. MEENAKSHI SYNTHETICS P LTD. VS. ACIT (84 ITD 563 ) 3. SA BUILDERS PVT. LTD. VS. ACIT (86 ITD 58) (CHD. ) 4. CIT VS. TIN BOX CO. (260 ITR 637) (DEL.) 5. SA BUILDERS LTD. CIT(A) (288 ITR 1) (SC) 7.1. THE LEARNED DR COUNTED THAT THE CASE OF SA BUILDERS VS. ACIT (288 ITR 1) (SC) IS TO BE INTERPRETED IN FAVOU R OF THE DEPARTMENT. 8. THE ASSESSEE HAS FILED A PAPER BOOK CONTAINING VARIOUS DOCUMENTS GIVING FINANCIAL POSITION OF THE ASSESSEE FOR THE CURRENT AND EARLIER YEARS TO SUPPORT HIS CONTENTION THAT THE INTEREST FREE LOANS AND INVESTMENTS WERE OUT OF HIS OWN FUNDS. 9. ASSESSEE HAS ALSO FILED ORDER OF THE ITAT IN A SSESSEES OWN CASE IN ITA NO 1076, 1132/H/03 FOR THE ASSESSMENT Y EAR 1999- 00. IN THE SAID ORDER THE TRIBUNAL HAS HELD THAT I NTEREST FREE LOAN GIVEN TO RELATIVES AND SISTER CONCERN TO THE E XTENT O FRS.10760330/- WERE OUT OF OWN FUNDS AND HENCE NO DISALLOWANCE OF INTEREST CAN BE MADE. WE FIND THAT LIST OF PARTIES TO WHOM INTEREST FREE LOAN OUTSTANDING FOR THIS YEA R AGGREGATING TO RS.13962613/- ARE MORE OR LESS TO THE SAME PARTI ES IN RESPECT OF WHICH THE TRIBUNAL HAS HELD THAT LOANS WERE OUT OF OWN FUNDS. 10. WE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIALS AVAILABLE ON RECORD. AS REGARDS INVESTMENT IN SHARE S IN OTHER COMPANIES AMOUNTING TO RS.30747737/-, WE FIND THAT THESE INVESTMENTS HAVE BEEN FROM EARLIER YEARS AND IN PAG E 38 OF THE PAPER BOOK THESE INVESTMENTS HAVE BEEN SHOWN IN THE BOOKS OF ASSESSEE AS ON 31.03.2000. IT IS NOT CLEAR THAT WH ETHER THESE INVESTMENT WERE MADE THAT YEAR OR EARLIER YEARS. T HEREFORE, UNLESS IT IS PROVED THAT THESE INVESTMENTS HAVE BEE N MADE OUT OF BORROWED FUNDS IN THE RESPECTIVE YEARS IN WHICH THE INVESTMENTS ITA NO.1266/HYD/2006 SHRI GRANDHI SUBBA RAO, GUNTUR 5 HAVE BEEN MADE, NO DISALLOWANCE OF INTEREST CAN BE MADE THIS YEAR ON THE GROUND THAT SUCH INVESTMENTS HAVE BEEN , MADE OUT OF BORROWED FUNDS. IF THERE HAVE BEEN NO DISALLOWAN CE OF INTEREST ON ACCOUNT OF THESE INVESTMENTS IN THE EARLIER YEAR S, IT WOULD BE A STRONG INDICATION THAT THE AO WAS SATISFIED THAT SUCH INVESTMENTS WERE OUT OF OWN FUNDS AND NOT OUT OF BO RROWED FUNDS. 12. FURTHER, WE FIND THAT THE ASSESSING OFF ICER HAS NOT FULLY EXAMINED THE ISSUE FROM ALL ASPECTS NOR DID H AVE THE BENEFIT OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 1999-00. IF THERE HAD BEEN NO DISALLOWANCE ON TH IS ACCOUNT IN THE EARLIER YEARS, THERE CANNOT BE FRESH DISALLO WANCE DURING THE CURRENT YEAR, UNLESS FRESH LOANS OR FRESH INVES TMENTS WERE MADE OUT OF BORROWED AMOUNTS DURING THE CURRENT YEA R. HENCE THE ASSESSING OFFICER SHALL ALLOW THE INTEREST WITH RESPECT TO ACCOUNTS WHICH WERE ALREADY THERE FROM EARLIER YEAR S AND RESTRICT THE DISALLOWANCE OF INTEREST ONLY WITH RES PECT TO INVESTMENTS MADE OUT OF BORROWED FUNDS THIS YEAR. 13. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25. 1.201 2 SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER. DATED THE 25 TH JANUARY, 2012 COPY FORWARDED TO: 1. SHRI S. RAMA RAO, ADVOCATE, FLAT NO.103, H.NO.3-6-5 42/4 HIMAYATH NAGAR, ST. NO.7, HYDERABAD 2. THE DCIT, CENTRAL CIRCLE 3, HYDERABADHYDERABAD 3. THE CIT(A)-I, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/