The DCIT, Circle-1, Ahmedabad V. M/s. Amazon Textiles Pvt. Ltd., Ahmedabad

ITA 1300/AHD/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8578 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 26-07-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 02-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Keywords: Business expenditure; Notional interest
• Section: 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SHR I MAHAVIR PRASAD , JUDICIAL MEMBER AND SHRI MANISH BORAD , ACCOUNTANT MEMBER THE DCIT, CIRCLE - 1 AHMEDABAD (APPELLANT /RESPONDENT ) VS M/S. AMAZON TEXTILES PVT. LTD. 105, SAKAR - I, NR. NEHRU BRIDGE, ASHRAM ROAD, AHMEDABAD (RESPONDENT /APPELLANT ) REVENUE BY : S H RI V.K. SINGH , SR. D . R. ASSESSEE BY: S H RI VARTIK CHOKSHI , A.R. DATE OF HEARING : 04 - 04 - 2 018 DATE OF PRONOUNCEMENT : 09 - 04 - 2 018 / ORDER P ER : MANISH BORAD , ACCOUNTANT MEMBER : - THESE CROSS A PPEALS BY REVENUE AND ASSESSEE PERTAINING TO ASSESSMENT YEAR 2008 - 09 ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A) - VI, DATED 04 - 02 - 2014 WHICH ARISES OUT OF THE ORDER U/S. 143(3) OF THE ACT DATED 19 - 12 - 2010. I T A NO S . 1300 & 744 / A HD/20 14 A SSESS MENT YEAR 200 8 - 09 I.T.A NO S . 1300 & 744 /AHD/20 14 A.Y. 20 08 - 09 PAGE NO DCIT VS. M/S AMAZON TEXTILES PVT. LTD. 2 2. BRIEFLY STATED FACTS AS CULLED OUT IN THE RECO RDS ARE THAT THE ASSESSEE IS P RI V ATE . LTD COMPANY ENGAGED IN THE JOB WORK BUSINESS OF FABRICS. LOSS OF RS. 10,30,44,874/ - W AS DECLARED BY THE ASSESSEE IN THE RETURN OF INCOM E FILED ON 28 - 09 - 2008. CASE SELECTED FOR SCRUTINY AND NECESSARY NOTICES U/S. 1 4 3 ( 2) OF THE ACT AND 142(1) OF THE ACT ALONG WITH QUESTI ONNAIRE DUL Y SERVED UPON T H E ASSESSEE. AFT ER PERUSAL OF THE RECORDS AS WELL AS THE SU BMISSIONS FILED BY THE ASSESSEE, LEARNED ASSESSING OFFICER COMPLETED THE ASSESSMENT AFTER MAKING ADDITIONS FOR DELAY IN DEPOSIT OF EMPLOYEE S CONTRIBUTION TO PROVIDENT FUND AT RS. 8 , 888/ - AND DISALLOWANCE OF INTEREST EXPENDITURE OF RS . 78 , 83 , 596/ - BY TREATING THEM AS NON - BUSINESS EXPENDITURE AND ACCORDINGLY ASSESSED THE TOTAL LOSS AT RS. 9,51,52 , 390/ - . 3. AGGRIEVED ASSE SSE PREFERRED APPEAL BEFORE THE LD. CIT(A) AND PARTLY SUCCEEDED. NOW , BOTH THE REVENUE AND THE ASSESSEE ARE IN APPEAL BEFORE THE TRIBUNAL. 4. FRIST, WE TAKE UP REVENUE S APPEAL IN ITA NO. 1300/AHD/2014 RAISING FOLLOWING SUBSTANTIVE GROUN D OF APPEAL: - ' THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF INTEREST EXPENSES TO THE EXTENT OF RS.63.53 LACS DESPITE THE FACT THAT THE ASSESSEE HAD GIVEN INTEREST FREE LOANS TO RELATED PARTIES AND HAD ALSO CLAIMED INTEREST EXPENSES OF RS.2.31 CRORES. THE AO HAD ONLY DISALLOWED PART OF THE INTEREST EXPENSES ATTRIBUTABLE TO PROVIDING INTEREST FREE ADVANCES.' 5. BRIEF FACTS RELATING TO THIS GROUND ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, LD. ASSESSING OFFICER OBSERVED THAT I.T.A NO S . 1300 & 744 /AHD/20 14 A.Y. 20 08 - 09 PAGE NO DCIT VS. M/S AMAZON TEXTILES PVT. LTD. 3 ASSESSEE H AS CLAIMED INTEREST EXPENDITURE OF RS. 2,31,10,265/ - ON THE FUNDS BORROWED AS UNSECURED LOAN. THE LD. ASSESSING OFFICER ALSO OBSERVED T HAT ASSESSEE HAS EXTENDED LOANS AND ADVANCES TO VARIOUS PARTIES. FURTHER , DURING THE COURSE OF ASSESSMENT PROCEEDINGS , LD. ASSESSING OFFICER WAS NOT CONVINCED THAT ONLY THE INTEREST FREE FUNDS HAVE BEEN US ED FOR GIVING INTEREST FREE LOANS AND ADVANCES AND THEREFORE CONCLUDED TO DISALLO W THE INTEREST EXPENDITURE OF RS . 78 , 83 , 596/ - 6. WHEN THE MATTE R CAME UP BEFORE THE LD. CIT(A), H E APPRECIATED THE FACT THAT THE INTEREST WAS PAID TOWARDS THE LOANS TA KEN FOR BUSINESS PURPOSES FROM EXPORT I MPORT B ANK (EXIM) AND TERM L OAN FROM SBI. LD. CIT(A) DELETED THE MAJOR PORTION OF THE DISALLOWANCE OF INTEREST SUBJECT TO VERIFICATION O F THE INTEREST EXPENDITURE OF RS. 10 , 29 , 811/ - DIRECTING THE ASSESSING OFFICER TO VERIFY THE CONTENTION THAT THE EXIM LOAN AND SBI TERM LOAN WERE FOR SPECIFIC PURPOSES AND WERE NOT UTILIZED FOR MAKING FREE INTEREST ADVANCES. 7. REV ENUE IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY ARGUED SUPPORTING THE ORDER OF LD. ASSESSING OFFICER. ON THE OTHER HAND, LD. COUNSEL RELIED UPON THE FINDINGS OF LD. CIT(A) AND SUBMISSIONS MADE BEFORE HIM. 8. WE HAVE HEARD RIVAL CONTENTI ONS AND PERUSED THE RECORDS PLACED BEFORE US. REVENUE S GRIEVANCE IN T HIS APPEAL IS AGAINST THE DELETION OF DISALLOWANCE OF INTEREST BY LD. CIT(A). THE LD. ASSESSING I.T.A NO S . 1300 & 744 /AHD/20 14 A.Y. 20 08 - 09 PAGE NO DCIT VS. M/S AMAZON TEXTILES PVT. LTD. 4 OFFICER HAD COMPLETED THE ASSESSME NT DISALLOWING INTEREST OF RS. 78 83596/ - U/S. 37/ 36(1 ) (II) BY WAY OF CALCULATING A NOTIONAL INTEREST @ 12% ON THE FUNDS GIVEN TO THREE PARTIES AND THE INTEREST AMOUNT CALCULA TED FOR EACH PARTY IS AS FOLLOWS: - PARTICULARS AMOUNT (RS.) DHAWALGIRI PROPERTIES P. LTD 43,01,175 RAJDHANI TEXTILES PVT. LTD. 9, 17,260 KAMAL TEA PROCESSORS P. LTD. 26,65,161 TOTAL (INTEREST) 78,83,596 9. WE FURTHER FIND THAT BEFORE BOTH THE LOWER AUTHORITIES, ASSESSEE GAVE NECESSARY DETAILS TO PROVE T HAT IN THE CASE OF DHAWALGIRI PROPERTIES P. LTD., ADVANCES WERE GIVEN OUT OF THE AMOUNT RECEIVED FROM KAMAL TEA PROCESSORS P. LTD., DISHA INFIN ADVISOR PVT. LTD AND VIVEK TEX TECK PVT. LTD TOWARDS RECOVERY OF LOANS ADVANCED TO THEM IN THE PRECEDING YEARS AND SIMILAR WAS A SITUATION WITH REGARD TO ADVANCES GIVEN TO RAJDHANI TEXT ILE PVT. LTD AND KAMAL TEA PROCESSOR PVT. LTD. IT WAS ALSO CONTENDED T HAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS IN THE SHAPE OF ACCUMULATED SHARE I.T.A NO S . 1300 & 744 /AHD/20 14 A.Y. 20 08 - 09 PAGE NO DCIT VS. M/S AMAZON TEXTILES PVT. LTD. 5 APPLICATION MONEY , SHARE CAPITAL AND RESERVES AND SURPLUS TO TALING TO RS. 432 25000/ - AS ON 31 - 03 - 20 07 AND RS. 122045000/ - AS ON 31 - 03 - 2008. THIS FACT IS ALSO NOT DISPUTED THAT ASSESSEE EARNED G ROSS INTEREST IN COME OF RS. 90,75,775/ - . FURTHER , LD. CIT(A) DELETED THE IMPUGNED DISALLOWANCE SUBJECT TO A DIRECTION TO THE ASSESSING OFFICER OBSERVING AS FOLL OWS: - 5.2 IN THE ASSESSMENT ORDER A.O. OBSERVED THAT APPELLANT PAID INTEREST OF RS. 2,31,10,265/ - ON THE SECURED AND UNSECURED LOANS; APPELLANT HAD GIVEN INTEREST FREE LOANS TO RELATED PARTIES FOR NON - BUSINESS PURPOSES; THOUGH APPELLANT HAD INTEREST FREE FUNDS, IT FAILED TO PROVE THE NEXUS BETWEEN THE INTEREST FREE FUNDS AND INTEREST FREE LOANS AND ADVANCES AND THEREFORE INTEREST CALCULATED @ 12% ON PRODUCT BASIS ON THE INTEREST FREE LOANS AND ADVANCES GIVEN WAS BEING DISALLOWED. ACCORDINGLY, HE DISALLOWED RS.78,83,596/ - . 5.3 THE CONTENTIONS OF THE LD. A.R. ARE THAT THE INTEREST FREE ADVANCES WERE GIVEN OUT OF THE INTEREST FREE LOANS; THE INTEREST INCOME WAS HIGHER THAN THE INTEREST EXPENDITURE OTHER THAN SPECIFIC INTEREST EXPENDITURE; ALTERNATIVELY, SINCE OUT OF THE TOTAL INTEREST EXPENDITURE, INTEREST PAID TOWARDS EXIM LOAN & SBI TERM LOAN WERE FOR SPECIFIC PURPOSES, THE DISALLOWANCE MAY BE RESTRICTED. 5.4 HAVING CONSIDERED THE FACTS OF THE MATTER I AM INCLINED TO ACCEPT THE ALTERNATE CONTENTION OF THE A PPELLANT AS CONTAINED IN PARA - 1.6 OF THE WRITTEN SUBMISSION REPRODUCED ABOVE. A.O. IS DIRECTED TO VERIFY THE CONTENTION THAT THE EXIM LOAN & SBI TERM LOAN WERE FOR SPECIFIC PURPOSES AND THEREFORE NOT AVAILABLE FOR MAKING INTEREST FREE ADVANCES AND ALSO TO VERIFY THE QUANTUM OF INTEREST EXPENDITURE ON THESE TWO LOANS. IF THE CONTENTIONS OF THE APPELLANT ARE FOUND TO BE CORRECT, THE DISALLOWANCE OF INTEREST SHALL BE RESTRICTED TO RS, 10,29,811 - . THUS SUBJECT TO VERIFICATION THIS GROUND OF APPEAL IS PARTLY ALL OWED. 10. FROM THE PERUSAL OF THE FINDINGS AS WELL AS IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, ASSESSEE HAS BEEN SUCCESSFUL TO DEMONSTRATE THAT ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS IN THE SHAPE OF SHARE CAPITAL, SHARE APPLICATION M ONEY AND RESERVE AND SURPLUS TO COVER UP THE INTEREST FREE ADVANCES GIVEN TO VARIOUS PARTIES I.T.A NO S . 1300 & 744 /AHD/20 14 A.Y. 20 08 - 09 PAGE NO DCIT VS. M/S AMAZON TEXTILES PVT. LTD. 6 AND, THEREFORE , THE LD. CIT(A) MADE NO ERROR IN DELETING THE IMPUGNED DISALLOWA NCE OF B E ING THE NOTIONAL INTEREST CALCULATED BY THE LD. ASSESSING OFFICER TO THE EX TENT OF RS. 63.53 LACS OU T OF THE TOTAL DISALLOWANCE OF R S. 7883596/ - . IN THE RESULT, THIS SOLIT ARY GROUND OF REVENUE STANDS DISMISSED. 11 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED . 12 . NOW, WE TAKE UP THE APPEAL OF THE ASS ESSEE RAISING FOLLOWING GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANT'S CASE, THE CIT(A) ERRED IN UPHOLDING DISALLOWANCE OF RS. 8,888 FOR LATE PAYMENT OF EMPLOYEES' CONTRIBUTION TO PROVIDENT FUND. THE LEARNED CIT (APPEALS) OUGHT TO HAVE APPRECIAT ED THAT, AS THE ENTIRE PAYMENT HAS BEEN MADE BEFORE DUE DATE OF FILING OF RETURN OF INCOME, SUCH DISALLOWANCE IS UNCALLED FOR. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANT'S CASE, THE CIT(A) ERRED IN NOT DELETING THE ENTIRE DISALLOWANCE OF RS. 78,83,596 MADE BY ASSESSING OFFICER UNDER SECTION 36(1)(III) OF THE INCOME - TAX ACT, 1961 AND RESTRICTING SUCH DISALLOWANCE MADE BY ASSESSING OFFICER AT RS 10,29,811 SUBJECT TO VERIFICATION BY AO. 13 . APROPOS TO GROUND NO. 1 RELATING TO DISALLOWANCE OF RS. 8881/ - FOR LATE PAYMENT OF EMPLOYEE S CONTRIBUTION TO PROVIDENT FUND, LD. COUNSEL AT THE OUTSET REQUESTED FOR NOT PRESSING THIS GROUND AS THE ISSUE RAISED THEREIN IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GUJARAT STATE ROAD TRANSPORT CORPORATION IN TAX APPEAL NO. 637 OF 2013 DATED 26 - 12 - 2013. WE THEREFORE DISMISS THIS GROUND NO. 1 OF THE ASSESSEE S APPEAL AS NOT PRESSED I.T.A NO S . 1300 & 744 /AHD/20 14 A.Y. 20 08 - 09 PAGE NO DCIT VS. M/S AMAZON TEXTILES PVT. LTD. 7 14 . APROPOS TO GROUND NO. 2 WHICH CHALLENGES THE LD. CIT(A) S DIR ECTION ASKING THE ASSESSING OFFICER TO VERIFY THE CORRECTNESS OF INTEREST EXPENDITURE OF RS. 1029811/ - WHICH WAS PAID BY THE ASSESSEE ON THE EXIM LOAN AND SBI TERM LOAN, T HE LD. COUNSEL FOR THE ASSESSEE REQUESTED FOR NOT PRESSING THIS GROUND FOR THE VERY REASON THAT THE OUTCOME OF THE VERIFICATION BY THE ASSESSING OFFICER IF IS IN FAVOUR OF THE ASSESSEE, THEN, THE ASSESSEE W ILL BE ENTITLED TO THE RELIEF. WE FIND SUBSTANCE IN THE SUBMISSION OF LD. COUNSEL . A CCORDINGLY , THIS GROUND BECOME S INFRUCTUOUS AND TH E ASSESSEE WILL GET NECESSARY RELIEF IN CASE IT IS ABLE TO SATISFY THE ASSESSING OFFICER TO THE CORRECTNESS OF CLAIM OF INTEREST EXPENDITURE OF RS. 1029881/ - . SIMULTANEOUSLY, WE ALSO DIRECT T HE ASSESSING OFFICER TO COMPLY WITH THE DIRECTION OF LD. CIT(A) AND DECIDE ACCORDINGLY. GROUND NO. 2 IS DISMISSED AS NOT PRESSED. 15 . APPEAL S OF BOTH REVENUE AND ASSESSEE ARE DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 09 - 04 - 201 8 SD/ - SD/ - ( MAHAVIR PRASAD ) (MANISH BORAD ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 09 /04 /2018 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. I.T.A NO S . 1300 & 744 /AHD/20 14 A.Y. 20 08 - 09 PAGE NO DCIT VS. M/S AMAZON TEXTILES PVT. LTD. 8 BY ORDER/ , / ,