M/s Ajay Electronics, Pathankot V. The Income Tax Officer, Pathankot

ITA 132/ASR/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9576 (ITAT-AMRITSAR)
• Duration Of Justice: 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 19-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 26-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P N ARORA
• Keywords: Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A NO.132(ASR)/2016 ASSESSMENT YEAR: 2010-11 M/S. AJAY ELECTRONICS DHANGU ROAD PATHANKOT. PAN: AAJFA5649Q VS. ITO, WARD-6 (1), PATHANKOT. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. P. N. ARORA (ADV.) RESPONDENT BY: SH. RAHUL DHAWAN (DR) DATE OF HEARING: 19.07.2016 DATE OF PRONOU NCEMENT:15.09.2016 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORD ER OF LEARNED CIT(A), AMRITSAR DATED 03.11.2015 FOR ASST. YEAR: 2 010-11. 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS THE ACTI ON OF LEARNED CIT(A), BY WHICH HE HAD UPHELD THE ADDITION OF RS.5,68,698/ - WHICH THE ASSESSEE HAD PAID TO BANK ON ACCOUNT OF INTEREST. 3. THE BRIEF FACTS OF CASE AS NOTED IN THE ASSESSME NT ORDER ARE THAT THE CASE OF THE ASSESSEE WAS REOPENED ON THE BASIS THAT ASSESSEE HAD NOT CHARGED ANY INTEREST ON ADVANCE MADE TO PARTNER OF THE FIRM SH. AJAY KUMAR WHEREAS THE ASSESSEE WAS PAYING INTEREST TO P UNJAB NATIONAL BANK. DURING ASSESMENT PROCEEDINGS, THE ASSESSING O FFICER HELD THAT ASSESSEE HAD ADVANCED RS.1,00,00,000/- TO THE PARTN ER WITHOUT CHARGING OF INTEREST. HE HELD THAT THERE WOULD HAVE NOT BEEN EXPENDITURE OF ITA NO.13 2 (ASR)/2016 ASST. YEA R: 2010-11 2 RS.5,68,968/- PAID TO BANK AS INTEREST IF THE ASSES SEE HAD NOT ADVANCED INTERET FREE LOAN TO PARTNER AND THEREFORE, KEEPING IN VIEW THE RATIO OF HONBLE PUNJAB & HARYANA HIGH COURT DECISION IN THE CASE OF M/S ABHISHEK INDUSTRIES REPORTED IN 286 ITR 1 (P&H), TH E ASSESSEE WAS SHOW CAUSED AS TO WHY THE INTEREST CLAIMED BE NOT DISALL OWED. 4. IN HIS REPLY THE ASSESSEE SUBMITTED THAT AS PER DECISION OF HONBLE SUPREME COURT OF INDIA, THE ASSESSEE HAD DEPOSITED RS.1,00,00,000/- WITH THE COURT OF DISTRICT AND SESSION JUDGE, GURDA SPUR FOR PURCHASE OF LAND ON BEHALF OF THE FIRM IN THE NAME OF THE PARTN ER SH. AJAY MAHAJAN. IT WAS FURTHER SUBMITTED THAT THIS AMOUNT HAD BEEN PLA CED IN BANK AS FDR BY THE HONBLE COURT AND WAS EARNING INTEREST. ONCE THE FDR IS RELEASED OR LAND IS TRANSFERRED ON THE FINALIZATION OF THE C OURT PROCEEDINGS, THE INCOME EARNED AS INTEREST ON FDRS WILL BECOME THE INCOME OF ASSESSEE. IT WAS SUBMITTED THAT NO LOAN HAS BEEN GIVEN TO PAR TNER AS THE LAND WHICH WAS SUPPOSED TO BE PURCHASED WOULD HAVE BECOM E THE PROPERTY OF ASSESSEE FIRM. THE ASSESSING OFFICER OBSERVED FROM THE SPECIAL LEAVE PETITION FILED BEFORE HONBLE SUPREME COURT THAT AJ AY MAHAJAN WAS THE PETITIONER AND THERE WAS NO MENTION OF THE FIRM AND THEREFORE, HE HELD THAT THE PROPERTY WAS SUPPOSED TO BE PURCHASED BY M R. AJAY KUMAR IN HIS INDIVIDUAL CAPACITY AND THEREFORE, HE HELD THAT RS.1,00,00,000/- DEPOSITED WITH THE COURT BELONGS TO SH. AJAY KUMAR PARTNER OF THE FIRM WHO HAD TAKEN LOAN FROM THE FIRM FOR HIS PERSONAL B ENEFIT AND THEREFORE, ITA NO.13 2 (ASR)/2016 ASST. YEA R: 2010-11 3 HE DISALLOWED AN AMOUNT OF RS.5,68,698/- WHICH WAS PAID BY ASSESSEE AS BANK INTEREST. 5. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE LEARN ED CIT(A) AND SUBMITTED VARIOUS SUBMISSIONS AND ALSO SUBMITTED TH AT THE CAPITAL OF THE FIRM WAS MORE THAN ONE CRORE IN THE FINANCIAL YEARS :2006-07 TO 2009-10 WHICH WAS MORE THAN THE AMOUNT OF ADVANCE OF RS.1,0 0,00,000/- IT WAS ALSO SUBMITTED THAT THE PROPOSED LAND WAS TO BE BEC OME PROPERTY OF THE ASSESSEE AND MR. AJAY MAHAJAN WAS ACTING ONLY ON BE HALF OF THE FIRM, HOWEVER, THE LEARNED CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE AND THEREFORE, THE ASSESSEE IS IN APPEAL BEFORE US. 6. AT THE OUTSET, THE LEARNED AR SUBMITTED THAT CAP ITAL OF THE FIRM IN FINANCIAL YEAR 2006-07 TO 2009-10 WAS MORE THAN RS. 1,00,00,000/- WHICH FACT WAS VERIFIABLE FROM THE ORDER OF LEARNED CIT(A) AT PAGE 4 ITSELF AND THEREFORE, NO DISALLOWANCE OF INTEREST CAN BE M ADE. RELIANCE IN THIS RESPECT WAS PLACED ON THE ORDER OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF GURDAS GARG VS.CIT(A) IN ITA NO.413 OF 2014 DATED 16.07.2015. THE LEARNED AR FURTHER SUBMITTED THAT THE ASSESSEE HAD NOT ADVANCED THE SAID ALLEGED LOAN IN THE YEAR UNDER CONSIDERATI ON AND RATHER IT WAS AN ADVANCE BROUGHT FORWARD FROM EARLIER YEAR AND TH EREFORE, ALSO THE DISALLOWANCE CANNOT BE MADE. RELIANCE IN THIS RESPE CT WAS PLACED ON THE ORDER OF ITAT AMRITSAR BENCH IN THE CASE OF ISHAR I NFRASTRUCTURE PVT. LTD. IN ITA NO. 198/ IN ITS ORDER 26.03.2015. ITA NO.13 2 (ASR)/2016 ASST. YEA R: 2010-11 4 7. WITHOUT PREJUDICE IT WAS SUBMITTED THAT THE BANK LOAN WAS TAKEN FOR BUSINESS PURPOSES AND THEREFORE, THERE WAS NO R EASON FOR DISALLOWANCE OF INTEREST PAID TO BANK. 8. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDER OF AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH ROGH THE MATERIAL PLACED ON RECORD. WE FIND THAT IT IS FACT THAT THE CAPITAL OF PARTENRS IN ALL THE YEARS FROM 2006-07 TO 2009-10 REMAINED MORE THA N RS.1,00,00,000/- AGAINST ALLEGED LOAN OF RS.1,00,00 ,000/-. THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF SH. GURD AS GARG HAS DECIDED THE FOLLOWING QUESTION OF LAW IN FAVOUR OF ASESSEE. FOR THE SAKE OF CONVENEINCE THE QUESTION FRAMED BY THE HONBLE COUR T AND ITS ADJUDICATION ARE REPRODUCED BELOW. QUESTION NO.2 (II) WHETHER THE TRIBUNAL RIGHTLY UPHELD THE ADDIT ION OF AN AMOUNT OF RS.7,76,043/- MADE ON ACCOUNT OF THE APPELLANT NOT C HARGING INTEREST FROM HIS DEBTORS. RE.QEUSTION NO.2 11. THE APPELLANT HAD ADMITTED ADVANCED AN AGGREGAT E AMOUNT OF RS.97,79,200/- BETWEEN THE PERIOD 01.04.2008 AND 04.12.2008. THE A MOUNTS WERE REPAID IN THE YEAR 2009. THE APPELLANT CONTENDED THAT HE HAD AT HIS DI SPOSAL SUBSTANTIAL AMOUNTS OF INTEREST FREE FUNDS. THIS FACT HAS BEEN ACCEPTED BY THE ASSE SSING OFFICER. THE TRIBUNAL HAS NOT FOUND OTHERWISE. THE ASSESSMENT ORDER SETS OUT THE DETAILS OF THE AMOUNTS ADVANCED BY THE APPELLANT AS WELL AS THE INTEREST FREE FUNDS RE CEIVED BY THE APPELLANT. THE TRIBUNAL HOWEVER, UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER OBSERVING THAT NOTHING HAS BEEN BROUGHT ON RECORD HOW THE INTEREST FREE FUNDS WHICH HAVE BEEN CLAIMED TO HAVE BEEN AVAILABLE FOR ADVANCING THESE LOANS TO VARIOUS PERS ONS WERE ACTUALLY AVAILABLE FOR ADVANCING TO THESE PERSONS. THE TRIBUNAL FURTHER O BSERVED THAT IT HAD NOT BEEN POINTED OUT AS TO HOW INTEREST FREE FUNDS AVAILABLE WERE AD VANCED TO THE SAID PERSONS. ITA NO.13 2 (ASR)/2016 ASST. YEA R: 2010-11 5 12. IT IS A LITTLE DIFFICULT TO UNDERSTAND THESE OBSERVATIONS. IT HAS NOT BEEN DENIED THAT INTEREST FREE FUNDS WERE AVAILABLE. NOR HAS IT BEEN DENIED THAT INTEREST FREE ADVANCES WERE MADE BY THE APPELLANT. IN FACT, THE LATTER HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. THE CONTENTION THAT THE APPELLANT HAS NOT ESTABLISHED T HAT IT WAS THE INTEREST FREE FUNDS THAT WERE ACTUALLY ADVANCED AS INTEREST FREE ADVANCES IS WITHOUT SUBSTANCE. MONEY HAS NO IDENTITY. SO LONG IT IS ESTABLISHED THAT THE INTERE ST FREE ADVANCES ARE MADE BY AN ASSESSEE WHO HAS ADEQUATE FREE RESERVES, IT IS SUFFICIENT TO ESTABLISH THAT THE AMOUNTS ADVANCED INTEREST FREE CANNOT BE ADDED TO THE ASSESSEE'S INC OME. IT WAS NOT CONTENDED THAT THE INTEREST FREE ADVANCES EXCEEDED THE INTEREST FREE F UNDS AVAILABLE WITH THE APPELLANT. NOR WAS IT ESTABLISHED THAT A PARTICULAR ADVANCE RECEIV ED WAS IN TURN ADVANCED BY THE ASSESSEE INTEREST FREE. 13. IN THE CIRCUMSTANCES, THE ORDER OF THE TRIBU NAL UPHOLDING THE ADDITION IS ALSO SET ASIDE. THEREFORE, KEEPING IN VIEW THE ABOVE JUDGMENT OF HO NBLE HIGH COURT WE ARE OF THE OPINION THAT DISALLWOANCE IN THIS CASE W AS NOT WARRANTED AS THE INTEREST FREE CAPITAL WAS MORE THAN THE ALLEGED AMOUNT OF LOAN. 10. FRUTER WE FIND THAT IN THE PRESENT YEAR THE ASS ESSEE HAD NOT ADVANCED ANY LOAN AND RATHER THIS AMOUNT IS BROUGH T FORWARD FROM ASST. YEAR: 2008-09. THIS FACT IS ALSO VERIFIABLE FROM TH E ORDER OF LEARNED CIT(A) AT PAGE 4. THE ITAT AMRITSAR BENCH IN THE CASE OF I SHAR INFRASTRUCTURE DEVELOPMENT PVT. LTD. IN ITA NO. 198(ASR)/2013 VIDE ITS ORDER DATED 26.03.2015 HAS HELD AS UNDER. AS REGARDS GROUND NO.L(II) IN THE CASE OF M/S EURO INFRASTRUCTURE & POWER LTD IN ITA NO.571(ASR)/2013 FOR THE ASSESSMENT YEAR 2010-11 WI TH REGARD TO CHARGING OF INTEREST FROM DEBTORS. THE FACTS ARE THAT THE AO MADE AN ADD ITION OF RS.6,60,000/- ON ACCOUNT OF NON CHARGING OF INTEREST FROM DEBTORS TO WHOM NO FR ESH ADVANCES HAVE BEEN MADE DURING THE ASSESSMENT YEAR 2009-10 AND THERE IS ONLY OPENI NG BROUGHT FORWARD DEBIT BALANCE. IT HAS BEEN ADMITTED BY THE AO THAT NO FRESH ADVANCES HAVE BEEN GIVEN TO DEBTORS DURING THE AY 2009-10 AND THERE IS OPENING BROUGHT FORWARD DEBIT BALANCE OF RS.50,00,000/- ON 01.04.2009 IN THE ACCOUNT OF SH. PANKAJ GARG AND RS . 5,00,000/- IN THE ACCOUNT OF M/S RAM KUMAR BANSAL WHICH HAS BEEN CARRIED FORWARD ON 31.03.2010. ITA NO.13 2 (ASR)/2016 ASST. YEA R: 2010-11 6 IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES AND IN VEW OF THE JUDICIAL PRECEDENTS RELIED ON BY ASSESSEE, THE GROUNDS OF AP PEAL OF THE ASSESSEE ARE ALLOWED. 11. IN NUTSHELL, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 .09.2016. SD/- SD/- (A.D. JAIN) ( T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED:15.09.2016. /PK/ PS. COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER