ACIT, Cir. 3, Pune, Pune V. The Construction Enterpises, Pune

ITA 1421/PUN/2009

• Counselvise Citation: 142124514 RSA 2009
• Duration Of Justice: 1 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 08-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P R MORE
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI I C SUDHIR, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER I.T.A. NO. 1421/PN/09 (ASSTT. YEAR: 2005-06) ASSTT. COMMISSIONER OF INCOME-TAX, .. APPELLANT CIR.3, PUNE VS. THE CONSTRUCTION ENTERPRISES, .. RESPO NDENT VISHWADWAR, 1905 SADASHIV PETH, PUNE PAN AAAFT6785B APPELLANT BY: SHRI P R MORE RESPONDENT BY: SHRI M R BHAGWAT ORDER PER G.S. PANNU, AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, PUNE D ATED 23.9.2009 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 5.11 .2007 PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE I NCOME-TAX ACT, 1961 (IN SHORT THE ACT), PERTAINING TO THE ASSESS MENT YEAR 2005-06. 2. THE ONLY ISSUE IN THIS APPEAL RELATES TO A DISAL LOWANCE OF RS 15,87,459/- OUT OF INTEREST PAID TO PARTNERS AND OTHERS MADE DU RING ASSESSMENT PROCEEDINGS WHICH HAS SINCE BEEN DELETED BY THE COMMISSIONER OF INCOME-TAX (APPEALS). 3. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE FI RM HAS PAID INTEREST @ 12% TO ITS PARTNERS OF RS 15,40,848/- AN D TO OTHERS AT RS 46,611/- TOTALING TO RS 15,87,459/- AND ON THE OTHE R HAND, IT HAS GIVEN INTEREST FREE ADVANCES OF RS 2,35,43,978/- TO ONE OF ITS SISTER CONCERNS AND THAT THE ASSESSEE-FIRM WAS NOT DERIVIN G ANY BENEFIT BY GIVING THIS INTEREST FREE ADVANCE TO THE SISTER CON CERN. IT WAS NOTICED THAT THE ONLY INTEREST FREE FUNDS AVAILABLE WITH TH E ASSESSEE FOR GIVING TO THE SISTER-CONCERN WAS A SUM OF RS 29,90, 645/- AND AFTER 2 GIVING CREDIT FOR THE SAME, THE ASSESSING OFFICER C OMPUTED THE INTEREST-FREE ADVANCE GIVEN TO THE SISTER-CONCERN F OR WHICH NO BENEFIT WAS DERIVED AT RS 2,05,53,333/-. THE PROPOR TIONATE INTEREST @ 12% CHARGEABLE ON THIS AMOUNT WAS COMPUTED AT RS 24,66,399/- AND SINCE THE ASSESSEE HAD INCURRED EXPENDITURE ON INTEREST AT RS 15,87,459/- ONLY, THE DISALLOWANCE WAS RESTRICTED T O RS 15,87,459/-. 4. IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), ASSESSEE CHALLENGED THE ADDITION ON FACTS AND IN LA W. THE COMMISSIONER OF INCOME-TAX (APPEALS) EXAMINED THE B ANK STATEMENT AND OTHER RELEVANT DOCUMENTS TO APPRECIAT E THE DATE-WISE POSITION OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE, WHEN THE AMOUNTS WERE ADVANCED TO THE SISTER CONCERN. AFTER APPRECIATING THE FACTUAL AFFAIRS, THE COMMISSIONER OF INCOME-TAX (AP PEALS) CONCLUDED AS UNDER IN PARA 3.5 OF THE IMPUGNED ORDER: 3.5 IN THIS CASE, THE APPELLANT HAS CONTENDED THAT THE BORROWING FROM THE PARTNERS IN THE FORM OF THEIR CAPITAL WERE THE OPENING BALANCE OF THIS YEAR AND DURING THE YEAR NO NEW CAPITAL WAS INTRODU CED. FURTHER ON 1.4.2004, I.E. THE OPENING DAY OF THE YEAR, THE AMO UNT GIVEN TO THE SISTER CONCERN WAS RS 44,27,908/- WHEREAS RS 1,41,51,208/- WAS THE ADVANCE RECEIVED FROM FLAT HOLDERS. STILL FURTHER, THE EXPL ANATION ALONG WITH DETAILS AND BANK STATEMENTS ETC. FILED IN RESPONSE TO ORDER SHEET QUERY DATED 15.9.2009 REVEALED THAT WHEN DURING THE YEAR MORE A MOUNTS WERE ADVANCED TO THE SISTER CONCERNS, THE INTEREST FREE FUNDS AVAILABLE FROM FLAT BOOKING RECEIPTS WAS SUFFICIENT TO GIVE SUCH A DVANCES TO THE SISTER CONCERN. THEREFORE, IN ACCORDANCE WITH THE ABOVE RE FERRED TO DECISIONS, THE DISALLOWANCE OF INTEREST IS NOT TENABLE IN LAW AND HEREBY DELETED. GROUND OF APPEAL NO.1 IS, THEREFORE, ALLOWED. 5. AGAINST THE AFORESAID DELETION, REVENUE IS IN AP PEAL BEFORE US. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS REFERRE D TO GROUNDS OF APPEAL RAISED BY THE REVENUE TO POINT OUT THAT THE COMMISS IONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT SUFFICIENT INTEREST FREE FUNDS WERE AVAILABLE WITH THE ASSESSEE AT THE TIME OF GIVING I NTEREST FREE ADVANCES TO SISTER CONCERN. IT WAS POINTED OUT THAT THE SO-CALLED INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE ON ACCOUNT OF FLAT BOOKING RECEIPTS ETC. WERE FOR ASSESSEES OWN BUSIN ESS AND, THEREFORE, COULD NOT BE SAID TO HAVE BEEN DIVERTED TO THE SISTER CONCERN. IN THIS REGARD, IT WAS ALSO POINTED OUT TH AT THE ASSESSEE 3 WAS IN THE BUSINESS OF CONSTRUCTION AND ADVANCES RE CEIVED FROM THE FLAT HOLDERS WERE BEING USED IN THE BUSINESS OF CON STRUCTION. IT WAS, THEREFORE, POINTED OUT THAT THE COMMISSIONER OF INC OME-TAX (APPEALS) HAS DELETED THE ADDITION ON A WRONG FOOTI NG. 6. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE R ESPONDENT-ASSESSEE HAS DEFENDED THE ACTION OF THE COMMISSIONER OF INCOME-T AX (APPEALS). ACCORDING TO HIM, THE COMMISSIONER OF INCOME-TAX (A PPEALS) HAS CLEARLY ESTABLISHED THAT THERE WAS A NEXUS BETWEEN THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AND THE AMOUNT OF ADVANCES GIVEN FREE OF INTEREST TO THE SISTER CONCERN. IN HIS REGA RD, ATTENTION HAS BEEN DRAWN TO THE PAPER BOOK FILED, WHICH CONTAINS THE SUMMARY OF TRANSACTIONS WITH THE SISTER CONCERNS AS ALSO EXTRA CT OF ASSESSEES BANK STATEMENT FOR THE PERIOD 1.4.2004 TO 31.3.2005 PERTAINING TO THE ASSESSMENT YEAR UNDER CONSIDERATION. IT HAS BEE N POINTED OUT THAT THE ASSESSEE HAS NOT TAKEN ANY LOAN OR OVERDRA FT FROM THE BANK AND AT THE TIME OF ADVANCING MONEY TO THE SISTER CO NCERN, THERE WAS SUFFICIENT AVAILABILITY OF INTEREST FREE FUNDS ON A CCOUNT OF ADVANCES RECEIVED FROM FLAT BUYERS. THE LEARNED COUNSEL ALSO POINTED OUT THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS CORREC TLY RELIED UPON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF CIT V RELIANCE UTILITY AND POWER LTD. 221 CTR 435 (BOM) F OR THE PROPOSITION THAT WHERE THE ASSESSEE HAS SUFFICIENT INTEREST-FREE FUNDS TO MAKE INVESTMENTS, BUT AT THE SAME TIME THE ASSESSEE HAD ALSO RAISED LOANS, THE PRESUMPTION IS THAT SUCH INV ESTMENTS WERE MADE FROM INTEREST-FREE FUNDS AVAILABLE WITH THE AS SESSEE. IN THIS MANNER, THE DELETION MADE BY THE COMMISSIONER OF IN COME-TAX (APPEALS) IS SOUGHT TO BE JUSTIFIED. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. OSTENSIBLY, IN THIS CASE THE DISALLOWANCE OF INTEREST HAS BEEN MADE PRI MARILY FOR THE REASON THAT THE ASSESSEE HAD MADE INTEREST FREE ADVANCES TO ITS SIS TER CONCERN FROM WHICH IT WAS 4 NOT DERIVING ANY BENEFIT. THE CORRESPONDING INTERES T EXPENDITURE INCURRED BY THE ASSESSEE HAS SINCE BEEN DISALLOWED. HOWEVER, THE FA CTUAL FINDINGS OF THE COMMISSIONER OF INCOME-TAX (APPEALS), WHICH WE HAVE EXTRACTED IN THE EARLIER PART OF THIS ORDER REVEAL, THAT AT THE TIME OF ADVANCING INTEREST FREE LOANS TO THE SISTER CONCERN, THE ASSE SSEE WAS FOUND TO HAVE SUFFICIENT INTEREST FREE FUNDS. THE SAID FACTU AL FINDING OF THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ALSO BEEN VERIFIED BY US ON THE BASIS OF THE DOCUMENTS PLACED BY THE ASSESSE E IN THE PAPER BOOK, NAMELY, BANK STATEMENT AND ALSO THE ANALYSIS OF THE TRANSACTIONS CARRIED OUT WITH THE SISTER CONCERN. I N OUR CONSIDERED OPINION, THE FACTUAL FINDINGS ARRIVED AT BY THE COM MISSIONER OF INCOME-TAX (APPEALS) ARE SUPPORTED BY THE MATERIAL ON RECORD AND THERE IS NOTHING TO THE CONTRARY MADE OUT BY THE RE VENUE BEFORE US. IN THE ABSENCE OF ANY COGENT MATERIAL TO DISLODGE T HE FACTUAL FINDINGS OF THE COMMISSIONER OF INCOME-TAX (APPEALS ), WE FIND NO REASON TO INTERFERE WITH HIS CONCLUSION OF DELETING THE IMPUGNED ADDITION. THE SAID ACTION OF THE COMMISSIONER OF IN COME-TAX (APPEALS) IS HEREBY AFFIRMED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. DECISION PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF MAY, 2011. SD/- SD/- (I C SUDHIR) JUDICIAL MEMBER (G.S. PANNU) ACCOUNTANT MEMBER PUNE: DATED: 27 TH MAY, 2011 B COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEE 2. THE ACIT, CIR.3, PUNE 3. THE CIT(A)-II, PUNE 4. THE CIT-II, PUNE 5. THE D.R, B BENCH, PUNE 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, PUNE 5