The ACIT, Mehsana Circle, Mehsana V. Diamond Crucible Co.Pvt. Ltd., Mehsana

ITA 1491/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6612 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 31-03-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 13-04-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH
• Assessee Lawyers: S N DIVATIAAR
• Keywords: Reassessment proceedings
• Section: 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' [BEFORE SHRI MAHAVIR SINGH,JM AND SHRI A N PAHUJA,A M) ITA NO.1491/AHD/2007 (ASSESSMENT YEAR:-2003-04) THE ASSISTANT COMMISSIONER OF INCOME- TAX, MEHSANA CIRCLE, MEHSANA V/S DIAMOND CRUCIBLE CO. PVT. LTD. 212/C, GIDC, MEHSANA [PAN:AAACD9917E] [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI S.N.DIVATIA,AR REVENUE BY:- SMT. NEETA SHAH, DR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 02- 01-2007 OF THE LD. CIT(APPEALS)-XXI, AHMEDABAD, RAI SES THE FOLLOWING GROUNDS: 1 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS.9,97,944/- OUT OF INTEREST E XPENSES. 2 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF T HE CASE IN DELETING THE ADDITION MADE BY THE AO OF RS.13,50,000/- ON ACCOUN T OF DIMINUTION IN THE VALUE OF SHARES. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 4. IT IS, THEREFORE PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE AO BE RESTORED TO THE ABOVE E XTENT. 2 FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF RS.6,10,116/- FILED ON 22.10.2003 BY THE ASSESSEE WAS PROCESSED ON 27.2.2004 U/S 143(1) OF THE INCOME-TAX ACT,1961[HEREINAFTER REFERRED TO AS THE ACT] THER EAFTER, THE ASSESSING OFFICER [AO IN SHORT] NOTICED THAT THE AS SESSEE COMPANY HAD GIVEN INTEREST FREE LOANS AND MADE INVESTMENT E TC. TO THE TUNE OF RS.66.52 LAKHS IN COMPANIES UNDER ITS OWN MANAGE MENT BESIDES PURCHASING SHARES WORTH RS.30 LACS. DURING THE FY 2000-01, VALUE ITA NO.1491/AHD/2007 2 2 OF SUCH SHARES REDUCED BY RS. 16,50,000/- WHILE IN THE YEAR UNDER CONSIDERATION, REDUCED TO NIL. ACCORDINGLY, THE AO WAS OF THE OPINION THAT THE ASSESSEE ENTERED INTO THESE TRANSACTIONS I N ORDER TO REDUCE HIS TAX LIABILITY. THEREFORE, ASSESSMENT WAS REOPEN ED U/S 147 OF THE ACT WITH THE ISSUE OF NOTICE U/S 148 OF THE ACT ON 2.8.2006.IN RESPONSE, THE ASSESSEE FILED RETURN DECLARING SAME INCOME AS WAS DECLARED IN THE ORIGINAL RETURN. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, TO A QUERY BY THE AO, THE ASSESSEE EXP LAINED THAT INVESTMENT IN SHARES OF SISTER CONCERNS WERE MADE OUT OF INTEREST FREE FUNDS. HOWEVER, THE AO DID NOT ACCEPT THE CONT ENTIONS OF THE ASSESSEE ON THE GROUND THAT THE THE COMPANY HAD B ORROWED HEAVILY FROM FINANCIAL INSTITUTIONS ON WHICH INTEREST PAYM ENT OF RS.34.11 LAKH WAS MADE AND THESE BORROWINGS WERE DIRECTLY RE LATED TO FUNDS INVESTED IN SISTER CONCERNS. THE AO FURTHER OBSERVE D THAT THE CAPITAL OF THE COMPANY AS WELL AS ITS RESERVES & SURPLUS W ERE ONLY TO THE TUNE OF RS.1.09 CRORE WHILE FIXED ASSETS WERE RS.1.79 CRORE AND IN VENTORIES- RS.1.27 CRORE BESIDES THE SUNDRY DEBTORS OF THE ORDER OF RS. 1.7 6 CRORE. INTER ALIA, SINCE THE COMPANY HAD WRITTEN OFF AN AMOUNT OF RS.23,86,665/ - RECEIVABLE FROM DIAMOND REGINA CERAMICS LIMITED, IN WHICH THERE WERE COMMON DIRECTORS WHILE ANOTHER AMOUNT OF RS.42,66,296/- WAS WRITTEN OFF IN THE CAS E OF DESSU INVESTMENT PVT LTD., THE AO DISALLOWED INTEREST FOR AN AMOUNT OF RS.9,97,944/,CALCULATED @15% OF THE TOTAL AMOUNT OF RS.66,52,961/- ON ACCO UNT OF INTEREST FREE ADVANCES. 3 ON APPEAL, THE ASSESSEE SUBMITTED THAT THE ADVAN CES GIVEN TO DESSU INVESTMENT PVT. LTD. AMOUNTING TO RS.42,66,296/- AN D RS.23,86,665/- TO DIAMOND REGINA CERAMICS LIMITED. WERE GIVEN LONG BA CK AND EVEN IN A. Y.2001- 02 , SIMILAR DISALLOWANCE OF INTEREST OF RS.9,79,7 86/- ON THESE ADVANCES WAS DELETED BY THE LD. CIT(A) AND THE ITAT, FOLLOWING THE DECISION IN TORRENT FINANCIERS LTD. VS. ACIT, 73 TTJ 624. IN THE LIGH T OF THESE SUBMISSIONS, THE LD. CIT(A) DELETED THE DISALLOWANCE FOR THE YEAR UNDER CONSIDERATION, HOLDING AS UNDER:- ITA NO.1491/AHD/2007 3 3 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED THE FACTS OF THE CASE. I FIND THAT THIS ISSUE IS ALREADY DECI DED BY THE HONBLE ITAT IN FAVOUR OF THE APPELLANT. THEREFORE, AS HELD BY THE HONBLE ITAT, I HOLD THAT NO DISALLOWANCE OUT OF INTEREST DEBITED BY THE APPE LLANT IS REQUIRED TO BE MADE. HENCE, ADDITION OF RS.9,97,944/-DELETED. 4 THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST TH E AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR SUPPORTED TH E ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASSESSEE SUPP ORTED THE FINDINGS OF THE LD. CIT(A),RELYING INTER ALIA, ON THE DECISION DATED 28-10-2005 OF THE ITAT AHMEDABAD BENCH-B IN THE ASS ESSEES OWN CASE FOR AY 2001-02 IN ITA NO.1598/AHD/2005. 5 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH T HE FACTS OF THE CASE. UNDISPUTEDLY, A SIMILAR DISALLOWANCE OF I NTEREST OF RS. RS.9,79,786/- ON THESE ADVANCES OF RS.66,52,961 G IVEN TO DESSU INVESTMENT PVT. LTD.-RS.42,66,296/- AND TO DIAMOND REGINA CERA MICS LIMITED - RS.23,86,665/- WAS DELETED BY THE LD. CIT(A) AND LATER BY THE ITAT, AHMEDABAD BENCH-B VIDE THEIR ORDER DATED 28-10-2005 IN THE ASSESSEES OWN CASE FOR AY 2001-02 IN ITA NO.1598/AHD/2005,HOLDING AS UNDER: 5 WE HAVE HEARD THE LD. REPRESENTATIVE OF THE PART IES AND PERUSED THE RECORD. THE UNDISPUTED FACT OF THE CASE IS THAT THE ASSESSEE WAS HAVING SUFFICIENT FUND TO COVER THE INTEREST FREE FUNDS GI VEN BY THE ASSESSEE. WE FIND THAT THE ISSUE IS COVERED BY THE DECISION OF I TAT, AHMEDABAD BENCH IN THE CASE OF TORRENT FINANCERS LTD. VS. ACIT, 73 TTJ 624, WHEREIN IT HAS BEEN HELD THAT IF THE ASSESSEE IS HAVING INTEREST F REE FUNDS IN THE FORM OF CAPITAL AND RESERVES AND INTEREST FREE FUND GIVEN I S LESS THAN THAT INTEREST FREE FUNDS AVAILABLE, NO INTEREST IS DISALLOWABLE. IN THE LIGHT OF ABOVE DISCUSSION, WE CONFIRM THE ORDER OF CIT(A). SINCE NO NEW ADVANCES ARE STATED TO HAVE BEEN GIVEN IN THE YEAR UNDER CONSIDERATION AND THE FACTS REMAINING THE SA ME AS IN THE AY 2001-02 AND THEREBEING NO MATERIAL PLACED BY THE RE VENUE BEFORE US, FOLLOWING THE AFORESAID ORDER OF THE TRIBUNAL I N THE ASSESSEES OWN CASE FOR THE AY 2001-02, WE ARE NOT INCLINED T O INTERFERE WITH THE FINDINGS OF THE LD. CIT(A).THUS, GROUND NO.1 IS DISMISSED. ITA NO.1491/AHD/2007 4 4 6 GROUND NO.2 RELATES TO DELETION OF THE ADDITION O F RS.13,50,000/- ON ACCOUNT OF DIMINUTION IN THE VALU E OF SHARES. THE AO NOTICED THAT THE INVESTMENT IN THE AFORESAID SIS TER CONCERNS/COMPANIES DIMINUTED AND MARKET VALUE OF TH ESE SHARES REDUCED BY RS.13.50 LAKHS DURING THE A.Y.2002-03.AC CORDINGLY, THE AO DISALLOWED THE AMOUNT OF RS.13,50,000/- ON THE G ROUND THAT THE DIMINUTION IN THE VALUE OF INVESTMENTS IN SISTER CO NCERNS WAS FOR THE PURPOSES OTHER THAN BUSINESS. 7 ON APPEAL, THE ASSESSEE SUBMITTED THAT NO SUCH A MOUNT HAD BEEN WRITTEN OFF IN THE PROFIT & LOSS ACCOUNT OF THE YEA R UNDER CONSIDERATION AND INSTEAD DIMINUTION IN THE VALUE OF INVESTMENTS WAS WRITTEN OFF IN THE PRECEDING YEAR I.E. IN A.Y. 2002-03 AND THAT TOO FROM THE RESERVES AS SUCH AND WAS NOT CLAIMED AS EXPENSES DURING THE YEAR. IN THE LIGHT OF THESE SUB MISSIONS, THE LD. CIT(A) DELETED THE ADDITION IN THE FOLLOWING TERMS:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED THE FACTS OF THE CASE. AS MENTIONED IN THE ASSESSMENT ORDER A LSO, THIS DIMINUTION IN THE VALUE OF SHARES BY RS.13.5 LAKHS HAD T AKEN PLACE DURING THE A.Y.2002-03. FURTHER, THE APPELLANT HAS NOT DEBITED ANY SUCH AMOUNT IN THE PROFIT AND LOSS ACCOUNT FOR THE CURRENT YEAR. T HEREFORE, I HOLD THAT THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.13,50, 000/- ON ACCOUNT OF DIMINUTION IN THE VALUE OF SHARES IS NOT REQUIRED. HENCE, ADDITION OF RS.13,50,000/- IS DELETED. 8 THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR SU PPORTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASS ESSEE SUPPORTED THE FINDINGS OF THE LD. CIT(A). 9. .WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. UNDISPUTEDLY, THE DIMINUTION IN THE VA LUE OF SHARES BY RS.13.5 LAKHS WAS WRITTEN OFF OUT OF RESERVES IN TH E PERIOD RELEVANT TO THE A.Y.2002-03 WHILE NO SUCH AMOUNT HAS BEEN DE BITED IN THE PROFIT AND LOSS ACCOUNT FOR THE CURRENT YEAR. IN TH ESE CIRCUMSTANCES AND THEREBEING NO MATERIAL PLACED BEFORE US BY THE REVENUE FOR ITA NO.1491/AHD/2007 5 5 SUSTAINING THE ADDITION OF RS.13,50,000/-, WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LD. CIT(A). THEREFORE , GROUND NO.2 IS ALSO DISMISSED. 10. GROUND NOS. 3 & 4 BEING GENERAL IN NATURE, DO N OT REQUIRE ANY SEPARATE ADJUDICATION AND ARE, THEREFORE, DISMISSED . 11 IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 9 -04-2 010 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 9-04-2010 COPY OF THE ORDER FORWARDED TO : 1. DIAMOND CRUCIBLE CO. PVT. LTD. 212/C, GIDC, MEHS ANA 2. THE ACIT, MEHSANA CIRCLE, MEHSANA 3. CIT CONCERNED 4. CIT(A)-XXI, AHMEDABAD 5. THE DR, ITAT,D BENCH AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD ITA NO.1491/AHD/2007 6 6