M/s. Amita Chemical Industries, Ahmedabad V. The Income tax Officer, Ward-7(3), Ahmedabad

ITA 1540/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5994 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 03-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 18-04-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER DATE OF HEARING : 03.06.10 DRAFTED ON:07.06.10 ITA NO.1540/AHD/2007 ASSESSMENT YEAR : 2003-2004 M/S.AMITA CHEMICAL INDUSTRIES, 30-A, TEJAS SOCIETY, NIRNAYNAGAR, VADAJ, AHMEDABAD. VS. INCOME TAX OFFICER WARD 7(3), AAYKAR BHAVAN, AHMEDABAD. PAN/GIR NO. : AADFA0203G (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI TUSHAR P. HEMANI A.R. RESPONDENT BY: SHRI C.K.MISHRA SR. D.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-XIII, A HMEDABAD. DATED 10.01.2007. 2. THE FIRST AND SECOND GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE THAT THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE LE ARNED ASSESSING OFFICER IN DISALLOWING INTEREST EXPENSES OF RS.1,82 ,612/-. - 2 - 3. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNED ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS CLAIMED INTEREST PAYMENT OF RS.9,34,095/- TO VARIOUS DEPOSITORS @ 18% PER ANNUM AND TOTAL UNSECURED LOAN OF RS.66,54,340/-. HE ALSO OBSERVED THAT SIMULTANEOUSLY, THE ASSESSEE HAS ADVANCED RS.62,28, 278/- TO ITS SISTER CONCERNS ON WHICH INTEREST OF RS.7,51,483/- @ 12% P ER ANNUM WAS CHARGED AND DEFERENCE OF RS.1,82,612/- BEING EXCESS PAYMENT OF INTEREST OVER RECEIPT WAS DEBITED IN THE PROFIT AND LOSS ACCOUNT. IN REPLY TO THE QUERY OF THE LEARNED ASSESSING OFFICER , THE ASSESSEE SUBMITTED THAT THE ADVANCES TO ITS SISTER CONCERN H AVE BEEN MADE OUT OF ONCE GENERATED IN NORMAL COURSE OF THE BUSINESS AND THERE IS NO NEXUS BETWEEN THE INTEREST BEARING DEPOSIT TAKEN ON INTEREST @ 18% PER ANNUM WITH THAT OF ADVANCE GIVEN TO THE SISTER CONCERN @ 12% PER ANNUM. IT WAS FURTHER SUBMITTED THAT DEPOSITS ACCEPTED ARE IN THE NATURE OF LOAN TERMS LOAN ON WHICH INTEREST PAYMENT @ 18% HAS BEEN MADE BECAUSE OF OLD COMMITMENTS RANGING FROM 5 TO 7 YEARS WHEREAS ADVANCES GIVEN TO SISTER CONCERNS WERE IN THE NATUR E OF TEMPORARY/CURRENT LOANS ACCOUNT ON WHICH INTEREST @ 12% WAS CHARGED WITH A VIEW TO EARN SOME EXTRA INCOME IN OR DER TO REDUCE OVERHEADS. ALL THE SISTER CONCERNS, TO WHOM ADVANCE S WERE GIVEN ARE ASSESSED TO INCOME TAX AT THE MAXIMUM RATE INTEREST AND THEREFORE, THERE WAS NO BENEFIT AVAILABLE TO THEM FOR PAYING I NTEREST AT A LESSER RATE BECAUSE THEY COULD LEGITIMATELY CLAIM THE EXPE NDITURE AS DEDUCTION. THE LEARNED ASSESSING OFFICER REJECTED A LL THE EXPLANATION OF THE ASSESSEE. HE ALSO OBSERVED THAT NO WRITTEN AGREEMENT WAS FILED TO SHOW THAT THE DEPOSITORS TO WHOM INTEREST @ 18% WAS PAID, THE ASSESSEE WAS HAVING A LONG TERM COMMITMENT. TH E LEARNED ASSESSING OFFICER THEREFORE, HELD THAT INTEREST PAY MENT OF - 3 - RS.1,82,612/- SENT TO HAVE BEEN INCURRED FOR BUSINE SS PURPOSES OF THE ASSESSEE AND ADDED THE SAME TO THE INCOME OF THE AS SESSEE. 4. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X(APPEALS) OBSERVED THAT AS PER THE STATISTICS AVAILABLE IN TH E BALANCE SHEET FOR THE PERIOD ENDING 31 ST MARCH 2002, THE ASSESSEE HAS GIVEN ADVANCE OF RS.63,61,091/- WHICH INCLUDED RS.62,28,279/- GIVEN TO ITS SISTER CONCERNS. AS PER COPIES OF ACCOUNT FILED IN RESPEC T OF THE SISTER CONCERNED, THE POSITION IN RESPECT OF OPENING AND C LOSING BALANCE OF THE DEPOSITS SHOW THAT THE DEPOSITS MADE BY THE ASS ESSEE WITH THE SISTER CONCERNS HAS INCREASED FROM RS.62,28,278/- T O RS.81,36,171/- AT THE END OF THE YEAR. SIMILARLY, UNSECURED LOANS HAVE ALSO INCREASED FROM RS.52,52,508/- TO RS.66,54,340/-. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FURTHER NOTED THAT THE ASSES SEE WAS HAVING SHARE CAPITAL OF RS.19,16,742/- AND CAPITAL SUBSIDY OF RS.4,86,000/- TOTALING TO RS.24,02,742/-. THE ENTIRE AMOUNT IS IN VESTED IN FIXED ASSETS OF RS.24,20,226/-. THE ASSESSEE IS HAVING C ARRIED FORWARD SUNDRY CREDITORS OF RS.1,15,22,493.71 AND OTHER PRO VISION OF RS.2,71,744/- TOTALING TO RS.1,17,45,237,.71/- WHIC H ARE UTILISED IN CURRENT ASSETS TOTALING TO RS.1,16,25,455.67. THUS, IT IS EVIDENT FROM THE ABOVE DETAILS THAT THE ASSESSEE DID NOT HAVE AN Y SURPLUS FUNDS EITHER AS SHARE CAPITAL S OR MONEY RAISED IN NORMAL COURSE OF BUSINESS SO AS TO BE ABLE TO ADVANCE RS.62,28,278/- TO ITS S ISTER CONCERN. ALTERNATIVELY, IT CAN BE SAID THE ASSESSEE COULD MA NAGE ITS BUSINESS WITH ITS INTEREST FREE FUNDS AND NEITHER IT HAD ANY SURPLUS FUND NOR DID IT REQUIRE ANY AS APPARENTLY THERE WAS NO BUSINESS NEED FOR IT TO RAISE UNSECURED LOAN AS ON 1.04.2002 TOTALING TO RS.45,50 ,178.75. THE ASSESSEE HAS ADVANCED RS.62,28,278/- TO ITS SISTER CONCERNS AS ON - 4 - 1.04.2002 WHICH IS MORE THAN THE LOAN OF RS.54,50,1 78.05. THUS, THERE WAS A DIRECT NEXUS BETWEEN THE INTEREST BEARI NG BORROWINGS MADE BY THE ASSESSEE WITH THE ADVANCES GIVEN TO THE SISTER CONCERNS. THEREFORE, CONFIRMED THE ORDER OF THE LEARNED COMMI SSIONER OF INCOME TAX(APPEALS) IN DISALLOWING INTEREST PAYMENT OF RS.1,82,612/-. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE LEAR NED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS ADVANCED RS. 62,28,278/- TO ITS SISTER CONCERNS ON WHICH IT HAS CHARGED INTEREST OF RS.7,51,483/- @ 12% PER ANNUM. THE ASSESSEE HAS BORROWED UNSECURED LOANS OF RS.66,54,340/- ON WHICH IT HAS PAID INTEREST @ 18% PER ANNUM AMOUNTING TO RS.9,34,095/-. THE ASSESSEE HAS DEBITE D NET INTEREST OF RS.1,82,614/- IN THE PROFIT AND LOSS ACCOUNT. THE LEARNED ASSESSING OFFICER OBSERVING THAT ASSESSEE HAS BORROWED FUNDS ON INTEREST @ 18% PER ANNUM AND HAS ADVANCED THE SAME TO ITS SIST ER CONCERN AT LESSER RATE OF INTEREST @ 12% PER ANNUM DISALLOWED RS.1,82,614/- DEBITED IN THE PROFIT & LOSS ACCOUNT AS INTEREST EX PENDITURE. 6. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE ORDER OF THE A.O. 7. BEFORE US THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT NO NEXUS HAS BEEN ESTABLIS HED BY THE LEARNED ASSESSING OFFICER SHOWING THAT BORROWED FUNDS @ OF INTEREST AT 18% WERE ADVANCED TO THE SISTER CONCERNS AT LOWER RATE OF INTEREST OF 12%. HE ALSO CONTENDED THAT MONIES WERE BORROWED FOR BUS INESS PURPOSES FOR LONG TERM AND THEREFORE INTEREST @ 18% WAS PAID THEREON. - 5 - WHEREAS THE SURPLUS FUNDS WERE INVESTED AS SHORT T ERM INVESTMENT AND ON SUCH SHORT TERM INVESTMENT RATE OF INTEREST WAS 12% ONLY AND SUCH INVESTMENT WAS MADE TO REDUCE INTEREST EXPENDI TURE OF THE ASSESSEES BUSINESS. WE FIND THAT NONE OF THE LOWER AUTHORITIES HAVE BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE BOR ROWED FUNDS WERE DIRECTLY DIVERTED AS ADVANCES TO SISTER CONCERNS BY THE ASSESSEE. IN OUR CONSIDERED OPINION THE BALANCE SHEET CONTAINS SOURC ES OF FUNDS ON ONE HAND AND APPLICATION OF FUNDS ON THE OTHER HAND AS ON A PARTICULAR DATE AND FROM THE SAME IT CANNOT BE CONCLUDED THAT THE FUNDS RECEIVED FROM ONE SOURCE WAS ACTUALLY UTILISED IN ACQUIRING A PARTICULAR ASSET OR INVESTMENT. FOR ASCERTAINING THE ACTUAL SOURCE OF A PARTICULAR INVESTMENT THE BANK BOOK OR CASH BOOK OF THE ASSESS EE HAS TO BE EXAMINED. WE FIND THAT IN THE INSTANT CASE THE LOWE R AUTHORITIES HAVE NOT PROPERLY EXAMINED THE ACCOUNTS FROM THIS ANGLE. FURTHER, IT IS ALSO OBSERVED THAT THE ASSESSEE HAS BROUGHT NO MATE RIAL ON RECORD TO SHOW THAT THE ADVANCES IN QUESTION WERE ONLY FOR SH ORT TERM AND SUBSEQUENTLY THE ADVANCES WERE REALIZED AND UTILIZE D FOR BUSINESS OF THE ASSESSEE. IN THE ABOVE CIRCUMSTANCES, IN OUR CO NSIDERED OPINION IT SHALL BE IN THE INTEREST OF THE JUSTICE TO RESTORE THIS ISSUE BACK TO THE FILE OF THE A.O. FOR PROPER VERIFICATION AND THERE AFTER TO RE-ADJUDICATE THE ISSUE AFRESH AS PER LAW AFTER ALLOWING REASONAB LE OPPORTUNITY OF HEARING TO THE ASSESSEE. WE ORDER ACCORDINGLY. THU S, THIS GROUND OF APPEAL OF THEASSESSEE IS ALLOWED FOR STATISTICAL, P URPOSES. 8 THE THIRD GROUND OF APPEAL IS DIRECTED AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRM ING THE LEVY OF INTEREST UNDER SECTION 234A, 234B AND 234C AND W ITHDRAWAL OF INTEREST UNDER SECTION 234D OF THE ACT. - 6 - 9. AT THE TIME OF THE HEARING, LEARNED AUTHORISED R EPRESENTATIVE OF THE ASSESSEE DID NOT MAKE ANY SUBMISSION ON THE ABOVE GROUND OF APPEAL. THEREFORE, WE DISMISS THIS GROUND OF APPEA L OF THE ASSESSEE FOR WANT OF PROSECUTION. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 11/06/2010. SD/- SD/- ( MAHAVIR SINGH) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; ON THIS 11 TH DAY OF JUNE, 2010 PARAS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)- 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON 03.06.2010 --------------- ---- 2. DRAFT PLACED BEFORE AUTHORITY 07.06.2010 ---- --------------- 3. DRAFT PROPOSED & PLACED 07.06.2010 ----------- -------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED 07.06.2010 ---------- --------- JM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S 08.06.2010 -------- ------------ 6. KEPT FOR PRONOUNCEMENT ON 11.06.2010 --------- ----------- 7. FILE SENT TO THE BENCH CLERK 11.06.2010 ------ -------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- -- -------------------