The DCITAhmedabad Circle-1, Ahmedabad V. Anjani Fabrics Ltd., Ahmedabad

ITA 1571/AHD/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50624 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 16-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 03-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: GAURAV NHTA
• Keywords: Proportionate interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, AHMEDABAD BEFORE SHRI D.K.TYAGI, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO.1571 / AHD/2011 (ASSESSMENT YEAR 2005-06) DCIT, CIRCE 1, AHMEDABAD VS. M/S. ANJANI FABRICS LTD., 252, NEW CLOTH MARKET, O/S. RAIPUR GATE, AHMEDABAD PAN/GIR NO. : AABCA7883M (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI VINOD TANWANI, SR. DR RESPONDENT BY: SHRI GAURAV NHTA, AR DATE OF HEARING: 16.09.2011 DATE OF PRONOUNCEMENT: 23.09.2011 O R D E R PER SHRI A. K. GARODIA, AM:- THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORDE R OF LD. CIT(A) VI, AHMEDABAD DATED 211.04.2011 FOR THE ASSESSMENT YEAR 2005-06. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DELETI NG THE ADDITION OF RS.12,92,427/- ON ACCOUNT OF DISALLOWAN CE OF INTEREST U/S 36(1)(III) OF THE INCOME TAX ACT, 1961. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE A. O. TO THE EXTENT MENTIONED ABOVE, SINCE THE ASSESSEE HAS FAILED TO D ISCLOSE HIS TRUE INCOME. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE A.O. BE RESTOR ED. 2. THE BRIEF FACTS OF THE CASE TILL THE ASSESSMENT STAGE ARE NOTED BY LD. CIT(A) IN PARA 2.1 OF HIS ORDER, WHICH IS REPRODUCE D BELOW: I.T.A.NO.1571 /AHD/2011 2 THE A.O. HAS STATED IN THE ASSESSMENT ORDER DATED 26/12/2007 WHICH IS AS UNDER: 'I HAVE GONE THROUGH THE SUBMISSION MADE BY THE ASS ESSEE AND IT IS NOTICED THAT THE EXPLANATION FURNISHED BY THE ASSES SEE IS GENERAL IN NATURE AND DOES NOT SUPPORT WITH ANY FACTS AND FIGU RES TO SHOW HOW THE BORROWED FUNDS ARE DEPLOYED AND UTILIZED FOR BU SINESS PURPOSE. A DETAILED ANALYSIS OF THE ACCOUNTS OF THE ASSESSEE WILL REVELED THAT, BORROWED FUNDS ARE UTILIZED FOR MAKING INVEST MENTS TO HAVE CONTROLLING EFFECTS OF THE SISTER GROUP CONCERNS. THE COMPANY HAD COME OUT WITH A PUBLIC ISSUE IN FEB RUARY, 1994 THE PUBLIC ISSUE WAS OF 36,00,000 EQUITY SHARES OF RS.10 EACH FOR CASH AT PAR AGGREGATING RS.3,60,00,000/-THE MAIN OB JECTS FOR THE PUBLIC OFFER AS PER THE PROSPECTUS WAS. A) TO AUGMENT LONG TERM RESOURCES FOR FINANCIAL THE COMPANIES EXPANSION PROJECT. B) TO MEET THE ISSUE EXPENSES, C) TO LIST THE SHARES OF THE COMPANY ON RECOGNIZED STOCK EXCHANGE THUS THE ASSESSEE COMPANY IS NOT ENGAGED IN THE BUS INESS OF TRADING IN SHARES AND SECURITIES, THEREFORE, THE AM OUNT INVESTED IN PURCHASE OF SHARES OF OTHER GROUP COMPANIES AT BE T REATED AS AN INVESTMENT MADE FOR BUSINESS PROPOSE, THEREFORE THE INTEREST - ON BORROWED FUNDS IS DIVERTED FOR PURCHASE OF SHARES O F GROUP COMPANY CAN NOT BE ALLOWED BECAUSE THE BORROWED FUN DS SO DIVERTED CAN NOT BE TREATED TO HAVE BEEN UTILIZED F OR BUSINESS PURPOSE. I. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND L EGAL POSITION AS LAID DOWN IN THE ACT THE ASSESSEE HAS NOT DISCHA RGED ITS BURDEN CAST UPON U/S. 36(1)(III) OF THE ACT. THE FACT REMA INS THAT THERE IS A DIVERSION OF BORROWED FUNDS FOR-NON BUS/NESS PURPOS ES. THEREFORE IF IS HELD THAT EXCESS FUND BORROWED OF RS.1,43,60, 300/- ARE DIVERTED FOR NON BUSINESS PURPOSE AND HENCE INTERES T EON AT THE RATE OF 9% RS.12,92,427/- IS REQUIRED TO BE DISALLOWED. THEREFORE IS ALLOWANCES OF INTEREST OF RS.12,92,427/- IS ADDED B ACK TO THE TOTAL INCOME THE ASSESSEE. THE ABOVE VIEW IS SUPPORTED BY THE DECISION OF HON' BLE RAJASTHAN HIGH COURT IN THE CASE OF INDIAN SHAVING PRODUCTS L TD. V/S. CIT REPORTED IN 265 ITR 250 ON SIMILAR FACTS OF HELD TH E DISALLOWANCES I.T.A.NO.1571 /AHD/2011 3 OF PROPORTIONATE INTEREST. FURTHER IN RECENT JUDGEM ENT DELIVERED BY PANJAB & HARYANA HIGH COURT IN THE CASE OF COMMISSI ONER OF INCOME TAX V/S. ABHISHEK INDUSTRIES LTD. REPORTED A T 286 ITR 1 OF 2006 (P&H) , WHEREIN HON'BLE PUNJAB &, HARYANA_H JGH COURT HAS HELD AS UNDER. SECTION 36(1)(III) OF THE INCOME TAX ACT 7961 PROV IDES FOR DEDUCTION OF INTEREST ON LOANS RAISED FOR BUSINESS PURPOSE. ONCE THE ASSESSEE CLAIMS ANY SUCH DEDUCTION IN THE BOOKS OF ACCOUNT THE ONUS WILL BE ON THE ASSESSEE TO SATISFY THE ASSESSI NG OFFICER THAT WHATEVER LOANS WERE RAISED BY THE ASSESSEE WERE USE D FOR THE BUSINESS PURPOSE, IF THE SHARE CAPITAL ACCORDING TO THE ASSESSEE WAS SURPLUS AND IF COULD PART WITH THE SAME TO IF SISTE R CONCERN FOR NON BUSINESS PURPOSE WITHOUT ANY INTEREST THERE WAS NO NEED TO RAISE THE LOANS TO THAT EXTENT AND THE AMOUNT OF SUCH SHA RE CAPITAL SHOULD HAVE BEEN UTILIZED FOR THE PROJECT ITSELF. THE BORR OWING OF THE FUND BY THE COMPANY TO THAT EXTENT WAS NOT FOR THE PURPO SE OF THE BUSINESS AND THERE WAS NOTHING ON RECORD TO SUGGEST THAT AMOUNT WERE ADVANCED TO THE SISTER CONCERN TO ADVANCE SOME BUSINESS OBJECT ACCORDINGLY THE ASSESSEE WAS NOT ENTITLED TO CLAIM DEDUCTION OF THE INTEREST ON THE BORROWING TO THE EXTENT THOS E WERE DIVERTED TO SISTER CONCERN OR OTHER PERSONS WITHOUT INTEREST.' SINCE THE ASSESSEE FAILED TO PROVE THE NEXUS AS DIS CUSSED (SUPRA), I THEREFORE DISALLOWED RS.12,92,427/- AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 3. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATER IN APPEAL BEFORE CIT(A) WHO HAS DELETED THIS DISALLOWANCE BY FOLLOWI NG TRIBUNAL DECISION IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003 -04 IN I.T.A.NO. 1025/AHD/2007 DATED 30.04.2010. NOW, THE REVENUE I S IN APPEAL BEFORE US. 4. LD. D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS THE LD. A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT(A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT THIS DISALLOWANCE WAS MADE BY THE A.O. ON THIS BASIS THAT OUT OF THE TOTAL NET BUSINESS ASSETS OF THE ASSESSEE OF RS.151 2.01 LACS, RS.987.29 LACS I.T.A.NO.1571 /AHD/2011 4 IS AVAILABLE TO THE ASSESSEE IN THE FORM OF SHARE C APITAL AND RESERVES AND SURPLUS AND HENCE, ASSESSEE WAS REQUIRED TO BORROW ONLY THE BALANCE AMOUNT OF RS.524.72 LACS WHEREAS THE ASSESSEE HAS B ORROWED AN AMOUNT OF RS.668.31 LACS AND HENCE, THE ASSESSEE HAS BORRO WED AN EXCESS AMOUNT OF RS.143.60 LACS ON WHICH THE INTEREST PAID BY THE ASSESSEE IS RS.12,92,427/- @ 9%, WHICH WAS DISALLOWED BY THE A. O. BY HOLDING THAT THE SAME IS NOT FOR BUSINESS PURPOSE OF THE ASSESSE E COMPANY. LD. CIT(A) HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSE SSEE BY FOLLOWING TRIBUNAL DECISION IN ASSESSEES OWN CASE FOR THE AS SESSMENT YEAR 2003- 04. IT IS ALSO NOTED BY LD. CIT(A) THAT IT IS THE CLAIM OF THE ASSESSEE BEFORE THE A.O. AND ALSO BEFORE HIM THAT INVESTMENT IN SHARES WAS MADE BY THE ASSESSEE COMPANY IN EARLIER YEARS. IT IS AL SO NOTED BY THE LD. CIT(A) THAT OWN FUNDS WERE AVAILABLE WITH THE ASSES SEE COMPANY WHICH IS IN EXCESS OF INVESTMENT IN SHARES IN ALL THE YEA RS DURING YEAR ENDED 31.3.1995 TO 31.3.2005. THE RELEVANT PARA OF THE T RIBUNAL ORDER IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04 HAS BEEN REPRODUCED BY LD. CIT(A) ON PAGE 5 OF HIS ORDER AND FOR THE SA KE OF READY REFERENCE, WE ALSO REPRODUCE THE SAME AS UNDER: AFTER THE FINANCIAL YEAR 1995-96, THERE IS NO I NCREASE IN INVESTMENT. THE INVESTMENT HAS DECLINED PROGRESSIV ELY AND IN THE RELEVANT PREVIOUS YEAR, INVESTMENT WAS OF RS 328.55 LAKHS AS AGAINST INVESTMENT OF RS 328.80 LAKHS IN THE PRECED ING YEAR, THEREFORE, FIND THAT THERE WAS NO FRESH INVESTMENT BY THE APPELLANT IN THE RELEVANT PREVIOUS YEAR, WHICH COULD BE SUBJE CT MATTER OF SCRUTINY BY THE A.O. ONCE THE FUND WAS STUCK UP IN INVESTMENTS, IT WAS QUITE NATURAL FOR THE APPELLANT TO BORROW FUNDS TO CARRY OUT THE BUSINESS ACTIVITIES AND-INTEREST ON SUCH BORROWED F UNDS WAS DIRECTLY LINKED TO BUSINESS ACTIVITIES AND THEREF ORE, WAS ALLOWABLE AS DEDUCTION. THERE IS NO MATERIAL BROUGHT TO O UR NOTICE TO DIVERT THESE FINDINGS RECORDED BY ID. CIT (A). WE ARE THER EFORE, OF THE VIEW THAT CIT (A) HAS GIVEN COGENT REASON FOR DELET ING THE DISALLOWANCE OF RS.2414101 MADE BY THE AO OUT OF I NTEREST EXPENSES UNDER SECTION 36 (1)(III) WE ARE THEREFORE INCLINED TO UPHOLD THE ORDER OF CIT (A).' I.T.A.NO.1571 /AHD/2011 5 6. FROM THE ABOVE TRIBUNAL DECISION, WE FIND THAT T HE BASIS OF TRIBUNAL DECISION IS THIS THAT THERE IS NO INCREASE IN INVES TMENT AND IT WAS QUITE NATURAL FOR THE ASSESSEE TO BORROW FUNDS FOR CARRYI NG OUT BUSINESS ACTIVITIES BECAUSE WHEN THE OWN FUNDS IS STRUCK UP IN INVESTMENT IN SHARES, THE SAME IS NOT AVAILABLE FOR USING IN BUSI NESS ACTIVITIES. IN THE PRESENT YEAR ALSO IT IS NOT THE CASE OF THE A.O. BY SHOWING DIRECT NEXUS THAT THE INVESTMENT IN SHARES WAS MADE BY THE ASSES SEE COMPANY OUT OF BORROWED FUNDS. THE CASE OF THE A.O. IS THAT ENTIR E OWN FUNDS OF THE ASSESSEE ON WHICH NO INTEREST IS PAYABLE, SHOULD HA VE BEEN USED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS AND ONLY THE B ALANCE AMOUNT SHOULD HAVE BEEN BORROWED WHEREAS THE CASE OF THE ASSESSEE IS THAT THERE IS NO BAR ON THE ASSESSEE TO USE OWN INTEREST FREE FUNDS FOR INVESTMENT IN SHARES. SINCE THERE IS NO DIFFERENCE IN THE FACTS IN THE PRESENT YEAR, THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL DECISION IN ASSESSEES OWN CASE FOR THE YEAR 2003-0 4, THE RELEVANT PORTION OF WHICH, HAS BEEN REPRODUCED BY LD. CIT(A) AND ALS O BY US AS ABOVE. RESPECTFULLY FOLLOWING THE SAME, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LD. CIT(A) IN THE PRESENT YEAR ALSO BECAUSE NO DIFFERENCE IN THE FACTS IN THE PRESENT YEAR COULD BE POINTED OUT BY LD. D.R. WE, THEREFORE, DECLINE TO INTERFERE IN THE ORDER OF LD. CIT(A). 7. IN THE RESULT, APPEAL OF THE REVENUE STANDS DISM ISSED. 8. PRONOUNCED IN THE OPEN COURT ON 23 RD SEP., 2011. SD./- SD./- (D.K.TYAGI) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED : 23.09.2011 SP I.T.A.NO.1571 /AHD/2011 6 COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD 1. DATE OF DICTATION 21/9 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER22/9 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S.22/9 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 23/9 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.23/9 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 23/9/2011 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. ..