Shri Divyakant L Panara, Navsari V. The ITO, Ward-2, Navsari

ITA 1583/AHD/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6357 (ITAT-SURAT)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 27-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R P RASTOGI
• Assessee Lawyers: MEHUL R SHAH

Judgement Text

PAGE 1 OF 4 DIVYAKANT L PANARA V. ITO WD-2, NAVSARI I.T.A. NO.1583/AHD/2017/A.Y.2013-14 , , IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRIH. S. SIDHU, JUDICIAL MEMBER AND SHRI O. P. MEENA, ACCOUNTANT MEMBER . . ./ I.T.A NO.1583/AHD/2017 / ASSESSMENT YEAR: 2013-14 SHRI DIVYAKANT L PANARA, 308, OLD GIDC COLONY STREET, KABILPORE , NAVSARI, 396 445 PAN: ADWPP 1602 L V. INCOME TAX OFFICER, WARD- 2, NAVSARI APPELLANT / RESPONDENT ASSESSEE BY SHRI MEHUL R. SHAH, CA REVENUE BY SHRI R. P. RASTOGI, SR. D.R. DATE OF HEARING 16.07.2019 DATE OF PRONOUNCEMENT 18.07.2019 /ORDER PER O. P. MEENA, AM 1. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-VALSAD (IN SHORT THE CIT (A)) DATED 19.05.2017PERTAINING TO ASSESSMENT YEAR 2013-14. 2. THE SOLE GROUND OF APPEAL STATES THAT THE LD. CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER (AO) IN MAKING ADDITION OF RS. 5,49,709 ON ACCOUNT OF FINANCIAL EXPENSES. 3. THE AO NOTICED THAT THE ASSESSEE HAS BORROWED INTEREST BEARING FUNDS OF RS.74,78,353 ON WHICH INTEREST OF RS. 8,53,715 HAS BEEN PAID. HOWEVER, THE ASSESSEE HAS ADVANCED INTEREST FREE LOANS OF RS.85,50,000 TO SISTER PAGE 2 OF 4 DIVYAKANT L PANARA V. ITO WD-2, NAVSARI I.T.A. NO.1583/AHD/2017/A.Y.2013-14 CONCERNS. SINCE THE INTEREST BEARING LOANS HAVE BEEN ADVANCED AND UTILIZED FOR INTEREST FREE LOANS, HENCE, PROVISIONS OF SECTION 36(1) (III) ARE APPLICABLE. THE ASSESSEE HAS CLAIMED THAT IT HAS INTEREST-FREE FUNDS OF RS.1,23,31,402 AGAINST WHICH INTEREST FREE ADVANCES OF RS.85,50,000 ARE MADE HENCE, NO ADVERSE VIEW SHOULD BE TAKEN. FURTHER, THE INVESTMENT IN INTEREST FREE LOANS HAVE BEEN MADE FOR THE PURPOSE OF BUSINESS. THE ASSESSEE HAS ALSO RELIED IN THE CASE OF KARNAVATI PETROCHEM PVT. LTD. [I.T.A.NO. 2228/AHD/2012 AND SUBMITTED THAT ONLY NET OF INTEREST PAID IS TO BE DISALLOWED IF ANY DISALLOWANCE IS TO BE MADE. THE AO, ACCORDINGLY, MADE NET DISALLOWANCE OF INTEREST OF RS.5,49,709 I.E. [ 8,53,715- 3,04,006]. 4. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT (A). WHERE RELIANCE IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. (2009)313 ITR 340 (BOM)/178 TAXMAN 135 (BOM) , RAGHUVIR SYNTHETICS LTD. OF GUJARAT HIGH COURT AND CIT V. CIT V. CORRTECH ENERGY PVT. LTD. [2015] 372 ITR 97 (GUJ): [2014]45 TAXMANN.COM 116;223 TAXMAN 130 (GUJ.) WAS MADE BY THE ASSESSEE. HOWEVER, LD. CIT(A) HAS CONFIRMED THE FINDINGS OF THE AO. 5. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS INTEREST- FREE FUNDS OF RS.123 LAKH AS AGAINST INTEREST FREE LOANS OF RS.85.50 LAKH, HENCE, NO DISALLOWANCE SHOULD HAVE BEEN MADE ON ACCOUNT OF INTEREST EXPENDITURE. THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED HIS VIEW BY PLACING RELIANCE IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. (2009)313 ITR 340 (BOM)/178 TAXMAN 135 (BOM) , RAGHUVIR SYNTHETICS LTD. PAGE 3 OF 4 DIVYAKANT L PANARA V. ITO WD-2, NAVSARI I.T.A. NO.1583/AHD/2017/A.Y.2013-14 OF GUJARAT HIGH COURT AND CIT V. CIT V. CORRTECH ENERGY PVT. LTD. [2015] 372 ITR 97 (GUJ): [2014] 45 TAXMANN.COM 116 ; 223 TAXMAN 130 (GUJ.).THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE HONBLE GUJARAT HIGH COURT IN THE CASE OF PR. CIT-4 V. SINTEX INDUSTRIES LTD. [2017] 82 TAXMANN.COM 171 (GUJARAT) HELD THAT WHERE ASSESSEE WAS ALREADY HAVING ITS OWN SURPLUS FUNDS AGAINST WHICH SMALL INVESTMENT HAS BEEN MADE, THERE WAS NO QUESTION OF MAKING ANY DISALLOWANCE OF EXPENDITURE IN RESPECT OF INTEREST AND ADMINISTRATIVE EXPENSES UNDER SECTION 14A. THE SLP AGAINST SAID T]DECISION WAS ALSO DISMISSED AGAINST APPEAL FILED BY THE REVENUE IN PR. CIT IV V. SINTEX INDUSTRIES LTD. [2018] 93 TAXMANN.COM 24 (SC). 6. PER CONTRA , THE LD. SR. D.R. RELIED ON THE ORDER OF LD. CIT (A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE WAS HAVING SURPLUS INTEREST- FREE FUNDS OF RS. 123 LAKHS AS AGAINST WHICH INTEREST FREE ADVANCES OF RS. 85.50 LAKH WERE GIVEN TO SISTER CONCERNS FOR THE PURPOSE OF BUSINESS ONLY. THEREFORE, RELYING IN JUDGEMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF PR. CIT -4 V. SINTEX INDUSTRIES LTD. [2017] 82 TAXMANN.COM 171 (GUJARAT) HELD THAT WHERE ASSESSEE WAS ALREADY HAVING ITS OWN SURPLUS FUNDS AGAINST WHICH SMALL INVESTMENT HAS BEEN MADE, THERE WAS NO QUESTION OF MAKING ANY DISALLOWANCE OF EXPENDITURE IN RESPECT OF INTEREST AND ADMINISTRATIVE EXPENSES UNDER SECTION 14A. THE SLP AGAINST SAID T]DECISION WAS ALSO DISMISSED AGAINST APPEAL FILED BY THE REVENUE IN PR. CIT IV V. SINTEX INDUSTRIES LTD. [2018] 93 TAXMANN.COM 24 (SC), WE HOLD THE DISALLOWANCE OF PAGE 4 OF 4 DIVYAKANT L PANARA V. ITO WD-2, NAVSARI I.T.A. NO.1583/AHD/2017/A.Y.2013-14 INTEREST MADE UNDER SECTION 36(1)(III) BY THE AO ARE NOT JUSTIFIED. ACCORDINGLY, SAME IS DELETED. THIS GROUND IS ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. 9. THE ORDER PRONOUNCED IN THE OPEN COURT ON 18.07.2019 SD/- SD/- (H. S. SIDHU) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER SURAT: DATED: 18 TH JULY, 2019/OPM COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. BY ORDER // TRUE COPY // ASSISTANT REGISTRAR, SURAT