Chhabra Syntex Pvt.Ltd., Surat V. The Income tax Officer,Ward-1(1), Surat

ITA 1589/AHD/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0333 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 13-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUDHANSHU S JHA
• Keywords: Proportionate interest; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH D DD D BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI N NN N. .. .S. SAINI S. SAINI S. SAINI S. SAINI, , , , ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER AND AND AND AND SHRI SHRI SHRI SHRI MAHAVIR SINGH, JUDICIAL MEMBER MAHAVIR SINGH, JUDICIAL MEMBER MAHAVIR SINGH, JUDICIAL MEMBER MAHAVIR SINGH, JUDICIAL MEMBER DATE OF HEARING :3-8-2010 DRAFTED ON :3-8-2010 ITA NO. 1589 /AHD/ 2010 ASSESSMENT YEAR :2007-08 M/S. CHHABRA SYNTEX PVT. LTD., 603, CENTRE POINT, RING ROAD, SURAT. VS. INCOME TAX OFFICER, WARD 1(1), AAYAKAR BHAVAN, MAJURA GATE, PAN/GIR NO. : AAACC9459L (A PPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI HARDIK VORA RESPONDENT BY: SHRI SUDHANSHU S. JHA, D.R. O R D E R O R D E R O R D E R O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, SURAT DATED 16-3-2010. 2. THE SOLE GROUND OF APPEAL RAISED BY THE ASSESSEE IS THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING O FFICER IN MAKING DISALLOWANCE OF INTEREST EXPENSES OF `.3,08,560/- @ 12% ON ACCOUNT OF INTEREST FREE LOANS AND ADVANCES. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE HAS GIVEN I NTEREST FREE ADVANCE OF `.32,38,000/- TO THE FOLLOWING PARTIES : - - 2 - SR. NO. NAME OF THE PARTY. AMOUNT (`.) 1. MS. VEENA CHHABRA 4,43,000/ - 2. M/S. ARIHANT SILK MILLS 9,75,000/ - 3. SHRI SATISH J. SHAH 25,000/ - 4. M/S. CHHABRA SILK INDUSTRIES. 13, 50,000/ - 5. M/S. SHUBHAM FABRICS 4,45,000/ - TOTAL 32,38,000/ - 4. THE ASSESSEE COULD NOT ESTABLISH THAT THE ADVANC ES TO THE AFORESAID PARTIES WERE GIVEN OUT OF COMMERCIAL CONS IDERATION. THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSE E WAS PAYING INTEREST IN RESPECT OF BORROWED CAPITAL THEREFORE, THE LEARNED ASSESSING OFFICER DISALLOWED INTEREST RELATING TO A FORESAID ADVANCE OF `.32,38,000/- WHICH HE WORKED OUT TO `.3,08,560/ - BEING @ 12% PER ANNUM. 5. ON APPEAL, LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) CONFIRMED THE ABOVE ACTION OF THE LEARNED ASSESSING OFFICER BY PLACING RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF S. A. BUILDERS LTD. V. COMMISSIONER OF INCO ME-TAX (APPEALS)[2007] 288 ITR 0001 (SC), IN THE CASE OF COMMISSIONER OF INCOME TAX V. ABHISHEK INDUSTRIES LTD. [2006] 286 I TR 0001(P&H), IN THE CASE OF C.I.T. V. H.R. SUGAR FACTORY PVT. LT D., (1991) 187 ITR 363 (ALL), AND IN THE CASE OF HIRA LALL AND SONS VS . C.I.T.(1991) 190 ITR 408 (DEL). 6. BEFORE US THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS DRAWN OUR ATTENTION TO THE BALANCE SH EET OF THE ASSESSEE COMPANY WHICH IS PLACED AT PAGE NO.8 TO 18 OF THE PAPER BOOK AND POINTED OUT THAT THE SHARE CAPITAL OF THE ASSESSEE COMPANY WAS `.75,00,000/- AND RESERVES AND SURPLUS WAS `.6,56,787/-. HE THUS SUBMITTED THAT INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE COMPANY WAS TO THE TUNE OF `.81,5 6,787/- WHICH - 3 - WAS MUCH MORE THAN THE INTEREST FREE ADVANCE OF `.3 2,38,000/- IN QUESTION. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE ALSO POINTED OUT THAT NO MATERIAL WAS BROUGHT ON RE CORD BY THE REVENUE TO SHOW THAT THERE WAS ANY NEXUS BETWEEN TH E INTEREST BEARING FUND AND THE ADVANCE IN QUESTION. HE PLACE D RELIANCE UPON THE DECISION OF THIS TRIBUNAL IN THE CASE OF PRESTI GE WRITING INSTRUMENTS (P) LTD VS. A.C.I.T. IN ITA NO.355 AND 419/AHD/2007 FOR ASSESSMENT YEAR 2003-04 ORDER DATED 31-5-2010 WHERE IN THE TRIBUNAL BY FOLLOWING THE DECISION OF HON'BLE BOMBA Y HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. , (2009) 313 ITR 340 (BOM) HELD THAT :- INTEREST FREE FUNDS IN THE SHAPE OF ASSESSEES OWN SHARE CAPITAL AND RESERVE AMOUNTING TO `.3.81 CRORES ON W HICH NO INTEREST IS PAID BY THE ASSESSEE, ARE AVAILABLE AND THIS IS EVIDENCED BY THE AUDITED ACCOUNTS OF THE ASSESSE E FILED BEFORE US. THE SR. DEPARTMENTAL REPRESENTATIV E COULD NOT CONTROVERT THAT THE SHARE CAPITAL AND RES ERVES WERE UTILIZED FOR THE PURPOSES OF INVESTMENT IN FIX ED ASSETS. IN THE ABSENCE OF ANY CONTROVERSY ON THIS C OUNT, WE RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE B OMBAY HIGH COURT CITED SUPRA, ALLOW THE CLAIM OF THE ASSE SSEE. 7. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPRE SENTATIVE RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 8. WE FIND THAT IN THE INSTANT CASE, IT IS NOT IN D ISPUTE THAT INTEREST FREE FUNDS OF `.81,56,787/- WAS AVAILABLE WITH THE ASSESSEE WHICH IS EVIDENCED BY THE AUDITED BALANCE SHEET OF THE ASSESSEE AND THE SAME IS MUCH MORE THAN THE AMOUNT OF `.32,38,000/- WHICH WAS ADVANCED AS INTEREST FREE A DVANCE BY THE ASSESSEE. FURTHER IT IS OBSERVED THAT THE ASSESSEE HAS PRODUCED ITS BOOKS OF ACCOUNTS BEFORE THE LEARNED ASSESSING OFFI CER AT THE TIME OF ASSESSMENT HEARING AND THE LEARNED ASSESSING OFF ICER AFTER EXAMINING THE BOOKS OF ACCOUNTS COULD NOT BRING ANY MATERIAL ON RECORD TO SHOW THAT INTEREST FREE ADVANCE IN QUESTI ON WERE GIVEN OUT OF INTEREST BEARING BORROWED CAPITAL. - 4 - 9. IN THE CASE OF S.A. BUILDERS (SUPRA) THE HON'BLE SUPREME COURT HAS HELD THAT WHEN INTEREST FREE ADVANCE WAS GIVEN OUT OF COMMERCIAL EXPEDIENCY THEN NO PORTION OF INTEREST E XPENDITURE CAN BE DISALLOWED. IN THE INSTANT CASE, IT IS NOT THE CASE OF THE ASSESSEE THAT INTEREST FREE ADVANCE WAS GIVEN OUT O F COMMERCIAL EXPEDIENCY. THE ABOVE DECISION OF THE HON'BLE SUPR EME COURT IS NOT AN AUTHORITY FOR THE PROPOSITION THAT WHENEVER ANY INTEREST FREE ADVANCE IS GIVEN WITHOUT ANY COMMERCIAL EXPEDIENCY THEN PROPORTIONATE INTEREST EXPENDITURE IS TO BE DISALLO WED IRRESPECTIVE OF THE FACT THAT INTEREST FREE CAPITAL WAS AVAILABL E WITH THE ASSESSEE OF MUCH MORE MAGNITUDE OR NOT. THUS, IN OUR CONSIDE RED OPINION, THE ABOVE DECISION OF HON'BLE SUPREME COURT IS NOT APPLICABLE FOR DECIDING THE ISSUE INCONSIDERATION IN THE INSTANT C ASE. 10. IN OUR CONSIDERED OPINION THE LAW DOES NOT OBLI GES AN ASSESSEE TO MAKE MAXIMUM PROFIT. WE FIND THAT IN T HE INSTANT CASE, THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF C.I.T. VS. RELIANCE UTILITIES & POWER LTD., (2009) 313 ITR 340 (BOM.) WHICH IS A RECENT DECISION IN SQUARELY APPLICABLE A S THE FACTS IN THE INSTANT CASE ARE SIMILAR TO THE FACTS OF THE CASE W HICH WAS BEFORE THE HON'BLE BOMBAY HIGH COURT IN RELIANCE UTILITIES AND POWER LTD., (SUPRA). WE FIND THAT IN THE INSTANT CASE, INTEREST FREE MONEY AVAILABLE WITH THE ASSESSEE WAS MUCH MORE THAN THE INTEREST FREE ADVANCE GIVEN BY THE ASSESSEE. NO MATERIAL WAS BROU GHT ON RECORD BY THE REVENUE TO SHOW THAT INTEREST FREE ADVANCE I N QUESTION COULD NOT HAVE BEEN MADE BY THE ASSESSEE OUT OF SUC H INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE OR THE ADVAN CE IN QUESTION WERE MADE OUT OF INTEREST BEARING BORROWED CAPITAL. IN THE CIRCUMSTANCES, WE RESPECTFULLY FOLLOWING THE DECISI ON OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD., (SUPRA) DELETE THE DISALLOWANCE OF INTEREST OF `.3 ,08,560/- AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. - 5 - 11. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 13 TH AUGUST, 2010 SD/- SD/- ( MAHAVIR SINGH) ( N.S. SAINI ) JUDICIAL MEMBER ACCOU NTANT MEMBER AHMEDABAD: ON THIS 13 TH DAY OF AUGUST, 2010 PATKI 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 11-8-2010 --------------- ---- 2. DRAFT PLACED BEFORE AUTHORITY 11-8-2010 ----- -------------- 3. DRAFT PROPOSED & PLACED 11-8-2010 ------- ------------ JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 12-8-2010 ------------------- JM 5. APPROVED DRAFT COMES TO P.S 13-8-2010 -------- ------------ 6. KEPT FOR PRONOUNCEMENT ON 13-8-2010 ----- --------------- 7. FILE SENT TO THE BENCH CLERK 13-8-2010 ------ -------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- --- ------------------