The DCIT, Central Circle-1, Surat V. M/s. Mohit Industries Ltd., Surat

ITA 1631/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9258 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-03-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 27-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Keywords: Retrospective amendment; Tax effect
• Section: 14A

Judgement Text

, B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ ITA.NO.1631/AHD/2012 WITH CO NO.163/AHD/2012 / ASSTT. YEAR: 2008-2009 THE DCIT, CENT.CIR.1 SURAT. VS M/S.MOHIT INDUSTRIES LTD. A-WING, 601-B, INTERNATIONAL TRADE CENTRE, MAJURA GATE SURAT. PAN : AABCM 5903 E ! / (APPELLANT) '# ! / (RESPONDENT) REVENUE BY : SHRI NARENDRA SINGH, SR.DR ASSESSEE BY : WRITTEN SUBMISSIONS. / DATE OF HEARING : 09/03/2016 / DATE OF PRONOUNCEMENT: 10/03/2016 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDE R OF LD.COMMISSIONER INCOME-TAX (APPEALS)-II, AHMEDABAD DATED 17.5.2012 PASSED FOR THE ASSTT.YEAR 2008-09. 2. THE APPEAL WAS PRESENTED BY THE REVENUE IN THE T RIBUNAL ON 27.7.2012. MEMO WAS ISSUED TO THE ASSESSEE ON 22.8.2012. THE APPEAL WAS LISTED FOR HEARING ON 20.9.2012. THE ASSESSEE HAS FILED CO ON 3.10.2012. ITA NO.1631/AHD/2012 WITH CO 2 3. AT THE OUTSET, A QUERY WAS RAISED BY THE BENCH A S TO APPLICABILITY AND MAINTAINABILITY OF THE APPEAL FILED BY THE REVENUE IN VIEW OF RECENT CBDT INSTRUCTION NO.21/2015 RESTRICTING THE FILLING OF T HE APPEAL BY THE REVENUE WHERE THE TAX EFFECT IS BELOW RS.10 LAKHS. THE LD. DR DID NOT DISPUTE THE SAME AND SUBMITTED THAT THE ISSUE MAY BE LEFT TO THE AO TO DECIDE WHETHER THE TAX EFFECT IS BELOW RS.10 LAKHS AS STIPULATED IN THE IN STRUCTIONS OF THE CBDT. 4. WE FIND THAT THE APPEAL OF THE REVENUE WAS PRESE NTED ON 27.7.2012. ON 10.12.2015 THE CBDT HAS ISSUED INSTRUCTIONS BEAR ING NO. 21/2015 PROHIBITING ITS SUBORDINATE AUTHORITIES FROM FILING OF THE APPEAL TO THE TRIBUNAL AGAINST THE ORDER OF THE CIT(A) WHERE THE TAX EFFEC T BY VIRTUE OF THE RELIEF GIVEN BY THE CIT(A) IS LESS THAN RS.10 LAKHS. THE INSTRUCTIONS HAVE BEEN MADE APPLICABLE WITH RETROSPECTIVE EFFECT, MEANING THEREBY, THESE INSTRUCTIONS ARE APPLICABLE ON PENDING APPEALS ALSO. IN THE PRE SENT CASE, IMPUGNED ADDITION IS OF RS.13,19,815/-, AND THEREFORE, TAX E FFECT ON THE IMPUGNED ADDITION WOULD BE LESS THAN RS.10 LAKHS, AND THEREF ORE, THE PRESENT APPEAL OF THE REVENUE DESERVES TO BE DISMISSED BEING TREATED TO BE FILED IN VIOLATION OF CBDT INSTRUCTIONS. FURTHER, THE CASE DOES NOT FALL WITHIN THE AMBIT OF EXCEPTIONS PROVIDED IN THE INSTRUCTIONS. IT IS FUR THER OBSERVED THAT SINCE, WHILE HEARING THE APPEAL, SUCH FACTORS COULD NOT BE CROSS -VERIFIED, THEREFORE, IN CASE, ON RE-VERIFICATION AT THE END OF THE AO, IT C AME TO THE NOTICE THAT THE TAX EFFECT IS MORE OR IT FALLS WITHIN THE AMBIT OF EXCE PTIONS PROVIDED IN THE INSTRUCTION, THEN THE DEPARTMENT WILL BE AT LIBERTY TO APPROACH THE TRIBUNAL FOR RECALL OF THIS ORDER. SUCH APPLICATION SHOULD BE F ILED WITHIN FOUR YEARS OF THIS ORDER. IN VIEW OF THE ABOVE, THE APPEAL OF THE REV ENUE IS DISMISSED. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ITA NO.1631/AHD/2012 WITH CO 3 6. IN RESPONSE TO THE NOTICE OF HEARING, THE ASSESS EE HAS FILED WRITTEN SUBMISSIONS, WHEREBY, IT HAS CONTENDED THAT APPEAL OF THE REVENUE DESERVES TO BE DISMISSED ON ACCOUNT OF LOW TAX EFFECT. WE H AVE ALREADY TAKEN COGNIZANCE OF THIS TAX EFFECT AND DISMISSED THE APP EAL OF THE REVENUE BEING NOT TENABLE. 7. AS FAR AS CO OF THE ASSESSEE IS CONCERNED, THE A SSESSEE HAS FILED AN APPLICATION FOR PERMISSION TO RAISE ADDITIONAL GROU ND OF CO. IT HAS PLEADED IN THE GROUND NO.2 THAT THE LD.CIT(A) HAS ERRED IN UP HOLDING THE DISALLOWANCE OF RS.2,99,507/- OUT OF INTEREST EXPENSES ON ACCOUNT O F INTEREST FREE ADVANCE GIVEN TO M/S.HARIHAR REALTOR AND NAVNIDHI DYG. & PT G. MILLS P.LTD. IN SUPPORT OF THE APPLICATION, THE ASSESSEE HAS CONTEN DED THAT DUE TO INADVERTENCE AND CLERICAL MISTAKE, THIS GROUND COULD NOT BE TAKE N WHILE FILING CO. ACCORDING TO THE ASSESSEE NO FRESH FACTS ARE REQUIR ED TO BE BROUGHT ON THE RECORD. THE ISSUE IS GOING TO AFFECT ITS TAXABLE I NCOME, AND THEREFORE, IN VIEW OF THE HONBLE SUPREME COURT DECISION IN THE CASE O F NATIONAL THERMAL POWER CO. LTD. VS. CIT, 229 ITR 383 (SC), THE ASSES SEE IS ENTITLED FOR RAISING ANY SUCH ISSUE. 8. ON DUE CONSIDERATION OF THE EXPLANATION OF THE A SSESSEE, WE ADMIT THE GROUND OF APPEAL ASSESSEE SOUGHT TO RAISE. IN GROU ND NO.1 IN THE CO THE ASSESSEE HAS PLEADED THAT THE LD.CI(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS.1,57,121/- UNDER SECTION 14A OF THE INCOME TA X ACT, READ WITH RULE 8D(2)(III) OF THE INCOME TAX RULES, 1962. THE LD.A O HAS MADE A DISALLOWANCE OF RS.14,76,936/- UNDER SECTION 14A R. W.R 8D. ON APPEAL, THE LD.CIT(A) HAS RESTRICTED THE DISALLOWANCE TO RS.1,5 7,121/- WHICH IS 0.5% OF THE AVERAGE VALUE OF THE INVESTMENT. THE LD.CIT(A) HAS TAKEN NOTE OF THE DETAILS OF LOAN AS WELL AS INVESTMENT MADE BY THE A SSESSEE. CONSIDERING ALL THESE FACTS, THE LD.CIT(A) WAS OF THE VIEW THAT THE DISALLOWANCE MADE AS PER ITA NO.1631/AHD/2012 WITH CO 4 RULE 8D(2)(III) WAS RIGHTLY MADE BY THE AO, AND THE ASSESSEE DID NOT ADVANCE ANY ARGUMENTS ON THIS ASPECT. IN THE WRITTEN SUBMI SSIONS FILED BEFORE US ALSO, THE ASSESSEE HAS NOT RAISED ANY PLEA, THEREFORE, TH E GROUND NO.1 RAISED IN THE CO IS REJECTED. 9. AS FAR AS GROUND NO.2 IS CONCERNED, THE BRIEF FA CTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD .AO HAS CALLED FOR DETAILS FOR DEPOSITS, LOANS AND ADVANCES GIVEN WITHOUT CHAR GING ANY INTEREST. THE ASSESSEE HAS CONTENDED THAT A SIMILAR DISALLOWANCE WAS MADE IN THE ASSTT.YEAR 2008-09 WHICH WAS DELETED BY THE LD.CIT( A). THE LD.AO HAS CONSIDERED THIS CONTENTION OF THE ASSESSEE BY OBSER VING AS UNDER: 6. THE CONTENTION OF THE ASSESSEE CONSIDERED BUT T HE SAME IS NOT ACCEPTABLE. THE ASSESSEE SIMPLY RELIED ITS EARLIER CASE WHERE ID CIT(A) DELETED THE ADDITION BUT IN THIS REGARD IT IS IMPOR TANT TO MENTION HERE THAT THE GROUND HAS BEEN CHALLENGED BEFORE HONBLE ITAT. FURTHER THE ASSESSEE IN HIS EARLIER YEAR SUBMISSION HAS QUOTED THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF M/S.S.A. BUILD ERS (288 ITR 1), WHEREIN, THE SUPREME COURT HAS HELD THAT LOANS GIVE N FOR BUSINESS EXPEDIENCY HAVE TO BE TAKEN FOR BUSINESS PURPOSE. A S PER THE ASSESSEE, THE DECISION LAYS DOWN THAT THE BUSINESS EXPEDIENCY HAS TO BE UNDERSTOOD FROM THE POINT OF VIEW OF BUSINESS-MAN. HOWEVER, THIS IS NOT THE RATIO OF THE DECISION OF THE HON'BLE SUPREME CO URT. APEX COURT HAS LAID DOWN THAT NO INTEREST DISALLOWANCE CAN BE MADE IN RESPECT OF ADVANCES GIVEN FOR BUSINESS PURPOSE. HOWEVER, IT DO ES NOT STATE THAT ALL ADVANCES WHATSOEVER WILL BE CONSIDERED TO BE GIVEN FOR BUSINESS PURPOSE. IN THE CASE BEFORE THE APEX COURT, THE ADV ANCES WERE TO THE SUBSIDIARY OF THE ASSESSEE WHOSE PROFITS WERE ALSO TAKEN INTO ACCOUNT FOR THE CONSOLIDATED PROFIT OF THE ASSESSEE. IN THO SE FACTS, THE APEX COURT HELD THAT BUSINESS PURPOSE OF THE ASSESSEE IS SERVE D BY MAKING THESE ADVANCES. BESIDES, THE APEX COURT HAS NOT RULED THA T EACH AND EVERY ADVANCE WILL BE CONSIDERED FOR BUSINESS PURPOSE AND MAKE ANY ENQUIRY IN RESPECT OF THE SAME. IN THIS CASE, THE ASSESSEE WAS ASKED TO STATE THE BUSINESS PURPOSE ALSO LEAD EVIDENCE IN THIS REGARD. THE ASSESSEE DID NOT STATE ANY BUSINESS PURPOSE IN RESPECT OF ALL AD VANCES. THE ASSESSEE HAS ALSO NOT LED ANY EVIDENCE TO PROVE HOW THE BUSI NESS PURPOSE OF THE ASSESSEE IS SERVED BY THESE ADVANCES. 6.1 THE ASSESSEE ONLY SAYS THAT IT SERVES ITS BUSIN ESS PURPOSE WITHOUT SPECIFYING HOW THE BUSINESS PURPOSE IS SERVED. HENC E, IT IS CLEAR FROM ITA NO.1631/AHD/2012 WITH CO 5 THE ABOVE DISCUSSION THAT THE ASSESSEE HAS FAILED T O PROVE THE BUSINESS PURPOSE IN RESPECT OF THESE ADVANCES. 6.2 THE ASSESSEE WAS ALSO ASKED TO GIVE EVIDENCE IN THE FORM OF BANK BOOKS AND BANK STATEMENTS OF THE RELEVANT PERIOD TO PROVE THAT INTEREST BEARING FUNDS HAVE NOT BEEN USED FOR MAKING THESE A DVANCES. THE ASSESSEE HAS NOT FURNISHED THE BANK BOOK AND THE BA NK STATEMENT. IT HAS GIVEN A GENERAL CALCULATION IN RESPECT OF ITS S HARE CAPITAL AND RESERVES OF AND HAS STATED THAT IT HAS MORE INTERES T FREE FUNDS THAN IT HAS GIVEN. THE ASSESSEE HAS ALSO STATED IN HIS EARLIER YEAR SUBMISSION THAT IT HAS GENERATED CASH PROFITS WHICH IS SUFFICIENT TO C OVER UP THE ABOVE LOANS AND ADVANCES. AS PER THE ASSESSEE, IN THIS SI TUATION, THE DISALLOWANCE CANNOT BE MADE IN RESPECT OF INTEREST ON BORROWED FUNDS AS PER LAW LAID DOWN IN FOLLOWING CASE LAWS: - CIT VS. RADICO KHAITAN LTD. (274 ITR 354) (ALL ) - CIT VS. HOTEL SAVERA (239 ITR 795) (MAD) IN THE CASE OF RADICO KHAITAN, THE HIGH COURT DECID ED THE MATTER ON THE FINDINGS RECORDED BY THE TRIBUNAL THAT THE ASSESSEE COMPANY HAS SUFFICIENT FUNDS OTHER THAN THE BORROWED MONEY FOR GIVING THE AMOUNT IN QUESTION AS LOAN TO ITS SISTER CONCERN. IN THE CASE OF 'ERA HOTELS, THE DECISION WAS GIVEN ON THE FACTS THAT MONEY BORROWED WAS ADVANCED TO SAVERA HOTELS FREE OF INTEREST. 6.3 HENCE, IN BOTH THE CASES, THE FACTS WERE DI FFERENT FROM THAT OF THE ASSESSEE. IN THE CASE OF ASSESSEE, ASSESSEE HAS GIV EN INTEREST FREE LOANS. THE ASSESSEE HAS BEEN SPECIFICALLY ASKED T O PROVE WITH THE HELP OF BANK BOOK AND BANK STATEMENTS, THE SOURCE OF THE SE ADVANCES MADE FOR NON-BUSINESS PURPOSES. THE ASSESSEE HAS CHOSEN TO GIVE ONLY A GENERAL REPLY INSTEAD OF SPECIFICALLY POINTING OUT HOW THE ADVANCES WERE NOT MADE FROM INTEREST BEARING FUNDS. 6.4 AFTER SEEING THE INTEREST EXPENDITURE IN RE LATION TO LOANS TAKEN BY THE ASSESSEE, RATE OF INTEREST OF 12% APPEARS TO BE MORE REASONABLE. AS PER THIS WORKING, THE ASSESSEE WOULD HAVE INCURR ED INTEREST OF RS.2,99,507/-MORE THAN WHAT IT HAS RECEIVED IF THE ENTIRE INTEREST FREE OR LOW INTEREST BEARING ADVANCES WERE GIVEN OUT OF INT EREST BEARING FUNDS. HENCE, INTEREST OF RS.2,99,507/- IS DISALLOWED ON A CCOUNT OF INTEREST FREE ADVANCES GIVEN FOR NON-BUSINESS PURPOSE FROM INTERE ST BEARING FUNDS. 10. IN THE WRITTEN SUBMISSIONS, THE ASSESSEE HAS PL EADED THAT THE LOANS WERE ADVANCED IN EARLIER YEARS. THIS YEAR, IT IS THE OP ENING BALANCE. IN OTHER WORDS, IT IS THE BROUGHT FORWARD OF LOANS WHICH WER E GIVEN IN EARLIER YEARS. ITA NO.1631/AHD/2012 WITH CO 6 THE INTEREST DISALLOWED IN EARLIER YEARS FOR THE LO ANS GIVEN TO M/S.HARIHAR REALTOR AND NAVNIDHI DYG. & PTG. MILLS P.LTD., WERE DELETED BY THE CIT(A). THIS ORDER OF THE LD.CIT(A) WAS UPHELD BY THE ITAT IN ITA NO.126/AHD/2012. THE ASSESSEE HAS PLACED ON RECORD COPY OF THE CIT(A)S ORDER AS WELL AS ITATS ORDER. ON PAGE NOS.41 TO 4 4 OF THE PAPER BOOK, THE ASSESSEE HAS PLACED ON RECORD THE COPY OF THE LEDGE R OF M/S.HARIHAR REALTOR AND NAVNIDHI DYG. & PTG. MILLS P.LTD. 11. ON DUE CONSIDERATIONS OF THE FACTS AND CIRCUMST ANCES, WE FIND THAT IN THE ASSTT.YEAR 2008-09, THE ASSESSEE HAS GRANTED LO AN OF RS.4,15,31,402/- TO EIGHT PARTIES WHICH INCLUDES M/S.HARIHAR REALTOR AN D NAVNIDHI DYG. & PTG. MILLS P.LTD. TO M/S.HARIHAR REALTOR, IT HAS ADVANC ED A SUM OF RS.17 LACS AND TO NAVNIDHI DYG. & PTG. MILLS P.LTD. RS.20 LACS. T HE TRIBUNAL UPHELD THE DELETION OF INTEREST ON THE GROUND THAT THE ASSESSE E HAS INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL OF RS.4,78,86,000/- AND R ESERVE AND SURPLUS FUND AMOUNTING TO RS.2,45,98,894/-. ACCORDING TO THE TR IBUNAL THESE TWO INTEREST FREE AMOUNTS CAN TAKE CARE OF THE INTEREST FREE ADV ANCE, AND THEREFORE, NO DISALLOWANCE OUT OF THE INTEREST EXPENSES OUGHT TO BE MADE. A PERUSAL OF THE LEDGER ACCOUNT OF THESE TWO COMPANIES VIZ. M/S.HARI HAR REALTOR AND NAVNIDHI DYG. & PTG. MILLS P.LTD. HAD REVEALED THAT IN THIS YEAR THE OPENING BALANCE OF LOAN ADVANCE TO THESE PARTIES IS OF RS.20 LACS RS.1 7 LACS. NO NEW FUNDS HAVE BEEN ADVANCED BY THE ASSESSEE TO THESE PARTIES. ON CE IT WAS ACCEPTED UPTO THE LEVEL OF THE TRIBUNAL THAT THE INTEREST BEARING FUN DS WERE NOT USED WHILE MAKING ADVANCES TO THESE PARTIES, THEN, NO INTEREST EXPENSES CAN BE DISALLOWED. IN VIEW OF THE ABOVE DISCUSSION, WE AL LOW THE SECOND GROUND RAISED BY THE ASSESSEE IN THE CO. ITA NO.1631/AHD/2012 WITH CO 7 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED, WHEREAS, THE CROSS-OBJECTION, WHICH WAS FILED BY THE ASSESSEE BE FORE THE WITHDRAWAL OF THE APPEAL OF THE REVENUE, IN VIEW OF THE CBDT CIRCULAR , IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 10 TH MARCH, 2016 AT AHMEDABAD. SD/- SD/- ( MANISH BORAD ) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER