M/s. B-Tex Oinment Mfg.Co., Navsari V. The Jt.CIT.,Navsari Circle, Navsari

ITA 1650/AHD/2009

• Counselvise Citation: 165020514 RSA 2009
• Duration Of Justice: 2 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 12-10-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 20-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: MEHUL K PATEL
• Keywords: Opportunity of being heard; Proportionate interest

Judgement Text

-1- IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' [BEFORE SHRI G D AGARWAL VICE-PRESIDENT] [AND SHRI T K SHARMA - JUDICIAL MEMBER] ITA NOS.1650 & 1651/AHD/2009 (ASSESSMENT YEARS:-2005-06 & 2006-07) M/S B-TEX OINTMENT MFG. CO., C-17, UDYOG NAGAR, NAVSARI V/S JOINT COMMISSIONER OF INCOME-TAX, NAVSARI CIRCLE, NAVSARI PAN: AACFB 8508 N [APPELLANT] [RESPONDENT] APPELLANT BY :- SHRI MEHUL K PATEL, AR RESPONDENT BY:- SHRI SAMIR TEKRIWAL, SR. DR DATE OF HEARING:- 12-10-2011 DATE OF PRONOUNCEMENT:- 14-10-2011 O R D E R PER T K SHARMA (JM) :- THESE TWO APPEALS BY THE ASSESSEE ARE AGAINST TWO SEPARATE ORDERS OF LEARNED CIT(A), VALS AD BOTH DATED 24-02-2009 FOR ASSESSMENT YEARS (AYS) 2005-06 AND 2 006-07. 2 THE ONLY GROUND RAISED IN THE APPEAL FOR AY 2005- 06, READS AS UNDER:- THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN ALLOWING AND CONFIRMING THE VIEW OF JOINT COMMISSIONER OF IN COME TAX IN DISALLOWING A PART OF INTEREST AMOUNTING TO RS.29,8 8,197/- ON WRONG PRESUMPTION. FOR AY 2006-07 ALSO, THE ONLY GROUND RAISED IN THIS APPEAL READS AS UNDER:- THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN ALLOWING AND CONFIRMING THE VIEW OF JOINT COMMISSIONER OF IN COME TAX IN DISALLOWING A PART OF INTEREST AMOUNTING TO RS.40,3 0,187/- ON WRONG PRESUMPTION. 2 ITA NO.1650 & 1651/AHD/2009 3 AT THE TIME OF HEARING BEFORE US ON BEHALF OF THE ASSESSEE SHRI MEHUL K PATEL, APPEARED AND POINTED OUT THAT IN AY 2005-06, THE ASSESSING OFFICER [AO] DISALLOWED RS.29,88,197/- AND RS.40,30,187/- IN AY 2006-07 RESPECTIVELY OUT OF IN TEREST EXPENSES. THE REASONING GIVEN BY THE AO FOR MAKING DISALLOWAN CE IN BOTH THE ASSESSMENT YEARS UNDER APPEAL IS IDENTICAL WITH THA T GIVEN BY HIM IN AY 2004-05. THE COUNSEL OF THE ASSESSEE EXPLAINED T HAT IN AY 2004- 05 ALSO, THE AO DISALLOWED RS.26,73,345/- WHICH WAS CONFIRMED BY THE LEARNED CIT(A). ON FURTHER APPEAL IN AY 2004-05 , THE ITAT B- BENCH IN ASSESSEES OWN CASE IN ITA NO.2768/AHD/200 7 VIDE ORDER DATED 13-10-2010, RESTRICTED THE DISALLOWANCE TO RS .15,34,780/-. THE REASONING GIVEN BY THE ITAT B-BENCH IN AY 2004- 05 IS CONTAINED IN PARA-13 OF THE ORDER, WHICH READS AS U NDER:- 13. ON BEING ASKED BY THE BENCH THE LEARNED AUTHOR IZED REPRESENTATIVE OF THE ASSESSEE POINTED OUT FROM THE BALANCE SHEET OF THE ASSESSEE-FIRM FOR THE ASSESSMENT YEAR UNDER APPEAL PLACED AT PAGE NOS.72 TO 89_OF THE PAPER BOOK THAT THE TOTAL PARTN ERS CAPITAL CONSTITUTE OF RS.7,57,06,838/- WAS HAVING TWO COMPONENTS I.E. FIX ED CAPITAL OF RS.5 CRORE AND CURRENT CAPITAL OF RS.2,57,06,838/-. IT W AS EXPLAINED THAT INTEREST WAS PAID BY THE ASSESSEE FIRM TO THE PARTNERS ONLY IN RESPECT OF FIXED CAPITAL OF RS.5 CRORE AT THE RATE 12% WHICH WORKED OUT TO RS.60 LACS. NO INTEREST WAS PAID TO THE PARTNER BY THE ASSESSEE-FI RM IN RESPECT OF CAPITAL CONTRIBUTION IN THE CURRENT CAPITAL ACCOUNT. WE FIN D THAT THE OPENING BALANCE OF SUCH INTEREST FREE CURRENT CAPITAL ACCOU NT WAS RS.1,54,52,895/- AND AFTER ADDING OF THE PROFIT OF THE YEAR AND ADJU STMENT OF WITHDRAWALS ETC., THE CLOSING BALANCE WAS RS.2,57,06,837/-, ON THE ABOVE FACTS WE FIND THAT THE OPENING INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE-FIRM WAS TO THE TUNE OF RS.1,54,52,895/-, THEREFORE, IN OUR CON SIDERED OPINION THE MAXIMUM AMOUNT OF THE BROUGHT FORWARD INVESTMENT OF RS.2,82,42,726/- WHICH CAN BE HELD TO BE INVESTMENT OUT OF INTEREST FREE FUND CAN BE RS.1,54,52,895/- ONLY. THUS IN OUR CONSIDERED VIEW THE BALANCE AMOUNT RS.L,27,89,831/- INVESTED IN SHARES WERE OUT OF INT EREST BEARING FUNDS AND AS THE INCOME FROM SAID INVESTMENT IS EXEMPT FROM T AX PROPORTIONATE INTEREST ON THE AFORESAID AMOUNT CANNOT BE ALLOWED AS DEDUCTION TO THE ASSESSEE. IN RESPECT OF INVESTMENT MADE IN THE CURR ENT YEAR OF RS.54,90,000/-. WE FIND THAT ACCRETION IN THE INTER EST FREE CURRENT CAPITAL FUND AVAILABLE WITH THE ASSESSEE-FIRM WAS MORE THAN THE SAID AMOUNT AND THEREFORE, IN ABSENCE OF ANY MATERIAL BROUGHT ON RE CORD BY THE REVENUE TO SHOW THAT THE INVESTMENT WAS MADE OUT OF INTEREST B EARING FUNDS, THE CLAIM OF THE ASSESSEE THAT THE SAME WAS MADE OUT OF INTEREST FREE FUNDS 3 ITA NO.1650 & 1651/AHD/2009 AVAILABLE WITH THE ASSESSEE CANNOT BE RULED OUT. I N THE ABOVE CIRCUMSTANCES, IN OUR CONSIDERED VIEW NO DISALLOWAN CE OF INTEREST WAS WARRANTED IN RESPECT OF CURRENT YEAR'S INVESTMENT O F RS.54.90 LACS AND BROUGHT FORWARD INVESTMENT TO THE EXTENT OF RS.L,54 ,52,895/-.THE DISALLOWANCE OF INTEREST WAS WARRANTED IN RESPECT O F BALANCE BROUGHT FORWARD INVESTMENT OF RS,1,27,89,831/-AND THEREFORE , DISALLOWANCE OF INTEREST AT THE RATE 12% THEREON WHICH WORKS OUT TO RS.15,34,780/- WAS JUSTIFIED. WE THEREFORE, MODIFY THE ORDERS OF THE L OWER AUTHORITIES AND RESTORE THE DISALLOWANCE OF INTEREST EXPENDITURE TO THE EXTENT OF RS.15,34,780/- AND DELETE THE REMAINING DISALLOWANC E OF INTEREST OF RS.11,38,565/-. THUS, THE GROUND OF APPEAL OF THE A SSESSEE IS PARTLY ALLOWED. THE COUNSEL OF THE ASSESSEE FURTHER EXPLAINED THAT IN BOTH THE YEARS UNDER APPEAL, IN THE IMPUGNED ORDERS DATED 24-02-20 09, THE LEARNED CIT(A) HAS CONFIRMED THE DISALLOWANCE. HE ACCORDING LY SUGGESTED THAT THE AO BE DIRECTED TO REWORK OUT THE DISALLOWA NCE IN BOTH THE YEARS UNDER APPEAL KEEPING IN VIEW THE PRINCIPLES L AID DOWN BY THE ITAT BENCH-B IN THE ASSESSEES OWN CASE FOR AY 2004 -05 CITED (SUPRA). 4 ON BEHALF OF THE REVENUE, SHRI SAMIR TEKRIWAL, TH E LEARNED SENIOR DR APPEARED AND COULD NOT CONTROVERT THE AFO RESAID SUBMISSIONS MADE BY THE LEARNED COUNSEL FOR THE ASS ESSEE. 5 AFTER HEARING BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINEN T TO NOTE THAT FOR MAKING THE DISALLOWANCE OUT OF INTEREST AMOUNTING T O RS.29,88,197/- AND RS.40,30,187/- IN BOTH THE ASSESSMENT YEARS, TH E REASONING GIVEN BY THE AO IS IDENTICAL AS GIVEN IN AY 2004-05 . IN AY 2004-05, THE ITAT BENCH-B VIDE ORDER DATED 13-10-2010 IN ITA NO.2768/AHD/2007 IN THE ASSESSEES OWN CASE, HAS RE STRICTED THE DISALLOWANCE TO RS.15,34,780/- FOR THE DETAILED REA SONING GIVEN IN PARA-13 OF THE ORDER (SUPRA). WE, THEREFORE, SET AS IDE THE ORDERS OF THE LEARNED CIT(A) AND RESTORE THE CONTROVERSY INVO LVED IN BOTH THE APPEALS TO THE FILE OF THE AO WITH THE DIRECTION TH AT HE WILL REWORK OUT THE DISALLOWANCE IN BOTH THE YEARS UNDER APPEAL KEE PING IN VIEW THE 4 ITA NO.1650 & 1651/AHD/2009 PRINCIPLES FOLLOWED BY THE ITAT BENCH-B IN THE ASSE SSEES OWN CASE FOR AY 2004-05 (SUPRA). WE ALSO DIRECT THE ASSESSEE TO FURNISH NECESSARY DETAILS TO THE AO FOR REWORKING THE DISAL LOWANCE OF INTEREST FOR BOTH THE ASSESSMENT YEARS. NEEDLESS TO ADD THAT THE AO WILL PROVIDE NECESSARY OPPORTUNITY OF BEING HEARD T O THE ASSESSEE. 6 IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLOWE D FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT TODAY ON 14-10-2011 SD/- SD/- (G D AGARWAL) VICE-PRESIDENT (T K SHARMA) JUDICIAL MEMBER DATE : 14-10-2011 COPY OF THE ORDER FORWARDED TO: 1. M/S B-TEX OINTMENT MFG. CO., C-17, UDYOG NAGAR, NAVSARI 2. JOINT COMMISSIONER OF INCOME-TAX, NAVSARI CIRCLE , NAVSARI 3. CIT CONCERNED 4. CIT(A)-VALSAD 5. DR, ITAT, AHMEDABAD BENCH-B, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD