PASHUPATINATH HIMGHAR PVT LTD., Hooghly V. A.C.I.T. Cir - 2,Hooghly, Hooghly

ITA 1733/KOL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100048 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 27-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 1733 / KOL / 2012 ASSESSMENT YEAR :2008-09 PASHUPATINATH HIMGHAR PVT. LTD., C/O ADVOCATE SHRI SOMNATH GHOSH, SEVEN BROTHERS LODGE, P.O. BUROSHIBTALA CHINSURAH, DIST. HOOGHLY, PIN 712 105 [ PAN NO.AADCP 7100 N ] V/S . ACIT, CIRCLE-2, AAYAKAR BHAWAN, G.T. ROAD, KHADINA MORE, CHINSURAH, DIST. HOOGHLY, PIN 712 101 /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI SOMNATH GHOSH, ADVOCATE /BY RESPONDENT SHRI AMITAVA BHATTACHARYYA, JCIT, SR-DR /DATE OF HEARING 27-10-2015 /DATE OF PRONOUNCEMENT 06-11-2015 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF ORDE R OF COMMISSIONER OF INCOME TAX (APPEALS)-XXXVI, KOLKATA IN APPEAL NO.59 2/CIT(A)-XXXVI/KOL/ CIR.-2,HGL./10-11 DATED 17.10.2012. ASSESSMENT WAS FRAMED BY ACIT, CIRCLE- 2,CHINSHURAH U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 27.12.2010 FOR A SSESSMENT YEAR 2008-09. 2. FIRST ISSUE RAISED BY ASSESSEE IN THIS APPEAL IS THAT LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.24,98,559/- ON ACCOUNT OF INTEREST CHARGED AT A LESSER RATE ON LOANS GIVEN TO FARMERS. ITA NO.1732/KOL/2012 A.Y. 2008-09 PASHUPAINATH HIMGHAR PVT. LTD. V. ACIT, CIR-2,HGL . PAGE 2 3. BRIEFLY STATED FACTS ARE THAT ASSESSEE IS A PRIV ATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF TRADING & STORAGE OF POT ATO. DURING THE YEAR ASSESSEE HAS OBTAINED LOAN FROM SECURED SOURCES AND HAD PAID AN AMOUNT ON ACCRUED TO THE TUNE OF 62,76,553/- AS INTEREST THEREON. THE ASSESSEE HAD DISBURSED AN AMOUNT OF 1,56,55,180/- AS LOAN TO VARIOUS FARMERS AND AGRICULTURISTS WHO HAD IN TURN PAID MINIMAL INTERES T ACCRUED TO A SUM OF 54,256/- WHICH WAS DISCLOSED AS INCOME IN ITS RETUR N OF INCOME. ON THIS FACTS, ASSESSING OFFICER DISALLOWED A SUM OF 24,98,559/- ON A PROPORTIONATE BASIS OUT OF INTEREST PAID WITHIN THE PROVISION OF SEC. 3 6(1)(III) OF THE ACT. THE AO HAS JUSTIFIED THE DISALLOWANCE OF INTEREST AS AFORE SAID ON THE GROUND THAT FUND OF INTEREST BEARING LOANS HAVE BEEN DIVERTED TO ADV ANCES WHICH ARE NOT LINKED TO THE BUSINESS. SO THE INTEREST PAID ON THE SECURE D LOAN IS NOT EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. AGGRIEVED BY THIS ORDER, A SSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHO HAS UPHELD THE DECISIO N OF AO BY OBSERVING THAT NO PRUDENT ENTREPRENEUR WILL ADVANCE THE LOAN FOR F ETCHING LESS INTEREST THAN THAT PAID BY IT ON LOAN TAKEN. IN THE INSTANT CASE, ASSESSEE PAYS MORE INTEREST TO THE BANK BUT GOT LESS INTEREST FROM THE FARMERS. AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSEE PREFERRED SECOND APPEAL BEFORE US. SHRI SOMNATH GHOSH, LD. AUTHORIZED REPRESENTATIVE I S APPEARING ON BEHALF OF ASSESSEE AND SHRI AMITAVA BHATTACHARYYA, LD. DEPART MENTAL REPRESENTATIVE IS APPEARING ON BEHALF OF REVENUE. 4. WE HAVE HEARD RIVAL PARTIES AND PERUSED THE MATE RIALS AVAILABLE ON RECORD. LD. AR SUBMITTED PAPER BOOK CONTAINING PAGE S 1 TO 166 AND DEMONSTRATED THAT ADVANCES WERE GIVEN TO THE FARMER S FOR THE PURPOSE OF BUSINESS EXPEDIENCY AND THIS PRACTICE WAS VERY MUCH PREVALENT IN THE COLD STORAGE INDUSTRY BUSINESS. NOW AS AND WHEN THERE IS A REQUIREMENT OF FUND TO THE FARMERS THEY APPROACHED TO THE OWNER OF THE COL D STORAGE TO SEEK FINANCIAL SUPPORT AT A VERY NOMINAL RATE OF INTEREST AND OWNE R OF THE COLD STORAGE PROVIDE THIS FINANCIAL SUPPORT TO FARMERS SO AS TO ENSURE THEIR LOYALTY FOR GETTING ITA NO.1732/KOL/2012 A.Y. 2008-09 PASHUPAINATH HIMGHAR PVT. LTD. V. ACIT, CIR-2,HGL . PAGE 3 THE SUPPLY OF POTATO ON YEAR TO YEAR BASIS. THE LD. AR FURTHER DEMONSTRATED THAT ASSESSEE HAS BEEN FRAMED ASSESSMENT U/S. 143(3 ) OF THE ACT BY AO IN THE SUBSEQUENT YEAR AND THE QUESTION FOR DISALLOWAN CE OF INTEREST DID NOT ARISE. THE LD. AR OF ASSESSEE ALSO CITED VARIOUS JU DGMENT IN SUPPORT OF HIS CLAIM WHERE THE BUSINESS EXPEDIENCY WAS INTERPRETED IN DIFFERENT PERSPECTIVE AND THE DEDUCTION OF THE EXPENSES WAS ALLOWED ACCOR DINGLY. 1) CALDERN PHARMACEUTICALS LTD. V. CIT (2004) 265 I TR 245 (CAL) 2) ARUNA MILLS LTD. V. CIT (1957) 31 ITR 153 (BOM) 3) CIT V. NEELKANTH SYNTHETICS AND CHEMICALS P. LTD . (2011) 330 ITR 463 (BOM) 4) ACIT V. KUBER SINGH BHAGWANDAS (1979) 118 ITR (M P) (FB) 5) DCIT V. CORE HEALTH CARE LTD. (2008) 298 ITR 194 (SC) 6) S.A BUILDERS LTD. V. CIT AND ANRS. (2007) 288 IT R 1 (SC) 7) SASSOON J. DAVID AND CO. P. LTD. V. CIT (1979) 1 18 ITR 261 (SC) 5. ON THE OTHER HAND, LD. DR VEHEMENTLY RELIED ON T HE ORDERS OF AUTHORITIES BELOW. 6. ON CAREFUL ANALYSIS OF THE AFORESAID DISCUSSION, IT REVEALS THAT THE AO HAS DISALLOWED THE INTEREST ON THE GROUND THAT ASSE SSEE IS PAYING MUCH AMOUNT OF INTEREST TO THE BANKERS AND CONSEQUENTLY CLAIMING MORE EXPENSES IN THE FORM OF BANK INTEREST AND THOSE LOANS HAVE B EEN GIVEN SUBSEQUENTLY TO THE FARMERS AND ASSESSEE HAS TAKEN VERY MINIMAL INT EREST FROM THOSE FARMERS. SO THE AO HAS HELD THAT LOAN HAS NOT BEEN EXCLUSIVE LY USED FOR THE PURPOSE OF BUSINESS AND THE LD. CIT(A) HAS CONFIRMED THE VIEW TAKEN BY THE AO AND DISALLOWED THE INTEREST ON PROPORTIONATE BASIS. HOW EVER, WE OBSERVE THAT THE AMOUNT OF LOAN WAS GIVEN TO THE FARMERS FOR THE PUR POSE OF BUSINESS EXPEDIENCY OF THE ASSESSEE. WE FIND THAT THERE IS N O BAR AGAINST ADVANCING OF LOAN INTEREST-FREE OR AT A LOW RATE OF INTEREST UND ER THE ACT. THERE MAY BE MANY CONSIDERATIONS, INCLUDING BUSINESS CONSIDERATI ONS, FOR NOT CHARGING INTEREST OR CHARGING INTEREST AT A LOW RATE. DISPUT E BETWEEN THE REVENUE AND THE ASSESSEE OFTEN ARISES WHEN MONEY IS BORROWED WI TH INTEREST AND LOAN IS ITA NO.1732/KOL/2012 A.Y. 2008-09 PASHUPAINATH HIMGHAR PVT. LTD. V. ACIT, CIR-2,HGL . PAGE 4 ADVANCED INTEREST-FREE OR AT A LOW RATE OF INTEREST . IN SUCH A CASE THE TENDENCY OF THE ASSESSING OFFICERS GENERALLY IS TO DISALLOW THE INTEREST PAID ON THE MONEY BORROWED EITHER IN FULL OR PROPORTIONATELY DE PENDING UPON THE QUANTUM OF LOAN ADVANCED AND INTEREST, IF ANY, CHARGED. BUT WHETHER THE ASSESSEE CHARGED INTEREST ON LOAN ADVANCED OR NOT IS NOT AT ALL A RELEVANT CONSIDERATION FOR DETERMINING ALLOWABILITY OF INTEREST PAID UNDER SECTION 36(1)(III) OF THE ACT. AS ALREADY DISCUSSED, THE RELEVANT CONSIDERATION IS WHETHER THE MONEYS HAVE BEEN BORROWED FOR THE PURPOSES OF BUSINESS OR PROFE SSION AND WHETHER INTEREST PAID. IN THE INTEREST OF MAINTAINING GOOD BUSINESS RELATION, INTEREST- FREE LOANS OR LOANS AT A LOW RATE OF INTEREST MAY B E GIVEN TO OTHERS WITH WHOM THE ASSESSEE HAS BUSINESS RELATION OR WITH WHOM HE EXPECTS TO ESTABLISH BUSINESS CONNECTION OR WITH WHOM HE HAS OTHER BUSIN ESS OBLIGATIONS, PRESENT OR PAST. THERE MAY BE MANY OTHER REASONS ALSO BOTH BUSINESS OR NON- BUSINESS. IF INTEREST-FREE LOAN OR LOAN AT A LOW RA TE OF INTEREST IS GIVEN FOR BUSINESS CONSIDERATION OUT OF THE CAPITAL BORROWED WITH INTEREST THEN ALSO THE BORROWING WOULD BE FOR THE PURPOSES OF BUSINESS, AN D INTEREST PAID ON THE BORROWED CAPITAL WOULD BE ALLOWABLE AS DEDUCTION UN DER SECTION 36(1)(III) OF THE ACT. THERE IS NO COMPULSION THAT INTEREST SHOUL D ALWAYS BE CHARGED ON ANY LENDING, NOR THERE IS ANY REQUIREMENT THAT INCOME M UST BE EARNED BY UTILIZING THE CAPITAL BORROWED WITH INTEREST SO AS TO BE ENTI TLED TO THE DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT. MERELY FOR THE REASO N THAT INTEREST WAS NOT CHARGED OR CHARGED AT A LOW RATE ON THE LENDING, TH E INTEREST PAID FOR BORROWING CANNOT BE DISALLOWED. IT IS A MATTER OF B USINESS PRUDENCE AND ENTIRELY UPTO THE ASSESSEE AS TO HOW HE UTILIZES TH E FUND IN THE INTEREST OF HIS BUSINESS. THE BASIC REQUIREMENT IS THAT THE BORROWE D CAPITAL SHOULD BE USED FOR THE PURPOSES OF BUSINESS OR PROFESSION. AN ARGU MENT MAY BE ADVANCED THAT IF INTEREST-FREE LOAN HAD NOT BEEN GIVEN THEN THE ASSESSEE COULD HAVE REDUCED HIS DEBT AND CONSEQUENTLY THE INTEREST PAYM ENT. IN THIS RESPECT THE OBSERVATION OF THE TRIBUNAL IN THE CASE OF COIMBATORE SALEM TRANSPORT (P) LTD. , AFFIRMED BY THE MADRAS HIGH COURT IN CIT VS. COIMBATORE SALEM TRANSPORT (P) LTD. (1966) 61 ITR 480 (MAD) , WAS AS UNDER : ITA NO.1732/KOL/2012 A.Y. 2008-09 PASHUPAINATH HIMGHAR PVT. LTD. V. ACIT, CIR-2,HGL . PAGE 5 'THE WORST THAT CAN BE SAID IS THAT IF SUCH ADVANCE S HAD NOT BEEN GIVEN, THE ASSESSEE COULD HAVE REDUCED ITS INDEBTEDNESS AN D THEREBY ITS INTEREST CHARGES. BUT THAT WOULD BE VENTURING INTO REALMS THAT ARE NOT OPEN TO THE DEPARTMENT. IT IS A MATTER OF BUSINESS PRUDENCE.' THE MADHYA PRADESH HIGH COURT IN THE CASE OF D&H SECHERON ELECTRODES (P) LTD. VS. CIT (1984) 40 CTR (MP) 366 : (1984) 149 ITR 400 (MP) HELD THAT WHERE THE ASSESSEE BORROWED CAPITAL FOR BUSINESS PURPOSES, NO PORTION OF THE INTEREST COULD BE DISAL LOWED EVEN IF THE ASSESSEE HAD DISSIPATED THE FUNDS BY GIVING INTERES T-FREE LOANS. SIMILARLY, THE MADRAS HIGH COURT HELD IN THE CASE O F CIT VS. PUDUKKOTTAI CO. (P) LTD. (1972) 84 ITR 788 (MAD) THAT, IN VIEW OF THE FINDING THAT THE AMOUNTS BORROWED WERE FOR THE PURPOSE OF BUSINESS, NO DISALLOWANCE OF INTEREST PAID COULD BE MADE IF THE ASSESSEE BORROWE D THE FUNDS AT A HIGHER RATE OF INTEREST AND LENT IT AT A LOWER RATE . SO IT IS EVIDENT FROM THE AFORESAID DISCUSSION THAT THERE IS AN ELEMENT OF BUSINESS EXPEDIENCY INVOLVED IN THIS TRANSACTION SO AS THE AMOUNT OF INTEREST CHARGED BY ASSESSEE FROM THE FARMERS AT A LESSER RA TE. FROM THE ABOVE CITED JUDGMENTS, WE FIND THAT INTERE ST PAID TO THE BANK AT A HIGHER RATE AND CHARGED FROM OTHER PARTIES AT A LES SER RATE ON ACCOUNT OF BUSINESS EXPEDIENCY IS ALLOWED. ON THIS BASIS AND T AKING A CONSISTENT VIEW WE ALLOW THE CLAIM OF ASSESSEE FOR RECEIVING LESSER RA TE OF INTEREST FROM THE FARMERS, HENCE, THIS GROUND OF ASSESSEES APPEAL IS ALLOWED. 7. COMING TO NEXT GROUND OF ASSESSEES APPEAL IS RE GARDING THAT LD. CIT(A) HAS ERRED IN UPHOLDING THE ADDITION TO THE E XTENT OF 22,777/- ON ACCOUNT OF FAILURE TO DEPOSIT EPF TOWARDS PF WITHIN THE PRESCRIBED DUE DATE. THE AO HAS TREATED THE AMOUNT OF 22,777/- AS INCOME BY VIRTUE OF SEC. 2(24)(X) OF THE ACT ON THE GROUND THAT THE PAYMENT OF EPF WAS NOT PAID WITHIN DUE DATE AS PRESCRIBED UNDER THE RELEVANT ACT. AGGR IEVED, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) WHO HAS UPHELD THE ORDER OF AO. 8. NOW AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESS EE PREFERRED SECOND APPEAL BEFORE US. ITA NO.1732/KOL/2012 A.Y. 2008-09 PASHUPAINATH HIMGHAR PVT. LTD. V. ACIT, CIR-2,HGL . PAGE 6 9. WE HAVE HEARD RIVAL PARTIES AND PERUSED THE MATE RIALS AVAILABLE ON RECORD. WE FIND THAT THOUGH THE PAYMENT WAS MADE LA TE AS PRESCRIBED UNDER THE RESPECTIVE ACT OF THE EMPLOYER PF FUND, HOWEVER , AFTER MAKING REFERENCE TO THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CAS E OF CIT V. ALOM EXTRUSIONS LTD. 319 ITR 306 (SC), WHEREIN IT WAS HELD THAT EVEN TH E EMPLOYEES PF HAS BEEN DEPOSITED BEFORE THE FILING O F INCOME TAX RETURN OF THE ASSESSEE FOR THE RELEVANT YEAR UNDER CONSIDERATION THAT WILL NOT BE TAKEN AS INCOME U/S 2(24)(X) OF THE ACT. IN THE INSTANT CASE THE ASSESSEE HAS MADE THE PAYMENT BEFORE THE DUE DATE OF FILING INCOME TAX RE TURN. THEREFORE, WE RELYING ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CAS E OF ALOM EXTRUSIONS LTD. (SUPRA) WE ALLOW THIS GROUND OF ASSESSEES APPEAL. 10. IN THE RESULT, APPEAL FILED BY ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 06/ 11/2015 SD/- SD/- (MAHAVIR SINGH) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP !- 06 /1 1 /2015 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-PASHUPATINATH HIMGHAR PVT. LTD., C/O ADV OCATE SH. SOMNATH GHOSH, SEVEN BROTHERS LO DGE, P.O. BUROSHIBTALA, CHINSURAH, DIST. HOOGHLY 2. /RESPONDENT- ACIT, CIR-2, AAYAKAR BHAWAN, G.T. ROAD . KHADINA MORE, CHINSURAH, D IST. HOOGHLY, PIN. 712 105 3. * +, - - . / CONCERNED CIT KOLKATA 4. - - .- / CIT (A) KOLKATA 5. 012 33+,, - +, , / DR, ITAT, KOLKATA 6. 267 89 / GUARD FILE. BY ORDER/ - , /TRUE COPY/ / - +, ,