M/s. Paliwal Industries Pvt. Ltd, Panipat V. Addl. CIT, Panipat

ITA 1771/DEL/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2293 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 14-12-2009
• Assessment Year: 2006-2007
• Appeal Filed On: 30-04-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: H K LAL
• Keywords: Commercial expediency

Judgement Text

ITA NO. 1771/DEL/2009 A.Y. 2006-07 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE THE HON'BLE PRESIDENT, SHRI VIMAL GANDHI AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 1771/DEL/2009 A.Y. 2006-07 M/S PALIWAL INDUSTRIES PVT LTD., VS. ACIT, PANIPAT RANGE , G.T. ROAD, PANIPAT PANIPAT (PAN : AAACP7409B) (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. SATISH GOEL, ADV. DEPARTMENT BY : SH. H.K. LAL, SR. DR ORDER PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. CIT(A) DATED 18.3.2009 FOR THE ASSESSMENT YEA R 2006-07. 2. THE ISSUE RAISED IS THAT LD. CIT(A) ERRED IN UP HOLDING THE DISALLOWANCE OF INTEREST OF RS. 211512/-. 3. IN THIS CASE, THE ASSESSEE DERIVES INCOME FROM T HE BUSINESS OF MANUFACTURING OF COTTON POLYSTER MADE UPS. DURING THE COURSE OF ASSESSMENT AO FOUND THAT THE ASSESSEE COMPANY HAS G IVEN INTEREST FREE ADVANCE TO THE FOLLOWING CONCERNS:- ITA NO. 1771/DEL/2009 A.Y. 2006-07 2 I) M/S CHIRAG SPINNING MILLS :RS. 15,00,000/- II) M/S DINA NATH & SONS :RS. 2,67,359/- 3.1 AO OBSERVED THAT NO INTEREST HAS BEEN CHARGED FROM THE ABOVE PARTIES. ON ENQUIRY IN THIS REGARD ASSESSEE REPLIED THAT THE ADVANCES WERE GIVEN AS TRADE ADVANCE FOR SUPPLY OF YARN. AO DID NOT ACCEPT THIS CONTENTION IN THE ABSENCE OF ANY SUPPORTING DETAIL. H E REFERRED TO THE DECISION OF THE HONBLE PUNJAB AND HARYANA HIGH COURT I N THE CASE OF CIT V.S M/S ABHISHEK INDUSTRIES LTD. REPORTED IN 286 ITR 1 AND MADE A DISALLOWANCE OF INTEREST RS. 211512/- IN THIS REGARD. 4. UPON ASSESSEES APPEAL CIT(A) OBSERVED THAT ADVAN CE OF RS. 15 LACS WAS GIVEN TO M/S CHIRAG SPINNING MILLS IN FINAN CIAL YEAR 2004-05 OR EARLIER AND HENCE IN FINANCIAL YEAR 2005-06 IT IS B EING SHOWN AS OPENING BALANCE ONLY. THE ASSESSEE DID NOT FILE ANY EVIDENC E TO SHOW THAT ADVANCE FOR MAKING OF PURCHASE OF YARN OR FOR ANY OTHER BUSINESS TRANSACTIONS. SIMILARLY, IN THE CASE OF DINA NATH A ND SONS THE OPENING BALANCE OF RS. 269659/- AND A PURCHASE OF ONLY 229890/ - WAS MADE AGAINST WHICH ANOTHER PAYMENT OF RS. 227590/- WAS MAD E, THEREFORE, THE BALANCE OF RS. 267359/- REMAINED OUTSTANDING WHIC H IS ALMOST THE SAME AMOUNT AS WAS THE OPENING BALANCE. ITA NO. 1771/DEL/2009 A.Y. 2006-07 3 4.1 FROM THE ABOVE, LD. CIT(A) CONCLUDED THAT THE AB OVE ADVANCES WERE RIGHTLY CONSIDERED BY THE AO AS FOR WITHOUT BUS INESS PURPOSES. LD. CIT(A) REFERRED TO DECISION OF HONBLE JURISDICTIONA L HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES 286 ITR 1 AN D DECISION IN THE CASE OF CIT VS. AVERY CYCLE INDUSTRIES LTD. 298 ITR 239. FROM THE ABOVE DECISION THE LD. CIT(A) FOUND THAT IT WAS CLEAR THAT IF THE ASSESSEE HAS PAID INTEREST ON BORROWED FUNDS AT THE SAME TIME MADE INTEREST FREE ADVANCES THEN THERE WOULD BE VERY HEAVY ONUS ON THE AS SESSEE TO BE DISCHARGED BEFORE THE AO TO THE EFFECT THAT INSPITE OF PENDING LOANS ON WHICH THE ASSESSEE IS INCURRING THE LIABILITY TO PAY THE INTEREST, STILL THERE WAS JUSTIFICATION TO ADVANCE LOANS TO SISTER CONCE RNS FOR NON- BUSINESS PURPOSES WITHOUT ANY INTEREST. ACCORDINGLY , THE LD. CIT((A) CONFIRMED THE AOS ACTION. 5. AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BEFOR E US. 6. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE R ECORDS. LD. COUNSEL OF THE ASSESSEE REITERATED THAT THESE WERE TRADE ADVANCES AND HENCE NO DISALLOWANCE OF INTEREST IS CALLED FOR. IN TH IS REGARD, LD. COUNSEL REFERRED THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF HONMUNJAL SALES CORP. VS. CIT 298 ITR 298, SA BUIL DERS VS. CIT 288 ITR 1 AND HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SAVERA HOTEL ITA NO. 1771/DEL/2009 A.Y. 2006-07 4 CTR 148 ITR 585. LD. COUNSEL ALSO CLAIMED THAT ABOVE PARTIES WERE NOT RELATED TO THE ASSESSEE. 6.1 LD. DR ON THE OTHER HAND SUBMITTED THAT IT HAS BE EN A CATEGORICAL FINDING IN ORDERS OF THE AUTHORITIES BELOW THAT THE PAR TIES ARE RELATED AND ASSESSEE HAS INCURRED INTEREST IN OBTAINING THE FUNDS AND AT THE SAME TIME HAS GIVEN INTEREST FREE ADVANCE TO THESE CONCERNS. LD. DR FURTHER POINTED OUT THAT THE DECISIONS RELIED UPON BY T HE LD. COUNSEL OF THE ASSESSEE HAS BEEN DULY DEALT WITH IN THE LD. CI T(A)S ORDER. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. AS REGARDS THE ADVANCE TO M/S CHIRAG SPINNI NG MILLS, THE ADVANCE OF RS. 15 LACS IS APPEARING AS OPENING BALAN CE. LD. COUNSEL OF THE ASSESSEE WAS NOT IN A POSITION TO PROVIDE ANY DOCUME NT TO SHOW THAT THE SAME ADVANCE WAS ACTUALLY TRADE ADVANCE IN NATURE. AS REGARDS THE PRESENT STATUS OF THE ADVANCE LD. COUNSE L CLAIMED THAT THE SAME IS STILL OUTSTANDING AND SOME DISPUTE HAS ARISEN IN THIS REGARD. 7.1 AS REGARDS THE ADVANCE TO DINA NATH AND SONS, WE FIND THAT AN AMOUNT ALMOST EQUAL TO OPENING BALANCE HAS REMAINED OUT STANDING AT THE END OF THE YEAR. IN THIS CONNECTION, ALSO NO EV IDENCE HAS BEEN PRODUCED THAT ADVANCE WAS MEANT FOR THE BUSINESS PURP OSES. AS REGARDS THE PRESENT STATUS OF THIS ADVANCE, LD. COUN SEL SUBMITTED THAT THE SAME IS STILL OUTSTANDING AND SOME DISPUTE HAS A RISEN. ITA NO. 1771/DEL/2009 A.Y. 2006-07 5 8. UPON CAREFUL CONSIDERATION, WE FIND THAT ASSESSEE H AS FAILED TO PRODUCE ANY DOCUMENT TO SUPPORT THE CLAIM THAT THESE ADVANCES ARE IN FACT TRADE ADVANCES. ADMITTEDLY ASSESSEE HAS OBT AINED INTEREST BEARING FUNDS. UNDER SUCH CIRCUMSTANCES, WHEN NO E VIDENCE IS BEING SUBMITTED REGARDING THE PURPOSE FOR WHICH THE ADVANC E WAS GIVEN AND THE ADVANCES ARE LYING FOR THE LONG PERIOD, THE DISALL OWANCE OF INTEREST IN THIS REGARD CANNOT BE SAID TO BE UNJUSTIFIED. 8.1 THE CASE LAWS RELIED UPON BY THE LD. COUNSEL OF T HE ASSESSE AS RIGHTLY CONTENDED BY THE LD. DR ARE NOT APPLICABLE ON THE FACTS OF THE CASE. IN MUNJAL CORPORATION CASE CITED ABOVE THE HON BLE APEX COURT HAS EXPLAINED THE LEGAL POSITION WITH REGARD TO SECTION 36(1)(III) AND 40B(IV) AND OF THE ACT. THE HONBLE APEX COURT HAS HELD THAT SECTION 40 IS COROLLARY TO SECTION 30 TO 38 AND THEREFORE SECT ION 40 IS NOT A STAND ALONE SECTION. IN A SA BUILDERS CASE CITED ABOVE HONBLE APEX COURT HAS HELD THAT THERE COULD BE NO DISALLOWANCE OF IN TEREST, IF INTEREST FREE ADVANCE HAS BEEN GIVEN FOR COMMERCIAL EXPEDIENCY. IN HOTEL SAVERA CASE CITED ABOVE THE HONBLE MADRAS HIGH COURT HAS HELD THAT WHEN THE ASSESSEE HAS ITS OWN FUNDS AS WELL AS BORROWED FUND AND THE MONEY WAS INEXTRICABLY MIXED UP AND IT WAS DIFF ICULT TO DELINEATE WHICH FUNDS WERE UTILIZED FOR MAKING THE ADVANCE, NO DISALLOWANCE WAS CALLED FOR. ITA NO. 1771/DEL/2009 A.Y. 2006-07 6 9. NOW IN THE PRESENT CASE, WE FIND THAT NO EXPLANAT ION HAS BEEN GIVEN REGARDING THE PURPOSE OF ADVANCE. HENCE THERE CANNOT BE ANY INFERENCE THAT ADVANCE WAS GIVEN FOR BUSINESS OF COMM ERCIAL EXPEDIENCY. SIMILARLY, NO CASE HAS BEEN MADE OUT B EFORE US THAT ASSESSEES OWN FUNDS WERE UTILIZED IN MAKING THE AD VANCES. UNDER SUCH CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY OR IL LEGALITY IN THE ORDER OF THE LD. CIT(A). ACCORDINGLY, WE UPHOLD THE S AME. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/12/2009 UPON CONCLUSION OF THE HEARING. SD/- SD/- [VIMAL GANDHI] [SHAMIM YAHYA] PRESIDENT ACCOUNTANT MEMBER DATED: 14/12/2009 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES