DCIT, Panchkula V. M/s Haryana State Industrial & Infrastructure Development Corpn., Panchkula

ITA 180/CHANDI/2010

• Counselvise Citation: 18021514 RSA 2010
• Duration Of Justice: 5 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-08-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 11-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL VERMA
• Assessee Lawyers: A K JINDAL
• Keywords: Proportionate interest; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MRS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO.180/CHD/2010 ASSESSMENT YEAR:2006-07 DCIT, VS. HARYANA STATE INDUSTRIAL & CIRCLE INFRASTRUCTURE DEVELOPMENT PANCHKULA CORPORATION SECTOR-6, PANCHKULA PAN NO. AAACH4114R (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SUNIL VERMA RESPONDENT BY : SH. A.K. JINDAL DATE OF HEARING : 01/09/2015 DATE OF PRONOUNCEMENT : 09/09/2015 ORDER PER ANNAPURNA MEHROTRA,A.M THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF THE LD. CIT(A) PANCHKULA DT. 30/11/2009. 2. THE ONLY GROUND TAKEN IN THIS APPEAL IS AGAINST RESTRICTION OF DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) TO THE EXTENT OF BORROWED FUNDS ONLY UTILIZED BY THE ASSESSEE FOR MAKING INVESTMENT, THEREBY IGNORIN G THE RATIO OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES REPORTED IN 286 ITR 1, WHEREIN IT WAS HELD THAT THE INTEREST ON BOR ROWING COULD BE DISALLOWED EVEN IF INVESTMENT WAS MADE OUT OF COMPANYS OWN FU NDS AND NOT BORROWED FUNDS. 2 3. BRIEFLY STATED THE FACTS RELATING TO THE ISSUE A RE THAT THE ASSESSEE HAD PAID RS. 231.44 CROERS TOWARDS KUNDLI-MANESAR PALWAR (KM P) EXPRESSWAY. THE AO HELD THAT THE SAME WAS NOT RELATABLE TO THE BUSINESS OF THE ASSESSEE AND THEREFORE DISALLOWED INTEREST AMOUNTING TO RS. 7.96 CRORES, P LACING RELIANCE ON THE DECISION OF THE JURISDICTIONAL HIGH COURT INTEREST THE CASE OF M/S ABHISHEK INDUSTRIES 286 ITR 1. THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSE SSEE BY HOLDING AT PARA 10 OF HIS ORDER: HOWEVER, I FIND FORCE IN THE ARGUMENT OF THE COUN SEL THAT THE INVESTMENT IN THE KMP EXPRESSWAY HAS NOT BEEN MADE FROM OUT OF THE BORROWED FUNDS BUT FROM OUT OF THE FUNDS BORROWED FROM THE STATE GOVT. ON WHICH NO INTEREST HAS BEEN PAID. THE AO IN THE ASSESSMENT ORDER HAS NOT E XAMINED THE FUNDS POSITION OF THE APPELLANT. MOREOVER BY DISALLOWING 10% OF IN VESTMENT IN THE EXPRESS WAY THE DISALLOWANCE WORKS OUT TO RS. 23.14 CRORES WHIC H IS MUCH MORE THAN THE INTEREST OF RS. 7,96,23,433/- PAID BY THE APPELLANT . THIS SHOWS SOME OF THE INVESTMENT IN EXPRESSWAY IS EITHER OUT OF THE APPEL LANTS OWN FUNDS OR OUT OF THE FUNDS NOT CARRYING INTEREST. THE AO IS DIRECTED TO EXAMINED THE FUNDS POSITION OF THE APPELLANT AND MAKE DISALLOWANCE OF INTEREST ONL Y TO EXTENT THE BORROWED FUNDS HAVE BEEN UTILIZED FOR MAKING INVESTMENT IN T HE EXPRESSWAY. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 4. AGGRIEVED BY THE SAME THE REVENUE FILED THE PRES ENT APPEAL TAKING THE FOLLOWING GROUND: (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT THE DISALLOWANCE OF I NTEREST IS ONLY TO BE MADE TO THE EXTENT OF BORROWED FUNDS UTILIZED BY THE ASSESSEE F OR MAKING INVESTMENT, IGNORING THE RATIO OF THE HONBLE PUNJAB & HARYANA HIGH COUR T IN THE CASE OF ABHISHEK INDUSTRIES REPORTED IN 286 ITR 1 WHEREIN IT HAS BEE N HELD THAT THE INTEREST ON BORROWING COULD BE DISALLOWED EVEN IF INVESTMENT AR E MADE OUT OF COMPANYS OWN FUNDS AND NOT BORROWED FUNDS. 5. BEFORE US THE LD. AR RELIED UPON THE ORDER OF TH E LD. CIT(A). WHILE THE LD. DR PLACING RELIANCE ON THE RATIO LAID DOWN IN THE C ASE OF ABHISHEK INDUSTRIES (SUPRA)HELD THAT THE DISALLOWANCE OF INTEREST ONLY TO THE EXTENT OF INTEREST BEARING BORROWED FUNDS UTILIZED FOR MAKING INVESTME NT IN THE KMP EXPRESSWAY WAS INCORRECT AND NOT JUSTIFIED. 6. WE HAVE HEARD THE REPRESENTATIVES OF BOTH THE PA RTIES AND PERUSED THE DOCUMENTS PLACED BEFORE US. 3 7. THE ONLY ISSUE IN THE PRESENT APPEAL IS WHETHER THE LD. CIT(A) HAD RIGHTLY RESTRICTED THE DISALLOWANCE OF INTEREST UNDER SECTI ON 36(1)(III) TO THE EXTENT OF INTEREST BEARING BORROWED FUNDS ONLY UTILIZED FOR T HE PURPOSES OF MAKING INVESTMENT IN THE KMP EXPRESSWAY, IGNORING THE DECI SION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES (SUPRA) 8. THIS ISSUE HAS BEEN DEALT WITH BY THE HONBLE PU NJAB & HARYANA HIGH COURT IN A RECENT DECISION IN THE CASE OF CIT-I, LU DHIANA VS. KAPSONS ASSOCIATES IN ITA NO. 354 OF 2013 (O&M) DT. 04/08/2015, WHEREI N ONE OF THE SUBSTANTIAL QUESTIONS FRAMED BEFORE THEM: I. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE HONBLE INCOME TAX APPELLATE TRIBUNAL IS RIGHT IN LAW IN UP HOLDING THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) IN WHICH DISALLOWANC E OF PROPORTIONATE INTEREST AT RS. 23,54,722/- U/S 36(I)(III) WAS DELETED, IGNO RING THE FACTS THAT NO PROOF OF COMMERCIAL EXPENDIENCY AND BUSINESS PURPOSE WAS PRO VIDED. II. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE HONBLE ITAT IS RIGHT IN LAW IN DELETING THE DISALLOWANCE, ACCEPTING THE ARGUMENTS OF THE ASSESSEE THAT IT HAD ENOUGH INTEREST FREE FUNDS IN THE FORM OF CAPITAL AND RESERVES AND OTHER INTEREST-FREE FUNDS IGNORING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES, 286 ITR 1 THAT HELD THAT THE MONEYS RECEIVED AS SHARE CAPITAL, OR TERM LOAN, OR WORKING CAPITAL LOAN, OR SALES PROCEEDS DO NOT HAVE ANY DIFFERENT COLOUR AND THAT THE ONLY REQUIREMENT TO DISALLOW THE INTEREST PAID ON THE BORROWING TO THE EXTENT THE IN TEREST-FREE AMOUNT IS LENT TO SISTER CONCERN FOR NON-BUSINESS PURPOSES WOULD BE T HAT THE ASSESSEE HAS SOME LOANS OR OTHER INTEREST BEARING DEBTS TO BE REPAID. WHILE DECIDING THE ABOVE QUESTION, THE HONBLE JURI SDICTIONAL HIGH COURT HELD AT PARA 3 & 4 OF THE ORDER AS UNDER: : 3. THE CIT(APPEALS) AND THE TRIBUNAL FOUND AS A MA TTER OF FACT THAT THE COMPANY HAD INTEREST FREE ADVANCES FROM ITS DIRECTO RS/SHAREHOLDERS AND THE MEMBERS OF THEIR FAMILIES AMOUNTING TO RS. 315.11 L ACS AS AGAINST THE INTEREST, FREE ADVANCES MADE BY THE COMPANY AGGREGATING TO RS. 219 .72 LACS AS ON 31.03.2008. IN VIEW THEREOF, IT WAS RIGHTLY INFERRE D THAT THE RESPONDENT / ASSESSEE HAD ENOUGH INTEREST FREE FUNDS WHICH WOULD COVER TH E ADVANCES ALSO MADE INTEREST FREE. 4. THE MATTER IS COVERED AGAINST THE APPELLANT IN T HIS REGARD BY OUR ORDER AND JUDGMENT DATED 16.07.2015 IN ITA NO. 413 OF 20 14, GURDAS GARG VS. COMMISSIONER OF INCOME TAX (APPEALS), BATHINDA AND ANOTHER WHERE WE HELD AS UNDER:- IT IS A LITTLE DIFFICULT TO UNDERSTAND THESE OBSER VATIONS. IT HAS NOT BEEN DENIED THAT INTEREST ON FUNDS WERE AVAILABLE. NOR H AS IT BEEN DENIED THAT INTEREST FREE ADVANCES WERE MADE BY THE APPELLANT. IN FACT, THE LATTER HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. THE CONTENTION T HAT THE APPELLANT HAS NOT ESTABLISHED THAT IT WAS THE INTEREST FREE FUNDS THA T WERE ACTUALLY ADVANCED AS INTEREST FREE ADVANCES IS WITHOUT SUBSTANCE. MONEY HAS NO IDENTITY. SO LONG IT IS ESTABLISHED THAT THE INTEREST FREE ADVANCES ARE MAD E BY AN ASSESSEE WHO HAS 4 ADEQUATE FREE RESERVES, IT IS SUFFICIENT TO ESTABLI SH THAT THE AMOUNTS ADVANCED INTEREST FREE CANNOT BE ADDED TO THE ASSESSEES INC OME. IT WAS NOT CONTENDED THAT THE INTEREST FREE ADVANCES EXCEEDED THE INTERE ST FREE FUNDS AVAILABLE WITH THE APPELLANT. NOR WAS IT ESTABLISHED THAT A PARTIC ULAR ADVANCE RECEIVED WAS IN TURN ADVANCED BY THE ASSESSEE INTEREST FREE. QUESTION NO. 1 TO 3 ARE, THEREFORE, ANSWERED AGAINS T THE APPELLANT. 9. IN THE ABOVE CASE, THE SUBSTANTIAL QUESTION OF L AW RAISED BY THE REVENUE WAS THAT THE TRIBUNAL HAS PASSED THE ORDER IGNORING THE JUDGMENT OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. M/S ABHISHEK INDUSTRIES LTD. 286 ITR 1. IT APPEARS THAT WHILE DECIDING THE SUBST ANTIAL QUESTION OF LAW, THE HONBLE HIGH COURT HAS CONSIDERED THE DECISION REND ERED IN THE CASE OF M/S ABHISHEK INDUSTRIES LTD. (SUPRA). IN THE INSTANT CA SE ALSO, THE REVENUE HAS CHALLENGED THE ORDER OF THE LEARNED CIT(APPEALS) ON THE GROUND THAT WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE, THE L EARNED CIT(APPEALS) HAS IGNORED THE JUDGMENT OF HONBLE PUNJAB & HARYANA HI GH COURT IN THE CASE OF M/S ABHISHEK INDUSTRIES LTD. (SUPRA). IN OUR OPINIO N, THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT PASSED IN THE CASE OF KA PSONS ASSOCIATES (SUPRA) IS SQUARELY APPLICABLE TO THE FACTS OF PRESENT CASE. I N THAT VIEW OF THE MATTER, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LE ARNED CIT (APPEALS) ON THIS ISSUE AND ACCORDINGLY, WE UPHOLD THE ORDER OF THE LEARNED CIT (APPEALS) AND DISMISS THE APPEAL OF THE REVENUE. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :09/09/2015 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR