Income-tax Officer, V. M/s. Bharat Glass Tube Ltd.,

ITA 1816/PUN/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5361 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-06-2018
• Assessment Year: 2012-2013
• Appeal Filed On: 23-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR VIVEK AGGARWAL
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AW ASTHY, JM . / ITA NO. 1816/PUN/2016 / ASSESSMENT YEAR : 2012-13 THE INCOME TAX OFFICER, WARD-1(1), NASHIK ....... / APPELLANT / V/S. M/S. BHARAT GLASS TUBE LIMITED, PLOT NO.9208-9213, GIDC ESTATE, ANKLESHWAR, GUJRAT 393002 / RESPONDENT REVENUE BY : DR. VIVEK AGGARWAL ASSESSEE BY : SHRI PRAMOD SHINGTE / DATE OF HEARING : 27.06.2018 / DATE OF PRONOUNCEMENT : 18.07.2018 / ORDER PER D. KARUNAKARA RAO, AM : THIS IS THE APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A)- 1, NASHIK DATED 20-06-2016 FOR THE A.Y.2012-13. 2. GROUNDS RAISED BY THE REVENUE ARE EXTRACTED AS UNDER : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, AND IN LAW, THE LD CIT(A)-I, NASHIK WAS JUSTIFIED IN ALLOW ING THE INTEREST AT RS . 73,74,401/- ON RS . 6,09,53,345/ - GIVEN TO THE ASSOCIATE CONCERNS AS INTEREST FREE LOANS/ADVANCES? 2. WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD CIT(A)-I, NASHIK WAS JUSTIFIED IN ALLOWING INTEREST DEBITED OF RS . 1,34,65,779/- IN THE PROFIT AND LOSS ACCOUNT ON LOA NS, AS AGAINST ASSESSEE HAD GIVEN INTEREST FREE LOAN/ ADVANCES TO ASSOCIATES CONCERNS? 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT (A)-I, NASHIK WAS JUSTIFIED IN ALLOWING THE INT EREST HOLDING THAT IT IS ASSESSEE'S DISCRETION TO UTILIZE ITS CASH AND RESER VES? 4. THE APPELLANT PRAYS THE ORDER OF THE ASSESSING O FFICER MAY BE RESTORED . 2 ITA NO. 1816/PUN/2016 M/S. BHARAT GLASS TUBE LTD. 5. THE APPELLANT PRAYS TO ADDUCE SUCH FURTHER EVIDE NCE TO SUBSTANTIATE HIS CASE. 6. THE APPELLANT PRAYS LEAVE TO ADD, ALTER, CLARIFY , AMEND AND OR WITHDRAW ANY GROUNDS OF APPEAL AS AND WHEN THE OCCA SION DEMANDS. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND S ELLING OF ROLLED, FIGURED & WIRED GLASSES. ASSESSEE FILED THE RETURN OF INCOME ON 30-09-2012 DECLARING TOTAL INCOME AT NIL. ON EXAMINATION OF THE FINANCIAL STATEMENTS AND THE BOOKS OF ACCOUNTS, AO NOTICED THAT THE ASSESSEE MADE INTEREST FREE ADVANCES AMOUNTING TO RS.6,0 9,53,345/- TO SOME OF THE CONCERNS. THE DETAILS ARE GIVEN BELOW : SR.NO. NAME OF PARTIES AMOUNT ADVANCED (RS.) 1 CHANDRA LAXMI SAFETY GLASS 9,73,007/- 2 HARYANA SHEET GLASS LTD. 3,82,84,567/- 3 KFG GLASS INDUSTRIES 50,96,710/- 4 SUGAR GLASS ENTERPRISES 37,50,000/- 5 SUMANGAL GLASS INDUSTRIES PVT. LTD. 1,28,49,061/- TOTAL 6,09,53,345/- THE AO ASKED THE ASSESSEE AS TO WHY PROPORTIONATE INT EREST DISALLOWANCE SHOULD NOT BE MADE ON THE SAID INTEREST FREE ADVANCES. THE ASSESSEE IN ITS REPLY SUBMITTED THAT THE SUBMISSIONS MADE FOR A.YRS. 2009-10, 2010-11 AND 2011-12 HOLDS GOOD. ASSESSE E EXPLAINED THAT THE ABOVE ADVANCES TO THE ASSOCIATE CONCERNS HA VE BEEN FINANCED THROUGH INTEREST FREE FUNDS IN THE FORM SHARE CAPITAL AND RESERVE WHICH WORKS OUT TO RS.25,20,44,978/-. THUS, ASSESSEE SUBMITTED THAT ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS FOR ADVANCING TH E ABOVE SUM. ASSESSEE RELIED ON THE DECISION OF HONBLE HIGH COURT IN TH E CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. 313 ITR 340. HE FURTHE R SUBMITTED THAT THE CIT(A) HAS DELETED THE INTEREST DISALLOWANCE FOR T HE A.Y. 2009- 3 ITA NO. 1816/PUN/2016 M/S. BHARAT GLASS TUBE LTD. 10. HOWEVER, REJECTING THE EXPLANATION GIVEN BY THE ASSE SSEE THE AO MADE INTEREST DISALLOWANCE AT RS.73,14,401/- (@12% ON THE INTEREST FREE FUNDS). 4. IN THE FIRST APPELLATE PROCEEDINGS, THE CIT(A) DELETED T HE INTEREST DISALLOWANCE MADE BY THE AO. CONTENTS OF PARA NO.5.2 TO 5 .2.4 ARE RELEVANT. 5. AGGRIEVED WITH THE ORDER OF CIT(A) THE REVENUE IS IN AP PEAL BEFORE THE TRIBUNAL WITH THE AFORESAID GROUNDS. 6. WE HEARD BOTH THE SIDES ON THE SOLITARY ISSUE OF ALLOWI NG OF INTEREST DISALLOWANCE AND PERUSED THE ORDER OF REVENUE A UTHORITIES. WE FIND THE CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER : 5.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. THE AP PELLANT COMPANY HAS GIVEN INTEREST FREE LOANS TO ITS SISTER CONCERNS VI Z. SUMANGAL GLASS INDUSTRIES LTD. RS.1,28,49,061/-, HARYANA SHEET GLA SS LTD.. ANKALESHWAR RS.3,82,84,567/-,CHANDRA LAXMI SAFETY G LASS RS. 9,73,007/-, SAGAR GLASS ENTERPRISES RS. 37,50,0 00/- AND K.F.G. GLASS INDUSTRIES RS.50,96,710/- AGGREGATING TO RS. 6,09,53,345/-. THE APPELLANT COMPANY HAS DEMONSTRATED THAT IT HAD IN T HE BALANCE SHEET AS ON 31/03/2011 NON-INTEREST BEARING FUNDS I.E. SHARE CAPITAL AND RESERVES OF RS. 24,58,75,771/- WHICH WERE SUFFICIENT TO FINA NCE THE NON INTEREST BEARING ADVANCE OF RS. 6,09,53,345/- GIVEN TO ITS A SSOCIATE CONCERNS. IT IS AN UNDISPUTED FACT THAT THE APPELLANT COMPANY BORRO WED RS. 15 CRORE FOR PURCHASE OF FACTORY LAND AND BUILDING, & PLANT AND MACHINERY AT ANKLESHWAR FROM COSMOS CO-OPERATIVE BANK, FORT, MUM BAI. THE PAYMENT OF RS. 15 CRORE WAS DIRECTLY MADE TO IFCI LTD. NO N EXUS THEREFORE IS ESTABLISHED BETWEEN THE AMOUNT BORROWED AND INTERES T FREE ADVANCES GIVEN TO THESE SISTER CONCERNS. THEREFORE, THERE IS NO JUSTIFICATION TO MAKE ANY DISALLOWANCE OUT OF THE INTEREST. THIS VIEW IS FORTIFIED IN THE CASE OF GANDHI BHANDARI & CO V/S ACIT (2003) 78 TTJ (PUNE) 161 WHEREIN IT IS HELD AS UNDER:- 'THIS TRIBUNAL HAS BEEN HOLDING THAT INTEREST DISAL LOWANCE IS TO BE MADE ONLY IF THE AO IS ABLE TO ESTABLISH NEXUS BET WEEN THE FUNDS WITH INTEREST TO THE AMOUNTS ADVANCED FREE OF INTER EST. THIS VIEW ALSO GETS SUPPORT FROM THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN CIT VS. BOMBAY SAMACHAR (1969) 74 ITR 723 (BOM.)'. 4 ITA NO. 1816/PUN/2016 M/S. BHARAT GLASS TUBE LTD. THEREFORE, IT IS HELD THAT THE APPELLANT COMPANY HA D SUFFICIENT FUNDS AVAILABLE IN THE FORM OF SHARE CAPITAL AND RESERVES OTHER THAN THE BORROWED MONEY FOR ADVANCING A SUM OF RS. 6,09,53,3 45/-. THUS, IT CANNOT BE SAID THAT THE AMOUNT OF LOAN ADVANCED TO THE SISTER-CONCERNS IS OUT OF THE BORROWED FUND. 5.2.1 IN THE CASE OF CIT VS. RELIANCE UTILITIES & P OWER LTD. (2009) 313 ITR 340 (BOM.), IT HAS BEEN HELD THAT IF THERE ARE FUND S AVAILABLE, BOTH, INTEREST FREE AND OVER DRAFT AND/OR LOANS TAKEN, TH EN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF INTERE ST-FREE FUNDS GENERATED OR AVAILABLE WITH COMPANY, PROVIDED SAID FUNDS ARE SUFFICIENT TO MEET INVESTMENTS. THUS AS PER THE PRINCIPLE OF P RECEDENT, IT IS THE LATEST AUTHORITY AND NEEDS TO BE FOLLOWED. THE LD. A.R. HA S CORRECTLY POINTED OUT THAT THE RATIO OF THE CONTRARY JUDGEMENT OF THE HON . KERALA HIGH COURT IN THE CASE OF CIT VS.V.I. BABY & CO. (2002) 254 ITR 2 48 (KER.) IS NOT APPLICABLE ON THE FACTS OF THE APPELLANT'S CASE. TH IS IS BECAUSE OF TWO REASONS. FIRSTLY, THE SAID DECISION PRONOUNCED IN 2 001 IS EARLIER AND THE DECISION OF THE RELIANCE UTILITIES AND POWER LTD. I S PRONOUNCED IN 2009 IS LATER AND SECONDLY, THE DECISION OF RELIANCE UTILIT IES AND POWER LTD. IS BY THE JURISDICTIONAL HIGH COURT, HENCE IT IS BINDING ON THE AO. 5.2.2 AS MAY BE SEEN, THE LD. AO HAS PROCEEDED ON T HE ASSUMPTION THAT THERE WAS NO NEED FOR THE ASSESSEE TO BORROW FUNDS AND PAY INTEREST THEREON, WHEN IT HAS ADVANCED INTEREST FREE LOANS T O ITS SISTER CONCERNS. IT IS SETTLED POSITION OF LAW THAT IT IS THE ASSESSEE' S DISCRETION TO UTILIZE ITS PROFITS AND RESERVES. THE LD. AO'S CONTENTION, THER EFORE, IS PRESUMPTUOUS AND NOT TENABLE IN THE EYES OF LAW. WHAT THE AO WAS REQUIRED TO EXAMINE WAS WHETHER THE FUNDS BORROWED ON WHICH INTEREST WA S PAID WERE ADVANCED INTEREST FREE TO ITS SISTER CONCERN. THE A SSESSEE HAS DEMONSTRATED BEFORE THE AO AS WELL AS BEFORE ME THA T THE BORROWED FUNDS WERE UTILIZED FOR THE PURCHASE OF ANKLESHWAR UNIT O F. HARYANA GLASS SHEETS FOR WHICH PAYMENT OF RS. 15 CRORE WAS PAYABL E WHICH WAS PAID BY THE COSMOS BANK LTD. DIRECTLY TO THE IFCI LTD. W ITH WHICH THE SAID UNIT WAS MORTGAGED. ON THE SAID BANK LOAN, THE ASSESSEE PAID INTEREST OF RS.1,34,65,779/-. THIS INTEREST IS PURELY FOR THE P URPOSE OF BUSINESS AND, THEREFORE, AN ALLOWABLE EXPENDITURE. THEREFORE, THE LD. AO'S CONTENTION WITH REGARD TO COMMERCIAL EXPEDIENCY IN ADVANCING T HE INTEREST FREE LOAN TO ITS SISTER CONCERN, HAS NO RELEVANCE BECAUSE IT IS SETTLED POSITION OF LAW THAT IF THE INTEREST FREE FUNDS ARE SUFFICIENT TO F UND NON -INTEREST BEARING FUNDS, THEN IT IS TO BE ASSUMED THAT NON BUSINESS P URPOSE ADVANCES HAVE BEEN MADE FROM NON INTEREST BEARING FUNDS OF THE AS SESSEE. (EAST INDIA PHARMACEUTICAL WORKS LTD. VS. CIT (SUPRA). AS IS EV IDENT FROM THE FACTS ON RECORD, THE ASSESSEE HAD SUFFICIENT FUNDS OF ITS OW N TO ADVANCE THE IMPUGNED AMOUNTS OF RS. 6,09,53,345/-. 5.2.3 THE HONBLE ITAT PUNE, CONSIDERING THE SAME I SSUE IN APPELLANTS OWN CASE FOR A.Y. 2009-10 IN ORDER ITA NO.953/PN/20 13, HAS HELD INTER- ALIA AS UNDER : ' 5. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. T HE LD. COUNSEL SUPPORTED THE ORDER OF THE LD. CIT(A) AND A LSO PLACE HIS HEAVY RELIANCE ON THE DECISION IN THE CASE OF RELIA NCE UTILITIES AND POWER LTD. (SUPRA). HE FURTHER SUBMITS THAT AS PER THE BALANCE SHEET FILED ON RECORD, THERE IS NOT DISPUTE THAT TH E ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND GENERAL RESERVES WHICH ARE TO THE EXTENT OF RS. 25.75 CRORES, HE ARGUED THAT AT THE MOST, EVEN IF IT IS PRESUMED THA T ASSESSEE HAS GIVEN INTEREST FREE ADVANCES TO NON BUSINESS PURPOS ES TO THE 5 ITA NO. 1816/PUN/2016 M/S. BHARAT GLASS TUBE LTD. EXTENT OF RS. 5.38 CRORES WHICH ARE MUCH MORE LESS THAN THE AVAILABLE INTEREST FREE FUNDS WITH THE ASSESSEE. HE SUBMITS THAT THE DECISION OF THE HON'BLE HIGH COURT OF KERALA IN THE CASE OF V.I BABY AND COMPANY (SUPRA) IS NOT APPLICABLE AS THERE IS DIRECT DECISION OF HONBLE JURISDICTIONAL HIGH COURT. HE A CCORDINGLY PLEADED FOR DISMISSING THE GROUNDS RAISED BY THE RE VENUE. 6 . PER CONTRA THE LD. DEPARTMENTAL REPRESENTATIVE PLEA DED FOR RESTORING THE ORDER OF THE ASSESSING OFFICER . IN OUR OPINION, THE GROUND TAKEN BY THE REVENUE HAS TO BE DISMISSED. AD MITTEDLY, THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS IN THE FORM OF CAPITAL AND GENERAL RESERVES OF THE EXTENT OF RS. 25 . 75 CRORES AS AGAINST THAT THE ASSESSEE HAS GIVEN THE INTEREST FREE ADVAN CES TO THE EXTENT OF RS. 5.38. ONE OF THE ARGUMENTS OF THE ASS ESSEE IS THAT THERE IS A COMMERCIAL AND BUSINESS EXPEDIENCY BUT E VEN IF IT IS ASSUMED THAT THOSE ADVANCES ARE NOT GIVEN ON COMMER CIAL EXPEDIENCY BUT EVEN IF IT IS ASSUMED THAT THOSE ADV ANCES ARE NOT GIVEN ON COMMERCIAL EXPEDIENCY BUT AT THE SAME TIME THE LEGAL PRINCIPLES LAID DOWN IN THE CASE OF RELIANCE UTILIT IES AND POWER LTD . (SUPRA) ARE SQUARELY APPLICABLE TO THE ASSESSEE'S C ASE AS PER THE FACTS ON RECORD. WE , THEREFORE, UPHOLD THE ORDER OF THE LD . CIT (A) AND DISMISS THE GROUND TAKEN BY THE REVENUE . ' 5.2.4 IN MY CONSIDERED VIEW, SUCH AN OBSERVATION MA DE BY THE LD. AO TANTAMOUNT TO PRESUMPTION THAT PER SE, NOTIONAL INT EREST HAS TO BE DISALLOWED ON ALL THE INTEREST FREE ADVANCES IN ALL CASES. IN VIEW OF THE DECISIONS REFERRED TO ABOVE, THE DISALLOWANCE ON A/ C OF INTEREST OF RS.73,74,401/- IS UNJUSTIFIED AND THE SAME IS DIREC TED TO BE DELETED. THIS VIEW IS FORTIFIED BY THE DECISION IN THE CASE OF CI T VS. RADICO KHAITAN 274 ITR 354 (ALL.). 7. FROM THE ABOVE, IT IS EVIDENT THAT THE CIT(A) HAS RIGHT LY CONSIDERED THAT, AS ON 31-03-2011, THE ASSESSEE HAS NON-INTEREST BEARING FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES AT RS.25,48,771/-. CIT(A) ALSO CONSIDERED THAT BORROWED FUNDS OF RS.15 CRORES WAS UTILIZE D FOR PURCHASE OF ANKLESHWAR UNIT OF HARYANA GLASS SHEETS AND THE PAYMENT WAS MADE BY THE COSMOS BANK LTD. DIRECTLY TO THE IFC I LTD. THE UNIT WAS MORTGAGED. THE INTEREST PAYMENT OF RS.1,34,65,779/- I S PURELY FOR THE PURPOSE OF BUSINESS WHICH IS AN ALLOWABLE EXPENDITURE. F URTHER, THE CIT(A) WHILE CONCLUDING THE ISSUE IN FAVOUR OF THE ASSESSEE HAS ALSO CONSIDERED DECISION OF ITAT, PUNE IN ASSESSEES OWN CASE IN ITA NO.953/PN/2013, DATED 17-10-2014 FOR THE A.Y. 2009-10. 6 ITA NO. 1816/PUN/2016 M/S. BHARAT GLASS TUBE LTD. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE D OES NOT HAVE INTEREST FREE FUNDS AT THE RELEVANT POINT OF TIME. FURTHER, IT IS NO T THE CASE OF THE REVENUE THAT GIVING SUCH ADVANCES CONSTITUTES AN INVES TMENT ACTIVITY AND NOT A BUSINESS ACTIVITY. SINCE THE ISSUE OF ALLOWING OF IN TEREST DISALLOWANCE HAS BEEN LAID TO REST BY THE RATIO LAID DOWN B Y THE JURISDICTIONAL HIGH COURT (SUPRA), WE FIND THE ORDER OF CIT(A) IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCO RDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 18 TH DAY OF JULY, 2018. SD/- SD/- ( /VIKAS AWASTHY) ( . / D. KARUNAKARA RAO ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 18 TH JULY, 2018. SATISH # # # # / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT (APPEALS)-1, NASHIK 4. THE PR. CIT-1, NASHIK 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // /SENIOR PRIVATE SECRETARY , / ITAT, PUNE