DCIT 3(2), MUMBAI V. METALMAN INDUSTRIES LTD, MUMBAI

ITA 1827/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49477 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 08-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SHRI V.DURGA RAO, JM ITA NO.1827/MUM/2010 : ASST.YEAR 2006-2007 THE DY.COMMISSIONER OF INCOME-TAX CIRCLE 3(2) MUMBAI. VS. M/S.METALMAN INDUSTRIES LIMITED 409 MAKER CHAMBER V, NARIMAN POINT MUMBAI 400 021. PAN :AAACM9510G. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.K.GUPTA RESPONDENT BY : NONE O R D E R PER R.S.SYAL, AM : THIS APPEAL BY THE REVENUE ARISES OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 24.12.2009 IN RELATI ON TO THE ASSESSMENT YEAR 2006-2007. 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST RESTRICTING THE DISALLOWANCE OF INTEREST OF RS.22,34,450 TO RS.2.56 LAKHS. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE EXECU TED A GUARANTEE OF RS.3.35 CRORES IN FAVOUR OF STATE BANK OF INDIA, INDORE FOR EXTENDING THE LIMITS OF M/S.AVN TUBES LIMITED. SINCE AVN TUBES LIMITED DEFAULTED, THE GUARANTEE WAS INVOKED BY THE BANK AND THE PAYMENT WAS MADE TO THE BANK ON 04.10.1999. IT WA S CLAIMED BEFORE TH E ASSESSING OFFICER THAT EXECUTION OF GUARANTEE FOR AVN TUBE S LIMITED WAS IN THE INTEREST OF THE BUSINESS OF THE ASSESSEE BECAUSE THE ASSESSEE-COMPANY WAS A MANUFACTURER OF MOTHER HOLLOW TUBES FOR WH ICH AVN TUBES LIMITED WAS THE MAIN CUSTOMER. IT WAS ALSO ARGUED BEFORE THE A.O. THAT TH E SAID AMOUNT OF RS.3.35 CRORES WAS PAID FROM THE CAPITAL RESERVES FROM THE ASSES SEE-COMPANY AND NOT FROM THE BORROWED FUNDS ON WHICH INTEREST WAS PAID. NOT C ONVINCED THE ASSESSING OFFICER COMPUTED NOTIONAL INTEREST AT RS.22,34,450 ON THE PRIN CIPAL SUM OF RS.3.35 CRORES AT THE RATE OF 6.7% BEING RATIO OF THE TO TAL FUNDS AVAILABLE WITH THE AS SESSEE TO THE TOTAL INTEREST ITA NO.1827/MUM/2010 M/S.METALMAN INDUSTRIES LIMITED. 2 PAID DURING THE YEAR AND ADDE D THE SAME TO THE INCOME OF THE ASSESSEE. THE LEARNED CIT(A) REDUCED THE ADDITION TO RS.2.56 LAKHS BY CONSIDERING THAT ONLY A SUM OF RS.38.33 LAKHS WAS MET OUT OF BORROWED FUNDS AND THE REMAINING AMOUNT WAS FROM THE INTERNAL ACCRUALS. 3. WE HAVE HEARD THE LEARNED DEPART MENTAL REPRESENTATIVE AND PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS NO APPEARANCE FROM TH E SIDE OF THE ASSESSEE. IT IS SEEN THAT THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS ALLOWED RELIEF TO THE EXTENT OF RS.19.78 LAKHS ON THE GROUND THAT THE ASSESSEE HAD INTERNAL ACCRUALS AS WELL AS CAPITAL ETC. ON WHICH NO INTEREST WAS PAYABLE A ND FURTHER ONLY A SUM OF RS.38.33 LAKHS WAS MET OUT OF BORROWED F UNDS. NO INFIRMITY H AS BEEN SHOWN BY THE LEARNED DEPARTMENTAL REPRESENTATIVE IN THE WORKING GIVEN BY THE LEARNED CIT(A). WE, THEREFORE, HOLD THAT UNLESS THE INTEREST FREE FUNDS AR E USED FOR ADVANCING IT FOR NON-BUSINESS PURPOSES, THERE CA NNOT BE ANY QUESTION OF DI SALLOWING THE INTEREST TO THAT EXTENT. WE, THEREFORE, UPHOLD THE IM PUGNED ORDER INSOFAR AS THE DEPARTMENT IS AGGRIEVED AGAINST IT. 4. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED ON THIS 15 TH DAY OF JULY, 2011. SD/- SD/- ( V.DURGA RAO ) ( R.S.SYAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 15 TH JULY, 2011. DEVDAS*` COPY TO : 1. THE APPELLANT. ITA NO.1827/MUM/2010 M/S.METALMAN INDUSTRIES LIMITED. 3 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) - VII, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.