M/s. Harra Polypack, Gandhinagar V. DCIT, , Mehsana,

ITA 1851/AHD/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9852 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 09-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRADIP G TULSIAN
• Keywords: Source of fund; Proportionate interest
• Section: 143(3)

Judgement Text

SMC- ITA NO. 1851/AHD/2017 HARRA POLYPACK VS. DCIT ASSESSMENT YEAR: 2014-15 PAGE 1 OF 3 IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD [ BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT ] ITA NO. 1851/AHD/2017 ASSESSMENT YEAR : 2014-15 HARRA POLYPACK ............APPELLANT SURVEY NO. 767/6, OPP. AMA CLOTHING, VADSAR-MOTI BAYAN ROAD, TAL: KALOL, DIST: GANDHINAGAR-382721 [PAN : AAGFH 0347 D] VS. DEPUTY COMMISSIONER OF INCOME-TAX ..... .......................RESPONDENT MEHSANA CIRCLE, MEHSANA APPEARANCES BY: PRADIP G. TULSIAN, FOR THE APPELLANT JAMES KURIAN, FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 18.02.2019 DATE OF PRONOUNCING THE ORDER : 08.05.2019 O R D E R 1. THIS APPEAL CHALLENGES CORRECTNESS OF LEARNED CI T(A)S ORDER DATED 12.06.2017 IN THE MATTER OF ASSESSMENT UNDER SECTIO N 143(3) OF THE INCOME-TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2014-15. 2. GRIEVANCE OF THE ASSESSEE, IN SUBSTANCE, IS AGAI NST LEARNED CIT(A)S UPHOLDING THE DISALLOWANCE OF RS. 6,91,800/- UNDER SECTION 36(1)(III) OF THE ACT. 3. TO ADJUDICATE ON THIS APPEAL, ONLY A FEW MATERIA L FACTS NEED TO BE TAKEN NOTE OF. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCE EDING, THE ASSESSING OFFICER FORMED THE VIEW THAT THE ASSESSEE HAS GRANTED INTER EST FREE NON-BUSINESS ADVANCES OF RS. 57,65,000/- TO VARIOUS PARTIES, WHEREAS HE I S PAYING INTEREST @ 12% ON HIS BORROWINGS. TO THE EXTENT OF THESE INTEREST FREE NO N-BUSINESS ADVANCES OF RS. 57,65,000/-, HE CONSIDERED IT TO BE A CASE OF DIVER SION OF INTEREST BEARING FUNDS AND DISALLOWED THE RELATABLE INTEREST OF RS. 6,91,800/- . AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT MUCH SUCCESS. HE UPHELD THE DISALLOWANCE TO THE EXTENT OF RS. 4,22,165/- BY OBS ERVING AS FOLLOWS:- 4.3 I HAVE CONSIDERED THE FATS OF THE CASE, ASSESS MENT ORDER AND THE SUBMISSION MADE BY THE APPELLANT. THE AO HAS OBSER VED THAT APPELLANT HAS SMC- ITA NO. 1851/AHD/2017 HARRA POLYPACK VS. DCIT ASSESSMENT YEAR: 2014-15 PAGE 2 OF 3 GIVEN INTEREST FREE ADVANCES TO FOUR PARTIES HENCE, HE MADE DISALLOWANCE OF RS. 6,91,800/-. THE APPELLANT HAS ARGUED THAT ADVA NCES ARE AGAINST PURCHASE OF RAW MATERIALS OR ADVANCE AGAINST PURCHASE/USE OF LAND AND FACTORY. THE APPELLANT HAS SUBMITTED COPY OF PURCHASE ORDER/CONF IRMATION BUT SUCH CONTENTION OF THE APPELLANT CANNOT BE ACCEPTED AS I T HAS NOT GIVEN LEDGER ACCOUNT OF SUBSEQUENT YEAR TO PROVE THAT APPELLANT IN FACT HAD PURCHASED RAW MATERIAL IN SUBSEQUENT ASSESSMENT YEAR. EVEN NO RE GULAR BUSINESS TRANSACTION IS CARRIED OUT WITH SUCH PARTIES. EVEN ADVANCE GIVEN FOR PURCHASE OF LAND & BUILDING IS CAPITAL ADVANCES, HENCE, SUCH INTEREST IS ATTRIBUTABLE TO SUCH ADVANCES AND CANNOT BE ALLOWED AS DEDUCTION U/ S 36(1)(III) OF THE ACT. THE ARGUMENT OF THE APPELLANT THAT IT HAS INTEREST FREE SUNDRY CREDITORS HENCE, NO PROPORTIONATE INTEREST DISALLOWANCE CAN BE MADE ALSO CANNOT BE ACCEPTED AS APPELLANT HAS NOT PROVED THE NEXUS OF SUCH CREDI T BALANCE AGAINST INTEREST FREE ADVANCES. EVEN AS AGAINST BALANCE OF SUNDRY C REDITORS OF RS. 7,12,10,233/-, THERE ARE BALANCES OF INVENTORY OF R S. 3,34,71,217/- AND DEBTOR OF RS. 6,87,62,292/- HENCE, IT IS NOT LEFT WITH ANY SURPLUS MONEY. APPELLANT HAS ALTERNATIVELY ARGUED THAT INTEREST NEED TO BE D ISALLOWED FROM DATE OF ADVANCE GIVEN AND NOT FOR WHOLE YEAR. THIS CONTENT ION OF THE APPELLANT IS FOUND TO BE CORRECT AND AO IS DIRECTED TO VERIFY WO RKING AS GIVEN BY THE APPELLANT AND IF IT IS FOUND TO BE CORRECT, IT NEED TO BE RESTRICTED TO RS. 4,22,165/-. THIS GROUND OF APPEAL IS PARTLY ALLOWE D. 4. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE ME. 5. I HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 6. ON A PERUSAL OF YEAR-END FINANCIAL STATEMENTS FI LED BEFORE ME, I FIND THAT AS AGAINST INVENTORIES OF RS. 3,54,71,217/-, THE ASSES SEE HAS SUNDRY CREDITORS FOR GOODS OF RS. 5,48,37,976/-. CLEARLY, THUS, THE SURPLUS F UNDS ON ACCOUNT OF UNPAID VENDORS, IN RESPECT OF GOODS SOLD, ARE OVER RS. 1.98 CRORES. THAT IS CLEARLY AN INTEREST FREE SOURCE OF FUNDS, AND THE INTEREST FREE LOANS, AS AL LEGED, ARE FAR LESS THAN THIS AMOUNT. WHETHER THE INVENTORIES ARE SOLD IN CASH OR CREDIT IS NOT REALLY MATERIAL AS ADMITTEDLY SUCH A SALE IS IN THE COURSE OF BUSINESS. VIEWED T HUS, THE INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE ARE FAR MORE THAN INTERES T FREE ADVANCES. IN THIS VIEW OF THE MATTER, AND WITHOUT EVEN DEALING WITH OTHER ARG UMENTS OF THE LEARNED COUNSEL, THE IMPUGNED DISALLOWANCE MUST STAND DELETED. I OR DER SO. 7. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT TODAY ON THE 8 TH MAY, 2019. SD/- PRAMOD KUMAR (VICE PRES IDENT) AHMEDABAD, THE 8 TH DAY OF MAY, 2019 **BT SMC- ITA NO. 1851/AHD/2017 HARRA POLYPACK VS. DCIT ASSESSMENT YEAR: 2014-15 PAGE 3 OF 3 COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD 1. DATE OF DICTATION: ..... ORDER PREPARED AS PER 3 PAGES MANUSCRIPTS OF HONBLE VP 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: .....08.05.2019...... 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR . P.S./P.S.: 08.05.2019... 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: 08.05.2019 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK : ... 08.05.2019... 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK : . 7. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER : . 8. DATE OF DESPATCH OF THE ORDER: ......