Culcatta Ahmedabad Roadlines Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-1(3), Ahmedabad

ITA 1925/AHD/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9177 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 11-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P M SHUKLA SENIOR
• Keywords: Business income; Opportunity of being heard; Corroborative evidences
• Section: 250

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' (BEFORE S/SHRI P K BANSAL AND MAHAVIR SINGH) ITA NO.1925/AHD/2009 (ASSESSMENT YEAR: 2005-06) CALCUTTA AHMEDABAD ROADLINES PVT. LTD., 22, HIRABHAI MARKET, DIWAN BALLUBHAI ROAD, KANKARIYA, AHMEDABAD V/S THE INCOME-TAX OFFICER, WARD-1(3), AHMEDABAD (APPELLANT) (RESPONDENT) PAN NO.: AABCC 1821 F APPELLANT BY :- NONE RESPONDENT BY:- SHRI P M SHUKLA, SENIOR DR O R D E R PER P K BANSAL (ACCOUNTANT MEMBER) : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT( A) DATED 17 TH FEBRUARY, 2009. THE ONLY GROUND TAKEN BY THE ASSESS EE RELATES TO CONFIRMATION OF DISALLOWANCE OF RS.59,375/- BEING T HE INTEREST NOT CHARGED ON ADVANCES GIVEN. 2 NONE APPEARED ON BEHALF OF THE ASSESSEE. WE, THEREFORE, DECIDED TO DISPOSE OF THE APPEAL AFTER H EARING THE LEARNED DEPARTMENTAL REPRESENTATIVE. 3 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E- COMPANY DERIVES INCOME FROM BUSINESS OF TRUCK PLYIN G & TRANSPORTATION. THE ASSESSEE-COMPANY HAS MADE ADVAN CE TO SHRI 2 SULTAN R KHICHI RS.9,38,726/- AND RS.1,75,714/- TO SHRI PARVEJ S KHICHI AND BOTH THESE AMOUNTS HAVE BEEN ADVANCED AG AINST FREIGHT PAYMENT AS THE COMPANY HIRES TRUCKS FROM BO TH THESE PARTIES. THE AO DISALLOWED THE INTEREST OF RS.59,37 5/- ON THE GROUND THAT THE ASSESSEE-COMPANY HAS NOT CHARGED IN TEREST ON ADVANCES MADE TO SHRI SULTAN R KHICHI AND SHRI PARV EJ S KHICHI. WHEN THE MATTER WENT IN APPEAL BEFORE THE CIT(A), T HE CIT(A) CONFIRMED THE DISALLOWANCE BY OBSERVING AS UNDER:- 3.1 I HAVE CAREFULLY CONSIDERED THE SUBMISSION MAD E BY THE ASSESSEE. THE FUNDS OF BUSINESS HAVE BEEN UTILIZED FOR NON BUSINESS PURPOSE. PRIMA-FACIE IT APPEARS THAT INTEREST FREE LOAN HAS BEEN GIVEN TO DIRECTORS OF COMPANY. NO SPECIFIC EXPLANATION AL ONG WITH SUPPORTING EVIDENCES BEEN FURNISHED TO PROVE THAT I T WAS BUSINESS ADVANCE. HAD THE ASSESSEE PAID BACK PART OF LOANS I NSTEAD OF DIVERTING TO ADVANCES, THE QUESTION OF PAYMENT OF INTEREST CO ULD HAVE BEEN REDUCED. 3.2 U/S 36(1)(III) THE AMOUNT OF INTEREST PAID IN R ESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS OR PROFESSION SHALL BE ALLOWED AS PROVIDED UNDER THAT SECTION AND THE CLAUSE. THOUGH THE SECTION PROVIDE FOR ALLOWABILITY OF THE INTEREST AMOUNT, IT PROHIBITS AND THEREFORE EXCLUDES THE INTEREST THAT IS NOT PAID TO WARDS THE CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS. THE ASSESSEE HAS ALSO NOT ESTABLISHED ANY NEXUS BETWEEN THE INTEREST FREE FUN D, IF ANY, AVAILABLE WITH HIM AND THE AMOUNT OF ADVANCES, INTEREST FREE. ON SIMILAR FACTS THE HON. RAJASTHAN HIGH COURT IN THE CASE OF INDIA SAVINGS PRODUCTS V CIT REPORTED IN 265 ITR 250 HELD THE DISALLOWANCE O F INTEREST AS JUSTIFIED. 3.3 THE ISSUE WAS ALSO CONSIDERED BY THE HONBLE AL LAHABAD HIGH COURT IN THE CASE OF CIT V HR SUGAR FACTORY PRIVATE LTD. 187 ITR 363. THE RELEVANT EXTRACT OF THE SAID JUDGMENT IS A S BELOW:- IT IS CLEAR THAT THE DIRECTORS / SHAREHOLDERS ARE TAKING UNFAIR ADVANTAGE OF THEIR CONTROL OVER THE ASSESSEE AND TH AT THEY ARE EXPLOITING IT FOR THEIR PRIVATE ENDS. WE ARE NOT SA YING THAT IT IS A DEVICE; WE NEED NOT GO THAT FAR. WHAT HAS HAPPENED IN THIS CASE IS SELF-EVIDENT, VIZ., THE ASSESSEE IS MADE TO PAY HUG E AMOUNTS BY WAY OF INTEREST ON ACCOUNT OF HEAVY AMOUNTS ADVANCED TO ITS DIRECTORS, BEARING NO RELATION WHATSOEVER WITH THE BUSINESS PU RPOSE OF THE 3 ASSESSEE. A LOOK AT THE FIGURES MENTIONED IN THE QU ESTIONS REFERRED CLEARLY SHOWS THAT HUGE AMOUNTS ARE BEING PAID BY T HE ASSESSEE ON ACCOUNT OF INTEREST. MAY BE THAT THE COMPANY BORROW S LARGE AMOUNTS FOR THE PURPOSE OF ITS BUSINESS EVERY YEAR, BUT THA T DOES NOT EXPLAIN THE HUGE ADVANCES TO THE DIRECTORS / SHAREHOLDERS. HAD THIS MONEY BEEN NOT ADVANCED TO THE DIRECTORS, IT WOULD HAVE B EEN AVAILABLE TO THE ASSESSEE FOR ITS BUSINESS PURPOSE AND TO THAT E XTENT IT MAY NOT HAVE BEEN NECESSARY TO BORROW FROM THE BANKS. WE AR E, THEREFORE, OF THE OPINION THAT THE ITO, WAS RIGHT IN DISALLOWING THE DIFFERENCE OF INTEREST UNDER SECTION 36(1)(III) OF THE INCOME-TAX ACT AND THAT THE TRIBUNALS APPROACH IS NOT ONLY SUPERFICIAL BUT TOO NAIVE . 3.4 IT WOULD BE WORTHWHILE TO REFER TO THE LEADING JUDGMENT OF THE PUNJAB HARYANA HIGH COURT IN THE CASE OF ABHISHEK I NDUSTRIES 286 ITR 1. THE COURT HAD HELD THAT THE ENTIRE MONEY IS IN A BUSINESS ENTITY COMES FROM A COMMON KITTY. ALL RECEIPTS, BE IT SHAR E CAPITAL, TERM LOANS, WORKING CAPITAL, LOANS, SALES PROCEEDS, ETC. HAVE ONLY ONE COLOUR THAT OF BUSINESS RECEIPT. THERE IS NO SEPARA TE IDENTIFICATION FOR VARIOUS RECEIPTS. THE HIGH COURT ALSO RULED THAT EV EN THE SURPLUS AMOUNT IF AVAILABLE WITH THE ASSESSEE IT IF COULD N OT BE USED TO REPAY PREMATURELY LOANS, STILL THE SAME IS REQUIRED TO BE UTILIZED IN THE RUNNING THE BUSINESS OR TO BE INVESTED IN A MANNER THAT GENERATES INCOME. SUCH FUNDS IF DIVERTED TO SISTER CONCERNS W ITHOUT CHARGING INTEREST, THEN THE RECIPIENTS WOULD BE ENJOYING THE BENEFIT OF THE BORROWINGS MADE BY THE ASSESSEE. THE HIGH COURT CLE ARLY HELD THAT IT WAS FOR THE ASSESSEE TO PROVE THAT THE BORROWINGS W ERE NOT UTILIZED FOR GIVING INTEREST FREE LOANS TO SISTER CONCERNS. IN T HIS CASE THE HIGH COURT NOTED THAT THE CAPITAL WAS EXHAUSTED BY SETTI NG UP A UNIT BY THE COMPANY. 3.5 IN VIEW OF THE ABOVE DISCUSSION AND CONSIDERING THE FACTS OF THE CASE AND ALSO RATIO OF DECISIONS QUOTED ABOVE, IT I S CLEAR THAT INTEREST- BEARING FUNDS HAVE NOT BEEN UTILIZED FULLY FOR BUSI NESS PURPOSE. CONSIDERING THE RATE OF INTEREST BEING CHARGED BY B ANKERS ON LOAN TAKEN BY ASSESSEE, INTEREST AT THE RATE OF 12.5% IS WORKED OUT ON AVERAGE BALANCE AS MENTIONED IN THE CHART WHICH COM ES TO RS.59375/- AND SAME IS DISALLOWED OUT OF INTEREST EXPENSE AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. KEEPING IN VIEW THE AFORESAID FACTS, CIRCUMSTANCES AND VARIOUS JUDICIAL PRONOUNCEMENTS; THE FACT EMERGES THAT THE APPELLANT HAS GIVEN LOANS/ADVANCES TO TWO PARTIES (I.E. PARVEJ S KHICHI AND SULTAN R KHICHI) FOR WHICH NO INTEREST HAS BEEN CHARGED. FUR THER, IT IS A FACT THAT THE APPELLANT HAS BEEN PAYING INTEREST @ 12.50 % TO THE BANK FOR LOAN TAKEN ON TRUCKS. CONSEQUENTLY, THE FUNDS OF BU SINESS HAVE BEEN 4 UTILIZED FOR NON-BUSINESS PURPOSES. INSPITE OF ACCO RDING PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD DURING THE COUR SE OF ASSESSMENT PROCEEDINGS, NO SPECIFIC EXPLANATION SUPPORTED BY C ORROBORATIVE EVIDENCE HAS BEEN FURNISHED BY THE APPELLANT TO PRO VE THAT IT IS A BUSINESS ADVANCE. IT IS ALSO A FACT THAT THE APPELL ANT HAS FAILED TO ESTABLISH ANY NEXUS BETWEEN INTEREST FREE FUNDS, IF ANY, AVAILABLE WITH IT AND THE AMOUNT OF ADVANCES (I.E. INTEREST FREE). HAD THIS MONEY BEEN NOT ADVANCED, IT WOULD HAVE BEEN AVAILABLE TO THE A PPELLANT FOR ITS BUSINESS PURPOSE AND TO THAT EXTENT IT MAY NOT HAVE BEEN NECESSARY TO BORROW FROM THE BANKS. IN THE GIVEN FACTS AND CIRCU MSTANCES, THE AO HAS RIGHTLY DISALLOWED THE DIFFERENCE OF INTEREST ( I.E. RS.59375/-) U/S 36(1)(III) OF THE I.T. ACT, 1961. [S A BUILDERS LTD . (2007) 288 ITR 1 (SC); CIT V DALMIA CEMENT B LTD. (2002) 254 ITR 377 (DELHI); CIT V H R SUGAR FACTORY PVT. LTD. (1971) 187 ITR 363 (A LLAH); INDIA SAVINGS PRODUCTS V CIT 265 ITR 250 (RAJ) AND ABHISH EK INDUSTRIES 286 ITR 1 (P&H). WITH THE RESULT, THE ACTION OF THE AO IS HEREBY CONFIRMED ON THIS GROUND. 4 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MAD E BY THE LEARNED DR. IN OUR OPINION, THE AO WAS NOT C ORRECT IN LAW IN MAKING THE DISALLOWANCE OF INTEREST OF RS.59,375 /- ON THE GROUND THAT THE ASSESSEE HAS NOT CHARGED INTEREST O N THE ADVANCES MADE TO SHRI SULTAN R KHICHI AND TO SHRI PARVEJ S K HICHI. THE ASSESSEE HAS HIRED THE TRUCKS FROM BOTH THESE PARTI ES AND MADE THE PAYMENTS FOR THE FREIGHT AND, THEREFORE, THE AD VANCES WERE MADE IN THE COURSE OF BUSINESS AND FOR THE PURPOSE OF BUSINESS. WE ACCORDINGLY DELETE THE DISALLOWANCE. 5 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04-09-2009 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (P K BANSAL) ACCOUNTANT MEMBER DATE : 04-09-2009 5 COPY OF THE ORDER FORWARDED TO : 1. CALCUTTA AHMEDABAD ROADLINES PVT. LTD., 22, HIRA BHAI MARKET, DIWAN BALLUBHAI ROAD, KANKARIYA, AHMEDABAD 2. THE ITO, WARD-1(3), AHMEDABAD 3. THE CIT CONCERNED 4. THE CIT(A)-VI, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY.R/AR, ITAT, AHMEDABAD