ACIT, Virudhunagar V. Arun Textiles, Rajapalayam

ITA 199/CHNY/2017

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 4221 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 23-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K V RAMAN
• Keywords: Proportionate interest; Tax effect

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI , . , BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER & SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.181/CHNY/2017 / ASSESSMENT YEAR : 2011-12 M/S.ARUN TEXTILES , 18,THOTTIAPATTI ROAD, RAJAPALAYAM-626 117 VS. THE INCOME TAX OFFICER, WARD 1(1), VIRUDHUNAGAR-626 001. [PAN AAFFA 0396 L] ( / APPELLANT) ( /RESPONDENT) ./ I.T.A.NO.199/CHNY/2017 / ASSESSMENT YEAR : 2011-12 THE INCOME TAX OFFICER, WARD 1(1), VIRUDHUNAGAR-626 001. VS. M/S.ARUN TEXTILES , 18,THOTTIAPATTI ROAD, RAJAPALAYAM-626 117 [PAN AAFFA 0396 L] ( / APPELLANT) ( /RESPONDENT) ASSESSEE BY : MR.K.V.RAMAN,C.A REVENUE BY : MR.CLEMENT RAMESH KUMAR, ADDITIONAL CIT,D.R ! ' #$ / DATE OF HEARING : 08 - 1 0 - 201 8 % ' #$ / DATE OF PRONOUNCEMENT : 08 - 1 0 - 201 8 / O R D E R ITA NOS.181 & 199/CHNY/2017 :- 2 -: PER GEORGE MATHAN, JUDICIAL MEMBER ITA NO.181/CHNY/2017 IS THE APPEAL FILED BY THE ASSESSEE AND ITA NO.199/CHNY/2017 IS THE APPEAL FILED BY THE REVENUE. THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF CIT (A)-3, MADURAI IN ITA NO.0079/2014-15 DATED 27.10.2016 FOR ASSESSMENT YEAR 2011-12. 2. MR.K.V.RAMAN REPRESENTED ON BEHALF OF THE ASSESSEE AND MR.CLEMENT RAMESH KUMAR REPRESENTED ON BEHALF OF THE REVENUE. 3. SINCE THE ASSESSEE IS COMMON IN THESE TWO APPEA LS, THESE CROSS APPEALS ARE CLUBBED TOGETHER, HEARD TOGETHER, DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. FIRST WE TAKE UP REVENUES APPEAL IN ITA NO.199/MDS ./2017 4. WHEN THE APPEAL IS TAKEN UP FOR HEARING, THE REP RESENTATIVE OF THE REVENUE FAIRLY SUBMITTED THAT THE TAX EFFECT INVOLVED IN THIS APPEAL IS LESS THAN ` 20 LAKHS. IT WAS A SUBMISSION THAT THE CBDT IN ITS LATEST CIRCULAR NO.3/2018 DATED 11.07.2018 INSTRUCT ED ITS OFFICERS TO WITHDRAW ALL THE APPEALS PENDING BEFORE THE ITAT WH ERE THE TAX EFFECT IS LESS THAN ` 20 LAKHS. THE LD.A.R IN HIS WRITTEN SUBMISSION DATE D 24.09.2018 REITERATED THE SAME FACT PUT FORTH BY TH E LD.D.R BEFORE US. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THI S CIRCULAR OF CBDT IS ITA NOS.181 & 199/CHNY/2017 :- 3 -: BINDING ON THE OFFICERS OF THE DEPARTMENT. THEREFOR E, THE REVENUE CANNOT PROCEED FURTHER IN THIS APPEAL. ACCORDINGLY, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. 3. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. NEXT WE TAKE UP ASSESSEES APPEAL IN ITA NO.181/MDS ./2017 4. IT WAS SUBMITTED BY LD.A.R THAT THE ASSESSEE WAS RUNNING AN ACCOUNT WITH ITS SISTER CONCERN, M/S.SAKTHI SPINTEX (P) LTD., AND AS ON 31.03.2011, THE ASSESSEE HAD ADVANCED TO ITS SISTER CONCERN TO AN EXTENT OF ` 1,40,74,492/-. IT WAS A SUBMISSION THAT THE LD. AS SESSING OFFICER HAD DISALLOWED PROPORTIONATE INTEREST IN RE SPECT OF INTEREST FREE ADVANCE GIVEN TO ASSESSEES SISTER CONCERN @ 12% PE R ANNUM. IT WAS A SUBMISSION THAT THE AVERAGE OF THE PACKING CREDIT LOAN IN RESPECT OF THE ASSESSEE WAS ONLY TO AN EXTENT OF 7.5%. IT WAS A FURTHER SUBMISSION THAT ASSESSEE HAD ADVANCED THE FUNDS TO ITS SISTER CONCERN FOR SETTING OF ITS FACTORY FOR MANUFACTURING OF YAR N, WHICH IS A RAW- MATERIAL FOR THE ASSESSEE. IT WAS A SUBMISSION THA T THE ADVANCES HAVING BEEN GIVEN FOR THE PURPOSE OF BUSINESS, NO D ISALLOWANCE IS CALLED FOR. IT WAS A SUBMISSION THAT IF AT ALL ANY DISALLOWANCE IS CALLED FOR, IN THE ALTERNATIVE THE SAME HAS BEEN RESTRICTE D TO 7.5% BEING THE ITA NOS.181 & 199/CHNY/2017 :- 4 -: RATE OF INTEREST IN RESPECT OF PACKING CREDIT TAKEN BY THE ASSESSEE FROM THE BANKS. 5. IN REPLY, THE LD.D.R VEHEMENTLY SUPPORTED THE O RDER OF THE CIT(APPEALS). IT WAS A SUBMISSION THAT NO BUSINESS CONNECTION HAS BEEN SPECIFICALLY SHOWN. IT WAS A PRAYER THAT IN RE SPECT OF RATE OF INTEREST, THE ISSUE AS TO WHETHER THE RATE OF INTER EST IS 7.5% IN RESPECT OF PACKING CREDIT, COULD BE RESTORED TO THE FILE OF LD. ASSESSING OFFICER FOR VERIFICATION AND ADJUDICATION. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ADMI TTEDLY, IN THE PRESENT CASE, THE ASSESSEE HAS NOT BEEN ABLE TO SHOW ANY BUSINESS CONNECTION WITH ITS SISTER CONCERN. IN FACT, THE AS SESSEE HAS PAID INTEREST TO BANKS AND HAS GIVEN FUNDS TO ITS SISTER CONCERN WITHOUT CHARGING INTEREST, WHICH HAS NOT EVEN STARTED PRODU CTION. ADMITTEDLY, THE SISTER CONCERN M/S.SAKTHI SPINTEX (P) LTD., STA RTED PRODUCTION ONLY DURING THE ASSESSMENT YEAR 2016-17 AND SUBSEQUENTLY , THE SAID UNIT HAS ALREADY BEEN SOLD ON ACCOUNT OF CERTAIN LOAN LI ABILITIES. THUS CLEARLY, IT CANNOT BE SAID THAT THE ADVANCE HAS BEE N MADE FOR THE PURPOSE OF BUSINESS. HOWEVER, COMING TO THE ISSUE O F RATE OF INTEREST APPLICABLE FOR MAKING THE DISALLOWANCE, THIS ISSUE IS RESTORED TO THE FILE OF LD. ASSESSING OFFICER FOR VERIFICATION AND ADJUD ICATION. THE LD. ASSESSING OFFICER SHALL APPLY THE RATE IN RESPECT O F NET INTEREST PAYABLE ITA NOS.181 & 199/CHNY/2017 :- 5 -: BY THE ASSESSEE TO THE BANKS ON THE PACKING CREDITS PROVIDED BY THE BANKS. WITH THIS DIRECTION, THIS ISSUE IS RESTORED TO THE FILE OF LD. ASSESSING OFFICER FOR VERIFICATION AND ADJUDICATION . 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 8. TO SUMMARIZE THE RESULT, THE APPEAL OF REVENUE IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSION OF HEARING ON 08 TH OCTOBER, 2018, AT CHENNAI. SD/ - SD/ - ( . ) (A.MOHAN ALANKAMONY) ! ' / ACCOUNTANT MEMBER ( ) (GEORGE MATHAN) # ' / JUDICIAL MEMBER ( ! / CHENNAI ) / DATED: 08 TH OCTOBER, 2018. K S SUNDARAM * ' +#,- . -# / COPY TO: 1 . /0 / APPELLANT 4. 1# / CIT 2. +2/0 / RESPONDENT 5. -34 +#5 / DR 3. 1# () / CIT(A) 6. 46 7! / GF