The ACIT, Central Circle-3, Surat V. M/s. Arbuda Construction Pvt.Ltd., Surat

ITA 2010/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6867 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 30-03-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 19-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS R K TOPIWALA
• Keywords: Proportionate interest; Set aside

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI D.K. TYAGI, JM AND D.C.AGRAWAL, AM ASSTT. CIT, CIRCLE-3, SURAT. VS. M/S ARBUDA CONSTRUCTION (P) LTD., KHUSHNUMA, NR. JAMNA NAGAR BUS STOP, GHOD DOD ROAD, SURAT. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- MRS. R. K. TOPIWALA, DR RESPONDENT BY:- SHRI HARDIK VORA, AR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOL LOWING GROUND:- (1) THE LD. CIT(A) ERRED IN ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN DELETING THE DISALLOWANCE OF RS.13,26 ,058/- MADE BY THE AO ON ACCOUNT OF PROPORTIONATE INTEREST. THE LD. CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE HAS ADVANCED INTEREST BEARING FUNDS TO THE DIRECTORS & RELATIVES AS INTEREST FREE ADVANCES WITHOUT EXPLAINING THE COMMERCIAL EXP EDIENCY. 2. THE ASSESSEE IS A BUILDER CONSTRUCTING OFFICES A ND FLATS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT ASSESSEE HAS BORROWED FUNDS WHICH HAVE BEEN GIVEN AS LOAN TO THE FAMILY MEMBERS OF THE GROUP BUT WITHOUT INTEREST. THE AO GAVE YEARWIS E BREAK UP OF BORROWINGS AND ADVANCING AS UNDER :- ITA NO.2010/AHD/2009 ASST. YEAR 2004-05 ITA NO.2010/AHD/2009 ASST. YEAR 2004-05 2 FINANCIAL YEAR BORROWED FUNDS (RS.) LOANS GIVEN OUT (RS.) 2001-02 6,39,72,790 3,32,06,163 2002-03 5,86,54,173 4,29,52,628 2003-04 5,67,13,178 5,33,61,247 ACCORDING TO THE AO ASSESSEE HAS PAID INTEREST TO F INANCIAL INSTITUTIONS ON BORROWED FUNDS AND IT HAS DIVERTED SUCH INTEREST BE ARING FUNDS AS INTEREST FREE ADVANCES TO THE SISTER CONCERN. HE WORKED OUT PROPORTIONATE DISALLOWANCE OF INTEREST AS UNDER :- F.Y. PROPORTIONATE INTEREST 2001-02 57,73,862 X 33206163 63972790 = RS.29,97,021 2002-03 42,92,998 X 42952628 58654173 = RS.31,43,775 2003-04 25,43,667 X 53361247 56713178 = RS.23,93,328 TOTAL RS.85,34,124 THE AO THEREAFTER REWORKED OUT CONSTRUCTION EXPENSE S DEBITED TO THE PROFIT AND LOSS ACCOUNT BY REDUCING THEM BY RS.85,3 4,124/-, SPREAD OVER THE SUM ON THE TOTAL AREA CONSTRUCTED AND THEREAFTE R DETERMINED COST OF CONSTRUCTION IN RESPECT OF AREA SOLD BY THE ASSESSE E AS UNDER :- TOTAL COST AS PER THE WORKING SUBMITTED BY THE ASSESSEE: RS.2,39,98,718 LESS: INTEREST EXPENSES AS WORKED OUT ABOVE RS.85,34,124 RS.1,54,64,594 TOTAL UNSOLD AREA 12671 SFT. AREA SOLD DURING THE YEAR 1970 SFT. COST OF CONSTRUCTION FOR AREA SOLD 1,54,64,594 X 19 70 12671 =RS.24,04,329/- ITA NO.2010/AHD/2009 ASST. YEAR 2004-05 3 AFTER REJECTING THE BOOKS OF THE ASSESSEE THE AO TH EREAFTER WORKED OUT TAXABLE INCOME OF THE ASSESSEE AT RS.15,04,758/- F ROM THE TOTAL REVENUE RECEIPTS OF THE ASSESSEE. THIS YEAR TOTAL RECEIPT W AS WORKED AT RS.39,09,860/-. 3. WHEN THE MATTER CAME UP BEFORE THE LD. CIT(A) HE DIRECTED THE AO TO VERIFY THE FIGURES GIVEN BY THE ASSESSEE AS UNDE R :- FY 2003-04 FY 2002-03 FY 2001-02 A. INTEREST FREE BORROWINGS (UNSECURED LOANS) 35541315 37638703 53011275 B. INTEREST FREE BORROWINGS (SUNDRY CREDITORS) 20965307 23891942 20212976 TOTAL 56506622 61530645 73224251 HE DIRECTED TO RECALCULATE THE INTEREST FREE FUNDS AND ALSO THE DISALLOWANCE THEREAFTER. WHILE DOING SO THE LD. CIT (A) FOLLOWED THE DECISION OF THE TRIBUNAL IN THE CASE OF TORRENT FIN ANCIERS VS. CIT 73 TTJ (AHD) 624 WHEREIN FOLLOWING OBSERVATIONS WERE MADE: - ENTIRE INTEREST FREE FUNDS AVAILABLE WITH THE ASSE SSEE IS TO BE CONSIDERED. THE ENTIRE INTEREST FREE FUNDS INCLUDE OWNERS OWN CAPITAL, ACCUMULATED PROFITS AND OTHER INTEREST FREE CREDITORS AND LOANS , IF TOTAL INTEREST FREE ADVANCES INCLUDING DEBIT BALANCES OF PARTNERS DO NO T EXCEED THE TOTAL INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE, NO INTEREST IS DISALLOWABLE ON ACCOUNT OF UTILIZATION OF FUND FOR NON-BUSINESS PURPOSES AND IF IT EXCEEDS, THE PROPORTIONATE DISALLOWANCE CAN BE MADE . THE AO IS REQUIRED TO RECALCULATE THE FIGURES OF DISALLOWANCE OF INTER EST PAID ON BORROWED FUNDS, THEREFORE, THE ORDER OF CIT(A) ON THIS ISSUE IS SET ASIDE AND THE ISSUE IS RESTORED BACK TO THE FILE OF AO FOR THE LI MITED PURPOSE TO RECALCULATE DISALLOWANCE OF INTEREST PAID ON BORROW ED FUNDS, IF ANY, IN ACCORDANCE WITH THE ABOVE OBSERVATIONS AND AS PER P ROVISIONS OF IT ACT CIT VS. TINGRI TEA CO. LTD. (1971) 79 ITR 294 (CAL) RELIED ON. ITA NO.2010/AHD/2009 ASST. YEAR 2004-05 4 4. WE HAVE HEARD THE PARTIES. THE LD. DR SUBMITTED THAT THE FIGURES GIVEN BY LD. CIT(A) IN HIS ORDER ARE DIFFERENT THAN THE FIGURES GIVEN BY THE AO IN HIS ORDER AND THEREFORE FIGURES HAVE BEEN ADM ITTED WITHOUT ANY REASON. THE LD. AR ON THE OTHER HAND, SUBMITTED THA T THERE IS NO INFIRMITY IN THE ORDER OF LD. CIT(A) AS HE HAS ONLY ASKED THE AO TO VERIFY AND RECALCULATE THE DISALLOWANCE OF INTEREST IN VIEW OF THE DECISION OF THE TRIBUNAL IN THE CASE OF TORRENT FINANCIERS (SUPRA). HE SUBMITTED THAT SIMILAR ISSUE HAD ALSO COME BEFORE THE AHMEDABAD TR IBUNAL IN THE CASE OF ACIT VS. KRISHNAVTAR J. KABRA-HUF IN ITA NO.2474/AH D/2010 ASST. YEAR 2004-05 AND OTHER PRONOUNCED ON 22.2.11, WHERE IN THE TRIBUNAL ALSO HAD GIVEN SIMILAR DIRECTION AS UNDER :- 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE. WE FIND THAT THE LEARNED CIT(A) IN THE IMPUGNED ORDER S DIRECTED THE AO TO WORK OUT THE TOTAL INTEREST FREE FUNDS AVAILABLE AT THE PARTICU LAR TIME WHEN THE ADVANCES WERE GIVEN TO THE AFORESAID PARTIES AND EXAMINE AS TO W HETHER SUCH FUNDS WERE SUFFICIENT TO LEND THE MONEY WITHOUT CHARGING ANY INTEREST. IN TH E EVENT THE FUNDS WERE SUFFICIENT TO MAKE SUCH INTEREST FREE ADVANCES, NO INTEREST SHOUL D BE DISALLOWED. HOWEVER, IF INTEREST FREE FUNDS AVAILABLE WERE LESS THAN T HE INTEREST FREE ADVANCES, THEN PROPORTIONATE DISALLOWANCE OF INTEREST SHOULD BE M ADE IN THE LIGHT DECISION IN THE CASE OF TORRENT FINANCIERS LTD. 73 TTJ 624. T HE LEARNED DR APPEARING BEFORE US MERELY CONTENDED THAT THE LD. CIT(A) COULD NOT S ET ASIDE THE MAILER TO THE AO. HOWEVER, WE FIND THAT THE LD. CIT(A) HAS NOT SET AS IDE THE MATTER BUT MERELY DIRECTED THE AO TO WORK OUT THE DISALLOWANCE OF INTEREST IN THE MANNER INDICATED ABOVE. WE DO NOT FIND ANY INFIRMITY IN THIS APPROACH OF THE AO I N DIRECTING TO QUANTIFY THE DISALLOWANCE OF INTEREST IN TERMS OF HIS DIRECTION S. SINCE THE REVENUE HAVE NOT PLACED BEFORE US ANY MATERIAL SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LEAR NED CIT(A) IN THESE TWO APPEALS THEREFORE, GROUND NO.1 IN THESE TWO APPEALS I S DISMISSED. WE ARE OF THE VIEW THAT THE AO HAS ONLY TO VERIFY I F THE ASSESSEE HAS INTEREST FREE FUNDS AVAILABLE AT THE PARTICULAR POI NT OF TIME. IF IT IS SO THEN ONUS WOULD BE ON THE AO TO FIND OUT WHETHER IT WAS ONLY INTEREST BEARING FUNDS WHICH WERE TRANSFERRED TO SISTER CONCERN AS I NTEREST FREE ADVANCES. IF NOT, THEN TO THAT EXTENT INTEREST PAID ON BORROWED FUNDS COULD NOT BE DISALLOWED. BUT IF INTEREST FREE FUNDS WERE LESS TH AN INTEREST FREE ADVANCES THEN PROPORTIONATE DISALLOWANCE OF INTEREST CAN BE MADE. THUS THERE IS ITA NO.2010/AHD/2009 ASST. YEAR 2004-05 5 NOTHING WRONG IN THE DIRECTIONS GIVEN BY LD. CIT(A) . WE ACCORDINGLY UPHOLD HIS ORDER AND DISMISS THE APPEAL FILED BY TH E ASSESSEE SUBJECT TO ABOVE OBSERVATIONS. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 8/4/11. SD/- SD/- (D. K. TYAGI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 8/4/11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 31/3/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 7/4/ 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..