M/s. Jyotindra Brrothers, Palanpur V. The Income Tax Officer, Ward -1, Ahmedabad

ITA 2053/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1319 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 05-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 10

Judgement Text

I.T.A. NO . 2053 /AHD/201 3 A SSESSMENT Y EAR S : 20 0 9 - 10 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH, SMC , AHMEDABAD [CORAM: PRAMOD KUMAR AM] I.T.A. NO. 2053 /AHD/ 20 1 3 ASSESSMENT Y EAR : 20 0 9 - 10 JYOTINDRA BROTHERS .......... .APPELLANT JYOTINDRA GROUP COMPOUND, PLANPUR AHMEDABAD HIGHWAY, PALAN PUR. [PAN: A ABFJ 6482 C ] VS. INCOME TAX OFFICER, WARD - 1, PALANPUR . ............ . RESPONDENT APPEARANCES BY: URVASHI SHODHAN , FOR THE APPELLANT KEYUR PATEL , FOR THE RESPONDENT D ATE OF CONCLUDING THE HEARING : JUNE 29 TH , 2 01 6 DATE OF PRONOUNCING THE ORDER : JUNE 29 TH , 201 6 O R D E R BY WAY OF TH IS APPEAL, THE ASSESSEE APPELLANT HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 10.06.2013 , PASSED BY THE LEARNED CIT(A) , IN THE MATTER OF ASSESSMENT UNDER SECTION 14 3(3) OF THE INCOME TAX ACT, 1961 ( THE ACT HEREINAFTER) FOR ASSESSMENT YEAR 200 9 - 10, ON THE FOLLOWING GROUNDS : - 1. LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF INTEREST EXPENSES OF RS.9,28,593/ - MA D E BY ASSESSING OFFICER. LD . CIT ( A ) ERRED IN CONFIRMING DISALLOWANCE IGNORING THE F A CT THAT AVAILABILITY OF HUGE INTEREST FREE FUNDS COUPLED WITH FINANCE FUNDS OBTAINED AT A LOWER R ATE, THE INTEREST EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OUGHT TO HAVE BEEN ALLOWED IN FULL. IT BE SO HELD NOW. 2. LD. CI T(A) ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACT THAT NO DISALLOWANCE OF INTEREST EXPENSES IS CALLED FOR IN ABSENCE OF ANY FRESH ADVANCES DURING THE YEAR UNDER CONSIDERATION TO SWATI AUTO LINK PVT . LTD . LD . CIT(A) OUGHT TO HAVE DELETED SUCH DISALLOWANCE. IT BE SO HELD NOW. I.T.A. NO . 2053 /AHD/201 3 A SSESSMENT Y EAR S : 20 0 9 - 10 PAGE 2 OF 6 3. LD. CIT ( A ) FURTHER ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE ACCEPTING METHOD OF COMPUTATION DIRECTED BY HIS PREDECESSOR TO ASSESSING OFFICER IN AY 2008/09 DE SPITE HAVING ACCEPTED CALCULATION SUBMITTED BY THE APPELLANT ON THE BASIS OF WEIGHTED AVERAGE COST OF FUNDS. LD . CIT ( A ) OUGHT TO HAVE INDEPENDENTLY ALLOWED CLAIM OF THE APPELLANT. IT BE SO HELD NOW. 2. WHEN THIS APPEAL WAS CALLED OUT FOR HEARING, LEAR NED COUNSEL FOR THE ASSESSEE POINTED OUT THAT IN THE IMPUGNED ORDER , AUTHORITIES BELOW HAVE ONLY FOLLOWED THE ORDERS FOR A.Y. 2008 - 09, AS IS EVIDENT FROM SPECIFIC OBSERVATION TO THAT EFFECT IN THE RESPECTIVE ORDERS. A S PER A . Y . 2008 - 09, AS THE LEARNED COU NSEL FOR THE ASSESSEE POINTS OUT, MATTER HAS REACHED BEFORE A DIVISION B ENCH OF THIS TRIBUNAL AND THE ISSUE IS FINALLY SETTLED IN FAVOUR OF THE ASSESSEE. IT IS IN THIS BACKGROUND , LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT THE APPEAL OF THE ASSESSEE SH OULD BE ALLOWED IN CONSISTENCE WITH THE SETTLED PAST HISTORY OF THE CASE. 3. LEARNED DEPARTMENTAL REPRESENTATIVE , ON THE OTHER HAND, RELIED ON THE ORDERS OF THE AUTHORITIES BELOW BUT HE FAIRLY SUBMITS THAT AS LONG AS FACTS OF THESE YEARS ARE IDENTICAL , AS ADMITTEDLY THE POSITION IS, THE T RIBUNAL HAS TO FOLLOW THE EARLIER JUDICIAL PRECEDENT DIRECTLY ON THE ISSUE. 4. IN VIEW OF THE ABOVE DISCUSSIONS, AND HAVING PERUSED THE MATERIAL ON RECORD, I AM OF THE CONSIDERED VIEW THAT THE DECISION DATED 24.04.2015 PA SSED BY THE DIVISION BENCH OF THIS T RIBUNAL IN ASSESSEE S CA S E F OR THE A . Y . 2008 - 09 SQUARELY COVERS THE ISSUE. I HAVE ALSO NOTED , AS EVIDENT FROM A PLAIN READING OF THE ORDERS OF THE AUTHORITIES BELOW THAT THERE IS NO DISPUTE THAT THE MATE RIAL FACTS OF TH E C A SE A RE IDENTICAL TO THAT OF A . Y . 2008 - 09. ON THESE I.T.A. NO . 2053 /AHD/201 3 A SSESSMENT Y EAR S : 20 0 9 - 10 PAGE 3 OF 6 FACTS, THE DIVISION BENCH, VI D E ORDER DATED 24.04.2015 (SUPRA) , HAS INTER ALIA HELD AS FOLLOWS : - 11. GROUND NO.2 OF THE REVENUE S APPEAL IS WITH RESPECT TO THE DELETION OF DISALLOWANCE OF RS.13,93,1 95/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST EXPENSES. 12. ON PERUSING THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD SHOWN NET INTEREST INCOME OF RS.11,81,410/ - , AFTER THE SET OFF INTEREST EXPENSES OF RS.24,88,291/ - . HE ALSO NOTICED THAT THE ASSESSEE HAS GIVEN RS.4,35,50,183/ - TO SWATI AUTOLINK PVT LTD ON WHICH IT HAD CHARGED INTEREST AT THE RATE OF 6.75%; BUT ON THE OTHER HAND THE ASSESSEE WAS PAYING INTEREST AT 9%. THE SUBMISSION OF THE AS SESSEE THAT ITS WEIGHTED AVERAGE INTEREST COST WAS 4.91% AS AGAINST WHICH IT HAD CHARGED AT 6.75% INTEREST ON M/S. SWATI AUTOLINK PVT LTD WAS NOT FOUND ACCEPTABLE TO THE ASSESSING OFFICER AS THE ASSESSEE HAD NOT FURNISHED ANY CASH FLOW STATEMENT TO JUSTIFY ITS CLAIM OF NOT ADVANCING INTEREST BEARING FUNDS TO ADVANCING AMOUNTS AT LOWER INTEREST. HE, THEREFORE, CALCULATED THE INTEREST EXPENSES AT 2.25% ON THE LOAN OF RS.4,35,50,183/ - GRANTED TO M/S. SWATI AUTOLINK PVT LTD AND WORKED OUT DISALLOWANCE OF INTERE ST AT RS.9,79,880/ - . THE ASSESSING OFFICER ALSO NOTICED THAT THE ASSESSEE HAD GIVEN INTEREST FREE LOANS AGGREGATING TO RS.1,00,99,625/ - TO (I) JYOTINDRA ORGANICS, (II) JYOTINDRA TEXTILES, (III) N.N. INDUSTRIES, (IV) SWATI PSYLLIUM PVT LTD AND (V) SWATI AGR OTECH PVT LTD. HE WAS ALSO OF THE VIEW THAT THE ASSESSEE HAS UTILIZED INTEREST BEARING FUNDS FOR ADVANCING NONINTEREST BEARING LOANS. HE ACCORDINGLY CALCULATED THE INTEREST EXPENSES AT 9% ON THE AMOUNT ADVANCED AND WORKED OUT THE INTEREST EXPENSES OF RS.9, 08,966/ - AND THUS MADE AN AGGREGATE DISALLOWANCE OF RS.18,88,846/ - . AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, GRANTED PARTIAL R ELIEF BY HOLDING AS UNDER: - 5.3 WHILE MAKING THE IMPUGNED DISALLOWANCE, THE AO OBSERVED THAT APPELLANT HAD BORROWED FUNDS AT THE RATE OF 9% AND ADVANCED TO M/S. SWATI AUTOLINK P.LTD. AT A LOWER RATE OF 6.75%. ACCORDINGLY, HE CALCULATED INTEREST @ 2.25% ON THE LOAN ADVANCED OF RS. 4,35,50,1 83/ - ; AND WORKED OUT THE ADDITION OF RS.9,79,830/ - . FURTHER, THE AO CALCULATED INTEREST AT THE RATE OF 9% ON THE INTEREST FREE LOANS GIVEN TO 5 OTHER CONCERNS TOTALING TO RS. 1,00,99,625/ - AND WORKED OUT THE DISALLOWAN CE OF RS.9,08,966/ - . PUT TOGETHER HE MADE DISALLOWANCE OF RS. 18,88,846/ - . 5.4 THE CONTENTIONS OF THE LEARNED AR IN THIS REGARD IN BRIEF ARE AS FOLLOW: AO DID NOT CONSIDER THE DETAILED SUBMISSION MADE BY THE APPELLANT VIDE HIS LETTER DATED 1 - 12 - 2010.; T HE ADVANCE GIVEN TO SWATI AUTOLINK WAS REDUCED DURING THE YEAR; COMPLETE DETAILS OF THE AVAILABILITY OF INTEREST FREE FUNDS IN EARLIER YEAR WHEN ADVANCE WAS GIVEN WERE SUBMITTED VIDE THE LETTER DATED 1 - 12 - 2010, AND THEREFORE, IMPUGNED DISALLOWANCE IS UNWA RRANTED. IN SUPPORT THEREOF HE RELIED ON THE CASE LAWS REPRODUCED ABOVE. I.T.A. NO . 2053 /AHD/201 3 A SSESSMENT Y EAR S : 20 0 9 - 10 PAGE 4 OF 6 5.5 AS SEEN FROM THE DETAILS FURNISHED, APPELLANT WAS HAVING NON - INTEREST BEARING FUND OF RS. 3,16,20,869/ - . AFTER DEDUCTING INTEREST - FREE ADVANCES TOTALING TO RS. 1,00,99,6257 - TO T HE 5 CONCERNS MENTIONED BY THE A.O. AT PARA 4.1 OF THE ASSESSMENT ORDER, APPELLANT WAS LEFT WITH RS. 2,15,21,244/ - OF NON - INTEREST BEARING FUNDS. THUS OUT OF ADVANCE GIVEN TO SWATI AUTOLINK OF RS. 4,35,50,183/ - WAS OUT OF INTEREST - FREE FUNDS, THE SUM OF RS . 2,15,21,244/, LEAVING THE BALANCE OF RS. 2,20,28,939/ - ADVANCED OUT OF FUNDS BORROWED ON INTEREST @ 9%. THE ADVANCE WAS GIVEN ON INTEREST @ 6.75%. THEREFORE, I CONSIDER IT REASONABLE TO WORK OUT THE DISALLOWANCE OF INTEREST @ 2.25% (9% MINUS 6.75%) ON RS .2,20,28,939/ - WHICH WORKS OUT TO RS.4,95,651/ - . THUS DISALLOWANCE OF INTEREST OF RS.4,95,651/ - IS UPHELD. BALANCE DISALLOWANCE OF INTEREST OF RS.13,93,195/ - IS DELETED. THUS GROUND OF APPEAL IS PARTLY ALLOWED. 13. AGGRIEVED BY THE ORDER OF THE LD. CIT (A) THE REVENUE IS IN APPEAL BEFORE US AND THE ASSESSEE HAS ALSO FILED CROSS - OBJECTIONS FOR THE PARTIAL DISALLOWANCE. BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT IN THE ABSENCE OF CASH FLOW STATEMENT, THE ASSESSING OFFICER WAS JUSTIFIED IN MA KING THE ADDITION. HE THUS SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 14. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT THERE WAS NO QUESTION OF DISALLOWING ANY INTEREST EXPENDITURE AS THE ASSESSEE HAS EARNED NE T INTEREST INCOME OF RS.11,81,410. HE FURTHER POINTED TO THE STATEMENT WHICH WAS PLACED AT PAGE NO.46 OF THE PAPER - BOOK AND DEMONSTRATED THAT WEIGHTED AVERAGE INTEREST COST WAS 4.91% AND IT HAS CHARGED INTEREST FROM ON M/S. SWATI AUTOLINK PVT LTD AT 6.75% AND THUS, IT HAS NOT ADVANCED MONEY TO M/S. SWATI AUTOLINK PVT LTD AT LESSER RATE THAN ITS COST OF FUNDS. HE FURTHER SUBMITTED THAT WHEN THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS, PRESUMPTION WOULD BE THAT THE AMOUNT HAS BEEN ADVANCED OUT OF INTEREST FREE FUNDS AND NOT BORROWED FUNDS AND FOR WHICH HE PLACED RELIANCE ON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LIMITED, REPORTED IN (2009) 313 ITR 340 (BOM) AND GUJARAT HIGH COURT IN THE CASE OF CIT VS. RAGHUVIR SYNTHETICS LTD, REPORTED IN 354 ITR 322. HE FURTHER SUBMITTED THAT THE AMOUNT HAD BEEN ADVANCED IN EARLIER YEARS ALSO BUT NO DISALLOWANCE WAS MADE IN THE EARLIER YEARS AND THEREFORE, NO DISALLOWANCE CAN BE MADE IN THE YEAR UNDER CONSIDERATION AND FOR WHICH HE PLACED RELIANCE ON THE DECISION OF HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. SRIDEV ENTERPRISES, REPORTED IN (1991) 192 ITR 165 (KAR). HE FURTHER SUBMITTED THAT NO DISALLOWANCE AT ALL ON ACCOUNT OF INTEREST WAS CALLED FOR. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS UNDISPUTED FACT THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS EARNED NET INTEREST INCOME OF RS.11,81,410/ - . BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE ALSO POINTED OUT TO THE COST OF FUND, THE RATE AT WHICH IT HAS LENT AND FROM THE STATEMENT SUBMITTED BY THE LD. AR, IT IS SEEN THAT THE AMOUNT WHICH HAS BEEN LENT TO M/S. SWATI AUTOLINK PVT LTD IS AT A HIGHER RATE THAN THE WEIGHTED AVERAGE COST OF FUNDS. BEFORE US, IT IS ALSO THE ASSESSEE S SUBMISSION THAT THE AMOUNTS WERE ADVANCED IN EARLIER YEARS ALSO AND NO DISALLOWANCE WAS MADE IN THE EARLIER YEARS, FOR WHICH RELIANCE WAS PLACED ON JUDGMENT OF THE HON BLE KARNATAKA HIGH COURT IN THE I.T.A. NO . 2053 /AHD/201 3 A SSESSMENT Y EAR S : 20 0 9 - 10 PAGE 5 OF 6 CASE OF SRIDEV ENTERPRISE S (SUPRA). WE FIND THAT THE HON BLE KARNATAKA HIGH COURT HAS HELD AS UNDER: - HELD, THAT THE AMOUNT DUE FROM N ON THE FIRST DAY OF THE ACCOUNTING YEAR WAS THE AMOUNT THAT STOOD OUTSTANDING ON THE LAST DAY OF THE PREVIOUS ACCOUNTING YEAR AND, THEREFORE, I TS NATURE AND STATUS COULD NOT BE DIFFERENT FROM ITS NATURE AND STATUS AS ON THE LAST DAY OF THE PREVIOUS YEAR. REGARDING PAST YEARS, THE ASSESSEE S CLAIM FOR DEDUCTION WERE ALLOWED IN RESPECT OF THE SUMS ADVANCED DURING THOSE YEARS. THIS COULD BE ONLY ON THE ASSUMPTION THAT THOSE ADVANCES WERE NOT OUT OF BORROWED FUNDS OF THE ASSESSEE. THIS FINDING DURING THE PREVIOUS YEARS WAS THE VERY BASIS OF THE DEDUCTIONS PERMITTED DURING THE PAST YEARS. IT WOULD NOT BE EQUITABLE TO PERMIT THE REVENUE TO TAKE A DIFFER ENT STAND NOW IN RESPECT OF THE AMOUNTS WHICH WERE THE SUBJECT - MATTER OF PREVIOUS YEARS ASSESSMENTS. BEFORE US, THE REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE ABOVE SUBMISSIONS MADE BY THE ASSESSEE NOR HAS BROUGHT ANY CONTRARY BIN DING DECISIONS IN ITS SUPPORT NOR COULD POINT OUT ANY DISTINGUISHABLE FEATURES OF THE DECISIONS CITED BY LD. AR. IN VIEW OF THE ABOVE FACTS, WE ARE OF THE VIEW THAT NO DISALLOWANCE ON ACCOUNT OF INTEREST COULD BE MADE IN THE PRESENT CASE. WE, THEREFORE, DI RECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE ON ACCOUNT OF INTEREST EXPENSES. THUS, THIS GROUND OF THE REVENUE IS DISMISSED AND CROSS - OBJECTION FILED BY THE ASSESSEE IS ALLOWED. 16. IN THE COMBINED RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED AND CROSS - OBJECTION FILED BY THE ASSESSEE IS ALLOWED. 5. I SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE HON BLE DIVISION BENCH. RESPECTFULLY FOLLOWING THE VIEWS OF THE DIVISION BENCH, WHICH BIND TH IS SMC BENCH, I UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE A SSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE OF RS.9,28,593/ - . ASSESSEE GETS THE RELIEF ACCORDINGLY. 6. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT TODAY ON THE 29 TH DAY OF JUNE , 2016 . SD/ - PRAMOD KUMAR (ACCOUNTANT MEMBER) DATED: THE 29 TH DAY OF JUNE , 2016. PBN/* I.T.A. NO . 2053 /AHD/201 3 A SSESSMENT Y EAR S : 20 0 9 - 10 PAGE 6 OF 6 COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD