The DCIT, Anand Circle, Anand V. JSL Industries Ltd., Anand

ITA 2084/AHD/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8993 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 14-09-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 30-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C PANDIT
• Assessee Lawyers: J P SHAH
• Keywords: Business income; Proportionate interest; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH C CC C AHMEDABAD AHMEDABAD AHMEDABAD AHMEDABAD BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI H.L. KARWA H.L. KARWA H.L. KARWA H.L. KARWA, , , , JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER AND AND AND AND SHRI SHRI SHRI SHRI N NN N. .. .S. SAINI S. SAINI S. SAINI S. SAINI, , , , ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE OF HEARING : 14.09.09 DRAFTED ON:15.09. 09 ITA NO.2084/AHD/2009 ASSESSMENT YEAR : 2002-03 DEPUTY COMMISSIONER OF INCOME-TAX, ANAND CIRCLE, ANAND. VS. M/S. JSL INDUSTRIES LTD. N.H.NO.8, TAL.MOGAR, DIST.ANAND. PAN/GIR NO. : AAACJ 4986 F (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI M.C.PANDIT SR. D.R. RESPONDENT BY: SHRI J.P.SHAH O R D E R O R D E R O R D E R O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LD.CIT(APPEALS)-IV, BARODA, DATED 17.04.2009. 2. THE SOLE GROUND OF APPEAL TAKEN BY THE DEPARTMENT IN THIS APPEAL IS THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN REDUCING THE DISALLOWANCE OF INTEREST FROM RS.32,95,284/- TO ITA NO .2084/AHD/2009 M/S.JSL INDUSTRIES LTD. ASST.YEAR -2002-03 - 2 - RS.7,22,662/- ON ACCOUNT OF DIVERSION OF INTEREST BEARING FUNDS TO ASSOCIATE CONCERN. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURE OF ELECTRIC SWITCH GEARS, CURRENT/POTENTIAL TRANSFORMERS, INSTRUMENT TRANSFORMERS, AIR CIRCUIT BREAKERS, CUBICAL TYPE MODULAR SWITCH BOARDS ETC. THE ASSESSEE FILED RETURN OF INCOME ON 30.10.2002 IN THE ASSESSMENT FRAMED VIDE ORDER DATED 22.03.2005. THE LEARNED ASSESSING OFFICER DISALLOWED RS.63,46,150/- ON ACCOUNT OF INTEREST THAT COULD HAVE BEEN RECEIVED BY THE ASSESSEE ON THE ALLEGED INTEREST FREE TAX. IN APPEAL THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) VIDE ORDER DATED 11.11.2005 GRANTED RELIEF OF RS.17,03,424/- AND CONFIRMED THE BALANCE AMOUNT OF ADDITION. THE MATTER WAS TAKEN IN FURTHER APPEAL TO THE TRIBUNAL AND THE TRIBUNAL VIDE ITS ORDER DATED 8.09.2006 SET ASIDE THE ISSUE BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER WITH THE DIRECTION TO DECIDE THE SAME AFRESH IN ACCORDANCE WITH LAW AND GAVE DIRECTION AS TO THE WAY MATTER SHOULD BE EXAMINED. THE LEARNED ASSESSING OFFICER THEREAFTER, ISSUED NOTICE AND FRAMED THE ASSESSMENT MAKING ADDITION OF RS.32,95,284/- ON ACCOUNT OF INTEREST. ON APPEAL AGAINST THE SAID ORDER BY THE ASSESSEE, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) RESTRICTED THE ADDITION TO RS.7,22,662/-. ITA NO .2084/AHD/2009 M/S.JSL INDUSTRIES LTD. ASST.YEAR -2002-03 - 3 - 4. BEING AGGRIEVED BY THE SAID ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), THE REVENUE IN APPEAL BEFORE US TAKING THE ABOVE GROUND OF APPEAL. 5. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE BEFORE US ARGUED THAT AS HELD BY TRIBUNAL, IF THE AMOUNT OUTSTANDING COMPRISED OF TRADE RECEIVABLE ARISING ON ACCOUNT OF GENUINE SALE TRANSACTION, NO AMOUNT COULD BE DISALLOWED. FURTHER, IF THE OTHER PARTY WAS FACING FINANCIAL PROBLEM SO THAT THE OUTSTANDING THROUGH EXCESSIVE WAS GENUINE/EXPLAINED ADDITION COULD NOT HAVE BEEN MADE. THE ASSESSEE SUBMITTED THAT THE SISTER CONCERN JYOTI LTD. WAS FACING ACUTE FINANCIAL CRISES AS EVIDENT FROM THE FACT THAT IT HAD APPROACHED BIFR FOR BEING REGISTERED THERE. THE ASSESSEE FURTHER SUBMITTED THAT UNTIL THE DEPARTMENT WAS IN A POSITION TO ESTABLISH COLLUSIVE OUTSTANDING BETWEEN THE DEBTOR AND THE ASSESSEE, THERE COULD BE NO CASE FOR DISALLOWANCE OF ANY INTEREST. IN THIS CASE, JYOTI LTD. WAS ONE OF THE MAIN CUSTOMERS ACCOUNTING FOR ABOUT 25% OF THE TOTAL SALE. PREFERENTIAL STATEMENT TO THIS DEBTOR WAS THUS NATURAL BUSINESS REQUIREMENT AND NECESSITY. ACCORDING TO THE ASSESSEE, LEARNED ASSESSING OFFICER COULD NOT ESTABLISH COLLUSIVE UNDERSTANDING AND THE FACT THAT DEBTORS WERE GENUINE, GENERATED OUT OF NORMAL AND REGULAR BUSINESS DEALING WAS UNDISPUTED. FURTHER, IT IS ALSO UNDISPUTED THAT THE DEBTOR SISTER CONCERNS WERE IN FINANCIAL CRISES. IT WAS FURTHER SUBMITTED THAT LEARNED ASSESSING OFFICERS METHOD OF DISALLOWING PROPORTIONATE INTEREST ON THE BASIS OF TOTAL FUNDS EMPLOYED AND ITA NO .2084/AHD/2009 M/S.JSL INDUSTRIES LTD. ASST.YEAR -2002-03 - 4 - COMPARING THE SAME WITH TOTAL FINANCIAL CHARGES PAID WAS INCORRECT AND AT BEST, ONLY A PROPORTIONATE FIGURE OF INTEREST WITH REFERENCE TO EXCESS AMOUNT OF OUTSTANDING OVER THE NET WORTH COULD BE DISALLOWED. IT WAS FURTHER SUBMITTED THAT ALTHOUGH THE ASSESSING OFFICER COMPUTED THE DISALLOWANCE OF RS.13,47,432/- BUT IN THE FINAL COMPUTATION MADE DISALLOWANCE OF RS.32,95,284/-. THE ASSESSEE RELIED ON THE DECISION OF AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF TORRENT FINANCIERS, 37 TTJ 624 AND CONTENDED THAT ONLY AMOUNT IN EXCESS OF NET WORTH CAN AT BEST BE SAID TO BE GIVEN TO THE SISTER CONCERN WITHOUT INTEREST. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. WE OBSERVE THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WHILE DECIDING THE ISSUE HAS GIVEN THE FOLLOWING FINDINGS:- ITA NO .2084/AHD/2009 M/S.JSL INDUSTRIES LTD. ASST.YEAR -2002-03 - 5 - ITA NO .2084/AHD/2009 M/S.JSL INDUSTRIES LTD. ASST.YEAR -2002-03 - 6 - 8. THE LEARNED ASSESSING OFFICER OBSERVED THAT BALANCE OUTSTANDING FROM THE FOLLOWING TWO PARTIES OF THE ASSESSEE WAS AS UNDER: ITA NO .2084/AHD/2009 M/S.JSL INDUSTRIES LTD. ASST.YEAR -2002-03 - 7 - NAME AMOUNT JYOTI LTD. RS.4,09,28,689/- JPEL RS.2,40,67,689/- THE LEARNED ASSESSING OFFICER FURTHER OBSERVED THAT BOTH THE ABOVE PARTIES WERE SISTER CONCERNS OF THE ASSESSEE COMPANY. THE LEARNED ASSESSING OFFICER THEREFORE, DISALLOWED INTEREST OF RS.32,95,284/- BEING INTEREST @ 3.27% ON THE ABOVE OUTSTANDING AMOUNT AFTER REDUCING THEREFROM SALES MADE DURING THE LAST QUARTER OF THE YEAR BY CONSIDERING THE SAME AS INTEREST FREE ADVANCE MADE BY THE ASSESSEE TO THE TWO SISTER CONCERNS. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVED THAT THE LEARNED ASSESSING OFFICER HAS CALCULATED THE AMOUNT OF ADVANCE GIVEN BY THE ASSESSEE TO THE AFORESAID TWO PARTIES ON AN ERRONEOUS BASIS. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FOUND THAT TOTAL SALES DURING THE YEAR TO THE AFORESAID PARTIES WERE RS.3,19,29,306/- TO JYOTI LTD. AND RS.3,84,99,383/- TO JPEL RESPECTIVEL Y AND THEREFORE, OUTSTANDING ADVANCE WAS RS.2,44,60,790/- TO JYOTI LTD. AND RS.1,56,82,481/- TO JPEL ONLY. HE FURTHER OBSERVED THAT INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE WAS TO THE TUNE OF RS.3,64,80,933/-./ THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THEREFORE, CONCLUDED THAT THE INTEREST FREE ADVANCE GIVEN TO SUCH CONCERNS OUT OF BORROWED CAPITAL WAS RS.46,62,338/- AND ACCORDINGLY HE DISALLOWED INTEREST THEREON @ 15.5% WHICH WORKS OUT TO RS.7,22,662/-. THE REVENUE DISPUTED THE ABOVE ACTION OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ONLY ON THE GROUND THAT LEARNED COMMISSIONER OF INCOME ITA NO .2084/AHD/2009 M/S.JSL INDUSTRIES LTD. ASST.YEAR -2002-03 - 8 - TAX(APPEALS) WAS NOT JUSTIFIED IN ASSUMING THAT INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WAS UTILISED FOR GIVEN INTEREST FREE ADVANCE TO THE SISTER CONCERNS. WE FIND THAT BEFORE US IT IS NOT IN DISPUTE THAT OUT OF TOTAL OUTSTANDING FROM THE AFORESAID TWO PARTIES IN QUESTION, ONLY RS. RS.4,11,43,271/- WAS ADVANCE GIVEN BY THE ASSESSEE TO THEM AND THE BALANCE AMOUNT WAS BUSINESS DEBT OF THE ASSESSEE. WE OBSERVE THAT THE LEARNED ASSESSING OFFICER HAS BROUGHT NO MATERIAL ON RECORD TO SHOW THAT ADVANCE OF RS.4,11,43,271/-, IN QUESTION WAS GIVEN OUT OF BORROWED CAPITAL IN RESPECT OF WHICH THE ASSESSEE WAS LIABLE TO PAY INTEREST. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. RELIANC E UTILITIES AND POWER LTD. [2009] 313 ITR 340 [BOM] HAS HELD AS UNDER:- ITA NO .2084/AHD/2009 M/S.JSL INDUSTRIES LTD. ASST.YEAR -2002-03 - 9 - ITA NO .2084/AHD/2009 M/S.JSL INDUSTRIES LTD. ASST.YEAR -2002-03 - 10 - 9. FURTHER THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF TORRENT FINANCIERS VS. ASSISTANT COMMISSIONER OF INCOME TAX ITAT, AHMEDABAD A BENCH T.K. SHARMA, J.M. & ANANDILAL GEHLOT, A .M. ITA NO. 1402/AHD/1995; ASST YR. 1990-91 29TH JUNE, 2001 (2001) 73 TTJ (AHD) 624, HAS HELD AS UNDER: ENTIRE INTEREST-FREE FUNDS AVAILABLE WITH THE ASSESSEE IS TO BE CONSIDERED. THE ENTIRE INTEREST-FREE FUNDS INCLUDE OWNER S OWN CAPITAL, ACCUMULATED PROFITS AND OTHER INTEREST-FREE CREDITORS AN D LOANS, IF TOTAL INTEREST-FREE ADVANCES INCLUDING DEBIT BALANCES OF PARTN ERS DO NOT EXCEED THE TOTAL INTEREST- FREE FUNDS AVAILABLE WITH THE ASSESSEE, NO INTEREST IS DISALLOWABLE ON ACCOUNT OF UTILISATION OF FUND FOR NON-BUSINESS PURPOSES AND IF IT EXCEEDS, THE PROPORTIONATE DISALLOWAN CE CAN BE MADE. THE AO IS REQUIRED TO RECALCULATE THE FIGURES OF DISALLOWANCE OF INTEREST 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 LIMITED PURPOSE TO RECALCULATE DISALLOWANCE OF INTERES T PAID ON BORROWED FUNDS, IF ANY, IN ACCORDANCE WITH THE ABOVE OBSERVATION S AND AS PER PROVISIONS OF IT ACT. CIT VS. TINGRI TEA CO. LTD. (1971) 7 9 ITR 294 (CAL) RELIED ON. 10. IN VIEW OF THE ABOVE AND KEEPING IN VIEW THE FACT THAT NO MATERIAL COULD BE BROUGHT ON RECORD BY THE REVENUE TO SHOW THAT MORE THAN RS.4,11,43,271/- WAS ADVANCED BY THE ASSESSEE OUT OF INTEREST BEARING BORROWED FUNDS, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. ITA NO .2084/AHD/2009 M/S.JSL INDUSTRIES LTD. ASST.YEAR -2002-03 - 11 - 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 18/09/2009. SD/- SD/- ( ( ( ( H.L. KARWA H.L. KARWA H.L. KARWA H.L. KARWA ) )) ) ( N.S. SAINI ) ( N.S. SAINI ) ( N.S. SAINI ) ( N.S. SAINI ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 18/09/2009 COPY OF THE ORDER FORWARDED TO COPY OF THE ORDER FORWARDED TO COPY OF THE ORDER FORWARDED TO COPY OF THE ORDER FORWARDED TO : :: : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-IV, BARODA. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD