M/s. Baba Naga Rice & General Mills, Amritsar. V. The Income-tax Officer, Amritsar.

ITA 220/ASR/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95120 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 23-11-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 04-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J P BHATIA
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR BEFORE SH. A.D.JAIN, HONBLE JUDICIAL MEMBER AND SH. T.S. KAPOOR, HONBLE ACCOUNTANT MEMBER I.T.A NO.220(ASR)/2014 ASSESSMENT YEAR: 2007-08 BABA NAGA RICE & GENERAL MILLS, VILLAGE BASERKE BHAINI, CHHEHARTA, AMRITSAR. PAN: AAEFB8457G VS. THE INCOME TAX OFFICER, (TECH)-II, AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. J.P. BHATIA, (ADV.) RESPONDENT BY: SH. RATINDER KAUR, (DR) DATE OF HEARING: 23.11.2015 DATE OF PRONOUNCEMENT: 15.12.2015 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A), AMRITSAR, DATED 16.01.2014 FOR THE ASST. YEAR 2007- 08. THE ONLY ISSUE RAISED IN THIS APPEAL IS THE GRIEVANCE OF ASSESSEE BY WHICH THE LEARNED CIT(A) HAS CONFIRMED THE DISALLOWANCE OF RS.3,45,57 6/- WHICH THE ASSESSING OFFICER HAD MADE OUT OF INTEREST PAID ON UNSECURED LOANS. 2. THE BRIEF FACTS OF THE CASE AS NOTED IN THE ASSE SSMENT ORDER ARE THAT THE ASSESSEE IS RUNNING A RICE SHELLER AND IS A PARTNERSHIP FIRM AND HAD FILED ITS RETURN OF INCOME AT RS.13,65,357/- ON 31.10.2007. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. DURING T HE ASSESSMENT ITA NO. 220(ASR)/2014 ASST. YEAR 2007-08 2 PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT TH E ASSESSEE HAD PAID INTEREST ON UNSECURED LOANS AMOUNTING TO RS.10,62,1 87/- CALCULATED @ 12% PER ANNUM. THE ASSESSING OFFICER FURTHER OBSERV ED THAT THE ASSESSEE HAD MADE ADVANCES AMOUNTING TO RS. 35.39 L ACS ON WHICH THE ASSESSEE HAD NOT CHARGED ANY INTEREST. THE ASSESSEE WAS SHOW CAUSED AS TO WHY THE DISALLOWANCE OF RS.3,44,576/- BE NOT MAD E OUT OF INTEREST CLAIMED BY IT. THE ASSESSEE SUBMITTED ITS REPLY AS UNDER: WITH REFERENCE TO YOUR FURTHER INQUIRY IT IS SUBMIT TED AS UNDER: 1. DETAIL OF INTEREST RS.1062187.00 PAID TO OTHERS THESE INTERESTS WERE PAID TO DEPOSITORS AGAINST THE IR DEPOSITS ACCEPTED BY THE FIRM; THE RATE OF INTER EST IS 12% P.A THE TDS WAS DULY DEDUCEDFROM THE ABOVE PAYMENTS WHE RE APPLICABLE. ADVANCES TO PARTIES DURING THE YEAR THE FOLLOWING ADVANCES WERE MADE TH E DIFFERENT PARTIES. THE DETAIL OF AMOUNT OUTSTANDI NG AS ON 31.03,2007 IN RESPECT OF ABOVE ADVANCES IS AS UNDER:- NAME OF PARTY AMOUNT (RS.) A) LOVE ARORA 500000/- B) SUKHDEV RAJ 600000/- C) SIFTI RICE MILLS 1900000/- D) BABA NAGA JI HOTEL & RESORT PVT. LTD. 539000/- THE COPIES OF ACCOUNT IN RESPECT OF ABOVE ADVANCES HAVE ALREADY BEEN FILED IN YOUR DEPARTEMENT WE HAVE NOT CHARGED ANY INTEREST AGAINST THE ABOVE ADVANCES. AS FAR AS DISA LLOWANCE OF INTEREST RS. 1062187/- PAID TO OTHERS O N PRO RATA BASIS IS CONCERED FOR NOT CHARGING INTEREST ON THE ABOVE ADV ANCES, IT IS SUBMITTED THAT THESE SHORT TERM ADVANC ES WERE MADE TO RELATIVES AND SISTER CONCERNS OUR FIRM HAS ALSO ACC EPTED SOME INTEREST FREE DEPOSITS FROM OUR FRIENDS AND RELATIVES. AS FAR AS ADVANCES TO VARIOUS COMMISSION AGENTS ARE CONCERNED, THESE WERE PURELY FOR BUSINESS PURPOSES , BECAUSE WE USE TO ADVANCE OUR COMMISSION AGENTS INT EH MONTH OF MARCH EVERY YEAR AGAINST THE PURCHASES OF PADDY TO BE MA DE DURING THE NEXT YEAR. WITH THIS PRACTICE OUR COMMISSION AGENTS ARE BOUND TO SELL THE ENTIRE PADDY RECEIVED AT THEIR SH OPS TO US. ' THE ASSESSING OFFICER, HOWEVER, WAS NOT SATISFIED B Y THE REPLY AND RELYING UPON THE JUDGMENT OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT ITA NO. 220(ASR)/2014 ASST. YEAR 2007-08 3 VS. ABHISHEK INDUSTRIES LTD. 286 ITR 1 (P&H) HAD DI SALLOWED SUM OF RS.3,44,576/-. 3. AGGRIEVED THE ASSESSEE FILED THE APPEAL BEFORE T HE CIT(A), HOWEVER, LEARNED CIT(A) ALSO DID NOT AGREE WITH THE CONTENTI ON OF THE ASSESSEE AND HELD THAT NONE OF THE ADVANCES OF THE ASSESSEE WERE FOR THE PURPOSES OF BUSINESS AND THERE WAS NO COMMERCIAL EXPEDIENCY AND THEREFORE, IN VIEW OF THE HONBLE SUPRME COURT JUDGMENT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT DISMISSED THE APPEAL. 4. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 5. AT THE OUTSET, LEARNED AR INVITED OUR ATTENTION TO PAPER BOOK PAGE 1 WHERE BREAKUP OF ADVANCES ON WHICH NO INTEREST CH ARGED WAS PLACED AND ALSO TOOK US TO PAPER BOOK PAGE 2 WHERE UNSECUR ED LOANS AMOUNTING TO RS.36,94,346/- WAS PLACED WHICH WERE ACCEPTED WI THOUT PAYMENT OF INTEREST. THE LEARNED AR SUBMITTED THAT SINCE AMOUN T OF UNSECURED LOANS TO WHOM INTEREST WAS NOT PAID EXCEEDED THE AD VANCES TO WHOM INTEREST WAS NOT CHARGED THE DISALLOWANCE WAS NOT W ARRANTED IN VIEW OF THE FOLLOWING JUDGMENTS. A) MUNJAL SALE CORPORATION VS. CIT & ORS. 298 ITR 298 (SC) B) CIT VS. RELIANCE UTILITIES AND POWER LTD. 313 IT R 340 (BOM) C) BRIGHT ENTERPRISES PVT. LTD. VS. CIT, ITA NO.224 OF 2013) (P&H) ITA NO. 220(ASR)/2014 ASST. YEAR 2007-08 4 6. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THAT T HERE WAS NO COMMERCIAL EXPEDIENCY OF ADVANCING INTEREST FREE LO ANS AND THEREFORE, IN VIEW OF THE HONBLE SUPREME COURT DECISION IN THE C ASE OF S.A BUILDERS LTD. (SUPRA) THE DISALLOWANCE WAS RIGHTLY UPHELD BY LEARNED CIT(A). THE LEARNED DR ALSO RELIED UPON THE PUNJAB & HARYANA HI GH COURT JUDGMENT IN ITA NO.388/2014 IN THE CASE OF CIT VS. KUDU INDU STRIES. 7. THE LEARNED AR IN HIS REJOINDER SUBMITTED THAT T HE FACTS AND CIRCUMSTANCES OF THE KUDU INDUSTRIES LTD.(SUPRA) WE RE NOT SIMILAR TO THE FACTS OF THE PRESENT CASE AS THE QUESTION ADMITTED IN THE CASE OF KUDU INDUSTRIES(SUPRA) WAS AS TO WHETHER ON THE FACTS AN D CIRCUMSTANCES OF THE CASE, THE HONBLE ITAT WAS RIGHT IN LAW IN DIRE CTING THE AO TO RECOMPUTE THE DISALLOWANCE U/S 36(I)(III) OF THE AC T ADOPTING THE AVERAGE COSTS OF DEBT FOR THE YEAR. THE LEARNED AR SUBMITTE D THAT IN THE ABOVE NOTED CASE THE ISSUE THAT WHERE THE ASSESSEE HAD IN TEREST FREE FUNDS TO ADVANCE INTEREST FREE LOANS A PRESUMPTION WOULD ARI SE THAT THE ADVANCE WERE GIVEN OUT OF INTEREST FREE LOANS WAS NEVER BEF ORE THE COURT AND RATHER SUCH ISSUE WAS BEFORE THE COURT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD. VS. CIT AND IN THIS RESPECT FINDINGS OF T HE HONBLE COURT AS CONTAINED TO PARA 16 WAS BROUGHT TO OUR NOTICE. 8. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH ROUGH THE MATERIAL PLACED ON RECORD. WE FIND FROM THE ORDERS OF ASSESSING OFFICER AND THAT OF LEARNED CIT(A) THAT IT IS UNDISPUTED FA CT THAT ASSESSEE HAD ITA NO. 220(ASR)/2014 ASST. YEAR 2007-08 5 INTEREST FREE LOANS UNSECURED LOANS AMOUNTING TO RS . 36,94,346/- WHICH WAS SPECIFICALLY BROUGHT TO THE NOTICE OF LEARNED C IT(A) WHO HAD RECORDED THE SAME AS BELOW. 5. DURING THE APPELLATE PROCEEDINGS HELD ON 11.12. 2013, THE COUNSEL FOR THE APPELLANT, SH.J.P.BHATIA, ADV. ATTE NDED AND FURNISHED WRITTEN SUBMISSIONS. IT HAS ALL ALONG BEEN THE APPE LLANTS ARGUMENTS THAT THE APPELLANT FIRM HAS LENT INTEREST FREE ADVANCES AND AT THE SAME TIME HAS ALSO ACCEPTED INTEREST FREE LOANS FROM OUTSIDE PARTIES, RELATIVES AND FRIENDS. SINCE IT HAS NOT RAISED ANY EXCESS CLAIM O F INTEREST PAID, THE QUESTION OF ANY DISALLOWANCE DOES NOT ARISE. THE ID . A.R. HAS FURNISHED COPIES OF ACCOUNTS OF ALL THE FOUR PARTIES CONCERNS TO WHOM SUCH INTEREST FREE ADVANCES HAVE BEEN MADE AND ALSO IN RESPECT OF 12 PARTIES FROM WHOM INTEREST FREE LOANS HAVE BEEN RECEIVED/ACCEPTE D BY IT. AFTER CAREFULLY CONSIDERING THE APPELLANTS WRITTEN SUBMISSIONS, IT HAS BEEN ABUNDANTLY PROVED THAT THE APPELLANT HAS GIVEN INTEREST FREE A DVANCES TO ITS RELATIVES, FRIENDS, SISTER/ASSOCIATE CONCERNS WITHOUT CHARGING ANY INTEREST THEREFROM WITHOUT ESTABLISHING ANY BUSINESS/COMMERCIAL EXPEDI ENCY FOR THE SAME. AT THE SAME TIME, IT IS ALSO A MATTER OF RECORD THA T IT HAS BEEN CLAIMING HUGE INTEREST OF RS. 10,62,187/- ON VARIOUS UNSECUR ED LOANS UNDER THE HEAD INTEREST TO OTHERS. FROM PERUSAL OF THE COPI ES OF ACCOUNTS OF ALL THE FOUR CONCERNS TO WHOM INTEREST FREE ADVANCES HAVE B EEN MADE REVEALS THAT NONE OF THESE ADVANCES ARE FOR BUSINESS PURPOSE OF ASSESSEE FIRM OR FOR COMMERCIAL EXPEDIENCY AND AS SUCH KEEPING IN VIEW T HE RULINGS LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF S.A. BU ILDERS REPORTED IN 288 ITR 1 [SC], THE DISALLOWANCE OF RS.3,44,576/- HAS B EEN RIGHTLY MADE. FROM THE ABOVE FINDINGS OF LEARNED CIT(A), WE FIND THAT THE LEARNED CIT(A) DID NOT GIVE HIS FINDINGS AS TO WHETHER THERE WAS S URPLUS FUNDS OR NOT BUT INSTEAD TO IT BE UPHELD THE DISALLOWANCE KEEPIN G THE COMMERCIAL EXPEDIENCY FACTOR AS LAID DOWN BY THE HONBLE SUPRE ME COURT IN THE CASE ITA NO. 220(ASR)/2014 ASST. YEAR 2007-08 6 OF S.A BUILDERS 228 ITR 1(SUPRA). WE HAVE GONE THRO UGH THE CASE LAWS RELIED UPON BY LEARNED AR AND WE FIND THAT IN THE C ASE OF MUNJUL SALE CORPORATION VS. CIT ORS. (298 ITR 298) (SC), THE HO NBLE COURT HAS MADE A FINDING OF FACT THAT THERE WERE SUFFICIENT RESERV ES AND PROFITS TO COVER LOAN GIVEN TO SISTER CONCERN WHEREAS THIS FINDING A S TO WHETHER THERE WAS SUFFICIENT OWN FUNDS TO COVER THE ADVANCES IS NOT A PPARENT FROM THE RECORD. THEREFORE, THIS CASE LAW IS NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THIS CASE. AS REGARDS THE CASE LA W OF CIT VS. RELIANCE UTILITIES AND POWER LTD. (313 ITR 340) (BOM.), THE HONBLE COURT HAS HELD THAT IF THERE ARE INTEREST FREE FUNDS AVAILABLE A P RESUMPTION WOULD ARISE THAT THE INVESTMENT WOULD BE OUT OF INTEREST FREE F UNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST FREE FUN DS WERE SUFFICIENT TO MEET THE INVESTMENT. SIMILARLY, PUNJAB & HARYANA H IGH COURT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD. VS. CIT VIDE P ARA 16 HAS HELD AS UNDER: 16. AS WE ARE NOTED EARLIER, THE FUNDS/RESERVES OF THE APPELLANT WERE SUFFICIENT TO COVER THE INTEREST FREE ADVANCES MADE BY IT OF RS.10.29 CRORES TO ITS SISTER COMPANY. WE ARE ENTIRELY IN AGREEMENT WITH THE JUDGMENT OF THE BOMBAY HIGH COURT IN COMMISSIONER OF INCOME TAX VS. RELIANCE UTILITIES & POWER LTD. (2009)313 ITR 340, PARA-10, THAT IF THERE ARE INTEREST FREE FUNDS AVAILABLE A PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF THE INTEREST FREE FUNDS GENERATED OR AVAILAB LE WITH THE COMPANY IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. ITA NO. 220(ASR)/2014 ASST. YEAR 2007-08 7 IN THE PRESENT CASE THE ASSESSEE HAS CLAIMED BEFORE THE ASSESSING OFFICER AND LEARNED CIT(A) THAT THERE WERE UNSECURED LOANS ON WHICH INTEREST WAS NOT PAID AND AMOUNT OF SUCH UNSECURED LOANS WAS MORE THAN ADVANCES ON WHICH INTEREST WAS NOT CHARGED BUT BOTH AUTHORITIES DID NOT COMMENT UPON THESE SUBMISSIONS. WE FIND THAT AMOUNT OF SUCH UNSECURED LOANS AS PER PAPER BOOK IS RS.36,94,346/- WHEREAS THE AMOUNT OF ADVANCES AS PER PAPER BOOK PAGE 1 IS RS.3 5,39,000/-. WE FIND THAT THE UNSECURED LOANS ON WHICH INTEREST WAS NOT PAID IS MORE THAN INTEREST FREE ADVANCES, THEREFORE, BOMBAY HIGH COUR T IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. (SUPRA) IS S QUARELY APPLICABLE TO THE FACTS OF THE CASE. THE HONBLE BOMBAY HIGH COURT AF TER TAKING INTO ACCOUNT THE CASE LAWS OF S.A BUILDERS LTD. VS. CIT 288 ITR 1 HAS HELD THAT IF THERE WAS FUNDS AVAILABLE BOTH INTEREST FRE E AND OVER DRAFT AND ASSESSEE HAS ADVANCED INTEREST FEE LOANS THEN A PRE SUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY. THE CASE LAWS OF M/S KUDU INDUST RIES LTD. IS NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CA SE AS THE QUESTION ANSWERED BY HONBLE HIGH COURT IN THIS CASE IS AS U NDER: WHETHER UNDER THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE HONBLE ITAT WAS RIGHT IN LAW IN DIRECTING THE AO TO RECOMPUTED THE DISALLOWANCE U/S 36(1)(III) TO THE ACT ADOPTING THE AVERAGE COSTS OF DATE FOR THE YEAR. FROM THE ABOVE QUESTION FRAMED BY HONBLE HIGH COUR T, WE FIND THAT THE ISSUE THAT THERE WAS PRESUMPTION THAT ASSESSEE HAS USED INTEREST FREE ITA NO. 220(ASR)/2014 ASST. YEAR 2007-08 8 LOANS TO ADVANCE INTEREST FREE LOAN WAS NEVER BEFOR E THE HONBLE HIGH COURT. THEREFORE, IN VIEW OF THE ABOVE PRECEDENTS A ND IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE T HE APPEAL OF THE ASSESSEE IS ALLOWED, AS ADMITTEDLY THERE WERE MORE INTEREST FREE FUNDS AS COMPARED TO INTEREST FREE LOANS. 9. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE AS SESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15TH DECEMBER , 2015. SD/- SD/- (A.D. JAIN) (T. S. KAPOOR) JUDICIAL MEMBER ACCO UNTANT MEMBER DATED:15.12.2015. /PK/ PS. COPY OF THE ORDER FORWARDED TO: THE ASSESSEE: THE THE CIT(A), THE CIT, THE SR DR, I.T.A.T., TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.