ACIT, CHENNAI V. M/s. Bharat Scans Pvt. Ltd., CHENNAI

ITA 222/CHNY/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7439 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 01-03-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 11-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A C JOSEPH JC ITDR
• Assessee Lawyers: V SRINIVASAN
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C CHENN AI BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER .. ITA NO.222/MDS./2011 ASSESSMENT YEAR:2005-06 ITA NO.223/MDS./2011 ASSESSMENT YEAR:2006-07 ITA NO.224/MDS./2011 ASSESSMENT YEAR:2007-08 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(2), CHENNAI 600 034. VS. M/S.BHARAT SCANS PVT. LTD 197, PETERS ROAD, ROYAPETTAH, CHENNAI 600 014. PAN AABCB 2272 K (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI A.C.JOSEPH JC.IT,DR ASSESSEE BY : SHRI V. SRINIVASAN,ADVOCATE DATE OF HEARING : 01.03.12 DATE OF PRONOUNCEMENT : 01. 03.12 O R D E R PER GEORGE MATHAN JUDICIAL MEMBER : ITA NO.222/MDS./11 IS AN APPEAL FILED BY THE REV ENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX(A)- III, CHENNAI IN APPEAL NO.498/07-08/A.III DATED 24.11.20 10 FOR ASSESSMENT YEAR 2005-06. ITA NO.223/MDS./11 IS A N APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIO NER OF INCOME TAX(A)-III, CHENNAI IN APPEAL NO.561/08-09/A .III DATED ITA.222 TO 224 /MDS/11 2 24.11.2010 FOR ASSESSMENT YEAR 2006-07. ITA NO.224/MDS./11 IS AN APPEAL FILED BY THE REVENUE AG AINST THE ORDER OF COMMISSIONER OF INCOME TAX(A)-III, CHENNAI IN APPEAL NO.507/09-10/A.III DATED 24.11.2010 FOR ASSESSMENT YEAR 2007-08. 2. SHRI A.C.JOSEPH, LD. SENIOR D.R. REPRESENTED ON BEHALF OF THE REVENUE AND SHRI V. SRINIVASAN, ADVOCATE, RE PRESENTED ON BEHALF OF THE ASSESSEE. 3. IT WAS SUBMITTED BY THE LD. DR THAT THE ONLY IS SUE IN ALL THE THREE APPEALS WAS AGAINST THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE MADE U/S.36(1)(III) ON IN TEREST BEARING FUNDS, WHICH WAS USED FOR MAKING INTEREST F REE ADVANCES TO THE DIRECTORS. IT WAS THE SUBMISSION T HAT THE ASSESSEE IS A COMPANY, WHICH IS DOING BUSINESS OF RUNNING MEDICAL SCAN AND LABORATORY. IT WAS NOTICED THAT T HERE WERE LOANS TO THE DIRECTORS, WHICH WERE OUTSTANDING ON T HE YEAR END WHEREAS ASSESSEE WAS ALSO INCURRING SUBSTANTIALLY FINANCIAL CHARGE FOR THE BORROWED FUNDS. ON BEING QUESTIONED , THE ASSESSEE HAD SUBMITTED THAT BORROWED FUNDS FROM THE FINANCIAL INSTITUTIONS AND THE BANKS WERE USED FOR ACQUIRING PLANT AND MACHINERY FOR EARLIER YEARS AND THERE WAS NO NEXUS BETWEEN THE WITHDRAWALS BY THE SHAREHOLDERS AND THE OUTSTAN DING TERM ITA.222 TO 224 /MDS/11 3 LOANS FROM BANKS. IT WAS THE SUBMISSION THAT THE A SSESSING OFFICER IN THE ASSESSMENT PROCEEDINGS HAD ALSO RELI ED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF S.A.BUILDERS WHEREIN HONBLE SUPREME COURT HAD HELD THAT IT WAS NOT THE OPINION THAT IN EVERY CASE INTEREST ON BORROWED LOANS HAS TO BE ALLOWED, IF THE ASSESSEE ADVANCES I T TO A SISTER CONCERN. IT ALL DEPENDS UPON THE FACTS AND CIRCUMST ANCES OF THE RESPECTIVE CASE. IF THE DIRECTORS OF THE SISTE R CONCERN UTILIZE THE AMOUNT ADVANCED TO IT BY THE ASSESSEE F OR THEIR PERSONAL BENEFIT, OBVIOUSLY IT CANNOT BE SAID THAT SUCH MONEY WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY. CONSEQUENTLY, THE ASSESSING OFFICER HAD HELD THAT T HE INTEREST FREE ADVANCES TO THE DIRECTORS WAS FOR THE DIRECTOR S PERSONAL BENEFIT, AND CONSEQUENTLY DISALLOW THE PROPORTIONAT E INTEREST ON THE BORROWED FUNDS. IT WAS THE SUBMISSION BY TH E LD.DR THAT IN APPEAL, LD.C.I.T.(A) HAD TAKEN INTO CONSIDE RATION THAT THE AMOUNTS HAD BEEN GIVEN AS ADVANCE TO THE DIRECT ORS TO PURCHASE THE RENTED UNITS FROM THE WILLING OWNERS F OR THE USAGE BY THE ASSESSEE. LD. DR DREW THE ATTENTION TO PA RAS -5 & 6 OF THE ORDER OF THE C.I.T.(A). IT WAS THE SUBMISSI ON THAT THE CLAIM THAT THE AMOUNTS ADVANCED TO THE DIRECTORS WE RE USED FOR PURCHASING THE RENTED PREMISES WAS A FRESH CLAIM. IT WAS THE ITA.222 TO 224 /MDS/11 4 SUBMISSION THAT THE ORDER OF THE C.I.T.(A) WAS LIAB LE TO BE REVERSED AND THE ORDER OF THE ASSESSING OFFICER RES TORED. HERE, WE MUST SPECIFICALLY MENTION THAT ON SPECIFIC QUERY BY THE BENCH AS TO WHETHER THE FINDING OF THE C.I.T.(A) TH AT THE AMOUNTS ADVANCED TO THE DIRECTORS WERE USED FOR PUR CHASING THE RENTED PREMISES FROM WHERE THE ASSESSEE WAS FUN CTIONING HAD BEEN DISPROVED BY THE ASSESSING OFFICER OR HAD BEEN FOUND TO BE FALSE. THE REPLY WAS IN NEGATIVE. FUR THER SPECIFIC QUERY WAS RAISED AS TO WHY IF IT WAS A FRESH CLAIM, THE SAME HAD NOT BEEN CHALLENGED IN THE APPEAL FILED BY THE REVENUE OR AN ALLEGATION OF VIOLATION OF RULE 46A HAD BEEN RAI SED IN THE APPEAL FILED BY THE REVENUE. THE REPLY WAS NEGATIV E. 4. IN REPLY, LD. AR SUBMITTED THAT IN THE COURSE O F ASSESSMENT PROCEEDINGS, IT WAS INFORMED THAT THE AD VANCE HAD BEEN GIVEN FOR PURCHASING OF THE RENTED PREMISE S FROM WHERE THE ASSESSEE WAS FUNCTIONING. IT WAS FURTHER SUBMISSION THAT THE ADVANCES WERE GIVEN TO THE DIRE CTORS SO THAT THE PROPERTIES COULD BE PURCHASED FROM THE PER SONS WHO LET THE SAME TO THE ASSESSEE. IT WAS THE SUBMISSIO N THAT IF IT WAS KNOWN THAT THE ASSESSEE WAS BUYING THE PREMISES , THEN RATE WOULD HAVE BEEN SUBSTANTIALLY HIGHER. IT IS O NLY TO AVOID ITA.222 TO 224 /MDS/11 5 THE HIKING OF THE PRICES AND TO GET UP A BETTER BAR GAIN THAT THE AMOUNTS WERE ADVANCED TO THE DIRECTORS FOR THE PURC HASE OF THE PROPERTY. IT WAS THE SUBMISSION THAT THIS WAS ALSO WITHIN THE KNOWLEDGE OF THE ASSESSING OFFICER AS THE FACT ASSESSING OFFICER HAS REFERRED TO S.A.BUILDERS ITSELF IS AN ATTEMPT TO OVERCOME THE SUBMISSION OF THE ASSESSEE. FURTHER, IT WAS THE SUBMISSION THAT IN THE ASSESSMENT ORDER IT IS ONLY A PRESUMPTION THAT HAS BEEN DRAWN BY THE ASSESSING OF FICER THAT THE AMOUNTS HAD BEEN USED FOR THE PERSONAL BENEFITS OF THE DIRECTORS WHEREAS NO EVIDENCE TO SUPPORT SUCH FINDI NGS OR THE PRESUMPTIONS HAD ALSO BEEN RECORDED OR FOUND BY THE ASSESSING OFFICER. HE VEHEMENTLY SUPPORTED THE ORD ER OF THE C.I.T.(A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS IT IS SPECIFICALLY NOTICED THAT THE REVENUE HAS NOT CHALL ENGED THE FINDING OF THE LD.C.I.T.(A) THAT THE INTEREST FREE LOANS GIVEN TO THE DIRECTORS OF ASSESSEE COMPANY HAD BEEN USED FOR ACQUIRING THE PROPERTIES FOR THE BENEFIT OF THE ASS ESSEE COMPANY. OBVIOUSLY, IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A.BUILDERS REFERRED TO SUPRA, NO DISALLOWANCE CAN BE MADE OF THE FINANCIAL CHARGE S PAID TO ITA.222 TO 224 /MDS/11 6 THE FINANCIAL INSTITUTIONS. THE INTEREST FREE AMOU NTS GIVEN TO THE DIRECTORS HAVE BEEN USED FOR THE BENEFIT OF THE ASSESSEE COMPANY AND THERE IS NO EVIDENCE BEFORE US TO SUPPO RT THE SUBMISSIONS OR FINDING OF THE ASSESSING OFFICER THA T THE AMOUNTS HAVE BEEN USED FOR THE PERSONAL USE OF THE DIRECTORS. FURTHER, THERE IS ALSO NO FINDING THAT THE SUBMISSI ON OF THE ASSESSEE THAT THE INTEREST BEARING LOANS TAKEN FROM THE FINANCIAL INSTITUTIONS HAD BEEN USED FOR THE PURCHA SE OF PLANT AND MACHINERY IN THE EARLIER YEARS, WAS ALSO FALSE. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE FINDING OF THE C.I.T.(A) ON THE ISSUE IN THE APPEALS ARE ON A RIGH T FOOTING AND DOES NOT CALL FOR ANY INTERFERENCE. IN THESE CIRCU MSTANCES, THE APPEALS OF THE REVENUE ARE DISMISSED. 6. IN RESULT, APPEALS OF REVENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST MARCH, 2012. SD/- SD/- ( N.S.SAINI ) (GEORGE MATHAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 1 ST MARCH, 2012. K S SUNDARAM COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE ITA.222 TO 224 /MDS/11 7