M/S. HINDUSTAN INSTITUTE OF PHARMAKON LTD., Mandideep V. THE ACIT 1(2), Bhopal

ITA 222/IND/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5785 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 06-09-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 06-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHMD JAVED
• Assessee Lawyers: N D PATWA
• Keywords: Proportionate interest
• Section: 143(3); 263; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O. P. MEENA, ACCOUTANT MEMBER I.T. A. NO. 222/IND/2015 ASSESSMENT YEAR: 2007-08 M/S. HINDUSTAN INSTITUTE OF PHARMAKON LTD. 196 INDUSTRIAL AREA PAN:AAACH 4612 C VS. ASSISTANT COMMISSIONER OF INCOME TAX, 1(2), BHOPAL APPELLANT RESPONDENT APPELLANT BY SHRI ASHISH GOYAL ADVOCATE AND SHRI N D PATWA CA RESPONDENT BY SHRI MOHMD. JAVED SR. DR DATE OF HEARING 06.09.2016 DATE OF PRONOUNCEMENT 06.09.2016 ORDER PER O.P.MEENA, ACCOUTANT MEMBER. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 27.01.2015 OF LD. COMMISSIONER OF INCOME TAX (APPEA LS)-I, BHOPAL [HEREINAFTER REFERRED TO AS THE CIT (A)]. T HIS APPEAL PERTAINS TO ASSESSMENT YEAR 2007-08 AS AGAINST APPE AL ITA NO. 222/IND/2015/A.Y.07-08/ M/S.HINDUSTAN INSTI TUTE OF PHARMAKON PG. 2 OF 9 DECIDED IN ASSESSMENT ORDER DATED 26.12.2012, PASSE D U/S. 143(3)/263 OF INCOME TAX ACT,1961 [HEREIN AFTER REF ERRED TO AS 'THE ACT) BY THE ASSISTANT COMMISSIONER OF INCOME TAX 1(2) BHOPAL ITO [HEREINAFTER REFERRED TO AS THE AO]. 2. GROUND NO. 1 AND 2 OF THE APPEAL STATES THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.5,71,840/- OUT OF TOTAL DISALLOWANCE OF RS.9,42,000/- ON ACCOUNT OF INTEREST AND BY GIVING RELIEF ONLY OF RS.3,71,160/. ON THE FACTS AN D IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT (A) BEFORE GI VING PART RELIEF OUGHT TO CONSIDER THAT WHILE FRAMING SET-ASID E ASSESSMENT THE LD. A.O. HAS NOT CONSIDERED THE DIRE CTION GIVEN BY HONBLE ITAT AND COULD NOT PROVE THE NEXUS THAT LOAN GIVEN TO THE SOCIETY WAS OUT OF INTEREST BEARING FUNDS. 3. SUCCINCTLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE IS A PRIVATE LTD. COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING PHARMACEUTICAL ITEMS. A SEARCH WAS CON DUCTED ON 07.09.2007 IN THE CASE OF THE ASSESSEE. THE ORIG INAL RETURN OF INCOME WAS FILED ON 29.10.2007 SHOWING TOTAL INCOM E AT RS. 70,83,901/-. IN RESPONSE TO NOTICE UNDER SECTION 15 3A, THE RETURN OF INCOME WAS FILED ON 23.10.2008 DECLARING T OTAL ITA NO. 222/IND/2015/A.Y.07-08/ M/S.HINDUSTAN INSTI TUTE OF PHARMAKON PG. 3 OF 9 INCOME AT RS. 70,83,901/- WHICH WAS ACCEPTED IN THE ASSESSMENT MADE U/S.153A R. W. S. 143(3) OF THE ACT ON 24.12.2009 AT RS. 70,83,901/-. THERE AFTER AN ORDER U/S. 263 WAS PASSED ON 26.03.2012 ON THE GROUND THAT THE AO H AS FAILED TO CHARGE INTEREST @12% ON INTEREST FREE ADV ANCE OF RS. 78,50,000/- GIVEN TO RAMA NANDA EDUCATIONAL & WELFA RE SOCIETY, WHICH WORKED OUT TO RS. 9,42,000/- . THE AS SESSEE HAS CHALLENGED THE ORDER U/S. 263 OF CIT BEFORE TRI BUNAL. THE TRIBUNAL VIDE ORDER DATED 06.08.2012 IN I. T. A. NO.303/IND/2012 HAS UPHELD THE INVOCATION ORDER U/S . 263 WITH A DIRECTION TO THE AO THAT TO EXAMINE THE CLAIM OF THE ASSESSEE THAT IT HAS UTILISED INTEREST FREE FUNDS FOR ADVANCING INTEREST FREE FUNDS TO THE SOCIETY, IF IT IS FOUND THAT THE ASSESSEE HAS UTILISED INTEREST FREE FUNDS, NO DISA LLOWANCE IS WARRANTED ON ACCOUNT OF INTEREST EXPENDITURE INCURRE D IN RESPECT OF TERM LOAN, WHICH IS STATED TO BE UTILISE D FOR THE SPECIFIC PURPOSE FOR WHICH IT WAS SANCTIONED BY THE B ANK FOR WHICH INQUIRY FROM THE BANK IS TO BE MADE. CONSEQUEN TLY, THE AO FRAMED ORDER UNDER SECTION 143(3) R.W.S. 263 OF T HE ACT. THE AO OBSERVED THAT THERE WAS OUTSTANDING UNSECURED LOANS ITA NO. 222/IND/2015/A.Y.07-08/ M/S.HINDUSTAN INSTI TUTE OF PHARMAKON PG. 4 OF 9 OF RS. 4, 25, 76,797/- AS ON 31.03.2007 ON WHICH INT EREST OF RS. 16, 27,349/-IS CHARGED TO PROFIT & LOSS ACCOUNT . THERE ARE SECURED LOANS ALSO. IT IS SEEN FROM BALANCE SHEET THAT CAPITAL BALANCE OF RS. 2,94,99,597/- ALREADY STANDS UTILISE D BY WAY INVESTMENT IN ASSETS. THEREFORE, INTEREST-BEARING F UNDS WERE GIVEN AS INTEREST FREE ADVANCE FOR NON-BUSINESS PUR POSE. ACCORDINGLY, INTEREST @12% ON 78.50 LAKH WAS DISALL OWED AT RS. 9,42,000/-. 4. THE ASSESSEE CARRIED THE ISSUE BEFORE LD. CIT (A). THE LD. CIT (A) OBSERVED THAT THE ASSESSEE HAS GIVEN IN TEREST OF RS. 16.09 LAKH ON LOAN FROM VARIOUS BANKS INCLUDING OVE RDRAFT. THE ONUS WAS ON THE ASSESSEE TO PROVE THAT ALL THE FUNDS BORROWED WERE UTILISED FOR BUSINESS PURPOSE AND NOT FOR OTHER PURPOSE. THE ASSESSEE WAS ASKED TO FURNISH STATEMENT OF BANK FOR THE RELEVANT PERIOD TO ASCERTAIN THAT THE ASSES SEE HAS NOT GIVEN INTEREST FREE ADVANCE FROM INTEREST BEARING F UNDS. HOWEVER, THE ASSESSEE HAS NOT ABLE TO FURNISH STATE MENT OF BANK. THEREFORE, LD. CIT (A) PRESUMED THAT THE ASSE SSEE HAS PAID INTEREST ON ADVANCES GIVEN TO SOCIETY. HOWEVER , A CHART WAS FURNISH TO CIT (A) CLAIMING THAT THERE WAS OPENI NG ITA NO. 222/IND/2015/A.Y.07-08/ M/S.HINDUSTAN INSTI TUTE OF PHARMAKON PG. 5 OF 9 BALANCE OF RS. 45,50,000/- AS ON 01.04.2006 AND ONL Y ADVANCES OF RS.33 LAKH WERE GIVEN DURING THE YEAR O N VARIOUS DATES. ACCORDINGLY, THE ASSESSEE WAS ASKED TO FURNIS H CALCULATION OF PROPORTIONATE INTEREST ON THE ADVANC ES. THE ASSESSEE HAD FURNISH PROPORTIONATE INTEREST AT RS. 5, 71,840/-. ACCORDINGLY , THE LD. CIT (A) UPHELD THE DISALLOWANC E OF INTEREST AT RS. 5,71,840/- OUT OF INTEREST OF RS. 9,42,000/- . 5. BEING NOT SATISFIED WITH FINDING OF LD. CIT (A), THE ASSESSEE HAS FILED THIS APPEAL BEFORE TRIBUNAL. THE LD. A. R. OF THE ASSESSEE SUBMITTED THAT THE ASSESSMENT WAS SET-A SIDE BY THE TRIBUNAL BUT IN SET-ASIDE PROCEEDING NO ENQUIR Y WAS MADE FROM BANK AS DIRECTED BY THE HONBLE TRIBUNAL. THE LOAN WAS GIVEN AT THE YEAR-END. THERE WAS OPENING BALANCE OF RS. 45.50 LAKH AND DURING THE YEAR LOAN OF RS. 33/- LAKH ONLY WAS GIVEN DURING THE CURRENT ASSESSMENT YEAR. THE ASSESSEE HA D SUFFICIENT INTEREST FREE FUND. THE LD. A. R. CONTEN DED THAT THE ASSESSEE HAD INTEREST FREE FUNDS OF RS. 2.19 CRORES BEING SHARE CAPITAL OF RS.1.02 CRORES, SHARE PREMIUM OF RS. 0.9 9 CRORES AND PROFIT OF RS. 17.93 LAKH. NO DISALLOWANCE OF IN TEREST WAS MADE IN EARLIER YEARS. THE LD. A. R. ALSO PLACED R ELIANCE IN THE ITA NO. 222/IND/2015/A.Y.07-08/ M/S.HINDUSTAN INSTI TUTE OF PHARMAKON PG. 6 OF 9 CASE OF CIT VS. R.D. JOSHI & CO. 251 ITR 541(MP) AN D 162 ITR 472 WHERE IT WAS HELD THAT IF SUFFICIENT INTEREST FR EE FUNDS ARE AVAILABLE WITH THE ASSESSEE, NO DISALLOWANCE CAN BE MADE OF INTEREST EXPENDITURE U/S. 36(1)(III). FURTHER, IN CIT VS. RELIANCE UTILITIES & POWER LTD. (2009) 178 TAXMAN 135 (BOM) IT WAS HELD THAT IF THERE WAS FUNDS AVAILABLE BOTH, I NTEREST-FREE AND OVERDRAFT AND OR/LOANS TAKEN, THEN A PRESUMPTIO N WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST- FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INT EREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. 6. ON THE CONTRARY, THE LD. DEPARTMENTAL REPRESENTATIV E, SUBMITTED THAT THE ASSESSEE HAS FAILED TO PROVE WITH BANK STATEMENT THAT IT HAD SUFFICIENT INTEREST FREE FUND S AND ADVANCES TO SOCIETY WERE GIVEN OUT OF INTEREST FREE FUNDS. IT IS SEEN THAT THE ADVANCE TO RAMA NANDA EDUCATIONAL & W ELFARE SOCIETY WERE GIVEN OUT OF OVERDRAFT ACCOUNT, THEREF ORE, IT CANNOT BE SAID THAT INTEREST FREE ADVANCE WERE GIVE N OUT OF INTEREST FREE FUNDS. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES, AND PE RUSED THE ITA NO. 222/IND/2015/A.Y.07-08/ M/S.HINDUSTAN INSTI TUTE OF PHARMAKON PG. 7 OF 9 MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE LD. A.O. HAS FAILED TO MAKE INQUIRIES FROM BANK TO FIND OUT UTIL ISATION TERM LOAN SANCTIONED BY IT. THEREFORE, IT COULD NOT BE A SCERTAINED THAT INTEREST FREE ADVANCE TO RAMA NANDA EDUCATIONA L & WELFARE SOCIETY WERE NOT GIVEN OUT INTEREST BEARING FUNDS OR OUT OF INTEREST-FREE FUNDS. IT IS THE CONTENTION OF THE ASSESSEE THAT IT HAD SUFFICIENT NON-INTEREST BEARING FUNDS T O THE TUNE OF RS. 219 LAKHS AS PER BALANCE SHEET, WHICH INTER-ALIA INCLUDED SHARE CAPITAL OF RS. 102 LAKHS, SHARE PREMIUM OF RS .99 LAKHS AND PROFIT OF RS. 17.93 LAKHS. THE LD. A. R. CONTEN DED THAT THE ASSESSEE HAD UTILISED THESE FUNDS FOR GIVING INTERE ST-FREE ADVANCE TO THE RAMA NANDA EDUCATIONAL & WELFARE SOC IETY, WHICH HAS BEEN A CHARITABLE SOCIETY TO WHOM INTEREST- FREE ADVANCE OF RS. 33 LAKHS WERE GIVEN DURING YEAR FROM 26.09.2006 TO 05.02.2007. THERE WAS DEBIT-OPENING BA LANCE OF RS. 45.50 LAKH AS ON 01.04.2006 ON WHICH NO NEXUS BE TWEEN INTEREST BEARING LOANS AND INTEREST-FREE LOANS TO T HE SOCIETY WAS PROVIDED, NOR THERE WAS ANY DISALLOWANCE OF INTER EST ON THAT ACCOUNT. THUS INTEREST-FREE ADVANCE WERE GIVEN ONLY AT RS. 33 LAKH DURING THE YEAR FOR WHICH INTEREST-FREE FUNDS OF ITA NO. 222/IND/2015/A.Y.07-08/ M/S.HINDUSTAN INSTI TUTE OF PHARMAKON PG. 8 OF 9 RS.219 LAKH WAS AVAILABLE. THE LD. A. R. HAS PLACED RELIANCE IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. (2009) 178 TAXMAN 135 (BOM) WHEREIN IT WAS HELD THAT IF THERE WAS FUNDS AVAILABLE BOTH, INTEREST-FREE AND OVERDRAFT AND OR/ LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST-FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THE PRESENT CASE, THERE WAS INTEREST FREE FUNDS OF RS. 219 LAKHS WAS AVAILABLE AT THE DISPOSAL OF TH E ASSESSEE. FURTHER, THE ASSESSEE HAS DISCLOSED RETURN OF INCOM E AT RS. 70.80 LAKHS DURING THE YEAR UNDER CONSIDERATION. AP ART FROM THIS, THE LD. CIT (A) HAS MENTIONED THAT THE ASSESS EE HAS EARNED PROFIT OF RS. 63.03 LAKHS DURING THE YEAR. T HEREFORE, PRESUMPTION WOULD GO IN FAVOUR OF THE ASSESSEE THAT THE INTEREST FREE FUNDS WERE GIVEN OUT OF INTEREST FREE FUNDS AVAILABLE AT RS. 219 LAKHS AS PER BALANCE SHEET OF THE ASSESSEE, BY APPLYING THE RATIO AS LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN IN THE CASE OF CIT VS. RELIANC E UTILITIES & POWER LTD. (2009) 178 TAXMAN 135 (BOM) AND THE D ECISION OF HONBLE JURISDICTIONAL HIGH COURT OF MP (SUPRA). THEREFORE, ITA NO. 222/IND/2015/A.Y.07-08/ M/S.HINDUSTAN INSTI TUTE OF PHARMAKON PG. 9 OF 9 WE ARE OF THE CONSIDERED OPINION THAT NO DISALLOWANCE OF INTEREST IS WARRANTED IN THE CASE. ACCORDINGLY, DIS ALLOWANCE OF INTEREST OF RS. 5,71,840/- IS DELETED. THE GROUNDS OF APPEAL IS THEREFORE, ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. THE ORDER PRONOUNCED IN OPEN COURT ON 06.09.2016. SD/- (D.T.GARASIA) JUDICIAL MEMBER SD/- (O.P.MEENA) ACCOUNTANT MEMBER DATED: 6 TH SEPTEMBER 2016. OPM*