P.S. Jain Motors Co., V. ITO, Co. Ward-14(1),

ITA 2229/DEL/2004

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2276 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 14-12-2009
• Assessment Year: 2000-2001
• Appeal Filed On: 07-05-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BK GUPTA
• Assessee Lawyers: B N GOSWAMI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI RAJPAL YADAV, JM AND SHRI R.C.SHARMA, A M ITA NO.2229/DEL/2004 ASSESSMENT YEAR : 2000-01 M/S P.S.JAIN MOTOR CO. PB(LTD.), E-42, OKHLA INDUSTRIAL AREA, PHASE-II, NEW DELHI 110 020. PAN NO.AAACP0972D. VS. INCOME TAX OFFICER, CO.WARD 14(1), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.N.GOSWAMI, ADVOCATE. RESPONDENT BY : SHRI B.K.GUPTA, SR.DR. ORDER PER R.C.SHARMA, AM : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF CIT(A) DATED 4.3.2004 FOR THE AY 2000-01. 2. IN THIS APPEAL, SEVEN GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE BUT ONLY GROUND NOS.1 & 2 WERE PRESSED DURING THE COURSE OF HEARING WHICH PERTAIN TO ADDITION OF RS.13,12,802/- REPRESENTING INTEREST PA YABLE TO THE BANK. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT ASSESSEE HAS DEBITED INTEREST EXPENDITURE OF R S.19.96 LAKHS IN THE PROFIT & LOSS ACCOUNT. A SUM OF RS.6.84 LAKHS WAS PERTAINING TO THE INTEREST AVAILED FROM PUNJAB & SIND BANK IN RESPECT OF THE TERM LOAN AVAI LED BY IT, BALANCE OF RS.13.11 LAKHS WAS PERTAINING TO THE WORKING CAPITAL LIMIT A VAILED AGAINST HYPOTHECATION OF STOCK. THE ASSESSEE HAS ADDED BACK INTEREST OF RS. 6.84 LAKHS PERTAINING TO THE TERM ITA-2229/D/2004 2 LOAN ON THE PLEA THAT INTEREST WAS NOT ACTUALLY PAI D. ONLY INTEREST CLAIMED IN THE COMPUTATION OF INCOME WAS RS.13.11 LAKHS WHICH PERT AINED TO THE WORKING CAPITAL LIMIT AVAILED BY THE ASSESSEE. THE AO DISALLOWED T HE INTEREST EXPENDITURE ON THE PLEA THAT NO INTEREST HAD BEEN PAID TO THE BANK AND THAT ASSESSEE WAS ONLY MAKING PROVISIONS OF THIS AMOUNT IN ITS BOOKS OF ACCOUNT. THE AO ALSO OBSERVED THAT SIMILAR DISALLOWANCE HAS BEEN MADE IN CASE OF P.S.J AIN & CO.LTD., WHICH HAS BEEN UPHELD BY THE CIT(A) AND ASSESSEE WAS IN FURTHER AP PEAL BEFORE THE ITAT. BY THE IMPUGNED ORDER, CIT(A) CONFIRMED THE DISALLOWANCE O F INTEREST. 4. AGGRIEVED BY THE ABOVE ORDER OF CIT(A), THE ASSE SSEE IS IN FURTHER APPEAL BEFORE US. IT WAS ARGUED BY THE LEARNED AR SHRI B. N.GOSWAMI THAT ONLY INTEREST CLAIMED BY THE ASSESSEE PERTAINS TO THE WORKING CAP ITAL LOAN AND WHICH HAS ACTUALLY BEEN PAID IN THE SUBSEQUENT YEARS AFTER A SETTLEMENT WAS REACHED WITH THE BANK. HE INVITED OUR ATTENTION TO THE ORDER OF ITA T IN THE CASE OF P.S.JAIN MOTORS CO.LTD. FOR AY 1999-2000 & 2000-01 WHEREIN VIDE ORD ER DATED 31.10.2006, SIMILAR CLAIM FOR DISALLOWANCE OF INTEREST EXPENDIT URE WAS ALLOWED BY THE TRIBUNAL. IN THE AY 1993-94 IN THE CASE OF P.S.JAI N & CO.LTD., THE TRIBUNAL VIDE ITS ORDER DATED 10.7.2003 HAS DELETED THE SIMILAR D ISALLOWANCE OF INTEREST CLAIMED BY MAKING PROVISION FOR SUCH INTEREST. IT WAS FURT HER CONTENDED BY THE LEARNED AR THAT IN THE EARLIER YEARS ALSO, NO DISALLOWANCE OF INTEREST ON THE WORKING CAPITAL LOAN HAS BEEN MADE BY THE AO, THEREFORE THERE IS NO REASON FOR MAKING ANY DISALLOWANCE FOR SUCH PROVISION MADE ON ACCOUNT OF INTEREST PAYABLE TO THE BANK ON ACCOUNT OF WORKING CAPITAL LIMIT. 5. ON THE OTHER HAND, LEARNED DR INVITED OUR ATTENT ION TO THE OBSERVATION MADE BY THE AO WITH REGARD TO AUDITORS COMMENTS FO RMING PART OF THE BALANCE SHEET OF THE ASSESSEE AS ON 31.3.2000, WHEREIN AUDI TOR HAS ALLEGED THAT NEITHER STATEMENT OF ACCOUNTS NOR THE BALANCE CONFIRMATION IN RESPECT OF LIABILITIES TOWARDS SECURED LOANS HAVE BEEN PRODUCED FOR VERIFICATION. ITA-2229/D/2004 3 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAR EFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. FROM THE RECORD, WE FOUND THAT ASSESSEE HAS CLAIMED DEDUCTION OF INTEREST ON ACCOUNT OF WORKING CAPITAL LOAN AVAILED FROM THE BANK. CLAIM WAS MADE BY MAKING A PROVISION IN THE PROFIT & LOSS ACCOUNT SINCE THERE WAS NO ACTUAL PAYMENT OF SUCH INTEREST TO THE BANK. SO FAR AS DEDUCTIBILITY OF SUCH EXPENDITURE PERTAINING TO THE INTEREST ON WORK ING CAPITAL LOAN IS CONCERNED, THE SAME IS REQUIRED TO BE ALLOWED WHILE COMPUTING BUSINESS PROFITS. HOWEVER, THE QUANTIFICATION OF SUCH INTEREST HAS NOT BEEN CO NFIRMED BY THE BANK, NOR THE AO HAS POINTED OUT ANY FAULT IN THE COMPUTATION PORTIO N OF SUCH INTEREST. THE ASSESSEE HAS ALSO ALLEGED THAT THIS INTEREST WAS ACTUALLY PA ID BY THE ASSESSEE IN THE SUBSEQUENT YEAR WHEN A COMPROMISE WAS REACHED WITH THE BANK. IT WAS ALSO THE CONTENTION OF THE ASSESSEE THAT NO SUCH DISALLOWANC E OF INTEREST WAS MADE IN THE EARLIER YEARS. IN RESPECT OF THE DECISION OF P.S.J AIN & CO.LTD. RELIED ON BY LEARNED AR, WE FOUND THAT THE TRIBUNAL HAS DELETED THE DISA LLOWANCE OF INTEREST ON THE BASIS OF SETTLEMENT ARRIVED AT BY THE ASSESSEE WITH THE BANKER, WHEREIN AMOUNT OF INTEREST PAID WAS SHOWN. AFTER CONSIDERING THE ORD ER OF THE COURT ASCERTAINING THE LIABILITY OF THE ASSESSEE TOWARDS WORKING CAPITAL L OAN AND THE INTEREST PAYABLE THEREON, THE TRIBUNAL HAS DELETED DISALLOWANCE OF P ROVISION FOR INTEREST MADE DURING AY 1993-94. IN THE INSTANT CASE BEFORE US, THE ONLY BASIS BEFORE THE AO FOR DISALLOWING PROVISION FOR INTEREST WAS THAT ASSESSE E HAD ACTUALLY NOT PAID THE INTEREST TO BANK DURING THE YEAR AND THAT ON ACCOUN T OF SIMILAR DISALLOWANCE OF INTEREST MADE BY THE AO IN THE CASE OF P.S.JAIN & C O.LTD. SINCE THE DISALLOWANCE SO MADE IN THE CASE OF P.S.JAIN & CO.LTD. HAS ALREA DY BEEN DELETED BY THE TRIBUNAL, WE DO NOT FIND ANY MERIT IN THE ACTION OF THE AO FOR MAKING ANY SUCH DISALLOWANCE OF INTEREST. KEEPING IN VIEW THE FACT THAT IN THE INSTANT CASE THE DEED OF SETTLEMENT STIPULATING THE AMOUNT OF DEBT AND IN TEREST THEREON, WHICH WAS FINALLY PAID BY THE ASSESSEE WAS NOT BEFORE US, WE RESTORE THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO VERIFY THE SETTLEMENT DEED A RRIVED AT BY THE ASSESSEE, IN RESPECT OF WORKING CAPITAL LIMIT/LOAN AVAILED FROM THE BANK AND QUANTIFICATION OF AMOUNT ON WHICH INTEREST WAS PAYABLE, TO DELETE THE DISALLOWANCE OF INTEREST IF THE ITA-2229/D/2004 4 SAME HAS ACTUALLY BEEN PAID BY THE ASSESSEE IN THE SUBSEQUENT YEAR. THE AO SHOULD ALSO ASCERTAIN THAT IN THE YEAR OF ACTUAL PA YMENT OF SUCH INTEREST THE ASSESSEE HAS NOT CLAIMED DEDUCTION OF INTEREST EXPE NDITURE. WE DIRECT ACCORDINGLY. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED IN PART, IN TERMS INDICATED HEREINABOVE. DECISION PRONOUNCED IN THE OPEN COURT ON CONCLUSION OF HEARING ON 14 TH DECEMBER, 2009. SD/- SD/- (RAJPAL YADAV) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 14.12.2009. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT DEPUTY REGISTRAR ITA-2229/D/2004 5