M/s. Silvex Realty Pvt. Ltd., Raigad V. Assistant Commissioner of Income-tax,

ITA 232/PUN/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7638 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 02-04-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 15-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 232 /P U N/201 6 / ASSESSMENT YEAR : 20 1 0 - 11 M/S. SILVEX REALTY PVT. LTD., SILVEX HOUSE, NANA MASTER NAGAR, KARJAT, DIST. RAIGAD . / APPELLANT PAN: AAKCS3724D VS. THE ASST. COMMISSIONER OF INCOME TAX, PANVEL C IRCLE, PANVEL . / RESPONDENT / APPELLANT BY : S HRI PRAMOD SHINGTE / RESPONDENT BY : SHRI ACHAL SHARMA / DATE OF HEARING : 0 2 .0 4 . 201 8 / DATE OF PRONOUNCEMENT: 25 . 0 4 .201 8 / ORDER PER SUSHMA CHOWLA, J M : TH E APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT (A) - 2 , THANE , DATED 30 . 1 1 .201 5 RELATING TO ASSESSMENT YEAR 20 1 0 - 11 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUND OF APPEAL: - 1 ) THE LEARNED COMMISSIONER OF INCOME TAX APPEALS - 2 ERRED IN CONFIRMING THE ADDITION OF RS.38,04,980/ - MADE BY THE ASSESSING OFFICER U/S. 36(III) OF THE INCOME TAX ACT, 1961 ON THE GROUND THAT INTEREST BEARING FUNDS WERE UTILIZED FOR THE PURPOSE OF INTEREST - FREE ADVANCES. ITA NO. 232 /P U N/20 1 6 SILVEX REALTY PVT. LTD. 2 3. THE ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST ADDITION MADE UNDER SECTION 36(1)(III) OF THE ACT AT 38,04,980/ - . 4. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN CONSTRUCTION OF BUILDING AND LAND DEVELOPMENT. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD ADVANCED INTEREST FREE LOANS TO THE TUNE OF 29,32,52,303/ - AND HAD NOT CHARGED ANY INTEREST THEREON. ON THE OTHER HAND, THE ASSESSEE HAD PAID INTEREST TO THE TUNE OF 38,04,980/ - ON THE BORROWED FUNDS. THE ASSESSEE WAS SHOW CAUSED AS TO WHY INTEREST DEBITED SHOULD NOT BE DISALLOWED. THE ASSESSEE EXPLAINED THE UTILIZATION OF BORROWED FUNDS AND POINTED OUT THAT INTEREST FREE LOANS AND ADVANCES HAD NO NEXUS WITH THE SAID BORROWINGS. IT WAS ALSO EXPLAINED THAT THERE WAS NO FRESH BORROWALS WERE MADE DURING THE YEAR, THOUGH FRESH ADVANCE S WERE GIVEN. THE ASSESSEE ALSO EXPLAINED THAT THE CONCERN FARMER BRANDS PVT. LTD., AGAINST WHICH THERE WAS CLOSING BALANCE OF 12.22 CRORES, WAS SUBSIDIARY OF ASSESSEE. FURTHER, CONCERN JEEVAN ASHA GRAMEEN SANGH WAS AN NGO AND THE AMOUNT WAS ADVANCED ON REFUNDABLE BASIS. IN RESPECT OF STERLING CONSTRUCTION SYSTEMS LTD., TO WHOM ADVANCE OF 10.96 CRORES WAS MADE, IT WAS EXPLAI NED THAT ACTUAL ADVANCES AFTER DEDUCTING THE AMOUNT PAYMENT PAYABLE COMES TO 1.20 CRORES. THE ASSESSING OFFICER HELD THAT THERE WAS NO COMMERCIAL EXPEDIENCY IN MAKING THE ADVANCES TO THE SUBSIDIARY WITHOUT CHARGING INTEREST. FURTHER, ADVANCES WERE ALSO MADE TO OTHER CONCERNS WITHOUT CHARGING ANY INTEREST. THE PLEA OF ASSESSEE OF HAVING AVAILABLE INTEREST FREE FUNDS WAS REJECTED AND ADDITION WAS MADE OF 38,04,980/ - . ITA NO. 232 /P U N/20 1 6 SILVEX REALTY PVT. LTD. 3 5. BEFORE THE CIT(A), WRITTEN SUBMISSIONS WERE FILED AND THE ASSESSEE EXPLAINED THE NATURE OF ADVANCES TO DIFFERENT CONCERNS AND RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CAS E OF SA BUILDERS VS.CIT REPORTED IN 2006 TIOL 179 - SC - IT. THE CIT(A) DID NOT ACCEPT THE PLEA OF ASSESSEE AND UPHELD THE ADDITIO N, AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE FIRST PLEA WHICH IS RAISED WAS OF THE AVAILABILITY OF TAX FREE FUNDS, OUT OF WHICH SUCH INTEREST FREE ADVANCES WERE MADE. OUR ATTENTION WAS DRAWN TO PAGE 17 OF PAPER BOOK IN THIS REGARD. HE FURTHER POINTED OUT THAT ALTERNATE PLEA WAS THAT THE ADVANCE TO FARMER BRANDS PVT. LTD. TOTALED TO 12.22 CRORES. THE SAID COMPANY WAS THE SUBSIDIARY OF ASSESSEE AND THE AMOUNT WAS ADV ANCED TO THEM FOR THE PURPOSE OF THEIR DAY - TO - DAY ACTIVITIES. IN RESPECT OF STERLING CONSTRUCTION SYSTEMS LTD., THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT IT WAS A BUSINESS ADVANCE AND IT WAS ALSO POINTED OUT THAT THE ACTUAL A DVANCE TO BE CONSIDERED WAS ONLY 1.20 CRORES AND NOT 10.96 CRORES, IN VIEW OF THE AMOUNT WHICH WAS DUE FROM THE SAID CONCERN. IN RESPECT OF LOAN TO JEEVAN ASHA GRAMEEN SANGH TOTALING 10,14,320/ - , THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THOUGH THE AD VANCE WAS GIVEN TO NGO, WHICH WAS REFUNDABLE AND NO DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT WAS ATTRIBUTABLE TO THE SAID ADVANCE AS THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS. ITA NO. 232 /P U N/20 1 6 SILVEX REALTY PVT. LTD. 4 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON T HE OTHER HAND, PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH IS RAISED IN THE PRESENT APPEAL IS AGAINST DISALLOWANCE MADE UNDER SECTION 36(1)(III) OF THE ACT. THE ASSES SEE HAS TIME AND AGAIN BEFORE THE AUTHORITIES BELOW EXPLAINED THAT THE ADVANCES MADE TO TWO CONCERNS FARMER BRANDS PVT. LTD. AND STERLING CONSTRUCTION SYSTEMS LTD. WERE BUSINESS ADVANCES. THE FIRST CONCERN WAS ITS SUBSIDIARY AND FOR ITS DAY - TO - DAY OPERATI ONS, THE ADVANCE WAS MADE. IN RESPECT OF STERLING CONSTRUCTION SYSTEMS LTD., THERE WERE BUSINESS DEALINGS WITH THE SAID CONCERN AND AS AGAINST THE FIGURE OF 10.96 CRORES CONSIDERED BY THE ASSESSING OFFICER, IN ACTUAL FACT, THE ADVANCE WHICH WAS DUE WAS 1.20 CRORES, IN VIEW OF THE AMOUNT WHICH WAS OTHERWISE ADJUSTABLE. WE FIND NO MERIT IN THE DISALLOWANCE MADE UNDER SECTION 36(1)(III) OF THE ACT IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN SA BUILDERS VS. CIT (SUPRA). APPLYING THE SA ID RATIO TO THE FACTS OF PRESENT CASE, WE FIND THAT WHERE ADVANCES HAVE BEEN MADE IN FURTHERANCE OF CARRYING ON OF BUSINESS BY THE ASSESSEE, THEN NO INTEREST IS ATTRIBUTABLE TO SUCH INTEREST FREE ADVANCES AND NO DISALLOWANCE IS WARRANTED UNDER SECTION 36(1 )(III) OF THE ACT. IN RESPECT OF THIRD CONCERN, WE FIND THAT TOTAL ADVANCE WAS TO THE TUNE OF 10 LAKHS AND THE ASSESSEE HA D SUFFICIENT INTEREST FREE FUNDS AVAILABLE AND APPLYING THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UT ILITIES & POWERS LTD. REPORTED IN 313 ITR 340 (BOM), WE FIND NO MERIT IN THE SAID DISALLOWANCE MADE IN THE HANDS OF ASSESSEE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DELETE DISALLOWANCE ITA NO. 232 /P U N/20 1 6 SILVEX REALTY PVT. LTD. 5 MADE UNDER SECTION 36(1)(III) OF THE ACT . THE GROUND OF APPE AL RAISED BY THE ASSESSEE IS THUS, ALLOWED. 9 . IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 25 TH DAY OF APRIL , 201 8 . SD/ - SD/ - (ANIL CHATURVEDI ) (SUSHMA C HOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 25 TH APRIL , 201 8 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - 2 , THANE ; 4. THE PR. CIT - 2 , THANE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE. / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE