Kloeckner Desma Machinery Pvt.Ltd., Ahmedabad V. The ACIT.,(OSD)-I, Range-4, Ahmedabad

ITA 2343/AHD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0284 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 27-12-2012
• Assessment Year: 2009-2010
• Appeal Filed On: 18-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y P VERMA
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD B BENCH BEFORE: SHRI D.K. TYAGI, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUN TANT MEMBER KLOECHNER DESMA MACHINERY PVT. LTD. 53, MADHUBAN, NR. MADALPUR UNDERBRIDGE, AHMEDBAD-380006 (APPELLANT) PAN NO.AAACK8768N VS. ACIT (OSD)-I, RANGE-4 AHMEDABAD (RESPONDENT) REVENUE BY : SRI Y.P. VERMA, SR. D.R. ASSESSEE BY : SRI MANISH J. SHAH, A.R. DATE OF HEARING : 27-12-2012 DATE OF PRONOUNCEMENT : 15-02-2013 / ORDER PER : T.R. MEENA, ACCOUNTANT MEMBER:- THIS IS THE ASSESSEES APPEAL EMANATING FROM THE O RDER OF LD. CIT(A)- VIII AHMEDABAD DATED 24/09/2012 FOR A.Y. 2009-10. I.T. A. NO. 2343/AHD/2012 A.Y.:-2009-10 I.T.A. NO.2343/AHD/2012 A.Y. 2009-10 PAGE NO KLOECHKNER DESMA MACHINERY PVT. LTD. VS. ACIT 2 2. THE SOLE GROUND OF APPEAL IS AGAINST CONFIRMATIO N OF DISALLOWANCE OF INTEREST EXPENSES OF RS. 10,88,824/- 3. THE APPELLANT IS ENGAGED IN THE BUSINESS OF MANU FACTURING OF RUBBER INJECTION MOULDING MACHINE AND SHOE SOLING MACHINE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS INCURRED INTE REST EXPENSES OF RS. 1,81,47,080/- IN RESPECT OF VARIOUS LOANS AMOUNTING TO RS. 19,41,89,941/- AVAILED BY THE COMPANY AT THE RATE OF 9 PER CENT. THE APPELLANT HAD SHOWN AN AMOUNT OF RS. 1,47,25,451/- AS ADVANCE RECOVERAB LE AND RS. 25,18,705/- AS DEPOSITS. THE TOTAL LOANS AND ADVANCES GIVEN TO VARIOUS PERSONS EXCEPT GOVERNMENT AUTHORITY WAS RS. 1,72,44,156/-. THE AP PELLANT RECEIVED INTEREST OF RS. 4,45,321/- CHARGED AT THE RATE OF 3 PER CENT (APPROXIMATELY). THE APPELLANT PAID INTEREST ON THE LOAN TAKEN BY IT BUT INTEREST HAD NOT BEEN CHARGED ON THE ADVANCES AS MENTIONED ABOVE. THUS, THE APPELLANT ON ONE HAND HAD INCURRED SUBSTANTIVE INTEREST EXPENSES ON THE OTHER HAND HAD GIVEN INTEREST FREE LOANS. THE INTEREST EXPENSES ATTRIBU TABLE TO SUCH ADVANCES WERE, THEREFORE, CONSIDERED AS NOT FOR BUSINESS PURPOSES AND REQUIRED TO BE DISALLOWED. THE APPELLANT WAS ASKED TO SHOW CAUSE WHY THE ADDITION SHOULD NOT BE MADE IN RESPECT OF INTEREST FREE LOANS. THE ASSESSEE FAILED TO OFFER ANY SATISFACTORY EXPLANATION IN THIS REGARD. CONSIDER ING THE FACTS OF THE CASE, THE INTEREST EXPENSES INCURRED BY THE APPELLANT WAS RES TRICTED TO THE EXTENT OF INTEREST INCOME RECEIVED BY IT. THE ASSESSEE WAS P AYING INTEREST TO ITS LENDERS @ 9 PER CENT WHEREIN THE ASSESSEE WAS RECEI VING INTEREST @ 3 PER CENT ONLY. ACCORDINGLY, OUT OF THE TOTAL INTEREST EXPENSES, INTEREST EXPENSES I.T.A. NO.2343/AHD/2012 A.Y. 2009-10 PAGE NO KLOECHKNER DESMA MACHINERY PVT. LTD. VS. ACIT 3 TO THE TUNE OF 6 PER CENT WORKED OUT BY THE A.O. A ND WAS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE COMPANY AT RS . 10,88,824/-. 4. BEING AGGRIEVED BY THE ORDER OF THE A.O. THE ASS ESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO HAD CONFIRMED THE ADDI TION AND HELD AS UNDER:- I HAVE GONE THROUGH THE ASSESSMENT ORDER AND THE S UBMISSION OF THE APPELLANT CAREFULLY. THE AO HAS OBSERVED THAT THE ASSESSEE IS PAYING INTEREST TO ITS LENDERS AT THE RATE OF 9% WHEREIN T HE ASSESSEE IS RECEIVING INTEREST @ 3% ONLY, THEREFORE, OUT OF THE TOTAL INTEREST EXPENSES, INTEREST EXPENSES TO THE TUNE OF 6% WHICH COMES TO RS. 10,88,824/- IS DISALLOWED AND ADDED TO THE TOTAL IN COME OF THE ASSESSEE COMPANY. THE APPELLANT HAS SUBMITTED THAT IT IS THE MORAL RESPONSIBILITY OF THE EMPLOYER TO PROVIDE SOFT LOAN TO THE EMPLOYEE AND ALSO TO RETAIN THE EMPLOYEES AND TO PROVIDE THE MOT IVATION AND EXTENT CO-OPERATION AND SUPPORT TO FULFILL THE PERSONAL NE ED OF THE EMPLOYEE. I FIND NO MERIT IN THE SUBMISSION OF THE APPELLANT. IT IS SEEN THAT THE APPELLANT ON ONE HAND HAS INCURRED SUBSTANTIAL INTE REST EXPENSES AND ON THE OTHER HAND HAS GIVEN INTEREST FREE LOANS AND THE INTERESTS ATTRIBUTABLE TO SUCH ADVANCES ARE NOT FOR BUSINESS PURPOSES AND REQUIRED TO BE DISALLOWED WHICH THE AO HAS DONE. T HE APPELLANT HAS ALSO NOT PROVED THE NEXUS OF INTEREST FREE FUNDS VI S--VIS LENDING TO THE EMPLOYEES. IN VIEW OF THE ABOVE, THE DISALLOWANCE MADE BY THE A.O IS CONFIRMED. THE GROUND OF THE APPELLANT IS HEREBY D ISMISSED. 5. NOW, THE ASSESSEE IS BEFORE US. THE LEARNED COU NSEL FOR THE APPELLANT CONTENDED THAT THE APPELLANT HAD INTEREST FREE FUND AVAILABLE WITH IT. DURING THE YEAR APPELLANT FILED A RETURN OF INCOME AT RS. 3.8 CRORE. BESIDES THIS, THE APPELLANT HAD FOLLOWING INTEREST FREE FUNDS:- (I). SHARE CAPITAL:- 9 CRORE I.T.A. NO.2343/AHD/2012 A.Y. 2009-10 PAGE NO KLOECHKNER DESMA MACHINERY PVT. LTD. VS. ACIT 4 (II). RESERVE AND SURPLUS FUNDS:- 6 .88 CRORE TOTAL:- 15.88 CRORE TOTAL LOANS AND ADVANCES WERE GIVEN BY THE APPELLAN T DURING THE ASSESSMENT YEAR AT RS. 1.72 CRORE. AFTER THIS, EVEN APPELLANT HAD INTEREST FREE FUND AVAILABLE WITH THEM AT RS. 14.15 CRORE. HE ALSO RE LIED ON CO-ORDINATE B BENCH DECISION IN ITA NO. 3229/AHD/2009 A.Y. 2006-0 7 IN THE CASE OF GURUJI SHREE SANDIPANI EDUCATION FOUNDATION VS. ACI T. THE OPERATIVE PORTION IS PLACED AS UNDER:- LD. AR MR. MANISH J.SHAH HAS DRAWN OUR ATTENTION O N THE FIGURES OF THE INTEREST-FREE FUNDS AVAILABLE WITH THE ASSESSEE . LD. A.R. HAS INFORMED THAT AS ON 31.03.2005 THE PARTNERS CAPITA L ACCOUNT REFLECTED THE BALANCE AT RS. 85,07,339/-. DURING THE ACCOUNT ING PERIOD ENDED ON 31.03.2006, THE PARTNERS CAPITAL ACCOUNT HAD GO NE UP AND THE CLOSING OUTSTANDING BALANCE WAS AT RS. 1,03,01,458/ -. THEREFORE THE ARGUMENT WAS THAT THE PRESUMPTION COULD BE EITHER W AY AS IT WAS HELD IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER L TD. (2009) 313 ITR 340 (BOM), WHEREIN IT WAS HELD THAT IF THERE BE INT EREST-FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INV ESTMENT AND AT THE SAME TIME THE ASSESSEE HAD RAISED THE LOAN, IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST-FREE FUNDS A VAILABLE. A LEGAL OBJECTION HAS ALSO BEEN RAISED BY LD. A.R. THAT THE CIT(A) HAS NO POWER TO SET ASIDE THE ISSUE BACK TO THE STAGE OF A SSESSMENT BECAUSE OF THE AMENDMENT IN SECTION 251(1) WITH EFFECT FROM 01 /06/2001 THROUGH WHICH THE POWER OF SET ASIDE HAD BEEN WITHDRAWN. W E ARE IN AGREEMENT WITH THE ARGUMENTS OF THE LD. AR AND CONS IDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF CASE, RE VERSE THE FINDINGS OF THE LD. CIT(A) AND DIRECT TO DELETE THE ADDITION. G ROUND IS ALLOWED. IN THE CASE OF GURUJI SHREE SANDIPANI EDUCATION F OUNDATION (SUPRA) IDENTICAL ISSUE HAD BEEN CONSIDERED BY THE BENCH AN D AFTER FOLLOWING THE I.T.A. NO.2343/AHD/2012 A.Y. 2009-10 PAGE NO KLOECHKNER DESMA MACHINERY PVT. LTD. VS. ACIT 5 DECISION OF CIT VS. RELIANCE UTILITIES AND POWER LT D (2009) 313 ITR 340 (BOMBAY), THE ASSESSEES APPEAL WAS ALLOWED IN FAV OUR OF THE ASSESSEE. THEREFORE, HE REQUESTED TO DELETE THE ADDITION. AT THE OUTSET LD. D.R. RELIED UPON THE ORDER OF THE CIT AND AO AND ALSO PLACED RE LIANCE ON [2012] 23 TAXMAN.COM 267(CHD.) IN THE CASE OF ACIT VS. SPRAY ENGINEERING DEVICES LTD. A.Y. 2006-07 WHEREIN THE ASSESSEE-COMPANY WAS TRANSFERRED FUNDS TO THE SUBSIDIARY COMPANIES WITHOUT ANY JUSTIFICATION OR COMMERCIAL EXPEDIENCY, AS HELD DISALLOWANCE JUSTIFIED. HE FUR THER RELIED IN THE CASE OF [2012] 24 TAXMAN.COM 346 (HYD) IN THE CASE OF RAVIN DRA SINGH ARORA VS. ACIT A.Y. 2007-08 WHEREIN THE ASSESSEE HAD BORROW ED CERTAIN FUND ON WHICH LIABILITY TO PAY INTEREST WAS INCURRED AND ON THE OTHER IN CERTAIN AMOUNTS HAD BEEN ADVANCED TO SISTER CONCERNS WITHOU T CARRYING ANY INTEREST WAS TO BE DISALLOWED U/S 36(1)(III). THUS, THE APP EAL OF THE ASSESSEE WAS ALLOWED IN FAVOUR OF THE REVENUE. THEREFORE, HE RE QUESTED TO CONFIRM THE ADDITION. 6. WE HAVE HEARD RIVAL CONTENTIONS AND EXAMINED THE PAPER BOOK SUBMITTED BY BOTH THE PARTIES. AS APPELLANT HAS GI VEN RS. 1.72 CRORE AS ADVANCE INTEREST FREE AND NOT CHARGED INTEREST ON I T, THE AO HAD NOT ESTABLISHED THE NEXUS BETWEEN THE INTEREST BORROWIN G FUND UTILIZED FOR INTEREST FREE ADVANCES IN THE ASSESSMENT ORDER. FU RTHER THE APPELLANT HAD INTEREST FREE FUND AVAILABLE AND AS PER BOMBAY HIGH COURT DECISION IN THE CASE OF RELIANCE UTILITY POWER LTD (SUPRA), THE HI GH COURT OBSERVED THAT PRESUMPTION WOULD ARISE IN CASE OF INTEREST FREE FU ND AVAILABLE WITH INVESTMENT WOULD BE OUT OF INTEREST FREE FUND WAS A VAILABLE WITH THE COMPANY. IF THE INTEREST FREE FUNDS WERE SUFFICIEN T TO MEET THE INVESTMENT IN I.T.A. NO.2343/AHD/2012 A.Y. 2009-10 PAGE NO KLOECHKNER DESMA MACHINERY PVT. LTD. VS. ACIT 6 THIS CASE ALSO THE INTEREST FREE FUNDS ARE AVAILABL E AND THE BOMBAY HIGH COURT PROPOSITION IN ABOVE CASE IS SQUARELY APPLICA BLE IN THE CASE OF INTEREST FREE ADVANCES. THUS WE ALLOW THE APPEAL OF THE ASS ESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (D.K. TYAGI) (T.R. MEENA) JUDICAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 15/02/2013 A.K. / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. / CONCERNED CIT 4. - / CIT (A) 5. , ! , '# / DR, ITAT, AHMEDABAD 6. $% &' / GUARD FILE. BY ORDER/ ( / ' ) ! , '#