Madhav Cotton Ginning & Pressing Factory, Botad V. The Income tax Officer,Ward-2(3), Bhavnagar

ITA 2349/AHD/2014

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6402 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 13-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 21-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVETIA
• Keywords: Principle of natural justice; Commercial expediency
• Section: 143(3); 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER MADHAV COTTON GINNING & PRESSING FACTORY, OPP. MARKET YARD, PALIYAD ROAD, HADDAD, BOTAD - 364710 PAN: AADFM7111K (APPELLANT) VS THE IT O , WARD - 2(3) , BHAVNAGAR (RESPONDENT) REVENUE BY : S H RI MUDIT NAGPAL , SR. D . R. ASSESSEE BY: SHRI S.N. DIVETIA & SHRI MEHUL TALERA , A.R S . DATE OF HEARING : 31 - 01 - 2 019 DATE OF PRONOUNCEMENT : 18 - 02 - 2 019 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2011 - 12 , ARI SES FROM ORDER OF THE CIT(A) - XX, AHMEDABAD DATED 02 - 07 - 2 014 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE A SSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1.1 THE ORDER PASSED U/S.25(J ON 02.07.2014 FOR A.Y.2011 - 12 BY CIT(A) - XX, ABAD UPHOLDING THE DISALLOWANCES OF RS.57,91,569 IS WHOLLY ILLEGAL, UNLAWFUL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 1.2 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN NOT CONSIDERING FULLY AND PROPERLY THE SUBMISSIONS MADE AND EVIDENCE PRODUCED BY THE APPELLANT] WITH REGARD TO THE IMPUGNED DISALLOWANCE. I T A NO . 2349 / A HD/20 14 A SS ESSMENT YEAR 2011 - 12 I.T.A NO. 2349 /AHD/20 14 A.Y. 2011 - 12 PAGE NO MADHAV COTTON GINNING & PRESSING FACTORY VS. I T O 2 2.1 THE LD.CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACT S IN CONFIRMING THE FOLLOWING DISALLOWANCES: (I) DISALLOWANCE OF COMMISSION RS. 6,870 (II) DISALLOWANCE OF PRIOR PERIOD ITEMS RS. 34,900 (III) DISALLOWANCE OF INTEREST EXP. RS. 56,26,424 (IV) DISALLOWANCE OF INSURANCE PREM. RS. 62,365 2.2 T HAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) OUGHT NOT TO HAVE UPHELD THE DISALLOWANCE OF ABOVE SAID EXPENSES. 3.1 THE LD.CIT(A) HAS ERRED IN HOLDING THAT THE APPELLANT WAS REQUIRED TO MAINTAIN DAILY CASH BALANCE OF RS. 4 CR. AND THE EXCESS BALANCE WAS IDLE SO THAT INTEREST EXP TO THAT EXTENT WAS NOT ADMISSIBLE. THE ENTIRE EXERCISE OF WORKING OUT THE DISALLOWANCE OF RS, 56,26,424 WAS MERE PRESUMPTION AND ESTIMATE WITHOUT CONSIDERING THE RELEVANT FACTORS SUCH AS NATURE AND VOLUME OF BUSINESS, TREADING PERIOD ETC. THE LD. CIT(A) ALSO FAILED TO CONSIDER THE CONTENTION OF THE APPELLANT THAT THE FUNDS WERE ADVANCED TO M/S. OM KAILASH COTTON OUT OF COMMERCIAL EXPEDIENCY. IN THE ALTERNATIVE THE DISALLOWANCE OF INTEREST EXP. M ADE BY AO WAS HIGHLY EXCESSIVE AND REQUIRED TO BE REDUCED SUBSTANTIALLY. IT IS, THEREFORE, PRAYED THAT THE DISALLOWANCES OF RS. 57,91,569 MADE BY THE AO AND CONFIRMED BY CIT(A) MAY KINDLY BE DELETED. 3. AT THE TIME OF HEARING LD. COUNSEL OF THE ASSESSEE HAS NOT PRESSED G ROUND NOS. 2 .1(I), (II) & (IV) THEREFORE THE SAME ARE DISMISSED ALL OTHER GROUNDS OF APPEAL ARE CONNECTED TO THE ISSUE OF DISALLOWANCE OF INTEREST EXPENSES THEREFORE THEY ARE ADJUDICATED TOGETHER AS UNDER. 4. THE BRIEF FACT OF THE CAS E IS THAT DURING THE COURSE OF ASS ESSMENT, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS PAID INTEREST OF RS. 1 , 55 , 96 , 370/ - TO THE BANK ON CASH CREDIT FACILITIES AVAILED . HE HAS ALSO NOTICED THAT ON THE OTHER SIDE THE ASSESSEE WAS MAINTAINING HUGE CASH BALANCE IN HAND IN THE BOOKS OF ACCOUNTS. THE ASSESSING OFFICER WAS OF THE VIEW THAT MAINTENANCE OF SUCH A HUGE CASH BALANCE IN HAND AND KEEPING IT IDLE AND PAYING THE INTEREST THEREUPON TO THE BANK WAS NOT A PRUDENT DECISION WHICH A BUSINESSMAN WOU LD TAKE. THEREFORE, THE ASSESSING OFFICER HAS ESTIMATED CASH IN HAND REQUIREMENT OF THE ASSESSEE AT RS. 4 CRORES AND HELD THAT INTEREST OF RS. 56,26,424/ - ON IDLE CA S H IN EXCESS OF RS. 4 CORES WAS NOT ALLOWABLE U/S. 36(1)(3) OF THE ACT. ACCORDINGLY, THE ASSESSEE HAS MADE THE IMPUGNED ADDITION OF RS. 56 , 26 , 424/ - TO THE TOTAL INCOME OF THE ASSESSEE. I.T.A NO. 2349 /AHD/20 14 A.Y. 2011 - 12 PAGE NO MADHAV COTTON GINNING & PRESSING FACTORY VS. I T O 3 5. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE LD. CIT(A). T HE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE REITERATING THE REASON MENTIONED BY THE ASSESSING OFFICER. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD CAREFULLY. THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF RS. 56,26,424/ - IN RESPECT OF INTEREST EXPENSES U/S. 36(1 )(III) OF THE ACT PAID TO THE BANK ON CASH CREDIT ON THE GROUND THAT THE ASSESSEE WAS MAINTAINING HUGE CASH BALANCE IN ITS BOOKS OF ACCOUNTS. THE ASSESSEE EXPLAINED THAT ITS NATURE OF BUSINESS WAS SEASONAL AND CASH IN HAND WAS REQUIRED TO BE MAINTAINED AS IT HAD TO MAKE CASH PAYMEN T TO FARMERS FOR PURCHASE OF RAW COTTON AND IT WAS DIFFICULT TO ESTIMATE THE CASH REQUIREMENT ON DAY TO DAY BASIS. IT IS UN DISPU TED FACT THAT BORROWING BY WAY OF CC ACCOUNT WITH BANK WERE UTILIZED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. IT IS OBSERVED THAT ASSESSING OFFICER HA S MADE THE IMPUGNED DISALLOWANCE ON HYPOTHESIS BASIS WITHOUT CONSIDER ING THAT REQUIREMENT OF CASH IN HAND FOR ITS BUSINESS HAS TO BE DECIDED BY THE ASSESSEE COMPANY FOR RUNNING OF ITS BUSINESS . IN THE LIGHT OF THE ABOVE FACTS, THE DECISION OF LD. CIT(A) IS NOT JUSTIFIED , THEREFORE, THE APPEAL OF THE ASSESSE IS ALLO WED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 18 - 02 - 201 9 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 18 /02 /2019 I.T.A NO. 2349 /AHD/20 14 A.Y. 2011 - 12 PAGE NO MADHAV COTTON GINNING & PRESSING FACTORY VS. I T O 4 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDAB AD 6. GUARD FILE. BY ORDER/ , / ,