Assistant Commissioner of Income-tax, V. Lab India Instruments Pvt. Ltd., Pune

ITA 245/PUN/2014

• Counselvise Citation: 24524514 RSA 2014
• Duration Of Justice: 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 07-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNITA RAO
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.245/PN/2014 ASSESSMENT YEAR : 2010-11 ASSTT . COMMISSIONER OF INCOME TAX CIRCLE-11(2), PUNE .. APPELLANT V/S LAB INDIA INSTRUMENTS PVT. LTD. 34/38, BHARAT KUNJ SOCIETY-II ERANDAWANE, PUNE 411 004 .... RESPONDENT PERMANENT ACCOUNT NUMBER AAACL5140P ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SMT. SUNITA RAO DATE OF HEARING : 20.01.2015 DATE OF PRONOUNCEMENT : 30.01.2015 O R D E R PER SUSHMA CHOWLA, J.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) DATED 30 TH SEPTEMBER 2013, RELATING TO THE ASSESSMENT YEAR 20 10-11, AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF TH E INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ). 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS UNDER:- 1 THE ORDER OF THE LEARNED COMMISSIONER OF INCOME- TAX(APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AN D CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) GROSSLY ERRED IN DELETING THE DISALLOWANCE OF RS.22,42,447/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF NON-BUSINESS INTERE ST FREE ADVANCES INSTEAD OF CONFIRMING SUCH DISALLOWANCE. 3. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) GROSSLY ERRED IN HOLDING THAT THE STAND TAKEN BY THE ASSESS ING OFFICER THAT IF THE ASSESSEE HAD NOT GIVEN OWN FUNDS TO ITS SISTER CONCERNS WITHOUT CHARGING ANY INTEREST, IT WOULD NO T HAVE HAD TO 2 LAB INDIA INSTRUMENTS PVT. LTD. BORROW INTEREST-BEARING LOANS FOR ITS BUSINESS PURP OSES, AS AMOUNTING TO STEPPING INTO THE SHOES OF THE ASSESSE E. 4. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) GROSSLY ERRED IN FAILING TO APPRECIATE THAT THE RATIO OF TH E DECISION OF THE KERALA HIGH COURT IN THE CASE OF COMMISSIONER OF IN COME-TAX VS. V I BABY(123 TAXMAN 894(KER) SQUARELY APPLIES TO TH E FACTS OF THE ASSESSEE'S CASE AND, THEREFORE, THE DISALLOWANC E MADE IN THE ASSESSMENT OUGHT TO HAVE BEEN CONFIRMED. 5. IN VIEW OF THE AFOREMENTIONED DECISION, THE LEAR NED COMMISSIONER OF INCOME-TAX(APPEALS) GROSSLY ERRED I N HOLDING THAT WHEN IT IS DISCERNIBLE THAT THE BORROWED FUND S HAVE BEEN UTILIZED FOR THE PURPOSE OF BUSINESS, NOTHING FURTH ER IS REQUIRED TO BE LOOKED INTO EVEN IF THE ASSESSEE HAS ADVANCED ITS FUNDS WITHOUT INTEREST, WITHOUT OR WITH BUSINESS EXIGENCY . 6. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE LEARNED COMMISSIO NER OF INCOME-TAX(APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE REVENUE IS AGGRIEVED BY THE ORDER OF THE CI T(A) IN DELETING THE DISALLOWANCE OF RS.22,42,447/- MADE BY THE A.O. ON ACCOUNT OF INTEREST RELATABLE TO NON-BUSINESS INTEREST FREE AD VANCE. 4. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE A SSESSEE AT THE OUTSET POINTED OUT THAT THE ISSUE IN THE PRESENT AP PEAL IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ACIT V/S LAB INDIA INSTRUMENTS PVT. LTD., ITA NO.303/PN/ 2013, RELATING TO THE ASSESSMENT YEAR 2009-10, VIDE ORDER DATED 30 TH SEPTEMBER 2013. IT WAS FURTHER POINTED OUT BY THE LEARNED AUTHORIZE D REPRESENTATIVE FOR THE ASSESSEE THAT THE INTEREST FROM ADVANCES AS MADE IN THE EARLIER YEAR CONTINUED IN THE PRESENT ASSESSMENT YEAR ALSO AND THE DISALLOWANCE OF INTEREST WAS MADE IN RESPECT OF THE SAID ADVANCES. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER SUBMITTED THAT THE COPY OF THE BALANCE SHEET WOULD REFLECT TH AT THE ASSESSEE HAD RESERVE AND SURPLUS TO THE EXTENT OF RS.90 CRORES A ND THE ADVANCES 3 LAB INDIA INSTRUMENTS PVT. LTD. WERE MADE OUT OF SUCH INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AND THERE WAS NO MERIT IN THE ADDITION MADE BY THE A.O. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND PLACED RELIANCE ON THE ORDER OF THE A.O. 6. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED T HE RECORDS. IN THE FACTS OF THE PRESENT CASE, THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTED THAT THE ASSESSEE HAD MADE INTEREST FREE ADVANCE TO THE SISTER CONCERN AND OTHERS OF RS .13,07,11,675/-. THE LIST OF THE LOANS AND ADVANCES GIVEN BY THE ASS ESSEE OF INTEREST FREE ADVANCES IS TABULATED AT PAGE-4 AND 5 OF THE A SSESSMENT ORDER. THE A.O. NOTED THAT THE ASSESSEE HAD DEBITED A SUM OF RS.22,42,447/- ON LOAN AMOUNTING TO RS.10.82 CRORES. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY INTEREST OF RS.22,42,447/- SHO ULD NOT BE DISALLOWED AS THERE WAS NO NEXUS BETWEEN THE LOANS AND ADVANCES MADE WITH THE BUSINESS OF THE ASSESSEE AND THE SAID LOANS WERE GIVEN INTEREST FREE TO THE SISTER CONCERNS. IN REPLY, IT WAS POINTED OUT BY THE ASSESSEE THAT IT HAD GIVEN INTEREST FREE ADVANCES T O THE SISTER CONCERN AND OTHERS OF RS.5.82 CRORES AND NOT RS.13.07 CRORE S AS SHOWN IN THE TABLE. THE ASSESSEE FURNISHED THE PERSONWISE DETAIL S OF THE INTEREST FREE ADVANCES MADE BY IT. IN RESPECT OF THE INTERES T EXPENDITURE INCURRED BY THE ASSESSEE, IT WAS POINTED OUT THAT T HE LOANS ON WHICH INTEREST WAS PAID WERE TAKEN FOR SPECIFIC ASSETS AN D THE LOANS WERE DISBURSED BY THE BANKS AGAINST SUCH SPECIFIC ASSETS . THE A.O. NOTES THAT THE MOST OF THE ADVANCES WERE GIVEN DURING THE FINANCIAL YEAR 2006-07 AND THE LOANS WERE RAISED DURING THE FINANC IAL YEAR 2007-08. 4 LAB INDIA INSTRUMENTS PVT. LTD. THE A.O. WAS OF THE VIEW THAT BECAUSE OF THE INTERE ST FREE ADVANCES GIVEN BY THE ASSESSEE, IT FELT SHORT OF FUNDS AND H AD TO RAISE LOANS TO BUY THE ASSETS. APPLYING THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT, THE A.O. WAS OF THE VIEW THAT IN VIEW OF ONLY ONE C OMMON BANK ACCOUNT IN WHICH ALL RECEIPTS AND PAYMENTS WERE BEI NG REFLECTED, EVEN THOUGH NEXUS COULD NOT BE ESTABLISHED, THE EXCESS C LAIM OF INTEREST CANNOT BE ALLOWED. RELIANCE IN THIS REGARD WAS PLAC ED UPON THE RATIO LAID DOWN BY THE HONBLE PUNJAB & HARYANA HIGH COUR T IN CIT V/S ABHISHEKH INDUSTRIES LTD., 286 ITR 1 (P&H). THE A.O . IN VIEW THEREOF, MADE DISALLOWANCE OF RS.22,42,448/- BEING THE INTER EST DEBITED TO THE PROFIT & LOSS ACCOUNT. 7. THE CIT(A), HOWEVER, TOOK NOTE OF THE PLEA OF TH E ASSESSEE THAT THE TERM LOANS AVAILED BY THE ASSESSEE WERE FOR THE PURCHASE OF VARIOUS FIXED ASSETS IN THE EARLIER YEARS AGAINST W HICH INTEREST EXPENDITURE WAS OF RS.18,46,103/-. THE BALANCE INTE REST PAYMENT OF RS.3,96,345/- RELATED TO THE INTEREST ON CASH CREDI T LIMIT WHICH IS TO BE USED ONLY FOR THE BUSINESS PURPOSE. THE CIT(A) PLAC ED RELIANCE ON HIS PREDECESSORS ORDER RELATING TO THE ASSESSMENT YEAR S 2008-09 AND 2009-10 WHERE THE SAID DISALLOWANCE WAS UPHELD. TH E CIT(A) TOOK NOTE OF THE RATIO LAID DOWN BY THE HONBLE BOMBAY H IGH COURT IN CIT V/S RELIANCE POWER UTILITY LTD., 313 ITR 340 (BOM.) . THE CIT(A) WAS OF THE VIEW THAT THE A.O. WAS LEGALLY JUSTIFIED IN DIS ALLOWING THE INTEREST EXPENDITURE U/S 36(1)(III) OF THE ACT. THE CIT(A) F URTHER NOTES THAT WHILE THE APPELLATE ORDER WAS BEING FINALIZED FOR T HIS YEAR, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURNISHE D THE COPY OF THE ORDER OF THE TRIBUNAL IN ITA NO.303/PN/2013 DATED 3 0 TH SEPTEMBER 5 LAB INDIA INSTRUMENTS PVT. LTD. 2013, IN ASSESSEES OWN CASE RELATING TO THE ASSESS MENT YEAR 2009- 10, WHEREIN THE TRIBUNAL HAD DELETED THE ADDITION M ADE U/S 36(1)(III) OF THE ACT FOLLOWING JUDICIAL PROPRIETARY. THE CIT( A) OBSERVED THAT HE WAS CONSTRAINED TO FOLLOW THE DECISION OF THE TRIBU NAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 THOUGH HE WAS NOT IN AGREEMENT WITH THE SAID VIEW. ACCORDINGLY, INTEREST EXPENDITURE OF RS.22,42,448/- WAS ALLOWED IN THE HANDS OF THE ASSE SSEE. 8. IN THE FACTS OF THE PRESENT CASE, THE CLAIM OF T HE ASSESSEE IS TWO FOLD THAT IT HAD INVESTED ITS OWN FUNDS IN GIVING I NTEREST FREE ADVANCE TO ITS SISTER CONCERNS. FURTHER CONTENTION OF THE A SSESSEE WAS THAT IT HAD INCURRED TOTAL INTEREST EXPENDITURE OF RS.22,42 ,447/- AND HAD EARNED INTEREST INCOME OF RS.1,43,03,957/- ON BANK DEPOSITS OF RS.1.22 CORES AND FROM OTHER ADVANCES OF RS.20,57,8 50/-. THE NEXT PLEA OF THE LEARNED AUTHORIZED REPRESENTATIVE FOR T HE ASSESSEE WAS THAT IT HAD PAID INTEREST OF RS.22,42,447/- OUT OF WHICH INTEREST OF RS.18,46,103/- WAS PAID FOR TERM LOAN SPECIFICALLY OBTAINED FOR FACTORY BUILDING OFFICE PREMISES AND VEHICLES I.E., THE ASS ETS USED IN THE BUSINESS OF THE ASSESSEE BY MORTGAGING THE RESPECTI VE ASSETS. THE BALANCE SUM OF RS.3,96,345/- WAS PAID ON ACCOUNT OF CASH CREDIT LOAN. THE TOTAL INTEREST FREE ADVANCE MADE BY THE ASSESSE E TO ITS SUBSIDIARY WERE TO THE TUNE OF RS.5,82,36,697/- AND THE ASSESS EE COMPANY HAD INTEREST FREE RESERVE OF RS.95.77 CRORES AND SHARE CAPITAL OF RS.75 LAKHS. 9. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRC UMSTANCES WHERE THE ASSESSEE HAD SUFFICIENT RESERVES AND SURPLUS I. E., TOTALING ABOUT 6 LAB INDIA INSTRUMENTS PVT. LTD. RS.95.77 CRORES, INTEREST FREE ADVANCE MADE TO THE SISTER CONCERN TOTALING TO RS.5.82 CRORES DOES NOT DESERVE ANY DIS ALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT. THE ASSESSEE HA S SUFFICIENT INTEREST FREE FUNDS AVAILABLE TO IT AND ON THE OTHER HAND, T HE ASSESSEE HAD MADE INTEREST FREE ADVANCES TO ITS SUBSIDIARY. IN T HE ABSENCE OF ANY NEXUS HAVING BEEN ESTABLISHED, DOES NOT WARRANT DIS ALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT. 10. THE SECOND ASPECT OF THE ISSUE IS THAT THE ASSE SSEE PAID THE INTEREST ON TERM LOANS TAKEN FOR THE PURCHASE OF CE RTAIN FIXED ASSETS AND THE INTEREST EXPENDITURE BEING RELATABLE TO SUC H TERM LOANS DOES NOT MERIT DISALLOWANCE IN THE HANDS OF THE ASSESSEE , AS THE SAID ASSETS WERE USED FOR THE PURPOSE OF BUSINESS. EVEN THE INT EREST PAID ON CASH CREDIT LOAN ACCOUNT IS TO BE ALLOWED IN THE HANDS O F THE ASSESSEE; IN THE ABSENCE OF ANY NEXUS BEING ESTABLISHED THAT THE LOAN WAS UTILIZED FOR THE PURPOSE OF MAKING INTEREST FREE ADVANCES. 11. FURTHER, WE FIND THAT THE TRIBUNAL IN ASSESSEE S OWN CASE RELATING TO THE ASSESSMENT YEAR 2009-10 VIDE ORDER DATED 30 TH SEPTEMBER 2013, HAD GIVEN A FINDING VIDE PARA-4 IN RESPECT OF THE INTEREST BEARING LOAN HAVING BEEN TAKEN FOR THE PURPOSE OF S PECIFIC ASSETS. ADMITTEDLY, IN THE FACTS OF THE PRESENT CASE, THE L OANS HAVE BEEN DISBURSED IN THE EARLIER YEARS AND IN VIEW THEREOF, THE FINDINGS OF THE TRIBUNAL IN ASSESSMENT YEAR 2009-10 IS SQUARELY APP LICABLE TO THE FACTS OF THE PRESENT CASE. 12. ANOTHER ASPECT TO BE NOTED IN THE CASE IS THAT THE ASSESSEE HAD INCURRED TOTAL INTEREST EXPENDITURE OF RS.22,42,447 /- AND HAD EARNED 7 LAB INDIA INSTRUMENTS PVT. LTD. INTEREST INCOME OF RS.1.43 CRORES MAINLY OUT OF BAN K DEPOSIT AND RECURRING DEPOSITS. AFTER SETTING OFF THE INTEREST EXPENDITURE AGAINST THE INTEREST INCOME EARNED, THEE WAS POSITIVE INCOM E AND CONSEQUENTLY THERE WAS NO MERIT IN ANY DISALLOWANCE OF INTEREST U/S 36(1)(III). IN THE ENTIRETY OF THE FACTS AND CIRCUM STANCES, WE FIND NO MERIT IN THE DISALLOWANCE OF INTEREST EXPENDITURE O F RS.22,42,447/- BY INVOKING THE PROVISIONS OF SECTION 36(1)(III) OF TH E ACT. UPHOLDING THE ORDER OF THE CIT(A), WE DISMISS THE GROUNDS OF APPE AL RAISED BY THE REVENUE. 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED ON 30 TH JANUARY, 2015 SD/ - (G.S.PANNU) ACCOUNTANT MEMBER SD/ - (SUSHMA CHOWLA) JUDICIAL MEMBER PUNE, DATED: 30 TH JANUARY, 2015 PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, PUNE CITY CONCERNED; (5) THE DR, ITAT, PUNE; (6) GUARD FILE. TRUE COPY BY ORDER (ASSTT. REGISTRAR) ITAT, PUNE