The ACIT, Circle-8, Ahmedabad V. Vadilal Dairy International Ltd., Ahmedabad

ITA 2467/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85802 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2001-2002
• Appeal Filed On: 30-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: URVASHI SHODHAN A R
• Keywords: Commercial expediency
• Section: 143(3)

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ./ ITA NOS. 2467 & 2468/AHD/2011 / ASSESSMENT YEAR: 2001-02 & 2002-03 ACIT, CIRCLE-8, AHMEDABAD VS VADILAL DAIRY INTERNATIONAL LTD., PLOT NO. M-13, MIDC INDL. AREA, TARAPUR BOISAR, THANE PAN : AABCV 0520 A / // / (APPELLANT) / // / (RESPONDENT) REVENUE BY : SHRI M.K. SINGH, SR. DR. ASSESSEE(S) BY : MS. URVASHI SHODHAN, AR !' # $%&/ // / DATE OF HEARING : 26/02/2015 '( # $%& /DATE OF PRONOUNCEMENT: 13/03/2015 )* )* )* )*/ // / O R D E R PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER: THESE TWO APPEALS FILED BY THE REVENUE ARE AGAINS T SEPARATE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)- XIV, AHMEDABAD, BOTH DATED 20.07.2011 AND 07.07.2011 PASSED IN ASSE SSMENT YEARS 2001-02 AND 2002-03 RESPECTIVELY. 2. BEFORE US, BOTH THE PARTIES SUBMITTED THAT IN BO TH THESE APPEALS THE COMMON GROUND OF APPEAL TAKEN BY THE REVENUE IS THA T THE CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS . 40,26,706/- IN THE ASSESSMENT YEAR 2001-02 AND RS.33,65,950/- IN THE A SSESSMENT YEAR 2002- 03, MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DIS ALLOWANCE OF INTEREST. IT WAS FURTHER SUBMITTED THAT SINCE THE FACTS & CIRCUM STANCES OF CASES IN BOTH ITA NOS. 2467 & 2468 /AHD/2011 ACIT VS/ VADILAL DAIRY INTERNATIONAL LTD AY 2001-02 & 2002-03 - 2 - THE ASSESSMENT YEARS ARE IDENTICAL EXCEPT FOR THE A MOUNTS AND THE ASSESSMENT YEAR, THEY HAVE COMMON SUBMISSIONS TO MA KE AND THEREFORE, BOTH THE APPEALS CAN BE DECIDED TOGETHER. WE, THER EFORE, PROCEED TO DISPOSE OF BOTH THE APPEALS BY WAY OF A CONSOLIDATE D ORDER FOR THE SAKE OF CONVENIENCE AND PROCEED WITH THE FACTS FOR THE ASSE SSMENT YEAR 2001-02. 3. THE BRIEF FACTS OF THE CASE, AS CULLED OUT FROM THE RECORDS FOR THE ASSESSMENT YEAR 2001-02 ARE AS UNDER:- 4. THE ASSESSEE IS A COMPANY STATED TO BE ENGAGED I N THE BUSINESS OF MANUFACTURING OF ICE-CREAM BY THE TRADE NAME VADIL AL. THE ASSESSEE- COMPANY FILED ITS ORIGINAL RETURN OF INCOME FOR ASS ESSMENT YEAR 2001-02 DECLARING LOSS OF RS.1,12,77,669/-. THE ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DATED 26.02.2004 AND TOTAL INCOME WAS DE TERMINED AT RS.59,56,858/- BY INTER ALIA DISALLOWING INTEREST OF RS.1,54,72,055/-. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, TH E ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO VIDE ORDER DATED 1 8.05.2005 UPHELD THE ACTION OF THE ASSESSING OFFICER BUT ON ACCOUNT OF C ALCULATION, WHICH WAS HELD TO BE INCORRECT BY HIM, RESTRICTED THE DISALLO WANCE OF INTEREST TO RS.40,26,706/-. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE CARRIED THE MATTER BEFORE THE HONBLE TRIBUNAL AND THE HONBLE TRIBUNAL VIDE ORDER DATED 27.10.2008 IN ITA NO.1963/AHD/2005 , SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORED THE MATTER BACK TO T HE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH KEEPING IN MIND THE GUIDELINES LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF S.A. BU ILDER LTD. VS. CIT(A), [2007] 288 ITR 1 (SC). PURSUANT TO THE AFORESAID DIRECTIONS OF THE HONBLE TRIBUNAL, THE ASSESSING OFFICER VIDE ORDER DATED 16 .11.2009, PASSED U/S 143(3) R.W.S. 254 OF THE INCOME-TAX ACT, NOTED THAT THE ASSESSEE HAD ADVANCED INTEREST FREE LOANS TO SISTER CONCERNS IN SPITE OF PENDING TERM ITA NOS. 2467 & 2468 /AHD/2011 ACIT VS/ VADILAL DAIRY INTERNATIONAL LTD AY 2001-02 & 2002-03 - 3 - LOANS AND WORKING CAPITAL LOANS ON WHICH THE ASSESS EE WAS INCURRING LIABILITY TO PAY INTEREST. HE ALSO NOTED THAT THE A SSESSEE HAD ACCUMULATED LOSSES OF RS.42,25,11,404/- AND WAS INCURRING LOSSE S EVEN PRIOR TO ASSESSMENT YEAR 2001-02. HE WAS, THEREFORE, OF THE VIEW THAT THERE WAS NO COMMERCIAL EXPEDIENCY OR JUSTIFICATION TO ADVANCE I NTEREST FREE LOANS AND ADVANCES AND ACCORDING TO HIM, THE ASSESSEE HAD FAI LED THE TESTS ENUMERATED BY HONBLE APEX COURT IN THE CASE OF S.A . BUILDER LTD. (SUPRA) AND ACCORDINGLY HELD THAT NO DEDUCTION WAS ALLOWABL E TO THE ASSESSEE. HE, THUS, DISALLOWED THE CLAIM OF INTEREST AND ASSESSED THE TOTAL LOSS AT RS.72,47,965/-. 5. AGGRIEVED BY THE AFORESAID ORDER OF THE ASSESSIN G OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) W HO VIDE ORDER DATED 20.07.2011 ALLOWED THE APPEAL OF THE ASSESSEE BY HO LDING AS UNDER:- 3.5 DECISION: I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER, THE SUBMISSIONS GIVEN BY THE APPELLANT, THE ORDER OF THE ITAT THROUGH WHI CH THE MATTER WAS SET ASIDE TO THE FILE OF THE A. O. AND THE REMAND REPOR T SUBMITTED BY THE A. O. PERUSAL OF COPIES OF ACCOUNTS OF THE PARTIES TO WHO M THE INTEREST FREE ADVANCES HAS BEEN GIVEN BY THE APPELLANT SHOW THAT THESE PARTIES ARE THE ONE WITH WHOM THE APPELLANT WAS HAVING REGULAR BUSINESS TRANSACTIONS. SOME OF THEM ARE THE SUPPLIERS OF RAW MATERIAL AND PACKING MATERIAL AND THE ADVANCE HAS BEEN MADE FOR PURCHASE OF MATERIAL. AGAINST THE ADVANCES, THE SUPPLIERS HAVE SUPPLIED THE MATERIALS WHICH HAVE BEEN USED IN THE PRODUCTION OF FINISHED GOODS. SOME DEPOSITS ARE KEPT WITH VARIOU S GOVERNMENT / SEMI GOVERNMENT AUTHORITIES FOR GETTING ELECTRIC CONNECT ION, TELEPHONE CONNECTION, REGISTRATION WITH SALES TAX AUTHORITIES ETC. SIMILA RLY, THERE IS SOME BALANCE WITH THE EXCISE AUTHORITIES WHICH WAS THE ADVANCE P AYMENT OF EXCISE DUTY TO BE ADJUSTED ON CLEARANCE OF GOODS. IT IS NOTICED TH AT MOST OF THE ADVANCES WERE GIVEN IN EARLIER YEARS AND THERE ARE FEW TRANS ACTIONS DURING THE CURRENT YEARS. THE HON'BLE ITAT HAD SET ASIDE THE ASSESSMENT TO TH E FILE OF THE A. O. WITH THE SPECIFIC DIRECTION TO DECIDE THE ISSUE KEE PING IN MIND THE GUIDELINES LAID BY HON'BLE SUPREME COURT IN THE CASE OF S. A. BUILDERS LIMITED V/S. CIT [288 ITR 1]. IT WAS DIRECTED BY THE HON'BLE SUP REME COURT THAT IF THE ITA NOS. 2467 & 2468 /AHD/2011 ACIT VS/ VADILAL DAIRY INTERNATIONAL LTD AY 2001-02 & 2002-03 - 4 - AMOUNT ADVANCED TO SISTER CONCERN IS OUT OF COMMERC IAL EXPEDIENCY AND THERE WAS A NEXUS BETWEEN THE EXPENDITURE AND PURPO SE OF THE BUSINESS, THE DISALLOWANCE CANNOT BE MADE, IT WAS FURTHER OBSERVE D BY THE HON'BLE COURT THAT THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT IT SELF IN THE ARM-CHAIR OF BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRE CTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS THE REASONABLE EXPENDITURE HA VING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE CO MPELLED TO MAXIMIZE ITS PROFIT. IN THE CASE OF THE APPELLANT, THE APPELLANT IS A LO SS MAKING COMPANY AND HAD APPROACHED BIFR FOR DECLARING IT AS A SICK COMPANY. THE COMPANY HAD NO LIQUID FUNDS FOR ITS DAY TO DAY BUSINESS TRA NSACTIONS. IT DID NOT MAKE ANY BORROWING DURING THE YEAR NOR ANY NEW ADVANCE H AS BEEN GIVEN. AS DISCUSSED ABOVE, THE LOANS AND ADVANCES HAVE BEEN G IVEN TO SUPPLIERS OF RAW MATERIAL AND PACKING MATERIAL, GOVERNMENT BODIES AN D OTHER BUSINESS RELATED PURPOSES. IT IS ALSO PERTINENT TO NOTE THAT IN EARL IER YEARS, NO DISALLOWANCE ON THIS GROUND WAS MADE BY THE A. O. AFTER EXAMINING T HE POSITION OF VARIOUS LOANS AND ADVANCES IN ACCORDANCE WITH THE GUIDELINE S OF HON'BLE SUPREME COURT GIVEN IN THE CASE OF S. A. BUILDERS, I AM OF THE VIEW THAT THE LOANS AND ADVANCES GIVEN BY THE APPELLANT ARE FOR BUSINESS PU RPOSES AND NO DISALLOWANCE CAN BE MADE BY THE A. O. BY SAYING THA T INTEREST BEARING FUNDS HAVE BEEN ADVANCED AS INTEREST FREE LOANS. THE ADDI TION MADE BY THE A. O. IS ACCORDINGLY DELETED. 6. AGGRIEVED BY THE AFORESAID ORDER OF THE LD. CIT( A), THE REVENUE IS NOW IN APPEAL BEFORE THE US. 7. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE P OINTED OUT TO THE VARIOUS OBSERVATIONS OF THE ASSESSING OFFICER AND S UPPORTED THE ORDER OF THE ASSESSING OFFICER. LD. AUTHORIZED REPRESENTATI VE, ON THE OTHER HAND, REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSIN G OFFICER AND CIT(A) AND SUPPORTED THE ORDER OF THE CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS DISALLOWA NCE OF INTEREST EXPENSES HOLDING ADVANCES GRANTED BY THE ASSESSEE TO BE NOT OUT OF COMMERCIAL EXPEDIENCY. WE FIND THAT THE CIT(A), WHILE GRANTIN G RELIEF TO THE ASSESSEE, HAS NOTED THAT THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCES TO THOSE PARTIES ITA NOS. 2467 & 2468 /AHD/2011 ACIT VS/ VADILAL DAIRY INTERNATIONAL LTD AY 2001-02 & 2002-03 - 5 - WITH WHOM THE ASSESSEE WAS HAVING REGULAR BUSINESS TRANSACTIONS AND SOME OF THEM WERE SUPPLIERS OF RAW-MATERIAL AND PAC KING MATERIAL AND THE ADVANCE WAS MADE FOR PURCHASE OF MATERIAL. HE ALSO NOTICED THAT MOST OF THE ADVANCES WERE GIVEN IN EARLIER YEARS AND THERE WERE FEW TRANSACTIONS DONE DURING THE YEAR UNDER CONSIDERATION. THE LD. CIT(A) HAS FURTHER GIVEN A FINDING THAT THE ASSESSEE HAD NO LIQUID FUNDS FOR ITS DAY TO DAY BUSINESS TRANSACTIONS AND DID NOT MAKE ANY BORROWING DURING THE YEAR NOR ANY NEW ADVANCES WERE GRANTED BY THE ASSESSEE AND THE ADVAN CES, WHICH WERE GRANTED IN EARLIER YEARS, WERE IN CONNECTION WITH T HE BUSINESS OF THE ASSESSEE. THE LD. CIT(A) HAS ALSO NOTED THAT NO DIS ALLOWANCE ON ACCOUNT OF INTEREST WAS MADE BY THE ASSESSING OFFICER IN EARLI ER YEARS AND AFTER EXAMINING THE VARIOUS LOANS AND ADVANCES IN THE LIG HT OF THE RATIO LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF S.A. BUILDER LTD. (SUPRA) HAS GIVEN A CATEGORICAL FINDING THAT THE LOANS AND ADVANCES GIVEN BY THE ASSESSEE WERE FOR BUSINESS PURPOSES. BEFORE US, TH E REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE FI NDINGS OF THE LD. CIT(A). IN VIEW OF THESE FACTS, WE FIND NO REASON TO INTERF ERE WITH THE ORDER OF THE LD. CIT(A) FOR BOTH THE YEARS UNDER CONSIDERATION. THEREFORE, THESE APPEALS OF THE REVENUE FOR BOTH THE YEARS ARE DISMISSED. 9. IN THE RESULT, THE APPEALS OF THE REVENUE FOR BO TH THE YEARS ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 13 TH MARCH, 2015 AT AHMEDABAD. SD/- SD/- (SHAILENDRA KUMAR YADAV) JUDICIAL MEMBER (ANIL CHATURVEDI) ACCOUNTANT MEMBER AHMEDABAD; DATED 13/03/2015 *BIJU T, PS ITA NOS. 2467 & 2468 /AHD/2011 ACIT VS/ VADILAL DAIRY INTERNATIONAL LTD AY 2001-02 & 2002-03 - 6 - )* # $+ ,)+$ )* # $+ ,)+$ )* # $+ ,)+$ )* # $+ ,)+$/ COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. $ - / CONCERNED CIT 4. - ( ) / THE CIT(A)-XIV, AHMEDABAD 5. +01 $! , , / DR, ITAT, AHMEDABAD 6. 12 3' / GUARD FILE. )*! )*! )*! )*! / BY ORDER, //TRUE COPY// 4 44 4/ // / 5 5 5 5 (DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD