M/s. Mandal & Brothers , Kolkata V. DCIT, Circle - 44, Kolkata

ITA 2539/KOL/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2260 (ITAT-KOLKATA)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 13-06-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 06-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROBIN CHOUDHURY CIT SR DR R
• Assessee Lawyers: MIHIR BANDOPADHYAY IRS RETD
• Keywords: Depreciation; Commercial expediency
• Section: 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA SMC BENCH, KOLKATA [BEFORE SRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER] I.T.A. NO. 2539/KOL/2018 ASSESSMENT YEAR: 2012-13 M/S. MANDAL & BROTHERS............APPELLANT 5N, BIDHAN NAGAR ROAD KOLKATA [PAN : AAIFM 1880 A] DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-44, KOLKATA............................RESPONDENT APPEARANCES BY: SHRI MIHIR BANDOPADHYAY, IRS (RETD.), APPEARED ON BEHALF OF THE ASSESSEE. SHRI ROBIN CHOUDHURY, ADDL. CIT SR. D/R, APPEARING ON BEHALF OF THE REVENUE. DATE OF CONCLUDING THE HEARING : JUNE 13 TH , 2019 DATE OF PRONOUNCING THE ORDER : JUNE 21 ST , 2019 O R D E R PER J. SUDHAKAR REDDY :- THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 13, KOLKATA, (HEREINAFTER THE LD. CIT (A)), PASSED U/S 250 OF THE INCOME TAX ACT, 1961 (THE ACT), DT. 14/08/2018, FOR THE ASSESSMENT YEAR 2012-13. 2. THE ASSESSEE IS A PARTNERSHIP FIRM AND CARRIES OUT BUSINESS OF TRADING IN GROCERY ITEMS AND TRANSPORT. IT FILED ITS RETURN OF INCOME ON 27/09/2012 DISCLOSING TOTAL INCOME OF RS.16,75,674/-. THE ONLY ISSUE THAT ARISES FOR MY ADJUDICATION IS AS TO WHETHER THE LD. CIT(A) WAS RIGHT IN CONFIRMING THE DISALLOWANCE OF RS.3,45,507/- , MADE BY THE ASSESSING OFFICER, FROM OUT OF THE INTEREST PAID BY THE ASSESSEE OF RS.53,17,161/- IN THE PROFIT AND LOSS ACCOUNT ON THE GROUND THAT THE ASSESSEE HAD GIVEN INTEREST FREE LOANS TO SMT. RITA MANDAL & SMT. RINA MANDAL. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE AMOUNTS WERE ADVANCED TO SMT. RITA MANDAL & SMT. RINA MANDAL, WHO ARE RELATIVES OF THE PARTNERS OF THE ASSESSEE FIRM WITHOUT ANY BUSINESS PURPOSE OR COMMERCIAL EXPEDIENCY. AS THE ASSESSEE HAD PAID INTEREST ON BORROWED FUNDS AND ADVANCE AMOUNTS TO RELATED PERSONS WITHOUT CARRYING INTEREST, HE DISALLOWED THE AMOUNT. 2 I.T.A. NO. 2539/KOL/2018 ASSESSMENT YEAR: 2012-13 M/S. MANDAL & BROTHERS 2.1. ON APPEAL THE LD. FIRST APPELLATE AUTHORITY CONFIRMED THE DISALLOWANCE. 3. FURTHER AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE ME. 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT, THE ASSESSEE FIRM HAS SUBSTANTIAL INTEREST FREE FUNDS OF RS.1,47,87,681.87/- ALONGWITH PROFIT OF RS.39,16,989.28/- AGAINST THE TOTAL INTEREST BEARING FUNDS OF RS.4,46,79,131.51/-, WHICH CONSISTED MAINLY OF BORROWING FROM BANKS. IT WAS FURTHER SUBMITTED THAT THE INTEREST BEARING FUNDS WERE UTILIZED FOR THE PURPOSE OF OBJECTIVES FOR WHICH IT WAS BORROWED AND WAS NOT DIVERTED FOR GIVING INTEREST FREE ADVANCES TO RELATED PARTIES. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAD MADE INTEREST FREE ADVANCES FROM THE INTEREST FREE FUNDS AS WELL AS THE PROFITS DURING THE YEAR. NUMBER OF CASE-LAW HAVE BEEN RELIED UPON. 5. THE LD. D/R, RELIED ON THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THAT THE LOAN WAS ACTUALLY GIVEN FROM INTEREST FREE FUNDS. HE RELIED ON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSEE FAILED TO ESTABLISH THE NEXUS BETWEEN INTEREST FREE FUNDS AND THAT WHAT WAS GIVEN AS LOAN TO RELATED PARTIES AND THAT HE HAS ALSO NOT ESTABLISHED THE COMMERCIAL EXPEDIENCY FOR GIVING THE ADVANCE TO THESE PERSONS. 6. HEARD RIVAL CONTENTIONS. ON CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, PERUSAL OF THE PAPERS ON RECORD, ORDERS OF THE AUTHORITIES BELOW AS WELL AS CASE LAW CITED, I HOLD AS FOLLOWS:- 7. AS PER THE ASSESSING OFFICER, AN AMOUNT OF RS.29,54,223/- WAS GIVEN AS INTEREST FREE LOAN TO SMT. RITAL MANDAL & SMT. RINA MANDAL AND THE ASSESSEE COULD NOT PROVE THAT THESE AMOUNTS WERE ADVANCED FROM INTEREST FREE FUNDS. THE CLAIM OF THE ASSESSEE THAT IT HAD INTEREST FREE FUNDS OF RS.1,47,87,681.87/- AND THAT IT ALSO EARNED PROFIT OF RS.39,16,989.28/- IS NOT CONTROVERTED BY THE LD. D/R. UNDER THESE CIRCUMSTANCES, THE PRESUMPTION OF LAW IS THAT INTEREST FREE ADVANCES HAVE BEEN UTILIZED FOR GIVING INTEREST FREE LOANS. THIS RATIOS OF LAW WAS LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. [2009] 313 ITR 340 (BOMBAY) , WHEREIN IT WAS HELD AS FOLLOWS:- 3 I.T.A. NO. 2539/KOL/2018 ASSESSMENT YEAR: 2012-13 M/S. MANDAL & BROTHERS SECTION 36(1)(III) OF THE INCOME-TAX ACT, 1961 - INTEREST ON BORROWED CAPITAL - ASSESSEE- COMPANY WAS ENGAGED IN BUSINESS OF GENERATION OF POWER - IT HAD MADE INVESTMENTS IN ITS SISTER CONCERN FROM JANUARY, 2000 TO MARCH, 2000 - ASSESSING OFFICER WAS OF VIEW THAT SUM OF RS. 213 CRORES WAS INVESTED OUT OF ASSESSEE'S OWN FUNDS AND RS. 147 CRORES WAS INVESTED OUT OF BORROWED FUNDS - ACCORDINGLY, ASSESSING OFFICER DISALLOWED A PART OF INTEREST CLAIMED - ON APPEAL, ASSESSEE-COMPANY CONTENDED THAT IT HAD INTEREST-FREE FUNDS WORTH RS. 398 CRORES COMPRISING OF SHARE CAPITAL, RESERVES AND SURPLUS AND DEPRECIATION RESERVES AND, THUS, ENTIRE INVESTMENT HAD BEEN MADE IN SISTER CONCERN OUT OF INTEREST-FREE FUNDS - COMMISSIONER (APPEALS) ACCEPTED ASSESSEE'S CONTENTION AND DIRECTED ASSESSING OFFICER TO ALLOW ENTIRE AMOUNT OF INTEREST UNDER SECTION 36(1)(III) - TRIBUNAL UPHELD ORDER OF COMMISSIONER (APPEALS) - ON INSTANT APPEAL, IT WAS SEEN THAT COMMISSIONER (APPEALS) AS ALSO TRIBUNAL HAD RECORDED A CLEAR FINDING THAT ASSESSEE HAD INTEREST-FREE FUNDS OF ITS OWN WHICH HAD BEEN GENERATED IN COURSE OF YEAR COMMENCING FROM 1-4-1999 - FURTHER, IN TERMS OF BALANCE-SHEET THERE WAS AN AVAILABILITY OF RS. 398.19 CRORES INCLUDING RS. 180 CRORES OF SHARE CAPITAL - WHETHER IF THERE ARE FUNDS AVAILABLE, BOTH, INTEREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF INTEREST-FREE FUNDS GENERATED OR AVAILABLE WITH COMPANY, PROVIDED SAID FUNDS ARE SUFFICIENT TO MEET INVESTMENTS - HELD, YES - WHETHER SINCE, IN INSTANT CASE, SAID PRESUMPTION WAS CLEARLY ESTABLISHED IN VIEW OF FINDINGS RECORDED BY COMMISSIONER (APPEALS) AND TRIBUNAL, IMPUGNED ORDER PASSED BY SAID AUTHORITIES WAS TO BE AFFIRMED - HELD, YES 7.1. THE HONBLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORP. VS. CIT REPORTED IN [2008] 298 ITR 298 (SC) , HELD AS FOLLOWS:- 17. ONE ASPECT NEEDS TO BE MENTIONED DURING THE ASSESSMENT YEAR 1995-96, APART FROM THE LOAN GIVEN IN AUGUST/SEPTEMBER 1991, THE ASSESSEE ADVANCED INTEREST-FREE LOAN TO ITS SISTER CONCERN AMOUNTING TO RS. 5 LAKHS. ACCORDING TO THE TRIBUNAL, THERE WAS NOTHING ON RECORD TO SHOW THAT THE LOANS WERE GIVEN TO THE SISTER CONCERN BY THE ASSESSEE-FIRM OUT OF ITS OWN FUNDS AND, THEREFORE, IT WAS NOT ENTITLED TO CLAIM DEDUCTION UNDER SECTION 36(1)(III). THIS FINDING IS ERRONEOUS. THE OPENING BALANCE AS ON 1-4-1994 WAS RS. 1.91 CRORES WHEREAS THE LOAN GIVEN TO THE SISTER CONCERN WAS A SMALL AMOUNT OF RS. 5 LAKHS. IN OUR VIEW, THE PROFITS EARNED BY THE ASSESSEE DURING THE RELEVANT YEAR WERE SUFFICIENT TO COVER THE IMPUGNED LOAN OF RS. 5 LAKHS. 8. APPLYING THE PROPOSITIONS OF LAW LAID DOWN IN THESE CASE-LAW TO THE FACTS OF THE CASE ON HAND, I DELETE THE DISALLOWANCE MADE OF INTEREST. THE QUESTION OF APPLYING THE TEST OF COMMERCIAL EXPEDIENCY DOES NOT ARISE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. KOLKATA, THE 21 ST DAY OF JUNE, 2019. SD/- [ J. SUDHAKAR REDDY] ACCOUNTANT MEMBER DATED : 21.06.2019 {SC SPS} 4 I.T.A. NO. 2539/KOL/2018 ASSESSMENT YEAR: 2012-13 M/S. MANDAL & BROTHERS COPY OF THE ORDER FORWARDED TO: 1. M/S. MANDAL & BROTHERS 5N, BIDHAN NAGAR ROAD KOLKATA 2. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-44, KOLKATA 3. CIT(A)- 4. CIT- , 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, KOLKATA BENCHES