M/s. M. Kantilal Exports, Surat V. The ACIT.,C.C.-2, Surat

ITA 2563/AHD/2009

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0863 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 13-07-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 08-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SAPNESH SETH
• Keywords: Proportionate interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI S.K. YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NO: 2563/AHD/2009 (ASSESSMENT YEAR: 2006-07) M.KANTILAL EXPORTS ASHWIN PAREKH & CO., 410, KASHI PLAZA, MAJURA GATE, SURAT. V/S THE ACIT, CENTRAL CIRCLE- 2, SURAT (APPELLANT) (RESPONDENT) PAN: AAAFM4325L APPELLANT BY : SHRI SAPNESH SETH, A.R. RESPONDENT BY : SHRI JAMES KURIAN, SR. D.R. ( )/ ORDER DATE OF HEARING : 13 -07-201 6 DATE OF PRONOUNCEMENT : 19 -07-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. WITH THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE C ORRECTNESS OF THE ORDER OF THE ORDER OF LD. CIT(A)-II, AHMEDABAD DATE D 20.07.2009 PERTAINING TO A.Y. 2006-07. ITA NO. 2563 /AHD/2009 . A.Y. 2006-0 7 2 2. THE SOLE GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 19,14,693/- MADE BY THE A.O. BY DISALLOWING INTEREST. 3. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING T OTAL INCOME AT RS. 5,67,28,750/-. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY STATUTORY NOTICES WERE ISSUED AND SERVE D UPON THE ASSESSEE. 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. FOUND THAT THE ASSESSEE HAS TAKEN CERTAIN LOANS FRO M STATE BANK OF INDIA. THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIM ED INTEREST EXPENDITURE OF RS. 9,02,65,112/-. 5. ON FURTHER SCRUTINY, THE A.O. FOUND THAT THE ASSESS EE HAS UTILIZED THE SECURED LOAN TAKEN FROM VARIOUS COMMERCIAL BANKS ET C. IN GIVING INTEREST-FREE ADVANCES TO M/S. ANJANA EXPORTS AND S HRI DHIRUBHAI DUNGARBHAI. 6. THE A.O. WAS OF THE FIRM BELIEF THAT PART OF THE BO RROWED FUNDS HAS BEEN UTILIZED FOR NON-BUSINESS PURPOSES. ASSESSEE W AS ASKED TO EXPLAIN AS TO WHY PROPORTIONATE INTEREST SHOULD NOT BE DISALLOWED. ASSESSEE FILED A DETAILED REPLY SUBSTANTIATING ITS CLAIM OF INTEREST BUT THE SAME DID NOT FIND ANY FAVOUR WITH THE A.O. WHO CONCLUDED THAT THE AMOUNT TO ANJANA EXPORTS RS. 2,06,70,000/- AND SHRI DHIRUBHAI DUNGARBHAI RS. 12,12,200/- WERE OUT OF INTEREST BEA RING FUNDS AND COMPUTED THE PROPORTIONATE DISALLOWANCE OF INTEREST AMOUNTING TO RS. 19,14,693/-. ITA NO. 2563 /AHD/2009 . A.Y. 2006-0 7 3 7. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 8. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE DREW OU R ATTENTION TO THE LEDGER ACCOUNT OF M/S. ANJANA EXPORTS AND POINTED O UT THAT THE IMPUGNED INTEREST FREE ADVANCE WAS GIVEN IN EARLIER YEARS AND NO DISALLOWANCE WAS MADE ON ACCOUNT OF INTEREST IN THE EARLIER ASSESSMENT YEAR. 9. INSOFAR AS THE IMPUGNED INTEREST FREE ADVANCE TO SH RI DHIRUBHAI DUNGARBHAI IS CONCERNED, IT WAS POINTED OUT THAT TH E SAID PERSON IS A CONTRACTOR AND IS HAVING TRADE ACCOUNT WITH THE ASS ESSEE AND THE ASSESSEE HAS MADE PAYMENTS OF RS. 12,12,200/- ON AC COUNT OF CONTRACTUAL ADVANCES WHICH WERE SUBJECT TO TAX DEDU CTED AT SOURCE. IT IS THE SAY OF THE LD. COUNSEL THAT ADVANCE TO M/S. ANJANA EXPORTS DO NOT PERTAIN TO THE YEAR UNDER CONSIDERATION AND ADV ANCES TO SHRI DHIRUBHAI DUNGARBHAI IS FOR GOODS. THEREFORE, THERE IS NO REASON WHY INTEREST SHOULD BE DISALLOWED. 10. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW AND WITH THE ASSISTANCE OF THE LD . COUNSEL, WE HAVE CAREFULLY GONE THROUGH THE RELATED DOCUMENTARY EVID ENCES BROUGHT ON RECORD AND REFERRED TO DURING THE COURSE OF THE PRO CEEDINGS. A PERUSAL OF THE LEDGER ACCOUNT OF M/S. ANJANA EXPORTS SHOWS THAT IT HAD AN OPENING BALANCE OF RS. 2,06,70,000/-WHICH SHOWS THA T THE IMPUGNED ADVANCE IS A BROUGHT FORWARD BALANCE FROM THE EARLI ER ASSESSMENT YEAR. WE HAVE ALSO THE BENEFIT OF THE ASSESSMENT OR DER FOR A.Y. 2004- 05 WHEREIN WE FIND THAT NO DISALLOWANCE WAS MADE ON ACCOUNT OF INTEREST. INSOFAR AS THE ADVANCE TO SHRI DHIRUBHAI DUNGARBHAI IS ITA NO. 2563 /AHD/2009 . A.Y. 2006-0 7 4 CONCERNED, WE FIND THAT THE SAME WERE MADE DURING T HE COURSE OF THE BUSINESS AND THE ASSESSEE HAS DEDUCTED AT SOURCE ON SUCH CONTRACTUAL PAYMENTS. IN OUR CONSIDERED OPINION, NO DISALLOWAN CE OF INTEREST IS REQUIRED ON THESE FACTS OF THE CASE. WE, ACCORDINGL Y SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO D ELETE THE ADDITION OF RS. 19,14,693/-. 11. FOR THE SAKE OF COMPLETENESS OF THE ADJUDICATION, A PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE SHOWS THAT IT HAS INTEREST FREE CAPITAL OF PARTNERS AT RS. 46,81,92,721/- WHICH IS SUFFICIENT TO MAKE THE INTEREST FREE ADVANCES. FOR THIS PROPOSITION, W E DERIVE SUPPORT FROM THE DECISION OF THE HONBLE HIGH COURT OF BOMB AY GIVEN IN THE CASE OF RELIANCE UTILITIES & POWER 313 ITR 340 WHIC H WAS FOLLOWED BY THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF HDF C 366 ITR 505. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 19- 07 - 201 6. (S.K. YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER