M/s Kosmo Plastic Exports (P) Ltd, Amritsar. V. The Dy. Commissioner of Income-tax, Amritsar.

ITA 257/ASR/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9582 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 15-09-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 28-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PADAM BAHL
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N.K. CHOUDHRY, JUDICIAL MEMBER ITA NO.257(ASR)/2015 ASSESSMENT YEAR:2010-11 PAN : AAACK-6443J M/S. KOSMO PLASTIC EXPORTS PVT. LTD. VS. DY. COMMR . OF INCOME TAX, O/S BHAGTANWALA GATE, CIRCLE-III, AMRITSAR. AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. PADAM BAHL, CA RESPONDENT BY: SH. RAHUL DHAWAN, DR DATE OF HEARING: 15/09/2016 DATE OF PRONOUNCEMENT: 20/09/2016 ORDER PER T.S. KAPOOR, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LD. CIT(A)-1, AMRITSAR, DATED 09.03.2015 FOR THE ASSESS MENT YEAR 2010-11. THE ASSESSEE HAS RAISED ONLY ONE GROUND OF APPEAL, WHEREBY IT IS AGGRIEVED WITH THE ACTION OF THE LD. CIT(A) BY WHIC H HE HAS SUSTAINED A DISALLOWANCE OF RS.2,21,425/- OUT OF THE DISALLOWAN CE OF RS.7,08,900/-, WHICH THE AO HAD MADE UNDER THE PROVISIONS OF SECTI ON 36(1)(III) OF THE I.T. ACT, 1961. ITA NO.257/ASR/2015 A.Y. 2010-11 2 2. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD ADVANCED RS.59,00,000/- FOR PURCHASE O F PIECE OF LAND, HOWEVER, THE TRANSACTION COULD NOT BE FINALIZED AND THEREFORE, THE ASSESSEE RECEIVED BACK THE SAID AMOUNT AND IN THIS RESPECT OUR ATTENTION WAS INVITED TO PB 9-10, WHERE THE COPIES OF ACCOUNT S TO WHOM SUCH ADVANCES WERE MADE WERE PLACED. THE LD. COUNSEL F URTHER SUBMITTED THAT THE ADVANCES WERE MADE FOR BUSINESS PURPOSES AND, THEREFORE, THERE WAS NO JUSTIFICATION ON THE PART OF THE AUTHO RITIES BELOW TO SUSTAIN THE PART ADDITION. WITHOUT PREJUDICE, THE LD. COUNS EL SUBMITTED THAT THERE WAS SUFFICIENT FUNDS AVAILABLE WITH THE ASSESSEE AN D IN THIS RESPECT OUR ATTENTION WAS INVITED TO COPY OF BALANCE SHEET PLAC ED AT PB-1 AND OUR ATTENTION WAS INVITED TO SHARE CAPITAL, RESERVES AN D SURPLUS WHICH AMOUNTED TO RS.2.3 CRORES AGAINST WHICH THE ADVANCE S WERE ONLY TO THE TUNE OF RS.59 LACS. MOREOVER, IT WAS SUBMITTED THAT THE ASSESSEE HAD EARNED CASH PROFIT OF ABOUT RS.58,00,000/- DURING T HE YEAR UNDER CONSIDERATION AND FOR WHICH OUR ATTENTION WAS INVIT ED TO PB-2, WHERE A COPY OF PROFIT & LOSS ACCOUNT OF TWO YEARS WAS PLAC ED. IN VIEW OF THE ABOVE FACTS, IT WAS SUBMITTED THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE RESERVES AVAILABLE WITH IT AND THEREFORE, THE DISALLOWANCE WAS NOT WARRANTED. RELIANCE IN THIS RESPECT WAS PLACED ON T HE JUDGMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD. VS. CIT, REPORTED IN 381 ITR 107. FURTHER RELIANCE WAS PLACED ON THE CASE LAW OF MUNJAL SALES CORPORATION VS. CIT, R EPORTED IN 298 ITR ITA NO.257/ASR/2015 A.Y. 2010-11 3 298, DECIDED BY THE HONBLE SUPREME COURT FOR THE P ROPOSITION THAT WHERE THE PROFITS EARNED BY THE ASSESSEE WERE SUFFI CIENT FOR MAKING INTEREST FREE ADVANCES, NO DISALLOWANCE UNDER SECTI ON 36(1)(III) WAS WARRANTED. 3. THE LD. DR, ON THE OTHER HAND, HEAVILY PLACED R ELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE LD. CIT(A) HAS ALREADY ALLOWED SUBSTANTIAL RELIEF TO THE ASSESSEE . IT WAS SUBMITTED THAT THE ASSESSEE HAD UTILIZED PART OF INTEREST BEARIN G FUNDS FOR ADVANCING INTEREST FREE ADVANCES AND NO COMMERCIAL EXPEDIENCY HAS BEEN PROVED BY THE LD. COUNSEL. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE GON E THROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT THE INTERES T FREE CAPITAL PLUS RESERVES AVAILABLE WITH THE ASSESSEE-COMPANY AS ON THE CLOSE OF THE CURRENT YEAR ARE RS.2.3 CRORES AND MOREOVER, THE ASSESSEE HAD EARNED A CASH PROFIT OF ABOUT RS.59,00,000/- DURING THE YEAR, AS IS APPARENT FROM PROFIT & LOSS ACCOUNT. SIMILARLY, IN THE IMMEDIATELY PREVIOUS YEAR, THE ASSESSEE HAD EARNED CASH PROFITS OF ABOUT RS.58,00,000/-. THE PROFITS OF THE CURRENT YEAR AS WELL AS EARLIER YEARS ARE MORE THAN SUFFICIENT TO ADVANCE INTEREST FREE A DVANCES AND THEREFORE, IT CAN SAFELY BE PRESUMED THAT THE ASSESSEE HAD AD VANCED INTEREST FREE LOANS OUT OF ITS CASH PROFITS EARNED IN THE CURRENT YEAR AND PREVIOUS YEAR AND OUT OF PAST YEARS CAPITAL AND RESERVES . THE HO NBLE SUPREME ITA NO.257/ASR/2015 A.Y. 2010-11 4 COURT IN THE CASE OF MUNJAL SALES CORPORATION VS. C OMMISSIONER OF INCOME TAX & ANR, REPORTED IN 298 ITR 298, HAS HELD AS UNDER: THE TRIBUNAL ALLOWED DEDUCTION FOR ASST. YRS. 1992- 93 AND 1993- 94. IN VIEW OF CHANGE OF LAW, THE TRIBUNAL DISALLOW ED PAYMENT OF THE INTEREST FOR ASST. YRS. 1994-95,1995-96,1996-97 AND 1997- 98. HOWEVER, THE POINT WHICH HAS BEEN LEFT OUT FROM CON SIDERATION IS THAT THE LOANS WHICH WERE GIVEN IN AUGUST/SEPTEMBER , 1991 TO THE SISTER CONCERNS GOT WIPED OUT ONLY IN ASST. YR. 199 7-98. FOR ASST. YR. 1992-93 AND ASST. YR. 1993-94, THE TRIBUNAL HELD TH AT THE LOANS GIVEN TO THE SISTER CONCERNS WERE OUT OF THE FIRM'S FUNDS AND THAT THEY WERE ADVANCED FOR BUSINESS PURPOSES. ONCE IT I S FOUND THAT THE LOANS GRANTED IN AUGUST/SEPTEMBER, 1991 CONTINUED U PTO ASST. YR. 1997-98 AND THAT THE SAID LOANS WERE ADVANCED FOR B USINESS PURPOSES AND THAT INTEREST PAID THEREON DID NOT EXC EED 18/12 PER CENT PER ANNUM, THE ASSESSEE WAS ENTITLED TO DEDUCT IONS UNDER S. 36(1)(HI) R/W S. 40(B)(IV). ONE ASPECT NEEDS TO BE MENTIONED DURING THE ASST. YR. 1995-96, APART FROM THE LOAN GIVEN IN AUGUST/SEPTEMBER, 1991, THE ASSESSEE ADVANCED INTER EST FREE LOAN TO ITS SISTER CONCERN AMOUNTING TO RS. 5 LACS. ACCO RDING TO THE TRIBUNAL, THERE WAS NOTHING ON RECORD TO SHOW THAT THE LOANS WERE GIVEN TO THE SISTER CONCERN BY THE ASSESSEE FIRM OU T OF ITS OWN FUNDS AND, THEREFORE, IT WAS NOT ENTITLED TO CLAIM DEDUCT ION UNDER S. 36(L)(III). THIS FINDING IS ERRONEOUS. THE OPENING BALANCE AS ON 1ST APRIL, 1994 WAS RS. 1.91 CRORES WHEREAS THE LOAN GI VEN TO THE SISTER CONCERN WAS A SMALL AMOUNT OF RS. 5 LACS. THE PROFI TS EARNED BY THE ASSESSEE DURING THE RELEVANT YEAR WERE SUFFICIENT T O COVER THE IMPUGNED LOAN OF RS. 5 LACS. 5. SIMILARLY, THE HONBLE SUPREME COURT IN THE CASE OF HERO CYCLES PVT. LTD. VS. CIT VIDE ORDER DATED 5 TH NOV., 2015 HAS HELD AS UNDER: INSOFAR AS THE LOANS TO DIRECTORS ARE CONCERNED, I T COULD NOT BE DISPUTED BY THE REVENUE THAT THE ASSESSEE HAD A CRE DIT BALANCE IN THE BANK ACCOUNT WHEN THE SAID ADVANCE OF RS. 34 LA KHS WAS GIVEN. REMARKABLY, AS OBSERVED BY THE CIT (APPEAL) IN HIS ORDER, THE COMPANY HAD RESERVE/SURPLUS TO THE TUNE OF ALMOST 1 5 CRORES AND, THEREFORE, THE ASSESSEE COMPANY COULD IN ANY CASE, UTILISE THOSE FUNDS FOR GIVING ADVANCE TO ITS DIRECTORS. . ITA NO.257/ASR/2015 A.Y. 2010-11 5 6. KEEPING IN VIEW THE ABOVE JUDICIAL PRECEDENTS AND IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE ARE IN AGREEMENT WITH THE SUBMISSIONS OF THE LD. COUNSEL THAT NO DISALLO WANCE WAS WARRANTED IN THIS CASE. HENCE, ALL THE GROUNDS OF APPEAL OF T HE ASSESSEE ARE ALLOWED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20/09/2 016. SD/- SD/- (N.K. CHOUDHRY) (T.S. KAPOOR ) JUDICIAL MEMBER ACCOUNTANT MEMBER /SKR/ DATED: 20/09/2016 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. KOSMO PLASTIC EXPORTS PVT. LTD. A MRITSAR. 2. THE DCIT, CIR.III, AMRITSAR. 3. THE CIT(A), ASR 4. THE CIT, ASR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.