Avon Cycles Ltd., Ludhiana V. ACIT, Ludhiana

ITA 263/CHANDI/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0118 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-03-2016
• Assessment Year: 1998-1999
• Appeal Filed On: 16-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: SUBHASH AGGARWAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.263/CHD/2015 (ASSESSMENT YEAR : 1998-99) ITA NO.264/CHD/2015 (ASSESSMENT YEAR : 2000-01) AND ITA NO.265/CHD/2015 (ASSESSMENT YEAR : 2006-07) M/S AVON CYCLES LTD., VS. THE A.C.I.T., G.T. ROAD, CIRCLE-V, LUDHIANA. LUDHIANA PAN: AABCA4140R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUBHASH AGGARWAL RESPONDENT BY : SHRI MANJIT SINGH, DR DATE OF HEARING : 15.03.2016 DATE OF PRONOUNCEMENT : 04.04.2016 O R D E R PER RANO JAIN, A.M . : THESE THREE APPEALS FILED BY THE SAME ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDERS OF TH E LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-2, LUDHIAN A DATED 15.1.2015, 14.1.2015 AND 3.2.2015, RELA TING TO ASSESSMENT YEARS 1998-99, 2000-01 AND 2 006-07 2 RESPECTIVELY. 2. IN ALL THE APPEALS, THE ISSUE IS COMMON AND, THEREFORE, THESE APPEALS WERE HEARD TOGETHER AND AR E BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 3. THE ONLY ISSUE IN ALL THE THREE APPEALS IS WITH REGARD TO DISALLOWANCE OF INTEREST ON INTEREST FREE LOAN GIVEN TO THE DIRECTOR OF THE COMPANY SHRI HANS RAJ PAHWA, MADE BY THE ASSESSING OFFICER UNDER SECTION 36(1)(I II) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 4. BRIEFLY, THE FACTS OF THE CASE ARE THAT IN ASSESSMENT YEAR 1998-99, THE ASSESSMENT UNDER SECTION 143 READ WITH SECTION 254 OF THE ACT, WAS COMPLETED ON 20.12.2007 AT AN INCOME OF RS.4,96,16,785/- AS AGAINST RETURNED INCOME OF RS.4,50,24,063/-. THE CIT (APPEALS) DISMISSED THE APPEAL OF THE ASSESSEE WITH RESPECT TO DISALLOWAN CE OF RS.3,70,755/- ON ACCOUNT OF INTEREST ON INT EREST FREE ADVANCES GIVEN TO THE DIRECTORS OF THE COMPANY. THE I.T.A.T. IN ITS ORDER IN ITA NOS.157 & 158/CHD/2009 DATED, AGAIN RESTORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER, WITH REGAR D TO INTEREST ON LOAN GIVEN TO THE DIRECTOR SHRI H ANS RAJ PAHWA. THE ASSESSING OFFICER AGAIN RE- EXAMINED THE ISSUE AND HELD THAT THE ONUS IS UPON T HE ASSESSEE TO ESTABLISH THE NEXUS BETWEEN THE INTE REST 3 FREE FUNDS AND INTEREST FREE ADVANCE, WHICH IT COUL D NOT DO AND ADDITION WAS AGAIN MADE. 5. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE CLAIMED THAT THE ISSUE IS COVERED BY VARIOUS ORDERS OF THE I.T.A.T. HOWEVER, THE LEARNED CIT (APPEALS) REFERR ING TO HIS ORDER FOR ASSESSMENT YEAR 2000-01, HELD THAT SI NCE IN THE BACKGROUND OF THE ORDER OF THE I.T.A.T., THE AS SESSEE HAS NOT BEEN ABLE TO ESTABLISH THE SAID NEXUS, THE ADDITION WAS UPHELD. 6. AGGRIEVED, THE ASSESSEE HAS COME IN APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE ASSESSEE PL ACED BEFORE US VARIOUS ORDERS OF THE I.T.A.T. IN VARIOUS YEARS IN ASSESSEES OWN CASES AND SUBMITTED THAT THE SAID AD DITION HAS BEEN DELETED IN OTHER YEARS BY THE I.T.A.T. IN VIEW OF THIS, IT WAS PRAYED THAT THE ADDITION BE DELETED. 7. THE LEARNED D.R. RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 8. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. ON PERUSAL OF VARIOUS ORDERS OF THE I.T.A.T., ON WH ICH THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON AND A CO PY OF EACH OF THESE ORDER, FILED BEFORE US, THE FOLLOWIN G POSITION 4 EMERGES WITH RESPECT TO INTEREST ON LOAN GIVEN TO S HRI HANS RAJ PAHWA : DATE OF ORDER ITA NO. ASSESSMENT YEAR DECISION 15.4.2008 17/CHD/2008 2004-05 ALLOWED IN FAVOUR OF ASSESSEE 31.7.2008 721/CHD/2015 2001-02 ALLOWED IN FAVOU R 31.7.2008 466/CHD/2007 2002-03 OF ASSESSEE 31.7.2008 816/CHD/2006 2003-04 31.10.2008 211/CHD/2015 1999-2000 ALLOWED, RELYI NG ON 31.7.2008 ORDER. 30.7.2009 579/CHD/2009 2005-06 ALLOWED, RELYING ON 15.4.2008 ORDER. 15.4.2010 157/CHD/2009 1998-99 158/CHD/2009 2000-01 SET ASIDE TO THE FILE OF ASSESSING OFFICER. 9. FROM THE PERUSAL OF THE ABOVE, WE OBSERVE THAT THE ORDER OF THE I.T.A.T. FOR ASSESSMENT YEARS 1998 -99 AND 2000-01, WHEREBY THE ISSUED OF INTEREST DISALLOWANC E ON LOANS TO SHRI HANS RAJ PAHWA HAS BEEN RESTORED TO T HE FILE OF THE ASSESSING OFFICER IS THE LATEST ORDER OF THE TRIBUNAL AND ALL OTHER ORDERS WHEREBY THIS ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE, WERE ORDERS EARLIER TO THIS ORDER. THEREFORE, IN THE RESTORED PROCEEDINGS, THE BENEFIT OF ANY OF THESE ORDERS CANNOT BE TAKEN BY THE ASSESSEE, ESPECIALLY IN VIEW OF THE FACT THAT THE I.T.A.T. IN THE ORDER HAS GIVEN SOME SPECIFIC DIRECTIONS. ON PERUSAL OF THE ORDER OF THE I.T.A.T. IN ITA NO.157 & 158/CHD/2009, DATED 15.4.2010, THE FINDINGS APPEAR AT PARA 8, WHI CH READ AS UNDER : 5 8. NOW COMING TO THE ADVANCE MADE TO THE HANS RAJ PAHWA, WE FIND THAT THE TRIBUNAL HAS RESTORED THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR EXAMINING THE NEXUS BETWEEN THE BORROWING OF FUNDS AND INTEREST FREE ADVANCES. THE PERUSAL OF THE ORDE RS OF THE AUTHORITIES BELOW DO NOT REFLECT THE FACTUAL ASPECTS OF THE ISSUE IN QUESTION. THE ONUS IS ON T HE ASSESSEE TO ESTABLISH THAT NONE OF ITS INTEREST BEARING FUNDS HAD BEEN UTILIZED FOR MAKING THE AFORESAID INTEREST FREE ADVANCES TO ITS DIRECTOR SH RI HANS RAJ PAHWA EITHER IN THE YEARS UNDER APPEAL OR IN THE PRECEDING YEARS. IN THE INTEREST OF JUSTICE AND IN THE ABSENCE OF THE RELEVANT MATERIAL BEING AVAILABLE ON RECORD, WE DEEM IT FIT TO ALLOW ANOTHE R OPPORTUNITY TO THE ASSESSEE TO ESTABLISH THAT THE ADVANCES MADE TO SHRI HANS RAJ PAHWA HAS NO NEXUS WITH THE FUNDS BORROWED BY THE ASSESSEE ON WHICH INTEREST HAS BEEN CLAIMED AS THE DEDUCTION. THE MATTER IS SET ASIDE TO THE FILE OF ASSESSING OFFICER TO RE-ADJUDICATE THE ISSUE AFTER ALLOWING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE GROUND NOS.1 & 2 RAISED BY THE ASSESSEE ARE ALLOWED AS INDICATED ABOVE. 10. THE ONLY ISSUE TO BE EXAMINED WAS THE NEXUS BETWEEN THE BORROWING OF FUNDS AND INTEREST FREE AD VANCE TO SHRI HANS RAJ PAHWA. WE SEE FROM THE ORDER OF THE ASSESSING OFFICER THAT EVEN IN THE RESTORED PROCEED INGS, THE ASSESSEE HAD RELIED ON CERTAIN ORDERS OF THE TRIBU NAL ONLY. THE ASSESSING OFFICER AGAIN MADE THE ADDITION HOL DING THAT THE ASSESSEE HAD FAILED TO ESTABLISH THE NEX US BETWEEN THE BORROWING OF FUNDS AND INTEREST FREE AD VANCE. EVEN BEFORE THE LEARNED CIT (APPEALS), THE ASSE SSEE DID 6 NOT PRODUCE ANY EVIDENCE TO SHOW THE NEXUS. HOWEVE R, BEFORE US, DURING THE COURSE OF HEARING, EXTRACTS O F BALANCE SHEET OF THE ASSESSEE FOR VARIOUS YEARS IN QUESTION WERE FILED. ON PERUSAL OF THE SAME, WE OB SERVE THAT ADVANCES OF RS.13.70 LACS WERE OUTSTANDING FRO M SHRI HANS RAJ PAHWA ON 31.3.1998, WHILE THE OWNED FUNDS OF THE ASSESSEE AS ON 31.3.1998 ARE TO THE TUNE OF RS.3100.57 LACS. SIMILARLY, ON 31.3.2000, THE TOTA L ADVANCES OUTSTANDING FROM SHRI HANS RAJ PAHWA WAS RS.13.84 LACS, WHILE THE TOTAL OWNED FUNDS OF THE A SSESSEE AS ON 31.3.2000 WERE TO THE TUNE OF RS.4265.86 LACS AND AS ON 31.3.2006 AS AGAINST TOTAL OUTSTANDING OF RS.1,43,998/- GIVEN TO SHRI HANS RAJ PAHWA, THE OWN ED FUNDS OF THE COMPANY ARE RS.9158.07 LACS. THIS SHO WS THAT IN ALL THE THREE YEARS, THE ASSESSEE HAS ENOUG H OWNED FUNDS, IN FACT, FAR MORE THAN THE AMOUNT ADVANCED INTEREST FREE. IT HAS BEEN HELD IN THE LATEST JUDG MENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF BRIGH T ENTERPRISES PVT. LTD. VS. CIT, ITA NO.624 OF 2013, DATED 24.7.2015 (P&H), WHEREBY IT HAS BEEN HELD IN VERY C LEAR TERMS THAT IN CASE THE ASSESSEE HAS OWNED FUNDS MOR E THAN THE LOANS, IT MAY BE PRESUMED THAT INTEREST FR EE LOAN HAS BEEN GIVEN OUT OF OWNED FUNDS. THE SAME VIEW H AS ALSO BEEN UPHELD BY THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. KAPSONS ASSOCIATES P. LTD. (P& H) , ITA NO.354 OF 2013 (O&M) DATED 4.5.2015. 7 11. ONCE IT HAS BEEN EVIDENCED THAT THE ADVANCES WERE GIVEN OUT OF OWNED FUNDS AND NOT OUT OF BORROW ED FUNDS, THE QUESTION OF DISALLOWANCE OF INTEREST UND ER SECTION 36(1)(III) OF THE ACT DOES NOT ARISE. 12. IN VIEW OF THE ABOVE, WE DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE. 13. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 4 TH DAY OF APRIL, 2016. SD/- SD/- (BHAVENESH SIANI) (RANO JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 4 TH APRIL, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE D R. ASSISTANT REGISTRAR, ITAT, CHANDIGARH