Sahajanand Technologies (P) Ltd., Surat V. The ACIT.,Range-4, Surat

ITA 2641/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6831 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 20-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 24-09-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DHANESTA
• Keywords: Proportionate interest
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 20/04/2011 DRAFTED ON: 2 0/04/2011 ITA NO.2641/AHD/2009 ASSESSMENT YEAR : 2006-07 SAHAJANAND TECHNOLOGIES (P) LTD. SAHAJANAND HOUSE PARSI STREET,SAIYEDPURA SURAT 395 003 VS. THE ACIT CIRCLE-4 SURAT PAN/GIR NO. : AADCS 4343 N ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : WRITTEN SUBMISSION RESPONDENT BY: SHRI DHANESTA, SR. D.R. O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE W HICH HAS EMANATED FROM THE ORDER OF THE LEARNED CIT(APPEALS) -III, SURAT DATED 22/07/2009. GROUNDS ARE DECIDED AS FOLLOWS:- 2. GROUND NO.1 THE LEARNED ACIT WAS NOT JUSTIFYING IN DISALLOWANCE PROPORTIONATE INTEREST OF RS.1,34,78,113/- ON ACCOUNT OF INTERES T FREE LOANS GIVEN TO SISTER CONCERN. 2.1. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDI NG ASSESSMENT ORDER PASSED U/S. 143(3) OF THE I.T. ACT, 1961 DAT ED 14/05/2008 WERE THAT THE ASSESSEE-COMPANY IS IN THE BUSINESS OF MA NUFACTURING OF LASER ITA NO.2641/AHD /2009 SAHAJANAND TECHNOLOGIES (P) LTD. VS. ACIT ASST.YEAR 2006-07 - 2 - MACHINES, POLISHING MACHINES, ETC. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE-COMPANY HAD ADVANCED CERT AIN LOANS TO DIRECTORS AND SISTER-CONCERNS WITHOUT CHARGING ANY INTEREST. THE ASSESSING OFFICER HAS LISTED THE NAMES OF THE SAID FOUR PARTIES AND THE TOTAL AMOUNT OF LOAN AS PER ASSESSING OFFICER WAS T O THE TUNE OF RS.8,96,11,000/-. ON THE OTHER HAND, IT WAS ALSO NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE-COMPANY HAD PAID INTEREST AMOUNTING TO RS.1,51,52,887/- ON THE LOANS BORROWED FROM THE BAN K, ETC. A SHOW- CAUSE NOTICE WAS ISSUED AS TO WHY THE PROPORTIONATE INTEREST @ 12% BE NOT DISALLOWED. A DETAILED REPLY WAS FURNISHED, H OWEVER, THE ASSESSING OFFICER WAS NOT CONVINCED AND AFTER DISCUSSING CERT AIN CASE LAWS, DISALLOWED THE INTEREST OF RS.1,34,78,113/-. THE M ATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 3. THE LEARNED CIT(APPEALS) HAS DISCUSSED THE PROVI SIONS OF SECTION 36(1)(III) OF THE I.T.ACT IN RESPECT OF ALLOWABILIT Y OF INTEREST AS ALSO FEW CASE LAWS AND AFFIRMED THE ACTION OF THE ASSESSING OFFICER. 4. NOW BEFORE US, THROUGH A WRITTEN SUBMISSION DATE D 15/04/2011, IT IS INFORMED THAT IN ASSESSEES OWN CASE ON IDENTICA L FACTS FOR ASSESSMENT YEAR 2003-04 THE QUESTION OF DISALLOWANCE OF INTERE ST HAS ALREADY BEEN DECIDED IN ITS FAVOUR BY RESPECTED CO-ORDINATE BENC H A ITAT AHMEDABAD IN ITA NO.82/AHD/2007 TITLED AS ASSISTANT CIT VS. SAHAJANAND TECHNOLOGIES PVT.LTD., ORDER DATED 08/01 /2010, WHEREIN VIDE PARAGRAPH NO.7, IT WAS HELD AS UNDER:- ITA NO.2641/AHD /2009 SAHAJANAND TECHNOLOGIES (P) LTD. VS. ACIT ASST.YEAR 2006-07 - 3 - 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL ON RECORD. A SIMILAR VIEW WE HAVE TAKEN I N THE CASE OF CORE HEALTH CARE LTD. IN ITA NOS.85 AND 86/AHD/2007 FOR ASSESSMENT YEARS 1996-97 AND 1997-98 DECIDED ON 16- 10-2009. THEREIN WE HAVE HELD THAT IF ASSESSEE HAS SUFFICIEN T INTEREST-FREE CAPITAL AND RESERVES, THEN THE ONUS IS ON THE REVEN UE TO SHOW THAT INSPITE OF ASSESSEE HAVING SUFFICIENT INTEREST-FREE CAPITAL AND RESERVES, IT DID NOT HAVE ENOUGH CASH AT THE POINT OF TIME WHEN MONEY WAS LENT INTEREST-FREE TO THE SISTER CONCERNS /THEIR DIRECTORS AND SUCH LENDING WAS ACTUALLY OUT OF INTEREST BEARI NG BORROWINGS. FOR THE SAKE OF CONVENIENCE, WE REPRODUCE PARAS-7 T O 12 FROM THAT ORDER AS UNDER:- .. .. .. SINCE IT IS UNDISPUTED FACT THAT THE ASSESSEE HAD S UFFICIENT INTEREST- FREE CAPITAL AND RESERVES OF MORE THAN RS.12 CRORES AND IN ADDITION TO THIS, THERE WERE CURRENT YEARS PROFITS, THEN PR ESUMPTION ARISES IN VIEW OF THE ABOVE JUDGMENT THAT INTEREST-FREE AD VANCES WERE OUT GIVEN OUT OF SUCH INTEREST-FREE FUNDS. THE ONUS SH IFTS NOW TO THE REVENUE TO SHOW THAT AT THE POINT OF TIME WHEN SUCH INTEREST-FREE ADVANCES WERE GIVEN, ASSESSEE DID NOT HAVE SUFFICIE NT CASH OF ITSELF AND LENDING WAS ACTUALLY DONE OUT OF INTEREST BEARI NG BORROWINGS. SINCE THERE IS NO MATERIAL ON RECORD TO SUPPORT THI S VIEW, AND REVENUE HAS NOT DISCHARGED THE ONUS LYING ON IT, WE UPHOLD THE ORDER OF THE CIT(A). THIS GROUND OF REVENUE IS THE REFORE REJECTED. 4.1. LIKEWISE, FOR ASSESSMENT YEAR 2004-05 IN ASSES SEES OWN CASE, THERE WAS DISALLOWANCE OF INTEREST AND IN THAT YEAR TOO ITAT A BENCH AHMEDABAD IN ITA NO.3189/AHD/2007 TITLED AS ASSIST ANT CIT VS. SAHAJANAND TECHNOLOGY PVT.LTD., ORDER DATED 09/04/2 010, FOLLOWED THE ABOVE REFERRED DECISION OF THE TRIBUNAL AND DISMISS ED THE APPEAL OF THE REVENUE. THE SAME RECOURSE WAS FOLLOWED FOR ASSESS MENT YEAR 2005-06 BY THE RESPECTED CO-ORDINATE BENCH D AHMEDABAD ( SURAT CAMP) IN ITA NO.2641/AHD /2009 SAHAJANAND TECHNOLOGIES (P) LTD. VS. ACIT ASST.YEAR 2006-07 - 4 - ITA NO.2066/AHD/2008, ORDER DATED 11/06/2010, WHERE IN ASSESSEES APPEAL WAS ALLOWED WITH THE OBSERVATION THAT SINCE THE FACTS WERE IDENTICAL AND THE ASSESSEE HAD SUFFICIENT INTEREST- FREE CAPITAL, THEREFORE, FOLLOWING THE ORDERS PRONOUNCED IN THE PAST FOR ASS ESSMENT YEARS 2003- 04 AND 2004-05, THE ADDITION OF DISALLOWANCE OF INT EREST WAS DELETED. AS PER ABOVE BACKGROUND, IT IS NOW SETTLED THAT IF THE ASSESSEE HAS SUFFICIENT INTEREST-FREE CAPITAL OR HAS SURPLUS RESERVES OR EV EN IF THE ASSESSEE HAS EARNED SUFFICIENT PROFITS DURING THE YEAR AND THOSE FUNDS HAVE BEEN UTILIZED TOWARDS INTEREST-FREE ADVANCES TO SISTER-C ONCERNS, THEN THERE WAS NO QUESTION OF SUCH DISALLOWANCE. THE RESPECTED C O-ORDINATE BENCHES HAVE GIVEN THE FINDING IN FAVOUR OF THE ASSESSEE ON LY ON APPRECIATION OF THE FACTS THAT THE ASSESSEE HAD SUFFICIENT NON-INTE REST BEARING FUNDS, HENCE, THE PRESUMPTION WAS THAT OUT OF THOSE INTERE ST-FREE FUNDS THE ASSESSEE WOULD HAVE ADVANCED THE INTEREST-FREE LOAN S TO SISTER-CONCERNS. HOWEVER, IN THE PRESENT CASE, WE ARE UNABLE TO EXAM INE WHETHER THE ASSESSEE HAD SUFFICIENT INTEREST-FREE FUNDS DURING THE YEAR. FOR THIS LIMITED PURPOSE, WE HEREBY RESTORE THIS GROUND BACK TO THE STAGE OF THE ASSESSING OFFICER TO EXAMINE THE SAID FACTS AND IF IT IS FOUND CORRECT, THEN THE NATURAL CONSEQUENCE SHOULD BE TO FOLLOW TH E PAST HISTORY OF THE CASE AND ALLOW THE CLAIM AS PER THE SETTLED LEGAL P OSITION. WE ORDER ACCORDINGLY. THIS GROUND OF THE ASSESSEE MAY BE TR EATED AS ALLOWED BUT FOR STATISTICAL PURPOSES. 5. GROUND NO.2 2. THE LEARNED ACIT WAS NOT JUSTIFYING IN DISALLOW ANCE PRIOR PERIOD EXPENSES OF RS.5,61,589/- ON ACCOUNT OF RENT EXPENSES ITA NO.2641/AHD /2009 SAHAJANAND TECHNOLOGIES (P) LTD. VS. ACIT ASST.YEAR 2006-07 - 5 - RS.14,839/-, LEASE RENT WRITTEN OFF RS.5,37,750/- A ND LEGAL & PROFESSIONAL CHARGES RS.9,000/-. 5.1. IT WAS NOTICED BY THE ASSESSING OFFICER THAT T HE ASSESSEE HAS DEBITED CERTAIN PRIOR PERIOD EXPENSES. A SHOW-CAUS E NOTICE WAS ISSUED, HOWEVER, THE ASSESSEE FAILED TO PLACE ON RECORD THA T HOW THOSE PRIOR PERIOD EXPENSES HAVE ARISEN IN THE CURRENT PERIOD A ND WHY THOSE EXPENDITURE WERE NOT DEBITED IN THE EARLIER YEARS. AS PER ASSESSING OFFICER, THE REPLY OF THE ASSESSEE WAS AMBIGUOUS, H ENCE, DISALLOWED THE CLAIM. THE MATTER WAS CARRIED BEFORE THE FIRST APP ELLATE AUTHORITY AND IN THE ABSENCE OF ANY EXPLANATION, THE ACTION OF THE A SSESSING OFFICER WAS CONFIRMED AS FOLLOWS:- 4.2. ON CAREFUL CONSIDERATION OF THE FACTS OF THE CASE AND THE SUBMISSIONS MADE BY THE LEARNED AR, I FIND THAT THE CONTENTIONS OF THE APPELLANT HAVE NO MERIT. ADMITTEDLY, THE AFORE SAID EXPENSES CLAIMED BY THE ASSESSEE DO NOT PERTAIN TO THE YEAR UNDER CONSIDERATION AND DO NOT CONSTITUTE AN ALLOWABLE DE DUCTION AGAINST THE INCOME RELATING TO THE YEAR UNDER CONSI DERATION. APART FROM STATING THAT THESE EXPENSES WERE INCURRED IN T HE EARLIER YEAR FOR THE PURPOSE OF THE BUSINESS, THE ASSESSEE HAS N OT FURNISHED ANY DETAILS OR JUSTIFICATION AS TO WHY SUCH EXPENSES WE RE NOT DEBITED IN THE RELEVANT PREVIOUS YEAR PERTAINING TO THE EARLIE R YEAR AND HOW THEY HAVE ARISEN IN THE YEAR UNDER CONSIDERATION. AS THESE EXPENSES RELATED TO RENT, LEASE RENT WRITTEN OFF AN D LEGAL CHARGES, THE SAME SHOULD ORDINARILY HAVE BEEN TAKEN INTO CON SIDERATION AT THE TIME OF FINALIZATION OF A/CS FOR THE YEAR IN WH ICH THE SAME WERE INCURRED, AS PER THE MERCANTILE SYSTEM OF ACCOUNTIN G FOLLOWED BY THE APPELLANT. IN THE ABSENCE OF ANY EVIDENCE OR J USTIFICATION AS TO WHY THESE EXPENSES COULD NOT BE DEBITED IN THE EARL IER YEARS TO WHICH THEY PERTAINED, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN RESPECT OF THE PRIOR PERIOD EXPENSES OF RS.5,61,589/- IS ITA NO.2641/AHD /2009 SAHAJANAND TECHNOLOGIES (P) LTD. VS. ACIT ASST.YEAR 2006-07 - 6 - HELD TO BE IN ORDER AND IS ACCORDINGLY CONFIRMED. THIS GROUND OF APPEAL IS DISMISSED. 6. WE HAVE PERUSED THE WRITTEN SUBMISSION THROUGH W HICH NO CONTENTION IN RESPECT OF THE ABOVE GROUND HAS BEEN RAISED WHICH MEANS THAT THE ASSESSEE DID NOT WANT TO CONTEST THIS GROU ND. MOREOVER, IN THE ABSENCE OF ANY OTHER COGENT MATERIAL FROM THE SIDE OF THE ASSESSEE, WE HAVE NO OPTION BUT TO CONFIRM THE FINDINGS ON FACTS OF THE AUTHORITIES BELOW. THIS GROUND OF THE ASSESSEE IS DISMISSED. 7. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED BUT FOR STATISTICAL PURPOSES. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 21 ST APRIL, 2011. SD/- SD/- ( D.C. AGRAWAL) ( MUKUL KR. SH RAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBE R AHMEDABAD; DATED 21 / 04 /2011 T.C. NAIR, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-III, SURAT 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD ITA NO.2641/AHD /2009 SAHAJANAND TECHNOLOGIES (P) LTD. VS. ACIT ASST.YEAR 2006-07 - 7 - 1. DATE OF DICTATION..20/04/2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 20/04/2011 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.21/4/2011 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 21/4/2011 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER