M/s Ad-Manum Finance Ltd., Indore V. The ACIT, 5(1), Indore

ITA 287/IND/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2969 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 14-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Keywords: Business expenditure
• Section: 14A; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AABCA4980F I.T.A.NO. 2 87 /IND/201 2 A.Y. : 2006-07 M/S.AD - MANUM FINANCE LIMITED, 2 ND FLOOR, AGARWAL HOUSE, 5, YESHWANT COLONY, INDORE. VS. ADDL. CIT, RANGE 5, INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI AJAY TULSIYAN, C. A. RESPONDENT BY : SHRI R. A. VERMA, SR. DR DATE OF HEARING : 13 . 0 5 .201 3 DATE OF PRONOUNCEMENT : 15 . 0 5 .201 3 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY THE CIT(A) DATED 5.1.2012 FOR THE ASSESSM ENT YEAR -: 2: - 2 2006-07, WHEREIN FOLLOWING TWO GROUNDS HAVE BEEN TA KEN BY THE ASSESSEE :- 1. THAT THE LD. CIT(A) ERRED IN UPHOLDING THE ASSESSING OFFICERS ACTION OF DISALLOWING INTEREST OF RS. 75,000/- PAID TO A LOAN CREDITOR. IT IS SUBMITT ED THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE SAID AMOUNT IS PROPERLY EXPENDED AND IS ALLOWABLE AS A BUSINESS EXPENDITURE WHICH MAY VERY KINDLY BE NOW ALLOWED. 2. THAT THE LD. CIT(A) ERRED IN UPHOLDING THE ASSESSING OFFICERS ACTION OF DISALLOWING RS. 1,56,330 U/S 14A HOLDING THAT THE ASSESSEE HAS UTILIZED BORROWED FUNDS FOR NON-BUSINESS PURPOSES. IT IS SUBMITTED THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE SAID ADDITION IS PATENTLY WRONG AN D UNCALLED FOR AND IN ANY CASE IS HIGHLY EXCESSIVE AN D REQUIRES TO BE DELETED/CONSIDERABLY REDUCED. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPA NY IS -: 3: - 3 ENGAGED IN BUSINESS OF FINANCE. WHILE FRAMING SCRUT INY ASSESSMENT, THE ASSESSING OFFICER DISALLOWED INTERE ST OF RS. 75,000/- PAID ON UNSECURED LOAN TAKEN FROM M/S. OPT IMATE TEXTILE INDUSTRIES. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER AFTER HAVING THE FOLLOWING OBSERVATIONS :- 4.1 THE FIRST GROUND OF APPEAL IS DIRECTED AGAINST ADDITION OF RS. 75,000/- ON ACCOUNT OF INTEREST PAI D ON UNSECURED LOAN TO M/S. OPTIMATES TEXTILES INDUSTRIES LIMITED. THE ASSESSING OFFICER HAS DISCUSSED THIS ISSUE ON PAGE 1 & 2 OF THE ASSESSMENT ORDER. THE APPELLANT IN ITS SUBMISSIONS HAS ALREADY SUBMITTED THAT THE ADDITION OF RS. 500000/- MADE U/S 68 AND DISALLOWANCE OF INTEREST OF RS. 62,055/- FOR ASSESSMENT YEAR 2005-06 HAS BEEN CONFIRMED BY HOUR HONOUR IN IT-223/07- 08/437 DATED 22.01.2009 AND THE APPELLANT HAS FILED SECOND APPEAL BEFORE THE HON'BLE I.T.A.T., INDORE BENCH ON 15.04.2009 CHALLENGING THESE ADDITIONS. EVEN THE HON'BLE I.T.A.T., INDORE BENCH IN -: 4: - 4 THE APPELLANTS OWN CASE IN I.T.A.NO. 190/IND/2009 FOR ASSESSMENT YEAR 2005-06 HAS DISMISSED THE APPELLANTS APPEAL WHERE THE APPELLANT FAILED TO ESTABLISH THE IDENTITY OF M/S. OPTIMATE TEXTILE INDUSTRIES PVT.LTD. WITHOUT GOING INTO FURTHER MERI TS OF THE CASE SINCE THE LOAN AMOUNT ADVANCED BY OPTIMATE TEXTILE INDUSTRIES PVT.LTD TO THE APPELLAN T HAS BEEN CONFIRMED BY THE HON'BLE I.T.A.T., INDORE IN THE IMMEDIATELY PRECEDING YEAR I.E. ASSESSMENT YEAR 2005-06, THE ALLOWABILITY OF INTEREST ON THE SAME I N THE SUBSEQUENT YEAR DOES NOT ARISE. HENCE THE DISALLOWANCE OF INTEREST PAID TO M/S. OPTIMATE TEXTILE INDUSTRIES PVT.LTD. OF RS. 75000/- IS HERE BY CONFIRMED. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FOUND THAT THE TRIBUNAL VIDE ITS ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06, HELD THAT IDENTITY OF M/S. OPTIMATE TEXTILE INDUSTRIES PRIVATE LIMITED, HAS NOT BEEN ES TABLISHED. ONCE THE LOAN AMOUNT ITSELF IS NOT FOUND TO BE GENU INE, THE DISALLOWANCE OF INTEREST WAS CORRECTLY MADE BY THE ASSESSING -: 5: - 5 OFFICER. NO INTERFERENCE IS REQUIRED IN THE ORDERS OF LOWER AUTHORITIES FOR DISALLOWANCE OF INTEREST EXPENDITUR E. 4. THE ASSESSING OFFICER HAS ALSO DISALLOWED INTEREST EXPENDITURE OF RS. 1,56,330/- BY INVOKING THE PROVI SIONS OF SECTION 14A IN RESPECT OF INVESTMENT MADE IN SHARES ON WHICH DIVIDEND INCOME OF RS. 10,471/- WAS EARNED DURING T HE YEAR. THE RELEVANT OBSERVATIONS OF ASSESSING OFFICER ARE AT PAGE 2 & 3 OF HIS ASSESSMENT ORDER. THE ASSESSING OFFICER ST ATED THAT INVESTMENT WAS MADE OUT OF CASH CREDIT ACCOUNT. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER, AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5. IT WAS CONTENDED BY THE LD. AUTHORIZED REPRESENTATI VE THAT INVESTMENT IN SHARES WAS ONLY RS. 42.32 LAKHS AS AGAINST CAPITAL AND FREE RESERVES OF RS. 826.18 LAKHS. AS P ER LD. AUTHORIZED REPRESENTATIVE, IN THE CASH CREDIT ACCOU NT, INTERNAL ACCRUALS/PROFITS WERE ALSO DEPOSITED. THE MERE FACT OF DEBIT BALANCE ON THE DATE OF INVESTMENT WILL NOT PROVE TH AT INVESTMENT MADE OUT OF BORROWED FUNDS. HE FURTHER D REW OUR ATTENTION TO THE INTEREST INCOME EARNED BY THE ASSE SSEE ON THE -: 6: - 6 ADVANCES SO MADE AMOUNTING TO RS. 612.43 LAKHS, WHI CH WAS OFFERED FOR TAX. OUR ATTENTION WAS ALSO INVITED TO CASH ACCRUAL OF RS. 284.26 LAKHS DURING THE YEAR. 6. ON THE OTHER HAND, THE LD. SENIOR DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. T HE DISALLOWANCE OF EXPENDITURE U/S 14A IS WARRANTED, W HERE INTEREST BEARING FUNDS HAVE BEEN USED FOR EARNING E XEMPT INCOME. HOWEVER, WHERE THE INVESTMENT IN SUCH SECUR ITIES ARE MADE OUT OF INTEREST FREE FUNDS AVAILABLE TO THE AS SESSEE, NO DISALLOWANCE IS TO BE MADE, IRRESPECTIVE OF THE FAC T THAT INCOME EARNED ON SUCH SECURITIES ARE NOT LIABLE TO BE TAXE D. IN THE INSTANT CASE, INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE, OUT OF CAPITAL AND FREE RESERVES WERE OF RS. 826.18 LAK HS. IN ADDITION TO IT, THE CURRENT CASH ACCRUAL AMOUNTED T O RS. 284.26 LAKHS. THEREFORE, KEEPING IN VIEW THE INTERE ST FREE FUNDS AVAILABLE TO THE ASSESSEE, NO DISALLOWANCE IS WARRANTED AS THE AMOUNT HAS BEEN INVESTED OUT OF SUCH FUNDS. MERELY BECAUSE THE AMOUNT WAS PAID OUT OF CASH CREDIT ACCO UNT, DOES -: 7: - 7 NOT LEAD TO THE CONCLUSION THAT INTEREST BEARING FU NDS WERE UTILIZED IN SO FAR AS THIS IS THE ONLY ACCOUNT THRO UGH WHICH ALL THE TRANSACTIONS OF THE ASSESSEE WERE BEING ROUTED AND EVEN INTERNAL ACCRUAL OF PROFIT WERE ALSO DEPOSITED. SIN CE THE CURRENT YEARS CASH ACCRUAL WAS OF RS. 284.26 LAKHS , THERE IS NO MERIT FOR THE DISALLOWANCE OF RS. 1,56,330/- U/S 14A. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D IN PART. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 15 TH MAY, 2013. SD/- SD/- (JOGINDER SINGH) (R. C. SHARM A) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 15 TH MAY, 2013. CPU* 13155