The ITO, Ward-1(2), Ahmedabad V. Bajaj Processors Ltd., Ahmedabad

ITA 2897/AHD/2007

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57128 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 16-01-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 05-07-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: GAURVA NAHTA
• Keywords: Notional interest

Judgement Text

-1- IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' BEFORE SHRI D K TYAGI - JM AND SHRI A MOHAN ALANKAMONY - AM ITA NO.2897/AHD/2007 (ASSESSMENT YEAR:-2004-05) THE INCOME-TAX OFFICER, WARD-1(2), AHMEDABAD V/S BAJAJ PROCESSORS LIMITED, 109, NEW CLOTH MARKET, O/S RAIPUR GATE, AHMEDABAD PAN: AABCB 3640 D [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI VINOD TANWANI, SR. DR ASSESSEE BY:- SHRI GAURVA NAHTA, AR DATE OF HEARING:- 16-01-2012 DATE OF PRONOUNCEMENT:- 25-01-2012 O R D E R PER D K TYAGI (JM) :- THIS IS REVENUES APPEAL AGAINST THE ORDER DATED 26-04-2007 PASSED BY THE LEARNED CIT(A) -V, AHMEDABAD FOR ASSESSMENT YEAR 2004-05. 2 GROUND NO.1 IN THIS APPEAL RELATES TO DELETION OF DISALLOWANCE OF INTEREST EXPENSES OF RS.4,89,750/-. THE FACTS OF THE CASE AS DISCUSSED BY THE AO IN THE ASSESSMENT O RDER AND AS NOTED BY THE LEARNED CIT(A) IN HIS ORDER ARE AS UND ER:- 2 THE ASSESSES HAS DEBITED INTEREST EXPENSES OF RS.9 ,19,152/-. THE ASSESSES HAS ADVANCED RS.12 LACS TO M/S. MILLENIUM AND RS.20,65,000/- TO M/S. BAJAJ CHEMICAL PRODUCTS. ON THESE ADVANCES NO INTEREST HAS BEEN CHARGED. THE ASSESSEE IS GIVING I NTEREST BEARING FUNDS WITHOUT CHARGING ANY INTEREST, IT IS ALSO RELEVANT TO STATE THAT M/S. BAJAJ CHEMICAL PRODUCTS IS AN ASSOCIATE CONCERN OF THE AS SESSEE. THUS, THERE IS DIVERSION OF BUSINESS PROFITS BY THIS ACT OF THE ASSESSEE. THEREFORE, INTEREST EXPENSES TO THE EXTENT OF INTEREST NOT CHA RGED FROM [MEREST FREE ADVANCES IS REQUIRED TO BE COMPUTED AND DISALL OWED. A SHOW CAUSE WAS ISSUED AND ASSESSEE WAS REQUESTED TO FILE HIS REPLY. THE ASSESSEE HAS SUBMITTED THAT REGARDING NON-CHARG ING OF INTEREST FROM M/S. MILLENIUM IT IS TO SUBMIT THAT ALREADY RE COVERY OF CAPITAL IS DOUBTFUL. THEREFORE, NO INTEREST IS CHARGED. REGARD ING ADVANCE TO BAJAJ CHEMTEAL PRODUCTS IT IS A TRADE ADVANCE. REPLY FILED BY THE ASSESSEE IS CAREFULLY CONSIDERED BUT THE SAME IS NOT ACCEPTABLE. REGARDING TRANSACTION WITH M/S. MILLENI UM, NOTHING CONCRETE IS BROUGHT ON RECORD TO PROVE THAT THE REC OVERY OF CAPITAL IS DOUBTFUL, REGARDING BAJAJ CHEMICAL PRODUCTS ALSO, N OTHING CONCRETE IS BROUGHT ON RECORD TO PROVE THAT THIS IS A TRADE ADV ANCE. AS STATED ABOVE, THE INTEREST BEARING FUNDS HAS BEEN GIVEN TO OUTSIDERS WITHOUT CHARGING ANY INTEREST IS THEREFORE THERE IS DIVERSI ON OF BUSINESS PROFITS. SINCE THE ASSESSEE HAS PAID INTEREST @ 15% THE INTE REST COMPONENT @ 15% IN THE CASE OF ABOVE TWO PARTIES COMES TO %RS.4 ,89,75Q/-. THE INTEREST CLAIM IS REDUCED BY RS.4,89,750/-.' 3 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WE NT IN APPEAL BEFORE THE LEARNED CIT(A). BEFORE THE LEARNE D CIT(A), THE ASSESSEE SUBMITTED AS UNDER:- THE APPELLANT RESPECTFULLY SUBMITS THAT THE DISALL OWANCE OUT OF INTEREST MADE BY THE AO BEING CONTRARY TO THE FACTS AND PROVISION OF LAW IS NOT SUSTAINABLE IN THE EYES OF JAW: IT IS SU BMITTED THAT INTEREST TO BE CHARGED ON LOAN ACCOUNT AND NOT ON TRADE ACCOUNT . SINCE THE APPELLANT IS NOT SUPPOSED TO CHARGE ANY INTEREST ON TRADE ADVANCE AS THE SAME ARE NOT PAID BY THE CONCERNED PARTIES. AS REGARDS ADVANCES TO BAJAJ CHEMICAL PRODUCTS, IT IS STATED THAT THE APPE LLANT HAD PURCHASED CP4DRS AND CHEMICALS FROM THE PARTY DURING THE RELE VANT YEAR AND HAD ALSO EFFECTED TRANSACTION ON CURRENT ACCOUNT BASIS. AS PER THE MUTUAL 3 AGREEMENT, NO INTEREST WAS TO BE CHARGED OR RECEIVE D. FURTHER, THE ACCOUNTANT WHO WAS LOOKING AFTER THE MATTER PASSED ENTRIES IN THE CURRENT ACCOUNT INSTEAD OF CREDITOR A/C, WHICH RESU LTED CREDIT BALANCE IN ONE ACCOUNT AND DEBIT BALANCE IN OTHER ACCOUNT. MOR EOVER, THE SAME SHOULD HAVE BEEN NETTED OFF BEFORE APPLYING EVEN NO TIONAL INTEREST. THE APPELLANT FURTHER SUBMITS THAT IN THE EARLIER Y EAR, THE OPENING BALANCE WAS CREDIT SAID MEANING THEREBY THE APPELLA NT AVAILED AMOUNT FROM THE SAME PARTY ON CURRENT ACCOUNT AND ON WHICH NO INTEREST WAS PAID BY THE APPELLANT AND THEREFORE ON THIS GROUND ALSO IT CAN BE SAID THAT NO INTEREST WAS DUE. THE APPELLANT FURTHER SUBMITS THAT THE LOAN TO M/S. MILLENNIUM WAS GIVEN FOR VERY SHORT PERIOD DURING THE YEAR. HOWEV ER, THE PRINCIPAL AMOUNT HAD NOT RECEIVED WITHIN THE STIPULATED TIME AND ACCORDINGLY IT WAS NOT PRUDENT TO CHARGE INTEREST. THE APPELLANT FURTHER SUBMITS THAT THE AO HAD CALCULATED NOTIONAL INTEREST PRESUMING T HAT THE LOAN WAS GIVEN ON THE FIRST DAY OF ACCOUNTING YEAR, WHICH IS NOT CORRECT. AS THE LOAN WAS GIVEN DURING THE YEAR, INTEREST EVEN ON NO TIONAL BASIS CAN BE CALCULATED FOR THE DAYS OF USE ONLY THOUGH UNDER TH E FACTS AND CIRCUMSTANCES, THE SAME WAS NOT REQUIRED. THE APPELLANT FURTHER SUBMITS THAT THE AO HAD INCOR RECTLY PRESUMED THAT THE APPELLANT HAD GIVEN AMOUNT OF RS.20.65 LAC S FOR THE ENTIRE YEAR TO BAJAJ CHEMICALS PRODUCTS. THE APPELLANT HAD PLAC ED ON RECORD OF THE AO COPY OF ACCOUNT OF BOTH ACCOUNT AS WELL AS A /C. OF MILLENNIUM AND THEREFORE THE AO SHOULD NOT HAVE PRESUMED THAT THE FUNDS WERE GIVEN FOR THE ENTIRE YEAR. MOREOVER, THE ACCOUNT WA S NOT IN THE NATURE OF LOAN, THE AO WAS NOT JUSTIFIED TO PRESUME THAT I T WAS LOAN ACCOUNT. THE APPELLANT SUBMITS THAT THE APPELLANT HAD SUBSTA NTIAL FUNDS ON WINCH NO INTEREST WERE BEING PAID:- SHARE CAPITAL RS.24,95,000/- RESERVES & SURPLUS RS.85,15,706/- CURRENT LIABILITIES RS.2,55,03,002/- IT IS THEREFORE SUBMITTED THAT TO THE EXTENT ABOVE, INTEREST ON EVEN INTEREST FREE LOANS CANNOT BE CALCULATED AND' DISAL LOWED. AS FIT CAN BE PRESUMED THAT THE LOANS GIVEN CAME FROM THE SAID FU NDS. IT IS HELD BY HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS HOT EL SAVERA 148 CTR 585 THAT WHEN THE ASSESSEE HAS BOTH, OWN MONEY AND BORROWED MONEY, A PRESUMPTION CAN ARISE THAT THE MONEY LENT, EVEN FREE OF 4 INTEREST, CAME OUT OF HIS OWN MONEY. IT IS ADDED TH AT THERE WERE NO SUBSTANTIAL INCREASE IN UNSECURED LOAN WHICH WAS RS .92.73 LACS AS AGAINST RS.89.30 LAS AND THAT WERE DUE TO CHARGING OF INTEREST AT THE YEAR END. YOUR APPELLANT FURTHER RESPECTFULLY SUBMITS THAT TH E AO HAS NOT ESTABLISHED THAT THE INTEREST BEARING FUNDS WERE UT ILIZED FOR MAKING / GIVING INTEREST FREE LOANS AND THEREFORE NO DISALLO WANCE OUT OF INTEREST CAN BE MADE LEGALLY. RELIANCE IS PLACED ON THE FOLL OWING DECISIONS: SHAHIBAUG ENTREPRENEURS PVT LTD VS ITO 49 ITO TTJ 5 54 (AND) 'A' BENCH RAJMOTI INDUSTRIES VS. ITO 51 TTJ 355 (AHD, 'A'BEN CH) TORRENT FINANCIERS VS ACIT 73 TTJ 624 (AHD, 'A'BENC H) UNITED AGENCIES VS. ITO 37 TTJ 374 (AHD, 'A'BENCH) PARIKH ENTERPRISE PVT. LTD ACIT 56 TTJ 529 (AHD, 'A 'BENCH) CIT VS INDIAN EXPLOSIVE LTD 192 ITR 144 (CAL) CIT VS. COIMBATORE STATE TRANSPORT P LTD 61 ITR 480 DEE CEE NYLONS VS ACIT 97 TAXMAN 110 (AHD, 'C'BENCH ) GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD VS DCIT 73 TTJ 787 (ITAT AHD. 'A' : BENCH IN VIEW OF THE ABOVE FACTS OF THE APPELLANT COMPANY AND CONSIDERING THE LEGAL DECISIONS, IT IS SUBMITTED THAT DISALLOWA NCE MADE BY THE AO OUT OF INTEREST BEING UNWARRANTED, DESERVES TO BE D ELETED.' IN FURTHER SUBMISSIONS ON THE ISSUE, THE LD. AR SUB MITTED AS UNDER: 1 AS REGARDS INTEREST DISALLOWANCES, IT IS SUBMITTE D THAT THE RATE OF INTEREST PAID BY THE APPELLANT WAS 12% AS AGAINST 1 5% TAKEN BY THE AO. THE APPELLANT ENCLOSE HEREWITH A COPY OF TH E INTEREST ACCOUNT ALONG WITH RATE OF INTEREST. 2 THE APPELLANT ENCLOSE HEREWITH INTEREST CALCULATI ON FOR BOTH ACCOUNT (TRADING AS WELL AS CURRENT ALC.) OF BAJAJ CHEMICAL PRODUCT AS WELL AS MILLENNIUM A/C. IT IS STATED THA T IF INTEREST HAD BEEN CALCULATED IN THE ACCOUNT OF BAJAJ CHEMICAL PR ODUCT, THEN THE APPELLANT WOULD HAVE CHARGED RS.95357/- ON CURR ENT A/C AND WAS REQUIRED TO PAY RS.158935/- ON TRADING ACCOUNT. THUS, THEREFORE WOULD BEEN LOSS OF RS.63578/- ON INTEREST ACCOUNT. SIMILARLY, IF INTEREST IS CALCULATED IN THE ACCOUNT OF MILLENNIUM, 5 THEN THE APPELLANT WOULD HAVE CHARGED RS.27048/- FR OM THE PARTY. THUS, OVERALL, IF INTEREST WOULD HAVE CHARGE D/PAID, THEN THERE WOULD BE NET RESULT OF PAYMENT OF INTEREST OF RS.36,530/-. IN VIEW OF THE FACTS AS STATED ABOVE AND CONSIDERIN G THAT THE COMPANY HAD SUBSTANTIAL FUNDS IN THE FORM OF SHARE CAPITAL & RESERVES AS WELL AS THERE WERE NO SUBSTANTIAL INCREASE IN THE LOANS TO SUGGEST ADVERSE INFERENCE, INTEREST DISALLOWED BY THE AO DESERVES T O BE DELETED.' AFTER CONSIDERING THE AFORESAID SUBMISSIONS MADE BY THE ASSESSEE, THE LEARNED CIT(A) DELETED THE DISALLOWAN CE. 4 NOW, THE REVENUE IS IN APPEAL BEFORE US. THE LEAR NED DR SUPPORTED THE ORDER OF THE AO. 5 THE LEARNED COUNSEL OF THE ASSESSEE, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE LEARNED CIT(A) AND REITE RATED THE SUBMISSIONS AS MADE BEFORE HIM. THE LEARNED COUNSEL OF THE ASSESSEE ALSO RELIED UPON CERTAIN DECISIONS OF ITAT AS CITED BEFORE THE LEARNED CIT(A). 6 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RE CORDS. WE FIND THAT THE AO HAS NOT SHOWN ANY NEXUS BETWEEN IN TEREST BEARING FUNDS AND THE AMOUNT ADVANCED AT A LESSER R ATE OF INTEREST. THUS, BASICALLY THE NEXUS ITSELF IS NOT E STABLISHED. APART FROM THAT IT IS NOTICED THAT IF DAY TO DAY COMPUTAT ION OF INTEREST IN BOTH ACCOUNTS IS DONE, DISALLOWANCE WOULD BE OF SMALL AMOUNT OF RS.36,530/- ONLY AS AGAINST THE DISALLOWANCE MAD E BY THE AO. IT IS HOWEVER SEEN THAT THE ASSESSEE'S INTEREST FRE E FUNDS ITSELF ARE SEEN TO COVER THE AMOUNT OF THESE ADVANCES AND THER EFORE IN ABSENCE OF ANY NEXUS BETWEEN INTEREST BEARING FUNDS AND FUNDS PROVIDED AT A LESSER RATE OF INTEREST, WE DO NOT FI ND ANY INFIRMITY 6 IN THE ORDER OF THE LEARNED CIT(A). WE UPHOLD THE S AME. GROUND NO.1 IN THE REVENUES APPEAL IS DISMISSED. 7 THE SECOND GROUND RELATES TO DELETION OF DISALLOW ANCE OF RS.7,84,393/- BEING THE PAYMENT OF PF AND ESIC. THE FACTS OF THE CASE ARE THAT THE AO DISALLOWED THESE AMOUNTS BECAU SE THE SAME WERE NOT PAID WITHIN THE DUE DATE PROVIDED IN THE R ELEVANT STATUTE. 8 BEFORE THE LEARNED CIT(A), THE LEARNED AR OF THE ASSESSEE POINTED OUT THAT FROM THE WORKING GIVEN IN THE ORDE R IT IS APPARENT THAT THE AMOUNT IN QUESTION WAS PAID WITHI N THE DUE DATE OF FILING OF RETURN AND IN VIEW OF AHMEDABAD BENCH OF ITATS DECISION IN THE CASE OF SMARTCHEM TECHNOLOGIES LTD VS. ITO 97 TTJ 818, SAME SHOULD HAVE BEEN DELETED. AFTER CONS IDERING THE SUBMISSIONS OF THE ASSESSEE, THE LEARNED CIT(A) DEL ETED THE ADDITION IN THE FOLLOWING MANNER:- 4.2 I HAVE CONSIDERED THE SUBMISSIONS MADE. I FIND THAT THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE DECISION OF AHM EDABAD BENCH OF ITAT IN THE CASE OF SMARTCHEM TECHNOLOGIES LTD VS. ITO REPORTED AT 97 TTJ 818, RELIED UPON BY THE ASSESSEE. AS THE AMO UNT IN QUESTION HAS BEEN PAID BEFORE THE DUE DATE OF FILING OF RETU RN, ADDITION MADE BY THE AO IS DELETED. 9 THE REVENUE IS IN APPEAL BEFORE US AGAINST THE AF ORESAID FININGS OF THE LEARNED CIT(A). THE LEARNED DR SUPPO RTED THE ORDER OF THE AO. 10 THE LEARNED COUNSEL OF THE ASSESSEE, ON THE OTHE R HAND, SUPPORTED THE ORDER OF THE LEARNED CIT(A) AND REITE RATED THE SUBMISSIONS AS MADE BEFORE HIM. THE LEARNED COUNSEL OF THE 7 ASSESSEE ALSO RELIED UPON THE DECISIONS OF ITAT AHM EDABAD BENCH IN THE CASE OF SMARTCHEM TECHNOLOGIES LTD. VS . ITO (97 TTJ 818). 11 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORDS. WE FIND THAT THE LEARNED CIT(A) HAS FOLLOWED THE DECIS ION OF THE ITAT AHMEDABAD BENCH IN THE CASE OF SMARTCHEM TECHN OLOGIES LTD. VS. ITO (97 TTJ 818) AND HAS RIGHTLY HELD THAT THE AMOUNT IN QUESTION HAS BEEN PAID BEFORE THE DUE DATE OF FILIN G OF RETURN. WE ARE, THEREFORE, NOT INCLINED TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A) AND UPHOLD THE SAME. THIS GROUND RAI SED BY THE REVENUE IS DISMISSED. 12 IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED IN THE COURT TODAY ON 25-01-2012 SD/- SD/- (A MOHAN ALANKAMONY) ACCOUNTANT MEMBER (D K TYAGI) JUDICIAL MEMBER DATE : 25-01-2012 COPY OF THE ORDER FORWARDED TO: 1. BAJAJ PROCESSORS LIMITED, 109, NEW CLOTH MARKET, O/S RAIPUR GATE, AHMEDABAD 2. THE INCOME-TAX OFFICER, WARD-1(2), AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-V, AHMEDABAD 8 5. DR, ITAT, AHMEDABAD BENCH-C, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD