M/s Midland Oleo Chemicals Pvt.Ltd, Bhopal V. The ACIT, Bhopal

ITA 305/IND/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0036 (ITAT-INDORE)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 17-08-2009
• Assessment Year: 2006-2007
• Appeal Filed On: 17-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA KARAN
• Keywords: Business expenditure; Question of law; Cost of acquisition; Notional interest
• Section: 274; 251

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, S.M.C. BENCH I, INDORE BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER I.T.A.NO.305/IND/2009 A. Y. : 2006-07 M/S.MIDLAND OLEO CHEMICALS ASSISTANT COMMISSION ER OF PRIVATE LIMITED, VS. OF INCOME-TAX, BHOPAL. 2(1), BHOPAL APPELLANT RESPONDENT APPELLANT BY : NONE RESPONDENT BY : SMT. APARNA KARAN, ADDL. CIT DR O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF CIT(A), BHOPAL, DATED 24 TH APRIL, 2009, FOR THE ASSESSMENT YEAR 2006-07, ON T HE FOLLOWING GROUNDS :- 1) THAT THE LD. CIT(A) ERRED IN MAINTAINING IN PRINCIP LE DISALLOWANCE OF RS. 1,20,000/- AS ALLEGED INTEREST ON PURCHASE COST OF TRADING GOODS. 2) THAT THE LEARNED CIT(A) ERRED IN DIRECTING THE AO T O DISALLOW CLAIM OF INTEREST ON PRO-RATA BASIS WHEN ADMITTEDLY THE -:2:- TRANSACTION ENTERED WITH SISTER CONCERN WAS TRADING TRANSACTION AND NO LOAN OR ADVANCE WAS MADE TO SISTER CONCERN. 2. NONE WAS PRESENT ON BEHALF OF THE ASSESSEE. 3. I HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTA TIVE AND PERUSED THE FINDINGS OF THE AUTHORITIES BELOW. THE A.O. FOUND T HAT THE ASSESSEE COMPANY HAD PURCHASED STEEL ITEMS AMOUNTING TO RS. 10 LAKHS FOR ITS GROUP CONCERN M/S. SHIV SOLVENT PRIVATE LIMITED. THE ASSESSEE WAS DIRECTED TO PRODUCE THE NATURE OF THE AFORESAID EXPENDITURE. IT WAS EXPLAIN ED THAT STEEL ITEMS WERE PURCHASED FOR THE GROUP CONCERNS AND NEXT YEAR THE SAME ITEM WAS SOLD BACK TO THE SAME CONCERN. THE A.O., THEREFORE, NOTED THA T THE EXPENDITURE FOR GROUP CONCERN IS NOT A BUSINESS EXPENDITURE AND, ACCORDIN GLY, THE INTEREST @ 12 % ON THIS AMOUNT WAS WORKED OUT TO RS. 1.20 LAKHS, WHICH WAS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. THE LD. C IT(A) CONFIRMED DISALLOWANCE ON THE REASONS THAT THE ASSESSEE USED ITS OWN FINDINGS FOR THE BENEFIT OF THE SISTER CONCERN AND NOT FOR ITS OWN B USINESS. 4. ON CONSIDERATION OF THE ABOVE FACTS AND CONSIDER ING THE SUBMISSION OF THE LD. DR, I AM OF THE VIEW THAT THE MATTER REQUIR ES RE-CONSIDERATION AT THE LEVEL OF THE A.O. THE AUTHORITIES BELOW MADE THE AD DITION OF RS. 1,20,000/- -: 3 :- PRECISELY ON THE REASON THAT THE ASSESSEE PURCHASED STEEL ITEMS FOR ITS SISTER CONCERN. THE AO HAS NOT CLARIFIED AS TO WHICH OF TH E INTEREST HAS BEEN DISALLOWED. IF THE AO DISALLOWED THE INTEREST PAID ON THE BORROWED FUND, THEN THE AO SHALL HAVE TO GIVE SPECIFIC FINDING THAT BOR ROWED FUNDS HAVE BEEN USED FOR NON-BUSINESS PURPOSES AND THAT THE TRANSACTION IN QUESTION HAS NEXUS WITH THE BORROWED FUND. THE A.O. HAS, HOWEVER, NOT GIVEN ANY SUCH FINDING IN THE ASSESSMENT ORDER. HONBLE ALLAHABAD HIGH COURT IN T HE CASE OF CIT VS. DHAMPUR SUGAR MILLS LIMITED, 274 ITRT 370, HELD THAT WHEN T HE ASSESSEE HAD NOT ADVANCED THE LOAN OUT OF THE BORROWINGS, INTEREST C OULD NOT BE ADDED. HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. TIN BOX CO MPANY, 260 ITR 637, - HELD, DISMISSING THE APPEAL, THAT THE TRIBUNAL HAD FOUND THAT THE CAPITAL OF THE FIRM AND INTEREST FREE UNSECURED LOA NS WITH THE APPELLANT FAR EXCEEDED THE AMOUNTS ADVANCED TO THE SISTER CONCERN IN ALL THE YEARS UNDER APPEAL. ADDITIONALLY THE TRIBUNAL HAD ALSO NOTED THAT THE DEPARTMENT COULD NOT POINT OUT ANY SPECIFIC INTEREST BEARING BORROWED FUNDS, WHICH HAD BEEN DIVERTED BY THE ASSESSEE TO ITS SISTER CONCERN. THE FINDINGS OF THE TRIBUNAL BEING BASE DONE THE RELEVANT EVIDENCE ON RECORD, NO , QUESTION OF LAW, MUCH LESS A SUBSTANTIAL QUESTION OF LAW, AROSE FROM THE ORDERS OF THE TRIBUNAL. -: 4:- 5. HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF R.D.JOSHI & COMPANY VS. CIT, 251 ITR 332, HELD THAT WHEN THERE IS A FAI LURE OF THE DEPARTMENT TO PROVE NEXUS BETWEEN BORROWINGS AND WITHDRAWALS MADE BY THE PARTNERS, THE ADDITION IS UNJUSTIFIED. I MAY FURTHER NOTE THAT IF THE AO MADE THE ADDITION OF NOTIONAL INTEREST ON THE PURCHASE OF THE STEEL ITEM S BY THE ASSESSEE FOR NON- BUSINESS PURPOSES, NO SUCH ADDITION COULD BE MADE, BECAUSE THERE IS NO PROVISION IN THE INCOME-TAX ACT, EMPOWERING THE AO TO INCLUDE IN THE INCOME OF THE ASSESSEE, NOTIONAL INTEREST, WHICH WAS NOT D UE OR COLLECTED. I RELY UPON THE DECISION OF THE HONBLE GAUHATI HIGH COURT REPO RTED IN 242 ITR 22. 6. CONSIDERING THE ABOVE DISCUSSION AND THAT THE AO HAS NOT GIVEN ANY SPECIFIC FINDING ON THE ISSUE, I SET-ASIDE THE ORDE RS OF THE AUTHORITIES BELOW AND RESTORE THIS ISSUE TO THE FILE OF THE AO WITH THE D IRECTION TO RE-DECIDE THIS ISSUE BY GIVING SPECIFIC FINDING AS TO HOW INTEREST WAS D ISALLOWED, WHETHER TRANSACTION IN QUESTION WOULD HAVE ANY NEXUS WITH T HE BORROWED FUNDS OR ANY ADDITION WAS MADE ON ACCOUNT OF NOTIONAL INTEREST. THE AO SHALL RE-DECIDE THIS ISSUE BY GIVING REASONABLE SUFFICIENT OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. 7. AS A RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSES. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT O N 17 TH AUGUST, 2009. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 17 TH AUGUST, 2009. CPU*178