Avirat Build-Con Pvt. Ltd., Ahmedabad V. The ACIT, Circle-1(1)(1), Ahmedabad

ITA 314/AHD/2022

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The case involves Avirat Build-Con Private Limited, which appealed against the orders of the Commissioner of Income Tax (Appeals) and the Assessing Officer concerning the disallowance of interest expenses and the addition of certain liabilities as income. The primary contention was whether the interest expenses related to advances given for business purposes were allowable under section 36(1)(iii) of the Income Tax Act, 1961. The Tribunal found that the interest expenses should not have been disallowed based on the consistent treatment in previous years and similar cases. Additionally, the Tribunal addressed the issue of double taxation concerning an amount treated as income under section 41(1), which had already been taxed in a subsequent year.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135829 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 17-10-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 16-08-2022
• Other Referred Cases: CIT vs. Sridev Enterprises reported in 192 ITR 165
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRIASHOKKUMARSUTHAR
• Assessee Lawyers: OBSERVINGAS; ..THEAPPELLANTSSUBMISSIONSARECAREFULLYCONSIDERED.ITISTHECONTENTIONOFTHE

Judgement Text

आयकरअपीलीयअधिकरण , अहमदाबादनयायपीी INTHEINCOMETAXAPPELLATETRIBUNAL, ‘’C’’BENCH,AHMEDABAD BEFORESHRIWASEEMAHMED,ACCOUNTANTMEMBER And SHRITRSENTHILKUMAR,JUDICIALMEMBER आयकरअपीलसं./ITANo.314/AHD/2022 धििाधरणवरध / Asstt.Year:2017-2018 AviratBuild-ConPrivateLimited, FPNo.565, Before100Ft., DivineHighLandSola, Ahmedabad. PAN:AAKCA7938E Vs. A.C.I.T, Circle-1(1)(1), Ahmedabad. (Applicant)(Respondent) Assesseeby:ShriParinShah,A.R Revenueby:ShriAshokKumarSuthar,Sr.D.R सुिवाईकीतारीख /DateofHearing:18/10/2023 घोरणाकीतारीख /DateofPronouncement:01/11/2023 आदेश /ORDER PERWASEEMAHMED,ACCOUNTANTMEMBER: ThecaptionedappealhasbeenfiledattheinstanceoftheAssesseeagainst theorderoftheLearnedCommissionerofIncometax(Appeals),Ahmedabad, arisinginthematterofassessmentorderpassedunders.143(3)oftheIncome TaxAct,1961(here-in-afterreferredtoas"theAct")relevanttotheAssessment Year2017-2018. ITAno.314/AHD/2022 A.Y.2017-18 2 2.ThefirstissueraisedbytheassesseeisthattheLd.CIT(A)erredin confirmingtheorderoftheAObysustainingdisallowanceofinterestexpenseu/s 36(1)(iii)oftheActonthegroundthatsuchexpenseswasnotincurredforthe purposeofbusiness. 3.Thefactsinbriefarethattheassesseeinthepresentcase,aprivate limitedcompany,isengagedinthebusinessofconstructionresidential/ commercialcomplexandcivilwork.TheAOduringtheassessmentproceedings foundthattheassesseeononehandhasgivenadvanceofRs.5,50,00,000/- withoutcharginganyinteresttoM/s.GaneshPlantationLimitedandontheother hand,theassesseehasincurredhugeinterestexpenditureontheborrowingfund amountingtoRs.79,35,084/-only.Accordingly,theAOwasoftheviewthatthe assesseehasdiverteditsinterest-bearingfundfornon-commercialpurposes.On questionbytheAO,theassesseejustifiedthattheadvancewasgiventoM/s GaneshPlantationLtd.foritsbusinesspurpose.Assuchtheassesseewantedto buyapieceoflandafterutilizingtheservicesofM/sGaneshPlantationLtd.Inthis connectiontheadvancewasmade.However,theAOwasnotsatisfiedwiththe contentionoftheassesseeandheldthatinterestbearingfundhasbeendiverted. Accordingly,theAOworkedouttheinterestonsuchadvanceamountingtoRs. 60,60,000/-anddisallowedthesameu/s36(1)(iii)oftheAct. 4.AggrievedassesseepreferredanappealtotheLd.CIT(A),whoalso confirmedtheorderoftheAO. 5.BeingaggrievedbytheorderoftheLd.CIT(A),theassesseeisinappeal beforeus. 6.TheLd.ARbeforeusfiledapaperbookrunningfrompages1to62anda caselawcompilationrunningfrompages1to44whichareavailableonrecord. TheLd.ARsubmittedthattheadvancewasgivenbytheassesseeintheearlier assessmentyearandtherewasnodisallowanceofinterestexpensemadeinthat ITAno.314/AHD/2022 A.Y.2017-18 3 year.Thus,accordingtotheLd.ARtherecannotbeanydisallowanceofinterest expensesontheopeningamountofloansandadvancesbroughtforwardinthe yearunderconsideration.TheLd.ARinsupportofhiscontentionreliedonthe judgmentofHon’bleKarnatakaHighCourtinthecaseofCITvs.Sridev Eenterprisesreportedin192ITR165. 7.Ontheotherhand,theLd.DRsubmittedthatintheimmediatelypreceding assessmentyear,therewasnoassessmentframedbytheIncome-taxDepartment. Thus,itcannotbesaidthattherevenuehasadmittedthattheassesseehasgiven advancestoM/sGujaratPlantationLtd.forthepurposeofbusiness.Accordingly, theLd.DRcontendedthattheprincipleslaiddowninthecaseofM/sSridev Enterprisesarenotapplicableinthepresentfactofthecaseastherewasno assessmentframedu/s143(3)oftheAct,intheimmediatelypreceding assessmentyear. 8.Inrejoinder,theLd.ARcontendedthattherevenuehasnotinitiatedany proceedingsforimmediatelyprecedingassessmentyearevenafteritbecame knowntothefactthattherewasdiversionofinterest-bearingfund.Thus,asper theLd.ARtherevenueadmittedintheimmediatelyprecedingassessmentyear thatsuchadvanceshavebeengivenbytheassesseeinthecourseofitsbusiness. 9.Wehaveheardtherivalcontentionsandperusedthematerialsavailableon record.Thereisnoambiguitytothefactthattheassesseehasadvancedmoneyin theimmediatelyprecedingassessmentyearandtherewasnodisallowanceof interestexpenseinsaidassessmentyear.Thus,thequestionarisesintheyear underconsideration,cantherebeanydisallowanceofinterestexpenseonaccount ofdiversionofinterest-bearingfundintheyearunderconsideration.Insuchfacts andcircumstances,theHon’bleKarnatakaHighCourtinthecaseofM/sSridev Enterprise(supra)hasdecidedtheissueinfavouroftheassesseebyobservingas under: ITAno.314/AHD/2022 A.Y.2017-18 4 4.WeareinagreementwiththeviewexpressedbytheTribunal.Thestatusofthe amountstandingasoutstandingduefromNalandaonthefirstdayoftheaccounting yearistheamountthatstoodoutstandingonthelastdayofthepreviousaccounting year;therefore,itsnatureandstatuscannotbedifferentonthe1stdayofthecurrent accountingyear,fromitsnatureandstatusasonthelastdayofthepreviousaccounting year.Regardingthepastyears,theassesseeclaimsfordeductionswereallowedin respectofthesumsadvancedduringthoseyears;thiscouldbe,onlyontheassumption thatthoseadvanceswerenotoutofborrowedfundsoftheassessee.Thisfindingduring thepreviousyearsistheverybasisofthedeductionspermittedduringthepastyears, whetheraspecificfindingwasrecordedornot.Adeparturefromthatfindinginrespect ofthesaidamountsadvancedduringthepreviousyear,wouldresultinacontradictory finding;itwillnotbeequitabletopermittherevenuetotakeadifferentstandnow,in respectoftheamountswhichwerethesubject-matterofpreviousyears’assessments; consistencyanddefinitenessofapproachbytherevenueisnecessary,inthematterof recognisingthenatureofanaccountmaintainedbytheassesseesothatthebasisofa concludedassessmentwouldnotbeignoredwithoutactuallyreopeningtheassessment. Theprincipleissimilartothecaseswhereithasbeenheldthatadebtwhichhadbeen treatedbytherevenueasagooddebtinaparticularyearcannotsubsequentlybeheld byittohavebecomebadpriortothatyear. 9.1Theonlydistinctionintermsofchangeinfactandcircumstancebroughtby theLd.DRisthattherewasnoassessmentframedintheimmediatepreceding assessmentyearintheowncaseoftheassesseewhereasinthecaseofM/s SridevEnterprise(supra),therewasassessmentproceedingsintheearlier assessmentyearu/s143(3)oftheActwhereinnodisallowanceofintereston accountofdiversionoffundwasmade.ToaddressthecontentionoftheLd.DR wenotethatwehavetoseetheratioofthejudgmentpropoundedbytheHigher Forumi.e.Hon’bleKartnatakeHighCourt.Assuch,therewasnoissuerelatingto thecasewhethertheassessmentwasframedu/s143(3)oftheAct,oritwas processedu/s143(1)oftheAct,asfarasdisallowanceofinterestisconcerned. Thus,thefindingsgivenbytheHon’bleKarnatakeHighCourtontheissuethatthe intheearlierassessmentyear,therevenuehasnotmadeanydisallowanceare squarelyapplicabletothepresentfactsofthecase.Thus,wesetasidethe findingsofLd.CIT(A)anddirecttheAOtodeletetheadditionmadebyhim. 10.ThesecondissueraisedbytheassesseeisthattheLd.CIT(A)erredin confirmingthedisallowancemadebytheAOforRs.14,11,312/-onaccountof cessationofliabilityu/s41(1)oftheAct. ITAno.314/AHD/2022 A.Y.2017-18 5 11.Therewerecertainoutstandingbalancesappearinginthebooksof accountsoftheassesseewhichwerepurposedtobetreatedasincomebytheAO undertheprovisionofsection41(1)oftheAct.However,theassesseehas submittedthatsuchoutstandingbalanceshavebeenofferedtotaxinthe subsequentassessmentyearandthereforethesamecannotbemadesubjectto theadditionintheyearunderconsiderationotherwiseitwouldleadtodouble addition.However,theAOdisagreedwiththecontentionsoftheassesseeand confirmedthesumofRs.14,11,312/-undertheprovisionsofsection41(1)ofthe Act. 12.AggrievedassesseepreferredanappealtotheLd.CIT(A)whoallowedthe groundofappealoftheassesseebyobservingasunder: 4.5.2Theappellant’ssubmissionsarecarefullyconsidered.Itisthecontentionofthe appellantthattheappellanthaveofferedthesaidamountofRs.14,11,312/-u/s.41(1) duringtheAsst.Year2018-19afterwaitingfor3years.Since,theappellantclaimstohave alreadyofferedthesametotax,theadditionmadetatamounttodoubletaxation.Hence, theAOisdirectedtoverifythefactwhetehrthesaidamountofRs.14,11,312/-was alreadyofferedtotaxbytheAppellantfortheAssessmentyear2018-19,andifsorelief shouldbegrantedintheAssessmentYearunderconsideration,I.eAssessmentYear2017- 18.theappellant’sgroundonthisissueisallowedforstatisticalpurposes. 13.BeingaggrievedbytheorderoftheLd.CIT(A),theassesseeisinappeal beforeus. 14.TheLd.ARbeforeusfairlyconcededthattheLd.CIT(A)hasgivencorrect directiontotheAOtoallowthedeductiontotheassesseesubjecttothe verificationthattheassesseehasofferedtheoutstandingbalancesasincomein thelateryears.However,theAOintheconsequentialyeardidnotdeletethe additionmadeintheoriginalassessmentorder.Thus,theLd.ARsubmittedthata suitabledirectioncanbegiventotheAOthatintheeventtheassesseehas offeredincomebywritingofftheoutstandingbalances,thenthesameshouldbe deleted. ITAno.314/AHD/2022 A.Y.2017-18 6 15.Ontheotherhand,theLd.DRvehementlysupportedtheorderofthe authoritiesbelow. 16.Wehaveheardtherivalcontentionsandperusedthematerialsavailableon record.Theoutstandingbalancesshownbytheassesseeintheyearunder considerationweretreatedbytheAOasincomeundertheprovisionofsection41 (1)oftheAct.However,itwassubmittedbeforeusthattheincomeofsuch outstandingsundrybalancehasbeenofferedtotaxforassessmentinthelater year.Ifthatbeso,therewillbeadoubleadditiontotheincomeoftheassessee whichisnotdesirableundertheprovisionoflaw.Assuch,wedonotfindany infirmityintheorderoftheLd.CIT(A),butforthecostofrepetition,weremitthe issuetothefileoftheAOforfreshadjudicationaspertheprovisionoflaw.The assesseeisalsodirectedtoco-operatebeforetheAObyprovidingnecessary information.Hencethegroundofappealofassesseeisallowedforthestatistical purposes. 17.Intheresult,theappealfiledbytheassesseeisherebypartlyallowedfor thestatisticalpurposes. OrderpronouncedintheCourton01/11/2023atAhmedabad. Sd/-Sd/- (TRSENTHILKUMAR)(WASEEMAHMED) JUDICIALMEMBERACCOUNTANTMEMBER (TrueCopy) Ahmedabad;Dated01/11/2023 Manish