The DCIT, Circle-2, Ahmedabad V. Shri Anand Traders, Ahmedabad

ITA 3175/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5847 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 09-06-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 24-07-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Keywords: Rule of consistency; Set aside
• Section: 143(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' [BEFORE S/SHRI BHAVNESH SAINI,JM & A N PAHUJA,AM] ITA NOS.3174 AND 3175/AHD/2007 (ASSESSMENT YEARS:-2003-04 AND 2004-05) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-2, 2 ND FLOOR, INSURANCE BLDG., ASHRAM ROAD, AHMEDABAD V/S M/S ANAND TRADERS, 704/15, SIR CHINUBHAI BUILDING, SAKAR BAZAR, AHMEDABAD [PAN: AAFFA 8878 H] [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI K M MAHESH, DR ASSESSEE BY:- NONE O R D E R A N PAHUJA: THESE TWO APPEALS BY THE REVENUE AGAINST TWO SEPARATE ORDERS DATED 03-05-2007 AND 04-05-2007 OF THE LD. CIT (APPEALS)-VI, AHMEDABAD FOR THE ASSESSMENT YEARS 2 003-04 AND 2004-05 RESPECTIVELY, RAISE THE FOLLOWING GROUNDS:- ITA NO.3174/AHD/2007[AY 2003-04] 1 THE LD. CIT(A)-VI, ABAD HAS ERRED IN LAW AND ON THE FACTS IN DELETING THE ADDITION OF RS.8,60,498/- BEING NOTIONAL INTERE ST CALCULATED ON THE OUTSTANDING BALANCE OF THE LOANS. 2 ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 3 THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON T HE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE RESTORED. THE APPEL LANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ITA NO.3175/AHD/2007[AY 2004-05] 1 THE LD. CIT(A)-VI, ABAD HAS ERRED IN LAW AND ON THE FACTS IN DELETING THE ADDITION OF RS.8,24,494/- BEING NOTIONAL INTERE ST CALCULATED ON THE OUTSTANDING BALANCE OF THE LOANS. 2 ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. ITA NO.3174 & 3175/AHD/2007 2 3 THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON T HE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE RESTORED. THE APPEL LANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. NONE APPEARED BEFORE US ON BEHALF OF THE AS SESSEE NOR ANY REQUEST FORADJOURNMENT HAS BEEN RECEIVED. SINCE SIM ILAR ISSUE IS INVOLVED, THESE APPEALS WERE HEARD SIMULTANEOUSLY A ND ARE BEING DISPOSED OF THROUGH THIS COMMON ORDER AFTER HEARING THE LD. DR. 2 FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT THE RETURN DECLARING INCOME OF RS.5,53,160/- FILED ON 25.11.20 03 FOR THE AY 2004-04 & INCOME OF RS.11,79,400/- FILED ON 29.10.2 004 FOR THE AY 2004-05 BY THE ASSESSEE, CARRYING ON THE BUSINESS O F SALE OF SAREES AND OTHER DRESS MATERIALS, AFTER BEING PROCESSED ON 19.2.2004 & 10.12.2004 U/S 143(1) OF THE INCOME-TAX ACT, 1961 [ HEREINAFTER REFERRED TO AS THE ACT],WERE SELECTED FOR SCRUTIN Y WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 26.4.2004 & 9.5.200 5 RESPECTIVELY DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE AY 2003-04, THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE PAID INTEREST TO MOST OF THE PERSONS SPECIFIED U/S 40A(2 )(B) @ 12% AND INTEREST PAID TO FOLLOWING OTHER PERSONS NOT COVE RED U/S 40A(2)B) OF THE ACT @ 18%: I. C J FINANCE, NAVSARI RS.369000/- II DEEPAKKUMAR MAFATLAL MEHTA, NAVSARI RS. 216000/- III HIMMATLAL RAMNIKLAL SHAH, NAVSARI RS.180000/- 2.1 THE AO FURTHER NOTICED THAT THE ASSES SEE CHARGED INTEREST @ 15% TO 21% PA FROM THE FOLLOWING SISTER CONCERNS/ PERSONS SPECIFIED U/S 40A(2)(B): SR. NO. NAME OF PERSON INTEREST CHARGED BY ASSESSEE AMOUNT OF INTEREST CHARGED FROM THE PERSONS WHO ARE SPECIFIED U/S 40A(2)(B) AND FROM OTHERS ITA NO.3174 & 3175/AHD/2007 3 1 ASOPALAV SILK MUSEUM @ 15% RS.990798 2 ASOPALAV SILK MUSEUM @ 15% RS.322194 3 ANAND ENTERPRISE @ 12% RS.17085 4 ALL KNOW TERELENE CETRE @ 15% RS.23533 5 ARCHANA ENTERPRISE @ 18% RS.119467 6 BHARAT FABRICS @ 18% RS.27312 7 SHONAL ENTERPRISE @ 21% RS.31500 2.2 IT WAS FURTHER FOUND BY THE AO THAT THE ASSESS EE ADVANCED INTEREST FREE LOAN TO THE PERSONS SPECIFIED U/S 40A (2)(B) OF THE ACT OUT OF FUNDS BORROWED FROM THE PERSONS SPECIFIED U/ S 40A(2)(B) OF THE ACT. BESIDES THE ASSESSEE BORROWED AN AMOUNT OF RS.12,37,164/- FROM PROGRESSIVE MERCANTILE BANK AND RS.12,06,346/- FROM HDFC BANK APART FROM PAYING INTEREST TO HIS DE BTORS. HOWEVER, THE ASSESSEE DID NOT CHARGE INTEREST ON THE LOAN AD VANCED OUT OF THE BORROWED FUNDS FROM THE FOLLOWING PERSONS SPECIFIED U/S 40A(2)(B) OF THE ACT: SR. NO. NAME OF THE PERSON COVERED U/S 40A(2)(B) TO WHOM INTEREST FREE LOAN ADVANCED OUT OF THE BORROWED FUND BY ASSESSEE OPENING BORROWED LOAN AS ON 1-4- 2002 RECOVERY MADE DURING THE ACCOUNTING PERIOD NET OUTSTANDING BORROWED LOAN AS ON 31-3-2003 AS PER ASSESSEES BOOKS 1 HIRALAL LAHERCHAND SHAH RS.4,01,485 RS.9,522 LIC PAYMENT ON BEBALF OF THIS PERSONS TOTAL RS.4,11,007 RS.12,830 ON 23-4-02 RS.36,922 ON 31-7-04 TOTAL RS.49,752 RS.3,61,255 2 PRAKASHCHANDRA RAMCHANDRA VORA RS.3,741 NIL RS.3,741(ACTUALLY 3714) 3 AVNI TEXTILE RS.35,475 NIL RS.35,475 4 M/S ARTI INVESTMENT CORPORATION RS.96,27,970 RS.33,00,000 RS.63,27,970 5 SHRI OMPRAKASH PRAVINKUMAR RS.3,00,000 NIL RS.3,00,000 6 P T SHROFF RS.5,39,100 NIL RS.75,67,541 TOTAL OUTSTANDING LOAN AND ADVANCES GIVEN TO ABOVE SPECIFIED PERSONS FROM WHOM INTEREST HAVE NOT BEEN CHARGED BY ASSESSEE ITA NO.3174 & 3175/AHD/2007 4 2.3 TO A QUERY BY THE AO, SEEKING TO DISALLOW INTE REST IN RELATION TO AMOUNT ADVANCED ON INTEREST FREE BASIS TO THE AFORE SAID PERSONS, THE ASSESSEE WHILE RELYING UPON THE ORDER DATED 15/2/20 06 OF THE LD. CIT(A) FOR THE AY 2002-03 IN THEIR OWN CASE AND DE CISIONS IN THE CASE OF JT. CIT VS. IQBAL CHAND KHURANA 2005 (ID2) -GJX -0044- TDEL, STATE BANK OF TRAVANCORE VS. CIT,58 ITR 102 ( SC) AND CIT VS. BOKARO STEEL LTD.,236 ITR315(SC) CONTENDED THAT NO DISALLOWANCE CAN BE MADE. HOWEVER, THE AO REJECTED THE CONTENTIONS OF THE ASSESSEE AND WHILE RELYING ON DE CISIONS IN THE CASE OF CIT VS. V I BABY & CO. 254 ITR 248 , CIT VS . H R SUGAR FACTORY PVT. LTD. ,187 ITR 363(ALL),AND INDIAN SHAVING PRODUCTS VS. CIT 265 ITR 250(RAJ) AS ALSO DISTINGUISHING THE DECISIONS RELIED ON BY THE ASSESSEE, DISALLOWED INTEREST OF RS.9,08,164/- IN RELATION TO INTEREST FREE ADVANC ES TO THE SIX PERSONS MENTIONED IN PARA 2.2 ABOVE IN THE AY 2003-04. 3. LIKE WISE INTEREST OF RS. 8,28,751/-WAS DISALLO WED IN THE AY 2004-05 IN RELATION TO ADVANCES TO THE FOLLOWING PARTIES: SR. NO. NAME OF PERSON NET OUTSTANDING AS ON 31-03- 2004 INTEREST RATE AND AMOUNT 1 ARTI INVESTMENT CORPORATION 63,27,970 2 P T SHROFF 5,39,100 3 PRAKASHKUMAR RAMCHANDRA VORA 3,714 4 AVNI TEXTILE 35,475 TOTAL DEBIT BALANCE 69,06,259 @ 12% RS.828751 4. ON APPEAL, THE LD. CIT(A) WHILE RELYING UPON HIS OWN DECISION IN THE AY 2002-03 REDUCED THE DISALLOWANCE IN THE A Y 2003-04 IN THE FOLLOWING TERMS: 3. I HAVE CONSIDERED THE ABOVE SUBMISSION. ON CARE FUL EXAMINATION OF THE DETAILS FILED, THE FOLLOWING POINTS EMERGE: (I) THE APPELLANT IS IN THE BUSINESS OF ADVANCING L OANS IN ADDITION TO ITS MAIN BUSINESS OF SELLING DRESS MATERIALS AND SAREES . IT HAS ADVANCED LOAN TO THE ABOVE PERSONS IN THE EARLIER YEARS ON WHICH IT HAS CHARGED INTEREST. SO, IT IS NOT CORRECT THAT THE APPELLANT HAS ADVANC ED INTEREST FREE LOANS TO THESE PERSONS. ITA NO.3174 & 3175/AHD/2007 5 (II) THE INTEREST WAS NOT CHARGED ON THESE LOANS ON THE GROUND THAT THESE PERSONS ARE FACING FINANCIAL DIFFICULTIES FOR WHICH THEY WERE NOT IN A POSITION TO REPAY PRINCIPAL. IN SOME CASE THESE LOA NS HAVE BEEN TREATED AS BAD DEBT WHICH HAVE BEEN A/LOWED BY THE AO FOR A.Y. 2004-05. (III) IT IS SUBMITTED THAT PARTNERS HAVE INTEREST F REE FUNDS IN THEIR CAPITAL ACCOUNT WHICH IS MORE THAN THE AMOUNT ON WHICH INTE REST HAS NOT BEEN CHARGED. (IV) IT IS ALSO SUBMITTED THAT PARTNERS HAVE NOT BE EN PAID INTEREST ON THEIR CREDIT BALANCE W.E.F. 1.7.02, IN VIEW OF THE ABOVE DECISION. 3.1 I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSI ON AND PERUSED THE DETAILS. THE ABOVE FACTS WERE TAKEN INTO CONSIDERAT ION AND THE DISALLOWANCE OF INTEREST MADE ON IDENTICAL FACTS WE RE DELETED BY ID. CIT(A) IN APPELLANT'S OWN CASE FOR A.Y. 2002-03. THE DELET ION OF DISALLOWANCE WAS MADE IN RESPECT OF LOANS TO THE PERSONS MENTIONED A T SR. NO. 2, 5 & 6 ABOVE. THE FACTS REMAINING THE SAME, I DON'T FIND A NY REASON TO DIFFER WITH THE VIEWS OF MY ID. PREDECESSOR. RESPECTFULLY FOLLO WING HIS ORDER FOR A.Y, 2002-03 IN APPELLANT'S OWN CASE, I HOLD THAT THE AO IS NOT JUSTIFIED IN DISALLOWING INTEREST FOR A.Y. 2003-04 IN RESPECT OF OUTSTANDING BALANCE AGAINST THE PERSONS MENTIONED AT SR. NO. 2, 5 & 6. THE DISALLOWANCE RELATED TO THESE PERSONS ARE ACCORDINGLY DELETED. 3.2 IN RESPECT OF HIRALAL LAHERCHAND SHAH AND AVANI TEXTILES, NO INTEREST HAS BEEN CHARGED DURING THE YEAR THOUGH IN TEREST WERE CHARGED IN THE YEAR RELATING TO A.Y. 2002-03. NO EVIDENCE REGA RDING FINANCIAL HARDSHIP OF THESE CONCERNS HAVE BEEN FILED. THEREFORE, I HOL D THAT THE AO IS JUSTIFIED IN DISALLOWING PRO-RATA INTEREST ON THESE LOANS. TH E DISALLOWANCE OF INTEREST OF RS.43,350/- AND RS.4316/- ARE ACCORDINGLY UPHELD . 4 IN RESPECT OF ARTI INVESTMENT CORPORATION, IT HAS BEEN SUBMITTED THAT THIS CONCERN IS A RELATED PERSON AS PER PROVISIONS OF SECTION 40A(2)(B). IT WAS SUBMITTED THAT ARTI INVESTMENT CORPORATION HAS INCURRED HUGE LOSS FOR WHICH IT WAS NOT IN A POSITION TO PAY INTEREST. IN EARLIER YEARS, THE APPELLANT FIRM HAS CHARGED INTEREST ON ADVANCE GIVEN TO ARTI INVESTMENT CORPORATION AS A PART OF ITS BUSINESS AND THESE INTERESTS WERE DISCLOSED AS .INCOME IN EARLIER YEARS. HOWEVER, DUE TO HUGE FINANCIAL HARDS HIP FACED BY ARTI INVESTMENT CORPORATION, THE APPELLANT HAS NOT CHARG ED INTEREST ON ADVANCE GIVEN TO IT FOR THE PERIOD RELEVANT TO A.Y. 2003-04 . IT IS ALSO SUBMITTED THAT M/S ARTI INVESTMENT CORPORATION HAS CLAIMED A LOSS OF RS.1.58 CRORES IN ITS BUSINESS FOR A.Y. 2003-04 WHICH HAS BEEN ALLOWED BY THE AO IN HIS ORDER U/S 143(3). THEREFORE, IT WAS SUBMITTED THAT APPELL ANT WAS JUSTIFIED IN NOT CHARGING INTEREST DURING THE ABOVE ASSESSMENT YEARS ON ADVANCE OUTSTANDING AGAINST ARTI INVESTMENT CORPORATION. 4.1 I HAVE CONSIDERED THE ARGUMENT OF THE APPELLANT . I AGREE WITH THE CONTENTION OF THE APPELLANT THAT THE AO HAS NOT PRO PERTY CONSIDERED THE ITA NO.3174 & 3175/AHD/2007 6 FACTS OF THE CASE. ORIGINALLY, ALL THE LOANS ADVANC ED WERE INTEREST BEARING LOANS. THEREFORE, THERE IS NO MERIT IN THE AO'S OBS ERVATION THAT INTEREST FREE LOANS WERE ADVANCED TO ARTI INVESTMENT CORPORATION. IN VIEW OF THE ABOVE, THE VARIOUS DECISIONS RELIED UPON BY THE AO HAVE NO RELEVANCE TO FACTS OF THIS CASE. ON OTHER HAND, THE APPELLANT'S CLAIM IS SUPPORTED BY THE DECISIONS OF HON'BLE SUPREME COURT IN THE CASE OF P OONA ELECTRICITY SUPPLY CO. LTD. VS. CIT (SC) 57 ITR 521 AND CIT VS. BOKARO STEEL LTD.(SC) 236 ITR 315 (1990). 4.2 THE DISALLOWANCE OF INTEREST IN RESPECT OF ARTI INVESTMENT CORPORATION HAVE BEEN CONSIDERED BY C1T(A) IN THE C ASE OF A. KAMLESH & CO. FOR A.Y. 2003-04 WHEREBY ID. CIT(A), AFTER TAKI NG INTO CONSIDERATION THE BAD FINANCIAL POSITION OF M/S ARTI INVESTMENT CORPO RATION AND FOR THE REASONS STATED IN HIS ORDER DATED 30.10.2006, HAS D ELETED THE DISALLOWANCE OF INTEREST CHARGEABLE ON THE OUTSTAND ING ADVANCE GIVEN TO ARTI INVESTMENT CORPORATION BY M/S A. KAMLESH & CO. 4.3 CONSIDERING THE FACTUAL ASPECTS OF THE CASE, WE AK FINANCIAL POSITION OF M/S ART! INVESTMENT CORPORATION AND THE CASE LAW S RELIED UPON BY THE APPELLANT, I HOLD THAT APPELLANT'S ACTION OF NOT CH ARGING INTEREST IN RESPECT OF LOAN AND ADVANCES TO ARTI INVESTMENT CORPORATION IS PROPER. HENCE THERE CANNOT BE ANY CASE OF DISALLOWANCE OF INTERES T RELATING TO THE LOAN GIVEN TO THIS CONCERN. 5. TO SUM UP, THE DISALLOWANCE OF PRO-RATA INTEREST ON OUTSTANDING BALANCE OF M/S ARTI INVESTMENT CORPORATION (INTERES T RS.7,59,356/-), OM PRAKASH PRAVIN KUMAR (INTEREST RS.36,000), P.T. SHR OFF (INTEREST RS.64,692) AND PRAKASHCHANDRA R. VORA (INTEREST RS. 450/-) ARE HELD TO BE NOT JUSTIFIABLE. ACCORDINGLY, THE DISALLOWANCE OF I NTEREST OF RS.8,60,498/- IS HEREBY DELETED AND DISALLOWANCE OF INTEREST IN THE CASES OF HIRALAL LAHERCHAND SHAH (INTEREST RS.43,350/-) AND AVNI TEX TILES (INTEREST RS.4316/-) AMOUNTING TO RS.47,666/- IS CONFIRMED. 4.1 SIMILARLY IN THE APPEAL FOR THE AY 2004-05, T HE LD. CIT(A) WHILE RELYING UPON HIS OWN DECISION IN THE AY 2002-03 RED UCED THE DISALLOWANCE IN THE FOLLOWING TERMS: 3. I HAVE CONSIDERED THE ABOVE SUBMISSION. ON CARE FUL EXAMINATION OF THE DETAILS FILED, THE FOLLOWING POINTS EMERGE: (I) THE APPELLANT IS IN THE BUSINESS OF ADVANCING L OANS IN ADDITION TO ITS MAIN BUSINESS OF SELLING DRESS MATERIALS AND SAREES . IT HAS ADVANCED LOAN TO THE ABOVE PERSONS IN THE EARLIER YEARS ON WHICH IT HAS CHARGED INTEREST. SO, IT IS NOT CORRECT THAT THE APPELLANT HAS ADVANC ED INTEREST FREE LOANS TO THESE PERSONS. ITA NO.3174 & 3175/AHD/2007 7 (II) THE INTEREST WAS NOT CHARGED ON THESE LOANS ON THE GROUND THAT THESE PERSONS ARE FACING FINANCIAL DIFFICULTIES FOR WHICH THEY WERE NOT IN A POSITION TO REPAY PRINCIPAL. IN ONE CASE THE LOANS HAVE BEEN CLAIMED AS BAD DEBT FOR AY 2005-06. (III) IT IS SUBMITTED THAT PARTNERS HAVE INTEREST F REE FUNDS IN THEIR CAPITAL ACCOUNT WHICH IS MORE THAN THE AMOUNT ON WHICH INTE REST HAS NOT BEEN CHARGED. (IV) IT IS ALSO SUBMITTED THAT PARTNERS HAVE NOT BE EN PAID INTEREST ON THEIR CREDIT BALANCE W.E.F. 1.7.02, IN VIEW OF THE ABOVE DECISION. 3.1 I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSI ON AND PERUSED THE DETAILS. THE ABOVE FACTS WERE TAKEN INTO CONSIDERAT ION AND THE DISALLOWANCE OF INTEREST MADE ON IDENTICAL FACTS WE RE DELETED BY ID. CIT(A) IN APPELLANT'S OWN CASE FOR A.Y. 2002-03. THE DELET ION OF DISALLOWANCE WAS MADE IN RESPECT OF LOANS TO THE PERSONS MENTIONED A T SR. NO. 1 AND 4 ABOVE. THE FACTS REMAINING THE SAME, I DON'T FIND A NY REASON TO DIFFER WITH THE VIEWS OF MY ID. PREDECESSOR. RESPECTFULLY FOLLO WING HIS ORDER FOR A.Y, 2002-03 IN APPELLANT'S OWN CASE, I HOLD THAT THE AO IS NOT JUSTIFIED IN DISALLOWING INTEREST FOR A.Y. 2004-05 IN RESPECT OF OUTSTANDING BALANCE AGAINST THE PERSONS MENTIONED AT SR. NO. 1 AND 4 AB OVE. THE DISALLOWANCE RELATED TO THESE PERSONS ARE ACCORDINGLY DELETED. 3.2 IN RESPECT OF AVNI TEXTILES, NO INTEREST HAS BE EN CHARGED DURING THE YEAR THOUGH INTEREST WERE CHARGED IN THE YEAR R ELATING TO A.Y. 2002- 03. NO EVIDENCE REGARDING FINANCIAL HARDHSIP OF THI S CONCERN HAS BEEN FILED. THEREFORE, I HOLD THAT THE AO IS JUSTIFIED I N DISALLOWING PRO-RATA INTEREST ON THIS LOAN. THE DISALLOWANCE OF INTEREST OF RS.4257/- (12% OF NET OUTSTANDING OF RS.35,475/-) IS ACCORDINGLY UPHE LD. 4. IN RESPECT OF ARTI INVESTMENT CORPORATION, IT HA S BEEN SUBMITTED THAT THIS CONCERN IS A RELATED PERSON AS PER PROVIS IONS OF SECTION 40A(2)(B). IT WAS SUBMITTED THAT ARTI INVESTMENT CO RPORATION HAS INCURRED HUGE LOSS FOR WHICH IT WAS NOT IN A POSITI ON TO PAY INTEREST. IN EARLIER YEARS, THE APPELLANT FIRM HAS CHARGED INTER EST ON ADVANCE GIVEN TO ARTI INVESTMENT CORPORATION AS A PART OF ITS BUS INESS AND THESE INTERESTS WERE DISCLOSED AS INCOME IN EARLIER YEARS . HOWEVER, DUE TO HUGE FINANCIAL HARDSHIP FACED BY ARTI INVESTMENT CO RPORATION, THE APPELLANT HAS NOT CHARGED INTEREST ON ADVANCE GIVEN TO IT FOR THE PERIOD RELEVANT TO A.Y. 2004-05. IT IS ALSO SUBMITTED THAT M/S ARTI INVESTMENT CORPORATION HAS CLAIMED A LOSS OF RS.1.58 CRORES IN ITS BUSINESS FOR A.Y. 2003-04 WHICH HAS BEEN ALLOWED BY THE AO IN HIS ORD ER U/S 143(3). THEREFORE, IT WAS SUBMITTED THAT APPELLANT WAS JUST IFIED IN NOT CHARGING INTEREST DURING THE ABOVE ASSESSMENT YEARS ON ADVAN CE OUTSTANDING AGAINST ARTI INVESTMENT CORPORATION. ITA NO.3174 & 3175/AHD/2007 8 4.1 I HAVE CONSIDERED THE ARGUMENT OF THE APPELLANT . I AGREE WITH THE CONTENTION OF THE APPELLANT THAT THE AO HAS NOT PRO PERTY CONSIDERED THE FACTS OF THE CASE. ORIGINALLY, ALL THE LOANS ADVANC ED WERE INTEREST BEARING LOANS. THEREFORE, THERE IS NO MERIT IN THE AO'S OBSERVATION THAT INTEREST FREE LOANS WERE ADVANCED TO ARTI INVESTMEN T CORPORATION. IN VIEW OF THE ABOVE, THE VARIOUS DECISIONS RELIED UPO N BY THE AO HAVE NO RELEVANCE TO FACTS OF THIS CASE. ON OTHER HAND, THE APPELLANT'S CLAIM IS SUPPORTED BY THE DECISIONS OF HON'BLE SUPREME COURT IN THE CASE OF POONA ELECTRICITY SUPPLY CO. LTD. VS. CIT (SC) 57 I TR 521 AND CIT VS. BOKARO STEEL LTD.(SC) 236 ITR 315 (1990). THE DISAL LOWANCE OF INTEREST IN RESPECT OF ARTI INVESTMENT CORPORATION HAVE BEEN CONSIDERED BY CIT(A) IN THE CASE OF A. KAMLESH & CO. FOR A.Y. 200 3-04 WHEREBY ID. CIT(A), AFTER TAKING INTO CONSIDERATION THE BAD FINANCIAL POSITION OF M/S ARTI INVESTMENT CORPORATION AND FOR THE REA SONS STATED IN HIS ORDER DATED 30.10.2006, HAS DELETED THE DISALLOWANC E OF INTEREST CHARGEABLE ON THE OUTSTANDING ADVANCE GIVEN TO ARTI INVESTMENT CORPORATION BY M/S A. KAMLESH & CO. 4.2 CONSIDERING THE FACTUAL ASPECTS OF THE CASE, WE AK FINANCIAL POSITION OF M/S ARTI INVESTMENT CORPORATION AND THE CASE LAWS RELIED UPON BY THE APPELLANT, I HOLD THAT APPELLANT'S ACTI ON OF NOT CHARGING INTEREST IN RESPECT OF LOAN AND ADVANCES TO ARTI IN VESTMENT CORPORATION IS PROPER. HENCE THERE CANNOT BE ANY CASE OF DISALL OWANCE OF INTEREST RELATING TO THE LOAN GIVEN TO THIS CONCERN. 5. TO SUM UP, THE DISALLOWANCE OF PRO-RATA INTEREST ON OUTSTANDING BALANCE OF M/S ARTI INVESTMENT CORPORATION, PRAKASH CHANDRA RAMCHAND VORA AND P T SHROFF ARE HELD TO BE NOT JUSTIFIABLE. ACCORDINGLY, THE DISALLOWANCE OF INTEREST OF RS.8,24,494/- IS HEREBY DELETED AND DISALLOWANCE OF INTEREST IN THE CASE OF AVNI TEXTIL ES AMOUNTING TO RS.4257/- IS CONFIRMED. 5. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR MERELY SUPPO RTED THE ORDER OF THE AO. TO A QUERY BY THE BENCH, WE WERE INFORMED T HAT NO APPEAL HAS BEEN FILED AGAINST THE FINDINGS OF THE LD. CIT( A) IN THE AY 2002- 03, WHICH FORM THE BASIS FOR REDUCING THE DISALLOWA NCE IN THE YEARS UNDER CONSIDERATION. 6. WE HAVE HEARD THE LD. DR AND GONE THROUGH THE FA CTS OF THE CASE. UNDISPUTEDLY, A SIMILAR DISALLOWANCE WAS MADE IN RESPECT OF INTEREST ATTRIBUTABLE TO ADVANCES TO SHRI PRAKASHCH ANDRA RAMCHANDRA VORA, SHRI OMPRAKASH PRAVINKUMAR & PT SH ROFF IN THE ITA NO.3174 & 3175/AHD/2007 9 AY 2002-03. THE LD. CIT(A)VIDE HIS ORDER DATED 15.2 .2006 DELETED THE SAID DISALLOWANCE IN RELATION TO INTEREST ON AD VANCES TO SHRI OMPRAKASH PRAVINKUMAR & PT SHROFF WHILE THE REVENU E DID NOT FILE ANY APPEAL AGAINST THE SAID FINDINGS OF THE LD. CIT (A). THUS, THE FINDINGS OF THE LD. CIT(A) HAVE BECOME FINAL IN THE AY 2002-03 IN RELATION TO ADVANCES TO THE AFORESAID TWO PARTIES. IN THE YEARS UNDER CONSIDERATION NO NEW ADVANCES HAVE BEEN GIVEN TO TH ESE TWO PARTIES. THEREFORE, WE ARE OF THE OPINION THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE IN RELATION TO THESE TWO PARTIES IN THE YEARS UNDER CONSIDERATION, FOLLOWING HIS OWN ORDER FOR THE AY 2002-03. IN THIS CONNECTION, IN THE CASE REPORTED IN (2007)8 SCC 688 MUNICIPAL CORPORATION OF CITY OF THANE VERSUS VIDYUT METALLIC S LIMITED AND ANOTHER, HON'BLE SUPREME COURT EXPRESSED AGREEMENT WITH THE FOLLOWIN G OBSERVATIONS OF RANGANATH MISRA, C.J. IN RADHASOAMI SATSANG V. COMM ISSIONER OF INCOME TAX, (1992) 1 SCC 659 : JT 1991 (4) SC 313; 'WE ARE AWARE OF THE FACT THAT STRICTLY SPEAKING RE S JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS. AGAIN, EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT AL L APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR.' 6.1 WE FURTHER FIND FROM THE ORDER OF THE LD. CIT (A) FOR THE AY 2002-03 THAT INTEREST WAS BEING CHARGED FROM THE AFORESAID TWO P ARTIES UNTIL THE AY 2001-02 AND HAD BEEN OFFERED TO TAX. HOWEVER , IN THE AY 20 02-03, FINANCIAL POSITION OF THESE PARTIES BECAME WEAK . SHRI PT SHROFF IN HIS CONFIRMATION STATED THAT HE DID NOT PROVIDE ANY INTEREST PAYABLE TO THE ASSESSEE IN HIS BOOKS WHILE CHEQUE ISSUED BY SHRI OM PRAKASH PRAVIN KUMAR WAS DISHONOU RED. SINCE RECOVERY OF PRINCIPAL ITSELF BEING IN DOUBT, ASSESSEE DID NOT P ROVIDE INTEREST IN HIS BOOKS. 6.2 IN VIEW OF THE FOREGOING, ESPECIALLY WHEN T HE HON'BLE SUPREME COURT IN THEIR AFORESAID DECISION IN RADHASOAMI SATSANG(SUPR A) WHILE DEALING WITH THE PRINCIPLE OF CONSISTENCY AND PRINCIPLE OF RES JUDIC ATA OBSERVED THAT UNLESS THERE IS A MATERIAL CHANGE JUSTIFYING THE REVENUE TO TAKE DI FFERENT VIEW OF THE MATTER, IT ITA NO.3174 & 3175/AHD/2007 10 SHALL NOT BE PROPER FOR THE REVENUE TO TAKE A CONT RARY VIEW IN SUBSEQUENT PROCEEDINGS AND THE REVENUE IN THE INSTANT CASE HAV ING NOT INVITED OUR ATTENTION TO ANY MATERIAL SO AS TO ENABLE US TO TAKE A DIFFER ENT VIEW IN THE MATTER WHILE FINDINGS OF THE LD. CIT(A) HAVE BECOME FINAL IN REL ATION TO DISALLOWANCE OF INTEREST ON THE ADVANCES TO THE AFORESAID TWO PARTIES IN THE AY 2002-03,WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LD. CIT (A),DELETING THE DISALLOWANCE OF INTEREST ON ADVANCES TO THE SAID PARTIES ON SAME S ET OF FACTS IN THESE TWO ASSESSMENT YEARS. 6.3 AS REGARDS DISALLOWANCE OF INTEREST OF RS. 450/- IN RELATION TO ADVANCES TO SHRI PRAKASHCHANDRA R VORA IN EACH OF THESE TWO ASS ESSMENT YEARS, WE FIND THAT THE LD. CIT(A), IN FACT, IN THE AY 2002-03 UPHELD T HE DISALLOWANCE IN THE ABSENCE OF ANY JUSTIFICATION FOR NOT CHARGING INTEREST FROM THE SAID PERSON. THEREFORE, THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISAL LOWANCE OF INTEREST IN THE AYS 2003-04 & 2004-05 ON THE GROUND THAT SIMILAR DISAL LOWANCE HAD BEEN DELETED BY THE LD. CIT(A) IN THE AY. 2002-03. THERE BEING NOTH ING TO SUGGEST THAT THE ASSESSEE DISPUTED THE FINDINGS OF THE LD. CIT(A) IN FURTHER APPEAL, AND THE ORDER OF LD. CIT(A) FOR THE AY 2002-03 HAVING BECOME FIN AL, IN VIEW OF OUR REASONING IN PARA 6 & 6.2 ABOVE, WE HAVE NO HESITATION IN REVER SING THE FINDINGS OF THE LD. CIT(A) FOR THESE TWO ASSESSMENT YEARS AND FURTHER U PHOLDING THE DECISION OF THE AO IN RESPECT OF DISALLOWANCE OF INTEREST IN RESPE CT OF ADVANCE TO SHRI PRAKASHCHANDRA R VORA . THEREFORE, APPEAL OF THE RE VENUE TO THIS EXTENT IS ALLOWED. 6.4. AS REGARDS DISALLOWANCE OF INTEREST IN R ESPECT OF ARTI INVESTMENT CORPORATION, A SISTER CONCERN, THE LD. CIT(A) FOUND THAT A SIMILAR DISALLOWANCE OF INTEREST IN RESPECT OF ARTI INVESTMENT CORPORATION HAD BEEN DELETED BY LD. C1T(A) IN THE CASE OF A. KAMLESH & CO. FOR A.Y. 2003-04 VI DE HIS ORDER DATED 30.10.2006, INTER ALIA DUE TO HUGE FINANCIAL HARDSH IP AND LOSS OF RS.1.58 CRORES IN ITS BUSINESS FOR THE A.Y. 2003-04 BY ARTI INVES TMENT CORPORATION. THE ASSESSEE DID NOT CHARGE ANY INTEREST FROM THE SAID CONCERN IN THE YEARS UNDER CONSIDERATION DUE TO HUGE LOSSES BY THE SAID CORPOR ATION. IN THESE CIRCUMSTANCES, THE LD. CIT(A) DRAWING SUPPORT FROM THE DECISIONS O F HON'BLE SUPREME COURT IN ITA NO.3174 & 3175/AHD/2007 11 THE CASE OF POONA ELECTRICITY SUPPLY CO. LTD. VS. C IT (SC) 57 ITR 521 AND CIT VS. BOKARO STEEL LTD.(SC) 236 ITR 315 (1990), DELETED T HE DISALLOWANCE IN THESE TWO ASSESSMENT YEARS. UNDISPUTEDLY, THE ASSESSEE HAD BE EN CHARGING INTEREST FROM THE SAID CONCERN UNTIL THE AY 2002-03 AND INTEREST INCOME HAD BEEN BROUGHT TO TAX. SUBSEQUENTLY, DUE TO HUGE LOSSES INCURRED BY T HE SAID CONCERN, INTEREST WAS NOT CHARGED.. APPARENTLY, WHEN THE PRINCIPAL AMOUN T ITSELF WAS DIFFICULT TO RECOVER , THE ASSESSEE STOPPED CHARGING INTEREST W.E.F AY 2 003-04 ONWARDS. AS THE RECOVERY OF PRINCIPAL AMOUNTS ITSELF WAS IN DOUBT, AS A PRUDENT BUSINESSMAN THE ASSESSEE WAS WHOLLY WITHIN ITS RIGHT TO DECIDE NOT TO CHARGE ANY INTEREST FROM THE DEBTOR . IN THIS VIEW OF THE MATTER, THERE WAS NO Q UESTION OF ADDING AN ESTIMATED AMOUNT OF INTEREST ON THE LOAN ADVANCED TO THE AFO RESAID CONCERN . IN SIMILAR CIRCUMSTANCES, HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. LAXMI DAL MILLS,146 TAXMAN 625, UPHELD THE FINDINGS OF THE IT AT IN DELETING THE DISALLOWANCE. THE REVENUE HAVE NOT PLACED BEFORE US ANY MATERIAL, CONTROVERTING THE FINDINGS OF THE LD. CIT(A) IN THE SE TWO ASSESSMENT YEARS NOR BROUGHT TO OUR NOTICE ANY CONTRARY DECISI ON. IN THESE CIRCUMSTANCES, WE ARE NOT INCLINED TO INTERFERE WIT H THE FINDINGS OF THE LD. CIT(A). 7. IN VIEW OF THE FOREGOING, GROUND NO.1 IN THESE T WO APPEALS IS PARTLY ALLOWED TO THE EXTENT MENTIONED IN PARA 6.3 ABOVE. 8. THE OTHER GROUNDS IN THESE TWO APPEALS BEI NG GENERAL IN NATURE, DO NO REQUIRE ANY SEPARATE ADJUDICATION AND ARE, THEREFORE, DISMISSED. 9. IN THE RESULT, BOTH THESE APPEALS ARE PARTLY A LLOWED. ORDER PRONOUNCED IN THE COURT TODAY ON 30 -06-2010 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 30-06-2010 ITA NO.3174 & 3175/AHD/2007 12 COPY OF THE ORDER FORWARDED TO: 1. M/S ANAND TRADERS, 704/15, SIR CHINUBHAI BUILDIN G, SAKAR BAZAR, AHMEDABAD 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-2, 2 ND FLOOR, INSURANCE BLDG., ASHRAM ROAD, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-VI, AHMEDABAD 5. THE DR, C BENCH ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD