The ITO, Ward-1(1)(2), Ahmedabad V. Anil Tradecom LTd., Ahmedabad

ITA 3196/AHD/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8513 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 09-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEEPAK SUTHARI A
• Assessee Lawyers: N O N E
• Keywords: Business income; Proportionate interest; Commercial expediency

Judgement Text

I.T.A. NO. 3 196 /AHD/201 5 ASSESSMENT Y EAR: 20 11 - 12 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD SMC BENCH, AHMEDABAD [CORAM : PRAMOD KUMAR AM ] I.T.A. NO. 3196 /AHD/201 5 ASSESSMENT Y EAR : 20 11 - 12 INCOME TAX OFFICER , .... ................ APPELLANT WARD 1(1)(2) , AHMEDABAD. VS. ANIL TRADECOM LIMITED , .......... . RESPONDENT 201, ANIKET, C.G. ROAD, NAVRANGPURA, AHMEDABAD 380 0 09 . [PAN: A AECA 7864 M ] APPEARANCES BY: DEEPAK SUTHARIA FOR THE APPELLANT N ONE FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 21. 08 .2017 DATE OF PRONOUNCING THE ORDER : 25 . 0 9 . 2017 O R D E R 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 3 RD SEPTEMBER 2015, PASSED BY THE L EARNED CIT(A) - 3 , AHMEDABAD FOR THE ASSESSMENT YEAR 20 11 - 12 , ON THE FOLLOWING GROUND S : - 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.41,74,048/ - OUT OF TOTAL DISALLOWANCE OF RS.45,97,702/ - MADE ON ACCOUNT OF INTEREST PAYMENT U/S.36(1)(III) OF THE ACT AND RESTRICT ING IT TO RS.4,23,655/ - . 2 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, T HE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING O FFICER TO THE EXTENT MENTIONED ABOVE SINCE THE ASSESSEE HAS FAILED TO DISCLOSE HIS TRUE INCOME/BOOK PR OFIT . 3. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED TO THE ABOVE EXTENT. I.T.A. NO. 3 196 /AHD/201 5 ASSESSMENT Y EAR: 20 11 - 12 PAGE 2 OF 5 2. TO ADJUDICATE ON THIS APPEAL ONLY A FEW MATERIAL FACTS NEED TO BE TAKEN NOTE OF. IT IS A CAS E IN WHICH THE ASSESSEE HAS GIVEN INTEREST - FREE ADVANCES OF RS.35.91 CRORES TO CERTAIN CONCERNS. THERE IS , HOWEVER, NO DISPUTE THAT THE INTEREST - FREE FUNDS ON ACCOUNT OF SHARE CAPITAL, RESERVES AND SURPLUS AND CURRENT LIABILITIES AGGREGATING TO RS.73.35 C RORES WERE AVAILABLE TO THE ASSESSEE . HOWEVER, THE ASSESSING O FFICER PROCEED TO MAKE DISALLOWANCE OF RS.45,97,702/ - AS INTEREST PROPORTIONATE TO ADVANCES RELATABLE TO INTE REST BEARING FUNDS AV AILABLE TO THE ASSESSEE BY OBSERVING AS FOLLOWS : - 4.6 TAKING THE FACTS AND CIRCUMSTANCES OF THE CASE IN TOTALITY INTO CONSIDERATION AS W ELL AS VARIOUS JUDICIAL PRONOUNCEMENTS AS DISCUSSED ABOVE, THE TOTAL AMOUNT SO DIVERTED AS INTEREST FREE LOANS AND ADVANCES AND ADVANCES TO CUSTOMERS COMES TO RS.35,90,60,902/ - OUT OF WHICH FUND ADVANCED TO ANIL MINES LIMITED PROMOTERS OF RS.35,00,00,000/ - ON VERIFICATION OF LEDGER A/C IT IS FOUND THAT THE SAID FUND HAS BEEN T/FD. IN THE MONTH OF 6 TH JUNE 2011 TO 31 ST MARCH 2011 I.E. FOR THREE MONTH, THEREFORE INTEREST @ 12% ON RS .35,00,00,000/ - ON D AILY BASIS CALCULATED WHICH COMES TO RS.35,10,394/ - AND FOR BALANCE LOANS & ADVANCES OF RS.90,60,902/ - INTEREST THEREOF AT THE @ 12% WOULD WORK OUT AT RS.10,87,308/ - . IN VIEW OF THE ABOVE FACTS , THEREFORE TOTAL DISALLOWANCE OF INTERES T ON INTEREST FREE LOANS AND ADVANCES AND ADVANCES TO CUSTOMERS COMES T O RS.45,97,702/ - . (RS.35,10,394 + RS.10,87,308). HENCE, THE CLAIM OF THE ASSESSEE ON ACCOUNT OF INTEREST PAYMENT OF RS.5,25,89,797/ - IS RESTRICTED TO RS.4,79,92,095/ - AND THEREFORE BALA NCE AMOUNT OF RS.45,97,702/ - IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. PENALTY PROCEEDINGS U/.S.271(1)(C) OF THE ACT FOR FURNISHING INACCURATE PARTICULARS OF INCOME ARE BEING INITIATED ON THIS ACCOUNT. 3. HOWEVER , WHEN THE ASSESS EE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A) , THE LEARNED C I T(A) RESTRICTED THE DISALLOWANCE TO RS.4,23,655/ - BY OBSERVING AS FOLLOWS : - ON CAREFUL CONSIDERATION OF MATERIAL FACTS, OBSERVATIONS OF ASSESSING O FFICER AND CONTENTIONS OF APPELLANT . THE ARGUMENTS AND OBSERVATIONS MADE BY ASSESSING OFFICER AND APPELLANT ARE DEALT FOR EACH ADVANCES IN SUBSEQUENT PARAS. ( I ) THE ASSESSMENT O FFICER OBSERVED THAT MAJOR ADVANCES WAS GIVEN TO ANIL MINES & MINERALS LIMITED FOR RS.35 CRORES AND AS SUCH ADVANCES I.T.A. NO. 3 196 /AHD/201 5 ASSESSMENT Y EAR: 20 11 - 12 PAGE 3 OF 5 WERE GIVEN FROM THE MONTH OF JANUARY 2011 TO MARCH 2011, ONLY PROPORTIONATE INTEREST IS DISALLOWED COMPUTED AT RS.35,10,394 ON AFORESAID ADVANCES ON DAILY BASIS. I HAVE PERUSED THE DETAILS GIVEN BY APPELLANT AND IT IS SEEN THAT IN THE CASE OF ANIL MINES AN D MINERALS LTD. ADVANCES WERE MADE AS PROMOTERS CONTRIBUTION DURING THE COURSE OF BUSINESS. THE LEDGER ACCOUNTS OF ANIL MINES AND MINERALS LTD. (PAYABLE ACCOUNT) AND PROMOTERS ACCOUNT CLEARLY REPRESENTS OUTSTANDING AM OUNT PAYABLE ON YEAR END IS RS. 39.27 CR ORES, AS AGAINST WHICH APPELLANT HAS MADE PAYMENT OF RS. 35 CRORES TO THE SAID PARTY. IF THE LEDGER ACCOUNTS OF BOTH THE TRANSACTIONS ARE MERGED TOGETHER, THERE WOULD BE CREDIT BALANCE OF RS.4.27 CRORES. IT IS CLEARLY PAGEANT IN THE AUDITED ANNUAL ACCOUNTS , THAT AMOUNT RECEIVED AGAINST BUSINESS TRANSACTION AND AMOUNT ADVANCED AS PROMOTER'S CONTRIBUTION WAS SEPARATELY SHOWN BY APPELLANT. THE APPELLANT HAS NOT PAID ANY INTEREST ON AMOUNT RECEIVED FROM SUCH PARTY NOR RECEIVED ANY INTEREST FROM ADVANCES GIVEN T O SUCH PARTY AND CUMULATIVE BALANCE AT THE YEAR END REFLECTS, AMOUNT PAYABLE TO PARTY REFERRED SUPRA, THE INTEREST DISALLOWANCE IN SUCH RESPECT IS NOT JUSTIFIED. ASSESSING OFFICER IS THEREFORE DIRECTED TO D ELETE THE ADDITION MADE FOR RS. 35,10,394 BEING PR OPORTIONATE INTEREST CALCULATED @12% OF RS.35 CRORES. (II) FURTHER, IN RESPECT OF ADVANCES MADE TO MANIK TRADING PVT. LTD. AMOUNTING TO RS.55,30,450/ - , APPELLANT ARGUED THAT IT HAS REGULAR BUSINESS TRANSACTIONS WITH THE SAID PARTY AND DURING THE YEAR UNDE R CONSIDERATION, IT HAS MADE TOTAL PURCHASES AMOUNTED TO RS. 6,21,42,430/ - , AND TOTAL SALES AMOUNTED TO RS. 1,93,76,813/ - , AND THE ADVANCES W E RE AGAINST PURCHASES MADE FOR BUSINESS PURPOSE. ON PERUSAL OF LEDGER ACCOUNT OF THE SAID PARTY, I FOUND THAT THE CON TENTION OF APPELLANT IS FOUND CORRECT AND AMOUNT OUTSTANDING FROM THE PARTY IS ARISING OUT OF REGULAR BUSINESS ACTIVITY CARRIED OUT W ITH SUCH PARTY. CONSIDERING THIS FACT, DISALLOWANCE OF INTEREST ON OUTSTAN DING BALANCE FROM SUCH ACCOUNT CANNOT BE MADE. TH E ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLOWANCE OF INTEREST IN R E SPECT OF ADVANCES MADE TO SUCH PARTY. THUS, DISALLOWANCE OF INTEREST EXPENDITURE MADE BY ASSESSING OFFICER FOR RS.6,63,654/ - IS DELETED. ( I II) AS REGARDS TO ADVANCES MADE TO OTH ER PARTIES BEING KANTIBHAI S PATE L , DINESH S PATEL, HARSHAD M PATEL AND ANIL COMMODITIES LIMITED, APPELLANT SUBMITTED THAT THESE WERE NOT LOANS GIVEN BUT OUTSTANDING BALANCES ON ACCOUNT OF BUSINESS TRANSACTIONS OF PURCHASES PERTAINING TO PREVIOUS YEARS WHI CH HAVE BEEN CARRIED FORWARD AND DURING THE YEAR UNDER CONSIDERATION NO NEW PURCHASES WERE MADE, THEREFORE DISALLOWANCE OF INTEREST CANNOT BE MADE. I HAVE CONSIDERED THE FACTS IN DETAIL AND FOUND THAT THE APPELLANT HAS FAILED TO E S TABLISH THAT THE ADVANC ES WERE MADE FOR THE PURPOSE OF BUSINESS AS A MEASURE OF COMMERCIAL EXPEDIENCY. ON PERUSAL OF LEDGER A/C SUBMITTED BY APPELLANT IT IS NOT PROVED THAT THE ADVANCES I.T.A. NO. 3 196 /AHD/201 5 ASSESSMENT Y EAR: 20 11 - 12 PAGE 4 OF 5 MADE ARE IN THE N ATURE OF BUSINESS. THEREFORE THE INTEREST DISALLOWANCE IN RESPECT OF THE AFO RESAID ADVANCES IS JUSTIFIED. I, HEREBY, UPHELD THE DISALLOWANCE OF INTEREST MADE BY ASSESSING O FFICER IN RESPECT OF ADVANCES MADE TO SUCH PARTIES. THE APPELLANT ADDITIONALLY ARGUED THAT AMPLE OF INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL, RESERVE S AND SURPLUS AND CURRENT LIABILITIES TOTALING TO RS.73.35 CRORES IS AVAILABLE TO COVER ALL THE INTEREST FREE ADVANCES OF RS.35.91CRORES MADE, HENCE NO DISALLOWANCE UNDER SECTION 36(1)(III) CAN BE MADE. IN RESPON SE TO THE SAID CONTENTION, I RESOLUTELY REC KON THAT CURRENT LIABILITIES REQUIRES TO BE EXCLUDED WHILE CALCULATING INTEREST FREE OWNED FUNDS AVAILABLE, AS APPELLANT HAS CURRENT ASSETS OF RS .142.43 CRORE WHICH MEANS THAT CURRENT LIABILITIES NE ED TO BE SET OFF AGAINST ABOVE R EFERRED CURRENT ASSETS. C ONSIDERING THESE FACTS, IF IN THE PRESENT CASE INTEREST FREE F UNDS ARE CALCULATED EXCLUDING CURRENT LIABILITIES, IT WORKS OUT TO RS.39,45,011/ - , THAT IS FAR IN SCARCITY WITH THE INTEREST FREE ADVANCES OF RS.35.91 CRORES MADE TO THE AFORESAID PARTIES. ON TH AT REASON, THIS CONTENTION OF APPELLANT BECOMES IRRELEVANT AND THEREFORE IS NOT ACCEPTABLE. CONSIDERING THE FACTS DISCUSSED HEREIN ABOVE ASSESSING OFFICER IS DIRECTED TO DELETE PROPORTIONATE INTEREST DISALLOWANCE PERTAINING TO ADVANCES GIVEN TO ANIL MINE RS & MINERALS AND MANIK TRADING COMPANY. ON THIS BASIS, THE APPELLANT GETS RELIEF OF RS.41,74,048/ - OUT OF TOTAL DISALLOWANCE OF RS.45,97,702/ - MADE BY ASSESSING O FFICER. THE DISALLOWANCE SO MADE BY ASSESSING O FFICER IS RESTRICTED TO RS.4,23,655/ - . THE GROUND OF APPEAL IS PARTLY ALLOWED. 4. THE ASSESSING OFFICER IS AGGRIEVED BY THE RELIEF SO GRANTED B Y THE LEARNED CIT(A) AND IS IN APPEAL BEFORE THE T RIBUNAL. 5. I HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACT S OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 6. I FIND THAT THE LA W IS VERY WELL SETTLED IN THI S REGARD AS LONG A S THE ASSESSEE HAS SUFFICIENT INTEREST - FREE FUNDS TO MEET INTEREST - FREE LOANS. PRESUMPTION TO BE DRAWN IS THAT INTEREST - FREE LOANS HAVE BEEN ADVANCED OUT OF INTEREST - FREE FUNDS. THERE ARE NUMBER OF DECISIONS OF VARIOUS HON BLE H IGH C OURTS STARTING WITH HON BLE BOMBAY H IGH C OURT IN THE CASE OF CIT VS. RELIANCE UTILIT IES & POWER L IMITED , 330 ITR 40 UPHOLDING THE SCHOOL OF THOUG HT. IN THIS VIEW OF THE MATTER , LEARNED CIT(A) S STAND THAT CURRENT I.T.A. NO. 3 196 /AHD/201 5 ASSESSMENT Y EAR: 20 11 - 12 PAGE 5 OF 5 LIABILITIES ARE TO BE REDUCED FROM AVAILABLE INTEREST - FEE FUNDS IS NOT ONLY DEVOID OF LEGALLY SUSTAINABLE BASIS BUT ALSO IN DEFIANCE OF THE JUDICIAL DISCIPLINE. ONCE A SUPERIOR COURT HAS TAKEN A VIEW, THE LOWER AUTHORITIES OF JUDICIAL HIERARCHY HAVE TO RESPECTFULLY AND UNH ESITATINGLY FOLLOW THE SAME. I, THEREFORE , CANNOT APPROVE THE APPROACH BY THE LEARNED CIT ( A ) . ACCORDINGLY , I UPHOLD THE PLEA OF THE ASSESSEE ON HAVING NOTED THAT THERE WERE SEVERAL INTEREST - FREE FUNDS TO MEET THE INTEREST - FREE LOANS GIVEN BY THE ASSESSEE. I DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE. ASSESSEE GETS THE RELIEF ACCORDINGLY. 7. IN THE RESULT, THE APPEAL IS DISMISSED . P R O NOUNCED IN T HE OPEN COURT TODAY ON THE 25 TH DAY OF SEPTEMBER , 2017. SD/ - PRAMOD KUMAR (ACCOUNTANT MEMBER) DATED: AHMEDABAD, THE 25 TH DAY OF SEPTEMBER , 2017. PBN/* COPIES TO : (1) THE APP ELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD