The ACIT, (OSD)-I, Range-4, Ahmedabad V. Jay Laminart Limited, Ahmedabad

ITA 3279/AHD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73012 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 04-02-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 10-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P JHANGID
• Keywords: Capital asset; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 3279 /AHD/2010 (ASSESSMENT YEAR: 2005-06) THE ACIT (OSD)-I, RANGE- 4, AHMEDABAD V/S JAY LAMINART PVT. LTD. 301, AKASHRATH, B/H, PARISEEMA COMPLES, C.G. ROAD, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAACJ 3628 C APPELLANT BY : SHRI J. P. JHANGID, SR. D. R. RESPONDENT BY : NONE ( )/ ORDER DATE OF HEARING : 04-02-2014 DATE OF PRONOUNCEMENT : 21-02-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A)-VIII, AHMEDABAD DATED 07.09.2010 FOR A.Y. 2005-06. 2. ON THE LAST DATE OF HEARING, NONE APPEARED ON BE HALF OF ASSESSEE AND THEREFORE THE CASE WAS ADJOURNED AND NOTICE WAS SER VED THROUGH THE OFFICE OF D.R. DCIT VIDE LETTER DATED 29.01.2014 HAS SUBMITT ED THAT THE ASSESSEE AND ITS DIRECTORS ARE UNTRACEABLE SINCE LONG AND THEREF ORE THE NOTICE OF HEARING INTIMATING ABOUT THE PRESENT DATE OF HEARING WAS SE RVED ON THE ASSESSEE BY AFFIXTURE ON 17.01.2014 AT ITS LAST KNOWN ADDRESS. ON THE DATE OF PRESENT ITA NO 3279 /AHD/2010 . A.Y. 2005 - 06 2 HEARING NONE APPEARED ON BEHALF OF ASSESSEE NOR ANY APPLICATION FOR ADJOURNMENT WAS MOVED. WE THEREFORE PROCEED TO DECI DE THE APPEAL ON MERITS EX-PARTE QUA THE ASSESSEE. 3. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI AL ON RECORD ARE AS UNDER. 4. ASSESSEE IS A COMPANY ENGAGED IN MANUFACTURING A ND TRADING OF LAMINATED SHEETS. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y . 05-06 ON 30.10.2005 SHOWING TOTAL LOSS OF RS. 1,55,20,120/-. THE CASE W AS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECT ION 143(3) VIDE ORDER DATED 31.12.2007 AND THE TOTAL LOSS WAS ASSESSED AT RS. 1,37,79,570/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED TH E MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 07.09.2010 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF CIT(A), THE REV ENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS:- 1.1 THE LEARNED CIT(A) - VIII, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF INTEREST EXPENSES OF R S.10,14,420/- WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIALS BROUGHT ON RECORD. 1.2 IN DOING SO, THE LEARNED CIT(A) HAS ERRED IN LA W AND ON FACTS IN NOT APPRECIATING THAT NO COMMERCIAL EXPEDIENCY WAS INVO LVED IN GIVING THE SAID INTEREST FREE ADVANCES BY THE ASSESSEE AND THEREFOR E THE DISALLOWANCE WAS RIGHTLY MADE BY THE ASSESSING OFFICER KEEPING IN VI EW THE DECISION OF THE HONOURABLE SUPREME COURT IN THE CASE OF S. A. BUILD ERS VS. CIT, 288 ITR1 (SC). 2.1 THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN DELETING THE ADDITION OF RS.6,72,618/- MADE BY THE ASSESSING OFFICER BY T REATING THE UNUTILIZED MODVAT CREDIT AS THE INCOME OF THE ASSESSEE. 2.2 IN DOING SO, THE LEARNED CIT(A) HAS ERRED IN LA W AND ON FACTS IN NOT APPRECIATING THAT THE APPELLATE DECISIONS FOR THE E ARLIER YEARS RELIED UPON BY THE LEARNED CIT(A) HAVE NOT BEEN ACCEPTED BY THE DE PARTMENT AND THE MATTER IS SUB-JUDICE BEFORE THE HIGHER JUDICIAL AUT HORITIES. GROUND 1.1 AND 1.2 ARE INTERCONNECTED AND ARE THERE FORE CONSIDERED TOGETHER AND ARE IN RESPECT OF DELETING THE DISALLOWANCE OF INTEREST EXPENSES. ITA NO 3279 /AHD/2010 . A.Y. 2005 - 06 3 5. ON VERIFICATION OF LOANS AND ADVANCES GIVEN BY T HE ASSESSEE, A.O. NOTICED THAT ASSESSEE HAD GIVEN ADVANCE OF RS. 67,62,799/- ON WHICH NO INTEREST WAS CHARGED BY ASSESSEE AND DURING THE YEAR ASSESSEE HA D ALSO RAISED INTEREST BEARING FUNDS. ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE INTEREST NOT BE DISALLOWED TO WHICH IT WAS INTERALIA SUBMITTED THAT THE LOANS WERE GIVEN IN EARLIER YEARS AND LOAN GIVEN TO SHRI CEMENT AND SHR I KRISHNA BAHETI WAS FOR THE PURPOSE OF BUSINESS. THE SUBMISSION OF THE ASSE SSEE WAS NOT FOUND ACCEPTABLE TO A.O. A.O. NOTED THAT ASSESSEE HAD NO T BROUGHT ON RECORD ANY EVIDENCE IN SUPPORT OF ITS CONTENTION OF HAVING ADV ANCED MONEY FOR PURCHASE OF MATERIAL OR BUSINESS PURPOSES. HE WAS OF THE VI EW THAT WHEN ASSESSEE HAS INCURRED SUBSTANTIAL INTEREST EXPENSES IT CANNO T ALLOW OTHERS TO USE MONEY INTEREST FREE. HE THEREFORE CONCLUDED THAT AS SESSEE HAS DIVERTED INTEREST BEARING FUNDS FOR ADVANCING INTEREST FREE ADVANCES AND THEREFORE THE INTEREST CHARGEABLE ON SUCH ADVANCES IS TO BE DISAL LOWED OUT OF THE INTEREST EXPENSES. HE PLACING RELIANCE ON THE DECISION IN TH E CASE OF ABHISHEK CORPORATION 286 ITR 1 (P & H) WORKED OUT THE INTERE ST CHARGEABLE ON ADVANCE OF RS. 67,62,799 @ 15% AND DISALLOWED RS. 1 0,14,420/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER B EFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION BY HOLDING AS UNDER:- 4.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF T HE LD. COUNSEL AS WELL AS THE FINDING OF THE ASSESSING OFFICER. I HAVE ALSO C ONSIDERED THE DECISIONS RELIED UPON BY THE LD. COUNSEL. THE ASSESSING OFFIC ER HAD NO WHERE DISPUTED THAT THE INTEREST FREE LOANS WERE GIVEN IN EARLIER YEARS AND THERE WERE NO FRESH ADVANCES DURING THE YEAR. THOSE WERE REFLECTED AS OPENING BALANCE FOR THE YEAR UNDER CONSIDERATION, THUS, THERE IS ABSENCE OF DIRECT NEXUS BETWEEN THE INTEREST FREE ADVANCES GIVEN AND THE LOANS RAISED. THEREFORE, I AGREE WITH THE CONTENTION OF THE LD. COUNSEL THAT WHERE NO DIRECT NEXUS HAD BEEN PROVED BETWEEN INTEREST BEARING LOANS TAKEN BY THE ASSESSE E AND INTEREST FREE ADVANCES GIVEN TO VARIOUS CONCERNS, THERE WOULD BE NO JUSTIFICATION TO DISALLOW THE INTEREST CLAIMED U/S.36(L)(III). THE L D. COUNSEL VIDE HIS LETTER DATED 26.12.2007 HAD EXPLAINED BEFORE THE ASSESSING OFFICER THAT THE INTEREST FREE ADVANCES ARE FOR BUSINESS PURPOSES. IT IS NOW THE SETTLED POSITION OF LAW ON THIS ISSUE BY THE DECISION OF THE HON'BLE SUPREM E COURT IN S.A. BUILDERS VS. CIT 288 ITR 1 (SC) THAT INTEREST ON BORROWED CA PITAL CANNOT BE DISALLOWED IF THE ASSESSEE HAS ADVANCED INTEREST-FREE LOAN AS A MEASURE OF COMMERCIAL ITA NO 3279 /AHD/2010 . A.Y. 2005 - 06 4 EXPEDIENCY. THE ASSESSING OFFICER HAD RELIED ON THE DECISION IN ABHISHEK INDUSTRIES 286 ITR 1 (P&H) WHICH IS NOT A GOOD LAW AFTER THE DECISION OF THE HON'BLE SUPREME COURT IN THE AFORESAID CASE. EVEN O THERWISE ALSO, THE APPELLANT WAS HAVING SUFFICIENT NON-INTEREST-BEARIN G FUNDS OF RS. 6,01,61,255/- AS PER DETAILS GIVEN BY THE LD. COUNS EL IN HIS SUBMISSION AND ON ACCOUNT OF IT, THERE WAS NO GROUND FOR DISALLOWA NCE OF INTEREST AS THE INTEREST FREE FUNDS ARE SUFFICIENT ENOUGH TO GIVE I NTEREST FREE ADVANCES. RELIANCE IS PLACED ON THE DECISION OF THE HON'BLE B OMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 340 (BOM.) WHEREIN IT WAS HELD THAT IF THERE ARE FUNDS AVAILABLE, BOTH, I NTEREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF THE INTEREST-FREE FUNDS GENERATED OR AVAILAB LE WITH THE COMPANY, PROVIDED THE SAID FUNDS ARE SUFFICIENT TO MEET INVE STMENTS. THE SAME ISSUE WAS CAME FOR CONSIDERATION BEFORE MY PREDECESSORS I N APPELLANT'S OWN CASE FOR THE A.Y. 2003-04 AND THE CIT(A) VIDE HIS APPELL ATE ORDER DATED 20.04.2007 IN APPEAL NO. CIT(AV VIII 'DC-4/042/06-07 HAD DELET ED THE DISALLOWANCE OF INTEREST BY HOLDING THAT THE BORROWED FUNDS HAVE BE EN USED FOR SPECIFIC PURPOSE OF ACQUIRING ASSETS AND THE AVAILABILITY OF SURPLUS FUNDS IN MAKING THE ADVANCES IN DISPUTE CANNOT BE DISBELIEVED. IN HIS VIEW, THE MAJOR PART OF ADVANCES OF RS. 90 LAKHS WAS FOR TRADING SECURITY A ND BALANCE ADVANCES WERE IN ANY CASE COVERED BY THE AVAILABILITY OF INTEREST FREE FUNDS. IN VIEW OF THE ABOVE DISCUSSION, THERE REMAINS NO GROUND FOR ANY D ISALLOWANCE OF INTEREST ON ACCOUNT OF INTEREST-FREE ADVANCES GIVEN BY THE A PPELLANT. THE DISALLOWANCE OF INTEREST SO MADE FOR RS. 10,14,420/- IS DELETED. THE THIRD GROUND OF APPEAL IS ACCORDINGLY ALLOWED. 6. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS NOW IN APPEAL BEFORE US. 7. BEFORE US, THE LD. D.R. RELIED ON THE ORDER OF A .O. WE HAVE HEARD THE LD. D.R. WE FIND THAT CIT(A) WHILE DELETING THE ADDITION HAS NOTED THAT A.O. HAS NOT DISPUTED THAT THE INTEREST FREE LOANS WERE GIVEN IN EARLIER YEARS AND THERE WAS NO FRESH ADVANCES DURING THE YEAR. HE HAS FURTHER G IVEN A FINDING OF FACT THAT THERE IS ABSENCE OF DIRECT NEXUS BETWEEN THE INTERE ST FREE ADVANCE GIVEN AND THE LOAN RAISED AND THAT THE MAJOR PART OF ADVANCES WAS FOR TRADING SECURITY AND THE BALANCE ADVANCES WERE COVERED BY THE AVAILA BILITY OF INTEREST FREE FUNDES. . HE FURTHER RELYING ON THE DECISION OF PR EDECESSOR IN THE ASSESSEES OWN CASE FOR A.Y. 03-04 DELETED THE DISALLOWANCE MA DE BY A.O. BEFORE US, THE LD. D.R. HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS ITA NO 3279 /AHD/2010 . A.Y. 2005 - 06 5 OF CIT(A), WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. GROUND NO. 2.1 AND 2.2 ARE INTERCONNECTED AND THERE FORE CONSIDERED TOGETHER AND ARE WITH RESPECT TO DELETI ON OF ADDITION IN RESPECT OF THE UNUTILIZED MODVAT CREDIT AS INCOME OF THE AS SESSEE. 8. ON VERIFICATION OF THE AUDIT REPORT, A.O. NOTED THAT ASSESSEE HAD SHOWN BALANCE OF MODVAT CREDIT TO BE CARRIED FORWARD OF R S. 6,72,515/-. HE ALSO NOTED THAT ASSESSEE HAD NOT CREDITED THE AFORESAID BALANCE TO ITS PROFIT AND LOSS ACCOUNT. IN THE ABSENCE OF SATISFACTORY EXPLAN ATION AND EVIDENCE THAT THE MODVAT CREDIT BALANCE RELATED TO CAPITAL ASSETS , A.O. CONSIDERED THE SAME AS INCOME OF THE ASSESSEE. AGGRIEVED BY THE OR DER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DELETED TH E ADDITION BY HOLDING AS UNDER:- 5.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE LD. COUNSEL AS WELL AS THE FINDING OF THE ASSESSING OFFICER. THIS ISSUE CA ME FOR CONSIDERATION BEFORE MY PREDECESSORS FOR THE A.Y. 2002-03 AND A.Y. 2003- 04 AND THE ADDITION WAS DELETED. DURING THE COURSE OF APPELLATE PROCEEDINGS , IT WAS BROUGHT TO MY NOTICE BY THE LD. COUNSEL THAT THE HON'BLE AHMEDABA D TRIBUNAL HAD CONFIRMED THE FINDING OF THE CIT(A) FOR THE A.Y. 20 02-03 BY DISMISSING THE DEPARTMENTAL APPEAL VIDE THEIR ORDER DATED 03/04/20 07 IN ITA NO. 264/AHD/2007 FOR THE A.Y. 2002-03. SINCE, THE FACTS OF THE YEAR UNDER CONSIDERATION ARE EXACTLY SIMILAR TO THAT OF THE A. Y. 2002-03 AND A.Y, 2003- 04, THE ADDITION MADE FOR RS. 6,72,615/- IS DELETED BY RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL TRIBUNAL . THE FOURTH GROUND OF APPEAL IS ACCORDINGLY ALLOWED. 9. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS NOW IN APPEAL BEFORE US. 10. BEFORE US, THE LD. D.R. RELIED ON THE ORDER OF A.O. WE HAVE HEARD THE LD. D.R. WE FIND THAT CIT(A) WHILE DELETING THE ADDITION MAD E BY THE A.O. HAS NOTED THAT IN ASSESSMENT YEAR 02-03 SIMILAR ADDITION WAS MADE BY A.O. AND THE SAME WAS DELETED BY CIT(A). AGAINST THE ORDER OF CI T(A) REVENUE HAD PREFERRED APPEAL BEFORE TRIBUNAL AND THE SAME WAS D ISMISSED BY TRIBUNAL BY ORDER DATED 03.04.2007 IN ITA NO. 264/AHD/2007 FOR A.Y. 02-03. CIT(A) HAS ITA NO 3279 /AHD/2010 . A.Y. 2005 - 06 6 FURTHER NOTED THAT SINCE THE FACTS OF THE YEAR UNDE R CONSIDERATION WERE SIMILAR TO THAT OF A.Y. 02-03 & 03-04, FOLLOWING THE DECISI ON OF TRIBUNAL, THE ADDITION MADE BY THE A.O. WAS DELETED. BEFORE US, THE LD. D .R. COULD NOT CONTROVERT THE FINDINGS OF CIT(A) NOR HAS BROUGHT ANY MATERIAL IN ITS SUPPORT. WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDE R OF CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN OPEN COURT ON 21- 02 - 2014. SD/ SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AH MEDABAD