M/s Saurashtra Specialities Pvt. Ltd., RAJKOT-GUJARAT V. The Assistant Commr. Income Tax,Cir-2 (1), RAJKOT-GUJARAT

ITA 33/RJT/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6727 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 21-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: USHA N SHROTE
• Assessee Lawyers: DM RINDANI
• Keywords: Business expenditure; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT [CONDUCTED THROUGH E-COURT AT AHMEDABAD] BEFORE SHRI PROMOD KUMAR ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ ITA NO.33/RJT/2016 / A.Y. 2012-13 SHRI SAURASHTRA SPECIALTIES PVT. LTD PATTANI BUILDING, M.G. ROAD, RAJKOT. PAN : AAFCS4927 E VS ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2(1), RAJKOT (APPELLANT) (RESPONDENT) BY APPELLANT : SHRI D.M. RINDANI, A.R BY RESPONDENT : SMT USHA N. SHROTE, SR DR / DATE OF HEARING : 01/12/2016 /DATE OF PRONOUNCEMENT: 03/02/2017 / O R D E R PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER THIS IS IN APPEAL FILED BY THE ASSESSEE FOR THE AS SESSMENT YEAR 2012-13 . THE SOLE GROUND RAISED READS AS UNDER:- THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-2 , RAJKOT CONFIRMING THE ACTION OF INCOME-TAX OFFICER IN MAKING ADDITION OF RS.2,28 ,700/- U/S.36(1)(III) OF THE ACT BEING INTEREST @ 13.43% ON INTEREST FREE LOANS GIVE N TO M/S.SAURASHTRA PACKAGING PVT. LTD. AND M/S.SAURASHTRA PAPER & BOARD MILLS LT D., AND THEREBY TREATING IT A NON-BUSINESS EXPENDITURE . 2. FACTS OF THE CASE ARE THAT THE ASSESSEE HAS ADVA NCED INTEREST FREE LOAN OF RS.2,35,623/- TO M/S.SAURASHTRA PACKAGING PVT. LTD. AND RS.14,67,274/- TO M/S.SAURASHTRA PAPER & BOARD MILLS LTD. FOR THE YEAR UNDER CONSIDERATION. IN THIS REGARD A SHOW CAUSE NOTICE W AS ISSUED AND RELEVANT PART OF SAME IS REPRODUCED BELOW:- ITA NO.33/RJT/2016 A.Y. 2012-13 - 2 - FROM THE RECORDS SUBMITTED BY YOU IT CAN BE SEEN T HAT YOU HAVE ADVANCED INTEREST FREE LOAN OF RS.2,35,623/- TO M/S.SAURASH TRA PACKAGING PVT. LTD. FURTHER YOU ARE ACCEPTING LOAN FROM THE SAME CONCER N AND PAYING THEM INTEREST AT THE RATE OF 15%. EVEN THOUGH THE TRANSA CTION IS AN OLD ONE BUT STILL IT DOESNT SATISFY THE COMMERCIAL EXPEDIENCY. ON ON E HAND THE ASSESSEE IS PAYING INTEREST TO THE SAID CONCERN WHEREAS ON OTHE R IT HAS OUTSTANDING LOAN IN THE NAME OF M/S.SAURASHTRA PACKAGING PVT. LTD. I N VIEW OF THIS YOU ARE REQUESTED TO SUBMIT WHY THE INTEREST PAYMENT @15% C ORRESPONDING TO OUTSTANDING LOAN AMOUNT OF RS.2,35,623/- SHOULD NO BE DISALLOWED U/S.36(1)(III) 3. IN RESPONSE TO THE SAID NOTICE ASSESSEE HAS REPL IED AS FOLLOWS: WE HAVE ADVANCED TO SAURASHTRA PACKAGING PVT. LTD. RS.2,35,623 SINCE MORE THAN 6 YEARS & WE HAVE NOT ACCEPTED ANY LOAN F ROM THE SAME CONCERN NAMELY SAURASHTRA PACKAGING PVT. LTD.. WE HAVE ACCE PTED LOAN FROM SAURASHTRA PACKAGING (PARTNERSHIP FIRM) TO WHOM INT EREST IS PAID @ 15%. PLEASE NOTE THAT DURING LAST 6 YEARS IN THE ASS YEA R 2006-07 AND ASS YEAR 2008-09 WERE ASSESSED U/S.143(3) WHERE THIS DISALLO WANCE U/S 36(1)(III) WAS NOT MADE. FURTHER THERE WERE ENOUGH FREE FUNDS AT T HAT TIME WHICH WERE AVAILABLE IN THE HAND OF SSPL FOR DISPOSAL 4. FURTHER ASSESSEE HAS GIVEN FOLLOWING INTEREST FR EE LOAN:- A) RS.235623/- TO M/S.SAURASHTRA PACKAGING PVT. LTD., A RELATED CONCERN. B) RS.1467274/- TO M/S.SAURASHTRA PAPER & BOARD MILLS LTD., A RELATED CONCERN. 5. AS EXPLAINING ABOVE THERE IS NO FREE FUNDS AT TH E DISPOSAL OF THE FUNDS. FURTHER IN VIEW OF THE BOMBAY HIGH COURT JUD GMENT THE INTEREST FREE LOAN TO THESE ENTITIES WONT FALL WITHIN THE A MBIT OF BUSINESS PURPOSE. THEREFORE INTEREST AT THE RATE OF 13.45% IS BEING D ISALLOWED U/S36(1)(III), BEING THE INTEREST EXPENSE NOT RELATED TO THE BUSIN ESS OF THE ASSESSEE. THE AMOUNT OF 2,28,700 WERE ADDED TO THE INCOME OF THE ASSESSEE. 6. THE SAME ASSESSEE PREFERRED FIRST STATUTORY APP EAL BEFORE THE LEARNED CIT(A) BUT HE DID NOT CONSIDER ITS APPEAL F AVORABLY AND UPHE LD ITA NO.33/RJT/2016 A.Y. 2012-13 - 3 - THE ORDER OF THE LEARNED ASSESSING OFFICER STATING THAT SAME HAS BEEN AS PER THE ACCOUNTING PRINCIPLES, APPRECIATING THE FAC TS WITH REFERENCE PAYMENT OF INTEREST AS NON-BUSINESS EXPENDITURE TO THE EXTENT OF RS.2,28,700/- THUS DECISION OF THE ASSESSING OFFICE R WAS UPHELD BY HE LEARNED CIT(A). 7. NOW THE APPEAL IS BEFORE US, WE HAVE CONSIDER RI VAL SUBMISSION OF LEARNED AR AND DEPARTMENTAL REPRESENTATIVE RELIED A O AND CIT(A) BOTH HAVE ALSO CONSIDERED IMPUGNED ORDER. 8. IN THE CASE OF SHREE DIGVIJAY CEMENT CO. LTD. IN (1982) V/S CIT(A) ITR 138 45. IN THIS CASE ASSESSEE-COMPANY HAD MADE INVESTMENT IN CERTAIN SHARES. THE ASSESSEE HAS BORROWED FUNDS IN OVERDRAF T ACCOUNTS WITH ITS BANKERS. THESE OVERDRAFTS WERE SECURED BY THE PLEDG E OF THOSE SHARES. THE ASSESSEE HAD PAID INTEREST ON BORROWING AND CLAIMED IT AS A DEDUCTION IN EACH OF THE YEARS UNDER ASSESSMENT YEAR 1963-64 TO 1970-71. THE TRIBUNAL HELD THAT ON THE PART OF INTEREST WAS DEDUCTIBLE. T HE MATERIAL ON RECORD HAS ALLOWED AND THIS BORROWINGS FORMED A COMMON FUND F OR INVESTMENT IN SHARES AND HELD ON THE FACTS THAT NO PART OF THE BO RROWINGS WHEN INVESTMENT UNDER SHARES. THE OVERDRAFT ACCOUNTS WIT H THE BANK WERE SECURED BY PLEDGE OF SHARES AND AMOUNTS BORROWED AG AINST THE SECURITY OF SHARES WERE UTILIZED BY THE ASSESSEE BUSINESS. THE ENTIRE PAYMENT OF INTEREST ON BORROWING WAS DEDUCTIBLE UNDER THE HEAD BUSINESS 9. LEARNED AUTHORIZED REPRESENTATIVE ALSO CITED HE JUDGMENT 313 ITR 340 (BOM) INTEREST ON BORROWED CAPITAL-INVE STMENT BY ASSESSEE FINDING THAT INVESTMENTS WERE FROM INTEREST FREE FU NDS AVAILABLE WITH THE ASSESSEE-BORROWED CAPITAL USED FOR PURPOSES OF BUSI NESS-INTEREST DEDUCTIBLE UNDER INCOME TAX ACT, 1961, S.36(1)(III) . IN THIS CASE ASSESSEE ITA NO.33/RJT/2016 A.Y. 2012-13 - 4 - CLAIMED DEDUCTION OF INTEREST ON BORROWED CAPITAL T HE ASSESSING OFFICER RECORDED A FINDING THAT THE SUM RS.213 CRORES WAS I NVESTED OUT IT OWN FUNDS AND RS.147 CRORES WAS INVESTED OUT OF BORROWE D FUNDS. ACCORDINGLY HE DISALLOWED INTEREST AMOUNTING TO RS.4.40 CRORES CALCULATED AT 12 PERCENT PER ANNUM FOR THREE MONTHS FROM JANUARY, 2000 TO MA RCH, 2000. THE LEARNED CIT(A) CONFIRMED THAT THE ASSESSEE HAS ENOU GH INTEREST-FREE FUNDS AT ITS DISPOSAL FOR INVESTMENT AND ACCORDINGLY DELE TED THE ADDITION OF RS.4.40 CRORES MADE BY THE ASSESSING OFFICER U/S.36 (1)(III) AND ORDER OF THE APPEAL UPHELD BY THE TRIBUNAL AND ALSO UPHELD BY B OMBAY HIGH COURT. RESPECTFULLY FOLLOWING BOTH THE JUDGMENT OF HONBL E HIGH COURT AS ENUMERATED ABOVE WE ALLOW THE APPEAL OF THE ASSESSE E. IN THIS RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 3 RD FEBRUARY , 2017 AT AHMEDABAD. SD/- SD/- (PRAMOD KUMAR) (MAH AVIR PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER TRUE COPY AHMEDABAD; DATED 03/02/2017 MANISH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. ! / THE RESPONDENT. 3. % & / CONCERNED CIT 4. & ( ) / THE CIT(A) 5. ) % , % , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. TRUE COPY / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD