M/s. K.C. Plywood Industries, Jammu V. The Dy. Commissioner of Income-tax, Jammu

ITA 332/ASR/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0617 (ITAT-AMRITSAR)
• Duration Of Justice: 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 07-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R L CHHANALIA
• Assessee Lawyers: P N ARORA
• Keywords: Question of law; Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.332(ASR)/2012 ASSESSMENT YEAR:2007-08 PAN :AADFK1952C M/S. K.C. PLYWOOD INDUSTRIES VS. DY. COMMR. OF INC OME TAX, JAMMU. CIRCLE-2, JAMMU. (APPELLANT) (RESPONDENT) APPELLANT BY:SH. P.N.ARORA, ADV. RESPONDENT BY:SH.R.L.CHHANALIA, DR DATE OF HEARING: 02/01/2013 DATE OF PRONOUNCEMENT:03/01/2013 ORDER PER BENCH ; THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF THE CIT(A), JAMMU, DATED 10.05.2012 FOR THE ASSESSMENT YEAR 2 007-08. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THAT THE ADDITION OF RS.1,42,510/- ON ACCOUNT O F NOTIONAL INTEREST CALCULATED AND ADDED BY THE AO AND SUSTAIN ED BY THE CIT(A) IS UNCALLED FOR, LEGALLY ERRONEOUS AND UNJU STIFIED AND CONTRARY TO ACTUAL FACTS ON RECORD; ITA NO.332(ASR)/2012 2 2. THAT THE AUTHORITIES BELOW FAILED TO APPRECIATE THE FACT THAT APPELLANT FIRM HAS SURPLUS FUNDS IN THE SHAPE OF EQ UITY AND INTEREST FREE LOANS OBTAINED FROM SISTER CONCERNS A ND FUNDS THUS AVAILABLE WERE MUCH MORE THAN THE AMOUNTS ADVANCED TO SISTER CONCERNS AND AUTHORITIES BELOW FAILED TO APPRECIATE THESE FACTS CONTAINED IN DETAILED NOTE DATED 20.11.2009 SUBMITT ED TO BOTH AUTHORITIES. 3. THAT THERE IS NO DIRECT NEXUS BETWEEN THE INTERE ST FREE LOANS ADVANCED TO SISTER CONCERN AND BORROWED FUNDS. 4. THAT THE AMOUNT WAS ADVANCED TO SISTER CONCERN O N CONSIDERATION OF BUSINESS EXPEDIENCY SINCE SISTER C ONCERN WAS IN DIRE NEED OF FUNDS. 2. AT THE OUTSET, THE LD. DR APPEARING FOR THE REVE NUE POINTED OUT FOUR DAYS DELAY IN FILING THE APPEAL BEFORE THE ITAT, AM RITSAR BENCH. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS FILED A LETTER EXPLAINING THE CAUSE OF DELAY, RECEIVED IN THIS OFFICE ON 04.06.2012. TH ERE IS A SUFFICIENT CAUSE FOUND IN FILING THE APPEAL AND THEREFORE, THE 4 DA YS DELAY IN FILING THE APPEAL IS CONDONED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE AO NOTI CED THAT ASSESSEE HAS ADVANCED INTEREST FREE LOANS OF RS.32,20,000/- TO M /S. INDIRA CINEMA, RS.2,97,374/- TO M/S. K.C. FAST FOOD JUNCTION AND RS.96,641/- TO M/S.K.C. CINEMA ALL SISTER CONCERNS OF THE ASSESSEE. THE AO SHOW CAUSED THE ASSESSEE THAT IN VIEW OF DECISION OF HONBLE PUNJAB & HARYAN A HIGH COURT IN THE CASE OF M/S. ABHISKEK INDUSTRIES LTD. 286 ITR 1 AND HONBLE SUPREME COURT IN M/S. S.A. BUILDERS LTD. 158 TAXMAN 74 DATE D 14.12.06, WHY ITA NO.332(ASR)/2012 3 INTEREST PAID AND CLAIMED BY ASSESSEE ON LOAN TAKEN BY THE IT SHOULD NOT BE PROPORTIONATELY DISALLOWED. THE ASSESSEE REPLIED TH AT ADVANCES BEING TRADE ADVANCES TO THE SISTER CONCERNS WHICH WERE IN NEED OF FUNDS AND PARTNERS OF ASSESSEE FIRM HAD INTEREST IN THEM NO DISALLOWANCE COULD BE MADE. THE AO BY HOLDING AS UNDER, DISALLOWED AN INTEREST OF RS.1 ,42,150/- IN TOTAL: THE INTERPRETATION OF TRADE RELATION AS PER THE ASS ESSEES VERSION IS MISLEADING AS TRADE RELATION MEANS THAT THE CONCERN S SHOULD EITHER HAVE THE SAME LINE OF BUSINESS OR THE CONCERNS SHOU LD BE TRADING THE ITEMS OF THEIR BUSINESS. IN THE PRESENT CASE, THE L OANS ARE ADVANCED TO THE CONCERNS WHICH ARE HAVING BUSINESS OF CINEMA, F AST FOOD JUNCTION AND SCHOOL WHEREAS THE BUSINESS OF THE ASSESSEE IS THAT OF MANUFACTURING AND SALE OF PLYWOOD ITEMS. NO PROOF O F THE ADVANCES TRADE ADVANCES OR INTEREST CHARGED ON THESE ADVANCE S WAS FILED BY THE ASSESSEE. AS THE ASSESSEE IS PAYING INTEREST ON LOAN TAKEN BY THE FIRM AND IN VIEW OF THE DECISIONS OF M/S. ABHISKEK INDUSTRIES L TD. AND . S.A. BUILDERS LTD. VS. CIT DISALLOWANCE OF RS.93,350/- B EING 12% OF RS.39,20,000/- ( AS PER THE TIME PERIOD FOR WHICH L OAN WAS ADVANCED). RS.35,684/- OF RS.2,97,374/- AND RS.11,476- OF RS.9 5,641/- IS MADE. 4. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSES SING OFFICER. 5. IT WAS ARGUED BY THE LD. COUNSEL FOR THE ASSESSE , MR. P.N. ARORA, THAT THE ASSESSEE WAS HAVING INTEREST FREE FUNDS TO THE TUNE OF RS. 62.77 LACS COMPRISING PARTNERS CAPITAL FREE RESERVE AND UNSECU RED LOANS FROM SISTER CONCERNS AND AGAINST THESE INTEREST FREE FUNDS, INT EREST FREE ADVANCES TO SISTER CONCERNS AMOUNTS ONLY TO RS.39.20 LACS. THE FULL FA CTS HAVE BEEN ELABORATED ITA NO.332(ASR)/2012 4 IN NOTE SUBMITTED TO THE AO. THE AMOUNT WAS MAINLY ADVANCED TO SISTER CONCERN M/S. INDIRA THEATRE WHO WAS IN NEED OF FUND S AND ON CONSIDERATION OF BUSINESS EXPEDIENCY THE ADVANCE CLEARLY FALLS W ITHIN THE DOCTRINE LAID DOWN BY APEX COURT IN THE CASE OF S.A. BUILDING LTD . VS. CIT-(2007) 158 TAXMAN 74 DATED 14.12.06. THE AO FAILED TO APPRECIATE FACTS P RODUCED BEFORE HIM WHILE REPLYING TO HIS QUERY AS PER NOTE DATED 20.11.09 WH ICH WAS SUBMITTED BEFORE THE AO AND THE LD. CIT(A). IN THE CASE OF CIT VS. SANGHI FINANCE & INVESTMENT LTD. (2004) 190 CTR (MP) 207, THE HONBL E HIGH COURT HELD AS UNDER: TRIBUNAL HAVING RIGHTLY DELETED THE ADDITION OF NO TIONAL INTEREST ACCEPTING THAT TRANSACTION OF INTEREST FREE LOANS B ETWEEN THE ASSESSEE AND BORROWER (SISTER CONCERNS) IS GENUINE AND THAT THERE ARE VALID REASONS FOR NOT CHARGING INTEREST FROM THE SISTER C ONCERN, NO SUBSTANTIAL QUESTION OF LAW IS INVOLVED. IT WAS FURTHER HELD THAT SINCE THE FINANCIAL CONDIT ION OF THE SISTER CONCERNS TO WHOM THE LOAN WAS ADVANCED WAS NOT VERY SOUND AND HENCE UNDER THESE CIRCUMSTANCES, IF THE ASSESSEE HA S NOT CHARGED INTEREST OR CHANGED INTEREST AT LOWER RATE, THAN TH E SAME CANNOT BE SAID TO BE EITHER ILLEGAL OR TO EVADE PAYMENT OF INCOME TAX. IN ANY EVENT, WHETHER INTEREST SHOULD BE CHARGED OR NOT AND AT WHAT RATE INTEREST SHOULD BE CHARGED IS A MATTER OF CONT RACT BETWEEN THE PARTIES AND THE SAME IS NOT REALLY GOVERNED BY ANY LAW AS SUCH. SINCE THE ADDITION OF RS.1,42,310/- ON ACCOUNT OF NOTIONAL INTEREST IS AGAINST FACTS OF THE CASE AS SUFFICIENT FUNDS IN TH E SHAPE OF CAPITAL, FREE RESERVED AND INTEREST FREE ADVANCES ARE AVAILA BLE TO ASSESSEE FIRM ITA NO.332(ASR)/2012 5 AND ALSO AGAINST PRINCIPLES LAID DOWN BY VARIOUS CO URTS, IT IS PRAYED THAT ADDITION MAY KINDLY BE DELETED. 5.1 THE LD. COUNSEL FOR THE ASSESSEE ALSO RELIED UP ON THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE CIT VS. R ADICO KHAITAN LTD. 274 ITR 354. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE ASSESSEE HAS SUBMITTED THE EXPLANATION THAT THE ASSESSEE IS HAVING INTEREST FREE FUNDS TO THE TUNE OF RS.62.77 LACS WH ICH IS A MATTER OF RECORD. THE SAID FACTS HAS NOT BEEN REBUTTED BY THE LD. DR. THE ASSESSEE IS HAVING GIVEN THE INTEREST FREE ADVANCE TO THE SISTER CONCE RNS AMOUNTING TO RS.39.20 LACS. THE EXPLANATION GIVEN BY THE ASSESSEE WAS THA T THE SAID MONEY ADVANCED TO SISTER CONCERN M/S. INDIRA THEATRE ON C ONSIDERATION OF BUSINESS EXPEDIENCY AND THEREFORE, THE AMOUNT SO ADVANCED UN DER BUSINESS EXPEDIENCY CANNOT BE THE SUBJECT MATTER OF DISALLO WANCE IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F S.A. BUILDERS LTD. VS. CIT 288 ITR 1. NOTHING ADVERSE HAS BEEN BROUGHT ON RECORD BY ANY OF THE AUTHORITIES BELOW AGAINST THE EXPLANATION MADE BEFO RE BOTH THE AUTHORITIES BELOW THAT THE ASSESSEE HAD ADVANCED THE INTEREST FREE FUNDS TO THE SISTER CONCERN. ACCORDINGLY, THE EXPLANATION GIVEN, WE FIN D BUSINESS EXPEDIENCY OF THE ASSESSEE WITH THE SISTER CONCERN M/S. INDIRA T HEATRE. MOREOVER, THE ASSESSEE IS HAVING INTEREST FREE FUNDS FOR ADVANCIN G INTEREST FREE ADVANCE TO ITA NO.332(ASR)/2012 6 THE SISTER CONCERNS. THEREFORE, IN VIEW OF THE DEC ISION OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT (SUPRA), THE LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ADD ITION MADE BY THE A.O. THE AO IS DIRECTED TO DELETE THE ADDITION SO MADE. THUS, ALL THE GROUNDS OF THE ASSESSEE ARE ALLOWED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO.332(ASR)/2012 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3RD JANUARY, 2013. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 3RD JANUARY, 2013 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S.K.C. PLYWOOD INDUSTRIES, JAMMU. 2. THE DCIT,CIR.2, JAMMU. 3. THE CIT(A) 4. THE CIT 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.