The Asstt. Commissioner of Income-tax, Jammu V. M/s Shree Balaji, Kathua

ITA 35/ASR/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94985 (ITAT-AMRITSAR)
• Duration Of Justice: 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 12-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: TARSEM LAL
• Keywords: Proportionate interest
• Section: 143(3); 80IB

Judgement Text

I.T.A. NO S . 3 5 & 4 5 /ASR/201 5 ASSESSMENT YEAR: 20 1 0 - 1 1 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR [CORAM: PRAMOD KUMAR AM AND A.D. JAIN JM] I.T.A. NO. 3 5 /ASR/201 5 ASSESSMENT YEAR: 20 1 0 - 1 1 ASSTT. COMMISSIONER OF INCOME TAX, . APPELLANT CIRCLE - I, JAMMU, VS. SHREE BALAJI ALL OYS, RESPONDENT I/A, HATLI MORH, KATHUA (J&K). [PAN: AA XFS 8056 R ] I.T.A. NO. 4 5 /ASR/201 5 ASSESSMENT YEAR: 20 1 0 - 11 SHREE BALAJI ALLOYS, . APPELLANT I/A, HATLI MORH, KATHUA (J&K). [PAN: AA XFS 8056 R ] VS. DEPUTY COMMISSIONER OF INCOME TAX, RESPONDENT CIRCLE - I, JAMMU, APPEARANCES BY: TARSEM LAL FOR THE REVENUE NONE FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING: JUNE 08 , 2015 DATE OF PRONOU NCING THE ORDER: AUGUST 31 , 2015 O R D E R PER PRAMOD KUMAR , AM : 1. THESE CROSS APPEALS CALL INTO QUESTION CORRECTNESS OF THE ORDER DATED 13 TH NOVEMBER, 2014, PASSED BY THE LEARNED CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ( THE ACT HEREINAFTER) , FOR THE ASS ESSMENT YEAR 201 0 - 1 1 . I.T.A. NO S . 3 5 & 4 5 /ASR/201 5 ASSESSMENT YEAR: 20 1 0 - 1 1 PAGE 2 OF 5 2. IN FIRST THREE GROUNDS OF APPEAL, THE ASSESSING OFFICER HAS RAISED THE FOLLOWING GRIEVANCES: 1. WHETHER THE COMMISSIONER OF INCOME TAX (APPEALS), JAMMU WAS RIGHT IN LAW TO ALLOW DEDUCTION U/S 80IB OF THE INCOME TAX ACT, 1961 ON C ENTRAL EXCISE DUTY REFUND AND INTEREST SUBSIDY BY RELYING UPON THE JUDGEMENT OF THE HON BLE HIGH COURT OF J&K, IN THE CASE OF M/S SHREE BALAJI ALLOYS & OTHERS & IGNORING THE RATIO OF THE LAW ON THE ISSUE AS LAID DOWN IN THE CASE OF PONNI SUGAR & SAWHNEY ST EEL AND PRESS WORKS LTD. 2. WHETHER THE COMMISSIONER OF INCOME TAX (APPEALS), JAMMU COMMITTED AN ERROR IN LAW IN NOT FOLLOWING THE LAW AS LAID DOWN BY THE HON BLE SUPREME COURT IN THE CASE OF PONNI SUGAR & SAWAHNEY STEEL AND PRESS WORKS LTD., WHEREIN SIMI LAR RECEIPTS WERE HELD TO BE REVENUE IN NATURE AS THE SAME HAD BEEN MADE AFTER THE INDUSTRIES HAD BEEN SET UP AND NOT FOR PURPOSE OF SETTING UP OF THE INDUSTRIES. 3. WHETHER IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS), JAMMU WAS RIGHT IN NOT APPRECIA TING AND APPLYING THE PURPOSE TEST A S LAID DOWN BY THE JUDGEMENTS OF THE HON BLE SUPREME COURT, IN THE CASE OF ASSESSEE, AS THE MONEY RECEIVED BY THE ASSESSEE ON ACCOUNT OF CENTRAL EXCISE AND INTEREST SUBSIDY WAS NOT SUPPOSED TO BE SPENT IN PARTICULAR MANN ER OR FOR THE PURPOSE OF SUBSTANTIAL EXPANSION OF THE INDUSTRY. 3. LEARNED DEPARTMENTAL R EPRESENTATIVES FAIRLY AGREE THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY HON BLE JURISDICTIONAL HIGH COURT S JUDGMENT IN THE CASE OF SHRI BALAJI ALLOYS & ORS VS . CIT [(2011) 333 ITR 335 (J&K)], EVEN AS HE RELIES UPON THE STAND OF THE ASSESSING OFFICER. RESPECTFULLY FOLLOWING THE ESTEEMED VIEWS OF HON BLE JURISDICTIONAL HIGH COURT, WE CONFIRM THE ORDER OF THE CIT(A) ON THIS ISSUE AND DECLINE TO INTE RFERE IN THE MATTER. 4. GROUND NOS. 1, 2 AND 3 ARE THUS DISMISSED. 5. IN FOURTH GROUND OF APPEAL, THE ASSESSING OFFICER HAS RAISED THE FOLLOWING GROUND OF APPEAL: 4 . WHETHER IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS), JAMMU WAS RIGHT IN APPLYING INTEREST RATE OF 8% INSTEAD OF 11% AS APPLIED BY THE A.O. ON INTEREST FREE LOANS TO SISTER CONCERN AS THE A.O. HELD THAT THE ASSESSEE FIRM HAS BORROWED INTEREST BEARING LOANS, BOTH SECURED AND UNSECURED LOANS ON WHICH INTEREST @ 11% HAS BEEN PAID AND THE A .O. HAS RIGHTLY DISALLOWED THE PROPORTIONATE INTEREST CHARGED AT THE SAME RATE I.E. 11%. I.T.A. NO S . 3 5 & 4 5 /ASR/201 5 ASSESSMENT YEAR: 20 1 0 - 1 1 PAGE 3 OF 5 6. IN A CONNECTED GRIEVANCE, WHICH IS THE ONLY ISSUE REQUIRING OUR ADJUDICATION APPEAL FILED BY THE ASSESSEE AND WHICH ISSUE WE WILL TAKE UP ALONG WITH THE ABOVE GR IEVANCE OF THE ASSESSING OFFICER, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: THAT THE LD. CIT(A) H A S GROSSLY ERRED IN LAW AND FACTS IN CONFIRMING DISALLOWANCE OF INTEREST OF RS.1 0,21,974/ - TO THE EXTEN T OF 8% OF INTEREST PAID TO THE B A NK ON INTERES T FREE ADVANCES TO M/S SHREE BALAJI PIGMENTS PVT. LTD. 7. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS GIVE N INTEREST FREE LOANS TO ITS SISTER CONCERN, NAM ELY SHREE BALAJI PIGMENTS PVT . LTD . , EVEN AS THE ASSESSEE IS PAYING SUBSTANTIAL INTEREST ON ITS SECURED AND UNSECURED LOANS. IT WAS CONTENDED BY THE ASSESSEE THAT HE HAD SUFFICIENT INTEREST FREE FUNDS AND THAT HE HAD ADVANCED THE INTEREST FREE ADVANCES OU T OF SUCH INTEREST FREE FUNDS. HOWEVER, RELYING UPON HON BLE PUNJAB & HARYANA HIGH COURT S JUDGMENT IN THE CASE OF CIT VS ABHISHEK INDUSTRIES [(2006) 286 ITR 1 (P&H)] AND HOLDING THAT EVEN IF THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS, INTEREST IN RES PECT OF AMOUNTS ADVANCED INTEREST FREE TO SISTER CONCERNS COULD NOT BE ALLOWED, HE DISALLOWED THE INTEREST AMOUNTING TO RS 1 0,21,974/ - . THIS AMOUNT WAS COMPUTED ON THE BASIS OF INTEREST RATE @11% ON ESTIMATED BASIS. AGGRIEVED, ASSESSEE CARRIED THE MATTER I N APPEAL BEFORE THE CIT(A). WHILE LEARNED CIT(A) CONFIRMED THE DISALLOWANCE IN PRINCIPLE, HE REDUCED THE QUANTUM OF DISALLOWANCE BY DIRECTING THAT THE SAME BE COMPUTED ON THE BASIS OF INTEREST RATE @8%. NONE OF THE PARTIES IS SATISFIED. WHILE THE ASSESSING OFFICER IS AGGRIEVED OF THE REDUCTION IN QUANTUM OF DISALLOWANCE, THE ASSESSEE IS AGGRIEVED OF THE INTEREST DISALLOWANCE IN PRINCIPLE. 8. HAVING HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AND HAVING PERUSED THE MATERIAL ON RECORD, WE ARE OF THE CONSI DERED VIEW THAT THE ASSESSEE DESERVES TO SUCCEED ON THIS ISSUE FOR THE SHORT REASON THAT THERE IS NOTHING ON THIS ISSUE AGAINST THE ASSESSEE BY HON BLE JURISDICTIONAL HIGH COURT AND THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY HON BLE BOMBAY HIGH COU RT IN THE CASE OF CIT VS RELIANCE UTILITIES & POWER LIMITED [(2009) 313 ITR 340 (BOM)] , WHICH HAS, INTER ALIA, HELD AS FOLLOWS: 10. IF THERE BE INTEREST - FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESS EE HAD RAISED A LOAN IT CAN BE I.T.A. NO S . 3 5 & 4 5 /ASR/201 5 ASSESSMENT YEAR: 20 1 0 - 1 1 PAGE 4 OF 5 PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST - FREE FUNDS AVAILABLE. IN OUR OPINION THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD. (SUPRA) HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. (SUPRA) WHERE A SIMILAR ISSUE HAD ARISEN. BEFORE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NOT OUT OF TH E OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSIDERABLE FORCE, BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BEEN A DVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WOOLCOMBER S CASE (SUPRA) THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITED IN THE O VERDRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED THAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFIC IENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE THE HIGH COURT. THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST - FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST - FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE CIT(A) AND TRIBUNAL 9. IN THE LIGHT OF THE GUIDANCE OF A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF TEJ INTERNATIONAL PVT . LTD . VS . DCIT [(2000) 69 TTJ 650 (DEL)] THAT DECISION OF A NON JURISDICTIONAL HIGH COURT IN FAVOUR OF THE ASSESSEE, IS A BINDING PRECEDENT FOR THE TRI BUNAL UNTIL A CONTRARY DECISION IS GIVEN BY JURISDICTIONAL HIGH COURT, WE ADOPT THE VIEWS OF HON BLE BOMBAY HIGH COURT AND HAVING NOTED THE UNCONTROVERTED STAND OF THE ASSESSEE THAT SUFFICIENT NON - INTEREST BEARING FUNDS WERE AVAILABLE SO AS TO COVER THIS I NTEREST FREE ADVANCE TO THE SISTER CONCERN, WE DELETE THE DISALLOWANCE OF RS 16,86,919 IN RESPECT OF INTEREST PAID. THE GRIEVANCE OF THE ASSESSEE IS UPHELD. AS WE DO SO, WE MAKE IT CLEAR THAT EVEN THOUGH THIS TRIBUNAL IS SITTING IN THE JURISDICTION OF HON BLE PUNJAB & HARYANA HIGH COURT, THIS PARTICULAR ASSESSEE IS SITUATED IN A JURISDICTION OF A DIFFERENT HON BLE HIGH COURT, NAMELY HON BLE J & K HIGH COURT, AND THE VIEWS OF HON BLE P&H HIGH COURT ARE NOT THE VIEWS OF JURISDICTIONAL HIGH COURT, SO FAR AS TH IS ISSUE IS CONCERNED. AS THE DISALLOWANCE ITSELF STANDS DELETED, THE ASSESSING OFFICER S GRIEVANCE REGARDING RATE OF INTEREST IS RENDERED INFRUCTUOUS. I.T.A. NO S . 3 5 & 4 5 /ASR/201 5 ASSESSMENT YEAR: 20 1 0 - 1 1 PAGE 5 OF 5 10. GROUND NO 4 OF THE ASSESSING OFFICER IS THUS DISMISSED AS INFRUCTUOUS AND THE ASSESSEE S FOURTH GRO UND OF APPEAL - INFACT THE ONLY ISSUE WHICH IS REQUIRED TO BE ADJUDICATED BY US, IS ALLOWED. 11. IN THE RESULT, WHILE APPEAL OF THE ASSESSING OFFICER IS DISMISSED, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED TODAY ON THE 31 ST DAY OF AUGUST, 2015. SD/XX SD/XX A D JAIN PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED THE 31 ST DAY OF AUGUST, 2015 COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AM RITSAR