Kamal Industry, V. ITO, Ward-I,

ITA 3545/DEL/2004

• Counselvise Citation: 354520114 RSA 2004
• Duration Of Justice: 10 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 06-01-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 11-08-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAURAV DUDEJA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : D NEW DELHI BEFORE SHRI I.C. SUDHIR, J.M. AND SHRI J.SUDHAKAR REDDY, A.M. ITA NO. 3545 /DEL/20 04 ASSESSMENT YEAR : 200 1 - 02 M/S KAMAL INDUSTRY (HUF) VS. ITO, WARD 1 589 - 90, CHOUDHARYWARA REWARI REWARI (HARYANA) (APPELLANT) (RESPONDENT ) APPELLANT BY : - SHRI GURJEET SINGH, ADV. RESPONDENT BY : - SH. GAURAV DUDEJA, SR.D.R. O R D E R PER J.SUDHAKAR REDDY, AM THIS APPEAL IS FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE LD.CIT(APPEALS) , ROHTAK DT. 2 2.03.2004 PERTAINING TO THE AY 200 1 - 02 . 2. THE HON BLE DELHI HIGH COURT IN ITA NO.231/2007, IN APPEAL FILED BY THE REVENUE HAD REMANDED BACK TO THE TRIBUNAL THE FOLLOWING QUESTION: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HON BLE ITAT WAS RIGHT IN LAW IN DELETING THE DISALLOWANCE OF INTEREST OF RS.3,13,677/ - MADE U/S 36(1)(III) OF THE ACT ON ACCOUNT OF INTER EST ON BORROWING S TO THE EXTENT THOSE ARE DIVERTED TO RELATIVES WITHOUT INTEREST ? 2.1. THE HON BLE HIGH COURT OBSERVED THAT , THE TRIBUNAL HAS DECIDED THE APPEAL IN FAVOUR OF THE ASSESSEE BY RELYING UPON ITS EARLIER ORDER FOR THE AY 1998 - 99, WITHOUT N OTICING THAT THE FACTUAL MATRIX IN THE PRESENT CASE IS DIFFERENT FROM THE FACTS IN THE AY 1998 - 99. IT IS OBSERVED AS FOLLOWS THE TRIBUNAL WAS REQUIRED TO DISCUSS WITH REGARD TO THE DETAILS AS HAVE BEEN NOTICED BY THE AO WHILE MAKING THE ASSESSMENT. M OREOVER THE ASSESSMENT ORDERS FOR THE AY 2004 - 05, 2005 - 06 AND 2006 - 07 DO NOT SPECIFICALLY SHOW THAT THE ISSUE WITH REGARD TO S.36(1)(III) WAS DISCUSSED IN THE SAID ASSESSMENT ORDER , AS IS DISCERNIBLE FROM THE ASSESSMENT ORDER PRODUCED BY ITA 3545/DEL/2004 AY 2001 - 02 M/S KAMAL INDUSTRY (HUF), REWARI (HARYANA) 2 THE LD.COUNSEL F OR THE ASSESSEE. HOWEVER, IT SHALL BE OPEN TO THE ASSESSEE TO URGE THIS POINT BEFORE THE TRIBUNAL AT THE TIME OF HEARING OF THE APPEAL AGAIN. 3. THE LD.COUNSEL FOR THE ASSESSEE SH.GURJEET SINGH, SUBMITTED A PAPER BOOK AND ARGUED THAT , FROM THE PROFI T AND LOSS A/C , WHICH IS AT PAGE 59 OF THE PAPER BOOK , IT IS CLEAR THAT THE INTEREST INCOME EARNED BY THE ASSESSEE IS RS.3,47,517/ - AND WHEREAS THE INTEREST PAID BY THE ASSESSEE RS.3,13,677.05 DURING THE YEAR AND THAT THIS DEMONSTRATES THAT THE ASSESSEE HAS NOT DIVERTED INTEREST BEARING FUNDS , TO ADVANCE INTEREST FREE LOANS , TO SISTER CONCERNS. HE FURTHER RELIED ON THE BALANCE SHEET AT PAGE 57 OF THE PAPER BOOK AND SUBMITTED THAT AGAINST SUNDRY CREDITORS OF RS.1.79 CRORES, THE ASSESSEE HAD SUNDRY DEBTORS OF RS.32.21 LAKHS. HE FURTHER POINTED OUT THAT OUT OF UNSECURED LOANS OF RS.19.55 LAKHS , LOANS AND ADVANCES GIVEN WAS RS.1.86 CRORES. HE SUBMITS THAT THIS SUM DEMONSTRATES THAT , SUNDRY CREDITORS HAVE BEEN ADVANCED AS LOANS AND ADVANCES. HE TRI ED TO DEMONSTRATE THAT INTEREST BEARING FUNDS HAVE NOT BEEN DIVERTED FOR GIVING NON INTEREST BEARING ADVANCES . HE ALSO RELIED ON THE ORDER OF PREVIOUS ASSESSMENT YEARS AS WELL AS THE SUBSEQUENT ASSESSMENT YEARS. 4. SH. GAURAV DUDEJA, T HE LD. SR. D.R. ON BE HALF OF THE REVENUE SUBMITTED THAT THE ASSESSEE HAS DIVERTED INTEREST BEARING FUNDS , TO ITS SISTER CONCERNS , ADMITTEDLY FOR NON BUSINESS PURPOSES AND HENCE THE INTEREST SHOULD BE DISALLOWED. ALTERNATIVELY HE SUBMITTED THAT THE ASSESSMENT ORDER SHOULD B E SET ASIDE. 5. AFTER HEARING RIVAL CONTENTIONS AND PERUSING THE PAPERS ON RECORD AND ORDERS OF THE AUTHORITIES BELOW AS WELL AS CASE LAWS CITED, WE HOLD AS UNDER. 6. THE ASSESSEE RELIED ON THE DECISION OF THE HON BLE HIGH COURT OF PUNJAB & HARYANA IN CI T VS. MARK AUTO INDUSTRIES LTD. REPORTED IN 201 TAXMANN.COM 137 WHEREIN AT PARAS 13 AND 14 IT WAS HELD AS UNDER. 13. REFERRING TO THE LAST ISSUE, THE TRIBUNAL HAS SPECIFICALLY RECORDED THAT THE AMOUNT.WA S INVES TED BY THE ASSESSEE AS SHARE APPLICATION M ONEY WITH THE SISTER CONCERN, I.E., M /S MARK EXHAUST SYSTEMS LTD. AND THE DEPARTMENT HAD FAILED TO PRODUCE ANY EVIDENCE THAT THERE WAS DIVERSION OF BORROWED FUNDS ON ITA 3545/DEL/2004 AY 2001 - 02 M/S KAMAL INDUSTRY (HUF), REWARI (HARYANA) 3 WHICH INTEREST HAD BEEN PAID BY THE ASSESSEE. THE RELEVANT FINDINGS RECORDED BY THE TRIB UNAL READ AS FOLLOWS: '70. UNDER GROUND NO. 18, THE DEPARTMENT PLEADS THAT THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 43,53,604 MADE BY THE AO ON ACCOUNT OF INTEREST ON MONEYS ADVANCED TO M / S MARK EXHAUST SYSTEMS LTD. SIMPLY RELYING ON THE SUBMISSION OF THE ASSESSEE. THE LEARNED CIT(A) HAS FOLLOWED HIS OWN ORDER FOR ASST. YR. 1995 - 96 IN THE ASSESSEE'S OWN CASE, WHEREIN THE LEARNED CIT(A) HAD FOUND THAT THE AO HAD NOT ESTABLISHED THAT ANY OF THE BORROWED FUNDS HAD BEEN DIVERTED FOR INV ESTING IN M / S MARK EXHAUST SYSTEMS LTD. FOR THE YEAR UNDER CONSIDERATION, THE LEARNED CIT(A) OBSERVED THAT THE SPECIFIC BORROWINGS FROM IFCI AND ICICI WERE SHOWN SPENT ONLY ON ACQUISITION OF SPECIFIC MACHINERY. IT WAS ON THIS BASIS, THAT THE ADDITION WAS D ELETED. 71. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE ON THE TRIBUNAL DECISION IN THE ASSESSEE'S OWN CASE FOR ASST. YR. 1995 - 96 IN ITA NOS. 338/DEL/2000 AND 262/DEL/199 , WHEREIN, THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSE SSEE. RESPECTFULLY FOLLOWING THE SAID ORDER, GROUND NO. 18 IS REJECTED.' 14. LEARNED COUNSEL FOR THE REVENUE WAS UNABLE TO MAKE REFERENCE TO ANY EVIDENCE WHICH EITHER HAD BEEN IGNORED OR IMPROPERLY APPRECIATED WARRANTING INTERVENTION OF THIS COURT IN THE ABOVE NOTED CONCLUSION. 15. ACCORDINGLY, THERE IS NO MERIT IN THESE APPEA LS AND THE SAME ARE HEREBY DISMISSED. 6.1. IN THE CASE ON HAND , ADMITTEDLY ADVANCES GIVEN TO SISTER CONCERNS WERE NOT FOR BUSINESS PURPOSES AND THESE WERE INTEREST FREE. UNDER SUCH CIRCUMSTANCES THE TEST TO BE APPLIED IS WHETHER , THE ASSESSEE HAS A DEQUATE INTEREST FREE FUNDS, WHICH CAN BE SAID TO BE DIVERTED TO THE SISTER CONCERNS. THE HON BLE BOMBAY HIGH COURT IN THE CASE OF M/S RELIANCE UTILITIES & POWER LTD. (IN ITA 1398 OF 2008 JUDGEMENT DT. 09.01.2009 REPORTED IN 313 ITR 340 (BOMBAY) HAD HEL D AS UNDER: ADVANCES TO SISTER CONCERNS MUST BE PRESUMED TO HAVE COME OUT OF OWN FUNDS AND NOT BORROWED FUNDS. WHERE THE ASSESSEE HAD ITS OWN FUNDS AS WELL AS BORROWED FUNDS AND IT ADVANCED FUNDS TO ITS SISTER CONCERNS FOR ALLEGEDLY NON - BUSINESS PURPOSES AND THE QUESTION AROSE WHETHER THE AO WAS JUSTIFIED IN DISALLOWING THE INTEREST ON THE BORROWED FUNDS ON THE GROUND THAT THEY HAD BEEN USED FOR NON - BUSINESS PURPOSES, HELD: WHERE AN ASSESSEE HAS HIS OWN FUNDS AS WELL AS BORROWED FUNDS, A PRESUMPTION CAN BE MADE THAT THE ADVANCES FOR NON - BUSINESS PURPOSES HAVE BEEN MADE OUT OF THE OWN FUNDS AND THAT THE BORROWED FUNDS HAVE NOT BEEN USED FOR THIS PURPOSE. ACCORDINGLY, THE DISALLOWANCE OF THE INTEREST ON THE BORROWED FUNDS IS NOT JUSTIFIED. ITA 3545/DEL/2004 AY 2001 - 02 M/S KAMAL INDUSTRY (HUF), REWARI (HARYANA) 4 6.2. IN THE ABOVE JUDGEMENT THE HON BLE COURT LAID DOWN THE PROPOSITION THAT A PRESUMPTION SHOULD BE DRAWN THAT THE INTEREST FREE FUNDS HAVE BEEN DEPLOYED FOR GIVING INTEREST FREE ADVANCES . A PERUSAL OF THE BALANCE SHEET DEMONSTRATES THAT THE ASSESSEE HAS SU FFICIENT INTEREST FREE FUNDS. THUS THE PRESUMPTION IS THAT THE ASSESSEE HAS DIVERTED INTEREST FREE FUNDS TO ITS SISTER CONCERNS. THIS IS ALSO FORTIFIED BY THE QUANTUM OF INTEREST INCOME RECEIV ED AND THE INTEREST INCOME PAID BY THE ASSESSEE DURING THE YEA R. IN VIEW OF THE ABOVE DISCUSSION , WE DELETE THE ADDITION IN QUESTION AND ALLOW THE APPEAL OF THE ASSESSEE. 7. IN THE RESULT THE APPEAL BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH JANUARY, 2015 . SD/ - SD/ - ( I.C. SUDHIR ) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 16 TH JANUARY, 2015 *MANGA COPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR