M/s. Freedom Industries Ltd, Amritsar. V. The Assistant Commissioner of Income Tax, Amritsar.

ITA 37/ASR/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5768 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-07-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 06-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S KANWAL
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. NO. 37/(ASR)/2016 ASSESSMENT YEAR: 2010-11 PAN: AAACF2467P M/S. FREEDOM INDUSTRIES LTD. 435, FOCAL POINT, MEHTA ROAD, AMRITSAR. VS. ASST. C. I. T., CIRCLE-IV, AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SUDHIR SEHGAL RESPONDENT BY: SH. S. S. KANWAL (D. R.) DATE OF HEARING: 05.10.2017 DATE OF PRONOUNCEMENT: 03.01.201 8 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORD ER OF LD. CIT(A), AMRITSAR, DATED 06.10.2015 FOR ASST. YEAR: 2010-11. 2. THE ONLY GRIEVANCE RAISED BY ASSESSEE IS THE ACT ION OF LD. CIT(A) BY WHICH HE HAS CONFIRMED THE DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT. [ 3. AT THE OUTSET, THE LD. AR SUBMITTED THAT THE LD. CIT(A) HAS CONFIRMED THIS ADDITION BY HOLDING THAT THE CASE LA W OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRI ES LTD. IS APPLICABLE WHEREAS THE CASE OF THE ABHISHEK INDUSTRIES LTD. HA S NOW BEEN OVERRULED IN HERO CYCLES (P) LTD. WHEREIN IT HAS BEEN HELD TH AT WHERE THERE ARE SUFFICIENT NON INTEREST BEARING FUNDS WHICH ARE MOR E THAN INTEREST FREE ITA NO. 37(ASR)/2016 ASSESSMENT YEAR: 2010-11 2 ADVANCES THEN DISALLOWANCE U/S 36(1)(III) CANNOT BE MADE. RELIANCE WAS FURTHER PLACED ON THE JUDGMENT OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. M/S HOLYFAITH INTERNATIONAL PVT. LT D. AND ALSO ON THE CASE OF PR. CIT VS. M/S MALHOTRA BOOK DEPOT WHEREIN UNDE R SIMILAR FACTS AND CIRCUMSTANCES, IT WAS HELD THAT IF THE INTEREST FRE E FUNDS ARE MORE THAN INTEREST FREE ADVANCES THEN PRESUMPTION WILL ARISE THAT THE INTEREST FREE ADVANCES HAS BEEN MADE OUT OF INTEREST FREE FUNDS. THE LD. AR SUBMITTED THAT LD. CIT(A) HIMSELF IN HIS ORDER HAS NOTED DOWN THAT THE FUNDS AVAILABLE WITH THE ASSESSEE AMOUNTED TO 7,44,58,865 /- AGAINST WHICH A SMALL AMOUNT WAS ADVANCED AS INTEREST FREE ADVANCES . THEREFORE IT WAS ARGUED THAT THE APPEAL OF THE ASSESSEE MAY BE ALLOW ED. 4. THE LD. DR ON THE OTHER HAND SUBMITTED THAT NO N EXUS WAS EXPLAINED BY ASSESSEE REGARDING THE PAYMENT OF ADVA NCES WITH THE INTEREST FREE FUNDS AND ASSESSEE HAD DIRECTLY TRANS FERRED THE MONEY FOR ADVANCING OUT OF CASH CREDIT LIMIT WHICH ITSELF MEA NS THAT CURRENT BUSINESS FUNDS OF THE ASSESSEE WERE USED FOR MAKING INTEREST FREE ADVANCES AND THEREFORE THE ASSESSEE HAD NOT MADE TH ESE INTEREST FREE ADVANCES OUT OF INTEREST FREE FUNDS. HE SUBMITTED T HAT THE BURDEN OF INTEREST WOULD HAVE BEEN LOWER HAD THE ASSESSEE CHA RGED INTEREST FROM THEM AND THEREFORE LD. CIT(A) HAD RIGHTLY CONFIRMED THE DISALLOWANCE. 5. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH OUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT THE AUTHORITIES BELO W HAS RELIED ON THE CASE OF ABHISHEK INDUSTRIES LTD DECIDED BY HON'BLE PUNJAB & HARYANA ITA NO. 37(ASR)/2016 ASSESSMENT YEAR: 2010-11 3 HIGH COURT FOR CONFIRMING THE DISALLOWANCE U/S 36(1 )(III) OF THE ACT. WE FURTHER FIND THAT THE SAID JUDGMENT OF PUNJAB & HAR YANA HIGH COURT HAS BEEN OVERRULED IN THE CASE OF HERO CYCLE PVT. LTD. VS. COMMISSIONER OF INCOME TAX WHEREIN THE HON'BLE SUPREME COURT OF IND IA HAS HELD THAT IF THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE ARE MORE THAN THE INTEREST FREE ADVANCES THEN THE PRESUMPTION WILL BE MADE THAT ASSESSEE HAD UTILIZED HIS OWN RESOURCES FOR MAKING INTEREST FREE ADVANCES. WE FURTHER FIND THAT THIS ISSUE HAS ALSO BEEN DECIDED BY PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S HOLYFAITH INTERNATION AL PVT. LTD. AND M/S MALHOTRA BOOK DEPOT VS. PR. CIT. FOR THE SAKE OF CO MPLETENESS, THE FINDINGS OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF MALHOTRA BOOK DEPOT ARE REPRODUCED BELOW: 4. WE HAVE HEARD LEARNED COUNSEL FOR THE PARTIES. 5. THE MATTER HAS BEEN CONSIDERED BY THE TRIBUNAL IN DETAIL. A PERUSAL OF THE ORDER PASSED BY THE TRIBUNAL SHOWS THAT THE CAP ITAL OF THE ASSESSEE COMPANY WAS RS.31,71,64,888/- FOR THE ASSESSMENT YE AR 2010-11. THE INVESTMENT IN SISTER CONCERNS IN THE SHAPE OF SHARE APPLICATION MONEY WAS TO THE TUNE OF RS.20,32,60,000/-. THE ASSESSEE WAS HAVING CURRENT LIABILITIES AND PROFITS TO THE TUNE OF RS. 17,41,39 ,750/-. THE TOTAL NON INTERESTS BEARING FUNDS AVAILABLE WITH THE ASSESSEE WERE AT RS. 49,43,04,638/-. OUT OF THE TOTAL FUNDS ON WHICH NO INTEREST WAS PAID BY THE ASSESSEE AMOUNTING TO RS. 49,43,04,638/-, THE A SSESSEE HAD ADVANCED RS. 20,32,60,000/-. THUS, THERE WAS SUFFIC IENT NON-INTEREST BORROWING FUNDS OUT OF WHICH THE ASSESSEE HAD ADVAN CED/INVESTED IN SISTER CONCERNS. IT WAS FURTHER RECORDED THAT IN TH E ASSESSMENT YEAR 2012- 13 ALSO, THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS TO MAKE INVESTMENT IN THE GROUP COMPANIES RELYING UPON THE DECISION OF THE APEX COURT IN HERO CYCLE PRIVATE LIMITED VS. COMMISSIONER OF INCOME TA X (CENTRAL) 63 TAXMANN.COM 308 AND COMMISSIONER OF INCOME TAX-I, LUDHIANA VS. M/S ABHISHEK INDUSTRIES LIMITED, LUDHIANA, (2006) 286 ITR 1(P&H). THE TRIBUNAL ALLOWED THE APPEALS FILED BY THE ASSES SEE. THE RELEVANT FINDINGS RECORDED BY THE TRIBUNAL READ THUS:- 9 . WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE THE MATERIAL PLACED ON RECORD. WE FIND THAT FOR ASSESSMENT YEAR 2010-11 TH E CAPITAL OF THE ASSESSEE COMPANY WAS RS. 31,71,64,888/- WHICH IS AP PARENT FROM THE ITA NO. 37(ASR)/2016 ASSESSMENT YEAR: 2010-11 4 COPY OF BALANCE SHEET AS PLACED IN (PB-2). AS AGAIN ST THIS THE INVESTMENTS IN SISTER CONCERN IN THE SHAPE OF SHARE APPLICATION MONEY AS PER PAPER BOOK PAGE 2 AND AS NOTED BY ASSESSING OFFICER IS RS . 20,32,60,000/-. WE FURTHER FIND THAT ASSESSEE WAS HAVING CURRENT LIABI LITIES AND PROFITS TO THE TUNE OF RS.17,41,39,750/-, THEREFORE, THE TOTAL OF NON INTERESTS BEARING FUNDS AVAILABLE WITH THE ASSESSEE WERE PAID AT RS. 49,43,04,638/-. THESE FIGURES ARE VERIFIABLE FROM THE COPIES OF BALANCE S HEET AS PLACED IN (PB PAGE 2). OUT OF TOTAL AVAILABLE FUNDS ON WHICH NO I NTEREST WAS PAID BY ASSESSEE AMOUNTING TO RS. 49,43,04,638/-, THE ASSES SEE HAD ADVANCED ? 20,32,60,000/-, THEREFORE, ONE FACT IS CLEAR THAT I N ITA NO.L96(ASR)/2015, THERE WAS SUFFICIENT NON INTEREST BORROWING FUNDS O UT OF WHICH THE ASSESSEE HAD ADVANCED/INVESTED IN THE SISTER CONCER NS. 10. SIMILARLY, WE FIND THAT FOR ASSESSMENT YEAR 201 2-13 THE CAPITAL OF THE FIRM AS PER BALANCE SHEET PLACED AT (PB PAGE 3) WAS RS. 13,21,61,500/- AND THE INTEREST FREE CURRENT LIABILITIES WERE TO T HE TUNE OFF 91,20,514/- MAKING THE TOTAL AVAILABILITY OF INTEREST FREE FUND S TO THE TUNE OFF RS. 104.58 CRORES. THE ASSESSEE IN THIS YEAR HAD MADE I NVESTMENTS IN THE GROUP CONCERNS AS NOTED BY ASSESSING OFFICER TO THE TUNE OFF RS. 53.76 CRORES. THEREFORE, WE FIND THAT IN THIS YEAR ALSO T HE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS TO MAKE INVESTMENT IN THE GROUP COMPANIES. FURTHER WE FIND THAT LEARNED CIT(A) HAS FOLLOWED THE DECISION OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES AND H AS FURTHER RELIED UPON THE DECISION OF M/S BRIGHT ENTERPRISES PRIVATE LIMI TED, DECIDED BY AMRITSAR BENCH, WE FIND THAT THE DECISION OF BRIGHT ENTERPRI SES PRIVATE LIMITED HAS BEEN OVERRULED BY PUNJAB AND HARYANA HIGH COURT. TH E FINDINGS OF HONBLE PUNJAB & HARYANA HIGH COURT ARE REPRODUCED BELOW. HELD, ALLOWING THE APPEAL, THAT WHETHER THE AMOUNT WAS DEBITED TO THE ACCOUNT OF THE SISTER CONCERN IN RESPECT OF THE PAY MENT MADE OR WHETHER THE AMOUNT WAS ACTUALLY PAID TO THE SISTER CONCERN AND USED BY IT FOR THE PURPOSE OF BUSINESS, WAS IMMATERIAL. EITHER WAY THE AMOUNT WAS USED FOR THE BUSINESS OF THE SISTER CONCERN. IT WAS NOT EVEN SUGGESTED THAT THE ADVANCE WAS USED BY THE SISTER CONCERN FOR THE PURP OSE OTHER THAN FOR THE PURPOSES OF ITS BUSINESS. IN THE MEMORANDUM OF APPE AL, THE ASSESSEE EXPRESSLY STATED THAT IT HAD ADVANCED THE AMOUNT TO ITS SISTER CONCERN AS A MEASURE OF COMMERCIAL EXPEDIENCY FOR THE PURPOSE OF BUSINESS. THE ASSERTION WAS NEVER DENIED. THE ASSESSEE OWNED ABOU T 89 PER CENT OF THE EQUITY CAPITAL. WHEN A HOLDING COMPANY INVESTED MON EY FOR THE PURPOSE OF THE BUSINESS OF ITS SUBSIDIARY, IT MUST NECESSARILY BE HELD TO BE AN EXPENSE ON ACCOUNT OF COMMERCIAL EXPEDIENCY. A FINANCIAL BE NEFIT OF ANY NATURE DERIVED BY THE SUBSIDIARY ON ACCOUNT OF THE AMOUNTS ADVANCED TO IT BY THE HOLDING COMPANY WOULD NOT MERELY INDIRECTLY BUT DIR ECTLY BENEFIT ITS HOLDING COMPANY. THERE WOULD BE A DIRECT BENEFIT ON ACCOUNT OF ADVANCE MADE BY THE ASSESSEE TO ITS SISTER COMPANY, IF IT I MPROVED THE FINANCIAL HEALTH OF THE SISTER COMPANY AND MADE IT A VIABLE E NTERPRISE. BUT IT WAS NOT NECESSARY THAT THE ADVANCE RESULTS IN A POSITIV E TANGIBLE BENEFIT. THUS, THE ASSESSEE WAS ENTITLED .TO THE DEDUCTION UNDER S ECTION 36(L)(III) OF THE INCOME TAX ACT, 1961. 6. LEARNED COUNSEL FOR THE APPELLANT HAS NOT BEEN A BLE TO SHOW THAT THE FINDINGS RECORDED BY THE TRIBUNAL ARE ILLEGAL OR PE RVERSE WARRANTING ITA NO. 37(ASR)/2016 ASSESSMENT YEAR: 2010-11 5 INTERFERENCE BY THIS COURT. THUS NO SUBSTANTIAL QUE STION OF LAW ARISES. CONSEQUENTLY, BOTH THE APPEALS STAND DISMISSED. HERE IN THE PRESENT CASE IT IS AN UNDISPUTED FACT THAT THE RESERVES AND INTEREST FREE FUNDS OF THE ASSESSEE WERE MUCH M ORE THAN THE ADVANCES AND THEREFORE FOLLOWING THE ABOVE JUDICIAL PRECEDENT WE ALLOW THE APPEAL OF THE ASSESSEE. 6. IN NUTSHELL, THE APPEAL FILED BY ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 03.01.2018 SD/- SD/- (N. K. CHOUDHRY) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 03.01.2018. /GP/SR. PS . COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER