M/s Saluja International, Ludhiana V. ITO, Ludhiana

ITA 377/CHANDI/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9862 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 13-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO. 377/CHD/2016 ASSESSMENT YEAR : 2009-10 M/S SALUJA INTERNATIONAL, VS THE ITO, 706, INDUSTRIAL AREA, WARD-III(3), NEAR ZOOM HOTEL, LUDHIANA. LUDHIANA. PAN: ABEFS0779H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHWANI KUMAR RESPONDENT BY : SHRI MANJIT SINGH, DR DATE OF HEARING : 21.06.2016 DATE OF PRONOUNCEMENT : 22.06.2016 O R D E R THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST THE ORDER OF LD. CIT(APPEALS)-1 LUDHIANA DATED 29.02.2016 FOR ASSESSMENT YEAR 2009-10, CHALLENGING THE DISALLOWANCE OF INTEREST ADVANCED TO M/S RAHUL FABRICS AMOUNTING TO RS. 3,66,768/-. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE FILED RETURN OF INCOME DECLARING INCOME FROM MANUFACTURING AND TRADING OF HOSIERY GOODS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS GIVE N INTEREST FREE ADVANCES AMOUNTING TO RS. 4.07 CR TO THREE PARTIES NAMELY, DHIRAJ SALUJA, REEMA SALUJA A ND RAHUL FABRICS ON WHICH IT HAS NOT CHARGED ANY INTER EST 2 THOUGH IT IS PAYING INTEREST ON SECURED LOANS AND B ANK CHARGES. THE LD. CIT(APPEALS) HAS DELETED THE DISALLOWANCE IN THE CASES OF SHRI DHIRAJ SALUJA AND SMT. REEMA SALUJA. THEREFORE, IN THE PRESENT APPEA L, THE ISSUE IS CONCERNED WITH REGARD TO M/S RAHUL FABRICS LTD. THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCES OF RS. 30,56,400/- TO M/S RAHUL FABRICS AN D ASSESSING OFFICER NOTED THAT ADVANCE WAS GIVEN FOR NON- BUSINESS PURPOSES AND NO INTEREST HAVE BEEN CHARGED ON THIS ADVANCE. THE ASSESSEE, AT THE SAME TIME HA S RAISED UNSECURED LOAN AND PAID INTEREST AND BANK CHARGES OF RS. 34,76,690/- DURING THE YEAR AND HAS CLAIMED INTEREST PAID AS EXPENDITURE. THE EXPLANAT ION OF THE ASSESSEE WAS CALLED FOR AS TO WHY PROPORTION ATE DISALLOWANCE SHOULD NOT BE MADE BY FOLLOWING JUDGEMENT OF THE HON'BLE PUNJAB & HARYANA HIGH COUR T IN THE CASE OF M/S ABHISHEK INDUSTRIES LTD. 286 ITR 1. 3. THE ASSESSEE SUBMITTED THAT IN THE CASE OF M/S RAHUL FABRICS, SAME IS SUNDRY DEBTORS TO WHOM THE ASSESSEE FIRM HAD SOLD ITS MATERIAL IN THE FINANCIA L YEAR 2001-02 COPY OF THE ACCOUNT OF THIS PARTY FOR THE Y EAR 2001-02 WAS FILED IN SUPPORT OF THE SAME. IT WAS A LSO SUBMITTED THAT THERE WAS NO NEXUS BETWEEN THE AMOUN T ADVANCED TO THIS PARTY AND THE AMOUNT BORROWED. THEREFORE, NO DISALLOWANCE SHOULD BE MADE. THE ASSESSING OFFICER NOTED THAT LOAN TO M/S RAHUL FABR IC IS OUTSTANDING SINCE FINANCIAL YEAR 2001-02 AND 3 FOLLOWING THE JUDGEMENT OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRI ES (SUPRA) HELD THAT PROPORTIONATE DISALLOWANCE SHOULD BE MADE IN THE CASE OF M/S RAHUL FABRIC. DISALLOWANCE OF RS. 3,66,768/- WAS ACCORDINGLY MADE. 3(I) THE ASSESSEE CHALLENGED THE ADDITION BEFORE LD . CIT(APPEALS) AND SAME FACTS WERE REITERATED. IT WA S ALSO SUBMITTED THAT SINCE ASSESSEE SOLD THE GOODS DURING THE FINANCIAL YEAR 2001-02 TO M/S RAHUL FABRICS, THEREFORE, THIS AMOUNT WAS DUE AGAINST THI S PARTY AGAINST THE SALE SINCE FINANCIAL YEAR 2001-02 , THEREFORE, COULD NOT BE TREATED AS INTEREST FREE AD VANCE. THERE IS NO MATERIAL AVAILABLE ON RECORD TO PROVE A NY CONNECTION OF THIS AMOUNT WITH THE BORROWED FUNDS. THEREFORE, NO ADDITION SHOULD BE MADE. THE LD. CIT(APPEALS), HOWEVER, NOTED THAT SUFFICIENCY OF FU NDS HAVE NOT BEEN PROVED BY THE ASSESSEE. NO BUSINESS TRANSACTION HAVE BEEN PROVED THEREFORE, ADDITION TO THAT EXTENT WAS CONFIRMED AND APPEAL OF THE ASSESSE E ON THIS GROUND WAS DISMISSED. 4. AFTER CONSIDERING RIVAL SUBMISSIONS, I AM NOT INCLINED TO CONFIRM THE ORDERS OF AUTHORITIES BELOW . THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS GIVEN INTEREST FREE ADVANCE TO M/S RAHUL FABRICS IN A SUM OF RS. 30,56,400/-. THE ASSESSEE SPECIFICALLY PLEADED BEFORE THE ASSESSING OFFICER THAT THE AMOUNT AGAINS T 4 THIS PARTY IS OUTSTANDING SINCE FINANCIAL YEAR 2001 -02 AS THE SAME IS SUNDRY DEBTORS TO WHOM THE ASSESSEE FIRM HAD SOLD ITS MATERIAL. IT WAS SUPPORTED BY TH E COPY OF THE ACCOUNT OF PARTY. SAME IS ALSO FILED BE FORE ME WHICH SHOWS THAT ON 31.03.2002, THERE IS DEBIT BALANCE OF RS. 30,56,400/- AGAINST THIS PARTY WHICH WAS ON ACCOUNT OF FIVE BILLS OF SALES RAISED AGAINS T THIS PARTY. THEREFORE, THERE IS NO QUESTION OF TREATING THE SAME TO BE INTEREST FREE ADVANCE GIVEN TO THIS PART Y. THE AMOUNT OF SALE PROCEEDS IS OUTSTANDING AGAINST THIS PARTY FROM EARLIER YEARS AND NOTHING IS EXPLAI NED AS TO WHAT TREATMENT HAVE BEEN GIVEN BY THE ASSESSI NG OFFICER IN PRECEDING ASSESSMENT YEARS FROM ASSESSME NT YEAR 2002-03 TO ASSESSMENT YEAR 2008-09 IN THE NAME OF THIS PARTY. FURTHER, ASSESSING OFFICER HAS FAIL ED TO PROVE ANY NEXUS BETWEEN THE BORROWED FUNDS AND THE DEBIT BALANCE AGAINST THIS PARTY ON ACCOUNT OF SALE OF MATERIAL. IT IS OLD BALANCE AND M/S RAHUL FABRICS IS A TRADE DEBTOR. SINCE THERE IS NO CHANCE OF RECOVERY FROM THIS PARTY SINCE MARCH,2002, THEREFORE, THE ASSESSE E EVEN COULD HAVE CLAIMED THE SAME AS BAD DEBT AS PER LAW. THEREFORE, THERE WAS NO QUESTION OF DISALLOWA NCE OF INTEREST AGAINST THIS PARTY HOLDING IT TO BE INT EREST FREE ADVANCE. 5. THE ASSESSING OFFICER WHILE MAKING DISALLOWANCE, PLACED RELIANCE UPON THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S ABHISHEK 5 INDUSTRIES 286 ITR 1 (SUPRA), HOWEVER, HON'BLE SUPREME COURT IN THE CASE OF HERO CYCLES PVT. LTD. 379 ITR 347 OVERRULED THE SAID JUDGEMENT AND HELD THAT, WHEN ADVANCE TO SISTER CONCERN IS GIVEN FOR BUSINE SS EXPEDIENCY, NO DISALLOWANCE UNDER SECTION 36(1)(III ) COULD BE MADE. 6. CONSIDERING TOTALITY OF THE FACTS AND CIRCUMSTANCES AND DISCUSSION ABOVE, I AM OF THE VIE W THAT AUTHORITIES BELOW WERE NOT JUSTIFIED IN DISALL OWING INTEREST OF RS. 3,66,768/- IN THE CASE OF M/S RAHUL FABRICS. I, ACCORDINGLY, SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DELETE THE ADDITION. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATED: 22 ND JUNE, 2016. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT,DR ASSISTANT REGISTRAR, ITAT/CHD