Adichem Dyes, Ahmedabad V. The Dy.CIT.,Circle-12, Ahmedabad

ITA 381/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5907 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 07-06-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 01-02-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI MUKUL SHRAWAT, JUDICIAL MEMBER AND SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 10/06/2010 DRAFTED ON: 1 1/06/2010 ITA NO.381/AHD/2008 ASSESSMENT YEAR : 2004-05 ADICHEM DYES 10 TH FLOOR HERITAGE TOWER NR.GUJARAT VIDYAPITH B/H.VISNAGAR BANK ASHRAM ROAD AHMEDABAD 380 014 VS. THE DY.CIT CIRCLE-12 AHMEDABAD PAN/GIR NO. : AADFA 5592 N (APPELLANT) .. (RESPONDENT) APPELLANT BY : SMT. URVASHI SHODHAN RESPONDENT BY: SHRI K.MADHUSUDAN, SR. D.R. O R D E R PER SHRI MUKUL SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WH ICH HAS EMANATED FROM THE ORDER OF THE LEARNED CIT(APPEALS) -XX, AHMEDABAD DATED 03/10/2007. GROUNDS RAISED ARE DECIDED AS F OLLOWS:- GROUND NO.1 :- 1. THE LEARNED C.I.T. (APPEALS) WAS NOT JUSTIFIED I N CONFIRMING DISALLOWANCE OF INTEREST EXPENSES OF RS.3,79,391/- U/S.36(1)(III) ON ACCOUNT OF LOWER RATE OF INTEREST CHARGED IN THE CA SE OF SISTER CONCERN AND FAMILY MEMBERS. 2. THE ASSESSEE-FIRM IS ENGAGED IN THE BUSINESS OF TRANSPORT. FACTS IN BRIEF REGARDING THE ABOVE GROUND AS EMERGED FROM TH E CORRESPONDING ITA NO.381/AHD/ 2008 ADICHEM DYES VS. DY.CIT ASST.YEAR 2004-05 - 2 - ASSESSMENT ORDER PASSED U/S.143(3) OF THE I.T. ACT, 1961 DATED 28/12/2006 WERE THAT THE ASSESSING OFFICER HAS NOTI CED THAT THE ASSESSEE HAS CLAIMED INTEREST OF RS.7,25,899/- AS PER INTER EST ACCOUNT. IN THIS REGARD, IT WAS FOUND THAT INTEREST PAID TO FAMILY MEMBERS WERE @ 12%, WHEREAS, ON THE OTHER SIDE THE INTEREST RECEIVED FR OM SISTER-CONCERNS; VIZ ADICORP ENTERPRISES PVT.LTD. @ 6%. THE ASSESSING O FFICER HAS ALSO NOTED THAT THE ASSESSEE HAS ALSO AVAILED BANK BORRO WINGS. ON THE BASIS OF ABOVE BRIEF DISCUSSION, THE ASSESSING OFFICER HA S WORKED OUT THE DIFFERENCE OF RS.3,79,391/- AS PER THE FOLLOWING CA LCULATION:- THE ISSUE WAS DISCUSSED WITH THE REPRESENTATIVE OF THE ASSESSEE AND IT WAS POINTED OUT THERE ARE ALSO DEPOSITS IN T HE ASSESSEES ACCOUNT ON WHICH INTEREST IS PAID @ 6% ONLY. IN THIS CONNECTION, ATTENTION WAS DRAWN TOWARD THE FOLLOWIN G DEPOSITS AND INTEREST PAYMENTS. SHRI ADARSH UTKARSHBHAI SHAH INTEREST PAID RS. 83,695/- ADICORP DEAL INTEREST PAID RS.3,76,914/- ---------------- RS.4,60,609/- IT WAS THEREFORE STATED THESE LOWER RATE DEPOSIT SH OULD BE DULY CONSIDERED BEFORE MAKING ANY ADDITION ON ACCOUNT OF LOW INTEREST RECEIPT FROM M/S.ADICORP ENTERPRISE PVT.LT D. THE ASSESSEES ABOVE SUBMISSION IS DULY CONSIDERED AND ACCORDINGLY A TOTAL RECONCILIATION OF ABOVE FACT IS MADE ON ACCOUNT OF DISCREPANCY FOR THE LOWER RATE OF INTEREST. AS IT CAN SEEN ABOVE, THE TOTAL INTEREST PAYMENT ON ACCOUNT OF LOWER RATE IS RS.4,60,609/-. THEREFORE, THE NET UNDER ASSESSMENT ON ACCOUNT OF SHORT RECEIPT OF THE INTEREST, THIS ACCOUNT IS WORK ED OUT IS RS.3,79,391/- I.E. [RS.8,40,000 4,60,609] AND SAM E IS ADDED IN THE TOTAL INCOME. [ ADDITION RS.3,79,391/-] BEING AGGRIEVED THE MATER WAS CARRIED BEFORE THE FI RST APPELLATE AUTHORITY. ITA NO.381/AHD/ 2008 ADICHEM DYES VS. DY.CIT ASST.YEAR 2004-05 - 3 - 3. BEFORE THE FIRST APPELLATE AUTHORITY, IT WAS VEH EMENTLY CONTESTED THAT THE APPELLANT HAD INTEREST-FREE LOANS AND ADVA NCES TO THE TUNE OF RS.99,32,454/- AND AGAINST THAT THE ALLEGED INTERE ST-FREE LOANS AND ADVANCES WERE ONLY RS.11,77,684/-. THEREFORE, THE ASSESSEE HAD EXCESS INTEREST-FREE FUNDS AVAILABLE WITH HIM OF RS.87,54, 770/-. IT WAS CONTESTED THAT THE SAID INTEREST-FREE AVAILABLE FUN DS WOULD HAVE BEEN CONSIDERED FOR ADVANCING LOAN TO ADICORP ENTERPRISE S PVT.LTD. @ 6% AND, THEREFORE, THERE WAS NO REASON FOR SUCH AN ADD ITION. HOWEVER, THE LEARNED CIT(APPEALS) WAS NOT CONVINCED AND HELD THA T THE ASSESSEE WAS UNABLE TO PROVE THE COMMERCIAL EXPEDIENCY THOUGH RE LIED UPON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF S. A. BUILDERS REPORTED AS 206 CTR 631 (SC), THEREFORE, THE ACTION OF THE ASSESSING OFFICER WAS CORRECT. THE OTHER REASON FOR AFFIRMING THE ACTIO N OF THE ASSESSING OFFICER AS ASSIGNED BY THE LEARNED CIT(APPEALS) WAS THAT THE APPELLANT HAS ALSO NOT FURNISHED THE DATE ON WHICH EACH ADVAN CE WAS GIVEN AND ON WHICH LOWER RATE OF INTEREST WAS CHARGED. SINCE TH E LEARNED CIT(APPEALS) HAS AFFIRMED THE ADDITION, THEREFORE, NOW THE ASSESSEE IS FURTHER IN APPEAL. 4. WE HAVE HEARD BOTH THE SIDES. ON CAREFUL PERUS AL OF THE ORDERS OF THE AUTHORITIES BELOW, ONCE THE ADMITTED POSITION I S THAT THE ASSESSEE HAD SUFFICIENT AVAILABILITY OF INTEREST-FREE FUNDS, THE N RAISING OF THE QUESTION OF CHARGING OF LOWER RATE OF INTEREST, I.E. @ 6% HA S NO VALID REASON. ONCE THE ASSESSEE WAS AVAILING SURPLUS FUNDS; HAVI NG NO BURDEN OF INTEREST, THEN IT WAS HIS SWEET WILL AND BUSINESS DECISION TO ADVANCE AS PER THE TERMS DECIDED BY EITHER SIDES AND THERE CO ULD NOT BE SAID TO BE ITA NO.381/AHD/ 2008 ADICHEM DYES VS. DY.CIT ASST.YEAR 2004-05 - 4 - ANY UNREASONABLE CLAIM OF INTEREST LD.AR HAS PLEADE D. IN OUR CONSIDERED OPINION, ON THESE FACTS THE ISSUE IS DIRECTLY COVER ED BY A LATEST DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE U TILITIES AND POWER LTD. REPORTED AS 221 CTR 435(BOM) FOR THE PROPOSITI ON THAT IF THE ASSESSEE IS IN POSSESSION OF SUFFICIENT INTEREST-FR EE ADVANCE OF ITS OWN A PRESUMPTION STANDS ESTABLISHED THAT THE INVESTMENT IN SISTER-CONCERN WERE MADE OUT OF THOSE INTEREST-FREE FUNDS. IN ADDITION TO THIS, LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE ALSO CITE D TWO DECISION(S) OF THIS TRIBUNAL; NAMELY, SHRI YASHWANT S.TEJANI (ITA NO.268/AHD/2005 FOR A.Y. 2001-02) DATED 04/09/2009 AND M/S.KINARIWA LA AUTOMAT MFG. PVT.LTD. (ITA NO.2472/AHD/2009 A.Y. 2003-04) DATE D 08/01/2010. FOLLOWING THE ABOVE JUDGEMENTS AND CONSIDERING THE FACTS OF THE CASE, WE HEREBY REVERSE THE FINDINGS OF THE AUTHORITIES BELO W AND DIRECT TO DELETE THE ADDITION. GROUND NO.2:- 2. THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN C ONFIRMING DISALLOWANCE OF INTEREST EXPENSES OF RS.97,950/- U/ S.36(1)(III) ON ACCOUNT OF INTEREST-FREE ADVANCES GIVEN BY THE ASSE SSEE: 5. THIS GROUND IS ALSO CONNECTED WITH THE FIRST GRO UND AS INFORMED BY THE RIVAL PARTIES. THE OBSERVATION OF THE ASSESSIN G OFFICER WAS THAT ADVANCES WERE GIVEN WITHOUT INTEREST, THOUGH INTERE ST WAS PAID ON CERTAIN BORROWINGS. THE ASSESSEES CONTENTION WAS THAT THE ASSESSEE-FIRM HAD AVAILED INTEREST-FREE ADVANCES ON ONE HAND AND ON T HE OTHER HAND ALSO ADVANCED MONEY WITHOUT ANY INTEREST. BEFORE ASSESS ING OFFICER ADVANCES GIVEN WITHOUT INTEREST AND THE ADVANCES AV AILED WITHOUT INTEREST ITA NO.381/AHD/ 2008 ADICHEM DYES VS. DY.CIT ASST.YEAR 2004-05 - 5 - HAVE BEEN FURNISHED. AS PER THE LIST AND THE DETAI LS FURNISHED, IT WAS FOUND THAT THE ADVANCES GIVEN WITHOUT INTEREST TO A BOUT TEN (10) PARTIES WAS TO THE TUNE OF RS.11,77,684/-. ON THE OTHER HA ND, INTEREST-FREE ADVANCES RECEIVED OR AVAILED WERE TO THE TUNE OF RS .99,32,454/-. SO, THE CONTENTION WAS THAT ONCE THE ASSESSEE HAD SUFFICIEN T INTEREST-FREE LOANS IN HAND WHICH WAS MUCH HIGHER THAN THE INTEREST-FREE A DVANCES GIVEN, THEN THE EXPENDITURE AS PER PROFIT & LOSS ACCOUNT CLAIME D OF RS.7,25,899/- WAS ALLOWABLE. HOWEVER, THE ASSESSING OFFICER WAS NOT THE CONVINCED AND IN HIS OPINION ONCE THE APPELLANT HAD CLAIMED I NTEREST, THEREFORE, THE BORROWINGS OUGHT TO HAVE BEEN MADE FROM OUTSIDE AND THE ASSESSEE WAS NATURALLY SHORT OF FUNDS FOR HIS BUSINESS REQUIREME NT. HE HAS PROPOSED TO DISALLOW INTEREST ON PRO-RATA BASIS. ACCORDINGLY, DISALLOWANCE WAS CALCULATED AND AN ADDITION OF RS.97,950/- WAS MADE; WHICH WAS CHALLENGED. THE FIRST APPELLATE AUTHORITY IN A BRI EF AND CRYPTIC FINDING HAS FOLLOWED AN EARLIER DECISION FOR ASSESSMENT YEAR 20 03-04 AND AFFIRMED THE ACTION OF THE ASSESSING OFFICER. 6. WE HAVE HEARD BOTH THE SIDES AND ALSO CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. AT THE OUTSET, IT WAS IN FORMED BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE THAT THOU GH THE FIRST APPELLATE AUTHORITY HAS RELIED UPON THE DECISION OF ASSESSMEN T YEAR 2003-04 BUT THE FACT IS THAT THE AMOUNT IN QUESTION BEING TRIFL E WAS NOT CONTESTED. COMING TO THE MERITS OF THE CASE, LEARNED AUTHORISE D REPRESENTATIVE OF THE ASSESSEE SMT. URVASHI SHODHAN HAS INFORMED THA T THE PARTIES TO WHOM THE ADVANCES WERE MADE WERE, IN FACT, BUSINESS RELATED PARTIES AND IN SUPPORT SHE HAS DRAWN OUR ATTENTION TOWARDS FIND INGS OF LEARNED ITA NO.381/AHD/ 2008 ADICHEM DYES VS. DY.CIT ASST.YEAR 2004-05 - 6 - CIT(APPEALS) AT PAGE NOS.6 & 7, WHEREIN THE BUSINES S RELATIONSHIP AND COMMERCIAL EXPEDIENCY WAS EXPLAINED. WE HAVE CARE FULLY PERUSED THOSE FACTS AND IN SHORT WE HAVE NOTICED THAT M/S.BLACK D IAMOND TRADING COMPANY WAS A PARTY IN A TENDER APPLIED WITH THE A SSESSEE. THE SAID PARTY WAS AN OUTSIDE PARTY AND NOT CONNECTED WITH T HE PARTNERS OF THE FIRM. ABOUT THE PELICAN COMPLEX MAINTENANCE AND HE RITAGE TOWER MAINTENANCE, THE DEPOSITS WERE ON ACCOUNT OF MAINT ENANCE DEPOSITS TOWARDS THE HOLDING OF THE PREMISES IN THOSE BUILD ING COMPLEX. IN RESPECT OF THESE THREE DEPOSITS THE COMMERCIAL EXPE DIENCY WAS VEHEMENTLY CONTESTED AND IN SUPPORT OF THIS, A DECI SION OF HON'BLE SUPREME COURT IN THE CASE OF S.A.BUILDERS 206 CTR 631 (SC) WAS RELIED UPON. IN RESPECT OF THE FOURTH PARTY; NAMELY, S. P.MARKETING, THE EXPLANATION OF THE ASSESSEE WAS THAT SINCE SUFFICIE NT OWN FUNDS AND INTEREST-FREE ADVANCES WERE AVAILABLE, THEREFORE, T HOSE ADVANCES SHOULD BE CONSIDERED FOR ADVANCING SAID INTEREST-FREE FUND S. ON THE ISSUE OF AVAILABILITY OF SUFFICIENT OWN FUNDS OR INTEREST-FR EE FUNDS, A RELIANCE WAS PLACED ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD.(SUPRA). 7. WE HAVE HEARD BOTH THE SIDES. ON CAREFUL READIN G OF BOTH THE ORDERS OF THE REVENUE AUTHORITIES, WE ARE OF THE VI EW THAT WITHOUT ESTABLISHING ANY NEXUS THAT INTEREST-BEARING FUNDS HAVE ACTUALLY BEEN UTILIZED TOWARDS NON-INTEREST BEARING ADVANCES TO S ISTER-CONCERN, THE REVENUE AUTHORITIES HAD WEAKENED THE CASE. PLACI NG RELIANCE ON THE DECISION OF S.A.BUILDERS (SUPRA) AND ON THE DECISIO N OF RELIANCE UTILITIES AND POWER LTD.(SUPRA), WE ARE OF THE VIEW THAT THER E WAS NO JUSTIFICATION ITA NO.381/AHD/ 2008 ADICHEM DYES VS. DY.CIT ASST.YEAR 2004-05 - 7 - ON THE PART OF THE REVENUE AUTHORITIES TO DISALLOW THE CLAIM OF INTEREST THAT TOO MERELY ON CERTAIN PRESUMPTION. THIS GROU ND IS ALLOWED. GROUND NOS.3 & 4 :- 3. THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN C ONFIRMING DISALLOWANCE OF EXCESSIVE AMOUNT OF RS.18,625/- (10 % OF RS.1,86,250/-) OUT OF TELEPHONE EXPENSES. 4. THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN C ONFIRMING DISALLOWANCE OF EXCESSIVE AMOUNT OF RS.42,679/- (10 % OF RS.4,26,792/-) OUT OF VEHICLE EXPENSES AND IN CONFI RMING EXCESSIVE DEPRECIATION OF RS.38,647/- (10% OF RS.3,86,473/-) OUT OF DEPRECIATION CLAIM ON VEHICLES CONSIDERING THEM INC URRED FOR PERSONAL PURPOSES. 8. THESE GROUNDS ARE IN RESPECT OF ESTIMATION OF TE LEPHONE AND VEHICLE EXPENSES WHICH WERE RESTRICTED TO 1/10 TH OF THE TOTAL EXPENDITURE BY THE LEARNED CIT(APPEALS). THE LEARNED AUTHORISE D REPRESENTATIVE OF THE ASSESSEE HAS FAIRLY MENTIONED THAT A REASONA BLE VIEW HAS BEEN TAKEN, THEREFORE, THE ORDER OF LEARNED CIT(APPEALS) DESERVES ACCEPTANCE. WE ORDER ACCORDINGLY AND THESE GROUNDS ARE DISMISSE D. 9. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 18/ 06 /2010. SD/- SD/- ( D.C. AGRAWAL) ( MUKUL SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 18 / 06 /2010 T.C. NAIR, SR. PS ITA NO.381/AHD/ 2008 ADICHEM DYES VS. DY.CIT ASST.YEAR 2004-05 - 8 - COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-XX, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD