The ITO, Ward-5(3), Ahmedabad V. Relish Pharmaceuticals Ltd., Ahmedabad

ITA 4059/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 9089 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-02-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 06-11-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GOVIND SINGHALSR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI D.C. AGARWAL, ACCOUNTANT MEMBER ITA NO.4059-4060/AHD/2007 ASSESSMENT YEARS:2003-04 & 2004-05 DATE OF HEARING:8.2.10 DRAFTED:8.2.10 INCOME TAX OFFICER, WARD 5(3), C.U. SHAH COLLEGE BUILDING, 2 ND FLOOR, AHMEDABAD V/S . RELISH PHARMACEUTICALS LTD.,1-2, MOONLIGHT COMPLEX, OPP. GURUKUL DRIVE-IN-ROAD, AHMEDABAD PAN NO.AAACR5476N (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- NONE REVENUE BY:- SHRI GOVIND SINGHAL,SR. DR O R D E R PER BENCH:- THESE APPEALS BY REVENUE ARE ARISING OUT OF ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-XI, AHMEDABAD IN APPEAL NO.CIT (A)-XI/151-75 & 266/2006-07 DATE 03-09-2007. THE ASSESSMENTS WERE FRAMED BY TH E INCOME-TAX OFFICER, WARD- 5(3), AHMEDABAD U/S.143(3) OF THE INCOME-TAX ACT, 1 961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE ORDER DATED 23-03-2006 AND 23-12-20 06 FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 RESPECTIVELY. 2. THE ONLY COMMON ISSUE IN THESE APPEALS OF THE RE VENUE IS AGAINST THE ORDER OF CIT(A) IN DIRECTING TO TREAT ADVANCES OF RS.95.9 1 LAKHS ONLY FOR NON-BUSINESS PURPOSES AND DISALLOWED INTEREST @15%. ITA NO.4059-60 /AHD/2007 A.Y. 03-04 & 04-05 ITO WD 5[3]ABD V. RELISH PHARMACEUTICALS LTD PAGE 2 3. AT THE OUTSET WE FIND THAT THE SIMILAR ISSUE HAS BEEN DEALT BY TRIBUNAL IN ASSESSMENT YEAR 2001-02 AND THE RELEVANT PARAS 2 TO 3 OF THE TRIBUNALS ORDER DATED 18-12-2009 READ AS UNDER:- FIRST WE WILL DEAL WITH CROSS APPEALS IN ITA NO.29 88/AHD/2004 (ASSESSEE) AND ITA NO.2990/AHD/2004 (REVENUE). 2. THE FIRST COMMON ISSUE IN THESE CROSS APPEALS IS AS REGARDS TO THE ORDER OF CIT(A) PARTLY CONFIRMING THE DISALLOWANCE OF INTEREST ON THE LOAN AMOUNT OF RS.95.91 LAKHS OUT OF THE INTEREST FREE A DVANCES LOANS OF RS.4,49,95.173/-. FOR THIS THE ASSESSEE HAS RAISED FOLLOWING GROUND NO. 2 TO 4 :- 2. THE LEARNED COMMISSIONER OF INCOME TAX [APPEALS ]-XI OUGHT NOT TO HAVE CONFIRMED THE DISALLOWANCE OF INTEREST ON RS.95.91L ACS @ 15% ON THE GROUND THAT THE INTEREST BEARING FUNDS WERE DIVERTED TO NO N-INTEREST BEARING ADVANCES. THE DISALLOWANCE HAS BEEN CONFIRMED WITHO UT PROPER APPRECIATION OF THE FACTS, EVIDENCES AND DATA AVAILABLE ON RECOR D AND THEREFORE THE SAME DESERVES TO BE CANCELLED. 3. THE LEARNED COMMISSIONER OF INCOME TAX [APPEALS] -XI GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST PROPORTIONA TE TO THE ADVANCES MADE OUT OF THE INTEREST BEARING FUNDS. THE LEARNED COMM ISSIONER OF INCOME TAX [APPEALS]-XI CONFIRMED THE DISALLOWANCE THOUGH THER E WAS NO INSTANCE OF FINDING THAT THERE WAS A NEXUS BETWEEN SUCH TRANSAC TIONS. THE APPELLANT FEELS THAT WITHOUT THERE BEING ANY NEXUS, NO DISALLOWANCE CAN BE MADE AND HENCE IT IS PRAYED THAT THE DISALLOWANCE OUT OF THE CLAIM OF INTEREST MAY KINDLY BE CANCELLED AND THE SAME MAY KINDLY BE ALLOWED IN FUL L AS CLAIMED BY THE APPELLANT. 4. THE LEARNED COMMISSIONER OF INCOME TAX [APPEALS] -XI GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF PROPORTIONATE INTERE ST ON ADVANCES MADE BY THE APPELLANT ON THE GROUND OF THAT THE ADVANCES WE RE FOR OTHER THEN BUSINESS PURPOSE AND THEREFORE THE SAME IS DISALLOWED. IN FA CT EVEN THE LEARNED COMMISSIONER OF INCOME TAX [APPEALS]-XI HAS EXPRESS ED HIS VIEW IN THE APPELLATE ORDER ITSELF THAT THE IT IS NOT CLEAR AS TO HOW THE ADVANCES MADE BY THE APPELLANT IS FOR OTHER THEN BUSINESS FOR THE PU RPOSE OF DISALLOWANCE OF THE CLAIM OF THE EXPENSES. AS THIS IS NOT PROPERLY CONS IDERED THE DISALLOWANCE OF THE PROPORTIONATE CLAIM OF EXPENDITURE MAY KINDLY B E ALLOWED IN FULL AS CLAIMED. AND THE REVENUE HAS RAISED THE FOLLOWING GROUND NO.3 AND 4 :- ITA NO.4059-60 /AHD/2007 A.Y. 03-04 & 04-05 ITO WD 5[3]ABD V. RELISH PHARMACEUTICALS LTD PAGE 3 3. THE LD COMMISSIONER OF INCOME-TAX (APPEALS)-XI, AHMEDABAD ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSEE HAD I NTEREST FREE FUNDS OF RS.346.42 CONSISTING OF RS.315 LACS AS CAPITAL AND RS.21.4 LACS AS RESERVES RESULTING INTO A DIFFERENCE OF ONLY RS.95.91 LACS. 4. THE LD COMMISSIONER OF INCOME-TAX (APPEALS) FURT HER ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT THE CAPITAL WAS ALRE ADY USED AND DURING THE RELEVANT ACCOUNTING PERIOD AND THE PRECEDING ACCOUN TING YEAR THERE WAS NO FRESH CAPITAL RAISED AND THE RESERVES/PROFITS WERE NOT TO THE TUNE OF RS.4.49 CRORES SO AS TO MAKE ADVANCES. 3. AFTER HEARING LD DEPARTMENTAL REPRESENTATIVE AN D GONE THROUGH THE FACTS OF THE CASE WE FIND THAT THE ASSESSING OFFICE R HAS BROUGHT OUT A FACT REGARDING M/S. ESKAY ENGINEERS, ESKAY ELECTRICALS, M/S. PHARMATEC ENGG. CO., VINODCHANDR N PATEL, SAURASHTRA REFRIGERATION THAT EITHER OF THESE PARTIES DO NOT EXIST OR THE AMOUNT ADVANCED FOR THE PURCHAS E OF CAPITAL GOODS AND THE OPENING AND CLOSING BALANCES WITH THESE PARTIES OF THE ASSESSEE DO NOT TALLY BEFORE THE CIT(A). THE ASSESSEE CONTENDED THAT THE ASSESSING OFFICER HAS GIVEN LIST OF 21 PARTIES OUT OF WHICH HE SELECTED F IVE PARTIES FOR WHOM SCRUTINY WAS CARRIED OUT AND CONCLUDED THAT ADVANCES MADE TO ALL THESE PARTIES ARE NOT FOR THE BUSINESS PURPOSES. BEFORE US LD. DEPART MENTAL REPRESENTATIVE STATED THAT THE CIT(A) HAS NOT VERIFIED ANY OF THE PARTIES AND ALLOWED THE CLAIM OF THE ASSESSEE PARTLY BY MAKING ESTIMATE ON PROPOR TIONATE BASIS BY STATING THAT THE ASSESSEE-COMPANY HAS ADVANCED FOR 132.32 L AKHS FROM DIFFERENT PARTIES DURING THE ACCOUNTING YEAR AND HE HAS GONE THROUGH THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AS RESERVE AND ON CAPITAL AT RS.736.42 LAKHS AND OUT OF 73.15 LAKHS WAS CAPITAL AND RS.21. 4 LAKHS AS REVERSED AND SURPLUS. ACCORDINGLY HE MADE PROPORTIONATE DISALLOW ANCE OF EXCESS OF INTEREST FREE ADVANCE BY RS.95.91 LAKHS AND BALANCE WAS DELE TED. LD. DR FURTHER STATED THAT THE CIT(A) SHOULD HAVE VERIFIED EACH OF THE PARTIES WHETHER THEY EXIST AND THEIR BALANCES WITH THE ASSESSEE DURING T HE CURRENT YEAR AT LEAST EXIST OR NOT. SINCE THE CASE CAME UP FOR HEARING F ROM 09-12-2004 AND AT LEAST IT IS FIXED FOR 8 / 9 TIMES, THE ASSESSEE NEVER TUR NED UP. ACCORDINGLY, IN THE ABSENCE OF THE ASSESSEE AND TO PROVIDE ONE MORE OPP ORTUNITY TO EXPLAIN HIS CASE, WE SET ASIDE THIS ISSUE TO THE FILE OF CIT(A) . THE CIT(A) IS DIRECTED TO VERIFY EACH OF THE PARTIES I.E. 21 PARTIES, A LIST WHICH HAVE BEEN GIVEN TO THE ASSESSING OFFICER BY THE ASSESSEE. THE AO CANNOT M AKE AN ESTIMATED ADDITION BY PROPORTIONATELY THE AMOUNT AVAILABLE WI TH THE ASSESSEE, IN CASE THE LOAN AND ADVANCES WERE GIVEN TO THE NON-EXISTEN CE PARTY. IN VIEW OF THESE FACTS, WE SET ASIDE THIS ISSUE TO THE FILE OF THE C IT(A) AND THIS ISSUE OF THE REVENUES APPEAL AS WELL AS ASSESSEES APPEAL ARE A LLOWED FOR STATISTICAL PURPOSES. ITA NO.4059-60 /AHD/2007 A.Y. 03-04 & 04-05 ITO WD 5[3]ABD V. RELISH PHARMACEUTICALS LTD PAGE 4 4. AS THE TRIBUNAL EXACTLY ON THIS AMOUNT, I.E. RS. 95.91 LAKHS HAS BEEN SET ASIDE TO THE FILE OF THE CIT(A) EXACTLY ON SIMILAR FACTS, THIS YEAR ALSO, THE ISSUE IS SET ASIDE TO THE FILE OF CIT(A) EXACTLY ON SAME REASONGINGS. 5. IN THE RESULT, REVENUES APPEALS ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 08/02/2010 SD/- SD/- (D.C.AGARWAL) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED :08/02/2010 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- XI, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD