M/s. Chemical Sales and Services, New Delhi V. ITO, New Delhi

ITA 4146/DEL/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 9710 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 25-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Keywords: Proportionate interest; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH: B , NEW DELHI) BEFORE SHRI N. K. BILLAIYA , ACCOUNTANT MEMBER AND SH. K. N. CHARY , JUDICIAL MEMBER ITA NO: - 4146 /DEL/20 15 ( ASSESSMENT YEAR: 20 11 - 12 ) CHEMICAL SALES AND SERVICES 3N, DCM BUILDING, 16, BARAKHAMBA ROAD, NEW DELHI - 110001 PAN AAEFC0142K VS. ITO WARD 24 (3) NEW DELHI APPELLANT RESPONDENT ASSESSEE BY : SH. SALIL AGGARWAL, ADVOCATE REVENUE BY : MS ASHIMA NEB , SR DR DATE OF HEARING : 24 .0 9 .2018. DATE OF PRONOUNCEMENT : 26 . 09. 2018. ORDER PER: N. K. BILLAIYA , A M THI S APPEAL BY THE REVENUE IS PREFERRED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX [APPEALS ] - 11 , NEW DELHI DATED 02.06.2015 FOR ASSESSMENT YEAR 20 11 - 12 . 2. THE SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT THE CIT(A) ERRED IN UPHOLDING DISALLOWANCE OF RS.20 , 14 , 327/ - OUT OF AN AGGREGATE DISALLOWANCE O F RS.54 , 22 , 147/ - U/S 36 (1) (III) OF THE ACT. 2 ITA NO. - 4146 /DEL/2015 3. DURING THE COURSE OF THE SCRUTI NY ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD TAKEN SECURED LOANS OF RS.9.90 CRORES AND RS.16.17 LACS ON WHICH IT HAS PAID INTEREST AMOUNTING TO RS. 54.22 LACS. THE ASSESSING OFFICER FURTHER FOUND THAT THE ASSESSEE HAS GIVEN INTEREST FREE AMOUNTS TO RELAT ED PARTIES AS UNDER : - ( I ) SURESH GO EL : RS. 7,42,30,474/ - ( II ) M/S SURESH GOEL & SONS, HUF : RS. 3,98,61,150/ - 4. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSESSEE HAS DIVERTED INTEREST BEARING FUNDS TO ITS RELATIVES ON WHICH NO INTEREST HAS BEEN CHARGED. THE ASSESSEE WAS ASKED TO EXPLAIN WHY PROPORTIONATE INTEREST SHOULD N O T BE DISALLOWED. 5. IN ITS REPLY THE ASSESSEE EXPLAINED THAT THE AMOUNT GIVEN TO S URESH GOEL WAS FOR PURCHASE OF PLOT AND THE AMOUNT GIVEN TO SURESH GOEL & SONS HUF WAS FOR CONSTRUCTION OF BUILDING ON THE PLOT SITUATED IN GURGAON FOR BEING USED AS OFFICE OF THE ASSESSEE. THE ASSESSEE CLAIMED THAT SINCE THE ADVANCES HAVE BEEN GIVEN FOR BUSINESS PURPOSES NO DISALLOWANCE ON ACCOUNT OF INTEREST SHOULD BE MADE. 6. THE EXPLANATION OF THE ASSESSEE DID NOT FIND F A V O U R WITH THE ASSESSING OFFICER WHO PROCEEDED BY DISALLOWING OF RS.56,33,640/ - AND IN DOING SO THE OFFICER DREW SUPPORT FROM TH E SIMILAR DISALLOWANCE MADE IN A. Y. 2010 - 11. 3 ITA NO. - 4146 /DEL/2015 7. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) AND ONCE AGAIN CLAIMED THAT THE ADVANCES WERE MADE FOR BUSINESS PURPOSES AND THEREFORE, NO DISALLOWANCE OF INTEREST AS TO BE MADE. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS THE CIT(A) HELD AS UNDER : - I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE OBSERVATION OF THE ASSESSING OFFICER AND SUBMISSIONS MADE BY THE APPELLANT. I AM OF THE OPINION THAT THE CLAIM OF THE APPELLANT THAT THE FUNDS HAVE BEEN ADVANCED TO THE PARTNERS FOR THE PURCHASE OF PROPERTY WHICH WAS TO BE UTILIZED FOR THE BUSINESS PURPOSES , CANNOT BE ACCEPTED AS PARTNERSHIP PROPERTY IS IN THE NAME OF THE PARTNERS. MERE FACT THAT PROPERTY IS TO BE UTILIZED BY THE FIRM CANNOT BE A GROUND TO SUGGEST THAT THE INTEREST PAID ON BORROWED FUNDS FOR THE PURCHASE OF THE PROPERTY IN THE NAME OF THE PARTNERS IS TO BE ALLOWED AS DEDUCTION. HOWEVER, I AM IN AGREEMENT WITH THE CLAIM OF THE APPELLANT THAT SINCE INTEREST OF RS. 43,21,601/ - HAS ALREADY BEEN RECOVERED FROM SURESH GOEL AND SONS HUF IN RESPECT OF THE DEBIT BALANCE MADE AVAILABLE TO SURESH GOEL & SON S HUF, THE SAID DEL IT BALANCE SHOULD BE EXCLUDED FOR COMPU TING THE WITHDRAWALS TO COMPU TE THE DI VE RSION OF BORROWED FUNDS AND FURTHER, CREDITS HAVE TO BE ALLOWED OF THE INVESTMENT MADE BY THE OTHER REMAINING PARTNERS OF RS. 3,46,22,122/ - AND IF THAT PRINCIPLE IS ADOPTED THEN NET DIVERSION OF FUNDS WOULD BE COMPUT ED AT RS. 3,96,08,352/ - AN D ON THAT OASIS, THE DISALLOWANCE OF INTEREST WOULD BE RECOMPUTED AT RS.20,14,327/ - , A S WOULD B E EVIDENT FROM CHARTHEREUNDER: SR. NO. PARTICULARS AMOUNT (RS.) I TOTAL ALLEGEDLY FUNDS DIVERTED FOR NON BUSINESS PURPOSE AT THE CLOS E OF YEAR (A) ( I ) SURESH GOEL & SONS (HUF) 3,98,61,150/ - ( II ) SURESH GOEL 7,29,33,673/ - 11,27,94,823 II LESS : DEBIT BALANCE OF SURESH 3,98,61,150/ - 4 ITA NO. - 4146 /DEL/2015 GOEL & SONS (HUF) FOR WHICH INTEREST RECOVERED OF RS.43,21,601/ - (B) III BALANCE = (C ) = (A - B) 7,29,33,673/ - IV LESS : CREDIT BALANCE IN THE ACCOUNT OF THE PARTNERS (D) I ) GAUTAM GOEL 1,55,13,506/ - II ) ANURADHA GOEL 1,91,08,616/ - 3, 4 6, 22,122 / - V NET DEBIT BALANCE (E)= (C - D) 3,96,08,352/ - VI TOTAL BORROWING (F) 10,66,07,621/ - VII % AGE (G) = E/FX100 37.15% VIII NET INTEREST CLAIMED (H) 54,22,147/ - IX AMOUNT TO BE DISALLOWED OUT OF NET INTEREST CLAIMED (I)=HXG 20,14,327/ - X RELIEF TO BE ALLOWED (J)= (H - I) 34,07,820/ - ACCORDINGLY, OUT OF THE TOTAL INTEREST OF RS.54,22, 147/ - , DEDUCTION OF RS.34,07,820/ - IS ALLOWED AND BALANCE RS.20,14,327/ - IS SUSTAINED. AS A RESULT OF THE ABOVE DISCUSSION, OUT OF THE TOTAL DISALLOWANCE OF RS.56,33,640/ - (RS.54,22,147/ - + RS. 2,11,492/ - ), INTEREST OF RS.36,19,132/ - (RS.34,07,820/ - + RS. 2,11,492/ - ) IS A LLOWED AND BALANCE RS.20,14,327/ - IS SUSTAINED. 5 ITA NO. - 4146 /DEL/2015 8. A T THE VERY OUTSET THE COUNSEL FOR THE ASSESSEE POINTED OUT THAT SIMILAR DISALLOWANCE MADE IN A. Y. 2010 - 11 HAVE BEEN DELETED BY THE TRIBUNAL . P ER CONTRA , THE DR STRONGLY SUPPORTED THE FINDINGS OF THE A SSESSING OFFICER. IT IS THE SAY OF THE DR THAT IN A. Y. 2010 - 11 THE COMMERCIAL EXPEDIENCY OF THE INTEREST FREE ADVANCES WAS NOT EXAMINED BY THE ASSESSING OFFICER, THEREFORE, THE DECISION IN A. Y. 2010 - 11 IS NOT BINDING FOR THE YEAR UNDER CONSIDERATION. 9. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW. THERE IS NO DISPUTE THAT WHILE MAKING THE ADDITION THE ASSESSING OFFICER HAS RELIED UPON THE FINDINGS GIVEN IN A. Y. 2010 - 11. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL. A SI MILAR DISALLOWANCE WAS MADE IN A. Y. 2010 - 11 AND THE TRIBUNAL IN ITA NO.3589/DEL/2014 HELD AS UNDER : - 6 . 2 I FIND THAT THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THAT THE ONLY CONDITION FOR CLAIMING DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT IS 'COMM ERCIAL EXPEDIENCY' OF THE EXPENDITURE INCURRED AND ONCE THE SAID CONDITION IS FULFILLED NO FURTHER FACTOR CAN BE BROUGHT IN TO DENY THE LEGITIMATE CLAIM OF DEDUCTION. IN THIS BEHALF, I DRAW SUPPORT FROM THE JUDGMENT OF THE HON BLE APEX COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT REPORTED IN 288 ITR 1 WHEREIN IT HAS BEEN HELD AS UNDER: 'WE WISH TO MAKE IT CLEAR THAT IT IS NOT OUR OPINION THAT IN EVERY CASE INTEREST ON BORROWED LOAN HAS TO BE ALLOWED IF THE ASSESSEE ADVANCES IT TO A SISTER CONCERN. IT ALL DEPENDS ON THE FACTS AND CIRCUMSTANCES OF THE RESPECTIVE CASE. FOR INSTANCE, IF THE DIRECTORS OF THE SISTER CONCERN UTILIZE THE AMOUNT ADVANCED TO IT BY THE ASSESSEE FOR THEIR PERSONAL BENEFIT, OBVIOUSLY IT CANNOT BE SAID THAT SUCH MONEY WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY, HOWEVER, MONEY CAN BE SAID TO BE ADVANCED TO A SISTER CONCERN FOR COMMERCIAL EXPEDIENCY IN MANY EITHER CIRCUMSTANCES (WHICH NEED NOT BE ENUMERATED HERE). HOWEVER, WHERE IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS SUBSIDIARY, AND HENCE IF THE HOLDING COMPANY ADVANCES BORROWED MONEY TO A SUBSIDIARY AND THE SAME IS USED BY THE SUBSIDIARY 6 ITA NO. - 4146 /DEL/2015 FOR SOME BUSINESS PURPOSES, THE ASSESSEE WOULD, IN OUR OPINION , ORDINARILY BE ENTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS' [EMPHASIS SUPPLIED] 6 . 3 I FURTHER DRAW SUPPORT FROM THE JUDGMENT OF THE HON BLE HIGH COURT OF MADRAS IN THE CASE OF CIT VS. CENTURY FLOUR MILLS LTD REPORTED IN 334 ITR 377 WHEREIN THE HON 'BLE APEX COURT JUDGMENT IN THE CASE OF SA BUILDERS VS. CIT (SUPRA) HAS BEEN FOLLOWED. THE HON BLE HIGH COURT OF MADRAS WHILE FOLLOWING THE HON BLE APEX COURT JUDGMENT AS AFORESAID, HAS HELD THAT WHERE ASSESSEE HAVING BORROWED MONEY, UTILIZED IT AS ADVANCE TO ITS MANAGING DIRECTOR FOR PURCHASE OF LAND FOR BUSINESS PURPOSE, INTEREST PAID ON SAID BORROWING WAS TO BE ALLOWED AS DEDUCTION. THE FINDING OF THE HON BLE HIGH COURT WAS AS UNDER: - '10. THE SUPREME COURT IN THE CASE OF S. A. BUILDERS LTD. V. CIT (APPE ALS) [2007] 288 ITR I, HAS CONSIDERED THE QUESTION OF PAYMENT OF INTEREST ON THE BORROWED MONEY. IN THAT CASE, THE BORROWED MONEY WAS LENT TO THE SISTER CONCERN WITHOUT CHARGING INTEREST AND IT WAS HELD THAT THE REVENUE MUST LOOK INTO THE TRANSACTION WHETH ER THE TRANSFER OF FUNDS TO THE SISTER CONCERN WAS FROM THE POINT OF VIEW OF COMMERCIAL EXPEDIENCY AND WHETHER THE AMOUNT WAS ADVANCED FOR EARNING PROFITS. CONSIDERING THE PRINCIPLES IN THE ABOVE JUDGMENT, IT IS CLEAR THAT IN THE PRESENT CASE, THE AMOUNT W AS GIVEN TO THE MANAGING DIRECTOR AND OTHER PERSONS ONLY FOR THE PURCHASE OF THE LAND AND ALSO FOR BUSINESS PURPOSES AND THERE IS NO TRANSACTION OF LOAN INVOLVED IN THIS CASE. IN THESE CIRCUMSTANCES, I DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF TH E TRIBUNAL SO AS TO WARRANT INTERFERENCE. IT IS A QUESTION OF FACT. IT IS NOT A PERVERSE ORDER. THE ORDER PASSED BY THE TRIBUNAL IS BASED ON VALID MATERIALS AND EVIDENCE. ACCORDINGLY, THE QUESTION RAISED IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST TH E REVENUE. THE APPEAL IS DEVOID OF MERIT AND THE SAME IS DISMISSED.' 6 . 4 I FURTHER DRAW SUPPORT FROM THE ITAT CHANDIGARH DECISION IN THE CASE OF DHANNA MAL CHATTER SAIN VS ITO REPORTED IN 18 TTJ 552, WHEREIN, THE TRIBUNAL HAS HELD THAT IT IS THE ONUS OF REVENU E TO ESTABLISH THE INTEREST BEARING FUNDS HAVE BEEN UTILIZED FOR NON - BUSINESS PURPOSES AND WITHOUT DISCHARGING THE ONUS, NO ADDITION/ DISALLOWANCE CAN BE MADE UNDER SECTION 36(1 )(III) OF THE ACT AND IN THE CASE OF THE APPELLANT FIRM ALSO, THE SAID ONUS HAS NOT BEEN DISCHARGED BY THE LEARNED AO AND CIT (A) BOTH AND AS SUCH, NO DISALLOWANCE CAN BE MADE UNDER SECTION 36(1) (III) OF THE ACT'. 7 ITA NO. - 4146 /DEL/2015 7 . KEEPING IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AS EXPLAINED ABOVE AND BY RESPECTFULLY FOLLOWING T HE PRECEDENTS OF THE HON BLE SUPREME COURT OF INDIA, HON BLE HIGH COURT OF MADRAS AND THE ITAT, CHANDIGARH, AS AFORESAID, I AM OF THE CONSIDERED VIEW THAT THE ADVANCES HAVE BEEN M ADE TO M/S SURESH GOEL & SON (HUF) FOR THE PURPOSE OF THE BUSINESS AND ON ACC OUNT OF COMMERCIAL EXPEDIENCY, AND IT HAS NOT BEEN ESTABLISHED BY THE LEARNED ASSESSING OFFICER THAT ADVANCES ARE FOR NON - BUSINESS PURPOSES AND AS SUCH, DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. THEREFORE, I DELETE THE A DDITION IN DISPUTE AMOUNTING TO RS. 10,54,790/ - MADE BY THE AO AND UPHELD BY THE LD. CIT(A). 10. RESPECTFULLY FOLLOWING THE FIND INGS OF THE COORDINATE BENCH (SUPRA) WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.20,14,327/ - . THE APPEAL FIL ED BY THE ASSESSEE IS ALLOWED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 6 . 09.2018 . S D / - S D / - (K. NARASIMHA CHARY) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 6 .0 9 .2018 NEHA / - COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 8 ITA NO. - 4146 /DEL/2015 DATE OF DICTATION 25.09.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 26.09.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 26.09.2018 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS 26.09.2018 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 26.09.2018 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 26.09.2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 2 7 . 0 9 . 2 0 1 8 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER