M/s. PMS Diesels, Phagwara V. The Dy. Commissioner of Income-tax, Phagwara

ITA 425/ASR/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5608 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 19-01-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 23-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VEDPAL SINGH
• 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 ITA NO. 425/(ASR)/2014 ASSESSMENT YEARS: 2005-06 PAN: AAAFP9505H M/S PMS DIESELS, G.T.ROAD, VILLAGE JAMALPUR, PHAGWARA. VS. DCIT, PHAGWARA CIRCLE, PHAGWARA. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. TARUN BANSAL (ADV.) RESPONDENT BY: SH. VED PAL SINGH (DR) DATE OF HEARING: 28.03.2017 DATE OF PRONOUNCEMENT: 05.05.2017 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORD ER OF LD. CIT (A), JALANDHAR, DATED 25.04.2014 FOR ASST. YEAR 2005-06. 2. THE ASSESSEE HAS TAKEN VARIOUS GROUNDS OF APPEAL , HOWEVER THE CRUX OF GROUNDS OF APPEAL IS THE ACTION OF LD. CIT( A) BY WHICH HE HAS CONFIRMED DISALLOWANCE OF INTEREST U/S 36(1)(III) O F THE ACT FOR MAKING INTEREST FREE ADVANCE TO VARIOUS PERSONS. 3. THE BRIEF FACTS AS NOTED IN THE ASSESSMENT ORDER ARE THAT THE ASSESSING OFFICER VIDE ASSESSMENT ORDER DATED 24.12 .2007 HAD MADE CERTAIN DISALLOWANCES OF INTEREST U/S 36(1) (III) O F THE ACT ON ACCOUNT OF INTEREST FREE LOANS TO 10 PARTIES NOTED AT PAGE 2 O F ASSESSMENT ORDER. THE ASSESSEE HAD FILED AN APPEAL BEFORE LD. CIT(A) WHO HAD ALLOWED THE ITA NO. 425 (ASR)/2014 ASST. YEAR: 2005-06 2 APPEAL OF THE ASSESSEE. ON FURTHER APPEAL BY REVENU E, THE HON'BLE ITAT VIDE ORDER DATED 26 TH JUNE, 2009 HAD RESTORED MATTER TO THE FILE OF THE ASSESSING OFFICER WITH THE FOLLOWING DIRECTIONS: THE ARGUMENTS PLACED BEFORE THE LD. CIT(A) AS WELL AS BEFORE US ARE CONTRARY TO THE FINDINGS OF THE ASSESSING OFFIC ER. HENCE, ONE HAS TO GO THROUGH EACH LEDGER ACCOUNT AND HAS TO BE EXA MINED INDIVIDUALLY. FOR THIS PURPOSE, WE SET ASIDE THE EN TIRE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE WHETHER TH ERE IS ANY TRADING TRANSACTION BETWEEN THESE PARTIES. IF THERE IS TRAD ING TRANSACTION BETWEEN THE PARTIES, THE ADVANCE TO BE TREATED AS T RADE ADVANCE MADE ON ACCOUNT OF COMMERCIAL EXPEDIENCY AND SUCH N OTIONAL INTEREST CANNOT BE TREATED AS INCOME OF THE ASSESSE E. IN VIEW OF THE ABOVE, THE ISSUE IS SET ASIDE TO THE FILE OF THE CI T(A) WITH THE ABOVE DIRECTION. THE CIT(A) IS ALSO DIRECTED TO TAKE NET BALANCE IN EACH ACCOUNT AND RE-EXAMINE THE SAME. IN VIEW OF THE DIRECTIONS OF HON'BLE ITAT, THE ASS ESSING OFFICER PASSED ORDER ON DATED 16.12.2010 AND AGAIN MADE DIS ALLOWANCES OF INTEREST U/S 36(1) (III) OF THE ACT. WHILE COMPLET ING THE ASSESSMENT, THE ASSESSING OFFICER EXAMINED THE 14 ACCOUNTS RELATING TO ADVANCES INSTEAD OF 10 ACCOUNTS IN WHICH THE ASSESSING OFFICER HAD O RIGINALLY MADE THE DISALLOWANCES. 4. AGGRIEVED WITH THE ORDER OF THE ASSESSEE, THE AS SESSEE FILED APPEAL BEFORE LD. CIT(A) WHO PARTLY ALLOWED APPEAL AND FUR THER AGGRIEVED THE ASSESSEE IS AN APPEAL BEFORE US. 5. AT THE OUTSET, THE LD. AR FILED THE WRITTEN SYNO PSIS HIGHLIGHTING THEREIN THAT HON'BLE ITAT VIDE ORDER DATED 26.06.20 09 HAD DIRECTED ASSESSING OFFICER TO VERIFY 10 PARTIES TO WHICH INT EREST FREE ADVANCES WERE GIVEN WHEREAS THE ASSESSING OFFICER HAD EXAMINED 14 PARTIES WHICH IS AGAINST THE DIRECTIONS OF HON'BLE ITAT. THEREFORE, IT WAS PRAYED THAT ONLY ITA NO. 425 (ASR)/2014 ASST. YEAR: 2005-06 3 10 PARTIES INVOLVED IN THE ORIGINAL ASSESSMENT ORDE R SHOULD HAVE BEEN CONSIDERED. 6. THE LD. AR SUBMITTED THAT IN RESPECT OF 4 PARTIE S, THE BALANCES WERE OUTSTANDING FROM THE EARLIER YEAR AND THEREFOR E, THE ADDITION WAS NOT WARRANTED, IN VIEW OF THE JUDGMENTS IN THE FOLL OWING CASES: (I) DCIT VS. ISHAR INFRASTRUCTURE ITA NO. 198/ASR/ 2013. (II) AJAY ELECTRONICS VS. ITO (2016) 52 (ITR TRIB) 332 ( ASR). WITHOUT PREJUDICE, THE LD. AR SUBMITTED THAT WHILE MAKING DISALLOWANCE U/S 36 (1) (III), THE ASSESSING OFFICE R SHOULD HAVE RESTRICTED THE DISALLOWANCE TO THE AMOUNT OF LOANS WHICH EXCEE DED THE CAPITAL OF THE ASSESSEE. THE LD. AR SUBMITTED THAT THE CAPITAL OF THE PARTNERS WAS TO EXTENT OF RS. 1.98 CRORE APPROXIMATELY WHEREAS T HE FIGURE OF INTEREST FREE ADVANCE WAS VERY SMALL AND THEREFORE, NO DISAL LOWANCE WAS WARRANTED. RELIANCE IN THIS RESPECT WAS PLACED ON T HE FOLLOWING JUDGMENTS: (I) MBD PRINTOGRAPHCS PVT. LTD VS. DCIT (2016) ITA NO. 534/ASR/2014 DATED 13.6.16 61 I.T. REPS 187 (II) MALHOTRA BOOK DEPOT VS. ACIT (2016 61 I.T. REPS 585 ITA NO. 1 25 & 196/ASR/2015 (III) CIT VS. SATISH BALA MALHOTRA & ORS. (2016) 387 ITR 403 (P&H) (IV) CIT VS. MAX INDIA LTD (NO.2) (2016) 388 ITR 81 (P&H) 7. THE LD. DR, ON THE OTHER HAND HEAVILY PLACED HIS RE LIANCE ON THE ORDERS OF AUTHORITIES BELOW. ITA NO. 425 (ASR)/2014 ASST. YEAR: 2005-06 4 8. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GON E THROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT IT IS A FACT THAT IN ORIGINAL ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAD MADE DISALLO WANCE OF INTEREST U/S 36(1)(III) IN RESPECT OF 10 PARTIES , WHEREAS THE A SSESSING OFFICER IN THE SECOND ROUND OF PROCEEDINGS EXAMINED 14 PARTIES AND MADE DISALLOWANCES ACCORDINGLY WHICH IS NOT AS PER DIREC TIONS OF HON'BLE ITAT. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO RESTR ICT THE DISALLOWANCE IF ANY IN RESPECT OF ONLY 10 PARTIES WHICH WERE ORIGIN ALLY LISTED IN THE ORIGINAL ASSESSMENT ORDER. WE FURTHER FIND THAT IN A FEW CASES, THE AMOUNT OF ADVANCES WAS AS OPENING BALANCES AND THE RE ARE JUDGMENTS OF AMRITSAR TRIBUNAL HOLDING THAT IN RESPECT OF OLD ADVANCES FROM EARLIER YEARS, NO DISALLOWANCE U/S 36 (1) (III) OF THE ACT WAS WARRANTED. FURTHER THE DISALLOWANCE IF ANY U/S 36(1)(III) HAS TO BE RE STRICTED TO THE AMOUNTS OF LOANS WHICH EXCEEDED THE CAPITAL OF THE ASSESSEE AS HAS BEEN HELD BY HON'BLE AMRITSAR BENCH IN VARIOUS CASE LAWS RELIED ON BY ASSESSEE. THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO RES TRICT THE DISALLOWANCE OF INTEREST ON LOAN AMOUNTS EXCEEDING THE AVAILABLE CA PITAL OF THE ASSESSEE. WITH THESE DIRECTIONS THE APPEAL OF THE ASSESSEE IS SET ASIDE TO THE OFFICE OF ASSESSING OFFICER TO REFRAME THE ASSESSMENT ORDE R IN TERMS OF ABOVE SAID DIRECTIONS. 9. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE A SSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 05.05.2017. ITA NO. 425 (ASR)/2014 ASST. YEAR: 2005-06 5 SD/- SD/- (N.K. CHOUDHRY) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTA NT MEMBER DATED: 05/05/2017 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, ITAT, AMRITSAR. TRUE COPY BY ORDER