RATNAM JUTE PVT.LTD, RAJAM V. INCOME TAX OFFICER, WARD-3, SRIKAKULAM

ITA 43/VIZ/2023

AI Insights

Ratnam Jute Pvt. Ltd., engaged in the trading of raw jute, faced scrutiny from the Income Tax Department regarding its interest expenditure claims for the Assessment Years 2012-13 and 2013-14. The Assessing Officer disallowed an interest expenditure of Rs.27,66,685, asserting that the funds were diverted for non-business purposes. The company appealed to the Commissioner of Income Tax (Appeals), which upheld the disallowance. Subsequently, the company appealed to the Income Tax Appellate Tribunal, which reversed the decision, citing a lack of evidence to establish a nexus between the loan funds and the interest-free advances.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135982 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2023
• Appeal Filed By: Assessee
• Order Result: AllowedAllowedAllowed
• Bench Allotted: SMC
• Next Hearing Date: 26-04-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 19-02-2023
• Other Referred Cases: ACIT Vs. Rohit Kochar
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3); 142(1); 143(2)

Judgement Text

आयकरअपीलीयअधिकरण, धिशाखापटणम “एसएमसी”पीठ, धिशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM “SMC” BENCH, VISAKHAPATNAM श्री द ु व्वूरु आर एल रेड्डी, न्याधयक सदस्य के समक्ष BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER आयकर अपील सं./I.T.A.No.43/Viz/2023 & 44/Viz/2023 (ननधधारण वर्ा / Assessment Year : 2012-1 and 2013-14) Ratnam Jute (P) Ltd. D.No.2-1, Palakonda Road, Rajam, Srikakulam [PAN : AABCR4024P] Vs. Income Tax Officer Ward-3 Srikakulam (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) अपीलधथी की ओर से/ Appellant by : Shri G.V.N.Hari, AR प्रत्यधथी की ओर से / Respondent by : Shri ON Hari Prasada Rao, DR सुनवधई की तधरीख / Date of Hearing : 27.04.2023 घोर्णध की तधरीख/Date of Pronouncement : 14.07.2023 आदेश /O R D E R Per Shri Duvvuru RL Reddy, Judicial Member : These appeals are filed by the assessee against the orders of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in DIN & Order No. ITBA/NFAC/S/250/2022- 23/1048130950(1) and ITBA/NFAC/S/250/2022-23/1048134377(1) dated 21.12.2022, arising out of the assessment orders passed by the Assessing Officer (AO) u/s 143(3) of the Income Tax Act, 1961 (in short “Act”) dated 23.03.2015 & 16.03.2016 for the Assessment Year (A.Y.) 2012-13 and 2013-14 respectively. Since the grounds raised in these appeals are identical, these appeals are clubbed, heard together and a 2 I.T.A. No.43/Viz/2023 & 44/Viz/2023, A.Y.2012-13 & 2013-14 Ratnam Jute Pvt. Ltd. Rajam common order is being passed for the sake of convenience as under. Facts are extracted from I.T.A.No.43/Viz/2023, A.Y.2012-13. 2. Brief facts of the case are that the assessee, a Private Limited Company, doing business in trading of raw jute in the name and style of “M/s Ratnam Jute Private Ltd.” at Rajam, e-filed it’s return of income on 28.09.2012, admitting taxable income of Rs.11,37,350/-. The case was selected for scrutiny and notice u/s 143(2) dated 06.08.2013 was issued and served on the assessee on 10.08.2013. Consequent to change in jurisdiction, notice u/s 142(1) was issued on 08.12.2014 and the assessment was completed, disallowing an interest expenditure of Rs.27,66,685/-. The Assessing Officer (AO) observed that the assessee had debited Rs.27,66,685/- towards interest paid to CC account State Bank of India, Rajam, Loan A/c No.30363600604, against the loan availed of Rs.1,70,00,000/-. During the examination of books of accounts and balance sheet, the AO observed that the assessee company had advanced Rs.2,50,00,000/- each to S/Shri K.Swapna, K.Harika and K.Sravanthi, by diverting the amounts for other purposes, other than for business for which the loan was availed and no interest was charged on these amounts nor collected any part of the advance. The assessee was asked to file it’s objection for disallowance of interest claim of 3 I.T.A. No.43/Viz/2023 & 44/Viz/2023, A.Y.2012-13 & 2013-14 Ratnam Jute Pvt. Ltd. Rajam Rs.27,66,685/- for not charging interest on the advances paid to the above three persons. The assessee replied that despite of best efforts, the company was unable to recover the advances and no provision for interest was made in the books, in order to charge the same at the time of payment of principal. Not being statisfied with the reply given by the assesse, the AO held that the funds / profits transferred / utilized by company to others with whom it had no business dealings and on such transfers no interest was also charged, whereas, it has paid interest of Rs.27,66,685/- on the borrowed funds and if the funds are realised, there is no necessity to the assessee to incur this expenditure. Accordingly, disallowed the interest expenditure of Rs.27,66,685/-. 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and the Ld.CIT(A) dismissed the appeal of the assessee. 4. Aggrieved by the order of the Ld.CIT(A), the assessee preferred an appeal before the Tribunal by raising the following grounds : 1. The order of the learned Commissioner of Income Tax(Appeals) is contrary to the facts and also the law applicable to the facts of the case. 2. The learned Commissioner of Income Tax (Appeals) is not justified in sustaining the addition of Rs.27,66,685/- made by the assessing officer towards disallowance of interest expenditure. 3. Any other grounds may be urged at the time of hearing. 4 I.T.A. No.43/Viz/2023 & 44/Viz/2023, A.Y.2012-13 & 2013-14 Ratnam Jute Pvt. Ltd. Rajam 5. Ground No.1 and 3 are general in nature, which do not require specific adjudication. 6. Ground No.2 is related to disallowance of interest expenditure of Rs.27,66,685/-. The Ld.AR reiterated the submissions made before the CIT(A) and stated that there was no diversion of funds. The assessee company had invested an amount of Rs.6,75,00,000/- and Rs.75,00,000/- during the F.Y.2007-08 and 2008-09 respectively, aggregating to Rs.7,50,00,000/- in M/s KVR Industries Pvt. Ltd., a sister concern of the assessee company, towards share application money. During the F.Y.2010-11, the assessee withdrew the share application money of Rs.7,50,00,000/- from the sister concern, M/s KVR Industires Ltd and advanced Rs.2,50,00,000/- each to K.Swapna, K.Harika and K.Sravanthi., daughters of the director of the assessee company. The Ld.AR further submtited that the asssessee availed credit facility of Rs.1,70,00,000/- from SBI in the F.Y.2007-08, which is renewed every year and the loan amount was utilized for the business on which the assessee company paid interest. Hence, there is no nexus between the loan funds and the interest free advances. Thus, it is evident that the advances are not given from interest bearing funds, therefore, pleaded that the interest paid cannot be disallowed. The assessee relied on the decision of Hon’ble ITAT 5 I.T.A. No.43/Viz/2023 & 44/Viz/2023, A.Y.2012-13 & 2013-14 Ratnam Jute Pvt. Ltd. Rajam in the case of ACIT Vs. Rohit Kochar in ITA No.3338/Del/2016 dated 30.11.2018 and pleaded to set aside the order passed by the Ld.CIT(A) and allow the appeal of the assessee. 7. Per contra, the Ld.DR relied on the order of the Ld.CIT(A) and pleaded to uphold the order of the Ld.CIT(A) and dismiss the appeal of the assessee. 8. I have heard both the parties, perused the orders of the lower authorities and the paper book filed by the assessee. In the instant case, it is apparent from the records that the assessee had invested an amount of Rs.6,75,00,000/- during the F.Y.2007-08 and Rs.75,00,000/- during the F.Y.2008-09, aggregating to Rs.7,50,00,000/- in M/s KVR industries Ltd. a sister concern of the assessee company. It is evident from para No.2 of the assessment order that the assessee company had availed Cash Credit (CC) facility from State Bank of India, Rajam on hypothecation of stock and the limit sanctioned was Rs.1,70,00,000/-, on which interest is paid and renewed every year. Further, I observe from the ledger account for the F.Y.2008-09, vide page No.18 of the paper book, the assessee had made share investment in KVR Industries Ltd., amounting to Rs.6,75,00,000/- before 01.04.2008, which clearly establishes the fact 6 I.T.A. No.43/Viz/2023 & 44/Viz/2023, A.Y.2012-13 & 2013-14 Ratnam Jute Pvt. Ltd. Rajam that the cash credit loan availed by the assessee was not utilised for the purpose of investment in KVR Industries, which was subsequently withdrawn during the A.Y.2011-12 for making payment of Rs.7,50,00,000/- (Rs.2,50,00,000/- each) to K.Swapna, K.Harika and K.Sravanthi., daughters of the director of the assessee company. Hence, there is no nexus between the loan funds and the interest free advances as the loan was sanctioned much earlier than the transaction of giving advances to the three persons. Now, the onus is on the revenue to establish that there is nexus between the interest bearing funds and interest free advances, but, the revenue failed to establish the same. The assessee relied on the decision of Hon’ble ITAT in the case of ACIT Vs. Rohit Kochar in I.T.A. No.3358/Del/2016 dated 30.11.2018 and submitted that on similar set of facts, the case was adjudicated in favour of the assessee. For the sake of clarity and convenience, relevant part of the order of the Tribunal is extracted as under : “that there is factual finding given by the CIT(A) that as regards the interest free advances given by the assessee even prior to the loan raised from the bank for acquiring vehicles and business properties,t he Revenue has failed to establish any nexus between the interest bearing funds and interest free advances made to his relatives and friends. Moreover, no cogent evidence is there on the file if secured loans have not been used by the assessee for business purposes. Assessee proved to have taken the secured loans for specific purpose and their utilization has not been disputed by the AO. AO has merely made the addition on the ground that the assessee has utilized sizable amount out of the secured loans to be given as interest free advances 7 I.T.A. No.43/Viz/2023 & 44/Viz/2023, A.Y.2012-13 & 2013-14 Ratnam Jute Pvt. Ltd. Rajam to his family memebrs, related concerns and for acquiring property for their personal needs. CIT(A) has rightly delted the addition.” In the instant case also, the AO has not established the fact that the secured loan of Rs.1,70,00,000/- availed from State Bank of India was uitilized for advancing interest free loans to the three persons. The revenue could not controvert the fact that the funds advanced by the assessee were only after withdrawing the share capital from M/s KVR Industries. Hence, respectfully following the decision of the Hon’ble ITAT Delhi in the case of ACIT Vs. Rohit Kochar (supra), I quash the order passed by the Ld.CIT(A) and direct the AO to delete the addition of Rs.27,66,685/- made towards disallowance of interest. 9. In the result, appeal filed by the assessee in I.T.A. No.43/Viz/2023 for the A.Y.2012-13 is allowed and in I.T.A.No.44/Viz/2023 for the A.,Y.2014-15 is also allowed mutatis mutandis. Order pronounced in the open court on 14 th July 2023. Sd/- (द ु व्वूरु आर.एल रेड्डी) (DUVVURU RL REDDY) न्याधयक सदस्य/JUDICIAL MEMBER Dated : 14.07.2023 L.Rama, SPS 8 I.T.A. No.43/Viz/2023 & 44/Viz/2023, A.Y.2012-13 & 2013-14 Ratnam Jute Pvt. Ltd. Rajam आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. ननधधाऩरती/ The Assessee– M/s Ratnam Jute (P) Ltd., D.No.2-1, Palakonda Road,Rajam, Srikakulam 2. रधजस्व/The Revenue – The Income Tax Officer, Ward-3, Income Tax Office, Palakonda Road, Srikakulam 3. The Principal Commissioner of Income Tax, Visakhapatnam 4. नवभधगीय प्रनतनननध, आयकर अपीलीय अनधकरण, नवशधखधपटणम / DR,ITAT, Visakhapatnam 5..गधर्ा फ़धईल / Guard file आदेशधनुसधर / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam