ITO, New Delhi V. M/s. Shri Sidhdata Steel Tubes, New Delhi

ITA 4553/DEL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74325 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 11-02-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 12-10-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RENUKA JAIN GUPTA
• Assessee Lawyers: DR RAKESH GUPTA; SO; RISHIBH KAPOOR
• Keywords: Commercial expediency

Judgement Text

ITA NO. 4553/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SHRI A. D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 4553 /DEL/201 1 A.Y. : 2008-09 INCOME TAX OFFICER, WARD 36(2), NEW DELHI VS. M/S SHRI SIDHDATA STEEL TUBES, 62, SHIVPURI, DELHI 110 051 (PAN: AAOFS 3736K) (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) DEPARTMENT BY : SMT. RENUKA JAIN GUPTA, SR. D.R. ASSESSEE BY : DR. RAKESH GUPTA, ADV. & SH. RISHIBH KAPOOR, ADV. & SH. SOMIL AGGARWAL, CA ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XXVII, NEW DELHI DATED 20.7.2011 PERTAINING TO ASSESSMENT YEAR 2008-09. 2. THE GROUND RAISED BY THE REVENUE IS THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRE D IN DELETING THE ADDITION OF RS. 73,34,062/- MADE BY THE AO AS PER T HE PROVISIONS OF SECTION 36(1)(III) OF THE INCOME TAX ACT, 1961. 3. ASSESSEE IN THIS CASE CARRIED OUT THE BUSINESS OF TRADING OF IRON AND STEEL PIPES. AO FOUND FROM THE PERUSAL OF THE PROFIT AND LOSS ACCOUNT THAT ASSESSEE HAS DEBITED INTEREST PA YMENT OF RS. 83,26,330/- FOR LOANS TAKEN FROM DIFFERENT BANKS. THE TOTAL OF LOAN FROM BANKS STOOD AT RS. 7,77,21,576/-. AO FURTHER OBSERVED THAT ITA NO. 4553/DEL/2011 2 ASSESSEE HAS GIVEN THE FOLLOWING LOANS ADVANCES TO PARTNERS AND SISTER CONCERNS AS UNDER:- S.NO. S.NO. S.NO. S.NO. PERSON TO WHOM LOAN PERSON TO WHOM LOAN PERSON TO WHOM LOAN PERSON TO WHOM LOAN AND ADVANCES GIVEN. AND ADVANCES GIVEN. AND ADVANCES GIVEN. AND ADVANCES GIVEN. AMOUNT AS ON AMOUNT AS ON AMOUNT AS ON AMOUNT AS ON 31.3.2008 31.3.2008 31.3.2008 31.3.2008 AMOUNT AS ON AMOUNT AS ON AMOUNT AS ON AMOUNT AS ON 31.3.2007 31.3.2007 31.3.2007 31.3.2007 1 SHRI SIDHDATA ISPAT PVT. LTD. 30,59,550/- 30,59,550/- 2 MANJU GUPTA 1,40,00,000/- 1,18,00,000/- 3 PARDEEP GUPTA 58,42,546/- 58,17,546/- 4 O.P. GUPTA 4,75,000/ - 4,75,000/ - 5 RAJESH GUPTA 2,34,61,780/- 1,47,64,780/- 6 RENU GUPTA 78,19,251/ - 78,19,251/ - 7 S.K. GUPTA 1,43,72,511/- 1,13,22,511/- TOTAL AMOUNT OF LOAN TOTAL AMOUNT OF LOAN TOTAL AMOUNT OF LOAN TOTAL AMOUNT OF LOAN AND ADVANCE GIVEN AND ADVANCE GIVEN AND ADVANCE GIVEN AND ADVANCE GIVEN RS. 6,90,30,638/ RS. 6,90,30,638/ RS. 6,90,30,638/ RS. 6,90,30,638/- -- - RS. 5,50,58,638/ RS. 5,50,58,638/ RS. 5,50,58,638/ RS. 5,50,58,638/- -- - 3.1 THE ASSESSEE STATED BEFORE THE AO THAT THE ABOV E PERSONS ARE EITHER THE PARTNERS OR THE FAMILY MEMBERS OF THE PA RTNERS OR THE BUSINESS CONCERN IN WHICH EITHER THE PARTNERS OR / AND THEIR FAMILY MEMBERS HAVE INTEREST. AO ENQUIRED FROM THE ASSESS EE AS TO WHY THE INTEREST TO THE EXTENT LOAN DIVERTED TO INT EREST FREE LOANS TO SISTER CONCERN SHOULD NOT BE DISALLOWED. ASSESSE E SUBMITTED THAT IT HAS ADEQUATE INTEREST FREE FUNDS AVAILABLE. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS MADE THE LOANS AND ADVANCES OUT OF COMMERCIAL EXPEDIENCY. HOWEVER, THE AO WAS NOT S ATISFIED. HE FOUND THAT THE ASSESSEES CONTENTION THAT ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS TO MAKE THE INTEREST FREE LOANS AND ADVANCES ARE NOT CORRECT. AO FURTHER OBSERVED THAT THE ASSESSEE WAS ASKED TO SHOW AS TO HOW THE INTEREST FREE ADVANCES WERE GI VEN FOR ANY BUSINESS PURPOSE OF THE ASSESSEE FIRM. BUT ASSESSEE FAILED TO GIVE ANY REPLY TO SHOW THAT IT WAS FOR ANY BUSINES S PURPOSE OF THE FIRM. AO NOTED THAT THESE ARE NOT TRADE ADVANCES ALSO. HENCE, AO HELD THAT THE ABOVE INTEREST FREE FUNDS WERE GI VEN TO THE PERSONS WITHOUT ANY BUSINESS PURPOSE OF THE ASSESSEE FIRM. HENCE, HE HELD ITA NO. 4553/DEL/2011 3 THAT ASSESSEE WILL NOT BE ENTITLED TO CLAIM DEDUC TION OF THE INTEREST ON THE BORROWINGS TO THE EXTENT THOSE ARE DIVERTED TO SISTER CONCERN AND ACCORDINGLY, AO WORKED OUT THE DISALLOWANCE OF RS. 78,45,450/-. 3.2 AGAINST THE ABOVE ORDER THE ASSESSEE APPEALED BEFORE THE LD. CIT(A). LD. CIT(A) IN THIS REGARD DID NOT ACCEPT T HE ASSESSEES CONTENTION THAT ASSESSEE HAD INTEREST FREE FUNDS IN THE SHAPE OF SUNDRY CREDITORS. HE NOTED THAT THE ASSESSEE HAD RS. 3.69 CRORES IN SUNDRY DEBTORS AND RS. 4.39 CRORES IN CLOSING STOCK . HOWEVER, LD. CIT(A) ACCEPTED THAT THE ASSESSEE HAD INTEREST FRE E FUNDS AVAILABLE TO THE EXTENT OF RS. 1,07,62,394/- IN THE CAPITAL A CCOUNT OF THE PARTNERS AS ON 31.3.2008. HENCE, HE DIRECTED TO ALL OW THE CORRESPONDING INTEREST TO THE ASSESSEE ON THE AMOUN T OF RS. 1,07,62,349/-. 3.3 THEREAFTER, THE LD. CIT(A) CONSIDERED THE COMME RCIAL EXPEDIENCY ASPECT OF THE FUNDS ADVANCED BY THE ASS ESSEE. LD. CIT(A) NOTED THAT THE ASSESSEE HAS ADVANCED THE MA JOR PART OF THE INTEREST FREE FUNDS TO ITS PARTNERS AND THE RELATIV ES WHO HAVE INVESTED THESE FUNDS IN THE SHARE CAPITAL OF SIS TER CONCERN OF THE ASSESSEE I.E. M/S SHRI SIDHATA ISPAT PVT. LTD. (SSI PL). THAT AN AMOUNT OF RS. 30.59 LACS WAS ADVANCED DIRECTLY TO T HE SISTER CONCERN I.E. M/S SSIPL AS INTEREST FREE FUNDS. LD. CIT(A ) NOTED THAT M/S SSIPL IS A BUYER OF THE ASSESSEE AND HAS PURCHASES FROM THE ASSESSEE AMOUNTING TO RS. 3.36 CRORES DURING THE YE AR UNDER CONSIDERATION (THE TOTAL TURNOVER OF THE ASSESSEE B EING RS. 13.74 CRORES). LD. CIT(A) NOTED THAT THE IN THE ASSESSME NT ORDER THE AO WITHOUT EXAMINING HOW THE INTEREST FREE FUNDS HAVE BEEN UTILISED HELD THEM TO BE NON-BUSINESS PURPOSES, AS THESE ADV ANCES WERE MADE TO THE PARTNERS AND THE RELATIVES. LD. CIT(A ) FOUND CONSIDERABLE COGENCY IN THE SUBMISSIONS OF THE ASSE SSEE IN THIS REGARD. HE HELD THAT M/S SSIPL HAS MADE PURCHASE S TO THE EXTENT ITA NO. 4553/DEL/2011 4 OF RS. 3.36 CRORES FROM ASSESSEES FIRM WHICH IS 25 % OF THE TOTAL TURNOVER OF THE ASSESSEE. HE NOTED THAT THE ASSESS EES CONTENTION THAT BY INVESTING IN THE SHARE CAPITAL OF M/S SSIPL THROUGH ITS PARTNERS AND RELATIVES, THE ASSESSEE HAS AUGMENTED THE RESOURCES OF THE SISTER CONCERN WHICH NOT ONLY ENABLED THE SI STER CONCERN TO CARRY OUT ITS OWN BUSINESS, BUT ALSO SERVED THE BUS INESS INTERESTS OF THE ASSESSEE AS THE SISTER CONCERN IS A REGULAR TRA DING PARTNER OF THE ASSESSEE. HENCE, LD. CIT(A) HELD THAT ADVANCING OF INTEREST FREE ADVANCE TO THE ABOVE PERSONS WAS FOR THE BUSINES S PURPOSE OF THE ASSESSEE. LD. CIT(A) ACCEPTED THE ASSESSEES CONT ENTION THAT AS EXPOUNDED BY THE HONBLE APEX COURT IN SA BUILDERS CASE, THERE WAS COMMERCIAL EXPEDIENCY FOR THE ASSESSEE TO GRANT INTEREST FREE LOANS AND ADVANCES TO THE ABOVE PERSONS. LD. CI T(A) FURTHER PROCEEDED TO EXAMINE AS TO HOW MUCH FUNDS WERE UTIL ISED BY THE ABOVE PERSONS IN INVESTMENT IN THE SHARE CAPITAL OF M/S SSIPL. HE HELD THAT TO THE EXTENT OF THE AMOUNTS WERE UTILIS ED FOR INVESTMENT IN SHARE CAPITAL OF M/S SSIPL NO INTEREST NEEDS TO BE DISALLOWED ON THIS AMOUNT. FOR OTHER AMOUNTS REMAINING IN THE HANDS OF THE PAYEES, LD. CIT(A) HELD THAT THE DIVERSION OF INTE REST FREE FUNDS IN THESE CASES HAS TO BE ACCEPTED. 4. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. WE FIND THAT THE ASSESSEE HAS OUTSTANDING BALANCE IN L OAN ACCOUNT WITH DIFFERENT BANKS AMOUNTING TO RS. 7,77,21,576/-. A SSESSEE HAS PAID INTEREST AMOUNTING TO RS. 83,26,330/-. THE ASSESSE E HAS ALSO ADVANCED INTEREST FREE LOANS AND ADVANCES TO THE P ARTNERS OR RELATIVES OF PARTNERS AND CONCERN IN WHICH PARTNER S AND THEIR RELATIVES ARE INTERESTED AMOUNTING TO RS. 6,90,30,6 38/-. ASSESSEES CONTENTION BEFORE THE AO WAS THAT THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS IN THE SHAPE OF SHARE CAPITAL BALANCE OF THE ITA NO. 4553/DEL/2011 5 PARTNERS AMOUNTING TO RS. 1,07,62,395/- AND SUNDRY CREDITORS AMOUNTING TO RS. 6,87,57,591/-. ASSESSEE FURTHER SUBMITTED THAT ASSESSEE HAS MADE THE INTEREST FREE ADVANCES FOR BU SINESS PURPOSES. HOWEVER, THE AO FOUND THAT THE ASSESSEE S CLAIM OF HAVING SUFFICIENT INTEREST FREE FUNDS WAS NOT CORRE CT. ASSESSEE HAS ADVANCED SUMS TO PARTNERS WHICH FAR EXCEEDED TO THE CAPITAL ACCOUNT. FURTHERMORE, ASSESSEE HAD FUNDS BLOCK IN THE SUNDRY DEBTORS AND CLOSING STOCK AMOUNTING TO RS. 8,60,41, 885/-. HENCE, THE AO DID NOT ACCEPT THE ASSESSEES CONTENTION OF HAVING SUFFICIENT INTEREST FREE FUNDS. AS REGARDS THE CONTENTION THAT THE FUNDS WERE GIVEN FOR BUSINESS PURPOSE OF THE ASSESSEE, AO CLE ARLY NOTED THAT DESPITE QUERY LETTER AND OPPORTUNITY THE ASSESSEE D ID NOT GIVE ANY EXPLANATION AS TO THE BUSINESS PURPOSE OF THE ASSES SEE FIRM FOR WHICH THE LOAN AND ADVANCES WERE GIVEN. IN THESE C IRCUMSTANCES, AO HAD MADE THE IMPUGNED DISALLOWANCE. 5.1 LD. CIT(A) IN THIS REGARD, DID NOT ACCEPT THE A SSESSEES CONTENTION THAT ASSESSEE HAS SUFFICIENT INTEREST F REE FUNDS EXCEPT THE AMOUNT OF RS. 1,07,62,349/- IN THE SHAPE OF BAL ANCE IN PARTNERS IN CAPITAL ACCOUNT. HOWEVER, LD. CIT(A) ACCEPTED T HE COMMERCIAL EXPEDIENCY ASPECT CANVASSED BY THE ASSESSEE. LD. C IT(A) ACCEPTED THE CONTENTION THAT THE FUNDS WERE GIVEN TO RELATIV ES AND SISTER CONCERN FOR INVESTMENT IN M/S SSIPL WHICH ALSO MADE PURCHASES FROM THE ASSESSEE. LD. CIT(A) ACCEPTED THE ASSESSE ES CONTENTION THAT THE SAID CONCERN M/S SSIPL HAD MADE PURCHASES OF RS. 3,63,44,715/- FROM THE ASSESSEE WHICH WAS ABOUT 25% OF THE TOTAL TURNOVER OF THE ASSESSEE. LD. CIT(A) HAS ACCEPTED THE ASSESSEES ITA NO. 4553/DEL/2011 6 CONTENTION THAT BY INVESTING IN THE SHARE CAPITAL O F M/S SSIPL THROUGH ITS PARTNERS AND RELATIVES, THE ASSESSEE HA S AUGMENTED THE RESOURCES OF THE SISTER CONCERN WHICH HAS NOT ONLY THE ENABLED THE SISTER CONCERN TO CARRY OUT ITS OWN BUSINESS, BUT ALSO SERVED THE BUSINESS INTERESTS OF THE ASSESSEE AS THE SISTER CONCERN IS A REGULAR TRADING PARTNER OF THE ASSESSEE. 5.2 WE FIND THAT NO SUBMISSION AS NOTED IN THE LD . CIT(A)S ORDER REGARDING THE UTILISATION OF THE INTEREST FREE FUND S WAS MADE BEFORE THE AO. AO HAS NOTED THAT DESPITE QUERY IN THIS RE GARD THE ASSESSEE HAS NOT MADE ANY SUBMISSIONS AS TO HOW THESE LOAN S AND ADVANCES WERE SERVING THE BUSINESS PURPOSE OF THE ASSESSEE. HOWEVER, WE FIND THAT BEFORE THE LD. CIT(A) ASSESSEE CLAIMED TH AT THESE FUNDS WERE GIVEN FOR THE PURCHASING SHARES IN THE NAME OF M/S SSIPL WHICH WAS THE BUYER OF THE ASSESSEES FIRM AND MAD E REGULAR PURCHASES FROM THE ASSESSEE. WE FIND THAT THESE S UBMISSIONS OF THE ASSESSEE NEED FACTUAL VERIFICATION AT THE LEVEL OF THE AO. IN OUR CONSIDERED OPINION, AO SHOULD BE GIVEN AN OPPORTUNI TY TO EXAMINE THIS ASPECT OF THE ASSESSEES CLAIM THAT THE AMOUNT S ADVANCED WERE UTILISED FOR PURCHASING SHARES IN M/S SSIPL. THAT M/S SSIPL WAS REGULAR PURCHASER OF THE ASSESSEE. IT ALSO NEEDS TO EXAMINE AS TO HOW THE ABOVE ADVANCES HAS AUGMENTED THE RESOURCES OF THE SISTER CONCERN AND HOW THE SISTER CONCERN HAS UTILISED THESE ADVANCES. HENCE, IN OUR CONSIDERED OPINION, INTEREST OF JUSTI CE DEMANDS THAT ITA NO. 4553/DEL/2011 7 MATTER MAY BE REFERRED TO THE FILE OF THE AO TO EXA MINE THE FACTUAL VERACITY OF THE SUBMISSIONS OF THE ASSESSEE BEFORE THE LD. CIT(A). ACCORDINGLY, WE REMIT THE MATTER TO THE FILE OF T HE AO WITH THE ABOVE DIRECTIONS. IN THIS REGARD, WE PLACE RELIANC E UPON THE HONBLE APEX COURT DECISION IN THE CASE OF KAPURCHAND SHRIMAL VS. CIT, 131 KAPURCHAND SHRIMAL VS. CIT, 131 KAPURCHAND SHRIMAL VS. CIT, 131 KAPURCHAND SHRIMAL VS. CIT, 131 ITR 451 ITR 451 ITR 451 ITR 451 , WHEREIN IT HAS BEEN HELD THAT IT IS THE DUTY OF T HE APPELLATE AUTHORITY TO CORRECT THE LACUNA IN THE ORDER OF THE AUTHORITIES BELOW. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14/3/2014. SD/- SD/- [ [[ [A. D. JAIN A. D. JAIN A. D. JAIN A. D. JAIN] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 14/3/2014 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES