The ACIT, Circle-5, Ahmedabad V. Narmda Fintrade Ltd., Ahmedabad

ITA 458/AHD/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9571 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 26-05-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 17-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Proportionate interest; Commercial expediency

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD .. , ( .) , ! BEFORE SHRI BEFORE SHRI G.D. AGARWAL,VICE PRESIDEN T (AZ) AND SHRI KUL BHARAT, JUDICIAL MEMBER 1-2. ./ I.T.A. NOS.457 & 458/AHD/2012 ( / ASSESSMENT YEARS : 2003-04 & 2004-05 RESPECTIVELY ) THE ACIT CIRCLE-5 AHMEDABAD / VS. NARMDA FINTRADE LTD. 307, ABHIJIT NETAJI MARG, ELLISBRIDGE AHMEDABAD % & ./ ./ PAN/GIR NO. : AABCN 7035 N ( %( / APPELLANT ) .. ( )*%( / RESPONDENT ) %(+ / APPELLANT BY : SHRI NIMESH YADAV, SR.DR )*%(,+ / RESPONDENT BY : SHRI SUNIL H.TALATI, AR - ., /& / DATE OF HEARING 26/05/2015 0123 , /& / DATE OF PRONOUNCEMENT 29/05/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THESE TWO APPEALS BY THE REVENUE ARE DIRECTED AGA INST THE SEPARATE ORDERS OF THE LD.COMMISSIONER OF INCOME TA X(APPEALS)-XI, AHMEDABAD (CIT(A) IN SHORT) DATED 08/12/2011 & 09/12/2011 PERTAINING TO ASSESSMENT YEARS (AYS) 2003-04 & 2004 -05 RESPECTIVELY. SINCE COMMON ISSUES AND FACTS ARE INVOLVED IN THESE APPEALS, THESE ITA NOS.457 & 458/AHD/20 12 ACIT VS. NARMDA FINTRADE LTD. ASST.YEARS 2003-04 & 2004-05 - 2 - APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST, WE TAKE UP THE REVENUES APPEAL IN ITA NO .457/AHD/2012 FOR AY 2003-04. THE REVENUE HAS RAISED THE FOLLOW ING COMMON GROUNDS OF APPEAL:- I) THE LD. COMMISSIONER OF INCOME TAX (A) AHS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF INTERE ST OF RS.98,41,280/- (FOR AY 2003-04) AND OF RS.17,06,015 /- (FOR AY 2004-05). II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.COMMISSIONER OF INCOME TAX (A) OUGHT TO HAVE UPH ELD THE ORDER OF THE ASSESSING OFFICER. III) IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD.C OMMISSIONER OF INCOME TAX (A) MAY BE SET-ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2.1. THIS IS SECOND ROUND OF LITIGATION. IN THE EA RLIER ROUND, THE ISSUE RELATED TO DELETION OF DISALLOWANCE OF INTEREST OF RS.9,41,280/- REACHED UPTO THE STAGE OF THIS TRIBUNAL (ITAT C BENCH AHM EDABAD) AND THE TRIBUNAL VIDE ITS ORDER DATED 04/05/2007 WAS PLEASE D TO RESTORE THE ISSUE TO THE FILE OF ASSESSING OFFICER (AO) TO VERIFY TH E ASSESSEES CLAIM THAT THE INTEREST-FREE FUNDS WERE GIVEN FOR REVIVAL OF S UBSIDIARY-COMPANY AS WELL AS KEEPING IN VIEW OF DECISION IN THE CASE OF S.A.BUILDERS LTD. VS. CIT(A) AND ANOTHER (288 ITR 01)[SC]. THE ASSESSIN G OFFICER YET AGAIN MADE DISALLOWANCE OF INTEREST EXPENSES OF RS.9,41,2 80/- VIDE ORDER DATED 19/11/2008. AGAINST THE SAID ASSESSMENT ORDER, THE ASSESSEE FILED AN ITA NOS.457 & 458/AHD/20 12 ACIT VS. NARMDA FINTRADE LTD. ASST.YEARS 2003-04 & 2004-05 - 3 - APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, DELETED THE DISALLOWANCE. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), NOW THE REVENUE IS FURTHER IN APPEAL BEF ORE US. 3. THE ONLY EFFECTIVE GROUND OF REVENUES APPEAL IS AGAINST DELETION OF DISALLOWANCE OF INTEREST OF RS.9,41,280/-. THE S R.DR SUPPORTED THE ORDER OF THE AO AND SUBMITTED THAT THE LD.CIT(A) WA S NOT JUSTIFIED IN DELETING THE DISALLOWANCE. HE SUBMITTED THAT THE L D.CIT(A) OUGHT TO HAVE CONFIRMED THE ADDITION. HE FURTHER SUBMITTED THAT THE ASSESSEE WAS REQUIRED TO DEMONSTRATE THE COMMERCIAL EXPEDIENCY W ITH REGARD TO THE INTEREST-FREE ADVANCES WERE GIVEN TO SISTER-CONCERN S BY UTILIZING THE INTEREST-BEARING FUNDS. 3.1. ON THE CONTRARY, THE LD.COUNSEL FOR THE ASSESS EE SUPPORTED THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT THE LD.CIT(A) H AS GIVEN A FINDING ON FACT. HE FURTHER SUBMITTED THAT THERE IS NO DISPUT E WITH REGARD TO THE FACT THAT THE ASSESSEE HAS GIVEN ADVANCES TO THE SISTER- CONCERNS AND SUCH ADVANCES WERE GIVEN FOR THE BUSINESS PURPOSE FOR RE VIVAL OF THE SISTER- CONCERNS. HE FURTHER SUBMITTED THAT THE ADVANCES WERE GIVEN PURELY FOR BUSINESS PURPOSES. HE SUBMITTED THAT THE REVENUE H AS NOT PLACED ANY MATERIAL ON RECORD THAT THE ADVANCES WERE NOT GIVEN FOR THE BUSINESS PURPOSES. HE SUBMITTED THAT UNDER THESE FACTS, THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE. ITA NOS.457 & 458/AHD/20 12 ACIT VS. NARMDA FINTRADE LTD. ASST.YEARS 2003-04 & 2004-05 - 4 - 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT IN THE EARLIER ROUND OF LITIGATION, TH IS TRIBUNAL IN ITA NO.2565/AHD/2006 FOR AY 2003-04, ORDER DATED 04/05/ 2007, DECIDED THIS ISSUE BY OBSERVING AS UNDER:- 5.1. IN VIEW OF ABOVE DISCUSSION, WE ARE OF THE OP INION THAT THE QUESTION OF ALLOWING INTEREST-FREE FINANCE TO SUBSI DIARY-COMPANY DEFINITELY COULD FALL WITHIN THE AMBIT OF ASSESSEE S BUSINESS EXPEDIENCY AND, THEREFORE, IT IS VERY NECESSARY TO VERIFY THE CORRECTNESS OF THE FACTS. CONSEQUENTLY, WE RESTORE THIS ISSUE INVOLVED IN THIS APPEAL BACK TO THE FILE OF ASSESSI NG OFFICER WITH THE DIRECTIONS THAT THE ASSESSEES CLAIM MAY BE DECIDED AFRESH IN ACCORDANCE WITH LAW AND AFTER VERIFYING THE ASSESSE ES CLAIM THAT THE INTEREST-FREE FUNDS WERE GIVEN FOR REVIVAL OF S UBSIDIARY- COMPANY AS WELL AS KEEPING IN VIEW OF DECISION IN T HE CASE OF S.A.BUILDERS LTD.(SUPRA). THE ASSESSEE WILL BE ALL OWED AN OPPORTUNITY OF BEING HEARD. 4.1. WE FIND THAT THE LD.CIT(A) HAS GIVEN A FINDING WHICH READS AS UNDER:- 2.2. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. I HAVE ALSO PERUSED THE ASSESSMENT ORDER AND THE SUBMISSIO N OF THE LD.A.R. I HAVE ALSO GONE THROUGH THE VARIOUS CASE LAWS RELIED UPON BY THE A.R. THE ONLY ISSUE INVOLVED IN THIS A PPEAL IS DISALLOWANCE OF PROPORTIONATE INTEREST OF RS.9,41,2 80/-. IT IS SEEN THAT THE A.O. HAS MADE A PROPORTIONATE DISALLOWANCE WITHOUT ESTABLISHING NEXUS BETWEEN THE INTEREST BEARING FUN DS AND NON- ITA NOS.457 & 458/AHD/20 12 ACIT VS. NARMDA FINTRADE LTD. ASST.YEARS 2003-04 & 2004-05 - 5 - INTEREST BEARING ADVANCES MADE TO THE SISTER-CONCER N. IT IS AN ESTABLISHED LAW THAT WHERE THERE IS NO NEXUS BETWEE N BORROWED FUNDS AND INTEREST BEARING ADVANCES TO SISTER-CONCE RN, THE INTEREST ON ALLEGED DIVERTED FUND CANNOT BE DISALLOWED. REL IANCE IN THIS REGARD IS PLACED ON THE FOLLOWING CASES: (A) CIT VS. REDICO KHETAN LTD.(2005) 274 ITR 354 (ALLH. ) (B) DHARAMPUR SUGAR MILLS LTD. (2006) 148 TAXMAN 321 (ALLH.) (C) CIT VS. ORISSA CEMENT LTD. 258 ITR 365 (DEL.) 2.3. IT IS ALSO HELD BY THE HONBLE COURTS THAT BUR DEN TO PROVE THAT PART OF BORROWED FUNDS WAS DIVERTED FOR NON-BU SINESS USE IS ON THE REVENUE. THIS PROPOSITION WAS UPHELD IN THE CASES OF SHADIRAM & SONS VS. DCIT (2005) 92 TTJ 534 & MODIPO N LTD. VS. ITO 92 TTJ 108 (DEL.). SINCE THE A.O. HAS FAILED T O DISCHARGE HIS ONUS OF ESTABLISHING NEXUS BETWEEN IT INTEREST BEAR ING FUNDS AND NON-INTEREST BEARING ADVANCES, ACCORDINGLY, THIS DI SALLOWANCE IS NOT TENABLE. 2.4. IT IS A MATTER OF FACT THAT THE APPELLANT HAS ADVANCED A SUM OF RS.1,25,62,000/- TO SISTER CONCERN NAMELY KANAHI YA TRADERS & INVESTORS PVT.LTD. DURING THE YEAR UNDER CONSIDERAT ION. PERUSAL OF APPELLANTS BALANCE SHEET REVEALS THAT THE APPELLAN T WAS HAVING INTEREST FREE FUNDS OF RS.3,75,48,466/- (SHARE CAPI TAL OF RS.49,78,392/- AND RESERVES & SURPLUS OF RS.3,25,70 ,076/-) AT THE END OF ACCOUNTING YEAR I.E.31-3-2003. SINCE THE AP PELLANT WAS HAVING MORE INTEREST BEARING FUNDS THAN INTEREST FR EE ADVANCES MADE BY THE APPELLANT TO THE SISTER CONCERN, ACCORD INGLY, PRESUMPTION THAT NON-INTEREST BEARING FUNDS WERE GI VEN AS INTEREST FREE ADVANCES TO THE SISTER CONCERN WILL BE IN FAVO UR OF THE APPELLANT. RELIANCE IN THIS REGARD IS PLACED ON TH E CASE OF ITA NOS.457 & 458/AHD/20 12 ACIT VS. NARMDA FINTRADE LTD. ASST.YEARS 2003-04 & 2004-05 - 6 - RELIANCE UTILITY & POWER LTD. 313 ITR 340(BOM), WHE REIN IT WAS HELD THAT IF FUNDS ARE AVAILABLE BOTH INTEREST FREE AND INTEREST BEARING, THEN A PRESUMPTION ARISE THAT INVESTMENTS ARE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH TH E ASSESSEE. IN VIEW OF ABOVE FACTS, DISALLOWANCE OF PROPORTIONATE INTEREST MADE BY THE LD.A.O. IS NOT TENABLE. 4.2. THE ABOVE FINDING ON FACT OF THE LD.CIT(A) IS NOT CONTROVERTED BY THE REVENUE BY PLACING ANY MATERIAL ON RECORD. MOR EOVER, THE ASSESSEE HAS DEMONSTRATED THAT THE ADVANCES WERE GIVEN FOR R EVIVAL OF THE SISTER- CONCERNS AND THE EXPENDITURE IS ESSENTIALLY FOR TH E BUSINESS OF THE ASSESSEE. UNDER THESE FACTS, WE DO NOT SEE ANY REA SON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A), SAME IS HEREBY UPHELD. THUS, GROUND OF REVENUES APPEAL IS REJECTED. AS A RESULT, REVENUE S APPEAL FOR AY 2003-04 IS DISMISSED. 5. NOW, WE TAKE UP THE REVENUES APPEAL IN ITA NO.4 58/AHD/2012 FOR AY 2004-05. SINCE IT WAS A COMMON POINT BETWEEN THE PARTIES THAT THE FACTS AND CIRCUMSTANCES IN THE PRESENT CASE ARE IDENTICAL TO THOSE CONSIDERED BY US IN ASSESSEES OWN CASE FOR AY 2003 -04 (ITA NO.457/AHD/2012-SUPRA), FOLLOWING THE SAID PRECEDENT, THE ORDER OF THE CIT(A) IS HEREBY AFFIRMED AND THE REVENUE HAS TO FA IL ON THIS ASPECT. AS A RESULT, THE APPEAL OF THE REVENUE FOR AY 2004-05 IS ALSO DISMISSED. ITA NOS.457 & 458/AHD/20 12 ACIT VS. NARMDA FINTRADE LTD. ASST.YEARS 2003-04 & 2004-05 - 7 - 6. IN THE COMBINED RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 29 TH DAY OF MAY, 2015 AT AHMEDABAD. SD/- SD/- ( .. ) ( ) ( .) ( G.D. AGARWAL ) ( KUL BHARAT ) VICE PRESIDENT (AZ) JUDICIAL MEMBER AHMEDABAD; DATED 29/ 05 /2015 6/..- , .-../ T.C. NAIR, SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. %( / THE APPELLANT 2. )*%( / THE RESPONDENT. 3. 789 : / CONCERNED CIT 4. : ( ) / THE CIT(A)-XI, AHMEDABAD 5. ; <)-89 , /893 , 7 / DR, ITAT, AHMEDABAD 6. < => . / GUARD FILE. / BY ORDER, * ;) //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 26.5.15 (DICTATION-PAD 6+ PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER ..27.5.15 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.29.5.15 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 29.5.15 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER