ARIES AGRO LTD, MUMBAI V. DCIT RG 10(2), MUMBAI

ITA 4639/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55071 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 03-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: C G K NAIR
• Keywords: Notional interest
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, MUMBAI. BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER I.T.A NO.4639/ MUM/2010 ASSESSMENT YEAR: 2006-07 ARIES AGRO LIMITED, .. APPELLANT ARIES HOUSE, PLOT NO.24, DEONAR, GOVANDI(EAST), MUMBAI-43. PA NO.AAACA 5035 G VS DY. CIT 10(2) .. RESPONDEN T AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. APPEARANCES: RAHUL K HAKANI, FOR THE APPELLANT C.G. K. NAIR , FOR THE RESPONDENT DATE OF HEARING : 1.8.2011 DATE OF PRONOUNCEMENT : 30 -08-2011 O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL, THE ASSESSEE HAS CALLED INTO Q UESTION CORRECTNESS OF CIT(A)S ORDER DATED 22.2.2010, IN THE MATTER OF ASSESSM ENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2006 -07 ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LA W, THE LD CIT(A) ERRED IN STATING CONFIRMING THE ORDER OF THE AO IN WHICH THE AO HAD DISALLOWED I.T.A NO.4639/ MUM/2010 ASSESSMENT YEAR: 2006-07 2 RS.11,80,923 BEING NOTIONAL INTEREST ON ACCOUNT OF IN TEREST FREE ADVANCES MADE TO THE SISTER CONCERNS. 2. ON FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD CIT(A) ERRED IN STATING THAT NO EVIDENCES WERE SUBMITTED DURING THE AP PELLATE PROCEEDINGS. 3. ON FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD CIT(A) OUGHT TO HAVE CONSIDERED IN HIS ORDER THAT THE ASSESSEE HAD SUBMITTED 2 PAPER BOOKS AND ONE SUBMISSION WITH THE CIT(A) DURING THE COURSE OF APP ELLATE PROCEEDINGS. THESE DETAILS CONTAINED ALL THE BALANCE SHEETS AND OTHE R RELATED DOCUMENTS. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN NOT RELYING ON THE JUDGMENTS OF HONBLE SUPREME COUR T IN THE CASE OF MUNJAL SALES CORPORATION VS CIT, 298 ITR 298 AND S.A. BUILDE RS V CIT, 288 ITR 1(SC). 2. THE ISSUE LIES IN A NARROW COMPASS OF MATERIAL FACTS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF MICRONU TRIENTS-FERTILISERS AND FEED ADDITIVES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD GIVEN INTEREST FREE ADVANCES TO TWO SISTER CONCERNS, NAMELY ARIES EAST & WEST NUTRIENTS LTD., (RS.44,91,486) AND S REENI AGRO CHEMICALS P. LTD.(RS.59,71,576). THE ASSESSING OFFICER NOTED THAT TH E ASSESSEE HAS RESORTED TO BORROWINGS WHICH AS AT THE OF THE YEAR AMOUNTS TO RS.12 .79 CRORES AND ON WHICH THE ASSESSEE HAS PAID INTEREST OF RS.1,69,59,188. THE ASSESSING O FFICER WAS OF THE VIEW THAT ON ONE HAND, THE ASSESSEE IS PAYING HUGE INTEREST O N THE BORROWINGS AND ON THE OTHER HAND, THE ASSESSEE HAS GIVEN INTEREST FREE LOAN TO THE SISTER CONCERNS. IT WAS IN THIS BACKGROUND AND AFTER A VERY ERUDITE AND DETAILE D DISCUSSION ON CERTAIN JUDICIAL PRECEDENTS THAT THE ASSESSING OFFICER DISALLOWED AN AMOUN T OF RS.11,80,923, BEING INTEREST ATTRIBUTABLE TO INTEREST FREE LOANS COMPUTED @ 12% PER ANNUM. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. 3. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL B EFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLI CABLE LEGAL POSITION. 5. WE FIND THAT HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES AND POWER LIMITED (313 ITR 340) HAS HELD THAT AS LONG AS INVESTMENTS MADE BY THE ASSESSEE IN NON-INTEREST BEARING FUNDS ARE LE SS THAN ASSESSEES OWN I.T.A NO.4639/ MUM/2010 ASSESSMENT YEAR: 2006-07 3 FUNDS, PRESUMPTION CAN BE TAKEN THAT THE BORROWED FUN DS HAVE BEEN UTILIZED IN SUCH INVESTMENTS. IN OTHER WORDS, AS LONG AS NON-INTEREST BEA RING FUNDS ARE MORE THAN THE INTEREST FREE FUNDS MADE BY THE ASSESSEE TO SISTER CONC ERNS, INTEREST EVEN IF ATTRIBUTABLE TO SUCH NON-INTEREST BEARING ADVANCES COU LD NOT BE DISALLOWED ON THE GROUND THAT A PORTION OF SUCH INTEREST IS ATTRIBUTABLE TO INTEREST FREE ADVANCES GIVEN TO THE SISTER CONCERNS. A PERUSAL OF THE ORDERS OF TH E AUTHORITIES BELOW INDICATES THAT APPARENTLY THE ASSESSEE HAD SUFFICIENT INTEREST FREE ADV ANCES AS NOTED BY THE ASSESSING OFFICER HIMSELF THAT THE DEBT EQUITY RATIO IS 6 6.7: 33.3 AND TOTAL BORROWINGS EVEN IN THE BEGINNING OF THE YEAR WERE RS. 1.18CRORES. CLEARLY, THEREFORE, THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS IN EXCESS OF RS.1,04,63,062 (RS.44,91,486 + RS.59,71,576). IN THIS VIEW OF THE MA TTER, THE DISALLOWANCE WAS INDEED UNCALLED FOR. WE, THEREFORE, UPHOLD THE GRI EVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANC E. 6. IN THE RESULT, APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST, 2011 SD/- (VIJAY PAL RAO) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI, DATED 30 TH AUGUST, 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),-21 MUMBAI 4. COMMISSIONER OF INCOME TAX, MC-X, , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH A MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI