Ramson Exports (India), Ludhiana V. ITO, Ludhiana

ITA 480/CHANDI/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77197 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 05-05-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: J S NAGAR
• Assessee Lawyers: VIJAY K GARG
• Keywords: Proportionate interest; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 480/CHD/2014 ASSESSMENT YEARS : 2007-08 M/S RAMSON EXPORTS V I.T.O. WARD II(2), LUDHIANA (INDIA) SUNDER NAGAR LUDHIANA AABFR 3974 P (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI VIJAY K. GARG RESPONDENT BY: SHRI J .S. NAGAR DATE OF HEARING 15.7.2014 DATE OF PRONOUNCEMENT 24.7.2014 O R D E R PER T.R. SOOD, A.M THIS APPEAL IS DIRECTED AGAINST THE ORDER DATED 5.3 .2014 OF THE LD CIT(A)-II, LUDHIANA. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS: 1 THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ADDI TION OF RS. 349760/- MADE BY THE ASSESSING OFFICER U/S 36(1)(II I) OF THE ACT. 2 THAT THE LD. CIT(A) ERRED IN NOT CONSIDERING THE CASE LAW RECENTLY DECIDED BY THE HON'BLE RAJASTHAN HIGH COUR T IN THE CASE OF CIT V JUGAL KISHORE, 265 CTR (RAJ) 215, WHERE ON SIMILAR FACTS AS THAT OF OUR CASE, THE ADDITION U/S 36(1)(IIII) W AS DELETED. 3 THAT THE LD. CIT(A) ERRED IN NOT CONSIDERING THE HON'BLE SUPREME COURT RULING IN THE CASE OF S.A. BUILDERS LTD V CIT, 288 ITR 1 (S.C). 4 THAT THE LD. CIT(A) HAS COMPARED THE FACTS IN OUR CASE WITH THAT OF HON'BLE HIGH COURT OF PUNJAB & HARYANA IN CASE OF ABHISHEK INDUSTRIES WHICH HAS GOT NO SIMILARITY WIT H THE PRESENT CASE. 5 THAT THE APPELLANT CRAVES TO ADD OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING AND IT IS PRAYED THAT ADDITION MADE OF RS. 349760/- IS ARBITRARY AND IS AGAINST NATURAL JU STICE WHICH NEEDS TO BE DELETED. 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURIN G ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT THE 2 ASSESSEE HAD MADE CERTAIN INTEREST FREE ADVANCES AN D ADVANCE OF RS. 4651676/- WAS OUTSTANDING AGAINST M/S JAY ES S EXPORTS. FURTHER THE ASSESSEE HAD GIVEN ADVANCES TO TWO PERS ONS NAMELY S/SHRI DEEPAK BAWEJA - A SUM OF RS. 5 LAKHS ON 5.5.2006 AND SUBHASH JAIN A SUM OF RS. 6,60,000/- . THEREFORE THE ASSESSEE WAS ASKED TO GIVE DETAILS OF NATURE OF ADVANCES AND WHY PROPORTIONATE INTEREST SHOULD NOT BE DISALLOWED. THE ASSESSEE VIDE LETTER DATED 15.12.2 009 STATED AS UNDER: REGARDING INTEREST FREE ADVANCES TO M/S JAY ESS EX PORTS AND OTHER PARTIES. IT IS SUBMITTED THAT THE ASSESSEE PARTNERS HAD NOT BEEN PAID ANY INTEREST ON THEIR CAPITAL. OPENING CAPITAL ON 01.04 .06 OF PARTNERS WAS 169.98 LACS AND CLOSING CAPITAL ON 31.03.2007 WAS R S. 168.61 LACS AND THESE WERE TRADE ADVANCES. HENCE NO DISALLOWANCE OF INTEREST IS CALLED FOR PARTICULAR, IT WAS BUSINESS ADVANCE. IN THIS CONNECTION WE PLACE RELIANCE ON HONBLE SUP REME COURT DECISION IN THE CASE OF MUNJAL SALES CORPN. VS. CIT ANR REPO RTED AT (2008) 215 CTR (SC) 105 WHEREIN IT HAS BEEN HELD THAT DEDUCTIO N U/S 30 TO 38 ARE SUBJECT TO LIMITATIONS U/S 40(B)(IV) THEREFORE, EVE N IT IS ENTITLED TO DEDUCTION FOR INTEREST PAYMENT EXCEEDING THE RATE P RESCRIBED IN SECTION 40(B)(IV), ONCE IT WAS FOUND THAT INTEREST FREE LOA NS GRANTED BY ASSESSEE TO ITS SISTER CONCERN IN AUG/SEPT. 1991, CONTINUED UPTO A.Y. 1997-98 AND THAT THE SAID LOANS WERE ADVANCED OUT OF ITS OWN FU NDS FOR BUSINESS PURPOSES AND THAT THE INTEREST PAID THEREON DID NOT EXCEED THE RATE PRESCRIBED U/S 40(B)(IV), ASSESSEE WAS ENTITLED TO DEDUCTION U/S 36(1) (III) R/W SECTION 40(B)(IV) FOR THE A.Y. 1993-94 TO 1997-98. THE ASSESSING OFFICER CONSIDERED THE REPLY AND OBSE RVED THAT THE CONTENTION THAT THE ADVANCES WERE PAID OUT OF I NTEREST FEE CAPITAL OF THE PARTNERS, WAS NOT ACCEPTABLE IN VIEW OF THE DECISION OF HON'BLE HIGH COURT OF PUNJAB & HARYANA IN CASE OF CIT V. ABHISHEK INDUSTRIES, 286 ITR 1. ACCORDING TO HIM DECISION IN CASE OF MUNJAL SALES CORPORATION V CIT WHICH IS ALSO REPORTED AT 298 ITR 298 WAS DISTINGUISHABLE O N FACTS. HE FURTHER FOUND THAT IN CASE OF JAY ESS EXPORTS FOR W HICH COPY OF ACCOUNT WAS FILED THOUGH THERE WERE CERTAIN TRADING TRANSACTIONS BUT THE DEBIT BALANCE EXCEEDED RS. 38 LAKHS WAS THERE ON ALL TIMES. ACCORDINGLY THE ASSESSING OFFIC ER HELD THAT 3 PROPORTIONATE INTEREST CANNOT BE ALLOWED AND DISAL LOWED A SUM OF RS. 349760/-. 4 ON APPEAL BEFORE THE LD. CIT(A) IT WAS MAINLY SUB MITTED THAT WITH JAY ESS EXPORTS TRADING TRANSACTIONS WERE CONDUCTED WHICH FACT HAS BEEN ACCEPTED BY THE ASSESSING OFFIC ER ALSO, THEREFORE INTEREST CAN NOT BE DISALLOWED WHERE THE ADVANCES HAVE BEEN GIVEN FOR BUSINESS PURPOSES. IT WAS ALSO PLEADED THAT SUFFICIENT INTEREST FREE CAPITAL OF PARTNERS W AS ALSO THERE. RELIANCE WAS ALSO PLACED IN CASE OF CIT V JUGAL KIS HORE, 265 CTR 215. 5 THE LD. CIT(A) AFTER EXAMINING THE SUBMISSIONS DI D NOT FIND FORCE IN THE SAME AND OBSERVED THAT IN THE LIG HT OF BINDING PRECEDENT IN CASE OF CIT V ABHISHEK INDUSTRIES (SUP RA) THE DISALLOWANCE HAS TO BE MAINTAINED AND ACCORDINGLY THE APPEAL WAS DISMISSED. 6 BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE REITE RATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND T HE LD. CIT(A). HE FURTHER STATED THAT THE ASSESSEE HAS PU RCHASED GOODS FROM JAY ESS EXPORTS AND IN THIS CONNECTION HE REFERRED TO A COPY OF THE ACCOUNT FILED AT PAGE 5 TO 7 OF TH E PAPER BOOK. HE VEHEMENTLY CONTENDED THAT ONCE THE GOODS WERE BE ING PURCHASED, THEREFORE CLEARLY ADVANCES WERE IN THE N ATURE OF TRADING ADVANCES AND THERE WAS COMMERCIAL EXPEDIENC Y AND THEREFORE INTEREST COULD NOT BE DISALLOWED AND IN T HIS REGARD HE RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN CASE OF S.A. BUILDERS, 288 ITR 1. HE ALSO SUBMITTED THAT I N IDENTICAL CIRCUMSTANCES HON'BLE RAJASTHAN HIGH COURT IN CASE OF CIT V JUGAL KISHORE (SUPRA) HELD THAT PROPORTIONATE INTE REST COULD NOT BE DISALLOWED. 4 7 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE STRONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). 8 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND T HAT THERE WAS OPENING DEBIT BALANCE OF RS. 4413287/- IN CASE OF JAY ESS EXPORTS. NO DOUBT CERTAIN PURCHASES HAVE BEEN MADE FROM THIS PARTY BUT FOR MAKING PURCHASES FRESH PAYMENTS HAVE BEEN MADE TO THIS PARTY AND AT ALL RELEVANT TIME, THE DE BIT BALANCES HAS RATHER INCREASED DURING THE YEAR. WE ASKED THE LD. COUNSEL FOR THE ASSESSEE WHETHER ANY DISALLOWANCE W AS MADE IN THE EARLIER YEAR AND HE ADMITTED THAT DISALLOWAN CE WAS MADE WITH REFERENCE TO THE DEBIT BALANCE IN CASE OF JAY ESS EXPORTS WHICH WAS NOT CHALLENGED BY THE ASSESSEE. THE LD. C OUNSEL FOR THE ASSESSEE COULD NOT POINT OUT WHY HUGE ADVANCES HAVE TO BE GIVEN TO THIS PARTY AT ALL TIMES, THEREFORE IN O UR OPINION, THE COMMERCIAL EXPEDIENCY CAN NOT BE INFERRED IN THIS C ASE. COMING TO THE CASE LAWS, FIRST OF ALL THE DECISION IN CASE OF S.A. BUILDERS V CIT(A) (SUPRA) HAS BEEN DOUBTED OUT BY THE HON'BLE SUPREME COURT ITSELF AND THE MATTER HAS BE EN REFERRED TO THE LARGER BENCH BUT IN ANY CASE FOLLOWING IMPOR TANT OBSERVATIONS WERE MADE IN THAT CASE ITSELF AT PARA 25, 29 & 35 WHICH ARE AS UNDER: IN OUR OPINION, THE HIGH COURT AS WELL AS THE TRIBU NAL AND OTHER INCOME- TAX AUTHORITIES SHOULD HAVE APPROACHED THE QUESTION OF ALLOWABILITY OF INTEREST ON THE BORROWED FUNDS FROM THE ABOVE ANGLE . IN OTHER WORDS, THE HIGH COURT AND OTHER AUTHORITIES SHOULD HAVE ENQUIR ED AS TO WHETHER THE INTEREST FREE LOAN WAS GIVEN TO THE SISTER COMPANY (WHICH IS SUBSIDIARY OF THE ASSESSEE) AS A MEASURE OF COMMERCIAL EXPEDIENCY , AND IF IT WAS, IT SHOULD HAVE BEEN ALLOWED. IN THE PRESENT CASE, NEITHER THE HIGH COURT NOT THE TRIBUNAL NOR OTHER AUTHORITIES HAVE EXAMINED WHETHER THE AMOUNT ADVANC ED TO THE SISTER CONCERN WAS BY WAY OF COMMERCIAL EXPEDIENCY. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM TH EIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. AS ALREADY STATED AB OVE, WE HAVE TO SEE THE TRANSFER OF THE BORROWED FUNDS TO A SISTER CONC ERN FROM THE POINT OF 5 VIEW OF COMMERCIAL EXPEDIENCY AND NOT FROM THE POIN T OF VIEW WHETHER THE AMOUNT WAS ADVANCED FOR EARNING PROFITS. WE WISH TO MAKE IT CLEAR THAT IT IS NOT OUR OPINION THAT IN EVERY CASE INTEREST ON BORROWED LOAN HAS TO BE ALLOWED IF THE ASSESSEE ADVANCES IT TO A SISTER CONCERN . IT ALL DEPENDS ON THE FACTS A ND CIRCUMSTANCES OF THE RESPECTIVE CASE. ABOVE OBSERVATION MAKES IT CLEAR THAT THE AUTHORITI ES ARE REQUIRED TO EXAMINE WHETHER THERE IS COMMERCIAL EXP EDIENCY OR NOT? AS STATED EARLIER THE LD. COUNSEL FOR THE ASS ESSEE COULD NOT EXPLAIN ANY COMMERCIAL EXPEDIENCY IN GIVING HUG E ADVANCES OF RS. 44 LAKHS TO JAY ESS EXPORTS (SUPRA) THOUGH SOME PURCHASES WERE MADE FOR WHICH PAYMENTS HAVE BE EN MADE. AS FAR AS THE DECISION IN CASE OF MUNJAL SAL ES CORPORATION V CIT (SUPRA) IS CONCERNED, IN THAT CAS E HONBLE COURT WAS CONCERNED WITH DIFFERENT QUESTIONS WHICH BECOME CLEAR FROM PARA 8 AND 18 WHICH ARE AS UNDER: THE BASIC QUESTION WHICH ARISES FOR DETERMINATION IS : WHETHER SECTION 40(B) OF THE 1961 ACT IS STAND ALONE SECTION OR WHE THER IT OPERATES AS A LIMITATION TO THE DEDUCTION UNDER SECTIONS 30 TO 38 OF THE 1961 ACT ? BEFORE CONCLUDING, WE MAY MENTION THAT THE IMPORTAN CE OF THE JUDGMENT IS THE CLARIFICATION WHICH WE WERE REQUIRED TO GIVE IN THE CONTEXT OF DEDUCTION UNDER SECTIONS 30 TO 38 TO BE READ WITH T HE LIMITATION PRESCRIBED UNDER SECTION 40. SINCE THERE WAS SOME C ONFUSION WITH REGARD TO THE STATUS OF SECTION 40, PARTICULARLY , AFTER THE ENACTMENT OF THE FINANCE ACT, 1992, WE HAVE EXPLAINED THE LAW IN THE CONTEXT OF DEDUCTIONS UNDER CHAPTER IV-D OF THE 1961 ACT. WE H AVE ACCEPTED THE SUBMISSIONS ADVANCED BY THE LEARNED ADDITIONAL SOLI CITOR GENERAL IN THAT REGARD. HOWEVER, THE ASSESSEE SUCCEEDS IN THIS BATC H OF CIVIL APPEALS ON THE PECULIAR FACTS OF THIS CASE. THE QUESTION WAS WHETHER ANY LIMITATION COULD BE RA ISED FOR ALLOWING OF AN EXPENDITURE IN SEC 30 TO 38 IN TERMS OF SEC 40 WHICH DEALS WITH REMUNERATION PAID TO THE PARTNERS ETC. THEREFORE THIS DECISION IS OF NO HELP TO THE ASSESS EE. AS FAR AS THE DECISION OF HON'BLE RAJASTHAN HIGH COURT IN CAS E OF CIT V JUGAL KI9SHORE (SUPRA) IS CONCERNED THAT HIGH COURT HAS TAKEN A DIFFERENT VIEW FROM THE VIEW TAKEN BY HON'BLE HIG H COURT OF PUNJAB & HARYANA IN CASE OF ABHISHEK INDUSTRIES (S UPRA). THE 6 HON'BLE JURISDICTIONAL HIGH COURT IN CASE OF ABHISH EK INDUSTRIES (SUPRA) HAD CLEARLY OBSERVED IN PARA 12 THAT IF A BUSINESSMAN HAD SURPLUS CAPITAL THEN THERE WERE NO NEED TO BORROW ANY MONEY. THERE AFTER HIGH COURT MADE DETA ILED DISCUSSION AND ULTIMATELY HELD THAT PROPORTIONATE INTEREST GIVEN FOR INTEREST FREE ADVANCES FOR WHICH THERE IS NOT COMMERCIAL EXPEDIENCY THEN SUCH INTEREST IS TO BE D ISALLOWED. IT IS SETTLED POSITION OF LAW THAT LOWER COURTS ARE BOUND TO FOLLOW THE DECISION OF HIGHER COURTS AND IN CASE OF HIGH COURT ANY PRECEDENT WHICH IS GIVEN IS BINDING ON THE LOWE R COURTS WITHIN THE JURISDICTION OF SUCH HIGH COURTS. CHAND IGARH BENCH OF THE TRIBUNAL BEING WITHIN THE JURISDICTION OF HO N'BLE HIGH COURT OF PUNJAB & HARYANA AND THEREFORE WE ARE BOUN D TO FOLLOW THE DECISION OF HON'BLE HIGH COURT OF PUNJAB & HARYANA IN CASE OF ABHISHEK INDUSTRIES (SUPRA). THEREFORE IN OUR OPINION, THE LD. CIT(A) HAS CORRECTLY DECIDED THE I SSUE AND WE CONFIRM HIS ORDER. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 24.7.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 24.7.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR 7