M/s Vishal Cycle (P) Ltd., Ludhiana V. DCIT, Chandigarh

ITA 488/CHANDI/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9955 (ITAT-CHANDIGARH)
• Duration Of Justice: 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 04-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: K J SHALLY

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO. 488/CHD/2016 ASSESSMENT YEAR: 2006-07 M/S VISHAL CYCLES P.LTD., VS THE DCIT, E-113, PHASE-IV, CIRCLE-I, FOCAL POINT, CHANDIGARH. LUDHIANA. PAN: AAACV5453H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.J.SHALLY RESPONDENT BY : SHRI S.K.MITTAL DATE OF HEARING : 26.05.2016 DATE OF PRONOUNCEMENT : 01.06.2016 O R D E R THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST T HE ORDER OF LD. CIT(APPEALS)-I, LUDHIANA DATED 25.02.2 016 FOR ASSESSMENT YEAR 2006-07, CHALLENGING THE DISALLOWAN CE OF INTEREST AMOUNTING TO RS. 5,63,250/- UNDER SECTION 36(1)(III) OF THE INCOME TAX ACT. 2. I HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT ASSESSEE DERIVES INCOME FROM MANUFACTURING OF CYCLE PARTS. IT WAS N OTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION ON ACCOUNT OF INTEREST PAID ON SECURED AND UNSECURED LOANS AT RS. 23,89,132/-. AS PER DETAILS FURNISHED DURING THE C OURSE OF 2 ASSESSMENT PROCEEDINGS, INTEREST PAID ON UNSECURED LOANS CALCULATED AT RS. 5,66,507/- @ 15% PER ANNUM TO PER SONS SPECIFIED UNDER SECTION 40A(2)(B) OF THE ACT AT RS. 4,76,182/- AND TO OTHERS AT RS. 90,325/-, WHILE BAL ANCE OF RS. 18.22.625/- IS CLAIMED TO HAVE BEEN PAID ON SEC URED LOANS. PERUSAL OF ANNEXURE-G FOR INVESTMENTS IN SE CURITIES AND ANNEXURE-J FOR LOANS AND ADVANCES TO THE BALANC E SHEET ALSO REVEALED AS FOLLOWS : SR.NO, DETAILS OF INVESTMENT & SECURITIES AS PER ANNEXURE G SR. NO. DETAIL OF LOANS &. ADVANCES AS PER ANNEXURE-J (I) SHARES OF VISHAL CONCAST LTD. 1,00,000/- (I) KJ.SHALLY 1,00,000/- (II) SHARES OF ARISUDANA SPG. MILLS 25,000/- (JI) KRISHAN KUMAR PATHAK 30,000/- (III) SHARES OF PRIME MOLD POST (P) 15,00,000/- (III) VISHAL BUILDERS 20,00,000/- TOTAL 16,25,000/- TOTAL 21,30,000/- 4. THE TOTAL OF THE ABOVE INVESTMENTS AND SECURITIE S AND LOANS AND ADVANCES CALCULATED AT RS. 37,55,000/- ( RS. 16,25,000/- + RS. 21,30,000/-). THE LOANS AND ADVA NCES OF RS. 21.30 LACS HAVE BEEN MADE INTEREST FREE WHILE INVESTMENTS AND SECURITIES MADE FOR THE PURPOSE OF SHARES ON WHICH NO TAXABLE INCOME IS EARNED BUT ONLY DIVID END WHENEVER DECLARED AND DISTRIBUTED WHICH TOO IS EXEM PT. BOTH THE ABOVE TRANSACTIONS HAVE BEEN MADE FOR NON- BUSINESS PURPOSES. THE ASSESSING OFFICER, THEREFOR E, PROPOSED TO DISALLOW RS. 5,63,250/- FOR MAKING INTE REST FREE INVESTMENTS AND GIVING LOAN AND ADVANCES FOR N ON- BUSINESS PURPOSES. THE ASSESSEE CLAIMED BEFORE ASS ESSING OFFICER THAT SUCH INVESTMENTS, SECURITIES AND LOANS & ADVANCES HAVE NOT BEEN MADE OUT OF INTEREST BEARING 3 BORROWED CAPITAL BUT OUT OF ITS OWN FUNDS. THE ASS ESSING OFFICER DID NOT ACCEPT CONTENTION OF THE ASSESSEE B ECAUSE THERE WAS NO JUSTIFICATION IN RAISING INTEREST BEAR ING BORROWED CAPITAL, PARTICULARLY WHEN ASSESSEE HAD IT S OWN FUNDS TO ADVANCE INTEREST FOR NON-BUSINESS PURPOSES . THE ASSESSING OFFICER, THEREFORE, DISALLOWED RS. 5,63,2 50/-. 5. THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEF ORE ASSESSING OFFICER AND SUBMITTED BEFORE LD. CIT(APPE ALS) THAT IT HAS SUFFICIENT INTEREST FREE FUNDS AND THAT INTEREST BEARING FUNDS HAVE NOT BEEN USED FOR NON BUSINESS PURPOSES. FURTHER, THE LOANS AND ADVANCES HAVE BEE N GIVEN FOR BUSINESS PURPOSES. THE ASSESSING OFFICER MADE DISALLOWANCE FOR WHOLE OF THE YEAR IGNORING LOANS A ND ADVANCES AND INVESTMENTS HAVE BEEN MADE ONLY IN PAR T OF THE YEAR. THEREFORE, CALCULATION OF DISALLOWANCE W OULD ALSO BE INCORRECT. ASSESSEE RELIED UPON SEVERAL DECISION S IN SUPPORT OF ITS CONTENTION BUT LD. CIT(APPEALS) DID NOT ACCEPT THE SAME AND DISMISSED THE APPEAL OF THE ASS ESSEE ON THIS GROUND. 6. AFTER CONSIDERING RIVAL SUBMISSIONS, I DO NOT FI ND ANY JUSTIFICATION TO SUSTAIN THE ADDITION. COPY OF THE BALANCE SHEET IS FILED AT PAGE 17 OF THE PAPER BOOK WHICH R EVEALED THAT ASSESSEE COMPANY HAS AVAILABILITY OF RS. 50,47 ,000/- ON ACCOUNT OF ISSUED SUBSCRIBED AND PAID UP CAPITA L. RS. 44,45,622.19 IS RESERVES & SURPLUS. RS. 94,11,733 /- IS AVAILABLE TO THE ASSESSEE ON ACCOUNT OF UNSECURED L OANS. THIS WOULD MEAN THAT ASSESSEE HAS AVAILABILITY OF I NTEREST 4 FREE LOANS AND ADVANCES ETC. FOR MORE THAN THE AMOU NT OF RS. 37,55,000/- STATED TO HAVE BEEN GIVEN AS LOAN A ND ADVANCES AND INVESTMENTS MADE IN SECURITIES. NO EV IDENCE HAS BEEN BROUGHT ON RECORD IF ASSESSEE HAS DIVERTED THE INTEREST BEARING FUNDS FOR NON-BUSINESS PURPOSES. FURTHER, NO EVIDENCE HAS BEEN BROUGHT ON RECORD IF THE BORROWED FUNDS HAVE BEEN USED FOR THE PURPOSE OF GI VING LOANS AND ADVANCES AND INVESTMENT IN SECURITIES. H ON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS KAPSONS ASSOCIATES 381 ITR 204 HELD AS UNDER : HELD, DISMISSING THE APPEAL, (I) THAT THE ASSESSEE HAD INTEREST-FREE ADVANCES FROM ITS DIRECTORS AND SHAREHOLDERS AND TH E MEMBERS OF THEIR FAMILIES AMOUNTING TO RS. 315.11 LAKHS AS AGAINST T HE INTEREST-FREE ADVANCES MADE BY THE ASSESSEE AGGREGATING TO RS. 2 19.72 LAKHS AS ON MARCH 31, 2008. THEREFORE, IT WAS RIGHTLY INFERRED THAT THE ASSESSEE HAD ENOUGH INTEREST-FREE FUNDS WHICH WOULD COVER THE IN TEREST-FREE ADVANCES AND NO PORTION OF THE INTEREST PAID ON BORROWED FUN DS COULD BE DISALLOWED. 7. SINCE THE ASSESSEE HAD INTEREST FREE ADVANCES AS NOTED ABOVE, WHICH ARE MORE THAN THE AMOUNT GIVEN AS INTE REST FREE ADVANCES, AS STATED BY THE ASSESSING OFFICER, THEREFORE, IT SHOULD BE INFERRED THAT THE ASSESSEE HAD ENOUGH INTEREST FREE FUNDS WHICH WOULD COVER THE IN TEREST FREE ADVANCES AND NO PORTION OF THE INTEREST PAID O N THE BORROWED FUNDS COULD BE DISALLOWED. THE LD. COUNSE L FOR THE ASSESSEE APART FROM ABOVE, HAS ALSO DEMONSTRATE D BEFORE ME THAT CALCULATION OF INTEREST ON ADVANCES IS ALSO INCORRECT BECAUSE THE ADVANCES HAVE BEEN GIVEN IN P ART OF 5 THE YEAR I.E. IN CASE OF KRISHAN KUMAR PATHAK - LOAN/ADVANCE IS GIVEN ON 23.08.2005, SHRI K.J.SHALL Y ON 28.11.2005 AND M/S VISHAL BUILDERS 27.01.2006. H E HAS, THEREFORE, SUBMITTED THAT 15% INTEREST FROM THE DAT E OF ADVANCE OF THE LOAN WOULD COME TO RS. 61,287/-. SI MILARLY, INTEREST ON INVESTMENTS MADE ON THE AMOUNT OF RS. 16,25,000/- IN RESPECT OF THREE PARTIES WOULD COME TO RS. 1,26,627/-. THE DETAILS ARE FILED AT PAGE 20-21 OF THE PAPER BOOK. THESE FACTS CLEARLY REVEALED THAT EVEN THE DISALLOWANCE OF RS. 5,63,250/- IS WHOLLY UNJUSTIFIE D. HOWEVER, CONSIDERING THE FACT THAT DISALLOWANCE UND ER SECTION 36(1)(III) OF THE ACT ITSELF IS UNJUSTIFIED , AS DISCUSSED ABOVE. THEREFORE, THERE IS NO JUSTIFICATI ON TO MAKE ANY ADDITION AGAINST THE ASSESSEE. I, ACCORDI NGLY, SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DELETE TH E ADDITION OF RS. 5,63,250/-. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATED: 1 ST JUNE,2016. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH