K.S.R. & Co., Rajapalayam V. ACIT Virudhuangar Circle, Virudhunagar

ITA 503/CHNY/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 3291 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2015-2016
• Appeal Filed On: 28-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIDYA RAMACHANDRAN
• Assessee Lawyers: M. MUTHUSUBRAMANIAN
• Keywords: Depreciation; Set aside

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, C (SMC) BENCH : CHENNAI , . , [BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ] !' ./I.T.A. NOS.502 & 503/CHNY/2019. #$% &$ / ASSESSMENT YEARS : 2014-15 & 2015-2016 K S R & CO. D. NO.271, TENKASI ROAD, RAJAPALAYAM 626 117. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, VIRUDHUNAGAR CIRCLE, VIRDUHUNAGAR. [PAN AAAFK 8890J] ( / APPELLANT) ( /RESPONDENT) !' '( ) * / APPELLANT BY : SHRI. M. MUTHUSUBRAMANIAN, FCA +,'( ) * /RESPONDENT BY : MS. VIDYA RAMACHANDRAN, ADDL.CIT # - ) . /DATE OF HEARING : 10-10-2019 /0&% ) . /DATE OF PRONOUNCEMENT : 07-11-2019 / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER THESE ARE APPEALS FILED BY THE ASSESSEE DIRECTE D AGAINST DIFFERENT ORDERS OF THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS)-1, MADURAI (HEREINAFTER CALLED AS CIT(A) ) DATED 18.12.2018 FOR THE ASSESSMENT YEARS 2014-15 AND 2015-2016. ITA NOS502 & 503 /2019 :- 2 -: 2. SINCE, THE IDENTICAL FACTS AND ISSUES ARE INVOLVED IN THESE APPEALS, WE PROCEED TO DISPOSE THE SAME VIDE THIS C OMMON ORDER. 3. FOR THE SAKE OF CONVENIENCE AND CLARITY THE FACTS R ELEVANT TO THE APPEAL IN ITA NO.502/CHNY/2019 FOR ASSESSMENT YEAR 2014-15 ARE STATED HEREIN. 4. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOM E-TAX (APPEALS) IS CONTRARY TO THE LAW, FACTS AND PROBABI LITIES OF THE CASE. 2.1 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN CONFIRMING THE ADDITION MADE BY THE ASSISTANT COMMI SSIONER OF INCOME-TAX U/S 36(1)(III)OF THE INCOME-TAX ACT, 196 1 OF RS.2,79,247/-. 2.2THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THERE ARE ADEQUATE INTERESTS FREE FUNDS IN THE FORM OF PARTNERS CAPITAL TO THE TUNE OF RS. 1.2 3 CRORES. 2.3THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) FAILED TO APPRECIATE THE APPELLANTS CONTENTION THAT HAD THE ADVANCES BEEN NETTED OUT FROM THE PARTNERS CAPITAL THERE WOULD NO T HAVE BEEN ANY DISALLOWANCE U/S 36(1)(III) OF THE INCOME-TAX A CT, 1961. 2.4THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THAT THE APPELLANTS INTERNAL CASH GENERATIONS DURING THE CURRENT YEAR ITSELF AMOUNTED TO RS.39.01 LAKHS BEFORE PARTNERS REMUNERATION AND DEPRECIATION AND THAT THE CURRENT YEAR ACCRUALS IS MORE THAN THE AMOUNT OF IN TEREST FREE ADVANCE IN DISPUTE. ITA NOS502 & 503 /2019 :- 3 -: 3. ON THESE GROUNDS AND OTHER GROUNDS THAT MAY BE A DDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ADDITION OF RS.2,79,247/- MADE U/S 36(1)(III) OF THE INCOME-TAX ACT, 1961 MAY BE DELETED AND JUSTICE BE RENDERED. 5. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE APPELLANT -ASSESSEE NAMELY M/S. K.S.R. & CO IS A PARTNERSHIP FIRM CONSTITUTED UNDER THE PARTNERSHIP ACT. IT IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF PE TROL AND DIESEL THROUGH DEALERSHIP. THE RETURN OF INCOME FOR THE AY 2014-15 WAS FILED ON 30.11.2014 DISCLOSING TOTAL INCOME OF RS. 16,97, 630/-. AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY THE ASSESSING OFFICER VIDE ORDER DATED 14.12.2016 PASSED U/S. 14 3(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AT TOTAL INCOME OF RS. 20,89,630/-. WHILE DOING SO, THE AO MADE THE FOLLO WING ADDITIONS:- (I) ADDITION ON ACCOUNT OF DISALLOWANCE OF TRAVELLING EXPENSES FOR PERSONAL USE U/S.37. 36,605/- (II) ADDITION ON ACCOUNT OF DISALLOWANCE OF BUSINESS PROMOTION & MARKETING EXPENSES U/S.37 76,150/- (III) ADDITION ON ACCOUNT OF DISALLOWANCE OF INTEREST U/S.36(1) (III) 2,79,247/- 6. BEING AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A), CHALLENGIN G THE DISALLOWANCE OF ITA NOS502 & 503 /2019 :- 4 -: INTEREST U/S.36(1) (III) OF THE ACT. THE LD. CIT(A) WHO VIDE IMPUGNED ORDER CONFIRMED THE ACTION OF THE ASSESSING OFFICER . 7. BEING AGGRIEVED BY THE ORDER OF THE CIT(A), THE AS SESSEE IS IN APPEAL BEFORE US IN THE PRESENT APPEAL. THE LD. AUTHORISED REPRESENTATIVE CONTENDED THAT NO DISALLOWANCE U/S.3 6(1) (III) OF THE ACT SHOULD BE MADE, IN AS MUCH AS, INTEREST FREE L OANS TO THE SISTER CONCERN WAS GIVEN OUT OF OWN FUND PLACING RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE INDUSTRIES LTD, (2019) 410 ITR 466. 8. ON THE OTHER HAND, THE LD. SR. DEPARTMENTAL REPRESE NTATIVE PLACED RELIANCE ON THE ORDERS OF LOWER AUTHORITIES. 9. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. THE ONLY ISSUE IN THE PRESENT APPEAL RELAT ES TO DISALLOWANCE OF INTEREST U/S.36(1) (III) OF THE ACT OF H2,79,247 /- BY ALLEGING THAT ASSESSEE HAD DIVERTED INTEREST BEARING FUNDS TO T HE SISTER CONCERN. NOW THE LAW IS SETTLED TO THE EXTENT THAT IF THE O WN FUNDS I.E. SHARE CAPITAL AND RESERVES ARE MORE THAN THE FUNDS DIVER TED TO THE SISTER CONCERN, NO DISALLOWANCE OF INTEREST CAN BE MADE O N THE PRINCIPLE THAT PRESUMPTION SHOULD BE DRAWN THAT ITS OWN FUNDS ARE UTILIZED FOR THE PURPOSE OF MAKING ADVANCES TO SISTER CONCERNS. TH IS PRINCIPLE OF LAW ITA NOS502 & 503 /2019 :- 5 -: IS REITERATED BY THE HON'BLE SUPREME COURT IN THE CASE OF RELIANCE INDUSTRIES LTD (SUPRA). NOW, APPLYING THE ABOVE PR INCIPLE TO THE FACTS OF THE PRESENT CASE, FROM THE BALANCE SHEET, IT IS CLEAR THAT ASSESSEE HAD H123.31 LAKHS AS SHARE CAPITAL AGAINST SUM OF H34 LAKHS ADVANCED TO SISTER CONCERN. THEREFORE IN THE LIGHT OF PRINC IPLE ENUNCIATED BY HON'BLE SUPREME COURT IN THE CASE OF RELIANCE INDUS TRIES LTD (SUPRA), IT SHOULD BE PRESUMED THAT OWN FUNDS WERE UTILIZED FOR THE PURPOSE OF MONEY ADVANCED TO SISTER CONCERN AS AGAINST BORROWE D FUNDS, WE ARE FORFEITED IN TAKING THIS VIEW IN THE LIGHT OF THE FACTS THAT BORROWED FUNDS REPRESENTS WORKING CAPITAL LIMIT ENJOYED BY T HE ASSESSEE FROM THE BANK. IT CANNOT BE PRESUMED THAT WORKING CAPI TAL FUNDS WERE DIVERTED TO NON BUSINESS PURPOSE. THEREFORE NO DI SALLOWANCE OF INTEREST U/S.36(1) ( III) OF THE ACT IS WARRANTED I N THE FACTS OF THE PRESENT CASE. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND ALLOW THE APPEAL OF THE ASSESSEE. ITA NO.503/CHNY/2019, FOR A.Y 2015-16 10. SINCE, THE FACTS IN THE PRESENT APPEAL IS IDENTICAL TO THE FACTS IN ITA NO.502/CHNY/2019, FOR THE REASONS MENTIONED THEREIN, WE ALLOW THE APPEAL ON THE ABOVE LINES INDICATED IN A PPEAL ITA NO.502/CHNY/2019 SUPRA. HENCE, THE ABOVE CAPTIONED APPEAL FILED BY THE ASSESSEE IS ALLOWED. ITA NOS502 & 503 /2019 :- 6 -: 11. TO SUMMARIZE THE RESULT, THE APPEALS FILED BY THE ASSESSEE IN ITA NOS. 502 & 503/CHNY/2019 FOR ASSESSMENT YEAR S 2014-15 AND 2015-2016 ARE ALLOWED. ORDER PRONOUNCED ON 7TH DAY OF NOVEMBER, 2019, A T CHENNAI. SD/- SD/- ( . ! ) (DUVVURU RL REDDY) ' # /JUDICIAL MEMBER ( ) (INTURI RAMA RAO) /ACCOUNTANT MEMBER 1 #- / CHENNAI 2# / DATED:7TH NOVEMBER, 2019. KV 3 ) +.4 5' !6 5&. / COPY TO: 1 . !' '( / APPELLANT 3. 7. (!' ) / CIT(A) 5. 5 :; +.#< / DR 2. +,'( / RESPONDENT 4. 7. / CIT 6. ;$ =- / GF