M/s. Rihim Pharma Consultancy Pvt. Ltd., Delhi V. ITO, New Delhi

ITA 5106/DEL/2014

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4115 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 3
• Next Hearing Date: 28-06-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 16-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJNA

Judgement Text

~ 1 ~ IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC - 3 , NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NO. 5106 /DEL/201 4 AY: 201 1 - 12 RIHIM PHARMA CONSULTANCY PVT.LTD. VS. ITO, WARD 15(3) 518 519, RING ROAD MALL NEW DELHI MANGALAM PLACE ROHINI, SECTOR 3 DELHI 110 085 PAN: AAECR 7581 C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PRAMOD JAIN, C.A. RESPONDENT BY : SH. P.DAMKANUNJNA, SR.D.R. O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - XVIII, NEW DELHI DATED 30.07.2014 PERTAINING TO THE ASSESSMENT YEAR (A.Y.) 201 1 - 12 ON THE FOLLOWING GROUNDS. 1. THE LD.AUTHORITIES IS BAD IN LAW AND AGAINST THE FACTS OF THE CASE. 2. THAT THE LD.AUTHORITIES ERRED IN MAKING DISALLOWANCE OF INTEREST EXPE NSE OF RS.4,29,678/ - . 3. THAT THE LD.AUTHORITIES ALSO ERRED IN NOT FOLLOWING VARIOUS JUDGEMENTS OF JURISDICTIONAL HIGH COURT AND ITAT. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, MODIFY OR DELETE ANY OF THE GROUNDS OF APPEAL. 2. THE FACTS OF THE CASE AS BROUGHT OUT BY THE ASSESSING OFFICER (A.O.) AT PARA 1 PAGE 2 OF HIS ORDER ARE EXTRACTED FOR READY REFERENCE. ~ 2 ~ THE ASSESSEE COMPANY WAS INCORPORATED DURING THE YEAR UNDER CONSIDERATION DURING THE YEAR, THE ASSESSEE COMPANY PURCHASED TWO BUSINESSES I.E. M/S RIHIM PHARMA AND M/S R P PHARMA CONSULTANCY FROM MS. RATNA THOSANI AND MR. NILESH THOSANI RESPECTIVELY ON 01.07.2010. ALL THE ASSETS AND LIABILITIES AS ON 01.07.2010 WERE TAKEN OVER BY THE ASSESSEE COMPANY WHICH RESULTS INTO AMOUNT RECEIVABLE FRO M MR. NILESH THOSANI RS. 26,68,771.67 AND FROM MRS. RATNA THOSANI RS. 37,77,235.91. NO INTEREST WAS CHARGED ON THESE OUTSTANDING AMOUNTS. HOWEVER, DURING THE YEAR UNDER CONSIDERATION ASSESSEE COMPANY HAS CLAIMED INTEREST EXPENSES OF RS. 5,61,264/ - . THE ASS ESSEE COMPANY HAS INCURRED THESE EXPENSES ON LOANS LIABILITIES TAKEN OVER BY THE ASSESSEE COMPANY BY PURCHASES OF BUSINESSES. THE ASSESSEE COMPANY WAS REQUIRED TO EXPLAIN THAT WHY IN THESE CIRCUMSTANCES INTEREST EXPENSES OF RS. 5,61,264/ - SHOULD NOT BE DIS ALLOWED. IN RESPONSE TO THIS, THE AR OF THE ASSESSEE COMPANY VIDE LETTER DATED 26.11.2013 STATED THAT THE AMOUNT RECEIVABLE FOR PURCHASE OF THE BUSINESSES HAS BEEN DISCLOSED UNDER LOANS AND ADVANCES AND NO TRANSACTION OF LOAN AND ADVANCE HAS BEEN DONE WITH THEM. THE CONTENTION OF THE ASSESSEE COMPANY WAS CONSIDERED AND NOT FOUND SATISFACTORY. SINCE ASSESSEE COMPANY HAS PAID INTEREST ON LOANS LIABILITY TAKEN OVER BY THE ASSESSEE COMPANY BY PURCHASES OF BUSINESSES AND ON ACCOUNT OF PURCHASE OF THE SAID BUSINE SSES ASSESSEE HAS TO RECEIVE A CONSIDERABLE AMOUNT FROM MR. NILESH THOSANI AND MRS. RATNA THOSANI ON WHICH NO INTEREST WAS CHARGED. IN THESE CIRCUMSTANCES, INTEREST EXPENSES OF RS. 5,61,264/ - CLAIMED BY ASSESSEE COMPANY IS HEREBY DISALLOWED AND ADDED TO DE CLARED INCOME OF THE ASSESSEE COMPANY. 3. ON APPEAL THE FIRST APPELLATE AUTHORITY UPHELD THE ORDER OF THE A.O. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE ME. 4. I HAVE HEARD RIVAL CONTENTIONS. THE INTEREST EXPENDITURE DISALLOWED BY THE A.O. ARE (A) INT EREST PAID ON CAR LOAN RS.1,31,586/ - AND (B) INTEREST PAID ON BANK OVERDRAFT OF RS.4,29,678/ - . THE FIRST APPELLATE AUTHORITY HAS RESTRICTED THE DISALLOWANCE TO THE INTEREST PAID ON BANK OVERDRAFT. 5. THE ASSESSEE COMPANY HAD PURCHASED THE BUSINESS OF ONE M/S RIHIM PHARMA FROM MS.RATNA THOSANIAD OTHER M/S R.R.PHARMA CONSULTANCY FROM MR.NILESH THOSANI ON 1 ST JULY, 2010. IT HAD TAKEN OVER ALL THE ASSETS AND LIABILITIES OF THE SAID BUSINESS. THIS HAS RESULTED IN AN AMOUNT RECEIVABLE FROM MR.NILESH THOSANI OF RS.15,81,586.42 AND MRS.RATNA THOSANI OF RS.33,02,662.27. THESE AMOUNTS ARE THE BALANCES RECEIVABLE ON PURCHASE ~ 3 ~ OF BUSINESS FROM THESE TWO PERSONS. NO FUNDS OF THE COMPANY WERE DIVER T E D . THE OUTSTANDING FROM THESE TWO PERSONS WERE CONSEQUENT TO A BU SINESS TRANSFER AGREEMENT. NON CHARGING OF INTEREST ON THESE BALANCES ARE A MATTER OF AGREEMENT BETWEEN THE PARTIES. THE INTEREST PAYABLE ON BANK OVERDRAFT CANNOT BE DISALLOWED ON THE GROUND THAT NO INTEREST HAS BEEN CHARGED ON THESE TWO ACCOUNTS FOR THE REASON THAT THE BORROWINGS MADE FROM THE BANK ARE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. INDO KOPP LTD. (2008) 1 67 TAXMAN 172 (DEL) HELD THAT JUST BECAUSE THE ASSESSEE HAS NOT CHARGED INTEREST F ROM ITS TRADE DEBTORS DID NOT MEAN THAT INTEREST PAID BY THE ASSESSEE TO ITS TRADE CREDITORS SHOULD NOT BE ALLOWED AS A DEDUCTION, SPECIALLY WHEN THERE IS NO DISPUTE ABOUT THE GENUINENESS OF THE PAYMENTS MADE BY THE ASSESSEE. 6. APPLYING THE PROPOSITIONS LAID DOWN IN THE ABOVE CASE TO THE FACTS OF THE CASE ON HAND, AND AS THE OVERDRAFT FROM THE BANK WAS TAKEN TO MEET THE WORKING CAPITAL REQUIREMENTS OF THE BUSINESS OF THE ASSESSEE AND AS THERE IS NO DIVERSION OF INTEREST BEARING FUNDS WHATSOEVER FOR ADVAN CING INTEREST FREE LOANS, I A M OF THE CONSIDERED OPINION THAT THE DEDUCTION IN QUESTION ON INTEREST EXPENSE OF RS.4,29,678/ - HAS TO BE ALLOWED. I DIRECT ACCORDINGLY. 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN C OURT ON 1 0 T H A UGUST, 2016 . S D / - (J. SUDHAKAR REDDY) ACCOUNTANT MEMBER DATED: THE 1 0 T H AUGUST, 2016 M ANGA ~ 4 ~ COPY FORWARDED TO: - 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR, ITAT - TRUE COPY - BY ORDER, ASSISTANT REGISTRAR