Shreeji Fibre Pvt.Ltd., Vadodara V. The ACIT, Circle-2(1)(1), Baroda

ITA 515/AHD/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0952 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 10-06-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 02-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA.NO.515/AHD/2016 / ASSTT. YEAR: 2012-2013 SHREEJI FIBRE P.LTD. 10, BADSHANAGAR SOCIETY AKOTA, VADODARA 390 023. VS ACIT, CIR.2(1)(1) BARODA. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI TUSHAR HEMANI, AR REVENUE BY : SHRI SANJAY KUMAR, SR.DR / DATE OF HEARING : 10/06/2016 / DATE OF PRONOUNCEMENT: 04/08/2016 $%/ O R D E R ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST T HE ORDER OF THE LD.CIT(A)-2, VADODARA DATED 11.1.2016 FOR THE ASSTT .YEAR 2012-13. 2. SOLE GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CI T(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.38,17,633/-. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF GINNING AND MILLING ACTIVITIES. IT HAS FILED ITS R ETURN OF INCOME ON 19.9.2012 DECLARING TOTAL LOSS AT RS.99,33,822/-. THE LD.AO HAS REJECTED BOOK RESULTS OF THE ASSESSEE AND DETERMINED TAXABLE INCOME AT RS.2, 32,780/-. THE LD.AO HAS ADOPTED NET PROFIT RATE AT 0.695% OF THE GROSS TURN OVER AND WORKED OUT NET PROFIT AT RS.1,96,037/-. 4. ON APPEAL, THELD.CIT(A) DID NOT FIND FORCE IN TH E ARGUMENTS OF THE AO THAT BOOKS OF ACCOUNTS DESERVE TO BE REJECTED ON TH E BASIS OF THE REASONS ITA NO.515/AHD/2016 2 ASSIGNED BY THE AO. BUT, LD.CIT(A) HAS IMPLIEDLY AC CEPTED THE REJECTION OF THE BOOKS QUA THE INCREASE IN FINANCIAL COST. 5. BEFORE ADVERTING TO THE ARGUMENTS OF THE LD.REPR ESENTATIVES, I WOULD LIKE TO TAKE NOTE OF THE FINDING EXTRACTED FROM THE LD.CIT(A). IT READS AS UNDER: 4.1. NOW ONLY ISSUE WHICH WAS BASIS FOR REJECTION OF BOOKS OF LEFT FOR CONSIDERATION IS INCREASE IN FINANCE COST. THE ASSE SSING OFFICER HAS DISCUSSED THAT THE APPELLANT HAS ADVANCED A SUM OF RS.2,30,50,000/- TO M/S. SHREEJI KRUPA SPINNERS BEING SISTER CONCERN ON ACCOUNT OF ADVANCE FOR PURCHASE OF MACHINERY. HOWEVER, NO MACH INERY WAS PURCHASED AS THE ADVANCE WAS SHOWN AS RECEIVABLE EV EN AS ON 31.03.2014. ON EXAMINATION OF THE DETAILED FURNISHE D, I FIND THAT THE APPELLANT HAS ADVANCED RS.42,50,000/- ON 28.04.2011 FROM THE CASH CREDIT ACCOUNT WITH CENTRAL BANK OF INDIA AND BEFOR E THE CLEARING OF CHEQUE, THERE WAS NEGATIVE BALANCE IN THIS ACCOUNT MORE THAN RS.1.51 CRORES. FURTHER, A SUM OF RS. 1,38,00,000/- WAS ADV ANCED FROM THE SAME C.C. ACCOUNT ON 05.05.2011 AND IMMEDIATELY PRI OR TO CLEARING OF THIS CHEQUE, THERE WAS NEGATIVE BALANCE OF RS.1.47 CRORES. THE LAST AMOUNT OF RS.115 LAKHS WAS GIVEN ON 26.06.2011 WHEN THERE WAS ALREADY NEGATIVE BALANCE IN THE CASH CREDIT ACCOUNT AT RS.3.75 CRORES. THUS IT WAS CLEARLY ESTABLISHED THE APPELLANT HAD U TILIZED INTEREST BEARING FUNDS FROM THE CASH CREDIT ACCOUNT FOR MAKI NG ADVANCES TO M/S. SHREEJI KRUPA SPINNERS. THE LD. AUTHORIZED REP RESENTATIVE HAS WORKED OUT INTEREST ON CASH CREDIT ACCOUNT ATTRIBUT ABLE TO THE ADVANCE GIVEN TO M/S. SHREEJI KRUPA SPINNERS AT RS.38,17,63 3/-. 4.1.1. ON FURTHER VERIFICATION, IT WAS FOUND THAT M /S. SHREEJI KRUPA SPINNERS WAS SERVED A STAY ORDER ON 01.08.2011 BY D RT, MUMBAI WITH THE DIRECTION NOT TO SELL ANY MOVABLE OR IMMOVABLE ASSETS TO THIRD PARTY. THUS, THERE WAS NO POSSIBILITY OF BUYING ANY ASSETS FROM M/S. SHREEJI KRUPA SPINNERS. THE APPELLANT HAS NOT FURNI SHED ANY PROOF OF HAVING PURCHASED PLANT & MACHINERY FROM M/S. SHREEJ I KRUPA SPINNERS. EVEN IF THE ADVANCE WAS GIVEN FOR PURCHAS E OF MACHINERY OUT OF BORROWED FUND, THE INTEREST IS REQUIRED TO BE CA PITALIZED WITH THE COST OF ASSETS. HOWEVER, IT APPEARS THAT THE APPELLANT H AS FINANCIALLY ASSISTED ITS SISTER CONCERN WHICH WAS IN DISTRESS A ND HENCE THE TRANSACTION OF ADVANCING MONEY TO SISTER CONCERN CA NNOT BE CONSIDERED AS BUSINESS PURPOSE. ACCORDINGLY, I HOLD THAT INTER EST ON BORROWED ITA NO.515/AHD/2016 3 FUNDS WITHDRAWN FROM THE CASH CREDIT ACCOUNT AND UT ILIZED FOR GIVING ADVANCE TO THE SISTER CONCERN WAS NOT INCURRED WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND HENCE THE DISALLOWA NCE OF RS.38,17,633/- IS CALLED FOR. ACCORDINGLY, AN ADDIT ION OF RS.38,17,633/- IS CONFIRMED ON THE ABOVE SPECIFIC GROUND. THEREFOR E, THE ASSESSING OFFICER IS DIRECTED TO MAKE ADDITION OF RS.38,17,63 3/- TO THE RETURNED INCOME INSTEAD OF APPLYING NET PROFIT RATE. SINCE T HE ADVANCES WERE OUTSTANDING EVEN AS ON 31.03.2014, THE ASSESSING OF FICER MAY TAKE APPROPRIATE ACTION IN SUBSEQUENT YEARS ALSO FOR DIS ALLOWING OF INTEREST ON THIS ACCOUNT. 6. THE LD.COUNSEL FOR THE ASSESSEE, WHILE IMPUGNING THE ORDER OF THE LD.CIT(A) CONTENDED THAT AS PER SUB-SECTION (4) OF SECTION 250, THE LD.COMMISSIONER MAY MAKE ANY FURTHER INQUIRY AS HE THINKS FIT, BUT SUCH INQUIRY SHOULD BE MADE AFTER GIVING A NOTICE TO THE ASSESSEE. THE LD.CIT(A) HAS NOT GIVEN ANY SHOW CAUSE NOTICE FOR MAKING DISA LLOWANCE OF RS.38,17,633/-. ON THE OTHER HAND, THE LD.DR RELIE D UPON THE ORDER OF THE LD.CIT(A). 7. I HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GON E THROUGH THE RECORD CAREFULLY. A PERUSAL OF THE ASSESSMENT ORDER WOULD REVEAL THAT THE AO HAS NOT CONSIDERED INCREASE IN FINANCIAL COST AS A POINT TO DOUBT THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THIS ISSUE HAS BEEN CONSIDERED FO R THE FIRST TIME BY THE LD.CIT(A). BUT THE LD.CIT(A) HAS NOT ISSUED ANY SH OW CAUSE NOTICE TO THE ASSESSEE BEFORE DELIBERATING ON THIS ASPECT. IT IS PERTINENT TO MENTION THAT THE BOOKS OF ACCOUNTS CAN ONLY BE REJECTED IF IT IS DEM ONSTRATED THAT IT IS DIFFICULT FOR THE AO TO DEDUCE TRUE INCOME FROM THE ACCOUNTS. THERE SHOULD BE A DISALLOWANCE OUT OF FINANCIAL COST, IF THE ASSESSEE HAS USED INTEREST BEARING FUNDS FOR NON-BUSINESS PURPOSE. BUT THAT CANNOT BE AN ISSUE WHICH WOULD AUTHORIZE THE LD.CIT(A) TO DOUBT THE BOOK RESULTS. WHERE IS HINDRANCE IN THE PASSAGE OF THE LD.CIT(A) TO COMPUTE THE TRUE INCOME OF THE ASSESSEE ? THIS ASPECT HAS BEEN CONSIDERED BY THE LD.CIT(A) WITH AN ANGLE THAT ONCE BOOK RESULTS ARE REJECTED, THEN THE LOSS CLAIMED BY THE ASSESSEE AT RS.99,33,822/- ITA NO.515/AHD/2016 4 WILL NOT BE AVAILABLE. OTHERWISE, EVEN AFTER MAKIN G ADDITION OF RS.38,17,633/- THE RESULTANT INCOME OF THE ASSESSEE WOULD BE IN NEGATIVE, BECAUSE IT WILL BE SET OFF AGAINST THE ALLEGED LOSS SHOWN BY THE ASSESSEE IN THE RETURN. CONSIDERING ALL THESE ASPECTS, I AM OF THE VIEW THAT LD.CIT(A) FAILED TO FOLLOW THE PROCEDURE, AND THEREFORE, HIS ORDER IS N OT SUSTAINABLE ON THIS ISSUE. APART FROM THE ABOVE, THE LD.COUNSEL FOR THE ASSESS EE HAS POINTED OUT THAT THE ASSESSEE HAS ONLY ONE BANK ACCOUNT, WHICH IS FOR TH E PURPOSE OF BUSINESS. IT HAS DEPOSITED ALL ITS SALE PROCEEDINGS IN THIS VERY ACCOUNT. SALES DURING THE YEAR UNDER CONSIDERATION WERE AGGREGATING TO RS.2,8 2,06,868/-. HE ALSO POINTED OUT THAT THE ASSESSEE HAS SUFFICIENT INTERE ST FREE FUNDS. THE DETAILS ARE PLACED ON PAGE NO.67 OF THE PAPER BOOK. THE ASSESS EE HAS SHOWN INTEREST FREE FUNDS OF RS.41,75,403/-. HAD AN OPPORTUNITY WAS GR ANTED TO THE ASSESSEE, IT COULD HAVE EXPLAINED ITS POSITION WITH REGARD TO TH E AVAILABILITY OF INTEREST FREE FUNDS AND THE SALE PROCEEDS DEPOSITED IN THIS ACCOU NT. THEREFORE, IN MY OPINION, THE ORDER OF THE LD.CIT(A) IS NOT SUSTAINA BLE. I ALLOW THE APPEAL OF THE ASSESSEE AND DELETE THE ADDITION OF RS.38,17,63 3/- MADE BY THE LD.CIT(A). THE ADDITION MADE BY THE AO AT RS.1,96,037/- WOULD ALSO BE DELETED, BECAUSE IT HAS NOT BEEN APPROVED BY THE LD.CIT(A), RATHER, THE LD.CIT(A) HAS CHANGED THE COLOUR OF FINDING RECORDED BY THE AO. IN OTHER WORDS, BOOKS OF ASSESSEE ARE TO BE ACCEPTED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE COURT ON 4 TH AUGUST, 2016 AT AHMEDABAD. SD/- (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 04/08/2016