M/s. M. Plast (India) Ltd., Delhi V. ACIT, New Delhi

ITA 5161/DEL/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6670 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 14-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR KEDIA ADD
• Assessee Lawyers: S R WADHWA
• Keywords: Capital asset

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D NEW DELHI) BEFORE SHRI I.C. SUDHIR AND SHRI L.P. SAHU ITA NO. 5161/DEL/2015 ASSESSMENT YEAR: 2011-12 M. PLAST (INDIA) LTD., VS. ACIT, A-19, BATHLA APARTMENTS, CIRCLE-5(1), 43-IP EXTENSION, NEW DELHI. DELHI (PAN: AAACM6521D) (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI S.R. WADHWA, ADV. DEPARTMENT BY: SHRI RAJESH KUMAR KEDIA, ADD. CIT DATE OF HEARING : 29 .02.2016 DATE OF PRONOUNCEMENT: 29 :02.2016 ORDER PER I.C. SUDHIR: JUDICIAL MEMBER THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER ON SEVERAL GROUNDS INVOLVING THE SOLE ISSUE AS TO WHETHER THE LEARNED CIT(APPEALS) WAS JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF INTEREST OF RS.41,65,686 UNDER SEC. 36(1)(III) OF THE INCOME-TAX ACT, 1961. 2. HEARD AND CONSIDERED THE ARGUMENTS ADVANCED BY THE PARTIES IN VIEW OF ORDERS OF THE AUTHORITIES BELOW, MATERIAL AVAILABLE ON RECORD AND THE DECISIONS RELIED UPON. 2 3. THE RELEVANT FACTS ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PLASTIC, PROCESSING MACHINE AND ITS PARTS. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD PAID INTEREST TO THE BANKS ON SECURED LOANS BORROWED FOR BUSINESS PURPOSE BUT THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE REVEALED THAT THE ASSESSEE HAD PAID A SUM OF RS. 41,65.686 TO THE BANKS ON ACCOUNT OF INTEREST @ 15% PER ANNUM, WHEREAS ASSESSEE HAD PROVIDED ITS DIRECTOR INTEREST FREE ADVANCES. THE ASSESSING OFFICER ACCORDINGLY DISALLOWED RS.41,65,686 UNDER SEC. 36(1)(III) OF THE ACT, WHICH HAS BEEN UPHELD BY THE LEARNED CIT(APPEALS). 4. IN SUPPORT OF THE GROUNDS ON THE ISSUE, THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAD ITS OWN INTEREST FREE FUND AND A DETAILED SUBMISSION WAS MADE IN THIS REGARD BEFORE THE AUTHORITIES BELOW WHICH HAVE BEEN IGNORED BY THE AUTHORITIES BELOW WHILE UPHOLDING THE DISALLOWANCE IN QUESTION. IN THIS REGARD, HE REFERRED PAGE NO. 3.2.1 OF THE FIRST APPELLATE ORDER WHEREIN THE LEARNED CIT(APPEALS) HAS DISCUSSED THE SUBMISSION OF THE ASSESSEE THAT IT HAD NOT OBTAINED ANY LOAN OR CREDIT FACILITIES DURING THE YEAR. THE TOTAL SECURED LOANS OUTSTANDING AT THE BEGINNING OF THE YEAR I.E. AS ON 01.04.2010 OF RS.5,09,08,700 HAS BEEN REDUCED TO RS.2,75,17,405 AS ON 31.3.2011. THE ASSESSEES OWN FUND BEING PAID UP CAPITAL AND PRE-RESERVES WERE 3 RS.3,65,72,082 AS ON 01.04.2010 WHICH HAD BEEN INCREASED TO RS.7,72,68,670 AT THE END OF THE YEAR I.E. ON 31.3.2011. REITERATING THE CONTENTS OF THE SAME PARAGRAPH OF THE FIRST APPELLATE ORDER, THE LEARNED AR POINTED OUT FURTHER THAT THE IMMEDIATE SOURCE OF AMOUNT OF RS.1,80,00,000 GIVEN TO THE DIRECTOR SHRI R.P. SHUKLA AS LOAN ON 25.8.2010 AND 31.8.2010 WAS THE SALE PROCEEDS OF THE INVESTMENTS OF THE COMPANY BEING INDUSTRIAL PLOT IN GREATER NOIDA AND NOT THE BORROWED FUNDS. THE ASSESSEE COMPANY HAD NOT ACQUIRED ANY CAPITAL ASSETS/FIXED ASSETS DURING THE YEAR ENDING ON 31.3.2011 EXCEPT A MOBILE PHONE OF RS.8,250. HE CONTENDED THAT THE ASSESSING OFFICER WITHOUT ESTABLISHING ON RECORD ANY NEXUS BETWEEN BORROWED FUNDS AND SPECIFIC ADVANCE MADE TO ITS DIRECTOR BY THE ASSESSEE, HAS MADE THE DISALLOWANCE IN QUESTION, UPHELD BY THE LEARNED CIT(APPEALS). THE LEARNED AR ALSO REFERRED PAGE NOS. 33 TO 87 OF THE PAPER BOOK WHICH ARE COPIES OF STATUTORY AUDIT REPORT, TAX AUDIT REPORT, BALANCE SHEET AND PROFIT AND LOSS ACCOUNT WITH SCHEDULE; SANCTION LETTER OF CREDIT FACILITIES/TERM LOAN/CAR LOAN; LEDGER ACCOUNTS OF INTEREST PAYMENTS; LEDGER ACCOUNTS OF SHRI R.P. SHUKLA ALONG WITH RELEVANT PAGES OF BANK STATEMENT AND SALE DEED OF GR. NOIDA PLOT. 4 4.1 THE LEARNED AR SUBMITTED FURTHER THAT THE DECISION RELIED UPON BY THE LEARNED CIT(APPEALS) HAVING DISTINGUISHABLE FACTS ARE NOT HELPFUL TO THE REVENUE IN THE PRESENT CASE AS IN THOSE CASES BORROWED FUNDS WERE UTILIZED FOR PROVIDING INTEREST FREE LOANS FOR OTHER THAN BUSINESS PURPOSES. HE PLACED RELIANCE ON THE FOLLOWING DECISIONS: I) CIT VS. BHARTI TELEVENTURE LTD. (2011) 331 ITR 502 (DEL)- SLP PREFERRED BY THE REVENUE HAS BEEN DISMISSED ON 5.82011 REPORTED IN (2012) 204 TAXMAN 188 (MAG.); II) CIT VS. RELIANCE UTILITY & POWER LTD. (2009) 313 ITR 314 (BOM.); III) CIT VS. SOUTH INDIAN CORPN. (AGENCIES) LTD. (2007) 290 ITR 217 (MAD.). 5. THE LEARNED SENIOR DR ON THE OTHER HAND TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW. 6. HAVING GONE THROUGH THE DECISIONS RELIED UPON, WE FIND THAT THE HON'BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF CIT VS. BHARTI TELE-VENTURE LTD. (SUPRA) WHICH HAS NOW BEEN APPROVED BY THE HON'BLE SUPREME COURT (SUPRA) HAS BEEN PLEASED TO HOLD AS WHERE THE ASSESSEE WAS HAVING SUFFICIENT NON-INTEREST BEARING FUNDS BY WAY OF SHARE CAPITAL AND RESERVED AND THERE WAS NO NEXUS BETWEEN THE BORROWINGS OF THE ASSESSEE AND 5 ADVANCES MADE BY IT, NO DISALLOWANCE UNDER SEC. 36(1)(III) OF THE ACT WAS CALLED FOR . IN THE PRESENT CASE, THE ASSESSEE WAS HAVING SUFFICIENT NON- INTEREST BEARING FUNDS BEING SHAREHOLDER FUND (RS.3,65,72,082 AS ON 01.04.2010 AND RS.7,72,68,670 AS ON 31.3.2011) AND SINCE THE IMMEDIATE SOURCE OF THE LOAN TO THE DIRECTOR WAS SALE PROCEEDS OF THE INDUSTRIAL PLOT, IN OUR VIEW, THERE WAS NO NEXUS BETWEEN THE BORROWINGS OF THE ASSESSEE AND ADVANCES MADE TO THE DIRECTOR OUT OF THE INTEREST BEARING BORROWED FUNDS. IT IS ALSO UNDISPUTED FACT THAT ALL THE BORROWINGS WERE SANCTIONED IN EARLIER YEARS AND THE TOTAL SECURED LOAN OUTSTANDING AT THE END OF THE YEAR, HAS BEEN REDUCED TO RS.2,75,17,405 AS ON 31.3.2011 FROM RS.5,09,08,700 AS ON 01.04.2010, DURING THE YEAR, CLEARLY ESTABLISHES THAT ALL THE BORROWINGS FOR WHICH INTEREST/FINANCIAL CHARGES HAS BEEN PAID, WERE FOR THE BUSINESS PURPOSE ONLY. IN VIEW OF THE ABOVE MATERIAL FACTS AND RESPECTFULLY FOLLOWING THE RATIOS LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE ABOVE CITED DECISION IN THE CASE OF CIT VS. BHARTI TELE-VENTURE LTD.(SUPRA), WE HOLD THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN MAKING AND UPHOLDING THE DISALLOWANCE OF INTEREST OF RS.41,65,686 INVOKING THE PROVISIONS OF SEC. 36(1)(III) OF THE ACT. WE THUS WHILE SETTING ASIDE THE ORDERS OF THE AUTHORITIES BELOW IN THIS REGARD DIRECT THE ASSESSING OFFICER TO 6 DELETE THE ABOVE DISALLOWANCE IN QUESTION. THE GROUNDS INVOLVING THE ISSUE ARE THUS ALLOWED. 7. IN RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.02.2016 SD/- SD/- ( L.P. SAHU ) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29 /02/2016 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR DATE DRAFT DICTATED DIRECTLY ON COMPUTER 29.02.2016 DRAFT PLACED BEFORE AUTHOR 29.02.2016 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 29.02.2016 APPROVED DRAFT COMES TO THE SR.PS/PS 29.02.2016 KEPT FOR PRONOUNCEMENT ON 29.02.2016 FILE SENT TO THE BENCH CLERK 29.02.2016 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.