ITO, New Delhi V. M/s Count Trade Links Pvt. Ltd., New Delhi

ITA 5500/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0395 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-02-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 06-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BANITA DEVI NAOREM
• Assessee Lawyers: MANOJ ANAND
• Keywords: Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO.5500/DEL/2010 ASSESSMENT YEAR : 2007-08 INCOME TAX OFFICER, WARD 3 (4), NEW DELHI. VS. M/S COUNT TRADE LINKS PVT. LTD., Z-45/3, OKHLA IND. AREA, PH. II, NEW DELHI. PAN : AAACC3157B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MANOJ ANAND, CA REVENUE BY : MS BANITA DEVI NAOREM, SR. DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DIRECT ED AGAINST THE ORDER OF THE CIT (A) DATED 6 TH SEPTEMBER, 2010 FOR ASSESSMENT YEAR 2007-08. GROUNDS OF APPEAL READ AS UNDER:- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF ` 25,64,771/- ON ACCOUNT OF INTEREST ON OVERDRAFT DEBITED TO P&L ACCOUNT, IGNORING THE FAT THAT SUCH EXPENSE WAS NOT INCURRED FOR BUSINESS PURPOSE. 2. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGH T TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND 9 S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2. THE ASSESSING OFFICER HAS DISALLOWED INTEREST PAID BY T HE ASSESSEE TO THE BANK ON THE OVERDRAFT FACILITY EXTENDED TO THE ITA NO.5500/DEL/2010 2 ASSESSEE. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS ADVANCED INTEREST FREE LOANS TO THE FOLLOWING PARTIES: - 1. M/S BLUELINE MERCANTILE PRIVATE LIMITED - ` 23,7 1,160/- 2. M/S NEW OLYMPUS AIR SERVICES - ` 5,00,000/- 3. M/S REAL TIME MARKETING PRIVATE LTD. - ` 85,00,00 0/- 2. THE ASSESSEE WAS REQUIRED TO SHOW CAUSE AS TO WHY THE IN TEREST PAID ON BANK OVERDRAFT SHOULD NOT BE DISALLOWED AS THE LOAN TAKEN WAS NOT FOR A BUSINESS NECESSITY AND THE ASSESSEE WAS HAVING SURPL US FUNDS WITH IT TO GIVE INTEREST FREE LOANS AND ADVANCES TO OTHER PERSONS. THE ASSESSEE SUBMITTED THAT BANK OVERDRAFT WAS TAKEN FOR BUSINESS NEED AND THAT INTEREST PAID ON THAT WAS FOR BUSINESS PUR POSES. ACCORDING TO THE ASSESSING OFFICER, THE NATURE OF BUSINE SS OF THE ASSESSEE DOES NOT ENTAIL ANY NEED FOR AVAILING OVERDRAFT FACILITY AND THE ASSESSEE HAS ALSO ADVANCED INTEREST FREE LOANS AND, THEREFO RE, HE DISALLOWED A SUM OF ` 25,64,771/- PAID BY THE ASSESSEE TO THE BANK ON OVERDRAFT FACILITIES. 3. IT IS THE CASE OF THE ASSESSEE THAT OVERDRAFT FACILITY HAS BEEN OBTAINED BY THE ASSESSEE FROM VIJAYA BANK, DEFENCE COLO NY BRANCH, NEW DELHI, FOR THE PURPOSES OF WORKING CAPITAL REQUIR EMENTS ON WHICH THE ASSESSEE HAS PAID INTEREST OF ` 25,64,771/-. THE AMO UNT DRAWN BY THE ASSESSEE AS OVERDRAFT FROM THE BANK WAS UTILIZED TO R UN THE BUSINESS OF THE ASSESSEE. THE AMOUNTS ADVANCED TO THE PART IES MENTIONED ABOVE WERE FOR THE BUSINESS REQUIREMENT. 4. BEFORE CIT (A), IT WAS EXPLAINED THAT THE ASSESSEE IS WORKING AS FRANCHISEE OF BACARDI MARTINI INDIA LIMITED AND RADI CO KHAITAN LIMITED. DUE TO EXCISE RESTRICTIONS, THE SALE COULD NOT BE DONE IN THEIR NAME OTHERWISE DEBTORS ALTHOUGH ON PAPERS MAY BE BELONGING TO FRANCHISER BUT IN FACT ARE CONTROLLED BY ASSESSEE ONLY. SIMILARLY, STOCK ALTHOUGH ON ITA NO.5500/DEL/2010 3 PAPERS MAY BE OF FRANCHISER, BUT, IN FACT, IS CONTROLL ED BY THE ASSESSEE ONLY. IN OTHER WORDS, THE FRANCHISER IN CONSEQUENCE O F HIS OWN ONLY PAPER INVESTMENT IN DEBTORS AND STOCK ASKS THE ASSESSEE TO PAY AGAINST IT AND IT IS PAID BY THE ASSESSEE TO FRANCHISER IN THE FORM OF LOAN/TRADE ADVANCE, ETC. TO THEM EITHER DIRECTLY OR THROUGH THE OTHER GROUP COMPANIES. THE ADVANCE OBTAINED FROM THE BANK WAS ABSOLUTE BUSINESS NECESSITY. THE BANK WOULD NOT HAVE SANCTIONED T HE WORKING CAPITAL REQUIREMENT IN THE ABSENCE OF ANY SUCH ACTIVI TY. SUCH BUSINESS EXPENDITURE HAS BEEN DULY ACCEPTED BY THE INCOME-TAX DEPARTMENT IN THE PAST SINCE INCORPORATION. REGARDING THE AMOUNT A DVANCED TO THE THREE PARTIES, LISTED IN THE ASSESSMENT ORDER, IT WAS SUBMI TTED THAT THE ADVANCE MADE TO M/S BLUELINE MERCANTILE PRIVATE LIMI TED AMOUNTING TO ` 23,71,160/- WAS OUTSTANDING SINCE FINANCIAL YEAR 200 0-01 AGAINST BUSINESS DONE WITH THEM IN THE PAST WHEN THE ASSESSEE DID N OT HAVE ANY BANK LIMIT. IN RESPECT OF M/S NEW OLYMPUS AIR SER VICES , A SUM OF ` 5,00,000/- WAS PAID AS SECURITY DEPOSIT FOR TRANSPORTATI ON AND AIR TRAVEL EXPENSES AND, HENCE, WAS ACCORDING TO THE BUSINESS NEED O F THE ASSESSEE. FOR A SUM OF ` 85 LAC ADVANCED TO M/S REAL TIM E MARKETING PRIVATE LTD., IT WAS SUBMITTED THAT IT WAS IN THE INTE REST OF BUSINESS OBJECT AS PER AGREEMENT DULY ENTERED INTO BY THE ASSESSE E WITH THE SAID CONCERN. THUS, IT WAS SUBMITTED THAT DISALLOWANCE WAS NOT AT ALL CALLED FOR. CONSIDERING THESE SUBMISSIONS, LEARNED CIT ( A) HAS OBSERVED THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY E VIDENCE ON RECORD TO SHOW THAT OVERDRAFT FACILITY WAS UTILIZED F OR NON-BUSINESS PURPOSES AND THE ASSESSING OFFICER HAS ALSO NOT ESTABLISHED A NY LINK BETWEEN THE BANK OVERDRAFT AND THE AMOUNTS ADVANCED TO THE OTHER PARTIES AND, IN SUCH CIRCUMSTANCES, HE HAS DELETED THE D ISALLOWANCE. THE REVENUE IS AGGRIEVED, HENCE, IN APPEAL. 5. RELYING UPON THE ASSESSMENT ORDER, IT WAS SUBMITTED BY LD. DR THAT THE DISALLOWANCE WAS RIGHTLY MADE AND LEARNED CI T (A) HAS ITA NO.5500/DEL/2010 4 WRONGLY DELETED THE SAME. SHE RELIED UPON THE DECISI ON OF HONBLE DELHI HIGH COURT IN THE CASE OF PUNJAB STAINLESS STEEL INDUSTRIES VS. CIT 324 ITR 396 (DEL) TO CONTEND THAT INTEREST CAN BE DI SALLOWED IN A CASE WHERE INTEREST FREE ADVANCES ARE MADE TO SISTER CONCERN FROM THE BORROWED FUNDS. THUS, SHE PLEADED THAT THE DISALLOWANC E HAS WRONGLY BEEN DELETED BY LEARNED CIT (A). 6. ON THE OTHER HAND, IT WAS SUBMITTED BY LEARNED AR THAT VIJAYA BANK WHICH HAS SANCTIONED THE LIMIT TO THE ASSESSEE IS A P UBLIC SECTOR BANK AND THE OVERDRAFT FACILITY WAS SANCTIONED TO THE ASSESSEE TO MEET THE WORKING CAPITAL REQUIREMENT. THE WORKING CAPIT AL REQUIREMENT OF THE ASSESSEE WERE AROUND 4.50 CRORES AS UNDER:- SUNDRY DEBTORS 4,175,036.00 CASH & BANK BALANCE 8,605,923.00 OTHER CURRENT ASSETS 16,996,522.00 LOANS & ADVANCES 16,106,039.00 45,883,52 0.00 LESS: CURRENT LIABILITIES DUTIES & TAXES PAYABLE 784,646.00 DIFFERED TAX LIABILITY 94,330.00 878,976.00 45,004,544.00 7. HE SUBMITTED THAT HAD THERE BEEN NO REQUIREMENT O F WORKING CAPITAL, THEN, NO PUBLIC SECTOR BANK WILL SANCTION SU CH LIMIT. THE DEPARTMENT IN EARLIER YEARS HAS ACCEPTED SUCH EXPENDIT URE AS BUSINESS EXPENDITURE. THE ASSESSEE REQUIRES WORKING CAPITAL DUE TO DIRECT AND INDIRECT INVESTMENT IN STOCK/DEBTORS/LOANS AND ADVANCES BECAUSE IT IS ACTING AS FRANCHISEE OF BACARDI MARTINI INDIA LIMITED AND RADICO KHAITAN LIMITED FOR SALE OF IMFL (INDIAN MADE FOREIG N LIQUOR) IN DELHI TERRITORY. RELIANCE WAS MADE ON THE FOLLOWING DECISI ONS TO CONTEND THAT THE DISALLOWANCE HAS RIGHTLY BEEN DELETED BY THE CIT (A):- (1) BIRLA GWALIOR PRIVATE LTD. VS. CIT (1962) 44 ITR 847 (MP): RAM KRISHNAN OIL MILLS V. CIT (1965) 56 ITR 186 (MP) THAT WHERE ITA NO.5500/DEL/2010 5 BORROWING TRANSACTION IS NOT ILLUSORY OR COLORABLE, TH EN INTEREST EXPENSES CLAIM BY THE ASSESSEE HAS TO BE ALLOWED. (2) CIT V. PREMIER AUTO FINANCE P. LTD. (1981) 28 I TR 540 (DEL) THAT IF ASSESSEE HAS BORROWED MONEY ON INTEREST AND GRANT ED INTEREST FREE ADVANCES FOR BUSINESS PURPOSE THE INTEREST I S ALLOWABLE. (3) CIT V. COIMBATORE SALEM TRANSPORT PR LTD. (1966) 61 ITR 480 (MAD) THAT INTEREST PAID AGAINST NON INTEREST BEARING ADVANCES TO DIRECTOR WAS ALLOWABLE IN CASE NO CORRELATION IS EST ABLISHED. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. IT HAS BEEN DEMONSTRAT ED BY THE ASSESSEE THAT THE INTEREST FREE ADVANCES WHICH ARE STATED BY THE ASSESSING OFFICER TO BE MADE TO AFOREMENTIONED THREE CO NCERNS ARE NOT ADVANCES MADE TO SISTER CONCERNS. THE ADVANCE MADE TO M/S BLUELINE MERCANTILE PRIVATE LIMITED WAS AN OLD ADVAN CE WHICH WAS STATED TO BE MADE EVEN PRIOR TO AVAILING BANK OVERDR AFT LIMIT. THE ADVANCE TO M/S NEW OLYMPUS AIR SERVICES WAS FOR THE PUR POSE OF TRAVELING REQUIREMENT OF THE ASSESSEE AND THE ADVANCE M ADE TO M/S REAL TIME MARKETING PRIVATE LTD. WAS ALSO AS PER THE B USINESS EXIGENCIES TO ACQUIRE THE NEW TERRITORIES IN PUNJAB A ND HARYANA. NO NEXUS HAS BEEN ESTABLISHED BY THE ASSESSING OFFICER WITH NO N-BUSINESS ADVANCE OUT OF BORROWED FUNDS. IN THE ABSENCE OF ANY NEXUS BETWEEN INTEREST FREE ADVANCES HAVING BEEN MADE OUT OF BORROW ED FUND, WE ARE OF THE OPINION THAT LEARNED CIT (A) HAS RIGHTLY DELE TED THE ADDITION. WE DECLINE TO INTERFERE. ITA NO.5500/DEL/2010 6 9. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMENT IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 11.02.20 11. SD/- SD/- [SHAMIM YAHYA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED,11.02.2011. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES