The ACIT,(OSD)-I,Range-4, Ahmedabad V. Lippy System Ltd., Ahmedabad

ITA 553/AHD/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6009 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 21-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 23-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: BAVESH SHAH
• Keywords: Business income; Principle of natural justice; Revised return
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI MUKUL KR. SHRAWAT, J.M. & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 553 /AHD/2011 & C.O. NO. 79/AHD/2011 (ASSESSMENT YEAR: 2007-08) THE ACIT (OSD-1, RANGE-4, AHMEDABAD V/S LIPPY SYSTEM LTD. 3 RD FLOOR, SATYA COMPLEX, OPP. IOC PETROL PUMP, 132FT RING ROAD, AHMEDABAD (APPELLANT) (RESPONDENT) LIPPY SYSTEM LTD. 3 RD FLOOR, SATYA COMPLEX, OPP. IOC PETROL PUMP, 132FT RING ROAD, AHMEDABAD V/S THE ACIT (OSD-1, RANGE-4, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAACL 2700R APPELLANT BY : SHRI M.K. SINGH, SR. D.R. RESPONDENT BY : SHRI BAVESH SHAH, A.R. ( )/ ORDER DATE OF HEARING : 21-07-2014 DATE OF PRONOUNCEMENT : 25 -07-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF CIT(A)-VIII, AHMEDABAD DATED 16.12.2010 FOR A.Y. 2007-08 AND ASS ESSEE HAS ALSO FILED A C.O. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. ITA NO 553/A/11 & C.O 79/A/2011 . A.Y. 2007- 08 2 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE B USINESS OF MANUFACTURING OF ENGRAVING CYLINDER. ASSESSEE FILED ITS REVISED RETURN OF INCOME FOR A.Y. 07-08 ON 11.08.2008 DECLARING TOTAL INCOME OF RS. 1,12,93,900/-. THE CASE WAS SELECTED FOR SCRUTINY A ND THEREAFTER THE ASSESSMENT WAS FRAMED U/S. 143(3) VIDE ORDER DATED 18.12.2009 AND THE TOTAL INCOME WAS DETERMINED AT RS. 1,25,19,317/-. A GGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 16.12.2010 GRANTED PARTIAL RELIEF TO THE ASSE SSEE. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND ASSESSEE HAS ALSO FILED A C.O. THE GROUNDS RAISED BY THE REVENUE READS AS UNDER:- 1.1 THE LEARNED CIT(A)-VIII , AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETIN G THE ADDITION OF RS,12,25,417/- MADE BY THE ASSESSING OFFICER OUT OF INTEREST EXPENSES, WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE ASSESSING OFFICER. 1.2 IN DOING SO, THE LEARNED CIT(A) HAS ERRED IN LAW AN D ON FACTS IN NOT APPRECIATING THAT THE BUSINESS FUNDS WERE DIVERTED BY THE ASSESSEE FOR NO N-BUSINESS PURPOSES AND THEREFORE THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING A PA RT OF THE INTEREST EXPENSES WAS FULLY JUSTIFIED. GROUND NO. 1.1 & 1.2 ARE INTERCONNECTED AND ARE WIT H RESPECT TO DELETION OF R. 12,25,417 OUT OF INTEREST EXPENSES. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT OUT OF THE MONEY RECEIVED BY THE ASSESSEE BY ISSUE OF SHARE CA PITAL, PART OF THE MONEY WAS ADVANCED TO VARIOUS PARTIES AT LOW RATE O F INTEREST. HE ALSO NOTICED THAT ASSESSEE HAD TAKEN SECURED LOAN FROM B ANKS FOR PURCHASE OF MACHINERY. HE ALSO NOTICED THAT ASSESSEE HAD ADVANC ED RS. 4,15,00,000/- FOR PURCHASE OF LAND. THE A.O ASKED THE ASSESSEE TO EXPLAIN THE NEED FOR AVAILING LOAN IN VIEW OF THE FACT THAT FROM THE MO NEY RECEIVED FROM ISSUE OF SHARE CAPITAL ASSESSEE HAD FOR ADVANCED MONEY TO VARIOUS PARTIES. A.O WAS OF THE VIEW THAT ASSESSEE WAS USING BUSINESS FU NDS FOR NON BUSINESS ITA NO 553/A/11 & C.O 79/A/2011 . A.Y. 2007- 08 3 PURPOSES AND HAD DIVERTED BUSINESS FUNDS FOR NON BU SINESS PURPOSES AND HAD USED COSTLY SECURED LOAN FOR BUSINESS PURPOSES AND THUS THE ASSESSEE WAS TRYING TO REDUCE HIS PROFIT BY CLAIMING HIGHER INTEREST EXPENSES. HE NOTED THAT THE INTEREST EXPENDITURE AT 13.75% WAS R S. 47,26,607/- AND THE INTEREST INCOME ON MONEY ADVANCED AT 10% WAS RS. 11 ,65,959/-. HE ACCORDINGLY CONSIDERED 3.5% OF THE INTEREST EXPENSE S AMOUNTING TO RS. 12,25,417/- AS BEING FOR NON BUSINESS PURPOSES AND DISALLOWED THE SAME. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DELETED THE ADDITION BY HOLDING AS U NDER:- 4.1 . ON THE OTHER HAND, THE LD. A.R SUBMITTED BEFO RE ME THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE APPELLANT COMPANY VIDE ITS SUBMISS ION DATED 14/12/2009 FILED THE COMPLETE DETAILS OF ADVANCES GIVEN FOR PURCHASE OF LAND ALONG WITH XERO X COPY OF BANAKHAT EXECUTED AND SOURCE OF ADVANCES TO THE A.O. HOWEVER, THE A.O. HAS NOT VERI FIED AND CONSIDERED THE SOURCE OF ADVANCES SUBMITTED BEFORE HIM WHICH IS AGAINST THE PRINCIPLE OF NATURAL JUSTICE AND EQUITY. THE APPELLANT COMPANY VIDE ITS SUBMISSION DATED 14 /12/2009 ALSO SUBMITTED THAT THE MAIN SOURCE OF ADVANCES GIVEN FOR PURCHASES OF LAND WAS SALE OF OFFICE PREMISES, WITHDRAWAL OF INTEREST FREE ADVANCES GIVEN AND AMOUNT WITHDRAWN FROM A.D. GRAVU ES TO WHOM THE APPELLANT GIVEN THE ADVANCES. THERE WERE SUFFICIENT FUNDS AVAILABLE WIT H THE ASSESSEE COMPANY FOR PURCHASE OF LAND. DURING THE FINANCIAL YEAR 2000-01 THE APPELLANT COM PANY HAS ISSUED EQUITY SHARES AND COLLECTED RS.4.00 CRORES TOWARDS EQUITY SHARE CAPITAL AND RS. 6.40 CRORES TOWARDS SHARE PREMIUM AND THE SAID FUNDS WERE ALSO UTILIZED BY THE APPELLANT COMPANY F OR GIVING ADVANCES. THE LD. A.R SUBMITTED THAT THE APPELLANT COMPANY H AS NOT BORROWED ANY UNSECURED LOAN DURING THE YEAR AS WELL AS ANY ADDITIONAL SECURED LOANS DU RING THE YEAR. THE TERM LOAN TAKEN IN EARLIER YEARS FROM THE BANK IS EXCLUSIVELY FOR PURCHASE OF PLANT & MACHINERY AND CASH CREDIT LIMIT USED FOR BUSINESS PURPOSE. THE APPELLANT COMPANY VIDE ITS SUBMISSION DATED 14 /12/2009 SUBMITTED BEFORE THE AO , THAT IT HAS SUFFICIENT LIQUID FUNDS FOR GIVING ADVANCES FOR PUR CHASE OF LAND. IT IS FURTHER SUBMITTED THAT THE SHA RE CAPITAL OF THE APPELLANT COMPANY IS RS.7.00 CRORES AND RESERVES AND SURPLUS IS RS.10.79 CRORES. THE AGGREGATE AMOUNT COME TO RS.17.79 CRORES AND OUT OF THAT APPELLANT COMPANY HAS GIVEN ADVANCES FOR PURCHASE OF LAND RS.4.15 CRORES. THE APPELLANT COMPANY FURTHER ARGUED THAT THERE WA S NO NEXUS BETWEEN ADVANCES GIVEN FOR PURCHASE OF LAND AND BANK BORROWINGS. THE DISALLOWA NCE MADE BY THE LEARNED A.O. ON ACCOUNT OF INTEREST PAID TO BANK IS NOT AT ALL SUSTAINABLE BEC AUSE THE APPELLANT COMPANY HAS NOT BORROWED ANY AMOUNT TOWARDS ADVANCE GIVEN FOR PURCHASE OF LAND. 4.2 IT IS OBSERVED FROM THE ASSESSMENT ORDER THAT A.O F AILED TO ESTABLISH ANY NEXUS BETWEEN INTEREST BEARING LOANS AND ADVANCES GIVEN FOR PURCHASE OF LA ND. THE ADDITION MADE BY A.O APPEAR TO BE ON HYPOTHETICAL BASIS, AND DO NOT HAVE ANY LEGAL FO UNDATION. THE APPELLANT HAS CATEGORICALLY ESTABLISHED BEFORE A.O WITH FACTS AND FIGURES THAT NO INVESTMENT IN LAND HAS BEEN MADE OUT OF INTEREST BEARING FUNDS. 4.3 . 4.4 4.4 IN VIEW OF THE DETAILS DISCUSSED HELD ABOVE AND PARTICULARLY WITH REFERENCE TO THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. 313 ITR 340, I AM OF THE CONSIDERED OPINION THAT THE AD DITION MADE BY THE A.O FOR DISALLOWING INTEREST CAN NOT BE SUSTAINED AND THEREFORE, THE A. O IS DIRECTED TO DELETE THE DISALLOWANCE OF RS. 12,25,417/-. AS SUCH, THE APPELLANT GETS RELIEF OF RS. 12,25,417/- ITA NO 553/A/11 & C.O 79/A/2011 . A.Y. 2007- 08 4 5. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 6. BEFORE US LD. D.R. TOOK US THROUGH THE FINDING OF A .O AND SUPPORTED THE ORDER OF A.O. LD. A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE CIT(A) AND FURTHER SUBMITTED THAT ASSESSEE H AD IN EARLIER YEARS ADVANCED MONEY TO A.D. GRAVURES AND DURING THE YEAR THE AMOUNT ADVANCED WAS RECEIVED BACK AND WAS INVESTED FOR PUR CHASE OF LAND. HE FURTHER SUBMITTED THAT ASSESSEE WAS HAVING SUFFICIE NT INTEREST FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES SURPLUS AND NO B ORROWED FUNDS HAVE BEEN USED FOR NON BUSINESS PURPOSES. HE THUS SUPPOR TED THE ORDER OF CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ON PERUSAL OF THE BALANCE SHEET PLACED AT PAGE 9 OF THE PAPER BOOK IT IS SEEN THAT THE ASSESSEE WAS HAVING INTEREST FREE FUN DS IN THE FORM OF SHARE CAPITAL AND RESERVES AGGREGATING TO RS. 10.79 CRORE S AND THE ADVANCE FOR PURCHASE OF LAND WAS RS. 4.15 CRORES. WE FURTHER FI ND THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA) HAS HELD THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND OVER DRAFTS AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT THE INVESTMENTS WOULD BE OUT OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE S UFFICIENT TO MEET THE INVESTMENTS. BEFORE US, LD. A.R. HAS SUBMITTED THAT THE LAND WAS PURCHASED OUT OF THE AMOUNT THAT WAS ADVANCE TO A.D GRAVURES IN EARLIER YEARS. IT IS ALSO SEEN THAT THE ASSESSEE HAD CHARGE D INTEREST FROM A.D. GRAVURES AND THE INTEREST WAS ASSESSED AS BUSINESS INCOME. THE AFORESAID SUBMISSIONS HAVE NOT BEEN CONTROVERTED BY REVENUE P LACING ANY TANGIBLE ITA NO 553/A/11 & C.O 79/A/2011 . A.Y. 2007- 08 5 MATERIAL ON RECORD. WE FURTHER FIND THAT THE LD. CI T(A) AFTER RELYING ON THE VARIOUS DECISION CITED IN HIS ORDER HAS DELETED THE ADDITION. BEFORE US, REVENUE COULD NOT CONTROVERT THE FINDINGS OF LD. CI T(A) AND THUS CONSIDERING THE TOTALITY OF THE AFORESAID FACTS WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THI S GROUND OF REVENUE IS DISMISSED. 8. C.O OF THE ASSESSEE IS IN SUPPORT OF CIT(A). SINCE THE APPEAL OF THE REVENUE HAS BEEN DISMISSED HEREINABOVE THE C.O OF T HE ASSESSEE DOES NOT SURVIVE AND THEREFORE DISMISSED. 9. IN THE RESULT, THE APPEAL OF REVENUE AND C.O OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 25 - 07 - 2014. SD/- SD/- (MUKUL KR. SHRAWAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD