Dr. Dinesh and Ramesh Engineers Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-1(4), Ahmedabad

ITA 565/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1741 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-04-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 05-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: GYAN PIPARA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, A HMEDABAD , (BEFORE SHRI RAJPAL YADAV, J.M. & SHRI ANIL CHATURV EDI, A.M.) ( , ! ' ,#$ # %& ) ITA NO. 565/AHD/2012 (ASSESSM ENT YEAR: 2008-09) DR. DINESH AND RAMESH ENGINEERS PVT. LTD., PLOT NO. 301, PHASE-III, GIDC, VATVA, AHMEDABAD-382445 VS. THE INCOME TAX OFFICER, WARD-1(4), A-WING, 305, 3 RD FLOOR, PRATYAKSH KAR BHAVAN, NR. POLYTECHNIC , AMBAWADI, AHMEDABAD 380 015 PAN NO. AAACD7276N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI GYAN PIPARA, A.R. RESPONDENT BY : SHRI DINESH SINGH, SR. D.R. DATE OF HEARING : 12 -04-2 016 DATE OF PRONOUNCEMENT : 26 -04-2016 ( # )/ ORDER PER ANIL CHATURVEDI, ACCOUNTANT MEMBER THIS APPEAL FILED BY ASSESSEE IS AGAINST THE ORDER OF CIT(A)-6, AHMEDABAD, DATED 02.01.2012 FOR THE ASSESSMENT YEAR 2008-09 . 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER: 3. THE ASSESSEE IS A COMPANY STATED TO BE ENGAGED I N THE BUSINESS OF MANUFACTURING OF CASTINGS. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR ITA NO.565/AHD/12 A.Y. 2008-09 (DR. DINESH & RAMESH ENGINEERS P. LTD. VS. ITO) 2 A.Y. 2008-09 ON 28.09.2008 DECLARING TOTAL INCOME O F RS.2,59,860/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER, THE ASSES SMENT WAS FRAMED U/S.143(3) OF THE ACT VIDE ORDER DATED 18.11.2010 AND THE TOTAL I NCOME WAS DETERMINED AT RS.11,83,420/-. AGGRIEVED BY THE ORDER OF ASSESSIN G OFFICER, ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO VIDE ORDER DATED 0 2.01.2012 (IN APPEAL NO. CIT(A) VI/ITO.WD.1(4)/124/10-11) GRANTED PARTIAL R ELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD. CIT(A), ASSESSEE IS N OW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : 1. THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED I N LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.5,18,994/- MADE BY THE A.O. BEING NO TIONAL INTEREST WORKED OUT ON ALLEGED INTEREST FREE ADVANCES TO DIRECTORS AND SIS TER CONCERNS MERELY ON SURMISES AS WELL AS WITHOUT PROPER CONSIDERATION AN D APPRECIATION OF THE FACTS OF THE CASE. IN VIEW OF FACTS AND SUBMISSIONS FILED CO UPLED WITH LEGAL POSITION IN SUPPORT THEREOF, THE IMPUGNED ADHOC ADDITION OF RS. 5,18,994/- REQUIRES TO BE DELETED. 1.2 THE LEARNED CIT(A) HAS FURTHER ERRED IN NOT CO NSIDERING THE FACT THAT THE APPELLANT HAD SUFFICIENT INTEREST FREE FUNDS OUT OF WHICH THE INTEREST FREE ADVANCES HAVE BEEN MADE AND HENCE CHARGING OF NOTIO NAL INTEREST ON ALLEGED INTEREST FREE FUNDS TO DIRECTORS AND SISTER CONCERN S IS WHOLLY UNJUSTIFIED AND BAD IN LAW. 1.3 THE LEARNED CIT(A) ALSO ERRED IN NOT APPRECIA TING THE FACT THAT THE INTEREST OF RS.7,58,925/- HAS BEEN PAID WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE APPELLANT HAS DULY COMPLIED WITH ALL THE PR OVISIONS OF SECTION 36(1)(III) OF THE ACT FOR ALLOWABILITY OF THE SAME. FURTHER, S INCE THE A.O. HAD NOT BROUGHT ANYTHING ON RECORD TO SHOW THAT BORROWED FUNDS WERE IN FACT DIVERTED/ADVANCED WITHOUT CHARGING INTEREST, DISALLOWANCE OF INTEREST PAID ON BORROWED FUNDS IS NOT JUSTIFIED AND REQUIRES TO BE DELETED. 4. BEFORE US, AT THE OUTSET, LD. A.R. SUBMITTED TH AT ALL THE THREE GROUNDS ARE INTERLINKED AND CAN BE CONSIDERED TOGETHER. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O . NOTICED THAT ASSESSEE HAS CLAIMED INTEREST EXPENDITURE OF RS.7,58,925/-. ON PERUSING THE BALANCE SHEET, HE ALSO NOTICED THAT LOANS AND ADVANCES AGGR EGATING TO RS.45,52,585/- HAVE ITA NO.565/AHD/12 A.Y. 2008-09 (DR. DINESH & RAMESH ENGINEERS P. LTD. VS. ITO) 3 BEEN ADVANCED TO THE DIRECTORS AND THE SISTER CONCE RNS OF THE DIRECTORS (THE DETAILS OF SUCH ADVANCES ARE TABULATED ON PAGE 4 OF THE ASS ESSMENT ORDER) ON WHICH NO INTEREST HAS BEEN CHARGED BY THE ASSESSEE BUT ON TH E OTHER HAND ASSESSEE HAS CLAIMED INTEREST EXPENDITURE OF RS.5,12,860/- ON UN SECURED LOANS RECEIVED FROM DIRECTORS AND SHARE HOLDERS. HE NOTICED THAT TOTA L INTEREST BEARING FUNDS AVAILED BY THE ASSESSEE WHICH INCLUDED SECURED LOANS AS WEL L AS UNSECURED LOANS, AGGREGATED TO RS.66,32,240/- AND THE INTEREST EXPEN DITURE CLAIMED BY THE ASSESSEE WAS RS.7,58,925/- AND ACCORDINGLY, RATE OF INTEREST ON THE TOTAL OUTSTANDING LOANS WORKED OUT AT 11.4%. A.O. WAS OF THE VIEW THAT SIN CE ASSESSEE HAD DIVERTED SUBSTANTIAL PORTION OF BORROWED FUNDS TOWARDS INTER EST FREE LOANS TO DIRECTORS, THE INTEREST PAID ON THE AMOUNTS BORROWED ADVANCED TO D IRECTORS AND THEIR FIRMS ARE NOT ALLOWABLE AS EXPENDITURE. HE ACCORDINGLY WORK ED OUT THE INTEREST ATTRIBUTABLE TO INTEREST FREE ADVANCES AT RS.5,18,994/- AND DIS ALLOWED THE SAME. 6. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO UPHELD THE ORDER OF A.O. BY HOLDING AS U NDER: 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSES SMENT ORDER AND APPELLANT'S SUBMISSION. IT IS NOT IN DISPUTE THAT APPELLANT GAV E INTEREST FREE LOANS TO DIRECTORS AND RELATIVES. APPELLANT HAD ALSO BORROWED INTEREST-BEA RING FUNDS BY WAY OF DEPOSITS AND LOANS ON WHICH INTEREST AT THE AVERAGE RATE OF 11.4 % WAS PAID. SINCE APPELLANT WAS NOT ABLE TO PROVE THAT THE INTEREST FREE ADVANCES WERE GIVEN OUT OF OWNED FUNDS, ASSESSING OFFICER IS JUSTIFIED IN CONCLUDING THAT INTEREST BE ARING FUNDS WERE DIVERTED FOR NON- BUSINESS PURPOSE AND ACCORDINGLY INTEREST ON SUCH B ORROWINGS CANNOT BE ALLOWED UNDER SECTION 36 (1) (III) OF IT ACT. APPELLANT ARGUED TH AT IT HAD A CREDIT BALANCE OF PARTNERSHIP FIRM CONSISTING OF RELATIVES AND THEREFORE TO THAT EXTENT INTEREST FREE FUND IS LESS. I DO NOT AGREE WITH THE APPELLANT THAT DIVERSION OF INTEREST BEARING FUNDS TO INTEREST FREE ADVANCES TO DIRECTORS IS LINKED WITH CREDITORS. CRE DITORS ARE FOR THE PURPOSE OF BUSINESS AND THESE ARE OUT OF BUSINESS TRANSACTIONS. THEIR C REDITS ARE NOT LINKED TO INTEREST FREE ADVANCES. THEREFORE THERE IS NO QUESTION OF REDUCIN G SUCH CREDITS FROM INTEREST FREE ADVANCES WHILE COMPUTING DISALLOWANCE OF INTEREST. ACCORDINGLY, I UPHOLD THE ADDITION OF INTEREST MADE BY THE ASSESSING OFFICER. 7. AGGRIEVED BY THE ORDER OF LD. CIT(A), ASSESSEE I S NOW IN APPEAL BEFORE US. ITA NO.565/AHD/12 A.Y. 2008-09 (DR. DINESH & RAMESH ENGINEERS P. LTD. VS. ITO) 4 7.1 BEFORE US, LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. AND LD. CIT(A) AND FURTHER SUBMITTED THAT OUT OF THE TOTAL AMOUNT ADVANCED, RS.20,17,666/- WAS TO DEEPAK DIE CASTING WHICH WAS TOWARDS THE PURCHASE OF MATERIAL AND WAS BUSINESS ADVANCE AND NOT A LOAN A ND IN SUPPORT OF WHICH HE POINTED TO THE COPY OF THE LEDGER ACCOUNT PLACED AT PAGE NOS. 10 TO 12 OF THE PAPER BOOK. HE THEREFORE SUBMITTED SINCE THE AMOUNT WAS TOWARDS PURCHASE AND WAS NOT A LOAN, NO INTEREST CAN BE DISALLOWED ON THE AM OUNT ADVANCED TO DEEPAK DIE CASTING. WITH RESPECT TO ALLOWING THE ENTIRE INTERE ST EXPENDITURE, HE SUBMITTED THAT ASSESSEE WAS HAVING INTEREST FREE FUNDS WHICH HAVE BEEN ADVANCED AND IN SUCH A SITUATION, NO DISALLOWANCE ON ACCOUNT OF INT EREST COULD BE MADE AND TO SUPPORT HIS ARGUMENT, HE POINTED TO THE COPY OF TH E BALANCE SHEET PLACED AT PAGE NO.15 OF THE PAPER BOOK. HE, THEREFORE, SUBMITTED THAT, IN SUCH A SITUATION, NO DISALLOWANCE OF INTEREST IS CALLED FOR. LD. D.R. O N THE OTHER HAND SUPPORTED THE ORDERS OF A.O. AND LD. CIT(A) AND SUBMITTED THAT SU BMISSIONS OF LD. A.R. BEFORE THE BENCH ABOUT THE AVAILABILITY OF INTEREST FREE F UNDS AND THE AMOUNT ADVANCED TO DEEPAK DIE CASTING TO BE ADVANCE IN THE NORMAL COUR SE AND NOT A LOAN WERE NOT RAISED BEFORE THE A.O. AND LD.CIT(A) AND THAT THIS PLEA HAS BEEN RAISED BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE TRIBUNAL. H E THEREFORE SUBMITTED THAT THE AFORESAID ARGUMENTS ARE AFTERTHOUGHT AND NEEDS TO B E REJECTED. HE, THEREFORE, SUBMITTED THAT THE AO WAS FULLY JUSTIFIED IN DISALL OWING EXPENDITURE. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO DI SALLOWANCE OF INTEREST ON THE INTEREST-FREE ADVANCES THAT ASSESSEE HAS ADVANCED TO ITS SISTER CONCERNS. BEFORE US, IT IS LD. A.RS. CONTENTION THAT THE AMOUNT ADV ANCED TO DEEPAK DIE CASTING IS ON ACCOUNT OF PURCHASES AND IS A RUNNING ACCOUNT AN D FOR THE AMOUNT ADVANCED TO OTHER SISTER-CONCERNS. SINCE ASSESSEE HAD SUFFICIE NT INTEREST-FREE FUNDS, NO ITA NO.565/AHD/12 A.Y. 2008-09 (DR. DINESH & RAMESH ENGINEERS P. LTD. VS. ITO) 5 DISALLOWANCE OF INTEREST CAN BE MADE. WE FIND TH AT THE AFORESAID PLEAS HAVE BEEN TAKEN BY LD. A.R. BEFORE US FOR THE FIRST TIME . THERE IS NO FINDING ON THESE ISSUES BY EITHER OF THE LOWER AUTHORITIES. IN SUCH A SITUATION, WE ARE OF THE VIEW THAT THE MATTER NEEDS TO BE REMITTED BACK TO THE FI LE OF A.O. TO CONSIDER THE SUBMISSIONS OF THE ASSESSEE AND THEREAFTER DECIDE T HE ISSUE ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN ACCORDANCE WITH L AW. WE THEREFORE REMIT BACK THE ISSUE TO THE FILE OF AO. WE ALSO DIRECT THE AS SESSEE TO CO-OPERATE BY PROMPTLY FURNISHING ALL THE REQUIRED DETAILS CALLED FOR BY THE A.O. THUS, THE GROUND OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 26- 04 - 201 6. SD/- SD/- ( RAJPAL YADAV) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT M EMBER AHMEDABAD: DATED 26 /04/2016 S K SINHA COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 6, AHMEDABAD 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER //TRUE COPY// DEPUTY/ASSTT.REGISTRAR ITAT, AHMEDABAD ITA NO.565/AHD/12 A.Y. 2008-09 (DR. DINESH & RAMESH ENGINEERS P. LTD. VS. ITO) 6 1.DATE OF DICTATION 12.04.2016 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E OTHER MEMBER 13 -04-2016 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 26.4.16 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .26.4.16 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER