Agarwal Sponge & Energy Private Limited, Hyderabad V. Dy. Commissioner of Income Tax , Circle-1(1), Hyderabad

ITA 58/Hyd/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3102 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 19-07-2021
• Assessment Year: 2008-2009
• Appeal Filed On: 05-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBRAMANYAM TOTA
• Keywords: Proportionate interest; Notional interest; Capital expenditure; Set aside
• Section: 143(3); 115JB

Judgement Text

ITA NO 58 OF 2018 AGARWAL SPONGE AND ENERGY P LTD HYDERABAD PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD (THROUGH VIDEO CONFERENCING) BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.58/HYD/2018 ASSESSMENT YEAR: 2008-09 AGARWAL SPONGE AND ENERGY PRIVATE LTD HYDERABAD PAN:AAECA8680P VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(1) HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI Y. RATNAKAR REVENUE BY : SRI SUBRAMANYAM TOTA, DR DATE OF HEARING: 15/06/2021 DATE OF PRONOUNCEMENT: 17/06/2021 ORDER PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2008-09 AGAIN ST THE ORDER OF THE CIT (A)-1, HYDERABAD, DATED 2.8.20 17. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY FILED ITS RETURN OF INCOME FOR THE A.Y 2008-09 ON 2 9.09.2008 DECLARING AN INCOME OF RS.2,43,01,460/- U/S 115JB O F THE ACT AND NIL INCOME UNDER THE NORMAL PROVISIONS OF THE I.T. ACT. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE COMPANY HAS ADVANCED HUGE AMOUNTS TO RELATED CONCERNS VIZ., M/S . SATISH & CO. (RS.1,60,00,000) AND SHEETAL TRADING CO. (RS.84 ,00,000) AND TO MANY OTHER SHAREHOLDERS AND THAT THE ASSESSEE DI D NOT HAVE ANY TRADING RELATIONS WITH THE ABOVE TWO COMPANIES AND ALSO WITH ITA NO 58 OF 2018 AGARWAL SPONGE AND ENERGY P LTD HYDERABAD PAGE 2 OF 4 THE SHAREHOLDERS. THEREFORE, HE PROPOSED TO DISALLO W THE PROPORTIONATE INTEREST PAID BY THE ASSESSEE ON THE GROUND THAT THE INTEREST FREE ADVANCES WERE NOT FOR THE PURPOSES OF ASSESSEES BUSINESS. HOWEVER, THE ASSESSEE OBJECTED TO THE SAM E STATING THAT AS PER THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF M/S. S.A. BUILDERS LTD VS. CIT (A) (288 ITR 1 S.C) WHERE THERE IS A COMMERCIAL EXIGENCY, THE DISALLOWANCE CANNOT BE MAD E. IT WAS ALSO DENIED THAT THE SHEETAL TRADING CO. WAS A RELA TED PARTY. THE ASSESSING OFFICER HOWEVER, WAS NOT CONVINCED WITH T HE ASSESSEES CONTENTIONS AND THEREFORE, DISALLOWED A SUM OF RS.3 .5 LAKHS U/S 36(I)(III) OF THE ACT. HE ALSO MADE DISALLOWANCE OF RS.3.25 LAKHS WHICH WAS THE AMOUNT CLAIMED TO HAVE BEEN PAID BY T HE COMPANY TO THE ROC FOR INCREASE IN SHARE CAPITAL BY HOLDING IT TO BE CAPITAL EXPENDITURE. AGGRIEVED, THE ASSESSEE PREFERRED AN A PPEAL BEFORE THE CIT (A) WHO CONFIRMED THE ORDER OF THE ASSESSIN G OFFICER AND THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNA L BY RAISING THE FOLLOWING GROUNDS OF APPEAL: 1, 'THE LEARNED COMMISSIONER ERRED IN UPHOLDING TH E DISALLOWANCE OF NOTIONAL INTEREST BY THE ASSESSING OFFICER. IN ANY EVENT THE DISALLOWANCE IS EXCESSIVE. 2. THE DISALLOWANCE OR NOTIONAL INTEREST AT RS. 26, 35,000/-IS ERRONEOUS BOTH TACTUALLY AND LEGALLY. 3. THE LEARNED COMMISSIONER FAILED TO NOTICE THAT T HE APPELLANT HAD ADEQUATE INTEREST FREE FUNDS FAR GREATER THAN T HE INTEREST FREE ADVANCES. THE LEARNED COMMISSIONER RAILED TO N OTICE THAT INTEREST FREE FUNDS AVAILABLE TO THE APPELLANT IS R S. 14.23 CRORES (SHARE CAPITAL RS. 7,75,13,936 AND INTEREST FREE LOANS OR RS. 6,38,02,005/- WHILE THE INTEREST FREE ADVANC E DURING THE YEAR ARE ONLY RS.2.75 CRORES. 4. THE NET INTEREST TREE LOANS BURROWED DURING THE YEAR IS RS. 4,65,54,163 AND INCREASE IN SHARE CAPITAL DURING. T HE YEAR IS RS. 94,14,600/- AND THE PROFIT DURING THE YEAR IS R S. 2,12,03,592/-, THE TOTAL INTEREST FREE FUNDS AVAILA BLE WITH THE COMPANY DURING THE YEAR UNDER CONSIDERATION IS RS, 7,71,72,355/-. THE NET INTEREST FREE LOANS ADVANCED DURING THE YEAR ARC ONLY RS. 3.18,05,736/-. ON THESE FACTS THE CIT (A) WAS IN ERROR IN UPHOLDING THE DISALLOWANCE. ITA NO 58 OF 2018 AGARWAL SPONGE AND ENERGY P LTD HYDERABAD PAGE 3 OF 4 5. THE DISCUSSION AT PARA 5.2 TO 5.6 OF THE ASSESSM ENT ORDER IS A CUT PASTE, COPY FROM SOME OTHER ASSESSMENT ORD ER. THE APPELLANT NEVER HAD ANY OPPORTUNITY TO FURNISH ANY EXPLANATION AS THE SAME WAS NEVER DISCUSSED DURING THE ASSESSMENT PROCEEDINGS. 3. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW WHILE THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 4. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE ASSESSEES CONTENTION O F ITS OWN INTEREST FREE FUNDS BEING MUCH MORE THAN THE ADVANC ES MADE AS INTEREST FREE LOANS NEEDS VERIFICATION. IN VIEW OF THE SAME, WE DEEM IT FIT AND PROPER TO SET ASIDE THE ISSUE TO TH E FILE OF THE ASSESSING OFFICER FOR DENOVO CONSIDERATION IN ACCOR DANCE WITH LAW. NEEDLESS TO MENTION THAT THE ASSESSEE SHALL BE GIVE N A FAIR OPPORTUNITY OF HEARING. 5. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JUNE, 2021. SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED JUNE, 2021. VINODAN/SPS ITA NO 58 OF 2018 AGARWAL SPONGE AND ENERGY P LTD HYDERABAD PAGE 4 OF 4 COPY TO: S. NO ADDRESS ES 1 AGARWAL SPONGE & ENERGY P LTD, 15-1- 52/1 JAGDISH NIVAS, OLD FEELKHANA, HYDERABAD 2 DY.CIT, CIRCLE 1(1) HYDERABAD 3 CIT (A) - 1, HYDERABAD 4 PR. CIT 1, HYDERABAD 5 DR, ITAT HYDERABAD BENCHES 6 GUARD FILE BY ORDER