M/s SMV(Firm), Kollam V. ACIT, Kollam

ITA 585/COCH/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64764 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 07-08-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 23-12-2009
• Court: TRIBUNAL
• Department Lawyers: VANI RAJ
• Assessee Lawyers: K M V PANDALAI
• Keywords: Opportunity of being heard; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 585/COCH/2009 ASSESSMENT YEAR: 2006-07 M/S. SMV (FIRM), MAIN ROAD, KOLLAM. [PAN : AAGFS 1575E] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX,CIRCLE-1, KOLLAM. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) ASSESSEE BY SHRI K.M.V. PANDALAI, ADV. REVENUE BY MS. VANI RAJ, JR. DR DATE OF HEARING 07/08/2012 DATE OF PRONOUNCEMENT 24/08/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 07-10-2009 PASSED BY THE LD. CIT(A)-I, TRIVANDRUM AND IT RELATES TO T HE ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF THE LD. CIT(A) IN UPHOLDING THE DISALLOWANCE OF INTEREST AMOUNT OF RS.8,81,438/- MA DE BY THE ASSESSING OFFICER AS RELATABLE TO THE FUNDS DIVERTED FOR NON-BUSINESS PU RPOSES. 3. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE DRAWING ACCOUNTS OF THE PARTNERS ACCOUNT SHOWED A DEBIT BALANCE OF RS.99,9 2,988/-. THE ASSESSING OFFICER ALSO NOTICED THAT THE ASSESSEE HAS GIVEN ADVANCES AGGREG ATING TO RS.27,84,385/- TO ITS SISTER CONCERNS. THE ASSESSEE DID NOT RECEIVE ANY INTERES T EITHER FROM THE PARTNERS ON THEIR DEBIT BALANCES OR FROM THE SISTER CONCERNS. THE AS SESSING OFFICER NOTICED THAT THE I.T.A. NO.585 /COCH/2009 2 ASSESSEE HAD PAID INTEREST TO THE TUNE OF RS.13,94, 784/- ON THE LOAN AMOUNT OF RS.2,02,18,842/- OBTAINED FROM VARIOUS BANKS. IN V IEW OF THE ABOVE SAID FACTS, THE ASSESSING OFFICER TOOK THE VIEW THAT THE ASSESSEE H AS DIVERTED INTEREST BEARING FUNDS FOR NON-BUSINESS PURPOSES. ACCORDINGLY BY FOLLOWIN G THE DECISION OF THE HON'BLE JURISDICTIONAL KERALA HIGH COURT IN THE CASE OF CIT VS. BABY & CO., 254 ITR 248, THE ASSESSING OFFICER DISALLOWED PROPORTIONATE AMOUNT O F INTEREST PAYMENT AMOUNTING TO RS.8,81,438/- AS INTEREST RELATABLE TO THE FUNDS DI VERTED FOR NON-BUSINESS PURPOSES. THE ASSESSEE COULD NOT SUCCEED IN ITS APPEAL BEFORE THE LD. CIT(A) ON THIS ISSUE. HENCE, THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE RECORD. FROM THE BALANCE SHEET FILED BY THE ASSESSEE, WE NOTICE THAT THE PARTNERS ARE HAVING CAPITAL BALANCE OF RS.1.00 CRORE. IN THE BALANCE SHEET, TH E ASSESSEE HAS SHOWN THE CAPITAL BALANCE OF RUPEES ONE CRORE IN THE LIABILITY SIDE AND THE DRAWINGS ACCOUNT OF PARTNERS AGGREGATING TO RS.99,92,988/- IS SHOWN IN THE ASSE TS SIDE. IF THE DRAWINGS ACCOUNT IS SET OFF AGAINST THE CAPITAL BALANCE, THERE WOULD ST ILL REMAIN A CREDIT BALANCE IN THE CAPITAL ACCOUNT OF THE ASSESSEE. HENCE, IN OUR VIE W, THE DRAWINGS MADE BY THE PARTNERS SHOULD BE CONSIDERED AS WITHDRAWALS MADE F ROM THEIR CAPITAL BALANCES AND IN THAT CASE, IT CANNOT BE PRESUMED THAT THE INTEREST BEARING FUNDS HAVE BEEN WITHDRAWN BY THE PARTNERS. ACCORDINGLY, WE SET ASIDE THE DIS ALLOWANCE OF INTEREST RELATING TO DEBIT BALANCES OF THE PARTNERS. 5. WITH REGARD TO THE AMOUNTS GIVEN TO THE SISTER CONCERNS AGGREGATING TO RS.27,84,385/-, THE ASSESSEE HAS SUBMITTED THE FOLL OWING EXPLANATIONS IN ITS WRITTEN SUBMISSIONS FILED BEFORE US:- 2. THE FOLLOWING PAYMENTS WERE MADE TO SISTER CON CERNS IN COMMERCIAL EXPEDIENCY. LOAN TO: I) M/S. VASANTH & CO. QUILON (RS. 1,20,157.72) M/S. VASANTH & CO., KOLLAM (QUILON) IS A SISTER CONCERN OF THE APPELLANT FIRM. IN THIS CASE THERE WAS CONTINUOUS CREDIT IN THE ACCOU NT. ONLY FROM JANUARY THE ACCOUNT SHOWED DEBIT BALANCE. HENCE THERE WAS A N ET INTEREST PAYMENT OF RS. I.T.A. NO.585 /COCH/2009 3 44,000/- (PLEASE SEE PAGE 1 OF THE PAPER BOOK UNDE R BANK COMMISSION & INTEREST. HENCE THE PAYMENT OF RS. 1,20,157.72 CA NNOT BE TAKEN AS AN INTEREST FREE LOAN TO A SISTER CONCERN. II) M/S. SREENIVAS KOLLAM (RS. 4,83,546.50) M/S. SREENIVAS, KOLLAM IS A SISTER CONCERN DOING T RADING IN RICE. THERE WAS CREDIT IN THE EARLIER PART OF THE YEAR. THE DEBIT HAS CO ME ON ACCOUNT OF PAYMENT TO SUPPLIERS. THE BUSINESS IS NOT FUNCTIONING NOW. THE PAYMENTS WERE MADE DUE TO COMMERCIAL EXPEDIENCY. (III) M/S. KAVITHA TRADERS, KOLLAM (RS. 13,766.22) M/S. KAVITHA TRADERS, KOLLAM IS A SISTER CONCERN O F THE APPELLANT FIRM. THERE WERE CREDITS AND DEBITS DURING THE YEAR. HENCE NO INTEREST WAS CHARGED. IV) M/S. J.N.TRUST, BOMBAY (RS. 20,50,037.00) M/S. J.N. TRUST, BOMBAY IS A SISTER CONCERN OF THE APPELLANT FIRM. THERE WERE CREDITS AND DEBITS DURING THE YEAR. ONLY TOWARDS THE END OF MARCH, HUGE AMOUNTS WERE DEBITED WHICH RESULTED IN DEBIT BALAN CE, AS UNDER:- 13/03/2006 TO CHEQUE RS. 4,00,000 .00 14/03/2006 TO CHEQUE RS. 1,00,000 .00 20/03/2006 TO CHEQUE RS.15,00,000. 00 TOTAL RS.20,00,000.00 THIS AMOUNT WAS RECEIVED BACK ON 04-04-2007 BY CHE QUE FOR RS. 21,00,000/-. AS THERE WERE DEBITS AND CREDITS NO INTEREST WAS CHAR GED. V) M/S. SMV APPARELS, KOLLAM (RS. 20,879.44) M/S. SMV APPARELS, KOLLAM IS A SISTER CONCERN OF T HE APPELLANT FIRM. THERE WERE DEBITS AND CREDITS DURING THE PERIOD RELEVANT FOR THE ASSESSMENT YEAR 2006-07. HENCE NO INTEREST WAS PAID OR RECEIVED. VI) M/S. AJAYAKUMAR FABRICS, MADURAI (RS. 21,000.0 0) THIS IS THE OPENING BALANCE. THE PARTY HAS CLOSED DOWN THE BUSINESS. THE APPELLANT FIRM IS PURSUING STEPS TO RECOVER THE AM OUNT. VII) M/S. SRI MEENAKSHI PRESS, TENKASI (RS. 75,000.00) THIS IS AN ADVANCE GIVEN FOR PRINTING OF ACCOUNT B OOKS, BILLS ETC. FOR ALL SISTER CONCERNS. HENCE IT WAS NOT A LOAN. THIS ADVANCE WAS ADJUSTED IN THE SUBSEQUENT PAYMENTS IN THE NEXT YEAR. THE LD A.R FURTHER SUBMITTED THAT THE ASSESSEE IS R ENDERING VARIOUS TYPES OF FINANCIAL, MANAGEMENT AND OTHER INCIDENTAL SERVICES TO ITS SIS TER CONCERNS AND HENCE THE ACCOUNTS OF THE SISTER CONCERNS CITED ABOVE ARE IN THE NATUR E OF RUNNING ACCOUNTS, CONTAINING I.T.A. NO.585 /COCH/2009 4 BOTH DEBIT AND CREDIT TRANSACTIONS. HE FURTHER SUB MITTED THAT MOST OF THE ACCOUNTS SHOW DEBIT BALANCE DUE TO THE PAYMENTS MADE DURING THE YEAR END AND HENCE TAX AUTHORITIES HAVE ERRED IN PRESUMING THAT THE DEBIT BALANCES DID EXIST THROUGH OUT THE YEAR. ACCORDINGLY, LD A.R CONTENDED THAT THERE EXI STS COMMERCIAL EXPEDIENCY AND BUSINESS CONNECTION IN RESPECT OF THE TRANSACTIONS ENTERED WITH THE SISTER CONCERNS AND HENCE THEY CANNOT BE CONSIDERED AS DIVERSION OF FUN DS FOR NON-BUSINESS PURPOSES. 6. WE NOTICE THAT THE CONTENTIONS MADE BY LD A. R DO NOT FIND PLACE IN THE ASSESSMENT ORDER, MEANING THEREBY, THE ASSESSING OF FICER DID NOT EXAMINE THE FACTUAL ASPECTS SURROUNDING THE TRANSACTIONS ENTERED WITH T HE SISTER CONCERNS. ACCORDING TO LD A.R, THE ACCOUNTS WITH SISTER CONCERNS SHOW DEBIT B ALANCE DUE TO THE PAYMENTS MADE IN THE FAG END OF THE YEAR. THIS VITAL ASPECT APPEARS TO HAVE ESCAPED THE ATTENTION OF THE ASSESSING OFFICER. ACCORDINGLY, IN OUR VIEW, THE SU BMISSIONS MADE BY THE LD A.R REQUIRE EXAMINATION AT THE END OF THE ASSESSING OFFICER. A CCORDINGLY, THE ORDER OF LD CIT(A) STANDS MODIFIED AND THE ASSESSING OFFICER IS DIRECT ED TO EXAMINE THE TRANSACTIONS ENTERED WITH THE SISTER CONCERNS AFRESH IN ACCORDAN CE WITH THE LAW, AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TRE ATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY O N 24-08-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 24TH AUGUST, 2012 GJ COPY TO: 1. M/S. SMV (FIRM), MAIN ROAD, KOLLAM. 2.THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE- 1, KOLLAM. 3.THE COMMISSIONER OF INCOME-TAX(APPEALS)-I, TRIVAN DRUM. 4.THE COMMISSIONER OF INCOME-TAX, TIVANDRUM I.T.A. NO.585 /COCH/2009 5 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN