M/S SURYA AUTOMOBILES PRIVATE LIMITED, ABOHAR V. DY. COMMISSIONER OF INCOME TAX CIRCLE-II, BATHINDA

ITA 589/ASR/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6262 (ITAT-AMRITSAR)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 26-07-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 03-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DHEERAJ GARG LD
• Assessee Lawyers: P N ARORA LD
• Keywords: Proportionate interest; Deemed dividend; Commercial expediency
• Section: 2(22)(e); 150(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE SH. VIKRAM SINGH YADAV , ACCOUNTANT MEMBER AND SH. N.K.CHOUDHRY, JUDICIAL MEMBER ITA NO.589(ASR)/2018 ASSESSMENT YEAR:2012-13 SURYA AUTOMOBILES PVT. LTD. HANUMANGARH RAOD, ABOHAR-152116 [PAN:AAFCS 2711N] VS. DY. CIT, CIRCLE-II, BATHINDA (APPELLANT) (RESPONDENT) APPELLANT BY: SH. P.N. ARORA (LD. ADV.) RESPONDENT BY: SH. DHEERAJ GARG ( LD. DR) DATE OF HEARING: 26.07.2019 DATE OF PRONOUNCEMENT: 06.08.2019 ORDER PER N.K.CHOUDHRY, JM: THE INSTANT APPEAL HAS BEEN PREFERRED BY TH E ASSESSEE AGAINST THE ORDER DATED 11/09/2018 IMPUGNED HEREIN, PASSED BY THE LD. CIT(A)-BATHINDA U/S. 250(6) OF INCOME TAX ACT , 1961 (HEREINAFTER CALLED AS THE ACT) WHEREIN THE LD. CIT (A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER DISALLOWED THE TWO AMOUNTS, FIRST RS.9,27,549/- INCURRED BY THE DIRECTOR OF COMPANY AS EXPENSES OF FOREIGN TRAVEL AND SE COND PROPORTIONATE INTEREST OF RS.2,40,000/- OUT OF TOTAL CLAIM OF RS.18,37,567/- UNDER THE PROVISION OF SECTION 36(1)(III ) WHILE RELYING UPON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF ABHISEK INDUSTRIES (286 ITR 01). THE ASSESSEE CHALLENGED THE 2 ITA NO.589/ASR/2018 (A.Y.2012-13) SURYA AUTOMOBILE PVT. LTD. VS. DCIT DISALLOWANCE/ADDITIONS BEFORE THE LD. CIT(A) WHO THOUG H DELETED THE AMOUNT OF RS.9,27,549/-, HOWEVER, DISALLOWED THE INTEREST @ 12% ON THE SAID AMOUNT AND FURTHER DIRECTED THE ASSESSIN G OFFICER TO EXAMINE THE APPLICABILITY OF DEEMED DIVIDE ND U/S 150(1) OF THE INCOME TAX ACT. FURTHER THE LD. CIT(A) ALSO RESTRICTED THE AMOUNT OF RS.2,40,000/- TO RS.1,02,516/- ON ACCOUNT OF PROPORTIONATE DISALLOWANCE OF INTEREST EXPENSE S @ 12%. THE ASSESSEE CHALLENGED THE SUSTAINING OF TH E ADDITIONS BY THE LD. CIT (A) BEFORE US AND IN SUPPORT OF ITS CASE LD. COUNSEL MR. ARORA SUBMITTED THAT MORE OR LESS THE CASE OF THE ASSESSEE IS THAT THE ASSESSEE HAS SUFFICIENT FUNDS AVAILABLE AND THEREFORE DISALLOWANCE OF INTEREST @ 12% IN RESPECT OF A DDITION OF RS.9,27,549/- WHICH HAS BEEN DELETED BY THE LD. CIT (A), IS NOT SUSTAINABLE. FURTHER THE ASSESSEE IN RESPECT OF DISALLOW ANCE OF INTEREST TO THE TUNE OF RS.2,40,000/- WHICH HAS BEEN REDUCED TO RS.1,02,516/- BY THE LD. CIT(A), ARGUED THAT NO I NTEREST BEARING BORROWED FUNDS HAVE BEEN DIVERTED FOR ACQUIRI NG SHARES AND THE INTEREST CLAIMED AS DEDUCTION IS COVERED BY THE PROVISIONS OF SEC.36(1)(III) OF THE ACT. FURTHER THE IN VESTMENT OF RS.40 LACS IN ACQUIRING 40,000 SHARES OF SURYA AUTO ENGIN EERING (P) LTD. IS COVERED BY CURRENT YEARS CASH PROFIT RS.89,17 ,495/-, OF THE COMPANY . FURTHER THE INTEREST OF RS.2,25,404/- HAS BEEN CHARGED IN CURRENT YEAR FROM SURYA AUTO ENGINEERING ( P) LTD. ON MONEY ADVANCED. 3. ON THE CONTRARY, THE LD. DR REFUTED THE CLAIM OF THE ASSESSEE AND SUBMITTED THAT THE ORDER IMPUGNED HEREIN DO ES NOT SUFFER FROM ANY PERVERSITY OR ILLEGALITY OR IMPROPRIE TY AND THEREFORE NOT LIABLE TO BE INTERFERED WITH. 3 ITA NO.589/ASR/2018 (A.Y.2012-13) SURYA AUTOMOBILE PVT. LTD. VS. DCIT 4. HAVING HEARD THE PARTIES AT LENGTH AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER MADE AN ADDITION OF RS.9,27,549/- UNDER THE HEAD FOREIGN TR AVEL EXPENSES BY DIRECTOR . BEFORE THE LD. CIT(A), IT WAS CLAIMED BY THE ASSESSEE THAT THOUGH THE SAID EXPENSES WERE PERSONAL I N NATURE, HOWEVER, THE SAME HAS NOT BEEN CLAIMED AS EXPEN SES IN P&L ACCOUNT AND THEREFORE, NO DISALLOWANCE CAN BE MADE. THE LD. CIT(A) THOUGH DELETED THE AMOUNT OF RS.9,27,549/ -, HOWEVER, DISALLOWED THE PROPORTIONATE INTEREST @ 12% ON THE SAID AMOUNT BY OBSERVING THAT THE ASSESSEE IS NOT ENTITLE D TO INCUR PERSONAL EXPENSES OF THE DIRECTOR EVEN IF THE SAME ARE NOT ROUTED THROUGH P&L ACCOUNT AND THIS WILL PARTAKE THE CH ARACTER OF INTEREST FREE LOANS ADVANCED TO THE DIRECTORS AND THE REFORE, PROPORTIONATE INTEREST TO BE DISALLOWED. THE LD. CIT( A) ALSO DIRECTED THE ASSESSING OFFICER TO EXAMINE THE APPLICABILIT Y OF PROVISIONS OF DEEMED DIVIDEND AS PROVIDED U/S 2(22)(E) OF THE ACT. FURTHER THE ASSESSING OFFICER MADE AN ADDITI ON OF RS.2,40,000/- ON THE GROUNDS THAT THE ASSESSEE HAS PURCHA SED 40000 SHARES OF SURYA AUTO ENGINEERING (P) LTD. BY IN VESTING RS.40 LACS AND HAS BEEN CHARGING INTEREST EXPENSES TO THE TUNE OF RS.18,37,567/- TO ITS P&L ACCOUNT, BECAUSE IT HAS HUGE SECURED AND UNSECURED LOANS. THE INVESTMENT MADE BY THE ASSESSEE DOES NOT HAVE ANY COMMERCIAL EXPEDIENCY AND HAS BEEN MADE ONLY DUE TO PERSONAL INDULGENCE OF THE PERSO NS CONTROLLING THE APPELLANT AND THEREFORE, THE ASSESSING O FFICER ON PROPORTIONATE BASIS DISALLOWED THE INTEREST EXPENSES @ 12%. 4 ITA NO.589/ASR/2018 (A.Y.2012-13) SURYA AUTOMOBILE PVT. LTD. VS. DCIT THE ASSESSEE BEFORE THE LD. CIT(A) CONTENDED THAT THE AS SESSEE HAS INTEREST FREE FUNDS AVAILABLE AND EVEN OTHERWISE TH E PROPORTIONATE DISALLOWANCE WORKED OUT TO BE RS.1,02,51 6/- ONLY. THOUGH, THE LD. CIT(A) DID NOT ACCEPT THE CONTENTION QUA AVAILABILITY OF THE INTEREST FREE FUNDS, HOWEVER, ACCE PTED THE CALCULATION OF PROPORTIONATE INTEREST AND THEREBY REDU CED THE AMOUNT OF RS.24,0000/- TO RS.1,02,516/- ONLY. AS BOTH THE ADDITIONS ARE BASED ON THE DI SALLOWANCE OF INTEREST AND THEREFORE, FOR THE SAKE OF BREVITY AND CO NVENIENCE HAVE BEEN TAKEN INTO CONSIDERATION FOR ADJUDICATION SIMULTANEOUSLY. THE LD. CIT(A) DISALLOWED THE PROPORTI ONATE INTEREST ON BOTH OF THE ADDITIONS, HOWEVER IT IS A FACT THAT THE ASSESSEE HAS RESERVE AND SURPLUS TO THE TUNE OF RS.1,57,58,615.79 AS 1 ST APRIL, 2011 AND RS.1,82,04,877/- AS ON 31 ST MARCH, 2012 AND THE PAID UP CAPITAL OF THE COMPANY IS RS.40,15,000/- AND THE ASSESSEE COMPANY HAS EARNED THE PRO FIT OF RS.89,17,495/-. IT IS THE CASE OF THE ASSESSEE THAT THE INVESTMENT OF RS. 40 LACS IN ACQUIRING 40,000 SHARES OF SU RYA AUTO ENGINEERING (P) LTD. IS COVERED BY CURRENT YEARS CASH PROFIT OF THE COMPANY AMOUNTING TO RS.89,17,495/- AND THE IN TEREST OF RS.3,25,401/- HAS BEEN CHARGED IN CURRENT YEAR FROM THE SAID COMPANY ON THE MONEY ADVANCED. IT IS ALSO A FACT THAT THE ASSESSING OFFICER WHILE MAKING THE ADDITION OF RS.2,40,00 0/- RELIED UPON THE JUDGMENT PASSED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF ABHISEK INDUSTRIES (SUPRA), WHICH HAS ALREA DY OVERRULED BY THE APEX COURT IN THE CASE OF HERO CYCLE P VT. LTD. VS. CIT REPORTED IN [2015] 379 ITR (PAGE 347). THE J URISDICTIONAL HIGH COURT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD. VS. CIT, 5 ITA NO.589/ASR/2018 (A.Y.2012-13) SURYA AUTOMOBILE PVT. LTD. VS. DCIT JALANDHAR, ITA NO. 224/2013 ORDER DATED 24.07.2015 [2016] 381 ITR 107 HELD THAT IF THE RESERVE FUNDS OF THE APP ELLANT WERE SUFFICIENT TO COVER THE INTEREST FREE ADVANCES, THEN NO ADDITION CAN BE MADE U/S 36(1)(III) OF THE ACT. FURTHER IT IS CATEGORICALLY HELD BY VARIOUS HIGH COURTS THAT WHERE BOTH BORROWED F UNDS AS WELL AS INTEREST FREE FUNDS ARE AVAILABLE, THEN THE DI SCRETION LIES IN THE HANDS OF THE ASSESSEE FOR UTILIZATION OF THOSE FUN DS AND NO INFERENCE CAN BE MADE THAT BORROWED FUNDS HAVE BEEN DI VERTED FOR NON-BUSINESS PURPOSE. FURTHER IF THERE ARE INTEREST FREE FUNDS AVAILABLE, A PRESUMPTION WOULD ARISE THAT INVESTMENT W OULD BE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WIT H THE COMPANY AND THE INTEREST FREE FUNDS WERE SUFFICIENT TO M AKE THE INVESTMENT. NOW COMING TO THE INSTANT CASE IT IS NOT IN D ISPUTE THAT THE ASSESSEE HAS RESERVED AND SURPLUS FUNDS TO THE TUNE OF RS.1,57,58,615.79 AS 1 ST APRIL, 2011 AND RS.1,82,04,877/- AS ON 31 ST MARCH, 2012 AND PAID UP CAPITAL TO THE TUNE OF RS.40,15,000/- IN THE RELEVANT FINANCIAL YEAR. FURTH ER IT IS NOT THE CASE OF THE REVENUE THAT THE INTEREST BEARING FUNDS HA VE BEEN UTILIZED FOR INCURRING THE EXPENSES OF THE FOREIGN TOU R OF THE ASSESSEE'S DIRECTOR AND FOR PURCHASING THE SHARES AS STATED ABOVE. HENCE WHILE FOLLOWING THE DICTUM OF APEX COURT IN THE CASES OF HERO CYCLE PVT. LTD. (SUPRA) AND THE JURISDICTIONA L HIGH COURT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD. VS. CI T, JALANDHAR, (SUPRA), WE DO NOT HAVE ANY HESITATION TO DELETE BOTH THE DISALLOWANCES UNDER CONSIDERATION AS SUSTAINED BY THE LD. CIT(A). 6 ITA NO.589/ASR/2018 (A.Y.2012-13) SURYA AUTOMOBILE PVT. LTD. VS. DCIT 4 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 06.08.2019. SD/- SD/- ( VIKRAM SINGH YADAV ) (N.K.CHOUDHRY) ACCOUNTANT MEMBER JUDICIAL ME MBER DATED: 06.08.2019 /PK/ PS. COPY OF THE ORDER FORWARDED TO: (1) M/S SURYA AUTOMOBILES PVT. LTD., HANUMANGARH ROAD , ABOHAR. (2) THE DY. CIT, CIRCLE-II, BATHINDA (3) THE CIT(A)-BATHINDA (4) THE CIT CONCERNED (5) THE SR DR, I.T.A.T., AMRITSAR TRUE COPY BY ORDER