M/s Moira Steel Ltd., Indore V. The DCIT 1(1), Indore

ITA 593/IND/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 5765 (ITAT-INDORE)
• Duration Of Justice: 3 year(s) 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 02-03-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 04-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MOHD JAVED
• Assessee Lawyers: C P RAWKA

Judgement Text

DCIT VS. M/S.MOIRA STEEL LTD.,INDORE I.T.A.NO. 593/IND/2013 A.Y.2005-06 PAGE 1 OF 11 , , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE .. , . . , # BEFORE SHRI C. M. GARG, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER . . /. I.T.A. NO. 593/IND/2013 / ASSESSMENT YEAR: 2005-06 M/S. MOIRA STEEL LIMITED, SHANIVAR DARPAN PRESS COMPLEX, A.B. ROAD, INDORE VS. DY. CIT, 1(1), INDORE. / / / / APPELLANT / / / / RESPONDENT .../ PAN: AABCM2051K / / / / APPELLANT BY SHRI C.P.RAWKA, C.A. / / / / RESPONDENT BY SHRI MOHD. JAVED, DR / / / / DATE OF HEARING 02.03.2017 / / / / DATE OF PRONOUNCEMENT 03.03.2017 / / / / O R D E R PER O.P. MEENA, ACCOUTANT MEMEBR THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-I, INDORE,[HER EINAFTER REFERRED TO AS THE CIT(A)] DATED 30.08.2013. THIS A PPEAL DCIT VS. M/S.MOIRA STEEL LTD.,INDORE I.T.A.NO. 593/IND/2013 A.Y.2005-06 PAGE 2 OF 11 PERTAINS TO ASSESSMENT YEAR 2005-06 AS AGAINST APPE AL DECIDED IN RESPECT OF ASSESSMENT ORDER DATED 16.12. 2010 PASSED U/S. 143(3)/147 OF INCOME TAX ACT, 1961(HER EIN AFTER REFERRED TO AS 'THE ACT) BY THE DCIT, 1(1), INDORE [HEREINAFTER REFERRED TO AS THE AO]. 1. THE SOLE GROUND RELATES TO CONFIRMING THE DISALLOWA NCE OF INTEREST OF RS. 4,36,874/-. 1.1 SUCCINCTLY, FACTS AS CULLED OUT FROM THE ORDERS OF LOWER AUTHORITIES ARE THAT THE ASSESSEE HAS FILED RETURN OF INCOME DECLARING LOSS OF RS. 13,48,849/- ON 31.10.2005. TH E ASSESSEE COMPANY HAS NOT PAID ANY MAT AS CLAIMED TO BE SICK COMPANY REGISTERED WITH BIFR. DURING THE COURSE OF ASSESSME NT PROCEEDINGS, IT WAS NOTICED THAT THE ASSESSEE HAS C LAIMED INTEREST OF RS. 8,07,778/-, WHEREAS THE ASSESSEE HA S GIVEN ADVANCE OF RS. 1,15,51,278/-. THEREFORE, THE ASSESS EE WAS ASKED TO FURNISH DETAILS OF THESE ADVANCES AND INTE REST CHARGED THEREON. IN RESPONSE TO WHICH, IT WAS SUBMITTED THA T NO INTEREST ON LOANS OF RS. 47,94,670/-WAS CHARGED AS THESE WERE DCIT VS. M/S.MOIRA STEEL LTD.,INDORE I.T.A.NO. 593/IND/2013 A.Y.2005-06 PAGE 3 OF 11 GIVEN TO PARTIES AS BUSINESS TRANSACTION. ON PERUSA L OF THE DETAILS, THE AO FOUND THAT THERE MAY NOT BE ANY BUS INESS TRANSACTION LOOKING TO THE NATURE OF THE BUSINESS O F THE ASSESSEE IN RESPECT OF FOLLOWING PARTIES. HENCE, TH E ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY INTEREST ON THE S AME HAS NOT BEEN CHARGED AND TO BE DISALLOWED. RS. DISALLOWANCE OF INTEREST 1.SMT. SADHNA TODI 3,08,484/- 24,049/- 2.NICG COMBINES PVT.LTD. 19,20,735/- 2,48,497/- 3.SHRI VIMAL TODI 3,00,762/- 42,106/- 4.AVI EDUCATIONAL & CULTURAL SOCIETY 19,00,000/- 22,166/- 5.SMT. NIDHI SINGHANIA 3,25,000/- 45,500/- 6.SHRI PAWAN SINGHANIA 39,689/- 54,556/- TOTAL 47,94,670/- 4,36,874/- SINCE THE ASSESSEE HAS FAILED TO FURNISH EXPLANATIO N REGARDING NON-CHARGING OF INTEREST ON THE LOANS/ADVANCES GIVE N AS MENTIONED ABOVE. HENCE, THE AO WORKED OUT DISALLOWA BLE INTEREST IN RESPECT OF ABOVE PARTIES AS MENTIONED I N COLUMN DCIT VS. M/S.MOIRA STEEL LTD.,INDORE I.T.A.NO. 593/IND/2013 A.Y.2005-06 PAGE 4 OF 11 NO.3 ABOVE TABLE AND DISALLOWED THE SAME BY OBSERVI NG THAT THE ASSESSEE HAS DIVERTED ITS INTEREST BEARING FUNDS FO R NON- BUSINESS PURPOSES AND HAS, THUS, INFLATED THE EXPEN DITURE OF INTEREST, WHICH WAS OTHERWISE NOT REQUIRED AT ALL. IN SUPPORT OF HIS CONTENTION, THE AO ALSO PLACED RELIANCE ON THE DECISION OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. H.R. SUGAR FACTORY PVT. LIMITED, (1991) 187 ITR 363 (ALL) AND ALSO PLACED RELIANCE ON THE DECISIONS IN THE CASE OF CIT VS. MO TOR GENERAL FINANCE LIMITED, 254 ITR 449 (DEL), INDIAN METALS & FERRO ALLOYS LIMITED VS. CIT, (1992) 193 ITR 344 (ORISSA) AND PHALTHAN SUGAR WORKS LTD. VS. CWT, (1994)208 ITR 98 9 (BOM). 1.2 BEING AGGRIEVED WITH THE ORDER, THE ASSESSEE CARRIE D THE MATTER BEFORE THE LD. CIT(A). IN THE APPEAL, THE LD . CIT(A) NOTED THAT INITIALLY THE ASSESSEE REPLIED THAT THE LOANS AND ADVANCES ARE RELATED TO BUSINESS, BUT WHEN THE AO ASKED TO S PECIFY THE NATURE OF BUSINESS WITH THESE SIX PARTIES, THE ASSE SSEE COULD NOT ESTABLISH ANY BUSINESS RELATION. HENCE, THE CIT (A) OBSERVED DCIT VS. M/S.MOIRA STEEL LTD.,INDORE I.T.A.NO. 593/IND/2013 A.Y.2005-06 PAGE 5 OF 11 THAT THE LOANS AND ADVANCES OF RS. 47,94,670/- GIVE N TO THE SIX PARTIES IS WITHOUT ANY BUSINESS PURPOSE. THE ONUS W AS ON THE ASSESSEE TO SHOW THAT SUCH ADVANCES WERE NOT OUT OF INTEREST BEARING FUNDS, BUT THE ASSESSEE FAILED TO ESTABLISH THE SAME. IF INTEREST BEARING FUNDS FROM BANK, MPFC AND OTHERS H AS GONE INTO EXTENDING SUCH NON-INTEREST BEARING AND NON-BE ARING ADVANCE, THEN THE DISALLOWANCE U/S 36(1)(III) OF TH E ACT IS FULLY JUSTIFIED. THE LD. CIT(A) ALSO PLACED RELIANCE TO F ORTIFY HIS VIEW ON THE DECISION OF ABHISHEK INDUSTRIES LIMITED, 286 ITR 1 ( P & H) & MADHAV PRASAD JATIA,1 18 ITR 200 (S.C.) AND CO NFIRMED THE DISALLOWANCE SO MADE. 1.3 BEING AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THE ASSESSEE HAS PAID INTEREST OF RS. 3,58,074/- TO BANK, RS. 4,02,148/- TO MPFC AND RS. 42,556/- TO OTHERS TOTAL LING TO RS. 8,02,778/- AND THE ASSESSEE COMPANY HAS EARNED INTE REST INCOME OF RS. 3,48,683/- ( RS. 2,93,583 + RS. 55,10 0/- ) AS DCIT VS. M/S.MOIRA STEEL LTD.,INDORE I.T.A.NO. 593/IND/2013 A.Y.2005-06 PAGE 6 OF 11 REFLECTED IN SCHEDULE I TO PROFIT AND LOSS ACCOUNT. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS N O INTEREST PAYMENT EXCEPT THE INTEREST PAYMENT OF RS. 8,02,778 /- PAID TO BANK, MPFC AND OTHERS AS AGAINST WHICH THE ASSESSEE WAS HAVING INTEREST FREE LOANS OF RS. 1,48,59,514/- AS AGAINST ALLEGED INTEREST FREE ADVANCES OF RS. 47,97,670/-. THEREFORE, PRIMA FACIE, THERE IS NO ELEMENT OF NOT CHARGING TH E INTEREST FROM THE PARTIES AS STATED IN THE ASSESSMENT ORDER AND APPELLATE ORDER. THE PAYMENT OF INTEREST TO FINANCI AL INSTITUTION AND BANK HAS NO NEXUS WITH THE ADVANCING NON-INTERE ST BEARING LOANS. AS AGAINST INTEREST PAYMENT OF RS. 4 2,556/- PAID TO OTHERS, THE ASSESSEE HAS RECEIVED INTEREST OF RS . 2,93,583/- AND RS. 55,100/-. AS SUCH, NO DISALLOWANCE OF INTER EST IS CALLED FOR. 1.4 ON THE OTHER HAND, THE LD. DR SUBMITTED THAT DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS EXCEPT CLAIMING TH AT THE LOANS GIVEN TO PARTIES WERE BUSINESS TRANSACTIONS, NO OTHER EXPLANATION WAS PROVIDED IN SUPPORT OF THEIR CLAIM THAT THE DCIT VS. M/S.MOIRA STEEL LTD.,INDORE I.T.A.NO. 593/IND/2013 A.Y.2005-06 PAGE 7 OF 11 LOANS AND ADVANCES AMOUNTING TO RS. 47,94,670/- TO SIX PARTIES WERE GIVEN FOR BUSINESS PURPOSES, WHEREAS, ON THE OTHER HAND, THE ASSESSEE HAS TAKEN LOAN FROM BANK A S WELL AS MPFC ON WHICH INTEREST OF RS. 3,58,074/- AND INTERE ST OF RS. 4,02,148/- RESPECTIVELY HAS BEEN PAID. THE AO HAS C LEARLY ESTABLISHED THAT THE LOANS AND ADVANCES GIVEN TO SI X PARTIES WERE NOT FOR THE BUSINESS PURPOSES OR MOTIVE. THERE FORE, THE AO HAS CORRECTLY MADE DISALLOWANCE OF INTEREST ON A CCOUNT OF DIVERSION OF INTEREST BEARING FUNDS FOR NON-BUSINES S PURPOSES BY RELYING ON THE DECISION OF HON'BLE ALLAHABAD HIG H COURT IN THE CASE OF CIT VS. H. R. SUGAR FACTORY PRIVATE LIM ITED, (1991) 187 ITR 363 (ALL), WHEREIN IT WAS HELD THAT HAD THI S MONEY BEEN NOT ADVANCED TO THE DIRECTORS, IT WOULD HAVE B EEN AVAILABLE TO THE ASSESSEE FOR ITS BUSINESS PURPOSES AND TO THAT EXTENT IT MAY NOT HAVE BEEN NECESSARY TO BORROW FRO M THE BANKS. THE LD. DR FURTHER SUBMITTED THAT THE ASSES SEE HAS ALSO NOT BEEN ABLE TO ESTABLISH ANY BUSINESS RELATI ON WITH THE AFORESAID PARTIES AND ALSO FAILED TO ESTABLISH THAT THE SAME WERE DCIT VS. M/S.MOIRA STEEL LTD.,INDORE I.T.A.NO. 593/IND/2013 A.Y.2005-06 PAGE 8 OF 11 NOT GIVEN OUT OF INTEREST BEARING FUNDS FROM THE BA NK, M.P.F.C. AND OTHERS. THEREFORE, THE ORDER OF THE LD. CIT(A) MAY BE UPHELD. 1.5 WE HAVE CONSIDERED THE FACTS, RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT THE ASSESSEE HAS PAID INTEREST OF RS. 3,58,074/- TO BAN K, RS. 4,02,148/- TO MPFC AND RS. 42,556/- TO OTHERS TOTAL LING TO RS. 8,02,778/- ON THE LOANS AND ADVANCES TAKEN. IT IS N OTICED THAT THE ASSESSEE HAD GIVEN ADVANCES OF RS. 1,15,51,278/ - AS IS REFLECTED IN THE BALANCE SHEET OF THE ASSESSEE. THE AO EXAMINED THE SAME AND FOUND THAT THE ADVANCES OF RS.47,94,67 0/- TO AFORESAID SIX PARTIES AS MENTIONED IN TABLE GIVEN I N PARA 1.1 ABOVE, NO INTEREST WAS CHARGED. THEREFORE, IT IS A CLEAR CUT CASE OF DIVERSION OF INTEREST BEARING FUNDS FOR NON-BUSI NESS PURPOSES AND, THUS, INFLATING OF EXPENDITURE ON ACC OUNT OF INTEREST. WE ALSO FIND THAT THE ABOVESAID SIX PARTI ES INCLUDING DIRECTORS OF THE ASSESSEE COMPANY TO WHOM INTEREST FREE LOANS DCIT VS. M/S.MOIRA STEEL LTD.,INDORE I.T.A.NO. 593/IND/2013 A.Y.2005-06 PAGE 9 OF 11 AND ADVANCES WERE GIVEN, HAVE NO BUSINESS DEALING W ITH THE ASSESSEE COMPANY. WE FIND THAT LD. AUTHORIZED REPRE SENTATIVE OF THE ASSESSEE HAS CLAIMED THAT INTEREST FREE LOAN S OF RS. 1,48,59,514/- WERE AVAILABLE WITH THE ASSESSEE COMP ANY. HOWEVER, NO EVIDENCE HAS BEEN ADDUCED TO ESTABLIS H THAT INTEREST FREE ADVANCES WERE GIVEN OUT OF THESE INTE REST FREE LOANS/ADVANCES. WE FURTHER FIND THAT THE ASSESSEE H AS MADE INVESTMENT IN FIXED ASSETS OF RS. 5,03,72,792/- AND INVESTMENT OF RS. 5,09,780/-, HENCE, THERE IS NO SURPLUS FUND WHICH COULD HAVE BEEN UTILIZED FOR GIVING INTEREST FREE ADVANCE S OR LOANS.. FURTHER, WE FIND THAT THE ASSESSEE HAS FAILED TO FU RNISH ANY EXPLANATION REGARDING NON-CHARGING OF INTEREST ON T HE AFORESAID ADVANCES BEFORE THE AO DURING THE COURSE OF ASSESSM ENT PROCEEDINGS AND ALSO BEFORE THE CIT(A). WE FIND THA T THE ASSESSEE HAS FAILED TO DISCHARGE ITS PRIMARY ONUS I N SUPPORT OF HIS CLAIM THAT INTEREST FREE FUNDS WERE AVAILABLE O UT OF WHICH THE AFORESAID INTEREST FREE ADVANCES WERE GIVEN AND THAT THE ADVANCES GIVEN WERE FOR THE BUSINESS PURPOSES. THER EFORE, THE DCIT VS. M/S.MOIRA STEEL LTD.,INDORE I.T.A.NO. 593/IND/2013 A.Y.2005-06 PAGE 10 OF 11 AO WAS RIGHT IN APPLYING THE RATIO OF THE DECISION OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. H.R. SU GAR FACTORY PVT. LIMITED, (1991) 187 ITR 363 (ALL), WHEREIN IT WAS HELD AS UNDER :- HAD THIS MONEY BEEN NOT ADVANCED TO THE DIRECTORS, IT WOULD HAVE BEEN AVAILABLE TO THE ASSESSEE FOR ITS BUSINESS PURPOSES AND TO THAT EXTENT IT MAY NOT HAV E BEEN NECESSARY TO BORROW FROM THE BANKS. FURTHER, OUR VIEW IS ALSO SUPPORTED BY THE DECISIO N IN THE CASE OF ABHISHEK INDUSTRIES LIMITED, 286 ITR 1 ( P & H) & MADHAV PRASAD JATIA,1 18 ITR 200 (S.C.) AS RELIED UPON BY THE LD. CIT(A). IN THE LIGHT OF ABOVE FACTS, THE GROUND OF APPEAL TAKEN BY THE ASSESSEE IS DISMISSED. 1.6 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMI SSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD MARCH, 2017. SD/- ( .. ) (C.M.GARG) JUDICIAL MEMBER SD/- (..) (O.P.MEENA) ACCOUNTANT MEMBER / DATED :3 RD MARCH, 2017 DCIT VS. M/S.MOIRA STEEL LTD.,INDORE I.T.A.NO. 593/IND/2013 A.Y.2005-06 PAGE 11 OF 11