DCIT, CC-I, Ludhiana V. M/s Genex Industries Ltd., Ludhiana

ITA 594/CHANDI/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2501 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 03-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHISH GUPTA
• Keywords: Commercial expediency

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BEN CH A, CHANDIGARH , . '.., # $, %& BEFORE: SH. SANJAY GARG, JM & DR. B.R.R. KUMAR, AM ITA NO. 592 TO 594/CHD/2018 ASSESSMENT YEARS : 2012-13 & 2014-15 THE DCIT CENTRAL CIRCLE-1 LUDHIANA M/S GENEX INDUSTRIES LTD. 228-G, INDUSTRIAL AREA-A CHEEMA CHOWK, LUDHIANA PAN NO: AAACB6770H APPELLANT RESPONDENT !' ASSESSEE BY : SHRI SANJAY SOOD #!' REVENUE BY : SHRI. ASHISH GUPTA $ %! & DATE OF HEARING : 23/10/2018 '()*! & DATE OF PRONOUNCEMENT : 31/10/2018 %'/ ORDER PER DR. B.R.R. KUMAR, A.M ALL THE ABOVE APPEALS HAVE BEEN FILED BY THE REVENU E AGAINST THE ORDER OF THE LD. CIT(A)-2, JALANDHAR DT. 22/02/2018. 2. SINCE THE ISSUES RAISED IN ALL THE APPEALS ARE C OMMON THEREFORE THEY ARE BEING DISPOSED OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. WE SHALL TAKE ITA NO. 592/CHD/2018 FOR DEALING AS A LEAD CASE WHEREIN REVENUE HAS RAISED FOLLOWING GROUNDS: 1. WHETHER THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FACT S IN DELETING THE ADDITION MADE BY ASSESSING OFFICER UNDER SECTION 36 .(I)(III) OF THE I.T.ACT, 1961 WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE HAS DIVERTED ITS INTEREST BEARING FUNDS TO THE SISTER / ASSOCIATE CONCERNS WITHOUT AN Y BUSINESS CONSIDERATION OR COMMERCIAL EXPEDIENCY AND ON THE OTHER HAND CLAIMED HUGE AMOUNT OF INTEREST EXPENDITURE IN THE P&L ACCOUNT. 2. WHETHER THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FACTS BY ALLOWING INTEREST UNDER SECTION 36(I)(III)N OF THE I.T. ACT, 1961 WIT HOUT APPRECIATING THE FACT THAT THE IMPUGNED INTEREST CLAIMED WAS CLEARLY FOR NON BUSIN ESS PURPOSE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING O FFICER HAS DISALLOWED THE ENTIRE INTEREST OF RS. 7,18,09,666/- DEBITED TO P&L ACCOUNT BY THE ASSESSEE ON THE GROUNDS THAT THE ASSESSEE IS PAYING INTEREST ON THE BANK LOANS, UNSECURED LOANS AND AT THE SAME TIME EXTENDING INTEREST FREE LOANS TO THE RELATED CONCERNS TO THE TUNE OF RS. 60.61 CRORES. 2 4. BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED AS UNDER: I. AMOUNT GIVEN TO PENEX POLYFAB PVT LTD IN SUBJECT PERIOD OF RS 60,61,00,000 IS OUT OF FRESH SHARE CAPITAL RAISED DURING THE YEAR F ROM M/S GENEX FINCAP PVT LTD WHICH IS MUCH MORE THAN AFORESAID AMOUNT & SAME IS NOT OUT OF INTEREST BEARING FUNDS; II. INTEREST CLAIMED IS ON TERM LOAN SANCTIONED FOR SPECIFIC PURPOSE AND CANNOT BE CORRELATED TO AMOUNT ADVANCED TO AFORESAID CONCE RN; III. SUPREME COURT IN HERO CYCLES 379 ITR 345 HAS O VERRULED P&H HIGH COURT DECISION IN ABHISHEK INDUSTRIES 286 ITR 1 AS RELIED BY LD. AO; IV. AS REGARDS TO DISALLOWANCE OF RS. 7,18,09,666 THE ASSESSING OFFICER HAS JUST RECORDED THAT THE ASSESSEE COMPANY HAS DIVERTED INT EREST-FREE FUNDS TO THE OTHER CONCERNS OF THE COMPANY. THE ASSESSING OFFICE R HAS NEVER ASKED THE ASSESSEE COMPANY TO SHOW CAUSE AS WHY THIS ADDITION SHOULD NOT BE MADE AS THE ASSESSEE COMPANY WAS ALWAYS READY AND WILLING T O ANSWER TO THE QUESTIONS OF THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS STATED THAT TOTAL INTEREST ADAPTED IN THE PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION IS AMOUNTING TO RS. 7, 18,09,666 BUT THE ASSESSING OFF ICER NEVER EVER GAVE THE BREAKUP OF THE SAID AMOUNT WHILE INCLUDING BANK CHA RGES. V. THE ASSESSEE COMPANY IS A MANUFACTURING UNIT HAV ING A TURNOVER OF RS. 3,44,77,68,347.8 L/-(RS.344 CRORES) FOR THIS HUGE T URNOVER THE ASSESSEE COMPANY HAS RAISED SOME TERM LOANS, WORKING CAPITAL LOANS A ND SOME AMOUNT FROM THE FAMILY MEMBERS IN THE SHAPE OF UNSECURED LOANS. THE WHOLE AMOUNT RAISED FOR BUSINESS OF MANUFACTURING ONLY. VI. THE BREAKUP OF THE INTEREST CLAIMED IS AS UNDER : 1.BANK CHARGES RS. 20,97,08,007.58 2 INTEREST ON UNSECURED LOANS RS. 20,34,196.37 3. INTEREST ON TERM LOANS RS. 1,50,21,866.92 4 INTEREST IN WORKING CAPITAL RS. 50,17,75,596.00 TOTAL RS. 7,18,0 9,666.87 THE ASSESSING OFFICER HAS DISALLOWED THIS EXPENDITU RE IN TOTO. VII. THE BARE PERUSAL OF THE BALANCE SHEET WOULD AL SO SHOW THAT THERE HAS BEEN AN INCREASE IN THE SHARE CAPITAL OF THE COMPAN Y BY RS.50 LAKHS AND SHARE PREMIUM OF RS 82.50 CRORES. THE TOTAL AMOUNT RAISED DURING THE FINANCIAL YEAR IS RS 83 CRORES. 3 VIII. THE DETAILS OF THE SHARE CAPITAL, SHARE PREM IUM AND THE ADVANCES GIVEN IS AS UNDER: SHARE CAPITAL RAISED 50,00,000 ADD: SHARE PREMIUM 82,50,00,000 TOTAL 83,00,00,000 LESS: ADVANCE TO GENEX POLYFABPRIVATE LTD. 60,61,0 0,000 BALANCE 22,39,00,000 5. THE ASSESSEE COMPANY IS LEFT WITH 22.39 CRORES O F INTEREST FREE FUNDS EVEN AFTER EXTENDING THE LOAN TO THE GROUP CONCERN WHICH CAN BE DECIPHERED FROM THE ABOVE TABLE. I. IN NUTSHELL THE DETAILS OF THE FINANCE COST / IN TEREST DEBITED TO P&L ACCOUNT IS AS UNDER: 4 6. BASED ON THE FACTS ABOVE THE LD. CIT(A) HAS DELE TED THE ADDITION BY ADJUDICATING AS UNDER: 4.2 I HAVE GONE THROUGH THE ASSESSMENT ORDER PASSED BY THE AO, SUBMISSIONS FILED BY THE APPELLANT AND FIND THAT A DISALLOWANCE OF RS . 7,18,09,666 HAS BEEN MADE BY THE AO UNDER SECTION 36 (1 )(III) OF THE IT ACT ON ACCOUNT OF INTEREST EXPENSES CLAIMED IN THE P& L ACCOUNT. THE DISALLOWANCE WAS M ADE BY THE AO ON THE GROUND THAT INTEREST-FREE LOANS HAVE BEEN GIVEN BY THE APPELLANT IN THE PERIOD UNDER. CONSIDERATION. DURING THE COURSE OF ASSESSME NT PROCEEDINGS, IT WAS FOUND BY THE AO THAT APPELLANT HAS GIVEN INTEREST FREE LO ANS AND ADVANCES OF RS.60,61,00,000 TO M/S GENEX POLYFAB PRIVATE LIMITE D DURING THE YEAR UNDER CONSIDERATION AND HAS ALSO CLAIMED INTEREST EXPENSE S OF RS. 7,18,09,666 IN THE P&L ACCOUNT. IT WAS HELD BY THE' AO THAT APPELLANT IS P AYING INTEREST ON THE BANK LOANS AND UNSECURED LOANS RAISED FROM THE FAMILY ME MBERS AND RELATED PARTIES AND AT THE SAME TIME HAS GIVEN INTEREST LOANS AND A DVANCES TO OTHER SISTER COMPANIES. IT IS SEEN FROM THE ORDER THAT AO HAS PL ACED RELIANCE ON THE JUDGEMENT OF HONOURABLE PUNJAB AND HARYANA HIGH COU RT GIVEN IN THE CASE OF ABHISHEK INDUSTRIES. ACCORDINGLY, IT WAS HELD THAT INTEREST-BEARING FUNDS HAVE BEEN DIVERTED AND HAVE NOT BEEN USED FOR BUSINESS P URPOSES AND THEREFORE, INTEREST EXPENDITURE CANNOT BE ALLOWED UNDER SECTIO N 36(L)(III) OF THE IT ACT. 4.3 THE APPELLANT HAS SUBMITTED THAT AO WAS NOT JUSTIFI ED IN MAKING A DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSES CLAIME D AS THE APPELLANT WAS NEVER GIVEN AN OPPORTUNITY TO EXPLAIN THIS ISSUE. I T IS SUBMITTED THAT AO HAS NEVER RAISED THIS ISSUE IN THE COURSE OF ASSESSMENT PROCE EDINGS AND THEREFORE DISALLOWANCE MADE ON THIS ACCOUNT IS NOT JUSTIFIED. THE APPELLANT HAS ALSO PLACED ON RECORD A COPY OF THE NOTE-SHEET TO SUPPORT ITS C ONTENTIONS. IT IS ALSO STATED THAT NO SHOW CAUSE NOTICE WAS EVER ISSUED BEFORE MAKING THE DISALLOWANCE. 4.4 THE APPELLANT HAS SUBMITTED THAT DURING THE PRECEDI NG YEAR FRESH SHARE CAPITAL INCLUDING SHARE PREMIUM OF RS. 82.50 CRORE WAS RAISED WHICH IS MUCH MORE THAN THE AMOUNT OF LOANS AND ADVANCES GIVEN TO OTHE R ENTITIES. IT IS FURTHER SUBMITTED THAT INTEREST CLAIMED IS ON ACCOUNT OF LO AN SANCTIONED FOR SPECIFIC PURPOSES AND THEREFORE, THIS AMOUNT CANNOT BE RELAT ED TO THE AMOUNT ADVANCED TO THE RELATED COMPANY. THE APPELLANT HAS STATED TH AT TERM LOANS ARE TAKEN AGAINST THE VEHICLES AND HAS FILED COMPLETE DETAILS OF THE SAME. THE FINANCIAL STATEMENTS HAVE BEEN PLACED ON RECORD IN THE COURSE OF ASSESSMENT PROCEEDINGS AND WERE ACCEPTED BY THE AO. THE APPELL ANT HAS PLACED RELIANCE ON THE JUDGEMENT OF HONOURABLE SUPREME COURT IN THE CASE OF HERO CYCLES AS REPORTED IN 379 ITR 345, WHICH IS AFTER THE DECISIO N OF HONOURABLE PUNJAB AND HARYANA HIGH COURT GIVEN IN THE CASE OF ABHISHEK IN DUSTRIES, WHICH HAS BEEN RELIED UPON BY THE AO WHILE MAKING THE DISALLOWANCE . 4.5 THE APPELLANT HAS FURTHER SUBMITTED THAT TOTAL TURN OVER IS RS. 344 CRORE AND TERM LOANS, WORKING CAPITAL LOANS AND OTHER UNSECUR ED LOANS HAVE BEEN RAISED FOR THE PURPOSES OF THE BUSINESS. IT IS ALSO STATED THA T AO HAS FAILED TO CONSIDER THE BREAKUP OF TOTAL FINANCIAL EXPENSES OF RS. 7.18 CRO RE GIVEN IN THE FINANCIAL STATEMENTS, WHICH HAS BEEN DISALLOWED BY THE AO. IT IS SUBMITTED THAT THIS AMOUNT CONSISTS OF RS. 2.09 CRORE OF BANK CHARGES ALSO, WH ICH COULD NOT HAVE BEEN DISALLOWED BY THE AO. IT IS STATED THAT AO WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE WITHOUT ESTABLISHING ANY LINKAGE AS TO HOW THESE FUNDS WERE DIVERTED. 4.6 THE APPELLANT HAS SUBMITTED THAT SUFFICIENT INT EREST FREE FUNDS WERE AVAILABLE . BUSINESS AND ADVANCES HAVE BEEN GIVEN T O GENEX POLYFAB PRIVATE LIMITED OUT OF THESE FUNDS. THE APPELLANT HAS ALSO PLACED RELIANCE ON THE JUDGEMENT OF HONOURABLE PUNJAB AND HARYANA HIGH COU RT IN THE CASE OF MAX INDIA LTD 398 ITR 209, IN THE CASE OF KAPSONS 381 I TR 204 AND ALSO IN THE CASE OF BRIGHT ENTERPRISES 381 ITR 107. 4.7 I HAVE CAREFULLY CONSIDERED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE JUDICIAL CITATIONS GIVEN THEREIN AND FIND THAT DISA LLOWANCE OF INTEREST HAS BEEN MADE BY THE AO BY LOOKING AT THE FINANCIAL STATEMEN TS OF THE APPELLANT. I FIND 5 THAT NO OPPORTUNITY WAS GIVEN TO THE APPELLANT IN T HE COURSE OF ASSESSMENT PROCEEDINGS BEFORE MAKING THE DISALLOWANCE ON THIS ISSUE. FURTHER, I FIND THAT CONTENTIONS OF THE APPELLANT WITH REGARD TO THE AVA ILABILITY OF INTEREST-FREE FUNDS ARE CORRECT AS IS SEEN FROM THE FINANCIAL STATEMENT S THAT SHARE CAPITAL INCLUDING SHARE PREMIUM OF RS. 82.50 CRORE WAS RAISED IN THE PRECEDING YEAR AND INTEREST- FREE LOANS AND ADVANCES OF RS. 60.61 CRORE HAS BEEN GIVEN TO THE RELATED PARTY IN THE CURRENT YEAR. THE APPELLANT HAS EXPLAINED THAT SHARE CAPITAL AND FREE RESERVES & SURPLUS AMOUNTING TO RS. 109.19 CRORE WERE AVAILA BLE AS ON 31/03/2012 AND THEREFORE, THE QUESTION OF TRANSFER OF INTEREST BEARING FUNDS DOES NOT RARISE. THE APPELLANT HAS ALSO CITED THE LATEST DECISION OF HONBLE ITAT CHANDIGARH BENCH IN THE CASE OF KISSAN FATS LTD. (2017) 162 ITD 404 ON THIS ISSUE. I HAVE ALSO GONE THROUGH THE LATEST DECISION S OF HONOURABLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF MAX INDIA LTD, KA PSONS AND BRIGHT ENTERPRISES AND FIND THAT IT HAS BEEN HELD BY THE HONOURABLE PU NJAB AND HARYANA HIGH COURT THAT NO DISALLOWANCE OF INTEREST COULD BE MADE, IF SUFFICIENT INTEREST FREE FUNDS ARE AVAILABLE IN THE BUSINESS. 4.8 THUS, CONSIDERING ALL THESE FACTORS AND JUDICIAL DE CISIONS, I HOLD THAT AO WAS NOT JUSTIFIED IN MAKING A DISALLOWANCE OF INTER EST CLAIMED UNDER SECTION 36(L)(III) OF THE IT ACT. ACCORDINGLY, AO IS BEING DIRECTED TO DELETE THE ADDITION OF RS. 7,18,09,666 MADE UNDER/THIS HEAD. 7. WE FIND THAT THE DECISION OF THE LD. CIT(A) IS B ASED ON THE RELEVANT FACTS PERTAINING TO THE FINANCIAL POSITION OF THE ASSESSE E AFTER DULY ANALYZING THE AVAILABILITY OF OWN FUNDS AND TAKING INTO CONSIDERA TION THE ORDERS OF THE TRIBUNAL, JUDGMENTS OF THE JURISDICTIONAL HIGH COURT. INTERFE RING OR ALTERING IN THE WELL REASONED ORDER OF THE LD. CIT(A) WOULD ONLY DISTURB THE SETTLED POSITION OF LAW IN FORCE AND HENCE THE ORDER OF THE LD. CIT(A) IS HERE BY CONFIRMED. 8. AS A RESULT, APPEAL OF THE REVENUE IS DISMISSED. SD/- SD/- . '.., # $, (SANJAY GARG ) ( DR. B.R.R. KUM AR, AM) ) / JUDICIAL MEMBER %& / ACCOUNTANT MEMBER AG DATE: 31/10/2018 (+! ,-.- COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. $ / CIT 4. $ / 01 THE CIT(A) 5. -2 45&456789 DR, ITAT, CHANDIGARH 6. 8:% GUARD FILE