M/s Deepak Fastners Ltd., Ludhiana V. Addl. CIT- Range- I, Ludhiana

ITA 601/CHANDI/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0033 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-06-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 23-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K J SHALLY
• Keywords: Proportionate interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 601/CHD/2013 ASSESSMENT YEAR: 2005-06 M/S DEEPAK FASTNERS LTD., VS THE ADDL.CIT, E-536, FOCAL POINT, RANGE-1, LUDHIANA. LUDHIANA. PAN: AAACD6282G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.J.SHALLY RESPONDENT BY : SHRI SUSHIL KUMAR,CIT-DR DATE OF HEARING : 28.04.2016 DATE OF PRONOUNCEMENT : 03.05.2016 O R D E R PER BHAVNESH SAINI,JM THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST THE ORDER OF LD. CIT(APPEALS)-II LUDHIANA DATED 28.03.2013 FOR ASSESSMENT YEAR 2005-06. 2. EARLIER THE APPEAL OF THE ASSESSEE WAS DISMISSED FOR DEFAULT. THE EX-PARTE ORDER WAS RECALLED BY AL LOWING MISCELLANEOUS APPLICATION OF THE ASSESSEE VIDE ORDE R DATED 11.12.2015 AND APPEAL OF THE ASSESSEE WAS FIX ED FOR HEARING ON MERIT. 2 3. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. 4. THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUND NOS. 3 AND 4 OF THE APPEAL. SAME ARE, THERE FORE, DISMISSED BEING NOT PRESSED. 5. ON GROUND NOS. 1 AND 2, ASSESSEE CHALLENGED THE DISALLOWANCE OF PART OF PROPORTIONATE INTEREST U/S 36(1)(III) OF THE ACT. 6. BRIEF FACTS ARE THAT ASSESSING OFFICER NOTED THA T ASSESSEE HAD ADVANCED INTEREST FREE LOAN OF RS. 1.2 8 CR TO ITS SISTER CONCERN M/S DLF INTERNATIONAL LTD. T HE ASSESSING OFFICER ALSO NOTED THAT ASSESSEE HAD INCU RRED AN INTEREST EXPENDITURE OF RS. 63.93 LACS. THE ASSE SSING OFFICER ASKED THE ASSESSEE TO EXPLAIN WHY PROPORTIO NATE INTEREST MAY NOT BE DISALLOWED FOLLOWING THE JUDGEM ENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S ABHISHEK INDUSTRIES LTD. THE ASSESSEE EXPLAINE D THAT ADVANCE WAS FOR BUSINESS PURPOSES. THE ASSESSE E SUBMITTED THAT AS PER AGREEMENT, BETWEEN ASSESSEE A ND M/S DLF INTERNATIONAL LTD., IT HAD PLACED ORDER FOR SUPPLY OF GOODS WITHIN THE SPECIFIED TIME TO M/S DL F INTERNATIONAL LTD. COPY OF THE AGREEMENT WAS FILED . M/S DLF INTERNATIONAL LTD. COULD NOT SUPPLY REQUIRE D GOODS AND ACCORDINGLY, INTEREST WAS CHARGED IN SUBSEQUENT YEAR BY THE ASSESSEE, AS AGREED. THE ASSESSEE SUBMITTED THAT ADVANCE WAS MADE OUT OF HIS 3 OWN RESERVES AND SURPLUS, THEREFORE, NO DISALLOWANC E UNDER SECTION 36(1)(III) OF THE ACT SHOULD BE MADE. THE ASSESSING OFFICER OBSERVED THAT THERE WAS NO EVIDEN CE OF ANY BUSINESS RELATION PRIOR TO THIS AND FOR THE PER IOD LATER THAN THIS. THE ASSESSING OFFICER REJECTED CONTENTION OF THE ASSESSEE AND DISALLOWED RS. 1,74,981/-. 7. THE ASSESSEE REITERATED CONTENTIONS BEFORE LD. CIT(APPEALS) AND IT WAS SUBMITTED THAT ASSESSEE FIL ED COPY OF THE AGREEMENT WITH M/S DLF INTERNATIONAL LT D. BEFORE ASSESSING OFFICER AND COPY OF THE ACCOUNT IN THE SUBSEQUENT YEAR WHERE M/S DLF INTERNATIONAL LTD. HA D SUPPLIED REQUISITE GOODS TO THE ASSESSEE AS PER AGREEMENT. 8. THE LD. CIT(APPEALS), CONSIDERING EXPLANATION OF THE ASSESSEE AND MATERIAL ON RECORD HELD THAT ADVAN CE OF RS. 1.28 CR GIVEN BY ASSESSEE TO M/S DLF INTERNATIONAL LTD. WAS, INFACT, A BUSINESS ADVANCE, THEREFORE, PROPORTIONATE DISALLOWANCE OF INTEREST O N THIS ADVANCE FOR THE PERIOD FROM 02.11.2004 TO 31.03.200 5 IS NOT JUSTIFIED. THE LD. CIT(APPEALS), HOWEVER, HELD THAT SINCE THERE IS A DELAY IN SUPPLY OF THE GOODS TO TH E ASSESSEE, THEREFORE, ASSESSEE IS ENTITLED TO CHARGE INTEREST AND ACCORDINGLY, DIRECTED TO CHARGE INTERE ST FROM JANUARY,2005 TO MARCH,2005 AND PARTLY ALLOWED THIS GROUND OF APPEAL OF THE ASSESSEE. HIS FIND INGS IN 4 PARA 3.3 OF THE IMPUGNED ORDER ARE REPRODUCED AS UNDER: 3.3 I HAVE CAREFULLY CONSIDERED THE APPELLANT'S SUBMISSIONS AND PERUSED THE DOCUMENTS FILED BY THE APPELLANT. AS PER THE AGREEMENT BETWEEN THE APPELLA NT AND M/S DFL INTERNATIONAL LTD. THE APPELLANT PLACED AN ORDER FOR SUPPLY OF GOODS WITH M7S DFL INTERNATIONAL LTD. VIDE AGREEMENT DATED 02.11.2004. AS PER THE AGREEMENT, THE DELIVERY DA TE FOR THE GOODS WAS BETWEEN JANUARY, 2005JTO MAY, 2005. FURTHER AS PER TERMS OF THE AGREEMENT IN CASE M/S DFL INTERNATIONAL LTD. DID NOT SUPPLY THE GOODS I N TIME INTEREST WAS TO BE CHARGED ON ADVANCE PAYMENT. IT IS ALSO SEEN THAT AS PER THE COPY OF ACCOUNT SUBMITTED BY THE APPELLANT FOR THE SUBSEQUENT YEAR, M/S DFL INTERNATIONAL LTD. HAD SUPPLIED THE GOODS AS PER THE AGREEMENT AND INFACT THERE WAS A CREDIT BALANCE FROM 09.11.2005 ONWARDS. KEEPING IN VIEW THE AFORESAID FACTS, I HOLD THAT THE ADVANCE OF RS.1.28 CRORES GIVEN BY THE APPELLANT ON 02.11.2004 WAS INFACT A BUSINESS ADVANCE TO M/S DFL INTERNATIONAL LTD. THE PROPORTIONATE DISALLOWANCE OF INTEREST ON THIS ADVANCE MADE BY THE AO FOR THE PERIO D 02.11.2004 TO 31.03.2005 IS THEREFORE NOT JUSTIFIED . HOWEVER AS PER THE AGREEMENT, THE APPELLANT WAS ENTITLED TO CHARGE INTEREST ON ADVANCE GIVEN TO M/S DFL INTERNATIONAL LTD. IN THE EVENTUALITY OF DELAY I N SUPPLY OF GOODS. FURTHER AS PER THE AGREEMENT GOODS WERE TO BE SUPPLIED FROM JANUARY, 2005 ONWARDS. NO GOODS WERE SUPPLIED TILL 31.3.2005. IN THESE CIRCUMSTANCES, THE APPELLANT SHOULD HAVE CHARGED INTEREST ON THE ADVANCE FROM JANUARY, 2005 ONWARDS. THE APPELLANT HAS NOT CHARGED INTEREST FOR THE PERIOD JANUARY, 2005 TO MARCH, 2005 BUT AS PER H IS SUBMISSIONS, CHARGED THE INTEREST FOR THE SUBSEQUENT YEAR. THE APPELLANT IS FOLLOWING MERCANTILE SYSTEM O F ACCOUNT AND ANY INCOME DUE TO THE APPELLANT FOR THE YE AR UNDER REFERENCE SHOULD BE ACCOUNTED FOR DURING THE Y EAR ITSELF. IN THESE CIRCUMSTANCES, I HOLD THAT THE INC OME ON ACCOUNT OF INTEREST ON ADVANCE GIVEN TO M/S DFL 5 INTERNATIONAL LTD. FROM JANUARY, 2005 TO MARCH, 200 5 IS TAXABLE IN THE CURRENT YEAR ITSELF. EVEN IF NO INTE REST WAS CHARGED BY THE APPELLANT FOR THE PERIOD JAN 2005 TO MARCH 2005 IN THE SUBSEQUENT YEAR ALSO, IT WOULD BE CASE OF INCOME FOREGONE AND THE SAME WOULD BE CHARGEABLE TO TAX IN THE CURRENT YEAR. THE AO IS DIRECTED TO COMPU TE THE PROPORTIONATE INTEREST FOR THIS PERIOD AND RESTRICT THE ADDITION ACCORDINGLY. THESE GROUNDS OF APPEAL ARE ACCORDINGLY PARTLY ALLOWED. 9. AFTER CONSIDERING RIVAL SUBMISSIONS, WE ARE OF T HE VIEW LD. CIT(APPEALS) WAS NOT JUSTIFIED IN DIRECTIN G TO CHARGE INTEREST ON ADVANCE GIVEN TO M/S DLF INTERNATIONAL LTD. FROM JANUARY, 2005 TO MARCH,2005 IN ASSESSMENT YEAR UNDER APPEAL. THE LD. CIT(APPEALS) HELD THAT ADVANCE OF RS. 1.28 CR GIVEN TO M/S DLF INTERNATIONAL LTD. WAS BUSINESS ADVANCE, THEREFORE, NO DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT SH OULD BE MADE AGAINST THE ASSESSEE. THERE IS NO DEPARTME NTAL APPEAL AGAINST THESE FINDINGS OF THE LD. CIT(APPEAL S). THEREFORE, NO DISALLOWANCE REMAINED UNDER SECTION 36(1)(III) OF THE ACT AGAINST THE ASSESSEE. THE LD . CIT(APPEALS) DIRECTED TO CHARGE INTEREST ON ACCOUNT OF DELAY IN SUPPLYING THE GOODS TO THE ASSESSEE. THE LD. CIT(APPEALS) NOTED IN HIS FINDINGS THAT AS PER AGREEMENT, THE DELIVERY DATE FOR GOODS WAS BETWEEN JANUARY,2005 TO MAY,2005 WHICH FACT ITSELF IS MENTIONED IN THE AGREEMENT, COPY OF WHICH IS ALSO F ILED AT PAGE 17 OF THE PAPER BOOK. THEREFORE, M/S DLF INTERNATIONAL LTD. COULD HAVE DELIVERED GOODS TO TH E ASSESSEE DURING JANUARY,2005 TO MAY,2005. THUS, NO 6 CAUSE OF ACTION ARISES IN FAVOUR OF THE ASSESSEE FO R CHARGING ANY INTEREST IN FINANCIAL YEAR UNDER APPEA L I.E. FROM JANUARY,2005 TO MARCH,2005. THE FINDINGS OF L D. CIT(APPEALS) ARE ABSOLUTELY INCORRECT AND WOULD NOT SURVIVE FOR MAKING ANY ADDITION ON ACCOUNT OF CHARG ING ANY INTEREST DURING THE FINANCIAL YEAR UNLESS MAY,2 005 HAS ENDED. THE ASSESSEE COULD NOT CHARGE ANY INTER EST FROM M/S DLF INTERNATIONAL LTD. TILL MAY,2005. 9(I) FURTHER, THE LD. CIT(APPEALS) HAS CHANGED TH E WHOLE COMPLEXION OF THE ADDITION AS MADE BY THE ASSESSING OFFICER BECAUSE ASSESSING OFFICER MADE DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT BY DISALLOWING PROPORTIONATE INTEREST. THUS, THE LD. CIT(APPEALS) ENHANCED THE ASSESSMENT IN THIS WAY BY MAKING INDEPENDENT ADDITION AGAINST THE ASSESSEE IN THE IMPUGNED ORDER. HOWEVER, IT IS NOT CLARIFIED FROM THE IMPUGNED ORDER WHETHER LD. CIT(APPEALS) HAS GIVEN A NY NOTICE FOR ENHANCING THE ASSESSMENT AS PER SECTION 251(2) OF THE INCOME TAX ACT BEFORE ISSUING DIRECTI ON IN THIS REGARD ON NEW AND INDEPENDENT ISSUE. THEREFOR E, IN THE ABSENCE OF GIVING ANY OPPORTUNITY TO THE ASSESS EE FOR MAKING ENHANCEMENT TO THE ASSESSEE, NO ADDITION COULD BE MADE AGAINST THE ASSESSEE. 10. IN VIEW OF THE ABOVE DISCUSSION, WE SET ASIDE P ART OF THE ORDER OF THE LD. CIT(APPEALS) IN DIRECTING T O CHARGE INTEREST ON ADVANCE GIVEN TO M/S DLF INTERNATIONAL LTD. FROM JANUARY,2005 TO MARCH,2005 7 AND DELETE HIS FINDINGS ACCORDINGLY. THUS, ASSESSI NG OFFICER SHALL NOT MAKE ANY ADDITION ON THIS ISSUE. 11. IN THE RESULT, GROUND NOS. 1 AND 2 OF THE APPEA L OF THE ASSESSEE ARE ALLOWED. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- ( ANNAPURNA GUPTA) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 3 RD MAY,2016. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT,DR ASSISTANT REGISTRAR, ITAT/CHD