M/S. NARENDRA INDUSTRIES, Burhanpur V. THE ACIT, Khandwa

ITA 644/IND/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 5785 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 22-02-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 16-09-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MOHD JAVED
• Assessee Lawyers: S N AGARWAL SHRI PANKAJ MOGRA
• Keywords: Commercial expediency

Judgement Text

M/S. NARENDA INDUSTRIES VS ACIT,KHANDWA I.T.A.NO. 644/IND/2015 PAGE 1 OF 10 , , 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.644/IND/2015 / ASSESSMENT YEAR:2010-11 M/S. NARENDRA INDUSTRIES, BAHADARPUR ROAD, BURHANPUR VS. ACIT KHANDWA / / / / APPELLANT / / / / RESPONDENT .../ PAN: AAAFN7193D / / / / APPELLANT BY SHRI S.N. AGARWAL,& SHRI PANKAJ MOGRA CA / / / / RESPONDENT BY SHRI MOHD. JAVED, D.R. / / / / DATE OF HEARING 22.02.2017 / / / / DATE OF PRONOUNCEMENT 28.02.2017 / / / / O R D E R PER O.P. MEENA, ACCOUTANT MEMEBR. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, INDORE [IN SHORT CIT (A)] DATED 30.04.2015 FOR THE ASSESSMENT YEAR 2010-11 ON FOLLOWING GROUNDS: M/S. NARENDA INDUSTRIES VS ACIT,KHANDWA I.T.A.NO. 644/IND/2015 PAGE 2 OF 10 1. THE LD. CIT (A) HAS ERRED IN CONFIRMING THE ADDITIO N OF RS.11,60,840/- ON ACCOUNT OF INTEREST PAYMENTS ON T HE GROUND THAT THE BORROWED FUNDS HAVE BEEN DIVERTED F OR NON BUSINESS PURPOSES. 1.1. IT WAS PROVED BEFORE THE LOWER AUTHORITIES THAT THE ASSESSEE HAD SUFFICIENT CAPITAL AND INTEREST-FREE F UNDS. NO NEXUS HAS BEEN PROVED; BY THE LD. AO, THAT BORROWED FUNDS HAVE BEEN UTILIZED FOR INTEREST FREE ADVANCES. 1.2. THE LD. CIT (A) DID NOT CONSIDER THE CASES CITED B EFORE HIM. 2. THE ADDITION OF RS. 11,60,840/- MAY PLEASE BE DELE TED OR IN THE ALTERNATIVE RESTRICTED TO REASONABLE FIGURE. 3. THE LD. CIT(A) HAS ERRED IN MAINTAINING THE ADDITIO N OF RS.86,346/- BEING THE UNDERVALUATION OF STOCK. THE SAME MAY BE DELETED OR IN THE ALTERNATIVE THE AO MAY BE DIRECTED TO REDUCE THE INCOME IN THE SUBSEQUENT YEAR. 1. GROUND NO. 1 AND 2 RELATE TO CONFIRMATION OF DISALL OWANCE OF INTEREST OF RS. 11,60,840/- HENCE, THESE ARE BEING CONSIDERED TOGETHER. 1.1. SUCCINCTLY, FACTS AS CULLED OUT FROM THE ORDERS OF LOWER AUTHORITIES ARE THAT THE ASSESSEE DERIVES INCOME FR OM TRADING OF SOYA OIL. F.P., TUAR, MUSTARD AND COTTONSEEDS. THE ASSESSEE HAS FILED RETURN OF INCOME ON 30.09.2010 DECLARING TOTAL INCO ME OF RS.93,73,320/-. THE AO FOUND THAT THE ASSESSEE HAS ADVANCED INTEREST BEARING FUNDS TO SOME OF PERSONS FROM WHICH EITHER NO INTEREST IS CHARGED OR THE SAME IS CHARGED AT LESSE R RATE WHEREAS THE M/S. NARENDA INDUSTRIES VS ACIT,KHANDWA I.T.A.NO. 644/IND/2015 PAGE 3 OF 10 ASSESSEE HAS PAID INTEREST @ 12% ON LOAN TAKEN. THE AO THEREFORE, WORKED OUT DISALLOWANCE OF INTEREST AS DETAILED BELOW: NAME OF THE CONCERN PERIO D IN DAYS AMOUNT INTEREST CHARGED DISALLOWANCE OF INTEREST @ 12% 1.BALGAVIND JI AGRAWAL 365 1,00,00,000 NIL 1,20,000 2.RAGHUNATH & CO. 5 MONT- HS 25,00,000 NIL 1,25,000 3.RAGHUNATH & CO. 365 DAYS 76,32,000 NIL 9,15,840 TOTAL INTEREST DISALLOWED 11,60,840/- 1.1.1. IN VIEW OF ABOVE, THE AO DISALLOWED THE INTEREST OF RS. 11,60,840/- BY OBSERVING THAT THE ASSESSEE HAS DIVE RTED INTEREST BEARING FUNDS FOR ADVANCING THE SAME WITHOUT INTERES T OR ON LESSER SIDE. 1.2. BEING, AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFOR E THE LD. CIT (A). HOWEVER, LD. CIT(A) CONFIRMED THE ACTION OF TH E AO BY OBSERVING THAT THE ASSESSEE HAS FAILED TO CONTROVERT THE FIND ING OF THE AO. THE CONTENTION OF THE ASSESSEE THAT IT HAD SUFFICIENT I NTEREST-FREE FUNDS AVAILABLE OUT OF WHICH INTEREST-FREE FUNDS ADVANCES WERE GIVEN WAS NOT FOUND ACCEPTABLE. 1.3. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BE FORE THE TRIBUNAL. THE LD. A.R. SUBMITTED THAT THE OBSERVATI ON OF THE AO IS M/S. NARENDA INDUSTRIES VS ACIT,KHANDWA I.T.A.NO. 644/IND/2015 PAGE 4 OF 10 NOT CORRECT ON THE FACTS OF THE CASE. THE LD. A.R. SUBMITTED A TABLE DEMONSTRATING THAT THE ASSESSEE HAS SUBSTANTIAL INT EREST-FREE FUNDS OF RS. 34,42,80,122/- (CONSISTING OF PARTNERS CAPIT AL OF RS. 11,10,75,722/- AND LOANS & DEPOSIT FROM RELATIVES O F RS. 5,46,41,437/-) AS AGAINST THE INTEREST BEARING FUN DS OF RS. 10,74,96,222/-. THE LD. A.R. HAS FILED A TABLE DEPI CTING THE DETAILS OF FUNDS UTILIZATION OF INTEREST-FREE FUNDS AND INT EREST BEARING FUNDS, WHICH IS SUPPORTED BY THE COPY OF BALANCE SHE ET APPEARING AT PAGE NO 18 TO 19 OF PAPER BOOK. ACCORDING TO WHICH F UNDS OF RS. 42,87,94,274/- HAVE BEEN UTILIZED FOR BUSINESS PU RPOSE IN FIXED ASSETS, LOAN AND ADVANCES, SUNDRY DEBTORS, CASH AND BANK BALANCES, ETC. FROM THE ABOVE FACTS AND DATA, THE L D. A.R. CONTENDED THAT THE ASSESSEE HAS NOT DIVERTED ITS IN TEREST BEARING FUNDS FOR NON-BUSINESS PURPOSES. THEREFORE, THERE WAS NO QUESTION OF DIVERSION OF INTEREST BEARING FUNDS BY THE ASSES SEE. THUS, THE DISALLOWANCE AS MADE BY THE AO IS TOTALLY WRONG. THE LD. A.R. FURTHER SUBMITTED THAT ABOVE FACTS OF THE CASE SHOWS THAT ADVANCES TO ABOVE PERSONS AS MENTIONED IN ASSESSMENT ORDER FROM WHOM INTEREST WAS NOT CHARGED WAS GIVEN OUT OF INTEREST-F REE FUNDS AVAILABLE WITH IT. M/S. NARENDA INDUSTRIES VS ACIT,KHANDWA I.T.A.NO. 644/IND/2015 PAGE 5 OF 10 1.3.1. THE LD. A.R. RELYING ON THE DECISION OF HON`BLE SUP REME COURT IN THE CASE OF S.A. BUILDERS VS. CIT (2007) 288 ITR 1(SC) CONTENDED THAT THE ONUS ON THE REVENUE TO SHOW THAT INTEREST BEARING FUND ALONE WERE INVESTED IN INVESTMENT ON WH ICH NO INCOME WAS EARNED. THE LD. A.R. FURTHER RELIED ON THE DECIS ION OF HON`BLE SUPREME COURT IN THE CASE MUNJAL SALES CORPORATION VS. CIT (2008) 298 ITR 298 (SC) WHEREIN IT WAS HELD THAT WHERE ASSES SEE HAD SUFFICIENT PROFITS IN THE CURRENT YEAR THEN INTERES T FREE ADVANCES CAN BE CONSIDERED FLOWING FROM SUCH PROFITS. 1.3.2. THE LD. A.R. ALSO PLACE RELIANCE ON THE JUDGEMENT O F HON`BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. (2009) 313 ITR 340(BOM) WHERE IN IT WAS HELD THAT IF THERE ARE FUND AVAILABLE BOTH INTEREST FRE E AND INTEREST BEARING, THEN A PRESUMPTION WOULD ARISE THAT INVESTM ENT WERE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH T HE ASSESSEE. IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INV ESTMENT NO DISALLOWANCE OF INTEREST PAID ON BORROWED FUNDS WOUL D BE NECESSARY. ONCE SUCH PRESUMPTION IS ESTABLISHED CLA IM OF INTEREST WAS ALLOWABLE. M/S. NARENDA INDUSTRIES VS ACIT,KHANDWA I.T.A.NO. 644/IND/2015 PAGE 6 OF 10 1.3.3. THE LD. A.R. ALSO PLACED RELIANCE ON THE JUDGEMENT OF HON`BLE SUPREME COURT IN THE CASE OF S. A. BUILDER S VS. CIT (2007) (288 ITR 1) (SC) WHEREIN IT WAS HELD THAT WHERE THE AS SESSEE HAS MADE INVESTMENT OUT OF MIXED FUNDS FOR THE COMMERCI AL EXPEDIENCY THEN NO DISALLOWANCE COULD BE MADE UNDER SECTION 36 (1) (III) OF THE ACT. 1.3.4. THE LD. A.R. FURTHER PLACED RELIANCE ON FOLLOWING JUDGEMENT IN THE CASE OF CIT VS. HERO CYCLES LTD. ( 2010) 323 ITR 518 (P&H) WHEREIN IT WAS HELD THAT NO DISALLOWANCE OU T OF INTEREST PAYMENT IS PERMISSIBLE IF AO DOES NOT ESTABLISH NEX US BETWEEN THE EXPENDITURE INCURRED AND INCOME GENERATED. THE LD. A.R. SUBMITTED THAT IN THE PRESENT CASE THE AO HAS FAILED TO ESTAB LISH THAT THE ASSESSEE HAD DIVERTED INTEREST BEARING FUNDS FOR NO N BUSINESS PURPOSES OR ADVANCED THE SAME WITHOUT INTEREST. WHEN THE ASSESSEE HAS UTILIZED THE INTEREST BEARING FUNDS FO R BUSINESS PURPOSE AND JUSTIFIED THE SAME , THEN NO DISALLOWAN CE OF INTEREST CAN BE MADE. 1.3.5. THE LD. A.R. FURTHER CITED FOLLOWING JUDICIAL PRONOUNCEMENTS IN SUPPORT OF HIS CONTENTION AS FOLL OWS: RAM KISHAN OIL MILLS VS. CIT 56 ITR 186 (MP), BIRLA GWAL IOR PVT. LTD. VS. M/S. NARENDA INDUSTRIES VS ACIT,KHANDWA I.T.A.NO. 644/IND/2015 PAGE 7 OF 10 CIT 44 ITR 847(MP), D & H SECHERON ELECTRODES LTD. 142 ITR 529 (MP), REGAL THEATRE VS. CIT 225 ITR 205(DEL), SARVO DYA KELA GROUP VS. ITO 25 ITJ 409(INDORE-TRIB), AND OTHERS AS PER HIS WRITTEN SUBMISSIONS. 1.4. ON THE OTHER HAND, THE LD. D.R. RELYING ON THE ORDE RS OF LOWER AUTHORITIES SUBMITTED THAT THE ASSESSEE IS NOT ABLE TO SUBSTANTIATE THAT INTEREST FREE ADVANCES WERE GIVEN OUT OF INTER EST-FREE FUNDS AVAILABLE WITH THE ASSESSEE, HENCE, FINDING OF THE A O/LD. CIT(A) MAY BE UPHELD. 1.5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PAR TIES AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. WE F IND THAT THE LD. A.O. HAS FAILED TO ESTABLISH THAT INTEREST FREE ADV ANCES TO ABOVE STATED PARTIES WERE OUT OF INTEREST BEARING FUNDS. I T IS THE CONTENTION OF THE ASSESSEE THAT IT HAD SUFFICIENT N ON-INTEREST BEARING FUNDS TO THE TUNE OF RS.34.42 CRORES AS PER BALANCE SHEET AS ON 31.03.2010 AS AGAINST INTEREST BEARING FUNDS OFFERED AT RS.10.74 CRORES. HENCE, INTEREST-FREE FUNDS OF RS. 34.52 CRORES HAVE BEEN UTILISED FOR GIVING INTEREST-FREE ADVANCES TO AFORESAID ABOVE PARTIES ON WHICH NO INTEREST WAS CHARGED. THUS INTERE ST-FREE ADVANCE WERE GIVEN OUT OF INTEREST-FREE FUNDS AVAIL ABLE WITH THE M/S. NARENDA INDUSTRIES VS ACIT,KHANDWA I.T.A.NO. 644/IND/2015 PAGE 8 OF 10 ASSESSEE DURING THE YEAR FOR WHICH SUFFICIENT INTERE ST-FREE FUNDS WERE AVAILABLE. THEREFORE, WE ARE OF THE VIEW THAT T HE LD. A.O. HAS FAILED TO ESTABLISH THAT INTEREST FREE ADVANCES TO ABOVE STATED FOUR PARTIES WERE OUT OF INTEREST BEARING FUNDS. THE LD . A.R. HAS, ALSO PLACED RELIANCE ON THE JUDGEMENT OF HON`BLE SUPREME COURT IN THE CASE OF S. A. BUILDERS VS. CIT (2007) 288 ITR 1(SC ) WHEREIN IT WAS HELD THAT WHERE THE ASSESSEE HAS MADE INVESTMENT OUT OF MIXED FUNDS FOR THE COMMERCIAL EXPEDIENCY THEN NO DISALLO WANCE COULD BE MADE UNDER SECTION 36 (1) (III) OF THE ACT. WE FIND THAT THE AO HAS NOT BEEN ABLE TO ESTABLISH THE NEXUS BETWEEN INTERE ST BEARING FUNDS UTILIZED FOR NON BUSINESS PURPOSE AS HELD IN ABOVE QUOTED DECISION OF HON`BLE SUPREME COURT. THE LD. A. R. HAS PLACED RELIANCE IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. (2 009) 313 ITR 340 (BOM)/ 178 TAXMAN 135 (BOM) WHEREIN IT WAS HELD THAT IF THERE WAS FUNDS AVAILABLE BOTH, INTEREST-FREE AND OVERDRAFT A ND OR/LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMEN TS WOULD BE OUT OF THE INTEREST-FREE FUNDS GENERATED OR AVAILA BLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THE PRESENT CASE, THE SUFFICIENT IN TEREST FREE FUNDS WERE AVAILABLE AT THE DISPOSAL OF THE ASSESSEE. THER EFORE, M/S. NARENDA INDUSTRIES VS ACIT,KHANDWA I.T.A.NO. 644/IND/2015 PAGE 9 OF 10 PRESUMPTION WOULD GO IN FAVOUR OF THE ASSESSEE THAT THE INTEREST FREE FUNDS WERE GIVEN OUT OF INTEREST FREE FUNDS AV AILABLE AT THE DISPOSAL OF THE ASSESSEE AS PER BALANCE SHEET OF TH E ASSESSEE. WE FURTHER RELY ON THE DECISION OF HON`BLE PUNJAB & HA RYANA HIGH COURT IN THE CASE OF CIT VS. HERO CYCLES LTD. (2010 ) 323 ITR 518(P&H) WHEREIN IT WAS HELD THAT NO DISALLOWANCE OUT OF INTEREST PAYMENT IS PERMISSIBLE IF AO DOES NOT ESTABLISH NEX US BETWEEN THE EXPENDITURE INCURRED AND INCOME GENERATED. THEREFOR E, BY APPLYING THE RATIO AS LAID DOWN BY THE HONBLE BOMBAY HIGH CO URT IN IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. (2 009) 178 TAXMAN 135 (BOM) AND THE DECISION OF CIT VS. HERO CYCLES L TD. (2010) 323 ITR 518 (P&H) AND OTHER JUDGEMENTS AS CITED ABOVE, WE ARE OF THE CONSIDERED OPINION THAT NO DISALLOWANCE OF INTEREST IS WARRANTED IN THIS CASE. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, THE DISALLOWANCE OF INTEREST OF RS. 11,60,840/- MADE BY THE AO IS DELETED. ACCORDINGLY GROUND NO. 1 AND 2 OF APPEAL I S THEREFORE, ALLOWED. 2. GROUND NO.3 WAS NOT PRESSED, THEREFORE, SAME IS DISM ISSED. M/S. NARENDA INDUSTRIES VS ACIT,KHANDWA I.T.A.NO. 644/IND/2015 PAGE 10 OF 10 3. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS PA RTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 28.02.201 7. SD/- ( . . ) (C. M. GARG) JUDICIAL MEMBER SD/- (..) (O.P.MEENA) ACCOUNTANT MEMBER / DATED : 28 TH FEBRUARY, 2017/OPM