M/S. RAHUL DEVELOPERS PVT. LTD., Burhanpur V. THE ACIT, Khandwa

ITA 645/IND/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 5800 (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: Allowed
• Bench Allotted: DB
• Next Hearing Date: 22-02-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 16-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHD JAVED
• Assessee Lawyers: S N AGARWAL
• Keywords: Commercial expediency

Judgement Text

M/S. RAHUL DEVELOPERS PVT. LTD. VS. ACIT-KHANDWA / I.T.A. NO.645/IND/2015/A.Y.:10-11 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.645/IND/2015 / ASSESSMENT YEAR:2010-11 M/S. RAHUL DEVELOPERS BAHADURPUR ROAD BURHANPUR (MP) VS. ACIT KHANDWA / / / / APPELLANT / // / RESPONDENT .../ PAN: AAECA 4445J / / / / APPELLANT BY SHRI S.N. AGARWAL, 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)] M/S. RAHUL DEVELOPERS PVT. LTD. VS. ACIT-KHANDWA / I.T.A. NO.645/IND/2015/A.Y.:10-11 PAGE 2 OF 10 DATED 30.04.2015 FOR THE ASSESSMENT YEAR 2010-11 ON FOLLOWING GROUNDS: 1. THE LD. CIT (A) HAS ERRED IN CONFIRMING THE ADDITIO N OF RS.12,78,415/- 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.12,78,415/- MAY PLEASE BE DELETE D OR IN THE ALTERNATIVE RESTRICTED TO REASONABLE FIGURE. 1. GROUND NO. 1 AND 2 RELATES TO CONFIRMATION OF DISAL LOWANCE OF INTEREST OF RS. 12,78,415/- HENCE, THESE BEING C ONSIDERED 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.69,00,010/-. 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 ASSESSEE HAS PAID INTEREST @ 12% ON LOAN TAKEN. THE AO THEREFORE, WORKED OUT DISALLOWANCE OF INTEREST AS DETAILED BELOW: M/S. RAHUL DEVELOPERS PVT. LTD. VS. ACIT-KHANDWA / I.T.A. NO.645/IND/2015/A.Y.:10-11 PAGE 3 OF 10 NAME OF THE CONCERN PERIO D IN DAYS AMOUNT INTEREST CHARGED DISALLOWANCE OF INTEREST @ 12% 1.KAUSHIK APPARELS 365 1,00,00,00 0 NIL 12,00,000 2.SHREE VENKATESHW AR COTTON CO. 19 3,80,430 NIL 71,840 3.SHREE VENKATESHW AR COTTON CO. 10 20,00,000 NOT CHARGED 6,575 TOTAL INTEREST DISALLOWED 12,78,415 1.1.1. IN VIEW OF ABOVE, THE AO DISALLOWED THE INTEREST OF RS. 12,78,415/- 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 T HE 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 NOT CORRECT ON THE FACTS OF THE CASE. THE LD. A.R. SUBMITTED A TABLE M/S. RAHUL DEVELOPERS PVT. LTD. VS. ACIT-KHANDWA / I.T.A. NO.645/IND/2015/A.Y.:10-11 PAGE 4 OF 10 DEMONSTRATING THAT THE ASSESSEE HAS SUBSTANTIAL INT EREST-FREE FUNDS OF RS. 55.12 CRORES (CONSISTING OF SHARES AND CAPIT AL OF RS. 79.54 LAKHS AND RESERVES AND SURPLUS OF RS. 8.85 CRORES, UNSECURED LOANS OF RS. 14.88 CRORES AND CURRENT LIABILITIES & PROVI SIONS OF RS. 30.64 CRORES) AS AGAINST THE INTEREST BEARING FUNDS OF R S.17.84 CRORES. THE LD. A.R. HAS FILED A TABLE DEPICTING THE DETAIL S OF FUNDS UTILIZATION OF INTEREST-FREE FUNDS AND INTEREST BEA RING FUNDS, WHICH IS SUPPORTED BY THE COPY OF BALANCE SHEET APPEARING AT PAGE NO 16 TO 23 OF PAPER BOOK. ACCORDING TO WHICH FUNDS OF RS. 73.02 CRORES HAVE BEEN UTILIZED FOR BUSINESS PURPOSE IN FIXED A SSETS, LOAN AND ADVANCES, SUNDRY DEBTORS, CASH AND BANK BALANCES, E TC. FROM THE ABOVE FACTS AND DATA, THE LD. A.R. CONTENDED THAT T HE ASSESSEE HAS NOT DIVERTED ITS INTEREST BEARING FUNDS FOR NON-BUS INESS PURPOSES. THE LD. A.R. FUR SUBMITTED THAT THE ASSESSEE HAS RE CEIVED INTEREST OF RS. 96,44,264/- AS AGAINST THE PAYMENT OF INTEREST OF RS. 47,43,231/- AND FINALLY EARNED NET INTEREST INCOME OF RS. 49,01,033/-. THEREFORE, THERE WAS NO QUESTION OF DI VERSION OF INTEREST BEARING FUNDS BY THE ASSESSEE. THUS, THE D ISALLOWANCE AS MADE BY THE AO IS TOTALLY WRONG. THE LD. A.R. FURTHE R SUBMITTED THAT ABOVE FACTS OF THE CASE SHOWS THAT ADVANCES TO ABOVE PERSONS M/S. RAHUL DEVELOPERS PVT. LTD. VS. ACIT-KHANDWA / I.T.A. NO.645/IND/2015/A.Y.:10-11 PAGE 5 OF 10 AS MENTIONED IN ASSESSMENT ORDER FROM WHOM INTEREST WAS NOT CHARGED WAS GIVEN OUT OF INTEREST-FREE FUNDS AVAILAB LE WITH IT. 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 M/S. RAHUL DEVELOPERS PVT. LTD. VS. ACIT-KHANDWA / I.T.A. NO.645/IND/2015/A.Y.:10-11 PAGE 6 OF 10 NECESSARY. ONCE SUCH PRESUMPTION IS ESTABLISHED CLA IM OF INTEREST WAS ALLOWABLE. 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. M/S. RAHUL DEVELOPERS PVT. LTD. VS. ACIT-KHANDWA / I.T.A. NO.645/IND/2015/A.Y.:10-11 PAGE 7 OF 10 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. 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.55.18 CRORES AS PER BALANCE SHEET AS ON 31.03.2010 AS AGAINST INTEREST BEARING FUNDS OFFERED 17.84 CRORES. HENCE, INTEREST-FREE FUNDS OF RS. 55.18 CRO RES HAVE BEEN M/S. RAHUL DEVELOPERS PVT. LTD. VS. ACIT-KHANDWA / I.T.A. NO.645/IND/2015/A.Y.:10-11 PAGE 8 OF 10 UTILISED FOR GIVING INTEREST-FREE ADVANCES TO AFORE SAID ABOVE PARTIES ON WHICH NO INTEREST WAS CHARGED. THUS INTEREST-FREE ADVANCE WERE GIVEN OUT OF INTEREST-FREE FUNDS AVAILABLE WITH THE ASSESSEE DURING THE YEAR FOR WHICH SUFFICIENT INTEREST-FREE FUNDS WER E AVAILABLE. THEREFORE, WE ARE OF THE VIEW THAT THE LD. A.O. HA S FAILED TO ESTABLISH THAT INTEREST FREE ADVANCES TO ABOVE STAT ED FOUR PARTIES WERE OUT OF INTEREST BEARING FUNDS. THE LD. A.R. HA S, 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 DISALLOWANCE COULD BE MADE UNDER SECTION 36 (1) (III) OF THE ACT. WE FIND THAT THE A O HAS NOT BEEN ABLE TO ESTABLISH THE NEXUS BETWEEN INTEREST BEARING FUN DS UTILIZED FOR NON BUSINESS PURPOSE AS HELD IN ABOVE QUOTED DECISI ON OF HON`BLE SUPREME COURT. THE LD. A. R. HAS PLACED RELIANCE I N THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. (2009) 313 ITR 340 (BOM)/ 178 TAXMAN 135 (BOM) WHEREIN IT WAS HELD THAT IF THERE WA S FUNDS AVAILABLE BOTH, INTEREST-FREE AND OVERDRAFT AND OR/ LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST-FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE M/S. RAHUL DEVELOPERS PVT. LTD. VS. ACIT-KHANDWA / I.T.A. NO.645/IND/2015/A.Y.:10-11 PAGE 9 OF 10 INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVE STMENTS. IN THE PRESENT CASE, THE SUFFICIENT INTEREST FREE FUNDS WE RE AVAILABLE AT THE DISPOSAL OF THE ASSESSEE. THEREFORE, PRESUMPTION WOU LD GO IN FAVOUR OF THE ASSESSEE THAT THE INTEREST FREE FUNDS WERE G IVEN OUT OF INTEREST FREE FUNDS AVAILABLE AT THE DISPOSAL OF THE ASSESSE E AS PER BALANCE SHEET OF THE ASSESSEE. WE FURTHER RELY ON THE DECIS ION OF HON`BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. HERO CYCLES LTD. (2010) 323 ITR 518(P&H) WHEREIN IT WAS HELD THA T NO DISALLOWANCE OUT OF INTEREST PAYMENT IS PERMISSIBLE IF AO DOES NOT ESTABLISH NEXUS BETWEEN THE EXPENDITURE INCURRED AN D INCOME GENERATED. THEREFORE, BY APPLYING THE RATIO AS LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. (2009) 178 TAXMAN 135 (BOM) AND THE DECISION OF CIT VS. HERO CYCLES LTD. (2010) 323 ITR 518 (P&H) AND OTHER JUDGEMENTS AS CITED ABOVE, WE ARE OF THE CONSI DERED OPINION THAT NO DISALLOWANCE OF INTEREST IS WARRANTED IN THI S CASE. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, THE DISALLOWANCE OF INTEREST OF RS.12,78,840/- MADE BY THE AO IS DELETED. ACCORDING LY GROUND NO. 1 AND 2 OF APPEAL IS THEREFORE, ALLOWED. 2. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS AL LOWED. M/S. RAHUL DEVELOPERS PVT. LTD. VS. ACIT-KHANDWA / I.T.A. NO.645/IND/2015/A.Y.:10-11 PAGE 10 OF 10 3. 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