M/S. CHHAGANLAL KISHANLAL & CO., Burhanpur V. THE ACIT, Khandwa

ITA 646/IND/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 5794 (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. CHHAGANLAL KISHANLAL & CO. VS. ACIT-KHANDWA/ I.T.A. NO.646/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.646/IND/2015 / ASSESSMENT YEAR:2010-11 M/S. CHHAGANLAL KISHANLAL & CO. 14, RAJENDRA BHAWAN CHOWK BAZAR, BURHANPUR VS. ACIT KHANDWA / / / / APPELLANT / / / / RESPONDENT .../ PAN: AACFA 0854 C / / / / APPELLANT BY SHRI S.N. AGARWAL, CA / / / / RESPONDENT BY SHRI MOHD. JAVED, SR. DR. / / / / 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. CHHAGANLAL KISHANLAL & CO. VS. ACIT-KHANDWA/ I.T.A. NO.646/IND/2015/A.Y.:10-11 PAGE 2 OF 10 DATED 29.05.2015 FOR THE ASSESSMENT YEAR 2011-11 ON FOLLOWING GROUNDS: 1. THE LD. CIT (A) HAS ERRED IN CONFIRMING THE ADDITIO N OF RS.1,98,291/- ON ACCOUNT OF INTEREST PAYMENTS ON TH E GROUND THAT THE BORROWED FUNDS HAVE BEEN DIVERTED FOR NON BUSINESS PURPOSES. 1.1. IT WAS PROVED BEFORE THE LOWER AUTHORITIES THAT THE ASSESSEE HAD SUFFICIENT CAPITAL AND INTEREST-FREE FUNDS. NO NEXUS HAS BEEN PROVED; BY THE LD. AO, THAT BORROWED FUNDS HAV E 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. 1,98,291/- MAY PLEASE BE DELETE D OR IN THE ALTERNATIVE RESTRICTED TO REASONABLE FIGURE. 1.0. GROUND NO. 1 AND 2 RELATES TO CONFIRMATION OF DISAL LOWANCE OF INTEREST OF RS. 1,98,291/- HENCE, THESE BEING CO NSIDERED TOGETHER. 1.1. SUCCINCTLY, FACTS AS CULLED OUT FROM THE ORDERS OF LOWER AUTHORITIES ARE THAT THE ASSESSEE IS A FIRM AND DER IVES INCOME FROM COTTONSEEDS AND ALL TYPE OF GRAINS. THE RETURN OF I NCOME WAS FILED ON 30.09.2010 DECLARING TOTAL INCOME OF RS.43, 22, 020 /-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAS ADVANCED INTEREST BEARING FUNDS TO SOME OF ITS FAMILY MEMBERS AND GROUP CONCERNS ON WHICH EITHER NO INTEREST IS CH ARGED OR THE SAME IS CHARGED AT LESSER RATE WHEREAS THE ASSESSEE HAS OBTAINED LOAN FROM BANK @13.5% AND INTEREST CHARGED @12% ONL Y OR NIL AS DETAILED BELOW: M/S. CHHAGANLAL KISHANLAL & CO. VS. ACIT-KHANDWA/ I.T.A. NO.646/IND/2015/A.Y.:10-11 PAGE 3 OF 10 NAME OF THE CONCERN INTEREST @13.5 INTEREST @12%/ NIL RATE LESS INTEREST CHARGED 1.SHUBHAM KELA AGENCY 4,88,219 4,34,630 53,590 2.SRI RAM KELA AGENCY 3,80,430 3,38,160 42,270 3.SUDHA GARG 93,806 NOT CHARGED 93,806 4.SWETA(LOAN 5 LAC FOR 1 - 1/2 MONTH) 8,625 NOT CHARGED 8,625 TOTAL INTEREST DISALLOWED 1,98,291 1.1.1. IN VIEW OF ABOVE, THE AO DISALLOWED THE INTEREST OF RS. 1,98,291/- BY OBSERVING THAT THE ASSESSEE HAS DIVER TED INTEREST BEARING FUNDS FOR ADVANCING THE SAME WITHOUT INTERES T OR ON LESSER RATE OF INTEREST. 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 AO HAS GIVEN A CATEGORICAL FINDING THAT TH E ASSESSEE HAS BEEN PAYING INTEREST TO THE BANKS @13.5% WHEREAS THE INTEREST CHARGED ON THE FUNDS ADVANCED TO FAMILY MEMBERS WAS @12% OR NO INTEREST WAS CHARGED, WHICH THE ASSESSEE HAS FAILED TO CONTROVERT, AS CAN BE SEEN FROM THE WRITTEN SUBMISSIONS. THE CON TENTION OF THE ASSESSEE THAT THE PARTNERS HAVING CAPITAL OF RS. 1. 90 CRORES IS OF NO USE AS THE ASSESSEE HAS FAILED TO PROVE THAT THE AD VANCES WERE MADE OUT OF THE CAPITAL OF THE PARTNERS. M/S. CHHAGANLAL KISHANLAL & CO. VS. ACIT-KHANDWA/ I.T.A. NO.646/IND/2015/A.Y.:10-11 PAGE 4 OF 10 1.3. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEF ORE THE TRIBUNAL. THE LD. A.R. SUBMITTED THAT THE OBSERVATI ONS OF THE AO ARE NOT CORRECT, ON THE FACTS OF THE CASE, AS THE A SSESSEE HAS SUBSTANTIAL INTEREST-FREE FUNDS OF RS. 29,48,05,256 /-, (CONSISTING OF CAPITAL OF PARTNERS OF RS. 10,04,83,765/-, LOAN AND ADVANCES FROM FRIENDS AND RELATIVES AND RS. 12,25,81,177/- FROM SUNDRY CREDITORS), AS AGAINST TOTAL INTEREST BEARING FUNDS OF RS. 8,19,66,386/- MAINLY BORROWED FROM BANK. THUS, TOTA L INTEREST-FREE FUNDS AND INTEREST BEARING FUNDS OF RS. 37,67,71,64 2/- WERE AVAILABLE WITH THE ASSESSEE. THE LD. A.R. HAS FILED A TABLE DEPICTING THE DETAILS OF FUNDS UTILIZATION OF INTEREST-FREE F UNDS AND INTEREST BEARING FUNDS, WHICH IS SUPPORTED BY THE COPY OF BA LANCE SHEET APPEARING AT PAGE NO 15 TO 21 OF PAPER BOOK. ACCORD ING TO WHICH FUNDS OF RS. 36,81,70,385/- HAVE BEEN UTILIZED FOR BUSINESS PURPOSE IN FIXED ASSETS, LOAN AND ADVANCES, SUNDRY DEBTORS, CASH AND BANK BALANCES, ETC. FROM THE ABOVE FACTS AND DA TA, THE LD. A.R. CONTENDED THAT THE ASSESSEE HAS NOT DIVERTED ITS IN TEREST BEARING FUNDS FOR NON-BUSINESS PURPOSES. THE LD. A.R. FURTH ER SUBMITTED THAT ABOVE FACTS OF THE CASE SHOWS THAT ADVANCES TO ALL THE FOUR PARTIES AS MENTIONED IN ASSESSMENT ORDER FROM WHOM I NTEREST WAS M/S. CHHAGANLAL KISHANLAL & CO. VS. ACIT-KHANDWA/ I.T.A. NO.646/IND/2015/A.Y.:10-11 PAGE 5 OF 10 NOT CHARGED OR CHARGED AT THE LESSER RATE WERE GIVE N OUT OF INTEREST- FREE FUNDS AVAILABLE 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. CHHAGANLAL KISHANLAL & CO. VS. ACIT-KHANDWA/ I.T.A. NO.646/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. CHHAGANLAL KISHANLAL & CO. VS. ACIT-KHANDWA/ I.T.A. NO.646/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 ASSESSEE HAD SUFFICIENT NON-INTEREST BEARING FUNDS TO THE TUNE OF RS. 29.48 CRORES AS PER BALANCE SHEET AS ON 31.03.2 010, (CONSISTING OF PARTNER`S CAPITAL OF RS.10.04 CRORES, LOAN AND A DVANCE FROM FRIENDS AND RELATIVES OF RS. RS.7.17 CRORES AND SU NDRY CREDITORS OF RS. 8.19 CRORES) AS AGAINST INTEREST BEARING FUNDS OF RS.8.19 CRORES. FURTHER, WE FIND THAT THE LD. A. R. HAS CONTENDED T HAT THE ASSESSEE M/S. CHHAGANLAL KISHANLAL & CO. VS. ACIT-KHANDWA/ I.T.A. NO.646/IND/2015/A.Y.:10-11 PAGE 8 OF 10 HAD UTILISED THESE FUNDS FOR GIVING INTEREST-FREE A DVANCES TO ABOVE MENTIONED FOUR PARTIES ON WHICH INTEREST IS ALSO CHA RGED @12% FROM TWO PARTIES AND NO INTEREST WAS CHARGED FROM TWO PARTIES WHICH ARE RELATIVES OF THE ASSESSEE. THUS INTEREST-F REE ADVANCE WERE GIVEN OUT OF INTEREST-FREE FUNDS AVAILABLE WITH THE ASSESSEE DURING THE YEAR FOR WHICH INTEREST-FREE FUNDS OF RS.29.48 C RORES WERE AVAILABLE. THEREFORE, WE ARE OF THE VIEW THAT THE L D. A.O. HAS FAILED TO ESTABLISH THAT INTEREST FREE ADVANCES TO ABOVE S TATED 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 M/S. CHHAGANLAL KISHANLAL & CO. VS. ACIT-KHANDWA/ I.T.A. NO.646/IND/2015/A.Y.:10-11 PAGE 9 OF 10 A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST-FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE 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 M/S. CHHAGANLAL KISHANLAL & CO. VS. ACIT-KHANDWA/ I.T.A. NO.646/IND/2015/A.Y.:10-11 PAGE 10 OF 10 RS.1,98,291/- MADE BY THE AO IS DELETED. ACCORDINGL Y GROUND NO. 1 AND 2 OF APPEAL IS THEREFORE, ALLOWED. 2. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS AL LOWED. 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