Sanghavi Pharma Chem Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-8(1), Ahmedabad

ITA 648/AHD/2012

• Counselvise Citation: 64820514 RSA 2012
• Duration Of Justice: 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 29-05-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 16-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VINOD TANWANI
• Assessee Lawyers: A C SHAH
• Keywords: Commercial expediency

Judgement Text

, , , , C, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, C BENCH . .. . . .. . , , , , , , , , !' # $%&' !' # $%&' !' # $%&' !' # $%&', , , , ( ( ( ( ) ) ) ) BEFORE S/SHRI D.K.TYAGI, JUDICIAL MEMBER AND ANIL CHATURVEDI, ACCOUNTANT MEMBER) ITA NO.648/AHD/2012 [ASSTT.YEAR : 2008-2009] SANGHAVI PHARMA CHEM P.LTD. 193, NEW CLOTH MARKET, O/S.RAIPUR GATE AHMEDABAD 382 023. PAN: AAECS 3062 M # /VS. THE ITO, WARD-8(1) AHMEDABAD. ( (( (+, +, +, +, / APPELLANT) ( (( (-+, -+, -+, -+, / RESPONDENT) # .% / 0 / ASSESSEE BY : SHRI A.C. SHAH 2 / 0 / REVENUE BY : SHRI VINOD TANWANI  / %(/ DATE OF HEARING : 30 TH MAY, 2012 456 / %(/ DATE OF PRONOUNCEMENT : 22-6-2012 7 / O R D E R PER ANIL CHATURVEDI, ACCOUNTANT MEMBER: THIS APPEAL IS BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-XIV, AHMEDABAD DATED 02.01.2012 FOR THE A.Y.2008-2009. 2. THE GROUND NO.1 OF THE ASSESSEES APPEAL READS A S UNDER: ITA NO.648/AHD/2012 -2- 1. THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISAL LOWANCE OF INTEREST OF RS.84,940/- ON THE GROUND THAT THE A SSESSEE IS NOT ABLE TO ESTABLISH THAT IT WAS GIVEN FOR COMMERCIAL EXPEDIENCY IN AS MUCH AS THE ASSESSEE HAS NOT GIVEN ANY ADVANCE D URING THE YEAR AND THAT THE INTEREST EXPENSES INCURRED DURING THE YEAR IS WHOLLY AND EXCLUSIVELY OR THE PURPOSE OF BUSINESS. 2. THE FACTS ARE THAT THE ASSESSEE HAD GIVEN ADVANC E TO SIDDHACHAL CHEMICALS P. LTD., ITS SISTER CONCERN AND THE BALAN CE AS ON 31-3-2008 WAS RS.6,73,000/- ON WHICH NO INTEREST WAS CHARGED BY THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE WAS ASKED TO JUSTIFY THE NON-CHARGING OF INTEREST AND WHY THE INTEREST EXPENSES TO THE EXTENT OF INTEREST CHARGEABLE ON ADVANCE NOT BE DISALLOWED. THE ASSESSEE SUBMITTED THAT THE ASSESSEES ADVANCE HAS BEEN GRANTED OUT OF INTEREST FREE FUNDS AVAILABLE WITH IT IN THE FORM O F SHARE CAPITAL OF RS.10 LAKHS AND RESERVE & SURPLUS TO THE EXTENT OF RS.12,40,358/-. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT USE D THE BORROWED FUNDS ON WHICH IT WAS PAYING INTEREST TO LEND IT TO THE SISTER CONCERN. IT WAS ALSO SUBMITTED THAT THE INTEREST WAS NOT CHA RGED FROM SIDDHACHAL CHEMICALS AS IT WAS LOSS MAKING COMPANY AND HAD ACCUMULATED LOSS. THE ASSESSEE WAS FINDING IT DIFF ICULT TO RECOVER EVEN THE PRINCIPAL AND IN THAT CIRCUMSTANCES NO INT EREST WAS CHARGED. IT WAS FURTHER SUBMITTED THAT NO FRESH ADVANCE HAS BEEN GRANTED TO THE SISTER CONCERN DURING THE YEAR. ON THE CONTRARY, O UT OF THE BALANCE OF RS.8.62 LAKHS, WHICH WAS GIVEN IN EARLIER YEARS, TH E ASSESSEE HAS RECEIVED BACK RS.2.00 LAKHS. THE AO DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE AND HELD THAT THE INTEREST CLAIM OF THE ASSESSEE CORRESPONDING TO THE INTEREST FREE ADVANCE WAS TOTA LLY UNREASONABLE AND UNJUSTIFIED AND THEREFORE HE DISALLOWED THE INT EREST EXPENSES TO THE EXTENT OF RS.84,940/- (CALCULATED AT 12% P.A. A T PAR WITH THE RATE ON WHICH INTEREST HAD BEEN PAID). AGGRIEVED BY THE DECISION OF THE ITA NO.648/AHD/2012 -3- AO, THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT( A). BEFORE THE CIT(A) ASSESSEE REITERATED THE SUBMISSIONS MADE BEF ORE THE AO AND FURTHER RELIED ON THE DECISION OF THE HONBLE GUJAR AT HIGH COURT REPORTED IN 252 ITR 197. THE CIT(A) DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE AND HELD THAT THE ASSESSEE WAS NOT ABLE TO DEMONSTRATE THAT THE LOAN GIVEN WAS FOR BUSINESS EXPEDIENCY, TH E ASSESSEE HAD GIVEN THE LOAN WITHOUT INTEREST WHEREAS THE ASSESSE E HAD PAID INTEREST ON MONEY BORROWED FROM BANK AND FROM OTHERS. HE TH US REJECTED THE CONTENTIONS OF THE ASSESSEE AND UPHELD THE ORDER OF THE AO. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. 3. BEFORE US, THE LEARNED AR CONTENDED THAT THE ASS ESSEE HAD ADVANCED LOAN IN EARLIER YEARS OUT OF THE INTEREST FREE FUNDS (AVAILABLE IN THE FORM OF SHARE CAPITAL, RESERVES & SURPLUS, D EPRECIATION AND UNSECURED LOANS). NO NEW ADVANCE HAS BEEN GRANTED UNDER THE YEAR IN QUESTION. ON THE CONTRARY, THE ASSESSEE HAS RECEIV ED BACK RS.2 LAKH DURING THE YEAR. NO INTEREST WAS CHARGED TO SISTER CONCERN AS IT WAS INCURRING HEAVY LOSS AND HAD ACCUMULATED LOSSES. A S THE RECOVERY OF PRINCIPAL ITSELF WAS DOUBTFUL OF RECOVERY, NO INTER EST WAS CHARGED. HE ALSO RELIED ON THE DECISION OF THE HONBLE BOMBAY H IGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD., 313 ITR 340 (BOM). 4. THE LEARNED DR ON THE OTHER HAND RELIED ON THE O RDER OF THE AO AND THE CIT(A). IT WAS SUBMITTED THAT THE CLAIM OF ASSESSEE THAT IT HAS SUFFICIENT SURPLUS INTEREST FREE FUNDS IS NOT CORRE CT BECAUSE AGAINST THE INTEREST FREE FUNDS OF RS.22,40,358/-, THERE WAS FI XED ASSETS OF RS.60,35,993/- AS IS EVIDENT FROM THE BALANCE SHEET . TO SUPPORT THE ITA NO.648/AHD/2012 -4- REVENUES CASE, THE LEARNED DR RELIED ON THE JUDGME NT OF THE PUNJAB STAINLESS STEEL INDS. VS COMMISSIONER OF INCOME-TAX (DEL), 324 ITR 395. 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND ALSO GO NE THROUGH THE ORDERS OF THE AO AND THE CIT(A). AS THE FACTS EMERGE, THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUND AVAILABL E WITH IT AS ON 31.3.2008 AND THE AO HAS CALCULATED INTEREST ON NOT IONAL BASIS ON THE PRESUMPTION THE ASSESSEE SHOULD HAVE CHARGED INTERE ST ON THE ADVANCED MONEY AT THE RATE OF 12%. WE FIND THAT NO NEW LOAN HAS BEEN GIVEN BY THE ASSESSEE THEREAFTER, THOUGH THERE WAS SUFFICIENT FUND. THE CONTENTION OF THE ASSESSEE THAT THE SIST ER CONCERN OF THE ASSESSEE WAS INCURRING HEAVY LOSS AND RECOVERY OF E VEN PRINCIPAL AMOUNT WAS VERY DIFFICULT AND DOUBTFUL IN NATURE, H AS NOT BEEN DISPUTED BY THE REVENUE. IN THE CASE OF CIT VS. REL IANCE UTILITIES (SUPRA), THE HONBLE HIGH COURT HAS HELD THAT IF TH ERE BE INTEREST FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET I TS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAS RAISED A LOAN, IT CA N BE PRESUMED THAT THE INVESTMENTS WERE FROM INTEREST FREE FUNDS AVAIL ABLE. THEREFORE, THE DISALLOWANCE OF INTEREST AND CHARGING OF INTEREST O N NOTIONAL BASIS BY THE AO IS NOT JUSTIFIED, MORE SO WHEN THE REVENUE H AS NOT ABLE TO PROVE THAT THE MONEY ADVANCED BY THE ASSESSEE TO IT S SISTER CONCERN IS OUT OF BORROWED MONEY AND HAS BEEN USED AS A COLOUR ABLE DEVICE TO AVOID THE TAX LIABILITY AS ALLEGED. IN THIS VIEW O F THE MATTER AND RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THE ADDITION OF INTEREST IS NO T CALLED FOR THEREFORE, WE DELETE THE DISALLOWANCE OF INTEREST MADE BY THE AO AND CONFIRMED BY THE CIT(A) AND ALLOW THIS GROUND OF THE ASSESSEE . ITA NO.648/AHD/2012 -5- 6. THE GROUND NO.2 OF THE ASSESSEES APPEAL READS A S UNDER: 2. THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISAL LOWANCE OF RS.3,54,738/- U/S.40(A)(IA) ON THE GROUND THAT THE SAID GROUND IS NOT PRESSED BY THE APPELLANT INASMUCH AS THE APPELLANT DID NOT PRESSED UNDER A WRONG IMPRESSION THAT SECTION 40(A)(IA) IS NOT APPLICABLE TO THE REIMBURS EMENT OF TRANSPORT CHARGES. 7. WE HEARD THE PARTIES. THE CIT(A) IN HIS IMPUGNE D ORDER HAS CLEARLY STATED THAT THIS GROUND HAS NOT BEEN PRESSE D FOR ADJUDICATION BY THE ASSESSEE BEFORE HIM AND ACCORDINGLY DISMISSED. HOWEVER, IN THE GROUND NO.2 OF THE PRESENT APPEAL BEFORE US, IT IS STATED BY THE ASSESSEE THAT THE ASSESSEE WAS UNDER A WRONG IMPRESSION THAT THE SECTION 40(A)(IA) IS NOT APPLICABLE TO THE REIMBURSEMENT OF TRANSPORT CHARGES. BE THAT AS IT MAY, SINCE THE ISSUE APPEARS TO BE NO T AGITATED BEFORE THE CIT(A), WE FIND IT PROPER TO RESTORE THIS ISSUE BAC K TO THE FILE OF THE CIT(A) TO ADJUDICATE THE ISSUE, AFTER GIVING REASON ABLE OPPORTUNITY TO THE ASSESSEE. WE DIRECT ACCORDINGLY. 8. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( . .. . . .. . /D.K. TYAGI) ( /JUDICIAL MEMBER ( # $%&' # $%&' # $%&' # $%&' / ANIL CHATURVEDI) ( ( ( ( /ACCOUNTANT MEMBER C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER