M/s Sundesh Springs Pvt. Ltd., Ludhiana V. ACIT, Ludhiana

ITA 669/CHANDI/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9816 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2005-2006
• Appeal Filed On: 30-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: S K MUKHI; GAGAN DEEP SINGH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO. 669/CHD/2016 (ASSESSMENT YEAR : 2005-06) M/S SUNDESH SPRINGS PVT. LTD., VS. THE A.C.I.T., D-138, PHASE FOCAL POINT, CIRCLE (1), LUDHIANA. LUDHIANA. PAN: AACCS2723F (APPELLANT) (RESPONDENT) APPELLANT BY : S/SHRI S.K.MUKHI & GAGANDEEP SINGH RESPONDENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 21.07.2016 DATE OF PRONOUNCEMENT : 22.07.2016 O R D E R THIS APPEAL BY THE ASSESSEE HAS BEEN DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-5, LUDHIANA DATED 16.3.2016 FOR ASSESSMEN T YEAR 2005-06, CHALLENGING THE DISALLOWANCE OF INTER EST UNDER SECTION 36(1)(III) OF THE INCOME TAX ACT, 196 1 (IN SHORT THE ACT), AMOUNTING TO RS.4,42,819/-. 2. THE ASSESSING OFFICER HAS NOTED THAT THE ASSESS EE HAD ADVANCED MONEY TO THE SISTER CONCERNS BUT WAS N OT CHARGING ANY INTEREST, WHILE ON THE OTHER HAND, THE ASSESSEE WAS PAYING HUGE INTEREST TO THE BANK. AFTER CON SIDERING THE 2 REPLY OF THE ASSESSEE, THE ASSESSING OFFICER HAS ME NTIONED THAT THERE IS NO SALE PURCHASE TRANSACTION WITH M/S SIRI AMAR EXPORTS AND M/S GIRNAR INFOTECH LTD., WHICH HAVE A DEBIT BALANCE WITH THE ASSESSEE. THE ASSESSING OFFICER C ALCULATED THAT THE INTEREST CHARGEABLE @ 8% FROM THESE CONCER NS, THEIR DIRECTORS AND OTHER FAMILY MEMBERS IS MORE THAN THE INTEREST PAID TO BANK AMOUNTING TO RS.7,88,179/- AND MADE AD DITION ACCORDINGLY. 3. THE LEARNED CIT (APPEALS), IN PRINCIPLE, CONFIR MED THE ADDITION, HOWEVER, AS REGARDS THE CONTENTION OF THE ASSESSEE THAT THE INTEREST ON DAILY BASIS IS EXCESS IVE, THE LEARNED CIT (APPEALS) ACCEPTED THE CONTENTION OF TH E ASSESSEE AND WORKED OUT TOTAL DISALLOWANCE AT RS.4,42,819/- AS AGAINST RS.7,88,179/- AND ALLOWED THE APPEAL OF THE ASSESSE E PARTLY. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ADVANCES WERE WITH REGARD TO SISTER CONCERNS WH ICH ARE IN DISTRESS AND WERE SUBJECT TO SEARCH BY THE REVENUE INTELLIGENCE AS WELL AS INCOME TAX DEPARTMENT. THE REFORE, IN ORDER TO HELP THEM FOR REVIVAL OF THEIR BUSINESS, T HE ADVANCES WERE GIVEN. HE, HOWEVER, SUBMITTED THAT DISALLOWAN CE OF INTEREST IS UNJUSTIFIED BECAUSE THE ASSESSEE HAD SU FFICIENT INTEREST FREE FUNDS OF RS.3,01,39,470/- CONSISTING TO PAID UP CAPITAL OF RS.4,33,000/- (PB-15), RESERVES AND SURP LUS OF RS.62,70,879/- (PB-15), UNSECURED LOANS OF RS.22,70 ,000/- (PB-19) AND SUNDRY PAYABLE TO SISTER CONCERN M/S GI RNAR 3 IMPEX LTD. OF RS.2,11,65,591/- (PB-19). THE LEARNE D COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AMOUNT ADVANCED TO SISTER CONCERNS AND RELATIVES IS AMOUNTING TO RS.50,97,928 /-. THEREFORE, THE MONEY ADVANCED TO SISTER CONCERNS AN D RELATIVES ARE MUCH LOWER THAN THE INTEREST FREE FUN DS AVAILABLE WITH THE ASSESSEE COMPANY AND THE ADVANCES MADE TO SISTER CONCERNS ARE FROM INTEREST FREE FUNDS AVAILABLE WIT H THE ASSESSEE. HE HAS, THEREFORE, SUBMITTED THAT THE AD DITION IS UNJUSTIFIED AND RELIED UPON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF HERO CYCLE (P) LTD. VS. CIT, 379 ITR 347 (SC), IN WHICH IT WAS HELD THAT THE ASSESSEE WAS HA VING CREDIT BALANCE IN BANK ACCOUNT AT THE TIME OF MAKING ADVAN CE, THEREFORE, NO DISALLOWANCE OF INTEREST ON BORROWING S TO BE MADE. THE LEARNED D.R., HOWEVER, RELIED UPON THE O RDERS OF THE AUTHORITIES BELOW. 5. AFTER CONSIDERING THE RIVAL CONTENTIONS, I AM O F THE VIEW THAT THE ADDITION IS WHOLLY UNJUSTIFIED. THE LEARNED COUNSEL FOR THE ASSESSEE HAS BEEN ABLE TO DEMONSTRA TE THAT THE ASSESSEE HAS MORE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE COMPANY AS AGAINST THE MONEY ADVANCED TO T HE SISTER CONCERNS AND RELATIVES. THE HON'BLE PUNJAB & HARYA NA HIGH COURT IN THE CASE OF CIT VS. KAPSONS ASSOCIATES (2016) 381 ITR 204 (P&H) ALSO HELD THAT WHEN THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS TO COVER INTEREST FR EE ADVANCES, NO DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT SHOULD BE MADE. SINCE THE MONEY ADVANCED TO SISTER CONCERNS AND RELATIVES ARE MUCH LOWER THAN THE INTEREST FREE FUN DS AVAILABLE 4 WITH THE ASSESSEE, THE ADDITION IS UNJUSTIFIED. I ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND D ELETE THE ENTIRE ADDITION. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATED : 22 ND JULY, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH