Precomec Autocomp Pvt. Ltd., Faridabad V. DCIT, Faridabad

ITA 6843/DEL/2015

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1046 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 30-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJOG KAPOOR
• Assessee Lawyers: RAJNEESH BEHARI MATHUR
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER & SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER ITA NO. 6843/DEL/2015 ASSESSMENT YEAR: 2012-13 PRECOMECAUTOCOMPPVT. LTD., PLOT NO.9-D, SECTOR-6, FARIDABAD. AABCP 7551K VS DCIT, CIRCLE-1, FARIDABAD APPELLANT RESPONDENT ASSESSEE BY SH. RAJNEESH BEHARI MATHUR, CA REVENUE BY SH. SANJOG KAPOOR, SR. DR ORDER PER K. NARASIMHA CHARY, JM AGGRIEVED BY THE ORDER DATED 3/11/2015 IN APPEAL N O. 16/2014-15 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS), FARIDABAD (LD. CIT(A)), FOR ASSESSMENT YEAR 2012-13, PRECOM ECAUTOCOMPPVT. LTD FILED THIS APPEAL. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SHEET METAL COMPONENTS . FOR THE ASSESSMENT YEAR 2012-13 IT HAS FILED ITS RETURN OF INCOME ON 2 5/9/2012 DECLARING AN INCOME OF RS.5,31,44,102/-. DURING THE COURSE OF AS SESSMENT, LEARNED ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD MAD E INTEREST-FREE ADVANCE DATE OF HEARING 12.12.2019 DATE OF PRONOUNCEMENT 18.12.2019 2 OF RS. 1,71,22,185/- TO HUDA IN RESPECT OF PLOT NO. 308, SECTOR-59, FARIDABAD. HE THEREFORE CALLED FOR JUSTIFICATION OF SUCH ADVANCE TOWARDS BUSINESS PURPOSE OF INVESTMENT. ASSESSEE SUBMITTED THAT THEY HAVE THEIR OWN ADEQUATE FUNDS IN THE FORM OF CAPITAL & RESERVE , UNSECURED LOAN FROM DIRECTORS, SECULARIST HYPOTHECATION OF STOCKS AND B OOKPLATES AND CHARGE ON IMMOVABLE ASSETS OF THE COMPANY AND PERSONAL GUARAN TEE OF DIRECTORS, OUT OF WHICH, IT ADVANCED TO HUDA. ASSESSEE, THEREFORE, CLAIMED THAT NO LOAN WAS TAKEN FOR PAYMENT OF HUDA PLOT NO. 308. 3. LEARNED ASSESSING OFFICER, HOWEVER, DID NOT AGRE E WITH THE ASSESSEE AND OBSERVED THAT PERUSAL OF THE BALANCE SHEET SHOW S THAT THE ASSESSEE HAD OWN FUNDS TO THE TUNE OF RS.15,40,26,226/- ON ACCO UNT OF RESERVES ANDSURPLUS WHICH HAS TO BE CONSIDERED AS INTEREST-F REE FUND. ACCORDING TO THE ASSESSING OFFICER OUT OF THIS INTEREST-FREE FUN D, ASSESSEE HAD SHOWN TANGIBLE ASSETS OF RS. 6,37,20,541/-, INVENTORIES OF RS.2,81,65,746/-, LONG- TERM LOANS AND ADVANCES OF RS. 1,58,39,329/- AND A TRADE RECEIVABLE WHICH EXCEEDS FROM TRADE PAYABLES TO THE TUNE OF RS. 8,07 ,53,325/-. HE, THEREFORE, CONCLUDED THAT SINCE THE AMOUNT OF APPLIED CAPITAL OF RS.18, 84,79,941/- EXCEEDS THE INTEREST FREE FUNDS OF RS. 15,40,26,226 /-, THE ASSESSEE HAD DIVERTED THE INTEREST-BEARING FUNDS OF RS. 1,71,22, 185/- FOR HUDA PLOT. LEARNED ASSESSING OFFICER, THEREFORE, BROUGHT THE I NTEREST AT 12% PER ANNUM ON THE AMOUNT INVESTED BY THE ASSESSEE IN SUC H PLOT TO TAX AND MADE AN ADDITION OF RS. 12,29,228/- ON THAT ACCOUNT . 4. AGGRIEVED BY SUCH AN ADDITION ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). BY WAY OF IMPUGNED ORDER LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS NOT ESTABLISHED THAT THE BORROWED FUND S WERE UTILISED FOR THE PURCHASE OF THE PLOT, THE ASSESSEE IN FACT HAD TO F URNISH A COPY OF HIS BANK 3 ACCOUNT TO ESTABLISH THAT THE PAYMENT MADE FOR THE PURCHASE OF THE PLOT WAS FROM ITS OWN FUNDS AND NOT FROM ANY BORROWED FU NDS/OVERDRAFT ACCOUNT, AND THEREFORE, THE CONTENTION OF THE ASSES SEE DOES NOT MERIT CONSIDERATION. LD.CIT(A), HOWEVER, GRANTED RELIEF T O THE ASSESSEE IN RESPECT OF THE INTEREST RELATABLE TO THE AMOUNT OF RS. 67,3 3,750/- TOFINANCIAL YEAR 2010-11 I.E. ASSESSMENT YEAR 2011-12 AND DIRECTED D ELETION OF RS. 8, 14, 050/-. 5. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) SUSTAIN ING THE ADDITION TO THE TUNE OF RS. 4,15,178/- UNDER SECTION 36 (1)(III) OF THE ACT OUT OF THE INTEREST EXPENSE CLAIMED BY THE ASSESSEE ON THE GROUND THAT IT PERTAINED TO THE NOTIONAL INTEREST FOR THE PERIOD PRIOR TO THE PURCH ASE OF ASSET OF HUDA PLOT NO. 308, ASSESSEE PREFERRED THIS APPEAL AND CONTEND ED THAT THE AUTHORITIES BELOW FAILED TO APPRECIATE THE FINANCIALS OF THE AS SESSEE IN CONCLUDING THAT THE ASSESSEE HAD UTILISED THE BORROWED FUNDS FOR PU RCHASE OF THE PLOT. ACCORDING TO THE ASSESSEE THE BALANCE SHEET CLEARLY SPEAKS THE AVAILABILITY OF FUNDS TO THE TUNE OF RS. 1,03,35,229/- WITH THE ASS ESSEE AS ON 31/3/2012 AND THE AUTHORITIES BELOW FAILED TO APPRECIATE THE ENTRIES OF THE BALANCE SHEET IN THEIR PROPER PERSPECTIVE. 6. PER CONTRA, IT IS THE SUBMISSION ON BEHALF OF TH E REVENUE THAT SINCE THE ASSESSEE MAINTAINED ONLY OVERDRAFT ACCOUNT AND ALL THE TRANSACTIONS ARE DONE THROUGH IT, IT WAS NOT CLEAR FROM THE BANK STA TEMENT OF THE OVERDRAFT ACCOUNT AS TO WHETHER THE ASSESSEE UTILISED ITS OWN FUNDS ARE THE FUNDS BORROWED, AND THEREFORE, THE AUTHORITIES ARE JUSTIF IED IN ADDING THE NOTIONAL INTEREST ON THE VALUE OF THE PLOT PURCHASED. 7. WE HAVE GONE THROUGH THE RECORD IN THE LIGHT OF THE SUBMISSIONS MADE ON EITHER SIDE. FROM THE BEGINNING, THE CONTEN TION OF THE ASSESSEE HAS 4 BEEN THAT IT HAD ADEQUATE OWN FUNDS IN THE FORM OF CAPITAL & RESERVE, UNSECURED LOAN FROM THE DIRECTORS, SECURED LOAN AGA INST HYPOTHECATION OF STOCKS AND BOOK DEBTS AND CHARGE ON IMMOVABLE ASSET S OF THE COMPANY AND PERSONAL GUARANTEE OF DIRECTORS, OUT OF WHICH, IT A DVANCED TO HUDA. ACCORDING TO THE LEARNED ASSESSING OFFICER THE APPL IED CAPITAL OF RS. 18,84,78,941/- EXCEEDS THE INTEREST FREE FUNDS OF T HE ASSESSEE AT RS. 15,40,26,226/-. THIS IS THE REASON WHY THE LEARNED ASSESSING OFFICER HELD THAT THE ASSESSEE HAD BORROWED THE INTEREST-BEARING FUNDS OF RS. 1,71,22,185/- WITH HUDA FROM WHICH IT HAD NOT RECE IVED ANY INCOME. 8. WE HAVE GONE THROUGH THE BALANCE SHEET OF THE AS SESSEE AS ON 31/3/2012. IT IS CLEAR THAT THERE IS AN INCREASE IN THE RESERVES & SURPLUS BY RS. 3,53,70,562/- INASMUCH AS BY THE END OF THE YEA R 2011 THE FIGURE WAS RS.11,61,53,664/- AND BY THE END OF THE YEAR 2012 I T WAS AT RS.15, 15,26,226/-. SO ALSO, THERE IS AN INCREASE IN THE C URRENT LIABILITIES BY RS. 2,61,33,825/- FROM THE YEAR 2011 BEING THE CUMULATI VE FIGURE OF THE CHANGE IN TRADE PAYABLES, CERTAIN PROVISIONS AND OTHER CUR RENT LIABILITIES WHICH WERE AT RS. 4,69,14,938/- AT THE END OF THE YEAR 2011 WH EREAS IT WAS RS.7,30,48,763/- BY THE END OF 2012. IT IS THEREFOR E CLEAR THAT THE INCREASE IN RESERVES AND ALSO THE INCREASE IN CURRENT LIABILITI ES COMES TO RS. 6 15,04,387/-. 9. SO ALSO, THERE IS A DECREASE IN THE BORROWINGS B Y RS. 65,42,217/-, INCREASE IN LONG-TERM ADVANCE BY RS.39,98,026/- AND INCREASE IN CURRENT ASSETS BY RS. 4,06,28,915/-, THE CUMULATIVE FIGURE OF WHICH COMES TO RS. 5,11,69,158/-. ACCORDING TO THE LD. AR, THE DIFFERE NCE BETWEEN THE AVAILABLE FUNDS TO THE TUNE OF RS. 6,15,04,387/- AND UTILISED FUNDS TO THE TUNE OF RS. 5,11,69,158/- LEAVING THE AVAILABILITY OF NET FUNDS TO THE TUNE OF RS. 5 1,03,35,229/- IN THE HANDS OF THE ASSESSEE TO INVES T IN THE PLOT. IN ADDITION TO THIS THE CURRENT YEAR EARNINGS OF THE ASSESSEE W ERE DECLARED AT RS. 5,31,44,102/-. 10. INSOFAR AS THESE FIGURES AS TO THE FUNDS AVAILA BLE AND FUNDS UTILISED AND THE EARNINGS OF THE ASSESSEE DURING THE YEAR AR E CONCERNED, THESE ARE ALL BORNE BY RECORD AND DO NOT ADMITOF ANY DISPUTE OR DOUBT. LD. DR DOES NOT CONTRADICT THESE FIGURES AVAILABLE FROM THE BAL ANCE SHEET AND THE RETURN OF INCOME. IN THIS FACTUAL SCENARIO, WE FIND STRENG TH IN THE ARGUMENT OF THE LD. AR THAT THE ASSESSEE IS POSSESSING SUFFICIENT F INANCIAL CAPACITY TO MEET THE BURDEN OF PURCHASE OF PLOT FROM OUT OF THEIR OW N FUNDS AND SUCH PURCHASES DOES NOT REQUIRE ANY BORROWINGS. IN FACT, IT WAS SO PLEADED BY THE ASSESSEE BEFORE THE LEARNED ASSESSING OFFICER AND A LSO BEFORE THE LD. CIT(A) THAT NO LOAN WAS TAKEN FOR PAYMENT OF HUDA PLOT NO. 308. 11. IN THE CIRCUMSTANCES, BASING ON THE RECORD, WE ARE CONVINCED THAT THE ASSESSEE HAD THE CAPACITY TO ADVANCE THE FUNDS FOR PLOT NO. 308 TO HUDA OUT OF THEIR OWN FUNDS AVAILABLE IN THE HANDS AND T HERE DOES NOT APPEAR TO BE ANY NECESSITY FOR THEM TO TAKE LOAN FOR SUCH PAY MENT. WE THEREFORE, ACCEPT THE CONTENTIONS OF THE ASSESSEE AND FIND THA T THE IMPUGNED ADDITION IS NOT SUSTAINABLE. WE ACCORDINGLY ALLOW THE GROUND S OF APPEAL, AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH DECEMBER, 2019. SD/- SD/- (R.K. PANDA) (K. NARASIMHA CHAR Y) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 18 TH DECEMBER, 2019 AKS