Patel Plast Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-5(2), Ahmedabad

ITA 705/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80242 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 24-07-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 07-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: S N DIVETIA
• Keywords: Principle of natural justice; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI ANIL CHATURVEDI, A.M. & SHRI KUL BHARA T, J.M.) I.T. A. NO. 705 /AHD/2011 (ASSESSMENT YEAR: 2006-07) PATEL PLAST PVT. LTD. DARSHAK, 14-A, SWASTIK SOCIETY PUNJABI HALL LANE, NAVRANGPURA, AHMEDABAD V/S THE ITO, WARD 5(2), AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAACP 6726 APPELLANT BY : SHRI S.N. DIVETIA, A.R. RESPONDENT BY : SHRI DINESH SINGH, SR. D.R. ( )/ ORDER DATE OF HEARING : 24-07-2014 DATE OF PRONOUNCEMENT : 07-08-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT(A)-XI, AHMEDABAD DATED 27.01.2011 FOR A.Y. 2006-07. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE B USINESS OF MANUFACTURING OF PLASTIC MOULDED HOUSEHOLD ARTICLES . ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y.06-07 ON 09.11.2006 DECLAR ING TOTAL INCOME AT ITA NO 705/A HD/2011 . A.Y. 2006- 07 2 RS. NIL. THE CASE WAS SELECTED FOR SCRUTINY AND THE REAFTER THE ASSESSMENT WAS FRAMED U/S. 143(3) VIDE ORDER DATED 28.11.2008 AND THE TOTAL INCOME WAS DETERMINED AT RS. 8,74,278/-. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) V IDE ORDER DATED 27.01.2011 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS:- 1.1 THE ORDER PASSED U/S.250 ON 27.01.2011 FOR A.Y. 2006-07 BY CIT(A),XI ,AHMEDABAD UPHOLDING THE DISALLOWANCE OF RS. 101551/-IN. THE ORDER U/S. 143( 3) DATED 28.11.2008 IS WHOLLY ILLEGAL, UNLAWFUL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 2.1 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON F ACTS IN CONFIRMING . THE DISALLOWANCE OF INTEREST OF RS.101551/- 2.2 THAT .IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) OUGHT NOT TO HAVE UPHELD THE DISALLOWANCE OF RS.101551/- 4. BEFORE US, LD. A.R. SUBMITTED THAT THOUGH THE ASSES SEE HAS RAISED VARIOUS GROUNDS BUT THE ONLY EFFECTIVE GROUND IS WITH RESPE CT TO DISALLOWANCE OF INTEREST OF RS. 1,01,551/-. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON VERIFICATION OF PROFIT AND LOSS ACCOUNT, A.O NOTICED THAT ASSESSEE HAD DEB ITED RS. 2,92,779/- AS INTEREST. HE ALSO NOTICED THAT ASSESSEE WAS SHOW ING DEBIT BALANCE OF RS. 11,28,345/- RECEIVABLE FROM PAVAK PLAST PVT. LT D. AND FURTHER NO INTEREST WAS CHARGED BY THE ASSESSEE ON THE ADVANCE S. HE ALSO NOTICED THAT THE ADVANCE WAS MADE IN F.Y. 2000-01 AND ASSES SEE HAD CHARGED INTEREST ON THE ADVANCE ONLY IN F.Y. 2000-01 AND TH EREAFTER NO INTEREST WAS CHARGED IN SUBSEQUENT YEARS. A.O NOTED THAT ASS ESSEE HAD NOT EXPLAINED THE BUSINESS EXPEDIENCY OF THE DEPOSIT GI VEN TO PAVAK PLAST PVT. LTD. AND ALSO THE REASON BEHIND NOT CHARGING A NY INTEREST. HE ALSO NOTICED THAT ASSESSEE ON ONE HAND WAS NOT CHARGING INTEREST ON DEPOSITS ITA NO 705/A HD/2011 . A.Y. 2006- 07 3 BUT ON THE OTHER HAND IT WAS PAYING HUGE AMOUNT OF INTEREST. HE THEREFORE FOLLOWING THE DECISION OF HONBLE PUNJAB AND HARYAN A HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. (2006) 286 ITR 1 (P & H) HELD THAT THE INTEREST TO THE EXTENT OF AMOUNT ADVANCED TO PAVAK PLAST PVT. LTD. CANNOT BE ALLOWED. HE ACCORDINGLY CALCULATED THE IN TEREST AT 9% ON THE DEPOSIT OF RS. 11,28,345 AND DISALLOWED RS. 1,01,55 1/-. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CI T(A). CIT(A) UPHELD THE ORDER OF A.O BY HOLDING AS UNDER:- 4.1 THE RELEVANT PARAS OF THE WRITTEN SUBMISSIONS F ILED BY THE A. R. OF THE APPELLANT ARE REPRODUCED HEREUNDER :- 'THE APPELLANT BEGS TO SUBMIT THAT THE DISALLOWANCE OF INTEREST IS UNJUSTIFIED AS UNDER:- (A) FIRSTLY, THE APPELLANT HAD NOT GIVEN SAID ADVAN CE DURING THE YEAR UNDER APPEAL AS IT WAS POINTED OUT IN THE REPLY DATED 14-11-2008 (PARA 4.1 OF ORDE R) NOW IT IS SETTLED LAW THAT UNLESS THERE WAS FIND ING IN THE YEAR IN WHICH ADVANCE WAS GIVEN, NO DISALLOW ANCE COULD BE MADE IN SUBSEQUENT YEAR, (REFER TO SRIDEV ENTERPRISE LTD. (192 ITR 165)(KAR.). THE COP Y OF LEDGER A/C. FOR F.Y. 2000-01 OF THE PARTY IS ENCLOSED HEREWITH. (B) SECONDLY, THE APPELLANT HAD COMMERCIAL EXPEDIEN CY IN MAKING THIS ADVANCE BECAUSE IT IS A SISTER CONCERN AND BOTH ARE ENGAGED IN SIMILAR LINE OF BUS INESS. IT IS SUBMITTED THAT THE AO HAS RELIED UPON THE DECISION OF ABHISHEK INDUS. WHICH WAS REVERSED BY HON'BLE SUPREME COURT (288 ITR 1) HENCE AO HAS PROCEEDED ON WRONG FOOTING. IN VIEW OF ABOVE, THE DISALLOWANCE MAY BE DELETED.' 4.2 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A . R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. APPELLAN T'S CONTENTIONS ARE GENERAL, UNSUBSTANTIATED AND DO NOT GO TO CONTROVERT THE A. O'S FINDINGS IN THE ASS ESSMENT ORDER. DISALLOWANCE IS UPHELD. THIS GROUND OF APPEAL IS DISMISSED. 6. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW I N APPEAL BEFORE US. 7. BEFORE US, LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. CIT(A) AND FURTHER SUBMITTED THAT THE ADVANCE TO PA VAK PLAST PVT. LTD. WAS ADVANCED DURING F.Y. 2000-01. HE FURTHER SUBMIT TED THAT ASSESSEE HAD COMMERCIAL EXPEDIENCY IN MAKING THE ADVANCE TO PAVAK PLAST, WHICH IS A SISTER CONCERN OF THE ASSESSEE AND BOTH ARE EN GAGED IN THE SIMILAR LINE OF BUSINESS. HE FURTHER SUBMITTED THAT UNLESS THERE WAS A FINDING OF THE PURPOSE BEING FOR NON BUSINESS IN THE YEAR IN W HICH ADVANCE WAS GIVEN, NO DISALLOWANCE COULD BE MADE IN SUBSEQUENT YEARS. HE FURTHER ITA NO 705/A HD/2011 . A.Y. 2006- 07 4 SUBMITTED THAT A.O HAD RELIED UPON THE DECISION OF ABHISHEK INDUSTIRES WHICH WAS REVERSED BY HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD VS. CIT (2007) (288) ITR 1. HE FURTHER SUBMITTED THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS AND THERE WAS NO DIRECT NEXUS BETWEEN THE INTEREST BEARING BORROWINGS AND THE ADV ANCE. LD. A.R. ALSO RELIED UPON THE DECISION OF BOMBAY HIGH COURT IN TH E CASE OF RELIANCE UTILITIES 313 ITR 340 FOR THE PROPOSITION THAT WHEN ASSESSEE IS HAVING SUFFICIENT INTEREST FREE FUNDS NO DISALLOWANCE ON A CCOUNT OF INTEREST CAN BE MADE. LD. A.R. FURTHER SUBMITTED THAT NO DISALLO WANCE ON ACCOUNT OF INTEREST HAS BEEN MADE IN ANY EARLIER YEARS AND THE REFORE SUBMITTED THAT NO DISALLOWANCE ON ACCOUNT OF INTEREST WAS CALLED F OR. THE LD. D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF A.O AND CIT(A) A ND FURTHER SUBMITTED THAT ASSESSEE HAD CHARGED INTEREST ONLY IN F.Y. 200 0-01 AND HAD STOPPED CHARGING INTEREST THEREAFTER. HE FURTHER SUBMITTED THAT ASSESSEE HAS NOT DEMONSTRATED THE BUSINESS EXPEDIENCY NOR HAS DEMONS TRATED THE AVAILABILITY OF FUNDS. HE THUS SUPPORTED THE ORDER OF LOWER AUTHORITIES. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT ASSESSEE HAS PAID ADV ANCE TO PAVAK PLAST PVT. LTD. WHICH IS A SISTER CONCERN OF THE ASSESSEE. IT IS ALSO A FACT THAT THE AMOUNT WAS ADVANCED IN F.Y. 2000-01 AND THE SAME AM OUNT CONTINUES TO APPEAR AS RECEIVABLE AS ON 31 ST MARCH, 2006. 9. BEFORE US, LD. A.R. HAS SUBMITTED THAT INTEREST FRE E FUNDS HAVE BEEN USED FOR THE PURPOSE OF MAKING ADVANCES AND HAD RELIED O N THE DECISION IN THE CASE OF RELIANCE UTILITIES (SUPRA). HOWEVER LD. A.R . HAS NOT PLACED ANY DOCUMENTARY EVIDENCE TO DEMONSTRATE THE AVAILABILIT Y OF INTEREST FREE ITA NO 705/A HD/2011 . A.Y. 2006- 07 5 FUNDS IN THE YEAR IN WHICH THE AMOUNT WAS ADVANCED TO PAVAK PLAST PVT. LTD. WE ALSO FIND THAT CIT(A) WHILE UPHOLDING THE A DDITION MADE BY A.O HAS NOT GIVEN ANY FINDING WITH RESPECT TO THE AVAIL ABILITY OF SUFFICIENT INTEREST FREE FUNDS IN THE YEAR IN WHICH THE AMOUNT WAS ADVANCED BY OR WITH RESPECT TO THE BUSINESS EXPEDIENCY OF THE ASSE SSEE IN ADVANCING THE AMOUNT AS THE LD. CIT(A) HAS PASSED A VERY CRYPTIC ORDER. WE THEREFORE FEEL THAT THIS ISSUE NEEDS TO BE REEXAMINED AND THE REFORE REMIT THE ISSUE BACK TO THE FILE OF A.O. SO THAT HE CAN EXAMINE THE AVAILABILITY OF INTEREST FREE FUNDS IN THE YEAR IN WHICH THE AMOUNT WAS ADVA NCED AND THEREAFTER DECIDE THE ISSUE AS PER LAW AND IN THE LIGHT OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES (SUPRA). THE A.O SHALL ALSO GIVE A FINDING ON THE BUSINESS EXPEDIENC Y. NEEDLESS TO STATE, THAT A.O SHALL GRANT ADEQUATE OPPORTUNITY OF HEARIN G TO THE ASSESSEE. THUS THIS GROUND OF ASSESSEE IS ALLOWED FOR STATIST ICAL PURPOSES. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 07 - 08 - 2014. SD/- SD/- (KUL BHARAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AH MEDABAD