ACIT, CIR-5, Pune V. M/s SATHE & CO, Pune

ITA 719/PUN/2009

• Counselvise Citation: 71924514 RSA 2009
• Duration Of Justice: 2 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 04-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 17-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY SINGH
• Assessee Lawyers: DR SUNIL PATHAK

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER I.T.A. NO. 719/PN/2010 : A.Y. 2005-06 ASSTT. CIT CIR. 5, PUNE APPELLANT VS. M/S. SATHE & CO., 678 SHUKRAWAR PETH, PUNE-11 002 PAN AAHFS 8562 L RESPONDENT C.O. NO. 26/PN/2010 ARISING OUT OF I.T.A. NO. 719/PN/2010 : A.Y. 2005- 06 M/S. SATHE & CO., 678 SHUKRAWAR PETH, PUNE-11 002 PAN AAHFS 8562 L CROSS OBJECTOR VS. ASSTT. CIT CIR. 5, PUNE APPELLANT IN APPEAL ASSESSEE BY : DR. SUNIL PATHAK DEPARTMENT BY : SHRI SANJAY SINGH ORDER PER SHAILENDRA KUMAR YADAV, JM THE APPEAL BY THE REVENUE AND CROSS OBJECTION BY TH E ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT( A)-II PUNE DATED 1-3-2009 FOR A.Y. 2005-06. 2 ITA NO. 719 AND CO 26/PN/2010 SATHE & CO. A.Y. 2005-06 2. THE REVENUE IN ITS APPEAL HAS OPPOSED RESTRICTIN G THE DISALLOWANCE OF INTEREST MADE BY THE ASSESSING OFFI CER TO RS. 9,74,790/- AS AGAINST THE DISALLOWANCE OF RS. 22,98,554/- MADE IN THE ASSESSMENT ORDER. THE ASSES SEE IN ITS CROSS OBJECTION HAS OPPOSED CONFIRMATION OF DISALLOWANCE OF INTEREST TO THE EXTENT OF RS. 9,74, 790/- ON THE GROUND THAT THE ASSESSEE HAD ADVANCED INTEREST FREE FUNDS FOR BUSINESS PURPOSES. 3. WE FIND THAT THE ASSESSING OFFICER DISALLOWED IN TEREST OF RS. 22,98,554/- ON THE GROUND THAT THE ASSESSEE HAD ADVANCED INTEREST FREE FUNDS FOR NON-BUSINESS PURPO SES. THE ASSESSING OFFICER FOUND THAT THE AMOUNT OF RS. 1,55,61,832/- WAS ADVANCED TO M/S. SANKET DEVELOPER S WHICH WAS A SISTER CONCERN OF THE ASSESSEE FIRM AND NO INTEREST WAS CHARGED FROM THIS CONCERN. THE AUDIT REPORT ALSO MENTIONED THAT NO PROVISION FOR INTEREST HAS B EEN MADE. THEREFORE, THE DISALLOWANCE OUT OF INTEREST PAID @ 15% WAS MADE. THIS WAS BECAUSE THE ASSESSEE HAD T AKEN LOAN AMOUNTING TO RS. 2.66 LAKHS FROM VARIOUS BANKS AND PAID INTEREST ON THESE LOANS. THE MATTER WAS CARRI ED IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. VARIO US CONTENTIONS WERE RAISED AND THE CIT(A) CONSIDERING THE SAME HELD AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT. THE CONTENTION MADE VIDE PARA 7.4 THAT T HE PARTNERS CAPITAL ACCOUNT HAS A CREDIT BALANCE WHIC H WERE INTEREST FREE FUNDS AND, THEREFORE, THE DECISI ON OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIAN CE UTILITIES AND POWER LTD., WAS APPLICABLE IS NOT COR RECT SINCE THE PARTNERS CAPITAL ACCOUNT HAS INTEREST BEARING FUNDS AS THE ASSESSEE HAS PAID INTEREST TO PARTNERS ON THEIR CAPITAL. DURING THE COURSE OF HEARING THIS WAS ACCEPTED BY THE AUTHSORISED REPRESENTATIVE. IT IS A MATTER OF RECORD THAT THE APPELLANT WAS CHARGING INTEREST FROM ITS SISTER CON CERN M/S. SANKET DEVELOPERS ON THE LOANS AND ADVANCES 3 ITA NO. 719 AND CO 26/PN/2010 SATHE & CO. A.Y. 2005-06 GIVEN TO IT TILL THE LAST ASSESSMENT YEAR BUT ALL O F A SUDDEN IN THIS EYAR IT HAS BEEN STOPPED. IT WAS FURTHER STATED THAT THIS WAS BECAUSE OF THE FINANCI AL CONDITION OF THE SISTER CONCERN M/S. SANKET DEVELOP ERS AND THE FACT THAT THE APPELLANT WAS NOT ABLE TO REC OVER ANY INTEREST OR PRINCIPAL. ON THE OTHER HAND, THE APPELLANT HAS BEEN PAYING INTEREST ON BORROWED FUND S FROM VARIOUS BANKS TO THE TUNE OF R. 36,86,150/-. INTEREST WAS ALSO BEING PAID TO THE PARTNERS ON THE IR CAPITAL. THE CONTENTION THAT THE ADVANCING OF LOAN WERE MAINLY IN THE EARLIER YEARS AND THIS YEAR ONLY RS. 2,38,140/- WAS ADVANCED OUT OF THE TOTAL PRINCIPAL AMOUNT OF RS. 64,98,602/- IS IRRELEVANT SINCE THE LOANS TAKEN FROM EARLIER YEARS WERE ALSO OUTSTANDIN G CONTINUOUSLY SINCE THE BEGINNING OF THE YEAR AND THEREFORE THE OUTSTANDING FUNDS HAVE GOT THE INTERE ST COMPONENT. THE APPELLANT IS STILL ADVANCING LOAN T O THIS CONCERN IN THE CURRENT YEAR ALSO. THEREFORE, IN PRINCIPLE, THE DISALLOWANCE OUT OF INTEREST PAID BY THE APPELLANT IS UPHELD. HOWEVER, THE CONTENTION THT T HE DISALLOWANCE OF INTEREST @ 15% SHOULD BE MADE ONLY ON THE PRINCIPAL AMOUNT OF RS. 54.98 LAKHS IS ACCEPTABLE SINCE THE BALANCE AMOUNT REPRESENTS INTEREST OF RS. 98,14,406/-, WHICH HAS ALREADY BEEN SHOWN AS INCOME IN THE EARLIER YEARS. THEREFORE, T HE DISALLOWANCE ON THE PRINCIPAL AMOUNT @ 15% WORKS OUT TO RS. 9,74,790/-. THIS IS CONFIRMED AND THE BALANCE IS DELETED OUT OF THE INTEREST WHICH IS DISALLOWED BY THE ASSESSING OFFICER. THE GROUND OF APPEAL NO. 7 IS THEREFORE, PARTLY ALLOWED. THE AFORESAID DECISION OF THE CIT(A) HAS BEEN AGITA TED BEFORE US BY BOTH THE PARTIES AS INDICATED ABOVE. 4. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE A SSESSEE CHARGED INTEREST FROM SISTER CONCERN MS. SANKET DEV ELOPERS ON THE LOANS AND ADVANCES GIVEN TO IT TILL THE LAST ASSESSMENT YEAR BUT ALL OF A SUDDEN IN THIS YEAR IT HAS BEEN STOPPED BECAUSE THE FINANCIAL CONDITION OF THE SISTER 4 ITA NO. 719 AND CO 26/PN/2010 SATHE & CO. A.Y. 2005-06 CONCERN M/S. SANKET DEVELOPERS WAS NOT FINE AND THE ASSESSEE WAS NOT ABLE TO RECOVER ANY INTEREST OR PR INCIPAL WHILE THE ASSESSEE HAD BEEN PAYING INTEREST ON BORR OWED FUNDS FROM VARIOUS BANKS TO THE TUNE OF RS. 36,86,1 50/-. INTEREST WAS ALSO BEING PAID TO THE PARTNERS ON THE IR CAPITAL. SUBSTANTIAL AMOUNT WAS ADVANCED IN EARLIER YEAR BUT FACT REMAINS THAT THE LOAN TAKEN IN THE EARLIER YEAR WAS ALSO OUTSTANDING CONTINUOUSLY SINCE THE BEGINNING O F THE YEAR AND THEREFORE THE OUTSTANDING FUNDS HAVE GOT T HE INTEREST COMPONENT. INSPITE OF ABOVE MENTIONED FIN ANCIAL CONDITIONS OF ASSESSEES SISTER CONCERN, THE ASSESS EE IS STILL ADVANCING LOANS TO THE SAME CONCERN IN THE YEAR UND ER CONSIDERATION AS WELL. THEREFORE, IN PRINCIPLE, TH E DISALLOWANCE OF INTEREST PAID BY THE ASSESSEE IS JU STIFIED. HOWEVER, THE CIT(A) WAS JUSTIFIED IN ACCOMMODATING THE REQUEST MADE ON BEHALF OF THE ASSESSEE THAT THE DISALLOWANCE OF INTEREST AT 15% SHOULD BE MADE ON T HE PRINCIPAL AMOUNT OF RS. 54.98 LAKHS WHICH HAD ALREA DY BEEN SHOWN AS INCOME IN EARLIER YEAR. THEREFORE, T HE DISALLOWANCE OF PRINCIPAL AMOUNT AT THE RATE OF 15% WHICH WORKED OUT TO RS. 9,74,970/- HAS RIGHTLY BEEN CONFI RMED BY THE CIT(A). ACCORDINGLY, THE CIT (A) WAS JUSTIFIED IN DELETING THE BALANCE. WE UPHOLD THE SAME. THIS TAKES CARE OF CROSS OBJECTION RAISED BY THE ASSESSEE AS WELL. 5 ITA NO. 719 AND CO 26/PN/2010 SATHE & CO. A.Y. 2005-06 5. IN THE RESULT, THE APPEAL OF THE REVENUE AS WELL AS THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST 2011. SD/- (G.S. PANNU) ACCOUNTANT MEMBER S D/ - (SHAILENDRA KUMAR YADAV) JUDICIAL MEMBER PUNE DATED THE 30 TH AUGUST 2011 ANKAM COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT II PUNE 4. CIT(A)-II PUNE 4. THE D.R, A BENCH, PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE