ALCHEMIC DYE CHEM PRIVATE LIMITED, MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX 15(1)(1), MUMBAI

ITA 7386/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8216 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 26-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATISH CHANDRA RAJORE
• Keywords: Set aside
• Section: 143(3); 37(1)

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE HONBLE SH. SANDEEP GOSAIN, JM & HONBLE SH. G. MANJUNATHA , A M ./ I.T.A. NO . 7386 /MUM/201 7 ( / ASSESSMENT YEAR: 2012 - 13 ) ALCHEMIC DYE CHEM PVT. LTD. 71, 2 ND FLOOR, UDYOG KSHETRA, MULUND, GOREGAON LINK ROAD, OFF - LBS ROAD, MULUND (W), MUMBAI - 400 080 / VS. ACIT 15(1)(1), MUMBAI, PIN - ./ ./ PAN NO. A AACA3921F ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI ANUJ KISNADWALA, A R / RESPONDENTBY : SHRI SATISHCHANDRA RAJORE , DR / DATE OF HEARING : 16 .01 .201 9 / DATE OF PRONOUNCEMENT : 03.04.2019 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE P RESENT APPE AL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF LD. CIT (APPEAL) 24, MUMBAI DATED 11.09 .17 F OR AY 20 12 - 13 . 2 I.T.A. NO. 7386 /MUM/201 7 ALCHEMIC DYE CHEM PVT. LTD. 2. THE B RIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF FINANCE AND INVESTMENT ACTIVITY. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED ON 26.09 . 2012 DECLARING TOTAL INCOME OF RS. 58,88,990/ - . THEREAFTER, A SSESSMENT U/S 143(3) WAS COMPLETED BY THE AO ON 23. 03.2015 DETERMINING INCOME AT RS.66,74,195/ - . DURING THE YEAR, ASSESSEE HAD SHOWN REV ENUE FRO M OPERATIONS AT RS. 3,53,04,817/ - AND NET PROFIT AS PER P & L ACCOUNT HAS BEEN COMPUTED AT RS. 58,84,259/ - . HOWEVER, THE AO DURING THE ASSESSMENT PROCEEDINGS NOTICED THAT ASSESSEE HAD GIVEN LOANS AND ADVANCE TO MA NY PARTIES @ 14% TO 15%. THE SAID LOANS AND ADVANCE WERE GIVEN OUT OF INTEREST BEARING BORROWED FUNDS AND THE ASSESSEE HAD PAID INTEREST ON THE BORROWED FUNDS @ OF 14%. HOWEVER, IN RESPECT OF LOANS AND A DVANCES TO M/S. AARTI DRUGS LTD, IT WAS OBSERVED THAT THE ASSESSEE HA D GIVEN LOAN OF RS. 2,50,00,000/ - AND HAD CHA RGED INTEREST @ 10% BEING RS. 19.83.014/ - , AS AGAINST BORROWING COST OF 14%. THUS, ACCORDING TO AO, THE ASSESSEE HAD CHARGED LESS INTEREST BY 4% ON THE LOANS ADVANCE GIVEN TO THE SAID PARTY. THEREFORE, THE DIFFERENCE WAS DISALL OWED AS PER THE PROVISIONS OF 3 I.T.A. NO. 7386 /MUM/201 7 ALCHEMIC DYE CHEM PVT. LTD. SEC. 37(1) R.W.S. 36( 1)(III) OF THE ACT AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 3. AGGRIE VED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND LD. CIT(A) AFTER CONSIDERING THE CASE OF BOTH THE PA RTIES , DISMISSED THE APPEAL OF THE ASSESSEE . 4. NOW BEFORE US, THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL . 5 . THE SOLITARY GROUND RAISED BY THE ASSESSEE RELATES TO CHALLENGING THE ORDER OF LD. CIT(A) IN UPHOLDING THE DISALLOWANCE OF RS. 7,85,206/ - U/S 36(1 )(III) R.W.S. 137 OF THE ACT. 6 . LD. AR OF THE ASSESSEE REITERATED THE SAME ARGUMENTS AS WERE RAISED BY HIM BEFORE LD. CIT(A) AND RELIED UPON THE CONTENTIONS AND SUBMISSIONS MENTIONED IN PARA NO. 4 & 5 OF THE ORDER OF LD. CIT(A) AND SUBMITTED THAT T HE ORDER OF LD. CIT(A) IN UPHOLDING THE DISALLOWANCE OF RS. 7,85,206/ - U/S 3 6(1 )(III) R.W.S. 137 OF THE ACT IS BAD IN LAW AND THUS THE SAME BE SET ASIDE. 4 I.T.A. NO. 7386 /MUM/201 7 ALCHEMIC DYE CHEM PVT. LTD. 7 . O N THE OTHER HAND LD. DR RELIED UPON THE ORDERS PASSED BY THE REVENUE AUTHORITIES. 8 . WE HAVE H EARD THE COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD, JUDGMENT CITED BY THE PARTIES AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. WE FIND FROM THE RECORDS THAT LD. CIT(A) HAD MADE DISALLOWANCE OF RS. 7,85,206/ - U/S 3 6(1 )(III) R.W.S. 137 OF THE ACT ON THE GROUND THAT THE ASSESSEE HAD ADVANCED LOANS TO M/S AARTI DRUGS LTD AMOUNTING TO RS. 2.50 CRORES AND HA D CHARGED INTEREST @ 10% , WHEREAS THE ASSESSEE HAD HUGE BORROWED FUNDS ON WHICH INTEREST @ 14% WAS BEING PAID BY THE ASSESSEE, THEREFORE IN THESE CIRCUMSTANCES, THE DIFFERENCE OF 4% WAS COMPUTED AT RS. 7,85,206/ - AND WAS THUS ADDED TO THE INCOME OF THE ASSESSEE. 9. FROM THE RECORDS, WE NOTICE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF LENDING AND AS PER CONTENTION OF THE ASSESSEE, IT HAD SUFFICIENT OWN FUNDS AT ITS DISPOSAL AND THAT MAJORITY OF FUNDS ADVANCED B Y THE ASSESSEE TO M/S AARTI DRUG WERE OUT OF ITS OWN 5 I.T.A. NO. 7386 /MUM/201 7 ALCHEMIC DYE CHEM PVT. LTD. FUND AND NOT OUT OF BORROWED FUNDS. THE L OANS GRANTED BY THE ASSESSEE WERE PART OF BUSINESS ACTIVITY OF THE ASSESSEE AND DURING THE YEAR, ASSESSEE HAD EARNED A GROSS INTEREST INCOME AMOUNTING TO RS. 3,53,04,817/ - FROM ITS LENDING BUSINESS AND CORRESPONDINGLY INTEREST EXPENDITURE AMOUNTING TO RS. 2,93,86,219/ - HAD BEEN INCURRED THEREBY RE SULTING INTO NET INTEREST INCOME OF RS. 59,18,598/ - . WHEREAS THE AO HAD NOT CONSIDERED THE ABOVE FACTS IN THE CORRECT PERSPECTIVE. 10. AS PER THE CONTENTION OF THE ASSESSEE, THE AO HAD FAILED TO APPRECIATE THAT ASSESSEE HAD SUFFICIENT INTEREST FREE OWN F UNDS OF RS. 2.28 CRORES WHICH HAVE BEEN ADVANCED TO M/S AARTI DRUGS. THUS, INTEREST ONLY TO THE EXTENT AS ATTRIBUTABLE TO BALANCE AMOUNT BE SUBJECT TO DISALLOWANCE U/S 36(1)(III) OF THE ACT. 11. IN THIS WAY, WE RELY UPON THE JUDGMENT OF HONBLE BOMBAY HIG H COURT IN THE CASE OF RELIANCE UTILITIES 18 DTR 1 (MUMBAI) (2009) , WHEREIN IT WAS HELD THAT IF THERE ARE FUNDS AVAILABLE BOTH, INTEREST - FREE AND OVERDRAFT AND/OR LOANS ARE TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE 6 I.T.A. NO. 7386 /MUM/201 7 ALCHEMIC DYE CHEM PVT. LTD. OUT OF THE INTEREST - FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST - FREE FUNDS ARE SUFFICIENT TO MEET THE INVESTMENTS. THE DISCRETION OF THE APPELLANT TO INVEST HIS OWN FUNDS IN THE MANNER CONSIDERED APPROPRIATE BY HIM IS NOT TO BE QUESTIONED . THE SAID DECISION HAD QUOTED AND RELIED UPON THE HONBLE SUPREME COURT DECISION IN THE CASE OF EAST INDIA PHARMACEUTICAL WORKS LIMITED 224 ITR 627 (SC) WHICH HAD UPHELD SIMILAR RATIO LAID DOWN BY THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF WOOLCOMBERS OF IN DIA LIMITED 134 ITR 219 (CALCUTTA). 12 . THEREFORE, CONSIDERING THE ABOVE PROPOSITIONS AS LAID DOWN AS WELL AS CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THAT AO HAD FAILED TO APPRECIATE THAT ASSESSEE HAD SUFFICIENT INTEREST FREE OWN FUNDS OF RS. 2.28 CROR ES WHICH HAVE BEEN ADVANCED TO M/S AARTI DRUGS. THUS, INTEREST ONLY TO THE EXTENT AS ATTRIBUTABLE TO BALANCE AMOUNT BE SUBJECT TO DISALLOWANCE U/S 36(1)(III) OF THE ACT. W E SET ASIDE THE ORDER OF LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF AO WITH A DIRECTION TO PASS AFRESH ORDER AS PER THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES 18 DTR 1 (MUMBAI) (2009) . IT IS NEEDLESS 7 I.T.A. NO. 7386 /MUM/201 7 ALCHEMIC DYE CHEM PVT. LTD. HERE TO MENTION THAT BEFORE PASSING AFRESH ORDER OF ASSESSMENT, THE AO SHALL PROVIDE SUFFICIENT OPPORTUNITY OF HEARING TO THE ASSESS E E. 1 3 . BEFORE PARTING, WE MAY MAKE IT CLEAR THAT OUR DECISION TO RESTORE THE MATTER BACK TO THE FILE OF AO SHALL IN NO WAY BE CONSTRUED AS HAVING ANY REFLECTION OR EXPRESSION ON THE MERITS OF THE DISPUTE, WHICH SHALL BE ADJUDICATED BY THE AO INDEPENDENTLY IN ACCORDANCE WITH LAW. WITH THESE DIRECTIONS, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS A LLOWED FOR STATISTICAL PURPOSES. 14 . IN THE NET RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD APRIL 2019. SD/ - SD/ - ( G. MANJUNATHA ) (SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 03 . 0 4 .201 9 SR.PS . DHANANJAY 8 I.T.A. NO. 7386 /MUM/201 7 ALCHEMIC DYE CHEM PVT. LTD. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI