REHEOPLAST TECHNOLOGY P.LTD, MUMBAI V. DCIT 13(3)(1), MUMBAI

ITA 7502/MUM/2016

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6502 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 20-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G
• Keywords: Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.7502/M/2016 ASSESSMENT YEAR: 2012-13 M/S. REHEOPLAST TECHNOLOGY P. LTD, A-711, MAIN FRAME-1, ROYAL PALM AAREY COLONY, GOREGAON EAST, MUMBAI 400 101 PAN: AAECR 3815K VS. DCIT 13(3)(1), MUMBAI (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI KIRIT S. SANGHVI, A.R. SHRI MOHAN V. TANDON, A.R. REVENUE BY : SHRI D.G. PANSARI, D.R. DATE OF HEARING : 13.02.2019 DATE OF PRONOUNCEMENT : 19.02.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 21.09.2016 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2012-13. 2. THE ONLY ISSUE RAISED BY THE ASSESSEE IS AGAINST THE CONFIRMATION OF ADDITION OF RS.17,58,421/- BY CIT(A ) AS MADE BY THE AO BY DISALLOWING INTEREST U/S 36(1)(III) OF TH E ACT. 3. THE FACTS IN BRIEF ARE THAT THE AO DURING THE CO URSE OF ASSESSMENT PROCEEDINGS NOTED THAT ASSESSEE HAS ADVA NCED ITA NO.7502/M/2016 M/S. REHEOPLAST TECHNOLOGY P. LTD 2 INTEREST FREE LOANS AND ADVANCES TO RELATED PARTIES AND OTHERS TO THE TUNE OF RS.1.97,90,811/- WHEREAS ON THE OTHER H AND THE ASSESSEE HAS BORROWED FUNDS TO THE EXTENT OF RS.3,5 4,34,546/- ON WHICH THE ASSESSEE HAS PAID INTEREST AND DURING THE YEAR INTEREST CHARGED TO THE PROFIT AND LOSS ACCOUNT WAS RS.41,46,890/-. THE AO THUS CAME TO THE CONCLUSION THAT INTEREST BEARING FUNDS WERE DIVERTED FOR GIVING LO ANS AND ADVANCES ON WHICH NO INTEREST WAS CHARGED. THE AO CALCULATED THE DISALLOWANCE BY APPLYING RATE @ 14% TO THE AMOU NT OF LOANS AND ADVANCES WHICH WORKED OUT TO RS. 27,70,713/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE U/S 36(!)(II I) OF THE ACT. 4. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A), AFT ER TAKING INTO ACCOUNT THE CONTENTIONS OF THE ASSESSEE PARTLY ALLO WED THE APPEAL OF THE ASSESSEE BY PARTLY SUSTAINING THE ADD ITION TO THE TUNE OF RS. 17,58,421 BY OBSERVING AND HOLDING AS U NDER:- 5.5. IT IS NOTED THAT LOANS TO DIRECTORS AND ASSOC IATES OF RS 132,29,609/-AND OTHER LOANS AND ADVANCES OF RS 33,55,861/- IS GIVEN TOTAL ING TO RS 165,85,4707- - T HE OTHER ITEMS INCLUDED IN THE RS 197,90,8117-CONSIDERED BY THE ASSESSING OFFICER IS SECURITY DEPOSITS WITH GOVERNMENT AND ADVANCES TO SUPPLIERS. THE APPELLANT WAS CALLED UPON TO FILE COMPLETE DETAILS OF ALL BORROWINGS AND LOANS AND ADVANCES GIVING PARTY WISE AMOUNTS OPENING, ADDITION, REPAYMENT AND CLOSI NG BALANCE, INTEREST RATE AND AMOUNT OF INTEREST, THE PURPOSE OF ADVANCES, BANK S TATEMENTS. 5.6 AS PER THE STATEMENT FILED, IT IS SEEN THAT ADV ANCES TO SUPPLIERS IS RS.526,788/-, DEPOSITS WITH EXCISE AND TAX AUTHORIT IES IS RS 9,21,212/- DEPOSITS WITH OTHER PARTIES IS RS 17,57,341/- . THE LOANS AND ADV ANCES ARE RS 33,55,861 /= WHICH INCLUDE ADVANCES AGAINST FACTORY PLOTS AND ADVANCES TO STAFF. THUS, THE INTEREST FREE ADVANCES NOT FOR BUSINESS ARE THE ADVANCES TO DIREC TORS AND ASSOCIATES OF RS.1,32,29,609/- OUT OF THIS THE AMOUNT OF RS 937 ,232/- IS ADVANCE TO RELIABLE INFRASTRUCTURE P. LTD. ON WHICH INTEREST @10% HAS B EEN BOOKED. ON THE BALANCE RS1,22,92,377/- NO INTEREST IS CHARGED. A PRESUMPTI ON CAN CERTAINLY BE CALLED INTO PLAY WHEN APPELLANT HAS SHIED AWAY FROM PROVIDING T HE DETAILS. HOWEVER, IT IS NOTED THAT THE ASSESSING OFFICER HAS DISALLOWED INTEREST EXPENSES ON EVEN ADVANCES AS DEPOSITS WITH GOVERNMENT AUTHORITIES AND ADVANCE TO SUPPLIERS. THUS, THE DISALLOWANCE IS RESTRICTED TO INTEREST FREE ADVANCE S OF RS 1,22,92,377/- @ 14% AND ON RS 937,232/- @ 4% WHICH COMES TO RS 17,58,421/-. THE GROUND OF APPEAL NO 2 IS PARTLY ALLOWED. ITA NO.7502/M/2016 M/S. REHEOPLAST TECHNOLOGY P. LTD 3 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE MATERIALS ON RECORDS INCLUDING THE DETAILS OF O WN FUNDS AND DETAILS OF ADVANCES. WE FIND THAT THE LD CIT(A) HAS RECORDED FINDINGS OF FACTS THAT LOANS AND ADVANCES TO DIRECT ORS WERE RS.1,32,29,609/-, ADVANCES FOR BUSINESS PURPOSES WE RE RS. 33,55,861/- SUCH AS ADVANCES TO SUPPLIERS, FOR FACT ORY PLOT AND ADVANCES TO STAFF AND THE REMAINING AMOUNT OF ADVAN CES REPRESENTED THE ADVANCES TO VARIOUS GOVT. AUTHORITI ES. THE LD CIT(A) HAS RECORDED A FINDING OF FACTS TO THIS EFFE CT AND SUSTAINED THE ADDITIONS ON RS. 1,22,92,377/- @14% BY EXCLUDIN G OUT THE ADVANCES TO DIRECTORS OF RS. 1,32,29,609/- ADVANCE GIVEN TO RELIABLE INFRA LTD RS. 9,37232/-FOR BUSINESS PURPO SE. THUS THE LD CIT(A) HAS ACCEPTED THE CONTENTIONS OF THE ASSES SEE THAT THE INTEREST FREE ADVANCES ON WHICH DISALLOWANCE OF IN TEREST IS TO BE MADE ARE TO THE TUNE OF RS.1,22,,92,377/-. WE FIND MERIT IN THE ARGUMENTS OF THE LD COUNSEL OF THE ASSESSEE THAT OW N FUNDS WERE RS. 1,58,40,305/- AS THE BALANCE SHEET WHEREAS THE INTEREST FREE ADVANCES ARE ONLY RS. 1,22,92,377/- AND THEREFORE PRESUMPTION IS THAT NO DISALLOWANCE U/S 36(1)(III) OF THE ACT C AN BE MADE AS THE INTEREST FREE FUNDS WERE MORE THAN THE AMOUNT O F ADVANCES GIVEN FREE OF INTEREST WHICH IS SUPPORTED BY THE DE CISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS REL IANCE UTILITIES AND POWER LTD (2009) 313 ITR 340 (BOM). W E THEREFORE FOLLOWING THE RATIO LAID DOWN BY THE JURISDICTIONAL HIGH COURT , SET ASIDE THE ORDER OF CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION AS MADE U/S 36(1)(III). ITA NO.7502/M/2016 M/S. REHEOPLAST TECHNOLOGY P. LTD 4 6. IN RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 19.02.2019. SD/- SD/- ( RAM LAL NEGI) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 19.02.2019. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.