Ajay Kumar Singhania, Ludhiana V. ACIT, Ludhiana

ITA 784/CHANDI/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0082 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 09-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: NAVNEET SEHGAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 784/CHD/2014 ASSESSMENT YEAR: 2008-09 SHRI AJAY KUMAR SINGHANIA, VS THE ACIT, PROP. M/S SINGHANIA CHEMICALS, CIRCLE-IV, GILL ROAD, LUDHIANA. LUDHIANA. PAN: AFIPS5558N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NAVNEET SEHGAL RESPONDENT BY : SHRI MANJIT SINGH DATE OF HEARING : 05.04.2016 DATE OF PRONOUNCEMENT : 08.04.2016 O R D E R PER BHAVNESH SAINI,JM THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST THE ORDER OF LD. CIT(APPEALS)-II LUDHIANA DATED 31.07.2014 FOR ASSESSMENT YEAR 2008-09. 2. THE GROUND NO. 1 IS GENERAL. THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUND NOS. 2 AND 3 OF T HE APPEAL OF THE ASSESSEE. SAME ARE, THEREFORE, DISMI SSED BEING NOT PRESSED. 3. ON GROUND NO. 4, ASSESSEE CHALLENGED THE DISALLOWANCE OF RS. 1,79,581/- OUT OF INTEREST INCO ME. 4. THE BRIEF FACTS AS NOTED IN THE IMPUGNED ORDER A RE THAT ASSESSING OFFICER FOUND THAT ASSESSEE HAD GIVE N 2 ADVANCE AMOUNTING TO RS. 5.11 CRORES TO ITS SISTER CONCERN M/S DURGA CHEMICALS AGENCY ON WHICH ASSESSE E WAS RECEIVING INTEREST @ 10%. ON THE OTHER HAND, ASSESSEE HAS TAKEN UNSECURED LOANS FROM BANKS AMOUNTING TO RS. 3.21 CR ON WHICH THE ASSESSEE HAD PAID INTEREST @ 10.75%. THE ASSESSING OFFICER ASKE D THE ASSESSEE TO EXPLAIN WHY DIFFERENTIAL INTEREST MAY N OT BE DISALLOWED. THE ASSESSING OFFICER, AFTER CONSIDERI NG EXPLANATION OF THE ASSESSEE, DISALLOWED RS. 1,79,5 81/- OUT OF THE INTEREST. 4. THE ASSESSEE CHALLENGED THE ADDITION BEFORE LD. CIT(APPEALS) AND IT WAS SUBMITTED THAT TOTAL INTERE ST PAID ON BANK OVER DRAFT WAS RS. 25,73,686/- AND THE ASSESSEE RECEIVED TOTAL INTEREST FROM HIS BROTHER S HRI ANIL KUMAR SINGHANIA IN A SUM OF RS. 29,50,295/-. THEREFORE, NET INTEREST RECEIVED WAS RS. 3,76,609/- . THE ASSESSEE HAD OLD FIXED DEPOSITS WITH THE BANK @ 9.5 0 9.75% . DURING THE YEAR THE RATES OF FIXED DEPOSITS WITH THE BANKS HAD DECREASED LOW TO 8% - 8.25%. THE ASSESSEE, INSTEAD OF DEPOSITING FUNDS WITH THE BANK AT 8%, LEND A SUM TO HIS BROTHER @ 10%. COPY OF THE S TATE BANK OF INDIA LETTER WAS ALSO FILED. THE ASSESSEE INVESTED SURPLUS FUNDS TO EARN INTEREST WHICH IS PU RE COMMERCIAL TRANSACTION AND INTEREST RECEIVED IS MOR E THAN THE INTEREST PAID. THE ASSESSEE HAS AVAILABIL ITY OF FUNDS WITH HIM IN HIS CAPITAL AMOUNTING TO RS. 2250 .89 LACS. THE AMOUNT ADVANCED TO SHRI ANIL KUMAR 3 SINGHANIA, PROPRIETOR OF M/S DURGA CHEMICALS AGENCI ES, LUDHIANA IS OUT OF THE CAPITAL AND AVERAGE OUTSTAND ING IS LESS THAN RS. 257 LACS ( APPROXIMATELY 11% OF HI S CAPITAL). 4(I) THE ASSESSEE RELIED UPON DECISION OF SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION 298 I TR 298 IN WHICH IT WAS HELD THAT SINCE THE OPENING BALANCE OF THE PROFITS OF THE ASSESSEE FIRM AS ON 01.04.199 4 WAS RS. 1.91 CR AND PROFITS WERE SUFFICIENT TO COVER TH E LOAN GIVEN TO SISTER CONCERN OF RS. 5 LACS ONLY, THE APP ELLATE TRIBUNAL OUGHT TO HAVE HELD THAT LOAN WAS GIVEN FRO M THE ASSESSEE'S OWN FUNDS. THE ASSESSEE, THEREFORE, SUBMITTED THAT ASSESSEE HAS OWN SUFFICIENT FUNDS, THEREFORE, ON MERE DIFFERENTIAL INTEREST, ADDITION SHOULD NOT BE MADE. THE ASSESSEE OBTAINED MAXIMUM INTERES T AS AGAINST THE BANK DEPOSITS. SINCE ASSESSEE ULTIM ATELY RECEIVED MORE INTEREST, THEREFORE, ADDITION SHOULD NOT BE MADE. THE LD. CIT(APPEALS), HOWEVER, DID NOT ACCEP T CONTENTION OF THE ASSESSEE AND NOTED THAT ASSESSEE HAS ADVANCED HUGE AMOUNT TO THE SISTER CONCERN CHARGING LESSER RATE OF INTEREST AS COMPARED TO THE BORROWIN GS FROM THE BANK. THE LD. CIT(APPEALS), RELYING UPON DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD. 286 ITR 1 CONFIRMED THE ADDITION AND DISMISSED THIS GROUND OF APPEAL OF THE ASSESSEE. 4 5. AFTER CONSIDERING RIVAL SUBMISSIONS, WE DO NOT F IND ANY JUSTIFICATION TO SUSTAIN THE ADDITION. HON'BLE SUPREME COURT IN THE CASE OF HERO CYCLES PVT. LTD. VS CIT 379 ITR 347 HELD THAT WHEN ADVANCE WAS OUT OF BUSINESS EXPEDIENCY, INTEREST PAID ON BORROWINGS NO T TO BE DISALLOWED. THE ASSESSEE IN THE PRESENT CASE HAS EXPLAINED THAT HE HAS SURPLUS CAPITAL TO GIVE ADVAN CE TO THE SISTER CONCERN. ON THE ADVANCE GIVEN TO THE SI STER CONCERN, ASSESSEE EARNED 10% OF THE INTEREST. IF T HE ASSESSEE WOULD HAVE MADE FIXED DEPOSITS WITH THE SCHEDULED BANK, THE ASSESSEE WOULD HAVE RECEIVED TH E LOWER INTEREST AS AGAINST 10%. THIS WAS THE BUSINE SS EXPEDIENCY OF THE ASSESSEE TO EARN MORE INTEREST ON THE SURPLUS FUNDS, THEREFORE, THERE WAS NO JUSTIFICATIO N FOR THE ASSESSING OFFICER TO MAKE ADDITION OF THE DIFFE RENTIAL INTEREST. FURTHER, THE ASSESSEE RECEIVED MORE INTE REST AS AGAINST INTEREST PAID ON THE BORROWINGS WHICH WA S ALSO PAID ON BANK DRAFTS. THE DECISION OF THE HON' BLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATI ON (SUPRA) WOULD ALSO APPLY IN FAVOUR OF THE ASSESSEE. THE LD. CIT(APPEALS) CONFIRMED THE ADDITION HOLDING THA T THE ISSUE IS COVERED AGAINST THE ASSESSEE BY JUDGEMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD. (SUPRA). HOWEVER, HON'BLE SUPREME COURT IN THE CASE OF HERO CYCLES P. LTD. REVERSED THE ABOVE JUDGEMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRI ES LTD. (SUPRA). 5 6. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES NOTED ABOVE, WE ARE OF THE VIEW NO DISALLOWANCE IS CALLED FOR ON THE MATTER IN ISSUE. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF AUTHORITIES BE LOW AND DELETE THE ADDITION OF RS. 1,79,581/-. GROUND NO. 4 OF APPEAL OF THE ASSESSEE IS ALLOWED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (ANNAPURNA GUPTA) (BHAVNESH SA INI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 8 TH APRIL, 2016. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT,DR ASSISTANT REGISTRAR, ITAT/CHD