M/s Namdhari Industrial Traders Pvt. Ltd., Ludhiana V. ACIT, Ludhiana

ITA 795/CHANDI/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9081 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 14-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Source of fund

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO. 795/CHD/2016 ASSESSMENT YEAR: 2011-12 M/S NAMDHARI INDUSTRIAL TRADERS VS THE AC IT, PVT. LTD., 515/5, INDL. AREA-B, CIRCLE - V, LUDHIANA. LUDHIANA. PAN: AACCN2429B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHWANI KUMAR RESPONDENT BY : SHRI S.K.MITTAL DATE OF HEARING : 31.08.2016 DATE OF PRONOUNCEMENT : 15.09.2016 O R D E R THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST T HE ORDER OF LD. CIT(APPEALS)-2 LUDHIANA DATED 21.03.20 16 FOR ASSESSMENT YEAR 2011-12 CHALLENGING THE DISALLOWANC E OF RS. 4,15,992/- OUT OF INTEREST UNDER SECTION 36(1)( III) OF THE INCOME TAX ACT. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT ASSESSEE FILED RETURN OF INCOME DECLARING INCOME OF RS. 22,23,340/ -. THE ASSESSEE WAS ENGAGED IN BUSINESS OF MANUFACTURING O F PRE- STRUCTURED ENGINEERING GOODS DURING THE PERIOD UNDE R CONSIDERATION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON PERUSAL OF ACCOUNTS OF SUNDRY DEBTO RS OF 2 THE ASSESSEE, IT WAS OBSERVED THAT ASSESSEE HAS VAR IOUS OUTSTANDING DEBIT BALANCES IN THE ACCOUNT WITHOUT A NY ENTRIES. THE ASSESSING OFFICER ASKED THE ASSESSEE AS TO WHY INTEREST UNDER SECTION 36(1)(III) OF THE ACT SH OULD NOT BE CAPITALIZED KEEPING IN VIEW THE LONG OUTSTANDING DEBIT BALANCE. THE ASSESSING OFFICER OBSERVED THAT ASSESS EE HAS NOT BEEN ABLE TO PROVIDE ANY SUBSTANTIVE DOCUMENTAR Y EVIDENCE TO SUGGEST THAT THESE WERE REGULAR BUSINES S ADVANCES. THE ASSESSEE ALSO HAD LOAN LIABILITY OF RS. 6.75 CRORES ON WHICH HUGE FINANCIAL EXPENSES OF RS. 78,22,446/- WAS INCURRED. ON ONE HAND, THE ASSESSE E HAS INCURRED INTEREST EXPENSES ON BORROWED FUNDS AND ON THE OTHER HAND, ADVANCES HAVE BEEN KEPT OUTSTANDING UN- REASONABLY FOR A LONG PERIOD WITHOUT ANY CHARGING O F INTEREST. THE ASSESSING OFFICER, THEREFORE, DISALLO WED RS. 4,15,992/- UNDER SECTION 36(1)(III) OF THE ACT. 3. THE ADDITION WAS CHALLENGED BEFORE LD. CIT(APPEA LS) AND WRITTEN SUBMISSION OF THE ASSESSEE IS REPRODUCE D IN THE IMPUGNED ORDER IN WHICH ASSESSEE EXPLAINED PART Y-WISE FACTS RELATING TO DEBIT BALANCES. IN THE CASE OF M /S RAJ ENGINEERING WORKS, MOHALI, IT WAS SUBMITTED THAT STATEMENT OF ACCOUNTS SHOWING THAT AMOUNTS HAVE BEE N COMING UP FROM FINANCIAL YEAR 2008-09 TILL DATE AND BALANCE RECOVERABLE IN EARLIER YEAR WAS RS. 12,77,0 02/- WHICH IS CONTINUING IN ASSESSMENT YEAR UNDER APPEAL . THE DELAY IN REALIZATION OF THE OUTSTANDING AMOUNT WAS DUE TO BAD FINANCIAL CONDITION OF THE CUSTOMER. THIS PART Y IS NOT RELATED TO THE ASSESSEE. IN THE CASE OF M/S REINFO RCED 3 EARTH INDIA PVT. LTD., THIS PARTY IS THE REGULAR CU STOMER OF THE ASSESSEE AND HAS SEVERAL BRANCHES ALL OVER INDI A SUCH AS MUMBAI, MOHALI, CHENNAI, HYDERABAD, BANGLURU ETC . THE ASSESSEE HAS SOLD GOODS TO ALL THESE BRANCHES A ND AMOUNT COULD NOT BE RECEIVED FOR SOME BRANCHES, THE REFORE, DISALLOWANCE IS UNJUSTIFIED. 3(I) THE LD. CIT(APPEALS) NOTED THAT ASSESSEE HAS F AILED TO PROVE THAT ADVANCES WERE GIVEN FOR THE PURPOSE OF BUSINESS. ACCORDINGLY, CONFIRMED THE ADDITION AND DISMISSED APPEAL OF THE ASSESSEE. 4. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW. HE HAS REFERRED TO PB-25 WHICH IS LIST OF SUNDRY DEBTORS I N THE BOOKS OF ACCOUNT OF THE ASSESSEE AND SUBMITTED THAT THESE ARE TRADE DEBTORS WITH WHOM ASSESSEE HAS BUSINESS DEALING. NO ADVANCES HAVE BEEN GIVEN TO THESE PART IES AND NO ADDITIONS HAVE BEEN MADE IN SUBSEQUENT YEAR. PB -28 TO 31 ARE THE ACCOUNTS OF THESE PARTIES IN WHICH IN SUBSEQUENT YEAR, AMOUNTS HAVE BEEN RECEIVED AND ACC OUNTS HAVE BEEN SQUARED UP. THE LD. COUNSEL FOR THE ASSES SEE SUBMITTED THAT THE TOTAL OUTSTANDING AGAINST THESE PARTIES IS APPROXIMATELY RS. 39 LACS AND REFERRED TO PB-17 TO SHOW THAT THE CAPITAL AND INTEREST FREE ADVANCES AVAILAB LE TO THE ASSESSEE ARE MUCH MORE IN CRORES, THEREFORE, ADDITI ON IS WHOLLY UNJUSTIFIED. ON THE OTHER HAND, LD. DR RELI ED UPON ORDERS OF THE AUTHORITIES BELOW. 4 5. AFTER CONSIDERING RIVAL SUBMISSIONS, I AM OF THE VIEW ADDITION IS WHOLLY UNJUSTIFIED. THE ASSESSING OFFI CER HAS GIVEN LIST OF AMOUNT OF ADVANCES AGAINST M/S RAJ ENGINEERING WORKS, MOHALI IN A SUM OF RS. 12,77,002 /- AND AGAINST M/S REINFORCED EARTH INDIA PVT. LTD., HYDER ABAD, CHENNAI AND NAVI MUMBAI. THE TOTAL OF THESE ADVANCE S ARE APPROXIMATELY RS. 39 LACS. PB-25 IS THE LIST OF DEB TORS IN THE BALANCE SHEET OF THE ASSESSEE. IN THE CASE OF M/S RAJ ENGINEERING WORKS, MOHALI, SAME AMOUNT IS COMING UP FROM THE EARLIER YEARS AND PAYMENTS HAVE BEEN RECEI VED IN SUBSEQUENT YEARS (PB-28) AND IN CASE OF OTHER PARTY , PAYMENTS HAVE BEEN RECEIVED IN SUBSEQUENT YEAR, COP IES OF ACCOUNTS ARE PB- 29 TO 31. THEREFORE, ASSESSEE IS J USTIFIED IN CONTENDING THAT THESE ARE TRADE DEBTORS WITH WHO M ASSESSEE HAS BUSINESS DEALING. THEREFORE, THESE AR E NOT ADVANCES AS IS NOTED BY THE AUTHORITIES BELOW. PB- 17 IS BALANCE SHEET OF THE ASSESSEE SHOWING AVAILABILITY OF SOURCE OF FUNDS WITH THE ASSESSEE WHICH IS MORE THAN THE A MOUNTS OUTSTANDING AGAINST THESE PARTIES. HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF KAPSON ASSOCIATES 381 ITR 204 HELD THAT, ASSESSEE HAVING SUFFICIENT INTEREST FREE ADVANCES TO COVER INTEREST FREE ADVANCES, NO DISALL OWANCE UNDER SECTION 36(1)(III) IS PERMISSIBLE. IN THE CASE OF THE ASSESSEE, ASSESSEE HAS BEEN ABLE TO PROVE THAT THE AMOUNTS OUTSTANDING ARE IN RESPECT OF TRADE DEBTORS WITH WH OM ASSESSEE HAS BUSINESS DEALING AND IN CASE OF M/S RA J ENGINEERING WORKS, SIMILAR AMOUNT IS COMING UP FROM THE EARLIER YEAR. NOTHING IS BROUGHT ON RECORD, IF ANY ADDITION 5 WAS MADE IN EARLIER YEAR. SUFFICIENT FUNDS ARE ALS O AVAILABLE TO THE ASSESSEE AS IS NOTED ABOVE, THEREF ORE, DISALLOWANCE OF INTEREST IS WHOLLY UNJUSTIFIED. I, ACCORDINGLY, SET ASIDE THE ORDERS OF AUTHORITIES BE LOW AND DELETE THE ADDITION OF RS. 4,15,992/-. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATED : 15 TH SEPTEMBER,2016. POONAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT,DR ASSISTANT REGISTRAR, ITAT CHANDIGARH