M/s Hind Plastic Industries, Dhuri V. ITO, Malerkotla

ITA 809/CHANDI/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8412 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 30-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: B B BANSAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, SMC, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT ITA NO. 809/CHD/2015 ASSESSMENT YEAR: 2011-12 M/S HIND PLASTIC INDUSTRIES, VS. THE ITO, WARD IV( 4), DHURI (PUNJAB) MALERKOTLA PAN NO. AAAFH6832M (APPELLANT) (RESPONDENT) APPELLANT BY : SH. B.B. BANSAL RESPONDENT BY : SH. MANJIT SINGH DATE OF HEARING : 05.02.2016 DATE OF PRONOUNCEMENT : 29.02.2016 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LD. CIT(A)-2, LUDHIANA DATED 1.9.2015 RELATING TO ASSES SMENT YEAR 2011-12. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS:- 1. THAT THE ORDER PASSED BY THE ITO, WARD IV(3), MALER KOTLA AS WELL AS CONFIRMED BY CIT(A) LUDHIANA IS ILLEGAL, UN JUST AND UNCALLED FOR. 2. THAT THE ORDER PASSED BY THE ITO, MALERKOTLA AS WEL L AS CONFIRMED BY LD. CIT(A)-2 LUDHIANA WITH REGARD TO DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE INC OME-TAX ACT, 2 1961 WORTH RS. 695835/- IS ILLEGAL, UNJUST AND UNCA LLED FOR AND AGAINST THE ACTUAL FACTS OF THE CASE AND THE LA W. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT A SSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF YARN AN PLASTIC GITTA, GRANULES AND TRADING OF HDPE AND OTHER PLASTIC RAW MATERIAL. DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD ADVANCED HUGE ADVANCE OF RS. 77,43,180/- TO M/S STC IMPEX COMPANY , LUDHIANA AS UNDER:- DATE PARTICULARS VCH TYPE VCH NO. DEBIT (RS.) CREDIT 9-7-2010 CR PNB 8711941 CH NO: PNB 8711941 CH NO. 764209 PAYMENT PAYMENT 216 217 9,70,000 5,30,000 17-7-2010 DR PURCHASE 5% A/C BY BILL NO.9 PURCHASE 87 1168940 22-7-2010 CR PNB 8711941 CH NO:764218 PNB 8711941 CH NO. 764220 PAYMENT PAYMENT 227 228 4,00,000 6,00,000 23-7-2010 CR PNB 8711941 CH NO:764221 PAYMENT 236 12,00,000 27-7-2010 CR PNB 8711941 CH NO:764222 PAYMENT 242 5,00,000 42,00,000 1-8-2010 DR PURCHASE 5% A/C BY BILL NO.11 PURCHASE 5% A/C BY BILL NO.13 PURCHASE PURCHASE 105 106 9,70,000 5,30,000 1168940 1168940 3506820 DR 693180 3-8-2010 CR PNB 8711941 CH NO:764231 PAYMENT 265 7,00,000 5-8-2010 CR PNB 8711941 CH NO:764232 PAYMENT 268 9,50,000 6-8-2010 CR PNB 8711941 CH NO:764234 PAYMENT 269 4,10,000 7-8-2010 CR PNB 8711941 CH NO: PAYMENT 274 7,00,000 3 9-8-2010 CR PNB 8711941 CH NO: 1 PAYMENT 279 6,00,000 13-8-2010 CR PNB 8711941 CH NO: PAYMENT 283 9,00,000 17-8-2010 CR PNB 8711941 CH NO: PAYMENT 290 9,00,000 18-8-2010 CR PNB 8711941 CH NO:764245 PAYMENT 291 4,95,000 19-8-2010 CR PNB 8711941 CH NO:764246 PAYMENT 297 4,95,000 18-9.2010 CR PNB 8711241 CH NO. RTGS PAYMENT 348 9,00,000 DR CLOSING BALANCE 1,12,50,000 1,12,50,000 35,06,820 77,43,180 1,12,50,000 4. THE ASSESSING OFFICER ASKED THE ASSESSEE AS TO W HY INTEREST FREE ADVANCES HAVE BEEN GIVEN TO M/S STC IMPEX COMPANY. IN RESPON SE TO THE SAID QUERY, THE ASSESSEE SUBMITTED A SHORT REPLY AND THE ASSESSING OFFICER REJECTED THE REPLY HOLDING THE SAME AS VAGUE. THE ASSESSING OFFICER OB SERVED THAT M/S STC IMPEX COMPANY WAS HAVING DEBIT BALANCE OF RS. 77,43,180/- ON 31.3.2011 AND ITS SISTER CONCERN M/S SURYA PHARMA LTD WAS HAVING CRED IT BALANCE OF RS. 97,46,064/- ON 31.3.2014. THE ASSESSING OFFICER FUR THER OBSERVED THAT ABOVE TWO CONCERNS ARE SEPARATE INDEPENDENT CONCERNS HAVING S EPARATE IDENTITY, SO ACCOUNT OF THE TWO CONCERNS CANNOT BE CLUBBED. ACCORDING TO ASSESSING OFFICER, IF THE ASSESSEE HAD MADE PURCHASES FROM ONE CONCERN, THE P AYMENT SHOULD HAVE ALSO BEEN MADE TO THE SAME CONCERN AND NOT TO THE SISTER CONCERN. HE FURTHER OBSERVED THAT THE ASSESSEE FAILED TO PROVIDE ANY CO GENT EXPLANATION REGARDING BUSINESS PURPOSE FOR GIVING ADVANCE PAYMENTS TO M/S STC IMPEX COMPANY. THE ASSESSING OFFICER ALSO POINTED OUT THAT NO SUBS TANTIAL PURCHASES WERE MADE BY THE ASSESSEE FORM M/S STC IMPEX COMPANY. AS PER THE COPY OF ACCOUNT OF M/S STC IMPEX COMPANY IT WAS CLEAR THAT SOME PURCHA SES WERE MADE UP TO 18.8.2010, BUT THE ADVANCES WERE BEING GIVEN REGULA RLY UP TO 18.9.2010 AND AT 4 THE END OF THE YEAR THE DEBIT BALANCE OF RS. 77,43, 180/- WAS OUTSTANDING. THE ASSESSING OFFICER ALSO POINTED OUT THAT THE ASSESSE E WAS PAYING HUGE INTEREST TO BANKS AND TO PARTNERS AND AT THE SAME TIME IT HAS A DVANCED HUGE INTEREST FREE ADVANCES TO M/S STC IMPEX. HE, THEREFORE, DISALLOWE D AN AMOUNT OF RS. 6,95,835/-, @ 14%, OUT OF INTEREST PAID TO BANK BY INVOKING THE PROVISIONS OF SECTION 36(1)(III) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). ACCORDINGLY, THE AMOUNT OF RS. 6,95,835/- WAS ADDED TO THE TAXAB LE INCOME OF THE ASSESSEE . 5. ON APPEAL, THE CIT(A) CONFIRMED THE ORDER AND, H ENCE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. ON A PERUSAL OF COP Y OF ACCOUNT OF M/S STC IMPEX FOR THE ASSESSMENT YEAR 2011-12, REPRODUCED H EREINABOVE, IT WOULD BE CLEAR THAT UP TO THE MONTH OF JULY, 2010, A SUM OF RS. 42 LAKHS WAS MADE AS ADVANCES FOR THE PURCHASE OF RAW MATERIALS AGAINST THREE CONSIGNMENTS OF RS. 35,06,820/- WAS RECEIVED AND FURTHER FROM 3.8.2010 TO 18.9.2010, A SUM OF RS. 70,50,000/- WAS MADE AS ADVANCES FOR THE PURCHASE O F RAW MATERIAL. IT IS APPARENT FROM THE RECORDS THAT ASSESSEE DEALS IN T HE BUSINESS OF SALE AND PURCHASE OF PVC RESIN AND DURING THE YEAR UNDER CON SIDERATION THE ASSESSEE MADE PURCHASES OF RESIN FROM TWO PARTIES I.E M/S SU RYA PHARMA LTD AND M/S STC IMPEX COMPANY AND THERE WAS A CREDIT BALANCE OF RS. 97,46,068/- OF M/S SURYA PHARMACEUTICALS LTD IN THE BOOKS OF THE ASS ESSEE AND A DEBIT BALANCE OF RS. 77,43,180/- IN THE NAME OF M/S STC IMPEX COMPAN Y IN THE BOOKS OF THE ASSESSEE. IT IS AN ADMITTED FACT THAT BOTH THE PART IES ARE SISTER CONCERNS AND ARE DOING THE BUSINESS OF IMPORT OF RESIN AND ARE WHOLE SALERS . AS REGARDS THE DEBIT BALANCE OF RS. 77,43,180/- IN THE ACCOUNT OF M/S S TC IMPEX COMPANY, IT IS STATED THAT THE SAID PARTY DID NOT SEND ANY RAW MAT ERIAL AFTER 3 RD AUGUST 2010 AND, THEREFORE, A SUM OF RS. 77,43,180/- WAS LYING WITH THE FIRM. THE 5 CONTENTION OF THE ASSESSEE IS THAT THE SISTER CONCE RN OF M/S STC IMPEX I.E. SURYA PHARMA LTD SOLD THE RAW MATERIALS TO THE ASSESSEE F IRM WORTH RS. 1,82,86,955/- UPTO 29.6.2010 AND AFTER MAKING FEW PAYMENTS OF RS. 54,50,000/- THERE WAS A CREDIT BALANCE OF RS. 1,28,36,955/- IN ASSESSEE BOO KS WHICH WAS FREE OF INTEREST AS NO INTEREST WAS PAID AND IN THE END OF THE YEAR AND THERE WAS A CREDIT BALANCE OF 97,46,068/- IN ASSESSEE BOOKS OF ACCOUNT OF SUR YA PHARMA LTD WHICH WAS FREE OF INTEREST. COPY OF ACCOUNT OF M/S SURYA PHAR MA LTD IS AVAILABLE AT PAGES 5 TO 7 OF THE PAPER BOOK. THE MAIN CONTENTION OF T HE ASSESSEE IS THAT ALL THE PAYMENTS WHICH WERE MADE TO THE FIRM M/S STC IMPEX, WERE FOR THE PURPOSE OF TRADE ONLY. THE FACTS OF THE PRESENT CASE ARE CRYST AL CLEAR THAT THE ENTIRE TRANSACTIONS WHICH WERE MADE WITH BOTH THE FIRMS AR E OF TRADING NATURE. THERE IS NOT AN IOTA OF EVIDENCE ON RECORD TO SHOW THAT THE ASSESSEE HAD MADE PERSONAL ADVANCES TO ANY OF THE ABOVE TWO PARTIES. IT IS ALS O CLEAR FROM THE RECORDS THAT THE ASSESSEE HAS NO RELATION WITH THE ABOVE PARTIES EXPECT THE TRADE RELATION. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SALE PURCHAS E OF PVC RESIN AND DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE PURCHASED RES IN FROM TWO PARTIES NAMELY M/S STC IMPEX COMPANY AND M/S SURYA PHARMA LTD. IT IS ALSO CLEAR FROM THE RECORDS THAT THE ASSESSEE MADE THE ADVANCES TO M/S STC IMPEX COMPANY FOR THE PURCHASE OF RESIN ONLY. AS I HAVE ALREADY OBSERVE D HEREINABOVE THAT THE SISTER CONCERN OF M/S STC IMPEX I.E. SURYA PHARMA LTD SOLD THE RAW RESIGN TO THE ASSESSEE FIRM WORTH RS. 1,82,36,955/- UPTO 29.6.201 0 AND AFTER MAKING A PAYMENT OF RS. 54,5000/- THERE WAS A CREDIT BALANCE OF RS. 1,28,36,955/- IN ASSESSEE BOOKS WHICH WAS FREE OF INTEREST AND NO IN TEREST WAS PAID AND IN THE END OF THE YEAR THERE WAS A CREDIT BALANCE OF RS. 9 7,46,008/- IN THE ASSESSEES BOOKS OF THE SISTER CONCERN OF SURYA PHARMA LTD. TH E ASSESSEE HAD NOT PAID ANY INTEREST TO SURYA PHARMA LTD. THUS, IT IS CLEAR THA T THE ASSESSEE HAD INTEREST FREE FUNDS WHILE MAKING THE TRADE ADVANCE TO M/S STC IMP EX. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIE S AND POWER LTD. (2009) 313 ITR 340 (BOM.) HELD THAT IF THERE ARE INTEREST FRE E FUNDS AVAILABLE THEN A 6 PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OU T OF THE INTEREST-FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INT EREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. 7. IN THIS CASE IT IS CLEAR THAT ASSESSEE HAD SUFFI CIENT FUNDS WHICH THE ASSESSEE COULD HAVE ADVANCED AND IT WAS FOR THE ASS ESSING OFFICER TO ESTABLISH THE NEXUS BETWEEN THE BORROWINGS AND ADVANCEMENT TO PROVE THAT THE EXPENDITURE WAS FOR NON-BUSINESS PURPOSE, WHICH THE ASSESSING OFFICER FAILED TO DO. THEREFORE, THE ORDER PASSED BY CIT(A) IN CONFIR MING THE ORDER OF ASSESSING OFFICER IS ALSO NOT TENABLE. RECENTLY, HON'BLE SUP REME COURT IN THE CASE OF HERO CYCLES P. LTD V CIT (2015) 379 ITR 347 (SC) HAS OBS ERVED AS UNDER:- IN SO FAR AS THE LOANS TO THE DIRECTORS ARE CONCER NED, IT COULD NOT BE DISPUTED BY THE REVENUE THAT THE ASSES SEE HAD A CREDIT BALANCE IN THE BANK ACCOUNT WHEN THE SAID AD VANCE OF RS. 34 LAKHS WAS GIVEN. REMARKABLY, AS OBSERVED BY THE COMMISSIONER OF INCOME TAX (APPEALS) IN HIS ORDER, THE COMPANY HAD RESERVE / SURPLUS TO THE TUNE OF ALMOST 15 CRORES AND, THEREFORE, THE ASSESSEE-COMPANY COULD IN ANY C ASE, UTILIZE THOSE FUNDS FOR GIVING ADVANCE TO ITS DIREC TORS. THUS, CONSIDERING THE DECISION OF THE HON'BLE SUPRE ME COURT REFERRED TO ABOVE, THE ORDER OF CIT(A) IS NOT SUSTAINABLE IN LAW. ACC ORDINGLY, I SET ASIDE THE ORDER OF CIT(A) AND DELETE THE ADDITION OF RS. 6,95,835/- MADE US/ 36(1)(III) OF THE ACT. 8. BEFORE PARTING WITH THIS CASE, I MAY OBSERVE HER E THAT ASSESSING OFFICER HAS NOT GIVEN ANY FIGURE OF INTEREST PAID, IF ANY, TO THE BANK ON ACCOUNT OF BORROWINGS. IT IS ALSO NOTE THE CASE OF THE ASSESSI NG OFFICER THAT THE ASSESSEE HAD CLAIMED ANY DEDUCTION U/S 36(I)(III) OF THE ACT. IT APPEARS THAT ASSESSING OFFICER HAD MADE THE GENERAL OBSERVATION THAT ASSESSEE HAD PAID HUGE AMOUNT OF INTEREST 7 TO THE BANKS ON BORROWINGS AND ALSO INTEREST TO PAR TNERS. EVEN THE ORDER OF CIT(A) IS ALSO SILENT ON THIS ASPECT OF THE MATTER . IN FACT, THE REVENUE AUTHORITIES HAVE MISERABLY FAILED TO ESTABLISH THE NEXUS BETWEEN BORROWINGS AND ADVANCING TO PROVE THAT THE EXPENDITURE WAS FOR NON -BUSINESS PURPOSES. 9. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.02.2016 SD- (H.L.KARWA) VICE PRESIDENT DATED : 29 TH FEBRUARY, 2016 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR