SNJ Synthetics Private Limited, Secunderabad V. DCIT, Circle-3(2), Hyderabad

ITA 810/HYD/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91716 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 25-05-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 05-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R CLEMENT RAMESH KUMAR
• Assessee Lawyers: M V ANIL KUMAR; A V SADASIVA
• Keywords: Depreciation; Proportionate interest
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI P. M. JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.810/HYD/2014 ASSESSMENT YEAR 2010-2011 SNJ SYNTHETICS P. LTD., HYDERABAD. PAN AAACS3176L VS. THE DCIT, CIRCLE-3(2), HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. A.V. SADASIVA & M.V. ANIL KUMAR FOR REVENUE : MR. R. CLEMENT RAMESH KUMAR DATE OF HEARING : 25.05.2015 DATE OF PRONOUNCEMENT : 03.06.2015 ORDER PER P.M. JAGTAP, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-IV, HYDERABAD D ATED 14.12.2014 WHEREBY HE CONFIRMED THE DISALLOWANCE OF RS.35,76,487 MADE BY THE A.O. OUT OF INTEREST EXPEN DITURE CLAIMED BY THE ASSESSEE. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING O F SYNTHETIC PACKAGING PRODUCTS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT DECLARING TOTAL INCOME OF RS.28,93,665 BEFORE CLAIMING SET OFF OF UNABSORB ED DEPRECIATION AND BOOK PROFIT OF RS.2,65,44,146 UNDE R THE PROVISIONS OF SECTION 115JB. DURING THE COURSE OF A SSESSMENT 2 ITA.NO.810/HYD/2014 SNJ SYNTHETICS P. LTD., HYDERABAD PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE COM PANY HAS ADVANCED A TOTAL AMOUNT OF RS.4,34,56,706 TO SIX PA RTIES WITHOUT CHARGING ANY INTEREST. HE ALSO NOTICED THAT A SUBSTANTIAL EXPENDITURE OF RS.3,65,70,944 WAS CLAIM ED BY THE ASSESSEE ON ACCOUNT OF INTEREST PAID. HE THEREFORE REQUIRED THE ASSESSEE TO ESTABLISH WHETHER THE ADVANCES PAID FRE E OF INTEREST WERE FOR THE PURPOSE OF ITS BUSINESS. HE ALSO REQUI RED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE PROPORTIONATE INTEREST ATTRIBUTABLE TO THE INTEREST FREE ADVANCE SHOULD NO T BE DISALLOWED IF THE SAME ARE FOUND TO BE NOT GIVEN FO R THE PURPOSE OF BUSINESS. SINCE THE EXPLANATION OFFERED BY THE ASSESSEE IN THIS REGARD WAS NOT FOUND SATISFACTORY BY THE A.O., HE WORKED OUT THE INTEREST ATTRIBUTABLE TO THE INTE REST FREE ADVANCES GIVEN BY THE ASSESSEE AT RS.35,76,487 AND MADE DISALLOWANCE OUT OF INTEREST EXPENDITURE TO THAT EX TENT IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) VIDE ORDE R DATED 26.01.2013. 3. AGAINST THE ORDER PASSED BY THE A.O. UNDER SECT ION 143(3), AN APPEAL WAS PREFERRED BY THE ASSESSEE BEF ORE THE LD. CIT(A) DISPUTING THE DISALLOWANCE MADE BY THE A.O. OUT OF INTEREST EXPENDITURE. DURING THE COURSE OF APPELLAT E PROCEEDINGS BEFORE THE LD. CIT(A), IT WAS SUBMITTED BY THE ASSESSEE COMPANY THAT THE ADVANCES IN QUESTION WERE GIVEN TO THE SIX PARTIES FOR THE PURPOSE OF ITS BUSINESS AND THEREFORE, THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF INT EREST ATTRIBUTABLE TO THE SAID ADVANCES WAS NOT SUSTAINAB LE. IT WAS ALSO POINTED OUT BY THE ASSESSEE COMPANY BEFORE THE LD. CIT(A) THAT SUFFICIENT OWN FUNDS AS WELL AS INTEREST FREE UNSECURED LOANS WERE AVAILABLE WITH IT AT THE RELEVANT TIME T O GIVE THE INTEREST FREE ADVANCES. RELYING ON THE DECISION OF HONBLE 3 ITA.NO.810/HYD/2014 SNJ SYNTHETICS P. LTD., HYDERABAD SUPREME COURT IN THE CASE OF S.A. BUILDERS VS. CIT 288 ITR 1, IT WAS CONTENDED ON BEHALF OF THE ASSESSEE COMPANY THAT THE DISALLOWANCE MADE BY THE A.O. OUT OF INTEREST PAID WAS NOT JUSTIFIED ON THIS COUNT ALSO. THE LD. CIT(A) DID NO T FIND MERIT IN THE STAND TAKEN BY THE ASSESSEE ON THIS ISSUE. ACCO RDING TO HIM, THE ASSESSEE COULD NOT SATISFACTORILY EXPLAIN THE BUSINESS PURPOSE OR EXPEDIENCY OF GIVING THE ADVANCES IN QUE STION FREE OF INTEREST TO THE SIX PARTIES. HE ALSO HELD THAT T HE MERE FACT THAT ASSESSEE COMPANY HAD SURPLUS OWN FUNDS WAS NOT SUFFICIENT FOR IT TO GIVE INTEREST FREE ADVANCE TO OTHERS. ACCORDINGLY, THE DISALLOWANCE MADE BY THE A.O. OUT OF INTEREST WAS CONFIRMED BY THE LD. CIT(A). AGGRIEVED BY THE O RDER OF THE LD. CIT(A), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4. THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE RELEVANT BALANCE SHEET OF THE ASSE SSEE COMPANY PLACED AT PAGE NO.34 OF THE PAPER BOOK AS W ELL AS THE RELEVANT SCHEDULES FORMING PART OF THE BALANCE SHEE T AS PLACED AT PAGE NOS. 37 AND 38 OF THE PAPER BOOK. HE POINTE D OUT THAT OWN FUNDS IN THE FORM OF SHARE CAPITAL OF RS.5.75 C RORES AND RESERVE AND SURPLUS OF RS.6.06 CRORES WERE AVAILABL E TO THE ASSESSEE COMPANY ALONG WITH INTEREST FREE UNSECURED LOANS OF RS.9.01 CRORES. HE CONTENDED THAT SINCE THESE FUNDS WERE SUFFICIENT TO GIVE THE INTEREST FREE ADVANCES IN QU ESTION TO THE RELEVANT SIX PARTIES, THERE WAS NO QUESTION OF MAKI NG DISALLOWANCE OUT OF INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE. HE ALSO BROUGHT TO OUR NOTICE THAT INTERE ST EXPENDITURE CLAIMED BY THE ASSESSEE WAS IN RESPECT OF SECURED LOANS OF RS.44.44 CRORES AVAILED BY THE ASSESSEE. H E SUBMITTED THAT OUT OF THE SAID SECURED LOANS, A SUM OF RS.15. 12 CRORES 4 ITA.NO.810/HYD/2014 SNJ SYNTHETICS P. LTD., HYDERABAD REPRESENTED CASH CREDIT FACILITY AND THE SAME FULLY SECURED BY HYPOTHECATIONS OF THE STOCKS AND BOOK DATES WAS UTI LIZED FOR THAT PURPOSE ONLY. HE SUBMITTED THAT SIMILARLY THE TERM LOAN OF RS.29.14 CRORES TAKEN BY HYPOTHECATION OF PLANT AND MACHINERY WAS UTILIZED FOR ACQUIRING THE RELEVANT F IXED ASSETS. HE CONTENDED THAT THE INTEREST BEARING LOANS WERE T HUS FULLY UTILIZED BY THE ASSESSEE COMPANY FOR THE PURPOSE OF ITS BUSINESS AND THERE WAS NO JUSTIFICATION TO MAKE DIS ALLOWANCE OUT OF INTEREST EXPENDITURE INCURRED BY THE ASSESSE E. 5. THE LEARNED D.R. ON THE OTHER HAND, RELIED ON T HE AUTHORITIES BELOW IN SUPPORT OF THE REVENUES CASE THAT THE DISALLOWANCE MADE BY THE A.O. OUT OF INTEREST WAS R IGHTLY CONFIRMED BY THE LD. CIT(A). 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. AS IS EVID ENT FROM THE RELEVANT BALANCE SHEET OF THE ASSESSEE COMPANY PLAC ED AT PAGE NO.34 OF THE PAPER BOOK AND THE RELEVANT SCHEDULES FORMING PART OF THE SAID BALANCE SHEET AS PLACED AT PAGE NO S. 37 AND 38 OF THE PAPER BOOK, THE ASSESSEE COMPANY AT THE RELE VANT TIME HAD OWN FUNDS OF RS.11.81 CRORES IN THE FORM OF SHA RE CAPITAL AND RESERVES AND SURPLUS AS WELL AS INTEREST FREE U NSECURED LOANS OF RS.9.01 CRORES WHICH WERE SUFFICIENT TO GI VE THE INTEREST FREE ADVANCE OF RS.4.39 CRORES TO THE RELE VANT SIX PARTIES. AS FURTHER DEMONSTRATED BY THE LD. COUNSEL FOR THE ASSESSEE FROM THE BALANCE SHEET AND RELEVANT SCHEDU LE OF THE ASSESSEE COMPANY, ENTIRE INTEREST BEARING SECURED L OANS AVAILED BY THE ASSESSEE COMPANY FOR THE SPECIFIC BU SINESS PURPOSE WERE UTLISED FOR THAT PURPOSE WHICH CLEARLY SHOWS THAT THERE WAS NO DIVERSION OF INTEREST BEARING BORROWED FUNDS BY THE ASSESSEE COMPANY TO GIVE INTEREST FREE ADVANCES TO THE 5 ITA.NO.810/HYD/2014 SNJ SYNTHETICS P. LTD., HYDERABAD RELEVANT SIX PARTIES. THE RELEVANT FACTS AND FIGURE S AS BORNE OUT FROM THE RECORD THUS CLEARLY SHOW THAT THERE WAS NO DIVERSION OF INTEREST BEARING BORROWED FUNDS BY THE ASSESSEE COMPANY FOR ANY NON-BUSINESS PURPOSE AND THE INTEREST FREE ADVANCES IN QUESTION HAVING BEEN GIVEN BY IT TO THE RELEVANT SI X PARTIES OUT OF ITS OWN FUNDS AND INTEREST FREE FUNDS AVAILABLE AT THE RELEVANT TIME, WE ARE OF THE VIEW THAT THE DISALLOW ANCE MADE BY THE A.O. OUT OF INTEREST AND CONFIRMED BY THE LD. C IT(A) IS NOT SUSTAINABLE. WE THEREFORE DIRECT THE A.O. TO DELETE THE SAME AND ALLOW THE APPEAL OF THE ASSESSEE. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 03.06.2 015. SD/- SD/- (SAKTIJIT DEY) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 03 RD JUNE, 2015. VBP/- COPY TO 1. SNJ SYNTHETICS P. LTD., HYDERABAD C/O. M. ANANDAM & CO., CHARTERED ACCOUNTANTS, 7-A, SURYA TOWERS, S.D. ROAD, SECUNDERABAD-3. 2. THE DCIT, CIRCLE 3(2), HYDERABAD. 3. COMMISSIONER OF INCOME TAX (APPEALS)-IV, HYDERAB AD. 4. COMMISSIONER OF INCOME TAX-III, HYDERABAD. 5. D.R. I.T.A.T. B BENCH, HYDERABAD. 6. GUARD FILE