Asstt.CIT, Cir.-3, Pune V. M/s.Malpani sales Co., Pune

ITA 825/PUN/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7419 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 29-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 09-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: HEMANTKUMAR C LEUVA
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER I.T.A. NO. 825/PN/2009: A.Y. 2005-06 ASSTT. CIT CIR. 3, PUNE APPELLANT VS. M/S. MALPANI SALES CORPORATION 4/1 GANESH PETH, PUNE-411 002 PAN AACFM 4993 J RESPONDENT APPELLANT BY: SHRI NIKHIL PATHAK RESPONDENT BY: SHRI HEMANTKUMAR C. LEUVA ORDER PER SHAILENDRA KUMAR YADAV, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT-(A)-II PUNE DATED 24-4-2009 FOR A.Y. 2005-06 ON THE POINT OF ALLOWABILITY OF INTEREST. 2. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD PAID INTEREST TO PARTNERS AMOUNTING TO RS. 91,91,407/- @ 12% P.A. ON THE OTHER HAND, IT HAD GIVEN ADVANCE OF RS. 8,58,32 ,511/- @ 8% P.A. TO M/S. ABHISHEK DEVELOPERS A FIRM IN WHICH PARTNER S OF THE ASSESSEE WERE ALSO PARTNERS EITHER IN INDIVIDUAL OR IN HUF CAPACITY. FURTHER, ANOTHER ADVANCE OF RS. 25,46,732/- WAS GIV EN TO M/S. VIJAY YARN @ 6%. THE ASSESSING OFFICER THEN PROCEED ED TO DISALLOW THE DIFFERENTIAL AMOUNT FROM THE INTEREST PAID TO T HE PARTNERS @ 12% AS AGAINST THE RATE AT WHICH FUNDS WERE ADVANCED TO M/S. ABHISHEK PAGE 2 OF 4 ITA NO. 825//PN/2009 MALPANI SALES CORPN A.Y. 2005-06 DEVELOPERS AND M/S. VIJAY YARN LTD.. THE DISALLOWA NCE MADE WAS RS. 26,98,520/- WITH REFERENCE TO M/S. ABHISHEK DEV ELOPERS AND RS. 52,192/- FOR ADVANCE TO VIJAY YARN LTD. 3. IN APPEAL, THE CIT(A) GRANTED RELIEF WITH REFERE NCE TO ADVANCE TO M/S. ABHISHEK DEVELOPERS WHILE WITH REGARDS TO A DVANCE TO M/S. VIJAY YARNS, THE DISALLOWANCE WAS RESTRICTED TO TH E DIFFERENTIAL AMOUNT OF AVERAGE COST OF BORROWING AND INTEREST CH ARGED BY THE ASSESSEE WHICH IS 1.32%, INSTEAD OF 4% MADE BY THE ASSESSING OFFICER, FOR THE PERIOD OF ABOUT 4 MONTHS FOR WHICH THE AMOUNT WAS OUTSTANDING. THE SAME HAS BEEN OPPOSED BEFORE US B Y THE REVENUE. THE LEARNED DR RELIED ON THE ORDER OF THE ASSESSING OFFICER WHILE THE LEARNED AR RELIED ON THE DECISION OF THE CIT(A). 4. AFTER GOING THROUGH THE RIVAL SUBMISSIONS, WE FI ND THAT THE CIT(A) FOUND THAT THE ASSESSEE HAS EXPLAINED THAT T HERE WAS COMMERCIAL EXPEDIENCY IN SO FAR AS THE LOAN ADVANCE TO M/S. ABHISHEK DEVELOPERS WAS CONCERNED. IT WAS ALSO FOU ND THAT IN CASE THE AVAILABILITY OF INTEREST FREE FUNDS AS PER BALA NCE SHEET LIKE SHARE CAPITAL ETC., WAS SUFFICIENT TO MAKE THE INVESTMENT S AND AT THE SAME TIME THE ASSESSEE HAD RAISED LOAN, IT CAN BE PRESUM ED THAT THE INVESTMENTS WERE FROM INTEREST FREE FUNDS AVAILABLE . THE FACTS OF THE ASSESSEES CASE ARE THAT THE ASSESSEE HAS CHARG ED THE RATE OF 8% ON THE ADVANCE GIVEN TO THE SISTER CONCERN I.E. M/S . ABHISHEK DEVELOPERS, WHICH THE ASSESSING OFFICER HAS CONSIDE RED INSUFFICIENT OR LOW. THE ASSESSEE HAS DEMONSTRATED THAT THERE W ERE INTEREST FREE PAGE 3 OF 4 ITA NO. 825//PN/2009 MALPANI SALES CORPN A.Y. 2005-06 FUNDS TO THE TUNE OF RS. 4.25 CRORES AVAILABLE ON 1 -4-2004 AND A FURTHER SUM OF RS. 2.56 CRORES WERE BORROWED FUNDS @ 7.25% TOTALING TO RS. 6.82 CRORES OF INTEREST FREE FUNDS OR LOW INTEREST FUNDS. AS ON 1-6-2004 I.E. THE DATE OF GIVING ADVA NCE TO M/S. ABHISHEK DEVELOPERS, THE INTEREST FREE FUNDS WERE T HE SAME AMOUNT OF RS. 4.25 CRORES AND THE BORROWED FUNDS AT LOWER RATE OF 7.25% WAS RS. 3.14 CRORES, THUS HAVING RS. 7.39 CRORES OF FUNDS IN TOTAL AT LOWER RATE OR INTEREST FREE. IN RESPECT OF ADVANCE OF RS. 25,44,732/- GIVEN TO M/S. VIJAY YARN ON 22-11-2004, THE ASSESSE E EXPLAINED THE RECEIPT OF INTEREST FREE FUNDS AMOUNTING TO RS. 58, 33,332/- IN AUGUST 2004. IN THIS BACKGROUND, THE ASSESSEE EXPL AINED THAT THE AVERAGE RATE OF INTEREST PAID BY IT WAS AROUND 7.32 % WHEREAS THE ASSESSEE HAD CHARGED 8% RATE OF INTEREST FROM THE S ISTER CONCERNS AND THEREFORE, THERE WAS NO REASON TO DISALLOW THE INTEREST. IN THIS BACKGROUND, THE CIT(A) OBSERVED THAT THERE WAS AVAI LABILITY OF FUNDS WITH THE ASSESSEE EITHER INTEREST FREE OR BORROWED AT LOWER RATE OF 7.25%, THE QUANTUM BEING A LARGE PORTION OF THE FUN DS GIVEN AS ADVANCE TO M/S. ABHISHEK DEVELOPERS. IT WAS NOT A CASE WHERE THE ASSESSEE HAS GIVEN INTEREST FREE FUNDS TO ITS SISTE R CONCERN BUT INTEREST OF 8% HAS BEEN CHARGED WHICH WAS PREVAILIN G FIXED RATE OF INTEREST DURING THE YEAR UNDER CONSIDERATION. CONS IDERING THAT THE AVERAGE RATE OF INTEREST PAID ON THE TOTAL BORROWI NG WORKED OUT TO AROUND 7.32% WHICH HAS NOT BEEN REJECTED BY THE ASS ESSING OFFICER, THE CHARGE OF INTEREST AT 8% FROM THE SISTER CONCER N CANNOT BE HELD TO BE A CASE OF DIVERSION OF INTEREST BORROWING FUN DS FOR NON- BUSINESS PURPOSES. THEREFORE, THE CORRESPONDING DI SALLOWANCE WAS PAGE 4 OF 4 ITA NO. 825//PN/2009 MALPANI SALES CORPN A.Y. 2005-06 RIGHTLY DELETED BY THE CIT(A). AS FAR AS THE ADVAN CE OF RS. 25,46,732/- TO M/S. VIJAY YARN LTD., IS CONCERNED, THIS ADVANCE WAS @ 6% AS COMPARED TO AVERAGE COST OF BORROWING O F 7.32%. THEREFORE, THE DISALLOWANCE WOULD BE RESTRICTED TO THE DIFFERENTIAL AMOUNT OF AVERAGE COST OF BORROWING AND INTEREST CH ARGED BY THE ASSESSEE WHICH IS 1.32% INSTEAD OF 4% MADE BY THE A SSESSING OFFICER, FOR THE PERIOD OF FOUR MONTHS FOR WHICH TH E AMOUNT WAS OUTSTANDING. ACCORDINGLY, THE ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE AT OUR HANDS. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MAR4CH 2011 SD/- SD/- (G.S. PANNU) ACCOUNTANT MEMBER (SHAILENDRA KUMAR YADAV) JUDICIAL MEMBER PUNE DATED THE 31 ST MARCH 2011 ANKAM COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT- (A) II PUNE 4. THE CIT- II PUNE 5. THE D.R, B BENCH, PUNE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE