Baba Satyanarayan Himghar P. Ltd., Hooghly V. DCIT, Circle - 23, , Hooghly

ITA 830/KOL/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4780 (ITAT-KOLKATA)
• Duration Of Justice: 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 18-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 142(1); 201; 143(2)

Judgement Text

ITA NO. 830/KOL/2019 AS SESSMENT YEAR: 2013-2014 BABA SATYANARAYAN HIMGHAR PVT. LIMITED 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A(SMC) BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, VICE-PRESIDENT I.T.A. NO. 830/KOL/2019 ASSESSMENT YEAR: 2013-2014 BABA SATYANARAYAN HIMGHAR PVT. LIMITED,............ ..................APPELLANT C/O. S.N. GHOSH & ASSOCIATES, ADVOCATES, SEVEN BROTHERS LODGE, P.O. BUROSHIBTALA, P.S. CHINSURAH, DIST HOOGHLY-712105 [PAN: AACFB7882M] -VS.- DEPUTY COMMISSIONER OF INCOME TAX,,................ .....................RESPONDENT CIRCLE-23, HOOGHLY, AAYAKAR BHAWAN, G.T. ROAD, KHADINA MORE, P.O. & P.S. CHINSURAH, HOOGHLY-712101 APPEARANCES BY: SHRI SOMNATH GHOSH, ADVOCATE, FOR THE APPELLANT SHRI JAYANTA KHANRA, JCIT, SR. D.R , FOR THE RESPONDEN T DATE OF CONCLUDING THE HEARING : SEPTEMBER 18, 201 9 DATE OF PRONOUNCING THE ORDER : NOVEMBER 06, 2019 O R D E R THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-6, KOLKATA DAT ED 05.04.2019 AND THE SOLITARY ISSUE INVOLVED THEREIN RELATES TO THE ADDITION OF RS.8,06,314/- MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) ON ACCOUNT OF DISALLOWANCE OUT OF INTEREST. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF RUNNING A COLD-STORAGE. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 30.09.2013 D ECLARING A LOSS OF RS.7,93,041/-. THE SAID RETURN FILED BY THE ASSESSE E WAS SELECTED FOR SCRUTINY AND A NOTICE UNDER SECTION 143(2) WAS ISSU ED BY THE ASSESSING ITA NO. 830/KOL/2019 AS SESSMENT YEAR: 2013-2014 BABA SATYANARAYAN HIMGHAR PVT. LIMITED 2 OFFICER TO THE ASSESSEE. THE SAID NOTICE AS WELL AS THE NOTICES SUBSEQUENTLY ISSUED BY THE ASSESSING OFFICER UNDER SECTION 142(1) OF THE ACT, HOWEVER, REMAINED UN-COMPLIED WITH BY THE ASSE SSEE. THE ASSESSING OFFICER, THEREFORE WAS LEFT WITH NO OPTION BUT TO C OMPLETE THE ASSESSMENT EX-PARTE TO THE BEST OF HIS JUDGMENT ON THE BASIS O F MATERIAL AVAILABLE ON RECORD. WHILE COMPLETING SUCH ASSESSMENT VIDE AN OR DER DATED 28.03.2016 PASSED UNDER SECTION 144, THE ASSESSING OFFICER FOUND THAT INTEREST OF RS.44,97,375/- WAS PAID BY THE ASSESSEE ON THE LOAN OF RS.3,44,43,908/- AVAILED FROM THE BANK. THE SAID LO AN WAS UTILIZED BY THE ASSESSEE TO THE EXTENT OF RS.2,80,00,000/- FOR GIVI NG LOANS/ADVANCES TO THE CULTIVATORS. AS WORKED OUT BY THE ASSESSING OFF ICER, INTEREST PAID BY THE ASSESSEE ON BANK LOAN AS ATTRIBUTABLE TO THE LO ANS AND ADVANCES GIVEN TO THE CULTIVATORS WAS RS.36,55,988/- WHILE THE ACT UAL INTEREST CHARGED BY THE ASSESSEE ON SUCH LOANS AND ADVANCES WAS ONLY RS .28,49,674/-. THE ASSESSING OFFICER ACCORDINGLY HELD THAT LESS INTERE ST OF RS.8,06,314/- WAS CHARGED BY THE ASSESSEE ON THE LOANS AND ADVANCES G IVEN TO THE CULTIVATORS AND IN THE ABSENCE OF ANY EXPLANATION O FFERED BY THE ASSESSEE IN THIS REGARD, THE SAME WAS DISALLOWED BY HIM. 3. THE DISALLOWANCE OF RS.8,06,314/- MADE BY THE AS SESSEE OUT OF INTEREST WAS CHALLENGED BY THE ASSESESE IN THE APPE AL FILED BEFORE THE LD. CIT(APPEALS) AND SINCE THE SUBMISSION MADE BY THE A SSESSEE IN SUPPORT OF ITS CASE ON THIS ISSUE WAS NOT FOUND ACCEPTABLE BY HIM, THE LD. CIT(APPEALS) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OUT OF INTEREST FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 5 OF HIS IMPUGNED ORDER:- 5. THE ARGUMENTS ADVANCED BY THE AIR OF THE APPELL ANT AND THE ISSUE RAISED IN ASSESSMENT ORDER WERE DULY CONS IDERED CAREFULLY IN VIEW OF THE MATERIALS ADDUCED ON RECOR D. HOWEVER, I FIND SUBSTANCE IN THE JUSTIFICATION ADVA NCED BY THE AO. IT IS FOUND THAT THE APPELLANT HAD ADVANCED THE LOAN AND SUBSEQUENTLY IT DECIDED TO CHARGE LESS INTEREST FROM THE FARMERS IN VIEW OF THEIR POOR FINANCIAL HEALTH AND LOSSES INCURRED BY THEM. IT WAS THE CONTENTION OF THE APPE LLANT THAT LOAN WAS ADVANCEQ TO THE FARMERS FOR THE PURPOSE OF BUSINESS EXPEDIENCY AND HENCE, LESSER INTEREST WAS CHARGED B ECAUSE ITA NO. 830/KOL/2019 AS SESSMENT YEAR: 2013-2014 BABA SATYANARAYAN HIMGHAR PVT. LIMITED 3 THERE WAS NO CHANCE OF RECOVERY OF HIGHER INTEREST FROM THEM BECAUSE OF THEIR LOSSES. HOWEVER, IT WAS ALSO FOUND HAVING NOT CHARGED SUCH INTEREST ON SUCH INTEREST BEARING FUNDS, THE APPELLANT HAD TO PAY A SUBSTANTIAL AMOUNT OF INTERE ST ON THEM, WHICH IN MY OPINION IS BECAUSE OF EXTRANEOUS REASONS NEITHER HAVING ANY NEXUS WITH OR BEARING ON THE BUS INESS OF THE APPELLANT. IN THIS RESPECT, I CONCUR WITH THE C ONCLUSION OF THE AO THAT NO PRUDENT ENTREPRENEUR WILL ADVANCE TH E LOAN FOR FETCHING LESS INTEREST THAN THAT PAID BY IT ON LOANS TAKEN. IN THE INSTANT CASE, THE APPELLANT PAYS MORE INTERE ST TO THE BANK BUT GETS LESS INTEREST FROM THE FARMERS. IN OT HER WORDS, THE APPELLANT HAD MADE PAYMENT OF INTEREST FROM ITS OWN KITTY WHEREAS THE CAPITAL WAS ENJOYED BY SOMEONE EL SE. IN FACT, EVEN AFTER EXERCISE OF APPRECIABLE PERSUASION , THE AR WAS UNABLE TO JUSTIFY SUCH BUSINESS DECISION TAKEN BY THE APPELLANT FOR RECEIVING LESSER RATE OF INTEREST FRO M THE FARMERS. THEREFORE, IN MY CONSIDERED OPINION, THE D EDUCTION CLAIMED U/S. 36(1)(III) OF THE ACT IN THE INSTANT C ASE CANNOT BE ACCEDED TO IN VIEW OF THE FACT THAT SUCH DISALLO WANCE MADE IS BASED ON A STRONG PREMISE. FURTHER, THE DEC ISIONS RELIED ON BY THE APPELLANT ARE NOT APPLICABLE TO TH E FACTS OF THE INSTANT CASE AS THE RATIOS LAID DOWN IN THOSE J UDGMENTS ARE THOROUGHLY DISTINGUISHABLE. IN VIEW OF THE AFOR ESAID FACTS ON THE ISSUE, THE ACTION OF THE AO IN THIS RESPECT IS WHOLLY IN CONFORMITY WITH LAW AND IS ALSO SUPPORTED BY STRONG LOGIC AND IS ACCORDINGLY UPHELD. THEREFORE, THE GROUND NO S. 1 & 2 OF THE APPEAL ARE, THEREFORE, DISMISSED. AGGRIEVED BY THE ORDER OF THE LD. CIT(APPEALS), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT THE SIMILAR DISALLOWANCE ON ACCOUNT OF INTEREST ALLEGEDLY CHARG ED BY THE ASSESSEE AT A LESSER RATE ON LOANS GIVEN TO THE FARMERS WAS MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT COMPLETED IN ASSESSEES O WN CASE FOR A.Y. 2008- 09 AND THE SAME WAS DELETED BY THE DIVISION BENCH O F THIS TRIBUNAL FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 6 OF I TS ORDER DATED 06.11.2015 PASSED IN ITA NO. 1733/KOL/2012:- 6. ON CAREFUL ANALYSIS OF THE AFORESAID DISCUSSION , IT REVEALS THAT THE AO HAS DISALLOWED THE INTEREST ON THE GROU ND THAT ASSESSEE IS PAYING MUCH AMOUNT OF INTEREST TO THE B ANKERS AND CONSEQUENTLY CLAIMING MORE EXPENSES IN THE FORM OF BANK INTEREST AND THOSE LOANS HAVE BEEN GIVEN SUBSEQUENT LY TO THE FARMERS AND ASSESSEE HAS TAKEN VERY MINIMAL INTERES T FROM ITA NO. 830/KOL/2019 AS SESSMENT YEAR: 2013-2014 BABA SATYANARAYAN HIMGHAR PVT. LIMITED 4 THOSE FARMERS. SO THE AO HAS HELD THAT LOAN HAS NOT BEEN EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS AND TH E LD. CIT(A) HAS CONFIRMED THE VIEW TAKEN BY THE AO AND DISALLOW ED THE INTEREST ON PROPORTIONATE BASIS. HOWEVER, WE OBSERV E THAT THE AMOUNT OF LOAN WAS GIVEN TO THE FARMERS FOR THE PUR POSE OF BUSINESS EXPEDIENCY OF THE ASSESSEE. WE FIND THAT T HERE IS NO BAR AGAINST ADVANCING OF LOAN INTEREST-FREE OR AT A LOW RATE OF INTEREST UNDER THE ACT. THERE MAY BE MANY CONSIDERA TIONS, INCLUDING BUSINESS CONSIDERATIONS, FOR NOT CHARGING INTEREST OR CHARGING INTEREST AT A LOW RATE. DISPUTE BETWEEN TH E REVENUE AND THE ASSESSEE OFTEN ARISES WHEN MONEY IS BORROWE D WITH INTEREST AND LOAN IS ADVANCED INTEREST-FREE OR AT A LOW RATE OF INTEREST. IN SUCH A CASE THE TENDENCY OF THE ASSESS ING OFFICERS GENERALLY IS TO DISALLOW THE INTEREST PAID ON THE M ONEY BORROWED EITHER IN FULL OR PROPORTIONATELY DEPENDIN G UPON THE QUANTUM OF LOAN ADVANCED AND INTEREST, IF ANY, CHAR GED. BUT WHETHER THE ASSESSEE CHARGED INTEREST ON LOAN ADVAN CED OR NOT IS NOT AT ALL A RELEVANT CONSIDERATION FOR DETE RMINING ALLOWABILITY OF INTEREST PAID UNDER SECTION 36(1 )( III) OF THE ACT. AS ALREADY DISCUSSED, THE RELEVANT CONSIDERATI ON IS WHETHER THE MONEYS HAVE BEEN BORROWED FOR THE PURPO SES OF BUSINESS OR PROFESSION AND WHETHER INTEREST PAID. I N THE INTEREST OF MAINTAINING GOOD BUSINESS RELATION, INT EREST- FREE LOANS OR LOANS AT A LOW RATE OF INTEREST MAY BE GIV EN TO OTHERS WITH WHOM THE ASSESSEE HAS BUSINESS RELATION OR WIT H WHOM HE EXPECTS TO ESTABLISH BUSINESS CONNECTION OR WITH WH OM HE HAS OTHER BUSINESS OBLIGATIONS, PRESENT OR PAST. THERE MAY BE MANY OTHER REASONS ALSO BOTH BUSINESS OR NON-BUSINE SS. IF INTEREST-FREE LOAN OR LOAN AT A LOW RATE OF INTERES T IS GIVEN FOR BUSINESS CONSIDERATION OUT OF THE CAPITAL BORROWED WITH INTEREST THEN ALSO THE BORROWING WOULD BE FOR THE P URPOSES OF BUSINESS, AND INTEREST PAID ON THE BORROWED CAPITAL WOULD BE ALLOWABLE AS DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT. THERE IS NO COMPULSION THAT INTEREST SHOULD ALWAYS BE CHARGED ON ANY LENDING, NOR THERE IS ANY REQUIREMENT THAT I NCOME MUST BE EARNED BY UTILIZING THE CAPITAL BORROWED WITH IN TEREST SO AS TO BE ENTITLED TO THE DEDUCTION UNDER SECTION 36(1 )(III) OF THE ACT. MERELY FOR THE REASON THAT INTEREST WAS NOT CH ARGED OR CHARGED AT A LOW RATE ON THE LENDING, THE INTEREST PAID FOR BORROWING CANNOT BE DISALLOWED. IT IS A MATTER OF B USINESS PRUDENCE AND ENTIRELY UPTO THE ASSESSEE AS TO HOW H E UTILIZES THE FUND IN THE INTEREST OF HIS BUSINESS. THE BASIC REQUIREMENT IS THAT THE BORROWED CAPITAL SHOULD BE USED FOR THE PURPOSES OF BUSINESS OR PROFESSION. AN ARGUMENT MAY BE ADVAN CED THAT IF INTEREST-FREE LOAN HAD NOT BEEN GIVEN THEN THE A SSESSEE COULD HAVE REDUCED HIS DEBT AND CONSEQUENTLY THE IN TEREST PAYMENT. IN THIS RESPECT THE OBSERVATION OF THE TRI BUNAL IN THE CASE OF COIMBATORE SALEM TRANSPORT (P) LTD., AFFIRM ED BY THE MADRAS HIGH COURT IN CIT VS. COIMBATORE SALEM TRANS PORT (P) LTD. (1966) 61 ITR 480 (MAD), WAS AS UNDER: 'THE WORST THAT CAN BE SAID IS THAT IF SUCH ADVANCE S HAD NOT BEEN GIVEN, THE ASSESSEE COULD HAVE REDUCED ITA NO. 830/KOL/2019 AS SESSMENT YEAR: 2013-2014 BABA SATYANARAYAN HIMGHAR PVT. LIMITED 5 ITS INDEBTEDNESS AND THEREBY ITS INTEREST CHARGES. BUT THAT WOULD BE VENTURING INTO REALMS THAT ARE NOT OPEN TO THE DEPARTMENT. IT IS A MATTER OF BUSINESS PRUDENCE. ' THE MADHYA PRADESH HIGH COURT IN THE CASE OF D&H SECHERON ELECTRODES (P) LTD. VS. CIT (1984) 40 CTR (MP) 366 : (1984) 149 ITR 400 (MP) HELD THAT WHERE THE ASSESSEE BORROWED CAPITAL FOR BUSINESS PURPOSES, NO PORTION OF THE INTEREST COULD BE DISALLOWED EVEN IF THE ASSESSEE HAD DISSIPATED THE FUNDS BY GIVING INTEREST-FREE LOANS. SIMILARLY, THE MADRAS HIGH COURT HELD IN THE CASE OF CIT VS. PUDUKKOTTAI CO. (P) LTD. (1972) 84 ITR 788 (MAD) THAT, IN VIEW OF THE FINDING THAT THE AMOUNTS BORROWED WERE FOR THE PURPOSE OF BUSINESS, NO DISALLOWANCE OF INTEREST PAID COULD BE MADE IF THE ASSESSEE BORROWED THE FUNDS AT A HIGHER RATE OF INTEREST AND LENT IT AT A LOWER RATE. SO IT IS EVIDENT FROM THE AFORESAID DISCUSSION THAT THERE IS AN ELEMENT OF BUSINESS EXPEDIENCY INVOLVED IN THIS TRA NSACTION SO AS THE AMOUNT OF INTEREST CHARGED BY ASSESSEE FROM THE FARMERS AT A LESSER RATE. FROM THE ABOVE CITED JUDGMENTS, WE FIND THAT INTERE ST PAID TO THE BANK AT A HIGHER RATE AND CHARGED FROM OTHER PA RTIES AT A LESSER RATE ON ACCOUNT OF BUSINESS EXPEDIENCY IS AL LOWED. ON THIS BASIS AND TAKING A CONSISTENT VIEW WE ALLOW TH E CLAIM OF ASSESSEE FOR RECEIVING LESSER RATE OF INTEREST FROM THE FARMERS, HENCE, THIS GROUND OF ASSESSEE'S APPEAL IS ALLOWED . 5. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDER ATION AS WELL AS ALL THE MATERIAL FACTS ARE ADMITTEDLY SIMILAR TO THAT O F A.Y. 2008-09, I RESPECTFULLY FOLLOW THE ORDER OF THE DIVISION BENCH OF THIS TRIBUNAL DATED 06.11.2015 FOR A.Y. 2008-09 (SUPRA) AND DELETE THE DISALLOWANCE OUT OF INTEREST MADE BY THE ASSESSING OFFICER AND CONFIRME D BY THE LD. CIT(APPEALS). 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON NOVEMBER 06, 2019. SD/- (P.M. JAGTAP) VICE-PRESIDENT KOLKATA, THE 6 TH DAY OF NOVEMBER, 2019 ITA NO. 830/KOL/2019 AS SESSMENT YEAR: 2013-2014 BABA SATYANARAYAN HIMGHAR PVT. LIMITED 6 COPIES TO : (1) BABA SATYANARAYAN HIMGHAR PVT. LIMITED, C/O. S.N. GHOSH & ASSOCIATES, ADVOCATES, SEVEN BROTHERS LODGE, P.O. BUROSHIBTALA, P.S. CHINSURAH, DIST HOOGHLY-712105 (2) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-23, HOOGHLY, AAYAKAR BHAWAN, G.T. ROAD, KHADINA MORE, P.O. & P.S. CHINSURAH, HOOGHLY-712101 (3) COMMISSIONER OF INCOME TAX (APPEALS)-6, KOLKA TA, (4) COMMISSIONER OF INCOME TAX, KOLKATA- , KOLKATA; (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.