M/s. Chinco Textiles, Surat V. The Addl. CIT, Range-2, Surat

ITA 865/AHD/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94529 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 24-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Proportionate interest
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE S/SHRI S. S. GODARA, JM, & MANISH BORAD, AM. ITA NO.865/AHD/2014 ASST. YEAR: 2010-11 M/S CHINCO TEXTILES, PLOT NO.7/104, ROAD NO.7, GIDC, SACHIN, SURAT. VS ADDL. COMMISSIONER OF INCOME- TAX, RANGE-2, SURAT. (APPELLANT) (RESPONDENT) PA NO.ABXPM 7620E APPELLANT BY NONE (WRITTEN SUBMISSION) RESPONDENT BY SHRI RAJDEEP SINGH, SR.DR DATE OF HEARING: 8/10/2015 DATE OF PRONOUNCEMENT: 14/10/2015 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER. THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER O F CIT(A) II, SURAT, DATED 10.02.2014. ASSESSMENT FOR AY 2010-11 WAS FRAMED UNDER SECTION 143(3) OF INCOME-TAX ACT, 1961 (IN SH ORT THE ACT) ON 26.2.2013 BY THE ADDL. CIT, RANGE -2, SURAT. THE AS SESSEE HAS RAISED THE FOLLOWING GROUNDS :- 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF AO IN DISALLOWING RS.1,28,633/- ON ACCOUNT OF INTER EST ON UNSECURED LOANS. ITA NO. 865/AHD/2014 ASST. YEAR 2010-11 2 2. IT IS THEREFORE PROVED THAT THE ABOVE DISALLOWAN CES MADE BY AO AND CONFIRMED BY LD. CIT(A) MAY PLEASE BE DELETED. 3. APPELLANT CRAVES LEAVE TO ADD, ALTER OR DELETE A NY GROUND(S) EITHER BEFORE OR IN THE COURSE OF HEARING OF THE AP PEAL. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE IS A PARTNERSHIP FIRM HAVING THREE PARTNERS. IT IS ENGAG ED IN THE BUSINESS ACTIVITY OF SIZING OF YARN. TOTAL TURNOVER OF THE A SSESSEE DURING THE AY 2010-11 WAS SHOWN AT RS.34,31,56,765/-. ASSESSEE FI LED ITS RETURN OF INCOME ON 24.9.2010 SHOWING INCOME OF RS.41,09,410/ -. THE CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT ORDER WAS FRAMED UNDER SECTION 143(3) OF THE ACT, BY AO MAKING TWO DISALLO WANCES, BY WAY OF DISALLOWING INTEREST PAID ON UNSECURED LOANS AT RS. 1,28,633/- AND DISALLOWANCE OF EXPENSES OF RS.57,690/-. 3. THE ASSESSEE WENT IN APPEAL BEFORE CIT(A) WITH R ESPECT TO DISALLOWANCE OF INTEREST OF RS.1,28,633/-. HOWEVER, THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY AO OF RS.1,28,63 3/- WITHOUT GIVING ANY RELIEF TO THE ASSESSEE. 4. AGGRIEVED, THE ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. NONE APPEARED ON BEHALF OF THE ASSESSEE. HOWEVER, W RITTEN SUBMISSION HAS BEEN SUBMITTED BY THE AR OF THE ASSE SSEE ON 7.10.2015 AND THE SAME HAS BEEN ACCEPTED AND COPY P LACED ON RECORD FOR THE PURPOSE OF DECIDING THE ISSUE ON MER IT. ITA NO. 865/AHD/2014 ASST. YEAR 2010-11 3 5. ON THE OTHER HAND LD. DR RELIED ON THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE PERUSAL OF THE FINANCIAL STATEM ENT FOR THE YEAR UNDER APPEAL IT CAN BE SEEN THAT AS ON 31.3.2010 LO AN/ADVANCE WAS STANDING ON THE ASSET SIDE IN THE NAME OF M/S JYOTI INCORPORATION AT RS.10,25,000/-. WHEREAS ON THE LIABILITY SIDE, APAR T FROM PARTNERS CAPITAL AT RS.3,35,32,536/-, THERE WAS SECURED LOAN OF RS.11,38,993/- AND UNSECURED LOAN AT RS.63,72,913/-. DURING THE YE AR UNDER ASSESSMENT ASSESSEE FIRM HAS PAID INTEREST ON PARTN ERS CAPITAL ACCOUNT, SECURED LOAN AND UNSECURED LOAN. DURING TH E ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT AN INTEREST FREE LOAN/ADVANCE IS STANDING IN THE NAME OF M/S JYOTI INCORPORATION FOR PAST FEW YEARS WHEREAS ASSESSEE FIRM IS PAYING INTEREST ON PARTNER S CAPITAL, SECURED LOAN AND UNSECURED LOAN AND, THEREFORE, CAME TO THE CONCLUSION THAT PROPORTIONATE AMOUNT OF TOTAL INTEREST PAID TO UNSE CURED LOAN WHICH WAS SHOWN AT RS.7,99,777/-, DISALLOWED AT RS.1,28,6 33/- WHICH WAS WORKED OUT AS UNDER :- INTEREST PAID ---------------------- X INTEREST FREE LO AN/ADVANCE UNSECURED LOAN R.7,99,777/- ------------------ X RS.10,25,000 RS.63,72,913/- = RS.1,28,633/- ITA NO. 865/AHD/2014 ASST. YEAR 2010-11 4 DURING THE ASSESSMENT PROCEEDINGS ASSESSEE HAS SUBM ITTED THAT ASSESSEE WAS HAVING REGULAR BUSINESS TRANSACTION IN THE PAST WITH M/S JYOTO INCORPORATION AND FOR SOME BUSINESS EXPED IENCY INTEREST FREE LOAN/ADVANCE WAS GIVEN DURING THE F.Y.2004-05 AND, THEREFORE, AS THIS WAS AN ADVANCE GIVEN IN THE NORMAL COURSE O F BUSINESS AND NOT FOR EARNING INTEREST AND MORE SO DURING THE YEA R UNDER ASSESSMENT RS.2,06,979/- HAS BEEN RECEIVED FROM M/S JYOTI INCORPORATION, THE AO WAS NOT CORRECT IN DISALLOWIN G THE PROPORTIONATE INTEREST. 7. WE FIND FORCE IN THE SUBMISSIONS OF LD. AR FOR T HE VERY REASON THAT IN SCHEDULE NO.10 ANNEXED TO THE AUDITED BALAN CE SHEET, WHICH IS APPEARING ON PAGE 63 OF THE PAPER BOOK -LIST OF LOANS/ADVANCES (ASSETS) AS ON 31.3.2009 AND 31.3.2010 IS AVAILABLE IN WHICH THE BALANCE OF LOAN/ADVANCE TO JYOTI INCORPORATION WHIC H WAS RS.12,31,979/- IS REDUCED TO RS.10,25,000/- AND IN THE VERY SAME LIST IN THE NAME OF M/S GARDEN SILK MILLS LTD. IS SHOWN AT RS.17,65,369/- AS ON 31.3.2009 AND THIS BALANCE IS REDUCED TO RS.7 ,04,551/- AS ON 31.3.2010. THIS MEANS THAT ASSESSEE FOR THE PURPOSE OF BUSINESS EXPEDIENCY, HAD SOME BALANCE OF LOANS/ADVANCES (ASS ETS) REMAINING AT THE END OF THE YEAR IN THE NAME OF BUSINESS ASSO CIATES. FROM PERUSAL OF THE ASSESSMENT ORDER, IT IS REVEALED THA T THERE IS NO MENTION OF OTHER PARTIES FOR EXAMPLE GARDEN SILK MI LLS LTD. WHICH IS ALSO APPEARING TOGETHER WITH M/S JYOTI INCORPORATIO N AND THE AO HAS NOT MADE ANY FURTHER ENQUIRY TO RECONCILE THE SUBMI SSION MADE BY THE ASSESSEE THAT IT WAS HAVING BUSINESS TRANSACTIO NS WITH M/S JYOTI INCORPORATION IN THE PAST AND JUST WENT AHEAD TO KE EP THE SAME AS ITA NO. 865/AHD/2014 ASST. YEAR 2010-11 5 INTEREST FREE LOAN AND ADVANCE WITHOUT OBSERVING TH E OTHER ADVANCES GIVEN BY THE ASSESSEE. 8. LOOKING TO THE TURNOVER OF THE ASSESSEE WHICH IS RS.34,31,56,765/- AND COMPARING THE SAME IN PARLANC E TO THE LOAN AND ADVANCES(ASSETS) AT RS.10,25,000/- IT WILL NOT BE JUSTIFIABLE TO IGNORE THE SUBMISSIONS OF ASSESSEE. THE ASSESSEE AL SO RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF PUNJAB WOOL COMBERS LTD. VS.ACIT (1 SOT 114), WHEREIN IT HAS BEEN HELD THAT WHERE NO DISALLOWANCE OUT OF INTEREST EXPENDITURE HAD BEEN MADE IN EARLIER YEARS, NO DISALLOWANCE OUT OF INTER EST EXPENDITURE CAN BE MADE ON THOSE OLD LOANS OUTSTAND ING IN SUBSEQUENT YEARS. ANALYZING THE FACTS OF THE CASE OF ASSESSEE TO THE ABOVE CASE RELIED ON BY THE ASSESSEE, WE SEE THAT THE LOAN/ADVANCES(A SSETS) WAS GIVEN BY THE ASSESSEE PARTLY ON 31.3.2004 AND PARTL Y DURING F.Y. 2004-05 RELEVANT TO AY 2005-06 TO M/S JYOTI INCORPO RATION AND NO DISALLOWANCE OUT OF INTEREST PAID TO UNSECURED LOAN IN PREVIOUS YEARS HAVE BEEN MADE BY THE AO AND, THEREFORE, RESPECTFUL LY FOLLOWING THE ABOVE JUDGMENT AS WELL AS THE ANALYSIS OF FACTS, WE ARE OF THE VIEW THAT AO WAS NOT JUSTIFIED IN DISALLOWING THE INTERE ST PAID TO UNSECURED LOAN. WE DELETE THE SAME. THE APPEAL OF THE ASSESSE E IS ALLOWED. 10. OTHER GROUNDS ARE OF GENERAL NATURE WHICH, DO N OT REQUIRE ADJUDICATION. ITA NO. 865/AHD/2014 ASST. YEAR 2010-11 6 11. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 14/10/2015 SD/- SD/- (S. S. GODARA) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 14/10/2015 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 8/10/2015 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 12/10/2015 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 14/10/2015 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: