M/s Stovekraft India, Baddi V. DCIT, Circle, Parwanoo

ITA 885/CHANDI/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 1190 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 04-06-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRIABHISHEK PAL GARG
• Assessee Lawyers: SHRIMANOJ KUMAR

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, B CHANDIGARH , ! '# $ % & '# , () BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.885/CHD/2019 / ASSESSMENT YEAR : 2015-16 M/S STOVEKRAFT INDIA, 307/2, VILLAGE BURANWALA, BAROTIWALA, BADDI, DISTT. SOLAN H.P. THE DCIT, CIRCLE, PARWANOO ./PAN NO: AAZFS6497G / APPELLANT /RESPONDENT ! /ASSESSEE BY : SHRIMANOJ KUMAR, CA ' ! / REVENUE BY : SHRIABHISHEK PAL GARG, ADDL CIT # $ % /DATE OF HEARING : 02.03.2020 &'() % / DATE OF PRONOUNCEMENT : 20.05.2020 (*/ ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST THE ORDER DATED 29.3.2019 OF THE COMMISSIONER OF INCOME TAX (APPEALS), SHIMLA[HEREINAFTER REFERRED TO AS CIT (A)]. 2. THE ASSESSEE IN THIS APPEAL HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. THE LD. CIT(A) IS WRONG IN CONFIRMING THE ADDITION MADE BY THE LD. AO BY DISALLOWING INTEREST OF RS. 17,01,714/-U/S 36(1) (III) ON ITA NO. 885-CHD-2019 M/S STOVEKRAFT INDIA, SOLAN 2 ACCOUNT OF INTEREST FREE ADVANCES OF RS. 1,41,80,951/-, IGNORING THE UNDISPUTED FACT THAT ADVANCE WAS MADE TO ONE OF THE PARTNER (I.E. MR. RAJENDRA J. GANDHI) OF THE ASSESSEE FIRM. 2. WITHOUT PREJUDICE TO GROUND NO.L, THE LD. CIT(A) IS WRONG IN CONFIRMING THE ADDITION MADE BY THE LD. AO BY DISALLOWING INTEREST OF RS. 17,01,714/- U/S 36(1) (III) ON ACCOUNT OF INTEREST FREE ADVANCES OF RS. 1,41,80,951/- BY APPLYING ARBITRARILY INTEREST RATE @ 12 % ON ADVANCES INSTEAD OF APPLYING AVERAGE COST DEBT. 3. THE SOLE ISSUE RAISED BY THE ASSESSEE IN THIS AP PEAL IS REGARDING DISALLOWANCE OF RS. 17,01,714/- BY THE ASSESSING OF FICER AND FURTHERCONFIRMED BY THE CIT(A) ONACCOUNT OF DISALLO WANCE OFNOTIONALINTERESTEXPENDITURE U/S 36(1)(III) OF TH E INCOME TAX ACT. 4. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT T HE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS NOTICEDTHAT THE A SSESSEE FIRM HAD A DEBIT BALANCE OF RS. 1,41,80,951/- ADVANCED TOONE O F ITS PARTNERS NAMELY M/S RAJINDRA J. GANDHI UNDER THE HEAD LOAN AND ADV ANCES ON WHICH NO INTEREST WAS CHARGED, WHEREAS, THE ASSESSEE FIR M HAD CLAIMED FINANCE COST OF RS. 35,49,756/- ON THE LOAN DEBITED IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER, THEREFORE, MADE A D ISALLOWANCE OF INTEREST EXPENDITURE U/S 36(1)(III) OF THE INCOME T AX ACT IN RESPECT OF THE INTEREST FREE AMOUNT ADVANCED BY THE ASSESSEE FIRM TO ITS PARTNERS. ITA NO. 885-CHD-2019 M/S STOVEKRAFT INDIA, SOLAN 3 THE DISALLOWANCE SO MADE BY THE ASSESSING OFFICER W AS FURTHER CONFIRMED BY THE LD. CIT(A). 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT WHILE MAKING THE IMPUGNED DISALLOWANCE, THE LOWER A UTHORITIES TOTALLY IGNORED THE FACT THAT THOUGH THERE WAS AN INTEREST FREE ADVANCE OF RS. 1,41,80,951/- TO ONE OF THE PARTNERS NAMELY SHRIRAJ INDRA J. GANDHI, HOWEVER, AT THE SAME TIME, THE ASSESSEE ALSO HAD A CREDIT CAPITAL BALANCE OF OTHER PARTNER SOFTKRAFT PVT LTD OF RS. 6,90,67,3 65/-, WHICH WAS MUCH MORE THAN THE AMOUNT ADVANCED OF RS. 1,41,80,951/-. UNDER THE CIRCUMSTANCES, THERE WAS AREASONABLE PRESUMPTION TH AT THE AMOUNT FROM THE CAPITAL OF THE OTHER PARTNER WAS ADVANCED.THE L D. COUNSEL HAS FURTHER SUBMITTED THAT NO INTEREST WAS PAID BY THE FIRM ON THE SAID CAPITAL INTRODUCED BY THE OTHER PARTNER. IT HAS BEE N FURTHER PLEADED THAT EVEN OTHERWISE THE TOTAL INTEREST FREE AMOUNT AVAIL ABLE WITH THE FIRM AT THE OPENING OF THE YEAR WAS AT RS. 23.50 CORES AND AT THE CLOSE OF THE YEAR WAS RS.6.90 CRORES AND THAT THE FIRM HAD SUFFI CIENT FUNDS TO MAKE THE INTEREST FREE ADVANCE OF RS. 1,41,80,951/- TO O NE OF THE PARTNERS. THE LD. COUNSEL IN THIS RESPECT HAS RELIED UPON THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. KAPSONS ASSOCIATES 79 TAXMAN.COM 364 (P&H), SHELLY BANSALV S DCIT, CHANDIGARH ITA NO. 1110/CHD/2016, M/S TORQUE PHARMA CEUTICALS ITA NO. 885-CHD-2019 M/S STOVEKRAFT INDIA, SOLAN 4 PVT LTD VSADDL CIT - ITA NO. 671/CHD/2011 AND M/S S ANSUI ELECTRONICS (ITAT ORDER IN ITA NO.897/CHD/2014). 6. THE LD. DR , ON THE OTHER HAND, HAS RELIED ON TH E FINDINGS OF THE LOWER AUTHORITIES 7. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY TH E VARIOUS DECISIONS OF THE HIGH COURTS AS WELL AS OF THE APEX COURT OF THE COUNTRY INCLUDING THAT OF THE HON'BLE JURISDICTION AL HIGH COURT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD VS. CIT, J ALANDHAR (SUPRA), CIT VS. KAPSONS ASSOCIATES (2016) 381 ITR 204 (P& H) AND THE LATEST DECISION OF THE COORDINATE BENCH OF THE TRIB UNAL IN THE CASE OF ACIT VS. JANAK GLOBAL RESOURCES PVT LTD ITA NO. 4 70/CHD/2018 ORDER DATED 16.10.2018, HOLDING THAT THAT IF THE AS SESSEE IS POSSESSED OF SUFFICIENT OWN INTEREST FREE FUNDS TO MEET THE I NVESTMENTS / INTEREST FREE ADVANCES, THEN, UNDER THE CIRCUMSTAN CES, PRESUMPTION WILL BE THAT INTEREST FREE ADVANCES / INVESTMENTS H AVE BEEN MADE BY THE ASSESSEE OUT OF OWN FUNDS / INTEREST FREE FUNDS . RELIANCE IN THIS RESPECT CAN ALSO BE PLACED ON THE DECISION OF THE H ON'BLE SUPREME COURT IN THE CASE OF HERO CYCLES (P) LTD VS. CIT 379 ITR 347 (SC) AND ALSO ON THE LATEST DECISION OF THE HON'BL E SUPREME COURT IN THE CASE OF CIT (LTU) VS. RELIANCE INDUSTRIES LTD . [2019] 410 ITR 466 (SC).THUS, AS PER THE SETTLED LAW NO DISALLOWAN CE U/S 36(1)(III) ITA NO. 885-CHD-2019 M/S STOVEKRAFT INDIA, SOLAN 5 OF THE ACT IS WARRANTED ON THIS ISSUE. THE DISALLOW ANCE MADE BY THE AO ON THIS ISSUE IS ORDERED TO BE DELETED. THIS ISS UE IS ACCORDINGLY ALLOWED IN FAVOUR OF THE ASSESSEE. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS AL LOWED ORDER PRONOUNCED ON 20.05.2020. SD/- SD/- ( $ % & '# / ANNAPURNA GUPTA) () / ACCOUNTANT MEMBER ( / SANJAY GARG) / JUDICIAL MEMBER DATED : 20.05.2020 .. '+ ,-.- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. # / / CIT 4. # / ( )/ THE CIT(A) 5. -01 2 , % 2 , 34516 / DR, ITAT, CHANDIGARH 6. 157$ / GUARD FILE