ACIT, Ludhiana V. M/s Avon Cycles Ltd., Ludhiana

ITA 909/CHANDI/2009

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1305 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 24-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 03-09-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Gift; Charitable institution; Earning of tax free income; Set aside
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 909/CHD/2009 ASSESSMENT YEAR: 2006-07 THE ACIT, CIRCLE-V, VS M/S AVON CYCLES LTD., LUDHIANA LUDHIANA PAN NO. AABCA4140R (APPELLANT) (RESPONDENT) APPELLANT BY : SMT SARITA KUMARI RESPONDENT BY: SHRI SUBHASH AGGARWAL ORDER PER SUSHMA CHOWLA, JM THE APPEAL BY THE REVENUE IS AGAINST THE ORDER OF CIT(A)-II, LUDHIANA DATED 8.6.2009 RELATING TO ASSESSMENT YEAR 2006-07 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE LD. CIT(A)-II HAS ERRED IN LAW AND ON FACT S IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF RS. 56,61,550/- MADE U/S 14A IN RESPECT OF EXPENSES INCURRED TO EARN INCOME CLAI MED EXEMPT U/S 10(34) AND 10(35) OF THE INCOME TAX ACT, 1961. 2. THAT THE LD. CIT(A)-II HAS ERRED IN LAW AND ON FACT S IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON 2 ACCOUNT OF DISALLOWANCE MADE U/S 36(I) (III) IN RES PECT OF INTEREST FREE LOANS AT RS. 29,984/-. 3. THAT THE CIT(A)-II HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICE R ON ACCOUNT OF DISALLOWANCE OF RS. 50,000/- OUT OF GIFT ITEMS HAS BEEN DELETED. 4. THAT THE ORDER OF CIT(A)-II BE SET ASIDE AND THAT O F THE ASSESSING OFFICER BE RESTORED. 3. THE ISSUE IN GROUND NO.1 IS IN CONNECTION WITH T HE APPLICABILITY OF PROVISIONS OF SECTION 14A OF THE ACT TO THE EXEMPT INCOME EARNED BY THE ASSESSEE. DURING THE YEAR UNDER CONSIDERATION, TH E ASSESSEE HAD EARNED DIVIDEND INCOME OF RS. 56,61,550/- WHICH WAS CLAIME D AS EXEMPT U/S 10(34) / 10(35) OF THE INCOME TAX ACT. THE ASSESS ING OFFICER PROPOSED TO DISALLOW INTEREST INCURRED FOR FUNDS INVESTED IN THE ASSETS, INCOME FROM WHICH WAS CLAIMED AS EXEMPT. THE CLAIM OF THE ASS ESSEE WAS THAT IT HAD UTILIZED ITS OWN FUNDS FOR MAKING THE SAID INVESTME NT AND NO INTEREST WAS INCURRED IN RESPECT OF THE SAME. THE ASSESSING OFF ICER REJECTED THE CLAIM OF THE ASSESSEE AND ALSO REFERRED TO THE RATIO LAID DOWN BY HON'BLE PUNJAB & HARYANA HIGH COURT IN M/S ABHISHEK INDUSTRIES LTD 286 ITR 1 (P&H). THE ASSESSING OFFICER TREATED THE ENTIRE POOL OF SH ARE CAPITAL, REVERSE AND SURPLUS AND BORROWED FUNDS OF RS. 114.30 CRORES AS COMMON FROM WHICH AS PER THE ASSESSING OFFICER INVESTMENTS AMOUNTING TO RS. 9.88 CRORES WERE MADE. THE ASSESSEE HAD PAID INTEREST OF RS. 1.20 CRORES AND ASSESSING OFFICER PROPORTIONED THE RATIO OF INVESTM ENTS TO THE TOTAL FUNDS OF THE ASSESSEE AND DISALLOWED THE SUM OF RS. 10,46 ,067 AND THE BALANCE DIVIDEND INCOME WAS HELD TO BE EXEMPT. THE CIT(A) FOLLOWING THE RATIO LAID DOWN BY THE CHANDIGARH BENCH OF THE TRIBUNAL I N HERO CYCLES LTD 3 VS. JCIT (ITA NO. 205/CHD/2008) WHERE ADDITIONS WER E MADE IN SIMILAR MANNER, RELYING UPON THE RATIO LAID DOWN IN ABHISHE K INDUSTRIES LTD (SUPRA) DELETED THE ADDITIONS IN THE PRESENT YEARS AS SIMILAR ADDITIONS WERE DELETED IN ASSESSMENT YEAR 2004-05. THE REVENUE I S IN APPEAL AGAINST THE SAID ORDER OF CIT(A). 4. THE LD. AR FOR THE ASSESSEE PLACED RELIANCE ON THE ORDER OF THE TRIBUNAL RELATING TO ASSESSMENT YEAR 2005-06 WHICH IN TURN FOLLOWING THE ORDER RELATING TO ASSESSMENT YEAR 2004-05 HAD DELET ED THE SAID DISALLOWANCE IN VIEW OF THE ASSESSING OFFICER NOT G IVING A FINDING AS TO WHICH FUNDS WERE USED FOR WHAT PURPOSES. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE REVENUE HAS FAILED TO CONTROVERT THE FINDINGS OF TH E CIT(A) WHO HAD DECIDED THE PRESENT APPEAL FOLLOWING THE RATIO LAID DOWN IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2004-05 AND 2005-0 6. THE ASSESSING OFFICER HAD ALSO FAILED TO A COME TO A FINDING IN R ESPECT OF THE UTILIZATION OF INTEREST BEARING FUNDS INTO SECURITIES, INCOME FROM WHICH EXEMPT FROM TAX. THE TRIBUNAL IN ITA NO. 17/CHD/2008 RELATING TO ASSESSMENT YEAR 2004-05 VIDE ORDER DATED 15.4.2008 HAD ELABORATELY ADDRESSED THE ISSUE OF THE INVESTMENT MADE BY THE ASSESSEE VIS-A-VIS THE F UNDS AVAILABLE WITH THE ASSESSEE. SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN ITA NO. 579/CHD/2009 RELATING TO ASSESSMENT YEAR 2005-06 AN D VIDE ORDER DATED 30.7.2009, THE APPEAL OF THE REVENUE WAS DISMISSED. IN THE ABSENCE OF ANY FINDING OF ASSESSING OFFICER OF INTEREST BEARIN G FUNDS BEING INVESTED IN SUCH SECURITIES ON WHICH THE ASSESSEE HAD DECLAR ED THE EXEMPT INCOME, WE ARE IN CONFORMITY WITH THE ORDER OF CIT(A) AND U PHOLD THE SAME. THE GROUND NO. 1 RAISED BY THE REVENUE IS THUS DISMISSE D. 4 6. THE GROUND NO.2 RAISED BY THE REVENUE IS AGAINST THE DELETION OF DISALLOWANCE U/S 36(1)(III) OF THE ACT. THE ASSES SEE HAD ADVANCED INTEREST FREE LOANS TO SHRI HANS RAJ PAHWA AND M/S PAHWA CHARITABLE TRUST WHICH WERE BROUGHT FORWARD FROM THE EARLIER Y EARS. THE ASSESSING OFFICER APPLYING THE RATIO LAID DOWN IN ABHISHEK IN DUSTRIES LTD (SUPRA), DISALLOWED INTEREST OF RS. 29,984/- ON THE LOANS OU TSTANDING AGAINST THE SAID PARTIES. THE CIT(A) ALLOWED THE CLAIM AS SIMI LAR DISALLOWANCE WAS DELETED IN ASSESSMENT YEAR 2005-06 BY THE CIT(A). 7. WE FIND THAT SIMILAR ISSUE AROSE BEFORE THE TRIB UNAL IN ITA NOS 157 & 158/CHD/2009 RELATING TO ASSESSMENT YEAR 1998-99 AND VIDE ORDER DATED 15.4.2010 AND IN RESPECT OF THE LOANS RAISED FROM M /S HANS RAJ PAHWA, IT WAS OBSERVED AS UNDER:- 8. NOW COMING TO THE ADVANCE MADE TO THE HANS RAJ PAHWA, WE FIND THAT THE TRIBUNAL HAS RESTORED THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR EXAMINING THE NEXUS BETWEEN THE BORROWING OF FUNDS AND INTEREST FREE AD VANCES. THE PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW DO NOT REFLECT THE FACTUAL ASPECTS OF THE ISSUE IN QUESTIO N. THE ONUS IS ON THE ASSESSEE TO ESTABLISH THAT NONE OF ITS IN TEREST BEARING FUNDS HAD BEEN UTILIZED FOR MAKING THE AFORESAID IN TEREST FREE ADVANCES TO ITS DIRECTOR SHRI HANS RAJ PAHWA EITHER IN THE YEARS UNDER APPEAL OR IN THE PRECEDING YEARS. IN T HE INTEREST OF JUSTICE AND IN THE ABSENCE OF THE RELEVANT MATER IAL BEING AVAILABLE ON RECORD, WE DEEM IT FIT TO ALLOW ANOTHE R OPPORTUNITY TO THE ASSESSEE TO ESTABLISH THAT THE A DVANCES MADE TO SHRI HANS RAJ PAHWA HAS NO NEXUS WITH THE F UNDS BORROWED BY THE ASSESSEE ON WHICH INTEREST HAS BEEN CLAIMED AS THE DEDUCTION. THE MATTER IS SET ASIDE TO THE F ILE OF ASSESSING OFFICER TO RE-ADJUDICATE THE ISSUE AFTER ALLOWING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE GROUND NOS.1 & 2 RAISED BY THE ASSESSEE ARE ALLOWED AS INDICATED ABOVE. 8. FOLLOWING THE ABOVESAID RATIO, WE REMIT THIS ISS UE BACK TO THE FILE OF ASSESSING OFFICER. SIMILARLY, IN RESPECT OF M /S PAHWA CHARITABLE TRUST, THE ISSUE IS REMITTED BACK TO THE FILE OF AS SESSING OFFICER IN LINE 5 WITH OUR OBSERVATION IN RESPECT OF ADVANCES MADE MR . HANS RAJ PAHWA. THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AFTER ALLOWING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE GROUND NO.2 RAISED BY THE REVENUE IS THUS ALLOWED FOR STATISTICAL PURPOSES. 9. THE LAST ISSUE RAISED BY THE REVENUE IS IN CONNE CTION WITH THE DISALLOWANCE OUT OF GIFT ITEMS. THE ASSESSING OFFI CER HAD DISALLOWED RS. 50,000/- OUT OF GIFT ITEMS ON ESTIMATE BASIS FOLLOW ING SIMILAR DISALLOWANCE MADE IN ASSESSMENT YEAR 2005-06. THE CIT(A) ALLO WED THE CLAIM OF THE ASSESSEE FOLLOWING THE APPELLATE ORDER IN ASSESSMEN T YEAR 2005-06 IN VIEW OF THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIG H COURT IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 1992-93 REPORT ED IN 303 ITR 345 (P&H). IN VIEW OF THE ABOVESAID RATIO LAID DOWN B Y THE HON'BLE PUNJAB & HARYANA HIGH COURT, WE FIND NO MERIT IN GROUND OF APPEAL RAISED BY THE REVENUE AND HENCE THE SAME IS DISMISSED. 10. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF MARCH, 2010, SD/- SD/- (N.BARATHVAJA SANKAR) (SUSHMA CHOWLA) VICE PRESIDENT JUDICIAL MEMBER DATED : 31 ST MARCH, 2010 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 6