M/s Stylam Industries Ltd., Chandigarh V. DCIT, Chandigarh

ITA 922/CHANDI/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6599 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 02-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Business expenditure; Commercial expediency
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCHB, CHANDIGARH BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO.922/CHD/2017 (ASSESSMENT YEAR : 2012-13) STYLAM INDUSTRIES LTD. VS. DCIT SCO-14, SECTOR-7C CIRCLE1(1) CHANDIGARH CHANDIGARH PAN: AAACG5969R (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VINEET KRISHAN DEPARTMENT BY : SHRI. MANJIT SINGH DATE OF HEARING : 27.09.2017 DATE OF PRONOUNCEMENT : 28/11/2017 O R D E R PER DR.B.R.R.KUMAR, A.M . : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-1, CHANDIGARH, DATED 26/04/2017. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE ORDER PASSED UNDER SECTION 250(6) OF T HE INCOME TAX ACT, 1961 BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I CHAN DIGARH IN APPEAL NO. 135/14-15 DATED 26.04.2017 IS CONTRARY TO LAW AND F ACTS OF THE CASE. 2(A) THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) GRAVELLY ERRED IN UPHOLDING TH E ADDITION OF RS. 4,13,848/- MADE BY THE LD. ASSESSING OFFICER BY INVOKING THE P ROVISIONS OF SECTION 36(I)(III) ON THE GROUND THAT INTEREST FREE LOANS WERE GIVEN TO T HE CERTAIN PARTIES. 2(B) WITHOUT PREJUDICE TO THE ABOVE, ADDITION IS HI GHLY EXCESSIVE. 3. THE ONLY AND THE EFFECTIVE GROUND OF APPEAL DE ALS WITH THE ADDITION OF RS. 4,13,848/- MADE U/S 36(L)(III). THE ASSESSEE HAD GIVEN ADVANCES TO M/S ZEAL EXIM PVT. LTD. AND M/S TEJI BRAR FINANCIAL PVT. LTD. TO THE TUNE OF RS. 2 34,48,733/-. THE ASSESSING OFFICER OBSERVED THAT T HESE ADVANCES HAVE NOT BEEN MADE FOR BUSINESS PURPOSES AS UNDER:- '4. IT HAS ALSO BEEN OBSERVED FROM THE BALANCE SHEE T THAT THE ASSESSEE- COMPANY HAD MADE THE ADVANCES TO ZEAL EXIM PVT. LTD. AND TE JI BRAR FINANCIAL SERVICE PVT. LTD. THESE ADVANCES WERE NOT GIVEN FOR BUSINESS PUR POSES AND THERE IS NO COMMERCIAL EXPEDIENCY. THE ASSESSEE WAS CONFRONTED ON THIS ISSUE. 4.1 NO SATISFACTORY REPLY COULD BE FURNISHED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. SINCE, ON THE ONE HAND THE COMPANY IS INCURRING EXPENDITURE ON INTEREST PAYMENT ON THE SECURED AND UNSECURED LOAN AND ON THE OTHER HAND IS PAYING INTEREST FREE ADVANCE TO OTHER CONCERNS. IN VIEW OF THE DECISION OF THE HON'BLE HIGH COURT IN CASE OF M/S A BHISHEK INDUSTRIES SUPRA, WHICH IS APPLICABLE TO THE CASE OF THE ASSESSEE, THE ADVA NCE MADE HAVE NO BUSINESS EXPEDIENCY, SO IT IS CLEAR THAT MONEY HAS BEEN DIVE RTED, THOUGH THE ASSESSEE HAS RAISED SECURED LOANS ON INTEREST. THE INTEREST EXPE NSES RELATED TO THE DIVERSION OF FUNDS TO THE PARTIES MENTIONED ABOVE CANNOT BE CONS IDERED AS A BUSINESS EXPENDITURE OF THE ASSESSEE NEITHER U/S 36(L)(III) NOR U/S 37(1) OF THE I.T. ACT, 1961.' 4 THE LD. CIT(A) HAS CONFIRMED THE ADDITION ON THE GROUNDS THAT THE ASSESSEE HAS NOT BEEN ABLE TO EXPLAIN THE BUSINESS EXPEDIENCY OF GIVING THE ADVANCES. 5. BEFORE US THE LD. AR SUBMITTED THAT THE AMOUNTS WERE GIVEN FOR BUSINESS PURPOSE AS INVESTMENTS. THE SIMILAR ISSUE OF ADVANC ES TO THE SAME COMPANIES WAS DEALT BY THE REVENUE FOR THE AY 2011-12 WHEREI N THE DISALLOWANCE MADE ON ACCOUNT OF INTEREST UNDER SECTION 36(1)(III) WAS DELETED. HE FURTHER SUBMITTED THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUND S OF HIS OWN DURING THE YEAR. 6. THE LD. DR RELIED ON THE ORDERS OF THE LOWER AUT HORITIES. 7. WE HAVE PERUSED THE BALANCE SHEET REGARDING THE SHARE CAPITAL AND RESERVES AND SURPLUSES AND FIND THAT THE SHARE CAPI TAL AND RESERVES AND SURPLUS FAR EXCEEDS THE ADVANCES GIVEN OF RS. 4,13,848/-. S INCE THE ASSESSEE HAS SUFFICIENT OWN FUNDS NO DISALLOWANCE IS CALLED FOR. SIMILAR ISSUE HAS BEEN DEALT BY THE HONBLE HIGH COURT OF PUNJAB & HARYANA IN THE C ASE OF ITA NO. 413 OF 2014, GURUDAS GARG VS. CIT(A),BATHINDA . IN THE CASE OF K ISSAN FOODS LTD. VS. DCIT IN ITA NO. 779/CHD/2016 [162 ITD 0404] WHEREIN IT WAS HELD THAT IF THERE WERE FUNDS AVAILABLE INTEREST FREE AND OVERDRAFT AND LOANS TAK EN THEN PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF INTEREST FRE E FUNDS. 3 8. IN VIEW OF THE ABOVE, WE HOLD THAT THE DISALLOWA NCE OF INTEREST MADE UNDER SECTION 36(1)(III) OF THE ACT IS UNCALLED FOR AND THE ORDER OF THE CIT(A) IS, THEREFORE, SET ASIDE. THE DISALLOWANCE MADE OF INTE REST AMOUNTING TO RS. 4,94,811/- IS, THEREFORE, DELETED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (DIVA SINGH) (DR. B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 28/11/2017 AG COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR