Bade Sons Marketing Pvt. Ltd., Kolhapur V. ACIT, Range-1, Kolhapur

ITA 931/PUN/2011

• Counselvise Citation: 93124514 RSA 2011
• Duration Of Justice: 1 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 17-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 30-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Keywords: Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES A, PUNE BEFORE G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 931/PN/2011 (ASSESSMENT YEAR: 2007-08) BADE SONS MARKETING PVT. LTD. 146E, 8 TH LANE, RAJARAMPURI KOLHAPUR. PAN : AABCB 4576 A . APPELLANT VS. ADDL. COMMISSIONER OF INCOME TAX RANGE 1, KOLHAPUR . RESPONDENT APPELLANT BY : MR. M. K. KULKARNI RESPONDENT BY : MS. ANN KAPTHUAMA DATE OF HEARING : 04-04-2013 DATE OF PRONOUNCEMENT : 10-04-2013 ORDER PER G. S. PANNU, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), KOLHAPUR DATE D 03.01.2011 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 18.12.2009 PAS SED BY THE ASSESSING OFFICER, UNDER SECTION 143(3) OF THE INCOME-TAX ACT , 1961 (IN SHORT THE ACT), PERTAINING TO THE ASSESSMENT YEAR 2007-08. 2. IN THIS APPEAL, THE SOLITARY ISSUE RAISED BY THE ASSESSEE IS WITH REGARD TO AN ADDITION OF RS. 4,90,462/- MADE BY THE ASSESSING OFFICER OUT OF INTEREST EXPENDITURE. 3. IN BRIEF, THE FACTS ARE THAT THE ASSESSEE IS A C OMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS INTER-ALIA, ENGAGED IN THE BUSINESS OF TRADING AND PROVIDING AUDITORIUM SERVICES ON HIRE BASIS. FOR THE ASSESSME NT YEAR 2007-08, IT FILED ITS RETURN OF INCOME DECLARING A TOTAL INC OME OF RS. 54,88,690/- WHICH WAS SUBJECT TO A SCRUTINY ASS ESSMENT UNDER SECTION 143(3) OF THE ACT. THE ASSESSING OFFICER NO TED THAT THE ITA NO. 931/PN/2011 BADE SONS MARKETI NG PVT. LTD. A.Y. 2007-08 ASSESSEE HAD CLAIMED AN EXPENDITURE OF RS. 32,44,18 8/- TOWARDS INTEREST ON LOANS RAISED FROM PERSONS SPECIFIED SEC TION 40A(2) (B) OF THE ACT. THE ASSESSING OFFICER OBSERVED THAT TO SOM E OF THE SPECIFIED PERSONS, ASSESSEE HAD ADVANCED CERTAIN AM OUNTS ALSO ON WHICH NO INTEREST WAS BEING CHARGED. THE DETAILS IN THIS REGARD HAVE BEEN PUT BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER ARE AS UNDER :- NAME LOAN TAKEN BY ASSESSEE (31/3/2007) INTEREST PAID ON LOAN ADVANCE BY ASSESSEE INTEREST CHARGED BADE BROTHERS (HUF) RS. 12,44,549 RS. 1,21,954 RS. 10,87,739 NIL M R BADE RS. 10,15,572 RS. 1,23,937 RS. 75,000 NIL H R BADE RS. 17,07,355 RS. 2,09,667 RS. 75,000 NIL V R BADE RS. 5,24,277 RS. 94,728 RS. 7,84,77 0 NIL 4. THE ASSESSING OFFICER NOTED THAT IN TERMS OF THE AFORESAID ARRANGEMENT, THE ASSESSEE WAS PAYING INTEREST ON LO ANS RAISED FROM SPECIFIED PERSONS WHEREAS TO THE VERY SAME PERSONS ASSESSEE HAD ADVANCED CERTAIN SUMS ON WHICH NO INTEREST WAS CHAR GED. THE INTEREST ATTRIBUTABLE TO SUCH ADVANCES WAS DETERMIN ED AT RS. 4,90,462/- WHICH HAS SINCE BEEN DISALLOWED BY T HE ASSESSING OFFICER. THE CIT(A) HAS ALSO SUSTAINED THE DISALLOW ANCE, AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5. BEFORE THE LOWER AUTHORITIES AS WELL AS BEFORE U S, THE PLEA OF THE ASSESSEE IS THAT THE ADVANCES MADE TO THE AFORE SAID PERSONS WERE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AND THEREFORE, THERE WAS NO NECESSITY TO DISALLOW A POR TION OF INTEREST EXPENDITURE RELATABLE TO THE LOANS RAISED FROM THE SPECIFIED PERSONS. BEFORE US, THE LEARNED COUNSEL HAS REFERRED TO DECI SION OF THIRD MEMBER OF THE TRIBUNAL IN THE CASE OF S.P. JAISWAL ESTATES (P) LTD. VS. CIT 147 TTJ (KOL) (TM) 649 TO SUBMIT THAT WHERE SUFFICIENT INTEREST-FREE FUNDS ARE AVAILABLE WITH THE ASSESSEE TO COVER THE INTEREST FREE ADVANCES MADE, THEN THE PRESUMPTION I S THAT INTEREST-FREE ADVANCES ARE GIVEN OUT OF INTEREST-FR EE FUNDS AND ITA NO. 931/PN/2011 BADE SONS MARKETI NG PVT. LTD. A.Y. 2007-08 ACCORDINGLY, THE INTEREST PAID ON BORROWED FUNDS WO ULD NOT BE SUBJECT TO ANY DISALLOWANCE. 6. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE APPEARING FOR THE REVENUE HAS RELIED UPON THE ORDER S OF THE AUTHORITIES BELOW IN SUPPORT OF THE CASE OF THE REV ENUE. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. IN THE PRESENT CASE, THE DISPUTE RELATES TO THE INTEREST P AID BY THE ASSESSEE ON THE LOANS RAISED FROM CERTAIN INTERESTE D PARTIES REFERRED TO IN SECTION 40A(2)(B) OF THE ACT. THE ASSESSEE HA D PAID INTEREST AT THE RATE OF 12% PER ANNUM ON LOANS RAISED FROM SUCH PARTIES WHICH AMOUNTED TO RS. 32,44,188/-. IN RESPECT OF FOUR SUC H PARTIES, AS DETAILED IN THE EARLIER PART OF THIS ORDER, ASSESSI NG OFFICER NOTED THAT ASSESSEE HAD ALSO ADVANCED CERTAIN AMOUNTS WHICH DI D NOT CARRY ANY INTEREST. IN OTHER WORDS, IN RESPECT OF SUCH FO UR PARTIES, WHEREAS ASSESSEE WAS PAYING INTEREST ON AMOUNTS/LOANS RAISE D FROM THEM WHILE ON AMOUNTS ADVANCED TO THEM, ASSESSEE WAS NOT CHARGING ANY INTEREST; AND, THE AMOUNT OF SUCH INTEREST HAS BEEN DETERMINED AT RS. 4,90,462/- AND THE SAID AMOUNT HAS BEEN DISALLO WED. THE ASSESSING OFFICER AS WELL AS THE CIT(A) DISALLOWED THE CLAIM OF THE ASSESSEE PRIMARILY FOR THE REASON THAT THE INTEREST -FREE ADVANCES MADE WERE NOT BY WAY OF ANY COMMERCIAL EXPEDIENCY. THE RELEVANT DISCUSSION BY THE CIT(A) IN THIS REGARD IS AS FOLLO WS :- WHEN THE APPELLANT PAID HUGE INTEREST ON ITS BORRO WINGS FROM THE SAID PERSONS, THERE IS NO JUSTIFICATION WH ATSOEVER FOR NOT CHARGING INTEREST ON OUTSTANDING ADVANCES TO THE VE RY SAME PERSONS AND THE TRANSACTION IS PATENTLY IMPRUDENT A ND NOT PROMOTED BY BUSINESS CONSIDERATIONS. WHEN THE ADVANCES ARE N OT PROMPTED BY COMMERCIAL EXPEDIENCY OR BUSINESS COMPULSIONS AN D WHEN THE APPELLANT OWED MONEY TO THE VERY SAME PERSONS, ANY AMOUNT ADVANCED BY THE APPELLANT TO THE THESE LOAN CREDITO RS COULD ONLY BE ITA NO. 931/PN/2011 BADE SONS MARKETI NG PVT. LTD. A.Y. 2007-08 IN THE NATURE OF REPAYMENT OF LOAN AND TO THAT EXTE NT THE INTEREST BURDEN OF THE APPELLANT WOULD GET REDUCED. FURTHER, AS NOTICED FROM THE LEDGER ACCOUNT OF THE PERSONS CONCERNED FILED B Y THE APPELLANT, THE ADVANCES ARE NOT TEMPORARY ADVANCES AND IN THRE E CASES THE ADVANCES WERE CARRIED FORWARD FROM THE LAST YEAR. T HE APPROPRIATE TEST IN SUCH CASES WOULD BE AS TO WHETHER A REASONA BLE PERSON STEPPING INTO THE SHOES OF THE DIRECTORS OF THE APP ELLANT COMPANY AND WORKING SOLELY IN THE INTEREST OF THE COMPANY, WOULD HAVE EXTENDED SUCH INTEREST FREE ADVANCES. SOME BUSINESS OBJECTIVE SHOULD BE ACHIEVED BY EXTENDING SUCH INTEREST FREE ADVANCES, WHEN THE COMPANY ITSELF IS BORROWING FUNDS FOR RUNNING I TS BUSINESS. BUT, THE APPELLANT DID NOT SPELL OUT EVEN DURING THE PRE SENT APPELLATE PROCEEDINGS AS TO WHAT ITS BUSINESS INTEREST WAS SO UGHT TO BE ACHIEVED BY MAKING INTEREST FREE ADVANCES TO THE SA ID LOAN CREDITORS AND IN WHAT MANNER THAT INTEREST WAS SERV ED. THEREFORE, IT DOES NOT MAKE ANY BUSINESS SENSE IN NOT CHARGING IN TEREST ON SUCH OUTSTANDING ADVANCES MADE TO THE SAID PERSONS WHEN THE APPELLANT PAID SUBSTANTIAL INTEREST ON ITS BORROWINGS FROM TH E VERY SAME PERSONS. 8. IN OUR CONSIDERED OPINION, THERE IS NO PLAUSIBLE EXPLANATION BY THE ASSESSEE TO JUSTIFY PAYMENT OF INTEREST ON THE LOAN RAISED FROM THE CREDITOR AND SIMULTANEOUSLY ADVANCE INTEREST-FR EE AMOUNTS TO THE SAME CREDITOR; AND; THAT TOO WITHOUT ESTABLISHING A NY COMMERCIAL EXPEDIENCY FOR MAKING SUCH INTEREST-FREE ADVANCES. OSTENSIBLY, IN THE ABSENCE OF ANY BUSINESS PURPOSE TO MAKE INTERES T-FREE ADVANCES, THE ASSESSING OFFICER HAS JUSTIFIABLY INF ERRED THAT THE SAME AMOUNTS TO DIVERSION OF INTEREST BEARING LOANS RAISED FROM THE CREDITORS BACK TO THE SAME CREDITORS FOR NON-BUSINE SS PURPOSES. IN THIS MANNER, WE THEREFORE, FIND NO REASON TO INTERF ERE WITH THE ULTIMATE CONCLUSION OF THE CIT(A) IN UPHOLDING THE DISALLOWANCE OF RS. 4,90,462/- MADE BY THE ASSESSING OFFICER. ITA NO. 931/PN/2011 BADE SONS MARKETI NG PVT. LTD. A.Y. 2007-08 9. IN SO FAR AS THE RELIANCE PLACED BY THE ASSESSEE ON THE JUDGMENT OF THE TRIBUNAL IN THE CASE OF S.P. JAISWA L ESTATES (P) LTD. (SUPRA) IS CONCERNED THE SAME IS NOT APPLICABLE IN THE PRESENT CASE. THE PROPOSITION RELIED UPON BY THE ASSESSEE IS NOT IN DISPUTE SO, HOWEVER, THE INSTANT IS NOT A CASE WHERE THE INTERE ST-FREE ADVANCES ARE MADE TO CONCERNS SIMPLICITOR BUT IT IS A CASE W HERE INTEREST-FREE ADVANCES HAVE BEEN MADE TO CONCERNS FROM WHOM ASSES SEE HAS ALSO RAISED LOANS AND IS PAYING INTEREST THEREON. I N THE PECULIAR FACTS OF THE PRESENT CASE, WE THEREFORE FIND NO REASON TO APPLY THE PROPOSITION LAID DOWN BY THE DECISION OF THE TRIBUN AL IN THE CASE OF S.P. JAISWAL ESTATES (P) LTD. (SUPRA), WHICH HAS BE EN RENDERED IN AN ALTOGETHER DIFFERENT FACT SITUATION. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH APRIL, 2013. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 10 TH APRIL, 2013 SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-II, PUNE; 4) THE CIT, PUNE; 5) THE DR, A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// PRIVATE SECRETARY I.T.A.T., PUNE