A.V. Pandhe, Solapur V. Assistant Commissioner of Income-tax,

ITA 936/PUN/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0941 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2001-2002
• Appeal Filed On: 07-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Assessee Lawyers: VIPIN GUJARATHI
• Keywords: Proportionate interest; Commercial expediency
• Section: 143(3)

Judgement Text

] ]] ] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE , !', $ % BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM ITA NO.936/PN/2014 ASSESSMENT YEAR : 2001-02 A. V. PANDHE, 157, RAILWAY LINES, SUSHILA APARTMENT, SOLAPUR 413 001. PAN : AABFA7510Q . APPELLANT VS. THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE- 2, SOLAPUR. . RESPONDENT / APPELLANT BY : SHRI VIPIN GUJARATHI / RESPONDENT BY : SHRI B. C. MALAKAR / DATE OF HEARING : 14.10.2015 / DATE OF PRONOUNCEMENT: 28.10.2015 & / ORDER PER PRADIP KUMAR KEDIA, AM : THE PRESENT APPEAL PREFERRED BY THE ASSESSEE IS AGA INST THE ORDER OF CIT(A)-III, PUNE DATED 27.03.2014 RELATING TO ASSES SMENT YEAR 2001-02 PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (I N SHORT THE ACT). 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS THE DI SALLOWANCE MADE BY THE ASSESSING OFFICER OF RS.18,27,400/- BEING INTEREST ATTRIBUTABLE TO ADVANCES GIVEN TO SISTER CONCERN. THE DISALLOWANCE OF INTER EST MADE BY THE ASSESSING OFFICER WAS CONFIRMED BY THE CIT(A). 3. CHALLENGING THE ADDITION/DISALLOWANCE MADE, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL :- 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE HONOURABLE 2 ITA NO.936/PN/2014 CIT(A) - III PUNE ERRED IN CONFIRMING THE DISALLOWA NCE MADE BY THE LEARNED ASSESSING OFFICER (ACIT CIRCLE -2 SOLAPUR) OF RS.18 ,27,400/- BEING INTEREST ATTRIBUTABLE TO ADVANCES GIVEN TO SISTER CONCERN WI THOUT APPRECIATING THE FACT THAT THE INTEREST FREE CAPITAL AS WELL AS INTEREST FREE FUNDS AVAILABLE WITH THE APPELLANT WAS MORE THAN THE ADVANCE GIVEN TO THE SI STER CONCERN NAMELY 'SON-ANKUR EXPORTS PVT. LTD'. THE APPELLANT HEREBY REQUESTS YOUR HONOUR TO KINDLY DELETE THE ADDITION AND OBLIGE. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE HONOURABLE CIT(A) - III PUNE ERRED IN NOT ACCEPTING THE JUDGME NT OF THE HONOURABLE ITAT PUNE BENCH IN THE CASE OF THE APPELLANT FOR THE ASS ESSMENT YEAR 1999-00 AND 2000-01 ON THE GROUND THAT THE DECISION RENDERE D BY THE ITAT FOR THE PRECEDING YEARS 1999-00 AND 2000-01 HAS TO BE TREAT ED AS APPLICABLE ONLY FOR THOSE YEARS FOR WHICH IT PERTAINED. THE HONOURABLE CIT(A) ERRED IN NOT APPRECIATING THE BOMBAY HIGH COURT JUDGMENT IN THE CASE OF RELIANCE UTILITIES AND POWER 313 ITR 340 IN PROPER PERSPECTIVE. THE AP PELLANT HEREBY REQUESTS YOUR HONOUR TO KINDLY DELETE THE ADDITION AND OBLIG E. 3) THE APPELLANT HEREBY RESERVES THE RIGHT TO ADD, RAISE, DELETE ANY ADDITIONAL GROUND/GROUNDS BEFORE THE COMPLETION OF THE HEARING . 4. THE BRIEF FACTS OF THE CASE AS EMERGING FROM THE RECORDS ARE THAT THE ASSESSEE IS A FIRM, UNDERTAKING CIVIL CONSTRUCTION. THE ASSESSMENT IN THE CASE OF ASSESSEE FOR THE ASSESSMENT YEAR 2001-02 WAS COM PLETED UNDER SECTION 143(3) OF THE ACT ON 25 TH FEBRUARY, 2004. DURING THE ASSESSMENT PROCEEDINGS , IT WAS FOUND BY THE ASSESSING OFFICER THAT THE ASSE SSEE HAD, INTER-ALIA , GIVEN INTEREST-FREE ADVANCES TO THE SISTER CONCERN, NAMEL Y, SON-ANKUR EXPORTS PVT. LTD. FROM THE YEAR 1995. THE ADVANCE AS ON 31 ST MARCH, 2001 WAS RS.101.52 LACS. SIMULTANEOUSLY, IT WAS OBSERVED BY THE ASSES SING OFFICER THAT THE ASSESSEE WAS PAYING SUBSTANTIAL INTEREST ON FUNDS B ORROWED BY THEM. HOLDING THAT THERE WAS NO JUSTIFICATION FOR THE ASSESSEE TO EXTEND SUCH HUGE INTEREST-FREE ADVANCES TO SISTER CONCERN WHILE PAYING HEAVY INTER EST ON BORROWINGS, THE ASSESSING OFFICER DISALLOWED PROPORTIONATE INTEREST ATTRIBUTABLE TO THE INTEREST- FREE ADVANCES MADE BY THE ASSESSEE FIRM TO SON-ANKU R EXPORTS PVT. LTD., LEADING TO A DISALLOWANCE OF RS.18,27,400/-. THE M ATTER WAS CARRIED OUT BEFORE THE PUNE BENCH OF THE TRIBUNAL. THE PUNE BENCH OF THE TRIBUNAL VIDE ITS ORDER DATED 28.09.2007 IN ITA NO.629/PN/2005 SET-ASIDE TH E MATTER TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE MATTER DE-NOVO . IN THE PROCEEDINGS PURSUANT TO THE DIRECTIONS OF THE PUNE BENCH OF THE TRIBUNAL , THE ASSESSING OFFICER RE- VISITED THE ENTIRE ISSUE AND ONCE AGAIN MADE DISALL OWANCE OF THE IMPUGNED AMOUNT ON THE GROUND THAT THE ADVANCES WERE MADE TO THE SISTER CONCERN OUT OF BORROWED FUNDS AND ALSO HELD THAT ADVANCES WERE NOT GIVEN AS A MEASURE OF THE 3 ITA NO.936/PN/2014 COMMERCIAL EXPEDIENCY BUT FOR NON-BUSINESS PURPOSES . THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS ONCE AGAIN IN APPEAL BEFORE US. 6. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE, AT THE OUTSET, SUBMITTED THAT THE PUNE BENCH OF THE TRIBUNAL HAS D ECIDED THE SAME VERY ISSUE IN FAVOUR OF THE ASSESSEE IN RESPECT OF PRECEEDING ASSESSMENT YEARS 1999-2000 AND 2000-01 IN ITA NOS.770 AND 771/PN/2007 BY A SUB SEQUENT ORDER DATED 23 RD FEBRUARY, 2010 FOLLOWING THE DECISION OF THE HONB LE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER L TD., 313 ITR 340 (BOM). THE EARLIER DECISION OF PUNE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.629/PN/2005 RELATING TO THIS ASSESSMENT YEAR 2001-02, ORDER DATED 28 TH SEPTEMBER, 2007 SETTING ASIDE THE ORDER OF THE ASS ESSING OFFICER FOR FRESH EXAMINATION WAS NOT HAVING THE BENEFIT OF THE DECIS ION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWE R LTD. (SUPRA). 7. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE, ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE AUTHORITIES BEL OW. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT NON-INTEREST BEARI NG FUNDS DURING THE RELEVANT YEAR ENDING ON 31.03.2001 AVAILABLE AT THE DISPOSAL OF THE ASSESSEE AMOUNTS TO RS.269.38 LAKHS WHICH INCLUDES PARTNERS CAPITAL OF RS.229.90 LAKHS. THE NON- INTEREST BEARING ADVANCES GIVEN TO SISTERS CONCERN STANDS AT RS.123.69 LAKHS INCLUDING SON-ANKUR EXPORTS PVT. LTD. OF RS.101.52 LAKHS. IN THE BACKGROUND OF THE AFORESAID FACTS, AS THE ASSESSEE SIMILARLY P LACED IN THE EARLIER YEARS I.E. ASSESSMENT YEAR 1999-2000 AND 2000-01, THE PUNE BEN CH OF THE TRIBUNAL HAS COME TO THE CONCLUSION THAT THE INTEREST DISALLOWAN CE IS NOT CALLED FOR, IN VIEW OF THE AVAILABILITY OF THE INTEREST-FREE FUNDS IN E XCESS OF INTEREST-FREE ADVANCES. THE OPERATIVE PARAS OF THE DECISION OF THE PUNE BEN CH OF THE TRIBUNAL IN THE 4 ITA NO.936/PN/2014 ASSESSEES OWN CASE IN ITA NO.770 AND 771/PN/2007, ORDER DATED 23 RD FEBRUARY, 2010 IS REPRODUCED HEREUNDER :- 4. WE HAVE HEARD BOTH THE SIDES. AT THE OUTSET, T HE ORDER OF I.T.A.T. B BENCH, PUNE FOR A.Y. 2001-02 BEARING ITA NO.629/PN/2005 VI Z. M/S A.V. PANDHE, SOLAPUR, ORDER DATED 28-9-2007 WAS REFERRED, WHEREIN BY REFE RRING THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT(A) AND ANOTHER (2007) 288 ITR 1, THE MATTER WAS RESTORED BACK TO THE FILE OF THE A.O. VIDE PARA 7 OF ITS ORDER, WHICH IS REPRODUCED BELOW : ON THE PERUSAL OF THE AFORESAID OBSERVATION OF HON BLE SUPREME COURT, IT IS THUS, CLEAR THAT WHETHER THE ADVANCES TO SISTER CON CERN HAS BEEN GIVEN FOR COMMERCIAL EXPEDIENCY DEPENDS ON THE FACTS AND CIRC UMSTANCES OF THE RESPECTIVE CASE. IT IS ALSO CLEAR THEREFROM THAT I F THE DIRECTORS OF THE SISTER CONCERN UTILIZE THE AMOUNT ADVANCED TO IT BY THE AS SESSEE FOR THEIR PERSONAL BENEFIT, OBVIOUSLY IT CANNOT BE SAID THAT SUCH MONE Y WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY. THEREFORE, IN TH E PRESENT CASE, MERE BECAUSE THE ASSESSEES PARTNERS ARE DIRECTORS IN SO N ANKUR EXPORTS PVT. LTD., IT CAN BE CONSIDERED TO BE COMMERCIAL EXPEDIENCY OF THE PRESENT ASSESSEE FIRM. THE PARTNERS ARE DIRECTORS IN THEIR INDIVIDU AL CAPACITY AND NOT REPRESENTING THE FIRM. NO BENEFIT HAS ACCRUED TO T HE FIRM BECAUSE OF THE DIRECTORSHIP HELD BY THE PARTNERS OF THE ASSESSEE F IRM. THEREFORE, THIS ISSUE SHALL BE EXAMINED IN THE LIGHT OF THE PROPOSITION L AID DOWN BY THE HONBLE SUPREME COURT IN THE AFORESAID CASE, IN CASE IT IS TRANSPIRES THAT BORROWED AMOUNT IS UTILIZED FOR THE PURPOSE OF MAKING ADVANC ES TO SON ANKUR EXPORTS PVT. LTD. ALL OTHER ASPECTS OF THE MATTER SHALL DO REMAIN OPEN BEFORE THE A.O. FOR HIS FRESH ADJUDICATION AS PER LAW. 5. NOW BEFORE US, STRONG RELIANCE HAS BEEN PLACED B Y THE LEARNED A.R. ON THE DECISION IN THE CASE OF RELIANCE UTILITIES 221 CTR 435 (BOM) 313 ITR 340 (BOM) FOR THE PROPOSITION THAT IF AN ASSESSEE IS IN POSSESSIO N OF SUFFICIENT INTEREST FREE FUNDS OF ITS OWN, THEN PRESUMPTION GOES IN FAVOUR OF THE ASS ESSEE THAT INVESTMENTS OR ADVANCES MADE TO SISTER CONCERN WERE MADE OUT OF TH OSE INTEREST FREE FUNDS, RELEVANT HELD PORTION IS EXTRACTED BELOW: HELD, DISMISSING THE APPEAL, THAT IF THERE WERE FU NDS AVAILABLE BOTH INTEREST FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESU MPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST-FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE S UFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION WAS EST ABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL. THE INTEREST WAS DEDUCTIBLE. IN SUPPORT OF THIS CONTENTION, LEARNED AR HAS DRAWN OUR ATTENTION ON PAGE 39 OF THE COMPILATION, A STATEMENT SHOWING NON-INTEREST BEARI NG FUNDS AVAILABLE WITH THE FIRM AS ON 31-3-1998, 31-3-1999, 31-3-2000 AND 31-3-2001 . AS PER THE STATEMENT, THE TOTAL NON-INTEREST BEARING FUNDS CONSISTING OF PART NERS CAPITAL AND ADVANCES RECEIVED FROM FEW CONCERNS WERE TO THE TUNE OF RS.1 ,48,03,003/-. AGAINST THE SAID TOTAL NON-INTEREST BEARING FUNDS AVAILABLE WITH THE ASSESSEE THIS STATEMENTS SHOWS THAT THE TOTAL NON-INTEREST BEARING AMOUNT ADVANCED TO FEW CONCERNS WERE TO THE TUNE OF RS.73,78,767/-. THIS INCLUDES AN ADVANCE T O THE IMPUGNED PARTY VIZ. SON ANKUR PVT. LTD. OF RS.59,86,000/-. LEARNED AR HAS THUS POINTED OUT THAT THERE WAS A SURPLUS OF NON-INTEREST FUNDS OF RS.74,24,236/-. A S FAR AS THE POSITION FOR THE YEARS UNDER CONSIDERATION I.E. 1999-00 AND 2000-01 WAS CO NCERNED THE RESPECTIVE POSITION WAS THAT NON-INTEREST BEARING TOTAL FUNDS WERE AVAI LABLE TO THE TUNE OF RS.1,60,55,595/- AND RS.1,97,60,180/-. AS AGAINST THAT THE NON-INTEREST BEARING AMOUNT ADVANCES WERE OF RS.1,26,57,408/- AND RS.1,2 8,15,578/-. HENCE, IT WAS DEMONSTRATED THAT STILL THERE WAS A SURPLUS OF NON- INTEREST BEARING FUNDS OF 5 ITA NO.936/PN/2014 RS.33,98,187/- FOR A.Y. 1999-00 AND RS.69,44,602/- FOR A.Y. 2000-01. CONSIDERING THESE FIGURES, WE ARE OF THE CONSCIOUS VIEW THAT TH E LEGAL PROPOSITION AS LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIAN CE UTILITIES (SUPRA) DIRECTLY APPLY TO THESE TWO APPEALS. AS FAR AS THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE AS CITED SUPRA IS CONCERNED. I T IS WORTH TO MENTION THAT AT THAT TIME THE DECISION OF HONBLE JURISDICTIONAL HIGH CO URT WAS NOT BEFORE THE RESPECTED CO-ORDINATE BENCH AND ARGUMENTS WERE ONLY RESTRICTE D TO THE APPLICATION OF COMMERCIAL EXPEDIENCY AS POINTED BY THE HONBLE APE X COURT IN THE CASE OF S.A. BUILDERS (SUPRA). THOUGH THE QUESTION OF COMMERCIA L EXPEDIENCY HAS ALSO BEEN ARGUED BEFORE US, ON DUE CONSIDERATION OF THE POSIT ION OF THE ACCOUNTS AS ALSO THE POSITION OF AVAILABILITY OF FUNDS, WE ARE MORE INCL INED TO FOLLOW THE LATEST DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIAN CE UTILITIES (SUPRA). WITH THE RESULT, THE ISSUE RAISED BY THE ASSESSEE AS PER THE GROUND GOES IN FAVOUR OF THE ASSESSEE. 6. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED. PR ONOUNCED IN THE OPEN COURT TODAY ON 23 RD FEBRUARY, 2010. 9. RESPECTFULLY FOLLOWING THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE ITSELF AND THERE BEING NO CHANG E IN THE CIRCUMSTANCES POINTED OUT, WE HOLD THAT THE DISALLOWANCE OF INTER EST IS NOT CALLED FOR. THUS, THE ORDER OF THE CIT(A) DESERVES TO BE VACATED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED ON THIS 28 TH DAY OF OCTOBER, 2015. SD/- SD/- ( SUSHMA CHOWLA ) ( PRADIP KUMAR KEDIA ) / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER PUNE ; DATED : 28 TH OCTOBER, 2015. & ' ()* +*( / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-III, PUNE; 4) THE CIT-III, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. &, / BY ORDER , ' # //TRUE COPY// $ %& # '( / SR. PRIVATE SECRETARY ) '* , / ITAT, PUNE