JAMNA AUTO INDUSTRIES LTD. V. COMMISSIONER OF INCOEM TAX PANCHKULA

ITA/175/2012

AI Insights

Jamna Auto Industries Limited appealed against the order of the Income Tax Appellate Tribunal, which confirmed the disallowance of interest on advances made to various parties. The advances were deemed not to be for business purposes, and thus the interest on these advances was disallowed under Section 36(1)(iii) of the Income Tax Act, 1961. The Tribunal had earlier reduced the disallowance amount but upheld the principle that advances made for non-business purposes do not warrant interest deductions. The High Court dismissed the appeal, agreeing with the lower authorities that the advances were not made for business purposes and thus the interest was rightly disallowed.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 727271 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 01-04-2014
• Assessment Year: misc
• Other Referred Cases: CIT vs. Abhishek Industries, CIT vs. Mark Auto Industries Limited, JCIT vs. Beekay Engineering Corporation
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Assessee Lawyers: SANDEEP SAPRA; SAURABH KAPOOR; RISHAB KAPOOR
• Keywords: Business purpose; Commercial expediency; Disallowance of interest; Interest Free Advances
• Section: 143(3); 143(1); 36 (1) (iii); 260A

Judgement Text

"ITA No.175 of 2012 (O&M) IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.175 of 2012 (O&M) Date of decision:01.04.2014 Jamna Auto Industries Limited ……Appellant Vs. Commissioner of Income Tax, Panchkula, Haryana …..Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MR. JUSTICE JASPAL SINGH Present: Mr. Sandeep Sapra, Mr. Saurabh Kapoor and Mr. Rishab Kapoor, Advocates for the appellant. Ajay Kumar Mittal,J. CM No.19584 CII of 2012 1. The delay of 28 days in refilling the appeal is condoned. CM stands disposed of. ITA No.175 of 2012 2. This appeal has been preferred by the appellant-assessee under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 4.1.2012, Annexure A.3 passed by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (in short, “the Tribunal”), proposing to raise following substantial questions of law for determination of this Court:- “a) Whether on the facts, circumstances of the case and in law, the Hon’ble Tribunal has erred in not deleting the disallowance of interest at ` 15,09,844/- made under section 36(1) (iii) of 1 Singh Gurbax 2014.06.10 13:46 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.175 of 2012 (O&M) I.T.Act as the alleged interest free advances for non business purposes were not given out of borrowed funds by the appellant? b) Whether on the facts, circumstances of the case and in law, the Hon’ble Tribunal has erred in not deleting the disallowance of interest at ` 15,09,844/- made under section 36(1) (iii) of I.T.Act as the alleged interest free advances for non business purposes were given out of interest free funds available with the appellant by relying on the principles laid down by the Hon’ble Punjab and Haryana High Court in the case of CIT vs. Abhishek Industries reported in 286 ITR 1? c) Whether on the facts, circumstances of the case and in law, the Hon’ble Tribunal has erred in not deleting the disallowance of interest at ` 15,09,844/- made under section 36(1) (iii) of I.T.Act as the alleged interest free advances for non business purposes were given in earlier years out of interest free funds available with the appellant in earlier years wherein no disallowance of interest under section 36(1) (iii) of I.T.Act has been made under Section 143(3) of I.T.Act thereby ignoring the Rules of consistency? 3. A few facts relevant for the decision of the controversy involved, as narrated in the appeal may be noticed. The appellant filed its return on 30.11.2006 for the assessment year 2006-07 declaring nil income after adjusting brought forward losses of ` 16,01,771/-. The return was revised on 21.5.2007 declaring nil income after adjusting brought forward losses of ` 16,01,771/-. Revised return was processed under Section 143(1) of the Act vide intimation dated 30.3.2008 on nil income after adjusting brought forward losses of ` 16,01,771/-. The assessment was completed on nil income after adjusting brought forward losses of ` 77,33,824/- under section 143(3) of the Act vide order dated 24.12.2008, Annexure A.1, by making disallowance of ` 44,69,439/- out of interest payable/paid 2 Singh Gurbax 2014.06.10 13:46 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.175 of 2012 (O&M) attributable to the interest free advances made to 11 parties for non business purposes under section 36(1) (iii) of the Act and ` 16,02,000/- and ` 60,614/- out of expenses debited to Profit & Loss account. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 18.1.2011 Annexure A.2, the CIT(A) partly allowed the appeal i.e. out of disallowance of interest of ` 44,69,439/- gave relief of ` 29,59,595/- in respect of advances made to three parties by holding that the appellant had earned interest on such advances. However, the CIT(A) sustained the disallowance of interest of ` 15,09,844/- in respect of advances made to the balance eight parties by holding that the same were made for non business purposes. Aggrieved by the order, both the assessee and the revenue filed appeals against the order passed by the CIT(A). Vide order dated 4.1.2012, Annexure A.3, the Tribunal dismissed the appeal of the revenue. As regards appellant’s appeal, out of disallowance of interest of ` 15,09,844/-, the Tribunal confirmed the disallowance of interest of ` 11,27,467/- in respect of seven parties by holding that the advances made to such parties were for non business purposes. With respect of advances made to one party, the Tribunal restored the matter to the file of the Assessing officer to decide the same de novo. It was further held that even if the advances had been made out of interest free funds available with the appellant, then too interest was to be disallowed in view of the principles laid down by this Court in CIT v. Abhishek Industries,(2006) 286 ITR 1. Hence the instant appeal by the revenue. 4. The primary issue that arises for consideration in this appeal relates to disallowance of interest amounting to ` 15,09,844/- under Section 3 Singh Gurbax 2014.06.10 13:46 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.175 of 2012 (O&M) 36(1) (iii) of the Act given by the appellant as interest free advances out of the borrowed funds. 5. Learned counsel for the appellant submitted that similar claim made by the assessee for the earlier years had been accepted by the revenue and therefore was admissible in the present case as well. He relied upon judgments in CIT vs. Mark Auto Industries Limited, (2011) 201 Taxman 137 (P&H) and JCIT vs. Beekay Engineering Corporation, (2010) 325 ITR 384 (Chhattisgarh). 6. After hearing learned counsel for the appellant, we do not find any merit in the appeal. 7. The Assessing Officer vide order dated 24.12.2008, Annexure A.1, had disallowed payment of interest to various parties under Section 36 (1) (iii) holding that the same was not expedient for the purpose of business of the assessee amounting to ` 44,69,439/-, the details of which are as under:- Name of concern to whom advance made Amount advanced (Rs.) Interest @ 12% (Rs.) Rassini 31,86,478/- 3,82,377/- A.Nitin & Co. 52,94,846/- 6,35,382/- Associated Capital Market 9,00,000 1,08,000 Fatu s/o Imamudin 3,56,838 42,820 Bliss Holding P.Limited 26,17,604/- 3,14,112 Penwell Traders Limited 68,97,811 8,27,737 Novika Investment & Trading Co.Limited 1,57,47,889 18,17,746 Jai Spring Industry & Investment 1,00,000 12,000 Maple Leaf Exim P.Limited 1,00,000 12,000 4 Singh Gurbax 2014.06.10 13:46 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.175 of 2012 (O&M) Name of concern to whom advance made Amount advanced (Rs.) Interest @ 12% (Rs.) Sonakshi Marketing Pvt. Limited 25,00,000 3,00,000 Mass Global Logistics P.Limited 1,43,875 17,265 Total Rs.44,69,439 8. On appeal, the CIT(A) vide order dated 18.1.2011, Annexure A.2 granted relief of ` 29,59,595/- in respect of following three parties:- (i)Bliss Holding Pvt. Limited, New Delhi (ii)Penwell Traders Limited (iii)Novika Investment and Trading Co. As the entire amount of principal loan was recovered and nothing was outstanding, it was held that disallowance of interest with reference to that amount outstanding in the account of these parties was not called for. Accordingly, the disallowance of interest was reduced to ` 15,09,844/-. 9. The Tribunal vide order dated 4.1.2012, Annexure A.3 while affirming the findings recorded by the CIT(A) held as under:- “19. In respect of the advances due from different parties, admittedly the above said advances were made interest free. The assessee has failed to file any evidence to prove the business expediency in respect of the said advances. The advance of ` 52,94,846/- outstanding from M/s A. Nitin & Co. as per the assessee represented advances made for purchase of shares and also the amount receivable on sale of shares. The said account of the assessee with M/s A Nitin & Co. was not verifiable and was rejected by the CIT (Appeals). The assessee has failed to controvert the findings of the CIT (Appeals) and accordingly, the interest relatable to the advances made to M/s A.Nitin & Co. is held to be disallowable. 5 Singh Gurbax 2014.06.10 13:46 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.175 of 2012 (O&M) 20. Similarly, in respect of M/s Associated Capital Market, there was a transfer entry to the said account and the transaction could not be established by the assessee being for the purpose of business. The interest on such advances is to be disallowed under Section 36(1) (iii) of the Act. 21. Similarly, the explanation of the assessee that it had advanced ` 3,56,838/- to Fatu s/o Imamuddin for purchase of factory land could not be established by the assessee and in the absence of any evidence the disallowance of interest on the said advances is upheld. 22. In respect of advances made to different parties as detailed under were found to be not verifiable as being for the purpose of business of the assessee, we uphold the order of the CIT (Appeals) in this regard: a) Jai Spring Industry and investment : ` 1,00,000/- b) Maple Leaf Exim Pvt. Limited ` 1,00,000/- c) Sonakshi Mktg. Pvt. Limited ` 25,00,000/- d) Mars Global Logistic Pvt. Ltd. ` 1,43,875/-” 10. The Assessing Officer, the CIT(A) and the Tribunal had held that the interest free advances made to Rassini, A.Nitin & Co., Associated Capital Market, Fatu s/o Imamudin, Jai Spring industry & Investment, Maple Leaf Exim P.Limited, Sonakshi Marketing Pvt. Limited and Mass Global Logistics P. Limited was not incidental for the business purpose of the assessee and thus it could not be said that there existed any commercial expediency for making such advances. 11. Learned counsel for the appellant made strenuous efforts to re- appreciate and reappraise the evidence on record to arrive at a different conclusion which is not permissible under Section 260A of the Act. The CIT (A) and the Tribunal had rightly disallowed the claim of payment of interest amounting to ` 15,09,844/- under Section 36(1) (iii) of the Act. Adverting 6 Singh Gurbax 2014.06.10 13:46 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.175 of 2012 (O&M) to the judgments relied upon by learned counsel for the assessee, suffice it to notice that the same are of no help to the assessee being based on individual fact situation involved therein. 12. In view of the above, no substantial question of law arises in this appeal and consequently, the same is hereby dismissed. (Ajay Kumar MIttal) Judge April 01, 2014 (Jaspal Singh) ‘gs’ Judge 7 Singh Gurbax 2014.06.10 13:46 I attest to the accuracy and integrity of this document High Court Chandigarh "