Nakoda Textile Industries Ltd., Surat v. The Income tax Officer,Ward-1(4),, Surat

ITA 1060/AHD/2007 | 1996-1997
Pronouncement Date: 09-04-2010 | Result: Allowed

Appeal Details

RSA Number 106020514 RSA 2007
Assessee PAN AAACN7282N
Bench Ahmedabad
Appeal Number ITA 1060/AHD/2007
Duration Of Justice 3 year(s) 28 day(s)
Appellant Nakoda Textile Industries Ltd., Surat
Respondent The Income tax Officer,Ward-1(4),, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 09-04-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 09-04-2010
Date Of Final Hearing 18-03-2010
Next Hearing Date 18-03-2010
Assessment Year 1996-1997
Appeal Filed On 12-03-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI JM AND D. C. AGRAWAL AM) ITA NO.1059 AND 1060/AHD/2007 A. Y: 1995-96 AND 1996-97 NAKODA TEXTILE INDUSTRIES LTD. 738 AJANTA SHOPPING CENTRE RING ROAD SURAT PA NO. AAACN 7282N VS THE INCOME TAX OFFICER WARD -1(4) AAYAKAR BHAVAN OPP. NEW CIVIL HOSPITAL MAJURAGATE SURAT (APPELLANT) (RESPONDENT) APPELLANT BY SHRI R. N. VEPARI AR RESPONDENT BY SHRI M. C. PANDIT DR O R D E R PER BHAVNESH SAINI: BOTH THE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE CIT(A)-I SURAT DATED 12-02-2007 FOR THE ASSESSMENT YEARS 1995-96 AND 1996-97. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL ON RECORD. ITA NO.1059/AHD/2007 3. IN THE ASSESSMENT YEAR 1995-96 THE ASSESSEE CHAL LENGED THE DISALLOWANCE OF INTEREST OF RS.12 33 981/-. THE AO NOTICED THAT THE ASSESSEE HAD PAID INTEREST ON BORROWINGS AMOUNTING TO RS.1 59 14 138/- WHEREAS THE ASSESSEE DID NOT CHARGE INTEREST ON AMO UNTS ADVANCED TO THE FOLLOWING PARTIES: I) AMBICA IMPEX P. LTD. RS. 1 50 000/- II) ARZI BUILDERS & DEVELOPERS RS. 5 58 069/- III) DR. BHARAT G. DUDHWALA RS. 1 00 000/- IV) CHANDRODAY TEXTILES RS. 1 51 200/- V) JOLLY LEASINT & FIN. SERVICES RS. 15 00 000 /- VI) TRUPTI FINVEST P. LTD. RS. 50 00 000/- ITA NOS. 1059 AND 1060/AHD/2007 NAKODA TEXTILE INDUSTRIES LTD. 2 THE AO THEREFORE MADE DISALLOWANCES OUT OF INTERE ST PAYMENT SAYING THAT BORROWED FUNDS WERE FOR THE PURPOSE OF BUSINES S TO THE EXTENT OF INTEREST FREE LOANS. THE LEARNED CIT(A) VIDE ORDER DATE 03-01-2000 DELETED THE DISALLOWANCE. THE DEPARTMENT PREFERRED APPEAL B EFORE THE TRIBUNAL AND THE MATTER WAS RESTORED TO THE FILE OF THE AO T O RE-DECIDE THE ISSUE AFRESH BECAUSE NEW EVIDENCES WERE FILED BEFORE THE LEARNED CIT(A). THE AO AGAIN TOOK UP ASSESSMENT ON THIS ISSUE. THE FACT S IN THE ABOVE MENTIONED 6 PARTIES TO WHOM INTEREST FREE ADVANCES WERE GIVEN ARE AS UNDER: 1. M/S. AMBICA IMPEX P. LTD. IN THE CASE OF THE ABOVE PARTY THE ASSESSEE HAS CON TENDED THAT THE INTEREST WAS NOT CHARGED BECAUSE THE PARTY IS NOT R ESPONDING AND RETURNING ADVANCE. HOWEVER THERE WAS NO COGENT EVI DENCE TO SUPPORT THE CLAIM OF THE ASSESSEE TO THIS EFFECT AN D THE PURPOSE OF ADVANCING THE LOAN WAS ALSO NOT GIVEN BY THE ASSESS EE. UNDER THESE CIRCUMSTANCES MERELY SUBMITTING THAT THE PAR TY IS NOT RESPONDING AND RETURNING ADVANCE CANNOT BE ACCEPTE D. ACCORDINGLY THE ASSESSING OFFICER DISALLOWED THE IN TEREST OF AMOUNT OF RS.27 000/- @18%. 2. M/S. ARZEE BUILDERS AND DEVELOPERS IN THIS CASE THE ASSESSEE ITSELF STATED THAT IT CHA RGED INTEREST FOR FY 1993-94 AND NOT CHARGED INTEREST FOR THE RELEVANT A SSESSMENT YEAR UNDER CONSIDERATION. FURTHER THE ASSESSEE HAS ALSO STATED IT HAS MADE THE PAYMENT OF RS.5 00 000/-FOR PURPOSE OF OFF ICE BUILDING. NO DETAILS OF SUCH OFFICE PREMISES HAVE BEEN FURNIS HED BY THE ASSESSEE. IF THE ASSESSEE HAS MADE PAYMENT OF RS. 5 LACS FOR PURCHASE OF OFFICE BUILDING THEN HOW HE HAS CHARGE D INTEREST FOR FY 1993-94. ITA NOS. 1059 AND 1060/AHD/2007 NAKODA TEXTILE INDUSTRIES LTD. 3 UNDER THESE CIRCUMSTANCES THE REPLY OF THE ASSESSE E COULD NOT BE ACCEPTED AND THEREFORE THE ASSESSING OFFICER MADE THE DISALLOWANCE OF RS.90 000/- IN THE CASE OF THE ABOV E PARTY. 3. DR. BHARAT G. DUDHWALA IN THIS CASE THE PARTY IS A DOCTOR. ASSESSEE HAS CL AIMED TO HAVE RECEIVED FREE CONSULTATION TO HIM AS WELL AS HIS EM PLOYEES BY THE DOCTOR AND THEREFORE ASSESSEE DID NOT CHARGE INTER EST. THE REPLY OF THE ASSESSEE WAS NOT SUPPORTED BY ANY EVIDENCE IN THE FORM OF AGREEMENT ETC. WHICH CONFIRM THAT FREE CONS ULTATION WAS GIVEN BY THE DOCTOR TO THE ASSESSEE. UNDER THESE CI RCUMSTANCES THE ASSESSING OFFICER WAS LEFT WITH NO OTHER ALTERN ATIVE BUT TO DISALLOW INTEREST TO THE TUNE OF RS.16 500/-. 4. CHANDRODAYA TEXTILES IN THE CASE OF THE ABOVE PARTY THE ASSESSEE HAS CON TENDED THAT THE INTEREST CHARGED WAS NOT PAID BY THE PARTY IN THE E ARLIER YEAR AND THEREFORE IT DID NOT CHARGE INTEREST IN THIS YEAR. HOWEVER THERE WAS NO COGENT EVIDENCE TO SUPPORT THE CLAIM OF THE ASSESSEE TO THIS EFFECT AND ALSO THE PURPOSE FOR ADVANCING THE LOAN WAS ALSO NOT GIVEN BY THE ASSESSEE. UNDER THESE CIRCUMSTANCES M ERELY SUBMITTING THAT THE PARTY IS NOT RESPONDING OR PAYI NG INTEREST CANNOT BE ACCEPTED. ACCORDINGLY THE ASSESSING OFFIC ER DISALLOWED THE INTEREST OF AMOUNT OF RS.27 216/- @18%. 5. JOLLY LEASING AND FINANCIAL SERVICES IN THE CASE OF THE ABOVE PARTY THE ASSESSEE HAS CON TENDED THAT THE AMOUNT WAS GIVEN FOR PORT FOLIO MANAGEMENT. THE ASS ESSEE HOWEVER NOT SUBMITTED ANY DETAILS OR EVIDENCE TO S UPPORT THIS CLAIM. THEREFORE IT WAS NOT POSSIBLE TO ACCEPT THE MERE STATEMENT OF THE ASSESSEE. UNDER THESE CIRCUMSTANCES MERELY STATING THAT THE AMOUNT WAS ADVANCED FOR PORT FOLIO MANAGEMENT C ANNOT BE ITA NOS. 1059 AND 1060/AHD/2007 NAKODA TEXTILE INDUSTRIES LTD. 4 ACCEPTED. ACCORDINGLY THE ASSESSING OFFICER DISALLO WED THE INTEREST OF AMOUNT OF RS.103 500/- @18%. 6. TRUPTI FINVEST P. LTD . IN THE CASE OF THE ABOVE PARTY THERE WAS DEBIT BALA NCE OF RS.50 000/- ON ACCOUNT OF SHARES SOLD. HOWEVER THE RE WAS NOTHING ON RECORD TO SHOW THAT THE ASSESSEE EVER TR IED TO GET BACK THE AMOUNT AND ALSO DID NOT CHARGE ANY INTEREST ALS O. THE ASSESSEE ALSO COULD NOT SUBMIT ANY DOCUMENTS OR DETAILS WHIC H WOULD SUBSTANTIATE THE NON-CHARGING OF INTEREST. UNDER TH ESE CIRCUMSTANCES AFTER DETAILED INVESTIGATION THE INT EREST TO THE TUNE OF RS.9 00 000/- WAS DISALLOWED. 4. THE AO HOWEVER AGAIN DISALLOWED THE INTEREST BE CAUSE THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE TO SUBSTANT IATE THE CLAIM. THE AO RELIED UPON SEVERAL DECISIONS IN SUPPORT OF HIS FINDINGS. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED CIT(A) AND IT WAS SUBMITTED THAT THE AO WAS REQUIRED TO GO THROUGH THE CASH FLOW STATEME NT TO PROPERLY VERIFY ANY NEXUS/CONNECTION OF THE BORROWINGS AND THE ADVA NCES AS PER THE ORDERS OF THE TRIBUNAL SETTING ASIDE THE ASSESSMENT . THE ASSESSEE HAS STATED THAT THE AO HAS NOT DONE THIS AND REPEATED T HE ADDITION AS WAS MADE IN THE EARLIER ASSESSMENT. THE ASSESSEE FURTHE R SUBMITTED THAT IN CASE OF DR. BHARAT G. DUDHWALA THERE IS A FRESH LO AN ADVANCED WHEREAS IN RESPECT OF REMAINING 5 PARTIES THE LOANS ADVANCE D WERE COMING FROM EARLIER YEAR AND HENCE INTEREST SHOULD NOT BE DISAL LOWED. THE ASSESSEE GAIN FILED CASH FLOW STATEMENT WHICH IS REPRODUCED BY THE LEARNED CIT(A) IN THE IMPUGNED ORDER ENDING 31 ST MARCH 1995 IN WHICH OPENING CASH/BANK BALANCE AS ON 1 ST APRIL 1994 IS SHOWN AT RS.58 11 967/- INTEREST BEARING FUNDS AMOUNTING TO RS.7 62 43 101/ - NON-INTEREST BEARING FUNDS RS.11 64 81 170/- AND OUT FLOW WAS ON LY ITA NOS. 1059 AND 1060/AHD/2007 NAKODA TEXTILE INDUSTRIES LTD. 5 RS.10 78 85 434/-. IT WAS THEREFORE EXPLAINED THA T THERE WAS EXCESS FUNDS AVAILABLE FOR THE ASSESSEE IN A SUM OF RS.1 4 4 07 703/-. 5. THE LEARNED CIT(A) HOWEVER DID NOT ACCEPT THE C ONTENTION OF THE ASSESSEE AND NOTED THAT THE ASSESSEE HAS NOT CO-OPE RATED WITH THE AO IN BRINGING ON RECORD THE BANK STATEMENT ETC. TO EXAMI NE THE NEXUS OF LOANS GIVEN INTEREST FREE AND THAT CASH FLOW STATEMENT GI VEN ABOVE IS NOT A DAY TO DAY CASH FLOW STATEMENT AT ALL ON THE DATES OF G IVING LOAN/ADVANCES. THE LEARNED CIT(A) NOTED THAT SINCE THE ASSESSEE HA S NOT DISCHARGED THE ONUS UPON IT THEREFORE THE ADDITION IS TO BE CONF IRMED. THE ADDITION WAS ACCORDINGLY CONFIRMED BY FOLLOWING SEVERAL DECISION S IN SUPPORT OF THE SAME. THE APPEAL OF THE ASSESSEE WAS ACCORDINGLY DI SMISSED. 6. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SAME STATEMENT MADE BEFORE THE AUTHORITIES BELOW AND SUB MITTED THAT THE ASSESSEE FILED DETAILS REPLY BEFORE THE AO DATED 17 -10-2006 WHICH IS ALSO MENTIONED BY THE AO IN THE ASSESSMENT ORDER (PB 3 1) AND ALSO FILED DETAILED REPLY BEFORE THE LEARNED CIT(A) (PB-27) TO EXPLAIN THE ISSUE IN WHICH IT WAS HIGHLIGHTED THAT ALL THE LOANS WERE GI VEN IN THE EARLIER YEAR EXCEPT IN THE CASE OF DR. BHARAT G. DUDHWALA AND T HE BALANCES AGAINST THE NAMES OF OTHER PARTIES WERE ONLY THE OPENING BA LANCES AS ON 1 ST APRIL 1994. THEREFORE ADDITION IS UNJUSTIFIED. HE HAS SU BMITTED THAT THE AO HAS NOT DISALLOWED ANY INTEREST IN THE PRECEDING AS SESSMENT YEAR 1994- 95 ON THE SAME INTEREST FREE LOANS. THEREFORE THE ADDITION IS UNJUSTIFIED. HE HAS FILED COPY OF THE ASSESSMENT ORDER FOR PRECE DING ASSESSMENT YEAR 1994-95 DATED 31-03-1997 IN SUPPORT OF HIS CONTENTI ON. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE SUFFI CIENT INTEREST FREE FUNDS WERE AVAILABLE WITH THE ASSESSEE THEREFORE THE AO HAS FAILED TO PROVE ANY NEXUS BETWEEN THE BORROWED FUNDS AND THE INTEREST FREE FUNDS GIVEN TO OTHERS. ON THE OTHER HAND THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. ITA NOS. 1059 AND 1060/AHD/2007 NAKODA TEXTILE INDUSTRIES LTD. 6 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MAT ERIAL AVAILABLE ON RECORD. AS PER THE EXPLANATION OF THE ASSESSEE THE ASSESSEE SPECIFICALLY PLEADED BEFORE THE AO THAT ALL THE AMO UNTS ADVANCED TO THE 5 PARTIES EXCEPT IN THE CASE OF DR. BHARAT G. DUDHWAL A THE SAME WERE OPENING BALANCES AS ON 1 ST APRIL 1994. THEREFORE SAME BALANCES WERE CARRIED FORWARD IN THE END OF THE ASSESSMENT YEAR O N 31 ST MARCH 1995. THE SAME SUBMISSIONS WERE REITERATED BEFORE THE LEA RNED CIT(A). HOWEVER NEITHER THE AO NOR THE LEARNED CIT(A) HAS EXAMINED THIS ISSUE. THE AUTHORITIES BELOW HAVE FAILED TO EXAMINE THIS F ACT THAT WHEN THE CLOSING BALANCES OF THE LOANS AND ADVANCES AGAINST 5 PARTIES WERE THE OPENING BALANCES WERE UNDER CONSIDERATION NO DISA LLOWANCE COULD BE MADE IN THE CASE OF THE ASSESSEE. THE LEARNED COUNS EL FOR THE ASSESSEE ALSO FILED COPY OF THE ASSESSMENT ORDER FOR PRECEDI NG ASSESSMENT YEAR 1994-95 IN WHICH NO INTEREST HAS BEEN DISALLOWED ON THE BASIS OF INTEREST FREE LOANS AND ADVANCES GIVEN TO THE ABOVE PARTIES. HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS SRIDEV ENTERPRISES 192 ITR 165 (KAR) HELD THAT THE AMOUNT DUE FROM N ON THE FIRST DAY OF THE ACCOU NTING YEAR WAS THE AMOUNT THAT STOOD OUTSTANDING ON THE L AST DAY OF PREVIOUS ACCOUNTING YEAR AND THEREFORE ITS NATURE AND STATUS COULD NOT BE DIFFERENT FROM ITS NATURE AND STATUS A S ON THE LAST DAY OF THE PREVIOUS YEAR. REGARDING PAST YEARS THE ASS ESSEES CLAIMS FOR DEDUCTION WERE ALLOWED IN RESPECT OF THE SUMS A DVANCED DURING THOSE YEARS. THIS COULD BE ONLY ON ASSUMPTION THAT THOSE ADVANCES WERE NOT OUT OF BORROWED FUNDS OF THE ASSESSEE. THI S FINDING DURING THE PREVIOUS YEARS WAS THE VERY BASIS OF THE DEDUCT IONS PERMITTED DURING THE PAST YEARS. IT WOULD NOT BE EQUITABLE TO PERMIT THE REVENUE TO TAKE A DIFFERENT STAND NOW IN RESPECT OF THE AMOUNTS WHICH WERE THE SUBJECT-MATER OF PREVIOUS YEARS ASS ESSMENTS . 8. THE ASSESSEE IN THE CASE OF DR. BHARAT G. DUDHWA LA HAS CLAIMED THAT HE IS A DOCTOR AND THE ASSESSEE HAS RECEIVED F REE CONSULTATION FOR ITS ITA NOS. 1059 AND 1060/AHD/2007 NAKODA TEXTILE INDUSTRIES LTD. 7 EMPLOYEES. THEREFORE THE ASSESSEE DID NOT CHARGE A NY INTEREST. THE ASSESSEE ALSO PLEADED BEFORE THE LEARNED CIT(A) THA T THE CASH FLOW STATEMENT SHOWS THAT THE ASSESSEE WAS HAVING SUFFIC IENT NON-INTEREST BEARING FUNDS. THEREFORE IT IS NOT A CASE OF DIVER SION OF BORROWED FUNDS FOR NON-BUSINESS PURPOSES. THE HONBLE ALLAHABAD HI GH COURT IN THE CASE OF DHAMPUR SUGAR MILLS LTD. [2005] 274 ITR 370 (ALL) HELD THAT WHEN NO INTEREST FREE ADVANCES ARE GIVEN OUT OF BOR ROWINGS INTEREST SHOULD NOT BE DISALLOWED. SIMILARLY THE HONBLE AL LAHABAD HIGH COURT IN THE CASE OF CIT VS RADICO KHAITAN LTD. [2005] 274 I TR 354 (ALL) HELD THAT WHEN THE ASSESSEE HAD SUFFICIENT FUNDS INTEREST SH OULD NOT BE DISALLOWED. SIMILAR VIEW IS TAKEN BY THE HONBLE M. P. HIGH COURT IN THE CASE OF R. D. JOSHI 251 ITR 362 (MP). CONSIDERING T HE FACTS AND CIRCUMSTANCES NOTED ABOVE IT IS CLEAR THAT THE AO HAS FAILED TO MAKE OUT ANY CASE OF DIVERSION OF BORROWED FUNDS FOR NON-BUS INESS PURPOSES. THE AO HAS FAILED TO PROVE ANY NEXUS BETWEEN THE BORROW ED FUNDS AND THE FUNDS GIVEN INTEREST FREE (LOANS) TO OTHERS. THE AU THORITIES BELOW HAVE ALSO FAILED TO TAKE NOTE OF THE FACT THAT IN MAJORI TY OF THE CASES THE CLOSING BALANCES AGAINST THE NAMES OF 5 PARTIES WERE THE OP ENING BALANCES OF THE EARLIER YEAR. NO SPECIFIC FINDING IS ALSO GIVEN BY THE AUTHORITIES BELOW IN THIS REGARD. IN THIS VIEW OF THE MATTER THE FINDIN GS OF THE AUTHORITIES BELOW CANNOT BE SUSTAINED IN LAW. WE ACCORDINGLY S ET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTORE THIS ISSUE TO THE FILE OF THE AO WITH DIRECTION TO VERIFY IF THE CLOSING BALANCES AGAINST 5 PARTIES WERE THE OPENING BALANCES THE ADDITION SHALL BE DELETED AS REGARDS DISALLOWANCE OF THE INTEREST. SIMILARLY IN THE CASE OF DR. BHAR AT G. DUDHWALA THE AMOUNTS APPEAR TO HAVE BEEN GIVEN FOR BUSINESS PURP OSES. THEREFORE DISALLOWANCE WOULD BE UNJUSTIFIED. WE ACCORDINGLY DIRECT THE AO TO VERIFY THE ABOVE FACT AND SHALL GIVE SPECIFIC FINDING ABOU T AVAILABILITY OF THE NON- INTEREST BEARING FUNDS WITH THE ASSESSEE AS AGAINST ITS BORROWED FUNDS. CONSIDERING THE ABOVE WE RESTORE THIS ISSUE TO THE FILE OF THE AO WITH DIRECTION TO RE-DECIDE THE ISSUE BY GIVING SUFFICIE NT REASONABLE ITA NOS. 1059 AND 1060/AHD/2007 NAKODA TEXTILE INDUSTRIES LTD. 8 OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. SINCE I T IS AN OLD MATTER WE THEREFORE DIRECT THE AO TO DECIDE THE ISSUE WITHIN 4 (FOUR) MONTHS FROM THE RECEIPT OF THIS ORDER. AS A RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1060/AHD/2007 9. IN THE ASSESSMENT YEAR 1996-97 THE ASSESSEE CHAL LENGED SIMILAR DISALLOWANCE OF INTEREST OF RS.1 30 500/- IN RESPEC T OF SIMILAR TWO PARTIES M/S. AMBICA IMPEX PVT. LTD. AND M/S. JOLLY LEASIN G & FINANCIAL SERVICES TO WHOM THE ASSESSEE HAD ADVANCED THE AMOU NTS. THIS ISSUE IS SIMILAR AS CONSIDERED IN ASSESSMENT YEAR 1995-96. B Y FOLLOWING THE SAME ORDER WE SET ASIDE THE ORDERS OF THE AUTHORITIES B ELOW AND RESTORE THE ISSUE TO THE FILE OF THE AO TO RE-DECIDE THE ISSUE BY GIVING SUFFICIENT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE AS DIRECTED IN ITA NO.1059/AHD/2007. AS A RESULT THIS APPEAL OF THE A SSESSEE IS ALLOWED FOR STATISTICAL PURPOSED. 10. AS A RESULT BOTH THE APPEALS OF THE ASSESSEE A RE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 09-04-2010. SD/- SD/- (D.C.AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 09 - 04-2010 LAKSHMIKANT/- ITA NOS. 1059 AND 1060/AHD/2007 NAKODA TEXTILE INDUSTRIES LTD. 9 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR ITAT AHMEDABAD