The ITO, Ward-8(3),, Ahmedabad v. Shah Bhimani Chemicals Ltd.,, Ahmedabad

ITA 1123/AHD/2008 | 2005-2006
Pronouncement Date: 27-08-2010 | Result: Allowed

Appeal Details

RSA Number 112320514 RSA 2008
Assessee PAN AACCS0631E
Bench Ahmedabad
Appeal Number ITA 1123/AHD/2008
Duration Of Justice 2 year(s) 4 month(s) 27 day(s)
Appellant The ITO, Ward-8(3),, Ahmedabad
Respondent Shah Bhimani Chemicals Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 27-08-2010
Appeal Filed By Department
Order Result Allowed
Bench Allotted C
Tribunal Order Date 27-08-2010
Date Of Final Hearing 03-08-2010
Next Hearing Date 03-08-2010
Assessment Year 2005-2006
Appeal Filed On 31-03-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL : C BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA J.M. & HON'BLE S HRI N.S. SAINI A.M.) I.T.A. NO. 1123/AHD./2008 ASSESSMENT YEAR : 2005-2006 INCOME TAX OFFICER WARD-8(3) AHMEDABAD VS.- S HAH BHIMANI CHEMICALS P. LTD. AHMEDABAD(PAN: AACCS 0631 E) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.M. MAHESH SR . D.R. RESPONDENT BY : SHRI S.N. DIVETIA O R D E R PER SHRI T.K. SHARMA JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 18.01.2008 IN APPEAL NO. CIT(A.)-XIV/WD.8(3)/250/2007-08 OF LEARNED COMMISSI ONER OF INCOME TAX(APPEALS)-XIV AHMEDABAD IN DELETING THE DISALLOWANCE OF RS.78 96 017/- IN RESPECT OF INTEREST EXPENSES FOR THE ASSESSMENT YEAR 2005-06. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A COMPANY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER FRAME D THE ASSESSMENT UNDER SECTION 143(3) OF THE I.T. ACT 1961 ON 26.11.2007. IN THIS ASSESSMENT OR DER THE ASSESSING OFFICER IN PARA 6 STATED THE WORKING OF INTEREST WHICH SHOULD HAVE BEEN CHARGED BY THE ASSESSEE ON LOANS AND ADVANCES GIVEN AND ACTUAL INTEREST CHARGED. THEREAFTER HE DI SALLOWED THE INTEREST AMOUNTING TO RS.78 96 017/- FOR THE DETAILED REASONS GIVEN IN PA RA 6.1 WHICH READS AS UNDER :- 6.1. AS CAN BE SEEN FROM THE ABOVE TABLE THE ASSE SSEE HAS GIVEN LOANS/ ADVANCES OF RS.6 06 23 015/- TO VARIOUS PERS ONS/ CONCERNS EITHER WITHOUT CHARGED ANY INTEREST OR CHARGING THE SAME A T A VERY LOW OR NOMINAL RATE THOUGH IT HAS TO PAY AN INTEREST OF RS .2 55 49 384/- ON THE LOANS IT HAD OBTAINED FROM THE BANK. AFTER EXCLUDIN G THE LOANS GIVEN FOR GOODS DOWN DEPOSIT AND CLUB THE TOTAL INTEREST CH ARGEABLE IS WORKED OUT AT RS.83 97 719/- AGAINST WHICH THE ASSESSEE HA S CHARGED INTEREST OF RS.5 01 702/- ONLY. I THEREFORE DISALLOW AN INTER EST EXPENSE U/S. 36(1)(III) OF THE I.T. ACT TO THE EXTENT OF RS.78 9 6 017/- (RS.83 97 719/- 2 ITA NO. 1123/AHD/2008 MINUS RS.5 01 702/-) FROM THE TOTAL INTEREST EXPENS ES OF RS.2 55 49 384/- CLAIMED BY THE ASSESSEE. HERE IT MAY BE POINTED OUT THAT THE ASSESSEE HAS DISALLOWED THE ENTIRE INTERES T EXPENSES U/S.43B OF THE I.T. ACT WHICH PROVIDES FOR THE CLAIM OF EXPENS ES ON THE PAYMENT BASIS. THE INTEREST EXPENSES WHICH IS DISALLOWED HE RE IS BY HOLDING THE SAME AS EXCESS CLAIM OF EXPENDITURE. 3. IN THE ASSESSMENT ORDER THE ASSESSING OFFICER I N PARA 7 OBSERVED THAT EVEN IF THE INTEREST EXPENSE IS TOTALLY ALLOWED AS EXPENSE THE INTEREST INCOME OF RS.78 96 017/- AS WORKED OUT IN PARA 6.1 IS OTHERWISE ALSO TAXABLE AS THE ASSESSEE S INCOME BECAUSE IN THE EARLIER ASSESSMENT YEARS 2002-03 AND 2003-04 SIMILAR DISALLOWANCE WAS MADE WHICH HAS BEEN ACCEPTED BY THE ASSESSEE BY NOT FILING ANY APPEALS AGAINST THE ASSE SSMENT ORDERS FOR THOSE YEARS. APART FROM THIS IN THE ASSESSMENT ORDER THE ASSESSING OFFICER ALSO LEFT AN OFFICE NOTE WHICH READS AS UNDER :- IN THE EARLIER AY THE CIT-IV AHMEDABAD HAD PASSED AN ORDER U/S. 263 WITH A DIRECTION TO CALL FOR AND VERIFY COMPLETE DE TAILS OF ADVANCES AND TO FIND OUT WHETHER THE ASSESSEE COMPANY HAD CHARGE D ANY INTEREST ON ADVANCES THIS YEAR FROM THE PARTIES FROM WHOM INTER EST HAS BEEN CHARGED IN THE EARLIER YEAR. ON COMPARISON OF THE A CCOUNTS IT IS SEEN THAT THERE IS NO MAJOR CHANGE IN THE PARTIES TO WHO M LOANS AND ADVANCES ARE GIVEN BY THE ASSESSEE. THE INTEREST HAS BEEN WO RKED OUT ON THE LINES OF EARLIER ASSESSMENT ORDER. 4. ON APPEAL IN THE IMPUGNED ORDER THE LEARNED CO MMISSIONER OF INCOME TAX(APPEALS) DELETED THE SAID DISALLOWANCE FOR THE DETAILED REAS ONS GIVEN IN PARA 2.2 WHICH READS AS UNDER :- 2.2. I HAVE CONSIDERED THE FACTS OF THE CASE AND T HE APPELLANTS SUBMISSIONS. I FIND THAT WHEN THE APPELLANT ITSELF HAS DISALLOWED THE ENTIRE INTEREST EXPENDITURE TO THE EXTENT OF RS.2 5 5 49 384/- IT IS NOT CORRECT TO AGAIN DISALLOW THE INTEREST AMOUNTING TO RS.78 96 017/- CONSIDERING THE SAME AS INCURRED FOR NON-BUSINESS P URPOSES. HENCE NO ADDITION IS CALLED FOR. THE ISSUE WHETHER IT WAS FO R BUSINESS PURPOSES OR COMMERCIAL EXPEDIENCY REMAINS ONLY ACADEMIC NOW. FU RTHER THERE WAS NO JUSTIFICATION FOR TAXING THE NOTIONAL INTEREST. IN VIEW OF THE ABOVE FACTS I HOLD THAT DISALLOWANCE MADE IN THIS CONNEC TION WAS NOT IN ORDER AND THE SAME IS DIRECTED TO BE DELETED. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER OF I NCOME TAX(APPEALS) THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 3 ITA NO. 1123/AHD/2008 5. AT THE TIME OF HEARING ON BEHALF OF REVENUE SHR I K.M. MAHESH LD. SR. D.R. APPEARED AND POINTED OUT THAT SECTION 43B OF THE INCOME TAX ACT CLEARLY PROVIDES THAT DISALLOWANCE UNDER THIS SECTION IS REQUIRED TO BE CONSIDERED ONLY WHEN EXPENDITURE IN QUESTION IS OTHERWISE ALLOWABLE. IN THE ASSESSMENT ORDER THE ASSESSING O FFICER HAS HELD THAT INTEREST EXPENSE TO THE EXTENT OF RS.78 96 017/- IS NOT ALLOWABLE UNDER SEC TION 36(1)(III). THE LD. D.R. FAIRLY ADMITTED THAT DOUBLE DISALLOWANCE CANNOT BE MADE I.E. ONCE U NDER SECTION 36(1)(III) AND AGAIN UNDER SECTION 43B BUT AT THE SAME TIME THE LEARNED COMM ISSIONER OF INCOME TAX(APPEALS) OUGHT TO HAVE DECIDED THE REAL ISSUE I.E. WHETHER DISALLOWA NCE AMOUNTING TO RS.78 96 017/- IS RIGHTLY MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVI SIONS CONTAINED IN SECTION 36(1)(III) OR NOT. SINCE THIS HAS NOT BEEN DONE THE MATTER BE RESTORE D TO THE FILE OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FOR DECIDING THE SAME AFRESH IN ACCORDANCE WITH LAW. 6. ON THE OTHER HAND SHRI S.N. DIVETIA LD. COUNSE L APPEARING ON BEHALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX(APPEALS). THE LD. COUNSEL SUBMITTED THAT SINCE IN THE ASSESSMENT YEAR UNDER APPEAL THE ASSESSEE HAS HIMSELF DISALLOWED THE ENTIRE INTEREST UNDER SECTION 43B T HEREFORE THREE IS NO NECESSITY TO EXAMINE THE ISSUE AS PER PROVISIONS CONTAINED IN SECTION 36(1)( III) OF THE INCOME TAX ACT 1961. THE LD. COUNSEL FURTHER SUBMITTED THAT IF IN SUBSEQUENT YEA R THE ASSESSEE CLAIMS THE INTEREST EXPENSES ON PAYMENT BASIS IN THAT EVENT ASSESSING OFFICER CAN EXAMINE THE ALLOWABILITY OF THE SAME UNDER SECTION 36(1)(III) OF THE I.T. ACT 1961. 7. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT UNDER SECTION 4 3B ONLY THOSE EXPENSES ARE REQUIRED TO BE CONSIDERED WHICH ARE OTHERWISE ALLOWABLE. THEREFOR E IN OUR OPINION THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CLEARLY ERRED IN NOT ADJUDIC ATING THE REAL CONTROVERSY INVOLVED I.E. WHETHER DISALLOWANCE OF INTEREST EXPENSE TO THE EXT ENT OF RS.78 96 017/- IS RIGHTLY MADE BY THE ASSESSING OFFICER UNDER SECTION 36(1)(III). SINCE T HIS WAS NOT DONE WE SET ASIDE THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND DIR ECT HIM TO DECIDE WHETHER INTEREST TO THE EXTENT OF RS.78 96 017/- IS ALLOWABLE UNDER SECTION 36(1)(III) OF THE ACT OR NOT AFTER GIVING OPPORTUNITY OF BEING HEARD TO BOTH THE SIDES. THERE AFTER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IF NECESSARY MAY EXAMINE WHETHER DIS ALLOWANCE SHOULD BE MADE UNDER SECTION 4 ITA NO. 1123/AHD/2008 43B OF I.T. ACT 1961. IT IS FURTHER OBSERVED THAT LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WILL ENSURE THAT DOUBLE DISALLOWANCE CAN BE MADE. T HEREFORE NECESSITY FOR MAKING THE DISALLOWANCE UNDER SECTION 43B WILL ONLY ARISE ONLY WHEN INTEREST IN QUESTION IS OTHERWISE ALLOWABLE UNDER THE INCOME TAX ACT 1961. 8. IN THE RESULT FOR STATISTICAL PURPOSES THE APP EAL FILED BY THE REVENUE IS TREATED AS ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 27.08.201 0 SD/- SD/- (N.S. SAINI) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 27/ 08 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED (4) CIT CONCERNED (5) D.R. ITAT AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGI STRAR ITAT AHMEDABAD LAHA/SR.P.S.