The ACIT, Circle 1, JAMNAGAR v. M/s Kandelwal Brass Industries, JAMNAGAR

ITA 1199/RJT/2010 | 2006-2007
Pronouncement Date: 25-11-2011 | Result: Dismissed

Appeal Details

RSA Number 119924914 RSA 2010
Assessee PAN AACFK2841F
Bench Rajkot
Appeal Number ITA 1199/RJT/2010
Duration Of Justice 1 year(s) 1 month(s) 26 day(s)
Appellant The ACIT, Circle 1, JAMNAGAR
Respondent M/s Kandelwal Brass Industries, JAMNAGAR
Appeal Type Income Tax Appeal
Pronouncement Date 25-11-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 25-11-2011
Date Of Final Hearing 03-10-2011
Next Hearing Date 03-10-2011
Assessment Year 2006-2007
Appeal Filed On 29-09-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH RAJKOT BEFORE SHRI T.K. SHARMA (JM) AND SHRI A.L. GEHLOT ( AM) I.T.A. NO.1199/RJT/2010 (ASSESSMENT YEAR 2006-07) ACIT CIR.1 VS M /S KANDELWAL BRASS INDS JAMNAGAR B-37 GIDC SHAKER TEKRI UDHYOGNAGAR JAMNAGAR PAN : AACFK2841F (APPELLANT) (RESPONDENT) DATE OF HEARING : 23-11-2011 DATE OF PRONOUNCEMENT : 25-11-2011 APPELLANT BY : SHRI CJ MANIAR RESPONDENT BY : SHRI VIMAL DESAI O R D E R PER AL GEHLOT (AM) THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) JAMNAGAR DATED 30-07-2010 FOR THE ASSESSMEN T YEAR 2006-07. 2. THE EFFECTIVE GROUND RAISED IN THIS APPEAL IS IN RESPECT OF ADDITION OF RS. 9 24 397/- ON ACCOUNT OF DISALLOWANCE OF INTERE ST EXPENSES CLAIMED ON BORROWED FUNDS. IN THE GROUNDS OF APPEAL THE REVE NUE RELIED UPON THE JUDGMENT OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS ABHISHEK IND. LTD 286 ITR 1 (P&H). ITA NO.1199/RJT/2010 2 2. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE CLAIMED INTEREST EXPENSES OF RS.92 4 397. HE FURTHER NOTIC ED THAT THE ASSESSEE HAS GIVEN FUNDS TO ITS SISTER CONCERNS AND DID NOT CHARGE INTEREST. THE DETAILS OF SUCH ADVANCES NOTED BY THE ASSESSING OFF ICER ON PAGE 2 OF THE ASSESSMENT ORDER ARE AS UNDER: (1) JAIHIND BRASS WORKS RS. 13 98 620 (2) BRISTOL ENGG CO PVT LTD RS. 13 65 000 (3) KHANDELWAL FINSTOCK P LTD RS. 53 40 200 TOTAL RS. 81 03 820 THE ASSESSING OFFICER RELIED UPON THE JUDGMENT OF P UNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS ABHISHEK IND. LTD 286 I TR 1 (P&H) AND DISALLOWED THE INTEREST CLAIM OF THE ASSESSEE AMOUN TING TO RS.9 24 397/-. THE CIT(A) DELETED THE SAID ADDITION OBSERVING AS U NDER:- 8. I HAVE CAREFULLY CONSIDERED THE ISSUE. THE REA SON FOR DISALLOWANCE GIVEN BY THE AO IS THAT ASSESSEE HAS D IVERTED BORROWED FUNDS TOWARDS NON-INTEREST BEARING ADVANCE S TO SISTER CONCERNS. HOWEVER NO NEXUS HAS BEEN SHOWN BY THE AO. IT IS ALSO NOTICED FROM THE DETAILS SUBMITTED BEFORE THE AO WHICH HAS BEEN INCORPORATED IN REPLY OF THE ASS ESSEE THAT FUNDS TO SISTER CONCERNS WERE ADVANCED DURING THE A Y 2002- 03 WHEN ASSESSEE WAS NOT HAVING ANY CREDIT FACILITY FROM BANK OF BARODA TO WHOM INTEREST HAS BEEN PAID DURI NG THIS YEAR. AT THAT TIME FUNDS WERE PROVIDED TO SISTER CONCERNS FREE OF INTEREST OUT OF INTEREST FREE FUNDS AVAILAB LE AS PARTNERS CAPITAL ETC. DURING AY 2002-03 PARTNERS CAPITAL WAS RS.3.65 CRORES AND INTEREST FREE ADVANCES TO THE SISTER CON CERNS WERE TO THE TUNE OF RS.1.04 CRORES. AT THAT TIME THERE WAS NO BANK LOAN. IT IS THUS APPARENT THAT THESE AMOUNTS WER E ACTUALLY ITA NO.1199/RJT/2010 3 PROVIDED IN EARLIER YEARS OUT OF INTEREST FREE FUND S AVAILABLE WITH THE ASSESSEE. IN FACT THE INTEREST FREE ADVA NCES HAVE COME DOWN TO RS.81.03 LAKHS FROM RS.1.04 CRORES IN AY 2002- 03. THEREFORE THERE IS NO NEXUS BETWEEN BORROWED FUNDS AND INTEREST FREE ADVANCES AND THE DISALLOWANCE IS NOT PROPER BECAUSE THESE LOANS WERE GIVEN IN EARLIER YEARS WH EN NO SUCH DISALLOWANCE WAS MADE AND WHEN SUFFICIENT INTE REST FREE FUNDS WERE AVAILABLE WITH THE ASSESSEE. THE DISALL OWANCE OF RS.9 24 397/- IS THEREFORE DELETED. 3. WE HAVE HEARD THE LD.REPRESENTATIVES OF THE PART IES RECORD PERUSED. WE FIND THAT THE CIT(A) HAS FOLLOWED THE ORDER OF I TAT AHMEDABAD BENCH IN THE CASE OF TORRENT FINANCE 73 TTJ 624 (AHD) AND NOTED THE FACT THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN CAPITAL TO C OVER THE INTEREST FREE ADVANCES GIVEN. THE DETAILS OF SUCH ADVANCES AND I NTEREST FREE FUNDS AVAILABLE IS ON PAGE 3 OF THE CIT(A) ORDER WHEREIN THE PARTNERS CAPITAL WAS RS.3.92 CRORES AGAINST THE INTEREST FREE ADVANC ES OF RS.81 03 820. BEFORE US THE LD.AR RELIED UPON ANOTHER DECISION O F ITAT RAJKOT BENCH IN THE CASE OF M/S WOODMAN TRADING CO PVT LTD ITA NO.5 52/RJT/2008 ORDER DATED 31-12-2010. A COPY OF THE ORDER FILED HAS BE EN PLACED ON RECORD. WE FIND THAT THE ORDER OF CIT(A) IS IN ACCORDANCE W ITH THE ORDERS OF ITAT CITED SUPRA THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN CAPITAL TO COVER THE INTEREST FREE FUNDS. AS REGARDS THE JUDGMENT O F THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS ABHISHEK INDUSTRIE S LTD (SUPRA) IT IS TO MENTION THAT THIS JUDGMENT HAS BEEN IMPLIEDLY REVER SED BY THE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION VS CI T 298 ITR 298 (SC). IN ITA NO.1199/RJT/2010 4 THE LIGHT OF ABOVE DISCUSSION WE DO NOT FIND ANY IN FIRMITY IN THE ORDER OF CIT(A). THE ORDER OF CIT(A) IS CONFIRMED. 4. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25-11-2011. SD/- SD/- (T.K. SHARMA) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT DT : 25 TH NOVEMBER 2011 PK/- COPY TO: 1. ASSESSEE 2. REVENUE 3. THE CIT(A) JAMNAGAR 4. THE CIT JAMNAGAR 5. THE DR I.T.A.T. RAJKOT (TRUE COPY) BY ORDER ASSTT.REGISTRAR ITAT RAJKOT