M/s Stream Line Petroleum, Ludhiana v. ITO, Ludhiana

ITA 1303/CHANDI/2010 | 2005-2006
Pronouncement Date: 25-01-2011 | Result: Dismissed

Appeal Details

RSA Number 130321514 RSA 2010
Assessee PAN AAWSF0339Q
Bench Chandigarh
Appeal Number ITA 1303/CHANDI/2010
Duration Of Justice 2 month(s) 9 day(s)
Appellant M/s Stream Line Petroleum, Ludhiana
Respondent ITO, Ludhiana
Appeal Type Income Tax Appeal
Pronouncement Date 25-01-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted SMC
Tribunal Order Date 25-01-2011
Date Of Final Hearing 20-12-2010
Next Hearing Date 20-12-2010
Assessment Year 2005-2006
Appeal Filed On 16-11-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL: SMC BENCH: CHANDIGARH BEFORE HONBLE SHRI D K SRIVASTAVA AM ITA NO.1303/CHANDI/2010 ASSESSMENT YEAR: 2005-06 M/S STREAM LINE PETROLEUM V I.T.O. WARD V(3) OPP. HERO CYCLES LUDHIANA G.T. ROAD LUDHIANA PAN: AAWSF 0339 Q (APPELLANT-ASSESSEE) (RESPONDENT) APPELLANT BY: S/SHRI SUDHIR SEHGAL AND ASHOK GOYAL RESPONDENT BY: SHRI N.K. SAINI ORDER THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER PASSED BY THE LD. CIT(A) ON 24.9.2010 ON THE FOLLOWING GROUN DS: 1 THAT THE LD. CIT(A)-II LUDHIANA HAS ERRED IN CO NFIRMING THE ACTION OF THE AO IN DISALLOWING THE INTEREST OF RS. 88 352/- U/S 36(1)(III) ON BORROWED LOAN OF RS. 16 99 066/- TAKEN FROM M/S AKSHAR IMPEX PVT LTD. 2 THAT THE DECISION IN THE CASE OF THE LD. CIT-I LUDHIANA V. M/S ABHISHEK INDUSTRIES LTD. LUDHIANA RELIED BY THE AO AND CONFIRMED BY THE WORTHY CIT FOR MAKING DISALLOWANCE OF INTEREST IS N OT APPLICABLE IN THIS CASE. 3 THAT THE LD. CIT(A)-II LUDHIANA HAS ALSO ERRED I N CONFIRMING THE ACTION OF THE AO THAT THE APPELLATE FIRM HAS DIVERT ED ITS INTEREST BEARING FUNDS TO THE PARTNERS FOR THEIR PERSONAL BENEFITS. 4 THAT THE LD. CIT(A)-II WHILE CONFIRMING THE ACTI ON OF THE AO HAS NOT CONSIDERED OUR DETAILED SUBMISSIONS ALONG WITH VARIOUS CASE LAWS PROPERTY. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT T HE ASSESSEE A PARTNERSHIP FIRM CONSISTING OF TWO PARTNERS NAMELY S/SHRI SATNA M ARORA AND SAURAB ARORA FILED ITS RETURN OF INCOME ON 31.10.2005 RETURNING LOSS AT RS.14 569/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. THE AO N OTICED THAT THERE WERE DEBIT BALANCES AMOUNTING TO RS. 16 74 137/- AND RS. 2 40 715/- AS ON 31.10.2005 IN THE PERSONAL ACCOUNT OF S/SHRI SATNAM ARORA AND SAU RAB ARORA RESPECTIVELY. M/S STREAM LINE PETROLEUM 1303/CHANDI/2010 2 THE AO ALSO NOTICED THAT THE ASSESSEE-FIRM HAD NOT CHARGED ANY INTEREST ON THE AFORESAID DEBIT BALANCES WHILE THE ASSESSEE-FIR M WAS REQUIRED TO PAY INTEREST @ 12% ON THE CREDIT BALANCES IN THE CAPITA L ACCOUNT OF THE PARTNERS. THE ASSESSING OFFICER FURTHER NOTICED THAT THE ASSE SSEE-FIRM HAD TAKEN LOAN AMOUNTING TO RS. 16 99 066/- FROM M/S AKSHAR IMPEX PRIVATE LTD. AND PAID INTEREST THEREON AMOUNTING TO RS. 88 352/-. AFTER H EARING THE ASSESSEE AND TAKING INTO ACCOUNT THE FACTS BROUGHT BY HIM ON REC ORD THE AO HELD THAT THE ASSESSEE HAD DIVERTED ITS OWN MONEY FOR THE PERSONA L BENEFIT OF THE PARTNERS WITH THE RESULT THAT THE ASSESSEE-FIRM HAD TO BORRO W MONEY FROM M/S AKSHAR IMPEX PVT LTD. AND PAY INTEREST THEREON. IN THIS VI EW OF THE MATTER HE DISALLOWED THE ENTIRE AMOUNT OF INTEREST CLAIMED BY THE ASSESSEE TO HAVE BEEN PAID TO M/S AKSHAR IMPEX PVT. LTD. 3. AGGRIEVED BY THE AFORESAID DISALLOWANCE MADE BY THE AO THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) ALSO CONFIRMED THE IMPUGNED DISALLOWANCE FOLLOWING THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V. ABHISHEK INDUSTRIES LTD. 286 ITR 1 (P&H). 4. AGGRIEVED BY THE ORDER PASSED BY THE LD. CIT(A) THE ASSESSEE IS NOW IN APPEAL BEFORE THIS TRIBUNAL. IN SUPPORT OF APPEAL THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS EARLIER MADE BE FORE THE D. CIT(A). THESE SUBMISSIONS IN BRIEF ARE AS FOLLOWS. ONE OPENING DEBIT BALANCE IN THE CAPITAL ACCOUNTS OF S/SHRI SATNAM ARORA AND SAURAB ARORA WA S RS.18 20 568/- AND RS. 2 86 461/- RESPECTIVELY WHEREAS CLOSING DEBIT BALAN CE IN THE AFORESAID CAPITAL ACCOUNTS WAS RS. 16 47 137/- AND RS. 2 40 715/-. ON THE STRENGTH OF THE AFORESAID FIGURES THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE WITHDRAWALS MADE BY THE PARTNERS DURING THE YEAR UN DER APPEAL WERE MUCH LOWER THAN THE AMOUNT ADDED BY THEM TOWARDS THEIR C APITAL. IT WAS THUS THE CASE OF THE LD. COUNSEL FOR THE ASSESSEE THAT THERE WAS NO EFFECTIVE WITHDRAWAL MADE BY THE PARTNERS FROM THEIR CAPITAL ACCOUNTS IN THE YEAR UNDER APPEAL AND HENCE THERE WAS NO JUSTIFICATION TO DISALLOW INTERE ST ON THE BASIS OF WITHDRAWALS MADE IN THE PAST. TWO THE OPENING OUTSTANDING BALA NCE IN THE UN-SECURED LOAN ACCOUNT OF M/S AKSHAR IMPEX PVT LTD WAS RS. 13 11 714/- AND THUS THE AMOUNT OF NET FRESH LOAN FROM THE SAID PARTY IN THE YEAR UNDER APPEAL WAS RS. 2 35 000/-. THREE THERE IS NO CLAUSE IN THE PARTNE RSHIP DEED FOR CHARGING OF M/S STREAM LINE PETROLEUM 1303/CHANDI/2010 3 INTEREST ON THE DEBIT BALANCE IN THE CAPITAL ACCOUN T OF THE PARTNERS. FOUR THE PARTNERS OF THE FIRM HAVE NOT WITHDRAWN ANY MONEY O UT OF BORROWED FUNDS AND THUS THERE WAS NO NEXUS BETWEEN BORROWED FUNDS AND THE DEBIT BALANCES IN THE CAPITAL ACCOUNT OF THE PARTNERS. 5. AS REGARDS THE APPLICABILITY OF THE JUDGMENT OF ABHISHEK INDUSTRIES LTD (SUPRA) IT WAS SUBMITTED THAT THE JUDGMENT IN THAT CASE WAS RENDERED IN THE CONTEXT OF FACTS WHERE BORROWED FUNDS HAD BEEN ADVA NCED TO THE SISTER CONCERN AND NOT IN THE CONTEXT OF FACTS AS AVAILABL E IN THE CASE OF THE ASSESSEE. 6. IN REPLY THE LD. DR SUPPORTED THE ORDERS PASSED BY THE AO AND THE LD. CIT(A). 7. I HAVE HEARD BOTH THE PARTIES AND CAREFULLY CONS IDERED THEIR SUBMISSIONS. THERE WAS DEBIT BALANCE AMOUNTING TO RS.16 74 137/- AND RS.2 40 715/- IN THE CAPITAL ACCOUNTS OF BOTH THE PARTNERS. DEBIT BALANC ES WOULD NOT HAVE ARISEN IF THE FUNDS OF THE ASSESSEE-FIRM WERE NOT DIVERTED FO R THE PERSONAL BENEFIT OF THE PARTNERS. INDISPUTABLY INTEREST WAS NOT CHARGED BY THE ASSESSEE-FIRM ON THE DEBIT BALANCES IN THE CAPITAL ACCOUNT OF THE PARTNE RS WHEREAS THE ASSESSEE-FIRM HAD PAID INTEREST @ 12% IN THE RELEVANT YEARS ON TH EIR CREDIT BALANCES. IF THE ASSESSEE-FIRM HAD NOT DIVERTED ITS FUNDS FOR THE PE RSONAL BENEFIT OF THE PARTNERS THE AMOUNT WOULD HAVE BEEN AVAILABLE TO T HE ASSESSEE FOR ITS OWN BUSINESS PURPOSES AND TO THAT EXTENT IT WOULD NOT H AVE BEEN NECESSARY TO BORROW THE FUNDS. AND MOST IMPORTANTLY THERE WAS N O BUSINESS PURPOSES INVOLVED IN DIVERTING THE FUNDS OF THE ASSESSEE-FIR M FOR PERSONAL BENEFIT OF THE PARTNERS. 8. IN THE AFORESAID BACKGROUND OF FACTS THE JUDGME NT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V. ABHISHEK INDUST RIES LTD (SUPRA) IS SQUARELY APPLICABLE. IN CIT V. ABHISHEK INDUSTRIES LTD (SUPR A) THE HON'BLE HIGH COURT HAS HELD AS UNDER: ONCE IT IS BORNE OUT FROM THE RECORD THAT THE ASSE SSEE HAD BORROWED CERTAIN FUNDS ON WHICH LIABILITY TO PAY TAX IS BEIN G INCURRED AND ON THE OTHER HAND CERTAIN AMOUNTS HAD BEEN ADVANCED TO SI STER CONCERNS OR M/S STREAM LINE PETROLEUM 1303/CHANDI/2010 4 OTHERS WITHOUT CARRYING ANY INTEREST AND WITHOUT AN Y BUSINESS PURPOSE THE INTEREST TO THE EXTENT THE ADVANCE HAD BEEN MAD E WITHOUT CARRYING ANY INTEREST IS TO BE DISALLOWED U/S 36(1)(III) OF THE ACT. SUCH BORROWINGS TO THAT EXTENT CANNOT POSSIBLY BE HELD FOR THE PURP OSE OF BUSINESS BUT FOR SUPPLEMENTING THE CASH DIVERTED WITHOUT DERIVIN G ANY BENEFIT OUT OF IT. ACCORDINGLY THE ASSESSEE WILL NOT BE ENTITLED TO CLAIM DEDUCTION OF THE INTEREST ON THE BORROWINGS TO THE EXTENT THOSE ARE DIVERTED TO SISTER CONCERNS OR OTHER PERSONS WITHOUT INTEREST. 9. THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE T HAT BOTH WITHDRAWALS BY THE PARTNERS AND THE BORROWALS WERE MADE IN EARL IER YEARS AND NOT IN THE YEAR UNDER APPEAL WOULD MAKE NO DIFFERENCE IN VIEW OF THE FOLLOWING OBSERVATIONS MADE IN CIT V. HR SUGAR FACTORY PVT LT D 187 ITR 363 370--371 (ALL) WHICH HAS BEEN CITED WITH APPROVAL BY THE JU RISDICTIONAL HIGH COURT IN ABHISHEK INDUSTRIES (SUPRA): THE APPROACH ADOPTED BY SRI S.N. VERMA LEARNED CO UNSEL FOR THE ASSESSEE NAMELY THAT YOU MUST LOOK ONLY TO THE PA RTICULARS ASSESSMENT YEAR AND NOT BEYOND LOOKS ATTRACTIVE AT FIRST FLU SH BUT DOES NOT STAND SCRUTINY IN DEPTH. IT IS TRUE THAT FOR THE PURPOSE OF INCOME-TAX EACH ASSESSMENT YEAR IS A SEPARATE UNIT. IT MAY BE EQUAL LY TRUE THAT THE AMOUNTS OF LOANS TO THE DIRECTORS ARE NOT SUBSTANTI AL IN EACH OF THE YEARS. BUT THIS APPROACH WOULD HAVE BEEN VALID IF THE ASSESSEE HAD BEEN PAYING INTEREST ONLY ON THE AMOUNTS LENT DURIN G A PARTICULAR ASSESSMENT YEARMAY BE THAT THE COMPANY BO RROWS LARGE AMOUNTS FOR THE PURPOSE OF ITS BUSINESS EVERY YEAR BUT THAT DOES NOT EXPLAIN THE HUGE ADVANCES TO THE DIRECTORS/SHAR EHOLDERS. HAD THIS MONEY BEEN NOT ADVANCED TO THE DIRECTORS IT WOULD HAVE BEEN AVAILABLE TO THE ASSESSEE FOR ITS BUSINESS PURPOSES AND TO TH AT EXTENT IT MAY NOT HAVE BEEN NECESSARY TO BORROW FROM THE BANKS. 10. THE AFORESAID PRINCIPLES LAID DOWN BY THE HON'B LE ALLAHABAD HIGH COURT IN HR SUGAR FACTORY WHICH HAS ALSO BEEN REFERRED T O BY THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V. ABHISHEK INDUST RIES LTD (SUPRA) SQUARELY COVER THE MATTER AGAINST THE ASSESSEE. IN THIS VIEW OF THE MATTER THE ORDER M/S STREAM LINE PETROLEUM 1303/CHANDI/2010 5 PASSED BY THE LD. CIT(A) IS CONFIRMED. APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON 25 TH JANUARY 2011 (D K SRIVASTAVA) ACCOUNTANT MEMBER CHANDIGARH THE JANUARY 2011 SURESH COPY TO: 1. THE APPELLANT M/S STREAM LINE PETROLEUM LUDHIA NA 2. THE RESPONDENT I.T.O. WARD V(3) LUDHIANA 3. THE CIT LUDHIANA 4. THE CIT(A)-II LUDHIANA 5. THE LD. D.R INCOME TAX DEPARTMENT CHANDIGARH TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT CHANDIGARH