Kusum Silk Mills Pvt.Ltd.,, Surat v. The Dy.CIT., Circle-1,, Surat

ITA 1566/AHD/2010 | 2007-2008
Pronouncement Date: 13-08-2010 | Result: Partly Allowed

Appeal Details

RSA Number 156620514 RSA 2010
Assessee PAN AABCK0234G
Bench Ahmedabad
Appeal Number ITA 1566/AHD/2010
Duration Of Justice 3 month(s) 1 day(s)
Appellant Kusum Silk Mills Pvt.Ltd.,, Surat
Respondent The Dy.CIT., Circle-1,, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 13-08-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 13-08-2010
Assessment Year 2007-2008
Appeal Filed On 12-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH D DD D BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI N NN N. .. .S. SAINI S. SAINI S. SAINI S. SAINI ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER AND AND AND AND SHRI SHRI SHRI SHRI MAHAVIR SINGH JUDICIAL MEMBER MAHAVIR SINGH JUDICIAL MEMBER MAHAVIR SINGH JUDICIAL MEMBER MAHAVIR SINGH JUDICIAL MEMBER DATE OF HEARING :3-8-2010 DRAFTED ON: 3-8-2010 ITA NO. 1566 /AHD/ 2010 ASSESSMENT YEAR :2007-08 KUSUM SILK MILLS PVT.LTD. V-2144 1 ST FLOOR SURAT TEXTILE MARKET RING ROAD SURAT. VS. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-1 AAYAKAR BHAVAN MAJURA GATE. SURAT. PAN/GIR NO. : AABCK 0234 G (A PPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI HARDIK VORA. RESPONDENT BY: SHRI SUDHANSHU S. JHA D.R. O R D E R O R D E R O R D E R O R D E R PER N.S.SAINI ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-1 SURAT DATED 23-3-2010. 2. GROUND NO.1 READS AS UNDER :- 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE A S WELL AS ON THE SUBJECT THE LEARNED COMMISSIONER OF INCO ME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER IN MAKING ADDITION OF `.60 000/- ON ACCOUNT OF ALLEGED INTEREST FREE LOAN TO SISTER CONCERN. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE HAS GIVEN ` . 5 00 000/- INTEREST FREE LOANS TO SISTER CONCERNS NAMELY KUSU M CREATION PVT. LTD. - 2 - 4. THE ASSESSEE COULD NOT ESTABLISH THAT THE ADVANC ES TO THE AFORESAID PARTIES WERE GIVEN OUT OF COMMERCIAL CONS IDERATION. THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSE E WAS PAYING INTEREST IN RESPECT OF BORROWED CAPITAL THEREFORE THE LEARNED ASSESSING OFFICER DISALLOWED INTEREST RELATING TO A FORESAID LOAN OF `.5 00 000/- WHICH HE WORKED OUT TO `.60 000/- BEIN G @ 12% PER ANNUM. 5. ON APPEAL LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) CONFIRMED THE ABOVE ACTION OF THE LEARNED ASSESSING OFFICER BY PLACING RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF S. A. BUILDERS LTD. V. COMMISSIONER OF INCO ME-TAX (APPEALS)[2007] 288 ITR 0001 (SC) IN THE CASE OF COMMISSIONER OF INCOME TAX V. ABHISHEK INDUSTRIES LTD. [2006] 286 I TR 0001(P&H) IN THE CASE OF C.I.T. V. H.R. SUGAR FACTORY PVT. LT D. (1991) 187 ITR 363 (ALL) AND IN THE CASE OF HIRA LALL AND SONS VS . C.I.T.(1991) 190 ITR 408 (DEL). 6. BEFORE US THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS DRAWN OUR ATTENTION TO THE BALANCE SH EET OF THE ASSESSEE COMPANY WHICH IS PLACED AT PAGE NO.13 TO 3 2 OF THE PAPER BOOK AND POINTED OUT THAT THE SHARE CAPITAL OF THE ASSESSEE COMPANY WAS `.80 15 000/- AND RESERVES AND SURPLUS WAS `.4 94 99 296/-. HE THUS SUBMITTED THAT INTEREST FR EE FUNDS AVAILABLE WITH THE ASSESSEE COMPANY WAS TO THE TUNE OF `.5.75 CRORES WHICH WAS MUCH MORE THAN THE INTEREST FREE LOAN OF `.5 00 000/- IN QUESTION. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE ALSO POINTED OUT THAT NO MATERIAL WAS BROUGHT ON RE CORD BY THE REVENUE TO SHOW THAT THERE WAS ANY NEXUS BETWEEN TH E INTEREST BEARING FUND AND THE ADVANCE IN QUESTION. HE PLACE D RELIANCE UPON THE DECISION OF THIS TRIBUNAL IN THE CASE OF PRESTI GE WRITING INSTRUMENTS (P) LTD VS. A.C.I.T. IN ITA NO.355 AND 419/AHD/2007 FOR ASSESSMENT YEAR 2003-04 ORDER DATED 31-5-2010 WHERE IN THE TRIBUNAL BY FOLLOWING THE DECISION OF HON'BLE BOMBA Y HIGH COURT IN - 3 - THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. (2009) 313 ITR 340 (BOM) HELD THAT :- INTEREST FREE FUNDS IN THE SHAPE OF ASSESSEES OWN SHARE CAPITAL AND RESERVE AMOUNTING TO `.3.81 CRORES ON W HICH NO INTEREST IS PAID BY THE ASSESSEE ARE AVAILABLE AND THIS IS EVIDENCED BY THE AUDITED ACCOUNTS OF THE ASSESSE E FILED BEFORE US. THE SR. DEPARTMENTAL REPRESENTATIV E COULD NOT CONTROVERT THAT THE SHARE CAPITAL AND RES ERVES WERE UTILIZED FOR THE PURPOSES OF INVESTMENT IN FIX ED ASSETS. IN THE ABSENCE OF ANY CONTROVERSY ON THIS C OUNT WE RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE B OMBAY HIGH COURT CITED SUPRA ALLOW THE CLAIM OF THE ASSE SSEE. 7. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPRE SENTATIVE RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 8. WE FIND THAT IN THE INSTANT CASE IT IS NOT IN D ISPUTE THAT INTEREST FREE FUNDS OF `.5.75 CRORES WAS AVAILABLE WITH THE ASSESSEE WHICH IS EVIDENCED BY THE AUDITED BALANCE SHEET OF THE ASSESSEE AND THE SAME IS MUCH MORE THAN THE AMOUNT OF `.5 00 000/- WHICH WAS ADVANCED AS INTEREST FREE ADVANCE BY THE ASSESS EE. FURTHER IT IS OBSERVED THAT THE ASSESSEE HAS PRODUCED ITS BOOK S OF ACCOUNTS BEFORE THE LEARNED ASSESSING OFFICER AT THE TIME OF ASSESSMENT HEARING AND THE LEARNED ASSESSING OFFICER AFTER EXA MINING THE BOOKS OF ACCOUNTS COULD NOT BRING ANY MATERIAL ON R ECORD TO SHOW THAT INTEREST FREE ADVANCE IN QUESTION WERE GIVEN O UT OF INTEREST BEARING BORROWED CAPITAL. 9. IN THE CASE OF S.A. BUILDERS (SUPRA) THE HON'BLE SUPREME COURT HAS HELD THAT WHEN INTEREST FREE ADVANCE WAS GIVEN OUT OF COMMERCIAL EXPEDIENCY THEN NO PORTION OF INTEREST E XPENDITURE CAN BE DISALLOWED. IN THE INSTANT CASE IT IS NOT THE CASE OF THE ASSESSEE THAT INTEREST FREE ADVANCE WAS GIVEN OUT O F COMMERCIAL EXPEDIENCY. THE ABOVE DECISION OF THE HON'BLE SUPR EME COURT IS NOT AN AUTHORITY FOR THE PROPOSITION THAT WHENEVER ANY INTEREST FREE ADVANCE IS GIVEN WITHOUT ANY COMMERCIAL EXPEDIENCY THEN - 4 - PROPORTIONATE INTEREST EXPENDITURE IS TO BE DISALLO WED IRRESPECTIVE OF THE FACT THAT INTEREST FREE CAPITAL WAS AVAILABL E WITH THE ASSESSEE OF MUCH MORE MAGNITUDE OR NOT. THUS IN OUR CONSIDE RED OPINION THE ABOVE DECISION OF HON'BLE SUPREME COURT IS NOT APPLICABLE FOR DECIDING THE ISSUE INCONSIDERATION IN THE INSTANT C ASE. 10. IN OUR CONSIDERED OPINION THE LAW DOES NOT OBLI GES AN ASSESSEE TO MAKE MAXIMUM PROFIT. WE FIND THAT IN T HE INSTANT CASE THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF C.I.T. VS. RELIANCE UTILITIES & POWER LTD. (2009) 313 ITR 340 (BOM.) WHICH IS A RECENT DECISION IN SQUARELY APPLICABLE A S THE FACTS IN THE INSTANT CASE ARE SIMILAR TO THE FACTS OF THE CASE W HICH WAS BEFORE THE HON'BLE BOMBAY HIGH COURT IN RELIANCE UTILITIES AND POWER LTD. (SUPRA). WE FIND THAT IN THE INSTANT CASE INTEREST FREE MONEY AVAILABLE WITH THE ASSESSEE WAS MUCH MORE THAN THE INTEREST FREE ADVANCE GIVEN BY THE ASSESSEE. NO MATERIAL WAS BROU GHT ON RECORD BY THE REVENUE TO SHOW THAT INTEREST FREE ADVANCE I N QUESTION COULD NOT HAVE BEEN MADE BY THE ASSESSEE OUT OF SUC H INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE OR THE ADVAN CE IN QUESTION WERE MADE OUT OF INTEREST BEARING BORROWED CAPITAL. IN THE CIRCUMSTANCES WE RESPECTFULLY FOLLOWING THE DECISI ON OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA) DELETE THE DISALLOWANCE OF INTEREST OF `.6 0 000/- AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 11. GROUND NO.2 READS AS UNDER :- 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE A S WELL AS LAW ON THE SUBJECT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER IN MAKING DISALLOWANCE OF `. 1 91 868/- @ 15% OUT OF FACTORY EXPENSES AND OFFICE EXPENSES. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE ASSESSEE CLAIMED EXPENDITURE UNDER THE HEAD FACTORY EXPENSES AT - 5 - 11 19 271/- AND UNDER THE HEAD OFFICE EXPENSES AT ` .1 59 853/-. THE LEARNED ASSESSING OFFICER OBSERVED THAT MOST OF THE PAYMENTS UNDER THESE HEADS ARE IN CASH OF SMALL AMOUNT AND T HE ASSESSEE COULD NOT PRODUCE COMPLETE EVIDENCES OF THE EXPENSE S. HE THEREFORE DISALLOWED 15% OF THESE EXPENSES AMOUNTI NG TO `.1 91 868/- FOR WANT OF VERIFICATION. 13. ON APPEAL LEARNED COMMISSIONER OF INCOME TAX ( APPEALS) OBSERVED THAT THE ASSESSEE HAS NOT CLAIMED THAT ITS ENTIRE EXPENDITURE UNDER THESE HEADS WERE FULLY VOUCHED AN D THEREFORE HE CONFIRMED THE ACTION OF THE LEARNED ASSESSING OF FICER 14. BEFORE US THE LEARNED AUTHORISED REPRESENTATIV E OF THE ASSESSEE SUBMITTED THAT EXPENSES UNDER THESE HEADS ARE OF SMALL AMOUNTS WHICH WERE PAID IN CASH AND THESE WERE ENTI RELY FOR THE BUSINESS PURPOSE. HE ALSO CONTENDED THAT THE LOWER AUTHORITIES HAVE NOT POINTED OUT WHICH SPECIFIC EXPENSES WERE N OT SUPPORTED BY VOUCHERS. HE PLEADED THAT THE ENTIRE DISALLOWANC E SHOULD BE DELETED. 15. ON THE OTHER HANDS THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF THE LOWER AU THORITIES. 16. WE FIND THAT THE LOWER AUTHORITIES HAVE NOT POI NTED OUT WHICH SPECIFIC EXPENSE UNDER THESE HEADS WAS NOT SUPPORTE D BY VOUCHERS. HOWEVER IT IS ALSO OBSERVED THAT THE AS SESSEE HAS ALSO NOT CLAIMED BEFORE US OR BEFORE THE LEARNED COMMISS IONER OF INCOME TAX (APPEALS) THAT THE ENTIRE EXPENDITURE DE BITED UNDER THESE HEADS WAS FULLY SUPPORTED BY VOUCHERS. THUS IT IS OBSERVED THAT THOUGH THE LEARNED AUTHORISED REPRESENTATIVE O F THE ASSESSEE HAS POINTED OUT MISTAKE IN THE ACTION OF THE LOWER AUTHORITIES BUT HAS NOT POINTED OUT ANYTHING ABOUT THE ACTUAL FACTS OF THE CASE. 17. FURTHER IT IS OBSERVED THAT THE LOWER AUTHORIT IES HAVE DISALLOWED 15% OUT OF THE EXPENDITURE UNDER THE ABO VE HEADS - 6 - WITHOUT BRINGING ON RECORD ANY BASIS FOR ARRIVING A T SUCH PERCENTAGE. HOWEVER IT IS ALSO OBSERVED THAT THE ASSESSEE HAS ALSO BROUGHT NO MATERIAL BEFORE US TO SHOW THAT THE EXPENSE CLAIMED UNDER THESE HEADS WERE REASONABLE KEEPING I N VIEW THE VOLUME OF THE ASSESSEES BUSINESS AND ITS PAST ASSE SSMENT RECORDS. IN THE ABOVE FACTS AND CIRCUMSTANCES AND KEEPING IN VIEW THE TURNOVER OF `.9 60 25 383/- OF THE ASSESSEES B USINESS IN OUR CONSIDERED VIEW IT SHALL MEET THE INTEREST OF JUSTI CE IF DISALLOWANCE IS RESTRICTED TO `.1 00 000/-. WE THEREFORE MODIFY THE ORDERS OF THE LOWER AUTHORITIES AND ALLOW RELIEF OF `.91 868/- TO THE ASSESSEE. THEREFORE THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 18. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 13 TH AUGUST 2010 SD/- SD/- (MAHAVIR SINGH) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUN TANT MEMBER AHMEDABAD: ON THIS 13 TH DAY OF AUGUST 2010 PATKI COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESP ONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS)-I SURAT. 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON 3-8-2010 -------- ----------- 2. DRAFT PLACED BEFORE AUTHORITY 3-8-2010 ----- ------------- 3. DRAFT PROPOSED & PLACED 10-8-2010 -------- ----------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 10-8-2010 ------------------- JM 5. APPROVED DRAFT COMES TO P.S 13-8-2010 -------- ------------ 6. KEPT FOR PRONOUNCEMENT ON 13-8-2010 -------- ------------ 7. FILE SENT TO THE BENCH CLERK 13-8-2010 ------ -------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- --- -----------------