The ITO, Ward-4(1),, Ahmedabad v. Gujarat MRI Centre Pvt. Ltd.,, Ahmedabad

1 IN THE INCOME TAX APPELLATE TRIBUNAL D-BENCH AHMEDABAD. BEFORE: SHRI G.D. AGARWAL VICE PRESIDENT AND SHRI BHAVNESH SAINI JUDICIAL MEMBER ITA NO.1584/AHD/2007 (ASSESSMENT YEAR 2003-2004) INCOME TAX OFFICER WARD 4(1) AHMEDABAD. VERSUS GUJARAT MRI CENTRE PVT. LTD. SAMDEV HOSPITAL NR. SOPAN FLATS COMMERCE COLLEGE NAVRANGPURA. AHMEDABAD- 380 009. (APPELLANT) (RESPONDENT) PAN:AAACG 5491 J FOR THE REVENUE: SHRI C.K. MISHRA SR. DR FOR THE ASSESSEE: SHRI. M.K. PATEL FOR S.N. DIVATIA AR ORDER PER G.D. AGARWAL VICE-PRESIDENT: THIS IS REVENUES APPEAL AGAINST ORDER OF THE CIT(A)-VIII AHMEDABAD DATED 18-01-2007. THE ONLY GROUND RAISED IN THE APPEAL BY THE REVENUE READS AS UNDER: 1. THE LD.CIT(A) ERRED IN LAW AND ON THE FACTS OF T HE CASE IN DELETING THE ADDITION OF RS.11 20 000/- BEING PROPO RTIONATE INTEREST EXPENDITURE DISALLOWED ON ACCOUNT OF DIVERSION OF I NTEREST BEARING FUNDS FOR NON BUSINESS PURPOSES. 2. THE ASSESSING OFFICER DISALLOWED THE SUM OF RS.1 1 20 000/- OUT OF INTEREST ON THE GROUND THAT THE BORROWED MONEY HAS BEEN DIVERTED FOR THE INVESTMENT IN THE SHARES. THE SUBMISSION OF THE AS SESSEE BEFORE THE LD. COMMISSIONER OF INCOME TAX(APPEALS) AS WELL AS THE FINDING OF THE LD. COMMISSIONER OF INCOME TAX(APPEALS) READS AS UNDER: 2.1 BEFORE ME THE LEARNED COUNSEL FOR THE APPELLANT SHRI KETUL R. PATEL C.A. APPEARED AND FILED HIS WRITTEN SUBMISSI ONS COVERING THE 2 ITA NO.1584/AHD/2007 (ASSESSMENT YEAR 2003-2004) FACTS ON THE ISSUE. HE VEHEMENTLY ARGUED THAT THE ASSESSING OFFICER WENT WRONG IN MAKING THE DISALLOWANCE OF IN TEREST ON MERE SURMISES AND WITHOUT APPRECIATING THE RELEVANT FACT S. ACCORDING TO HIM MEDIUM TERM LOAN (MTL) OBTAINED FROM STATE BAN K OF SAURASHTRA WAS UTILIZED ONLY FOR PURCHASE OF MACHIN ERY IN THE EARLIER YEAR AND THE OUTSTANDING LOAN WAS PAID ON 2 1.06.2002 BY OBTAINING A FRESH LOAN OF RS.125 LACS FROM PARAS PH ARMACEUTICALS LIMITED ON 20.06.2002 WHICH FACTS WAS NOTED IN PARA 4 OF THE ASSESSMENT ORDER. AS REGARDS INVESTMENT IN SHARES OF RS.80 LACS IN ADD LIFE MEDICAL INSTITUTE PVT. LTD. HE CONTENDED THAT THE INVESTMENT WAS NOT DURING THE YEAR ENDED 31.3.2003 BUT BY WAY OF SHARE ADVANCES DURING THE YEAR ENDED 31.3.2001 AND 31.03.2002. AS AGAINST SHARE ADVANCE OF RS.125 LACS RS.80 LACS WERE ALLOTTED WITH SHARES AND BALANCE RS.45 LACS WAS REFUNDED DUR ING THE YEAR ENDED 31.3.2003. ACCORDING TO HIM THE SAID SHARE ADVANCE IN PRECEDING TWO YEARS WAS OUT OF INTERNALS ACCRUALS B EING NET PROFIT AND DEPRECIATION RESERVE. THE SAID DETAILS WERE FI LED BEFORE THE AO WHICH WAS NOT APPRECIATED. IN OTHER WORDS HE W OULD CONTEND THAT NO PART OF INTEREST BEARING LOANS WAS EITHER M IXED IN THE COMMON BASKET OF FUNDS OR DIVERTED FOR INVESTMENT I N SHARES AS NOTED BY THE AO IN HIS ORDER. AS REGARDS VARIOUS J UDICIAL JUDGMENTS RELIED ON BY THE AO IT WAS CONTENDED BY THE APPELLANT THAT THE FACTS OBTAINING IN THOSE CASES WERE QUITE DIFFERENT WHEREIN MIXED UP OF BORROWED FUNDS WITH OWN FUNDS AND DIVER SION OF BORROWED FUNDS WERE ESTABLISHED WHEREAS IN THE CASE OF THE APPELLANT THE BORROWED FUNDS WERE SPECIFICALLY UTI LIZED IN THE FIRST INSTANCE FOR PURCHASE OF MACHINERY ON TERM LOAN BAS IS AND DURING THE RELEVANT FINANCIAL YEAR FOR PAYING UP EARLIER L OAN BY OBTAINING FRESH LOAN WHICH WAS DIRECTLY LINKED AS EVEN OBSERV ED BY THE AO IN HIS ORDER. ACCORDINGLY IT WAS PLEADED THAT THE IN TEREST DEBITED TO PROFIT AND LOSS ACCOUNT AT RS.17.23 LACS WAS EXCLUS IVELY IN CONNECTION WITH THE BUSINESS OPERATIONS AND HENCE W AS FULLY ALLOWABLE AND NO DISALLOWANCE WAS WARRANTED. 2.2 I HAVE EXAMINED THE SUBMISSIONS AND ARGUMENTS O F THE APPELLANT IN DETAIL AND ALSO PERUSED THE ASSESSMENT ORDER. IT IS NOTED IN THE ASSESSMENT ORDER THAT OUTSTANDING LOAN S TAKEN FROM STATE BANK OF SAURASHTRA WAS REPAID BY TAKING LOAN FROM A PRIVATE PARTY DURING THE RELEVANT FINANCIAL YEAR ON 20.06. 2002. THIS FACT IS NOT IN DISPUTE. IT IS ALSO NOT IN DISPUTE THAT ORIGINAL LOAN BORROWED FROM STATE BANK OF SAURASHTRA WAS UTILIZED FOR PURCHASE OF MACHINERY. WHAT HAPPENED DURING THE RELEVANT PR EVIOUS YEAR WAS ONLY SUBSTITUTE OF EARLIER LOAN BY A NEW LOAN A T A LOWER INTEREST RATE OF 14% AS AGAINST 15.5%. THIS BEING SO THERE IS NO FINDING 3 ITA NO.1584/AHD/2007 (ASSESSMENT YEAR 2003-2004) THAT INTEREST BEARING LOANS WERE DIVERTED FOR MAKIN G INVESTMENT IN SHARES WHICH WERE NOT PART OF REGULAR BUSINESS. EV EN OTHERWISE AS CONTENDED BY THE APPELLANT BY WAY OF CASH FLOW STAT EMENT WHICH WAS SUBMITTED BEFORE THE AO AS WELL THAT THE INVEST MENT IN SHARES WERE OUT OF FUNDS GENERATED INTERNALLY DURING THE Y EAR ENDED 31.03.2001 AND 31.03.2002 AND FINAL REPAYMENT WAS S ETTLED IN THE YEAR ENDED 31.03.2002. IN THIS CONNECTION THE OBS ERVATION OF THE AO THAT DURING THE YEAR INVESTMENT IN SHARES WAS TO THE TUNE OF RS.125 LACS WAS AGAINST THE FACTS OBTAINING ON RECO RDS. FURTHER THE OBSERVATION OF THE AO IN PARA 7 THAT DURING THE YEAR MACHINERY WORTH RS.153 LACS WAS BOUGHT OUT OF OWN FUNDS WAS A LSO FACTUALLY INCORRECT INASMUCH AS THE SAID PURCHASE OF CAPITAL GOODS WERE DELIVERED IN MAY 2003 AND THERE WAS NO CASH OUTFLOW TO THE EXTENT AS CLAIMED BY THE AO. IN ANY CASE THE INVESTMENT IN SHARES TO THE TUNE OF RS.80 LACS IS ESTABLISHED TO HAVE BEEN OUT OF INTERNAL ACCRUALS INCLUDING THE RESERVES AND FURTHER THAT TH E UTILIZATION OF INTEREST BEARING FUNDS FOR BUSINESS PURPOSE IN THI S CASE PURCHASE OF CAPITAL ASSET BEING MACHINERY IN EARLIER YEAR IN ESTABLISHED BEYOND DOUBT. THIS BEING THE FACTUAL POSITION AND THERE BEING NO DOUBT ABOUT THE FLOW OF FUNDS AND THE EVENTS OF BOR ROWING AND UTILIZATION THERE IS NO GROUND TO HOLD THAT A PART OF INTEREST BEARING FUNDS WAS DIVERTED FOR NON-BUSINESS PURPOSE. EVEN AS REPEATEDLY HELD BY VARIOUS JUDICIAL FORUMS THE UTILIZATION OF BORROWED FUNDS AND THE NECESSARY CONDITIONS FOR ALLOWANCE OF INTER EST U/S. 36(1)(III) ARE ESTABLISHED IN THIS CASE AND NO DISA LLOWANCE OUT OF INTEREST OUTGO BEING BUSINESS EXPENDITURE IS CALLED FOR. SECTION 37(1) DOES NOT HAVE ANY SAY ON THE FACTS OF THIS CA SE. IN VIEW OF THE ABOVE DISCUSSION THE DISALLOWANCE OF INTEREST AT R S.11 20 000/- IS DIRECTED TO BE DELETED. 3. AT THE TIME OF HEARING BEFORE US THE REVENUE WA S UNABLE TO CONTROVERT THE ABOVE FINDINGS RECORDED BY THE LD. C OMMISSIONER OF INCOME TAX(APPEALS). THE ASSESSEE HAS POINTED OUT THAT THE ADVANCE FOR THE PURCHASE OF SHARES WAS GIVEN DURING THE YEAR EN DED ON 31-03-2001 AND 31-03-2002. TOTAL ADVANCE GIVEN WAS RS.125 LAC S OUT OF WHICH SHARES OF RS.80 LACS WERE ALLOTTED AND BALANCE RS.4 5 LACS WAS REFUNDED DURING THE YEAR ENDED ON 31-03-2003. THE ADVANCE I N THE EARLIER YEARS WAS OUT OF THE INTERNAL ACCRUALS BEING THE NET PROF ITS AND DEPRECIATION RESERVE OF THE ASSESSEE COMPANY. THE ABOVE FINDING HAD NOT BEEN 4 ITA NO.1584/AHD/2007 (ASSESSMENT YEAR 2003-2004) CONTROVERTED BEFORE US. IT WAS ALSO STATED BY THE LEARNED COUNSEL AT THE TIME OF HEARING BEFORE US THAT NO INTEREST WAS DISA LLOWED IN THE PRECEDING 2 YEARS. 4. IN VIEW OF ABOVE WE DO NOT FIND ANY JUSTIFICATI ON TO INTERFERE WITH THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX(APP EALS). THE SAME IS SUSTAINED. IN THE RESULT REVENUES APPEAL IS DISM ISSED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 14 TH MAY 2010. SD/- SD/- (BHAVNESH SAINI) (G.D. AGARWAL) JUDICIAL MEMBER VIC E PRESIDENT AHMEDABAD; DATED: 14/05/2010 ANKIT* COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED 4. THE CIT 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT AHMEDABAD BENCHES AHMEDABAD.