M/s. Ambuja Intermediates Ltd.,, Ahmedabad v. The Income tax Officer,Ward-1(1),, Ahmedabad

ITA 1829/AHD/2009 | 2005-2006
Pronouncement Date: 01-04-2010 | Result: Partly Allowed

Appeal Details

RSA Number 182920514 RSA 2009
Assessee PAN AAACA1236B
Bench Ahmedabad
Appeal Number ITA 1829/AHD/2009
Duration Of Justice 10 month(s)
Appellant M/s. Ambuja Intermediates Ltd.,, Ahmedabad
Respondent The Income tax Officer,Ward-1(1),, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 01-04-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 01-04-2010
Date Of Final Hearing 31-03-2010
Next Hearing Date 31-03-2010
Assessment Year 2005-2006
Appeal Filed On 01-06-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI BHAVNESH SAINI JUDICIAL MEMBER AND SHRI N.S. SAINI ACCOUNTANT MEMBER DATE OF HEARING: 31.03.10 DRAFTED ON:31.03.10 ITA NO.1829/AHD/2009 ASSESSMENT YEAR : 2005-2006 AMBUJA INTERMEDIATES P. LTD. 901/A NAR-NARAYAN COMPLEX SWASTIK CROSS ROAD NAVRANGPURA AHMEDABAD VS. THE DY. COMMISSIONER OF INCOME TAX JITENDRA CHAMBERS 3 RD FLOOR ASHRAM ROAD AHMEDABAD. PAN/GIR NO. : AAACA 1236 B (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI N.C.AMIN ADV. RESPONDENT BY: SHRI KUMAR HRISHIKESH SR. D.R. O R D E R PER N.S.SAINI ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-VI AHMEDABAD DATED 04.02.2009. 2. THE FIRST ISSUE INVOLVED IN THIS APPEAL OF THE A SSESSEE IS THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERRED I N LAW AND IN FACTS IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OF FICER DISALLOWING THE CLAIM OF BAD DEBT OF RS.80 20 000/-. - 2 - 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE SOLD GOODS TO M/S. URMI CHEMICALS INDUSTRIES PVT. LTD. SINCE 25.05.2002 AND AS PER TH E BOOKS OF THE ASSESSEE THE OPENING BALANCE OF RECEIVABLE AMOUNT FROM THE SAID PARTIES WAS RS.1 80 20 000/-. AS THE AMOUNT WAS RECOVERABLE EXCEEDED THE VALUE OF SECURITIES MORTGAGE IN FAVOUR OF THE ASSESSEE BY THE SAID M/S.URMI CHEMICALS INDUSTRIES PVT. LTD. BY RS.80 20 000/- T HE ASSESSEE HAS WRITTEN OFF THE EXCESS AMOUNT OF RS.80 20 000/- AS IRRECOVERABLE AND CLAIM AS BAD DEBT. 4. THE LEARNED ASSESSING OFFICER DISALLOWED THIS CL AIM OF BAD DEBT OF RS.80 20 000/-. 5. ON APPEAL THE LEARNED COMMISSIONER OF INCOME TA X(APPEALS) OBSERVED THAT THE ASSESSEE COMPANY HAS FILED SUIT A GAINST THE M/S. URMI CHEMICALS INDUSTRIES PVT. LTD. WHICH WAS DECIDED BY THE CITY CIVIL COURT ON 16.12.2004 IN FAVOUR OF THE ASSESSEE AND THE COU RT HAS DIRECTED M/S. URMI CHEMICALS INDUSTRIES PVT. LTD. TO PAY A SUM OF RS. 2 26 45 307/- ALONG WITH INTEREST @ 18% PER ANNUM TO THE ASSESSEE . 6. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FURTHER OBSERVED THAT CITY CIVIL COURT VIDE ITS ORDER DATED 20.09.2004 ALSO ORDERED M/S. URMI CHEMICALS INDUSTRIES PVT. LTD. NO T TO TRANSFER THE PROPERTIES MORTGAGED IN FAVOUR OF THE ASSESSEE. 7. ON THE ABOVE FACTS THE LOWER AUTHORITIES WERE O F THE OPINION THAT THE DEBT OWED FROM M/S. URMI CHEMICALS INDUSTRIES P VT. LTD. HAS NOT - 3 - BECOME A BAD DEBT DURING THE YEAR UNDER CONSIDERATI ON AND THEREFORE DISALLOWED THE CLAIM FOR BAD DEBT OF RS.80 20 000/- BY FOLLOWING THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF DHALL ENTERPRISES AND ENGINEERS PVT. LTD. V. CIT REPORTED AT 207 CTR (GUJ.) 729. 8. BEFORE US LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF DHALL ENTERPRISES ENGINEERS PVT. LTD. (SUPRA) STAND S REVERSED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F T.R.F. LIMITED VS. CIT IN CIVIL APPEAL NO.5292 OF 2003 ORDER DATED 9. 02.2010 AND THEREFORE THE CLAIM OF THE ASSESSEE SHOULD BE ALLO WED. 9. WE FIND THAT IN THE INSTANT CASE IT IS NOT IN D ISPUTE THAT THE ASSESSEE OWED FROM M/S. URMI CHEMICALS INDUSTRIES PVT. LTD. MONEY ON ACCOUNT OF GOODS SOLD BY IT. THUS A PART OF SUCH DEBT WAS CLAIMED BY THE ASSESSEE DURING THE YEAR AS BAD DEBT. THE FACT OF THE CASE INCLUDING THE ORDERS PASSED BY THE CITY CIVIL COURT PRIMARILY SHOWS THAT THE CLAIM OF THE ASSESSEE WAS NOT MALAFIDE. NO MATERIAL WAS BROUGHT ON RECORD BY THE REVENUE TO SHOW THAT THE VALUE OF PROPERTIES MORTGA GED TO THE ASSESSEE WAS MORE THAN THE VALUE WHICH WAS CONSIDERED BY THE ASSESSEE AS REALIZABLE DEBT. IT IS AN ADMITTED FACT THAT THE V ALUE OF DEBT WHICH WAS MORE THAN THE VALUE OF PROPERTIES MORTGAGED WITH TH E ASSESSEE AND THE EXCESS AMOUNT WAS ONLY CLAIMED AS BAD DEBT BY THE A SSESSEE AND THIS PART OF THE DEBT WAS WRITTEN OFF BY THE ASSESSEE AS IRRE COVERABLE IN ITS BOOKS OF ACCOUNT. THE HON'BLE SUPREME COURT IN THE CASE OF T .R.F. LIMITED (SUPRA) HAS HELD AS UNDER:- IN VIEW OF OUR ORDER PASSED TODAY IN CIVIL APPEAL NO.5293 OF 2003 AND CIVIL APPEAL NO.5294 OF 2003 W E REMIT THIS CASE CONCERNING ASSESSMENT YEAR 1994-199 5 ALSO - 4 - TO THE ASSESSING OFFICER WHO IS DIRECTED TO CONSID ER THE QUESTION AS TO WHETHER THE WRITE OFF IS DONE BY TH E ASSESSEE IN ITS ACCOUNTS IN ACCORDANCE WITH THE LAW DECLARED BY US IN THE ABOVE ORDER. THE CIVIL APPEAL FILED BY THE ASSESSEE ACCORDINGL Y STANDS DISPOSED OF WITH NO ORDER AS TO COSTS. 10. IN VIEW OF THE ABOVE IN OUR CONSIDERED OPINION THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS NOT JUSTIFI ED IN CONFIRMING THE DISALLOWANCE OF BAD DEBT OF RS.80 20 000/- CLAI MED BY THE ASSESSEE. WE THEREFORE DELETE THE DISALLOWANCE OF RS.80 20 0 00/- AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. 11. THE SECOND ISSUE INVOLVED IN THIS APPEAL IS REG ARDING CONFIRMATION OF DISALLOWANCE OF INTEREST OF RS.1 38 988/- BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE WAS PA YING HUGE INTEREST ON THE BORROWINGS MADE FROM BANK AND OTHERS ON THE ONE HAND AND THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCE OF RS.1 85 23 000/- TO ITS SISTER CONCERNS NAMELY AMBUJA SOLVEX PVT. LTD. THUS THE L EARNED ASSESSING OFFICER DISALLOWED RS.1 38 988/- OUT OF INTEREST EX PENSES CLAIMED BY THE ASSESSEE BEING 12% OF THE AMOUNT OF INTEREST FREE A DVANCE GIVEN BY THE ASSESSEE. 13 ON APPEAL THE LEARNED COMMISSIONER OF INCOME TA X(APPEALS) CONFIRMED THE ACTION OF THE LEARNED ASSESSING OFFIC ER. 14. BEFORE US THE ASSESSEE HAS POINTED OUT THAT IT WAS EXPLAINED TO THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THAT IN TEREST FREE FUNDS - 5 - AVAILABLE WITH THE ASSESSEE WAS TO THE TUNE OF RS.1 3 01 82 411/- COMPRISING OF DEPOSITS OF RS.25 00 000/- FROM SANJE EV EXPORTS RS.25 00 000/- FROM ANAMICA GEMS AND RS.1 15 00 000 /- FROM MANGALYA SOFT TECH LTD. AND SHARE CAPITAL OF RS.3 05 00 000/- AND RESERVES AND SURPLUS OF RS.8 31 82 411/-. 15. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) COULD NOT FIND ANY ERROR IN THIS EXPLANATION OF THE ASSESSEE. THUS THE INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE WAS MUCH MORE THAN INTEREST FREE ADVANCE OF RS.1 85 23 000/- GIVEN BY THE ASSESSEE. ON THE ABOVE FACTS THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESS EE ARGUED THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS.1 38 988/-. 16. WE FIND THAT THE HON'BLE BOMBAY HIGH COURT IN T HE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. (2009) 313 ITR 340 (BOM.) HAS HELD AS UNDER:- 8. WE HAVE HEARD LEARNED COUNSEL FOR BOTH THE PART IES. IN OUR OPINION THE VERY BASIS ON WHICH THE REVENUE HAD SOU GHT TO CONTEND OR ARGUE THEIR CASE THAT THE SHAREHOLDERS FUNDS TO THE TUNE OF OVER RS. 172 CRORES WAS UTILISED FOR THE PURPOSE OF FIXE D ASSETS IN TERMS OF THE BALANCE SHEET AS ON 31ST MARCH 1999 IS FAL LACIOUS. FIRSTLY WE ARE NOT CONCERNED WITH THE BALANCE SHEET AS OF 3 1ST MARCH 1999. WHAT WOULD BE RELEVANT WOULD BE BALANCE SHEET AS ON 31ST MARCH 2000. APART FROM THAT THE LEARNED COUNSEL H AS BEEN UNABLE TO POINT OUT TO US FROM THE BALANCE SHEET TH AT THE BALANCE SHEET AS ON 31ST MARCH 1999 SHOWED THAT THE SHAREH OLDERS FUNDS WERE UTILISED FOR THE PURPOSE OF FIXED ASSETS. TO O UR MIND THE P&L A/C AND THE BALANCE SHEET WOULD NOT SHOW WHETHER SH AREHOLDERS FUNDS HAVE BEEN UTILISED FOR INVESTMENTS. THE ARGUM ENT HAS TO BE REJECTED ON THIS COUNT ALSO. 9. APART FROM THAT WE HAVE NOTED EARLIER THAT BOTH IN THE ORDER OF THE CIT(A) AS ALSO THE TRIBUNAL A CLEAR FINDING IS RECORDED THAT THE ASSESSEE HAD INTEREST-FREE FUNDS OF ITS OWN WHI CH HAD BEEN - 6 - GENERATED IN THE COURSE OF THE YEAR COMMENCING FROM 1ST APRIL 1999. APART FROM THAT IN TERMS OF THE BALANCE SHEET THERE WAS A FURTHER AVAILABILITY OF RS. 398.19 CRORES INCLUDING RS. 180 CRORES OF SHARE CAPITAL. IN THIS CONTEXT IN OUR OPINION THE FINDING OF FACT RECORDED BY CIT(A) AND TRIBUNAL AS TO AVAILABILITY OF INTEREST-FREE FUNDS REALLY CANNOT BE FAULTED. 10. IF THERE BE INTEREST-FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVES TMENTS WERE FROM THE INTEREST-FREE FUNDS AVAILABLE. IN OUR OPIN ION THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD. (SUPR A) HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA H IGH COURT IN WOOLCOMBERS OF INDIA LTD. (SUPRA) WHERE A SIMILAR I SSUE HAD ARISEN. BEFORE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER TH E TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NO T OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS A ND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM T HE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSI DERABLE FORCE BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WOOLCOMBER S CASE (SUPRA) THE CALCUTTA HI GH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFIC IENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITE D IN THE OVERDRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CAS E IT SHOULD BE PRESUMED THAT THE TAXES WERE PAID OUT OF THE PROFIT S OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION THERE WAS SUFF ICIENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE TH E HIGH COURT. THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE O UT OF THE INTEREST-FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INV ESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING TH E FINDING OF FACT BOTH BY THE CIT(A) AND TRIBUNAL. 17. IN VIEW OF THE ABOVE IN OUR CONSIDERED OPINION AS THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WAS MUCH MORE TH AN THE INTEREST FREE ADVANCE GIVEN BY IT AND THEREFORE IN OUR CONSIDERE D OPINION NO - 7 - DISALLOWANCE OUT OF INTEREST EXPENDITURE WAS WARRAN TED. WE THEREFORE DELETE THE DISALLOWANCE OF INTEREST OF RS.1 38 988/ - AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. 18. THE THIRD ISSUE INVOLVED IS REGARDING OF INITIA TION OF PENALTY PROCEEDING UNDER SECTION 271(1)(C) OF THE ACT. 19. AT THE TIME OF THE HEARING NO ARGUMENTS WERE M ADE BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE O N THIS GROUND OF THE APPEAL. HENCE THE SAME IS DISMISSED FOR WANT OF PRO SECUTION. 20 IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 01/04/2010. SD/- SD/- (BHAVNESH SAINI) ( N.S . SAINI ) JUDICIAL MEMBER ACCOUN TANT MEMBER AHMEDABAD; DATED 01/04/2010 PARAS # COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS) 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD