M/s. Jawahar Ice Factory & Cold Storage,, Indore v. The I..T.O., Indore

ITA 19/IND/2010 | 2005-2006
Pronouncement Date: 15-02-2010 | Result: Dismissed

Appeal Details

RSA Number 1922714 RSA 2010
Bench Indore
Appeal Number ITA 19/IND/2010
Duration Of Justice 1 month(s) 3 day(s)
Appellant M/s. Jawahar Ice Factory & Cold Storage,, Indore
Respondent The I..T.O., Indore
Appeal Type Income Tax Appeal
Pronouncement Date 15-02-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted SMC
Tribunal Order Date 15-02-2010
Date Of Final Hearing 16-02-2010
Next Hearing Date 16-02-2010
Assessment Year 2005-2006
Appeal Filed On 11-01-2010
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH INDORE BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER ITA NOS. 19 & 20/IND/2010 A.YS. 2005-06 & 2006-07 M/S JAWAHAR ICE FACTORY AND COLD STORAGE INDORE (PAN AABFC-2322-H .APPELLANT VS INCOME TAX OFFICER RANGE 1 INDORE .RESPONDENT APPELLANT BY SHRI S.N. AGRAWAL RESPONDENT BY SMT. APARNA KARAN SR. DR O R D E R THESE TWO APPEALS ARE BY THE ASSESSEE FOR THE ASSES SMENT YEARS 2005-06 AND 2006-07 ON IDENTICAL GROUND THAT ON THE FACTS A ND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN MAINTAINING THE D ISALLOWANCE OF RS.1 12 788/- AND RS.74 374/- RESPECTIVELY OUT OF INTEREST PAID BY TH E ASSESSEE. DURING HEARING OF THESE APPEALS I HAVE HEARD SHRI S.N. AGRAWAL LD. COUNSEL FOR THE ASSESSEE AND SMT. APARNA KARAN LEARNED SENIOR DR. BOTH THE LEAR NED COUNSELS AGREED AND CONTENDED THAT SINCE IDENTICAL ISSUE IS INVOLVED IN THESE APPEALS THEREFORE THESE CAN BE HEARD AND DISPOSED OF TOGETHER. 2 2. THE CONTENTION RAISED ON BEHALF OF THE ASSESSEE IS THAT THE ASSESSEE WAS HAVING INTEREST FREE FUNDS TO THE TUNE OF RS.85 87 975/- (ON AVERAGE BASIS) WHEREAS AN AMOUNT OF RS.31 70 375/- WAS ONLY ADVANCED INTER EST FREE BY THE ASSESSEE WHICH ALSO INCLUDES AN AMOUNT OF RS.10 62 029/- ADVANCED TO M/S RAJA TRANSPORT AND RS.1 74 068/- TO LATE SURESH TALWANI (LEGAL HEIR O F SMT. AMRITA KALWANI) PROPRIETOR OF M/S RAJA TRANSPORT. IT WAS ALSO POINTED OUT THAT TH E FAMILY MEMBERS OF THE PARTNERS OF THE ASSESSEE FIRM DEPOSITED THEIR SURPLUS AMOUNT WITH THE FIRM TO SAVE INTEREST BURDEN ON THE FIRM AND TOOK ADVANCES AS AND WHEN RE QUIRED WHICH AS PER THE ASSESSEE IS A MODUS OPERANDI FOR THE SINGLE OBJECT TO REDUCE THE INTEREST BURDEN ON THE FIRM. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL IN THE CASE OF ANIL RATHI (ITA NO. 280/IND/2000) INDUSTRI AL CABLES (I) LIMITED V. ACIT (97 ITD 267) (CHD.). 2. ON THE OTHER HAND THE CRUX OF ARGUMENTS ON BEHA LF OF THE REVENUE IS THAT THE ASSESSEE HAS TO PROVE THAT INTEREST BEARING FUNDS W ERE NOT ADVANCED NEXUS HAS TO BE PROVED BY THE ASSESSEE AND IT IS A COLOURABLE DE VICE SIMPLY TO REDUCE THE TAX WHICH THE ASSESSEE IS LEGALLY SUPPOSED TO PAY. REL IANCE WAS PLACED ON THE DECISION IN ITA NO. 373/CHD/2003 (BIYANI CHAMBAL KA MAHA BHA NDAR VS. ITO). THE ASSESSMENT ORDER/IMPUGNED ORDER WAS STRONGLY DEFEND ED. 3. I HAVE CONSIDERED THE ARGUMENTS PUT-FORTH BY THE LEARNED RESPECTIVE COUNSELS AND PERUSED THE MATERIAL AVAILABLE ON FILE. BRIEF F ACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ICE CO LD STORAGE PRESERVATION OF FOOD ARTICLES/OTHER GOODS ETC. ON PERUSAL OF AUDIT REPO RT (IN FORM NO. 3CD) IT WAS FOUND THAT THE ASSESSEE SHOWED A SUM OF RS.3 83 630/- AS LOAN AND ADVANCES TO VARIOUS PERSONS AND ALSO CLAIMED TO HAVE DEDUCTED THE PAYME NT OF INTEREST OF RS.2 40 414/- IN ITS PROFIT AND LOSS ACCOUNT. IT IS SUMMARIZED AS UNDER :- 3 ASSTT. YEAR 2005-06 S.NO. NAME OPENING 01.04.04 DEBIT CREDIT BALANCE 31.03.05 01 RAJKUMAR KALWNI 9 978 - - 9 978 02 HARIRAM ROADLINES 1 25 300 - 30 000 95 300 03 LOAN TO OTHERS 3 34 500 - - 3 34 500 04 RAJA TRANSPORT 8 89 767 7 93 800 6 24 538 10 62 029 05 PARASHCHAND RAMANLAL - 2 97 000 - 2 97 000 06 RAJESH HARIRAM 6 392 40 000 - 46 392 07 RUKMANI ROADLINES 3 58 126 - 42 000 3 16 126 08 KAPIL KALWANI - 2 00 000 2 00 000 09 M.P. CHEMICAL AGENCY 7 380 - - 7 380 10 ROCKYLINE TECHNOLOGY 2 00 000 - 40 000 1 60 000 11 STAFF ADVANCE - 2 016 - 2 016 12 KAUSHIK KALWANI - 2 00 000 - 2 00 000 13 BAHRAT KALWANI - 2 00 000 - 2 00 000 14 HARI PRABHU TR.CORP. 3 627 36 000 2 880 36 747 15 SURESH KALWANI 1 74 068 - - 1 74 068 TOTAL 21 09 138 17 68 816 7 36 418 31 41 586 LIKEWISE FOR THE ASSESSMENT YEAR 2006-07 THE ASSESS EE PAID INTEREST OF RS.5 31 137/- TO THE BANK AND RS.91 374/- TO OTHER PERSONS. AS PER THE ASSESSEE (REPLY DATED 10.11.2008) IT WAS CLAIMED THAT AN AM OUNT OF RS.48 58 885/- WAS ADVANCED AND OUT OF THAT AN AMOUNT OF RS.13 89 062 /- DIRECTLY RELATES TO ITS BUSINESS THEREFORE THE INTEREST FREE AMOUNT AS AD VANCE COMES TO RS.34 69 823/-. AS PER THE ASSESSEE THE AMOUNT OF RS.62 94 698/- W AS AVAILABLE INTEREST FREE. THE 4 STAND OF THE REVENUE IS THAT HAD THIS MONEY NOT BEE N ADVANCED TO RELATIVES AND FRIENDS OF THE DIRECTORS OF THE ASSESSEE IT WOULD HAVE BEEN AVAILABLE TO THE ASSESSEE FOR ITS BUSINESS PURPOSES AND TO THAT EXTENT IT MAY NOT HAVE BEEN NECESSARY TO BORROW FROM THE BANKS. THE REVENUE HAS PLACED RELIA NCE ON THE DECISION IN CIT V. H.R. SUGAR FACTORY PRIVATE LIMITED (187 ITR 363) (A LL) AND ALSO THE DECISION FROM THE HONBLE PUNJAB & HARYANA HIGH COURT IN CIT V. ABHIS HEK INDUSTRIES LIMITED (286 ITR 1) (P&H). IT IS SEEN THAT THE ASSESSEE TOOK RS.2 10 204/- AS LOAN FROM BANK AND RS.32 85 965/- FROM OTHERS. THE ASSESSEE ALSO CLAI MED TO HAVE PAID INTEREST OF RS.2 40 414/- IN ITS PROFIT AND LOSS ACCOUNT. THE STAND OF THE REVENUE IS THAT ON THE ONE HAND THE ASSESSEE BORROWED INTEREST BEARING FUN DS AND ON THE OTHER MADE ADVANCES OF RS.31 70 375/- ON WHICH NO INTEREST WAS CHARGED. THE LEARNED SENIOR DR POINTED OUT THAT OUT OF ADVANCES OF RS.31 41 586 /- THERE WAS AN OPENING BALANCE OF RS.21 09 138/- AS ON 1.4.2004. SIMILARLY THE UN SECURED LOANS OF RS.34 82 021/- WERE THERE AS OPENING BALANCE. DURING THE ASSESSMEN T PROCEEDINGS IT WAS CLAIMED BY THE ASSESSEE THAT OUT OF TOTAL LOANS OF RS.32 85 965/- THE ASSESSEE ONLY PAID RS.6 29 196/- AS INTEREST AND THE BALANCE AMOUNT OF LOAN OF RS.26 56 769/- WAS INTEREST FREE. IN VIEW OF THESE FACTS THE AO ONLY RESTRICTED THE DISALLOWANCE TO THE EXTENT OF RS.1 12 788/- AND RS.74 374/- RESPECTIVEL Y WHICH IS UNDER CHALLENGE BEFORE THE TRIBUNAL. IN VIEW OF THESE FACTS IT IS ALSO A SETTLED POSITION THAT IT IS THE ASSESSEE WHO HAS TO MANAGE ITS AFFAIRS BUT NOT AT THE COST O F THE REVENUE WHICH THE ASSESSEE IS LEGALLY SUPPOSED TO PAY. TAX PLANNING IS ONLY PE RMITTED WITHIN THE LEGAL CIRCUMFERENCE AND NOT AT THE WHIMS AND FANCY OF ANY BODY. IT IS ALSO TO BE SEEN WHEN THE ASSESSEE WAS HAVING SUFFICIENT FUNDS THEN WHERE WAS THE NEED TO BORROW LOAN FROM BANK/OTHER PERSONS. IF THE ASSESSEE IS MAKING INTEREST FREE ADVANCES TO FULFIL SOCIAL OBLIGATIONS THEN IT CAN BE MADE FROM ITS OWN KITTY AND NOT FROM THE BORROWED 5 FUNDS ON WHICH THE ASSESSEE HAS PAID INTEREST BECAU SE THE COLOURABLE DEVICE CANNOT BE PERMITTED. EVEN OTHERWISE THE ASSESSEE HAS TO E STABLISH THAT IN FACT THE MONEY WAS ADVANCED FROM ITS OWN FUNDS/INTEREST FREE FUNDS AND NOT FROM THE MONEY WHERE INTEREST WAS PAID. THE OBSERVATION AS CONTAINED IN PARA 2.5 (PAGE 11) OF THE IMPUGNED ORDER IS REPRODUCED HEREUNDER :- 2.5 IN VIEW OF THE FACTUAL AND LEGAL POSITION DISCUSSED ABOVE THE PLEA OF THE APPELLANT IS NOT TENABLE. IT IS ALSO WORTH TO MENTION THAT THE APPE LLANT PAID INTEREST OF RS.1 02 000/- ON THE CAPITAL OF TH E PARTNERS. THE APPELLANT HAS NOT BEEN ABLE TO ESTABL ISH THAT THE INTEREST FREE LOANS/ADVANCES WERE USED FOR MAKING INTEREST FREE ADVANCES AND LOANS. TAKING INT O CONSIDERATION THE OVERALL FACTS OF THE CASE IT IS NOTED THAT HAD THE INTEREST FREE ADVANCES BEEN NOT MADE B Y THE APPELLANT THE SAME WOULD BE AVAILABLE FOR UTILIZATION FOR BUSINESS PURPOSES RESULTING IN NO N EED OR LESS NEED OF BORROWING THE FUNDS ON INTEREST. THE CASES RELIED UPON BY THE APPELLANT ARE THEREFORE OF NO HELP BEING DISTINGUISHABLE ONF ACTS. REFERENCE IS M ADE TO THE DECISION OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. ABHISHEK INDUSTRIES LTD.; 286 IT R 1(P&H) IN WHICH ON THE SIMILAR FACTS THE HONBLE CO URT CONFIRMS THE DISALLOWANCE OF INTEREST MADE BY THE A O. NOW I AM SUPPOSED TO ANALYSE THE ISSUE IN THE LIGHT OF SECTION 36(1)(III) OF THE ACT WHICH PROVIDES FOR DEDUCTION OF INTEREST ON LOANS R AISED FOR BUSINESS PURPOSES. SECTION 36(1)(III) IS REPRODUCED HEREUNDER :- 66 36. (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTE RS DEALT WITH THEREIN IN COMPUTING THE INCOME REFERRED TO I N SECTION 28 67 ( I ) THE AMOUNT OF ANY PREMIUM PAID IN RESPECT OF INSU RANCE AGAINST RISK OF DAMAGE 68 OR DESTRUCTION 68 OF STOCKS OR STORES 68 USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION; 69 [( IA ) THE AMOUNT OF ANY PREMIUM PAID BY A FEDERAL MILK CO- OPERATIVE SOCIETY TO EFFECT OR TO KEEP IN FORCE AN INSURANCE ON THE LIFE OF THE CATTLE OWNED BY A MEMBER OF A CO - OPERATIVE SOCIETY BEING A PRIMARY SOCIETY ENGAGED IN SUPPLYING MILK RAISED BY ITS MEMBERS TO SUCH FEDERA L MILK CO-OPERATIVE SOCIETY;] 6 70 [( IB ) THE AMOUNT OF ANY PREMIUM 71 [PAID BY ANY MODE OF PAYMENT OTHER THAN CASH] BY THE ASSESSEE AS AN EMPL OYER TO EFFECT OR TO KEEP IN FORCE AN INSURANCE ON THE H EALTH OF HIS EMPLOYEES UNDER A SCHEME FRAMED IN THIS BEHALF BY ( A ) THE GENERAL INSURANCE CORPORATION OF INDIA FORMED UNDER SECTION 9 OF THE GENERAL INSURANCE BUSINESS (NATIONALISATION) ACT 1972 (57 OF 1972) AND APPROV ED BY THE CENTRAL GOVERNMENT; OR ( B ) ANY OTHER INSURER AND APPROVED BY THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY ESTABLISHED UN DER SUB-SECTION (1) OF SECTION 3 OF THE INSURANCE REGUL ATORY AND DEVELOPMENT AUTHORITY ACT 1999 (41 OF 1999);] 72 ( II ) ANY SUM PAID TO AN EMPLOYEE AS BONUS OR COMMISSIO N 73 FOR SERVICES RENDERED WHERE SUCH SUM WOULD NOT HAV E BEEN PAYABLE TO HIM AS PROFITS OR DIVIDEND IF IT HA D NOT BEEN PAID AS BONUS OR COMMISSION; 74 [* * *] 75 [* * *] ( IIA ) 76 [ OMITTED BY THE FINANCE ACT 1999 W.E.F. 1-4-2000. ] 77 ( III ) THE AMOUNT OF THE INTEREST 78 PAID IN RESPECT OF CAPITAL 78 BORROWED FOR THE PURPOSES OF THE BUSINESS 78 OR PROFESSION : 79 [ PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EX TENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITAL ISED IN THE BOOKS OF ACCOUNT OR NOT); FOR ANY PERIOD BEGINN ING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUC H ASSET WAS FIRST PUT TO USE SHALL NOT BE ALLOWED AS DEDUC TION.] 4. SECTION 36 (1)(III) PROVIDES FOR DEDUCTION OF I NTEREST ON THE LOANS RAISED FOR BUSINESS PURPOSES. ONCE THE ASSESSEE CL AIMS ANY SUCH DEDUCTION IN THE BOOKS OF ACCOUNTS THE ONUS WILL B E ON THE ASSESSEE TO SATISFY THE AO THAT WHATEVER LOANS WERE RAISED BY THE ASSESSEE THE SAME WERE USED FOR BUSINESS PURPOSES. IF IN THE PR OCESS OF EXAMINATION OF GENUINENESS OF SUCH A DEDUCTION IT TRANSPIRES T HAT THE ASSESSEE HAS ADVANCED CERTAIN FUNDS TO SISTER CONCERN OR ANY OTH ER PERSON WITHOUT ANY INTEREST THERE WOULD BE VERY HEAVY ONUS ON THE ASSESSEE TO BE 7 DISCHARGED BEFORE THE AO TO THE EFFECT THAT INSPITE OF PENDING TERM LOANS AND WORKING CAPITAL LOANS ON WHICH THE ASSESSEE IS INCURRING LIABILITY TO PAY INTEREST THERE WAS JUSTIFICATION TO ADVANCE LO AN TO SISTER CONCERN FOR NON-BUSINESS PURPOSES WITHOUT ANY INTEREST AND ACCO RDINGLY THE ASSESSEE SHOULD BE ALLOWED DEDUCTION OF INTEREST BE ING PAID ON THE LOANS RAISED BY IT TO THAT EXTENT. THE ONLY THING SUFFICIENT TO DISALLOW THE INTEREST PAID ON THE BORROWING TO THE EXTENT THE AM OUNT IS LENT TO THE SISTER CONCERN/ANY OTHER PERSON WITHOUT CARRYING AN Y INTEREST FOR NON- BUSINESS PURPOSES WOULD BE THAT THE ASSESSEE HAS SO ME LOANS OR OTHER INTEREST BEARING DEBTS TO BE REPAID. THE CRUX IS TH AT THERE SHOULD BE NEXUS OF USE OF BORROWED FUNDS FOR THE PURPOSES OF BUSINESS TO CLAIM DEDUCTION U/S 36(1)(III) OF THE ACT. IN THE PRESENT APPEAL I HAVE FOUND THAT THE AO HAS ONLY DISALLOWED ONLY THAT PORTION W HERE THE ASSESSEE COULD NOT EXPLAIN THE NEXUS. THE DECISION OF THE H ONBLE ALLAHABAD HIGH COURT IN MAROLIA & SONS V. CIT (129 ITR 475) AND TH E RATIO LAID DOWN IN CIT V. RAJIV LOCHAN KANORIA (208 ITR 616 (CAL) ABH ISHEK INDUSTRIES (SUPRA) AND CIT V. MOTOR GENERAL FINANCE; 272 ITR 5 50 (DEL) SUPPORT THE CASE OF THE REVENUE. THE CRUX OF THESE JUDICIAL PRONOUNCEMENTS IS THAT THE BORROWED FUNDS SHOULD BE USED FOR BUSINESS PURPOSES AND SHOULD NOT BE SIPHONED OFF UNDER THE GARB OF ALLEGE D BUSINESS PURPOSES. I AM ALSO OF THE CONSIDERED OPINION THAT EVEN IF TH E ASSESSEE IS HAVING SUFFICIENT INTEREST FREE FUNDS AND THE MONEY IS DIV ERTED OUT OF THE MONEY 8 WHERE INTEREST WAS PAID STILL IT CANNOT BE ALLOWED AS DEDUCTION BECAUSE IF THE ASSESSEE WAS HAVING SUFFICIENT FUNDS WITH HI M/IT THEN WHERE WAS THE NECESSITY TO BORROW FUNDS ON INTEREST. A COLOUR ABLE DEVICE CANNOT BE PERMITTED. IT IS THE ASSESSEE WHO IS CLAIMING DED UCTION HAS TO PROVE THE NEXUS AND NOT THE REVENUE. AS MENTIONED IN PARA (ABOVE) THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THAT INTERE ST FREE LOANS/ADVANCES THEREFORE WERE USED FOR MAKING INT EREST FREE LOANS/ADVANCES THERE IS NO MERIT IN THE CONTENTION OF THE ASSESSEE. AS FAR AS THE CASES RELIED UPON BY THE ASSESSEE (SUPRA ) ARE CONCERNED THE RELIEF/DEDUCTION WAS ALLOWED ONLY WHEN THE ASSESSEE ESTABLISHED THAT FUNDS WERE DIVERTED FOR BUSINESS PURPOSES ONLY THE REFORE MAY NOT HELP THE ASSESSEE. IN VIEW OF THESE FACTS AND JUDICIAL P RONOUNCEMENTS I HAVE NOT FOUND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) CONSEQUENTLY BOTH THESE APPEALS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15.2.2010 . (JOGINDER SINGH) JUDICIAL MEMBER FEBRUARY 15 2010 COPY TO APPELLANT RESPONDENT CIT CIT(A) DR GU ARD FILE