ACIT, Gurgaon Circle,, v. Marudha Chemicals & Pharmaceuticals Pvt. Ltd.,,

ITA 2271/DEL/2002 | 1997-1998
Pronouncement Date: 22-09-2011 | Result: Allowed

Appeal Details

RSA Number 227120114 RSA 2002
Bench Delhi
Appeal Number ITA 2271/DEL/2002
Duration Of Justice 9 year(s) 3 month(s) 29 day(s)
Appellant ACIT, Gurgaon Circle,,
Respondent Marudha Chemicals & Pharmaceuticals Pvt. Ltd.,,
Appeal Type Income Tax Appeal
Pronouncement Date 22-09-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted C
Tribunal Order Date 22-09-2011
Date Of Final Hearing 15-09-2011
Next Hearing Date 15-09-2011
Assessment Year 1997-1998
Appeal Filed On 24-05-2002
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI I.P. BANSAL JUDICIAL MEMBER AND SHRI SHAMIM YAHYA ACCOUNTANT MEMBER ITA NO.2271/DEL/2002 ASSESSMENT YEAR : 1997-98 ASSTT. COMMISSIONER OF INCOME TAX GURGAON CIRCLE GURGAON. VS. M/S MARUDHAR CHEMICALS & PHARMACEUTICALS PVT. LTD. 93 EVK SAMPAT ROAD VEPERY CHENNAI.. (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI SALIL MISHRA SR. DR ORDER PER I.P. BANSAL JUDICIAL MEMBER THE IMPUGNED APPEAL WAS EARLIER DISPOSED OF BY THE OR DER OF THE TRIBUNAL DATED 14 TH JULY 2006. ONE OF THE ISSUES REGARDING DISALLOWANCE OF INTEREST OF ` 2 44 317/- WAS HELD IN F AVOUR OF THE ASSESSEE AND THE DEPARTMENTAL APPEAL ON THIS GROUND WAS R EJECTED. THE REVENUE PREFERRED AN APPEAL AGAINST THAT ORDER I N HONBLE PUNJAB & HARYANA HIGH COURT ALONG WITH THE APPEALS FILED BY THE REVENUE IN THE CASES OF OTHER ASSESSEES WHICH APPEALS HAVE BEEN DECIDE D BY THE HONBLE HIGH COURT VIDE ORDER DATED 10 TH APRIL 2008 A COPY OF WHICH IS PLACED ON RECORD. THE ISSUE WAS RESTORED BACK TO THE F ILE OF THE TRIBUNAL FOR DECIDING THE SAID ISSUE AFRESH WITH THE FO LLOWING OBSERVATIONS:- WE HAVE CONSIDERED THE ARGUMENTS OF LEARNED COUNSEL FOR THE PARTIES. ITA NO.2271/DEL/2002 2 SECTION 36 (1)(III) OF THE ACT PROVIDES THAT THE AMOUNT O F THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION HAS TO BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME UNDER SECTION 28 OF THE ACT. TH E EXPRESSION FOR THE PURPOSE OF BUSINESS HAS BEEN HE LD TO BE WIDER IN SCOPE THAN THE EXPRESSION FOR THE PURPOSE OF EARNING INCOME PROFITS OR GAINS. IT HAS BEEN HELD IN S.A. BUILDERS LTD.S S.A. BUILDERS LTD.S S.A. BUILDERS LTD.S S.A. BUILDERS LTD.S CASE CASE CASE CASE (SUPRA) THAT WHEN THE ASSESSEE BORROWED THE FUND FROM THE BANK AND LENT SOME OF IT TO ITS SISTER CONCERN AS AN INTE REST FREE LOAN THEN THE REAL TEST TO ALLOW THE INTEREST AS DEDUCTION UNDER SECTION 36 (1)(III) OF THE ACT IS WHETHER THIS WAS DONE AS A MEASURE OF COMMERCIAL EXPEDIENCY. IT HAS BEEN HELD THAT IN ORDER TO CLAIM A DEDUCTION IT IS ENOUGH TO SHOW THAT THE MONEY IS EXPENDED NOT ON NECESSITY AND WITH A VIEW TO DIRECT AND IMMEDIATE BENEFIT BUT VOLUNTARILY AND ON ACCOUNT OF COM MERCIAL EXPEDIENCY AND IN ORDER TO INDIRECTLY TO FACILITATE THE C ARRYING ON THE BUSINESS. THE EXPRESSION COMMERCIAL EXPEDIENCY IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITU RE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINES S. THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LEGA L OBLIGATION BUT YET IT IS ALLOWABLE AS A BUSINESS EXPEN DITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. IN S.A. S.A. S.A. S.A. BUILDERS LTD.S CASE BUILDERS LTD.S CASE BUILDERS LTD.S CASE BUILDERS LTD.S CASE (SUPRA) IT WAS HELD THAT IN ORDER TO DECIDE WHETHER IT WAS FOR COMMERCIAL EXPEDIENCY THE AUTHORITIE S SHOULD NOT HAVE EXAMINED THE PURPOSE FOR WHICH THE ASS ESSEE ADVANCED MONEY TO ITS SISTER CONCERN AND WHAT THE SISTER CONCERN DID WITH THE MONEY. IT WAS FURTHER HELD THAT IT I S NOT RELEVANT WHETHER THE ASSESSEE HAS UTILIZED THE BORROWED AMOUNT IN ITS OWN BUSINESS OR HAS ADVANCED THE SAME AS INTERE ST FREE LOAN TO ITS SISTER CONCERN. WHAT IS RELEVANT IS WHETHER THE AMOUNT SO ADVANCED WAS AS A MEASURE OF COMMERCIAL EXPEDIENCY OR NOT. IT IS NOT NECESSARY THAT THE AMOUNT SO ADVANCED IS EARNING PROFIT OR NOT BUT THERE MUST BE SOM E NEXUS BETWEEN EXPENSES AND THE PURPOSE OF BUSINESS. IN THE LIGHT OF THE AFORESAID JUDGMENT WE HAVE GONE THROUGH THE IMPUGNED ORDERS. IN OUR VIEW THE ITAT HA S NOT EXAMINED CONSIDERED AND DECIDED THE MATTER IN ACCORDA NCE WITH THE AFORESAID PRINCIPLE OF LAW. IN NONE OF THESE CASES A FINDING HAS BEEN RECORDED AS TO WHETHER THE INTEREST FRE E LOAN WAS GIVEN BY THE ASSESSEE TO THEIR SISTER CONCERNS OR TH EIR DIRECTORS NOT AS A MEASURE OF COMMERCIAL EXPEDIENCY. BEFORE DISALLOWING THE QUESTION OF DEDUCTION OF INTEREST AMOUNT PERTAINING TO THE INTEREST FREE LOAN ADVANCED TO THE SISTER CONCERNS OR ITS DIRECTORS IT IS INCUMBENT ON THE AUTHORI TIES TO RECORD SUCH A FINDING. THEREFORE WE ARE OF THE OPI NION THAT THE IMPUGNED ORDERS PASSED BY THE ITAT ARE NOT SUSTAINAB LE AND THE SAME ARE HEREBY SET ASIDE. THE MATTER IS REMITTED TO THE ITAT TO RE-CONSIDER THE MATTER IN THE LIGHT OF THE PRINCIP LE LAID DOWN BY THE SUPREME COURT IN S.A. BUILDERS LTDS CASE S.A. BUILDERS LTDS CASE S.A. BUILDERS LTDS CASE S.A. BUILDERS LTDS CASE (SUPRA) AND THEN DECIDE THE MATTER ACCORDINGLY. IT IS MADE CLEA R THAT IT ITA NO.2271/DEL/2002 3 WILL BE OPEN FOR THE ITAT TO SEEK THE REPORT OF THE ASSE SSING OFFICER REGARDING ANY FACT WHICH IS RELEVANT FOR THE DECISION OF THE CONTROVERSY IF ITAT FEELS IT JUST AND NECESSARY. ALL THE APPEALS ARE ALLOWED TO THE EXTENT INDICATED ABOV E. 2. IT IS IN PURSUANCE OF THE AFOREMENTIONED DIRECTION S OF HONBLE HIGH COURT THIS APPEAL WAS FIXED FOR HEARING. THE AP PEAL WAS EARLIER FIXED FOR HEARING ON 8.11.2010 WHEN NOBODY APPEARED ON BEHALF OF THE ASSESSEE THEREFORE THE DIRECTIONS WERE GIVEN TO ISSUE NO TICE THROUGH DR BY RPAD FOR 18 TH JANUARY 2011. HOWEVER LATER ON THE BENCH DID NOT FUNCTION AND THE APPEAL WAS AGAIN FIXED IN THE R EGULAR COURSE ON 27 TH APRIL 2011 AND NOTICE WAS SENT TO THE ASSESSEE. ON THA T DATE ALSO NONE APPEARED ON BEHALF OF THE ASSESSEE. THEREFORE TH E MATTER WAS DIRECTED TO BE ADJOURNED ON 15 TH SEPTEMBER 2011. THE NOTICE OF HEARING WAS SENT TO THE ASSESSEE AND IT HAS DULY BEEN ACKN OWLEDGED BY THE ASSESSEE AND ACKNOWLEDGEMENT RECEIVED FROM THE A SSESSEE IS ALSO PLACED ON RECORD. HOWEVER ON 15 TH SEPTEMBER 2011 ALSO NONE WAS PRESENT ON BEHALF OF THE ASSESSEE THEREFORE WE PRO CEEDED TO DECIDE THE PRESENT APPEAL IN PURSUANCE OF DIRECTIONS O F HONBLE HIGH COURT. THE ASSESSING OFFICER MADE THE DISALLOWANCE WITH THE FOLLOWING OBSERVATIONS:- 9. FROM THE P&L ACCOUNT IT IS SEEN THAT THIS YEAR AN AMO UNT OF RS.630108/- HAS BEEN DEBITED AS INTEREST TO BANK AS AGA INST RS.178964/- IN THE A.Y. 97-98. IN THIS CONNECTION THE ASSESSEES EXPLANATION GIVEN IN LETTER DATED 10.2.2000 IS THAT IN THE PREVIOUS YEAR THE INTEREST WAS CHARGED FOR THE PART OF TH E YEAR WHILE THIS YEAR IT IS FOR THE FULL YEAR. IT HAS FURTHER BEEN STATED THAT DUE TO INCREASED CC LIMIT IT WAS ABLE TO GET CASH DIS COUNT IN PURCHASE WHICH HAS INCREASED ITS G.P. RATE FROM 22.70 % IN A.Y. 96-97 TO 26.16% IN A.Y. 97-98. THIS EXPLANATION OF THE ASSESSEE CAN BE CONSIDERED TO BE ACCEPTABLE IN PART ONLY. FROM ANN.I TO REPLY DATED 16.2.2000 IT IS SEEN THAT FOLLOWING AMOUNTS HAVE BEEN ADVANCED FOR NON BUSINESS PURPOSES. I. SAHARANPUR MAHILA AUM DAI SAMITI 265000 II. RAM ARUN 45000 III. ARUN RAMA NATHAN 65000 IV. SHARAD KUMAR C SHAT 80000 ITA NO.2271/DEL/2002 4 V. RAJ KUMAR BHAIYA HUF 245000 VI. BHAGWAN DASS MAHESWARI HUF 250000 VII. MADHU BHAIYA 203000 VIII. KRISHNA DEVI BHAIYA 592500 1745500 THE PERSONS AT S.NO. V) TO VIII) ARE THE FAMILY MEMBER S OF THE DIRECTORS. NO INTEREST HAS BEEN CHARGED FROM ANY OF TH E ABOVE MENTIONED PERSONS ALTHOUGH HUGE INTEREST OF RS.630108/- HAS BEEN PAID ON THE BORROWINGS. NO EVIDENCE HAS BEEN F URNISHED TO PROVE THAT THE ABOVE AMOUNTS ADVANCED WERE FOR BUSIN ESS PURPOSES. IN VIEW OF THIS THE INTEREST OF RS.244370/- CALCULATED @ 14% WHICH IS ATTRIBUTABLE TO THE ABOVE ADVANCES HELD F OR NON BUSINESS PURPOSES IS DISALLOWED OUT OF THE INTEREST PAI D TO THE BANK. 3. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS DEL ETED BY LEARNED CIT (A) WITH THE FOLLOWING OBSERVATIONS:- 12.1 I HAVE CONSIDERED THE FACTS & EVIDENCE AND CONCLUDED THAT THE INTEREST HAS BEEN INCREASED ON ACCOUN T OF AVAILMENT OF THE CC LIMITS FOR ALL THE YEAR AS AGAINST O NLY ONE QUARTER IN THE PREVIOUS YEAR. SINCE A.O. COULD NOT ES TABLISH ANY NEXUS BETWEEN THE ADVANCES GIVEN TO THE DIRECTORS AND TH EIR FAMILY MEMBERS AND TO THE CC LIMITS AVAILED BY THE COMP ANY AS THE ADVANCES HAVE BEEN OUT OF NON INTEREST BEARING CRED ITS AVAILABLE TO THE COMPANY. ACCORDINGLY IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE DISALLOWANCE OF INTEREST TO THE BANK TO THE EXTENT OF RS.2 44 317 MADE BY THE A.O. IS NO T JUSTIFIED AND THE SAME IS HEREBY DELETED. 4. THE FINDING RECORDED BY LEARNED CIT (A) WERE CON FIRMED BY THE TRIBUNAL AND THE DEPARTMENT PREFERRED AN APPEAL BEF ORE HONBLE HIGH COURT. THE DECISION OF HONBLE HIGH COURT HAS ALREAD Y BEEN REPRODUCED. THE FACT GERMANE TO DECIDE THE ISSUE IS T HAT A FINDING HAS TO BE RECORDED AS TO WHETHER THE INTEREST FREE LOAN W AS GIVEN BY THE ASSESSEE TO THEIR SISTER CONCERN OR THEIR DIRECTORS NOT AS A MEASURE OF COMMERCIAL EXPEDIENCY. IF SUCH INTEREST FREE LOAN IS NOT GIVEN AS A MEASURE OF COMMERCIAL EXPEDIENCY THEN IT HAS TO BE DISALLOWED. THE RELEVANT OBSERVATIONS OF THE ASSESSING OFFICER AND CIT (A ) HAVE ALREADY BEEN REPRODUCED. THERE IS LACK OF MATERIAL ON RECOR D ON THE BASIS OF WHICH IT CAN BE SAID THAT WHETHER THERE EXIST A MEASUR E OF COMMERCIAL ITA NO.2271/DEL/2002 5 EXPEDIENCY. THEREFORE AT THIS STAGE PARTICULARLY WHEN ASSESSEE IS NOT FORTHCOMING IT WILL BE DIFFICULT TO RECORD ANY FINDING UPON THAT AND IN THE CIRCUMSTANCES IT IS CONSIDERED JUST AND PROPER T O RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER FOR RE-ADJUDICATIO N IN THE LIGHT OF THE AFOREMENTIONED OBSERVATIONS OF HONBLE PUNJAB & H ARYANA HIGH COURT AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY TO REPRESENT ITS CASE. WE THEREFORE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE AS PER THE DIRECTIONS OF HONBLE HI GH COURT AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING. 5. THE ORDER OF THE TRIBUNAL ON OTHER ISSUES STAND AND THE MATTER IS RESTORED BACK TO THE FILE OF ASSESSING OFFICER ONLY ON T HE LIMITED ISSUE STATED ABOVE AND THE ASSESSING OFFICER WILL NOT BE AUTHO RIZED TO GO INTO ANY OTHER ISSUE WHICH WAS NOT SUBJECT MATTER OF APPEAL BEFORE HONBLE HIGH COURT. 6. WITH THESE OBSERVATIONS THE ISSUE IS RESTORED BACK TO THE FILE OF ASSESSING OFFICER AND THE DEPARTMENTAL APPEAL ON THE ISSU E OF DISALLOWANCE OF INTEREST IS TREATED AS ALLOWED FOR STATI STICAL PURPOSES. 7. IN THE RESULT THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 22.09.20 11. SD/- SD/- [SHAMIM YAHYA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 22.09.2011. DK ITA NO.2271/DEL/2002 6 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES