Madhav Cotton Ginning & Pressing Factory, Botad v. The Income tax Officer,Ward-2(3),, Bhavnagar

ITA 266/AHD/2013 | 2009-2010
Pronouncement Date: 25-10-2013 | Result: Dismissed

Appeal Details

RSA Number 26620514 RSA 2013
Assessee PAN AADFM7111K
Bench Ahmedabad
Appeal Number ITA 266/AHD/2013
Duration Of Justice 8 month(s) 25 day(s)
Appellant Madhav Cotton Ginning & Pressing Factory, Botad
Respondent The Income tax Officer,Ward-2(3),, Bhavnagar
Appeal Type Income Tax Appeal
Pronouncement Date 25-10-2013
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 25-10-2013
Assessment Year 2009-2010
Appeal Filed On 30-01-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMADABAD BEFORE SHRI D.K.TYAGI JUDICIAL MEMBER AND SHRI T.R. MEENA ACCOUNTANT MEMBER ITA NO. 266/AHD/2013 ASSESSMENT YEAR :2009-10 MADHAV COTTON GINNING & PRESSING FACTORY OPP. MARKET YARD PALIYAD ROAD HADDAD BOTAD.-364710 V/S . ITO WD. 2 (3) BHAVNAGAR. PAN NO. A ADFM7111K (APPELLANT) .. (RESPONDENT) BY APPELLANT SHRI S. N. DIVETIA A.R. /BY RESPONDENT SHRI P. L. KUREEL SR. D.R. /DATE OF HEARING 14.08.2013 /DATE OF PRONOUNCEMENT 25.10.2013 O R D E R PER : SHRI T.R.MEENA ACCOUNTANT MEMBER THIS IS AN APPEAL AT THE BEHEST OF ASSESSEE WHICH H AS EMANATED FROM THE ORDER OF CIT(A)-XX AHMEDABAD DATED 06.11.2012 FOR ASSESSMENT YEAR 2009- 10. THE EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER: 1.1 THE ORDER PASSED U/S.250 ON 6-11-2012 FOR A.Y. 2009-10 BY CIT(A)-XX ABAD UPHOLDING THE DISALLOWANCE INTEREST EXP. OF RS.35 07 708 MADE BY AO IS WHOLLY ILLEGAL UNLAWFUL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 1.2 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN NOT CONSIDERING FULLY AND PROPERLY THE SUBMISSIONS MADE AND ITA NO. 266/AHD/13 A.Y. 09-10 PAGE 2 EVIDENCE PRODUCED BY THE APPELLANT WITH REGARD TO T HE IMPUGNED ADDITIONS. 2.1 THE LD.CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND O N FACTS IN CONFIRMING THAT THE DISALLOWANCE OF INTEREST EXPENS ES OF RS. 35 07 708. 2.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW THE LD.CIT(A) OUGHT NOT TO HAVE UPHELD THE DISALLOW ANCE OF INTEREST EXP. OF RS. 35 07 708. 3.1 THE LD.CIT(A) HAS ERRED IN OBSERVING THAT IT W AS AN ADMITTED FACT THAT THE BORROWED CAPITAL WAS NOT UTILIZED FOR BUSINESS PURPOSES AND GIVEN AS LOAN & ADVANCE TO SISTER CONC ERN AND OTHERS. 3.2 THE LD CIT(A) HAS FAILED TO APPRECIATE THAT IT WAS A RUNNING ACCOUNT WITH THE SISTER CONCERN AND ADVANCE TO OTHE RS WERE GIVEN TOWARDS PURCHASE OF LAND SO THAT THERE WAS NO INTEREST CHARGEABLE . IT IS THEREFORE PRAYED THAT THE DISALLOWANCE OF R S. 35 07 708 UPHELD BY THE CIT(A) MAY KINDLY BE DELETED. 2. ALL THE GROUNDS OF ASSESSEE REVOLVING AROUND UPH OLDING THE DISALLOWANCE OF INTEREST EXPENSES AT RS.35 07 708/-. THE ASSESS EE IS RUNNING COTTON GINNING AND PRESSING FACTORY. 3. THE A.O. OBSERVED THAT ASSESSEE HAS SHOWN SECURE D LOAN FROM BANK RS.5 02 97 961/- UNSECURED LOAN OF RS.82 30 694/- FROM THE VARIOUS PARTIES AND PARTNERS CAPITAL RS. 5 42 23 043/- AND INTEREST EXP ENSES CLAIMED ON THIS AMOUNT WAS RS.1 11 69 617/-. AGAINST THIS ASSESSEE HAD A LSO GIVEN LOAN AND ADVANCES TO ONE M/S. OM KAILASH COTTON RS.3 07 88 727/- THE INTEREST NOT CHARGED BY THE ASSESSEE ON LOAN AND ADVANCES WAS WORKED OUT BY THE A.O. ON DAY TO DAY BASIS. ITA NO. 266/AHD/13 A.Y. 09-10 PAGE 3 THE A.O. GAVE REASONABLE OPPORTUNITY OF BEING HEARD ON THIS ISSUE. THE ASSESSEE SIMPLY OFFERED REPLY DATED 07.12.2011 AND STATED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF LAND SALE AND PURCHA SE THE ABOVE ADVANCES ARE GIVEN FOR THE PURCHASE OF LAND. FINAL DOCUMENT WAS PENDING. HENCE PAYMENT MADE FOR THE LAND PURCHASE IS SHOWN AS ADVANCES UND ER THE HEAD LOAN AND ADVANCES. THE A.O. WAS NOT SATISFIED WITH THE SUB MISSION AND HELD THAT THE INTEREST IS ALLOWABLE WHEN THE EXPENDITURE MUST BE PAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNIN G INCOME. IN THE PRESENT CASE ASSESSEE PAID THE INTEREST FOR NON BUSINESS P URPOSE. FURTHER ON VERIFICATION OF THE BALANCE SHEET IT WAS FOUND THA T THE ASSESSEE HAD PAID ADVANCES TO (1) SHRI CHATURBHAI K. PATEL RS.8 06 12 5/- (2) SHRI D.M. PALADIA RS.10 88 000/- (3) SHRI DEVJIBHAI MERAMBHAI GABLI RS.12 49 000/- (4) SMT. HEMABEN R. SAGANI RS.5 24 000/- (5) SHRI MAHESHBHA I BHAVANBHAI PATEL RS.5 44 000/- (6) SHRI R. B. SADANI RS.5 64 000 AN D (7) VISHNUBHAI C. PATEL RS.7 24 875/-. THUS HE MADE ADDITION OF RS.35 07 708/-. 3. BEING AGGRIEVED BY THE ORDER OF THE A.O. THE AS SESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO HAD CONFIRMED THE ADDITION BY OBSERVING THAT THE ARGUMENT OF APPELLANT THAT ITS RETURN ON IDENTICAL FACTS S TAND ACCEPTED BY THE DEPARTMENT IN EARLIER YEARS WITHOUT ANY INTERFERENCE IS UNTENA BLE AS RES JUDICATA DO NOT APPLY TO DIRECT TAX STATUE AND FACTS OF EACH YEAR ARE TO BE EXAMINED ON THEIR INDEPENDENT MERITS. THE ARGUMENT OF THE APPELLANT THAT HAD IT CLAIMED INTEREST ON PARTNERS CAPITAL U/S. 40(B) THERE WOULD HAVE BEE N CASE OF LOSS IS A HYPOTHETICAL PROPOSITION AND DO NOT MERITS ANY CONS IDERATION AT THIS STAGE. THE LAW OF THE LAND PERMITS EVERY TAX PAYER TO MAKE CLA IMS OF DEDUCTION AND ITA NO. 266/AHD/13 A.Y. 09-10 PAGE 4 EXEMPTION AS PER THE SCHEME OF THE ACT AND NO BENEF IT CAN BE GIVEN TO ANY TAX PAYER FOR NOT MAKING A CLAIM AT THE OPPORTUNE TIME. SIMILARLY THE ARGUMENT OF THE APPELLANT THAT AO THROUGH SHOW-CAUSE HAD PROPOSED T O MAKE DISALLOWANCE U/S. 57(III) IS ALSO UNTENABLE SINCE IN THE ASSESSMENT O RDER THE LD. A.O. CLEARLY WRITES THAT THE DISALLOWANCE IS BEING MADE AS NEXUS BETWEE N BORROWED CAPITAL AND ITS UTILIZATION WITH THE PURPOSES OF BUSINESS COULD NOT BE ESTABLISHED BY THE ASSESSEE. INCIDENTALLY THROUGH THE GROUNDS OF APP EAL ALSO THE APPELLANT HAS CHALLENGED THE ACTION OF THE A.O. IN MAKING THE DIS ALLOWANCE U/S. 36(1)(III). THIS BRINGS US TO THE ONLY CONTROVERSY AS TO WHETHER THE DISALLOWANCE MADE BY THE LEARNED A.O. IS CORRECT OR NOT. THERE IS AN UNDISP UTED ADMITTED FACT IN THIS CASE THAT THE BORROWED CAPITAL WAS NOT UTILIZED FOR THE PURPOSES OF THE BUSINESS BY THE APPELLANT BUT WAS ADVANCED AS A LOAN TO ITS SISTER CONCERN AND ON SUCH LOANS/ADVANCES NO INTEREST WAS RECEIVED. THUS WHE REAS ON THE ONE HAND THE APPELLANT WAS CLAIMING INTEREST EXPENDITURE ON THE BORROWED CAPITAL ON THE OTHER HAND IT WAS NOT RECEIVING ANY INTEREST FROM THE SIS TER CONCERN TO WHOM SUCH BORROWED CAPITAL WAS ADVANCED AS A LOAN. HE FURTHE R ANALYZED THE SECTION 36(1)(III) ON PAGE 6 AND ALSO CONSIDERED THE FOLLOW ING DECISIONS: I. CIT VS. HARRISONS MALAYALAM LTD. 210 TAXMAN 115 (2012) (KERALA HC) II. K. SOMASUNDARAM & BROS. V. IT [1999] 238 ITR 93 9 (MADRAS HC) III. BIRLA GWALIOR (P.) LTD. V. CIT [1962] 44 ITR 8 47 (MP) THE ASSESSEE ALSO RELIED UPON VARIOUS CASE LAWS BEF ORE THE CIT(A) AND FINALLY AFTER CONSIDERING THE ITAT HYDERABAD IN CASE OF R. S. ARORA VS. ACIT 53 SOT 124 (2012) THE CIT(A) HAS HELD AS UNDER: ITA NO. 266/AHD/13 A.Y. 09-10 PAGE 5 2.8 THE UPSHOT OF ABOVE DISCUSSED LATEST JUDICIAL PRONOUNCEMENTS IS THAT DEDUCTION OF INTEREST U/S. 36(1)(III) ON BORRO WED CAPITAL IS PERMISSIBLE ONLY IF THEIR EXIST A CLEAR CUT NEXUS B ETWEEN BORROWED CAPITAL AND ITS UTILIZATION FOR THE PURPOSES OF BUS INESS. IN THE INSTANT CASE AS ADMITTED BY THE APPELLANT HIMSELF THE SAID NEXUS WAS CLEARLY MISSING AND IS INFACT NON-EXISTENT. CONSEQUENTLY I T IS HELD THAT THE DISALLOWANCE MADE BY THE LEARNED AO OF RS.35 07 708 /- IS BASED UPON CORRECT UNDERSTANDING OF THE CONTEMPORARY STATUTE A ND THE PROPER APPRECIATION OF THE FACTS OF THE CASE AND NO INTERF ERENCE IS CALLED FOR AT THIS STAGE. THE ADDITION MADE BY THE AO IS THEREFORE CONFIRMED AND THE GROUND OF APPEAL RAISED NO.3 & 4 ARE DISMIS SED . 4. NOW THE ASSESSEE IS BEFORE US. LD. COUNSEL FOR THE APPELLANT ARGUED THAT THE A.O. HAD FAILED TO ESTABLISH THE NEXUS BETWEEN THE INTEREST BEARING BORROWINGS AND INTEREST FREE ADVANCES AND THEREFORE THE PRESUMPTION IS AS TO THE MIXED FUNDS AND IN THAT CASE ONE HAS TO RELY U PON THE BALANCE SHEET. THE AUDITED ANNUAL ACCOUNTS OF THE APPELLANT FOR A.Y. 0 9-10 SHOWED THAT THE APPELLANT WAS A CASH RICH THE ASSESSEE IN AS MUCH A S THERE IS CASH BALANCE OF RS.3 19 20 625/- AND NET PROFIT OF THE YEAR WAS RS. 33 24 557/-. THEREFORE IT WAS ARGUED THAT THE A.O. WAS UNJUSTIFIED IN DISALLOWING INTEREST. ALTERNATIVELY IT WAS SUBMITTED THAT THE A.O. HAD CONSIDERED FOR THE PURP OSE OF DISALLOWANCE OF INTEREST THE ENTIRE LOANS AND ADVANCES AS PER SCHE DULE 14 TO THE BALANCE SHEET AT RS.3 72 11 407/-. ON THE PERUSAL OF LEDGER ACCO UNT OF THE SAID PARTIES GIVEN IN THE PAPER BOOK SHOWED THAT PARTNERS WITHDRAWAL OF R S.9 LACS FOR LIC HAD CALCULATED INSTEAD OF DEBITING TO THE RESPECTIVE PA RTNERS. THE PARTIES AT SRL. NO. 1 & 3 RELATED TO BROKERAGE TOTALING OF RS.22 680/-. BOTH THE ABOVE ITEMS SHOULD BE EXCLUDED FROM THE TOTAL ADVANCES. THE TRANSACTIONS WITH OM KAILASH COTTON ARE ITA NO. 266/AHD/13 A.Y. 09-10 PAGE 6 SHARAFI TRANSACTIONS ON ALMOST DAILY BASIS AND THE APPELLANT WAS HAVING THESE TRANSACTIONS SINCE PAST AND NO SUCH DISALLOWANCE HA D BEEN MADE EVEN UNDER SCRUTINY ASSESSMENT. THE A.R. FURTHER ARGUED THAT ALL THE SISTER CONCERNS ARE ASSESSED TO TAX AT UNIFORM RATE OF TAX. SO THERE WAS NO GAIN IN CHARGING INTEREST FROM IT. THE ASSESSEE ALSO RELYING IN CASE OF RADHASWAMI SATSANG (192 ITR) (SC) & WOOCOMBERS INDIA LTD. (134 ITR 219) (CAL). HE FURTHER RELIED IN CASE OF RELIANCE UTILITIES & POWER LTD. (313 ITR 340) (BOM) RAGHUVIR SYNTHETICS (TAX APPEAL NO. 829 OF 2007 DT. 15.12.2011)(GUJ) FOLLOWING THE RATION OF SRIDEV ENTERPRISE (192 ITR 165)(KAR.) THE HONBLE BENCH HAS DISALLOWED THE INTEREST @ 12% ON THE OPENING BALANCE WHICH WAS WORKED OUT TO RS.8 30 263/-. FURTHER THERE WAS CURRENT YEARS PROFIT OF RS.33 24 557/- A ND FOLLOWING THE DECISION IN CASE OF WOOCOMBERS INDIA LTD.(SUPRA) THE SAID FUNDS SHOULD BE PRESUMED TO BE AVAILABLE AND INTEREST THEREON WORKS OUT TO RS.3 98 943/-. AT THE OUTSET LD. SR. D.R. VEHEMENTLY RELIED UPON THE ORDER OF THE CIT(A) . 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE LD. A.O. HAD CALCULATED THE INTEREST ON DAY TO DAY BASIS. IT IS ADMITTED FACT THAT THE ASSESSEE HAD BORROWED INTEREST BEARING FUN D WHICH HAS BEEN ADVANCED TO THE SISTER CONCERNS WITHOUT CHARGING ANY INTERES T. THE ASSESSEES EXPLANATION IS TOTALLY IMAGINARY. THE FIRM HAD GRANTED INTERES T FREE LOANS TO M/S. OM KAILASH COTTON AT RS. 3 07 88 727/- WHEREIN THE ASSESSEE F IRM PARTNERS HOLDING 60% INTEREST. IF AT ALL THE INTEREST @ 12% HAD BEEN CH ARGED ON LOANS GIVEN TO OM KAILASH COTTON THEN INTEREST WORKED OUT RS.35 07 70 8/- THEN THE INCOME TAX RETURN WOULD SHOW LESS RETURN OF M/S. OM KAILASH CO TTON AS AGAINST WHICH M/S. MADHAV COTTON GINNING & PRESSING FACTORY EARNED MUC H INCOME. THE ITA NO. 266/AHD/13 A.Y. 09-10 PAGE 7 COMPUTATION AT PAGE 28 SHOWS THAT TOTAL BUSINESS IN COME HAD BEEN SHOWN BY THE ASSESSEE AT RS.9 65 080/-. THE PROFIT CALCULAT ED BY THE ASSESSEE UNDER THE COMPANY ACT. THUS THE ARGUMENT PUT FORTH BY THE A PPELLANT BEFORE US FACTUALLY INCORRECT. THE CASE LAWS REFERRED BY THE ASSESSEE ARE SQUARELY NOT APPLICABLE BECAUSE RESERVE AND SURPLUS IS ONLY RS.60.39 LACS. THERE IS NO INTEREST FREE LOAN HAD TAKEN BY THE APPELLANT. THE PRINCIPLE OF RES JU DICATA DO NOT APPLY IN CASE OF IT LAW HOWEVER YEAR IS SEPARATE AND IS TO BE DECIDED ON FACTS OF THE CASE. THE ASSESSEE ALSO HAS NOT ESTABLISHED ANY BUSINESS RELE VANCY OR BUSINESS EXPEDIENCY THAT INTEREST FREE LOAN ADVANCES FOR BUS INESS PURPOSES. THUS WE UPHELD THE ORDER OF THE CIT(A). 6. IN THE RESULT THE ASSESSEES APPEAL IS DISMISSE D. THIS ORDER PRONOUNCED IN OPEN COURT ON 25.10.2013 SD/- SD/- ( D.K.TYAGI ) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA ! ! ! ! '! '! '! '! / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. '(' ) * / CONCERNED CIT 4. *- / CIT (A) 5. !./ ) ) 12( / DR ITAT AHMEDABAD 6. /45 67 / GUARD FILE. BY ORDER/ 8/ 1 ': ) 12( ;