Indian Polyster Ltd., Surat v. The Income tax Officer,Ward-1(2),, Surat

ITA 2695/AHD/2008 | 2005-2006
Pronouncement Date: 23-07-2010 | Result: Partly Allowed

Appeal Details

RSA Number 269520514 RSA 2008
Assessee PAN NUARY2000T
Bench Ahmedabad
Appeal Number ITA 2695/AHD/2008
Duration Of Justice 1 year(s) 11 month(s) 23 day(s)
Appellant Indian Polyster Ltd., Surat
Respondent The Income tax Officer,Ward-1(2),, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 23-07-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 23-07-2010
Date Of Final Hearing 07-07-2010
Next Hearing Date 07-07-2010
Assessment Year 2005-2006
Appeal Filed On 31-07-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE SHRI BHAVNESH SAINI J.M. AND SHRI A.N. PAHU JA A.M. ITA NO.2695/AHD/2008 A. Y.: 2005-06 INDIAN POLYESTER LTD. 504 EMPIRE STATE BUILDING RING ROAD SURAT VS THE INCOME TAX OFFICER WARD-1(2) AAYAKAR BHAVAN MAJURA GATE SURAT PA NO. -- (APPELLANT) (RESPONDENT) FOR ASSESSEE: SHRI HARDIK VORA AR FOR DEPARTMENT: SHRI K. M. MAHESH DR O R D E R PER BHAVNESH SAINI : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT (A)-1 SURAT DATE D 11-06-2009 FOR ASSESSMENT YEAR 2005-06 ON THE FOLLOWING EFFECTIVE GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS W ELL AS LAW ON THE SUBJECT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE AC TION OF THE ASSESSING OFFICER IN MAKING DISALLOWANCE OF RS.13 05 971/- ON ACCOUNT OF HIGHER DEPRECIATION CL AIMED ON MACHINES PURCHASED UNDER TUF SCHEME OF THE GOVT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE AC TION OF THE ASSESSING OFFICER IN MAKING ADDITION OF 2 RS.1 56 829/- OUT OF INTEREST PAID TO THE BANKERS O F THE COMPANY. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE AC TION OF THE ASSESSING OFFICER IN MAKING ADDITION OF RS.9 1 090/- ON ACCOUNT OF HIGHER VALUATION OF CLOSING STOCK OF THE COMPANY. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE AC TION OF THE ASSESSING OFFICER IN MAKING THE ADDITION OF RS.80 450/- ON ACCOUNT OF ESTIMATING HIGHER OIL GAI N IN PRODUCTION. 2. WE HAVE HEARD LEARNED REPRESENTATIVES OF BOTH TH E PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL ON RECORD POINTED OUT BY THE PARTIES. 3. ON GROUND NO.1 ASSESSING OFFICER HAS STATED THA T ASSESSEE HAD CLAIMED DEPRECIATION @ 15% AMOUNTING T O RS.26 11 941/- SAYING THAT THE MACHINERIES PURCHASE D WERE COVERED BY TUF SCHEME. ACCORDING TO A O THE ASSESS EE COMPANY IS ENGAGED IN MANUFACTURING OF TEXTURISED Y EARN AND THEREFORE ASSESSEE WAS NOT COVERED BY THE PROV ISIONS OF HIGHER DEPRECIATION APPLICABLE TO TUF SCHEME. TH E A O ASKED THE ASSESSEE WHY CLAIM FOR HIGHER DEPRECIATIO N MAY NOT BE DISALLOWED. THE ASSESSEE STATED THAT TEXTURI SING MACHINERIES WERE PURCHASED UNDER THE TUF SCHEME AND THE LOAN WAS SANCTIONED BY BANK OF BARODA UNDER THE SCH EME. THE A O HOWEVER DENIED CLAIM OF HIGHER DEPRECIATIO N TO THE 3 ASSESSEE. THE LEARNED CIT (A) CONFIRMED THE ORDER O F THE A O. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS NOW COVERED BY SEVERAL DECISIONS OF IT AT AHMEDABAD BENCH. COPIES OF TWO OF THE ORDERS ARE FI LED IN THE PAPER BOOK IN THE CASES OF M/S. MAVIN TEXTURISE RS LTD. AND FAIR DEAL FILAMENTS LTD. HE HAS SUBMITTED THAT MACHINERY WAS PURCHASED UNDER THE TUF SCHEME OF THE GOVERNMENT AND PUT TO USE BEFORE THE SPECIFIED PERI OD. BANKER HAS GRANTED ADVANCE UNDER THE TUF SCHEME. IT IS SUBMITTED THAT SYNTHETICS YARN TEXTURISING MACHINE IS COVERED FOR ELIGIBILITY FOR TUF. HE HAS SUBMITTED T HAT AFTER TEXTURISING AND TWISTING THE ASSESSEE UTILIZING YAR N FOR THE PURPOSE OF WEAVING AND THEREBY MANUFACTURING CLOTHE S. THEREFORE MACHINERIES ARE USED IN WEAVING PROCESS ING AND GARMENT SECTOR OF TEXTILE INDUSTRY. ON THE OTHE R HAND LEARNED D R RELIED ON ORDERS OF THE AUTHORITIES BEL OW AND SUBMITTED THAT THE ABOVE DECISIONS ARE NOT APPLICAB LE TO THE CASE OF THE ASSESSEE BECAUSE ASSESSEE WAS MANUFACTU RING TEXTURISING YARN ONLY. THEREFORE DECISIONS RELIED UPON ARE CLEARLY DISTINGUISHABLE. 4. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND MATERIA L AVAILABLE ON RECORD. THE A O REPRODUCED RULES UNDER WHICH ASSESSEE CLAIMED DEPRECIATION AT 50% WHICH ARE ALSO REPRODUCED BY LEARNED CIT (A) IN THE APPELLATE ORDE R. THUS THE ASSESSEE IS ENTITLED TO THE DEPRECIATION @ 50% ON THE PLANT AND MACHINERY USED IN WEAVING PROCESSING AND 4 GARMENT SECTOR OF TEXTILE INDUSTRY WHICH IS PURCHAS ED UNDER THE TUF SCHEME. IN THE CASE OF THE ASSESSEE IT IS N OT IN DISPUTE THAT THE PLANT AND MACHINERY IN RESPECT OF WHICH ASSESSEE CLAIMED HIGHER DEPRECIATION WERE PURCHASED UNDER TUF SCHEME FOR THE RELEVANT PERIOD. AS PER TH E A O THESE MACHINES WERE UTILIZED FOR THE PURPOSE OF TEX TURISING AND TWISTING ACTIVITIES AND THEREFORE SAME DOES NO T QUALIFY FOR HIGHER DEPRECIATION. WE FIND THAT IDENTICAL ISS UE IS CONSIDERED BY ITAT IN THE CASE OF NANGALIA SIZERS P VT. LTD. WHEREIN THE ITAT FOLLOWED THE DECISION IN THE CASE OF VIPIN CHANDRA MOHANLAL WHICH IS FOLLOWED IN THE CASE OF F AIR DEAL FILAMENTS LTD. (SUPRA) (PB-4) AND IT WAS HELD THAT ASSESSEE HAD UTILIZED TWISTED/TEXTURISED YARN FOR THE PURPOS E OF WEAVING OF GREY CLOTHES THEREFORE A O WAS ACCORDI NGLY DIRECTED TO ALLOW DEPRECIATION FOR PLANT AND MACHIN ERY PURCHASED BY THE ASSESSEE UNDER TUF @ 50%. SAME VIE W IS TAKEN IN THE CASE OF M/S. MAVIN TEXTURISERS PVT. LTD. (SUPRA) (PB-1) AND CLAIM OF THE ASSESSEE HAS BEEN A LLOWED IN THE SAME CIRCUMSTANCES. IT IS HOWEVER NOTED THA T ASSESSEE MADE CLAIM OF DEPRECIATION FOR ASSETS PUT TO USE FOR LESS THAN 180 DAYS WHICH IS NOT CLARIFIED AT ANY STAGE AS PER THE TUF SCHEME. WE SET ASIDE THE ORDERS AND RESTORE THE MATTER TO THE A O TO RE-DECIDE THE ISSUE AFRESH AS PER LAW BY GIVING OPPORTUNITY OF BE ING HEARD TO THE ASSESSEE BRINGING OUT CLEARLY AS TO WHETHER OR NOT THE AFORE SAID MACHINERY WAS PURCHASED & PUT TO USE BEFORE 1.4.200 4 AS PER ENTRY 6 OF PART III OF APPENDIX 1 OF IT RULES 1962. 5. ON GROUND NO.2 THE A O HAS STATED THAT ASSESSEE HAS GIVEN INTEREST FREE LOANS OF RS.22.45 LACS TO ITS S ISTER 5 CONCERN M/S. SURAT POLYFABS PVT. LTD. AND RS.24.95 LACS TO ITS SISTER CONCERN AGARWAL RAYONS PVT. LTD. THE A O NOTICED THAT THE ASSESSEE HAS INCURRED INTEREST EXPENDITURE ON BORROWINGS FROM BANK AND ON THE TERM LOAN. THE A O ASKED THE ASSESSEE AS TO WHY INTEREST MAY NOT BE DISALLOW ED ON PROPORTIONATE BASIS AS THE LOANS GIVEN WERE NOT FOR THE BUSINESS PURPOSE. THE ASSESSEE STATED THAT THE ASSE SSEE HAD FINANCIAL TRANSACTIONS WITH ITS SISTER CONCERNS DURING THE CURRENT YEAR AND IT WAS DECIDED THAT THEY WOULD NOT CHARGE INTEREST ON THESE TRANSACTIONS. IT WAS ALSO STATED THAT THE ASSESSEE HAD INTEREST FREE FUNDS OF RS.88 00 070/-. THE ASSESSEE STATED THAT BECAUSE OF THIS REASONS THE IN TEREST WAS NOT CHARGED. THE A O DID NOT ACCEPT THIS EXPLAN ATION AND STATED THAT AT THE ONE HAND ASSESSEE IS INCURR ING INTEREST EXPENDITURE ON ACCOUNT OF BORROWED FUNDS A ND ON THE OTHER HAND IT HAS GIVEN INTEREST FREE LOANS AND ADVANCES TO ITS SISTER CONCERNS. THE A O ACCORDINGLY DISALLO WED INTEREST OF RS.1 56 829/- SAYING THAT LOANS BORROWE D ON INTEREST TO THE EXTENT OF INTEREST FREE LOANS GIVEN WERE NOT FOR THE PURPOSE OF BUSINESS. THE LEARNED CIT (A) CONSIDERING SUBMISSIONS OF THE ASSESSEE NOTED THAT ASSESSEE HAS NOT SHOWN ANY NEXUS OF INTEREST BEARIN G FUNDS AND FUNDS GIVEN FREE OF INTEREST. THE ISSUE O F DISALLOWANCE OF INTEREST OUT OF INTEREST EXPENDITUR E WHEN THE LOANS AND ADVANCES HAVE BEEN BORROWED ON INTERE ST BUT THE ASSESSEE HAS ALSO GIVEN INTEREST FREE LOANS AND ADVANCES HAVE BEEN DECIDED BY THE HON'BLE SUPREME C OURT 6 IN THE CASE OF S.A. BUILDERS 288 ITR 1. LEARNED CIT (A) THEREFORE NOTED THAT INTEREST DISALLOWANCE CAN BE MADE IF THE ASSESSEE FAILS TO ESTABLISH COMMERCIAL EXPEDIEN CY FOR GIVING INTEREST FREE LOANS AND ADVANCES AND SIMULTA NEOUSLY PAYING INTEREST ON BORROWED FUNDS. THE LEARNED CIT (A) ACCORDINGLY NOTED THAT THE AMOUNT GIVEN TO THE SIST ER CONCERNS ARE NOT FOR BUSINESS PURPOSE THEREFORE A PPEAL OF THE ASSESSEE WAS ACCORDINGLY DISMISSED. 6. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT THERE WAS NO NEXUS BETWEEN THE INTER EST FREE FUNDS GIVEN TO THE SISTER CONCERNS WITH THE BORROWE D FUNDS. HE HAS SUBMITTED THAT BORROWED FUNDS HAD NOT BEEN DIVERTED FOR NON BUSINESS PURPOSES. HE HAS SUBMITTE D THAT FINDINGS OF AUTHORITIES BELOW ARE NOT CORRECT AS TH E ASSESSEE COMPANY HAD ENOUGH NON INTEREST BEARING FU NDS BY WAY OF ITS OWN CAPITAL AND RESERVES. THE TOTAL O WN FUNDS OF THE COMPANY EVEN AT THE BEGINNING OF THE YEAR ST ANDS AT RS.112.56 LACS WHICH ARE MORE THAN THE ADVANCES GIV EN BY THE ASSESSEE TO ITS ASSOCIATES CONCERNS (RS.47.40 L ACS). HE HAS REFERRED TO PB - 16 IN SUPPORT OF THIS CONTENTI ON. IT WAS SUBMITTED THAT THE BANKERS PROVIDE CASH CREDIT FACI LITY ON THE CURRENT ASSETS OF THE BORROWER. UNTIL AND UNLES S SUFFICIENT CURRENT ASSETS BY WAY OF INVENTORY AND T HE BOOK DEBTS ARE MAINTAINED BY THE BORROWER THE BANKERS D O NOT ALLOW TO UTILIZE THE CC FACILITY. THE BANKERS DECID E 7 BORROWING POWER OF BORROWER BASED ON THE STATEMENT OF STOCK AND BOOK DEBTS SUBMITTED TO THE BANK. IT WAS CLARIFIED THAT THE NET CURRENT ASSET OF THE COMPANY IS WORKED OUT TO RS.148 65 660/- MINUS RS.47.60 LACS = EQUIVALENT TO RS.101.05 LACS WHICH IS MORE THAN TWO TIMES OF CC FACILITY AVAILED BY THE ASSESSEE COMPANY. SINCE SUFFICIENT B ALANCE OF CURRENT ASSETS TO AVAIL THE CC FACILITY ITSELF P ROVE THAT FUNDS OBTAINED FROM THE BANKERS IN CC ACCOUNT IS NO T DIVERTED. HE HAS THEREFORE SUBMITTED THAT DISALLO WANCE OF THE INTEREST IS UNJUSTIFIED. HE HAS RELIED UPON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES & POWER LTD. 313 ITR 340 AND ORDER OF ITA T AHMEDABAD BENCH IN THE CASE OF GUJARAT NARMADA VALL EY FERTILIZERS CO. LTD. VS CIT 73 TTJ 787. ON THE OTHE R HAND THE LEARNED D R RELIED UPON ORDERS OF THE AUTHORITI ES BELOW AND SUBMITTED THAT FUNDS HAVE NOT BEEN GIVEN FOR BU SINESS PURPOSE TO THE SISTER CONCERNS. HE HAS SUBMITTED TH AT APART FROM NET CURRENT ASSET OF THE ASSESSEE THE ASSESSE E HAS SUNDRY DEBTORS OF RS.68 LACS (PB-16) AND RELIED UPO N DECISION OF THE DELHI HIGH COURT IN THE CASE OF PUN JAB STAINLESS STEEL INDUSTRIES VS CIT 324 ITR 396 IN WH ICH IT WAS HELD THAT ASSESSEE ADVANCING INTEREST FREE FUNDS TO SISTER CONCERN FROM BORROWED FUNDS. TRIBUNAL DISALLOWING SINCE NO CASE OF COMMERCIAL EXPEDIENCY MADE OUT. 8 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIALS AVAILABLE ON RECORD. HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES AND POWER LTD. 31 3 ITR 340 HELD AS UNDER: THE ASSESSEE CLAIMED DEDUCTION OF INTEREST ON BORROWED CAPITAL. THE ASSESSING OFFICER RECORDED A FINDING THAT THE SUM OF RS. 213 CRORES WAS INVESTED OUT OF ITS OWN FUNDS AND RS.147 CRORES WAS INVESTED OUT OF BORROWED FUNDS. ACCORDINGLY HE DISALLOWED INTEREST AMOUNTING TO RS. 4.40 CRORES CALCULATED AT 12 PER CENT PER ANNUM FOR THREE MONTHS FROM JANUARY 2000 TO MARCH 2000. THE COMMISSIONER (APPEALS) FOUND THAT THE ASSESSEE HAD ENOUGH INTEREST-FREE FUNDS AT IS DISPOSAL FOR INVESTMENT AND ACCORDINGLY DELETED THE ADDITION OF RS.4.40 CRORES MADE BY THE ASSESSING OFFICER AND DIRECTED HIM TO ALLOW THE DEDUCTION UNDER SECTION 36(1) (III). THE ORDER OF T HE COMMISSIONER (APPEALS) WAS UPHELD BY THE TRIBUNAL. ON APPEAL TO THE HIGH COURT: HELD DISMISSING THE APPEAL THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST-FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF T HE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION WAS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL. THE INTEREST WAS DEDUCTIBLE. 7.1 ITAT AHMEDABAD BENCH IN THE CASE OF GUJARAT NAR MADA VALLEY FERTILIZERS CO. LTD. VS DCIT 73 TTJ 787 HELD AS UND ER: CONCLUSION 9 SUFFICIENT FUNDS BEING AVAILABLE WITH ASSESSEE ON WHICH NO INTEREST WAS PAID AND THERE BEING NO EVIDENCE TO LINK THE INTEREST BEARING LOAN OBTAINED BY ASSESSEE WITH INTEREST-FREE ADVANCES MADE TO ASSOCIATE CONCERNS NO DISALLOWANCE UNDER S. 36(1)(III) COULD BE MADE. 7.2 HON'BLE M. P. HIGH COURT IN THE CASE OF R.D. JO SHI & CO. VS CIT 251 ITR 332 HELD AS UNDER: THE ASSESSEE WAS A PARTNERSHIP FIRM ASSESSED IN THE STATUS OF A REGISTERED FIRM. FOR THE ASSESSMENT YEARS 1978-79 1979-80 1980-81 AND 1981-82 THE ASSESSEE CLAIMED DEDUCTION OF INTEREST ON BORROWINGS. THE INCOME-TAX OFFICER HELD THAT THE BORROWINGS TO THE EXTENT OF THE OVERDRAWINGS AND CONSEQUENT DEBIT BALANCE TO THE PARTNERS ACCOUNT WERE NOT UTILIZED FOR THE PURPOSE OF THE BUSINESS THEREFORE DISALLOWED THE INTEREST PAID TO THE CREDITORS TO THE EXTENT OF THE FOLLOWINGS NOT UTILIZED FOR THE BUSINESS. ON APPEAL THE COMMISSIONER OF INCOME-TAX (APPEALS) HELD THAT THE DEPARTMENT FAILED TO ESTABLISH A DIRECT NEXUS BETWEEN THE BORROWINGS AND THE WITHDRAWALS MADE BY THE PARTNERS AND THAT THE ORDER OF THE ASSESSING OFFICER WAS NOT SUSTAINABLE. THE TRIBUNAL HELD THAT THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS INCORRECT AND ERRONEOUS AND CONFIRMED THE ORDER OF THE ASSESSING OFFICER. ON A REFERENCE: HELD THAT WHEN THE TRIBUNAL WAS TO DISLODGE THE ORDER PASSED BY THE APPELLATE AUTHORITY IT WAS OBLIGATORY ON THE PART OF THE TRIBUNAL TO DEMONSTRATE AS TO HOW THE FINDINGS RECORDED BY THE APPELLATE AUTHORITY WERE NOT CONSISTENT WITH THE FACTS AND THE PROVISIONS OF LAW. IT WAS OBLIGATORY ON THE PART OF THE TRIBUNAL TO DEMONSTRATE AS TO HOW THE DEPARTMENT PROVED A 10 NEXUS BETWEEN THE BORROWINGS AND WITHDRAWALS MADE BY THE PARTNERS. IT WAS OBLIGATORY ON THE PART OF EVERY APPELLATE AUTHORITY TO POINT OUT BY GOOD AND ACCEPTABLE REASONING AS TO HOW THE FACTS AND CIRCUMSTANCES OF ONE CASE HAPPENED TO BE DIFFERENT FROM OTHER CASES. IT WAS IMPROPER TO CLOSE THE DOORS TO A LITIGANT BY A CASUAL TREATMENT OF SOME STATEMENTS MOVING TOWARDS A CONCLUSION THAT THE PRECEDENTS ON WHICH SUCH LITIGANT RELIED WERE DIFFERENT FROM HIS CASE. THEREFORE THE TRIBUNAL WAS NOT JUSTIFIED IN LAW IN DISALLOWING TH E INTEREST ON THE ENTIRE DEBIT BALANCES INCLUDING THE OPENING BALANCES OF THE PARTNERS . 7.3 HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT AND ANOTHER VS RADICO KHAITAN 274 ITR 354 HELD AS UNDER : HELD (I) THAT IN VIEW OF THE FINDINGS RECORDED BY THE TRIBUNAL THAT THE ASSESSEE-COMPANY HAD SUFFICIENT FUNDS OTHER THAN THE BORROWED MONEY FOR GIVING THE AMOUNT IN QUESTION AS LOAN TO ITS SISTER CONCERN WHICH FINDING HAD NOT BEEN SPECIFICALLY CHALLENGED IN THE PRESENT APPEAL THE CONDITIONS OF SECTION 36(1) (III) OF THE ACT HAD BEEN COMPLIED WITH AND THEREFORE THE ASSESSEE-COMPANY WAS ENTITLED TO FULL ALLOWANCE OF THE AMOUNT OF INTEREST PAID BY IT ON BORROWED CAPITAL. 7.4 FURTHER THE HON'BLE ALLAHABAD IN THE CASE OF C IT VS DHAMPUR SUGAR MILLS LTD. (NO.2) 274 ITR 370 HELD AS UNDER: (II) THAT THE CATEGORICAL FINDING OF BOTH THE APPELLATE AUTHORITIES WAS THAT IT WAS ON ACCOUNT OF COMMERCIAL EXPEDIENCY AND ON 11 ACCOUNT OF CONTINUED LOSSES SUFFERED BY THE SUBSIDIARY COMPANY THAT INTEREST WAS NOT CHARGED IN THIS YEAR. EVEN OTHERWISE THE ASSESSEE HAD NOT ADVANCED THE LOAN OUT OF THE BORROWINGS HENCE THE INTEREST COULD NOT BE ADDED. 8. ON CONSIDERATION OF THE FACTS OF THE CASE IN THE LIGHT OF THE DECISIONS ABOVE IT IS CLEAR THAT A O HAS NOT P ROVED ANY NEXUS BETWEEN THE BORROWED FUNDS AND THE FUNDS DIVE RTED TO THE SISTER CONCERNS FREE OF INTEREST. THE ASSESS EE SPECIFICALLY PLEADED BEFORE THE AUTHORITIES BELOW T HAT IT HAS INTEREST FREE FUNDS OF RS.88 00 070/- AND THAT NO P ART OF THE TERM LOAN HAS BEEN UTILIZED IN ADVANCING THE LOANS BECAUSE THE TERM LOAN WAS SANCTIONED FOR SPECIFIC PURPOSE O F ACQUISITION OF PLANT AND MACHINERY AND WAS FULLY UT ILIZED. THE A O HOWEVER NOTED THAT THE ASSESSEE HAS NOT PR OVED NEXUS OF FUNDS GIVEN AS LOAN TO THE SISTER CONCERNS ; THEREFORE THE A O INFERRED THAT ASSESSEE HAS DIVER TED INTEREST BEARING FUNDS FROM ITS CC ACCOUNTS IN ADVA NCING INTEREST FREE LOANS. IT WOULD SHOW THAT A O MERELY PRESUMED CERTAIN FACTS AGAINST THE ASSESSEE WITHOUT BRINGING ANY MATERIAL AGAINST THE ASSESSEE FOR MAKING DISALLOWAN CE. THE CONTENTIONS OF THE ASSESSEE HAVE NOT BEEN REBUT TED BY THE ASSESSING OFFICER THROUGH ANY MATERIAL. THE TOT AL FUNDS OWNED BY THE ASSESSEE EVEN AT THE BEGINNING OF THE YEAR WERE AT RS.112.56 LACS AS ARGUED BY LEARNED COUNSEL FOR THE ASSESSEE WHICH ARE MORE THAN THE ADVANCE GIVEN TO THE SISTER CONCERN IN A SUM OF RS.47.40 LACS. THE NET C URRENT 12 ASSETS OF THE ASSESSEE AT THE END OF THE YEAR ALSO STAND AT RS.148.65 LACS. THESE FUNDS WERE SUFFICIENT TO SHOW THAT ASSESSEE HAS NOT DIVERTED BORROWED FUNDS FOR NON BU SINESS PURPOSES. WHEN THE ASSESSEE PLEADED THAT NO PART OF TERM LOAN HAS BEEN UTILIZED IN ADVANCING THE LOANS TO TH E SISTER CONCERNS THE A O SHOULD HAVE BROUGHT SOME MATERIAL S AGAINST THE ASSESSEE TO SHOW THAT ASSESSEE HAD ADVA NCED THE LOANS OUT OF BORROWED FUNDS. HOWEVER THE ABOVE FACTS AND AVAILABILITY OF THE FUNDS WITH THE ASSESSEE OTH ER THAN BORROWED FUNDS WOULD SHOW THAT ASSESSEE HAD NOT ADVANCED THE LOAN OUT OF THE BORROWINGS. IN THE ABS ENCE OF ANY SPECIFIC FINDING THAT BORROWED FUNDS HAD BEEN D IVERTED FOR NON BUSINESS PURPOSE THE FINDINGS OF THE A O A RE NOT JUSTIFIED. HON'BLE BOMBAY HIGH COURT DECIDED THE AB OVE ISSUE CONSIDERING THE DECISION IN THE CASE OF S. A. BUILDERS. IN THE CASE OF PUNJAB STAINLESS STEEL INDUSTRIES (S UPRA) RELIED UPON BY THE LEARNED D R THE TRIBUNAL FOUND THAT THERE WAS DIRECT NEXUS BETWEEN INTEREST BEARING LOA NS AND INTEREST FREE ADVANCES SINCE THE ADVANCE HAD BEEN MADE FROM THE CASH CREDIT ACCOUNT AND THAT POSITION WAS NOT DISPUTED BEFORE IT. IN THESE CIRCUMSTANCES THE APP EAL OF THE ASSESSEE WAS DISMISSED. THEREFORE THIS JUDGMENT IS CLEARLY DISTINGUISHABLE ON FACTS. CONSIDERING THE ABOVE DIS CUSSION WE FIND THAT THERE WAS NO BASIS TO DISALLOW THE INT EREST U/S 36(1) (III) OF THE IT ACT. WE ACCORDINGLY SET ASID E THE ORDERS OF AUTHORITIES BELOW AND DELETE THE ADDITION. AS A RESULT THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 13 9. ON GROUND NO.3 LEARNED COMMISSIONER OF INCOME T AX (APPEALS) CONFIRMED THE ACTION OF THE A O IN MAKING ADDITION OF RS.91 090/- ON ACCOUNT OF HIGHER VALUAT ION OF CLOSING STOCK OF THE COMPANY . THE A O STATED THAT THE ASSESSEE HAS VALUED ITS INVENTORIES FOLLOWING THE E XCLUSIVE METHOD OF ACCOUNTING BY NOT INCLUDING THE EXCISE DU TY ETC. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE PROVISION S OF SECTION 145A WERE NOT FOLLOWED BY NOT INCLUDING EXC ISE DUTY. THE ASSESSEE EXPLAINED THAT IT WAS FOLLOWING EXCLUSIVE METHOD AS SUGGESTED BY ICAI AND HENCE NO ADJUSTMENT IS REQUIRED U/S 145A. THE A O REJECTED THE CONTENTION OF THE ASSESSEE AND ADDED THE EXCISE DUTY IN THE CLOSING S TOCK AND MADE THE ABOVE ADDITION. NO DEDUCTION WAS ALLOW ED U/S 43B BECAUSE NO PROOF OF PAYMENT OF EXCISE DUTY BEFO RE THE DUE DATE OF FILING OF THE RETURN WAS FILED. THE LEA RNED CIT (A) CONSIDERING SUBMISSION OF THE ASSESSEE NOTED TH AT THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA HAS STAT ED THAT ASSESSEE COULD FOLLOW EXCLUSIVE OR INCLUSIVE METHOD OF EXCISE DUTY BUT A NOTE SHOULD BE APPENDED TO THE TA X AUDIT REPORT. THE ARGUMENT OF THE ASSESSEE THAT OPENING S TOCK SHOULD ALSO BE VALUED BY INCLUDING EXCISE DUTY WAS NOT ACCEPTED BECAUSE IT WOULD ALSO CHANGE THE CLOSING S TOCK OF THE LAST YEAR. LEARNED CIT (A) ACCORDINGLY DISMISSE D THE APPEAL OF THE ASSESSEE ON THIS GROUND. 10. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND 14 SUBMITTED THAT PURCHASES SALES AND OPENING STOCK S HOULD ALSO BE ADJUSTED IF CLOSING STOCK IS TO BE ADJUSTED BY ADDING EXCISE DUTY. HE HAS REFERRED TO WRITTEN SUBMISSION AT PB 9 TO SHOW THE METHOD AND WORKING OF THE ASSESSEE AS P ER SECTION 145A OF THE IT ACT. HE HAS ALSO RELIED UPON ORDER OF ITAT AHMEDABAD BENCH IN THE CASE OF M/S. UTKAL VIRA L & CO. DATED 29-02-2008 (PB -18) IN WHICH THE TRIBUNAL FOLLOWING ITS EARLIER ORDER HELD THAT IN VIEW OF SE CTION 145A IT IS NOT ONLY THE CLOSING STOCK BUT PURCHASE SALE S AND OPENING STOCK HAS TO BE ADJUSTED IN ACCORDANCE WITH PROVISIONS OF SECTION 145A OF THE IT ACT. THE A O W AS ACCORDINGLY DIRECTED. HE HAS ALSO RELIED UPON THE D ECISION IN THE CASE OF INDO NIPPON CHEMICALS CO. 261 ITR 27 5. ON THE OTHER HAND LEARNED D R RELIED UPON ORDER OF TH E A O AND SUBMITTED THAT DECISION IN THE CASE OF INDO NIP PON CHEMICAL CO 261 ITR 275 IS NOT ON THE ISSUE AS ARGU ED BY THE ASSESSEE. 11. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE AR E OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION AT TH E LEVEL OF THE A O. HON'BLE DELHI HIGH COURT IN THE CASE OF CI T VS MAHAVIR ALUMINUM LTD. 297 ITR 77 HELD AS UNDER: HELD DISMISSING THE APPEAL THAT PARAGRAPH 23.13 OF THE GUIDE NOTE ON TAX AUDIT UNDER SECTION 44AB ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA MADE IT CLEAR THAT WHENEVER ANY ADJUSTMENT IS MADE IN THE VALUATION OF INVENTORY THIS WILL AFFECT BOTH THE 15 OPENING AS WELL AS THE CLOSING STOCK. IF ANY ADJUSTMENT WAS REQUIRED TO BE MADE BY A STATUE EFFECT SHOULD BE GIVEN TO IT IRRESPECTIVE OF ANY CONSEQUENCES ON THE COMPUTATION OF INCOME FOR TAX PURPOSES. SECTION 145A BEGINS WITH A NON ABSTANTE CLAUSE AND THEREFORE TO GIVE EFFECT TO SECTION 145A IF THERE IS A CHANGE IN THE OPENING STOCK AS ON MARCH 31 1999 THERE MUST NECESSARILY BE A CORRESPONDING ADJUSTMENT MADE IN THE OPENING STOCK AS ON APRIL 1 1998. THUS THE QUESTION OF DOUBLE DEDUCTION DID NOT ARISE SINCE NO ADJUSTMENT WAS MADE BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING MARCH 31 1998. HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS MAHALAXMI GLASS WORKS PVT. LTD. 318 ITR 116 CONSIDE RING THE DECISION IN THE CASE OF MAHAVIR ALUMINUM LTD. H ELD THAT SIMILAR ADJUSTMENT SHOULD BE MADE IN OPENING STOCK ALSO. ITAT AHMEDABAD BENCH IN THE CASE OF M/S. UTKAL VIRA L & CO. (SUPRA) ALSO DIRECTED THE A O TO COMPUTE THE VA LUE OF THE PURCHASES SALES OPENING STOCK AND CLOSING STO CK IN ACCORDANCE WITH THE PROVISIONS OF SECTION 145A OF T HE IT ACT. IN THIS VIEW OF THE MATTER WE SET ASIDE THE O RDERS OF AUTHORITIES BELOW AND RESTORE THIS ISSUE TO THE FIL E OF A O AND DIRECT THE A O TO RE-DECIDE THIS ISSUE IN ACCOR DANCE WITH PROVISIONS OF SECTION 145A OF THE IT ACT BY TA KING INTO CONSIDERATION THE ABOVE DECISIONS. AS A RESULT THI S GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICA L PURPOSES. 16 12. ON GROUND NO.4 ASSESSEE CHALLENGED THE ORDER O F LEARNED CIT (A) IN CONFIRMING ADDITION OF RS.80 450 /- ON ACCOUNT OF ESTIMATING HIGHER OIL GAIN IN PRODUCTION . THE A O HAS STATED THAT THE ASSESSEE IS ENGAGED IN THE BUSI NESS OF MANUFACTURING AND TRADING OF TEXTURISED YARN. IN TH IS PROCESS OIL IS USED FOR LUBRICATION AND THIS RESUL T IN OIL GAIN IN ITS PRODUCT. ACCORDING TO A O THE ASSESSEE HAS S HOWN OIL GAIN OF 1.35 % WHEREAS TRIBUNAL IN THE CASE OF MARM O TEXTURISERS HAD ESTIMATED THE OIL GAIN AT 1.62 %. A SSESSEE WAS ASKED WHY OIL GAIN BE NOT INCREASED. ASSESSEE SUBMITTED THAT THE CASE REFERRED IS VERY OLD AND TH E ASSESSEE HAD MAINTAINED COMPLETE DETAILS OF SALES PURCHASES AND PRODUCTION THEREFORE OIL GAIN SHOWN BY THE ASSESSEE SHOULD BE ACCEPTED. THE A O HOWEVER FOLLO WING THE CASE OF MARMO TEXTURISERS ADOPTED OIL GAIN AT 1 .62% AND MADE THE ABOVE ADDITION. THE ASSESSEE REITERATE D THE SAME SUBMISSIONS BEFORE THE LEARNED CIT (A) AND SUB MITTED THAT THERE IS LOT OF CHANGE SINCE 1990 WITH RESPECT OF TECHNIQUES AND SPEED OF THE MACHINERY. THE LEARNED CIT (A) HOWEVER CONFIRMED THE ADDITION. 13. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND R EFERRED TO PB-8 WHICH IS REPLY FILED BEFORE A O AND IS TABL E OF COMPARABLE CASES IN WHICH OIL GAINS WERE IN THE PER CENTAGE OF 1.09 1.43 1.08 AND 1.31. ON THE OTHER HAND LE ARNED D R RELIED UPON ORDERS OF THE AUTHORITIES BELOW. 17 14. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE AR E OF THE VIEW THAT ADDITION IS ENTIRELY UNJUSTIFIED. THE A O HAS RELIED UPON DECISION IN THE CASE OF MARMO TEXTURISING PVT. LTD. (SUPRA) WHICH PERTAINS TO ASSESSMENT YEAR 1990-91 A ND A O HAS NOT BROUGHT ANYTHING ON RECORD AS TO HOW THE FA CTS WERE COMPARABLE TO THE CASE OF THE ASSESSEE. THE A O HAS NOT POINTED OUT ANY OTHER DEFECTS IN THE BOOKS OF ACCOU NTS OF THE ASSESSEE AND DETAILS MAINTAINED ON THIS ISSUE. THE ASSESSEE FILED SPECIFIC REPLY BEFORE THE A O AND AL SO FILED LIST OF 4 COMPARABLE CASES IN WHICH OIL GAIN WAS SH OWN AT 1.08 TO 1.34%. THE A O HAS MENTIONED THIS FACT BUT INSTEAD OF CONSIDERING OTHER CASES THE A O HAS PREFERRED T HE OLD DECISION WITHOUT GIVING ANY REASONS. SINCE IN OTHER COMPARABLE CASES THE YIELD IS ALMOST SIMILAR OR LE SSER TO THE CASE OF THE ASSESSEE THEREFORE IN THE ABSENCE OF ANY SPECIFIC DEFECTS POINTED OUT IN THE BOOKS OF ACCOUN TS OF THE ASSESSEE WE ARE OF THE VIEW AD HOC ADDITION IS UNJ USTIFIED. WE ACCORDINGLY SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. THIS GROUND OF APPE AL OF THE ASSESSEE IS ALLOWED. 15. NO OTHER POINT IS ARGUED OR PRESSED. 18 16. AS A RESULT APPEAL OF THE ASSESSEE IS PARTLY A LLOWED. SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 23 /07/2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT 6. GUARD FILE BY ORDER //TRUE COPY// DY.R/AR I TAT AHMEDABAD