Beetal Silk Mills Pvt.Ltd.,, Surat v. The ACIT., Circle-1,, Surat

ITA 350/AHD/2007 | 2003-2004
Pronouncement Date: 07-05-2010 | Result: Allowed

Appeal Details

RSA Number 35020514 RSA 2007
Bench Ahmedabad
Appeal Number ITA 350/AHD/2007
Duration Of Justice 3 year(s) 3 month(s) 18 day(s)
Appellant Beetal Silk Mills Pvt.Ltd.,, Surat
Respondent The ACIT., Circle-1,, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 07-05-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 07-05-2010
Date Of Final Hearing 03-05-2010
Next Hearing Date 03-05-2010
Assessment Year 2003-2004
Appeal Filed On 19-01-2007
Judgment Text
- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE S/SHRI MAHAVIR SINGH JM AND D.C.AGRAWAL AM BEELAL SILK MILLS (P) LTD. T-1118-19 SURAT TEXTILE MARKET RING ROAD SURAT. V/S . ASSTT. CIT CIRCLE-1 MAJURA GATE SURAT. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- MR. VARTIK R. CHOKSI AR RESPONDENT BY:- ABHIJEET KUMAR NOBKHODH SR.DR O R D E R PER D.C. AGRAWAL ACCOUNTANT MEMBER. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A) DATED 21.11.2006 RAISING FOLLOWING GROUNDS : - (1) THAT THE CIT(A) HAS PASSED THE ORDER WITHOUT CONSID ERING THE ASSESSEE SUBMISSION. (2) THAT THE ASSESSEE HAS SURPLUS FUND OF RS.1.21 CRORE IN 31.03.02 AND OUT OF THAT THE FIXED DEPOSIT HAS BEEN MADE. HE NCE THE ASSESSEE HAS NOT MADE THE F.D. THROUGH CENTRAL CIRC LE OR THE BANK FACILITIES ACCOUNT. HENCE DISALLOWANCE OF INT EREST HAS BEEN MADE WRONGLY. (3) THAT THE ASSESSEE HAS MADE A F.D. OF RS.25 00 000/- IN F.Y.2001-02 ON INTEREST @ 7.5% P.A. AND ALSO TAKEN LOAN ON THE SAME @ 9.5% P.A. IN CURRENT YEAR UNDER CONSIDERATIO N AND ITA NO.350/AHD/2007 ASST. YEAR :2003-04 2 RS.5 00 000/- MADE AGAINST THE COMPULSORY REQUIREME NT OF BANK FOR SANCTIONING LC LIMIT. (4) THAT THE CIT HAS WRONGLY STATED THAT PROPER CLARIFI CATION HAS NOT MADE HOWEVER IN THE SUBMISSION THE ASSESSEE HAS CL EARLY MENTIONED THE FACT OF THE CASE. (5) HENCE THE ADDITION MADE OF RS.1 62 500/- ON INTERES T DISALLOWANCE TO BE DELETED. 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS THAT A O HAS DISALLOWED AND LD. CIT(A) HAS CONFIRMED AN ADDITION OF RS.1 62 500/- BEING DISALLOWANCE OF INTEREST ON THE GROUND THAT ASSESSE E HAS PAID INTERESTS TO ITS SISTER CONCERN @ 13.5 TO 14% ON THE MONEY BORRO WED FROM THEM WHEREAS IT HAS RECEIVED INTEREST FROM THE BANK @ O NLY 7% ON THE MONEY DEPOSITED BY THE ASSESSEE IN F.D. 3. THE FACTS OF THE CASE ARE THAT ASSESSEE IS A COM PANY CARRYING ON BUSINESS OF MANUFACTURING OF GREY CLOTH ON POWER LO OMS AND TRADING IN ART SILK CLOTH IN THE FORM OF SAREES IN THE MARKET. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS MADE FOLLOWING DEPOSITS IN THE BANK ACCOUNTS AS F.D.:- RS.25 00 000 OPENING BALANCE RS.2 50 000 18.02.2003 RS.2 20 000 20.03.2003 THE ASSESSEE DERIVED INTEREST @ 7.5% ON THESE DEPOS ITS. ON THE OTHER HAND IT HAS BORROWED FUNDS FROM THE BANK AS WELL A S FROM THE MARKET ON WHICH IT IS PAYING INTEREST @ 13.5 OR 14%. IT IS PA YING INTEREST @ 12% ON UNSECURED LOANS. THUS AO HELD THAT AS A PRUDENT BUS INESSMAN ASSESSEE IS EXPECTED TO USE ITS SPARE FUNDS OF RS.25 LACS FOR T HE PURPOSE OF BUSINESS AND TO AVOID PAYMENT OF INTEREST @ 13.5% TO 14%. TH E AO ACCORDINGLY 3 NOT FINDING ANY BUSINESS PRUDENCE DISALLOWANCE 6.5% ON RS.25 LACS WHICH WAS WORKED OUT AT RS.1 62 500/-. 4. THE LD. CIT(A) DISMISSED THE APPEAL OF THE ASSES SEE AFTER REJECTING THE ARGUMENTS OF THE ASSESSEE THAT ASSESSEE HAS SUR PLUS FUNDS OF RS.1.21 CRORES IN ASST. YEAR 2002-03 I.E. THE PREVIOUS YEAR . THE FIXED DEPOSITS WERE MADE OUT OF SUCH SURPLUS FUNDS. IT WAS ALSO CL AIMED THAT OVER-DRAFT FACILITIES WERE TAKEN BY THE ASSESSEE TO THE EXTENT OF RS.24.12 LACS ON WHICH ALONE IT HAS PAID INTEREST. THE LD. CIT(A) HE LD THAT IF OVERDRAFT FACILITIES OF SIMILAR AMOUNT IS TAKEN THEN WHY TO P AY INTEREST @ 13 TO 14% WHEREAS TO EARN THE INTEREST @ 7% TO 9%. HE ACCORDI NGLY CONFIRMED THE ORDER OF AO. 5. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT FIXED DEPOSIT OF RS.25 LACS. WAS NOT DONE IN THE CURRENT YEAR. IT WAS AN O PENING BALANCE THIS YEAR. DEPOSIT WAS MADE OUT OF SURPLUS FUNDS OF RS.1 21 20 275/-. AGAINST THIS F.D. THE ASSESSEE COMPANY TOOK OVERDRAFT FACIL ITIES FROM TAMIL NADU MERCANTILE BANK BRANCH SURAT IN ASST. YEAR 2002-03 . THE BANK HAD CHARGED INTEREST @ 9.5% ON THE OD FACILITIES WHEREA S IT HAS GIVEN INTEREST @ 7.5% ON SUCH F.D. THE LD. AR SUBMITTED THAT AO OR THE LD. CIT(A) COULD NOT SIT OVER THE JUDGMENT OF THE BUSINESS MAY AS TO HOW TO UTILIZE ITS SURPLUS FUNDS. RATHER EARNING NO INTEREST OR VE RY NOMINAL INTEREST THE ASSESSEE DECIDED TO DEPOSIT PART OF THE SURPLUS FUN DS AS F.D. AND EARNED INTEREST THEREON AND ALSO AVAILED O.D. FACILITIES A GAINST SUCH F.D. FURTHER BORROWING FUNDS FROM THE CREDITORS IS ALSO A BUSINE SS DECISION. EVEN THOUGH ASSESSEE MAY HAVE SURPLUS FUNDS IN THE BANK STILL IT PREFERRED TO BORROW MONEY FROM THE MARKET AND RETAINED THE SURPL US FUNDS AS CUSHION MONEY. IT ALL DEPENDS UPON PARTICULAR FACTS AND CIR CUMSTANCES OF THE CASE. A PERSON WHO IS RUNNING SUCH A LARGE BUSINESS WILL REQUIRE FUNDS AND 4 MANAGE THEM ACCORDING TO THE NEEDS OF THE TIME. THE LD. AR SUBMITTED THAT AO FAILED TO PIN POINT ANY SPECIAL CIRCUMSTANC ES WHERE FUNDS ARE MISUTILISED. THE AO HAS ALSO NOT MADE OUT THE CASE THAT BORROWINGS OF FUNDS FROM THE MARKET AT 13 TO 14% INTEREST WAS FOR TAX EVASION BY REDUCING TAXABLE INCOME BY PAYING HIGHER INTEREST E VEN THOUGH ASSESSEE MIGHT HAVE SURPLUS FUNDS AVAILABLE IN THE BANK. SIN CE THERE IS NO FINDING OF ANY ULTERIOR MOTIVE IN BORROWING FUNDS FROM THE MARKET AT HIGHER RATE OF INTEREST THE DECISION OF THE ASSESSEE AS A BUSI NESSMAN IN PAYING INTEREST TO THE CREDITORS AT HIGHER RATE AS COMPARE D TO THE BANK RATES AT WHICH ASSESSEE IS RECEIVING INTEREST SHOULD NOT BE QUESTIONED. THE LD. AR FURTHER SUBMITTED THAT ASSESSEE HAS PAID INTEREST U NDER OD ACCOUNT RS.1 82 639/- WHEREAS IT HAS EARNED INTEREST ON FD AT RS.2 32 708/-. IN OTHER WORDS ASSESSEE HAS EARNED INCOME BY UTILIZING SURPLUS FUNDS THEREFORE NO ADDITION SHOULD BE MADE BY DISALLOWIN G A PART OF THE INTEREST. 6. ON THE OTHER HAND LD. DR RELIED ON THE ORDERS O F AUTHORITIES BELOW. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. WE TEND TO AGREE WITH THE LD. AR ON THE POINT THAT IT IS THE COMMERCIAL DECISION OF THE ASSESSEE AS TO WHEN AND HOW MONEY IS TO BE BORROWED. THE REVENUE AUTHORITIES CANNOT SIT OVER T HE JUDGMENT OF THE BUSINESSMAN UNLESS A FINDING OF ULTERIOR MOTIVE IS GIVEN TO THE EFFECT THAT ASSESSEE INTENDED TO EVADE TAXES BY INCREASING THE INTEREST EXPENDITURE ON FUNDS BORROWED FROM THE MARKET OR FROM RELATIONS OR SISTER CONCERNS AT HIGHER RATE WHEREAS IT HAD ITS OWN FUNDS LYING IDLE IN THE BANK. A BUSINESSMAN MAY HAVE INTENTION OF KEEPING SURPLUS F UNDS AS CUSHION MONEY FOR THE NEED IN EMERGENCY THEREFORE HE MAY DECIDE TO BORROW FUNDS FROM THE MARKET AND RUN THE BUSINESS WITH THE HELP OF SUCH 5 BORROWED MONEY. THIS DECISION CAN ONLY BE CHALLENGE D WHEN A MOTIVE OF TAX EVASION IS IMPUTED. THERE CANNOT BE ANY IMPLIED INFERENCE OF ULTERIOR MOTIVE. THERE HAS TO BE AN EXPLICIT FINDING TO THAT EFFECT. FURTHER IT IS FOR THE ASSESSEE TO DECIDE TO KEEP THE SURPLUS FUNDS ID LE OR EARN INCOME THERE- FROM. ASSESSEE HAS CHOSEN TO EARN SOME INCOME BY MA KING F.D. OF RS.25 LACS IN BANK AND GETTING OVERDRAFT FACILITIES AGAIN ST SUCH F.D. THE FACTS INDICATE THAT ASSESSEE HAS EARNED INTEREST OF RS.2 32 708/- WHEREAS IT HAS PAID INTEREST IN OD A/C AT RS.1 82 639/-. THUS THER E IS A NET EARNING TO THE ASSESSEE TO THE EXTENT OF RS.50 069/-. THEREFORE I T CANNOT BE SAID THAT MAKING DEPOSIT IN F.D. WAS AN IMPRUDENT DECISION. A CCORDINGLY THERE IS NO CASE FOR MAKING ANY DISALLOWANCE OF INTEREST. IN VIEW OF THIS WE DELETE THE ADDITION CONFIRMED BY LD. CIT(A). 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. SD/- SD/- (MAHAVIR SINGH) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD DATED : 7/5/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD ORDER PRONOUNCED IN OPEN COURT ON 7/5/2010