The DCIT, Circle-5,, Ahmedabad v. Paras Pharmaceuticals Ltd.,, Ahmedabad

ITA 3565/AHD/2007 | 2005-2006
Pronouncement Date: 20-08-2010 | Result: Dismissed

Appeal Details

RSA Number 356520514 RSA 2007
Assessee PAN AAACP9268J
Bench Ahmedabad
Appeal Number ITA 3565/AHD/2007
Duration Of Justice 2 year(s) 11 month(s) 26 day(s)
Appellant The DCIT, Circle-5,, Ahmedabad
Respondent Paras Pharmaceuticals Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 20-08-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 20-08-2010
Date Of Final Hearing 17-08-2010
Next Hearing Date 17-08-2010
Assessment Year 2005-2006
Appeal Filed On 24-08-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI JM AND D.C. AGRAWAL AM) ITA NO.3565/AHD/2007 A. Y.: 2005-06 THE D. C. I. T. CIRCLE-5 2 ND FLOOR CU SHAH COLLEGE BUILDING ASHRAM ROAD AHMEDABAD VS PARAS PHARMACEUTICALS LTD. 6-B PARAS HOUSE SATTAR TALUKA SOCIETY ASHRAM ROAD AHMEDABAD PA NO. AAACP 9268J (APPELLANT) (RESPONDENT) APPELLANT BY SHRI BHUVNESH KULSHRESTHA DR RESPONDENT BY SHRI A. C. SHAH AR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-XI AHMEDAB AD DATED 26-06-2007 FOR THE ASSESSMENT YEAR 2005-06 CHALLENGING THE O RDER OF THE LEARNED CIT(A) IN DELETING THE ADDITION MADE OF RS.21 78 00 0/- ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENSES. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES AND PERUSED THE MATERIALS ON RECORD. 3. ACCORDING TO THE AO SIMILAR ISSUE HAD ARISEN IN THE ASSESSEES OWN CASE FOR EARLIER YEARS AND THE DISALLOWANCE IN RESP ECT OF INTEREST EXPENSES WERE MADE OUT OF TOTAL INTEREST EXPENDITURE CLAIMED . THEREFORE IN VIEW OF THE FINDINGS GIVEN IN ASSESSEES OWN CASE FOR ASSES SMENT YEAR 2002-03 AND 2004-05 THE AO HAS MADE DISALLOWANCE OF RS.21 78 000/- OUT OF TOTAL INTEREST EXPENDITURE PAID BY THE ASSESSEE OF RS.36 44 245/- ON THE GROUND THAT ALL ADVANCES TO M/S. MADHAVDAS TULSIDAS IS NOT CHARGED SINCE THE ASSESSEE COMPANY FOLLOWED MERCANTILE SYST EM OF ACCOUNTING AND ALSO TREATED THE SAME AS INCURRED FOR NON-BUSIN ESS PURPOSES. ITA NOS. 3565/AHD/2007 DCIT CIR-5 AHD VS PARAS PHARMACEUTICALS LTD. 2 4. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED C IT(A) AND IT WAS SUBMITTED THAT IN EARLIER YEARS APPELLATE AUTHORITI ES HAVE DECIDED SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE. IT WAS FURTHER EXP LAINED THAT THE ADVANCES OF RS.1.21 CRORES WAS GIVEN TO M/S. MADHAV DAS TULSIDAS OUT OF OWN FUNDS AND NOT OUT OF BORROWINGS DURING THE FINA NCIAL YEAR 1998-99 AND THE INTEREST WAS CHARGED ON SUCH ADVANCES. SUBS EQUENTLY THE PARTY TO WHOM ADVANCES WERE GIVEN BECAME FINANCIALLY WEAK AND THEREFORE THE ADVANCES WERE NOT RECOVERABLE. THEREFORE THE A SSESSEE MADE A PROVISION AGAINST SUCH DOUBTFUL ADVANCES IN THE BOO KS OF ACCOUNTS AND FILED CRIMINAL PROCEEDINGS AGAINST THE PARTY U/S 13 8 OF THE NEGOTIABLE INSTRUMENTS ACT AND ALSO FILED RECOVERY SUITS FOR T HE SAME. THUS THERE IS NO QUESTION OF CHARGING ANY INTEREST IN RESPECT OF DOUBTFUL ADVANCES SINCE THERE IS NO REASONABLE CERTAINITY. IT WAS EXP LAINED THAT NO INCOME ACCRUED TO THE ASSESSEE. THEREFORE INTEREST CANNOT BE SAID TO BE ACCRUED ON SUCH DOUBTFUL ADVANCES. THE NET OWN FUNDS WERE R S.66.90 CRORES AND THEREFORE QUESTION OF CHARGING INTEREST WOULD NOT ARISE. NO NOTIONAL INTEREST CAN BE CHARGED IN RESPECT OF THE AMOUNT CO NSIDERED DOUBTFUL OF ITS RECOVERY. THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS BANSWARA FABRICS LTD. (267 ITR 398) IN WHICH IT WAS HELD THAT ASSESSEE NOT CHARGING INTEREST ON DEBIT BALANCES OF TWO OF ITS SISTER CONCERNS - DUES NOT L IKELY TO BE RECOVERED RELATABLE TO BUSINESS EXPEDIENCY NOT A CASE OF PLAIN AND SIMPLE WAIVER WITHOUT ANY BUSINESS CONSIDERATIO N NOTIONAL INTEREST NOT TO BE INCLUDED. IT WAS FURTHER SUBMITTED THAT WHEN LOAN AMOUNT ITSELF HAS BECOME DOUBTFUL AND THE RECOVERY OF THE PRINCIPAL AMOUNT IS NOT POSSIBLE NO INTEREST WOULD ACCRUE TO THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS OWN SUFFICI ENT FUNDS AND NO AMOUNT WAS GIVEN TO THE SAID PARTY OUT OF BORROWED CAPITAL. IT WAS FURTHER SUBMITTED THAT ADDITION WAS MADE IN EARLIER YEARS THE FIRST YEAR BEING ASSESSMENT YEAR 2001-02 AND THE TRIBUNAL DELE TED THE ADDITION VIDE ORDER DATED 27-01-2007. IT WAS THEREFORE SUB MITTED THAT THE ITA NOS. 3565/AHD/2007 DCIT CIR-5 AHD VS PARAS PHARMACEUTICALS LTD. 3 ASSESSEE HAS GOT ITS OWN FUNDS AND MONEY ADVANCED I S NOT OUT OF BORROWED FUNDS. THEREFORE MONEY ADVANCED WAS OUT O F INTEREST FREE FUNDS WHICH HAVE BECOME DOUBTFUL ADVANCES HENCE NO INTEREST IS ACCRUED. THEREFORE NO NOTIONAL INTEREST CAN BE CHA RGED. 5. THE LEARNED CIT(A) NOTED THAT IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2004-05 THE LEARNED CIT(A) VIDE OR DER DATED 19-02-2007 DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE ORDER OF THE ITAT AHMEDABAD BENCH IN THE CASE OF THE SAME ASSESSEE FOR ASSESSMENT YEAR 2001-02. THE LEAR NED CIT(A) ACCORDINGLY DELETED THE ADDITION. 6. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE OUTS ET SUBMITTED THAT ITAT AHMEDABAD BENCH IN THE CASE OF SAME ASSESSEE F OR ASSESSMENT YEAR 2004-05 IN ITA NO.1899/AHD/2007 VIDE ORDER DAT ED 27-07-2007 DISMISSED THE DEPARTMENTAL APPEAL ON THE IDENTICAL ISSUE. COPY OF THE ORDER IS PLACED ON RECORD. THE LEARNED DR DID NOT D ISPUTE THE ORDER OF THE TRIBUNAL. 7. ON CONSIDERATION OF THE ABOVE FACTS IN THE LIGHT OF THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE MENTIONED ABOV E WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE. THE LEARNED CIT (A) DELETED THE ADDITION BY FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE AS WELL AS FOLLOWING HIS ORDER IN PRECEDING ASSESSM ENT YEAR 2004-05. THE ORDER OF THE LEARNED CIT(A) FOR ASSESSMENT YEAR 200 4-05 HAS BEEN CONFIRMED BY THE TRIBUNAL ON THE IDENTICAL FACTS. THEREFORE THERE IS NO ERROR IN THE ORDER OF THE LEARNED CIT(A) IN DELETIN G THE ADDITION. EVEN OTHERWISE IT IS SETTLED LAW WHEN THE RECOVERY OF T HE PRINCIPAL AMOUNT ITSELF IS IN DOUBT DUE TO VARIOUS DIFFICULTIES; THE RE IS NO QUESTION OF ACCRUAL OF INTEREST IN FAVOUR OF THE ASSESSEE. IT I S ALSO SETTLED LAW THAT UNDER INCOME TAX ACT WHAT IS TAXABLE IS THE REAL IN COME. NO NOTIONAL INTEREST CAN BE CHARGED TO TAX. SINCE IN THE EARLIE R YEAR SIMILAR ADDITIONS ITA NOS. 3565/AHD/2007 DCIT CIR-5 AHD VS PARAS PHARMACEUTICALS LTD. 4 HAVE BEEN DELETED IN THE CASE OF THE ASSESSEE BY TH E LEARNED CIT(A) AND HIS VIEW HAS BEEN UPHELD BY THE TRIBUNAL THEREFORE BY FOLLOWING THE SAME WE DO NOT FIND ANY MERIT IN THE DEPARTMENTAL APPEAL. SAME IS ACCORDINGLY DISMISSED. 8. IN THE RESULT THE DEPARTMENTAL APPEAL IS DISMIS SED. ORDER PRONOUNCED ON 20-08-2010 SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 20-08-2010 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 AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR ITAT AHMEDABAD