The ACIT,(OSD)Circle-8,, Ahmedabad v. Shah Alloys Ltd.,, Ahmedabad

ITA 3614/AHD/2008 | 1997-1998
Pronouncement Date: 21-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 361420514 RSA 2008
Assessee PAN AADCS0474L
Bench Ahmedabad
Appeal Number ITA 3614/AHD/2008
Duration Of Justice 2 year(s) 2 month(s) 18 day(s)
Appellant The ACIT,(OSD)Circle-8,, Ahmedabad
Respondent Shah Alloys Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 21-01-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 21-01-2011
Date Of Final Hearing 11-01-2011
Next Hearing Date 11-01-2011
Assessment Year 1997-1998
Appeal Filed On 03-11-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL : A BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA J.M. & HON' BLE SHRI A.N. PAHUJA A.M. ) I.T.A. NO. 3614/AHD/2008 ASSESSMENT YEAR : 1997-1998 ASSISTANT COMMISSIONER OF INCOME TAX -VS.- SHAH ALLOYS LIMITED (OSD) CIRCLE-8 AHMEDABAD AHMEDABAD (PAN : AADC S 0474 L) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANIL KUMAR D .R. RESPONDENT BY : SHRI ANIL R. SHAH A. R. O R D E R PER SHRI T.K. SHARMA JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER DATED 28.08.2008 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XIV AHMEDABAD FOR THE ASSESSMENT YEAR 1997-98 ON THE FOLLOWING GROUNDS :- (1) THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-XIV AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDI TION/ DISALLOWANCE U/S. 37(1) OF THE ACT OF RS.40 04 400/- ON ACCOUNT OF INTEREST DISALLOWANCE. (2) THE LD. CIT(A.)-XIV AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING RS.85 312/- WHICH IS NOT ELIGIBLE U/S. 80I A OF THE ACT. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XIV AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 2. BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN THIS APPEAL ARE THAT THE ORIGINAL ASSESSMENT IN THIS CASE WAS COMPLETED ON 22.11.1999 WHEREIN T HE ASSESSING OFFICER DISALLOWED RS.13 58 712/- OUT OF TOTAL INTEREST ON THE GROUND THAT THE BORROWED FUNDS HAVE BEEN DIVERTED IN GIVING INTEREST FREE ADVANCES TO SISTER CONCERNS. I N THIS ASSESSMENT ORDER THE ASSESSING OFFICER HAS ALSO HELD THAT TRADING INCOME DOES NOT FALL UND ER THE INCOME OF INDUSTRIAL UNDERTAKING AND THEREFORE THE GROSS PROFIT OF TRADING TURNOVER OF RS.4 26 563/- AT 20% AS SUBMITTED BY THE ASSESSEE WAS EXCLUDED FROM THE ALLEGED PROFIT OF IN DUSTRIAL UNDERTAKING FOR THE PURPOSE OF CALCULATING DEDUCTION UNDER SECTION 80IA OF THE INC OME TAX ACT 1961. 2 ITA NO. 3614-AHD-2008 3. ON APPEAL THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) DELETED THE DISALLOWANCE OF INTEREST AND ALSO DIRECTED THE ASSESSING OFFICER TO ALLOW DEDUCTION UNDER SECTION 80IA OF THE ACT OF ENTIRE PROFIT FROM INDUSTRIAL UNDERTAKING. 4. ON APPEAL ITAT C BENCH AHMEDABAD VIDE ITS O RDER DATED 23.06.2006 IN ASSESSEES OWN CASE IN ITA NO. 698/AHD/2002 RESTORED BOTH THES E ISSUES TO THE FILE OF ASSESSING OFFICER. SUBSEQUENTLY THE ASSESSING OFFICER PASSED THE ORDE R UNDER SECTION 143(3) READ WITH SECTION 254 OF THE ACT WHEREIN HE DISALLOWED INTEREST OF RS.40 04 400/- OUT OF THE TOTAL INTEREST OF RS.5 93 42 761/- AND ADDED THE SAME TO THE TOTAL IN COME UNDER SECTION 37(1) OF THE INCOME TAX ACT 1961. APART FROM THIS THE ASSESSING OFFICER A LSO MADE THE ADDITION UNDER SECTION 80IA AMOUNTING TO RS.85 312/-. ON APPEAL IN THE IMPUGNE D ORDER THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DELETED BOTH THE ADDITION/ DIS ALLOWANCE MADE BY THE ASSESSING OFFICER IN HIS ORDER UNDER SECTION 143(3) READ WITH SECTION 25 4 DATED 16.11.2007. THE REASONING GIVEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FOR DELETING THE ADDITION/ DISALLOWANCE UNDER SECTION 37 OF THE ACT OF RS.40 04 400/- ON AC COUNT OF INTEREST ARE CONTAINED IN PARA 2.3 WHICH READS AS UNDER :- 2.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE DETAILED SUBMISSIONS AS ADVANCED BY THE A.R. OF THE APPELLANT. THE A.R. CON TENDED THAT THE APPELLANT HAS SUFFICIENT INTEREST FREE FUNDS IN THE FORM OF CURRE NT LIABILITIES CONSISTING OF SUNDRY CREDITORS AND ADVANCES FROM CUSTOMERS WHEREIN THER E IS INCREASE OF RS. 17 82 48 241/- AND ALSO INCREASE IN UNSECURED LOANS TO THE TUNE OF RS 5 48 56 885/- FROM THE DIRECTORS AND ASSOCIATE CONCERNS ON WHICH THE APPELLANT HAS NOT PAID ANY INTEREST. IN FACT INTEREST HAS BEEN PAID ONLY ON SECURED LOANS OF RS. 33.39 CR ORES AS ON 31-3-97. SO NO PAN OF INTEREST PAYMENT CAN BE ATTRIBUTED TO INTEREST FREE ADVANCES. UNDER SECURED LOAN THERE IS AN INCREASE OF RS. 8 16 79 321/- DURING THE YEAR A S IT HAS INCREASED FROM RS. 25 22 41 759/- AS ON 31-3-96 TO RS. 33 39 21 080/- AS ON 31-3-97 ON WHICH INTEREST HAS BEEN PAID AND THIS INCREASE IN SECURED LOAN HAS BEE N TOTALLY UTILIZED IN CORRESPONDING INCREASE IN FIXED ASSETS TO THE TUNE OF RS. 11.14 C RORES WHICH IMPLIES THAT THE BALANCE INCREASE IN FIXED ASSETS TO THE TUNE OF RS. 3 CRORE S HAS BEEN INVESTED OUT OF INCREASE IN CURRENT LIABILITIES WHICH IS OF RS. 17 82 48 241/- DURING THE YEAR BEING THE DIFFERENCE OF RS. 38 52 78 226/- AS ON 31-3-97 & RS. 20 70 29 985 /- AS ON 31-3-96. THIS INCREASE IN CURRENT LIABILITIES INCLUDES INCREASE IN CREDITORS FOR GOODS CREDITORS TOR EXPENSES AND OTHERS INCLUDING ADVANCES FROM CUSTOMERS WHEREIN T HERE IS AN INCREASE OF RS. 75.46 LAKHS. PART OF INCREASE IN CURRENT LIABILITIES IS T O BE OFFSET AGAINST THE INCREASE IN INVENTORIES WHICH IS OF RS 1.81 CRORES OVER THE P REVIOUS YEAR AND INCREASE IN SUNDRY DEBTORS OF RS. 3.31 CRORES. EVEN AFTER OFFSETTING T HE INCREASE IN STOCK OF RS.1.81CRORES AND THE INCREASE IN DEBTORS OF RS. 3 31 CRORES AND THE BALANCE IN FIXED ASSETS TO THE TUNE OF RS. 3 CRORES THERE IS STILL BALANCE AMOUNT AVAI LABLE OUT OF INCREASE IN CURRENT LIABILITIES (RS. 17.82 -RS. 3.31 RS. 1.81- RS.3 C RORES) OF RS. 9.70 CRORES. FURTHER THERE IS ALSO INCREASE IN UNSECURED LOANS OF RS 5.48 CRO RES. THUS TOTAL INTEREST FREE FUNDS OUT OF INCREASE IN CURRENT LIABILITIES AND INCREASE IN UNSECURED LOANS ARE OF (RS. 9.70 CRORES 3 ITA NO. 3614-AHD-2008 + RS. 5.48 CRORES) = RS.15.18 CR. WHICH HAVE BEEN UTILIZED TOWARDS INVESTMENT OF RS 1.25 CRORES DURING THE YEAR AND INCREASE IN CASH/BA NK BALANCE OF RS.1.77 CRORES. EVEN AFTER CONSIDERING INCREASE IN INVESTMENTS AND INCRE ASE IN BANK BALANCE THE APPELLANT HAS INTEREST FREE FUNDS OF RS. 12.16 CRORES. THIS IS OU T OF INCREASE IN CURRENT LIABILITIES AND INCREASE IN UNSECURED LOAN WHICH ARE AVAILABLE TOWA RDS UTILIZATION TOWARDS INCREASE IN LOANS AND ADVANCES. APART FROM THAT THE APPELLANT HAS INCREASE IN SHARE CAPITAL AND RESERVES TO THE TUNE OF RS1.53 CR. THIS MAKES TOTAL INTEREST FREE FUNDS AVAILABLE FOR GIVING LOANS AND ADVANCES AS RS. 13.69 CRORES (RS. 12.16 + RS.1.53). THE INCREASE IN TOTAL LOANS AND ADVANCES IS OF RS. 14.27 CRORES DUR ING THE YEAR OUT OF THAT THE INCREASE IN ADVANCES DURING THE YEAR TO THE 4 SISTER CONCERN S IS OF RS. 3.84 CRORES AS PER THE CHART GIVEN BY THE APPELLANT AT PAGE 49 OF THE PAPER BOOK FILED DURING THE COURSE OF APPELLATE PROCEEDINGS. THUS THE INVESTMENT IN INTEREST FREE ADVANCES GIVEN TO 4 PARTIES OF RS. 3.84 CRORES HAS BEEN UTILIZED OUT OF INCREASE IN CURRENT LIABILITIES AND UNSECURED LOANS FROM DIRECTORS AND ASSOCIATE CONCERNS ON WHICH THE APPEL LANT HAS NOT PAID ANY INTEREST. THE A.O WHILE DISALLOWING THE INTEREST HAS CONSIDERED TOTAL ADVANCES OUTSTANDING AS ON 31- 3-97 IN THE ACCOUNTS OF 4 SISTER CONCERNS WHICH IS OF RS.11.77 CRORES INSTEAD OF CONSIDERING THE INCREASE IN ADVANCES DURING THE YEA R. THE INCREASE IN ADVANCES IS OF RS. 3.84 CRORES AS PER PAGE 49 OF PAPER BOOK SUBMITTED BY THE A R. WHICH IS THE SAME AS PER THE DETAILED ACCOUNTS OF THE PARTIES SUBMITTED IN T HE SECOND PAPER BOOK. THE A.R. HAS ALSO GIVEN A CHART AT PAGE 16 OF THE PAPER BOOK WH EREIN THE NATURE OF ADVANCES HAS BEEN SPECIFIED AND THE ADVANCES GIVEN TOWARDS GOODS OR OTHERWISE HAVE BEEN CLEARLY SPECIFIED. THE A.R. SUBMITTED THAT THE TRANSACTIONS WITH ALL THE 4 ASSOCIATED CONCERNS INVOLVED TRANSACTIONS ON ACCOUNT OF PURCHASE/SALE/ EXPENSES AND ARE A RESULT OF MIXED UP TRANSACTIONS OF CREDIT AND DEBIT BALANCES. THE APPE LLANT HAS PURCHASED INDUSTRIAL GOODS FROM SHAH STEEL AND INDUSTRIAL GASES FOR WHICH MONI ES HAVE BEEN ADVANCED OUT OF INTEREST FREE FUNDS AVAILABLE TO THE TUNE OF RS. 13 .69 CRORES THE DECISION OF HON. ITAT A'BAD BENCH IN THE CASE OF TORRENT FINANCIERS IS SQ UARELY APPLICABLE TO THE CASE OF THE APPELLANT AND NO DISALLOWANCE SHOULD BE MADE U/S 3 6(1)(III) AS NO FUNDS HAVE BEEN DIVERTED FOR MAKING ADVANCES TO THE SISTER CONCERNS AND FURTHER THE INTEREST FREE FUNDS AVAILABLE WITH THE APPELLANT ARE MORE THAN INTEREST FREE ADVANCES GIVEN TO THE 4 SISTER CONCERNS. EVEN THE DECISION OF HON. SUPREME COURT IN S.A. BUILDERS LTD..- VS.- CIT. REPORTED IN 288 ITR 1 IS APPLICABLE TO FACTS OF THE APPELLANT AS THE ADVANCES HAVE BEEN GIVEN TO THE SISTER CONCERNS AS A MEASURE OF COMMER CIAL EXPEDIENCY AND THEREFORE NO DISALLOWANCE IS REQUIRED TO BE MADE U/S. 36(1)(III) OF THE ACT. THE A.O. HAS MADE DISALLOWANCE OF INTEREST U/S. 37(1) OF THE ACT HUT AS THE INTEREST WHICH HAS BEEN PAID ONLY ON SECURED LOANS HAS BEEN CLAIMED U/S. 36(1)(I II) THE ENTIRE INTEREST PAID ON BORROWED FUNDS WHICH HAVE BEEN UTILIZED FOR THE PU RPOSE OF BUSINESS IS ALLOWABLE U/S. 36(1)(III) OF THE I.T ACT. IN VIEW OF THE ABOVE DIS CUSSION THE DISALLOWANCE MADE ON THIS COUNT IS DELETED. THE REASONING GIVEN BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FOR DIRECTING NOT TO REDUCE PROFIT FROM TRADING FOR COMPUTING DEDUCTION UNDER SECTION 80IA OF THE ACT ARE CONTAINED IN PARA 3 OF THE IMPUGNED ORDER WHICH READS AS UND ER :- 3. THE SECOND GROUND OF APPEAL IS AGAINST DISALLOW ANCE OF RS.85 312/- FROM CLAIM OF DEDUCTION U/S. 80IA BY EX CLUDING 20% OF TRADING TURNOVER FROM THE ELIGIBLE PROFIT OF INDUSTRIAL UND ERTAKING FOR THE PURPOSE OF CALCULATING DEDUCTION U/S. 80IA. THE A.R. OF THE APPELLANT SUBMITTED THAT DURING THE YEAR THERE WERE ONLY THREE ISOLATE D TRANSACTIONS OF RESALE 4 ITA NO. 3614-AHD-2008 OF MS INGOTS AND THE SALE OF 38925 M.T. OF MS INGOT S WAS MADE AT THE SAME VALUE OF RS.4 26 563/- AS ITS COST OF PURCHASE S. THUS THERE WAS NO PROFIT OR LOSS IN THIS TRADING ACTIVITY. I HAVE CON SIDERED THE SUBMISSIONS OF THE A.R. AS THERE IS NO PROFIT IN THE TRANSACTIONS OF RESALE OF MS INGOT NOTHING IS TO BE EXCLUDED. HENCE THE A.O. IS DIREC TED NOT TO REDUCE THE PROFIT FROM TRADING FOR COMPUTING DEDUCTION U/S. 80 IA OF THE I.T. ACT. AGGRIEVED WITH THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING BEFORE US SHRI ANIL KUMA R LD. CIT(D.R.) APPEARING ON BEHALF OF THE REVENUE CONTENDED THAT THE DECISION OF ITAT AH MEDABAD IN THE CASE OF TORRENT FINANCIERS VS.- ACIT [2001] 73 TTJ 624 (AHD.) IS NOT APPLICAB LE TO THE FACTS OF ASSESSEES CASE. HE POINTED OUT THAT AVAILABILITY OF FUNDS HAS TO BE EXAMINED W HEN THE ASSESSEE HAS GIVEN INTEREST-FREE LOAN. THEREFORE THE DISALLOWANCE OF RS.40 04 400/- MADE BY THE ASSESSING OFFICER OUT OF INTEREST BE RESTORED. WITH REGARD TO DELETION OF RS.85 312/- W HICH IS NOT ELIGIBLE UNDER SECTION 80IA THE LD. D.R. POINTED OUT THAT TRIBUNAL VIDE ORDER DATED 23. 06.2006 IN ITA NO. 698/AHD/2002 IN ASSESSEES OWN CASE RESTORED THIS ISSUE TO THE FILE OF ASSESSING OFFICER WITH THE DIRECTION THAT ASSESSEE SHOULD FURNISH THE DETAILS IN RESPECT OF S UCH TRANSACTION BY WAY OF PRODUCTION OF BILLS AND BANK STATEMENT. THESE WERE NOT PRODUCED BEFORE THE ASSESSING OFFICER FOR VERIFICATION. IN THESE CIRCUMSTANCES THE ASSESSING OFFICER WAS HAVI NG NO OPTION BUT TO REPEAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THE GROUND THAT TR ADING INCOME IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA AS THIS INCOME IS NOT DERIVED FR OM INDUSTRIAL UNDERTAKING. HE ACCORDINGLY CONTENDED THAT THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE BE REVERSED. 6. RIVAL SUBMISSIONS WERE CONSIDERED. IT IS PERTINE NT TO NOTE THAT ITAT VIDE ORDER DATED 23.06.2006 DIRECTED THE ASSESSING OFFICER TO RE-WOR K OUT THE DISALLOWANCE OF INTEREST KEEPING IN VIEW THE DECISION OF THE ITAT AHMEDABAD IN THE CAS E OF TORRENT FINANCERS (SUPRA). IN THE ORIGINAL ASSESSMENT THE ASSESSING OFFICER DISALLOW ED THE INTEREST AMOUNTING TO RS.40 04 400/- WHILE GIVING APPEAL EFFECT TO THE TRIBUNALS ORDER. IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AFTER APPLYING THE RATIO OF DECISION IN THE CASE OF TORRENT FINANCERS TOOK THE VIEW THAT NO DISALLOWANC E IS CALLED FOR. IN OUR OPINION THE VIEW TAKEN 5 ITA NO. 3614-AHD-2008 BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN THIS REGARD IS FAIR AND REASONABLE. WE THEREFORE DECLINE TO INTERFERE. RESULTANTLY GROUN D NO. 1 OF THIS APPEAL IS REJECTED. 6.1. IN THE ORIGINAL ASSESSMENT ORDER THE ASSESSIN G OFFICER OBSERVED THAT THE ASSESSEE HAS DONE TRADING ACTIVITY OF MS INGOTS OF RS.4 26 563/- . THE ASSESSING OFFICER ESTIMATED GROSS PROFIT ON THE SAID TURNOVER @ 20% AND ESTIMATED THE GP AT RS.85 312/- AND EXCLUDED THE SAME FROM ELIGIBLE PROFIT OF INDUSTRIAL UNDERTAKING FOR THE P URPOSE OF COMPUTING DEDUCTION UNDER SECTION 80IA. THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) DELETED THE SAID DISALLOWANCE ON THE GROUND THAT THERE WERE ONLY THREE ISOLATED TRANSACT IONS OF RESALE OF MS INGOTS AND THE SALE OF 38925 M.T. OF MS INGOTS WAS MADE AT THE SAME VALUE OF RS.4 26 563/- THUS THERE WAS NO PROFIT. ON FURTHER APPEAL BY THE REVENUE TRIBUNAL VIDE ORD ER DATED 23.06.2006 DIRECTED THE ASSESSEE TO PRODUCE THE BILLS/ VOUCHERS OF SALE AND PURCHASES S O THAT ASSESSING OFFICER CAN ASCERTAIN THAT THERE WAS NO TRADING PROFIT IN SALE AND PURCHASES OF MS INGOTS. 6.2. WHILE GIVING APPEAL EFFECT TO THE ORDER OF TRI BUNAL THE ASSESSEE WAS ASKED TO PRODUCE THE BILLS/ VOUCHERS TO ESTABLISH THAT THERE WAS NO TRAD ING PROFIT. IT IS PERTINENT TO NOTE THAT THESE WERE NOT PRODUCED BEFORE THE ASSESSING OFFICER FOR VERIF ICATION. WE ARE THEREFORE OF THE VIEW THAT THE ASSESSING OFFICER HAS NO OPTION BUT TO RE-ESTIMATE THE TRADING PROFIT AT RS.85 312/-. LOOKING TO THE NON-COOPERATIVE ATTITUDE OF THE ASSESSEE THE V IEW TAKEN BY THE ASSESSING OFFICER IN THIS REGARD WAS FAIR AND REASONABLE AND LEARNED COMMISSI ONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN DELETING THE SAID ADDITION. WE ACCORDI NGLY RESTORE THE ADDITION MADE BY THE ASSESSING OFFICER IN THIS REGARD. RESULTANTLY GROUND NO. 2 O F REVENUES APPEAL IS ALLOWED. 7. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S PARTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 21.01.20 11 SD/- SD/- (A.N. PAHUJA) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 21/ 01 / 2011 6 ITA NO. 3614-AHD-2008 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A.) CONCERNED (4) CIT CONCERNED (5) D.R. ITAT AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGI STRAR ITAT AHMEDABAD LAHA/SR.P.S.