RAMKISHIN TEXTILES P. LTD, MUMBAI v. ITO WD 9(3)(3), MUMBAI

ITA 3960/MUM/2009 | 2004-2005
Pronouncement Date: 07-01-2011 | Result: Allowed

Appeal Details

RSA Number 396019914 RSA 2009
Bench Mumbai
Appeal Number ITA 3960/MUM/2009
Duration Of Justice 1 year(s) 6 month(s) 14 day(s)
Appellant RAMKISHIN TEXTILES P. LTD, MUMBAI
Respondent ITO WD 9(3)(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 07-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 07-01-2011
Date Of Final Hearing 21-07-2010
Next Hearing Date 21-07-2010
Assessment Year 2004-2005
Appeal Filed On 23-06-2009
Judgment Text
I.T.A NO.3960/ MUM/2009 ASSESSMENT YEAR: 2004-05 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH MUMBAI. [ CORAM: N.V.VASUDEN JM AND PRAMOD KUMAR AM ] I.T.A NO.3960/ MUM/2009 ASSESSMENT YEAR: 2004-05 RAMKISHIN TEXTILES P.LTD. .. APPELLANT 583/401 VIKRAM APARTMENTS NEAR EDWARD CENEMA 18 TH ROAD KHAR (W) MUMBAI. PA NO.AACCR 2040 L VS INCOME TAX OFFICER WARD 9(3)(3) .. RESPONDENT GROUND FLOOR R.NO.158 AAYAKAR BHAVAN M.K.ROAD MUMBAI. APPEARANCES SANJIV M SHAH FOR THE APPELLANT JITENDRA YADAV FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR : 1. BY WAY OF THIS APPEAL THE ASSESSEE HAS CALLED I NTO QUESTION CORRECTNESS OF CIT(A)S ORDER DATED 16 TH APRIL 2009 IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENT YEAR 2004-05. I.T.A NO.3960/ MUM/2009 ASSESSMENT YEAR: 2004-05 2 2. IN GROUND NO.1 THE ASSESSEE HAS RAISED THE FOLL OWING GRIEVANCE: THE LD CIT (A) ERRED IN CONFIRMING THE DISALLOWANC E OF INTEREST RS.11 22 551. 3. THE MATERIAL FACTS SO FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CONCERNED ARE LIKE THIS. DURING THE COURSE OF SCR UTINY ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS TAKEN INTEREST BEARING UNSECURED LOANS AND PAID INTEREST @ 18% ON THESE UNSECURED LOANS AMOUNTING TO RS. 11 22 551. THE AS SESSEE HAS ADVANCED INTEREST FREE FUNDS TO ONE M/S. TEJ SONS A CONCERN BELONGING TO FAMILY MEMBER OF ONE OF THE DIRECTORS. WHEN THE ASSESSEE WAS CALLED UPON TO EXPLAIN THE REASONS OF GRANTING INTEREST FREE LOANS TO SISTER CONCERNS IT WAS SUBMITTED BY THE ASSESSEE THAT THE SAID CONCERN HAD CREDIT BALANCE IN THE BEGINNING OF THE YEAR AND THAT IN THE PAST WHENEVE R THE ASSESSEE BORROWED FUNDS FROM THE SAID SISTER CONCERNS THE ASSESSEE N EVER PAID INTEREST IN RESPECT OF THE SAME. IT WAS THUS SUBMITTED THAT MU TUAL ACCOMMODATION OF FUNDS BETWEEN THESE TWO CONCERNS I.E. THE ASSESSEE AND M/S. TEJ SONS WAS WITHOUT ANY ELEMENT OF INTEREST BEING CHARGED BY EI THER OF THEM. ON THIS BASIS LENDING INTEREST FREE FUNDS TO THE SISTER CO NCERNS WAS SOUGHT TO BE JUSTIFIED ON THE GROUND OF APPARENTLY COMMERCIAL EXPEDIENCY. THE AO WAS NOT SATISFIED WITH THE EXPLANATION AND HE WAS OF TH E VIEW THAT SINCE THE ASSESSEE HAS ALLOWED SISTER CONCERN TO USE FUNDS WI THOUT CHARGING ANY INTEREST AND THE ASSESSEE HAS PAID INTEREST ON BOR ROWING THE FUNDS THE INTEREST PAID ON BORROWINGS IS TO BE DISALLOWED. A GGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A) BUT WITHOUT ANY SUCCESS. THE CIT (A) CONFIRMED THE ACTION OF THE ASSESSING OFFIC ER AND OBSERVED AS FOLLOWS:- I.T.A NO.3960/ MUM/2009 ASSESSMENT YEAR: 2004-05 3 5. I HAVE CAREFULLY CONSIDERED THE REASONING OF TH E AO AS WELL AS SUBMISSION OF THE APPELLANT AS MADE BEFORE ME. FIR ST OF ALL THERE IS NO MERIT IN THE CONTENTION OF THE APPELLANT TO T HE EXTENT THE APPELLANT HAS MADE SUBMISSION THAT THE AO HAS FAILE D TO PROVE THE NEXUS OF THIS FUND DIVERTED FOR NON BUSINESS PURPOS E. THE VARIOUS CASE LAWS AS RELIED ON BY THE APPELLANT ARE OF NO H ELP TO THE APPELLANT AS THE FACTS AS PREVALENT IN THE APPELLAN TS CASE ARE TOTALLY DISTINGUISHABLE. IN THE APPELLANTS CASE I T WAS VERY APPARENT THAT IT HAD BORROWED FUND WHICH CARRIED IN TEREST PAYMENT AND THEY HAVE BEEN GIVEN DIRECTLY TO ITS SI STER CONCERN FOR WHATSOEVER THE BUSINESS NEEDS THE SISTER CONCERN HA D AND IT IS A FACT ON RECORD THAT THE APPELLANT HAD NOT CHARGED A NY INTEREST FROM ITS SISTER CONCERN AND AT THE SAME TIME THE AP PELLANT HAD PAID INTEREST ON THE BORROWED FUNDS. SO THE NEXUS IS THERE AUTOMATICALLY THAT THE APPELLANT HAD GIVEN INTEREST BEARING FUNDS TO THE SISTER CONCERN FROM WHOM THE APPELLANT HAD N OT CHARGED INTEREST. SECONDLY THE CONTENTION OF THE APPELLAN T THAT IT HAD RECEIVED INTEREST FREE FUNDS FROM ITS SISTER CONCER N AS AND WHEN IT NEEDED IN THE EARLIER FINANCIAL YEAR AND AS SUCH IT HAD ALSO FINANCED THE SISTER CONCERN AS AND WHEN THEY NEEDED FUNDS IN ORDER TO RECIPROCATE THE MUTUAL NEEDS. HAD THE FIN ANCING OF THE FUNDS BY THE APPELLANT FROM ITS OWN SURPLUS FUNDS T HEN THE POSITION WOULD HAVE BEEN ENTIRELY DIFFERENT BUT HER E IN THE PRESENT CASE THE APPELLANT HAD GIVEN INTEREST BEAR ING FUNDS WHICH HAVE BEEN BORROWED TO THE SISTER CONCERN AS INTERES T FREE ADVANCE. THE RELIANCE OF THE APPELLANT ON THE DECISION OF S. A. BUILDERS IS TOTALLY MISPLACED. THERE THE HONBLE SUPREME COURT HAD TAKEN INTO CONSIDERATION THE CONCEPT OF COMMERCIAL EXPEDIENCY AFTER ANALYZING THE BASIC AND FACTUAL POSITION AS APPEARI NG IN THAT CASE BUT IN THE PRESENT CASE THE APPELLANT HAD NOT BEEN ABLE TO SHOW COMMERCIAL EXPEDIENCY WHICH WARRANTED FINANCING OF INTEREST I.T.A NO.3960/ MUM/2009 ASSESSMENT YEAR: 2004-05 4 FREE ADVANCES AFTER BORROWING THE INTEREST BEARING FUNDS. THE AO IN THE ASSESSMENT ORDER HAS CLEARLY BROUGHT OUT THA T THE CLOSING BALANCE AT THE END OF THE YEAR WAS TO THE EXTENT OF RS.75 60 446 AND THE PEAK CREDIT ALSO DID NOT EXCEED THE AFORESA ID AMOUNT. THE RATE OF INTEREST AT WHICH THE APPELLANT HAS PAID IN TEREST IS AT 18% AND THE INTEREST ON THE PEAK CREDIT HAS BEEN WORKED OUT AT RS.13 60 880. SINCE THE APPELLANT HAS DEBITED INTE REST ONLY TO THE EXTENT OF RS.11 22 551 AND AS SUCH THE AO RESTRICTE D THE DISALLOWANCE TO THE EXTENT OF RS.11 22 551. I THE REFORE CONSIDER THAT THERE IS NO INFIRMITY IN THE ACTION OF THE AO FOR RESTRICTING THE DISALLOWANCE TO THE EXTENT OF RS.11 22 551. THE AL TERNATE PLEA OF THE APPELLANT THAT THE DISALLOWANCE AFTER CONSIDERI NG WOULD NOT HAVE BEEN IN EXCESS OF RS. 3 95 658. THE CALCULATI ON AS GIVEN BY THE APPELLANT ARE NOT ACCEPTABLE BECAUSE THE PEAK C REDIT IS WORKED OUT BY THE AO HAS BEEN TO THE EXTENT OF RS. 75 60 4 46. I AM OF THE CONSIDERED VIEW THAT AO HAS RIGHTLY WORKED OUT THE DISALLOWANCE OF THE INTEREST AS CALLED FOR IN THE APPELLANTS C ASE AND THE SAME HAS BEEN RESTRICTED TO THE AMOUNT OF INTEREST AS DE BITED BY THE APPELLANT IN ITS P&L ACCOUNT. THE ADDITION OF RS. 11 22 551 AS MADE BY THE AO IS HEREBY CONFIRMED. THE APPELLANT FAILS ON THIS GROUND OF APPEAL. 4. THE ASSESSEE IS AGGRIEVED AND IS IN FURTHER APPE AL BEFORE THE TRIBUNAL. 5. THE SHORT QUESTION THAT WE ARE REQUIRED TO ADJUD ICATE IN THIS CASE IS THAT WHEN IN A SIMILAR SITUATION IN THE EARLIER YEA RS THE ASSESSEE HAD BORROWED INTEREST FREE MONIES FROM SISTER CONCERN A ND IN THE CURRENT YEAR THE ASSESSEE HAD REPAID THE SISTER CONCERN IN EXCES S OF THE AMOUNT DUE AND HAS NOT CHARGED ANY INTEREST IN RESPECT OF THE AMOU NT THUS PAID IN EXCESS OF THE DUES CAN IT BE SAID THAT NON CHARGING OF INTER EST WAS WARRANTED BY COMMERCIAL EXPEDIENCY. WE HAVE NOTED THE GROUND ON WHICH DEDUCTION FOR I.T.A NO.3960/ MUM/2009 ASSESSMENT YEAR: 2004-05 5 INTEREST PAYMENT HAS BEEN DISALLOWED IS THAT INTERE ST BEARING FUNDS IN AOS OPINION HAVING BEEN DIVERTED TO THE ASSESSEES SIS TER CONCERN BUT NONE OF THE AUTHORITIES BELOW HAVE TAKEN INTO ACCOUNT FACTO RS RELATING TO THE COMMERCIAL EXPEDIENCY OF SUCH TRANSACTION. IT IS A LSO NOT IN DISPUTE THAT IN EARLIER YEAR PERIOD THE ASSESSEE HAD TAKEN MONIES FROM TEJ SONS AND HAD NOT PAID ANY INTEREST THEREON. A PERUSAL OF THE CO PIES OF ACCOUNT WHICH ARE PLACED BEFORE US IN THE PAPER BOOK SHOWS THAT NON C HARGING OF INTEREST IS A COMMON FACTOR WHETHER THE MONIES GIVEN BY THE ASSES SEE OR RECEIVED BY THE ASSESSEE FROM THE SAID SISTER CONCERN. WE FIND THA T AN IDENTICAL QUESTION CAME UP FOR CONSIDERATION BEFORE THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. LALSON ENTERPRISES (324 ITR 426) WHEREIN T HEIR LORDSHIPS EXPRESSED THE CONSIDERED VIEW THAT WHETHER MUTUAL ACCOMMODATI ONS BY SISTER CONCERNS BY WAY OF INTEREST FREE FUNDS CAN BE SAI D TO BE COMMERCIAL EXPEDIENT OR NOT IS ESSENTIALLY A QUESTION OF FACT WHICH IN THE SAID CASE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL. IT IS THUS CLEAR THAT NON CHARGING OF INTEREST ON ADVANCES BY THE SISTER CONC ERN PARTICULARLY IN THE SITUATION WHERE BOTH THE CONCERNS HAVING BENEFITS O F SUCH MUTUAL ACCOMMODATION COULD INDEED BE JUSTIFIED ON THE GRO UND OF COMMERCIAL EXPEDIENCY IN A PARTICULAR FACT SITUATION. THE PLE A OF THE ASSESSEE THEREFORE CANNOT BE SIMPLE BRUSHED ASIDE AS THE AUTHORITIES B ELOW HAVE CHOSEN TO DO. ON THE FACTS OF THE PRESENT CASE AND HAVING NOTED T HAT THERE HAVE BEEN MUTUAL ACCOMMODATIONS BY BOTH THE PARTIES IN TERMS OF LENDING AND BORROWING FROM EACH OTHER WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEES CLAIM OF COMMERCIAL EXPEDIENCY DESERVES TO BE ACCEP TED. IT IS INDEED COMMERCIALLY EXPEDIENT FOR THE ASSESSEE PARTICULAR LY ON THE FACTS OF THIS CASE AND AS EVIDENT FROM THE NATURE OF TRANSACTIONS IN T HE STATEMENTS OF ACCOUNTS TO GRANT INTEREST FREE LOANS TO A SISTER CONCERN WH EN IT HAS AVAILED SUCH INTEREST FREE LOANS FROM THE ASSESSEE IN PAST. TH E RECIPROCITY OF TRANSACTIONS IS ALSO NOT IN DISPUTE AND NOR IS THE FACT THAT TH E ASSESSEE DOES ALSO BENEFIT FROM THE SAME. ONCE WE HOLD THAT THE ADVANCES GIVEN BY THE ASSESSEE TO ITS SISTER CONCERN WERE JUSTIFIED ON THE GROUND OF COMM ERCIAL EXPEDIENCY THE I.T.A NO.3960/ MUM/2009 ASSESSMENT YEAR: 2004-05 6 VERY FOUNDATION OF DISALLOWANCE CEASES TO BE SUSTAI NABLE IN LAW. WE THEREFORE DEEM IT FIT AND PROPER TO DIRECT THE AO TO DELETE THE IMPUGNED DISALLOWANCE. THE ASSESSEE GETS RELIEF ACCORDINGLY . THIS GROUND IS ALLOWED. 6. IN GROUND NO.2 THE ASSESSEE IS AGGRIEVED BY THE CIT (A)S ACTION IN APPROVING THE ADDITIONS IN RESPECT OF TRANSPORT OC TROI AND FREIGHT CHARGES RS.1 54 276/- TELEPHONE EXPENSES RS.29 993 AND MIS CELLANEOUS EXPENSES RS..46 971. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT IN RESPECT OF TRANSPORT OCTR OI AND FREIGHT CHARGES TELEPHONE EXPENSES AND MISCELLANEOUS EXPENSES THE AO HAS MADE ADHOC DISALLOWANCE IN THE ABSENCE OF FULLY SUPPORTING VO UCHERS AND ALSO CONSIDERING THE PERSONAL ELEMENT IN RESPECT OF TELE PHONE EXPENSES. ON APPEAL THE CIT (A) CONFIRMED THE ACTION OF THE AO. AGGRIEVED ASSESSEE IS IN FURTHER APPEAL BEFORE US. 8. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD WE SEE MERITS IN PLEA OF THE ASSESSEE TO TH E EFFECT THAT NO DISALLOWANCE IS CALLED FOR ON ACCOUNT OF PERSONAL U SE OF THESE FACILITIES AS IT IS A CASE OF COMPANY AS HELD IN THE CASE OF SAYAJI IRO N & ENGG. CO. 253 ITR 749 (GUJ) WHEREIN IT WAS HELD THAT NO DISALLOWANCE O N ACCOUNT OF PERSONAL USE OF THE VEHICLES/TELEPHONE BY THE DIRECTORS/OFFICIAL COULD BE MADE IN THE HANDS OF A COMPANY. WE THEREFORE HOLD THAT THE DI SALLOWANCE MADE BY THE AO OUGHT TO HAVE BEEN DELETED BY THE CIT (A).. R ESPECTFULLY FOLLOWING THE SAID DECISION WE DIRECT THE AO TO DELETE THE ADHOC DISALLOWANCE. 9. GROUND NO. 2 IS THUS ALLOWED. I.T.A NO.3960/ MUM/2009 ASSESSMENT YEAR: 2004-05 7 10. GROUND NO.3 IS AGAINST LEVY OF INTEREST UNDER S ECTION 234B AND 234C. SO FAR AS THIS GROUND IS CONCERNED ASSESSEE ONLY S EEKS CONSEQUENTIAL RELIEF. LEARNED DEPARTMENTAL REPRESENTATIVE DOES NOT DISPUT E THE SAME. WE DIRECT THE ASSESSING OFFICER TO GRANT THE CONSEQUENTIAL RE LIEF. 11. IN THE RESULT APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 7 TH JANUARY 2011 SD/- SD/- (N V VASUDEVAN) (PRAMOD KUMAR ) JUDICIAL MEMBER ACCOUNTAN T MEMBER MUMBAI; 7 TH DAY OF JANUARY 2011 . PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS) C-1 MUMBA I 4. COMMISSIONER OF INCOME TAX CENTRAL-1 MUMBAI 5. DEPARTMENTAL REPRESENTATIVE BENCH D MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAI