The DCIT, Circle-4,, Ahmedabad v. M/s. Gujarat Optical Communication Ltd.,, Ahmedabad

ITA 4229/AHD/2007 | 2003-2004
Pronouncement Date: 14-05-2010 | Result: Allowed

Appeal Details

RSA Number 422920514 RSA 2007
Assessee PAN AAACG5578L
Bench Ahmedabad
Appeal Number ITA 4229/AHD/2007
Duration Of Justice 2 year(s) 5 month(s) 14 day(s)
Appellant The DCIT, Circle-4,, Ahmedabad
Respondent M/s. Gujarat Optical Communication Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 14-05-2010
Appeal Filed By Department
Order Result Allowed
Bench Allotted C
Tribunal Order Date 14-05-2010
Date Of Final Hearing 10-05-2010
Next Hearing Date 10-05-2010
Assessment Year 2003-2004
Appeal Filed On 30-11-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI MUKUL SHRAWAT JUDICIAL MEMBER AND SHRI D.C. AGRAWAL ACCOUNTANT MEMBER DATE OF HEARING : 10/05/2010 DRAFTED ON: 20/ 05/2010 ITA NO.4229/AHD/2007 ASSESSMENT YEAR : 2003-04 THE DCIT CIR-4 AHMEDABAD VS. GUJARAT OPTICAL COMMUNICATION LTD. 4 TH FLOOR GTCL HOUSE B/H RATNAM BUILDING CG ROAD AHMEDABAD PAN/GIR NO. : AAACG 5578 L (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI SHELLEY JINDAL CIT-DR RESPONDENT BY: -NONE_ O R D E R PER SHRI MUKUL SHRAWAT JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE WH ICH HAS BEEN EMANATED FROM THE ORDER OF THE LEARNED CIT(APPEALS) -VII AHMEDABAD DATED 07/09/2007. THE REVENUE HAS RAISED FOLLOWING TWO GROUNDS:- 1. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS O F THE CASE IN DIRECTING THE ASSESSING OFFICER TO DELETE THE DISAL LOWANCE PROPORTIONATE INTEREST EXPENSES OF RS.21 30 220/- B Y THE ASSESSING OFFICER U/S.36 (1)(III) ON ADVANCES MADE TO PARTIES WHICH WERE HELD BY THE ASSESSING OFFICER TO BE NOT OUT OF INTEREST FREE FUNDS BEING SHARE CAPITAL. 2. THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.2 48 000/- SHOWN AS I NTEREST ITA NO.4229/AHD /2007 DCIT VS. GUJARAT OPTICAL COMMUNICATION LTD. ASST.YEAR - 2003-04 - 2 - RECEIVABLE BY THE ASSESSEE IN THE BALANCE SHEET BU T NOT ADDED TO THE TOTAL INCOME. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143 OF THE I.T. ACT 1961 DATED 28 /03/2006 WERE THAT THE ASSESSEE-COMPANY IS IN THE BUSINESS OF MANUFACTURIN G OF POLYTHENE INSULATED JELLYFILLED TELEPHONE CABLES & UNDERGROUN D TELEPHONE CABLES AND OPTICAL FIBRE CABLES. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE AS SESSEE HAS GIVEN INTEREST-FREE ADVANCES STATED TO BE TO THE TUNE OF RS.220.44 LACS. IT WAS ALSO NOTICED BY THE ASSESSING OFFICER THAT AN EXPEN DITURE OF INTEREST PAYMENT WAS CLAIMED OF RS.5 483.23 LACS ON THE BORR OWALS RECEIVED AS TERM LOAN AND OTHERS. THE OBSERVATION OF THE ASSE SSING OFFICER WAS THAT ON ONE HAND THE ASSESSEE WAS PAYING INTEREST ON TH E BORROWALS SINCE PAST SEVERAL YEARS HOWEVER ON THE OTHER HAND GIVEN IN TEREST-FREE ADVANCES. THEREFORE THE ASSESSEE WAS ASKED TO CORRELATE THE FUNDS UTILIZED FOR THE PURPOSE OF GIVING INTEREST-FREE LOAN. THE EXPLANA TION OF THE ASSESSEE WAS THAT OUT OF THE TOTAL INTEREST-FREE ADVANCED AN AM OUNT OF RS.51.15 LACS WAS OLD BALANCES. IT WAS ALSO EXPLAINED THAT THE A DVANCES WERE MADE OUT OF OWN FUNDS. IT WAS ALSO EXPLAINED THAT NO INTERES T-FREE ADVANCE WAS GIVEN OUT OF BORROWED FUNDS. IN SUPPORT ASSESSEE HAS RELIED UPON THE DECISION OF ITAT AHMEDABAD BENCH A IN THE CASE O F TORRENT FINANCIERS VS. ACIT (2001) 73 TTJ (AHD.) 624. IT W AS ALSO ARGUED THAT THE ASSESSEE HAS NOT ACTUALLY RECEIVED ANY AMOUNT O F INTEREST OR EVEN NOT RECEIVED ANY AMOUNT TOWARDS THE PRINCIPAL AMOUNT. IT WAS ARGUED THAT INTEREST CHARGED ON DOUBTFUL DEBTS WOULD NOT BE SUB JECT TO TAX WHERE NO RECOVERY WAS MADE FOR MORE THAN THREE CONSECUTIVE A CCOUNTING YEARS. ITA NO.4229/AHD /2007 DCIT VS. GUJARAT OPTICAL COMMUNICATION LTD. ASST.YEAR - 2003-04 - 3 - IN SUPPORT RELIANCE WAS PLACED ON UCO BANK V. CIT 237 ITR 889 (SC). IT WAS FURTHER MENTIONED THAT THE ADVANCES TO THE T UNE OF RS.169.29 LACS WERE MAINLY RELATED TO NORMAL BUSINESS ACTIVITY OF THE COMPANY SUCH AS DEPOSITS PERTAINED TO EXCISE DEPARTMENT TOWARDS PLA & MODVAT CREDIT AVAILABLE. HOWEVER THE ASSESSING OFFICER W AS NOT CONVINCED AND VIDE PARAGRAPH NOS.5 6 & 7 DECIDED THE ISSUE AS FO LLOWS:- 5. THE CONTENTION OF THE ASSESSEE AS ABOVE IS FOU ND TO BE NOT TENABLE FOR THE FOLLOWING REASONS. FIRSTLY ON A P ERUSAL OF THE BALANCE SHEET IT IS SEEN THAT THE ASSESSEES OWN M AIN FUNDS ARE OUT OF THE FOLLOWING SOURCES:- (I) SHARE CAPITAL - RS.1710.23 LACS 6. AGAINST THE ABOVE FUNDS THE ASSESSEE HAS UTILI ZED THE FUNDS AS UNDER:- (I) INVESTMENT IN SHARES - RS.52.25 LACS (II) INVENTORIES - RS.445.86 LACS (III)FIXED ASSETS - RS.4595.19 LACS 7. FROM THE ABOVE ILLUSTRATION IT CAN BE SEEN THA T THERE WAS NO SURPLUS FUND LEFT WITH THE ASSESSEE TO GIVE ANY ADV ANCE FREE LOAN AS ABOVE. IN FACT ITS OWN FUNDS ARE NOT EVEN SUFFICIE NT TO HAVE PURCHASED ITS FIXED ASSETS. THE DECISIONS QUOTED B Y THE ASSESSEE ARE NOT APPLICABLE TO ITS CASE AS THE ADVANCES GIVE N ARE ABSOLUTELY IN THE FORM OF LOAN OR ADVANCE AND NOT AS GOODS OR TRADE ADVANCE. FURTHER RELIANCE IS PLACED ON THE JUDGEMENT IN THE CASE OF CIT VS. ORISSA CEMENT LTD. 258 ITR 365 WHEREIN IT HAS BEE N HELD THAT THE ONUS LIES ON THE ASSESSEE TO PROVE THAT THE LOANS/A DVANCES HAVE NOT BEEN MADE OUT OF BORROWED FUNDS AND SO AS TO ENTITL E THE ASSESSEE TO CLAIM DEDUCTION OF INTEREST IN ACCORDANCE WITH S ECTION 36(1)(III) OF THE ACT. IN THIS CASE THE ASSESSEE HAS FAILED TO PROVE THE ONUS AS ABOVE AND THEREFORE THE INTEREST ATTRIBUTABLE T O INTEREST-FREE ITA NO.4229/AHD /2007 DCIT VS. GUJARAT OPTICAL COMMUNICATION LTD. ASST.YEAR - 2003-04 - 4 - ADVANCES OF RS.51.15 LACS IS DISALLOWED TREATING TH AT THE SAME WAS NOT UTILIZED FOR THE PURPOSE OF IS BUSINESS. ACCOR DINGLY INTEREST AT THE PRIME LENDING RATE PREVALENT DURING THIS YEAR O F 11% IS CALCULATED ON 51.15 LACS WHICH CALLS FOR AN ADDITIO N OF RS.5 62 650/- TO THE RETURNED INCOME. PENALTY PROC EEDING U/S.271(1)(C) OF THE ACT ARE BEING SEPARATELY INITI ATED ON THIS ADDITION. 3. THERE WAS AN ANOTHER ADVANCE OF RS.169.29 LACS O N WHICH A SUM OF RS.2.484 LACS WAS SHOWN AS INTEREST RECEIVABLE BY T HE ASSESSEE ITSELF WHICH ACCORDING TO ASSESSING OFFICER SHOULD HAVE BE EN ADDED TO THE TOTAL INCOME OF THE ASSESSEE WHILE MAINTAINING MERCANTIL E SYSTEM OF ACCOUNTING. 4. THERE WAS A THIRD ADDITION PERTAINED TO MODVAT C REDIT OF RS.14.48 LACS PREPAID INSURANCE OF RS.7.66 LACS AND PETTY ADVANCES TO ITS EMPLOYEES OF RS.142.52 LACS ON WHICH NO INTEREST WA S CHARGED. THE ASSESSING OFFICER HAS CALCULATED INTEREST @ 11% ON TOTAL OF SUCH ADVANCES OF RS.142.52 LACS WHICH WORKED OUT TO RS.1 5 67 720/-. IN THE RESULT THE AFOREMENTIONED THREE ADDITIONS HAVE BEE N MADE IN THE ASSESSED INCOME OF THE ASSESSEE. THE MATTER WAS CARRIED B EFORE THE FIRST APPELLATE AUTHORITY. 5. IT WAS ARGUED BEFORE THE LEARNED CIT(APPEALS) TH AT IF THE BREAK-UP OF THE ADVANCES WAS STUDIED THEN IT COULD BE EASIL Y FOUND OUT THAT THE ADVANCES WERE MADE TOWARDS SUPPLIERS OF RAW-MATERI AL. SOME OF THE LOAN ADVANCES WERE GIVEN TO THE STAFF. THE ASSESS ING OFFICER HAS CITED FEW EXAMPLES; NAMELY AN AMOUNT OF RS.31.63 LACS WA S MADE TO DHAR ITA NO.4229/AHD /2007 DCIT VS. GUJARAT OPTICAL COMMUNICATION LTD. ASST.YEAR - 2003-04 - 5 - INDUSTRIES LTD. RS.14.91 LACS TO M/S.PETROGEL (IN DIA) LTD. RS.30.58 LACS TO SYSTEMATIC STEEL IND.(P) LTD. AND RS.43 LA CS TO BSNL. IT WAS ARGUED THAT THE FIRST THREE PARTIES AS MENTIONED AB OVE WERE TRADERS OF RAW-MATERIAL. IT WAS THUS EXPLAINED THAT A SUM O F RS.142.57 LACS WERE ADVANCED TOWARDS PURCHASE OF RAW-MATERIAL. IT WAS ALSO EXPLAINED THAT THE ASSESSING OFFICER HAS NOT CORRECTLY APPRECIATED THE INTEREST LEVIABLE AMOUNT OF 2.48 LACS BECAUSE ONCE IT WAS SHOWN AS I NTEREST RECEIVABLE THEN IT HAD NATURALLY CREDITED TO PROFIT & LOSS ACC OUNT. IT WAS ALSO EXPLAINED THAT THE SAID AMOUNT OF RS.2.48 LACS WAS OFFERED FOR TAXATION IN RESPECTIVE YEARS. ON HEARING THE SUBMISSIONS THE LEARNED CIT(APPEALS) HAS GIVEN HIS FINDING VIDE PARAGRAPH NO.4; REPRODUC ED BELOW:- 4. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. CO UNSEL AND I FIND THAT IN THE EARLIER ASSESSMENT YEAR 2002-03 DI SALLOWANCE OF RS.62 68 900/- WAS DELETED. THE CIT(A) HAD DELETE D THE DISALLOWANCE ON THE GROUND THAT ADVANCES WERE MADE SEVERAL YEARS BEFORE AND THERE WAS NO DIVERSION OF FUNDS ON THE PART OF THE APPELLANT. THE APPELLANT HAD REPORTED LOSS OF MORE THAN RS.7 CRORES SO NO DESIGN ON THE PART OF THE APPELLANT C OULD BE ATTRIBUTED. I ALSO FIND THAT THE ADVANCES HAVE BE EN MADE TO RAW- MATERIAL SUPPLIERS ON WHICH NO INTEREST HAS BEEN CH ARGED. IT CANNOT BE SAID THAT IT IS DIVERSION OF BORROWED FUN DS IN RESPECT OF THESE ADVANCES AS THESE ARE THE ADVANCES IN CONNECT ION WITH THE BUSINESS. FURTHER THE ADVANCES OF RS..51.15 LACS WERE OLD BALANCES AND THE DISALLOWANCE OF INTEREST HAS NOT B EEN MADE IN THE EARLIER YEARS UPTO A.Y.2001-02 AND THE DISALLOWANCE HAS BEEN DELETED BY THE CIT(A) IN THE EARLIER YEAR I.E. A.Y. 2002-03. AS REGARDS INTEREST RECEIVABLE OF RS.2.48 LACS THE SAM E HAS BEEN ALREADY OFFERED AS INCOME BY THE APPELLANT. IN VIE W OF THE ABOVE FACTS AND RATIO LAID DOWN IN THE CASE LAWS CITED BY THE AUTHORISED REPRESENTATIVE THE DISALLOWANCE OF INTEREST OF RS. 23 78 220/- IS DELETED. ITA NO.4229/AHD /2007 DCIT VS. GUJARAT OPTICAL COMMUNICATION LTD. ASST.YEAR - 2003-04 - 6 - 6. NONE APPEARED ON BEHALF OF ASSESSEE NOR ANY WRI TTEN SUBMISSIONS HAVE BEEN FILED. UNDER THESE CIRCUMSTANCES WE HAV E DECIDED TO PROCEED THIS CASE AFTER HEARING THE LEARNED DEPARTMENTAL RE PRESENTATIVE WHO HAS SUPPORTED THE ORDER OF THE ASSESSING OFFICER. TH E PRIMARY OBJECTION FROM THE SIDE OF THE REVENUE IS THAT THE LEARNED CI T(APPEALS) HAS GIVEN TWO FINDINGS ON FACTS WHICH WERE FIRST THAT THE A DVANCES WERE MADE IN RESPECT OF PURCHASE OF RAW-MATERIAL THEREFORE NO INTEREST HAS BEEN CHARGED AND HIS SECOND FINDING WAS THAT THE INTERES T RECEIVABLE OF RS.2 48 000/- HAD ALREADY BEEN OFFERED AS AN INCOME BY THE APPELLANT. THESE TWO FINDINGS DID NOT BORN OUT FROM THE IMPUGN ED ORDER OF THE ASSESSING OFFICER; OBJECTED BY THE LEARNED DEPARTME NTAL REPRESENTATIVE. IT COULD HAVE BEEN THE CONTENTION OF THE ASSESSEE B EFORE THE ASSESSING OFFICER BUT THE ASSESSING OFFICER HAS NOT GIVEN ANY FINDING AND THE MATTER WAS NOT INVESTIGATED ON THESE COUNTS. CONSI DERING THE SERIOUSNESS OF THIS OBJECTION OF THE REVENUE THAT CERTAIN INVES TIGATION IN RESPECT OF THESE TWO FINDINGS YET TO BE MADE AND PRIMA FACIE I T APPEARS THAT THE ASSESSING OFFICER HAS NOT COMMENTED UPON THESE TWO FINDINGS BUT PROCEEDED MERELY ON THE ISSUE OF AN AVAILABILITY OF ASSESSEES OWN FUNDS CLAIMED TO HAVE BEEN DIVERTED TOWARDS NON-INTEREST BEARING FUNDS THEREFORE CONSIDERING THE TOTALITY OF THE FACTS AN D CIRCUMSTANCES OF THE CASE WE DEEM IT PROPER AND JUSTIFIABLE TO REFER TO THESE TWO GROUNDS BACK TO THE STAGE OF ASSESSING OFFICER TO BE DECIDED DE NOVO NEEDLESS TO SAY AFTER PROVIDING AN ADEQUATE OPPORTUNITY OF HARING T O THE ASSESSEE. WE MAY LIKE TO ADD THAT IF THE ADVANCES ARE MADE TO TH E SUPPLIERS OF THE RAW- MATERIAL THEN NATURALLY THOSE ADVANCES HAS TO BE TREATED FOR THE PURPOSES OF THE BUSINESS AND IN THAT CIRCUMSTANCES IF ESTA BLISHED BY THE ASSESSEE ITA NO.4229/AHD /2007 DCIT VS. GUJARAT OPTICAL COMMUNICATION LTD. ASST.YEAR - 2003-04 - 7 - THEN DESERVES A FAVOURBLE VIEW AS HELD BY THE HON'B LE SUPREME COURT IN THE CASE OF S.A.BUILDERS LTD. VS. CIT(APPEALS) & AN OTHER (2007) 288 ITR 01 (SC). AS FAR AS THE QUESTION OF THE INTERES T OF RS.2.48 LACS IS CONCERNED THE SAME IS SUBJECT TO VERIFICATION FROM REVENUES OWN RECORDS WHICH CAN BE DONE WITHOUT ANY DIFFICULTY BY THE ASSESSING OFFICER. WITH THESE OBSERVATIONS THESE GROUNDS MA Y BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT REVENUES APPEAL IS ALLOWED BUT F OR STATISTICAL PURPOSES. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 14/05/2010. SD/- SD/- ( D.C. AGRAWAL) ( MUKUL SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 14/ 05 /2010 T.C. NAIR SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RES PONDENT 3. THE CIT CONCERNED. 4.THE LD. CIT(AP PEALS)-VIII AHMEDABAD 5. THE DR AHMEDABAD BENCH. 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD