Mrs. Neha Rathi, Pune v. Addl.CIT, Pune

ITA 932/PUN/2010 | 2007-2008
Pronouncement Date: 30-11-2011 | Result: Allowed

Appeal Details

RSA Number 93224514 RSA 2010
Assessee PAN MARCH2007I
Bench Pune
Appeal Number ITA 932/PUN/2010
Duration Of Justice 1 year(s) 5 month(s) 7 day(s)
Appellant Mrs. Neha Rathi, Pune
Respondent Addl.CIT, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 30-11-2011
Date Of Final Hearing 03-11-2011
Next Hearing Date 03-11-2011
Assessment Year 2007-2008
Appeal Filed On 23-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE SHRI I.C. SUDHIR JUDICIAL MEMBER AND D.KARUNAKARA RAO ACCOUNTANT MEMBER ITA NO. 932/PN/2010 (ASSTT. YEAR: 2007-08) MRS. NEHA RATHI ... APPELLANT 1336 SHUKRAWAR PETH PUNE 411 002 PAN : NOT AVAILABLE V. ADDL. CIT CIRCLE 5 PUNE RESPONDENT APPELLANT BY : SHRI NIKHIL PATHAK RESPONDENT BY : SHRI S.K. AMBASTHA DATE OF HEARING :03.11.11 DATE OF PRONOUNCEMENT: .11.11 ORDER PER I.C. SUDHIR JM THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER MAINLY ON THE GROUND THAT THE LD CIT(A) HAS EARNED IN CONFIRMING THE DISALLOW ANCE OF INTEREST OF RS. 4 89 093 ON THE BASIS THAT THE ASSESSEE HAD DIVERTED INTER EST BEARING FUNDS FOR NON- BUSINESS PURPOSE. AT THE OUTSET OF HEARING THE LD . AR POINTED OUT THAT ISSUE RAISED IS FULLY COVERED BY THE DECISION OF HONBLE JURISDI CTIONAL HIGH COURT IN THE FOLLOWING CASES : I) RELIANCE UTILITIES & POWER LTD. 313 ITR 340(BOM) II) CIT VS. BOMBAY SAMACHAR LTD. 74 ITR 723 (BOM) THE LD. AR ALSO PLACED RELIANCE ON THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF JAWAHAR S.S.S. GIRNI LTD. VS. DCIT ITA NOS. 347/PN/98 & ORS. ORDER DATED 29.4.2011. HE POINTED OUT THAT INTEREST FREE ADVANCE WAS MADE TO SISTER CONCERN OUT OF THE FUNDS AVAILABLE WITH THE ASSE SSEE. HE SUBMITTED THAT BEFORE THE A.O IN RESPONSE TO QUERY RAISED BY THE A.O IN THIS REGARD TO EXPLAIN AS TO HOW DISALLOWANCE OUT OF INTEREST PAID ON BORROWINGS SHO ULD NOT BE MADE AS THE ITA . NO 932/PN/2010 MRS. NEHA RATHI A.Y. 2007-08 PAGE OF 4 2 BORROWED FUNDS WERE PRIMA FACIE ADVANCED FOR NON-BU SINESS PURPOSE THE ASSESSEE HAD EXPLAINED THAT THE SAID INTEREST FREE ADVANCES HAVE BEEN MADE BY THE ASSESSEE OUT OF HER CPITAL OF RS. 13 03 52010/-. IN RESPONS E TO THE DIRECTION OF THE A.O TO PROVE THAT INTEREST FREE ADVANCES HAD INDEED BEEN MADE EXCLUSIVELY OUT OF CAPITAL AND NOT OUT OF THE BORROWED FUNDS THE ASSESSEE VI DE HER LETTER DTED 29.12.2009 SUBMITTED THAT IT WAS NOT POSSIBLE TO ESTABLISH THA T DEFINITE LINKAGE BETWEEN HER CAPITAL AND INTEREST FREE ADVANCES. SIMILARLY IT W AS NOT POSSIBLE TO ESTABLISH THAT INTEREST BEARING FUNDS HAVE NOT BEEN USED FOR SUCH INTEREST FREE ADVANCES IT WAS STATED. THE LD. A.R. REFERRED PAGE NO. 28 OF THE PAPER BOOK IN SUPPORT SHOWING THAT AS ON 31 ST MARCH 2007 THERE WAS BALANCE OF RS. 13 03 52 009 IN THE CAPITAL ACCOUNT OF THE ASSESSEE. 2. HAVING GONE THROUGH THE ORDERS OF THE LOWER AUTH ORITY WE FIND THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.8 09 355/- PAI D ON ACCOUNT OF INTEREST ON BORROWINGS. THE A.O NOTED THAT THE ASSESSEE HAD GI VEN ADVANCES AMOUNTING TO RS.8 94 00 519/- FOR NON-BUSINESS PURPOSES WITHOUT CHARGING ANY INTEREST. HE WAS NOT SATISFIED WITH EXPLANATION OF THE ASSESSEE THAT THE SAID INTEREST FREE ADVANCES WERE MADE BY THE ASSESSEE OUT OF HER CAPITAL OF RS. 13 03 52 010/-. THE A.O ACCORDINGLY MADE DISALLOWANCE OF RS.4 89 093/- DI SCUSSING THE ISSUE IN PARA NO. 5.2(V) OF THE ASSESSMENT ORDER. THE A.O ON THE BASI S OF THE ABOVE STATEMENT OF ASSESSEE (THAT IT WAS NOT POSSIBLE TO ESTABLISH DEF INITE LINKAGE BETWEEN HER CAPITAL AND INTEREST FREE ADVANCES SIMILARLY IT WAS NOT PO SSIBLE TO ESTABLISH THAT INTEREST BEARING FUNDS HAVE NOT BEEN USED FOR INTEREST FREE ADVANCES) INFERRED THAT THE INTEREST BEARING FUNDS HAVE BEEN DEPLOYED IN ALL TH E ASSETS IN BALANCE SHEET IN PROPORTION TO THE QUANTUM OF SUCH ASSETS TO THE TO TAL ASSETS. THUS HE WORKED OUT 60.43% OF INTEREST BEARING FUNDS AS DEPLOYED FOR AD VANCING INTEREST FREE LOAN. HE HELD THAT SUCH ADVANCES ARE MADE FOR NON-BUSINESS/P ERSONAL PURPOSES AND HELD THAT PROPORTIONATE DISALLOWANCE OF 60.43 % OF INTEREST P AID OF RS.8 09 355/- IS MADE ON ACCOUNT OF SUCH INTEREST BEARING FUNDS BEING DEPLOY ED FOR NON-BUSINESS PURPOSES. ITA . NO 932/PN/2010 MRS. NEHA RATHI A.Y. 2007-08 PAGE OF 4 3 THE SAID AMOUNT OF DISALLOWANCE BEING 489093/- WAS ADDED TO THE INCOME OF THE ASSESSEE. THE LD CIT(A) HAS UPHELD THE SAME. WE NOTE FROM THE ORDERS OF THE AUTHORITIES BELOW THAT THE ASSESSEE HAD GIVEN ADVAN CES AMOUNTING TO RS. 8 94 00 519/- TO ITS SISTER CONCERN AGAINST AVAILA BILITY OF INTEREST FREE ADVANCES OF RS.13 03 52 009/- AS EVIDENT FROM PAGE NO. 28 OF TH E PAPER BOOK SHOWING BALANCE OF RS.13 03 52 009/- AS ON 31 ST MARCH 2007 IN THE CAPITAL ACCOUNT OF THE ASSESSEE. IN VIEW OF THE AFORESAID CITED DECISIONS ESPECIAL LY IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA) WE FIND THAT THERE IS SUBST ANCE IN THE SUBMISSIONS OF THE ASSESSEE THAT IN CASE OF MIXED BAG OF FUNDS IN THE CIRCUMSTANCES WHERE RESERVES ARE MORE THAN THE LOANS GIVEN TO THE SISTER CONCERN PRESUMPTION MUST BE THAT ASSESSEES FUNDS ARE OUT OF THE INTEREST FREE LOAN S AND THERE IS NO NEED FOR ESTABLISHING THE NEXUS IN VIEW OF THE ABOVE PRESUMP TION. THE ONUS IS ON THE A.O TO ESTABLISH THAT FUNDS GIVEN TO THE SISTER CONCERNS ARE OUT OF THE INTEREST BEARING FUNDS BORROWED BY THE ASSESSEE. THE HELD PORTION R EPORTED IN THE CASE OF RELIANCE UTILITIES & POWER LTD (SUPRA) IS BEING REPRODUCED H EREUNDER FOR A READY REFERENCE : HELD DISMISSING THE APPEAL THAT IF THERE WERE FU NDS AVAILABLE BOTH INTEREST- FREE AND OVERDRAFT AND/OR LOANS TAKEN THEN A PRESU MPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST-FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST-FREE FUNDS WERE S UFFICIENT TO MEET THE INVESTMENTS.. IN THIS CASE THIS PRESUMPTION WAS ES TABLISHED CONSIDERING THE FINDING OF FACT BOTH THE COMMISSION (APPEALS) AND T HE TRIBUNAL. THE INTEREST WAS DEDUCTIBLE. WE THUS RESPECTFULLY FOLLOWING THE RATIO OF DECISIO N OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER L TD (SUPRA) HOLD THAT IN THE PRESENT CASE IN THE CONTEXT OF MIXED BAG OF FUNDS AND WHEN THE RESERVE AS PER BALANCE SHEET IS COMPARATIVELY MORE VIS--VIS LOANS GIVEN TO THE SISTER CONCERN THE PRESUMPTION IN THE PRESENT CASE IS THAT SUCH LOANS WERE GIVEN OUT OF THE INTEREST FREE FUNDS OF THE ASSESSEE. WE THUS SET ASIDE THE O RDERS OF THE AUTHORITIES BELOW ITA . NO 932/PN/2010 MRS. NEHA RATHI A.Y. 2007-08 PAGE OF 4 4 AND DIRECT THE A.O TO DELETE THE DISALLOWANCE IN QU ESTION. THE GROUND IS ACCORDINGLY ALLOWED. 3. IN RESULT APPEAL IS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 3 0TH NOVEMBER 2011. SD/- SD/- ( D. KARUNAKARA RAO ) ACCOUNTANT MEMBER (I.C. SUDHIR ) JUDICIAL MEMBER PUNE DATED THE 30TH NOVEMBER 2011 US COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT -III PUNE 4. THE CIT(A)-III PUNE 4. THE D.R. A BENCH PUNE 5. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE