Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: Shri Rajpal Yadav & Shri Amarjit Singh
PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- This assessee’s appeal for A.Y. 2010-11, arises from order of the CIT(A)-1, Ahmedabad dated 15-05-2015, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.
The brief facts are that return of income declaring income of Rs. 7,75,730/- was filed on 3rd Sep, 2010. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 24th August,
I.T.A No. 2276/Ahd/2015 A.Y. 2010-11 Page No 2 M/s. Bajaj Foods Ltd. vs. ITO
Further facts of the case are discussed under the two grounds of appeals filed by the assesee as under:- Disallowance of Rs. 16,27,820/- u/s. 36(i)(iii) of the act
During the assessment, the assessing officer noticed that assessee has made loan and advances to the amount of Rs. 78,47,5,019/- to various parties. Out of the aforesaid advances an amount of Rs. 19,85,5,747/- was given to the following two parties:- Shraddha Intl. Rs. 29,92,179/- Specific Food Inc. Rs. 1,68,63,587/- ---------------------- Rs. 1,98,55,747/- ---------------------- The assessee has provided advance to the amount of Rs. 4,73,60,562/- to the 15 suppliers parties. The amount of interest expenditure was claimed to the amount of Rs 16,27,820/-. The assessing officer stated that the assessee has shown sale of Rs. 9,10,49,943/- and debtor of Rs. 42,37,424/-. The assessee had shown sundry creditors for goods to the amount of Rs.4,23,38,468/- and there was sundry debtor of Rs. 42,37,424/- only. From the above the assessing officer observed that assessee has its own fund i.e. sales realization to the amount of Rs. 9,10,49,943/- and the sundry creditor to the extent of Rs. 4,23,38,648/- and came to the conclusion that borrowing of fund by the company to the extent of Rs. 6,72,16,409/- was not for the purpose of business. The assessing officer was of the view that assessee had diverted the interest bearing borrowing of Rs. 6,72,16,409/- towards interest free loan and advances. Consequently the assessuing officer held that interest @ 12% on Rs. 6,72,16,409/ worked out at Rs. 80,65,969/- was disallowable. However, the assessing officer has restricted the I.T.A No. 2276/Ahd/2015 A.Y. 2010-11 Page No 3 M/s. Bajaj Foods Ltd. vs. ITO
disallowance to the extent of claim of interest expenses of Rs. 16,27,820/- and added to the total income of the assessee.
During the course of appellate proceedings, the ld. counsel has submitted as under:- “However. CIT(A) confirmed disallowance u/s 36(l)(iii) qua following advances made during year under consideration (Pg.34 of CIT(A)'s order and Pg.4 of Asst. Order): > Bajaj Herbal Pvt. Ltd. (Sr. No.2) -Rs.3,63,33,321/- > Sai Krupa Fabric Pvt. Ltd. (Sr. No. 10) - Rs. 14,56.000/- > Sainaih Hnterprises (Sr. No. 13) - Rs.22,00,000/- Total Rs.3,99,89,321/- Underlying advances are "business advances: • At the outset, the advances in question air related to the business of the assessee and have been made out of commercial expediency. Such fact was categorically pointed out before AO and the same has not been denied by either of the lower authorities. Under such circumstances, no disallowance can be made u/s 36(l)(iii) in respect of such advances. Reliance is placed on "S.A. Builders vs. CIT - 288 ITR 1 (SC)". Major component of interest expenses represents interest on loans taken for specific business purpose: • It is further submitted that major component, of interest expenses represents interest on loans taken for specific purposes as follows and CIT(A) has accepted the fact that such funds cannot be diverted to non- interest bearing funds since the same are monitored by banks (Pg.33 of CIT(A)'s order): > Term loan; > Packing credit limit for export; > Vehicle loan; • Once CIT(A) has accepted the said fact, then question of confirming any part of disallowance u/s 36(l)(iii) does not arise at all. Substantial interest free funds:
As regards fresh advances of Rs.3.99,89,321/-, assessee has interest-free funds aggregating to Rs.4,41,33,783/- as follows (Pg.20 of CIT(A)'s order): > Share capital : Rs.2,08,33,880/- > Reserves : Rs.52,80,783/- > Interest free unsecured loans : Rs.1,80,19.120,-Total Rs.4,41,33,783/- Thus, as against interest free advances of Rs.3,99,89,321/-, assessee has interest-free funds aggregating to Rs.4,41,33,783/- (i.e. 1.10 times). Thus, no disallowance is called for u/s 36(l)(iii) on the fresh advances during the year under consideration as well. Reliance is placed on: > CIT vs. Torrent Power Ltd. - 363 ITR 474 (Guj); > CIT vs. Suzkm Energy Ltd. - 354 ITR 630 (Guj); > CIT vs. Gujarat Power Corporation Ltd. - 352 ITR 583 (Guj); > CIT vs. Hitachi Home & Life Solutions (I). Ltd. - (2014) 41 taxmann.com 540 (Guj); > CIT vs. Reliance Utilities & Power I ,<d. - 313 ITR 340 (Bom); > Munjal Sales Corporation vs. CIT - 298 ITR 298 (SC); In light of the above, impugned disallowance deserves to be deleted.” On the other hand ld. departmental representative has placed reliance on the decision of ld. CIT(A).
I.T.A No. 2276/Ahd/2015 A.Y. 2010-11 Page No 4 M/s. Bajaj Foods Ltd. vs. ITO
We have heard both the sides and perused the maternal on record carefully. In respect of outstanding advance of Rs.3.63 crores to M/s. Bajaj Herbal Pvt. Ltd the sister concern of the assessee, the ld. CIT(A) stated that the assessee had mentioned that advance was given for the property named Sarthik (405) but no details were submitted to substantiate the fact.
Therefore the ld. CIT(A) held that claim of interest u/s. 36(i)(iii) of the act was not for the purpose of the business of the assessee. In respect of advance of Rs. 22 lacs to M/s Sarnath Enterprise the ld. CIT (A) stated that it was claimed that advance was for purpose of property but no confirmation from the said party was furnished therefore the claim of interest u/s. 36(i)(iii) of the act was disallowed. It is also noticed that as per page no. 8 of the assessment order, the assessing officer stated that assessee was having interest free funds in the form of share capital and reserves and surplus to the extent of Rs. 2,61,14,663/- only. However as mentioned above in this order, the ld. counsel has submitted that the assesse was having total interest free funds aggregating to Rs. 4,41,33,783/- and pleaded that no disallowance u/s.36(i)(iii) is called for. In the light of aforesaid facts and circumstances, we observe that the Assessing officer and the ld. CIT (A) has not given categorical finding on the following issues. (i) Whether assessee had sufficient interest free funds to cover advances given to its associate concerns and no interest bearing fund was advanced to its associate concerns. (ii) Whether the money advanced to the sister concerns and others was for the purpose of business need of the assessee. The ld. counsel has submitted that such fact was categorically pointed out before the assessing officer and the same has not been denied by either of I.T.A No. 2276/Ahd/2015 A.Y. 2010-11 Page No 5 M/s. Bajaj Foods Ltd. vs. ITO
the lower authorities. During the course of appellate proceedings before us these contentions of the ld. counsel was not controverted by the Revenue Therefore, we are of the view that it would be appropriate to restore this issue to the file of the assessing officer to decide de-novo on the points (i) and (ii) as above after affording adequate opportunity to the assessee.
Accordingly this ground of the appeal is restored to the file of the assessing officer for deciding afresh as directed above. Therefore this ground of appeal of the assessee is allowed for statistical purpose.
4th ground of appeal of the assessee of addition of Rs. 2,86,427/- 7. made on account of exchange rate of difference:- We noticed that the assessee had not filed the impugned ground of appeal before the ld. CIT(A). We have also gone through the form No. 35 filed before the ld. CIT(A) and noticed that neither such ground of appeal reflected in the form No. 35 nor such ground of appeal was adjudicated by the Ld.CIT(A). In the light of the above fact and circumstances this ground of appeal of the assessee stands dismissed.
The ground of appeal no. 1 & 2 are of general nature which do not require any adjudication. In the result, the ground of appeal no. 3 is allowed for statistical purpose and ground no. 4 is dismissed.
Order pronounced in the open court on 21-02-2019 (RAJPAL YADAV) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 21/02/2019
I.T.A No. 2276/Ahd/2015 A.Y. 2010-11 Page No 6 M/s. Bajaj Foods Ltd. vs. ITO
आदेश क" ""त"ल"प अ"े"षत / Copy of Order Forwarded to:-
Assessee
Revenue
Concerned CIT
CIT (A)
DR, ITAT, Ahmedabad
Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील"य अ"धकरण, अहमदाबाद