M/S PALIWAL INDUSTRIES PVT. LTD. vs. COMMISSIONER OF INCOME TAX, KARNAL

Whether Reporters of local papers may be allowed to see the judgment?

To be referred to the Reporters or not?

Whether the judgment should be reported in the Digest? Present: Mr. S.K.Mukhi, Advocate for the appellant-assessee. Mr. Yogesh Putney, Advocate for the respondent-revenue.

The assessee went in appeal before the Tribunal. Vide order dated 14.12.2009, Annexure A.3, the Tribunal dismissed the appeal. Hence the instant appeal by the appellant-assessee.

We have heard learned counsel for the parties.

Learned counsel for the appellant-assessee submitted that similar matter was considered by the then Assessing Officer for the assessment year 2005-06 where there was no disallowance made under section 36(1)(iii) of the Act on account of advances given to M/s Chirag spinning Mills Limited, Panipat and M/s Dina Nath & Sons which was also without charging any interest from them.

On the other hand, learned counsel for the revenue supported the order passed by the Assessing Officer which was affirmed by the CIT(A) and upheld by the Tribunal.

During the assessment proceedings, it was found that the assessee company had given interest free advances to M/s Chirag spinning Mills and M/s Dina Nath and Sons. No interest had been charged from the GURBAX SINGH 2015.11.02 16:44 integrity of this document High Court Chandigarh said concerns on the advances made to them. The assessee was asked to explain why the proportionate interest should not be disallowed out of the bank interest claimed on account of interest free advance as per the provisions of section 36(1)(iii) of the Act. The assessee explained that it had made trade advance of ` 15 lacs to M/s Chirag Spinning mills which had earlier supplied yarn to it in the previous year. This firm was not related to any director of the company. Further, the advance money given to M/s Dina Nath & Sons for purchase of yarn was a trade advance and was not related to the assessee company or its directors at all. After considering the matter, the Assessing officer disallowed the amount of interest paid by the assessee on the loan raised by it to the extent the amount was advanced on interest free basis to the above said two firms which came to ` 2,11,512/-. The CIT (A) affirmed the said findings which read thus:- “9. I have considered the facts of the case and the submissions of the assessee. From the submissions of the assessee and from the copy of account, it is clear that the advance of ` 15,00,000/- was given to M/s Chirag spinning Mills in F.Y.2004-05 or earlier and therefore, in F.Y 2005-06, it is shown an opening balance only and the same remained outstanding for the whole year. The assessee has not filed any evidence to show that the advance was made for purchase of yarn or for any other business transaction. Generally the business practice is that first the goods to be purchased are selected and if necessary the samples are approved and only then such huge advances are given and that too with an agreement or other evidence, whereas, there is no such thing in the case of the assessee,

While upholding the findings recorded by the CIT(A), the Tribunal held as under:- “6. We have heard both the counsel and perused the records. Learned counsel of the assessee reiterated that these were trade advances and hence no disallowance of interest is called for. In this regard, learned counsel referred the decision of the Hon'ble 298 ITR 298, SA Builders vs. CIT 288, ITR 1 and Hon'ble 2015.11.02 16:44 integrity of this document High Court Chandigarh has been duly dealt with in the learned CIT(A)'s order.

We have carefully considered the submissions and perused the records. As regards the advance to M/s Chirag Spinning Mills, the advance of ` 15 lacs is appearing as opening balance. Learned counsel for the assessee was not in a position to provide any document to show that the same advance was actually trade advance in nature. As regards the present status of the advance, learned counsel claimed that the same is still outstanding and some dispute has risen in this regard.

1 As regards the advance to Dina Nath and Sons, we find that an amount almost equal to opening balance has remained outstanding at the end of the year. In this connection, also no evidence has been produced that advance was meant for the business purposes. As regards the present status of this advance, learned counsel submitted that the same is still outstanding and some dispute has arisen.

Upon careful consideration, we find that the assessee has failed to produce any document to support the claim that these advances are in fact trade advances. Admittedly, assessee has obtained interest bearing funds. Under such circumstances, when no evidence is being submitted regarding the purpose for which the advance was given and the advances are lying for the long period, the disallowance of interest in this regard cannot be said to be unjustified.”

The Assessing Officer, CIT(A) and the Tribunal had concurrently concluded that the advance to M/s Chirag Spinning Mills amounting to ` 15 lacs appearing as opening balance had remained outstanding at the end of the year. The assessee had failed to show that the advance was made for purchase of yarn or for any other business transaction. Similarly, in the case of Dina Nath & Sons, there was opening balance of ` 2,69,659/- whereas against another purchase of ` 2,29,890/-, GURBAX SINGH 2015.11.02 16:44 integrity of this document High Court Chandigarh the assessee had made payment of ` 2,27,590/- retaining outstanding balance of ` 2,67,359/-. It was also held not to be for business purposes as the assessee had failed to explain why the purchase made during the year was not adjusted out of the said amount. In the light of the concurrent findings of fact recorded by the Assessing Officer, CIT(A) and the Tribunal, the assessee cannot claim any benefit by urging that no addition under similar circumstances was made by the then Assessing Officer for the assessment year 2005-06, as each year is independent and such addition depends upon facts and circumstances existing at the relevant time.

The findings recorded are pure findings of fact which have not been shown to be illegal or perverse in any manner warranting interference by this Court. Thus, the substantial questions of law are answered against the assessee. Accordingly the appeal stands dismissed. (Ajay Kumar Mittal) Judge September 23,2015 (Ramendra Jain) 'gs' Judge GURBAX SINGH 2015.11.02 16:44 integrity of this document High Court Chandigarh