COMMISSIONER OF INCOME TAX-I vs. AHMEDABAD STEEL CRAFT LTD

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TAXAP/586/2011HC GujaratGJHC24025338201127 June 2012Author: HONOURABLE MR. JUSTICE VIJAY MANOHAR SAHAI,HONOURABLE MR. JUSTICE N.V.ANJARIA4 pages

AI SummaryDismissed

What did the High Court hold?

The Tribunal held that the deletion of the addition of Rs. 5,15,689 was justified. The Tribunal affirmed the findings of the Commissioner (Appeals), noting that the assessee possessed sufficient interest-free funds (Rs. 12,01,17,138) as against the alleged interest-free advances (Rs. 45,05,003). Following the decision in Reliance Utilities & Power Ltd. (313 ITR 340 Bom.), the Tribunal held that once an assessee is found to possess sufficient interest-free funds of its own, the presumption is that investments towards alleged interest-free funds were made out of these available interest-free reserves. Consequently, no part of the interest on borrowings should be disallowed on the basis that investments were made out of interest-bearing funds. The High Court found that the Tribunal's findings were based on an appreciation of facts and material on record, and no substantial question of law arose.

What were the facts?

The Revenue has appealed against an order of the Income Tax Appellate Tribunal (ITAT) dated November 26, 2010. The ITAT had upheld the deletion of an addition of Rs. 5,15,689 made by the Assessing Officer (AO) for Assessment Year 2004-05. The addition was related to interest-free loans and advances. The Commissioner (Appeals) had deleted the addition, finding that the assessee had sufficient interest-free funds. The AO had not accepted the assessee's explanation regarding the nature of these advances. The assessee's balance sheet showed share capital of Rs. 4,09,20,000 and reserves & surplus of Rs. 7,91,97,136, totaling Rs. 12,01,17,136. The interest-free loan given by the assessee was Rs. 45,05,003.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in deleting the addition of Rs. 5,15,689 on account of interest-free loan and advances? (Question of law and fact, concerning the disallowance of interest). Assessee's Contention: The assessee argued that it had sufficient interest-free funds available, as evidenced by its share capital and reserves & surplus. Therefore, any advances given were presumed to be out of these own funds, and no disallowance of interest on borrowings should be made. Revenue's Contention: The Revenue contended that the AO had made an addition of Rs. 5,15,689 on account of interest-free loans and advances, which was deleted by the lower appellate authorities. The Revenue challenged the ITAT's deletion of this amount.

Which sections of the Income-tax Act were involved?

Section 260A

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances

TAXAP/586/2011 1/4 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 586 of 2011 For Approval and Signature: HONOURABLE MR.JUSTICE V. M. SAHAI HONOURABLE MR.JUSTICE N.V. ANJARIA ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment? 2 To be referred to the Reporter or not? 3 Whether their Lordships wish to see the fair copy of the judgment? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder? 5 Whether it is to be circulated to the civil judge? ========================================================= COMMISSIONER OF INCOME TAX-I Versus AHMEDABAD STEEL CRAFT LTD ========================================================= Appearance : MRS MAUNA M BHATT for Appellant(s) : 1, None for Opponent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE V. M. SAHAI and HONOURABLE MR.JUSTICE N.V. ANJARIA Date : 27/06/2012

ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE N.V. ANJARIA)

0 The Revenue has preferred the present appeal under section 260A of the Income Tax Act, 1961 to challenge the order dated 26.11.2010 of

TAXAP/586/2011 2/4 JUDGMENT the Income Tax Appellate Tribunal, Ahmedabad Bench ‘C’ in ITA No.3563/Ahd/2007, proposing the following question formulated in the memorandum of appeal as substantial question of law. “[A] Whether the Appellate Tribunal is right in law and on facts in deleting the addition of Rs.5,15,689/ made on account of interest free loan and advances?”

0 We have heard learned advocate Ms. Mauna Bhatt for the appellant. We have also gone through the impugned order and the relevant material on record.

0 The issue urged in the appeal is in respect of addition of Rs.5,15,689/ made by the Assessing Officer in the income of the assessee for Assessment Year 200405 in respect of interest expenses. That addition came to be deleted by the Commissioner (Appeals) and that deletion was confirmed by the Income Tax Appellate Tribunal in its order impugned.

1 The Assessing Officer did not accept the explanation of the assessee about the advances given to different parties and the nature of such advances. The Appellate Commissioner took a view on the basis of copies of the accounts of the various parties which were submitted in the assessment proceedings that the advances were business advances. From

TAXAP/586/2011 3/4 JUDGMENT the assessee's balance sheet, he noticed that the share capital was Rs.4,09,20,000/ and the reserves & surplus was Rs.7,91,97,136/ totaling Rs.12,01,17,136/, and that the interest free loan given by the assessee was Rs.45,05,003/, therefore, the assessee had sufficient interest free funds available with it. After discussing the various judgments on the aspect involved, the Commissioner deleted the disallowance made by the Assessing Officer.

2 The Income Tax Appellate Tribunal confirmed the deletion made by the Commissioner (Appeals) and after taking into account the figures of share capital and reserves & surplus visàvis the total interest free advances, held that “……the Learned CIT(Appeals) has given a finding that as per the balancesheet, the share capital was to the tune of Rs.4,09,20,000/ and surplus reserves was Rs.7,91,97,138/. As per Assessee, the total interest free funds available were Rs.12,01,17,138/. As against that, advances alleged to be interestfree were to the tune of Rs.45,05,003/. In the light of this background, now before us a decision of Reliance Utilities & Power Ltd. placed on record, reported as 313 ITR 340 (Bom.). Once the Hon'ble Court has taken a view that the assessee possessed sufficient interestfree funds of its own, then the presumption stands established that the investment towards alleged interestfree funds were out of the available interestfree reserves. It was held that no part of interest on borrowings should be disallowed on the basis that the investments were made out of interestbearing funds. Following this precedent we hereby affirm the findings of Ld. CIT(A)”

TAXAP/586/2011 4/4 JUDGMENT

The Tribunal has worked its findings on the basis of and by considering the figures in the books of account of the assessee, which in other words are the findings in the realm of appreciation of facts. The finding that the assessee had enough interest free funds of its own was a finding of fact. It was on that premise that the deletion of disallowance of interest amount was held justified by the Tribunal. The Tribunal's findings and decision are proper in the facts of the case and are based on consideration of facts and material on record. Under the circumstances, no substantial question of law arises for consideration of this Court. The present appeal is, therefore, not liable to be entertained.

Accordingly the appeal is dismissed. [V. M. SAHAI, J.] [N. V. ANJARIA, J.] Amit

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