JAMNA AUTO INDUSTRIES LTD. vs. COMMISSIONER OF INCOEM TAX PANCHKULA

The delay of 28 days in refilling the appeal is condoned. CM stands disposed of. ITA No.175 of 2012

This appeal has been preferred by the appellant-assessee under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 4.1.2012, Annexure A.3 passed by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (in short, “the Tribunal”), proposing to raise following substantial questions of law for determination of this Court:- “a) Whether on the facts, circumstances of the case and in law, the Hon’ble Tribunal has erred in not deleting the disallowance of interest at ` 15,09,844/- made under section 36(1) (iii) of integrity of this document High Court Chandigarh I.T.Act as the alleged interest free advances for non business purposes were not given out of borrowed funds by the appellant? b) Whether on the facts, circumstances of the case and in law, the Hon’ble Tribunal has erred in not deleting the disallowance of interest at ` 15,09,844/- made under section 36(1) (iii) of I.T.Act as the alleged interest free advances for non business purposes were given out of interest free funds available with the appellant by relying on the principles laid down by the Hon’ble Punjab and Haryana High Court in the case of CIT vs. Abhishek Industries reported in 286 ITR 1? c) Whether on the facts, circumstances of the case and in law, the Hon’ble Tribunal has erred in not deleting the disallowance of interest at ` 15,09,844/- made under section 36(1) (iii) of I.T.Act as the alleged interest free advances for non business purposes were given in earlier years out of interest free funds available with the appellant in earlier years wherein no disallowance of interest under section 36(1) (iii) of I.T.Act has been made under Section 143(3) of I.T.Act thereby ignoring the Rules of consistency?

A few facts relevant for the decision of the controversy involved, as narrated in the appeal may be noticed. The appellant filed its return on 30.11.2006 for the assessment year 2006-07 declaring nil income after adjusting brought forward losses of ` 16,01,771/-. The return was revised on 21.5.2007 declaring nil income after adjusting brought forward losses of ` 16,01,771/-. Revised return was processed under Section 143(1) of the Act vide intimation dated 30.3.2008 on nil income after adjusting brought forward losses of ` 16,01,771/-. The assessment was completed on nil income after adjusting brought forward losses of ` 77,33,824/- under section 143(3) of the Act vide order dated 24.12.2008, Annexure A.1, by making disallowance of ` 44,69,439/- out of interest payable/paid integrity of this document High Court Chandigarh attributable to the interest free advances made to 11 parties for non business purposes under section 36(1) (iii) of the Act and ` 16,02,000/- and ` 60,614/- out of expenses debited to Profit & Loss account. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 18.1.2011 Annexure A.2, the CIT(A) partly allowed the appeal i.e. out of disallowance of interest of ` 44,69,439/- gave relief of ` 29,59,595/- in respect of advances made to three parties by holding that the appellant had earned interest on such advances. However, the CIT(A) sustained the disallowance of interest of ` 15,09,844/- in respect of advances made to the balance eight parties by holding that the same were made for non business purposes. Aggrieved by the order, both the assessee and the revenue filed appeals against the order passed by the CIT(A). Vide order dated 4.1.2012, Annexure A.3, the Tribunal dismissed the appeal of the revenue. As regards appellant’s appeal, out of disallowance of interest of ` 15,09,844/-, the Tribunal confirmed the disallowance of interest of ` 11,27,467/- in respect of seven parties by holding that the advances made to such parties were for non business purposes. With respect of advances made to one party, the Tribunal restored the matter to the file of the Assessing officer to decide the same de novo. It was further held that even if the advances had been made out of interest free funds available with the appellant, then too interest was to be disallowed in view of the principles laid down by this Court in CIT v. Abhishek Industries,(2006) 286 ITR 1. Hence the instant appeal by the revenue.

The primary issue that arises for consideration in this appeal relates to disallowance of interest amounting to ` 15,09,844/- under Section integrity of this document 137 (P&H) and JCIT vs. Beekay Engineering Corporation, (2010) 325 ITR 384 (Chhattisgarh).

After hearing learned counsel for the appellant, we do not find any merit in the appeal.

The Assessing Officer vide order dated 24.12.2008, Annexure A.1, had disallowed payment of interest to various parties under Section 36 (1) (iii) holding that the same was not expedient for the purpose of business of the assessee amounting to ` 44,69,439/-, the details of which are as under:- Name of concern to whom advance made Amount advanced (Rs.) Interest @ 12% (Rs.) Rassini 31,86,478/- 3,82,377/- A.Nitin & Co. 52,94,846/- 6,35,382/- Associated Capital Market 9,00,000 1,08,000 Fatu s/o Imamudin 3,56,838 42,820 Bliss

On appeal, the CIT(A) vide order dated 18.1.2011, Annexure A.2 granted relief of ` 29,59,595/- in respect of following three parties:- (i)Bliss Holding Pvt. Limited, New Delhi (ii)Penwell Traders Limited (iii)Novika Investment and Trading Co. As the entire amount of principal loan was recovered and nothing was outstanding, it was held that disallowance of interest with reference to that amount outstanding in the account of these parties was not called for. Accordingly, the disallowance of interest was reduced to ` 15,09,844/-.

The Tribunal vide order dated 4.1.2012, Annexure A.3 while affirming the findings recorded by the CIT(A) held as under:- “19. In respect of the advances due from different parties, admittedly the above said advances were made interest free. The assessee has failed to file any evidence to prove the business expediency in respect of the said advances. The advance of ` 52,94,846/- outstanding from M/s A. Nitin & Co. as per the assessee represented advances made for purchase of shares and also the amount receivable on sale of shares. The said account of the assessee with M/s A Nitin & Co. was not verifiable and was rejected by the CIT (Appeals). The assessee has failed to controvert the findings of the CIT (Appeals) and accordingly, the interest relatable to the advances made to M/s A.Nitin & Co. is held to be disallowable.

Similarly, in respect of M/s Associated Capital Market, there was a transfer entry to the said account and the transaction could not be established by the assessee being for the purpose of business. The interest on such advances is to be disallowed under Section 36(1) (iii) of the Act.

Similarly, the explanation of the assessee that it had advanced ` 3,56,838/- to Fatu s/o Imamuddin for purchase of factory land could not be established by the assessee and in the absence of any evidence the disallowance of interest on the said advances is upheld.

In respect of advances made to different parties as detailed under were found to be not verifiable as being for the purpose of business of the assessee, we uphold the order of the CIT (Appeals) in this regard: a) Jai Spring Industry and investment : ` 1,00,000/- b) Maple Leaf Exim Pvt. Limited ` 1,00,000/- c) Sonakshi Mktg. Pvt. Limited ` 25,00,000/- d) Mars Global Logistic Pvt. Ltd. ` 1,43,875/-”

The Assessing Officer, the CIT(A) and the Tribunal had held that the interest free advances made to Rassini, A.Nitin & Co., Associated Capital Market, Fatu s/o Imamudin, Jai Spring industry & Investment, Maple Leaf Exim P.Limited, Sonakshi Marketing Pvt. Limited and Mass Global Logistics P. Limited was not incidental for the business purpose of the assessee and thus it could not be said that there existed any commercial expediency for making such advances.

Learned counsel for the appellant made strenuous efforts to re- appreciate and reappraise the evidence on record to arrive at a different

In view of the above, no substantial question of law arises in this appeal and consequently, the same is hereby dismissed. (Ajay Kumar MIttal) Judge April 01, 2014 (Jaspal Singh) ‘gs’ Judge integrity of this document High Court Chandigarh