Commissioner Of Income Tax, Rohtak v. M/S Kamal Industry (Huf

ITA No. 231 of 2007 =|. IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH IIA No. 231 of 200/7 Date of Decision: 28.1.2014 | Commissioner of Income Tax, Rohtak ...Appellant Versus M/s Kamal Industry (HUF) ... Respondent CORAM:-HON BLE MR. JUSTICE AJAY KUMAR MITTAL.HON BLE MRS. JUSTICE ANITA CHAUDRRY. PRESENT: Mr. Inderpreet Singh, Advocate for the appellant. Mr. Panka] Jain, Advocate andMr. Divya Suri, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This appeal has been filed by the revenue under Section260A of the Income Tax Act, 1961 (in short “the Act’) against the orderdated 31.85.2006 passed by the Income lax Appellate Iridunal, DelnBench “D’, Delhi (hereinafter referred to as ‘the Tribunal’) for theassessment year 2001-02, claiming the following substantial question oflaw:- “Whether on the facts and in the circumstances of thecase, tne Hon bie ITAT was right in law in deleting thedisallowance of interest of Rs.3,13,6/77/- made u/s 3(1)(il) of the I.T. Act, 1961 on account of interest on|borrowings to the extent those are diverted to ITA No. 231 of 2007 relatives witnout interest?” 2 Briefly stated, the facts necessary for aajudication of thepresent appeal as narrated therein are tnat the assessee derived interestincome and from sale and purchase of metals. The assessee filed itsreturn for the assessment year 2001-02 on 30.10.2001 declaring anincome of43,/8,2/0/- which was processed under Section 143(1) of theAct on 19.9.2002. During the course of assessment proceedings, theAssessing Officer found that the assessee had paid interest of=3,13,6/7/- on unsecured loans of ©419,55,603/- and also given interestfree loans to its relatives amounting to=1,11,85,750/-. Accordingly, videorder dated 27.2.2004 (Annexure A-1), the Assessing Officer computedthe Income of the assessee at47,01,450/- by making an addition of=3,13,6/77/- under Section 36(1 (ill) of the Act on account of diversion ofinterest free loans for non-business purposes. Feeling aggrieved, theassessee filed an appeal before the Commissioner of Income Tax(Appeals) [for brevity “the CIT(A)] who vide order dated 10.6.2004(Annexure A-2) while confirming the addition of43,13,6/7/- dismissedthe appeal. Still dissatisfied, the assessee filed an appeal before theTribunal. The Tribunal vide order dated 31.8.2006 (Annexure A-3)allowed the appeal and deleted the said adaition by relying on its earlierorder for the assessment year 1998-99. Hence, the present appeal bythe revenue. 3 Learned counsel for the revenue submitted that the Tribunalwhile accepting the appeal of the assessee had relied upon its earlierdecision in the case of assessee relating to the assessment year 1998-99 [Learned counsel referred to the assessment order wherein whiledisallowing interest on loans and aavances, It was noticed as under:- ITA No. 231 of 2007a “(1)Interest on loans & aavances: From the perusal of Annexure C of the auait reportsubmitted In Form 3CD, it is noticed that the assesseehas shown loans & advances of Rs.19,55,603/- takenfrom the various persons and has debited interest onsuch loan & advances amounting to Rs.3,13,6/77/-The assessee nas fTurther given interest free loans tthe following close relatives: Name oft the PersoAmount Loan1]sh. Radhey Shyam GuptaRs.22,41 ,845/2.oh. Ramesh Chand GuptaRs.23,41,521/-3 oh. Ravi Shankar GuptaRs.26,/8,12//-4 on. Ripu Daman GuptaRs.19,37,696/-5.on. Vijay Kumar GuptaRs.19,86,561/-TotalRs.1,11,85, 750/ ITA No. 231 of 2007a “(1)Interest on loans & aavances: From the perusal of Annexure C of the auait reportsubmitted In Form 3CD, it is noticed that the assesseehas shown loans & advances of Rs.19,55,603/- takenfrom the various persons and has debited interest onsuch loan & advances amounting to Rs.3,13,6/77/-The assessee nas fTurther given interest free loans tthe following close relatives: Name oft the PersoAmount Loan1]sh. Radhey Shyam GuptaRs.22,41 ,845/2.oh. Ramesh Chand GuptaRs.23,41,521/-3 oh. Ravi Shankar GuptaRs.26,/8,12//-4 on. Ripu Daman GuptaRs.19,37,696/-5.on. Vijay Kumar GuptaRs.19,86,561/-TotalRs.1,11,85, 750/ The assessee has not shown interest Income from theabove loans. Whereas, the assessee had paidinterest @ 12% to 18% on loans taken from thevarious persons. During the course of assessmentproceedings, though order sheet entry'§ dated12.12.2003, the assessee was asked to submit detailsfor utilization of unsecured loans for business purposewith supporting evidence. However, the assesseehas failed to discharge its onus. The assessee wasagain asked vide order sneet entry dated 05.01.2004to submit the complete details of loans & advancesgiven to the above persons along with rate of interest =4. charged. Vide reply dated 27.01.2004, the assesseenas submitted tne details of loans and aavances.From the perusal of details turnisned, It Is noticed tnatno interest has been charged. Had the said moneybeen not advanced to the above cliose relatives, Iwould have been available to the assessee for hisbusiness purposes and earning more profits. Ineinterest relatable to the amount lent to the aboverelatives cannot be allowed as deduction u/s 360(1 )(Ilof the Income Tax Act, 1961, because it cannot besaid that the money to that extent was borrowed forthe purposes of business. This view finds supporttrom the decision of the Hon bile Allanabad High CourIn the case of CIT Vs. H.R. Sugar Factory (P) Ltd.reported in 187 ITR 363, CIT Vs. Ssaraya Sugar Mill(P) Ltd., reported in 193 ITR 5/75. The Hon'bleMadras High Court in the case of K. Somasundaramand Bros vs. CIT 153 CTR 153, has held that “whenthe assessee decided to lend a substantial part ofthose funds interest free to the sister concern of theassessee, It was clearly not a business purpose.|Similar view has been expressed by the Hon'bleMadras High Court in the case of CIT Vs. SujanniTextiles (P) Ltd., reported in 225 ITR 560. Keeping inview, the above facts, the proportionate interest onabove loans is therefore, liable to be disallowed onaccount of diversion of interest free loans for no =5- business purposes to the assessees relative. |,therefore, disallow interest of Rs.3,13,6/7//- u/s 36(1(ill) of the Income lax Act, 1961.) 4it was submitted tnat the Iridunal while accepting the appealnad not discussed anything as to now the present case was similar withthe case of the assessee for the assessment year 1998-99. It was urgedthat allowance or disallowance under Section 36(1)(ill) of the Act Isdependent upon the facts of each case and the reliance of the [ribunalon Its earlier order for the assessment year 1998-99 without referring tothe similarity, the findings stand vitiated and the matter requires to beremanded for re-adjudication by the Tribunal after examining the factualmatrix involved in the current assessment year. 5. 5.Learned counsel for the assessee, on the other hand,besides supporting tne order passed by the I[ridbunal submitted thasimilar deduction nad also been allowed for the assessment years 2004-05, 2005-06 and 2006-07. 6 After hearing learned counsel for the parties, we find force Inthe submissions made by learned counsel for the appellant. 5. 5.Learned counsel for the assessee, on the other hand,besides supporting tne order passed by the I[ridbunal submitted thasimilar deduction nad also been allowed for the assessment years 2004-05, 2005-06 and 2006-07. 6 After hearing learned counsel for the parties, we find force Inthe submissions made by learned counsel for the appellant. f.A perusal of the order passed by the Tribunal shows that theTribunal has decided the appeal in favour of the assessee only by relyingupon its earlier order for the assessment year 1998-99. The factualmatrix in the present case, as noticed hereinabove, is different. TheTridunal was required to discuss with regard to the details as nave beennoticed by the Assessing Officer while making the assessment.Moreover, the assessment orders for the years 2004-05, 2005-06 and2006-07 do not specifically show that the issue with regard to Section 36(1)(ili) of the Act was discussed in the said assessment orders as Is ITA No. 231 of 2007 discernible from tne assessment order produced by the learned counselfor the assessee. However, it snall still be open for the assessee to urgethis point before the Tribunal at the time of nearing of the appeal again.8.In view of the above, the substantial question of law standsanswered accordingly. Ine order passed by the Iribunal Is set asideand the matter is remitted to the Tribunal to decide the same afresh inaccordance witn law after affording an opportunity of nearing to theparties. (AJAY KUMAR MITTAL) JUDGE January 28, 20147: (ANITA CHAUDHRY) JUDGE