M/S Herbicides (India) Limited v. The Assistant Commissioner Of Income Tax, Circle 3, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 816/2008 M/s Herbicides (India) Limited, having its registered at PlotNo.12, Industrial Area, Jhotwara, Jaipur through its AuthorisedSignatory – Mr. Kuldeep Kumar, Manager (Accounts) ----Appellant Versus The Assistant Commissioner of Income Tax, Circle 3, Jaipur ----Respondent Connected With D.B. Income Tax Appeal No. 817/2008 M/s Herbicides (India) Limited, having its registed at Plot No.12,Industrial Area, Jhotwara, Jaipur through its AuthorizedSignatory – Mr. Kuldeep Kumar, Manager (Accounts) ----Appellant Versus The Income Tax Officer, Ward 3(1), Central Revenue Building,Statue Circle, Jaipur. ----Respondent For Appellant(s) : Mr. Anant Kasliwal, Sr. Adv. assisted by Ms. Charu Pareek, Mr. Raghav Krishnatri &Ms. Divisha Mishraby Ms. Charu Pareek, Mr. Raghav Krishnatri &Ms. Divisha Mishra For Respondent(s) : Mr. Anuroop Singhi withMr. NS Bhati & Mr. NS Bhati & Mr. Aditya Khandelwal HON'BLE MR. JUSTICE AVNEESH JHINGAN HON'BLE MR. JUSTICE MANEESH SHARMAJudgment Reserved on : 19.03.2025 Pronounced on : 27.03.2025 -AVNEESH JHINGAN, J: 1.These two appeals are decided by this order as the facts andissue involved are similar. 2.These appeals under Section 260-A of the Income Tax Act,1961 (for brevity ‘the Act’) are filed against the orders dated 31.07.2008 and 20.06.2008 passed by the Income Tax AppellateTribunal, Jaipur (for brevity ‘the tribunal’). 3.On 01.12.2008 and 18.11.2009, the appeals were admittedon following substantial questions of law for assessment year 2001-02 and 2002-03 respectively:- “Whether the ITAT was justified in havingreveresed the finding of the CIT (Appeals) inrevenue’s appeal in respect of deletion ofaddition made on account of deemed interestin respect of credits appearing in the names ofM/s. DPFL, Tetenal India Limited and M/s.Moolji Tulsidas & Company merely becauserevenue failed to furnish any documentaryevidence before it?” “Whether ITAT was justified in confirming thefinding of CIT (Appeals) in respect of additionmade on account of deemed interest in respectof credits appearing in the name of M/s. DPEL.Tetenal India Limited and M/s. Moolji Tulsidas& Company, on account of interest on interestfree advances given to the sister concern?” 4.These appeals were dismissed on 10.05.2017 and26.04.2017 by this Court but were remitted back by SupremeCourt vide order dated 04.01.2024 with direction to dispose ofboth the appeals together. -Facts of D.B.I.T.A. No.816/2008: 5.The brief facts are that appellant company was engaged inmanufacturing of pesticides. For the Assessment Year (for short‘AY’) 2002-03, the income tax return was filed declaring income ofRs.9,63,915/-. During the assessment proceedings, the assessingofficer (A.O.) found that the appellant borrowed interest bearingloans and had made interest free advances of Rs.31,68,294/- toM/s. Dugar Photofilms Limited (for short ‘DPFL’), of 4.These appeals were dismissed on 10.05.2017 and26.04.2017 by this Court but were remitted back by SupremeCourt vide order dated 04.01.2024 with direction to dispose ofboth the appeals together. -Facts of D.B.I.T.A. No.816/2008: 5.The brief facts are that appellant company was engaged inmanufacturing of pesticides. For the Assessment Year (for short‘AY’) 2002-03, the income tax return was filed declaring income ofRs.9,63,915/-. During the assessment proceedings, the assessingofficer (A.O.) found that the appellant borrowed interest bearingloans and had made interest free advances of Rs.31,68,294/- toM/s. Dugar Photofilms Limited (for short ‘DPFL’), of Rs.28,62,084/- to M/s. Tetenal India Limited and Rs.2,01,668/- toM/s. Mooji Tulsidas & Co. In response to the show-cause notice,the appellant took the stand that the advances were in normalcourse of business and had nothing to do with the interest bearingloans and were given from own funds. The interest free advancesto DPFL was with an understanding to supply X-ray films at aconcessional rate but due to technical problems the DPFL had tostop production and could not refund the amount. After theclosure of DPFL with an objective to have a foreign collaborationwith M/s.Tetenal Photowerk GMBH & Co., KG Germany and to setup Joint Venture expenses were incurred by the appellant topromote M/s. Tetenal India Limited. With regard to M/s. MooljiTulsidas & Co., the payment was made for clearing the goodsimported from Israel but the agent had not cleared the materialand did not send the bill on time. The assessment was finalised on16.02.2005 under Section 36(1)(iii) of the Act and interest to tuneof Rs.10,24,500/- was disallowed. The appeal against the order ofassessment was partly accepted by the CIT(A) vide order dated28.12.2007 and the disallowance of interest was set aside. Theappeal filed by the department was accepted by the tribunal on31.07.2008. It was held that without cogent explanation, inabsence of documentary evidence and solely relying uponcalculation produced by appellant, the CIT(A) erred in deletingdisallowance of interest. Hence, the present appeal. -Facts of D.B.I.T.A. No.817/2008: 6.For the AY 2001-02, the appellant filed income tax returndeclaring income of Rs.11,16,862/- derived from manufacture and sale of pesticides. During assessment proceedings the recordsrevealed that the appellant had borrowed interest bearing loansand given interest free advances to the tune of Rs.37,06,431/-,out of which Rs.32,75,000/- was given to DPFL. The AO framedassessment on 10.03.2004 and under section 36(1)(iii) disallowedthe interest to the tune of Rs.4,91,250/- out of interest paid bythe appellant of Rs.14,25,855/-. The CIT(A) affirmed thedisallowance of interest vide order dated 18.09.2007. Beforetribunal, the assessee pleaded that the advances were given innormal course of business. The payment to DPFL was for settingup a depot and unit at Silvassa for manufacturing of X-ray films.Reliance was placed on order of CIT(A) for the AY 2002-03wherein the disallowance of interest was set aside. The case setup was that the advances were made in preceding year andinterest cannot be disallowed in the year in question. The tribunaldismissed the appeal and held that no evidence was produced withregard to advances having been in normal course of business orthat the advances were of the preceding years. It was consideredthat in 2002-03, the appellant took a stand that the payment wasmade to DPFL to ensure supply of X-ray films at concessionalrates, whereas, now case set up is that it was for setting up adepot and unit at Silvassa. -Contentions: 7.Learned counsel for the appellant submits that thedepartmental authorities cannot sit in the chair of theentrepreneur to judge the business prudence. The interest freeadvances were made in normal course of business. The contention -Contentions: 7.Learned counsel for the appellant submits that thedepartmental authorities cannot sit in the chair of theentrepreneur to judge the business prudence. The interest freeadvances were made in normal course of business. The contention is that the advances were made from the funds of the companyand not from the interest bearing loans. It is argued that for AY2001-02, tribunal erred in holding that there was shift in stand ofthe appellant explaining the purpose of giving interest freeadvance to DPFL. 8.As per contra on one hand the appellant had borrowedinterest free loans and paid interest whereas on the other handinterest free advances were made. The argument is that there isno substantial question of law involved as the appellant failed toproduce documentary proof for advance being made in the normalcourse of business and out of any funds of the appellant company.Conclusion:- 9.In the assessment proceedings for both the years, apartfrom giving an explanation with regard to the purpose of theinterest free advances, no documentary evidence was produced.In the AY 2002-03, against the reserves and surpluses ofRs.31,76,967/-, the interest free advances were given to the tuneof Rs.72,44,787/-. The plea taken in the AY 2002-03 that theinterest free advance was given to DPFL with an understandingthat X-ray films shall be supplied at a concessional rate was notsubstantiated. Moreover, it cannot be lost sight that the appellantis dealing in pesticides. 10.Similarly the advances given to Tetenal India Limited beingfor purpose of setting up of joint venture to revive the productionof DPFL remained a bald statement. Same was the position ofpayment made to M/s. Mooji Tulsidas & Co. 11.In the AY 2001-02 though there was change in the stand forthe purposes of giving interest free advances to DPFL, be that as itmay, no documentary evidence was brought on record to supporteither of the explanation. From perusal of the order of CIT(A) forassessment year 2002-03 it is forthcoming that the disallowanceof the interest was deleted by accepting the contentions of theappellant which were not supported by documentary evidence.The tribunal recorded a finding that the explanations for givinginterest free advance were not substantiated by documentaryevidence. 12.In view of the factual findings recorded, the issue as towhether the interest free advances were in normal course ofbusiness and for business expediency does not arise for lack ofevidence. The findings of fact recorded do not suffer fromperversity. 13.Though an endeavor by annexing documents with this appealhas been made to support the plea that the advances were for innormal course of business but no case is set up that thesedocuments were produced before the authorities. 14.In view of the above discussion, no case is made out forinterference in the orders of the tribunal. The substantialquestions of law are answered against the appellant. 15.The appeals are dismissed. (MANEESH SHARMA),J(AVNEESH JHINGAN),J Chandan/105-106