The Commissioner Of Income Tax-3 v. M/S. B.s.casting & Engineering Pvt. Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.5564 OF 2010 The Commissioner of Income Tax-3.Vs. M/s. B.S.Casting & Engineering Pvt. Ltd. ...Appellant. ...Respondent. Mr. Suresh Kumar for the Appellant. Ms. Sanjukta Chowdhary i/by PKP Legal Solution for the Respondent. CORAM : S.J.VAZIFDAR & M.S. SANKLECHA, JJ. DATE : 28[th] August, 2012 PC: This appeal by the revenue under Section 260A of the Income Tax Act,1961 (“the Act”) challenges the order dated 4/11/2009 of the Income Tax Appellate Tribunal (“the Tribunal”) in ITA No.6667/Mum/2008 for the assessment year 2000-01. Being aggrieved, the appellant has formulated the following question of law for the consideration of this Court. Whether on the facts and circumstances of the case and in law, the ITAT was right in deleting the addition made on account of interest paid on borrowings made from bank and others which were advanced to the sister concern, free of interest? 2)The respondent–assessee is engaged in the business of manufacturing aluminium extrusions. On examining the schedules forming part of statement of accounts, the Assessing Officer was of the view that the respondent-assessee had paid interest on borrowed funds amounting to Rs.12.02 lacs. At the same time the respondent-assessee had advanced monies to its sister concern namely Wasp Pumps Private Limited and Wasp Motors Private Limited without charging any interest. Consequently, the respondent-assessee was asked to show cause as to why the interest of Rs.12.02 lacs paid during the assessment year 2000-01 should not be disallowed. The respondent-assessee responded to the notice by pointing as under: “We would further like to inform you that during the A.Y. 2000-01, the opening balance outstanding as on 01/04/1999 was of Rs.99,13,319.84 in the account of M/s. Wasp Pumps Private Limited and the closing balance outstanding as on 31/3/2000 was of Rs.99,31,486.60. Thus, the company has advanced towards expenses during the year to Wasp Pumps Private Limited was Rs.18,167/-. Similarly, in the case of Wasp Motors Pvt. Ltd. The opening balance as on 1/4/1999 was of Rs.57,60,803.01 and the closing balance as on 31/3/2000 was of Rs.57,78,638.67. Thus, the company has advanced a sum of Rs.17,836/- during the year under reference toward expenses. So far as the interest paid by the Company of Rs.12,02,696/- is concerned, out of which a sum of Rs.10.31,669.00 has been paid to the Union Bank of India, Home Street, Fort, Mumbai on Cash Credit Account, the details of which are enclosed herewith for your ready reference, Rs.67,137.45 has been paid to City Bank towards loan obtained on vehicles of the company and Rs.88,140/- various share holders/ directors and Rs.15,750/- to other parties. We may further add that, during the year the company has advanced amount to M/s. Wasp Pumps Pvt. Ltd. and M/s. Wasp Motors Pvt. Ltd. Towards expenses and there is no nexus between the amount advanced to both the companies from the loans obtained from bank or other parties. Therefore, the interest paid to Bank which has no nexus with the advance given to both the companies are disallowable. The interest paid to banks of Rs.10,98,806.45 is on Cash Credit Account (hypothecation of stock and debtors) and the City Bank against loan obtained on company's vehicles. The balance amount of Rs.1,03,890/- has been paid to Share holders and other parties which has also no nexus with the advance given to M/s. Wasp Pumps Pvt. Ltd. and Wasp Motors Pvt. Ltd. of Rs.18,167/- and Rs.17,836/- respectively.” The interest paid to banks of Rs.10,98,806.45 is on Cash Credit Account (hypothecation of stock and debtors) and the City Bank against loan obtained on company's vehicles. The balance amount of Rs.1,03,890/- has been paid to Share holders and other parties which has also no nexus with the advance given to M/s. Wasp Pumps Pvt. Ltd. and Wasp Motors Pvt. Ltd. of Rs.18,167/- and Rs.17,836/- respectively.” 3)However, the Assessing Officer was not satisfied and held that the advance given to the sister concerns was not for business purposes. Further, as no interest has been charged on these advances, the Assessing Officer disallowed the interest of Rs.12.02 lacs paid by the respondent for availing of the loans from various banks. 4)In appeal, the Commissioner of Income Tax (Appeals) held that the amounts borrowed by the respondent-assessee from the banks was against the hypothecation of stock and the amounts so borrowed were utilized for the purpose of its business. Further, he found as a fact that those amounts were advanced by the respondent- assessee to its sister concerns during earlier years and it did not have any link with the borrowed funds. The amounts advanced to the sister concern were out of its own funds and not out of the borrowed funds. Further, difference in the opening balance of outstanding amount with the closing balance of Rs.18,167/- and 17,836/- with regard to Wasp Pumps and Wasp Motors respectively were in fact not advances but reimbursement of expenses incurred by the two sister concerns. In the circumstances, the appeal was allowed and the addition of interest amounting to Rs.12.02 lacs to the respondent-assessee's income was deleted. 5)On appeal, the Tribunal by order dated 4/11/2009 upheld the finding of the Commissioner of Income Tax (Appeals) and also noted that respondent-assessee's own case for the assessment year 2001-02 on identical facts was decided in favour of the respondent assessee. Consequently, the Tribunal also reached a finding of fact that the amounts advanced by the respondent to its sister concern were out of its own funds and not out of borrowed funds. Consequently, there was no basis to deny the expenditure towards the interest amounting to Rs.12.02 lacs for the assessment year 2000-01. 6)The Commissioner of Income Tax (Appeals) and the Tribunal both have reached a finding of fact that the amounts advanced by the respondent-assessee to its sister concerns were out of its own funds and not borrowed funds. The borrowed funds on which the interest was paid was utilized for the purpose of respondent-assessee's business and not for advancing amounts to its sister concern. The aforesaid findings are pure findings of fact and the appellant-respondent have not even suggested that the aforesaid findings are perverse or arbitrary. 7)In view of the above, no substantial question of law arises. The appeal is dismissed. No order as to costs. ( M.S. SANKLECHA, J. ) ( S. J. VAZIFDAR, J.)