Tribunal, Delhi Bench 'B' New Delhi (In Short, “The Tribunal) In Itano.6851/Del/1995 For The Assessment Year 1991-92, Claiming Followingsubstantial Question Of v. Abhishekindustries Limited, 286 Itr (P&H)?

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.751 of 2008 (O&M)Date of decision: 17.9.2015 Commissioner of Income Tax, Faridabad .....- Appe M/s Nuchem Limited ....mesponden CORAM: HON BLE MR. JUSTICK AJAY KUMAR MITTALHON BLE MR. JUSTICEK RAMENDRA JAIN 1. Whether Reporters of local papers may be allowed to see the judgment?2. To be referred to the Reporters or not?3. Whether the judgment should be reported 1n the Digest? Present: Mr. Tajender K.Joshi, Advocate for the appellant. Mr. P. C.Goyal, Advocate for the assessee. Ajay Kumar Mittal, J. 1.This order shall dispose of ITA Nos.751 and 676 of 2008 asaccording to the learned counsel for the parties, the issues involved 1n boththe appeals are identical. However, the facts are being extracted from ITANo.751 of 2008. |ITA No.751 of 2008 has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against theorder dated 22.2.2008, Annexure A.IV passed by the Income Tax Appellate ITA No.751 of 2008 (O&M) | Tribunal, Delhi Bench 'B' New Delhi (in short, “the Tribunal) in ITANo.6851/DEL/1995 for the assessment year 1991-92, claiming followingsubstantial question of law:- "Whether on the facts and in the circumstances of the case, theHon'ble ITAT is right in law in reversing the order of thelearned CIT(A) sustaining the addition made by the AssessingOfficer on account of interest on interest free loans given tolsister concern or persons covered under section 40A(2) of theIncome Tax Act in contradiction with the judgment ofjurisdictional High Court in CIT, Ludhiana vs. AbhishekIndustries Limited, 286 ITR | (P&H)? In ITA No.676 of 2008, in addition to the above mentioned question, thefollowing two questions have also been claimed by the revenue:- “1. Whether on the facts and in the circumstances of the case,the Hon'ble ITAT is right in law in holding that the revenue hadnot filed appeal before the Hon'ble ITAT on the same point inthe assessment year 1988-89 and therefore accepting thefindings of the learned CIT(A) for the said year, disregardingthe settled law that each assessment year 1s a separate year? 2. Although tax involved isL1,81,770/- which 1s less than thelimits laid down by the CBDIT's instructions No.5/2008 dated15.5.2008 issued under section 268A of the Income Tax Act,1961, yet the appeal is being filed as per para 5 of the saidinstruction because it 1s a case of composite order of the [TATwhich involved assessment years 1991-92, 1992-93 and 1993-94 and tax effect involved in one year 1.e. 1n assessment year1993-94 is more than the monetary limits prescribed in para 3of the said instruction. 3]A few facts relevant for the decision of the controversy,involved as narrated in ITA No.751 of 2008 may be noticed. The assessee ITA No.751 of 2008 (O&M) 2. Although tax involved isL1,81,770/- which 1s less than thelimits laid down by the CBDIT's instructions No.5/2008 dated15.5.2008 issued under section 268A of the Income Tax Act,1961, yet the appeal is being filed as per para 5 of the saidinstruction because it 1s a case of composite order of the [TATwhich involved assessment years 1991-92, 1992-93 and 1993-94 and tax effect involved in one year 1.e. 1n assessment year1993-94 is more than the monetary limits prescribed in para 3of the said instruction. 3]A few facts relevant for the decision of the controversy,involved as narrated in ITA No.751 of 2008 may be noticed. The assessee ITA No.751 of 2008 (O&M) company filed its return on 31.12.1991 declaring loss ofan27,63,950/-which was revised to.L45,13,550/- vide revised return filed on 31.3.1993,Assessment under section 143(3) of the Act was completed on 29.3.1994,Annexure A_[ at total income of=a54,94,300/-. The Assessing Officer hadinter alia disallowed=a10,57,600/- out of interest paid by the assesseeconsidering interest free loans given to sister concern or persons coveredunder Section 40A(2) of the Act. The Commissioner of Income Tax(Appeals) |CIT(A)| vide order dated 23.8.1995, Annexure AIII accepted theassessee's appeal in part and confirmedTL6,03,234/- and allowed relief of |L4,54,426/- to the assessee. Both the assessee and the department filed crossappeals before the Tribunal. The Tribunal vide combined order dated22.2.2008, Annexure A.IV allowed both the appeals in part. The Tribunalupheld the allowance of relief ofL4,54,426/- to the assessee and directedthe Assessing Officer to allow further relief to the extent of interest chargedon the loan given to M/s Novica Investment 1.e. =a80,000/.- by following itsown decision passed in ITA No.7204/Del/92 in the assessment year 1988-89by holding that no nexus was proved by the department regarding theamount advanced to Novica investment in the assessment year 1988-89.Hence the instant appeals by the revenue. 4. We have heard learned counsel for the parties. | 5. With regard to question Nos.! and 2 in ITA No.676 of 2008 asreproduced above are concerned, the same are general 1n nature and call forno consideration because the matter has been adjudicated by us on merits. 6. As regards question with regard to addition on account of interest oninterest free loans to sister concern or persons covered under section 40A(2) ITA No.751 of 2008 (O&M) of the Act, which is common in both the appeals, it may be noticed that theAssessing Officer added|<a10,57,660/- as notional interest on interest freeadvances given by the assessee. The assessee contended on appeal beforethe CIT(A) that the loans were taken 1n the earlier years and thus they couldnot be said to have been diverted for non business purposes during thepresent year and no notional interest could be added. The CIT(A) upheldthe addition to the extent of.=a6,03,234/-. The Tribunal deleted the interestdisallowance referable to the amount advanced to Novica investments sinceno nexus between the borrowed funds and the amounts advanced to theabove said concerns without interest was proved by the department,However, 1n the absence of any evidence on behalf of the assessee, thedisallowance in respect of the other four concerns was sustained. Therelevant findings recorded by the Tribunal read thus:- “7. Ground No.6 is directed against the disallowance of interestrelating to loans. The Assessing Officer added an10,57,660/- asnotional interest on interest free advances given by the assessee. Onappeal, the ClT(Appeals) upheld the addition to the extent of=6,03,234/-. He has discussed this issue in paragraph 10 of his order.The contention of the assessee before us 1s that all the loans weretaken in earlier years and therefore, they cannot be said to have beendiverted for non business purposes during the present year andtherefore, no notional interest can be added. Our attention is drawnto the judgment of the Karnataka High Court in CIT vs. SrideviEnterprises 192 ITR 165 and the judgment of the Supreme Court inSA Builders 288 ITR 1. On the other hand, the learned CIT DRdrew our attention to the judgment of the Hon'ble Delhi High Courtin CIT vs. MGF 254 ITR 449 in support of the disallowance. 8. We have carefully considered the facts and the rival contentions.As per the details given in page 601 of the paper book, the parties to whom the assessee advanced interest free loans are M/s NovicaInvestments, Nuchem Investments Pvt. Limited, M/s SCDC KathaIndustries Pvt. Limited, M/s RCA Leasing Pvt. Limited and M/sRatan Chand Harjas Rai. The total amount of interest free advancesWasLT66,10,378/-. According to the Assessing Officer, the assesseehas charged interest from some of the debtors and not from all ofthem. According to him, the assessee had borrowed monies oninterest and the interest was claimed as deduction and therefore theassessee cannot advance interest free monies. He estimated theinterest at 16% on the amount advanced to the above concerns,which came toLy10,57,660/-. Before the CIT(Appeals), the assesseesubmitted that it had its own funds from share capital reserves andsurpluses which stood at =a20,50,29,858/- as on 31.3.1991 and thatinterest free advances came out of the reserves and surpluses and notfrom interest bearing funds. As regards the amounts advanced toSouthern Synthetics Limited, it was stated that the principal itselfwas doubtful of recovery and therefore, no interest can be added.9. The CIT(Appeals) accepted the assessee's submission with regardto Southern Synthetics Limited but with regard to give parties namedin the preceding paragraph, he did not accept the assessee'ssubmission that the Assessing Officer could not prove any nexusbetween the borrowed funds and the amounts advanced to theseconcerns without interest. He noted that the assessee himself wasunable to explain the sources from which it advanced the monies tothese five concerns. As regards the contention based on the capitaland reserves, the ClIT(Appeals) found that they were alreadyinvested in the fixed assets and were therefore, not available to theassessee for making interest free advances. He noted that theassessee's interest liability wasan4,64,33,153/- which was quitesubstantial which indicated that surplus funds were not available tothe assessee for making interest free advances. He therefore, agreedwith the Assessing Officer in principle but held that the disallowanceof interest will be restricted to amount advanced as interest free tothe five concerns mentioned earlier. 10. On a careful consideration of the matter, we find that so far asNovica Investment 1s concerned, the Tribunal has already acceptedthe assessee's contention that no nexus was proved by thedepartment in ITA No.7204/Del/92 for the assessment year 1988-89(paragraphs 48 to 51). Therefore, the interest disallowance referableto amount advanced to Novica Investments is deleted. However,with regard to the other four concerns, namely, Nuchem InvestmentsPvt. Limited, M/s SCDC Katha Industries Pvt. Limited, M/s RCALeasing Pvt. Limited and M/s Ratan Chand Harjas Rai, we areunable to delete the disallowance in the absence of any evidenceadduced on behalf of the assessee to support the ground. Theassessee was not able to displace the finding of the CIT(Appeals)that the share capital and reserves having been invested in fixedassets were not available to the assessee tor being advanced interestfree to these four concerns. The availability of interest free fundsincluding share capital and reserves,is a matter to be proved on thebasis of the facts and figures and not theoretically or in the abstract.There is no material placed before us on behalf of the assessee toshow that interest free funds in any form were available to theassessee to be advanced to these four concerns. The assessee'ssubmission based on the decision of the Supreme Court inS.A.Builders (supra) cannot be accepted because there is noevidence to show that the amounts were advanced for the purposesof the assessee's business. Further, this 1s a new plea taken before uswhich 1s required to be proved by evidence. For these reasons, wesustain the disallowance of the interest in respect of the interest freeadvances given to the four concerns named above. The ground isthus partly allowed. The Assessing Officer will rework thedisallowance accordingly.” TiThe CIT(A) had allowed the relief of|<a4,54,426/- to the assesseeout of total disallowance of <a10,57,600/- on account of interest given asinterest free loans to sister concerns. The Tribunal on appeal of the assessee ITA No.751 of 2008 (O&M) had allowed additional relief of|an80,000/- which was referable to amountadvanced to Novica Investments and upheld the allowance of relief ofamount ofLv4,54,426/- to the assessee as was allowed by CIT(A). Thefindings of fact are based on material and evidence on record.Learnedcounsel for the appellant-revenue has not been able to show that thefindings recorded by the CIT(A) as well as the Tribunal are perverse orerroneous 1n any manner which may call for interference by this Court.Moreover, similar issue relating to Novica Investments has been adjudicatedby us today in ITA No.892 of 2008 and ITA No.130 of 2009 against therevenue. Thus, the substantial questions of law are answered accordingly.The appeals stand dismissed. September 17, 2015<;&< (Ajay Kumar Mittal)Judge(Ramendra Jain)Judge