Gujarat High Court
Commissioner Of Income Tax V vs Kajal Exports....Opponent(S) on 23 January, 2014
Author: Sonia Gokani
Bench: Akil Kureshi, Sonia Gokani
O/TAXAP/756/2013 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 756 of 2013
With
TAX APPEAL NO. 757 of 2013
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COMMISSIONER OF INCOME TAX V....Appellant(s)
Versus
KAJAL EXPORTS....Opponent(s)
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Appearance:
MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1
MR B S SOPARKAR, ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MS JUSTICE SONIA GOKANI
Date : 23/01/2014
ORAL ORDER
(PER : HONOURABLE MS JUSTICE SONIA GOKANI)
1. Both the tax appeals (for A.Y. 20032004 and A.Y. 2004 2005) essentially concern identical question of fact and law and hence, are decided by a common order. The facts and other details are taken for the purpose of adjudication from Tax Appeal No.756/2013.
2. Following is the substantial question of law raised for our consideration by the Revenue in the Tax Appeal No.756/2013 challenging the order of the Income Tax Appellate Tribunal ("the tribunal" for short) dated 18.4.2013 :
Page 1 of 4TAX APPEAL/756/2013 25/06/2014 01:41:28 PM O/TAXAP/756/2013 ORDER "Whether on the facts and circumstances of the case the Appellate Tribunal was jusitifed in deleting the addition of interest of Rs.87,35,694/ by totally ignoring the facts that the borrowed fund were utilized by the assessee for non business purpose and whether the finding of the Appellate Tribunal is perverse to this extent?
3. We have heard learned counsel Shri Manish Bhatt for the Revenue and Shri Bandish Soparkar for the assessee respondent in both the matters.
4. Question pertains to deletion of addition of interest of Rs.87,35,694/ in the following factual background.
5. The Assessing Officer noted that the assessee had borrowed the amount through out the year under the banner of business necessity and also noted the purchases and the sales patterns of the assessee and held that the funds borrowed were utilised for purposes other than business. It further noted that the assessee had advanced money to close relaives/ sister concerns without charging the interest. Accordingly, the Assessing Officer disallowed the expenditure.
6. When challenged before the CIT(Appeals), it concluded that the borrowed funds were not used for the business purposes in the year 20032004 and the Assessing Officer was justified in disallowing the expenditure on such borrowed funds to the extent it is claimed in the P&L account.
7. Aggrieved department carried the same before the Tribunal Page 2 of 4 TAX APPEAL/756/2013 25/06/2014 01:41:28 PM O/TAXAP/756/2013 ORDER which deleted the entire amount except Rs.21,900/, i.e. 15% of Rs.1.46 lakhs and hence these appeals.
8. We could notice from the detailed examination conducted by both the CIT(Appeals) and the tribunal that this aspect could be bifurcated this wise. (i) non use of borrowed funds for business (ii) interest free advances given to the partners.
9. On the first aspect, the Tribunal after having examined in detail the pattern of investment, loans and advances as also considering the fixed assets and cash noted that there was no fresh borrowing in the year under consideration and already borrowed funds had reduced from Rs1953 lakhs to Rs.1239 lakhs. This substantial reduction led the tribunal to note that it would not be possible to hold that the borrowed funds were not used for business purpose merely because the investment, loans and advances given to the partners and the debit balance of the partner's capital account had gone up.
10. The assessee had advanced loan of Rs.540.97 lakhs to the partners and relatives, associate concerns and others, and on such loan to the extent of Rs.446.92 lakhs, interest was charged by the assessee. This interest free loan available to the assessee was to the tune of Rs.97.26 lakhs. Out of the total unsecured loans available with the assessee in respect of sum of Rs.34.84 lakhs from Design Solutons Ltd. and Rs. 60.97 lakhs from Sthapatya Consultancy, making total of Rs.95.80 lakhs, no interest had been paid by the assessee in respect of such loans.Page 3 of 4
TAX APPEAL/756/2013 25/06/2014 01:41:28 PM O/TAXAP/756/2013 ORDER Such interest free borrowed funds were available with the assessee.
11. We could also notice that with respect to the interest free advances made available to the partners, tribunal has rightly held that Rs.97.26 lakhs interest free advance were made whereas the assessee had interest free fund to the tune of Rs.95.80 lakhs available with it and therefore, only for the remaining sum of Rs.1.46 lakhs, it had confirmed the disallowance of the interest.
12. On both the aspects, based on the materials available when the tribunal has appropriately held in favour of the assessee, noting the availability of interest free funds, as also with regard to utilisation of funds available with the assessee, for the business purpose, we do no see any reason to interfere in the reasonings in absence of any perversity. In absence of any fresh borrowings in A.Y. 20032004, reduction of borrowed funds could not be assumed to be for non business purpose with corresponding advances to the partners in wake of appreciation of entire gamut of facts and details presented before the Revenue authorities and thus Revenue not having raised any substantial question of law in this regard tax appeals, resultantly, are dismissed.
(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) raghu Page 4 of 4 TAX APPEAL/756/2013 25/06/2014 01:41:28 PM