Income Tax Appellate Tribunal - Chennai
Acit , Erode vs Maharaja Sathyam Industries (P) ... on 2 November, 2016
आयकर अपील य अ धकरण, ''ए'' यायपीठ, चे नई ।
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH, CHENNAI
ी चं पूजार , लेखा सद य एवं ी जी. पवन कुमार, या यक सद य के सम
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND
SHRI. G. PAVAN KUMAR, JUDICIAL MEMBER
आयकर अपील सं./I.T.A. No. 1334/2016.
नधारण वष /Assessment year : 2012-13
Assistant Commissioner of Vs. Maharaja Sathyam Industries (P)
Income Tax, Limited,
Circle-1, No. 15, Gandhiji Road, No.119, Bahwani Road,
Erode - 638 001. Erode- 638 004.
[ PAN AACCS9484P]
(अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ क ओर से/ Appellant by : Shri. R. Clement Ramesh Kumar,
Addl. CIT.
!"यथ क ओर से /Respondent by : None
सुनवाई क तार ख/Date of Hearing : 17-10-2016
घोषणा क तार ख /Date of Pronouncement : 02-11-2016
आदे श / O R D E R
PER G. PAVAN KUMAR, JUDICIAL MEMBER:
The Revenue has filed appeal against the order of Commissioner of Income Tax Appeals-3, Coimbatore ITA No. 601/2014-15, dated 29.09.2016 for the assessing year 2012-13 passed under section 143(3) and 250 of the Income Tax Act (erred after referring to an act).
:- 2 -: ITA No.1334/Mds/2016
2. The Revenue has raised the grounds that the learned CIT(A) has erred in granting relief to the assessee without properly analyzing the facts of the case and overlooked the findings of the Assessing Officer where the borrowed funds were utilized for interest free advances and nexus between interest bearing funds and interest free advances provided to the related concerns.
3. The brief facts of the case is that the assessee is in the manufacture of the yarn and generation of wind power energy and filed return of Income for the assessment year 2012-13 electronically on 26.09.2016 admitting a loss of Rs. 5,47,84,088/- subsequently under CASS the case was selected for scrutiny and notice U/s 143(2) and 142(1) of the Act was issued to the assessee. In compliance to the notice, ld. AR of the assessee appeared and submitted the soft copy of accounts and the same was verified by the ld. AO and assessee also filed details by letter dated 29.09.2014 explaining the advances of amount to sister concerns. The assessee company has obtained unsecured loan from M/s. Paramasivam Palaniswamy Charitable Trust Rs. 15,23,50,925/- and advanced Rs. 15,79,74,865/- to M/s. Maharaja Industries. Further the assessee company claimed interest expenses on loan obtained from the Trust Rs. 2,70,13,135/- in the books of accounts, whereas assessee company has not charged any interest on loan advance to M/s. Maharaja Industries.
:- 3 -: ITA No.1334/Mds/2016
4. The assessee has passed entries in the book of Accounts for Rs. 2,70,13,135/- as in the normal course of business operations and allowed under provisions of section 37(1) of the Act. The Assessee Officer on perusal of the information and the records found that the assessee company has not utilized loan for even a single day and assessee company provided interest free advance to M/s. Maharaja Industries, sister concern in which Shri Paramasivam having business interest. The Assessing Officer having not satisfied with the explanations concluded that the claim of interest of Rs. 2,70,13135/- cannot be allowed as the assessee company was used as an accommodator of loan routed through books of the accounts. The Assessing Officer, with these observations on the accommodation entries and loan was not utilized for the business purpose activities and disallowed the interest on loan Rs. 2,70,13,135/- along with other additions and determined the total in loss of Rs. 2,61,17,528/- vide order U/s 143(3) of the Act dated 20.03.2015.
5. Aggrieved by the order the assessee has filed an appeal before the CIT(A). The ld. AR of the assessee argued grounds and reiterated the submissions made in the assessment proceedings and findings of the Assessing Officer. The ld. CIT(A) found that the assessee company has advanced interest free loan to sister concerns and the nexus between the borrowed funds and interest free advance has been ascertained and further the opening balance of funds available should be reduced or excluded for the purpose of disallowance of interest, the ld. CIT(A) has calculated interest at :- 4 -: ITA No.1334/Mds/2016 16% on the opening balance of Rs. 5,94,13,110/- and observed that interest free funds available with the assessee company should not be considered for disallowance and excluded an amount of Rs. 95,10,256/- from the total interest disallowance of Rs. 2,70,13,135/- and restricted the disallowance to the balance amount and partly allowed the appeal.
6. Aggrieved by the order of the CIT(A), the Revenue has assiled an appeal before the tribunal. The ld. DR argued the grounds and explained the facts that the Assessing Officer has verified the financial statements and the loan obtained from the trust and there is a disparity in the opening balance and the closing balance of funds as dealt by ld. CIT(A). The Assessing Officer has established nexus between the borrowed funds from the trust and interest free loan to sister concern in assessment order. The assessee has not submitted the information in assessment proceedings or in appellate proceedings where the Borrowing funds have been utilized and could not demonstrate that the interest bearing funds have been utilized for the Business activities for claim of deduction. The learned CIT(A) has overlooked these material facts and partly allowed the grounds of the assessee. The action of the ld. CIT(A) is not contrary to the law and facts and prayed for setting aside of the order of the CIT(A) and allow the appeal.
7. Contra, the ld. AR of the assessee submitted that the interest on loan pertains to the business activities of the assessee in the ordinary course of :- 5 -: ITA No.1334/Mds/2016 business wholly and excessively for the purpose of Business and relied on order of CIT(A) and prayed for dismissing the appeal of the revenue.
8. We heard the rival submissions and perused material on record. The sole grievance of the revenue that the ld. CIT(A) has erred in granting the proper proportionate relief on disallowance of interest. The ld. CIT(A) has relied on the submissions of the assessee inspite of the contradicting facts that the assessee could not establish were the borrowed funds are utilized for the purpose of business activities and operations. The ld. AR submitted that the loan was obtained in the normal course of business and the interest has been charged by the lender trust and the same was paid. The trust has offered interest income in their assessment. We on perusal of the findings of the ld. CIT(A) and the Assessing Officer found that the assessee has not establish with evidence of borrowed funds used for the purpose of business but provided interest free advance to sister concern. Further there is ambiguity whether funds are genuinely utilized for allowing the claim of interest. We rely on Judicial decision of Commissioner of Income Tax Vs Abhishek Industries, (286 ITR001) (P&H) where the Hon'ble High Court has dealt on the provisions of 36(1)(iii) of the Act in a situation where the interest free loans were provided to the sister concerns and the assessee could not establish that the own funds were diverted to related concerns. Considering the apparent facts and Judicial decision we set aside the order of CIT(A) and remit the entire disputed issue to the file of Assessing Officer for fresh adjudication and the :- 6 -: ITA No.1334/Mds/2016 assessee should be provided adequate opportunity of hearing before passing the order on merits.
9. In the result the appeal of the revenue is allowed for statistical purpose.
Order pronounced on Wednesday, the 2nd day of November, 2016 at Chennai.
Sd/- Sd/-
(चं# पज
ू ार ) (जी. पवन कुमार)
(CHANDRA POOJARI) (G. PAVAN KUMAR)
लेखा सद'य/ACCOUNTANT MEMBER या यक सद'य /JUDICIAL MEMBER
चे नई/Chennai
)दनांक/Dated: 2nd November, 2016.
JPV
आदे श क ! त-ल.प अ/े.षत/Copy to:
1. अपीलाथ /Appellant 2. !"यथ /Respondent 3. आयकर आयु0त (अपील)/CIT(A)
4. आयकर आय0 ु त/CIT 5. .वभागीय ! त न5ध/DR 6. गाड8 फाईल/GF