Income Tax Appellate Tribunal - Pune
Deputy Commissioner Of Income-Tax,, vs Jain Irrigation System Ltd.,, Jalgaon on 20 December, 2018
आयकर अपील य अ धकरण "बी" यायपीठ पण
ु े म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, PUNE
BEFORE SHRI R.S. SYAL, VP AND
SHRI PARTHA SARATHI CHAUDHURY, JM
आयकर अपील सं. / ITA No.1183/PUN/2016
नधा रण वष / Assessment Year : 2005-06
The Deputy Commissioner of Income Tax,
Circle-2, Jalgaon.
.......अपीलाथ / Appellant
बनाम / V/s.
Jain Irrigation Systems Ltd.,
Jain Pipe Nagar, Plastic Park,
N.H. : 6, Bambhori,
Dist- Jalgaon-425 001
PAN : AAACJ7163Q
...... यथ / Respondent
Assessee by : Shri Prashant Maheshwari
Revenue by : Shri Sudhendu Das
सन
ु वाई क तार ख / Date of Hearing : 20.12.2018
घोषणा क तार ख / Date of Pronouncement : 20.12.2018
आदे श / ORDER
PER PARTHA SARATHI CHAUDHURY, JM :
This appeal preferred by the Revenue emanates from the order of CIT(Appeal)-2, Nashik dated 11.03.2016 for the assessment year 2005-06 as per following grounds:
"1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of Rs.1,26,66,295/- made on account of interest on the interest free loan of Rs.10,55,52,465/-2 ITA No. 1183/PUN/2016
A.Y.2005-06 given for the properties taken on rent from the directors and their relatives.
2. On the facts and circumstances of the case and in law, the order of the Ld.CIT(A) be cancelled on the above issue and that of the A.O. be restored.
3. The appellant craves leave to add, alter, modify, delete amend any of the grounds with prior permission of the Hon'ble Pr.CIT, as per the circumstances of the case.
4. The appellant prays to file any of the additional evidence appropriate to the grounds taken in appeal, with prior permission of the Hon'ble Pr. CIT, as per the circumstances of the case."
2. The facts of this case are that scrutiny assessment was completed and an order u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') was passed on determining total income of Rs.33,00,62,916/-. After set off of brought forward business loss of Rs.34,15,32,064/- of A.Y.1997-98, loss was assessed at Rs.1,14,69,148/- which was not allowed to be carried forward. Further, during the scrutiny assessment proceeding for A.Y.2008-09, it was noticed by the then Assessing Officer, that the assessee company has given an amount of Rs.10,52,52,465/- as deposits to the directors, their relatives and associated concerns for taking their properties on rent. Not only substantial deposits have been given but also exorbitant rent has been paid to these persons. The Assessing Officer also found that the borrowed funds have been diverted for giving deposits and simultaneously paid interest on borrowed funds. Therefore, the case was reopened u/s.148 of the Act on the fact that the assessee has given interest free advances to its directors and family members of the directors. Accordingly, assessment was completed and an order u/s.143(3) r.w.s.147 of the Act was passed on 28.03.2013 determining the total income at Rs.34,04,70,447/-. After set off of brought forward business loss, assessed income become Nil.
3ITA No. 1183/PUN/2016
A.Y.2005-06
3. During scrutiny assessment proceedings, the Assessing Officer has worked out the amount of interest of Rs.1,26,66,295/- i.e. @12% on interest free deposits of Rs.10,55,52,465/- given for the properties taken on rent from the directors and their relatives and added to the total income.
4. That before the ld. CIT(Appeals), the assessee made elaborate submission mentioned as under :
"In support of addition of Rs.1,26,66,295/- on account of disallowance of interest on deposits in respect of property hired on rent, the appellant has raised following contentions:
1) The A.O. failed to appreciate that the appellant company had adequate own funds as on 31/03/2004 and 31/03/2005 amounting to Rs.272.99 crores and Rs.328.44 crores respectively in the form of share capital and reserves and surplus as per audited balance sheets which is much more than the interest free amount advanced for hiring the immovable property of Rs.10.55 crores. In view of the above facts disallowance of interest is not justified as laid down by Hon'ble Bombay High Court, in the case of CIT Vs. Reliance Utilities & Power Ltd. 313 ITR 340 (Born) and Pune ITAT, in the case of Dr. D.Y. Patil Pratisthan Vs. DCIT (2013) 154 IT] 320 (Pune).
2) The A.O. had made this disallowance without pointing out any direct nexus between borrowed funds and amount of interest free deposits.
3) The interest free deposits were given for hiring the immovable properties for the purpose of business in the ordinary course of business. The A.O. had not pointed out that the impugned property was used for non business purpose.
4) In respect of the impugned hired property for which deposit was given, 25% of rent paid was disallowed in the past and for the year under appeal and the said disallowance was accepted by the department by considering the same as fair and reasonable.
5) The impugned disallowance impliedly u/s.36(1)(iii) on notional basis in the hands of the tenant i.e. the appellant and also in the hands of owners on the ground of alleged deemed benefit u/s.2(24)(iv) is self contradictory and is not sustainable either on facts or in law.
6) The A.O. has not brought on record any evidence or comparable cases, showing that the property was hired by the appellant at excessive rent and excessive deposit compared to the market rate.
The rent paid and deposit given considering commercial expediency of the same and hence, disallowance is not justified. 4 ITA No. 1183/PUN/2016
A.Y.2005-06 In support of the above proposition the appellant had relied on following decisions:
i) S.A. Builders Ltd. Vs. CIT(A) & Anr. (2006) 206 CTR 631 (SC)
ii) Atherton ( H.M. Inspector of axes) Vs. British Insulated & Helsby cables Ltd. (1925) 10 Tax cases 155(HL)
iii) Eastern Investments Ltd. Vs. CIT (1951) 20 ITR 1 (SC)
iv) CIT Vs. Chandulal Keshavlal & Co. (1960) 38 ITR 601 (SC)
v) CIT Vs. Malayalam Plantations Ltd. (1964) 53 ITR 140
vi) CIT Vs. Birla Cotton Spg. & Wvg. Mills Ltd. (1971) 82 ITR 166(SC)"
The ld. CIT(A) after considering facts of the case , assessment order and the submissions made by assessee held as follows:
"6.2 I have carefully considered the facts of the case and rival contentions. On perusal of the same it has been noticed at the outset that the interest free funds available with the appellant company in the form of share capital and reserves was amounting to Rs.272.99 crores and Rs.328.44 crores as on 31.03.2004 and 31.03.2005 respectively which is much more than the interest free deposit of Rs.10.55 crores. The A.O. has also not brought on record any evidence showing direct nexus of borrowed fund and interest free deposits. Therefore, in view of the ratio laid down by the Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd. 313 ITR 340 (Bom.), the disallowance of interest of Rs.1,26,66,295/- is not justified.
Further the A.O. has not brought on record any evidence showing that the impugned property was not hired for business purpose. The AO has also not brought on record any comparable cases or evidence showing that the rent paid or deposits given for hiring the properties is excessive. In fact while making original assessment u/s.143(3) and also in earlier years the AO/department had accepted the disallowance of rent paid to the extent of 25% as excessive.
In view of the above facts and ratio laid down by various decisions relied on by the appellant, I am of the considered view that the A.O. is not justified in disallowing interest of Rs.1,26,66,295/-. The addition of Rs.1,26,66,295/- is therefore deleted."
5. We have perused the case record and heard the rival contentions. We find that the decision of ld. CIT(A) is passed on the ratio laid down by the Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Power 5 ITA No. 1183/PUN/2016 A.Y.2005-06 Ltd. reported as 313 ITR 340 (Bom.) and have held that the disallowance of interest of Rs.1,26,66,295/- is not justified. Further, we observe that on the basis of the same High Court decision, the Pune Bench of the Tribunal in ITA No.1070/PUN/2013 for assessment year 2008-09 in the case of Jain Irrigation Systems Ltd. Vs. DCIT, on the same issue has given relief to the assessee. The observation of the Tribunal is as under:
"16. We have heard the rival submissions and perused the material on record. The issue in the present grounds is with respect to disallowance of interest by holding that the deposits paid to the respective parties are excessive. It is an undisputed fact that in most of the cases, the deposits have been given by the assessee to the various parties in earlier years and during the year under consideration to some of the parties, further deposits have been given. It is also an undisputed fact that in the assessments framed u/s.143(3) of the Act for AY 2006-07 and 2007-08, no disallowance of the interest on account of the deposits being excessive and unreasonable was made by the AO. The total deposit given by the assessee upto the year, as per the details as given on page 134 of the Paper Book is Rs.13.26 crore as against which the availability of interest free funds in the form of Share capital and Reserves and Surplus as at the end of the financial year 31st March 2008 is in excess of Rs.965 crores indicating that the availability of interest free funds with the assessee to be far in excess of the amounts given on deposits. When the availability of interest free funds are far in excess of the amounts given as deposits, then as per the decision of Hon'ble Bombay High Court in the case of Reliance Utilities (supra), a presumption arises that the deposits are out of interest free funds and no interest bearing funds are utilized for making the deposits. The ratio of the aforesaid decision of Hon'ble Bombay High Court in the case of Reliance Utilities (supra) has been followed by the various benches of Pune Tribunal. Before us, Revenue has not brought on record any contrary binding decision in its support. We therefore following the ratio of the aforesaid decision rendered in the case of Reliance Utilities (supra) hold that in the present case, no disallowance of interest is called for. Thus, the grounds of the assessee are allowed."
Therefore, the proposition of law is very clear on the issue and as per factual parameters, once the assessee is having interest free funds as its reserves then if there is any interest free deposits made from that reserves, addition cannot be made in the hands of assessee. In this case, it is clearly indicated in facts on record that the assessee-company was having interest free funds in the form of share capital and reserves amounting to Rs.272.99 crores and Rs.328.44 crores as on 31.03.2004 and 31.03.2005 respectively 6 ITA No. 1183/PUN/2016 A.Y.2005-06 which is much more than the interest free deposits of Rs.10.55 crores. In view of the matter, relief granted by the ld. CIT(A) to the assessee is hereby sustained and grounds of appeal raised by Revenue are dismissed.
6. In the result, appeal of the Revenue is dismissed.
Order pronounced on 20th day of December, 2018.
Sd/- Sd/-
R.S. SYAL PARTHA SARATHI CHAUDHURY
VICE-PRESIDENT JUDICIAL MEMBER
पण
ु े / Pune; दनांक / Dated : 20th December, 2018. SB आदे श क! " त$ल%प अ&े%षत / Copy of the Order forwarded to :
1. अपीलाथ / The Appellant.
2. यथ / The Respondent.
3. The CIT(Appeal)-2, Nashik.
4. The Pr. CIT-2, Nashik.
5. "वभागीय %त%न&ध, आयकर अपील य अ&धकरण, "बी" ब*च, पण ु े / DR, ITAT, "B" Bench, Pune.
6. गाड- फ़ाइल / Guard File.
// True Copy // आदे शानस ु ार / BY ORDER, %नजी स&चव / Private Secretary आयकर अपील य अ&धकरण, पण ु े / ITAT, Pune.
7ITA No. 1183/PUN/2016 A.Y.2005-06 Date 1 Draft dictated on 20.12.2018 Sr.PS/PS 2 Draft placed before author 20.12.2018 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order