Allahabad High Court
The Commissioner Of Income Tax And ... vs M/S Jindal Polyester & Steel Ltd. on 30 October, 2015
Bench: Tarun Agarwala, Vinod Kumar Misra
HIGH COURT OF JUDICATURE AT ALLAHABAD
AFR
Income Tax Appeal No.762 of 2007
Commissioner of Income Tax and another ........ Appellants
Vs.
M/s Jindal Polyester & Steel Ltd. ........ Respondent
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Hon'ble Tarun Agarwala, J.
Hon'ble Vinod Kumar Misra, J.
(Per: Tarun Agarwala, J.)
The present appeal relates to the assessment year 1993-94. The assessee has three units, namely, manufacture of steel pipes and tubes, manufacture of polyester filament yarn and a unit for conversion of fibre into Drawn Beamed Synthetic Yarn known as WDS unit. Interest free advance was given by the assessee to its sister concern and claimed interest in profit and loss account, which was apparently disallowed by the Assessing Officer under Section 36(1)(iii) of the Income Tax Act, 1961 (hereinafter referred to as the Act). The Assessing Officer while making the assessment order found that the assessee had not been able to prove that the disputed part of the amount taken from the bank was used for business purposes or that the advance given to the sister concern was made for the purpose of business. The Assessing Officer held that the advance given to the sister concern was not for business purposes and that the money advanced to the sister concern was given after taking a loan from the bank, inasmuch as there was a debit of balance at the time of advancing the loan. The Assessing Officer, accordingly, did not accept the interest claimed by the assessee in the profit and loss account and disallowed part of the interest under Section 36(1)(iii) of the Act. The assessee, being aggrieved, filed an appeal, which was partly allowed. Thereafter, the assessee as well as the department filed an appeal before the Tribunal. The appeal of the department was dismissed and the appeal of the assessee was allowed in part, against which the present appeal under Section 260A of the Act has been filed by the department praying that seven questions of law arises for consideration. One of them is "whether the Tribunal was justified in deleting the disallowance made by the Assessing Officer towards part of interest under Section 36(1)(iii) of the Act".
The Tribunal deleted the said disallowance on the ground that there was a cash profit of Rs.10.78 crores, whereas the advance was only to the extent of Rs.6,07,925/-. The Tribunal further found that there was a mixed pool of funds and, therefore, there was a presumption that interest free funds had been utilized to make the advances to its sister concern and, therefore, it cannot be presumed that only borrowed funds were utilized in making advances. The Tribunal also found that in the past, the assessee was also a beneficiary of advances given by its sister concern.
After hearing Sri Shubham Agrawal, the learned counsel for the income tax department and Sri Rupesh Jain along with Sri R.S. Agarwal, the learned counsel for the assessee, we are of the opinion that the order of the Tribunal is patently erroneous and cannot be sustained. The Assessing Officer had given a categorical finding that the advance given by the assessee to its sister concern was not for business purposes. The Tribunal has not given any finding on this aspect, which is relevant and crucial to the issue. The Tribunal has committed error in holding that since there was a mixed pool of funds, there was a presumption that interest free funds had been utilized to give the advances without considering the fact that there was a categorical finding that there was a debit balance in the assessee's account on the date when the loan were advanced and, accordingly, the presumption is that funds were taken from the bank and, thereafter, advanced to the sister concern. The Tribunal has conveniently ignored to give a finding on this aspect and has presumed that interest free funds have been utilized since the assessee had a cash profit of Rs.10.78 crores. The Tribunal further erred in holding that advance to the extent of Rs.6,07,925/- was given, which is wholly incorrect, inasmuch as the advance to the extent of Rs.6,87,11,502/- were given and that too at the time when there was a debit balance in the assesse's account. We are of the opinion that the date when the loan was given is the crucial date and it has to be seen whether surplus funds were available with the assessee on that date.
In our opinion, showing cash profit at the end of the year is immaterial. In our opinion, cash balance as on the date of giving the advance is required to be seen. The Tribunal should have considered the whether the loan advanced was given by way of commercial expediency and should have also examined the purpose for which the loan had been given. In this regard, we fully agree with the decision of the Supreme Court in S.A. Builders Ltds. Vs. Commissioner of Income Tax (Appeals) and others, 288 ITR 1.
In the light of the aforesaid, the order of the Tribunal cannot be sustained and is quashed. The matter is remitted to the Tribunal to redecide the matter in the light of the observation made aforesaid. Since the appeal is being allowed on this short ground and the matter is being remitted to the Tribunal, all other questions, which were raised by the appellant would be reconsidered by the Tribunal.
Date: 30.10.2015
Bhaskar
(Vinod Kumar Misra, J.) (Tarun Agarwala, J.)
