M/s Vibhava Industries v. The Joint Commissioner of Income-tax, Range-3, Bangalore
[Citation -2016-LL-0916-154]

Citation 2016-LL-0916-154
Appellant Name M/s Vibhava Industries
Respondent Name The Joint Commissioner of Income-tax, Range-3, Bangalore
Court ITAT-Bangalore
Relevant Act Income-tax
Date of Order 16/09/2016
Assessment Year 2011-12
Judgment View Judgment
Keyword Tags development of software • business expediency • purchase of land
Bot Summary: CIT(A) erred in law and on facts in holding that the advances given to software engineers are not for business purpose. CIT(A) erred in law and on facts in disallowing the interest on the advances given to software engineers even though the appellant has received interest on such funds. CIT(A) erred in law and on facts in disallowing the interest on the advance given to Mr. Yashkaran Singh on the ground that it is repaid in the subsequent years even though the advance was paid for business purposes. CIT(A) erred in law and on facts in disallowing the interest on the advance given to Mr. D.A.Ratan on the ground that such an advance is very high even though the advance was paid for business purposes. CIT(A) denied the explanation of the appellant that the interest free funds available are more than the advance made to all the parties. Regarding remaining grounds, he submitted that software engineers to whom the money was advanced were working for the assessee and therefore, the advance are for business expediency and hence, this addition made by the A. O. is not justified in respect of such interest free advances. In my considered opinion, all these advances are on account of business expediency and therefore, interest on borrowings for giving 5 ITA Nos.492(Bang)2016 these advances cannot be disallowed.


IN INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH SMC , BANGALORE BEFORE SHRI A.K.GARODIA, ACCOUNANT MEMBER ITA No.492(Bang) 2016 (Assessment year : 2011-12) M/s Vibhava Industries, Centre Point, Opp : Sanjevani Press NCM, Hubli Pan No.AADFV3065F Appellant Vs Joint Commissioner of Income Tax, Range-3, Bangalore Respondent Assessee by : Shri S. Ramasubramanian, CA Revenue by : Shri Tshering Ongda, JCIT Date of hearing : 10-08-2016 Date of pronouncement : 16-09-2016 ORDER PER A. K. GARODIA, A. M.: This is assessee s appeal directed against order of ld. CIT(A), Hubli dated 30-11-2015 for assessment year : 2011-12. 2.The assessee has raised following grounds: 1. That order of ld.CIT(A) in so far it is prejudicial to interest f appellant, is bad and erroneous in law and against facts and circumstances of case. 2. That order u/s 143(3) passed by JCIT, Range-3, Hubli is without jurisdiction as jurisdiction was already assumed by ITO, Ward-3(2), Hubli. 2 ITA Nos.492(Bang)2016 3. That ld. CIT(A) erred in law and on facts in holding that advances given to software engineers are not for business purpose. 4. That ld. CIT(A) erred in law and on facts in disallowing interest on advances given to software engineers even though appellant has received interest on such funds. 5. That ld. CIT(A) erred in law and on facts in disallowing interest on advance given to Mr. Yashkaran Singh on ground that it is repaid in subsequent years even though advance was paid for business purposes. 6. That ld. CIT(A) erred in law and on facts in disallowing interest on advance given to Mr. D.A.Ratan (supplier of raw material) on ground that such advance is very high even though advance was paid for business purposes. 7. That ld. CIT(A) ought to have held that advanc3es given to AICE India (P)Ltd., and B.R.Patil is for purpose of business. 8. That ld. CIT(A) denied explanation of appellant that interest free funds available are more than advance made to all parties. Each of above grounds is without prejudice to one another and appellant craves leave of Hon ble IT^AT, Bangalore to add, delete, amend or otherwise modify one or more of above grounds either before or at time of hearing of this appeal . on ought not have given adequate opportunity to appellant to produce Sri Sameer Arora before AO. Thus, addition made has to be deleted. 3 ITA Nos.492(Bang)2016 6. ld. CIT(A) erred in confirming interest u/s 234A, 234B and 234C of Act. 7. Without prejudice, additions are excessive, arbitrary and unreasonable and ought to be deleted. 8. For these and other grounds that may be urged at time of hearing of appeal, appellant prays that appeal may be allowed . 3. It was submitted by ld. AR of assessee that ground no.1 is general and ground no.2 is not pressed. Accordingly, ground no.2 is rejected as not pressed. 4. Regarding remaining grounds, he submitted that software engineers to whom money was advanced were working for assessee and therefore, advance are for business expediency and hence, this addition made by A. O. is not justified in respect of such interest free advances. Reliance has been placed by him on judgment of Hon ble Karnataka High Court rendered in case of CIT Vs Sridev Enterprises as reported in 192 ITR 165. 5. ld. DR of revenue supported orders of authorities below. 6. I have considered rival submissions. I find that it is noted by AO on page no.2 & 3 of assessment order that advances were given to various parties with whom assessee does not have regular business transaction. On page-8 of order of held. CIT(A), it is noted 4 ITA Nos.492(Bang)2016 by ld.CIT(A) that amounts given to two software engineers of Rs.5.00 lakhs are stated to be advances pending settlement of their bills. ld. CIT(A) held that this is not acceptable without giving any valid reasons for same. Ld. CIT(A) further stated that assessee has not proved that these two engineers have exclusively worked for assessee in development of software for them and assessee may be one of customers of these engineers and these persons are involved in development of various software to sell in open market for profit. Even if this observation of ld.CIT(A) is true then also, it cannot be said that advances in question are without business expediency. It is settled position of law now that if interest free advances are given for business expediency, interest on borrowing to give such advances cannot be disallowed. This was so held by Hon ble Apex Court in case of SA Builders reported in 288 ITR 1. 7. Regarding advances of Rs.25.00 lakhs to Shri Yashkaran Singh, this is case of assessee that this amount was given to him for purchase of land for firm. Regarding payment of Rs.32.00 lakhs to Shri D.A.Ratan, it is statement of assessee that this person is supplier of raw materials. Regarding advances to AICE India (P)Ltd., and Shri B.R.Patil, it was contention of assessee that advances to these persons were given to get more business from them because they are dealers of assessee s goods. 8. In my considered opinion, all these advances are on account of business expediency and therefore, interest on borrowings for giving 5 ITA Nos.492(Bang)2016 these advances cannot be disallowed. Accordingly, I delete disallowances and ground no. 3 to 7 are allowed. 9. In result, appeal of assessee is partly allowed. Order pronounced in open court on date mentioned on caption page. (A.K. GARODIA) ACCOUNTANT MEMBER Bangalore: D t e d : 16.09.2016 am* Copy to : 1 Appellant 2 Respondent 3 CIT(A)-II Bangalore 4 CIT 5 DR, ITAT, Bangalore. 6 Guard file By order, AR, ITAT, Bangalore 6 ITA Nos.492(Bang)2016 1. DATE OF DICTATION 2. , , DATE ON WHICH TYPED DRAFT IS PLACED BEFORE DICTATING MEMBER .. 3. . / DATE ON WHICH APPROVED DRAFT COMES TO PS/Sr.PS . 4. DATE ON WHICH ORDER IS PLACED BEFORE DICTATING MEMBER FOR PRONOUNCEMENT 5. . / . . DATE ON WHICH ORDER COMES BACK TO PS/Sr.PS .. 6 DATE OF UPLOADING ORDER ON WEBSITE .. 7. , IF NOT UPLOADED, FURNISH REASON FOR DOING SO . 8. DATE ON WHICH FILE GOES TO BENCH CLERK .. 9. / DATE ON WHICH ORDER GOES FOR XEROX &ENDORSEMENT 10. DATE ON WHICH FILE GOES TO HEAD CLERK 11. DATE ON WHICH FILE GOES TO ASSISTANT REGISTRAR FOR SIGNATURE ON ORDER . 12. DATE ON WHICH FILE GOES TO DESPATCH SECTION FOR DESPATCH OF TRIBUNAL ORDER 13. DATE OF DESPATCH OF ORDER . M/s Vibhava Industries v. Joint Commissioner of Income-tax, Range-3, Bangalore
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