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2006 DIGILAW 432 (MP)

Commissioner of Income Tax v. Gom Industries Ltd.

2006-03-23

A.M.SAPRE, ASHOK KUMAR TIWARI

body2006
Judgment ( 1. ) THIS is an appeal filed by the Revenue (IT Department) under Section 260a of the IT Act, against the orders dt. 27th May, 2003, passed by Tribunal in IT Appeal No. 235/ind/1998. This appeal was admitted for final hearing on the following substantial question of law: Whether, on the facts and in the circumstances of the case and in law the Tribunal was justified in deleting the addition of Rs. 1233625 on account of disallowance of interest under Section 36 (1) (iii) of the IT Act, especially when the interest-bearing fund was diverted for non-business purposes ? ( 2. ) IN short the question that arises for consideration in this appeal filed by the Revenue is whether Tribunal was justified in holding that assessee is entitled to get the benefit of Rs. 1233625 by way of interest accrued on a particular transaction which the AO had declined to grant to the assessee by adding the said amount in their total income in asst. yrs. 1995-96/1996-97. ( 3. ) THE assessee is a limited company engaged in the business of manufacture of resins and fatty acid. During the assessment year in question, it was noticed that assessee had advanced an amount of Rs. 6950000 to one Systematics Corporate Services Ltd. without charging any interest on the said amount. It is this transaction whose legality and genuineness was doubted by AO. In the opinion of AO, the transaction in question was not genuine and bona fide one and being bogus in nature, a sum of Rs. 12,33,625 was disallowed towards bank interest on account of interest-free advance to M/s Systematics Corporate Services. This finding of AO was challenged by assessee in appeal to CIT (A ). The CIT (A) upheld the finding of AO and dismissed the appeal. In further appeal by assessee to Tribunal, the same was allowed by the Tribunal. It was held on facts that transaction in question entered into by assessee with M/s Systematics Corporate Services Ltd. is genuine and proper. It was further held that once the transaction in question is held to be genuine, the same has got to be given effect to. As a consequence, the disallowance of interest to bank to the extent of Rs. It was further held that once the transaction in question is held to be genuine, the same has got to be given effect to. As a consequence, the disallowance of interest to bank to the extent of Rs. 12,33,625 paid by assessee under Section 36 (1) (iii) ibid was set aside and instead the assessee was allowed to claim the benefit of Section 36 (1) (iii) for claiming deduction towards payment of interest in respect of capital borrowed for the purpose of business. It is against this finding of Tribunal, the Revenue has come up in appeal. ( 4. ) HEARD Shri R. L. Jain, learned senior counsel with Ku. V. Mandlik, learned Counsel for the appellant and Shri S. R. Sarda, learned Counsel for the respondent. ( 5. ) HAVING heard learned Counsel for the appellant and having perused record of the case, we are inclined to dismiss the appeal and uphold the finding of Tribunal recorded on the issue in question. ( 6. ) THIS is how the Tribunal dealt with the issue in question in para 9 of the impugned order: Para 9. We have considered the rival submissions carefully and have gone through the relevant material on record. We find force in the contention of learned Authorised Representative. We find that assessee is manufacturer of resins and fatty acid is one of its raw materials, Assessee-company was contemplating to set up a unit for production of fatty acid. Advertisements were inserted in the newspaper calling for proposals for setting up of a plant accordingly. Project report/feasibility report was obtained from Tata Economic Consultancy Services, which is a very reputed company and it cannot be said that there was any collusion in obtaining such a report. We also find that assessee had put up a pilot project but somehow or other finally it was decided that new project should not be set up. In the meantime, assessee had reached an understanding, that Systematics Corporate Services Ltd. , with whom assessee had dealt earlier also in respect of its public issue, for putting up an industrial unit and advance was given in respect of that unit. In the meantime, assessee had reached an understanding, that Systematics Corporate Services Ltd. , with whom assessee had dealt earlier also in respect of its public issue, for putting up an industrial unit and advance was given in respect of that unit. We also find that while dealing with the matter of purchasing and leasing of gas cylinders, this Bench has taken a view that assessee had treated that transaction all along as genuine transaction and belief of the assessee was reasonable on the basis of various documents, like, insurance policies and payment by cheque to supplier of cylinders. Honble jurisdictional High Court has declined to interfere in this finding in CIT v. GOM Industries Ltd. (supra ). Even if there were doubts regarding credential of this particular transaction, which was entered into by a third party and Systematics Corporate Services Ltd. was intermediary in that transaction, it does not mean that assessee cannot enter into any other transaction with that company. The current transaction is independent and is a genuine transaction as is evident from the various documents filed on record. In these circumstances, there is no justification of disallowance of interest for a transaction entered into for the purpose of business. Thus, we set aside the order of learned CIT (A) and delete this addition. ( 7. ) MERE perusal of aforesaid para would indicate that Tribunal went into the factual aspects of the case and having examined the factual documents brought on record at the instance of assessee in support of the bona fide of the transactions in question, recorded a finding of genuineness of transaction. In other words, the Tribunal was satisfied on facts that transaction in question is not bogus but genuine. It could be entered into in the circumstances appearing and there is a reason for its entering by the assessee for their business with the company. ( 8. ) IN our opinion, the aforesaid finding being a finding of fact, this Court cannot upset such finding of fact in this appeal filed under Section 260a ibid. It could be entered into in the circumstances appearing and there is a reason for its entering by the assessee for their business with the company. ( 8. ) IN our opinion, the aforesaid finding being a finding of fact, this Court cannot upset such finding of fact in this appeal filed under Section 260a ibid. As a matter of fact, the question whether a particular transaction entered into by the assessee with particular person is essentially a question of fact and therefore, once any finding on either way is recorded by the Tribunal then the same is not liable to be interfered with by the High Court unless an error of law as contemplated under Section 260a ibid is pointed out. No such error is either pointed out or noticed. ( 9. ) IN our opinion, thus, the appeal really does not involve any substantial question of law within the meaning of Section 260a ibid. As observed supra, there is no question framed so as to enable this Court to examine the entire transaction in question de novo on facts. Firstly, it is not legally possible in this appeal. Secondly, no question of law is framed to permit us to do that exercise. Thirdly, no perversity as such is pointed out in the impugned finding and hence, this Court cannot interfere in the impugned finding of fact recorded by the Tribunal. ( 10. ) LEARNED counsel for the appellant placing reliance on a case reported in CIT v. Orissa Cement Ltd. (2002) 177 CTR (Del) 361 : (2002) 258 ITR 365 (Del) contended that impugned order is liable to be set aside. That case is distinguishable on facts. Once the Tribunal upholds the genuineness of transaction then in such event, the benefit of transaction has to be given to assessee. There is no prohibition in law that assessee can never advance the amount without charging any interest on the advance amount. Every transaction has got to be examined on its terms and conditions entered into between the parties and with a view to find out whether it is a genuine one, or not. In this case, the Tribunal did record a finding that it is genuine. Such finding as observed supra is binding on this Court. ( 11. ) ACCORDINGLY and in view of foregoing discussion, we are unable to notice any merit in this appeal. In this case, the Tribunal did record a finding that it is genuine. Such finding as observed supra is binding on this Court. ( 11. ) ACCORDINGLY and in view of foregoing discussion, we are unable to notice any merit in this appeal. As a result, the appeal fails and is dismissed. No costs.