TMI Blog2010 (1) TMI 1173X X X X Extracts X X X X X X X X Extracts X X X X ..... taxed under the scheme of the Act is the real income and not the notional income as has been done by ld. AO. 5. Both the lower authorities have erred in law and on facts in passing the orders without properly appreciating the fact and that he further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of both the authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 6. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld. AO in levying interest u/s 234B/C/D of the Act. 7. The learned CIT(A) has erred in law and on facts of the case in initiating penalty proceedings u/s 271(1)(c) of the Act. 2. The facts of the case are that the assessee is a Private Limited Company engaged in the manufacturing of textile machinery and its spare parts. The only issue involved in this appeal is addition in respect of interest disallowed by the AO out of interest paid on borrowed capital for the reason that the assessee has not charged any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad Bench-B in the case of DCIT vs. Core Health Care Ltd. [ITA No.85 and 86/Ahd/2007 for AYs 1996-97 and 1997-98, decided on 16-10-2009] for the proposition that once the assessee has surplus reserves and capital and interest free funds, then the onus shifts on the Revenue. Against this, the learned DR relied on the order of the authorities below. 7. We have considered the rival submissions and perused the material on record. In our considered view, the assessee deserves to succeed. The position of advances to three parties is as under: (i) M/s Kinariwala RJK Industries Rs.37,23,804/- (ii) Utkarsh Finscap Pvt. Ltd. Rs.21,45,711/- (iii) Kinariwala Spinners Ltd. Rs.61,92,329/- It is undisputed fact that the assessee has trading transactions with M/s Kinariwala RJK Industries and balances outstanding are trade balances. It is not shown by the Revenue that there is an agreement with this party that the assessee will charge interest on outstanding debit balances. What is sought to be disallowed is interest pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the conclusion that even if the order of the Assessing Officer is upheld, the income of the assessee would be negative and, therefore, the tax effect would be certainly less than ₹ 1 lakh. On this basis, the Tribunal declined to entertain the appeal. That is how the revenue is before us under section 260A of the Income-tax Act, 1961. 5. We are in agreement with the view of the Tribunal that even if the order of the Assessing Officer is upheld the tax recovery so far as the revenue is concerned would be nil. In the event the question has any impact on subsequent years, we leave it open to the revenue to raise it in the succeeding years, if need arises. 6. Learned counsel for the revenue submits that the tax effect is not required to be seen but the tax effect on the issue involved is to be seen. This precisely what the Tribunal has done. We do not find any error in the view taken by the Tribunal. This judgment was followed by ITAT, Ahmedabad Bench in DCIT Vs. Sanbhav Media Limited ITA No. 2733/A/2006, assessment year 2003-04 pronounced on 24-04-2009, wherein, it is held that if returned income and assessed income both are negative, then appeal filed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Ahd), V. Sh hibaug Enterprises v/s CIT 49 TTJ 554 (Ahd) and VI. Torrent Financiers V/s CII 73 TTJ 624 (Ahd) VII. CIT V/s Alok Paper Industries 138 JTR 729 VIII. R. V. Joshi V/s CIT-- 251 ITR 332 'M.P.) 14. We have heard Ld. A.R. and Ld. D.R. The Ld. D.R. submitted that assessee failed to establish nexus between interest free funds and interest free advances given to related persons. On the other hand Ld. A.R. submitted that no such disallowances were made in respect of advances to first 2 persons viz. Shri Chandubhai Patel and Kokilaben Tejani to whom advance in earlier year were also given. Secondly, Shri. Manish Tejani is employee of the company and advance is given to staff. Thirdly, assessee has sufficient interest. free funds as stated before the Learned Commissioner of Income Tax(Appeals). Following additional decisions support the case of the assessee. Torrent Financiers V. ACIT (2001) 73 TTJ624 (AHD) CIT. PREM HEA VY ENGG. WORKS (P.) LTD. (2006) 285 ITR 554 CIT. BRITAPINIA INDUSTRIESLTD. (2006) 280 JTR 525 (CAL) CIT V. Radico Khaitan Ltd. (2005) 274 ITR 354 (All) CIT v. TIN BOX CO. (2003) 260 ITR 637 (DEL) Munjal S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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