Shri Sunrendra Patwa, Indore V. The Assistant Commissioner of Income Tax 4(1), Indore

CO 27/IND/2010

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 6863 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 4 month(s) 14 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 16-09-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ARUN DEWAN
• Assessee Lawyers: S S SOLANKI
• Keywords: Salary income; Earning of tax free income
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : ADMPP7104M I.T.A.NO. 487 / IND /20 10 A.Y. : 2007 - 08 ACIT, SHRI SURENDRA PATWA, 4(1), VS 203, CITY CENTRE, INDORE. 57 0, M. G. ROAD, INDORE. APPELLANT RESPONDENT C.O.NO. 27/IND/2010 (ARISING OUT OF I.T.A.NO. 487/IND/2010) A.Y. : 2007 - 08 SHRI SURENDRA PATWA, ACIT, 203, CITY CENTRE, VS 4(1), 570, M. G. ROAD, INDORE. INDORE. APPELLANT RESPONDENT DEPART MENT BY : SHRI ARUN DEWAN, SR. DR ASSESSEE BY : SHRI S. S. SOLANKI, C.A. DATE OF HEARING : 09.11.2011 DATE OF PRONOUNCEMENT : 31 . 0 1 .201 2 O R D E R PER R. C. SHARMA, A.M. -: 2: - 2 THIS IS AN APPEAL FILED BY THE REVENUE AND CROSS OBJECTION FILED BY THE ASSESSEE AGAINST THE ORDER O F CIT(A)-II, INDORE, DATED 29.03.2010 FOR THE ASSESSMENT YEAR 2 007-08. 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ORDER OF THE LD. CIT(A)-II, INDORE, IS CONTRARY TO THE FACTS AND LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)-II, INDORE, ERRED IN GIVING RELIEF O F RS. 38,36,236/- RELATED TO INTEREST PAID AND DIVERSION OF INTEREST BEARING LOANS INTO INTEREST FREE ADVANCES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A)-II, INDORE, ERRED IN GIVING RELIEF O F RS. 65,000/- RELATED TO UNEXPLAINED DEPOSIT IN THE NAME OF TWO PERSONS, NAMELY, M/S. AKANSHA SHARMA AND SHRI SANJAY BALANI. 3. FOLLOWING GROUND HAS BEEN TAKEN BY THE ASSESSEE IN THE CROSS OBJECTION :- THAT THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TO THE -: 3: - 3 EXTENT OF RS. 16,83,519/-. AS PER THE FACTS OF THE CASE AND DECIDED CASE LAWS ON THIS ISSUE, TOTAL DISALLOWANCE OF RS. 36,83,519/- WAS REQUIRED TO BE DELETED BY LD. CIT(A). THE DISALLOWANCE SO MAINTAINED BEING ILLEGAL AND WRONG, THE SAME REQUIRE TO BE DELETED. 4. FACTS IN BRIEF ARE THAT THE ASSESSEE WAS ENGAGED I N SHARE TRADING ACTIVITY DURING THE YEAR AND WAS ALSO DIRECTOR IN VARIOUS COMPANIES AND HAS DRAWN REMUNERATION FROM S UCH COMPANIES AND WAS ALSO PARTNER IN PARTNERSHIP FIRM PATWA TRADE ENTERPRISES AND STAR CITY DEVELOPERS. THE ASSESSEE SHRI SURENDRA PATWA HAS CARRIED THE BUSINESS OF SHA RE TRADING. THE ASSESSEE IS ALSO DIRECTOR AND SHAREHOL DER IN SOME OF THE COMPANIES AND ALSO PARTNERS IN THE FIRMS. TH E ASSESSEE IS KEY PERSONNEL IN THESE COMPANIES AND FIRMS, LOOK S AFTER ALL THE MANAGEMENT & FINANCIAL AFFAIRS OF THE COMPANIES AND FIRMS. HE IS ALSO RESPONSIBLE TO ARRANGE THE FINANC E FOR THESE COMPANIES & FIRMS. THE ASSESSEE HAS TAKEN THE FUND BY WAY OF LOANS & DEPOSITS AND GIVEN TO VARIOUS SISTER CON CERN WITH -: 4: - 4 AND WITHOUT INTEREST. THE ASSESSEE HAS PAID INTERES T OF RS. 43,90,674/- AND RECEIVES THE INTEREST RS. 5,34,438/ -. IN COMPUTATION OF THE TOTAL INCOME, THE LD. ASSESSING OFFICER DISALLOWED THE EXCESS INTEREST OUT FLOW OF RS. 38,3 6,236/-. 5. BY THE IMPUGNED ORDER, THE LD. CIT(A) DELETED PART OF THE DISALLOWANCE OF INTEREST EXPENDITURE AFTER HAVI NG THE FOLLOWING OBSERVATIONS :- 4. FACTS ON RECORD, FINDINGS GIVEN BY THE AO AND THE CONTENTIONS PUT FORWARD BY THE APPELLANT ARE VERY CAREFULLY TAKEN INTO CONSIDERATION. 4.1 THE APPELLANT DURING THE YEAR HAD RECEIVED SALARY OF RS.6 LAKHS EACH FROM PATWA MARKETING PVT. LTD. AND URVARAK ABHIKARAN NEEMUCH PVT. LTD, INDORE AND RS.3 LAKHS FROM J.V. MODI SECURITIES LTD. BESIDES, THE APPELLANT HAS DISCLOSED LOSS IN SHARE TRADING BUSINESS AS PER P&L A/C AFTER ADJUSTMENT O F STT PAID AT RS.91,911/- AT RS.25,60,867/- WHICH HAS BEEN FURTHER IN CREASED BY INTEREST -: 5: - 5 FROM BANK, FDR, BOND, RECURRING DEPOSIT AND MIS AND S HARE PROFIT FROM PATWA TRADE ENTERPRISES (RS.8697 CLAIMED EXEMPT U/S 10(2A) WHICH HAS BEEN SEPARATELY CONSIDERED AS INCOME FROM OTHER SOURCES. THE APPELLANT HAS FURTHER CLAIMED SET-OFF OF LOSS TO THE EXTENT OF RS.1,50,OOO/- FROM SALARY INCOME FOR INTEREST ON HOUSING LOAN AND BUSINESS LOSS HAS BEEN SET OFF AGAINST INCOME FROM OTHER SOURCES AT RS.2,31,441/- AND GROSS TOTAL INCOME HAS BEEN ARRIVED AT RS.13,47,500/- WHEREFROM DEDUCTION UNDER CHAPTER VIA IS CLAIMED, ARRIVING AT TOTAL INCOME OF RS. 12,39,430/-. 4.1.1 THE ANALYSIS OF TRADING AND P&L A/ C FILED FURTHER REVEAL THAT THE APPELLANT HAD OPENING STOCK OF SHARES VALUED AT RS. 58,22,441/- AND FURTHER PURCHASES WERE MADE AT RS. 5,46,48,681/- AND THE SALES OF -: 6: - 6 SHARES DURING THE YEAR STOOD AT RS. 4,59,56,062/- AND CLOSING STOCK OF SHARES LEFT WITH THE APPELLANT STOOD AT RS. L,59,43,233/- ARRIVING AT GP AT RS. 14,28,172/-. PROCEEDING FURTHER ON THE INCOME SIDE, THE APPELLANT HAS REFLECTED INTEREST RECEIVED AS INTEREST FROM BANK AT RS.41,027/-, OTHER INTEREST RECEIVED RS. 5,34,438/- (AS CONSIDERED BY AO) AND INTEREST ON FDR AT RS. L,11,690/-. COMING TO THE EXPENSES SIDE OF P&L A/C, APART FROM COMMISSION AND BROKERAGE AND STT ETC., CLAIMED IN CONNECTION WITH SHARE TRADING ACTIVITY, THE MAJOR COMPONENT IS INTEREST PAID TO BANK AT RS.18,03,747/- AND OTHER INTEREST PAID AT RS. 25,86,927/- RESULTING IN NET LOSS OF RS.26,61,475/-. 4.1.2 THE FINANCIAL POSITION AS PER BALANCE SHEET AS NOTED BY AO STANDS AS UNDER:- -: 7: - 7 BALANCESHEET AS ON 31 ST MARCH 2007 LIABILITIES SCH NO. AMOUNT ASSETS SCH NO. AMOUNT CAPITAL 1 13,03,740.19 FIXED ASSETS LAND AT KHAJRANA 1,30,670.00 PLOT AT SHANTI NAGAR 1,44,937.50 RESIDENTIAL HOUSE 50,16,937.00 LOAN FUNDS SECURED LOANS 2 5,13,09,375.36 UNSECURED LOANS 3 7,51,56,355.61 INVESTMENTS CURRENT LIABILITIES 4 26,408.78 EQUITY 14,21,000 PROVISIONS 5 10,000.00 OTHER INVESTMENT RS. 33,66,947.96 CURRENT ASSETS INVENTORY CLOSING STOCK 1,59,43,232.77 CASH AND BANK 7 64,59,519.20 OTHER CURRENT ASSETS TAX DEDCUTED AT SOURCE 4,17,413.00 LOANS AND ADVANCES (ASSETS) 8 7,31,22,159.02 TOTAL 12,78,05,879.941 12,78,05,879.94 4.2 IN THE ABOVE BACKDROP, AO'S FINDING AND VERSION THAT THE ENTIRE AMOUNT OF RS.38,36,236/- WAS BEING DISALLOWABLE AS NOT HAVING BEEN INCURRED FOR THE PURPOSE OF -: 8: - 8 APPELLANT'S BUSINESS CANNOT BE ACCEPTED A APPARENTLY, THE APPELLANT HAD CARRIED OUT BUSINESS ACTIVITY OF SHARE TRADING AND HAD SIZEABLE INVESTMENT IN SUCH BUSINESS ACTIVITY AND CLOSING STOCK OF SHARE STOOD AT RS.159.43 LAKHS AGAINST APPELLANT'S CAPITAL BALANCE OF RS.13 LAKH ONLY. FURTHER STILL, IN CONSIDERING SUCH DISALLOWANCE, AS RIGHTLY POINTED OUT BY APPELLANT, THE AO HAS IGNORED THE INTEREST RECEIVED FROM BANK AT RS.41,027/- AND INTEREST ON FDR AT RS.1,11,690/- AND AFTER BOTH THESE AMOUNTS ARE TAKEN INTO CONSIDERATION, NET INTEREST PAYMENT MADE BY THE APPELLANT WOULD STAND REDUCED TO RS.36,83,519/-. 4.3 THE LEGAL CONTENTIONS ADVANCED BY THE APPELLANT ABOUT THE ENTIRE INTEREST BEING ADMISSIBLE AS DEDUCTION ARE ALSO FOUND TO BE DEVOID OF ANY MERIT IN AS MUCH AS SIZEABLE INVESTMENT IS REFLECTED IN THE BALANCE SHEET -: 9: - 9 AS INTEREST FREE ADVANCES GIVEN BY THE APPELLANT AS CONSIDERED BY AO AT RS.455.09 LAKHS AND INVESTMENT IN EQUITY AND OTHER INVESTMENT FROM WHERE EXEMPT INCOME WAS EARNED BEING INSURANCE PREMIUM PAID AND PPF ACCOUNT ETC., AGGREGATING RS.47.88 LAKH. THE APPELLANT'S CONTENTION ARE AGAIN FOUND TO BE DEVOID OF MERIT IN VIEW OF SPECIFIC FINDINGS RECORDED BY AO IN THE ASSESSMENT ORDER ABOUT THE SIZEABLE AMOUNT ADVANCED TO STAR CITY CONSTRUCTION PVT. LTD AT RS.1.71 CRORE ON 23.11.06 FROM OD ACCOUNT OF SBI AND RS.30 LAKH FROM OD ACCOUNT FROM BANK OF BARODA ON 6.9.06. THE AO HAS ALSO FURTHER IDENTIFIED SPECIFIC AMOUNTS WHICH WERE ADVANCED BY DRAWING FROM BANK RESULTING IN DEBIT BALANCES IN BANK ACCOUNT ON ACCOUNT OF SUCH ADVANCES MADE AND THE SIGNIFICANT ADVANCES BEING MADE TO PATWA AUTOMOTIVES AT RS.66 LAKHS ON 4.7.06 AND RS.43.15 LAKHS GIVEN TO -: 10: - 10 STAR CITY CONSTRUCTION PVT. LTD ON 31.10.06 AND AGAIN RS.25 LAKHS TO THE SAME COMPANY ON 23.1.06. IN SUCH FACTS, THE AO HAS CLEARLY MADE OUT A CASE THAT HE APPELLANT HAS MADE ADVANCES/MADE INVESTMENT IN SISTER CONCERNS OUT OF INTEREST BEARING FUNDS, FROM WHICH NO INCOME WAS EARNED EXCEPT SALARY AND THUS THE AO HAS BY DETAILED ANALYSIS OF TRANSACTIONS APPEARING IN BANK ACCOUNT HAS ESTABLISHED THE NEXUS OF THE INTEREST BEARING BORROWED FUNDS TO. THE INTEREST FREE ADVANCES/INVESTMENT. 4.5 IN VIEW OF THE ABOVE FINDINGS AND DISCUSSION, THE WORKING GIVEN BY THE APPELLANT ANNEXED TO THE APPEAL ORDER AS ANNEXURE A, WHEREBY THE APPELLANT HAS ADJUSTED ENTIRE INTEREST-FREE LOANS TAKEN AGAINST INTEREST FREE INVESTMENT AND ADVANCES GIVEN RESULTING IN DISALLOWABLE -: 11: - 11 INTEREST AT RS.6,30,042/WORKED OUT ON AVERAGE RATE OF INTEREST AT 4.82% CANNOT BE GIVEN MUCH CREDENCE BECAUSE THERE IS NO DIRECT CO-RELATION OF INTEREST FREE FUNDS AVAILABLE WITH THE APPELLANT AND INTEREST FREE INVESTMENT /ADVANCES MADE. FURTHER, AS PER THE CHART OF INTEREST PAID ON VARIOUS LOANS, THE RATE OF INTEREST VARIED FROM 7.5 % TO 12.75 % FOR THE MAJOR AMOUNT OF LOANS AND IN TWO ISOLATED CASES OF SMALL AMOUNT OF INTEREST HAS BEEN PAID TO PRIVATE PARTIES OF 15% AND 16% ALSO. THUS, THE AVERAGE RATE OF INTEREST WORKED AT 5.82% ALSO DOES NOT APPEAR TO BE ANY WAY THE CORRECT RATE OF INTEREST. PROCEEDING FURTHER TO THE ANALYSIS OF ADVANCES MADE BY DRAWING FROM OD ACCOUNT FROM BANK OF BARODA, SBI, IT IS SEEN THAT ON SUCH OD ACCOUNT BALANCES, THE APPELLANT WAS REQUIRED TO PAY INTEREST OF 10-11% ONLY AND THE AMOUNTS HAVE BEEN LARGELY GIVEN IN -: 12: - 12 THE MONTH OF SEPTEMBER/ OCTOBER/ NOVEMBER AND ONWARDS. THUS, THE DISALLOW- ABLE INTEREST WILL BE REQUIRED TO BE PROPORTIONATELY WORKED OUT WITH REFERENCE TO THE INTEREST PAID BY THE APPELLANT ON SUCH UTILIZATION OF O. D. LIMITS. FURTHER SINCE, MAJOR AMOUNTS OF LOANS AND ADVANCES GIVEN INTEREST FREE ARE NOT SO GIVEN FOR BROADLY THE ENTIRE PER8IOD OF THE F.Y., THE INTEREST CANNOT BE WORKED OUT ON SUCH AMOUNT WITH REFERENCE TO THE AVERAGE RATE OF INTEREST PAID ON CLOSING BALANCE EITHER. THE TOTAL INTEREST PAID ON OD ACCOUNT STANDS AT RS.13.04 LAKHS TO BANK OF BARODA AND RS.3.98 LAKHS ON OD ACCOUNT WITH SBI. THUS, THE ENTIRE INTEREST PAID TO BANK ON OD ACCOUNT STANDS AT NEARLY RS.17 LAKH ONLY. 4.6 FINALLY, SUMMING UP, THE APPELLANT'S CONTENTION THAT INTEREST-FREE FUNDS WERE AVAILABLE AND WERE UTILIZED FOR MAKING INTEREST FREE INVESTMENT AND ADVANCES AND IN -: 13: - 13 ANY CASE, THERE WAS A COMMON POOL OF FUNDS AVAILABLE WHICH WAS UTILIZED FOR MAKING VARIOUS INVESTMENT /ADVANCES AS WELL UTILIZED IN BUSINESS ACTIVITIES AND HENCE DIRECT CO- RELATION/SEGREGATION MAY NOT BE POSSIBLE ALSO CANNOT BE TOTALLY IGNORED EITHER. THE APPELLANT AS PER FACTS ON RECORD HAD SIZEABLE INTEREST FREE FUNDS AT RS.344.45 LAKHS AGAINST INTEREST FREE ADVANCES AND INVESTMENT GIVEN STOOD AT RS.445.09 LAKHS AND FURTHER INVESTMENT IN EQUITY SECURITIES ETC., STOOD AT RS.47.88 LAKHS. THUS, TO A LARGE EXTENT LE NEARLY 50% SUCH INTEREST FREE INVESTMENT AND ADVANCES CAN BE FAIRLY HELD TO BE BROADLY FUNDED BY INTEREST-FREE LOANS ETC., AVAILABLE. HENCE, ON OVERALL CONSIDERATION OF FACTS AND CIRCUMSTANCES AS THE INTEREST AMOUNT DISALLOWABLE CANNOT BE WORKED OUT PRECISELY, THE AO'S ACTION IN MAKING DISALLOWANCE IS CONFIRMED TO THE EXTENT OF RS. 16,83,519/- -: 14: - 14 OUT OF NET INTEREST OUT GO AT RS. 36,83,519/- AND THE BALANCE DISALLOWANCE IS DIRECTED TO BE DELETED. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW WI TH REGARD TO DISALLOWANCE OF INTEREST. IN THE IMPUGNED ORDER AFT ER GIVING DETAILED FINDING WITH REGARD TO THE INTEREST FREE F UNDS AVAILABLE WITH THE ASSESSEE VIS--VIS THE INTEREST FREE INVES TMENT MADE BY HIM AND AFTER CONSIDERING THE INTEREST PAID TO T HE BANK ON O. D. ACCOUNT, THE CIT(A) HAS REACHED TO THE FINDIN G THAT INTEREST TO THE EXTENT OF RS. 16,83,519/- WAS REQUI RED TO BE DISALLOWED. THE DETAILED FINDING RECORDED BY THE LD .CIT(A) AS PER PARA 4 OF HIS APPELLATE ORDER COULD NOT BE CONT ROVERTED BY THE LD. SENIOR DR BY BRINGING ANY POSITIVE MATERIAL ON RECORD. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF CIT(A) FOR CONFIRMING DISALLOWANCE OF INTEREST TO THE EXTE NT OF RS. 16.83 LAKHS AND DELETE THE BALANCE. THE ADDITION MA DE ON ACCOUNT OF UNEXPLAINED DEPOSIT AT RS. 65,000/- WAS DELETED BY THE LD.CIT(A) AFTER HAVING THE FOLLOWING OBSERVATIO NS :- -: 15: - 15 5. COMING TO THE SECOND GROUND, THE ADDITION MADE BY AO AT RS. 65,000/- FOR UNEXPLAINED DEPOSIT IN THE NAME OF TWO PERSONS NAMELY MS. AKANKSHA SHARMA AND SHRI SANJAY BAFNA ARE NOT FOUND TO BE JUSTIFIED AND SUSTAINABLE IN THE FACTS OF THE CASE WHEN BOTH THESE AMOUNTS WERE RECEIVED THROUGH BANK AND THEIR CONFIRMATIONS WERE FILED GIVING PAN NUMBERS AND THE AMOUNTS INVOLVED NOT BEING HUGE OR SUBSTANTIAL. THE APPELLANT HAS PRIMA FACIE DISCHARGED THE ONUS CAST ON HIM U/S.68 OF THE I.T. ACT, BY FILING CONFIRMATIONS, AND IN THESE FACTS, THE ADDITIONS ARE NOT FOUND TO BE SUSTAINABLE AND ARE ACCORDINGLY DIRECTED TO BE DELETED. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FOUND FROM RECORD THAT MS.AKANSHA SHARMA AND SHRI SANJAY BAFNA HAVE DULY DISCHARGED THEIR ONUS CASTED U/S 68 WITH REGARD TO -: 16: - 16 DEPOSIT OF RS. 65,000/-. DETAILED FINDING HAS BEEN RECORDED BY THE LD.CIT(A) AT PARA 5 OF HIS APPELLATE ORDER, WHI CH HAS NOT BEEN CONTROVERTED BY THE LD. SENIOR DR BY BRINING A NY POSITIVE MATERIAL ON RECORD. WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) DELETING THE ADDIT ION OF RS. 65,000/- MADE U/S 68 OF THE INCOME-TAX ACT, 1961. 8. IN THE RESULT THE APPEAL OF THE REVENUE AND CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2012. (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 31 ST JANUARY, 2012. CPU* 31.1