The Dy. Commissioner of Income-tax, Jammu V. Sh. Harjinder Singh Raina, Jammu

CO 28/ASR/2014

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1373 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 3 month(s) 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 23-11-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 07-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 05-08-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: TARUN BANSL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH; AMRITSAR (SMC) BEFORE SH. A.D. JAIN, JUDICIAL MEMBER ITA NO.399(ASR)/2014 ASSESSMENT YEAR:2007-08 PAN: DEPUTY COMMISSIONER OF INCOME-TAX, VS. SH.HARJINDE R SINGH RAINA, CIRCLE-1, JAMMU. JAMMU. (APPELLANT) (RESPONDENT) C.O. NO.28(ASR)/2014 (ARISING OUT OF ITA NO.399(ASR)/2014) ASSESSMENT YEAR:2007-08 PAN: SH.HARJINDER SINGH RAINA, VS. DEPUTY COMMISSIO NER OF INCOME-TAX, JAMMU. CIRCLE-1, JAMMU. (APPELLANT) (RESPONDENT) DEPARTMENT BY:SH.TARSEM LAL, DR ASSESSEE BY:SH.TARUN BANSL, ADV. DATE OF HEARING: 07/11/2015 DATE OF PRONOUNCEMENT:23/11/2015 ORDER THIS IS THE DEPARTMENTS APPEAL FOR THE ASSESSMENT 2007-08, AGAINST THE ORDER DATED 26.03.2014 PASSED BY THE LD . CIT(A), JAMMU. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION. THE GR OUNDS TAKEN BY THE DEPARTMENT IN THE APPEAL ARE AS FOLLOWS: 1. WHETHER THE CIT(A), JAMMU WAS RIGHT IN LAW TO ALLOW RELIEF IN RESPECT OF ADDITION MADE ON ACCOUNT OF INTEREST PAID. 2. WHETHER THE CIT(A), JAMMU WAS RIGHT IN LAW TO A LLOW RELIEF IN RESPECT OF ADDITION MADE ON ACCOUNT OF DISALLOWA NCE OF PROPORTIONATE LAND DEVELOPMENT CHARGES. ITA NO.399(ASR)/2014 C.O. NO.28(ASR)/2014 2 2. APROPOS GROUND NO.1, THE AO MADE AN ADDITION OF RS.8,10,635/- ON ACCOUNT OF DISALLOWANCE OF INTEREST. HE OBSERVE D THAT THE ASSESSEE HAD RAISED UNSECURED LOANS FROM M/S. A.B. MOTOR FIN ANCE CORP. AND M/S. AADHAR MOTOR FINANCE CORPN., OF RS.18 LAKH AND RS.12 LAKH RESPECTIVELY, AND HAD PAID INTEREST OF RS.8,10,635/ -. THE ASSESSEES CONTENTION WAS REJECTED ON THE BASIS THAT THE ASSES SEE WAS SHOWING NET LOSS RETURN FROM FINANCE BUSINESS AND WAS HAVING HU GE CASH AMOUNT AVAILABLE WHICH COULD HAVE BEEN USED TO LIQUIDATE T HE LOANS; THE ASSESSEE COULD HAVE RAISED THE LOAN, THE LOAN OF BANK AND SQ UARED OF THE FINANCES FROM TWO AGENCIES; AND THAT THE ASSESSEE HAD MADE ADVANCES OF RS.88.6 LAKH FOR PURCHASE OF LAND. 3. THE LD. CIT(A) DELETED THE ADDITION. 4. THE LD. DR HAS CONTENDED THAT THAT THE LD. CIT(A ) HAS ERRED IN DELETING THE ADDITION, CORRECTLY MADE ON ACCOUNT OF INTEREST PAID, DESPITE THE FACT THAT THE ASSESSEE WAS HAVING HUGE CASH AVA ILABLE WITH HIM, WHICH WAS NOT UTILIZED TO LIQUIDATE THE LOANS; THA T THE ASSESSEE COULD HAVE RAISED LOAN FROM THE BANK AT LESSER RATE OF INTEREST WHICH WAS NOT DONE; THAT THE ASSESSEE HAD MADE HUGE ADVANCES OF RS. 88.6 LAKHS FOR THE PURCHASE OF LAND; THAT RS.88.6 LAKHS HAD BEEN I NVESTED, WHEREAS, NO INTEREST ACCRUED OR RECEIVED THEREIN, HAD BEEN SHOW N, LEADING TO THE CONCLUSION THAT THIS AMOUNT WAS INVESTED IN UNPRODU CTIVE INVESTMENT; AND THAT THE LOANS HAD BEEN RAISED AT AN EXORBITAN T RATE. ITA NO.399(ASR)/2014 C.O. NO.28(ASR)/2014 3 5. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE, HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER, CONTENDING, AS BEFORE THE AUTHORITIES BELOW THAT NEITHER OF THE LOANS IN QUE STION HAD BEEN TAKEN DURING THE YEAR UNDER CONSIDERATION, BUT WERE TAKEN DURING THE ASSESSMENT YEAR 2005-06 AND THEY STOOD UTILIZED ALS O IN THAT YEAR ONLY; THAT THE ISSUE AS TO WHETHER THESE LOANS WERE UTILI ZED FOR UNPRODUCTIVE INVESTMENT AND AS TO WHETHER THE INTEREST PAID @ 27 % WAS EXORBITANT, STANDS SPECIFICALLY DECIDED IN FAVOUR OF THE ASSESS EE BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 2005-06, WHEREIN, THE TRIBUNAL ACCEPTED THE LOANS TO HAVE BEEN TAKEN FOR THE PURPOSE OF BUSINESS IN C OMMERCIAL EXPEDIENCY AND INTEREST @ 27% TO BE REASONABLE; THAT LIKEWISE, FOR THE ASSESSMENT YEAR 2006-07 ALSO, THE TRIBUNAL DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE, AND IT IS THE ASSESSEE AND NOT THE AO, WH O HAS TO DECIDE THE MANNER IN WHICH THE ASSESSEES BUSINESS IS TO BE CO NDUCTED, WHICH POSITION STANDS RECOGNIZED IN S.A. BUILDERS VS. C IT, 288 ITR 1 (SC); THAT THE LD. CIT(A) HAS CORRECTLY TAKEN ALL THESE F ACTORS INTO CONSIDERATION WHILE DELETING THE ADDITION; AND THAT, THEREFORE, T HIS GROUND BE REJECTED. 6. HAVING HEARD THE RIVAL CONTENTIONS IN THE LIGHT OF THE MATERIAL AVAILABLE ON RECORD, I FIND THAT INDEED, FOR AY 200 5-06, THESE ISSUES WERE DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL, HOLDING AS FOLLOWS: WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E FACTS OF THE CASE. WE ARE CONVINCED WITH THE ARGUMENTS OF LD. CO UNSEL FOR THE ASSESSEE THAT THE DECISION OF TAKING THE LOAN @ 27% FROM M/S. A.B. MOTOR FINANCE LTD. AND M/S. AADHAR MOTOR FINANCE IS A BUSINESS DECISION WHICH HAS BEEN TAKEN IN THE COMMERCIAL EXP EDIENCY AND FOR THE PURPOSE OF BUSINESS. THE SAID MONEY HAS B EEN INVESTED IN ITA NO.399(ASR)/2014 C.O. NO.28(ASR)/2014 4 THE BUSINESS IS A MATTER OF RECORD. NOTHING ADVERSE HAS BEEN BROUGHT ON RECORD BY ANY OF THE AUTHORITIES BELOW. THERE IS ALSO NOTHING ON THE RECORD THAT THE SAID LOANS TAKEN HAV E BEEN INVESTED WITH M/S. HILL TRANSPORT CO. AND SH. GURU NANAK MED ICAL COLLEGE AS LOANS AND ADVANCES. AS ARGUED M/S. HILL TRANSPRT CO. AND SH. GURU NANAK MEDICAL COLLEGE ARE RETURNING THE MONEY AND INTEREST @ 12% IS CHARGED AND THE ASSESSEE IS HOPEFUL OF REC OVERING THE MONEY FROM THE SAID TWO PERSONS ALSO, THE ASSESSEE IS RECOVERING THE INTEREST @ 12% ON THE LOANS AGGREGATING TO RS. 50,000/-. THEREFORE, IN THE CIRCUMSTANCES AND FACTS OF THE CA SE THERE IS NOTHING ON RECORD THAT THE INTEREST EXPENDITURE HAS NOT BEEN USED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THEREFORE, IN VIEW OF THE DECISION IN THE CASE OF S.A. BUILDERS ( SUPRA), THE LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ACTION OF THE AO. IN THE CIRCUMSTANCES AND FACTS OF THE CASE, GROUND NO.6 OF THE ASSESSEE IS ALLOWED. 7. FURTHER, FOR THE ASSESSMENT YEAR 2006-07 ALSO, T HE TRIBUNAL HELD IN FAVOUR OF THE ASSESSEE WITH REGARD TO THESE MATT ERS, FOLLOWING ITS EARLIER DECISION (SUPRA) FOR THE ASSESSMENT YEAR 20 05-06 IN THE ASSESSEES CASE: THE ADDITION OF RS.2,87,518/- AS PER PAGE-4 OF THE ASSESSMENT ORDER RELATES TO THE DISALLOWANCE OF INTEREST NOT FOR THE PURPOSE OF BUSINESS. IN THE PRECEDING ASSESSMENT YEAR, THE HON BLE TRIBUNAL HAS DELETED AN ADDITION OF RS.2,91,026/- ON THIS AC COUNT. THE FACTS WITH RESPECT OF THIS ISSUE REMAINS THE SAME IN THIS YEAR ALSO EXCEPT FOR VARYING AMOUNT OF INTEREST AT RS.2,87,516/- INS TEAD OF RS.2,91,076/-. IN VIEW OF FINDINGS OF THE HONBLE TRIBUNAL IN PRECEDING ASSESSMENT YEAR 2005-06 THIS ADDITION IS DELETED. 8. FOR THE YEAR UNDER CONSIDERATION, THE FACTS HAVE NOT BEEN SHOWN TO BE ANY DIFFERENT FROM THOSE ATTENDING ASSESSMENT YE ARS 2005-06 & 2006- 07. THEREFORE, GROUND NO.1 IS REJECTED AS SHORN OF MERIT. 9. SO FAR AS REGARDS GROUND NO.2, THE AO MADE AN AD DITION OF RS.1,30,525/- ON ACCOUNT OF LAND DEVELOPMENT CHARGE S, BEING 25% OF THE TOTAL LAND DEVELOPMENT CHARGES. IT WAS OBSERVED THA T THE ASSESSEE HAD ITA NO.399(ASR)/2014 C.O. NO.28(ASR)/2014 5 DEBITED RS.5,22,100/- UNDER THE HEAD OF LAND DEVEL OPMENT CHARGES IN HIS TRADING ACCOUNT. ON QUERY, AS TO WHY THE LAND DEVELOPMENT BE NOT CHARGED PROPORTIONATELY, THE ASSESSEE SUBMITTED THA T ALMOST ALL THE LAND DEVELOPMENT CHARGES PERTAIN TO PURCHASE OF LAND/SIT ES AT BABLIANA AND BARI BRAHMANA ALONGWITH LAYING OF ROAD DURING THE Y EAR 2006-07 AND MORE THAN 75% OF THESE LAND/SITES HAS BEEN SOLD DUR ING THE YEAR 2006- 07; THAT SINCE ALMOST ALL THE PURCHASES MADE DURING THE YEAR HAD BEEN SOLD IN THE SAME YEAR AFTER DEVELOPING THE LAND SI TES, ALL THE LAND DEVELOPMENT CHARGES HAD BEEN DEBITED & CLAIMED AS EXPENSE DURING THE YEAR ONLY; THAT THE ASSESSEE WAS FOLLOWING THE ACCO UNTING POLICY OF VALUING CLOSING STOCK ON COST BASIS REGULARLY AND THERE WAS NO DEVIATION THEREFROM AND THAT THIS WAS ALSO WHY LAND DEVELOPM ENT CHARGES HAD NOT BEEN ADDED TO THE COST OF LAND. 10. THE AO, HOWEVER, REJECTED THE ASSESSEES CONTEN TION. IT WAS OBSERVED THAT THE ASSESSEE HAD, IN FACT, ADMITTED T HAT HE HAD SPENT HIS LAND DEVELOPMENT CHARGES ON DEVELOPMENT OF LAND OR INCREASING THE VALUE OF LAND, WHICH HE HAD PURCHASED DURING THE YE AR 2006-07 AND FURTHER, APPROXIMATELY 75% OF THIS LAND HAD BEEN S OLD, I.E., THE ASSESSEE HAD SPENT RS.5,22,100/- FOR DEVELOPMENT OF A PIECE OF LAND AND OUT OF THAT LAND 75% OF LAND HAD BEEN SOLD AND 25% REMAIN ING AS CLOSING STOCK OF LAND. HOWEVER, THE ENTIRE EXPENSE ON ACCOU NT OF LAND DEVELOPMENT CHARGES HAD NOT BEEN APPORTIONED, WHER EAS THE ASSESSEE OUGHT TO HAVE INCREASED THE VALUE OF CLOSING STOCK OF SUCH 25% OF LAND BY ITA NO.399(ASR)/2014 C.O. NO.28(ASR)/2014 6 PROPORTIONATE EXPENSE OF LAND DEVELOPMENT CHARGES. IT WAS THIS 25% LAND DEVELOPMENT CHARGES, AMOUNTING TO RS.1,30,525/ -, WHICH WAS ADDED TO THE INCOME OF THE ASSESSEE BY THE AO. 11. THE LD. CIT(A) DELETED THE ADDITION MADE. 12. THE LD. DR HAS CONTESTED THE ACTION OF THE LD. CIT(A), CONTENDING THAT WHILE WRONGLY DELETING THE ADDITION, THE LD. C IT(A) HAS TAKEN INTO ACCOUNT THE FACT, AS OBSERVED BY THE LD. CIT(A), T HAT WHEREAS THE ASSESSEE HAS SPENT RS.5,22,100 FOR DEVELOPMENT OF PIECE OF LAND AND FROM THIS LAND, 75% OF LAND HAS BEEN SOLD, 25% OF L AND REMAINED AS CLOSING STOCK, THAT, HOWEVER, THE ASSESSEE DID NOT APPORTION THE ENTIRE EXPENSE CONCERNING LAND DEVELOPMENT CHARGES, AND TH AT THE AO CORRECTLY ADDED 25% OF THE TOTAL LAND DEVELOPMENT CHARGES AMO UNTING TO RS.1,30,525/-. THE LD. DR HAS SOUGHT TO PLACE RELIA NCE ON CIT VS. BRITISH PAINTS INDIA LTD., 188 ITR 44 (SC), AS PER WHICH, WHERE THE ASSESSEE WAS VALUING STOCK ONLY AT ACTUAL COST OF R AW MATERIALS AND NOT TAKING INTO ACCOUNT OVERHEAD CHARGES, CONSIDERING T HE PRINCIPLE OF VALUATION OF STOCK AT COST OR MARKET VALUE, WHICHEV ER IS LOWER, THE ASSESSEES MODE OF VALUATION WAS NOT CORRECT MODE O F VALUATION AND THE AO WAS ENTITLED TO ADD OVERHEAD CHARGES. 13. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASS ESSEE HAS, AGAIN, PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. ATTEN TION HAS BEEN DRAWN TO APB-20, WHEREIN THE ASSESSEES TRADING ACCOUNTS FOR THE ASSESSMENT YEARS 2005-06 & 2006-07 HAVE BEEN TABULATED. IT HAS BEEN CONTENDED ITA NO.399(ASR)/2014 C.O. NO.28(ASR)/2014 7 THAT THE METHOD OF VALUATION ADOPTED BY THE ASSESSE E HAS BEEN CONSISTENTLY FOLLOWED FOR THE ASSESSMENT YEARS 2005 -06 & 2006-07 AND FOR THE YEAR UNDER CONSIDERATION ALSO. IT HAS BEEN SUBMITTED THAT THE BENEFIT OF OPENING STOCK OF LAND WAS NOT GIVEN IN T HE ASSESSMENT YEAR 2008-09. RELIANCE HAS BEEN PLACED ON CIT VS. MAHAV IR ALLUMINIUM LTD., 297 ITR 77 (DELHI), AS PER WHICH, IF THE CLO SING STOCK IS CHANGED, THEN THE OPENING STOCK FOR THE NEXT YEAR ALSO REQUI RES TO BE CHANGED. APROPOS CIT VS. BRITISH PAINTS INDIA LTD. (SUPRA ), IT HAS BEEN CONTENDED THAT THE SAME DOES NOT APPLY, SINCE IT DO ES NOT DEAL WITH THE OPENING STOCK AND CLOSING STOCK. 14. HERE, IT IS SEEN THAT AS CORRECTLY TAKEN INTO C ONSIDERATION BY THE LD. CIT(A), THE AO DID NOT QUESTION THE AFORESAID GENU INENESS OF THE EXPENDITURE IN THE ASSESSMENT ORDER. IT WAS ON THIS LONE BASIS THAT THE ADDITION WAS DELETED. IN THIS REGARD, IT IS SEEN TH AT THE ASSESSEES STAND OF HAVING ADOPTED A CONSISTENT METHOD HAS NO-WHERE BEEN REPELLED. THE ASSESSEE DEBITED THE AMOUNT OF RS.5,22,100/- ON DEV ELOPMENT OF LAND IN THE WHOLE AREA, IN THE YEAR IN WHICH IT WAS SPENT. THE EXPENDITURE WAS INCURRED MAINLY FOR LAVELLING OF LAND AND FOR LIFT ING OF MATERIAL. THE PAYMENTS WERE MADE FOR THE WORK DONE THROUGH JCB, D OZER AND TRACTOR, ETC. 15. IN VIEW OF THE ABOVE, HERE ALSO, FINDING NO FOR CE IN THE GRIEVANCE OF THE DEPARTMENT, GROUND NO.2 IS REJECTED. ITA NO.399(ASR)/2014 C.O. NO.28(ASR)/2014 8 16. THE C.O. FILED BY THE ASSESSEE IS SUPPORTIVE O F THE IMPUGNED ORDER AND IS REJECTED AS SUCH. 17. IN THE RESULT, BOTH, THE APPEAL, AS WELL AS C.O . ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23RD NOVEM BER, 2015. SD/- (A.D. JAIN) JUDICIAL MEMBER DATED: 23/11/2015 /SKR/ COPY OF ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. HARJINDER SINGH RAINA, JAMMU. 2. THE DCIT, CIRCLE-1, JAMMU 3. THE CIT(A), JAMMU 4. THE CIT, JAMMU 5. THE SR. DR, ITAT, ASR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) ITAT, AMRITSAR BENCH, AMRITSAR.