IKF Finance Ltd., Vijayawada V. The Addl.CIT, Vijayawada

ITA 1/VIZ/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6536 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 01-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T S N MURTHY
• Section: 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , HONBLE ACCOUNTANT MEMBER ITA NO. 0 1 / VIZ /201 5 (ASST. YEAR : 20 11 - 1 2 ) M/S. IKF FINANCE LTD., # 40 - 1 - 144, 1 ST FLOOR, CORPORATE CENTRE, LABBIPET, VIJAYAWADA. V S . A CIT, RANGE - 2 , VIJAYAWADA . PAN NO. AAACI 4784 J (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.V.N. HARI ADV OCATE . DEPARTMENT BY : SHRI T.S.N. MURTHY CIT DR DATE OF HEARING : 3 1 / 1 0 /201 7 . DATE OF PRONOUNCEMENT : 08 / 1 1 /201 7 . O R D E R PER V. DURGA RAO, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) , VIJAYAWADA , DATED 24 / 11 /201 4 FOR THE ASSESSMENT YEAR 20 11 - 12 . 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LEASING, HIRE PURCHASE AND FINANCE. THE ASSESSEE HAD FILED ITS RETURN OF INCOME BY DECLARING TOTAL INCOME OF 7,38,56,536/ - . THE RETURN FILED B Y THE ASSESSEE WAS INITIALLY PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE 2 ITA NO. 01/VIZ/2015 ( M/S. IKF FINANCE LTD. ) 'ACT') AND SUBSEQUENTLY , CASE WAS SELECTED FOR SCRUTINY AND NOTICE S UNDER SECTION 143(2) AND 142(1) OF THE ACT WERE ISSUED . 3 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER HAS OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION , THE ASSESSEE - COMPANY HAS SHOWN AN AMOUNT OF 1,12,55,820/ - UNDER THE HEAD WORKING CAPITAL LOANS AND ADVANCES ON THE ASSETS SIDE IN THE BALANCE SHEET ON 31/03/2011 . THE SAID AMOUNT OF 1,12,55,820/ - REPRESENTS WORKING CAPITAL LOAN EXTENDED TO THE HIRE PURCHASE / LEASED ASSET CUSTOMERS TO MEET OUT THE EMERGENCY EXPENDITURE. THE ASSESSING OFFICER CALLED UPON THE DETAILS AND AFTER EXAMINING , HE OBSERVED THAT ON PERUSAL OF BALANCE SHEET AS ON 31/ 03/2011 , THE WORKING CAPITAL LOANS AND ADVANCES OUTSTANDING WAS STOOD AT 1,12,55,820 / - . IT WAS NOTICED THAT THE ASSESSEE HAS NOT ADMITTED ANY INTEREST, HOWEVER, ON VERIFICATION OF DEMAND PROMISSORY NOTES/ AGREEMENTS EXECUTED BY THE BORROWERS, IT IS SEEN THAT THE INTEREST IS CHARGEABLE @24% P.A. THE TAX PAYER IS THEREFORE ASKED THE REASONS FOR NOT ADMITTING INTEREST @ 24% FOR TAXATION. THE ASSESSEE HAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT (PAGE NO.26 OF THE PAPER BOOK) THE WORKING CAPITAL LOAN AND ADVANCE COMPRISES THE AMOUNT SPENT ON BEHA LF OF THE EACH OF THE FINANCIAL ASSET ON SEVERAL OCCASIONS DURING THE OUTSTANDING PERIOD , SUCH AS INSURANCE , INSPECTION CHARGES, CHARGES INCURRED IN THE COURSE OF RECOVERY AND THE SAME WILL BE RECOVERED FROM THE RESPECTIVE PARTY ALONG WITH THE NEXT INSTALM ENT OR AT SOME TIMES WHILE RELEASING LIEN ON THE ASSETS ON COMPLETE DISCHARGE OF PARTY. TILL 3 ITA NO. 01/VIZ/2015 ( M/S. IKF FINANCE LTD. ) SUCH TIME , THE BALANCE IS APPEARING AS DEBIT OF THE RESPECTIVE CUSTOMERS ACCOUNT AND THE SAME HAVE BEEN GROUPED UNDER THE HEAD WORKING CAPITAL LOAN & ADVANCE. FEW COPIES OF THE LEDGER EXTRACTS IN THIS REGARD ARE ENCLOSED. HE FURTHER SUBMITTED THAT CONSIDERING THE VOLUME OF ITS BUSINESS AT AROUND 200 CRORES, THE AMOUNT OF 1.12 CRORES ON THIS ACCOUNT IS NOT ABNORMAL AND HENCE REQUESTED ADDITION MAY BE DELET ED . HOWEVER, WITHOUT CONSIDERING THE EXPLANATION OF THE ASSESSEE, THE ASSESSING OFFICER HAS ADOPTED RATE OF INTEREST AT 24% AS INTEREST ACCRUED ON INVESTMENTS , WHICH WORKS OUT TO 27,01,397/ - ( 1,12,55,820 X 24%) IS ADDED TO THE INCOME RETURNED. 4 . ON APPEAL, LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER, HOWEVER, DIRECTED THE ASSESSING OFFICER TO CHARGE INTEREST @ 12% IN PLACE OF 24%. ACCORDINGLY, HE RESTRICTED THE D ISALLOWANCE IN THIS CONTEXT. 5. ON BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. 6 . LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE IS CARRYING HUGE FINANCIAL BUSINESS AND THE TURNOVER IS NEAR ABOUT 200 CRORES. IN THE COURSE OF BUSINESS , THE ASSESSEE HAS INCURRED SOME PRELIMINARY EXPENSES , SUCH AS INSURANCE , INSPECTION CHARGES, AND RECOVERY CHARGES , WHICH ARE INCURRED ON BEHALF OF THE CUSTOMERS. HOWEVER, NO INTEREST IS CHARGED ON THESE AMOUNTS , BUT DEBITED TO THE CUSTOMERS ACCOUNT AND THE SAME HAS BEEN GROUPED UNDER THE HEAD WORKING CAPITAL LOANS AND ADVA NCES AND SUBMITTED THAT THE ASSESSEE 4 ITA NO. 01/VIZ/2015 ( M/S. IKF FINANCE LTD. ) HAS NOT RECEIVED ANY INTEREST AND THE ASSESSING OFFICER HAS CHARGED INTEREST ON NOTIONAL BASIS, WHICH IS CONFIRMED BY THE LD. CIT(A) IS NOT CORRECT. 7 . ON THE OTHER HAND, L EARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED T HE ORDERS PASSED BY THE AUTHORITIES BELOW. 8 . WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND ORDERS OF THE AUTHORITIES BELOW. 9. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LEASING, HIRE PURCHASE AND FINANCE . THE TURNOVER OF THE ASSESSEE - COMPANY IS NEAR ABOUT 200 CRORES. THE ASSESSEE HAS INCURRED CERTAIN EXPENSES ON BEHALF OF THE CUSTOMERS LIKE INSURANCE, INSPECTION CHARGES AND RECOVERY CHARGES OF 1,12,55,820/ - . WHEN THE ASSESSING OFFICER ASKED THE ASSESSEE WHY INTEREST HAS NOT BEEN CHARGED, IT WAS SUBMITTED THAT EXPENSES INCURRED ON BEHALF OF THE CUSTOMER S AND IS DEBITED TO THE CUS T OMERS ACCOUNT , THE SAME HAVE BEEN GROUPED UNDER THE HEAD WORKING CAPITAL LOANS AND ADVANCES . THE ASSESSIN G OFFICER HAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND CHARGED INTEREST @ 24% ON THE AMOUNT OF 1,12,55,820/ - . ON APPEAL, LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. WE FIND THAT WHEN THE ASSESSEE HAS NOT CHARGED ANY INTEREST, IT IS ONLY DEBITED TO THE ACCOUNT OF THE CUSTOMERS, THE ACTION OF THE ASSESSING OFFICER TO CHARGE INTEREST ON NOTIONAL BASIS , IN OUR OPINION, IS NOT CORRECT AS IT IS NOT REC E IVED BY THE ASSESSEE AT ALL. THE REFORE, WE CANCELLED THE ORDER PASSED BY THE LD. CIT(A) AND THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 5 ITA NO. 01/VIZ/2015 ( M/S. IKF FINANCE LTD. ) 10 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON TH IS 0 8 T H DAY OF NOV., 201 7 . S D / - S D / - ( D.S. SUNDER SINGH ) ( V. DURGA RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 0 8 T H NOVEMBER , 201 7 . VR/ - COPY TO: 1. THE ASSESSEE - M/S. IKF FINANCE LTD., # 40 - 1 - 144, 1 ST FLOOR, CORPORATE CENTRE, LABBIPET, VIJAYAWADA. 2. THE REVENUE ACIT, RANGE - 2, VIJAYAWADA. 3. THE CIT, VIJAYAWADA. 4. THE CIT(A) , VIJAYAWADA. 5. THE D.R . , VISAKHAPATNAM. 6. GUARD FILE. BY ORDER (VUKKEM RAMBABU) SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.