M/s. Siddhi Corporation, Ahmedabad V. The Jt. Commissioner of Income Tax, Ahmedabad

ITA 1020/AHD/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7014 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 25-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: M J SHAH
• Section: 40A(3); 14A

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD - BENCH D BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA NO.1020/AHD/2016 / ASSTT. YEAR: 2010-2011 M/S.SIDDHI CORPORATION A/318, POPULAR PLAZA SOMESWAR COMPLEX-1 132, RING ROAD SATELLITE AHMEDABAD 380 015. PAN : AADFS 2667 Q VS. JCIT, RANGE-7 AHMEDABAD. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI M.J. SHAH, AR REVENUE BY : SHRI VINOD TANWANI, SR.DR ! / DATE OF HEARING : 09/01/2019 '#$ ! / DATE OF PRONOUNCEMENT: 10 /01/2019 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF LD.CIT(A)-3, AHMEDABAD DATED 21.3.2016 PASSED FOR T HE ASSTT.YEAR 2010-11. 2. IN THE FIRST GROUND OF APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.2,08,200/- WHICH IS 20% OF VARIOUS MISC. EXPENSES. ITA NO.1020/AHD/2016 2 3. DURING THE ASSESSMENT PROCEEDINGS, IT REVEALED T O THE AO THAT CERTAIN PAYMENTS WERE MADE TO THE EMPLOYEES BY THE ASSESSEE. THE DETAILS HAVE BEEN NOTICED BY THE AO IN PARA-5 OF TH E ASSESSMENT ORDER. HE OBSERVED THAT SALARY EXPENSES WERE DEBITED AND C LAIMED TO HAVE BEEN PAID IN CASH TO NINE EMPLOYEES. WITH HELP OF SECTION 40A(3) OF THE INCOME TAX ACT, THE LD.AO HAS MADE DISALLOWANCE . AUDITOR IN ANNEXURE-C OF THE FORM NO.3CD REPORT HAS CATEGORICA LLY MENTIONED THAT AMOUNT WAS DISALLOWABLE UNDER SECTION 40A(3) OF THE ACT. HENCE, THE LD.AO HAS DISALLOWED IT. ON APPEAL, THE LD.CIT(A) HAS CONFIRMED THE DISALLOWANCE. 4. AFTER LOOKING TO THE RECORD AND THE BREACH COMMI TTED BY THE ASSESSEE, WE DO NOT FIND ANY MERIT IN THIS GROUND O F APPEAL. IT IS REJECTED. 5. IN GROUND NO.2, GRIEVANCE OF THE ASSESSEE IS THA T THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.7,68,000 /- WITH AID OF SECTION 14A AND 36(1)(III) OF THE ACT. 6. BRIEF FACTS OF THE CASE ARE THAT ON SCRUTINY OF THE ACCOUNTS IT REVEALED TO THE AO THAT THE ASSESSEE HAD INVESTMENT IN MUTUAL FUND FOR RS.63.00 LAKHS. IT HAS GIVEN INTEREST FREE LOANS A T RS.6,11,861/-. THE AO SOUGHT TO DISALLOW INTEREST EXPENDITURE ON THE I NVESTMENT IN MUTUAL FUND AS WELL AS ADVANCES GIVEN BY THE ASSESSEE WITH OUT CHARGING INTEREST. HE WORKED OUT SUCH DISALLOWANCE AT RS.9, 01,423/-. ON APPEAL, THE LD.CIT(A) HAS SCALED DOWN IT TO RS.7,68 ,000/-. 7. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE CONTE NDED THAT THE ASSESSEE HAS SUBMITTED COMPLETE DETAILS SHOWING INT EREST FREE FUNDS AVAILABLE WITH THE ASSESSEE, AND HOW OUT OF THESE I NTEREST FREE FUNDS INVESTMENT HAVE BEEN MADE. HE TOOK US THROUGH WRIT TEN SUBMISSIONS FILED BEFORE THE LD.CIT(A), WHICH HAS BEEN REPRODUC ED IN PARA 5.1 OF THE IMPUGNED ORDER. RELEVANT PART OF THE SUBMISSIONS R EADS AS UNDER: ITA NO.1020/AHD/2016 3 THE CONSISTENT STAND OF APPELLANT FIRM AT THE TIME OF ASSESSMENT PROCEEDINGS AS WELLS AS AT TIME OF APPELLATE PROCEE DINGS IS THAT ASSESSEE HAS AMPLE AMOUNT OF INTEREST FREE FUND AVA ILABLE WITH IT FOR MAKING INVESTMENT IN MUTUAL FUND AND FOR LENDIN G THE INTEREST FREE ADVANCE TO VARIOUS PARTIES . TO GIVE THE SUPPO RT TO STAND OF APPELLANT FIRM/ IT HAS SUBMITTED THE ANALYSIS OF IN VESTMENT IN MUTUAL FUND AND INTEREST FREE ADVANCE IN VARIOUS YE ARS AND QUANTUM OF INTEREST FREE FUND AVAILABLE WITH ASSESS EE FIRM BEFORE THE PREDECESSOR OF YOUR HONOUR WHICH IS FORWARDED T O ASSESSING OFFICER FOR REMAND BY YOUR PREDECESSOR. THE SAID AN ALYSIS IS AGAIN ANNEXED HEREWITH AT (ANNEXURE-C). IN THE REMAND REP ORT (ANNEXURE-D), THE ASSESSING OFFICER CONTENDED THAT AS THE APPELLANT FIRM HAS PAID INTEREST ON THE PARTNER'S C APITAL, IT DIDN'T HAVE ANY INTEREST FREE FUND AVAILABLE FOR MAKING IN VESTMENT AND LENDING INTEREST FREE ADVANCES. THE APPELLANT FIRM IN HIS REJOINDER (ANNEXURE-E) SUBMITTED BEFORE YOUR HONOUR AGAIN REI TERATED HIS STAND STATING THAT ASSESSING OFFICER HAS MISSED ONE VITAL ASPECT OF THE CASE THAT THOUGH IT IS TRUE THAT APPELLANT FIRM HAS PAID ON INTEREST ON PARTNER'S CAPITAL BUT IT WAS CREDITED O N THE LAST DAY OF THE PREVIOUS YEAR AND PARTNER DID NOT GET ANY INTER EST ON PROFIT WHICH IS CREDITED TO THEIR ACCOUNT ON THE LAST DAY OF THE PREVIOUS YEAR. SO ALL THE PROFIT ARISE DURING THE PREVIOUS Y EAR ARE NON INTEREST BEARING AND AVAILABLE FOR MAKING INVESTMEN T IN TO MUTUAL FUND. APPELLANT FIRM HAS GIVEN DETAILED ANALYSIS OF INTEREST FREE PROFITS AVAILABLE WITH THE APPELLANT FIRM ON THE DA TE OF INVESTMENT IN MUTUAL FUND ALONG WITH HIS RE - JOINDER TO THE R EMAND REPORT OF ASSESSING OFFICER. 8. ACCORDING TO THE LD.COUNSEL FOR THE ASSESSEE THE SE SUBMISSIONS HAS NOT BEEN ANALYTICALLY EXAMINED BY THE LD.CIT(A) , AND NO CATEGORICAL FINDING HAS BEEN RECORDED. ON THE STRENGTH OF HONB LE GUJARAT HIGH COURT IN THE CASE OF VIRENDRA R. GANDHI VS. DCIT, T AX APPEAL NO.1726 OF 2009, SUBMITTED THAT ALL SUCH INVESTMENTS WERE M ADE IN THE PRECEDING YEAR, AND NO DISALLOWANCE ON ACCOUNT OF U SER OF INTEREST BEARING FUNDS HAVE BEEN MADE. THIS YEAR NO FRESH I NVESTMENT HAS BEEN MADE. IT MEANS NO INTEREST BEARING FUNDS WERE INFU SED FOR EARNING TAX FREE INCOME. SIMILARLY, NO INTEREST FREE FUNDS WER E USED FOR GIVING LOANS WITHOUT CHARGING INTEREST. IF THAT BE SO, HOW THE INTEREST EXPENSES COULD BE DISALLOWED TO THE ASSESSEE. HE POINTED OU T THAT ALL THESE PLEAS HAVE BEEN SPECIFICALLY RAISED BEFORE THE LD.CIT(A) AS WELL AS BEFORE THE ITA NO.1020/AHD/2016 4 AO, BUT NO CATEGORICAL FINDING HAS BEEN RECORDED. ON THE OTHER HAND, THE LD.DR RELIED UPON THE ORDERS OF THE LD.CIT(A), AND SUBMITTED THAT ALL THESE ASPECTS HAVE BEEN LOOKED INTO, ONLY THEREAFTE R, THE LD.CIT(A) HAS CONFIRMED THE DISALLOWANCE PARTIALLY. 9. WE HAVE DULY CONSIDERED RIVAL SUBMISSIONS AND GO NE THROUGH THE RECORD CAREFULLY. THERE IS NO DISPUTE WITH REGARD TO THE PROPOSITION THAT IF AN ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS, OUT OF WHICH INVESTMENT COULD BE MADE OR INTEREST FREE FUNDS COULD BE ADVAN CED, THEN NO INTEREST EXPENSES QUA THOSE INVESTMENTS OR ALLEGED INTEREST INCOME ON INTEREST FREE LOANS COULD BE ESTIMATED AND DISALLOW ED. THE QUESTION IS, WHETHER THE ASSESSEE HAS INTEREST FREE FUNDS OR NOT . WHEN A SPECIFIC PLEA WAS RAISED, THEN IT WAS INCUMBENT UPON THE LD. REVENUE AUTHORITIES TO RECORD CATEGORICAL FINDING ON THAT PLEA. THE LD .CIT(A) FAILED TO ANALYSIS THESE SUBMISSIONS OF THE ASSESSEE. THEREF ORE, WE DEEM IT APPROPRIATE TO SET ASIDE THE ORDER OF THE LD.CIT(A) . WE RESTORE THIS ISSUE TO THE FILE OF THE LD.CIT(A). THE LD.CIT(A) SHALL VERIFY, WHETHER INTEREST FREE FUNDS WERE AVAILABLE WITH THE ASSESSEE, WHEN I T MADE INVESTMENT AND GAVE INTEREST FREE LOANS. IN CASE THE ASSESSEE HAD INTEREST FREE FUNDS, THEN NO DISALLOWANCE COULD BE MADE. OTHERWI SE, THE LD.CIT(A) ON THE BASIS OF MATERIAL AVAILABLE BEFORE HIM, WOUL D ADJUDICATE THE ISSUE IN ACCORDANCE WITH LAW. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON 10 TH JANUARY, 2019 AT AHMEDABAD. SD/- SD/- (WASEEM AHMED) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 10/01/2019