Sh. Umesh Trehan, Chandigarh V. ITO, Chandigarh

ITA 1022/CHANDI/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2418 (ITAT-CHANDIGARH)
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-01-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 09-10-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Notional interest; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.1022 /CHD/2012 (ASSESSMENT YEAR : 2009-10) SH.UMESH TREHAN, VS. THE INCOME TAX OFFICER, SCO 9-A, WARD 1(3), SECTOR 7-C, CHANDIGARH CHANDIGARH. PAN: ABMPT3744R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SURINDER MAHAJAN RESPONDENT BY : SHRI AKHILESH GUPTA DATE OF HEARING : 27.06.2013 DATE OF PRONOUNCEMENT : 28.06.2013 O R D E R PER SUSHMA CHOWLA, J.M. : THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), CHANDIGARH DA TED 13.08.2012 RELATING TO ASSESSMENT YEAR 2009-10 AGAINST THE ORD ER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE RE AD AS UNDER: 1. A) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING DISALLOWANCE OF RS.1,26 ,000/- BEING NOTIONAL INTEREST ON AMOUNT DUE FROM SH.AVINASH KAPOOR. DISA LLOWANCE CONFIRMED IS ILLEGAL AND BAD IN LAW. B) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT (A) HAS GROSSLY ERRED IN CONFIRMING DISALLOWANCE OF RS.1,26 ,000/- U/S 36(L)(III) OF THE ACT BY HOLDING THAT DECISION OF HONORABLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES IS EXPLICITLY APPLI CABLE TO THE ADVANCES MADE TO SH. AVINASH KAPOOR. CONCLUSION DRAWN BY LD. CIT (A) IS ILLEGAL AND BAD IN LAW. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT (A) HAS GROSSLY ERRED IN CONFIRMING ADDITION OF RS.32,90,840/- BEING NOTIONA L INTEREST @14% ON AMOUNT 2 INVESTED IN SHARE CAPITAL OF M/S. GIAN RESIDENCY PV T. LTD. ADDITION CONFIRMED IS ILLEGAL AND BAD IN LAW. 3. A) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT (A) HAS GROSSLY ERRED IN CONFIRMING ADDITION OF RS.12,84,32 5/ - U/S 40(A)(IA) OF THE INCOME TAX ACT, 1961 ON ACCOUNT OF ALLEGED NON DEDU CTION OF TDS ON INTEREST PAID TO NBFC'S. ADDITION CONFIRMED U/S 40(A)(IA)OF THE ACT IS ILLEGAL AND BAD IN LAW. B) THAT ON THE FACTS & CIRCUMSTANCES OF THE CASE , LD. CIT (A) HAS GROSSLY ERRED IN CONFIRMING LD. A.O'S ACTION OF INVOKING PROVISIO NS OF SEC. 40(A)(IA) OF THE ACT ON INTEREST ON LOANS FROM NBFC'S WHICH STOOD PAID O N 31-03-2009 TO FOLLOWINGS:- I) RELIANCE CAPITAL LTD. RS. 4,42,793/- II) RELIGARE FINVEST LTD. RS. 79,321/- III) INDIA BULL LTD. RS.5,50,491/- IV) G.E. MONEY RS.2,11,720/- TOTAL: RS.12,84,325/- C) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT (A) HAS GROSSLY ERRED IN CONCLUDING THAT PROVISIONS OF SECT ION 194A ARE ATTRACTED IN THE CASE OF ASSESSEE. CONCLUSION DRAWN BY THE LD. CIT ( A) IS ILLEGAL AND BAD IN LAW. 4. A) THAT ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, LD. CIT (A) HAS GROSSLY ERRED IN CONFIRMING ADDITION OF RS. 1,50,671/- U/S 40(A)(IA)OF THE INCOME TAX ACT, 1961 ON ACCOUNT OF ALLEGED NON DEDUCTION OF TDS ON INTEREST PAID ON UNSECURED LOANS. ADDITION CONFIRMED U/S 40(A)(IA) OF THE ACT IS ILLEGAL AND BAD IN LAW. B) THAT ON THE FACTS & CIRCUMSTANCES OF THE CASE, L D. CIT (A) HAS GROSSLY ERRED IN CONFIRMING WORTHY A.O'S ACTION OF INVOKING PROVISIONS OF SEC. 40(A)(IA) OF THE ACT ON INTEREST ON UNSECURED LOANS WHICH STOOD PAID ON 31-03-2009. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING DISALLOWANCE OF 1/10 TH OF VEHICLE AND TELEPHONE EXPENSES AS AGAINST DISALLOWANCE MADE BY LD.A.O. AT 1/8 TH OF VEHICLE AND TELEPHONE EXPENSES. DISALLOWANCE CONFIRMED IS ILLEGAL AND BAD IN LAW. 3. THE ISSUE IN GROUND NOS. 1 & 2 RAISED BY THE ASS ESSEE IS AGAINST THE DISALLOWANCE U/S 36(1)(III) OF THE ACT. 4. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD CLAIM ED INTEREST EXPENDITURE ON BORROWED FUNDS AND ON THE OTHER HAND, HAD MADE INTEREST FREE ADVAN CES TO THE SISTER CONCERN ON WHICH NO 3 INTEREST WAS CHARGED. THE ASSESSING OFFICER, IN VI EW OF THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT V ABHISHEK INDUS TRIES LTD. 286 ITR 1(P&H) DISALLOWED THE INTEREST U/S 36(1)(III) OF THE ACT, IN RESPECT OF THE ADVANCES MADE TO SHRI AVINASH KAPOOR AND IN RESPECT OF THE INVESTMENT IN SHARE CAPITAL O F M/S GIAN RESIDENCY PVT. LTD. THE DISALLOWANCE OF RS.12,06,000/- WAS MADE IN RESPECT OF THE AMOUNT DUE FROM SHRI AVINASH KAPOOR AND RS.32,90,840/- IN RESPECT OF THE INVESTM ENT WITH M/S GIAN RESIDENCY PVT. LTD. THE ABOVESAID ADDITIONS WERE UPHELD BY CIT(APPEALS). 5. THE ASSESSEE IS IN APPEAL AGAINST THE SAID ADDIT ION BEING MADE IN HIS HANDS. THE LD. AR FOR THE ASSESSEE STRESSED THAT THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN S.A.BUILDERS V CIT 288 ITR 1 (S.C) ARE TO BE APPLIED AND WHERE T HE AMOUNT HAS BEEN ADVANCED AND THE RECIPIENT HAS USED IT FOR THE PURPOSE OF HIS BUSINE SS, NO DISALLOWANCE U/S 36(1)(III) IS WARRANTED. IT WAS THE PLEA OF THE LD. AR FOR THE ASSESSEE THAT THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT V ABHISHEK INDUSTRIES IS NO MORE APPLICABLE IN VIEW OF THE RATIO LAID DOWN IN CIT VS. MARUDHAR CHEMICALS & PHARMACE UTICALS (P) LTD. [319 ITR 75 (P&H)] AND IN CIT VS. ROCKMAN CYCLE INDUSTRIES LTD. [176 T AXMAN 21 (P&H)] 6. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON TH E ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS ADMITTEDLY INCURRING EXPENDITURE OF INTEREST ON BORROWED FUNDS . THE TOTAL INTEREST EXPENDITURE DEBITED TO THE PROFIT & LOSS ACCOUNT DURING THE YEAR WAS RS.54 ,02,883/-. HOWEVER, THE ASSESSEE HAS ALSO MADE INTEREST FREE ADVANCES TO DIFFERENT PARTIES, O N WHICH NO INTEREST WAS BEING CHARGED AND ONE SUCH ADVANCE WAS TO MR.AVINASH KAPOOR WITH WHOM ADMITTEDLY THERE WAS NO COMMERCIAL TRANSACTIONS. THE LD. AR FOR THE ASSESSEE ADMITTED THAT THE SAID ADVANCE WAS NOT FOR COMMERCIAL PURPOSES. IN VIEW OF THE RATIO LAID DOW N BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT V ABHISHEK INDUSTRIES (SUPRA) WE FIND NO MERIT IN THE PLEA OF THE ASSESSEE AND DISALLOWANCE U/S 36(1)(III) OF THE ACT IN RELATION TO THE ADVANCE TO SHRI AVINASH KAPOOR AT RS.1,26,000/- IS UPHELD. GROUND NO. 1 RAISED BY TH E ASSESSEE IS THUS DISMISSED. 4 8. THE ASSESSEE HAS FURTHER MADE AN INVESTMENT OF R S.2.35 CRORES IN M/S GIAN RESIDENCY PVT. LTD. THE SAID INVESTMENT WAS BROUGHT FORWARD FROM THE PRECEDING YEAR AND REMAINED INVESTED FOR THE WHOLE FINANCIAL YEAR. THE CLAIM O F THE ASSESSEE WAS THAT THE SAID M/S GIAN RESIDENCY PVT. LTD. HAD UTILIZED THE FUNDS FOR CONS TRUCTING A HOTEL AT BADDI IN HIMACHAL PRADESH AND HENCE, THE PURPOSE OF THE SAID LOAN WAS COMMERCIAL I.E. FOR THE BUSINESS OF M/S GIAN RESIDENCY PVT. LTD. 9. WE FIND NO MERIT IN THE CLAIM OF THE ASSESSEE IN THIS REGARD. THE HON'BLE SUPREME COURT IN S.A.BUILDERS V CIT (SUPRA) HAD LAID DOWN T HE PRINCIPLE THAT WHERE THE AMOUNT HAS BEEN ADVANCED FOR COMMERCIAL EXPEDIENCY OF THE PERS ON MAKING THE ADVANCES, THEN NO DISALLOWANCE IS WARRANTED U/S 36(1)(III) OF THE ACT . HOWEVER, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE HAS FAILED TO BRING ON RECORD ANY EVID ENCE TO SHOW THE COMMERCIAL EXPEDIENCY IN ADVANCING THE SAID AMOUNT TO M/S GIAN RESIDENCY PVT . LTD. FURTHER, WE FIND THAT IDENTICAL ISSUE AROSE BEFORE THE TRIBUNAL IN ASSESSEE'S OWN C ASE IN ASSESSMENT YEAR 2007-08. THE TRIBUNAL IN ITA NO. 278/CHD/2012 VIDE ORDER DATED 1 0.12.2012 VIDE PARAS 17 TO 21 AT PAGES 16 & 17, APPLYING THE RATIO LAID DOWN BY THE HON'BLE P UNJAB & HARYANA HIGH COURT IN CIT V ABHISHEK INDUSTRIES (SUPRA) HAS UPHELD THE DISALLOW ANCE U/S 36(1)(III) OF THE ACT IN RESPECT OF THE INVESTMENT MADE WITH M/S GIAN RESIDENCY PVT. LT D. APPLYING THE ABOVESAID RATIO, WE UPHOLD THE DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT IN RELATION TO THE INVESTMENT MADE BY THE ASSESSEE IN SHARE CAPITAL OF M/S GIAN RESIDE NCY PVT. LTD. THE GROUND NO. 2 RAISED BY THE ASSESSEE IS, THUS DISMISSED. 10. THE ISSUE IN GROUND NOS. 3 & 4 RAISED BY THE AS SESSEE IS AGAINST THE DISALLOWANCE OF INTEREST BY INVOKING THE PROVISIONS OF SECTION 40(A )(IA) OF THE ACT. ADMITTEDLY, THE ASSESSEE HAD FAILED TO DEDUCT TAX AT SOURCE AND DEPOSIT THE SAME WITHIN THE STIPULATED PERIOD AND IN VIEW THEREOF, THE INTEREST PAID TO NBFCS TOTALING TO RS. 12,84,325/- AND RS.150,671/- ON UNSECURED LOANS WAS DISALLOWED BY THE ASSESSING OFFICER, IN V IEW OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE SAID DISALLOWANCE WAS CONFIRMED BY TH E CIT(APPEALS). 5 11. THE PLEA OF THE LD. AR BEFORE US WAS THAT THE S AID DISALLOWANCE AND THE DISALLOWANCE MADE U/S 36(1)(III) OF THE ACT RESULTED IN DOUBLE A DDITION IN THE HANDS OF THE ASSESSEE. HOWEVER, THE LD. AR FOR THE ASSESSEE FAIRLY POINTED OUT THAT THAT TOTAL INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE WAS ABOUT RS.54 LACS AND TH E NOTIONAL INTEREST DISALLOWED U/S 36(1)(III) OF THE ACT WAS ABOUT RS.34 LACS. THE LD. AR FOR TH E ASSESSEE WAS CONFRONTED TO POINT OUT SPECIFIC PROVISIONS OF INCOME-TAX ACT WHICH ALLOWED SUCH SETTING OFF. THE LD. AR FOR THE ASSESSEE HAD NO REPLY TO THE SAME EXCEPT TO STATE T HAT THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WERE MORE THAN THE INTEREST BEARING FUNDS. 12. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON T HE ORDER OF THE CIT(APPEALS). 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE RAISED IN THE PRESENT CASE IS AGAINST THE DISALLOWANCE OF INTERES T FOR NON DEDUCTION OF TAX AT SOURCE AND CONSEQUENT APPLICATION OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE HON'BLE GUJRAT HIGH COURT IN CIT VS. SIKANDER KHAN N.TUNVAR & OTHE RS, ITA NO.905 OF 2012 JUDGMENT DATED 2.5.2013 AND THE HON'BLE CALCUTTA HIGH COURT IN CIT VS. CRESENT EXPORT SYNDICATE ITA NO.20 OF 2013, G.A.NO.190 OF 2013 HAVE LAID DOW N PROPOSITION THAT WHERE THE ASSESSEE HAS FAILED TO DEDUCT THE TAX AT SOURCE AND DEPOSIT THE SAME WITHIN THE SPECIFIED PERIOD, THE EXPENDITURE RELATABLE TO SUCH DEDUCTION OF TAX AT S OURCE WOULD NOT BE ALLOWED AS DEDUCTION, WHILE COMPUTING THE INCOME OF THE ASSESSEE. ADMITT EDLY IN THE FACTS OF THE PRESENT CASE THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE IN RESP ECT OF THE INTEREST PAID TO NBFCS TOTALING RS.12,84,325/- AND ALSO INTEREST PAID ON UNSECURED LOANS TOTALING RS.150,671/-. WE UPHOLD THE ORDERS OF THE AUTHORITIES BELOW IN THIS REGARD. WE DO NOT FIND ANY MERIT IN THE ALTERNATE PLEA RAISED BY THE LD. AR FOR THE ASSESSEE THAT THE DISA LLOWANCE OF NOTIONAL INTEREST U/S 36(1)(II) OF THE ACT AND THE DISALLOWANCE OF INTEREST IN VIEW OF SECTION 40(A)(IA) OF THE ACT RESULTS IN DOUBLE ADDITION. THE TOTAL INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE WAS RS.54 LACS, AS AGAINST WHICH ADDITION U/S 36(1)(III) OF THE ACT HAS BEEN M ADE TO THE EXTENT OF RS.34 LACS. THE BALANCE DISALLOWANCE HAS BEEN MADE BY INVOKING THE PROVISIO NS OF SECTION 40(A)(IA) OF THE ACT, WHICH WAS WARRANTED IN FACTS AND CIRCUMSTANCES OF THE CAS E. THE GROUND NO. 3 & 4 ARE THUS, DISMISSED. 6 14. THE ISSUE IN GROUND NO.5 IS AGAINST THE DISALLO WANCE OF 1/10 TH OUT OF VEHICLE AND TELEPHONE EXPENSES FOR PERSONAL USE. THE DISALLOWA NCE MADE BY THE AUTHORITIES BELOW IS CONFIRMED AS THE ELEMENT OF PERSONAL USE CANNOT BE RULED OUT. THE GROUND NO. 5 RAISED BY THE ASSESSEE IS THUS, DISMISSED. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF JUNE, 2013. SD/- SD/- (T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 28 TH JUNE,2013 POONAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH