Jai Kishan Das Gupta, New Delhi V. ITO, New Delhi

ITA 1043/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3631 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 08-08-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 25-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Keywords: Proportionate interest; Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH: SMC, DELHI) BEFORE SHRI S. V. MEHROTRA, ACCOUNTANT MEMBER ITA NO.1043/DEL / 2011 (ASSESSMENT YEAR-2006-07) JAI KISHAN DAS GUPTA VS. ITO (PROP. OF M/S GARG TUBES), WARD 28(3) 2862, BAZAR SIRKIWALAN, HAUZ QUAZI NEW DELHI. NEW DELHI. PAN:AAEPG8881F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAJESH JAIN, CA REVENUE BY :SHRI SATPAL SINGH, SR. DR DATE OF HEARING :08/08/2012 DATE OF PRONOUNCEMENT : ORDER THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER DATED 27.12.2010 OF CIT (A)-XXV, NEW DELHI RELATING TO AS SESSMENT YEAR 2006- 07 ON THE FOLLOWING GROUND: 1. THE LD. CIT (A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION ON ACCOUNT OF NOTIONAL INTEREST AMOUNTING TO RS. 1,18, 664/- CALCULATED ON BUSINESS ADVANCE MADE TO M/S TUBE SALES PVT. LTD. F OR PURCHASE OF GOODS BY IGNORING THE FACT THAT THE SAID ADVANCE WAS GIVEN I N NORMAL COURSE OF BUSINESS THE INTEREST WAS NEITHER ACCRUED TO THE AS SESSEE NOR HAD ANY NEXUS BETWEEN THE ADVANCE AND INTEREST EXPENDED IN THE NO RMAL COURSE OF BUSINESS. ITA NO.1043/DEL/2011 2 2. THE ASSESSEE, IN THE RELEVANT ASSESSMENT YEAR, D ERIVED INCOME FROM THE BUSINESS OF TRADING IN STEEL PIPES, FITTING, CE RAMIC TILES. ASSESSEE HAD FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME O F RS.2,44,490/- FOR THE ASSESSMENT YEAR 2006-07. 3. THE ASSESSING OFFICER NOTICED FROM THE BALANCE S HEET THAT THE ASSESSEE HAD ADVANCED A LOAN OF RS.25 LACS TO M/S TUBES SALE S PVT. LTD. HE REQUIRED THE ASSESSEE TO FURNISH COPY OF ACCOUNT AND TO ALS O EXPLAIN WHETHER INTEREST HAD BEEN CHARGED OR NOT ON THE SAID LOAN. THE ASSES SEE FURNISHED CONFIRMATIONS FROM M/S TUBES SALES PVT. LTD. FROM W HICH THE ASSESSING OFFICER GATHERED THAT ASSESSEE HAD ADVANCED THE LOA N BY CHEQUE TO THIS COMPANY ON FOLLOWING DATES BUT DID NOT CHARGE ANY I NTEREST ON THE LOAN: DATE AMOUNT PERIOD OF LOAN 1. 1.07.2005 RS.5,00,000/- 9 MONTHS 2. 06.10.2005 RS.5,00,000/- 6 MONTHS 3. 06.12.2005 RS.9,00,000/- 4 MONTHS 4. 07.12.2005 RS.6,00,000/- 4 MONTHS 4. THE ASSESSING OFFICER FURTHER REQUIRED THE ASSES SEE TO EXPLAIN WHY THE INTEREST HAD NOT BEEN CHARGED ON THE LOAN ADVANCED TO THE ABOVE COMPANY WHILE HE HAD PAID INTEREST ON THE LOANS TAKEN BY HI M FROM OTHER PERSONS. AS ITA NO.1043/DEL/2011 3 ASSESSEE DID NOT FURNISH ANY SATISFACTORY EXPLANATI ON, THE ASSESSING OFFICER MADE AN ADDITION @ 10% ON THIS LOAN AGGREGATING TO RS.1,18,664/-. 5. LD. CIT (A) CONFIRMED THE ASSESSING OFFICERS AC TION, INTER-ALIA, OBSERVING THAT BORROWING TO THE EXTENT OF RS. 25,00 ,000/-, WHICH HAD BEEN GIVEN AS A LOAN WITHOUT CHARGING INTEREST, IT CANNO T BE SAID TO HAVE BEEN BORROWED FOR THE PURPOSE OF BUSINESS AS PROVIDED U/ S 36(1)(III). THUS, LD. CIT (A) CONFIRMED THE DISALLOWANCE ON THE GROUND TH AT FUNDS BORROWED FOR THE PURPOSES OF BUSINESS HAD BEEN UTILIZED FOR GIVI NG LOAN FOR NON BUSINESS PURPOSES AND, THEREFORE, PROPORTIONATE INTEREST WAS DISALLOWABLE U/S 36(1)(III). 6. LD. COUNSEL FOR THE ASSESSEE REFERRED TO PAGE 2 OF ASSESSMENT ORDER AND POINTED OUT THAT ASSESSEE HAD FURNISHED THE CON FIRMATION FROM M/S TUBES SALES PVT. LTD. TO WHICH BUSINESS ADVANCE HAD BEEN GIVEN. HE REFERRED TO THE CONFIRMATION OF THE SAID COMPANY CONTAINED AT PAGE 9 OF PAPER BOOK. HE SUBMITTED THAT IN THIS CONFIRMATION IT WAS CLEARLY STATED THAT DUE TO NON- FULFILLMENT OF ORDER AS PER THE SPECIFICATIONS OF T HE PARTY, THE ADVANCE OF RS.25,00,000/- WAS PAID BACK IN SUBSEQUENT YEARS. HE, THEREFORE, SUBMITTED THAT IT WAS A BUSINESS ADVANCE AND THEREFORE, NO DI SALLOWANCE COULD BE MADE U/S 36(1) (III). ITA NO.1043/DEL/2011 4 7. LD. DR SUBMITTED THAT ASSESSEE WAS NOT ABLE TO E STABLISH THAT IT WAS BUSINESS ADVANCE AND, THEREFORE, DISALLOWANCE WAS C ALLED FOR. HE SUBMITTED THAT THE ASSESSEES SUBMISSION IS THAT THE ADVANCE WAS GIVEN ON ORAL UNDERSTANDING WHICH CANNOT BE ACCEPTED WITHOUT BEIN G DULY SUPPORTED WITH SOME EVIDENCE. HE POINTED OUT THAT CONSIDERING THE TOTAL SUM OF RS.25 LACS IS VALUED, IT CANNOT BE ACCEPTED THAT THERE WAS NO PU RCHASE ORDER ETC. ASSESSEE HAD TO SUBSTANTIATE ITS CLAIM BEFORE LOWER REVENUE AUTHORITIES. 8. I HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PA RTIES AND HAVE PERUSED THE RECORD OF THE CASE. THE ASSESSEES CONT ENTION WAS THAT IT HAD BEEN GIVEN BUSINESS ADVANCE TO M/S TUBES SALES PVT. LTD. HOWEVER, ASSESSING OFFICER HAS CONSIDERED THIS AS LOAN /ADVA NCE AND MADE AN ADDITION OF RS.1,18,664/- FOR NOT CHARGING INTEREST BY ASSES SEE THOUGH HE HAD BORROWED FUNDS ON INTEREST. IT IS WELL SETTLED LAW THAT NOTIONAL INTEREST CANNOT BE ADDED. THE DEPARTMENT CANNOT DIRECT THE ASSESSEE TO CHARGE INTEREST ON THE ADVANCES GIVEN BY IT. HOWEVER, AT THE SAME TIME IF THE ASSESSEE HAD UTILIZED BORROWED FUNDS ON WHICH IT HAD BEEN PAYING INTEREST THEN UNLESS IT IS ESTABLISHED THAT THE ADVANCE WAS GIVEN FOR BUSINESS PURPOSES, PROPORTIONATE DISALLOWANCE U/S 36(1)(III) WAS CALLED FOR. THERE H AS TO BE DIRECT NEXUS BETWEEN THE BORROWED FUNDS AND INTEREST FREE ADVANC E GIVEN FOR NON BUSINESS PURPOSES FOR INVOKING SECTION 36 (1)(III). LD. CIT (A), THEREFORE, RIGHTLY ITA NO.1043/DEL/2011 5 INVOKED SECTION 36(1)(III) FOR MAKING DISALLOWANCE. HOWEVER SINCE, ASSESSING OFFICER HAD MADE THE ADDITION ON ACCOUNT ON NOTIONAL INTEREST, THEREFORE, ENTIRE PLEADINGS OF ASSESSEE BEFORE LD.C IT (A) WERE WITH REFERENCE TO ASSESSING OFFICERS ACTION. LD. COUNSE L SUBMITTED THAT IT WAS PURELY BUSINESS ADVANCE AS IS EVIDENT FROM THE CONF IRMATION FILED BY M/S TUBES SALES PVT. LTD. THIS DOCUMENT REFERS TO SUPPL Y OF GOODS WITH REFERENCE TO SPECIFICATIONS. HOWEVER, THERE IS NOTH ING ON RECORD E.G. PURCHASE ORDER ETC. TO SUBSTANTIATE THE ASSESSEES CLAIM EXCEPT THIS CONFIRMATION. MOREOVER, THIS CONFIRMATION IS UNDATE D. UNDER SUCH CIRCUMSTANCES, I CONSIDER IT IN THE INTEREST OF JUS TICE THAT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF ASSESSING OFFICER FOR THE LIMITED PURPOSE OF GIVING ONE MORE OPPORTUNITY TO ASSESSEE TO ESTABLIS H THAT THE AMOUNT ADVANCED TO M/S TUBES SALES PVT. LTD. WAS FOR BUSIN ESS PURPOSES. IN CASE ASSESSEE IS ABLE TO ESTABLISH THIS FACT THEN NO DIS ALLOWANCE IS CALLED FOR. 11. IN THE RESULT LD. CIT (A)S ORDER IS SET ASIDE AND THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES IN TERMS OF AFO REMENTIONED OBSERVATIONS. ORDER PRONOUNCED IN OPEN COURT ON 24 TH /08/ 2012. ITA NO.1043/DEL/2011 6 SD/- (S.V.MEHROTRA) ACCOUNTANT MEMBER DATED THE 24 TH DAY OF AUGUST 2012 S.SINHA COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. CIT(ITAT), NEW DELHI. AR,ITAT NEW DELHI. BY ORDER DY. REGISTRAR // C O P Y// 1. DATE OF DICTATION: 2. DRAFT PLACED BEFORE THE AUTHOR ON: 3. DRAFT PROPOSED AND PLACED BEFORE SECOND MEMBER ON: 4. DRAFT DISCUSSED/APPROVED BY THE SECOND MEMBER ON: 5. APPROVED DRAFT CAME TO SR. P.S ON: 6. DATE OF PRONOUNCEMENT: 7. FILE SENT TO BENCH CLERK ON: 8. DATE ON WHICH FILE GIVEN TO HEAD CLERK ON: 9. DATE OF DISPATCHING THE ORDER ON: