Prasad Transports, Vellore V. DCIT, Vellore

ITA 1046/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0968 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 24-01-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 14-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T N BETGERI
• Keywords: Proportionate interest
• Section: 143(3); 263; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AN D SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO.1046/MDS/2012 ASST. YEARS : 2007-08 M/S. PRASAD TRANSPORTS, NO.43, THIRUVALLUVAR NAGAR, KATPADI, VELLORE-632 007. PAN : AAAFP7164N. (APPELLANT) V. THE DY.COMMISSIONER OF INCOME TAX, CIRCLE I, VELLORE. (RESPONDENT) APPELLANT BY : MR. QUADIR HOSEYN, AD VOCATE RESPONDENT BY : MR. TN BETGERI, JCIT DATE OF HEARING : 24 JAN 2013 DATE OF PRONOUNCEMENT : 24 JAN 2013 O R D E R PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE OR DER OF COMMISSIONER OF INCOME TAX VIII, CHENNAI, PASSED UNDER SEC.263 OF THE I.T. ACT FOR THE ASST. YEAR 2007-08. THE GR IEVANCE OF THE ASSESSEE IN THIS APPEAL IS THAT THE ORDER OF COMMI SSIONER OF INCOME ITA 1046/MDS/12 2 TAX UNDER SEC.263 OF THE ACT DIRECTING THE ASSESSIN G OFFICER TO DISALLOW INTEREST TO THE TUNE OF B.13.07 LAKHS IS C ONTRARY TO LAW, ERRONEOUS AND UNSUSTAINABLE ON THE FACTS OF THE CAS E. IN THE ALTERNATIVE, THE COMMISSIONER OF INCOME TAX HAVING DUE REGARD TO THE FACTUM OF LOAN AT 7.41% AVAILED BY THE ASSESSEE , OUGHT TO HAVE DIRECTED DISALLOWANCE ONLY TO THAT EXTENT. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A TRANSPORT OPERATOR AND FILED THE RETURN OF INCOME ON 14.11.20 07 DECLARING TAXABLE INCOME AT B.9,59,380/- AFTER SETTING OFF OF BROUGHT FORWARD LOSS. THE ASSESSMENT WAS COMPLETED UNDER SEC.143(3 ) OF THE ACT ON 16.10.2009 DETERMINING TAXABLE INCOME AT B.10,59,38 0/-. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER DI SALLOWED B.1 LAKHS FROM OUT OF EXPENSES FOR WANT OF PROPER VOUCH ERS. NO OTHER DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER IN T HE ASSESSMENT ORDER. SUBSEQUENTLY, THE COMMISSIONER OF INCOME T AX ISSUED NOTICE UNDER SEC.263 OF THE ACT STATING THAT THE OR DER PASSED BY THE ASSESSING OFFICER UNDER SEC.143(3) OF THE ACT IS ER RONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AS THE ASSES SEE DIVERTED THE BORROWED FUNDS TO ITS PARTNERS WITHOUT CHARGING ANY INTEREST FROM ITA 1046/MDS/12 3 THEM ON THE FUNDS WITHDRAWN BY THEM FROM THE FIRM F OR THEIR PERSONAL INVESTMENT. 3. THE ASSESSEE SUBMITTED BEFORE THE COMMISSIONER OF INCOME TAX THAT THE ASSESSEE FIRM AFTER OBTAINING T HE LOAN PURCHASED PROPERTIES AND THE SAME WERE GIVEN AS COLLATERAL FO R OBTAINING LOAN FOR THE FIRM AND ACCORDINGLY THE ASSESSEE FIRM CLAI MED THAT THE SAME WAS UTILIZED FOR BUSINESS PURPOSE. AFTER CONSIDERI NG THE SUBMISSIONS OF THE ASSESSEE THE COMMISSIONER OF INCOME TAX PASS ED ORDER UNDER SEC.263 OF THE ACT HOLDING THAT THE ASSESSMENT ORDE R PASSED UNDER SEC.143(3) OF THE ACT IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND DIRECTED THE ASSESSING OFFICER TO DISA LLOW PROPORTIONATE INTEREST ON THE WITHDRAWAL OF FUNDS BY THE PARTNERS FROM THE ASSESSEE FIRM. 4. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT THE BORROWED FUNDS WERE UTILIZED FOR THE PURCHASE OF PROPERTIES IN THE NAMES OF PARTNERS OF THE FIRM AND THE FUNDS WERE UTILIZED ON LY FOR BUSINESS PURPOSE AS THE LOANS WERE OBTAINED WITH THE COLLATE RAL SECURITY OF THE PROPERTIES. THE COUNSEL FOR THE ASSESSEE SUBMITS T HAT THERE IS NO INFIRMITY IN THE ASSESSMENT ORDER PASSED UNDER SEC. 243(3) OF THE ACT ITA 1046/MDS/12 4 SINCE THE FUNDS WERE UTILIZED FOR THE PURPOSE OF BU SINESS AND, THEREFORE, THERE IS NO NECESSITY FOR DISALLOWANCE O F INTEREST. 5. THE DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPOR TED THE ORDER OF COMMISSIONER OF INCOME TAX PASSED UNDER SE C.263 OF THE ACT. 6. WE HAVE GONE THROUGH THE ORDERS OF LOWER AUTHOR ITIES. THE COMMISSIONER OF INCOME TAX IN THE ORDER PASSED UNDER SEC.263 OF THE ACT HELD THAT THE ASSESSEE HAD BORROWED FUND S AND THE SAID FUNDS WERE DIVERTED FOR THE PERSONAL BENEFITS OF TH E PARTNERS AND NO INTEREST WAS PAID ON THE FUNDS WITHDRAWN BY THE PAR TNERS FROM THE FIRM AND AT THE SAME TIME, THE ASSESSEE PAID INTERE ST ON THE FUNDS BORROWED BY IT. THEREFORE, HE CONCLUDED THAT THE ASSESSING OFFICER AT THE TIME OF COMPLETION OF ASSESSMENT UNDER SEC.1 43(3) OF THE ACT, THIS ASPECT WAS NOT EXAMINED BY HIM AND, THEREFORE, THE ORDER PASSED BY THE ASSESSING OFFICER UNDER SEC.143(3) OF THE ACT IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. WHILE COMING TO THIS CONCLUSION, THE COMMISSIONER OF INCOME TAX OBSERVED AS UNDER :- ITA 1046/MDS/12 5 5. IN RESPONSE TO THE NOTICE ISSUED, SHRI T. KRISHNAN, CA, AUTHORISED REPRESENTATIVE OF THE ASSESSEE, APPE ARED ON THE DATES OF HEARING, PRODUCED THE DETAILS CALLED FOR AND THE CA SE WAS DISCUSSED WITH HIM. DURING THE COURSE OF THE HEARING, WHEN IT WAS POINTED OUT THAT THE LOANS AND BORROWED TUNERS HAVE BEEN DIVERTED TO ITS PARTNERS FOR THEIR PERSONAL OR OTHER PERSONAL BUSINESS PURPO SES WITHOUT CHARGING ANY INTEREST FROM THEM ON THE FUNDS WITHDR AWN BY THEM, THE AUTHORISED REPRESENTATIVE SUBMITTED THAT AFTER OBTA INING THE LOAN, PROPERTIES WERE PURCHASED AND THE SAME WERE GIVEN A S COLLATERAL, FOR OBTAINING THE LOAN AND ACCORDINGLY, THE ASSESSEE-FI RM CLAIMED THAT THE SAME WAS UTILIZED FOR BUSINESS PURPOSES. HOWEVE R, THE FACT REMAINS THAT THE ASSESSEE FIRM HAS UTILIZED THE ABO VE LOAN FOR PURCHASING THE PROPERTIES IN THE PARTNERS' NAME. HA D THE PROPERTIES BEEN PURCHASED WITH THEIR OWN FUNDS, THE QUESTION O F CHARGING INTEREST DOES NOT ARISE. 5.1 AS THE AUTHORISED REPRESENTATIVE HIMSELF ADMITTED T HAT THE BORROWED FUNDS HAVE BEEN USED FOR THE PURPOSE OF AC QUIRING IMMOVABLE PROPERTIES IN THE NAMES OF THE PARTNERS' OF THE ,ASSESSEE- FIRM, IT IS CLEAR THAT THE ASSESSEE-FIRM HAD DIVERT ED THE BORROWED FUNDS TO THE PARTNERS FOR THEIR PERSONAL INVESTMENT S WITHOUT CHARGING ANY INTEREST EVEN THOUGH THE FIRM WAS PAYING INTERE ST ON THE FUNDS TAKEN BY IT FROM THIRD PARTIES. IN THIS CONNECTION, THE AUTHORISED REPRESENTATIVE PITCHED IN FOR COMPUTING INTEREST AT 7.41 PER CENT ON WHICH SUNDARAM FINANCE HAS ADVANCED LOAN TO THE ASS ESSEE-FIRM DURING THE PREVIOUS YEAR RELEVANT TO THE ASST. YEAR 2007-08. SUNDARAM FINANCE HAS ADVANCE VEHICLE LOAN AT 7.41 P ER CENT FOR PURCHASE OF VEHICLES ONLY AND NOT FOR PURCHASE OF I MMOVABLE PROPERTIES. MEANWHILE, THE ASSESSEE-FIRM HAS BORROW ED FUNDS FROM SBI, OCC A/C. (RS.29,12,944/-) AND CURRENT A/C. (RS .3,56,6:45/-) AND ITA 1046/MDS/12 6 VEHICLE LOAN (FROM SUNDARAM FINANCE AMOUNTING TO RS.9,93,45,846/-) AND FROM OTHERS (RS.12,85,OOO/-) AND ACCORDINGLY IT IS VERY DIFFICULT TO ACCEPT THE ARGU MENT OF THE AUTHORISED REPRESENTATIVE THAT THE 'INTEREST COMPON ENT MAY BE COMPUTED AT 7.41 PER CENT INSTEAD OF 12 PER CENT FO R THE REASON THAT 12 PER CENT IS THE PREVAILING RATE. 5.2 DURING THE COURSE OF HEARING OF THE PROCEEDINGS U/S 263 OF THE INCOME-TAX ACT, 1961, IT WAS ALSO SUBMITTED BY THE AUTHORISED REPRESENTATIVE THAT THE ASSESSEE-FIRM MAY BE ALLOWE D TO CREATE SOME CHARGE ON THE PROPERTIES OF THE SECURITIES WHICH HA VE BEEN COLLATERALIZED TO THE LIMITS SANCTIONED TO THE OTHE R UNITS OF THE GROUP ALSO ALONG WITH THIS FIRM. THE SUBMISSION OF THE AU THORISED REPRESENTATIVE IS CONSIDERED AND THE SAME IS REJECT ED. 'THIS IS FOR THE REASON THAT THE PARTNER-SHIP FIRM CANNOT ON ITS OWN GIVE ANY PROPERTY FOR MORTGAGE FOR THE FRESH LIMITS SANCTIONED BY THE BANK AND THAT IT IS FOR THE PARTNERS TO IDENTIFY PROPERTIES FOR MORTGAG ING WITH THE BANK. IF AT ALL ANY CHARGE REQUIRES TO BE CREATED, THE SAME CAN BE DONE ONLY IN THE INDIVIDUAL HANDS AND NOT IN THE HANDS OF THE ASSESSEE FIRM. 6. UNDER THE ABOVE CIRCUMSTANCES, IT IS HELD THA T THE ASSESSEE-FIRM BORROWED FUNDS FOR ITS BUSINESS AND HAD DIVERTED TH E SAME TO ITS PARTNERS WITHOUT ANY INTEREST FROM THEM, THOUGH THE ASSESSEE-FIRM DEBITED INTEREST TO THE PROFIT AND LOSS ACCOUNT ON THE FUNDS BORROWED FOR ITS BUSINESS FROM THIRD PARTIES. AND HENCE, THE ODER U/S 143(3) OF THE INCOME-TAX ACT, 1961 DT. 6.10.2009, FOR THE AS SESSMENT YEAR 2007-08 IS SET-ASIDE, AND THAT THE ASSESSING OFFICE R IS DIRECTED TO REDO THE ASSESSMENT BY ADDING BACK A SUM OF RS.13,07,204 /- BEING THE PROPORTIONATE INTEREST ON THE WITHDRAWAL OF FUNDS B Y THE PARTNERS FROM THE ASSESSEE-FIRM. ITA 1046/MDS/12 7 7. ON GOING THROUGH THE ORDER OF COMMISSIONER OF I NCOME TAX WE FIND THAT THE ASSESSEE HAD BORROWED FUNDS AN D DIVERTED THE SAME TO THE BENEFIT OF THE PARTNERS BY PURCHASING T HE PROPERTIES IN THEIR NAMES AND FURTHER, NO INTEREST WAS CHARGED ON THE FUNDS WITHDRAWN BY THE PARTNERS FROM THE FIRM AND AT THE SAME TIME, THE ASSESSEE PAID INTEREST TO THE BANKS ON THE FUNDS B ORROWED BY IT. THE ASSESSEE COULD NOT ESTABLISH THAT THE FUNDS BOR ROWED WERE UTILIZED ONLY FOR THE PURPOSE OF ITS BUSINESS AND, THEREFORE, NO PART OF INTEREST IS REQUIRED TO BE DISALLOWED. NONE OF TH ESE ASPECTS HAVE BEEN EXAMINED BY THE ASSESSING OFFICER WHILE COMPLE TING ASSESSMENT UNDER SEC.143(3) OF THE ACT. SINCE THE ASSESSING OFFICER HAS NOT EXAMINED THE ISSUE WHILE COMPLETING THE ASS ESSMENT, IT CANNOT BE SAID THAT THE ASSESSING OFFICER HAS TAKEN ONE OF THE POSSIBLE VIEWS AND, THEREFORE, THERE IS NO ERROR IN COMPLETING THE ASSESSMENT. THE ORDER PASSED BY THE ASSESSING OFFI CER UNDER SEC.143(3) OF THE ACT IS CERTAINLY ERRONEOUS AND PR EJUDICIAL TO THE INTEREST OF REVENUE AS THE ASSESSING OFFICER HAS NO T EXAMINED THE ISSUE AT ALL AND HE HAS NOT APPLIED THE CORRECT POS ITION OF LAW. NON APPLICATION OF MIND AND THE CORRECT POSITION OF LAW RENDERS THE ITA 1046/MDS/12 8 ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE I NTEREST OF REVENUE. THE ASSESSMENT ORDER PASSED BY THE ASSESS ING OFFICER SATISFY THESE CONDITIONS, IE., ERRONEOUS AND PREJUD ICIAL TO THE INTEREST OF REVENUE AS THE ASSESSING OFFICER DID NOT APPLY HIS MIND AND CORRECT POSITION OF LAW TO THE FACTS OF THE CASE WH ILE FRAMING THE ASSESSMENT. IN THE CIRCUMSTANCES, WE SUSTAIN THE O RDER OF THE COMMISSIONER OF INCOME TAX PASSED UNDER SEC.263 OF THE I.T. ACT IN DIRECTING THE ASSESSING OFFICER TO RE DO THE ASSESS MENT BY ADDING BACK A SUM OF B.13,07,204/-. BEING PROPORTIONATE IN TEREST ON FUNDS WITHDRAWN BY THE PARTNERS FROM THE ASSESSEE FIRM. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. 9. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON THURSDAY, THE 24 TH DAY OF JANUARY 2013, AT CHENNAI. SD/- SD/- ( ABRAHAM P. GEORGE ) (CHALLA NAGEND RA PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED : 24 TH JANUARY 2013. JLS. ITA 1046/MDS/12 9 COPY TO:- (1) APPELLANT (2) RESPONDENT (3) CIT-(A), CHENNAI (4) C.I.T., CHENNAI (5) D.R. 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