Champalal Kanhaiyalal Khinvasara, Aurangabad V. Income-tax Officer,

ITA 1067/PUN/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1491 (ITAT-PUNE)
• Duration Of Justice: 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 20-05-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANIL CHAWARE
• Keywords: Proportionate interest

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC , PUNE , BEFORE MS. SUSHMA CHOWLA, JM . / ITA NO .1 067 /PN/201 6 / ASSESSM ENT YEAR : 20 1 2 - 1 3 SHRI CHAMPALAL KANYAIYALAL KHINVASARA, 2, RAJHANS BUILDING, SURANA NAGAR, JALNA ROAD, AURANGABAD - 431001 . / APPELLANT PAN: A CQPK8815R VS. THE INCOME TAX OFFICER, WARD 2 ( 3 ) , AURANGABAD . / RESPONDENT / APPELLANT BY : SHRI M.R. BHAGWAT / RESPONDENT BY : SHRI ANIL CHAWARE / DATE OF HEARING : 2 6 . 0 7 .201 6 / DATE OF PRONOUNCEMENT: 29 . 0 7 .201 6 / ORDER PER SUSHMA CHO WLA, J M : THIS APPEAL FILED BY ASSESSEE IS AGAINST ORDER OF CIT (A) - 2 , AURANGABAD , DATED 1 1 . 03 .20 1 6 RELATING TO ASSESSMENT YEAR 20 1 2 - 1 3 AGAINST ORDER PASSED UNDER SECTION S 14 3(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - ITA NO. 1067 /PN/20 1 6 CHAMPALAL K KHINVASARA 2 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING THE DISALLOWANCE OF RS.8,09,384/ - BEING INTEREST ON BORROWED FUNDS ALLEGEDLY USED FOR NON BUSINESS PURPOSES. 2. THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) ERRED IN NOT APPRECIATING THE FACTS OF THE CASE AND VARIOUS DECISIONS RELIED UPON BY THE APPELLANT AND DISREGARDING THE SAME. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT GRANTING SET OFF OF CURRENT YEARS LOSS OF RS.4,79,8 56/ - AGAINST OTHER INCOME. 4. THE DISALLOWANCE AS ABOVE BE DELETED AND THE ASSESSEES INCOME BE REDUCED TO THAT EXTENT. 5. SUCH OTHER ORDERS BE PASSED AS DEEMED FIT AND PROPER. 3. THE ASSESSEE HAS RAISED TWO ISSUES IN THE PRESENT APPEAL. THE FIRST ISSU E IS AGAINST THE DISALLOWANCE OF RS. 8,09,384/ - ON ACCOUNT OF INTEREST PAID ON BORROWED FUNDS, WHICH ALLEGEDLY WAS USED FOR NON - BUSINESS PURPOSE. THE SECOND ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST NON - GRANTING SET OFF OF CURRENT YEARS LOSS OF RS.4,7 9,856/ - AGAINST SUCH OTHER INCOME. 4. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE INDIVIDUAL WAS ENGAGED IN THE BUSINESS OF BUILDER AND DEVELOPER. THE ASSESSEE WAS ALSO PARTNER IN A PARTNERSHIP FIRM AND HAD FURNISHED RETURN OF INCOME DECLARING TOTAL INCOME AT NIL. THE BUSINESS LOSS FOR THE YEAR UNDER CONSIDERATION WAS RS.6,45,816/ - , WHICH WAS SET OFF AGAINST THE INCOME FROM OTHER SOURCES TO THE EXTENT OF RS.1,65,960/ - AND THE BALANCE BUSINESS LOSS OF RS.4,79,856/ - WAS CARRIED FORWARD TO THE SUCCEEDIN G YEAR. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD ADVANCED SUM OF RS. 3 CRORES TO AJANTA INTERNATIONAL VIPASSANA AND THE SAID AMOUNT WAS OUTSTANDING AS ON 31.03.2012 AT RS.1.50 CRORES. THE ASSESSEE ON THE OTHER H AND, HAD PAID INTEREST ON BORROWED FUNDS. THE CLAIM OF THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT IT HAD SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH IT AND THE ITA NO. 1067 /PN/20 1 6 CHAMPALAL K KHINVASARA 3 INTEREST FREE ADVANCES MADE BY IT WERE OUT OF SUCH INTEREST FREE FUNDS. THE ASSESSIN G OFFICER HOWEVER, DISALLOWED INTEREST @ 12% IN RESPECT OF INTEREST FREE ADVANCES FOR NON - BUSINESS PURPOSES AT RS.9,41,750/ - . THE ASSESSING OFFICER NOTED THAT DURING THE YEAR, THE UNSECURED LOANS INCREASED BY RS. 4,34,18,133/ - , ON WHICH INTEREST EXPENDITUR E OF RS. 27,64,545/ - WAS CLAIMED. THE ASSESSING OFFICER OBSERVED THAT THIS SHOWS THAT THE ASSESSEE HAD UTILIZED INTEREST BEARING FUNDS FOR NON - BUSINESS PURPOSE AND HENCE, PROPORTIONATE INTEREST DUE ON THE LOANS GIVEN WAS TO BE DISALLOWED UNDER SECTION 36(1 )(III) OF THE ACT. HENCE, DISALLOWANCE OF RS.9,41,750/ - WAS MADE BY THE ASSESSING OFFICER. 5. THE CIT(A) ON PERUSAL OF BALANCE SHEET NOTED THAT THOUGH THERE WAS OPENING CAPITAL BALANCE OF RS.6.90 CRORES, BUT THE SAME WAS OFFSET BY PROPERTIES AND ASSETS O N THE ASSET SIDE OF BALANCE SHEET AT RS.1.25 CRORES, INVESTMENT OF RS.10,28,076/ - , CAPITAL ACCOUNT BALANCE LYING WITH NEELVASU OF RS.6.00 CRORES, SUNDRY LOAN AND ADVANCES OF RS.28,58,806/ - , STOCK IN ON THE OTHER HAND OF RS.2.49 CRORES AND CASH & BANK BALAN CE OF RS. 1,48,048/ - . THE CIT(A) FURTHER OBSERVED THAT HE WAS NOT CONSIDERING THE CLOSING CAPITAL AND LIABILITIES BALANCE AS ON 31.03.2012 AS THE SAME NARRATES THE STATE OF AFFAIRS OF ASSESSEE ON THE CLOSING DAY OF FINANCIAL YEARS, WHEREAS THE LOANS AND AD VANCES WERE MADE TO THE CONCERN DURING THE FINANCIAL YEAR. THE CIT(A) NOTED THAT THE ASSESSEE AS SUCH DID NOT HAVE INVESTIBLE SURPLUS WITH HIM WHICH COULD BE STATED TO BE THE SOURCE OF LOANS AND ADVANCES GIVEN TO AIVC. THE CIT(A) FURTHER OBSERVED THAT TH E ASSESSEE HAD NOT BEEN ABLE TO PROVE HIS CONTENTION AND ON THE OTHER HAND, HAD ACCEPTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND IN THE APPELLATE PROCEEDINGS AS WELL THAT THE ITA NO. 1067 /PN/20 1 6 CHAMPALAL K KHINVASARA 4 LOANS AND ADVANCES WERE GIVEN TO AIVC OUT OF INTEREST BEARING FUNDS. THE CIT(A) IN VIEW THEREOF, HELD THAT THE ASSESSEE DID NOT HAVE SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH HIM TO MAKE THE INTEREST FREE ADVANCES. ANOTHER CONTENTION RAISED BY THE ASSESSEE BEFORE THE CIT(A) WAS THAT THE ASSESSING OFFICER HAD INCORRECTLY W ORKED OUT THE DISALLOWANCE OF INTEREST IN RESPECT OF AMOUNT GIVEN AS LOAN TO AIVC. THE ACTUAL INTEREST EXPENDITURE AS PER THE ASSESSEE WORKED OUT TO RS.6,80,655/ - , IN VIEW OF DATE - WISE RECEIPTS AND PAYMENTS TO AIVC, WHICH IS TABULATED UNDER PARA 7 OF THE APPELLATE ORDER. ANOTHER POINT NOTED BY THE CIT(A) WAS THAT THE AMOUNT OF RS.2.70 CRORES WAS RECEIVED FROM SHRI RAICHAND B. KUNKOLOL BEARING INTEREST @ 9%, WHICH IN TURN, WAS ADVANCED TO AIVC, WHICH WAS CLEAR FROM THE DETAILS FILED BY THE ASSESSEE. THE C IT(A) ALSO TOOK NOTE OF THE FACT THAT THE ASSESSEE HAD FIRST RECEIVED INTEREST BEARING FUNDS, WHICH WAS ADVANCED TO AIVC ON 24.11.2011 ONLY, WHEREAS THE LOAN WAS RECEIVED ON DIFFERENT DATES AS PER THE DETAILS UNDER PARA 7 OF THE APPELLATE ORDER. THE CIT(A ) RE - COMPUTED THE INTEREST PAYABLE ON THE DAY - DAY BASIS AT RS.8,09,384/ - AND THE SAID AMOUNT WAS ADDED TO THE INCOME OF ASSESSEE. THE SECOND CLAIM OF THE ASSESSEE THAT THE CURRENT YEARS LOSS OF RS. 4,79,856/ - SHOULD BE ALLOWED WAS REMITTED TO THE ASSESSIN G OFFICER TO VERIFY THE CORRECT QUANTUM OF LOSS RETURNED BY THE ASSESSEE AND THE SAME SHOULD BE ALLOWED TO BE SET OFF AGAINST THE INCOME COMPUTED AFTER MAKING THE DISALLOWANCE. 6. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 7. SHRI M.R. BHAGWA T APPEARED ON BEHALF OF THE ASSESSEE AND SHRI ANIL CHAWARE APPEARED ON BEHALF OF THE REVENUE AND PUT FORWARD THEIR CONTENTIONS. ITA NO. 1067 /PN/20 1 6 CHAMPALAL K KHINVASARA 5 8. THE FIRST ISSUE ARISING IN THE PRESENT APPEAL IS AGAINST THE DISALLOWANCE OF RS. 8,09,384/ - BEING INTEREST ATTRIBUTABLE TO INT EREST FREE ADVANCES MADE BY THE ASSESSEE. THE ASSESSEE HAS FILED ON RECORD THE BALANCE SHEET AS ON 31.03.201 1 , WHICH CLEARLY REFLECTS THAT THOUGH THERE IS AN OPENING CAPITAL BALANCE OF RS.6.90 CRORES, HOWEVER, ON THE ASSETS SIDE, THE ASSESSEE HAS MADE INV ESTMENTS UNDER FIXED ASSETS AT RS.1.25 CRORES, INVESTMENTS AT RS.0.10 CRORES, CAPITAL ACCOUNT WITH FIRM AT RS.6.00 CRORES, ADVANCES AGAINST LAND AND PROPERTIES AT RS.4.27 CRORES, LOANS AND ADVANCES AT RS.0.28 CRORES, STOCK IN HAND AT RS.2.49 CRORES, CASH & BANK BALANCE AT RS.0.01 CRORES, TOTALING ABOUT RS.14.42 CRORES. THE ASSESSEE HAS SECURED LOANS OF RS.3.67 CRORES AND UNSECURED LOANS OF RS.3.24 CRORES AS ITS OPENING BALANCES. THE ASSESSEE HAD FURTHER RECEIVED UNSECURED LOANS DURING THE YEAR AND THE CLO SING BALANCE AS ON 31.03.2012 WAS RS.7.58 CRORES. THE ASSESSEE AGAINST THIS HAS MADE INTEREST FREE ADVANCES TO AIVC WHICH IS REFLECTED IN THE LOANS AND ADVANCES AS ON 31.03.2012 AT RS.1.59 CRORES. STOCK ON THE OTHER HAND HAD ALSO INCREASED BY RS.5.76 CRO RES AS ON CLOSE OF THE YEAR. IN THE TOTALITY OF THE ABOVE SAID FINANCIAL ASPECTS OF THE CASE, THE AVAILABILITY OF CAPITAL BALANCE FOR MAKING INTEREST FREE ADVANCES IS NOT ESTABLISHED BY THE ASSESSEE AND IF IT TAKES THE OPENING FIGURES AS ON 01.04.2012, ST ATUS IS THAT THERE IS NO SCOPE OF AVAILABILITY OF ANY CAPITAL BALANCE FOR MAKING ANY ADVANCES. ON THE OTHER HAND, THE ASSESSEE ADMITTEDLY, DURING THE YEAR UNDER CONSIDERATION ITSELF HAS FURTHER RAISED LOANS AND OUT OF SUCH LOANS RAISED, HAD MADE THE ADVAN CES TO AIVC TO THE TUNE OF RS.3 CRORES, PART OF WHICH IS REPAID AND THE AMOUNT OUTSTANDING AS ON 31.12.2012 IS RS.1.5 CRORES. DURING THE YEAR UNDER CONSIDERATION, UNSECURED LOANS HAD INCREASED BY RS.4.34 CRORES, ON WHICH THE ASSESSEE HAD CLAIMED INTEREST EXPENDITURE OF RS.27,64,545/ - . IN THE ABOVE SAID SCENARIO, THERE IS ITA NO. 1067 /PN/20 1 6 CHAMPALAL K KHINVASARA 6 MERIT IN THE ORDERS OF AUTHORITIES BELOW IN HOLDING THAT INTEREST BEARING FUNDS HAVE BEEN UTILIZED FOR MAKING THE INTEREST FREE ADVANCES AND THERE IS MERIT IN DISALLOWANCE OF INTEREST ATT RIBUTABLE TO SUCH INTEREST FREE ADVANCES. THE RELIANCE PLACED UPON BY THE ASSESSEE ON THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES & POWER LTD. (2009) 313 ITR 340 (BOM) IS MIS - PLACED AS IN THE FACTS BEFORE THE HONBLE HIGH COURT, IT WAS HELD THAT IN CASE FUNDS WERE AVAILABLE BOTH INTEREST FREE AND OVERDRAFT AND / OR LOANS TAKEN, THEN PRESUMPTION WOULD BE THAT THE INVESTMENTS WOULD BE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FR EE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. HOWEVER, IN THE FACTS OF THE CASE AS POINTED OUT BY THE CIT(A) AND AS ALSO NOTED FROM THE PERUSAL OF BALANCE SHEET, THE OPENING FIGURES OF CAPITAL AVAILABLE WITH THE ASSESSEE SUCH AS INTEREST FREE AND THE ASSETS IN WHICH IT WAS EMPLOYED AT THE START OF THE YEAR MATCH TO THE EXTENT THAT THERE ARE NO INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. THE ASSESSEE FURTHER HAS RAISED LOANS DURING THE YEAR UNDER CONSIDERATION, WHICH ADMITTEDLY, HAVE BEEN UTILIZED FOR MAKING THE INTEREST FREE ADVANCES, SINCE THE ASSESSEE PAYING INTEREST ON SUCH INTEREST BEARING FUNDS, THE INTEREST ATTRIBUTABLE TO INTEREST FREE ADVANCES MERITS TO BE DISALLOWED IN THE HANDS OF ASSESSEE. THE CIT(A) HAS ALSO OBSERVED THAT THE ASSESSEE HAD ACCEPTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND APPELLATE PROCEEDINGS AS WELL THAT THE AFORESAID LOANS AND ADVANCES WERE GIVEN TO AIVC OUT OF INTEREST BEARING FUNDS. THE ASSESSEE HAS FAILED TO CONTROVERT THE ABOVE SAID OBSERVATIONS OF CIT(A) AND IN THE ABSENCE OF SAME, THERE IS NO MERIT IN THE CLAIM OF ASSESSEE AND DISALLOWANCE OF RS. 8,09,384/ - IS CONFIRMED. 9. COMING TO THE SECOND STAND OF THE ASSESSEE , T HE CIT(A) HAS ALREADY DIRECTED THE ASSESSING OFFICER TO VERIFY THE CLAIM OF ASSESSEE VI S - - VIS SET OFF OF ITA NO. 1067 /PN/20 1 6 CHAMPALAL K KHINVASARA 7 CURRENT YEARS LOSS AND IN VIEW THEREOF, THERE IS NO MERIT IN THE GROUND OF APPEAL RAISED BY THE ASSESSEE AND THE SAME IS DISMISSED. 1 0 . IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THIS 29 TH DAY OF JU LY , 201 6 . SD/ - (SUSHMA CHOWLA) / JUDICIAL MEMBER / PUNE ; DATED : 29 TH JU LY , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPON DENT; 3. ( ) / THE CIT(A) - 2 , AURANGABAD ; 4. / THE PR. CIT - 2 , AURANGABAD ; 5. 6. , , , - / DR SMC , ITAT, PUNE; / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE