Sh. Krishan Gopal, Ludhiana V. ITO, W-6(4), Ludhiana

ITA 1083/CHANDI/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8643 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 05-08-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARVIND SUDARSHAN JCIT
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Notional interest; Ignorance of law

Judgement Text

, .. , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BE NCHES, SMC CHANDIGARH (VIRTUAL COURT) .., ! BEFORE: SHRI. N.K.SAINI, VICE PRESIDENT ITA NO. 1083 /CHD/2019 ASSESSMENT YEAR : 2012-13 SHRI KRISHAN GOPAL, KESARI GAS SERVICE, LINK ROAD, LUDHIANA THE ITO WARD-6(4), LUDHIANA PAN NO. ABTPG5051B APPELLANT RESPONDENT !' ASSESSEE BY : SHRI SUBHASH AGGARWAL, ADVOCATE #!' REVENUE BY : SHRI ARVIND SUDARSHAN, JCIT $ %! & DATE OF HEARING : 20/07/2020 '()*! & DATE OF PRONOUNCEMENT : 20/07/2020 '#/ ORDER PER N.K. SAINI, VICE PRESIDENT THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORD ER OF THE LD. CIT(A)-3, LUDHIANA DT. 01/05/2019. 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. THAT THE CIT(A)-3 HAS ERRED IN CONFIRMING THE DISALLOWA NCE OF INTEREST U/S 36(1)(III) AMOUNTING TO RS. 4,60,139/- ( RS. 2,62,603/- + RS. 1,97,536/-) IGNORING THE SUBMISSIONS OF THE APPELLANT. THAT THE ADVANCES ON WHICH DISALLOWANCE OF INTEREST HAS BEEN CONFIRMED WERE OUT OF OWN FUNDS. 2. THAT THE CONFIRMATION OF DISALLOWANCE IS ON ACCOUNT OF LACK OF UNDERSTANDING AND IGNORANCE OF LAW ON PART OF CIT(A). 3. THAT IN ANY CASE THE ORDER OF THE CIT(A) IS AGAINST THE LAW AND FACTS OF THE CASE. 2 4. THAT THE APPELLANT CRAVES LEAVE FOR PERMISSION TO AD D, AMEND OR ALTER ANY GROUND OF APPEAL AT THE TIME OF HEARING. FROM THE ABOVE GROUNDS IT IS GATHERED THAT THE ONLY GR IEVANCE OF THE ASSESSEE RELATES TO THE CONFIRMATION OF DISALLOWANCE OF INTEREST AMOUNTING TO RS. 2,62,603/- AND RS. 1,97,536/- TOTALING TO RS. 4,60,139/- UNDER SECTION 3 6(1)(III) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT). 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE W AS DERIVING INCOME FROM TRADING OF PROPERTY BUSINESS AND FILED THE RETURN OF INCOME ON 04/02/2013 DECLARING AN INCOME OF RS. 5,19,336/-. LATER ON THE CASE WAS SELECTED FOR SCRUTINY, DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. NOTICED THAT THE ASSESSE E HAD GIVEN AN ADVANCE OF RS. 19,79,617/- TO M/S CHELSI FOODS AND HAD CHARGED NO INTEREST. THE EXPLANATION OF THE ASSESSEE WAS THAT THE SAID INVESTMENT WAS MADE OUT OF PERSONAL CAPITAL WHICH WAS AT RS. 33,87,393/- AS ON 01/04/2011 AND CLOSING BALANCE A S ON 31/03/2012 WAS RS. 35,88,466/-, DETAILS OF THE SAME HAD BEEN GIVEN AT PAGE NO. 3 OF THE ASSESSMENT ORDER DT. 04/03/2015. 3.1 THE A.O. ALSO NOTICED THAT THE ASSESSEE HAD MADE INTE REST FREE ADVANCES TO THE FOLLOWING PERSONS: 1 RAM KUMAR 1,25,000 2 BALWINDER KAUR 1,00,000 3 AJAY KUMAR 5,00,000 4 VARUN GUPTA 20,00,000 5 BALDEV RAJ 10,00,000 37,25,000 HE ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY INTEREST CHARGEABLE FROM THE ABOVE PARTIES MAY NOT BE DISALLOWED FROM THE INTEREST PAID AND CLAIMED IN THE P&L ACCOUNT. 3.2 THE A.O. WAS NOT SATISFIED FROM THE REPLY OF THE AS SESEE AND OBSERVED THAT THE ADVANCES GIVEN WERE NOT FOR ANY BUSINESS EXPEDIENCY. H E DISALLOWED NOTIONAL INTEREST @ 12% ON THE AFORESAID ADVANCES AMOUNTING TO RS. 2,62, 603/- AND SIMILAR DISALLOWANCE AMOUNTING TO RS. 1,97,536/- WAS MADE ON THE INTEREST FR EE LOAN TO M/S CHELSI FOODS. 3 4. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE ASSESSEE WAS A PARTNER IN M/S CHELSI FOODS AND THE INVESTMENT HAD BEEN MADE OUT OF HIS OWN PERSONAL CAPITAL. AS REGARDS TO THE ADVANCES GIVEN TO VARIOUS PARTIES (AS MENTIONED ABOVE), IT WAS STATED THAT THOSE ADVANCES WERE GIVEN FOR PURCHASE OF PROPERTY AS THE ASSESSEE WAS DEALING IN TH E PURCHASE AND SALE OF PROPERTY WHICH WAS THE INTEGRAL PART OF HIS BUSINESS. 4.1 LD. CIT(A), HOWEVER, WAS NOT SATISFIED FROM THE E XPLANATION OF THE ASSESSEE AND SUSTAINED THE DISALLOWANCE MADE BY THE A.O. 5. NOW THE ASSESSEE IS IN APPEAL. 6. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISS IONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE ASSESSE E MADE THE INVESTMENT AS A PARTNER IN THE FIRM M/S CHELSI FOODS, OUT OF HIS OWN CAP ITAL WHICH WAS SUFFICIENT TO MAKE THE INVESTMENT. IT WAS FURTHER STATED THAT THE CAPITAL O F THE ASSESSEE IN THE BEGINNING OF THE YEAR WAS AT RS. 33,87,393/- AND AT THE END OF THE YEAR I.E; ON 31/03/2012 IT WAS RS. 35,88,466/-. THEREFORE THE CAPITAL OF THE ASSESSEE WA S SUFFICIENT TO MAKE THE INVESTMENT IN THE FIRM M/S CHELSI FOODS. 7. AS REGARDS TO THE OTHER ADVANCES GIVEN TO VARIOUS P ARTIES, IT WAS SUBMITTED THAT THE ASSESSEE WAS DEALING IN THE BUSINESS OF SALE & PUR CHASE OF PROPERTY AND FOR THE PURPOSES OF TRADING & PURCHASE OF PROPERTY, THE ADVANC ES WERE GIVEN TO THE PARTIES IN QUESTION AND WHEN THE DEAL DID NOT MATERIALIZE, THOSE AD VANCES WERE RECOVERED BACK IN THE SUBSEQUENT YEAR. HE ALSO DREW MY ATTENTION TOWARD S PAGE NO. 1 TO 8 OF THE ASSESSEES COMPILATION WHICH ARE THE COPIES OF AGREEME NT WITH AFORESAID PARTIES TO PURCHASE THE PROPERTIES. THE LD. COUNSEL FOR THE ASSES SEE SUBMITTED THAT THE DISALLOWANCE MADE BY THE A.O. AND SUSTAINED BY THE LD. CIT(A) WAS NOT JUSTIFIED. 8. IN HIS RIVAL SUBMISSIONS THE LD. DR STRONGLY SUPPORT ED THE ORDERS OF THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE ASSESSEE DID NOT F URNISH THE DETAILS AND CLEAR WORKING OF DEPLOYMENT OF ADVANCES GIVEN OUT OF INTEREST FREE FUNDS, THEREFORE THE DISALLOWANCE MADE BY THE A.O. WAS RIGHTLY SUSTAINED B Y THE LD. CIT(A). 4 9. I HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIE S AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE IT IS NOTICE D THAT THE ASSESSEE WAS HAVING CAPITAL BALANCE OF RS. 33,87,393/-IN THE BEGINNING OF THE YEAR I.E; 01/04/2011 AND THE SAME WAS AT RS. 35,88,466/- AT THE END OF THE YEAR I.E ; 31/03/2012. THE ASSESSEE WAS ALSO PARTNER IN THE FIRM M/S CHELSI FOODS IN WHICH THE INVES TMENT OF RS. 19,79,617/- WAS MADE. THEREFORE, WHEN THERE WAS SUFFICIENT BALANCE AVAILABLE W ITH THE ASSESSEE TO MAKE THE INVESTMENT AS A PARTNER, THERE WAS NO QUESTION TO MAKE T HE DISALLOWANCE OF RS. 1,97,536/- ON ACCOUNT OF NOTIONAL INTEREST ACCORDINGLY THE SAME IS DELETED. 10. AS REGARDS TO THE ANOTHER DISALLOWANCE OF RS. 2,62 ,603/- IS CONCERNED THE CONTENTION OF THE ASSESSEE THAT THOSE ADVANCES WERE GIVEN TO PURCHASE THE PROPERTY AND THE ASSESSEE WAS DEALING IN THE PURCHASE & SALE OF P ROPERTY WAS NOT REBUTTED AT ANY STAGE. IN THE PRESENT CASE WHEN THE ADVANCES WERE G IVEN BY THE ASSESSEE TO VARIOUS PARTIES FOR THE BUSINESS PURPOSE I.E; TO PUR CHASE THE PROPERTY, THERE WAS NO QUESTION OF MAKING DISALLOWANCE OF INTEREST ON NOTIONAL B ASIS, ACCORDINGLY THE SAME IS ALSO DELETED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 20/07/2020 ) SD/- .., ( N.K. SAINI) ! / VICE PRESIDENT AG DATE: 20/07/2020 (+! ,-.- COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. $ / CIT 4. $ / 01 THE CIT(A) 5. -2 45&456789 DR, ITAT, CHANDIGARH 6. 8:% GUARD FILE