M/S B Mangatram & Co, Bhuj V. The Assistant Commissioner of Income Tax, Gandhidham, GANDHIDHAM

ITA 1090/RJT/2010

• Counselvise Citation: 109024914 RSA 2010
• Duration Of Justice: 1 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 29-03-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 10-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: VIMAL DESAI
• Keywords: Commercial expediency

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT. . .. . . .. . , , , , . .. . . .. . , , , , $ $ $ $ BEFORE SHRI T. K. SHARMA, JM AND SHRI D. K. SRIVAST AVA, AM. ITA NO. 1090/RJT/2010 / ASSESSMENT YEAR:-2006-07. M/S. B. MANGATRAM & CO., VILLAGE: MADHAPAR, BHUJ. PAN :AACFB8396G ( */ APPELLANT) VS. THE A.C.I.T., GANDHIDHAM CIRCLE, GANDHIDHAM. +,*/ RESPONDENT -. / ASSESSEE BY SHRI VIMAL DESAI, C.A. . / REVENUE BY SHRI M. K. SINGH, D.R. . / DATE OF HEARING 29-03-2012 . / DATE OF PRONOUNCEMENT 20 - 04-2012 / / / / ORDER . .. . . . . . , , , , / T. K. SHARMA, J. M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 21-05-2010 OF C IT (A)-II, RAJKOT CONFIRMING THE DISALLOWANCE OF RS.1,90,771/- OUT OF INTEREST E XPENSES FOR THE ASSESSMENT YEAR 2006-07. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A PARTNERSHIP FIRM. IT EARNS INCOME AS A DEALER/AGENT OF AUTOMOBILES, SPARES ETC . FOR THE ASSESSMENT UNDER APPEAL, IT FILED THE RETURN OF INCOME DECLARING TAX ABLE INCOME OF RS.67,27,170/-. AO FRAMED THE ASSESSMENT U/S.143(3) ON 10-12-2008 A T TOTAL INCOME OF RS.69,17,941/-. IN THIS ASSESSMENT ORDER, AO DISAL LOWED INTEREST EXPENSES TO ITA NO 1090/RJT/2010. 2 THE EXTENT OF RS.1,90,771/- ON THE GROUND THAT ASSE SSEE HAS PAID INTEREST AT THE RATE OF 9.5% AND 12% TO THE BANKS AND OTHER PARTIES . AS AGAINST THIS, IT HAS CHARGED INTEREST FROM M/S. B. MANGATRAM & SONS OF RS.9,81,109/- AT THE RATE OF 9%. THUS, BY TAKING AVERAGE 10.75% THE INTEREST CH ARGED FROM M/S. B. MANGATRAM & SONS SHOULD BE RS.11,71,880/-. SINCE T HE ASSESSEE CHARGED LESS INTEREST RS.1,90,771/-, HE DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL BEFORE LD. CIT(A), ASSESSE E CONTENDED THAT LOAN AT LESSER RATE WAS GIVE TO M/S. B. MANGATRAM & SONS IN VIEW OF COMMERCIAL EXPEDIENCY THE RELIANCE WAS ALSO PLACED ON THE DEC ISION OF APEX COURT IN THE CASE OF S.A. BUILDERS 188 ITR 1. IT WAS ALSO CONTE NDED THAT AO FAILED TO PROVE DIRECT NEXUS THEREFORE, NO DISALLOWANCE OUT OF INTE REST IS CALLED FOR AS INTEREST CHARGE AT THE RATE OF 9% IS ALSO PREVALENT RATE OF INTEREST AT THE RELEVANT TIME. 3. IN THE IMPUGNED ORDER, THE LD. CIT(A) REJECTED B OTH THE AFORESAID CONTENTIONS FOR THE DETAILED REASON GIVEN IN PARA-( BC) WHICH READS AS UNDER:- (BC) THE APPELLANTS REQUEST THAT EVEN IF DISALLOW ANCE WAS TO BE MADE, IT SHOULD HAVE BEEN MADE AT 0.5% ONLY BEING DIFFERENCE BETWEEN RATE OF INTEREST PAID TO HDFC BANK (9.5%) AND RATE CHARGED ON ADVANCE (9%) IS NOT ACCEPTABLE. THE APPELLANT WANTED THE AO TO EST ABLISH DIRECT NEXUS BETWEEN IMPUGNED ADVANCE AND BAND FINANCE. I OPINE THAT THIS CONTENTION IS NOT ACCEPTABLE, AS IT IS NOT THE JOB OF AO TO FI ND OUT THE DIRECT CORRELATION BETWEEN THE ADVANCE GIVEN AND FUNDS. THE APPELLANT SHOULD HAVE ESTABLISHED AT THE FIRST INSTANCE. THIS ONUS WAS NO T DISCHARGED. FURTHER, THE DECISION OF APEX COURT (SUPRA) IS ALSO NOT STRI CTLY APPLICABLE IN THE APPELLANTS CASE AS APPELLANT DID NOT PROVE THE COM MERCIAL EXPEDIENCY IN ADVANCING LOAN TO ITS SISTER CONCERN. TO CONCLUDE, I OPINE WHAT AO DID WAS CORRECT IN TAKING THE AVERAGE RATE OF INTEREST AT 10.75% FOR HIS CALCULATION PURPOSE. THE APPELLANT DID NOT PROVE T HAT ADVANCE WAS FLOWN FROM THE FINANCE OR FUND FROM HFC BANK. THE DISALLO WANCE MADE IS CONFIRMED. 4. AGGRIEVED WITH THE ORDER OF LD. CIT(A), ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF T HE ASSESSEE, SHRI VIMAL DESAI, C.A. APPEARED AND CONTENDED THAT IN THE STAT EMENT OF FACTS FILED BEFORE THE LD. CIT(A), IT WAS CONTENDED THAT ASSESSEE-FIRM WAS USING THE PREMISES OF ITA NO 1090/RJT/2010. 3 M/S. MANGATRAM & SONS AT GANDHIDHAM FOR WORKSHOP AN D AMOUNT HAS BEEN PAID DUE TO BUSINESS EXPEDIENCY . BECAUSE OF THIS REASON , THE ASSESSEE HAS CHARGED THE INTEREST AT THE RATE OF 9% AS AGREED. IT WAS A LSO CONTENDED THAT ASSESSEE WAS HAVING INTEREST FREE FUND ALSO. BEFORE US, COUN SEL OF THE ASSESSEE FILED BALANCE-SHEET AS ON 31-03-2006 AND POINTED OUT THAT AS ON 31-03-2006, ASSESSEE-FIRM IS HAVING NN INTEREST T BEARING FUND AMOUNTING TO RS.3,17,732/-. HE CONTENDED THAT TAKING ALL THESE FACTORS INTO CON SIDERATION, THE DISALLOWANCE OF INTEREST AT THE RATE OF 1.5% IN RESPECT OF LOAN AT THE RATE OF 9% ADVANCED TO M/S. B. MANGATRAM & SONS BE DELETED. 6. WITHOUT PREJUDICE TO ABOVE, COUNSEL OF THE ASSES SEE DREW OUT ATTENTION TO PAGE-2 OF THE PAPER BOOK WHICH CONTAINS THE RATIO O F INTEREST BEARING FUND @ 9.5% OF TOTAL INTEREST WHICH IS 65% AS UNDER:- PARTICULARS AMOUNT TOTAL COMMISSION & INTEREST. 1,880,985.00 LESS: BANK CHARGES AND COMMISSION 84,946.00 NET TOTAL INTEREST. 1,796,039.00 INTEREST BEARING A RATE OF 9.5% TO HDFC BANK 1,171, 986.00 RATIO OF INTEREST BEARING A RATE OF 9.5% TO THE TOTAL INTEREST. 65% 7. FURTHER, THIS PAGE ALSO CONTAINS PERCENTAGE OF A DVANCE RECEIVED ON TOTAL LOAN WHICH IS 44% AS UNDER:- PARTICULARS AMOUNT TOTAL LOANS:- SECURED LOANS 18,453,378.23 UNSECURED LOANS (BEARINGINTEREST) 2,745,128.70 TOTAL LOANS 21,198,506.93 ADVANCES GIVEN BY B. MAANGATRAM SONS 9,410,744.2 0 PERCENTAGE OF ADVANCE RECEIVED BY B. MAANGATRAM SONS ON THE TOTAL LOANS. 44% ITA NO 1090/RJT/2010. 4 8. ON THE STRENGTH OF ABOVE, COUNSEL OF THE ASSESSE E PLEADED THAT THE DISALLOWANCE SHOULD HAVE BEEN MADE AT 0.5% BEING D IFFERENCE BETWEEN RATE OF INTEREST PAID TO HDFC BANK (9.5%) AND RATE CHARGED ON ADVANCE (9%). 9. SHRI M. K. SINGH, D.R. APPEARED ON BEHALF OF THE REVENUE VEHEMENTLY POINTED OUT THE ORDER OF LD. CIT(A). THE LD. D.R. P OINTED OUT THAT BEFORE THE AO, ASSESSEE FAILED TO PROVE NEXUS AND THE ONUS IS ON T HE ASSESSEE TO PROVE THE NEXUS THAT INTEREST FEE FUNDS WERE ALSO UTILIZED FO R GIVING LOAN AT THE RATE OF 9% TO M/S. B. MANGATRAM & SONS. WITH REGARD TO COMMERCIA L EXPEDIENCY, HE POINTED OUT THAT BEFORE THE LD. CIT(A), THE ASSESSEE COULD NOT PROVE THE COMMERCIAL EXPEDIENCY IN ADVANCING LOAN TO M/S. B. MANGATRAM & SONS. 10. RIVAL SUBMISSIONS WERE CONSIDERED. IT IS PERTI NENT TO NOTE THAT ASSESSEE HAS CHARGED THE INTEREST @ 9%. ACCORDING TO AO, IT SHOULD BE 10.75%. IN OUR CONSIDERED OPINION, THIS ALTERNATIVE PLEA OF THE AS SESSEE CANNOT BE REJECTED BECAUSE RATIOS OF INTEREST BEARING FUND AVAILABLE W ITH THE ASSESSEE @ 9.5% TO THE TOTAL INTEREST ARE 65%. WE THEREFORE, OF THE V IEW THAT IT WILL METTHE ENDS OF JUSTICE IF THE AO IS DIRECTED TO RE-CALCULATE THE D ISALLOWANCE @ 0.5% AS AGAINST 1.75% CALCULATED BY AO IN THE ASSESSMENT ORDER. WE ACCORDINGLY, DIRECT THE AO TO RESTRICT THE DISALLOWANCE AT 0.5%. 11. IN THE RESULT, FOR THE STATISTICAL PURPOSED, TH E APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. . 4 20/04/2012 6 . THIS ORDER PRONOUNCED IN OPEN COURT ON 20/04/2012. SD/- SD/- ( .. / D. K. SRIVASTAVA) ( .. / T. K. SHARMA) / ACCOUNTANT MEMBER /JUDICIAL MEMBER 4/ ORDER DATE 20/04/2012. /RAJKOT