Sumit Kumar Goyal, Malerkotla V. ITO, Malerkotla

ITA 1156/CHANDI/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5315 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 08-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHANDRA KANTA
• Keywords: Depreciation; Retrospective amendment; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH B, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO.1156/CHD/2016 ASSESSMENT YEAR: 2011-12 SUMIT KUMAR GOYAL VS. THE ITO, IV(4) PROP. M/S SUMIT FABRICS MALERKOTLA C/O M/S MOTI TALKIES MALERKOTLA- 148023 PAN NO. ABKPG4539P (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. TEJ MOHAN SINGH REVENUE BY : SMT. CHANDRAKANTA DATE OF HEARING : 27/12/2017 DATE OF PRONOUNCEMENT : 16/01/2018 ORDER PER SANJAY GARG,JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER OF THE LD. CIT(A)-2 LUDHIANA DT. 28/07/2016. 2. THE ASSESSEE HAS RAISED FOLLOWING EFFECTIVE GROU NDS OF APPEAL: 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN UPHOLDING THE DISALLOWANCE OF INTEREST OF RS. 3,74,420/- BY INVOK ING THE PROVISIONS OF SECTION 36(1)(III) OF THE IT ACT, 1961, WHICH ARE NOT APPLI CABLE IN THE FACTS OF THE CASE AND AS SUCH UPHOLDING OF THE ADDITION IS ILLEGAL, ARBIT RARY AND UNJUSTIFIED. 2. THAT THE LD. CIT(A) HAS FURTHER ERRED IN UPHOLDING THE ADDITION OF RS. 1,00,255/- ON ACCOUNT OF DISALLOWANCE OF INTEREST P AID TO M/S CITI FINANCIAL CONSUMER FINANCE INDIA LTD. WITHOUT DEDUCTION OF TA X BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961, W HICH IS ILLEGAL, ARBITRARY AND UNJUSTIFIED. 3. THAT THE LD. CIT(A) HAS ALSO FURTHER ERRED IN UPHOL DING THE ADHOC DISALLOWANCE OF RS. 77,348/- OUT OF TOTAL EXPENDITU RE CLAIMED AT RS. 3,86,741/- FOR ALLEGED PERSONAL USE WHICH IS ARBITRARY AND UNJUSTI FIED. 3. GROUND NO. 1 OF THE APPEAL RELATES TO THE DISALL OWANCE OF INTEREST OF RS. 3,74,420/- UNDER SECTION 36(1)(III) OF THE INCOME T AX ACT ON ACCOUNT OF INTEREST ON ADVANCES TO VARIOUS PARTIES. 2 4. BRIEF FACTS OF THE CASE ARE THAT DURING THE ASSE SSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD MADE INTEREST FREE ADVA NCES TO CERTAIN PARTIES. ON BEING ASKED TO EXPLAIN HE SUBMITTED THAT THE SAME W ERE OUT OF BUSINESS EXPEDIENCY. HOWEVER THE AO DID NOT AGREE WITH THE A BOVE EXPLANATION OF THE ASSESSEE AND MADE NOTIONAL DISALLOWANCE OF INTEREST OF RS. 34 LACS UNDER SECTION 36(1)(III) OF THE ACT. THE ASSESSEE REMAINE D UNSUCCESSFUL EVEN IN FIRST APPEAL BEFORE THE LD. CIT(A). 5. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SH. TEJ MOHAN SINGH HAS SUBMITTED THAT THE VARIOUS ADVANCES WERE MADE BY THE ASSESEE DURING THE COURSE OF ITS BUSINESS OF MANUFACTURING, RETAIL, TRADING OF KNITT ED CLOTH AND HANDLOOM FABRICS. HE HAS DEMONSTRATED FROM THE RECORD THAT THE MAJOR AMOUNT OF RS. 30,75,000/- WAS ADVANCED TO M/S BANSAL WOOL INDUSTRIES, WHO I S SUPPLIER OF YARN AND KNITTED CLOTHS. THE SAID ADVANCES WERE MADE FOR THE PURCHASE OF GOODS, HOWEVER, SOME DISPUTE HAD ARISEN BETWEEN THE PARTIE S OVER THE QUALITY OF GOODS AND AS SUCH THE SUPPLIER COULD NOT SUPPLY THE GOODS ORDERED DURING THE YEAR. 6. THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED IN T HIS RESPECT, ON THE BOOKS OF ACCOUNT SPECIALLY THE COPY OF THE ACCOUNT OF THE M/ S BANSAL WOOLEN INDUSTRIES IN THE BOOKS OF THE ASSESSEE. LD. COUNSEL FOR THE A SSESSEE ALSO SUBMITTED THAT THE AMOUNT WAS ADVANCED FROM THE CURRENT BANK ACCOUNT O F THE ASSESSEE WHICH WAS OUT OF THE RECEIPTS RECEIVED FROM THE CONSUMERS OF THE ASSESSEE. LD. COUNSEL FOR THE ASSESSEE LIKEWISE HAS EXPLAINED ABO UT THE REMAINING AMOUNT ADVANCED RANGING FROM RS. 20,000/- TO RS. 1,00,000/ -AND HAS SUBMITTED ALL THE ADVANCES WHICH WERE MADE TO THE CONCERNED PARTIES W HICH WERE INVOLVED IN THE LIKEWISE BUSINESS AND WERE HAVE BUSINESS DEALIN G WITH THE ASSESSEE. HE THEREFORE SUBMITTED THAT IT IS NOT A CASE OF ANY IN TEREST FREE ADVANCES GIVEN FOR NON BUSINESS PURPOSE, RATHER THE SAME ARE OUT OF BU SINESS EXPEDIENCY. 3 7. LD. DR HOWEVER, HAS RELIED ON THE ORDER OF THE L OWER AUTHORITIES. 8. AFTER CONSIDERING THE ABOVE FACTS AND CIRCUMSTAN CES OF THE CASE AND GOING THROUGH THE RECORD PLACED BEFORE US, WE FIND THAT ADVANCES IN QUESTION WERE MADE BY THE ASSESSEE DURING THE COURSE OF ITS BUSINESS AND OUT OF COMMERCIAL EXPEDIENCY, WE THEREFORE DO NOT FOUND AN Y JUSTIFICATION ON THE PART OF THE LOWER AUTHORITIES FOR MAKING THE DISALLOWANC E AND THE SAME IS ACCORDINGLY ORDERED TO BE DELETED. 9. GROUND NO. 2 RELATES TO THE DISALLOWANCE OF RS. 1,00,255/- UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT. 10. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDI NGS NOTED THAT THE ASSESSEE HAS MADE CERTAIN PAYMENTS WITHOUT DEDUCTIN G TAX AT SOURCE. HE THEREFORE MADE THE IMPUGNED DISALLOWANCE WHICH HAS BEEN CONFIRMED BY THE LD. CIT(A). 11. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT RESPECTIVE PAYEES HAVE ALREADY TAKEN INTO ACCOUNT THE AMOUNT R ECEIVED BY THEM FROM THE ASSESSEE AND HAVE OFFERED THE SAME FOR TAXATION IN THEIR RETURN OF INCOME. LD. COUNSEL FOR THE ASSESSEE IN THIS RESPECT HAS RE LIED UPON THE PAPER BOOK PAGE NOS. 66 TO 69 WHICH ARE THE COPIES OF THE CERTIFICA TES FROM PAYEES CONFIRMING THE RECEIPT OF PAYMENTS / INTEREST FROM THE ASSESSEE. L D. COUNSEL FOR THE ASSESSEE IN THIS RESPECT HAS RELIED UPON THE AMENDED PROVISIONS OF SECTION 40(A)(IA) OF THE INCOME TAX ACT, WHEREIN, AS PER THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT, THE DISALLOWANCE IS NOT ATTRACTED IF THE PAYEE HAS OFFERED THE RECEIPT FOR TAXATION IN HIS RETURN OF INCOME. THE LOWER AUTHORI TIES HAVE REJECTED THE SAID ARGUMENT OF THE ASSESSEE ON THE GROUND THAT THE SEC OND PROVISO HAS BEEN INSERTED WITH EFFECT FROM 01/04/2013, WHEREAS, THE ASSESSMENT YEAR UNDER CONSIDERATION IS AY 2011-12 AND THAT THE SAME ARE N OT APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. HOWEVER, THE L D. COUNSEL HAS RELIED UPON 4 THE DECISION OF THE COORDINATE BENCH OF ITAT CHANDI GARH IN ITA NO. 347/CHD/2017 DT. 21/04/2017 WHEREIN THE TRIBUNAL WH ILE RELYING UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. ANSAL LAND MARK TOWNSHIP(P) LTD. (2015) 61 TAXMAN.COM 45(DELHI) HA S HELD THAT THE SECOND PROVISO TO SECTION 40(A)(IA) IS DECLARATORY AND CUR ATIVE AND IT HAS A RETROSPECTIVE EFFECT FROM 01/04/2005. 12. IN VIEW OF THE ABOVE THE ISSUE IS SQUARELY COVE RED BY THE DECISION OF THE ITAT CHANDIGARH (SUPRA). THEREFORE THIS GROUND OF A PPEAL IS ALLOWED. 13. GROUND NO. 3 RELATES TO THE DISALLOWANCE OF 1/5 TH OF THE TOTAL EXPENDITURE CLAIMED OF RS. 3,85,741/- ON ACCOUNT OF CAR MAINTEN ANCE, PETROL EXPENSES, DEPRECIATION, INSURANCE, INTEREST ON CAR LOAN AND T ELEPHONE EXPENSES. 14. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT A.O HAS MADE ADHOC DISALLOWANCE ON ACCOUNT OF 1/5 TH OF THE EXPENSES WITHOUT RECORDING ANY PARTICULAR REASON. THAT EVEN THE LD. CIT(A) HAS WRO NGLY CONFIRMED THE SAME. 15. WE FIND THAT CERTAIN EXPENSES LIKE DEPRECIATION , INSURANCE ETC DID NOT COVER ANY PERSONAL EXPENDITURE. CONSIDERING THE OVE RALL FACTS AND CIRCUMSTANCES OF THE CASE, THE ADHOC DISALLOWANCE O F EXPENDITURE IS RESTRICTED TO 1/10 OF THE EXPENSES CLAIMED. 16. IN VIEW OF THE ABOVE, THE APPEAL OF THE ASSESSE E IS TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (B.R.R. KUMAR) (SANJAY GA RG) ACCOUNTANT MEMBER JUDICIAL MEMBE R DATED : 16/01/2018 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR