M/s. A.S. Motors, Baroda V. The ACIT.,Circle-5, Baroda

ITA 1237/AHD/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6416 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-06-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 20-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMIR TEKRIWA LA
• Keywords: Commercial expediency
• Section: 143(3)

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M M/S A. S. MOTORS, VIMAL KUNJ, VINOBA BHAVE ROAD, VADODARA. VS. ASSTT. CIT, (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI SURESH THAKKAR, AR RESPONDENT BY:- SHRI SAMIR TEKRIWALA, SR.DR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . IN THIS APPEAL THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER :- (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN TREATING ADVANCES TO EX-PARTNERS AND O NE RELATIVE AMOUNTING TO RS.16,74,228/- AS NON-BUSINESS ADVANCE . THE AMOUNT OUGHT TO HAVE BEEN HELD AS GIVEN OUT OF CAPI TAL BALANCES OF THE PARTNERS. IT IS PRAYED THAT THE ADVANCES OF RS.16,74,228/- BE CONSIDERED AS ADVANCE OUT OF TOTAL COMBINED CAPITAL BALANCE OF PA RTNERS OF THE FIRM. (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED BOTH IN LAW AND ON FACTS IN DISALLOWING I NTEREST OF RS.3,01,361/- OUT OF INTEREST PAYMENT, TREATING ADV ANCES TO EX- PARTNERS AND A RELATIVE AS FOR NON-BUSINESS PURPOSE . IT IS PRAYED THAT DISALLOWANCE OF INTEREST OF RS.3, 01,361/- BE DELETED. ITA NO.1237/AHD/2010 ASST. YEAR 1998-99 ITA NO.1237/AHD/2010 ASST. YEAR 1998-99 2 2. THE ASSESSEE DID NOT PRESS GROUND NO.1 AND HENCE IT IS REJECTED. 3. GROUND NO.2 RELATES TO CONFIRMATION OF DISALLOWA NCE OF INTEREST AT RS.3,01,361/-. THE ASSESSEE IS AUTHORISED DEALER OF BAJAJ AUTO LTD. IT HAD DECLARED INCOME OF RS.1,49,550/-. THE ASSESSMENT WA S COMPLETED U/S 143(3) ON 18.12.00 ON A TOTAL INCOME OF RS.8,80,610 /-. ONE OF THE ADDITIONS OF RS.5,94,626/- PROPOSED BY THE AO WAS D ISALLOWANCE OF INTEREST OUT OF INTEREST PAID ON BORROWED FUNDS DUE TO INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE. ON FURTHER APPEAL B Y THE REVENUE THE MATTER WAS RESTORED TO THE FILE OF THE AO FOR FURTH ER VERIFICATION. THE FRESH ASSESSMENT U/S 143(3)/254 WAS PASSED BY THE A O ON 26.12.2008 WHEREIN HE HAS PROPOSED AN ADDITION OF RS.4,32,720/ - BEING DISALLOWANCE OF INTEREST RELATING TO TOTAL INTEREST FREE ADVANCE OF RS.24,04,004/-. THE PARTIES AGAINST WHOM THE ADVANCES WERE OUTSTANDING WERE AS UNDER :- 1 KANTIBHAI PATEL (CURRENT A/C) RS.2,44,156/- 2 HARSHADBHAI PATEL RS.5,18,393/- 3 GAURANG PATEL RS.4,12,859/- 4 DEVANG PATEL RS.2,81,298/- 5 SMITABEN PATEL RS.1,03,215/- 6 KANTIBHAI PATEL (HUF) RS.230/- 7 MAHENDRA PATEL RS.3,870/- TOTAL RS.15,64,021/- 1 TUSHAR AMIN RS.6,54,698/- 2 SHUSHILABEN AMIN RS.32,885/- 3 HANSABEN AMIN RS.11,693/- 4 HANSABEN AMIN RS.2,879/- 5 SHASHIKANT AMIN RS.1,07,328/- ITA NO.1237/AHD/2010 ASST. YEAR 1998-99 3 6 RAMESHBHAI SONI RS.15,000/- 7 AMBALAL PARIKH RS.15,500/- TOTAL: RS.8,39,983/- IN THE RE-ASSESSMENT PROCEEDINGS THE AO TOOK THE VI EW THAT ASSESSEE FAILED TO PROVE THAT ACCOUNTS WERE DISPUTED AND INT EREST WAS NOT COLLECTIBLE. THE DETAILS LIKE NATURE OF THESE ACCOU NTS AND EVIDENCE FOR STEPS/LEGAL PROCEEDINGS TAKEN FOR INITIATION OF REC OVERY WERE NOT PRODUCED BY THE ASSESSEE. THEREFORE, THE ASSESSEE COULD NOT ESTABLISH THE NEXUS BETWEEN INTEREST FREE FUNDS AVAILABLE AND INTEREST FREE ADVANCES GIVEN AND ITS BUSINESS CONNECTION. 4. THE LD. CIT(A) HELD THAT ASSESSEE FAILED TO PROV E THAT ADVANCES WERE GIVEN FOR COMMERCIAL EXPEDIENCY. SUNDRY ADVANC ES WERE GIVEN TO THE EX-PARTNERS FROM WHOM INTEREST WAS CHARGED FROM 1991 TO 1998. SUCH INTEREST WAS ALSO OFFERED FOR TAXATION BUT THE ASSE SSEE FAILED TO CHARGE INTEREST IN THE CURRENT ASST. YEAR ONLY ON THE GROU ND THAT RECOVERY WAS NOT FORTH-COMING DUE TO DISPUTE WITH THE EX-PARTNERS. T HE ASSESSEE, HOWEVER, FAILED TO PROVIDE EVIDENCE OF ALLEGED DISPUTES WITH THE EX-PARTNERS. FURTHER ONCE THE PARTNERS HAVE LEFT THE FIRM THERE COULD NOT BE ANY BUSINESS PURPOSE IN RETAINING THE FUNDS WITH THEM. OUT OF TOTAL SUM OF RS.24,04,004/-, A SUM OF RS.16,71,349/- PERTAINED T O EX-PARTNERS, THE DETAILS OF WHOM ARE GIVEN BY LD. CIT(A) AS UNDER :- ITA NO.1237/AHD/2010 ASST. YEAR 1998-99 4 1 KANTIBHAI PATEL (CURRENT A/C) RS.2,44,156/- 2 HARSHADBHAI PATEL RS.5,18,393/- 3 GAURANG PATEL RS.4,12,859/- 4 DEVANG PATEL RS.2,81,298/- 5 SMITABEN PATEL RS.1,03,215/- 6 KANTIBHAI PATEL (HUF) RS.230/- 7 MAHENDRA PATEL RS.3,870/- 8 SASHIKANT PATEL RS.1,07,328/- TOTAL RS.16,71,349/- HE, HOWEVER, HELD THAT ADVANCES GIVEN TO STAFF MEMB ERS NAMELY RAMESHBHAI SONI AND AMBALAL PARIKH WERE IN THE INTE REST OF BUSINESS. BUT IN RESPECT OF ADVANCES OF RS.2,879/- TO HANSABE N AMIN, A BUSINESS PURPOSE COULD NOT BE ESTABLISHED. HE ACCORDINGLY CO NFIRMED THE DISALLOWANCE OF INTEREST @ 18% ON RS.16,71,349/- + RS.2,879/-. THUS THE DISALLOWANCE OF INTEREST WAS RESTRICTED TO RS.3,01, 361/-. 5. BEFORE US, THE LD. AR SUBMITTED THAT DEBIT BALAN CES AGAINST EX- PARTNERS ARE FOR BUSINESS PURPOSES. THESE PARTNERS HAD RETIRED IN THE YEAR 1990. THEY HAD DISPUTED THEIR OUTSTANDING BALANCES AND IN SPITE OF NOTICES ISSUED THEY HAVE NOT PAID THEIR DUES. IN FACT ORIGI NAL AMOUNT OUTSTANDING AGAINST THEM WAS RS.7,54,975/- ON WHICH INTEREST FO R THE PERIOD FROM 1991- TO 1998 AMOUNTED TO RS.9,16,365/- CREATING TO TAL OUTSTANDING BALANCE AT RS.16,71,349/-. NO ADVANCE WAS GIVEN TO ANY OF THESE PARTIES SINCE 31.3.1991. THERE CANNOT BE A CASE THAT INTERE ST BEARING FUNDS DURING THE CURRENT YEAR WERE DIVERTED FOR NON-BUSINESS PUR POSES TO THE ABOVE ITA NO.1237/AHD/2010 ASST. YEAR 1998-99 5 PARTIES. ON THE OTHER HAND, COMBINED CAPITAL OF THE PRESENT PARTNERS TOGETHER IS RS.1,21,14,964/- AND HENCE ABOVE AMOUNT OF ADVANCES CAN BE SAID OUT OF CAPITAL OF EXISTING PARTNERS. SINCE AMO UNT WAS NOT RECOVERABLE IT WAS A DEAD LOSS TO THE FIRM. EVEN THE INTEREST C HARGED BY THE ASSESSEE AND OFFERED FOR TAX IS DEAD LOSS AND COULD NOT BE R ECOVERED AND IT WOULD BE A BAD DEBT FOR THE ASSESSEE. 6. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDE RS OF AUTHORITIES BELOW. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW SUCH DISALLOWANCE S OF INTEREST COULD NOT BE MADE THIS YEAR. THE REASONS ARE THAT NO ADVA NCE WAS GIVEN IN THE CURRENT YEAR. THEY WERE OUTSTANDING FROM 1991 TO 19 98 AND MORE THAN 50% OF THE OUTSTANDING AMOUNT IS INTEREST CHARGED B Y THE ASSESSEE AGAINST THE OUTSTANDING BALANCES, AND OFFERED FOR TAXATION IN EARLIER YEARS. THE INTEREST PAID BY THE ASSESSEE AND DEBITED TO THE PR OFIT AND LOSS ACCOUNT IS ON BORROWINGS IN THE CURRENT YEAR. ANY DISALLOWANCE OUT OF SUCH INTEREST CAN BE MADE IF ADVANCES ARE GIVEN IN THE CURRENT YE AR SO AS TO RAISE THE PRESUMPTION THAT INTEREST BEARING FUNDS OF THE CURR ENT YEAR ARE DIVERTED AS INTEREST FREE ADVANCES TO ASSOCIATES OR SISTER CONC ERN. THE QUESTION OF ESTABLISHING ANY NEXUS BY THE ASSESSEE WOULD ARISE IF ADVANCES ARE GIVEN IN THE CURRENT YEAR. FURTHER, WE ARE OF THE VIEW TH AT IF ASSESSEE HAS SUFFICIENT INTEREST FREE CAPITAL THEN PRESUMPTION G OES IN FAVOUR OF THE ASSESSEE THAT INTEREST FREE ADVANCES WOULD HAVE GON E OUT OF SUCH INTEREST BEARING CAPITAL UNLESS PROVED OTHERWISE. HON. SUPRE ME COURT IN THE CASE OF MUNJAL SALES CORPORATION VS. CIT (2008) 298 ITR 298(SC) HELD THAT IF ITA NO.1237/AHD/2010 ASST. YEAR 1998-99 6 PROFITS AND CAPITAL IS SUFFICIENT TO COVER THE LOAN GIVEN TO SISTER CONCERN THEN IT SHOULD BE HELD THAT SUCH INTEREST FREE LOAN S WERE GIVEN OUT OF ASSESSEES OWN FUNDS. CONSIDERING THIS LEGAL POSITI ON, WE DO NOT FIND ANY REASON TO SUSTAIN ANY DISALLOWANCE OF INTEREST. 8. SIMILAR SITUATION EXISTED IN EARLIER YEAR, ASSES SEE HAD ALSO PAID INTEREST IN EARLIER YEAR BUT NO DISALLOWANCE OF ANY INTEREST WAS MADE IN ANY EARLIER YEAR. THEREFORE, THERE IS NO REASON FOR THE AO TO INFER THAT INTEREST BEARING FUNDS WERE DIVERTED AS NON-INTERES T-BEARING ADVANCES. PRINCIPLES OF CONSISTENCY DEMAND THAT IF FACTS OF T HE CASE REMAIN THE SAME THEN SIMILAR DECISION SHOULD BE FOLLOWED IN THE SUB SEQUENT YEAR. SINCE IN EARLIER YEARS, THE DEPARTMENT HAD NOT MADE ANY DISA LLOWANCE ON THE SAME TERMS AND CONDITIONS IN ACCORDANCE WITH THE SAME PR OVISIONS OF THE LAW EXISTING, THERE BEING NO CHANGE IN THE FACTS OR IN THE LAW, A DIFFERENT DECISION CANNOT BE TAKEN. THE PRINCIPLE OF CONSISTE NCY HAS TO BE FOLLOWED. A DIFFERENT VIEW CAN ONLY BE TAKEN WHEN FACTS ARE P RIMA FACIE DIFFERENT OR LAW HAS UNDERGONE A CHANGE. IN ABSENCE OF THESE TWO SITUATIONS, THE REVENUE IS EXPECTED TO FOLLOW THE DECISION TAKEN IN EARLIER YEARS. IN VIEW OF PREPONDERANCE OF THE DECISIONS IN FAVOUR OF THE ASSESSEE AND PRINCIPLES OF CONSISTENCY, WE SET ASIDE THE ORDER OF LD. CIT(A ) AND ALLOW THE CLAIM OF ASSESSEE. AS A RESULT, THE APPEAL FILED BY THE A SSESSEE IS ALLOWED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 17.06.2011. SD/- SD/- (BHAVNESH SAINI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 17/06/2011. MAHATA/- ITA NO.1237/AHD/2010 ASST. YEAR 1998-99 7 COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 7/6/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 13/6/11. /OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..