Shri Sanjay Kumar Sharma, Ludhiana V. DCIT, C-6, Ludhiana

ITA 1249/CHANDI/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4085 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-10-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 13-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Notional interest; Commercial expediency; Set aside
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, B, CHANDIGARH , ! '# $ % & '# , () BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO. 1249/CHD/2019 / ASSESSMENT YEAR : 2014-15 SHRI SANJAY KUMAR SHARMA, PROP OF M/S KKPR AND ADVERTISERS, 68, NEW SARABHA NAGAR, PAKHOWAL ROAD, LUDHIANA THE DCIT, CIRCLE-6, LUDHIANA ./PAN NO: BCPPS4875M / APPELLANT /RESPONDENT HEARING THROUGH VIDEO CONFERENCING ! /ASSESSEE BY : SHRI ASHWANI KUMAR ,CA ' ! / REVENUE BY : SHRI AMARESH SINGH, CIT # $ % /DATE OF HEARING : 21.10..2020 &'() % / DATE OF PRONOUNCEMENT : 21.10.2020 (* / ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST THE ORDER DATED 26.09.2019 OF THE COMMISSIONER OF INCOM E TAX (APPEALS)-3, LUDHIANA [HEREINAFTER REFERRED TO AS CIT(A)]. 2. THE ASSESSEE IN THIS APPEAL HAS TAKEN FOLLOWING GROUNDS OF APPEAL:- 1. THE LD. COMMISSIONER OF INCOME TAX (APPEAL)-3, 2 ITA NO. 1249-CHD/2019- SANJAY KUMAR SHARMA, LUDHIANA LUDHIANA HAS ERRED IN LAW AND ON FACTS OF THE CASE : (A) BY ARBITRARILY AND WRONGLY CONFIRMED THE REJECTION OF BOOKS OF ACCOUNTS AND ASSESSMENT FRAMED U/S 143(3) R.W.S 144 OF THE INCOME TAX ACT, 1961. (B) BY ARBITRARILY AND WRONGLY CONFIRMED THE DISALLOWANCE OF RS.2483432/- TOWARDS BANK CHARGES, PROCESSING FEES AND BANK INTEREST U/S 36(I)(III) OF THE INCOME TAX ACT, 1961. 2. THE ABOVE SAID ORDER IS BAD IN LAW & CONTRARY TO THE FACTS OF CASE. 3. IT IS THEREFORE PRAYED THAT THE APPEAL MAY PLEAS E BE ACCEPTED AND SUCH RELIEF MAY KINDLY BE ALLOWED WHICH MAY BE DEEMED FIT AND PROPER UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. THE ASSESSEE CRAVES PERMISSION TO FILE/RAISE/AMEND ANY GROUND OF APPEAL BEFORE OR AT THE TIME OF HEARING. 3. THE SOLE ISSUE RAISED BY THE ASSESSEE THROUGH T HE ABOVE GROUNDS OF APPEALS IS RELATING TO THE DISALLOWANCE MADE BY THE LOWER AUTHORITIES U/S 36(I)(III) OF THE INCOME TAX ACT, 1 961 (IN SHORT 'THE ACT') OUT OF INTEREST EXPENDITURE IN RESPECT OF INT EREST FREE ADVANCES / PAYMENTS MADE BY THE ASSESSEE TO DIFFERENT PARTIES . THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS MADE THE DISALLOWANCE OF FOLLOWING EXPENSES:- A. BANK CHARGES RS.809877/- B. BANK INTEREST RS. 1578525/- C. PROCESSING FEE RS.95030/- TOTAL RS.2483432/- 3 ITA NO. 1249-CHD/2019- SANJAY KUMAR SHARMA, LUDHIANA THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HA D MADE INTEREST FREE ADVANCES TO THE FOLLOWING PARTIES WHICH WERE N OT FOR THE BUSINESS PURPOSES OF THE ASSESSEE:- A. SH. ASHUTOSH PROJECTIONS RS.30,00,000 - B. M/S GANGA ACROWOOLS LTD RS. 1060987/- C. M/S GROUP K. TECHNOLOGIES (P) LTD RS.16,50,374'- TOTAL RS. 5711361/- HE, THEREFORE, MADE THE IMPUGNED DISALLOWANCE U/S 3 6(I)(III) OF THE ACT OUT OF THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE. 4. BEFORE THE LD.CIT(A), THE LD. COUNSEL FOR THE AS SESSEE HAS EXPLAINED THE BUSINESS NEEDS FOR MAKING THE INTERES T FREE ADVANCES AS UNDER:- I. M/S ASHUTOSH (PROJECTIONS):- THE ADVANCE OF RS. 30,00,000/- WAS GIVEN TO THE SAID PARTY DURING THIS YEAR FOR PURCHASE OF OFFICE. HOWEVER, THE DEAL COULD NOT MATURE AND THE SAID ADVANCE WAS RECEIVED BACK BY APRIL-MAY, 2015, COPY OF ACCOUNT OF THE SAID PARTY FOR THE YEAR ENDING 31.03.2014 TO 31.03.2016 IS ENCLOSE D FOR READY REFERENCE. SINCE THE ADVANCE WAS GIVEN FO R BUSINESS PURPOSE UNDER COMMERCIAL EXPEDIENCY ONLY, NO DISALLOWANCE OF EXPENSES IS CALLED FOR W.R.T THE IMPUGNED ADVANCE OF RS.30,00,000/-. II. M/S GANGA ACROWOOLS LTD :- THE ASSESSEE COMPANY HAD SOLD GOODS TO THE SAID COMPANY VIDE BILL NO.218 2 DTD.30.11.2013 FOR RS.10,60,987/-. THE BILL AMOUNT WAS RECEIVED IN THE NEXT YEAR. COPY OF ACCOUNT OF THE S AID COMPANY FOR THIS YEAR AND NEXT YEAR ALONG WITH COPY OF SALE BILL ARE ENCLOSED FOR YOUR HONOUR'S PERUSAL. 4 ITA NO. 1249-CHD/2019- SANJAY KUMAR SHARMA, LUDHIANA HOWEVER, DUE TO MISTAKE, INSTEAD OF CLASSIFYING THE SAID AMOUNT AS A SUNDRY DEBTOR, IT WAS SHOWN IN THE LIST OF LOANS AND ADVANCES. ACCORDINGLY, NO DISALLOWANCE OF EXPENSES IS CALLED FOR W.R.T TO THE SAID AMOUNT OF RS.1060987/-. III. GROUP K. TECHNOLOGIES (P) LTD:- THE ASSESSEE HAD PAID SUM TOTAL OF RS. 4107823/-, DURING THIS YEAR O N BEHALF OF THE SAID COMPANY, OUT OF WHICH THE BALANC E AS ON 31.03.2014 REMAINED AT RS.1650374/-. COPY OF A/C OF THE SAID CONCERN IS ALREADY ENCLOSED HEREINBEFORE. THIS CONCERN IS A SISTER/ASSOCIATE CONCERN OF THE ASSESS EE. THE PAYMENTS OF EXPENSES WERE MADE ON BEHALF OF THE SAID GROUP COMPANY FOR BUSINESS CONSIDERATIONS UNDE R COMMERCIAL EXPEDIENCY DUE TO WHICH NO DISALLOWANCE IS CALLED FOR. IT WAS ALSO SUBMITTED BEFORE THE LD. CIT(A) THAT AT THE MOST DISALLOWANCE CAN BE MADE IN RESPECT OF THE NOTIONAL INTEREST ON THE AFORESAID INTEREST FREE ADVANCES, HOWEVER, NO DISAL LOWANCE OF BANK CHARGES AND PROCESSING FEE WAS WARRANTED IN THIS CA SE. IT WAS ALSO SUBMITTED THAT EVEN OTHERWISE THE OWN FUNDS OF THE ASSESSEE WERE SUFFICIENT TO MEET INTEREST FREE ADVANCES MADE BY T HE ASSESSEE. HOWEVER, THE LD. CIT(A) OBSERVED THAT THE ADVANCES WERE MADE OUT OF THE MIXED FUNDS AND THE POSSIBILITY WAS THAT INT EREST BEARING FUNDS WERE USED FOR MAKING THE ADVANCES. HE, THEREFORE, C ONFIRMED THE DISALLOWANCE SO MADE BY THE ASSESSING OFFICER. 5. BEING AGGRIEVED BY THE ABOVE ORDER OF THE CIT(A ), THE ASSESSEE HAS COME IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE LD. AUTHORIZED 5 ITA NO. 1249-CHD/2019- SANJAY KUMAR SHARMA, LUDHIANA REPRESENTATIVES OF BOTH THE PARTIES. WE FIND THAT T HE LD. CIT(A) HAS NOT GIVEN ANY ADVERSE FINDINGS IN RESPECT OF THE SU BMISSIONS OF THE ASSESSEE THAT THE ADVANCES MADE TO THE AFORESAID TH REE PARTIES WERE OUT OF THE BUSINESS EXPEDIENCY. EVEN IT WAS EXPLAIN ED THAT THE AMOUNT OUTSTANDING TO M/S GANGA ACROWOOLS LTD. WAS IN RESPECT OF THE GOODS SOLD TO THAT PARTY. FURTHER, NO JUSTIFIC ATION HAS BEEN GIVEN AS TO HOW DISALLOWANCE OF BANK CHARGES AND PROCESSI NG FEE WAS WARRANTED IN THIS CASE. THERE IS NO DENIAL TO THE C ONTENTION OF THE ASSESSEE THAT THE ASSESSEE HAD OWN FUNDS IN THE SH APE OF OWN CAPITAL AND UNSECURED LOANS TO THE TUNE OF RS. 124.73 LACS AND RS. 53.35 LACS RESPECTIVELY TOTALING RS. 178.08 LACS, WHICH AMOUNT WAS SUFFICIENT TO MEET THE ADVANCES MADE BY THE ASSESSEE. 7. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY TH E VARIOUS DECISIONS OF THE HIGH COURTS AS WELL AS OF THE APEX COURT OF THE COUNTRY HOLDING THAT IF THE ASSESSEE IS POSSESSED OF SUFFICIENT OWN INTEREST FREE FUNDS TO MEET THE INVESTMENTS / INTER EST FREE ADVANCES, THEN, UNDER THE CIRCUMSTANCES, PRESUMPTION WILL BE THAT INTEREST FREE ADVANCES / INVESTMENTS HAVE BEEN MADE BY THE ASSESS EE OUT OF OWN FUNDS / INTEREST FREE FUNDS. RELIANCE IN THIS RESPE CT CAN ALSO BE PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF HERO CYCLES (P) LTD VS. CIT 379 ITR 347 (SC) AND ALSO ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F CIT (LTU) VS. 6 ITA NO. 1249-CHD/2019- SANJAY KUMAR SHARMA, LUDHIANA RELIANCE INDUSTRIES LTD. [2019] 410 ITR 466 (SC). THUS, AS PER THE SETTLED LAW NO DISALLOWANCE U/S 36(I)(III) OF THE A CT IS WARRANTED ON THIS ISSUE. THE DISALLOWANCE MADE BY THE AO ON THIS ISSUE IS ORDERED TO BE DELETED. THE ISSUE IS ACCORDINGLY ALLOWED IN FAVOUR OF THE ASSESSEE. IN VIEW OF THIS, WE DO NOT FIND ANY MERIT IN THE ORDER OF THE CIT(A) AND THE SAME IS HEREBY SET ASIDE. THE APPEAL OF THE ASSESSEE IS HEREBY ALLOWED. ORDER PRONOUNCED ON 21.10.2020. SD/- SD/- ( $ % & '# / ANNAPURNA GUPTA) () / ACCOUNTANT MEMBER ( / SANJAY GARG) / JUDICIAL MEMBER DATED : 21.10.2020 .. '+ ,-.- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. # / / CIT 4. # / ( )/ THE CIT(A) 5. -01 2 , %2 , 34516 / DR, ITAT, CHANDIGARH 6. 157$ / GUARD FILE '+ # / BY ORDER, 8 ' / ASSISTANT REGISTRAR