M/s Rajinder Paul & Sons, Mandi Gobindgarh V. ITO, Mandi Gobindgarh

ITA 1259/CHANDI/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1379 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 11-02-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 04-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: RAJIV DATTA
• Keywords: Business expenditure; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH (SMC) BEFORE SH.N.BARATHVAJA SANKAR, VICE PRESIDENT ITA NO. 1259/CHANDI/2010 ASSESSMENT YEAR .: 2007-08 M/S RAJINDER PAUL & SONS, V ITO, WARD-2, MANDI GOBINDGARH. MANDI GOBINDGARH. PAN :AABHR-7178-B (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI RAJIV DATTA RESPONDENT BY: SMT. SARITA KUMARI ORDER THIS IS AN APPEAL PREFERRED BY THE ASSESSEE M/S RAJINDER PAUL & SONS OF MANDI GOBINDGARH FOR THE ASSESSMENT YEAR 2007-08 AGAINST THE APPELLATE ORDER DATED 25.08.2010 OF THE CIT(APPEALS) PATIALA. THE ASSESS EE HAS BROUGHT BEFORE ME TWO ISSUES FOR ADJUDICATION, NAME LY ; I) WHETHER THE CIT(APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1,12,125/- ON ACCOUNT OF NON-CHARGING OF INTEREST ON SUNDRY DEBTORS. II) WHETHER THE CIT(APPEALS) HAS ERRED IN CONFIRMING THE ADDITION OF RS.64,800/- ON ACCOUNT OF HOUSEHOLD EXPENSES. 2. LET ME TAKE UP THE ISSUE RELATING TO CONFIRMATIO N OF DISALLOWANCE OF INTEREST OF RS.1,12,125/- TOWARDS N ON- CHARGING OF INTEREST ON SUNDRY DEBTORS. THE BRIEF F ACTS AS CULLED OUT FROM THE ASSESSMENT ORDER ARE THAT WHILE FRAMING 2 THE ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT,196 1, THE ASSESSING OFFICER FOUND THAT ASSESSEE HAS NOT CHARG ED ANY INTEREST FROM SOME DEBTORS WHERE NO TRADING TRANSAC TIONS TOOK PLACE WITH THEM DURING THE YEAR EXCEPT SOME PE TTY RECEIPTS IN ONE OR TWO CASES AGAINST THE OPENING BA LANCES. PARTIES WITH MONEY OUTSTANDING FROM THEM SINCE THE END OF THE FINANCIAL YEAR 2005-06 ARE AS UNDER : 1 JMC ENTERPRISES 44128 2 CHADDA INDUSTRIAL CORP. 91800 3 ONKAR INDUS. 105969 4 GUPTA ELECTRIC 2895 5 GEE KAY INDS. 18288 6 DURGA HARDWARE 243998 7 JMD STEEL & CEMENT 18441 8 SAKLANI TRADERS 208981 9 R.K.TRADERS 199875 TOTAL 934375 3. THE ASSESSEE WAS ASKED AS TO WHY NOT INTEREST AT 12% ON RS.9,34,375/- AS ABOVE BE NOT DISALLOWED OUT OF TOTAL INTEREST PAID BY THE ASSESSEE ON A SUM OF RS.9,34,3 75/- AT 12%, AS INTEREST PAID TOWARDS NON-BUSINESS PURPOSES . THE ASSESSEE STATED THAT THE AMOUNTS FROM THE PERSONS A RE RECOVERABLE AGAINST SUPPLY OF MATERIAL IN EARLIER Y EARS AND THAT INSPITE OF BEST EFFORTS, THE AMOUNTS COULD NOT BE REALIZED. THE ASSESSEE ALSO FURNISHED A COPY OF LE GAL NOTICE DATED 12.05.2008 SENT TO M/S DURGA HARDWARE FOR PURSUING RECOVERY. ASSESSEE ALSO STATED THAT PRINC IPAL AMOUNTS ARE DOUBTFUL AND THERE IS NO QUESTION OF CH ARGING INTEREST FROM THESE PARTIES. 4. CONSIDERING REPLY OF THE ASSESSEE, THE ASSESSING OFFICER WAS OF THE VIEW THAT WHEN SOME MONEY HAS BE EN RECEIVED BY THE ASSESSEE ON WHICH SOME INTEREST IS BEING 3 PAID BY IT AND CLAIMED AS BUSINESS EXPENDITURE, THE N WHY SOME OF THE EXPENSES SHOULD NOT BE DISALLOWED BECAU SE THE MONEY TO SOME EXTENT IS KEPT WITH SOME PERSONS WITH WHOM NO BUSINESS TRANSACTION TOOK PLACE DURING THE YEAR. HE ALSO NOTICED THAT THE ASSESSEE HAS RECEIVED INTEREST FRO M SOME OTHER PARTIES TO THE EXTENT OF RS.1,90,196/- DURING THE YEAR. HENCE, HE DISALLOWED RS.1,12,125/- COMPUTED AT 12% ON RS.9,34,375/-, HOLDING THE SAME AS NOT LAID DOWN OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE IN THIS YEAR. ALTERNATIVE LY, THE ASSESSING OFFICER ALSO WAS OF THE OPINION THAT OUT OF THE TOTAL INTEREST PAID ON RS.8,12,612/-, AN AMOUNT OF RS.7,10,621/- HAS BEEN PAID AS PER ANNEXURE-B OF TA X AUDIT REPORT TO SPECIFIED PERSONS U/S 40A(2)(B) OF THE ACT. HENCE, HE WAS ALSO OF THE OPINION THAT THE EXPENDIT URE TO THE EXTENT OF RS.1,12,125/- IS UNREASONABLE U/S 40A (2)(A). ON THIS COUNT ALSO, THE DISALLOWANCE IS WARRANTED A CCORDING TO THE ASSESSING OFFICER. 5. AGGRIEVED BY THIS ORDER OF THE ASSESSING OFFICER , THE ASSESSEE MOVED THE MATTER IN APPEAL BEFORE THE FIRS T APPELLATE AUTHORITY. BEFORE THE FIRST APPELLATE AUT HORITY, THE ASSESSEE CONTENDED AS UNDER : THE ASSESSEE IS ENGAG ED IN THE PURCHASE AND SALE OF IRON AND STEEL GOODS. THE GOODS ARE SUPPLIED AGAINST FUTURE PAYMENTS. SOMETIMES, T HE PARTIES DO NOT MAKE THE PAYMENT IN TIME BUT THIS IS PART OF BUSINESS. THERE IS NO SUCH SYSTEM BY WHICH THE ASS ESSEE COULD CHARGE INTEREST FROM THE CUSTOMERS IN THIS TR ADE. LEARNED A.O. HAS DISALLOWED INTEREST WITHOUT GIVING ANY 4 FINDING AS TO HOW THE INTEREST PAID BY THE ASSESSEE TO THE CREDITORS CANNOT BE ALLOWED U/S 36(1)(III). THE AS SESSEE HAS BORROWED THE FUNDS FOR THE PURPOSE OF THE BUSIN ESS OF THE FIRM. THERE WAS COMMERCIAL EXPEDIENCY IN BORRO WING THE FUNDS. THE BORROWINGS WERE NOT UTILIZED FOR TH E PERSONAL PURPOSES OF THE ASSESSEE. THE DEBTORS ARE DURING THE COURSE OF BUSINESS AND ARE PART OF THE RECEIVAB LES. IN VIEW OF THE ABOVE, THERE IS NO JUSTIFICATION IN DIS ALLOWING THE INTEREST. HE ALSO RELIED ON THE DECISION OF THE HO N'BLE SUPREME COURT IN THE CASE OF S.A.BUILDERS LTD. V CI T & ANOTHER. 6. THE LEARNED CIT(APPEALS), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE WAS OF THE VIEW THAT TH ERE WAS NO DOUBT THAT THE ASSESSEE BORROWED MONEY ON INTERE ST, HOWEVER, HE ADVANCED SUMS TO DEBTORS FREE OF INTERE ST FOR WHICH NO BUSINESS PURPOSE HAS BEEN PUT-FORTH. FUND S ADVANCED TO SUCH PARTIES WITHOUT INTEREST BEING CHA RGED AND WITHOUT ANY EXPLANATION FOR THE PURPOSES FOR WH ICH THE SAME HAD BEEN ADVANCED, WOULD ITSELF CONSTITUTE A N ON- BUSINESS PURPOSE AND WOULD BE DISALLOWABLE. THUS, HE CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICE R. 7. AGGRIEVED BY THE ORDER OF THE FIRST APPELLATE AUTHORITY, THE ASSESSEE IS IN SECOND APPEAL BEFORE US WITH THIS ISSUE. AT THE TIME OF HEARING, THE LEARNED CO UNSEL FOR THE ASSESSEE REITERATED THE VERY SAME SUBMISSIONS M ADE BEFORE THE LOWER AUTHORITIES (EXTRACTED ELSEWHERE O F THE ORDER). HE SUBMITTED THAT THE VIEW OF THE CIT(APPE ALS) THAT THESE WERE ADVANCES MADE TO THE PARTIES IS WRONG SI NCE 5 THESE ARE ALL ONLY BALANCES OF SUNDRY DEBTORS. HE A LSO PLEADED THAT THOSE BALANCES APPEARING IN THESE ACCO UNTS WERE OLD BROUGHT FORWARD BALANCES OF SUNDRY RETURNS AND THERE WAS NO PRACTICE OF MAKING SUCH DISALLOWANCES IN THE EARLIER YEARS. 8. PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTAT IVE RELIED ON THE ORDERS OF THE ASSESSING OFFICER AND T HE CIT(APPEALS) AND REITERATED THE CONTENTIONS OF THE SAME AS HER ARGUMENTS. 9. I HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDE RED THE FACTS AND MATERIALS ON RECORD. THERE IS FORCE IN T HE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE CIT(APPEALS) HAS MISTAKEN THIS TO BE ADVANCES MADE TO THE PARTIES, WHEREAS THESE WERE ALL TRADE DEBTORS. THE ASSESSING OFFICER, IN THE EARLIER YEARS HAD NOT MAD E ANY SUCH DISALLOWANCES. THE ASSESSING OFFICER ALSO HAS NOT BROUGHT ON RECORD ANYTHING TO SHOW THAT AS PER THE CONTRACTS BETWEEN THE ASSESSEE AND THOSE PARTIES, T HERE IS ANY CLAUSE FOR CHARGING INTEREST. WITHOUT BRINGING ANY SUCH MATERIAL ON RECORD, THE ASSESSING OFFICER HAS SIMPL Y DISALLOWED 12% OF THE INTEREST ACTUALLY PAID BY THE ASSESSEE TO THE OTHER PARTIES, NAMELY CREDITORS. R EGARDING SECTION 40A(2)(B) ALSO, I FIND THAT EITHER ASSESSIN G OFFICER OR CIT(APPEALS) HAS NOT BROUIGHT ANY COMPARATIVE CA SES ON RECORD. FURTHER, THE ASSESSING OFFICER HAS MENTION ED THE DISALLOWANCE IS ALSO U/S 40A(2)(A) AND ALTERNATIVEL Y, FROM THE PERUSAL OF THE ASSESSMENT ORDER, IT TRANSPIRES CLEARLY THAT THE ASSESSEE HAD NO OPPORTUNITY TO PUT-FORTH H IS USE OF 6 THIS ALTERNATIVE FINDING OF THE ASSESSING OFFICER. THE CIT(APPEALS) ALSO HAS NOT MENTIONED ANY REASON FOR COVERING THE SAME UNDER SECTION 40A(2)(B) NOR BROUG HT ANY COMPARATIVE CASES. IN SUCH CIRCUMSTANCES, FOR THE REASONS RECORDED ABOVE, I AM ALLOWING THIS GROUND OF APPEAL OF THE ASSESSEE. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AP ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF FEBRUARY, 2011. SD/- (N.BARATHVAJA SANKAR) VICE PRESIDENT DATED 14 FEB., 2011 COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR.