M/s. K. Chimanlal & Co., (R.F.), Ahmedabad V. The Jt.CIT, Range-2, Ahmedabad

ITA 1281/AHD/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8341 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 13-05-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PRAJNA MADAM
• Assessee Lawyers: S N DIVETIA
• Keywords: Proportionate interest; Corroborative evidences; Notional interest
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENCH BEFORE: SHR I MAHVAVIR PRASAD , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER M/S. K. CHIMANLAL & CO. (R.F.), G - 15, NEW MADHUPURA MARKET, SHAHIBAUG, AHMEDABAD PAN: AAIFK7742H (APPELLANT) VS THE JCIT, RANGE - 2 AHMEDABAD (RESPONDENT) REVENUE BY : PRAJNA MADAM , SR. D . R. ASSESSE E BY: S H RI S.N. DIVETIA , A.R. DATE OF HEARING : 21 - 09 - 2 017 DATE OF PRONOUNCEMENT : 11 - 10 - 2 017 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2011 - 12 , ARIS ES FROM ORDER OF THE CIT(A) - 10, AHMEDABAD DATED 10 - 02 - 2015 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - (1) ORDER U/S.250 DT.10.02.2015 B EING ERRONEOUS, WITHOUT APPRECIATING FACTS ON RECORD PROPERLY AND AGAINST THE PRINCIPLES OF JUSTICE BE CANCELLED AND SET ASIDE. I T A NO . 1281 / A HD/20 15 A SSESSM ENT YEAR 2011 - 12 I.T.A NO. 1281 /AHD/20 15 A.Y. 2011 - 12 PAGE NO M/S. K. CHIMANLAL & CO. (R.F) VS. JCIT 2 (2) ADDITION SUSTAINED RS.4,73,604/ - OUT OF RS.7,30,285/ - ON ACCOUNT OF NOTIONAL INTEREST ON INTEREST FREE ADVANCES BEING UNJUDI CIOUS AND AGAINST THE PROVISIONS OF LAW BE DELETED. (3) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), AHMEDABAD HAS ERRED IN LAW IN NOT CONSIDERING PROPERLY AND JUDICIOUSLY THAT I) ADVANCES ARE NOT MADE IN THE YEAR. II) EVEN THERE IS NO MENTION OF PROV ISION FOR TAXING NOTIONAL INCOME. III) INDIAN INCOME TAX ACT IS BASED ON CONCEPT OF REAL INCOME. IV) THERE IS NO FALL IN GROSS PROFIT OF THE APPELANT. V) APPELANT RELIES ON THE FOLLOWING DECISIONS. A) GODHARA ELECTRICITY CO. LTD. V/S. COMMISSIONER OF INCOME TAX 225 ITR 746 (SC) B) COMMISSIONER OF INCOME TAX V/S. A. RAMAND & CO. 67 ITR 11 (SC) C) COMMISSIONER OF INCOME TAX V/S. MANHARLAL GIRDHARLAL DOSHIT 231 ITR 89 (GUJARAT) D) HIGHWAY CONSTRUCTION CO. PVT. LTD. V/S. COMMISSIONER OF INCO ME TAX 199 ITR 702 (GAUHATI) E) KESARICHAND JAYSUKHLAL V/S. COMMISSIONER OF INCOME TAX 122 TAXMAN 307 (GAUHATI) (4) INTEREST CHARGED U/S.234B BE DELETED. (5) INTEREST CHARGED U/S.234D BE CANCELLED. (6) APPELLANT CRAVES LEAVE TO ADD/ ALTER ANY GROUNDS OF APPEAL. APPELLANT THEREFORE PRAYS THAT ADDITION SUSTAINED RS.4,73,604/ - OUT OF RS.7,30,285/ - BE DELETED, ASSESSMENT BE REVISED AND RELIEF BE GRANTED ACCORDINGLY. 3. IN THIS CASE, RETURN OF INCOME DECLARING INCOME OF RS. 25 , 29 , 530/ - WAS FILED ON 29 TH SEP, 2011. SUBSEQUENTLY, THE CASE WAS SELECTED UNDER SCRUTINY BY ISSUING OF NOTICE U/S. 143(2) ON 31 ST AUGUST, 2012. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS SHOW N LOAN AND ADVANCES AT RS. 6, 99 ,131 IN T HE BALANCE SHEET INTER ALIA HE ALSO OBSERVED THAT ASSESSEE HAS ADVANCED INTEREST FRE E LOAN TO THE FOLLOWING PERSONS: - RAMANLAL C. SHAH RS. 72,037/ - PREMLATABEN SHAH RS. 34,900/ - JASWANTBHAI P. PATEL RS. 2,00,000/ - BHAVESH G. SHAH HUF RS. 28,89,386/ - AMIT G. SHAH HUF RS. 28,89,381/ - TOTAL RS. 60,85,704/ - T HE ASSESSEE HAS FAILED TO SUBSTANTIATE WITH SUPPORTING EVIDENCES THAT THESE ADVANCES WERE GIVEN FOR BUSINESS PURPOSE. CONSEQUENTLY, I.T.A NO. 1281 /AHD/20 15 A.Y. 2011 - 12 PAGE NO M/S. K. CHIMANLAL & CO. (R.F) VS. JCIT 3 THE ASSESSING OFFICER HAS DETERMINED PROPORTIONATE INTEREST @ 12% TO THE AMOUNT OF RS. 7, 30 , 285/ - ON THE AFORESAID LOAN AND ADVANCES AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED AGAINST THE DECISION OF THE ASSESSING OFFICER, THE ASSESSEE PREFERRED APPEAL BEFORE HE LD. CIT(A). THE LD. CIT( A) HAS ALLOWED PART RELIEF TO THE ASSESSEE BY OBSERVING AS UNDER: - 5.1. THE EFFECTIVE GROUND OF APPEAL IS REGARDING ADDITION OF RS.7,30,285/ - ON ACCOUNT OF DISALLOWANCE INTEREST ON LOANS. DURING THE ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE APP ELLANT HAD ADVANCED INTEREST FREE LOANS OF RS.60,85,704/ - . THE APPELLANT DID NOT CHARGE ANY INTEREST ON THESE LOANS. THE AO OBSERVED THAT THESE ADVANCES WERE NOT MADE FOR THE PURPOSE OF BUSINESS. SINCE THE APPELLANT COULD NOT GIVE A SATISFACTORY REPLY AS T O WHY INTEREST WAS NOT CHARGED ON THESE ADVANCES, THE AO ADDED RS.7,30,285/ - ON ACCOUNT OF INTEREST ON THESE ADVANCES CHARGED AT THE RATE OF 12%. DURING THE APPELLATE PROCEEDINGS, THE APPELLANT SUBMITTED THAT NOTIONAL INTEREST ON INTEREST FREE ADVANCES CON SIDERED AS INCOME IS INJUDICIOUS AND UNLAWFUL. THE APPELLANT FURTHER SUBMITTED THAT ADVANCES ARE NOT MADE IN THE YEAR AND ARE BROUGHT FORWARDED FROM EARLIER YEARS. FURTHER, THE INDIAN INCOME TAX ACT IS BASED ON THE CONCEPT OF 'REAL INCOME' AND THAT THERE I S NO PROVISION IN THE ACT FOR TAXING NOTIONAL INCOME. FURTHER, THERE IS NO FALL IN GROSS PROFIT DURING THE YEAR. IN SUPPORT OF ITS CONTENTION, THE APPELLANT RELIED ON THE FOLLOWING JUDGMENTS: - - GODHRA ELECTRIC CO. LTD. VS. CIT 225 ITR 746 (SC). - HIGHWAY CONSTRUCTION CO. PVT. LTD. VS. CIT 199 ITR 702 (GUJ.). - CIT VS. MOTOR CREDIT CO. PVT. LTD. 127 ITR 572. - H. M. KASHI PAREKH & CO. VS. CIT 39 ITR 706. - PUNE ELECTRIC SUPPLY CO. LTD. VS. CIT 57 ITR 521, 529. - CIT VS. SHOORJI VALLABHDAS & CO. 46 ITR 144. DECISION. THE RIVAL SUBMISSIONS HAVE BEEN CONSIDERED. IT IS A FACT THAT THE APPELLANT - 33 ADVANCED INTEREST FREE LOANS OF RS.60,85,704/ - . THE APPELLANT WAS NOT ABLE TO GIVE CONVINCING REPLY AS TO WHY IT DID NOT CHARGE INTEREST ON THESE LOANS. FURTHER, THE APPELLANT SUBMITTED DURING APPEAL PROCEEDINGS THAT UNSECURED LOANS OF RS.54,16,046/ - ARE OUTSTANDING ON WHICH IT HAS PAID INTEREST OF RS.4,73,604/ - , AND CLAIMED THE SAME AS DEDUCTION. FACTS NARRATED ABOVE SHOW THAT WHILE THE APPELLANT HAS BORROWED INTEREST BEARING FUNDS OF RS.54,16,046/ - ON WHICH IT HAS PAID INTEREST OF RS.4,73,604/ - , IT HAS ADVANCED ITS OWN FUNDS OF RS.60,85,704/ - WITHOUT CHARGING ANY INTEREST. THE APPELLANT HAS NOT BEEN ABLE TO GIVE ANY JUSTIFICATION FOR THIS OR ESTABLISH BUSINESS EXPEDIEN CY FOR DOING THIS. THE APPELLANT IS FREE TO ADVANCE ITS FUNDS AND CHARGE NO INTEREST ON THE SAME BUT THEN IT CANNOT CLAIM DEDUCTION IN RESPECT OF INTEREST PAID ON THE FUNDS THAT IT HAS BORROWED WHICH LEADS TO REDUCTION IN PROFITS. WITH DUE REGARD TO RATIO OF JUDGMENTS IN CASES RELIED UPON BY THE APPELLANT, THE SAME ARE NOT APPLICABLE TO THE PRESENT CASE. IN VIEW OF THIS DISCUSSION ABOVE, I UPHOLD THE ADDITION MADE BY THE AO TO THE EXTENT OF RS.4,73,604/ - .OUT OF ADDITION OF RS.7,30,285/ - ,ADDITION OF RS.4,73, 604/ - IS UPHELD WHILE ADDITION OF RS.2,56,681/ - IS DELETED. THE APPELLANT GETS PARTIAL RELIEF. THIS GROUND OF APPEAL IS PARTLY ALLOWED . 5. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HAS SUBMITTED PAPER BOOK CONTAINING TAX AUDI T REPORT, LEDGER ACCOUNT AND SUBMISSION MADE BEFORE THE ASSESSING OFFICER ETC. HE I.T.A NO. 1281 /AHD/20 15 A.Y. 2011 - 12 PAGE NO M/S. K. CHIMANLAL & CO. (R.F) VS. JCIT 4 FURTHER CONTENDED THAT LD. CIT(A) HAD PARTLY SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF NOTIONAL INTEREST ON FREE ADVANCES. ON T HE OTHER HAND, LD. D EPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE LD. CIT(A). 6. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. WE OBSERVED THAT THE ASSESSEE HAS BORROWED INTEREST BEARING FUND OF RS. 54 , 16 ,046 / - ON WHICH IT HAS PAID INTEREST OF RS. 4 , 73 , 604/ - . ON THE OTHER HAND, THE ASSESEE HAS ADVANCED ITS OWN FUND OF RS. 6 0 , 85 , 740/ - WITHOUT CHARGING ANY INTEREST. WE HAVE NOTICED THAT ASSESSEE FAILED TO SUBSTANTIATE WITH SUPPORTING EVIDENCES WHY IT HAS NOT CHARGED INTEREST ON THESE LOANS . WE ALSO FIND THAT LD. CIT(A) HAS ALSO ALLOWED PART RELIEF TO THE ASSESSE OF THE INTEREST AMOUNT OF RS. 4 , 73 , 604/ - WHICH IT HAS PAID ON THE UNSECURED LOAN OF RS. 54,16,046/ - . IN VIEW OF THE FACTS AND CIRCUMSTANCES AND AFTER CONSIDERING THE DETAILED FINDING S OF THE LD. CIT(A), WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDINGS OF THE LD. CIT(A), THEREFORE, THE APPEAL OF THE ASSESSEE IS DISMISSED. 7. IN THE RESULT , THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OU RT ON 11 - 10 - 201 7 SD/ - SD/ - ( MAHAVIR PR ASAD ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 11 /10 /2017 I.T.A NO. 1281 /AHD/20 15 A.Y. 2011 - 12 PAGE NO M/S. K. CHIMANLAL & CO. (R.F) VS. JCIT 5 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,