The DCIT, Circle-1, Surat V. Dhiraj Sons Mega Store Pvt. Ltd., Surat

ITA 1290/AHD/2010

• Counselvise Citation: 129020514 RSA 2010
• Duration Of Justice: 2 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 07-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 23-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K SINGH SR DR
• Assessee Lawyers: R N VEPARI
• Keywords: Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI, A.K.GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO.1290 &1561/AHD/2010 ASSESSMENT YEAR :2007-08 DY. COMMISSIONER OF INCOME TAX, CIRCLE-1, ROOM NO. 108, AAYKAR BHAVAN, MAJURA GATE, SURAT DHIRAJ SONS MEGA STORE PVT. LTD. NR. CHAWPATY, ATHWALINES, SURAT V/S . V/S . M/S DHIRAJ SONS MEGA STORES PVT. LTD., NR. CHAWPATY, ATHWALINES, SURAT [ PAN NO. AAACW 2104J ] DY. COMMISSIONER OF INCOME TAX, CIRCLE-1, SURAT / APPELLANT .. / RESPONDENT) /BY ASSESSEE SHRI R.N.VEPARI, AR /BY REVENUE SHRI D.K. SINGH, SR-DR /DATE OF HEARING 07-11-2012 ! /DATE OF PRONOUNCEMENT 23-11-2012 ' ' ' ' / // / O R D E R PER KUL BHARAT, JUDICIAL MEMBER:- THESE ARE CROSS-APPEALS FILED BY THE REVENUE AND ASSESSEE WHICH ARE DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOM E-TAX (APPEALS)-I, SURAT (CIT(A) FOR SHORT) DATED 22-02-2010 FOR THE ASSES SMENT YEAR (AY) 2007-08. 2. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE, SHRI R.N. VEPARI SUBMITTED THAT HE WISH TO SEEK PERMISSION FOR WITHDRAWAL OF A PPEAL OF THE ASSESSEE IN ITA NO.1561/AHD/2010 AND LD. SR-DR, SHRI D.K. SINGH HAS NOT OBJECTED THE ITA NO.1290 & 1561/AHD/2010 A.Y. 2007-08 DCIT CIR-1 V. M/S. DHIRAJ SONS MEGA STORES P. LTD . PAGE 2 WITHDRAWAL OF THE APPEAL. AS THERE IS NO OBJECTION FROM THE REVENUE, WE PERMIT THE WITHDRAWAL OF APPEAL. ACCORDINGLY, THIS APPEAL OF ASSESSEE IS DISMISSED AS WITHDRAWN. 3. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED AS WITHDRAWAL. COMING TO REVENUES APPEAL. 4. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.44, 41,288/- MADE BY THE AO ON ACCOUNT OF FALL IN G.P. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE L. CIT(A) HAS ERRED IN RESTRICTING THE ADDITION OF RS. 8,50,970/- MADE ON ACCOUNT OF INTEREST TO RS.2,05,970/- AND GRANTED RE LIEF OF RS.6,45,000/-. 5. THE FACTS IN BRIEF ARE THAT ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF RUNNING DEPARTMENTAL STORES AND FILED I TS E-RETURN ON 01-11-2007 SHOWING TOTAL INCOME OF RS.23,96,282/-. THE CASE OF ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND ASSESSMENT U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRA MED THEREBY THE ASSESSING OFFICER (AO) REJECTED THE BOOKS OF ACCOUNT OF THE A SSESSEE AND MADE ADDITION IN RESPECT OF THE FALL IN GROSS PROFIT (GP) AND DIS ALLOWANCE OF BAD DEBT. AGAINST THIS, THE ASSESSEE FIELD APPEAL BEFORE LD. CIT(A) W HO AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE PARTLY ALLOWED THE APPEAL, THEREBY HE DELETED GP ADDITION AND ALSO HELD THAT THE REASONS GIVEN BY TH E AO ARE FRIVOLOUS AND DO NOT SUPPORT THE REJECTION OF THE BOOKS OF ACCOUNT. 6. NOW, THE REVENUE HAS FILED APPEAL BEFORE THE TRI BUNAL AGAINST THE ORDER OF LD. CIT(A). 7. FIRST GROUND OF THE REVENUE IS AGAINST THE DELET ION OF ADDITION OF RS.44,41,288/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF FALL IN GP. LD. ITA NO.1290 & 1561/AHD/2010 A.Y. 2007-08 DCIT CIR-1 V. M/S. DHIRAJ SONS MEGA STORES P. LTD . PAGE 3 SR-DR SUPPORTED THE ORDER OF AO AND SUBMITTED THAT THE AO HAD MADE ADDITION WHILE REJECTING THE BOOKS OF ACCOUNT AS HE FOUND THAT EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTABLE IN RESPECT OF FALL IN GP. ON THE CONTRARY, LD. COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT(A) AND SUBMITTED THAT LD. CIT(A) HAS OBSERVED THAT BOOKS WERE REJECTED ON FRIVOLOUS GROUND. HE SUBMITTED THAT AGAINST THIS FINDING OF LD. CIT(A) N O GROUND HAS BEEN RAISED BY THE REVENUE. HE SUBMITTED THAT EVEN OTHERWISE ALSO THE FALL OF GP IS MARGINAL AND DUE TO INCREASE IN COST OF SALES. HE SUBMITTED THAT THE AO HAD REJECTED THE BOOKS OF ACCOUNT ON THE BASIS THAT THE ASSESSEE HAS NOT MAINTAINED DAY- TO-DAY STOCK REGISTER THEREFORE, THE VALUATION OF C LOSING STOCK HAS NOT BEEN SUPPORTED WITH PROOF AND EVIDENCES. THUS, THE CLOSI NG STOCK SHOWN BY THE ASSESSEE IS NOT VERIFIABLE. HE SUBMITTED THAT THE O BSERVATION OF THE AO IS ERRONEOUS AS HE FAILED TO APPRECIATE THAT THE TURNO VER WENT UP FROM RS.52.77 CRORES TO RS.74.02 CRORES THE GP WHILE DECLINED FRO M 18.43% TO 17.83%. HE SUBMITTED THAT IN ANY ENTITY GP CANNOT REMAIN CONST ANT AND SOME FLUCTUATION ARE BOUND TO TAKE PLACE. HE SUBMITTED THAT THE REAS ONS OF FALL IN GP WAS DULY SUBMITTED BEFORE THE AO. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ADMITTEDLY, REVENUE HAS NOT RA ISED ANY GROUND AGAINST THE FINDING OF LD. CIT(A) THAT THE REASONS GIVEN BY THE ASSESSING OFFICER FOR REJECTING THE BOOKS OF ACCOUNT ARE FRIVOLOUS. WE FI ND THAT LD. CIT(A) HAS HELD THE REJECTION OF BOOKS OF ACCOUNT AS NOT VALID AND NO GROUND AGAINST THIS FINDING HAS BEEN RAISED BY THE REVENUE. THEREFORE, IN OUR CONSIDERED OPINION, THE GROUND RAISED AGAINST THE DELETION IN RESPECT O F ADDITION MADE ON ACCOUNT OF FALL IN GP WOULD NOT SURVIVE. MOREOVER, WE FIND FORCE INTO THE SUBMISSION OF LD. COUNSEL OF THE ASSESSEE THAT THERE IS ONLY MARG INAL FALL IN GP AND GP CANNOT BE CONSTANT. HAVING CONSIDERED ALL ASPECTS O F THIS MATTER, WE DO NOT FIND ANY MERIT INTO THIS GROUND OF REVENUES APPEAL , HENCE THE SAME IS REJECTED. ITA NO.1290 & 1561/AHD/2010 A.Y. 2007-08 DCIT CIR-1 V. M/S. DHIRAJ SONS MEGA STORES P. LTD . PAGE 4 9. NEXT GROUND IS AGAINST THE RESTRICTING THE ADDIT ION OF RS.8,50,970/- MADE ON ACCOUNT OF INTEREST OF RS.2,05,970/- AND GRANTED RELIEF OF RS.6,45,000/-. 10. LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE S UPPORTED THE ORDER OF LD. CIT(A) WHEREAS THE LD. DR OF THE REVENUE SUPPOR TED THE ORDER OF ASSESSING OFFICER. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT LD. CIT(A) HAS DE CIDED THIS ISSUE IN PARA-3.3 TO 3.4 OF HIS ORDER, WHICH HAS BEEN REPRODUCED HERE INBELOW:- 3.4 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND THE OBSERVATION OF THE AO. THIS ISSUE IS COVERED BY THE DECISION OF THE HONBLE ITAT, AHMEDABAD IN ITA NO. 3552/AHD/2007 DATED 18.09.2009 FOR A.Y. 2004-05 PARTLY BUT NOT FULLY. THE ASSESSEE HAD GIVEN RS.60 LACS AS ADVANCES TO ITS DIRECTORS FOR TAKING THE PREMISE S ON RENT AND HENCE THERE WAS COMMERCIAL EXPEDIENCY TO THE EXTENT OF RS .60 LACS AND, THEREFORE, THE HONBLE ITAT HAS DELETED THE DISALLO WANCE OF INTEREST. HOWEVER, WITH RESPECT TO THE BALANCE AMOUNT OF RS.1 9.16 LACS THE APPELLANT HAS NOT POINTED OUT ANY COMMERCIAL EXPEDI ENCY EITHER DURING THE ASSESSMENT PROCEEDINGS OR DURING THE APPELLATE PROCEEDINGS. HENCE, AS PENALTY THE DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF S.B. BUILDERS (288-ITR-1), IT WAS HELD THAT NO DISALLOWANCE SHOULD BE MADE BECAUSE BORROWED FUNDS ADVANCED TO T HIRD PARTIES SHOULD BE FOR COMMERCIAL EXPEDIENCY AND, THEREFORE, DISALLOWANCE CANNOT BE MADE. AS STATED ABOVE, THE ASSESSEE HAS F AILED TO SHOW ANY COMMERCIAL EXPEDIENCY TO THE EXTENT OF RS.19.16 LAC S AND HENCE THE INTEREST PAID ON LOAN TO THE EXTENT OF RS.19.16 LAC S IS DEFINITELY NOT FOR THE PURPSE OF BUSINESS. IN THIS REGARD, RELIANCE IS PLACED ON THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE C ASE OF IN THE CASE OF ABHISHEK INDUSTRIES (286-ITR-1) IS APPLICABLE WH EREIN THE HIGH COURT STATED AS UNDER:- WE DO NOT SUBSCRIBE TO THE OBSERVATION IN THE JUDG MENTS TO THE EFFECT THAT IF THE AMOUNT IS ADVANCED FROM A MIXED ACCOUNT OR SHARE CAPITAL OR SALE PROCEEDS OR PROFITS, ETC., TH E SAME WOULD NOT BE TERMED AS DIVERSION OF BORROWED CAPITAL OR THAT THE REVENUE HAD NOT BEEN ABLE TO ESTABLISH NEXUS OF THE FUNDS A DVANCED TO THE SISTER CONCERNS WITH THE BORROWED FUNDS. ONCE I T IS BORNE OUT FROM THE RECORD THAT THE ASSESSEE HAD BORROWED CERT AIN FUNDS ON WHICH LIABILITY TO PAY TAX IS BEING INCURRED AND ON THE OTHER HAND, CERTAIN AMOUNTS HAD BEEN ADVANCED TO SISTER CONCERN S OR OTHERS ITA NO.1290 & 1561/AHD/2010 A.Y. 2007-08 DCIT CIR-1 V. M/S. DHIRAJ SONS MEGA STORES P. LTD . PAGE 5 WITHOUT CARRYING ANY INTEREST AND WITHOUT ANY BUSIN ESS PURPOSE, THE INTEREST TO THE EXTENT THE ADVANCE HAD BEEN MAD E WITHOUT CARRYING ANY INTEREST IS TO BE DISALLOWED UNDER SEC TION 36(1)(III) OF THE ACT. SUCH BORROWINGS TO THAT EXTENT CANNOT POSS IBLY BE HELD FOR THE PURPOSE OF BUSINESS BUT FOR SUPPLEMENTING T HE CASH DIVERTED WITHOUT DERIVING ANY BENEFIT OUT OF IT. AC CORDINGLY, THE ASSESSEE WILL NOT BE ENTITLED TO CLAIM DEDUCTION OF THE INTEREST ON THE BORROWINGS TO THE EXTENT THOSE ARE DIVERTED TO SISTER CONCERNS OR OTHER PERSONS WITHOUT INTEREST. 3.4 IN VIEW OF THE ABOVE, IT IS CLEAR THAT BY GIVIN G RS.19.16 LACS INTEREST FREE ADVANCES TO VARIOUS PARTIES, THE ASSESSEE DIVE RTED INTEREST BEARING FUNDS TO THE EXTENT AND HENCE INTEREST @ 10.75% ON THE LOAN OF RS.19.16 LACS IS CONFIRMED AND THE BALANCE AMOUNT I S DELETED. THIS GROUND OF APPEAL IS, THEREFORE, PARTLY ALLOWED. WE FIND THAT LD. CIT(A) HAS FOLLOWED THE DECISION O F HONBLE CO-ORDINATE BENCH RENDERED IN ITA NO.3551/AHD/2007 IN ASSESSEE S OWN CASE. THEREFORE, WE DO NOT FIND ANY INFIRMITY INTO THE ORDER OF LD. CIT(A) AND SAME IS HEREBY UPHELD. THIS GROUND OF REVENUES APPEAL IS DISMISSE D. 12. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 13. IN COMBINED RESULT, REVENUES APPEAL IS DISMISSED A ND THAT OF ASSESSEES APPEAL IS DISMISSED AS WITHDRAWAN. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE. SD/- SD/ - (A.K.GARODIA) (KUL BHARAT) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, *DKP #$%- 23/11/2012 +,- . ' ' ' ' //0 //0 //0 //0 10 10 10 10 / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. $-$/3 4 / CONCERNED CIT 4. 4- / CIT (A) ITA NO.1290 & 1561/AHD/2010 A.Y. 2007-08 DCIT CIR-1 V. M/S. DHIRAJ SONS MEGA STORES P. LTD . PAGE 6 5. 0 78 ///3, /3!, +,- / DR, ITAT, AHMEDABAD 6. 8;< => / GUARD FILE. BY ORDER/ ' , /TRUE COPY/ ?/+ $ /3!, +,- . STRENGTHEN PREPARATION & DELIVERY O F ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 08/11 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE NO 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 08/11, 12/11 4) DATE OF CORRECTION 16/11 5) DATE OF FURTHER CORRECTION 6) DATE OF INITIAL SIGN BY MEMBERS 21/11 7) ORDER UPLOADED ON 23/11 8) ORIGINAL DICTATION PAD-PART HAS BEEN ENCLOSED IN THE FILE YES 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON 23/11