M/s Apple Valley Developers, Kullu V. DCIT, Mandi

ITA 1359/CHANDI/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68491 (ITAT-CHANDIGARH)
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-07-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 31-12-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: ANIL KUMAR BATRA
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NOS.1358 & 1359/CHD/2012 ASSESSMENT YEARS: 2007-08 & 2009-10 M/S APPLE VALLEY DEVELOPERS, VS THE DCIT, CIRCLE, KULLU MANDI PAN NO. AAKFA1503E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANIL KUMAR BATRA RESPONDENT BY : SHRI MANJIT SINGH DATE OF HEARING : 02.09.2013 DATE OF PRONOUNCEMENT : 20.09.2013 ORDER PER T.R. SOOD, AM BOTH THE APPEALS BY THE ASSESSEE ARE DIRECTED AGAIN ST THE COMMON ORDER PASSED BY THE LD. CIT(A), SHIMLA DATED 22.10. 2012. ITA NO. 1358/CHD/2012 :- 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWIN G GROUNDS:- 1. THAT THE LD. CIT(A) HAS WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE, GRAVELY ERRED IN SUS TAINING DISALLOWANCE ADDITION OF RS. 9,.70,137/- BEING ON ACCOUNT @ 10% OUT OF TOTAL INTEREST CHARGES ON CC ACCOUNT, ON DAILY PRODUCT METHOD ON THE TOTAL DEBIT BALANCE IN CAPITA L ACCOUNT OF THE PARTNERS SHRI ARUN SHARMA & ATUL SHARMA. THE CL AIM BE ALLOWED AND ADDITION BE DELETED. 2. THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISA LLOWANCE OF RS. 50,000/- OUT OF EXPENSES INCURRED ON VEHICLE RUNNING & 2 MAINTENANCE, WITHOUT PASSING A SPEAKING ORDER. THE ADDITION BE DELETED. 3. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DUR ING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THER E WAS A DEBIT BALANCE IN THE ACCOUNT OF PARTNERS SHRI ARUN SHARMA & ATUL SHA RMA. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE AMOUNT OF INTEREST CHARGEA BLE ON THIS DEBIT BALANCE SHOULD NOT BE ADDED BACK TO INCOME OF THE ASSESSEE SINCE THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE. HOWEVER, DESPITE OPP ORTUNITIES, NO EXPLANATION WAS GIVEN AND ASSESSING OFFICER CALCULA TED INTEREST @ 10% ON THE DEBIT BALANCE AND DISALLOWED THE SAME. 4. ON APPEAL BEFORE THE CIT(A), IT WAS SUBMITTED TH AT IT HAS BEEN DECIDED THROUGH INTERNAL RESOLUTION TO MAKE INVESTMENT IN M /S APPLE VALLEY RESORTS (P) LTD WHERE BOTH THE PARTNERS WERE ALSO DIRECTORS . THE INVESTMENT WAS MADE BECAUSE THAT CONCERN HAS GOOD AND VALUABLE CON TACTS. DUE TO SOME LEGAL HINDRANCES THE INVESTMENT COULD NOT BE MADE D IRECTLY IN THE SAID CONCERN. THEREFORE, THERE WAS BUSINESS EXPEDIENCY F OR GIVING THE MONEY TO THE SISTER CONCERN. RELIANCE WAS ALSO PLACED IN TH E DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF PUNJAB STAINLESS ST EEL INDUSTRIES (2010) 324 ITR 396. AFTER CONSIDERING THE SUBMISSIONS, THE LD . CIT(A) DID NOT FIND FORCE IN THE SAME. SHE OBSERVED THAT ASSESSEE HAS INCURRED INTEREST LIABILITY ON THE CC ACCOUNT AMOUNTING TO RS. 14,85,720/-. SH E ALSO OBSERVED THAT LOAN GIVEN TO THE PARTNERS FOR INVESTMENT IN THE S ISTER CONCERN FOR FUTURE BUSINESS PROSPECTUS DO NOT IN ANY MANNER PROVE THAT LOANS WERE GIVEN FOR ANY GENUINE PURPOSE. SHE FURTHER DISCUSSED VARIOUS CASE LAWS AND CONFIRMED THE DISALLOWANCE. 5. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THERE WAS A PRIVATE LIMITED COMPANY KNOWN AS M/S APPLE VALLEY R ESORTS (P) LTD WHICH HAD GOOD CONTACTS AND ASSESSEE FIRM WANTED TO ACQUI RE THIS COMPANY. SINCE 3 BANK WAS NOT READY TO GRANT LOANS TO THE SAID PRIVA TE LIMITED COMPANY, IT WAS DECIDED TO GIVE MONEY FROM THE ASSESSEE FIRM THROUG H ITS PARTNERS. THIS WAS FOR THE BUSINESS PURPOSES AND THERE WAS COMMERCIAL EXPEDIENCY. ON A QUERY BY THE BENCH, HE ADMITTED THAT THERE WAS A PROVISIO N IN THE PARTNERSHIP DEED FOR GIVING INTEREST TO THE PARTNERS ON THEIR CAPITA L BALANCE BUT HE SUBMITTED THAT THERE WAS NO PROVISION FOR CHARGING OF INTERES T. 6. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTED THE ORDER OF CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. ADMITTEDLY, THE MONEY HAS BEEN GIVEN TO THE PARTNERS FOR THE PURPOSE OF M AKING INVESTMENT IN M/S APPLE VALLEY RESORTS (P) LTD. MERELY BECAUSE PARTN ERS WANTED TO ACQUIRE THAT COMPANY, IT CANNOT BE SAID THAT THERE WAS A CO MMERCIAL EXPEDIENCY IN CASE OF THE ASSESSEE FIRM FOR GIVING THE MONEY TO I TS PARTNERS. BY COMMERCIAL EXPEDIENCY, ONE NEED TO PROVE THAT OTHER CONCERN TO WHICH MONEY HAS BEEN GIVEN IS DOING SOMETHING FOR THE ASSESSEE I.E. IF T HE OTHER CONCERN IS GIVING DISCOUNTED RATES FOR SUPPLY OR CREDIT FOR EXTENDED PERIOD ETC. NONE OF THE FACTS HAVE BEEN PROVED. IF THE TWO PARTNERS WERE AC QUIRING ANOTHER BUSINESS THAT WILL HAVE NO RELATION WITH THE ASSESSEE. SINC E THE ASSESSEE HAD INCURRED INTEREST EXPENSES AND, THEREFORE, INTEREST ON SUCH DIVERSION OF FUNDS THROUGH THE PARTNERS ACCOUNT HAS BEEN RIGHTLY DISALLOWED BY THE ASSESSING OFFICER. EVEN OTHERWISE ASSESSEE FIRM WAS REQUIRED TO PAY IN TEREST ON ANY CREDIT BALANCE IN THE ACCOUNTS OF THE PARTNERS, THEREFORE, CORRESPONDINGLY IF SUCH ACCOUNT REFLECTS DEBIT BALANCE, THEN INTEREST HAS T O BE CHARGED ON SUCH ACCOUNTS. IN THESE CIRCUMSTANCES, WE FIND NOTHING WRONG WITH THE ORDER OF CIT(A) AND CONFIRM THE SAME. 8. IN THE RESULT, THE APPEAL IS DISMISSED. ITA NO. 1359/CHD/2013 9. IN THIS APPEAL FOLLOWING GROUNDS HAVE BEEN RAISE D:- 4 1. THAT THE LD. CIT(A) HAS WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE, GRAVELY ERRED IN SUS TAINING DISALLOWANCE ADDITION OF RS. 27,11,078/-- BEING ON ACCOUNT @ 10% OUT OF TOTAL INTEREST CHARGES ON CC ACCOUNT, ON DAILY PRODUCT METHOD ON THE TOTAL DEBIT BALANCE IN CAPITA L ACCOUNT OF THE PARTNERS SHRI ARUN SHARMA & ATUL SHARMA. THE CL AIM BE ALLOWED AND ADDITION BE DELETED. 2. THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISA LLOWANCE OF RS. 1,00,000/- OUT OF EXPENSES INCURRED ON VEHIC LE RUNNING & MAINTENANCE, WITHOUT PASSING A SPEAKING ORDER. THE ADDITION BE DELETED. 10. GROUND NO.2 WAS NOT PRESSED AND, THEREFORE, THE SAME IS DISMISSED. 11. GROUND NO.1: THE FACTS IN THIS RESPECT ARE IDEN TICAL AS FOR ASSESSMENT YEAR 2007-08 IN ITA NO. 1358/CHD/2013 WH ICH WE HAVE ADJUDICATED VIDE PARA NO. 7. FOLLOWING THE SAME, W E DECIDE THIS ISSUE AGAINST THE ASSESSEE. 12. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20.09.2013. SD/- SD/- (SUSHMA CHOWLA) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMER DATED : 20 TH SEPTEMBER, 2013 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR BY ORDER ASSISTANT REGISTRAR, ITAT CHANDIGARH