Mr. Janaj Raj Kapoor (HUF), Amritsar. V. The Assistant Commissioner of Income Tax, Amritsar.

ITA 137/ASR/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5574 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 18-05-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 01-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAHUL DHAWANLD
• Assessee Lawyers: ANIL PURI LD
• Keywords: Depreciation; Business expenditure; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR BEFORE SH.T.S. KAPOOR, ACCOUNTANT MEMBER AND SH.N.K.CHOUDHRY, JUDICIAL MEMBER I.T.A. NO.137 (ASR)/2016 ASSESSMENT YEAR: 2012-13 MR. JANAK RAJ KAPOOR (HUF), PROP, M/S S.K.JEWELLERS, 80/4, FIRST FLOOR, PADAM RAM BELI RAM BUILDING, CHORASTI ATTARI, GURU BAZAR, AMRITSAR. PAN:AAAH-J4149P VS. ASST. CIT, CIRCLE-II, AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. ANIL PURI (LD. A DV) RESPONDENT BY: SH. RAHUL DHAWAN (LD. DR ) DATE OF HEARING: 18.05.2017 DATE OF PRONOU NCEMENT:14.07.2017 ORDER PER N. K. CHOUDHRY (JM): THE INSTANT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AG AINST THE ORDER DATED 23.12.2015 PASSED BY THE LD. CIT(A)-I , AMRITSAR IN APPEAL NO.20/2014-15. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPE AL. 1. THAT THE LEARNED CIT(APPEALS) ERRED BOTH IN L AW AS WELL AS IN RESPECT OF THE FACTS OF THE CASE, WHILE PARTLY ALLO WING THE APPEAL AND UPHOLDING THE DISALLOWANCE OUT OF INTEREST ACCO UNT, VIDE HIS ORDER DATED 23.12.2015. 2. THAT THE LEARNED CIT(APPEALS) FAILED TO APPRECIA TE THE SUBMISSIONS OF THE APPELLANT JUDICIOUSLY AND ARBITR ARILY UPHELD DISALLOWANCE OF RS.7,51,866/- OUT OF INTEREST PAID ON UNSECURED LOANS. 3. THE LEARNED CIT(APPEALS) WAS ABSOLUTELY UNJUSTIF IED IN DISAGREEING WITH THE SUBMISSIONS OF THE APPELLANT I N REGARDS TO ITA NO.137(A SR)/2016 ASST. Y EAR: 2012-13 2 BONA-FIDE BUSINESS EXPENDITURE OR INTEREST PAID ON UNSECURED LOANS AT THE RATE OF 21% PER ANNUM. 4. THAT ALL THE COMMENTS PASSED BY THE LEARNED CIT( APPEALS), WHILE UPHOLDING THE DISALLOWANCE OUT OF INTEREST, A RE CONTRARY TO THE FACTS OF THE CASE, WITHOUT APPRECIATING AND OVE RLOOKING THE FACT ABOUT DOUBLE TAXATION OF THE SAME AMOUNT, IN THE HA NDS OF THE DEPOSITORS AS WELL AS THE APPELLANT. 3. THE BRIEF FACTS OF THE CASE REFLECTED FROM THE RECO RD IS THAT THE APPELLANT HUF ENGAGED IN THE WHOLESALE BUSINESS OF TRADING AND UNDERTAKING JOB WORK FOR GOLD ORNAMENTS/JEWELLE RY. RETURN DECLARING AN INCOME OF RS.19,08,787/- WAS FILED ON 29.09.2012 ON TOTAL TURNOVER OF RS.8,84,10,649/- AND JOB WORK RECEIPTS OF RS.2,83,645/-. THE AO COMPLETED THE ASSESSMENT VIDE ORDER DATED 18.02.2015, PASSED UNDER SECTION 143(3) OF THE INCO ME TAX ACT, 1961 AT AN INCOME OF RS.28,23,626/- AFTER MAKI NG THE BELOW NOTED DISALLOWANCE OF RS.9,14,829/-. (I) OUT OF INTEREST ACCOUNT RS.7,51,866/- (II) ELECTRICITY EXPENSES RS. 90,750/- (III) CAR EXPENSES RS.2,834/- (IV) TELEPHONE EXPENSES RS.2,834/- THE ASSESSEE CLAIMED DEDUCTION OF RS.17,54,356/- A S INTEREST PAID ON UNSECURED LOANS AT THE RATE OF 21% PER ANNUM, TO THE DEPOSITORS, OUT OF WHICH THE AO DISALLOWED R S.7,51,866/- I.E. 9% OUT OF THE CLAIM OF 21% PER ANNUM, TO THE D EPOSITORS, OUT OF WHICH THE AO DISALLOWED RS.7,51,866/- I.E., 9% OUT OF THE CLAIM OF 21% PER ANNUM. ITA NO.137(A SR)/2016 ASST. Y EAR: 2012-13 3 4. FEELING AGGRIEVED AGAINST THE DISALLOWANCE MADE BY THE ASSESSING OFFICER, THE ASSESSEE PREFERRED THE FIRST APPEAL BE FORE THE LD. CIT(A). THE LD. CIT(A) WHILE CONFIRMING THE ADDI TION MADE BY THE ASSESSING OFFICER WITH RESPECT TO THE DISALLOWANCES TO THE TU NE OF RS.7,51,866/- GIVEN THE PARTLY RELIEF TO THE ASSESSEE B Y HOLDING AS UNDER: 6. I HAVE GONE THROUGH THE GROUNDS OF APPEAL, THE SUBM ISSION AND THE ASSESSMENT ORDER OF THE AO. THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.17,54,356/ - AS INTEREST PAID ON UNSECURED LOANS @ 21% PER ANNUM TO THE 05 D EPOSITOR WHO ARE FAMILY MEMBER OF THE ASSESSEE. THE ASSESSEE FAILED TO PROOF THAT THE SAID ADVANCE MADE UNDER EXTREME BUSINESS EXPEDIENCY FROM THE ASSESSMENT ORDER IT IS CLEAR THAT THE ASSESSEE UNSECURED LOANS ARE INCREASING BY 15- 20 LACKS EVERY YEAR. NO REPAYMENTS ARE BEING GIVEN AND DEBITED TO P&L A/C. THE ASSESSEE REPLY IS SILENT ON THE SAID POINT . FURTHER THE PREVAILING MARKET RATE OF INTEREST IS F ROM 12-15% PER ANNUM AS MANY OTHER ASSESSEES ENGAGED IN THE SAME BUSINESS ARE PAYING INTEREST ON UNSECURED LOANS TO THE OUTSIDE PARTIES @ 12-15% WHICH SHOWS THAT FUNDS ARE EASILY AVAILABLE IN THE MARKET AT TH E RATE OF 12-15%. IT IS EVIDENT THAT THE ASSESSEE HAD OPTION TO GET THE LOANS AT LOWER RATES. IF THE FUNDS WERE AVAILABLE AT LOWER R ATE OF INTEREST, NO PRUDENT BUSINESS WOULD BORROW THE MONEY AT HIGHER R ATE OF INTEREST. FURTHER AFTER PERUSAL OF ITRS OF THE FAMILY THE A. O. GATHERED THAT THEY ARE FILING THEIR RETURNS AT INCOME OF RS.2 LAC TO 5 LAC WITHIN THE SLAB RATE OF 20%. THE ASSESSEE FAILED TO PRODUCE ANY CON CRETE/CONCLUSIVE EVIDENCE REGARDING EXPEDIENCY OF THE UNSECURED LOAN S GIVEN @ 21% PER ANNUM TO ITS FAMILY MEMBER AND THE ASSESSEE HAS ALS O NOT PROVIDED ANY EVIDENCE REGARDING REPAYMENT OF THE SAID LOANS. THU S IT IS CLEAR THAT THE ASSESSEE CLAIM OF INTEREST PAID ON UNSECURED LOANS @ 21% PER ANNUM ARE NOT GENUINE. ADDITION OF RS.7,51,866/- BY THE A O ON THIS ACCOUNT IS CONFIRMED. ELECTRICITY EXPENSES DISALLOWED AT RS.90,750/-. THO UGH PERSONAL USE OF THE SAID EXPENSES CANNOT BE RULED OUT. THUS BEING REASONABLE DISALLOWANCE OF ELECTRICITY EXPENSES IS BEING REDUC ED TO 1/10 OF THE TOTAL AMOUNT OF EXPENSES. ASSESSEE HAS ALREADY ADDED BACK CAR EXPENSES ITSELF FOR RS.22,399/- BEING 1/6 TH OF CAR EXPENSES OF RS.1,34,396/-. AO HAS AGAIN DISALLOWED 1/5 TH FROM TOTAL CAR EXPENSE (CAR EXPENSES + INSURANCE+ CAR DEPRECIATION) OF RS.3,46,897/-. THUS 1/6 TH DISALLOWANCE OF CAR EXPENSES BY THE ASSESSEE HIMSELF WILL BE REDUCED FROM RS.69, 379 (1/5 TH OF 3,46,897/-) DISALLOWED BY THE ASSESSEE. ITA NO.137(A SR)/2016 ASST. Y EAR: 2012-13 4 TELEPHONE EXPENSES IS ALSO DISALLOWED RS.2834 @ 1/ 10 TH OF THE EXPENSES OF RS.28,338/-. THUS TO AVOID DOUBLE TAXAT ION DISALLOWING THE EXPENSES AGAIN IS NOT JUSTIFIABLE AND THE DISALLOWE D OF RS.2834/- BY THE ASSESSEE HIMSELF IS REASONABLE. 7. I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSIONS OF THE APPELLANT, AND THE GROUNDS OF AP PEAL ARE DISPOSED OFF AS UNDER: (I) THE GROUND OF APPEAL AT S.NO.1,2,3,4 ARE PARTLY ALLOWED. (II) THE GROUND OF APPEAL AT S.NO.5 IS GENERAL IN N ATURE AND REQUIRES NO ADJUDICATION. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. 5. THE ASSESSEE PREFERRED THE INSTANT APPEAL SPECIFICALLY CHALLENGING OF THE DISALLOWANCES TO THE TUNE OF RS.7,51, 866/- BY THE ASSESSING OFFICER OUT OF INTEREST ACCOUNT AND THE ASSESSEE EMPHASIZED THAT THE ORDER PASSED BY THE LD. CIT(A) IS I LLOGICAL, UNREASONED, ERRONEOUS ORDER AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE BECAUSE THE LD. CIT(A) ASSUMED HIS O WN NOTION BY CONFIRMING THE SAID ADDITION BY RESTRICTING T HE INTEREST ALLOWED ON UNSECURED LOANS @ 12% PER ANNUM, WITHOUT AN Y JUSTIFICATION, BASIS OR BRINGING FORWARD ANY EVIDENCE ON RECORD IN SUPPORT OF THE SAID DISALLOWANCES. THE LD. CIT(A) ALSO FA ILED TO CONSIDER THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE PAID INTEREST OF RS.17,54,356/- ON UNSECURED LOANS OF RS.96,98 ,291/- AT 21% PER ANNUM I.E., AT THE SAME RATE AT WHICH IT WAS PAID IN EARLIER YEARS, AND IS LOWEST THEN THE PREVAILING MARKET RATE OF 24% PER ANNUM. FURTHER THE LD. CIT(A) ALSO FAILED TO UNDERSTA ND THAT THE SAID PAYMENT IS A BONAFIDE AND REASONABLE EXPENDITURE, INCU RRED FOR LEGITIMATE BUSINESS NEEDS, FOR AVAILABILITY OF UNHIND ERED LIQUIDITY, ITA NO.137(A SR)/2016 ASST. Y EAR: 2012-13 5 WITHOUT ANY OTHER LIABILITY OR ANY KIND OF RIDERS AN D PERPETUAL CHECKS BY THE FINANCIAL INSTITUTIONS ETC. THE ASSESSEE FURTHER SUBMITTED THAT SECTION 40(B)(IV) PR OVIDES PAYMENT OF INTEREST TO PARTNERS ON THEIR CAPITAL AT 12 % PER ANNUM, IN ADDITION TO WHICH THE PARTNER IS ALSO ENTITLED FOR WO RKING ALLOWANCES/ SALARY AS WELL AS SHARE OF PROFIT, THEREFORE, THE ASSESSING OFFICER WAS ABSOLUTELY UNJUSTIFIED IN RESTRICTING THE INTEREST PAID ON UNSECURED LOANS @ 12% PER ANNUM AS AGAINST 21% PER ANNUM PAID BY THE ASSESSEE. THE LD. ADVOCATE SH. ANIL PURI FURTHER DRAWN OUR ATT ENTION TO THE FACT THAT BOTH AUTHORITIES BELOW OVERLOOKED THE MOST IMPORTANT FACTOR OF THE CASE THAT THE ASSESSEE HAS EARNED AN INCOME O F RS.19,27,489/- ON CAPITAL OF RS.53,37,892/- WHICH COMES TO 36.11% AFTER PROVIDING INTEREST TO DEPOSITORS AT 21%. LD. ADVOCATE, SH. ANIL PURI ALSO RELIED UPON THE JUD GMENT OF THE ALLAHABAD HIGH COURT IN THE CASE OF CIT-I VS. NORTHERN ELECTRONIC SYSTEM PVT. LTD. (2013) 218 TAXMAN.155. 6. ON THE CONTRARY, IT WAS SUBMITTED BY LD. SR. DR SH. RA HUL DHAWAN THAT THE ASSESSEE HAS FAILED TO SHOW EXTREME BUSINE SS EXPEDIENCY AND IT ALSO REFLECTS FROM THE RECORDS THAT PRE VALENT MARKET RATE IS 10 % TO 14% AND VARIOUS HIGH COURTS HAS DECIDED ITA NO.137(A SR)/2016 ASST. Y EAR: 2012-13 6 THAT ONLY IN BUSINESS EXPEDIENCY, THE HIGHER INTEREST CA N BE PAID OR TAKEN. 7. IN THE REJOINDER, THE ASSESSEE AGAIN SUBMITTED THAT IN THE BALANCE SHEET ENTIRE INTEREST AMOUNT HAS BEEN SHOWN AND CERTAINLY THERE WAS COMMERCIAL EXPEDIENCY I.E., INTEREST AMOUNT UN DER CONSIDERATION HAS BEEN PAID. 8. WE HAVE GONE THROUGH WITH THE FACTS AND CIRCUMSTANCES OF THE CASE AND RIVAL SUBMISSIONS OF THE PARTIES AS WELL AS JUDGM ENTS RELIED UPON BY THE ASSESSEE, THE LD. CIT(A) IN HIS ORDER POINT ED OUT THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.17,54,356/- AS INTE REST PAID ON UNSECURED LOANS AT THE RATE OF 21% PER ANNUM T O THE 05 DEPOSITORS WHO ARE FAMILY MEMBERS OF THE ASSESSEE AND THE ASSESSEE FAILED TO PROVE THAT THE SAID ADVANCE MADE UNDER EXTR EME BUSINESS EXPEDIENCY. IN OUR CONSIDERED VIEW, THIS IS ONLY AN ASSUMP TION OF THE LD. CIT(A) AS NEGATIVE INFERENCE CANNOT BE DRAWN ONLY ON THE BASIS THAT THE ASSESSEE HAD TAKEN UNSECURED LOANS FROM THE FAM ILY MEMBERS AND IT IS THE ASSESSEE WHO HAS TO FACE COMMERCIAL EXPEDIENCY AND IS IN BEST POSITION TO APPREHEND IMMED IATE EXIGENCY AND IT CANNOT BE ASSUMED THAT BECAUSE THE OTHER ASSESSEES ENGAGED IN THE SAME BUSINESS ARE PAYING INTEREST ON UNSECU RED LOANS TO THE OUT SIDE PARTIES @ 12- TO 15%, THEREFORE, THE INSTANT ASSESSEE ALSO HAD AN OPPORTUNITY TO GET THE LOANS AT LOWER RA TE. ITA NO.137(A SR)/2016 ASST. Y EAR: 2012-13 7 FURTHER, THE OBSERVATIONS OF THE CIT(A) THAT THE FAM ILY MEMBERS OF THE ASSESSEE ARE FILING THE RETURNS AT INCOME OF RS.2 TO 5 LAC WITHIN THE SLAB RATE OF 20%, THEREFORE, THE INTE REST PAID ON UNSECURED LOANS 20% ARE NOT GENUINE WHEREAS IT IS CLEAR FROM THE RECORD THAT DETAILS OF INTEREST ACCOUNT ALONG WITH THE COPIES OF ACCOUNT OF ALL THE DEPOSITORS HAVE BEEN PLACED FOR CONSIDE RATION AND PERUSAL BEFORE THE AUTHORITIES BELOW AND IT WAS ALSO EX PLAINED THAT ALL THE DEPOSITORS ARE REGULARLY INCOME TAX ASSESSEES HAVING P AN AND FILING THEIR INCOME TAX RETURN REGULARLY AND COPIES OF SAID RETURNS HAVE ALSO BEEN FILED BEFORE THE AUTHORITIES BELOW. E VEN OTHER WISE THE ASSESSEES CONTENTION IS THAT THERE IS A BONAFIDE REA SONABLE EXPENDITURE, INCURRED FOR LEGITIMATE BUSINESS NEEDS, FO R AVAILABILITY OF UNHINDERED LIQUIDITY, WITHOUT ANY OTHER LIABILITY O R ANY KIND OF RIDERS AND PERPETUAL CHECKS BY THE FINANCIAL INSTITUTIONS ETC. IT IS ALSO IMPORTANT THAT ALL THE DEPOSITORS IN THEIR I T RETURNS DECLARED THE AMOUNT OF INTEREST EARNED ON THEIR DEPOS ITORS FROM THE ASSESSEE AND ALSO PAID THE TAX DUE THEIR UPON AND IF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WHICH IS CONFIRMED BY THE CIT (A) IS UPHELD THEN THE SAME WOULD RESULT INTO DOUBLE TAXATIO N OF THE SAME AMOUNT. EVEN OTHERWISE, THERE ARE PLETHORA OF JUDGME NT SPECIFICALLY PASSED BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN IT A NO.132/2008 IN THE CASE OF CIT VS. AMRIT SOAP COMPANY, THE HIGH COURT OF RAJSTHAN IN THE CASE OF CIT VS. UDAIPUR DISTIL LERY CO. LTD. IN ITA NO.137(A SR)/2016 ASST. Y EAR: 2012-13 8 APPEAL NOS. 124 & 142/2006 AND THE JUDGMENT OF ALLAH ABAD HIGH COURT IN THE CASE OF CIT-I VS. NOTHERN ELECTRONIC SYSTEM PVT. LTD. (SUPRA), IT WAS CLEARLY HELD THAT THE INTEREST PAID TO THE CLOSE RELATIVE AND ASSOCIATED PERSONS WAS MORE THAN THE RATE AT WHICH I NTEREST WAS PAID TO OTHER CREDITORS CANNOT BE DISALLOWED U/S 40A(2)( A) AND EVEN OTHERWISE THE INTEREST AT THE 23% WAS CONFIRMED BY THE ALLAHABAD HIGH COURT. FURTHER THE INTEREST PAID IN THE INSTANT CA SE DOES NOT EXCEED TO 24%, THEREFORE, IN THE COMMERCIAL EXPEDIENCY 21% CANNOT BE CONSIDERED AS EXCESSIVE AND HIGH. THE OBSERVATIONS OF TH E LD. CIT(A) THAT OTHER ASSESSEES ARE GETTING THE LOANS FROM T HE OUTSIDE PARTIES @ 12-15%, THEREFORE, THE FUNDS ARE EASILY AVAI LABLE IN THE MARKET AT THE SAME RATE DOES NOT SOUND TO BE GOOD REASO NING AND CONCLUSION TO CONFIRM THE DISALLOWANCE, HENCE, WE ARE OF T HE CONSIDERED OPINION THAT THE ORDER PASSED BY THE LD. CIT (A) IS PERVERSE, ILLOGICAL AND BASED ON WRONG REASONS, THEREFOR E, THE SAME IS LIABLE TO BE SET ASIDE AND THE APPEAL OF THE ASSESSEE I S LIABLE TO BE ALLOWED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.07.2017. SD/- SD/- (T. S. KAPOOR) (N.K.CHOUDHRY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:14.07.2017. /PK/ PS. ITA NO.137(A SR)/2016 ASST. Y EAR: 2012-13 9 COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER