Sh. Vijay Kumar Bansal, Jaitu V. The Income-tax Officer, Faridkot

ITA 14/ASR/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1474 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 09-09-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 08-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Tax effect

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; (SMC), AMRITSAR BEFORE SH. A.D.JAIN, HONBLE JUDICIAL MEMBER I.T.A. NO.14 (ASR)/2014 ASSESSMENT YEAR: 2010-11 PAN: ABUPB9486A SH VIJAY KUMAR BANSAL PROP. M/S DAYA CHAND AMAR NATH,JAITU VS. THE INCOME TAX OFFICER, WARD III (3) FARIDKOT. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. ASHWANI KALIA (CA) RESPONDENT BY: SH. TARSEM LAL (DR) DATE OF HEARING: 0 9.09.2015 DATE OF PRONOUNCEM ENT: 09.09.2015 ORDER PER A.D. JAIN (JM): THIS IS ASSESSEES APPEAL FOR ASST. YEAR 2010-11, AGAINST THE ORDER DATED 17.10. 2013, PASSED BY THE LEARNED CIT(A), BATHINDA , TAKING THE FOLLOWING EFFECTIVE GROUNDS: (I) THAT THE AUTHORITIES BELOW HAVE ERRED IN LAW A ND ON FACTS IN MAKING AND SUSTAINING THE ADDITION OF RS.7,44,934/- IN THE RET URNED INCOME OF THE APPELLANT. (II) THAT THE LEARNED COMMISSIONER OF INCOME TAX HA S ERRED IN LAW AND FACTS IN NOT FOLLOWING HIS OWN DECISION IN APPEAL NO.59-IT-CIT(A )/BTA/09-10 WITHOUT ASSIGNING REASON. (III) IT IS THEREFORE PRAYED THAT THE ADDITION OF R S.7,44,934/- MAY KINDLY BE DELETED OR ANY OTHER RELIEF AS MAY DEEM FIT BE ALLOWED. 2. AS PER RECORD, THE FACTS OF THE CASE ARE THAT TH E ASSESSEE IS CARRYING ON THE BUSINESS OF KACHA ARHATIA AND HAS MADE A TURNO VER OF RS.4,50,01,794/- AND EARNED RS.11,19,214/- AS COMMISSION. BEFORE THE A.O., THE ASSESSEE SUBMITTED THAT FOR THE PURPOSE OF HIS BUSINESS HE R EQUIRES SOME FUNDS FOR . ITA NO. 14 (ASR)/2014 ASST. YEAR 2010-11 2 MAKING PAYMENT TO AGRICULTURISTS. FOR THIS PURPOSE, THE ASSESSEE HAS TAKEN PERMANENT DEPOSITS FROM PERSONS COVERED U/S 40(A)(2 )(B) OF THE I.T. ACT. WHEN THE FUNDS ARE NOT REQUIRED IMMEDIATELY, THE SAME AR E GIVEN ON INTEREST IN THE MARKET TO THOSE PARTIES ONLY, FROM WHOM HE CAN TAKE IT BACK IMMEDIATELY, AS AND WHEN REQUIRED. DURING THE BUSINESS OF THE ASSES SEE, SOME TIMES THE AGRICULTURIST DOES NOT TAKE THE AMOUNT DUE IMMEDIAT ELY AND THE SAME REMAINS WITH THE ASSESSEE, ON WHICH, NO INTEREST HAS BEEN P AID I.E., IT REMAINS INTEREST FREE. THE ASSESSEE, DURING THE YEAR UNDER ASSESSMEN T, HAS PAID RS.14,96,386/- ON THE DEPOSITS KEPT BY HIM. THE ASSESSEE ALSO EARN ED INTEREST OF RS.11,69,951/- ON THE AMOUNT ADVANCED BY HIM IN THE MARKET. THE ASSESSEE HAS ALSO NOT CHARGED INTEREST ON THE AMOUNT PAID TO ASSOCIATED PARTNERSHIP FIRMS. THESE FIRMS ARE ASSESSED TO TAX @ 30% + ED. CESS, WHILE THE ASSESSEE IS ASSESSED @ 10% + CESS. THE ASSESSEE WAS ALSO HAVING INTEREST FREE DEPOSITS, ON WHICH, NO INTEREST WAS PAID AND IF CALCULATED @ 12% , IT COMES TO RS. 8,16,784/-. THUS THE FUNDS BORROWED WERE USED FOR T HE PURPOSE OF THE BUSINESS. THE A.O., HOWEVER, WHILE MAKING THE ASSES SMENT, DID NOT CONSIDER THE FACTS ABOUT THE NON-PAYMENT OF INTEREST ON INTE REST FREE DEPOSITS WITH THE ASSESSEE, THE COMMISSION EARNED BY THE ASSESSEE AND THE TAX EFFECT ON WHICH NO INTEREST WAS CHARGED, AND MADE THE ADDITION OF R S.7,44,934/-. 3. BEFORE THE LEARNED CIT(A), THE ASSESSEE CONTENDE D THAT ON THE OPENING DAY OF THE YEAR, THE CAPITAL OF THE ASSESSEE STOOD AT RS.11,46,372.88, WHILE THE SAME WAS AT RS.6,25,080.85 AT THE CLOSE OF THE YEAR ; THAT IF INTEREST @ 18% P.A IS CALCULATED, THE SAME WORKS OUT AT RS.1,42,648/- WHICH WAS REQUIRED TO BE . ITA NO. 14 (ASR)/2014 ASST. YEAR 2010-11 3 SET OFF OUT OF THE DISALLOWANCE OF INTEREST MADE BY THE A.O. IT WAS FURTHER CONTENDED THAT WHERE THE AGRICULTURIST, AFTER SALE OF PRODUCE DOES NOT TAKE THE SALE PROCEEDS IMMEDIATELY, NO INTEREST ON SUCH AMOU NTS IS PAID AND THE IMPUGNED AMOUNT REMAINS WITH THE ASSESSEE, AS INTER EST FREE CREDITS; THAT IF INTEREST @18% P.A. IS CALCULATED IN RESPECT OF SUCH ACCOUNTS, THE SAME WORKS OUT AT RS.12,25,176/- AND THUS, THERE WAS NO OCCASI ON WITH THE A.O TO MAKE A TOTAL DISALLOWANCE OF RS.7,44,934/- OUT OF THE INTE REST ACCOUNT. THE ASSESSEE ALSO RELIED ON CERTAIN JUDGMENTS REPORTED AT (2012) 146 TTJ (MUMBAI) 543, (2009) 313 ITR 349, (1997)224 ITR 627 (SC) AND (198 1) 134 ITR 219 (CAL.), BESIDES THE ORDER OF COMMISSIONER OF INCOME TAX (AP PEALS) IN APPEAL NO. 59-IT- CIT(A)/BTI/09-10, DATED 11.09.2009. 4. THE LEARNED CIT(A) CONFIRMED THE DISALLOWANCE MA DE BY THE A.O. IT WAS OBSERVED AS FOLLOWS: SECTION 36(1) (III) ALLOWS DEDUCTION IN RESPECT OF INTEREST PAID ON CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS, PROFESSI ON OR VOCATION. WHEN THE ASSESSEE BORROWS MONEY FOR PURPOSES OF ADVANCIN G INTEREST FREE LOANS TO SISTER CONCERNS OR AT A LOWER RATE THAN WHAT HE HAS PAID, IT STANDS TO REASON THAT SUCH INTEREST WOULD NOT BE ELIGIBLE FOR DEDUCTION U/S 36(1)(III) OF THE ACT. AGAIN THE APPELLANT AT NO STAGE HAS BEE N ABLE TO ESTABLISH THAT THE LOANS RAISED WERE FOR BUSINESS NEEDS. THE RELIA NCE PLACED BY THE APPELLANT ON VARIOUS ORDERS/JUDGMENTS HAVE NO BEARI NG ON THE FACTS OF THE CASE UNDER APPEAL IN VIEW OF THE JUDGMENTS OF H ONBLE SUPREME COURT AND THAT OF JURISDICTIONAL HIGH COURT. IN VIE W OF THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM INCLINED TO UPHOLD THE FINDINGS OF THE A.O AND SUSTAINED THE DISALLOWANCE OF RS.7,44,934/- MAD E BY HIM OUT OF . ITA NO. 14 (ASR)/2014 ASST. YEAR 2010-11 4 CLAIM OF INTEREST AND THE GROUND OF APPEAL OF THE A PPELLANT IN THIS REGARD IS HEREBY REJECTED. 5. BEFORE ME, THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT VIDE LETTER DATED 9.9.2015, THE ASSESSEE HAD MADE SUBMI SSIONS BEFORE THE LEARNED CIT(A), THAT THE ASSESSEE HAD SUFFICIENT INTEREST F REE FUNDS ON ACCOUNT OF HIS OWN CAPITAL, AS WELL AS THE DEPOSITS OF AGRICULTURI STS WITH THE ASSESSEE, ON WHICH, NO INTEREST WAS PAID. THESE INTEREST FREE FU NDS WERE SUFFICIENT TO MEET THE REQUIREMENTS OF FUNDS FOR INTEREST FREE ADVANCE S AND INTEREST AT LOWER RATE AND HENCE, NO DISALLOWANCE OF INTEREST WAS CALLED F OR. THE REASONS FOR CHARGING INTEREST AT LOWER RATE WERE ALSO EXPLAINED. 5.1 THE CIT(A), AT PAGE 4, LAST PARA AND AT P AGE 5, FIRST PARA, HAS ACCEPTED THE FACT THAT THE ASSESSEE HAD INTEREST FREE FUNDS. 5.2 IN SPITE OF THE ABOVE FACTS SUBMITTED BEF ORE CIT(A), THE ORDER PASSED BY HIM CONFIRMING THE ADDITION OF RS.7,44,934/- IS ABS OLUTELY NON SPEAKING, HE HAVING NOT DEALT WITH THE ABOVE SUBMISSIONS OF THE ASSESSEE. HENCE, THE ORDER IS PERVERSE. 6. ON THE OTHER HAND, THE LEARNED DR HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. 7. I HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED T HE MATERIAL ON RECORD. I FIND THAT THE GRIEVANCE OF THE ASSESSEE TO BE JUSTI FIED. THE LEARNED CIT(A) HAS NOT GIVEN ANY FINDING SO FAR AS REGARDS THE DEPOSIT S WITH THE ASSESSEE AND THE ASSESSEES OWN CAPITAL, EVEN THOUGH SPECIFIC SUBMIS SIONS WERE MADE BY THE . ITA NO. 14 (ASR)/2014 ASST. YEAR 2010-11 5 ASSESSEE IN THIS REGARD BEFORE THE LEARNED CIT(A). IN THE ABSENCE OF A SPECIFIC FINDINGS ON THESE ASPECTS OF THE MATTER, THE ISSUE OF INTEREST PAID ON BORROWED CAPITAL CANNOT BE PROPERLY DECIDED. 8. IN THIS VIEW OF THE MATTER, THIS APPEAL IS REMIT TED TO THE FILE OF THE LEARNED CIT(A), TO BE DECIDED AFRESH IN ACCORDANCE WITH LAW , BY PASSING A SPEAKING ORDER, TAKING INTO CONSIDERATION THE ASSESSEES CON TENTIONS REGARDING DEPOSITS OF AGRICULTURISTS WITH THE ASSESSEE, ON WHICH, NO I NTEREST WAS PAID, AS ALSO THE ASSESSEES OWN CAPITAL. 9. IN THE RESULT, FOR STATISTICAL PURPOSES, TH E APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED. 10. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH SEPTEMBER, 2015. SD/- (A.D. JAIN) JUDICIAL ME MBER DATED: 09.09. 2015 /PK/ PS. COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE: SH. VIJAY KUMAR BANSAL 2. THE INCOME TAX OFFICER, WARD III (3), FARIDKOT 3. THE CIT(A), 4. THE CIT, 5. THE SR DR, I.T.A.T., TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR .