Agencies (India) Corporation, Ahmedabad V. The Income tax Officer,Ward-11(4), Ahmedabad

ITA 1408/AHD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62913 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 31-07-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 04-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y C SURTI
• Keywords: Depreciation

Judgement Text

ITA NO 1408 /AHD/2009 A.YR.. 2005 -06 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, A HMEDABAD (BEFORE SHRI D. K. TYAGI JM & SHRI ANIL CHATURVEDI A.M.) I.T.A. NO.140 8 /AHD/2009. (ASSESSMENT YEAR: 2005 - 06 ) AGENCIES (INDIA) CORPORATION, 75 NEW CLOTH MARKET, AHMEDABAD. (APPELLANT) VS. INCOME TAX OFFICER, WARD 11(4), NARAYAN CHAMBERS, NR./NEHRU BRIDGE, AHMEDABAD. (RESPONDENT) PAN: AADFA 2955K APPELLANT BY : SHRI MANISH J. SHAH RESPONDENT BY : SHRI Y.C.SURTI, SR. D.R. ( )/ ORDER DATE OF HEARING : 31-7-2012 DATE OF PRONOUNCEMENT : 24 -8-2012 PER: SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE O RDER OF LD. CIT(A)- XVI, AHMEDABAD DATED 22-5-2009 FOR THE ASSESSMENT Y EAR 2005-06. 2. IN THIS APPEAL, ASSESSEE HAS RAISED FOLLOWING GR OUNDS OF APPEAL: 1. THE CIT (A) ERRED IN UPHOLDING THE DISALLOWANCE OF INTEREST PAYMENT TO THE EXTENT OF 6% BEING THE NOTIONAL INTE REST CHARGED ON INTEREST FOR ADVANCE MADE BY THE APPELLANT. ITA NO 1408 /AHD/2009 A.YR.. 2005 -06 2 2. THE CIT (A) OUGHT TO HAVE APPRECIATED THAT THE I NTEREST PAID WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSIN ESS AND THEREFORE WAS FULLY ALLOWABLE. 3. THE CIT (A) ERRED IN UPHOLDING THE DISALLOWANCE OF 1/5 TH OF TELEPHONE EXPENSES AND MOTOR CAR EXPENSES AND DEPRE CIATION THEREON. 3. THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS O F TRADING IN DYES & CHEMICALS. THE ASSESSEE FILED ITS RETURN OF INCOME ON 30-10-2005 DECLARING TOTAL INCOME AT RS.29,520/-. THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT, THE A.O. NOTICED THAT THE ASS ESSEE HAD MADE ADVANCES OF RS.2,02,51,289/- OUT OF WHICH RS.1,69,5 1,000/- HAS BEEN PAID TO AICO LABORATORIES INDIA LTD., ON WHICH NO INTERE ST WAS CHARGED BY THE ASSESSEE. THE A.O. NOTICED THAT THE ASSESSEE IS PAY ING HUGE AMOUNT OF INTEREST ON DEPOSITS MADE BY VARIOUS PERSONS. HE CO NCLUDED THAT THE ASSESSEE HAS UTILIZED INTEREST BEARING FUNDS FOR TH E PURPOSE OF MAKING ADVANCE WITHOUT CHARGING ANY INTEREST. THE A.O. THE REFORE DISALLOWED INTEREST OF RS.16,04,717/- FROM THE NET INTEREST PA YMENT OF RS.18,69,329/- A.O. ALSO FURTHER DISALLOWED 1/4 TH OF THE TELEPHONE EXPENSES AMOUNTING TO RS.12,315/- FOR THE REASON THAT IT IS ON ACCOUNT OF PERSONAL IN NATURE. SIMILARLY, OUT OF THE MOTOR CAR EXPENSES THE A.O. D ISALLOWED RS.40,800/-. HE THUS, COMPUTED THE TOTAL INCOME AT RS.16,83,350/ - AS AGAINST THE RETURNED INCOME OF RS.29,520/-. AGGRIEVED BY THE OR DER OF THE A.O. THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT (A). 4. CIT (A) OBSERVED THAT THE ASSESSEE HAD DEBIT BAL ANCE OF RS.10,93,500/- IN THE ACCOUNT OF AICO LABORATORIES INDIA LTD. DURING THE ITA NO 1408 /AHD/2009 A.YR.. 2005 -06 3 YEAR FURTHER LOAN OF APPROXIMATELY RS.1.19 CRORE WA S GIVEN AND THAT LOAN OF RS.59.07 LACS WAS RECEIVED BACK FROM THE COMPANY. C LOSING BALANCE AS ON 31-3-2005 WAS RS.1,69,51,000/-. HE OBSERVED THAT TH ERE WERE 1120 TRANSACTIONS OF LOAN GIVEN AND TAKEN. HE THEREFORE, CONCLUDED THAT THE ADVANCES WERE NOT GIVEN FOR ANY BUSINESS PURPOSES A ND THEREFORE, THE TRANSACTIONS WITH AICO LABORATORIES INDIA LTD., HAD NO BUSINESS EXPEDIENCY WHATSOEVER. HE ALSO RELIED ON THE DECIS ION OF HONBLE SUPREME COURT IN THE CASE OF S. A. BUILDERS 288 ITR -1 (SC). WITH RESPECT TO THE INTEREST PAID, CIT (A) OBSERVED THAT THE INT EREST PAID WAS AT THE RATE OF 6%. HE THEREFORE HELD THAT THE INTEREST ON ADVAN CES GIVEN TO AICO LABORATORIES INDIA LTD., SHOULD ALSO BE WORKED OUT ON THE BASIS OF 6%. HE DIRECTED THE A.O. TO VERIFY THE WORKING OF INTEREST AND WORKOUT THE INTEREST @ 6% AND CONSIDER THE DISALLOWANCE. AGGRIEVED BY T HE ORDER OF CIT (A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. 5. BEFORE US, THE LD. A.R. POINTED OUT TO THE FACT THAT THE BALANCE IN THE ACCOUNT OF AICO LABORATORIES INDIA LTD., INCLUDES O PENING BALANCE OF RS.1,09,35,000/- WHICH WAS GIVEN IN EARLIER FINANCI AL YEAR. THERE WAS NO DISALLOWANCE OF ANY EXPENDITURE ON ACCOUNT OF INTER EST IN EARLIER YEAR. HE ACCORDINGLY SUBMITTED THAT NO DISALLOWANCE OF INTER EST ON OPENING BALANCE OF RS.1.09 CRORE CAN BE MADE IN THE CURRENT FINANCI AL YEAR. FOR THIS PROPOSITION, HE RELIED ON THE DECISION OF KARNATAKA HIGH COURT (192 ITR 165) (KAR)., CIT VS. SRIDEV ENTERPRISES. HE THEREFO RE SUBMITTED THAT SINCE THE DEDUCTION WAS ALLOWED TILL LAST YEAR, THERE CAN BE NO DISALLOWANCE WITH RESPECT TO THE OPENING BALANCE IN THE CURRENT YEAR. HE ALSO RELIED ON THE DECISION OF M. RAVJI & CO. VS. DCIT ITAT AHMEDABAD B-BENCH DATED 23-1- ITA NO 1408 /AHD/2009 A.YR.. 2005 -06 4 2001. HE THUS SUBMITTED THAT IN THE PRESENT CASE, T HE INTEREST IF AT ALL IS TO BE DISALLOWED ONLY ON THE DIFFERENT AMOUNT OF APPRO XIMATELY RS.16 LACS. WITH RESPECT TO DISALLOWANCE OUT OF TELEPHONE AND M OTOR CAR, HE SUBMITTED THAT THE DISALLOWANCE HAS BEEN MADE ON ADHOC AND TH E SAME NEEDS TO BE DELETED. 6. THE LD. D.R. ON THE OTHER HAND RELIED ON THE ORD ER OF A.O. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE ACCOUNT OF AICO LABORATORIES INDI A LTD., AS REPRODUCED BY THE CIT(A), IT IS SEEN THAT IT CONSISTS OF OPEN DEB IT BALANCE OF RS.1,09,35,000/- AND THE CLOSING BALANCE OF RS.1,69 ,51,000/-.THE FACT THAT THERE HAS BEEN NO DISALLOWANCE ON ACCOUNT OF INTERE ST IN THE EARLIER YEAR IS NOT DISPUTED BY THE D.R. 8. KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SRID EV ENTERPRISES 192 ITR 165) HAS HELD AS UNDER: THAT THE AMOUNT DUE FROM N ON THE FIRST DAY OF TH E ACCOUNTING YEAR WAS THE AMOUNT THAT STOOD OUTSTANDING ON THE L AST DAY OF THE PREVIOUS ACCOUNTING YEAR AND, THEREFORE, ITS NATURE AND STATUS COULD NOT BE DIFFERENT FROM ITS NATURE AND STATUS AS ON T HE LAST DAY OF THE PREVIOUS YEAR. REGARDING PAST YEARS, THE ASSESSEES CLAIMS FOR DEDUCTION WERE ALLOWED IN RESPECT OF THE SUMS ADVAN CED DURING THOSE YEARS. THIS COULD BE ONLY ON THE ASSUMPTION T HAT THOSE ADVANCES WERE NOT OUT OF BORROWED FUNDS OF THE ASSE SSEE. THIS FINDING DURING THE PREVIOUS YEARS WAS THE VERY BASI S OF THE DEDUCTIONS PERMITTED DURING THE PAST YEARS. IT WOULD NOT BE EQ UITABLE TO PERMIT THE REVENUE TO TAKE A DIFFERENT STAND NOW IN RESPEC T OF THE AMOUNTS WHICH WERE THE SUBJECT MATTER OF PREVIOUS YEARS AS SESSMENTS. ITA NO 1408 /AHD/2009 A.YR.. 2005 -06 5 9. IN THE CIRCUMSTANCES, ON THE BASIS OF PRINCIPLE LAID DOWN BY KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SRIDEV ENTERPRISES 192 ITR 165 (KAR.)., AND FOLLOWING THE SAID DECISION, WE AR E OF THE VIEW THAT NO DISALLOWANCE CAN BE MADE WITH RESPECT TO THE OPENIN G DEBIT BALANCE. WE ARE THUS OF THE VIEW THAT DISALLOWANCE OF INTEREST NEEDS TO BE WORKED OUT ONLY ON THE AMOUNT OF LOAN THAT WAS TAKEN DURING TH E YEAR. WE ACCORDINGLY, DIRECT THE A.O. TO WORKOUT THE DISALLOWANCE AT 6% W HICH IS CONFIRMED BY CIT (A) ON THE AMOUNT OF LOAN TAKEN DURING THE YEAR . THUS, THIS GROUND IS ALLOWED. 10. THE NEXT GROUND RELATED TO UPHOLDING THE DISALL OWANCE OF 1/5 TH OF TELEPHONE EXPENSES AND MOTOR CAR EXPENSES AND DEPRE CIATION THEREON. A.O. MADE DISALLOWANCE ON BOTH TELEPHONE AND MOTOR CAR DEPRECIATION AT 1/4 TH OF THE EXPENSES AMOUNTING TO RS.12,315/- AND RS.40 ,800/- TOWARDS TELEPHONE AND MOTOR CAR EXPENSES AND DEPRECIATION. AGGRIEVED BY THE ACTION OF THE A.O. ASSESSEE CARRIED THE MATTER BEFO RE THE CIT (A). 11. BEFORE CIT (A), CIT (A) AFTER CONSIDERING WRITT EN SUBMISSION DATED 5- 2-2009 FILED BY THE BY THE ASSESSEE, CIT (A) GAVE P ARTIAL RELIEF AND DIRECTED THE A.O. TO MAKE THE DISALLOWANCE AT 1/5 TH INSTEAD OF 1/4 TH ALLOWED BY A.O. 12. AGAINST THE ACTION OF CIT (A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. BEFORE US, THE LD. A.R. SUBMITTED THAT THE DISA LLOWANCE HAS BEEN MADE BY A. O. ON ADHOC BASIS AND WITHOUT PINPOINTING ANY SPECIFIC INSTANCE OF EXPENSE OF BEING IN PERSONAL IN NATURE. HE THEREFOR E, URGED THAT THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY CIT (A) BE DELETED. ITA NO 1408 /AHD/2009 A.YR.. 2005 -06 6 13. THE LD. D.R. RELIED ON THE ORDER OF A.O. 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IN THE PRESENT CASE CONSIDERING THE CIRCUMS TANCES, THE CIT (A) HAS REDUCED THE DISALLOWANCE FROM 1/4 TH OF EXPENSE TO 1/5 TH OF EXPENSES. WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT (A) AND WE ACCORDINGLY UPHOLD THE DECISION OF CIT (A) ON THIS ISSUE. THIS GROUND OF ASSESSEE IS THEREFORE, REJECTED. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 24 -8 - 2012 . SD/- SD/- ( D.K. TYAGI) (ANIL CHATURVEDI) JUDICIAL MEMBER ACC OUNTANT MEMBER AHMEDABAD. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)-XVI, AHMEDABAD. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. ITA NO 1408 /AHD/2009 A.YR.. 2005 -06 7 1.DATE OF DICTATION 9 - 8 -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 21 / 8 / 2012 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 23 - 8 -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 24 - 8 -2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 24 -8 -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK - -2012. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..