Dy. C.I.T., Circle-1, Agra V. Sh. Prem Chand Jain, Agra

ITA 141/AGR/2010

• Counselvise Citation: 14120314 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 08-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 07-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K SHARMA
• Assessee Lawyers: P N AGARWAL
• Section: 142(1); 37

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCHA, AGRA BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI K.G. BANSAL, ACCOUNTANT MEMBER ITA NO.141/AGR/2010 ASSESSMENT YEAR: 2006-07 DY. COMMISSIONER OF INCOME TAX, VS. SHRI PREM CHAN D JAIN, CIRCLE-1, AGRA. PROP. M/S RATAN PRAKASHAN MANDIR, 1/185-C, PROFESSOR COLONY, DELHI GATE, AGRA (PAN: ABIPJ 8282 E). (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI A.K. SHARMA, JR. D.R. RESPONDENT BY: SHRI P.N. AGARWAL, ADVOCATE ORDER PER BENCH: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE IMPUGNED ORDER DATED 22.02.2010 PASSED BY THE LD. CIT(A)-I, AGRA FOR THE ASSESSMENT YEAR 2006-07. 2. THE REVENUE HAS TAKEN ONE SUBSTANTIVE GROUND IN THIS APPEAL TO THE EFFECT THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION TO THE EXTENT OF RS.7,32,214/- OUT OF RS.8,23,619/-, MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PAYMENT OF INTEREST AT A HIGHER RATE BUT CHARGING THE SAME AT A LOWER R ATE ON ADVANCES MADE BY HIM. 2 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILE D ITS RETURN ON 30.10.2006 SHOWING TOTAL INCOME OF RS.8,83,580/-. THE ASSESSM ENT PROCEEDINGS WERE INITIATED BY ISSUING STATUTORY NOTICES UNDER SECTION 143(2) A ND 142(1) ON 29.08.2008. IT WAS FOUND THAT THE ASSESSEE IS CARRYING ON THE BUSINESS OF PUBLICATION OF EDUCATIONAL BOOKS. HE HAD TAKEN LOANS AGGREGATING TO RS.1,31,3 5,475/-, DETAILS OF WHICH WERE FILED. THE PART OF THIS LOAN WAS ADVANCED TO VARIO US PARTIES. THE ASSESSING OFFICER FOUND THAT THERE WAS A DIFFERENCE IN INTEREST PAID AND CHARGED. THEREFORE, THE ASSESSEE WAS REQUIRED TO EXPLAIN WHY THE DIFFERENTI AL AMOUNT SHOULD NOT BE ADDED TO HIS INCOME. A NUMBER OF CASES WERE CITED BEFORE HIM BUT HE DID NOT AGREE WITH THE ASSESSEE. INVOKING THE PROVISIONS CONTAINED IN SECTION 36(I)(III) OF THE ACT, HE DISALLOWED A SUM OF RS.8,23,619/-. 3.1 THE MATTER WAS AGITATED IN APPEAL BEFORE THE LD . CIT(A). HE CONSIDERED THE FACTS AND SUBMISSIONS MADE BEFORE HIM. HE CAME TO THE CONCLUSION THAT THE ASSESSEE HAD ADVANCED THE ALLEGED IDLE FUNDS AT LOW ER RATE OF INTEREST WHILE SIMULTANEOUSLY PAYING INTEREST AT HIGHER RATE ON TH E BORROWED FUNDS. THEREFORE, PROVISIONS CONTAINED IN SECTION 36(I)(III) WERE HEL D TO BE APPLICABLE ON THE FACTS OF THE CASE. HOWEVER, HE ALSO ACCEPTED THE SUBMISSION OF THE ASSESSEE THAT INTEREST 3 PAID IN EXCESS OF 12% CAN BE DISALLOWED ONLY IN RES PECT OF FRESH DEPOSIT TAKEN IN THIS YEAR. THEREFORE, THE ADDITION WAS REDUCED FRO M RS.8,23,619/- TO RS.91,705/-. 4. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE S UBMITTED THAT THE ADDITION WAS MADE ON ACCOUNT OF DIFFERENTIAL RATE OF INTERES T PAID AND CHARGED BY THE ASSESSEE IN RESPECT OF BORROWED FUNDS AND MONEYS AD VANCED. HOWEVER, THE LD. CIT(A) CAME TO THE CONCLUSION THAT THIS COULD BE DO NE ONLY IN RESPECT OF NEW LOAN. THE FINDINGS OF LD. CIT(A) ARE CONTAINED ON PAGE N OS.7 & 8, WHICH ARE REPRODUCED BELOW :- THE LD. AR OF THE APPELLANT ARGUED THAT ON THE BAS IS OF RATIO OF THE ABOVE CITED DECISION, INTEREST PAID IN EXCESS OF 12 % COULD AT BEST BE DISALLOWED ONLY IN RESPECT OF NEW DEPOSITS AND ADDI TIONAL DEPOSITS RECEIVED DURING THE YEAR. WITHOUT PREJUDICE TO HIS CLAIM THAT THE ENTIRE INTEREST EXPENDITURE DESERVES BE ALLOWED, TH E APPELLANT HAS WORKED OUT THE AMOUNT OF INTEREST IN EXCESS OF 12% S UNDER :- IN CONTINUATION TO SUBMISSIONS MADE AT THE TIME OF LAST HEARING IT IS FURTHER SUBMITTED AS BELOW : 1. THE FOLLOWING STATEMENTS WILL SHOW THAT THE ASSE SSEE TRIED HIS BEST TO :- RECOVER HIS LOANS GIVEN @ 12% (A) REPAY HIS LOANS TAKEN @ 15% AND TRIED TO TAKE A S MUCH LOAN @ 12% AND WHEN HE COULD NOT THEN ONLY TOOK LOA N @ 15% 4 (A) LOAN RECEIVED BACK @ 12% RS.3,30,00,000 (STATEMENT ALREADY FILED) LOANS GIVEN @ 12% RS.1,59,00,000 (B) OLD LOANS @ 15% REPAID RS.78,87,164/- (STATEMENT ALREADY FILED) FRESH LOANS @ 15% TAKEN RS.61,05,000 (STATEMENT ALREADY FILED) FRESH LOANS @ 12% TAKEN RS.52,00,000 (STATEMENT ALREADY FILED) 2. WITHOUT PREJUDICE TO SUBMISSION MADE THAT NO INT EREST CAN BE DISALLOWED BOTH ON LOAN AND FACTS AND IN ALTERNATIVE THE FOLLOWING STATEMENT SHALL GIVE THE FIGURES WHICH CAN NOT THE WORST BE DISALLOWED. A) INTEREST PAID ON FRESH LOANS @ 15% RS.4,01,652 INTEREST PAID ON FRESH LOANS SQUARED UP DURING THE YEAR @ 15% RS.56,875 TOTAL INTEREST PAID ON FRESH LOANS TAKEN DURING THE YEAR @ 15% RS.4,58,527 TOTAL INTEREST IF PAID @ 12% RS.3,66,822 EXCESS INTEREST PAID RS.91,705 THE ABOVE STATEMENT HAS BEEN PREPARED AN THE BASIS OF DISCUSSION OF HONOURABLE HIGH COURT OF ALLAHABAD, U NDER WHOSE JURISDICTION ASSESSEE FALLS AND DECISION IS B INDING, IN (BINDING) 281 I.T.R. 419 FOLLOWING THE RATIO OF THE ABOVE CITED DECISION OF THE HONBLE ALLAHABAD HIGH COURT, THE AO IS DIRECTED TO REDUCE THE DISALLOWANCE OF RS.8,23,619/- TO RS.91,705/-, AFTER VERIFICATION . 5 4.1 IN REPLY, THE CASE OF THE LD. COUNSEL WAS THAT THE ADVANCES HAVE BEEN MADE TO THIRD PARTIES AND THUS THE TRANSACTIONS ARE NOT HIT BY THE PROVISIONS CONTAINED IN SECTION 40A(2) OF THE ACT. DURING THE LEAN SEASON THE ASSESSEE ADVANCED EXCESS FUNDS AT LOWER RATE OF INTEREST FOR SHORT PERIODS, SO THAT THE MONEY DID NOT LIE IDLE. IN LAW, THE ASSESSEE IS THE BEST JUDGE AS TO HOW TO USE THE FUNDS. IN SUCH A SITUATION INTEREST CAN BE DISALLOWED ONLY IF THE ADVANCES ARE MADE TO THE RELATED PARTIES COVERED UNDER SECTION 40A(2) OF THE ACT. UNDER SEC TION 37 OF THE ACT, THE ASSESSEE IS ENTITLED TO DEDUCT ANY EXPENDITURE, WHICH IS REV ENUE IN NATURE, IF IT HAS BEEN INCURRED IN THE COURSE OF THE BUSINESS. IT IS FURT HER SUBMITTED THAT THE ASSESSEE HAS NOT CHALLENGED THE ORDER OF THE LD. CIT(A). THUS, IT IS ARGUED THAT THE ORDER OF LD. CIT(A) MAY BE UPHELD. 5. WE HAVE HEARD THE FACTS OF THE CASE AND SUBMISSI ONS MADE BEFORE US. THE LD. DEPARTMENTAL REPRESENTATIVE HAS NOT MADE OUT AN Y CASE BEFORE US THAT THE ADVANCES ARE MADE TO RELATED PARTIES AS UNDERSTOOD UNDER SECTION 40A(2) OR THE TRANSACTIONS ARE UNDERTAKEN AS A DEVISE TO REDUCE T HE TAXABLE INCOME. IN SUCH A SITUATION, IT IS FOR THE ASSESSEE TO DECIDE AS TO H OW TO USE HIS FUNDS. OSTENSIVELY, IN THIS CASE MONEY IS ADVANCED IN THE LEAN PERIOD SO A S TO EARN SOME INCOME. NONE THE LESS, INTEREST PAID ON BORROWED MONEYS USED FOR THE PURPOSE OF BUSINESS ARE 6 DEDUCTIBLE UNDER SECTION 36 (I)(III). NO CASE HAS BEEN MADE OUT THAT ADVANCES WERE MADE FOR GRANTING ANY BENEFIT TO RELATED OR UNRELAT ED PARTIES. ACCORDINGLY, IT IS HELD THAT THE LD. CIT(A) RIGHTLY DELETED THE ADDITI ON TO THE EXTENT OF RS.7,32,214/- FROM THE ADDITION MADE BY THE ASSESSING OFFICER. 6. IN THE RESULT, APPEAL IS DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 09.08.201 1). SD/- SD/- (H.S. SIDHU ) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: AGRA DATE: 9 TH AUGUST, 2011 PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT BY ORDER 3. CIT CONCERNED 4. CIT (APPEALS) CONCERNED 5. DR, ITAT, AGRA BENCH, AGRA 6. GUARD FILE ASSISTANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL, AGRA TRUE COPY