Sh. Jhawan Lal Jain, New Delhi V. ACIT, New Delhi

ITA 1426/DEL/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7170 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 27-06-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 15-03-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DEEPAK GARG SENIOR
• Assessee Lawyers: PARAS DAWA R; NITIN GOEL CAS
• Keywords: Notional interest; Commercial expediency; Onus to prove

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.1426/DEL./2016 (ASSESSMENT YEAR : 2012-13) SHRI JHAWAR LAL JAIN, VS. ACIT, CIRCLE 51 (1), 61/13B, RAMJAS ROAD, NEW DELHI. KAROL BAGH, NEW DELHI. (PAN : AAAPM2547G) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI PARAS DAWAR & NITIN GOEL, CAS REVENUE BY : SHRI DEEPAK GARG, SENIOR DR DATE OF HEARING : 27.06.2016 DATE OF ORDER : 11.07.2016 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, SHRI JHAWAR LAL JAIN (HEREINAFTER REFER RED TO AS THE ASSESSEE), BY FILING THE PRESENT APPEAL SOUGH T TO SET ASIDE THE IMPUGNED ORDER DATED 01.01.2016 PASSED BY THE COMMI SSIONER OF INCOME-TAX (APPEALS)-17, NEW DELHI QUA THE ASSESSME NT YEAR 2012-13 ON THE GROUNDS INTER ALIA THAT :- 1. THE LEARNED COMMISSIONER OF INCOME TAX, (APPEALS) -17, NEW DELHI [CIT (A)') HAS ERRED BOTH IN LAW AND ON FACTS IN UPHOLDING THE ORDER OF LEARNED ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 51 (1) , ITA NO.1426/DEL./2016 2 NEW DELHI('ACIT') DISALLOWING INTEREST OF RS.9,66,2 47/- UNDER SECTION 36(1)(III) OF THE INCOME TAX ACT, 196 1 ('ACT'). 2. WITHOUT PREJUDICE TO OUR OTHER CONTENTIONS, THE LEARNED CIT(A), HAS ERRED BOTH IN LAW AND ON FACTS IN FAILING TO GRANT PROPORTIONATE RELIEF ON DISALLOWAN CE OF INTEREST OF RS.9,66,247/- UNDER SECTION 36(1)(III) OF THE ACT TO THE EXTENT OF AVAILABILITY OF OWN INTEREST F REE FUNDS WITH THE ASSESSEE. 3. WITHOUT PREJUDICE TO OUR OTHER CONTENTIONS, THE LEARNED CIT (A) HAS ERRED, BOTH IN LAW ON FACTS OF THE CASE, IN UPHOLDING AN ADDITION OF RS.37,851/- ON AC COUNT OF DISALLOWANCE OF 1/10TH OF EXPENSES UNDER THE HEA D OF BUSINESS PROMOTION, TRAVELLING & CONVEYANCE, VEHICL E MAINTENANCE, STAFF WELFARE AND TELEPHONE ON AD-HOC BASIS. 4. THE LEARNED CIT (A) HAS ERRED BOTH IN LAW AND ON FACTS BY NOT ADJUDICATING ON THE GROUND FOR INITIAT ION OF PENALTY PROCEEDINGS BY THE LEARNED AO UNDER SECTION 271 (1)(C) OF THE ACT ON THE PREMISE THAT IT IS CONSEQUENTIAL IN NATURE EVEN THOUGH THERE WAS NO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS BY THE ASSESSEE. 2. BRIEFLY STATED THE FACTS OF THIS CASE ARE : PURS UANT TO THE NOTICES UNDER SECTION 143 (2) AND 142 (1) OF THE IN COME-TAX ACT, 1961 (FOR SHORT THE ACT) ALONG WITH QUESTIONNAIRE ISSUED DURING THE SCRUTINY PROCEEDINGS, SHRI PRAVEEN GOEL, CA/AR PUT IN APPEARANCE, FILED WRITTEN SUBMISSIONS ALONG WITH DE TAILS AND ALSO DISCUSSED THE CASE. ASSESSEE IS INTO THE BUSINESS OF TRADING AND COMMISSION AGENT OF YARN AND FABRIC IN THE NAME AND STYLE AS M/S. MANOJ YARN AGENCY. DURING THE YEAR UNDER ASSESSMEN T, ASSESSEE HAS ADVANCED LOAN TO THE TUNE OF RS.3,28,30,957/- A ND ITA NO.1426/DEL./2016 3 RS.1,23,48,111/- TO M/S. R.J. FABRICS AND SHRI MANO J KUMAR JAIN RESPECTIVELY. ASSESSEE WAS CALLED UPON TO FURNISH DETAILS AS TO WHETHER DUE INTEREST INCOME FROM SUCH ADVANCES HAS BEEN DISCLOSED IN THE RETURN OF INCOME AND THE ASSESSEE CONTENDED THAT NO INTEREST IS BEING RECEIVED FORM SHRI MANOJ KUMAR JAIN AND INTEREST @ 6% PER ANNUM HAS BEEN RECEIVED FROM M/S. R.J. FABRICS. ASSESSING OFFICER NOTICED FROM THE PROFIT & LOSS AC COUNT OF THE ASSESSEE FOR AY 2012-13 THAT IT HAS CLAIMED EXPENDI TURE ON ACCOUNT OF PAYMENT OF INTEREST ON LOANS AMOUNTING T O RS.44,82,727/- @ 12% OR MORE THAN 12% PER ANNUM AND AS SUCH, INTEREST BEARING FUNDS OF THE ASSESSEE WERE ADVANCE D TO PERSONS ON WHICH NOTIONAL INTEREST INCOME HAS ACCRUED TO THE A SSESSEE. AO OBSERVED THAT ADVANCES GIVEN BY THE ASSESSEE IS SQU ARELY COVERED U/S 36(1)(III) OF THE ACT. ASSESSEE HAS ALSO NOT C LAIMED THAT THE INTEREST FREE ADVANCES GIVEN TO AFORESAID PERSONS F OR COMMERCIAL EXPEDIENCY. AO ALSO NOTICED THAT OPENING BALANCE I N CASE OF SHRI MANOJ KUMAR JAIN AS ON 01.04.2011 IS RS.11,55,000/- (DR.) AND LATER ON THROUGHOUT THE FINANCIAL YEAR, ASSESSEE DI VERTED INTEREST BEARING FUNDS TO SHRI MANOJ KUMAR JAIN AND ALSO REC EIVED SOME AMOUNT AS AND WHEN REQUIRED AND AT THE END OF THE R ELEVANT ASSESSMENT YEAR CLOSING BALANCE WAS RS.12,38,111/- (DR.). AS PER LEDGER ACCOUNT, THE ASSESSEE HAS NOT CHARGED ANY IN TEREST ON THE ITA NO.1426/DEL./2016 4 FUNDS GIVEN TO SHRI MANOJ KUMAR JAIN, SO THE INTERE ST DISALLOWED IS CALCULATED @ 12% PER ANNUM, AMOUNTING TO RS.4,35,37 6/-. 3. IN CASE OF M/S. R.J. FABRICS, AO NOTICED THAT OP ENING BALANCE AT RS.1,58,28,280/- (DR.) AS ON 01.04.2011. ASSESSEE DIVERTED INTEREST BEARING FUNDS TO M/S. R.J. FABRIC S AND ALSO RECEIVED SAME AMOUNT AS AND WHEN REQUIRED AND FROM LEDGER, IT HAS COME ON RECORD THAT THE ASSESSEE WAS CHARGING INTER EST @ 6% PER ANNUM ONLY WHEREAS IT WAS BORROWING THE SAME @ 12% PER ANNUM AND THEREBY DISALLOWED 6% INTEREST WHICH IS NOT CHA RGED BY THE ASSESSEE ON INTEREST BEARING FUNDS AND DISALLOWED T OTAL INTEREST AMOUNTING TO RS.11,04,380/- (RS.4,35,376/- + RS.6,6 9,004/-) AND MADE AN ADDITION TO THE TOTAL INCOME OF THE ASSESSE E. 4. ASSESSEE CLAIMED EXPENSES TO THE TUNE OF RS.3,78 ,508/- ON ACCOUNT OF BUSINESS PROMOTION, TRAVELLING AND CONVE YANCE, TELEPHONE, ETC.. OUT OF WHICH, AO DISALLOWED EXPEN SES TO THE EXTENT OF 1/10 TH AND ADDED THE SAME BACK TO THE TOTAL INCOME OF THE ASSESSEE AND THEREBY MADE AN ADDITION OF RS.37,851/ -. 5. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) WHO HAS PARTLY ALLOWED THE APPEAL. FEELING AGGRIEVED, THE ASSESSEE HAS COME UP BEFORE THE TRIBUNAL BY CHALLENGING THE IMPU GNED ORDER PASSED BY THE LD. CIT (A) BY WAY OF FILING THE PRES ENT APPEAL. ITA NO.1426/DEL./2016 5 6. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE F OR THE REVENUE TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUNDS NO.1 & 2 7. THE LD. AR CHALLENGING THE IMPUGNED ORDER CONTEN DED THAT THE ASSESSEE COMPANY HAS TRANSFERRED CERTAIN FUNDS TO ITS SUBSIDIARY COMPANY WITHOUT ANY INTEREST OUT OF THE LOAN TAKEN AT INTEREST FOR BUSINESS EXPEDIENCY AND RELIED UPON THE JUDGMENTS C ITED AS S.A. BUILDERS VS. CIT (A), CHANDIGARH [2007] 158 TAXMAN 74 (SC), CIT VS. RELIANCE UTILITIES & POWER LTD. [2009] 178 TAXMAN 135 (BOMBAY) AND CIT VS. JUGAL KISHORE DANGAYACH [2014] 49 TAXMANN.COM 486 (RAJASTHAN) . 8. HOWEVER, ON THE OTHER HAND, LD. DR TO REPEL THE ARGUMENT ADVANCED BY THE LD. AR CONTENDED THAT SINCE THERE I S NO NEXUS BETWEEN ASSESSEE COMPANY AND ONE SHRI MANOJ KUMAR J AIN, THE FUNDS HAVE BEEN DIVERTED FOR NON-BUSINESS PURPOSE B Y GIVING INTEREST FREE LOAN TO THE SISTER CONCERN AND RELATI VES, THE DISALLOWANCE HAS BEEN RIGHTLY MADE BY THE AO AND RE LIED UPON THE ORDER PASSED BY THE LD. CIT (A). ITA NO.1426/DEL./2016 6 9. UNDISPUTED FACTS IN THIS CASE ARE INTER ALIA THA T ASSESSEE COMPANY HAS ADVANCED LOANS OF RS.3,28,30,957/- AND RS.1,23,48,111/- TO M/S. R.J. FABRICS, ITS SISTER C ONCERN AND SHRI MANOJ KUMAR JAIN, SON OF THE ASSESSEE, RESPECTIVELY ; THAT THE AFORESAID LOANS WERE ADVANCED BY THE ASSESSEE TO IT S SISTER CONCERN AND RELATIVE OUT OF THE FUNDS TAKEN BY IT AT THE IN TEREST RATE OF 18% PER ANNUM; THAT THE ASSESSEE COMPANY IS MAINTAINING TWO DIFFERENT ACCOUNTS : ONE LOAN ACCOUNT AND ANOTHER ONE IS SALE AND PURCHASE ACCOUNT PURPORTEDLY FOR SMOOTH RUNNING OF THE BUSIN ESS. IT IS ALSO THE CASE OF THE ASSESSEE THAT THE SAID LOANS WERE L ENT TO SISTER CONCERN TO MANAGE THE MIS-MATCH OF THE FUNDS. 10. NOW, IN THE BACKDROP OF THE AFORESAID UNDISPUTE D FACTS AND THE CASE LAWS CITED BY THE LD. AR, THE SOLE QUESTIO N ARISES FOR DETERMINATION IN THIS CASE IS :- AS TO WHETHER THE ASSESSEE COMPANY HAS DIVERTED BORROWED FUNDS TAKEN ON INTEREST @ 18% PER ANNUM FOR BUSINESS EXPEDIENCY AND AS SUCH IS ELIGIBLE TO CLAIM THE DEDUCTION OF INTEREST COMPONENT UNDER SECTION 36(1)(III) OF THE ACT. 11. DURING THE COURSE OF ARGUMENT, THE LD. AR ONLY EMPHASIZED ON THE RATIO OF THE JUDGMENTS CITED AS S.A. BUILDERS VS. CIT (A), CHANDIGARH , CIT VS. RELIANCE UTILITIES & POWER LTD. AND CIT VS. JUGAL KISHORE DANGAYACH (SUPRA) THAT WHEN THE ASSESSEE ADVANCED PART OF THE FUNDS BORROWED BY IT FROM THE BANK TO ITS ITA NO.1426/DEL./2016 7 SISTER CONCERN AS INTEREST FREE LOAN FOR BUSINESS E XPEDIENCY, INTEREST HAS TO BE ALLOWED U/S 36(1)(III) OF THE AC T, BUT FAILED TO BROUGHT ON RECORD EVEN AN IOTA OF MATERIAL TO PROVE THAT THE SAID LOAN WAS LENT TO M/S. RJ FABRICS AND SHRI MANOJ KUM AR JAIN FOR COMMERCIAL EXPEDIENCY. MOREOVER, ASSESSEE HAS FAI LED TO EXPLAIN THE RATIONALE BEHIND MAINTAINING TWO ACCOUNTS : ONE LOAN ACCOUNT AND ANOTHER SALE AND PURCHASE ACCOUNT, WHICH HAS FU RTHER FAILED TO PROVE THE COMMERCIAL EXPEDIENCY FOR DIVERTING THE F UNDS TAKEN AT THE HIGHER RATE OF INTEREST @ 18% TO ITS SUBSIDIARY AND RELATIVES. 12. THE CONTENTION OF THE LD. AR FOR THE ASSESSEE T HAT AO/CIT (A) HAVE NOT BROUGHT ON RECORD THAT AN IOTA OF EVID ENCE THAT FUNDS WERE DIVERTED FOR PERSONAL USE IS NOT TENABLE BECAU SE ONUS TO PROVE THE FACT THAT THE SAID FUNDS WERE USED FOR COMMERCI AL EXPEDIENCY WAS ON THE ASSESSEE WHICH HE HAS FAILED TO DISCHARG E. 13. MOREOVER, PERUSAL OF PAGE NO.45, WHICH IS PART OF THE SUBMISSION MADE BY THE ASSESSEE BEFORE CIT (A) DURI NG APPELLATE PROCEEDINGS, APPARENTLY GOES TO PROVE THAT THE ASSE SSEE HAS ADVANCED LOAN OF RS.1,23,48,111/- TO SHRI MANOJ KUM AR JAIN WITHOUT CHARGING ANY INTEREST AND LENT LOAN OF RS.3 ,28,30,957/- TO M/S. R.J. FABRICS BY CHARGING INTEREST @ 6% OUT OF THE FUNDS BORROWED BY THE ASSESSEE AT THE INTEREST OF 18%. H AD THE LOAN BEEN ADVANCE TO SHRI MANOJ KUMAR JAIN AND M/S. R.J. FABR ICS FOR ITA NO.1426/DEL./2016 8 COMMERCIAL EXPEDIENCY, THE ASSESSEE WOULD NOT HAVE CHARGED INTEREST EVEN @ 6% PER ANNUM. THE ASSESSEE HAS FAI LED TO PROVE ANY BUSINESS NEXUS BETWEEN THE ASSESSEE COMPANY AND SHRI MANOJ KUMAR JAIN EXCEPT THE FACT THAT SHRI MANOJ KUMAR JA IN IS SON OF THE ASSESSEE. SO, WHEN THE ASSESSEE HAS FAILED TO PROVE COMMERCIAL EXPEDIENCY FOR ADVANCING THE INTEREST FREE LOAN/LOA N AT THE NOMINAL RATE OF INTEREST TO ITS SUBSIDIARY AND RELATIVE, TH E JUDGMENTS CITED AS S.A. BUILDERS VS. CIT (A), CHANDIGARH, CIT VS. RELIANCE UTILITIES & POWER LTD. AND CIT VS. JUGAL KISHORE DANGAYACH (SUPRA) RELIED UPON BY THE ASSESSEE ARE NOT APPLICA BLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. WE ARE OF THE CONSI DERED VIEW THAT THE AO HAS RIGHTLY DISALLOWED THE CLAIM OF THE ASSE SSEE U/S 36(1)(III) OF THE ACT, AFFIRMED BY THE CIT (A). SO , GROUNDS NO.1 & 2 ARE DETERMINED AGAINST THE ASSESSEE. GROUND NO.3 14. DURING THE COURSE OF ARGUMENT, THE LD. AR FOR T HE ASSESSEE HAS GIVEN UP THIS GROUND AND AS SUCH, THE SAME IS A LSO DETERMINED AGAINST THE ASSESSEE. GROUND NO.4 15. GROUND NO.4 IS ALSO DETERMINED AGAINST ASSESSEE BEING PREMATURE AND CONSEQUENTIAL IN NATURE. ITA NO.1426/DEL./2016 9 16. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, FINDI NG NO ILLEGALITY OR PERVERSITY IN THE IMPUGNED ORDER, PRE SENT APPEAL FILED BY THE ASSESSEE IS HEREBY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 11 TH DAY OF JULY, 2016. SD/- SD/- (N.K. SAINI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 11 TH DAY OF JULY, 2016 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-19, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.