A.C.I.T.-2, Agra V. M/s Bhikka Mal Chhotey Lal, Aligarh

ITA 149/AGR/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0229 (ITAT-AGRA)
• Duration Of Justice: 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 29-01-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 13-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KK MISHRA
• Assessee Lawyers: K K JAIN
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO.149/AGR/2012 ASSESSMENT YEAR: 2008-09 ASSTT. COMMISSIONER OF INCOME VS. M/S. BHIKKA MAL CHHOTEY LAL, TAX-2, AGRA 21/167, PUL CHHINGA MODI, LOHA MANDI, AGRA. (PAN: AAAFB 9633 Q). C.O. NO.32/AGR/2012 (IN ITA NO.149/AGR/2012) ASSESSMENT YEAR: 2008-09 M/S. BHIKKA MAL CHHOTEY LAL, VS. ASSTT. COMMISSIO NER OF INCOME 21/167, PUL CHHINGA MODI, TAX-2, AGRA. LOHA MANDI, AGRA. (PAN: AAAFB 9633 Q). (APPELLANTS) (RESPONDENTS) REVENUE BY : SHRI K.K. MISHRA, JR. D.R. ASSESSEE BY : SHRI K.K. JAIN, ADVOCATE DATE OF HEARING : 29.01.2013 DATE OF PRONOUNCEMENT OF ORDER : 15.02.2013 ORDER PER A.L. GEHLOT, ACCOUNTANT MEMBER: THE APPEAL BY THE REVENUE AND CROSS OBJECTION BY TH E ASSESSEE HAVE BEEN FILED AGAINST THE ORDER DATED 14.10.2011 PASSED BY THE LD. CIT(A)-I, AGRA FOR THE ASSESSMENT YEAR 2008-09. ITA NO.149 & CO NO.32/AGR/2012 A.Y. 2008-09 2 2. THE GROUNDS RAISED IN REVENUES APPEAL PERTAIN T O DELETION OF ADDITION OF RS.21,93,477/-. 3. THE GROUNDS RAISED IN CROSS OBJECTION BY THE ASS ESSEE PERTAIN TO CONFIRMING THE DISALLOWANCE OF RS.2,83,302/- BY THE CIT(A). 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN SHIP BREAKING ACTIVITIES. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE OF RS.79,35,436/-. THE INCOME FROM INTEREST SHOWN WAS RS.54,58,637/-. THE A.O. NOTICED THAT TH E THERE WAS A DIFFERENCE OF RS.24,76,779/- ON ACCOUNT OF INTEREST RECEIVED AND INTEREST PAID. THEREFORE, THERE IS NO SUBSTANTIAL LOSS IN THIS ACCOUNT. THE A.O. ASKE D THE ASSESSEE TO JUSTIFY THE INTEREST RATE CHARGED AND PAID. AFTER CONSIDERING THE ASSESSEES SUBMISSION, THE A.O. NOTICED THAT THE ASSESSEE WAS PAYING INTEREST RATE FROM 9 TO 21% ON THE BORROWING MADE BY IT, BUT THE ASSESSEE IS NOT CHARG ING INTEREST AT THE SAME RATE ON LOANS AND ADVANCES RATHER CHARGING INTEREST AT LESS ER RATE WHICH HAS RESULTED INTO LOSS OF RS.24,76,779/-. THE A.O. DISALLOWED THE AS SESSEES CLAIM OF INTEREST EXPENDITURE UNDER SECTION 36(I)(III) OF THE ACT TO THAT EXTENT. THE A.O. HAS ALSO OBSERVED THAT SOME PART OF INTEREST OUT OF THE SAID INTEREST MAY BE DISALLOWED UNDER SECTION 40A(2)(B) OF THE ACT. THE A.O. MADE ADDITI ON OF RS.24,76,779/-. ITA NO.149 & CO NO.32/AGR/2012 A.Y. 2008-09 3 5. THE CIT(A) FOUND THAT SOME OF THE LOANS AND ADVA NCES WERE GIVEN IN EARLIER YEAR. ON THE DIRECTION OF CIT(A), THE A.O. HAS COL LECTED THE DETAILS OF INTEREST RATE FROM STATE BANK OF SAURASHTRA AND NOTICED THAT TILL JULY 2007 THE INTEREST RATE WAS BEING CHARGED @ 8.5% AND THEREAFTER INTEREST CHARGE D BY THE BANK HAS BEEN ENHANCED TO 11.5% AND THIS INCREASED RATE OF INTERE ST REMAINED UPTO MARCH, 2008. ON THE BASIS OF INTEREST RATE COLLECTED FROM THE BA NK, THE CIT(A) CALCULATED INCREMENTAL RATE OF 2.5% ON CERTAIN AMOUNTS FOR 8 M ONTHS WHICH WAS COMPARATIVELY CHARGED BY LOWER RATE. THE CIT(A) AC CORDINGLY CALCULATED PROPORTIONATE LOSS AMOUNT OF INTEREST OF WHICH CALC ULATION COMES TO RS.2,83,302/-. THE CIT(A) HAS GIVEN THE DETAILED WORKING AT PAGE N O.16 OF HIS ORDER. THE CIT(A) CONFIRMED THE ADDITION TO THE EXTENT OF RS.2,83,302 /- AND ALLOWED THE RELIEF OF RS.21,93,472/-. THE RELEVANT FINDING OF CIT(A) IS REPRODUCED AS UNDER :- (PARAGRAPH NO.5.9, PAGE NOS.16 & 17) 5.9 IN VIEW OF THE ABOVE COMPUTATION, THE LOSS TO THE APPELLANT FIRM ON ACCOUNT OF GIVING LOAN TO THE RELATIVE OF THE PA RTNER, NOT BEING FOR THE PURPOSE OF THE BUSINESS COMES TO RS.2,83,302/-. THEREFORE, I FIND THAT THE DISALLOWANCE OF RS.24,76,779/- MADE BY THE AO, AS THIS AMOUNT BEING DIFFERENCE BETWEEN THE INTEREST PAID A ND INTEREST RECEIVED BY THE APPELLANT FIRM, JUST ON THE BASIS O F A GENERAL OBSERVATIONS THAT THE APPELLANT FIRM HAS GIVEN LOAN /ADVANCES TO THE FAMILY MEMBERS AND SISTER CONCERN RELATED TO THE AP PELLANT FIRM BY NOT CHARGING ANY INTEREST OR CHARGING INTEREST AT LOWER RATE AND SUCH LOAN/ADVANCES BEING FOR THE PURPOSE OTHER THAN BUSI NESS, IS NOT JUSTIFIED. HOWEVER, ON SPECIFIC EXAMINATION OF THE LOAN AND ADVANCES GIVEN BY THE APPELLANT FIRM AND ITS SOURCES, I FIND THAT ONLY AN AMOUNT OF RS.2,83,302/- IS TO BE DISALLOWED AS DISCUSSED A BOVE. THEREFORE, I ITA NO.149 & CO NO.32/AGR/2012 A.Y. 2008-09 4 RESTRICT THE ADDITION ON ACCOUNT OF DISALLOWANCE U/ S 36(1)(III) AT RS.2,83,302/- AND HENCE, THE APPELLANT GETS A RELIE F OF RS.21,93,477/-. THEREFORE, ALL THE GROUNDS TAKEN BY THE APPELLANT F ROM GROUND NO.1 TO GROUND NO.7 DISPUTING THE ADDITION OF RS.24,76,779/ - IS PARTLY ALLOWED. WHILE MAKING THE ABOVE DECISIONS, I HAVE CONSIDERED ALL THE CASE LAWS CITED BY THE AO AS WELL AS THE APPELLANT AND UPHELD DISALLOWANCE OF ONLY THAT PART OF INTEREST WHICH WAS PAID DIVERTING THE FUND OF THE APPELLANT FIRM FROM ITS O.D. ACCOUNT BY PAYING INTE REST AT HIGHER RATE BUT CHARGING INTEREST AT LOWER RATE ON LOAN GIVEN T O A RELATIVE OF THE PARTNER OF THE APPELLANT FIRM WITHOUT ANY COMMERCIA L EXPEDIENCY. 6. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PAR TIES AND RECORDS PERUSED. THE A.O. HAS DISALLOWED INTEREST CLAIM OF THE ASSES SEE UNDER SECTION 36(1)(III) OF THE ACT. SECTION 36(1)(III) PROVIDES THAT THE AMOU NT OF THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINES S IS ALLOWABLE EXPENSES FOR COMPUTING THE BUSINESS INCOME. IT IS NOT THE CASE OF THE A.O. THAT THE BORROWED FUND WAS NOT UTILISED FOR THE PURPOSES OF BUSINESS. THE APEX COURT IN THE CASE OF DCIT VS. CORE HEALTH CARE LIMITED, 298 ITR 194 (SC) LAID DOWN LAW THAT INTEREST PAID FOR THE PURPOSE OF BUSINESS UNDER SECTION 36(1 )(III) OF THE ACT, THOUGH IT MAY BE FOR THE PURPOSE OF EXPANSION OF THE EXISTING BUS INESS. IN THE CASE UNDER CONSIDERATION, THE CASE OF THE A.O. IS THAT THERE I S A LOSS ON ACCOUNT OF INTEREST PAID AND RECEIVED. THE CIT(A) HAS ALSO WRONGLY ACCEPTED THE A.O.S VIEW WITHOUT CONSIDERING THE SECTION 36(1)(III) OF THE ACT. THE LOSS IN THE INTEREST ACCOUNT WAS ON ACCOUNT OF DIFFERENT RATES CHARGED FROM DIFFEREN T PARTIES ON LOANS AND ADVANCES TAKEN AND LOANS AND ADVANCES GIVEN. FOR ALLOWING D EDUCTION UNDER SECTION 36(1)(III), IT IS TO BE SEEN WHETHER CONDITIONS STA TED IN SECTION 36(1)(III) HAS BEEN ITA NO.149 & CO NO.32/AGR/2012 A.Y. 2008-09 5 SATISFIED OR NOT. IN THE CASE UNDER CONSIDERATION, WE FIND THAT THE ASSESSEE HAS SATISFIED ALL THE CONDITIONS THAT THE BORROWED FUND WAS USED FOR THE PURPOSE OF BUSINESS AS PRESCRIBED UNDER SECTION 36(1)(III) OF THE ACT. ALSO, AS STATED ABOVE, IT WAS NOT THE CASE OF THE A.O. THAT THE BORROWED FUND WAS NOT UTILISED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. AS REGARDS TH E A.O.S VIEW REGARDING LOSS IN INTEREST ACCOUNT ON ACCOUNT OF DIFFERENT RATES CHAR GED BY THE ASSESSEE, WE WOULD LIKE TO REFER THE OBSERVATION OF THE APEX COURT WHI CH WAS MADE IN THE CASE OF CIT VS. DHANRAJGIRJI RAJA NARASINGIRJI, 91 ITR 544 (SC) . IT WAS OBSERVED BY THE APEX COURT THAT IT IS NOT OPEN TO THE DEPARTMENT TO PRE SCRIBE WHAT EXPENDITURE AN ASSESSEE SHOULD INCUR AND IN WHAT CIRCUMSTANCES HE SHOULD INCUR THAT EXPENDITURE. EVERY BUSINESSMAN KNOWS HIS INTEREST BEST. IN THE CASE UNDER CONSIDERATION, THE A.O. AND THE CIT(A) PUT THEIR LEGS TO THE SHOES OF THE ASSESSEE AND DETERMINED THE RATE OF INTEREST PAID AND CHARGED REASONABLY IN ACC ORDANCE WITH THEIR VIEW WHICH IS NOT CORRECT. THE A.O. IS EMPOWERED TO EXAMINE ONLY CONDITION LAID DOWN UNDER SECTION 36(1)(III) OF THE ACT. SINCE THERE IS NO V IOLATION OF CONDITIONS LAID DOWN IN SECTION 36(1)(III) BY THE ASSESSEE, WE THEREFORE, F IND THAT INTEREST CLAIM OF THE ASSESSEE IS FULLY ALLOWABLE AND WE ALLOW THE SAME. THE ORDERS OF THE A.O. AND THE CIT(A) BOTH ARE SET ASIDE AND ADDITION MADE BY THE A.O. OF RS.24,76,779/- AND ADDITION OF RS.2,83,302/- SUSTAINED BY THE CIT(A) A RE DELETED. ITA NO.149 & CO NO.32/AGR/2012 A.Y. 2008-09 6 7. THE CROSS OBJECTION FILED BY THE ASSESSEE IS IN RESPECT OF ADDITION OF RS.2,83,302/- SUSTAINED BY THE CIT(A). SINCE WE SE T ASIDE THE ORDER OF CIT(A) AS DISCUSSED ABOVE, IN THE LIGHT OF THE FACT, THE CROS S OBJECTION FILED BY THE ASSESSEE IS ALLOWED. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D AND CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT) SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, AGRA BENCH, AGRA 6. GUARD FILE. BY ORDER SR. PRIVATE SECRETARY INCOME-TAX APPELLATE TRIBUNAL, AGRA TRUE COPY