RAJ KUMAR JAIN, Ajmer V. ITO, Kishangarh

ITA 149/JPR/2011

• Counselvise Citation: 14923114 RSA 2011
• Duration Of Justice: 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 23-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROSHANTA MEENA
• Assessee Lawyers: K L MOOLCHANDAN I
• Keywords: Business income; Corroborative evidences; Commercial expediency

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO. 149/ JP/2011 ASSESSMENT YEAR 2007-08 PAN: AAOPJ 8380 Q SHRI RAJ KUMAR JAIN VS. THE ITO MAHESHWARI COLONY WARD KISHANGARH MADANGANJ, KISHANGARH DISTT. AJMER (APPELLANT ) (RESPONDENT) ASSESSEE BY: SHRI K.L. MOOLCHANDANI DEPARTMENT BY : MISS. ROSHANTA MEENA DATE OF HEARING: 28-09-2011 DATE OF PRONOUNCEMENT: 07-10-2011 ORDER PER N.L. KALRA, AM:- THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDE R OF THE LD. CIT(A), AJMER DATED 20-12-2010 FOR THE ASSESSME NT YEAR 2007-08. 2.1 THE FIRST GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSES INCURRED ON ACCOUNT OF INTEREST PAYMENT OF RS. 462,765/- ON UNSECURED LOANS U/S 36 (1)(III) OF THE ACT. 2.2 THE ASSESSEE IS ENGAGED IN VARIOUS BUSINESSES M ENTIONED IN THE ASSESSMENT ORDER. THE AO REQUIRED THE ASSESSEE TO F ILE THE JUSTIFICATION 2 AND RELEVANCY WITH THE BUSINESS IN SUPPORT OF INTE REST OF RS. 4,62,765/- CLAIMED IN THE COMPUTATION. THE ASSESSEE FILED THE WRITTEN REPLY DATED 16- 11-2009 IN WHICH IT WAS STATED THAT MAJOR EXPENSES WERE INVOLVED IN THE BUSINESS OF M/S. K.S. ENERGY STATION AND THE AMOUNT RECEIVED FROM UNSECURED CREDITORS WAS INVESTED THERE, HENCE THE I NTEREST PAID TO THEM IS CLAIMED AS DEDUCTION FROM THE BUSINESS INCOME. THE AO DISALLOWED THE INTEREST AFTER OBSERVING AS UNDER:- 2.3 THE REPLY FILED BY THE ASSESSEE HAS BEEN EXAMINED AND NOT FOUND ACCEPTABLE BECAUSE OF THE FOLLOWING REASONS:- A) NON CASH FLOW STATEMENT IN SUPPORT OF UTILIZATION OF FUNDS WITH BUSINESS HAS BEEN FILED. SIMPLY STATING THAT THE FUNDS HAVE BEEN UTILIZED FO R BUSINESS HAS NO FORCE WITHOUT ANY SUPPORTING EVIDENCES. B) ON EXAMINATION OF INDIVIDUAL BALANCE SHEET OF ASSESSEE IT IS FOUND THAT THE TOTAL CAPITAL OF ASSE SSEE IS SHOWN AT RS. 1664,053/- AND THE TOTAL CAPITAL EMPLO YED WITH M/S. K.S. ENERGY STATION IS SHOWN AT RS. 17,49,211/- I.E. ALMOST AT PAR. C) THE UNSECURED LOANS ON WHICH THIS INTEREST PAYMENT IS SHOWN ARE AT RS. 42,80,116/-. D) THE CONTENTION OF THE ASSESSEE THAT FUNDS HAVE BEEN UTILIZED IN THE BUSINESS OF M/S. K.S. ENERGY 3 STATION IS NOT FOUND CORRECT BECAUSE IN THE FIRM M/ S. K.S. ENERGY STATION, THE ASSESSEE HAS SEPARATELY CLAIMED INTEREST EXPENSES OF RS. 1,69,000/- ON THE TOTAL UNSECURED LOANS OF RS. 17,64,000/-. FURTHER IN M/S. K.S. ENERGY STATION, THE TOTAL FUNDS UTILIZED ARE SECURITY DEPOSIT OF RS. 3,00,000/- AND STOCK IN HAN D ONLY FOR WHICH ASSESSEE HAS OBTAINED UNSECURED LOAN S IN M/S. K.S. ENERGY STATION SEPARATELY AND INTEREST IS BEING PAID. E) THE INTEREST PAID BY ASSESSEE MOSTLY RELATED TO FAMILY MEMBERS AND RELATIVES. ON ONE HAND, HE IS PAYING INTEREST TO FAMILY MEMBERS AND RELATIVES AND COMPANY IN WHICH HE IS DIRECTOR WHILE ON THE OTHER HE IS NOT CHARGING ANY INTEREST FROM SISTER CONCERNS L IKE M/S. ARIHANT INDUSTRIES TO WHICH LOAN OF RS. 15,52,621/- HAVE BEEN SHOWN. ON FURTHER EXAMINATION OF ASSETS SIDE OF BALANCE SHEET IT IS FOUND THAT TH E ASSESSEE IS HAVING INVESTMENT OF RS. 18,01,980/- IN THE IMMOVABLE PROPERTIES. THEREFORE, IN ACTUAL THE FUND S HAVE BEEN UTILISED BY THE ASSESSEE IN ACQUIRING IMMOVABLE ASSETS AND ADVANCING INTEREST FREE LOANS TO SISTER CONCERNS. F) THE ASSESSEE HAS NOT CHARGED EVEN A SINGE PENNY OF INTEREST FREE ADVANCES. 2.4 THEREFORE, FROM THE ABOVE, IT IS CLEAR THAT THE UNSECURED LOAN ON WHICH INTEREST OF RS. 4,62,165/- IS PAID BY THE ASSESSEE HAVE NO RELATION WITH THE BUSI NESS 4 ACTIVITIES. HENCE, SAME IS NOT AN ALLOWABLE EXPENDI TURE U/S 36(1)(III) OF THE INCOME TAX ACT AND SAME IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF ASSESSEE. 2.3 THE LD CIT(A) AFTER REFERRING TO THE DECISION O F THE HON'BLE MADRAS HIGH COURT IN THE CASE OF K SOMASUNDARAM AND BROTHE RS VS LD. LD. CIT,238 ITR 939 CONFIRMED THE ACTION OF THE AO AFTE R OBSERVING AS UNDER:- 4.4 WHEN THE ABOVE CASE IS EXAMINED IN VIEW OF THIS LEGAL POSITION, IT IS FOUND THAT IN THIS CA SE BORROWED FUNDS WERE DIVERTED BY THE APPELLANT TO M/ S. ARIHANT INDUSTRIES. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE APPELLANT TO PROVE THAT THESE FUNDS W ERE ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY. DURING THE YEAR NO INTEREST HAS BEEN RECEIVED BY APPELLANT. ON THE OTHER HAND INTEREST HAS BEEN PAI D BY APPELLANT MAINLY IN HIS FAMILY MEMBERS AND RELATIVE S. THEREFORE, DISALLOWANCE OF RS. 462,765/- HAS BEEN RIGHTLY MADE BY AO U/S 36(1)(III) AND THE DISALLOWA NCE IS CONFIRMED. GROUND NO. 2 IS THUS DISMISSED. 2.4 WE HAVE HEARD BOTH THE PARTIES. THE HONB'LE APE X COURT IN THE OF S.A. BUILDERS VS CIT, 288 ITR 1 HELD THAT INTEREST CANNOT BE DISALLOWED IN 5 CASE THE AMOUNT WAS ADVANCED AS MEASURE OF COMMERC IAL EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER THE AMOUNT WAS A DVANCED FOR EARNING THE PROFIT. THE HONB'LE APEX COURT OBSERVED THAT IT IS NOT NECESSARY TO ESTABLISH THE NEXUS BETWEEN THE BORROWED FUNDS AND THE FUNDS GIVEN WITHOUT INTEREST. THE STATEMENT OF AFFAIRS AS ON 31 -03-07 HAS BEEN FILED. THE CAPITAL ACCOUNT IS TO THE EXTENT OF RS. 16,64,0 53/-. THE TOTAL OF THE CREDIT SIDE OF THE BALANCE SHEET IS RS. 59,44,169/- . IT WAS SUBMITTED BY THE LD.AR DURING THE COURSE OF PROCEEDINGS THAT ALL THE CREDITS ARE INTEREST BEARINGS. WE HAVE NOTICED THAT THERE ARE FOLLOWING ADVANCES OR INVESTMENTS WHICH ARE NOT RESULTING INTO ANY INCOME OR PROFIT. PARTICULARS AMOUNT SHARES 2,00,000 AGRICULTURAL LAND 1,62,875 LAND AT HARMARA ROAD 69,250 LAND AT JAIPUR 61,175 LAND AT MAKRANA ROAD 10,88,680 RPL SHARES 6,000 PLOT 2,03,370 HOUSE RS. 4,20,000 LOAN (-) RS. 1,49,370 2,70,630 SHARES SUDAMA TRADING CO 19,650 TOTAL 22,91,540 2.5 IT IS NOTICED FROM THE STATEMENT OF AFFAIRS AS ON 31-03095 THAT THE ASSESSEE WAS HAVING LAND AT MAKRANA ROAD TO THE EXT ENT OF RS. 10,88,680/- AND LAND AT MAKRANA (PETROL PUMP) AT RS. 10,89,846/ -. THE ASSESSEE HAS 6 SHOWN THE PLOT RENT OF RS. 60,000/-. WE ARE NOT AWA RE AS TO WHICH PLOT IS EARNING RENT TO THE EXTENT OF RS. 60,000/-. THE AO WILL EXAMINE THE FOLLOWING ASSETS TO ASCERTAIN AS TO WHETHER SUCH AS SETS WERE GIVING TAX FREE INCOME OR TAXABLE INCOME. PARTICULARS AMOUNT PPF 56,700 IDBI BONDS 80,000 RELIEF BOND (RBI 55,000 HDFC STANDARD LIFE INSURANCE 2,00,000 MUTUL FUNDS 51000 BLUE CHIP MUTUAL FUNDS 20,000 2.6 IT IS BEING HELD BY VARIOUS TRIBUNALS AND HON'B LE HIGH COURTS THAT INTEREST SHOULD NOT BE DISALLOWED IN CASE THE INTER EST FREE FUNDS ARE SUFFICIENT TO MAKE THE ADVANCE WITHOUT INTEREST. IF THERE IS A COMMON POOL THEN THERE IS A PRESUMPTION THAT INTEREST FREE ADVA NCES ARE USED FOR MAKING INVESTMENT ON INTEREST FREE ADVANCES. IN THE INSTA NT CASE, THE ASSESSEE IS HAVING CAPITAL TO THE EXTENT OF RS. 16,64,053/-. TH E AO WILL ASCERTAIN THE INVESTMENTS WHICH ARE NEITHER RESULTING INTO INCOME NOR ARE RESULTING INTO TAX FREE INCOME. AFTER ASCERTAINING THE QUANTUM OF SUCH INVESTMENTS, THE AO WILL REDUCE THE CAPITAL OF THE ASSESSEE FROM SUC H INVESTMENTS AND THE BALANCE WILL BE CONSIDERED TO HAVE BEEN INVESTED OU T OF INTEREST BEARING FUNDS. TO THAT EXTENT, INTEREST WILL BE DISALLOWABL E AND THE ISSUE OF DISALLOWANCE OF INTEREST IS RESTORED BACK ON THE FI LE OF THE AO. 7 3.1 THE SECOND GRIEVANCE OF THE ASSESSEE IS THAT TH E LD. CIT(A) HAS ERRED IN DISALLOWING THE INTEREST OF RS. 6,400/- U/ S 40A(2)(B) OF THE ACT. 3.2 THIS ISSUE HAS NOT BEEN RAISED BEFORE THE LD CI T(A). THIS IS CLEAR FROM THE GROUND OF APPEAL RAISED BEFORE THE LD CIT( A). HENCE, THE LD CIT(A) HAS NO OCCASION TO CONSIDER THIS ISSUE. THUS THIS ISSUE IS NOT ARISING FROM THE ORDER OF THE LD CIT(A).WE, THEREFO RE, DECLINE TO ADJUDICATE UPON THIS ISSUE AS IT IS NOT ARISING FRO M THE ORDER OF THE LD CIT(A). HENCE, THIS GROUND OF APPEAL OF THE ASSESSE E IS DISMISSED. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 07-10 -2011 SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 07 /10/2011 *MISHRA COPY FORWARDED TO :- 1. SHRI RAJ KUMAR JAIN, AJMER 2. THE ITO, WARD KISHANGARH, AJMER 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.194/JP /11) A.R, ITAT, JAIPUR 8