SHRI JAGDISH KUMAR VERMA, Indore V. THE ACIT-2, Indore

ITA 16/IND/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5916 (ITAT-INDORE)
• Duration Of Justice: 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-07-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 08-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R P MOURYA
• Assessee Lawyers: S S DESHPANDE
• Keywords: Gift; Depreciation; Rule of consistency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE (SINGLE MEMBER CASE) BEFORE SHRI N.S. SAINI, HONBLE ACCOUNTANT MEMBER ITA NO. 16/IND/2016 (ASST. YEAR : 2006-07) SHRI JAGDISH KUMAR VERMA, PROP. M/S. AMRIT JEWELLERS, INDORE VS. ACIT-2, INDORE PAN NO. ABSPB5618E (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.S.DESHPANDE, CA DEPARTMENT BY : SHRI R.P. MOURYA, DR DATE OF HEARING : 05 /07/2016. DATE OF PRONOUNCEMENT : 05 /07/2016. O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-I, INDORE, DAT ED 26/11/2015. 2. IN GROUND NO. 1 OF THE APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE CIT(A) HAS ERRED IN MAINTAINING THE DISALL OWANCE OF RENT ON GOLD OF RS. 1,31,180/-. 3. I HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PERU SED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON REC ORD. IN THE INSTANT CASE, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MA NUFACTURING AND SALE OF GOLD ORNAMENTS. THE AO FOUND THAT THE ASSES SEE HAS PAID RENT OF RS. 1,31,180/- AS ORNAMENTS RENT. THE ASSESSEE EXPL AINED THAT THE 2 JAGDISH KUMAR VERMA VS. ACIT 2, INDORE I.T.A.NO. 16 /IND/2016 AMOUNT WAS PAID TO RELATIVES OF THE ASSESSEE WHOSE ORNAMENTS THE ASSESSEE HAS TAKEN ON RENT. IT WAS SUBMITTED THAT T HE ASSESSEE HAS RECEIVED 9812.050 GMS. OF GOLD ORNAMENTS ON RENT. I T WAS SUBMITTED THAT THE ASSESSEES FIRM USES GOLD FOR MANUFACTURIN G OF GOLD ORNAMENTS AND BY TAKING THE GOLD ORNAMENTS ON RENT, IT DOES N OT REQUIRE TO BUY FRESH GOLD BULLION FROM THE MARKET. THE FAMILY MEMB ERS WHOSE ORNAMENTS ARE LYING IDLE BY THIS WAY CAN EARN INTER EST INCOME. IT WAS SUBMITTED THAT THE COST OF TAKING GOLD ON RENT WAS MUCH LESS I.E. 1 % TO 3 % PER ANNUM AGAINST TAKING EXTERNAL LOAN AT 15 % - 18 % FOR BUYING THE GOLD AND USING THE SAME AS STOCK IN TRADE. IT W AS, THEREFORE, SUBMITTED THAT THE AMOUNT SHOULD BE ALLOWED AS DEDU CTION. THE AO WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE ON THE GROUND THAT THE GOLD ORNAMENTS WERE NOT TAKEN ON RENT BUT WERE USED AS RAW MATERIALS FOR MANUFACTURING NEW GOLD ORNAMENTS. THE REFORE, HE DISALLOWED THE DEDUCTION OF RS. 1,31,180/-. 4. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ORDER O F THE AO BY OBSERVING THAT IT WAS HIGHLY PROBABLE THAT SOMEBODY WILL GIVE HIS/HER GOLD JEWELLERY WITH WHICH ONE HAS EMOTIONAL ATTACHM ENT TO BE MELTED THEREBY LOSING 8 15% OF THE VALUE IN TERMS OF MAK ING CHARGES TO EARN 1 % PER ANNUM. FURTHER, THE PERSON WHO IS SUPPOSED TO LEND THE JEWELLERY IS WELL AWARE THAT HE WILL NOT GET BACK T HE JEWELLERY IN ITS ORIGINAL FORM, AT MOST, HE WOULD GET EQUIVALENT WEI GHT OF GOLD. FURTHER, THE BORROWER WAS FREE TO USE THE JEWELLERY IN WHATE VER FORM HE WISH THAT IS THE BORROWER HAD ABSOLUTE RIGHT OVER THE JE WELLERY, THIS WAS 3 JAGDISH KUMAR VERMA VS. ACIT 2, INDORE I.T.A.NO. 16 /IND/2016 AGAINST THE PRINCIPLE OF LENDING AND BORROWING THE GOODS. ACCORDING TO THE LD. CIT(A), IT WAS SALE OF JEWELLERY RATHER THA N GIVING IT ON RENT. 5. BEFORE ME, THE LD. AUTHORIZED REPRESENTATIVE O F THE ASSESSEE FILED COPY OF ASSESSMENT ORDER FOR ASSESSMENT YEAR 2002-03 PASSED U/S 143(3) DATED 28.3.2005 AND SUBMITTED THAT THE ASSES SEE HAD CLAIMED RENT FOR USE OF GOLD ORNAMENTS AT RS. 1,31,180/- WH ICH WAS ALLOWED DEDUCTION TO THE ASSESSEE. HE FURTHER SUBMITTED THA T IN ASSESSMENT YEAR 2004-05, THE ASSESSEE CLAIMED DEDUCTION FOR RE NT FOR USE OF GOLD ORNAMENTS AT RS. 1,31,180/-, WHICH WAS ACCEPTED BY THE DEPARTMENT U/S 143(1) OF THE INCOME-TAX ACT, 1961. HE FURTHER SUBMITTED THAT IN ASSESSMENT YEAR 2005-06, THE ASSESSEE CLAIMED DEDUC TION FOR RENT FOR GOLD ORNAMENTS AT RS. 1,31,180/-, WHICH WAS ALSO AC CEPTED BY THE DEPARTMENT U/S 143(1) OF THE ACT. THEREFORE, IT WAS HIS SUBMISSION THAT CONSISTENCY SHOULD BE MAINTAINED IN INCOME TAX PROC EEDINGS AND ON THIS PRINCIPLE NO DISALLOWANCE SHOULD BE MADE FOR RENT F OR GOLD ORNAMENTS. 6. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 7. I HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PERU SED ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON REC ORD. IN THE INSTANT CASE, THE ASSESSEE CLAIMED THE DEDUCTION FOR RENT P AID FOR ORNAMENTS OF RS. 1,31,180/- WHICH WAS DISALLOWED BY THE AO FOR T HE REASONS THAT THE GOLD ORNAMENTS WERE NOT TAKEN ON RENT, BUT WERE USE D AS RAW MATERIALS FOR MANUFACTURING THE NEW GOLD ORNAMENTS. 4 JAGDISH KUMAR VERMA VS. ACIT 2, INDORE I.T.A.NO. 16 /IND/2016 8. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ACTION O F THE AO ON THE GROUND THAT IT WAS IMPROBABLE THAT A PERSON WHO HAS EMOTIONAL ATTACHMENT WOULD GIVE HER JEWELLERY TO BE MELTED TH EREBY LOSING 8 % TO 15% OF THE VALUE BY WAY OF MELTING CHARGES TO EARN 1 % PER ANNUM, THE PERSON LENDING JEWELLERY WOULD NOT GET BACK THE JEWELLERY IN ITS ORIGINAL FORM BUT WOULD GET EQUAL WEIGHT OF GOLD AN D THE BORROWER WAS FREE TO USE THE JEWELLERY IN WHATEVER FORM, WHICH W AS AGAINST THE PRINCIPLE OF LENDING AND BORROWING OF GOODS. 9. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSE E HAS SUBMITTED THAT RENT PAID ON GOLD ORNAMENTS WAS ALL ALONG ALLO WED A DEDUCTION TO THE ASSESSEE FROM ASSESSMENT YEAR 2002-03, 2004-05 AND 2005-06. IT IS ALSO THE SUBMISSION THAT IN ASSESSMENT YEAR 2002 -03, THE DEDUCTION WAS ALLOWED IN ASSESSMENT MADE U/S 143(3) OF THE AC T. THEREFORE, FOLLOWING THE CONSISTENCY IN ASSESSMENT PROCEEDINGS , NO DISALLOWANCE OF INTEREST PAID ON LOANED ORNAMENTS WAS CALLED FOR. 10. THE LD. DEPARTMENTAL REPRESENTATIVE HAS RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. HE COULD NOT CONTROVERT THE SUBMISSION MADE BY THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE. 11. I FIND THAT THE HON'BLE SUPREME COURT IN THE CA SE OF CIT VS. EXCEL INDUSTRIES LIMITED, (2013) 358 ITR 295( S.C.) HELD THAT IN CASE OF CONSISTENT VIEW TAKEN IN FAVOUR OF THE ASSESSEE ON QUESTIONS, THE COURT WILL NOT TAKE A DIFFERENT VIEW WITHOUT VERY CONVINC ING REASONS. THEREFORE, FOLLOWING THE RULE OF CONSISTENCY AS IN EARLIER ASSESSMENT YEARS, THE RENT OF GOLD ORNAMENTS HAD BEEN ALLOWED AS DEDUCTION TO THE 5 JAGDISH KUMAR VERMA VS. ACIT 2, INDORE I.T.A.NO. 16 /IND/2016 ASSESSEE AND THERE BEING NO DIFFERENCE IN FACTS POI NTED OUT DURING THE YEAR UNDER CONSIDERATION, I SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND VACATE THE DISALLOWANCE OF RS. 1,31,180/- UNDER THE HEAD RENT OF GOLD ORNAMENTS AND ALLOW THIS GROUND OF THE ASSESS EE. 12. IN GROUND NO.2 OF THE APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN UPHOLDING THE DISA LLOWANCE OF RS. 1,71,163/- ON ACCOUNT OF INTEREST PAYMENT IN EXCESS OF 12 %. 13. THE FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED DEDUCTION FOR I NTEREST ON UNSECURED LOAN AMOUNTING TO RS. 6,80,407/-. THE AO FOUND THAT MANY OF THE LENDERS WERE FROM THE RELATIVES. HE ALSO OBSERVED T HAT THE ASSESSEE WAS PAYING VARYING INTEREST TO HIS RELATIVES FROM 12 % TO 18 %. THE ASSESSEE EXPLAINED BEFORE THE AO THAT THE MARKET RA TE WAS 15% TO 24 % AND IN COMPARISON TO THAT THE INTEREST OF 18 % WA S FAIR AND REASONABLE. THE AO DID NOT ACCEPT THE ASSESSEES EX PLANATION AND RESTRICTED THE ALLOWANCE OF DEDUCTION FOR INTEREST @ 12 % PER ANNUM THEREBY MAKING AN ADDITION OF RS. 1,71,163/-. 14. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO ON THE GROUND THAT THE ASSESSEE HIMSELF HAS GIVEN INTEREST TO MAJORITY OF THE RELATIVES @ 12 % AND THAT IN 2005-06, THE BANK INTE REST WAS ABOUT 6.5% TO 7.5 % FOR DEPOSITS AND AROUND 9% FOR LENDIN G. 15. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESS EE SUBMITTED BEFORE ME THAT INTEREST PAID BY THE ASSESSEE WAS AT THE NORMAL MARKET RATE AND THE SAME CANNOT BE COMPARED WITH THE RATE OF INTEREST CHARGED 6 JAGDISH KUMAR VERMA VS. ACIT 2, INDORE I.T.A.NO. 16 /IND/2016 BY THE BANK OR PAID BY THE BANK AS BECAUSE BORROW ING FROM BANKS REQUIRES GIVING OF SECURITIES AND OTHER PAPER FORMA LITIES, WHICH IS ABSENT IN THE CASE OF LOAN TAKEN FROM FRIENDS AND RELATIVE S. HE, THEREFORE, PRAYED THAT THE DEDUCTION CLAIMED SHOULD BE ALLOWED IN ENTIRETY. 16. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESE NTATIVE SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 17. I FIND THAT THE ASSESSEE HAS CLAIMED THE INTERE ST ON UNSECURED LOAN AT RATES VARYING FROM 12 % TO 18% AND THE AO W AS OF THE VIEW THAT THE ASSESSEE SHOULD HAVE PAID INTEREST @ 12 % PER ANNUM AND ,ACCORDINGLY, MADE THE DISALLOWANCE OF EXCESS PAYM ENT OF INTEREST OF RS. 1,71,163/-, WHICH WAS ALSO CONFIRMED BY THE LD. CIT(A) . I FIND THAT EVEN THE INCOME TAX AUTHORITIES AS PER INCOME-TAX A CT, 1961, CHARGES INTEREST FROM THE ASSESSEE @ 15%. IN THE GIVEN CIRC UMSTANCES, THE ASSESSEE PAYING INTEREST ON UNSECURED LOANS AT RATE S VARYING FROM 12 % TO 18 % CANNOT BE SAID TO BE HIGHER SIDE AND DOES N OT CALL FOR ANY DISALLOWANCE. HENCE, I SET-ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DELETE THE ADDITION OF RS. 1,71,163/-. 18. IN GROUND NO.3 OF THE APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN DISALLOWING THE IN TEREST OF RS. 26,500/- PAID TO TWO HUFS. 19. THE BRIEF FACTS ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE GAVE GIFT TO THE TWO HUFS OF RS. 1 LAKH EA CH. THE HUF GAVE THE AMOUNT BACK TO THE ASSESSEE IMMEDIATELY AND THE ASSESSEE PAID INTEREST ON DEPOSITS @ 18%. ACCORDING TO THE AO, T HE GIFT AND 7 JAGDISH KUMAR VERMA VS. ACIT 2, INDORE I.T.A.NO. 16 /IND/2016 CORRESPONDING LOAN WAS A COLORABLE DEVICE FOR REDUC ING THE TAX LIABILITY OF THE ASSESSEE. HE, THEREFORE, DISALLOWED DEDUCTIO N OF RS. 26,500/-. 20. ON APPEAL, THE LD. CIT(A) CONFIRMED THE SAME. B EFORE ME, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT GIVING OF GIFT BY THE ASSESSEE TO THE TWO HUFS OF RS. 1 LAKH EACH WAS ACCEPTED BY THE DEPARTMENT AS GENUINE. THEREFORE, THE HUF GIVING LO ANS TO THE ASSESSEE AND ASSESSEE PAYING INTEREST ON THE SAME W AS ALSO GENUINE TRANSACTION AND HENCE THERE WAS NO REASON FOR DISAL LOWING THE DEDUCTION OF INTEREST CLAIMED BY THE ASSESSEE. 21. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTH ER HAND, SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 22. AFTER CONSIDERING THE RIVAL SUBMISSIONS, I AM N OT CONVINCED WITH THE ARGUMENTS OF THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE. THE ASSESSEE HAS GIVEN A GIFT OF RS. 1 LAKH EACH TO ITS TWO HUFS AND IMMEDIATELY TAKEN THE SAME MONEY BACK AS LOAN AND P AID INTEREST THEREON TO THE HUFS. IN MY CONSIDERED VIEW, THIS IS A DEVICE ADOPTED BY THE ASSESSEE TO REDUCE TAX LIABILITY AND HENCE, THE DEDUCTION FOR INTEREST EXPENDITURE OF RS. 26,500/- CLAIMED BY THE ASSESSEE HAS RIGHTLY BEEN DISALLOWED. THEREFORE, I CONFIRM THE ORDER OF CIT(A ) AND DISMISS THIS GROUND OF THE ASSESSEE. 23. IN GROUND NO. 4 OF THE ASSESSEE, THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DIS ALLOWANCE RS. 26,608/- OUT OF TELEPHONE AND CAR EXPENSES. 8 JAGDISH KUMAR VERMA VS. ACIT 2, INDORE I.T.A.NO. 16 /IND/2016 24. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE CLAIMED RS. 19,042/- AS TELEPHONE EXPENSES AND RS. 27,245/- AS CAR EXPENSES AND RS. 42,431/- AS DEPRECIATION ON CAR. SINCE NO LOG B OOKS WERE MAINTAINED, THE AO ESTIMATED THE PERSONAL USE AT 20 % OF THE EXPENDITURE AND MADE ADDITION OF RS. 22,608/- TO TH E INCOME OF THE ASSESSEE, WHICH WAS CONFIRMED IN APPEAL BY THE LD. CIT(A) . 25. AT THE TIME OF HEARING, NO ARGUMENTS WERE ADVAN CED BY THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE BEFORE ME ON THIS GROUND OF APPEAL. THEREFORE, THE SAME IS DISMISSED FOR WANT O F PROSECUTION. 26. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF THE H EARING ON TUESDAY, THE 5 TH DAY OF JULY, 2016 AT INDORE. SD/- (N.S.SAINI) ACCOUNTANT MEMBER DATED : 5TH JULY, 2016. CPU COPY TO: 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT 4. THE CIT(A) 5. THE D.R. 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR 9 JAGDISH KUMAR VERMA VS. ACIT 2, INDORE I.T.A.NO. 16 /IND/2016 I.T.A.T., INDORE 10 JAGDISH KUMAR VERMA VS. ACIT 2, INDORE I.T.A.NO. 16 /IND/2016