Shri Madhuram Collection, Baroda V. The ACIT, Circle -2, Baroda

ITA 1619/AHD/2005

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9167 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 23-07-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 16-06-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K GUPTA
• Assessee Lawyers: J P SHAH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI A.N.PHAUJA, ACCOUNTANT MEMBER ITA NO.1619/AHD/2005 ASSESSMENT YEAR:2001-02 DATE OF HEARING: 23.7.09 DRAFTED: 27.7.09 MADHURAM COLLECTION CENTRE, POINT, ALKAPURI, BARODA, AAYKAR BHAVAN, RACE COURSE, BARODA 390 007 PAN NO.AAEFM5202E V/S. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-2, BARODA (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI J.P. SHAH, AR RESPONDENT BY:- SHRI S.K.GUPTA, CIT,DR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX(APPEALS)-II, BARODA IN APPEAL NO.CAB/ III/V-20/04-05 DATED 24- 03-2005. THE ASSESSMENT WAS FRAMED BY THE ACIT, CIR CLE-2, BARODA U/S.143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 31-03-2004 FOR THE ASSESSMENT YEAR 2001-02. 2. THE ONLY ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) IN RESTRICTING THE DISALLOWANCE OF INTEREST AT RS.4,89,799/- OUT OF TOTAL DISALLOWANCE MADE BY THE ASSESSING OFFICER AT RS.7, 34,699/-. ITA NO.1619/AHD/2005 A.Y. 2001-02 MADHURAM COLLECTION CENTRE BARODA V. ACIT, CIR-2 BARODA PAGE 2 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED TH E CASE RECORDS INCLUDING THE ASSESSMENT ORDER AS WELL AS THE ORDER OF CIT(A) . THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT THE BUSINESS OF THE ASSESS EE INCLUDES THAT OF FINANCING. DURING THE RELEVANT YEAR, THE ASSESSEE HAS ADVANCED MONEY TO VARIOUS PARTIES AND HAS ALSO EARNED INTEREST INCOME AND THE NATURE OF BUSINESS OF THE ASSESSEE IS SUCH THAT MANY A TIMES THE ASSESSEE HAS BORROWED SIZEABLE AMOUNTS FROM ITS ASSOCIATE CONCER NS, FRIENDS AND RELATIVES. THE ASSESSEE HAS MANY A TIMES SURPLUS FUNDS AVAILAB LE AND SAME IS ADVANCE TO ITS SISTER CONCERN AND OTHER PARTIES AS LOAN AND THE DETAIL OF THE ADVANCES GIVEN BY THE ASSESSEE-FIRM TO VARIOUS PARTIES IS AS UNDER:- ADVANCES TO PARTICULAR OLD NEW REMARKS JAGDISH LEATHER CRAFTS 4 LACS ( 2 LAC OLD + NEW) 200000 200000 (29.9.00) SHRI N T SHAH, HUF 1.46 LACS (NEW) - 146000 (INT CHARGED) PRATIK CONTRACTOR 4 LACS (OLD + ADV.) 40000 - - SURUCHI DEVELOPERS 2 LACS (OLD + ADV.) 200000 - - SHREEJI DEVELOPERS 2 LACS (OLD + ADV.) 200000 - - MANSI M SHAH 27.35 LACS (NEW) - 2735000 (NO INTEREST THIS YEAR) THE ASSESSING OFFICER DISALLOWED TO THE EXTENT OF I NTEREST CHARGEABLE ON THE ACCOUNT OF THE ABOVE NOTED INTEREST-FREE-LOAN GIVEN TO ITS SISTER / ASSOCIATE CONCERNS BY STATING THE REASON THAT INTEREST BEARIN G LOAN FROM VARIOUS CONCERN HAVE BEEN DIVERTED AND UTILIZED FOR THE BUSINESS P URPOSES AS HAS BEEN DONE IN THE ASSESSMENT YEAR 2000-01. ACCORDINGLY, THE A SSESSING OFFICER FOLLOWING THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2000-0 1, WORKED OUT DISALLOWANCE @ 18% ON THE INTEREST FREE LOANS GIVEN . AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) AFTER CONSIDERING THE ITA NO.1619/AHD/2005 A.Y. 2001-02 MADHURAM COLLECTION CENTRE BARODA V. ACIT, CIR-2 BARODA PAGE 3 SUBMISSIONS OF THE ASSESSEE CONFIRMED THE DISALLOWA NCE PARTLY AND DIRECTED THE AO TO APPLY THE RATE OF INTEREST AS PER THE PRE VALENT BANK RATE AS THE ASSESSEE HAS CASH CREDIT FACILITIES. THE RELEVANT F INDING OF CIT(A) FOR CONFIRMING THE PART DISALLOWANCE AS GIVEN IN PARA-6.7 OF HIS APPELLATE ORDER:- 6.7. IN VIEW OF THE ABOVE, I HOLD THAT DISALLOWANC E OF INTEREST IN THE FACTS OF APPELLANTS CASE IS FULLY JUSTIFIED AND THE SAME THEREFORE, STANDS CONFIRMED. HOWEVER, THE PLEA OF THE COUNSEL THAT RA TE OF 18% AS TAKEN BY THE AO IS NOT CORRECT SINCE AVERAGE RATE OF BORR OWING, AS PER THE COUNSEL IS TOO LOW. CONSIDERING THE FACTS AND CIRC UMSTANCES, THE AO IS DIRECTED TO APPLY RATE OF INTEREST AS PER THE PREVA LENT BANK RATE SINCE APPELLANT HAS CENTRAL CIRCLE FACILITY. THE AO IS DI RECTED TO RECALCULATE THE DISALLOWANCE ACCORDINGLY. AGGRIEVED AGAINST THE PART CONFIRMATION, THE ASSESS EE CAME IN SECOND APPEAL BEFORE US. 4. ON SPECIFIC QUERY FROM LD. DEPARTMENTAL REPRESEN TATIVE, HE REPLIED THAT REVENUE IS NOT IN APPEAL ON THE ALLOWANCE. AT THE TIME OF HEARING BEFORE US, LD. COUNSEL FOR THE ASSESSEE FAIRLY STATED THAT THE ISSUE IS AS REGARDS OLD LOANS AS COLLECTED IN THE ABOVE CHART AT PAGE-2 OF THIS ORDER HAS ALREADY BEEN ALLOWED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNALS ORDER IN ITA 3927/AHD/2007 DATED 26-12-2008 IN ASSESSEES OWN CASE 2000-01. T HE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE TOTAL RS.1 0 LAKHS IN THIS WAY IS COVERED. FOR THE BALANCE RS.30.81 LAKHS, THE LD. CO UNSEL STATED THAT IN THIS YEAR THE NET PROFIT OF THE FIRM IS TO THE TUNE OF R S.27,41,740/- AND BY MAKING OTHER ADDITIONS, THE INCOME OF THE ASSESSEE HAS INC REASED BUT RS.31,97,754/- APART FROM THIS INTEREST DISALLOWANCE. ACCORDINGLY , LD. COUNSEL STATED THAT THE PROFIT OF THIS YEAR IS MUCH MORE THAN INTEREST FREE ADVANCES. ON QUERY FROM THE BENCH, WHETHER THIS PROFIT IS ADVANCED AS INTER EST FREE LOAN OF VARIOUS PARTIES AND LD. COUNSEL FAIRLY STATED THAT HE IS AS KING FOR REASONABLE ESTIMATE FOR DISALLOWANCE AND NOTHING ELSE. ON THE OTHER HA ND, LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ASSESSMENT ORDER. LD. COUNSEL FURTHER STATED THAT AS REGARDS TO JAGDISH LEATHER CRAFTS EVEN THE ASSESSEE HAS PAID INTEREST AND THE BALANCE INTEREST FREE FUNDS REMAINS AT RS.2 9.81 LAKHS. IN VIEW OF THE ITA NO.1619/AHD/2005 A.Y. 2001-02 MADHURAM COLLECTION CENTRE BARODA V. ACIT, CIR-2 BARODA PAGE 4 ABOVE FACTS FROM THE RECORDS, WE FIND THAT THIS MAN SI M SHAH IS THE DAUGHTER OF MUKUND SHAH AND HER MOTHER HAS GIVEN CAPITAL @ 1 2% TO THE FIRM ALSO AS INSTRUCTED TO ADJUST THE DEBITS IN HER ACCOUNT. TH IS FACT THAT SHE HAS GIVEN CAPITAL @ 12%, WE ARE OF THE VIEW THAT THE AVERAGE RATE OF DISALLOWANCE SHOULD BE RESTRICTED AT 10.90% AND NOT MORE THAN TH AT. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO RE-COMPUTE THE DISALLOWANC E AT 10.90% RESTRICTED TO ONLY ON THE LOANS PERTAINING TO MANSI MUKUND SHAH R S.7.35 LAKHS AND NOT FOR OTHERS. ACCORDINGLY, THE AO RE-COMPUTE THE DISALLO WANCE IN VIEW OF THE ABOVE DIRECTIONS. 5. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN OPEN COURT ON 04/09/2009 SD/- SD/- (A.N.PHAUJA) (MAHAVIR SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED :04/09/2009 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-II, BARODA 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD