Shri Patel Sakubhai Manharlal , HUF, Ahmedabad V. The Income Tax Officer, Ward-7(4), Ahmedabad

ITA 1643/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8486 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-09-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 26-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVETIA

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA.NO.1643/AHD/2014 / ASSTT. YEAR: 2010-2011 PATEL SAKUBHAI MANHARLAL HUF 5, SHRI HARIPARK SOCEITY NR.BHAGIRATH SOCIETY NARANPURA AHMEDABAD 380 013. PAN : AABHP 8460 L VS ITO, WARD - 7(4) AHMEDABAD. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI S.N. DIVETIA, AR REVENUE BY : SHRI K. MADHUSUDAN, SR.DR / DATE OF HEARING : 11/09/2017 / DATE OF PRONOUNCEMENT: 13/09/2017 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF LD.CIT(A)-I, AHMEDABAD DATED 14.3.2014 PASSED FOR THE ASSTT.YEAR 2010-11. 2. SOLE GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CI T(A) HAS ERRED IN UPHOLDING ADDITION OF RS.3,44,136/-. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED HIS RETURN OF INCOME ON 11.8.2010 SHOWING TOTAL INCOME AT RS.2,36 ,167/-. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE AO THAT THE ASSESS EE HAS AVAILED LOAN AT THE RATE OF 15% AND HE HAS ADVANCED SUCH LOAN AT THE RA TE OF 12%. THUS, THE AO WAS OF THE OPINION THAT DIFFERENCE OF 3% DESERVES T O BE DISALLOWED OUT OF ITA NO.1643/AHD/2014 2 INTEREST EXPENDITURE. HE CONFRONTED THE ASSESSEE T O THIS EFFECT AND ULTIMATELY DISALLOWED A SUM OF RS.3,44,137/-. DISSATISFIED WI TH THE DISALLOWANCE, THE ASSESSEE CARRIED THE DISPUTE IN APPEAL BEFORE THE L D.CIT(A). IT HAS MADE WRITTEN SUBMISSIONS WHICH HAS BEEN REPRODUCED BY TH E LD.CIT(A) IN PARA 4.2 OF THE IMPUGNED ORDER, WHICH READS AS UNDER: 4.2 DURING THE APPELLATE PROCEEDINGS, THE A.R. OF THE APPELLANT STATED AS UNDER: 'THE ASSESSING OFFICER HAS WRONGLY ADDED INTEREST I NCOME OF RS. 3,44,137 TO THE TOTAL INCOME OF THE ASSESSEE. HE HA S DONE THE SAME ON THE BASIS OF A SINGLE TRANSACTION OF THE ASSESSEE W ITH ITS RELATED PARTY SM.PATEL IRON TRADERS PVT. LTD. WE HAVE ALREADY S UBMITTED IN RESPONSE TO ABOVE CASE EXPLANATIONS AS BELOW: ASSESSEE HAS LENT RSL,24,51,239 AND EARNED AN INCOM E OF RS.21,76,026. ASSESSEE HAS BORROWED RS.99,85,235 AND PAID INTERES T OFRSL8,47,206. THERE IS A POSITIVE INCOME OF RS.3,28,820. ASSESSEE HAS BORROWED AT DIFFERENTIAL RATES FROM 13.9% TO 15% AND LENT AT DI FFERENTIAL RATES FROM 12% TO 15%. IN THE PROCESS, THE ASSESSEE HAS EARNED A POSITIVE INCOME OF RS. 3,28,820. LOOKING AT THE FACT THAT THE ASSESSEE HAS EARNED MO RE INTEREST INCOME THAN THE INTEREST EXPENDED. IT WILL BE IMPROPER DIS ALLOW INTEREST OF RS.3,44,137 FOR EARNING INTEREST AT THE RATE OF 12% FROM SMPATEL IRON TRADERS PVT. LTD. WITHOUT PREJUDICE TO THE ABOVE SUBMISSION, ASSESSEE WOULD DRAW ATTENTION TO THE FACT THAT ASSESSEE HAS OWN CAPITAL OF RS 44,87,316. OUT OF THE SAME, IF FIXED ASSETS AND INVESTMENTS ARE RE DUCED, ASSESSEE HAS RS 30,80,416 AVAILABLE FOR LENDING ON WHICH THERE I S NO INTEREST COST. CONSIDERING THE COST OF BORROWING FOR ASSESSEE, ON THE BASIS OF YEAR END BALANCES THE AVERAGE RATE OF BORROWING IS 14% [(18,47,206/13147394)* 100], WHILE AVERAGE RATE OF LENDING IS 17.47% [(2176026/I2451239)*100]. 4. THE LD.CIT(A)HAS CONFIRMED THE DISALLOWANCE BY O BSERVING AS UNDER: 5. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SU BMISSIONS OF THE A.R. OF THE APPELLANT, CAREFULLY. THE UNDISPUTED FACTS IN THIS CASE IS THE APPELLANT HAD BORROWED ITA NO.1643/AHD/2014 3 MONEY FROM SEVERAL PARTIES ON WHICH THE APPELLANT H AD PAID INTEREST @ 15%.THE DETAILS OF THESE PARTIES HAVE BEEN FURNISHED ON PAG E 2 OF SUBMISSION. IT SHOWN THAT A SUM OF RS.18,47,206/- WAS PAID AS AN INTEREST TO TH ESE PARTIES. THE RATE OF INTEREST HAS ALSO BEEN MENTIONED AS 15%. 5.1 AS AGAINST THE ABOVE THE APPELLANT HAS ADVANCED RS.69,51,239/- TO M/S S.M. PATEL IRON TRADERS LTD. THE APPELLANT HAS CHARGED I NTEREST AT THE RATE OF 12% ON THIS LOAN. IT IS ALSO SEEN THAT THE APPELLANT HAS G IVEN A LOAN TO SUDHABEN PARIKH OF RS.50,00,000/- ON WHICH INTEREST OF RS.3,00,000/- H AS BEEN RECEIVED AT THE RATE OF 12%. 5.2 IN THE SUBMISSIONS MADE THE AR OF THE APPELLANT HAS STATED THAT THE ASSESSEE HAS HIS OWN CAPITAL OF RS. 44,87,316/-. IF THE FIXED AS SETS AND INVESTMENTS ARE REDUCED THEN THE ASSESSEE HAS A BALANCE OF RS.30,80,416/- A VAILABLE FOR LENDING, ON WHICH THE ASSESSEE HAS NO INTEREST COST. AS ALREADY POINT ED OUT THE ASSESSEE HAS GIVEN LOAN TO SUDHABEN PARIKH OF RS. 50,00,000/- ON WHICH INTEREST HAS BEEN CHARGED @ 12%. IN VIEW OF THE .ABOVE FACTS IT IS CLEAR THAT T HE ASSESSEE DOES NOT HAVE HIS OWN FUNDS, WHICH ARE INTEREST FREE, FOR GIVING LOAN TO SIM. PATEL IRON TRADERS LTD. 5.3 IN VIEW OF THE ABOVE IT IS CLEAR THAT THE LOAN GIVEN TO SM PATEL IRON TRADERS LTD. OF RS.69,5.1,2397- WAS OUT OF BORROWED FUND. IT IS TO BE NOTED HERE THAT THE COST OF BORROWED FUND IN TERMS OF INTEREST IS UNIFORMLY @ 1 5% PER ANNUM. THUS THE ASSESSEE HAS INCURRED INTEREST EXPENDITURE @ 3% FOR NON BUSINESS PURPOSE BY ADVANCING LOAN TO M/S S.M. PATEL IRON TRADERS LTD. @ 12%. THUS OUT OF THE INTEREST OF RS. 18.47,206/- PAID BY THE APPELLANT A SUM OF ' RS. 3,44,138/- = [(RS. 13,76,552/- X15)/12 - RS.13,76,552/-] IS TO BE DISALLOWED U/S 3 6(L)(III) OF THE ACT FOR BEING SPENT ON NON BUSINESS PURPOSE. IT IS SEEN THAT THE ASSESS ING OFFICER HAS DISALLOWED OF RS.3,44,136/- WHICH IS APPROXIMATELY THE SAME AMOUN T. IN VIEW OF THE ABOVE DISCUSSION THE DISALLOWANCE MADE BY THE AO IS JUSTI FIED. 5. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, W E HAVE GONE THROUGH THE RECORD CAREFULLY. THE LD.COUNSEL FOR THE ASSESSEE HAS RAISED TWO PROPOSITIONS. IN HIS FIRST FOLD OF CONTENTIONS, HE SUBMITTED THAT NET POSITIVE INCOME IS INTEREST INCOME OF THE ASSESSEE. THEREFORE, THERE SHOULD NOT BE ANY DISALLOWANCE. ALTERNATIVELY, HE CONTENDED ON PAGE NO.4 OF THE LD.CIT(A)S ORDER, THE ASSESSEE HAS SUBMITTED DETAILS IN TABULA R FORM. HE HAS RECEIVED INTEREST OF RS.10,023/- FROM S.M. PATEL IRON TRADER S LD. THIS INTEREST WAS RECEIVED AT THE RATE OF 12%. HAD A RATE OF 15% HAS BEEN CHARGED, THEN AT THE MOST 3% MORE SHOULD BE ADDED TO THE TOTAL INTEREST RECEIPTS BY THE ASSESSEE FROM S.M.PATEL IRON TRADER LTD. AT RS.10,023/-. THI S WOULD WORK AT THE MOST ITA NO.1643/AHD/2014 4 A SUM OF RS.2,505/-. THE LD.DR, ON THE OTHER HAND WAS UNABLE TO CONTROVERT THE CONTENTIONS OF THE LD.COUNSEL FOR THE ASSESSEE. 6. ON DUE CONSIDERATION OF THE FACTS OF THE CASE, W E FIND THAT THE ASSESSEE HAS EARNED A POSITIVE INTEREST INCOME OF RS.3,28,82 0/-. THIS FIGURE WOULD COME OUT IF ALL THE AMOUNTS ARE TAKEN INTO CONSIDER ATION, BECAUSE, THE ASSESSEE HAS BORROWED A SUM OF RS.98,85,235/-. HE PAID INTE REST OF RS.18,47,206/-, WHEREAS AFTER INCLUDING HIS INTEREST FREE AMOUNTS, HE HAS LENT ADVANCE OF RS.1,24,51,539/- AND EARNEST INCOME OF RS.21,76,026 /-. IT SUGGESTS THAT THE ASSESSEE HAS NET POSITIVE INCOME, AND THEREFORE, NO DISALLOWANCE SHOULD HAVE BEEN MADE BY DIVIDING THE FUNDS BORROWED AS WELL AS ADVANCED BY THE ASSESSEE. WE ALLOW GROUNDS OF APPEAL RAISED BY THE ASSESSEE, AND DELETE DISALLOWANCE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE COURT ON 13 TH SEPTEMBER, 2017 AT AHMEDABAD. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER