Parul N.Mehta, Surat V. The Income tax Officer,Ward-5(3), Surat

ITA 1675/AHD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9835 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 08-01-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 21-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Assessee Lawyers: RASESH SHAH
• Keywords: Depreciation

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ ITA.NO.1675/AHD/2011 /BLOCK ASSTT. YEAR: 2007-2008 PARUL N. MEHTA PROP: OF M/S.KUNAL MEDICAL AGENCIES 12/836, SANABIL BHAVANAGRI SHERI SHAHPORE, SURAT. PAN : ABPPM 9193 A VS ITO, WARD-5(3) SURAT. %& / (APPELLANT) '( %& / (RESPONDENT) ASSESSEE BY : SHRI RASESH SHAH REVENUE BY : SMT. SONIA KUMAR, SR / DATE OF HEARING : 08/01/2016 / DATE OF PRONOUNCEMENT: 13/01/2016 )*/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LD.COMMISSIONER INCOME-TAX (APPEALS)-IV, SURAT DAT ED 11.01.2011 PASSED FOR THE ASSTT.YEAR 2007-08. 2. THE ASSESSEE HAS TAKEN FIVE GROUNDS OF APPEAL. OUT OF WHICH, GROUND NO.4 AND 5 ARE GENERAL GROUNDS OF APPEAL, WHICH DO NOT REQUIRE RECORDING OF ANY SPECIFIC FINDING, HENCE, THEY ARE REJECTED. ITA NO.1675/AHD/2011 2 IN THE GROUND NOS.2 AND 3, THE ASSESSEE HAS CHALLEN GED ADDITION OF RS.18,218/- AND RS.14,666/-. THESE ADDITIONS HAVE BEEN MADE BY THE AO OUT OF BONI EXPENSES, TRAVELLING EXPENSES, OFFICE EXPENSES, SH OP EXPENSES, TELEPHONE AND MOBILE PHONE EXPENSES, DEPRECIATION, CAR EXPENSES ETC. THE LD.AO HAS RECORDED A FINDING THAT THE ASSESSEE FAIL ED TO PRODUCE VOUCHERS IN SUPPORT OF VARIOUS EXPENDITURES DEBITED IN THE ACCO UNTS. HE DISALLOWED 15% OF THE EXPENDITURE DEBITED UNDER THE HEAD BONI , TRAVELLING, OFFICE EXPENSES AND SHOP EXPENSES, WHEREAS, OUT OF TELEPHONE, MOBILE EX PENSES, DEPRECIATION AND CAR EXPENSES, HE DISALLOWED 20% OF THE EXPENDITURE. ON APPEAL, THE LD.CIT(A) HAS CONFIRMED THE CONCLUSIONS OF THE AO. 3. WITH THE ASSISTANCE OF THE LD. REPRESENTATIVES, WE HAVE CONSIDERED THIS ISSUE AND WE ARE OF THE VIEW THAT THE AO HAS MADE ADHOC DISALLOWANCE OUT OF VARIOUS EXPENDITURE ON THE GROUND THAT THE ASSESSEE COULD NOT PRODUCE COMPLETE DETAILS. THEREFORE, WE DO NOT FIND ANY E RROR IN THE ORDER OF THE LD.CIT(A) VIDE WHICH, HE HAS CONFIRMED THE DISALLOW ANCE MADE BY THE AO. THESE GROUNDS ARE DISMISSED. 4. IN GROUND NO.1, GRIEVANCE OF THE ASSESSEE IS THA T THE LD.CIT(A) HAS ERRED SUSTAINING THE ADDITION OF RS.5,16,060/- OUT OF THE ADDITION OF RS.7,82,906/- MADE BY THE AO ON ACCOUNT OF INTEREST ON UNSECURED LOANS. 5. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED HIS RETURN OF INCOME ON 30.10.2007 DECLARING TOTAL INCOME AT RS.3 ,27,210/-. THE ASSESSEE IS ENGAGED IN WHOLE SALE BUSINESS OF TRADING IN MED ICINES. ON PERUSAL OF THE ACCOUNTS IT REVEALED TO THE AO THAT THE ASSESSEE HA S SHOWN UNSECURED LOAN OF RS.66,38,613/- DURING THE YEAR. SHE HAS PAID INTER EST OF RS.7,82,906/-. THE INTEREST HAS BEEN PAID AT THE RATE OF 18% PER YEAR ON THESE UNSECURED LOANS. THE LD.AO DISALLOWED THE INTEREST EXPENDITURE FOR T WO REASONS, NAMELY, (A), THE ASSESSEE HAS CASH BALANCE OF RS.38,76,921/-, AN D (B) SHE OUGHT TO HAVE ITA NO.1675/AHD/2011 3 REPAID THE ALLEGED UNSECURED LOANS OUT OF THIS HUGE CASH BALANCE. HAD THE ASSESSEE REPAID THE LOANS, SHE COULD HAVE REDUCED T HE INTEREST EXPENDITURE TO THE EXTENT OF REPAYMENT OF LOANS OF RS.38,76,921/- THAT IS EQUIVALENT TO THE CASH BALANCE SHOWN IN THE BALANCE SHEET. UNDER THE SECOND REASON, THE LD.AO HAS OBSERVED THAT THE INTEREST AT THE RATE OF 18% H AS BEEN PAID TO THE PERSONS WHO ARE COVERED UNDER SECTION 40A(2)(B) OF THE INCO ME TAX ACT. THE MARKET RATE OF INTEREST PAYMENT RANGES IN BETWEEN 11% TO 1 2%. UNDER THESE REASONING, THE AO WAS OF THE VIEW THAT THE INTEREST EXPENSES TO THE EXTENT OF RS.2,60,969/- SHOULD BE DISALLOWED, BUT SINCE HE HA S BEEN DISALLOWING TOTAL INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE, THERE FORE, HE DID NOT MAKE SEPARATE ADDITIONS. 6. ON APPEAL, THE LD.CIT(A) DELETED COMPONENT OF IN TEREST EXPENDITURE DISALLOWED BY THE AO REPRESENTING THE AMOUNT WORKED OUT UNDER SECTION 40A(2)(B). IN OTHER WORDS, THE LD.CIT(A) HAS PARTL Y DELETED THE DISALLOWANCE AND CONFIRMED THE DISALLOWANCE OF RS.5,16,060/-. 7. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, W E HAVE GONE THROUGH THE RECORD CAREFULLY. IN OUR OPINION, THE LD.AO HAS NO WHERE MADE OUT A CASE THAT THE INTEREST BEARING FUNDS HAVE BEEN DIVERTED BY TH E ASSESSEE FOR NON-BUSINESS PURPOSES OR THEY HAVE BEEN USED OTHER THAN THE BUSI NESS PURPOSE. THE LD.AO HAS NO JURISDICTION TO GUIDE THE ASSESSEE HOW TO CA RRY OUT HER BUSINESS. IT IS FOR THE ASSESSEE TO DECIDE AS TO HOW BUSINESS AFFAI RS ARE TO BE ARRANGED. SHE MIGHT HAVE ACCUMULATED CASH BALANCE FOR THE PURPOSE OF BUSINESS NEEDS WHICH ULTIMATELY NOT FELT AT THE END OF THE YEAR, BUT THA T DOES NOT MEAN THAT SHE WOULD LIQUIDATE HER AMOUNTS ON REPAYMENT OF THE LOA N AND THEN AGAIN RAISE LOANS AS AND WHEN NECESSITY ARISES. SHE MIGHT NOT BE ABLE TO ARRANGE THE FUNDS WHEN REQUIRED AT SHORT NOTICE. TAKING INTO C ONSIDERATION THE FACTS AND CIRCUMSTANCES OF THE CASE, NO GROUNDS FOR DISALLOWA NCE OF INTEREST EXPENDITURE ITA NO.1675/AHD/2011 4 IS DISCERNIBLE IN THE ASSESSMENT ORDER, THEREFORE, WE ALLOW THIS GROUND OF APPEAL AND DELETE THE DISALLOWANCE. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 13 TH JANUARY, 2016 AT AHMEDABAD. SD/- SD/- ( MANISH BORAD ) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER