The DCITNavsari Circle, Navsari V. Shri Naimish Jayantilal Choksi, Navsari

ITA 1679/AHD/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0378 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 22-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI D. C. AGRAWAL, ACCOUNTANT MEMBER ITA NO.1679/AHD/2009 ASSESSMENT YEA: 2006-07 DATE OF HEARING:20.8.09 DRAFTED:21.8.09 DY. COMMISSIONER OF INCOME-TAX, NAVSARI CIRCLE, NAVSARI V/S . SHRI NIMISH JAYANTILAL CHOKSI, PROP. OF TAPIDAS DWAKADAS CHOKSI & CO. BAZAR STREET, GANDEVI PAN NO.AAQPC7406C (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI C.K. MISHRA, DR RESPONDENT BY:- SHRI TUSHAR P HEMANI, AR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THIS APPEAL BY THE REVENUE IS ARISING OUT OF THE O RDER OF COMMISSIONER OF INCOME-TAX (APPEALS), VALSAD IN APPEAL NO. CIT(A)/V LS/219/08-09/ DATED 18-02- 2009. THE ASSESSMENT WAS FRAMED BY THE DCIT, NAVSA RI CIRCLE, NAVSARI U/S.143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED T O AS THE ACT) VIDE HIS ORDER DATED 22-12-2007 FOR THE ASSESSMENT YEAR 2006-07. 2. THE ONLY ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE OF INTEREST BY THE ASSESS ING OFFICER U/S.36(I)(III) OF THE ACT AMOUNTING TO RS.7,79,166/-. FOR THIS, THE REVENUE HAS RAISED THE FOLLOWING GROUND NO.1 :- 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.7,7 9,166/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF INTEREST U/S.36(I)(III) OF THE I.T. ACT. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED THE CASE RECORDS INCLUDING THE ASSESSMENT ORDER AS WELL AS THE ORDER OF CIT(A). TH E BRIEF FACTS ARE THAT THE ITA NO.1679/AHD/2009 A.Y. 2006-07 DCIT NAVSARI CIR V. SH. NAIMISH J CHOKSI PAGE 2 ASSESSEE IS ENGAGED IN THE BUSINESS OF FINANCING, C HEQUES DISCOUNTING AND MONEY LENDING. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED FROM THE BALANCE SHEET OF THE ASSESSEE THAT THE CAP ITAL EMPLOYED IN THE BUSINESS IS RS.36,35,365/- AND THE UNSECURED LOANS BORROWED ARE REFLECTED AT RS.2,83,33,559/- ON WHICH INTEREST @ 15% TO 17% HAS BEEN PAID. IN T HIS CASE THERE ARE NON-INTEREST BEARING LOANS BORROWED AGGREGATING TO RS.4,96,187/- . THUS, THE AGGREGATE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE ARE RS.41,31 ,552/- AS AGAINST THE ADVANCES OF RS.51,94,444/-, AS HAS BEEN REFLECTED ON WHICH T HE ASSESSEE IS NOT ABLE TO RECOVER INTEREST AS THEY ARE STICKY ADVANCES. AS SU CH, THESE ADVANCES ARE NOT INTEREST FREE BUT THE FACT REMAINS THAT THE ASSESSE E COULD NOT RECOVER ANY INTEREST ON THESE ADVANCES AS REFLECTED IN PARA-5.1 OF THE ASSE SSMENT ORDER. THE AO HAS ESTIMATED NOTIONAL INTEREST OF RS.7,79,166/- @ 15% ON THE ABOVE MENTIONED ALLEGED INTEREST FREE ADVANCES OF RS.51,94,444/- AND TAXED THE SAME AFTER MAKING ADDITION OF THE SAME. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A). 4. THE CIT(A) ALLOWED THE CLAIM OF ASSESSEE BY GIVI NG FOLLOWING FINDING IN PARA- 5.4 OF HIS APPELLATE ORDER:- 5.4 I HAVE CONSIDERED THE OBSERVATIONS OF THE AO I N THE ASSESSMENT ORDER AS WELL AS THE SUBMISSIONS AND CONTENTIONS OF THE APPE LLANT. I HAVE ALSO CONSIDERED THE ARGUMENTS THAT THERE IS NO NEXUS BET WEEN THE BORROWED FUNDS AND ADVANCES GIVEN ON WHICH NO INTEREST HAS BEEN RE CEIVED. THE AR HAS CLEARLY DISTINGUISHED THE FACTS OF THE APPELLANTS CASE WITH THE DECISIONS ON WHICH THE AO HAS RELIED UPON. I HAVE CONSIDERED THE FLOW OF ADVANCES AND THE FLOW OF FUNDS BORROWED AS HIGHLIGHTED IN THE SUBMIS SIONS DATED 12-11-2008 FILED BEFORE THE AO AND IT IS QUITE APPARENT THAT T HE ADVANCES GIVEN TO SIX PARTIES ARE STICKY ADVANCES ON WHICH THE APPELLANT COULD NOT RECOVER INTEREST. I FIND FORCE IN THE ARGUMENTS OF THE APPELLANT THAT THE AGGREGATE INTEREST FREE FUNDS AVAILABLE WITH THE APPELLANT IS RS.41,31,552/ - (CAPITAL RS.36,35,365/- PLUS INTEREST FREE BORROWINGS RSS.4,96,187/-) AND A S AGAINST THAT ADVANCES OF RS.51,94,444/- IS JUSTIFIED ON WHICH THE APPELLANT IS ACTUALLY NOT ABLE TO RECOVER INTEREST AS THEY ARE STICKY ADVANCES. THEE IS NO PLAUSIBLE REASON TO DISAGREE WITH THE CONTENTION OF THE APPELLANT THAT THESE ADVANCES ARE NOT INTEREST FREE BUT THE FACT REMAINS THAT THE APPELLA NT COULD NOT RECOVER ANY INTEREST ON THESE ADVANCES. I AM OF THE CONSIDERED VIEW THAT THE AO IS NOT JUSTIFIED IN ESTIMATING NOTIONAL INTEREST OF RS.7,7 9,166/- @ 15% ON THE ABOVE MENTIONED ALLEGED INTEREST FREE ADVANCES OF RS.51,9 4,444/-. AFTER HAVING CONSIDERED THE PERTINENT FACTS OF THE CASE AND BASE D ON THE LEGAL MATRIX IN THE PLETHORA OF DECISIONS CITED BY THE APPELLANT SUPPOR TING HIS CONTENTIONS. I AM OF THE CONSIDERED VIEW THAT THE DISALLOWANCE OF RS.7,7 9,166/- OUT OF INTEREST EXPENDITURE CLAIMED U/S.36(1)(III) IS NOT JUSTIFIED AND ENTIRE INTEREST CLAIMED IS DEDUCTIBLE IN FULL AS THE MONIES BORROWED ARE UTILI ZED FOR BUSINESS PURPOSE AND INTEREST HAS BEEN ACTUALLY PAID AND IT IS NOT A CASE OF DIVERSION OF FUNDS. ITA NO.1679/AHD/2009 A.Y. 2006-07 DCIT NAVSARI CIR V. SH. NAIMISH J CHOKSI PAGE 3 IN OTHER WORDS THE AO IS NOT JUSTIFIED IN ESTIMATIN G NOTIONAL INTEREST OF RS.7,79,166/- ON THE ADVANCES WHICH HAVE EVENTUALLY BECOME STICKY AND ON WHICH NO INTEREST COULD BE RECOVERED BY THE APPELLA NT. ON THIS FACTUAL MATRIX, THERE IS NO PLAUSIBLE REASON SUSTAIN THE ADDITION O F RS.7,79,166/- MADE BY THE AO. THEREFORE, THE ADDITION OF RS.7,79,166/- IS DELETED. THE APPELLANTS GROUND NO. 2 AND 3 ARE ALLOWED. 5. WE FIND FROM THE ABOVE FACTS THAT THERE IS NO NE XUS BETWEEN THE BORROWED FUNDS AND ADVANCES HAVE BEEN RECEIVED AND, THE ADVA NCES ARE GIVEN TO THESE PARTIES ARE STICKY ADVANCES ON WHICH THE ASSESSEE C OULD NOT RECOVER THE INTEREST. WE ALSO FIND THAT THERE ARE INTEREST FREE FUNDS AVA ILABLE WITH THE ASSESSEE AT RSS.41.31 LAKHS AS AGAINST THE ADVANCES OF RS.51.94 LAKHS ON WHICH THE ASSESSEE IS UNABLE TO RECOVER INTEREST AS THEY ARE STICKY ADVAN CES. EVEN OTHERWISE THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY DEFECT IN THE FINDING OF THE CIT(A) THAT THE INTEREST CLAIMED IS NOT DEDUCTIBLE ON ACCOUNT OF MONIES BORROWED, WHICH ARE UTILIZED FOR THE PURPOSE OF BUSINESS AND INTEREST HAS ACTUALLY BEEN PAID AND IT IS NOT THE CASE OF THE REVENUE THAT THERE AR E DIVERSION OF FUNDS. ACCORDINGLY, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CI T(A) AND ACCORDINGLY WE CONFIRM THE SAME. THIS ISSUE OF THE REVENUES APPEAL IS DIS MISSED. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 09/10/2009 SD/- SD/- (D.C.AGRAWAL) (MAHAVIR SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED : 09/10/2009 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- VALSAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD