Shri Mahendra M.Jain, Gandhinagar V. The Income tax Officer,Ward-3, Gandhinagar

ITA 1681/AHD/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2089 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 21-01-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 19-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANURAG SHARMA
• Assessee Lawyers: N C AMIN
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND A. N. PAHUJA) ITA NO. 1681/AHD/2010 A. Y.: 2007-08 SHRI MAHENDRA M. JAIN, NR. PRAKASH VIDYALAYA, RAKHIAL STATION, DEHGAM, DIST. GANDHINAGAR VS THE INCOME TAX OFFICER, WARD-3, GANDHINAGAR PA NO. AATPJ 9066 E (APPELLANT) (RESPONDENT) APPELLANT BY SHRI N. C. AMIN, AR RESPONDENT BY SHRI ANURAG SHARMA, SR. DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A), GANDHINAG AR DATED 19 TH MARCH, 2010 FOR ASSESSMENT YEAR 2007-08. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. 3. ON GROUNDS NO.1 AND 2, THE ASSESSEE HAS CHALLENG ED THE DISALLOWANCE OF RS.1,13,852/- OUT OF INTEREST EXPEN DITURE. THE ASSESSEE IN ITS PROPRIETARY CONCERN M/S. SHIVAKRUPA TIN CONTAINERS HAS SHOWN LIABILITY OF RS.42,72,036/- AND HAS CLAIM ED INTEREST EXPENSES OF RS.4,52,009/-. BUT IT HAS GIVEN INTERES T FREE ADVANCES OF RS.14,14,749/- OUT OF WHICH A SUM OF RS.11,38,523/- PERTAINS TO ONE ITA NO.1681/AHD/2010 SHRI MAHENDRA M. JAIN VS ITO, W-3, GANDHINAGAR 2 M/S. MAHAVIR ENTERPRISES. THE AO ONLY CONSIDERED TH IS ADVANCE TO M/S. MAHAVIR ENTERPRISES AND MADE DISALLOWANCE @10% BEING AVERAGE RATE OF BORROWINGS WHICH LED TO THE DISALLO WANCE OF RS.1,13,852/-. THE ADDITION WAS CHALLENGED BEFORE T HE LEARNED CIT(A) AND LEDGER ABSTRACT OF UNSECURED LOAN WAS PLACED TH OUGH THERE WAS AN OPENING BALANCE OF UNSECURED LOAN TO THE TUNE OF RS.67,15,372.06 AND DURING THE YEAR UNDER CONSIDERATION THE ASSESSE E HAS RECEIVED A SUM OF RS.31,82,077/- AND PAID A SUM OF RS.92,85,38 5/- TO DIFFERENT PARTIES FROM WHOM THE ASSESSEE HAS TAKEN UNSECURED LOAN. IT WAS SUBMITTED THAT THE AO HAS NOT CONSIDERED THIS FACT THAT THOUGH THERE WAS A CREDIT BALANCE OF DIFFERENT PARTIES UNDER UNS ECURED LOAN AND INTEREST PORTION HAS NOT BEEN CONSIDERED AND IF THE SAME IS CONSIDERED, THE INTEREST PORTION OF CREDIT BALANCE WILL BE RS.11,206/- ONLY. THE TABLE IS REPRODUCED IN PARA 2.2 OF THE AP PELLATE ORDER. IT WAS ARGUED THAT THE ASSESSEE HAS NOT BORROWED FUNDS WHICH HAVE BEEN ADVANCED TO M/S. MAHAVIR ENTERPRISES. THE LEAR NED CIT(A) HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ASSES SEE AND CONFIRMED THE ADDITION. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THERE WAS A CREDIT BALANCE IN THE ACCOUNT OF THE ASSESSEE IN THE NAME OF M/S. SHIVAKRUPA TIN CONTAINERS (PB 22 AND 23) IN A SUM O F RS.8,70,316/- AND THE ASSESSEE HAS TAKEN FURTHER LOAN WITHOUT INT EREST KAMLABEN P. KILN (PB 89) IN A SUM OF RS.9,56,391/- AND THAT THE RE WAS CREDIT BALANCE IN THE CAPITAL ACCOUNT OF M/S. MAHENDRA TEL ECOM, PARTNERSHIP CONCERN OF THE ASSESSEE IN A SUM OF RS. 77,411/- (PB-87). HE HAS, THEREFORE, SUBMITTED THAT THE FUNDS AVAILAB LE WITH THE ITA NO.1681/AHD/2010 SHRI MAHENDRA M. JAIN VS ITO, W-3, GANDHINAGAR 3 ASSESSEE ARE RS.19,04,118/- AND AS AGAINST THAT IF THE INTEREST FREE LOAN TO M/S. MAHAVIR ENTERPRISES IS CONSIDERED, SUF FICIENT BALANCE IS AVAILABLE WITH THE ASSESSEE. HE HAS RELIED UPON THE DECISION OF ITAT, AHMEDABAD BENCH IN THE CASE OF TORRENT FINANCIERS V S ACIT 73 TTJ 624 IN WHICH IT WAS HELD IF TOTAL INTEREST FREE ADVANCE INCLUDING DEBIT BALANCE OF THE PARTNER OF THE ASSESSEE FIRM D O NOT EXCEED THE TOTAL INTEREST FREE FUNDS AVAILABLE WITH THE AS SESSEE, NO INTEREST IS DISALLOWABLE ON ACCOUNT OF UTILIZATION OF FUNDS FOR NON-BUSINESS PURPOSES, IF IT EXCEEDS, PROPORTIONATE DISALLOWANCE CAN BE MADE. HE HAS ALSO RELIED UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES & POWER LTD. 313 ITR 340 IN WHICH IT WAS HELD AS UNDER: HELD, DISMISSING THE APPEAL, THAT IF THERE WERE FU NDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR LOANS, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF INTEREST-FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION WAS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL. THE INTEREST WAS DEDUCIBLE. 5. ON THE OTHER HAND, THE LEARNED DR RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW. 6. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE DO NOT FIND ANY JUSTIFICATION TO SUSTAIN THE ADDITION. THE ASSESSEE HAS SPECIFICALLY EXPLAINED THAT MORE INTEREST FREE FUNDS ARE AVAILAB LE WITH THE ASSESSEE AS COMPARED TO THE ADVANCES GIVEN TO M/S. MAHAVIR ITA NO.1681/AHD/2010 SHRI MAHENDRA M. JAIN VS ITO, W-3, GANDHINAGAR 4 ENTERPRISES. THUS, THE DECISION IN THE CASE OF TORR ENT FINANCIERS (SUPRA) SQUARELY APPLIES TO THE CASE OF THE ASSESSE E. SINCE INTEREST FREE FUNDS WERE AVAILABLE WITH THE ASSESSEE THEN TH ERE IS NO PRESUMPTION ARISES THAT INVESTMENTS WOULD BE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AS IS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWE R LTD. (SUPRA). MOREOVER, THE AO HAS NOT PROVED ANY NEXUS BETWEEN T HE INTEREST BEARING FUNDS AND THE FUNDS ADVANCED TO M/S. MAHAVI R ENTERPRISES. IN THE ABSENCE OF ANY NEXUS PROVED BETWEEN THE BORROWE D FUNDS AND THE FUNDS DIVERTED TO M/S. MAHAVIR ENTERPRISES, NO INTEREST COULD BE DISALLOWED AS IS DONE BY THE AO. WE ACCORDINGLY, SE T ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDI TION. GROUNDS NO.1 AND 2 OF THE APPEAL OF THE ASSESSEE ARE ALLOWED. 7. ON GROUND NO.3, THE ASSESSEE HAS CHALLENGED THE ADDITION OF RS.75,000/- MADE BY THE AO HOLDING IT AS UNEXPLAINE D DEPOSIT. THE AO ON VERIFICATION OF THE CAPITAL ACCOUNT NOTED THA T THE ASSESSEE HAS FURTHER INTRODUCED CAPITAL IN CASH AMOUNTING TO RS. 40,000/- ON 08-01- 2007, RS.30,000/- ON 27-01-2007 AND RS.75,000/- ON 02-02-2007. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF IN TRODUCTION OF THE CAPITAL. IT WAS EXPLAINED THAT DEPOSIT OF RS.1,45,0 00/- WAS WITHDRAWAL FROM M/S. RAJMOTI MARKETING WHERE THE ASSESSEE IS A PARTNER AND CASH LYING WITH HIS SPOUSE. HOWEVER, THE ASSESSEE D ID NOT FURNISH CONTRA ACCOUNT OF M/S. RAJMOTI MARKETING. ADDITION WAS ACCORDINGLY MADE U/S 68 OF THE IT ACT TREATING IT TO BE UNEXPLA INED CASH CREDIT. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED CIT( A) AND IT WAS SUBMITTED THAT A SUM OF RS.40,000/- WAS WITHDRAWN O N 03-05-2006 ITA NO.1681/AHD/2010 SHRI MAHENDRA M. JAIN VS ITO, W-3, GANDHINAGAR 5 FROM DENA BANK AND AGAIN THE ASSESSEE WITHDRAWN A S UM OF RS.30,000/- ON 05-01-2007 FROM DENA BANK WHICH WAS RE-DEPOSITED ON 08-01-2007 AND 27-01-2007. IT WAS, THEREFORE, SU BMITTED THAT NO ADDITION OF RS.40,000/- AND RS.30,000/- COULD BE MA DE. THE LEARNED CIT(A) ACCEPTED THE SAME AND DELETED THE ADDITION T REATING IT AS EXPLAINED SOURCES. HOWEVER, AS REGARDS DEPOSIT OF R S.75,000/-, IT WAS SUBMITTED THAT THE ASSESSEE IS A PARTNER IN M/S . RAJMOTI MARKETING AND HAS WITHDRAWN A SUM OF RS.48,000/- BY WAY OF DRAWING. COPY OF THE PARTNERS ACCOUNT WAS FILED. T HE LEARNED CIT(A) HOWEVER, DID NOT ACCEPT THE CONTENTION BECAUSE RS.4 8,000/- WAS WITHDRAWN ON VARIOUS DATES FROM 30-04-2006 AND NO A DEQUATE EXPLANATION WAS FILED TO SHOW FROM WHERE RS.75,000/ - WAS INTRODUCED ON 02-02-2007. THE SAME WAS ACCORDINGLY CONFIRMED. 8. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSION MADE BEFORE THE AUTHORITIES BELOW AND AL SO REFERRED TO THE COPY OF THE ACCOUNT. HE HAS ALSO SUBMITTED THAT RS.10,000/- WAS WITHDRAWN FROM M/S. MAHENDRA TELECOM. 9. ON THE OTHER HAND, THE LEARNED DR RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW. 10. ON CONSIDERATION OF THE ABOVE FACTS, WE DO NOT FIND IT TO BE A FIT CASE FOR INTERFERENCE. THE ASSESSEE EXPLAINED BEFOR E THE LEARNED CIT(A) THAT AN AMOUNT OF RS.48,000/- WAS WITHDRAWN AS DRAWINGS FROM M/S. RAJMOTI MARKETING. THE DRAWINGS WERE MEAN T FOR HOUSEHOLD EXPENDITURE AND THE ASSESSEE HAS NOT EXPL AINED IF THE SAID AMOUNT WAS RE-DEPOSITED IN OTHER FIRM, FROM WH ERE THE ASSESSEE ITA NO.1681/AHD/2010 SHRI MAHENDRA M. JAIN VS ITO, W-3, GANDHINAGAR 6 HAS MET OUT HOUSEHOLD EXPENDITURE. IN THE ABSENCE O F ANY EXPLANATION, NO BENEFIT OF RS.48,000/- COULD BE GIV EN TO THE ASSESSEE. FURTHER, THE DETAILS SUBMITTED IN THE WRI TTEN SUBMISSION SHOWS THAT NO SUFFICIENT EXPLANATION IS GIVEN EITHE R BEFORE THE AO OR BEFORE THE LEARNED CIT(A) FOR INTRODUCTION OF FURTH ER CAPITAL. IN THE ABSENCE OF ANY SPECIFIC MATERIAL TO PROVE THE INTRO DUCTION OF RS.75,000/- ON 02-02-2007, WE DO NOT FIND IT TO BE A FIT CASE FOR INTERFERENCE. WE ACCORDINGLY, CONFIRM THE ADDITION AND DISMISS GROUND NO.3 OF THE APPEAL OF THE ASSESSEE. 11. NO OTHER GROUND IS ARGUED OR PRESSED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED ON 28 -01-2011 SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 28-01-2011 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD