Shri Ravindra M.Shah, Baroda V. The ACIT.,Circle-2(2), Baroda

ITA 1683/AHD/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67577 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 29-07-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 19-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K C MATHEWS
• Section: 143(3)

Judgement Text

ITA NO 1683/ AHD/2010 . A.Y. 2006- 07 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (BEFORE SHRI D.K. TYAGI J.M. & SHRI ANIL CHATURVED I, A.M.) I.T. A. NO. 1683 /AHD/2010 (ASSESSMENT YEAR:2006-07) SHRI RAVINDRA M. SHAH, PROP: SHAH BULKCARRIERS, SHAH CHAMBERS, CHHANI, BARODA (APPELLANT) VS. THE ACIT, CRICLE2 (2), BARODA (RESPONDENT) PAN: ALUPS 6135 M APPELLANT BY : SHRI SURESH GANDHI A.R. RESPONDENT BY : SHRI K.C. MATHEWS SR. D.R. ( )/ ORDER DATE OF HEARING : 30.07.201 3 DATE OF PRONOUNCEMENT : 27 -08-2013 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT(A)-II, BARODA DATED 31.03.2010 FOR ASSESSMENT YEAR 2006-07 . 2. THE FACTS AS CULLED OUT FROM THE ORDER OF LOWER AUT HORITIES ARE AS UNDER: 3. ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS O F TRANSPORTATION OF CHEMICALS IN THE NAME OF SHAH BULK CARRIERS. ASSES SEE FILED HIS RETURN OF INCOME FOR A.Y. 2006-07 ON 29.12.2006 DECLARING TOT AL INCOME OF RS. ITA NO 1683/ AHD/2010 . A.Y. 2006- 07 2 51,30,120/-. THE CASE WAS SELECTED FOR SCRUTINY AN D THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORD ER DATED 22.12.2008 AND THE TOTAL INCOME WAS DETERMINED AT RS. 1,06,30, 840/-. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESSEE CARRIED TH E MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 31.03.2010 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF CIT(A ), ASSESSEE IS NOW IN APPEAL BEFORE US AND THE EFFECTIVE GROUND READS AS UNDER: 1. DISALLOWANCE ON ACCOUNT OF SHORTAGE / RATE DIFFEREN CE RESTRICTED TO THE EXTENT OF RS. 50,000/- BY THE LEARNED CIT(A) MAY KI NDLY BE DELETED. 2. ADDITION ON ACCOUNT OF INTEREST OF RS. 19,87,843/- COMPUTED ON SUNDRY DEBTORS OF RS. 1,65,65,363/- @ 12% P.A. CONFIRMED B Y THE LEARNED CIT(A) MAY KINDLY BE DELETED. 1 ST GROUND IS WITH RESPECT TO ADDITION ON ACCOUNT OF S HORTAGE. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESS ING OFFICER NOTICED THAT ASSESSEE HAS DEBITED IN HIS PROFIT AND LOSS AC COUNT SHORTAGE AND RATE DIFFERENCE OF RS. 31,17,898/-. HE FURTHER NOTICED THAT THE TOTAL SHORTAGE WAS OF RS. 52,87,513/-. THE ASSESSEE WAS ASKED TO SUBSTANTIATE THE CLAIM. ASSESSEE INTERALIA SUBMITTED THAT THE CLAIM S FOR SHORTAGE ARISE ON ACCOUNT OF SHORTAGE IN MATERIAL RECEIVED BY THE CON TRACTEE ON ACCOUNT OF LEAKAGE, EVAPORATION ETC. THE CONTRACTEE MAKES THE CLAIM OF SHORTAGE FROM THE ASSESSEE AND ASSESSEE ON BEING CONVINCED A BOUT THE REASONS, REIMBURSES THE PAYMENT MADE ON ACCOUNT OF SHORTAGE. IN THE PRESENT CASE, THE CONTRACTEE HAD WAIVED THE SHORTAGE CLAIM AT ABOUT 65% AND REST OF THE SHORTAGE ABOUT 35% WAS UNRECOVERABLE. ASSESS ING OFFICER WAS OF THE VIEW THAT ON ACCOUNT OF WANT OF CHECK AND SINCE THE CONTRACTEES HAVE ITA NO 1683/ AHD/2010 . A.Y. 2006- 07 3 WAIVED ONLY 65% OF SHORTAGE, THE ENTIRE CLAIM OF SH ORTAGE CANNOT BE ACCEPTED. HE ACCORDINGLY WORKED OUT 25% OF THE SHO RTAGE ON LUMP SUM BASIS AND MADE A DISALLOWANCE OF RS. 10,13,891/-. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESSEE CARRIED THE MA TTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE RESTRICTED THE DISALLOWANCE TO RS. 50,000/- BY HOLDING AS UNDER: 4. 3 I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHORIZED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFICER. I FIND THAT THE DISALLOWANCE HAS BEEN MADE ON AN ADHOC BASIS BY THE A.O. SIMILAR DISALLOWANCES WERE MADE IN THE EARLIER ASSESSMENT YEARS ALSO AND I FIND THAT MY PREDECESSO RS HAVE RESTRICTED A VERY NOMINAL AMOUNT OUT OF SUCH DISALLOWANCES MADE. IT I S ALSO SEEN THAT THE ORDER OF MY PREDECESSORS FOR THE A.Y. 1998-99 AND 1999-00 IS CONFIRMED BY THE ITAT. I, THEREFORE, RESTRICT THE DISALLOWANCE TO AN AMOUNT OF RS.50,000/-. THE ASSESSEE GETS A RELIEF OF RS.9,63,891/-. 5. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS N OW IN APPEAL BEFORE US. 6. BEFORE US, THE LEARNED A.R. SUBMITTED THAT THE ASSE SSEE IS ENGAGED IN THE BUSINESS OF TRANSPORTATION OF CHEMICALS AND THERE I S BOUND TO BE SHORTAGE IN THIS TYPE OF BUSINESS AND THIS LOSS IS NORMAL FE ATURE OF THE BUSINESS. HE FURTHER SUBMITTED THAT SHORTAGE OF MATERIAL IS INHE RENT IN BUSINESS DUE TO EVAPORATION LOSS OF HIGHLY INFLAMMABLE MATERIALS, W EIGH BRIDGE DIFFERENCES ETC. HE FURTHER SUBMITTED THAT THE DI SALLOWANCE MADE BY THE ASSESSING OFFICER IS ON THE BASIS OF SURMISES AND C ONJECTURES. HE THUS URGED THAT THE DISALLOWANCE MADE BY THE ASSESSING O FFICER BE DELETED. THE LEARNED D.R. ON THE OTHER HAND RELIED ON THE OR DER OF ASSESSING OFFICER. ITA NO 1683/ AHD/2010 . A.Y. 2006- 07 4 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) HAS NOTED THAT THE DISALLOWANCE S WAS RESTRICTED BY PREDECESSOR AT LUMP SUM AMOUNTS FOR VARIOUS ASSESSM ENT YEARS AS LISTED ON PAGE 6 OF HER ORDER. SHE HAS FURTHER NOTED THAT THE ORDERS OF PREDECESSORS FOR A.YS. 1998-99 1999-2000 HAVE BEEN CONFIRMED BY HON. TRIBUNAL. SHE THUS FOLLOWING THE ORDER OF PREDECES SORS HAD RESTRICTED THE DISALLOWANCE TO RS. 50,000/-. IN THE PRESENT CASE, WE FIND THAT OUT OF THE CLAIM OF RS. AROUND 31 LAKHS. CIT(A) HAS RESTRICTE D THE DISALLOWANCE TO RS. 50,000/- WHICH APPEARS TO BE REASONABLE CONSIDE RING THE DISALLOWANCES MADE IN THE PAST. WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER AND THUS THIS GROUND OF THE ASSESSEE IS DISMISSED. 2 ND GROUND IS WITH RESPECT TO INTEREST OF RS. 19,87,84 3/- COMPUTED ON SUNDRY DEBTORS. 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESS ING OFFICER NOTICED THAT ASSESSEE HAS DEBITED RS. 36,02,805/- AS INTERE ST. HE ALSO NOTICED THAT AGAINST THE OPENING BALANCE OF SHRI HASMUKHLAL SHAH , THE ASSESSEE HAS PAID RS. 19,68,938/- AS INTEREST CALCULATED @ 12%. HE FURTHER NOTICED THAT SUNDRY DEBTORS INCLUDES RS. 1,49,33,686/- FROM SHRI HASMUKHLAL SHAH WHO WAS THE BROTHER OF ASSESSEE AND THE ASSESS EE HAS NOT CHARGED ANY INTEREST. HE ALSO NOTICED THAT THERE WERE OTHE R DEBTORS WHO WERE CLOSE RELATIVES OF THE ASSESSEE FROM WHOM ALSO THE ASSESSEE HAS NOT CHARGED ANY INTEREST. THE ASSESSEE WAS ASKED TO EX PLAIN AS TO WHY INTEREST AT 12% SHOULD NOT BE CHARGED AT RS. 1,65,6 5,363/-. THE ASSESSEE INTERALIA SUBMITTED THAT HE WAS HAVING CAPITAL OF R S. 2.1 CRORE ON WHICH ITA NO 1683/ AHD/2010 . A.Y. 2006- 07 5 NO INTEREST PAID. THE SUBMISSIONS MADE BY THE ASSE SSEE WAS NOT FOUND ACCEPTABLE TO THE ASSESSING OFFICER. HE NOTICED TH AT THE DEBTORS INCLUDED CLOSE RELATIVES OF THE ASSESSEE BUT HAD NOT PAID AN Y INTEREST TO THOSE PERSONS. HE WAS OF THE VIEW THAT THE PAYMENT OF IN TEREST TO H.M. SHAH WAS TO REDUCE THE TAX BURDEN. HE ACCORDINGLY WORKE D OUT INTEREST @ 12% ON THE TOTAL SUNDRY DEBTORS OF RS. 1,65,65,363/ - AND ACCORDINGLY MADE AN ADDITION OF RS. 19,87,843/-. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFO RE CIT(A). CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICE R BY HOLDING AS UNDER: 5.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.36,02,805/- AS INTEREST EXPENSE WHICH INCLUDES A PAYMENT OF RS.19,68,938/- TO SHRI HASMUKHLAL M. SHAH ON THE OP ENING BALANCE OF RS.L,64,07,818/- PAYABLE TO HIM. THE SUNDRY DEBTORS OF THE ASSESSEE TOTALLING RS.1,65,65,363/- INCLUDE THE AMOUNTS DUE FROM SHRI HASMUKHLAL SHAH OF AN AMOUNT OF RS. 1,49,33,686/- O N WHICH NO INTEREST IS RECOVERED. THE ASSESSEE'S EXPLANATION T HAT THE ADVANCE GIVEN WAS OUT OF OWN CAPITAL WAS NOT FOUND TO BE AC CEPTABLE AND THE A.O. THUS DISALLOWED INTEREST @ 12% (BEING THE RATE OF INTEREST PAID ON AMOUNT DUE TO SHRI HASMUKH SHAH) ON TOTAL OUTSTANDI NG OF DEBTORS OF RS.1,65,65,363/- DETERMINED AT RS.19,87,843/- 5.2 IN APPEAL, THE LEARNED AUTHORIZED REPRESENTATIVE RE ITERATED THE SAME CONTENTIONS AND EXPLAINED THAT THE AMOUNT DUE FROM DEBTORS INCLUDED VARIOUS PERSONS INCLUDING SHRI HAMUKH SHAH TO WHOM THE ADVANCE GIVEN WAS OF RS.1,49,33,686/- WHEREAS THE BALANCE W AS TO OTHER PERSONS FROM WHOM INTEREST HAS BEEN CHARGED EXCEPT FOR SHRI H.M. SHAH AND SHRI RANCHDBHAI PATEL. THE FORMER IS AN EM PLOYEE OF THE ASSESSEE STATIONED AT BHARUCH AND THE AMOUNT WAS AD VANCED FOR BUSINESS PURPOSE AND THEREFORE NO INTEREST WAS CHAR GED WHILE AN INTEREST FREE LOAN OF RS.50,000 WAS RECEIVED FROM S HRI KIRITBHAI PATEL AND THE SAME WAS ADVANCED TO THE LATTER AND THEREFO RE NO INTEREST HAS BEEN CHARGED ON THIS TOO. THE ID. A.R. HOWEVER, WAS UNABLE TO SUBMIT THE BUSINESS EXPEDIENCY AND NECESSITY OF SUCH ADVAN CES GIVEN TO SHRI HASMUKHBHAI SHAH TOTALLING RS.1,49,33,686/-. ITA NO 1683/ AHD/2010 . A.Y. 2006- 07 6 5.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE ID. A.R. A ND THE FACTS OF THE CASE AND FIND THAT THE ASSESSEE HAS NO EXPLANATION FOR NOT RECOVERING INTEREST FROM SHRI HASMUKH SHAH OUT OF SUNDRY DEBTO RS WHICH ARE ACTUALLY ADVANCES TO THE ASSESSEE'S RELATIVES WHEN INTEREST PAYMENT OF RS.36,02,805/- IS CLAIMED AS AN EXPENDITURE. AS REG ARDS, THE ADVANCES TO OTHERS, THE SAME HAVE BEEN JUSTIFIED. IN THE ABS ENCE OF ANY EXPLANATION THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF RS. 19,87,843/- ON THE OPENING BALANCE OF RS.1,64,07,81 8/- IS CONFIRMED. 9. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE IS NO W IN APPEAL BEFORE US. 10. BEFORE US, THE LEARNED A.R. SUBMITTED THAT IN THE A SSESSEES CASE THE AVAILABILITY OF NON INTEREST BEARING FUNDS WAS RS. 210 LAKHS BY WAY OF CAPITAL AND OF RS. 251 LAKHS AS SUNDRY CREDITORS AN D OTHER NON INTEREST BEARING FUNDS AGAINST WHICH THE ALLEGED AMOUNT OF R S. 149 LAKHS WAS CONSIDERED TO BE UTILIZED FOR NON BUSINESS PURPOSE. PLACING RELIANCE ON THE DECISION IN THE CASE OF CIT VS. RELIANCE UTILIT IES POWER LTD. 313 ITR 340 IT WAS SUBMITTED THAT WHEN ASSESSEE HAS INTERES T BEARING AND NON BEARING FUNDS, IT IS TO BE PRESUMED THAT THE INTERE ST BEARING FUNDS ARE FIRST UTILIZED FOR BUSINESS PURPOSES. HE POINTED OUT TO THE LIST OF OTHER DEBTORS PLACED AT PAGE 154 OF THE PAPER BOOK WHICH AS UNDER : PARTICULARS CLOSING BALANCE DEBIT CREDIT HASMUKHBHAI M. SHAH-CHHANI 1,49,33,686.00 H.M. SHAH BHARUCH (PERSONAL) 2,36,148 .00 RANCHODBHAI PATEL 50,000.00 SAROJBEN H. SHAH 7,49,479.00 SHAH FINANCE & INVESTMENTS 5,9 6,050.00 GRAND TOTAL 1,65,65,363.00 ITA NO 1683/ AHD/2010 . A.Y. 2006- 07 7 11. HE FURTHER SUBMITTED THAT NO INTEREST WAS CHARGEABL E FROM A.M. SHAH AS HE IS AN EMPLOYEE STATIONED AT BHRAUCH AND THE AMOU NT OF DEBT REPRESENTS ADVANCE GIVEN FOR THE PURPOSE OF CARRYING ON BUSINE SS DEALINGS. HE FURTHER SUBMITTED THAT FROM SAROJBEN SHAH INTEREST @ 12% HAS ALREADY BEEN CHARGED AND REFLECTED IN THE ACCOUNTS. HE PLA CED ON RECORD THE COPY OF LEDGER ACCOUNT OF SAROJBEN SHAH AT PAGE 160 OF T HE PAPER BOOK. SIMILARLY WITH RESPECT TO SHAH FINANCE AND INVESTME NT, HE SUBMITTED THAT THE ASSESSEE HAS ALREADY CHARGED INTEREST AT 12%. H E FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS CONSIDERED THE TOTAL OUTSTANDING BALANCE FOR CHARGING INTEREST BUT HAS NOT GRANTED CREDIT F OR THE INTEREST WHICH THE ASSESSEE HAS ALREADY RECOVERED. THE LEARNED D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF ASSESSING OFFICER. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE COPIES OF LEDGER ACCOUNT OF DEBTORS. IT I S NOTICED THAT THOUGH THE AMOUNT HAS BEEN CLASSIFIED AS OTHER DEBTORS T HE SAME ARE NOT IN THE NATURE OF DEBTORS. THE TRANSACTIONS WITH THE AFORE SAID PARTIES ARE NOT WITH RESPECT TO THE SALES BUT ARE WITH RESPECT TO FINANC IAL TRANSACTIONS. WE FURTHER FIND THAT THE ASSESSING OFFICER HAS WORKED OUT THE INTEREST AT 12% ON THE TOTAL OUTSTANDING OF RS. 1,65,65,363/-. SIN CE THE ASSESSEE HAS ALREADY CHARGED INTEREST FROM SAROJBEN SHAH AND SHA H INVESTMENTS AS EVIDENT FROM THE COPY OF LEDGER PLACED ON RECORD, THE CHARGING OF INTEREST FROM THOSE PARTIES AGAIN WOULD AMOUNT TO DUPLICATIO N. BEFORE US, WITH RESPECT TO ADVANCE FROM H.M. SHAH, IT IS SUBMITTED THAT HE IS AN EMPLOYEE OF ASSESSEE AND THE ADVANCE WAS GIVEN TO HIM FOR CA RRYING DUE BUSINESS DEALING AT BHARUCH. THIS SUBMISSION OF THE ASSESSE E COULD NOT CONTROVERTED BY REVENUE. WE THEREFORE FEEL THAT TH E INTEREST COLD HAVE ITA NO 1683/ AHD/2010 . A.Y. 2006- 07 8 BEEN CHARGED BY THE ASSESSING OFFICER ON THE SO CAL LED DEBTORS AFTER EXCLUDING BALANCE OF THE AFORESAID THREE PARTIES NA MELY SAROJBEH SHAH, SHAH FINANCE AND INVESTMENTS AND H.M. SHAH, BHARUCH . THE ASSESSING OFFICER IS THEREFORE DIRECTED TO RE-WORK THE INTERE ST IN VIEW OF THE AFORESAID FACTS. THUS THIS GROUND OF THE ASSESSEE I S PARTLY ALLOWED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 27 - 08 - 2013. SD/- SD/- (D.K. TYAGI) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AH MEDABAD