The ACIT,Patan Circle, Patan V. Dhananjay Y.Patani, Patan

ITA 1684/AHD/2009

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1689 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 30-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 22-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AJIT P SANDESARA
• Keywords: Opportunity of being heard; Audit objection; Capital expenditure
• Section: 143(3); 37(1); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : AHMEDABAD (BEFORE HONBLE SHRI G.D. AGRAWAL, V.P. AND HON'BLE SHRI T.K. SHARMA, J.M .) I.T.A. NO. 1684/AHD./2009 ASSESSMENT YEAR : 2006-2007 THE ACIT, PATANA CIRCLE, PATAN VS.- SH RI DHANANJAY Y. PATNI, PATAN (PAN : AGQPP 0897E) (APPELLANT) (R ESPONDENT) APPELLANT BY : SHRI K. MADHUSUDAN , SR.D.R. RESPONDENT BY : SHRI AJIT P. SANDESA RA, A.R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER DATED 05-03-2009 OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-VI, AHM EDABAD FOR THE ASSESSMENT YEAR 2006-07. 2. BRIEFLY STATED THE FACTS ARE THAT FOR THE ASSESS MENT YEAR UNDER APPEAL, THE ASSESSEE FILED THE RETURN OF INCOME ON 29/12/2006 DECLARING TOTAL INCOME OF RS.40,560/-. THE AO PROCESSED THE SAME UNDER SECTION 143(1) OF THE I.T. ACT. SUBSEQUENTLY, THE AO ISSUED NOTICE UNDER SECTION 148 READ WITH SECTION 147 OF T HE I.T. ACT, 1961. THE REASONS RECORDED BEFORE ISSUING NOTICE UNDER SECTION 148 AR E REPRODUCED BY THE AO IN THE ASSESSMENT ORDER, WHICH READS AS UNDER: UNDER THE PROVISION OF SECTION 37(1) OF THE I.T. ACT, 1961, ANY EXPENDITURE NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE LAID OU T OR EXPANDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IS ALLOWAB LE AS DEDUCTION IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS'. IT WAS HELD IN THE CASE OF MAROLIA & SONS VS. CIT (1981) 129 ITR AND IN THE CASE OF K. SUNDARAM & BROS. VS CIT 238 ITR 939 (MADRAS) THAT INTEREST ON BORROWING IS DISALLOWABLE PROVIDED ITUTILISED FOR THE BUSINESS PURPOSE. THE ASSESSEE HAS FILED HIS RETURN OF INCOME ON 29/ 12/2006, DECLARING TOTAL INCOME OF RS.40,560/-. THE RETURN WAS PROCESSED AS SUCH U /S. 143(1) ON 15/03/2007 AND REFUND OF RS.2,69,360/- INCLUDING INTEREST U/S.244 A OF RS.15,250/- WAS ADMITTED. ITA NO.1684/AHD./2009 2 SCRUTINY OF RECORDS REVEALED THAT: ASSESSEE HAS MA DE PAYMENT OF INTEREST OF RS.44,84,399/- WHERE AS INCOME RECEIVED ON MEREST OF RS.1,80,000/-, INTEREST PAYMENT WAS MADE ON ITS BORROWING OF UNSECURED LOO N OF RS.3,15,22,660/-. IT WAS ALSO OBSERVED FROM SCH.10 THAT THE ASSESSEE HAS MA DE ADVANCE OF RS.1,43,00,000/- TO VIJAYRAJ ENTERTAINMENT ON WHICH NO INTEREST WAS CHARGED. FURTHER, SINCE ASSESSEE HAVING MINUS CAPITAL BALANCE RS.1,11,40,5 78/-. IT CAN BE SAID THAT INTEREST BEARING BORROWING FUND HAS BEEN DIVERTED FOR THE PURPOSE OTHER THAN BUSINESS. IN VIEW OF THIS, CONSIDERING 12% INTERES T RATE, INTEREST CHARGEABLE ON LOANS GRANTED WORKS OUT TO RS.17,16,000/- WHICH RE QUIRED TO BE DISALLOWED FROM TOTAL INTEREST PAYMENT. FAILURE TO DO SO HAS RESUL TED IN UNDER ASSESSMENT OF RS.17,16,000/- INCLUDING SHORT LEVY OF TAX RS.5,7 7,606/- (TAX 30% 51480010% SC 51480 = 577606/-). 2.1 SUBSEQUENTLY, THE AO FRAMED THE ASSESSMENT UNDE R SECTION 143(3) READ WITH SECTION 148 WHEREIN HE MADE AN ADDITION OF RS.17,16 ,000/- ON THE GROUND THAT THE ASSESSEE HAS UTILISED INTEREST FOR NON-BUSINESS PUR POSES. 3. ON APPEAL BEFORE THE LD. CIT(A), IT WAS CONTENDE D THAT IN THE ASSESSMENT ORDER, THE AO HAS REPRODUCED AUDIT OBJECTION IN TOTO. HE HAS R EPRODUCED THE ASSESSEES REPLY AND WITHOUT DISCUSSING ANYTHING, EXCEPT THAT HE IS NOT SATISFIED WITH THE ASSESSEES REPLY, HE MADE THE ADDITION AS PER THE AUDIT OBJECTION. THE A SSESSEE HAS ADVANCED RS. 1,43,00,000/- TO M/S. VIJAYRAJ ENTERTAINMENT & SOFTWARE LTD., ON WHICH, THE ASSESSEE HAS NOT CHARGED THE INTEREST. BEFORE THE LD. CIT(A), IT WAS ALSO CO NTENDED THAT NOTICE UNDER SECTION 148 IS BAD IN LAW. THEREFORE, ON THIS GROUND ALONE, THE AS SESSMENT BE QUASHED. ON MERIT ALSO, IT WAS CONTENDED THAT ADDITION SHOULD BE DELETED. 3.1 IN THE IMPUGNED ORDER, THE LD. CIT(A) AGREED ON BOTH THE ISSUES FOR THE DETAILED REASONS GIVEN IN PARA 2.5 AND 2.5.1, WHICH READ AS UNDER: 2.5. THE MATTER HAS BEEN CONSIDERED. THE ASSESSME NT ORDER FRAMED IS A CASE OF' CASUALNESS AND INDIFFERENCE. IT HAS REPRODUCED THE AUDIT OBJECTION IN TOTO, WHICH IS AN INTERNAL CORRESPONDENCE OF THE DEPARTMENT AND N EED NOT COME ON RECORD EVEN THE ASSESSING OFFICER IS NOT CERTAIN THAT WHICH AU DIT PARTY HAS RAISED THE OBJECTION, AS IS EVIDENCE FROM HIS DRAFTING THAT THE 'INCOME- TAX DEPARTMENT' HAS RAISED THE OBJECTION. NOTWITHSTANDING THESE TWO, THE ASSESSME NT ORDER NOWHERE SHOWS THAT THE ASSESSING OFFICER HAS FORMED THE BELIEF THAT T HE INCOME SUBJECT TO TAXATION HAS ESCAPED ASSESSMENT. THE ASSESSMENT ORDER IS LIABLE TO BE QUASHED ON THIS GROUND ITSELF. THIS IS FURTHER COMPOUNDED BY THE FACT THA T AS PER THE BALANCE SHEET ITSELF THE AMOUNT CLAIMED TO BE STANDING IN THE NAME OF M /S. VIJAYRAJ ENTERTAINMENT & SOFTWARE LTD , WHICH FEATURES IN SCHEDULE 10, IS, IN FACT, THE SCHEDULE OF ADVANCES AND DEPOSIT UNDER THE HEAD 'CURRENT LIABILITIES 1 ' AND THEREFORE THE ASSESSING ITA NO.1684/AHD./2009 3 OFFICER HAD COMPLETE INFORMATION ON HIS RECORD THAT THE ADVANCES IN QUESTION HAS BEEN RECEIVED BY THE APPELLANT AND NOT THE ONE WH ICH HAS BEEN MADE BY THE APPELLANT. IF THE INTEREST-FREE ADVANCES HAD BEEN RECEIVED BY THE APPELLANT, OBVIOUSLY THERE IS NO QUESTION OF DISALLOWANCE OF T HE INTEREST PAID BY THE APPELLANT. 2.5.1 HENCE 1 AGREE WITH THE AUTHORISED REPRESEN TATIVE THAT BOTH ON THE LEGAL GROUND AS WELL AS ON MERITS THAT THE CONSEQUENT AD DITION OF RS 17,16,000/~CANNOT BE SUSTAINED. HENCE, THE SAME IS DIRECTED TO BE DE LETED. 4. AGGRIEVED WITH THE ORDER OF THE LEARNED COMMISSI ONER OF INCOME TAX(APPEALS), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS; 1. THE LD.CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE PROCEEDINGS U/S.147 WERE NOT VALIDLY INITIATED. 2. THE LD. LEARNED COMMISSIONER OF INCOME TAX(APP EALS) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.17,16,000/ - MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENSES. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 5. AT THE TIME OF HEARING, SHRI K. MADHUSUDAN, SR.D .R. APPEARED ON BEHALF OF THE REVENUE AND CONTENDED THAT PROCEEDINGS UNDER SECTIO N 147 WERE VALIDLY INITIATED AND THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS NOT JUSTIFIED IN HOLDING THAT PROCEEDINGS WERE VALIDLY INITIATED. ON MERIT ALSO, THE LD. A.R. POINTED OUT THAT IN CASE THE ASSESSING OFFICER HAS NOT PASSED A REASONED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS NOT JUSTIFIED IN DELETING THE ADDIT ION OF RS.17,16,000/-. HE SUBMITTED THAT THIS MATTER BE REMANDED TO THE ASSESSING OFFICER FO R PASSING A SPEAKING ORDER, AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT REA SONS RECORDED, BEFORE ISSUING NOTICE UNDER SECTION 147/148, ARE NOT IN CONSONANCE WITH THE SPI RIT OF SECTIONS 147/148 OF THE I.T. ACT, 1961. BEFORE THE AO, THE ASSESSEE HAS CLARIFIED THA T THE ASSESSEE HAD NOT PAID RS.1,43,00,000/- TO M/S. VIJAYRAJ ENTERTAINMENT & S OFTWARE LTD. AND RECEIVED LOAN FROM THE SAID PARTY. NO INTEREST WAS PAID ON THIS LOAN. THEREFORE, THE DISALLOWANCE OF INTEREST EXPENSES IS NOT CALLED FOR. THIS CONTENTION OF THE ASSESSEE HAS BEEN RECORDED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER BUT NOWHE RE HE DISCUSSED THAT HOW THIS ITA NO.1684/AHD./2009 4 CONTENTION IS NOT ACCEPTABLE. TO SUM UP, WE ARE OF THE VIEW THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS LEGALLY AND FACTUALLY CORRECT IN HOLDING THAT BOTH ON LEGAL GROUND AS WELL AS ON MERIT, THE ADDIT ION OF RS.17,16,000/- CANNOT BE SUSTAINED. WE, THEREFORE, DECLINE TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). RESULTANTLY, THE APPEAL OF THE REVENUE IS DISMISSED. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ORDER PRONOUNCED IN THE COU RT ON 31.03.2011 SD/- SD/- (G.D.AGRAWAL) (T.K. SHARMA) VICE PRESIDENT JUDICIAL MEMBER DATED : 31/03/2011 COPY OF THE ORDER IS FORWARDED TO:- (1) THE ASSESSEE (2) THE DEPARTMENT. (3) CIT (A.) CONCERNED. (4) CIT CONCERNED. (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AH MEDABAD. TALUKDAR/ SR. P.S.