Sanash Marketing Company, New Delhi V. ITO, New Delhi

ITA 1690/DEL/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1223 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 14-01-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 07-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: UMESH CHANDRA DUBEY
• Assessee Lawyers: VENKET
• Keywords: Capital asset; Proportionate interest
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: G : NEW DELHI BEFORE SHRI I. C. SUDHIR, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOU NTANT MEMBER ITA NO. 1690/DEL/2011 ASSESSMENT YEAR: 2007-08 SANASH MARKETING COMPANY VS. ITO, BU-70, SFS FLATS, WARD 25 (1), OUTER RING ROAD, NEW DELHI. PITAMPURA, NEW DELHI 110 034 (PAN ABEFS9441G) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VED JAIN, ADVOCATE & SHRI VENKET ADVOCATE RESPONDENT BY : SHRI UMESH CHA NDRA DUBEY, SR. DR ORDER PER I.C. SUDHIR, JUDICIAL MEMBER THE ASSESSEE HAS QUESTIONED FIRST APPEL LATE ORDER ON THE FOLLOWING GROUNDS :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) (CIT)(A) IS BAD BOTH IN THE EYE OF LAW AND ON FACTS. 2(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIR MING THE DISALLOWANCE MADE BY AO ON ACCOUNT OF BANK INTEREST IN RESPECT OF ADVANCES GIVEN TO M/S. ELDECO INFRASTRUCTURE AND M/S . VATSONS AUTOMOBILES. (II) THAT THE ABOVESAID ADDITION HAS BEEN CONFIRME D DESPITE THE ASSESSEE BRINGING ALL MATERIAL AND EVIDENCES ON REC ORD TO SHOW THAT ITA NO. 1690/DEL/2011 2 THE ADVANCES WERE GIVEN IN THE NORMAL COURSE OF BUS INESS AND ALLOWABLE UNDER THE PROVISIONS OF THE ACT. (III) THAT THE ABVOESAID DISALLOWANCE HAS BEEN UPH ELD ON WRONG ASSUMPTION OF THE FACTS AND IGNORING THE RELEVANT P ROVISIONS OF THE ACT. 3(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN CONF IRMING THE DISALLOWANCE MADE BY AO ON ACCOUNT OF BANK INTEREST TO THE EXTENT OF ADVANCES GIVEN TO M/S. SANAS DREAM MARKETING, BI SHAMBER DASS HUF AND M.P. JAIN & SONS PROP. ADITY GARDEN. (II) THAT THE ABOVESAID ADDITION HAS BEEN CONFIRM ED DESPITE THE ASSESSEE BRINGING ALL MATERIAL AND EVIDENCES ON REC ORD TO SHOW THAT THE ADVANCES WERE GIVEN IN THE NORMAL COURSE OF BUS INESS AND ALLOWABLE UNDER THE PROVISIONS OF THE INCOME TAX AC T. (III) THAT THE ABOVE SAID DISALLOWANCE HAS BEEN UPHELD BY WRONGLY HOLDING THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THE BUSINESS PURPOSE OF THE SAME. 2. THE ISSUE INVOLVED IN THE GROUNDS IN OTHE R WORDS IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN CONFIRMING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF BANK INTEREST IN RESPECT OF/ TO THE EXTENT OF AD VANCES GIVEN TO M/S. ELEDCO INFRASTRUCTURE, M/S. VATSON AUTOMOBILES PVT. LTD. , M/S. SANASH DREAM MARKETING, M/S. BISHAMBER DASS MAHAVIR PRASAD HUF A ND M/S. M.P JAIN & SONS (PROP. M/S. ADITYA GARDEN). 3. RELEVANT FACTS ARE THAT THE ASSESSEE, A PARTNERSHIP FIRM, IS ENGAGED IN THE BUSINESS OF REAL ESTATE, MEDICINE ETC. THE AO D ISALLOWED INTEREST OF RS. 26,09,229/-OUT OF INTEREST OF RS. 38,34,014/- DEBIT ED IN PROFIT AND LOSS ACCOUNT ITA NO. 1690/DEL/2011 3 ON THE BASIS THAT PART OF BORROWED FUND HAS BEEN AD VANCED FOR NON BUSINESS PURPOSES. THE OBJECTION OF THE AO REMAINED THAT THE ENTIRE BORROWED FUND HAS NOT BEEN WHOLLY AND EXCLUSIVELY UTILIZED FOR BUSINE SS PURPOSES AND THEREFORE THE INTEREST CLAIMED ON THE BORROWED FUND NOT UTILISED FOR BUSINESS PURPOSES IS NOT ALLOWABLE U/S 36(1) (III) OF THE ACT. THE LD. CIT(A ) HAS HOWEVER GIVEN PART RELIEF. IN RESPECT OF ADVANCES GIVEN TO M/S. ELEDCO INFRASTR UCTURE PVT. LTD. AND M/S. VATSON AUTOMOBILES PVT. LTD. , THE LD. CIT(A) HELD THAT THE ACTION OF THE AO WAS JUSTIFIED. IN RESPECT OF SANASH DREAM MARKETING , M/S. BISHAMBER DASS MAHAVIR PRASAD HUF AND M/S. M.P. JAIN & SONS, HE HAS AGAI N SUSTAINED THE ACTION OF THE AO. HE HAS HOWEVER ALLOWED INTEREST EXPENDITURE TO THE EXTENT AND IN RESPECT OF ADVANCES GIVEN FOR THE CONSTRUCTION WORK TO M/S. AS HOKA TRADERS, M/S. NEHA BUILDTECH LTD., M/S. SHREE VARDHMAN OVERSEAS, M/S. PARAS MARBLES AND M/S. PRISM INFRASTRUCTURE (P) LTD. THE ASSESSEE HAS QUE STIONED THE ACTION OF THE LD. CIT(A) IN SUSTAINING THE DISALLOWANCE IN RESPECT OF THE ABOVE NAMED FIVE PARTIES. 4. LD. AR SUBMITTED THAT OUT OF 14 PARTIES TO WHOM THE ASSESSEE HAD GIVEN ADVANCES, 11 PARTIES HAD APPEARED AND CONFIRMED THE CLAIM MADE BY THE ASSESSEE. HE SUBMITTED THAT OUT OF 14 PARTIES THE A DVANCES GIVEN TO 10 PARTIES WERE FOR BUSINESS PURPOSES AND ADVANCE GIVEN TO THE FOUR PARTIES WERE INTEREST BEARING. THE AO HELD THAT AN AMOUNT OF RS. 26, 09,2 29/- BEING NET OF INTEREST EXPENDITURE OF RS. 38,34,014/- AND INTEREST INCOME OF RS. 12,24,785/- WAS NOT ITA NO. 1690/DEL/2011 4 INCURRED FOR THE BUSINESS PURPOSE AND DISALLOWED TH E SAME. THE LD. CIT(A) HELD THAT INTEREST IS NOT ALLOWABLE IN VIEW OF PROVISO T O SECTION 36(1)(III) OF THE ACT. IN RESPECT OF 13 PARTIES THE LD. CIT(A) HELD THAT ADVA NCES ARE NOT FOR BUSINESS PURPOSES. THE LD. AR SUBMITTED THAT THE ADVANCE TO M/S. ELEDCO INFRASTRUCTURE PVT. LTD. , M/S. VAKSON AUTOMOBILES PVT. LTD. HAVIN G BEEN HELD TOBE FOR BUSINESS PURPOSE, THE SAME CANNOT BE DISALLOWED. REGARDING T HREE REMAINING ADVANCES, HE SUBMITTED THAT THE LD. CIT(A) HAS MADE THE MISTA KE ABOUT M/S. M.P. JAIN & SONS. IN REMAND REPORT AT ITEM NO. 2, THE AO HAS AG REED TO THE FACT THAT THIS IS FOR BUSINESS PURPOSE. PERHAPS THE LD. CIT(A) IGNORE D THE FACT THAT ADVANCE WAS GIVEN TO M/S. ADITYA GARDEN PROP. SHRI ATUL JAIN. R EGARDING REMAINING TWO PARTIES THE LD. AR SUBMITTED THAT DISALLOWANCE HAS BEEN UPHELD ON THE BASIS THAT THOSE PARTIES DID NOT APPEAR IN RESPONSE TO SUMMONS ISSUED BY THE AO. IT IS A CASE OF ADVANCE GIVEN BY THE ASSESSEE. IT IS NOT A LOAN TAKEN BY THE ASSESSEE. THE ISSUE IS DISALLOWANCE OF INTEREST. HE SUBMITTED THAT THE ADVANCE TO THESE PARTIES WAS FOR BUILDING MATERIAL AND HENCE THERE W AS NO JUSTIFICATION FOR DISALLOWANCE FOR THE SAME. THE LD. CIT(A) HAS WRONG LY INVOKED SECTION 14A ON THE ISSUE WHICH IS NOT APPLICABLE. HE FAILED TO APP RECIATE THAT THE ASSESSEE IS CONSTRUCTING A RESIDENTIAL COMPLEX AND ALL THESE AD VANCES BEING RELATED TO THAT ACTIVITY, NO DISALLOWANCE IS CALLED FOR. ITA NO. 1690/DEL/2011 5 5. LD. DR ON THE OTHER HAND TRIED TO JUSTIF Y THE ORDERS OF THE AUTHORITIES BELOW. 6. HAVING GONE THROUGH THE ORDERS OF THE A UTHORITIES BELOW WE FIND THAT THE ASSESSEE HAS BEEN AGGRIEVED BY THE DISALLOWANCE OF INTEREST RELATING TO ADVANCES MADE BY THE ASSESSEE TO FIVE PARTIES WHICH HAS BEEN UPHELD BY THE LD. CIT(A). OUT OF THE SAID FIVE PARTIES, ADVANCES MADE TO M/S. ELDECO INFRASTRUCTURE AND M/S. VAKSONS AUTOMOBILES HAVE BEEN DENIED BY T HE LD. CIT(A) UNDER THE PROVISO TO SECTION 36(I) (III) OF THE ACT ON THE BA SIS THAT THE ADVANCES MADE TO THESE PARTIES WERE FOR THE CAPITAL ASSETS AND INTER EST EXPENDITURE PAYABLE ON THE CORRESPONDING LOAN FOR ACQUIRING THESE ASSETS BEFOR E THEIR BEING PUT TO USE HAS TO BE CAPITALIZED. THE CONTENTION OF THE LD. AR IN THIS REGARD REMAINED THAT PROVISO TO SECTION 36(1) (III) OF THE ACT INSERTED FROM 1.4.2004 IS NOT APPLICABLE IN THE PRESENT CASE, SINCE IT WAS NOT MEANT FOR EXT ENSION OF BUSINESS NOR SPECIFIC BORROWINGS WERE DONE, RATHER ADVANCES WERE MADE IN THE ORDINARY COURSE OF BUSINESS. HAVING GONE THROUGH THE PROVISO TO SECTIO N 36(1)(III) OF THE ACT IN OPERATION W.E.F. 1.4.2004, WE FIND SUBSTANCE IN THE CONTENTION OF THE LD. AR THAT ESPECIALLY WHEN IT IS NOT THE CASE OF LD. CIT(A) TH AT THE ADVANCES WERE MADE TO THESE PARTIES FOR THE EXTENSION OF BUSINESS, THE CA SE OF THE ASSESSEE THROUGHOUT THE AUTHORITIES BELOW AND TRIBUNAL REMAINED THAT AD VANCE WAS GIVEN TO M/S. ELDECO INFRASTRUCTURE FOR ACQUIRING A FLAT AND TO M /S. VATSONS AUTOMOBILES FOR ITA NO. 1690/DEL/2011 6 ACQUIRING SOME VEHICLES BOTH FOR THE BUSINESS PURPO SE THERE IS NO DISPUTE THAT ADVANCES WERE MADE FOR BUSINESS PURPOSE AND THERE I S NOTHING ON RECORD TO SUGGEST THAT IT WAS FOR THE PURPOSE OF EXTENSION OF BUSINESS. WE THUS WHILE SETTING ASIDE ORDERS OF THE AUTHORITIES BELOW IN TH IS REGARD, DIRECT THE AO TO DELETE THE DISALLOWANCE IN RESPECT OF ADVANCES MADE TO THESE TWO PARTIES ESPECIALLY WHEN FINDING OF THE LD. CIT(A) AS WELL I S THAT THE ADVANCES WERE MADE FOR BUSINESS PURPOSES OF THE ASSESSEE THE LD. CIT(A ) HAS HOWEVER DISALLOWED THE PROPORTIONATE INTEREST PAYABLE THEREON UNDER PR OVISO TO SECTION 36(1)(III) OF THE ACT. SO FAR AS THE REMAINING THREE PARTIES ARE CONCERNED NAMELY M/.S SANAS DREAM MARKETING, M/S. BHISHAMBHAR DAS (HUF) AND M/ S. M.P. JAIN & SONS ARE CONCERNED , THE LD. CIT(A) HAS DISALLOWED THE INTER EST ON ADVANCES GIVEN TO THESE PARTIES ON THE BASIS THAT THE ASSESSEE COULD NOT ESTABLISH THAT IT WAS FOR BUSINESS PURPOSES OF THE ASSESSEE. HE HELD THAT THE Y ARE SISTER CONCERNS OF THE ASSESSEE AND THE WORDS USED IN SECTION 14A ARE IN R ESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME, WHI CH DOES NOT FORM PART OF TOTAL INCOME UNDER THIS ACT. HE OBSERVED THAT THE ONE AND ONLY PRINCIPLE REQUIRED TOBE LOOKED INTO IS THAT THE EXPENDITURE RELATING TO AN INCOME I.E. NOT INCLUDABLE IN TOTAL INCOME CANNOT BE ALLOWED AS DEDUCTION U/S 14A . FURTHER REASON FOR THE DISALLOWANCE OF INTEREST ON ADVANCES IN RESPECT OF THESE PARTIES BY THE LD. CIT(A) REMAINED THAT THE INTEREST PAYABLE ON THE LOAN TO T HE EXTENT OF ADVANCES TO THESE PARTIES HAS CREATED INTEREST LIABILITY IN THE YEAR OF BORROWAL AND IN ITA NO. 1690/DEL/2011 7 SUBSEQUENT YEAR WHICH IS AGAINST THE OBJECT OF THE SECTION 36(I)(III) OF THE ACT. THE CONTENTION OF THE LD. AR REGARDING ADVANCES MAD E TO M/S. M.P. JAIN & SONS REMAINED THAT THE LD. CIT(A) HAS MADE MISTAKE BY IG NORING THE FACT THAT THE ADVANCE GIVEN TO M/S. ADITYA GARDEN IS A PROJECT OF M/S. M.P. JAIN & SONS WHOSE PROP. IS MR. ATUL JAIN. HIS FURTHER CONTENTION REMA INED THAT IN ITS REMAND REPORT AT ITEM NO. 2, THE AO HAS ALSO AGREED TO THE FACT T HAT ADVANCE IS FOR BUSINESS PURPOSES. HAVING GONE THROUGH THE REMAND REPORT WE FIND THAT REGARDING M/S. ADITYA GARDEN UNDER THE PROP. OF SHRI ATUL JAIN, TH E AO HAS REPORTED THAT THEY APPEARED BEFORE HIM AND HIS STATEMENT WAS RECORDED. SHRI ATUL JAIN IS ALSO A PARTNER IN THE ASSESSEE FIRM WHO STATED THAT THE FI RM MADE AN AGREEMENT WITH M/S. ADITYA GARDEN FOR DEVELOPMENT TO BE USED FOR C OMMERCIAL PURPOSES. THE FIRM PAID ADVANCE OF RS. 18 LAC TO M/S. ADITYA GARD EN FOR DEVELOPMENT OF THE LAND OWNED BY M/S. M/S. ADITYA GARDEN AT MAIN ROAD , SONEPAT. THE ABOVE DEVELOPMENT WAS COMPLETED IN NOVEMBER, 2008. AFTER THE DEVELOPMENT THE INCOME ARISING FROM BOOKING OF ADITYA GARDEN IS TO BE SHARED IN THE RATIO OF 25% AND 75% BETWEEN SHRI ATUL JAIN PROP. OF ADITYA GARD EN AND THE ASSESEE FIRM, REPORTED THE AO. IN VIEW OF THIS REPORT OF THE AO W E FIND THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN MAKING DISALLOWANCE OF INTEREST ON ADVANCE MADE TO M/S. ADITYA GARDEN WHICH IS A PROJECT OF M/S. M.P. JAIN & SONS . WE THUS WHILE SETTING ASIDE THE DISALLOWANCE MADE IN THIS REGARD DIRECT THE AO TO DELETE THE SAME. SO FAR THE REMAINING TWO PARTIES I.E. M/S. SANASH DREAM MARKET ING AND M/S. BISHAMBER ITA NO. 1690/DEL/2011 8 DASS MAHAVIR PRASAD HUF ARE CONCERNED, WE FIND THAT DESPITE SUMMONS ISSUED TO THEM BY THE AO THEY DID NOT APPEAR BEFORE THE AO BUT THE LD. CIT(A) HAS UPHELD THE DISALLOWANCE OF INTEREST ON ADVANCE MADE TO THESE PARTIES VIDE PARA NO. 4.4.4. OF THE FIRST APPELLATE ORDER ALSO ON THE BASIS THAT IT IS AGAINST THE OBJECT OF SECTION 36 (I) (III) SINCE THE INTEREST P AYABLE ON THE LOAN TO THE EXTENT OF ADVANCES GIVEN TO THESE PARTIES HAS CREATED INTERES T LIABILITY IN THE YEAR OF BORROWAL AND IN SUBSEQUENT YEAR. THE CONTENTION OF THE LD. AR ON THE OTHER HAND REMAINED THAT ADVANCE TO THESE PARTIES WERE MA DE FOR SUPPLY OF BUILDING MATERIAL AND HENCE THERE WAS NO JUSTIFICATION FOR D ISALLOWANCE OF THE SAME. IT WAS ARGUED FURTHER THAT DISALLOWANCE HAS ALSO BEEN MADE IN RELATION TO THESE PARTIES ON THE BASIS THAT THEY DID NOT APPEAR IN RE SPONSE TO SUMMONS ISSUED BY THE AO TO THEM IGNORING THIS MATERIAL FACT THAT IT IS NOT A CASE OF LOAN TAKEN BY THE ASSESSEE BUT THE ISSUE IS DISALLOWANCE OF INTER EST. WE DO NOT FULLY AGREE WITH THE CONTENTION OF THE LD. AR SINCE IT IS AN ESTABLI SHED PROPOSITION OF LAW THAT THE ONUS LIES HEAVILY ON THE CLAIMANT TO ESTABLISH GENU INENESS OF ITS CLAIM TO WHICH THE ASSESSEE HAS FAILED TO. ADMITTEDLY THESE PARTIE S DID NOT RESPOND THE SUMMONS ISSUED BY THE AO ON THEIR GIVEN ADDRESSES. GENUINENESS OF THE CLAIMED PURPOSE THUS REMAINED TO BE ESTABLISHED. WE THUS SU STAIN THE DISALLOWANCE MADE BY THE AUTHORITIES BELOW ON THE INTEREST ON AD VANCES GIVEN TO THESE TWO PARTIES. THE FIRST APPELLATE ORDER IN THIS REGARD I S THUS UPHELD. THE GROUND NO. 2 (I) IS THEREFORE ALLOWED AND GROUND NO. 3 (I) IS P ARTLY ALLOWED. THE REMAINING ITA NO. 1690/DEL/2011 9 GROUNDS ARE GENERAL IN NATURE WHICH DO NOT NEED IN DEPENDENT ADJUDICATION. CONSEQUENTLY APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 8 TH FEBRUARY, 2013. SD/- SD/- (SHAMIM YAHYA) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 28 TH FEBRUARY, 2013 *VEENA COPY OF ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER DEPUTY REGISTRAR, ITAT