Ghanshyam Gangaram Agarwal, Pune V. DCIT, Circle-2, Pune

ITA 1749/PUN/2013

• Counselvise Citation: 174924514 RSA 2013
• Duration Of Justice: 1 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-12-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 16-09-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Earning of tax free income; Proportionate interest; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.1749/PN/2013 (ASSESSMENT YEAR: 2008-09) GHANSHYAM GANGARAM AGARWAL 288/B, RASTA PETH PUNE 411011 PAN: AAPPA6087J . APPELLANT VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-2, PUNE . RESPONDENT APPELLANT BY : NONE RESPONDENT BY : SHRI B.C. MALAKAR DATE OF HEARING : 16-12-2014 DATE OF PRONOUNCEMENT : 18-12-2014 ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A)-II, PUNE DATED 22.03.2013 RELATING TO ASSESSMENT YEAR 2008- 09 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW: 1. THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO DI SALLOWING AND ADDING TO INCOME, INTEREST EXPENSES OF RS.10,01,392 /- CLAIMED AGAINST INTEREST INCOME ON GROUNDS THAT THE ASSESSEE HAD MADE INTEREST FREE ADVANCES WHICH AMOUNTED TO TRANS FER OF INCOME AND WERE IMPRUDENT. THE APPELLANT PLEADS THAT T HE ACTION OF THE AO IS NOT JUSTIFIED AND IS INVALID. ITA NO.1749/PN/2013 GHANSHYAM GANGARAM AGARWAL 2 2. THE APPELLANT PLEADS FOR DIRECTIONS ALLOWING THE APPEAL A ND CRAVES LEAVE TO ADD TO, DELETE, AMEND, MODIFY OR WITHDRA W ANY OR ALL OF THE GROUNDS. 3. DESPITE SERVICE OF NOTICE, NONE APPEARED ON BEHALF OF THE ASSESSEE NOR ANY APPLICATION WAS MOVED FOR ADJOURNMENT. THUS, WE PROCEED TO DECIDE THE PRESENT APPEAL AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE. 4. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST THE DISALLOWANCE OF INTEREST EXPENSES OF RS.10,01,392/-. 5. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD DECLARED INCOME F ROM RENT, SHORT TERM CAPITAL GAIN, INTEREST ON ADVANCES, BANK INTER EST AND INTEREST ON FDRS AND ONLY EXEMPT INCOME ON DIVIDEND OF S HARES AND MUTUAL FUNDS. THE ASSESSING OFFICER DURING THE COURSE OF AS SESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD CLAIMED INTERES T EXPENDITURE OF RS.10,01,392/- AGAINST INTEREST EARNED. THE ASSESSEE ON THE OTHER HAND, HAD GIVEN CERTAIN INTEREST FREE ADVANCES TO VARIOUS PARTIES I.E. ADVANCE OF RS.2,72,50,000/- TO ACCUMEN INVESTMENT & FINA NCE PVT. LTD., AGARWAL URMILLA OF RS.33,19,268/- AND BARIA MOTORS PVT. LTD. OF RS.1,12,11,000/-. THE ASSESSEE HAD ALSO MADE INVESTMENT IN SHARES OF RS.47,51,610/- THE INCOME FROM WHICH WAS NOT TAXABLE. TH E ASSESSING OFFICER THUS, SHOW CAUSED THE ASSESSEE AS TO W HY THE INTEREST PAID AT RS.10,01,392/- SHOULD NOT BE DISALLOWED AN D IN THE ITA NO.1749/PN/2013 GHANSHYAM GANGARAM AGARWAL 3 ABSENCE OF PLAUSIBLE EXPLANATION, THE SAME WAS DISALLOWED BY THE ASSESSING OFFICER. 6. BEFORE THE CIT(A), THE CLAIM OF THE ASSESSEE WAS THAT, H E HAD MADE THE INVESTMENT IN SHARES OUT OF OWN CAPITAL AND NO T OUT OF BORROWED FUNDS. THE OWN CAPITAL OF THE ASSESSEE WAS RS. 15.50 CRORES AS ON 31.03.2008. FURTHER, THE ASSESSEE CLAIMED THAT THE RE WERE NO FRESH BORROWINGS DURING THE YEAR ON WHICH INTEREST HAD BEEN PAID, IN FACT, THE UNSECURED LOANS TO THE EXTENT OF RS.56,94,831/- AND SECURED LOANS OF RS.70,92,750/- WERE REPAID OUT OF OWN FUNDS. THE ASSESSEE FURTHER CLAIMED THAT, HE HAD BORROWED CERTAIN FUNDS AND T HE SAME WERE DEPOSITED IN FLEXI DEPOSITS WITH CORPORATION BANK. IT WAS FURTHER CLAIMED BY THE ASSESSEE THAT HE HAD EARNED INTE REST ON FIXED DEPOSITS AND ADVANCES TO PARTIES AGGREGATING TO RS.27,1 5,460/-. FURTHER, THE ASSESSEE CLAIMED THAT HE HAD PAID INTEREST ON BORROWING RS.10,01,392/- AND OFFERED NET INTEREST INCOME OF RS.17,38,046 /- UNDER THE HEAD INCOME FROM OTHER SOURCES. 7. THE CIT(A) VIDE PARA 3.4 OBSERVED AS UNDER:- 3.4 INTEREST ON BORROWED MONEY IS ALLOWED AS A DEDUCT ION FROM BUSINESS ONLY IF IT SATISFIES THE CONDITION THAT IT IS FOR THE PURPOSE OF BUSINESS OR PROFESSION. WHERE THE MONEY BORROWED WAS DIVERTED FOR GIVING INTEREST FREE LOANS TO SISTER CO NCERN, THE PROPORTIONATE INTEREST ATTRIBUTABLE TO SUCH LOANS COU LD LEGITIMATELY DISALLOWED BY THE ASSESSING OFFICER. IT WAS SO HELD IN S.A. BUILDERS LTD VS CIT (2004) 269 ITR 535 (P&H) WHERE THE ASSESS EE LEND MONEY WITHOUT INTEREST, THERE CAN BE NO INFERENCE OF NOTIONAL INCOME BASED ON REASONABLE INTEREST, WHICH THE ASSES SEE MIGHT HAVE CHARGED FOR LENDING TO RELATIVES OR SISTER CONC ERNS. BUT THEN, IT IS POSSIBLE IN SUCH CASES TO DISALLOW A PROPORTIONAT E PART OF INTEREST PAID ON SUCH BORROWED CAPITAL, IF ANY, TO THE EXTENT THAT THE BORROWED FUNDS ARE UTILIZED FOR INTEREST FREE A DVANCES THE DISALLOWANCES IS ON THE GROUND THAT IT WILL NOT BE ELI GIBLE FOR DEDUCTION AS EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS. IT IS UNDISPUTED FACT THAT THE APPELLANT HAS ADVANCED I NTEREST FREE ADVANCES TO THE TUNE OF RS.4.17 CRORES THE PURPOSE OF WHICH HAS ITA NO.1749/PN/2013 GHANSHYAM GANGARAM AGARWAL 4 NOT BEEN SPECIFIED BY THE APPELLANT AS NO ELEMENT OF COMMERCIAL EXPEDIENCY HAS BEEN SHOWN BY THE APPELLANT. THE APPELL ANT HAS ALSO NOT BROUGHT ON RECORD ANY SUCH MATERIAL WHICH CO ULD INDICATE THAT THE SAID FUNDS ADVANCED INTEREST FREE HAS BEEN OUT OF THE OWN CAPITAL FUNDS AS CONTENDED BY THE APPELLANT. THE A PPELLANT HAS ALSO NOT ABLE TO DRAW A CASH FLOW STATEMENT SO AS TO JUSTIFY THE CONTENTION RAISED AND ALSO NOT INDICATED THE NAT URE AND PURPOSE OF MAKING SUCH HUGE ADVANCES. THE APPELLANT HAS ALSO NOT BEEN ABLE TO ESTABLISH A LINK WITH THE BORROWED F UND WITHOUT THAT OF THE ADVANCES MADE BY WAY OF DIVERTING THE F UNDS ON WHICH THE APPELLANT HAS, ALSO PAID INTEREST. INTEREST O N BORROWED CAPITAL TO THE EXTENT OF WHICH SUCH CAPITAL IS GIVEN AS INTEREST FREE ADVANCE TO A RELATED CONCERN OR SISTER CONCERN WITHO UT ANY JUSTIFIABLE REASON IS LIABLE FOR DISALLOWANCE AS FOUND BY THE TRIBUNAL AND THE HIGH COURT WOULD NOT OR DEMANDING I NTERFERENCE ON SUCH FINDING AS HELD IN ELEMER HAVELL ELECTRONICS VS CIT (2005) 277 ITR 549 (DEL). EVEN OTHERWISE IF THE DEDUCTION OF INTEREST U/S 57(III) IS CONSIDERED IN THAT EVENT ALSO THE APPELLANT HAS TO PROVE THE NEXUS BETWEEN THE RECEIPT OF INCOME AND EXPENDIT URE CLAIMED. THE APPELLANT HAS NOT BEEN ABLE TO BRING ON RECORD TH AT THE EXPENDITURE HAS BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME FROM OT HER SOURCES I.E. THE PURPOSE OF MAKING OR EARNING SUCH INCOME MUS T BE THE SOLE PURPOSE FOR WHICH THE EXPENDITURE MUST HAVE BEEN INCURRED, NAMELY THE EXPENDITURE SHOULD NOT HAVE BEEN INCURRED FOR SUCH PURPOSE AS ALSO FOR OTHER PURPOSE OR FOR A MIXED PUR POSE. THE DISTINCTION BETWEEN PURPOSE AND MOTIVE MUST ALWAYS BE BORNE IN MIND AND WHAT IS ALWAYS BE BORNE IN MIND AND WHAT IS RELEVANT IS THE MANIFEST AND IMMEDIATE PURPOSE. THE REQUIREMENT U/S 57(III) IS THAT THE EXPENDITURE SHOULD HAVE BEEN INCU RRED FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME SHOWS THE OBJECT OF SPENDING OR THE END OR AIM OR THE INTENTION OF SUCH SPENDING WAS FOR EARNING THE INTEREST INCOME. 8. ON THE PERUSAL OF THE RECORD AND THE ORDERS PASSED BY THE AUTHORITIES BELOW, IT TRANSPIRES THAT THE ASSESSEE HAD MA DE INTEREST FREE ADVANCES TOTALING RS.4.17 CRORES TO THREE DIFFERENT P ARTIES. ON THE OTHER HAND, THE ASSESSEE HAD BORROWED CERTAIN FUNDS AG AINST WHICH, HE HAD INCURRED INTEREST EXPENDITURE OF RS.10,01,392/-. TH E CASE OF THE ASSESSEE WAS THAT THE INTEREST FREE ADVANCES WERE MADE OUT OF HIS OWN FUNDS. HOWEVER, THE ASSESSEE HAS FAILED TO BRING ON R ECORD THE COMPLETE DETAILS IN THIS REGARD AND FURTHER, THE ASSESSEE HAD BORROWED MONEY WHICH IN TURN, WAS NOT UTILIZED FOR THE PURPOSE OF BUSINESS OR PROFESSION, AS OBSERVED BY THE CIT(A). THE ASSESSEE HAS FAILED TO ITA NO.1749/PN/2013 GHANSHYAM GANGARAM AGARWAL 5 CONTROVERT THE FINDINGS OF THE CIT(A) AND IN THE ABSENCE OF THE SAME, WE ARE IN CONFORMITY WITH THE ORDER OF THE CIT(A). UPHOLDING THE ORDER OF CIT(A), WE DISMISS THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF DECEMBER, 2014. SD/- SD/- (R.K. PANDA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 18 TH DECEMBER, 2014. GCVSR COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-II, PUNE; 4) THE CIT-II, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE