Shri Vijay Pal Garg, New Delhi V. DCIT, New Delhi

ITA 1774/DEL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2899 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 05-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S R SENAPATI
• Keywords: Question of law

Judgement Text

PAGE | 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P.SAHU, ACCOUNTANT MEMBER ITA NO. 1774/DEL/2016 (ASSESSMENT YEA R: 2011-12) SHRI VIJAY PAL GARG, TU-70, PITAMPURA, NEW DELHI-110088. PAN-ADQPG3144E VS DC IT, CENTRAL CIRCLE-5, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY SH. GAUTAM JAIN, ADV. & SH. LALIT MOHAN, ADV. RESPONDENT BY SH. S.R.SENAPATI, SR.DR DATE OF HEARING 15.03.2018 DATE OF PRONOUNCEMENT 21.03.2018 ORDER PER BHAVNESH SAINI, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE HAS BEEN DIRECTED AGAIN ST THE ORDER OF LD.CIT(A)-23, NEW DELHI DATED 23.02.2016 FOR AY 201 1-12, CHALLENGING THE DISALLOWANCE OF RS.45,06,817/- AS INTEREST U/S 36(1 )(III) OF THE INCOME TAX ACT, 1961 (IN SHORT ACT). 2. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE FILED RETURN OF INCOME AT RS.12,42,878/-. ON PERUSAL OF THE BALANCE SHEET AN D P&L A/C, IT WAS NOTICED THAT THE ASSESSEE HAS DEBITED INTEREST AMOUNTING TO RS.23,64,722/-IN THE P&L A/C IN AY UNDER APPEAL. IT IS ALSO NOTICED THAT PA YMENT OF INTERESTS ON SECURED AND UNSECURED LOANS THAT THE FUNDS RAISED BY THE AS SESSEE HAVE NOT BEEN UTILIZED FOR THE PURPOSE OF BUSINESS AND NO INCOME IS ACCRUED ON ACCOUNT OF UTILIZATION OF THESE FUNDS. THE AO ON GOING THROUG H THE DETAILS SUBMITTED BY THE ASSESSEE PERUSED THAT THE ASSESSEE HAS MADE PAY MENT INTEREST OF RS. 23,64,722/- AND BANK COMMISSION OF RS.21,42,095 /-. THE AO NOTED THAT ITA NO. 1774/DEL/2016 PAGE | 2 THE BUSINESS OF THE ASSESSEE WAS SALE AND PURCHASE OF FOODGRAINS ON COMMISSION BASIS AND EARNING INCOME OF AHRAT. IT HAS BEEN PERUSED FROM THE DETAILS OF BANK LOAN ACCOUNTS AND UNSECURED LOANS R AISED FROM THE BANKS, THAT SUBSTANTIAL AMOUNT OF INTEREST HAS BEEN PUT TO USE FOR THE PURPOSE OTHER THAN BUSINESS OF DEALING IN FOODGRAINS I.E. MAKING OF AD VANCES TO SOME OTHER PERSONS WITHOUT CHARGING ANY INTEREST. THE DETAILS ARE NOTED IN THE ASSESSMENT ORDER. THE AO, THEREFORE, NOTED THAT PAYMENT OF IN TEREST ON THE FUNDS WHICH WERE UTILIZED FOR THE PURPOSE OTHER THAN BUSINESS A CTIVITIES IS NOT ELIGIBLE FOR DEDUCTION. THE SAME IS DISALLOWABLE U/S 36(1)(III) OF THE ACT TO THE EXTENT OF RS.45,06,817/-. HE HAS NOTED THAT BORROWED FUNDS M UST BE UTILIZED FOR THE PURPOSE OF BUSINESS, THE DISALLOWANCE WAS ACCORDING LY MADE. 3. THE ASSESSEE SUBMITTED BEFORE LD.CIT(A) THAT THE OBSERVATIONS OF THE AO ARE INCORRECT ON FACTS AND AS MUCH THE ASSESSEE HAS GIVEN DETAILS OF THE BORROWED FUNDS VIS--VIS THEIR REPRESENTATION AS PE R AUDITED BALANCE SHEET FILED BEFORE LD.CIT(A) WHICH IS REPRODUCED AT PAGE 3 OF T HE APPELLATE ORDER IN WHICH THE ASSESSEE EXPLAINED THAT THE ASSESSEE HAS BORROW ED FUNDS OF RS.56,96,000/- FROM UNSECURED LOANS AND RS,4,58,74,985/- AS SECURE D LOANS [TOTALING TO RS.5,15,70,985/-]. HE HAS SUBMITTED THAT BORROWED FUNDS HAVE BEEN UTILIZED FOR MAKING DEPOSIT IN BANK AT RS.5,06,20,065/-, CAS H IN HAND RS.3,63,387/- AND FIXED ASSETS AT RS.12,41,215/- [TOTALING TO RS. 5,22,24,667/-]. THE ASSESSEE, THEREFORE, EXPLAINED THAT AMOUNT OF LOANS ON WHICH INTEREST HAS BEEN PAID HAS BEEN USED FOR THE BUSINESS ASSETS OF THE A SSESSEE AND, THEREFORE, THE INTEREST PAID THEREON HAS BEEN PURELY BUSINESS EXPE NSES AND ALLOWABLE U/S 36(1)(III) OF THE ACT. WHATEVER CASE LAWS, THE AO HAS APPLIED FOR MAKING THE DISALLOWANCE ARE DISTINGUISHABLE ON FACTS WHICH HAV E BEEN DISTINGUISHED BY THE ITA NO. 1774/DEL/2016 PAGE | 3 ASSESSEE AND REPRODUCED IN THE APPELLATE ORDER. I T WAS SUBMITTED THAT THE DISALLOWANCE ON ACCOUNT OF INTEREST PAID ON BORROWE D MONEY IS HYPOTHETICAL AND SUCH ADDITION IS LIABLE TO BE DELETED. 4. LD.CIT(A), HOWEVER, CONFIRMED THE ADDITION AND D ISMISSED THE APPEAL OF THE ASSESSEE. HIS FINDINGS IN PARA 4.2 OF THE APPE LLATE ORDER ARE REPRODUCED AS UNDER:- 4.2. GROUND NO. 02 RELATES TO DISALLOWANCE OF INTE REST OF RS.45,06,817/- U/S 36(1)(III) OF THE ACT. THE AO HAS OBSERVED THAT THE BUSINESS OF THE ASSESSEE IS SALE AND PURCHASE OF FOOD GRAINS ON CO MMISSION BASIS AND THE FUNDS RAISED, INCLUDING FUNDS RECEIVED FROM BAN K IN THE NAME OF HIS PROPRIETARY CONCERN M/S DES RAJ ASHUTOSH, BY THE AS SESSEE ON WHICH INTEREST HAS BEEN PAID BY HIM HAVE NOT BEEN UTILIZE D FOR THE PURPOSE OF BUSINESS AND NO INCOME IS ACCRUED ON ACCOUNT OF UTI LIZATION OF THESE FUNDS, AND THAT SUBSTANTIAL AMOUNT OUT OF THE FUNDS RAISED WERE ADVANCED TO OTHER PERSONS WITHOUT CHARGING INTEREST. THE APPELL ANT THROUGH HIS AR HAS SUBMITTED THE DETAILS OF UNSECURED LOANS OF RS.4,74 ,78,000/- TAKEN, INTEREST PAID OF RS.28,67,856/- THEREON AND TDS MAD E, AND COPIES OF THE COMPUTATION, 26AS AND THE BALANCE SHEET AND P&L ACC OUNT OF THE ASSESSEE. THE APPELLANT HAS DEBITED NET INTEREST PA ID TO OTHERS OF RS.21,42,095/- IN THE P&L ACCOUNT. ON PERUSAL OF TH E BALANCE SHEET IT IS SEEN THAT THE CAPITAL OF THE APPELLANT IN HIS PROPR IETARY CONCERN IS RS.(-) 1,95,49,440/- AND HE HAS TAKEN SECURED LOAN FROM BA NK OF RS.4,58,74,985/- AND UNSECURED LOANS OF RS.6,05,77, 930/- WHILE THE LOANS GIVEN BY THE APPELLANT IS RS.4,36,59,020/- AS ON 31.03.2011. AS PER THE P&L ACCOUNT THE TOTAL RECEIPT 'ADAT' ACCOUNT IS RS.60,57,723/- ONLY. ON BEING ASKED, THE APPELLANT'S AR SUBMITTED DURING TH E APPELLATE PROCEEDINGS THAT THE DETAILS OF THE UTILIZATIONS OF UNSECURED LOANS AND OTHER DETAILS RELEVANT TO THE RECEIPT OF UNSECURED LOANS TAKEN AND ADVANCEMENT OF LOANS GIVEN BY THE ASSESSEE ARE NOT AVAILABLE. FROM THE FACTS AVAILABLE THE UTILIZATION OF LOAN TAKEN FROM THE BANK, ON WHICH INTEREST OF RS.23,64,722/- HAS BEEN PAID, FOR THE P URPOSE OF BUSINESS IS ITA NO. 1774/DEL/2016 PAGE | 4 NOT EXPLAINED, NOR IS THERE ANY JUSTIFICATION OF AD VANCEMENT OF MONEYS TAKEN AS SECURED AND UNSECURED LOAN WITHOUT CHARGIN G INTEREST THOUGH INTEREST HAS BEEN PAID TO THE BANK AND THE PERSONS FROM WHOM UNSECURED LOANS HAVE BEEN TAKEN. THE APPELLANT'S AR HAS TRIED TO DISTINGUISH THE CASE LAWS RELIED UPON BY THE AO IN THE ASSESSMENT O RDER BUT HIS OBSERVATIONS ARE NOT APPLICABLE TO THE FACTS OF THI S CASE BROUGHT OUT HEREIN ABOVE, RATHER ALL THE CASE LAWS ARE SQUARELY APPLIC ABLE TO THE FACTS OF THIS CASE. IN THIS VIEW OF THE MATTER, THE ADDITION OF R S.45,06,817/- MADE IS SUSTAINED. THIS GROUND IS ACCORDINGLY DISMISSED. TH E AO IS HOWEVER ADVISED TO BRING FACTS RELEVANT TO THE MATTER ON RE CORD IN THE ASSESSMENT ORDER, ANALYSE THE FACTS AS HAS BEEN DONE HEREIN AB OVE, AND NOT MAKE ADDITIONS IN AN AD HOC MANNER WITH PERFUNCTORY REMA RKS. 5. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBM ISSIONS MADE BEFORE THE AUTHORITIES BELOW AND REFEREED TO PAGE 19 OF THE PA PER BOOK WHICH IS DETAILS FILED BEFORE LD.CIT(A) TO SHOW THAT THE ASSESSEE HA S BORROWED FUNDS OF RS.5.15 CRORES AND THE FUNDS HAVE BEEN UTILIZED FOR THE BUS INESS PURPOSES OF THE ASSESSEE FOR A SUM OF RS.5.22 CRORES. THEREFORE, B ORROWED FUNDS HAVE NOT BEEN DIVERTED FOR THE NON-BUSINESS PURPOSES. LD. COUNS EL FOR THE ASSESSEE AS PER DIRECTION OF THE BENCH FILED A COPY OF THE BALANCE SHEET AND P&L A/C OF PRECEDING AY 2010-11; IN WHICH IT IS STATED THAT TH E ASSESSEE HAD INTEREST FREE ADVANCES OF RS.7,10,06,947/- BREAKUP OF THE SAME IS GIVEN IN THE WRITTEN NOTE. IT IS ALSO SUBMITTED THAT ABOVE INTEREST FREE ADVAN CES EXCEEDED INTEREST FREE LOANS OF RS.5,05,81,020/- AS ON 31.03.2010. IT WAS , THEREFORE, PRAYED THAT SINCE EVEN AT THE CLOSE OF THE AY 2010-11, INTEREST FREE ADVANCE OF RS.5.48 CRORES EXCEEDED THE LOAN OF RS.4.36 CRORES, NO DISA LLOWANCE IS WARRANTED. HE HAS RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS TIN BOX COMPANY 260 ITR 637 [DEL.] IN WHICH IT WAS HELD :- ITA NO. 1774/DEL/2016 PAGE | 5 'HELD, DISMISSING THE APPEAL, THAT THE TRIBUNAL HAD FOUND THAT THE CAPITAL OF THE FIRM AND INTEREST FREE UNSECURED LOA NS WITH THE APPELLANT FAR EXCEEDED THE AMOUNTS ADVANCED TO THE SISTER CONCERN IN ALL THE YEARS UNDER APPEAL. ADDITIONALLY THE TRIBUNAL HAD ALSO NO TED THAT THE DEPARTMENT COULD NOT POINT OUT ANY SPECIFIC INTERES T BEARING BORROWED FUNDS, WHICH HAD BEEN DIVERTED BY THE ASSESSEE TO I TS SISTER CONCERN. THE FINDINGS OF THE TRIBUNAL BEING BASED ON THE RELEVAN T EVIDENCE ON RECORD, NO QUESTION OF LAW, MUCH LESS A SUBSTANTIAL QUESTION O F LAW, AROSE FROM THE ORDERS OF THE TRIBUNAL. 6. LD. COUNSEL FOR THE ASSESSEE, THEREFORE, SUBMITT ED THAT SINCE THE ASSESSEE HAS SUFFICIENT FUNDS OTHER THAN THE BORROW ED FUNDS FOR GIVING TO OTHERS, THEREFORE, ADDITION IS WHOLLY UNJUSTIFIED. ON THE OTHER HAND, LD.DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. LD. COUNSEL FOR THE ASSESSEE FILED BALANCE SHEET OF THE PRECEDING AY 2010-11 AND ALSO FILED A WRITTEN NOTE TO HIGHLIGHT IN PRECEDING AY 2010-11, THE ASSESSEE HAD INTEREST FREE ADVANCES OF RS.7.10 CROR ES WHICH EXCEEDS INTEREST FREE LOAN OF RS.5.05 CRORES AS ON 31.03.2010. SIMIL AR IS THE POSITION IN AY UNDER APPEAL I.E. 2010-11. ACCORDING TO THE BALANC E SHEET OF THE ASSESSEE, THE UNSECURED LOANS OF RS.6.05 CRORES ARE AVAILABLE TO THE ASSESSEE AND AS PER CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE, THE INTEREST FREE ADVANCE OF RS.5.48 CRORES ARE AVAILABLE TO THE ASSESSEE WHICH EXCEEDED THE LOAN AMOUNT OF RS.4.36 CRORES. THEREFORE, THE ASSESSEE HAD SUFFIC IENT FUNDS OTHER THAN BORROWED FUNDS FOR GIVING THE AMOUNT IN QUESTION AS LOAN TO OTHERS AND SUCH FINDINGS OF FACT HAVE NOT BEEN REBUTTED BY THE REVE NUE AUTHORITIES. THUS, THE CONDITIONS OF SECTION 36(1)(III) OF THE ACT HAVE BE EN COMPLIED WITH IN THIS CASE. FURTHER, THE ASSESSEE SPECIFICALLY PLEADED BEFORE L D.CIT(A) THAT BORROWED FUNDS ITA NO. 1774/DEL/2016 PAGE | 6 OF THE ASSESSEE ARE FOR A SUM OF RS. 5.15 CRORES AN D UTILIZATION OF THE BORROWED FUNDS ARE OF RS.5.22 CRORES IN MAKING DEPOSIT WITH THE BANK, CASH IN HAND AND FIXED ASSETS WHICH ALSO TALLY WITH THE BALANCE SHEE T OF THE ASSESSEE. THEREFORE, LD. COUNSEL FOR THE ASSESSEE RIGHTLY CONTENDED THAT THE AMOUNT OF LOANS ON WHICH INTEREST HAS BEEN PAID, HAS BEEN USED FOR THE PURPOSE OF BUSINESS. IN THE CASE OF CIT VS RADICO KHAITAN LTD. 274 ITR 354 , HONBLE ALLAHABAD HIGH COURT DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE I N WHICH THE FINDING RECORDED BY THE TRIBUNAL WAS THAT THE ASSESSEE COMPANY HAD SUFFICIENT FUNDS OTHER TH AN THE BORROWED MONEY FOR GIVING THE AMOUNT IN QUESTI ON AS LOAN TO ITS SISTER CONCERN, WHICH FINDING HAD NOT BEEN SPECIFICALLY CH ALLENGED IN THE PRESENT APPEAL, THE CONDITIONS OF SECTION 36(1)(III) OF THE ACT HAD BEEN COMPLIED WITH AND, THEREFORE, THE ASSESSEE COMPANY WAS ENTITLED TO FUL L ALLOWANCE OF THE AMOUNT OF THE INTERESTS PAID BY IT ON BORROWED CAPITAL. THE DECISION RELIED UPON BY LD. COUNSEL FOR THE ASSESSEE IN THE CASE OF CIT VS TIN BOX COMPANY (SUPRA) ALSO SUPPORTS TO THE FACTS OF THE CASE. IT MAY ALSO BE NOTED HERE THAT THE AO HAS FAILED TO POINT OUT ANY NEXUS BETWEEN THE BORROWED FUNDS AND THE AMOUNTS GIVEN BY THE ASSESSEE TO OTHERS WITHOUT INTEREST. THE ASSESSEE, THEREFORE, PROVED THAT BORROWED FUNDS HAVE BEEN USED FOR THE P URPOSE OF BUSINESS, THEREFORE, NO DISALLOWANCE U/S 36(1)(III) OF THE AC T COULD BE MADE. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIE S BELOW AND DELETE THE ADDITION OF RS.45,06,817/-. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. PRONOUNCED IN THE OPEN COURT ON 21.03.2018. SD/- SD/- (L.P.SAHU) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE:- 21 ST MARCH, 2018 *AMIT KUMAR* ITA NO. 1774/DEL/2016 PAGE | 7 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI