Suresh Kumar Tayal, Panipat V. ACIT, Panipat

ITA 1828/DEL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74328 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 12-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 15-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RENUKA JAIN GUPTA

Judgement Text

ITA NO. 1828/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SHRI A. D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 1828 /DEL/201 1 A.Y. : 2007-08 SURESH KUMAR TAYAL, PROP. M/S ESS KAY ENTERPRISES, PLOT NO. 184, SECTOR- 25, PART-II, HUDA, PANIPAT (PAN:- AABFJ-4373-J) VS. ACIT, CIRCLE, PANIPAT (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. SOMIL AGGARWAL, ADV DEPARTMENT BY : SMT. RENUKA JAIN GUPTA, SR. D.R. ORDER ORDER ORDER ORDER PER PER PER PER SHAMIM YAHYA: AM SHAMIM YAHYA: AM SHAMIM YAHYA: AM SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), KARNAL D ATED 20.1.2011 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE GROUND RAISED BY THE ASSESSEE IS THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT, THE OR DER OF THE LD. CIT(A) IN DISALLOWING RS. 1,23,456/- ON ACCOUNT OF PRO RATA INTEREST ON LOAN U/S. 36(1)(III) IS HIGHLY UNDESIRABLE AND U NCALLED FOR. 3. IN THIS CASE AO OBSERVED THAT ON PERUSAL OF LI ST OF LOANS AND ADVANCES RECEIVABLES, REVEALS THAT THE ASSESSEE HAS ADVANCED THE FOLLOWING AMOUNTS:- ITA NO. 1828/DEL/2011 2 M/S DALIP CHITS (P) LTD., RS. 2,35,480/- PANIPAT M/S ESS KAY OVERSEAS RS. 5,58,153/- SURESH TAYAL & SONS RS, 9,89,637/- = RS. 17,83,2 70 AO FURTHER OBSERVED THAT AS PER P&L ACCOUNT, THE A SSESSEE HAS DEBITED AN AMOUNT OF RS. 199007/- ON ACCOUNT OF BAN K INTEREST. ON THE ONE HAND, THE ASSESSEE RAISED LOANS AND PAID IN TEREST ON THESE LOANS AND ON THE OTHER HAND, THE ASSESSEE IS GIVING INTEREST FREE ADVANCES TO VARIOUS PERSONS. AO OBSERVED THAT SINCE THE ADVANCES GIVEN WERE NOT FOR BUSINESS PURPOSES, THE ASSESSEE WAS ASKED TO EXPLAIN THE PURPOSE FOR THIS ADVANCE AND ALSO STATE THE REASON OF NOT CHARGING THE INTEREST ON THIS DEPOSIT. IN REPLY TH E ASSESSEE SUBMITTED AS UNDER:- ALL THE ABOVE SAID ADVANCES WERE MADE OUT OF OWN CAPITAL OF THE PROP. OPENING CAPITAL OF THE ASSESSE E AS ON 1.4.2006 WAS RS. 1,83,74,398/- AND CLOSING CAPITAL OF THE ASSESSEE AS ON 31.3.2007 IS RS. 1,78,08,248/-. PROF IT EARNED BY THE ASSESSEE DURING THE RELEVANT ASSTT. Y EAR IS RS. 10,01,197/- AND THE AMOUNT OF LOANS GIVEN TO TH E ABOVE SAID PARTIES WAS RS. 17,83,2700/- ONLY. THUS PROFIT EARNED THE ASSESSEE DURING THE RELEVANT YEAR WAS SUFFICIENT TO COVER THE IMPUGNED LOANS OF RS. 17,83 ,270/ THEREFORE, ITS PROVED THAT LOAN GIVEN TO THE ABOVE SAID PARTIES WAS OUT OF OWNED FUNDS. OUR VIEW IS ALSO SUPPORTED BY THE HONBLE SUPREME COURT IN THE CASE OF M/S MUNJAL SALES CORPORATION VS. CIT (2008) 22 CAPJ 8 (SC). ITA NO. 1828/DEL/2011 3 3.1 AO WAS NOT SATISFIED WITH THE ABOVE. HE HELD TH AT THE FACTS OF THE CASE OF M/S MUNJAL SALES CORPORATION WERE DISTI NGUISHABLE FROM THE FACTS OF THE CASE. HE REFERRED TO THE HONBLE PUNJAB AND HARYANA HIGH COURT DECISION IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES 296 ITR 1. HENCE, AO HELD THAT PROPORTI ONATE INTEREST @ 10% IS DISALLOWED ON THIS ACCOUNT AS ASSESSEE IS PA YING INTEREST @ 9% ON BANK LIMITS BEING AN EXPORTER. HENCE, AO ADD ED BACK RS. 1,23,456/- TO THE INCOME OF THE ASSESSEE. 4. UPON ASSESSEES APPEAL LD. CIT(A) DID NOT ACCEPT THE ASSESSEES PLEA THAT ADVANCE WAS GIVEN FOR BUSINESS PURPOSES. HE HELD THAT SUPREME COURT DECISION IN THE CASE OF MUN JAL SALES CORPORATION HAS NOT REVERSED THE DECISION OF THE H ONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTR IES. FURTHER, HE OBSERVED THAT ASSESSEE HAS NOT BROUGHT ON RECORD T HE EXACT SOURCE OF MAKING ADVANCES TO THE PARTIES. THAT THOUGH T HE ASSESSEE HAS CLAIMED THAT HUGE BALANCE IS AVAILABLE IN HIS CAPIT AL ACCOUNT AND THE AMOUNT IS PAID OUT OF THAT, NEITHER ANY EVIDENCE WAS BROUGHT ON RECORD IN SUPPORT OF THE CLAIM, THAT CAPITAL WAS A VAILABLE OF MAKING THIS INTEREST FREE ADVANCES, NOR THE AMOUNT WAS DE BITED IN THE CAPITAL ACCOUNT. LD. CIT(A) HELD THAT THE ASSESS EE HAS NOT BEEN ABLE TO ESTABLISH THAT THE BORROWED FUNDS WERE USED FOR THE PURPOSE OF BUSINESS ONLY. HE HELD THAT HAD THE ASSESSEE N OT MADE THIS INTEREST FREE ADVANCES, THE SAME WOULD BE AVAILABLE FOR USE OF BUSINESS AND IN TURN INTEREST LIABILITY WOULD BE ON LOWER SIDE. LD. ITA NO. 1828/DEL/2011 4 CIT(A) PLACED RELIANCE UPON ON THE DECISION OF THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF ABHISHEK IND USTRIES (SUPRA) AND CONFIRMED THE AOS ORDER. 5. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. WE FIND THAT IT IS ONE OF THE PLEA OF THE ASSESSEE THA T ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS TO MAKE THE INTEREST FREE ADVANCES TO THE SISTER CONCERN. IN THIS REGARD, ASSESSEE HAS R EFERRED TO THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF M UNJAL SALES CORPORATION (SUPRA) WHEREIN THE HONBLE APEX COURT HAS DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE BY HOLDING THAT PROF IT EARNED BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR WERE SUF FICIENT TO COVER THE IMPUGNED LOAN OF RS. 5 LACS. IN THIS CASE AO HA S NOT CONSIDERED THE SUFFICIENCY OF INTEREST FUNDS AVAILABLE TO ASSE SSEE. LD. CIT(A) HAS ALSO NOTED THAT ASSESSEE HAS NOT GIVEN NECESSARY EV IDENCE IN THIS REGARD. HOWEVER, BEFORE US THAT THE LD. COUNSEL OF THE ASSESSEE VEHEMENTLY PLEADED THAT ASSESSEE HAS SUFFICIENT INT EREST FREE ADVANCES AND PROFITS TO GRANT THE INTEREST FREE ADV ANCES TO SISTER CONCERN. IN OUR CONSIDERED OPINION, ON THE FACTS A ND CIRCUMSTANCES OF THE CASE, THIS ISSUE NEEDS TO BE REMITTED TO THE FILE OF THE AO. THE AO SHALL CONSIDER THE ISSUE AFRESH, IN LIGHT OF THE ASSESSEES SUBMISSIONS THAT ASSESSEE HAS ADEQUATE INTEREST FR EE FUNDS BY ITA NO. 1828/DEL/2011 5 MAKING THE FACTUAL VERIFICATION. NEEDLESS TO ADD T HAT THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEA RD. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14/3/2014. SD/- SD/- [ [[ [A. D. JAIN A. D. JAIN A. D. JAIN A. D. JAIN] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 14/3/2014 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES