ACIT, New Delhi V. D.D. Sales Corporation, New Delhi

ITA 1845/DEL/2010

• Counselvise Citation: 184520114 RSA 2010
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-08-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 22-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA SENIOR
• Assessee Lawyers: P N MONGA; MANU MONGA S
• Keywords: Gift; Depreciation; Business expenditure; Additional evidence; Tax effect
• Section: 43B; 143(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B : NEW DELHI) SHRI RAJPAL YADAV, JUDICIAL MEMBER AND BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.1861/DEL./2010 (ASSESSMENT YEAR : 2003-04) M/S. D.D. SALES CORPORATION, VS. ACIT, CIRCLE 22 (1), C/O SHRI MANU MONGA, NEW DELHI. 133, LAWYERS CHAMBER I, DELHI HIGH COURT, SHER SHAH ROAD, NEW DELHI 110 003. (PAN : AAAFD1937B) ITA NO.1845/DEL./2010 (ASSESSMENT YEAR : 2003-04) ACIT, CIRCLE 22 (1), VS. M/S. D.D. SALES CORPORATI ON, NEW DELHI. C/O SHRI MANU MONGA, 133, LAWYERS CHAMBER I, DELHI HIGH COURT, SHER SHAH ROAD, NEW DELHI 110 003. (PAN : AAAFD1937B) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI P.N. MONGA & MANU MONGA, ADVO CATES REVENUE BY : SHRI SALIL MISHRA, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : BOTH THE CROSS APPEALS FILED BY THE ASSESSEE AS WEL L AS BY THE REVENUE ARISE OUT OF THE ORDER OF CIT (APPEALS)-XXV, NEW DE LHI DATED 19.02.2009 FOR THE ASSESSMENT YEAR 2003-04. ITA NOS.1861 & 1845/DEL./2010 2 2. THE GROUNDS OF APPEAL OF ASSESSEES APPEAL READ AS UNDER :- L.A) THAT THE LD. CIT (A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.10,500/-, SUSTAINING THE DISALLOWANCE OF EXPE NDITURE INCURRED BY THE ASSESSEE TOWARDS GIFT COUPONS. B) THAT THE EXPENDITURE HAS BEEN DISALLOWED ON ERRO NEOUS & IRRELEVANT CONSIDERATIONS. THE CLAIM OF ASSESSEE FO R ALLOWANCE OF RS.10,500/- DESERVED TO BE FULLY ALLOW ED AS THE EXPENDITURE INCURRED WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEE'S BUSINESS. THE FACTUAL & L EGAL POSITION HAS NOT BEEN PROPERLY APPRECIATED LEADING TO ERRONEOUS CONCLUSION. 2.A) THAT THE LD. CIT(A)HAS GONE WRONG IN SUSTAININ G THE DISALLOWANCE OF 1/10 TH OF THE TOTAL EXPENDITURE INCURRED BY THE APPELLANT ON THE RUNNING AND MAINTENANCE OF VEHICLES AND TELEPHONE EXPENSES. B) NO DISALLOWANCE WAS CALLED FOR, THE ENTIRE AMOUN T OF EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEE'S BUSINESS. REASONABLENESS OF T HE EXPENDITURE WAS TO BE VIEWED FROM THE POINT OF VIEW OF BUSINESSMAN AND NOT THE REVENUE. 3.A) THAT THE LD. CIT(A) HAS WRONGLY CONFIRMED THE ADDITION OF RS.7,50,000/- REPRESENTING AMOUNTS APPEARING IN THE NAME OF 3 CREDITORS. THE LOAN/DEPOSITS BY THE CREDI TORS BEING GENUINE, PROVING THE CREDIT WORTHINESS AND ID ENTITY, NO ADDITION WAS CALLED FOR. B) BOTH THE AUTHORITIES BELOW HAVE FAILED TO APPREC IATE, THE FACTS AND THE EVIDENCE PLACED ON RECORD THEREBY ARR IVING AT A WRONG DECISION. C) THAT THE PRAYER OF THE ASSESSEE MADE IN TERMS OF RULE 46A HAS BEEN REJECTED BY THE LD. CIT(A) ON ERRONEOUS AN D IRRELEVANT CONSIDERATIONS. THE APPELLANT HAVING NOT BEEN PROVIDED ADEQUATE OPPORTUNITY IN EXPLAINING ITS POS ITION WITH REFERENCE TO THE CREDITS, THE PRAYER MADE AS P ER RULE 46A DESERVED TO BE GRANTED. SECTION 68 HAS BEEN WRO NGLY INVOKED IN THE PRESENT CASE. ITA NOS.1861 & 1845/DEL./2010 3 4. THAT FOR SIMILAR REASONS THE DISALLOWANCE OF RS. 54,649/- OF THE INTEREST PAID TO CREDITORS HAS BEEN MADE ON ERRONEOUS GROUNDS. SECTION 68 HAS BEEN WRONGLY INVO KED TO SUSTAIN THE IMPUGNED ADDITIONS. 5.A) THAT THE ORDER OF THE LD. CIT(A) SUSTAINING DI SALLOWANCE ON THE PAYMENT OF INTEREST TO THE CREDITORS AMOUNTI NG TO RS.2,19,722/- ALLEGED TO BE EXCESSIVE INTEREST AND RS.1,22,771/- DISALLOWED U/S 40A(2)(A)IS WRONG AND UNTENABLE BOTH ON FACTS AND IN LAW. B) THAT THE ENTIRE AMOUNT OF INTEREST PAID TO THE C REDITORS WAS ALLOWABLE AS BUSINESS EXPENDITURE. THE ALLOWANC E OF INTEREST U/S 40(B) WAS PERMISSIBLE. NO AMOUNT OF EXPENDITURE REQUIRED TO BE DISALLOWED IN TERMS OF S ECTION 40A(L) OR 40A(2)(B). WRONG INTERPRETATION HAS BEEN PLACED ON THE SAID PROVISIONS OF LAW LEADING TO ERR ONEOUS CONCLUSION. 6. THAT THE LD. CIT(A) SHOULD HAVE ALLOWED DEPRECIA TION CLAIMED AT RS.8424/- ON TALLY MULTY USER. THE ASSET IN QUESTION WAS CERTIFIED BY THE AUDITORS REPORT AND Q UALIFIED FOR THE CLAIM OF DEPRECIATION. 7.A) THAT THE ADDITION OF RS.1,40,559/- MADE BY THE AO REQUIRED TO BE DELETED. B) THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE THA T NOTIONAL INCOME COULD NOT BE SUSTAINED. C) THERE BEING NO PROVISION IN THE PARTNERSHIP DEED TO CHARGE INTEREST FROM PARTNER ON DEBIT BALANCE, NO I NCOME COULD BE ASSESSED. THE ARBITRARY ADDITION OF RS.1,4 0,559/- DESERVED TO BE DELETED. 8.A) THAT THE LD. CIT(A) HAS ERRED IN SUSTAINING TH E ADDITION OF RS.7,01,471/- BEING THE AMOUNT CREDITED TO THE ACCO UNT OF ONE OF THE PARTNERS REENA GAMBHIR AS HER CAPITAL CONTRIBUTION TO THE FIRM. ITA NOS.1861 & 1845/DEL./2010 4 B) THE AMOUNT IN QUESTION DID NOT REPRESENT ASSESSE E'S INCOME U/S 68 OF THE ACT. THE ADDITION HAS BEEN CONFIRMED ON WRONG REASONING AND DESERVES TO BE DEL ETED. 9.A) THAT THE ADDITION UPHELD BY THE LD. CIT(A) ON ACCOUNT OF TARGET DISCOUNT IS ERRONEOUS. B) THAT THE ADJUSTMENT OF RS.1,45,606/- MADE IN THE ACCOUNTING, DID NOT WARRANT THE ADDITION WHICH DESE RVED TO BE DELETED. 10. THAT THE IMPUGNED ORDER PASSED BY THE CIT(A) IS BAD IN LAW AND AGAINST THE FACTS OF THE CASE ON THE GROUND S STATED ABOVE. THE GROUNDS OF APPEAL OF REVENUES APPEAL READ AS U NDER :- 1. ON THE FACTS AND ON THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN DIRECTI NG THE AO TO ALLOW DEPRECIATION ON VEHICLE AMOUNTING TO RS.23,47 7/- IGNORING THE PROVISIONS OF SECTION 38(2) OF THE ACT . FURTHER, THE LD. CIT(A) HAS ALSO CONFIRMED THE DISALLOWANCE MADE ON VEHICLE MAINTENANCE ON THE GROUND THAT THE SAME EXP ENSES WERE NOT RELATED TO THE BUSINESS OF THE ASSESSEE. 2. ON THE FACTS AND ON THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN DIRECTI NG THE AO TO ALLOW THE CLAIM OF ASSESSEE ON ACCOUNT OF ADDITIONA L DEMAND OF SALES TAX AMOUNTING TO RS.2,80,240/- IGNORING THE F ACT THAT THE SALES TAX LIABILITY HAD NOT BEEN CRYSTALLIZED. 3. ON THE FACTS AND ON THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN DIRECTI NG THE AO TO ALLOW THE CLAIM OF ASSESSEE ON ACCOUNT OF LST PAYAB LE OF RS.14,595/- AND BONUS LIABILITY OF RS.3,24.240/ DIS ALLOWED U/S 43B OF THE ACT IGNORING THE FACT THAT THE ASSESSEE HAD NOT FURNISHED THE EVIDENCE WITH RESPECT TO DISCHARGE OF LIABILITIES BEFORE FURNISHING THE RETURN OF INCOME. 4. ON THE FACTS AND ON THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN DELETIN G THE INTEREST CHARGED ON THE DEBIT BALANCE OF CAPITAL ACCOUNT OF PARTNERS, ITA NOS.1861 & 1845/DEL./2010 5 IGNORING THE FACT THAT THE ASSESSEE HAS BORROWED FU NDS AND CLAIMING INTEREST PAYABLE ON THE BORROWED FUNDS. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY OF THE GROUND OF APPEAL BEFORE OR DURING THE COURSE OF HEARING OF THE APPEAL. 3. THE RETURN OF INCOME WAS FILED ON 31.10.2003 DEC LARING INCOME AT RS.1,09,710/-. THE ASSESSMENT UNDER SECTION 143(3) MADE ON 17.03.2006 AT THE INCOME OF RS.31,52,670/-. THE ASSESSEE IS A PR OPRIETORSHIP CONCERN HAVING THREE PARTNERS, NAMELY, SMT. UMA GAMBHIR, SH RI RAJIV GAMBHIR AND SMT. REENA GAMBHIR HAVING A PROFIT SHARING RATIO OF 50%, 25% & 25% RESPECTIVELY, ENGAGED IN THE BUSINESS OF TRADING IN MOTOR SPARE PARTS. THE ASSESSEE HAS 10 BRANCHES. 4. IN THE GROUND NO.1 OF THE ASSESSEES APPEAL, THE ASSESSEE HAS CHALLENGED THE SUSTAINING OF DISALLOWANCE OF RS.10,500/-. THE ASSESSEE CLAIMED THAT THE EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE BUSINESS PURPOSES. THEREFORE, THE CIT (A) IS NOT JUSTIFIED IN SUSTAINING THE SAME. ON THE OTHER HAND, THE LEARNED DR RELIED ON THE ORDER AUTHORITIES BELOW. 5. WE HAVE HEARD BOTH THE SIDES. THE FACTS OF THE CASE SHOW THAT THESE GIFT COUPONS WERE MADE BY BOMBAY BRANCH DURING THE YEAR IN WHICH NO SALES WERE EFFECTED FROM THAT BRANCH. THIS AMOUNT WAS DE BITED DURING THE YEAR UNDER CONSIDERATION AS THERE WERE SALES EFFECTED FR OM THE BOMBAY BRANCH. SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THEREFORE, THIS EXPENDITURE CAN BE ALLOWED ONLY IN THE YEAR IN WHICH IT HAS BEEN INCURRED. ITA NOS.1861 & 1845/DEL./2010 6 IN VIEW OF THESE FACTS, WE FIND NO FAULT IN THE ORD ER OF THE CIT (A) AND WE SUSTAIN THE SAME. 6. IN THE GROUND NO.2, THE ASSESSEE HAS RAISED THE ISSUE REGARDING DISALLOWANCE OF 1/10 TH OF THE TOTAL EXPENDITURE OUT OF THE RUNNING AND MAINTENANCE OF VEHICLES AND TELEPHONE EXPENSES. TH E ASSESSEE CLAIMED THAT NO DISALLOWANCE IS NEEDED AS THE EXPENDITURE INCURR ED IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AND THE REASONABLENESS OF THE EXPENDITURE SHOULD BE VIEWED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT FROM THE POINT OF VIEW OF R EVENUE. 7. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT IN THE IMMEDIATELY PRECEDING YEAR, SUCH DISALLOWANCE HAS BEEN FOUND RE ASONABLE IN VIEW OF THE PERSONAL USE OF THE VEHICLE BY THE PARTNERS AND FAM ILY MEMBERS AND THE SAME HAS BEEN CONFIRMED BY THE ITAT, DELHI BENCH D IN ITA NO.3746/DEL/2009 VIDE ORDER DATED 25.06.2010. 8. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. THE ASSESSEE IS A PARTNERSHIP FIRM. PERSONAL USE OF VEHICLES AND TEL EPHONE IS NOT RULED OUT AND THE ITAT HAS CONFIRMED SUCH DISALLOWANCES TREATING THE SAME AS REASONABLE IN THE IMMEDIATELY PRECEDING YEAR, THEREFORE, WE FIND NO FAULT IN THE ORDER OF THE CIT (A) IN CONFIRMING SUCH ADDITION AND WE DISMISS THIS GROUND OF ASSESSEES APPEAL. ITA NOS.1861 & 1845/DEL./2010 7 9. IN THE GROUND NO.3 IN ASSESSEES APPEAL, THE ISS UE INVOLVED IS CONFIRMING THE ADDITION OF RS.7,50,000/- APPEARING IN THE NAME OF THREE CREDITORS. IN THE GROUND NO.4, THE ISSUE IS RELATE D TO THE DISALLOWANCE OF INTEREST SHOW AS PAID TO THESE CREDITORS OF RS.54,6 49/-. LEARNED AR SUBMITTED THAT CIT (A) HAS WRONGLY CONFIRMED THE ADDITION OF RS.7,50,000/- REPRESENTING THE AMOUNT APPEARING IN THE NAME OF TH REE CREDITORS, NAMELY, MRS. ASHA RANI RS.2 LACS, MR. INDERPAL RAMPAL R S.50,000/- AND MS. SANGEETA GAMBHIR RS.5 LACS. HE PLEADED THAT THE AS SESSEE WAS ABLE TO PROVE THE GENUINENESS OF TRANSACTION AND THE IDENTITY OF THE LENDER AND ALSO THEIR CREDITWORTHINESS. HE ALSO PLEADED THAT CIT (A) HAS WRONGLY REJECTED THE ASSESSEES APPLICATION FILED UNDER RULE 46A AS THE ASSESSEE WAS NOT PROVIDED ADEQUATE OPPORTUNITY TO EXPLAIN THE POSITION WITH R EFERENCE TO THESE CREDITORS. THEREFORE, IT IS PRAYED BEFORE US THAT ASSESSEE MAY BE ALLOWED TO FILE THE FRESH EVIDENCE AS PER RULE 46A. SIMILARLY, DISALLOWANCE OF RS.54,649/- OF THE INTEREST PAID TO SUCH CREDITORS WAS ALSO NOT JUSTIF IED. 10. ON THE OTHER HAND, THE LEARNED DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 11. WE HAVE HEARD BOTH THE SIDES. THE ASSESSEE MOV ED AN APPLICATION BEFORE THE CIT (A) UNDER RULE 46A IN RESPECT OF FIL ING ADDITIONAL EVIDENCES. THE AO OBJECTED TO IT. THE CIT (A) SUSTAINED THE O BJECTION BY NOT ADMITTING THE ADDITIONAL EVIDENCE. AFTER HEARING BOTH THE SI DES, WE ARE OF THE VIEW THAT ITA NOS.1861 & 1845/DEL./2010 8 IN THE INTEREST OF JUSTICE AND EQUITY, THE ASSESSEE S PLEA FOR ADMITTING THE ADDITIONAL EVIDENCE SHOULD HAVE BEEN ALLOWED TO ADV ANCE THE SUBSTANTIAL JUSTICE. THEREFORE, WE SET ASIDE THE ISSUE TO THE FILE OF CIT (A) WITH A DIRECTION TO ADMIT THE ADDITIONAL EVIDENCE AND THEN DECIDE THE ISSUE AFRESH. GROUND NOS.3 & 4 ARE RESTORED TO THE FILE OF CIT (A ) AND IS ALLOWED FOR STATISTICAL PURPOSES. 12. IN THE GROUND NO.5, THE ASSESSEE HAS RAISED THE ISSUE REGARDING THE DISALLOWANCE OF THE PAYMENT OF INTEREST TO THE CRED ITORS TREATING THE SAME AS EXCESSIVE AMOUNTING TO RS.2,19,722/- AND IN VIEW OF THE PROVISIONS OF SECTION 40A(2)(A) OF RS.1,22,771/-. LEARNED AR SUBMITTED T HAT THE BENCHMARK FIXED FOR THE RATE OF INTEREST FOR WORKING OUT EXCESSIVE INTEREST IS NOT JUSTIFIED. THE INTEREST PAID ON THE COMMERCIAL BORROWINGS DEPENDS ON THE NEGOTIATIONS KEEPING IN VIEW OF THE REQUIREMENT OF FUNDS, LIQUID ITY POSITION, PREVIOUS DEALINGS WITH THE DEPOSITORS AND THE LENGTH OF DEPO SITS ACCEPTED. THEREFORE, RESTRICTING THE RATE @ 12% WHERE ACTIVE PAYMENT RAN GES FROM 13 TO 15% IS NOT JUSTIFIED. THE INTEREST PAID @ 18% TO THE PART NERS ON THE CAPITAL CONTRIBUTION IS ALLOWABLE AS THE SAME WERE PAID FOR LEGITIMATE BUSINESS NEEDS. HE PLEASED TO SET ASIDE THE ORDER OF AUTHORITIES BE LOW. ON THE OTHER HAND, THE LEARNED DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 13. WE HAVE HEARD BOTH THE SIDES AND WE NOTE THAT T HE DISALLOWANCE HAS BEEN MADE ON TWO COUNTS TREATING THE INTEREST EXCES SIVE TO UNRELATED PARTIES ITA NOS.1861 & 1845/DEL./2010 9 AND THE INTEREST EXCESSIVE IN VIEW OF THE PROVISION S OF SECTION 40A(2)(A) TO PARTNERS. THE CIT (A) CONFIRMED THE SUSTAINED ADDI TION INTEREST PAID TO OTHER PERSONS IN EXCESSIVE OF 12%. BUT THE INTEREST PAI D TO PARTNERS WAS ALLOWED EXCEPT INTEREST PAID ONE OF DEPOSITORS MRS. SANGEET A GAMBHIR AS THE DEPOSIT ITSELF WAS DISALLOWED ALONG WITH INTEREST. SINCE I N THAT MATTER WE HAVE RESTORED THE ISSUE TO THE FILE OF CIT (A), HENCE, W E SET ASIDE THIS ALSO. IN RESPECT OF INTEREST DISALLOWANCE RELATED TO OTHER P ERSONS, WE HOLD THAT AO IS NOT JUSTIFIED TO MAKE A BENCHMARK OF 12% TO DISALLO W THE BALANCE OF THE INTEREST PAID IN THE RANGES OF 13 TO 15%, THESE RAT ES APPEAR TO BE REASONABLE IN VIEW OF THE FACT THAT THESE PERSONS WERE NOT RELATE D IN TERMS OF PROVISIONS OF SECTION 40A(2)(A). THE INTEREST PAID TO OTHER PERS ONS WHICH WERE NOT RELATED TO THE ASSESSEE CANNOT BE DISALLOWED U/S 40A(2)(A) TREATING THE SAME AS EXCESSIVE. PARTICULARLY WHEN REVENUE HAD NOT BROUG HT ONLY ADVERSE MATERIAL ON RECORD. THIS SECTION CAN ALSO NOT BE MADE A BEN CHMARK FOR DISALLOWING THE PAYMENT OF INTEREST, WHEN THE INTEREST EXPENDITURE HAD BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES. IN VIEW OF THIS, WE ALLOW THIS GROUND IN TERMS AS STATED ABOVE. 14. IN GROUND NO.6, THE ISSUE INVOLVED IS REGARDING THE SUSTAINING DISALLOWANCE OF DEPRECIATION OF RS.8,424/- ON THE T ALLY MULTI USER. THE LEARNED AR PLEADED THAT THE ASSET IN QUESTION WAS I NCLUDED IN DULY CERTIFIED REPORT OF THE AUDITOR. THE ASSET PURCHASED DURING THE YEAR AND USED, HENCE, ITA NOS.1861 & 1845/DEL./2010 10 QUALIFY FOR THE CLAIM OF DEPRECIATION. THE ASSET W AS USED DURING THE YEAR. HE PLEADED TO ALLOW THE SAME. ON THE OTHER HAND, LEAR NED DR RELIED ON THE ORDER OF AUTHORITIES BELOW. 15. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE AND W E FIND THAT THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE BEFORE AUTHORITIES B ELOW AND EVEN BEFORE US WHICH COULD SHOW THAT THIS ASSET WAS PUT TO USE DUR ING THE RELEVANT PERIOD. IN ABSENCE OF SUCH EVIDENCE, WE FIND NO FAULT IN THE O RDER OF THE CIT (A), THEREFORE, WE SUSTAIN THE SAME. 16. IN THE GROUND NO.7, THE ISSUE INVOLVED IS SUSTA INING THE ADDITION OF RS.1,40,559/- ON ACCOUNT OF INTEREST WORK ON THE DE BIT BALANCE OF THE PARTNERS. 17. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE AND A FTER HEARING, WE FIND THAT THIS ISSUE IS ALSO INVOLVED IN ITA NO.3746/DEL /2009 FOR AY 2002-03 IN ASSESSEES OWN CASE WHERE THE ITAT, DELHI BENCH D IN ITS ORDER DATED 25.06.2010 HAS RESTORED THE MATTER BACK TO THE FILE OF THE AO TO UNDERTAKE THE EXERCISE FOR FINDING OUT WHETHER ANY ADVANCE WAS GI VEN OUT OF BORROWED FUNDS OF THE PARTNERS AND TO DECIDE THE MATTER AFRE SH AS PER LAW. THE ITAT HAS DECIDED THE ISSUE IN PARA 9 IN ITS ORDER DATED 25.06.2010 AS UNDER :- 9. RIVAL CONTENTIONS HAVE BEEN HEARD. FROM THE RECO RD, WE FOUND THAT PARTNERS CAPITAL ACCOUNT AS ON 31.3.2001 SHOWS A DEBIT BALANCE OF RS.3.76 LAKHS, RS.7.94 LAKHS IN TH E NAME OF SHRI RAJIV GAMBHIR AND SMT.REENA GAMBHIR. THE AO OBSERVE D THAT ASSESSEE HAS NOT CHARGED ANY INTEREST ON THE DEBIT BALANCE OF THE TRANSACTIONS WHILE ITS PAID INTEREST ON THE BORROWE D FUNDS TO THE TUNE OF RS.4.58 LAKHS TO THE BANK AND RS.31.94 LAKH S TO OTHERS. AS PER PARTNERSHIP DEED, THERE WAS A PROVISION FOR PAYMENT OF ITA NOS.1861 & 1845/DEL./2010 11 INTEREST AT 18% ON THE CREDIT BALANCE IN CAPITAL OF PARTNERS. THE AO THEREFORE HELD THAT SINCE THERE WAS A CONDITION FOR PAYING THE INTEREST ON THE CREDIT BALANCE, THE ASSESSEE FIRM S HOULD HAVE ALSO CHARGED INTEREST ON THE DEBIT BALANCE. ACCORDINGLY, OUT OF THE EXPENDITURE ON INTEREST PAYMENT, THE AO WORKED OUT RS.2,10,838/- AS INTEREST PAYABLE ON THE DEBIT BALA NCE ON PARTNERS' CAPITAL ACCOUNT, AND THE SAME WAS DECLINE D DEDUCTION. THE CIT(A) DELETED THE DISALLOWANCE BY OBSERVING TH AT NO EFFORT HAS BEEN MADE BY THE AO TO FIND OUT ANY DIVERSION O F INTEREST BEARING FUNDS TAKEN BY THE ASSESSEE FROM OVERDRAFT ACCOUNT OF INDIAN OVERSEAS BANK AND OTHER LOAN CREDITORS. WE D O NOT FIND ANY JUSTIFICATION IN THE ORDER OF CIT(A) INSOFAR AS WHAT THE AO HAS FAILED TO DO EITHER HE CAN DO THE SAME OR HE CA N ASK FOR THE REMAND REPORT. IT IS ASSESSEE'S ONUS TO SHOW THAT I NTEREST BEARING FUNDS HAVE NOT BEEN UTILIZED FOR NON-BUSINESS PURPO SES OR IN ADVANCING INTEREST FREE LOANS. SINCE NEITHER THE A SSESSEE HAS BEEN ABLE TO SHOW NOR THE LOWER AUTHORITIES HAVE MA DE ANY EFFORT TO FIND OUT ANY SUCH DIVERSION OF FUNDS, WE RESTORE THE MATTER BACK TO THE FILE OF THE AO TO UNDERTAKE THIS EXERCI SE FOR FINDING OUT WHETHER ANY ADVANCE WAS GIVEN OUT OF BORROWED F UNDS TO THE PARTNERS, AND TO DECIDE THE MATTER AFRESH AS PER LA W. WE DIRECT ACCORDINGLY. SINCE THE ISSUE HAS BEEN RESTORED TO THE FILE OF AO TO UNDERTAKE THE EXERCISE FOR FINDING OUT WHETHER ANY ADVANCE WAS GIVEN OUT O F BORROWED FUNDS TO THE PARTNERS. SUCH FINDINGS ARE ALSO NOT AVAILABLE ON RECORD FOR THIS YEAR ALSO, THEREFORE, IN THE INTEREST OF JUSTICE AND EQUITY, W E RESTORE THIS ISSUE TO THE FILE OF AO. 18. IN THE GROUND NO.8, THE ISSUE INVOLVED IS REGAR DING SUSTAINING THE ADDITION OF RS.7,01,471/- BEING THE CREDIT AMOUNT IN THE ACCOUNT OF ONE OF THE PARTNERS, REENA GAMBHIR, AS HER CAPITAL CONTRIBUTIO N TO THE FIRM. LEARNED AR PLEADED THAT THIS ADDITION HAS BEEN WRONGLY SUSTAIN ED. THIS WAS AN INTRODUCTION OF CAPITAL BY ONE OF THE PARTNERS, THE IDENTITY OF THE PARTNER IS NOT ITA NOS.1861 & 1845/DEL./2010 12 IN DOUBT. THE CONTRIBUTION HAS BEEN RECEIVED BY AC COUNT PAYEE CHEQUES. THEREFORE, THERE WAS NO REASON TO TREAT THE SAME AS UNEXPLAINED. HE ALSO PLEADED THAT AT THE MOST THIS ISSUE MAY BE EXAMINED IN THE HANDS OF PARTNER AND NOT IN THE HANDS OF FIRM. ON THE OTHER HAND, L EARNED DR SUBMITTED THAT THE ASSESSEE HAS SUBMITTED A BANK STATEMENT OF KAVI TA GAMBHIR WHILE THE CAPITAL HAS BEEN INTRODUCED IN THE NAME OF REENA GA MBHIR. HE SUBMITTED THAT NO EVIDENCE WAS SUBMITTED BEFORE THE AUTHORITIES BE LOW AND THEREFORE, THE AUTHORITIES BELOW WERE JUSTIFIED IN SUSTAINING THE ADDITION. 19. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE FIND THAT REENA GAMBHIR HAS INTRODUCED THE CAPITAL WHEREAS ACCOUNT BELONGS TO KAVITA GAMBHIR. IN THE ABSENCE OF RELEVANT DOCUMENTS TO E XPLAIN THAT REENA AND KAVITA IS ONE AND THE SAME PERSON AND THE RECEIPTS IN THE BANK ACCOUNT ARE EXPLAINED, NO RELIEF COULD BE GRANTED. NECESSARY EVIDENCES HAVE TO BE SUBMITTED. KEEPING THESE FACTS IN VIEW AND IN THE INTEREST OF JUSTICE AND EQUITY, WE RESTORE THE ISSUE TO THE FILE OF AO TO D ECIDE DE NOVO. THE ASSESSEE SHALL BE AT LIBERTY TO PRODUCE THE EVIDENCE IN SUPP ORT OF ITS CLAIM. 20. IN THE GROUND NO.9, THE ISSUE INVOLVED IS DISAL LOWANCE OUT OF TARGET DISCOUNT. THE AO DISALLOWED THE TARGET DISCOUNT OF RS.1,45,606/-. THE CIT (A) SUSTAINED THE ADDITION BY HOLDING AS UNDER :- 14. GROUND 14 OF THE APPEAL IS AGAINST THE ADDITIO N OF RS.1,45,606/- CLAIMED BY THE APPELLANT AT TARGET DI SCOUNT. THE ASSESSING OFFICER DISALLOWED THE CLAIM SINCE THE AP PELLANT HAD DEDUCTED RS.1,45,606/- FROM THE CLOSING STOCK. THE ASSESSING ITA NOS.1861 & 1845/DEL./2010 13 OFFICER NOTED THAT DISCOUNT IS ALLOWABLE ONLY OUT O F SALE PROCEEDS AND THAT DEDUCTION CANNOT BE MADE FROM THE CLOSING STOCK. THE APPELLANT SUBMITTED DURING THE APPELLATE PROCEEDINGS THAT TARGET DISCOUNT WAS AN ACCEPTED PR ACTICE AND THAT THEY WERE ENTITLED TO CONSIDER THE ANTICIPATED LOSSES REPRESENTED BY TARGET DISCOUNT. THERE IS NO MERIT I N THE SUBMISSIONS OF THE APPELLANT AS TARGET DISCOUNT CAN NOT BE APPLIED TO REVALUE THE CLOSING STOCK. ALSO, THE CLO SING STOCK CANNOT BE TINKERED TO ACCOUNT FOR FUTURE LOSSES. T HEREFORE, THE ADDITION IS CONFIRMED AND GROUND 14 OF THE APPEAL I S DISMISSED. 21. AFTER HEARING BOTH THE SIDES ON THE ISSUE, WE F IND THAT THE CORRECT FACTS HAVE NOT BEEN BROUGHT ON THE RECORD WHETHER THE SAM E PRACTICE IS FOLLOWED IN PAST YEARS. AT WHAT STAGE THE TARGET DISCOUNT IS PASSED ON TO THE ASSESSEE. HOW IT IS ACCOUNTED FOR? ALL THESE DETAILS ARE NEC ESSARY TO DECIDE THE TRUE NATURE OF DISCOUNT. THEREFORE, IN THE INTEREST OF JUSTICE, WE RESTORE THIS ISSUE TO THE FILE OF AO TO DECIDE DE NOVO. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. 23. NOW, WE TAKE UP REVENUES APPEAL. AT THE OUTSE T, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TAX EFFECT ON ALL THE ISSUES RAISED BY THE REVENUE IN GROUND NOS.1 TO 4 COMES BELOW THE THRESHOLD LIMI T OF RS.3 LACS. THIS FACTUAL POSITION WAS ADMITTED BY THE LD. D.R. AS P ER THE INSTRUCTION NO. 3/2011 DATED 09.02.2011, THE REVENUE IS NOT PERM ITTED TO FILE APPEAL BEFORE THE ITAT WHERE THE TAX EFFECT IS LESS THAN RS. 3.0 0 LAKH. ITA NOS.1861 & 1845/DEL./2010 14 24. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE MATERIAL AVAILABLE ON RECORD. INSTRUCTION NO. 3/2011 DATED 09.02.2011 HAS REVISED THE MONETARY LIMIT FOR FILING THE APPEAL BY THE D EPARTMENT BEFORE INCOME- TAX APPELLATE TRIBUNAL, HONBLE HIGH COURTS AND HONBLE SUPREME COURT. MONETARY LIMIT FOR FILING THE APPEAL BEFORE THE T RIBUNAL IS RS. 3.00 LAKH; BEFORE HONBLE HIGH COURT RS. 10.00 LAKH AND BEFOR E HONBLE SUPREME COURT RS. 25.00 LAKH. HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DELHI RACE CLUB LTD. IN ITA NO. 128/2008 DATED 0 3.03.2011 HAS HELD AS UNDER:- THE TAX EFFECT INVOLVED IN THE PRESENT APPEAL IS RS. 4,65,860/-. AS PER THE RECENT GUIDELINES OF THE CBDT, APPEA L IN THOSE CASES WHERE THE TAX EFFECT IS LESS THAN RS. 10.0 0 LAKHS, ARE NOT TO BE ENTERTAINED. THIS COURT IN THE CASE OF CIT, DELHI-III VS. M/S P .S. JAIN & CO., BEING ITA NO. 179/1991 DECIDED ON 2 ND AUGUST, 2010 HAS TAKEN A VIEW THAT SUCH CIRCULAR WOULD ALSO APPLY TO PENDING CASES. 26. IN VIEW OF THE DECISION OF HONBLE DELHI HIGH COURT, WHICH IS THE JURISDICTIONAL HIGH COURT IN THIS CASE, WHEREIN I T IS HELD THAT INSTRUCTION NO. 3/2011 DATED 09.02.2011 WILL APPLY TO ALL PENDI NG APPEALS. RESPECTFULLY FOLLOWING THE SAME, IT IS HELD THAT THE APPEAL IS NOT MAINTAINABLE IN THE INSTANT CASE AS THE TAX EFFECT IS LESS THAN RS . 3.00 LAKHS. ACCORDINGLY, IT IS HELD THAT APPEAL FILED BY THE REVENUE IS NOT MAINTA INABLE. ITA NOS.1861 & 1845/DEL./2010 15 27. IN THE RESULT, APPEAL FILED BY THE DEPARTMENT I S DISMISSED IN LIMINE WITHOUT GOING INTO THE MERITS. 28. TO SUM UP : THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSES AND APPEAL FILED BY THE DEPARTMENT IS DISM ISSED IN LIMINE WITHOUT GOING INTO THE MERITS ORDER PRONOUNCED IN OPEN COURT ON THIS 23 RD DAY OF SEPTEMBER, 2011. SD/- SD/- (RAJPAL YADAV) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 23 RD DAY OF SEPTEMBER, 2011 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXV, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.