ACIT, New Delhi V. Sh. Ashmeet Singh, New Delhi

ITA 1862/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90989 (ITAT-DELHI)
• Duration Of Justice: 3 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 23-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Section: 28

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI A.T. VARKEY: JUDICIAL MEMBER ITA NO. 1862/DEL/2012 A.Y. 2008-09 ACIT, CIRCLE 23(1), VS. ASHMEET SINGH, NEW DELHI. 149/1, DEVLI VILLAGE, NEW DELHI.110062. PAN: ALNPS 3126 K ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SMT. Y. KAKKAR DR RESPONDENT BY : NONE DATE OF HEARING : 16-03-2015 DATE OF ORDER : _____-04-2015. O R D E R PER S.V. MEHROTRA, A.M:- THIS APPEAL, BY THE ASSESSEE, IS DIRECTED AGAINST T HE ORDER DATED 30-11-2011 PASSED BY THE LD. CIT(A)-XVI, NEW DELHI IN APPEAL N O. 96/11-12 RELATING TO A.Y. 2008-09. 2. NONE PUT IN APPEARANCE ON BEHALF OF THE ASSESSEE AT THE HEARING FIXED FOR 16- 3-2015, DESPITE ISSUE OF NOTICE FOR HEARING, SENT THROUGH RPAD AT THE ADDRESS FURNISHED BY THE ASSESSEE IN COLUMN NO. 10 OF FORM NO. 36. ACCORDINGLY, WE PROCEED TO DISPOSE OF THE APPEALS, EX PARTE, QUA TH E ASSESSEE AND IN THAT PROCESS WE HAVE HEARD LD. DR AND PERUSED THE MATERIAL AVAILABL E ON RECORD. 2 ITA 1862/DEL/2012 ACIT VS. ASHMEET SINGH 3. THE ASSESSEE, IN THE RELEVANT ASSESSMENT YEAR E NJOYED INCOME FROM EXPORT OF GARMENT IN VARIOUS COUNTRIES THROUGH HIS PROPRIETORSHIP CONCERN M/S COCOON EXPORTS. HE HAD FILED RETURN OF INCOME SHOWING TOTAL INCOME OF RS. 43,85,010/-. THE ASSESSMENT WAS COMPLETED U/S 1 43(3)/144 OF THE I.T. ACT AT TOTAL INCOME OF RS. 1,04,35,640/-, INTER ALI A, MAKING DISALLOWANCE OF INTEREST AS PER PROVISO TO SEC. 36(1)(III) OF RS. 2 2,10,351/-. DISALLOWANCE WAS DELETED BY LD. CIT(A). BEING AGGRIEVED THE DEPARTME NT IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING GROUND OF APPEAL: ON THE FACTS AND ON THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY A O ON ACCOUNT OF DISALLOWANCE OF INTEREST OF RS. 22,10,35 1/- UNDER PROVISO OF SECTION 36(1)(III) OF THE I.T. ACT. 4. BRIEF FACTS APROPOS THE ISSUE INVOLVED ARE THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT AS PER P&L A/C, ASS ESSEE HAD CLAIMED EXPENSES ON ACCOUNT OF PAYMENT OF INTEREST AS PER F OLLOWING DETAILS: I. INTEREST AND BANK CHARGES RS. 17,48,553/- II. INTEREST ON CAR LOAN RS. 91,929/- III. INTEREST ON LOAN RS. 4,61,798/- RS. 23,02,280/- 5. FROM THE COMPARISON OF BALANCE-SHEET AS ON 31-3- 2007 AND 31-3- 2008, THE AO NOTICED THAT THERE WAS INCREASE IN FIX ED ASSETS AGGREGATING TO RS. 1,98,31,778/- AND ALSO INCREASE IN UNSECURED LO AN OF RS. 40,56,876/-. HE EXAMINED THE SCHEDULE OF FIXED ASSETS AND NOTICED T HAT ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD MADE ADVANCE FOR PURCH ASE OF FACTORY RETAIL OUTLET, A FACTORY PLOT AT GURGAON AND AN OFFICE FLA T AT UNITECH. HE FURTHER OBSERVED THAT IN THE PREVIOUS YEAR ALSO THE ASSESSE E HAD HEAVILY INVESTED IN 3 ITA 1862/DEL/2012 ACIT VS. ASHMEET SINGH REAL ESTATE AND HAD SHOWN THESE PROPERTIES IN THE F IXED ASSET SCHEDULE TERMING THOSE TO BE A BUSINESS ASSET. HE CONCLUDED THAT BORROWED FUNDS WERE UTILIZED TOWARDS ACQUISITION OF ASSET WHICH THE ASS ESSEE INTENDED TO USE FOR EXPANSION OF HIS BUSINESS. IN RESPONSE TO SHOW CAUS E NOTICE ISSUED BY AO, THE ASESSEE GAVE FOLLOWING REPLY: WITH REFERENCE TO ABOVE ADDITION, WE HUMBLY SUBMI T THAT ASSESSEE HAS NOT UTILIZED INTEREST BEARING FUN D IN CONNECTION WITH ABOVE MENTION ASSETS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE AHS INTRODUCED FRESH CAPITAL OF RS. 38,40,000/- ON WHIC H NO CLAIM OF ANY INTEREST HAS BEEN MADE IN THE BOOK. THERE ARE NO FRESH LOAN TAKEN IN CONNECTION WITH ACQUISITION OF THESE ASSETS IF THE FRESH LOAN HAS T AKEN THOSE ARE INTEREST FREE AS EXPLAINED AS UNDER:- NAME OF THE PARTY AMOUNT ASHMEET SINGH (HUF) RS. 3,38,000/- HARMEET SINGH RS. 12,96,530/- LAST RESOURES (MRS. SATINDER KAUR) RS. 20,36,661/- PERFECTION HOUSE RS. 1,00,000/- SATINDER KAUR RS. 13,77,189/- INCA TRADE RS. 8,25,000/- 6. THE AO, HOWEVER, DID NOT ACCEPT THE ASSESSEES C ONTENTION AND POINTED OUT THAT IN VIEW OF PROVISO TO SECTION 36(1 )(III), SINCE THE ASSET WAS NOT PUT TO USE, THE INTEREST COULD NOT BE ALLOWED Q UA THE FIXED ASSET FOR THE ACQUISITION OF WHICH THE BORROWED CAPITAL WAS UTILI ZED. HE FURTHER OBSERVED THAT ASSESSEE FAILED TO GIVE ANY DETAILS AS TO WHAT WAS THE EXACT FUND BORROWED AND UTILIZED TOWARDS PURCHASE OF NEW ASSET AND FURTHER FAILED TO PROVE OR GIVE ANY DETAILS FOR SUCH INTEREST ATTRIBU TABLE TO THE FUNDS BORROWED 4 ITA 1862/DEL/2012 ACIT VS. ASHMEET SINGH AND USE FOR THE PURPOSE OF ACQUISITION OF NEW ASSET . HE, ACCORDINGLY, DISALLOWED RS. 22,10,351/-. 7. BEFORE LD. CIT(A) THE ASSESSEE HAD, INTER ALIA, POINTED OUT THAT THE INVESTMENT IN THE FACTORY PLOT AT GURGAON (RS. 93,8 00/-); COMMERCIAL PROPERTY AT UNITECH (RS. 40,25,285/-); AND FACTORY RETAIL OUTLET (RS. 19,55,045/-) HAD BEEN MADE OUT OF NON-INTEREST BEAR ING FUNDS. THE ASSESSEE FURTHER POINTED OUT THAT EVEN IF IT IS CONSIDERED T HAT INVESTMENTS WERE MADE OUT OF INTEREST BEARING FUNDS IN REGARD TO AFOREMEN TIONED PROPERTIES, THEN TOO THE TOTAL DISALLOWANCE COULD BE MADE WAS RS. 2,98 ,893/- FOR WHICH DETAILED CALCULATION WAS GIVEN, AS REPRODUCED AT PAGE 6 OF C IT(A)S ORDER. LD. CIT(A) DELETED THE DISALLOWANCE BY OBSERVING AS UND ER: 4.1. I HAVE CONSIDERED THE FACTS OF THE CASE AND T HE SUBMISSIONS OF THE AR. THE ASSESSING OFFICER HAS NO T BEEN ABLE TO ESTABLISH THE NEXUS OF INTEREST BEARING FUNDS BO RROWED BY THE APPELLANT WITH THE APPLICATION OF SUCH FUNDS FOR NO N-BUSINESS PURPOSES. MOREOVER, AND WITHOUT PREJUDICE TO THE AB OVE, ANY INVESTMENTS MADE BY AN ASSESSEE IN LAND ETC. TO BE USED FOR BUSINESS PURPOSES MAY NOT YIELD ANY INTEREST OR REN TAL INCOME, BUT THIS DOES NOT IMPLY THAT THE INTEREST PAID ON L OANS, IF ANY, TAKEN FOR SUCH INVESTMENTS IS NOT ALLOWABLE AS A BU SINESS EXPENDITURE. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS DELETED. 8. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 9. WE HAVE HEARD LD. DR AND PERUSED THE MATERIAL AV AILABLE ON RECORD. SECTION 36(1)(III) READS AS UNDER: 5 ITA 1862/DEL/2012 ACIT VS. ASHMEET SINGH 36(1) THE DEDUCTION PROVIDED FOR IN THE FOLLOWING C LAUSE SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THE REIN IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 . . (III) THE AMOUNT OF THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF THE BUSINESS OR PROFESS ION. PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, I RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EX TENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITALIZE D IN THE BOOKS OF ACCOUNT OR NOT); FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISIT ION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST P UT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION. 10. A BARE PERUSAL OF THE PROVISO TO SECTION 36(1)( III) CLEARLY REVEALS THAT THERE SHOULD BE SPECIFIC FINDING THAT THE AMOUNT OF INTEREST PAID IS IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION. THEREFORE, DIRECT NEXUS BET WEEN THE CAPITAL BORROWED AND THE ACQUISITION OF ASSET HAS TO BE ESTABLISHED BEFORE PROVISO CAN BE INVOKED. IN THE PRESENT CASE THE AO HAS NOT ESTABLI SHED THIS NEXUS. THEREFORE, THE PROVISO WAS WRONGLY INVOKED BY HIM. FURTHER, WE FIND THAT IT WAS SPECIFICALLY STATED BEFORE THE AO THAT THERE WA S INTRODUCTION OF FRESH CAPITAL OF RS. 38,40,000/- ON WHICH NO CLAIM OF ANY INTEREST HAD BEEN MADE IN THE BOOKS. THE AO HAS NOT AT ALL TAKEN INTO CONS IDERATION AS TO HOW THIS FUND WAS UTILIZED. FURTHER, ASSESSEE HAS ALSO POINT ED OUT THAT IT HAD RECEIVED INTEREST FREE LOAN, WHICH HAS BEEN REPRODUCED EARLI ER. IN ANY CASE, THE ASSESSEES CLAIM WAS THAT THE ENTIRE BORROWED FUNDS HAD BEEN UTILIZED FOR BUSINESS PURPOSES AND NOT FOR ACQUISITION OF FIXED ASSETS. IN VIEW OF ABOVE 6 ITA 1862/DEL/2012 ACIT VS. ASHMEET SINGH DISCUSSION, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THE SAME IS UPHELD. 14. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 24-04-2015. SD/- SD/- (A.T. VARKEY ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 24-04-2015. MP: C OPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR