Shri Kantilal Pransukhram Naik, Unjha V. The Dy.CIT.,Patan Circle, Patan

ITA 1908/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80477 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 30-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 02-08-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI , ACCOUNTANT MEMBER ITA NO . 1 908 /AHD/20 1 1 A. Y. 200 8 - 0 9 KANTILAL PRANSUKHRAM NAIK, 99, KHADIYA, OLD GUNJ BAZZAR, UNJHA. PAN: AAPPN 6840A VS DCIT, PATAN CIRCLE, PATAN. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI V .K. SINGH , SR. D.R. , ASSESSEE(S) BY : MS. URVASHI SHODHAN, A.R. / DATE OF HEARING : 30 / 09 /201 4 / DATE OF PRONOUNCEMENT: 31 / 10 /201 4 / O R D E R PER SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER THIS IS AN A PPEAL FILED BY THE ASSESSEE ARISING FROM THE ORDER OF T HE L EARNED CIT (A ), GANDHINAGAR , DAT ED 21/ 0 6 /201 1 FOR A.Y. 200 8 - 0 9. THE GROUND WHICH IS ARGUED BEFORE US ARE REPRODUCED BELOW: 1. THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF INTEREST UPTO RS 2,00,000 / - . THE LD CIT(A) OUGHT TO HAVE DELETED THE ADDITION IN TOTO. I T BE DELETED NOW . 2 THE LD. CIT (A) HAS ERRED BOTH IN LAW AND ON FACTS IN CONFIRMING THE ADDITION ALTHOUGH HE IS IN AGREEMENT THAT THE ADDITION IS UNCALLED FOR. THE LD. CIT(A) HAS ERRED IN HOLDING THAT T HE BORROWED FUNDS BEARING HIGHER INTEREST WERE UTILIZED FOR NON - BUSINESS PURPOSES. THE ID CIT(A) OUGHT TO HAVE DELETED THE DISALLOWANCE IN TOTO AS THERE WERE HUGE INTEREST FREE FUNDS DEPOSITED IN THE BANK ACCOUNT FROM WHICH ADVANCES AT INTEREST WERE GIVEN. 3 THE LD. CIT (A) HAS ERRED BOTH IN LAW AND ON FACTS IN CONFIRMING THE ADDITION IN PART WHEN THERE WAS NO CASE OF INCURRING OF AN EXPENDITURE F O R WHICH DISALLOWANCE U/S 40A(2)(B) WAS MADE BY THE ID . AO WITHOUT APPLICATION OF MIND. IT BE SO HELD NO W . ITA NO. 1908 /AHD/201 1 KANTILAL PRANSUKHRAM NAIK VS. DCIT, PATAN CIRCLE, PATAN FOR A.Y. 200 8 - 0 9 - 2 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S. 143(3) DATED 22.7.2010 THAT THE ASSESSEE HAS DECLARED AN INCOME OF RS.13,76,280/ - PERTAINING TO THE BUSINESS OF TRADING IN JEERA PROCESSING AND EXPORTER OF PHYLLIUM HUSK. DURING THE COURSE OF ASSESSMENT PROCEEDINGS , IT WAS NOTED BY THE AO THAT THE ASSESSEE HAD PAID INTEREST @12 TO 15% TO THE DEPOSITORS ON ONE HAND AND ON THE OTHER HAND THE ASSESSEE HAS RECEIVED INTEREST @ 6% TO 9%. A SHOW CAUSE NOTICE WAS ISSUED AND PROPOS ED TO INVOKE THE PROVISIONS OF SECTION 40A(2)(B) OF IT ACT TO DISALLOW THE INTEREST IN THE FOLLOWING MANNER: SL. NO. NAME OF THE PARTY RATE OF INTEREST INTEREST AT THE RATE OF 12% 1. ASHWIN K. NAIK 6% 215160 2. H.P. TRADERS 6% 36014 3. KANAIYA EXPORT PVT. LTD. 6% 487896 4. M/S. JITENDRA KUMAR RAMESH CHANDRA & CO. 9% 166189 5. BHARTIBEN ASHWINBHAI PATEL 6% 21580 926839 2.1 IT WAS ALSO FOUND THAT ALL THOSE PARTIES AS LISTED ABOVE WERE THE RELATIVES OF THE ASSESSEE. THE ASSESSEE S ONE OF THE MAIN CONTENTION WAS THAT IT HAS SUFFICIENT INTEREST FREE FUNDS BUT THAT EXPLANATION OF THE ASSESSEE WAS REJECTED BY THE AO BECAUSE THE ASSESSEE HAS FAILED TO DEMONSTRATE THE NEXUS BETWEEN AVAILABILITY OF INTEREST FREE FUNDS WITH THE LOANS ADVANCED TO RELATIVES. 2.2 AN ANOTHER FACTS HAS ALSO BEEN NOTED BY THE AO THAT ON THIS ISSUE FOR A.Y. 2003 - 04 THE ASSESSEE HAD GONE IN APPEAL UPTO THE STAGE OF THE TRIBUNAL WHO HAD SET ASIDE THE MATTER VIDE ITA NO.1959/AHD/2009 , ITA NO. 1908 /AHD/201 1 KANTILAL PRANSUKHRAM NAIK VS. DCIT, PATAN CIRCLE, PATAN FOR A.Y. 200 8 - 0 9 - 3 ORDER DATED 18.09.2009. EVEN DURING SECOND ROUND OF THE PROCEEDINGS WHILE GRANTING THE EFFECT TO THE ORDER OF THE TRIBUNAL , THE AO HAS AGAIN COMPLETED THE ASSESSMENT BY MAKING THE ADDITION OF THE SAID DISALLOWANCE OF INTEREST. SINCE , IN THE PRESENT YEAR AS WELL THE ASSESSEE WAS UNABLE TO ESTABLISH THAT THE INTEREST FREE FUNDS WERE ACTUALLY ADVANCED TOWARDS INTEREST FREE LOANS ; THEREFORE, THE AO HAS DISALLOWED THE DIFFERENCE OF THE INTEREST AMOUNT OF RS.4,21,872/ - IN THE HANDS OF THE ASSESSEE. 3. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUT HORITY, LEARNED CIT(A) HAS CONFIRMED THE ADDITION AFTER ASSIGNING THE FOLLOWING REASONS: 4. THE ASSESSEE HAS COME IN APPEAL AGAINST THE DISALLOWANCE. DETAILS AND WRITTEN SUBMISSIONS HAVE BEEN FILED. I H AVE THOROUGHLY CONSIDERED THE ENTIRE FACTS OF THE CAS E AND THE FOLLOWING MATERIAL OBSERVATIONS ARE MADE. A) THE AMOUNTS HAVE BEEN ADVANCED TO THE RELATED PARTIES FROM BANK ACCOUNTS WHEREIN REVENUE RECEIPTS AS WELL AS INTEREST BEARING LOANS HAVE BEEN DEPOSITED TOGETHER. THEREFORE, THE ADVANCES WHICH ARE PARTL Y FOR NON - BUSINESS PURPOSES CAN BE SAID TO BE PARTLY ADVANCED FROM LOANS TAKEN. B) I AGREE WITH THE ASSESSEE THAT SUBSTANTIAL PART HAS BEEN ADVANCED IN THE FAG END OF THE YEAR AND DISA L LOWANCE SHOULD HAVE BEEN MADE CONSIDERING THIS, C) THERE WERE OPENING B ALANCES OF ADVANCES TO THE SAME PERSONS ALSO. IN AY 2003 - 04, A DISALLOWANCE OF INTEREST HAS BEEN WORKED OUT AT RS.90,555 / - . CONSEQUENTLY, INTEREST RELATED TO OPENING BALANCES ALSO REQUIRES TO BE DISALLOWED WHICH IS NOT PRACTICALLY FEASIBLE TO WORK OUT EXAC TLY. CONSIDERING ALL THESE FACTORS, A DISALLOWANCE OF RS.2,00,000/ - IS CONFIRMED OUT OF INTEREST EXPENSES, CLAIMED. I AGREE THAT THE ADDITION SHOULD NOT HAVE BEEN MADE U/S. 40A(2)(B). HOWEVER, THE LANGUAGE OF THE ORDER AND THE REASONING GIVEN BY THE AO CL EARLY SHOW THAT THE INTEREST HAS BEEN DISALLOWED AS IT HAS BEEN HELD TO BE GIVEN AND UTILIZED FOR NON - BUSINESS PURPOSES, TO THAT EXTENT. THEREFORE, THE DISALLOWANCE IS CONFIRMED AS HAVING BEEN MADE U/S. 36(1)(III). 4. FROM THE SIDE OF THE APPELLANT, LEAR NED AR, MS. URVASHI SODHAN APPEARED AND DRAWN OUR ATTENTION ON THE LEDGER ACCOUNTS OF THE PARTIES TO ITA NO. 1908 /AHD/201 1 KANTILAL PRANSUKHRAM NAIK VS. DCIT, PATAN CIRCLE, PATAN FOR A.Y. 200 8 - 0 9 - 4 WHOM THE IMPUGNED LOANS WERE ADVANCED. SH E HAS ALSO CITED FEW DECISIONS; NAMELY, CIT VS. RELIANCE UTILITIES & POWER LTD. , 313 ITR 340 (BOM) , R AGHUVIR SYNTH ETICS, 354 ITR 222 (GUJ.) , B.A. PLANTATIONS & INDUSTRIES LTD., 242 ITR 22 (GAUHATI) . THE MAIN ARGUMENT OF MS. SODHAN WAS THAT A NOTIONAL INCOME WAS CALCULATED BY THE AO FOR MAKING THE IMPUGNED ADDITION WHICH IS NOT CORRECT PROCEDURE UNLESS AND UNTIL A DEFI NITE INFORMATION IS AVAILABLE WITH THE AO THAT THE INTEREST WAS PAID TO SUCH PERSONS DELIBERATELY AT A LOWER RATE. 5. FROM THE SIDE OF THE REVENUE, LEARNED SR.D.R. , MR. V.K. SINGH HAS STRONGLY SUPPORTED THE ORDER OF THE AO AND LEARNED CIT(A). HE HAS PLAC ED RELIANCE ON THE FINDINGS OF THE TRIBUNAL IN ASSESSEE S OWN CASE IN AN ORDER DATED 18 TH SEPTEMBER, 2009 PERTAINING TO A.Y. 2003 - 04. MR. SINGH HAS ALSO ARGUED THAT THE PARTIES IN QUESTION WERE RELATIVES OF THE ASSESSEE; HENCE, THE ASSESSEE WAS IN A CONTRO LLING POSITION TO MANIPULATE THE RATE OF INTEREST PAID TO THOSE PARTIES. 6. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES AND AFTER CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND SPECIALLY THE ORDER OF THE TRIBUNAL AS REFERRED SU PRA, WE HEREBY UPHOLD THE VIEW TAKEN BY THE REVENUE AUTHORITIES. NO REASONABLE EXPLANATION WAS TENDERED BY THE ASSESSEE THAT WHY THE INTEREST @ 12 TO 15% WAS PAID TO THE DEPOSITORS ON ONE HAND AND ONLY INTEREST @ 6 TO 9% WAS RECEIVED FROM THE RELATIVES . WE HAVE ALSO NOTED THAT IT WAS AN UNDISPUTED FACT THAT THE PARTIES AS LISTED ABOVE WERE RELATIVES OF THE ASSESSEE; THEREFORE , WITHIN THE AMBITS OF SECTION 40A(2)(B) OF IT ACT . FURTHER, T HE ASSESSEE S OWN ACCOUNTS WERE THE BASIS OF CONSIDERING THE RATE OF INT EREST PREVAILING ITA NO. 1908 /AHD/201 1 KANTILAL PRANSUKHRAM NAIK VS. DCIT, PATAN CIRCLE, PATAN FOR A.Y. 200 8 - 0 9 - 5 DURING THE YEAR UNDER CONSIDERATION. WE HAVE ALSO NOTED THAT THE RESPECTED ITAT C BENCH AHMEDABAD IN ASSESSEE S OWN CASE VIDE AN ORDER DATED 18 TH SEPTEMBER, 2009 HAS OPINED THAT IN A CIRCUMSTANCE WHEN THERE WAS NO MATERIAL AVAILABLE ON R ECORD AS TO THE AVAILABILITY OF THE INTEREST FREE FUNDS WITH THE ASSESSEE WHICH WERE ADVANCED , THEN IT IS DIFFICULT TO ACCEPT THE EXPLANATION OF THE ASSESSEE. THE TRIBUNAL HAS FURTHER MADE AN OBSERVATION THAT EVEN THE DATE WHEN SUCH FUNDS WERE ADVANCED , WE RE NOT AVAILABLE ON RECORD. THE RESPECTED CO - ORDINATE BENCH WAS OF THE VIEW THAT THE ASSESSEE WAS SUPPOSED TO FURNISH THE FUND FLOW STATEMENT EVIDENCING THE NEXUS OR THE UTILIZATION OF BORROWED FUNDS FOR THE PURPOSE OF THE BUSINESS. WE, THEREFORE, RESPECTF ULLY CONSIDER ING THOSE VITAL FINDINGS OF THE TRIBUNAL AND IN THE ABSENCE OF ANY CATEGORICAL DENIAL FROM THE SIDE OF THE ASSESSEE HEREBY CONFIRM THE VIEW TAKEN BY THE AUTHORITIES BELOW. RESULTANTLY, THE GROUND RAISED BY THE ASSESSEE IS HEREBY DISMISSED. 7 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED DULY PRONOUNCED IN THE COURT . SD/ - SD/ - ( ANIL CHATURVEDI ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DA TED 31 / 10 / 20 1 4 PRABHAT KR. KESARWANI , SR. P . S . / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) - III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD ITA NO. 1908 /AHD/201 1 KANTILAL PRANSUKHRAM NAIK VS. DCIT, PATAN CIRCLE, PATAN FOR A.Y. 200 8 - 0 9 - 6 6. / GUARD FILE . / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD