MOHINDER SINGH MADAAN, Ajmer V. ITO, Ajmer

ITA 194/JPR/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5114 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 03-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R A VERMA CIT DR DHK
• Assessee Lawyers: SUDHIR SOGANI
• Keywords: Business expenditure

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH HKKXPUN] YS[KK LNL; DS LE{K BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER VK;DJ VIHY LA-@ ITA NO. 194/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2012-13 SHRI MOHINDER SINGH MADAAN PROP. M/S. KIRPAL TRADING COMPANY LAL KOTHI, KAISERGANJ, AJMER CUKE VS. THE ITO WARD- 7(2) AJAMER LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AAXPM 1104 C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY: SHRI SUDHIR SOGANI, ADVOCATE JKTLO DH VKSJ LS@ REVENUE BY :SHRI R.A. VERMA, ADDL CIT-. DR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 12/07/2016 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 25 /07/2016 VKNS'K@ ORDER PER BHAGCHAND, AM THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDE R OF THE LD. CIT(A), AJMER DATED 19-01-2016 FOR THE ASSESSMENT Y EAR 2012-13 RAISING THEREIN FOLLOWING GROUNDS:- (I) THE LD. CIT(A) IS NOT JUSTIFIED IN SUSTAINING DISALLOWANCE OF INTEREST EXPENSES OF RS. 4,78,115/- (II) THE LD. CIT(A) IS NOT JUSTIFIED IN SUSTAINING DISALLOWANCES OF EXPENDITURE UNDER THE FOLLOWING HE ADS AS UNDER:- ITA NO. 194/JP/2016 SHRI MOHINDER SINGH MADAAN VS. ITO, WARD- 1 (2), A JMER . 2 (A) OUT OF TELEPHONE EXPENSES RS. 2,995/- (B) OUT OF VEHICLE RUNNING EXPENSES RS. 8,573/- 2.1 DURING THE COURSE OF HEARING, THE LD. AR OF THE ASSESSEE HAS NOT PRESSED THE GROUND NO. 2. HENCE, THE SAME IS DISMIS SED BEING NOT PRESSED. 3.1 THE GROUND NO. 1 OF THE ASSESSEE IS REGARDING S USTAINING THE DISALLOWANCE OF INTEREST EXPENSES AMOUNTING TO RS. 4,78,115/- WHEREIN BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAD F ILE THE E-RETURN IN FORM NO. ITR 4 ON 29-09-2012 DECLARING INCOME OF RS. 2,6 2,790/-. THE CASE OF THE ASSESSEE WAS SELECTED IN SCRUTINY THROUGH CASS. NOTICE U/S 143(2) OF THE ACT WAS ISSUED ON 6-08-2013 FIXING THE CASE OF HEARING ON 19-08- 2013 WHICH WAS SERVED UPON THE ASSESSEE ON 12-08-20 13. IN COMPLIANCE THEREOF, THE LD. AR OF THE ASSESSEE ATTENDED THE PR OCEEDINGS FROM TIME TO TIME AND FURNISHED INFORMATION/ DETAILS AS REQUIRED BY THE AO. THE AO OBSERVED THAT THE ASSESSEE IS CARRYING ON THE DISTR IBUTORSHIP BUSINESS OF PARLE BISCUITS (P) LTD. MUMBAI (AT AJMER AND KISHAN GARH), DISTRIBUTORSHIP OF M/S. SISTEMA SHYAM TELESERVICVES LTD. FOR RECHARGE OF COUPONS AND OTHER ITEMS. THE AO ALSO OBSERVED THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE LIABLE TO BE AUDITED U/S 44AB OF THE ACT. THUS THE DUE DATE OF FILING OF THE RETURN WAS 30-09-2012. TH E AO IN HIS ASSESSMENT ITA NO. 194/JP/2016 SHRI MOHINDER SINGH MADAAN VS. ITO, WARD- 1 (2), A JMER . 3 ORDER OBSERVED THAT DURING THE COURSE OF SCRUTINY, THE ASSESSEE HAD SHOWN INTEREST PAYMENT OF RS. 17,95,542/- FOR WHICH THE A SSESSEE WAS ASKED TO EXPLAIN THE PAYMENT OF INTEREST. THE ASSESSEE SUBMI TTED THE FOLLOWING DETAILS BEFORE THE AO. INTEREST FREE ADVANCES JITENDRA SINGH RS. 573889/- KARTAR CHAND & CO. RS. 274085/- KARTAR SONS RS. 3000000/- GURJEET SINGH RS. 1000000/- RS. 4847974/- LESS: INTEREST FREE DEPOSIT RAJINDER KAUR RS. 278170/- JITENDER SINGH HUF RS. 79908/- NEETI RS. 62904/- RS. 420982/- RS. 4426992/- BESIDES THE LD. AR OF THE ASSESSEE SUBMITTED BEFOR E THE AO THAT INTEREST FREE ADVANCES BEING LESS THAN THE CAPITAL OF THE AS SESSEE ARE OUT OF THE CAPITAL OF THE ASSESSEE AND IT HAS NO FORBEARANCE A S TO INTEREST FREE ADVANCES BEING MADE FROM INTEREST BEARING DEPOSITS. THUS THE AO DID NOT FIND THE SATISFACTORY REASON FOR ADVANCE FREE LOAN FROM THE ASSESSEE. THE AO AFTER DISCUSSION WITH THE ASSESSEE OBSERVED THAT THE INTEREST CHARGES BY THE BANK ON OD ACCOUNT IS 10.80% AND IN VIEW OF THE INTEREST FREE ITA NO. 194/JP/2016 SHRI MOHINDER SINGH MADAAN VS. ITO, WARD- 1 (2), A JMER . 4 ADVANCES OF RS. 42,46,992/- LYING WITH THE ASSESSEE , THE AO DISALLOWED A SUM OF RS. 4,78,15/- AND ADDED THE SAME TO THE TOTA L INCOME OF THE ASSESSEE FOR WHICH THE ASSESSEE PREFERRED FIRST APP EAL BEFORE THE LD. CIT(A) WHO CONFIRMED THE DISALLOWANCE MADE BY THE A O BY OBSERVING AS UNDER:- 4.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER, STA TEMENT OF FACTS, GROUND OF APPEAL AND WRITTEN SUBMISSION CARE FULLY. THE ASSESSEE HAS ARGUED THAT THE INTEREST FREE ADVANCES GIVEN BY HIM WAS OUT OF HIS OWN CAPITAL. FROM THE BALANCE SH EET DATED 31-03-2012 FILED BY THE APPELLANT, IT IS SEEN THAT THE CAPITAL OF THE APPELLANT WAS RS. 44,99,196/- AGAINST WHICH ASSETS OF RS. 2,31,41,943/- WERE SHOWN. THE ASSESSEE HAS NOT FURNISHED ANY FUND FLOW STATEMENT TO SHOW THAT INTE REST FREE ADVANCES OF RS. 44,26,992/- (RS. 4847974 RS. 4209 82) WERE MADE ONLY OUT OF HIS OWN CAPITAL AND HIS OWN C APITAL WAS NOT UTILIZED FOR MAKING INVESTMENT I ANY FIXED OR CURRENT ASSET. THE ASSESSEE HAS CLAIMED THE DEDUCTION OF T HE INTEREST OF RS. 17,95,542/- U/S 36(1)(III). THE ONUS IS ON T HE ASSESSEE TO PROVE THAT THE INTEREST HAS BEEN PAID ONLY IN RE SPECT OF THE FUNDS BORROWED FOR THE PURPOSE OF BUSINESS OR PROFE SSION. IN THE CASE UNDER CONSIDERATION, THE ASSESSEE HAS FAIL ED TO PROVE WITH THE HELP OF ANY FUND FLOW STATEMENT TO SHOW TH AT INTEREST BEARING FUNDS WERE UTILIZED ONLY FOR THE P URPOSE OF BUSINESS CARRIED ON BY HIM. ADMITTEDLY, THE ASSESSE E HAS GIVEN INTEREST FREE ADVANCES OF RS. 48,47,974/-. TH E ASSESSEE ITA NO. 194/JP/2016 SHRI MOHINDER SINGH MADAAN VS. ITO, WARD- 1 (2), A JMER . 5 HAS NOT BEEN ABLE TO SHOW THAT THESE ADVANCES WERE FOR BUSINESS PURPOSES OR THESE ADVANCES WERE GIVEN OUT OF INTEREST FREE DEPOSITS OR ASSESSEE'S OWN CAPITAL. THUS, THE ASSESSEE HAS FAILED TO PROVE THAT WHOLE OF INTERES T BEARING FUNDS HAVE BEEN UTILIZED FOR BUSINESS PURPOSES OR T HE INTEREST FREE ADVANCES GIVEN BY HIM WERE FOR BUSINESS PURPOS ES. AS FAR AS THE DECISION OF SUPREME COURT IN THE CASE OF MANJAL SALES CORPORATION VS. CIT IS CONCERNED, I HAVE GONE THROUGH DECISION CAREFULLY. IN THAT CASE, THE TRIBUNAL HAD GIVEN THE FINDING THAT INTEREST FREE ADVANCES WERE GIVEN DURI NG THE RELEVANT ASSESSMENT YEAR. THUS THE DECISION OF SUPR EME COURT RELIED ON BY THE APPELLANT HAS BEEN GIVEN ON TOTALLY DIFFERENT SET OF FACTS. THEREFORE, THAT DECISION IS NOT APPLICABLE TO THE FACTS OF THE CASE UNDER CONSIDERA TION. IN VIEW OF THE FACTS DISCUSSED ABOVE, I AM OF THE CONS IDERED VIEW THAT THE FUNDS OF RS. 48,47,974/- GIVEN BY THE APPELLANT AS INTEREST FREE ADVANCES WERE NOT FOR BUSINESS PUR POSES. THEREFORE, COST (INTEREST) ATTRIBUTABLE TO THESE FU NDS CANNOT BE ALLOWED AS BUSINESS EXPENDITURE U/S 36(1)(III). ACCORDINGLY, THE DISALLOWANCE OF RS. 4,78,115/- (BE ING THE AMOUNT OF INTEREST ATTRIBUTABLE TO THESE INTEREST F REE ADVANCES) MADE BY THE AO IS HEREBY CONFIRMED. 3.2 NOW THE ASSESSEE IS BEFORE ME WITH THE PRAYER T O DELETE THE DISALLOWANCE OF INTEREST EXPENSES AMOUNTING TO RS. 4,78,15/- CONFIRMED BY THE LD. CIT(A). ITA NO. 194/JP/2016 SHRI MOHINDER SINGH MADAAN VS. ITO, WARD- 1 (2), A JMER . 6 3.3 THE LD. DR RELIED ON THE ORDERS OF THE AUTHORIT IES BELOW. 3.4 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS NOTED THAT HON'BLE SUPR EME COURT IN THE CASE OF HERO CYCLES (P) LTD. VS. CIT (CENTRAL), LUDHIANA, 3 79 ITR [2015] 347 HAS HELD THAT ONCE THE NEXUS BETWEEN THE EXPENDITUR E AND PURPOSE OF BUSINESS IS ESTABLISHED, THE REVENUE AUTHORITY CANN OT DISALLOW THE CLAIM. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PRO FIT AND THAT THE REVENUE AUTHORITIES MUST PUT THEMSELVES INTO THE SH OES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. IN THI S CASE, THE ASSESSEE HAS CLAIMED THAT THE ADVANCE HAS BEEN MADE FROM THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE I.E. FROM HIS OWN CAPIT AL. THE HON'BLE SUPREME COURT IN THE CASE OF HERO CYCLES (P) LTD. VS. CIT (SUPRA) HAS OBSERVED THAT THE ASSESSEE HAD DEMONSTRATED THAT ON THE DATE WHEN THE LOAN WAS GIVEN, THERE WAS A CREDIT BALANCE IN THE A CCOUNT OF THE ASSESSEE FROM WHERE THE LOAN WAS GIVEN BUT NO SUCH FINDINGS ARE ON RECORD IN THIS CASE. THEREFORE, IN THE INTEREST OF JUSTICE AND EQU ITY, I RESTORE THIS ISSUE TO THE FILE OF THE AO TO VERIFY WHETHER THE ASSESSEE W AS HAVING SUFFICIENT CREDIT BALANCE IN ITS ACCOUNT WHEN THE LOAN WAS GIV EN. IF THE SAME IS FOUND IN ORDER, THE ASSESSEE'S CLAIM SHALL BE ALLOW ED. HENCE, GROUND NO. 1 OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOS ES AS INDICATED ABOVE. ITA NO. 194/JP/2016 SHRI MOHINDER SINGH MADAAN VS. ITO, WARD- 1 (2), A JMER . 7 4.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 25 /07/201 6 SD/- HKKXPUN ( BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 25 /07/ 2016 *MISHRA VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI MOHINDER SINGH MADAAN, AJMER 2. IZR;FKHZ@ THE RESPONDENT- THE ITO, WARD- 1 (2), AJMER 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 194/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ @ ASSISTANT. REGISTRAR