M/s Ved Parkash & Co., Yamunanagar V. ITO, Yamunanagar

ITA 196/CHANDI/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5418 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 23-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Keywords: Commercial expediency
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES SMC CHANDIGARH BEFORE MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.196/CHD/2011 ASSESSMENT YEAR: 2006-07 M/S VED PARKASH & CO., VS. THE ITO, WARD-2 YAMUNANAGAR YAMUNANAGAR (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TEJ MOHAN SINGH RESPONDENT BY: SMT. JAISHREE SHARMA ORDER THE APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A), KARNAL DATED 14.12.2010 RELATING TO ASSESSMENT YEAR 2006-0 7 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT, 1961 . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN SUSTAINING PART ADDITION OUT OF TOTAL ADDI TION OF RS. 3,77,983/- MADE ON ACCOUNT OF DISALLOWANCE O F INTEREST PAID TO THE BANK WHICH IS ARBITRARY AND UNJUSTIFIED. 2. THAT THE LD. CIT(A) HAS BRUSHED ASIDE THE EXPLANATION RENDERED IN THIS REGARD WITHOUT ANY COGENT REASONING WHICH IS ARBITRARY & UNJUSTIFIED. 3. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS I N CONNECTION WITH THE DISALLOWANCE MADE U/S 36(I)(III) OF THE ACT. THE A SSESSEE ADMITTEDLY HAD MADE INTEREST FREE ADVANCES TO DIFFERENT PARTIES. 2 4. THE BRIEF FACTS OF THE CASE ARE THAT THE DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD CLAIMED BANK CHARGE S AND INTEREST PAID TO THE TUNE OF RS. 3,77,983/-. THE AO NOTED THE ASSES SEE TO HAVE RAISED LOAN FROM INDIAN OVERSEAS BANK AT RS. 30.03 LAKHS. FURT HER THE ASSESSEE HAD MADE LOAN/ADVANCES TO VARIOUS PERSONS AS ENLISTED I N PARA 4 AT PAGE 1 OF THE ASSESSMENT ORDER. THE EXPLANATION WAS FILED BY THE ASSESSEE IN RESPECT OF EACH OF THE SAID PARTIES. THE AO OBSERVED THAT THE ASSESSEE HAD DIVERTED ITS BORROWED FUNDS TO SISTER CONCERNS, PARTNERS AND INDIVIDUAL PERSONS, NOT FOR BUSINESS PURPOSES. THE EXPLANATION OF THE ASSES SEE THAT IT HAD SUFFICIENT FUNDS IN THE SHAPE OF CASH IN HAND OF RS. 8.58 LAKH S AND BANK BALANCE OF RS. 2.48 LAKHS AND ALSO FIRMS CASH BEING HELD BY T HE PARTNERS IN THE IMPREST ACCOUNT WAS NOT ACCEPTED BY THE AO. IN THE ABSENCE OF COMMERCIAL EXPEDIENCY, THE AO WAS OF THE VIEW THAT THE RATIO L AID DOWN BY THE HON'BLE SUPREME COURT IN S.A. BUILDERS V. CIT (2006) 2006 C TR (S.C) 631 WAS NOT APPLICABLE AND DISALLOWANCES OF RS. 3,77,983/- WAS MADE BY THE ASSESSING OFFICER . 5. THE CIT(A) DIRECTED THE AO TO EXCLUDE THE AMOUNT S OUTSTANDING IN THE NAME OF S/SHRI VED PARKASH GUPTA AND B.R. GUPTA , PARTNERS OF THE ASSESSEE FIRM BEING LESS THAN CAPITAL OUTSTANDING I N THEIR ACCOUNTS. IN RESPECT OF BALANCE ADVANCES/LOANS MADE BY THE ASSE SSEE , IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE BEING BROUGHT ON RECORD TH AT THE SAID ADVANCES WERE MADE FOR THE PURPOSE OF BUSINESS OF THE ASSESS EE, APPLYING RATIO LAID DOWN BY HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT V. ABHISHEK INDUSTRIES, 286 ITR 1 (PH), THE DISALLOWANCE MADE B Y THE AO WAS UPHELD OUT OF INTEREST ACCOUNT IN LINE WITH DIRECTION OF E XCLUDING THE INTEREST DISALLOWABLE ON ADVANCES OUTSTANDING IN THE NAME OF S/SHRI VED PARKASH GUPTA AND B.R. GUPTA. THE ASSESSEE IS IN APPEAL AG AINST THE SAID DISALLOWANCE. 3 6. THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESSE E POINTED OUT THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS TO MAKE AFORESAID ADVANCES. IT IS FURTHER PLEADED BY THE LD. AUTHORISED REPRESENTATIV E FOR THE ASSESSEE THAT THE INTEREST DEBITED TO P & L ACCOUNT WAS ON THE C.C. L IMIT RAISED FROM BANK, WHICH IN TURN WAS UTILISED FOR THE BUSINESS PURPOSE S. FURTHER RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE HON'BLE SUPREM E COURT IN MUNJAL SALES CORPORATION V. CIT, 298 ITR 298(S.C). THE DR PLACING RELIANCE ON THE ORDER OF CIT(A) POINTED OUT THAT THE RATIO LAID DOWN BY HON'BLE SUPREME COURT IN MUNJAL SALES CORPORATION (SUPRA) I S IN CONTEXT OF SEC 40(B) OF I.T. ACT. 7. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE RE CORD. THE ISSUE RAISED IN THE PRESENT APPEAL IS IN CONNECTION WITH THE INTEREST PAID ON BORROWED FUNDS WHICH WAS DISALLOWED IN VIEW OF THE ASSESSEE HAVING MADE CERTAIN INTEREST FREE ADVANCES. ADMITTEDLY THE ASS ESSEE HAD ADVANCED CERTAIN SUMS OF MONEY TO ITS PARTNERS AND ALSO TO I TS SISTER CONCERNS AND OTHER PERSONS AS ENLISTED AT PAGE 1 OF ASSESSMENT O RDER. SUCH ADVANCES WERE MADE INTEREST FREE, THOUGH THE ASSESSEE WAS PA YING INTEREST ON THE C.C LIMIT RAISED FROM THE BANK. THE CLAIM OF THE ASSES SEE IS THAT IT HAD SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH IT OU T OF WHICH THE SAID INTEREST FREE ADVANCES WERE MADE. THE ALTERNATIVE PLEA OF TH E ASSESSEE IS THAT THE ADVANCES WERE FOR BUSINESS PURPOSES, FOR WHICH THE ASSESSEE HAS FAILED TO ESTABLISH ITS CLAIM. NOW COMING TO THE FIRST CLAIM OF THE ASSESSEE THAT IT HAD INTEREST FREE FUNDS AVAILABLE WITH IT, HAS NO R ELEVANCE IN VIEW OF THE RATIO LAID DOWN BY HON'BLE PUNJAB & HARYANA HIGH CO URT IN CIT V. ABHISHEK INDUSTRIES LTD. (SUPRA), WHEREIN IT HAS BE EN HELD THAT FOR ALLOWING THE INTEREST ON BORROWED CAPITAL, THE CONDITION PRE CEDENT IS THAT THE BORROWED CAPITAL MUST BE USED FOR BUSINESS PURPOSES . THE COURT FURTHER HELD THAT WHERE INTEREST FREE LOANS HAVE BEEN ADVAN CED TO SISTER CONCERNS 4 WHILE THE PAYMENT IS OUTSTANDING ON THE BORROWED FU NDS RAISED BY THE COMPANY, THE INFERENCE IS SUCH INTEREST FREE ADVANC ES WERE MADE FROM BORROWED FUNDS AND FOR NON BUSINESS PURPOSES. IT HA S BEEN FURTHER HELD BY THE HON'BLE PUNJAB & HARYANA HIGH COURT THAT THE ON US IS UPON THE ASSESSEE TO SHOW THAT THE BORROWINGS WERE UTILISED FOR BUSINESS PURPOSES AND THERE IS NO ONUS ON THE REVENUE TO ESTABLISH NE XUS BETWEEN BORROWINGS AND THE INTEREST FREE ADVANCES MADE BY THE ASSESSEE . FURTHER IT WAS HELD BY THE COURT THAT THE MERE CLAIM OF THE COMPANY THAT THE ADVANCES WERE MADE OUT OF OWN FUNDS AND AVAILABLE CAPITAL, WAS NOT SUF FICIENT TO DISCHARGE ONUS CAST UPON THE ASSESSEE. 8. FOLLOWING THE ABOVE SAID RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT V. ABHISHEK INDUSTRIES (S UPRA) I FIND NO MERIT IN THE CLAIM OF THE ASSESSEE THAT THE AFORESAID ADV ANCES WERE MADE OUT OF INTEREST FREE FUNDS. THE ASSESSEE HAS FAILED TO DIS CHARGE THE ONUS CAST UPON IT TO ESTABLISH THAT THE BORROWINGS WERE UTILISED F OR BUSINESS PURPOSES TOTALLY. IN THE ABSENCE OF SAME, THIS BEING A CAS E OF MIXED FUNDS, I UPHOLD THE ORDER OF CIT(A) IN DISALLOWING THE INTEREST EXP ENDITURE RELATABLE TO THE INTEREST FREE ADVANCES MADE BY THE ASSESSEE. THE G ROUND OF APPEAL RAISED BY THE ASSESSEE ARE DISMISSED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF MAY, 2011. SD/- (SUSHMA CHOWLA) JUDICIAL MEMBER DATED : 31 ST MAY, 2011 RKK COPY TO: 5 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR