Shri Rashmikant Lalbhai Dalal,HUF, Ahmedabad V. The ACIT.,Circle-7, Ahmedabad

ITA 2026/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89312 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 16-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 12-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SUNIL H TALATI
• Keywords: Proportionate interest

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD 0 0 , !' , # BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ ././ ./ ITA NO. 2026/AHD/2011 & '& & '& & '& & '&/ // / ASSESSMENT YEAR: 2007-08 RASHMIKANT LALBHAI DALAL HUF SUMEL-II, NR. GURUDWARA AHMEDABAD PAN : AADHR 6105 G VS ACIT CIRCLE-7, AHMEDABAD () () () () / // / (APPELLANT) *+ *+ *+ *+ () ()() () / // / (RESPONDENT) ASSESSEE(S) BY : SHRI SUNIL H. TALATI, AR REVENUE BY : SHRI NIMESH YADAV, SR. DR , - './ // / DATE OF HEARING : 16/04/2015 /0' - '. / // / DATE OF PRONOUNCEMENT: 08/05/2015 1 1 1 1/ // / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-VI, AHMEDABAD (CIT(A) IN SHORT) DATED 08.06.2011 FOR THE ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LEARNED C.I.T. (APPEALS) HAS ERRED IN CONF IRMING THE DISALLOWANCE OF INTEREST BY WORKING OUT THE FORMULA, INCORRECTLY HO LDING THAT BORROWED FUNDS WERE USED BOTH FOR BUSINESS AND NON-BUSINESS PURPOS E. THE DISALLOWANCE ACCORDING TO THE SAID FORMULA COMES TO RS.5,60,227/ -, WHICH IS TOTALLY INCORRECT, EXCESSIVE, UNREASONABLE AND AS NOT ENVIS AGED UNDER THE INCOME TAX ACT IT IS SUBMITTED THAT THE DIRECTIONS GIVEN F OR DISALLOWANCE OF INTEREST ON THE BASIS OF FORMULA BEING INCORRECT AND ILLEGAL THE SAME BE DIRECTED TO BE DELETED. ITA NO. 2026/AHD/2011 RASHMIKANT LALBHAI DALAL HUF VS. ACIT FOR AY 2007-08 2 2. WITHOUT PREJUDICE TO THE ABOVE IT IS SUBMITTED THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE APPELLANT HAS GIVEN C OMPLETE DETAILS TO THE ASSESSING OFFICER AS WELL AS C.I.T. (APPEALS) ESTAB LISHING THE NEXUS BETWEEN THE FUND BORROWED AND UTILIZATION OF THE SAME FOR B USINESS PURPOSE AND SEPARATE UTILIZATION OF INTEREST-FREE FUNDS GIVEN O N INTEREST-FREE ADVANCES. IN VIEW OF THIS THE ENTIRE DIRECTION AND DECISION OF L EARNED C.I.T. (APPEALS) DESERVES TO BE REVERSED AND THE ADDITION SUSTAINED TO THAT EXTENT BE DELETED. 3. THE ORDER PASSED BY THE LEARNED C.I.T. (APPEALS) IS BAD IN LAW AND CONTRARY TO THE PROVISIONS OF LAW AND FACTS. IT IS SUBMITTED THAT THE SAME BE HELD SO NOW. 4. YOUR APPELLANT CRAVES LEAVE TO ADD, ALTER AND/ OR TO AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING. 3. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE AS SESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143(3) O F THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRA MED VIDE ORDER DATED 29.12.2009. WHILE FRAMING THE ASSESSMENT, THE ASSES SING OFFICER MADE VARIOUS ADDITIONS INCLUDING THE ADDITION MADE ON AC COUNT OF DISALLOWANCE OF INTEREST EXPENDITURE AMOUNTING TO RS.13,89,269/- . APART FROM THIS ADDITION, THE ASSESSING OFFICER ALSO MADE ADDITION ON ACCOUNT OF CAPITAL GAIN AMOUNTING TO RS.3,83,664/-. AGAINST THIS, TH E ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A) WHO, AFTER CONSIDERING THE SUB MISSIONS OF THE ASSESSEE, PARTLY ALLOWED THE APPEAL. WHILE PARTLY ALLOWING T HE APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE OF INTEREST EXPENDING AM OUNTING TO RS.13,89,269/-. 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DURING THE YEAR UNDER APPEAL, THE ASSESSEE-HUF REALIZED RS.1,11,16,598/- BY LIQUIDATING THE ASSESSEES HOLDING IN THE SHARES OF A GROUP COMPANY NAMELY DIAMOND CRUCIBLE CO. PVT. LTD. SIMILARLY, OTHER FAMILY MEM BERS WHO HOLD THE SHARES OF DIAMOND CRUCIBLE CO. PVT. LTD. ALSO SOLD THEIR I NVESTMENT IN THE SHARES OF THIS COMPANY. THE FUNDS SO ACCUMULATED BY THE FAMI LY MEMBERS WERE ITA NO. 2026/AHD/2011 RASHMIKANT LALBHAI DALAL HUF VS. ACIT FOR AY 2007-08 3 ADVANCED TO THE HUF FOR MAKING INVESTMENTS AND TO P ROMOTE GROUP BUSINESS AND IN TURN THE HUF PAID TOKEN INTEREST RA NGING FROM 2% TO 7% TO THE FAMILY MEMBER-DEPOSITORS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE-HUF ADVANCED A NET SUM OF RS.1,98,49,983/- TO ANOTHER GROUP COMPANY NAMELY DIAMOND DIGITAL SOLUTIONS PVT LTD FOR ITS BUSINESS PURPOSES. SINCE THAT FUNDS WERE ADVANCED INTEREST- FREE, THE ASSESSING OFFICER PROPORTIONATELY DISALLOWED INTEREST EXPENSE S OF RS.13,89,269/- OUT OF TOTAL INTEREST RS.18,11,142/- HOLDING THAT THE ASSE SSEE WAS NOT HAVING ENOUGH OWN FUND FOR ADVANCING THE SAME INTEREST-FRE E TO DIAMOND DIGITAL SOLUTIONS PVT LTD. HE SUBMITTED THAT THE DETAILS O F INTEREST PAID TO THE RELATIVES AND FAMILY MEMBERS WERE AVAILABLE AS PER THE STATEMENT OF COMPUTATION OF INCOME SUBMITTED WITH THE WRITTEN SU BMISSION. ON THE LOAN AMOUNT RECEIVED OF RS.5,98,75,633/-, THE ASSESSEE H AS MADE PAYMENT OF RS.17,28,246/- AS INTEREST TO FAMILY MEMBERS/RELATI VES. HE SUBMITTED THAT A LOAN OF RS.1,02,98,330/- WAS RECEIVED BY THE ASSESS EE FROM SMT. JANKI RASHMIKANT AS INTEREST-FREE AND AVERAGE RATE OF INT EREST ON OTHER BORROWINGS FROM FAMILY MEMBERS WAS 2.84% WHICH IS SIGNIFICANTL Y MUCH LESS THAN THE BANK RATE PREVAILING AT THE RELEVANT TIME. HE ALSO SUBMITTED THAT OUT OF RS.1,98,49,983/- AS ADVANCED TO THE GROUP COMPANY, THE ASSESSEE HAS RECEIVED INTEREST FREE LOAN FROM SMT. JANKI RASHMIK ANT OF RS.1,02,98,330/-. HE FURTHER SUBMITTED THAT THE ADVANCES WERE MADE FO R THE BUSINESS PURPOSES. 5. ON THE CONTRARY, LD. SR. DR. SUPPORTED THE ORDER S OF THE LOWER AUTHORITIES AND SUBMITTED THAT LD. CIT(A) HAS CONSI DERED THE SUBMISSIONS OF THE ASSESSEE AND GAVE A FINDING THAT THE ASSESSEE C OULD NOT ESTABLISH THE NEXUS BETWEEN THE FUND BORROWED AND UTILIZATION OF THE SAME FOR BUSINESS PURPOSES. ITA NO. 2026/AHD/2011 RASHMIKANT LALBHAI DALAL HUF VS. ACIT FOR AY 2007-08 4 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. WE F IND THAT THE LD. CIT(A) HAS REJECTED THE GROUNDS OF THE ASSESSEE WHILE HOLDING AS UNDER:- 2.3 HAVE CONSIDERED THE FACTS OF THE CASE, ASSESSM ENT ORDER AND APPELLANT'S SUBMISSION. ASSESSING OFFICER DISALLOWED INTEREST O N BORROWED FUNDS ON THE GROUND THAT THE PART BORROWED FUND HAS BEEN DIVERT ED TO NON-BUSINESS USE BY GIVING INTEREST FREE ADVANCES TO SISTER CONCERNS . ASSESSING OFFICER AS WELL AS APPELLANT SUBMITTED DETAILED ANALYSIS OF FUNDS B ORROWED AND DEPLOYED. DURING APPEAL, APPELLANT WAS SPECIFICALLY ASKED IF THERE WAS DIRECT NEXUS BETWEEN BORROWED FUND AND UTILISATION OF THE SAME F OR THE PURPOSE OF BUSINESS. APPELLANT COULD NOT ESTABLISH DIRECT NEXU S BETWEEN FUNDS BORROWED AND UTILISATION OF THE SAME FOR BUSINESS PURPOSE. I T IS THEREFORE NOT IN DISPUTE THAT APPELLANT HAD MIXED USE OF FUNDS FOR BOTH BUSI NESS AND NON-BUSINESS PURPOSES AND ACCORDINGLY PROPORTIONATE INTEREST ATT RIBUTABLE TO NON-BUSINESS USE IS DISALLOWABLE UNDER SECTION 36 (1) (III) OF I T ACT. THE DISALLOWANCE OF INTEREST FOR NON-BUSINESS USE IS THEREFORE CONFIRME D IN PRINCIPLE. HOWEVER ASSESSING OFFICER INSTEAD OF DISALLOWING PR OPORTIONATE INTEREST FOR NON-BUSINESS USE OF FUNDS, DISALLOWED ENTIRE INTERE ST CLAIMED BY THE APPELLANT REDUCED BY PROPORTIONATE INTEREST ON INTEREST FREE FUNDS, THIS IS NOT CORRECT WAY OF WORKING PROPORTIONATE DISALLOWANCE OF INTERE ST. SINCE BORROWED FUNDS WERE USED FOR BOTH BUSINESS AND NON-BUSINESS PURPOS ES, THE EFFECTIVE RATE OF INTEREST FOR TOTAL FUNDS IS TO BE MULTIPLIED BY DIV ERTED FUNDS TO GET DISALLOWABLE INTEREST. THE FORMULA TO BE USED TO CO MPUTE INTEREST DISALLOWANCE CAN BE AS UNDER- AMOUNT OF INTEREST PAID * NON-BUSINESS DIVERTED FUNDS TOTAL FUNDS AS PER BALANCE SHEET ASSESSING OFFICER IS DIRECTED TO RE-COMPUTE THE INT EREST DISALLOWANCE WITH THE AFORESAID FORMULA, DISALLOWANCE OF INTEREST WORKED OUT AS PER THIS IS CONFIRMED. 7. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THE INTEREST FREE ADVANCES AMOUNTING TO RS.1,98,49,983/- WAS ADV ANCED BY ASSESSEE- HUF TO ANOTHER GROUP COMPANY NAMELY DIAMOND DIGITAL SOLUTIONS PVT LTD., AGAINST WHICH THE ASSESSEE HAD ALSO RECEIVED AN INTEREST FREE ADVANCE AMOUNTING TO RS.1,02,98,330/- FROM SMT. JANKI RASHM IKANT. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT BOTH THE AUTHORITIE S BELOW FAILED TO ITA NO. 2026/AHD/2011 RASHMIKANT LALBHAI DALAL HUF VS. ACIT FOR AY 2007-08 5 APPRECIATE THE FACT THAT THE ASSESSEE WAS HAVING SU FFICIENT INTEREST BEARING FUNDS. HE SUBMITTED THAT UNDER THE FACTS OF THE PRE SENT CASE, THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE BY DIRECTING THE ASSESSING OFFICER TO RE-COMPUTE THE INTEREST DISALLOWANCE AS PER THE FORMULA LAID DOWN IN HIS ORDER. HE ALSO DREW OUR ATTENTION TO P AGE NO.10 OF THE PAPER- BOOK, WHEREIN THE ASSESSEE HAS ENCLOSED A LIST OF P ERSONS TO WHOM THE ASSESSEE HAD PAID INTEREST AT A DIFFERENT RATE. FR OM THE LIST, IT IS EVIDENT THAT THE ASSESSEE HAD PAID DIFFERENT RATE OF INTEREST TO S/SHRI/SMT BHUBALI SHANTILAL SHAH, MOHAN M. BHATIA, BABLIBEN L. BHATIA , RASHMIKANT L. DALAL, YUTHIKA R. DALAL, SHARADABEN L. SHAH, ETC.. AND IN RESPECT OF AADIT RAJAT DALAL, CHAKUBHAI HEMCHAND, ISHAN SHRUJAL PATEL, JAN KI R. PATEL & SHAKUNTALAL L. VAPARVA, THESE WERE INTEREST FREE AD VANCES. THE LD. COUNSEL ALSO DREW OUR ATTENTION TO THE INTEREST RECEIVED DU RING THE YEAR UNDER REFERENCE. THE ASSESSEE HAS ALSO RECEIVED INTEREST FROM MATHURESH CONSTRUCTION, KUSHI INFOTECH, TROIKAA EXPORTS PVT L TD, SHYAM MARKETING, TUSHAL DALAL, PARESH J. SHAH ETC.. HOWEVER, IN RES PECT OF ARROW COATED PRODUCTS, DIAMOND DIGITAL SOLUTION LTD AND KASHYAPB HAI MEHTA, THE ADVANCES WERE GIVEN INTEREST FREE. IN RESPECT OF C ENTER POINT MAINTNANCE DEPOSITS, IT WAS A SECURITY DEPOSIT. THE CONTENTION OF THE ASSESSEE IS THAT THE INTEREST EARNED EXCEEDS TO THE INTEREST PAID AND NE T INTEREST INCOME EARNED IS RS.5,66,784/-. THEREFORE, HE SUBMITTED THAT THE AUT HORITIES BELOW WERE NOT JUSTIFIED IN MAKING THE ADDITIONS. WE FIND THAT BOT H THE AUTHORITIES BELOW HAVE NOT GIVEN ANY REASONING FOR NOT ACCEPTING THE EXPLANATION OF THE ASSESSEE. THEREFORE, WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THIS ISSUE TO HIS FILE FOR DECIDING THE ISSUE AFRESH. T HE LD. CIT(A) WOULD ALSO VERIFY THE FACT ABOUT THE ADVANCES GIVEN TO DIAMOND DIGITAL SOLUTIONS PVT LTD OUT OF SALES PROCEEDS OF THE SHARE, FIXED DEPOS ITS WITH BANKS FROM FAMILY MEMBERS ON WHICH THE TOKEN INTEREST RANGING FROM 2% TO 3% HAS BEEN PAID ITA NO. 2026/AHD/2011 RASHMIKANT LALBHAI DALAL HUF VS. ACIT FOR AY 2007-08 6 AND OTHER BORROWED FUNDS UTILIZED; AND THEREAFTER, DECIDE THE ISSUE AFRESH. THUS, THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 8 TH MAY, 2015 AT AHMEDABAD. SD/- SD/- ( N.S. SAINI) ACCOUNTANT MEMBER (KUL BHARAT) JUDICIAL MEMBER AHMEDABAD; DATED 08/05/2015 *BIJU T. 1 - *'2 32'' 1 - *'2 32'' 1 - *'2 32'' 1 - *'2 32''/ COPY OF THE ORDER FORWARDED TO : 1. () / THE APPELLANT 2. *+() / THE RESPONDENT. 3. ' 4 / CONCERNED CIT 4. 4 ( ) / THE CIT(A) - II, BARODA 5. 2!7 *' , , / DR, ITAT, AHMEDABAD 6. 78& 9, / GUARD FILE . 1 1 1 1 / BY ORDER, TRUE COPY : :: :/ // / ; ; ; ; ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD