ACIT, New Delhi V. Sh G. Nand Gopal, New Delhi

ITA 2048/DEL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81498 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 05-08-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 02-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Assessee Lawyers: P J KHANNA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : C : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI H.S. SIDHU, JM ITA NO.2048/DEL/2012 ASSESSMENT YEAR : 2006-07 ACIT, CIRCLE-38(1), NEW DELHI. VS. G . NAND GOPAL, C-47, L.G. II, MALVIYA NAGAR, NEW DELHI. PAN : AEAPG7392H ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI P.J. KHANNA, CA DEPARTMENT BY : S HRI SATPAL SINGH, SR. DR ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE REVENUE ARISES OUT OF THE ORDER PASSED BY THE CIT (A) ON 28.2.2012 IN RELATION TO THE ASSESSM ENT YEAR 2006- 07. 2. THE FIRST GROUND IS AGAINST THE DELETION OF ADDI TION OF ` 1,82,818/- ON ACCOUNT OF INTEREST FREE LOAN GIVEN T O WIFE. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A PROPRIETOR OF TWO CONCERNS, NAMELY, TALPULA ENGINEE RING COMPANY ITA NO.2048/DEL/2012 2 AND TALPULA INDUSTRIES DOING THE BUSINESS OF OVERHE AD ELECTRIFICATION FOR INDIAN RAILWAYS, FABRICATION AN D GALVANIZING WORK. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAD CLAIMED DEDUCTION FO R A SUM OF ` 5,14,722/- UNDER THE HEAD INTEREST AND BANK CHARGE S IN THE BUSINESS CARRIED ON UNDER THE NAME AND STYLE OF TAL PULA ENGINEERING COMPANY. IT WAS OBSERVED THAT THE ASSE SSEE ADVANCED INTEREST FREE LOAN OF ` 16,12,070/- TO HIS WIFE, MRS. SATYA NARAYANAMMA. THE AO MADE DISALLOWANCE OF INTEREST @ 12% OF SUCH LOAN, WHICH RESULTED INTO AN ADDITION OF `1,82 ,818/-. THE LD. CIT(A) DELETED THE ADDITION. 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED FROM TH E IMPUGNED ORDER THAT THE LOAN/DEPOSIT OF ` 16.12 LAC WAS MADE BY THE ASSESSEE TO HIS WIFE IN EARLIER YEARS. THE ASSESSE E RECOVERED INTEREST ON THIS ADVANCE IN EARLIER YEARS, BUT STOP PED CHARGING INTEREST W.E.F. 01.04.2005 ONWARDS PURSUANT TO A RE VISED UNDERSTANDING IN THE MATTER. NOW THE QUESTION IS T HAT WHETHER THE INTEREST AS RELATABLE TO THE AMOUNT OF SUCH LOA N COULD HAVE BEEN DISALLOWED. THE HONBLE KARNATAKA HIGH COURT I N CIT VS. ITA NO.2048/DEL/2012 3 SRIDEVI ENTERPRISES [(1991) 192 ITR 165 (KAR)] HAS HELD THAT NO DISALLOWANCE FOR INTEREST CAN BE MADE TO THE EXTENT OF THE OPENING BALANCE IF THE AMOUNT OF SUCH INTEREST WAS NOT DISALLOWED IN THE EARLIER YEARS. 5. SUCH THINGS APART, WE OBSERVE THAT THE ASSESS EES FIXED CAPITAL IN TALPULA ENGINEERING IS TO THE TUNE OF ` 1.25 CRORE AND THERE IS CREDIT BALANCE OF ` 88.35 LAC UNDER THE CURRENT ACCOUNT. SIMILARLY, UNDER TALPULA INDUSTRIES, THERE IS SUFFI CIENT CREDIT BALANCE OF THE PROPRIETORS CAPITAL ACCOUNT. WHEN THE ASSESSEES CAPITAL IS FAR IN EXCESS OF INTEREST FREE LOAN/DEPO SITED GRANTED TO HIS WIFE FOR NON-BUSINESS PURPOSE, THERE CAN BE NO QUESTION OF MAKING ANY DISALLOWANCE OF INTEREST. THE HONBLE B OMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. [(2009) 3 13 ITR 340 (BOM)] HAS HELD THAT IF THERE ARE INTEREST FREE FUND AVAI LABLE TO THE ASSESSEE SUFFICIENT TO MEET ITS INVESTMENT A ND, AT THE SAME TIME, LOAN HAS BEEN RAISED, IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM INTEREST FREE FUNDS. IN REAC HING THE CONCLUSION ABOUT NOT MAKING ANY DISALLOWANCE OF INT EREST UNDER SUCH CIRCUMSTANCES, THE HONBLE BOMBAY HIGH COURT R ELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F EAST INDIA ITA NO.2048/DEL/2012 4 PHARMACEUTICAL WORKS VS. CIT [(1997) 224 ITR 627 (S C)] . SIMILAR VIEW HAS BEEN TAKEN BY THE MUMBAI BENCH OF THE TRIB UNAL IN VISEN INDUSTRIES LTD. VS. ADDL. CIT [(2012) 136 ITD 309 (MUM) (TM)] . IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT(A) WAS JUSTIFIE D IN DELETING THE ADDITION OF ` 1,82,818/-. THIS GROUND FAILS. 6. THE ONLY OTHER EFFECTIVE GROUND RAISED IN THIS A PPEAL IS AGAINST THE DELETION OF DISALLOWANCE OF LOSS OF ` 3 4,81,239/- INCURRED BY THE ASSESSEE IN TALPULA INDUSTRIES. TH E AO OBSERVED THAT THE ASSESSEE HAD DISCLOSED A LOSS OF ` 34.81 L AC IN ITS PROPRIETORSHIP CONCERN WITH THE NAME AND STYLE OF T ALPULA INDUSTRIES. ON THE PERUSAL OF THE TAX AUDIT REPORT , IT WAS OBSERVED THAT THIS UNIT WAS ENGAGED IN GALVANIZING WORK. IT WAS SEEN THAT THE CLOSING STOCK OF CEMENT AND STEEL WAS GIVEN IN THE AUDIT REPORT. AS THE ASSESSEE DID NOT PRODUCE THE RECORD OF PRODUCTION AND ACCOUNT BOOKS TO VERIFY THE ASSESSEE S CLAIM OF LOSS, THE AO DISALLOWED THE LOSS OF ` 34.81 LAC. T HE LD. CIT(A), AFTER CONSIDERING THE REMAND REPORTS FROM THE AO, O RDERED FOR THE DELETION OF ADDITION. THE REVENUE IS AGGRIEVED AGA INST SUCH DELETION OF ADDITION. ITA NO.2048/DEL/2012 5 7. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THAT THE AO DISA LLOWED THE LOSS CHIEFLY FOR THE REASON THAT THAT THE ASSESSEE DID N OT PRODUCE PRODUCTION RECORDS TO VERIFY THE CLAIM OF LOSS. IT CAN BE SEEN FROM THE IMPUGNED ORDER THAT THE QUANTITATIVE RECORDS WE RE PRODUCED BEFORE THE AO, THE GIST OF WHICH HAS ALSO BEEN EXTR ACTED. SIMPLY BECAUSE THE ASSESSEE HAS INCURRED A LOSS IN ONE UNI T CANNOT BE A GROUND TO DISALLOW THE SAME BY RECORDING THAT MAJOR ITY OF THE TURNOVER OF THIS UNIT WAS EFFECTED TO THE OTHER UNI T OF THE SAME ASSESSEE. ON A SPECIFIC QUERY, THE LD. DR COULD NO T STATE ANY SPECIFIC BENEFIT DERIVED BY THE ASSESSEE BY BOOKING LOSS UNDER THIS SEGMENT AND THE RESULTANT PROFIT UNDER THE OTH ER SEGMENT. WHEN THE INCOME OF ONE UNIT IS TO BE SET OFF AGAINS T THE LOSS OF THE OTHER UNIT AND THERE IS NO SPECIFIC DEDUCTION O R EXEMPTION ATTACHED TO THE UNIT IN WHICH PROFIT HAS BEEN DECLA RED, WE ARE OF THE CONSIDERED OPINION THAT THERE CAN BE NO LOGIC T O DISALLOW LOSS EMANATING FROM EXPENSES INCURRED IN ONE UNIT WHEN T HE GENUINENESS OF SUCH EXPENSES IS OTHERWISE NOT DOUBT ED. IN VIEW OF THE FOREGOING DISCUSSION, WE UPHOLD THE ACTION O F THE LD. CIT(A) ITA NO.2048/DEL/2012 6 IN DELETING THE DISALLOWANCE OF LOSS OF ` 34.81 LAC . THIS GROUND ALSO FAILS. 8. IN THE RESULT, THE APPEAL IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 06.08.201 4. SD/- SD/- [ H.S. SIDHU ] [ R.S. SYAL ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 06 TH AUGUST, 2014. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A)/DR ITAT AR, ITAT, NEW DELHI.