Saraswati Trading Co., New Delhi V. ITO, New Delhi

ITA 2073/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58491 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 09-12-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 26-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S MOHANTHY
• Assessee Lawyers: SANJIV BA JAJ

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G NEW DELHI) BEFORE SHRI RAJPAL YADAV AND SHRI A.N. PAHUJA ITA NO. 2073/DEL/2011 ASSESSMENT YEAR: 2007-08 M/S. SARASWATI TRADING CO. VS. INCOME-TAX OFFICER, 5585, LAHORI GATE, WARD 28(1), DELHI-1100 06 NEW DELHI. (PAN: AACFS5533J) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SANJIV BA JAJ, CA RESPONDENT BY: SHRI S. MOHANTHY, DR DATE OF HEARING : 09.12.2011 DATE OF PRONOUNCEMENT : 13 .01.2012 ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LEARNED CIT(APPEALS) DATED 10.03.2011 PASSED FOR ASSESSMENT YEAR 2007-08. THE GRIEVANCE OF THE ASSESSEE RELATES TO CONFIRMATION O F DISALLOWANCE OF RS.7,76,665 OUT OF INTEREST EXPENSES. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS FILED ITS RETURN OF INCOME-TAX ON 17.03.2008 DECLARING AN INCOME OF RS. 4,14,551. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT A ND A NOTICE UNDER SEC. 143(2) OF THE ACT DATED 18.3.2008 WAS ISSUED AND SE RVED UPON THE ASSESSEE. 2 ON SCRUTINY OF THE ACCOUNTS, IT REVELED TO THE ASSE SSING OFFICER THAT THE ASSESSEE HAD INCURRED AN EXPENDITURE OF RS.7,76,665 TOWARDS INTEREST ON THE LOANS BORROWED FOR THE PURPOSE OF THE BUSINESS. IT HAS ADVANCED A SUM OF RS.9 CRORES TO SISTER CONCERNED M/S. RAJAT FINVEST WITHOUT CHARGING ANY INTEREST. ACCORDING TO THE ASSESSING OFFICER, HAD T HE ASSESSEE CHARGED THE INTEREST ON THE SUM OF RS. 9 CRORES @ 12% THEN IT C OULD HAVE EARNED INTEREST INCOME OF RS. 15 LACS WHICH CAN EASILY TAKE CARE OF INTEREST EXPENSES INCURRED BY THE ASSESSEE. IN OTHER WORDS, THE OPINI ON OF THE ASSESSING OFFICER IS THAT ANY ADVANCE TO THE SISTER CONCERN O UT OF THE BORROWED FUNDS WITHOUT CHARGING ANY INTEREST IS A UTILIZATION OF F UNDS FOR NON BUSINESS PURPOSES. THEREFORE, THE INTEREST EXPENSES CLAIME D BY THE ASSESSEE DESERVES TO BE DISALLOWED. ACCORDINGLY, HE MADE AN ADDITION OF RS.7,76,665. 3. APPEAL TO THE LEARNED CIT(APPEALS) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 4. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE IMPUG NING THE ORDERS OF REVENUE AUTHORITIES BELOW SUBMITTED THAT THE ASSESS EE HAS RECEIVED MORE THAN A SUM OF RS.9 CRORES FROM MAHESH AGRO PVT. LTD . WITHOUT INTEREST PAYMENT. THIS AMOUNT WAS GIVEN TO M/S. RAJAT FINVES T PVT. LTD. THE ASSESSEE HAS PRODUCED THE BANK STATEMENT EXHIBITING THE RECEIPT OF MONEY AS WELL AS FURTHER TRANSMISSION OF MONEY, THEREFORE, A SSESSEE HAS NOT USED 3 INTEREST BEARING FUNDS FOR MAKING ADVANCES TO THE S ISTER CONCERN WITHOUT CHARGING ANY INTEREST. LEARNED REVENUE AUTHORITIES HAVE FAILED TO TAKE COGNIZANCE OF SUCH DETAILS WHILE DECIDING THE ISSUE S. HE DREW OUR ATTENTION TOWARDS PAGE NOS. 61 TO 70 OF THE PAPER BOOK. ON PA GE 61, COPY OF THE BANK ACCOUNT WITH UNION BANK IS AVAILABLE. HE POINTED OU T THAT A SUM OF RS.2.5 CRORES WAS RECEIVED BY THE ASSESSEE THROUGH ACCOUNT PAYEE CHEQUES FROM MAHESH AGRO PVT. LTD. ON 17.1.2007. THIS AMOUNT WAS GIVEN TO RAJAT FINVEST ON THAT VERY DAY THROUGH ACCOUNT PAYEE CHEQ UES. SIMILARLY, A SUM OF RS.50 LACS WAS RECEIVED ON 24.1.2007. IT WAS GIVEN TO M/S. RAJAT FINVEST ON THAT VERY DAY. A SUM OF RS. 2 CRORES WAS RECEIVED O N 29.1.2007. IT WAS GIVEN TO M/S. RAJAT FINVEST ON THAT VERY DAY. HE ALSO TOO K US THROUGH THE DETAILS SHOWING AMOUNT BORROWED AND ADVANCES GIVEN BY THE A SSESSEE ON WHICH INTEREST WAS PAID OR RECEIVED. ON THE STRENGTH OF T HESE DETAILS, HE POINTED OUT THAT NO INTEREST BEARING FUNDS WERE USED BY THE ASS ESSEE FOR MAKING INTEREST FREE ADVANCES. THEREFORE, INTEREST EXPENSES OUGHT T O HAVE NOT BEEN DISALLOWED. ON THE OTHER HAND, LEARNED DR RELIED UP ON THE ORDER OF THE LEARNED CIT(APPEALS). HE POINTED OUT THAT LEARNED F IRST APPELLATE AUTHORITY HA SPECIFICALLY OBSERVED THAT SUCH LOAN W AS NOT ADVANCED FOR ANY BUSINESS PURPOSES AND THERE WAS NO COMMERCIAL EXPED IENCY IN THE 4 TRANSACTION. THEREFORE, LEARNED CIT(APPEALS) HAS RI GHTLY UPHELD THE DISALLOWANCE. 5. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. LEARNED FIRST APPELLATE AUTHORITY WHILE CONFIRMING THE DISALLOWANCE HAS OBSERVED THAT THE TRANSACTIONS IN ITSELF IS NOT SO SIMPLE. WHAT WAS THE NECESSITY AT THE END OF ASSESSEE TO BE COME A MEDIATOR BY TAKING MONEY FROM M/S. MAHESH AGRO PVT. LTD. AND FU RTHER TRANSMITTING IT TO M/S. RAJAT FINVEST ON THAT VERY DAY. IN OUR OPINION , IT IS JUST A SUSPICION. THERE MAY BE SO MANY CIRCUMSTANCES FOR A BUSINESS U NDERTAKING FOR ARRANGING THE MONEY AND FURTHER TRANSMITTING THE SA ME TO THE SISTER CONCERNED. SUCH TYPE OF STEP BY ITSELF WOULD NOT SU GGEST THAT ASSESSEE WAS NOT HAVING SUFFICIENT INTEREST FREE MONEY WHICH WAS GIVEN TO THE SISTER CONCERN. LEARNED REVENUE AUTHORITIES HAVE FAILED TO TAKE COGNIZANCE OF THE BANK STATEMENT SUBMITTED BY THE ASSESSEE SHOWING TH E INTEREST FREE FUNDS RECEIVED BY IT AND FURTHER GIVEN TO M/S. RAJAT FINV EST. IF IT IS ESTABLISHED THAT ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS WHICH W AS USED BY IT FOR INTEREST FREE LOANS TO THE SISTER CONCERN THEN OUT OF INTERE ST EXPENSES, NO DISALLOWANCE IS POSSIBLE. CONSIDERING THE NATURE OF DETAILS PLAC ED ON RECORD BY THE ASSESSEE, WE DEEM IT APPROPRIATE TO REMIT THIS ISSU E TO THE FILE OF THE 5 ASSESSING OFFICER FOR VERIFICATION. LEARNED ASSES SING OFFICER SHALL VERIFY THE CASH FLOW STATEMENT AND FIND OUT WHETHER THERE WAS INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE FOR GIVING INTEREST FRE E ADVANCES. AFTER TAKING INTO CONSIDERATION ALL THESE DETAILS, HE SHALL DECI DE THE ISSUE ABOUT THE ALLOWABILITY OR DISALLOWABILITY OF THE INTEREST EXP ENSES. IT IS NEEDLESS TO SAY THAT THE OBSERVATIONS MADE BY US WILL NOT IMPAIR OR INJURE THE CASE OF A.O. OR WOULD NOT CAUSE ANY PREJUDICE TO THE DEFENCE/EXPLAN ATION OF THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 13 /01/2012. SD/- SD/- ( A.N. PAHUJA ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 13/01/2012 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR