ACIT, CHITTORGARH V. Shri Manohar Lal Anjana, CHITTORGARH

ITA 219/JODH/2014

• Counselvise Citation: 21923314 RSA 2014
• Duration Of Justice: 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 07-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Assessee Lawyers: G K GARGIEYA; DINESH SHRIMALI
• Keywords: Proportionate interest; Notional interest; Commercial expediency; Revised return
• Section: 37

Judgement Text

IN THE INCOMETAX APPELLATE TRIBUNAL JODHPUR BENCH: J ODHPUR ( BEFORE SHRI H ARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER ) I.T.A. NO. 219 /JODH/201 4 (A.Y. 200 9 - 10 ACIT, VS SHRI MANOHAR LAL ANJANA CIRCLE, ANJANA COMPOU ND, PETCH AREA, CHITTORGARH. DAK BUNGLOW ROAD, NIMBAHERA, CHITTORGARH. PAN NO. ABWPA2124L (APPELLANT) (RESPONDENT) ASSESSEE BY : - SHRI G.K. GARGIEYA, AND SHRI DINESH SHRIMALI. DEPARTMENT BY : - SHRI N.A. JOSHI - D. R. DATE OF HEARING : 0 7 /0 8 /201 4 DATE OF PRONOUNCEMENT : 18 / 0 9 /2014 O R D E R P E R HARI OM MARATHA, J.M. : THIS IS APPEAL OF THE DEPARTMENT FILED, FOR A.Y. 2009 - 10, AGAINST THE ORDER OF LD. CIT(A) DATED 17.01.2014. 2 2. THE SOLE ISSUE INV OLVED IN THIS APPEAL IS WHETHER THE LD. CIT(A) HAS CORRECTLY DELETED THE ADDITION OF RS. 82,15,611/ - MADE AFTER DISALLOWANCE OF INTEREST BECAUSE TO THE EXTENT THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCES ALTHOUGH IT HAS BORROWED FUNDS AND PAID INTEREST T HEREON AND HAS ALSO CHARGED INTEREST FROM SOME OTHERS. BRIEF FA C TS OF THIS GROUND ARE THAT THE ASSESSEE, AS INDIVIDUAL, DERIVED INCOME FROM INTEREST ON LOANS AND ADVANCES, FROM FIXED DEPOSITS AND SECURITY DEPOSITS, FROM INTEREST AND SHARE OF PROFIT FROM A P ARTNERSHIP FIRM IN WHICH HE IS A PARTNER, AMONGST OTHERS. FOR A.Y. 2009 - 10, HE FILED HIS RETURN OF INCOME (ROI) ON 17.11.2009 DECLARING TOTAL INCOME OF RS. 23,87,405/ - . DURING ASSESSMENT PROCEEDINGS, HE FILED A REVISED COMPUTATION OF INCOME STATING LOSS OF RS. 52,11,951/ - INSTEAD OF INCOME OF RS. 23,87,405/ - . THE A.O. REJECTED THE REVISED COMPUTATION FILED ON REASONING THAT IT COULD BE DONE ONLY BY WAY OF A REVISED RETURN. THE A.O. ALSO NOTICED THAT HUGE ADVANCES / LOANS ARE GIVEN INTEREST FREE TO CLOSE REL ATIVES. THEREFORE, HE PROCEEDED TO DISALLOW PROPORTIONATE INTEREST AND AFTER CONSIDERING ASSESSEES REPLY DISALLOWED A SUM OF RS. 82,15,611/ - OUT OF INTEREST EXPENSES CLAIMED @ 11% INTEREST AS DETAILED AT PAGE 3 OF THE ASSESSMENT ORDER. 3 2.1 AGGRIEVED, TH E ASSESSEE FILED APPEAL AND LD. CIT(A) HAS DELETED THE ABOVE ADDITION OF RS. 82,15,611/ - WHILE DECIDING ISSUE REGARDING DISALLOWANCE TOGETHER WITH OTHER CONNECTED ISSUES. THE REVENUE IS NOW AGGRIEVED AND AHS FILED THIS APPEAL BY RAISING THE IMPUGNED GROUND . 2.2 WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE CAREFULLY PERUSED THE RELEVANT FACTS AND EVIDENCE AVAILABLE ON RECORD. WE HAVE ALSO CONSIDERED THE WRITTEN SUBMISSIONS, ETC PRODUCED ON RECORD. THE CASE OF LD. D.R. IS THAT ON ONE HAND THE ASSESSEE IS CHARGI NG INTEREST ON HIS CAPITAL IN THE PARTNERSHIP FIRM AND ALSO FROM OTHER PARTIES TO WHOM LOANS ARE GIVEN AND ON THE OTHER HAND HE IS PAYING INTEREST ON THE BORROWED FUNDS, THEREFORE, THERE IS NO JUSTIFICATION IN NOT CHARGING INTEREST ON ADVANCES / LOANS GIVE N TO RELATED PERSONS. HE HAS FURTHER ARGUED THAT THE INTEREST FREE ADVANCES ARE NOT FOR ANY BUSINESS PURPOSE OR FOR COMMERCIAL EXPEDIENCY, THEREFORE, THE ASSESSEE HAS CHARGE INTEREST ON SUCH INTEREST - FREE ADVANCES. HE, FURTHER, STATED THAT THE JUDGEMENT O F HONBLE APEX COURT IN THE CASE OF S.A. BUILDERS VS CIT 288 ITR 1 S.C. ON WHOSE RATIO DECIDENDI LD. CIT(A) HAS RELIED, IS NOT APPLICABLE TO THE FACTS OF THIS CASE. 4 2.3 ON THE OTHER HAND LD. A.R. HAS STATED THAT THERE IS NO DIVERSION OF THE BORROWED FUND S AND THE CASE OF THE ASSESSEE IS COVERED U/S 36(I)(III) AND NOT U/S 37 OF THE ACT. HE HAS ARGUED THAT THE A.O. HAS EVEN TRIED TO CHARGE INTEREST ON THE OPENING BALANCE WHICH IS CONTRARY TO AVAILABLE PRECEDENTS. HE ARGUED THAT IN A.YS. 2006 - 07, 2007 - 08 AND 2008 - 09 THE A.O. DISALLOWED SAME PROPORTIONATE INTEREST AND THOSE WERE DELETED BY LD. CIT(A) BUT THE DEPARTMENT DID NOT FILE SECOND APPEAL. HE ARGUED THAT THE CASE OF THE A.O. IS NOT OF DIVERSION OF BORROWED FUNDS BY THE ASSESSEE. HE FURTHER ARGUED THAT C HARGING OF NOTIONAL INTEREST IN NOT PERMISSIBLE BY LAW. FINALLY, HE HAS RELIED ON THE ORDER OF LD. CIT(A). 2.4 AFTER CAREFULLY COGITATING THE ENTIRE RECORD IN THE LIGHT OF ORAL AND WRITTEN SUBMISSIONS OF THE PARTIES, WE HAVE FOUND THAT THE ASSESSE E HAS EN OUGH OWN, INTEREST FREE, FUNDS TO MAKE ADVANCES TO RELATIVES WITHOUT CHARGING INTEREST. IN A.YRS. 2006 - 07, 2007 - 08, AND 2008 - 09 WHEN CIT(A) DELETED SIMILAR DISALLOWANCES, DID NOT FILE APPEAL, HENCE, TO MAINTAIN CONSISTENCY, THIS DISALLOWANCE IS NOT JUSTIFI ED. THE A.O. HAS NOT INVOKED THE PROVISIONS OF SECTION 36(I)(III) OF THE ACT. NOTIONAL INTEREST CANNOT BE CHARGED AS HAS BEEN DONE IN THIS CASE. THERE IS NO ALLEGATION OF DIVERSION OF FUNDS. IT IS ALSO NOTICED THAT THE 5 ASSESSEE HAS ALSO RAISED INTEREST FRE E LOANS. THIS, NOT BEING A CASE OF DIVERSION OF FUNDS, WE CANNOT INTERFERE IN THE IMPUGNED FINDING. THE DELETION MADE BY LD. CIT(A) IS QUITE JUSTIFIED. THEREFORE, WE CONFIRMED THE FINDING OF LD. CIT(A) AND DISMISS THIS APPEAL. 3. IN THE RESULT, THIS APPE AL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 18 TH SEPTEMBER , 2014. SD/ - SD/ - (N.K.SAINI) [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE D : 18 TH SEPTEMBER , 2014 VL/ - COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT BY ORDER 4. THE CIT(A) 5. THE DR SENIOR PRIVATE SECRETARY ITAT, JODHPUR