M/s. B.K. Trading Co., Ahmedabad V. The ACIT.,Circle-5, Baroda

ITA 2248/AHD/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67670 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 16-07-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 05-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: ANIL R SHAH
• Keywords: Reopening of assessment; Depreciation; Audit objection; Proportionate interest
• Section: 143(3); 147; 148

Judgement Text

ITA NO 2248 & 2249/A/201 0 . A.YS. 2005- 06 & 2006- 07 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 2248 & 2249 /AHD/2010 (ASSESSMENT YEAR:2005-06, 2006-07) M/S B.K. TRADING CO. DURGA COTTON COMPOUND AT & PO. BODELI DIST. BARODA. (APPELLANT) VS. THE ACIT CIRCLE-5, BARODA (RESPONDENT) PAN: AAEFB3683Q APPELLANT BY : SHRI ANIL R. SHAH A.R. RESPONDENT BY : SHRI O.P. BATHEJA, SR. D.R. ( )/ ORDER DATE OF HEARING : 16-07-201 3 DATE OF PRONOUNCEMENT : 05 -09-2013 PER SHRI ANIL CHATURVEDI,A.M. 1. THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGAI NST THE ORDER OF CIT-V, BARODA DATED 17.02.2010 FOR ASSESSMENT YEAR 2005-06 & 2006-07. WE FIRST TAKE UP ITA NO. 2248/AHD/2010 ( A.Y. 2005- 06) 2. THE FACTS AS CULLED OUT FROM THE ORDERS ARE AS U NDER: 3. ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF TR ADING OF COTTON SEEDS AND COMMISSION AGENT OF RAW COTTON. ASSESSEE FILED ITS RETURN OF INCOME FOR AY ITA NO 2248 & 2249/A/201 0 . A.YS. 2005- 06 & 2006- 07 2 2005-06 DECLARING TOTAL INCOME OF RS 6,49,821/-. TH E RETURN WAS PROCESSED U/S 143(1) AND THE TOTAL INCOME RETURNED BY THE ASS ESSEE WAS ACCEPTED. LATER DUE TO AUDIT OBJECTION THE CASE WAS REOPENED U/S 147(B) AND NOTICE U/S 148 WAS ISSUED ON 24.2.2009 AND SERVED ON ASSESSEE. SUBSEQUENTLY THE ASSESSMENT WAS FINALISED U/S 143(3) RWS 147 OF THE ACT VIDE ORDER DATED 12.11.2009 AND THE TOTAL INCOME WAS DETERMINED AT R S 1318659/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEF ORE CIT(A). CIT(A) VIDE ORDER DATED 17.2.2010 GRANTED PARTIAL RELIEF TO THE ASSESSEE AND THEREFORE THE ASSESSEE IS NOW IN APPEAL BEFORE US. THE GROUNDS RA ISED BY THE ASSESSEE READS AS UNDER: 1. THE INCOME- TAX OFFICER HAS ERRED BOTH IN LAW AND I N FACT IN RESORTING TO PROVISIONS OF SEC. 148 OF THE ACT AND THEREBY REOPE NING THE ASSESSMENT OF YOUR APPELLANT. IT IS SUBMITTED THAT NO PART OF INCOME HAS ESCAPED ASSESSMENT OR HAS BEEN UNDER ASSESSED AND THEREFORE REOPENING OF ASSESSMENT AND PASSING ORDER U/S. 147(B) OF THE ACT IS BAD IN LAW AND VOID. 2. THE INCOME-TAX OFFICER HAS NOT RECORDED REASONS FO R REOPENING THE ASSESSMENT AND IF RECORDED THE SAME HAS NOT BEEN SU PPLIED RESULTING INTO 3. THE ASSESSMENT U/S. 147(B) OF THE ACT BAD IN LAW AN D VOID. ON MERITS WITHOUT PREJUDICE TO ABOVE YOUR APPELLANT SUBMITS T HAT THE CIT(A) HAS ERRED IN HOLDING THAT THE DISALLOWANCE OF INTEREST U/S.36(L( III) OF RS.6,18,440 IS VALID AND PROPER. IT IS SUBMITTED BY YOUR APPELLANT THAT ON FACTS OF THE CASE AND AS PER PROVISION OF LAW AND SINCE NO PART OF BORROWED CAPITAL HAS BEEN DIVE RTED TO SISTER CONCERN OR ANY RELATIVE AND THEREFORE NO PART OF INTEREST EXPENSE IS LIABLE TO BE DISALLOWED U/S.36(L)(III) OF THE ACT. PARTICULARLY BECAUSE YOU R APPELLANT HAD ENOUGH FUNDS OF ITS OWN AND INTEREST FREE DEPOSITS AND ITO HAS NOT PROV ED THE 'NEXUS' FOR DISALLOWANCE ITA NO 2248 & 2249/A/201 0 . A.YS. 2005- 06 & 2006- 07 3 2. IT IS FURTHER SUBMITTED BY YOUR APPELLANT THAT THE CIT(A) HAS ERRED IN RESORTING TO SEC.40A(2)(B) OF THE ACT AND THEREBY CONFIRMING ADD ITION MADE BY THE ASSESSING OFFICER U/S.36(L)(III). 3. YOUR APPELLANT SUBMITS THAT SEC. 40A(2)(B) IS NO T APPLICABLE OR FACTS OF THE CASE AND AS PER PRO VISION OF LAW AND IT WAS NOT INVOKED BY THE ASSESSING OFFICER AND THAT CIT(A) HAS TRAVELED BEYOND HIS JURISDICTION IN APPL YING THE SAID SECTION AND CONFIRMING DISALLOWANCE OF INTEREST THEREBY. III THE CIT(A) HAS ERRED IN GIVING HALF HEARTED REL IEF ON DISALLOWANCE OF RS.50,698 ADDED BY THE ASSESSING OFFICER AS SHORT SALES. ON FACTS OF THE CASE AND AS PER DATA AND INFORMATIO N SUPPLIED THE CIT(A) OUGHT TO HAVE DELETED THE SAID ADDITION INSTEAD OF DIRECTING THE INCOME-TAX OFFICER TO VERIFY AND THEN DELETE THE SAID ADDITION. IT IS THEREFORE, SUBMITTED THAT THE PENALTY BE CANC ELLED AND ASSESSMENT BE MODIFIED ACCORDINGLY. YOUR APPELLANT RESERVES THE RIGHT TO ADD, AMEND OR WITHDRAW ANY OR ALL GROUNDS OF APPEAL. 4. THE 1 ST & 2 ND GROUND ARE WITH RESPECT TO REOPENING BY RESORTING TO PROVISIONS U/S 148: 5. BEFORE US THE LD. A.R. POINTED TO THE 1 ST PARA OF THE AO ORDER WHEREIN IT WAS STATED THAT THE CASE OF THE ASSESSEE WAS BEING REOP ENED DUE TO THE AUDIT OBJECTION. HE SUBMITTED THAT APART FROM THE AUDIT O BJECTION, THE AO DID NOT HAVE ANY MATERIAL BEFORE HIM WHICH COULD LEAD TO TH E CONCLUSION THAT THE ASSESSEES INCOME HAS ESCAPED ASSESSMENT. HE FURTHE R SUBMITTED THAT THE REOPENING CANNOT BE RESORTED TO ON THE BASIS OF AUD IT OBJECTION AND FOR WHICH HE RELIED ON THE DECISIONS IN THE COST OF INDIAN & EASTERN NEWSPAPER SOCIETY VS CIT (1979) 119 ITR 996 (SC), CIT VS RATANLAL LAL LUBHAI (1978) 112 ITR 985 (GUJ), SURAT DIST CO-OPERATIVE PURCHASE AND SAL E UNION LTD VS ITO (1981) 129 ITR 718(GUJ) AND OTHER DECISIONS. 6. ON THE MERITS OF THE CASE THE LD.A.R. SUBMITTED THAT THE AO HAS WRONGLY CONCLUDED THAT THE ASSESSEE DID NOT HAVE INTEREST F REE FUNDS WHICH COULD BE ITA NO 2248 & 2249/A/201 0 . A.YS. 2005- 06 & 2006- 07 4 UTILISED FOR THE PURPOSE OF BUSINESS BUT HAD USED T HE BORROWED FUND NOT FOR THE PURPOSE OF BUSINESS BUT FOR PLACING IT AS FDR W ITH THE BANKS AND ACCORDINGLY DISALLOWED THE PROPORTIONATE INTEREST E XPENSES ON LOAN AMOUNTING TO RS 618440/- AS BEING NOT FOR THE PURPOSE OF BUSI NESS. THE LD.A.R.PLACED ON RECORD AT PAGE 20 OF THE PAPER BOOK THE CHART SH OWING AVAILABILITY OF OWN FUNDS AND ADVANCE TO SUBSIDIARY COMPANIES. FROM THE CHART HE POINTED OUT THAT THE TOTAL CAPITAL OF THE FIRM WAS RS 57.24 LAC S AGAINST WHICH THE CLOSING BALANCE OF THE ADVANCE TO SUBSIDIARY COMPANY WAS RS 10.81 LACS AND THUS THE OWN INTEREST FREE FUNDS AVAILABLE WAS FAR IN EX CESS OF THE AMOUNT ADVANCED TO SUBSIDIARY COMPANY. HE FURTHER SUBMITTE D THAT WHEN THE INTEREST FREE FUNDS WERE FAR IN EXCESS OF THE AMOUNT ADVANCE D, THEN A PRESUMPTION IS TO BE MADE THAT THE AMOUNT ADVANCED IS FROM OWN INT EREST FREE FUNDS. FOR THIS PROPOSITION HE RELIED ON THE DECISION OF BOMBAY HIG H COURT IN THE CASE OF RELIANCE UTILITIES (2009) 313 ITR 340 DECISION OF G UJARAT HIGH COURT IN THE CASE OF RAGHUVIR SYNTHETICS (TAX APPEAL NO 829 OF 2 007 ORDER DATED 5.12.2011) AND THE DECISIONS OF AHMEDABAD TRIBUNAL IN THE CASE OF SHREE SANAND TEXTILE IND. LTD VS ACIT (ITA NO 1156/AHD/20 10 ORDER DATED 1.6.2012) AND BELGIUM GLASS & CERAMICS P.LTD VS ACI T (ITA NO 296/AHD/2012 ORDER DATED 18.5.2012). HE ALSO PLACED ON RECORD THE COPIES OF THE AFORESAID DECISIONS. 7. THE LD. D.R. ON THE OTHER HAND RELIED ON THE ORD ER OF LOWER AUTHORITIES. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT ASSESSEE HAS PAID INTEREST OF RS 8,46,171 TOWARDS THE INTEREST EXPENSES. IT IS ALSO A FACT THAT THE T OTAL INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AS ON 31 ST MARCH 2005 WAS TO THE TUNE OF RS 70.30 LACS (COMPRISING OF CAPITAL OF RS 57.24 LACS AND SUNDRY CREDITORS OF RS 13.06 LACS) AGAINST WHICH THE CLOSING BALANCE AS ON 31 ST MARCH 2005 AS ADVANCE TO SUBSIDIARY WAS RS 10.81 LACS AND THUS TH E INTEREST FREE FUNDS WERE FAR IN EXCESS OF THE AMOUNT ADVANCED. FURTHER THE AO HAS NOT BROUGHT ITA NO 2248 & 2249/A/201 0 . A.YS. 2005- 06 & 2006- 07 5 ON RECORD ANY MATERIAL TO PROVE THAT INTEREST BEARI NG FUNDS HAVE BEEN USED FOR NON BUSINESS PURPOSES. IN VIEW OF THE AFORESAID FACTS WE ARE OF THE VIEW THAT IN THE PRESENT CASE NO DISALLOWANCE OF INTERES T FOR BEING USED FOR NON BUSINESS PURPOSES IS CALLED FOR. THUS THIS GROUND O F THE ASSESSEE IS ALLOWED. SINCE THE GROUNDS RAISED BY ASSESSEE HAS BEEN DECID ED ON MERITS, WE ARE OF THE VIEW THAT THE ISSUE WITH RESPECT TO CHALLENGING THE REOPENING U/S 147 BEING ACADEMIC IN NATURE DOES NOT SURVIVE. 9. THUS THIS APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO 2249/AHD/2010 FOR A.Y. 2006-07. THE GROUNDS RAISED BY ASSESSEE READS AS UNDER:- 1. (A) THE CIT(A) HAS ERRED BOTH IN LAW AND IN FACT AND IN CONFIRMING THE APPLICABILITY SEC.36(L)(III) OF THE ACT AND THEREBY HOLDING THAT YOUR APPELLANT HAS GIVEN ADVANCE OF RS. 14,01,000 TO A RELATIVE/SISTER CONCERN AND THAT THE SAID AMOUNT WAS ADVANCED NOT FOR PURPOSE OF BUSINESS AND THAT THERE WAS DIVERSION OF INTEREST BEARING DEPOSITS AND THEREFORE INTEREST ON RS. 14,01,000 WAS LIABLE TO BE DISALLOWED FROM 7-1-06 TO 31-3-2006. IT IS SUBMITTED THAT ON FACTS OF THE CASE EVEN THIS TIME BASIS INTEREST IS NOT LIABLE TO BE DISALLOWED. (B) YOUR APPELLANT VERY STRONGLY SUBMIT THAT ON FAC TS OF THE CASE AND AS PER PROVISIONS OF LAW SEC.36(L)(III) DOES NOT APPLY AND THE ENTIRE DISALLOWANCE OF RS.1,70,136 MADE BY THE ASSESSING OFFICER OUGHT TO HAVE BEEN DELETED. 2. THE CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS. 20,000 DISALLOWED BY THE ASSESSING OFFICER ON ADHOC AND ESTIMATE BASIS O UT OF VARIOUS BUSINESS EXPENSE UNDER THE HEAD OF OFFICE EXPENSES, DIESEL E XPENSES, MOTOR CAR INSURANCE, DEPRECIATION ETC. IT IS SUBMITTED BY YOUR APPELLANT THAT THE ENTIRE E XPENDITURE UNDER ABOVE HEAD IS WHOLLY AND FULLY IN FOR PURPOSE OF BUSINESS THERE I S NO PERSONAL OR NON-BUSINESS ITA NO 2248 & 2249/A/201 0 . A.YS. 2005- 06 & 2006- 07 6 NATURE OF EXPENDITURE AND NO DISALLOWANCE ON ADHOC AND ESTIMATE BASIS SHOULD HAVE BEEN DELETED. 10. BEFORE US BOTH THE PARTIES SUBMITTED THAT THE F ACTS OF GROUND NO 1 OF THE PRESENT APPEAL ARE IDENTICAL TO THAT OF GROUND NO 2 OF ITA 2246/AHD/2010 EXCEPT FOR THE AMOUNTS AND THE SUBMISSIONS MADE BY THEM WHILE ARGUING THE APPEAL FOR ITA NO 2246 WOULD EQUALLY APPLY TO THE P RESENT GROUND AND THEY HAVE NO FURTHER SUBMISSIONS TO MAKE. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. SINCE THE FACTS OF THE PRESENT CASE ARE IDENTICAL T O THAT OF ITA NO 2246/A/2010 WHICH WE HAVE DECIDED IN FAVOUR OF THE ASSESSEE, WE FOR SIMILAR REASONS ALSO DECIDE THIS GROUND IN FAVOUR OF ASSESSEE. THUS THIS GROUND OF ASSESSEE IS ALLOWED. GROUND NO 2 IS WITH RESPECT TO ADHOC DISALLOWANCE: 12. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS DEBITED VARIOUS EXPENSES LISTED IN PARA 5 OF HIS OR DER AGGREGATING TO RS 1,91,869/-. ON VERIFICATION OF THE VOUCHERS FOR THE EXPENSES HE NOTICED THAT MOST OF THE EXPENSES WERE INCURRED IN CASH AND WERE NOT FULLY VOUCHED AND FURTHER THE ELEMENT OF PERSONAL NATURE COULD NOT BE ENTIRELY RULED OUT. HE ACCORDINGLY MADE AN ADHOC DISALLOWANCE OF RS 20,000 /-. AGGRIEVED BY THE ORDER OF AO, MATTER WAS CARRIED BEFORE CIT(A). CIT( A) UPHELD THE ORDER OF AO. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW I N APPEAL BEFORE US. 13. BEFORE US THE LD. A.R. SUBMITTED THAT THE BOOKS OF ACCOUNTS ARE DULY AUDITED AND ALL THE EXPENSES WERE FOR THE PURPOSE OF BUSINE SS. HE FURTHER SUBMITTED THAT AO HAS NOT POINTED OUT A SINGLE INSTANCE WHERE THE EXPENSE WAS OF PERSONAL/NON BUSINESS NATURE. HE THUS URGED THAT TH E ADDITION BE DELETED. THE LD D.R. ON THE OTHER HAND RELIED ON THE ORDER O F LOWER AUTHORITIES. ITA NO 2248 & 2249/A/201 0 . A.YS. 2005- 06 & 2006- 07 7 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT AO HAS NOTED THAT MOST OF THE EXPENSES WE RE IN CASH AND WERE NOT FULLY VOUCHED FOR. HE HAS FURTHER NOTED THAT THE RE PRESENTATIVE OF THE ASSESSEE HAD CONCEDED THAT ELEMENT OF PERSONAL NATU RE CANNOT ENTIRELY BE DENIED. FURTHER CIT(A) HAS NOTED THAT THE DISALLOWA NCE WORKS OUT TO AROUND 10% OF THE EXPENSES. CONSIDERING THE TOTALITY OF FA CTS, WE ARE IN AGREEMENT WITH THE VIEWS OF CIT(A) THAT THE DISALLOWANCE OF 1 0% IS REASONABLE CONSIDERING THE NATURE OF EXPENSES. THUS THIS GROUN D OF ASSESSEE IS DISMISSED. 15. IN THE RESULT THIS APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. 16. IN THE RESULT ITA NO. 2248/AHD/2010 IS ALLOWED AND ITA NO. 2249/AHD/2010 IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 05 -09- 2013. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT, AHMEDABAD