Dashmesh Steel Centre, U S Nagar V. ITO, Ward-2(4), Bazpur

ITA 2284/DEL/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1223 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 02-04-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S L ANURAGI
• Assessee Lawyers: V K TULSIAN
• Keywords: Principle of natural justice; Proportionate interest; Notional interest
• Section: 148; 142(1)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: SMC, NEW DELHI BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER ITA NO. 2284/DEL/2018 ASSESSMENT YEAR: 2010-11 DASHMESH STEEL CENTRE, VS. ACIT, HALDWANI MAIN ROAD, 3 RD FLOOR, GADARPUR, AAYAKAR BHAWAN, UDHAM SINGH NAGAR, CHORGALIA BYEPASS ROAD, (PAN:AAEFD5859L) GOLAPAR, HADLWANI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. V.K. TULSIAN, CA. REVENUE BY : SH. SL ANURAGI, SR. DR. ORDER THE ASSESSEE HAS FILED THE APPEAL AGAINST THE ORDE R DATED 9.1.2018 OF THE LD. CIT(A), HALDWANI PERTAINING TO ASSESSME NT YEAR 2010-11 ON THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN PARTLY CONFIRMING TH E ADDITIONS MADE BY DISALLOWING THE NOTIONAL INTEREST OF RS. 19,95,638/-. 2. THE APPELLANT RESPECTFULLY, SUBMITS AS UNDER:- 2 1. THE LD. CIT(A) HAS WITHOUT GOING INTO FACTS HAS PARTLY SUSTAINED THE ADDITIONS OUT OF RS. 19,95,638/- OF NOTIONAL INTEREST ON ADVANCE GIVEN FOR BUSINESS EXIGENCIES AND THAT THE APPELLANT IS NOT IN THE BUSINESS OF MONEY LENDING, WHICH IS CONTRARY TO FACTS AND LAW. 2. THE LD. CIT(A) MISSED TO NOTE THAT THE FUNDS ADVANCED WAS NOT GIVEN FROM CASH CREDIT ACCOUNT AND THAT THE FUNDS ARE OWN FUNDS OF THE APPELLANT. 3. THE NOTIONAL INTEREST DISALLOWED BY LD. CIT(A) WAS TRUE AND LEGITIMATE 4. THAT THE IMPUGNED ORDER IS BAD IN LAW AND NOT IN CONSONANCE WITH FACTS, AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 5. BESIDES THE ABOVE GROUNDS THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, AND / OR TO MODIFY ANY GROUNDS OF APPEAL, IF NECESSARY. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE FI LED RETURN OF INCOME ON 27.9.2010 DECLARING TOTAL INCOME AT RS. 6,08,991 /- IN THE STATUS OF FIRM. FURTHER THE ASSESSMENT WAS COMPLETED U/S. 14 3(3) OF THE INCOME 3 TAX ACT, 1971 (IN SHORT ACT) ON TOTAL INCOME ASSE SSED AT RS. 721,050/- ON 7.3.2013. THE CASE OF THE ASSESSEE WAS SELECTE D FOR SCRUTINY FOR RE- ASSESSMENT. THE REASON FOR THE BELIEF THAT INCOME H AS ESCAPED ASSESSMENT WAS THAT ON PERUSAL OF LEDGER ACCOUNT OF M/S DASHMESH HYPERMART, HALDWANI IT CAME TO THE NOTICE THAT THE FIRM HAS MADE A TOTAL TRANSACTION OF RS. 3.45 CRAVE. OUT OF WHICH ONLY RS . 41.10 LAKS WERE TRULY BUSINESS TRANSACTION. PURCHASE OF IRON BARS AND THE REST AMOUNT WERE BUSINESS TRANSACTIONS THROUGH BOB AND KOTAK MAHENRA ACCOUNTS. MOREOVER, IT IS APPARENT FROM THE LEGER ACCOUNT, TH RE WERE NOT BUSINESS TRACTION BETWEEN THE TWO PARTIES FROM 27/08/2009 TO 31/03/2010, HOWEVER MONEY/CASH WAS BEING TRANSFERRED INTO EACH OTHER ACCOUNT DURING THEIS PERIOD. THUS, THE ASSESSEE MADE PAYMEN T (ADVANCE) TO THE TUNE OF RS. 3.04 CRORE THROUGH VARION CHEQUES TO M/ S DASHMESH HYPERMART, HALDWANI. OUT OF WHICH M/S DASHMESH HYPE RMART, HALDWANI RETURNED RS. 1.22 CRORE, THUS HAVING A CLOSING CRED IT BALANCE OF RS. 1.81 CRORE. IT WAS AN INTEREST FREE ADVANCE. THEREFORE, PROPORTIONATE INTEREST ON THIS AMOUNT MAY BE DISALLOWED AS THE ASSESSEE FI RM PAID INTEREST @ 11% ON THE BORROWED FUNDS, HALDWANI. ACCORDINGLY, A NOTICE ISSUED U/S 148 OF THE INCOME TAX ACT, 1961 ( IN SHORT ACT) ON 22/03/2016 WAS ISSUED AND IN RESPONSE THERETO, THE ASSESSEE VIDE HIS SUBMISSION DATED 10/05/2016 SOUGHT REASONS FOR RE-OPENING THE CASE. THE SAME WAS PROVIDED TO THE ASSESSEE VIDE LETTER DATED 10/05/20 16. THEREAFTER, NOTICE U/S 143(2) OF THE ACT WAS ISSUED ON 16/12/2016 AND NOTICE U/S 142(1) WAS ISSUED TO THE ASSESSEE ON 04/08/2016. IN RESPON SE TO THE SAME, THE 4 ASSESSEE ATTENDED THE CASE ON 06/12/2016. THE CASE HAS BEEN DISCUSSED IN DETAILS WITH RESPECT TO DISALLOWANCE OF PROPORTI ONATE INTEREST. THE ASSESSEE ORALLY EXPLAINS THAT THE ASSESSEE-FIRM HAD SUFFICIENT CAPITAL IN ITS BOOKS. OUT OF WHICH THE ADVANCE WAS GIVEN TO THE SA ID FIRM. HOWEVER, THE ASSESSEE-FIRM COULD NOT FURNISH ANY DOCUMENTARY EVI DENCE IN SUPPORT OF ITS CLAIM. AGAIN, A NOTICE U/S 142(1) OF THE ACT D ATED 15/12/2016 REQUIRING IT TO EXPLAIN AS TO WHY PROPORTIONATE INT EREST MAY NOT BE DISALLOWED AND ADDED TO THE INCOME ASSESSED EARLIER . IN RESPONSE THE ASSESSEE FURNISHES WRITTEN SUBMISSION AND AFTER CONSIDERING THE SAME AND ALSO AFTER CONSIDERING THE REASONS TO BELIEVE, DISALLOWED THE PROPORTIONATE INTEREST AT RS. 19,95,638/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE AND ASSESSED THE INCOME OF T HE ASSESSEE AT RS. 11,62,630/- U/S. 147/143(3) OF THE ACT DATED 23.12. 2016. AGGRIEVED WITH ABOVE DISALLOWANCE THE ASSESSEE APPEALED BEFORE THE LD. CIT(A), WHO VIDE HIS IMPUGNED ORDER DATED 9.1.2018 HAS PARTLY A LLOWED THE APPEAL OF THE ASSESSEE THEREBY DIRECTING THE AO TO RECOMPUT ED THE DISALLOWANCE OF INTEREST. AGAINST THE IMPUGNED ORDER DATED 9.1.20 18, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. DURING THE HEARING, LD. COUNSEL FOR THE ASSESSEE HAS STATED THAT LD. CIT(A) HAS WRONGLY PARTLY CONFIRMED THE ADDITION BY DISALLOWING THE NOTIONAL INTEREST OF RS. 19,95,638/-. IT WAS FURTHE R SUBMITTED THAT THE LD. CIT(A) HAS WITHOUT GOING INTO FACTS HAS PARTLY SUST AINED THE ADDITIONS OUT OF RS. 19,95,638/- OF NOTIONAL INTEREST ON ADVANCE GIVEN FOR BUSINESS EXIGENCIES AND THAT THE ASSESSEE IS NOT IN THE BUSI NESS OF MONEY LENDING, 5 WHICH IS CONTRARY TO FACTS AND LAW. IT WAS FURTHER SUBMITTED THAT CIT(A) MISSED TO NOTE THAT THE FUNDS ADVANCED WAS NOT GIVE N FROM CASH CREDIT ACCOUNT AND THAT THE FUNDS ARE OWN FUNDS OF THE ASS ESSEE. TO SUPPORT HIS CONTENTION, HE FILED A SMALL PAPER BOOK CONTAINING PAGES 1-13 IN WHICH HE HAS ATTACHED THE COPY OF WRITTEN SUBMISSION DATED 0 3.1.2018 AND COPY OF FINANCIAL STATEMENTS. 4. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND STATED THAT THEY HAVE PASSED WELL REASO NED ORDERS, WHICH DO NOT NEED ANY INTERFERENCE AND NEEDS TO BE UPHELD. 5. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE RE CORDS ESPECIALLY THE IMPUGNED ORDER AND THE RIVAL SUBMISSIONS, I NOTE TH AT THE SOLE ISSUE INVOLVED IN THIS APPEAL IS RELATING TO DISALLOWANCE OF NOTIONAL INTEREST BY THE AO OF RS 19,95,638/- ON INTEREST FREE ADVANCE G IVEN BY THE ASSESSEE TO ITS SISTER CONCERN M/S DASHMESH STEEL HYPERMART DURING THE RELEVANT PERIOD. IT IS FURTHER NOTED THAT THE FUNDS ADVANCES TO M/S DASHMESH STEEL HYPERMART WERE OUT OF THE CAPITAL WITH THE ASSESSEE FIRM AND NOT OUT OF CASH CREDIT A/C AS THE FUNDS OF CASH CREDIT A/C WER E ALREADY EXHAUSTED FOR BUSINESS PURPOSES IN THE FORM OF STOCKS, ADVANC E TO SUPPLIERS AND SUNDRY DEBTORS. FURTHER THAT THE ASSESSEE HAD AVAIL ED CASH CREDIT FACILITY LONG BACK AND THAT THE SUMS ADVANCED WERE MADE DURI NG THE RELEVANT PREVIOUS YEAR AS SUCH THERE WAS NO NEXUS BETWEEN SU MS BORROWED WITH FUNDS ADVANCED TO M/S DASHMESH STEEL HYPERMART. IT IS ALSO CLAIMED THE ADVANCE WAS GIVEN FOR BUSINESS EXIGENCY I.E TO AVAI L A DISCOUNT OF 10% ON 6 THE PURCHASES MADE FROM M/S DASHMESH STEEL HYPERMAR T AND ON TOTAL PURCHASES OF RS. 41.10 LAKH A DISCOUNT OF RS.3,98,9 20.00 HAS BEEN RECEIVED. THEREAFTER, DUE TO SUPPLY CHAIN ISSUES WI TH M/S ESSAR STEEL, THE ASSESSEE WAS GIVEN TO UNDERSTAND THAT DISCOUNT FURT HER SHALL NOT BE GIVEN BY M/S DASHMESH STEEL HYPERMART, AS SUCH PURCHASES WERE STOPPED. FURTHER THAT A PART OF ADVANCE WAS RETURNED BACK AG GREGATING TO RS. 1.22 CRORES. IN THIS REGARD THE HONBLE BOMBAY HIGH COU RT HAS HELD IN THE CASE OF RELIANCE UTILITIES & POWER PVT. LTD [2009 ( 1) TMI 4 THAT THE DISALLOWANCE OUT OF INTEREST EXPENDITURE IS NOT CAL LED FOR WHEN THE ASSESSEE HAS GOT SUFFICIENT OWN FUNDS. FURTHER IT W AS HELD THAT WHERE THE ASSESSEE HAS OWN FUNDS AS WELL AS BORROWED FUNDS, A PRESUMPTION CAN BE MADE THAT ADVANCES GIVEN FOR NON BUSINESS PURPOSES HAVE BEEN MADE OUT OF OWN FUNDS. A SIMILAR VIEW HAS BEEN HELD BY THE H ONBLE SUPREME COURT IN MUNJAL SALES CORPORATION VS. CIT 298 ITR 298(SC) . THEREFORE, CONSIDERING THE ABOVE DECISIONS, THE CONTENTION OF THE ASSESSEE THAT NO DISALLOWANCE OF INTEREST WAS CALLED FOR AS IT HAD N ON-INTEREST BEARING FUNDS AVAILABLE IN ITS CAPITAL ACCOUNT WAS NOT FOUND TO B E JUSTIFIED BY THE LD. CIT(A). HOWEVER AS POINTED OUT BY THE AO, THE ASS ESSEE HAD ONLY FUNDS TO THE EXTENT OF RS. 1,02,54,062/- AS ON 31/03/2QJ0 IN THE PARTNERS CAPITAL ACCOUNT, THEREFORE ONLY TO THIS EXTENT IT C AN BE CONSIDERED THAT NON-INTEREST BEARING FUNDS WERE AVAILABLE, ACCORDIN GLY ON BALANCE FUNDS (RS 3,43,00,000/- LESS RS 1,02,54,062/-) THE DISALL OWANCE OF INTEREST WAS VALID. THEREFORE, THE AO WAS RIGHTLY DIRECTED TO R ECOMPUTE THE DISALLOWANCE OF INTEREST BY THE LD. CIT(A), WHICH D OES NOT NEED ANY 7 INTERFERENCE ON MY PART, HENCE, I UPHOLD THE ACTION OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE AND REJECT THE GROUNDS RAISED BY THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON 19-03-2019. SD/- [H.S. SIDHU] JUDICIAL MEMBER DATE: 19/03/2019 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4.CIT (A) 5. D R, ITAT BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES