Lalit Motors Ghabheni, Surat V. The Income Tax Officer, Ward-6(2), Surat

ITA 2289/AHD/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1936 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 20-01-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 03-08-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PALLAV DESAI
• Keywords: Reopening of assessment; Depreciation; Transfer pricing; International transaction; Source of fund; Difference of opinion; Assessment record; Commercial expediency; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 92E; 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE SHRI RAJPAL YADAV, JM, & SHRI MANISH BORA D, AM. ITA NO.2289/AHD/2015 ASST. YEAR: 2008-09 SHREE LALIT MOTORS, 256, NEAR UNN PATIA, SACHIN MAGDALLA ROAD, SURAT. VS. INCOME-TAX OFFICER, WARD 6(2), SURAT. APPELLANT RESPONDENT PAN AAAFL9366Q APPELLANT BY MR. PALLAV DESAI, AR RESPONDENT BY MR. ALOK KUMAR, SR. DR DATE OF HEARING: 20.1.2016 DATE OF PRONOUNCEMENT: 01/04/2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LD. CIT(A)-1, SURAT, DATED 8.5.2015 WHICH WAS PASSED AG AINST ORDER U/S 143(3) R.W.S. 147 OF THE IT ACT, 1961 FOR ASST. YEA R 2008-09 FRAMED ON 21.3.2014 BY ITO, WARD-6(2), SURAT. ASSESSEE HAS RAISED FOLLOWING GROUNDS IN THIS APPEAL:- 1. THE LD CIT-(APPEALS)-1, SURAT HAS ERRED IN UPHOLDIN G JURISDICTION OF THE AO U/S 147 FOR REOPENING OF THE ASSESSMENT. ON FACTS AND IN LAW TH E LD ITO WARD 6(2) LACKED JURISDICTION FOR REASSESSMENT AS A. THE REASONS ARE BASED ON CHA NGE OF OPINION, B. THE REASONS ARE VAGUE AND BASED ON SUSPICION. THE APPELLANT SUBMITS THAT AS THE REASSESSMENT PROC EEDINGS INITIATED BY LD. ITO WARD 6 (2) ARE NOT VALID IN LAW, THE ASSTT. ORDER AND THE CONSEQUENT ADDITIONS ARE TO BE QUASHED. ITA NO. 2289/AHD/2015 ASST. YEAR 2008-09 2 2. THE LD CIT-(APPEALS}-1,SURAT HAS ERRED IN CONFIR MING DISALLOWANCE OF INTEREST OF RS. 5,56,268 ON KOTAK TERM LOANS WHEN THE SAID BORROWED FUNDS ARE NOT USED IN ADVANCING LOANS AND ADVANCES TO VARIOUS PARTIES, AS PER ASSES SEE'S SUBMISSION TO AO DATED 27/1/2014 PARA 1 TO 3 AND CASH FLOW STATEMENT AS PE R ANN A TO SUBMISSION DATED 18/3/2014. 3. THE LD CIT-(APPEALS)-1,SURAT HAS ERRED IN CONFI RMING DISALLOWANCE OF INTEREST OF RS. 5,56,268 WITHOUT DISTINGUISHING BETWEEN THE PART OF BORROWED FUNDS ON WHICH INTEREST PAID WAS CLAIMED AND PART OF THE BORROWED FUNDS ON WHICH INTEREST PAID , WAS NOT CLAIMED AS EXPLAINED BY THE ASSESSEE VIDE HIS SUBMI SSION TO CIT(A) DATED 5/5/2015. 4. THE LD CIT-(APPEALS)-1, SURAT HAS ERRED IN CON FIRMING THE ADDITION WITHOUT CONSIDERING AND APPRECIATING THE FACTS STATED BY THE ASSESSEE V IDE HIS SUBMISSIONS DATED 27/1/2014 PARA 1 TO 3 AND SUBMISSION DATED18/3/2014 ANN A CAS H FLOW STATEMENT. 5. WITHOUT PREJUDICE TO WHAT IS STATED IN THE AB OVE GROUNDS APPELLANT SUBMITS THAT EVEN IF THE FUNDS ARE ASSUMED TO BE USED FOR ADVANCING THE LOANS, THE SAME ARE GIVEN OUT OF COMMERCIAL EXPEDIENCY AND THEREFORE TO BE CONSIDERE D AS ADVANCED FOR BUSINESS PURPOSE. 6. THE ASSESSEE CRAVES LEAVE TO ADD, ALTER OR VA RY ANY OF THE GROUNDS OF APPEAL. 2. BRIEFLY STATED FACTS AS CULLED OUT FROM THE ASSE SSMENT RECORDS ARE THAT ASSESSEE IS A PARTNERSHIP FIRM, IT FILED I TS RETURN OF INCOME ON 30.09.3008 SHOWING TOTAL INCOME AT RS.NIL. THEREAFT ER ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 10.12.2010 D ETERMINING TOTAL INCOME AT RS.NIL. NOTICE U/S 148 OF THE ACT WAS ISS UED ON 28.03.2013 FOR THE REASON THAT ASSESSEE HAS DIVERTE D INTEREST BEARING FUNDS TOWARDS GIVING LOANS AND ADVANCES WITHOUT CHA RGING ANY INTEREST THEREON. IN REPLY TO NOTICE U/S 148 ASSESS EE SUBMITTED THAT ORIGINAL RETURN OF INCOME FILED MAY BE TREATED AS R ETURN FURNISHED IN RESPONSE TO NOTICE U/S 148. THE REASONS FOR ISSUANC E OF NOTICE U/S 148 OF THE ACT AND INITIATION OF ACTION U/S 147 OF THE ACT GIVEN BY ASSESSING OFFICER READ AS BELOW :- ON VERIFICATION OF THE BALANCE SHEET ANNEXED WITH THE RETURN OF INCOME, IT IS SEEN THAT THE ASSESSEE HAS TAKEN SECURED LOAN OF RS .85,62788/- FROM VARIOUS BANKS AND ALSO OBTAINED UNSECURED LOAN OF RS.9,84,3 03/- FROM VARIOUS PERSONS. IN THE PROFIT AND LOSS ACCOUNT ASSESSEE HAS CLAIMED INTEREST EXPENSES OF ITA NO. 2289/AHD/2015 ASST. YEAR 2008-09 3 RS.7,27,496/- TOWARDS SECURED LOAN AND RS.37,333/-T OWARDS UNSECURED LOANS. HOWEVER, ASSESSEE HAS NOT CHARGED INTEREST ON LOANS AND ADVANCES OF RS.41, 02,373/-. THE ASSESSEE HAS THUS DIVERTED ITS INTEREST BEARING FUND FOR NON INTEREST BEARING LOANS AND ADVANCES. CONSIDERING THE NORMAL MARKET R ATE OF 15% THE INTEREST ON LOAN AMOUNT OF RS. 41,02,373/- COMES TO RS.5,56,268 /-AND AS SUCH INCOME TO THE EXTENT OF RS.5,56,268/-. HAS ESCAPED ASSESSMENT AND REQUIRES TO BE ADDED IN THE TOTAL INCOME OF THE ASSESSEE. 3. DURING THE COURSE OF RE-ASSESSMENT PROCEEDINGS A SSESSEE RAISED OBJECTIONS AGAINST ISSUANCE OF NOTICE U/S 14 8 OF THE ACT AND TAKING ACTION U/S 147 OF THE ACT BECAUSE THE DOCUME NTS ON THE BASIS OF WHICH INFORMATION MENTIONED IN THE NOTICE U/S 14 8 HAVE BEEN ACCEPTED BY LD. ASSESSING OFFICER, WERE ALL AVAILAB LE BEFORE LD. ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT P ROCEEDINGS U/S 143(3) OF THE ACT AND, THEREFORE, THERE WAS NO REAS ON TO BELIEVE FOR ESCAPEMENT OF INCOME FOR TAKING ACTION U/S 147 OF T HE ACT BECAUSE ASSESSING OFFICER HAS APPLIED HIS MIND WHILE FRAMIN G ASSESSMENT ORDER U/S 143(3) OF THE ACT. DURING THE COURSE OF A SSESSMENT PROCEEDINGS IT WAS SUBMITTED BY ASSESSEE THAT LOANS AND ADVANCES SHOWN IN THE FINANCIAL STATEMENT ARE IN RELATION TO BUSINESS TRANSACTIONS AND ALSO INTEREST PAYABLE ON MAJOR POR TION OF SECURED LOAN HAS BEEN CHARGED TO THE CAPITAL ACCOUNT OF THE PERSONS AND NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT AND THEREFOR E, ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS WHICH DEEMED TO HAVE BEEN APPLIED TOWARDS LOANS AND ADVANCES GIVEN ON WHICH N O INTEREST HAS BEEN CHARGED BY ASSESSEE. HOWEVER, LD. ASSESSING OF FICER WAS NOT CONVINCED WITH THE REPLY OF ASSESSEE AND WENT AHEAD TO DISALLOW INTEREST EXPENDITURE TO THE EXTENT OF RS.5,56,268/- AND ADDED THE SAME TO THE NIL INCOME ASSESSED U/S 143(3) OF THE A CT AND FINALLY ITA NO. 2289/AHD/2015 ASST. YEAR 2008-09 4 FRAMED ASSESSMENT ORDER U/S 143(3) R.W.S. 147 OF TH E ACT AT RS.5,56,268/-. 4. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE LD. CI T(A) WHO REJECTED THE GROUND OF ASSESSEE RAISED AGAINST THE ORDER U/S 143(3) R.W.S. 147 OF THE ACT BY OBSERVING THAT AS THE CASE WAS REOPENED WITHIN FOUR YEARS FROM THE RELEVANT ASSESSMENT YEAR , THEREFORE, THE PROVISIONS OF SECTION 147 OF THE ACT THEREFORE, THE PROVISIONS OF SECTION 147 OF THE ACT ARE APPLICABLE AND DISMISSED THE GROUND FOR DISALLOWANCE OF RS.5,56,268/- AND CONFIRMED THE ADD ITION MADE BY ASSESSING OFFICER BY OBSERVING AS UNDER :- DISCUSSION AND APPELLATE DECISION:- 6.1 THE SUBMISSION MADE BY THE APPELLANT IS DULY CO NSIDERED INTER A [ IA THE FACTS OF THE CASE. CASE LAWS CITED BY THE APPELLANT HAVE BEEN GONE THROUGH. AS A MATTER OF FACTLY OBSERVED BY THE LD. AO (PARA- 6 OF ASSESS MENT ORDER) THAT CAPITAL OF RS. 35,65,742/- VIS-A-VIS OUTSTANDING DEBTORS OF RS. 30 ,39,692/- DOES NOT LEAVE ANY MORE INTEREST FREE FUNDS AVAILABLE FOR GRANTING ADVANCE TO SISTER/ASSOCIATED CONCERNS. SUNDRY CREDITORS WERE OUTSTANDING TO THE TUNE OF RS. 5,64, 3977- ONLY DOES NOT SUPPORT THE THEORY OF 'OWN FUNDS' (CAPITAL AND CREDITORS) AVAILABLE FOR GRANT OF ADVANCE TO SISTER/ASSOCIATE CONCERNS. ON BEING ASKED TO SUBMIT, THE DOCUMENTARY EVIDENCE IN SUPPORT OF CLAI M THAT IMPUGNED LOANS/ADVANCES GIVEN FOR BUSINESS PURPOSE. CLEARLY, THE ONUS IS ON THE ASSESSEE TO BE DISCHARGED BY LEADING THE EVIDENCES. EVEN WITH REGARD TO TERM LOANS, THE ASSESSEE FAILED TO FURNISH EVIDENCE S TO JUSTIFY THE PURPOSE & UTILIZATION OF LOANS IN SPITE OF BEING ASKED TO D O SO BY THE AO. THE AO HAS RAISED A GENUINE QUARRY AS TO WHY THE ASSESSEE WOULD NEED TERM LOAN AT FIRST PLACE CONSIDERING THE NATURE OF BUSIN ESS I.E. SALE OF DIESEL & PETROL ON CASH BASIS. IT IS SEEN FROM THE DETAILS F ILED BY THE ASSESSEE THAT THE FIGURE OF 'LOANS & ADVANCES' HAVE INCREASED FRO M 11.83 LAKHS (IN F.Y. 2006-07) TO 42.81 LAKHS (IN F,Y. 2007-08) I.E. BY A PPROX 30 LAKHS. WHILE EXPLAINING THE SOURCE OF FUNDS FOR ADVANCING T O SISTER CONCERN THE ASSESSEE HAS CLAIMED INTEREST-FREE FUNDS AS CAPI TAL OF RS. 35.65 LAKHS, UNSECURED LOANS OF RS. 9.84 LAKHS AND SECURED LOAN S (FROM VARIOUS BANKS) AT 36.85 LAKHS. THIS IS.A MATTER OF COMMON S ENSE THAT NO ITA NO. 2289/AHD/2015 ASST. YEAR 2008-09 5 BANK/FINANCIAL INSTITUTION WOULD GRANT LOAN OF ANY KIND WITHOUT CHARGING INTEREST. THUS, THE CLAIM OF THE ASSESSEE IS FOUND FACTUALLY INCORRECT. 6.2 THE CASE WAS RELIED UPON BY THE ASSESSEE ARE BEING FACTUALLY DISTINGUISHABLE AND NOT APPLICABLE TO THIS CASE. EV EN THE ARGUMENT OF BUSINESS EXPEDIENCY WILL NOT PROVIDE ANY ESCAPE TO THE ASSESSEE. THE APPELLANT HAS GIVEN ADVANCES TO SISTER CONCERN BUT FAILED TO DEMONSTRATE HOW FAR IT IS EXPEDIENT FOR THE ASSESSEE TO ADVANCE SUC H CAN TO SISTER CONCERN AND WHAT BUSINESS PURPOSE IT ACTUALLY SERVED. MERELY BE CAUSE ANY PARTNER OR HIS FAMILY MEMBER IS SHAREHOLDER OR BUSINESS IS RELATIN G TO AUTOMOBILES OR CONNECTED SERVICES, IT CANNOT BE CONSTRUED THAT IT WAS FOR SERVING ANY BUSINESS PURPOSE OF THE ASSESSEE CONCERN. THUS, THE BUSINESS EXPEDIENCY TEST ALSO FAILED IN THIS CASE. 6.3 IN A PECULIAR SITUATION WHERE ASSESSEE IS HAVING LI QUIDITY BUT DIVERTING THOSE FUNDS AS INTEREST-FREE ADVANCES TO PARTNERS/S ISTER CONCERN AND THEN BORROW FUNDS FROM BANK ON INTEREST FOR BUSINESS - I N THAT CASE IT WAS HELD IN THE CASE OF ACIT VS. PUNJAB STAINLESS STEEL IND. 128 ITD 12 (DE L) THAT IN SUCH A SITUATION INTEREST ON BORROWED CAPITA! HA S TO BE DISALLOWED. ALMOST SIMILAR SITUATION PREVAILED IN THIS CASE ALS O. 6.4 IN VIEW OF THE ABOVE DISCUSSION, I AM OF THE CONSID ERED VIEW THAT DISALLOWANCE OF INTEREST OF RS. 5,56,268/- WAS FULL Y JUSTIFIED IN THIS CASE. THE GROUND OF THE ASSESSEE IS DISMISSED. 5. ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 6. FIRST WE TAKE GROUND NO.1 RAISED AGAINST THE ACT ION OF LD. CIT(A) WHO ERRED IN HOLDING THE JURISDICTION OF ASSESSING OFFICER FOR REOPENING OF THE ASSESSMENT. LD. AR SUBMITTED THAT REASONS RECORDED FOR REOPENING OF ASSESSMENT FAIL AS THE BA LANCE SHEET AND OTHER FINANCIAL DOCUMENTS WHICH WERE ALREADY FORMIN G PART OF THE ASSESSMENT RECORDS HAD BEEN EXAMINED BY THE ASSESSI NG AUTHORITY DURING THE PROCEEDINGS U/S 143(3) OF THE ACT AND TH E SAME RECORDS HAVE BEEN TAKEN AS BASIS BY THE REVENUE FOR INITIAT ION OF PROCEEDINGS ITA NO. 2289/AHD/2015 ASST. YEAR 2008-09 6 U/S 147 OF THE ACT AND THE SAME SHOULD BE QUASHED B ECAUSE REASONS ARE BASED ON CHANGE OF OPINION AND ARE WELL BASED O N SUSPICION. 7. ON THE OTHER LAND, LD. DR SUPPORTED THE ORDERS O F LOWER AUTHORITIES. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. TO EXAMINE THIS ASPECT LET US GO THROUGH THE PROVISIONS OF SECTION 147 OF THE ACT:- INCOME ESCAPING ASSESSMENT. 147. IF THE [ASSESSING] OFFICER [HAS REASON TO BELIEVE ] THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT 91 FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PR OVISIONS OF SECTIONS 148 TO 153 , ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, OR RECOMPUTE THE LOSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE, AS THE CASE MAY BE, FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTER IN THIS SECTION AND IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEVANT ASSESSMENT YEAR) : PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB-SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR, NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB-SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSE SSMENT, FOR THAT ASSESSMENT YEAR: [ PROVIDED FURTHER THAT NOTHING CONTAINED IN THE FIRST PROVISO SHALL APPLY IN A CASE WHERE ANY INCOME IN RELATION TO ANY ASSET (INCLUDING FINA NCIAL INTEREST IN ANY ENTITY) LOCATED OUTSIDE INDIA, CHARGEABLE TO TAX, HAS ESCAPED ASSES SMENT FOR ANY ASSESSMENT YEAR:] [ PROVIDED [ ALSO ] THAT THE ASSESSING OFFICER MAY ASSESS OR REASSESS SUCH INCOME, OTHER THAN THE INCOME INVOLVING MATTERS WHICH ARE THE SUB JECT MATTERS OF ANY APPEAL, REFERENCE OR REVISION, WHICH IS CHARGEABLE TO TAX AND HAS ESC APED ASSESSMENT.] EXPLANATION 1. PRODUCTION BEFORE THE ASSESSING OFFICER OF ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COULD WITH DU E DILIGENCE HAVE BEEN DISCOVERED BY THE ASSESSING OFFICER WILL NOT NECESSARILY 96 AMOUNT TO DISCLOSURE WITHIN THE MEANING OF THE FOREGOING PROVISO. ITA NO. 2289/AHD/2015 ASST. YEAR 2008-09 7 EXPLANATION 2. FOR THE PURPOSES OF THIS SECTION, THE FOLLOWING SH ALL ALSO BE DEEMED TO BE CASES WHERE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, NAMELY : ( A ) WHERE NO RETURN OF INCOME HAS BEEN FURNISHED BY T HE ASSESSEE ALTHOUGH HIS TOTAL INCOME OR THE TOTAL INCOME OF ANY OTHER PERSON IN R ESPECT OF WHICH HE IS ASSESSABLE UNDER THIS ACT DURING THE PREVIOUS YEAR EXCEEDED TH E MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME-TAX ; ( B ) WHERE A RETURN OF INCOME HAS BEEN FURNISHED BY TH E ASSESSEE BUT NO ASSESSMENT HAS BEEN MADE AND IT IS NOTICED BY THE ASSESSING OFFICE R THAT THE ASSESSEE HAS UNDERSTATED THE INCOME OR HAS CLAIMED EXCESSIVE LOS S, DEDUCTION, ALLOWANCE OR RELIEF IN THE RETURN ; [( BA ) WHERE THE ASSESSEE HAS FAILED TO FURNISH A REPORT IN RESPECT OF ANY INTERNATIONAL TRANSACTION WHICH HE WAS SO REQUIRED UNDER SECTION 92E ;] ( C ) WHERE AN ASSESSMENT HAS BEEN MADE, BUT ( I ) INCOME CHARGEABLE TO TAX HAS BEEN UNDERASSESSED ; OR ( II ) SUCH INCOME HAS BEEN ASSESSED AT TOO LOW A RATE ; OR ( III ) SUCH INCOME HAS BEEN MADE THE SUBJECT OF EXCESSIV E RELIEF UNDER THIS ACT ; OR ( IV ) EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE OR ANY O THER ALLOWANCE UNDER THIS ACT HAS BEEN COMPUTED;] [( D ) WHERE A PERSON IS FOUND TO HAVE ANY ASSET (INCLUD ING FINANCIAL INTEREST IN ANY ENTITY) LOCATED OUTSIDE INDIA.] [EXPLANATION 3.FOR THE PURPOSE OF ASSESSMENT OR RE ASSESSMENT 1 UNDER THIS SECTION, THE ASSESSING OFFICER MAY ASSESS OR REASSESS THE INCOME IN RESPECT OF ANY ISSUE, WHICH HAS ESCAPED ASSESSMENT, AND SUCH ISSUE COMES TO HIS NOT ICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, NOTWITHSTANDING THA T THE REASONS FOR SUCH ISSUE HAVE NOT BEEN INCLUDED IN THE REASONS RECORDED UNDER SUB-SEC TION (2) OF SECTION 148 .] [EXPLANATION 4.FOR THE REMOVAL OF DOUBTS, IT IS HE REBY CLARIFIED THAT THE PROVISIONS OF THIS SECTION, AS AMENDED BY THE FINANCE ACT, 2012, SHALL ALSO BE APPLICABLE FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE THE 1ST DAY OF APRIL, 2012.] 9. FROM GOING THROUGH THE ABOVE PROVISIONS OF SECTI ON 147 OF THE ACT, WE FIND THAT PROVISIONS OF SECTION 147 SPECIFI CALLY MENTIONED THAT WHERE AN ASSESSMENT U/S 143(3) OF THE ACT HAS BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR NO ACTION SHALL BE TAKEN I N RESPECT OF ASSESSMENT FROM THE END OF RELEVANT FOUR YEARS. IN THE CASE OF ASSESSEE THE YEAR UNDER APPEAL IS ASST. YEAR 2008-0 9 AND FOUR YEARS END FROM THE END OF ASST. YEAR COMPLETES ON 31 ST MARCH, 2013 AND NOTICE U/S 148 WAS ISSUED ON 28 TH MARCH 2013 AND SERVED ON ITA NO. 2289/AHD/2015 ASST. YEAR 2008-09 8 31.3.2013 WHICH IS WELL WITHIN THE PRESCRIBED TIME LIMIT IN THE PROVISIONS OF SECTION 147 OF THE ACT. AS REGARDS TH E REASONS FOR WHICH REASSESSMENT PROCEEDINGS HAVE BEEN INITIATED, ASSES SEE COULD NOT PLACED ON RECORD ANY COMMUNICATION REFERRING TO DIS CUSSION ABOUT THE DIVERSION OF INTEREST BEARING TO NON-INTEREST BEARI NG FUNDS WHICH MEANS THAT THERE WAS NO DISCUSSION AT ALL ON THIS P OINT AND, THEREFORE, THERE CANNOT BE ANY CHANGE OF OPINION BECAUSE THERE WAS NO OPINION FRAMED ON THIS ASPECT DURING ASSESSING PROCEEDINGS U/S 143(3) OF THE ACT AND THE PERIOD OF FOUR YEARS GIVEN IN THE ACT S PECIFICALLY PERTAINS TO THOSE ASPECTS WHICH MAY HAVE ESCAPED ASSESSMENT DURING THE PROCEEDINGS U/S 143(3) OF THE ACT AND FOUR YEARS BE ING SUFFICIENT PERIOD WITHIN WHICH DEPARTMENT CAN GO AHEAD WITH RE -ASSESSMENT PROCEEDINGS FOR ANY SUCH ESCAPED INCOME ARISING OUT OF THE ASSESSMENT RECORDS HELD IN THE POSSESSION OF THE DE PARTMENT WHICH HAVE BEEN GATHERED DURING THE PROCEEDINGS U/S 143(3 ) OF THE ACT. 10. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT LD. ASSESSING OFFICER HAS RIGHTLY INITIATED PROCEEDINGS U/S 147 O F THE ACT BEFORE THE END OF FOUR YEARS FROM THE RELEVANT ASSESSMENT YEAR . ACCORDINGLY, THIS GROUND OF ASSESSEE IS REJECTED. 11. GROUND NOS.2 TO 5 ARE RAISED AGAINST THE ORDER OF LD. CIT(A) CONFIRMING DISALLOWANCE OF INTEREST OF RS.5,56,268/ - OUT OF THE INTEREST PAID ON KOTAK BENK TERM LOANS WHICH HAVE BEEN HELD TO BE USED FOR ADVANCING LOANS AND ADVANCES TO VARIOUS PARTIES WIT HOUT CHARGING ANY INTEREST. DURING THE COURSE OF ASSESSMENT PROCE EDINGS IT WAS OBSERVED BY ASSESSING OFFICER THAT ASSESSEE HAS TAK EN SECURED LOAN ITA NO. 2289/AHD/2015 ASST. YEAR 2008-09 9 OF RS.85,62,788/- FROM VARIOUS BANKS AND ALSO OBTAI NED UNSECURED LOAN OF RS.9,84,303/- FROM VARIOUS PERSONS. IN THE PROFIT AND LOSS ACCOUNT ASSESSEE HAS CLAIMED INTEREST EXPENSES OF R S.7,27,496/- TOWARDS SECURED LOANS AND RS.37,333/- TOWARDS UNSEC URED LOAN. HOWEVER, ASSESSEE HAS NOT CHARGED INTEREST ON LOANS AND ADVANCES OF RS.41,02,373/- AND ACCORDINGLY ASSESSING OFFICER APPLIED NORMAL MARKET RATE OF 15% AND CALCULATED THE AMOUNT OF DEE MED INTEREST INCOME AT RS.5,56,268/- AS ESCAPED INCOME FROM ASSE SSMENT AND ACCORDINGLY DISALLOWED THE INTEREST CLAIMED AS AN E XPENDITURE IN THE PROFIT AND LOSS ACCOUNT TO THE EXTENT OF RS.5,56,26 8/-. 12. LD. AR SUBMITTED THAT OUT OF THE TOTAL OANS AND ADVANCES OF RS.41,02,373/- , MAJOR AMOUNT IS PERTAINING TO FIVE PARTIES NAMELY I) DESAI AUTOMOBILES 1421873.00 II) DESAI AUTOMOBILES P. LTD. 1600000.00 III) RIDDHI SIDDHI AUTO 825000.00 IV) SAGAS AUTOTECH P. LTD. 100000.00 V) SHRADDHA MOTORS P. LTD. 50000.00 ------------------ TOTAL - 39,96,873/- ----------------- LD. AR SUBMITTED THAT ASSESSEE IS A DEALER IN PETRO L, DIESEL AND LUBRICANT OILS AND ABOVE REFERRED ADVANCES ARE FOR BUSINESS PURPOSE AS THE ASSESSEE HAS REGULAR BUSINESS TRANSACTIONS W ITH THESE PARTIES. LD. AR FURTHER SUBMITTED THAT OUT OF THE TOTAL SECU RED LOANS OF RS. 85,62,788/- KOTAK BANK TERM LOAN AMOUNTED TO RS.48, 77,184/- AND REMAINING AMOUNT OF SECURED LOAN WAS FROM FOLLOWING BANKS :- ITA NO. 2289/AHD/2015 ASST. YEAR 2008-09 10 I) ICICI BANK LTD. RS.7,54,078.13 II) BARKLAYS BANK RS.12,81,652.00 III) HDFC BANK RS.3,96,108.59 IV) INDIABLE CREDIT SERVICE BANK RS.12,53,7 66.00 RS.36,85,604.72 REFERRING TO ALL THE ABOVE DETAILS OF SECURED LOANS , LD. AR SUBMITTED THAT INTEREST DEBITED IN THE PROFIT AND LOSS ACCOUN T WAS PERTAINING TO SECURED LOAN IS ONLY LIMITED TO KOTAK BANK TERM LOA N OF RS.48,77,184/- WHEREAS INTEREST PAYABLE ON THE BALA NCE SECURED LOAN FROM FOUR BANKS AT RS.36,85,604/- HAS NOT AT A LL BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT BUT HAS BEEN DEBITED TO THE PARTNERS CAPITAL ACCOUNT. IN OTHER WORDS INTEREST ON RS.36,8 5,604/- HAS NOT BEEN CLAIMED AGAINST THE INCOME OF ASSESSEE FIRM. H OWEVER, THE FUNDS WERE AVAILABLE WITH THE ASSESSEE FIRM WHICH I F NECESSARY MAY BE DEEMED TO HAVE BEEN APPLIED TO THE INTEREST FREE LOANS AND ADVANCES GIVEN DURING THE YEAR, AND THEREFORE AS T HE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS, ADDITION FOR DISALLOWANCE OF INTEREST OF RS.5,56,268/- WAS WRONGLY MADE. 13. LD. DR SUPPORTED THE ORDERS OF LOWER AUTHORITIE S. ITA NO. 2289/AHD/2015 ASST. YEAR 2008-09 11 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ONLY ISSUE FOR ADJUDICATION IN GROUN D NO.2 TO 5 IS AGAINST CONFIRMATION OF ADDITION OF RS.5,56,268/- M ADE BY ASSESSING OFFICER FOR DIVERSION OF INTEREST BEARING FUNDS TO NON-INTEREST BEARING LOANS AND ADVANCES. LD. AR HAS TRIED TO DEMONSTRATE IN DETAIL ABOUT THE BIFURCATION OF FUNDS AVAILABLE WITH THE ASSESSE E AS INTEREST BEARING FUNDS AND NON-INTEREST BEARING FUNDS. THE O NLY BASIS TAKEN BY ASSESSING OFFICER FOR MAKING ADDITION OF RS.5,56 ,268/- WAS THAT ASSESSEE HAS CLAIMED INTEREST ON SECURED LOANS OF R S. 85,62,788/- AND INTEREST ON UNSECURED LOAN OF RS.9,84,303/- AND ON THE OTHER SIDE ASSESSEE HAS GIVEN LOANS AND ADVANCES OF RS.41,02,3 73/- WITHOUT CHARGING INTEREST. HOWEVER, GOING FROM THE FACTS OF THE CASE PRODUCED BEFORE US, WE FIND THAT SECURED LOAN OF RS.85,62,78 8/- HAS BEEN TAKEN FROM FOLLOWING SIX PARTIES :- I) ICICI BANK LTD. RS.7,54,078.13 II) BARKLAYS BANK RS.12,81,652.00 III) HDFC BANK RS.3,96,108.59 IV) INDIABLE CREDIT SERVICE BANK RS.12,53,7 66.00 V) KOTAK BANK TERM LOAN RS.21,97,486.00 VI) KOTAK BANK TERM LOAN RS.26,79,698.00 ----------------------- TOTAL RS.85,62,78 8/- ------------------------ OUT OF THE ABOVE SIX SECURED LOANS INTEREST DEBITED TO PROFIT AND LOSS ACCOUNT ON LOANS IS ONLY IN RELATION TO TERM LOANS TAKEN FROM KOTAK ITA NO. 2289/AHD/2015 ASST. YEAR 2008-09 12 BANK, WHICH IS SHOWN AT RS.7,27,496/- IN THE PROFIT AND LOSS ACCOUNT WHEREAS INTEREST PAYABLE ON THE REMAINING FOUR SECU RED LOANS OF RS. 36,85,604/- HAS NOT BEEN CLAIMED AS AN EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT, BUT HAS BEEN DEBITED TO THE PARTNERS CAPITAL ACCOUNT, WHICH ARE PLACED ON RECORD AT PAGES 43 TO 45 OF THE PAPER BOOK. THIS FACT OF NOT CHARGING INTEREST ON RS.36,85,604/- ON SECURED LOAN BRINGS ASSESSEE IN POSSESSION OF INTEREST FREE FUND S. 15. FURTHER ON PERUSAL OF LIST OF LOANS AND ADVANCE S AS GIVEN AS ON THE CLOSE OF THE FINANCIAL YEAR 2007-08 WE OBSERVE THAT MOST OF THE LOANS AND ADVANCES ARE IN THE NATURE OF TRADE AND C OMMERCE WHICH THE ASSESSEE MIGHT HAVE GIVEN DURING THE COURSE OF NORMAL BUSINESS. HOWEVER, ONE CANNOT IGNORE THE POSSIBILITY THAT LIS T OF LOANS AND ADVANCES MAY ALSO INCLUDE SISTER CONCERN OF THE ASS ESSEE FROM WHOM INTEREST MIGHT NOT HAVE BEEN CHARGED. HOWEVER, IN THE GIVEN CIRCUMSTANCES WHEREIN WE HAVE EXAMINED THAT ASSESSE E WAS HAVING SUFFICIENT INTEREST FREE FUNDS IN THE FORM OF PARTN ERS CAPITAL AT THE YEAR END OF RS. 36,65,742/- AS WELL AS INTEREST FREE SEC URED LOANS OF RS.36,85,604/-, DISALLOWANCE OF INTEREST AT RS.5,56 ,268/- ON THE LOANS AND ADVANCES GIVEN OF RS. 41,02,373/- IS UNCALLED F OR AS THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AVAILAB LE TO APPLY TO THE LOANS AND ADVANCES GIVEN. WE ARE OF THE VIEW THAT N O ADDITION FOR DISALLOWANCE OF INTEREST EXPENSES IS TO BE SUSTAINE D. WE DELETE THE SAME. THE GROUNDS ARE ALLOWED. 16. GROUND NO.6 IS GENERAL IN NATURE WHICH NEEDS NO ADJUDICATION. ITA NO. 2289/AHD/2015 ASST. YEAR 2008-09 13 17. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 01/04/2016 SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 1/4/16 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 21/03/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 31/03/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 1/4/16 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: