D.G. Patel Trust, Ahmedabad V. The Jt.CIT.,Range-12, Ahmedabad

ITA 2355/AHD/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0293 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-01-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 19-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAHUL KUMAR
• Assessee Lawyers: BANDISH SAPORKAR
• Keywords: Notional interest; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD A BENCH BEFORE: SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI ANIL CHATURVEDI, ACCOUNTANT ME MBER ITA NO.2355/AHD/ 2010 A.Y.2007-08 D.G. PATEL TRUST PROP. OF RAVI MARKETING 31, ANAZ BAZAR, BHALAKIA MILLS COMPOUND, KHOKHRA MEHMADABAD, AHMEDABAD PAN-AABTD0752B APPELLANT VS. THE J.C.I.T., RANGE-12 AHMEDABAD RESPONDENT DEPARTMENT BY : SHRI RAHUL KUMAR, SR. D.R. ASSESSEE BY : SHRI BANDISH SAPORKAR, A.R. DATE OF HEARING : 11.01.2013 DATE OF PRONOUNCEMENT : 15.02.2013 / ORDER PER : ANIL CHATURVEDI, ACCOUNTANT MEMBER THIS IS ASSESSEES APPEAL AGAINST THE ORDER OF LD. CIT(A)-XX, AHMEDABAD DATED 24.02.2010. 2. THE FACTS, AS CULLED OUT FROM THE ORDER OF THE A SSESSMENT ARE AS UNDER:- D.G. PATEL TRUST IS A PROPRIETOR OF RAVI MARKETING AND IS ENGAGED IN THE BUSINESS OF TRADING ON SEMI WHOLESALE BASIS IN FMCG PRODUCTS SUCH WAS WASHING POWDER, DETERGENT CAKE, SOAPS ETC. THE ASSESSEE FI LED ITS RETURN OF INCOME ON 16.11.2007 DECLARING TOTAL INCOME OF RS.16,26,650/- . THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U /S 143(3) VIDE ORDER DATED 23.12.2009 AND THEREAFTER THE TOTAL INCOME WAS ASSE SSED AT RS.18,28,600/- AFTER DISALLOWING INTEREST U/S 36(1)(III) OF RS.2,01,950/ -. AGGRIEVED BY THE ORDER OF THE ITA NO.2355/AHD/ 2010 A.Y.2007-08 2 A.O. ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CI T(A) CONFIRMED THE ACTION OF THE A.O. IT IS AGAINST THE AFORESAID ORDER OF CIT(A ) THE ASSESSEE IS NOW IN APPEAL BEFORE US. 3. THE ONLY EFFECTIVE GROUND RAISED BEFORE US IS WI TH RESPECT TO DISALLOWANCE OF INTEREST FROM RS.2,01,950/- U/S 36(1)(III) OF THE A CT. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS A.O. OBSERVED THAT THE ASSESSEE DEBITED INTEREST OF RS.34,18,865/- TO ITS PROFIT AND LOSS ACCOUNT. HE FURTHER OBSERVED THAT THE ASSESSEE HAS ALSO RECEIVE D INTEREST OF RS.22,92,233/- ON THE LOANS AND ADVANCES GIVEN BY THE ASSESSEE. H E FURTHER OBSERVED THAT ASSESSEE HAS NOT CHARGED INTEREST IN CASE OF AMRITL AL R. PATEL, TARANG PLAST CORPORATION AND SECURITY DEPOSIT-NL ACCOUNT. HE THEREFORE, WAS OF THE VIEW THAT THE INTEREST BEARING FUNDS HAVE BEEN UTILIZED BY TH E ASSESSEE TO GIVE INTEREST FREE LOANS AND ADVANCE AS THE ASSESSEE HAS PAID INTEREST OF 12% TO OTHER PERSON ON UNSECURED LOAN BUT NO INTEREST WAS CHARGED ON LOANS AND ADVANCES WHICH HAVE BEEN GIVEN TO AMRITLAL R. PATEL, TARANG PLAST CORPO RATION AND SECURITY DEPOSIT-NL ACCOUNT. HE, ACCORDINGLY, WORKED OUT THE INTEREST O N THE LOAN AMOUNT @ 12% AND WORKED OUT INTEREST OF RS.2,01,950/- AND DISALL OWED IT U/S 36(1)(III). AGGRIEVED BY THE ACTION OF THE A.O. ASSESSEE CARRIE D THE MATTER BEFORE CIT(A). CIT(A) UPHELD THE ORDER OF THE A.O. BY HOLDING AS U NDER:- 4.3 I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE APPELLANT WITH JUDICIAL PRONOUNCEMENTS RELI ED UPON BY HIM AND HAVE ALSO CAREFULLY GONE THROUGH THE ASSESSMENT ORD ER. IT HAS NOT BEEN CLARIFIED BY THE LD. A.R., AS TO HOW MORE INTE REST HAS BEEN PAID DURING THE YEAR THAN RECEIVED WHERE THE APPELLANT H AD ONLY INTEREST BEARING BORROWED FUNDS WHICH HAD BEEN ADVANCED TO S EVERAL PARTIES. IN CASE OF SECURITY DEPOSIT NL A/C ALSO THE POSI TION HAS NOT BEEN CLARIFIED. AS REGARDS NO CHARGING OF INTEREST FROM AMRATLAL K. PATEL AND TARANG PLAST CORPORATION, THE APPELLANT CLAIMS THE ADVANCE WAS GIVEN TO THEM FOR BUSINESS EXPEDIENCE BUT THIS CONTENTION HAS NOT BEEN PROVED WITH ANY PLAUSIBLE EXPLANATION AND SUPPORTIN G EVIDENCE. IN THESE CIRCUMSTANCES, I HOLD THAT THE AO WAS JUSTIFI ED IN MAKING THE ITA NO.2355/AHD/ 2010 A.Y.2007-08 3 ADDITION OF RS.2,01,950/- ON ACCOUNT OF NON-CHARGIN G OF INTEREST. THE ADDITION IS THEREFORE CONFIRMED. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS N OW IN APPEAL BEFORE US. 5. BEFORE US LD. A.R. SUBMITTED THAT THE SECURITY D EPOSIT NL ACCOUNT APPEARING IN THE BALANCE SHEET IS NOT IN THE NATURE OF LOAN G IVEN OR ADVANCE GIVEN. HE SUBMITTED THAT THE ASSESSEE IS A DISTRIBUTOR OF NIR MA PRODUCTS. AS A DISTRIBUTOR IF THE ASSESSEE LIFTS GOODS IN EXCESS OF THE LIMITS SE T, THEN NIRMA LTD. GIVES INCENTIVE TO THE ASSESSEE FOR SELLING MORE PRODUCTS . THE INCENTIVES ARE INTIMATED THROUGH CREDIT NOTICE ISSUES AT THE END OF THE YEAR . HE THEREFORE SUBMITTED THAT THE AMOUNT STANDING IN THE ACCOUNT OF SECURITY DEPO SIT IS ACTUALLY IN THE NATURE OF INCENTIVE WHICH HAVE BEEN KEPT BY NIRMA LTD. AS DEP OSIT BY THEM TILL THE TIME IT IS DISBURSED TO ASSESSEE AND THEREFORE IT IS NOT IN THE NATURE OF INTEREST FREE ADVANCE. WITH RESPECT TO THE ADVANCE GIVEN TO AMRIT LAL R. PATEL AND TARANG PLAST CORPORATION LD. A.R. SUBMITTED THAT THE AMOUNT WAS ADVANCED DUE TO THE BUSINESS EXPEDIENCY. THE ADVANCES WERE GIVEN TO BO TH THE PARTIES FOR MAINTAINING GOOD CORDIAL RELATIONSHIP AND DEVELOP B USINESS IN FUTURE AND THEREFORE IT IS FOR THE PURPOSE OF BUSINESS AND THE REFORE THE INTEREST ON THE SAME IS NOT DISALLOWABLE. THE ASSESSEE PLACED ON RECORD THE COPY OF THE SECURITY DEPOSIT ACCOUNT AT PAGE 9 OF THE PAPER BOOK. HE AL SO PLACED ON RECORD THE COPIES OF CREDIT NOTICE ISSUED BY NIRMA LTD. AT PAG E 11 AND 12 OF THE PAPER BOOK. LD. A.R. FURTHER SUBMITTED THAT AS FAR AS ADVANCE T O THE OTHER TWO PARTIES ARE CONCERNED, THE SAME WERE GIVEN OUT OF INTEREST FREE AMOUNT AVAILABLE WITH IT AS THE ASSESSEE WAS HAVING ENOUGH SURPLUS FUND AND TO SUBSTANTIATE HE PLACED THE BALANCE SHEET ON RECORD AT PAGE 1 OF THE PAPER BOOK . FROM THE BALANCE SHEET HE POINTED OUT THAT THE CAPITAL ACCOUNT OF THE ASSESSE E WAS TO THE TUNE OF ITA NO.2355/AHD/ 2010 A.Y.2007-08 4 RS.18,07,000/-. HE, THEREFORE, SUBMITTED THAT IN V IEW OF THE FACT THAT ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS THERE CAN NOT BE A CASE OF DIVERSION OF BORROWED FUNDS TO THE AFORESAID TWO PARTIES. HE, T HUS SUBMITTED THAT THE ADDITION MADE BY THE A.O. BE DELETED. 6. LD. D.R. ON THE OTHER HAND RELIED ON THE ORDER O F THE A.O. AND CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE COPY OF THE LEDGER ACCOUNT OF SECURITY DEP OSIT PLACED ON RECORD IT IS SEEN THAT THE ASSESSEE WAS ENTITLED TO RECEIVE INCE NTIVE OF RS.13,97,394/- FOR THE PERIOD APRIL, 2006 TO MARCH, 2007 AND THE SAME WAS REFLECTED IN THE SECURITY DEPOSIT ACCOUNT. THE CREDIT NOTE OF NIRMA LTD. ALS O STATES THAT THE AMOUNT IS CREDITED TO THE INCENTIVE DEPOSIT ACCOUNT. FROM TH ESE FACTS, IT IS CLEAR THAT THE AMOUNT APPEARING AS SECURITY DEPOSIT IS NOT IN THE NATURE OF ANY AMOUNT ADVANCED AS LOAN OR DEPOSIT BY THE ASSESSEE BUT IS IN THE NATURE OF RECEIVABLE. THE REVENUE HAS ALSO NOT CONTROVERTED THE AFORESAID FACTS BY PLACING ANY MATERIAL ON RECORD. IN VIEW OF THESE FACTS, WE ARE OF THE VIEW THAT NO DISALLOWANCE ON ACCOUNT OF NOTIONAL INTEREST CAN BE MADE AS FAR AS AMOUNT OF SECURITY DEPOSIT IS CONCERNED. WITH RESPECT OF ADV ANCE TO AMRITLAL R. PATEL (RS. 150057/-) AND TARANG PLAST CORPORATION (RS.1,35,972) IS CONCERNED, BEFORE US THE ASSESSEE HAS GIVEN A GENERAL STATEMENT THAT IT IS ON ACCOUNT OF BUSINESS EXPEDIENCY BUT HAS NOT PLACED ANY EVIDENCE TO SUBST ANTIATE IT. THE PERUSAL OF THE LEDGER ACCOUNT IN CASE OF TARANG PLAST REVEALS THAT THE BALANCE OF RS.1,35,972/- IS AN OPENING BALANCE WITHOUT ANY TRA NSACTIONS DURING THE YEAR. IN CASE OF AMRITLAL PATEL, THE OPENING BALANCE RECEIVA BLE AT THE BEGINNING OF THE YEAR WAS TO THE EXTENT OF RS.4,58,000/- AND ON ACC OUNT OF REPAYMENTS MADE DURING THE YEAR, THE BALANCE AS ON 31 ST MARCH, 2007 WAS OF RS.150057/-. LD. ITA NO.2355/AHD/ 2010 A.Y.2007-08 5 A.R. COULD NOT SUBSTANTIATE ITS STAND WITH RESPECT TO THE COMMERCIAL EXPEDIENCY NOR COULD IT DEMONSTRATE BY MEANS OF ANY EVIDENCE T HAT THE AMOUNTS HAVE BEEN LENT OUT OF INTEREST FREE FUNDS. IN VIEW OF THESE FACTS, WE ARE OF THE VIEW THAT THE A.O.S ACTION IN MAKING DISALLOWANCE ON ACCOUNT OF INTEREST IN CASE OF AMRITLAL PATEL AND TARANG PLAST CORPORATION CANNOT BE FAULTE D. FOR THE REASONS STATED HEREINABOVE, THE ADDITION ON ACCOUNT OF INTEREST IN CASE OF SECURITY DEPOSIT IS DIRECTED TO BE DELETED. THUS THIS GROUND OF ASSESS EE IS PARTLY ALLOWED. 8. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN OPEN COURT ON 15.02.2013 SD/- SD/- (G.C. GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER N.K. CHAUDHARY, SR. P.S. COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD 6. THE GUARD FILE BY ORDER AR,ITAT,AHMEDABAD 1. DATE OF DICTATION 17.01.2013 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 17.01.2013 OTHER MEMBER 17.01.2013 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. . 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. .