SURYAM ENTERPRISES, Jaipur V. ITO, Jaipur

ITA 239/JPR/2011

• Counselvise Citation: 23923114 RSA 2011
• Duration Of Justice: 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 11-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 17-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D K MEENA
• Assessee Lawyers: D KUMAR
• Keywords: Notional interest; Commercial expediency

Judgement Text

1 ITA 239(2)-11 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH SMC JAIPUR BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER ITA NO. 239 & 240/JP/2011 ASSTT. YEAR : 2005-06 & 06-07. M/S. SURYAM ENTERPRISES, VS. THE INCOME-TAX OFFIC ER, 92, SAKET, NEELKANTH COLONY, WARD 3(1), QUEENS ROAD, JAIPUR. JAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI D. KUMAR RESPONDENT BY : SHRI D.K. MEENA DATE OF HEARING : 11.11.2011 DATE OF PRONOUNCEMENT : 22.11.2011. ORDER DATE OF ORDER : 22/11/2011. PER R.K. GUPTA, J.M. THESE ARE TWO APPEALS BY ASSESSEE AGAINST THE ORDE R OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2005-06 AND 2006-07. 2. COMMON ISSUES ARE INVOLVED IN BOTH THESE APPEALS , THEREFORE, THEY ARE BEING DISPOSED OFF TOGETHER. 3. GROUND NO. 1 IN BOTH THE APPEALS IS AGAINST CONF IRMING THE DISALLOWANCE OF INTEREST AT RS. 62,324/- AND AT RS. 84,286/- PAID T O THE BANK ON LOAN TAKEN FROM THE BANK RESPECTIVELY. 4. BRIEF FACTS OF THE CASE ARE THAT DURING THE ASSE SSMENT PROCEEDINGS, THE AO NOTICED THAT ASSESSEE HAD PAID INTEREST OF RS. 2,97,282/- O N LOAN TAKEN WHEREAS IT PAID INTEREST FREE 2 ADVANCE OF RS. 6,73,669/- TO SHRI S.N. BALDUA, FATH ER OF ONE OF THE PARTNER. EXPLANATION GIVEN BY ASSESSEE FOR INTEREST FREE ADVANCE GIVEN T O SHRI S.N. BALDUA BEING ON ACCOUNT OF HIS PROVIDING HOUSE ON NOMINAL RENT TO THE FIRM AND ALSO PROVIDING HIS PROPERTY AS COLLATERAL SECURITY TO THE BANK SO THAT THE FIRM CO ULD AVAIL THE LOAN WAS NOT ACCEPTED BY THE AO ON THE GROUND THAT FIRM WAS PAYING MONTHLY R ENT OF RS. 6,000/- AND RS. 2,000/- PER MONTH FOR ELECTRICITY AND WATER CHARGES TO SHRI S.N. BALDUA. THE INTEREST FREE ADVANCES GIVEN TO SHRI S.N. BALDUA WAS CONSIDERED T O BE DIVERSION OF INTEREST BEARING FUNDS TO NON-INTEREST BEARING ADVANCES. CONSEQUENT LY, NOTIONAL INTEREST OF RS. 62,324/- WAS CALCULATED AND ADDED TO THE TOTAL INCOME. THE LD. CIT (A) ALSO CONFIRMED THE ACTION OF THE AO. 5. SIMILARLY, THE INTEREST DISALLOWANCE OF RS. 84,2 86/- WAS MADE FOR SUBSEQUENT YEAR I.E. ASSESSMENT YEAR 2006-07. THE LD. CIT (A) CONF IRMED THE ACTION OF THE AO THIS YEAR ALSO. 6. NOW THE ASSESSEE IS IN APPEAL HERE BEFORE THE TR IBUNAL. 7. THE LD. COUNSEL OF THE ASSESSEE FILED A COPY OF WRITTEN SUBMISSION. 8. ON THE OTHER HAND, THE LD. D/R PLACED RELIANCE O N THE ORDERS OF THE AO AND LD. CIT (APPEALS). 9. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. C IT (A), I FIND THAT ASSESSEE DESERVES TO SUCCEED IN THIS GROUND IN PART. WE NOT ED THAT LOAN TAKEN FROM BANK AMOUNTING TO RS. 92 LACS WAS USED FOR BUSINESS PURP OSES. HOWEVER, INTEREST FREE ADVANCE GIVEN TO FATHER OF ONE OF THE PARTNERS OF THE FIRM IS WITHOUT ANY COMMERCIAL EXPEDIENCY. AN ARGUMENT HAS BEEN TAKEN THAT FATHER OF ONE OF TH E PARTNERS HAS GIVEN COLLATERAL SECURITY AND, THEREFORE, THE FIRM HAS NOT CHARGED ANY INTERE ST, IN OUR VIEW DOES NOT HAVE MUCH 3 WEIGHT BECAUSE THERE IS NO AGREEMENT BETWEEN FATHER OF ONE OF THE PARTNERS AND THE FIRM THAT HE WILL STAND SURETY FOR LOAN TAKEN FROM BANK AND IN LIEU OF THAT SOME AMOUNT HAS TO BE GIVEN TO HIM ON WHICH NO INTEREST SHALL BE PAID. HOWEVER, KEEPING IN MIND THAT COLLATERAL SECURITY HAS BEEN GIVEN AND ALSO THE HOU SE HAS BEEN GIVEN BY THE FATHER OF THE PARTNER TO THE FIRM FOR DOING BUSINESS, THEREFORE, WE FEEL THAT DISALLOWANCE OF INTEREST @ 12% IS NOT JUSTIFIED, AND IF THIS DISALLOWANCE IS R ESTRICTED TO 9% OF THE LOAN GIVEN THAT WILL MEET THE ENDS OF JUSTICE. THE AO IS DIRECTED TO CA LCULATE THE DISALLOWANCE OF INTEREST FOR BOTH THE YEARS ACCORDINGLY. WE ORDER ACCORDINGLY. 10. NEXT GROUND IS AGAINST CONFIRMING THE DISALLOWA NCE OF TELEPHONE EXPENSES OF RS. 15,000/- FOR THE ASSESSMENT YEAR 2005-06. 11. THE AO MADE LUMP SUM DISALLOWANCE OF RS. 15,000 /- OUT OF RS. 2,07,992/- CLAIMED ON ACCOUNT OF TELEPHONE EXPENSES. THE LD. CIT (A) CONFIRMED THE DISALLOWANCE AT LESS THAN 10%. 12. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. CIT (A), AGAIN I FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A) WHO CONFIRMED THE DIS ALLOWANCE AT EVEN LESS THAN 10% ON ACCOUNT OF TELEPHONE EXPENSES. THEREFORE, DISALLOW ANCE IS CONFIRMED. 13. THERE IS NO OTHER GROUND IN THE APPEAL FOR ASSE SSMENT YEAR 2005-06. 14. IN THE APPEAL FOR ASSESSMENT YEAR 2006-07, THER E IS ONE MORE GROUND I.E. AGAINST CONFIRMING THE DISALLOWANCE OF RS. 11,125/- OUT OF TRAVELING AND CONVEYANCE EXPENSES. 15. OUT OF TOTAL EXPENSES OF RS. 1,86,563/-, THE AO CONFIRMED A SUM OF RS. 11,125/- ON ACCOUNT OF NON-VERIFICATION OF EXPENSES. THE LD . CIT (A) CONFIRMED THE ACTION OF THE AO. 4 16. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, I FIND THAT ASSESSEE DESERVES TO SUCCEED IN THIS GROUND. THE A SSESSEE INCURRED A SUM OF RS. 55,625/- FOR PURCHASE OF FOREIGN CURRENCY AND TO MEET OTHER EXPENSES ABROAD. ALL THE EXPENSES WERE INCURRED AND CLAIMED IN THE PROFIT & LOSS ACCO UNT. ALLOWABILITY OF THIS EXPENDITURE IS NOT IN DOUBT. HOWEVER, FOR WANT OF VERIFICATION CERTAIN EXPENSES HAS BEEN DISALLOWED ON ACCOUNT OF FOREIGN TRAVELING EXPENSES. ASSESSEE HAS GIVEN COMPLETE DETAILS OF FOREIGN EXPENSES, THEREFORE, I FEEL THAT THERE IS NO JUSTIF ICATION IN DISALLOWING THE EXPENSES. ACCORDINGLY, I DELETE THIS DISALLOWANCE. 17. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED IN PART. 18. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 22 .11.2011. SD/- ( R.K. GUPTA ) JUDICIAL MEMBER JAIPUR, D/- COPY FORWARDED TO :- M/S. SURYAM ENTERPRISES, JAIPUR. THE ITO WARD 3(1), JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 239(2)/JP/2011) BY ORDER, AR ITAT JAIPUR.