Shri Jagdishbhai M.Mashruwala, HUF, Ahmedabad V. The ACIT., Circle-10, Ahmedabad

ITA 2411/AHD/2005

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9165 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 30-07-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 21-11-2005
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: M G PATEL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI A.N.PHAUJA, ACCOUNTANT MEMBER ITA NO.2411/AHD/2005 ASSESSMENT YEAR:2002-03 DATE OF HEARING:30.7.09 DRAFTED:31.7.09 JAGDISHBHAI M MASHRUWALA, HUF TAX,D/8, NIKUM BUILDING, B/H ASSOCIATD PETROL PUMP, PANCHVATI, AHMEDABAD PAN NO.AABHM3932N V/S. ACIT, CIRCLE-10, AHMEDABAD (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI M.G. PATEL, AR RESPONDENT BY:- SHRI SANJEEV KASHYAP, SR. DR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX(APPEALS)-XVI, AHMEDABAD IN APPEAL NO. CIT(A)- XVI/CIR.10/27/05-06 DATED 23-08-2005. THE ASSESSMEN T WAS FRAMED BY THE ACIT, CIRCLE-10, AHMEDABAD U/S.143(3) OF THE INCOME -TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORD ER DATED 14-03-2005 FOR THE ASSESSMENT YEAR 2002-03. 2. THE ONLY ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE DISALLOWANCE MADE BY THE A SSESSING OFFICER ON ACCOUNT OF INTEREST EXPENSES AMOUNTING TO RS.2,19,8 23/-. FOR THIS, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- ITA NO.2411/AHD/2005 A.Y. 2002-03 JAGDISHBHAI M MASHRUWALA HUF V. ACIT, CIR-10, ABD PAGE 2 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.2,19,823 MADE BY THE ASSESSING OFFICER OUT OF INTEREST EXPENSES. 2. THAT THE VARIOUS REASONS ADVANCED BY CIT (APPEAL ) IN CONFIRMING THE DISALLOWANCE OF RS.2,19,823 OUT OF INTEREST EXPENSE S ARE CONTRARY TO THE FACTS OF THE CASE AND EVIDENCE ON RECORD. 3. THE APPELLANT RESPECTFULLY SUBMITS THAT HE HAD G IVEN LOANS TO THE PARTIES WHO WERE NOT RELATIVES. THE LOAN WAS GIVEN ON INTEREST AND THE APPELLANT HAD RECEIVED AGGREGATE INTEREST OF RS.12, 10,000 DURING ACCOUNTING YEARS 1995-96 TO 2000-2001 WHICH WAS OFF ERED IN TAX. THE PARTIES TO WHOM THE LOAN WAS GIVEN WERE IN PRECARIO US FINANCIAL POSITION AND COULD NOT REPAY ANY INTEREST OR PRINCIPAL AMOUN T. THE APPELLANT HAD THEREFORE NOT CHARGED ANY INTEREST ON LOANS. THE AS SESSING OFFICER HAD DISALLOWED INTEREST PAID ON BORROWINGS. THE APPELLA NT RESPECTFULLY SUBMITS THAT WHEN THE RECOVERY OF PRINCIPAL AMOUNT OR INTEREST WAS NOT POSSIBLE, NO INTEREST CAN BE CHARGED ON LOANS. FURT HER THIS BEING NOT THE CASE OF DIVERSION OF FUNDS FOR INTEREST FREE LOANS, NO INTEREST CAN BE DISALLOWED. 4. THE APPELLANT THEREFORE SUBMITS THAT THE DISALLO WANCE OF INTEREST OF RS.2,19,823 BE DELETED. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT THE ASSESSEE HAS DEBITED INTEREST EXPENSES AMOUNTING TO RS.3,36,711/ - TO THE PROFIT & LOSS A/C. BEING INTEREST PAID TO VARIOUS PERSONS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER REQUIRED THE ASS ESSEE TO FURNISH THE DETAILS OF LOANS AND ADVANCES BY THE ASSESSEE TO VA RIOUS PERSONS AND INTEREST RECEIVED THERE FROM, FROM THE BALANCE-SHEET. THE AO FURTHER NOTED THAT THE ASSESSEE HAS NOT CHARGED INTEREST ON THE LOANS AND ADVANCES GIVEN TO THE FOLLOWING:- SUDHA AGENCIES RS. 99,746/- CREAMSON CHEMICAL CORPORATION RS. 10,000/- INVESTMENTD CASDTING CORPORATION RS. 22,115/- BENY ASSOCIATES RS. 4,00,000/- J.B.SHAH AND COMPANY RS. 3,00,000/- BENY INVESTMENT RS. 2,00,000/- HARSH ASSOCAITES RS. 3,00,000/- BENY LEASING RS. 5,00,000/- TOTAL RS.18,31,861/- ITA NO.2411/AHD/2005 A.Y. 2002-03 JAGDISHBHAI M MASHRUWALA HUF V. ACIT, CIR-10, ABD PAGE 3 THE AO ALSO NOTED THAT THE ASSESSEE HAS RECEIVED IN TEREST UP TO ASSESSMENT YEAR 2001-02 RELEVANT TO ACCOUNTING YEAR 2000-01 FR OM THESE PARTIES. THE ASSESSEE WAS ASKED TO EXPLAIN WHY INTEREST HAS NOT BEEN CHARGED FROM ABOVE PERSONS. THE ASSESSEE STATED THAT THE FINANCIAL POS ITION OF THESE PARTIES BECAME PRECARIOUS AND THE PARTIES WERE UNDER TREMEN DOUS PROBLEM AND ACCORDINGLY FAILED TO PAY EVEN PRINCIPAL AMOUNT AND THEREFORE NO INTEREST WAS PAID BY THESE PARTIES NOR ACCOUNTED BY THE ASSESSEE . THE AO REQUIRED THE ASSESSEE TO PROVE THAT THESE PARTIES HAVE BECOME BA NKRUPT AND ARE NOT IN A POSITION TO PAY THE INTEREST OR PRINCIPAL. THE AO N OTED THAT THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY EVIDENCE IN SUPPORT OF TH E CLAIM OF BEING BANKRUPT BY THE ABOVE PARTIES. THE AO ALSO NOTED THAT THE A SSESSEE HAS PAID INTEREST @ 12% TO THE PARTIES FROM WHOM ADVANCE HAS BEEN REC EIVED BY THE ASSESSEE AND DEBITED INTEREST EXPENSE OF RS.3,36,711/-. THE ASSESSEE HAS BORROWED AMOUNT FROM THESE RELATED PARTIES AS SPECIFIED U/S. 40A(2)(B) OF THE ACT AND PAID INTEREST @ 12% OR 18% AS THE CASE MAY BE. AS REGARDS TO THE ADVANCE GIVEN, HE NOTED THAT IN PAST ALSO THE ASSESSEE HAS CHARGED INTEREST UP TO FINANCIAL YEAR 2000-01 RELEVANT TO ASSESSMENT YEAR 2001-02. ACCORDINGLY, THE AO WORKED OUT THE INTEREST RECEIVABLE @ 12% FROM TH E ABOVE PARTIES AT RS.2,19,823/- AND DISALLOWED THE SAME BY STATING TH AT SAME CANNOT BE DEDUCTED AS EXPENDITURE. THE DISALLOWANCE OF RS.2, 19,823/- WAS MADE OUT OF TOTAL INTEREST EXPENSES DEBITED TO THE PROFIT & LOS S A/C. BY THE ASSESSEE. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE CIT (A). THE CIT(A) CONFIRMED THE ACTION OF THE AO BY GIVING FOLLOWING FINDING IN PARA-4.5 OF HIS APPELLATE ORDER:- 4.5 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND T HE RIVAL SUBMISSIONS OF THE LD. A.R. THE HON. SUPREME COURT DECISION (SUPRA), RELIED UPON BY THE LD. AR WOULD NOT COME TO THE RES CUE OF THE APPELLANT AS THE FACTS IN THAT CASE ARE DIFFERENT FROM THE FA CTS OF THE CASE IN QUESTION. THE ASSESSING OFFICER HAS RIGHTLY POINTED OUT THAT THE APPELLANT WAS NOT HAVING ANY SURPLUS OWN FUNDS OR P ROFIT WHICH COULD BE USED TO ADVANCE INTEREST FREE LOANS TO OTHERS. FURT HERMORE, THE APPELLANT HAS NOT FURNISHED ANY NEXUS OF THE AMOUNT S ADVANCED WITH THE AVAILABILITY OF SURPLUS FUNDS AVAILABLE WITH IT . ON THE OTHER HAND, THE APPELLANT HAS BORROWED AMOUNTS FROM SPECIFIED PERSO NS U/S.40A(2)(B) ITA NO.2411/AHD/2005 A.Y. 2002-03 JAGDISHBHAI M MASHRUWALA HUF V. ACIT, CIR-10, ABD PAGE 4 OF THE I.T. ACT AND GIVEN INTEREST TO THEM MOSTLY @ 12%. CORRESPONDINGLY, THE ASSESSEE HAS NOT CHARGED ANY I NTEREST FROM THE OUTSIDE PARTIES. EVERY ASSESSMENT YEAR IS SELF CONT AINED AND PRINCIPLES OF RES JUDICATA HAD BEEN APPLIED TO ANOTHER ASSESSM ENT YEAR. THE FACT IS THAT THE APPELLANT HAS BEEN RECEIVING INTEREST I NCOME FROM THE PARTIES UNDER CONSIDERATION. THIS YEAR, IT HAS NOT SHOWN AN Y INTEREST INCOME FROM THE SAID PARTIES AND ACCORDINGLY IT WOULD NOT BE ENTITLED TO THE BENEFIT OF PAYMENT OF INTEREST EXPENSES FOR NON BUS INESS PURPOSE. IN THIS REGARD, THE ASSESSING OFFICER HAS RIGHTLY APPL IED RATE OF 12% FOR THE PURPOSE OF COMPUTING DISALLOWANCE OF INTEREST OF RS .2,19,823. THE SAID DISALLOWANCE MADE BY THE ASSESSING OFFICER IS SUSTA INED. AGGRIEVED, NOW ASSESSEE CAME IN SECOND APPEAL BEFOR E US. 4. BEFORE US LD. COUNSEL FOR THE ASSESSEE, APART FR OM THE CONTENTIONS MADE BEFORE THE ASSESSING OFFICER THAT THESE PARTIE S HAVE BECOME BANKRUPT, NO EVIDENCE WHATSOEVER IS GIVEN IN SUPPORT OF THE C LAIM. THE LD. COUNSEL DRAWN OUR ATTENTION TO PAGE-43 OF THE ASSESSEES PAPER BOOK AND STATED THAT AS PER THE PAPER REPORT DATED 08-08-2008 PUBLISHED, TRANSLATION IN ENGLISH FILED, THESE PARTIES HAVE CHEATED BY OFFERING ATTRA CTIVE INTEREST @ 18% P.A. AND THEY HAVE NOT PAID ANY INTEREST AND THE RELEVANT PU BLICATION READS AS UNDER:- ENGLISH TRANSLATION OF NEWS IN GUJARAT ON PAGE 12 OF NEWSPAPER JAIHIND OF 08/08/2008 FRAUD TO CHEAT INVESTORS BY OFFERING ATTRACTIVE 18% , INTEREST SCHEME, INCORPORATING SEVEN COMPANIES UNDER ONE MANAGEMENT WITH THEIR REGISTERED OFFICES AT ONE AND THE SAME PLACE. AHMEDABAD 7 TH NEWS CREATED HAVOC THAT ONE MANAGEMENT SHOWING INCO RPORATION OF SEVEN COMPANIES UNDER ONE CONTROL, CHEATED THE INVE STORS. ACCORDING TO THE INFORMATION AVAILABLE IN THIS REGA RD, IT IS BELIEVED THAT ONE BHIKHUBHAI SHAH LIVING IN PALDI, AHMEDABAD CHEA TED INVESTORS BY MAKING FRAUD OF SHOWING SEVEN COMPANIES UNDER ONE C ONTROL WHICH WERE INCORPORATION THROUGH HIS FRIENDS AND RELATIVE S. THEY OPENED COMPANIES IN THE NAMES OF V.V.SHAH & CO ., BENI LEASING CO., BENI INVESTMENT CO., J.B. SHAH & CO. HARSH ASS OCIATES, H.H. SHAH & C. AND KARISHMA ASSOCIATES, REGISTERED OFFIC E OF ALL OF THEM WAS ONE AND THE SAME I.E. MRUNA APARTMENT, OP: POST OFF ICE, PALDI, AHMEDABAD. ITA NO.2411/AHD/2005 A.Y. 2002-03 JAGDISHBHAI M MASHRUWALA HUF V. ACIT, CIR-10, ABD PAGE 5 APART FROM THIS NOTHING IS FILED, EVEN THIS PAPER C UTTING AS REFERRED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THIS WAS BEFORE THE C IT(A), THIS FACT IS NOT CORRECT. THIS PUBLICATION IS DATED 08-08-2008 AND THE ORDER PASSED BY CIT(A) IS DATED 23-08-2005. WE FIND THAT THE ASSESSEE COUL D NOT ADDUCE ANY EVIDENCE EITHER BEFORE THE LOWER AUTHORITIES OR NOW BEFORE US REGARDING BANKRUPTCY OF THE ABOVE STATED PARTIES, FROM WHOM, THE ASSESSEE HAS NOT CHARGED ANY INTEREST IN THIS YEAR AND NO REASON WHA TSOEVER IS STATED. ACCORDINGLY, WE FIND THAT THE LOWER AUTHORITIES RIG HTLY DISALLOWED THE INTEREST EXPENSES BY TAKING THE INTEREST @ 12% AS PAID BY TH E ASSESSEE TO THE DEPOSITS RECEIVED FROM OTHER PARTIES. ACCORDINGLY, WE ARE OF THE VIEW THAT THE LOWER AUTHORITIES HAVE RIGHTLY CONFIRMED THIS ADDIT ION. 5. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 04/09/2009 SD/- SD/- (A.N.PHAUJA) (MAHAVIR SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED : 04/09/2009 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-XVI, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD