Shyamal Builders, Baroda V. The ACIT.,Circle-2(2), Baroda

ITA 2433/AHD/2010

• Counselvise Citation: 243320514 RSA 2010
• Duration Of Justice: 3 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-06-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 02-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAHUL KUMAR
• Assessee Lawyers: M J SHAH
• Keywords: Initiation of penalty proceedings; Notional interest; Commercial expediency
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE SHRI D. K. TYAGI, JM AND SHRI A. MOHAN ALAN KAMONY, AM) ITA NO.2433/AHD/2010 A. Y.: 2005-06 SHYAMAL BUILDERS, A-1, KALINDI APARTMENTS, PASHABHAI PARK, BARODA P. A. NO. AAFKS 5843 B VS THE A. C. I. T., CIR- 2 (2), AAYAKAR BHAVAN, BARODA (APPELLANT) (RESPONDENT) APPELLANT BY SHRI M. J. SHAH, AR RESPONDENT BY SHRI RAHUL KUMAR, SR. DR DATE OF HEARING: 06-06-2013 DATE OF PRONOUNCEMENT: 02-08-2013 O R D E R PER A. MOHAN ALANKAMONY: THIS APPEAL OF THE ASSESSEE IS PREFERRED AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A)-V, BARODA IN APPEAL NO. CAB(A)/V/469/09-10 DATED 28-05-2010, FOR THE ASSESSMENT YEAR 2005-06, PASSED U/S 250 READ WITH SECTION 143( 3) OF THE INCOME TAX ACT. 2. THE ASSESSEE HAS RAISED SIX GROUNDS WHEREIN GROU NDS NO. 6 GENERAL IN NATURE AND DOES NOT SURVIVE FOR ADJUDICA TION. THE SURVIVING GROUNDS NO.1 TO 5 ARE REPRODUCED HEREIN UNDER:- 1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE DISALLOWANCE ON ACC OUNT OF VEHICLES, TELEPHONE AND TRAVELING EXPENSES OF RS.6,669/- BEIN G 1/10 TH OF THE TOTAL EXPENDITURE. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE MADE UN DER SECTION 40(A) (IA) OF THE INCOME TAX ACT, 1961 TO THE EXTEN T OF RS.78,300/- ITA NO.2433/AHD/2010 (AY 2005-06) SHYAMAL BUILDERS VS ACIT 2 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITIONS OF RS.3,15 ,854/- MADE ON ACCOUNT OF INTEREST CHARGEABLE ON LOANS ADVANCED TO THE SISTER CONCERN ON THE GROUND THAT THE APPELLANT HAS TRANSF ERRED INTEREST BEARING FUNDS TO THEM. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS HAS DISMISSED THE GROUND RELATING TO T HE INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1) (C ) OF TH E I T ACT. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE CHARGING OF INTEREST UNDER SECTION 234B & 234C OF THE INCOME TAX ACT, 1961. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CONSTRUCTION FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 ON 30-10-2005 DECLARING TOT AL INCOME OF RS.15,43,720/-. SUBSEQUENTLY, ASSESSMENT ORDER IN T HIS CASE WAS PASSED BY THE LEARNED AO U/S 143(3) ON 31-12-2007 DETERRIN G THE TOTAL INCOME OF THE ASSESSEE AT RS.21,83,100/- WHEREIN CERTAIN ADDI TIONS TOTALING TO RS.6,39,387/- WERE MADE ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE CLAIMED TOWARDS VEHICLE, TELEPHONE, TRAVELING EXPEN SES, NOTIONAL INTEREST AND FURTHER BY INVOKING SECTION U/S 40(A) (IA) OF T HE ACT WITH RESPECT TO PAYMENT MADE FOR ADVERTISEMENT EXPENSES. IN APPEAL, THE LEARNED CIT(A) GRANTED PART RELIEF BY RESTRICTING THE DISALLOWANCE ON ACCOUNT OF VEHICLE, TELEPHONE AND TRAVELING EXPENSES TO 1/10 TH OF THE TOTAL EXPENDITURE BUT CONFIRMED THE OTHER ADDITIONS MADE BY THE LEARNED A O AGAINST WHICH THE ASSESSEE IS NOW IN APPEAL BEFORE US. 4. GROUND NO.1 RESTRICTING DISALLOWANCE TO RS.6,669/- ON ACCOUNT OF VEHICLES, TELEPHONE AND TRAVELING EXPENSES:- DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LEARNED AO OBSERVED THA T DURING THE PREVIOUS YEAR RELEVANT TO THE PRESENT ASSESSMENT YE AR, THE ASSESSEE CLAIMED A TOTAL AMOUNT OF RS.66,692/- FROM THE FOLL OWING EXPENDITURE:- I) PETROL AND DIESEL EXPENSES RS.48,906/- ITA NO.2433/AHD/2010 (AY 2005-06) SHYAMAL BUILDERS VS ACIT 3 II) INSURANCE ON CAR RS. 3,894/- III) TELEPHONE EXPENSES RS.13,892/- TOTAL RS.66,682 THE LEARNED AO ASKED THE ASSESSEE TO PROVE WITH APP ROPRIATE EVIDENCES WHETHER THE EXPENSES UNDER THESE HEADS WERE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF THE ASSESSEES BUSINESS . SINCE, THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE, THE LEARNED AO CON SIDERING THE POSSIBILITY OF PERSONAL USE MADE AN ADDITION OF RS. 11,115/- BEING 1/6 TH OF THE TOTAL EXPENDITURE CLAIMED OF RS.66,692/-. THE L EARNED CIT(A) IN APPEAL, RESTRICTED THE DISALLOWANCE MADE BY THE LEARNED AO TO 1/10 TH CONSIDERING THE FACTS OF THE CASE AND NATURE OF EXPENSES, AND T HEREBY CONFIRMED THE DISALLOWANCE OF RS.6,669/-. 5. AFTER HEARING BOTH THE SIDES, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A) SINCE THE LEAR NED AR COULD NOT SUCCESSFULLY CONTROVERT TO THE FINDINGS OF THE REVE NUE IN RESPECT OF THE RESPECTIVE EXPENDITURE CLAIMED BY THE ASSESSEE. THE REFORE, THIS GROUND RAISED BY THE ASSESSEE IS DISMISSED. 6. GROUND NO.2 CONFIRMING DISALLOWANCE OF RS.78,300/- U/S 40 (A) (IA) OF THE ACT:- DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LEARNED AO NOTICED THAT THE ASSESSEE HAD DEDUCTED T AX AT SOURCE BUT DID NOT DEPOSITED THE SAME TO THE GOVERNMENT ACCOUNT AS PER PROVISIONS OF THE ACT. SINCE, THE ASSESSEE COULD NOT FURNISH ANY SATISFACTORY EXPLANATION IN THIS REGARD, THE LEARNED AO ADDED THIS AMOUNT OF RS.78,300/- TO THE INCOME OF THE ASSESSEE INVOKING SECTION 40(A) (IA) OF THE ACT. ON APPEAL, THE LEARNED CIT(A) CONFIRMED THE ADDITION MADE BY T HE LEARNED AO BY OBSERVING IN PARA 6.3 OF HIS ORDER AS UNDER:- ITA NO.2433/AHD/2010 (AY 2005-06) SHYAMAL BUILDERS VS ACIT 4 6.3 I HAVE CAREFULLY CONSIDERED FACTS OF THE CASE, THE SUBMISSIONS OF THE APPELLANT AND THE ASSESSMENT ORDER. A PERUSA L OF THE LEDGER ACCOUNTS RELATING TO SECURITY EXPENSES AND TV ADVER TISEMENT EXPENSES REVEAL THAT NONE OF THE EXPENSES EXCEEDED RS.20,000/- NEITHER WAS THE AGGREGATE BREACHED THE LIMIT OF RS. 50,000/- AND THUS THE DISALLOWANCE OF RS.70,343 AND RS.1,63,775/ - ARE DIRECTED TO BE DELETED. IN RELATION TO PAYMENT OF B. G. KOTH ARI, TDS WAS DEDUCTED BUT WAS NOT PAID TO THE GOVERNMENT ACCOUNT AND THEREFORE, THE SAID EXPENDITURE OF RS.78,3000/- IS LIABLE TO B E DISALLOWED U/S. 40 (A) (IA). GROUND NO.2 IS PARTLY ALLOWED . 7. THE LEARNED AR SUBMITTED BEFORE US THAT THE ASSE SSEE HAD REMITTED THE TAX DEDUCTED AT SOURCE IN THE GOVERNMENT TREASU RY ON 05-04-2005 IN THE CASE OF THE DEDUCTEE B. G. KOTHARI I.E. BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME. THE LEARNED DR AGREED FOR THE MAT TER TO BE SENT BACK TO THE LEARNED AO TO VERIFY THE SUBMISSION OF THE LEAR NED AR. ACCORDINGLY, WE HEREBY REMIT BACK THE ISSUE TO THE FILE OF THE LEAR NED AO FOR VERIFYING WHETHER THE TAX DEDUCTED AT SOURCE AS PER THE PROVI SIONS OF THE ACT IN THE CASE OF B. G. KOTHARI IS REMITTED TO THE GOVERNMENT TREASURY AS SUBMITTED BY THE LEARNED AR. IN CASE IF IT IS REMITTED TO THE GOVERNMENT ACCOUNT ACCORDING TO THE CLAIM OF THE ASSESSEE THEN WE DI RECT THE LEARNED AO TO DELETE THE ADDITION MADE BY INVOKING SECTION 40 (A) (IA) OF THE ACT. RESULTANTLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 8. GROUND NO.3 CONFIRMING ADDITION OF RS.3,15,854/- MADE ON ACCOUNT OF INTEREST CHARGEABLE ON LOANS ADVANCED TO SISTER CONCERN:- ON VERIFICATION OF THE DETAILS OF LOANS AND ADVANCE S, THE LEARNED AO NOTICED THAT THE ASSESSEE HAD ADVANCED A SUM OF RS. 1,04,95,131/- TO M/S. SHYAMAL PHARMA BUT HAD NOT CHARGED ANY INTEREST WHI LE AS THE ASSESSEE WAS PAYING INTEREST TO BANK AND ITS PARTNERS ON THE LOAN AND CAPITAL AVAILED BY IT FOR THE PURPOSE OF ITS BUSINESS. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE INTEREST SHOULD NOT BE DISALL OWED ON THE ADVANCES ITA NO.2433/AHD/2010 (AY 2005-06) SHYAMAL BUILDERS VS ACIT 5 MADE TO M/S. SHYAMAL PHARMA. THE ASSESSEE COULD NOT FURNISH ANY REASONABLE EXPLANATION IN THIS REGARD. IT WAS FURTH ER OBSERVED BY THE LEARNED AO THAT DURING THE PREVIOUS YEAR THE ASSESS EE WAS PAYING INTEREST TO ITS PARTNERS @ 3% ON THE LOANS TAKEN BY THE ASSESSEE FIRM AND IN THE EARLIER YEARS ALSO SIMILAR ADDITIONS WERE MADE. FAC TS BEING SIMILAR TO THE YEAR UNDER CONSIDERATION, THE LEARNED AO CHARGED IN TEREST @ 3% ON THE ADVANCES OF RS.1,04,95,131/- GIVEN TO M/S. SHYAMAL PHARMA AND COMPUTED THE SAME AT RS.3,15,854/-. ACCORDINGLY, TH E LEARNED AO ADDED THE SAME TO THE INCOME OF THE ASSESSEE. IN APPEAL, THE LEARNED CIT(A) CONFIRMED THE ORDER OF THE LEARNED AO BY OBSERVING IN PARA 7.3 OF HIS ORDER AS UNDER:- 7.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, THE SUBMISSIONS OF THE APPELLANT AND THE ASSESSMENT ORD ER. IT IS OBSERVED THAT DURING ASSESSMENT PROCEEDINGS THE ASS ESSEE WAS ASKED TO EXPLAIN THE PURPOSE FOR WHICH THE LOAN WAS ADVANCED AND NO EXPLANATION WAS SUBMITTED BEFORE THE AO. SIMILAR LY, IN THE APPELLATE PROCEEDINGS, IT WAS MERELY AVERRED THAT T HE ADVANCE WAS FOR THE BUSINESS PURPOSES BUT NO BUSINESS PURPOSE O R COMMERCIAL EXPEDIENCY COULD BE ESTABLISHED. THE OTHER ARGUMENT S OF THE APPELLANT THAT THE SISTER CONCERN IS AN INCOME TAX ASSESSEE IN THE SAME TAX BRACKET IS OF NO CONSEQUENCE IN THE CASE O F THE APPELLANT. FURTHER, AS THE FUNDS OF THE APPELLANT FORM A COMMO N HOTCH POTCH, THE APPELLANT HAS NOT BEEN ABLE TO EXPLAIN THAT THE INTEREST FREE ADVANCES EMANATED OUT OF INTEREST FREE FUNDS. THUS, IN TERMS OF THE DECISION OF HONBLE APEX COURT IN THE CASE OF SA BU ILDERS, THE AO WAS JUSTIFIED IN DISALLOWING THE INTEREST OF RS.3,1 5,584/-. GROUND NO.3 IS DISMISSED. 9. ON PERUSING THE FACTS, WE FIND THAT THE ASSESSEE S AGGREGATE CAPITAL OF ALL THE PARTNERS IS RS.3,09,36,372.52. FURTHER, THE PARTNER OF THE ASSESSEE FIRM SHRI ASHWIN A SHAH HUF HAS A CAPITAL OF RS.54,45,984.51 AND SMT. BANDANA SHAH HAS A CAPITAL OF RS.1,64,40,4 80.38 IN THE ASSESSEE FIRM. THE LOAN EXTENDED BY THE ASSESSEE FI RM TO M/S. SHAMLAL PHARMA IS ONLY RS.1,04,95,131/- WHICH IS MUCH BELOW THE AGGREGATE ITA NO.2433/AHD/2010 (AY 2005-06) SHYAMAL BUILDERS VS ACIT 6 CAPITAL OF THE FIRM AS WELL AS THE AGGREGATE CAPITA L OF THE PARTNERS OF THE ASSESSEE FIRM. HOWEVER, WE FIND FROM THE PARTNERSHI P DEED SUBMITTED BY THE ASSESSEE THAT THE PARTNERS ARE ENTITLED FOR SIM PLE INTEREST @ 18% PER ANNUM OR AT SUCH OTHER RATES AS MAY BE AGREED UPON OR PRESCRIBED U/S 40(B) OF THE ACT. CORRESPONDINGLY, WE FIND FROM THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE THAT AN AMOUNT OF RS.6,71,061/- IS DEB ITED AS INTEREST TO PARTNERS. THE LEARNED AO HAD MADE A FINDING IN HIS ORDER THAT THE PARTNERS OF THE ASSESSEE FIRM WERE CHARGING INTEREST @ 3% PE R ANNUM ON THEIR CAPITAL IN THE FIRM. ACCORDINGLY, THE LEARNED AO HA D ADDED THE NOTIONAL INTEREST OF 3% FOR THE INTEREST FREE LOAN EXTENDED TO THE ASSESSEES SISTER CONCERN. THE ASSESSEE HAD CLAIMED THAT THE ASSESSEE EXTENDED THE INTEREST FREE LOAN TO THE ASSESSEES SISTER CONCERN FOR COMMERCIAL EXPEDIENCY. HOWEVER, THE ASSESSEE HAS NOT BROUGHT O N RECORD ANY MATERIAL FACTS TO EXPLAIN AS TO WHAT THE COMMERCIAL EXPEDIENCY WAS. THEREFORE, WE CONFIRM THE ORDER OF THE LEARNED AO A S WELL AS THAT OF THE LEARNED CIT(A). THIS GROUND RAISED BY THE ASSESSEE IS DISMISSED. 10. GROUND NO.4, RELATING TO INITIATION OF PENALTY PROCEEDINGS IS PRE- MATURE AT THIS STAGE AND, THEREFORE, DISMISSED AS S UCH WHILE AS GROUND NO.5 RELATING TO CHARGING OF INTEREST U/S 234B AND 234C OF THE ACT IS CONSEQUENTIAL AND, THEREFORE, THIS GROUND IS ALSO D ISMISSED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 02-08-2013 SD/- SD/- (D.K. TYAGI) JUDICIAL MEMBER (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER LAKSHMIKANTA LAKSHMIKANTA LAKSHMIKANTA LAKSHMIKANTA DEKA/ DEKA/ DEKA/ DEKA/- -- - ITA NO.2433/AHD/2010 (AY 2005-06) SHYAMAL BUILDERS VS ACIT 7 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 ASSTT. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 02-07-2013/30-07-2013 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 30-07-2013 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: 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 DISPATCH OF THE ORDER: