Mr. Kapil Mehra, Amritsar. V. The Asstt. Commissioner of Income-tax, Amritsar.

ITA 248/ASR/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89846 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-06-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 17-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: TARSEM LAL
• Assessee Lawyers: SUDHIR MEHRA
• Keywords: Proportionate interest; Commercial expediency
• Section: 143(3)

Judgement Text

I.T.A. NO.248/ASR/2014 ASSESSMENT YEAR 2006-07 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR [CORAM:PRAMOD KUMAR AM AND A.D. JAIN JM] I.T.A. NO.248/ASR/2014 ASSESSMENT YEAR:2006-07 SH. KAPIL MEHRA, ..APPELLANT PROP. M/S. AMRITSAR WOOLLEN MILLS, 1, KATRA SHER SINGH, AMRITSAR. [PAN:ADYPM 8733 A] VS. ASSTT. COMMISSIONER OF INCOME-TAX, .RESPONDENT CIRCLE 1, AMRITSAR APPEARANCES BY: SUDHIR MEHRA FOR THE APPELLANT TARSEM LAL FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING: JUNE 05, 2015 DATE OF PRONOUNCING THE ORDER : JUNE 09, 2015 ORDER PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL, THE ASSESSEE HAS CALLED I NTO QUESTION CORRECTNESS OF ORDER DATED 20 TH FEBRUARY, 2014 PASSED BY THE CIT (A) IN THE MATTER OF ASSESSMENT UNDER SE CTION 143(3) OF THE INCOME TAX ACT 1961 FOR THE ASSESSMEN T YEAR 2006-07. 2. THE ONLY GRIEVANCE OF THE ASSESSEE, AS PRESSED B EFORE US, IS THAT THE CIT(A) HAS ERRED, IN LAW AND ON FACTS, IN SUSTAINING THE DISALLOWANCE OF RS. 2,41,830/- IN RE SPECT OF INTEREST ON INTEREST FREE ADVANCES TO THE SISTER CO NCERNS. I.T.A. NO.248/ASR/2014 ASSESSMENT YEAR 2006-07 PAGE 2 OF 4 3. TO ADJUDICATE ON THIS ISSUE, ONLY A FEW FACTS NE ED TO BE TAKEN NOTE OF. DURING THE SCRUTINY ASSESSMENT PROCE EDINGS, THE ASSESSING OFFICER DISALLOWED RS. 2,41,830/-, OUT OF INTEREST EXPENSES, BY OBSERVING AS FOLLOWS: 0.3 DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT IS NOTICED THAT THE ASSESSEE HAS ADVANCED INTEREST FRE E LOAN OF RS. 2996000/- TO M/S ROHAN INDUSTRIES IN WHICH S MT. MINAKSHI MEHRA IS THE PROPRIETOR WHEREAS ASSESSE IS MAINTAINING CASH CREDIT ACCOUNT WITH BANK OF INDIA ON WHICH INTEREST TO THE BANK @ 12% ON THE OVER DRAFT AVAILED BY THE ASSESSEE IS BEING PAID. TOTA INTERES T PAID IN THE ACCOUNT TO THE BANK IS RS. 345585/-. THE ASS ESSEE HAS ADVANCED RS. 2996000/- TO HIS WIFE SMT. MEENAKS HI MEHRA ON WHICH HE HAS NOT CHARGED ANY INTEREST WHER E HE HAS PAID INTEREST IN THE CASH CREDIT ACCOUNT TO THE BANK. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE PROPORTIONATE INTEREST SHOULD NOT BE ADDED FROM THE INTEREST FREE LOAN ADVANCED TO HIS WIFE WHO IS PROP RIETOR OF M/S ROHAN INDUSTRIES. THE PROPORTIONATE ON THIS LOAN COMES TO RS. 241830/-. HOWEVER THE ASSESSEES COUNS EL SUBMITTED THAT THE ASSESSEE HAS TRANSFERRED FUNDS T O THE SISTER CONCERN OUT OF THE CAPITAL AND INTEREST FREE ADVANCES TAKEN FROM THE RELATIVES AND AS SUCH THERE WAS NO NEXUS BETWEEN THE INTEREST BEARING FUNDS WITH TH E INTEREST FREE LOAN GIVEN TO THE SISTER CONCERN. 0.4 I HAVE PURSUED THE EXPLANATION TENDERED BY THE ASSESSEES COUNSEL WHICH IS NOT TENABLE AS THE ASSE SSEE HAD ALSO MADE SIMILAR ADVANCES TO THE SISTER CONCER N IN THE ASSTT. YEAR 2004-05 AND THE INTEREST WAS DISALL OWED BY THE A.O. WHICH WAS CONFIRMED BY THE COMMISSIONER OF INCOME TAX (APPEAL). 0.5 FOLLOWING THE DECISION OF CIT(APPEAL) AND ALSO THAT THE INTEREST FREE LOAN HAS BEEN ADVANCED OUT OF THE OVER DRAFT LIMIT FROM THE BANK ON WHICH THE ASSESSEE HAS PAID INTEREST TO THE BANK WHEREAS HE HAS NOT CHARGED ANY INTEREST FROM THE SISTER CONCERN OF WHICH HIS WIFE SMT. MEENAKSHI MEHRA IS THE PROPRIETOR. THEREFORE, I FIN D DIRECT NEXUS BETWEEN THE LOAN RAISED FROM THE BANK AND ADVANCE MADE TO THE SISTER CONCERN WITHOUT CHARGING OF ANY INTEREST. THEREFORE, THE INTEREST OF RS. 241830 /- OUT OF THE INTEREST PAID TO THE BANK AND CLAIMED BY THE ASSESSEE AT RS. 341585/- IS DISALLOWED IN RESPECT O F INTEREST FREE LOAN ADVANCED TO THE SISTER CONCERN O UT OF THE OVER DRAFT ACCOUNT MAINTAINED WITH THE BANK OF INDIA. THE SAME IS TO BE ADDED BACK TO THE INCOME OF THE ASSESSEE. I.T.A. NO.248/ASR/2014 ASSESSMENT YEAR 2006-07 PAGE 3 OF 4 4. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 5. HAVING HEARD THE RIVAL CONTENTIONS, AND HAVING P ERUSED THE MATERIAL ON RECORD, WE FIND THAT THIS ISSUE IS COVERED, IN FAVOUR OF THE ASSESSEE, BY THIS TRIBUNALS ORDER DA TED 1 ST OCTOBER, 2008 IN ASSESSEES OWN CASE FOR THE ASSESS MENT YEAR 2004-05 WHEREIN THE TRIBUNAL HAS OBSERVED AS FOLLOW S: 8.1 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. THE LOWER AUTHORITIES HA VE NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE ASS ESSEE HAS ADVANCED INTEREST BEARING FUNDS TO THE SISTER C ONCERN AND FRIENDS. IT IS MANDATORY ON THE PART OF THE LOW ER AUTHORITIES TO ESTABLISH THE NEXUS BETWEEN THE INTE REST BEARING FUNDS AND FUNDS ADVANCED TO SISTER CONCERN AND FRIENDS. THE ASSESSEE IS HAVING OWN FUNDS AND RESER VES AND BORROWINGS ONLY WHEN INTEREST BEARING FUNDS WER E ADVANCED TO THE SISTER CONCERN OR FRIENDS FREE OF INTEREST THEN ONLY AN ADDITION CAN BE MADE. IN THE ABSENCE OF ANY MATERIAL TO SUGGEST THAT THE MONEY W AS ADVANCED TO SISTER CONCERN FROM INTEREST BEARING FU NDS, WE DECLINE TO SUSTAIN THE ADDITION. ACTUALLY, ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPEND ITURE AND PURPOSE OF BUSINESS, WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF, THE REVENUE CA NNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM CHAIR OF THE BUSINESSMAN AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMS TANCES OF THE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAX IMIZE HIS PROFIT. THE INCOME-TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN COULD ACT. THE AUTHORITIES HIMS ELF NOT LOOKING AT THE MATTER FROM OWN VIEWPOINT BUT TH AT OF A PRUDENT BUSINESSMEN. WE HAVE TO SEE A TRANSFER OF FUNDS TO SISTER CONCERN FROM THE POINT VIEW OF COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER T HE AMOUNT WAS ADVANCED FOR EARNING PROFIT. IT WAS HELD IN THE CASE OF MUNJAL SALES CORP. VS. C.I.T. LUDHIANA, (2008) 168 TAXMAN 43(SC), WHEREIN IT HAS BEEN HELD AS UNDER: SECTION 36(1)(III), READ WITH SECTION 40(B) OF TH E INCOME-TAX ACT, 1961- INTEREST ON BORROWED CAPITAL - ASSESSMENT YEARS 1993-94 TO 1997-98- ASSESSEES I.T.A. NO.248/ASR/2014 ASSESSMENT YEAR 2006-07 PAGE 4 OF 4 CLAIM FOR DEDUCTION U/S 36(1)(III) WAS DISALLOWED O N GROUND THAT IT HAD GIVEN INTEREST-FREE ADVANCES TO ITS SISTER CONCERNS FROM INTEREST-BEARING LOANS TAKEN FROM THIRD PARTIES-ON APPEAL, TRIBUNAL DELETE D THE DISALLOWANCE FOR THE ASSESSMENT YEARS 1992-93 AND 1993-94, HOLDING THAT ASSESSEE HAD GIVEN SUCH ADVANCE FROM ITS OWN FUNDS, BUT UPHELD DISALLOWANCE S FOR THE ASSESSMENT YEARS 1994-95 TO 1996-97 WHETHER ONCE IT WAS FOUND THAT INTEREST FREE LOANS GRANTED IN AUGUST/SEPTEMBER, 1991 CONTINUED UP TO ASSESSMENT YEAR 1997-98; THAT SAID LOANS WERE ADVANCED FOR BUSINESS PURPOSE; AND THAT INTEREST PAID TO THIRD PARTIES (PARTNERS) DID NOT EXCEED 18/12 PER CENT PER ANNUM, ASSESSEE WAS ENTITLED TO DEDUCTION U/S 36(1)(III), READ WITH SECTION 40 (B)(IV)-HELD YES. 6. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY US IN ASSESSEES OWN CASE . RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THIS GRI EVANCE OF THE ASSESSEE AND DELETE THE IMPUGNED DISALLOWANCE O F RS. 2,41,830/-. THE ASSESSEE GETS THE RELIEF ACCORDINGL Y. 7. IN THE RESULT THE APPEAL IS ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON 9 TH DAY OF JUNE, 2015. SD/- SD/- A D JAIN PRAMOD KUMAR JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: THE 9 TH DAY OF JUNE 2015 *AKS/- COPIES TO: (1) THE APPELLANT (2) THE RESPONDE NT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR