ANIL KUMAR GOYAL, Kota V. ITO, Kota

ITA 248/JPR/2011

• Counselvise Citation: 24823114 RSA 2011
• Duration Of Justice: 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 25-10-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 22-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VIJAY GOYAL
• Keywords: Avoidance of tax
• Section: 54

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, SMC JAIPUR (BEFORE SHRI SHRI N.L. KALRA) ITA NO.248/JP/2011 ASSESSMENT YEAR : 2002-2003 SH. ANIL KUMAR GOYAL, VS. I.T.O. WARD-1(1), KOTA. KOTA. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIJAY GOYAL RESPONDENT BY : NONE DATE OF HEARING: 25.10.2011 DATE OF PRONOUNCEMENT : 28.10.2011 ORDER PER SHRI N.L. KALRA, A.M. THE ASSESSEE HAS FILED AN APPEAL AGAINST ORDER OF LD. CIT (A) AJMER DATED 21.02.2011. THE ONLY GRIEVANCE OF THE REVENUE IS TH AT LD. CIT (A) HAS ERRED IN NOT ALLOWING THE CLAIM OF INTEREST PAYMENT OF RS.1,46,7 22/-. 2. THE A.O. MADE DISALLOWANCE OF INTEREST AFTER OBS ERVING AS UNDER: DURING THE COURSE OF VERIFICATION IT WAS GATHERED F ROM THE BALANCE SHEET PRODUCED BY THE ASSESSEE THAT ASSESSEES OWN CAPITA L IS RS.29,01,863/- AND CREDITORS NAMELY M/S. ARVIND GOYAL HUF (RS.3,09,152 /-), SMT. KAMAL DEVI (RS.2,83,493/-), M/S. ANIL KUMAR GOYAL HUF (RS .7,48,361/-) AND SHRI ARVIND GOYAL (RS.18,000/-) HAVE BEEN SHOWN IN THE BALANCE SHEET. ASSESSEE HAS NOT INVESTED THE AMOUNT RECEIVED FROM CREDITORS TO ANY SUCH INVESTMENT WHICH COULD FETCH HIM RETURNS BETTER THA N THE INTEREST PAID BY ASSESSEE TO THESE CREDITORS. IT IS ALSO CLEAR FROM BALANCE SHEET THAT 2 ASSESSEE HAS NOT INVESTED THE AMOUNT OF CREDITS IN SOME IMMOVABLE PROPERTY WHICH USED TO BRING RESULTS IN LONG TERM. ASSESSEE HAS INVESTED HIS CAPITAL AS WELL AS AMOUNT OF CREDITS MOSTLY IN MUTUAL FUNDS, DEEP DISCOUNTS BONDS, SHARES, BEMA NIVESH FROM WHICH INT EREST RETURN IS VERY NOMINAL. ON THE CONTRARY ADVANCE OF RS.10,00,314/- HAS BEEN GIVEN TO M/S. D.P. GOYAL & SONS HUF FROM WHOM NO INTEREST HA S BEEN RECEIVED IN THIS YEAR OR IN THE EARLIER YEAR. IN THIS HUF ASSES SEE IS HIMSELF COPARCENER. IT IS THUS CLEAR THAT ASSESSEE AHS DELI BERATELY REDUCED HIS INCOME FROM PROPERTY BY WAY OF ADJUSTMENT OF INTERE ST PAID TO CREDITORS WHO ARE FAMILY MEMBERS. IN VIEW OF BUSINESS INTERES T ASSESSEE SHOULD HAVE PAID LONAS OF PERSONS TO WHOM HE IS PAYING INTEREST INSTEAD OF GIVING ADVANCE TO FAMILY MEMBERS INTEREST FREE. IT HAS, TH EREFORE, BEEN ESTABLISHED THAT A COLORABLE DEVICE HAS BEEN ADOPTE D BY THE ASSESSEE TO AVOID INCOME TAX. IT HAS BEEN DECIDED IN THE CASE O F M/S. MCDOWELL & CO. LTD. 154 ITR 148 (SC) THAT COLORABLE DEVICES CANNOT BE PART OF TAX PLANNING AND IT IS WRONG TO ENCOURAGE AVOIDANCE OF TAX BY DUBIOUS METHODS. IT IS FOR THE COURT TO TAKE STOCK AND DETE RMINE THE NATURE OF LEGAL DEVICES TO AVOID TAXES, AND TO EXPOSE THESE DEVICES FOR WHAT THEY REALLY ARE. FOR TAKING ANY ACTION AGAINST THE ADJUSTMENT O F INTEREST TO BE PAID AGAINST PROPERTY INCOME AN OPPORTUNITY TO EXPLAIN T HE CIRCUMSTANCES FOR NOT DISALLOWING ADJUSTMENT OF INTEREST FROM IMMOVAB LE PROPERTY WAS GIVEN. A WRITTEN EXPLANATION WITH REFERENCE TO QUAR RY RAISED REGARDING ADJUSTMENT OF INTEREST FROM PROPERTY INCOME HAS BEE N FURNISHED BY THE ASSESSEE ON 17.12.2004 WHERE IN DETAILS OF INVESTME NT IN MUTUAL FUNDS, DEEP DISCOUNT BONDS WILL EARN INTEREST RANGING 12% TO 17.5% (AS PER DETAILS OF DIFFERENT SECURITIES) WHICH IS EXEMPT AT PRESENT BUT TAXABLE AT THE TIME OF RECEIPT OF SUCH INTEREST. 3. BEFORE THE LD. CIT (A), THE ASSESSEE FILED DETAI LED SUBMISSIONS AND THESE ARE SUMMARISED AS UNDER: INTEREST HAS BEEN PAID TO THE FOLLOWING CREDITORS O N THEIR OLD CREDIT BALANCES WHICH ARE BEING BROUGHT FORWARD FROM LAST SEVERAL YEARS UNDER:- NAME (CRS.) 31.3.2002 31.3.2001 01.3.2000 01.03.199 9 31.3.1998 M/S. ARVIND (HUF) 309152 276052 276029 233923 198240 KAMLA DEVI 283493 253119 253119 253119 211965 M/S ANIL (HUF) 748361 668181 666180 588836 424413 INTEREST HAS BEEN PAID TO THEM AT 12% P.A. THE APPELLANT SUBMITTED TO THE AO, THE DETAILS OF U TILIZATION OF FUNDS BORROWED FROM ABOVE THREE CREDITORS AS UNDER:- A) M/S. ARVIND GOYAL: 3 RS.150000/- WAS BORROWED BY CHEQUE ON 26.7.1996. TH E AMOUNT WAS USED IN REPAYMENT TO ANOTHER CREDITOR MISS SURB HI GOYAL FROM WHOM LOAN WAS TAKEN FOR CONSTRUCTION OF PROPERTY AT E-38, IPIA, KOTA, OF WHICH PROPERTY INCOME HAS BEEN DECLARED. B) SMT. KAMLA DEVI: RS.200000/- WAS BORROWED BY CHEQUE ON 29.7.1997. TH E AMOUNT WAS USED IN REPAYMENT OF LOAN TAKEN FROM M/S. MAHAR ASHTRA HYBRID SEEDS CO. LTD. FOR CONSTRUCTION OF PROPERTY AT E-38, IPIA, KOTA. THE PROPERTY WAS LET OUT TO THE SAME PARTY AN D LOAN WAS TAKEN FOR CONSTRUCTION. C) M/S. ANIL KUMAR GOYAL: RS.100000/- BY CHEQUE ON 29.7.1997. THE AMOUNT WAS USED IN REPAYMENT OF LOAN TAKEN FROM M/S. MAHARASHTRA HYBRI D SEEDS CO. LTD. THE LOAN WAS TAKEN FOR CONSTRUCTION OF PROPERT Y. RS.200000/- BY CHEQUE ON 20.8.1996. THIS PAYMENT HAS MADE TO M/ S. D.P. GOYAL & SONS FROM WHOM RS.200000/- WAS BORROWED ON 8.7.19 96 FOR MAKING INVESTMENT IN BONDS OF M/S. MAHARASHTRA KRIS HNA VALLEY DEVELOPMENT CORPN. AT 17.5% P.A. (CTD) (STILL CONTI NUING), RS.120000/- WAS USED FOR MAKING REPAYMENT TO THE CR EDITOR M/S. D.P. GOYAL & SONS ON 9.9.1997 WITH WHOM THE APPELLA NT HAS MAINTAINED CURRENT ACCOUNT. SIMILARLY RS.60000/- BO RROWED ON 12.5.1998 WAS USED TO MAKE REPAYMENT OF AMOUNT TO M /S. D.P. GOYAL & SONS. THE REST AMOUNT IN THIS ACCOUNT IS DU E TO INTEREST AND TRANSFER ENTRIES OF SMALL AMOUNTS. FROM THE ABOVE DETAILS, YOU WILL KINDLY NOTE THAT T HE AMOUNT BORROWED HAS BEEN USED EITHER FOR REPAYMENT OF THE AMOUNT BORROWED FOR CONSTRUCTION OF PROPERTY FROM WHICH IN COME IS DERIVED OR FOR MAKING REPAYMENT OF THE AMOUNT BORRO WED FOR MAKING INVESTMENTS. THUS, THE INVESTMENTS FROM THE AMOUNT BORROWED HAVE BEEN MADE IN INTEREST EARNING OR INCO ME EARNING ASSETS. THUS, FORM THE ABOVE CHART IT IS CLEAR THAT ALL THE ABOVE CREDITORS ARE VERY OLD AND ARE CONTINUING SINCE LONG PERIOD. NO NEW AMOUNT HAS BEEN BORROWED FROM THEM FOR MAKING INVESTMENT D URING THE YEAR AND HENCE, THERE IS NO DIRECT NEXUS BETWEEN TH E AMOUNT BORROWED AND INVESTMENT MADE. INTEREST HAS ALSO BEEN PAID TO THE FOLLOWING NEW CREDITORS: SH. D.P. GOYAL RS.21500/- SH. GAURAV GOYAL RS.72400/- THE APPELLANT PURCHASED ICICI BONDS DURING THE YEAR FROM ABOVE TWO CREDITORS ON 15.6.2001 WHICH WERE REDEEMED ON 18.7. 2001 AND THE 4 ASSESSEE RECEIVED BENEFIT OF RS.35000/- FROM THIS T RANSACTION WITHIN A PERIOD OF NEARLY ONE MONTH AND 3 DAYS. THIS INCOME OF RS.35000/- HAS BEEN DULY SHOWN ON THE CREDIT SIDE OF THE INTEREST ACCOUNT. THESE BONDS WERE PURCHASED ON CREDIT AND THE APPELLANT ENJOYED THE BENEFIT OF FULL AMOUNT UPTO 31.3.2002 HENCE, HE PAID INTEREST. THE AMOUNT RECEIVED AFTER REDEMPTION OF BONDS ALSO REMAINED WITH THE APPELLAN T AND HE INVESTED IT IN DIFFERENT SECURITIES TO EARN INTEREST AND ALSO INVE STED U/S 54 EC TO SAVE CAPITAL GAIN TAX AND EARN INTEREST. THUS, THE INTEREST PAYMENT IS IN DUE COURSE OF THE BUSINESS OF THE ASSESSEE AND THE LOSS ON ACCOUNT OF EXCESS INTEREST PAYMENT IS ADJUSTABLE UNDER ANY OTHER HEAD OF INCOME AND THE SAME IS ALLOWABLE. THE ALLEGATION OF THE ACIT ON PAGE 2 PARA 2 OF THE ASSESSMENT ORDER THAT THE APPELLANT HAS NOT INVESTED THE AMOUNT RECEIVED FROM CREDITORS IN ANY SUCH INVESTMENT WHICH COULD FETCH HIM RETURNS BETTE R THAN THE INTEREST PAID TO CREDITORS, IS TOTALLY WRONG AND CONTRARY TO FACT S OF THE CASE AS UNDER. INVESTMENTS IN DEEP DISCOUNT BONDS, SHARES AND MUTU AL FUNDS ETC CAN NOT BE SAID TO BE TAX FREE INCOME AS INCOME FROM THESE INVESTMENTS IS TAXABLE ONLY ON MATURITY. THE APPELLANT SUBMITTED THE POSIT ION OF INTEREST BEARING AND NON-INTEREST BEARING ADVANCES/INVESTMENTS APPEA RING IN THE BALANCE SHEET AS ON 31.3.2002 TOGETHER WITH THE DATE OF INV ESTMENT AND RATE OF INTEREST. THE INVESTMENT HAVE BEEN MADE PRUDENTLY A ND AT HIGHER RATE OF INTEREST THEN PAID TO THE CREDITORS. NON INTEREST BEARING FUNDS = RS.29,23,114/- INCLUD ING CAPITAL INTEREST FREE ADVANCES GIVEN = RS.14,00,315/- INTEREST BEARING INVESTMENT = RS.7,89,259/- DEEP DISCOUNT BONDS YIELDING INTEREST FROM 9% TO 1 7.5% MUTUAL FUNDS YIELDING RATE OF INTEREST FROM 9% TO 17.5% = RS.9,69,200/- SHARES RS.40,250/- UNITES YIELDING INTEREST RATE OF 12.5% TO 14% =RS. 3,80,000/- RURAL BONDS ELECTRIFICATION =RS.3,20,000/- BIMA NIVESH =RS.3,54,083/- BUSSINESS ASSETS =RS.11,005/- 5 4. DEBT BALANCE IN CASE OF D.P. GOYAL & SONS HUF IS RS.10,00,315/- AND IT IS A CURRENT ACCOUNT. DEBT BALANCE IN RESPECT OF SH. SAU RABH GOYAL IS OLD AND IS TO THE EXTENT OF RS.4,00,000/-. THE LD. A/R RELIED ON THE FOLLOWI NG CASE LAWS BEFORE THE LD. CIT (A) 114 ITR PAGE 539 ALLAHABAD H.C. (1978) ACIT V/S LAT GE SEHANI INDERMAI JATIA DID NOT CHARGE INTEREST FROM VARIOUS PERSONS TO WHO M IT HAD LENT MONEY THOUGH THE ADVANCES TO THOSE PERSONS WERE FROM BORR OWINGS FROM BANK. 142 ITR M.P. HIGH COURT (1938) D&H SECHORON ELECTRO DES PVT. LTD. V/S CIT. NO INTEREST CHARGED BY THE ASSESSEE ON ADVANCES M ADE TO SISTER CONCERN. 127 ITR PAGE 572 MADRAS H.C. (CIT V/S MOTOR CREDIT CO. PVT. LTD.) (1981) HELD AS ABOVE 47 ITR 469 (A P HIGH COURT) IN THE CASE OF CIT V/S GOPI KRISHNA MURLIDHAR (1963) HELD THAT THE ASSESSEE HAVING BOTH OWN AND BORROWED FUNDS GIVE RISE TO THE PRESUMPTION THAT THE BORROWE D CAPITAL WAS USED AND ONLY THE OWN CAPITAL WAS USED FOR NON-BUSINESS PURP OSE. 138 ITR 729 CIT V/S ALOK PAPER LTD. (1982) INTEREST ON BORROWINGS DEDUCTIBLE EVEN WHEN-ASSESSE E DID NOT CHARGE INTEREST ON ITS LENDING. 239 ITR 795 CIT V/S HOTAL SAVERA (MADRAS) (1999) MONEY BORROWED ADVANCED TO A THIRD PARTY FREE OF IN TEREST WHEN THERE WAS SUFFICIENT CREDIT BALANCE IN THE PARTNERS ACCOUNT. NO PART OF INTEREST COULD BE DISALLOWED. 192 ITR PAGE 165 (KAR. H.C.) CIT V/S SRIDEV ENTER . (1991) ASSESSEE ADVANCED OUT OF BORROWED FUNDS ON INTERE ST. NO DISALLOWANCE. 1973 TAXATION 35 (6) PAGE 127 BOMBAY BENCH ITAT IST ITO V/S M/S. TUBE TOOLS & HARDWARE FORT, BOMBAY. ASSESSEE ADVANCED AMOUNTS TO A SISTER CONCERN WITHO UT INTEREST. IT BORROWED EXTENSIVELY AND PAID INTEREST. INTEREST PA ID WAS ALLOWABLE. 6 113 CTR 183 NEW DELHI ITC (1993) RAVINDER SINGH V /S CIT. NON INTEREST BEARING FUNDS WITH FIRM EXCEEDED INTER EST FREE BORROWABLE. NO DISALLOWANCE OF INTEREST. XXVI TAX WORLD 363 ITAT AHMEDABAD BENCH A IN THE CASE OF M/S. TORRENT FINANCIERS V/S ACIT HELD THAT INTEREST FREE FUNDS INCLUDE OWNERS CAPITAL, PROFITS, INTEREST FREE CREDITORS ETC. AMOUNT CAN BE GIVEN AS INTEREST FREE ADVANCES AND Q UESTION OF DISALLOWANCE OF INTEREST ON BORROWED FUNDS TO THIS EXTENT DOES NOT ARISE. CIT V/S NAVYUG OIL & DAL MILL (125 TAXMAN 304 (RA J.)(3) 125 TAXMAN 35 (GAUHATI TRIB.) NO NEXUS BETWEEN INTEREST BEING FUND AND ADVANCING INT. FREE LOANS. NO ADDITION CAN BE MADE. 256 ITR 395 BOMBAY H.C. CIT V/S TATA CHEMICALS LT D. (2002) BORROWED CAPITAL INVESTED IN TAX FREE BONDS. INTE REST PAID DEDUCTABLE. TTJ 79 PAGE 416-423 (2003) G.R. AGENCIES V/S ITO (I TAT, LUCKNOW BENCH) HELD: CLAIM FOR DEDUCTION OF INTEREST CAN NOT BE DI SALLOWED ON THE GROUND OF INTEREST FREE ADVANCES TO CERTAIN PARTIES. 80 TTJ 67 ARUNLAL NEHUMAL & CO. V/S. DCIT (ITAT, AH MEDABAD C BENCH)(2003) DISALLOWANCE CANNOT BE MADE ON THE GROUND OF INTERE ST FREE ADVANCES TO OTHERS. 5. THE LD. CIT (A) CONFIRMED THE ADDITION AFTER OBS ERVING AS UNDER: ARGUMENT OF THE APPELLANT HAS BEEN CONSIDERED BUT T HE SAME IS NOT ACCEPTABLE. AS MENTIONED BY AO, APPELLANT HAS GIVEN ADVANCE OF RS.10,00,314/- TO M/S. D.P. GOYAL & SONS HUF FROM W HOM NO INTEREST HAS BEEN RECEIVED EITHER THIS YEAR OR IN THE EARLIE R YEARS. SIMILARLY APPELLANT DID NOT CHARGE INTEREST FROM SH. SAURABH GOYAL. APPELLANT HAS ALSO PAID INTEREST TO SH. GAURAV GOYAL @ 21% WHICH IS VERY HIGH. KEEPING IN VIEW ALL THESE FACTS AO RIGHTLY CONCLUDE D THAT APPELLANT HAS DELIBERATELY TRIED TO REDUCE HIS INCOME BY MAKING I NTEREST PAYMENT TO CREDITORS WHO ARE ALL FAMILY MEMBERS. THE DISALLOWA NCE OF RS.1,46,722/- IS THEREFORE JUSTIFIED AND THE SAME IS CONFIRMED. 6. I HAVE CONSIDERED THE FACTS. THE CAPITAL AND NON INTEREST BEARING FUNDS ARE MORE THAN THE INTEREST FREE ADVANCES GIVEN. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V RELIANCE UTILITIES & POWER LTD. 313 ITR 340 HAS H ELD THAT INTEREST CAN NOT BE 7 DISALLOWED IF INTEREST FREE FUNDS ARE AVAILABLE TO THE EXTENT OF INTEREST FREE ADVANCES. SIMILARLY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V BHARTI TELEVENTURES LTD. 331 ITR 502 HELD THAT NO DISALLOWANCE OF INTEREST I F THERE ARE ADEQUATE NON-INTEREST BEARING FUNDS. HENCE THERE WAS NO CASE OF DISALLOWA NCE OF INTEREST. THE DISALLOWANCE OF INTEREST IS DELETED. IN THE RESULT THE APPEAL IS ALLOWED. THE ORDER IS PRONOUNCED IN OPEN COURT ON 28.10.201 1 SD/- (N.L.KALRA) ACCOUNTANT MEMBER DATED : 28.10.2011 *S.KUMAR* COPY FORWARDED TO:- 1. SHRI ANIL KUMAR GOYAL, KOTA 2. THE INCOME TAX OFFICER, WARD-1(1), KOTA. 3. THE CIT 4. THE CIT(A), 5. THE D/R, ITAT, JAIPUR 6. THE GUARD FILE IN ITA NO.248/JP/2011 BY ORDER A.R.,I.T.A.T., JAIPUR