Shri Arvindbhai Bhukhandas Kapadia(HUF), Navsari V. The Income tax Officer,Ward-1, Navsari

ITA 2630/AHD/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9027 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 15-09-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 21-07-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ALOK JOHRI
• Assessee Lawyers: J P SHAH
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BENCH C AHMEDABAD BENCH C AHMEDABAD BENCH C AHMEDABAD AHMEDABAD AHMEDABAD AHMEDABAD BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI H.L. KARWA H.L. KARWA H.L. KARWA H.L. KARWA, , , , JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER AND AND AND AND SHRI SHRI SHRI SHRI N NN N. .. .S. SAINI S. SAINI S. SAINI S. SAINI, , , , ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE OF HEARING: 15.09.09 DRAFTED ON: 16.09. 09 ITA NO.2630/AHD/2008 ASSESSMENT YEAR : 2005-2006 ARVINDBHAI BHUKHANADAS KAPADIA (HUF), 1 FLOOR, RIDDHI, NEAR TOWER, NAVSARI. VS. THE INCOME-TAX OFFICER, WARD-1, NAVSARI. PAN/GIR NO. : AACHA 5834 J (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI J.P.SHAH RESPONDENT BY: SHRI ALOK JOHRI, CIT DR. O R D E R O R D E R O R D E R O R D E R PER PER PER PER N.S.SAINI N.S.SAINI N.S.SAINI N.S.SAINI , ACCOUNTANT MEMBER : , ACCOUNTANT MEMBER : , ACCOUNTANT MEMBER : , ACCOUNTANT MEMBER :- -- - THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD.CIT(APPEALS), VALSAD, DATED 28.05.2008. 2. GROUND NO.1 OF THE APPEAL RELATES TO DISALLOWANCE OF INTEREST OF RS.3,96,523/-. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS PAID INTEREST @ 9% AMOUNTING TO RS.5,19,531/-ON THE LOANS TAKEN FROM WIFE AND SON. ITA NO .2630/AHD/2008 ARVINDBHAI BHUKHANDAS KAPADIA (HU F) ASST.YEAR -2005-06 - 2 - HE FURTHER OBSERVED THAT IN SPITE OF HAVING SUFFICIENT CASH BALANCE OF RS.10,76,600/- AND RECEIVABLES OF RS.26,65,000/- FROM M/S. KAPADIA MONEY CHANGERS PVT. LTD. AND HAVING HUGE FIXED DEPOSITS WITH THE VARIOUS BANKS. THE LEARNED ASSESSING OFFICER ALSO CALLED FOR THE CERTIFICATE FROM THE BANK, WHEREIN NO STIPULATION WAS THERE TO KEEP THE FIXED DEPOSITS WITH BANKS AS A SECURITY. THEREFORE, HE CONCLUDED THAT THE ASSESSEE HAS A MALAFIED INTENTION OF EVASION OF TAX TO THE EXTENT OF RS.5,19,531/- BY PAYING INTEREST AT HIGHER RATE TO HIS FAMILY MEMBERS. ACCORDINGLY, NET INTEREST PAYMENT OF RS.3,96,523/- WAS DISALLOWED RELYING UPON THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF VIJAY KUMAR MILLS V/S. CIT 194 ITR 197 WHERE IT WAS HELD THAT AN ASSESSEE IN SPITE OF HAVING HUGE CASH, BORROWED MONEY AND THOSE BORROWED FUNDS WERE NOT UTILISED FOR THE PURPOSE OF BUSINESS UNDER SECTION 36(1)(III) OF THE ACT. 4. IN APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), THE ASSESSEE SUBMITTED THAT THE FIXED DEPOSITS WERE MADE TO EARN INTEREST BUT WERE KEPT FOR THE PURPOSE OF BUSINESS NECESSITY OF THE ASSESSEE WITH A VIEW TO SAFE GUARD BANK FACILITY AGAINST THE CLEARANCE OF CHEQUES DEPOSITED. HE FURTHER CONTENDED THAT THE SERVICE FROM THE BANK IS ALSO SUGGESTIVE THAT THE FIXED DEPOSITS WERE KEPT AS AN ARRANGEMENT AGAINST THE CLEARANCE PURPOSE. 5. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE OBSERVED THAT LEARNED ASSESSING OFFICER HAS STATED THAT THE BANK HAS NOT GRANTED ANY CREDIT ITA NO .2630/AHD/2008 ARVINDBHAI BHUKHANDAS KAPADIA (HU F) ASST.YEAR -2005-06 - 3 - FACILITIES AND THEREFORE THE VERY PURPOSE OF THE ASSESSEE FOR KEEPING THE DEPOSIT WITH THE BANK GETS DEFEATED. THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE TO JUSTIFY THE CLAIM OF EXPENDITURE. HENCE, THE CONTENTION THAT THE EXPENDITURE IS FOR THE PURPOSE OF BUSINESS CANNOT BE ACCEPTED AND CONFIRMED THE ACTION OF THE LEARNED ASSESSING OFFICER. 6. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE DURING THE COURSE OF HEARING HAS RELIED UPON PAGE NOS.35, 36 AND 37 OF THE PAPER BOOK WHERE CERTIFICATE OF IDBI BANK, PRIME CO-OP. BANK LTD. AND CANARA BANK ARE FILED WHICH STATE THAT THE ASSESSEE HAS MAINTAINED THE DEPOSIT AS AN ARRANGEMENT FOR AGAINST CLEARING PURPOSE. THE CERTIFICATE OF CANARA BANK STATES THAT THE ASSESSEE HAS MAINTAINED TERM DEPOSIT OF RS.5 LACS AND HAS AVAILED LOAN OF RS.4 LACS AGAINST THE SAME DURING THE FINANCIAL YEAR 2004-05. IT WAS THEREFORE, THE SUBMISSION OF THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE THAT THE DEPOSITS WITH BANKS WERE OUT OF BUSINESS NECESSITY AND FOR AVAILING LOAN FACILITY AND THUS, WERE FOR BUSINESS PURPOSES OF THE ASSESSEE. THEREFORE, NO DISALLOWANCE OF INTEREST EXPENDITURE CAN BE MADE BY CONSIDERING THE SAME AS FOR NON BUSINESS PURPOSES. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE PAID INTEREST OF RS.5,19,531/- ON LOAN BORROWED FROM HIS WIFE AND SON. THE ITA NO .2630/AHD/2008 ARVINDBHAI BHUKHANDAS KAPADIA (HU F) ASST.YEAR -2005-06 - 4 - LEARNED ASSESSING OFFICER ALSO OBSERVED THAT THE ASSESSEE HAS CASH BALANCE OF RS.10,76,600/- AND IN FORM OF DEPOSIT WITH SISTER CONCERN RS.26,65,000/- AND FDR WITH BANK. IN VIEW OF THIS IN THE OPINION OF THE LEARNED ASSESSING OFFICER THE ASSESSEE WAS NOT REQUIRED TO BORROW AMOUNT FROM WIFE AND SON FOR ITS BUSINESS PURPOSES. HE ALSO OBSERVED THAT THE ASSESSEE HAS RECEIVED INTEREST OF RS.1,23,008/- FROM FDR WI TH BANK. HE THEREFORE, DISALLOWED THE NET INTEREST OF RS.3,96,523/-. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE ABOVE ACTION OF THE LEARNED ASSESSING OFFICER BY OBSERVING THAT THE AMOUNT KEPT IN FDR WERE NOT UTILISED FOR BUSINESS PURPOSE AS NO LOAN WAS TAKEN FROM THE BANK ON SECURITY OF THESE FDRS. BEFORE US THE ASSESSEE EXPLAINED THAT ITS NATURE OF BUSINESS IS OF SHROFF AND COMMISSION AGENT. THEREFORE, IN ANTICIPATION OF BUSINESS NEEDS HE IS REQUIRED TO POSSESS SUFFICIENT LIQUIDITY AT ALL TIMES. HE ALSO POINTED OUT THAT THE BORROWED FUNDS WERE NOT UTILISED FOR ANY OTHER PURPOSES OTHER THAN THE BUSINESS OF THE ASSESSEE AND THEREFORE, THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN DISALLOWING THE NET INTEREST PAYMENT OF RS.3,96,523/-. WE FIND THAT THE ASSESSEES NATURE OF BUSINESS IS NOT IN DISPUTE AND IN SAID BUSINESS REQUIREMENT OF LIQUID CASH ALSO CANNOT BE RULED OUT. FROM THE CERTIFICATE OF BANKS WITH WHICH THE ASSESSEE HAS KEPT THE FDRS, IT IS OBSERVED THAT IDBI BANK AND PRIME CO-OPERATIVE BANK LTD. HAS STATED THAT THE ASSESSEE HAS MAINTAINED THE FDR WITH THEM LOOKING TOWARDS QUANTUM OF THE BUSINESS AND AS AN ARRANGEMENT FOR AGAINST CLEARING PURPOSE. FURTHER, THE CERTIFICATE OF CANARA BANK STATES THAT ASSESSEE HAS ITA NO .2630/AHD/2008 ARVINDBHAI BHUKHANDAS KAPADIA (HU F) ASST.YEAR -2005-06 - 5 - MAINTAINED TERM DEPOSIT OF RS.5 LACS ON WHICH INTEREST ACCRUED IS RS.37,642/- AGAINST WHICH THE ASSESSEE HAS TAKEN LOAN OF RS.4 LACS. WE FURTHER FIND THAT IN THE INSTANT CASE IT IS NOT IN DISPUTE THAT THE BORROWED FUNDS WERE NOT UTILISED FOR ANY OTHER PURPOSE LIKE ADVANCING OF INTEREST FREE ADVANCE TO SISTER CONCERNS. IN OUR CONSIDERED VIEW, THE REQUIREMENT OF BUSINESS IS TO BE JUDGED BY THE BUSINESSMAN AND NOT BY THE ASSESSEE OFFICER. IN THE INSTANT CASE AS THE EXPLANATION OF THE ASSESSEE THAT IN VIEW OF ITS NATURE OF BUSINESS THE BORROWED FUNDS WERE KEPT AS INVESTMENT IN FDRS OR CASH IN HAND CANNOT BE HELD AS INCORRECT. NO MATERIAL WAS BROUGHT ON RECORD TO SHOW THAT BORROWED FUNDS WERE UTILISED BY THE ASSESSEE FOR ANY OTHER PURPOSES. IN THE ABOVE CIRCUMSTANCES, IN OUR CONSIDERED VIEW THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN DISALLOWING A PART OF THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE. FROM THE CERTIFICATES ISSUED BY THE BANK WE OBSERVED THAT FRDS IN QUESTION WERE THE BUSINESS ASSETS OF THE ASSESSEE. WE FIND THAT BORROWED FUNDS WERE UTILISED FOR BUSINESS PURPOSES OF THE ASSESSEE. WE THEREFORE DELETE THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS. 3,96,523/- AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 9. GROUND NO.2 OF THE APPEAL RELATES TO ADDITION OF RS.25,000/- ON ACCOUNT OF MARRIAGE EXPENSES. 10. GROUND NO.3 OF THE APPEAL RELATES TO CHARGING OF INTEREST UNDER SECTION 234B AND 234C OF THE ACT. ITA NO .2630/AHD/2008 ARVINDBHAI BHUKHANDAS KAPADIA (HU F) ASST.YEAR -2005-06 - 6 - 11. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE DID NOT MAKE ANY SUBMISSIONS ON GROUND NOS.2 AND 3 OF THE APPEAL TAKEN IN THE MEMORANDUM OF APPEAL HENCE THE SAME ARE DISMISSED FOR WANT OF PROSECUTION. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 18/09/2009. SD/- SD/- ( ( ( ( H.L. KARWA H.L. KARWA H.L. KARWA H.L. KARWA ) )) ) ( N.S. SAINI ) ( N.S. SAINI ) ( N.S. SAINI ) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUN TANT MEMBER JUDICIAL MEMBER ACCOUN TANT MEMBER JUDICIAL MEMBER ACCOUN TANT MEMBER JUDICIAL MEMBER ACCOUN TANT MEMBER AHMEDABAD; DATED 18/09/2009 COPY OF THE ORDER FORWARDED TO COPY OF THE ORDER FORWARDED TO COPY OF THE ORDER FORWARDED TO COPY OF THE ORDER FORWARDED TO : :: : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS), VALSAD. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD