Shri Chandrakant Thhakordas Bansal, Surat V. The ACIT.,Cent.Circle-3, Surat

ITA 2652/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9923 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 01-09-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 23-07-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Keywords: Gift; Proportionate interest; Set aside
• Section: 274

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND A. N. PAHUJA, AM) ITA NO.2652/AHD/2008 A. Y: 2005-06 CHANDRAKANT THHAKORDAS BANSAL, 84, CHANDAN PARK SOCIETY, NR. SARDAR BRIDGE, ADAJAN ROAD, SURAT THE A. C. I. T., CENTRAL CIRCLE-3, SURAT PA NO. AAYPB 8702G (APPELLANT) (RESPONDENT) APPELLANT BY NONE (WRITTEN SUBMISSION) RESPONDENT BY SHRI K. M. MAHESH, DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-II, SURAT D ATED 23-06-2008 FOR ASSESSMENT YEAR 2005-06. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERVICE OF THE NOTICE. HOWEVER, THE LEARNED COUNSEL FOR THE ASSESS EE FORWARDED THE WRITTEN SUBMISSION WHICH IS TAKEN INTO CONSIDERATIO N. IN THE WRITTEN SUBMISSION, THE ASSESSEE WITHDRAWS GROUND NO.2 OF T HE APPEAL. GROUND NO.2 OF THE APPEAL OF THE ASSESSEE IS ACCORDINGLY D ISMISSED AS WITHDRAWN. 3. WE HAVE HEARD THE LEARNED DR AND PERUSED THE FIN DINGS OF THE AUTHORITIES BELOW AND ALSO CONSIDERED THE WRITTEN S UBMISSION OF THE ASSESSEE. 4. ON GROUND NO.1 OF THE APPEAL, THE ASSESSEE CHALL ENGED THE ORDER OF THE LEARNED CIT(A) IN CONFIRMING THE DISALLOWANCE O F INTEREST OF RS.1,20,000/- U/S 40A (2) (B) OF THE IT ACT. THE AO DISALLOWED THE SUM OF RS.1,20,000/- OUT OF INTEREST EXPENSES. THE AO NOTI CED THAT THE ASSESSEE ITA NO.2652/AHD/2008 CHANDRAKANT THHAKORDAS BANSAL VS ACIT, CENTRAL CIRC LE-3, SURAT 2 HAS ADVANCED RS.5,00,000/- EACH TO SHRI SAGAR C. BA NSAL AND ANUP C. BANSAL WHO ARE COVERED U/S 40A (2) (B) OF THE IT AC T. THE AO FURTHER FOUND THAT THE ASSESSEE HAD TAKEN BANK LOAN ON WHIC H INTEREST OF RS.2,35,871/-, AS ALSO BANK CHARGES OF RS.1,60,671/ - HAD BEEN CLAIMED. THE AO, THEREFORE, TOOK THE VIEW THAT THE ASSESSEE HAD UTILIZED INTEREST BEARING LOANS AND ADVANCES. THE AO ISSUED SHOW CAUS E NOTICE ASKING THE ASSESSEE TO EXPLAIN WHY PROPORTIONATE INTEREST EXPE NSES SHOULD NOT BE DISALLOWED. THE ASSESSEE SUBMITTED THAT BANK LOAN W AS UTILIZED FOR THE PURPOSE OF BUSINESS AND THAT ADVANCE OF RS.5,00,000 /- EACH DID NOT COME OUT FROM ANY BORROWED FUNDS. THE FUNDS WERE GI VEN AS A DEPOSIT FOR RENT, WHICH COULD ALSO BE TREATED AS HAVING BEEN EX PENDED FOR THE PURPOSE OF BUSINESS. THE AO REJECTED THE CONTENTION OF THE ASSESSEE AND NOTED THAT THE ADVANCES ARE GIVEN TO THE PERSONS WH O ARE THE CHILDREN OF THE ASSESSEE AND THERE WAS NO NEED FOR THE ASSESSEE TO PROVIDE ANY SECURITY OR GUARANTEE. MOREOVER, THE SECURITY WAS 5 TIMES THE ANNUAL RENT PAYABLE BY THE ASSESSEE. NO INTEREST WAS PAID BY THE ASSESSEE ON SUCH ADVANCE. DURING THE YEAR THE ASSESSEE HAD TAKE N UNSECURED LOANS OF AROUND RS.30,00,000/-. THIS FACT SHOWED THAT THE ASSESSEE HAD UTILIZED INTEREST BEARING FUNDS TO GIVE THE INTERES T FREE ADVANCES TO THE CHILDREN OF THE ASSESSEE UNDER THE GUISE OF DEPOSIT FOR RENT. THE AO ACCORDINGLY DISALLOWED PROPORTIONATE INTEREST OF RS .1,20,000/-. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE ASSESS EE HAD A HUGE TURNOVER OF RS.21.12 CRORES DURING THE YEAR AND, TH EREFORE, THE REQUIREMENT AND USE OF THE CASH CREDIT FACILITY FRO M THE BANK WAS FULLY JUSTIFIED. THE CASH CREDIT FACILITY WAS USED ENTIRE LY FOR BUSINESS PURPOSES. THE PROVISIONS OF SECTION 40A(2) (B) OF THE IT ACT ARE APPLICABLE ONLY WHEN ANY PAYMENT IS MADE TO ANY SISTER CONCERN. IT WAS, THEREFORE, SUBMITTED THAT THE ABOVE PROVISIONS ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS HIS OWN CAPITAL OF RS.53.75 LACS, THEREFORE, THERE IS NO QUESTION OF USING ANY BORROWED FUNDS FOR ITA NO.2652/AHD/2008 CHANDRAKANT THHAKORDAS BANSAL VS ACIT, CENTRAL CIRC LE-3, SURAT 3 GIVING SUCH ADVANCES. RELIANCE WAS PLACED IN THE CA SE OF TORRENT FINANCE LTD. VS ACUT 73 TTJ 624 (AHD). 5. THE LEARNED CIT(A) REJECTED THE CONTENTION OF TH E ASSESSEE THAT THE PROVISIONS OF SECTION 40A (2) (B) OF THE IT ACT ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. THE LEARNED CIT(A) FURTHER NO TED THAT NO DISALLOWANCE WAS MADE U/S 40A (2) (B) OF THE IT ACT SINCE NO PART OF THE PAYMENT MADE TO THE SONS OF THE ASSESSEE WAS DISALL OWED. THE LEARNED CIT(A) ALSO NOTED THAT WHAT WAS DISALLOWED WAS OUT OF INTEREST EXPENSES CLAIMED BY THE ASSESSEE ON THE GROUND THAT INTEREST BEARING FUNDS HAD BEEN UTILIZED FOR NON-BUSINESS PURPOSE. THE LEARNED CIT(A) NOTED THAT EVEN IF THE ASSESSEE CLAIMED OWN CAPITAL OF RS.53.7 5 LACS, BUT COPY OF THE CAPITAL ACCOUNT HAS NOT BEEN FURNISHED TO PROVE THA T RS.10 LACS WAS GIVEN OUT OF THE CAPITAL. THE LEARNED CIT(A) ALSO N OTED THAT IN THE ABSENCE OF ANY CASH FLOW STATEMENT THE CLAIM OF THE ASSESSE E CANNOT BE ALLOWED AND ACCORDINGLY CONFIRMED THE ADDITION. 6. THE ASSESSEE IN THE WRITTEN SUBMISSION REITERATE D THE SAME SUBMISSIONS WHICH WERE MADE BEFORE THE AUTHORITIES BELOW. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND WE ARE OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION AT THE LEV EL OF THE AO. THE AO MADE THE DISALLOWANCE OF INTEREST U/S 40A (2) (B) O F THE IT ACT. THE FINDING OF THE AO TO THAT EXTENT HAVE NOT BEEN APPR OVED BY THE LEARNED CIT(A) AND THE LEARNED CIT(A) ACCEPTED THE CONTENT ION OF THE ASSESSEE THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE NO DISALLOWANCE WAS MADE U/S 40A (2) (B) OF THE IT ACT. THE AO HAS NOT GIVEN ANY OTHER REASONS FOR THE PURPOSE OF MAKING THE DISALLOWANCE. THE ASSESSEE CLAIMED BEFORE THE AO THAT THE DEPOSITS WERE MADE W ITH THE SONS IN THE EARLIER YEAR AND THAT NO BORROWED FUNDS WERE USED F OR MAKING SUCH DEPOSIT OF THE BANK. THEREFORE, THE AO SHOULD HAVE VERIFIED THE FACTS FROM ITA NO.2652/AHD/2008 CHANDRAKANT THHAKORDAS BANSAL VS ACIT, CENTRAL CIRC LE-3, SURAT 4 THE RECORD WHETHER THE ASSESSEE HAS GIVEN ANY RENT DEPOSIT IN THE EARLIER YEAR OR IN THE ASSESSMENT YEAR UNDER APPEAL. NOTHIN G HAS COME OUT FROM THE FINDINGS OF THE LEARNED CIT(A) IF THE ASSESSEE WAS GIVEN ANY OPPORTUNITY TO FILE COPY OF THE CAPITAL ACCOUNT TO SHOW THAT ADVANCES OF THE RENT HAVE BEEN GIVEN OUT OF THE CAPITAL ACCOUN T OF THE ASSESSEE. SINCE THE AO CONSIDERED THE CASE OF THE ASSESSEE FR OM THE VIEW OF APPLICATION OF SECTION 40A (2) (B) OF THE IT ACT, T HERE WAS NO REASON FOR THE ASSESSEE TO MAKE SUCH CLAIM BEFORE THE AO. MOREOVER , WHILE DISALLOWING INTEREST PAYMENT, THE AUTHORITIES BELOW SHALL HAVE TO PROVE THAT THE BORROWED FUNDS HAVE BEEN DIVERTED FOR NON-BUSINESS PURPOSES. THEREFORE, NEXUS BETWEEN THE BORROWED FUNDS AND FUN DS DIVERTED FOR NON-BUSINESS PURPOSE SHALL HAVE TO BE PROVED. HONB LE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS DHAMPUR SUGAR MILLS LTD . 274 ITR 370 HELD THAT INTEREST COULD NOT BE DISALLOWED WHEN NO ADVANCE W AS GIVEN OUT OF BORROWINGS. SIMILARLY HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT AND ANOTHER VS RADICO KHAITAN LTD. 274 ITR 3 55 HELD THAT WHEN ASSESSEE HAD SUFFICIENT FUNDS FOR GIVING INTEREST F REE ADVANCES, NO DISALLOWANCE OUT OF INTEREST COULD BE MADE. THE ASSESSEE PLEADED BEFORE THE AUTHORITIES BELOW THAT INTEREST FREE FUN DS HAD NOT BEEN UTILIZED FOR NON-BUSINESS PURPOSES. THE ASSESSEE EXPLAINED T HAT SINCE THERE WAS HUGE TURNOVER CONDUCTED BY THE ASSESSEE AND THE ENT IRE FUNDS HAVE BEEN USED FOR THE PURPOSE OF BUSINESS, THEREFORE, FACTS ON RECORD SHOULD HAVE BEEN VERIFIED. CAPITAL ACCOUNT OF THE ASSESSEE MUST BE PART OF THE RECORD AND IT COULD HAVE BEEN EASILY VERIFIED IF THE ASSES SEE IS HAVING ANY SUFFICIENT OWN FUNDS FOR MAKING DEPOSIT FOR RENT. HOWEVER, THE AO CONSIDERED THE ISSUE ONLY U/S 40A (2) (B) OF THE IT ACT WHICH IS N OT APPROVED BY THE LEARNED CIT(A). THEREFORE, IN ALL FAIRNESS, OPPORTU NITY SHOULD BE GIVEN TO THE ASSESSEE TO EXPLAIN THE ISSUE. WE ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTORE THIS ISSUE TO THE FILE OF THE AO WITH DIRECTION TO RE-DECIDE THE SAME IN THE LIGHT OF THE OBSERVATIONS MADE IN ITA NO.2652/AHD/2008 CHANDRAKANT THHAKORDAS BANSAL VS ACIT, CENTRAL CIRC LE-3, SURAT 5 THIS ORDER BY GIVING REASONABLE SUFFICIENT OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE. 8. IN THE RESULT, GROUND NO.1 OF THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9. ON GROUND NO.3 OF THE APPEAL, THE ASSESSEE CHALL ENGED THE DISALLOWANCE OUT OF ENTERTAINMENT AND GIFT EXPENSES OF RS.52,784/- BEING 25% OF SUCH EXPENSES. THE AO NOTED THAT THE EXPENSE S WERE INCURRED EITHER FOR TOUR AND TRAVEL TO PICNIC SPOTS OR ENTER TAINMENT WHICH HAS NOTHING TO DO WITH THE ASSESSEES BUSINESS. THE AO OBSERVED THAT THE ASSESSEE COULD NOT FURNISH ANY EVIDENCE THAT THE AB OVE EXPENSES HAVE BEEN SUGGESTED BY THE PRINCIPAL COMPANY I.E. HONDA. IT WAS ALSO NOTED IN THE AUTOMOBILE AGENCY ADVERTISEMENT RELATED EXPENSE S ARE INCURRED BY THE PRINCIPAL COMPANY ITSELF AS THE BRANDING OF THE PRODUCT IS MAJOR ISSUE NOT ADVERTISEMENT OF DEALER. MOREOVER, PERSON AL EXPENSES FOR FAMILY PURPOSE CANNOT BE RULED OUT SUCH AS DISTRIBUTION OF FREE PASSES OF DALER MAHENDI SHOW OR NAVRATRI FESTIVAL OF FAMILY FRIENDS OR CLOSE RELATIVES. 25% OF THE EXPENDITURE WAS ACCORDINGLY DISALLOWED F OR NON-BUSINESS PURPOSE. THE LEARNED CIT(A) ALSO CONFIRMED THE ADDI TION ON THE REASONS GIVEN BY THE AO. 10. ON CONSIDERATION OF THE WRITTEN SUBMISSION OF T HE ASSESSEE AND THE CONTENTION OF THE LEARNED DR, WE DO NOT FIND IT TO BE A FIT CASE FOR INTERFERENCE. THE ASSESSEE HAS NOT FURNISHED EVIDEN CE TO THE SATISFACTION OF THE AO THAT THE AMOUNTS WERE SPENT WHOLLY OR EXC LUSIVELY FOR THE PURPOSED OF BUSINESS. NOTHING FURTHER IS MENTIONED IN THE WRITTEN SUBMISSION. THEREFORE, IN THE LIGHT OF THE FINDINGS GIVEN BY THE AO, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE FI NDINGS OF THE AUTHORITIES BELOW. THIS GROUND OF APPEAL OF THE ASSESSEE IS DIS MISSED. ITA NO.2652/AHD/2008 CHANDRAKANT THHAKORDAS BANSAL VS ACIT, CENTRAL CIRC LE-3, SURAT 6 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 09-09-2010. SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 09-09-2010 LAKSHMIKANT/- 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 DY. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER OTHER MEMBER 3. DATE ON WHICH THE 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: