Shri Kiranbhai Zaverbhai Modi, Ankleshwar V. The ACIT, Bharuch Circle, Bharuch

ITA 2657/AHD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0559 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 09-08-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 13-11-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Initiation of penalty proceedings; Wrong claim

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA.NO.2657/AHD/2013 / ASSTT. YEAR: 2003-2004 SHRI KIRANB H AI ZAVERBHAI MODI PROP. K.D. CHEMICALS F/1, NARAYAN SHOPPING CENTRE GOYA BAZAR ANKLESHWAR 393 001. PAN : ADFPM 4197 G VS ACIT, BHARUCH CIRCLE BHARUCH. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI MILIN MEHTA, AR REVENUE BY : SHRI SATISH SOLANKI, SR.DR / DATE OF HEARING : 09/08/2016 / DATE OF PRONOUNCEMENT: 08/09/2016 $%/ O R D E R ASSESSEE IS IN APPEAL AGAINST THE ORDER OF THE LD.C IT(A)-III, BARODA DATED 21.8.2013 PASSED FOR THE ASTT.YEAR 2003-04. 2. THE ASSESSEE HAS TAKEN SEVEN GROUNDS OF APPEAL, BUT HIS GRIEVANCE REVOLVES AROUND TWO ISSUES VIZ. (A) THE LD.CIT9A) H AS ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSES AMOUNTING TO RS.2,37,326/- , AND (B) THE LD.CIT(A) HAS ERRED IN CONFIRMING THE CHARGING OF INTEREST UN DER SECTIONS 234A, 234B, 234C AND 234D OF THE INCOME TAX ACT, 1961, AND ERRE D IN UPHOLDING INITIATION OF PENALTY UNDER SECTION 271(1)(C) OF TH E INCOME TAX ACT, 1961. ITA NO.2657/AHD/2013 2 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED HIS RETURN OF INCOME ON 14.10.2000 DECLARING TOTAL INCOME AT RS.1 0,48,720/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT A ND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED AND SERVED UPON THE AS SESSEE. IT EMERGES OUT FROM THE RECORD THAT THE ASSESSEE WAS RUNNING PROPR IETORSHIP CONCERN IN THE NAME AND STYLE OF K.D. CHEMICALS. HE WAS ALSO A PA RTNER IN THE FIRM M/S.RIDDHI PHARMA. ACCORDING TO THE ASSESSEE, HE H AS RECEIVED INTEREST ON CAPITAL, REMUNERATION AND SHARE OF PROFIT FROM THE FIRM. THE ASSESSEE HAS SHOWN INTEREST INCOME FROM RIDDHI PHARMA OF RS.3,21 ,080/-. ACCORDING TO THE AO, THE ASSESSEE HAS CLAIMED INTEREST EXPENDITU RE OF RS.1,92,566/-, OUT OF WHICH A SUM OF RS.1,83,626/- WAS STATED TO BE IN RE SPECT OF INTEREST ON UNSECURED LOANS AND RS.8,940/- FOR BANK OVERDRAFT. THE CASE OF THE ASSESSEE IS THAT HE HAS PAID INTEREST AT THE RATE OF 18% TO THE DEPOSITORS AND THIS AMOUNT WAS USED BY HIM IN THE FIRM, THEREFORE, HE IS ENTIT LED FOR THE INTEREST EXPENDITURE. SIMILARLY, THE ASSESSEE HAS CLAIMED O THER EXPENSES I.E. BANK INTEREST, DISCOUNT, INSURANCE EXPENDITURE AND DEPRE CIATION. ALL THESE EXPENDITURE HAVE BEEN DISALLOWED BY THE AO ON THE G ROUND THAT THE ASSESSEE FAILED TO PROVE NEXUS BETWEEN BORROWED FUNDS AND TH EIR ULTIMATE UTILIZATION IN THE FIRM I.E. RIDDHI PHARMA. 4. DISSATISFIED WITH THE ORDER OF THE AO, THE ASSES SEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). HE HAS FILED DETAILED WRITTEN SUBMISSIONS, WHICH HAS BEEN DULY REPRODUCED BY THE LD.CIT(A). THE LD. CIT(A), THEREAFTER RECORDED A DETAILED FINDING. THE FINDING RECORDED BY THE LD.CIT(A) READS AS UNDER: 4.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPE LLANT AND THE OBSERVATIONS OF THE AO. DURING THE ASSESSMENT PROCE EDINGS THE APPELLANT'S CLAIM BEFORE THE AO WAS THAT THE UNSECU RED LOANS ON WHICH INTEREST HAS BEEN PAID HAVE BEEN UTILIZED FOR MAKIN G INVESTMENTS IN THE ITA NO.2657/AHD/2013 3 PARTNERSHIP FIRM FROM WHICH THE APPELLANT HAS EARNE D BUSINESS INCOME IN THE FORM OF INTEREST ON CAPITAL AND REMUNERATION . THE AO ASKED THE APPELLANT TO ESTABLISH THE NEXUS BETWEEN THE LOAN T AKEN AND THE INVESTMENTS MADE IN THE FIRM. THE APPELLANT FAIL ED TO DO SO. THE APPELLANTS IN ITS SUBMISSION IN PARA 11 HAS ACCEPTE D THIS FACT THAT THE AO HAD ASKED HIM TO PROVE THE NEXUS THAT INTEREST B EARING BORROWED FUNDS WERE ACTUALLY DEPOSITED WITH THE FIRM, IN WHI CH THE APPELLANT IS A PARTNER. THE APPELLANT HAS FURTHER SUBMITTED THAT HE IS A WORKING PARTNER IN M/S.RIDDHI PHARMA AND UTILIZED HIS B ORROWED FUND FOR MAKING INVESTMENT IN THE CAPITAL OF THE FIRM. HE HAS CLAIMED THAT THE AO HAS NOT POINTED OUT ANY INSTANCES WHERE SUCH BOR ROWINGS ARE NOT DEPOSITED IN THE FIRM'S CAPITAL OR NOT UTILI ZED FOR THE PURPOSE OF BUSINESS. THIS CLAIM OF THE APPELLANT IS TOTALLY BASELESS. THE APPELLANT HAS FAILED TO PROVIDE THE DETAILS OF ACTUAL UTILIZA TION OF THE BORROWED FUNDS WITH SUPPORTING DOCUMENTARY EVIDENCES. IN T HE ABSENCE OF SUCH DETAILS BEING PRODUCED BY THE APPELLANT, THE AO WIL L NOT BE IN A POSITION TO POINT OUT INSTANCES WHERE SUCH BORROWIN GS WERE NOT DEPOSITED IN THE FIRM'S CAPITAL. THE FAILURE OF T HE APPELLANT TO GIVE SUCH DETAILS ITSELF SHOWS THAT THE BORROWED FUNDS H AVE NOT BEEN UTILIZED FOR MAKING DEPOSITS WITH THE FIRM. 4.3.1 THE FACT THAT THE BORROWED FUNDS HAVE NOT BEE N UTILIZED FOR MAKING INVESTMENTS WITH THE FIRM ARE ESTABLISHED WH EN THE ALTERNATE SUBMISSION OF THE APPELLANT IS EXAMINED. NOW THE AP PELLANT HAS HIMSELF STATED THAT THESE LOANS WERE NOT UTILIZED FOR MAKIN G INVESTMENT IN FIRM BUT WERE RATHER UTILIZED FOR MAKING PAYMENTS TO CERTAIN CREDITORS NAMELY 3HRI OM CHEMICALS AND M/S. NISHAN CHEMICALS. THE APPELLANT FURTHER CLAIMS THAT THE LOANS OF RS. 3.5 LAKHS FROM SHRI DILIP R. JOSHI TAKEN ON 28/03/2001 WAS UTILIZED FOR RETIRING THE L OAN OF ONE SHRI R. G.PATEL WHICH WAS TAKEN FOR BUSINESS PURPOSE. NO EX PLANATION HAS BEEN FILED AS TO WHAT WAS THE BUSINESS PURPOSE, WHA T WAS THE NATURE OF THE BUSINESS BEING CARRIED OUT BY THE APPELLANT DUR ING THAT YEAR SO AS TO CLAIM THE INTEREST EXPENSE IN COMPUTATION OF INCOME OF THE CURRENT YEAR. EVIDENTLY IN THE CURRENT YEAR THE APPELLANT HAS NOT EARNED OUT ANY BUSINESS IN HIS OWN CAPACITY. SIMILARLY FOR LOAN TA KEN FROM SHRI KIRANSINGH PARMAR, THE APPELLANT HAS SUBMITTED THAT IT WAS BORROWED FOR MAKING PAYMENT TO M/S. NISHANT CHEMICALS, A CRE DITOR OF THE APPELLANT. AGAIN NO DETAILS OF NATURE OF CREDIT HAS BEEN FILED. THE LOAN TAKEN FROM SHRI ZAVERBHAI K. MODI HAS BEEN CLAIM TO HAVE BEEN UTILIZED PARTLY FOR MAKING PAYMENT TO SHRI GOVINDBH AI C. PATEL. AGAIN NO DETAILS OF TRANSACTIONS WITH SHRI GOVINDBHAI C. PATEL ARE AVAILABLE. ITA NO.2657/AHD/2013 4 THE BALANCE AMOUNT OF RS. 4 LAKHS RECEIVED FROM SHR I ZAVERBHAI MODI HAS BEEN CLAIMED TO HAVE BEEN UTILIZED FOR BUSINESS PURPOSE WITHOUT GIVING ANY DETAILS OF SUCH ALLEGED BUSINESS PURPOSE . 4.3.2.THUS, THE APPELLANT HAS COMPLETELY FAILED TO ESTABLISH THAT THE BORROWED FUND HAS BEEN UTILIZED FOR EARNING BUSINES S INCOME IN THIS YEAR AGAINST WHICH THE INTEREST PAID COULD HAVE BEE N CLAIMED AS DEDUCTION. ON THE CONTRARY, THE APPELLANT HAS HIMSE LF ADMITTED THAT HE HAD MADE A FALSE CLAIM BEFORE THE AO THAT THE BORRO WED FUNDS WERE UTILIZED FOR MAKING INVESTMENT IN THE FIRM AS CAPIT AL. HENCE, THE ACTION OF THE AO OF DISALLOWING THE INTEREST PAID AS A DED UCTION IN COMPUTATION OF INCOME IS UPHELD. 4.3.3 SO FAR AS THE OTHER EXPENSES IN THE NATURE OF INSURANCE EXPENSES CHARGE AND DEPRECIATION ARE CONCERNED, THE APPELLAN T HAS PROVIDE ANY EVIDENCE THAT THE ASSETS CONCERNED WERE UTILIZED FO R THE BUSINESS OF THE FIRM AND NOT FOR THE PERSONAL, USE OF THE APPELLANT . UNDER SUCH CIRCUMSTANCES THE ACTION OF THE AO OF DISALLOWING T HESE EXPENSES IS ALSO UPHELD. 5. THE SECOND GROUND OF APPEAL IS THAT THE AO HAS W RONGLY CHARGED INTEREST U/S 234A, 234B, 234C AND 234D OF THE INCOM E TAX, 1961. SINCE THE CHARGING OF INTEREST UNDER THESE SECTIONS IS MANDATORY, HENCE THIS GROUND OF APPEAL IS DISMISSED. 6. THE THIRD GROUND OF APPEAL IS THAT THE AO HAS WR ONGLY DIRECTED FOR ISSUE OF NOTICE TO IMPOSE PENALTY U/S 271(1)(C) OF THE IT ACT, 1961. THERE CAN BE NO APPEAL AGAINST MERE INITIATION OF P ENALTY PROCEEDINGS U/S. 271(1)(C) OF THE IT ACT. HENCE THIS GROUND OF APPEAL IS DISMISSED. 5. THE LD.COUNSEL FOR THE ASSESSEE WHILE IMPUGNING THE ABOVE FINDING DREW MY ATTENTION TOWARDS PAGE NO.27 OF THE PAPER B OOK. HE POINTED OUT LEDGER ACCOUNT OF DILIP R. JOSHI FOR F.Y.2000-01 H AS BEEN PLACED ON PAGE NO.27 OF PB. THE ASSESSEE HAS RECEIVED A SUM OF RS .3.50 LAKHS THROUGH ACCOUNT PAYEE CHEQUES. THEREAFTER, HE DREW MY ATTE NTION TOWARDS PAGE NO.52 OF THE PAPER BOOK, WHEREBY, COPIES OF THE AUDITED A CCOUNTS ARE BEING PLACED. ON PAGE NO.52 OF THE PAPER BOOK, THE ASSESSEE HAS P LACED ON RECORD LIST OF SUNDRY CREDITORS AND UNSECURED LOANS. HE TRIED TO DEMONSTRATE THAT ITA NO.2657/AHD/2013 5 RAMANBHAI PATEL PAID A SUM OF RS.2,01,381/-. IT WA S PAID TO SHREE OHM CHEMICALS AND THE ASSESSEE PAID TO SHRI RAMANBHAI P ATEL. I HAVE GONE THROUGH THIS ACCOUNT. BUT I DO NOT WANT TO INTERFE RE IN THE FINDING RECORDED BY BOTH THE AUTHORITIES. FIRSTLY, THESE DOCUMENTS WER E NOT AVAILABLE BEFORE THE AO. THESE WERE FILED BEFORE THE LD.CIT(A). THE LD. CIT(A) HAS NOT CALLED FOR ANY REMAND REPORT FROM THE AO ON THESE DOCUMENTS, T HEREFORE, IN A WAY, THESE DOCUMENTS ARE TO BE PRESUMED NOT AVAILABLE ON THE R ECORD. THE ASSESSEE FAILED TO DEMONSTRATE NEXUS BETWEEN BORROWED FUNDS AND THEIR ULTIMATE UTILIZATION BY THE FIRM. THEREFORE, THELD.CIT(A) H AS RIGHTLY REJECTED THE CONTENTIONS OF THE ASSESSEE AND HAS RIGHTLY UPHELD THE DISALLOWANCE. 6. AS FAR AS OTHER ISSUES ARE CONCERNED, I HAVE REP RODUCED THE FINDING OF THE LD.CIT(A) AND NO INTERFERENCE IS CALLED FOR AGA INST INITIATION OF PENALTY PROCEEDINGS AS WELL AS CHARGING OF INTEREST UNDER S ECTIONS 234A, 234B, 234C AND 234D OF THE INCOME TAX ACT. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISS ED. ORDER PRONOUNCED IN THE COURT ON 8 TH SEPTEMBER, 2016 AT AHMEDABAD. SD/- (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 08/09/2016