ACIT, Faridabad V. Sh. Ramesh Chander Bondwal, Faridabad

ITA 2658/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52490 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 08-08-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 03-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRATIMA KAUSHIK
• Assessee Lawyers: S K AHUJA
• Keywords: Depreciation; Opportunity of being heard; Proportionate interest
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F, NEW DELHI BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER & SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO. 2658/DEL/2010 ASSESSMENT YEAR: 2007-08 ACIT, VS. RAMESH CHANDER BONDWAL, CIRCLE-II, PROP. M/S R.B. INDUSTRIES, FARIDABAD. PLOT NO. 159, SECTOR-25, FARIDABAD. AAZPB5892L (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. PRATIMA KAUSHIK, SR. DR RESPONDENT BY : SH. S.K. AHUJA, CA ORDER PER C.L. SETHI, J.M. THE REVENUE IS IN APPEAL AGAINST THE ORDER DATED 31.03.2010 PASSED BY LD. CIT(A) IN THE MATTER OF AN ASSESSMENT MADE U/S 143(3) OF THE INCOME TAX ACT, 1 961 (THE ACT) BY THE AO FOR THE A.Y. 2007-08. 2. THE GROUND NO. 1 IS DIRECTED AGAINST CIT(APPEALS ) ORDER IN DELETING THE ADDITION OF RS. 4,74,273/- MADE BY THE AO ON ACCOUNT OF INTEREST ON THE MONEY ADVANCED BY THE AS SESSEE TO M/S R.B. INDUSTRIAL FABRICATORS (P) LTD. ITA NO. 2658/D/2010 2 3. IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS FOUND BY THE AO THAT ASSESSEE HAD SHOWN ON ASSET SIDE CER TAIN LOANS AND ADVANCES AND SUNDRY DEBTORS INCLUDING THE AMOUNT OF RS. 39 LAKH AND RS. 12,43,439/- TO M/S R.B. INDU STRIAL FABRICATORS PVT. LTD., ON WHICH NO INTEREST WAS CHA RGED BY THE ASSESSEE. THE ASSESSEE HAPPENS TO BE A DIRECTOR OF M/S R.B. INDUSTRIAL FABRICATORS PVT. LTD. IT WAS FOUND BY THE AO THAT ASSESSEE HAD PAID INTEREST TO BANK AND OTHERS ON BORROWED MONEY. THE INTEREST PAID WAS AMOUNTING TO RS. 25,64,958/- DURING THE YEAR UNDER CONSIDERATION. T HE AO PERUSED THE COPY OF ACCOUNT OF M/S R.B. INDUSTRIAL FABRICATORS PVT. LTD. AND FOUND THAT ASSESSEE HAD PAID CERTAIN AMOUNTS TO RBIF OUT OF BORROWED MONEY WITHOUT ANY INTEREST. T HE AO HAS OBSERVED THAT THE VARIOUS PAYMENTS POINTED OUT BY HIM IN HIS ORDER TO M/S RBIF HAD GONE TO INCREASE OVERDRAF T BALANCE IN THE ASSESSEES BANK ACCOUNT WITH CANARA BANK, ON WHICH ASSESSEE PAID INTEREST ON VARIOUS ADVANCES MADE BY ASSESSEE TO M/S RBIF FROM TIME TO TIME DURING THE Y EAR UNDER CONSIDERATION. THE AO WORKED OUT THE INTEREST OF R S. 4,74,273/- WHICH WAS DISALLOWED OUT OF THE INTEREST DEBITED TO THE PROFIT AND LOSS ACCOUNT. ITA NO. 2658/D/2010 3 4. ON AN APPEAL, LD. CIT(A) DELETED THE ADDITION BY OBSERVING THAT ADVANCES TO M/S RBIF PVT. LTD. WERE OCCASIONED BY THE PURPOSES AND NEEDS OF BUSINESS EXPEDIENCY AND COMMERCIAL INTEREST. 5. HENCE, THE DEPARTMENT IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. 7. AFTER DELIBERATING WITH BOTH THE PARTIES AND IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND TH AT THIS ISSUE SHOULD GO BACK TO THE AO FOR FRESH ADJUDICATION AFT ER EXAMINING THE PURPOSE FOR WHICH THE AMOUNT WAS GIVE N BY THE ASSESSEE TO M/S RBIF ON THE VERY DAY OF PAYMENTS AN D AFTER EXAMINING THE SOURCE OF MONEY FROM WHICH THE AMOUNT WAS PAID ON THAT DATE. THE ASSESSEE SHALL SUBMIT THE F UND FLOW CHART DATE WISE TO SHOW AS TO WHETHER THE AMOUNT WA S PAID OUT OF THE ASSESSEES OWN MONEY OR NON-INTEREST BEA RING FUNDS, OR OUT OF THE BORROWED FUNDS. THE MATTER SH ALL REMAIN WIDE OPEN BEFORE THE AO FOR HIS ADJUDICATION AFTER PROVIDING ITA NO. 2658/D/2010 4 REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. THE ASSESSEE SHALL BE A LIBERTY TO RAISE ALL SUCH CONTE NTIONS AND SUBMISSIONS BEFORE THE AO AS HE MAY BE ADVISED TO S UPPORT HIS CASE. WE ORDER ACCORDINGLY. 8. GROUND NO. 2 IS DIRECTED AGAINST CIT(APPEALS) OR DER IN DELETING THE ADDITION OF RS. 31,741/- MADE BY THE A O ON ACCOUNT OF INTEREST PERTAINING OF ADVANCES GIVEN TO HUDA. 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. 10. THE ASSESSEE HAD GIVEN ADVANCE OF RS. 11,88,932 /- TO HUDA AS SECURITY AGAINST PURCHASE OF A COMMERCIAL P LOT IN STEEL MARKET, SECTOR-59, FARIDABAD. FROM THE FACTS AVAILABLE ON RECORD, IT IS CLEAR THAT IT WAS AN INVESTMENT FO R PURCHASE OF A COMMERCIAL PLOT WHICH WAS REQUIRED TO BE USED FOR THE PURPOSE OF BUSINESS. THEREFORE, THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION OF RS. 31,741/- BEING INTEREST ON ADVANCE OF RS. 11,88,932/- PAID TO HUDA AS SECURITY AGAINST PURCHASE OF COMMERCIAL PLOT. THUS, THIS GROUND NO. 2 RAISED BY REVENUE IS REJECTED. ITA NO. 2658/D/2010 5 11. GROUND NO. 3 IS DIRECTED AGAINST CIT(APPEALS) O RDER IN DELETING THE ADDITION OF RS. 40,603/- MADE BY THE A O ON ACCOUNT OF INTEREST PAID IN EXCESS OF 12% P.A. 12. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE HAD PAID INTEREST TO 5 PARTIES @ 16% P.A. THE AO HAD TAKEN A VIEW THAT PREVALENT RATE OF INTEREST WAS ONLY 9 TO 12%. THE AO, THEREFORE, DISALLOWED EXCESS INTEREST PAID ABOVE TH E RATE OF 12%. IN THIS CASE, IT IS NOT IN DISPUTE THAT THE A SSESSEE HAS ACTUALLY PAID THE INTEREST @ 15% TO VARIOUS PARTIES . IT IS NOT THE CASE THAT THE PAYMENT HAS BEEN MADE TO RELATED PARTIES COVERED BY SEC. 40A(2)(B) OF THE ACT. IN THIS VIEW OF THE MATTER, WE HOLD THAT THE LD. CIT(A) HAS RIGHTLY DEL ETED THE ADDITION OF RS. 40,603/-. THUS, GROUND NO. 3 RAISE D BY THE REVENUE IS REJECTED. 13. GROUND NO. 4 IS DIRECTED AGAINST CIT(APPEALS) O RDER IN DELETING THE ADDITION OF RS. 62,650/- MADE BY THE A O U/S 14A OF THE ACT. ITA NO. 2658/D/2010 6 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. 15. IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS FOUND BY THE AO THAT ASSESSEE HAD MADE INVESTMENT IN SHAR ES AND MUTUAL FUNDS. THE AO FURTHER STATED THAT DIVIDEND I NCOME ON THE ABOVE INVESTMENT WAS EXEMPTED FROM TAX. THE AO DISALLOWED PROPORTIONATE INTEREST U/S 14A OF THE AC T BY WORKING OUT THE AMOUNT OF INTEREST TO BE DISALLOWED IN THE PROPORTION OF INVESTMENT IN SHARES TO TOTAL ASSETS. LD. CIT(A) H AS DELETED THIS ADDITION BY OBSERVING THAT PROVISION OF SEC. 1 4A ARE NOT ATTRACTED IN THE CASE ON ACCOUNT OF INVESTMENT IN S HARES OF RBIF PVT. LTD. THE ASSESSEE MADE THE INVESTMENT IN RBIF FOR COMMERCIAL CONSIDERATION AND WAS ALSO A DIRECTOR TH EREIN. THE AO HAS ALSO NOT BEEN ABLE TO BRING ON MATERIAL TO SHOW AND ESTABLISH THAT THE INVESTMENT IN RBIF WAS MADE OUT OF BORROWED FUND. THE AO HAS ALSO NOT ABLE TO POINT O UT ANY SPECIFIC EXPENSES DEBITED IN THE PROFIT AND LOSS AC COUNT WHICH HAVE BEEN INCURRED FOR THE PURPOSE OF EARNING ANY E XEMPTED INCOME. LD. AO HAS WORKED OUT THE AMOUNT OF DISALL OWANCE BY APPLYING THE FORMULA WHICH IS NOT APPLICABLE TO THE PRESENT A.Y. 2007-08. WE, THEREFORE, UPHELD THE ORDER OF C IT(A) IN ITA NO. 2658/D/2010 7 DELETING THE ADDITION OF RS. 62,650/- MADE BY THE A O U/S 14A OF THE ACT. 16. GROUND NO. 5 IS DIRECTED AGAINST THE CIT(APPEAL S) ORDER IN ALLOWING RELIEF OF RS. 36,625/- ON ACCOUNT OF DE PRECIATION ON CAR. 17. BOTH THE PARTIES WERE HEARD AND THE MATERIALS O N RECORD HAVE BEEN PERUSED. 18. THE AO EXAMINED THE EXPENDITURE OF RS. 3,41,710 /- INCURRED ON CAR EXPENSES. THE AO DISALLOWED THE SU M OF RS. 59,406/- OUT OF THE CAR EXPENSES AND OUT OF DEPRECI ATION ON CAR. IT WAS NOTED BY THE AO THAT ASSESSEE HAS DISA LLOWED ONLY 10% OUT OF THE CAR EXPENSES AS AGAINST WHICH T HE AO DISALLOWED 1/6 TH OF THE TOTAL EXPENSES INCURRED ON CAR AND OUT OF DEPRECIATION ON CAR FOR PERSONAL USE OF THE ASSE SSEE. LD. CIT(A) DELETED THE DISALLOWANCE OUT OF DEPRECIATION . BUT HE CONFIRMED THE DISALLOWANCE OF CAR EXPENSES TO THE E XTENT OF 1/6 TH OF THE TOTAL EXPENSES. THUS, LD. CIT(A) HAS WORKE D OUT THE DISALLOWANCE AT RS. 22,781/- AND GRANTED THE RE LIEF OF RS. ITA NO. 2658/D/2010 8 36,625/-. THE RELIEF OF RS. 36,625/- HAS BEEN GRAN TED BY THE LD. CIT(A) OUT OF THE DISALLOWANCE OF DEPRECIATION ON CAR. 19. AFTER CONSIDERING THE TOTALITY OF FACTS AND CIR CUMSTANCES OF THE CASE, WE DO NOT FIND ANY REASON TO INTERFERE THE ORDER OF LD. CIT(A) IN ALLOWING FULL DEPRECIATION ON CAR WIT HOUT DISALLOWING PART THEREOF FOR PERSONAL USE. THE DIS ALLOWANCE OF EXPENSES TO THE EXTENT OF 1/6 TH HAS ALREADY BEEN UPHELD BY THE LD. CIT(A) AGAINST WHICH ASSESSEE IS NOT IN APPEAL. THUS, THIS GROUND RAISED BY THE REVENUE STANDS REJECTED. 20. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE MANNER AS INDICATED ABOVE. 21. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 12 TH AUGUST, 2011. SD/- SD/- (SHAMIM YAHYA) (C. L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 12.8.11 *KAVITA ITA NO. 2658/D/2010 9 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR