GOVIND RAM MODI, Kota V. ADDL. CIT, Kota

ITA 268/JPR/2013

• Counselvise Citation: 26823114 RSA 2013
• Duration Of Justice: 2 year(s) 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 12-03-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJ MEHRA JCIT DHK
• Assessee Lawyers: S L PODDAR
• Keywords: Business income; Notional interest
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM VK;DJ VIHY LA-@ ITA NO. 268/JP/2013 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2006-07 SHRI GOVIND RAM MODI C/O M/S. MODI FLOORING STONE CO., MORAK STATION, MORAK, DISTT. KOTA CUKE VS. THE ADDL. CIT RANGE-1, KOTA LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AECOM 1628 Q VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI S.L.PODDAR, ADVOCATE JKTLO DH VKSJ LS@ REVENUE BY: SHRI RAJ MEHRA , JCIT LQUOKBZ DH RKJH[K@ DATE OF HEARING : 13/07/2015 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 11 /08/2015 VKNS'K@ ORDER PER BENCH THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A), KOTA DATED 21-01-2013 FOR THE ASSESSMENT Y EAR 2006-07 WHEREIN THE ASSESSEE HAS RAISED SOLIDARITY GROUND AS UNDER: - UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, LD . CIT(A) HAS ERRED IN NOT ALLOWING INTEREST/ BANK CHA RGES PAID TO BANK ON OVERDRAFT AMOUNTING TO RS. 2,40,035/-. 2.1 BRIEF FACTS OF THE CASE ARE THE ASSESSEE FILED THE ORIGINAL RETURN OF INCOME DECLARING INCOME AT RS. 26,80,390/- AND AGRI CULTURAL INCOME AT ITA NO. 268/JP/2013 GOVIND RAM MODI VS. ADDL. CIT, RANGE-1, KOTA . 2 RS. 80,000/- ON 31-10-2006. THE CASE OF THE ASSESSE E WAS SCRUTINIZED U/S 143(3) OF THE ACT. THE AO OBSERVED THAT AS PER COMP UTATION OF INCOME, THE ASSESSEE HAD SHOWN NET INCOME FROM OTHER SOURCE S AT RS. 24,33,573/-. THE ASSESSEE HAS ALSO SHOWN INCOME FROM BANK INTERE ST, INTEREST LOANS ETC. FOR RS. 29,13,642/- AND THIS INCOME WAS REDUCED BY RS. 4,80,069/- ON ACCOUNT OF BANK INTEREST AND BANK CHARGES. ON FURT HER VERIFICATION OF THE DETAILS, IT IS FOUND BY THE AO THAT RS. 4,80,069/-M AINLY INCLUDED RS. 4,72,324/- ON ACCOUNT OF BANK INTEREST. THE ASSESS EE WAS HAVING BANK OVERDRAFT/ LOAN ACCOUNT WITH STATE BANK OF INDIA AN D HDFC BANK. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAD DERIVED I NCOME FROM OTHER SOURCES BY WAY OF INTEREST AND THIS INCOME FROM OTH ER SOURCES WAS WRONGLY SET OFF ON ACCOUNT OF PAYMENT OF INTEREST ON OVERDRAFT FACILITY AND BANK CHARGES ON ACCOUNT OF PAYMENT OF DD COMMI SSION ETC. THE AO FURTHER OBSERVED THAT BANK OVERDRAFTS WERE MAINL Y DUE TO THE FACT THAT INTEREST FREE ADVANCES WERE MADE TO EITHER THE SIST ER CONCERNS OR OTHER ASSESSEE'S FROM WHOM NO INTEREST WAS CHARGED. THE A SSESSEE HAD NOT SHOWN THE INTEREST AND BANK CHARGES PAYMENT FOR RS. 4,80,069/- IN THE PROFIT AND LOSS ACCOUNT AND HE SIMPLY REDUCED THIS AMOUNT FROM THE INCOME FROM OTHER SOURCES AND DISCLOSED NET INCOME. AS PER THE AO, THE SET OFF OF PAYMENT OF INTEREST ON BANK LOANS AND BA NK CHARGES WERE WRONG ITA NO. 268/JP/2013 GOVIND RAM MODI VS. ADDL. CIT, RANGE-1, KOTA . 3 AND NOT ALLOWABLE. THE AO FOUND THAT THE ASSESSEE H AD AVAILED BANK LOANS AND ACCORDINGLY ADVANCED INTEREST FREE LOANS TO VAR IOUS PERSONS AND SISTER CONCERNS. THE PAYMENT OF INTEREST ON THE BANK DRAF T AND OTHER CHARGES WERE INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. TH EREFORE, THE AO GAVE SHOW CAUSE NOTICE TO THE ASSESSEE ON THIS ISSUE WH ICH WAS FILED BY THE ASSESSEE VIDE LETTER DATED 3-11-2008. IT WAS SUBMIT TED BY THE ASSESSEE BEFORE THE AO THAT NO ADVANCES WERE GIVEN TO THE PA RTIES AFTER TAKING LOANS FROM THE BANK. THE ASSESSEE SUBMITTED THAT IN TEREST FREE ADVANCES GIVEN TO THE PARTIES WERE OLD AND OUT OF SELF CAPIT AL AND NOT FROM BORROWED CAPITAL. THE ASSESSEE ALSO ADMITTED THAT T HE ASSESSEE HAD TAKEN ADVANCE FROM THE FOLLOWING PARTIES AND NO INTEREST HAD BEEN CHARGED. 1. M/S. ANJALI TRADERS RS. 15,00,000 2. M/S. ANJANI DRAWING & PRINTING MILLS LTD. RS. 9,00,000 3. M/S. MODI FLOORING STONE (P) LTD. MORAK RS. 16,26,000 4. M/S. RAJINDER KUMAR GARG RS. 5,00,000 5. M/S. SETHIA CORPORATION RS. 6,00,450/- AFTER CONSIDERING THE ASSESSEE'S REPLY, THE AO OBSE RVED THAT THOUGH IT IS A FACT THAT THAT THESE LOANS WERE GIVEN IN THE EARLIE R YEARS BUT THEY STILL FORM THE PART OF BORROWED LOANS/ OVERDRAFT. IF THESE LOA NS WOULD HAVE BEEN RECEIVED BACK, THERE WOULD NOT HAVE BEEN ANY LIABIL ITY FOR PAYMENT OF INTEREST. IT IS FURTHER FOUND BY THE AO THAT THE AS SESSEE HAD GIVEN RS. 60.00 LACS TO M/S. MITTAL PIGMENT (P) LTD. ON 12-12 -2005 AND NO INTEREST ITA NO. 268/JP/2013 GOVIND RAM MODI VS. ADDL. CIT, RANGE-1, KOTA . 4 HAD BEEN CHARGED FROM THAT AMOUNT. THE ASSESSEE HAD ALSO GIVEN RS. 1.50 CRORES TO M/S. GAURAV (P) LTD. I.E. ANOTHER SISTER CONCERN ON 17-01-2006 FROM HIS BANK ACCOUNT MAINTAINED WITH BANK OF RAJAS THAN LTD. HOWEVER, ON THIS ACCOUNT ALSO, THE AMOUNT WAS TRANSFERRED FR OM THE LOAN/ OVERDRAFT ACCOUNT ON WHICH INTEREST HAD BEEN PAID. THIS SHOWS THAT THERE IS NO BUSINESS EXPEDIENCY AND THE ASSESSEE HAD ADVANCED T HE LOAN WITHOUT CHARGING INTEREST. THE AO RELIED ON THE FOLLOWING C ASE LAWS.. 1. TRIVENI ENGG WORKS LTD. VS. CIT, 167 ITR 742 (ALL.) 2. PHALTON SUGAR WORKS LTD. VS. CIT, 208 ITR 989 (BOM.) 3. HIRALAL & SONS , 190 ITR 408 (BOM.) 4. CIT VS. SARAYA SUGAR MILLS (P) LTD. 193 ITR 575 (ALL.) 5. CIT VS. H.R. SUGAR FACTORY (P) LTD. 187 ITR 363 (ALL.) 6. CIT VS. ANHISHEK INDUSTRIES, 205 CTR 304 (P&H) 7. CIT VS. INDUSTRIAL CABLES (P) LTD. 209 CTR 167 (P&H) THE ASSESSEE'S ARGUMENTS ON THIS ISSUE WERE THAT TH ESE INTEREST FREE ADVANCES WERE GIVEN IN EARLIER YEARS AND THEY WERE OUT OF SELF CAPITAL. IT WAS NOT FOUND CORRECT BY THE AO THAT THE AMOUNTS AD VANCED TO M/S. MITTAL PIGMENT (P) LTD. AND M/S. GAURAV (P) LTD. WE RE NOT OLD AND ITA NO. 268/JP/2013 GOVIND RAM MODI VS. ADDL. CIT, RANGE-1, KOTA . 5 PERTAINING TO THE EARLIER PERIOD. AS REGARDS ANOTHE R CONTENTION THAT THERE WAS NO DIRECT NEXUS ON THE FUND BORROWED AND ITS DI VERSION FOR NON- BUSINESS PURPOSES, THE AO RELIED ON THE HON'BLE PUN JAB & HARYANA HIGH COURT JUDGMENT IN THE CASE OF CIT VS. ABHISHEK IND USTRIES LTD. (2007) 205 CTR 304 WHEREIN THE COURT HAD AN OCCASION TO CO NSIDER THIS ASPECT AND IT WAS HELD THAT THAT ONUS IS ON THE ASSESSEE T O SATISFY THE AO THAT THE LOANS WERE USED FOR BUSINESS PURPOSES. IF THE AMOUN T IS ADVANCED TO THE SISTER CONCERN WITHOUT CHARGING THE INTEREST THEN T HERE WOULD BE VERY HEAVY ONUS ON THE ASSESSEE TO DISCHARGE THE SAME. E VEN THE PLEA OF NEXUS OF LOANS RAISED BY THE ASSESSEE WITH THE FUNDS ADVA NCED TO THE SISTER CONCERNS ON INTEREST FREE BASIS, MAY BE , IT IS PLE ADED TO BE OUT OF SALE PROCEEDS OR SHARE CAPITAL OR DIFFERENT ACCOUNT CANN OT BE ACCEPTED. ENTIRE MONEY IN A BUSINESS ENTITY COMES IN A COMMON KITTY. THE AO FURTHER OBSERVED THAT THE MONEY RECEIVED AS SHARE CAPITAL, AS TERM LOAN, AS WORKING CAPITAL LOAN, A SALE PROCEEDS ETC. DID NOT HAVE ANY DIFFERENT COLOUR. WHATEVER ARE THE RECEIPTS IN THE BUSINESS T HAT HAVE THE COLOURS OF BUSINESS RECEIPTS AND HAVE NO SEPARATE IDENTIFICATI ON. SOURCES HAVE NO CONCERNS. WHATSOEVER, THE ONLY THING SUFFICIENT TO DISALLOW THE INTEREST PAID ON THE BORROWING TO THE EXTENT OF THE AMOUNT I S LENT TO SISTER CONCERN WITHOUT CARRYING ANY INTEREST OR NON-BUSINESS PURPO SES WOULD BE THAT THE ITA NO. 268/JP/2013 GOVIND RAM MODI VS. ADDL. CIT, RANGE-1, KOTA . 6 ASSESSEE HAD SOME LOANS OR OTHER INTEREST BEARING D EBTS TO BE REPAID. IN CASE THE ASSESSEE HAD SOME SURPLUS AMOUNT WHICH COU LD NOT BE REPAID PREMATURELY TO ANY FINANCIAL INSTITUTIONS, STILL TH E SAME IS EITHER REQUIRED TO BE CIRCULATED AND UTILIZED FOR THE PURPOSE OF BU SINESS OR TO BE INVESTED IN A MANNER IN WHICH IT GENERATED INCOME AND NOT TH AT IT IS DIVERTED TOWARD SISTER CONCERN FREE OF INTEREST. THEREFORE, THE AO HELD THAT THERE SHOULD BE NO NEXUS REQUIRED TO ESTABLISH BETWEEN TH E BORROWED FUNDS ON INTEREST AND ADVANCES WITHOUT CHARGING THE INTEREST . RATHER THERE SHOULD BE NEXUS OF USE OF BORROWED FUND FOR THE PURPOSES O F BUSINESS TO CLAIM DEDUCTION U/S 36(1)(III) OF THE ACT. ACCORDINGLY, T HE AO DISALLOWED THE INTEREST PAYMENT AND OTHER BANK CHARGES OF RS. 4,8 0,069/-. 2.2 BEING AGGRIEVED BY THE ORDER OF THE AO, THE ASS ESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING THAT IT WAS NOT THE CASE THAT NO INTEREST WAS RECEIVED BY THE ASSESSEE. IN FACT, THE ASSESSEE HAD RECEIVED INTEREST OF RS. 29,13,642/- AS AGAINST INTEREST PAID AMOUNTED TO ON LY RS. 4,80,069/-. THE ASSESSEE HAD CAPITAL OF RS. 8,47,56,449/-. IN THESE CIRCUMSTANCES, IT CAN BE REASONABLY PRESUMED THAT INTEREST FREE ADVANCES WER E FROM ASSESSEE'S OWN CAPITAL UNLESS SPECIFIC NEXUS IS PROVED. THE LD. CI T(A) HAD VERIFIED THE DETAILS AND IT WAS FOUND THAT THE ASSESSEE HAD ADVA NCED MONEY TO M/S. ITA NO. 268/JP/2013 GOVIND RAM MODI VS. ADDL. CIT, RANGE-1, KOTA . 7 ANJALI TRADERS, M/S. ANJANI DYEING AND RAJENDRA KUM AR GARG OUT OF OVER DRAFT ACCOUNT. CONSIDERING THE ABOVE, THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO 50% OF THE AMOUNT. THEREFORE, THE ADDITION OF RS. 2,40,035/- WAS CONFIRMED BY THE LD. CIT(A) AND REMA INING INTEREST PAYMENT OF RS. 2,40,034/- WAS DELETED. 2.3 NOW THE ASSESSEE IS BEFORE US. THE LD. AR OF T HE ASSESSEE SUBMITTED THAT FUNDS HAD NOT BEEN ADVANCED DURING T HE YEAR UNDER CONSIDERATION BUT IT WAS THE LOAN OUTSTANDING FROM EARLIER YEARS. THE LD. CIT(A) OBSERVED THAT LOANS TO M/S. ANJALI TRADERS F OR RS. 15.00 LACS , M/S. ANLJANI DYEING & PRINTING MILLS LTD. FOR RS. 9.00 LACS AND SHRI RAJENDER KUMAR GARG FOR RS. 5.00 LACS WERE OUT OF O D ACCOUNT BUT IT IS A FACT THAT LOANS I.E. TO M/S. ANJALI TRADERS GIVEN ON 13-08-2001, M/S. ANJANI DYEING & PRINTING MILLS LTD. ON 4-05-1998 AN D SHRI RAJENDER KUMAR GARG ON 18-05-2003 TO PROVE THAT LOANS GIVEN TO ABOVE PARTIES WERE NOT OUT OF OD ACCOUNT DURING THE YEAR UNDER CO NSIDERATION. THERE WAS NO DISALLOWANCE OF INTEREST IN EARLIER YEARS. T HEREFORE, THERE IS NO PRECEDENT FOR WHICH THE LD. AR RELIED ON FOLLOWING CASE LAWS. (I) UNION OF INDIA VS. RAGHUVRER SINGH (1989) 178 I TR 548 (SC) (II) CESHAV MILLS CO. LTD. VS. CIT (1965) 56 ITR 36 5 (SC) ITA NO. 268/JP/2013 GOVIND RAM MODI VS. ADDL. CIT, RANGE-1, KOTA . 8 THE LD. AR FOR THE ASSESSEE FURTHER ARGUED THAT NO NEXUS HAS BEEN FOUND BY THE AO OR THE LD. CIT(A) THAT THE ASSESSEE HAS A DVANCED THE INTEREST FREE LOANS OUT OF BORROWING ON INTEREST FOR WHICH H E RELIED ON FOLLOWING CASE LAWS. (I) M/S. VIJAY SOLVEX LTD. VS. DCIT 31 TW 121 (JAIPUR ) (II) SMT. CHANCHAL KATYAL VS. CIT , 298 ITR 182 (ALL.) (III) JCIT VS. BEEKAY ENGG. CORPORATION. 325 ITR 38 4 (CHATTISGARH) (IV) CIT VS. MOTOR SALES LTD. 304 ITR 123 (ALL.) (V) CIT VS. SAMBANDHAM SPINNING MILLS LTD., 298 ITR 306 (MAD.) (VI) CIT VS. RELIANCE UTILITIES & POWER LTD. , 178 TAXMAN 135 (BOM.) (VII) CIT VS. TIN BOX CO. (2002) 260 ITR 637 IT IS FURTHER SUBMITTED THAT THE ASSESSEE DID NOT C LAIM ANY PAYMENT OF INTEREST IN THE PROFIT AND LOSS ACCOUNT. NO LOSS HA S BEEN CAUSED TO THE REVENUE IN THE INTEREST ACCOUNT. THE AO HAD CHARGED NOTIONAL INTEREST AND HAD NOT DISALLOWED INTEREST BECAUSE THERE WAS N O CLAIM OF PAYMENT OF INTEREST FOR WHICH HE RELIED ON THE JUDGMENT OF HON 'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. ASIAN HOTELS LTD. 323 ITR 49 0. THE LD. AR KEEPING IN VIEW OF THE ABOVE SUBMISSIONS PRAYED FOR DELETION OF ADDITION WHICH HAS BEEN CONFIRMED BY THE LD. CIT(A). ITA NO. 268/JP/2013 GOVIND RAM MODI VS. ADDL. CIT, RANGE-1, KOTA . 9 2.4 AT THE OUTSET, THE LD. DR RELIED ON THE ORDER O F THE LD. CIT(A) 2.5 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS A FACT THAT WHATEVER NA MES MENTIONED BY THE LD. CIT(A) IN HIS FINDINGS WERE THE LOANEE IN PRECEDING YEARS. THEREFORE, THE LD. CIT(A)S FINDING IS TOTALLY WRONG. HOWEVER, THE AOS FINDINGS IN CASE OF M/S. MITTAL PIGMENT (P) LTD. AND M/S. GAURAV (P) LTD. WERE FOUND CORRECT THAT DURING THE YEAR UNDER CONSIDERATION TH E ASSESSEE HAD GIVEN RS. 60 LACS ON CD A/C MAINTAINED WITH HDFC BANK BEA RING A/C NO. 1672070000032 ON 12-12-2005 TO M/S. MITTAL PIGMENT (P) LTD. AND RS. 1.50 CRORES TO M/S. GAURV (P) LTD. ON 17-01-2006 FR OM THE BANK SAVING A/C NO. 450101 423915 MAINTAINED WITH RAJASTHAN B ANK LTD., KOTA. THE ASSESSEE HAS TRANSFERRED RS. 43 LACS FROM CD A/ C OF HDFC BANK, KOTA TO A/C NO. 1672070000032 ON 1-02-2005 IN THE B ANK MAINTAINED WITH RAJASTHAN BANK LTD., KOTA. THE ASSESSEE HAD NO T CHARGED ANY INTEREST. IT IS UNDISPUTED FACT THAT THE ASSESSEE H AD PAID BANK INTEREST OF RS. 472,324/- WHICH INCLUDES INTEREST PAID TO HDFC BANK, KOTA AT RS. 1,21,214/- AND SBI, CHAWNI BRANCH, KOTA AT RS. 3,51 ,110/- WHICH HAS BEEN DIRECTLY ADJUSTED BY THE ASSESSEE AGAINST INTE REST INCOME. THE AO HAD ESTABLISHED THE NEXUS THAT THE ASSESSEE HAD BOR ROWED THE FUNDS ON INTEREST AND ADVANCE THE INTEREST FREE LOANS TO THE SISTER CONCERNS OR OTHER ITA NO. 268/JP/2013 GOVIND RAM MODI VS. ADDL. CIT, RANGE-1, KOTA . 10 CONCERNS. THUS IN VIEW OF THE ABOVE DELIBERATIONS, WE CONFIRM THE ORDER OF THE LD. CIT(A). HENCE, THE APPEAL OF THE ASSESSE E IS DISMISSED. 3.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11/08/ 2015. SD/- SD/- VKJ-IH-RKSYKUH VH-VKJ-EHUK (R.P.TOLANI) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 11/08/ 2015 *MISHRA VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI GOVIND RAM MODI, KOTA 2. IZR;FKHZ@ THE RESPONDENT- THE ADDL. CIT, RANGE-1, KOTA 3. VK;DJ VK;QDRVIHY ) @ CIT(A) 4. VK;DJ VK;QDR@ CIT 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.268/JP/2013) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR