Mr. Aditya Vardhan, Ghaziabad V. DCIT, New Delhi

ITA 2743/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97166 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 27-08-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 06-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: CHANDRAKAR
• Assessee Lawyers: SANJAY NATH
• Keywords: Capital asset; Proportionate interest; Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH A NEW DELHI BEFORE : SHRI C.M. GARG, JUDICIAL MEMBER & SHRI L.P. SAHU , ACCOUNTANT MEMBER ITA NO. 2743/DEL./2013 ASSTT. YEAR : 2007 - 08 SH. ADITYA VARDHAN, VS. D.C.I.T., CIRCLE - 1, B - 170, RAMPRASTHA COLONY, GHAZIABAD. GHAZIABAD. [PAN: ACDVP 5990P] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SANJAY NATH, C.A. RESPONDENT BY : SHRI CHANDRAKAR, SR. D.R. DATE OF HEARING : 27.08.2015 DATE OF PRONOUNCEMENT : 04 .09.2015 ORDER PER L.P. SAHU, ACCOUNTANT MEMBER: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 07.01.2013 OF LEARNED CIT(A), GHAZIABAD FOR THE ASSESSMENT YEAR 2007 - 08, CHALLENGING THE SUSTENANCE OF ADDITION OF RS.2,98,396/ - MADE BY THE AO TOWARDS NOTIONAL INTEREST @ 12% ON THE AMOUNTS ADVANCED TO ADITYAM TECHNOPLAST PVT. LTD.. 2. THE BRIEF FACTS OF THE CASE ARE AS UNDER : THE ASSESSEE IS A PROPRIETOR OF ADITYAM POLYMERS AND IS ENGAGED IN THE BUSINESS OF MANUFA CTURE AND SALE OF MOULDS, PLASTIC INJECTION MOULDING GOODS ETC. ITA NO. 2743/DEL/2013 2 HE IS ALSO CO - PARTNER IN M/S. ADITYAM TECHNOPLAST (P) LTD. WHERE HE IS A CO - OWNER . IT IS OBSERVED FROM BALANCE SHEET THAT THE ASSESSEE HAS RAISED UNSECURED LOAN OF MORE THAN RS.50.00 LACS APAR T FROM CASH CREDIT LOAN OF ICICI BANK AMOUNTING TO RS.46,63,335/ - AND SECURED LOAN OF RS.2,58,375/ - WHEREON HE IS PAYING INTEREST. HE HAS CLAIMED INTEREST AMOUNTING TO RS.5,05,692/ - IN THE P ROFIT AND L OSS ACCOUNT. THE ASSESSEE HAS ADVANCED A INTEREST FREE LOAN OF RS.24,86,550/ - TO ADITYAM TECHNOPLAST PVT. LTD . IN THE FOLLOWING MANNER : DATE AMOUNT (RS.) A). 10 TH APRIL, 2006 6,60,000 B). 27 TH MAY, 2006 9,15,000 C). 27 TH MAY, 2006 7,37,500 D). 30 TH MAY 2006 1,74,050 --------------- 24,86,55 0 ---------------- 3. THE SAID LOAN WAS FOR PURCHASE OF PLOT AT ROORKI BY THE SAID COMPANY AND THE ASSESSEE IS ONE OF THE CO - PROMOTERS OF THAT COMPANY. THE ASSESSEE HAS ALSO TAKEN INTEREST FREE LOAN OF RS.11.50 LACS DURING THE RELEVANT PERIOD AND HE HAS OWNED CAPITAL OF RS.1 7,79,072 / - . THE ASSESSEE SUBMITTED BEFORE THE LEARNED AO THAT THESE INTEREST FREE LOANS AND HIS CAPITAL, PUT TOGETH ER, ARE MORE THAN THE LOAN ADVANCED TO M/S. ADITYAM TECHNOPLAST PVT. LTD AND CLAIMED THAT THERE IS NO DIRECT CONNECTION BETWEEN THE AMOUNT OF INTEREST BEARING LOANS RAISED BY THE ASSESSEE AND THE AMOUNT DIVERTED TO M/S. ADITYAM TECHNOPLAST PVT. LTD. THE AS SESSEE HAS TAKEN LOAN FROM M/S. PRAGYA ENTERPRISES IN THE MONTH OF FEBRUARY AND MARCH IN SIX ITA NO. 2743/DEL/2013 3 INSTALLMENTS OF RS.2,00,000/ - EACH. HIS INVESTMENT AS ON DATE OF BALANCE SHEET ON F IXED A SSET S WAS OF RS.78,11,751/ - . THE AUTHORITIES BELOW DID NOT AGREE WITH THE STAND TAKEN BY THE ASSESSEE AND DISALLOWED THE INTEREST OF RS.2,98,386/ - @ 12% ON THE AMOUNT ADVANCED OF RS.24,86,550/ - TO M/S. ADITYAM TECHNOPLAST PVT. LTD. IT WAS ALSO SUBMITTED THAT THE OBJECTS OF THE COMPANY WERE SIMILAR TO THE MANUFACTURING ACTIVITY C ARRIED ON BY HIM. 4. THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED THAT THE MONEY ADVANCED TO THE SAID COMPANY WAS DIRECTLY RELATED TO THE BUSINESS ACTIVITY CARRIED ON BY THE ASSESSEE. IT WAS SUBMITTED THAT THE PROPRIETORSHIP OF THE ASSESSEE IS NOT A SEPAR ATE LEGAL ENTITY, HENCE, NO DISALLOWANCE OF INTEREST CAN BE MADE ON ACCOUNT OF ADVANCES GIVEN BY HIM. HE FURTHER SUBMITTED THAT THE SETTLED LEGAL POSITION IN THIS REGARD IS THAT IF THE ADVANCES ARE MADE OUT OF OWN FUNDS WHICH ARE NON - INTEREST BEARING AND T HE INTEREST BEARING FUNDS ARE USED IN THE BUSINESS ONLY, THEN NO DISALLOWANCE OF INTEREST CAN BE MADE. OUT OF TOTAL LOAN AMOUNT OF RS.24,86,550/ - ADVANCED TO ADITYA POLYMERS PVT. LTD., AS REPRODUCED ABOVE, A SUM OF RS.6,60,000/ - WAS ADVANCED OUT OF RS.3,5 0,000/ - DEPOSITED IN CASE ON 10.04.06 OUT OF OWN FUND AND RS.2,25,000/ - TAKEN AS UNSECURED LOAN ON 12.04.2006 @ 8% INTEREST. A SUM OF RS.9,15,000/ - AND RS.7,37,500/ - WAS ADVANCED OUT OF DEPOSIT OF RS.17 LACS ON 27 TH MAY, 2006, WHICH WAS TRANSFERRED FROM CU RRENT ACCOUNT NO. 2784 WITH ICICI BANK , CONTAINING THE PAYMENTS RECEIVED AGAINST INVOICES FROM DEBTORS. SIMILARLY, THE ITA NO. 2743/DEL/2013 4 REMAINING SUM OF RS.1,74,050/ - WAS ADVANCED IN CASH OUT OF ASSESSEE S OWN FUNDS. IN VIEW OF THIS EXPLANATION AND LEGAL POSITION, THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT DISALLOWANCE OF INTEREST MAY, AT THE MOST, BE RESTRICTED TO 8% OF RS.2,25,000/ - FROM 12.04.2006 TO 31.03.2007. HE THEREFORE, URGED THAT THE SUSTENANCE OF ADDITION OF RS.2,98,396/ - MADE BY THE LD. CIT(A) IS NOT JUSTIF IED. THE ASSESSEE ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS : (I). CIT VS. RELIANCE COMM. INFRA LTD. (2012) 21 TAXMANN.COM 118 (BOM.) (II). JCIT V. BEEKAY ENGINEERING CORPORATION (2010) 325 ITR 284(CHATTISGARH) (III). CIT V. PREMIER POLY SACKS PVT. L TD. (2010) 321 ITR 450 (MAD.) (IV). CIT VS. MS. SUSHMA KAPOOR (2010) 188 TAXMANN 24 (DELHI) (V). CIT V. K.B. INDIA PVT. LTD. (2010) 2 DTL ONLINE 301 (DELHI) (VI). REGAL THEATRE V. CIT 100 TAXMAN 116 (DELHI) (VII). MADHAV PRASAD JATIA V. CIT (1979) 1 TAXMA NN 477 (SC). 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE , ON THE OTHER HAND, RELIED UPON THE ORDER OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE LEARNED CIT(A) WAS JUSTIFIED IN SUSTAINING THE IMPUGNED DISALLOWANCE. IT WAS SUBMITTED THAT THE CAPITAL BALAN CE OF ASSESSEE STOOD INVESTED IN THE FIXED CAPITAL ASSETS OF THE PROPRIETARY CONCERN, THE VALUE OF WHICH AS ON 31.03.2007 IS OF RS.78,11,751/ - . IT WAS SUBMITTED THAT THE LOAN FROM M/S. PRAGYA ENTER PR ISES WAS RAISED IN THE MONTH OF FEBRUARY AND MARCH WHICH HAS NO DIRECT NEXUS WITH THE LOAN ADVANCED TO M/S. ADITYAM TECHNOPLA S T (P) LTD. HE FURTHER SUBMITTED THAT INTEREST ON BORROWED MONEY IS ALLOWED AS A DEDUCTION FROM THE BUSINESS ONLY IF THE ASSESSEE SATISFIES THE CONDITION LAID DOWN IN SECTION 36(1)(III) OF THE ACT ONLY IF THE SAME HAS BEEN USED FOR THE PURPOSE OF ITA NO. 2743/DEL/2013 5 BUSINESS. WHERE THE MONEY BORROWED WAS DIVERTED FOR GIVING INTEREST FREE LOANS TO SISTER CONCERN, THE PROPORTIONATE INTEREST ATTRIBUTABLE TO SUCH LOANS COULD BE LEGITIMATELY DISALLOWED BY THE AO . HE ALSO RELIED ON THE FOLLOWING JUDGMENTS : (I). S.A. BUILDERS LTD. VS. CIT [2004] 26 ITR 535 (P&H) (II). CIT VS. H.R. SUGAR FACTOR PVT. LTD., 187 ITR 363 (ALL). (III). INDIAN SHAVINGS PRODUCTS LTD. V. CIT (2004) 265 ITR 250 (RAJ). (IV). CALDERN PHARMACEUTICALS LTD. VS. CIT (265 ITR 244 (CAL.) (V). CIT VS. BOMBAY SAMACHAR LTD. [16] 74 ITR 723 (BOM.) (VI). K. SOMA SUNDARAM & BROTHERS, 238 ITR 939. 6. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS ADVANCED BY THE PARTIES AND HAVE GONE THROUGH THE ORD ERS OF THE AUTHORITIES BELOW, MATERIALS AVAILABLE ON RECORD AND THE DECISIONS RELIED UPON. 7. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND ON CAREFUL EXAMINATION OF THE BALANCE SHEET PRODUCED BY THE APPELLANT, WE F I ND NO COGENT MATERIAL ON RECORD TO ESTAB LISH THAT THE ASSESSEE HAD SUFFICIENT/ SURPLUS FUNDS AVAILABLE WITH HIM, WHICH COULD BE ADVANCED AS INTEREST FREE LOANS TO THE SAID COMPANY . HIS TOTAL CAPITAL AS ON THE FIRST DAY OF THE FINANCIAL YEAR WAS RS.18,32,831/ - AND AT THE YEAR END WAS RS.17,79,072 / - . SECURED LOAN IS OF RS.2,58,375/ - AND U NSECURED LOAN IS OF RS.50,93,062 / . THE TRADE CREDITOR S AND OTHERS ARE OF RS.1,25,41,822/ - AND CASH CREDIT LOAN FROM ICICI BANK IS OF RS.46,63,335/ - . THE ASSESSEE HAS ALSO ISSUED CHEQUE S FROM CASH CREDIT ACCOUNT ON DIFFERENT DATES. HIS INVESTMENT IN FIXED ASSETS IS RS.78,41,751/ - , IN FIXED DEPOSITS RS.9,98,156/ - , IN CURRENT ASSETS ITA NO. 2743/DEL/2013 6 RS.1,19,08,899 AND IN LOANS AND ADVANCE IS RS.36,86,860/ - . FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE HAD NO SURPLUS FUNDS WHICH COULD BE ADVANCED AS INTEREST FREE LOAN. IT APPEARS THAT LOAN HAS BEEN GIV EN TO ADITYAM POLYMER (P) LTD., ROORKI FOR THE PURPOSE OF PURCHASING LAND OUT OF LOAN FUND. THE ASSESSEE COULD NOT BE ABLE TO SUBSTANTIATE HIS STAND THAT HE HAD SURPLUS FUND WHICH COULD BE ADVANCED AS INTEREST FREE LOAN TO THE SISTER CONCERN SO AS TO MAKE THE ASSESSEE ELIGIBLE FOR DEDUCTION OF INTEREST. THE CASE LAWS CITED BY THE ASSESSEE, ACTUALLY DEAL WITH THE CASES WHERE THERE WAS SURPLUS FUND ON ACCOUNT OF HUGE PROFIT OR HUGE RESERVE OR INTEREST FREE FUND. HENCE, THE SAME ARE NOT APPLICABLE TO THE PRESENT CASE IN HAND. WE, THEREFORE, DO NOT FIND ANY GOOD REASON OR MATERIAL ON RECORD TO INTERFERE WITH THE CONCLUSIONS ARRIVED AT BY THE LEARNED AUTHORITIES BELOW. THE APPEAL OF THE ASSESSEE, THEREFORE, BEING DEVOID OF MERITS, IS LIABLE TO BE DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 04.09.2015 . SD/ - SD/ - ( C.M. GARG ) ( L.P. SAHU ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 04.09.2015 *AKS/ - ITA NO. 2743/DEL/2013 7 COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT. REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES , NEW DELHI