M/s. Panacea Builders, Pune V. Joint Commissioner of Income tax, Pune

ITA 278/PUN/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5467 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-05-2019
• Assessment Year: 2011-2012
• Appeal Filed On: 03-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Keywords: Bad and doubtful debts; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE BEFORE SHRI D. KARUNAKARA RAO , ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JM . / ITA NO . 278 /P U N/201 7 / ASSESSMENT YEAR : 20 11 - 12 M/S. PANACEA BUILDERS, 3, SAHAJANAND COMPLEX, 2416 EAST STREET, PUNE CAMP, PUNE 411001 PAN : A ABFP4286G ....... / APPELLANT / V/S. JOINT COMMISSIONER OF INCOME TAX, RANGE - 4, PUNE / RESPONDENT ASSESSEE BY : SHRI KISHORE PHADKE REVENUE BY : S HRI PANKAJ GARG / DATE OF HEARING : 14 - 0 5 - 2019 / DATE OF PRONOUNCEMENT : 17 - 0 5 - 2019 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), PUNE - 5, PUNE DATED 2 7 - 1 0 - 201 6 FOR THE ASSESSMENT YEAR 20 11 - 12 . 2 ITA NO .278/PUN/2017, A.Y. 2011 - 12 2. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TRADING OF LAND, CONSTRUCTION AND SALE OF RESIDENTIAL AND COMMERCIAL PROJECTS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 29.09.2011 DECLARING TOTAL INCOME OF 10,06,86,592/ - . DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER MADE DISALLOWANCES / ADDITIONS ON FOLLOWING CO UNTS: I) DISALLOWANCE U/S 36(1)( III ) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) ON LOANS AND ADVANCES MADE TO SISTER CONCERNS / RELATED PARTIES WITHOUT CHARGING INTEREST 11,54,808/ - ; II) BAD DEBTS WRITTEN OFF 5 LAKHS. AGGRIEV ED AGAINST THE ASSESSMENT ORDER DATED 30.03.2014, THE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE FIRST APPELLATE AUTHORITY DISMISSED THE APPEAL OF ASSESSEE IN TOTO. HENCE, THE PRESENT APPEAL. 3 . SHRI KISHORE PHADKE APPEARING ON BEHALF OF ASSESSEE SUBMITTED THAT ASSESSEE HAD ADVANCED INTEREST - FREE LOANS TO ITS SISTER CONCERNS OUT OF COMMERCIAL EXPEDIENCY. THE SISTER CONCERNS ARE ENGAGED IN SAME LINE OF BUSINESS AS THAT OF ASSESSEE AND ARE COMPLEMENTING ASSESSEES BUS INESS. THE L D. AR MADE AN ALTERNATE SUBMISSION THAT DISALLOWANCE U/S 36(1)( III ) OF THE ACT IS NOT WARRANTED AS OWN INTEREST - FREE FUNDS OF ASSESSEE ARE MUCH MORE THAN LOANS AND ADVANCES MADE BY ASSESSEE TO ITS SISTER CONCERNS / RELATED PARTIES . IN SUPPORT OF HIS CONTENTION S , THE LD. AR HAS DRAWN OUR 3 ITA NO .278/PUN/2017, A.Y. 2011 - 12 ATTENTION TO THE BALANCE SHEET OF ASSESSEE AS ON 31.03.2011 AT PAGE 7 OF PAPER BOOK. THE LD. AR POINTED THAT PARTNERS CAPITAL ACCOUNT REFLECTS 8.57 CRORES , WHICH ITSELF IS SUFFICIENT TO COVER LOANS AND ADVA NCES . A PART FROM PARTNERS CAPITAL, THE ASSESSEE HAS INTEREST FREE UNSECURED LOANS TO THE TUNE OF 2,39,00,000/ - . THE TOTAL NON - INTEREST BEARING FUNDS AVAILABLE WITH ASSESSEE ARE 11,84,00,000/ - AS AGAINST LOANS AND ADVANCES OF 7,97,00,000/ - . THUS, IN VIEW OF THE LAW LAID DOWN BY HO NBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM) , NO DISALLOWANCE U/S 36(1)(III) OF THE ACT IS WARRANTED. IN RESPECT OF GROUND NO.2, THE LD. AR CONTENDED THAT ASSESSEE HAD MAD E PAYMENT OF 5 LAKHS TO ONE SHRI MAHENDRA KERING FOR PURCHASE OF LAND. THE AFORESAID AMOUNT WAS PAID BY ASSESSEE VIDE CROSSED CHEQUE. SINCE NEITHER THE LAND WAS PURCHASED NOR AFORESAID AMOUNT WAS RETURNED TO ASSESSEE BY SHRI MAHENDRA KERING, ASSESSEE H AD NO OTHER OPTION BUT TO WRITE OFF THE SAME AS BAD DEBT. THE LD. AR RAISED AN ALTERNATE CONTENTION THAT EVEN IF IT IS NOT CONSIDERED AS BAD DEBT, IT HAS TO BE ALLOWED AS BUSINESS LOSS. 4 . PER CONTRA, SHRI PANKAJ GARG REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED IMPUGNED ORDER AND PRAYED FOR DISMISSING THE APPEAL OF ASSESSEE. THE LD. DR SUBMITTED THAT ASSESSEE HAS FAILED TO SHOW BUSINESS EXPEDIENCY IN ADVANCING INTEREST - FREE LOANS TO ITS SISTER CONCERNS, HENCE, DISALLOWANCE U/S 36(1)(III) OF THE ACT WAS RIGHTLY MADE BY AUTHORITIES BELOW. 4 ITA NO .278/PUN/2017, A.Y. 2011 - 12 AS REGARDS WRITING OFF OF 5 LAKHS AS BAD DEBT, THE LD. DR CONTENDED THAT THE ASSESSEE IN ITS BOOKS HAD NEVER REFLECTED 5 LAKHS ADVANCE PAID TO SHRI MAHENDRA KERING FOR PURCHASE OF LAND. HENCE, ASSESSEE CANNOT CLAIM THE AMOUNT AS BAD DEBT U/S 36(1)(VII) OF THE ACT. FURTHER, ASSESSEE HAS FAILED TO SHOW THAT AMOUNT WAS ADVANCED TO SHRI MAHENDRA KERING FOR PURCHASE OF LAND. IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE, CONTENTION OF ASSESSEE CANNOT BE ACCEPT ED. 5 . W E HAVE H EARD THE SUBMISSIONS MADE BY REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. THE ASSESSEE IN THE APPEAL HAS ASSAILED IMPUGNED ORDER ON TWO COUNTS: ( I ) DISALLOWANCE U/S 36(1)(III) OF THE ACT ; AND ( II ) BAD DEBTS WRITTEN OFF 5 LAKHS . IN SO FAR AS GROUND NO.1 RELAT I N G TO DISALLOWANCE U/S 36(1)(III) IS CONCERNED, ONE OF THE CONTENTIONS OF ASSESSEE IS THAT THE ASSESSEE IS HAVING OWN INTEREST - FREE FUNDS MUCH MORE THAN AMOUNTS ADVANCED TO SISTER CONCERNS. THEREFORE, PRESUMPTION IS THAT AMOUNTS HAVE BEEN ADVANCED FROM INTEREST - FREE FUNDS. A PERUSAL OF BALANCE SHEET OF ASSESSEE AS ON 31.03.2011 SHOWS THAT PARTNERS CAPITAL ACCOUNT HAS BALANCE OF 8,57,00, 000/ - , WHEREAS AMOUNT ADVANCED TO GROUP CONCERNS IS TO THE TUNE OF 7,97,00,000/ - . APART FROM FUNDS IN PARTNERS CAPITAL ACCOUNT, ASSESSEE IS ALSO HAVING INTEREST - FREE UNSECURED LOANS OF 2,39,00,000/ - . THUS, IT IS EVIDENTLY CLEAR THAT INTEREST - FREE FUN DS AVAILABLE WITH THE 5 ITA NO .278/PUN/2017, A.Y. 2011 - 12 ASSESSEE ARE MUCH MORE THAN THE INTEREST - FREE FUNDS ADVANCED TO GROUP CONCERNS BY THE ASSESSEE. 6 . THE HO NBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (SUPRA) HAS HELD THAT WHERE OWN INTEREST - FREE FUNDS ARE MUCH MORE THAN INTEREST - FREE ADVANCES, IT IS PRESUMED THAT ADVANCES ARE MADE FROM NON - INTEREST BEARING FUNDS. THUS, IN THE LIGHT OF THE FACTS OF CASE AND THE LAW LAID DOWN BY THE HONBLE JURISDICTIO NAL HIGH COURT, WE ARE OF THE CONSIDERED VIEW THAT NO DISALLOWANCE U/S 36(1)(III) OF THE ACT IS WARRANTED. ACCORDINGLY, GROUND NO.1 OF APPEAL IS ALLOWED. 7 . THE SECOND GROUND OF APPEAL IS WITH RESPECT TO DISALLOWANCE OF BAD DEBTS WRITTEN OFF. PURPORTEDL Y, ASSESSEE HA S ADVANCE D 5 LAKHS TO ONE SHRI MAHENDRA KERING FOR PURCHASE OF LAND. THE SAID AMOUNT HAS BEEN GIVEN BY ASSESSEE BY WAY OF CROSSED CHEQUE. DURING ASSESSMENT PROCEEDINGS, ASSESSEE FAILED TO SUBSTANTIATE BY WAY OF DOCUMENTARY EVIDENCE THAT A MOUNT OF 5 LAKHS WAS ADVANCED TO SHRI MAHENDRA KERING FOR PURCHASE OF LAND AND THE SAME COULD NOT BE RECOVERED NOR THE LAND DEAL WAS FINALIZED FOR WHICH ADVANCE WAS GIVEN. THE LD. AR SUBMITTED THAT IF AN OPPORTUNITY IS GRANTED, ASSESSEE WOULD PRODUCE NECESSARY DOCUMENTAR Y EVIDENCE TO SHOW THAT AN AMOUNT OF 5 LAKHS WAS ADVANCED TO SHRI MAHENDRA KERING FOR PURCHASE OF LAND AND THE SAME COULD NOT BE RECOVERED. WE ARE OF THE CONSIDERED VIEW THAT THIS ISSUE NEEDS REVISIT TO THE FILE OF ASSESSING OFFICER. THE ASSESSEE IS DI RECTED TO FURNISH NECESSARY DOCUMENTARY EVIDENCE BEFORE ASSESSING OFFICER TO SUBSTANTIATE THAT AMOUNT OF 5 LAKHS WAS ADVANCED TO SHRI MAHENDRA KERING FOR PURCHASE OF LAND IN ORDINARY COURSE OF BUSINESS. 6 ITA NO .278/PUN/2017, A.Y. 2011 - 12 THE ASSESSING OFFICER AFTER EXAMINING DOCUMENTARY EVIDENCE , IF ANY FURNISHED BY ASSESSEE SHALL DECIDE THIS ISSUE AFRESH AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING, IN ACCORDANCE WITH LAW. THE GROUND NO.2 OF APPEAL IS A LLOWED FOR STATISTICAL PURPOSES . 8 . IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWED IN THE TERMS AFORESAID. ORDER PRONOUNCED ON F R I D A Y , THE 1 7 T H DAY OF MAY , 2019 . SD/ - SD/ - ( D.KARUNAKARA RAO ) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER / PUNE; / DATED : 1 7 T H MAY , 2019 GCVSR / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) , PUNE - 5, PUNE 4. THE PR. CIT , PUNE - 4, PUNE 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE