The ITO, Ward-2(4), Surat V. M/s. Dharam Exim, Surat

ITA 2859/AHD/2014

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 2197 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 27-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P S CHAUDHARY
• Keywords: Business income; Audit objection; Tax effect

Judgement Text

ITO, W-2(4), SURAT VS DHARAM EXIM /ITA NOS.2842/AHD/2013 & C.O.NO.104/AHD/2013/AY2010-11 & 2859//AHD/2014/SRT/A..2011-12 PAGE 1 OF 10 , , IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT . . , . . , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . . ./I.T.A NO.2842/AHD/2013/SRT /ASSESSMENT YEAR : 2010-11 THE INCOME TAX OFFICER, WARD-2(4), SURAT. VS. DHARAM EXIM, PLOT NO.152, SURAT, SPECIAL EXONOMIC ZONE, SACHIN, SURAT 394 230. [PAN: AADFD 7821 R] APPELLANT /RESPONDENT .. ./C.O. NO.104/AHD/2014/SRT /ASSESSMENT YEAR : 2010-11 DHARAM EXIM, PLOT NO.152, SURAT, SPECIAL EXONOMIC ZONE, SACHIN, SURAT 394 230. [PAN: AADFD 7821 R] VS . THE INCOME TAX OFFICER, WARD-2(4), SURAT. APPELLANT /RESPONDENT . . ./I.T.A NO.2859/AHD/2014/SRT /ASSESSMENT YEAR : 2011-12 THE INCOME TAX OFFICER, WARD-2(4), SURAT. VS. DHARAM EXIM, PLOT NO.152, SURAT, SPECIAL EXONOMIC ZONE, SACHIN, SURAT 394 230. [PAN: AADFD 7821 R] APPELLANT /RESPONDENT /ASSESSEE BY SHRI NITIN GHEEWALA CA /REVENUE BY SHRI P.S.CHAUDHARY SR.DR / DATE OF HEARING: 07 .0 9 .2018 /PRONOUNCEMENT ON 19 .0 9 . 2018 ITO, W-2(4), SURAT VS DHARAM EXIM /ITA NOS.2842/AHD/2013 & C.O.NO.104/AHD/2013/AY2010-11 & 2859//AHD/2014/SRT/A..2011-12 PAGE 2 OF 10 /O R D E R PER O. P. MEENA, ACCOUTANT MEMBER: 1. THE ABOVE APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, SURAT(IN SHORT THE CIT (A)) DATED 18.09.2013 PERTAINING TO ASSESSMENT YEAR 2010-11, AND OTHER APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-II, SURAT, DATED 11.08.2014 FOR THE ASSESSMENT YEAR 2011-12. ITA NO.2842/AHD/2013/SRT FOR A.Y.2010-11 (BY REVENUE): 2. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND FIND THAT TAX EFFECT INVOLVED IN THIS APPEAL IS BELOW RS. 20 LAKHS. THE LD. DR ALSO DID NOT DISPUTE THIS FACT. WE FIND THAT THE CBDT VIDE CIRCULAR NO.3/2018 DATED 11.07.2018 [F.NO.279/ MISC.142/ 2007- ITJ (PT)] HAS REVISED THE MONETARY LIMIT FOR FILING OF APPEAL BEFORE TRIBUNAL FIXING THE TAX EFFECT LIMIT AT RS.20 LACS. THE SAID CIRCULAR SUPERSEDES THE EARLIER CIRCULAR(S) ISSUED ON THE SUBJECT OF TAX EFFECT AND APPLIES TO ALL PENDING APPEAL RETROSPECTIVELY. THE BOARD HAS PROVIDED EXCEPTIONS PROVIDED UNDER PARA 10 OF THE CIRCULAR WHEREIN IT HAS BEEN PROVIDED THAT THE ISSUES RELATED IS TO BE CONTESTED (A) WHERE THE CONSTITUTION VALIDITY OF THE PROVISION OF THE ACT OR RULE IS UNDER ITO, W-2(4), SURAT VS DHARAM EXIM /ITA NOS.2842/AHD/2013 & C.O.NO.104/AHD/2013/AY2010-11 & 2859//AHD/2014/SRT/A..2011-12 PAGE 3 OF 10 CHALLENGE OR (B) WHERE BOARD`S ORDER, NOTIFICATION, INSTRUCTION OR CIRCULAR HAS BEEN HELD TO BE ILLEGAL OR ULTRA VIRES, OR (C) WHERE REVENUE AUDIT OBJECTIONS HAS BEEN ACCEPTED BY THE DEPARTMENT OR (D) WHERE THE ADDITION RELATES TO UNDISCLOSED FOREIGN ASSETS/BANK ACCOUNTS, ETC. AND BY AMENDMENT DTD. 20.08.2018 FOLLOWING CLAUSES ADDED OR (E) WHERE ADDITION IS BASED ON INFORMATION FROM EXTERNAL SOURCES LIKE- CBI/ED/DRI/SFIO/GST-DGGI OR (F) WHERE PROSECUTION FILED BY DEPARTMENT IS PENDING IN COURT. 3. WE FIND THAT THE PRESENT CASE DOES NOT FALL WITHIN THE EXCEPTIONS CLAUSE AND THE TAX DEMAND IS LESS THAN RS.20 LACS. THEREFORE, THE PRESENT APPEAL IS NOT MAINTAINABLE AS PER RECENT CIRCULAR (SUPRA) AND HENCE DISMISSED. HOWEVER, WE MAY MAKE IT CLEAR THAT THE REVENUE IS AT LIBERTY TO APPROACH TO THIS TRIBUNAL FOR RECALLING THIS ORDER, IF IT IS COMES TO THE NOTICE OF THE AO THAT THE TAX EFFECT IS MORE THAN THE MONETARY LIMIT PROVIDED UNDER CIRCULAR OR REVENUE`S CASE IS FALL WITHIN AMBIT OF THE EXCEPTIONS PROVIDED IN THE SAID CIRCULAR. 4. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. C.O. NO.104/AHD/2014/SRT FOR A.Y.2010-11 (BY ASSESSEE): 5. SINCE, WE HAVE DISMISSED THE APPEAL, THEREFORE, CROSS OBJECTION OF THE ASSESSEE IS NOT PRESSED BEFORE US AND BECOMES INFRUCTUOUS, ACCORDINGLY, WE DISMISS THE SAME AS NOT PRESSED. ITO, W-2(4), SURAT VS DHARAM EXIM /ITA NOS.2842/AHD/2013 & C.O.NO.104/AHD/2013/AY2010-11 & 2859//AHD/2014/SRT/A..2011-12 PAGE 4 OF 10 6. IN THE RESULT, CROSS APPEAL OF THE ASSESSEE IS DISMISSED AS NOT PRESSED. ITA NO.2859/AHD/2014/SRT FOR A.Y.2011-12 (BY REVENUE): 7. GROUND NO.1 STATES THAT THE CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT INTEREST INCOME RECEIVED FROM FDR IS A PART OF BUSINESS INCOME AND REDUCTION U/S.10A IS ALLOWABLE ON THAT. 8. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEES INCOME INCLUDED INCOME FROM OTHER SOURCES OF RS.44,32,035/- WHICH CONSISTED INTEREST INCOME OFRS.41,03,209/- FROM BANK DEPOSITS. THE AO WAS OF THE VIEW THAT INTEREST RECEIPTS IS NOT THE PROFIT OF BUSINESS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S.10AA OF THE ACT. THE ASSESSEE HAD DERIVED INTEREST OF BANK DEPOSITS AND NOT DIRECTLY FROM BUSINESS ACTIVITY, THEREFORE RELYING ON THE DECISION IN THE CASE OF SOUTH INDIA SHIPPING CORPORATION 240 ITR 24 (MAD) THE AO EXCLUDED THE INTEREST INCOME OF RS.41,03,209/- RECEIVED ON FIXED DEPOSITS PLACED WITH THE BANKS. 9. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHEREIN THE CIT(A) OBSERVED THAT THE ISSUE IS COVERED IN FAVOUR OF THE APPELLANT BY HIS DECISION IN APPEAL NO.CAS- ITO, W-2(4), SURAT VS DHARAM EXIM /ITA NOS.2842/AHD/2013 & C.O.NO.104/AHD/2013/AY2010-11 & 2859//AHD/2014/SRT/A..2011-12 PAGE 5 OF 10 2/189/2013-14 DATED 18.09.2013 IN APPELLANTS OWN CASE FOR ASSESSMENT YEAR 2010-11 WHEREIN THE APPEAL WAS ALLOWED. IN THE APPEAL FOR A.Y.2010-11 THIS GROUND WAS ALLOWED BY FOLLOWING THE DECISION OF ITAT IN PARAS MOTOR MANUFACTURING COMPANY IN ITA NO.875/AHD/2010 DATED 22.06.2012. 10. BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THIS TRIBUNAL. 11. THE LD.DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE AO. 12. ON THE OTHER HAND, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY DECISION OF TRIBUNAL IN THE CASE OF NEEL IMPEX VS. ITO, WARD-6(3), SURAT IN ITA NO.2044/AHD/2015 FOR A.Y. 2011-12 DATED 18.04.2018. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND FIND THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURING MATERIAL AND EXPORT OF STUDDED JEWELLERY. FURTHER, THE ISSUE IS COVERED BY THE DECISION OF THIS BENCH IN THE CASE OF NEEL IMPEX (SUPRA) IN WHICH THE TRIBUNAL IN PARA 7 OBSERVED AS UNDER : ITO, W-2(4), SURAT VS DHARAM EXIM /ITA NOS.2842/AHD/2013 & C.O.NO.104/AHD/2013/AY2010-11 & 2859//AHD/2014/SRT/A..2011-12 PAGE 6 OF 10 14. IN THE LIGHT OF ABOVE DISCUSSION AND RATIO LAID DOWN BY THE TRIBUNAL WE ARE OF THE CONSIDERED VIEW THAT THE INTEREST INCOME RECEIVED FROM FDRS AS DIRECT NEXUS WITH THE PROFIT AND GAINS DERIVED FROM EXPORT ACTIVITY, HENCE, IT IS ELIGIBLE FOR DEDUCTION U/S.10AA OF THE ACT. IN THE LIGHT OF THESE FACTS, THIS GROUND OF THE REVENUE IS DISMISSED. 15. GROUND NO.2 RELATES ALLOWING INTEREST EXPENSES EVEN THOUGH ASSESSEE FAILED TO PROVE THAT INTEREST FREE LOAN / ADVANCES WERE GIVEN OUT OF ITS OWN CAPITAL OR INTEREST FREE LOAN / ADVANCES. 16. FACTS APROPOS OF THIS GROUND ARE THAT THE ASSESSEE FIRM HAS PAID INTEREST AND BANK CHARGES TO THE TUNE OF RS.1.79 CRORE. IT WAS ALSO SEEN THAT THERE IS DEBIT BALANCE IN CAPITAL ACCOUNT OF PARTNER SHRI HITESHBHAI PATEL TO THE TUNE OF RS.18.07 CRORES AS ON 31.03.2011 WHICH HAS INCREASED FROM RS.1.60 CRORES AS ON 31.03.2010. DURING THE YEAR, THE ASSESSEE HAS ALSO ACCEPTED LOANS FROM VARIOUS BANKS AND ON THE OTHER HAND, THE PARTNERS ARE WITHDRAWING HUGE FUNDS FROM THE FIRM FOR THEIR OWN PURPOSE. THEREFORE, THE AO OPINED THAT THE ASSESSEE HAS USED PART OF FUNDS FOR NON-BUSINESS PURPOSE BY GIVING INTEREST FREE LOAN TO ITS PARTNER SHRI HITESHBHAI PATEL. THEREFORE, INTEREST EXPENSES CORRESPONDING ITO, W-2(4), SURAT VS DHARAM EXIM /ITA NOS.2842/AHD/2013 & C.O.NO.104/AHD/2013/AY2010-11 & 2859//AHD/2014/SRT/A..2011-12 PAGE 7 OF 10 TO THE INTEREST CHARGEABLE ON THE AMOUNT SO DIVERTED FOR NON- BUSINESS PURPOSE CANNOT BE SAID TO BE LED OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. AS THE INTEREST RATE PREVALENT AT THAT TIME WAS 12%, THEREFORE CONSIDERING SAID RATE, THE AO HAS WORKED OUT DISALLOWANCE OF INTEREST AT RS.66,19,857/- AND DISALLOWED THE SAME AND ADDED BACK TO THE TOTAL INCOME U/S.36(1)(III) OF THE ACT. 17. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD.CIT(A). IT WAS SUBMITTED BEFORE THE CIT(A) THAT OBSERVATION MADE BY THE AO IN THE ASSESSMENT ORDER THAT THERE WAS A DEBIT BALANCE IN THE CAPITAL ACCOUNT OF PARTNER NAMELY SHRI HITESHBHAI PATEL WAS OF RS.18.07 CRORES AS ON 31.03.2011. HOWEVER, THE PERUSAL OF PARTNERS CAPITAL ACCOUNT, IT IS NOTICED THAT THERE WAS CREDIT BALANCE IN THE CAPITAL ACCOUNT OF MR.H.B.L.PATEL OF RS.10.95 CRORES ON 31.03.2011. THE CREDIT BALANCE ON 31.03.2010 IN HIS ACCOUNT WAS AT RS.18.41 CRORES. EVEN THE REDUCTION OF CREDIT BALANCE WAS DUE TO WITHDRAWALS BY THE PARTNERS ONLY ON 31.03.2011. THEREFORE, THE OBSERVATION OF THE AO ARE FACTUALLY INCORRECT. IT WAS FURTHER SUBMITTED THAT THE REASONS FOR DISALLOWANCE IN THE ASSESSMENT ORDER ARE IN RESPECT OF WITHDRAWAL ITO, W-2(4), SURAT VS DHARAM EXIM /ITA NOS.2842/AHD/2013 & C.O.NO.104/AHD/2013/AY2010-11 & 2859//AHD/2014/SRT/A..2011-12 PAGE 8 OF 10 OF CAPITAL BY THE PARTNER OF THE FIRM AND DEBIT BALANCE IN HIS NAME. HOWEVER, IT WAS EXPLAINED THAT ACTUAL DISALLOWANCE WERE IN RESPECT OF AMOUNT ADVANCE TO ASSESSEE CONCERN M/S.DHARMANADHAM DIAMONDS PVT. LTD. THE DISALLOWANCE OF INTEREST MADE BY THE AO AT RS.66,19,857/- WAS ON DAY TO DAY BASIS WORKING AS GIVEN IN THE APPELLATE ORDER AT PAGE 6 IT WAS SUBMITTED BY THE ASSESSEE THE AMOUNT ADVANCED TO ASSOCIATE CONCERN HAS BEEN SOURCED OUT OF INTEREST FREE CAPITAL OF PARTNERS OF RS.35.54 CRORES BEING AN OPENING BALANCE WHICH HAS BEEN REDUCED TO RS.18.28 CRORES ONLY ON 31.03.2011 DUE TO WITHDRAWALS. IT WAS FURTHER SUBMITTED THAT ITS SUNDRY CREDITORS HAS INCREASED SUBSTANTIALLY TO RS.45.56 CRORES FROM RS.21.35 CRORES AND THESE FUNDS WERE ALSO INTEREST FREE FUNDS AVAILABLE WITH THE APPELLANT. THE CIT(A) OBSERVED THAT THE DEBIT BALANCE ON 30.03.2011 IN THE NAME OF M/S.DHARMANANDA DIAMONDS PVT. LTD. WAS RS.18.07 CRORES WHICH REDUCED TO RS.71,710/- ONLY ON 31.03.2011. MOREOVER, THE APPELLANT HAS NOT PAID ANY INTEREST TO THE PARTNERS ON THEIR CAPITAL. THEREFORE, THE PARTNERS CAPITAL, WHICH IS INTEREST FREE CAPITAL IS SUFFICIENT TO MEET THE REQUIREMENT OF FUNDS GIVEN FROM TIME TO TIME TO THE ASSESSEE ASSOCIATE CONCERN. CONSIDERING THESE FACTS, ITO, W-2(4), SURAT VS DHARAM EXIM /ITA NOS.2842/AHD/2013 & C.O.NO.104/AHD/2013/AY2010-11 & 2859//AHD/2014/SRT/A..2011-12 PAGE 9 OF 10 DISALLOWANCE OF RS.66,19,857/- OF INTEREST MADE ON ACCOUNT OF INTEREST BY THE AO WAS DELETED. 18. BEING AGGRIEVED, THE REVENUE HAS FILED APPEAL BEFORE THIS TRIBUNAL. 19. THE LD.SENIOR DEPARTMENTAL REPRESENTATIVE HAS PLACED RELIANCE ON THE ORDER OF THE AO. 20. ON THE OTHER HAND, THE LD.COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE ON THE ORDER OF CIT(A). 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT OPENING DEBIT BALANCE IN THE NAME OF M/S.DHANRMANANDA DIAMONDS PVT. LTD. WERE AT RS.18.07 CRORE WHICH WERE REDUCED TO RS.71,770/- ONLY ON 31.03.2011 THAT IS THE END OF THE YEAR. AS AGAINST THIS, THE ASSESSEE WAS HAVING INTEREST FREE CAPITAL OF PARTNERS AT RS.35.5 CRORES BEING OPENING BALANCE WHICH WAS REDUCED TO RS.18.28 CRORES ONLY ON 31.03.2011 DUE TO WITHDRAWALS THE DEBIT BALANCE OF ASSOCIATE CONCERN WERE ALSO REDUCED TO RS.71,770/-. BESIDES THIS, THE ASSESSEE HAS INTEREST FREE FUNDS AVAILABLE FROM SUNDRY CREDITORS AT RS.45.56 CRORES. THUS, WE FIND THAT THERE WAS SUFFICIENT INTEREST ITO, W-2(4), SURAT VS DHARAM EXIM /ITA NOS.2842/AHD/2013 & C.O.NO.104/AHD/2013/AY2010-11 & 2859//AHD/2014/SRT/A..2011-12 PAGE 10 OF 10 FREE FUNDS AVAILABLE WITH THE ASSESSEE IN THE FORM OF PARTNERS CAPITAL AND SUNDRY CREDITORS TO MEET THE REQUIREMENT OF FUNDS GIVEN FROM TIME TO TIME TO THE ASSOCIATE CONCERN. THEREFORE, THE CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF INTEREST OF RS.66,19,857/- MADE BY THE AO. IN VIEW OF THIS MATTER, WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE, ACCORDINGLY THIS GROUND OF APPEAL IS THEREFORE DISMISSED. 22. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. 23. FINALLY, APPEAL OF THE REVENUE FOR A.Y.2010-11 IS DISMISSED, CROSS OBJECTION OF THE ASSESSEE IS DISMISSED AS NOT PRESSED AND APPEAL OF REVENUE FOR A.Y. 2011-12 IS DISMISSED. 24. THE ORDER PRONOUNCED IN THE OPEN COURT ON 19-09-2018. SD/- SD/- ( . . /C.M. GARG) ( . . / O.P.MEENA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER / SURAT, DATED : 19 TH SEP , 2018/ S.GANGADHARA RAO, SR.PS COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT