Dipesh Panchabhai Sukhadia, Ahmedabad V. The Jt.CIT.,Circle-12, Ahmedabad

ITA 289/AHD/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6947 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-11-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 03-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B KULSHRESTHA
• Assessee Lawyers: J C SHAH
• Keywords: Bogus purchase

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI SHAILENDRA KUMAR YADAV , JUDICIAL MEMBER AND SHRI N.S. SAINI , ACCOUNTANT MEMBER ./ ITA NO . 289 / AHD/ 20 1 1 [ [ / ASSESSMENT YEAR : 200 7 - 0 8 SHRI DIPESH P . SUKHADIA, PROP. OF M/S. BHAVYA CORPORATION, B - 64 TO 80, PUSHPRAJ ESTATE, NUTAN MILL COMPOUND, SARASPUR, AHMEDABAD PAN : ACUPS 2394 B VS THE JCIT, CIRCLE - 12, AHMEDABAD / (APPELLANT) / (RE SPONDENT) ASSESSEE(S) BY : SHRI J.C. SHAH, AR REVENUE BY : SHRI B. KULSHRESTHA, SR DR / DATE OF HEARING : 1 2 / 1 1 /2014 / DATE OF PRONOUNCEMENT: 12 / 1 2 /2014 / O R D E R PER SHRI N.S. SAINI, ACCOUNT ANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) - XX, AHMEDABAD DATED 08 . 10 .2010 FOR AY 200 7 - 0 8 . 2. THE FIRST GRIEVANCE OF THE ASSESSEE IN THIS APPEAL IS THAT THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF INTERES T PAYMENT OF RS.7,31,770/ - U/S 36(1)(III) OF THE INCOME - TAX ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE CAPITAL OF THE PROPRIETARY CONCERN OF THE ASSESSEE M/S. BHAVYA CORPORATION WAS ( - ) RS.14,52,706/ - AS AT 31.0 3.2007. THE REASON FOR THIS WAS THAT THE ASSESSEE HAD TRANSFERRED RS.1,15,93,500/ - IN HIS PERSONAL CAPITAL ACCOUNT AND THE WITHDRAWALS ITA NO 289 / AHD / 201 1 AY 200 7 - 0 8 SHRI DIPESH P SUKHADIA - 2 - WAS APPLIED FOR REPAYMENT OF SARAFI LOANS AND AS SHARE APPLICATION MONEY. IN M/S. BHAVYA CORPORATION, THE ASSESSEE HAS DEBITED INTEREST OF RS.10,09,155/ - IN THE P&L ACCOUNT. FROM THIS, THE ASSESSING OFFICER HELD THAT M/S. BHAVYA CORPORATION HAS UTILIZED RS.1,15,93,500/ - FOR NON - BUSINESS PURPOSE OF INVESTING IN THE SHARES AND PAYING SARAFI LOANS OF PERSONAL ACCOUNT. HENCE, THE INTEREST BEARING CAPITAL WAS UTILIZED FOR NON - BUSINESS PURPOSE. THEREFORE, HE MADE PROPORTIONATE DISALLOWANCE OF INTEREST EXPENDITURE U/S 36(1)(III) @ 12% ON RS.1,15,93,500/ - WHICH WAS WORKED OUT TO RS.13,91,220/ - AND ADDED THE SAME TO THE INCOME OF T HE ASSESSEE. 4. ON APPEAL, THE CIT(A) HELD THAT THE ASSESSEE HAD NEGATIVE CASH BALANCE AS OF THE DAY OF THE YEAR THE ASSESSEE HAD TRANSFERRED THE FUNDS TO HIS PERSONAL CAPITAL ACCOUNT BY WITHDRAWING THE SAME FROM THE BUSINESS CONCERN AMOUNTING TO RS.1,15 ,93,500/ - WHICH WAS UTILIZED PARTLY FOR RETURNING SARAFI LOANS BORROWED BY THE ASSESSEE FOR THE PURPOSES OF BUSINESS TO THE EXTENT OF RS.70,34,000/ - . THUS A SUM OF RS.45,49,500/ - OUT OF WITHDRAWAL FROM THE BUSINESS CONCERNED WAS NOT FOR THE PURPOSES OF BUS INESS. HE FURTHER OBSERVED THAT THE SUM OF RS.15,38,580/ - WAS A DEBIT BALANCE OF THE PROPRIETORS CAPITAL AT THE BEGINNING OF THE YEAR AND THUS, THE FUNDS UTILIZED FOR NON - BUSINESS PURPOSES WERE RS.60,98,080/ - . AS AGAINST THE ABOVE, THE ASSESSING OFFICER DISALLOWED THE ENTIRE INTEREST AT THE RATE OF 12% ON RS.1,15,93,500/ - IN VIEW OF THE FACT THAT A SUBSTANTIAL PART OF THE MONEY HAS USED IN RE - PAYMENT OF CREDITORS, THE ASSESSING OFFICER SHOULD HAVE DISALLOWED INTEREST CHARGEABLE ON ONLY RS.60,98,080/ - AND NOT RS.1,15,93,500/ - AND DIRECTED THE ASSESSING OFFICER TO RECOMPUTED THE DISALLOWANCE. 5. BEFORE US, THE AR OF THE ASSESSEE ARGUED THAT THE NO FRESH ADVANCE OR LOAN WAS TAKEN BY THE ASSESSEE DURING THE YEAR UNDER ITA NO 289 / AHD / 201 1 AY 200 7 - 0 8 SHRI DIPESH P SUKHADIA - 3 - CONSIDERATION. IN FACT, THE AMOUNT WITHD RAWN WAS UTILIZED FOR REPAYING THE SARAFI LOANS OF RS.70,34,00/ - . THEREFORE, NO DISALLOWANCE OF INTEREST EXPENDITURE WAS CALLED FOR. FURTHER, NO DISALLOWANCE OF INTEREST EXPENDITURE WAS MADE IN THE EARLIER ASSESSMENT YEAR. 6. ON THE OTHER HAND, DR RELIED UPON THE ORDER OF THE CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE UNDISPUTED FACTS ARE THAT THE ASSESSEE CLAIMED INTEREST EXPENDITURE OF RS. 10,09, 155/ - IN RESPECT OF HIS PROPRIETARY BUSINESS CARRIED OUT IN THE NAME OF M/S. BHAVYA CORPORATION. F URTHER, IT IS ALSO NOT IN DISPUTE THAT THE CAPITAL BALANCE OF THE ASSESSEE IN THE SAID PROPRIETARY BUSINESS WAS DEBIT BALANCE OF RS.15,38,580/ - AS ON FIRST D AY OF THE PREVIOUS YEAR UNDER CONSIDERATION. FURTHER , THE ASSESSEE HAD WITHDRAWN RS.1,15,93,500/ - FROM THE AFORESAID PROPRIETARY BUSINESS DURING THE YEAR UNDER CONSIDERATION. ON THE ABOVE FACTS, THE DISALLOWANCE OF RS.13,91, 220/ - OUT OF INTEREST EXPENDITU RE BEING 12% OF RS.1,15,93,500/ - , I.E. THE AMOUNT WITHDRAWN DURING THE YEAR, WAS MADE BY THE ASSESSING OFFICER. 8. ON APPEAL, THE CIT(A) OBSERVED THAT THE ASSESSEE UTILIZED RS. 70,34,000/ - OUT OF WITHDRAWAL OF RS.1,15,93,500/ - TO REPAY THE EARLIER BORROWI NG WHICH WAS UTILIZED FOR PROPRIETARY BUSINESS. THEREFORE, THE CIT(A) DELETED THE DISALLOWANCE IN RESPECT OF WITHDRAWAL OF RS.70,34,000/ - DURING THE YEAR UNDER CONSIDERATION AND CONFIRMED THE DISALLOWANCE OF INTEREST IN RESPECT OF BALANCE AMOUNT OF WITHDRA WAL OF RS.45,49,500/ - . FURTHER, THE CIT(A) ALSO DISALLOWED THE INTEREST ON OPENING DEBIT BALANCE OF RS.15,38,580/ - AT THE RATE OF 12%. THUS, THE CIT(A) DISALLOWED INTEREST IN RESPECT OF RS.60,98,080/ - . ITA NO 289 / AHD / 201 1 AY 200 7 - 0 8 SHRI DIPESH P SUKHADIA - 4 - 9. BEING AGGRIEVED BY THE ABOVE ORDER OF THE CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. 10. THE SOLE ARGUMENT OF THE ASSESSEE IS THAT THERE WAS NO FRESH BORROWING DURING THE YEAR UNDER CONSIDERATION AND NO DISALLOWANCE OF INTEREST WAS MADE IN THE IMMEDIATELY PRECEDING YEAR. 11. ON THE OTHER HAND, TH E DR SUPPORTED THE ORDER OF THE CIT(A). 12. WE FIND THAT AS PER PROVISIONS OF SECTION 36(1)(III) INTEREST PAID ON CAPITAL BORROWED FOR THE PURPOSES OF BUSINESS IS ALLOWABLE AS DEDUCTION TO THE ASSESSEE. THUS, THE BORROWED FUNDS WHICH THOUGH INITIALLY UTIL IZED FOR THE PURPOSES OF BUSINESS BUT LATER ON UTILIZED FOR SOME OTHER USE, THEN INTEREST ON SUCH BORROWED FUNDS FROM THE DATE ON WHICH THE BORROWED FUNDS STANDS DIVERTED FOR USE FOR SOME OTHER PURPOSES CANNOT BE ALLOWED AS BUSINESS DEDUCTION TO THE ASSES SEE. THUS, THE ARGUMENT OF THE AR OF THE ASSESSEE THAT AS NO FRESH BORROWING WAS MADE DURING THE YEAR AND THEREFORE, INTEREST ON RS.45,49,500/ - WHICH WAS WITHDRAWN FROM THE BUSINESS DURING THE YEAR FOR UTILIZATION SOMEWHERE ELSE SHOULD BE ALLOWED AS DEDUCT ION CANNOT BE ACCEPTED. 13. FURTHER, IN RESPECT OF OPENING DEBIT BALANCE OF RS.15,38,580/ - , WE FIND THAT THE ASSESSING OFFICER HAS NOT MADE ANY DISALLOWANCE OF INTEREST WITH RESPECT TO THIS AMOUNT. THE CIT(A) HAS MADE THE DISALLOWANCE OF INTEREST ON THE SAID OPENING DEBIT BALANCE IN THE CAPITAL ACCOUNT OF RS.15,38,580/ - . IT IS ALSO THE CONTENTION OF THE ASSESSEE THAT NO DISALLOWANCE OF INTEREST EXPENDITURE WAS MADE IN THE EARLIER YEARS. THUS, THE OPENING DEBIT BALANCE IN THE CAPITAL ACCOUNT OF RS.15,38, 580/ - WAS ACCEPTED AS THE UTILIZATION OF FUNDS FOR BUSINESS PURPOSES. NO MATERIAL WAS BROUGHT ON RECORD BY THE CIT(A) ITA NO 289 / AHD / 201 1 AY 200 7 - 0 8 SHRI DIPESH P SUKHADIA - 5 - TO SHOW THAT THE AMOUNT OF RS.15,38,580/ - WAS NOT UTILIZED BY THE ASSESSEE FOR BUSINESS PURPOSES BUT WAS UTILIZED SOMEWHERE ELSE. IN OUR CONSIDERED OPINION, IF THE DEBIT BALANCE IN THE CAPITAL ACCOUNT IN THE PROPRIETARY BUSINESS RESULTED BECAUSE OF THE BUSINESS LOSS SUFFERED BY THE ASSESSEE IN EARLIER YEARS, THEN NO DISALLOWANCE OF INTEREST EXPENDITURE CAN BE MADE ON THE SAID AMOUNT OF OPEN ING DEBIT BALANCE IN THE CAPITAL ACCOUNT OF THE ASSESSEE. IF, THE OPENING DEBIT BALANCE IN THE CAPITAL ACCOUNT OF RS.15,38,580/ - WAS BECAUSE OF THE WITHDRAWAL OF MONEY BY THE ASSESSEE FROM THE PROPRIETARY BUSINESS AND UTILIZATION OF THE SAID AMOUNT SOMEWHE RE ELSE OTHER THAN THE BUSINESS OF THE ASSESSEE, THEN DISALLOWANCE OF INTEREST EXPENDITURE CAN BE MADE. AS NO MATERIAL WAS BROUGHT ON RECORD BY THE CIT(A) TO THIS EFFECT, IN OUR CONSIDERED VIEW, THE CIT(A) WAS NOT JUSTIFIED IN DISALLOWING THE INTEREST EXPE NDITURE ON THE OPENING DEBIT BALANCE IN THE CAPITAL ACCOUNT OF RS.15,38,580/ - . WE, THEREFORE, DELETE THE DISALLOWANCE OF INTEREST EXPENDITURE ON THE OPENING DEBIT BALANCE IN THE CAPITAL ACCOUNT OF THE ASSESSEE OF RS.15,38,580/ - . THUS, THIS GROUND OF APPE AL OF THE ASSESSEE IS PARTLY ALLOWED. 14 . THE SECOND ISSUE IN THIS APPEAL IS DIRECTED AGAINST THE ORDER OF CIT(A) IN CONFIRMING ADDITION ON ACCOUNT OF NON - GENUINE PURCHASES OF RS.4,47,530/ - OF M/S. YAMUNA TRADERS. 15 . THE BRIEF FACTS OF THE CASE ARE TH AT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS MADE PURCHASES OF RS.4,47,530/ - FROM M/S. YAMUNA TRADERS. THE ASSESSEE HAD MADE PURCHASES FROM THE ABOVE MENTIONED PARTY IN AY 2005 - 06. THE ASSESSING OFFICER MADE ADDITION IN RESPECT OF THE PURCHASES MADE FROM THE ABOVE MENTIONED PARTY AS NON - GENUINE PURCHASES. THE CIT(A) UPHELD THE ADDITION OF NON - GENUINE PURCHASES MADE FROM THE ABOVE MENTIONED PARTY DURING THE AY 2005 - 06. DURING THE YEAR UNDER CONSIDERATION ITA NO 289 / AHD / 201 1 AY 200 7 - 0 8 SHRI DIPESH P SUKHADIA - 6 - I.E. AY 2007 - 08, THERE IS NO CHANGE IN THE FACTS OF THE CASE AND THE ASSESSEE HAS FAILED TO PROVE THE GENUINENESS OF THE TRANSACTION AND PRODUCED THE PARTY DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THEREFORE, HE MADE DISA LLOWANCE OF RS.4,47,530/ - AND ADDED THE SAME TO THE TOTAL INCOME OF THE AS SESSEE. 1 6 . ON APPEAL, THE CIT(A) OBSERVED THAT ON SPECIFIC REQUEST OF THE AR OF THE ASSESSEE, INQUIRY WAS CAUSED TO THE ASSESSING OFFICER WHO REPORTED THAT THE SHOP WAS CLOSED FOR THE LAST FOUR YEARS. A COPY OF THE REMAND REPORT SUBMITTED BY THE ASSESSI NG OFFICER WAS HANDED OVER TO THE AR OF THE ASSESSEE AND THE AR OF THE ASSESSEE AGAIN FILED WRITTEN SUBMISSIONS STATING THAT THE ASSESSING OFFICER HAD GIVEN FALSE REPORTS AND REITERATED THE FACT THAT THE TRANSACTIONS WERE GENUINE. 1 7 . THE CIT(A), RELYING ON THE REMAND REPORT OF THE ASSESSING OFFICER, HELD THAT THE PARTY DOES NOT EXIST AND CONFIRMED THE DISALLOWANCE. 1 8 . THE AR OF THE ASSESSEE FILED BEFORE US AN ORDER OF THIS TRIBUNAL DATED 11.06.2010 FOR AY 2004 - 05 IN ASSESSEES OWN CASE PASSED IN ITA NO.302/AHD/2008, WHEREIN THE TRIBUNAL RESTORED THE ISSUE OF BOGUS PURCHASES MADE FROM M/S. YAMUNA TRADERS TO THE FILE OF THE ASSESSING OFFICER FOR DE NOVO INVESTIGATION. HE FILED BEFORE US A COPY OF TH E ORDER OF THE ASSESSING OFFICER DATED 09.09.2010 GIVIN G APPEAL EFFECT TO THE ORDER OF THE TRIBUNAL DATED 11.06.2010 IN ITA NO.302/AHD/2008 WHEREIN THE ASSESSING OFFICER HAD DELETED THE DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES SHOWN FROM M/S. YAMUNA TRADERS FOR RS.70,560/ - . IT WAS, THEREFORE, HIS SUBMISSION THAT AS THE ASSESSING OFFICER HAS FOUND THAT THE PARTY TO BE NOT BOGUS AND HAS DELETED THE DISALLOWANCE MADE IN THE AY 2004 - 05, THEREFORE THE DISALLOWANCE MADE IN THE PRESENT YEAR OF APPEAL SHOULD ITA NO 289 / AHD / 201 1 AY 200 7 - 0 8 SHRI DIPESH P SUKHADIA - 7 - ALSO BE DELETED AS THE BASIS OF MAKING THE ADDITION BY THE ASS ESSING OFFICER WAS THAT THE ADDITION WAS MADE IN THE AY 2004 - 05 HOLDING THE PARTY M/S. YAMUNA TRADERS WAS NON - EXISTE N T AND PURCHASES MADE THERE FROM AS BOGUS. 19 . THE DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 20 . WE HAVE HEARD THE RIVAL SUBMIS SIONS, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE DISALLOWANCE OF RS.4,47,530/ - ON ACCOUNT OF PURCHASES MADE FROM M/S. YAMUNA TRADERS WAS MADE BY THE ASSESSING OFFICER AS THE ASSESSING OFFICER IN THE AY 2004 - 05 HAS FOUND THAT THE PARTY M/S. YAMUNA TRADERS AS NON - EXISTEN T AND PURCHASES MADE THERE FROM AS BOGUS. NOW, THE ASSESSEE HAS FILED BEFORE US AN ORDER OF THE ASSESSING OFFICER DATED 09.09.2010 GIVING APPEAL EFFECT TO THE ORDER OF THE TRIBUNAL DATED 11.06.2010 IN ITA NO.302/AHD/2008 WHEREBY THE ADDITION MADE ON ACCOUNT OF PURCHASES MADE FROM M/S. YAMUNA TRADERS WAS DELETED BY THE ASSESSING OFFICER . AS THE ADDITION MADE IN THE CURRENT YEAR OF APPEAL IS ALSO ON THE VERY SAME BASIS ON WHICH THE ADDITION WA S MADE FOR AY 2004 - 05, THEREFORE, THE BASIS NOW DOES NOT SURVIVE AFTER THE ORDER OF THE ASSESSING OFFICER DATED 09.09.2010. THEREFORE, WE DELETE THE DISALLOWANCE OF RS.4,47,530/ - AND ALLOW THIS GROUND OF APPEAL. 21 . IN THE RESULT, THE APPEAL OF THE ASSES SEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON FRIDAY , THE 12 TH OF DECE MBER , 2014 AT AHMEDABAD. SD/ - SD/ - ( SHAILENDRA KUMAR YADAV ) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 12 / 1 2 /2 014 * BIJU T ITA NO 289 / AHD / 201 1 AY 200 7 - 0 8 SHRI DIPESH P SUKHADIA - 8 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A ) - XX, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. [ / GUARD FILE . / BY ORDER, TRUE COPY TRUE COPY / ( DY./ASSTT. REGISTRAR) , / ITAT, AHMEDABAD