Shri Pramod S Agrawal, Nagpur V. Addl. Commissioner of Income Tax Range -1, Nagpur

ITA 289/NAG/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2203 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-05-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 25-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D RAVI KUMAR
• Keywords: Opportunity of being heard
• Section: 234B

Judgement Text

IN TH E INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH: NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO. 2 8 9 /NAG/20 1 3 ASSESSMENT YEAR: 200 6 - 200 7 SHRI PRAMOD S. AGRAWAL C/O. M/S. LOYA BAGRI & CO. GAN DHIBAG, NAGPUR - 440002 PAN: A B HPA6969N VS ADDL . COMMISSIONER OF INCOME TAX 5 TH FLOOR, MECL BLDG., SEMINARY HILLS, NAGPUR - 44000 6 (APPELLANT) (RESPONDENT) APPELLANT BY SHRI RAJESH LOYA, A . R . RESPONDENT BY SHRI D. RAVIKUMAR, D . R . DATE OF HEARING: 0 4 - 0 5 - 201 6 DATE OF PRONOUNCEMENT: - 31 / 05 /2016 O R D E R PER SHAMIM YAHYA , A .M. THIS APPEAL BY THE ASSESSEE IS DIRE CTED AGAINST THE ORDER OF CIT (APPEALS) DATED 0 3 .0 4 .2013 AND PERTAINS TO ASSESSMENT YEAR 200 6 - 0 7 . THE GROUND S OF APPEAL READ AS UNDER : - 1. THAT THE ORDER OF THE A DDL. COMMISSIONER OF INCOME TAX, RANGE 1, NAGPUR IS BAD IN LAW AND WRONG ON FACTS AND THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE SAME. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE ACTION IS JUSTIFIED. 2. THAT THE AO E RRED IN LAW AND ON FACTS IN DISALLOWING INTEREST OF RS.12,31,539/ - (RS.2,60,476/ - + RS.2,63,063/ - + RS.7,08,000/ - ) AND THE LEARNED CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ACTION OF THE AO. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, EXPLANATION OFFERED AND THE RECORDS BOTH THE AUTHORITIES HAVE FAILED TO APPRECIATE THAT SUFFICIENT INTEREST FREE FUNDS ARE AVAILABLE. 2 ITA NO. 28 9 /NAG/201 3 3. THAT THE AO ERRED IN LAW AND ON FACTS IN CHARGING INTEREST U/S.234A AND 234B AND THE LEARNED CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ACTION OF THE AO. 2. IN THIS CASE T HE AO NOTED THAT A SUM OF RS.1,03,00,000/ - IS SHOWN AS RECEIVABLE FROM MR. S.C. AGRAWAL, AS ON 31/03/2006. THE OPENING BALANCE AS ON 01/04/2005 IN HIS ACCOUNT WAS RS.66,00,000/ - . A SUM OF RS.43,00.000/ - WAS GIVEN TO MR. S.C.AG RAWAL BY THE ASSESSEE DURING THE YEAR. NO INTEREST WAS CHARGED ON THE AMOUNT GIVEN TO SHRI S.C.AGRAWAL. BUT DURING THE A.Y. 2001 - 02 INTEREST WAS PAID TO SHRI S.C.AGRAWAL FOR THE MONEY TAKEN BY THE ASSESSEE FROM HIM. A SUM OF RS.20,00,000/ - WAS GIVEN TO SHR I S.C.AGRAWAL ON 16/09/2005. THIS WAS OUT OF AMOUNT RECEIVED FROM M/S.MAHAVIR COAL CORPORATION. M/S. MAHAVIR COAL CORPORATION HAS GIVEN A LOAN OF RS.25,00.000/ - ON 30/05/2005 AND RS.36 .50 LAKHS ON 23/06/2005 AND RS.31.50 LAKHS ON 24/06/2005. THE AMOUNT OF RS.25,00,000/ - GIVEN TO M/S. MAHAVIR COAL CORPORATION HAS COME FROM SAIBABA INDUSTRIES AND AGRAWAL FUEL UNITS FROM THEIR OVER DRAFT ACCOUNTS. REGARDING RS.31.05 LAKHS GIVEN TO M/S. MAHAVIR COAL CORPORATION THEY WERE RECEIVED FROM AGRAWAL FUEL UNIT NO.2 AN D SAIBABA INDUSTRIES O.D. ACCOUNT. THIS ESTABLISHED THE NEXUS THAT INTEREST BEARING FUND FROM SAIBABA INDUSTRIES AND AGRAWAL FUEL UNIT NO.2 (UNITS OF THE ASSESSEE) ARE DIVIDED FOR GIVING INTEREST FREE LOAN TO M.S S.C. AGRAWAL, FATHER OF THE ASSESSEE. THE I NTEREST PAID TO BANK IN THE CASE OF AGRAWAL FUEL UNIT NO.2 WAS RS.2,63,063/ - . THE INTEREST PAID TO BANK IN THE CASE OF SAIBABA INDUSTRIES WAS RS.2,60,476/ - . AS THE LOAN FUNDS WERE DIVERTED TO NON BUSINESS ACTIVITY THE INTEREST PAID BY THE ASSESSEE IN THE A BOVE TWO CONCERNS OF THE ASSESSEE ARE NOT ALLOWED AS THEY ARE NOT RELATABLE TO THE BUSINESS OF THE ASSESSEE. 3. FURTHER THE ASSESSMENT ORDER STATES THAT ASSESSEE IS HAVING A DEBIT BALANCE IN SHREERAM ENTERPRISES ACCOUNT. PERUSAL OF THE CAPITAL ACCOUNT OF THE CAPITAL ACCOUNT OF THE ASSESSEE REVEALED THAT RS.66.70 LAKHS WAS WITHDRAWN FOR PURCHASE OF LAND. THIS MONEY HAS COME FROM M/S. MAHAVIR COAL CORPORATION AMOUNT OF RS.75,00,000/ - . PERUSAL OF THE ACCOUNT COPY OF M/S. MAHAVIR COAL CORPORATION 3 ITA NO. 28 9 /NAG/201 3 REVEALS THAT M/S . MAHAVIR COAL CORPORATION WAS GIVEN RS.93,00,000/ - BEFORE 06/07/2005 I.E. BEFORE THE DATE OF RECEIPT OF RS.75,00,000/ - FROM M/S. MAHAVIR COAL CORPORATION. HERE ALSO THE LOAN BEARING FUNDS ARE DIVERTED FOR NON BUSINESS ACTIVITY. INTEREST DISALLOWANCE IS CA LLED FOR ON THE DEBIT BALANCE OF THE ASSESSEE IN SHREERAM ENTERPRISES. THE DEBIT BALANCE IN PROMOD AGRAWAL CAPITAL ACCOUNT AS ON 31/03/2006 WAS RS.59,35,160/ - THE INTEREST @12% ON THE SUM OF RS.59,35,160/ - WORKS OUT TO RS.7,08,000/ - APPROXIMATELY. THIS WAS DISALLOWED TOWARDS DIVERSION OF INTEREST BEARING FUNDS TO NON INTEREST BEARING ACTIVITY OF PURCHASE OF LAND. IT IS PERTINENT TO NOTE THAT IN M/S. SHREERAM ENTERPRISES THE ASSESSEE CLAIMS RS.37,77,094/ - TOWARDS FINANCIAL EXPENSES. 4. BEFORE LD. CIT(A) THE AS SESSEE MADE ELABORATE SUBMISSION. THE LD. CIT(A) G AVE PART RELIEF, HOWEVER HE UPHELD THE PART ADDITION BY CONCLUDING AS UNDER: - THE AOS ORDER, THE CONTENTIONS OF THE APPELLANT AS WELL AS MATERIAL ON RECORD HAVE BEEN CONSIDERED. AS STATED BY THE AO IN THE ASSESSMENT ORDER, THE APPELLANT HAD RAISED INTEREST BEARING FUNDS FROM OVERDRAFT ACCOUNTS AS MENTIONED, FIRST GIVEN TO MAHAVIR COAL CORPORATION, RETURNED AND AGAIN GIVEN AS INTEREST FREE ADVANCE TO SHRI S.C.AGRAWAL, HOWEVER THE FACT REMAINS THAT THE UL TIMATE SOURCE OF ADVANCES GIVEN ARE INTEREST BEARING FUNDS (OVERDRAFT ACCOUNTS), THAT IN THE INTERVENING PERIOD THE SUMS WERE LENT OUT TO ANOTHER CONCERN IS NOT RELEVANT. THE CONTENTION THAT NO FRESH LOANS WERE RAISED DURING THE CURRENT YEAR IS NOT RELEVAN T AS THE AMOUNTS OF EARLIER OVERDRAFT WERE ALSO INTEREST BEARING AND FUNDS ADVANCED INTEREST FREE ARE OUT OF THE COMMON POOL OF FUNDS, WHICH INCLUDE BOTH INTEREST BEARING AND NON INTEREST BEARING FUNDS. THE APPELLANT HAS NOT SHOWN THAT THE TRANSFERS WERE D IRECTLY MADE OUT OF THE CAPITAL ACCOUNT THE INTEREST FREE ADVANCES HAVE BEEN GIVEN FROM A MIXED BAG OF INTEREST FREE AND INTEREST BEARING FUNDS. THE AOS ACTION IN MAKING DISALLOWANCE OF INTEREST FOR DIVERSION OF INTEREST BEARING FUNDS TO NON - BUSINESS ACTI VITIES IS THUS CONFIRMED. HOWEVER THE AO IS DIRECTED TO VERIFY THE AMOUNT OF INTEREST FREE ADVANCE, SINCE THE APPELLANT CLAIMS (AS MENTIONED IN THE APPELLANTS SUBMISSION) THAT THE FIGURE GIVEN IN THE ASSESSMENT ORDER IS INCORRECT, AND RECOMPUTED INTEREST DISALLOWANCE IF SO REQUIRED 4 ITA NO. 28 9 /NAG/201 3 5. AGAINST ABOVE ORDER THE ASSESSEE IS IN APPEAL BEFORE US. WE HEARD BOTH THE COUNSEL AND PERUS ED THE RECORD. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT AUTHORITIES BELOW HAS TOTALLY ERRED IN PRESUMING THAT INTEREST B EARING FUNDS HAVE BEEN DIVERTED. HE W AS NOT INTEREST EARNING LOAN THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT, FIRSTLY THERE IS NO LINKAGE WHATSOEVER IN THE INTEREST BEARING FUNDS AND LOAN GRANTED. SECONDLY THE LD. COUNSEL SUBMITTED THAT ASSESSEE HAD SUFFICIEN T INTERE ST FREE FUNDS TO COVER THE LOAN UNDER CONSIDERATION . I N SUCH CIRCUMSTANCES T HE LD. COUNSEL SUBMITTED THAT RATIO OF HONBLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF M/S. RELIANCE UTILITIES AND POWER LTD. 313 ITR 340 (BOM.) AND HDFC BANK LTD . 366 ITR 505 (BOM.) SUPPORT THE CASE OF THE ASSESSE E. IN TH E S E CASE S THE HONBLE JURISDICTIONAL HIGH COURT HELD THAT, IF THERE ARE SUFFICIENT NON - INTEREST BEAR ING FUNDS, THE PRESUMPTION WOULD BE THAT THE SAME HAS BEEN UTILIZE D TOWARDS INTEREST FREE INVEST MENT. HENCE THE LD. COUNSEL SUBMITTED THAT NO DISALLOWANCE ON ACCOUNT OF INTEREST IS REQUIRED IN THIS CASE. 6. PER CONTRA THE LD. DR RELIED UPON THE ORDER OF THE L D . CIT(A) . 7. UPON CAREFUL CONSIDERATION WE FIND THAT IT IS SUBMI SSION OF THE LD. COUNSEL OF THE ASSESSEE THAT ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS AVAILABLE IN THE F O RM OF CAPITAL ACCOUNT AND O THER. EVEN THE LD. CIT(A) HAS NOT CLEARLY DISPUTED THIS PROPOSITION. HE HAS OBSERVE D THAT ASSESSEE HAS NOT SHOWN THAT THE TRANSFER S WE RE DIRECTLY MADE OUT OF THE CAPITAL ACCOUNT. HE HA S ALSO MENTIONED THAT INTEREST FREE ADVANCES HAVE BEEN GIVEN FROM A MIXED BAG OF INTEREST FREE AND INTEREST BEARI NG FUNDS. H ENCE IN SUCH SITUATION, IN OUR CONSIDERED OPINION THE RATIO FROM THE ABOVE JURISDICTIONAL HIGH COUR T DECISION COME S TO THE RESCUE OF THE ASSESSEE. HOWEVER SINCE ALL THE FACTS REGARDING AVAILABILITY OF SUFFICIENT INTEREST FREE FUNDS ARE NOT ON RECORD. WE DEE M IT APPROPRIATE TO REMIT THE ISSUE TO THE FILE OF THE AO. THE AO IS 5 ITA NO. 28 9 /NAG/201 3 DIRECTED TO EXAMINE THE ISSUE AFRESH KEEPING IN MIND THE ABOVE JURISDICTIONAL HIGH COURT DECISION S . IF T HE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS , N O DISALLOWANCE IS REQUIRED AS PER THE ABOVE JURISDICTIONAL HIGH COURT EXPOSITION. NEEDLESS TO ADD , THE ASSESSEE SHOULD BE GRANTED AN OPPORTUNITY OF BEING HEARD. 8. I N THE RESULT , T HIS APPEAL FILED BY THE ASSESSEE STA NDS ALLOWED FOR STATISTICALLY PURPOSE. ORDER PRONOU NCED IN THE OPEN COURT ON THIS 31 ST DAY OF MAY , 2016 SD/ - SD/ - (MUKUL K. SHRAWAT) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER NAGPUR, DATED: - 31 / 05 /2016 MANGESH BODKHE/ PS /AM - SIR COPY FORWARDED TO : 1. SHRI PRAMOD S. AGRAWAL C/O. M/S. LOYA BAGRI & CO. CA, C.A. ROAD, GANDHIBAG, NAGPUR - 440002 2. A.C.I.T.,MECL, 5 TH FLOOR, RANGE - 1,SEMINARY HILLS, NAGPUR 3. C.I.T., CONCERNED 4. CIT ( APPEALS) - I, NAGPUR. 5. D.R., ITA T, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR M .B.B ODKHE/PS/AM - SIR