PREM CHAND JAIN, Jaipur V. CIT, Kota

ITA 290/JPR/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7835 (ITAT-JAIPUR)
• Duration Of Justice: 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 15-04-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA
• Keywords: Depreciation; Tax effect
• Section: 143(3); 263

Judgement Text

IN THE INCOMETAX APPELLATE TRIBUNAL JAIPUR BENCH: JAIPUR (BEFORE SHRI R.P. TOLANI AND SHRI T.R. MEENA) I.T.A. NO. 290/JP/2014 ASSTT. YEAR- 2009-10 PAN NO. ABTPJ 9673 Q SHRI PREM CHAND JAIN, THE C.I.T., PROP. M/S BAJAJ SCRAP TRADERS, VRS. KOTA. 557, CHHAWANI, KOTA. (APPELLANT) (RESPONDENT) ASSESSEE BY :- SHRI P.C. PARWAL. DEPARTMENT BY :- SHRI SUBHASH CHANDRA. DATE OF HEARING : 13/10/2014 DATE OF PRONOUNCEMENT : 05/12/2014 O R D E R PER: R.P. TOLANI, J.M. THIS IS AN ASSESSEES APPEAL AGAINST THE ORDER DAT ED 19/03/2014 PASSED BY THE LEARNED C.I.T., KOTA. FOLLOWING TWO GROUNDS HAVE RAISED:- (I) THE LEARNED COMMISSIONER OF INCOME TAX HAS ERRE D IN HOLDING THAT THE ASSESSING OFFICERS ORDER DATED 26/12/2011 PASSED U/S 143(3) WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND THEREBY EXERCISING OF JURISDICTION U/S 263. (II) THE LEARNED COMMISSIONER OF INCOME TAX HAS ER RED ON FACTS AND IN LAW IN OBSERVING THAT THE A.O. HAS NOT VERIFIED THE CLAIM OF ALLOWABILITY OF INTEREST OF R S. 11,53,503/- PAID ON BORROWED FUNDS AS HUGE CHUNK OF INTEREST-BEARING FUNDS HAS BEEN DIVERTED FOR NON- BUSINESS PURPOSES. ITA 290/JP/2012 PREM CHAND JAIN VS. CIT 2 2. BRIEF FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SALE AND PURCHASE OF SCRAP OF IRON AND STEEL. THE ASSESS MENT FOR A.Y. 2009-10 WAS FRAMED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) VIDE ORDER DATED 26/12/2011 . THE ASSESSEES INCOME WAS ASSESSED AT RS. 17,12,130/- AS AGAINST RETURNED INCOME OF RS. 14,30,650/-. THE LEARNED CIT ON VERIFICATION OF REC ORD WAS OF THE VIEW THAT THE ASSESSEE HAS DIVERTED A HUGE CHUNK OF INTEREST- BEARING BORROWED FUNDS FOR NON-BUSINESS PURPOSES. THEREFORE, INTEREST OF R S. 1153503/- PAID BY THE ASSESSEE ON BORROWED FUNDS WAS NOT ALLOWABLE AS BUS INESS DEDUCTION. THE A.O. HAS FAILED TO MAKE ANY ENQUIRIES IN THIS DIREC TION AND ALLOWED DEDUCTION OF RS. 1153503 TO ASSESSEE WHILE COMPLETING THE ASS ESSMENT U/S 143(3). CONSEQUENTLY A NOTICE DATED 25/11/2013 WAS ISSUED U/S 263 CALLING FOR THE HEARING AND EXPLANATION IN THIS BEHALF. THE ASSESSEES BY ITS REPLY CONTENDED THAT THE ASSESSMENT IN QUESTION WAS FRAME D U/S 143(3) OF THE ACT AFTER CONDUCTING THE RELEVANT ENQUIRIES BY THE ASSESSING OFFICER WHICH INCLUDED THE ISSUE ABOUT PAYMENT OF INTEREST. THERE FORE, THE ASSESSING OFFICERS ORDER WAS NEITHER ERRONEOUS NOR PREJUDICI AL TO THE INTEREST OF THE REVENUE. THE LEARNED CIT FOUND THAT THE EXPLANATION OFFERED BY THE ASSESSEE WAS NOT SATISFACTORY. THE ASSESSING OFFICE R COMPLETED THE ASSESSMENT IN THE ROUTINE MANNER AND THE ISSUE OF H UGE PAYMENT OF INTEREST AND DIVERSION OF FUNDS WAS NOT ENQUIRED BY THE ASSE SSING OFFICER. THE ITA 290/JP/2012 PREM CHAND JAIN VS. CIT 3 LEARNED CIT THUS SET ASIDE THE ENTIRE ASSESSMENT DI RECTING THE ASSESSING OFFICER TO FRAME IT DE NOVO AFTER MAKING PROPER ENQ UIRIES AND VERIFICATION OF BOOKS AND OTHER RECORDS. 3. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE FACTS AND CONTENDS THAT THE ASSESSING OFFICER HAS MENTIONED I N HIS ORDER THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ENTIRE RE LEVANT RECORD WAS PRODUCED BY THE ASSESSEE. VIDE LETTER DATED 04/7/20 11 AND 17/11/2011, THE ASSESSING OFFICER MADE ENQUIRIES IN RESPECT OF INVE STMENT IN FIXED ASSETS, LOAN RAISED, LOAN GIVEN AND INTEREST PAID AND RECEI VED. BESIDES ASSESSEE REPLIED TO ALL THE QUERIES IN THIS BEHALF. COPY OF REPLIES IS PLACED AT PAPER BOOK PAGE NOS. 10, 13 AND 15. IN THE COURSE OF ASSE SSMENT PROCEEDINGS, THE ASSESSING OFFICER ALSO ENQUIRED FOR REASONS OF GIVING INTEREST FREE ADVANCE OF RS. 18 LACS EACH TO SHRI AJIT SINGH AND SMT. RAJSHREE JAIN. ASSESSEE FILED REPLIED VIDE LETTER DATED 05/12/2011 , WHICH IS REPRODUCED BY THE ASSESSING OFFICER IN HIS ORDER, AS UNDER:- I HAVE REGULARLY MAINTAINED BOOKS OF ACCOUNT INCLU DING CASH BOOK, LEDGER, BILLS BOOKS, VOUCHERS ETC. AND REGULARLY AU DITED BY CHARTERED ACCOUNTANTS. SO, THEREFORE, THERE IS NO REASON AND NO GROUND TO REJECT BOOKS OF ACCOUNT. NATURE OF OUR BUSINESS IS IN SUCH TYPE OF BUSINESS WHERE STOCK REGISTER IS NOT POSSIBLE BECAUSE SCRAP HAS SO MANY VARIETIES. STILL WE ITA 290/JP/2012 PREM CHAND JAIN VS. CIT 4 ARE MAINTAINING QUANTITY DETAILS. QUANTITATIVE DETA ILS OF PURCHASES AND SALES (IN KG) GIVEN IN SCHEDULE G IN AUDIT RE PORT. AS FAR AS DEALING OF PROPERTY OF 339-A, TALWANDI, K OTA IS CONCERNED, I WAS INTENDED TO PURCHASE THIS PROPERTY FROM AJIT KUMAR JAIN AND SMT. RAJ SHREE JAIN AND ALSO GIVEN ACCOUNT PAYEE CH EQUE AS ADVANCES THROUGH MY BANK ACCOUNT, POWER OF ATTORNEY DULY NOTARIZED BY AJIT JAIN AND SMT. RAJ SHREE JAIN WAS GIVEN IN MY FAVOUR DATED 16/11/2008. PHOTOCOPY OF POWER OF ATTO RNEY (MUKHTAAR NAMA) IS ENCLOSED HEREWITH. LEDGER COPY O F AJIT KUMAR JAIN AND SMT. RAJ SHREE JAIN IS ALSO ENCLOSED HEREW ITH. COPY OF BANK ACCOUNT SHOWING THIS TRANSACTION IS ALREADY SU BMITTED TO YOU. I HAVE GIVEN RS. 36.00 LACS AS TOTAL (RS. 18.00 TO AJIT JAIN AND RS. 18.00 TO SMT. RAJ SHREE JAIN) AND SINCE THEY BOTH W ANT TO SELL OF PROPERTY TO ANOTHER PERSON I.E. MALVINDER SINGH REY AD AND SMT. MANJEET KAUR. JUST WANT TO RECOVER MY RS. 36.00 LAC S, I HAVE RECEIVED ACCOUNT PAYEE CHEQUE FROM PARTY OF RS. 36. 00 LACS. NOW THERE ACCOUNT IN NIL. THE ASSESSING OFFICER ALSO CONSIDERED THE FINANCIAL PROJECTIONS FOR THE BALANCE SHEET, WHICH REFLECTED AS UNDER: (I) ASSESSEE OWN CAPITAL OF RS. 38.50 LACS. (II) INTEREST FREE BORROWED FUNDS OF RS. 32.60 LAC S. (III) INTEREST FREE SUNDRY CREDITORS OF RS. 193.82 LACS. (IV) INTEREST BEARING HOUSING FINANCE OF RS. 40.20 LACS. ITA 290/JP/2012 PREM CHAND JAIN VS. CIT 5 THESE FUNDS AGGREGATING TO RS. 305.15 LACS WAS SUFF ICIENT TO COVER THE DEPOSIT IN PREM JAIN ISPAT UDYOG PVT. LTD., INVESTM ENT IN SHARES OF PREM JAIN ISPAT UDYOG PVT. LTD. AND INVESTMENT IN LAND A ND BUILDING MEANT FOR PERSONAL USE. THE CASH CREDIT LIMIT FROM THE BANK O N WHICH INTEREST OF RS. 11,09,654/- PAID WAS FULLY UTILIZED FOR ASSESSEES BUSINESS I.E. IN STOCK/DEBTORS. THE ASSESSMENT IN QUESTION PASSED U/ S 143(3) OF THE ACT BY THE ASSESSING OFFICER AFTER CONSIDERING OF ALL THES E FACTS, IT IS PLEADED THAT THE ASSESSING OFFICER HAD MADE RELEVANT ENQUIRIES A ND THEREAFTER FRAMED THE ASSESSMENT. IT IS NOT A CASE OF LACK OF ENQUIRIES, IN SUCH A SITUATION, THE ORDER OF ASSESSING OFFICER CAN NEITHER BE CALLED ER RONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. IT IS CONTENDED THAT T HERE IS NO JUSTIFICATION IN THE ACTION OF LD. CIT IN EXERCISING HIS REVISIONARY POWERS U/S 263 WHICH MAY BE QUASHED. RELIANCE IS PLACED ON FOLLOWING JUDGMEN TS: (I) CIT VS. SHREE MANJUNATHESHWARI PACKING PRODUCT S AND CAMPHORE WORKS 231 ITR 53, 63 (SC). (II) CIT VS. GABERIL INDIA LTD. 203 ITR 108, 113, 114 (BOM). (III) CIT VS. SHAKTI CHARITIES 244 ITR 226 (MAD.) (IV) CIT VS. GOYAL PRIVATE FAMILY SPECIFIC TRUST 1 71 ITR 698, 701, 702 (ALL.) (V) RAYONS SILK MILLS VS. CIT 221 ITR 155, 161 (GU J.) (VI) CIT VS. RAJ PRINTERS 178 ITR 384, 385 (ALL.) 5. LEARNED DR ON THE OTHER HANDS DREW OUR ATTENTION TO THE FOLLOWING OBSERVATIONS OF LD CIT IN THE NOTICE U/S 263: ITA 290/JP/2012 PREM CHAND JAIN VS. CIT 6 (1) YOU HAVE CLAIMED DEDUCTION FOR INTEREST OF R S. 1153503/- PAID ON LOANS, WHICH INCLUDES INTEREST OF RS. 1109305/- PAID IN RESPECT OF CASH CREDIT ACCOUNT NO. 249 WITH BANK OF BARODA, KO TA. ON THE OTHER HAND, YOU HAVE ADVANCED RS. 18.00 LAKHS EACH TO SHR I AJIT JAIN & SMT. RAJ SHREE JAIN OUT OF THE SAME CASH CREDIT ACC OUNT WITHOUT CHARGING ANY INTEREST. YOU HAVE DESCRIBED THESE PAYMENTS AND RECEIPTS OF M ONEY TO PURCHASE AND SALE OF PROPERTY NO. 339-A, TALWANDI, KOTA. HOWEVER, AS PER SALE DEED DATED 28/01/2009, YOU HAD SOLD THI S PROPERTY AS POWER OF ATTORNEY HOLDER OF SHRI AJIT JAIN AND SMT. RASHMI JAIN. NO DOCUMENTARY EVIDENCE REGARDING PURCHASE AND SALE OF THIS PROPERTY ON RECORD. FURTHER, IN RESPEONSE TO Q. NO. 5 OF QUE STIONNAIRE DATED 17/11/2011, YOU HAVE REPLIED VIDE PARA 5 OF LETTER DATED 23/11/2011 THAT YOU HAD NOT PURCHASED OR SOLD ANY IMMOVABLE PR OPERTY DURING THE YEAR. FROM THE FACTS MENTIONED ABOVE, IT IS CLEAR THAT YO U HAVE DIVERTED INTEREST BEARING FUNDS TOTALING RS. 36.00 LAKHS BOR ROWED FROM BANK OF BARODA, KOTA (CASH CREDIT ACCOUNT NO. 249) TOWAR DS GIVING INTEREST FREE ADVANCES TO SHRI AJIT JAIN AND SMT. R AJSHEER JAIN. IT IS ALSO OBSERVED FROM BALANCE SHEET THAT DEPOSIT OF RS. 10389080/- HAS BEEN GIVEN BY YOU TO YOUR SISTER CONCERN M/S PR EM JAIN ISPAT UDHYOG PVT. LTD.. YOU HAVE ALSO MADE INVESTMENT OF RS. 1.10 CRORE IN PURCHASE OF SHARES OF THE ABOVE SAID CONCERN. NE ITHER ANY INTEREST NOR ANY DIVIDEND HAS BEEN RECEIVED FROM THE ABOVE S AID INVESTMENTS. IT IS FURTHER OBSERVED THAT AS PER SCHEDULE-E TO BA LANCE SHEET, YOU ITA 290/JP/2012 PREM CHAND JAIN VS. CIT 7 HAVE INVESTED RS. 9861362/- IN FIXED ASSETS MENTION ED IN BLOCK-A. NO DEPRECIATION HAS BEEN CLAIMED ON THESE ASSETS I.E. THESE ARE NON- BUSINESS ASSETS. THUS, YOU HAVE DIVERTED A HUGE CHUNK OF INTEREST BE ARING BORROWED FUNDS FOR NON-BUSINESS PURPOSES. THEREFORE, INTERES T OF RS. 1153503/- PAID BY YOU ON BORROWED FUNDS IS NOT ADMI SSIBLE AS DEDUCTION. THE A.O. HAS FAILED TO MAKE ANY ENQUIRIE S IN THIS DIRECTION AND ALLOWED DEDUCTION OF RS. 1153503/- TO YOU WHILE COMPLETING THE ASSESSMENT U/S 143(3). 6. A PERUSAL OF THE ASSESSEES REPLY WILL REVEAL TH AT QUA THE AOS QUERY ABOUT SALE AND PURCHASE OF THE PROPERTY IT HAS BEEN REPLIED AS NIL, WHEREAS THE ASSESSEE HAS SOLD A PLOT NO. 339/A, TALWANDI KO TA; THUS THE ASSESSEE HAS SUPPLIED WRONG INFORMATION CONSEQUENTLY AO DID NOT CONDUCT RELEVANT INQUIRIES. BESIDES THERE IS NO EVIDENCE ABOUT ALLEG ED ADVANCES FOR PURCHASE OF PLOT TO SHRI AJIT JAIN AND RAJASHREE JAIN. LD. A O EXCEPT REPRODUCING PART OF A LETTER DATED 5-12-11 HAS NOT GIVEN ANY FINDING THEREON. THUS THIS ISSUE REMAINS UNANSWERED AND NOT BROUGHT TO LOGICAL CONCL USION. IN THE ABSENCE OF AOS FINDING AND CONCLUSION ON THE ISSUE OF DIVE RSION OF FUNDS FOR INTEREST FREE FUNDS AND ASSESSEES ROLE IN LAND DEAL, THE OR DER REMAINS INCOMPLETE AND THE APPLICATION OF MIND BY THE AO ON THESE ISSU ES REMAINS INCONCLUSIVE. THEREFORE, THE ORDER OF AO IS ERRONEOUS ON THESE IS SUES AS WELL AS IS PREJUDICIAL TO THE INTEREST OF REVENUE. LD. CIT HAS DEMONSTRATED THAT LD. AO ITA 290/JP/2012 PREM CHAND JAIN VS. CIT 8 FAILED TO DECIDE THESE ISSUES AND THERE WAS NO INQU IRY ON THESE ISSUES. MERE REPRODUCTION OF A PARAGRAPH FROM ASSESSEES LETTER DOES NOT AMOUNT TO HOLDING INQUIRIES. THUS APART FROM NON APPLICATION OF MIND & INCONCLUSIVENESS THE ORDER SUFFERS FROM LACK OF INQ UIRIES, THEREFORE, THE ASSESSMENT ORDER HAS BEEN RIGHTLY HELD TO BE ERRONE OUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. RELIANCE IS PLACED ON GABRIEL INDIA LTD. 203 ITR 1 08 (BOM) FOR THE PROPOSITION IF PROPER INQUIRIES ARE NOT MADE BY AO IT AMOUNTS TO ORDER BEING ERRONEOUS AND IF TAX EFFECT IS INVOLVED IT MAKES IT PREJUDICIAL TO THE INTEREST OF REVENUE. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THERE IS CONSIDERABLE MERIT IN LD. CIT(DR) S ARGUMENTS THAT EXCEPT REPRODUCTION OF PART OF ASSESSEES LETTER AO HAS NO T GIVEN ANY CONCLUSION. BESIDE ASSESSEE REPLIED NIL IN RELATION TO PURCHASE AND SALE OF PROPERTY WHEREAS IT IS EVIDENT THAT HE SOLD PROPERTY AS HOLD ER OF POWER OF ATTORNEY. THESE WERE NECESSARY AND INTEGRAL ISSUES OF ASSESSM ENT AND OUGHT TO HAVE BEEN INQUIRED AND CONCLUDED BY LD. AO. BY NOT DOING SO THE ASSESSMENT ORDER BECOMES ERRONEOUS AND PREJUDICIAL TO THE INTE REST OF REVENUE. HONBLE BOMBAY HIGH COURT IN GABRIEL INDIA (SUPRA) HAS LAID DOWN A PROPOSITION THAT IF PROPER INQUIRIES ARE NOT MADE THE ORDER BECOMES ERRONEOUS AND SINCE TAX EFFECT IS INVOLVED THE SAME MAKES THE ORDER PREJUDI CIAL TO THE INTEREST OF ITA 290/JP/2012 PREM CHAND JAIN VS. CIT 9 REVENUE. IN CONSIDERATION OF ENTIRETY OF FACTS AND CIRCUMSTANCES WE ARE OF THE VIEW THAT IMPUGNED ASSESSMENT ORDER IS ERRONEOU S AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE ORDER OF LD. CIT IS UPHELD . 8. IN THE RESULT ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/12/2014. SD/- SD/- (T.R. MEENA) (R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, DATED : 05 TH DECEMBER, 2014 * RANJAN COPY FORWARDED TO :- 1. SHRI PREM CHAND JAIN, KOTA. 2. THE CIT, KOTA. 3. THE CIT (A) 4. THE CIT 5. THE D/R GUARD FILE (I.T.A. NO. 290/JP/2014) BY ORDER, AR ITAT JAIPUR.