M/s. Ashok Kumar Dusad (HUF), New Delhi V. DCIT, New Delhi

ITA 2919/DEL/2009

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0656 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 20-01-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 17-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUSHA KHURANA
• Assessee Lawyers: RAKESH GUPTA
• Keywords: Assessment record
• Section: 154

Judgement Text

ITA NO. 2919/DEL/2009 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 2919/DEL/2009 A.Y. : 2004-05 M/S ASHOK KUMAR DUSAD (HUF), A-13, GROUND FLOOR-2, GREEN PARK EXTENSION, NEW DELHI (PAN/GIR NO. : AACHA7173C) VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 24(1), NEW DELHI (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. RAKESH GUPTA, ADVOCATE DEPARTMENT BY : MS. ANUSHA KHURANA, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 26.12. 2008 AND PERTAINS TO ASSESSMENT YEAR 2004-05. 2. THE EFFECTIVE ISSUE RAISED IS AS UNDER:- (I) THAT HAVING REGARD TO THE FACTS AND CIRCUMSTAN CES OF THE CASE, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS E RRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF ASSE SSING OFFICER IN DISALLOWING A SUM OF ` 39,85,661/- BEIN G THE AMOUNT OF INTEREST PAID TO THE BANK ON THE GROUND TH AT THE EXPENSES WERE NOT INCURRED FOR THE BUSINESS PURPOSE OF THE ASSESSEE. ITA NO. 2919/DEL/2009 2 (II) THAT IN ANY CASE AND WITHOUT PREJUDICE TO THE ABOVE SAID GROUND, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE ON ACCOUNT OF I NTEREST PAID TO THE BANKER FOR ` 39,85,551/- DESPITE THE FA CT THAT IN THE ORDER PASSED U/S 154 BY THE ASSESSING OFFICER DATED 11.1.2007, THE SAID DISALLOWANCE WAS RECUED BY ASSE SSING OFFICER FOR ` 11,02,228/- AND THEREFORE, IN ANY CA SE THE AMOUNT OF IMPUGNED DISALLOWANCE COULD NOT HAVE BEEN SUSTAINED FOR MORE THAN ` 11,02,338/-. 3. IN THIS CASE THE ASSESSING OFFICER OBSERVED TH AT ASSESSEE HAS DIVERTED HIS OWN CAPITAL TO ASSOCIATES CONCERN WHIC H ALTHOUGH NOT FETCHING HIM ANY RETURN ALSO NECESSITATED HIM TO BOR ROW INTEREST BEARING FUNDS FORM BANK FOR HIS BUSINESS REQUIREMENT S. ASSESSING OFFICER FURTHER NOTED THAT ASSESSEE IN P&L ACCOUNT HAS CLAIMED ` 39,85,551/- TOWARDS INTEREST PAYMENT TOWARDS BORRO WED CAPITAL TO THE BANK. HE FOUND THAT THERE WAS THE POST SHIPMEN T BILL DISCOUNTING BY THE UCO BANK AND INTEREST PAID FOR INTERVENING P ERIOD UNTIL REALIZATION OF THE SALE PROCEEDS TO THE FOREIGN BUY ERS. ASSESSING OFFICER PROCEEDED TO HOLD (A) BANK BORROWING WAS N OT NECESSITATED ON ACCOUNT OF CAPITAL CONSTRAINT, (B) THAT BANK BORROW ING WAS NOT NECESSITATED EXCLUSIVELY FOR THE PURPOSE OF PAYMENT TO M/S PASHUPATI FABRICS LTD., ON THE CONTRARY, EXTENDED CREDIT FACIL ITY TO THE ASSESSEE VERY GENEROUSLY DESPITE ITS POOR FINANCIAL HEALTH A ND (C) UTILIZATION OF ITA NO. 2919/DEL/2009 3 BANK BORROWING IS NOT FOR PURPOSES OF BUSINESS. F URTHER, THE ORDER OF THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CAS E OF C.I.T. VS. ABHISHEK INDUSTRIES LTD. (2006) 156 TAXMAN 257 AND P ROCEEDED TO DISALLOW A SUM OF ` 39,85,551/-. 4. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ASSESSEE SUBMITTED THE ASSESSEE IN HIS CAPACITY AS KARTA OF HUF IS A PROPRIETOR OF M/S KRISHNA ENTERPRISES AND IS ENGAGED IN THE BUS INESS OF EXPORT OF HOME FURNISHING MATERIAL. DURING THE YEAR CONSIDERAT ION, HE HAD PAID THE INTEREST TO UCO BANK ON DISCOUNTING LIMITS. THE INTEREST WAS PAID IN REGARD TO THE POST-SHIPMENT DOCUMENTS DISCOUNTING WITH THE BANK FOR THE PERIOD UPTO THE REALIZATION OF SALE PROCEED S FROM FOREIGN BUYERS. IT IS ARGUED THAT THIS AMOUNT BORROWED FROM UCO BANK WAS USED FOR BUSINESS PURPOSES. THESE FUNDS WERE UTILI ZED FOR MAKING PAYMENT TO VARIOUS SUPPLIERS AND NO AMOUNT WAS GIVEN TO ANY SISTER CONCERN. THE ADVANCES WERE GIVEN TO THE SISTER C ONCERNS OUT OF HIS OWN CAPITAL AND BORROWED FUNDS WERE NOT UTILIZED FO R THESE ADVANCES. MOREOVER, M/S SUN EXIM LINKS HAD GIVEN ITS PREMISES FO R BUSINESS USE TO THE APPELLANT AND THAT TOO WITHOUT RENT. BANK STATEMENT OF UCO BANK SHOWS THAT THE FUNDS DEPOSITED IN THIS ACCOUN T WERE USED FOR BUSINESS PURPOSES. IT IS SUBMITTED THAT SINCE NO B ORROWED FUNDS ON WHICH INTEREST HAS BEEN PAID HAVE BEEN UTILIZED FOR MAKING ADVANCE TO ITA NO. 2919/DEL/2009 4 SISTER CONCERNS, THE DISALLOWANCE MADE BY THE ASSESS ING OFFICER WAS TOTALLY UNWARRANTED. THE APPELLANT IN THIS REGARD ALSO RELIED ON THE DECISION REPORTED 134 ITR 219 AND 147 ITR 392 ETC. 4.1 LD. COMMISSIONER OF INCOME TAX (APPEALS) IN THIS REGARD OBTAINED REPORT FROM THE ASSESSING OFFICER AND CONSIDERED TH E ASSESSEES SUBMISSIONS AND ASSESSING OFFICERS REJOINDER. HE DE CIDED THE ISSUE AS UNDER:- IN HIS REJOINDER THE APPELLANT STATED THAT THE ASS ESSING OFFICER HAS ONLY REITERATED THE CONTENTION RAISED IN THE AS SESSMENT ORDER. MOREOVER, IT HAS BEEN ACCEPTED BY THE ASSESS ING OFFICER THAT THE FUNDS GIVEN TO M/S SUN EXIM LINK, M/S SUN ENTERPRISE AND KHANDELWAL ENTERPRISES WERE GIVEN OUT OF OWN FU NDS AND HENCE, THERE WAS NO QUESTION OF ANY DISALLOWANCE OF INTEREST UNDER SECTION 36(I)(III). IT IS ALSO STATED THAT TH E ASSESSING OFFICER HAS NOT COMMENTED ON THE CONTENTION OF THE APPELLAN T THAT THE FUNDS BORROWED FROM UCO BANK ON WHICH INTEREST OF ` 39,85,551/- WAS PAID WERE USED FOR THE PURPOSE OF ASSESSEES OW N BUSINESS. HENCE, IT IS SUBMITTED THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER SHOULD BE DELETED. ITA NO. 2919/DEL/2009 5 I HAVE CONSIDERED FACTS OF THE CASE. AS STATED EAR LIER, THE APPELLANT IS AN EXPORTER OF HOME FURNISHING ITEMS. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAD NOTICED THAT THE APPELLANT HAD DIVERTED BUSINESS FUNDS TO H IS ASSOCIATE CONCERNS NAMELY, SUN ENTERPRISES, SUN EXIM LINK, AND KHANDELWAL ENTERPRISE. THIS FACT HAS NOT BEEN DENIE D BY THE APPELLANT. THE CONTENTION OF THE APPELLANT IS THAT SINCE THE FUNDS DIVERTED BY HIM WERE NOT BORROWED FROM BANK, THE INTE REST PAID BY HIM CANNOT BE DISALLOWED. THIS PLEA OF THE APPEL LANT CANNOT BE ACCEPTED. IT IS OBVIOUS FROM THE FACTS MENTIONED BY THE ASSES SING OFFICER THAT HAD THE INTEREST FREE FUNDS AVAILABLE WITH THE APPELLANT BEEN UTILIZED FOR THE PURPOSES OF BUSINESS, THERE WOULD NOT HAVE BEEN ANY NEED TO GO FOR BILL DISCOUNTING AND PAY INTERES T THEREON. AS HELD BY THE PUNJAB AND HARYANA HIGH COURT IN THE CAS E OF ABHISHEK INDUSTRIES LTD. (286 ITR 1), ALL THE FUNDS AVAILABLE WITH THE ASSESSEE FORM PART OF A SINGLE KITTY AND ARE TO BE USED FOR THE PURPOSES OF THE BUSINESS. THE CONTENTION OF THE AP PELLANT THAT THE INTEREST FREE FUNDS AVAILABLE WITH HIM WERE TO BE UTILIZED FOR GIVING INTEREST FREE LOANS AND NOT FOR THE PURPOSES OF BUSINESS IS, THEREFORE, NOT ACCEPTABLE. MOREOVER, IT HAS NOT BE EN EXPLAINED ITA NO. 2919/DEL/2009 6 THAT WHEN THE APPELLANTS COFFERS WERE FLUSH WITH I NTEREST FREE FUNDS, WHY HE HAD TO AVAIL THE BILL DISCOUNTING FAC ILITY FROM THE BANK, WHERE HE HAD TO PAY INTEREST. HEAVY BURDEN LIES ON THE ASSESSEE TO EXPLAIN SUCH AN APPARENTLY ANOMALOUS POS ITION. THIS BURDEN HAS NOT BEEN DISCHARGED. THE APPELLANT HAS ALSO FAILED TO SHOW THE BUSINESS PURPOSE OR COMMERCIAL EXPEDIENC Y FOR WHICH THE INTEREST FREE LOAN WAS GRANTED TO VARIOU S ASSOCIATE CONCERNS. NO NEXUS HAS BEEN SHOWN BETWEEN THE GRAN TING THE INTEREST FREE LOANS TO THE ASSOCIATE CONCERN AND IT S USE FOR BUSINESS PURPOSES. HENCE, IN VIEW OF THE DECISION OF THE HONBLE PUNJAB AND HARYANA HIGH COURT (SUPRA) AND THE APEX CO URT IN THE CASE OF SA BUILDERS (288 ITR 1), THE DISALLOWANCE M ADE BY THE ASSESSING OFFICER APPEARS TO BE CORRECT AND IS, A CCORDING, UPHELD. 5. AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BE FORE US. 6. ASSESSEES SUBMISSION IN THIS REGARD ARE AS UNDER :- ASSESSING OFFICER DISALLOWED A SUM OF ` 39,85,551/ - BEING THE AMOUNT PAID TO THE BANK ON THE GROUND THAT THIS WAS INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. LATER ON ASSESSING OFFICER HIMSELF PASSED AN ORDER US/ 154 DATED 11.1. 2007 ITA NO. 2919/DEL/2009 7 REDUCING THE DISALLOWANCE OF ` 1102228/-. BUT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IGNORED THE ORD ER U/S 154 HELD ON DEPARTMENTAL ASSESSMENT RECORD AND CONFIRME D THE DISALLOWANCE. 7. IN VIEW OF THE FACTS NARRATED AS ABOVE, BOTH THE COUNSEL FAIRLY AGREED THAT THE PROPOSITION OF THE LD. COUNSEL OF T HE ASSESSEE IS CORRECT THAT DISALLOWANCE CANNOT EXCEED ` 11,02,228/-. IT IS FURTHER SUBMISSION OF THE ASSESSEE THAT THE INTEREST WAS ALLOWABLE AS (I) ADVANCES WERE GIVEN TO THE SISTER CONCERNS FOR THE PURPOSE OF BUS INESS (II) INCURRED FOR THE PURPOSE OF THE BUSINESS AND IN ANY CASE, (III) DEBITS IN THE ACCOUNTS OF THE ASSOCIATED PERSONS WERE OUT OF OWN NON-INTER EST BEARING FUNDS. IT HAS FURTHER BEEN SUBMITTED THAT ADVANCE WAS GIVE N TO A SISTER CONCERN AS ASSESSEE WAS USING THEIR BUSINESS PREMISE S. THUS, ADVANCE GIVEN TO THE ASSESSEES SISTER CONCERN WER E ACTUATED WITH BUSINESS CONSIDERATION. IN THIS REGARD, RELIANCE I S PLACE OF HONBLE APEX COURT DECISION IN THE CASE OF SA BUILDERS VS. C.I.T. 288 ITR 1(SC). IT HAS FURTHER BEEN SUBMITTED BY THE ASSESSEE THAT I NTEREST WAS PAID ON THE BORROWING FROM BANK IN THE FORM OF EXPORT BILL DI SCOUNTING WHICH WAS DIRECTLY USED FOR THE SUPPLY OF RAW MATERIAL. RATHER, THE BILL DISCOUNTING FACILITY OF THE SUPPLIERS NAMELY PASHUP ATI SPINNING MILLS ONLY WAS USED AND THIS WAS DONE TO AVOID THE RISK O F THE BUSINESS. ITA NO. 2919/DEL/2009 8 ASSESSEE FURTHER SUBMITTED THAT IT WAS EMPHASIZED BE FORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) THAT THE LOANS TO ASSESSEES SISTER CONCERNS EVEN IF WERE WITHOUT BUSINESS PURPO SE CANNOT FURNISH ANY GROUND FOR MAKING THE IMPUGNED DISALLOWANCE OUT OF INTEREST ON BORROWED FUNDS AS THE BORROWED FUNDS WERE USED FOR THE PURPOSE OF BUSINESS AND NON-BUSINESS LOANS WERE GIVEN OUT OF OWNED FUNDS. ASSESSEE FURTHER REITERATED THAT THE USE OF THE FUN DS WAS FOR THE PURPOSE OF BUSINESS WHICH WOULD SHOW THAT THESE BOR ROWED FUNDS HAVE BEEN USED FOR MAKING PAYMENTS TO VARIOUS SUPPLIERS AND NO AMOUNT HAS BEEN GIVEN TO ANY SISTER CONCERN. IT IS CONTE NDED THAT NOT EVEN A SINGLE PAYMENT HAS BEEN MADE OUT OF UCO BANK BILL DI SCOUNTING ACCOUNT WHICH WAS NOT FOR THE PURPOSE OF ASSESSEE B USINESS OR ADVANCES TO SISTER CONCERNS. HENCE, IT HAS BEEN CL AIMED THAT THESE FUNDS WERE USED FOR THE PURPOSE OF BUSINESS, THERE IS NO QUESTION OF DISALLOWANCE OF INTEREST. 7.1 ASSESSEES FURTHER CONTENTION IS THAT ADVANCES WERE GIVEN TO THE ASSESSEES SISTER CONCERN OUT OF OWN CAPITAL AND NO BORROWED FUNDS WERE UTILIZED FOR ADVANCE GIVEN TO THESE PARTIES. IT WAS EXPLAINED THAT M/S SUN EXIM LINKS HAS GIVEN ITS PREMISES FOR THE BU SINESS USE TO THE ASSESSEE IN DELHI AND THAT TOO WITHOUT RENT. ASSES SEE FURTHER REFERRED TO THE BANK ACCOUNT OF M/S SANGLI BANK LTD. TO SHOW THAT PAYMENT TO SISTER CONCERNS HAVE BEEN MADE FROM THIS BANK ACCOUNT WHERE THERE IS NO BORROWING. HENCE, ASSESSEE CONTENDED THAT I T IS MORE THAN ITA NO. 2919/DEL/2009 9 ESTABLISHED THAT NO BORROWED FUNDS ON WHICH INTERE ST HAS BEEN PAID HAS BEEN USED FOR MAKING ADVANCE TO THE SISTER CONC ERNS AND FURTHER THAT ADVANCES MADE TO SISTER CONCERNS ARE OUT OF T HE OWN CAPITAL AND NOT OUT OF THE BORROWED FUNDS. THEREFORE, WHEN THER E IS NO NEXUS BETWEEN BORROWED FUNDS AND AMOUNT ADVANCED THERE IS NO QUESTION OF ANY DISALLOWANCE. IN THIS REGARD, ASSESSEE PLACE D RELIANCE OF CATENA OF CASE LAWS. 7.2 LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 7.3 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. FIRSTLY, WE FIND THAT THE DISALLOWANCE HA S BEEN RESTRICTED BY THE ASSESSING OFFICER HIMSELF VIDE ORDER U/S 154 A ND REDUCED THE DISALLOWANCE OF ` 11,02,228/-. HOWEVER, LD. COMMIS SIONER OF INCOME TAX (APPEALS) HAS PROCEEDED TO CONFIRM ` 39,85,551/- . THIS IS NOT TENABLE. FURTHERMORE, ASSESSEE HAS CLEARLY DEMONSTR ATED THAT INTEREST WERE PAID ON BORROWINGS FROM BANK IN THE FORM OF EXPO RT BILL DISCOUNTING WHICH WERE DIRECTLY USED TO PAY THE SUP PLIER OF THE RAW MATERIAL. HENCE, THERE IS NO QUESTION OF DIVERSION OF BORROWED FUNDS FOR ADVANCING TO ASSESSEES CONCERN. HOWEVER, IT HAS BEEN NOTICED THAT ASSESSEE WAS USING THE PREMISES OF M/S SUN EXIM FOR THE BUSINESS PURPOSES. ASSESSEE HAS FURTHER DEMONSTRA TED THAT THE FUNDS WERE ADVANCED TO ASSESSEES SISTER CONCERN WE RE NOT OUT OF THE BORROWED FUNDS, BUT FROM ASSESSEES OWN FUNDS. L D. DEPARTMENTAL REPRESENTATIVE HAS NOT BEEN ABLE TO CONTROVERT THES E SUBMISSIONS OF THE ASSESSEE WHICH HAS BEEN MADE VERY ELABORATELY B Y REFERENCE TO THE PAPER BOOK. IN THESE CIRCUMSTANCES, WHEN IT I S UNDISPUTED THAT INTEREST PAID TO UCO BANK WAS IN CONNECTION WITH T HE BUSINESS OF THE ITA NO. 2919/DEL/2009 10 ASSESSEE AND IT IS ALSO EMANATING THAT LOANS WERE GI VEN TO THE ASSESSEE SISTER CONSIDER WERE NOT OUT OF THE BORROW ED FUNDS. HENCE, THE ASSESSEES CONTENTION THAT THERE IS NO NEXUS BE TWEEN BORROWED FUNDS AND AMOUNT ADVANCED IS COGENT ENOUGH AND THERE IS NO QUESTION OF ANY DISALLOWANCE. MOREOVER, IT IS ALSO SETTLED LAW THAT REVENUE AUTHORITIES SHOULD NOT ENTER INTO THE SHOES OF THE BUSINESSMAN AS TO HOW HE CONDUCTS HIS BUSINESS. 7.4 HENCE, IN THE BACKGROUND OF THE AFORESAID DISCU SSION AND PRECEDENT, WE SET ASIDE THE ORDERS OF THE AUTHORITI ES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20/01/2011 U PON CONCLUSION OF HEARING. SD/- SD/- [R.P. TOLANI] [R.P. TOLANI] [R.P. TOLANI] [R.P. TOLANI] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 20/01/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES