The ITO, Ward-9(1), Ahmedabad V. M/s. Satman Developers, Ahmedabad

ITA 2922/AHD/2009

• Counselvise Citation: 292220514 RSA 2009
• Duration Of Justice: 2 year(s) 1 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 17-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 26-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: KETAN H SHAH
• Keywords: Depreciation; Corroborative evidences; Deemed dividend

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD , . .!'#$, % & BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ./ I.T.A. NO.2922/AHD/2009 WITH CO NO.266/AHD/2009 ( ( ) ( ) ( ) ( ) / / / / ASSESSMENT YEAR : 2006-07) THE ITO WARD-9(1) AHMEDABAD ( ( ( ( / VS. M/S.SATNAM DEVELOPERS 8, SHRUTI BUNGALOWS 132 FEET RING ROAD SATELLITE, AHMEDABAD * % ./+, ./ PAN/GIR NO. : AAXFS 0932 J ( *- / // / APPELLANT ) .. ( ./*-/ RESPONDENT ) REVENUE BY : SHRI VINOD TANWANI, SR.D.R. ASSESSEE BY : SHRI KETAN H.SHAH (0 1 2% / / / / DATE OF HEARING : 17/11/2011 3') 1 2% / DATE OF PRONOUNCEMENT : 16/12/2011 4 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE WH ICH HAS EMANATED FROM THE ORDER OF THE LEARNED CIT(APPEALS)-XV, AHME DABAD DATED 19 TH AUGUST 2009 PASSED FOR ASSESSMENT YEAR 2006-07. T HE RESPONDENT ASSESSEE IS IN CROSS OBJECTION. 2. WE SHALL FIRST TAKE UP THE REVENUES APPEAL AND THE SOLITARY GROUND READS AS UNDER:- ITA NO.2922/AHD/2009 (BY REVENUE) & CO NO.266/AHD/2009 (BY ASSESSEE) ITO VS. M/S.SATNAM DEVELOPERS ASST.YEAR 2006-07 - 2 - 1) THE LD. COMMISSIONER OF INCOME-TAX (A)-XV, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.2382301/- MADE U/S.2(22)(E) OF THE INCOME-TAX ACT, 1961 AND HOLDING THAT THE CURRENT YEARS PROFITS WOULD NOT BE INCLUDED ACC UMULATED OF PROFITS WITHIN THE MEANING U/S.2(22)(E). 3. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) OF THE I.T.ACT, 1961 DATED 24/11/ 2008 WERE THAT THE ASSESSEE-FIRM HAS DISCLOSED INTEREST PAID AND INTER EST RECEIVED FROM THE FOLLOWING THREE PARTIES AS UNDER:- SR.NO. NAME OF THE PARTY INTEREST PAID INTEREST RECEIVED 1. MEERA PROJECTS PVT.LTD. 25,83,277/- 2. SATNAM DEVELOPERS PVT.LTD. 8,44,295/- 3. DHIRAJ INFRASTRUCTURE PVT.LTD. 15,81,252/- TOTAL : 25,83,277/- 24,25,547/- 3.1. THE ASSESSING OFFICER HAS OBSERVED THAT THERE WAS A CREDIT BALANCE OF RS.1,08,88,538/- IN THE ACCOUNT OF M/S.SATNAM DE VELOPERS PVT.LTD. THE ASSESSING OFFICER HAS FOUND THAT THE PARTNERS O F THE ASSESSEE-FIRM ARE ALSO THE DIRECTOR OF M/S.SATNAM DEVELOPERS PVT.LTD. THEREFORE, THE ASSESSING OFFICER HAS GIVEN A FINDING THAT M/S.SATN AM DEVELOPERS PVT.LTD. HAPPENED TO BE A SISTER-CONCERN OF THE ASS ESSEE-FIRM. THE SAID COMPANY HAD SHOWN THE IMPUGNED AMOUNT UNDER THE HEA D LOANS AND ADVANCES. ON THAT BASIS, THE ASSESSING OFFICER WA S OF THE VIEW THAT THE ITA NO.2922/AHD/2009 (BY REVENUE) & CO NO.266/AHD/2009 (BY ASSESSEE) ITO VS. M/S.SATNAM DEVELOPERS ASST.YEAR 2006-07 - 3 - SAID UNSECURED LOAN WAS NOTHING BUT DEEMED DIVIDEN D WITHIN THE MEANING OF SECTION 2(22)(E) OF THE I.T.ACT. IN COM PLIANCE, IT WAS EXPLAINED AS UNDER:- REGARDING CREDIT BALANCE OF SATNAM DEVELOPERS PVT. LTD. WITH OUR FIRM WE HAVE TO SAY THAT IN THE BEGINNING OF THE YEAR THERE WAS A DEBIT BALANCE AND IN THE MAJORITY YEAR THERE WAS A DEBIT BALANCE AND HENCE WE HAVE RECEIVED INTEREST FROM SATNAM DEVELOPERS PVT.LTD. SO IT SHOWS THAT THERE IS INTEREST CHARGED BY US TO THE COMPANY SO THERE IS NO QUESTION OF ANY IN DIRECT INCOME EARNED BY THE FIRM FROM THE FUNDS OF THE COMPANY AN D IT SHOWS THAT WE HAVE FUNDED THE FUND TO THE COMPANY. FURTHER WE HAVE TO SAY THAT IF WE GO THROUGH THE AC COUNTS OF THE COMPANY IN THE OPENING BALANCE THERE WAS A DEBIT BA LANCE OF RS.48312476/- AND AT THE END OF THE YEAR THERE IS A CREDIT BALANCE OF RS.10888538/- AND INTEREST IS CALCULATED ON NET CREDIT / DEBIT F OR THE YEAR AND AMOUNT IS RS.844295/- AND IT IS SHOWN AS INCOME OF THE FIRM. THUS IT IS A REGULAR MONEY TRANSACTION BETWEEN FIR M AND COMPANY AND AS MENTIONED EARLIER THE FIRM HAS CHARGED THE INTEREST. HOWEVER AS PER SECTION 2(22)(E)(II) THE ADVANCE OR LOAN MADE BY THE COMPANY IN BUSINESS COURSE OF THE COMPA NY BECAUSE THE COMPANY HAS TO DEVELOP A SCHEME IN WHICH HUGE F UND IS REQUIRED AND IT CAN BE MANAGED WITH INTERNAL RESOUR CES ONLY. FURTHER, AS PER SECTION 2(22)(E) IN THE LAST PARA ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF OR FOR THE INDIVIDUAL BE NEFIT OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPAN Y IN EITHER CASE POSSESSES ACCUMULATED PROFITS FROM THE ABOVE SAID FACT OF THE CASE WE CAN SAY THAT THE FIRM WAS NOT BENEFITED BUT THE COMPANY HAS GOT BENEFIT FROM THE FIRM. EVEN THE PARTNERS O F THE FIRM HAVE NOT WITHDRAWN ANY MONEY FROM THE FIRM. SO, WE HERE BY REQUEST YOU TO NOT TO ADD THE INCOME UNDER THE HEAD OF DIVI DEND INCOME. 3.2. AN OBSERVATION OF THE ASSESSING OFFICER WAS TH AT ON PERUSAL OF THE COPY OF ACCOUNT IT COULD BE SEEN THAT THE AMOUNTS A DVANCED WERE NOT IN ITA NO.2922/AHD/2009 (BY REVENUE) & CO NO.266/AHD/2009 (BY ASSESSEE) ITO VS. M/S.SATNAM DEVELOPERS ASST.YEAR 2006-07 - 4 - THE NATURE OF BUSINESS ADVANCES. THE ASSESSING OFF ICER HAS ALSO NOTED ON PERUSAL OF THE ACCOUNT THAT THE ASSESSEE HAD DEBIT BALANCE FOR SOME PART OF THE YEAR AND THEREAFTER THE SAID COMPANY HAD ADVANC ED IN THE LATER PART OF THE YEAR TO THE ASSESSEE. AS PER ASSESSING OFFICER , THE ADVANCE BY M/S.SATNAM DEVELOPERS PVT.LTD. DURING THE YEAR THUS RESULTED IN A CREDIT BALANCE OF THE SAID COMPANY IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AT THE END OF THE YEAR. FURTHER, IT WAS ALSO FOUND BY THE ASSESSING OFFICER THAT OUT OF THE SAID BORROWED FUNDS, THE ASSESSEE H AS ADVANCED A LOAN TO AN ANOTHER SISTER-CONCERN M/S.DHIRAJ INFRASTRUCTURE PVT.LTD. HE HAS CONCLUDED THAT THE SAID FINANCIAL DEALING WITH THOS E CLOSELY HELD COMPANIES COULD NOT BE REGARDED AS A BUSINESS VENTU RE. ACCORDING TO ASSESSING OFFICER, THE UNSECURED LOAN BORROWED BY T HE ASSESSEE FROM M/S.SATNAM DEVELOPERS PVT.LTD. WAS THEREFORE DEEMED TO BE DIVIDEND INCOME OF THE COMPANY WITHIN THE MEANING OF SECTION 2(22)(E) OF THE I.T.ACT. THE ACCUMULATED PROFIT OF M/S.SATNAM DEVE LOPERS PVT.LTD. AS ON 31.3.2006 WAS STATED TO BE RS.23,82,301/- WHICH WAS TAXED AS DIVIDEND BY INVOKING THE PROVISIONS OF SECTION 2( 22)(E) OF THE I.T.ACT. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE A UTHORITY. 4. THE ASSESSEES EXPLANATION BEFORE THE LEARNED CI T(APPEALS) WAS THAT THE ENTIRE TRANSACTION DURING THE SAID YEAR BE TWEEN THE ASSESSEE AND THE SAID COMPANY WAS A BUSINESS TRANSACTION. A DEC ISION OF M.B.STOCK HOLDING PVT.LTD. VS. ASST.CIT [2003] 84 ITD 542 (A HD.) WAS CITED IN SUPPORT OF THE CONTENTION THAT THE CURRENT YEARS B USINESS PROFIT DO NOT COME UNDER THE PURVIEW OF SECTION 2(22)(E) OF THE I .T.ACT. THE LEARNED CIT(APPEALS) HAS PERUSED THE BALANCE-SHEET AND FOUN D THAT UNDER THE ITA NO.2922/AHD/2009 (BY REVENUE) & CO NO.266/AHD/2009 (BY ASSESSEE) ITO VS. M/S.SATNAM DEVELOPERS ASST.YEAR 2006-07 - 5 - HEAD RESERVES AND SURPLUS AN AMOUNT OF RS.23,82,3 01/- WAS SHOWN. FOLLOWING THE DECISION OF THE ITAT AHMEDABAD BENCH B, THE LEARNED CIT(APPEALS) HAS HELD THAT THE BALANCE-SHEET OF M/S .SATNAM DEVELOPERS PVT.LTD. DID NOT SHOW ANY ACCUMULATED PROFIT THEREF ORE THE ADDITION WAS NOT CORRECT AND DELETED THE SAME. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE HAVE AL SO PERUSED A COMPILATION FILED FROM THE SIDE OF THE RESPONDENT-A SSESSEE. IT WAS VEHEMENTLY CONTESTED BY THE ASSESSEE THAT THE ASSES SING OFFICER HAD MISDIRECTED HIMSELF ON ACCOUNT OF THE REASON THAT T HERE WAS NO UNSECURED LOAN TAKEN THROUGHOUT THE YEAR FROM THE SAID COMPAN Y. FROM 1.4.2005 TO AUGUST-2005 THE ASSESSEE HAS PROVIDED UNSECURED LOA N TO M/S.SATNAM DEVELOPERS PVT.LTD. AND ALSO CHARGED INTEREST FROM THE SAID COMPANY OF RS.8,44,295/- AS IS EVIDENT FROM THE CHART REPRODUC ED SUPRA. THEREAFTER, THERE WAS DEBIT BALANCE FROM SEPTEMBER-2005. IT WA S ALSO BEEN CLARIFIED THAT THERE WAS NO ACCUMULATED PROFIT BUT IT WAS CURRENT YEAR PROFIT. IN RESPECT OF THE APPLICABILITY OF THE PROVISIONS O F SECTION 2(22)(E) A DECISION WAS REFERRED VIZ. CIT VS. RAJ KUMAR SINGH & CO. 199 CTR 88 (ALL.) (295 ITR PAGE 9), FOR THE LEGAL PROPOSITION THAT A LOAN FROM A COMPANY CAN BE HELD AS DEEMED DIVIDEND U/S.2(22)(E) OF THE I.T.ACT ONLY IF THE LOAN IS RECEIVED BY THE SHAREHOLDER. IT IS THEREFORE ARGUED THAT THE ASSESSEE-FIRM HAS RECEIVED THE IMPUGNED ADVANCE FRO M THE SAID COMPANY AND THE FIRM BEING NOT SHAREHOLDER BUT THE PARTNERS OF THE FIRM WERE THE DIRECTORS THEREFORE THE IMPUGNED ADVANCE COULD NOT BE HELD AS DEEMED DIVIDEND BY INVOKING THE PROVISIONS OF SECTION 2(22 )(E) OF THE I.T.ACT. ITA NO.2922/AHD/2009 (BY REVENUE) & CO NO.266/AHD/2009 (BY ASSESSEE) ITO VS. M/S.SATNAM DEVELOPERS ASST.YEAR 2006-07 - 6 - FINALLY, IT WAS ALSO CONTESTED THAT THE TRANSACTION WAS NOTHING BUT A ROUTINE COURSE OF BUSINESS ACTIVITY AND THERE WAS N O SHIFTING OF ACCUMULATED PROFIT IN ANY MANNER IN FAVOUR OF THE A SSESSEE. LIKEWISE, IN THE CASE OF ACIT VS. BHAUMIK COLOUR PVT.LTD. 118 I TD 1(120 TTJ 865)(MUMBAI)[SB] IT WAS HELD THAT IF A PERSON IS A REGISTERED SHARE- HOLDER BUT NOT A BENEFICIAL SHARE HOLDER, THEN THE PROVISIONS OF SECTION 2(22)(E) OF THE I.T.ACT SHOULD NOT APPLY. IT HAS A LSO BEEN HELD THAT SIMILARLY IF A PERSON IS A BENEFICIAL SHARE-HOLDER BUT NOT A REGISTERED SHARE-HOLDER THEN ALSO THE FIRST LIMB OF THE PROVIS IONS OF SECTION 2(22)(E) OF THE I.T.ACT SHOULD NOT APPLY. A CONCLUSION WAS D RAWN BY THE RESPECTED SPECIAL BENCH THAT FOR THE PURPOSE OF SEC TION 2 (22) (E) OF THE I.T.ACT SUCH SHAREHOLDER, AS PER THE LAST LIMB, T HEREOF, MUST BE BOTH BENEFICIAL AND REGISTERED SHAREHOLDER. IN THE LIGH T OF THE CITED DECISIONS, WE THEREFORE AFFIRM THE VIEW TAKEN BY THE LEARNED C IT(APPEALS) AND DISMISS THE GROUND OF THE REVENUE. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ASSESSEES CROSS OBJECTION NO.266/AHD/2009 (IN ITA NO.2922/AHD/2009) 7. ASSESSEES CO NO.1 READS AS UNDER:- 1. THE C.I.T.(APPEALS) ERRED IN NOT DECIDING THE I SSUE REGARDING APPLICABILITY OF SEC.2(22)(E) AS SUBMITTED BEFORE H ER DATED 17.08.2009 WHEREIN IT WAS INTER ALIA CONTENDED THAT THIS PROVISION WOULD BE APPLICABLE IN THE CASE OF SHAREHOLDER ONLY AND NOT IN THE CASE OF THE ASSESSEE WHEREIN THE ASSESSEE HAS SPECI FICALLY DRAWN ATTENTION TO THE DECISION OF BHAUMIK COLOR REPORTED IN 120 TTJ 865(SB) AS WELL AS THE DECISION OF ALLAHABAD HIGH C OURT IN THE CASE OF KUMAR SINGH & CO. 199 CTR 88. IT IS PRAYED THAT ON THIS ITA NO.2922/AHD/2009 (BY REVENUE) & CO NO.266/AHD/2009 (BY ASSESSEE) ITO VS. M/S.SATNAM DEVELOPERS ASST.YEAR 2006-07 - 7 - GROUND THERE CANNOT BE ADDITION IN THE HANDS OF THE ASSESSEE- COMPANY. 7.1. THIS ISSUE HAS ALREADY BEEN DISCUSSED SUPRA WH ILE DECIDING THE GROUND OF THE REVENUE AND IN THE LIGHT OF THE DISCU SSION AND THE PRECEDENTS CITED. THIS GROUND IS THEREFORE ACADEMIC ONLY. WE HEREBY HOLD THAT THIS GROUND HAS NOW BECOME REDUNDANT HENC E DISMISSED. 8. ASSESSEES CO NO.2 READS AS UNDER:- 2. THE C.I.T. (APPEALS) ERRED IN NOT APPRECIATING THE FACTS THAT THE ASSESSEE HAS ALSO CONTENDED BEFORE HER IN A WRITTEN SUBMISSION DATED 17.08.2009 PAGE 3 PARA 4 THAT THE TRANSACTION WAS A BUSINESS TRANSACTION AND AS SUCH, THERE IS NO REASO N TO MAKE ANY ADDITION BY APPLYING SEC.2 (22)(E) AND AS SUCH WE B ELIEVE THAT WITHOUT PREJUDICE, NO ADDITION CAN BE MADE. 8.1. THIS CROSS OBJECTION HAS NOT BEEN PRESSED AND WITHDRAWN BY THE LD.COUNSEL FOR THE ASSESSEE, HENCE DISMISSED BEING WITHDRAWN. 9. ASSESSEES CO NO.3 READS AS UNDER:- 3. THE C.I.T. (APPEALS) ERRED IN CONFIRMING THE DI SALLOWANCE OF INTEREST EXPENSES OF RS.1,57,730/- AS ARGUED BEFORE HER IN A WRITTEN SUBMISSION DATED 17.08.2009 PAGE 3 PARA 3. IT IS P RAYED THAT THERE IS NO REASON TO MAKE ANY SUCH DISALLOWANCE. 9.1. ON PERUSAL OF THE PROFIT & LOSS ACCOUNT, IT WA S NOTICED THAT THERE WAS A LOSS UNDER INTEREST ACCOUNT OF RS.1,57,730/ -. THE ASSESSING OFFICER HAS REPRODUCED THE PROFIT & LOSS ACCOUNT AN D IT WAS NOTED BY HIM INTEREST RECEIVED FROM M/S.SATNAM DEVELOPERS PV T.LTD. WAS RS.8,44,295/- AND INTEREST RECEIVED FROM M/S.DHIRAJ INFRASTRUCTURE ITA NO.2922/AHD/2009 (BY REVENUE) & CO NO.266/AHD/2009 (BY ASSESSEE) ITO VS. M/S.SATNAM DEVELOPERS ASST.YEAR 2006-07 - 8 - PVT.LTD. WAS RS.15,81,252/-, TOTALLING TO RS.24,25, 547/- AND THE ASSESSEE HAS PAID THE INTEREST OF RS.25,83,277/- TO M/S.MEER A PROJECTS PVT.LTD. THUS, THERE WAS INTEREST LOSS AS PER ASSESSING OFFI CER OF RS.1,57,730/- AND IN THIS REGARD AN EXPLANATION WAS CALLED FOR FR OM THE ASSESSEE. THE EXPLANATION OF THE ASSESSEE WAS THAT THE FINANCIAL ARRANGEMENTS WERE FOR THE WORK OF BUILDER AND DEVELOPER. IT WAS EMPHASIZ ED THAT THE MONEY RAISED FROM ONE COMPANY OR ADVANCED TO ANOTHER COMP ANY WERE PRIMARILY FOR THE PURPOSE OF BUSINESS AS A DEVELOP ER. HOWEVER, THE ASSESSING OFFICER WAS NOT CONVINCED AND BY INVOKING THE PROVISIONS OF SECTION 36(1)(III) HE HAS HELD THAT THE MAIN CONDIT ION FOR BORROWING THE MONEY SHOULD BE FOR THE PURPOSE OF THE BUSINESS. AS PER ASSESSING OFFICER, THE ENDEAVOUR OF THE ASSESSEE WAS NOT TO RAISE FUNDS FOR THE BUSINESS BUT THE ASSESSEE HAS SIMPLY ROTATED THE FU NDS AMONG ITS ASSOCIATES. ON ACCOUNT OF THE SAID ROTATION A LOSS WAS CLAIMED AS PER THE PROFIT & LOSS ACCOUNT WHICH THE ASSESSING OFFICER H AD DISALLOWED. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHO RITY. 10. THE LEARNED CIT(APPEALS) HAS GIVEN A FACTUAL FI NDING THAT NO CONSTRUCTION WORK WAS CARRIED OUT BY THE ASSESSEE D URING THE YEAR UNDER CONSIDERATION. AN ANOTHER FACTUAL FINDING WAS GIVE N THAT THE BORROWED FUNDS WERE NOT FOUND FOR BUSINESS PURPOSES, I.E. FO R CONSTRUCTION ACTIVITY. THE LEARNED CIT(APPEALS) HAS THEREFORE AFFIRMED THE ACTION OF THE ASSESSING OFFICER. 11. WE HAVE HEARD BOTH THE SIDES. WE HAVE PERUSE D THE COMPILATION IN THE LIGHT OF THE FINDINGS OF THE AUTHORITIES BEL OW. FROM THE SIDE OF THE ITA NO.2922/AHD/2009 (BY REVENUE) & CO NO.266/AHD/2009 (BY ASSESSEE) ITO VS. M/S.SATNAM DEVELOPERS ASST.YEAR 2006-07 - 9 - ASSESSEE, LD.AR MR. KETAN H.SHAH HAS TRIED TO EXPLA IN THAT THE BORROWINGS WERE FOR THE PURPOSE OF BUSINESS AND TH E PAYMENT OF INTEREST WAS THE BUSINESS NECESSITY. IN THE COMPILATION, A DEVELOPMENT AGREEMENT DATED 18/06/2004 IS PLACED EXECUTED BETWE EN M/S.SATNAM DEVELOPERS PVT.LTD. OF THE ASSESSEE. THE TRANSACTI ON WITH THE PARTIES WAS STATED TO BE A BUSINESS REQUIREMENT DURING THE YEAR . IT HAS ALSO BEEN ARGUED THAT THOUGH THE PROJECTS WERE SUSPENDED AND CONSTRUCTION ACTIVITY WAS MINIMIZED BUT THE ASSESSEE-FIRM HAD NOT CLOSED THE BUSINESS. THE ASSESSEE-FIRM WAS CARRYING-ON THE BUSINESS BUT COUL D BE A PAUSE DURING THE YEAR UNDER CONSIDERATION, . WE HAVE NOTED THAT THE ASSESSING OFFICER HAS SIMPLY MENTIONED THAT THE AMOUNT OF INTEREST PA ID WAS NOT IN RESPECT OF THE CAPITAL BORROWED FOR THE PURPOSE OF BUSINES S AS PRESCRIBED U/S.36(1)(III) OF THE I.T.ACT, BUT THAT ALLEGATION WAS NOT PROVED TO THE HILT, RATHER NO SUPPORTING EVIDENCE OR COGENT MATERIAL WA S DISCUSSED BY THE ASSESSING OFFICER TO STRENGTHEN THE SAID ALLEGATION . CONSIDERING THE BUSINESS ACTIVITY OF THE ASSESSEE AND THE TOTALITY OF THE CIRCUMSTANCES AS EXPLAINED BEFORE US, WE ARE OF THE VIEW THAT THE IM PUGNED ADDITION WAS MERELY ON SURMISES, THEREFORE DESERVES TO BE DELETE D. CASE LAWS CITED ARE; (I) CIT VS. SRIDEV ENTERPRISES [1991] 192 ITR 165 (KAR.) AND (II) ACIT VS. LAXMI AGENTS 125 ITR 227 (GUJ.), WHEREIN I T WAS OBSERVED THAT ONCE IT IS ESTABLISHED THAT THE CAPITAL WAS BO RROWED FOR THE PURPOSE OF THE BUSINESS, IT IS IMMATERIAL HOW THAT BORROWED CA PITAL WAS APPLIED BECAUSE ALL THAT SECTION 36(1)(III) REQUIRES IS THA T THE BORROWINGS ON WHICH THE INTEREST IS PAID SHOULD BE FOR THE PURPOSE OF B USINESS. THEREIN FEW OTHER CASE LAWS CITED WERE INDIA CEMENTS 60 ITR 52 (SUPREME COURT) AND CALICO DYEING AND PRINTING 34 ITR 265 (BOM). T HEREFORE, TOTALITY OF ITA NO.2922/AHD/2009 (BY REVENUE) & CO NO.266/AHD/2009 (BY ASSESSEE) ITO VS. M/S.SATNAM DEVELOPERS ASST.YEAR 2006-07 - 10 - THE CIRCUMSTANCES WARRANT TO ALLOW THE ASSESSEES CROSS OBJECTION NO.3. WE HOLD ACCORDINGLY. 12. ASSESSEES CROSS OBJECTION NO.4 READS AS UNDER:- 4. THE CIT(APPEALS) ERRED IN CONFIRMING THE DISALL OWANCE OF DEPRECIATION O F RS.1,58,632/- AS WELL AS INSURANCE CHARGES OF RS.16,942/-. IT IS PRAYED THAT THE LD.CIT(APPEALS ) HAS TOTALLY ERRED IN NOT TAKING INTO CONSIDERATION ANY SUBMISSI ON DATED 17.08.2009 PAGE 6 PARA 4 WHEREIN IT WAS INTER ALIA STATED THAT FROM THE FACTS ITSELF, THERE IS NO REASON TO MAKE ANY SU CH DISALLOWANCE. 12.1. IT WAS NOTICED BY THE ASSESSING OFFICER THAT A DEPRECIATION ON CAR WAS CLAIMED OF RS.1,58,632/-. IT HAS ALSO BEEN NOT ED BY THE ASSESSING OFFICER THAT CAR INSURANCE OF RS.16,942/- WAS CLAIM ED. AS PER ASSESSING OFFICER SINCE THE ASSESSEE HAS NOT CONDUCTED ANY BU SINESS THEREFORE THE EXPENDITURE WAS FOR NON-BUSINESS PURPOSE, HENCE DIS ALLOWED. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY AN D LEARNED CIT(APPEALS) HAS HELD THAT IN THE ABSENCE OF ANY BUSINESS ACTIVI TY, THE DISALLOWANCE WAS RIGHTLY MADE. 13. WE HAVE HEARD BOTH THE SIDES. THE LD.COUNSEL F OR THE ASSESSEE HAS PLACED RELIANCE ON CIT VS. NAHAR EXPORTS 213 CTR 2 0( 296 ITR 419) (P&H) FOR THE PROPOSITION THAT IF A MACHINERY IS KE PT READY FOR USE BUT COULD NOT BE USED DURING THE YEAR IN QUESTION ON AC COUNT OF NON-RECEIPT OF ORDERS, THEN THE ASSESSEE WOULD BE ENTITLED TO D EPRECIATION. WE HAVE EXAMINED EVIDENCE OF THIS CASE AND HAVE FOUND THAT THE ASSESSEE HAS EVEN NOT PLACED ON RECORD THAT THE CAR WAS MEANT ONLY FO R THE PURPOSE OF BUSINESS AND IT WAS USED EXCLUSIVELY FOR THE BUSINE SS ACTIVITY OF THE ITA NO.2922/AHD/2009 (BY REVENUE) & CO NO.266/AHD/2009 (BY ASSESSEE) ITO VS. M/S.SATNAM DEVELOPERS ASST.YEAR 2006-07 - 11 - ASSESSEE. AS FAR AS THE CASE LAW CITED IS CONCERNE D, THE DISTINCTION IS THAT THE MACHINERY WAS ADMITTEDLY FOR THE PURPOSE OF THE BUSINESS AND THERE WAS NO ELEMENT OF PERSONAL USE. IN OTHER WORDS, IT IS NECESSARY TO EXAMINE THE NATURE OF THE ASSET FOR WHICH CLAIM OF DEPRECIATION IS MADE. THE MOTOR CAR IS SUCH AN ASSET, THE USE OF WHICH FO R PERSONAL PURPOSES CANNOT BE RULED OUT, THEREFORE WE HEREBY HOLD THAT IN THE ABSENCE OF SUFFICIENT MATERIAL ON RECORD TO ESTABLISH THAT THE MOTOR CAR IN QUESTION WAS WHOLLY AND EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS, THE REVENUE AUTHORITIES HAVE RIGHTLY DISALLOWED THE DEP RECIATION AND THE INSURANCE. ASSESSEES THIS CROSS OBJECTION IS DISMISSED . 14. ASSESSEES CROSS OBJECTION NO.5 READS AS UNDER: - 5. THE CIT(APPEALS) ERRED IN CONFIRMING THE DISAL LOWANCE OF TELEPHONE EXPENDITURE OF RS.1,53,544/-. IT IS CONT ENDED THAT IN VIEW OF THE FACTS AND SUBMISSION ON RECORD AS SUBMI TTED BEFORE HER IN A SUBMISSION DATED 17.08.2009 PAGE 8 LAST PARA, THERE IS NO REASON TO MAKE ANY SUCH DISALLOWANCE. 14.1. THE ASSESSEE HAS CLAIMED AN EXPENDITURE OF RS.1,53,544/- INCURRED TOWARDS TELEPHONE EXPENSES. ACCORDING T O ASSESSING OFFICER, THE ASSESSEE HAS NOT MAINTAINED ANY BUSINESS RECEIP TS AS WELL AS ANY SEPARATE REGISTER FOR USE OF TELEPHONE ETC. HENCE T HE TOTAL CLAIM OF RS.1,53,544/- WAS DISALLOWED. THE FIRST APPELLATE AUTHORITY HAS AFFIRMED THE ACTION OF THE ASSESSING OFFICER. 15. FROM THE SIDE OF THE APPELLANT, MR.KETAN H.SHAH LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE APPEARED AND FROM THE SIDE OF THE REVENUE MR. VINOD TANWANI, LEARNED SR.DEPARTMEN TAL ITA NO.2922/AHD/2009 (BY REVENUE) & CO NO.266/AHD/2009 (BY ASSESSEE) ITO VS. M/S.SATNAM DEVELOPERS ASST.YEAR 2006-07 - 12 - REPRESENTATIVE APPEARED. THE LEARNED AUTHORIS ED REPRESENTATIVE OF THE ASSESSEE HAS URGED THAT THE DISALLOWANCE WAS EX CESSIVE BECAUSE THE ASSESSEE BEING A PARTNER IN SEVERAL FIRMS, THEREFOR E, USING THE TELEPHONE,ETC. MEANT FOR EXCLUSIVELY FOR BUSINESS PURPOSES. LOOKING TO THE TOTALITY OF THE FACTS OF THE CASE, THE TELEPHO NE EXPENSES OF PERSONAL PURPOSES CANNOT BE RULED OUT, HOWEVER, WE FIND THAT , IN THE INSTANT CASE, IN THE ABSENCE OF SUFFICIENT MATERIAL ON RECORD TO ESTABLISH THAT THE TELEPHONE EXPENSES IN QUESTION WAS WHOLLY AND EXCLU SIVELY USED FOR THE PURPOSE OF BUSINESS AN ESTIMATION CAN BE DONE. NEV ERTHELESS, TO MAINTAIN THE CONSISTENCY, WE HEREBY DIRECT TO DISALLOW ONLY 1/4 TH OF THE TOTAL EXPENDITURE. IN THIS MANNER, ASSESSEES CROSS OBJE CTION NO.5 IS PARTLY ALLOWED. 16. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED WHEREAS CROSS OBJECTION FILED BY THE ASSESSEE IS PARTLY ALL OWED. SD/- SD/- ( A.K. GARODIA ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEM BER AHMEDABAD; DATED 16/ 12 /2011 52..(, .(../ T.C. NAIR, SR. PS 4 1 .6 7 6) 4 1 .6 7 6) 4 1 .6 7 6) 4 1 .6 7 6)/ COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT. 3. 8 / CONCERNED CIT 4. 8() / THE CIT(A)-XV, AHMEDABAD 5. 6;! .( , , / DR, ITAT, AHMEDABAD 6. !$ <0 / GUARD FILE. 4( 4( 4( 4( / BY ORDER, /6 . //TRUE COPY// = == =/ // / + + + + ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD