Vizag Company's Steel, Anakapalle V. THE CIT - 1 (i/O), Visakhapatnam

ITA 297/VIZ/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5143 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 02-06-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DEBAKUMAR SONOWAL
• Assessee Lawyers: K S S SHARMA
• Keywords: Business expenditure; Proportionate interest
• Section: 143(3); 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , ACCOUNTANT MEMBER . / I . T .A.NO. 2 97 /VIZ/ 201 4 ( / ASSESSMENT YEAR: 20 09 - 1 0 ) VIZAG COMPANYS STEEL C/O K.S.S.SARMA, C.A. #12 - 05 - 25A, NEW COLONY ANAKAPALLE 531001 [PAN :A AGFV6746E ] VS. CIT - 1 VISAKHAPATNAM ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI K.S.S.SHARMA, A R / RESPONDENT BY : SHRI DEBA KUMAR SONOWAL , D R / DATE OF HEARING : 19 . 0 7 . 2018 / DATE OF PRONOUNCEMENT : 25 .0 7 .2018 / O R D E R PER D.S. SUNDER SINGH , ACCOUNTANT MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX ( CIT ) - 1 , VI S A KHAPATNAM PASSED U/S 263 OF INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS ACT) VIDE F.NO.CIT - 1/VSP/263/28/2013 - 14 DATED 2 7 .0 3 .201 4 F OR THE ASSESSMENT YEAR 20 09 - 1 0 . 2 I TA NO . 2 97 /VIZ/201 4 VIZAG COMPANYS STEEL , VI SAKHAPATNAM 2. ALL THE GROUNDS OF APPEAL ARE RELATED TO THE ORDER PASSED BY THE CIT U/S 263 OF THE ACT . IN THIS CASE, THE ASSESSEE FILED THE RETURN OF INCOME ON 25.09.2009 DECLARING TOTAL INCOME OF RS.3,30,050/ - . THE ASSESSMENT WAS COMPLETED U/S 143(3) BY AN ORDER DATED 30.12.2011 ON TOTAL INCOME OF RS.5,65,820/ - . THE CIT HAS TAKEN UP THE CASE FOR REVIS ION U/S 263 AND FOUND THAT THE ASSESSEE HAS TAKEN THE LOANS FROM THE BANK AND DIVERTED THE LOAN FUNDS FOR PURCHASE OF LANDS AND CLAIMED THE ENTIRE INTEREST OF RS.1,20,47,196/ - AS BUSINESS EXPENSES. THE LD.CIT IS OF THE VIEW THAT, S INCE THE LANDS PURCHASED ARE NOT USED FOR ITS BUSINESS, THE INTEREST ATTRIBUTABLE TO THE PURCHASE OF ASSETS SHOULD BE DISALLOWED AND THE SAME SHOULD BE CAPITALIZED. THE LD.CIT F URTHER, NOTICED THAT THE CAPITAL ACCOUNT OF ONE OF THE PARTNER SHRI M.YASWANTH WAS SHOWING THE NEGAT IVE BALANCE OF RS. 13,34,516/ - AND THE INTEREST THERE ON SHOULD HAVE BEEN DISALLOWED BY THE AO. THE LD. CIT ISSUED SHOW CAUSE NOTICE PROPOSING TO REVISE THE ASSES SMENT ON THE ABOVE LINES AND THE ASSESSEE HAS FURNISHED THE REPLY STATING THAT THE PROPERTY AT GOBBURU LAND WAS PURCHASED DURING THE YEAR UNDER CONSIDERATION AND THE OTHER ASSETS MENTIONED IN THE NOTICE WERE PURCHASED IN THE EARLIER YEARS WHICH ARE EXISTING IN THE EARLIER BALANCE SHEET FOR THE FINANCIAL YEAR 2007 - 08 ALSO. HENCE ARGUED THAT THE Y ARE NOT 3 I TA NO . 2 97 /VIZ/201 4 VIZAG COMPANYS STEEL , VI SAKHAPATNAM THE NEW ASSETS AND IN THE CASE OF THE GOBBURU LAND IT WAS STATED TO BE PURCHASED OUT OF PROFITS OF PREVIOUS YEARS AND ALSO CAPITAL INFUSED BY THE PARTNERS, THEREFORE, THERE IS NO CASE FOR DISALLOWANCE OF PROPORTIONATE INTEREST RELATABLE TO ACQUIRI NG OF THE ASSETS . WITH REGARD TO THE DISALLOWANCE OF INTEREST ON PARTNERS CAPITAL ACCOUNT, THE ASSESSEE HAS EXPRESSED NO OBJECTION AS PER PARA NO.12 OF THE LD.CIT ORDER. THE CIT, AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE FOUND THAT THE ORD ER PASSED BY THE A O U/S 143(3) DATED 31.12.2011 WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, THEREFORE, SET ASIDE THE ORDER OF THE AO WITH A DIRECTION TO THE AO TO EXAMINE THE ISSUES AND REFRAME THE ASSESSMENT ORDER AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE. 3. AGGRIEVED BY THE ORDER OF THE LD. CIT, THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. DURING THE APPEAL HEARING, THE LD.AR OF THE ASSESSEE WHILE REITERATING THE SUBMISSIONS MADE BEFORE THE LD. CIT SUBMITTED THAT THE ASSET S WE RE PURCHASED IN THE EARLIER YEARS AND THE NEW ASSET OF GOBBURU LAND WAS PURCHASED IN THE YEAR UNDER CONSIDERATION WITH THE INTEREST FREE FUNDS OF THE ASSESSEE. THE LD.AR SUBMITTED THAT THE ISSUE OF PURCHASE OF ASSETS AND THE SOURCES WERE EXAMINED BY T HE AO AT THE TIME OF SCRUTINY 4 I TA NO . 2 97 /VIZ/201 4 VIZAG COMPANYS STEEL , VI SAKHAPATNAM ASSESSMENT. THEREFORE, THERE IS NO CASE FOR REVISION U/S 263, ACCORDINGLY REQUESTED TO CANCEL THE ORDER PASSED U/S 263 OF THE ACT . 4. ON THE OTHER HAND, THE LD.DR STRONGLY SUPPORTED THE ORDER OF THE CIT. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. WITH REGARD TO DISALLOWANCE OF INTEREST ON PARTNERS CAPITAL ACCOUNT, THE ASSESSEE HAS NOT FURNISHED ANY EXPLANATION BEFORE THE LD.CIT AND THE LD.CIT PRESUMED THAT THE ASSESSEE HA S NO OBJECTION FOR THE REVISION AND THE SAME IS EVIDENT FROM THE PARA NO.12 OF THE CITS ORDER. ON PERUSAL OF THE BALANCE SHEET FILED BY THE ASSESSEE IN THE PAPER BOOK, IT IS EVIDENT THAT THE P ARTNERS ARE HAVING DEBIT B ALANCE S AND THERE A RE NO INTEREST FR EE FUNDS AVAILABLE TO THE ASSESSEE FOR DIVERSION FUNDS FOR NON BUSINESS PURPOSES . FROM THE BALANCE SHEET OF THE ASSESSEE EXCEPT PROFIT AND LOSS ACCOUNT, BALANCE OF RS. 3,30,049/ - , THERE WAS NO OTHER INTEREST FREE FUND AVAILABLE TO THE ASSESSEE. THOUGH A SSESSES AR ARGUED THAT THE AO HAS EXAMINED THE ISSUE AT TIME OF ASSESSMENT, THERE WAS NO INDICATION HAVING VERIFIED THE TRANSACTION BY THE AO IN THE ASSESSMENT ORDER . T HE ASSESSEE HAS PRODUCED THE QUESTIONNAIRE ISSUED BY THE AO AND THERE WAS NO 5 I TA NO . 2 97 /VIZ/201 4 VIZAG COMPANYS STEEL , VI SAKHAPATNAM EVIDENCE H AVING FURNISHED THE DETAILS BEFORE THE AO. WE HAVE CAREFULLY GONE THROUGH THE QUESTIONNAIRE IN COL.NO.13, WHEREIN THE AO HAS ASKED THE SOURCES FOR ACQUISITION OF LANDS, BUT THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE HAVING FURNISHED THE DETAILS BEFORE THE AO. THE ASSESSEE NEITHER ESTABLISHED THAT THE AO HAS VERIFIED THE ISSUE DURING THE ASSESSMENT NOR HAVING FURNISHED THE DETAILS BEFORE THE AO WITH REGARD TO DIVERSION FUNDS AND THE CLAIM OF INTEREST. I N THE CASE OF INTEREST ON DEBIT BALANCE OF THE PARTN ERS CAPITAL THE ASSESSEE DID NOT MAKE ANY OBJECTION BEFORE THE CIT. THEREFORE, WE HOLD THAT THERE IS NO ERROR IN THE ORDER OF THE LD. CIT AND THE ORDER PASSED BY THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. ACCORDINGLY, WE UPHOLD T HE ORDER OF THE LD. CIT U/S 263 AND DISMISS THE APPEAL OF THE ASSESSEE. 6 . IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED . THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 25 TH JU LY , 201 8 . S D/ - S D/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM /DATED : 25 .0 7 .2018 L.RAMA, SPS 6 I TA NO . 2 97 /VIZ/201 4 VIZAG COMPANYS STEEL , VI SAKHAPATNAM / COPY OF THE ORDER FORWARDED TO: - 1 . / THE ASSESSEE - VIZAG COMPANYS STEEL , C/O K.S.S.SARMA, C.A. #12 - 05 - 25A, NEW COLONY , ANAKAPALLE 531001 2 . / THE REVENUE CIT - 1, VISAKHAPATNAM 3 . THE COMMISSIONER OF INCOME TAX - 1 , VI SAKHAPATNAM 5 . , , / DR, ITAT, VISAKHAPATNAM 6. / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM