Shri Anil Bholabhai Patel, Baroda V. The Dy.CIT., Baroda Circle-5, Baroda

ITA 299/AHD/2006

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1667 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 28-03-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 08-02-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS R K TOPIWALA
• Assessee Lawyers: M G PATEL
• Keywords: Unexplained cash credit; Depreciation
• Section: 14A; 68

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI D. K. TYAGI, JM AND D.C.AGRAWAL, AM SHRI ANIL BHOLABHAI PATEL, 1, DARSHAN PARK SOCIETY, VIP ROAD, KARELIBAUG, BARODA-380018. VS. DY. CIT, CIRCLE-5, BARODA. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI M. G. PATEL, AR RESPONDENT BY:- MRS. R. K. TOPIWALA, DR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUNDS:- (1) THE LD. CIT(A)-V, BARODA HAS ERRED IN LAW AS WELL A S ON FACTS BY CONFIRMING DISALLOWANCE OF EXPENSES OF RS.8,48,3 38/- MADE BY THE LD. AO BY APPLYING PROVISIONS OF SECTION 14A OF THE INCOME-TAX ACT, 1961. (2) THE LD. CIT(A)-V, BARODA HAS ERRED IN LAW AND ON TH E FACTS BY CONFIRMING THE ADDITIONS OF RS.1,00,000/- MADE BY T HE LD. AO CONSIDERING THE SAME AS UNEXPLAINED CASH CREDIT U/S 68 OF THE IT ACT, 1961. (3) THE APPELLANT, THEREFORE, PRAYS FOR THE FOLLOWING - I) TO DELETE ADDITION OF RS.8,48,338/- MADE BY DISALLO WING EXPENSES AFTER INVOKING PROVISIONS OF SECTION 14A O F THE IT ACT, 1961. ITA NO.299/AHD/2006 ASST. YEAR 2002-03 ITA NO.299/AHD/2006 ASST. YEAR 2002-03 2 II) TO DELETE ADDITION OF RS.1,00,000/- MADE BY WAY OF UNEXPLAINED CASH CREDIT U/S 68 OF THE IT ACT, 1961. 2. THE FACTS OF THE CASE ARE THAT ASSESSEE IS DERIV ING INCOME FROM PARTNERSHIP FIRM AS SALARY & INTEREST. HE IS ALSO D ERIVING INTEREST INCOME FROM OTHER SOURCES. HE FILED RETURN OF INCOME AT RS .15,70,150/- AND AGRICULTURAL INCOME OF RS.2,90,822/-. THE TAXABLE I NCOME AS WORKED OUT BY THE AO WAS RS.10,30,316/- AS UNDER :- SALARY FROM VARIOUS FIRMS RS.4,73,515/- INTEREST FROM FIRMS RS.5,32,670/- OTHER INTEREST RS.24,131/- ------------------ RS.10,30,316/- SINCE ASSESSEE HAD RECEIPTS FROM PARTNERSHIP FIRM, TOTAL RECEIPTS BOTH TAXABLE AND NON-TAXABLE WAS WORKED OUT BY THE AO AT RS.50,76,590/-. THUS THE RATIO OF TAXABLE INCOME TO TOTAL RECEIPTS (TAXABLE AS WELL AS NON- TAXABLE) WAS CALCULATED AT 20.30% BY THE AO. THEREA FTER THE AO OBSERVED THAT ASSESSEE HAS CLAIMED TOTAL EXPENDITUR E OF RS.10,64,413/- WHICH INCLUDED INTEREST ON BORROWED CAPITAL AT RS.6 ,80,975/- AND BALANCE RELATED TO TELEPHONE, CAR AND DEPRECIATION OF THE C AR. THE AO FURTHER FOUND THAT ASSESSEE HAS GIVEN ADVANCES TO VARIOUS P ERSONS AMOUNTING TO RS.74,69,173/- WITHOUT CHARGING OF INTEREST BUT HAS PAID INTEREST ON THE BORROWED FUNDS. HE THUS REQUIRED THE ASSESSEE TO EX PLAIN WHY NOT A PROPORTIONATE EXPENDITURE BE DISALLOWED. IT WAS EXP LAINED BY THE ASSESSEE THAT ADVANCES WERE GIVEN OUT OF CAPITAL OF THE ASSE SSEE WHICH IS MORE THAN THE ADVANCES GIVEN. THE AO, HOWEVER, DID NOT ACCEPT THIS EXPLANATION AND HELD THAT ASSESSEE HAS FAILED TO ESTABLISH THE NEXUS BETWEEN CAPITAL FUND AND INTEREST FREE ADVANCES. ON THE OTHER HAND IT HAS BEEN ADMITTED THAT FUNDS ARE MIXED AND HENCE NEXUS CANNOT BE ESTA BLISHED. THE TOTAL ITA NO.299/AHD/2006 ASST. YEAR 2002-03 3 BORROWED CAPITAL WAS RS.2,57,83,024/- AND PAYMENT O F INTEREST WAS RS.6,80,975/- WHICH IS ROUGHLY 2.64%. ACCORDINGLY T HE INTEREST RELATABLE TO INTEREST FREE ADVANCES WAS CALCULATED @ 2.64% WH ICH WAS WORKED OUT AT RS.1,97,186/-. THE AO FURTHER ALLOWED ONLY @ 20. 30% OF THE TOTAL EXPENSES BY INVOKING THE PROVISIONS OF SECTION 14A WHICH WAS WORKED OUT AND ACCORDINGLY DISALLOWED AT RS.8,48,338/- WHI CH INCLUDED THE DISALLOWED PORTION OF INTEREST OF RS.1,97,186/-.. 3. WHEN THE MATTER CAME UP BEFORE THE LD. CIT(A), H E RELYING ON THE DECISION OF THE TRIBUNAL, AHMEDABAD BENCH IN THE CA SE OF ACIT VS. TORRENT FINANCIERS (2001) 73 TTJ (AHD) 624) HELD TH AT WHERE ASSESSEES CAPITAL IS RS.1,83,28,047/- WHICH IS MORE THAN INTE REST FREE ADVANCES OF RS.74,69,173/- NO DISALLOWANCE IS CALLED FOR AS FOR NON-BUSINESS PURPOSES. THE LD. CIT(A), HOWEVER, CONFIRMED THE DISALLOWANCE U/S 14A AT RS.8,48,338/- BY HOLDING THAT EXPENDITURE HAVE BEEN AT RS.10,64,413/- INCURRED BOTH FOR EARNING TAXABLE AS WELL AS NON-TA XABLE INCOME. THE TAXABLE INCOME CONSISTED ONLY 20.30% OF TOTAL RECEI PTS. 4. THE LD. AR SUBMITTED THAT NO AMOUNT SHOULD BE DI SALLOWED OUT OF INTEREST AS LD. CIT(A) HAS ALLOWED THE SAME AS UNDE R :- 3.2 I HAVE CONSIDERED THE OBSERVATIONS OF THE AO A ND THE CONTENTIONS OF THE APPELLANT. IN THE CASE OF ACIT VS. TORRENT F INANCIERS (2001) 73 TTJ (AHD) 624, THE HONBLE ITAT, AHMEDABAD BENCH HA S HELD THAT IF THE TOTAL INTEREST FREE ADVANCES INCLUDING DEBIT BALANC E OF PARTNERS OF ASSESSEE FIRM DO NOT EXCEED THE TOTAL INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE, NO INTEREST IS DISALLOWABLE ON ACCOUNT OF UTILIZATION OF FUND FOR NON-BUSINESS PURPOSES. IF IT EXCEEDS, PROPORTIONATE DISALLOWANCE CAN BE MADE. IT IS SEEN THAT THE APPELLANTS CAPITAL IS OF RS.18328047/- WHICH IS MORE THAN THE INTEREST FREE ADVANCES OF RS.7469173/ -. IN VIEW OF THE ABOVE DECISION OF THE HONBLE ITAT, AHMEDABAD BENCH NO INTEREST IS DISALLOWABLE ON ACCOUNT OF UTILIZATION OF FUND FOR NON-BUSINESS PURPOSES. THEREFORE, THE AO WAS NOT JUSTIFIED IN PROPOSING TO DISALLOW INTEREST EXPENSES OF RS.197186/-. ITA NO.299/AHD/2006 ASST. YEAR 2002-03 4 THE TOTAL INTEREST PAYMENT CONSISTING OF TOTAL EXPE NDITURE OF RS.10,64,413/- IS RS.6,80,975/-. NO PORTION THEREOF SHOULD BE DISALLOWED AS REVENUE HAS NOT FILED ANY APPEAL AGAINST THIS OR DER OF LD. CIT(A). REGARDING OTHERS HE SUBMITTED THAT A REASONABLE VIE W SHOULD BE TAKEN IN VIEW OF THE DECISION OF HON. BOMBAY HIGH COURT IN T HE CASE OF GODREJ AND BOYCE MFG. CO. LTD. VS. DCIT & ANR. (2010) 328 ITR 81 (BOM). 5. THE LD. DR SUPPORTED THE ORDERS OF THE AUTHORITI ES BELOW. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE CONTENTION OF LD. AR IS CORRECT. ONCE THE LD. CIT(A) HAS NOT UPHELD DISALLOWANCE OF ANY INTEREST PORTION ON THE GROUND THAT ASSESSEE HAS ADEQUATE SURPLUS CA PITAL WHICH WOULD BE INVESTED IN INTEREST FREE ADVANCES AND THE REVENUE HAS NOT PREFERRED ANY APPEAL, NO DISALLOWANCE UNDER SECTION 14A THEREFROM CAN BE MADE. OUT OF THE REST LD. AR HAS SUGGESTED FOLLOWING WORKING AS PER RULE 8-D: 1) A=B/C I.E. INTEREST EXPENSE X AVERAGE VALUE OF INVESTMENT S/AVERAGE VALUE OF TOTAL ASSETS AVERAGE VALUE OF INVESTMENTS =INVESTMENT -2002 + IN VESTMENTS -2001/2 = 7469173 + 5886668/2 = 6677920 AVERAGE VALUE OF TOTAL ASSETS = TOTAL ASSETS -2002 + TOTAL ASSETS -2001/2 =47968650+45259359/2 = 46614004 680975 X 6677920 / 46614004 = 97556/- 2) EXPENSES AT 0.5% OF INVESTMENTS ITA NO.299/AHD/2006 ASST. YEAR 2002-03 5 CAR EXPENSE 299299 TELEPHONE EXPENSE 65213 ---------- TOTAL EXPENSE 364512 ----------- 0.5% OF AVERAGE INVESTMENTS RS.6677920/- COME TO RS.33390/- TOTAL EXPENSES DISALLOWABLE AS PER RULE 8D :- INTEREST (PARA 1) 97556 CAR & TELEPHONE EXPENSE (PARA 2) 33390 ------------- TOTAL 130946 ------------- THE AO WILL CONSIDER THE SAME. IF THERE IS ANY INTE REST ELEMENTS ON BORROWED CAPITAL WHICH HAS GONE TO EARN EXEMPT INCO ME ONLY THAT PORTION SHOULD BE CONSIDERED FOR DISALLOWANCE AND NOT THE P ORTION ON THE INTEREST FREE ADVANCES. WITH THE ABOVE OBSERVATIONS WE RESTO RE THE MATTER TO THE AO. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES . 7. THE SECOND GROUND RELATES TO AN ADDITION OF RS.1 ,00,000/- BEING CASH DEPOSIT. DURING THE COURSE OF ASSESSMENT PROCE EDINGS THE AO NOTED ASSESSEE HAS SHOWN CREDIT OF RS.1 LACS IN THE BOOKS OF ACCOUNT WHICH IS CLAIMED AS ADVANCE RECEIVED FROM ONE SHRI SUSHIL AS HOKBHAI LUHAR. THE AO REQUIRED THE ASSESSEE TO FURNISH CONFIRMATION AN D NATURE AND SOURCES OF THIS CREDIT. HOWEVER, NO SUCH CONFIRMATION WAS F URNISHED. IN THIS REGARD FOLLOWING OBSERVATIONS OF AO IS IMPORTANT :- 7. THE ASSESSEE HAS CLAIMED TO HAVE BEEN RECEIVED ADVANCES FROM VARIOUS FARMERS AGAINST THE LAND. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND SPECIFICALLY VIDE NOTICE DATED 18.2 .2005 THE ASSESSEE WAS REQUIRED TO EXPLAIN THE SOURCE OF ADVANCE OF RS .1,00,000/- FROM SHRI SUSHIL A. LUHAR RECEIVED ON 31.8.2001. THE ASSESSEE WAS ALSO REQUIRED TO FURNISH THE CONFIRMATION. HOWEVER, VIDE REPLY DATED 28.2.2005 THE ITA NO.299/AHD/2006 ASST. YEAR 2002-03 6 ASSESSEE HAS STATED THAT THE CONFIRMATION WILL BE F URNISHED ON THE SUBSEQUENT DATE AND ON SUBSEQUENT DATE THE ASSESSEE HAS FILED A REPLY DATED 7.3.2005 MERELY STATING THAT THESE ADVANCES A RE OLD AND HENCE THE CONFIRMATION IS NOT OBTAINED. THE REPLY OF THE ASSE SSEE IS NOT ACCEPTABLE BECAUSE FROM THE COPY OF ACCOUNT ITSELF, IT IS CRYS TAL CLEAR THAT ADVANCE OF RS.1,00,000/- HAS BEEN RECEIVED ON 31.8.2001 FROM S HRI SUSHIL ASHOKBHAI LUHAR. SINCE NEITHER THE CONFIRMATION NOR EXPLANATI ON REGARDING SOURCE HAVE BEEN FILED, AN AMOUNT OF RS.1,00,000/- SHOWN A S ADVANCE IS TREATED AS UNEXPLAINED CASH CREDIT AND ADDED UNDER SECTION 68 OF THE IT ACT, 1961. 8. THE LD. CIT(A) ALSO CONFIRMED THE ADDITION BY HO LDING THAT INSPITE OF MANY OPPORTUNITIES PROVIDED TO THE ASSESSEE, ASS ESSEE FAILED TO FURNISH CONFIRMATION AND OTHER DETAILS FROM SHRI SUSHIL A. LUHAR. HE REITERATED BEFORE LD. CIT(A) THAT ADVANCES ARE RECEIVED IN EAR LIER YEARS BUT THE FACT WAS THAT IT WAS SHOWN CREDITED IN THE ACCOUNT THIS YEAR. 9. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE ADDITION IS CALL ED FOR BECAUSE IT IS THE DUTY OF THE ASSESSEE TO FURNISH DETAILS FIRST BEFOR E THE AO SO THAT HE GETS OPPORTUNITY TO VERIFY THEM. WE AGREE WITH THE LD. C IT(A) THAT INSPITE OF MANY OPPORTUNITIES GIVEN THE ASSESSEE DID NOT FURNI SH ANY EVIDENCE BEFORE HIM AND ONLY ASSERTED` THAT ADVANCE WAS RECE IVED IN EARLIER YEARS EVEN THOUGH SAME WAS FOUND CREDITED IN THE BOOKS ON 31.8.2001. REGARDING REFUSAL OF LD. CIT(A) TO ADMIT EVIDENCE W E ARE OF THE VIEW THAT UNLESS ASSESSEE SHOWS REASONS FOR NOT FURNISHING TH E EVIDENCE BEFORE THE AO THE LD. CIT(A) WOULD BE JUSTIFIED IN REFUSING TO ADMIT THEM. EVEN BEFORE US, NO REASONS ARE ADVANCED AS TO WHY ANY EV IDENCE WAS NOT FURNISHED BEFORE THE AO. WE DO NOT KNOW WHETHER THE RE WAS ANY CONFIRMATION RECEIVED FROM SHRI SUSHIL A. LUHAR. TH E LD. AR HAS ONLY REFERRED TO CERTAIN LETTERS WRITTEN BY THE ASSESSEE AND COPY OF ACCOUNTS OF SUSHIL A. LUHAR IN THE BOOKS OF ASSESSEE BUT THERE IS NO REFERENCE TO 3 RD PARTY EVIDENCE SUCH AS CONFIRMATION, THE DETAILS OF ASSETS ETC. SO AS TO ITA NO.299/AHD/2006 ASST. YEAR 2002-03 7 SHOW CREDITWORTHINESS OF THE CREDITOR. IT IS TO BE FURTHER NOTED THAT THIS ADVANCE WAS CLAIMED TO HAVE BEEN RECEIVED ON SALE O F LAND BY THE ASSESSEE BUT NO SUCH AGREEMENT OR UNDERSTANDING WAS ENTERED INTO AND NO SALE OF LAND IN FACT TOOK PLACE. THEREFORE, NATURE AND SOURCE OF THE CREDIT IS NOT ESTABLISHED. ACCORDINGLY THE CREDIT IS NOT P ROVED. AS A RESULT, WE CONFIRM THE ADDITION. THIS GROUND OF ASSESSEE FAILS . 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 31.3.11. SD/- SD/- (D. K. TYAGI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 31.3.11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD ITA NO.299/AHD/2006 ASST. YEAR 2002-03 8 1.DATE OF DICTATION 28/3/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 29/3/ 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..