Smt. Archana Lohia, Prop. M/s. Lohia, JODHPUR V. DCIT, JODHPUR

ITA 307/JODH/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9465 (ITAT-JODHPUR)
• Duration Of Justice: 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 02-02-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 05-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Source of fund; Notional interest; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI V.D. RAO, JUDICIAL MEMBER ITA NO. 307/JU/2010 ASSTT. YEAR :2007-08 SMT. ARCHANA LOHIA, VS. D.C.I.T., CIRCLE 3, PROP. M/S. LOHIA INVESTMENT & JODHPUR. MANAGEMENT CONSULTANTS, JODHPUR. (PAN AAJPL 2970 R) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANOJ GUPTA, A.R. RESPONDENT BY : SHRI AVADHESH KUMAR, D.R. O R D E R PER S.V. MEHROTRA, A.M : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDE R DATED 19.02.2010 OF LEARNED CIT(A), JODHPUR PERTAINING TO ASSESSMENT YEAR 2007- 08. 2. THE ASSESSEE, IN THE RELEVANT ASSESSMENT YEAR, W AS ENGAGED IN THE TRADING IN CAPITAL MARKET AND GETTING BROKERAGE INCOME. SHE WA S ALSO IN RECEIPT OF BANK INTEREST. SHE HAD FILED HER RETURN OF INCOME DECLARING TOTAL LOSS OF RS.9,01,832/-. THE ASSESSMENT WAS COMPLETED AT A TOTAL INCOME OF RS.2,75,543/-, INTER ALIA, MAKING DISALLOWANCES ON ACCOUNT OF INTEREST PAYMENT CLAIMED IN P&L ACCOUNT AT RS.4, 72,030/-. 3. THE LEARNED CIT(A), WHILE PARTLY ALLOWING THE AS SESSEES APPEAL, DISMISSED THE SAME ON THIS ISSUE. BEING AGGRIEVED, THE ASSESSEE I S IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING GROUND OF APPEAL : 2 1. BECAUSE THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER BY ESTIMATING INTEREST AT AN ARBI TRARY RATE OF 15% ON SELECTED DEBTORS AND THUS DISALLOWING INTEREST PAID TO BANKS AND DEPOSITORS IN AN AMOUNT EQUAL TO RS.4,72,030/- BY R EDUCING THE INTEREST PAID TO THE EXTENT OF THE AMOUNT COMPUTED AS ABOVE. 4. THE BRIEF FACTS APROPOS THE ISSUE ARE THAT, FROM THE PROFIT AND LOSS ACCOUNT, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD MAD E PAYMENT OF INTEREST OF RS.1,91,750/- TO OTHER PARTIES, RS.5,54,943/- TO BANK OF RAJASTH AN AND RS.70,340/- TO ICICI BANK. HE FURTHER NOTICED THAT THE ASSESSEE HAD NOT CHARGED I NTEREST ON LOAN GIVEN TO HER DEBTORS LIKE SACHHIYAY INVESTMENT (A CONCERN OF ASSESSEES SPOUS E) OF RS.27,98,716/- AND SHRI BANKAT LOHIYA, HUSBAND OF THE ASSESSEE, OF RS.3,48,152/-. HE FURTHER NOTICED THAT THE ASSESSEE HAD PAID INTEREST TO OTHERS @ 15%. HE CONCLUDED THA T THE ASSESSEE HAD TAKEN INTEREST BEARING LOAN FROM OTHER PARTIES AND BANK AND GIVEN INTEREST FREE LOAN TO HIS SPOUSE. HE COMPUTED THE INTEREST ATTRIBUTABLE TO THE OUTSTANDI NG BALANCES AGAINST SACHHIYAY INVESTMENT AND BANKAT LOHIA @ 15% AND MADE DISALLOW ANCES OF RS.4,72,030/- 5. BEFORE THE LEARNED CIT(A), IT WAS SUBMITTED THAT THE AMOUNT STANDING AS DEBT IN ASSESSEES BOOKS HAD WRONGLY BEEN TREATED BY THE AS SESSING OFFICER AS MONEY DIVERTED FROM LOAN TAKEN. IT WAS POINTED OUT THAT SHRI BANKA T LOHIA, ASSESSEES HUSBAND, WAS ENGAGED IN PURCHASE AND SALE OF THE SHARES THROUGH THE ASSESSEE. THE ASSESSEE HAD FURTHER POINTED OUT THAT SHE DID NOT FOLLOW THE PRACTICE OF CHARGING INTEREST ON OUTSTANDING DEBT AND THE MONEY WAS GIVEN TO M/S. SACHHIYAY INVESTMEN T FOR COMMERCIAL EXPEDIENCY WHICH WAS NOT USED FOR PERSONAL BENEFIT OF THE PROP RIETOR, SHRI BANKAT LOHIA. IT WAS 3 FURTHER STATED THAT IN ORDER TO PROTECT THE HUSBAND S BUSINESS, THE ASSESSEE WAS COMPELLED TO GIVE CERTAIN MONEY TO HER HUSBANDS FIRM M/S. SA CHHIYAY INVESTMENT. IT WAS FURTHER SUBMITTED THAT THE APPLICATION OF FLAT RATE OF 15% ON THE MONEY OUTSTANDING AT THE END OF THE YEAR, BEING ARBITRARY, WAS NOT JUSTIFIED. THE L EARNED CIT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND POINTED OUT THAT AS FAR AS APPLICATION OF FLAT RATE OF 15% ON MONEY OUTSTANDING IS CONCERNED, THE ASSESSING OFFIC ER HAD MADE THE ADDITION BY DISALLOWING PART OF INTEREST EXPENDITURE AND NOT BY ESTIMATING NOTIONAL INTEREST INCOME AND, THEREFORE, THIS CONTENTION OF THE ASSESSEE WAS NOT CORRECT. AS REGARDS THE SOURCE OF FUNDS ADVANCED, THE LEARNED CIT(A), INTER ALIA, OBS ERVED AS UNDER : IT IS NOT THE APPELLANTS CONTENTION THAT SHE HAD SUFFICIENT CAPITAL OF HER OWN OR INTEREST FREE FUND AVAILABLE WITH HER OUT OF WHICH THE MONEY WAS ADVANCED TO HER HUSBAND AND HIS CONCERN WITHOUT CHARGING INTEREST. UNDER THESE CIRCUMSTANCES, IT HAS NECESSARILY TO BE HELD THAT THE MONEY ADVANCED TO THE ASSESSEES HUSBAND AND HIS CONCERN WAS OUT OF INTEREST BEARING BORROWINGS. THE INTEREST PAID ON SUCH BORRO WINGS OF THE ASSESSEE THUS, HAS A DIRECT NEXUS WITH THE MONEY ADVANCED TO THE ASSESSEES HUSBAND AND HIS CONCERN. 6. AS REGARD THE ASSESSEES CONTENTION OF COMMERCIA L EXPEDIENCY, THE LD. CIT(A) HELD THAT NO BENEFIT WAS DERIVED BY THE ASSESSEE FR OM THESE TRANSACTIONS FOR HER BUSINESS AND, THEREFORE, THERE WAS NO COMMERCIAL EXPEDIENCY. 7. THE LEARNED COUNSEL FOR THE ASSESSEE FILED HIS W RITTEN SUBMISSIONS AND SUBMITTED THAT THE DETAILS OF OUTSTANDING BALANCES IN THE ACC OUNTS OF BOTH THE DEBTORS WERE AS UNDER : 4 PARTY NAME MONEY OUTSTANDING AS ON 31.03.2006 (RS.) MONEY OUTSTANDING AS ON 31.03.2007 (RS.) INCREMENTAL MONEY DUE DURING THE YEAR 2006-07 (RELEVANT FOR ASSESSMENT YEAR 2007-08) REMARKS SACHHIYAY INVESTMENTS (ASSESSEES HUSBANDS CONCERN) 16,07,432 27,98,716.4 11,91,284.4 COPY OF ACCOUNT ENCLOSED [MARKET AS ANNEXURE-3] BANKET LOHIA (ASSESSEES HUSBAND) 2,68,152.49 3,48,152.49 80,000 COPY OF ACCOUNT ENCLOSED [MARKED AS ANNEXURE-4] TOTAL 18,75,584.49 31,46,868.89 12,71,284.40 CAPITAL OF ASSESSEE AS ON FIRST DAY OF RELEVANT YEAR 23,42,650.62 (AS ON 01.04.2005) 19,29,145.33 (AS ON 01.04.2006) COPY OF CAPITAL ACCOUNT ENCLOSED [MARKED AS ANNEXURE- 1& 5] HE SUBMITTED THAT AT BEST, PROPORTIONATE DISALLOWAN CE COULD BE MADE OUT OF THE ADVANCE GIVEN DURING THE YEAR, AS THE OPENING BALANCES WERE DULY COVERED BY THE ASSESSEES OWN CAPITAL. FURTHER, HE SUBMITTED THAT THE RATE OF INT EREST WHICH IS TO BE APPLIED FOR MAKING DISALLOWANCE SHOULD BE BETWEEN 10.5% TO 11% AND NOT 15%, SINCE THE ASSESSEE HAD PAID INTEREST AT THIS RATE TO THE BANK OF RAJASTHAN AND ICICI BANK. 8. THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAD P AID INTEREST @ 15% TO OTHER PARTIES. HE SUBMITTED THAT ON OPENING BALANCES ALSO , DISALLOWANCE IS CALLED FOR AS THERE IS NOTHING ON RECORD TO SUGGEST THAT THE OPENING BALAN CE WAS DULY COVERED BY OWN CAPITAL. 5 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PER USED THE RECORD OF THE CASE. THE FIRST CONTENTION OF THE LEARNED COUNSEL IS THAT NO DISALLOWANCE IS TO BE MADE WITH REFERENCE TO OPENING BALANCES OF THESE DEBTORS, AS THE OUTSTANDING AMOUNT OF RS.18,75,584.49 AS ON 01.04.2006 WAS DULY COVERED B Y THE CAPITAL OF RS.19,29,145/- OF ASSESSEE. WE FIND THAT THE LEARNED CIT(A) OBSERVED THAT THE MONEY WAS ADVANCED OUT OF THE INTEREST BEARING BORROWINGS OF THE ASSESSEE AND THE INTEREST INCURRED ON THE BORROWINGS OF THE ASSESSEE TO THE EXTENT OF THE MON EY ADVANCED TO SHRI BANKAT LOHIYA AND HIS CONCERN, WAS THEREFORE, HELD NOT TO HAVE BE EN INCURRED FOR THE PURPOSE OF ASSESSEES BUSINESS. THUS, THE ASSESSEES CONTENTIO N IN THIS REGARD HAS NOT BEEN CONSIDERED. THEREFORE, WHETHER ANY DISALLOWANCE IS CALLED FOR OR NOT WITH REFERENCE TO THE OUTSTANDING BALANCES AS ON 01.04.2006 OF RS.18,75,5 84.49, WOULD DEPEND ON VERIFICATION OF CAPITAL ACCOUNT FILED ALONGWITH WRITTEN SUBMISSI ONS CONTAINED AT ANNEXURE 1. THIS NEEDS VERIFICATION AND IF THE ASSESSEES CONTENTION IN THIS REGARD IS FOUND CORRECT WITH REFERENCE TO THE DOCUMENTS FILED ALONGWITH HER RETU RN EARLIER, THEN NO DISALLOWANCE IS CALLED FOR WITH REFERENCE TO DEBTORS BALANCES DULY COVERED BY THE CAPITAL OF ASSESSEE. HOWEVER, IF THE ASSESSEE IS UNABLE TO SUBSTANTIATE ITS CLAIM IN THIS REGARD THEN DISALLOWANCE IS CALLED FOR WITH REFERENCE TO OPENIN G BALANCES ALSO. FOR THIS LIMITED PURPOSE, THE MATTER IS RESTORED BACK TO THE FILE OF ASSESSING OFFICER. 10. AS FAR AS THE ADVANCES GIVEN DURING THE CURRENT YEAR ARE CONCERNED, THE LD. COUNSEL FAIRLY CONCEDED THAT THE DISALLOWANCE IS CALLED FOR WITH REFERENCE TO RS.12,71,284/-, BUT HIS CONTENTION IS THAT THE DISALLOWANCE SHOULD BE M ADE @ 10.5% TO 11%. WE FIND THAT 6 THOUGH THE ASSESSEE HAD PAID INTEREST @ 15% IN RESP ECT OF LOANS TAKEN BY HER BUT THE SAME WAS FOR RS.1,91,750/-, WHEREAS THE ASSESSEE PAID IN TEREST TO BANK OF RAJASTHAN OF RS.5,54,943/- AND TO ICICI BANK OF RS.70,340/-. THE REFORE, IT CAN REASONABLY BE CONCLUDED THAT THE ADVANCE GIVEN DURING THE YEAR WE RE MAINLY FROM THE BANK ACCOUNT OF BANK OF RAJASTHAN AND, THEREFORE, THE RATE OF INTER EST TO BE APPLIED, SHOULD NOT HAVE BEEN MORE THAN 11%. WE DIRECT ACCORDINGLY. 11. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 09.02.11 . SD/- SD/- (V.D. RAO) (S.V. MEHROTRA) JUDICIAL MEMBER ACCO UNTANT MEMBER DATED : 9 TH FEBRUARY, 2011 *AKS/- COPY FORWARDED TO:- 1. APPELLANT, 2. RESPONDENT, 3. INCOME-TAX OFFICER, 4. CIT, 5. D/R 6. GUARD FILE