Appeal details
Counselvise Citation
307520514 RSA 2010
Assessee PAN
Bench
Appeal Number
Duration Of Justice
10 month(s) 13 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-09-2011
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
A
Next Hearing Date
16-09-2011
Assessment Year
2005-2006
Appeal Filed On
16-11-2010
Judgement Text
-1- IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' [BEFORE SHRI G D AGARWAL VICE-PRESIDENT] [ AND SHRI MUKUL KUMAR SHRAWAT JM] ITA NO.3075/AHD/2010 (ASSESSMENT YEAR:-2005-06) THE DEPUTY COMMISSIONER OF INCOME- TAX (OSD) RANGE-1, AHMEDABAD V/S ARIHANT AVENUE & CREDIT LTD., 3, RAJESH APARTMENT, B/H AJANTA COMMERCIAL CENTRE, ASHRAM ROAD, AHMEDABAD PAN: AADCA 8197 Q [APPELLANT] [RESPONDENT] APPELLANT BY :- SHRI R K VOHRA, SR. DR RESPONDENT BY:- SHRI SAKAR SHARMA, AR DATE OF HEARING:- 16-09-2011 DATE OF PRONOUNCEMENT:- 30-09-2011 O R D E R PER BENCH : THIS IS AN APPEAL BY REVENUE AGAINS T AN ORDER DATED 01-09-2010 OF THE LEARNED COMMISSIONER OF INCOME-TA X (APPEALS)-I, AHMEDABAD [THE CIT(A)] FOR ASSESSMEN T YEAR (AY) 2005-06. THE ONLY GROUND RAISED BY THE REVENUE READS AS UNDER:- THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DELET ING THE ADDITION OF RS.39,86,000/-ON ACCOUNT OF INTEREST INCOME ON ADVA NCE MADE BY THE ASSESSEE TO ITS SISTER CONCERN. 2 ITA N O.3075/AHD/2010 2 THE FACTS IN BRIEF AS EMERGED FROM THE ASSESSMENT ORDER DATED 27-12-2007 PASSED U/S 143(3) OF THE INCOME-TA X ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT], ARE THAT TH E ASSESSEE IS ENGAGED IN THE BUSINESS OF SHARE TRADING AND INVEST MENT. THE ASSESSING OFFICER [AO] NOTICED FROM THE TAX AUDIT R EPORT THAT THE ASSESSEE UNDERSTATED INTEREST INCOME OF APPROXI MATELY RS.39.86 LACS AGAINST APPROXIMATE ADVANCE OF RS.329 .64 LACS. ACCORDINGLY, SHOW CAUSE NOTICE WAS ISSUED AND ASKED THE ASSESSEE TO GIVE FULL DETAILS OF ACCOUNTS WHEREIN INTEREST HAS NOT BEEN PROVIDED FOR THE PERIOD UNDER CONSIDERATIO N ALONG WITH REASON FOR NOT PROVIDING INTEREST ON ACCRUAL M ETHOD. ACCORDING TO THE AO, AS PER COMPANIES ACT, THE ASSE SSEE SHOULD HAVE ACCOUNTED FOR INCOME AND EXPENDITURE ON ACCRUA L BASIS. SINCE THE ASSESSEE HAS NOT PROVIDED INTEREST INCOME AGAINST ADVANCES, THE ASSESSEE WAS REQUIRED TO SHOW CAUSE A S TO WHY INTEREST INCOME OF SUM OF RS.39.86 LACS SHOULD NOT BE BROUGHT TO TAX ON ACCRUAL BASIS. IN RESPONSE, THE ASSESSEE SUB MITTED THAT MAJORITY OF THE ADVANCES WERE VERY OLD GIVEN BY THE OLD MANAGEMENT AND THEREFORE, THE ASSESSEE WAS MAKING A LL EFFORTS TO GET THOSE ADVANCES REALIZED. SINCE PRINCIPAL ADVANC E ITSELF IS NOT RECOVERED / RECOVERABLE IN THE PRECEDING YEARS, NO INTEREST HAS BEEN PROVIDED FOR WHICH AUDITORS HAVE COMMENTED. AC CORDING TO THE ASSESSEE, NO INTEREST INCOME ON THE ADVANCES HA S BEEN ACCRUED AND AS SUCH QUESTION OF OFFERING ANY INTERE ST INCOME ON THE ADVANCES DOES NOT ARISE. FURTHER, THE ASSESSEE HAS ASSURED THAT AS AND WHEN ANY AMOUNT SHALL BE REALIZED ON AN D ABOVE WHAT 3 ITA N O.3075/AHD/2010 HAS BEEN ADVANCED, THE SAME WOULD BE OFFERED FOR TA XATION AS INCOME. HOWEVER, THE AO DID NOT ACCEPT THE SUB MISSIONS OF THE ASSESSEE AND MADE AN ADDITION OF RS.39,86,000/- AS THE NOTIONAL INTEREST, CHARGEABLE ON THE TOTAL INTEREST FREE ADV ANCES OF RS.329.86 LACS. 3 BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEF ORE THE LEARNED CIT(A). BEFORE THE LEARNED CIT(A), THE AR O F THE ASSESSEE FILED WRITTEN SUBMISSIONS AS UNDER:- 'THE ABOVE APPEAL HAS BEEN PREFERRED AGAINST ADDITI ON OF RS.39,86,000/- MADE BY THE ASSESSING OFFICER VIDE P ARA 5.2 OF THE ASSESSMENT ORDER ON THE BASIS OF QUALIFICATION MADE BY THE AUDITORS IN THE AUDIT REPORT WHICH IS REPRODUCED IN PARA 5 ON P AGE 2 OF THE ASSESSMENT ORDER ON ACCOUNT OF NON CHARGING OF INTE REST ON ADVANCES GIVEN TO PARTIES AMOUNTING TO RS.329.64 LACS. THE A SSESSING OFFICER HAS STATED THAT ASSESSEE IS FOLLOWING MERCANTILE SY STEM OF ACCOUNTING AND THEREFORE INTEREST INCOME ON THE ADVANCE GIVEN IS ACCRUED IF INTEREST INCOME IS ACCOUNTED ON ACCRUAL BASIS. DETAILS OF FIVE ACCOUNTS ON WHICH INTEREST HAS NOT BEEN CHARGED IS AS UNDER: 1. JAYVANTI FINANCE P LTD. RS.17763503/- 2. SHREE HANSRAJ PAPER MILLS LTD. RS.11090000/- 3. SHREE HARIRAJ PAPER MILLS LTD. RS. 24483/- 4. MAHADEV ASSOCIATES RS. 4026280/- 5. ACCURATE COMPUTER FORMS P LTD. RS. 60000/- YOUR HONOUR WOULD APPRECIATE THAT YOUR APPELLANT HAS NOT CHARGED ANY INTEREST ON THESE ADVANCES SINCE INCEPT ION AND NO ADVERSE VIEW WAS TAKEN EITHER BY THE ASSESSING OFFICER OR B Y THE AUDITORS AS NO INTEREST WAS CHARGEABLE ON SUCH ADVANCES. COPIES OF AUDIT REPORTS FOR EARLIER THREE YEARS TOGETHER WITH COPIES OF ACC OUNTS OF THE AFORESAID PARTIES ARE ENCLOSED HEREWITH. SINCE NO INTEREST WAS CHARGEABLE ON SUCH ADVANCES, THE ASSESSING OFFICER, OUGHT NOT TO HAVE MADE ADDITION OF RS.39,86,000/- 4 ITA N O.3075/AHD/2010 WITHOUT VERIFYING THE FACTUAL POSITION THAT IN THE PAST NO INTEREST HAS BEEN ACCRUED OR CHARGED ON THESE ADVANCES. THE APPE LLANT IN VIEW OF THE ABOVE STATED FACTS REQUESTS YOUR HONOUR TO DELE TE UNWARRANTED ADDITION OF RS.39,86,000/-.' AFTER CONSIDERING THE AFORESAID SUBMISSIONS OF THE ASSESSEE, THE LEARNED CIT(A) DELETED THE ADDITION IN THE FOLLOWING MANNER:- 4. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELL ANT. THE SUPREME COURT, IN THE CASE OF C1T VS. SHOORJI VALLABHDAS & CO. (46 1TR 144) HAS HELD THAT INCOME TAX IS A LEVY ON INCOME. NO DOUBT, THE INCOME TAX ACT TAKES INTO ACCOUNT TWO PO INTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATTRACTED, VIZ. THE A CCRUAL OF THE INCOME OR ITS RECEIPT; BUT THE SUBSTANCE OF THE MATTER IS THE INCOME. IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TAX EVEN THOUGH IN BOOK- KEEPING, AN ENTRY IS MADE ABOUT A 'HYPOTHETICAL INC OME', WHICH DOES NOT MATERIALIZE. WHERE INCOME HAS, IN FACT, BEEN RE CEIVED AND IS SUBSEQUENTLY GIVEN UP IN SUCH CIRCUMSTANCES THAT IT REMAINS THE INCOME OF THE RECIPIENT, EVEN THOUGH GIVEN UP, THE TAX MAY BE PAYABLE. WHERE, HOWEVER, THE INCOME CAN BE SAID NOT TO HAVE RESULTED AT ALL, THERE IS OBVIOUSLY NEITHER ACCRUAL NOR RECEIPT OF I NCOME, EVEN THOUGH AN ENTRY TO THAT EFFECT MIGHT, IN CERTAIN CIRCUMSTA NCES, HAVE BEEN MADE IN THE BOOKS OF ACCOUNT. 4.1. SIMILARLY, THE GUWAHATI HIGH COURT IN THE CASE OF B & A PLANTATIONS INDUSTRIES LTD. VS. CIT (242 ITR 22) HAS HELD THAT WHERE NO INTEREST IS CHARGED ON INTEREST FREE LOANS TO SISTER CONCERNS, THERE IS NO INCOME TO BE CHARGED AS NOTIONAL INCOME ON ACCRUAL BASIS. 4.2 THE COURTS HAVE CONSISTENTLY HELD THAT IN ORDER TO TAX AN INCOME, ONE HAS TO SEE WHETHER IT IS A REAL INCOME AND WHETHER THE INCOME IS MATERIALIZED. WHAT IS NECESSARY TO BE CON SIDERED IS THE TRUE NATURE OF TRANSACTION AND WHETHER IN FACT THE TRANS ACTION HAS RESULTED IN PROFIT OR LOSS TO THE ASSESSEE. ONCE ACCRUAL TAX PL ACE AND INCOME ACCRUES, THE SAME CANNOT BE DEFEATED. EVEN, UNDER T HE MERCANTILE SYSTEM OF ACCOUNTING, IT IS ONLY THE ACCRUAL OF THE REAL INCOME, WHICH IS CHARGEABLE TO TAX. 5 ITA N O.3075/AHD/2010 5. IN THE PRESENT CASE, THE APPELLANT, ON IT'S OWN VOLITION, HAS NOT CHARGED ANY INTEREST ON THE TOTAL DEPOSITS MADE TO THE FIVE SISTER CONCERNS, AMOUNTING TO RS.3,29,64,266/-. IT IS NOT THE AO'S CASE THAT APPELLANT HAS BORROWED THE FUNDS AND INTEREST BEARI NG FUNDS HAVE BEEN ADVANCED TO THE FIVE SISTER CONCERNS, WITHOUT CHARG ING INTEREST. THE APPELLANT HAS NOT CLAIMED ANY INTEREST IN ITS PROFI T AND LOSS ACCOUNT, IN SUCH SITUATIONS, THE NOTIONAL INTEREST INCOME OF RS .39,86,000/- COULD HOT BE BROUGHT TO TAX. THE ADDITION OF RS.39,86,000 /- IS DELETED. 4 THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST TH E AFORESAID FINDINGS OF THE LEARNED CIT(A). ON BEHALF OF THE REVENUE, THE LEARNED DR SHRI R K VOHRA APPEARED AND SUPPORTED THE ORDER OF THE A.O. 5 ON THE OTHER HAND, THE LEARNED AR SHRI SAKAR SHAR MA, APPEARED ON BEHALF OF THE ASSESSEE AND SUPPORTED TH E ORDER OF THE LEARNED CIT(A). THE LEARNED AR REITERATED THE SUBMI SSIONS MADE BEFORE THE LEARNED CIT(A). 6 WE HAVE HEARD BOTH THE SIDES AND PERUSED THE ORDE RS OF THE AUTHORITIES BELOW. WE FIND THAT THE LEARNED CIT(A) HAS FOLLOWED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF CIT VS. SHOORJI VALLABHDAS & CO. [46 ITR 144], AS WELL AS T HE DECISION OF THE HONBLE GAUHATI HIGH COURT IN THE CASE OF B & A PLANTATIONS INDUSTRIES LTD. VS. CIT [242 ITR 22], W HEREIN IT HAS BEEN HELD THAT WHERE NO INTEREST IS CHARGED ON INTE REST FREE LOANS TO SISTER CONCERNS, THERE IS NO INCOME TO BE CHARGE D AS NOTIONAL INCOME ON ACCRUAL BASIS. IN ADDITION TO THESE PRECE DENTS, FURTHER IT HAS BEEN OBSERVED THAT IT WAS NOT THE CASE OF TH E REVENUE THAT INTEREST BEARING BORROWED MONEY WAS GIVEN AS INTERE ST-FREE ADVANCE TO THOSE PARTIES. IN VIEW OF THIS, WE DO NO T FIND ANY 6 ITA N O.3075/AHD/2010 INFIRMITY OR ILLEGALITY IN THE ORDER OF THE LEARNED CIT(A). WE UPHOLD THE ORDER OF THE LEARNED CIT(A). THE GROUND RAISED BY THE REVENUE IS DISMISSED. 7 IN THE RESULT, THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 30-09-2011 SD/- SD/- (G D AGARWAL) VICE-PRESIDENT (MUKUL KUMAR SHRAWAT) JUDICIAL MEMBER DATE : 30-09-2011 COPY OF THE ORDER FORWARDED TO: 1. ARIHANT AVENUE & CREDIT LTD., 3, RAJESH APARTMEN T, B/H AJANTA COMMERCIAL CENTRE, ASHRAM ROAD, AHMEDABAD 2. THE DEPUTY COMMISSIONER OF INCOME-TAX (OSD) RANG E-1, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-I, AHMEDABAD 5. DR, ITAT, AHMEDABAD BENCH-A, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD
