Himanshu Garg, Delhi V. ITO, New Delhi

ITA 3120/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3415 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 19-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 22-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Assessee Lawyers: S C GARG; SIDHART H GARG
• Keywords: Proportionate interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER & SHRI K.G. BANSAL, ACCOUNTANT MEMBER ITA NO. 3120/DEL/2010 ASSESSMENT YEAR: 2006-07 HIMANSHU GARG, VS. ITO, C/O SUMER GARG & CO. WARD 19(2), CHARTERED ACCOUNTANTS, NEW DELHI. E-501A, GD-ITL NORTHEX TOWERS, A-09, NETAJI SUBHASH PLACE, PITAMPURA, DELHI. AIDPG9465A (APPELLANT) (RESPONDENT) APPELLANT BY : SH. S.C. GARG, CA & SH. SIDHART H GARG, CA RESPONDENT BY : SH. SALIL MISHRA, SR. DR ORDER PER C.L. SETHI, J.M. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DATED 16.03.2010 PASSED BY LD. CIT(A), PERTAINING TO THE A.Y. 2006-07. 2. GROUND NO. 1 TO 3 ARE DIRECTED AGAINST CIT(APPEA LS) ORDER IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS. ITA NO. 3120/D/2010 2 6,06,323/- PAID TO BANKS ON FUNDS BORROWED BY THE A SSESSEE ON THE GROUND THAT THE BORROWED FUND WAS UTILIZED F OR NON- BUSINESS PURPOSES. 3. THE ASSESSEE FILED HIS RETURN OF INCOME ON 01.02 .2007 DECLARING TOTAL INCOME OF RS. 1,30,645/-. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO TH AT THE ASSESSEE HAD CLAIMED DEDUCTION ON ACCOUNT OF INTERE ST PAID ON BANK LOAN, AMOUNTING TO RS. 12,75,850/-. IT WAS ALSO NOTICED BY THE AO THAT ASSESSEE HAD ADVANCED CERTAI N SUMS FOR NON-BUSINESS PURPOSES ON WHICH NO INTEREST WAS CHARGED. THE AO, THEREFORE, REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY INTEREST PAID ON BORROWED AMOUNTS SHOULD NOT BE DIS ALLOWED AS SAME WAS NOT UTILIZED FOR THE PURPOSE OF BUSINES S. THE ASSESSEE SUBMITTED HIS REPLY BEFORE THE AO EXPLAINI NG THE PURPOSE FOR WHICH THE LOAN WAS TAKEN FROM THE BANK AND THE PURPOSE FOR WHICH IT WAS UTILIZED. THE AO CONSIDER ED THE ASSESSEES REPLY AND IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE AO HAD TAKEN A VIEW THAT ASSESSEE HAD UTILIZED THE BORROWED AMOUNT FOR NON-B USINESS PURPOSES AND, ACCORDINGLY, PROPORTIONATE INTEREST T O THE EXTENT ITA NO. 3120/D/2010 3 OF RS. 6,06,323/- WAS FOUND TO BE DISALLOWABLE. TH E AO HAS WORKED OUT THE INTEREST OF RS. 6,06,323/- AS UNDER: - S.NO. NAME OF THE PARTY LOAN AMOUNT DATE OF LOAN GIVEN PERIOD INTEREST 1. KRISHNA INDUSTRIES 5,00,000 28.4.05 28.4.05 TO 31.3.06 51,925 2. -DO- 30,00,000 25.5.05 25.5.05 TO 31.3.05 2,85,873 3. M/S LAULS LTD. 20,00,000 17.5.05 17.5.05 TO 31.3.06 1,96,130 4. SH. MANOJ 4,00,000 21.7.05 21.7.05 TO 31.3.06 31,233 5. KAVITA GUPTA 1,50,000 12.8.05 12.8.05 TO 31.3.06 10,722 6. HIMANSHU PACKAGING 50,000 5.4.05 5.4.05 TO 31.3.06 5,541 7. -DO- 1,00,000 12.5.05 12.5.05 TO 31.3.06 9,930 8. -DO- 50,000 25.5.05 25.5.05 TO 31.3.06 4,765 9. -DO- 40,000 11.6.05 11.6.05 TO 31.3.06 3,609 10. -DO- 80,000 13.9.05 13.9.05 TO 31.3.06 4,917 11. -DO- 25,000 1.12.05 1.12.05 TO 31.3.06 938 12. -DO- 24,000 3.3.06 3.3.06 TO 31.3.06 207 ITA NO. 3120/D/2010 4 13. -DO- 64,000 4.3.06 4.3.06 TO 31.3.06 533 TOTAL 6,06,323 4. BEING AGGRIEVED, THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LD. CIT(A). 5. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED TH AT DISALLOWANCE OF INTEREST TO THE EXTENT OF RS. 6,06, 323/- BY THE AO IS UNJUSTIFIED IN AS MUCH AS THE DISALLOWANCE OF INTEREST ON THE INTEREST FREE ADVANCES GIVEN OUT OF THE BORROWE D AMOUNT OF RS. 75 LAKH RAISED DURING THE YEAR ON 17.05.2005 COULD ONLY BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE AND N OT THE OTHER TRANSACTIONS REFERRED TO BY THE AO IN HIS ORD ER. 6. THE LD. CIT(A) CONSIDERED THE AOS ORDER AND SUBMISSION OF THE ASSESSEE AND THEN HOLD THAT AO WA S CORRECT AND JUSTIFIED IN DISALLOWING THE CLAIM OF INTEREST PAID TO BANK TO THE EXTENT OF RS. 6,06,323/-. 7. HENCE, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. ITA NO. 3120/D/2010 5 8. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFULL Y PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HA VE ALSO GONE THROUGH THE VARIOUS DOCUMENTS AND PAPERS AND STATEMENT OF ACCOUNTS PLACED IN THE PAPER BOOK FILE D BY THE ASSESSEE. THE ASSESSEE HAD TAKEN VARIOUS LOANS FRO M SYNDICATE BANK FROM TIME TO TIME. THE ASSESSEE HAD TAKEN A LOAN OF RS. 37 LAKH AND RS. 12 LAKH ON 25.11.2004 A ND 30.11.2004 RESPECTIVELY. THE AGGREGATE AMOUNT OF L OAN COMES TO RS. 49 LAKH. THE REPAYMENT INSTALLMENT WA S FIXED BY THE BANK AT RS. 84,100/-. THIS LOAN WAS RAISED IN IMMEDIATE PRECEDING YEAR I.E. F.Y. 2004-05 AND NOT DURING THE YEAR UNDER CONSIDERATION. THE OPENING OUTSTANDING AMOUNT AGAINST THIS LOAN IS RS. 47,50,358.21/-. THE AMOUN T OF RS. 49 LAKH RAISED IN THE IMMEDIATE PRECEDING ASSESSMENT Y EAR WAS UTILIZED FOR THE PURPOSE OF ACQUIRING THE BUILDING INCLUDING COST OF STAMP PAPERS AND REGISTRATION AS WELL AS FOR FUR THER CONSTRUCTION OF BUILDING. NO DISALLOWANCE OF INTER EST ON THIS AMOUNT OF RS. 49 LAKH WAS MADE IN EARLIER YEAR. IN THE STATEMENT OF THIS LOAN AMOUNT, THE BANK HAD DEBITED THE INTEREST CHARGEABLE LOAN ON MONTH WISE. IN THIS AC COUNT ASSESSEE HAS REPAID THE INSTALLMENT DURING THE YEAR . FROM THIS ACCOUNT, NO FURTHER AMOUNT HAS BEEN WITHDRAWN BY THE ITA NO. 3120/D/2010 6 ASSESSEE FOR ANY PURPOSE. THE CLOSING BALANCE AS A T THE END OF 31.03.2006 IS OF RS. 41,86,596.13/-. IT IS THUS , CLEAR THAT NO AMOUNT OUT OF THE LOAN AMOUNT HAVING OPENING BALANC E AT RS. 47,50,358/- AT THE BEGINNING OF THE YEAR AND CLOSIN G BALANCE OF RS. 41,86,596.13/- AT THE CLOSE OF THE YEAR HAS BEE N UTILIZED OR WITHDRAWN FOR ANY PURPOSES. IT IS, THUS, CLEAR THA T THE INTEREST HAS BEEN PAID BY THE ASSESSEE ON THE OPENING BALANC E AS REDUCED BY AMOUNT OF INSTALLMENTS PAID FROM TIME TO TIME DURING THE YEAR. THEREFORE, NO DISALLOWANCE OF INT EREST PAID TO BANK AGAINST THIS LOAN AMOUNT OF RS. 49 LAKH IS CAL LED FOR. 9. IT IS FURTHER OBSERVED BY US THAT ASSESSEE HAD R AISED A FRESH LOAN OF RS. 75 LAKH ON 17.05.2005 FROM SYNDIC ATE BANK, FARIDABAD. AS ON THAT DATE OF TAKING LOAN OF RS. 7 5 LAKH, THERE WAS ALREADY AN OVERDRAFT OUTSTANDING AT RS. 12,57,8 75/- IN CURRENT ACCOUNT. THE LOAN OF RS. 75 LAKH GRANTED B Y THE BANK TO THE ASSESSEE WAS TRANSFERRED TO ASSESSEES CURRE NT ACCOUNT ON 17.05.2005. THUS, THE OVERDRAFT OUTSTANDING OF RS. 12,57,875/- ON THAT DATE GOT ADJUSTED AGAINST THE L OAN AMOUNT OF RS. 75 LAKH AND THERE WAS A CREDIT OF RS. 62 LAK H (ODD) IN THE CURRENT ACCOUNT ON 17.05.2005. FROM THIS CURRE NT ACCOUNT, THE ASSESSEE HAD WITHDRAWN THE SUM OF RS. 20 LAKH O N ITA NO. 3120/D/2010 7 19.05.2005 AND RS. 30 LAKH ON 25.05.2005 AND PAID T HE SAME TO M/S LAULS LIMITED AND M/S KRISHNA INDUSTRIES RES PECTIVELY. IT IS, THUS, CLEAR THAT THE AMOUNT BORROWED FROM TH E BANK ON INTEREST HAS BEEN UTILIZED BY THE ASSESSEE FOR THE PURPOSE OF GIVING ADVANCE TO M/S LAULS LIMITED AND M/S KRISHNA INDUSTRIES TO THE EXTENT OF RS. 20 LAKH AND RS. 30 LAKH RESPECTIVELY ON 17.05.2005 AND 25.05.2005. THE ASS ESSEE HAS NOT CHARGED ANY INTEREST FROM M/S KRISHNA INDUS TRIES AND M/S LAULS LIMITED. THE ASSESSEE HAS ALSO NOT BEEN ABLE TO PROVE AND ESTABLISH THAT THE AFORESAID AMOUNT OF RS . 20 LAKH AND RS. 30 LAKH PAID TO M/S LAULS LIMITED AND M/S K RISHNA INDUSTRIES WAS GIVEN IN ANY MANNER FOR THE PURPOSES OF BUSINESS. IN THE COURSE OF HEARING OF THIS APPEAL AS WELL AS BEFORE THE LD. CIT(A), IT WAS ALSO ADMITTED BY THE ASSESSEE THAT INTEREST PAID TO SYNDICATE BANK ON A LOAN OF R S. 75 LAKH COULD BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE TO THE EXTENT OF RS. 20 LAKH AND RS. 30 LAKH ADVANCED INTE REST FREE TO M/S LAULS LIMITED AND M/S KRISHNA INDUSTRIES ON 17. 05.2005 AND 25.05.2005. IN THE LIGHT OF THESE FACTS, IT IS THUS, CLEAR THAT THE AUTHORITIES BELOW WERE JUSTIFIED IN DISALLOWING PROPORTIONATE INTEREST IN RESPECT OF THE AMOUNT OF RS. 20 LAKH AN D RS. 30 LAKH ADVANCE INTEREST FREE TO M/S LAULS LIMITED AND M/S ITA NO. 3120/D/2010 8 KRISHNA INDUSTRIES ON 17.05.2005 AND 25.05.2005. T HE PROPORTIONATE INTEREST FOR THE PERIOD FROM 17.05.20 05 TO 31.03.2006 IN THE CASE OF M/S LAULS LIMITED AND FRO M 25.05.2005 TO 31.03.2006 IN THE CASE OF M/S KRISHNA INDUSTRIES HAS BEEN WORKED OUT BY THE AO AT RS. 1,9 6,130/- AND RS. 2,85,873/- RESPECTIVELY. THE DISALLOWANCE OF INTEREST TO THAT EXTENT OF RS. 1,96,130/- AND RS. 2,85,873/- IS FULLY JUSTIFIED. 10. WITH REGARD TO THE BALANCE AMOUNT OF RS. 5 LAKH TO M/S KRISHNA INDUSTRIES AND VARIOUS OTHER SUMS TO OTHER PARTIES, WE FIND THAT THESE AMOUNT HAS NOT BEEN PAID OUT OF THE BORROWED FUND RAISED FROM THE BANK BUT HAS BEEN PAID FROM TH E ASSESSEES MIXED FUND AVAILABLE WITH THE ASSESSEE F ROM EARLIER YEARS. THEREFORE, DISALLOWANCE OF INTEREST IN RESPECT OF OTHER ITEMS IS NOT JUSTIFIED. 11. IN THE LIGHT OF THE DISCUSSIONS MADE ABOVE, WE, THEREFORE, SUSTAINED THE DISALLOWANCE TO THE EXTENT OF RS. 1,96,130/- AND RS. 2,85,873/- OUT OF THE TOTAL DISA LLOWANCE OF RS. 6,06,323/- MADE BY THE AO. THE AO SHALL MODIFY THE ASSESSMENT ORDER ACCORDINGLY. ITA NO. 3120/D/2010 9 12. GROUND NO. 4 IS DIRECTED AGAINST CIT(APPEALS) O RDER IN CONFIRMING THE DISALLOWANCE OF AN AMOUNT OF RS. 17, 860/- OUT OF BANK CHARGES/PROCESSING CHARGES. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. 14. IT IS SEEN THAT ASSESSEE HAD PAID PROCESSING CH ARGES OF RS. 20,662/- FOR THE PURPOSE OF RAISING A LOAN OF R S. 75 LAKH FROM SYNDICATE BANK. THE LOAN HAS BEEN OBTAINED BY THE ASSESSEE IN THE COURSE OF ITS BUSINESS ACTIVITY. T HE LOAN HAS ALSO BEEN GRANTED TO THE ASSESSEE AGAINST THE BUSIN ESS ASSETS. MERE BECAUSE PART OF THE LOAN AMOUNT HAS B EEN ADVANCED TO CERTAIN PARTIES WITHOUT CHARGING ANY IN TEREST, IT CANNOT BE SAID THAT PROCESSING CHARGES PAID TO BANK FOR OBTAINING LOAN WAS NOT INCURRED FULLY FOR BUSINESS PURPOSES. WE, THEREFORE, DELETE THE DISALLOWANCE OF RS. 17,86 0/- OUT OF THE TOTAL PROCESSING CHARGES OF RS. 20,662/-. THUS , THIS GROUND IS ALLOWED. ITA NO. 3120/D/2010 10 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE MANNER AS INDICATED ABOVE. THIS DECISION IS PRONOUNCED IN THE OPEN COURT ON 2 2 ND JULY, 2011. SD/- SD/- (K.G. BANSAL) (C.L . SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 22.7.11 *KAVITA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR