ITO, SRIGANGANAGAR V. M/s. Sriganganagar Fertilizers Corp., SRIGANGANAGAR

ITA 313/JODH/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82994 (ITAT-JODHPUR)
• Duration Of Justice: 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 04-09-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 07-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAKESH GUPTA
• Keywords: Business income; Notional interest
• Section: 32; 27; 28

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENCH : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 313 /JODH/2014 (A.Y. 20 1 0 - 11 ) ITO, WARD - 2, SRIGANGANAGAR. VS. M/S. SRIGANGANAGAR FERTILIZERS CORP. , 123, NEW DHAN MANDI, SRIGANGANAGAR. (APPELLANT) PAN NO. AADFS 4196 A (RESPONDENT) ASSESSEE BY : SHRI RAKESH GUPTA. DEPARTMENT BY : SHRI MAHESH KUMAR - D.R. DATE OF HEARING : 04 / 0 9 /201 4 . DATE OF PRONOUNCEMENT : 01 / 1 0/201 4 . O R D E R PER N.K. SAINI, A.M TH IS IS AN APPEAL BY THE D EPARTMENT AGAINST THE ORDER DATED 25/03/2013 OF L D . CIT(A), BIKANER . THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED I N: - 2 1. DELETING ADDITION OF RS. 26,25,276/ - MADE ON ACCOUNT OF INCOME FROM HOUSE PROPERTY. 2. NOT SUSTAINING ADDITION OF RS. 56,000/ - BEING IN FACT DISALLOWANCE OF INTEREST ON DIVERTING OF INTEREST BEARING FUNDS TO INTEREST FREE ADVANCES GIVEN. 2 VIDE GROUND NO. 1, THE GRIEVANCE OF THE DEPARTMENT RELATES TO THE DELETION OF ADDITION OF RS. 26,25,276/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INCOME FROM HOU S E PROPERTY. 3. FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS , OBSERVED THAT THE ASSETS OF THE ASSESSEE WERE NOT BUSINESS ASSETS AND THE TRANSACTIONS WERE ONLY EXPLOITATION OF PROPERTY BY THE OWNER AND NOT EXPLOITATION OF BUSINESS ASSETS . THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAD NOT BEEN ENGAGED IN THE LETTING OR SUBLETTING OF ANY PROPERTY , BUT IT WAS ONLY THE GODOWN WHICH HAD BEEN BUILT AND LET OUT , T HEREFORE, THE INCOME OF THE ASSESSEE TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND NOT AS BUSINESS INCOME. 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) , WHO OBSERVED THAT THE ASSESSEE CONSTRUCTED THE GODOWNS EXCLUSIVELY FOR 3 COMMERCIAL PURPOSES AND THE INVESTMENT MADE BY THE ASSESSEE IN CONSTRUCTION OF GODOWNS SEEMS TO BE A BUSINESS INVESTMENT. THEREFORE, RENTAL INCOME FROM THE GODOWNS AS A NATURAL CONSEQUENCE SHALL BE BUSINESS INCOME . ACCORDINGLY, THE ASSESSING OFFICER WAS D IRECTED TO TREAT THE INCOME AS INCOME FROM BUSINESS AND NOT AS INCOME FROM HOUSE PROPERTY. NOW THE DEPARTMENT IS IN APPEAL. 5. DURING THE COURSE OF HEARING, LEARNED COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE HAS BEEN SETTLED BY THE ITAT IN ASSESSEES OWN CASE FOR THE A.Y. 2008 - 09 & 2009 - 10 IN I.T.A.NO. 316 & 317 /JODH/2013 AND THE SAID ORDER HAS BEEN FOLLOWED BY THE LD. CIT(A). THEREFORE, THERE IS NO MERIT IN THIS APPEAL OF THE DEPARTMENT. 6 . IN HIS RIVAL SUBMISSIONS, LEARNED D.R. ALTHOUGH SUPPORTED THE ORDER OF THE ASSESSING OFFICER, BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE . 7 . AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND THE MATER IAL ON RECORD, IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS HAS BEEN ADJUDICATED BY THIS BENCH OF THE TRIBUNAL VIDE ORDER DATED 28/11/2013 IN I.T.A.NO. 316 & 317/JODH/2013 FOR THE A.YS. 2008 - 09 & 4 2009 - 10 IN ASSESSEES OWN CASE AND THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARA 2.3 OF THE SAID ORDER WHICH READ AS UNDER: - 2.3 AFTER HEARING BOTH THE SIDES WE ARE UNABLE TO DEVIATE FROM THE FINDING OF LD. CIT(A) THERE IS NO DISPUTE WITH REGARD THE ABOVE STATED FACTS OF THE CASE. T HE A.O. HAS TREATED SIMILAR INCOME IN THE YEAR 2007 - 08, A S ASSESSEES INCOME FROM BUSINESS A PLAIN READING OF SECTION 22 TO 27 SHOWS THAT THE HOUSE PROPERTY MEANS PROPERTY CONSTRUCTED FOR BUILDING OR RESIDENTIAL PURPOSE, A PORTION OF WHICH OR WHOLE OF THE PROPERTY OR ITS APPURTENANT LAND IS LET OUT ON RENT TO EARN PROFIT, IT DOES NOT INCLUDE A PROPERTY OR BUILDING CONSTRUCTED OR PURCHASED UNDER THE PLANNED BUSINESS ACTIVITY, PROVISION CONTAINED IN SECTION 28 TO 32 ABUNDANTLY MAKE IT CLEAR THAT FOR THE PURPOSE OF ASSESSMENT UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION, IT SHALL BE NECESSARY THAT THE PROPERTY ACQUIRED A ND USED IS FOR COMMERCIAL PURPOSE UNDER THE BUSINESS ACTIVITY, OWNER OF THE PROPERTY MUST HAVE ACQUIRED THE PROPERTY WITH INTENTION TO EARN PROFIT UNDER COMMERCIAL ACTIVITY. ACCORDINGLY, WE DONT FIND ANY MERIT IN THIS APPEAL. IT IS TRUE THAT RULE OF RES - JUDICATA DOES NOT APPLY HERE TO BUT THE RULE OF SHARE DECISIS AND CONSISTENCY DO APPLY EVEN IN SUCH CASES. THEREFORE, WE HAVE TO CONFIRM THE IMPUGNED FINDING. 8 . SINCE THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS INVOLVED IN THE EARLIER YEARS, SO RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER DATED 28/11/2013 IN ASSESSEES OWN CASE IN I.T.A.NO. 316 & 317/JODH/2013 , WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL . 9 . THE NEXT ISSUE VIDE GROUND NO. 2 RELATES TO THE DELETION OF ADDITION OF RS. 56,000/ - MADE BY THE ASSESSING OFFICER OUT OF INTEREST EXPENSES. 5 10 . FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS , NOTICED THAT THE ASSES SEE HAD GIVEN AN ADVANCE OF RS. 11,50,000/ - TO M/S. AURIGAGRANITE (P) LTD. JALORE ON WHICH NO INTEREST HAD BEEN CHARGED BY THE ASSESSEE . THE ASSESSING OFFICER MADE DISALLOWANCE OF RS. 56,000/ - ON ACCOUNT OF NOTIONAL INTEREST AND ADDED TO THE INCOME OF THE ASSESSEE. THE ASSESSING OFFICER REFERRED THE FOLLOWING CASE LAWS IN SUPPORT OF HIS VERSION: - 1) CIT - 1, LUDHIANA VS. M/S. ABHISHEK INDUSTRIES LTD. , LUDHIANA 286 ITR 1. 2) CIT VS. V.I. BABY & CO. (2002) 254 ITR 248 (KER. HIGH COURT) 3) CIT VS. H.R. SUGAR FACTORY (P) LTD. (1991) 187 ITR 363 (ALL. HIGH COURT) 11 . BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: - THAT THE ASSESSEE HAS NOT PAID ANY INTEREST TO ITS SUNDRY CREDITORS OF RS. 14,66,999/ - (RS. 60,000/ - M/S NAND LA L NARESH KUMAR, RS. 13,31,999/ - M/S NATIONAL BULK HANDLING CORP. RS. 75,000/ - M/S STAR AGRI WAREHOUSING & COLL MGT. (P) LTD.) WHICH ARE MORE THAN INTEREST FREE ADVANCE OF RS. 11,50,000/ - GIVEN TO M/S AURIGAGRANITE (P) LTD., JALORE. FROM THE ABOVE, IT IS CLEAR THAT AVAILABLE INTEREST FREE FUNDS ARE MORE THAN INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE. FACTS OF THE CASES REFERRED BY THE LD. ACIT ARE DISTINGUISHED FROM THE FACTS AND CIRCUMSTANCES OF THE CASE UNDER CONSIDERATION. IT IS NEE D LESS TO MENTION THAT THE LD A.O. FAILED TO ESTABLISH ANY NEXUS BETWEEN INTEREST BEARING FUNDS AND INTEREST FREE FUNDS TO SUNDRY DEBTORS. THE LD A.O. ALSO FAILED TO ESTABLISH THAT INTEREST BEARING FUNDS WERE UTILIZED OTHER THAN BUSINESS OF THE ASSESSEE. M OREOVER THE LD A.O. HAS DEVELOPED HIS OWN CALCULATION FOR DISALLOWANCE OF INTEREST PAID INSTEAD OF CALCULATING INTEREST ON ABOVE MENTIONED DEBTORS. THE LD A.O. ALSO NOT SPECIFICALLY POINTED OUT 6 THAT INTEREST HAS BEEN CHARGED FROM SUNDRY DEBTORS AND NOT ACC OUNTED F O R IN THE BOOKS OF ACCOUNT. THE LD. A.O. HAS DISALLOWED THE INTEREST WITHOUT APPRECIATING THE FACTS OF THE CASE. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: - 1) JAI BHAGWAN OM PRAKASH VS. ITO (1983) 16 TTJ (CHD) 256 2) KRISHI YANTRALAYA VS. IAC (1981) 12 TTJ 411 3) LALSONS ENTERPRISES VS. ACIT (2004) 86 TTJ (DEL.) 1050 4) TORRENT FINANCIERS VS. ACIT (2001) 73 TTJ (AHD) 624 5) CIT VS. BOMBAY SAMACHAR LTD. (1969) 74 ITR 723 (BOM.) 6) CALICO DYEING & PRINTING WORKS VS. CIT (1958 ) 34 ITR 265 7) MEENAKSHI SYNTHETICS (P) LTD. VS. CIT (2003) 84 ITD 563 8) ITO VS. NARESH FABRICS (2002) 75 TTJ (JODH.) 386 12. THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, OBSERVED THAT THE ASSESSEE HAD NOT PAID ANY INTEREST TO ITS SUNDRY CREDITORS OF RS. 14,66,999/ - (RS. 13,31,999/ - M/S. NATIONAL BULK HANDLING CORP. , RS. 60,000/ - M/S. NAND LAL NARESH KUMAR AND RS. 75,000/ - M/S. STAR AGRI WAREHOUSING & COLL MGT. (P) LTD. ) WHICH WERE MORE THAN INTEREST FREE ADVANCE OF RS. 11,50,000/ - . HE FURTHER OBSERVED THAT FROM THE ABOVE FACTS, IT WAS CLEAR THAT AVAILABLE INTEREST FREE FUNDS WERE MORE THAN INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE AND THE ASSESSING OFFICER HAD NOT MADE OUT A CASE TO PROVE THE NEXUS BETWEEN THE INTEREST FREE ADVANCES MADE TO THE DEBTORS AND INTEREST BEARING FUNDS 7 FROM THE CREDITORS AND THAT THE ASSESSING OFFICER HAD NOT PROVED THAT THERE WAS ANY AGREEMENT FOR CHARGI NG INTEREST FROM THE ALLEGED ADVANCES. ACCORDINGLY, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS DELETED. NOW THE DEPARTMENT IS IN APPEAL. 13 WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT THE ASSESSING OFFICER DISALLOWED THE NOTIONAL INTEREST BY PRESUMING THAT THE ASSESSEE HAD NOT CHAR GED ANY INTEREST ON THE ADVANCES OF RS. 11,50,000/ - WHEREAS INTEREST WAS PAID ON THE FUNDS BORROWED. ON THE CONTRARY, THE LD. CIT(A) AFTER EXAMINING THE RECORDS , CAME TO THE CONCLUSION THAT THE ASSESSEE WAS HAVING INTEREST FREE CREDITORS OF RS. 14,66,999/ - WHEREAS THE INTEREST FREE ADVANCES WERE OF RS. 11,50,000/ - ONLY. THEREFORE, THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WERE MORE THAN THE INTEREST FREE ADVANCES GIVEN , MOREOVER , THE ASSESSING OFFICER HAD NOT ESTABLISHED ANY NEXUS BETWEEN THE INTEREST FREE ADVANCE AND INTEREST BEARING LOANS. IN THE PRESENT CASE, IT HAS NOT BEEN ESTABLISHED BY THE ASSESSING OFFICER THAT THE INTEREST FREE FUNDS WERE OUT OF INTEREST BEARING LOANS, T HEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF NOTIONAL INTEREST WAS NOT JUSTIFIED AND 8 THE LD. CIT(A) RIGHTLY DELETED THE DISALLOW AN CE OF RS. 56,000/ - . WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). 14 IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMISSED. ( ORDER PRONOUNCED IN THE COURT ON 01 ST OCTOBER , 201 4) . S D/ - SD/ - ( HARI OM MARATHA ) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 01 ST OCTOBER , 201 4 . VR/ - COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD. CIT 4. THE CIT(A) 5. THE D.R SR. PRIVATE SECRETARY , ITAT, JODHPUR .