Sh. Dharam Pal Aggarwal, Ludhiana V. ACIT, Ludhiana

ITA 315/CHANDI/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7925 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 15-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A P GARG
• Keywords: Depreciation; Proportionate interest
• Section: 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, SMC, CHANDIGARH BEFORE SHRI N.K. SAINI, VICE PRESIDENT ITA NO.315/CHD/2017 ASSESSMENT YEAR: 2012-13 SHRI DHARAM PAL AGGARWAL VS. THE ACIT 59-K, SARABHA NAGAR CIRCLE-6 LUDHIANA LUDHIANA PAN NO. AAYPA9723E (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. ASHWANI KUMAR, CA REVENUE BY : SH. A.P. GARG, SR. DR DATE OF HEARING : 01/04/2019 DATE OF PRONOUNCEMENT : 22/04/2019 ORDER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R OF THE LD. CIT(A)-4 DT. 23/11/2017. 2. IN THE PRESENT APPEAL ASSESSEE HAS RAISED THE FO LLOWING GROUNDS: 1. THAT ORDER PASSED U/S 250(6) OF THE INCOME TAX A CT, 1961 IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS THE LD. COMMISSIONER OF INCOME T AX (APPEALS)-4 , LUDHIANA WAS NOT JUSTIFIED TO ARBITRARILY UPHOLD THE ACTION OF THE L D. ASSESSING OFFICER IN DISALLOWING A SUM OF RS. 13,77,730/- OUT OF INTEREST ACCOUNT BY RESORT T O PROVISIONS OF SEC. 36(1)(III). 2. THAT HE WAS FURTHER NOT JUSTIFIED TO ARBITRARILY UPHOLD THE ACTION OF THE LD. ASSESSING OFFICER IN DISALLOWING A SUM OF RS. 2,26,635/- OUT OF CAR EXPENSES, DEPRECIATION, TELEPHONE AND TRAVELLING EXPENSES ON ACCOUNT OF ESTIMATED PER SONAL USE THEREOF. 3. VIDE GROUND NO. 1 THE GRIEVANCE OF THE ASSESSEE RELATES TO THE SUSTENANCE OF DISALLOWANCE OF RS. 13,77,730/- MADE BY THE ASSESSI NG OFFICER BY INVOKING THE PROVISIONS OF SECTION 36(1)(III) OF THE INCOME TAX ACT, 1961 ( HEREINAFTER REFERRED TO AS ACT). 4. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 22/09/2012 DECLARING INCOME OF RS. 25,64,499/- WHIC H WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. LATER ON THE CASE WAS SELECTED F OR SCRUTINY. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD GIVEN INTEREST FREE ADVANCES TO FR IENDS AND FAMILY WHICH WERE NOT FOR THE BUSINESS PURPOSES AND ALSO CLAIMED INTEREST EXP ENDITURE OF RS. 23,88,993.89 IN THE P&L ACCOUNT. HE ALSO OBSERVED THAT THE ASSESSEE HAD CLAIMED DEDUCTION ON INTEREST EXPENDITURE UNDER SECTION 57 OF THE ACT FOR RS. 2,7 3,628/-. THUS THE TOTAL INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE WAS RS. 26,62,6 21/- (RS. 23,98,993.00 + RS. 2 2,73,628.00). THE ASSESSING OFFICER ALSO POINTED OU T THAT THE LOANS TO FAMILY AND RELATIVES OUTSTANDING IN THE BALANCE SHEET WERE AS UNDER: SR. NO. PARTICULAR AMOUNT 1 VAISHALI AGGARWAL RS. 4,05,000/- 2 DEV BHOOMI ANGORA SPNG & ALLIED IND. RS. 5,00,000 /- 3 FAB TEXRE INDIA P LTD. RS. 44,60,000/- 4 SHAKTI ALPHA SECURITIES PVT. LTD. RS. 91,13,000/- 5 AMIT AGGARWAL RS. 77,402/- 6 DEEPAK BAKSHI LOAN RS. 1,00,000/- 7 SUSHMA AGGARWAL RS. 1,000/- 8 S.P. BANSAL RS. 60,00,000/- 9 TIRUPATI BALAJI EXIM P. LTD. RS. 5,00,000/- 10 SANJAY BANSAL RS. 65,00,000/- 11 WANSEY PASTORAL COMPANY AUS. RS.2,45,196/- GRAND TOTAL RS.2,79,01,598/- 5.1 THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXP LAIN AS TO WHY THE PROPORTIONATE INTEREST SHOULD NOT BE DISALLOWED ON INTEREST FREE ADVANCES UNDER SECTION 36(1)(III) OF THE ACT. IN RESPONSE, THE ASSESSEE SUBMITTED AS UNDER: REGARDING YOUR HONOUR'S QUERY RELATING TO AS TO WHY A -PROPORTIONATE INTEREST BE NOT MADE IN VIEW OF THE PROVISIONS OF SECTION 36(1)(III) AS THERE ARE NUMBER OF ADVANCES GIVEN BY YOU ON THE OTHER HAND YOU ARE ALSO PAYING INTEREST ON B ORROWED FUNDS, IN REPLY IT IS RESPECTFULLY SUBMITTED THAT AS MENTIONED EARLIER, THE ASSESSEE H AS GIVEN ALL THESE ADVANCES PRIOR TO THE AMOUNT OF LOAN AVAILED FROM M/S BAJAJ FINANCE LTD. HOWEVER, THE UTILIZATION OF LOAN AVAILED FROM M/S BAJAJ FINANCE LTD. WAS UTILIZED TO REPAY CERTAIN OVER DRAFT FACILITIES AVAILED BY THE ASSESSEE FROM THE BANK IN THE PAST. HOWEVER, SOME A MOUNTS/PART OF ADVANCES WERE GIVEN OUT OF THE OVER DRAFT LIMITS AVAILED BY THE A SSESSEE IN PAST. THE DETAIL OF SUCH AMOUNTS WHICH ARE DIRECTLY GIVEN BY THE ASSESSEE FR OM OVER DRAFT ACCOUNT IN MAKING ADVANCES TO THE PARTIES WHOSE AMOUNTS ARE OUTSTANDI NG AS ON 31.03.2012 AND NO INTEREST HAS BEEN EARNED THEREON, HAS BEEN DRAWN AND IS ENCL OSED. THE INTEREST ON SUCH AMOUNTS HAS ALSO BEEN CALCULATED. AS SUCH, ONLY THESE AMOUN TS HAVE BEEN ADVANCED OUT OF THE BORROWED FUNDS OR OTHERWISE HAVE DIRECT NEXUS BETWE EN THE AMOUNT BORROWED AND THE INTEREST FREE ADVANCES. DURING THE COURSE OF ASSESS MENT PROCEEDINGS, BOOKS OF ACCOUNTS AND RELEVANT DOCUMENTS WERE PRODUCED IN SUPPORT OF THE NEXUS OF BORROWED FUNDS INVESTED IN INTEREST FREE ADVANCES EVEN FROM THE LA ST YEAR BORROWINGS. FURTHER IT IS ALSO SUBMITTED THAT THE PARTIES NAMELY SH. AMIT AGGARWAL , MRS. VAISHALI AGGARWAL AND M/S SHAKTI ALFA SECURITIES PRIVATE LIMITED ARE IN RELAT ION TO THE ASSESSEE. ALL OTHER PARTIES ARE IN NO WAY IN RELATION TO THE ASSESSEE'. 5.2 THE ASSESSING OFFICER AFTER CONSIDERING THE SUB MISSIONS OF THE ASSESSEE OBSERVED THAT THE ADVANCES WERE OUT OF THE OD FACILITY ON WH ICH INTEREST HAD BEEN RECEIVED WERE HAVING THE DIRECT NEXUS, THEREFORE INTEREST EX PENDITURE OF RS. 7,17,875/- WAS ALLOWABLE. ON THE REMAINING ADVANCES THE ASSESSING OFFICER WORKED OUT THE INTEREST AT RS. 31,65,778/- AND OBSERVED THAT THE ASSESSEE HAD CLAIMED THE INTEREST EXPENDITURE OF RS. 26,62,621/- OUT OF WHICH RS. 7,17,875/- WAS ALL OWABLE AS THE ASSESSEE HAD ESTABLISHED DIRECT NEXUS BETWEEN THE INTEREST BEARING BORROWED FUNDS AND THE INTEREST INCOME EARNED. HE ALSO OBSERVED THAT THE INTEREST AMOUNTI NG TO RS. 5,67,016/- WAS ON THE CAR LOANS WHICH WAS ALLOWABLE. HE THEREFORE RESTRICTED THE DISALLOWANCE TO RS. 13,77,730/- ( RS. 26,62,621.00 RS. 7,17,875.00 RS. 5,67,016 /-). 6. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: 3 DURING THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERA TION, THE APPELLANT HAD CLAIMED AN INTEREST EXPENDITURE OF RS. 23,88,993.89 IN ITS PRO FIT AND LOSS ACCOUNT. THE APPELLANT HAD ALSO CLAIMED IN ITS RETURN OF INCOME A DEDUCTION OF INTEREST EXPENDITURE OF RS. 2.73.628/- U/S 57 OF THE INCOME-TAX ACT, 1961. THUS, THE TOTAL INTEREST EXPENDITURE CLAIMED BY THE APPELLANT WAS RS. 26,62,621/- [RS. 23,88,993/- + RS . 2, 73,628/]. HOWEVER, THE LD. ASSESSING OFFICER ALLEGED THAT THE ADVANCES MADE TO FAMILY AND FRIENDS AMOUNTING RS. 2,79,01,598/-ON. WHICH NO INTEREST WA S CHARGED, WERE, MADE OUT OF THE APPELLANT'S BORROWED FUNDS, AND, ACCORDINGLY, EFFEC TED A DISALLOWANCE OF RS. 13,77,730/- OUT OF INTEREST EXPENDITURE CLAIMED OF RS. 26,62,62 1/- BY TAKING A RECOURSE TO THE PROVISIONS OF SECTION 36(L)(III) OF THE INCOME-TAX ACT, 1961. IN THIS CONNECTION, IT IS RESPECTFULLY SUBMITTED TH AT, NO PART OF THE BORROWED FUNDS WAS DEPLOYED IN MAKING THE SAID ADVANCES OF RS. 2,79,01 ,598/- APPEARING IN THE BOOKS OF M/S SHAKTI INTERNATIONAL [A PROPRIETARY CONCERN OF THE APPELLANT]'. THE APPELLANT HAD ALREADY PROVIDED THE DETAILS DURING THE COURSE OF ASSESSMEN T PROCEEDINGS FOR THE YEAR UNDER ASSESSMENT REGARDING THE AMOUNT OF THOSE ADVANCES I N THE BOOKS OF SH. DHARAM PAL AGGARWAL ADVANCED OUT OF THE HDFC OVERDRAFT FACILIT Y IN THE NAME OF M/S SHAKTI INTERNATIONAL [A PROPRIETARY CONCERN OF THE APPELLA NT], AND ON WHICH INTEREST HAD ALSO BEEN EARNED ON SUCH ADVANCES. THUS, AN INTEREST EXP ENDITURE OF RS. 7,17,875/-WAS ALLOWED AS A DEDUCTION UNDER SECTION 36(L)(III) OF THE INCO ME-TAX ACT. 1961. THE APPELLANT HAD AVAILED LOANS FROM LOAN BAJAJ FIN SERV LENDING II, LOAN BAJAJ FINSERV LENDING AND LOAN CAR MERCEDES BENZ. THIS WAS IMPLIC IT IN GRANT OF THE BANK FACILITIES IN RESPECT OF WHICH INTEREST SHALL BE PAID, THAT THE S AID FACILITIES WERE TO BE USED FOR SPECIFIC PURPOSES, AND, WERE ALSO SUBJECT TO STRINGENT STAND ARDS OF CREDIT MONITORING BY THE BANKS. MOREOVER, THE END USE OF THE FUNDS BY THE BORROWER WAS PERIODICALLY, EFFECTIVELY AND RIGOROUSLY MONITORED BY THE BANKS THROUGH A COMBINA TION OF VARIOUS MEANS SUCH AS PERIODICAL REPORTS, PHYSICAL INSPECTION OF THE BORR OWER'S UNIT AND A REGULAR REVIEW OF THE BORROWER'S ACCOUNT ETC. THUS, FROM THE ABOVE, IT COULD BE CONSTRUED THAT, I N THE INSTANT CASE, THE FUNDS RAISED BY THE APPELLANT HAD ONLY BEEN USED FOR THE PURPOSES F OR WHICH THEY HAVE BEEN GRANTED, AND, THE CHANCES OF DIVERSION OF FUNDS ARE MINISCUL E TAKING INTO ACCOUNT THE STRINGENT STANDARDS OF MONITORING AND DOCUMENTATION PRESCRIBE D. 6.1 THE RELIANCE WAS PLACED ON THE FOLLOWING CASE L AWS: CIT VS. ABHISHEK INDUSTRIES LTD. 286 ITR 1(P&H) JUDGMENT OF HONBLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. RAKESH GUPTA IN ITA NO. 37/2014 ORDER DT. 02/07/2015 6.2 IT WAS FURTHER SUBMITTED AS UNDER : FROM THE PERUSAL OF THE BALANCE SHEET OF M/S SHAKTI INTERNATIONAL [A PROPRIETARY CONCERN OF THE APPELLANT], DRAWINGS/WITHDRAWALS WERE MADE AMOUNTING TO RS. 5,93,52,025.44 FROM THE CAPITAL A/C OF SH. DHARAM PAL AGGARWAL. SIMULTA NEOUSLY, THE SAME GOT TRANSFERRED TO THE PERSONAL CAPITAL A/C OF SH. DHARAM PAL AGGARWAL . THE TRANSFER OF THE FUNDS TO AND FROM [OR VICE-VERSA] THE CAPITAL A/C OF SH. DHARAM PAL AGGARWAL APPEARIN G IN THE BOOKS OF M/S SHAKTI INTERNATIONAL AND THE PERSONAL CAPITA L A/C OF SH. DHARAM PAL AGGARWAL TOOK PLACE AS AND WHEN THE NEED FOR THE SAME AROSE. THE ADVANCES OF RS. 2, 79.01,598 /- HAD BEEN MADE OUT OF INTERNAL ACCRUALS AND NON -INTEREST BEARING FUNDS BEING 'CAPITAL' AND 'UNSECURED LOANS 'TO THE TUNE OF RS. 5.73 CRORE S IN THE BOOKS OF M/S SHAKTI INTERNATIONAL [A PROPRIETARY CONCERN OF THE APPELLANT] AND SH. DH ARAMPAL AGGARWAL [THE APPELLANT] .THE AMOUNT OF RS. 5.73 CRORES INCLUDED AN AMOUNT O F THE APPELLANT'S CAPITAL OF RS. 3.71 CRORES, WHICH, WAS ALSO MUCH MORE THAN THE AMOUNT OF INTEREST-FREE ADVANCES OF RS. 2,79,01,598/-. THE BALANCE SHEETS OF SH. DHARAM PAL AGGARWAL AND M/S SHAKTI INTERNATI ONAL AS ON 31.03.2012 ARE ENCLOSED. THUS, NO ABOVE INTEREST-BEARING BORROWED FUNDSWERE USEDFOR MAKING THE SAID ADVANCES OF RS. 2,79,01,598/. 6.3 RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: CIT(A), BATHINDA VS. GURDAS GARG [2015] 63 TAXMANN .COM 289 (P&H) CIT-2 VISAKHAPATNAM VS. SEVEN HILLS HOSPITALS (P.) LTD. [2015] 370 ITR 69 (A.P.) 4 HERO CYCLES (P.) LTD. VS. CIT, LUDHIANA [2015] 379 ITR 347 (S.C.) CIT VS. KAPSONS ASSOCIATES (2016) 381 ITR 0204 (P&H ) 7. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BY OBSER VING IN PARA 5.2 & 5.3 OF THE IMPUGNED ORDER AS UNDER: 5.2 I HAVE CONSIDERED THE OBSERVATIONS OF THE ASSES SING OFFICER AS MADE BY HIM IN THE ASSESSMENT ORDER WHILE MAKING THE IMPUGNED ADDITION . I HAVE ALSO CONSIDERED WRITTEN SUBMISSIONS FILED BY THE ASSESSEE THROUGH HIS LEARN ED AR VIDE LETTER DATED 23.01.2017 ON THE ISSUE UNDER REFERENCE. I HAVE FURTHER CONSIDERED VA RIOUS JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE LEARNED AR OF THE ASSESSEE AS WELL AS O THER MATERIAL PLACED BY HIM ON RECORD .ON CAREFUL CONSIDERATION OF THE RIVAL CONTENTIONS, IT HAS BEEN NOTICED THAT THE ASSESSEE HAS HIMSELF ADMITTED THAT HE HAS USED OVER DRAFT FA CILITY TO MAKE INTEREST FREE ADVANCES TO RELATED/UNRELATED PARTIES. IT HAS ALSO BEEN NOTICED THAT THE ASSESSEE DOES NOT HAVE SUFFICIENT INTEREST FREE FUNDS OF HIS OWN TO MAKE I NTEREST FREE ADVANCES UNDER REFERENCE. THE NEXUS BETWEEN THE BORROWED FUNDS AND THAT OF TH E INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE IS CLEARLY ESTABLISHED IN THE CASE OF THE ASSESSEE AS HE DOES NOT HAVE ANY INTEREST FREE FUNDS OF HIS OWN TO MAKE INTEREST FRE E ADVANCES. THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE ASSESSEE DOES NOT HELP HIM AS SU FFICIENCY OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE HAS NOT BEEN PROVED. UNDER SUCH C IRCUMSTANCES, THE ACTION OF THE ASSESSING OFFICER IN MAKING AN ADDITION OF RS. 13,7 7,730/- IN THIS CASE ON ACCOUNT OF DISALLOWANCE OUT OF INTEREST EXPENSES BY INVOKING P ROVISIONS OF SECTION 36(L)(III) OF THE ACT AS THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCE TO REL ATED/UNRELATED PARTIES ALLEGEDLY OUT OF BORROWED FUNDS WHICH ACCORDING TO THE ASSESSING OFF ICER IS FOR NON BUSINESS PURPOSES CANNOT BE SAID TO BE UNJUSTIFIED. 5.3 IN VIEW OF THE ABOVE STATED FACTS AND IN THE CI RCUMSTANCES OF THE CASE, I AM OF THE OPINION THAT THE ASSESSING OFFICER IS FULLY JUSTIFI ED IN MAKING AN ADDITION OF RS. 13,77,730/- IN THIS CASE ON ACCOUNT OF DISALLOWANCE OUT OF INTERES T EXPENSES BY INVOKING PROVISIONS OF SECTION 36(L)(III) OF THE ACT AS THE ASSESSEE HAS G IVEN INTEREST FREE ADVANCE TO RELATED/UNRELATED PARTIES ALLEGEDLY OUT OF BORROWED FUNDS WHICH ACCORDING TO THE ASSESSING OFFICER IS FOR NON BUSINESS PURPOSES. THE ADDITION OF RS. 13,77,730/- MADE BY THE ASSESSING OFFICER IN THIS CASE ON ACCOUNT OF DISALL OWANCE OUT OF INTEREST EXPENSES BY INVOKING PROVISIONS OF SECTION 36(L)(III) OF THE AC T IS, THEREFORE, UPHELD. IN THE RESULT, THE GROUND NO. 1 OF APPEAL TAKEN BY THE ASSESSEE IS DIS MISSED. 8. NOW THE ASSESSEE IS IN APPEAL. 9. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE AS SESSEE WAS HAVING A CAPITAL OF RS. 3.48 CRORES WHILE THE ADVANCES GIVEN AS POINTED OUT BY THE ASSESSING OFFICER WERE OF RS. 2.79 CRORES THEREFORE THE CAPITAL OF THE ASSESS EE ON WHICH NO INTEREST WAS TO BE PAID WAS MORE THAN THE ADVANCES GIVEN TO FAMILY AND RELA TIVES, REFERENCE WAS MADE TO PAGE NO. 16 OF THE ASSESSEES COMPILATION. IT WAS F URTHER SUBMITTED THAT NO SUCH DISALLOWANCE WAS MADE IN THE PRECEDING YEARS UNDER SIMILAR CIRCUMSTANCES THEREFORE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT(A) WAS NOT JUSTIFIED. IT WAS ALSO SUBMITTED THAT THE ASSES SING OFFICER HIMSELF ALLOWED THE INTEREST ON BORROWED FUNDS OUT OF WHICH ADVANCES WERE GIVEN TO THE RELATIVES BECAUSE THE ASSESSEE HAD SHOWN INTEREST RECEIVED FROM THOSE LOA NS AND ADVANCES. IT WAS ACCORDINGLY SUBMITTED THAT WHEREVER THERE WAS NEXUS BETWEEN THE BORROWED FUNDS AND LOANS AND ADVANCES GIVEN, THE ASSESSEE HAD CHA RGED INTEREST. AS REGARDS TO THE OTHER INTEREST FREE ADVANCES, THE LD. COUNSEL FOR T HE ASSESSEE SUBMITTED THAT SINCE INTEREST FREE FUNDS IN THE FORM OF CAPITAL OF THE A SSESSEE WERE MORE THAN THE INTEREST FREE 5 ADVANCES GIVEN, THEREFORE, NO DISALLOWANCE WAS CALL ED FOR UNDER SECTION 36(1)(III) OF THE ACT. 10. IN HIS RIVAL SUBMISSIONS THE LD. SR. DR STRONGL Y SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND REITERATED THE OBSERVATIONS M ADE IN THEIR RESPECTIVE ORDERS. IT WAS FURTHER SUBMITTED THAT THERE WAS A DIRECT NEXUS BET WEEN THE INTEREST BEARING BORROWED FUNDS AND THE INTEREST FREE ADVANCES GIVEN BY THE A SSESSEE WHICH HAD BEEN ADMITTED. IT WAS CONTENDED THAT DURING THE COURSE OF ASSESSME NT PROCEEDINGS BEFORE THE ASSESSING OFFICER, THE ASSESSEE STATED THAT THE ADV ANCES WERE MADE BY AVAILING THE OD LIMIT, THEREFORE, THE SOURCE OF INTEREST FREE AD VANCES I.E. O.D. LIMIT, WAS CLEARLY ESTABLISHED. THUS, THE CLAIM OF THE ASSESSEE THAT T HE FUNDS HAD BEEN GIVEN OUT, FROM THE NON INTEREST BEARING FUNDS BEING CAPITAL AND UNS ECURED LOANS DOES NOT CARRY ANY FORCE. IT WAS FURTHER CONTENDED THAT NO DOCUMENTARY EVIDENCE IN THE FORM OF BANK STATEMENT SHOWING TRANSFER OF MONEY FOR UNSECURED A DVANCES WAS FURNISHED BY THE ASSESSEE, ON THE OTHER HAND THERE WAS ENOUGH MATERI AL AVAILABLE WITH THE ASSESSING OFFICER TO ESTABLISH THAT THE INTEREST FREE ADVANCE S WERE MADE OUT OF THE INTEREST BEARING FUNDS, THEREFORE THE DISALLOWANCE MADE BY T HE ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT(A) WAS FULLY JUSTIFIED. 11. I HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESEN T CASE IT IS NOTICED THAT THE ASSESSING OFFICER HIMSELF ADMITTED THAT ON THE LOANS AND ADVA NCES GIVEN BY THE ASSESSEE OUT OF THE BORROWED FUNDS BY USING THE OD FACILITY THE INT EREST WAS EARNED, HE THEREFORE ALLOWED THE INTEREST EXPENDITURE TO THE EXTENT OF R S. 7,17,875/-. AS REGARDS TO THE OTHER INTEREST FREE ADVANCES, TH E BANK STATEMENT OF THE ASSESSEE PLACED AT PAGE NO. 16 OF THE ASSESSEES CO MPILATION REVEALS THAT THE CAPITAL OF THE ASSESSEE AS ON 31.3.2012 WAS AT RS. 3,48,04, 747/- AND THE ASSESSING OFFICER POINTED OUT IN THE ASSESSMENT ORDER THAT THE ASSESS EE HAD GIVEN INTEREST FREE ADVANCES TO THE FAMILY AND RELATIVES FOR A SUM OF RS. 2,79, 00,000/- WHICH SHOWS THAT THE INTEREST FREE FUNDS IN THE FORM OF CAPITAL WERE MORE THAN TH E INTEREST FREE LOANS GIVEN TO THE FAMILY AND RELATIVES. IN THE PRESENT CASE, NO NEXUS HAD BEEN ESTABLISHED BY THE ASSESSING OFFICER IN BETWEEN THE INTEREST FREE ADVA NCES AND THE INTEREST BEARING BORROWED FUNDS, THEREFORE, THE DISALLOWANCE OF RS. 13,77,730/- MADE BY THE ASSESSING OFFICER OUT OF THE INTEREST PAID BY THE ASSESSEE AND SUSTAINED BY THE LD.CIT(A) WAS NOT JUSTIFIED. ACCORDINGLY THE SAME IS DELETED. 12. VIDE GROUND NO. 2 THE GRIEVANCE OF THE ASSESSEE RELATES TO THE CONFIRMATION OF DISALLOWANCE OF RS. 2,26,635/- MADE BY THE ASSESSIN G OFFICER OUT OF CAR EXPENSES. 13. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE TH AT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE EXPENSES INCURRED BY THE ASSESSEE ON TELEPHONE, TRAVEL AND CAR WERE ALL MIXED IN NATU RE WHEREIN PERSONAL USE CANNOT BE 6 RULED OUT AND THAT THE ASSESSEE HAD NOT MAINTAINED ANY SEPARATE RECORD FOR THE DETAILS OF PERSONAL EXPENSES DEBITED IN THE P&L ACCOUNT. T HE ASSESSING OFFICER WAS OF THE VIEW THAT 1/5 TH OF THE EXPENSES WERE PERSONAL IN NATURE. HE WORKED OUT THE DISALLOWANCE AT RS. 4,18,865/- AND SINCE THE ASSESSEE HIMSELF HAD D ISALLOWED A SUM OF RS. 1,92,230/-, THE ASSESSING OFFICER MADE THE ADDITION OF RS. 2,26,635 /- (4,18,865.00 1,92,230.00). 14. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: IN THIS CONNECTION, IT IS SUBMITTED THAT, THE APPELLANT, BEING, AN INDENTING AGENT HAS TO TALK TO VARIOUS OVERSEAS CONSTITUENTS REGARDING SUPPLY O F MATERIAL, AVAILABILITY OF NEW PRODUCTS AND PAYMENT MATTERS ETC. DUE TO TIMING DIFFERENCES BETWEEN INDIA AND OTHER C OUNTRIES, THE TELEPHONE CALLS WERE BEING MADE DURING ODD TIMES, AND, THAT, TOO HAD TO BE MADE FROM RESIDENCE ONLY. AS SUCH, THE SUBSTANTIAL USE OF THE TELEPHONE WAS FOR THE BUSINESS PURPOSES OF THE APPELLANT ONLY, AND, NOT FOR PERSONAL PURPOSES. MOREOVER, THE OVERSEAS CONSTITUENTS ALSO VISIT INDIA IN ORDER TO NEGOTIATE ABOUT THE TERMS AND CONDITIONS FOR A PRODUCT. IN TU RN, THE APPELLANT HAS TO ENSURE THEIR PROPER VISIT TO INDIA. THUS, THE EXPENSES RELATED TO USE OF CAR AND TRAVELLING EXPENSES WERE INCURRED. THE LD ASSESSING OFFICER HAD ALSO FAILED TO POINT OUT THE EXACT AMOUNT OF CAR, TRAVELLING AND TELEPHONE EXPENSES WHICH WERE OF NON-BUSINESS N ATURE. TAKING NOTE OF THE EXPENSES CLAIMED BY THE APPELLAN T DURING THE YEAR UNDER CONSIDERATION, THE SAID EXPENSES WERE CLAIMED AFTER EFFECTING REALISTIC DISALL OWANCES, NO FURTHER DISALLOWANCES OF THE SAID EXPENSES COULD BE WARRANTED. FURTHER, THE DISALLOWANCES MADE BY THE ASSESSING OFFICER WERE BASED ON MERE SU SPICION AND SURMISES, AND, HAD NOT BEEN SUPPORTED BY ANY MATERIAL BROUGHT ON RECORD. A CCORDINGLY, THE DISALLOWANCES MADE BY THE ASSESSING OFFICER WERE PURELY ON GUESSWORK, AND, ARE NOT SUSTAINABLE IN LAW. THUS, MERELY ON ESTIMATE OR ON ADHOC BASIS, A DISALLOWANC E MADE WAS NOT JUSTIFIED, AND, DESERVES TO BE DELETED. 14.1. THE LD. CIT(A) HOWEVER DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND SUSTAINED THE ADDITION BY OBSERVING IN PARA 6.2 AND 6.3 AS UNDER: 6.2 I HAVE CONSIDERED THE OBSERVATIONS OF THE ASSES SING OFFICER AS MADE BY HER IN THE ASSESSMENT ORDER WHILE MAKING THE IMPUGNED ADDITION . I HAVE ALSO CONSIDERED WRITTEN SUBMISSIONS FILED BY THE ASSESSEE THROUGH HIS LEARN ED AR VIDE LETTER DATED 23.01.2017 ON THE ISSUE UNDER REFERENCE. ON CAREFUL CONSIDERATION OF THE RIVAL CONTENTIONS, I AM OF THE OPINION THAT THE PERSONAL USE OF CAR AND TELEPHONE CANNOT BE RULED OUT IN THE CASE OF THE ASSESSEE IN THE ABSENCE OF ANY DAY TO DAY DETAILS W ITH REGARD TO USE OF TELEPHONE AND CAR. SIMILARLY, PERSONAL EXPENSES OF THE ASSESSEE I N TRAVELING EXPENSES CANNOT BE RULED OUT. MOREOVER, THE DISALLOWANCE MADE BY THE ASSESSING OF FICER IS VERY REASONABLE AND CANNOT BE SAID TO BE EXCESSIVE UNDER ANY CIRCUMSTANCES. UN DER SUCH CIRCUMSTANCES, THE ACTION OF TE ASSESSING OFFICER IN MAKING AN ADDITION OF RS .2,26,635/- IN THIS CASE ON ACCOUNT OF DISALLOWANCE OUT OF EXPENSE CLAIMED BY THE ASSESSEE UNDER THE HEADS 'TELEPHONE EXPENSES', 'CAR EXPENSES', 'CAR INSURANCE EXPENSES' , 'CAR DEPRECIATION' AND TRAVELLING EXPENSES' CANNOT BE SAID TO BE UNJUSTIFIED. 6.3 IN VIEW OF THE ABOVE STATED FACTS AND IN THE CI RCUMSTANCES OF THE CASE, I AM OF THE OPINION THAT THE ASSESSING OFFICER IS FULLY JUSTIFI ED IN MAKING AN ADDITION OF RS.2,26,635/- IN THIS CASE ON ACCOUNT OF DISALLOWANCE OUT OF EXPENSE CLAIMED BY THE ASSESSEE UNDER THE HEADS 'TELEPHONE EXPENSES', 'CAR EXPENSES', 'CAR IN SURANCE EXPENSES', 'CAR DEPRECIATION' AND TRAVELLING EXPENSES'. THE ADDITION OF RS.2,26,6 35/- MADE BY THE ASSESSING OFFICER IN THIS CASE OUT OF CAR, TELEPHONE AND TRAVELLING EXPENSES IS, THEREFORE, UPHELD . IN THE RESULT, THE GROUND NO. 2 OF APPEAL TAKEN BY THE ASSESSEE IS DIS MISSED. 15. NOW THE ASSESSEE IS IN APPEAL. 7 16. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT ALL TH E EXPENSES WERE USED FOR THE BUSINESS PURPOSES AND NO SPECIFIC INSTANCE HAS BEEN POINTED OUT BY THE ASSESSING OFFICER WHEREIN THE EXPENSES WERE NOT USED FOR BUSINESS PUR POSES. THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT(A) WAS NOT JUSTIFIED. ALTERNATIVELY IT WAS SUBMITTED THAT THE DISALLOWANC E MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT(A) WAS HIGHLY EXCESSIVE. 17. IN HIS RIVAL SUBMISSIONS THE LD. SR. DR STRONGL Y SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 18. I HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT IS NOTICED THAT THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE AT RS. 4,18,665/- AS PE R FOLLOWING DETAILS: SR. NO. PARTICULARS AMOUNT 1/5 TH ADDITION 1 TELEPHONE EXPENSES 195465 39093 2 TRAVELLING EXPENSES 178288 35658 3 CAR DEPRECIATION 1399350 279870 4 CAR INSURANCE 181208 36242 5 CAR EXPENSES 139008 27802 GRAND TOTAL 2093319 418665 18.1 FROM THE ABOVE DETAILS IT IS NOTICED THAT THE MAJOR DISALLOWANCE WAS WORKED OUT ON ACCOUNT OF DEPRECIATION AMOUNTING TO RS. 2,79,87 0/- WHICH IS A STATUTORY DEDUCTION. IF SUCH FIGURE IS REDUCED FROM THE FIGURE WORKED OU T BY THE ASSESSING OFFICER THE REMAINING AMOUNT COMES AT RS. 1,38,995/- WHILE THE ASSESSEE HAS ALREADY DISALLOWED SUO MOTU A SUM OF RS. 1,92,230/-. THEREFORE THE DIS ALLOWANCE MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT(A) AT RS. 2,26 ,635/- (RS. 4,18,665 RS. 1,92,230/- )APPEARS TO BE EXCESSIVE. I THEREFORE, TO MEET THE ENDS OF JUSTICE RESTRICT THE ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT(A) AT RS. 50,000/- INSTEAD OF RS. 2,26,635/-. 21. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 22/04/2 019) SD/- (N.K. SAINI) VICE PRESIDENT PLACE: CHANDIGARH DATED : 22/04/2019 AG/RKK COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR