Narinder Singh Sandhu, Mohali V. ACIT, Mohali

ITA 318/CHANDI/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5072 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 15-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Bonafide belief; Condonation of delay; Revenue expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE MS. DIVA SINGH, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.318/CHD/2017 (ASSESSMENT YEAR : 2010-11) NARINDER SINGH SANDHU, VS. THE A.C.I.T., PROP. M/S SAHIBZADA TIMBERS, CIRCLE 6(1), PLOT NO.B-4-41-42, MOHALI. INDUSTRIAL AREA, PHASE-III, MOHALI. PAN: AOYPS3210G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MOHIT DHIMAN RESPONDENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 08.06.2017 DATE OF PRONOUNCEMENT : 06.07.2017 O R D E R PER ANNAPURNA GUPTA, A.M . : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINS T THE ORDER OF CIT(APPEALS)-2, GURGAON DATED 21.11.20 16 RELATING TO ASSESSMENT YEAR 2010-11. 2. AT THE OUTSET, IT MAY BE STATED THAT THE APPEAL WAS TIME BARRED BY ONE DAY. AN APPLICATION DATED 23.2.2017 FOR CONDONATION OF DELAY WAS FILED ATTRIB UTING THE DELAY TO LAPSE OF THE ACCOUNTANT OF THE ASSESSEE. A DULY SWORN AFFIDAVIT OF THE SAID ACCOUNTANT WAS ALSO FIL ED ALONGWITH THE APPLICATION. THE REASON STATED IN TH E AFFIDAVIT FOR THE DELAY WAS THAT THE RELEVANT PAPER S FOR FILING THE APPEAL WERE HANDED OVER BY HIM TO THE COUNSEL LATE I.E. ON 15.2.2017 SINCE HE WAS UNDER THE BONAFIDE BELIEF THAT 2 THE SAID APPEAL COULD BE FILED UPTO THE SAID DATE, WHEREAS THE APPEAL WAS REQUIRED TO BE FILED ON OR BEFORE 14 .2.2017. THE LD. COUNSEL FOR ASSESSEE ON THE BASIS OF THE SA ID APPLICATION REQUESTED THE DELAY IN FILING OF THE PR ESENT APPEAL TO BE CONDONED. THE LD. DR DID NOT OBJECT T O THE SAME. IN VIEW OF THE SAME, WE CONDONE THE DELAY IN FILING OF THE APPEAL. 3. WE SHALL NOW PROCEED TO ADJUDICATE THE GROUNDS RAISED IN THE APPEAL WHICH ARE AS UNDER: 1. THAT THE ORDER U/S 250(6) DATED 21.11.2016 PASS ED BY THE ID. CIT (A) IS CONTRARY TO THE LAW AND FACTS OF THE CAS E. 2. THAT THE ID. CIT(A) HAS ERRED IN UPHOLDING THE A DDITION MADE U/S 36(L)(III) AS THE INTEREST FREE FUNDS AVAILABLE WITH THE APPELLANT WERE MUCH HIGHER THAN THE AMOUNT ALLEGED AS BEING ADVANCED FOR NON-BUSINESS PURPOSES AND IN SUCH CASE S, PRESUMPTION HAS TO BE DRAWN THAT ADVANCES HAVE BEEN MADE OUT OF THE INTEREST FREE FUNDS AVAILABLE WITH THE A PPELLANT. 3. WHETHER THE ID. CIT(A) HAS ERRED IN DISALLOWING THE ENTIRE AMOUNT OF INTEREST AMOUNTING TO RS.1,50,321 U/S 36( 1)(III) IGNORING THE FACT THAT THE SUBSTANTIAL AMOUNT OF AD VANCES HAD BEEN MADE FOR BUSINESS PURPOSES AND THE DISALLOWANC E, IF ANY, SHOULD HAVE BEEN RESTRICTED TO ADVANCES FOR NON-BUS INESS PURPOSES. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR WITHDRAW ANY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED OFF. 5. RELIEF PRAYED FOR : THE ADDITION/DISALLOWANCE OF RS.1,50,821/- IS UNWARRANTED AND MAY BE DELETED OR ANY OTHER SUITABL E RELIEF AS DEEMED FIT MAY BE ALLOWED. 4. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST THE DISALLOWANCE OF INTEREST AMOUNTING TO 3 RS.1,50,821/- U/S 36(1)(III) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE FACTS RELEVANT TO THE ISSUE ARE THAT THE ASSESSEE HAD INCURRED EXPENSES TO THE TUNE OF RS.1,50,821/- ON ACCOUNT OF INTEREST PAID TO ONE SH RI GURJAGJEET SINGH. ON BEING ASKED TO PROVIDE DETAIL S OF THE NATURE OF INTEREST PAID, THE ASSESSEE SUBMITTED TH AT THE SAME HAD BEEN PAID ON ACCOUNT OF UNSECURED LOAN OF RS.15 LACS TAKEN FROM THE SAID PERSON. THE ASSESSING OFF ICER, HOWEVER, FOUND THAT THE ASSESSEE HAD ADVANCED LOANS AND ADVANCES TO THE TUNE OF RS.1,01,94,779/- WHICH WERE INTEREST FREE. THE ASSESSEE WAS THEREFORE ASKED TO JUSTIFY AS TO WHY THE INTEREST PAID SHOULD NOT BE DISALLOWED I N THE LIGHT OF THE RATIO LAID DOWN BY THE HON'BLE JURISDI CTIONAL HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRI ES LTD., 286 ITR 1 (P&H). TO THIS, THE ASSESSEE REPLIED THA T HE HAD ENOUGH CAPITAL OF RS.4.02 CRORES TO MAKE THE IMPUGN ED INTEREST FREE ADVANCES. NOT SATISFIED WITH THE REP LY OF THE ASSESSEE, THE ASSESSING OFFICER DISALLOWED THE SAID EXPENSES U/S 36(1)(III) OF THE ACT. 5. AGGRIEVED BY THE SAME, THE ASSESSEE WENT IN APPEAL TO THE LD.CIT(APPEALS) WHERE THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER WERE REITERATED THAT S INCE IT HAD SUFFICIENT INTEREST FREE FUNDS, NO DISALLOWANCE U/S 36(1)(III) OF THE ACT WAS WARRANTED. THE LD.CIT(AP PEALS) AFTER CONSIDERING ASSESSEES SUBMISSIONS FOUND NO M ERITS IN THE SAME AND UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BY HOLDING AS UNDER : 4 4.3 I HAVE GIVEN CAREFUL CONSIDERATION TO THE FAC TS OF THE PRESENT CASE AND FIND THAT IT IS A CASE WHERE DESPITE THE FACT THE APPELLANT HAD SUFFICIENT FUNDS TO THE EXTENT OF RS.1,01,94,679/- WHICH HAS BEEN ADVANCED TO MANY PE RSONS AS LOANS WITHOUT INTEREST YET THE APPELLANT DECIDED TO RAISE A LOAN OF RS.15 LAKHS FROM SH. GURJAGJEET SINGH ON INTEREST B ASIS. ON THIS LOAN, DURING, THE YEAR UNDER CONSIDERATION, A SUM O F RS.1,50,821/- WAS PAID AND THE SAME WAS CLAIMED AS BUSINESS EXPEN DITURE. THE ENTIRE LEGAL PROPOSITION HAS TO BE SEEN FROM TH E VIEWPOINT WHETHER OR NOT SUCH A CLAIM OF INTEREST AS BUSINESS EXPENSE WOULD PASS THE TEST OF SECTION 36(1)(III) OR SECTIO N 37 OF INCOME TAX ACT. IN SECTION 36(III), IT HAS BEEN LAID OUT THAT THE INTEREST SHOULD BE ON A BORROWED CAPITAL USED FOR THE PURPOS ES OF BUSINESS OR PROFESSION WHEREAS SECTION 37 LAYS D OWN THAT THE REVENUE EXPENDITURE SHOULD HAVE BEEN INCURRED EXCL USIVELY FOR THE PURPOSES OF BUSINESS OR PROFESSION. THE PARAMOU NT CONSIDERATION BEFORE ALLOWING EXPENDITURE OF INTERE ST IS THAT IT SHOULD BE INCURRED FOR THE PURPOSES OF BUSINESS OR PROFESSION. IN THE PRESENT CASE, IT IS FOUND THAT THE BUSINESS ENTITY POSSESSED SUFFICIENT CAPITAL OF ITS OWN BUT THE APPELLANT DEC IDED TO GIVE THIS CAPITAL IN HAND ON INTEREST-FREE BASIS. THEREAFTER, A DECISION IS TAKEN TO BORROW CAPITAL ON INTEREST INSTEAD OF REAL IZING ITS OWN INTEREST FREE CAPITAL GIVEN TO OTHERS. SUCH A DECI SION CANNOT BE CONSIDERED TO HAVE BEEN TAKEN FOR THE PURPOSE OF BU SINESS OR PROFESSION. UNDER THESE PREMISES, THE EXPENDITURE OF INTEREST INCURRED BY THE APPELLANT AND CLAIMED AS BUSINESS E XPENDITURE IS NOT ALLOWABLE EITHER UNDER SECTION 36(1)(III) OR SE CTION 37 OF INCOME TAX ACT. THE GROUND OF APPEAL IS DISMISSED. 6. AGGRIEVED BY THE SAME, THE ASSESSEE HAS NOW COME UP IN APPEAL BEFORE US. DURING THE COURSE OF HEARING, THE ONLY SUBMISSION MADE BY THE LD. COUNSEL FOR ASS ESSEE BEFORE US WAS REITERATION OF THAT MADE BEFORE THE L OWER AUTHORITIES THAT IN VIEW OF THE FACT THAT IT HAD EN OUGH 5 INTEREST FREE FUNDS AMOUNTING TO RS.4.02 CRORES IN THE FORM OF CAPITAL OF THE ASSESSEE PROPRIETOR, THE PRESUMPT ION SHOULD BE THAT THE INTEREST FREE ADVANCES HAVE BEEN MADE OUT OF THE SAME AND THUS NO DISALLOWANCE OF INTERES T U/S 36(1)(III) OF THE ACT WAS TO BE MADE. THE LD. COUN SEL FOR ASSESSEE RELIED UPON THE DECISION OF ITAT CHANDIGAR H BENCH IN THE CASE OF KISAN FATS LTD. VS. DCIT (2017) REP ORTED IN 77 TAXMANN.COM 82. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT VS. SATISH BALA MALHOTRA REPORTED IN 79 TAXMANN.COM 50. 7. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE LD.CIT(APPEALS). 8. WE HAVE HEARD THE RIVAL CONTENTIONS. THE ISSUE BEFORE US PERTAINS TO DISALLOWANCE OF INTEREST EXPE NDITURE UNDER SECTION 36(1)(III) OF THE ACT. THE FACTS REL EVANT FOR ADJUDICATING THE ISSUE AND WHICH ARE UNDISPUTED ARE THAT THE ASSESSEE HAD BORROWED INTEREST BEARING FUNDS TO THE TUNE OF RS.15 LACS PAYING INTEREST THEREON OF RS.1, 50,321/- DURING THE YEAR. THE ASSESSEE HAD ALSO MADE ADVANC ES OF APPROXIMATELY RS.1 CRORE WHICH UNDISPUTEDLY WERE IN TEREST FREE. FURTHER THE ASSESSEE HAS ALSO NOT CONTENDED THAT THE SAME WERE FOR THE PURPOSE OF BUSINESS OF THE ASSESS EE. THEREFORE, THE SAID ADVANCES WERE NON BUSINESS INTE REST FREE ADVANCES. IT IS ALSO NOT DISPUTED THAT THE AS SESSEE HAD INTEREST FREE FUNDS AVAILABLE IN THE FORM OF HIS OW N CAPITAL TO THE TUNE OF RS.4.02 CRORES. 6 9. WHILE THE LD.COUNSEL FOR THE ASSESSEE HAS CLAIMED THAT THE INTEREST FREE BORROWINGS BE ATTRI BUTED TO THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE THUS WARRANTING NO DISALLOWANCE OF INTEREST U/S 36(1)(II I) OF THE ACT, THE CASE OF THE REVENUE IS THAT THE ASSESSEE H AS NOT ESTABLISHED THE USER OF BORROWED FUNDS FOR BUSINESS PURPOSES AND THERE WAS NO REASON TO ADVANCE ITS IN TEREST FREE FUNDS FOR MAKING INTEREST FREE ADVANCES AND TH EN BORROW FUNDS. 10. WE ARE NOT IN COMPLETE AGREEMENT WITH THE CONTENTIONS OF THE LD COUNSEL FOR THE ASSESSEE. WE FIND THAT THE LD.COUNSEL HAS NOT BEEN ABLE TO DEMONSTRAT E AS TO HOW THE ASSESSEE HAS DISCHARGED THE INITIAL BURDEN WHICH LAY ON IT ,AS PER SECTION 36(1)(III) OF THE ACT, OF ESTABLISHING THE FACTUM OF USER OF INTEREST BEARING FUNDS FOR TH E PURPOSE OF BUSINESS OF THE ASSESSEE. SECTION 36(1)(III),WHI CH DEALS WITH ALLOWABITLITY OF INTEREST EXPENDITURE UNDER TH E HEAD BUSINESS AND PROFESSION, VERY CLEARLY STATES THAT I NTEREST WHICH IS PAID ON CAPITAL BORROWED FOR THE PURPOSE O F BUSINESS OR PROFESSION IS ALLOWABLE AS EXPENDITURE. THEREFORE, THE PARAMOUNT CONSIDERATION GOVERNING TH E ALLOWABILITY OF INTEREST IS THE ESTABLISHMENT OF TH E FACT OF USER OF BORROWED FUNDS FOR BUSINESS PURPOSE, THE BU RDEN FOR PROVING WHICH UNDENIABLY RESTS ON THE ASSESSEE . THE SAME CAN BE DEMONSTRATED BY ESTABLISHING DIRECT NEX US BETWEEN THE BORROWED FUNDS AND ITS UTILIZATION FOR BUSINESS 7 PURPOSE. IN THE ABSENCE OF ANY SUCH DIRECT NEXUS A ND WHERE INTEREST BEARING FUNDS BECOME PART OF A MIXED POOL OF INTEREST BEARING AND INTEREST FREE FUNDS AND IN SUC H A SITUATION THE ASSESSEE IS FOUND TO HAVE MADE INTERE ST FREE NON BUSINESS ADVANCES, THEN THE COURTS HAVE HELD TH AT THE PRESUMPTION ARISES THAT THE INTEREST FREE ADVANCES HAVE BEEN MADE OUT OF THE INTEREST FREE FUNDS, IF SUFFIC IENTLY AVAILABLE. IN ANY CASE FOR THE ALLOWABILITY OF CLA IM OF INTEREST EXPENDITURE, THE ASSESSEE HAS TO DEMONSTRA TE AND RULE OUT ANY DIRECT NEXUS BETWEEN THE INTEREST BEAR ING FUNDS AND NON BUSINESS INTEREST FREE ADVANCES MADE. 11. IN THE PRESENT CASE, AFTER GOING THROUGH THE ORDERS OF THE ASSESSING OFFICER AND CIT(APPEALS), W E FIND THAT THIS FACT HAS NOT BEEN ESTABLISHED AT ANY STAG E. THE ASSESSEE HAS NEITHER BEFORE THE ASSESSING OFFICER, NOR THE CIT(APPEALS) BROUGHT ON RECORD EVIDENCE OR DOCUMENT S TO PROVE THAT THE LOANS TAKEN FROM SHRI GURJAGJEET SIN GH OF RS.15 LACS, ON WHICH THE PURPORTED INTEREST OF RS.1,50,821/- WAS PAID, HAD BEEN UTILIZED FOR THE P URPOSE OF BUSINESS OF THE ASSESSEE OR THAT IT BECAME PART OF THE MIXED FUNDS OF THE ASSESSEE. THE ASSESSEE HAS ALS O NOT RULED OUT ANY NEXUS OF THE LOAN SO TAKEN WITH THE I NTEREST FREE ADVANCE. IT IS ONLY THEREAFTER THAT THE ARGUME NT OF SUFFICIENCY OF INTEREST FREE FUNDS BEING AVAILABLE FOR THE PURPOSE OF MAKING INTEREST FREE ADVANCES, THUS WARR ANTING NO DISALLOWANCE U/S 36(1)(III) OF THE ACT, WILL BE OF ASSISTANCE TO THE ASSESSEE. THE DECISIONS RELIED UP ON BY THE 8 LD. COUNSEL FOR THE ASSESSEE BECOME APPLICABLE ONLY IN SUCH A SITUATION. 12. LD CIT(A) ,WE FIND ,HAS ALSO APPLIED THE RATIO LAID DOWN IN ABHISHEK INDUSTRIES 286 ITR 1 THAT THE ASS ESSEE OUGHT NOT TO HAVE RAISED INTEREST BEARING FUNDS WHE N IT HAD INTEREST FREE FUNDS, WITHOUT BRINGING ON RECORD THE FACT THAT THE INTEREST BEARING FUNDS FORMED PART OF THE MIX ED POOL OF FUNDS. 13. THEREFORE, IN SUCH CIRCUMSTANCES, WE CONSIDER IT FIT TO RESTORE THE ISSUE BACK TO THE FILE OF THE AS SESSING OFFICER TO DETERMINE THE PURPOSE FOR WHICH THE INT EREST BEARING FUNDS WERE USED. IF IT IS FOUND THAT THE SA ME HAVE DIRECT NEXUS WITH THE NON-BUSINESS ADVANCE MADE, T HE INTEREST PAID WOULD BE LIABLE TO BE DISALLOWED. IN CASE THE INTEREST BEARING FUNDS ARE FOUND TO BE BELONGING T O THE MIXED POOL OF FUNDS INCLUDING THE INTEREST FREE FU NDS, THEN ONLY THE PRESUMPTION WOULD ARISE THAT THE INTEREST FREE ADVANCES HAVE BEEN MADE OUT OF THE INTEREST FREE FU NDS OF THE ASSESSEE AS LAID DOWN IN VARIOUS DECISIONS OF T HE HON'BLE JURISDICTIONAL HIGH COURT CITED BEFORE US. WE MAY ADD THAT THE ASSESSEE BE GIVEN DUE OPPORTUNITY OF H EARING AND IS FREE TO ADDUCE ALL EVIDENCE AND DOCUMENTS IN SUPPORT OF ITS CONTENTIONS MADE BEFORE THE ASSESSING OFFICE R. 14. IN VIEW OF THE ABOVE, THE GROUNDS RAISED BY TH E ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 9 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (DIVA SINGH) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 6 TH JULY, 2017 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH