The ACIT, Circle-5, Baroda V. Shri Anil B. Patel, Baroda

ITA 3201/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6413 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 01-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 30-11-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: M G PATEL
• Keywords: Principle of natural justice; Onus to prove
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI MUKUL KUMAR SHRAWAT AND SHRI D. C. AGRAWAL, ACCOUNTANT MEMBER I.T.A. NO. 3201/ AHD/2009 (ASSESSMENT YEAR 2005-06) ACIT, CIRCLE 5, BARODA VS. SHRI ANIL B PATEL, VISHRANTI, 1/2, DARHSAN PARK SOCIETY, VIP ROAD, KARELIBAUG, BARODA PAN/GIR NO. : ACTP2509G (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI B L YADAV, SR. DR RESPONDENT BY: SHRI M G PATEL, AR O R D E R PER SHRI MUKUL KUMAR SHRAWAT, JM :- THIS IS THE APPEAL AT THE BEHEST OF THE REVENUE WH ICH HAS EMANATED FROM THE ORDER OF LD. CIT(A) V, BARODA DATED 16.09 .2009 FOR THE ASSESSMENT YEAR 2005-06. THE ONLY GROUND AS RAISED BY THE REVENUE IS REPRODUCED BELOW: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING HT ADDITION OF RS.15,82,021/- PRO PORTIONATE TO THE AMOUNT OF CAPITAL BORROWED TO THE EXTENT OF RS.38,0 0,000/- (OUT OF TOTAL AMOUNT OF 1 CRORE, RS.39 LAKHS ARE INVESTED I N PARTNERSHIP FIRMS AS CAPITAL, AND RS.23 LAKHS EXPLAINED AS UTILIZED F OR GIVING INTERESTS BEARING DEPOSITS). THE LD. CIT FAILED TO APPRECIAT E THE FACT THAT THE I.T.A.NO. 3201 /AHD/2009 2 ASSESSEE COULD NOT ESTABLISH AS TO WHY INTEREST PAI D ON THIS AMOUNT I.E. RS.38 LAKHS SHOULD BE ALLOWED AS BUSINESS EXPENDITU RE. 2. THE FACTS IN BRIEF AS EMERGED FROM THE CORRESPON DING ASSESSMENT ORDER PASSED U/S 143(3) DATED 28.12.2007 WERE THAT THE ASSESSEE IN HIS INDIVIDUAL CAPACITY HAS DISCLOSED INTEREST INCOME O F RS.18,17,050/- AND AGAINST THIS, CLAIMED A DEDUCTION OF INTEREST EXPEN DITURE OF RS.20,97,861/-. THE A.O. WAS OF THE VIEW THAT THE ASSESSEE HAD NOT SHOWN THE NEXUS OF BORROWED FUNDS, HERETOFORE, THE ENTIRE CLAIM OF DED UCTION WAS DISALLOWED. THE MATTER WAS CARRIED BEFORE THE 1 ST APPELLATE AUTHORITY. 3. BEFORE LD. CIT(A), IT WAS CONTESTED AS UNDER: 5.1. IN THE COMPUTATION OF INCOME FILED WITH THE R ETURN OF INCOME, THE ASSESSEE UNDER THE HEAD 'INCOME FROM INTERESTS', ASSESSEE HAD SHOWN THE INCOME OF RS. 18,71,050/- AND CLAIMED THE DEDUCTION OF INTEREST E XPENSE OF RS. 20,97,861/- (RS. 18,05,361/- AGAINST INTER EST INCOME AND RS. 2,92,500/- PARTNERSHIP FIR M). THEREFORE, ASSESSEE WAS REQUIRED TO PROVE THAT THE EXPENSE OF RS. 20,97,8617- HAS BEEN EXPANDED WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INCOME OF RS18,71,050/-. ASSESSEE VIDE ITS LETTER DATED 21 ST DECEMBER 2007 FILED THE WRITTEN SUBMISSION AND STAT ED THAT HE HAS ACCEPTED DEPOSIT OF RS. 1,00,50,0007- O N WHICH THE ASSESSEE HAS PAID INTEREST. IT WAS ALSO S TATED BEFORE THE AO THAT AROUND RS. 39 LAKHS WAS UTILIZED FOR INVESTMENT IN PARTNERSHIP FIRMS AND RS. 23 LAKHS WA S RETURNED/REFUNDED OF THE DEPOSITORS AND THE BALANCE WAS INVESTED IN NEW ASSETS. THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS RECEIV ED 0.16% OF INTEREST INCOME AND 0.22% OF REMUNERATION AND 44.82%''BF EXEMPTED SHARE IN PROFIT AND THUS IN RES PECT OF THE ALMOST EXEMPTED INCOME, NO INTEREST EXPENSES ARE TO BE ALLOWED. THUS, THE ENTIRE INTEREST OF RS. 20, 97,861/- WAS DISALLOWED. I.T.A.NO. 3201 /AHD/2009 3 3. IT WAS ALSO INFORMED THAT AGAINST INTEREST FREE ADVANCES OF RS.4.5 CRORES, THERE WERE INTEREST BEARING LOANS OF RS.4.5 2 CRORES HENCE PLEADED THAT NO INTEREST SHOULD BE DISALLOWED. AFTER CONSIDERIN G THOSE SUBMISSIONS, CIT(A) HAS GRANTED PART RELIEF AS UNDER: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE MISSIONS OF THE APPELLANT. IT IS OBSERVED THAT DURI NG THE YEAR, INTEREST BEARING DEPOSITS OF ABOUT RS. 1 CROR E' WERE RAISED OUT OF WHICH AROUND RS. 8,50,000/- WERE THE REFUND OF THE LOAN ON AMOUNT, AND ABOUT RS. 20 LAKHS WAS R ELATING TO AMOUNT RECEIVED FROM LAND TRANSACTION. FURTHER, RS. 39,86,0007- WERE INVESTED IN THE CAPITAL OF VARIOUS PARTNERSHIP FIRMS. THE SHARE FROM THE PARTNERSHIP F IRM IS EXEMPT FROM TAXATION. THERE IS A CASE FOR PROPORTIO NATE DISALLOWANCE OF INTEREST IN VIEW OF THE PROVISION U /S. 14A OF THE I.T. ACT. CONSIDERING THAT THE INTEREST BEAR ING UNSECURED LOANS WERE TO THE TUNE OF RS. 1.7 CRORES AND THE INTEREST EXPENSES DURING THE YEAR IS AROUND RS. 21 LAKHS, IT WOULD BE REASONABLE IF THE DISALLOWANCE IS COMPUTED @13% ON THE FUNDS INVESTED IN THE PARTNERSHIP FIRM OF RS. 39,86,OOO/-. THUS, THE DISALLOWANCE RS. 5,15,840/-. GROUND NO, 2 IS PARTLY ALLOWED. 4. FROM THE SIDE OF THE REVENUE, SHRI B. L. YADAV, SR. DR AND FROM THE SIDE OF THE ASSESSEE SHRI M G PATEL, AR APPEARED AN D THEY HAVE RESPECTIVELY SUPPORTED THE ORDERS OF THE A.O. AND THE LD. CIT(A ). 5. ON HEARING THE SUBMISSIONS OF BOTH THE SIDES, AT THE OUTSET, PARTIES APPEARING BEFORE US HAVE INFORMED THAT IN THE ASSES SEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04, ITAT C BENCH IN I.T.A.NO .2886/AHD/2006 ORDER DATED 13.08.2010, HAS RESTORED THE SAID ISSUE AS PER THE FOLLOWING OBSERVATIONS: 4.1. AS PER COMPUTATION FILED ALONG WITH THE RETU RN INTEREST INCOME WAS SHOWN AL RS.3,I6,773/- AND AGAI NST THAT CLAIMED A DEDUCTION OF INTEREST EXPENSES OF I.T.A.NO. 3201 /AHD/2009 4 RS.6.3L.585A TIN- ASSESSING OFFICER HAS ASKED TO ES TABLISH THE NEXUS IN RESPECT OF INTEREST EARNED AND INTERES T PAID. IN HIS OPINION, THE ASSESSEE HAS NOT DISCHARGED THE ONUS TO PROVE THAT THE EXPENDITURE HAD ACTUALLY BEEN INCURR ED TO EARN THE SAID INCOME IN FIRST APPEAL, THE ACTION OF THE ASSESSING OFFICER WAS AFFIRMED PRIMARILY ON THE GRO UND THAT THE DIRECT NEXUS BETWEEN THE LOAN TAKEN AND TH E INTEREST PAID HAS NOT BEEN ESTABLISHED. 5. NOW BEFORE US, THE ASSESSEE HAS TRIED TO ESTABLI SH THAT THE BORROWED FUNDS HAVE IN FACT BEEN UTILIZED FOR B USINESS PURPOSE IN THE FIRMS UND THE INTEREST INCOME HAS AL SO BEEN EARNED FROM THOSE FIRMS, THEREFORE, THE NEXUS COULD HAVE BEEN ESTABLISHED IF AN ADEQUATE OPPORTUNITY WAS GRA NTED. SINCE THE BASIC INFORMATION IN RESPECT OF THE FUNDS BORROWED AND IN UTILIZATION HAVE NOT BEEN PLACED BE FORE THE REVENUE AUTHORITIES, THEREFORE, IN THE INTEREST OF NATURAL JUSTICE, IT IS FAIR AND REASONABLE TO RESTO RE THIS GROUND BACK TO THE STAGE OF THE A.O. WITH THE DIREC TION TO FURNISH THE REQUISITE DETAILS AND PROVE THE NEXUS A S PER THE REQUIREMENT OF LAW WITHOUT SEEKING FRIVOLOUS ADJOUR NMENT, SO THAT THIS SMALL ISSUE SHOULD GET DECIDED AT AN E ARLY DATE. SINCE THE MATTER HAS BEEN RESTORED BACK TO THE A.O. , THEREFORE, THIS GROUND MAY BE TREATED AS ALLOWED ON LY FOR STATISTICAL PURPOSES. 6. THE FACTS BEFORE US FOR CONSIDERATION ARE A LMOST IDENTICAL BECAUSE THE ASSESSEE HAS NOW PLACED BEFORE US CERTAIN CHART IN RESPECT OF THE LIST OF INTEREST FREE FUNDS AVAILABLE. THE ASSESSEE HAS AL SO PLACED A LIST OF INTEREST FREE UNSECURED BORROWINGS, WHICH IS THE WORKING OF NET INTEREST FREE OWN CAPITAL BALANCE. HOWEVER, ALL THOSE DETAILS WERE A DMITTEDLY NOT BEFORE THE A.O. IDENTICAL WAS THE POSITION IN THE ASSESSMENT YEAR 2003-04 WHEREIN THE RESPECTED COORDINATE BENCH VIDE ITS ORDER CITED SUP RA HAS RESTORED THE ISSUE BACK TO THE A.O. FOR RE-ADJUDICATION AFTER GRANTING OPPORTUNITY OF HEARING. ON THOSE LINES, FOR THIS YEAR AS WELL, THIS ISSUE I S RESTORED BACK FOR DE NOVO ADJUDICATION. THE LD. A.R. MR. M. G. PATEL HAD ALS O INFORMED THAT FOR THE I.T.A.NO. 3201 /AHD/2009 5 YEAR UNDER CONSIDERATION, THOUGH PART RELIEF WAS GR ANTED BY THE LD. CIT(A), BUT NO APPEAL WAS FILED BY THE RESPONDENT ASSESSEE . IN VIEW OF THIS, THE GROUND RAISED BY THE REVENUE MAY BE TREATED AS ALLO WED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE STAND S ALLOWED FOR STATISTICAL PURPOSES. 8. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JUNE 2011. SD./- SD./- (D. C. AGRAWAL) (MUKUL KUMAR SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED : 17 TH JUNE, 2011 SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD 6. THE GUARD FILE 1. DATE OF DICTATION 10/6/11. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 13/6/11.. OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 15/6/11 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 17/6/11 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S. 17/6/11 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 17/6/11 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. ..