DR. JAYESH PRANLAL SHAH, MUMBAI V. ITO-11(2)(4), MUMBAI

ITA 3262/MUM/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62547 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 18-06-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 25-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Assessee Lawyers: V G GINDE
• Keywords: Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J, MUMBAI BEFORE SHRI DINESH KUMAR AGARWAL (J.M.) AND SHRI N.K. BILLAIYA (A.M.) ITA NO. 3262/MUM/2011 ASSESSMENT YEAR : 2006-07 DR. JAYESH PRANLAL SHAH, 102, SHANTI NIKETAN, SHIVAJI CHOWK, DAFTARY ROAD, MALAD (EAST), MUMBAI- 400 097. PAN : AACPS 7826G VS. INCOME TAX OFFICER- 11(2)(4), AAYAKAR BHAVAN, ROOM NO. 479, 4 TH FLOOR, M.K. ROAD, CHURCHGATE, MUMBAI- 400 020. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI V.G. GINDE REVENUE BY : SHRI D.S. SUNDER SINGH DATE OF HEARING 18-6-2012 DATE OF PRONOUNCEMENT 20-6-2012 O R D E R PER DINESH KUMAR AGARWAL, J.M. THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 12-01-2011 PASSED BY THE LD. CIT (A) 3 MUMB AI FOR THE A.Y. 2006-07. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE IS A DOCTOR BY PROFESSION. HE FILED RETURN DECLARING TOTAL INCOME FROM PROFESSION AND OTHER SOURCES AGGREGATING TO RS. 3,07,520/-. DURING THE COURSE OF ASSESSMENT PROCEEDING, IT WAS INTER ALIA OBSERVED B Y THE A.O. THAT THE ASSESSEE HAS DEBITED INTEREST PAYMENT ON SECURED LO ANS UNDER THE HEAD ITA NO. 3262/MUM/2011 2 FINANCIAL EXPENSES IN INCOME AND EXPENDITURE ACCOUN T IE. BANK CHARGES RS. 70,451/- AND INTEREST ON BANK LOAN RS. 3,09,689 /-. HE FURTHER OBSERVED THAT THE ASSESSEE HAS GIVEN INTEREST FREE LOAN TO UNNATI J. SHAH RS. 9,55,000/- AND VIJAY KUMAR RS. 7,12,000/-. HE FURTHER OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSES SEE WAS HAVING A VERY NOMINAL AND INTEREST FREE FUND I.E. ASSESSEES CAPI TAL FUND RS. 72,808/- AND UNSECURED LOANS FROM FRIENDS AND RELATIVES RS. 35,000/- AGGREGATING TO RS. 1,07,808/-. ACCORDINGLY, THE ASSESSEE WAS A SKED TO SHOW CAUSE AS TO WHY INTEREST PAID ON LOANS UTILISED FOR ADVANCIN G IT TO NON-INTEREST BEARING ADVANCES SHOULD NOT BE DISALLOWED. IT WAS INTER ALIA SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING, THEREFORE, WHATEVER EXPENDITURE INCURRED DURING THE YEAR WERE DEBITED TO INCOME AND EXPENDITURE ACCOUNT AND INCOME RECEIVED DURING THE YEAR WERE CREDITED TO INCOME AND EXPENDITURE ACCOUNT. S INCE NO INTEREST WAS RECEIVED ON LOANS GRANTED, THE INCOME THEREON IS NO T REQUIRED TO BE CONSIDERED AND THEREFORE ADDITION ON THIS ACCOUNT I S UNWARRANTED. IN ALTERNATIVE, IT WAS SUBMITTED THAT RS. 3,024,495.53 (RS. 1,82,654/- (CAR) + 18,27,907.30 (X-RAY MACHINE) + 1,01,393.23 (SONOG RAPHIC EQUIPMENT) WERE SECURED LOANS AGAINST SECURITY OF PROFESSIONAL ASSETS RS. 3069067.93 (RS. 3,40,248.63 (CAR) + RS. 18,50,000/- (X-RAY MACHINE) + 8,78,819.30 (SONOGRAPHIC EQUIPMENT). THE INTEREST PAID ON SUCH LOANS IN THE FINANCIAL YEAR 05-06 IS AT RS. 1,91,581.58. HOWEVER, THE A.O. DID NOT ACCEPT THE ASSESSEES SUBMISSIONS. THE A.O. WH ILE RELYING ON THE ITA NO. 3262/MUM/2011 3 DECISION IN K. SOMSUNDARAM AND BROTHERS (1999) 238 ITR 939 (MAD) HAS CALCULATED THE INTEREST ON INTEREST FREE ADVANCES R S. 2 LACS @ 12% OF RS. 16,67,000/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL THE LD. CIT(A) WHILE AGREEING WITH THE VIEWS OF THE A.O. CONFIRMED THE DISALLOWANCE MADE BY THE A.O. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US CHALLENGING THE SUSTENANCE OF DISA LLOWANCE OF INTEREST OF RS. 2 LACS MADE BY THE A.O. 4. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFOR E THE A.O. AND THE LD. CIT(A) THAT SINCE THE ASSESSEE IS MAINTAINING C ASH SYSTEM OF ACCOUNTING AND NO INTEREST WAS RECEIVED ON THE LOAN S GRANTED, THE INCOME THEREON IS NOT REQUIRED TO BE CONSIDERED AND , THEREFORE, THE ADDITION MADE BY THE A.O. AND SUSTAINED BY THE LD. CIT(A) BE DELETED. IN ALTERNATIVE, HE SUBMITS THAT OUT OF THE INTEREST OF RS. 3,09,689/- THE ASSESSEE HAS PAID INTEREST OF RS. 1,91,581.58 FOR T HE PURPOSE OF ASSESSEES PROFESSION VIDE PARA 3 OF THE ASSESSMENT ORDER, THEREFORE, ONLY THE BALANCE AMOUNT OF INTEREST MAY BE DISALLOWED BE ING NOT FOR THE PURPOSES OF PROFESSION. ITA NO. 3262/MUM/2011 4 5. ON THE OTHER HAND, THE LD. D.R. WHILE RELYING ON THE ORDER OF THE A.O. ALSO RELIED ON PARA 2.2.4 OF THE ORDER OF THE LD. CIT(A) AND FURTHER SUBMITS THAT FOR THE REASONS MENTIONED THEREIN, THE DISALLOWANCE MADE BY THE A.O. AND SUSTAINED BY THE LD. CIT(A) BE UPHE LD. 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUT E THAT THE ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING AND HAS ADVANCE D INTEREST FREE ADVANCES TO UNNATI J. SHAH AMOUNTING TO RS. 9,55,00 0/- AND VIJAY KUMAR AMOUNTING TO RS. 7,12,000/- AGGREGATING TO RS .16,67,000/- WHEREAS THE ASSESSEE WAS HAVING HIS OWN FUNDS RS. 7 2,808/- AND INTEREST FREE FUND RS. 35,000/- AGGREGATING TO RS. 1,07,808/-. IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT ON THE LOANS A ND ADVANCES TO UNNATI J. SHAH AND VIJAY KUMAR, ANY INTEREST WAS CH ARGED AND SHOWN BY THE ASSESSEE, WE ARE OF THE VIEW THAT THE A.O. W AS JUSTIFIED IN CHARGING INTEREST ON INTEREST FREE ADVANCES. HOWEVER, WE FIN D THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS PAID INTEREST AMOUNTING TO RS. 1,91,581/- ON THE LOANS TAKEN FOR PROFESSIONAL PURP OSES AS MENTIONED IN THE ASSESSMENT ORDER. IN THE ABSENCE OF ANY MATERIA L TO SHOW THAT LOANS WERE TAKEN BY THE ASSESSEE ON THE ASSETS UTILISED F OR THE PURPOSES OF ASSESSEES PROFESSION ARE OLD LOANS AND THE DATE OF ADVANCE OF INTEREST FREE LOANS, THE ALTERNATIVE PLEA TAKEN BY THE LD. C OUNSEL FOR THE ASSESSEE ITA NO. 3262/MUM/2011 5 THAT THE MAXIMUM DISALLOWANCE OF INTEREST MAY BE RS . 1,18,108 /- (RS. 3,09,689/- (-) RS. 1,91,581/-) CANNOT BE ACCEPTED, THEREFORE, WE ARE OF THE VIEW THAT IN THE INTEREST OF JUSTICE THE MATTER SHOULD GO BACK TO THE FILE OF THE A.O. AND ACCORDINGLY WE SET ASIDE THE O RDER PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND SEND BACK T HE MATTER TO THE FILE OF THE A.O. TO DECIDE THE SAME AFRESH IN THE LIGHT OF OUR OBSERVATION HEREINABOVE AND ACCORDING TO LAW AFTER PROVIDING SU FFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND TAKEN BY THE ASSESSEEE IS, THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSE. 7. IN THE RESULT, ASSESSEES APPEAL STANDS PARTLY A LLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 20-06-2012. SD/- ( N.K. BILLAIYA ) ACCOUNTANT MEMBER SD/- (DINESH KUMAR AGARWAL) JUDICIAL MEMBER MUMBAI, DATED 26 TH JUNE, 2012. RK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 11, MUMBAI 4. COMMISSIONER OF INCOME TAX (A) -3, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH C, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI