The ACIT, Circle-6, Ahmedabad V. M/s. Gopal Fabrics, Ahmedabad

ITA 3338/AHD/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67986 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 29-10-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 16-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Keywords: Depreciation; Wrong claim
• Section: 32; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH BEFORE: SRI D.K TYAGI, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTAN T MEMBER ACIT, CIRCLE-6, AHMEDABAD (APPELLANT) VS GOPAL FABRICS B/SH. INTERNATIONAL HOTEL, MOHAN HOUSING SOCIETY, ISANPUR, NAROL, AHMEDABAD PAN: AABFG5396A (RESPONDENT) REVENUE BY: SRI P.L. KUREEL, SR.D.R. ASSESSEE BY: SRI S.N. SOPARKAR, A.R. DATE OF HEARING : 29-10-2013 DATE OF PRONOUNCEMENT : 29-11-20 13 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER:- BOTH THESE APPEALS HAVE BEEN FILED BY REVENUE AGAI NST THE ORDER OF LD. CIT(A)-XI, AHMEDABAD DATED 04-10-201 AND 31-12-201 2. ITA NOS. 3338/AHD/2010 & 463/AHD/2013 ASSESSMENT YEAR 2006-07 &2008-09 I.T.A NOS. 3338/AHD/2010 &463/AHD/2013 A.Y.2006-07 & 2008-09 PAGE NO ACIT VS. GOPAL FABRICS 2 2. SINCE BOTH THESE APPEALS BELONG TO SAME ASSESSEE WE ARE DISPOSING THEM BY THIS CONSOLIDATED ORDER. ITA NO. 3338/AHD/2010 3. THE ONLY GROUND TAKEN BY REVENUE IN THIS APPEAL RELATES TO DELETING THE ADDITION OF RS. 17,91,334/- ON ACCOUNT OF CESSATION OF LIABILITY U/S. 41(1) OF THE ACT. 4. THE AO WHILE MAKING THIS ADDITION HAS OBSERVED A S UNDER:- `'4.1. FOR THE YEAR UNDER CONSIDERATION IN THE BALA NCE SHEET AN AMOUNT OF RS. 17,91,334/- IS APPEARING AS SUNDRY CR EDITORS FOR EXPORT COMMISSION UNDER THE HEAD 'CURRENT LIABILITY AND PR OVISIONS'. THE ASSESSEE WAS REQUESTED TO CLARIFY THE SAID ENTRY. I N RESPONSE TO THE ASSESSEE VIDE LETTER DATED 3-11-2008 SUBMITTED AS U NDER :- 'THE COMMISSION OF RS. 17,91,334/- IS UNPAID TO MR ASHWIN PARE/, AS THE SAID PARTY HAS NOT PERFORMED THE WORK AS DECIDED EARLIER. LATER ON, THE PAYMENT COULD NOT BE MADE BE CAUSE OF LIQUIDITY CRUNCH. WE INTEND TO MAKE THIS PAYMENT IN CURRENT Y EAR AS SOON AS POSSIBLE.' FURTHER FROM THE DETAILS PRODUCED BY THE ASSESSEE I T IS SEEN THAT THE LIABILITY IS OUTSTANDING FROM F.Y. 2002-03 I.E. RS. 1,71,267/- AND F.Y. 2003-04 I.E. RS. 16,20 , 067/- . THIS FACT IS ALSO APPARENT FROM THE RECORDS, WHEREIN THE OUTSTANDING LIABILITY IS APPEA RING IN THE BALANCE SHEET OF THE ASSESSEE FROM A.Y. 2004-05, THOUGH THE ASSESSEE HAS DEBITED THESE EXPENSES IN THE P&L A/C. FOR THE RELE VANT YEARS. 4.2. HERE IT IS PERTINENT TO GO THROUGH THE PROVISI ON OF THE SECTION 41(1) OF THE ACT, RELEVANT PORTION IS WHICH REPRODUCED AS UNDER:- 'WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN T HE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDI TURE OR TRADING I.T.A NOS. 3338/AHD/2010 &463/AHD/2013 A.Y.2006-07 & 2008-09 PAGE NO ACIT VS. GOPAL FABRICS 3 LIABILITY INCURRED BY THE ASSESSEE (HEREINAFTER REF ERRED TO AS THE FIRST- MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVI OUS YEAR- ' (A) THE FIRST MENTIONED PERSON HAS OBTAINED, WHETHE R IN CASH OR ANY IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRAD ING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAI NED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DE EMED TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREVIOUS YEAR, WHE THER THE BUSINESS OR PROFESSION IN RESPECT OF WHICH ALLOWANCE OR DEDU CTION HAS BEEN MADE IS IN EXISTENCE IN THAT YEAR OR NOT; FROM THE ABOVE PROVISIONS IT IS CLEAR THAT THE AMOU NT OF OUTSTANDING LIABILITY OF RS. 17,91,3341- AS APPEARING IN THE BA LANCE SHEET OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AND INCUR RED/DEBITED DURING A.Y. 2003-04 AND 2004-05 IS REQUIRED TO BE TREATED AS DEEMED PROFIT FOR THE YEAR UNDER CONSIDERATION. FURTHER, THE ABOV E POINT OF VIEW IS ALSO CONSOLIDATED BY THE ADMISSION OF THE ASSESSEE THAT IT IS NOT IN A POSITION TO PAY THE SAID AMOUNT. THEREFORE, IT IS C LEAR THAT THE LIABILITY AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE H AS CEASED TO EXIST. 4.3. IN VIEW OF ABOVE FACTS, THE AMOUNT OF RS. 17,9 1,334/- IS TREATED AS DEEMED PROFIT OF THE ASSESSEE FOR THE YE AR UNDER CONSIDERATION AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE.' 5. LD. CIT(A) HAS DELETED THIS ADDITION BY OBSERVIN G AS UNDER:- 3.3. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A. R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFF ICER IN THE ASSESSMENT ORDER. THE ADDITION WAS MADE BY THE A. O . SIMPLY ON THE GROUND THAT THE LIABILITY CONTINUES TO BE OUTSTANDI NG FOR QUITE SOME TIME. THE PROVISIONS OF SEC. 41(1) COME INTO PLAY W HEN THE ASSESSEE OBTAINS IN CASH OR IN KIND ANY AMOUNT OUT OF THE EX PENDITURE ALLOWED EARLIER. ALTERNATIVELY THE ASSESSEE MUST HAVE OBTAI NED BENEFIT BY WAY OF REMISSION OR CESSATION OF TRADING LIABILITY. THE THIRD SCENARIO IN WHICH THE PROVISIONS CANA BE INVOKED IS WHEN THE AS SESSEE UNILATERALLY WRITES-OFF THE LIABILITY. IN THE INSTA NT CASE NONE OF THE I.T.A NOS. 3338/AHD/2010 &463/AHD/2013 A.Y.2006-07 & 2008-09 PAGE NO ACIT VS. GOPAL FABRICS 4 ABOVE-MENTIONED EVENTS TOOK PLACE. AS CONTENDED BY THE APPELLANT, THE LIABILITY CONTINUES TO BE OUTSTANDING EVEN AS O N 31-03-2010. IN THE CIRCUMSTANCES, THE ADDITION OF RS. 17,91,334/- U/S. 41(1) IS NOT IN ACCORDANCE WITH LAW. IT IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 6. SINCE LD. CIT(A)S ABOVE FINDING IS IN CONFORMI TY WITH THE ORDER OF JURISDICTION HIGH COURT IN THE CASE OF CIT VS. NIT IN S. GARG TAX APPEAL NOS. 2428 & 2431 OF 2010 DATED 11 TH APRIL, 2012 [2012] 22 TAXMAN.COM 59 (GUJ) WHEREIN FOLLOWING WAS HELD. IT HAD NOT BEEN ESTABLISHED THAT THE ASSESSEE HAD WRITTEN OFF THE OUTSTANDING LIABILITIES IN THE BOOKS OF ACCOUNT. TH E TRIBUNAL WAS JUSTIFIED IN TAKING THE VIEW THAT THE ASSESSEE HAD CONTINUED TO SHOW THE ADMITTED LIABILITIES IN ITS BALANCE SHEET, THE SAME COULD NOT BE TREATED AS CESSATION OF LIABILITIES. MERELY BECAUSE THE LI ABILITIES WERE OUTSTANDING FOR LAST MANY YEARS, IT COULD NOT BE IN FERRED THAT THE SAID LIABILITIES HAS CEASED TO EXIST. THE TRIBUNAL HAD R IGHTLY OBSERVED THAT THE ASSESSING OFFICER WOULD HAVE TO PROVE THAT THE ASSESSEE HAD OBTAINED THE BENEFITS IN RESPECT OF SUCH TRADING LI ABILITIES BY WAY OF REMISSION OR CESSATION THEREOF. MERELY BECAUSE THE ASSESSEE OBTAINED BENEFIT OF REDUCTION IN THE EARLIER YEARS AND BALAN CE WAS CARRIED FORWARD IN THE SUBSEQUENT YEAR, IT WOULD NOT PROVE THAT THE TRADING LIABILITIES OF THE ASSESSEE HAD BECOME NON-EXISTENT . [PARA 15] IN VIEW OF AFORESAID, IMPUGNED ORDER PASSED BY THE TRIBUNAL WAS TO BE UPHELD. WE FEEL NO NEED TO INTERFERE WITH THE ORDER PASSED BY LD CIT(A) AND THE SAME IS HEREBY UPHELD. REVENUES APPEAL IS DISMISS ED. NOW COMING TO ITA NO. 463/AHD/2013 7. FIRST GROUND RELATES TO DELETING THE ADDITION OF RS. 13,77,870/- ON ACCOUNT OF DIFFERENCE IN PURCHASES. I.T.A NOS. 3338/AHD/2010 &463/AHD/2013 A.Y.2006-07 & 2008-09 PAGE NO ACIT VS. GOPAL FABRICS 5 8. THE AO WHILE MAKING THIS ADDITION HAS OBSERVED AS UNDER:- ' 1. DIFFERENCE ON ACCOUNT OF PURCHASES: THE ASSESSEE HAS CLAIMED 4,53,92 , 2L3/- TOWARDS PURCHASES OUT OF WHICH IT COULD PRODUCE BILLS AND VOUCHERS ONLY TO T HE EXTEND OF RS.4,40,14,343/- THE DIFFERENCE OF RS. 13 , 77,870/- WAS EXPLAINED BY THE ASSESSEE AS DEBIT NOTES ISSUED BY THE FOLLOWING PER SONS. DATE NAME OF THE PARTY DN NO. AMOUNT- RS. 11/7/07 PAHILAJRAJ JAIKISHIN DN-PJ-18 23200 21/8/07 PAHILAJRAJ JAIKISHIN DN-PJ-28 10290 21/9/07 PAHILARAJ JAIKISHIN DN-PJ-32 89919 6/10/07 PAHILARAJ JAIKISHIN DN-PJ-37 12535 3/11/07 PAHILAJRAJ JAIKISHIN DN-PJ-47 92405 28/11/07 PAHILARAJ JAIKISHIN DN-PJ-54 26927 13/12/07 KOSHAMBH MUTITREAD PVT LTD 133/07-08 115115 03/01/2008 PAHILAJRAJ JAIKISHIN DN-PJ-65 38527 03/01/08 PAHILAJRAJ JAIKISHIN DN-PJ-66 18850 22/1/08 KOSHAMBH MUTITREAD PVT LTD DN-PJ-75 23000 KOSHAMBH MUTI TREAD PVT LTD 143/07-08 111340 KOSHAMBH MUTITREAD PVT LTD DN/1-10 45377 I.T.A NOS. 3338/AHD/2010 &463/AHD/2013 A.Y.2006-07 & 2008-09 PAGE NO ACIT VS. GOPAL FABRICS 6 KOSHAMBH MUTITREA D PVT LTD DN-1/13 1308 14/2/08 BRIJESH TEXTILES DN/07-08 10681 BRIJESH TEXTILES DN/07-08 524661 19/2/08 PAHILAJRAJ JAIKISHIN PJ-85 84428 26/2/08 KOSHAMBH MUTITREA D PVT LTD DN-8CR/GF 155677 TOTAL 13,77,870/- ON VERIFICATION OF CERTAIN DEBIT NOTES, STATED TO H AVE BEEN ISSUED BY PAHILLARAJ JAIKISHAN WHICH IS SHOWING SHORTAGE AGAI NST BILLS, HOW EVER ON VERIFICATION OF THE DETAILS FURNISHED BY TH E ASSESSEE IN FACT THE ASSESSEE HAS RECEIVED JOB WORK AMOUNT 1,43,84,589/- ON VARIOUS DATE AND THE CORRESPONDING TDS OF RS.3,26,531/- WAS DULY CLAIMED BY THE ASSESSEE TOWARDS PREPAID TAXES AND CLAIMED AS REFUN D. THUS IT IS A JOB WORK WHICH IS A RECEIPT AND PART AND PARCEL OF THE SALE. ANY DEFICIENCY /INCREASE/ ADJUSTMENT/ RECONCILIATION WITH REGARDS SUCH TRANSACTIONS HAVE TO BE DEALT WITH SALES/JOB WORK AS THE CASE MA Y BE. ANY SUCH DEBIT NOTE IF AT ALL GENUINE WILL EFFECT THE SALE W HICH MAY INCREASE OR DECREASE. BUT AT THE SAME TIME THE ASSESSEE IS TRYI NG TO INCREASE THE PURCHASES BY SHOWING IT AS EXPENSE IS NOT CORRECT. IN SO FOR AS IF AT ALL THE ASSESSEE HAS PURCHASED THE GOODS FROM THE SAID PERSON PHAILAJRAJ JAIKISHAN THEN THE ISSUE OF THE PURCHASES WILL ARRI VE. THEREFORE THE CLAIM OF THE ASSESSEE THAT DEBIT NOTES CONSTITUTE P URCHASES IS DEVOID OF MERITS AND IT IS DEALT ACCORDINGLY. SIMILARLY THE ASSESSEE HAS CLAIMED D/NS, ON BRIJESH TEXTILES, AMOUNTING RS. 5,35,342/-. ON VERIFICATION OF THE TD S CERTIFICATE FIELD DURING THE COURSE OF ASSESSMENT THE ASSESSEE HAS RE CEIVED SUBSTANTIAL AMOUNT TOWARDS CONTRACT/JOB WORK FROM BRIJESH TEXTI LES. THE DETAILS OF TDS AS GIVEN BELOW:- DATE OF CERTIFICATE NAME OF THE PARTY AMOUNT PAID/CR. TDS AMOUNT REMARKS I.T.A NOS. 3338/AHD/2010 &463/AHD/2013 A.Y.2006-07 & 2008-09 PAGE NO ACIT VS. GOPAL FABRICS 7 15/10/2007 BRIJESH TEXTILES, 1967588/- 44586/- CONTRACT/JOBWORK 10/ 11/2007 BRIJESH TEXTILES. 758536/- 17189/- CONTRACT/JOBWORK 20/12/2007 BRIJESH TEXTILES. 682520/- 15466/- CONTRACT/JOBWORK 01/03/2008 BRIJESH TEXTILES. 71848/- 1628/- CONTRACT/ JOBWORK 13/03/2008 BRIJESH TEXTILES. 34974/- 793/- CONTRACT/JOBWORK ON GOING THROUGH THE ABOVE TDS CERTIFICATES, IT IS CLEAR, THAT THE ASSESSEE IS MAKING A CLAIM WHICH IS NOT SUPPORTED B Y AN EVIDENCE. THUS THE FURNISHING OF D/NS STATED TO HAVE BEEN ISS UED BY BRIJESH TEXTILES BY AMOUNT OF RS. 5 , 24 , 661/- IS NOT BUT CLEAR PLY TO INCREASE THE PURCHASES OR TRYING TO SHOW LESS INCOME BY WAY OF SUCH CLAIMS. SIMILARLY THE ASSESSEE HAS UNDERTAKEN JOB WORKS WIT H M/S KOSHAMBH MUTITREAD PVT LTD., RECEIVED INCOME FROM JOB WORK C HARGES AND CLAIMED TDS CERTIFICATE OF RS. 63,778/- BY OFFERING CORRESPONDING INCOME UNDER JOB WORK CHARGES. THE COST OF PURCHASES WILL INCREASE OVER RECEIVING THE MATERIAL AND EFFECTING THE PURCHASE BUT NOT OUT OF SHORTAGE OF S UPPLY OR SERVICE OR SALE OF GOODS OR PRODUCTS. THEREFORE THE ASSESSEES CLAIM IS NOT ACCEPTED AND ALSO IN THE LIGHT OF OBSERVATIONS/COMM ENTS DISCREPANCIES AND INCONSISTENCIES OBSERVED AND STATED ABOVE. THE ENTIRE AMOUNT OF RS.13,77,870/- IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE HAS PURCHASES NOT VOUCHED OR EXPLAINED PRO PERLY. PENALTY PROCEEDING U/S 27L(I)(C) INITIATED FOR FURNISHING I N ACCURATE PARTICULARS AND CONCEALMENT OF INCOME. ' I.T.A NOS. 3338/AHD/2010 &463/AHD/2013 A.Y.2006-07 & 2008-09 PAGE NO ACIT VS. GOPAL FABRICS 8 9. LD. CIT(A) DELETED THIS ADDITION BY OBSERVING AS UNDER:- 2.2 I HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS. IT IS SEEN THAT THE APPELLANT HAS DEBITED A SUM OF RS. 13 , 77,870/- IN THE ACCOUNT 'PURCHASE DN GREY A/C.' IN THIS ACCOUNT THE APPELLA NT HAS DEBITED VARIOUS SHORTAGES POINTED OUT BY THE CLIENTS IN THE JOB WORK DONE BY THE APPELLANT AND THE SAME CORRESPONDS TO SHORTAGE OF GREY CLOTH. THE A.O. IS OF THE VIEW THAT THE SHORTAGE OF GREY CLOTH IF ANY PERTAINS TO THE JOB WORK AND THE SAME SHOULD BE DEBITED TO THE SALE S ACCOUNT SO THAT THE SALE PROCEEDS ARE REDUCED. ON THE OTHER HAND TH E APPELLANT HAS DEBITED THIS SHORTAGES IN THE P & L A/C. THE A.O. H AS FAILED TO BRING ANY MATERIAL ON RECORD TO PROVE THAT THESE DEBIT NO TES ARE NOT GENUINE AND THE SHORTAGE AS EVIDENCED BY THESE DEBIT IS BOG US. IN MY CONSIDERED VIEW ACKNOWLEDGING SHORTAGE BY ISSUING D EBIT NOTES IS AN ACCEPTED MODE AND I DO NOT FIND ANY IRREGULARITY IN ACKNOWLEDGING THE SHORTAGE BY ISSUING DEBIT NOTES. SINCE THE A.O. HAS FAILED TO DISPROVE THE GENUINENESS OF THESE DEBIT NOTES, ACCO RDINGLY, I AM INCLINED TO AGREE WITH THE CONTENTIONS OF THE LD. A .R. IN VIEW OF ABOVE, ADDITION OF RS. 13 , 77,870/- IS ORDERED TO BE DELETED. THIS GROUND OF APPEAL IS ALLOWED. 10. SINCE LD. CIT(A) HAS GIVEN CATEGORICAL FINDING THAT AO HAS FAILED TO BRING ANY MATERIAL ON RECORD TO PROVE THAT DEBIT NO TES IN RESPECT OF SHORTAGES POINTED BY THE ASSESSEES CLIENTS IN THE PURCHASES DONE BY THEM WERE NOT GENUINE AND SHORTAGE AS EVIDENCED BY THESE DEBIT NO TES WERE BOGUS AND THE SAME HAS REMAINED UNCONTROVERTED AT THE TIME OF HEA RING BEFORE US WE FEEL NO NEED TO INTERFERE WITH THE ORDER PASSED BY HIM A ND THE SAME IS HEREBY UPHELD. 11. SECOND GROUND RELATES TO DELETING THE ADDITION OF RS. 39,92,000/- MADE BY AO BY INVOKING THE PROVISIONS OF SECTION 41 (1) OF THE ACT. 12. AO WHILE MAKING THIS ADDITION HAS OBSERVED AS U NDER:- 3. ADDITION TOWARDS NON MOVING CREDITORS: I.T.A NOS. 3338/AHD/2010 &463/AHD/2013 A.Y.2006-07 & 2008-09 PAGE NO ACIT VS. GOPAL FABRICS 9 DURING THE COURSE OF HEARING IT IS NOTICED THAT THE ASSESSEE IS SHOWING 39,92,000/- IN RESPECT OF THE FOLLOWING CONCERNS: NON MOVING ACCOUNT LAST THREE YEARS SUNDRY CREDITOR NAME OF THE PARTY 2007- 08 2006-07 2005-06 NGLFINECHEMLT D 330500 330500 330500 NIBIN PHARMACEUTICALS 1242500 1242500 1242500 PHARMANZA (INDIA) 2419000 2419000 2419000 TOTAL 3992000 3992000 3992000 THE AMOUNT OF RS. 39,92 , 000/- IS OUT STANDING OF SUNDRY CREDITORS FOR PHARMACEUTICALS FOR MORE THAN 3 YEARS AS ON 31/03/2 008. AS THE ASSESSEE IS A MANUFACTURE END EXPORT OF TEXTILES AN D FABRICS, ENGAGED IN THE TEXTILE FINE. HOWEVER, FOR YEARS TOGETHER, H E HAS BEEN CHIMING/SHOWING THE SAME AS OUTSTANDING CREDITORS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AR HAS STATED, THAT THE SAID AMOUNTS WERE PAID OFF TO THE RESPECTIVE CR EDITORS BY OUR GROUP CONCERN M/S RAN'S PHARMA CORPORATION. THE RE PLY OF THE ASSESSEE IS NOT ACCEPTABLE BECAUSE THE ASSESSEE IS SHOWING IT AS AN OUT STANDING LIABILITIES SINCE MANY YEARS, AND IT IS AL SO A FACT IT IS SHOWN AS OUT STANDING AS ON 31/03/2008. THEREBY UNJUST EN RICHMENT IS HAPPENING TO THE ASSESSEE BY THE WRONG CLAIM OF A L IABILITY OR EXCESS CLAIM EQUALLY IT MIGHT BE COMPENSATED B WAY EXCES S OF CASH/STOCK/INVENTORY AND ANY OTHER ASSET FORM. IT IS FINDING PLACE IN BALANCE SHEET, BUT AT SAME TIME PROFIT IS AFFECTED BECAUSE OF ITS EXISTENT TO THAT EXTANT. THEREFORE THE ASSESSEE'S CLAIM, THAT IT WAS PAID OFF BY SISTER CONCERN WILL NOT HAVE ANY RELEVANCE. FURTHER THE ASSESSEE I.T.A NOS. 3338/AHD/2010 &463/AHD/2013 A.Y.2006-07 & 2008-09 PAGE NO ACIT VS. GOPAL FABRICS 10 IS GETTING BENEFIT FROM THE NON PAYMENT OF THE CRED ITORS EVEN AFTER 3 YEARS. THEREFORE THE SAME IS CONSIDERED FOR ADDITIO N, AS THE BUSINESS GAINED BY VIRTUE OF UNILATERAL ACT BY THE ASSESSEE, THEREFORE THE SAME IS CONSIDERED FOR ADDITION.' LD. CIT(A) HAS DELETED THIS ADDITION BY FOLLOWING H IS PREDECESSORS ORDER IN ASSESSEES OWN CASE FOR A.Y. 2006-07 WHICH HAS BEEN UPHELD BY US VIDE ITA NO. 3338/AHD2010, THEREFORE WE FEEL NO NEED TO INTE RFERE WITH THE ORDER PASSED BY HIM AND THE SAME IS HEREBY UPHELD. 13. THIRD GROUND RELATES TO DELETING THE DISALLOWAN CE OF INTEREST OF RS. 9,34,300/- 14. AO WHILE MAKING THIS ADDITION HAS OBSERVED AS U NDER:- 5. ADDITION ON ACCOUNT OF INTEREST NOT CHARGED ON ADVANCES: ON PERUSAL OF BALANCE SHEET OF THE ASSESSEE, DURING THE COURSE OF ASSESSMENT PROCEEDING, IT IS SEEN THAT THE ASSESSES HAS STATED RS.92,24,794/- AS OTHER ADVANCES, OUT OF WHICH HE H AS SHOWN INTEREST RECEIVED FROM 2 PARTIESN (1) GAURAV INDUSTRIES AND (2) AMTEX DYE CHEM INDUSTRIES TO THE EXTENT OF RS. 11,16 , 069/- AND RS.5,46,874/- RESPECTIVELY. THE ASSESSEE IS SHOWING INTEREST INCO ME OF RS.6,71,530/- AS INTEREST RECEIVED FROM THE ABOVE TWO PARTIES. RS . L,36,745/- FROM GAURAV INDUSTRIES AND RS.5,34,785/-FROM -AMTEX DYE CHEM INDUSTRIES. THE ASSESSEE HAS CLAIMED THE CREDIT OF TDS AND OFFERED CORRESPONDING INTEREST AMOUNT FROM THE SAID 2 PARTI ES. SINCE THE SAID AMOUNTS WERE INCLUDED IN THE TOTAL ADVANCES OF RS. 92 , 24,794/- BUT THE ASSESSEE AT HIS CONVENIENT SHOWING INTEREST ON LOAN S AND ADVANCES. SINCE THE TDS CREDIT IS AVAIL THE INTEREST INCOME I S OFFERED. THE ASSESSES HAS NOT OFFERED INTEREST INCOME FROM THE F OLLOWING PARTIES TO WHOM AN AGGREGATE AMOUNT OF RS. 77,76,005/- IS OFFE RED DURING THE F.Y.2007-08. S/NO. NAME OF THE PARTY AMOUNT RS. 1. DILIP RATILAL 2,97,417/- I.T.A NOS. 3338/AHD/2010 &463/AHD/2013 A.Y.2006-07 & 2008-09 PAGE NO ACIT VS. GOPAL FABRICS 11 2. DINA HIREN KUMAR 1,00,000/- 3, DINESH RATILAL 45,122/- 4. GREESTAR TEXPRINT PVT. LTD. 39,000/- 5. LEGEND MARKETING SHARAFI 50,000/- 6. ULPA ASHWIN PATEL 2 , 29 , 000/- 7 ' SHREE SATGURU INDUSTRIES 12,00,000/- 8. RAM'S PHARMA CORPORATION 57,34,466/- 9. RESHMA D. PARIK 1,00,000/- TOTAL 77,86,005/- THUS THE ASSESSEE HAS NOT FOLLOWING CONSISTENCY AND UNIFORMITY IN OFFERING INTEREST INCOME. DURING THE COURSE OF HEAR ING A SHOW CAUSE NOTICE WAS ISSUED ON 19/11/2010 AND THE ASSESSEE WA S ASKED TO FURNISH HIS OBJECTIONS FOR WHICH THE ASSESSEE HAS S IMPLY STATED THAT THEY ARE INTEREST FREE LOANS BUT NOT FURNISHED ANY DETAILS OR SUPPORTING. SINCE THE ASSESSES IS A MANUFACTURING C ONCERN AND PAYING INTEREST TOWARDS SECURED AND UNSECURED LOANS AND IN THE LIGHT OF ASSESSEE'S SUBMISSION IT IS OBSERVED THAT INTEREST IS NOT CHARGED FROM THE PARTIES OR PERSONS THROUGH MUTUAL CONVENIENCE A ND ACCOMMODATION. IN VIEW OF THE ABOVE DISCUSSION, INT EREST @12% IS CHARGED ON LOANS AND ADVANCES RS.77,86,005/-AMONNTI NG TO RS. 9,34 , 320/- IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE .' 15. LD. CIT(A) HAS DELETED THIS ADDITION BY OBSERVI NG AS UNDER:- 6.3 I HAVE CAREFULLY CONSIDERED RIVAL SUBMISSIONS. I HAVE ALSO PERUSED EVIDENCES FURNISHED BY THE APPELLANT AND TH E CASE LAWS RELIED UPON BY THE LD.A.R. IT IS SEEN THAT INTEREST EXPENS ES OF RS. 9,34,320/- WAS DISALLOWED U/S.36(1)(III) OF I.T. ACT. AS PER T HE PROVISIONS OF I.T.A NOS. 3338/AHD/2010 &463/AHD/2013 A.Y.2006-07 & 2008-09 PAGE NO ACIT VS. GOPAL FABRICS 12 SECTION 36(1)(III) , TO CLAIM INTEREST EXPENSES, FOLLOWING CONDITIONS SHOULD BE FULFILLED. (I) THE ASSESSEE MUST HAVE BORROWED MON EY (II) THE INTEREST SHOULD HAVE BEEN PAYABLE (III) BORROWING SHOULD BE MADE FOR THE PURPOSE O F BUSINESS. IN MY CONSIDERED VIEW, APPELLANT HAS FULFILLED ALL THE ABOVE CONDITIONS AND ACCORDINGLY IT IS ENTITLED TO CLAIM DEDUCTION U /S. 36(1)(III) OF I.T.ACT AGAINST INTEREST PAYMENT. PERUSAL OF THE AS SESSMENT ORDER REVEALS THAT THE A.O. HAS NOT CHALLENGED BASIC ENAB LING CONDITIONS AS LAID DOWN U/S.36(1)(III) FOR THE ALLOWANCE OF INTER EST. SINCE THE ENABLING CONDITIONS FOR ALLOWANCE OF INTEREST U/S.3 6(1)(III) ARE FULFILLED, ACCORDINGLY IN MY CONSIDERED VIEW DISALL OWANCE OF INTEREST IS UNWARRANTED. 16. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THE ASSESSEE WAS HAVING INTEREST FREE FUNDS OF RS. 5.88 CRORES IN THE FORM OF PARTNERS CAPITAL AS ON 31-03-2008 AND ASSESSEE HAS GIVEN INTEREST FREE FUNDS LOANS AND ADVANCES OF RS. 77.86 LACS TO SISTER CONC ERN AND OTHER CONNECTED PERSONS DURING THE YEAR UNDER APPEAL. IT IS CLEAR THAT INTEREST FREE ADVANCES WERE AT BELOW THE INTEREST FREE FUNDS AVAILABLE WIT H THE ASSESSEE. IN THESE FACTS RATIO OF HONBLE JURISDICTIONAL HIGH COURTS DECISION IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. RAGHUVIR SYNTHETICS LTD [2013] 217 TAXMAN 178 (GUJ) IS SQUARELY APPLICABLE WHEREIN IT WAS HELD THAT WHERE HUGE FUNDS WERE AVAILABLE WITHOUT ANY INTEREST LIAB ILITY WITH ASSESSEE AND THERE WAS NO EVIDENCE TO HOLD THAT BORROWED MONEY W AS UTILIZED FOR PURPOSE OF ADVANCE TO SISTER CONCERNS, NO DISALLOWANCE OF I NTEREST WAS WARRANTED. IN THIS VIEW OF THE MATTER, WE FEEL NO NEED TO INTERFE RE WITH THE ORDER PASSED BY LD. CIT(A) AND THE SAME IS HEREBY UPHELD. 17. FOURTH GROUND RELATES TO DELETING OF DISALLOWAN CE OF DEPRECIATION CLAIM ON CAR OF RS. 2,93,169/-. I.T.A NOS. 3338/AHD/2010 &463/AHD/2013 A.Y.2006-07 & 2008-09 PAGE NO ACIT VS. GOPAL FABRICS 13 18. AO WHILE MAKING THIS DISALLOWANCE HAS OBSERVED AS UNDER: '6. DISALLOWANCE OF CLAIM OF DEPRECIATION: ON PERUSAL OF THE SUBMITTED DETAILS, IT IS NOTICED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION ON MOTOR VEHICLES AMOUNTING OF RS.2,93,169/- IN THE YEAR UNDER CONSIDERATION, BUT DURING THE COURSE OF ASSESSMENT PROCEEDING THE ASSESSEE HAS PRODUCED BILLS AND PROO F OF PURCHASE OF THE ASSETS AND IT IS SEEN FROM THE DETAILS FURNISHE D BY THE ASSESSEE THE VEHICLES ARE REGISTERED IN THE NAME OF PARTNERS AND IT IS USED BY THE FORM EVEN THOUGH THE VEHICLES ARE AT THE DISPOSAL O F THE FIRM THE LEGAL OWNERSHIP IS WITH THE PARTNERS ONLY. THEREFORE THE DEPRECIATION CLAIMED BY THE ASSESSEE HAS TO BE DISALLOWED CONSID ERING THE OWNERSHIP NOT BELONGING TO THE ASSESSEE. DURING THE COURSE OF HEARING, THE ASSESSEE HAS FURNISHED A SALES INVOICE OF, FOR PURCHASE OF A HUNDAI GETZ ASKING RS.4,51,900/- WHICH IS IN THE NAME OF PARESH KUMAR RATILAL SHAH [PARTNER OF THE FIRM]. THE CAR WAS REGISTERED IN THE NAME OF THE PARTNER O F THE FIRM AND HENCE ASSESSEE CANNOT BE CONSIDERED AS THE LEGAL OW NER OF THE VEHICLE. THE 'OWNERSHIP' IN THE LEGAL CONTEXT MEANS THAT THE ASSET, UNDER CONSIDERATION, SHOULD BE BOUGHT AND REGISTERED IN T HE NAME OF THE ASSESSEE, THEN ONLY IT WOULD QUALIFY THE 'OWNERSHIP ' ASPECT. WHILE DEALING WITH THE SIMILAR ISSUE, THE TERRITORIAL JUR ISDICTIONAL HIGH COURT IN THE CASE OF CIT VS BORDUBI RICE MILLS, REPORTED IN 105 ITR 739, HAS HELD THAT IN THE EYES OF LAW, THERE CANNOT BE M ORE THAN ONE OWNER FOR DIFFERENT PURPOSE. UNDER SUCH CIRCUMSTANCES, TH E DEPRECIATION CANNOT BE ALLOWED IN THE FIRMS CASE, WHEN THE CAR WAS REGISTERED IN THE NAME OF THE PARTNER. WHILE FOLLOWING THE ABOVE RULING AND CONSIDERING THE FACT THAT SINCE THE CAR WAS BOUGHT AND REGISTERED IN THE NAME OF ONE OF THE PARTNER, THUS FOR ALL LEGAL AND PRACTICAL PURPOSES, THE OWNERSHIP OF THE SAME WAS BESTOWED WI TH THE PARTNER ONLY AND, THEREFORE, IT CANNOT BE CLAIMED AS ASSESS EE'S OWN ASSETS UNDER THE IT ACT. SINCE THE ASSESSEE HAS FAILED TO QUALIFY ONE OF THE BASIC CRITERIA TO CLAIM THE DEPREDATION, STIPULATED U/S 32 OF THE ACT. THEREFORE, THE DEPRECIATION CLAIM OF RS. 2,93,169/- MADE ON ACCOUNT OF CAR PURCHASED IN THE NAME OF PARTNER IS DISALLOW ED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. PENALTY, PROCE EDING U/S 271(1)(C) FOR FURNISHING IN ACCURATE PARTICULARS AND CONCEALM ENT OF INCOME. I.T.A NOS. 3338/AHD/2010 &463/AHD/2013 A.Y.2006-07 & 2008-09 PAGE NO ACIT VS. GOPAL FABRICS 14 19. ASSESSEES SUBMISSION BEFORE LD. CIT(A) WAS AS UNDER: - '6.1 DISALLOWANCE OF DEPRECIATION OF RS.293,16 9/- IT IS A NORMAL PRACTICE OF ACQUIRING VEHICLES IN TH E NAME OF PARTNERS OF A FIRM, ALTHOUGH PAYMENTS ARE MADE BY THE FIRM. T HERE ARE SEVERAL CONSIDERATIONS FOR THIS PRACTICE. DEPRECIATION HAS BEEN ALLOWED ON SUCH PURCHASES IN EARLIER ASSESSMENTS ALSO. IN SUCH CASES, THE OWNERSHIP LIES WITH THE FIRM ONL Y, BECAUSE THE VEHICLE WAS ACQUIRED BY THE FIRM OUT OF ITS OWN FUN DS. WHILE DECIDING ABOUT THE OWNERSHIP OF VEHICLE THE A.O. HAS IGNORED THIS VITAL FACT. MOREOVER, THERE WAS ONLY ONE INCIDENT DURING THE YE AR FOR PURCHASE OF A MOTOR CAR IN THE NAME OF PARTNER ON BEHALF OF THE FIRM ( FOR RS 4,51,000) .WHICH HAS BEEN HIGHLIGHTED BY THE OFFICE R IN AO. INSTEAD OF CONSIDERING DEPRECIATION ON THIS SINGLE VEHICLE, TH E OFFICER HAS ARBITRARILY DISALLOWED MUCH HIGHER DEPRECIATION OF RS. 2,93,169/- WITHOUT GIVING ANY BASE OR REASONING. THIS IS UNJU ST, UNLAWFUL AND BAD IN LAW. THE CASE LAW QUOTED BY THE OFFICER IS NOT RELEVANT TO THE SUBJECT MATTER OF THIS CASE, AND HENCE, DOES NOT SERVE ANY PURPOSE . 20. LD. CIT(A) HAD DELETED THIS ADDITION BY OBSERVI NG AS UNDER:- 7.2 I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. PERUSAL OF THE BALANCE SHEET OF THE APPELLANT REVEALS THAT ALL THE SE CARS ARE REFLECTED IN THE SCHEDULE OF FIXED ASSETS. THE APPELLANT HAD CLAIMED DEPRECIATION ON THESE CARS. SOME OF THOSE CARS WERE PURCHASED IN THE PREVIOUS YEARS AND DEPRECIATION ON THESE CARS ARE R EGULARLY ALLOWED. PERUSAL OF BALANCE SHEET FURTHER REVEALS THAT THE A PPELLANT RAISED LOANS FROM BANK TO PURCHASE SOME OF THESE CARS. SEC ONDLY, THE A.O. HAD ACCEPTED THE RUNNING AND MAINTENANCE EXPENSES D EBITED BY THE APPELLANT IN THE P & L A/C. THESE FACTS MAKES IT ABUNDANTLY CLEAR THAT THESE CARS WERE PURCHASED FRO M THE FUNDS OF THE APPELLANT FIRM AND IS BEING USED FOR THE PURPOSES O F BUSINESS OF THE APPELLANT FIRM. IN SUCH A CASE, IN MY CONSIDERED VI EW THE APPELLANT IS ENTITLED TO CLAIM DEPRECIATION ON THESE CARS. THE A PPELLANT'S CASE IS FULLY COVERED BY THE DECISION OF HON'BLE SUPREME CO URT IN THE CASE OF MYSORE MINERALS LTD. VS CIT(1999) REPORTED AT 239 I TR 775 (S.C). IN I.T.A NOS. 3338/AHD/2010 &463/AHD/2013 A.Y.2006-07 & 2008-09 PAGE NO ACIT VS. GOPAL FABRICS 15 VIEW OF ABOVE FACTS, I AM INCLINED TO AGREE WITH TH E CONTENTIONS OF THE APPELLANT. THE A.O. IS DIRECTED TO ALLOW DEPRECIATI ON ON MOTOR CARS OF RS. 2,93,169/-. THIS GROUND OF APPEAL IS ALLOWED. SINCE LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE B Y FOLLOWING THE HONBLE SUPREME COURTS DECISION IN THE CASE OF MYSORE MIN ERALS LTD VS. CIT(1999) REPORTED AT 239 ITR 775, WE FEEL NO NEED TO INTERFE RE WITH THE ORDER PASSED BY LD. CIT(A) AND THE SAME IS HEREBY UPHELD. 21. IN THE RESULT BOTH THE APPEALS FILED BY THE REV ENUE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (ANIL CHATURVEDI) ( D.K. TYAGI) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD : DATED 29/11/2013 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,