ACIT, New Delhi V. M/s Rohit Kochar, New Delhi

ITA 3338/DEL/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1056 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 06-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NAINA SOIN KAPIL SENIOR
• Assessee Lawyers: B S SISTANI
• Keywords: Gift; Business income; Proportionate interest; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.3338/DEL./2016 (ASSESSMENT YEAR : 2010-11) ACIT, CIRCLE 61 (1), VS. SHRI ROHIT KOCHAR, NEW DELHI. UNIT NO.1120-21 AND 915, DLF TOWER A, JASOLA DISTT. CENTRE, NEW DELHI 110 025. (PAN : AANPK6049G) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI B.S. SISTANI, CA REVENUE BY : SHRI NAINA SOIN KAPIL, SENIOR DR DATE OF HEARING : 27.11.2018 DATE OF ORDER : 30.11.2018 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, ACIT, CIRCLE 61 (1), NEW DELHI (HERE INAFTER REFERRED TO AS THE REVENUE) BY FILING THE PRESEN T APPEAL, SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 30.03.2016 PASSE D BY LD. CIT (APPEALS)-20, NEW DELHI QUA THE ASSESSMENT YEAR 201 0-11 ON THE FOLLOWING GROUNDS INTER ALIA THAT:- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS .36,59,659/- MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENSE S DEBITED IN ITA NO.3338/DEL./2016 2 P&L ACCOUNT AS THE ASSESSEE MADE HUGE INTEREST FREE ADVANCES FOR UNRELATED ACTIVITIES. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN LAW IN REDUCING THE ADDITION MADE BY THE AO ON ACCOUNT OF BUSINESS PROMOTION EXPENSES FROM RS.39,4 9,797/- TO RS.9,87,449/- WITHOUT APPRECIATING THE FACTS OF THE CASE MENTIONED IN THE ASSESSMENT ORDER. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : THE ASSESSEE IS ENGAGED I N THE CORPORATE TAX AND BUSINESS ADVISORY SERVICES HAVING INCOME FR OM HOUSE PROPERTY, INCOME FROM PROFESSION AND INCOME FROM OT HER SOURCES. DURING THE YEAR UNDER ASSESSMENT, ASSESSEE DEBITED INTEREST EXPENSES OF RS.3,02,49,825/- ON ACCOUNT OF INTEREST ON PROPERTY LOANS, RS.5,26,473/- ON ACCOUNT OF INTEREST ON AUTO LOAN AND RS.1,56,267/- ON ACCOUNT OF INTEREST ON UNSECURED L OANS. AO NOTICED THAT THE ASSESSEE HAS ADVANCED LOANS AND AD VANCES TO THE TUNE OF RS.4,01,83,766/- TO VARIOUS PARTIES INCLUDI NG RELATED PARTIES WITHOUT CHARGING ANY INTEREST AND ADVANCES GIVEN BY HIM AND DECLINING THE SUBMISSIONS MADE BY THE ASSESSEE, AO DISALLOWED PROPORTIONATE INTEREST EXPENSES CLAIMED BY THE ASSE SSEE BY TAKING AVERAGE RATE OF INTEREST @ 12% PER ANNUM ON ADVANCE S FOR NON- PROFESSIONAL ACTIVITIES TO THE TUNE OF RS.36,59,659 /- OUT OF THE TOTAL INTEREST EXPENSES DEBITED AT RS.3,09,32,566/- IS DI SALLOWED ON ITA NO.3338/DEL./2016 3 ACCOUNT OF LOAN BEING NOT UTILIZED FOR THE PURPOSE OF PROFESSIONAL ACTIVITIES OF THE ASSESSEE. 3. ASSESSEE CLAIMED SALES PROMOTION EXPENSES TO THE TUNE OF RS.1,97,48,988/- FOR CLIENTS DEVELOPMENT AND ENTERT AINMENT FORMS SIGNIFICANT PART OF THE EFFORTS TO INCREASE THE TUR NOVER BECAUSE THE ASSESSEE HAS BEEN DEALING WITH LARGE CORPORATIONS A T ALL LEVELS WHICH REQUIRES INTENSIVE TRAVELLING ALL OVER THE WO RLD, ONE TO ONE CONTACT AND INTERACTION AT THE HIGHEST LEVEL. AO N OTICED THAT AS AGAINST THE INCREASE IN THE GROSS RECEIPT DURING TH E YEAR UNDER ASSESSMENT OF 25.97%, THERE IS INCREASE IN THE CLAI M OF BUSINESS PROMOTION EXPENSES TO THE TUNE OF 67.52%. AO ALSO NOTICED THAT THE ASSESSEE HAS RECEIVED FEW PRESTIGIOUS AWARDS FR OM THE GOVERNMENT DURING THE YEAR UNDER ASSESSMENT BUT MOS T OF THE PARTIES HOSTED BY THE ASSESSEE, GIFTS GIVEN BY THE ASSESSEE ON RECEIVING THE ABOVE AWARDS HAVE BEEN CLAIMED AS BUS INESS PROMOTION EXPENSES, SO PART OF THE BUSINESS PROMOTI ON EXPENSES CLAIMED BY THE ASSESSEE ARE CERTAINLY PERSONAL IN N ATURE AND THEREBY DISALLOWED 20% OF THE AFORESAID EXPENSES AMOUNTING TO RS.39,49,797/- TOWARDS PERSONAL IN NATURE AND THERE BY MADE ADDITION THEREOF TO THE TOTAL INCOME OF THE ASSESSE E. 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT (A) BY WAY OF AN APPEAL WHO HAS PARTLY ALLOWED THE APPEAL. FEELING ITA NO.3338/DEL./2016 4 AGGRIEVED, THE REVENUE HAS COME UP BEFORE THE TRIBU NAL BY WAY OF FILING THE PRESENT APPEAL. 5. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUND NO.1 6. UNDISPUTEDLY, THE ASSESSEE HAS AVAILED OF SECURE D LOANS FOR PURCHASING PROPERTY FROM JULY 2006 TO JANUARY 2009 TO THE TUNE OF RS.25,51,96,901/- AND PAID INTEREST THEREON TO THE TUNE OF RS.3,07,76,299/-. SIMILARLY, THE ASSESSEE HAS TAKE N LOANS OF RS.1,58,14,608/- DURING THE PERIOD SEPTEMBER 2004 T O JULY 2009 AND PAID INTEREST THEREON DURING THE YEAR UNDER ASS ESSMENT TO THE TUNE OF RS.5,26,473/-. ASSESSEE HAS ALSO TAKEN UNS ECURED LOAN DURING APRIL 2009 TO 31.03.2010 TO THE TUNE OF RS.1 ,12,90,000/- FROM DIFFERENT PERSONS. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS GIVEN INTEREST FREE LOAN AND ADVANCES DURING TH E YEAR UNDER ASSESSMENT TO THE TUNE OF RS.4,01,83,766/- TO HIS R ELATIVES AND FRIENDS. AO DISALLOWED PROPORTIONATE INTEREST PAID TO THE BANK BY THE ASSESSEE ON THE GROUNDS THAT THE ASSESSEE HAS H IMSELF GIVEN THE INTEREST FREE LOANS AND ADVANCES TO HIS RELATIVES A ND FAMILY MEMBERS FOR THEIR PERSONAL NEEDS. ITA NO.3338/DEL./2016 5 7. IDENTICAL ISSUE HAS COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2008-09 & 2009-10 IN ITA NOS.3699 & 3700/DEL/2012 ORDER DATED 04.03.2016 WHEREIN THE COORDINATE BENCH OF THE TRIBUNAL, AFTER FOLLOWING THE DECISION RENDERED BY THE HONBLE JURISDICTIONAL HIGH COURT IN CASE CITED AS CIT VS. SUSHMA KAPOOR (2009) 319 ITR 299 , CONFIRMED THE ORDER OF CIT (A) DELETING THE ADDITION MADE ON ACCOUNT OF PROPOR TIONATE DISALLOWANCE OF INTEREST MADE BY THE AO. 8. WHEN IT IS NOT IN DISPUTE THAT THE AO HAS MADE A DDITION ON ACCOUNT OF DISALLOWANCE OF INTEREST BY FOLLOWING TH E EARLIER YEARS ASSESSMENT ORDERS WHICH HAVE NOW BEEN OVER-TURNED B Y THE COORDINATE BENCH OF THE TRIBUNAL BY DELETING THE DI SALLOWANCE OF INTEREST EXPENDITURE, THE FACTS OF THE CASE AT HAND ARE IDENTICAL. OPERATIVE PART OF THE DECISION RENDERED BY THE COOR DINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE (SUPRA) IS AS U NDER :- 18. NOW THE DEPARTMENT IS IN APPEAL. THE LD. DR ST RONGLY SUPPORTED THE ORDER OF THE AO AND REITERATED THE OBSERVATIONS MADE IN THE ASSESSMENT ORDER DATED 31.12.2010. IT WAS A HOUSING LOAN BUT THE BUILDING CONSTRUCTED WAS NOT FOR THE BUSINESS PURPOSES. THE REFORE, THE INTEREST PAID ON THE SAID LOAN COULD NOT HAVE B EEN ALLOWED AGAINST THE BUSINESS INCOME. IT WAS FURTHER STATED THAT THE ASSESSEE DIVERTED THE INTEREST BEARING FUN DS TOWARDS INTEREST FREE LOANS. THEREFORE, THE DISALLOWANCE WA S RIGHTLY MADE BY THE AO. 19. IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR TH E ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND STRONGLY SUPPORTED THE IMPUGN ED ITA NO.3338/DEL./2016 6 ORDER. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE W AS HAVING SUFFICIENT CAPITAL TO HIS CREDIT AND THE ADVANCES O R INTEREST FREE LOANS WERE GIVEN OUT OF THE SURPLUS CAPITAL AN D NOT OUT OF THE LOANS TAKEN ON INTEREST. IT WAS ALSO STATED THAT THE SECURED LOANS FROM THE BANK WERE USED FOR THE SPECI FIC OFFICE PROPERTY. THEREFORE, THE INTEREST WAS ALLOW ABLE U/S 36(1)(III) OF THE ACT AND THE LD. CIT(A) RIGHTLY DI RECTED THE AO TO ALLOW THE SAME. 20. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVA ILABLE ON THE RECORD. IN THE PRESENT CASE, IT IS NOTICED FROM THE COPIES OF THE SECURED LOANS REPRODUCED BY THE LD. CIT(A\) AT PAGE NO.7 OF THE IMPUGNED ORDER AND PAGE NO. 3 OR THE ASSESSMENT ORDER THAT THE ASSESSEE RAISED SECURED L OANS AMOUNTING TO RS.L,52 48,349/- FROM ICICI BANK AND H DFC BANK AND ALSO RAISED A LOAN OF RS.26,45,63,512/- AG AINST THE JASOLA PROPERTY AND CHENNAI PROPERTY FROM THE ICICI BANK. THOSE LOANS WERE UTILIZED BY THE ASSESSEE FOR THE P URPOSES FOR WHICH THOSE WERE RAISED AND EVEN THE AO HAD NOT POINTED OUT ANY INSTANCE OF DIVERSION OF THOSE SECU RED LOANS. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE DIVE RTED INTEREST BEARING FUNDS TOWARDS INTEREST FREE ADVANC ES OR LOANS PARTICULARLY WHEN THE ASSESSEE HAD SUFFICIENT CREDIT BALANCE IN HIS CAPITAL ACCOUNT TO THE TUNE OF RS.21 .76 CRORES. 21. ON A SIMILAR ISSUE THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS MS. SUSHMA KAPOOR (2009 ) 319 ITR 299 (SUPRA) APPROVED THE FACTUAL FINDINGS GIVEN BY THE LD. CIT (A) WHICH WERE CONFIRMED BY THE ITAT BY OBS ERVING AS UNDER:- 'THE COMMISSIONER OF INCOME-LAX (APPEALS), IN APPEAL APART FROM OTHER FINDINGS RECORDED A CATEGORICAL FINDING THAT THE AMOUNT OF ADVANCES MADE TO THE PARTIES WERE PAID AS ADVANCES AND IN AN Y CASE THEY WERE GIVEN IN THE EARLIER YEARS, I.E., BE FORE THE LOAN WAS TAKEN ON WHICH INTEREST WAS PAID AND, THEREFORE, THESE TRADE ADVANCES WERE NOT GIVEN OUT OF THE LOAN TAKEN BY THE ASSESSEE. THIS IS CLEARLY A FINDING OF FACT. 22. IN THE INSTANT CASE ALSO, FEW OF THE INTEREST F REE ADVANCES WERE GIVEN PRIOR TO THE LOAN RAISED FROM T HE BANK ANOTHER LOANS WERE RAISED FOR ACQUIRING THE ASSETS I.E. VEHICLE AND BUSINESS PROPERTY. MOREOVER IN THE PRES ENT CASE, ITA NO.3338/DEL./2016 7 THE AO COULD NOT ESTABLISH NEXUS BETWEEN THE INTERE ST BEARING AND THE INTEREST FREE ADVANCES AND ALSO COU LD NOT BRING ANY MATERIAL ON RECORD TO SUBSTANTIATE THAT T HE INTEREST BEARING UNSECURED LOANS RAISED BY THE ASSESSEE FROM THE DIFFERENT BANKS WERE NOT USED FOR THE BUSINESS PURP OSES FOR WHICH THOSE LOANS WERE TAKEN. WE, THEREFORE, CONSI DERING THE TOTALITY OF THE FACTS AND THE RATIO LAID DOWN B Y THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS MS. SUSHMA KAPOOR (SUPRA) ARE OF THE VIEW THAT THE LD. CIT (A) WAS FULLY JUSTIFIED IN DELETING THE DISALLOWANC E MADE BY THE AO. 9. WHEN THERE IS FACTUAL FINDING GIVEN BY THE CIT ( A) THAT AS REGARDS THE INTEREST FREE ADVANCES GIVEN BY THE ASS ESSEE EVEN PRIOR TO THE LOAN RAISED FROM THE BANK FOR ACQUIRING VEHI CLES AND BUSINESS PROPERTIES, THE REVENUE HAS FAILED TO ESTABLISH ANY NEXUS BETWEEN THE INTEREST BEARING FUNDS AND INTEREST FREE ADVANC ES MADE TO HIS RELATIVES AND FRIENDS. MOREOVER, NO COGENT EVIDENC E IS THERE ON THE FILE IF SECURED LOANS HAVE NOT BEEN USED BY THE ASS ESSEE FOR BUSINESS PURPOSES. ASSESSEE PROVED TO HAVE TAKEN T HE SECURED LOANS FOR SPECIFIC PURPOSE AND THEIR UTILIZATION HA S NOT BEEN DISPUTED BY THE AO. AO HAS MERELY MADE THE ADDITIO N ON THE GROUND THAT THE ASSESSEE HAS UTILIZED SIZABLE AMOUN T OUT OF THE SECURED LOANS TO BE GIVEN AS INTEREST FREE ADVANCES TO HIS FAMILY MEMBERS, RELATED CONCERNS AND FOR ACQUIRING PROPERT Y FOR THEIR PERSONAL NEEDS. 10. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE AND FO LLOWING THE DECISION RENDERED BY THE COORDINATE BENCH OF THE TR IBUNAL FOR AY ITA NO.3338/DEL./2016 8 2008-09 AND 2009-10, WE ARE OF THE CONSIDERED VIEW THAT THE LD. CIT (A) HAS RIGHTLY DELETED THE ADDITION AFTER SCRU TINIZING THE FACTS AND THERE IS NO SCOPE TO INTERFERE INTO THE FINDING S RETURNED BY THE LD. CIT (A). SO, GROUND NO.1 IS DETERMINED AGAINST THE REVENUE. GROUND NO.2 11. ASSESSEE CLAIMED SALES PROMOTION EXPENSES TO TH E TUNE OF RS.1,97,48,988/- DURING THE YEAR UNDER ASSESSMENT, OUT OF WHICH 20% OF THE ABOVE EXPENSES AMOUNTING TO RS.39,49,797 /- HAS BEEN DISALLOWED BY THE AO ON THE GROUND THAT PART OF THE BUSINESS PROMOTION EXPENSES CLAIMED BY THE ASSESSEE ARE OF P ERSONAL IN NATURE. THE LD. CIT (A) DURING APPEAL REDUCED THE PERSONAL PROMOTION EXPENSES DISALLOWED BY THE AO @ 20% TO 5% WHICH ARE UNDER CHALLENGE BEFORE THE TRIBUNAL BY THE REVENUE. 12. UNDISPUTEDLY, IN THE PRECEDING YEARS, SUCH BUSI NESS PROMOTION EXPENSES CLAIMED BY THE ASSESSEE WERE ALL OWED TO THE TUNE OF 5% BY THE REVENUE. IT IS ALSO NOT IN DISPU TE THAT THE ASSESSEE IS ENGAGED IN THE CORPORATE TAX AND ADVISO RY SERVICES AND HAS BEEN CONFERRED WITH RASHTRIYA GAURAV AWARD, RAJ IV GANDHI AWARD, INTERNATIONAL COUNCIL OF JURISTS AWARD AND N ATIONAL BAR AWARD BY WELL KNOWN MINISTERS, PRIME MINISTERS OF I NDIA AND ITA NO.3338/DEL./2016 9 CHAIRMAN, LAW COMMISSION OF INDIA DURING THE YEAR U NDER ASSESSMENT. 13. INCURRENCE OF EXPENSES HAS NOT BEEN DISPUTED BY THE REVENUE BUT THEY HAVE GUESS-WORKED THE PERSONAL ELE MENTS IN THE EXPENSES INCURRED BY THE ASSESSEE TO TUNE OF 20% BY THE AO AND THEN TO THE TUNE OF 5% BY THE LD. CIT (A). KEEPING IN VIEW THE FACTS INTER ALIA THAT THERE IS A STEEP INCREASE IN THE CURRENT YEARS BUSINESS PROMOTION EXPENSES TO THE TUNE OF 67.52% W HEREAS INCREASE IN THE GROSS RECEIPT DURING THE YEAR UNDER ASSESSMENT IS MERELY 25.97%, WE ARE OF THE CONSIDERED VIEW THAT P ERSONAL ELEMENT IN THE BUSINESS PROMOTION EXPENSES TO THE E XTENT OF 10% OF THE TOTAL EXPENSES CANNOT BE RULED OUT. SO, WE DIR ECT THE AO TO DISALLOW 10% OF THE BUSINESS PROMOTION EXPENSES OF RS.1,97,48,988/- CLAIMED BY THE ASSESSEE. CONSEQUE NTLY, GROUND NO.2 RAISED BY THE REVENUE IS PARTLY ALLOWED. 14. RESULTANTLY, THE APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 30 TH DAY OF NOVEMBER, 2018. SD/- SD/- (N.K. BILLAIYA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 30 TH DAY OF NOVEMBER , 2018 TS ITA NO.3338/DEL./2016 10 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-20, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.