The ACIT- 3(1), Indore V. Ms. Priya Sanghi, Indore

ITA 337/IND/2013

• Counselvise Citation: 33722714 RSA 2013
• Duration Of Justice: 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2000-2001
• Appeal Filed On: 22-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHEEM KUNWAR
• Assessee Lawyers: SHRI; S N AGARWAL
• Keywords: Question of law; Notional interest; Reassessment proceedings
• Section: 143(3); 148

Judgement Text

PAGE 1 OF 14 IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AMJPS4010K I.T.A.NO. 337 /IND/201 3 A.Y. : 2000-01 ACIT, 3(1), INDORE VS. MS.PRIYA SANGHI, INDORE. APPELLANT RES PONDENT C.O.NO.82/IND/2013 (ARISING OUT OF I.T.A.NO. 337/IND/2013) A.Y. : 2000-01 MS.PRIYA SANGHI, INDORE. VS. ACIT, 3(1), INDORE APPELLANT RESPONDENT DEPARTMENT BY : SHRI BHEEMKUNWAR, SR. DR ASSESSEE BY : SHRI S .N.AGARWAL AND SHRI PANKAJ MOGRA, CAS DATE OF HEARING : 31 . 1 0 .201 3 DATE OF PRONOUNCEMENT : 30 . 01 .201 4 MS.PRIYA SANGHI, INDORE. I.T.A.NO. 337/IND/2013 & C.O.82/IND/2013 A.Y.2000-0 1 2 PAGE 2 OF 14 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE AGAINST THE ORDER PASSED BY THE CIT(A), DATED 26 TH FEBRUARY, 2013, FOR THE ASSESSMENT YEAR 2000-01. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. FOR THE YEAR UNDER CONSIDERATION, THE ASSE SSEE FILED HER RETURN OF INCOME AT RS. 18,04,420/-. THEREAFTER , THE ASSESSING OFFICER ISSUED NOTICE U/S 148 AND REASSES SMENT PROCEEDINGS WERE COMPLETED ON 30.11.2007, WHEREIN I NCOME WAS ASSESSED AT RS. 29,02,350/-. BY THE IMPUGNED O RDER, THE LD. CIT(A) QUASHED THE REASSESSMENT ORDER FRAMED BY THE ASSESSING OFFICER U/S 143(3) READ WITH SECTION 147. THE PRECISE OBSERVATION OF CIT(A) WAS AS UNDER :- 3.2. I HAVE CONSIDERED THE AR'S SUBMISSIONS. THE NOTICE ISSUED U/S 148 IN THIS CASE CLEARLY MENTIONS THAT THIS MS.PRIYA SANGHI, INDORE. I.T.A.NO. 337/IND/2013 & C.O.82/IND/2013 A.Y.2000-0 1 3 PAGE 3 OF 14 NOTICE IS BEING ISSUED AFTER OBTAINING THE NECESSARY SATISFACTION OF THE COMMISSIONER OF INCOME TAX-1, INDORE. THE AO IN HIS ASSESSMENT ORDER HAS ALSO MENTIONED THIS FACT IN PARA-4 ON PAGE-2 OF THE ORDER. 3.3. HON'BLE DELHI HIGH COURT IN ITS DECISION IN THE CASE OF SPL'S SIDHARTA LTD (SUPRA) HAS HELD AS FOLLOWS:- 'IT WAS APPARENT FROM RECORDS THAT THE ASSESSING OFFICER HAD SPECIFICALLY SOUGHT THE APPROVAL OF THE COMMISSIONER ONLY. THEREFORE, IT COULD NOT BE SAID THAT THE JOINT COMMISSIONER/ADDITIONAL COMMISSIONER HAD GRANTED THE APPROVAL. FURTHER, NO DOUBT, THE FILE WAS ROUTED THROUGH ADDITIONAL COMMISSIONER. HOWEVER, HE ALSO, IN TURN FORWARDED THE SAME TO THE COMMISSIONER. [PARA 4] MS.PRIYA SANGHI, INDORE. I.T.A.NO. 337/IND/2013 & C.O.82/IND/2013 A.Y.2000-0 1 4 PAGE 4 OF 14 IT IS CLEAR THAT THE ADDITIONAL CIT DID NOT APPLY HIS MIND OR GAVE ANY SANCTION. INSTEAD, HE REQUESTED COMMISSIONER TO ACCORD THE APPROVAL. IT, THUS, CANNOT BE SAID THAT IT IS AN IRREGULARITY CURABLE U/S 292B. [PARA 5] SECTION 116 ALSO DEFINES THE INCOME-TAX AUTHORITIES AS DIFFERENT AND DISTINCT AUTHORITIES. SUCH DIFFERENT AND DISTINCT AUTHORITIES HAVE TO EXERCISE THEIR POWERS IN ACCORDANCE WITH LAW AS PER THE POWERS GIVEN TO THEM IN THE SPECIFIED CIRCUMSTANCES. IF POWERS CONFERRED ON A PARTICULAR AUTHORITY ARE ARROGATED BY OTHER AUTHORITY WITHOUT MANDATE OF LAW, IT WILL CREATE CHAOS IN THE ADMINISTRATION OF LAW AND HIERARCHY OF ADMINISTRATION WILL MEAN NOTHING. SATISFACTION OF ONE AUTHORITY CANNOT BE SUBSTITUTED BY THE MS.PRIYA SANGHI, INDORE. I.T.A.NO. 337/IND/2013 & C.O.82/IND/2013 A.Y.2000-0 1 5 PAGE 5 OF 14 SATISFACTION OF THE OTHER AUTHORITY. IT IS TRITE THAT WHEN A STATUTE REQUIRES, A THING TO BE DONE IN A CERTAIN MANNER, IT SHALL BE DONE IN THAT MANNER ALONE AND THE COURT WOULD NOT EXPECT ITS BEING DONE IN SOME OTHER MANNER. [PARA 7J THUS, IF AUTHORITY IS GIVEN EXPRESSLY BY AFFIRMATIVE WORDS UPON A DEFINED CONDITION, THE EXPRESSION OF THAT CONDITION EXCLUDES THE DOING OF THE ACT AUTHORIZED UNDER OTHER CIRCUMSTANCES THAN THOSE AS DEFINED. IT IS ALSO. ESTABLISHED PRINCIPLE OF LAW THAT IF A PARTICULAR AUTHORITY HAS BEEN DESIGNATED TO RECORD HIS/ HER SATISFACTION ON ANY PARTICULAR ISSUE, THEN IT IS THAT AUTHORITY ALONE WHO SHOULD APPLY HIS/ HER INDEPENDENT MIND TO RECORD HIS/ HER SATISFACTION AND FURTHER MANDATORY CONDITION IS THAT THE SATISFACTION RECORDED MS.PRIYA SANGHI, INDORE. I.T.A.NO. 337/IND/2013 & C.O.82/IND/2013 A.Y.2000-0 1 6 PAGE 6 OF 14 SHOULD BE 'INDEPENDENT' AND NOT 'BORROWED' OR 'DICTATED' SATISFACTION. LAW IN THIS REGARD IS NOW WELL-SETTLED. [PARA 8] THE APEX COURT IN THE CASE OF ANIRUDH SINHJI KARAN SINHJI JADEJA V. STATE OF GUJARAT [1995J 5 SCC 302 HAS HELD THAT IF A STATUTORY AUTHORITY HAS BEEN VESTED WITH JURISDICTION, HE HAS TO EXERCISE IT ACCORDING TO ITS OWN DISCRETION. IF DISCRETION IS EXERCISED UNDER THE DIRECTION OR IN COMPLIANCE WITH SOME HIGHER AUTHORITIES INSTRUCTION, THEN IT WILL BE A CASE OF FAILURE TO EXERCISE DISCRETION ALTOGETHER. [PARA 9] THEREFORE, THE TRIBUNAL HAS RIGHTLY DECIDED THE LEGAL ASPECT, KEEPING IN VIEW WELL- ESTABLISHED PRINCIPLES OF LAW LAID DOWN IN CATENA OF JUDGMENTS INCLUDING THAT OF THE SUPREME COURT. [PARA 10] MS.PRIYA SANGHI, INDORE. I.T.A.NO. 337/IND/2013 & C.O.82/IND/2013 A.Y.2000-0 1 7 PAGE 7 OF 14 NO QUESTION OF LAW ARISES. THIS APPEAL IS ACCORDINGLY DISMISSED. [PARA 11]' 3.3.1. SUBSEQUENTLY, HON'BLE BOMBAY HIGH COURT IN ITS DECISION IN THE CASE OF GANSHYAM K KHABRANI, 20 TAXMANN.COM 716 (BORN) HAS ALSO HELD SIMILARLY AS FOLLOWS:- ' THERE IS MERIT IN THE CONTENTION RAISED ON BEHALF OF THE ASSESSEE THAT THE REQUIREMENT OF SECTION 151(2) COULD HAVE ONLY BEEN FULFILLED BY THE SATISFACTION OF THE JOINT COMMISSIONER THAT THIS IS A FIT CASE FOR THE ISSUANCE OF A NOTICE UNDER SECTION 148. SECTION 151(2) MANDATES THAT THE SATISFACTION HAS TO BE OF THE JOINT COMMISSIONER. THAT EXPRESSION HAS A DISTINCT MEANING BY VIRTUE OF THE DEFINITION IN SECTION 2(28C). THE COMMISSIONER IS NOT A JOINT COMMISSIONER WITHIN THE MEANING MS.PRIYA SANGHI, INDORE. I.T.A.NO. 337/IND/2013 & C.O.82/IND/2013 A.Y.2000-0 1 8 PAGE 8 OF 14 OF SECTION: 2(28C). IN THE INSTANT CASE, THE ADDITIONAL COMMISSIONER FORWARDED THE PROPOSAL SUBMITTED BY THE ASSESSING OFFICER TO THE COMMISSIONER. THE APPROVAL WHICH HAS BEEN GRANTED IS NOT BY THE ADDITIONAL COMMISSIONER BUT BY THE COMMISSIONER. THERE IS NO STATUTORY PROVISION UNDER WHICH A POWER TO BE EXERCISED BY AN OFFICER CAN BE EXERCISED BY A SUPERIOR OFFICER. WHEN THE STATUTE MANDATES THE SATISFACTION OF A PARTICULAR FUNCTIONARY FOR THE EXERCISE OF A POWER, THE SATISFACTION MUST BE OF THAT AUTHORITY. WHERE A STATUTE REQUIRES SOMETHING TO BE DONE IN A PARTICULAR MANNER, IT HAS TO BE DONE IN THAT MANNER. ' 3.4. THUS BOTH THE HIGH COURT'S HAVE HELD THAT IF THERE IS NO COMPLIANCE OF THE MANDATORY REQUIREMENTS OF SECTION MS.PRIYA SANGHI, INDORE. I.T.A.NO. 337/IND/2013 & C.O.82/IND/2013 A.Y.2000-0 1 9 PAGE 9 OF 14 147 AND 151(2), THE NOTICE FOR REOPENING THE ASSESSMENT CANNOT BE SUSTAINED IN LAW. HENCE FOLLOWING THESE DECISIONS, THE NOTICE U/S 48 IN THE PRESENT CASE IS ALSO HELD TO BE INVALID AND ACCORDINGLY THE ASSESSMENT MADE IN PURSUANCE OF THIS NOTICE IS ALSO ANNULLED. 3. AGAINST THIS ORDER OF CIT(A), THE REVENUE IS IN APP EAL BEFORE THE TRIBUNAL. THE ASSESSEE HAS ALSO FILED CR OSS OBJECTION WHEREIN ADDITION/DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS CHALLENGED. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FOUND FROM RECORD THAT THE DISALLOWANCE OF INTEREST OF RS . 5,78,000/- WAS MADE BY THE ASSESSING OFFICER OUT OF TOTAL INTE REST PAID BY HOLDING THAT THE ASSESSEE HAS DIVERTED HER INTEREST BEARING FUND WITHOUT INTEREST TO SHRI SHARAD KUMAR SANGHI. FROM THE RECORD, WE FOUND THAT THE ASSESSEE HAD ADVANCED AMO UNT TO SHRI SHARAD KUMAR SANGHI IN THE YEAR 1999-00. COPY OF MS.PRIYA SANGHI, INDORE. I.T.A.NO. 337/IND/2013 & C.O.82/IND/2013 A.Y.2000-0 1 10 PAGE 10 OF 14 ACCOUNT OF SHRI SHARAD KUMAR SANGHI IN THE BOOK OF THE ASSESSEE IS AVAILABLE ON PAGE 57 OF THE PAPER BOOK. THAT ON PERUSAL OF THE SAID ACCOUNT, WE FIND THAT ENTIRE AM OUNT OF INTEREST FREE FUNDS OF RS. 34,00,000/- WERE ADVANCE D BY THE ASSESSEE IN THE YEAR 1999-2000 FROM HER BANK ACCOUN T WITH STATE BANK OF INDORE, SIYAGANJ BRANCH, INDORE. COPY OF BANK ACCOUNT IN THE BOOKS OF THE ASSESSEE IS ALSO AVAILA BLE ON PAGE 58 AND 59 OF THE PAPER BOOK. ON PERUSAL OF THE BANK ACCOUNT AND CORRELATING IT WITH THE AMOUNT ADVANCED BY THE ASSESSEE TO SHRI SHARAD KUMAR SANGHI, WE FOUND THAT THE ENTI RE AMOUNT RECEIVED BY THE ASSESSEE FROM M/S. RAGINI PR IYA TRUST WAS UTILIZED FOR ADVANCING IT TO SHRI SHARAD KUMAR SANGHI. 5. THUS, THE ASSESSEE HAD UTILIZED HER INTEREST FREE F UNDS AS LYING WITH M/S. RAGINI PRIYA TRUST FOR ADVANCING AMOUNT TO HER FATHER SHRI SHARAD KUMAR SANGHI. HENCE, NO INTE REST BEARING FUNDS WERE UTILIZED BY THE ASSESSEE FOR ADV ANCING THE AMOUNT TO SHRI SHARAD KUMAR SANGHI. WE, THEREFORE, DO NOT FIND ANY MERIT IN THE ACTION OF ASSESSING OFFICER F OR DISALLOWING THE INTEREST EXPENDITURE. MS.PRIYA SANGHI, INDORE. I.T.A.NO. 337/IND/2013 & C.O.82/IND/2013 A.Y.2000-0 1 11 PAGE 11 OF 14 6. BEFORE PARTING WITH THE MATTER, IT IS PERTINENT TO MENTION THAT IN THE COURSE OF FIRST ROUND OF APPEAL BEFORE THE CIT(A) VIDE ORDER DATED 31.12.2007, THE LD. CIT(A) HAS DELETED THE DISALLOWANCE OF NOTIONAL INTEREST, HOWEVER, REV ENUE WAS NOT IN APPEAL AGAINST THIS ORDER OF CIT(A). THE ASS ESSING OFFICER HAS ALSO MADE DISALLOWANCE OF INTEREST OF R S. 5,19,930/- BY HOLDING THAT THE ASSESSEE HAS DIVERTE D HIS HIGHER RATE OF INTEREST BEARING FUNDS FOR LOW RATE OF INTEREST. IN THE ASSESSMENT ORDER, A.O. HAS OBSERVED THAT THE AS SESSEE HAD PAID INTEREST RANGING FROM 16 % TO 18 % P. A. WHERE AS SHE HAD CHARGED INTEREST RANGING 12 TO 16%. THAT DURING TH E YEAR UNDER CONSIDERATION THE ASSESSEE HAS RECEIVED INTER EST OF RS. 11,24,737/- AND HAS PAID INTEREST OF RS. 14,73,135/ -. HOWEVER, THE ASSESSING OFFICER HAS DISALLOWED AN AM OUNT OF RS. 5,19,930/- BEING 1473135/17*6% PERCENT INTEREST AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. THE A SSESSING OFFICER WHILE DISALLOWING THE PROPORTIONATE INTERES T, TREATED THE AVERAGE RATE OF INTEREST AT 17 % AND RESTRICTED THE CLAIM OF MS.PRIYA SANGHI, INDORE. I.T.A.NO. 337/IND/2013 & C.O.82/IND/2013 A.Y.2000-0 1 12 PAGE 12 OF 14 INTEREST AT 11 % AND THEREBY DISALLOWED 6% OF INTER EST WHICH CALCULATED COMES TO RS. 519930/-. 7. IT WAS CONTENDED BY THE LD. AUTHORIZED REPRESENTATIVE THAT THE EFFECTIVE RATE OF INTEREST PAID ON THE AMOUNT OF FUNDS BORROWED BY THE ASSESSEE WORKED OUT AT 5.30 %, WHEREAS THE ASSESSEE HAS CHARGED INTEREST FROM A LL THE PARTIES, WHICH VARIES BETWEEN 12 % TO 16 %. FOR THI S PURPOSE, OUR ATTENTION WAS INVITED TO THE FOLLOWING WORKINGS :- THAT ON THE BASIS OF TOTAL FUNDS AVAILABLE WITH THE ASSESSEE EFFECTIVE RATE OF INTEREST PAID COMES @ 5.30 % CALCULATED AS UNDER :- OPENING BALANCE CLOSING BALANCE AVERAGE BALANCE CAPITAL 1,76,66,681 1,93,32,231 1,84,99,456 UNSECURED LOAN 90,24,186 95,21,585 92,72,886 2,66,90,867 2,88,53,816 2,77,72,342 INTEREST PAID 14,73,135 EFFECTIVE RATE OF INTEREST 1473135/27772342*100 = 5,30 % 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FOUND FROM RECORD THAT ASSESSMENT FOR THE ASSESSMENT YEAR 2000-01 WAS REOPENED ON THE BASIS OF FINDINGS OF ASSESSING OFFICER IN THE ASSESSMENT YEAR 2004-05 REGARDING DIVERSION OF INTEREST BEARING FUNDS FOR NON-BUSINESS PURPOSES. AGAINST TH E FINDINGS MS.PRIYA SANGHI, INDORE. I.T.A.NO. 337/IND/2013 & C.O.82/IND/2013 A.Y.2000-0 1 13 PAGE 13 OF 14 FOR ASSESSMENT YEAR 2004-05, THE ASSESSEE APPEALED BEFORE CIT(A) WHO DELETED DISALLOWANCE OF INTEREST VIDE OR DER DATED 31.12.2007. SIMILAR ADDITION MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT YEAR 2000-01 WAS UNDER CONSIDERATION . IT WAS SUBMITTED BY THE LD. AUTHORIZED REPRESENTATIVE THAT REVENUE HAS NOT FILED ANY APPEAL AGAINST THE SAID ORDER OF CIT(A) FOR ASSESSMENT YEAR 2004-05. LD. SENIOR DR HAS NOT CONT ROVERTED SAID ASSERTION OF LD. AUTHORIZED REPRESENTATIVE. ON MERITS, WE FOUND THAT SINCE THE EFFECTIVE RATE OF INTEREST PAI D BY THE ASSESSEE WORKS OUT TO BE 5.30 %, THE RATE OF INTERE ST THE ASSESSEE HAS CHARGED FROM ALL THE PARTIES TO WHOM A DVANCE WAS GIVEN VARIES BETWEEN 12 % TO 16 %, THERE WAS NO JUSTIFICATION FOR THE ASSESSING OFFICER TO MAKE ADD ITION BY OBSERVING THAT THE ASSESSEE HAS CHARGED LOWER RATE OF INTEREST FROM PARTIES TO WHOM ADVANCES WERE GIVEN. 9. AS WE HAVE ALREADY DECIDED THE MERITS OF ADDITION/DISALLOWANCE, WE ARE NOT INCLINED TO GO IN THE TECHNICAL ISSUE DECIDED BY CIT(A) FOR QUASHING THE REASSESSMENT PROCEEDINGS. MS.PRIYA SANGHI, INDORE. I.T.A.NO. 337/IND/2013 & C.O.82/IND/2013 A.Y.2000-0 1 14 PAGE 14 OF 14 10. IN THE RESULT, THE APPEAL OF THE REVENUE HAS BECOME ACADEMIC, WHEREAS THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 30 TH JANUARY, 2014. SD/- SD/- (JOGINDER SINGH) (R. C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30 TH JANUARY, 2014. CPU* 21.11.16.12.20