M/s Chandresh Malhotra & Co., Mandi V. ACIT, Mandi

ITA 339/CHANDI/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60862 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 19-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: VIPUL SOOD
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 339 /CHD/2012 (ASSESSMENT YEARS: 2006-07) CHANDRESH MALHOTRA & CO. VS. THE A.C.I.T., NATIONAL STREET, NEAR PNB BANK, CIRCLE MANDI, MANDI. MANDI. PAN: AAEFC4390H AND ITA NO. 340 /CHD/2012 (ASSESSMENT YEARS: 2007-08) CHANDRESH MALHOTRA & CO. VS. THE D.C.I.T., NATIONAL STREET, NEAR PNB BANK, CIRCLE MANDI, MANDI. MANDI. PAN: AAEFC4390H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIPUL SOOD RESPONDENT BY : SHRI AKHILESH GUPTA, DR DATE OF HEARING : 14.05.2012 DATE OF PRONOUNCEMENT : 24.05.2012 O R D E R PER SUSHMA CHOWLA, J.M. : THESE TWO APPEALS BY THE ASSESSEE ARE AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS), SHIMLA DATED 12.1.2012 RELATING TO ASSESSMENT YEARS 2006-07 AND 2007-08 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF INCOME TAX ACT, 1961 (IN SHORT T HE ACT). 2. BOTH THESE APPEALS RELATING TO THE SAME ASSESSEE ON SAME ISSUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY T HIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2 3. THE COMMON GROUNDS OF APPEAL RAISED BY THE ASSES SEE ARE AS UNDER: 1. THAT THE ORDERS OF THE LEARNED CIT(A) SHIMLA IS DEF ECTIVE BOTH IN LAW AND FACTS OF THE CASE AND LD. CIT(A) WAS NOT JU STIFIED IN CONFIRMING THE ORDERS OF THE LD. ACIT (SOLAN). 2. THAT THE ADDITION OF RS.1,43,188/- (RS.4,87,066/- I N ITA NO.340/CHD/2012) ON ACCOUNT OF DISALLOWANCE OF INTEREST IS HIGHLY UNJUSTIFIED AND OPPOSED TO FACTS OF THE CASE. LD. AO HAS RELIED UPON THE CASE OF CIT-I LUDHIANA VS. M /S ABHISHEK INDUSTRIES LIMITED 288 ITR 1 (P&H) WHICH HAS ALREAD Y BEEN REVERSED BY HON'BLE SUPREME COURT IN MUNJAL SALES C ORPORATION V. CIT. 298 ITR 298. 4. THE BRIEF FACTS OF THE CASE ARE THE ASSESSEE IS A PARTNERSHIP FIRM CARRYING ON THE TRADING OF ENGLISH WINE AND COUNTRY LIQUOR ON RETAIL BASIS IN THE AREA OF SADAR MANDI AND JOGINDER NAGAR TEHSIL. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD CL AIMED INTEREST EXPENDITURE OF RS.14,06,093/- OUT OF WHICH INTEREST PAID ON CC ACCOUNT WITH STATE BANK OF INDIA, BRANCH MANDI WAS RS.7,72, 165/-. THE ASSESSING OFFICER FROM THE ENTRIES OF THE BANK ACCO UNT NOTED THAT THE ASSESSEE HAD MADE SEVERAL PAYMENTS TO M/S GOVERDHAN & CO. AND ALSO TRANSFERRED FUNDS TO THE PARTNERS S/SHRI NIPUN MALH OTRA AND CHANDRESH MALHOTRA AND PAYMENT WAS ALSO MADE TO SHRI ASHWANI KUMAR, JALANDHAR. THE ASSESSING OFFICER SHOW CAUSED THE ASSESSEE AS T O WHY THE INTEREST RELATABLE TO SUCH PAYMENTS BE NOT DISALLOWED AS THE PAYMENTS WERE NOT FOR BUSINESS PURPOSES. THE REPLY OF THE ASSESSEE I S INCORPORATED AT PAGE 2 OF THE ASSESSMENT ORDER. THE EXPLANATION OF THE ASSESSEE THAT IT HAD ADVANCED THE AMOUNT TO ITS SISTER CONCERN M/S GOVER DHAN & CO. FOR FUTURE PROSPECTS OF BUSINESS WAS REJECTED BY THE AS SESSING OFFICER AND IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS. ABHISHEK INDUSTRIES LTD. [286 ITR 1 (P&H )] THE INTEREST RELATABLE TO THE SAID ADVANCES WAS HELD TO BE DISAL LOWED. THE ASSESSING OFFICER TABULATED THE INTEREST ON MONTHLY AND DAILY OUTSTANDING BALANCES 3 IN RESPECT OF THE SAID PARTY WHICH IS REPRODUCED UN DER PARA 1.2 OF THE ASSESSMENT ORDER. SIMILARLY THE ASSESSING OFFICER ALSO TABULATED THE AMOUNT ADVANCED TO THE PARTNERS S/SHRI NIPUN MALHOT RA AND CHANDRESH MOLHOTRA AS FOR NON BUSINESS PURPOSES AND COMPUTED THE DISALLOWANCE OF INTEREST ON THE SAID ADVANCES. THE ASSESSEE HAD FU RTHER ADVANCED CERTAIN AMOUNTS TO SHRI ASHOK KUMAR (EARLIER MENTIONED AS A SHWANI KUMAR) AND THE REPLY OF THE ASSESSEE THAT THE SAID ADVANCES WE RE MADE FOR THE PURCHASE OF FOREIGN LIQUOR, WAS REJECTED BY THE ASS ESSING OFFICER IN THE ABSENCE OF ANY EVIDENCE. THE ASSESSING OFFICER DIS ALLOWED SUM OF RS.1,43,188/- UNDER SECTION 36(1)(III) OF THE ACT. 5. THE CIT (APPEALS) UPHELD THE ORDER OF THE ASSESS ING OFFICER. 6. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF T HE CIT (APPEALS). SHRI VIPUL SOOD APPEARED ON BEHALF OF THE ASSESSEE AND SHRI AKHILESH GUPTA PUT IN APPEARANCE ON BEHALF OF REVENUE AND PU T FORWARD THEIR CONTENTIONS. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE IN THE CAPTIONED APPEALS IS IN RELATION TO TH E APPLICATION OF THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. DURIN G THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD CLAIMED INTEREST EXP ENDITURE ON ACCOUNT OF INTEREST PAID ON ITS CC ACCOUNT WITH STATE BANK OF INDIA, BRANCH MANDI, H.P. IN ADDITION TO TOTAL INTEREST PAID OF R S.14,06,093/-. 8. THE ASSESSEE HAD ADVANCED CERTAIN AMOUNT TO ITS SISTER CONCERN M/S GOVERDHAN & CO., ON VARIOUS DATES AND OF VARIOUS DE NOMINATIONS. THE ASSESSING OFFICER UNDER PARA 1.2 OF THE ASSESSMENT ORDER HAD TABULATED PARTICULARS OF ADVANCES MADE BY THE ASSESSEE AND NU MBER OF DAYS ON WHICH SAID AMOUNT WAS OUTSTANDING FROM THE SAID PAR TY. THE EXPLANATION OF THE ASSESSEE IN REGARD TO THE AFORESAID ADVANCES MADE WAS THAT THE 4 SAID SISTER CONCERN WAS DEALING IN THE LIQUOR TRADE AND AS IT HAD INTENTION OF DEALING WITH THE SAID CONCERN IN FUTURE, THE SAI D ADVANCES WERE MADE FOR BUSINESS PURPOSES. THE ASSESSEE HOWEVER, HAS F AILED TO BRING ON RECORD ANY EVIDENCE TO PROVE ITS CONTENTIONS. THE ADVANCES HAVE BEEN MADE BY THE ASSESSEE OUT OF THE CC ACCOUNT WITH STA TE BANK OF INDIA. THE ASSESSEE IN THE PRESENT CASE HAS MADE INTEREST FREE ADVANCES TO ITS SISTER CONCERN OUT OF ITS INTEREST BEARING FUNDS AN D HAS NOT CHARGED ANY INTEREST ON THE AFORESAID ADVANCES. THE ASSESSING OFFICER HAD TABULATED THE DISALLOWANCE OF INTEREST @ 10% ON THE AFORESAID ADVANCES OUTSTANDING FOR NUMBER OF DAYS, WHICH IN THE PRESEN T CASE IS DISALLOWABLE UNDER THE PROVISIONS OF SECTION 36(1)( III) OF THE ACT. THE ASSESSEE HAVING FAILED TO PROVE THE BUSINESS EXIGEN CY FOR MAKING THE AFORESAID ADVANCES TO ITS SISTER CONCERN, IS LIABLE TO DISALLOWANCE OF INTEREST AS COMPUTED BY THE ASSESSING OFFICER UNDER SECTION 36(1)(III) OF THE ACT. 9. WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN ABHISHEK INDUSTRIES LTD. [286 ITR 1 (P&H)]. 10. THE SECOND ADVANCES MADE BY THE ASSESSEE WERE O N ACCOUNT OF WITHDRAWALS MADE BY TWO PARTNERS S/SHRI NIPUN MALHO TRA AND CHANDRESH MALHOTRA. THE ASSESSEE FIRM HAD MAINTAINED THE CAP ITAL ACCOUNT OF THE PARTNERS AND FURTHER CURRENT ACCOUNT OF THE PARTNER S. THE ASSESSING OFFICER IN VIEW OF THE WITHDRAWALS MADE BY THE PART NERS FROM THE ASSESSEE FIRM WHICH WERE DEBITED TO THEIR CURRENT A CCOUNTS WAS OF THE VIEW THAT THE AFORESAID ADVANCES WERE MADE INTEREST FREE TO THE SAID PARTNERS, OUT OF FUNDS ON WHICH INTEREST WAS BEING PAID BY THE ASSESSEE FIRM. THE ASSESSEE HAS FURNISHED ON RECORD BALANCE SHEET AND THE PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION AT PAGES 2 TO 7 OF THE PAPER BOOK. THE DETAILS OF PARTNERS CAPITAL ACCOUN T IS PLACED AT PAGE 5 5 OF THE PAPER BOOK. THE PERUSAL OF THE SAID CAPITAL ACCOUNT REFLECTS THAT BOTH S/SHRI NIPUN MALHOTRA AND CHANDRESH MALHOTRA H AVE ACCUMULATIVE OPENING CAPITAL AS ON 1.4.2005 OF RS.1,10,28,734/- AND AFTER MAKING THE TOTAL WITHDRAWALS DURING THE YEAR AND AFTER INCLUSI ON OF THE PROFITS AND SALARY DURING THE YEAR UNDER CONSIDERATION THE TOTA L ACCUMULATIVE CAPITAL BALANCE AS ON 31.3.2006 WAS RS.1,14,30,283/-. THE TOTAL WITHDRAWALS MADE BY THE PARTNERS DATE-WISE IS TABULATED BY THE ASSESSING OFFICER UNDER PARA 1.2 OF THE ASSESSMENT ORDER WHICH REFLEC TS THAT THE WITHDRAWALS MADE WERE MUCH LOWER THAN THE BALANCES AVAILABLE IN THE CAPITAL ACCOUNT OF THE PARTNERS. THE MONEY SO WITH DRAWN BY THE PARTNERS WAS IN FACT OUT OF THEIR CAPITAL BALANCES WITH THE ASSESSEE FIRM AND CONSEQUENTLY THERE IS NO MERIT IN APPLYING THE PROV ISIONS OF SECTION 36(1)(III) OF THE ACT TO THE AFORESAID WITHDRAWALS MADE BY THE PARTNERS OF THE ASSESSEE FIRM AND DISALLOWING ANY PART OF TH E INTEREST EXPENDITURE. REVERSING THE ORDER OF THE CIT (APPEALS) IN THIS RE GARD, WE DIRECT THE ASSESSING OFFICER TO ALLOW INTEREST EXPENDITURE OF RS.1556/-+RS.8926/-+ 12,431/-. 11. THE LAST AMOUNT IN QUESTION WAS THE INTEREST AT TRIBUTABLE TO THE ADVANCE OF RS.5 LACS MADE TO SHRI ASHOK KUMAR. THE PLEA OF THE ASSESSEE WAS THAT THE SAID AMOUNT WAS PAID FOR PURC HASE OF IMPORTED BRAND OF LIQUOR BUT AS THE DEAL COULD NOT MATURE, T HE AMOUNT WAS RECEIVED BACK. THE ASSESSEE HAS FAILED TO ESTABLIS H ITS STAND WITH EVIDENCE AND IN THE ABSENCE OF THE SAME WE FIND NO MERIT IN THE PLEA OF THE ASSESSEE. UPHOLDING THE ORDER OF CIT (APPEALS) ON TWO ACCOUNTS, WE DIRECT THE ASSESSING OFFICER TO REWORK THE DISALLOW ANCE OF INTEREST UNDER SECTION 36(1)(III) OF THE ACT IN LINE WITH OUR OBSE RVATIONS. GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 6 12. THE FACTS AND THE ISSUE ARISING IN ITA NO.340/C HD/2012 ARE SIMILAR TO THE FACTS AND ISSUE IN ITA NO.339 /CHD/2012. OUR DECISION IN ITA NO.339/CHD/2012 SHALL APPLY MUTATIS MUTANDIS TO ITA NO. 340/CHD/2012. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 13. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF MAY, 2012. SD/- SD/- (T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 24 TH MAY, 2012 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH