The ACIT, Circle-6, Surat V. M/s. Patel Somabhai Maganlal & Co., Surat

ITA 3444/AHD/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6613 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-05-2011
• Assessment Year: 2000-2001
• Appeal Filed On: 17-10-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S A BHOHRA
• Assessee Lawyers: P M MEHTA
• Keywords: Business expenditure; Additional evidence
• Section: 142(1); 37(1); 132

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE S/SHRI M.K. SHRAWAT, JM AND D.C.AGRAWAL, AM ASSTT. CIT, CIR.6, SURAT. VS. M/S PATEL SOMABHAI MAGANLAL & CO., SURAT,5/687, HARIPURA, BHAVANIWAD, SURAT. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI S. A. BHOHRA, SR.D.R. RESPONDENT BY:- SHRI P. M. MEHTA, AR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOL LOWING GROUNDS :- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A)-II, AHMEDABAD HAS ERRED IN DELETING THE ADDITION OF RS.1,77,616/- MADE ON ACCOUNT OF DISALLOWANCE OF IN TEREST. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A)-II, AHMEDABAD HAS ERRED IN DELETING THE ADDITION OF RS.5,23,052/- MADE ON ACCOUNT OF DISALLOWANCE OF DA MAGES PAID TO CONSTITUENTS. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A)-II, AHMEDABAD OUGHT TO HAVE UPHELD THE O RDER OF THE AO. 2. THE ASSESSEE FIRM IS CARRYING ON THE BUSINESS OF ANGADIA I.E. COURIER AGENT. A SEARCH OPERATION U/S 132 OF THE IN COME-TAX ACT, 1961 ITA NO.3444/AHD/2008 ASST. YEAR 2000-01 ITA NO.3444/AHD/2008 ASST. YEAR 2000-01 2 WAS CARRIED OUT ON MINI BUS NO.MH-04-5-1298 BELONGI NG TO THE ASSESSEE, AT MUMBAI RAILWAY STATION ON 21.07.2004.I N THE SEARCH CERTAIN CASH, AND JEWELLERY & DIAMONDS WERE SEIZED. AS A RE SULT, PROCEEDINGS U/S 143(2) AND 142(1) WERE UNDERTAKEN AGAINST THE ASSES SEE. 3. THE FIRST ISSUE RELATES TO ADDITION OF RS.1,77,6 16/- BEING AN INTEREST OF BORROWED FUNDS. THE AO NOTED THAT ASSESSEE HAS S UBSTANTIAL AMOUNT OF CASH IN HAND. HE ACCORDINGLY ISSUED SHOW CAUSE NOTI CE AS TO WHY THE PAYMENT OF INTEREST BE NOT DISALLOWED AS THE ASSESS EE DID NOT USE THE BORROWED FUND IN ANY WAY FOR THE PURPOSES OF BUSINE SS. THE EXPLANATION OF THE ASSESSEE WAS THAT HE HAS TO MEET OUT ROUTINE EXPENSES AND EXTERNAL EXPENSES. FOR THIS PURPOSE, CASH IS REQUIRED TO BE KEPT. HOW MUCH CASH IS REQUIRED, IT HAS TO BE DECIDED BY THE ASSESSEE. THI S REPLY OF THE ASSESSEE WAS NOT ACCEPTED ON THE GROUND THAT ALL THE BRANCHE S OF THE ASSESSEE FIRM WERE GETTING COMMISSION IN CASH SO THAT ROUTINE EXP ENSES COULD BE MET OUT OF THE COMMISSION RECEIVED BY THE BRANCHES AND, THEREFORE, THE ASSESSEE FAILED TO PROVE THE ACTUAL USER OF FUND FO R THE PURPOSE OF BUSINESS. 4. THE LD. CIT(A) DELETED THE ADDITION BY HOLDING T HAT CLAIM IS ADMISSIBLE U/S 36(1)(III) AS THE CASH BALANCE IS MA INTAINED IN THE BUSINESS AND MERELY ON THE BASIS THAT ASSESSEE HAD ENOUGH CA SH, INTEREST PAID ON ITA NO.3444/AHD/2008 ASST. YEAR 2000-01 3 BORROWINGS CANNOT BE DISALLOWED UNLESS IT IS SHOWN THAT BORROWINGS WERE USED FOR NON BUSINESS PURPOSES. 5. WE HAVE HEARD THE PARTIES. THE LD. DR RELIED ON THE ORDER OF AO WHEREAS THE LD. AR SUPPORTED THE ORDER OF LD. CIT(A ). IN OUR CONSIDERED VIEW THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF CIT(A). THE REASONS ARE THAT HOW MUCH CASH ASSESSEE REQUIRES TO KEEP FO R HIS BUSINESS HAS TO BE DECIDED ONLY BY THE ASSESSEE. THERE IS NO ALLEGA TION THAT BORROWED FUNDS ON WHICH INTEREST WAS PAID, WAS UTILIZED FOR NON-BUSINESS PURPOSES OR GIVEN AS INTEREST-FREE LOAN TO SISTER CONCERN. O NCE FUNDS WERE BORROWED AND KEPT FOR BUSINESS PURPOSES THEN INTEREST PAID T HEREON HAS TO BE ALLOWED. IT IS FOR THE ASSESSEE FIRM TO DECIDE THE QUANTUM OF CASH BALANCE REQUIRED TO BE KEPT AT THE HEAD OFFICE AND VARIOUS BRANCHES IN ORDER TO MEET EXISTING EXPENSES OR EMERGENCY EXPENSES AS PER CEIVED BY THE ASSESSEE. 6. HONBLE SUPREME COURT IN THE CASE OF SASSOON J. DAVID AND CO.(P) LTD. VS. CIT (1979) 118 ITR 261 (SC) HELD THAT EXPR ESSION WHOLLY AND EXCLUSIVELY USED IN SECTION 37(1) OF THE IT ACT, 1 961 DOES NOT MEAN NECESSARILY. IT DOES NOT ENVISAGE THAT AN EXPENDIT URE CLAIMED WOULD BE FULLY ALLOWABLE EVEN IF PART OF IT IS FOUND FOR BUS INESS PURPOSES OR ENTIRE WOULD BE DISALLOWED IF PART OF IT IS NOT FOUND FOR BUSINESS PURPOSES. ITA NO.3444/AHD/2008 ASST. YEAR 2000-01 4 CONDITION FOR ALLOWABILITY OF EXPENSES U/S 37(1) IS THAT IT SHOULD BE INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOS ES, IT WOULD MEAN THAT ENTIRE EXPENDITURE SHOULD BE INCURRED FOR BUSI NESS PURPOSES. THE WORD WHOLLY IN THIS REGARD IS OF UTMOST IMPORTANC E, IT SIGNIFIES THAT ENTIRE EXPENDITURE SHOULD BE INCURRED FOR BUSINESS PURPOSE AND THE WORD EXCLUSIVELY SIGNIFIES ANY PART OF THE EXPENDITURE SHOULD NOT BE INCURRED FOR ANY OTHER PURPOSE OTHER THAN BUSINESS PURPOSES. THUS THE WORD WHOLLY IS A POSITIVE CONDITION AND EXCLUSIVELY IS COMPLEMENTARY TO IT ENABLING THE AO TO DISALLOW A PART OF THE EXPENDITU RE IF IT IS FOUND THAT IT IS INCURRED OR PART OF IT IS NOT INCURRED FOR NON-B USINESS PURPOSES. THE WORD WHOLLY RELATES TO THE AMOUNT OF EXPENDITURE CLAIMED AND THE WORD EXCLUSIVELY RELATES TO THE PURPOSE FOR WHICH IT I S CLAIMED. 7. IN THE CASE OF LAXMI ENGINEERING INDUSTRIES VS. ITO (2008) 298 ITR 203 (RAJ) HELD THAT COMMISSION PAID CANNOT BE DISALLOWED MERELY ON SUSPICION. SIMILARLY INTEREST PAID ON BORROWED FUND S FOR BUSINESS PURPOSES CANNOT BE DISALLOWED MERELY ON SUSPICION U NLESS THERE IS A FINDING THAT BORROWED FUNDS WERE USED FOR NON-BUSIN ESS PURPOSES. ANY FUND BORROWED ON WHICH INTEREST IS PAID IF KEPT TO MEET OUT EMERGENCY EXPENSES FOR THE BUSINESS PURPOSE COULD BE COVERED IN THE WORD WHOLLY. ITA NO.3444/AHD/2008 ASST. YEAR 2000-01 5 8. THIS ISSUE IS ALSO COVERED BY THE DECISION OF TH E TRIBUNAL IN ITA NOS.4296-4300/AHD/2007 FOR ASST. YEARS 2001-02 TO 2 005-06 WHEREIN VIEW PARA 8 THE TRIBUNAL HAS HELD AS UNDER :- '8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PE RUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. THE SHORT IS SUE INVOLVED IN THIS GROUND OF APPEAL IS THAT INTEREST EXPENDITURE ON AMOUNT BORROWED WERE D ISALLOWED ON THE GROUND THAT AMOUNT BORROWED WERE KEPT AS CASH WITH THE ASSESSEE AND TH E SAME WAS IN THE OPINION OF THE LEARNED ASSESSING OFFICER NOT UTILISED FOR THE BUSINESS PUR POSES OF THE ASSESSEE. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE DIS ALLOWANCE OBSERVING THAT ASSESSEE'S BUSINESS WAS ALSO CONSISTING OF TRANSFER OF MONEY. DUE TO THIS BUSINESS, THE ASSESSEE WAS REQUIRED TO HAVE SUFFICIENT CASH ALWAYS SO THAT IT CAN MAKE PAYMENT OF AMOUNT ON DUE DATE. THUS, IN THE OPINION OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CASH POSSESSED BY THE ASSESSEE WAS ITS BUSINESS ASSET AND THERE FORE, INTEREST PAID ON BORROWED CAPITAL FOR THAT CASH WAS BUSINESS EXPENDITURE OF THE ASSESSEE. WE FIND THAT GENUINENESS AND REASONABLENESS OF PAYMENT OF INTEREST IS NOT IN DIS PUTE. THE ONLY DISPUTE WAS THAT THE BORROWED FUNDS WERE UTILISED FOR THE PURPOSE OF B USINESS OF THE ASSESSEE OR NOT. WE FIND THAT THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT D ISPUTE THE FINDING OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THAT THE ASSESSEE'S NATURE OF BUSINESS REQUIRED IT TO POSSESS CASH BALANCE OF SUFFICIENT AMOUNT OF ALL THE MATERIAL TIME AS THE MAKING OF TIMELY PAYMENT WAS THE ESSENCE OF BUSINESS TRANSACTION OF THE ASSESSEE. WE FIND THAT IF IS NOT THE CASE OF THE REVENUE THAT THE BORROWED FUNDS WERE UTILISE D BY THE ASSESSEE FOR ANY OTHER PURPOSES THAN ITS BUSINESS. THE ASSESSEE MAY BE IMPRUDENT IN HOLDING LARGE AMOUNT OF CASH BUT WHEN THE CASH WAS POSSESSED FOR BUSINESS PURPOSES IT WOU LD CONSTITUTE BUSINESS ASSET OF THE ASSESSEE AND THE BORROWINGS CONNECTED THEREWITH HAD TO BE HELD AS FOR BUSINESS PURPOSES. WE THEREFORE, DO NOT FIND ANY ERROR IN THE ORDER OF T HE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN DELETING THE DISALLOWAN CE OF INTEREST OF EXPENDITURE. THEREFORE, THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. ' ACCORDINGLY THIS GROUND OF REVENUE IS REJECTED. 9. THE SECOND ISSUE PERTAINS TO THE DISALLOWANCE OF DAMAGES OF RS.5,23,052/- PAID TO THE CONSTITUENTS. THE DISALLO WANCE WAS MADE BY THE AO ONLY ON THE GROUND THAT ASSESSEE COULD NOT FURNI SH EVIDENCE IN SUPPORT OF HIS CLAIM. IT WAS SUBMITTED TO THE AO TH AT EVIDENCES WERE DESTROYED IN FLOOD IN AUGUST, 2006 IN SURAT WHERE A SSESSEES OFFICE AND GODOWN WERE SUB-MERGED AND ALL THE RECORDS WERE DES TROYED. HOWEVER, AFTER FILING OF APPEAL IT WAS CLAIMED THAT EVIDENCE S WERE TRACED FROM THE ITA NO.3444/AHD/2008 ASST. YEAR 2000-01 6 AHMEDABAD OFFICE. THESE ADDITIONAL EVIDENCES WERE F ILED DURING APPEAL PROCEEDINGS BEFORE LD. CIT(A) WHO CALLED A REPORT F ROM THE CONCERNED AO. THE AO IN THE REMAND REPORT WAS OF THE VIEW THA T EVIDENCES FURNISHED AFTER COMPLETION OF ASSESSMENT PROCEEDING S ARE NOTHING BUT AFTER THOUGHT. HOWEVER, THE LD. CIT(A) ADMITTED ADD ITIONAL EVIDENCE PRODUCED LIKE DETAILS OF PAYMENT, FIR FILED IN THE POLICE STATION, ACKNOWLEDGEMENT RECEIPTS, CONFIRMATIONS FROM THE RE CIPIENTS FOR THE PERIOD 1999-2000. AFTER ADMITTING THE EVIDENCES THE LD. CIT(A) HELD THAT SUCH TYPE OF EXPENSES ARE INCIDENTAL TO THE BUSINES S OF COURIERS. THE LD. CIT(A) ALLOWED THE CLAIM BY HOLDING THAT ASSESSEE H AS FILED EVIDENCES IN RESPECT OF CLAIM FOR DAMAGE PAID TO THE CONSTITUENT ON ACCOUNT OF THE LOSS THEY SUFFERED DUE TO ROBBERY TAKEN PLACE WHEN ASSES SEE WAS DOING THE COURIER WORK FOR THEM. 10. THE LD. DR SUBMITTED THAT THE DECISION OF LD. C IT(A) ON DISALLOWANCES OF DAMAGES PAID TO CONSTITUENT IS NOT ACCEPTABLE AS ASSESSEE FAILED TO PRODUCE EVIDENCE IN RESPECT OF ITS CLAIM DURING ASSESSMENT PROCEEDINGS. IT IS SURPRISING AS TO HOW EVIDENCES E MERGED AT CIT(A)S LEVEL WHEN THEY WERE CLAIMED TO HAVE BEEN DESTROYED DURING THE FLOOD. THE LD. CIT(A) HAS IGNORED THE FINDING GIVEN BY THE AO AND ACCEPTED THE CLAIM OF THE ASSESSEE. 11. THE LD. AR ON THE OTHER HAND, RELIED ON THE ORD ER OF LD. CIT(A). ITA NO.3444/AHD/2008 ASST. YEAR 2000-01 7 12. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW, THERE IS NO CASE FO R INTERFERENCE IN THE ORDER OF LD. CIT(A). WE DO NOT FIND ANY EVIDENCE TH AT AO HAS CHALLENGED THE EVIDENCES SUBMITTED BEFORE LD. CIT(A) IN THE SE NSE THAT THEY ARE FALSE OR FABRICATED. IF DURING ASSESSMENT PROCEEDINGS EVI DENCES WERE NOT PRODUCED FOR ONE REASON OR THE OTHER AND THEY WERE PRODUCED BEFORE LD. CIT(A) WHO HAD ADMITTED THEM ACCORDING TO THE LAW A ND THE AO DID NOT FIND ANY MALA FIDE OR WRONG IN SUCH ADMISSION THEN ISSUE HAS TO BE DECIDED ON THE BASIS OF SUCH EVIDENCES. THERE IS NO CHARGE THAT EVIDENCES FURNISHED BEFORE LD. CIT(A) WERE FALSE OR FABRICATE D. IF THERE IS CONFIRMATIONS FROM THE CONSTITUENTS TO HAVE RECEIVE D THE DAMAGES FROM THE ASSESSEE THEN IT WAS INCUMBENT ON THE PART OF T HE AO TO CARRY OUT ENQUIRIES DURING REMAND PROCEEDINGS TO FIND OUT WHE THER SUCH CLAIM WAS CORRECT. HAVING NOT DONE ANY ENQUIRY ON HIS PART TH EN MERE CHALLENGING THE ADMISSION OF ENQUIRIES WILL NOT BE SUFFICIENT. ON THE OTHER HAND, PAYMENT TO CONSTITUENTS FOR WHOM THE ASSESSEE HAS D ONE THE COURIER WORK IS A BUSINESS EXPENDITURE. IF DURING THE COURSE OF DOING WORK FOR THEM THE CONSTITUENTS HAVE SUFFERED A LOSS DUE TO ROBBERY OR OTHERWISE, THEN EXPENDITURE SO INCURRED IS ALLOWABLE. THIS GROUND O F REVENUE IS ALSO REJECTED. AS A RESULT, THE APPEAL FILED BY THE REVE NUE IS DISMISSED. ITA NO.3444/AHD/2008 ASST. YEAR 2000-01 8 13. THE THIRD GROUND IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 13/5/11. SD/- SD/- (M. K. SHRAWAT) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 13/5/11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 10/5/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 11/5/2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..