The ACIT, 5(1), Indore V. Smt. Geeta Devi Bindal, Indore

ITA 355/IND/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66731 (ITAT-INDORE)
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 12-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Keywords: Notional interest
• Section: 143(3); 37

Judgement Text

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. : AEKPB7308A I.T.A.NO. 355 /IND/201 1 . A.Y. : 2006 - 07 ACIT, SMT. GEETA DEVI BINDAL, 5(1), INDORE. VS 109, SNEH NAGAR, INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI R. A. VERMA, SR. DR RESPONDENT BY : SHRI VIJAY BANSAL, C. A. DATE OF HEARING : 12 . 10 .2012 DATE OF PRONOUNCEMENT : 29 . 10 .201 2 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 05.09.2011 FOR THE ASSESSMENT YEAR 2006-07, IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INC OME-TAX ACT, 1961. -: 2: - 2 2. THE ONLY GRIEVANCE OF THE REVENUE RELATES TO RESTRI CTING DISALLOWANCE OF INTEREST CLAIMED AT RS. 6 LAKHS IN PLACE OF RS. 22.21 LAKHS MADE BY THE ASSESSING OFFICER. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS OF COAL HANDLING AND TRANSPORTATION. DURIN G THE YEAR, THE ASSESSEE CLAIMED INTEREST OF RS. 80.51 LAKHS. B Y OBSERVING THAT ASSESSEE HAS ADVANCED FUNDS TO VARIOUS PARTIES WITHOUT CHARGING ANY INTEREST, THE ASSESSING OFFICER DISALL OWED INTEREST OF RS. 22,21,594/- OUT OF INTEREST EXPENDITURE CLAI MED BY THE ASSESSEE. 4. BY THE IMPUGNED ORDER, THE CIT(A) RESTRICTED THE DISALLOWANCE OF INTEREST TO RS. 6 LAKHS AFTER HAVIN G THE FOLLOWING OBSERVATIONS :- FACTS AND RECORDS AS EVIDENCED BY ASSESSMENT ORDER, WRITTEN SUBMISSION RUED BY THE APPELLANT AND VARIOUS DOCUMENTS AND LEDGER ACCOUNTS ARE CAREFULLY TAKEN INTO CONSIDERATION. THE ISSUES INVOLVED -: 3: - 3 ARE DISCUSSED AND DECIDED AS UNDER: 4.1 FIRST GROUND IS DIRECTED AGAINST DISALLOWANCE OF INTEREST AGGREGATING RS.22,21,594/- CALCULATED @ 12% P.A. WITH REFERENCE TO THE AMOUNT AND PERIOD OF ADVANCES GIVEN TO 16 PERSONS NAMED IN THE ASSESSMENT ORDER. IN THE COURSE OF APPEAL HEARING, APART FROM WRITTEN SUBMISSION FILED IT WAS SUBMITTED ONLY ADVANCE WHICH WAS GIVEN TO RELATIVES BEING SON OF APPELLANT, MR. HITESH BINDAL FOR NON BUSINESS PURPOSE WAS RS. 4.60 LACS AND TO THE OTHER PERSONS ADVANCES WERE GIVEN PURELY OUT OF BUSINESS CONSIDERATION FOR EXISTING -: 4: - 4 BUSINESS ACTIVITIES OR FOR PROSPECTIVE BUSINESS EXPECTATIONS. 4.1.1. IT WAS ALSO SUBMITTED THAT ONE OF THE PERSON, MR. BRIJ RATHI TO WHOM RS.6.25 WAS GIVEN FOR BUSINESS PROSPECTS IN SOUTH, WAS LATER ABSCONDING AND WAS NOT IN TOUCH WITH THE APPELLANT AND THE AMOUNT MAY HAVE TO FINALLY WRITTEN OFF. IT WAS ALSO CLARIFIED THAT EXCEPT MR. Y.P. SINGHANIA TO WHOM THE LOAN WAS GIVEN OUT OF BUSINESS CONSIDERATION BUT IN HIS INDIVIDUAL CAPACITY AT HIS INSISTENCE FOR PROCURING BUSINESS OF J. K. CEMENT LTD. AND ALL OTHER ADVANCES WERE MADE DIRECTLY TO PERSONS WITH -: 5: - 5 WHOM THE BUSINESS TRANSACTIONS WERE INVOLVED. 1. 4.1.2 IT WAS STRONGLY EMPHASIZED THAT THE AO HAS TAKEN A VERY NARROW AND RIGID VIEW IN THE MATTER IN REJECTING BONA FIDE EXPLANATION OF THE APPELLANT FOR WANT OF WRITTEN DOCUMENTS AND EVIDENCE I.E. AGREEMENT ETC. WHICH COULD NOT BE ALWAYS INSISTED NORMAL AND REGULAR IN BUSINESS TRANSACTIONS. IT WAS ALSO EMPHASIZED THAT EVEN WITH REFERENCE TO THE OLD EXISTING ADVANCES THE AO SUMMARILY REJECTED THE EXPLANATION OF THE ASSESSEE AND HE WORKED OUT DISALLOWANCE OF INTEREST THOUGH APPARENTLY SUCH ADVANCES WERE -: 6: - 6 NOT GIVEN DURING THE YEAR UNDER CONSIDERATION. 4.2. THE FACTS RELATING TO MAJOR ADVANCES ARE EXAMINED AS UNDER: 1. DHAR COAL PRODUCTS. RS 15,00,000/- : IN CASE OF DHAR COAL PRODUCTS PVT. LTD., AS PER THE COPY OF THE LEDGER ACCOUNT SUBMITTED BY THE APPELLANT WITH PAPER BOOK , IT IS EVIDENT THAT THE BUSINESS FROM THE APPELLANT WAS DONE IN THE FY 2006-07 (AY 2007-08) AND THIS AMOUNT HAS BEEN ADJUSTED IN THE BUSINESS ACCOUNT. THE RELEVANT DOCUMENTS ARE PLACED ON RECORDS. 2. GUJRAT NRE COKE LTD. RS.10,25,500/ SIMILARLY, IN CASE OF GUJRAT NRE COAK LTD. AS PER THE COPY OF THE PURCHASE ORDER DATED 07/04/2005 WITH THE BINANI -: 7: - 7 CEMENT LTD. AND COPY OF LEDGER ACCOUNT OF GUJRAT NRE COKE LTD. IT IS VERY WELL EVIDENT THAT THE AMOUNT WAS GIVEN AGAINST THE BUSINESS OF THE TRANSPORTATION OF COAL TO BE SUPPLIED TO BINANI CEMENT LTD., BINANI GARM BY THE GUJRAT NRE COKE LTD., JAMNAGAR. THE RELEVANT DOCUMENTS ARE PLACED ON RECORDS. 3. SHARMA STEEL, RS.2,29,518/- FURTHER, AS PER THE COPIES OF ACCOUNT SUBMITTED BY THE APPELLANT, IN CASE OF THE AMOUNT PAID TO SHARMA STEEL, WHO WAS AGENT OF RAJASTHAN STATE MINERAL DEVELOPMENT CORPORATION ( RSMDC),THE BUSINESS WAS DONE IN THE FINANCIAL YEAR 2003-04 AND BALANCE WITH THIS PARTY RS. 2,29,518/- HAS REMAINED WITH THE PARTY. IT IS VERY WELL EVIDENT FROM DOCUMENTS PLACED ON RECORDS, WHERE IN THE DN REPRESENT THE DEBIT NOTE TOWARDS FREIGHT, -: 8: - 8 ISSUED TO PARTY CONFIRMING THE BUSINESS RELATION WITH THE ABOVE PARTY. 4. SANGAM SPINNERS, ( BHILWARA) RS. 75,00,000/- ON THE VERIFICATION OF THE COPIES OF THE ACCOUNT SUBMITTED BY THE APPELLANT IN CASE OF SANGAM SPINNERS (BHILWARA), AS WELL AS. THE RELEVANT DOCUMENTS ARE PLACED ON RECORDS (BOTH SECURITY DEPOSIT AND DEBTOR ACCOUNT) IT CAN BE CONCLUDED THAT THE AMOUNT HAS BEEN PAID AS SECURITY DEPOSIT TO THE PARTY FOR SECURING ITS COAL BEING TRANSPORTED BY APPELLANT IN BULK. DURING THE YEAR THE APPELLANT HAS EARNED A REVENUE OF RS. 12.45 CRORES FROM THE PARTY. 4.2.1 SIMILARLY THE OTHER AMOUNT ADVANCED ARE APPARENTLY GIVEN FOR BUSINESS CONSIDERATIONS AS EMERGES FROM DOCUMENTS AND DETAILS FILED EXCEPT TWO CASES DISCUSSED BELOW. -: 9: - 9 4.2.2 IN VIEW OF ABOVE DISCUSSION, IT IS HELD THAT APART FROM THE AMOUNT ADVANCED TO SHRI HITESH BINDAL AND TO SHRI Y. P. SINGHANIA ALL OTHER AMOUNTS WERE ADVANCED BY THE APPELLANT, FOR BUSINESS PURPOSES. ACCORDINGLY AO WAS NOT JUSTIFIED IN WORKING OUT NOTIONAL INTEREST OF SUCH AMOUNTS FOR DISALLOWANCE. THE SAME IS FOUND TO BE NOT SUSTAINABLE FOR BOTH IN FACTS AND IN LAW AND ACCORDINGLY DISALLOWANCE TO THAT EXTENT IS DIRECTED TO BE DELETED. 4.2.3 FURTHER COMING TO THE AMOUNT ADVANCED TO SHRI HITESH BINDAL AT RS. 4,60,000/- WHO IS ADMITTEDLY APPELLANT'S SON, THE AMOUNT HAS ADVANCED FOR NON BUSINESS PURPOSES. BUT THE APPELLANT HAS SUBSTANTIAL CAPITAL OF RS. 1.50 CRORES AND THE SAME HAS TO BE TREATED AS MADE OUT OF SUCH INTEREST FREE FUNDS AND ACCORDINGLY -: 10: - 10 DISALLOWANCE MADE AT RS. 552001- IS DIRECTED TO BE DELETED. 4.3 LASTLY, COMING TO THE AMOUNT ADVANCED TO SHRI Y. P. SINGHANIA, SUBSTANTIAL AMOUNT OF RS.50.00 LACS, THE ADMITTED POSITION IS THAT SUCH AMOUNT WAS ADVANCED IN CONNECTION WITH BUSINESS INTEREST AND ACTIVITIES WITH M/S. J. K. CEMENT LTD. WHICH IS A LISTED PUBLIC COMPANY IN WHICH VARIOUS STAKE HOLDERS HAVE INTEREST FOR FUNDS ADVANCED AND INVESTED AND GOVERNMENT BEING ENTITLED TO IT SHARE OF TAXES ON THE INCOME EARNED. FURTHER IT IS ALSO ADMITTED POSITION THAT APPELLANT CHARGED INTEREST ON SUCH ADVANCE IN NEXT. FINANCIAL YEAR AND DOES HAVE NO EXPLANATION AS TO HOW THE YEAR UNDER CONSIDERATION WAS DIFFERENT AND EXCEPTIONAL FOR NOT CHARGING INTEREST ON SUCH HUGE AMOUNT ADVANCED. -: 11: - 11 4.3.1 IT IS ALSO ADMITTED THAT NO BUSINESS INTEREST OR TRANSACTION WERE INVOLVED BETWEEN THE APPELLANT AND SHRI Y. P.SINGHANIA IN INDIVIDUAL CAPACITY. THE CONTENTION OF THE APPELLANT THAT THE AMOUNT WAS ADVANCED FOR EARNING HUGE REVENUE FROM M/S. J. K. CEMENT COULD NOT BE ACCEPTED AS M/S. J. K. CEMENT AND SHRI Y. P. SINGHANIA ARE DIFFERENT ENTITIES AND THE AMOUNT ADVANCED TO SHRI Y. P. SINGHANIA CANNOT BE SAID TO BE ADVANCED THE COMPANY J. K. CEMENT LTD . THUS THIS AMOUNT ON THE FACE OF IT CANNOT BE SAID TO BE ADVANCED FOR THE BUSINESS PURPOSES. 4.3.2 FURTHER STILL IF THE APPELLANT'S ARGUMENTS ON THIS BEHALF ARE ACCEPTED, THAT WOULD AMOUNT TO GRANTING STATUTORY APPROVAL TO THE DUBIOUS TRANSACTION BETWEEN THE APPELLANT AND THE DIRECTOR OF THE COMPANY IN HIS INDIVIDUAL CAPACITY SO -: 12: - 12 AS TO ADVANCE PERSONAL INTEREST OF THE DIRECTOR AT THE COST OF COMPANY, DENYING IN THE PROCESSES, RIGHTFUL INCOME WHICH WOULD HAVE OCCURRED TO THE COMPANY ON SUCH ADVANCE OF SUBSTANTIAL AMOUNT, IF GIVEN TO THE COMPANY, THEREBY AUGMENTING THE CASH FLOWS OF THE COMPANY AND CONSEQUENTLY REDUCING THE INTEREST BURDEN OF THE COMPANY IN TURN LEADING TO INCREASE IN THE PROFIT TO THE COMPANY. SUCH TRANSACTION THOUGH MAY NOT BE STRICTLY PROHIBITED IN LAW SO AS TO ATTRACT PROVISION UNDER SECTION 37 (1) OF IT ACT, BUT NEVERTHELESS IT WILL HAVE TO BE CLASSIFIED AS DUBIOUS TRANSACTION WHICH CANNOT BE GIVEN STATUTORY APPROVAL AND BENEDICTION. 4.3.3 IT MAY BE OBSERVED THAT THE APPELLANT HAS NOT ADVANCED ANY ARGUMENTS OR CONTENTION, SO FAR AS THE AMOUNT OF DISALLOWANCE WORKED OUT @ 12%, -: 13: - 13 WHICH APPEARS TO BE THE BANK INTEREST RATE DURING THE RELEVANT PERIOD OF TIME AND ACCORDINGLY THE RATE OF INTEREST ADOPTED BY AO DO NOT CALL FOR ANY INTERFERENCE. 4.3.4 THE AO HAS WORKED OUT DISALLOWANCE OF THE INTEREST, ON AMOUNT OF ADVANCE GIVEN TO SHRI Y. P. SINGHANIA AT RS, 50.00 LACS, WHICH HAS BEEN WORKED AT RS. 6.0 LACS. IN VIEW OF DISCUSSION MADE ABOVE, THE SAME HAS TO BE NECESSARILY APPROVED AND IS SO APPROVED. 4.3.5 AS TO SUM UP, THE DISALLOWANCE SHALL BE RESTRICTED TO THE AMOUNT OF RS. 6.00 LACS AND THE APPELLANT SHALL BE ENTITLED TO RELIEF OF AMOUNT OF RS. 16,21,594/-. 5. AGAINST THE ABOVE ORDER OF CIT(A), THE REVENUE IS IN FURTHER APPEAL BEFORE US. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D FOUND FROM RECORD THAT VARIOUS ADVANCES WERE GIVEN BY THE ASSESSEE -: 14: - 14 DURING THE YEAR UNDER CONSIDERATION OUT OF WHICH AD VANCES GIVEN TO TRANSLINK, KOLKATA AND RADHESHYAM MITTAL W AS CONSIDERED AS A BUSINESS ADVANCE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2005-06 IN THE SCRUTINY ASSESSMENT ORDER PASSED U/S 143(3). AS THESE ADVANC ES HAVE ALREADY BEEN CONSIDERED AND NO DISALLOWANCES WERE M ADE BY ACCEPTING THE CONTENTION OF THE ASSESSEE THAT ADVAN CES WERE MADE IN THE NORMAL COURSE OF ASSESSEES BUSINESS, W E DO NOT FIND ANY INFIRMITY FOR DELETION OF DISALLOWANCE IN RESPECT OF THESE ADVANCES BY CIT(A). IN RESPECT OF ADVANCES GI VEN TO INTERWORLD FURNISHING, BIREN SHAH, BRIJ RATHI AND S.R. ENTERPRISES, WE FOUND THAT THESE ADVANCES WERE NOT GIVEN IN THE CURRENT YEAR, ACCORDINGLY, THERE IS NO DIVERSIO N OF INTEREST BEARING FUNDS DURING THE YEAR UNDER CONSIDERATION, WHICH WARRANT DISALLOWANCE OF INTEREST. WE ALSO FOUND THA T THE ADVANCES GIVEN TO INTERWORLD FURNISHING AND BIREN S HAH HAS BECOME BAD AND THERE IS NO POSSIBILITY OF GETTING T HE SAME BACK, THEREFORE, THERE IS NO VALID JUSTIFICATION FO R COMPUTING NOTIONAL INTEREST THEREOF FOR DISALLOWING PART OF T HE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE. ACCORDINGLY, W E DO NOT -: 15: - 15 FIND ANY REASON TO INTERFERE IN THIS PART OF ORDER OF CIT(A) FOR DELETING DISALLOWANCE OF INTEREST IN RESPECT OF M/S . INTERWORLD FURNISHING AND BIREN SHAH, BRIJ RATHI AND S. R. ENT ERPRISES. 7. IN RESPECT OF ADVANCES GIVEN TO M/S. HITESH BINDAL AND SUNEETA SINGH, WE FOUND THAT INTEREST IS RECOVERED IN THE NEXT YEAR, THEREFORE, THERE IS NO REASON FOR DISALLOWANC E DURING THE YEAR. 8. WITH RESPECT TO THE ADVANCE GIVEN TO M/S. S.R. TAX FEB , WE FOUND THAT ADVANCE WAS GIVEN OUT OF ASSESS EES OWN CAPITAL, THUS, THERE IS NO DIVERSION OF INTEREST BE ARING FUNDS, ACCORDINGLY, NO DISALLOWANCE IS WARRANTED FOR SUCH ADVANCE. 9. IN RESPECT OF ADVANCE OF RS. 3.5 LAKHS GIVEN TO M/S . TIRUPATI VENTURES AND M/S. ANAND KEDIA RS. 10 LAKHS , WE DO NOT FIND ANY VALID REASON FOR ADVANCING WITHOUT CHA RGING ANY INTEREST. SINCE THE FUND WAS PAID DURING THE CURREN T YEAR AND OUT OF INTEREST BEARING FUNDS, WE DO NOT FIND ANY J USTIFICATION IN THE ORDER OF CIT(A) FOR DELETING THE DISALLOWANC E OF INTEREST ON THESE TWO ADVANCES. ACCORDINGLY, ORDER OF CIT(A) IS REVERSED TO THIS EXTENT. -: 16: - 16 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED IN PART. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 29 TH OCTOBER, 2012. SD/ - SD/ - (JOGINDER SINGH) (R. C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 29 TH OCTOBER, 2012. CPU* 2526