Shri Premchand Ratenchnad Bafana, Pune V. ITO, Ward 3(1), Pune

ITA 357/PUN/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76281 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 04-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L PATHADE
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 357/PN/2013 (ASSESSMENT YEAR 2006-07 ) SHRI PREMCHAND RATANCHAND BAFANA, 40/25, ROYAL CLASSIS, KARVE ROAD, PUNE 411004 PAN NO. ABGPB6271K .. APPELLANT VS. ITO, WARD-3(1), PUNE .. RESPONDENT ASSESSEE BY : SHRI SUNIL PATHAK REVENUE BY : SHRI P. L. PATHADE DATE OF HEARING : 24-03-2014 DATE OF PRONOUNCEMENT : 25-03-2014 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 17-09-2012 OF THE CIT(A)-II, PUNE RELATING TO ASSES SMENT YEAR 2006-07. 2. DISALLOWANCE OF INTEREST OF RS.4,90,036/- BY THE ASSESSING OFFICER AND UPHELD BY THE CIT(A) IS THE ONLY ISSUE RAISED BY TH E ASSESSEE IN THE GROUNDS BEFORE THE TRIBUNAL. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS AN INDIVIDUAL AND FILED HIS RETURN OF INCOME ON 31-10-2006 DECLARING TOTAL INCOME OF RS.30,490/-. DURING THE COURSE OF ASSESSMENT PROCE EDINGS THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS FOLLOWING 4 BUSINESS CONCERNS : 2 1. PREMCHAND FURNISHINGS 2. PREMCHAND FURNISHING BOUTIQUE 3. M/S. PREMCHAND RATANCHAND BAFANA 4. PREMCHAND TRANSPORT 3.1 HE NOTED FROM THE PROFIT AND LOSS ACCOUNT OF PR EMCHAND FURNISHINGS THAT THE ASSESSEE HAS DEBITED INTEREST OF RS.15,02, 257/-, THE DETAILS OF WHICH ARE AS UNDER : INTEREST PAID TO OTHERS : RS.10,81,203/- BANK INTEREST : RS. 4,21,054/- ---------------- TOTALRS.15,02,257/- ---------------- 3.2 HE NOTED THAT THE UNSECURED LOANS OUTSTANDING A S ON 31-03-2006 IS RS.1,00,86,487/- AND SECURED LOAN OUTSTANDING AS ON 31-03-2006 IS RS.15,86,411/-. THE TOTAL LOAN OUTSTANDING IS THUS RS.1,16,72,898/-. AS AGAINST THE SAME THE ASSESSEE HAD NEGATIVE CAPITAL BALANCE AS ON 31-03-2006 WHICH IS AT RS.38,07,701/-. HE, THEREFORE, DISALLO WED AN AMOUNT OF RS.4,90,036/- BY COMPUTING AS UNDER : NEGATIVE CAPITAL BALANCE X INTEREST PAID LOAN OUTSTANDING = 38,07,701 X 15,02,257/- 1,16,72,898 4. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE ASSE SSING OFFICER HAS TAKEN INTO CONSIDERATION THE DEBIT BALANCE OF THE C APITAL ACCOUNT. HOWEVER, HE HAS NOT CONSIDERED THE INTRODUCTION OF CAPITAL A MOUNTING TO RS.40 LAKHS DURING THE YEAR. IT WAS SUBMITTED THAT NO WITHDRAW AL OF ANY SUM FROM THE CAPITAL ACCOUNT WAS MADE AND THE DEBIT BALANCE IN T HE CAPITAL ACCOUNT HAD ARISEN DUE TO CONTINUOUS LOSSES. 3 4.1 SINCE THE ASSESSEE COULD NOT DEMONSTRATE THE SA ME BY FURNISHING THE DETAILS THEREOF AND HE ONLY FILED THE COPIES OF THE AUDITED ACCOUNTS OF PREMCHAND FURNISHINGS, THE CIT(A) WAS NOT CONVINCED WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE. ACCORDING TO HIM WHERE A PARTNER OR THE PROPRIETOR HAS OVER DRAWN HIS ACCOUNT AND INTEREST IS NOT CHARGED FROM SUCH ACCOUNT WHEREAS FIRM ITSELF MAKES SUBSTANTIAL INTER EST PAYMENT, THE DISALLOWANCE OF INTEREST PERTAINING TO THE AMOUNT O VER DRAWN BY THE PROPRIETOR/PARTNER CANNOT BE FAULTED. ACCORDING TO HIM, THE ASSESSEE HAS NOT BEEN ABLE TO DEMONSTRATE THE COMMERCIAL EXPEDIENCY FOR THE ENTIRE TRANSACTION SO AS TO JUSTIFY THE CLAIM MADE. RELYI NG ON VARIOUS DECISIONS THE LD.CIT(A) UPHELD THE DISALLOWANCE MADE BY THE ASSES SING OFFICER. 4.2 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 5. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. DURING THE C OURSE OF HEARING BEFORE US THE LD. COUNSEL FOR THE ASSESSEE FILED THE FOLLOWIN G CHART SHOWING NET LOSS DEBITED TO THE CAPITAL ACCOUNT DURING VARIOUS ASSES SMENT YEARS : SR.NO. FINANCIAL YEAR NET LOSS DEBITED TO CAPITAL ACCOUNT 1 2001-02 1305086.73 2 2002-03 427745.10 3 2003-04 577534.12 4 2004-05 6194609.25 5 2005-06 973011.20 TOTAL 9477986.40 5.1 WE FIND THE LD.CIT(A) UPHELD THE DISALLOWANCE O F INTEREST MADE BY THE AO ON THE GROUND THAT THE ASSESSEE HAS WITHDRAW N FROM HIS CAPITAL 4 ACCOUNT AND DIVERTED THE SAME FOR NON-BUSINESS PURP OSES. HOWEVER, THE FACTS REVEAL THAT DEBIT BALANCE IN THE CAPITAL ACCO UNT IS DUE TO LOSS SUFFERED BY THE ASSESSEE IN THE CASE OF PREMCHAND FURNISHINGS F OR WHICH THE CAPITAL ACCOUNT HAS SHOWN DEBIT BALANCE. THE VARIOUS DETAI LS FURNISHED BY THE ASSESSEE CLEARLY REVEAL THAT THERE IS NO DIVERSION OF FUNDS BY THE ASSESSEE FOR NON-BUSINESS PURPOSES AND THE SAME IS DUE TO LOSSES INCURRED BY THE SAID CONCERN FROM YEAR TO YEAR. THE LD.CIT(A) WITHOUT VERIFYING THE DETAILS HAS SIMPLY UPHELD THE DISALLOWANCE OF INTEREST MADE BY THE ASSESSING OFFICER BY OBSERVING THAT INTEREST BEARING BORROWINGS HAVE BEE N DIVERTED FOR INTEREST FREE ADVANCES TO RELATIVES AND PARTIES. SINCE THE GENUINENESS OF PAYMENT OF INTEREST IS NOT IN DISPUTE AND THE DISALLOWANCE WAS MADE ON THE PREMISES THAT INTEREST BEARING FUNDS HAVE BEEN DIVERTED FOR NON-B USINESS PURPOSES AND SINCE THE ASSESSEE HAS PROVED THAT NO SUCH INTEREST BEARING FUND HAS BEEN DIVERTED TOWARDS NON-BUSINESS PURPOSES AND THE DEBI T BALANCE IN THE CAPITAL ACCOUNT IS DUE TO CONSISTENT LOSS SUFFERED BY THE C ONCERN, THEREFORE, WE FIND MERIT IN THE ARGUMENT OF THE LD. COUNSEL FOR THE AS SESSEE THAT NO PART OF THE INTEREST CAN BE DISALLOWED. WE ACCORDINGLY SET-ASI DE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE DISA LLOWANCE. WE HOLD AND DIRECT ACCORDINGLY. GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED PRONOUNCED IN THE OPEN COURT ON 25-03-2014. SD/- SD/ - (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED 25 TH MARCH, 2014 SATISH 5 COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-II, PUNE 4. THE CIT-II, PUNE 5. D.R. A BENCH, PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE