The ITO, Ward-2(2), Ahmedabad V. Rashminbhai Kantilal Vakta, Ahmedabad

ITA 360/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5903 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-06-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 01-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PF JAIN

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI MUKUL SHRAWAT, JUDICIAL MEMBER AND SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 10/06/2010 DRAFTED ON: 1 1/06/2010 ITA NO.360/AHD/2008 ASSESSMENT YEAR : 2001-02 THE ITO AHMEDABAD WARD-2(2) AHMEDABAD VS. SHRI RASHMINBHAI KANTILAL VAKTA C/O.DINSEH PAPER TRADERS 195, DOSHIVAD NI POLE KALUPUR AHMEDABAD PAN/GIR NO. : AAJPV 6606 Q (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI K.MADHUSUDAN, SR.D.R. RESPONDENT BY: SHRI P.F. JAIN O R D E R PER SHRI MUKUL SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE WHI CH HAS EMANATED FROM THE ORDER OF THE LEARNED CIT(APPEALS)-VII, AHM EDABAD DATED 15/11/2007 AND THE ONLY GROUND RAISED IS IN RESPEC T OF DISALLOWANCE OF INTEREST EXPENSES OF RS.8,15,907/- WHICH WAS DELETE D BY THE FIRST APPELLATE AUTHORITY. 2. THIS APPEAL HAS A PAST HISTORY ON THE SAME ISSU E OF DISALLOWANCE OF INTEREST. THE MATTER WAS CARRIED UPTO THE STAGE OF SECOND APPEAL AND VIDE A COMMON ORDER OF ITAT AHMEDABAD C BENCH DA TED 18/02/2005 [ITA NOS.3640(IN THE CASE OF SMT.RANJANBEN B.VAKTA) & ITA NO.360/AHD/ 2008 ITO VS. SHRI RASHMINBHAI KANTILAL VAKTA ASST.YEAR - 2001-02 - 2 - 3641/AHD/2004(IN THE CASE OF SHRI RASHMINBHAI K.VAK TA) FOR A.Y.2001-02] THE MATTER WAS RESTORED BACK TO THE FI LE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE WHETHER THE B ORROWED MONEY HAS BEEN UTILIZED FOR GIVING ADVANCES, WITHOUT CHARGIN G INTEREST, THEN THE INTEREST TO THAT EXTENT WAS TO BE DISALLOWED. CON SEQUENCE THERE UPON VIDE IMPUGNED ORDER PASSED U/S.143(3) RWS 254 OF TH E I.T. ACT, 1961 DATED 29/12/2006, THE ASSESSING OFFICER HAS CARRIED OUT CERTAIN ENQUIRIES. IN COMPLIANCE THE ASSESSEE HAS FURNISHED THE DETAIL S OF INTEREST CLAIMED WITH THE NAMES OF THE PARTIES AS UNDER:- TO SARANGPUR BANK RS. 30,389/- TO MADUPURA BANK RS.2,27,681/- TO DINESH N DESAI RS.3,24,732/- TO SUMITRABEN SHAH RS. 5,678/- CHEQUE DISCOUNTING CHARGES TO SHROFF RS.2,37,427/- 3. THE ASSESSEE HAS ALSO FURNISHED THE DETAILS OF THE CLOSING BALANCE OF ADVANCES MADE TO TEN (10) PARTIES TOTALLING TO RS.31,32,895/-. ON THE BASIS OF THE SAID DETAILS, IT WAS VEHEMENTLY CONTES TED THAT ALL THOSE ADVANCES TO THOSE TEN PARTIES WAS OPENING DEBIT BAL ANCE AND ONLY IN THE ACCOUNT OF ONE PARTY, I.E. ADI RASAYAN LTD. THERE W AS AN ADDITION OF RS.4,60,000/- DURING THE YEAR, HOWEVER, IN RESPECT OF ALL OTHER PARTIES THERE WAS NO CHANGE IN THE OPENING AND THE CLOSING BALANCES AS NO FRESH ADDITION WAS MADE. THE NEXT PLANK OF THE SUBMISSIO N WAS THAT THE OPENING BALANCE OF THE TOTAL CREDITORS WAS RS.57,10 ,557/- AND THE CLOSING BALANCE OF THE SUNDRY CREDITORS WAS RS.38,57,850/-. IT WAS INFORMED THAT ITA NO.360/AHD/ 2008 ITO VS. SHRI RASHMINBHAI KANTILAL VAKTA ASST.YEAR - 2001-02 - 3 - ON THAT CREDIT BALANCES NO INTEREST WAS PAID, THERE FORE, THE SUBMISSION WAS THAT THE INTEREST-FREE FUNDS WERE OTHERWISE AVA ILABLE TO THE ASSESSEE. IT HAS ALSO BEEN PLACED ON RECORD THAT THE ASSESSEE HAS HIS OWN FUNDS AS A CREDIT BALANCE IN THE CAPITAL ACCOUNT AMOUNTING TO RS.11,88,358/- WHICH WAS ALSO AVAILABLE TO MAKE SUCH ADVANCES. THE ASSE SSING OFFICER WAS NOT CONVINCED AND HE HAS MADE ONE CHART TO DEMONSTR ATE THAT DURING THE YEAR TRANSACTIONS HAVE BEEN MADE IN THE ACCOUNTS OF CERTAIN PARTIES TO WHOM INTEREST-FREE ADVANCES WERE GIVEN AND THOSE TR ANSACTIONS WERE NOTHING BUT UTILIZATION OF BORROWED FUNDS. HE HAS ALSO MENTIONED THAT THROUGH-OUT THE YEAR THERE WAS DEBIT BALANCES IN TH E BANK ACCOUNT. FURTHER, ACCORDING TO HIM, IF ON ONE HAND THERE WER E TRADE CREDITORS TO WHOM NO INTEREST WAS PROVIDED, THEN ON THE OTHER HA ND THERE WERE TRADE DEBTORS TO WHOM NO INTEREST WAS PAID. IN THE RESU LT, HE HAS HELD THAT BORROWED FUNDS WERE ADVANCED TOWARDS INTEREST-FREE LOAN, HENCE, THE PROVISIONS OF SECTION 36(1)(III) WERE APPLICABLE ON THE CLAIM OF INTEREST OF RS.8,15,907/- WHICH WAS DISALLOWED. THE MATTER WAS CARRIED TO THE FIRST APPELLATE AUTHORITY. 4. THE LD.CIT(APPEALS) HAS EXAMINED THE POSITION OF ACCOUNTS AS ALSO THE THE BIFURCATION OF ACCOUNTS IN DEPTH. HE HAS ALSO STUDIED FEW DECISIONS SPECIALLY THE DECISION OF ITAT AHMEDABAD IN THE CASE OF M.RAVJI AND CO. VS. DY.CIT (ITA NO.1745/AHD/1995 ORDER DATED 23/01/2001). TO REBUT THE ALLEGATION OF THE ASSESS ING OFFICER THAT CERTAIN TRANSACTIONS HAVE BEEN MADE IN THOSE ACCOUNTS OUT O F THE BORROWED FUNDS, THE ASSESSEE HAS AGAIN FURNISHED THE DETAILS OF THO SE TEN PARTIES TOTALLING TO RS.31,32,895/- TO DEMONSTRATE THAT THERE WAS NO CHANGE IN THEIR ITA NO.360/AHD/ 2008 ITO VS. SHRI RASHMINBHAI KANTILAL VAKTA ASST.YEAR - 2001-02 - 4 - OPENING BALANCES AND THE BALANCES HAVE BEEN CARRIED OVER AS SUCH BARRING IN THE CASE OF M/S.ADI RASAYAN LTD. THAT TOO OF RS .4,60,000/-. IT WAS STRONGLY CONTESTED THAT THE ASSESSING OFFICER HAS W RONGLY APPRECIATED THE FACTS IN RESPECT OF THOSE PARTIES. AS FAR AS THE ADVANCES GIVEN TO CERTAIN PARTIES WITHOUT INTEREST THE ASSESSEE HAS FURNISHED A CHART TO DEMONSTRATE THE SOURCE OF THE FUNDS SO AS TO NEGATE THE FINDIN G OF THE ASSESSING OFFICER THAT THE BORROWED FUNDS WERE ADVANCED. ON DUE VERIFICATION, THE LEARNED CIT(APPEALS) VIDE PARAGRAPH NO.7 HAS GIVEN HIS FINDING IN FAVOUR OF THE ASSESSEE AS FOLLOWS:- 7. I HAVE CONSIDERED THE ISSUE. AT THE OUTSET, IT IS TO BE POINTED OUT THAT THE AO HAS NOT SHOWN ANY NEXUS BETWEEN IN TEREST BEARING FUNDS BORROWED BY THE ASSESSEE AND AMOUNT ADVANCED TO VARIOUS PARTIES WITHOUT INTEREST. IT IS ALSO TO BE POINTED OUT THAT IN MOST OF THE CASES NO NEW ADVANCES WERE MADE DURING THE YEAR . THEREFORE, AS PER DECISION OF I.T.A.T., AHMEDABAD BENCH IN THE CASE OF M.RAVJI & CO., WHICH HAS BEEN MENTIONED IN THE ORDE R OF I.T.A.T. IN APPELLANTS CASE, NO PART OF INTEREST CAN BE DIS ALLOWED. APART FROM THAT THE DETAILS MADE AVAILABLE BY THE ASSESSE E AND PERUSAL OF BANK STATEMENT SHOWS THAT ADVANCES MADE EVEN DURING THE YEAR ARE OUT OF NON-INTEREST BEARING FUNDS AVAILABLE WIT H THE ASSESSEE WHICH IS CLEARLY DISCUSSED IN DETAIL IN REPLY OF TH E ASSESSEE INCORPORATED ABOVE. IT IS ALSO NOTICED THAT EVEN T HE BALANCES IN OVERDRAFT ACCOUNT IN VARIOUS BANK HAS NOT INCREASED DURING THE YEAR AS THERE IS ONLY MINOR VARIATION IN THE OPENIN G OVERDRAFT BALANCE AND CLOSING OVERDRAFT BALANCE. EVEN THIS M INOR DIFFERENCE IS ON ACCOUNT OF PART OF INTEREST CHARGED BY THE BA NKS. EVEN THE ITA NO.360/AHD/ 2008 ITO VS. SHRI RASHMINBHAI KANTILAL VAKTA ASST.YEAR - 2001-02 - 5 - SCHEDULE OF SUNDRY CREDITORS SHOW THAT IN FACT THE CLOSING BALANCE IS EITHER MORE OR LESS THE SAME AS OPENING BALANCE OR IT HAS REDUCED. IN FACT, ASSESSEE HAD ITS WON CAPITAL BAL ANCE AS WELL AS OTHER FREE FUNDS AVAILABLE IN THE NATURE OF SUNDRY CREDITORS TO MAKE THESE ADVANCES. THUS, IN ABSENCE OF ANY NEXUS BETW EEN FUNDS BORROWED ON INTEREST AND ADVANCES MADE WITHOUT CHAR GING ANY INTEREST, NO PART OF INTEREST EXPENSES CAN BE DISAL LOWED AND THE DISALLOWANCE MADE BY THE AO IS DELETED. NOW THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. AS STATED IN THE BEGINNING ITSELF, THE ISSUE OF DISALLOWANCE OF INTE REST HAS TO BE SEEN IN THE LIGHT OF THE DECISION OF THE TRIBUNAL EARLIER GIV EN IN ASSESSEES OWN CASE VIDE ORDER DATED 18/02/2005(SUPRA), WHEREIN THE DIR ECTIONS WERE THAT ASSESSING OFFICER HAS TO EXAMINE WHETHER THE BORROW ED FUNDS HAVE BEEN UTILIZED FOR GIVING ADVANCE WITHOUT CHARGING INTERE ST. AS FAR AS THE ASSESSING OFFICER IS CONCERNED, HE HAS PROCEEDED ON THE PREMISE THAT SINCE THERE WERE DEBIT BALANCES IN THOSE ACCOUNTS, THEREFORE, THOSE COULD BE PRESUMED TO BE UTILIZED FOR ADVANCING INTEREST-F REE LOAN TO THE PARTIES IN QUESTION. EVEN HE HAS IGNORED THE FACT THAT TH ERE WERE TRADE CREDITORS AND THOSE FUNDS WERE ALSO AVAILABLE WITHOUT ANY BUR DEN OF INTEREST. IN ASSESSING OFFICERS VIEW THAT CONTENTION WAS EQUALI ZED BECAUSE THERE WERE TRADE DEBTORS ON WHICH AS WELL NO INTEREST WAS CHARGED. HOWEVER, LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE V EHEMENTLY CONTESTED THAT ONE HAS TO EXAMINE WHETHER THERE WERE SUFFICIE NT NON-INTEREST BEARING FUNDS AVAILABLE TO THE ASSESSEE WHICH COULD BE SAID TO BE UTILIZED ITA NO.360/AHD/ 2008 ITO VS. SHRI RASHMINBHAI KANTILAL VAKTA ASST.YEAR - 2001-02 - 6 - TOWARDS NON-INTEREST BEARING ADVANCES. FURTHER, LE ARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS VEHEMENTLY CONTE STED THAT THE AMOUNT WHICH WAS TRANSACTED DURING THE YEAR WAS ONLY RS.4, 60,000/- AND NOT THE ENTIRE AMOUNT AS ALLEGED BY THE ASSESSING OFFICER. IT WAS VEHEMENTLY CONTESTED THAT IN THE CAPITAL ACCOUNT THE ASSESSEE S OWN CAPITAL CREDIT BALANCE WAS AT RS.11,88,358/- AND IN ADDITION TO TH IS SAID CREDIT BALANCE, THERE WAS SUFFICIENT BALANCE OF CREDITORS WHICH WAS ALSO AVAILABLE TO THE ASSESSEE DURING THE ENTIRE ACCOUNTING PERIOD. WIT H THIS BACKGROUND IF WE EXAMINE THE FACTS OF THIS APPEAL IN THE LIGHT O F THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. REPORTED AS 221 CTR 435 (BOM.), THEN THE CONTROVERS Y SHALL DEFINITELY BE SETTLED IN FAVOUR OF THE ASSESSEE. THE ASSESSE E HAS DEMONSTRATED BEFORE THE REVENUE AUTHORITIES, RATHER THE LEARNED CIT(APPEALS) HAS ACCEPTED THOSE VERY FACTS, THAT THERE WERE SUFFICIE NT NON-INTEREST BEARING FUNDS AVAILABLE TO THE ASSESSEE DURING THE ENTIRE A CCOUNTING PERIOD WHICH CAN BE SAID TO BE ADVANCED TO THE SAID PARTIES HAVI NG NO BURDEN OF INTEREST. THE NEXT QUESTION ARISES THAT WHETHER A S PER THE DIRECTIONS OF THE RESPECTED CO-ORDINATE BENCH THE ASSESSING OFFI CER HAS PROVED THAT THE INTEREST-BEARING LOANS, I.E. BANK LOANS HAVE AC TUALLY BEING DIVERTED TOWARDS NON-INTEREST BEARING ADVANCES. THERE IS NO SUCH FINDING OF THE ASSESSING OFFICER THAT ON EXAMINATION IT WAS FOUND THAT ON THOSE DATES WHEN THE LOAN WAS AVAILED THE SAME WAS PHYSICALLY D IVERTED TOWARDS THOSE ALLEGED NON-INTEREST BEARING LOANS. IN THE ABSENCE OF SUCH DIRECT NEXUS, IT IS NOT FAIR ON OUR PART TO ACCEPT THE WID E PROPOSITION OF THE ASSESSING OFFICER, WHO HAS NOT PROCEEDED AS PER THE DIRECTIONS OF THE TRIBUNAL. THEREFORE, IF THE ASSESSING OFFICER HAS ADOPTED AN OVERALL VIEW ITA NO.360/AHD/ 2008 ITO VS. SHRI RASHMINBHAI KANTILAL VAKTA ASST.YEAR - 2001-02 - 7 - OF THE AVAILABILITY OF FUNDS, THEN A PRESUMPTION CA N ALSO GO IN FAVOUR OF THE ASSESSEE THAT THE OWN FUNDS OR NON-INTEREST BEA RING FUNDS WERE DIVERTED TOWARDS THE INTEREST-FREE ADVANCES, AS LAI D DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD.(SUPRA). IN VIEW OF THIS, WE HEREBY AFFIRM TH E FINDINGS ON FACTS OF THE LEARNED CIT(APPEALS) AND CONFIRM THE VIEW TAKEN BY HIM. THUS, GROUND OF THE REVENUE IS DISMISSED. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 18/ 06 /2010. SD/- SD/- ( D.C. AGRAWAL) ( MUKUL SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 18 / 06 /2010 T.C. NAIR, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-VII, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD