DCIT, Ghaziabad V. Shri Naveen Jain, Ghaziabad

ITA 3601/DEL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7459 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 13-07-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 05-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DAM KANUNJAN A
• Keywords: Earning of tax free income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E: NEW DELHI BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER, AND SHRI CHANDRA MOHAN GARG, JUDI CIAL MEMBER ITA NO. 3601/DEL /2013 ASSESSMENT YEAR: 2009-10 THE DY. C.I.T. VS. SHRI NAVEEN JAIN CIRCLE 1 221, GANDHI NAGAR GHAZIABAD GHAZIABAD PAN : AFAPJ 8657 H [APPELLANT] [RESPONDENT] DATE OF HEARING : 13.07.2016 DATE OF PRONOUNCEMENT : 08.08.2016 APPELLANT BY : SHRI DAM KANUNJAN A, SR DR RESPONDENT BY : NONE ORDER PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE CIT(A), GHAZIABAD DATED 25/03/2013 PAS SED IN FIRST APPEAL NO. 1178/2011 FOR A.Y 2009-10. 2 ITA NO. 3601/DEL/2013 2. THE MAIN EFFECTIVE GROUNDS OF THE REVENUE READ A S UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS AN D CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF RS. 4,82,174 AND RS. 52,310/- BEING INTEREST PAID ON PE RSONAL LOANS WITHOUT APPRECIATING THE FACT THAT THE ASSESS EE HAD INVESTED BORROWED FUNDS WITH THE FIRMS IN WHICH HE IS A PARTNER AND THE PERCENTAGE OF INTEREST PAID IS HIGH ER THAN PREVAILING MARKET INTEREST. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS AN D CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF RS.55,68,090/- WITHOUT APPRECIATING THE FACT THAT T HE ASSESSEE HAS DEPOSIT CASH IN BANK ACCOUNTS AND NO EXPLANATIO N WAS GIVEN BY THE ASSESSEE AT THE TIME OF ASSESSMENT PRO CEEDINGS. 3. WHEN THE CASE WAS CALLED FOR HEARING, NEITHER TH E ASSESSEE NOR HIS REPRESENTATIVE APPEARED, AND THERE WAS NO ADJOU RNMENT APPLICATION ON HIS BEHALF. HOWEVER, ON CAREFUL PER USAL OF THE APPEAL RECORD, WE FIND IT APPROPRIATE TO DECIDE THE APPEAL EXPARTELY AND PROCEEDED TO DISPOSE OF THE SAME AFTER HEARING THE LD. COUNSEL OF THE REVENUE OF THE APPELLANT/REVENUE. 3 ITA NO. 3601/DEL/2013 GROUND NOS. 1 4. APROPOS GROUND NO. 1 THE LD. COUNSEL OF THE REVE NUE SUPPORTING THE ACTION OF THE A.O CONTENDED THAT PAYMENT OF INT EREST TO FINANCIAL INSTITUTIONS, LIKE GE MONEY, CHOLA MANDALAM AND IND IA BULLS, OTHER THAN BANKS CALL FOR DEDUCTION OF TDS U/S 194A OF THE INC OME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT], H ENCE DISALLOWANCE OF RS. 4,82,174/- WAS MADE. HE FURTHER SUBMITTED THAT THE INTEREST TO THE ASSESSEE CAN BE ALLOWED ON THE FUNDS INVESTED F OR EARNING INTEREST ON CAPITAL WITH THE FIRM ONLY AND NOT ON THE EARNIN G OF PARTNERS SHARE, WHICH IS EXEMPTED INCOME. THE LD. COUNSEL OF THE R EVENUE VEHEMENTLY POINTED OUT THAT THE LD. CIT(A) GRANTED RELIEF WITHOUT ANY BASIS. HENCE, THE IMPUGNED ORDER MAY BE SET ASIDE BY RESTORING THAT OF THE A.O. 5. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL AVAILABLE ON RECORD, FROM THE OPERATIVE PA RT OF THE LD. CIT(A)S ORDER, WE OBSERVE THAT AS PER CLAUSE X OF SECTION 44AB OF THE ACT, SHARE OF PROFIT OF A PARTNER OF A FIRM IN TOTA L INCOME OF THE FIRM EXCLUDED FROM HIS TOTAL INCOME U/S 10(2A) OF THE AC T. THEREAFTER, THE LD. CIT(A) HELD THAT THE ASSESSEE IS NOT CARRYING ON ANY SEPARATE 4 ITA NO. 3601/DEL/2013 BUSINESS BUT EVEN IF RECEIPT OF PROFIT SHARE FROM T HE FIRM, IN WHICH HE IS A PARTNER, ARE TO BE AGGREGATED, THE PROFIT FROM PARTNERSHIP FIRM BEING EXEMPT INCOME, WILL NOT BE INCLUDED AND THE A SSESSEE IS NOT UNDER THE AMBIT OF SECTION 44AB OF THE ACT. THE LD . COUNSEL OF THE REVENUE DID NOT CONTROVERT THIS LEGAL POSITION THAT HIS SHARE OF PROFIT FORM PARTNERSHIP FIRM DO NOT CONSTITUTE BUSINESS RE CEIPTS AND THE SHARE FROM PARTNERSHIP FIRM IS SEPARATELY MENTIONED IN TH E ITR FROM -3 UNDER THE HEAD EXEMPT INCOME. THUS WE ARE UNABLE TO SE E ANY AMBIGUITY OR PERVERSITY OR ANY OTHER VALID REASON TO INTERFER E WITH THE IMPUGNED ORDER ON THIS ISSUE AND WE UPHOLD THE SAME. 6. NEXT ISSUE IN GROUND NO. 1 IS REGARDING DELETION OF DISALLOWANCE OF RS. 51,310/- ON ACCOUNT OF DIFFERENTIAL RATE OF INTEREST BETWEEN INTEREST RATES USED FOR PAYMENT OF INTEREST [15%] A ND INTEREST RATE USED FOR RECEIPT OF INTEREST [12%]. 7. ON CAREFUL CONSIDERATION OF CONCLUSION DRAWN BY THE LD. CIT(A), WE NOTE THAT FOLLOWING THE RATIO OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TARA DEVI CORPORA TION LTD REPORTED AT 205 ITR 421 IT HAS BEEN HELD THAT WHEN THE FUNDS RA ISED FROM BORROWINGS HAVE BEEN USED FOR INVESTMENT IN PARTNER SHIP FIRM, IN WHICH 5 ITA NO. 3601/DEL/2013 HE IS A PARTNER AND THE SAME HAS BEEN USED GENUINEL Y FOR THE BUSINESS PURPOSES, THEN ACTUAL PAYMENT OF INTEREST ON THE BO RROWINGS FROM FINANCIAL INSTITUTIONS WOULD BE ALLOWABLE AND THE A.OS ACTION TO DISALLOW DIFFERENTIAL INTEREST OF 3% IS NOT SUSTAIN ABLE. CONSEQUENTLY, THE LD. CIT(A) DIRECTED THE A.O TO DELETE THE DISAL LOWANCE. WE ARE IN FULL AGREEMENT WITH THE CONCLUSION OF THE CIT(A). THUS WE UPHOLD THE SAME. ACCORDINGLY, GROUND NO. 1 IS DISMISSED. GROUND NO. 2 8. APROPOS GROUND NO. 2, THE LD. DR SUBMITTED THAT THE ASSESSEE COULD NOT SUBMITTED LEDGER CAPITA ACCOUNTS IN THE T HREE FIRMS IN WHICH HE WAS ONE OF HT PARTNERS AND HENCE THE A.O WAS QUI TE CORRECT IN TREATING THE SAME AS UNEXPLAINED. THE LD. COUNSEL OF THE REVENUE ALSO CONTENDED THAT THE ENTIRE CASH WITHDRAWAL CLAIMED T O HAVE BEEN MADE FROM THESE FIRM AND IN THE ABSENCE OF PROPER AND AC CEPTABLE VERIFICATION AND CONFIRMATION FROM THE FIRMS, LEDGE R AND OTHER PARTNERS APPROVAL THE AMOUNT WAS RIGHTLY TREATED A S HAVE BEEN NOT EXPLAINED. THE LD. COUNSEL OF THE REVENUE SUBMITTE D THAT THE IMPUGNED ORDER MAY BE SET ASIDE BY RESTORING THAT O F THE A.O. 6 ITA NO. 3601/DEL/2013 9. ON CAREFUL CONSIDERATION OF ABOVE, FROM THE RELE VANT OPERATIVE PART OF THE ORDER OF THE LD. CIT(A), WE NOTE THAT H E INDEPENDENTLY MADE VERIFICATION OF CASH BOOK, CASH FLOW CHART, CH ART OF RECONCILIATION LINKING THE IMPUGNED CASH DEPOSITS TO WITHDRAWAL MA DE FROM THE FIRMS ACCOUNTS OR OTHER BANK ACCOUNTS, LEDGER CAPITAL ACC OUNTS OF THE ASSESSEE IN RESPECTIVE THREE FIRMS, ASSESSMENT ORDE RS OF THREE RELEVANT FIRMS, FRAMED U/S 143(3) OF THE ACT, THEN HE HELD T HAT CASH DEPOSITS IS PROPERLY ACCOUNTED AND THE SAME IS ACCEPTABLE. THE LD. CIT(A) AFTER MENTIONING TABULATED CHART AND CONSIDERING THE EXPL ANATION OFFERED BY THE ASSESSEE ALSO HELD THAT THE AMOUNT WITHDRAWN FR OM ALL THREE PARTNERSHIP FIRMS HAS BEEN FULLY EXPLAINED IN CASH BOOK. IN VIEW OF THE ABOVE, WE ARE OF THE OPINION THAT THE ORDER OF THE LD. CIT(A) IS JUSTIFIED AND HAS BEEN PASSED ON THE BASIS OF COGEN T AND REASONABLE MATERIAL WHICH ALSO GETS STRONG SUPPORT FROM DOCUME NTARY EVIDENCE. THUS, WE ARE UNABLE TO SEE ANY VALID REASON TO INTE RFERE WITH SAME AND THEREFORE WE UPHOLD THE SAME. ACCORDINGLY, GROUND NO. 2 IS ALSO DISMISSED. 7 ITA NO. 3601/DEL/2013 10. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 08.08. 2016. SD/- SD/- (J.S. REDDY) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 08 TH AUGUST, 2016 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI