Rakesh Jain, Ambala Cantt. V. ITO, Ambala

ITA 37/CHANDI/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5393 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 17-03-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 12-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: RAJEEV GOEL
• Keywords: Commercial expediency; Set aside
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI D.K.SRIVASTAVA,ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.37/CHD/2011 ASSESSMENT YEAR: 2007-08 SHRI RAKESH JAIN VS. THE ITO, WARD-2, THROUGH HIS LEGAL HEIR AMBALA CANTT. SMT. SARITA JAIN PROP J.S. EXPORTS, AMBALA CANTT. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJEEV GOEL RESPONDENT BY: SMT. SARITA KUMARI ORDER PER SUSHMA CHOWLA, JM THE APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A), PANCHKULA DATED 8.11.2010 RELATING TO ASSESSMENT YE AR 2007-08 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. A CT, 1961. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THAT AUTHORITIES BELOW HAS ERRED IN LAW AND FACTS I N MAKING A DISALLOWANCE OUT OF INTEREST PAID ON PACKING CREDIT AND OTHER LOANS RAISED FORBS AMOUNTING RS. 1,91,815/- BEING INTEREST NOT CHARGED ON ADVANCES OF RS. 19,08,610/- U/S 36(1)(III) OF TH E INCOME TAX ACT. 2. THAT AUTHORITIES BELOW HAS ERRED IN LAW AND FACTS I N APPLYING THE PROVISO TO S.36(I)(III) WITHOUT APPRECIATING THAT NO LOAN WAS RAISED FOR PURCHASE O F PLOT. 2 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF EXPORT OF SCIENTIFIC AND EDUCATIONAL GO ODS. THE ASSESSEE IS CARRYING ON THE BUSINESS AS SOLE PROPRIETOR UNDER T HE NAME AND STYLE OF M/S J.S.EXPORTS. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE AO NOTED THE ASSESSEE TO HAVE DECLARED THE LOANS AND A DVANCES TO THE TUNE OF RS.2062970/-. IT INCLUDED CHIT-FUND ADVANCE OF RS. 154360/- AND THE BALANCE ADVANCES WERE TO THE TUNE OF RS.1908610/-. THE ASSESSEE HAD SHOWN ADVANCE FOR PURCHASE OF PLOT AT RS.1334117/-, WHICH AS PER THE AO WAS NOT PUT TO USE. IN REPLY, THE ASSESSEE SUBMITT ED THAT THE PURPOSE FOR THE SAID PURCHASE OF THE PLOT WAS FOR BUSINESS EXPE DIENCY. IT WAS FURTHER POINTED OUT THAT IT WAS THE CASE OF A SOLE PROPRIET OR AND ASSESSEE HAD WITHDRAWN HIS OWN CAPITAL AND THERE WAS NO MERIT IN DISALLOWING ANY PART OF THE INTEREST EXPENDITURE. THE AO, IN VIEW OF TH E RATIO LAID DOWN BY HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT V M/S AB HISHEK INDUSTRIES LTD. (286 ITR 1) (P&H) COMPUTED THE DISALLOWANCE OF INTEREST TO THE TUNE OF RS.191815/- WHICH WAS ADDED TO THE INCOME OF THE ASSESSEE. BEFORE CIT(A), THE ASSESSEE FURNISHED WRITTEN SUBMISSIONS IN RESPECT OF VARIOUS AMOUNTS OUTSTANDING UNDER THE HEAD LOANS AND ADVANC ES AND EXPLAINED THAT THE SAID ADVANCES WERE MADE IN THE COURSE OF C ARRYING ON THE BUSINESS AND THE TOTAL CAPITAL BALANCE OF THE ASSES SEE WAS RS.31,80,000/- WHICH WAS SUFFICIENT TO COVER THE SAID ADVANCES MAD E TO THE PARTIES AND FOR PURCHASE OF PLOT. THE SAID SUBMISSIONS OF THE ASSESSEE FILED BEFORE THE CIT(A) WERE CONFRONTED TO THE AO WHO FURNISHED REMAND REPORT AGAINST THE SAME. THE REPLY OF THE ASSESSEE IS REP RODUCED UNDER PARA 4.1 AT PAGES 12 TO 15 OF THE APPELLATE ORDER. THE REMA ND REPORT OF THE AO IS REPRODUCED UNDER PARA 4.2 AT PAGES 15 TO 17 OF THE APPELLATE ORDER. THEREAFTER, THE COUNTER REPLY OF THE ASSESSEE IS UN DER PARA 4.3 AT PAGES 17 AND 18 OF THE APPELLATE ORDER. THE CIT(A) VIDE PAR A 4.4 REJECTED THE PLEA OF THE ASSESSEE BOTH IN CONNECTION WITH THE ADVANCE FOR PLOT OF LAND AND 3 THE OTHER ADVANCES AND UPHELD THE DISALLOWANCE MADE BY THE AO U/S 36(1)(III) OF THE ACT. THE ASSESSEE IS IN APPEAL A GAINST THE AFORESAID ORDER OF THE CIT(A). 4. THE LD. AR FOR THE ASSESSEE DREW OUR ATTENTION T O THE BALANCE SHEET AND OTHER SCHEDULES PLACED AT PAGES 5-9 OF THE PAPE R BOOK. IT WAS POINTED OUT BY THE LD. AR THAT THE LIST OF LOANS AND ADVANC ES AS PER SCHEDULE 10 TO THE BALANCE SHEET IS ANNEXED AT PAGE 9 OF THE PAPER BOOK. IT WAS FURTHER POINTED OUT THAT AS EVIDENT FROM THE CAPITAL ACCOUN T OF THE ASSESSEE PLACED AT PAGE 7 OF THE PAPER BOOK, THE OPENING BAL ANCE IN THE CAPITAL ACCOUNT WAS RS.31,16,099/- AND THE CLOSING BALANCE WAS RS.31,79,087/-. THE PLEA OF THE LD. AR WAS THAT THE TOTAL INTEREST FREE ADVANCES WERE TO THE TUNE OF RS.19,08,610/- AND IN CASE THE CAPITAL OF THE ASSESSEE IS APPLIED, THE TRANSACTION BEING WITH HIMSELF AND AFT ER ADJUSTMENTS, THERE IS NO MERIT IN THE AFORESAID DISALLOWANCE OUT OF INTER EST ACCOUNT. IT WAS FURTHER POINTED OUT BY THE LD. AR THAT THE INTEREST DURING THE YEAR UNDER CONSIDERATION HAD BEEN PAID ON THE PACKING CREDIT L IMIT RAISED BY THE ASSESSEE. IN THE CONCLUSION LD. AR SUBMITTED THAT THE ASSESSEE COULD NOT BE PENALIZED FOR NON PASSING OF THE ENTRIES OF ADJU STMENTS OF LOANS AND ADVANCES BEING DEBITED TO THE CAPITAL ACCOUNT. FUR THER RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE HON'BLE SUPREM E COURT IN MUNJAL SALES CORPORATION V CIT (298 ITR 298) (S.C) AND SM T.TARA DEVI V ITO (2000) 68 TTJ (JD) 361. 5. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON TH E ORDER OF CIT(A) AND POINTED OUT THAT THE ASSESSEE HAS FAILED TO BRING ON RECORD ANY EVIDENCE TO PROVE THE COMMERCIAL EXPEDIENCY OF ADVANCING THE AFORESAID LOANS. 6. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. THE 4 ASSESSEE HAD MADE THE UNDER MENTIONED ADVANCES OF R S.19,08,610/- : I) ADVANCE FOR PURCHASE OF PLOT RS.13.34.117/- II) ADVANCE TO BHUSHAN KUMAR RS.1,00,000/- III) ADVANCE TO TARSEM MONGA RS.2,00,000/- IV) ADVANCE TO JAINSONS & SONS RS.2,57,699/- 7. THE SUBMISSION OF THE ASSESSEE IN RESPECT OF THE ADVANCE FOR PURCHASE OF PLOT WAS THAT THE SAID PLOT WAS PURCHAS ED FOR FACTORY AND AS NO CONSTRUCTION HAD TAKEN PLACE, THE SAME WAS NOT P UT TO USE. HOWEVER, THE INVESTMENT IN THE SAID PLOT WAS MADE FOR ESTABL ISHING MANUFACTURING UNIT IN FUTURE. THE ASSESSEE HAD TAKEN NO LOAN DIR ECTLY FOR THE PURCHASE OF THE SAID PLOT OF LAND. THE LOAN TO SHRI BHUSHAN KUMAR AND DR.TARSEM MONGA WERE CLAIMED TO HAVE BEEN MADE BY THE ASSESSE E, WHICH WERE RECEIVED BACK IN THE SUCCEEDING YEAR. THE REASON F OR MAKING THE AFORESAID ADVANCES WAS AGAIN FOR THE PURCHASE OF PR OPERTY FOR BUSINESS. HOWEVER, THE ASSESSEE HAS FAILED TO FILE ANY EVIDEN CE ON RECORD IN THIS REGARD. NO EVIDENCE HAS BEEN FURNISHED BEFORE US A LSO IN RESPECT OF THE COMMERCIAL EXPEDIENCY CLAIM OF THE ASSESSEE. FURTH ER, A SUM OF RS.2,57,699/- WAS CLAIMED TO BE PAID ON BEHALF OF M /S JAINSONS & SONS, WHICH WAS THE PARENTAL FIRM OF THE ASSESSEE, IN ORD ER TO DISCHARGE PREVIOUS LIABILITY OF THE SAID FIRM. IN RESPECT OF THE ABOVESAID INTEREST FREE ADVANCES MADE BY THE ASSESSEE, IT WAS FURTHER EXPLAINED THAT NO LOAN WAS RAISED FOR ADVANCING THE ABOVESAID AMOUNTS AND ALSO THE CAPITAL OF THE SOLE PROPRIETOR WAS SUFFICIENT TO COVER THE AFO RESAID ADVANCES. THE ASSESSEE CLAIMED THAT MERELY BECAUSE CERTAIN ADJUST MENT ENTRIES WERE NOT MADE IN THIS REGARD VIS--VIS THE CAPITAL ACCOUNT O F THE SOLE PROPRIETOR, NO DISALLOWANCE OF INTEREST U/S 36(1)(III) IS WARRA NTED AS THE INTEREST DEBITED TO THE PROFIT & LOSS ACCOUNT WAS ON ACCOUNT OF THE PACKING LIMITS RAISED BY THE ASSESSEE, WHICH WAS DIRECTLY A TTRIBUTABLE TO THE BUSINESS CARRIED ON BY THE ASSESSEE. 5 8. ON THE PERUSAL OF THE RECORD, WE FIND THAT THE F IRST ADVANCE FOR THE PURCHASE OF PLOT TOTALING RS.13,34,117/- IS CLAIMED TO HAVE BEEN MADE FOR ESTABLISHING A FACTORY IN THE SAID PLOT OF LAND . AS AGAINST THE SAID ADVANCE OF RS.13,34,117/-, THE OPENING BALANCE IN T HE CAPITAL ACCOUNT OF THE ASSESSEE STANDS AT RS.31,16,099/-. IN THE FIRST INSTANCE WHERE THE ASSESSEE HAS MADE THE INVESTMENT FOR THE PURCHASE O F PLOT WHICH IN TURN IS TO BE UTILIZED FOR THE ESTABLISHMENT OF MANUFACT URING UNIT, INTEREST PAID ON SECURED LOANS NOT ATTRIBUTABLE TO THE AFORE SAID INVESTMENT MADE IN THE PURCHASE OF PLOT OF LAND, CANNOT BE DISALLOW ED. THE PRINCIPLES LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COUR T IN ABHISHEK INDUSTRIES LTD.(SUPRA) ARE NOT APPLICABLE TO THE FA CTS OF THE PRESENT CASE BEFORE US WHERE THE INVESTMENT IS MADE FOR THE PURC HASE OF PLOT OF LAND FOR SETTING UP MANUFACTURING UNIT AND HENCE TESTS O F COMMERCIAL EXPEDIENCY SATISFIED. IT IS NOT THE CASE OF THE RE VENUE THAT THE SAID PLOT OF LAND IS RESIDENTIAL IN NATURE. FURTHER, WE FIND MERIT IN THE ALTERNATE PLEA OF THE ASSESSEE THAT THIS BEING THE CASE OF SO LE PROPRIETOR, THE CAPITAL ACCOUNT OUTSTANDING IN THE BOOKS OF ACCOUNT OF HIS BUSINESS IS A REFLECTION OF THE FUNDS AVAILABLE WITH HIM WHICH AR E INTEREST FREE AND IF PART OF THE SAID FUNDS ARE UTILIZED FOR THE PURPOSE OF INVESTMENT IN THE PURCHASE OF THE SAID PLOT OF LAND, NO PART OF THE I NTEREST EXPENDITURE CAN BE SAID TO BE ATTRIBUTABLE TO SUCH INVESTMENT. ACC ORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(A) IN THIS REGARD AND DIRECT T HE AO TO DELETE THE INTEREST COMPONENT RELATABLE TO INVESTMENT OF RS.13 ,34,117/-. 9. SIMILARLY, THE AMOUNT OUTSTANDING AGAINST M/S JA INSONS & SONS OF RS.257,699/- IS ON ACCOUNT OF DISBURSING THE LIABIL ITY OF THE PARENTAL CONCERN OF THE ASSESSEE AND IS IN THE NATURE OF A W ITHDRAWAL BY THE ASSESSEE, WHICH IS REFLECTED IN HIS BALANCE SHEET, BEING A SOLE PROPRIETARY. THE SAME IS ALSO IN THE NATURE OF CAP ITAL WITHDRAWN BY THE 6 ASSESSEE AND MERELY BECAUSE AN ENTRY TO THE EFFECT HAS NOT BEEN PASSED, IT DOES NOT DISENTITLE THE ASSESSEE TO CLAIM INTEREST EXPENDITURE, WHICH IN TURN IS FOR THE PURPOSE OF BUSINESS. ACCORDINGLY, WE DIRECT THE AO TO DELETE THE DISALLOWANCE OF INTEREST ATTRIBUTABLE TO SUCH ADVANCE OF RS.257,699/-. 10. NOW COMING TO THE ADVANCES MADE TO TWO PARTIES I.E. SHRI BHUSHAN KUMAR AND DR.TARSEM MONGA. THE ASSESSEE CLAIMS THA T THE SAID ADVANCES WERE MADE FOR THE PURCHASE OF PLOT AND AS THE DEAL DID NOT GO THROUGH, THE AMOUNT WAS REFUNDED IN THE SUCCEEDING YEAR. HOWEVER, THE ASSESSEE NEITHER BEFORE THE AUTHORITIES BELOW NOR B EFORE US HAS PRODUCED ANY EVIDENCE IN RESPECT OF ITS CLAIM OF COMMERCIAL EXPEDIENCY. IN THE ABSENCE OF THE SAME, WE ARE IN CONFORMITY WITH THE ORDERS OF THE AUTHORITIES BELOW, IN APPLYING THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT V ABHISHEK INDUSTRIES L TD. (SUPRA). ACCORDINGLY, THE DISALLOWANCE OF INTEREST U/S 36(1) (III) OF THE ACT IN RESPECT OF ADVANCE OF RS.3,00,000/- IS UPHELD. GRO UND OF APPEAL RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF JUNE, 2011. SD/- SD/- (D.K.SRIVASTAVA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 21 ST JUNE, 2011 POONAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 7 BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH