Sh. Hari Shankar Agarwal, Agra V. A.C.I.T., Circle-4(1), Agra

ITA 371/AGR/2013

• Counselvise Citation: 37120314 RSA 2013
• Duration Of Justice: 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 10-02-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 20-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ATHESHAM ANSARI
• Assessee Lawyers: RAJENDRA SHARMA
• Keywords: Business expenditure; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI PRAMOD KUMAR, ACCOUNTANT MEMB ER ITA NO. 371/AGRA/2013 ASST. YEAR : 2009-10 SHRI HARI SHANKAR AGARWAL, VS. A.C.I.T., 4(1), A GRA 10, NEHRU NAGAR, AGRA. (PAN: AANPA 2747 F) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJENDRA SHARMA, ADVOCATE RESPONDENT BY` : SHRI ATHESHAM ANSARI, JR. D.R. DATE OF HEARING : 10.02.2014 DATE OF PRONOUNCEMENT : 14.02.2014 ORDER PER BHAVNESH SAINI, J.M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. CIT(A)-II, AGRA DATED 16.09.2013 FOR THE ASSESSMENT YEAR 2009- 10, CHALLENGING THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE ADDITION OF RS.1,0 6,800/- U/S. 36(1)(III) OF THE IT ACT. 2. THE AO FOUND THAT THE ASSESSEE HAS GIVEN INTERES T FREE LOAN TO THREE PERSONS; (I) SHRI JITENDRA AGARWAL RS.6,00,000/-; (II) SHRI VIRENDRA KUMAR AGARWAL RS.2,40,000/- AND (III) SHRI VIRENDRA KUMAR AGARWAL , HUF RS.50,000/-, TOTALING TO RS.8,90,000/-. THE ABOVE PERSONS ARE SONS OF THE AS SESSEE. THE ASSESSEE SUBMITTED THAT THESE LOANS HAVE BEEN GIVEN BY HIM AS INTEREST FREE LOAN AT THE TIME OF THEIR ITA NO. 371/AGRA/2013 2 NEEDS. THE ASSESSEE OVER A PERIOD OF TIME IN HIS LI FE HAS EARNED SOME INCOME AND A VERY LITTLE PART OF IT HAS BEEN GIVEN TO HIS OWN SO NS AS INTEREST FREE LOANS. IT WAS ALSO EXPLAINED THAT IT IS THE DISCRETION OF THE ASSESSEE TO CHARGE OR NOT TO CHARGE INTEREST FROM ANYONE. THEREFORE, NO ADVERSE VIEW CAN BE TAKE N FOR NOT CHARGING INTEREST FROM ABOVE PERSONS. IT WAS SUBMITTED THAT THERE IS NO NEXUS BETWEEN THE LOAN TAKEN ON INTEREST AND INTEREST FREE LOANS GIVEN TO ABOVE PERSONS. FUNDS ARE TAKEN FROM VARIOUS SOURCES AS AND WHEN REQUIREMENT ARISES AS T HE SOLE DISCRETION OF THE PERSON CONDUCTING BUSINESS. THE AO, HOWEVER, DID NOT ACCEP T THE CONTENTION OF THE ASSESSEE BECAUSE THE LOANS WERE GIVEN INTEREST FREE TO FAMILY MEMBERS WITH NO COMMERCIAL EXPEDIENCY. THE AO EXAMINED WHETHER THE ASSESSEE IS ENTITLED TO CLAIM THE ENTIRE AMOUNT OF INTEREST PAID BY HIM ON THE BORROWED FUNDS AS BUSINESS EXPENDITURE. THE AO FOUND THAT WHEN INTEREST IS PAY ABLE ON BORROWED FUNDS, PROPORTION TO SUCH AMOUNT TO LOAN GIVEN TO HIS SONS IS NOT AVAILABLE. THE AO HELD THAT SUCH FUNDS COULD HAVE BEEN USED BY THE ASSESSE E. THE AO WAS OF THE OPINION THAT IF THE ASSESSEE HAS SUFFICIENT CAPITAL OF HIS OWN, HE WOULD NOT HAVE REQUIRED BORROWINGS THEREBY PREJUDICING HIS OWN BUSINESS INT EREST. HE HAS, THEREFORE, CONSIDERED THAT THE INTEREST IS TO BE DISALLOWED OR TO BE RESTRICTED U/S. 36(1)(III) OF THE IT ACT AND ACCORDINGLY, MADE ABOVE ADDITION. TH E ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) THAT SIMILAR ISSUE CAME UP BEFORE TH E TRIBUNAL IN THE CASE OF SAME ASSESSEE IN ASSESSMENT YEAR 2008-09 AND VIDE ORDER DATED 20.07.2012, THE ADDITION HAS BEEN DELETED. THE LD. CIT(A), HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ITA NO. 371/AGRA/2013 3 ASSESSEE AND ALSO CONFIRMED THE ADDITION. THE LD. C IT(A) WAS OF THE VIEW THAT THE FUNDS BORROWED HAS BEEN THOUGH UTILIZED IN BUSINESS , BUT BY KEEPING BORROWED FUNDS OUTSTANDING AND PAYING INTEREST, BUSINESS FUN D HAS BEEN USED BY THE ASSESSEE TO GIVE INTEREST FREE LOANS TO HIS SONS FOR THEIR P ERSONAL NEEDS, HENCE, IT AMOUNTED TO DIVERSION OF INTEREST FUNDS OF BUSINESS WITHOUT ANY COMMERCIAL EXPEDIENCY. THE APPEAL OF THE ASSESSEE WAS, ACCORDINGLY, DISMISSED. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE ORDER OF THE ITAT, AGRA BENCH IN THE CASE OF SAME ASSESSEE IN PRECEDING ASS ESSMENT YEAR 2008-09 IN ITA NO. 44/AGRA/2012 DATED 20.07.2012, IN WHICH ON IDEN TICAL FACTS, ADDITION HAS BEEN DELETED. COPY OF THE ORDER IS PLACED ON RECORD. HE HAS ALSO REFERRED TO BALANCE SHEET OF THE YEAR UNDER CONSIDERATION AND SUBMITTED THAT THE ASSESSEE HAS OWN CAPITAL OF RS.2,53,96,112/- AND ALSO HAVE INTEREST FREE LOANS AVAILABLE IN A SUM OF RS.15,00,000/- FROM M/S. CRB CAPITAL LTD. AND RS.10 ,03,452/- FROM CRB CORPORATION LTD. HE HAS SUBMITTED THAT IF A SMALL A MOUNT OF RS.8,90,000/- IS GIVEN TO THE SONS OF THE ASSESSEE FROM OWN CAPITAL AND IN TEREST FREE LOANS, THERE IS NO QUESTION OF DISALLOWANCE OF INTEREST U/S. 36(1)(III ) OF THE IT ACT. HE HAS ALSO SUBMITTED THAT THE AO HAS NOT PROVED ANY NEXUS BETW EEN THE BORROWED FUNDS AND INTEREST FREE LOANS GIVEN TO ABOVE PERSONS. HE HAS SUBMITTED THAT THE ISSUE IS ITA NO. 371/AGRA/2013 4 COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF I TAT, AGRA BENCH IN THE CASE OF SAME ASSESSEE FOR PRECEDING ASSESSMENT YEAR 2008-09 . 4. ON CONSIDERATION OF THE ABOVE FACTS, WE ARE OF T HE VIEW, THE ADDITION IS LIABLE TO BE DELETED. IN PRECEDING ASSESSMENT YEAR 2008-09 , ITAT, AGRA BENCH IN THE CASE OF SAME ASSESSEE ON IDENTICAL FACTS VIDE ORDER DATED 20.07.2012 DELETED THE SIMILAR ADDITION. THE FACTS AND FINDINGS GIVEN IN P ARA 9 TO 10 ARE REPRODUCED AS UNDER : GROUND NO. 5 : 5 THAT THE AUTHORITIES BELOW HAVE ERRED ON FACTS AND IN LAW WHILE DISALLOWING OF THE AMOUNT OF RS. 6,52,857/- U /S 36(I)(III) OF THE INCOME TAX ACT, OUT OF THE TOTAL AMOUNT OF INTEREST PAID BY THE ASSESSEE. WHILE SUSTAINING THE ADDITION AT RS. 6,52 ,857/- THE AUTHORITIES BELOW HAVE COMPLETELY IGNORED THAT THE ASSESSEE HAS NOT GIVEN THE AMOUNT OF RS. 1,13,44,044/- TO THE HUF OF HIM OUT OF BORROWED FUNDS AND WERE GIVEN OUT OF ACCUMULATED I NCOME WHICH CANNOT BE SAID TO HAVE BEEN INVESTED OUT OF THE BOR ROWED FUNDS, NO DISALLOWANCE U/S 36 (I)(III) OF THE I.T. ACT IS CAL LED FOR, ADDITION MADE AT RS. 652857/- BY THE AO AND SUSTAINED BY THE CIT (APPEALS) IS LIABLE TO BE DELETED. 9. THE AO MADE DISALLOWANCE OF RS.6,52,857/- U/S. 3 6(1)(III) OF THE IT ACT. IT WAS NOTED BY THE AO THAT THE ASSESSEE HAD TAKEN INT EREST BEARING LOANS ON WHICH INTEREST @ 12% WAS PAID. HOWEVER, THE ASSESSEE HAD GIVEN RS.1,13,44,044/- TO HIS HUF. THE AO HELD THAT THE LOAN WAS NOT GIVEN BY THE ASSESSEE FOR ANY BUSINESS CONSIDERATION. ALSO THE AO NOTED THAT THE ASSESSEE DURING THE YEAR HAD PAID INTEREST OF RS.11,64,483/- ON THE BORROWED FUNDS. B Y REFERRING TO CERTAIN CASE LAWS, THE AO HELD THAT THE ASSESSEE WAS NOT ENTITLED FOR FULL ALLOWANCE OF INTEREST AS CLAIMED BY HIM U/S. 36(1)(III) OF THE ACT AS THE FU NDS ADVANCED TO HIS HUF WERE NOT FOR ANY BUSINESS CONSIDERATION AND ACCORDINGLY, MAD E THE ADDITION OF RS.6,52,857/- . ITA NO. 371/AGRA/2013 5 9.1 THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT(A) AND HIS WRITTEN SUBMISSION IS INCORPORATED IN THE APPELLATE ORDER I N WHICH THE ASSESSEE BRIEFLY EXPLAINED THAT THE AO HAS NOT CO-RELATED THE INTERE ST PAYMENT WITH BORROWED FUNDS. THE ASSESSEE HAS PAID INTEREST AND RECEIVED PART IN TEREST. THE DETAILS OF SAME HAVE BEEN GIVEN AT PAGE 18 OF THE PAPER BOOK, AS NOTED I N GROUND NO. 3 & 4 ABOVE. FURTHER, THE ASSESSEE HAS SUFFICIENT CAPITAL INTERE ST-FREE FUNDS AVAILABLE WITH THE ASSESSEE. THEREFORE, NO ADDITION COULD BE MADE. THE LD. CIT(A), HOWEVER, CONFIRMED THE ADDITION. HIS FINDINGS IN PARA 5.3 OF THE APPELLATE ORDER READ AS UNDER : 5.3. I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE AND I AM OF THE OPINION THAT THE ASSESSEE AND HIS H UF ARE TWO SEPARATE LEGAL ENTITIES AND THEY ARE NOT ONE AND TH E SAME AS ARGUED. THE ASSESSEE HAS MADE OUT NO CASE AS TO FOR WHICH B USINESS CONSIDERATION THE FUNDS WERE DIVERTED TO HUF, PARTI CULARLY IN VIEW OF THE FACT THAT THE ASSESSEE WAS HIMSELF INCURRING IN TEREST LIABILITY. THE BUSINESS EXPEDIENCY DEMANDED THAT THE ASSESSEE SHOU LD HAVE TAKEN BACK THE FUNDS FROM THE HUF WHEN NEEDED, INSTEAD OF BORROWING FUNDS AND PAYING INTEREST THEREON. THEREFORE, I AM OF THE OPINION THAT THE DISALLOWANCE HAS RIGHTLY BEEN MADE BY THE AO AN D THE SAME IS UPHELD. 10. BOTH THE PARTIES SUBMITTED THAT THE ISSUE IS TH E SAME AS IS ARGUED IN GROUND NO. 3 & 4 ABOVE. ON CONSIDERATION OF THE ABOVE FACT S ON THIS ISSUE, WE FIND THAT THE DECISION GIVEN ON GROUNDS NOS. 3 & 4 ALSO APPLIES T O THE FACTS OF THIS CASE ON THIS GROUND. THE ASSESSEE HAS SUFFICIENT CAPITAL, PROFIT AND INTEREST-FREE FUNDS AVAILABLE WITH HIM FOR THE PURPOSE OF INVESTMENT. NO NEXUS BE TWEEN THE BORROWED FUNDS AND INTEREST FREE FUNDS HAS BEEN ESTABLISHED BY THE AO ON RECORD. THEREFORE, THE ADDITION WOULD BE UNJUSTIFIED IN THE YEAR UNDER CON SIDERATION. CONSIDERING THE FINDING GIVEN ON GROUND NO. 3 & 4 AND THE FACTS OF THIS ISSUE, WE DO NOT FIND ANY JUSTIFICATION TO SUSTAIN THE ADDITION. ACCORDINGLY, THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE ARE SET ASIDE AND THE ADDITION IS DELETED. IN THE RESULT, GROUND NO. 5 OF APPEAL OF THE ASSESSEE IS ALLOWED. NO OTHE R POINT IS ARGUED OR PRESSED. IN THE AFORESAID ORDER, ON GROUND NO. 3 AND 4 AS R EFERRED TO ABOVE, THE TRIBUNAL, HAS RELIED UPON THE DECISION OF HONBLE S UPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION VS. CIT, 298 ITR 298, IN W HICH IT WAS HELD ITA NO. 371/AGRA/2013 6 HELD ALSO, THAT SINCE THE OPENING BALANCE OF THE PROFITS OF TH E ASSESSEE-FIRM AS ON APRIL 1, 1994, WAS RS.1.91 CROR ES, AND THE PROFITS WERE SUFFICIENT TO COVER THE LOAN GIVEN TO A SISTER CONCERN OF RS.5 LAKHS ONLY, THE APPELLATE TRIBUNAL OUGHT TO HAVE HE LD THAT THE LOAN GIVEN WAS FROM THE ASSESSEES OWN FUNDS. CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE MATERIAL ON RECORD, IT IS CLEAR THAT THE ASSESSEE HAS SUFFICIENT CAPITAL, PROFIT AN D INTEREST FREE FUNDS AVAILABLE WITH HIM FOR THE PURPOSE OF GIVING INTEREST FREE LOANS T O THE ABOVE NAMED PERSONS (SONS). NO NEXUS BETWEEN THE BORROWED FUNDS AND INTEREST FR EE LOANS HAVE BEEN ESTABLISHED BY THE AO ON RECORD. THEREFORE, DISALLO WANCE OF INTEREST U/S. 36(1)(III) OF THE IT ACT ON PROPORTIONATE BASIS IS WHOLLY UNJU STIFIED. WE FOLLOWING THE EARLIER ORDER OF THE TRIBUNAL DATED 20.07.2012 SET ASIDE TH E ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION OF RS.1,06,800/-. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (PRAMOD KUMAR) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A), CONCERNED BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE SR. PRIVATE SECRETARY TRUE COPY